<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9033
SUN ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2070723
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
13155 NOEL ROAD, DALLAS, TEXAS 75240-5067
(Address of principal executive offices) (Zip code)
(972) 715-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of depositary units outstanding as of August 12,
1998 was 421,170,459.
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SUN ENERGY PARTNERS, L.P.
INDEX
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<S> <C> <C>
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the Three and Six Months Ended June 30,
1998 and 1997 .............................. 3
Condensed Consolidated Balance Sheets at
June 30, 1998 and December 31, 1997 ........ 4
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30,
1998 and 1997 ............................. 5
Notes to Condensed Consolidated Financial
Statements ................................ 6
Report of Independent Accountants ......... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .......... 10
SIGNATURE ............................................ 11
</TABLE>
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SUN ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Three Months For the Six Months
(Millions of Dollars, Except Ended June 30 Ended June 30
Per Unit Amounts) 1998 1997 1998 1997
(Unaudited)
<S> <C> <C> <C> <C>
Revenues
Oil and gas $ 128 $ 168 $ 266 $ 372
Other 10 1 18 (3)
----- ----- ----- -----
138 169 284 369
----- ----- ----- -----
Costs and Expenses
Operating costs 30 35 67 69
Production taxes 7 9 15 20
Exploration costs 15 16 56 26
Depreciation, depletion
and amortization 48 50 97 102
General and administrative
expense 10 11 21 21
Interest and debt expense 4 3 8 7
Interest capitalized (4) (3) (8) (7)
----- ----- ----- -----
110 121 256 238
----- ----- ----- -----
Net Income $ 28 $ 48 $ 28 $131
===== ===== ===== =====
Net Income Per Unit $.07 $.11 $.07 $.31
===== ===== ===== =====
Cash Distributions Paid
Per Unit $ - $.08 $.02 $.23
===== ===== ===== =====
Weighted Average Number
of Units Outstanding
(in thousands) 421,171 421,171 421,171 421,171
======= ======= ======= =======
<FN>
(See Accompanying Notes)
</TABLE>
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<TABLE>
SUN ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30 December 31
(Millions of Dollars) 1998 1997
(Unaudited)
<S> <C> <C>
Assets
Current Assets
Cash and short-term investments $ 6 $ 2
Accounts receivable and other
current assets 70 124
------ ------
Total Current Assets 76 126
Properties, Plants and
Equipment (Note 2) 1,386 1,254
Investment in Affiliate 82 88
------ ------
Total Assets $1,544 $1,468
====== ======
Liabilities and Partners' Capital
Current Liabilities
Advances from affilitate $ 118 $ 49
Accounts payable 96 80
Accrued liabilities 77 84
Current portion of long-term debt due
affiliate 13 13
Current portion of long-term debt 1 1
------ ------
Total Current Liabilities 305 227
Long-Term Debt due Affiliate 31 38
Deferred Credits and Other Liabilities 34 49
Partners' Capital (Note 3)
Limited partnership interests 360 354
General partnership interests 814 800
------ ------
Partners' Capital 1,174 1,154
------ ------
Total Liabilities and
Partners' Capital $ 1,544 $ 1,468
======= =======
<FN>
The successful efforts method of accounting is followed.
(See Accompanying Notes)
</TABLE>
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<TABLE>
SUN ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Six Months
Ended June 30
(Millions of Dollars) 1998 1997
(Unaudited)
<S> <C> <C>
Cash From Operating Activities
Net income $ 28 $ 131
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation, depletion and amortization 97 102
Dry hole costs and leasehold impairment 29 10
Gain on divestments (19) (1)
Other 1 4
----- -----
136 246
Changes in working capital:
Advances from affiliate 69 25
Accounts receivable and other
current assets 54 29
Accounts payable and accrued liabilities 7 8
----- -----
Net Cash Flow Provided From
Operating Activities 266 308
----- -----
Investing Activities
Capital expenditures (251) (193)
Proceeds from divestments 19 1
Other (15) (6)
----- -----
Net Cash Flow Used For Investing Activities (247) (198)
----- -----
Financing Activities
Repayments of long-term debt (7) (6)
Cash distributions paid to unitholders (8) (97)
----- -----
Net Cash Flow Used For Financing Activities (15) (103)
----- -----
Changes In Cash and Cash Equivalents 4 7
Cash and Cash Equivalents at
Beginning of Period 2 2
----- -----
Cash and Cash Equivalents at End of Period $ 6 $ 9
===== =====
<FN>
(See Accompanying Notes)
</TABLE>
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SUN ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying condensed consolidated financial statements
and related notes of Sun Energy Partners, L.P. and its
subsidiaries (hereinafter, unless the context otherwise
requires, referred to as the Partnership) are presented in
accordance with the requirements of Form 10-Q and do not
include all disclosures normally required by generally
accepted accounting principles or those normally made in
annual reports on Form 10-K. In management's opinion, all
adjustments necessary for a fair presentation of the results
of operations for the periods shown have been made and are
of a normal recurring nature. The results of operations of
the Partnership for the six months ended June 30, 1998 are
not necessarily indicative of the results for the full year
1998.
