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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from...............to...............
Commission file number 0-15433
ENEX OIL & GAS INCOME
PROGRAM III - Series 1, L.P.
(Name of small business issuer in its charter)
New Jersey 76-0179821
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Rockmead Drive
Three Kingwood Place
Kingwood, Texas 77339
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (713) 358-8401
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Interest
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB.[x]
State issuer's revenues for its most recent fiscal year. $ 122,230
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock as of a specified date within
the past 60 days (See definition of affiliate in Rule 12b-2 of the Exchange
Act):
Not Applicable
Documents Incorporated By Reference:
None
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<PAGE>
TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1995
ENEX OIL & GAS INCOME PROGRAM III - SERIES 1, L.P.
Item No. Part I Page
- -------- ------ ----
1 Description of Business I-1
2 Description of Property I-3
3 Legal Proceedings I-4
4 Submission of Matters to a Vote
of Security Holders I-4
Part II
-------
5 Market for Common Equity and
Related Security Holder Matters II-1
6 Management's Discussion and Analysis
or Plan of Operation II-2
7 Financial Statements and Supplementary
Data II-4
8 Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure II-15
Part III
--------
9 Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a)
of the Exchange Act III-1
10 Executive Compensation III-3
11 Security Ownership of Certain
Beneficial Owners and Management III-4
12 Certain Relationships and Related
Transactions III-4
13 Exhibits and Reports on Form 8-K III-4
Signatures S-1
<PAGE>
PART I
Item 1. Description of Business
General
Enex Oil & Gas Income Program III - Series 1, L.P. (the "Company") was
formed under the New Jersey Uniform Limited Partnership Law (1976) on March 20,
1986 and commenced operations on August 8, 1986, with aggregate subscriptions of
$1,488,778, $1,473,890 of which was received from 1,609 limited partners,
including investors whose distributions from earlier partnerships sponsored by
the Company's general partner, Enex Resources Corporation ("Enex"), were
automatically invested in the Company.
The Company is engaged in the oil and gas business through the ownership of
various interests in producing oil and gas properties. If warranted, the Company
may further develop its oil and gas properties. However, the Company does not
intend to engage in significant drilling activities. Such activities may be
conducted, however, as an incidental part of the management of producing
properties or with a view toward enhancing the value of producing properties. In
no event will the Company engage in exploratory drilling, or use any of the
limited partners' net subscriptions to fund drilling activities. Any
developmental drilling will be financed primarily through third party borrowing
or with funds provided from operations. The expenses of drilling, completing and
equipping and operating development wells are allocated 90% to the limited
partners and 10% to the general partner. See Note 1 to the Financial Statements
for information relating to the allocation of costs and revenues between the
limited partners and the general partner. The Company's operations are
concentrated in a single industry segment.
The principal executive office of the Company is maintained at Suite 200,
Three Kingwood Place, Kingwood, Texas 77339. The telephone number at this office
is (713) 358-8401. The Company has no regional offices.
The Company has no employees. On March 1, 1996, Enex and its subsidiaries
employed 24 persons.
Marketing
The marketing of oil and gas produced by the Company is affected by a
number of factors which are beyond the Company's control, the exact nature of
which cannot be accurately predicted. These factors include the quantity and
price of crude oil imports, fluctuating supply and demand, pipeline and other
transportation facilities, the marketing of competitive fuels, state and federal
regulation of oil and gas production and distribution and other matters
affecting the availability of a ready market. All of these factors are extremely
volatile.
Amoco Production Company purchased 24% and Exxon Corporation accounted for
13% of the Company's total sales in 1995. Amoco Production Company purchased 22%
and Exxon Corporation accounted for 12% of the Company's total sales in 1994. No
other purchaser individually accounted for more than 10% of such sales. Although
the Company marketed a significant portion of its sales to the above noted
companies, such a concentration does not pose a significant risk due to the
commodity nature of the Company's products.
I-1
<PAGE>
Environmental and Conservation Regulation
State regulatory authorities in the states in which the Company owns
producing properties are empowered to make and enforce regulations to prevent
waste of oil and gas and to protect correlative rights and opportunities to
produce oil and gas as between owners of a common reservoir. Each of such
regulatory authorities also regulates the amount of oil and gas produced by
assigning allowable rates of production, which may be increased or decreased in
accordance with supply and demand. Requirements regarding the prevention and
clean-up of pollution and similar environmental matters are also generally
applicable. The costs, if any, the Company may incur in this regard cannot be
predicted.
The existence of such regulations has had no material adverse effects on
the Company's operations to date, and the cost of compliance has not yet been
material. There are no material administrative or judicial proceedings arising
under such laws or regulations pending against the Company. The Company is
unable to assess or predict the impact that compliance with environmental and
pollution control laws and regulations may have on its future operations,
capital expenditures, earnings or competitive position.
Tax Laws
The operations of the Company are affected by the federal income tax laws
contained in the Internal Revenue Code of 1986, as amended (the "Code"). Under
the Code, generally, the Company will report income from the sale of oil and
gas, against which it may deduct its ordinary business expenses, depletion,
depreciation and intangible drilling and development costs.
It is anticipated that most of the Company's income, if any, will be from a
"passive activity" for purposes of the Code. A passive activity includes an
activity in which the taxpayer does not materially participate, including the
ownership of a limited partnership interest, such as an interest in the Company.
