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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________________

FORM 10-Q

________________________________________________________________

(Mark One)

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 0-13546

APACHE OFFSHORE INVESTMENT PARTNERSHIP

(Exact name of registrant as specified in its charter)

Delaware						41-1464066
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code: (713) 296-6000

Securities registered pursuant to Section 12(b) of the Act: None

 ________________________________________________________________

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of registrant's units outstanding as of September 30, 2021			1,022

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			TABLE OF CONTENTS
Item			Description						Page
			PART I - FINANCIAL INFORMATION
1.			FINANCIAL STATEMENTS						1
			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS						5
2.			MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS						8
3.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK						12
4.			CONTROLS AND PROCEDURES						12
			PART II - OTHER INFORMATION
1.			LEGAL PROCEEDINGS						13
1A.			RISK FACTORS						13
2.			UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS						13
3.			DEFAULTS UPON SENIOR SECURITIES						13
4.			MINE SAFETY DISCLOSURES						13
5.			OTHER INFORMATION						13
6.			EXHIBITS						13

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Forward-Looking Statements and Risk

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding the Partnership’s (as defined below in the Notes to Consolidated Financial Statements) future financial position, business strategy, budgets, projected revenues, projected costs and plans, and objectives of management for future operations, are forward-looking statements. Such forward-looking statements are based on the Partnership’s examination of historical operating trends, the information that was used to prepare the Partnership’s estimate of proved reserves as of December 31, 2020, and other data in its possession or available from third parties. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “plan,” “believe,” “continue,” “seek,” “guidance,” “might,” “outlook,” “possibly,” “potential,” “prospect,” “should,” “would,” or similar terminology, but the absence of these words does not mean a statement is not forward looking. Although the Partnership believes that the expectations reflected in such forward-looking statements are reasonable under the circumstances, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Partnership’s expectations include, but are not limited to, the Partnership’s assumptions about:

•the scope, duration, and reoccurrence of any epidemics or pandemics (including specifically the coronavirus disease 2019 (COVID-19) pandemic and any related variants) and the actions taken by third parties, including, but not limited to, governmental authorities, customers, contractors, and suppliers, in response to such epidemics or pandemics;

•the mandate, availability, and effectiveness of vaccine programs and other therapeutics related to the treatment of COVID-19;

•the market prices of oil, natural gas, natural gas liquids (NGLs), and other products or services;

•the supply and demand for oil, natural gas, NGLs, and other products or services;

•pipeline and gathering system capacity and availability;

•production and reserve levels;

•drilling risks;

•economic and competitive conditions;

•the availability of capital resources;

•capital expenditures and other contractual obligations;

•weather conditions;

•inflation rates;

•the availability of goods and services;

•legislative, regulatory, or policy changes, including environmental regulation and initiatives addressing the impact of global climate change;

•terrorism or cyberattacks;

•the capital markets and related risks, such as general credit, liquidity, market, and interest-rate risks; and

•other factors disclosed under Item 2 – “Properties — Estimated Proved Reserves and Future Net Cash Flows,” Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in the Partnership’s most recently filed Annual Report on Form 10-K and other filings that it makes with the Securities and Exchange Commission.

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Other factors or events that could cause the Partnership’s actual results to differ materially from the Partnership’s expectations may emerge from time to time, and it is not possible for the Partnership to predict such factors or events. All subsequent written and oral forward-looking statements attributable to the Partnership, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, the Partnership disclaims any obligation to update or revise these statements, whether based on changes in internal estimates or expectations, new information, future developments, or otherwise.

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PART I — FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

APACHE OFFSHORE INVESTMENT PARTNERSHIP

STATEMENT OF CONSOLIDATED OPERATIONS

(Unaudited)

