SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-13546
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APACHE OFFSHORE INVESTMENT PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Delaware 41-1464066
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Suite 100, One Post Oak Central
2000 Post Oak Boulevard, Houston, TX 77056-4400
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (713) 296-6000
---------------
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
---- ----
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE OFFSHORE INVESTMENT PARTNERSHIP
STATEMENT OF INCOME
(Unaudited)
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
--------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
REVENUES:
Oil and gas sales $ 2,751,530 $ 3,414,308 $ 9,150,173 $ 13,231,038
Interest income 41,214 22,607 66,376 22,607
Other income 89,250 -- 89,250 --
----------- ----------- ----------- -----------
2,881,994 3,436,915 9,305,799 13,253,645
----------- ----------- ----------- -----------
EXPENSES:
Depreciation, depletion
and amortization 693,231 825,367 2,167,320 3,360,187
Lease operating 83,130 269,154 340,606 980,800
Administrative 135,000 132,499 405,000 397,499
Interest -- 84,420 12,818 295,857
----------- ----------- ----------- -----------
911,361 1,311,440 2,925,744 5,034,343
----------- ----------- ----------- -----------
NET INCOME $ 1,970,633 $ 2,125,475 $ 6,380,055 $ 8,219,302
=========== =========== =========== ===========
Net income allocated to:
Managing Partner $ 462,058 $ 504,691 $ 1,493,315 $ 1,968,718
Investing Partners 1,508,575 1,620,784 4,886,740 6,250,584
----------- ----------- ----------- -----------
$ 1,970,633 $ 2,125,475 $ 6,380,055 $ 8,219,302
=========== =========== =========== ===========
NET INCOME PER WEIGHTED
AVERAGE INVESTING PARTNER UNIT $ 1,268 $ 1,351 $ 4,090 $ 5,177
=========== =========== =========== ===========
WEIGHTED AVERAGE INVESTING PARTNER
UNITS OUTSTANDING 1,190.1 1,199.7 1,194.8 1,207.4
============ ============ ============ ===========
The accompanying notes to financial statements
are an integral part of this statement.
1
APACHE OFFSHORE INVESTMENT PARTNERSHIP
STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended September 30,
------------------------------
1997 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,380,055 $ 8,219,302
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 2,167,320 3,360,187
Changes in operating assets and liabilities:
Decrease in accrued revenues receivable 1,975,005 587,508
Increase (decrease) in accrued
operating expenses payable (193,482) 237,747
Decrease in payable to Apache Corporation (548,380) (503,863)
------------ ------------
Net cash provided by operating activities 9,780,518 11,900,881
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (2,322,219) (440,433)
Non-cash portion of oil and gas property additions 200,123 (288,205)
(Increase) decrease in drilling advances (37,326) 8,570
------------ ------------
Net cash used in investing activities (2,159,422) (720,068)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of Partnership Units (114,132) (141,732)
Distributions to Investing Partners (1,197,827) (1,212,321)
Distributions to Managing Partner, net (1,833,177) (1,953,153)
Payments on long-term debt (1,997,500) (4,760,000)
------------ ------------
Net cash used in financing activities (5,142,636) (8,067,206)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,478,460 3,113,607
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,737,470 104
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,215,930 $ 3,113,711
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 11,073 $ 244,855
============ ============
The accompanying notes to financial statements
are an integral part of this statement.
2
APACHE OFFSHORE INVESTMENT PARTNERSHIP
BALANCE SHEET
September 30, December 31,
1997 1996
-------------- ---------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,215,930 $ 1,737,470
Accrued revenues receivable 1,071,180 3,046,185
Drilling advances 37,326 --
--------------- ---------------
5,324,436 4,783,655
--------------- ---------------
OIL AND GAS PROPERTIES, on the basis
of full cost accounting:
Proved properties 165,200,122 162,877,903
Less - Accumulated depreciation,
depletion and amortization (157,577,214) (155,409,894)
--------------- ---------------
7,622,908 7,468,009
--------------- ---------------
$ 12,947,344 $ 12,251,664
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Distribution payable $ 4,164,512 $ --
Accrued exploration and development 714,071 513,948
Accrued operating expenses payable and other 205,416 398,898
Payable to Apache Corporation 294,704 843,084
--------------- ---------------
5,378,703 1,755,930
--------------- ---------------
LONG-TERM DEBT -- 1,997,500
--------------- ---------------
PARTNERS CAPITAL:
Managing Partner 751,327 1,091,189
Investing Partners (1,189.9 and 1,197.9 units
outstanding, respectively) 6,817,314 7,407,045
--------------- ---------------
7,568,641 8,498,234
--------------- ---------------
$ 12,947,344 $ 12,251,664
=============== ===============
The accompanying notes to financial statements
are an integral part of this statement.