"Passive income," however, does not include portfolio income (i.e. dividends,
interest, royalties, etc.). Although taxpayers generally may not deduct losses
or use tax credits derived from passive activities in an amount greater than
their income derived from such activities, if and to the extent that the Company
generates passive income, it will be available to offset the limited partners'
passive losses from other sources.
Partnerships with interests that are "publicly traded" are taxed as
corporations unless at least 90% of their income is "qualifying income." Because
the Company's income will be qualifying income for this purpose, the Company
will not be taxed as a corporation under this rule. Passive income or losses
from publicly traded partnerships that are not taxed as corporations generally
cannot be used to offset passive income or losses from other sources. Enex
believes that the Company is not publicly traded. Consequently, limited partners
should continue to be able to utilize their income and loss from the Company to
offset losses and income from their other passive activities.
In order to prevent the adverse tax consequences that would affect the
limited partners if the Company's limited partnership interests were to become
publicly traded in the future, the general partner may, after final regulations
have been issued by the Internal Revenue Service, submit to a vote of limited
partners a proposal to amend the Company's agreement of limited partnership to
provide, among other things, (a) that Enex shall have the right to refuse to
recognize any transfer of limited partnership interests if it believes that such
transfer occurred on a secondary market or the substantial equivalent
I-2
<PAGE>
thereof; and (b) that all assignors and assignees of the limited partnership
interests shall be required to represent to Enex that any transfer of limited
partnership interests did not, to the best of their knowledge, occur on a
secondary market or the substantial equivalent thereof.
Item 2. Description of Property
Presented below is a summary of the Company's property
acquisitions.
The CONCORD acquisition consists of working interests and royalty interests
in more than 10,600 wells in 137 counties in Texas, with very minor interests in
12 other states. The Company acquired its interests effective January 1987 for
$1,053,967.
Effective August 1990, the Company sold its interest in a small field in
the Concord acquisition (the North Robertson Unit) for $11,256, resulting in a
net gain of $8,102.
Effective June 30, 1992, the Company sold its interest in a small field in
the Concord acquisition (the Spraberry Unit) for $6,365 This sale resulted in a
net gain of $3,691.
Effective September 30, 1993, the Company sold its interest in a small
field in the Concord acquisition (the Coleman Ranch Unit) for $13,125. This sale
resulted in a net loss of $2,028 to the Company.
Effective October 1, 1994, the Company acquired additional working and
royalty interests in the Concord acquisition for $5,898 from an affiliated
partnership. The purchase price represents the fair market value as determined
from the receipt of bids solicited from independent third party companies.
The Company retains working interests ranging from 0.01% to 0.85% of the
total Concord acquisition at December 31, 1995. The Concord acquisition is
operated by nearly 100 different oil and gas producers.
The FLORIDA acquisition consists of working interests and a small
overriding royalty interest in 3 producing wells in Hendry County, Florida. The
Company acquired its interests effective in June 1987, for $227,775. Effective
October 1, 1994, the Company sold its interest in the Florida acquisition to
Enex Resources Corporation for $38,558 plus assumption of plugging and
abandonment liabilities of the properties by Enex. No gain or loss was
recognized as a result of this sale.
Purchase price as used above is defined as the actual contract price plus
finders' fees, if applicable. Miscellaneous acquisition expenses, subsequent
capital items, etc. are not included.
Oil and Gas Reserves
For quantitative information regarding the Company's oil and gas reserves,
please see Supplementary Oil and Gas Information and related tables which follow
the Notes to Financial Statements in Item 7 of this report. The Company has not
filed any current oil and gas reserve estimates or included any such estimates
in reports to any federal or foreign governmental authority or agency, including
the Securities and Exchange Commission.
I-3
<PAGE>
Proved oil and gas reserves reported herein are based on engineering
reports prepared by the petroleum engineering consulting firm of H. J. Gruy and
Associates, Inc. The reserves included in this report are estimates only and
should not be construed as exact quantities. Future conditions may affect
recovery of estimated reserves and revenue, and all reserves may be subject to
revision as more performance data become available. The proved reserves used in
this report conform to the applicable definitions promulgated by the Securities
and Exchange Commission. No major discovery or other favorable or adverse event
that could potentially cause a significant change in the estimated proved
reserves has occurred since December 31, 1995.
Net Oil and Gas Production
The following table shows for the years ended December 31, 1995 and 1994,
the approximate production attributable to the Company's oil and gas interests.
The figures in the table represent "net production"; i.e., production owned by
the Company and produced to its interest after deducting royalty and other
similar interests. All production occurred in the United States.
1995 1994
---- ----
Crude oil and condensate (Bbls) . . . . . . . . . . . 6,848 7,401
Natural gas (Mcf) . . . . . . . . . . . . . . . . . . 9,327 7,888
The following table sets forth the Company's average sales price per barrel
of oil, per Mcf of gas, and average production cost per unit produced for the
years ended December 31, 1995 and 1994.
1995 1994
---- ----
Average sales price per barrel of oil $ 15.67 $ 14.31
Average sales price per Mcf of gas 1.60 1.77
Average production cost per equivalent
barrel of production 5.75 9.36
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company is a
party.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
I-4
<PAGE>
PART II
Item 5. Market for Common Equity and Related Security Holder Matters
Market Information
There is no established public trading market for the Company's outstanding
limited partnership interests.
