SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
for the transition period from
to
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Commission file number 0-13546
Apache Offshore Investment Partnership
A Delaware IRS
Employer
General Partnership No.
41-1464066
One Post Oak Central
2000 Post Oak Boulevard, Suite 100
Houston, Texas 77056-4400
Telephone Number (713) 296-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
PARTNERSHIP UNITS
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
---- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
----
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Apache Corporation's proxy statement relating to
its 1996 annual meeting of shareholders have been incorporated by
reference into Part III hereof.
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TABLE OF CONTENTS
DESCRIPTION
Item
Page
- ---- ----
PART I
1. BUSINESS 2
2. PROPERTIES 5
3. LEGAL PROCEEDINGS 5
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 5
PART II
5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED
SECURITY HOLDER MATTERS 6
6. SELECTED FINANCIAL DATA 6
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 7
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 11
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 25
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 26
11. EXECUTIVE COMPENSATION 26
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 26
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 26
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.27
All defined terms under Rule 4-10(a) of Regulation S-X shall
have their statutorily-prescribed meanings when used in this report.
Quantities of natural gas are expressed in this report in terms of
thousand cubic feet (Mcf), million cubic feet (MMcf) or billion cubic
feet (Bcf). Oil is quantified in terms of barrels (bbls), thousands
of barrels (Mbbls) and millions of barrels (MMbbls). Natural gas is
compared to oil in terms of barrels of oil equivalent (boe) or
million barrels of oil equivalent (MMboe). Oil and natural gas
liquids are compared with natural gas in terms of million cubic feet
equivalent (MMcfe) and billion cubic feet equivalent (Bcfe). One
barrel of oil is the energy equivalent of six Mcf of natural gas.
Daily oil and gas production is expressed in terms of barrels of oil
per day (bopd) and thousands of cubic feet of gas per day (Mcfd),
respectively. With respect to information relating to the
Partnership's working interest in wells or acreage, "net" oil and gas
wells or acreage is determined by multiplying gross wells or acreage
by the Partnership's working interest therein. Unless otherwise
specified, all references to wells and acres are gross.
PART I
ITEM 1. BUSINESS
General
Apache Offshore Investment Partnership, is a Delaware general
partnership organized in October 1983, with Apache Corporation (Apache), a
Delaware corporation, as Managing Partner and public investors as Investing
Partners. The Investing Partners purchased Units of Partnership Interests
(Units) at $150,000 per Unit with five percent down and the balance in
payments as called by the Registrant. As of December 31, 1995, a total of
$85,000 had been called for each Unit. The Registrant believed the full
$150,000 per Unit was not needed and fixed the total calls at $85,000 per
Unit, as well as releasing the Investing Partners from liability for future
calls. The Registrant invested, and will continue to invest, its entire
capital as the sole limited partner in Apache Offshore Petroleum Limited
Partnership, a Delaware limited partnership of which Apache is the sole
general partner. The limited partnership conducts operations on behalf of
the Registrant. The terms "Registrant" or "Partnership", as used
hereafter, refer to either the general or limited partnership, as the case
may be.
The Registrant's business is the participation in exploration,
development and production activities on federal lease tracts in the Gulf
of Mexico, offshore Louisiana and Texas. Except for the Matagorda Island
interests, as described below, the Registrant acquired its oil and gas
interests through the purchase of 85 percent of the working interests held
by Apache as a participant in a venture (the Venture) with Shell Oil
Company (Shell) and certain other companies. The Registrant owns working
interests ranging from 2.20 percent to 7.08 percent in the Venture's
properties.
The Venture acquired substantially all of its oil and gas properties
through bidding for leases offered by the federal government. The Venture
members relied on Shell's knowledge and expertise in determining bidding
strategies for the acquisitions. When Shell was successful in obtaining
the properties, it generally billed participating members on a promoted
basis (one-third for one-quarter) for the acquisition of exploratory leases
and on a straight-up basis for the acquisition of leases defined as
drainage tracts. All such bills were proportionately reduced to each
members' working interest. The Registrant acquired an increased revenue
interest in Matagorda Island Blocks 681 and 682 in November 1992, when the
Registrant and Apache formed a joint venture to acquire Shell's 92.6-
percent working interest in the blocks.
Since it is not expected that the Venture will acquire any additional
exploratory acreage, future acquisitions, if any, will be confined to those
leases defined as drainage tracts. The current Venture members would pay
their proportionate share of acquiring any drainage tracts on a non-
promoted basis.
Offshore exploration differs from onshore exploration in that
production from a prospect generally will not commence until a sufficient
number of productive wells have been drilled to justify the significant
costs associated with construction of a production platform. Exploratory
wells usually are drilled from mobile platforms until there are sufficient
indications of commercial production to justify construction of a permanent
production platform.
Apache, as Managing Partner, manages the Partnership's operations.
Apache uses a portion of its staff and facilities for this purpose and is
reimbursed for actual costs paid on behalf of the Registrant, as well as
for general, administrative and overhead costs properly allocable to the
Registrant.
Business Development During 1995
The acquisition and evaluation phase of the Venture's activity is
almost complete. One development well was drilled, completed and began
production on the Registrant's acreage in 1995.
Since inception, the Registrant has acquired an interest in 49
prospects. As of December 31, 1995, 37 prospects have been surrendered.
The status of the Registrant's 49 original prospects is shown in the
following table:
Prospect Status 12/31/95 12/31/94
-------------------------------- -------- --------
Producing-Fully Developed 10 9
Producing-Partially Developed 2 3
Productive-Fully Depleted or Surrendered -- 3
----- -----
Total Discoveries 12 15
Non-Productive-Surrendered 37 34
----- -----
Total 49 49
===== =====
As of December 31, 1995, 131 wells have been drilled on the 12
remaining prospects. Of the 131 wells, 104 were indicated productive and of
those, 82 are currently producing. Sixteen of the Registrant's producing
wells are dual completions. The Partnership had, at December 31, 1995,
estimated proved oil and gas reserves of 27.9 bcf equivalent, of which 75
percent was natural gas.
Reserves Value Ceiling Test
Oil and gas producers that conduct their financial reporting under the
full cost accounting rules are subject to Securities and Exchange
Commission (SEC) rules that require quarterly "ceiling test" calculations.
This test requires a write-down when the capitalized cost of oil and gas
properties exceeds the present value of proved reserves, plus the lower of
cost or market value for unproved properties. The test is applied at the
end of each fiscal quarter and requires a write-down if the "ceiling" is
exceeded, even if prices decline for only a short period of time. The
Partnership has not been required to record such a write-down in any of the
five preceeding years ended December 31, 1995.
Marketing
Apache, on behalf of the Registrant, seeks and negotiates oil and gas
marketing arrangements with various marketers and purchasers. The
Partnership's spot market gas was primarily purchased by Natural Gas
Clearinghouse (NGC) and the purchase of the oil and condensate was
primarily handled by Natural Gas Clearinghouse Transmission and Trading
Inc. (NOTTI) and Howell Crude Oil Company during 1995. On September 30,
1995, the Partnership's contract with NGC was terminated, and the
Partnership found alternative customers to purchase its natural gas at
prevailing index prices. The Partnership expects to receive prevailing
spot market prices at the relevant delivery points on an ongoing basis.
NGC purchased approximately 67 percent, 77 percent and 68 percent of the
Partnership's natural gas during 1995, 1994 and 1993, respectively.
See Note (6), "Major Customer Information," to the Partnership's
financial statements under Item 8 below. Because the Registrant's oil and
gas products are commodities and the prices and terms of its sales reflect
those of the market, the Registrant does not believe that the loss of any
customer would have a material adverse affect on the Registrant's business
or results of operations. The Registrant is not in a position to predict
future trends of oil and gas prices.
Environmental
The Partnership, as an owner or lessee of interests in oil and gas
properties, is subject to various federal, state and local laws and
regulations relating to the discharge of materials into, and protection of,
the environment. These laws and regulations may, among other things,
impose liability on the lessee under an oil and gas lease for the cost of
pollution clean-up resulting from operations, subject the lessee to
liability for pollution damages, require suspension or cessation of
operations in affected areas.