3
APACHE OFFSHORE INVESTMENT PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The financial statements included herein have been prepared by the
Apache Offshore Investment Partnership (Partnership), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission, and reflect all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal, recurring nature.
Certain information, accounting policies, and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules and
regulations, although the Partnership believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and
the summary of significant accounting policies and notes thereto included
in the Partnership's latest annual report on Form 10-K.
1. OTHER ACCRUED EXPENSES
Accrued expenses payable at September 30, 1997, primarily represented
operating costs accrued in August and September that will be paid in
subsequent months.
2. PAYABLE TO/RECEIVABLE FROM APACHE
The payable to/receivable from Apache Corporation, the Partnership's
managing partner (Apache or Managing Partner), represents the net result of
the Investing Partners' revenue and expenditure transactions in the current
month. Generally, cash in this amount will be transferred to/from Apache in
the following month after the Partnership's transactions are processed and
the net results of operations are determined.
3. RIGHT OF PRESENTMENT
In February 1994, an amendment to the Partnership Agreement created a
right of presentment under which all Investing Partners have a limited and
voluntary right to offer their Units to the Partnership twice each year to
be purchased for cash. The first right of presentment offer for 1997 was
based upon a valuation date of December 31, 1996 for a purchase price of
$13,621 per Unit, plus interest to the date of payment. The offer was made
to the Investing Partners on April 28, 1997 and, as a result, the
Partnership acquired 7.999 Units for a total of $114,132 in cash. A second
right of presentment offer of $10,946 per Unit, plus interest to the date
of payment, was made to the Investing Partners on October 30, 1997, based
on a valuation date of June 30, 1997. The Partnership is not in a position
to predict how many Units will be presented for repurchase under the
October 1997 offer and cannot, at this time, determine if the Partnership
will have sufficient funds available to repurchase Units. The Amended
Partnership Agreement contains limitations on the number of Units that the
Partnership can repurchase, including a limit of 10 percent of the
outstanding Units on an annual basis.
4
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Partnership realized the fourth highest earnings and cash flow from
operating activities for the nine months ended September 30, 1997, as
compared with any prior nine month period in its history. Strong natural
gas and crude oil prices as well as lower lease operating and financing
costs contributed to the Partnership's results. The average realized
natural gas price for the first nine months was the second highest in 11
years. Given strong cash flow, the Partnership repaid all outstanding debt
and terminated its revolving credit facility on January 31, 1997, rendering
the Partnership debt free for the first time in its 14 years. In addition,
as of October 1, 1997, the Partnership has made distributions totaling
$4,500 per-Unit and repurchased shares under the right of presentment
program.
Net Income and Revenue
The Partnership reported net income of $2.0 million in the third
quarter of 1997, versus $2.1 million in the prior year period. Earnings
per Investing Partner Unit decreased six percent, from $1,351 to $1,268.
The decrease was attributable to lower natural gas production and lower
crude oil prices, mitigated by lower depreciation, depletion and
amortization expense (DD&A), lease operating expense (LOE) and financing
costs.
For the nine months of 1997, net income of $6.4 million, or $4,090 per
Investing Partner Unit, decreased 22 percent and 21 percent, respectively,
from $8.2 million and $5,177 per Unit in the same period last year.
Impacting 1997 results were lower natural gas and crude oil production,
lower average realized gas and crude oil prices, mitigated by lower DD&A,
LOE and financing costs.
Revenues decreased 16 percent, from $3.4 million in the third quarter
of 1996 to $2.9 million for the same period in 1997. Natural gas and crude
oil sales contributed 77 percent and 18 percent, respectively, to the
Partnership's total revenues, with five percent attributable to interest
income and other income from a settlement related to High Island A-6. For
the first nine months of 1997, revenues decreased 30 percent, to $9.3
million compared to the same period in 1996 due primarily to lower
production and prices, with natural gas and oil contributing 78 percent and
20 percent, respectively, to total revenue.