Number of Equity Security Holders
Number of Record Holders
Title of Class (as of March 1, 1996)
-------------- ------------------------
General Partner's Interests 1
Limited Partnership Interests 942
Dividends
The Company discontinued the payment of distributions in the
first quarter of 1994. Future distributions are dependent upon, among other
things, an increase in the prices received for oil and gas. The Company will
continue to recover its reserves and reduce obligations in 1996. Based upon
current projected cash flows from its property, it does not appear that the
Company will have sufficient net cash flow after debt service to pay
distributions.
II-1
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
This discussion should be read in conjunction with the financial statements
of the Company and the notes thereto included in this Form 10-KSB.
Oil and gas sales in 1995 were $122,230 as compared with $119,843 in 1994.
Oil and gas sales increased by $2,387 or 2% from 1994 to 1995. Oil sales
increased by $1,401 or 1%. A 10% increase in the average oil sales price
increased sales by $9,313. This increase was partially offset by a 7% decline in
oil production. Gas revenues increased by $986 or 7%. An 18% increase in gas
production increased sales by $2,571. This increase was partially offset by a
10% decrease in the average gas sales price. The increase in gas production was
primarily the result of the completion of a waterflood project on the Schafter
Lake field and the acquisition of additional interest in the Concord acquisition
in the fourth quarter of 1994. The decrease in oil production was primarily due
to natural production declines and due to the sale of the Florida acquisition,
in the fourth quarter of 1994, partially offset by the acquisition of additional
interest in the Concord acquisition. The changes in average oil and gas sales
prices correspond with changes in the overall market for the sale of oil and
gas.
Lease operating expenses were $42,809 in 1995 as compared with $75,863 in
1994. Lease operating expenses decreased by $33,054 or 44% from 1994 to 1995.
This decrease was primarily due to operating and workover costs incurred in 1994
on the Florida acquisition, which was sold in the fourth quarter of 1994.
Depreciation and depletion expense was $40,723 in 1995 as compared with
$60,457 in 1994. Depletion and depreciation expense decreased by $19,734 or 33%
from 1994 to 1995. A 30% decrease in the depletion rate reduced depreciation and
depletion expense by $17,562. The changes in production, noted above, reduced
depreciation and depletion expense by an additional $2,172. The decrease in the
depletion rate was primarily a result of the recognition of an impairment of
$52,447 in December 1994, coupled with an upward revision of the oil and gas
reserves during 1995.
Due to reserve revisions and lower prices, the Company recorded an
impairment of property for $52,447 in 1994. This impairment represented the
excess of the net capitalized costs, over the undiscounted future net revenues
of the reserves.
Effective October 1, 1994, the Company sold its interest in the Florida
acquisition to Enex Resources Corporation for $38,558, plus the assumption of
plugging and abandonment costs by Enex. The wells in the Florida acquisition
were non-producing. The sales price represents the salvage value of the wellhead
equipment on the wells.
General and administrative expenses were $23,352 in 1995 as compared with
$27,163 in 1994. General and administrative expenses decreased by $3,811 or 14%
from 1994 to 1995. This decrease was primarily a result of less staff time being
charged to the Company in 1995 and a $1,724 decrease in direct expenses incurred
by the Company in 1995 due to lower audit and tax fees.
II-2
<PAGE>
Capital Resources and Liquidity
The Company's cash flow is a direct result of the amount of net proceeds
realized from the sale of oil and gas production and from the sale of the
Florida acquisition, noted above. Accordingly, the changes in cash flow from
1994 to 1995 are primarily due to the changes in oil and gas sales and property
sale, described above and the repayment of $10,204 of debt in 1995 as compared
to the net repayment of $63,634 of debt in 1994.
The Company discontinued the payment of distributions in the first quarter
of 1994. Future distributions are dependent upon among other things, an increase
in the prices received for oil and gas. The Company will continue to recover its
reserves and reduce its obligations in 1996. The general partner does not intend
to accelerate the repayment of the debt beyond the cash flow provided by
operating activities. Based upon current projected cash flows from its property,
it does not appear that the Company will have sufficient cash to pay its
operating expenses, repay its debt obligations and pay distributions. The
Company repaid the note payable to the general partner in 1995, and plans to
repay the amount owed to the general partner over a nine year period.
At December 31, 1995, the Company had no material commitments for capital
expenditures. The Company does not intend to engage in any significant
developmental drilling activity.
II-3
<PAGE>
Item 7. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
The Partners
Enex Oil & Gas Income
Program III - Series 1, L.P.:
We have audited the accompanying balance sheet of Enex Oil & Gas Income Program
III - Series 1, L.P. (a New Jersey limited partnership) as of December 31, 1995
and the related statements of operations, changes in partners' capital
(deficit), and cash flows for each of the two years in the period ended December
31, 1995. These financial statements are the responsibility of the general
partner of Enex Oil & Gas Income Program III - Series 1, L.P. Our responsibility
is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Enex Oil & Gas Income Program III - Series
1, L.P. at December 31, 1995 and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
March 18, 1996
II-4
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - SERIES 1, L.P.
BALANCE SHEET, DECEMBER 31, 1995
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<TABLE>
<CAPTION>
ASSETS
1995
-------------
CURRENT ASSETS:
<S> <C>
Cash $ 2,078
Accounts receivable - oil & gas sales 9,492
Other current assets 2,754
-------------
Total current assets 14,324
-------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests and related equipment & facilities 1,146,787
Less accumulated depreciation and depletion 890,423
-------------
Property, net 256,364
-------------
TOTAL $ 270,688
=============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 10,796
Payable to general partner 28,239
-------------
Total current liabilities 39,035
-------------
NONCURRENT PAYABLE TO GENERAL PARTNER 225,913
-------------
PARTNERS' CAPITAL (DEFICIT):
Limited partners (38,282)
General partner 44,022
-------------
Total partners' capital 5,740
-------------
TOTAL $ 270,688
=============
</TABLE>
See accompanying notes to financial statements.