The Partnership has made and will continue to make expenditures in its
efforts to comply with these requirements. These costs are inextricably
connected to normal operating expenses such that the Partnership is unable
to separate the expenses related to environmental matters; however, the
Partnership does not believe such expenditures are material to its
financial position or results of operations.
The Partnership does not believe that compliance with federal, state
or local provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment,
will have a material adverse effect upon the capital expenditures, earnings
and the competitive position of the Partnership, but there is no assurance
that changes in or additions to laws or regulations regarding the
protection of the environment will not have such an impact.
Competition
The Registrant is a very minor factor in the oil and gas industry in
the Gulf of Mexico area and faces strong competition from much larger
producers for the marketing of its oil and gas. Its ability to compete for
purchasers and favorable marketing terms will depend on the general demand
for oil and gas from Gulf of Mexico producers. More particularly, it will
depend largely on the efforts of Apache to find the best markets.
ITEM 2. PROPERTIES
Acreage is held by the Registrant pursuant to the terms of the
leases. The Registrant does not anticipate any difficulty in retaining
any of the leases it desires to retain. A summary of the Partnership's
producing wells and gross acreage as of December 31, 1995, is set forth below:
Producing
Oil/Gas Acres
Wells -----------------
---------- Average Dev. Undev.
Lease Block State Gross Net WI Gross Gross
- ---------------------------- ----- ----- ----- ------- ----- -----
High Island A-5, A-6 TX 7 .3 .0471524 5,760 5,760
Ship Shoal 258, 259 LA 8 .5 .0628698 10,141 --
South Timbalier 276, 295 LA 23 1.6 .0708333 10,000 --
North Padre Island 969, 976 TX 9 .6 .0708333 11,520 --
Matagorda Island 681, 682 TX 10 .6 .0628698 11,520 --
Vermilion 226/237 Unit LA 4 .1 .0220079 1,953 --
West Cameron 368 LA 3 .2 .0708333 5,000 --
Matagorda Island 588 TX 2 .0 ORRI 5,760 --
South Pass 83, 74 LA 7 .5 .0678914 10,000 --
East Cameron 60, 51 LA 2 .2 .0708333 5,000 5,000
Vermilion 95 LA 1 .0 ORRI 5,000 --
Ship Shoal 201 LA 6 .0 ORRI 5,000 --
--- --- ------ ------
82 4.6 86,654 10,760
=== === ====== ======
See Note (5), "Oil and Gas Properties" and Note (9), "Supplemental Oil
and Gas Disclosures (Unaudited)" to the Partnership's financial statements,
under Item 8 below, for costs incurred in oil and gas development and
production activities and related reserve information. See Note (4),
"Acquisition of Interest in Oil and Gas Properties" to the Partnership's
financial statements, under Item 8 below, for a discussion of the
Partnership's ownership in Matagorda Island Blocks 681 and 682. On a net
revenue basis, the Partnership owns 4.6 wells.
Production and Pricing Data
The following table describes, for each of the last three fiscal
years, oil and gas production for the Partnership, average production costs
and average sales prices.
Production Average Sales Prices
-------------- Average --------------------
Oil Gas Production Oil Gas
December 31, (MBbls) (MMcf) Cost per Mcfe (per Bbl) (per Mcf)
- ----------- ------ ------ ----- -------- -------- --------
1995 210 6,052 $ .19 $ 16.97 $ 1.58
1994 250 7,140 .09 15.71 1.82
1993 264 6,847 .13 17.05 2.08
Refer to Note (9), "Supplemental Oil and Gas Disclosures (Unaudited)"
to the Partnership's financial statements, under Item 8 below for estimated
oil and gas reserves quantities.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the
Registrant is a party or to which the Registrant's property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER
MATTERS
As of December 31, 1995, there were 1,212 holders of record of the
Registrant's Units. There is no other class of security outstanding or
authorized. The Units are not traded on any security market. Cash
distributions to Investing Partners totaling $2,779,000, or $2,250 per
Unit, were made in 1995. The Partnership made cash distributions of $4,500
per Unit to the Investing Partners in 1994.
As discussed in Item 7 below, an amendment to the Partnership
Agreement in February 1994 created a right of presentment under which all
Investing Partners now have a limited and voluntary right to offer their
Units to the Partnership twice each year to be purchased in cash.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended
December 31, 1995, should be read in conjunction with the Partnership's
financial statements and related notes included under Item 8 below.
As of for the Year Ended December 31,
-------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(In thousands, except per Unit amounts)
Total assets $ 13,486 $ 14,291 $ 19,521 $ 22,886 $ 27,775
========= ======== ====== ======== ========
Long-term debt $ 7,310 $ 9,435 $ 14,790 $ 23,545 $ 29,939
========= ======== ======= = ====== ========
Partners' capital (deficit) $ 5,472 $ 4,175 $ 3,334 $ (1,940)$ (3,748)
========= ======== ======= ======== ========
Oil and gas sales $ 13,138 $ 16,926 $ 18,730 $ 12,853 $ 10,524
========= ========= ========= ====== =========
Net income $ 6,214 $ 10,116 $ 10,185 $ 3,115 $ 574
========= ========= ========= ====== =========
Net income (loss) allocated to:
Managing Partner $ 1,800 $ 2,519 $ 2,635 $ 1,406 $ 1,027
Investing Partners 4,414 7,597 7,550 1,709 (453)
--------- -------- ------- -------- --------
$ 6,214 $ 10,116 $ 10,185 $ 3,115 $ 574
========= ========= ========= ======= =========
Net income (loss) per
weighted average
Investing Partner Unit $ 3,584 $ 5,974 $ 5,838 $ 1,321 $ (350)
========= ========= ======= ======= =========
Cash distributions per
Investing Partner Unit $ 2,250 $ 4,500 $ 2,000 $ -- $ 1,000
======== ======== ======== ======== =========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 Compared to 1994
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Oil and gas sales of $13,138,000 in 1995 decreased by $3,787,000, or
22 percent, as compared to 1994. Lower gas prices accounted for $1,179,000 of
this decrease while decreased oil and gas production accounted for
$2,608,000. The properties particularly affected by these decreases were
Matagorda Island 681 ($2,955,000), South Pass 83 ($1,052,000), North Padre
Island 969 ($457,000) and South Timbalier 295 ($378,000).
The average oil and natural gas prices received during 1995 were
$16.97 per barrel and $1.58 per Mcf, respectively. This represented an eight-
percent increase in oil prices and a 13-percent decrease in natural gas
prices when compared to 1994. The Partnership is not in a position to
predict future oil and gas prices.
Average oil and natural gas production during 1995 totaled 575 barrels
per day and 16,581 Mcf per day, respectively. This represented a 16-
percent decrease in oil production and a 15-percent decrease in gas
production when compared to 1994. The decrease in oil production was due
primarily to the plug and abandonment of the South Timbalier 295A #2 in
1994, which reduced oil production by 109 barrels per day. The decrease in
gas production was due to natural declines and shut-ins for workovers or
recompletions at Matagorda Island 681, South Pass 83, North Padre Island
969 and South Timbalier 295.
The depreciation, depletion and amortization (DD&A) rate increased
during 1995 as compared to 1994, from 28 percent of sales to 34 percent.
This increase resulted from lower gas price realizations partially offset
by upward reserve revisions.
Lease operating expense of $1,373,000 in 1995 increased by $561,000,
or 69 percent, during 1995 as compared to 1994. This increase was largely a
result of workover costs to maintain production in the East Cameron #60
field.
Administrative expense of $530,000 in 1995 decreased five percent from
1994. Administrative expense in 1994 included legal expenses relating to
the solicitation of consents from the Investing Partners as required for
amendment of the partnership agreement to create the right of presentment
for Investing Partners.
Interest expense of $597,000 in 1995 decreased by $87,000 when
compared to 1994. The decrease was primarily a function of a 23-percent
reduction in debt, from $9,435,000 at December 31, 1994 to $7,310,000 at
December 31, 1995. Additionally, the effective interest rates decreased
from 6.9 percent at December 31, 1994 to 6.5 percent at December 31, 1995.