			For the Quarter Ended September 30,												For the Nine Months Ended September 30,
			2021						2020						2021						2020
REVENUES:
Oil and gas sales			$	—					$	109,121					$	469,777					$	433,686
Interest income			64						580						282						23,892
			64						109,701						470,059						457,578
EXPENSES:
Depreciation, depletion and amortization			—						40,283						162,914						136,106
Asset retirement obligation accretion			13,489						14,074						39,706						40,598
Lease operating expenses			127,159						92,387						371,233						299,310
Gathering and transportation costs			—						2,813						6,892						11,493
Administrative			72,480						80,175						217,445						240,525
			213,128						229,732						798,190						728,032
NET LOSS			$	(213,064)					$	(120,031)					$	(328,131)					$	(270,454)
NET LOSS ALLOCATED TO:
Managing Partner			$	(41,272)					$	(16,905)					$	(38,720)					$	(33,553)
Investing Partners			(171,792)						(103,126)						(289,411)						(236,901)
			$	(213,064)					$	(120,031)					$	(328,131)					$	(270,454)
NET LOSS PER INVESTING PARTNER UNIT			$	(168)					$	(101)					$	(283)					$	(232)
WEIGHTED AVERAGE INVESTING PARTNER UNITS OUTSTANDING			1,021.5						1,021.5						1,021.5						1,021.5

The accompanying notes to consolidated financial statements

are an integral part of this statement.

1

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APACHE OFFSHORE INVESTMENT PARTNERSHIP

STATEMENT OF CONSOLIDATED CASH FLOWS

(Unaudited)

			For the Nine Months Ended September 30,
			2021						2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss			$	(328,131)					$	(270,454)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization			162,914						136,106
Asset retirement obligation accretion			39,706						40,598
Changes in operating assets and liabilities:
Accrued receivables			95,590						90,145
Receivable from/payable to Apache Corporation			6,508						5,525
Accrued operating expenses			(11,064)						(2,472)
Asset retirement obligations			(222,687)						(437,590)
Net cash used in operating activities			(257,164)						(438,142)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties			—						(9)
Net cash used in investing activities			—						(9)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from Managing Partner			30,522						49,752
Net cash provided by financing activities			30,522						49,752
NET DECREASE IN CASH AND CASH EQUIVALENTS			(226,642)						(388,399)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			4,515,466						5,020,432
CASH AND CASH EQUIVALENTS, END OF PERIOD			$	4,288,824					$	4,632,033

The accompanying notes to consolidated financial statements

are an integral part of this statement.

2

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APACHE OFFSHORE INVESTMENT PARTNERSHIP

CONSOLIDATED BALANCE SHEET

(Unaudited)

			September 30, 2021						December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			$	4,288,824					$	4,515,466
Accrued revenues receivable			—						95,590
Receivable from Apache Corporation			—						4,830
			4,288,824						4,615,886
OIL AND GAS PROPERTIES, on the basis of full cost accounting:
Proved properties			195,903,947						195,727,413
Less – Accumulated depreciation, depletion and amortization			(191,822,174)						(191,659,260)
			4,081,773						4,068,153
			$	8,370,597					$	8,684,039
LIABILITIES AND PARTNERS’ CAPITAL
CURRENT LIABILITIES:
Payable to Apache Corporation			$	1,678					$	—
Asset retirement obligation			450,996						526,440
Accrued operating expenses			64,784						75,848
Accrued development costs			30,674						—
			548,132						602,288
ASSET RETIREMENT OBLIGATION			896,407						858,084
PARTNERS’ CAPITAL:
Managing Partner			515,209						523,407
Investing Partners (1,021.5 units outstanding)			6,410,849						6,700,260
			6,926,058						7,223,667
			$	8,370,597					$	8,684,039

The accompanying notes to consolidated financial statements

are an integral part of this statement.

3

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APACHE OFFSHORE INVESTMENT PARTNERSHIP

STATEMENT OF CONSOLIDATED CHANGES IN PARTNERS’ CAPITAL

(Unaudited) 

						Managing Partner						Investing Partners						Total
For the Quarter Ended September 30, 2020
BALANCE, JUNE 30, 2020						$	520,139					$	6,863,641					$	7,383,780
Contributions						4,573						—						4,573
Net loss						(16,905)						(103,126)						(120,031)
BALANCE, SEPTEMBER 30, 2020						$	507,807					$	6,760,515					$	7,268,322
For the Quarter Ended September 30, 2021
BALANCE, JUNE 30, 2021						$	507,297					$	6,582,641					$	7,089,938
Contributions						49,184						—						49,184
Net loss						(41,272)						(171,792)						(213,064)
BALANCE, SEPTEMBER 30, 2021						$	515,209					$	6,410,849					$	6,926,058
For the Nine Months Ended September 30, 2020
BALANCE, DECEMBER 31, 2019						$	491,608					$	6,997,416					$	7,489,024
Contributions						49,752						—						49,752
Net loss						(33,553)						(236,901)						(270,454)
BALANCE, SEPTEMBER 30, 2020						$	507,807					$	6,760,515					$	7,268,322
For the Nine Months Ended September 30, 2021
BALANCE, DECEMBER 31, 2020						$	523,407					$	6,700,260					$	7,223,667
Contributions						30,522						—						30,522
Net loss						(38,720)						(289,411)						(328,131)
BALANCE, SEPTEMBER 30, 2021						$	515,209					$	6,410,849					$	6,926,058

The accompanying notes to consolidated financial statements

are an integral part of this statement.

