SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(AMENDMENT 1)
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT O
FILED BY A PARTY OTHER THAN THE REGISTRANT X
CHECK THE APPROPRIATE BOX:
X PRELIMINARY PROXY STATEMENT
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY {AS PERMITTED BY RULE
14A-6(E)(2)}
DEFINITIVE PROXY STATEMENT
DEFINITIVE ADDITIONAL MATERIALS
SOLICITING MATERIAL PURSUANT TO RULE 14A-11(C) OR RULE 14A-12
ENEX OIL & GAS INCOME PROGRAM II-6, L.P.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ENEX RESOURCES CORPORATION
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(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
O $125 PER EXCHANGE ACT RULES 0-11(C)(1)(II), 14A-6(I)(1),
OR 14A-6(J)(2).
O $500 PER EACH PARTY TO THE CONTROVERSY PURSUANT TO EXCHANGE
ACT RULE 14A-6(I)(3).
X FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14A-6(I)(4)
AND 0-11.
(1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION
APPLIES:
$500 "UNITS" OF LIMITED PARTNERSHIP INTERESTS
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(2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
11,097
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(3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION
COMPUTED PURSUANT TO EXCHANGE ACT RULE 0-11:. {SET FORTH
THE AMOUNT ON WHICH THE FILING FEE IS CALCULATED AND
STATE HOW IT WAS DETERMINED.}:
$104,362 {ESTIMATED PROCEEDS OF SALE OF PARTNERSHIP PROPERTIES}
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(4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
$104,362
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(5) TOTAL FEE PAID:
$21.00
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x FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS
O CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE
ACT RULE 0-11(A)(2) AND IDENTIFY THE FILING FOR WHICH OFFSETTING FEE WAS PAID
PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR
THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
(1) AMOUNT PREVIOUSLY PAID: $21.00
- --------------------------------------------------------------------------------
(2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO.
- --------------------------------------------------------------------------------
(3) FILING PARTY:
- --------------------------------------------------------------------------------
(4) DATE FILED:
- --------------------------------------------------------------------------------
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ENEX
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ENEX OIL & GAS INCOME PROGRAM II-5, L.P.
ENEX OIL & GAS INCOME PROGRAM II-6, L.P.
Three Kingwood Place
Suite 200
800 Rockmead Drive
Kingwood, Texas 77339
NOTICE OF SPECIAL MEETINGS
To Be Held On xxxxxxxx xx, 1996
To Our Limited Partners:
Special Meetings of the limited partners (the "Limited Partners") of
Enex Oil & Gas Income Program II-5, L.P., and Enex Oil & Gas Income Program
II-6, L.P., both Texas limited partnerships (the "Partnerships" or individually,
a "Partnership"), have been called for , , 1996 at the offices of Enex Resources
Corporation (the "General Partner") at Three Kingwood Place, 800 Rockmead Drive,
Kingwood, Texas 77339. Only Limited Partners of record of one or more of the
Partnerships at the close of business on , 1996 are entitled to notice of and to
vote at the Special Meetings or any adjournments thereof. The Limited Partners
of each Partnership will be asked to vote on a proposal to sell its assets and,
thereafter, dissolve and liquidate their Partnership in accordance with the
applicable provisions of their Partnership Agreement.
You will find a detailed explanation of the proposal, including its
purpose, anticipated benefits and conditions in the attached Proxy Statement.
Please read it carefully. We think you will conclude that the proposal to sell
the Partnerships' assets is in the best interests of the Limited Partners of
each Partnership. After considering each Partnership's financial condition and
prospects, the Board of Directors of the General Partner has unanimously
approved the proposed transactions as being in the best interests of the Limited
Partners. The affirmative vote of a majority-in-interest of the Limited Partners
is required to approve the proposal for each Partnership. The General Partner
will vote all of the limited partnership interests it owns (approximately 22.7%
in Enex Oil & Gas Income Program II-5, L.P. and 22.5% in Enex Oil & Gas Income
Program II-6, L.P.) in favor of the proposal.
It is very important that you cast your votes on this matter promptly,
regardless of the size of your holdings. Hence, even if you plan to attend the
Special Meetings in person, we urge you to complete, sign and return the
enclosed proxy (or proxies) as soon as possible in the enclosed envelope in
order to assure the presence of a quorum at each of the meetings. Any proxy may
be revoked at any time before it is exercised by following the instructions set
forth on page one of the accompanying Proxy Statement.
BY ORDER OF THE GENERAL PARTNER,
ENEX RESOURCES CORPORATION
GERALD B. ECKLEY
President,
, 1996
<PAGE>
CONFIDENTIAL,
FOR USE OF THE SECURITIES AND EXCHANGE COMMISSION ONLY
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ENEX
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ENEX OIL & GAS INCOME PROGRAM II-5, L.P.
ENEX OIL & GAS INCOME PROGRAM II-6, L.P.
Three Kingwood Place
Suite 200
800 Rockmead Drive
Kingwood, Texas 77339
PROXY STATEMENT
Solicitation and Voting of Proxies
This Proxy Statement is furnished in connection with the solicitation
on behalf of Enex Resources Corporation ("Enex" or the "General Partner") of
proxies to be voted at special meetings (each a "Special Meeting") of the
limited partners (the "Limited Partners") of Enex Oil & Gas Income Program II-5,
L.P., and Enex Oil & Gas Income Program II-6, L.P., both Texas limited
partnerships (the "Partnerships" or, individually, a "Partnership"), to be held
on , 1996.
The Board of Directors of the General Partner has fixed the close of
business on , 1996 as the record date for the determination of Limited Partners
of record entitled to notice of and to vote at the Special Meetings. The Limited
Partners of each Partnership will be asked to vote on a proposal to sell its
assets and, thereafter, dissolve the Partnership and liquidate it in accordance
with the applicable provisions of its Amended Certificate and Agreement of
Limited Partnership ("Partnership Agreement").
The presence, in person or by proxy, of the holders of a
majority-in-interest of the issued and outstanding limited partnership interests
("Interests") of a Partnership entitled to vote will constitute a quorum for the
transaction of business by that Partnership. A proxy in the accompanying form
which is properly signed, dated and returned to the General Partner and not
revoked will be voted in accordance with the instructions contained therein. If
Interests are held in joint name, a proxy signed by one of the joint owners or
by a majority of the joint owners will be voted in accordance with the
instructions contained therein. If no instructions are indicated, proxies will
be voted for the proposal recommended by the Board of Directors of the General
Partner. Proxies will be received and tabulated by the General Partner for each
Partnership. Votes cast in person will be tabulated by an election inspector
appointed by the General Partner.
Limited Partners who execute proxies may revoke them at any time prior
to their being exercised by delivering written notice to the Secretary of the
General Partner at the above address or by subsequently executing and delivering
another proxy at any time prior to the voting. Mere attendance at a Special
Meeting will not revoke the proxy, but a Limited Partner present at a Special
Meeting may revoke his proxy and vote in person.
The approximate date on which this Proxy Statement and the accompanying
proxy or proxies will first be mailed to Limited Partners is , 1996.
The date of this Proxy Statement is , 1996
----------------------
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Expenses of Solicitation
The cost of soliciting proxies, which will primarily include expenses
in connection with the preparation and mailing of this Proxy Statement and all
papers which now accompany or may hereafter supplement it, will be borne by the
Partnerships pro rata in accordance with the estimated liquidation value of
their respective assets (see Table 1 below). This basis for allocation was
chosen over others (such as the number of Unitholders of each Partnership or the
amount of each Partnership's original capital or allocating one-half of the
costs to each Partnership) because the largest share of the costs of this
solicitation consist of counsel fees in connection with the preparation of this
Proxy Statement. In the General Partner's opinion, these costs are most
equitably allocated in accordance with the value of the Partnerships' assets.
The solicitation will be made by mail. The General Partner will supply
brokers or persons holding Interests of record in their names or in the names of
their nominees for other persons, as beneficial owners, with such additional
copies of proxies, and proxy materials as may reasonably be requested in order
for such record holder to send one copy to each beneficial owner, and will, upon
request of such record holders, reimburse them for their reasonable expenses in
mailing such material.
Certain directors, officers and employees of the General Partner, not
especially employed for this purpose, may solicit Proxies, without additional
remuneration therefor, by mail, telephone, telegraph or personal interview.
TABLE OF CONTENTS
Solicitation and Voting of Proxies........................................ 1
Expenses of Solicitation.................................................. 2
Summary ................................................................. 3
Special Factors........................................................... 4
The Proposal.............................................................. 8
Reasons for the Proposed Transactions.................................... 11
Partnership Operations and Financial Conditions........................... 12
Fairness of the Proposed Transactions.................................... 12
Potential Benefits to the Partners........................................ 13
Record Date, Voting and Security Ownership of Certain Beneficial Owners
and Management.......................................................... 14
Certain Transactions...................................................... 15
Dissenters' Rights........................................................ 16
Federal Income Tax Consequences............................................ 16
Description of Business................................................... 17
Description of Property and Oil and Gas Reserves.......................... 17
Valuation of Oil and Gas Properties........................................ 17
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Principal Executive Offices and Telephone Number........................... 18
Information Concerning the General Partner................................. 18
Other Matters.............................................................. 19
Documents Incorporated By Reference....................................... 19
The following discussion is intended to highlight certain information
contained elsewhere herein and, accordingly, should be read in conjunction with
such information. It is not a complete statement of all material features of the
matters being submitted to Limited Partners for their approval and is qualified
in its entirety by this Proxy Statement and each Partnership's Annual Report on
Form 10-KSB and Quarterly Reports on Form 10-QSB which accompany this Proxy
Statement. LIMITED PARTNERS ARE URGED TO READ THE PROXY STATEMENT AND THE ANNUAL
AND QUARTERLY REPORTS IN THEIR ENTIRETY.
SUMMARY
Person Soliciting Proxies...... Enex Resources Corporation (the "General
Partner")
Date of Special Meetings....... xxxxxxxx xx, 1996
Time and Place.................. 2:00 P.M. local time, at the General
Partner's principal executive offices
located at Three Kingwood Place, Suite
200, 800 Rockmead Drive, Kingwood,
Texas 77339
Record Date..................... xxxxxxxx xx, 1996
Class of Securities Entitled
to Vote....................... Limited Partnership Interests in each
Partnership
<TABLE>
<CAPTION>
Enex Oil & Gas Income Program
Units of Limited Partnership Interest II-5, L.P. II-6, L.P.