1994 Compared to 1993
- ---------------------
Oil and gas sales of $16,926,000 in 1994 decreased by $1,805,000, or
10 percent, as compared to 1993. This decrease was the result of lower
realized oil and gas prices ($333,000 from decreased oil prices and
$1,842,000 from decreased gas prices), as well as decreased oil production
which reduced sales by $239,000, partially offset by an increase in gas
production which increased sales by $609,000. The properties particularly
affected by the decreases were South Timbalier 295 ($758,000), North Padre
Island 969/976 ($767,000) and South Pass 83 ($844,000), offset by increased
gas production on Matagorda Island 681 ($433,000). Oil and condensate
accounted for 23 percent and 24 percent of 1994 and 1993 oil and gas sales,
respectively.
The average oil and natural gas prices received during 1994 were
$15.71 per barrel and $1.82 per Mcf, respectively. This represented an eight-
percent decrease in oil prices and an 13-percent decrease in natural gas
prices when compared to 1993.
The average oil and natural gas production during 1994 was 685 barrels
per day and 19,562 Mcf per day, respectively. This represented a five-
percent decrease in oil production and a four-percent increase in gas
production when compared to 1993. The decrease in oil production was the
result of shutting in production at South Timbalier 295 to perform
workovers in the third quarter of 1994, while the increase in gas
production reflected favorable recompletion results at Matagorda Island
681.
The DD&A rate decreased during 1994 as compared to 1993, from 32
percent of sales down to 28 percent. The rate was reduced in 1994 due to
successful drilling at East Cameron #60, as well as favorable upward year-
end reserve revisions.
Lease operating expense of $812,000 in 1994 decreased by $257,000, or
24 percent, during 1994 as compared to 1993. The decrease was largely a
result of less workover costs incurred in 1994.
Administrative expense of $558,000 in 1994 increased four percent from
1993, as a result of legal expenses relating to the solicitation of
consents from the Investing Partners as required for amendment of the
partnership agreement to create the right of presentment for Investing
Partners.
Interest expense of $684,000 in 1994 decreased by $148,000 when
compared to 1993. The decrease was primarily a function of a 36-percent
reduction in debt, from $14,790,000 at December 31, 1993 to $9,435,000 at
December 31, 1994, partially offset by an increase in the effective
interest rates from 4.3 percent at December 31, 1993 to 6.9 percent at
December 31, 1994.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
Capital Commitments
The Partnership's primary needs for cash are for operating expenses,
repayment of principal and interest on outstanding debt, distributions to
Investing Partners and the purchase of Units offered by Investing Partners
under the right of presentment. The Partnership also utilizes cash from
operations to fund ongoing exploration and development activities. In
1995, the Partnership reduced net long-term debt by $2,125,000. Reflecting
reductions in debt balances and reduced interest rates, the Partnership
reduced cash payments for interest expense to $597,000 during 1995 from
$682,000 during 1994. The Partnership used cash from operating activities
in 1994 and 1993 to reduce debt by $5,355,000 and $8,755,000, respectively.
During 1995, the Partnership's oil and gas property additions totaled
$3,160,000. Additions largely related to drilling activities at the now
completed East Cameron 60 #A-5 well, in addition to recompletions performed
at South Timbalier 295 and Ship Shoal 259. Recompletion activities
generally involve the completion of previously tested behind-the-pipe zones
or sands on which proved non-producing reserves have been assigned.
Additions to oil and gas properties totaled $903,000 and $2,084,000 in 1994
and 1993, respectively. The Partnership anticipates capital expenditures
will total approximately $1,000,000 in 1996, based on preliminary
information provided by the operators of the properties in which the
Partnership has interests, however, such estimates may change based on
realized prices, drilling results or other factors.
During 1995, the Partnership paid distributions to Investing Partners
totaling $2,778,868, or $2,250 per Unit, compared to $4,500 per Unit in
1994. The Partnership made a subsequent distribution of $1,000 per Unit on
March 1, 1996. Apache, as the General Partner, will review the possibility
of an additional distribution in late 1996. Future distributions will be
dependent on actual and expected production levels, realized and expected
oil and gas prices and the remaining level of financial obligations.
An amendment to the Partnership Agreement adopted in February 1994,
created a right of presentment under which all Investing Partners now have
a limited and voluntary right to offer their Units to the Partnership twice
each year to be purchased for cash. In the initial presentment period,
based upon a valuation date of December 31, 1993, Investing Partners sold
46 Units to the Partnership for a purchase price of $13,226 per Unit, plus
interest to the date of payment. During the second presentment period,
based upon a valuation date of June 30, 1994, Investing Partners sold nine
Units to the Partnership for a purchase price of $12,562 per Unit, plus
interest to the date of payment. As a result of the two presentment
periods, the Partnership purchased approximately 55 Units for a total of
$748,000 in cash. The first right of presentment offer for 1995 of $10,391
per Unit, plus interest to the date of payment, was made to the Investing
Partners on April 28, 1995. The second right of presentment offer for 1995
of $10,114 per Unit, plus interest to the date of payment, was made to the
Investing Partners on October 27, 1995. As a result of the two 1995
presentments, the Partnership purchased an additional 25.99 Units for a
total of $279,000 in cash. The Partnership is not in a position to predict
how many Units will be presented for repurchase during 1996, however no
more than 10 percent of the outstanding Units may be purchased under the
right of presentment in any year. The Partnership has no obligation to
purchase any Units presented to the extent that it determines that it has
insufficient funds for such purchases.
Capital Resources and Liquidity
The Partnership's primary capital resources are net cash provided by
operating activities and proceeds from financing activities.
Net cash provided by operating activities for 1995 decreased 37
percent from last year to $9,678,000. The $5,634,000 decrease from 1994
reflected declining production, lower natural gas prices and higher operating
costs.
The Partnership's future financial condition and results of operations
will largely depend upon prices received for its oil and natural gas
production and the costs of acquiring, finding, developing and producing
reserves. A substantial portion of the Partnership's production is sold
under market-sensitive contracts. Prices for oil and natural gas are
subject to fluctuations in response to changes in supply, market
uncertainty and a variety of factors beyond the Partnership's control.
These factors include worldwide political instability (especially in the
Middle East), the foreign supply of oil and natural gas, the price of
foreign imports, the level of consumer demand, and the price and
availability of alternative fuels. With natural gas accounting for 83
percent of the Partnership's 1995 production, and 75 percent of total
proved reserves, on an energy equivalent basis, the Partnership is affected
more by fluctuations in natural gas prices than in oil prices.
In July 1992, Apache obtained a $29,750,000 reducing revolving credit
facility with a group of banks on behalf of the Partnership. During the
fourth quarter of 1994, based on its projection of future needs, the
Partnership requested and received a reduction in the available commitment
in order to reduce fees. At December 31, 1995, the available commitment
was $14,025,000, of which $7,310,000 was outstanding. Beginning in October
1995, the lenders' commitment is reduced by $1,275,000 quarterly, until the
earlier of July 31, 1998, or the date that the Partnership's proved
reserves decline to 25 percent of the Partnership's proved reserves as of
the closing date of the commitment, as determined by the lenders. The
Partnership must comply with certain cash flow and oil and gas reserve
tests under the terms of the credit facility, and failure to comply will
result in mandatory principal payments in amounts sufficient to meet the
tests. The Partnership has met the tests each year since the inception of
the credit facility in 1992. Based on current pricing and its reserve
base, the Partnership anticipates meeting future tests and does not expect
to have an acceleration of principal payments. The Partnership is not
subject to any financial ratio requirements. Apache is contingently liable
for the obligations of the Partnership under the credit facility and is
subject to certain requirements under the terms of the credit facility.
Apache was in compliance with such covenants at December 31, 1995.
It is expected that cash available under the Partnership's credit
facility, Managing Partner contributions, and cash flows from operating
activities will be sufficient to meet the Partnership's liquidity needs for
routine operations over the next two years. However, in the event short-
term operating cash requirements are greater than the Partnership's
financial resources, the Partnership will seek future short-term interest-
bearing advances from the Managing Partner.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See following index.