4

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APACHE OFFSHORE INVESTMENT PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Apache Offshore Investment Partnership, a Delaware general partnership (the Investment Partnership), was formed on October 31, 1983, consisting of Apache Corporation, a Delaware corporation (Apache or the Managing Partner), as Managing Partner, and public investors (the Investing Partners). The Investment Partnership invested its entire capital in Apache Offshore Petroleum Limited Partnership, a Delaware limited partnership (the Operating Partnership). The primary business of the Investment Partnership is to serve as the sole limited partner of the Operating Partnership. The accompanying financial statements include the accounts of both the Investment Partnership and the Operating Partnership. The term “Partnership,” as used herein, refers to the Investment Partnership or the Operating Partnership, as the case may be.

These financial statements have been prepared by the Partnership, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). They reflect all adjustments that 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. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) 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 Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which contains a summary of the Partnership’s significant accounting policies and other disclosures.

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As of September 30, 2021, the Partnership’s significant accounting policies are consistent with those discussed in Note 2 of its consolidated financial statements contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP 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. Significant estimates with regard to these financial statements include the estimate of proved oil and gas reserve quantities and the related present value of estimated future net cash flows therefrom and the assessment of asset retirement obligations. Actual results could differ from those estimates.

Oil and Gas Property

The Partnership follows the full-cost method of accounting for its oil and gas property. Under this method of accounting, all costs incurred for both successful and unsuccessful exploration and development activities, and oil and gas property acquisitions are capitalized. The net book value of oil and gas properties may not exceed a calculated “ceiling.” The ceiling limitation is the estimated future net cash flows from proved oil and gas reserves, discounted at 10 percent per annum. Estimated future net cash flows are calculated using end-of-period costs and an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months, held flat for the life of the production, except where prices are defined by contractual arrangements. For a discussion of the calculation of estimated future net cash flows, please refer to Note 10—Supplemental Oil and Gas Disclosures (Unaudited) to the consolidated financial statements contained in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Any excess of the net book value of proved oil and gas properties over the ceiling is charged to expense and reflected as “Additional depreciation, depletion and amortization” in the accompanying statement of consolidated operations. Such limitations are tested quarterly. The Partnership had no write-downs of the carrying value of its proved oil and gas properties during the first nine months of 2021 and 2020.

5

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Revenue Recognition

There have been no significant changes to the Partnership’s contracts with customers during the quarter and nine months ended September 30, 2021. The Partnership generates revenue from its contracts with customers from the sale of its crude oil, natural gas, and NGL production volumes. Under these short-term commodity sales contracts, the physical delivery of each unit of quantity represents a single, distinct performance obligation on behalf of the Partnership. Contract prices are determined based on market-indexed prices, adjusted for quality, transportation, and other market-reflective differentials. Revenue is measured by allocating an entirely variable market price to each performance obligation and recognized at a point in time when control is transferred to the customer. The Partnership considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, and the Partnership’s right to payment. Control typically transfers to customers upon the physical delivery at specified locations within each contract and the transfer of title.

In late June 2021, the operator shut-in wells at South Timbalier 295 in order to perform certain repairs to various piping and related equipment. During the construction crew’s review, additional necessary repairs were identified, including various platform and grating repairs. The crew also surveyed the facilities and identified deficiencies that require additional repairs before the wells can be returned to production. The repair work commenced during the third quarter of 2021, but Hurricane Ida caused further delays. The operator currently estimates that the wells will return to production in December of 2021. As a result of the wells being shut-in at South Timbalier 295, the Partnership had no production or revenues during the third quarter of 2021, as it is the only remaining operating field of the Partnership.

