United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from...............to...............
Commission file number 0-16575
ENEX INCOME AND RETIREMENT FUND - SERIES 3, L.P.
(Exact name of small business issuer as specified in its charter)
New Jersey 76-0222818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 200, Three Kingwood Place
Kingwood, Texas 77339
(Address of principal executive offices)
Issuer's telephone number:
(713) 358-8401
Check whether the issuer (1) has 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
Transitional Small Business Disclosure Format (Check one):
Yes No x
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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<CAPTION>
ENEX INCOME AND RETIREMENT FUND - SERIES 3, L.P.
BALANCE SHEET
- -------------------------------------------------------------------------------
September 30,
ASSETS 1996
---------------------
(Unaudited)
CURRENT ASSETS:
<S> <C>
Cash $ 4,022
Accounts receivable - oil & gas sales 28,526
---------------------
Total current assets 32,548
---------------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests 1,312,406
Less accumulated depletion 1,148,442
---------------------
Property, net 163,964
---------------------
TOTAL $ 196,512
=====================
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to general partner $ 22,802
---------------------
NONCURRENT PAYABLE TO GENERAL PARTNER 22,800
---------------------
PARTNERS' CAPITAL:
Limited partners 142,074
General partner 8,836
---------------------
Total partners' capital 150,910
---------------------
TOTAL $ 196,512
=====================
Number of $500 Limited Partner units outstanding 2,988
</TABLE>
See accompanying notes to financial statements.
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<TABLE>
<CAPTION>
ENEX INCOME AND RETIREMENT FUND - SERIES 3, L.P.
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
(UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED
------------------------------------ ----------------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
--------------- ----------------- ----------------- -------------------
REVENUES:
<S> <C> <C> <C> <C>
Oil and gas sales $ 18,315 $ 23,923 $ 82,597 $ 57,679
--------------- ----------------- ----------------- -------------------
EXPENSES:
Depletion 3,197 17,964 23,344 38,271
Impairment of property - - 52,602 -
Production taxes 988 2,023 4,075 3,185
General and administrative 5,974 7,125 21,607 23,857
--------------- ----------------- ----------------- -------------------
Total expenses 10,159 27,112 101,628 65,313
--------------- ----------------- ----------------- -------------------
OTHER INCOME:
Gain on sale of property 209 - 209 -
--------------- ----------------- ----------------- -------------------
NET INCOME (LOSS) $ 8,365 $ (3,189) $ (18,822) $ (7,634)
=============== ================= ================= ===================
</TABLE>
See accompanying notes to financial statements.
- ----------------------------------------------------------------------
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<PAGE>
<TABLE>
<CAPTION>
ENEX INCOME AND RETIREMENT FUND - SERIES 3, L.P.
STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED
--------------------------------------------
September 30, September 30,
1996 1995
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) $ (18,822) $ (7,634)
------------------- -------------------
Adjustments to reconcile net (loss) to net cash
provided by operating activities
Depletion 23,344 38,271
Impairment of property 52,602 -
Gain on sale of property (209)
(Increase) decrease in:
Accounts receivable - oil & gas sales (15,365) 9,576
Increase (decrease) in:
Accounts payable (4,292) (2,909)
Payable to general partner (36,901) (10,376)
------------------- -------------------
Total adjustments 19,179 34,562
------------------- -------------------
Net cash provided by operating activities 357 26,928
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 1,640 -
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES;
Cash distributions - (30,254)
------------------- -------------------
NET (DECREASE) INCREASE IN CASH 1,997 (3,326)
CASH AT BEGINNING OF YEAR 2,025 7,518
------------------- -------------------
CASH AT END OF PERIOD $ 4,022 $ 4,192
=================== ===================
</TABLE>
See accompanying notes to financial statements.
- ------------------------------------------------------------
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<PAGE>
ENEX INCOME AND RETIREMENT FUND - SERIES 3, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. The interim financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of results for the
interim periods.
2. On August 9, 1996, the Company's General Partner submitted preliminary
proxy material to the Securities Exchange Commission with respect to a
proposed consolidation of the Company with 33 other managed limited
partnerships. On November 13, 1996, the Company submitted amended
preliminary proxy material to the SEC with respect to this
consolidation. The terms and conditions of the proposed consolidation
are set forth in such preliminary proxy material.