APACHE OFFSHORE INVESTMENT PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SUPPORTING SCHEDULES
Page
Number
------
Report of Independent Public Accountants 12
Balance Sheet as of December 31, 1995 and 1994 13
Statement of Income for each of the three years in the
period ended December 31, 1995 14
Statement of Cash Flows for each of the three years in the
period ended December 31, 1995 15
Statement of Changes in Partners' Capital (Deficit) for
each of the three years in the period ended December 31, 1995 16
Notes to Financial Statements 17
Schedules -
All financial statement schedules have been omitted because
they are either not required, not applicable or the information required to be
presented is included in the financial statements or related notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Apache Offshore Investment Partnership:
We have audited the accompanying balance sheet of Apache Offshore
Investment Partnership (a Delaware partnership) as of December 31, 1995 and
1994, and the related statements of income, cash flows and changes in
partners' capital (deficit) for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion
on these 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, the financial statements referred to above present
fairly, in all material respects, the financial position of Apache Offshore
Investment Partnership as of December 31, 1995 and 1994, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 28, 1996
APACHE OFFSHORE INVESTMENT PARTNERSHIP
BALANCE SHEET
As of December 31,
------------------------------
1995 1994
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 104 $ 104
Accrued revenues receivable 2,744,988 2,029,284
Drilling advances 8,570 --
Prepaid financing costs -- 14,583
----------- ------------
2,753,662 2,043,971
------------ ------------
OIL AND GAS PROPERTIES, on the basis
of full cost accounting:
Proved properties 161,821,838 158,926,380
Less-accumulated depreciation,
depletion and amortization (151,089,712) (146,679,259)
------------ ------------
10,732,126 12,247,121
------------ ------------
$ 13,485,788 $ 14,291,092
============ ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accrued expenses payable $ 634,352 $ 363,209
Payable to Apache 69,824 318,221
------------ ------------
704,176 681,430
------------ ------------
LONG-TERM DEBT 7,310,000 9,435,000
------------ ------------
PARTNERS' CAPITAL:
Managing Partner 966,580 1,026,159
Investing Partners (1,212.3 and 1,238.3
Units outstanding, respectively) 4,505,032 3,148,503
------------ ------------
5,471,612 4,174,662
------------ ------------
$ 13,485,788 $ 14,291,092
============ ============
APACHE OFFSHORE INVESTMENT PARTNERSHIP
STATEMENT OF INCOME
For the Year Ended December 31,
---------------------------------------------
1995 1994 1993
------------ ------------ ------------
REVENUES:
Oil and gas sales $ 13,138,358 $ 16,925,627 $ 18,730,489
Interest income -- 3,481 1,161
------------ ------------ ------------
13,138,358 16,929,108 18,731,650
------------ ------------ ------------
EXPENSES:
Depreciation, depletion
and amortization 4,410,453 4,689,571 6,054,675
Lease operating 1,372,517 811,623 1,068,701
Administrative 529,832 557,849 535,460
Financing costs:
Interest expense 596,572 683,812 831,770
Amortization of deferred
financing costs 14,583 70,417 60,000
Capitalized interest costs -- -- (3,636)
------------ ------------ ------------
6,923,957 6,813,272 8,546,970
------------ ------------ ------------
NET INCOME $ 6,214,401 $ 10,115,836 $10,184,680
============ ============ ============
Net income allocated to:
Managing Partner $ 1,799,940 $ 2,518,929 $ 2,635,323
Investing Partners 4,414,461 7,596,907 7,549,357
------------ ------------ ------------
$ 6,214,401 $ 10,115,836 $10,184,680
============ ============ ============
NET INCOME PER WEIGHTED
AVERAGE INVESTING PARTNER UNIT $ 3,584 $ 5,974 $ 5,838
============ ============ ============
WEIGHTED AVERAGE INVESTING PARTNER
UNITS OUTSTANDING 1,231.6 1,271.6 1,293.1
============ =========== ============
APACHE OFFSHORE INVESTMENT PARTNERSHIP
STATEMENT OF CASH FLOWS
For the Year Ended December 31,
--------------------------------------
1995 1994 1993
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,214,401 $ 10,115,836 $ 10,184,680
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, depletion and amortization 4,410,453 4,689,571 6,054,675
Amortization of deferred financing costs 14,583 70,417 60,000
Changes in operating assets and liabilities:
(Increase) decrease in accrued revenues receivable (715,704) 1,347,473 (806,582)
Increase (decrease) in accrued operating expenses 2,340 (166,850) 1,441
Increase (decrease) in payable to Apache (248,397) (693,937) 101,867
Other -- (50,921) (43,328)
----------- ----------- -----------
Net cash provided by operating activities 9,677,676 15,311,589 15,552,753
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties, net (3,159,530) (902,841) (2,084,223)
Proceeds from sale of oil and gas properties 264,072 -- --
Non-cash portion of net oil and gas property additions 268,803 145,350 12,776
(Increase) decrease in drilling advances (8,570) 76,434 (75,190)
----------- ----------- -----------
Net cash used in investing activities (2,635,225) (681,057) (2,146,637)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of Partnership Units (279,064) (748,112) --
Distributions to Investing Partners (2,778,868) (5,750,224) (2,586,057)
Distributions to Managing Partner, net (1,859,519) (2,777,196) (2,324,059)
Payments of long-term debt (2,125,000) (5,355,000) (8,755,000)
----------- ---------- - -----------
Net cash used in financing activities (7,042,451)(14,630,532) (13,665,116)
----------- ----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS -- -- (259,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 104 104 259,104
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 104 $ 104 $ 104
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 597,000 $ 681,980 $ 884,994
=========== =========== ===========
APACHE OFFSHORE INVESTMENT PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
Managing Investing
Partner Partners Total
------------ ------------ ------------
BALANCE, DECEMBER 31, 1992 $ 973,162 $ (2,913,368) $ (1,940,206)
Distributions, net (2,324,059) (2,586,057) (4,910,116)
Net income 2,635,323 7,549,357 10,184,680
------------ ----------- ------------
BALANCE, DECEMBER 31, 1993 1,284,426 2,049,932 3,334,358
Distributions, net (2,777,196) (5,750,224) (8,527,420)
Repurchase of Partnership Units -- (748,112) (748,112)
Net income 2,518,929 7,596,907 10,115,836
------------ ------------ ------------
BALANCE, DECEMBER 31, 1994 1,026,159 3,148,503 4,174,662
Distributions, net (1,859,519) (2,778,868) (4,638,387)
Repurchase of Partnership Units -- (279,064) (279,064)
Net income 1,799,940 4,414,461 6,214,401
----------- ------------ ------------
BALANCE, DECEMBER 31, 1995 $ 966,580 $ 4,505,032 $ 5,471,612
============ ============ ============
APACHE OFFSHORE INVESTMENT PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION:
Nature of Operations -
Apache Offshore Investment Partnership (Investment Partnership) was
formed as a Delaware general partnership on October 31, 1983,
consisting of Apache Corporation (Apache) and public investors as
Investing Partners. The Investment Partnership invested its entire
capital in Apache Offshore Petroleum Limited Partnership, a Delaware
limited partnership formed to conduct oil and gas exploration,
development and production operations. The accompanying financial
statements include the accounts of both the limited and general
partnerships. Apache is the general partner of both Partnerships and
holds approximately four percent of the 1,212.3 Investing Partner units
oustanding at December 31, 1995. The term "Partnership," as used
hereafter, refers to the limited or the general partnership, as the
case may be.
The Partnership purchased, at cost, an 85-percent interest in
offshore leasehold interests acquired by Apache as a co-venturer in a
series of oil and gas exploration, development and production
activities on 87 federal lease tracts (20 remain as of December 31,
1995) in the Gulf of Mexico, offshore Louisiana and Texas. The
remaining 15-percent interest was purchased by an affiliated
partnership or retained by Apache. The Partnership acquired an
increased revenue interest in Matagorda Island Blocks 681 and 682 in
November 1992, when the Partnership and Apache formed a joint venture
to acquire a 92.6-percent working interest in the blocks.