The table below presents revenues from contracts with customers disaggregated by product type for the quarter and nine months ended September 30, 2021 and 2020:

						For the Quarter Ended September 30,												For the Nine Months Ended September 30,
						2021						2020						2021						2020
Oil						$	—					$	96,312					$	402,244					$	379,445
Gas						—						11,514						52,520						45,930
NGLs						—						1,295						15,013						8,311
Total Oil and Gas Revenue						$	—					$	109,121					$	469,777					$	433,686

In accordance with the provisions of Accounting Standards Codification 606, variable market prices for each short-term commodity sale are allocated entirely to each performance obligation as the terms of payment relate specifically to the Partnership’s efforts to satisfy its obligations. As such, the Partnership has elected the practical expedients available under the standard to not disclose the aggregate transaction price allocated to unsatisfied, or partially unsatisfied, performance obligations as of the end of the reporting period. Payment terms under all contracts with customers are typically due and received within a short-term period of one year or less, after physical delivery of the product or service has been rendered.

The Partnership records trade accounts receivable for its unconditional rights to consideration arising under sales contracts with customers. The carrying value of such receivables represents estimated net realizable value. The Partnership routinely assesses the collectability of all material trade and other receivables. The Partnership accrues a reserve on a receivable when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated. As of September 30, 2021, the carrying amounts of trade accounts receivables approximate fair value because of the short-term nature of these instruments. Receivables from contracts with customers totaled $0 and $95,590 as of September 30, 2021 and December 31, 2020, respectively. The Partnership had no allowance for doubtful accounts recorded for any comparative period presented.

2.    RECEIVABLE FROM / PAYABLE TO APACHE CORPORATION

The receivable from/payable to Apache represents the net result of the Investing Partners’ revenue received and expenditures paid in the current month. Generally, cash in this amount will be paid by Apache to the Partnership or transferred to Apache in the month after the Partnership’s transactions are processed and the net results of operations are determined.

6

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3.    ASSET RETIREMENT OBLIGATIONS

The following table describes the changes to the Partnership’s asset retirement obligation liability for the first nine months of 2021:

Asset retirement obligation at December 31, 2020			$	1,384,524
Accretion expense			39,706
Liabilities settled			(253,361)
Revisions in estimated liabilities			176,534
Asset retirement obligation at September 30, 2021			1,347,403
Less current portion			(450,996)
Asset retirement obligation, long-term			$	896,407

Liabilities settled during the nine months ended September 30, 2021 relate to costs for well abandonment and platform removal at Ship Shoal 259. Estimated liabilities for abandonment activities were revised upward by $176,534 during the quarter for higher estimated costs related to diving work and associated services incurred for decommissioning during the period.

4.    FAIR VALUE MEASUREMENTS

Certain assets and liabilities are reported at fair value on a recurring basis in the Partnership’s consolidated balance sheet. As of September 30, 2021 and December 31, 2020, the carrying amounts of the Partnership’s current assets and current liabilities approximated fair value because of the short-term nature or maturity of these instruments.

The Partnership did not use derivative financial instruments or otherwise engage in hedging activities during the nine months ended September 30, 2021 and 2020.

5.    NOTICE OF WITHDRAWAL AND RIGHT OF PRESENTMENT

On March 22, 2019, Apache, as the Managing Partner of the Investment Partnership, gave notice of its intention to withdraw as Managing Partner of the Investment Partnership. The notice described the withdrawal process and certain notice periods required by that process. No party assumed the role of Managing Partner within the 120-day notice period specified by the notice of intention to withdraw. Consequently, Apache will oversee the process of winding up and liquidating the business and affairs of the Investment Partnership. Apache has not made a decision as to when it will complete the process to withdraw as Managing Partner.

On April 26, 2019, the Managing Partner determined that, during the withdrawal and dissolution process, it would be inconsistent with the Managing Partner’s fiduciary duties to purchase (or to cause the Investment Partnership to purchase) outstanding units of partnership interests (Units) from the holders thereof pursuant to the right of presentment provided for in Sections 6.9 through 6.14 of the Partnership Agreement of the Investment Partnership (the Partnership Agreement). As a result of this determination by the Managing Partner, pursuant to Section 6.12 of the Partnership Agreement, the right of presentment has been terminated and Sections 6.9 through 6.14 have “become null and void and of no further force or effect” as provided in Section 6.12.