3. Effective August 1, 1996 the Company sold its interest in the Spider Lake
3-2 well for $1,640. The Company recognized a gain of $209 from the sale.
4. The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires certain assets to be reviewed for impairment whenever events or
circumstances indicate the carrying amount may not be recoverable. Prior to
this pronouncement, the Company assessed properties on an aggregate basis.
Upon adoption of SFAS 121, the Company began assessing properties on an
individual basis, wherein total capitalized costs may not exceed the
property's fair market value. The fair market value of each property was
determined by H. J. Gruy and Associates, ("Gruy"). To determine the fair
market value, 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 certain discount factors for risk, location,
type of ownership interest, category of reserves, operational
characteristics, and other factors. In the first quarter of 1996, the
Company recognized a non-cash impairment of $52,602 for certain oil and gas
properties due to market indications that the carrying amounts were not
fully recoverable.
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Item 2. Management's Discussion and Analysis or Plan of Operation.
Third Quarter 1995 Compared to Third Quarter 1996
Oil and gas sales for the third quarter decreased to $18,315 in 1996 from
$23,923 in 1995. This represents a decrease of $5,608 (23%). Oil sales increased
by $1,540 or 47%. A 31% increase in the average net oil sales price increased
sales by $420. A 13% increase in oil production resulted in an additional
increase of $1,120. Gas sales decreased by $7,148 or 33%. A 54% decrease in gas
production decreased sales by $11,141. This decrease was partially offset by a
46% increase in the average gas sales price. The increase in oil production was
primarily the result of higher production from the Pecan Island acquisition,
which had a new well drilled on it in 1996. The decrease in gas production was
primarily due to lower production from the East Cameron acquisition, which was
shut in for a workover in 1996. The increases in the average net oil and gas
sales prices were due to relatively higher net profits royalty payments received
from the Barnes Estate acquisition, which had lower operating costs in 1996,
coupled with higher prices in the overall market for the sale of oil and gas.
Depletion expense decreased to $3,197 in the third quarter of 1996 from $17,964
in the third quarter of 1995. This represents a decrease of $14,767 (82%). The
changes in production, noted above, decreased depletion expense by $8,683. A 66%
decrease in the depletion rate decreased depletion expense by an additional
$6,084. The rate decrease was primarily due to an upward revision of the oil and
gas reserves during December 1995 and the lower property basis resulting from
the recognition of a $52,602 property impairment in the first quarter of 1996.
Effective August 1, 1996 the Company sold its interest in the Spider Lake 3-2
well for $1,640. The Company recognized a gain of $209 from the sale.
General and administrative expenses decreased to $5,974 in 1996 from $7,125 in
1995. This decrease of $1,151 (16%) is primarily due to less staff time being
required to manage the Company's operations.
First Nine Months in 1995 Compared to First Nine Months in 1996
Oil and gas sales for the first nine months increased to $82,597 in 1996 from
$57,679 in 1995. This represents an increase of $24,918 (43%). Oil sales
increased by $3,813 or 40%. A 6% increase in oil production caused sales to
increase by $568. A 33% increase in the average net oil sales price increased
sales by an additional $3,245. Gas sales increased by $21,105 or 45%. A 61%
increase in the average gas sales price increased sales by $26,195. This
increase was partially offset by a 10% decrease in gas production. The increases
in oil production were primarily due to higher production from the Pecan Island
acquisition which had a new well drilled on it in 1996. The decrease in gas
production was due primarily to natural production declines. The increases in
the average net oil and gas sales prices were due to relatively higher
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<PAGE>
net profits royalty payments received from the Barnes Estate acquisition, which
had lower operating costs in 1996, coupled with higher prices in the overall
market for the sale of oil and gas.