---------- ----------
<S> <C> <C>
Outstanding on the Record Date and Entitled to Vote* 12,229 11,097
Number of Limited Partners............................ 1,751 1,789
Units of Limited Partnership Interest Beneficially
Owned by the General Partner........................ 2,773 2,500
Percentage Interest Beneficially Owned by the
General Partner..................................... 22.6745% 22.5305%
</TABLE>
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<PAGE>
Percentage of Remaining Limited Partnership Interests
Needed to Approve the Proposal......................... 27.3256% 27.4696%
Estimated Fair Market Value of Oil & Gas Reserves**......$ 114,787 $ 94,259
Estimated Liquidation Value of Oil & Gas Reserves***... $ 124,698 $104,362
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* The aggregate amount of the Limited Partners' initial subscriptions divided by
$500.
** The estimated fair market value of each Partnership was determined by H.J.
Gruy and Associates, Inc. as of June 30, 1995, as described below in
"Description of Property and Oil and Gas Reserves", and adjusted by the General
Partner for intervening operations through September 30, 1995. The adjustment
for intervening operations consists solely of a deduction for the oil and gas
net revenues produced from July 1, 1995 through September 30, 1995.
***The estimated liquidation value of each Partnership was determined by the
General Partner from the prices included in the "Third Party Purchases"
described below (see Table B-2).
Additionally, Gerald B. Eckley, President of the General Partner, owns 4 units
or a 0.0357% Interest in Enex Oil & Gas Income Program II-6, L.P., which he will
vote in favor of the proposal. No other executive officer or director of the
General Partner owns an interest in any of the Partnerships. The General Partner
knows of no other person who has beneficial ownership of more than 5% of the
interests in any of the Partnerships.
SPECIAL FACTORS
Proposal to Sell the Partnerships' Assets:
Due to the magnitude of the prices received from unaffiliated third
party purchasers for working interests owned by other partnerships managed by
the General Partner in the same properties in which Enex Oil & Gas Income
Program II-5, L.P and II-6, L.P. own working interests (see "Reasons for the
Proposed Transactions" below), the depletion of each Partnership's oil and gas
reserves (see "Oil and Gas Reserves" attached as Tables B and B-1), the
Partnerships' inability to generate sufficient cash flow from operations, to
consistently maintain regular cash distributions to the Limited Partners, and
the ongoing costs of operating each Partnership (see Table 1 and "Partnership
Operations and Financial Conditions" below and "Selected Financial Data"
attached as Table A and "General and Administrative Costs" attached as Table E),
the General Partner has determined that it is in the best interests of the
Limited Partners to sell the Partnerships' assets and, thereafter, dissolve and
liquidate the Partnerships.
In light of the above-described circumstances, the Limited Partners of
each Partnership will be asked to consider and vote upon a proposal to sell its
assets and, thereafter, dissolve and liquidate the Partnership in accordance
with the provisions of its Partnership Agreement (the "Proposal"). Adoption of
the Proposal by each Partnership requires the affirmative vote of a majority in
interest of the Limited Partners of such Partnership. Because of the amount of
limited partnership interests of each Partnership held by the General Partner,
the Proposal could be approved by a Partnership without the affirmative vote of
a majority of the interests held by all other Limited Partners of such
Partnership. If the Proposal is adopted,
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<PAGE>
the assets will be sold and the proceeds of sale allocated to the Partners'
capital accounts in accordance with the provisions of the Partnership
Agreements. Neither the General Partner nor any other affiliate of either
Partnership or of the General Partner will purchase any Partnership properties.
If the Partnerships' assets are not sold pursuant to the Proposal described
herein, the Partnerships will continue to be managed by the General Partner on
an ongoing basis.
The primary benefits to the Limited Partners of the proposed sales are
the receipt of a liquidating cash distribution from the Partnership and the
potential to realize favorable tax consequences (see "Federal Income Tax
Consequences" below). The primary benefit to the General Partner would be the
retirement of Enex Oil & Gas Income Program II-6, L.P.'s indebtedness to the
General Partner ($39,111 at September 30, 1995) and its participation as a
Limited Partner to the extent of its limited partnership interest in the
consequences of the proposed sales in the same manner as all other Limited
Partners.
The General Partner considered, as alternatives to the proposed sales,
consolidating the Partnerships with other partnerships managed by the General
Partner and continuing to manage the Partnerships on an ongoing basis. However,
the Board of Directors of the General Partner, a majority of whose members are
not employees of the General Partner or any affiliates of the General Partner,
has unanimously approved the proposed asset sales as being fair and in the best
interests of the Limited Partners based on the following factors, in order of
their significance: (i) the amount of proceeds expected to be received from the
sale of the Partnerships' oil and gas properties; and (ii) the potential of the
Limited Partners to realize favorable tax consequences. These factors are
discussed in detail under the captions "The Proposal to Dissolve and Liquidate,"
"Federal Income Tax Consequences," "Reasons for the Proposed Transactions,"
"Fairness of the Proposed Transactions" and "Valuation of Oil and Gas
Properties" below. No director or group of directors has retained an
unaffiliated representative to act solely on behalf of the Limited Partners for
the purposes of negotiating the terms of the proposed asset sales or to prepare
a report concerning the fairness of such sales. No offer has been made by any
person during the preceding 18 months regarding the merger or consolidation of
any of the Partnerships, the sale or transfer of all or any substantial part of
the assets of any Partnership or securities of any Partnership which would
enable the holder thereof to exercise control of such Partnership. However,
unaffiliated third parties have recently purchased from other partnerships
managed by the General Partner working interests in the same oil and gas
properties in which working interests are owned by Enex Oil & Gas Income Program
II-5, L.P. and II-6, L.P. The prices paid by such third parties (the "Third
Party Purchase Prices"), were higher than the estimated fair market values for
those properties that had been determined as of June 30, 1995 by H.J. Gruy and
Associates, Inc. ("Gruy"), an independent petroleum consulting firm engaged by
the General Partner. Although approval of the Proposal will give the General
Partner the authority to sell the Partnerships' properties at the best available
prices even if such prices are significantly below the Third Party Purchase
Prices, Gruy's Estimated Fair Market Value of Oil & Gas Reserves and the
Estimated Liquidation Value of Oil & Gas Reserves set forth in the Summary Table
above, the General Partner believes that the working interests owned by Enex Oil
& Gas Income Program II-5, L.P. and II-6, L.P. can also be sold at sales prices
comparable to the Third Party Purchase Prices . This estimated sales price for
each property is listed in Table 1 and is included in the estimation of the
liquidation value for each Partnership.
Federal Income Tax Consequences:
In general, the General Partner believes that, with respect to
individuals who are citizens or residents of the United States, for federal
income tax purposes the proposed sales of each Partnership's assets will result
in a capital loss to the Unitholders of each Partnership. In addition to the
capital loss, each Partnership
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will have a net operating loss from the Partnership's current year of operation
which will be deductible by the Unitholders.
If the proceeds of sale are equal to the estimated liquidation value of
the assets of a Partnership, the General Partner believes the Unitholders will
have a 1996 tax loss per $500 Unit of limited partnership interest outstanding
approximately equal to the amounts shown below:
1996 Loss
Per $500 Unit
Enex Oil & Gas Income Program II-5, L.P. $54.11
Enex Oil & Gas Income Program II-6, L.P. $51.88
Unitholders may also have suspended passive losses from prior years
which may be utilized in the current year to offset income from other sources.
The following amounts per $500 Unit of limited partnership interest outstanding
indicate the passive loss generated prior to 1996 which a Unitholder has
available for use in the current year if he or she is an original investor and
has never utilized any of the Partnerships' passive losses in prior years.
Passive Loss
Per $500 Unit
Enex Oil & Gas Income Program II-5, L.P. $211.95
Enex Oil & Gas Income Program II-6, L.P. $236.26
Appraisal Report:
Quantitative information regarding each Partnership's oil and gas
reserves is included in Item 2 of each Partnership's 1994 Form 10-KSB
accompanying this Proxy Statement and in Tables B, B-1, B-2, C and D attached
hereto. Included in this information are fair market valuations of the
properties of each Partnership prepared by Gruy. Gruy has been preparing reserve
estimates for each of the Partnership's oil and gas reserves since the inception
of each Partnership's operations. Gruy was selected by the General Partner for
this task based upon its reputation, experience and expertise in this area. In
1995 and 1994, Enex Oil & Gas Income Program II-5, L.P., and II-6, L.P. paid
Gruy a total of $1,080 and $982, respectively, in fees for annual reserve report
valuations. In 1995, these Partnerships paid Gruy a total of $750 for the fair
market valuations described in this Proxy Statement. In addition, Gruy has
received compensation from the General Partner and other limited partnerships of
which Enex is the general partner during the past two years in the aggregate
amount of $123,398.
Gruy has estimated for each oil and gas property in which the
Partnerships own interests, as of June 30, 1995, the recoverable units of oil
and gas and the undiscounted and discounted future net cash flows by year
commencing July 1, 1995 and continuing through the estimated productive lives of
the properties. The Limited Partners should be aware Gruy's reserve estimates
are estimates only and should not be construed as being exact amounts. Gruy
estimated each property's oil and gas reserves, applied certain assumptions
regarding price and cost escalations, applied a 10% discount factor for time and
the following discount factors for risk, location, type of ownership interest,
operational characteristics and other factors: 33% to 34% for proved developed
producing reserves and 39% for proved developed nonproducing reserves. See
"Valuation of Oil and Gas Properties" and Table B-1 below. Gruy allocated the
estimates among the Partnerships on
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a pro-rata basis in accordance with their respective ownership interest in each
of the properties evaluated. See Tables C and D. The resulting value for each
Partnership as adjusted by the General Partner for intervening operations
through September 30, 1995 is included in Table B and is labelled Fair Market
Value of Oil and Gas Reserves. Gruy's estimate of the fair market value of the
oil and gas properties of Enex Oil & Gas Income Program II-5, L.P., and Enex Oil
& Gas Income Program II-6, L.P., as adjusted by the General Partner for
intervening operations through September 30, 1995, is $114,787 and $94,259,
respectively.
No instructions were given and no limitations were imposed by the
General Partner on the scope of or methodology to be used in preparing the fair
market valuations by Gruy. All information provided by Enex and used by Gruy in
preparing such valuations were verified and corroborated through sources
unaffiliated with Enex. The fair market valuation report prepared by Gruy is
available for inspection and copying at the office of the General Partner during
regular business hours by any interested Limited Partner or his representative
who has been so designated in writing. A copy of such report will be mailed to
any interested Limited Partner or his representative upon written request. A
summary of such report, including all material information contained therein, is
set forth under the caption "Valuation of Oil and Gas Properties" below.
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The Proposal
At the Special Meetings, the Limited Partners of each Partnership will
be asked to consider and vote upon the Proposal (i.e., to sell each
Partnership's assets and, thereafter, dissolve and liquidate each Partnership in
accordance with the provisions of its Partnership Agreement, as described
herein). Upon the sale of substantially all of each Partnership's assets and the
subsequent winding up and termination of the business and affairs of each
Partnership, (i) all proceeds of sale will be allocated to the Partners in
accordance with provisions of the Partnership Agreement and the Partners'
capital accounts adjusted accordingly and (ii) the value of the remaining
non-cash assets of the Partnership shall be determined (as provided below) and
the Partners' capital accounts adjusted as if such remaining assets had been
sold at a price equal to such value and the applicable allocations had been
made. The expenses related to dissolving and liquidating each Partnership will
be deducted from the proceeds of the sale of Partnership oil and gas properties.