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II-5
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - SERIES 1, L.P.
STATEMENTS OF OPERATIONS
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---------- ----------
REVENUES:
<S> <C> <C>
Oil and gas sales $ 122,230 $ 119,843
---------- ----------
EXPENSES:
Depreciation and depletion 40,723 60,457
Impairment of property - 52,447
Lease operating expenses 42,809 75,863
Production taxes 5,506 5,707
General and administrative:
Allocated from general partner 18,820 20,907
Direct expense 4,532 6,256
---------- ----------
Total expenses 112,390 221,637
---------- ----------
INCOME (LOSS) FROM OPERATIONS 9,840 (101,794)
---------- ----------
OTHER EXPENSE:
Interest expense (761) (4,991)
---------- ---------
NET INCOME (LOSS) $ 9,079 $(106,785)
========== ==========
</TABLE>
See accompanying notes to financial statements.
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II-6
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - SERIES 1, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER $500
LIMITED
PARTNER
GENERAL LIMITED UNIT OUT-
TOTAL PARTNER PARTNERS STANDING
--------- --------- ---------- --------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ 103,446 $ 38,429 $ 65,017 $ 22
NET INCOME (LOSS) (106,785) 612 (107,397) (36)
--------- --------- ---------- --------
BALANCE, DECEMBER 31, 1994 (3,339) 39,041 (42,380) (14)
NET INCOME 9,079 4,981 4,098 1
--------- --------- ---------- --------
BALANCE, DECEMBER 31, 1995 $ 5,740 $ 44,022 $ (38,282)(1) $ (13)
========= ========= ========== ========
</TABLE>
(1) Includes 505 units purchased by the general partner as a limited partner.
See accompanying notes to financial statements.
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II-7
<PAGE>
<TABLE>
<CAPTION>
ENEX OIL AND GAS INCOME PROGRAM III - SERIES 1, L.P.
STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
- ------------------------------------------------------------------------------
1995 1994
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 9,079 $(106,785)
----------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and depletion 40,723 60,457
Impairments of property - 52,447
(Increase) decrease in:
Accounts receivable - oil & gas sales (941) 889
Other current assets 930 (2,458)
Increase (decrease) in:
Accounts payable 2,067 (28,120)
Payable to general partner (25,673) 42,488
----------- ---------
Total adjustments 17,106 125,703
----------- ---------
Net cash provided by operating activities 26,185 18,918
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property (additions) credits - development costs (14,637) 3,873
Proceeds from sale of property - 38,558
----------- ---------
Net cash provided (used) by investing activities (14,637) 42,431
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in note payable to general partner (10,204) (63,634)
----------- ---------
NET INCREASE (DECREASE) IN CASH 1,344 (2,285)
CASH AT BEGINNING OF YEAR 734 3,019
----------- ---------
CASH AT END OF YEAR $ 2,078 $ 734
=========== =========
Cash paid for interest during the year $ 4,955 $ 797
=========== =========
</TABLE>
See accompanying notes to financial statements.
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II-8
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - SERIES 1, L.P.
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
1. PARTNERSHIP ORGANIZATION
Enex Oil & Gas Income Program III - Series 1, L.P.
(the "Company"), a New Jersey limited partnership,
commenced operations on August 8, 1986 for the purpose
of acquiring proved oil and gas properties. Total
limited partner contributions were $1,488,778, of
which $14,888 was contributed by Enex Resources
Corporation ("Enex"), the general partner.
In accordance with the partnership agreement, the
Company paid commissions of $139,801 for solicited
subscriptions to Enex Securities Corporation, a
subsidiary of Enex, and reimbursed Enex for
organization expenses of approximately $45,000.
Information relating to the allocation of costs and
revenues between Enex, as general partner, and the
limited partners is as follows:
Limited
Enex Partners
Commissions and selling expenses 100%
Company reimbursement of organization
expense 100%
Company property acquisition 100%
General and administrative costs 10% 90%
Costs of drilling and completing
development wells 10% 90%
Revenues from temporary investment of
partnership capital 100%
Revenues from producing properties 10% 90%
Operating costs (including general and
administrative costs associated with
operating producing properties) 10% 90%
At the point in time when the cash distributions to
the limited partners equal their subscriptions
("payout"), the costs of drilling and completing
development wells, revenues from producing properties,
general and administrative costs and operating costs
will be allocated 15% to the general partner and 85%
to the limited partners.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Oil and Gas Properties - The Company uses the
successful efforts method of accounting for its oil
and gas operations. Under this method, the costs of
all development wells are capitalized. Capitalized
costs are amortized on the units-of-production method
based on estimated total proved reserves. The
acquisition costs of improved oil and gas properties
are capitalized and periodically assessed for
impairment.
II-9
<PAGE>
The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long Lived Assets
and for Long-Lived Assets to Be Disposed Of." This
statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company
be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of
an asset may not be recoverable.
The Company has not determined the effect, if any,
on its financial position or results of operations from
the adoption of this statement in the first quarter of
1996.
