<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURTIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1994 Commission File No. 1-8876
ENSERCH EXPLORATION PARTNERS, LTD.
Incorporated - State of Texas I.R.S. Identification No. 75-2017566
1817 Wood Street, Dallas, Texas 75201
Registrant's telephone number, including Area Code: 214-748-1110
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for such shorter
period that the Registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Number of Depositary Units evidenced by Depositary Receipts of the
Registrant outstanding as of November 14, 1994: 805,914.
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENSERCH EXPLORATION PARTNERS, LTD.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- ------------------
1994 1993 1994 1993
-------- -------- -------- --------
(In thousands except per unit amounts)
<S> <C> <C> <C> <C>
Revenues:
Natural gas. . . . . . . . . . . . . $ 33,100 $ 38,796 $110,731 $104,191
Oil and condensate . . . . . . . . . 6,836 7,846 21,416 26,078
Natural gas liquids. . . . . . . . . 417 950 1,137 3,430
Other. . . . . . . . . . . . . . . . 51 46 256 1,403
-------- -------- -------- --------
Total . . . . . . . . . . . . . . . 40,404 47,638 133,540 135,102
-------- -------- -------- --------
Costs and Expenses:
Operating expenses . . . . . . . . . 9,519 8,965 28,306 27,537
Revenue related taxes. . . . . . . . 1,848 2,606 5,494 7,261
Depreciation and amortization. . . . 18,704 21,065 58,753 57,656
General, administrative and other. . 7,065 7,735 17,905 21,103
-------- ------- -------- -------
Total . . . . . . . . . . . . . . . 37,136 40,371 110,458 113,557
-------- ------- -------- -------
Operating Income . . . . . . . . . . . 3,268 7,267 23,082 21,545
Other Income-Net. . . . . . . . . . . . 9 26 4
Interest Expense. . . . . . . . . . . . (5,359) (6,719) (15,088) (18,898)
-------- -------- -------- -------
Net Income (Loss) . . . . . . . . . . . (2,082) 548 8,020 2,651
Less 1% General Partners' Interest. . . (21) 5 80 27
-------- -------- -------- -------
Income (Loss) Applicable to
Limited Partners' Interest. . . . . . $ (2,061) $ 543 $ 7,940 $ 2,624
======== ======== ======== ========
Net Income (Loss) Per Unit . . . . . . $ (0.02) $ .01 $ 0.08 $ .03
======== ======== ======== ========
Weighted Average Units Outstanding. . . 102,500 102,500 102,500 102,500
======== ======== ======== ========
Distributions Declared Per Unit . . . . $ $ .075 $ $ .225
======== ======== ======== ========
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
ENSERCH EXPLORATION PARTNERS, LTD.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Nine Months Ended
September 30
------------------
1994 1993
-------- --------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 8,020 $ 2,651
Adjustment to reconcile net income to net cash
flows from operating activities-
Depreciation and amortization. . . . . . . . . . . . . 58,753 57,656
Cash effect of changes in current operating
assets and liabilities . . . . . . . . . . . . . . . . 20,579 13,249
-------- -------
Net cash flows from operating activities . . . . . . 87,352 73,556
-------- -------
INVESTING ACTIVITIES
Property, plant and equipment additions. . . . . . . . . (90,820) (82,321)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . (5,649) (10,768)
------- -------
Net cash flows used for investing activities . . . . (96,469) (93,089)
------- -------
Net cash flows used for operating and
investing activities. . . . . . . . . . . . . . . (9,117) (19,533)
------- -------
FINANCING ACTIVITIES
Change in temporary advances with affiliated
companies. . . . . . . . . . . . . . . . . . . . . . . 27,526 8,937
Proceeds from long-term notes payable to
affiliated companies. . . . . . . . . . . . . . . . . . 11,000 24,000
Advances under leasing arrangements. . . . . . . . . . . (19,276) 9,336
Cash distributions paid. . . . . . . . . . . . . . . . . (7,765) (23,295)
------- -------
Net cash flows from financing activities. . . . . . 11,485 18,978
------- -------
Net Increase (Decrease) in Cash . . . . . . . . . . . . . . 2,368 (555)
Cash at Beginning of Period . . . . . . . . . . . . . . . . 309 937
-------- -------
Cash at End of Period . . . . . . . . . . . . . . . . . . . $ 2,677 $ 382
======== =======
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
ENSERCH EXPLORATION PARTNERS, LTD.