These costs are estimated to be approximately $6,725, and $6,850, for Enex Oil &
Gas Income Program II-5, L.P. and II-6, L.P., respectively, with the principal
expenses being legal fees incurred in connection with the preparation of this
Proxy Statement and related materials, solicitation expenses, and printing
costs. If it becomes necessary to engage the services of a broker or other agent
to facilitate the sale of the Partnerships' properties, customary commissions
and selling fees will have to be incurred, however. According to the Partnership
Agreements, such proceeds of all sales and remaining assets are to be
distributed as follows:
(i) all of the Partnership's debts and liabilities to persons other
than the General Partner and the Limited Partners (collectively, the
"Partners"), which are immaterial in amount, shall be paid and discharged in
their order of priority, as provided by law;
(ii) all of the Partnership's debts and liabilities to the Partners
shall be paid and discharged; and
(iii) any remaining cash and other assets of the Partnership shall be
distributed to the Partners in proportion to and in payment of the positive
balances in their respective capital accounts, with the effect of bringing such
capital accounts to zero.
The amount of the potential proceeds from the sale of each
Partnership's oil and gas properties and other assets has been estimated and
included in the calculation of the liquidation value of each Partnership. See
Tables B-1 and B-2. See Tables B and C for quantitative information regarding
proved oil and gas reserves, estimated future net cash flows, and discounted
future net cash flows of each Partnership's oil and gas reserves as of June 30,
1995 prepared by Gruy. Similar quantitative and cash flow information is shown
for each Partnership as of December 31, 1994, 1993 and 1992.
Gruy has also prepared a fair market valuation as of June 30, 1995 for
every oil and gas property owned by each Partnership which the General Partner
has adjusted for intervening operations through September 30, 1995 (see Table
B-1). Because of the difficulty of estimating oil and gas reserves, the proceeds
of a sale may not always reflect the full value of the properties to which they
relate. Such estimates are merely appraisals of value and may not correspond to
realized value. Although approval of the proposal will give the General Partner
the authority to sell the Partnerships' properties at the best available prices
even if such prices are significantly below Gruy's estimated fair market values,
based upon the Third Party Purchase Prices, the General Partner believes that
sales proceeds will, in the aggregate, exceed these fair market values, after
adjusting for intervening operations. Every reasonable effort will be made by
the General Partner to sell the Partnerships' properties for the highest
possible price. Qualified potential buyers will be sought out, informed of the
availability of the properties for purchase, and distributed a sales brochure.
These potential buyers will include, but not be limited to, the purchasers of
similar interests in
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the same properties, operators of the properties, other non-operating owners of
the properties, and companies and/or persons known to own or be interested in
owning the types of properties available.
Neither the General Partner nor any other affiliate of either
Partnership or of the General Partner will bid on any Partnership properties but
the General Partner will prepare a bid package to be furnished to potential
purchasers. The bid packages will include sufficient information for prospective
bidders to reasonably determine values for the properties. A copy of the bid
package will be mailed to any Unitholder who notifies the General Partner that
he or she is interested in bidding on any Partnership properties. Additional
data will be available in the data room set up at the General Partner's office
whereby potential bidders will be able to review in detail the General Partner's
records and files pertaining to the properties. In addition, pursuant to the
provisions of the Texas Revised Uniform Limited Partnership Act (the "Texas
Act"), each Partnership is required to make available certain information to
Limited Partners at such Partnership's principal office, including such
information regarding the business, affairs and financial condition of such
Partnership as is just and reasonable, for the Limited Partners to examine and
copy. At all times, and in particular in effectuating the Proposal if approved,
the General Partner has acted and will continue to act in accordance with its
fiduciary duties as a general partner of a limited partnership governed by the
Texas Act and applicable common law principles.
In all cases, each Partnership property will be sold for the highest
possible price. Although approval of the Proposal will give the General Partner
the authority to sell the Partnerships' properties at the best available prices
even if such prices are significantly below the Third Party Purchase Prices,
based upon the Third Party Purchase Prices, the General Partner estimates that
the proceeds to be received by each Partnership for its oil and gas properties
will total approximately $127,000 for Enex Oil & Gas Income Program II-5, L.P.;
and $104,000 for Enex Oil & Gas Income Program II-6, L.P (see Table B-2). All
net cash proceeds of the proposed asset sales will be used first to retire
Partnership indebtedness (including $39,111 owed to the General Partner by Enex
Oil & Gas Income Program II-6, L.P.) and the remaining cash proceeds will be
distributed to the Partners in accordance with the liquidation provisions of the
Partnership Agreements described above. If the proceeds received from the sale
of each Partnership's oil and gas properties are equal to the above estimates,
there will be approximately $143,770 of cash available to distribute to the
partners of Enex Oil & Gas Income Program II-5, L.P., after payment of $10,619
of debt obligations, and $78,750 of cash available to distribute to the partners
of Enex Oil & Gas Income Program II-6, L.P., after payment of $52,455 of debt
obligations. Based on the September 30, 1995 capital balances, (i) the limited
partners of Enex Oil & Gas Income Program II-5, L.P. would receive approximately
$140,952 ($31,960 of which would be distributed to Enex on account of its
limited partnership interest in such Partnership), and Enex, in its capacity as
general partner of such Partnership, would receive approximately $2,818 and (ii)
the limited partners of Enex Oil & Gas Income Program II-6, L.P. would receive
approximately $80,460, ($18,128 of which would be distributed to Enex on account
of its limited partnership interest in such Partnership). Enex in its capacity
as general partner of such Partnership, would not receive any amount of such
distribution, and, in fact, such $80,460 includes $1,710 to be contributed by
the General Partner to restore a deficit in its capital account.
For additional information concerning the Partnerships' properties ,
see "Description of Property and Oil and Gas Reserves" below.
9
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
Enex Oil & Gas Income Program
II-5, L.P. II-6, L.P.
Estimated Liquidation Value of
Oil and Gas Reserves (1)
------------------------
Property Name:
<S> <C> <C>
Newport $ 42.463 $ 40.338
Blair 2,050 -
Hanson 82,235 64,024
----------- -----------
Total $126,748 $104,362
Cash on hand (2) 3,035 6,649
Accounts Receivable (2) 23,846 20,576
Other Assets (2) 508 480
----------- ------------
Estimated Liquidation Value of Assets $154,137 $132,067
Less:
Liability to General Partner(2) - 39,111
Liability to others (2) 10,619 13,344
---------- ----------
Partnership Net Liquidation Value $143,518 $ 79,612
</TABLE>
(1) The estimated liquidation value of each Partnership's oil and gas
reserves was based upon the Third Party Purchase Prices i.e., the
prices received from unaffiliated third parties for similar working
interests owned by other partnerships managed by the General Partner.
Although approval of the Proposal will give the General Partner the
authority to sell the Partnerships' properties at the best available
prices even if such prices are significantly below the Third Party
Purchase Prices, the General Partner believes each Partnership's
working interests can be sold at prices comparable to the Third Party
Purchase Prices.
(2) Assets and liabilities per each Partnership's respective Form 10-QSB
as of September 30, 1995.
As shown above, the estimated liquidation value of each Partnership's oil and
gas reserves and other assets is greater than the outstanding debt owed by each
Partnership. Therefore, the General Partner believes there will be sufficient
proceeds from the sale of Partnership properties to pay the Partnerships' debts
and distribute the excess cash to the Partners.
10
<PAGE>
To the General Partner's knowledge, consummation of the Proposal is not
subject to compliance with any federal or state regulatory requirements other
than those applicable to the solicitation of proxies pursuant to this Proxy
Statement. Following the proposed sales and the dissolution and liquidation of
the Partnerships, the registration of the Limited Partnership Interests of the
Partnerships under Section 12(g) of the Exchange Act and the Partnerships'
obligations to file reports pursuant to Section 15(d) of the Exchange Act will
terminate.
Reasons for the Proposed Transactions:
On December 30, 1995, the limited partners of four partnerships managed by
the General Partner, Enex Oil & Gas Income Program II-1, L.P., II-2, L.P., II-3,
L.P. and II-4, L.P. voted to dissolve and liquidate their partnerships in
accordance with their Partnership Agreements. The General Partner solicited bids
from unaffiliated third parties to purchase the oil and gas properties owned by
these four partnerships, including interests in the Newport, Blair and Hanson
properties. Pursuant to this process, effective December 31, 1995, (i) the
Newport oil and gas properties were sold for a price of $8.51 per barrel of oil
equivalent ("BOE"; 6 mcf = 1 BOE), (ii) the Hanson oil and gas properties were
sold for a price of $4.35 per BOE, and (iii) the Blair oil properties were sold
for a price of $2.51 per BOE (collectively, the "Third Party Purchases"). None
of these sales was subject to any material conditions. The prices paid were
higher than the fair market values for those properties that had been determined
by Gruy as of June 30, 1995. (For additional information concerning these sales,
including the amount of reserves sold and a tabular comparison of such sales to
the proposed sales of the Partnerships' reserves, see Table B-2 below). Enex Oil
& Gas Income Program II-5, L.P. also owns working interests in the Newport,
Blair and Hanson properties and Enex Oil & Gas Income Program II-6, L.P. owns
interests in the Newport and Hanson properties (see Tables B-1 and C). As a
result of the Third Party Purchases, the General Partner began evaluating Enex
Oil & Gas Income Program II-5, L.P.'s and II-6, L.P.'s prospects, including the
sale of substantially all of their properties. Although approval of the Proposal
will give the General Partner the authority to sell the Partnerships' properties
at the best available prices even if such prices are significantly below the
Third Party Purchase Prices, the General Partner believes each Partnership's
working interests can be sold at prices comparable to the Third Party Purchase
Prices . In fact, at the time of its purchase of the Hanson oil and gas
properties, the Hanson purchaser also expressed an interest in other Hanson
interests owned by affiliates of the General Partner. However, no offer was made
by the Hanson purchaser for such interests and no terms of any such offer have
been discussed with the Hanson purchaser.
After a review of each Partnership's cash flow from operations, indebtedness,
the estimated fair market values of its properties (see "Selected Financial
Data" in Table A and "Oil and Gas Reserves" in Table B), and its estimated
liquidation value which included the estimated proceeds from the sale of its oil
and gas properties based upon the Third Party Purchase Prices (see Tables B-1
and B-2), officers of the General Partner advised the Board of Directors of the
General Partner (the "Board") in January 1996 that the Partnerships' assets
should be sold. They further advised the Board that a sale of assets would more
than likely provide the Limited Partners with a liquidating cash distribution
and the potential for favorable tax consequences.