Cash Flows - The Company has presented its cash flows
using the indirect method and considers all highly
liquid investments with an original maturity of three
months or less to be cash equivalents.
General and Administrative Expenses - The Company
reimburses the General Partner for direct costs and
administrative costs incurred on its behalf.
Administrative costs allocated to the Company 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.
Uses of Estimates - The preparation of the financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contigent assets and liabilities at the date of the
financial statements and the reported amounts of
revenue and expenses during the reporting periods.
Actual results could differ from these estimates.
3. FEDERAL INCOME TAXES
General - The Company is not a taxable entity for
federal income tax purposes. Such taxes are
liabilities of the individual partners and the amounts
thereof will vary depending on the individual
situation of each partner. Accordingly, there is no
provision for income taxes in the accompanying
financial statements.
II-10
<PAGE>
Set forth below is a reconciliation of net income as reflected in the
accompanying financial statements and net income (loss) for federal income tax
purposes for the year ended December 31, 1995:
<TABLE>
<CAPTION>
Allocable to
----------------- Per $500 Limited
General Limited Partner Unit
TOTAL Partner Partners Outstanding
---------- -------- ------- --------------
Net income as reflected in the
<S> <C> <C> <C> <C>
accompanying financial statements $ 9,079 $ 4,981 4,098 1
Reconciling items:
Intangible drilling costs
capitalized for financial
reporting purposes which
were charged-off for federal
income tax purposes (9,646) (965) (8,681) (3)
Difference in depreciation,
depletion and amortization
computed for federal income
tax purposes and the amount
computed for financial
reporting purposes (2,746) - (2,746) -
---------- -------- ------- ----
Net income (loss) for federal
income tax purposes $ (3,313) $ 4,016 (7,329) (2)
========== ======== ======= ====
</TABLE>
Net income (loss) for federal income tax purposes is a summation of ordinary
income (loss), portfolio income (loss), cost depletion and intangible drilling
costs as presented in the Company's federal income tax return.
Set forth below is a reconciliation between partners' capital (deficit) as
reflected in the accompanying financial statements and partners' capital for
federal income tax purposes as of December 31, 1995:
<TABLE>
<CAPTION>
Allocable to
-------------------- Per $500 Limited
General Limited Partner Unit
TOTAL Partner Partners Outstanding
---------- --------- --------- -------------
Partners' capital (deficit)as reflected in
<S> <C> <C> <C> <C>
the accompanying financial statements $ 5,740 $ 44,022 (38,282) (13)
Intangible drilling costs
capitalized for financial
reporting purposes which
were charged-off for federal
income tax purposes (159,703) (15,976) (143,727) (48)
Difference in accumulated
depreciation, depletion and
amortization for financial
reporting and federal income
tax purposes 105,403 - 105,403 35
Commissions and syndication
fees capitalized for federal
income tax purposes 139,801 - 139,801 47
---------- --------- --------- -------------
Partners' capital for federal
income tax purposes $ 91,241 $ 28,046 63,195 21
========== ========= ========= =============
</TABLE>
II-11
<PAGE>
4. PAYABLE TO GENERAL PARTNER
The payable to general partner primarily consists of
general and administrative expenses allocated to the
Company by Enex during the Company's start-up phase
and for its ongoing operations. At December 31, 1995,
the Company plans to repay the amounts owed to the
general partner over a period of nine years.
5. REPURCHASE OF LIMITED PARTNER INTERESTS
In accordance with the partnership agreement, the
general partner is required to purchase limited
partner interests (at the option of the limited
partners) at annual intervals beginning after the
second year following the formation of the Company.
The purchase price, as specified in the partnership
agreement, is based primarily on reserve reports
prepared by independent petroleum engineers as reduced
by a specified risk factor.
6. SIGNIFICANT PURCHASERS
Amoco Production Company purchased 24% and Exxon
Corporation accounted for 13% of the Company's total
sales in 1995. Amoco Production Company purchased 22%
and Exxon Corporation accounted for 12% of the
Company's total sales in 1994. No other purchaser
individually accounted for more than 10% of such
sales.
7. NOTE PAYABLE TO GENERAL PARTNER
On July 8, 1993, the Company borrowed $43,934 from the
general partner to repay a note payable and interest
to the bank. The Company borrowed an additional
$34,000 and $33,000 on November 1, 1993 and December
30, 1993, respectively, in order to finance workover
costs on the Florida properties. On March 2, 1994, the
Company borrowed an additional $22,000 for workover
costs on the Florida properties. Principal payments of
$10,204 and $63,634 were made on the note in 1995 and
1994, respectively. The note bore interest at an
average rate of 7.39% and 7.74%, during 1995 and 1994,
respectively, which is the general partners borrowing
rate of prime plus three-fourths of one percent. The
interest rate was 9.25% at December 31, 1994. On May
1, 1995, the note was completely repaid.
8. PROPERTY TRANSACTIONS
Effective October 1, 1994, the Company acquired
additional working and royalty interests in the
Concord acquisition for $5,898 from an affiliated
partnership. The purchase price represents the fair
market value as determined from the receipt of bids
solicited from independent third party companies.
Effective October 1, 1994, the Company sold its
interest in the Florida acquisition to Enex Resources
Corporation for $38,558, plus the assumption of
plugging and abandonment costs by Enex. The wells in
the Florida acquisition were non-producing. The sales
price represents the salvage value of the wellhead
equipment on the wells.