CONDENSED BALANCE SHEETS
(September 30, 1994 Unaudited)
<CAPTION>
September 30 December 31
1994 1993
------------ -----------
(In thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash.. . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,677 $ 309
Accounts receivable-trade. . . . . . . . . . . . . . . . 15,741 17,120
Accounts receivable-affiliated companies . . . . . . . . 9,422 13,952
Materials and supplies, at average cost. . . . . . . . . 1,842 1,749
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 745 272
---------- ----------
Total current assets . . . . . . . . . . . . . . . . 30,427 33,402
---------- ----------
Property, Plant and Equipment (at cost)
Gas and oil properties (full-cost method). . . . . . . . 1,907,726 1,803,581
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 6,270 5,947
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . 1,913,996 1,809,528
Less accumulated depreciation and amortization . . . . . 822,229 779,217
---------- ----------
Net property, plant and equipment. . . . . . . . . . 1,091,767 1,030,311
---------- ----------
Other Assets. . . . . . . . . . . . . . . . . . . . . . . 22,182 22,590
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . $1,144,376 $1,086,303
========== ==========
LIABILITIES
Current Liabilities
Accounts payable-trade . . . . . . . . . . . . . . . . . $ 57,897 $ 67,693
Accounts payable-affiliated companies. . . . . . . . . . 26,524 3,531
Temporary advances-affiliated companies . . . . . . . . 54,742 27,216
Payables under leasing arrangements. . . . . . . . . . . 44,302 30,928
Distributions payable to unitholders . . . . . . . . . . 7,765
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 5,996 2,690
--------- ----------
Total current liabilities. . . . . . . . . . . . . . 189,461 139,823
--------- ----------
Long-term Debt-Affiliated Companies . . . . . . . . . . . 309,000 298,000
Deferred Royalties. . . . . . . . . . . . . . . . . . . . 26,188 28,554
Other Liabilities . . . . . . . . . . . . . . . . . . . . 1,470 9,689
Partners' Capital . . . . . . . . . . . . . . . . . . . . 618,257 610,237
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . $1,144,376 $1,086,303
========== ==========
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<PAGE>
ENSERCH EXPLORATION PARTNERS, LTD.
Notes to Condensed Financial Statements
1. Enserch Exploration Partners, Ltd. (EP) issued 5-year promissory
notes for $8 million and $3 million on January 3 and August 17,
1994, respectively payable to affiliates of ENSERCH Corporation
(ENSERCH).
2. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair statement of the
results of operations for the interim periods included herein have
been made.
<PAGE>
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Enserch Exploration Partners, Ltd.:
We have reviewed the accompanying condensed balance sheet of Enserch
Exploration Partners, Ltd., as of September 30, 1994, and the related
condensed statements of operations for the three months and nine months
ended September 30, 1994 and 1993, and condensed statements of cash flows
for the nine months ended September 30, 1994 and 1993. These financial
statements are the responsibility of the Partnership's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data, and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of Enserch Exploration Partners, Ltd.,
as of December 31, 1993, and the related statements of operations, cash
flows and changes in partners' capital for the year then ended (not
presented herein); and in our report dated February 7, 1994, we expressed
an unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed balance sheet as of
December 31, 1993, is fairly stated in all material respects, in relation
to the balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Dallas, Texas
October 25, 1994
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
QUARTERS ENDED SEPTEMBER 30, 1994 AND 1993
EP had a third-quarter 1994 net loss of $2.1 million, compared with net
income of $.5 million for the like period a year earlier. The lower results
were primarily due to lower product prices and volumes, partially offset by
a reduction in total operating expenses and interest expense. Operating
income for the third quarter of 1994 was $3.3 million versus $7.3 million a
year ago. Third-quarter revenues of $40 million were 15% less than the year-
earlier period.
Natural-gas revenues were 15% lower than the third quarter of 1993.