Due to the depletion of each Partnership's oil and gas reserves (see "Oil and
Gas Reserves" attached as Tables B and B-1), the Partnerships' inability to
generate sufficient cash flow to consistently maintain regular cash
distributions to
11
<PAGE>
their Limited Partners, the ongoing costs of operating each Partnership (see
"Partnership Operations and Financial Condition" below and "General and
Administrative Costs" attached as Table E), and the Third Party Purchase Prices
, the General Partner has determined that it is in the best interests of the
Limited Partners to approve the proposed asset sales and dissolve and liquidate
their Partnerships.
Partnership Operations and Financial Conditions
Enex Oil & Gas Income Program II - 5, L.P.
Cash flow provided by operating activities for the nine months ended
September 30, 1995 was $2,550. As a result, cash distributions were not made in
1995. Only two quarterly cash distributions have been made since April 1990 due
to the lack of available cash flow.
Enex Oil & Gas Income Program II - 6, L.P.
Cash flow provided by operating activities for the nine months ended
September 30, 1995 was $17,159. Of this amount, $8,069 was paid on the note owed
to the General Partner. As a result, no cash distributions were made in 1995.
The Partnership has not made a distribution since April 1990. At September 30,
1995 it had $52,455 in debt of which $39,111 was owed to the General Partner.
Both Partnerships
If oil and gas prices were to increase significantly, the future revenues
from the oil and gas produced would increase and would more than likely allow
distributions to be reinstated. However, the General Partner believes that the
prices expected to be received for the sale of the Partnerships' properties are
more than the future cash flows from these properties after deducting for
ongoing general and administrative costs and discounting for time, risk and
other factors. Therefore, the General Partner believes it is in the best
interests of the Limited Partners to sell the properties and dissolve the
Partnerships.
Fairness of the Proposed Transactions
At its January 1996 meeting, the Board (a majority of whose members are not
employees of the General Partner or any affiliate of the General Partner)
considered the Proposal and, as alternatives, consolidating the Partnerships
with other partnerships managed by the General Partner and continuing to manage
the Partnerships on an ongoing basis.
Consolidating the Partnerships. Because any consolidation of partnerships
managed by the General Partner or with the General Partner would be based on the
net fair market value of a partnership's assets less liabilities, the General
Partner believes, based upon the Third Party Purchase Prices (which exceed
Gruy's fair market valuation of the Partnerships' properties as adjusted by the
General Partner for intervening operations through September 30, 1995), that the
Partners would receive more value by selling their assets than they would in
such a consolidation. Based on the estimated fair market values of oil and gas
properties prepared by Gruy, the estimated fair market value of Enex Oil & Gas
Income Program II-5, L.P.'s and Enex Oil & Gas Income Program II-6, L.P.'s
assets less liabilities are $131,557
12
<PAGE>
and $69,509, respectively. If these Partnerships were consolidated with other
partnerships managed by the General Partner, these values would be used in
determining each Partnership's pro rata share of the consolidated entity. As the
estimated liquidation values for Enex Oil & Gas Income Program II-5, L.P. and
Enex Oil & Gas Income Program II-6, L.P. are $143,518 and $79,612, respectively,
the General Partner believes that the Limited Partners are more likely to
realize a greater benefit by voting to approve the proposed asset sales than to
consolidate with other partnerships. Consolidating these two Partnerships was
also considered. Although the aggregate general and administrative expenses of
the Partnerships would be slightly reduced by such a transaction (see "General
and Administrative Charges" in Table E), the reductions would not be sufficient
to cause the consolidated Partnership to generate sufficient cash flow to
maintain regular cash distributions to its Partners.
Continuing the Management of the Partnerships. The General Partner concluded
that the estimated liquidation value of the Partnerships based upon the Third
Party Purchase Prices and the Partnerships' inability to generate sufficient
cash flow from operations to maintain regular cash distributions to their
Partners makes their continued operation less attractive than selling the
Partnerships' properties and distributing the net proceeds remaining after
payment of indebtedness.
The Board unanimously approved the Proposal as being fair and in the best
interests of the Limited Partners based on the following factors, in order of
their significance: (i) the amount of proceeds expected to be received from the
sale of each Partnership's oil and gas properties, and (ii) the potential of the
Limited Partners to realize favorable tax consequences.
All members of the General Partner's Board of Directors were present at all
meetings at which the proposed transactions were considered. If the assets of
the Partnerships are not sold pursuant to the Proposals described herein, the
General Partner will continue to manage the Partnerships on an ongoing basis.
The General Partner also considered whether the consideration or benefit to
the Limited Partners from the proposed transactions constitutes fair value in
relation to current market prices, historical market prices, net book value,
going concern value, liquidation value, and the estimated fair market values
prepared by Gruy. The General Partner believes that alternative methods of
valuing the Partnerships' properties, such as using current or historical market
prices, prices recently paid by the General Partner for units of limited
partnership interest in the Partnerships ($9.83 and $5.84 per Unit for Enex Oil
& Gas Income Program II-5, L.P. and II-6, L.P., respectively), net book value,
going concern value or Gruy's fair market value would not result in a higher
valuation of Partnership properties than the values the General Partner expects
to realize through the sale of the Partnerships' oil and gas properties to
unaffiliated third party buyers at the prices comparable to the Third Party
Purchase Prices (see Table B-1).
Potential Benefits to the Partners
To the Limited Partners
The primary benefits of the proposed transactions to the Limited Partners are
the receipt of a liquidating cash distribution from the Partnership, and the
potential to realize favorable tax consequences (see "Federal Income Tax
Consequences" below). The General Partner believes there are no detriments of
the transactions to the Limited Partners, other than the potential loss of
income that might be earned in the future if oil and gas prices rise
significantly.
13
<PAGE>
Enex owns by far the largest limited partnership interest in each Partnership
(see "Record Date, Voting and Security Ownership of Certain Beneficial Owners
and Management"). If the Proposals are approved Enex will participate as a
Limited Partner to the extent of its limited partnership interests in the
consequences of the proposed transactions in the same manner as all other
Limited Partners.
To the General Partner
As General Partner, Enex will benefit from the proposed transactions by
collecting the amounts owed to it by Enex Oil & Gas Income Program II-6, L.P.
immediately upon the sale of such Partnership's properties instead of collecting
such amounts over a more extended period of time. And, even though the General
Partner believes that the risk is minimal, the proposed asset sales and
subsequent liquidation and dissolution will eliminate the General Partner's risk
that such amounts owed to it could, in the future, become uncollectible.
Upon the liquidation of the Partnerships, the General Partner will also cease
to incur the ongoing expenses of administering and operating the Partnerships.
Actual administrative expenses paid by the General Partner for each Partnership
in 1994 and the first six months of 1995, as well as estimates of such expenses
for 1995 and 1996, are set forth in Table E. Expenses associated with the
Partnerships' reporting obligations under the Securities and Exchange Act of
1934, as amended, the preparation of annual tax reports, and annual audits,
comprise a significant portion of such administrative expenses. Even though the
Partnerships have, on an ongoing basis, been able to reimburse the General
Partner for these expenses, the liquidation and dissolution of the Partnerships
will eliminate any risk that these amounts may not be collectible in the future.
Record Date, Voting and Security Ownership of Certain Beneficial Owners and
Management
As of the Record Date, the Partnerships had the following numbers of "Units"
of limited partnership interest (i.e., the aggregate amount of the Limited
Partners' initial subscriptions divided by $500) outstanding and entitled to
vote (in each case the number of Units represents 100% of the outstanding
limited partnership interests of the Partnership):
Number of
Units
Enex Oil & Gas Income Program II-5, L.P. 12,229
Enex Oil & Gas Income Program II-6, L.P. 11,097
From January 1, 1993 to the date hereof, the General Partner has
purchased an aggregate of 1,666 and 1,805 Units of Enex Oil & Gas Income Program
II-5, L.P. and Enex Oil & Gas Income Program II-6, L.P., respectively (including
approximately 21 Units of II-5 and 23 Units of II-6 during the past sixty (60)
days), at an average purchase price per Unit of $9.83, and $5.84, respectively,
in accordance with its annual offer to repurchase such interests as required by
the Partnership Agreements.
Approval of the Proposal for each Partnership requires the affirmative
vote of the holders of a majority-in-interest of that Partnership. The term "the
holders of a majority-in-interest" refers to Limited Partners (including the
General Partner) holding more than fifty percent of the limited partnership
interests of all the Limited Partners of that Partnership. With respect to the
proposal, abstentions will be included in determining the presence of a quorum,
and will be treated as votes cast against the proposal. "Broker non- votes" will
be deemed absent for purposes of determining the presence of a quorum and will
be treated as
14
<PAGE>
votes cast against the proposal. Any unmarked proxies, including those submitted
by brokers and nominees, will be voted in favor of the applicable proposal.
The following table sets forth for each Partnership, as of the Record
Date, the number and percentage of Units beneficially owned by the General
Partner and by Gerald B. Eckley, President of the General Partner. No other
executive officer or director of the General Partner owns an interest in either
of the Partnerships. The General Partner knows of no other person who has
beneficial ownership of more than 5% of the outstanding limited partnership
interests in either of the Partnerships.
Enex Oil & Gas Income Program
II-5, L.P. II-6, L.P.
Units Beneficially Owned by the General Partner 2,773 2,500
Percentage Beneficially Owned by the General Partner 22.6745% 22.5305%
Units Beneficially Owned by Mr. G. B. Eckley - 4
Percentage Beneficially Owned by Mr. G. B. Eckley - .0357%
The General Partner and Mr. Eckley intend to vote all of the Units they
own in favor of the Proposals. Therefore, for each Partnership, if the following
percentages of the outstanding Units are voted by other Limited Partners in
favor of the Proposal, it will be approved:
Percentage of Units
Needed to Approve
Proposal
Enex Oil & Gas Income Program II-5, L.P. 27.3256%
Enex Oil & Gas Income Program II-6, L.P. 27.4339%
Certain Transactions
The following amounts relate to transactions between the General
Partner and the Partnerships which have occurred since January 1, 1993:
<TABLE>
<CAPTION>
Allocated General & Administrative Expenses
1993 1994 9 months 1995
<S> <C> <C> <C> <C>
Enex Oil & Gas Income Program II-5, L.P. $17,492 $20,470 $12,821
Enex Oil & Gas Income Program II-6, L.P. $16,642 $17,917 $11,238
</TABLE>
The Partnerships reimburse the General Partner for administrative costs
incurred on their behalf. Administrative costs allocated to the Partnerships are
computed on a cost basis in accordance with standard industry practices by
allocating the time spent by the General Partner's personnel among all projects
and by allocating rent and other overhead on the basis of the relative direct
time charges. The General Partner believes that these amounts are less than
administrative charges customarily charged other partnerships because the
General Partner manages 39 other partnerships and is, therefore, able to
allocate such similar charges over a larger base of partnerships.