Prior to terminating the right of presentment, the Investment Partnership had not made a repurchase under the right of presentment since 2008.

6.    FINANCIAL CONDITION OF THE OPERATOR OF THE PARTNERSHIP’S PRODUCING LEASE

On August 3, 2020, Fieldwood Energy LLC, the current operator of the Partnership’s producing lease, and certain of its affiliated debtors (collectively, Fieldwood) filed for protection under Chapter 11 of the United States Bankruptcy Code. On June 25, 2021, the United States Bankruptcy Court for the Southern District of Texas (Houston Division) entered an order confirming Fieldwood’s bankruptcy plan. On August 27, 2021, Fieldwood’s bankruptcy plan became effective. Pursuant to the plan, Fieldwood separated its ownership in and operatorship of the Partnership’s producing lease, together with several of Fieldwood’s other leases, into a standalone company, which will continue to perform Fieldwood’s obligations with respect to the Partnership’s properties. The reorganization of Fieldwood under the plan is not expected to have any material adverse effect on the Partnership’s operations.

7

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion relates to Apache Offshore Investment Partnership (the Partnership) and should be read in conjunction with the Partnership’s consolidated financial statements and accompanying notes included under Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q, as well as the Partnership’s consolidated financial statements, accompanying notes and related Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

The Partnership’s business is participation in oil and gas development and production activities on federal lease tracts in the Gulf of Mexico, offshore Louisiana.

Results of Operations

Net Income and Revenue

In late June 2021, the operator shut-in wells at South Timbalier 295 in order to perform certain repairs to various piping and related equipment. During the construction crew’s review, additional necessary repairs were identified, including various platform and grating repairs. The crew also surveyed the facilities and identified deficiencies that require additional repairs before the wells can be returned to production. The repair work commenced during the third quarter of 2021, but Hurricane Ida caused further delays. The operator currently estimates that the wells will return to production in December 2021. As a result of the wells being shut-in at South Timbalier 295, the Partnership had no production or revenues during the third quarter of 2021, as it is the only remaining operating field of the Partnership. Until the repairs are completed, the Partnership expects to operate at a loss as a result of additional repair and maintenance costs, fixed operating costs, and administrative overhead while recognizing minimal depreciation expense over the same period.

The Partnership reported a net loss of $213,064 ($168 per Investing Partner Unit) for the third quarter of 2021 compared to a net loss of $120,031 ($101 per Investing Partner Unit) in the third quarter of 2020. For the first nine months of 2021, the Partnership reported a net loss of $328,131 ($283 per Investing Partner Unit) compared to a net loss of $270,454 ($232 per Investing Partner Unit) in the first nine months of 2020.

The Partnership recorded no oil and gas revenues in the third quarter of 2021, as a result of wells being shut-in at South Timbalier 295, the Partnership’s only producing field. Total revenues for the first nine months of 2021 increased 3 percent from the first nine months of 2020 as a result of higher crude oil and natural gas prices, offset by the Partnership having no production during the third quarter of 2021. The increase in realized prices was primarily the result of increased economic activity during the first nine months of 2021 compared to the same prior year period when commodity prices collapsed as a result of economic uncertainty stemming from COVID-19. The Partnership’s crude oil, natural gas, and NGLs production volume and price information is summarized in the following table (gas volumes are presented in thousand cubic feet (Mcf) per day):

 

			For the Quarter Ended September 30,																		For the Nine Months Ended September 30,
			2021						2020						Increase (Decrease)						2021						2020						Increase (Decrease)
Gas volume – Mcf per day			—						71						NM						63						90						(30)		%
Average gas price – per Mcf			$	—					$	1.77					NM						$	3.07					$	1.85					66		%
Oil volume – barrels per day			—						29						NM						26						38						(32)		%
Average oil price – per barrel			$	—					$	36.31					NM						$	55.85					$	36.75					52		%
NGL volume – barrels per day			—						2						NM						3						3						—		%
Average NGL price – per barrel			$	—					$	6.52					NM						$	19.81					$	9.21					115		%

NM - Not Meaningful

Oil and Gas Sales

The Partnership recorded no crude oil sales and no crude oil volumes for the third quarter of 2021 compared to $96,312 and 29 barrels per day in the third quarter of 2020, respectively, in each case as a result of the wells being shut-in at South Timbalier 295.