As of December 31, 1995, the Partnership had participated in 14
federal offshore lease sales in which 49 prospects were acquired
(through the same date 37 prospects have been surrendered). The
Partnership's working interests in the 12 remaining Venture prospects
range from 2.20 percent to 7.08 percent, respectively.
The Partnership's future financial condition and results of
operations will largely depend upon prices received for its oil and
natural gas production and the costs of acquiring, finding, developing
and producing reserves. A substantial portion of the Partnership's
production is sold under market-sensitive contracts. Prices for oil
and natural gas are subject to fluctuations in response to changes in
supply, market uncertainty and a variety of factors beyond the
Partnership's control. These factors include worldwide political
instability (especially in the Middle East), the foreign supply of oil
and natural gas, the price of foreign imports, the level of consumer
demand, and the price and availability of alternative fuels. With
natural gas accounting for 83 percent of Partnership's 1995 production,
and 75 percent of total proved reserves, on an energy equivalent basis,
the Partnership is affected more by fluctuations in natural gas prices
than in oil prices.
Under the terms of the Partnership agreements, the Investing
Partners receive 80 percent and Apache receives 20 percent of revenue.
The Investing Partners generally pay for 90 percent and Apache
generally pays for 10 percent of exploration and development costs and
expenses incurred by the Partnerships. However, intangible drilling
costs, interest costs, fees or expenses related to the loans incurred
by the Partnership are allocated 99 percent to the Investing Partners
and one percent to Apache until such time as the amount so allocated to
the Investing Partners accounts equals 90 percent of the total amount
of such costs, including such costs incurred by Apache prior to the
formation of the Partnerships.
An amendment to the Partnership Agreement adopted in February 1994,
created a right of presentment under which all Investing Partners now
have a limited and voluntary right to offer their Units to the
Partnership twice each year to be purchased for cash. In the initial
presentment period, based upon a valuation date of December 31, 1993,
Investing Partners sold 46 Units to the Partnership for a purchase
price of $13,226 per Unit, plus interest to the date of payment.
During the second presentment period, based upon a valuation date of
June 30, 1994, Investing Partners sold nine Units to the Partnership
for a purchase price of $12,562 per Unit, plus interest to the date of
payment. As a result of the two 1994 presentment periods, the
Partnership purchased 55 Units for a total of $748,000 in cash. The
first right of presentment offer for 1995 of $10,391 per Unit, plus
interest to the date of payment, was made to the Investing Partners on
April 28, 1995. The second right of presentment offer for 1995 of
$10,114 per Unit plus interest to the date of payment, was made to the
Investing Partners on October 27, 1995. As a result of the two 1995
presentments, the Partnership purchased an additional 25.99 Units for a
total of $279,000 in cash. The Partnership is not in a position to
predict how many Units will be presented for repurchase during 1996,
however no more than 10 percent of the outstanding Units may be
purchased under the right of presentment in any year. The Partnership
has no obligation to purchase any Units presented to the extent that it
determines that it has insufficient funds for such purchases.
Repurchase Price -
The table below sets forth the total repurchase price and the
repurchase price per Unit for all outstanding Units at each presentment
period, based on the Right of Presentment valuation formula defined in
the Amendment to the Partnership Agreement. The Right of Presentment
offers, made twice annually, are based on a discounted Unit value
formula. The discounted Unit value will be not less than the Investing
Partner's share of: (a) the sum of (i) 70 percent of the discounted
estimated future net revenues from proved reserves, discounted at a
rate of 1.5 percent over prime or First National Bank of Chicago's base
rate in effect at the time the calculation is made, (ii) cash on hand,
(iii) prepaid expenses, (iv) accounts receivable less a reasonable
reserve for doubtful accounts, (v) oil and gas properties other than
proved reserves at cost less any amounts attributable to drilling and
completion costs incurred by the Partnership and included therein, and
(vi) the book value of all other assets of the Partnership, less the
debts, obligations and other liabilities of all kinds (including
accrued expenses) then allocable to such interest in the Partnership,
all determined as of the valuation date, divided by (b) the number of
Units, and fractions thereof, outstanding as of the valuation date.
The discounted Unit value does not purport to be the fair market value
of a Unit and may be substantially different from fair market value.
Total
(Unaudited) Repurchase Repurchase Price
Price Per Unit
----------- -------------------
(Including interest
to-date of Payment)
First Right of Presentment
(January 1, 1994) $ 20,980,558 $ 13,790
Second Right of Presentment
(June 30, 1994) $ 17,540,491 $ 13,085
Third Right of Presentment
(January 1, 1995) $ 14,725,170 $ 10,391
Fourth Right of Presentment
(June 30, 1995) $ 13,345,913 $ 10,114
Capital Contributions -
A total of $85,000 per Unit, or approximately 57 percent of investor
subscriptions, were called through December 31, 1995. The Partnership
believed the full $150,000 per Unit was not needed, and upon completion
of the last subscription call on November 1989, released the Investing
Partners from their remaining liability. As a result of investors
defaulting on cash calls and repurchases under the presentment offer
discussed above, the original 1,500 Units have been reduced to 1,212.3
Units at December 31, 1995.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Statement Presentation -
The accounts of the Partnership are maintained on a tax basis method
of accounting in accordance with the Articles of Partnership and
methods of reporting allowed for federal income tax purposes.
Financial statements included in reports which the Partnership files
with the Securities and Exchange Commission (SEC) are required to be
prepared in conformity with generally accepted accounting principles.
Accordingly, the accompanying financial statements were prepared to
reflect memorandum entries to convert from tax basis to the accrual
basis method in conformity with generally accepted accounting
principles.
Statement of Cash Flows -
The Partnership considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents. These investments are carried at cost which approximates
market.
Oil and Gas Properties -
The Partnership follows the full cost method of accounting,
capitalizing, for financial statement purposes, all exploration and
development costs incurred for the purpose of finding oil and gas
reserves. The amounts capitalized under this method include dry hole
costs, leasehold costs, engineering, geological, exploration,
development and other similar costs. Costs associated with production
and administrative functions are expensed in the period incurred. No
gain or loss is normally recognized on the sale or abandonment of oil
and gas properties.
Capitalized costs of oil and gas properties are amortized on the
future gross revenue method whereby the provision for depreciation,
depletion and amortization (DD&A) is computed quarterly by dividing the
net cost of evaluated oil and gas properties, including estimated
future development costs, by estimated future gross revenue from proved
oil and gas reserves and applying the resulting rate to revenue
produced during the period. The amortizable base includes estimated
dismantlement, restoration and abandonment costs, net of estimated
salvage values.
The Partnership limits the capitalized costs of oil and gas
properties, net of accumulated DD&A, to the estimated future net cash
flows from proved oil and gas reserves discounted at ten percent, plus
the lower of cost or fair market value of unproved properties. If
capitalized costs exceed this limit, the excess is charged to DD&A
expense. The Partnership has not recorded any write-downs of
capitalized costs for the three years presented.
Per Unit Calculation -
The net income per Investing Partner Unit is calculated by dividing
the aggregate Investing Partners' net income for the period by the
number of weighted average Investing Partner Units outstanding for that
period.
Income Taxes -
The profit or loss of the Partnership for federal income tax
reporting purposes is included in the income tax returns of the
partners. Accordingly, no recognition has been given to income taxes
in the accompanying financial statements.
Deferred Financing Costs -
Amortization of deferred financing costs in 1995 and 1994 of $14,583
and $70,417 were related to the revolving credit facility.
Capitalization of Interest -
Interest costs related to the financing of oil and gas projects
under development are capitalized and added to oil and gas properties.
No such costs were capitalized in 1995 or 1994, however, $3,636 was
capitalized in 1993.
Use of Estimates -
The preparation of financial statements in conformity with generally
accepting accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates with regard to these
financial statements include the estimate of proved oil and gas reserve
volumes and the related present value of estimated future net revenues
therefrom (see Note (9), "Supplemental Oil and Gas Disclosures").