15
<PAGE>
Dissenters' Rights
Limited Partners will not have, nor be entitled to, any dissenters' or
appraisal rights with respect to the Proposals under the Partnership Agreements
or under applicable law. Generally, in the absence of a breach of the General
Partner's fiduciary duty (i.e., to act fairly and in the best interests of the
Partnerships and their Limited Partners), Limited Partners who object to the
Proposal will have no remedy available to them under state law or under the
Partnership Agreements if the percentage of Units needed to approve the Proposal
vote for it (see "Record Date, Voting and Security Ownership of Certain
Beneficial Owners and Management" above).
Federal Income Tax Consequences
In general, the General Partner believes that, with respect to
individuals who are citizens or residents of the United States, for federal
income tax purposes the proposed sale of each Partnership's assets will result
in a capital loss to the Unitholders of each Partnership. In addition to the
capital loss, each Partnership will have a net operating loss from the
Partnership's current year of operation which will be deductible.
If the consideration received in the proposed asset sales is equal to
the estimated liquidation value of the Partnerships' assets, the General Partner
believes that the Unitholders will have a 1996 loss per $500 Unit outstanding
approximately equal to the amounts shown below:
1996 Loss
Per $500 Unit
Enex Oil & Gas Income Program II-5, L.P. $52.62
Enex Oil & Gas Income Program II-6, L.P. $50.52
Unitholders may also have suspended passive losses from prior years
which may be utilized in the current year to offset income from other sources.
The following amounts per $500 Unit outstanding indicate the passive loss
generated prior to 1996 which a Unitholder has available for use in the current
year if he or she is an original investor and has never utilized any of the
Partnership's passive losses in prior years.
Passive Loss
Per $500 Unit
Enex Oil & Gas Income Program II-5, L.P. $211.95
Enex Oil & Gas Income Program II-6, L.P. $236.26
To calculate a Unitholder's passive loss, he must determine the number
of $500 Units he owns by dividing his original investment by $500. This number
multiplied by the passive loss shown above for the appropriate Partnership will
determine the Unitholder's passive loss for that Partnership. An original
investor who has not utilized passive losses in prior years, may use such
passive loss amount in the current year to offset income from other sources if
the Proposal is adopted for his or her Partnership.
The actual tax consequences to any Unitholder will depend on the
Unitholder's own tax circumstances. No legal opinion concerning the tax
consequences of the proposed transactions has been obtained by the General
Partner. The foregoing discussion of the potential federal income tax
consequences of the proposed liquidation of the Partnerships has been prepared
by Robert E. Densford, Vice President-Finance, Secretary and Treasurer of the
General Partner and James A. Klein, Controller of the General Partner, both of
whom are certified public accountants. NEVERTHELESS, EACH UNITHOLDER SHOULD
CONSULT HIS OR
16
<PAGE>
HER OWN TAX ADVISER WITH RESPECT TO THE TAX CONSEQUENCES OF THE PROPOSED
TRANSACTIONS.
Description of Business
The Partnerships were formed under the Uniform Limited Partnership Act
of the State of Texas and subsequently became subject to the Texas Revised
Uniform Limited Partnership Act. The Partnerships are engaged in the oil and gas
business through the ownership of various interests in producing oil and gas
properties. For further information, see Item 1 of each Partnership's 1994 Form
10-KSB accompanying this Proxy Statement.
Description of Property and Oil and Gas Reserves
A summary of each Partnership's property acquisitions and quantitative
information regarding the Partnerships' oil and gas reserves is included in Item
2 of each Partnership's 1994 Form 10-KSB accompanying this Proxy Statement and
in Table D. Certain oil and gas property reserve information is also included in
Tables B, B-1, B-2 and C attached hereto. Included in this information are fair
market valuations of the properties of each Partnership prepared by Gruy. Gruy
has been preparing reserve estimates for each of the Partnership's oil and gas
reserves since the inception of each Partnership's operations. Gruy was selected
by the General Partner for this task based upon its reputation, experience and
expertise in this area. Gruy is an international petroleum consulting firm with
offices in Houston and Dallas, Texas. Their staff includes petroleum engineers
and geology consultants. Services they provide include reserve estimates, fair
value appraisals, geologic studies, expert witness testimony and arbitration.
Valuation of Oil and Gas Properties
Gruy has estimated for each oil and gas property in which the
Partnerships own interests, as of June 30, 1995, the recoverable units of oil
and gas and the undiscounted and discounted future net cash flows by year
commencing July 1, 1995 and continuing through the estimated productive lives of
the properties. The Limited Partners should be aware that the reserves estimated
by Gruy include, in certain cases, estimates of probable reserves and possible
reserves in addition to proved reserves (including undeveloped reserves as well
as developed reserves, both producing and nonproducing) and, in any event, are
estimates only and should not be construed as being exact amounts. Gruy
estimated each property's oil and gas reserves, applied the assumptions
regarding price and cost escalations set forth below, applied a 10% discount
factor for time and discount factors for risk, location, type of ownership
interest, category of reserves, operational characteristics and other factors as
set forth in the next paragraph below.
Gruy applies a 25% discount factor to all proved developed oil and gas
reserves, including all of the Partnership properties, to reflect the risk
inherent in estimating such reserves and that associated with an investment
therein.
To this 25% discount factor, Gruy applied the following additional discount
factors: (i) between 8% and 9% to the proved developed producing reserves in the
Blair, Hanson, and Newport properties; and (ii) approximately 14% to the proved
developed nonproducing reserves in the Hanson property. The additional discount
in (i) above was applied to the proved developed producing reserves because
these properties consist of working interests which are burdened by operating
costs. The proved
17
<PAGE>
developed nonproducing reserves in the Hanson property were discounted an
additional 14% because of the risk associated with drilling wells and developing
these nonproducing reserves. See Table B-1. Gruy allocated the estimates among
the Partnerships on a pro-rata basis in accordance with their respective
ownership interest in each of the properties evaluated. See Tables C and D. The
resulting value for each Partnership, as adjusted by the General Partner for
intervening operations through September 30, 1995, is included in Table B and is
labelled Fair Market Value of Oil and Gas Reserves. The adjustment for
intervening operations consists solely of a deduction for the oil and gas net
revenues produced from July 1, 1995 through September 30, 1995.
Future net revenues were estimated by Gruy using an oil price of $17.00
per barrel and gas prices ranging from $1.60 per mcf to $1.63 per mcf, such gas
prices representing prices substantially as were in effect in June 1995. Future
operating costs and capital expenditures were estimated by the General Partner
and utilized by Gruy in the future cash flow estimates. Prices and costs were
escalated as follows: Oil prices were escalated 5.2% in 1996, 5.0% in 1997, 4.3%
in 1998 and 3.2% in 1999 and 3.3% each year thereafter to a maximum of $30.69
per barrel. Natural gas prices were escalated 7.2% in 1996, 7.3% in 1997, 4.2%
in 1998, and 3.0% each year thereafter to a maximum of $3.80 per thousand cubic
feet (mcf). Gruy's price escalation rates were derived from published industry
guidelines and are a composite of a published survey of rates used by energy
lending institutions and operators of oil and gas properties. Operating expenses
and future capital investments were escalated at the rate of 3.0% per year until
the year in which the primary product reached its maximum price.
According to Gruy, for the estimation of the fair market value of oil
and gas properties there are basically two approaches; the income approach and
the market data approach. The income approach requires the estimation of
reserves, identification of their categories (proved, probable and possible), a
detailed cash flow projection and the proper application of risk factors. The
market data approach utilizes comparable sales of properties in the area. The
fair market value was estimated using the income approach as opposed to the
market data approach because it is difficult to identify sales of oil and gas
properties that are comparable in net reserves, product prices, location,
operating expenses and operator expertise (although the General Partner's
estimated liquidation values are based upon comparable sales data). For the
proved producing properties, the discounted future net revenue was reduced to a
fair market value by multiplying by a suitable fraction that accounts for the
risk associated with an investment. For proved developed non-producing reserves,
a suitable risk factor is applied and the present value of the capital
investment required to initiate production is subtracted from that value. This
approach assumes that the capital is invested with certainty and the resulting
cash flow stream is burdened with the uncertainty.
Principal Executive Offices and Telephone Number
The principal executive offices and telephone number of each
Partnership are as follows: c/o Enex Resources Corporation, Three Kingwood
Place, Suite 200, 800 Rockmead Drive, Kingwood, Texas 77339, attention
Corporate Secretary, telephone: 713-358-8401.
Information Concerning the General Partner
Enex was incorporated on August 17, 1979 in Colorado. On June 30, 1992,
Enex reincorporated in Delaware. Enex is engaged in the business of acquiring
interests in producing oil and gas properties and managing oil and gas income
limited partnerships. Enex's operations are concentrated in this single industry
segment.
18
<PAGE>
Enex's principal executive offices are maintained at 800 Rockmead
Drive, Three Kingwood Place, Kingwood, Texas 77339. The telephone number at
these offices is (713) 358-8401. Enex has no regional offices.
OTHER MATTERS
Other Business
As of the date of this Proxy Statement, the only business which the
General Partner intends to present at the Special Meetings are the matters set
forth in the accompanying Notice of Special Meetings. The General Partner has no
knowledge of any other business to be presented at the Special Meetings. If
other business consisting of matters of which the General Partner has no current
knowledge or matters incident to the conduct of a Special Meeting is brought
before a Special Meeting, the persons named in the enclosed form of proxy will
vote according to their discretion.
Representatives of Deloitte & Touche LLP are expected to be present at
the Special Meetings. They will have the opportunity to make a statement if they
so desire and will be available to respond to appropriate questions.
DOCUMENTS INCORPORATED BY REFERENCE
This Proxy Statement incorporates by reference the following documents
which have been filed by each Partnership with the Commission:
(1) Each Partnership's Annual Report on Form 10-KSB for the year
ended December 31, 1994, copies of which accompany this Proxy
Statement (the "Annual Reports");
(2) Each Partnership's Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 1995, June 30, 1995 and September 30,
1995, copies of which accompany this Proxy Statement.
All documents subsequently filed by any Partnership pursuant to
Sections 13(a) and 15(d) of the Securities and Exchange Act since the end of the
fiscal year covered by such Partnership's Annual Report shall be deemed to be
incorporated by reference herein and to be a part hereof.
The Proxy Statement specifically incorporates herein by reference the
information set forth in the following sections contained in each Partnership's
Annual Report on Form 10-KSB: Item 1-Business; Item 2-Properties; Item 3-Legal
Proceedings; Item 5-Market for Common Equity and Related Security Holder
Matters; Item 6-Management's Discussion and Analysis of Results of Operations
and Financial Condition; and Item 7-Financial Statements and Supplementary Data.