II-12
<PAGE>
9. IMPAIRMENTS OF PROPERTY
A noncash write-down of capitalized costs of $52,447
was made in 1994. This write-down was computed as the
excess of the net capitalized costs over the
undiscounted future net revenues from proved oil and
gas reserves. The undiscounted future net revenues
were computed using certain arbitrary assumptions such
as holding the oil and gas prices constant at the
prices in effect at the time of the computation.
II-13
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - SERIES 1, L.P.
SUPPLEMENTARY OIL AND GAS INFORMATION
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
- -------------------------------------------------------------------------------
Proved Oil and Gas Reserve Quantities (Unaudited)
The following presents an estimate of the Company's proved oil and gas reserve
quantities and changes therein for each of the two years ended December 31,
1995. Oil reserves are stated in barrels ("BBLS") and natural gas in thousand
cubic feet ("MCF"). The amounts per $500 limited partner unit do not include a
potential 5% reduction after payout. All of the Company's reserves are located
within the United States.
<TABLE>
<CAPTION>
Per $500 Per $500
Limited Natural Limited
Oil Partner Unit Gas Partner Unit
(BBLS) Outstanding (MCF) Outstanding
---------- ------------- --------- -----------
PROVED DEVELOPED AND
UNDEVELOPED RESERVES:
<S> <C> <C> <C> <C>
January 1, 1994 42,437 13 64,854 20
Revisions of previous estimates (1,155) (1) (11,286) (4)
Purchases of minerals in place 684 - 920 -
Production (7,401) (2) (7,888) (2)
---------- ------------- --------- ----------
December 31, 1994 34,565 10 46,600 14
Revisions of previous estimates 15,373 5 19,823 6
Production (6,848) (2) (9,327) (3)
---------- ------------- --------- ----------
December 31, 1995 43,090 13 57,096 17
========== ============= ========= ==========
PROVED DEVELOPED RESERVES:
January 1, 1994 42,437 13 64,854 20
========== ============= ========= ==========
December 31, 1994 34,565 10 46,600 14
========== ============= ========= ==========
December 31, 1995 43,090 13 57,096 17
========== ============= ========= ==========
</TABLE>
II-14
<PAGE>
Item 8.Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure
Not Applicable
II-15
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------------------
The Company's sole General Partner is Enex Resources Corporation, a
Delaware corporation. The Company has no Directors or executive officers. The
Directors and executive officers of Enex are:
Gerald B. Eckley. Mr. Eckley, age 69, has served as a Director, President
and Chief Executive Officer of the General Partner since its formation in 1979.
He was employed by Shell Oil Company from 1951 to 1967 and served in managerial
capacities from 1959 to 1967. From 1967 to 1969, he was Director of Fund Raising
at the University of Oklahoma and from 1969 to 1971, was Vice President of Land
and Operations for Imperial American Management Company. In 1971, Mr. Eckley was
a petroleum consultant and in 1972-1973 was General Counsel and Executive
Director of the Oil Investment Institute. From 1973 to 1974, he was Manager of
Oil Properties, Inc. and from 1974 to 1976, was Vice President, Land and Joint
Ventures for Petro-Lewis Corporation. From 1977 to August 1979, Mr. Eckley was
President of Eckley Energy, Inc., a company engaged in purchasing and selling
oil and gas properties. Mr. Eckley received an L.L.B. degree from the University
of Oklahoma in 1951 and a Juris Doctor degree from the University of Oklahoma in
1970.
William C. Hooper, Jr. Mr. Hooper, age 58, has been a Director of the
General Partner since its formation in 1979 and is a member of the General
Partner's Audit and Compensation and Options Committees. In 1960 he was a staff
engineer in the Natural Gas Department of the Railroad Commission of Texas, with
principal duties involving reservoir units and gas proration. In 1961 he was
employed by the California Company as a Drilling Engineer and Supervisor. In
1963 he was employed as a Staff Engineer by California Research Corporation and
in 1964 rejoined the California Company as a project manager having various
duties involving drilling and reservoir evaluations. In 1966 he was Executive
Vice President for Moran Bros. Inc., coordinating and managing all company
activities, drilling operations, bidding and engineering. From 1970 until the
present, he has been self-employed as a consulting petroleum engineer providing
services to industry and government and engaged in business as an independent
oil and gas operator and investor. From 1975 to 1987 he was also a Director and
President of Verna Corporation, a drilling contractor and service organization.
He received a B.S. degree in Petroleum Engineering in 1960 from the University
of Texas and an M.S. degree in Petroleum Engineering from that same University
in 1961.
Stuart Strasner. Mr. Strasner, age 66, was a Director of the General
Partner from its formation until October of 1986. He was reappointed to the
Board on April 19, 1990 to fill a vacancy. He is a member of the Audit
Committee. He is a professor of business law at Oklahoma City University and was
Dean of the law school at Oklahoma City University from July 1984 until June
1991. Prior to July 1984, Mr. Strasner was an attorney in private practice with
McCollister, McCleary, Fazio and Holliday in Oklahoma City, Oklahoma. From 1959
to 1974, he was employed by various banks, bank holding companies and an
insurance company in executive capacities. From 1974 to 1978, he was a
consultant to various corporations such as insurance companies, bank holding
companies and small business investment companies. From 1978 until late 1981, he
was Executive Director of the Oklahoma Bar Association, and from 1981 to 1983
was a Director and President of PRST Enterprises, Inc., a real estate
development company. Mr. Strasner holds an A.B. degree from Panhandle A&M
College, Oklahoma, and a J.D. degree from the University of Oklahoma. He is a
member of the Fellows of the American Bar Association and a member of the
Oklahoma Bar Association. Mr. Strasner is also a director of Health Images,
Inc., a public company which provides fixed site magnetic resonance imaging
("MRI") services.