The Partnership adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share," effective
January 1, 1997 resulting in no material impact. In
addition, the Partnership adopted SFAS No. 130, "Reporting
Comprehensive Income," effective January 1, 1998. Total
comprehensive income and net income are identical for the
three and six months ended June 30, 1998. In June 1998,
the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities," effective for fiscal years beginning after June
15, 1999. SFAS 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value and net
gains and losses on derivative instruments be recognized
initially in comprehensive income. The Partnership has not
yet determined the impact that the adoption of SFAS 133 will
have on its earnings or statement of financial position.
2. Properties, Plants and Equipment
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
(Millions of Dollars)
<S> <C> <C>
Gross investment $4,138 $3,923
Less accumulated depreciation,
depletion and amortization 2,752 2,669
------ ------
Net investment $1,386 $1,254
====== ======
</TABLE>
3. Partners' Capital
At June 30, 1998, the ownership of the Partnership was
comprised of a 69 percent general partnership interest and a
31 percent limited partnership interest. Oryx Energy
Company holds a 98.2 percent interest in the Partnership. A
1.8 percent limited partnership interest in the form of
depositary units is held by the public. As of June 30,
1998, there were a total of 421.2 million units outstanding.
4. Subsequent Event
On July 28, 1998, in response to the current low oil price
environment, the Partnership announced its intention to sell
approximately $35 million of its U.S. onshore properties.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Sun Energy Partners, L.P. and
the Board of Directors of Oryx Energy Company:
We have reviewed the accompanying condensed consolidated balance
sheet of Sun Energy Partners, L.P. and its Subsidiaries as of
June 30, 1998, and the related condensed consolidated statements
of income for the three and six months ended June 30, 1998 and
1997, and the related condensed consolidated statements of cash
flows for the six months ended June 30, 1998 and 1997. These
financial statements are the responsibility of Oryx Energy
Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical review procedures to financial data and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Sun Energy
Partners, L.P. and its Subsidiaries as of December 31, 1997, and
the related consolidated statements of income and cash flows for
the year then ended (not presented herein); and in our report
dated February 17, 1998, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1997, is fairly stated, in all
material respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/PriceWaterhouseCoopers LLP
Dallas, Texas
August 11, 1998
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION
The Partnership's cash and cash equivalents increased $4 million
over the six months ended June 30, 1998. The $4 million increase
was comprised of $266 million provided from operating activities,
$247 million used for investing activities and $15 million used
for financing activities. The $266 million net cash flow
provided from operating activities was comprised of $136 million
net cash flow provided from operating activities before changes
in current assets and liabilities and $130 million net cash flow
provided from changes in current assets and liabilities. The
$136 million net cash flow provided from operating activities
before changes in current assets and liabilities was primarily
impacted by a decrease in crude oil prices and natural gas
production. The $130 million net cash flow provided from changes
in current assets and liabilities consisted of a $69 million
increase in advances from affiliate, a $54 million decrease in
accounts receivable and other current assets and a $7 million
increase in accounts payable and accrued liabilities.
The $247 million net cash flow used for investing activities
consisted primarily of $251 million used for capital
expenditures. The $15 million net cash flow used for financing
activities resulted from the scheduled payment of $7 million of
long-term debt and $8 million cash distributions paid to
unitholders.
As a result of a combination of low operating cash flow and high
capital expenditures, no cash distribution will be paid for the
1998 second quarter. Distributions will fluctuate due to oil and
gas prices, production volumes, operating costs and amount of
capital expenditures and divestment proceeds.