The following sections of the Quarterly Reports on Form 10-QSB are specifically
incorporated herein by reference: Item 1-Financial Statements (unaudited).
By Order of the Board of Directors
of the General Partner
19
<PAGE>
ROBERT E. DENSFORD
Vice President-Finance,
Secretary and Treasurer
20
<PAGE>
<TABLE>
<CAPTION>
TABLE A
Selected
Financial
Data
Program II-5, L.P.
------------------------------------------------------
Nine months Year
ended ended
September 30, December 31,
------------- ----------------------------------------
1995 1994 1993 1992
<S> <C> <C> <C> <C>
Total revenues ........................ $ 50,363 $ 57,494 $ 112,396 $ 156,929
Net income (loss) from operations ..... $ 4,504 ($ 18,364) $ 9,447 ($ 13,185)
Other income - gain on sale of property -- -- -- $ 88,084
Net income (loss) ..................... $ 4,504 ($ 18,364) $ 9,447 $ 72,457
Net income (loss) per $500 unit ....... $ 0.37 ($ 1.50) $ 0.77 $ 5.93
Cash flow from operations ............. $ 2,550 $ 3,061 $ 47,679 $ 20,763
Cash flow from operations per $500 unit $ 0.21 $ 0.25 $ 3.90 $ 1.70
Limited Partners' capital ............. $ 97,829 $ 93,324 $ 144,749 $ 167,275
Limited Partners' capital per $500 unit $ 8.00 $ 7.63 $ 11.84 $ 13.68
Cash distributions .................... -- $ 33,061 $ 30,327 --
Debt payable to general partner ....... -- $ 2,537 $ 4,483 $ 1,407
Total debt ............................ $ 10,619 $ 15,915 $ 26,438 $ 16,842
</TABLE>
<TABLE>
<CAPTION>
TABLE A
Selected
Financial
Data
Program
II-6, L.P.
------------------------------------------------------
Nine months Year
ended ended
September 30, December 31,
-------------- --------------------------------------
1995 1994 1993 1992
<S> <C> <C> <C> <C>
Total revenues ........................ $ 40,694 $ 47,128 $ 89,786 $ 133,551
Net income (loss) from operations ..... $ 3,615 ($ 14,213) $ 155 ($ 18,532)
Other income - gain on sale of property -- -- -- $ 104,370
Net income (loss) ..................... $ 3,615 ($ 14,213) $ 155 $ 79,535
Net income (loss) per $500 unit ....... $ 0.33 ($ 1.28) $ 0.01 $ 7.17
Cash flow from operations ............. $ 17,159 $ 32,748 $ 25,691 $ 9,881
Cash flow from operations per $500 unit $ 1.55 $ 2.95 $ 2.32 $ 0.89
Limited Partners' capital ............. $ 46,859 $ 43,244 $ 57,457 $ 58,470
Limited Partners' capital per $500 unit $ 4.22 $ 3.90 $ 5.18 $ 5.27
Cash distributions .................... -- -- -- --
Debt payable to general partner ....... $ 39,111 $ 38,573 $ 44,627 $ 70,836
Total debt ............................ $ 52,455 $ 54,536 $ 64,337 $ 86,799
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Oil and gas reserves
Program II-5, L.P.
------------------------------------------------------
At September 30, At December 31,
----------------- --------------------
<S> <C> <C> <C> <C>
Proved Reserves: 1995 1994 1993 1992
Oil (bbls) .............................. 7,375 9,804 8,146 10,028
Oil (bbls) per $500 unit ................ 0.60 0.80 0.67 0.82
Gas (mcf) ............................... 92,270 104,831 156,953 139,911
Gas (mcf) per $500 unit ................. 7.55 8.57 12.83 11.44
Estimated future net cash flows ............. $196,555 $ 234,296 $ 316,731 $ 317,911
Estimated future net cash flows per $500 unit $ 16.07 $ 19.16 $ 25.90 $ 26.00
Discounted (at 10%) future net cash flows ... $157,567 $ 191,107 $ 246,493 $ 239,834
Discounted (at 10%) future net cash
flows per $500 unit ..................... $ 12.88 $ 15.63 $ 20.16 $ 19.61
Fair market value of oil and gas reserves ... $103,786
Fair market value of oil
and gas reserves per $500 unit $8.49
</TABLE>
<TABLE>
<CAPTION>
TABLE B
Oil and gas reserves
Program II-6, L.P.
------------------------------------------------------
At September 30, At December 31,
---------------- ---------------------
<S> <C> <C> <C> <C>
Proved Reserves: 1995 1994 1993 1992
Oil (bbls) .............................. 5,883 8,154 7,072 8,602
Oil (bbls) per $500 unit ................ 0.53 0.73 0.64 0.78
Gas (mcf) ............................... 72,260 82,348 122,686 109,392
Gas (mcf) per $500 unit ................. 6.51 7.42 11.06 9.86
Estimated future net cash flows ............. $161,452 $193,821 $258,418 $265,168
Estimated future net cash flows per $500 unit $ 14.55 $ 17.47 $ 23.29 $ 23.90
Discounted (at 10%) future net cash flows ... $129,540 $157,909 $200,527 $200,208
Discounted (at 10%) future net cash
flows per $500 unit ..................... $ 11.67 $ 14.23 $ 18.07 $ 18.04
Fair market value of oil and gas reserves ... $ 84,917 --
Fair market value of oil
and gas reserves per $500 unit ......... $ 7.65
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TABLE B-1
ENEX OIL & GAS INCOME PROGRAM II-5, L.P.
ESTIMATED
RESERVE TYPE OF DISCOUNTED (@ 10%) DISCOUNT FAIR MARKET LIQUIDATION
PROPERTY NAME CATEGORY(1) INTEREST(2) NET CASH FLOWS FACTORS(3) VALUE VALUE (4)
- ------------- ----------- ----------- -------------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
NEWPORT PDP WI $ 56,893 .66523 $ 37,847 $ 42,463
BLAIR PDP WI $ 3,085 .66459 $ 2,050 $ 2,050
HANSON PDP WI $ 62,135 .66817 $ 41,517 $ 45,589
PDNP $ 54,654 .61062 $ 33,373 $ 36,646
--------- - ---------
SUBTOTAL $ 74,890 $ 82,235
--------- - ---------
TOTAL $ 114,787 $ 126,748
========= = ========
</TABLE>
<TABLE>
<CAPTION>
ENEX OIL & GAS INCOME PROGRAM II-6, L.P.
ESTIMATED
RESERVE TYPE OF DISCOUNTED (@ 10%) DISCOUNT FAIR MARKET LIQUIDATION
PROPERTY NAME CATEGORY(1) INTEREST(2) NET CASH FLOWS FACTORS(3) VALUE VALUE (4)
- ------------- ----------- ----------- -------------------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
NEWPORT PDP WI $ 54,046 .66523 $ 35,953 $ 40,338
HANSON PDP WI $ 48,375 .66817 $ 32,323 $ 35,493
PDNP $ 42,551 .61063 $ 25,983 $ 28,531
--------- - ---------
SUBTOTAL $ 58,306 $ 64,024
--------- - ---------
TOTAL $ 94,259 $ 104,362
========= = =========
<FN>
(1) PDP = PROVED DEVELOPED PRODUCING RESERVES
PDNP = PROVED DEVELOPED NONPRODUCING RESERVES
(2) WI = WORKING INTEREST
(3) DISCOUNT FACTORS WERE DETERMINED BY H.J. GRUY AND ASSOCIATES AND CONSIDER
RISK, LOCATION, TYPE OF INTEREST, CATEGORY OF RESERVES AND OPERATIONAL
CHARACTERISTICS OF EACH PROPERTY.