The Partnership's gas and oil production volume and price information
is summarized in the following tables:
For the Quarter Ended For the Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
1997 1996 Change 1997 1996 Change
------ ------ ------ ------ ------ ------
Gas Volume - Mcf per day 10,726 13,950 (23%) 11,172 16,208 (31%)
Average Gas Price - per Mcf $ 2.25 $ 2.20 2% $ 2.39 $ 2.40 0%
Oil Volume - Barrels per day 313 297 5% 349 472 (26%)
Average Oil Price - Per barrel $ 18.43 $ 21.45 (14%) $ 19.53 $ 19.90 (2%)
Third Quarter 1997 Compared to Third Quarter 1996
Natural gas sales revenues for the third quarter of 1997 totaled $2.2
million, 21 percent lower than the third quarter of 1996. The decrease
resulted from a 23-percent decline in natural gas production, negatively
impacting revenue by $.7 million. Natural gas production decreased
primarily as a result of natural declines in production at Roberto and
natural declines in production coupled with the Partnership selling less
than its entitlement at South Pass 83 and North Padre 969, where make-up
volumes were taken by under-produced working interest owners. Also
contributing to the decrease were natural declines in production combined
with downtime for compressor installation work at Ship Shoal 259 and
facility downtime at West Cameron 368.
5
The Partnership's crude oil sales revenues for the third quarter
totaled $.5 million, a nine percent decrease from the third quarter of
1996. The impact of a 14-percent decrease in average realized oil prices
was mitigated by a five-percent increase in production. The increase in
production was primarily the result of non-recurring downward adjustment in
the third quarter of 1996.
Year-to-Date 1997 Compared to Year-to-Date 1996
Gas sales for the first nine months of 1997 of $7.3 million decreased
$3.4 million, or 32 percent, when compared to the same period in 1996.
Average realized gas prices decreased $.01 per Mcf, when compared with the
first nine months of 1996. Gas production for the first nine months of 1997
decreased by 31 percent when compared to the same period in 1996,
negatively impacting revenues by $3.3 million. Production decreases in
1997 were primarily due to natural declines in production at Roberto and
downtime for drilling at South Timbalier 295 and for drilling and
compressor installation work at Ship Shoal 259. Also contributing to the
decrease were natural declines in production combined with the Partnership
taking less than its entitlement at South Pass 83 and North Padre 969,
where make-up volumes were taken by under-produced working interest owners.
For the nine months ended September 30, 1997, oil sales decreased 28
percent to $1.9 million when compared to the same period last year. The
Partnership's oil sales revenues were impacted by a 26 percent decline in
oil production and a two percent decrease in realized prices. The decrease
in sales volumes resulted from natural declines in production at East
Cameron 60 and downtime resulting from drilling operations at South
Timbalier 295.
Given the small number of producing wells owned by the Partnership and
the fact that offshore wells tend to decline on a steeper curve than
onshore wells, the Partnership's future production will be subject to more
volatility than the production of entities with greater reserves and
longer-lived properties.
OPERATING EXPENSES
The Partnership's DD&A expense for the third quarter of 1997 decreased
16 percent from the same period in the previous year primarily as a result
of lower oil and gas sales revenue. The Partnership's DD&A rate, expressed
as a percentage of sales, was 24 percent during the first nine months of
1997, decreasing from 25 percent during the same period in 1996. The
decrease in the rate was a result of generally improving natural gas and
crude oil prices during the last twelve months and positive reserve
revisions in the fourth quarter of 1996.
LOE in the third quarter of 1997 decreased 69 percent, from $.3 million
to $.1 million, from the third quarter of 1996. For the first nine months
of 1997, LOE of $.3 million was down 65 percent when compared to the first
nine months of 1996. The decrease was primarily the result of lower
workover activity in the first nine months of 1997 and credits received
from a joint venture audit during March and July 1997.