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Crude oil sales for the first nine months of 2021 totaled $402,244, increasing 6 percent compared to $379,445 in the first nine months of 2020. The Partnership’s average realized oil price in the first nine months of 2021 increased $19.10 per barrel from the first nine months of 2020, increasing sales by $197,213. Crude oil volumes decreased to 26 barrels per day in the first nine months of 2021, compared to 38 barrels per day in the same prior year period, as a result of the shut-in of wells at South Timbalier 295 starting in June 2021. The decrease in production reduced sales by $174,414.

The Partnership recorded no natural gas sales and no natural gas volumes in the third quarter of 2021 compared to $11,514 and 71 Mcf per day, respectively, in the third quarter of 2020, in each case as a result of the wells being shut-in at South Timbalier 295.

Natural gas sales for the first nine months of 2021 totaled $52,520, increasing 14 percent from $45,930 during the first nine months of 2020. The Partnership’s average realized natural gas price increased from $1.85 per Mcf in the first nine months of 2020 to $3.07 per Mcf in the first nine months of 2021, increasing sales by $30,217. A 30 percent decrease in natural gas volumes during the first nine months of 2021 from the same prior year period decreased gas sales by $23,627. The Partnership’s decrease in gas production in the first nine months of 2021 was the result of the shut-in of wells at South Timbalier 295.

The Partnership sold an average of 3 barrels per day of NGL in the first nine months of 2021, unchanged from the average of 3 barrels per day in the same period of 2020. NGL revenues increased as the result of 115 percent higher average realized NGL prices during the first nine months of 2021. The Partnership recorded no NGL revenue or production during the third quarter of 2021.

Since the Partnership does not anticipate acquiring additional acreage or conducting exploratory drilling on leases in which it currently holds an interest, declines in oil and gas production can be expected in future periods as a result of natural depletion. Also, given the small number of producing wells owned by the Partnership and exposure to inclement weather and pipeline interruptions in the Gulf of Mexico, the Partnership’s production is subject to more volatility than those companies with a larger or more diversified property portfolio.

Operating Expenses

The Partnership recognized no depreciation, depletion and amortization (DD&A) expense during the third quarter of 2021, as a result of the wells being shut-in at South Timbalier 295. DD&A expense expressed as a percentage of oil and gas sales was approximately 35 percent for the first nine months of 2021, compared to approximately 31 percent for the first nine months of 2020.

Under the full cost method of accounting, the Partnership is required to review the carrying value of its proved oil and gas properties each quarter. Under these rules, capitalized costs of oil and gas properties, net of accumulated DD&A, may not exceed the present value of estimated future net cash flows from proved oil and gas reserves discounted at 10 percent per annum. Estimated future net cash flows are calculated using end-of-period costs and an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months, held flat for the life of the production, except where prices are defined by contractual arrangements. The Partnership had no write-downs of the carrying value of its oil and gas properties during the first nine months of 2021 and 2020.

Lease operating expenses (LOE) for the third quarter of 2021 totaled $127,159, up 38 percent from the same prior year period, primarily the result of increased direct operating and continued repair costs at South Timbalier 295. LOE for the first nine months of 2021 totaled $371,233, up 24 percent from the same prior year period, primarily the result of increased direct operating costs, as well as increased repair and maintenance work incurred during 2021 related to weather events and well shut-ins. Gathering and transportation costs for the delivery of oil and gas was nominal in the third quarter of 2021, resulting from having no production during the quarter. Gathering and transportation costs decreased 40 percent in the first nine months of 2021 compared to the same prior year period, primarily the result of reduced volumes during the period. Administrative expenses for each of the third quarter and first nine months of 2021 were 10 percent lower compared to their same respective prior year periods.

Capital Resources and Liquidity

The Partnership’s primary capital resource is net cash provided by operating activities. During the first nine months of 2021, the Partnership recorded $257,164 of net cash outflow used in operating activities, compared to $438,142 of net cash outflow in the first nine months of 2020. The decrease in operating cash outflow used was primarily the result of reduced plugging and abandonment spending at Ship Shoal 258/259 as abandonment activities are nearing completion based on the most recent estimates by the operator.