Depletion expense decreased to $23,344 in the first nine months of 1996 from
$38,271 in the first nine months of 1995. This represents a decrease of $14,927
(39%). A 34% decrease in the depletion rate reduced depletion expense by
$11,929. Changes in production noted above decreased depletion expense an
additonal $2,998. The rate decrease was primarily due to an upward revision of
the oil and gas reserves during December 1995 and the lower property basis
resulting from the recognition of a $52,602 property impairment in the first
quarter of 1996.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long- Lived Assets to be Disposed Of," which requires
certain assets to be reviewed for impairment whenever events or circumstances
indicate the carrying amount may not be recoverable. Prior to this
pronouncement, the Company assessed properties on an aggregate basis. Upon
adoption of SFAS 121, the Company began assessing properties on an individual
basis, wherein total capitalized costs may not exceed the property's fair market
value. The fair market value of each property was determined by H. J. Gruy and
Associates, ("Gruy"). To determine the fair market value, 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 certain discount
factors for risk, location, type of ownership interest, category of reserves,
operational characteristics, and other factors. In the first quarter of 1996,
the Company recognized a non-cash impairment of $52,602 for certain oil and gas
properties due to market indications that the carrying amounts were not fully
recoverable.
Effective August 1, 1996 the Company sold its interest in the Spider Lake 3-2
well for $1,640. The Company recognized a gain of $209 from the sale.
General and administrative expenses decreased to $21,607 in 1996 from $23,857 in
1995. This decrease of $2,250 (9%) is primarily due to less staff time being
required to manage the Company's operations.
Account receivable - oil and gas sales are disproportionately high in relation
to oil and gas sales as the revenues from the Corinne field were withheld by the
purchaser due to a gas balancing dispute.
CAPITAL RESOURCES AND LIQUIDITY
The Company's cash flow from operations is a direct result of the amount of net
proceeds realized from the sale of oil and gas production. Accordingly, the
changes in cash flow from 1995 to 1996 are primarily due to the changes in oil
and gas sales described above. It is the general partner's intention to
distribute substantially all of the Company's available cash flow to
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<PAGE>
the Company's partners. The Company's "available cash flow" is essentially equal
to the net amount of cash provided by operating activities.
The Company discontinued the payment of distributions during 1995. Future
distributions are dependent upon, among other things, an increase in prices
received for oil and gas. The Company will continue to recover its reserves and
distribute to the limited partners the net proceeds realized form the sale of
oil and gas production. Distribution amounts are subject to change if net
revenues are greater or less than expected. Based on the December 31, 1995
reserve report prepared by Gruy, there appears to be sufficient future net
revenues to pay all obligations and expenses. The General Partner does not
intend to accelerate the repayment of the debt beyond the Company's cash flow
provided by operating activities. Future periodic distributions will be made
once sufficient net revenues are accumulated.
On August 9, 1996, the Company's General Partner submitted preliminary proxy
material to the Securities Exchange Commission with respect to a proposed
consolidation of the Company with 33 other managed limited partnerships. On
November 13, 1996, the Company submitted amended preliminary proxy material to
the SEC with respect to this consolidation. The terms and conditions of the
proposed consolidation are set forth in such preliminary proxy material.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and reports on Form 8-K.
(a) There are no exhibits to this report.
(b) The Company filed no reports on Form 8-K during the
quarter ended Sepetmber 30, 1996.
II-1
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
ENEX INCOME AND RETIREMENT
FUND - SERIES 3, L.P.
(Registrant)
By:ENEX RESOURCES CORPORATION
General Partner
By: /s/ R. E. Densford
R. E. Densford
Vice President, Secretary
Treasurer and Chief Financial
Officer
November 13, 1996 By: /s/ James A. Klein
-------------------
James A. Klein
Controller and Chief
Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000830320
<NAME> ENEX INCOME AND RETIREMENT FUND - SERIES 3, L.P.
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> dec-31-1996
<PERIOD-START> jan-01-1996
<PERIOD-END> sep-30-1996
<CASH> 4022
<SECURITIES> 0
<RECEIVABLES> 28526
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32548
<PP&E> 1312406
<DEPRECIATION> 1148442
<TOTAL-ASSETS> 196512
<CURRENT-LIABILITIES> 22802
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 150910
<TOTAL-LIABILITY-AND-EQUITY> 196512
<SALES> 82597
<TOTAL-REVENUES> 82597
<CGS> 4075
<TOTAL-COSTS> 101628
<OTHER-EXPENSES> 97553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
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<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18822)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