Financing costs decreased 96 percent in the first nine months when
compared to the same period in 1996. The decrease was a result of the
repayment of the $2.0 million of the Partnership's outstanding bank debt on
January 31, 1997.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
Capital Resources and Liquidity
The Partnership's primary capital resource is net cash provided by
operating activities, which was $9.8 million for the first nine months of
1997, a decrease of 18 percent from a year ago, driven by lower oil and gas
production and gas prices which were mitigated by lower LOE. Future cash
flows will similarly be influenced by fluctuations in product prices and
production and operating cost.
6
In January 1997, the Partnership repaid the outstanding balance of the
revolving credit facility (obtained by Apache on behalf of the Partnership
in July 1992) and terminated the facility.
It is expected that the net cash provided by operating activities and
Managing Partner contributions will be sufficient to meet the Partnership's
liquidity needs through the end of 1997. However, in the event short-term
operating cash requirements are greater than the Partnership's financial
resources, the Partnership will seek short-term interest-bearing advances
from the Managing Partner.
Capital Commitments
The Partnership's primary needs for cash are for operating expenses,
drilling and recompletion expenditures, distributions to Investing Partners
and the purchase of Units offered by Investing Partners under the right of
presentment.
During the first nine months of 1997, the Partnership's oil and gas
property additions totaled $2.3 million. At South Timbalier 295, the A-28
injection well and A-29 and A-30 development wells were drilled and are
currently being completed. Additionally, the A-1 sidetrack was drilled and
resulted in a dry hole because of mechanical problems running the
production liner. The Partnership also participated in a compressor
installation at Ship Shoal 259, the JA-8 sidetrack at Roberto and the #5
directional well at Matagorda 705. In addition, the Partnership plans to
participate in a recompletion and three sidetrack wells at South Pass 83
which are projected to begin late in the fourth quarter of this year.
Based on information supplied by the operators of the properties, the
Partnership anticipates capital expenditures of approximately $1.0 million
for the remainder of 1997. Such estimates may change based on realized
prices, drilling results or changes to the development plan by the
operator.
The Partnership made a $1,000 per Unit distribution during March 1997
and a $3,500 per Unit distribution on October 1, 1997. The amount of
future distributions will be dependent on actual and expected production
levels, realized and expected oil and gas prices, and expected drilling and
recompletion expenditures.
As provided in the Amended Partnership Agreement, a second right of
presentment offer for 1997 of $10,946 per Unit, plus interest to the date
of payment, was made to Investing Partners on October 30, 1997, based on a
valuation date of June 30, 1997. The Partnership is not in a position to
predict how many Units will be presented for repurchase during 1997 and
cannot, at this time, determine if the Partnership will have sufficient
funds available to repurchase Units.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 ("PSLRA")
Certain forward-looking information contained in this report is being
provided in reliance upon the "safe harbor" provisions of the PSLRA, as set
forth in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such information
includes, without limitation, discussions as to estimates, expectations,
beliefs, plans and objectives concerning the Partnership's future financial
and operating performance. Such forward-looking information is subject to
assumptions and beliefs based on current information known to the
Partnership and factors that could yield actual results differing
materially from those anticipated. Such factors include, without
limitation, the prices received for the Partnership's oil and natural gas
production, the costs of acquiring, finding, developing and producing
reserves, the rates of production of the Partnership's hydrocarbon
reserves, the Partnership's success in acquiring or finding additional
reserves, unforeseen operational hazards, significant changes in tax or
regulatory environments, and the political and economic uncertainties of
foreign oil and gas supplies.
7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
27.1 Financial Data Schedule.
b. Reports on Form 8-K - None.
8
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
Dated: November 11, 1997 /s/ Roger B. Plank
------------------------------------------
Roger B. Plank
Vice President and Chief Financial Officer
Dated: November 11, 1997 /s/ Thomas L. Mitchell
------------------------------------------
Thomas L. Mitchell
Vice President and Controller
(Chief Accounting Officer)
5
0000727538
AR.5 FED FOR 1997 3RD QUARTER 10Q
1,000
U.S. DOLLAR
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
1,000
4,215,930
0
1,108,506
0
0
5,324,436
165,200,122
(157,577,214)
12,947,344
5,378,703
0
0
0
0
7,568,641
12,947,344
9,150,173
9,305,799
2,507,926
2,507,926
405,000
0
12,818
6,380,055
0
6,380,055
0
0
0
6,380,055
4,090
4,090