Payable to Apache -
Payable to Apache is the net result of the Partnership's revenue and
expenditure transactions in the current month. Generally, cash in this
amount will be transferred in the following month after the
Partnership's transactions are processed and the net results from
operations are determined. The balances in these accounts are non-
interest bearing and unsecured.
Maintenance and Repairs -
Maintenance and repairs are charged to expense as incurred.
Recompletions and replacements which improve or extend the life of
existing properties are capitalized.
(3) COMPENSATION TO APACHE
Apache is entitled to the following types of compensation and
reimbursement for costs and expenses.
Total incurred by the Investing
Partners for each year ended
December 31,
---------------------------------
1995 1994 1993
------ ------ ------
(In thousands)
a. Apache is reimbursed
for general, administrative
and overhead expenses
incurred in connection
with the management and
operation of the Partnership's
business. $ 424 $ 446 $ 428
======= ======= =======
b. Apache is reimbursed for
exploration and development
overhead costs incurred in
the Partnership's operations.
These costs are based on
exploration and development
activities and are capitalized
to oil and gas properties. $ 142 $ 31 $ 71
======= ======= =======
Apache operates certain of the Partnership properties. Billings are
made on the same basis as to unaffiliated third parties or at
prevailing industry rates.
(4) ACQUISITION OF INTEREST IN OIL AND GAS PROPERTIES
In November 1992, Apache and the Partnership formed a joint venture
to acquire Shell Oil Company's (Shell) 92.6-percent working interest in
Matagorda Island Blocks 681 and 682 pursuant to a jointly held
contractual preferential right to purchase. Apache and the Partnership
previously owned working interests in the blocks equal to 1.109 percent
and 6.287 percent, respectively, and revenue interest of .924 percent
and 5.239 percent, respectively. To facilitate the acquisition, Apache
and the Partnership contributed all of their interests in Matagorda
Island Blocks 681 and 682 to a newly formed joint venture, and Apache
contributed $64.6 million ($55.6 million net of purchase price
adjustments) to the joint venture to finance the acquisition. The
Partnership had neither the cash nor the access to additional financing
to finance its proportionate share of the acquisition and participated
in the acquisition only to the extent of an increased revenue interest
in the joint venture.
Under the terms of the joint venture agreement, the Partnership's
effective revenue interest in the Matagorda Island properties increased
as a result of the acquisition to 13.284 percent while its working
interest was unchanged. The acquisition added approximately 7.5 Bcf of
natural gas and 16,000 barrels of oil to the Partnership's reserve base
without any incremental expenditures by the Partnership.
(5) OIL AND GAS PROPERTIES
The following tables contain direct cost information and changes in
the Partnership's oil and gas properties for each of the years ended
December 31. All costs of oil and gas properties are currently being
amortized.
Oil and Gas Properties 1995 1994 1993
---------------------- -------- -------- --------
(In thousands)
Balance, beginning of year $ 158,926 $ 158,024 $ 155,939
Costs incurred during the year:
Leasehold additions (retirements) -
Investing Partners (3) -- 9
Managing Partner -- -- 1
Exploration -
Investing Partners -- -- 724
Managing Partner -- -- 33
Development -
Investing Partners 3,092 851 1,286
Managing Partner 71 51 32
Property sales proceeds -
Investing Partners (234) -- --
Managing Partners (30) -- --
--------- --------- ---------
Balance, end of year $ 161,822 $ 158,926 $ 158,024
========= ========= =========
*The property sales proceeds relate to the sale of the Partnership's
interests in non-producing, non-unitized leases.
Accumulated Depreciation, Managing Investing
Depletion and Amortization Partner Partners Total
-------------------------- -------- --------- ---------
(In thousands)
December 31, 1992 $ 17,367 $ 118,568 $ 135,935
Provision 781 5,274 6,055
--------- --------- ---------
December 31, 1993 18,148 123,842 141,990
Provision 584 4,105 4,689
--------- --------- ---------
December 31, 1994 18,732 127,947 146,679
Provision 441 3,970 4,411
--------- --------- ---------
December 31, 1995 $ 19,173 $ 131,917 $ 151,090
========= ========= =========
The Partnership's aggregate DD&A expense was 34 percent, 28 percent
and 32 percent of oil and gas sales for 1995, 1994 and 1993,
respectively.
(6) MAJOR CUSTOMER INFORMATION
Revenue received from major third party customers exceeding ten
percent of oil and gas revenue is summarized below. No other third
party customers individually accounted for more than ten percent of oil
and gas revenue.
Purchasers 1995 1994 1993
---------- -------- -------- --------
(In thousands)
Natural Gas Clearinghouse $ 6,445 $ 13,033 $ 9,676
Plains Petroleum Operating Co. 3,675 2,424 --
Howell Crude Oil Company -- -- 1,956
Natural Gas Clearinghouse (NGC) was the principal purchaser of the
Partnership's spot market gas production from April 1990 through
September 30, 1995. On September 30, 1995, the Partnership's contract
with NGC was terminated, and the Partnership found alternative
customers to purchase its gas at prevailing index prices. NGC
purchased approximately 67 percent, 77 percent and 68 percent of the
Partnership's natural gas during 1995, 1994 and 1993, respectively.
Effective November 1992, with Apache's and the Partnership's
acquisition of an additional revenue interest in Matagorda Island
Blocks 681 and 682, a wholly-owned subsidiary of Apache purchased from
Shell a 14.4 mile natural gas and condensate pipeline connecting
Matagorda Island Block 681 to onshore markets. The Partnership paid an
Apache subsidiary transportation fees totaling $218,000, $309,000 and
$229,000 in 1995, 1994 and 1993 respectively, for transportation of the
Partnership's share of gas. The fees, which are netted against oil and
gas sales on the income statement, were at the same rates and terms as
previously paid to Shell.
The Partnership's revenues are derived principally from
uncollateralized sales to customers in the oil and gas industry;
therefore, customers may be similarly affected by changes in economic
and other conditions within the industry. The Partnership has not
experienced material credit losses on such sales.
(7) DEBT
In July 1992, the Partnership, through Apache, obtained a line of
credit. Proceeds from this reducing revolving bank facility were used
to repay the limited recourse note which had previously been issued to
finance offshore leasehold in the Partnership. At December 31, 1995,
the Partnership had an available line of $14,025,000 of which
$7,310,000 was outstanding. Beginning in October 1995, availability
under this facility is reduced by $1,275,000 each quarter, until the
earlier of July 31, 1998, or the date that the Partnership's proved
reserves as determined by the lenders decline to 25 percent of the
Partnership's proved reserves as of the closing date of the commitment.
The available commitment may also be reduced based on annual reviews by
the agent bank of the expected cash flows for the Partnership's
properties.
At the Partnership's option, interest rates on the facility will be
based on London Interbank Offered Rate (LIBOR) plus .75 percent (equal
to 6.5 percent at December 31, 1995) or at First National Bank of
Chicago's base rate plus .5 percent, (equal to 9.0 percent at December
31, 1995).
The Partnership must comply with certain cash flow and oil and gas
reserve tests under the terms of the credit facility, and failure to
comply will result in mandatory principal payments in amounts
sufficient to meet the tests. The Partnership has met the tests each
year since the inception of the credit facility in 1992. Based on
current pricing and its reserve base, the Partnership anticipates
meeting future tests and does not expect to have an acceleration of
principal payments. The Partnership is not subject to any financial
ratio requirements. Apache is contingently liable for obligations of
the Partnership under the credit facility and is subject to certain
requirements under the terms of the credit facility. Apache was in
compliance with such covenants at December 31, 1995.
It is expected that cash available under the Partnership's credit
facility, Managing Partner contributions, and cash flows from operating
activities will be sufficient to meet the Partnership's liquidity needs
for routine operations over the next two years. However, in the event
short-term operating cash requirements are greater than the
Partnership's financial resources, the Partnership will seek future
short-term interest-bearing advances from the Managing Partner.