III-1
<PAGE>
Martin J. Freedman. Mr. Freedman, age 71, was one of the General Partner's
founders and a member of its Board of Directors as well as a board member of
Enex Securities Corporation until June of 1986. He was reappointed to the Board
on April 19, 1990 to fill a vacancy. He is a member of the Compensation and
Options Committee. He is currently President of Freedman Oil & Gas Company,
engaged primarily in the management of its exploration and producing properties,
and the managing partner Martin J. Freedman & Company which has an interest in
approximately one hundred producing oil and/or gas wells. Mr. Freedman is a
lifetime member of the Denver Petroleum Club as well as being a lifetime member
of the Denver Association of Petroleum Landmen. He was an officer and Director
and/or founder of several former private and public companies. Mr. Freedman
entered the oil and gas business in 1954 when he joined Mr. Marvin Davis of the
Davis Oil Company. In 1956, he became President of Central Oil Corporation, a
company engaged in oil and gas exploration. From 1958 on, Mr. Freedman operated
as Martin J. Freedman Oil Properties and was President of Oil Properties, Inc.,
a private corporation. Mr. Freedman attended Long Island University and New York
University. He received a bachelor's degree in Psychology and also attended New
York University's graduate school.
James Thomas Shorney. Mr. Shorney, age 70, has been a Director of the
General Partner since April of 1990 and is a member of the Compensation and
Options Committee. He has been a petroleum consultant and Secretary/Treasurer of
the Shorney Company, a privately held oil and gas exploration company, from 1970
to date. From 1970 to 1976, he also served as a petroleum consultant in Land and
Lease Research Analysis Studies for the GHK Company. He was an oil and gas lease
broker from 1962 to 1970 and employed by Shell Oil Company in the Land
Department from 1954 to 1962. Before joining Shell Oil Company, he served as
Public Information Officer in the U.S. Army Air Force from 1950 to 1953
including attending Georgetown University Graduate School in 1952. Mr. Shorney
graduated from the University of Oklahoma with a B.A. degree in Journalism in
1950. From 1943 to 1945, he served in the U.S. Army Air Force as an air crew
member on a B-24 Bomber. Mr. Shorney is a member of the Oklahoma City
Association of Petroleum Landmen on which he has served as Director and
Secretary/Treasurer. He is an active member of the American Association of
Petroleum Landmen. In 1975, Mr. Shorney was first listed in the London Financial
Times' Who's Who in World Oil and Gas.
Robert D. Carl, III. Mr. Carl, age 42, was appointed a Director of the
General Partner on July 30, 1991 and is a member of the Audit Committee. He is
President, Chief Executive Officer and Chairman of the Board of Health Images,
Inc., a public company whose securities are traded on NYSE, which provides fixed
site magnetic resonance imaging ("MRI") services. From 1978 to 1981, Mr. Carl
also served as President of Carl Investment Associates, Inc. a registered
investment advisor. In 1981, Mr. Carl joined Cardio-Tech, Inc., as general
counsel and as an officer and Director. Upon the sale and reorganization of
Cardio-Tech, Inc. into Cardiopul Technologies in 1982, he served as its
Executive Vice President and as a Director. In March, 1985 he was elected
President, Chief Executive Officer and Chairman of Cardiopul Technologies which
spun off its non-imaging medical services business and changed its name to
Health Images, Inc. Mr. Carl received a B.A. in History from Franklin and
Marshall College, Lancaster, Pennsylvania in 1975 and a J.D. from Emory
University School of Law, Atlanta, Georgia in 1978. Mr. Carl is a trustee of
Franklin & Marshall College and is a member of the State Bar of Georgia.
On January 4, 1996, the SEC filed a complaint in the United States District
Court for the District of Columbia against Mr. Carl alleging that Mr. Carl
violated Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act"),
and Rule 16a-2 and 16a-3 (and former Rule 16a-1) thereunder, by failing to
timely file reports concerning thirty-eight securities transactions in his
mother's brokerage accounts involving shares of Health Images, Inc. stock.
Although Mr. Carl's mother apparently did not
III-2
<PAGE>
live in his household, the SEC took the position that because Mr. Carl (1)
provided substantial financial support to his mother, (2) commingled his
mother's assets with his own, (3) provided a substantial portion of the funds
used to purchase the shares in question, and (4) received from his mother a
substantial portion of the sales proceeds, he, therefore, had a pecuniary
interest in, and was a beneficial owner of, the shares in question.
In response to the SEC's action, Mr. Carl disgorged to Health Images, Inc.
approximately $92,400 in short-swing profits from the trading in his mother's
account, plus interest thereon of approximately $52,600. The SEC further
requested the court to impose a $10,000 civil penalty against Mr. Carl pursuant
to Section 21(d)(3) of the Exchange Act. Without admitting or denying the
allegations in the complaint, Mr. Carl consented to the entry of a final
judgement imposing the $10,000 penalty. On January 12, 1996, a federal judge
entered the final judgement in this matter, and Mr. Carl has since filed amended
reports on Forms 4 and 5 reflecting these transactions in his mother's accounts.