Natural-gas sales volumes were 16.1 billion cubic feet, a 13% decrease from
the year-ago period, with the average sales price of $2.06 per thousand cubic
feet down 2% from the third quarter of 1993. Oil revenues were 13% below the
third quarter of 1993, with the average sales price per barrel of oil of
$15.16 down 6% and sales volumes of 451 thousand barrels down 8%.
Costs and expenses for the third quarter of 1994 were 8% less than the third
quarter of 1993, principally due to a decrease in amortization expense
resulting from lower levels of production. The overall rate of amortization
for the third quarter of 1994 was $.94 per million British thermal unit
(MMBtu) produced, up slightly from $.93 in the third quarter of 1993. Average
production cost per MMBtu for the third quarter increased to $.54 in 1994 from
$.51 in 1993, as the effects of fixed costs increased due to the decline in
production.
Interest expense for the third quarter of 1994 of $5.4 million was 20% lower
than the same period a year ago, principally due to the refinancing earlier
in 1994 of outstanding notes due an affiliated company at a lower interest
rate.
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
For the nine months ended September 30, 1994, EP had net income of
$8.0 million versus $2.7 million for the 1993 period, reflecting a decrease
in operating expenses and a 20% reduction in interest costs. Nine-month
operating income of $23 million was 7% higher than the same period of 1993.
Year-to-date revenues were slightly less than the year ago period. Natural-
gas revenues were up 6% due to improvement in the average sales price, as
sales volumes were virtually the same as the year-earlier period. Oil
revenues decreased 18% due to declines in both prices and sales volumes.
Costs and expenses for the first nine months were $3.1 million less than the
1993 period, with this year's results reflecting a $2.0 million credit
associated with litigation settlements. The decrease in interest expense for
the nine months was primarily due to the refinancing of the affiliated debt
as previously noted.
At September 30, 1994, the discounted value of EP's gas and oil reserves,
as determined by the method prescribed by the Securities and Exchange
Commission, exceeded the net capitalized cost of gas and oil properties by
approximately $16 million, based on average prices and contracts in effect in
September 1994. Product prices are subject to seasonal and other
fluctuations.
EP uses gas and oil swaps, collars and futures agreements to hedge volatile
product prices for a portion (normally 30 to 70 percent) of anticipated future
monthly gas and oil production. The purpose of these hedging activities is
to fix the prices to be received. Under these agreements, EP receives or
makes payments based on the differential between a fixed and a variable
product price. These agreements are settled in cash at or prior to expiration
or exchanged for physical delivery contracts. Realized gains and losses on
hedging activities are deferred and included in income during the month that
the related physical sale occurs.
At September 30, 1994, EP had outstanding swaps, collars and futures
agreements extending through December 1995 to exchange payments on
11,250,000 MMBtus of gas and 1,650,000 barrels of oil on which EP had
$.4 million of net unrealized gains based on the difference between the strike
price and the NYMEX futures price for the applicable trading month. At
September 30, 1994, realized gains on hedging activities of $1.3 million were
deferred.
CAPITAL RESOURCES AND LIQUIDITY
Net cash flows from operating activities for the first nine months of 1994
were $87 million, up 19% from $74 million a year earlier. Investing
activities required net cash flows of $96 million, compared with $93 million
for the same period of 1993, with an $8 million increase in property
additions. For the nine months ended September 30, 1994, net cash of
$9 million was required for investing activities after cash provided by
operations. In addition, there was an $8 million requirement for
distributions to unitholders, and disbursements for the Garden Banks Block 388
facilities under construction exceeded advances under leasing arrangements by
$19 million. These requirements were provided by an increase in temporary
advances from affiliated companies.
Planned property, plant and equipment additions for 1994 total $114 million,
excluding costs related to the construction of the offshore platform and
related facilities associated with EP's interest in the Garden Banks Block 388
(100% owned) development project in the Gulf of Mexico. An operating lease
arrangement is providing financing for up to $235 million for the costs
associated with the Garden Banks project. The cost estimate for the project
recently has been increased to some $280 million due to the addition of
equipment, higher-than-expected costs for both labor and materials, design
modifications and other factors. Financing options for the additional costs
currently are being evaluated, including an addition to the current operating
lease arrangement.