(4) BASED ON OFFERS RECEIVED FROM UNAFFILIATED THIRD PARTIES FOR SIMILAR
INTERESTS OWNED BY OTHER PARTNERSHIPS MANAGED BY THE GENERAL PARTNER.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table B-2
Percentage Price
Name of Owned by Price Reserves Sold Per BOE
Property Partnership Received --------------------------
203 and 204 MCF BBL BOE
<S> <C> <C> <C> <C> <C> <C>
Newport 40% $55,200 4,077 5,807 6,487 $8.51
Blair 90% $18,450 - 7,551 7,551 $2.44
Hanson 40% $59,740 70,650 1,943 13,718 $4.35
</TABLE>
<TABLE>
<CAPTION>
Percentage Price
Name of Owned by Price Reserves to be Sold Per BOE
Property Partnership Received --------------------------
205 MCF BBL BOE
<S> <C> <C> <C> <C> <C> <C>
Newport 30.77% $42,463 3,136 4,467 4,990 $8.51
Blair 10.00% $ 2,050 - 839 839 $2.44
Hanson 39.92% $82,235 97,254 2,674 18,883 $4.35
</TABLE>
<TABLE>
<CAPTION>
Percentage Price
Name of Owned by Price Reserves Sold Per BOE
Property Partnership Received --------------------------
206 MCF BBL BOE
<S> <C> <C> <C> <C> <C> <C>
Newport 29.23% $40,338 2,979 4,243 4,740 $8.51
Hanson 31.08% $64,024 75,717 2,082 14,702 $4.35
---------
$104,362
=========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE C Working
PROPERTY
DETAIL
Working Interest% Revenue Interest %
------------------ ------------------
ACQUI-
SITION STATE FIELD OPERATOR NAME WELL NAME TYPE II-5 II-6 II-5 II-6
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Blair . TX WWW Blair Operating Company Schenecker Trust 01 OIL 1.2135 -- 0.9101 --
Blair . TX WWW Blair Operating Company Schenecker Trust 02 OIL 1.2135 -- 0.9101 --
Blair . TX WWW Blair Operating Company Schenecker Trust 03 OIL 1.2135 -- 0.9101 --
Blair . TX WWW Blair Operating Company Mathews 01 OIL 1.2500 -- 0.9375 --
Blair . TX WWW Blair Operating Company Mathews 02 OIL 1.2500 -- 0.9101 --
Blair . TX WWW Blair Operating Company Gaddie 03 OIL 1.1914 -- 0.9374 --
Blair . TX WWW Blair Operating Company Gaddie 04 OIL 1.2421 -- 0.9374 --
Blair . TX WWW Blair Operating Company Gaddie 05 OIL 1.1914 -- 0.9374 --
Blair . TX WWW Blair Operating Company Gaddie 06 OIL 1.1914 -- 0.9374 --
Hanson TX Coquat Hanson Minerals Co. Meider 02 GAS 1.5611 1.2154 0.9676 0.7533
Hanson TX Coquat Hanson Minerals Co. Meider 03 GAS 4.8968 3.8124 3.5915 2.7962
Hanson TX Coquat Hanson Minerals Co. Maguglin 01 GU GAS 1.5189 1.1826 0.7913 0.6160
Hanson TX George Buck Hanson Minerals Co. Aviators GU 01 GAS 0.3811 0.2967 0.3319 0.2584
Hanson TX George Buck Hanson Minerals Co. Aviators GU 03 GAS 1.0437 0.8126 0.7632 0.5942
Hanson TX Hampton Hanson Minerals Co. Arco Hampton 30 01 OIL 8.3191 6.4769 7.9863 6.2178
Hanson TX Malo Domingo Hanson Minerals Co. Samsel GU 01 GAS 0.7228 0.5627 0.5429 0.4227
Hanson TX Malo Domingo Hanson Minerals Co. Gordon Talk GU 01 GAS 0.8273 0.6441 0.6128 0.4771
Hanson TX Malo Domingo Hanson Minerals Co. Gordon Talk GU 02 GAS 4.3818 3.4115 3.4552 2.6900
Hanson TX Sanger S Hanson Minerals Co. Sanger Heirs 391 01 GAS 3.8582 3.0038 3.0355 2.3633
Hanson TX Sanger S Hanson Minerals Co. Sanger Heirs 391 02 GAS 5.5844 4.3478 3.0355 2.3633
Hanson TX Sanger S Hanson Minerals Co. Sanger Heirs 391 04 GAS 3.9520 3.0769 3.1094 2.4208
Hanson TX Sanger S Hanson Minerals Co. Sanger Heirs 392 01
(UT) GAS 3.9520 3.0769 3.1094 2.4208
Hanson TX Sanger S Hanson Minerals Co. Sanger Heirs 392 01
(LT) GAS 3.9520 3.0769 3.1094 2.4208
Newport TX Alexander Mineral Development Inc. Cooper 01 OIL 1.9487 1.8512 1.5381 1.4611
Newport TX Candice Mineral Development Inc. Shelton 83-1 GAS 4.2708 4.0571 3.2031 3.0428
Newport TX Grange Mineral Development Inc. Grange A 01 OIL 1.2308 1.1692 1.0092 0.9587
Newport TX Grange Mineral Development Inc. Grange A 02 OIL 1.2308 1.1692 1.0092 0.9587
Newport TX Grange Phillips Petroleum Corp. Grange D 01 OIL 0.2460 0.2340 0.2018 0.1917
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE D
GROSS AND NET PRODUCTIVE OIL AND GAS WELLS
AS OF JUNE 30, 1995
PRODUCTIVE OIL WELLS(1) PRODUCTIVE GAS WELLS(1)
----------------------------- -----------------------------
NET WORKING NET NET WORKING NET
PARTNERSHIP GROSS INTEREST ROYALTY GROSS INTEREST ROYALTY
WELLS(2) WELLS WELLS WELLS(2) WELLS WELLS
<S> <C> <C> <C> <C> <C> <C>
Enex Oil & Gas Income Program II-5,L.P. 16 0.269 - 12 0.310 -
Enex Oil & Gas Income Program II-6,L.P. 7 0.138 - 12 0.248 -
======= ========= ======= ====== ======= ======
TOTAL 16 0.407 - 12 0.558 -
======= ========= ======= ====== ======= ======
</TABLE>
(1) Productive wells are producing wells and wells capable of production,
including shut-in wells. A gross well is a well in which an interest is
held. The number of gross wells is the total number of wells in which an
interest is owned. A net working interest (W.I.) well is deemed to exist
when the sum of the fractional ownership interests in gross W.I. wells,
equals one. The number of net W.I. wells is the sum of the fractional
interests owned in gross W.I. wells, expressed as whole numbers and
fractions thereof. A net royalty well is deemed to exist when the sum of
gross royalty wells equals one. The number of net royalty wells is the sum
of the fractional interests owned in gross royalty wells, expressed as
whole numbers and fractions thereof.
(2) Totals for gross wells have been reduced to adjust for ownership by more
than one Partnership.
<TABLE>
<CAPTION>
GROSS AND NET PRODUCTIVE ACREAGE
AND UNDEVELOPED ACREAGE(1)
DEVELOPED(2)
WORKING INTEREST DEVELOPED (2)
ACREAGE(3) ROYALTY ACREAGE(3)
---------------- -------------------
GROSS NET GROSS NET
PARTNERSHIP ACRES(4) ACRES ACRES(4) ACRES
<S> <C> <C> <C> <C>
Enex Oil & Gas Income Program II-5,L.P. 5,458 105.06 - -
Enex Oil & Gas Income Program II-6,L.P. 5,098 83.76 - -
======= ======= ======= =======
TOTAL 5,458 188.82 - -
======= ======= ======= =======
<FN>
(1) The Partnerships have no undeveloped acreage.
(2) Developed acres are acres spaced or assigned to productive wells.
(3) A gross acre is an acre in which an interest is owned. The number of gross
acres is the total number of acres in which such interest is owned. A net
working interest acre is deemed to exist when the sum of fractional ownership of
working interests owned in gross acres equals one. The number of net working
interest acres is the sum of fractional working interests owned in gross acres
expressed as whole numbers and fractions thereof. A net royalty acre is deemed
to exist when the sum of fractional ownership of royalty interests owned in
gross acres equals one. The number of net royalty acres is the sum of fractional
royalty interests owned in gross acres expressed as whole numbers and fractions
thereof.
(4) Totals for gross acres have been reduced to adjust for ownership by more
than one Partnership.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE E
General and Administrative Charges
Enex Oil & Nine Months Ended
Gas Income 1994 September 30, 1995 1995 Estimated 1996 Estimated
------------------ -------------------- -------------------- -------------------
Program Direct Costs Total Direct Costs Total Direct Costs Total Direct Costs Total
(1) (1) (1) (1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
II - 5, LP $7,516 $27,986 - $12,821 $3,293 $19,794 $3,622 $21,773
II - 6, LP $4,277 $22,194 - $11,238 $3,104 $18,096 $3,414 $19,906
<FN>
(1) Direct costs consist of tax preparation, audit and Securities Exchange Commission filing fees.
</FN>
</TABLE>
<PAGE>
- ---------------------------
ENEX
- ---------------------------
ENEX OIL & GAS INCOME PROGRAM II-6, L.P.
Three Kingwood Place
Suite 200
800 Rockmead Drive
Kingwood, Texas 77339
PROXY FOR SPECIAL MEETING OF LIMITED PARTNERS
TO BE HELD
xxxxxxxx xx, 1996
The undersigned hereby appoints GERALD B. ECKLEY, WILLIAM C. HOOPER, JR.
and ROBERT E. DENSFORD, and each or any of them, attorneys and proxies, with
full power of substitution, and authorizes them to vote all interests of Enex
Oil & Gas Income Program II-6, L.P., held of record by the undersigned on
xxxxxxxx xx, 1996, at the Special Meeting of Limited Partners to be held on
xxxxxxxx xx, 1996, and any adjournments thereof, hereby revoking all previous
proxies, with all powers the undersigned would possess if present, on all
matters mentioned in the Notice of Special Meeting dated xxxxxxxx xx, 1996, as
follows:
INSTRUCTIONS: MARK ONLY ONE BOX FOR EACH NUMBERED MATTER
(1) To sell the assets of Enex Oil & Gas Income Program II-6, L.P., a
Texas limited partnership, and thereafter to dissolve and liquidate
the Partnership.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) In their discretion, to vote upon such other business as may
properly come before the Meeting or any adjournments thereof.
23
<PAGE>
Please mark, date, sign and return this Proxy promptly, using the
enclosed envelope.
Dated , 1996
-------------------------------------
Month Day
Signature
----------------------------------
Signature
----------------------------------
Please sign exactly as name appears
hereon, indicating official position
or representative capacity, if any.
I plan to attend the meeting.
Yes [ ] No [ ]
THIS PROXY IS SOLICITED ON BEHALF OF THE GENERAL PARTNER
OF THE PARTNERSHIP
24
<PAGE>
-1-
February 12, 1996
Enex Resources Corporation
Three Kingwood Place, Suite 200
Kingwood, Texas 77339
Enex Oil & Gas Income Program II
Series 6, LP
95-002-106
Gentlemen:
At your request, we have estimated the fair market value as of July 1, 1995 for
certain interests owned by the limited partners in Enex Oil & Gas Income Program
II, Series 6, LP (Enex). The estimated fair market value is summarized by
acquisition for this partnership as follows:
Estimated
Acquisition Fair Market Value
Newport $ 35,953
Hanson $ 58,306
---------------
TOTAL $ 94,259
The fair market value was estimated using the income approach as opposed to the
market data approach because it is difficult to identify sales of oil and gas
properties that are comparable in net reserves, product prices, location,
operating expenses, and operator expertise. For the proved producing properties,
the discounted future net revenue is reduced to a fair market value by
multiplying by a suitable fraction that accounts for the risk associated with an
investment. For proved developed non-producing and proved undeveloped reserves,
the present value of the required capital is added to the discounted future net
revenue, a suitable risk factor is applied, and the present value of the capital
is subtracted from that value. This approach assumes that the capital is
invested with certainty and the resulting cash flow stream is burdened with the
uncertainty. In all cases, the payout time and the internal rate-of-return for
each fair market value estimate is computed and compared with that which a
rational investor would expect.
<PAGE>
Enex Resources Corporation -2- February 12, 1996
The estimated discounted future net revenue is that revenue which will be
realized from the sale of the estimated net reserves after deduction of
royalties, ad valorem and production taxes, direct operating costs and capital
expenditures, when applicable and then discounted at 10 percent using mid-year
discounting. Surface and well equipment salvage values and well plugging and
field abandonment costs have been considered in the revenue projections, when
applicable. Future net revenue as stated in this report is before the deduction
of federal income tax.
The following parameters are incorporated in the economic projections of the
report. Market prices received by Enex from third party purchasers in June, 1995
are held constant in 1995 at $17.25 per barrel of oil for Louisiana and $17.00
per barrel for all other states, then escalated per Table 1 to a maximum price
of $30.69 per barrel. June 1995 gas prices varied by area and BTU content and
remained flat through 1995, then escalated per Table 1 to a maximum price of
$3.80 per MMBTU. Operating and capital costs are escalated at an annual rate of
3 percent until the primary product reaches its maximum price. The actual prices
that will be received and the associated costs may be more or less than those
projected.
Extent and character of ownership, oil and gas prices, production data, capital
expenditure estimates were provided by Enex and verified as follows: extent of
ownership by reference to third party division orders, assignments, bills of
sale and conveyance and stipulation of interest in our files, oil and gas prices
by reference to information accompanying checks received as Enex's share of the
proceeds of production from the oil and gas interests that are the subject of
this report and posted price bulletins issued by purchasers of Enex's
production. Price escalation rates were derived from published industry
guidelines and are a composite of a published survey of rates used by energy
lending institutions and operators of oil and gas properties. Production data
were obtained from independent commercial data sources and direct operating
costs were obtained by references to joint interest billings issued by the third
party operators of Enex's oil and gas interests. Capital expenditures were
extracted from AFE's (authorization for expenditure). No independent well tests,
property inspections or audits of operating expenses were conducted by our staff
in conjunction with this study but were reviewed for reasonableness. We did not
verify or determine the extent, character, obligations, status or liabilities,
if any, arising from any current or possible future environmental liabilities
that might be applicable.