Aggregate Maturities of Long-Term Debt -
(In thousands)
Amount
--------
1996 $ --
1997 3,485
1998 3,825
-------
$ 7,310
=======
(8) FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accrued revenue
receivables and other financial instruments included in the
accompanying Balance Sheet approximated market value at December 31,
1995 and 1994. With respect to its bank facility, the Partnership
believes other financing could be obtained under terms substantially
equivalent to those under the existing facility. The Partnership did
not engage in hedging activities during the three year period ended
December 31, 1995.
(9) SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED)
The following schedule reflects changes in the Partnership's proved
oil and gas reserves for each year ended December 31.
(Oil in thousands of barrels and gas in millions of cubic feet)
Proved Reserves 1995 1994 1993
Developed and -------------- -------------- --------------
Undeveloped Oil Gas Oil Gas Oil Gas
--------------- ------ ------ ------ ------ ------ ------
Beginning of year 1,237 25,122 1,373 29,305 1,474 27,957
Extensions, discoveries
and other additions 8 182 24 295 9 5,025
Revisions of
previous estimates 134 1,596 90 2,662 154 3,170
Production (210) (6,052) (250) (7,140) (264) (6,847)
------ ------ ------ ------ ------ ------
End of year 1,169 20,848 1,237 25,122 1,373 29,305
====== ====== ====== ====== ====== ======
Proved Developed
----------------
Beginning of year 1,150 22,701 1,324 27,727 1,416 21,967
====== ====== ====== ====== ====== ======
End of year 1,112 18,798 1,150 22,701 1,324 27,727
====== ====== ====== ====== ====== ======
Estimates of proved oil and gas reserve quantities were prepared by
Ryder Scott Company Petroleum Engineers, independent petroleum
engineers, in accordance with guidelines established by the SEC. These
reserves are subject to revision due to the inherent imprecision in
estimating reserves, and are revised as additional information becomes
available. All of the Partnership's reserves are located offshore
United States.
There are numerous uncertainties inherent in estimating quantities
of proved reserves and projecting future rates of production and timing
of development expenditures. The above reserve data represents
estimates only and should not be construed as being exact.
Future Net Cash Flows -
The following table sets forth unaudited information concerning
future net cash flows for oil and gas reserves. Future revenue is
based on year-end 1995 prices. Operating costs and future development
costs are based on current costs with no escalation. As the Registrant
is a general partnership, and therefore pays no income taxes, estimated
future income tax expenses were omitted. This information does not
purport to present the fair market value of the Partnership's oil and
gas assets, but does present a standardized disclosure concerning
possible future net cash flows that would result under the assumptions
used.
Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Reserves at December 31,
1995 1994 1993
---------- ---------- ----------
(In thousands)
Future cash inflows $ 75,770 $ 60,383 $ 84,712
Future production and development costs (10,615) (11,945) (12,809)
---------- ---------- ----------
Net cash flows 65,155 48,438 71,903
10 percent annual discount rate (16,040) (13,206) (19,616)
---------- --------- - ----------
Discounted future net cash flows $ 49,115 $ 35,232 $ 52,287
========== ========== ==========
The following are the principal sources of change in the discounted
future net cash flows:
1995 1994 1993
---------- ---------- ----------
(In thousands)
Sales, net of production costs $ (11,766) $ (16,114) $ (17,662)
Net change in prices and production costs 15,808 (9,824) 1,329
Discoveries 566 735 8,816
Revisions of quantities 4,447 3,910 6,094
Accretion of discount 3,523 5,229 4,857
Changes in future development costs 301 113 1,256
Changes in production rates and other 1,004 (1,104) (975)
---------- ---------- ----------
$ 13,883 $ (17,055) $ 3,715
========== ========== ==========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
All management functions are performed by Apache, the Managing Partner
of the Registrant. The Registrant itself has no officers or directors.
Information concerning the officers and directors of Apache set forth under
the captions "Information About Nominees for Election as Directors,"
"Continuing Directors," "Executive Officers of the Company," and "Voting
Securities and Principal Holders" in the proxy statement relating to the
1996 annual meeting of shareholders of Apache (the "Apache Proxy") is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See Note (3), "Compensation of Apache" of the Registrant's financial
statements, under Item 8 above, for information regarding compensation of
Apache as Managing Partner. The information concerning the compensation
paid by Apache to its officers and directors set forth under the captions
"Summary Compensation Table," "Option/SAR Grants Table," "Option/SAR
Exercises and Year-End Value Table," "Employment Contracts and Termination
of Employment and Change-in-Control Arrangements," and "Director
Compensation" in the Apache Proxy is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Apache, as an Investing Partner and the General Partner, owns 53
Units, or approximately four percent of the outstanding Units of the
Registrant as of December 31, 1995. Directors and officers of Apache own 13
Units, approximately one percent of the Registrant's Units, as of December
31, 1995. Apache owns a one-percent General Partner interest (15
equivalent Units). To the knowledge of the Registrant, no Investing
Partner owns, of record or beneficially, more than five percent of the
Registrant's outstanding Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective November 1992, with Apache's and the Partnership's
acquisition of an additional revenue interest in Matagorda Island Blocks
681 and 682, a wholly-owned subsidiary of Apache purchased from Shell a
14.4 mile-long natural gas and condensate pipeline connecting Matagorda
Island Block 681 to onshore markets. The Partnership paid the Apache
subsidiary transportation fees totaling $218,000, $309,000 and $229,000 in
1995, 1994 and 1993, respectively, for transportation of the Partnership's
share of gas. The fees, which are netted against oil and gas sales on the
income statement, were at the same rates and terms as previously paid to
Shell.
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. (1) Financial Statements - See accompanying index to financial
statements in Item 8 above.
(2) Financial Statement Schedules - See accompanying index to financial
statements in Item 8 above.
(3) Exhibits
3.1 Partnership Agreement of Apache Offshore Investment
Partnership (incorporated by reference to Exhibit (3)(i)
to Form 10 filed by Registrant with the Commission on
April 30, 1985, Commission File No. 0-13546).
3.2 Limited Partnership Agreement of the Registrant
(incorporated by reference to Exhibit (3)(ii) to Form 10
filed by Registrant with the Commission on April 30,
1985, Commission File No. 0-13546).
3.3 Amendment No. 1, dated February 11, 1994, to the
Partnership Agreement of the Registrant (incorporated by
reference to Exhibit 3.3 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993,
Commission File No. 0-13546).
10.1 Loan Agreement dated as of April 1, 1984, between Apache
Corporation and Norwest Bank Minneapolis, for itself and
other lenders (incorporated by reference to Exhibit 28.1
to Amendment No. 2 to Registrant's Form 10 filed with the
Commission on August 13, 1985, Commission File No. 0-
13546).
10.2 Loan Agreement dated as of March 19, 1982, between Apache
Corporation and Bank of America National Trust and
Savings Association, for itself and other lenders
(incorporated by reference to Exhibit 28.2 to Amendment
No. 2 to Registrant's Form 10 filed with the Commission
on August 13, 1985, Commission File No. 0-13546).
10.3 First amendment to Loan Agreement effective as of
December 1, 1990, between Apache Corporation, APC
Operating Partnership L.P., Apache Offshore Petroleum
Limited Partnership and Norwest Bank Minneapolis, as
agent and servicer (incorporated by reference to Exhibit
3.5 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990, Commission File No. 0-
13546).
10.4 Credit Agreement dated July 24, 1992, between Apache, the
Lenders named therein and the First National Bank of
Chicago, as Agent (incorporated by reference to Exhibit
10.1 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1992, Commission File No. 0-
13546).
10.5 Second Amendment, dated as of July 29, 1994, to Credit
Agreement between Apache, the Lenders named therein and
the First National Bank of Chicago, as Agent
(incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994, Commission File No. 1-
13546).
10.6 Third Amendment, dated as of March 31, 1995, to the
Credit Agreement between Apache, the Lenders named
therein and the First National Bank of Chicago, as Agent.
10.7 Form of Assignment and Assumption Agreement between
Apache Corporation and Apache Offshore Petroleum Limited
Partnership (incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992, Commission File No. 0-
13546).
10.8 Joint Venture Agreement, dated as of November 23, 1992
between Apache Corporation and Apache Offshore Petroleum
Limited Partnership (incorporated by reference to Exhibit
10.6 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992, Commission File No. 0-
13546).