In 1992, EP entered into an operating lease arrangement to provide financing
for its portion of the offshore platforms and related facilities for the
Mississippi Canyon Block 441 (37.5% owned) project. A total of $34 million
was required for the project, which was completed in early 1993. The lease
was renewed in the second quarter of 1994 under terms that resulted in capital
lease accounting treatment.
On January 3, 1994, EP paid a quarterly distribution of $.075 per unit. In
February 1994, EP discontinued quarterly distributions to unitholders.
ENSERCH is proceeding with its previously announced intention to reorganize
EP into a corporation to be named Enserch Exploration, Inc. The goal is to
accomplish this by yearend and begin 1995 with an independent exploration and
production corporation. This new company, with over $1 billion in gas and oil
assets and no long-term obligations other than those related to leases on two
offshore facilities, is expected to provide ENSERCH's exploration and
production operation improved exposure so that it is more fairly valued in the
marketplace. ENSERCH plans to raise the minority interest in the new company
to a meaningful level, while continuing to own a majority interest.
Large institutions, which are often prohibited from owning partnerships in
their investment portfolios, may be attracted to Enserch Exploration, Inc.
common stock. After the reorganization process is completed, ENSERCH will
seek to increase the level of minority ownership by exchanging shares of
common stock in the new corporation with shareholders of other companies
having gas and oil reserves that complement present assets, thereby increasing
the size and scope of Enserch Exploration, Inc. through acquisitions.
DRILLING PROGRAM
Under an agreement with Mobil Producing, Texas and New Mexico, Inc. (Mobil),
an exploratory well was drilled on EP's Garden Banks Block 387, which is part
of EP's Garden Banks unit in the deep-water area of the Gulf of Mexico. The
well, drilled in 2,200 feet of water to a depth of 11,893 feet, encountered
a total of 150 feet of oil pay in the 9,800- and 11,200-foot reservoirs.
Mobil has an option to acquire, for additional consideration, a 40% interest
in EP's Garden Banks unit (Blocks 344, 345, 386, 387, 388 and 389) and in the
unit's production system. Mobil also acquired an additional long-cable 3-D
seismic survey over the unit to further assess the deeper horizons comparable
to a nearby producing field. EP, which currently owns 100% of the project,
will remain the operator. EP anticipates drilling the next well in the spring
of 1995 to further develop this area.
Work continued on the conversion of a semisubmersible rig to a floating
production facility for the development of the Garden Banks unit, with the
modification of the major structural components well under way. During the
third quarter, the subsea template and two gathering lines were installed and
connected to the shallow-water production facility located 54 miles away.
Fabrication of the shallow-water facility deck was completed, and installation
of production facilities on the deck is in progress. Initial production is
anticipated in mid-1995.
Following drilling of the Green Canyon Block 254 sidetrack confirmation
well, also located in the Gulf, a lease extension action was filed with the
Minerals Management Service outlining a future operations schedule. Drilling
of an additional appraisal well is scheduled to begin during the first quarter
of 1995.
<PAGE>
<PAGE>
<TABLE>
ENSERCH EXPLORATION PARTNERS, LTD.
SUMMARY OF OPERATING DATA (UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating Income (in millions). . . . $ 3.3 $ 7.3 $ 23.1 $ 21.5
======== ======== ======== ========
Revenues (in millions)
Natural gas . . . . . . . . . . . . $ 33.1 $ 38.8 $ 110.7 $ 104.2
Oil and condensate . . . . . . . . . 6.8 7.9 21.4 26.1
Natural gas liquids. . . . . . . . . .4 .9 1.1 3.4
Other. . . . . . . . . . . . . . . . .1 .3 1.4
-------- -------- -------- --------
Total . . . . . . . . . . . . . $ 40.4 $ 47.6 $ 133.5 $ 135.1
======== ======== ======== ========
Sales Volumes
Natural gas (MMcf) . . . . . . . . . 16,092 18,466 51,141 50,983
Oil and condensate (MBbl). . . . . . 451 488 1,413 1,477
Natural gas liquids (MBbl) . . . . . 38 86 109 276
Average Sales Price
Natural gas (per Mcf). . . . . . . . $ 2.06 $ 2.10 $ 2.17 $ 2.04
Oil and condensate (per Bbl) . . . . 15.16 16.08 15.16 17.66
Natural gas liquids (per Bbl). . . . 10.97 11.05 10.43 12.43
Net Wells
Drilled. . . . . . . . . . . . . . . 13 20 48 62
Productive . . . . . . . . . . . . . 9 16 30 52
Data in Equivalent Energy Content
(MMBtu)(1)
Average sales price. . . . . . . . . $ 2.06 $ 2.12 $ 2.15 $ 2.12
Average production costs . . . . . . .54 .51 .51 .54
Amortization costs . . . . . . . . . .94 .93 .93 .91
<FN>
(1) For purposes of providing a common unit of measure, natural gas, oil and
natural gas liquids are converted to an approximate equivalent unit on the
basis of relative energy content: one Mcf of natural gas equals 1.05 million
British thermal units ("MMBtu"), one barrel of oil equals 5.6 MMBtu and one
barrel of natural gas liquids equals 4.2 MMBtu.