In relation to the same matter, the SEC has issued an administrative Order
pursuant to Section 21C of the Exchange Act against Mr. Carl, finding that he
violated Section 16(a) and the rules thereunder and requiring him to cease and
desist from committing or causing any violation or future violation of those
provisions. Without admitting or denying allegations in the SEC's Order, Mr.
Carl consented to the entry of the Order.
Robert E. Densford. Mr. Densford, age 38, was appointed a Director of the
General Partner on September 11, 1991. He joined the General Partner as
Controller on May 1, 1985 and became Vice President-Finance, Secretary and
Treasurer on March 1, 1989. From January 1983 to April 1985, he was Senior
Accountant for Deloitte Haskins & Sells in Houston, Texas, auditing both closely
held and publicly owned oil and gas companies. From September 1981 to December
1982, he was a staff accountant for Coopers & Lybrand in Houston. Mr. Densford
is a C.P.A. and holds a B.B.A. degree in Accounting and an M.S. degree in Oil
and Gas Accounting from Texas Tech University and is a member of the American
Institute of Certified Public Accountants and the Texas Society of Certified
Public Accountants.
James A. Klein. Mr. Klein, age 32, joined the General Partner as Controller
in February 1991. In June 1993, he was appointed President and Principal of Enex
Securities Corporation. From June 1988 to February 1991, he was employed by
Positron Corporation in Houston. From July 1987 to May 1988, he was employed by
Transworld Oil Company in Houston and from September 1985 until July 1987, he
was an accountant with Deloitte Haskins & Sells in Houston, Texas, auditing oil
and gas and oil service companies. Mr. Klein is a Certified Public Accountant
and holds a B.A. in Accounting (1985) from the University of Iowa. He is a
member of the American Institute of Certified Public Accountants and the Iowa
Society of Certified Public Accountants.
Item 10. Executive Compensation
The Company has no Directors or executive officers.
The Company does not pay a proportional or fixed share of the compensation
paid to the officers of the General Partner.
The Company reimburses the General Partner for direct costs and
administrative costs incurred on its behalf. Administrative costs allocated to
the Company 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.
III-3
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
$500 Limited
Name of Partner Units Percent
Title of Class Beneficial Owner Owned Directly of Class
Limited Partner Enex Resources 505 16.9735%
Item 12. Certain Relationships and Related Transactions
See the Statements of Operations included in the Financial Statements in
Item 7 of this report for information concerning general and administrative
costs incurred by Enex and allocated to the Company, and Note 1 to such
Financial Statements for information concerning payments to Enex Securities
Corporation, a wholly owned subsidiary of Enex and to Enex for certain offering
and organization expenses incurred by the Company.
Item 13. Exhibits and Reports on Form 8-K
---------------------------
Sequential
Page No.
(a) Exhibits
(3) a. Certificate of Limited Partnership, as amended.
Incorporated by reference to Exhibit 3(a) to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1987.
b. Amended Agreement of Limited Partnership.
Incorporated by reference to Exhibit 2 (b) (2) to
the registrant's Registration Statement of Form
8-A filed with the Securities and Exchange
Commission on or about February 23, 1987.
(4) Not Applicable
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(18) Not Applicable
(19) Not Applicable
III-4
<PAGE>
(22) Not Applicable
(23) Not Applicable
(24) Not Applicable
(25) Not Applicable
(28) Not Applicable
(b) Reports on Form 8-K
No reports on Form 8-K were filed
during the last quarter of the period
covered by this report.
III-5
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ENEX OIL AND GAS INCOME PROGRAM III -
SERIES 1, L.P.
By: ENEX RESOURCES CORPORATION
the General Partner
March 18, 1996 By: /s/ G. B. Eckley
-------------------
G. B. Eckley, President
In accordance with the Exchange Act, this report has been
signed below on March 18, 1996, by the following persons in the capacities
indicated.
ENEX RESOURCES CORPORATION General Partner
By: /s/ G. B. Eckley
------------------------
G. B. Eckley, President
/s/ G. B. Eckley
President, Chief Executive
------------------ Officer and Director
G. B. Eckley
/s/ R. E. Densford Vice President, Secretary, Treasurer,
Chief Financial Officer and Director
-------------------
R. E. Densford
/s/ James A. Klein Controller and Chief Accounting Officer
-----------------
James A. Klein
S-1
<PAGE>
/s/ Robert D. Carl, III
--------------------------
Robert D. Carl, III Director
/s/ Martin J. Freedman
--------------------------
Martin J. Freedman Director
/s/ William C. Hooper, Jr.
--------------------------
William C. Hooper, Jr. Director
/s/ Tom Shorney
--------------------------
Tom Shorney Director
/s/ Stuart Strasner
--------------------------
Stuart Strasner Director
S-2
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000806612
<NAME> Enex Oil & Gas Income Program III - Series 1, L.P.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> dec-31-1995
<PERIOD-START> jan-01-1995
<PERIOD-END> dec-31-1995
<CASH> 2078
<SECURITIES> 0
<RECEIVABLES> 9492
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14324
<PP&E> 1146787
<DEPRECIATION> 890423
<TOTAL-ASSETS> 270688
<CURRENT-LIABILITIES> 39035
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5740
<TOTAL-LIABILITY-AND-EQUITY> 270688
<SALES> 122230
<TOTAL-REVENUES> 122230
<CGS> 48315
<TOTAL-COSTS> 89038
<OTHER-EXPENSES> 23352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (761)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9079
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