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As a result of the shut-in at South Timbalier 295, the Partnership expects to operate at a loss until production resumes at the field. The Partnership expects its existing cash on hand to be sufficient to cover fixed operating, repair costs, and administrative overhead until production resumes. At September 30, 2021, the Partnership had approximately $4.3 million in cash and cash equivalents, a 5 percent decrease from the year ended December 31, 2020. The Partnership’s goal is to maintain cash and cash equivalents at least sufficient to cover the undiscounted value of its future asset retirement obligation liability. The Partnership also plans to reserve funds for unexpected repairs, which may disrupt the Partnership’s production and for future recompletion operations.

The Partnership’s future financial condition, results of operations, and cash from operating activities will largely depend upon prices received for its oil and natural gas production. 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 and economic conditions, the foreign and domestic supply of oil and natural gas, the price of foreign imports, the level of consumer demand, weather, and the price and availability of alternative fuels.

The Partnership’s oil and gas reserves and production will also significantly impact future results of operations and cash from operating activities. The Partnership’s production is subject to fluctuations in response to remaining quantities of oil and gas reserves, weather, pipeline capacity, consumer demand, mechanical well performance and workovers, and recompletion activities. Declines in oil and gas production can be expected in future years as a result of normal depletion and the non-participation in acquisition or exploration activities by the Partnership.

Based on production estimates from independent engineers and existing cash balances reserved for platform dismantlement and abandonment activities, current market conditions resulting from the COVID-19 pandemic are not expected to materially impact the Partnership’s liquidity. The Partnership forecasts it will be able to meet its liquidity needs for routine operations in 2021, although volatile oil and gas prices and consumer demand resulting from the COVID-19 pandemic could decrease revenue and could require the Partnership to further reduce its cash and cash equivalents.

In the event that future short-term operating cash requirements are greater than the Partnership’s financial resources, the Partnership may seek short-term, interest-bearing advances from the Managing Partner as needed. The Managing Partner, however, is not obligated to make loans to the Partnership. The Partnership does not intend to incur debt from banks or other outside sources nor solicit capital from existing Unit holders or in the open market.

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Capital Commitments and Contingencies

The Partnership’s primary needs for cash are for operating expenses, recompletion expenditures, and future dismantlement and abandonment costs. To the extent there is discretion, the Partnership allocates available capital to investment in the Partnership’s properties so as to maximize production and resultant cash flow. The Partnership had no outstanding debt or lease commitments at September 30, 2021. The Partnership did not have any contractual obligations as of September 30, 2021, other than the liability for dismantlement and abandonment costs of its oil and gas properties. The Partnership has recorded a separate liability for this asset retirement obligation as discussed in the Notes to the Financial Statements included under Part I, Item I of this Quarterly Report on Form 10-Q.

During the first nine months of 2021, the Partnership spent $222,687 to plug and abandon wells and remove platforms at Ship Shoal 259. The Partnership anticipates $450,996 of costs will be spent during the next twelve months, primarily to dismantle platforms at North Padre Island 969/976. Based on information currently available to the Partnership, it anticipates minimal capital expenditures during the remainder of 2021 for recompletions and other capital projects at South Timbalier 295. Such estimates may change based on realized oil and gas prices, recompletion results, weather disruptions, rates charged by contractors or changes by the operator to their development or abandonment plans.

On August 3, 2020, Fieldwood Energy LLC, the current operator of the Partnership’s producing lease, and certain of its affiliated debtors (collectively, Fieldwood) filed for protection under Chapter 11 of the United States Bankruptcy Code. On June 25, 2021, the United States Bankruptcy Court for the Southern District of Texas (Houston Division) entered an order confirming Fieldwood’s bankruptcy plan. On August 27, 2021, Fieldwood’s bankruptcy plan became effective. Pursuant to the plan, Fieldwood separated its ownership in and operatorship of the Partnership’s producing lease, together with several of Fieldwood’s other leases, into a standalone company, which will continue to perform Fieldwood’s obligations with respect to the Partnership’s properties. The reorganization of Fieldwood under the plan is not expected to have any material adverse effect on the Partnership’s operations.

Notice of Withdrawal and Right of Presentment

On March 22, 2019, Apache, as the Managing Partner of the Investment Partnership, gave notice of its intention to withdraw as Managing Partner of the Investment Partnership. The notice described the withdrawal process and certain notice periods required by that process. No party assumed the role of Managing Partner within the 120-day notice period specified by the notice of intention to withdraw. Consequently, Apache will oversee the process of winding up and liquidating the business and affairs of the Investment Partnership. Apache has not made a decision as to when it will complete the process to withdraw as Managing Partner.