</TABLE>
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On December 26, 1989, a lawsuit was filed against Enserch Exploration, Inc.
(EEI) and EP Operating Limited Partnership(EPO) in the 130th Judicial District
Court of Matagorda County, Texas. The Plaintiff claims that the defendants
breached an alledged contract to sell a working interest and net revenue
interest in two leases located in Matagorda County. Trial of the case resulted
in a jury verdict in favor of the plaintiff. Judgment was entered by the
trial court on October 8, 1992, ordering EEI and EPO to convey the leases to
the plaintiff and to pay damages of $3.1 million, which includes principal,
prejudgment interest, attorneys' fees and costs. In an opinion issued
June 23, 1994, the Corpus Christi Court of Appeals reversed the decision of
the trial court. The plaintiff has filed an application for writ of error
with the Texas Supreme Court.
On October 25, 1991, a lawsuit was filed against EEI, EPO and ENSERCH in the
111th District Court of Webb County Texas. The plaintiffs and intervenors
claimed that the defendants' failure to reassign part of a gas and oil lease
covering approximately 33,000 net mineral acres in breach of defendants'
contractual reassignment obligations entitled them to recover the fair market
value of the lost leasehold estate and lost overriding royalty interests.
Plaintiffs and intervenors claimed actual damages of approximately
$3.1 million for the lost leasehold estate, and approximately $2.2 million for
lost overriding royalty interests in addition to pre-judgment interest,
attorney's fees and costs. On April 29, 1994, this lawsuit was settled at a
cost not material for financial reporting purposes.
Management believes that the named defendants have meritorious defenses to
the claims made in these and other actions. In the opinion of management, EP
will incur no liability from these and all other pending claims and suits that
would be considered material for financial reporting purposes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) No reports were filed on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ENSERCH EXPLORATION PARTNERS, LTD.
(Registrant)
By Enserch Exploration, Inc.
Managing General Partner
Dated November 14, 1994 By /s/Gary J. Junco
--------------------------------------
Gary J. Junco
President and Chief Operating Officer
Dated November 14, 1994 By /s/J. W. Pinkerton
--------------------------------------
J. W. Pinkerton
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ENSERCH EXPLORATION PARTNERS LTD. 3RD QUARTER 1994 FORM 10-Q
</LEGEND>
<CIK> 0000764625
<NAME> ENSERCH EXPLORATION PARTNERS, LTD.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> SEP-30-1994
<CASH> 2,677
<SECURITIES> 0
<RECEIVABLES> 25,163
<ALLOWANCES> 0
<INVENTORY> 1,842
<CURRENT-ASSETS> 30,427
<PP&E> 1,913,996
<DEPRECIATION> 822,229
<TOTAL-ASSETS> 1,144,376
<CURRENT-LIABILITIES> 189,461
<BONDS> 309,000
<COMMON> 0
0
0
<OTHER-SE> 618,257
<TOTAL-LIABILITY-AND-EQUITY> 1,144,376
<SALES> 0
<TOTAL-REVENUES> 133,540
<CGS> 0
<TOTAL-COSTS> 110,458
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,088
<INCOME-PRETAX> 8,020
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,020
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