In order to estimate the fair market value shown in this report, we have relied
in part on geological, engineering and economic data furnished by Enex, such as
well logs and core analyses provided to Enex by the third party operators of
Enex's oil and gas interests, and other data available from state records and
commercial log libraries. Income may be subject to regulation and contract
provisions and may fluctuate according to market demand or other factors beyond
the control of the operator.
We are unrelated to Enex and we have no interest in the properties included in
this report. In particular:
1. We do not own a financial interest in Enex or its oil and gas
properties.
2. Our fee is not contingent on the outcome of our work or report.
<PAGE>
Enex Resources Corporation -3- February 12, 1996
3. We have not performed other services for or have any other
relationship with Enex that would affect our independence.
4. We have verified and corroborated through sources unaffiliated
with Enex all information provided by Enex and used by us in
estimating the fair market value shown above.
5. No instructions were given and no limitations were imposed by
Enex on the scope or methodology to be used by us in preparing
such estimates; we did not accept or incorporate any assumptions
from Enex, but merely called upon Enex to the extent customary
in the oil and gas industry to gather and provide certain
background information which we determined to be relevant and
appropriate, we determined what information to use, and how and
to what extent such information should be relied upon, in
estimating the fair market values shown above.
If investments or business decisions are to be made in reliance on these
estimates by anyone other than our client, such person with the approval of our
client is invited to visit our offices at his expense so that he can evaluate
the assumptions made and the completeness and extent of the data available on
which our estimates are based.
Any distribution or publication of this report or any part thereof must include
this letter in its entirety.
Yours very truly,
H.J. GRUY AND ASSOCIATES, INC.
Marilyn Wilson, P.E.
Executive Vice President
James H. Hartsock, P.E.
Executive Vice President
Sylvia Castilleja
Reservoir Engineer
MW:JHH:SC:llb
Attachments
<PAGE>
TABLE 1
OIL AND GAS ESCALATIONS
Oil Escalations Gas Escalations
% %
1996 5.2 7.2
1997 5.0 7.3
1998 4.3 4.2
1999 3.2 3.0
Thereafter 3.3 3.0
<PAGE>
ATTACHMENT 1
<PAGE>
ATTACHMENT 1
DEFINITIONS FOR OIL AND GAS RESERVES 1
RESERVES
Reserves are estimated volumes of crude oil, condensate, natural gas, natural
gas liquids, and associated substances anticipated to be commercially
recoverable from known accumulations from a given date forward, under existing
economic conditions, by established operating practices, and under current
government regulations. Reserve estimates are based on interpretation of
geologic and/or engineering data available at the time of the estimate.
Reserve estimates generally will be revised as reservoirs are produced, as
additional geologic and/or engineering data become available, or as economic
conditions change.
Reserves do not include volumes of crude oil, condensate, natural gas, or
natural gas liquids being held in inventory. If required for financial
reporting or other special purposes, reserves may be reduced for on-site usage
and/or processing losses.
The ownership status of reserves may change due to the expiration of a pro-
duction license or contract; when relevant to reserve assignment such changes
should be identified for each reserve classification.
Reserves may be attributed to either natural reservoir energy, or improved
recovery methods. Improved recovery includes all methods for supplementing
natural reservoir energy to increase ultimate recovery from a reservoir. Such
methods include (1) pressure maintenance, (2) cycling, (3) waterflooding, (4)
thermal methods, (5) chemical flooding, and (6) the use of miscible and immis-
cible displacement fluids.
All reserves estimated involve some degree of uncertainty, depending chiefly on
the amount and reliability of geologic and engineering data available at the
time of the estimate and the interpretation fo these data. The relative degree
of uncertainty may be conveyed by placing reserves in one of two classifica-
tions, either proved or unproved. Unproved reserves are less certain to be re-
covered than proved reserves and may be subclassified as probable or possible to
denote progressively increasing uncertainty.
PROVED RESERVES
Proved reserves can be estimated with reasonable certainty to be recoverable
under current economic conditions. Current economic conditions include prices
and costs prevailing at the time of the estimate. Proved reserves may be devel-
oped or undeveloped.
- --------------------
1 Approved by the Board of Directors, Society of Petroleum Engineers, Inc. and
the Board of Directors of the Society of Petroleum Evaluation Engineers in 1987.
<PAGE>
In general, reserves are considered proved if commercial producibility of the
reservoir is supported by actual production or formation tests. The term proved
refers to the estimated volume of reserves and not just to the productivity of
the well or reservoir. In certain instances, proved reserves may be assigned on
the basis of electrical and other type logs and/or core analysis that indicate
subject reservoir is hydocarbon bearing and is analogous to reservoirs in the
same area that are producing, or have deomonstrated the ability to produce on a
formation test.
The area of a reservoir considered proved includes (1) the area delineated by
drilling and defined by fluid contacts, if any, and (2) the undrilled areas that
can be reasonably judged as commercially productive on the basis of available
geological and engineering data. In the absence of data on fluid contracts, the
lowest known structural occurrence of hydocarbons controls the proved limit
unless otherwise indicated by definitive engineering of performance data.
Proved reserves must have facilities to process and transport those reserves to
market that are operational at the time of the estimate, or there is a commit-
ment or reasonable expectations to install such facilities in the future.
In general, proved undeveloped reserves are assigned to undrilled locations that
satisfy the following conditions: (1) the locations are direct offsets to wells
that have indicated commercial production in the objective formation, (2) it is
reasonably certain that the locations are within the known proved productive
limits of the objective formation, (3) the locations conform to existing well
spacing regulations, if any, and (4)it is reasonably certain that the locations
will be developed. Reserves for other undrilled locations are classified as
proved undeveloped only in those cases where interpretations of data from wells
indicate that the objective formation is laterally continuous and contains com-
mercially recoverable hydrocarbons at locations beyond direct offsets.
Reserves that can be produced through the application of established improved
recovery methods are included in the proved classifications when (1) successful
testing by a pilot project or favorable production or pressure response of an
insalled program in that reservoir, or one in the immediate area with similar
rock and fluid properties, provides support for the engineering analysis on
which the project or program is based and (2) it is reasonably certain the pro-
ject will proceed.
Reserves to be recovered by improved recovery methods that have yet to be esta-
blished through repeated commercially successful applications are included in
the proved classification only (1) after a favorable production response from
subject reservoir from either (a) a representative pilot or (b) an installed
program, where the response provides support for the engineering analysis on
which the project is based, and (2) it is reasonably certain the project will
proceed.
UNPROVED RESERVES
Unproved reserves are based on geologic and/or engineering data similar to that
used in estimates of proved reserves; but technological, contractual, economic,
or regulatory uncertainties preclude such reserves being classified as proved.
They may be estimated assuming future economic
Page 2
<PAGE>
conditions different from those prevailing at the time of the estimate.
Estimates of unproved reserves may be made for internal planning or special
evaluations, but are not routinely compiled.
Unproved reserves are not to be added to proved reserves because of different
levels of uncertainty.
Unproved reserves may be divided into two subclassifications: probable and pos-
sible.
Probable Reserves - Probable reserves are less certain than proved reserves and
can be estimated with a degree of certainty sufficient to indicate they are more
likely to be recovered than not.
In general, probable reserves may include (1) reserves anticipated to be proved
by normal stepout drilling where subsurface control is inadequate to classify
these reserves as proved, (2) reserves in formations that appear to be
productive base on log characteristics but that lack core data or definitive
tests and which are not analogous to producing or proved reservoirs in the area,
(3) incremental reservoirs attributable to infill drilling that otherwise could
be classified as prove but closer to statutory spacing had not been approved at
the time of the estimate, (4) reserves attributable to an improved recovery
method which has been established by repeated commercially successful
applications when a project or pilot is planned but not in operation and rock,
fluid, and reservoir characteristics appear favorable for commercial
application, (5) reserves in an area of a formation that has been proved
productive in other areas of the field but subject area appears to be separated
from the proved area by faulting and the geologic interpretation indicates
subject area is structurally higher than the proved area, (6) reserves
attributable to a successful workover, treatment, retreatment, change of
equipment, or other mechanical procedure, where such procedure has not been
proved successful in wells exhibiting similar behavior in analogous reservoirs,
and (7) incremental reserves in a proved producing reservoir where an alternate
interpretation of performance or volumetric data indicates significantly more
reserves than can be classified as proved.
Possible Reserves - Possible reserves are less certain than probable reserves
and can be estimated with a low degree of certainty, insufficient to indicate
whether they are more likely to be recovered than not.
In general, possible reserves may include (1) reserves suggested by structural
and/or stratigraphic extrapolation beyond area classified as probable, based on
geologic and/or geophysical interpretation, (2) reserves in formations that
appear to be hydrocarbon bearing based on logs or cores but that may not be
productive at commercial rates, (3) incremental reserves attributable to infill
drilling that are subject to technical uncertainty, (4) reserves attributable to
an improved recovery method when a project or pilot is planned but not in opera-
tion and rock, fluid, and reservoir characteristics are such that a reasonable
doubt exists that the project will be commercial, and (5) reserves in an area of
a formation that has been proved productive in other areas of the field but
subject area appears to be separated from the proved area by faulting and
geologic interpretation indicates subject area is structurally lower than the
proved area.
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RESERVE STATUS CATEGORIES
Reserve status categories define the development and producing status of wells
and/or reservoirs.
Developed - Developed reserves are expected to be recovered from existing wells
(including reserves behind pipe). Improved recovery reserves are considered
developed only after the necessary equipment has been installed, or when the
costs to do so are relatively minor. Developed reserves may be subcategorized as
producing or nonproducing.
Producing - Producing reserves are expected to be recovered from
completion intervals open at the time of the estimate
and producing. Improved recovery reserves are consid-
ered to be producing only after an improved recovery
project is in operation.
Nonproducing - Non producing reserves include shut-in and behind-pipe
reserves. Shut-in reserves are expected to be recover-
ed from completion intervals open at the time of the
estimate, but which had not started producing, or
where shut-in for market conditions or pipeline conec-
tion, or were not capable of production for mechanical
reasons, and the time when sales will start is uncer-
tain.
Behind-pipe reserves are expected to be recovered from zones behind casing in
existing wells, which will require additional completion work or a future
recompletion prior to the start of production.
Undeveloped - Undeveloped reserves are expected to be recovered: (1) from new
wells on undrilled acreage, (2) from deepening existing wells to a different
reservoir, or (3) where a relatively large expenditure is required to (a)
recomplete an existing well or (b) install production or transportation
facilities or improved recovery projects.
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