On April 26, 2019, the Managing Partner determined that, during the withdrawal and dissolution process, it would be inconsistent with the Managing Partner’s fiduciary duties to purchase (or to cause the Investment Partnership to purchase) outstanding Units from the holders thereof pursuant to the right of presentment provided for in Sections 6.9 through 6.14 of the Partnership Agreement of the Investment Partnership (the Partnership Agreement). As a result of this determination by the Managing Partner, pursuant to Section 6.12 of the Partnership Agreement, the right of presentment has been terminated and Sections 6.9 through 6.14 have “become null and void and of no further force or effect” as provided in Section 6.12.

Prior to terminating the right of presentment, the Investment Partnership had not made a repurchase under the right of presentment since 2008.

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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,” the Partnership is not required to provide the information required by this Item. The Partnership has chosen to disclose, however, that it has not engaged in any transactions, issued or bought any financial instruments, or entered into any contracts that are required to be disclosed in response to this Item.

ITEM 4.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

John J. Christmann IV, the Managing Partner’s Chief Executive Officer and President (in his capacity as principal executive officer), and Stephen J. Riney, the Managing Partner’s Executive Vice President and Chief Financial Officer (in his capacity as principal financial officer), evaluated the effectiveness of the Partnership’s disclosure controls and procedures as of September 30, 2021, the end of the period covered by this report. Based on that evaluation and as of the date of that evaluation, these officers concluded that the Partnership’s disclosure controls and procedures were effective, providing effective means to ensure that the information it is required to disclose under applicable laws and regulations is recorded, processed, summarized and reported within the time periods specified under the SEC’s rules and forms and communicated to the Partnership’s management, including the Managing Partner’s principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in the Partnership’s internal controls over financial reporting during the period covered by this Quarterly Report on Form 10-Q that materially affected, or is reasonably likely to materially affect, the Partnership’s internal controls over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

None.

ITEM 1A.    RISK FACTORS

As a “smaller reporting company,” the Partnership is not required to provide the information required by this Item.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.    MINE SAFETY DISCLOSURES

None.

ITEM 5.    OTHER INFORMATION

None.

ITEM 6.    EXHIBITS

p3.1						Partnership Agreement of Apache Offshore Investment Partnership (incorporated by reference to Exhibit (3)(i) to Form 10 filed by Partnership with the SEC on April 30, 1985, SEC File No. 0-13546).
p3.2						Amendment No. 1, dated February 11, 1994, to the Partnership Agreement of Apache Offshore Investment Partnership (incorporated by reference to Exhibit 3.3 to Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993, SEC File No. 0-13546).
p3.3						Limited Partnership Agreement of Apache Offshore Petroleum Limited Partnership (incorporated by reference to Exhibit (3)(ii) to Form 10 filed by Partnership with the SEC on April 30, 1985, SEC File No. 0-13546).
*31.1						Certification (pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act) by Principal Executive Officer.
*31.2						Certification (pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act) by Principal Financial Officer.
*32.1						Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal Executive Officer and Principal Financial Officer.
*101						The following financial statements from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL: (i) Statement of Consolidated Operations, (ii) Statement of Consolidated Cash Flows, (iii) Consolidated Balance Sheet, (iv) Statement of Consolidated Changes in Partners’ Capital and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
*101.SCH						Inline XBRL Taxonomy Schema Document.
*101.CAL						Inline XBRL Calculation Linkbase Document.
*101.DEF						Inline XBRL Definition Linkbase Document.
*101.LAB						Inline XBRL Label Linkbase Document.
*101.PRE						Inline XBRL Presentation Linkbase Document.
*104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*    Filed herewith.

P    Filed previously in paper format.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

APACHE OFFSHORE INVESTMENT PARTNERSHIP

By:

Apache Corporation, Managing Partner

Dated:

November 4, 2021

/s/ Stephen J. Riney

Stephen J. Riney

Executive Vice President and Chief Financial Officer

(principal financial officer) of Apache Corporation,

Managing Partner

Dated:

November 4, 2021

/s/ Rebecca A. Hoyt

Rebecca A. Hoyt

Senior Vice President, Chief Accounting Officer

and Controller (principal accounting officer)

of Apache Corporation, Managing Partner

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