As of July 24, 1998, the Partnership has entered into collar
agreements to hedge approximately 22 percent of its 1998 crude
production at an average floor price of $18.20 West Texas
Intermediate (WTI) per barrel and an average ceiling price of
$19.25 WTI per barrel. Approximately 43 percent of its estimated
1998 gas production is hedged using collars at an average floor
price of $2.25 Henry Hub (HH) per mmbtu and an average ceiling
price of $2.40 HH per mmbtu
In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," effective for fiscal years beginning after
June 15, 1999. SFAS 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value and net
gains and losses on derivative instruments be recognized
initially in comprehensive income. The Partnership has not yet
determined the impact that the adoption of SFAS 133 will have on
its earnings or statement of financial position.
On July 28, 1998, in response to the current low oil price
environment, the Partnership announced its intention to sell
approximately $35 million of its U.S. onshore properties.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - continued
RESULTS OF OPERATIONS - SIX MONTHS
Net income for the first six months of 1998 was $28 million, or
$.07 per unit, compared to net income of $131 million, or $.31
per unit, in the first six months of 1997. Revenues for the six
months were $284 million in 1998 versus $369 million in 1997.
Average net production of crude oil was 46 thousand barrels daily
during the first six months of 1998 compared to production of 43
thousand barrels daily for the first six months of 1997. The
crude oil and condensate price in the first six months of 1998
decreased to $14.28 per barrel, as compared to $19.61 per barrel
in the same period last year.
Average net production of natural gas for the first six months of
1998 was 379 million cubic feet daily compared to production of
504 million cubic feet daily for the same period in 1997. The
reduction in gas production resulted primarily from field
declines, lower than expected drilling results and performance
issues at certain fields. The natural gas price for the first
six months of 1998 was $2.14 per thousand cubic feet, as compared
to $2.41 per thousand cubic feet in the same period last year.
RESULTS OF OPERATIONS - THREE MONTHS
The Partnership reported net income of $28 million, or $.07 per
unit, for the second quarter of 1998, compared to net income of
$48 million, or $.11 per unit, for the same quarter last year.
Revenues for the 1998 quarter were $138 million versus $169
million for the 1997 quarter. Compared to the same quarter last
year, oil prices decreased by $4.73 per barrel while natural gas
prices increased $.06 per million cubic feet. Crude oil
production was the same and natural gas volumes decreased 119
million cubic feet per day. The reduction in gas production
resulted primarily from field declines, lower than expected
drilling results and performance issues at certain fields.
Average net production of crude oil and condensate for the second
quarter of 1998 and 1997 was 45 thousand barrels daily. The
average crude oil and condensate price in the second quarter of
1998 decreased to $13.47 per barrel, as compared to $18.20 per
barrel in the same period in 1997.
Average net production of natural gas for the second quarter of
1998 was 381 million cubic feet daily compared to production of
500 million cubic feet daily for the second quarter of 1997. The
average natural gas price in the second quarter of 1998 increased
to $2.11 per thousand cubic feet, as compared to $2.05 per
thousand cubic feet in the same period in 1997.
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PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Partnership did not file any reports on Form 8-
K during the quarter ended June 30, 1998.
******************
We are pleased to furnish this report to unitholders who
request it by writing to:
Sun Energy Partners, L.P. Unitholder Relations
c/o Oryx Energy Company
Managing General Partner
P.O. Box 60
Dallas, Texas 75221-0060
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SUN ENERGY PARTNERS, L.P.
BY ORYX ENERGY COMPANY
(Managing General Partner)
BY /s/ E. W. Moneypenny
E. W. Moneypenny
(Executive Vice President, Finance,
and Chief Financial Officer)
DATE: August 13, 1998
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 6
<SECURITIES> 0
<RECEIVABLES> 58
<ALLOWANCES> 0
<INVENTORY> 1
<CURRENT-ASSETS> 76
<PP&E> 4138
<DEPRECIATION> (2752)
<TOTAL-ASSETS> 1544
<CURRENT-LIABILITIES> 305
<BONDS> 31
0
0
<COMMON> 0
<OTHER-SE> 1174
<TOTAL-LIABILITY-AND-EQUITY> 1544
<SALES> 266
<TOTAL-REVENUES> 284
<CGS> 179
<TOTAL-COSTS> 179
<OTHER-EXPENSES> 77
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 28
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