10.9 Matagorda Island 681 Field Purchase and Sale Agreement
with Option to Exchange, dated November 24, 1992, between
Apache Corporation, Shell Offshore, Inc. and SOI
Royalties, Inc. (incorporated by reference to Exhibit
10.7 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992, Commission File No. 0-
13546).
27.1 Financial Data Schedule.
99.1 Consent statement of the Registrant, dated January 7,
1994 (incorporated by reference to Exhibit 99.1 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993, Commission File No. 0-13546).
99.2 Proxy statement dated March 28, 1996, relating to the
1996 annual meeting of shareholders of Apache Corporation
(incorporated by reference to the document filed with the
Commission pursuant to Rule 14A, on March 28, 1996,
Commission File No. 1-4300).
*Filed herewith.
b. Reports filed on Form 8-K.
No reports on Form 8-K were filed during the fiscal quarter ended
December 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
APACHE OFFSHORE INVESTMENT PARTNERSHIP
By: Apache Corporation, General Partner
Date: March 29, 1996 By: /s/ Raymond Plank
----------------------------------------
Raymond Plank,
Chairman and Chief
Executive Officer
POWER OF ATTORNEY
The officers and directors of Apache Corporation, General Partner of
Apache Offshore Investment Partnership, whose signatures appear below,
hereby constitute and appoint Raymond Plank, G. Steven Farris, Z.S.
Kobiashvili and Mark A. Jackson, and each of them (with full power to each
of them to act alone), the true and lawful attorney-in-fact to sign and
execute, on behalf of the undersigned, any amendment(s) to this report and
each of the undersigned does hereby ratify and confirm all that said
attorneys shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Raymond Plank Chairman and Chief Executive March 29, 1996
- ------------------------------ Officer (Principal Executive
Raymond Plank Officer)
/s/ Mark A. Jackson Vice President and Chief March 29, 1996
- ------------------------------ Financial Officer (Principal
Mark A. Jackson Financial Officer)
/s/ Thomas L. Mitchell Controller and Chief March 29, 1996
- ----------------------------- Accounting Officer (Principal
Thomas L. Mitchell Accounting Officer)
Signature Title Date
/s/ Frederick M. Bohen Director
- ------------------------------
Frederick M. Bohen March 29, 1996
/s/ Virgil B. Day Director
- ------------------------------
Virgil B. Day March 29, 1996
/s/ G. Steven Farris Director
- ------------------------------
G. Steven Farris March 29, 1996
/s/ Randolph M. Ferlic Director
- ------------------------------
Randolph M. Ferlic March 29, 1996
/s/ Eugene C. Fiedorek Director
- ------------------------------
Eugene C. Fiedorek March 29, 1996
/s/ W. Brooks Fields Director
- ------------------------------
W. Brooks Fields March 29, 1996
/s/ Robert V. Gisselbeck Director
- ------------------------------
Robert V. Gisselbeck March 29, 1996
/s/ Stanley K. Hathaway Director
- ------------------------------
Stanley K. Hathaway March 29, 1996
/s/ John A. Kocur Director
- ------------------------------
John A. Kocur March 29, 1996
/s/ Joseph A. Rice Director
- ------------------------------
Joseph A. Rice March 29, 1996
1
The accompanying notes to financial statements are
an integral part of this statement.
13
24
5
0000727538
APACHE OFFSHORE INVESTMENT PARTNERSHIP
1
U.S. DOLLARS
12-MOS
DEC-31-1995
JAN-01-1995
DEC-31-1995
1.000
104
0
2,744,988
0
0
2,753,662
161,821,838
(151,089,712)
13,485,788
704,176
7,310,000
0
0
0
5,471,612
13,485,788
13,138,358
13,138,358
5,782,970
5,782,970
1,140,987
0
0
6,214,401
0
6,214,401
0
0
0
6,214,401
3,584
3,584
EXHIBIT 10.6
THIRD AMENDMENT TO
APACHE CORPORATION
CREDIT AGREEMENT
(Offshore Transaction)
This THIRD AMENDMENT (this "Amendment") is entered into as of March
31, 1995 by and among Apache Corporation (the "Company"), The First National
Bank of Chicago, as Agent (in such capacity, the "Agent") and the Lenders
signatory hereto. The parties hereto agree as follows:
WHEREAS, the Company, the Agent, and the Lenders have entered into
that certain Credit Agreement dated as of July 24, 1992, as heretofore amended
(as so amended, the "Agreement"); and
WHEREAS, the parties thereto desire to amend the Agreement in certain
respects more fully described hereinafter;
NOW THEREFORE, in consideration of the undertakings set forth
herein and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1.Defined Terms. Capitalized terms used in this Amendment and
not otherwise defined shall have the meanings attributed to them in the
Agreement.
2.Amendment of Agreement. The Agreement is hereby amended as
follows:
Section 6.11 (Ratio of Consolidated Current Assets to Consolidated Current
Liabilities) is deleted in its entirety and the following is inserted in
lieu thereof:
"6.11. [Intentionally Omitted]"
3.Representations and Warranties. The Company hereby confirms and
reaffirms that the representations and warranties contained in Article V of
the Agreement are true and correct in all material respects as of the
Effective Date (as defined in Paragraph 4 of this Amendment) except for
changes reflecting transactions permitted by the Agreement (including
without limitations changes to the Schedules and changes contemplated
under Section 6.14) or otherwise previously consented to by the Lenders,
provided that such representations and warranties shall be and hereby are
amended as follows: each reference therein to "this Agreement," including,
without limitation, such a reference included in the term "Loan Documents,"
shall be deemed to be a collective reference to the Agreement, this Amendment,
and the Agreement as amended by this Amendment. A Default under and as
defined in the Agreement as amended by this Amendment shall be deemed to have
occurred if any representation or warranty made pursuant to the preceding
sentence shall be materially false as of the date on which it was made.
4.Effective Date. This Amendment shall become effective as of the
date first written above (the "Effective Date") upon receipt by the Agent of
counterparts of this Amendment duly executed by the Company, the Agent, and
each of the Lenders.
5.Effect on Existing Agreement. Except as expressly amended hereby,
all of the representations, warranties, terms, covenants and conditions of
the Agreement and the other Loan Documents (a) shall remain unaltered, (b)
shall continue to be, and shall remain, in full force and effect in
accordance with their respective terms, and (c) are hereby ratified and
confirmed in all respects. Upon the effectiveness of this Amendment, all
references in the Agreement to "this Agreement" (and all indirect references
such as "hereby," "herein," "hereof" and "hereunder") shall be deemed to
be references to the Agreement as amended by this Amendment.
6. Expenses. The Company shall reimburse the Agent for any and
all reasonable costs, internal charges and out-of-pocket expenses (including
attorneys fees and time charges of attorneys for the Agent, which attorneys
may be employees of the Agent) paid or incurred by the Agent in connection
with the preparation, review, execution and delivery of this Amendment.
7. Entire Agreement. This Amendment, the Agreement as amended by
this Amendment, and the other Loan Documents embody the entire agreement and
understanding among the parties hereto and supersede any and all prior
agreements and understandings among the parties hereto relating to the
subject matter hereof.
8. Counterparts. This Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one Amendment,
and any parties hereto may execute this Amendment by signing any such
counterpart.
9. Governing Law. This Amendment shall be construed in
accordance with the internal laws (and not the law of conflicts) of the
State of Illinois, but giving effect to federal laws applicable to a
national banking association located in the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.
APACHE CORPORATION
By: /s/ Clyde E. McKenzie
Name: Clyde E. McKenzie
Title: Vice President and Treasurer
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Thomas E. Both
Name: Thomas E. Both
Title: Vice President
BANK OF MONTREAL
By: /s/ Robert L. Roberts
Name: Robert L. Roberts
Title: Director, U.S. Corprate Banking
CHEMICAL BANK
By: /s/ Ronald Potter
Name: Ronald Potter
Title: Managing Director
NATIONSBANK OF TEXAS, N.A.
By: /s/ Melissa Bauman
Name: Melissa Bauman
Title: Vice President
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