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EXCEL - IDEA: XBRL DOCUMENT - APACHE OFFSHORE INVESTMENT PARTNERSHIP | Financial_Report.xls |
EX-31.2 - EX-31.2 - APACHE OFFSHORE INVESTMENT PARTNERSHIP | h83500aexv31w2.htm |
EX-32.1 - EX-32.1 - APACHE OFFSHORE INVESTMENT PARTNERSHIP | h83500aexv32w1.htm |
EX-31.1 - EX-31.1 - APACHE OFFSHORE INVESTMENT PARTNERSHIP | h83500aexv31w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
OR
o | 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 | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400
(Address of principal executive offices)
(Address of principal executive offices)
Registrants 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted
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 and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of
the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
Number of
registrants units outstanding as of June 30, 2011 |
1,022 |
TABLE OF CONTENTS
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
APACHE OFFSHORE INVESTMENT PARTNERSHIP
STATEMENT OF CONSOLIDATED INCOME
(Unaudited)
STATEMENT OF CONSOLIDATED INCOME
(Unaudited)
For the Quarter | For the Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
REVENUES: |
||||||||||||||||
Oil and gas sales |
$ | 1,078,328 | $ | 1,336,569 | $ | 1,816,470 | $ | 3,060,541 | ||||||||
Interest income |
8 | 7 | 8 | 11 | ||||||||||||
1,078,336 | 1,336,576 | 1,816,478 | 3,060,552 | |||||||||||||
EXPENSES: |
||||||||||||||||
Depreciation, depletion and amortization |
220,211 | 233,350 | 374,025 | 593,723 | ||||||||||||
Asset retirement obligation accretion |
32,888 | 29,130 | 65,300 | 59,116 | ||||||||||||
Lease operating expenses |
241,549 | 256,827 | 481,911 | 509,872 | ||||||||||||
Gathering and transportation costs |
36,633 | 24,296 | 71,005 | 58,242 | ||||||||||||
Administrative |
100,750 | 109,250 | 201,500 | 218,500 | ||||||||||||
632,031 | 652,853 | 1,193,741 | 1,439,453 | |||||||||||||
NET INCOME |
$ | 446,305 | $ | 683,723 | $ | 622,737 | $ | 1,621,099 | ||||||||
NET INCOME ALLOCATED TO: |
||||||||||||||||
Managing Partner |
$ | 129,523 | $ | 180,488 | $ | 194,352 | $ | 434,049 | ||||||||
Investing Partners |
316,782 | 503,235 | 428,385 | 1,187,050 | ||||||||||||
$ | 446,305 | $ | 683,723 | $ | 622,737 | $ | 1,621,099 | |||||||||
NET INCOME PER INVESTING PARTNER UNIT |
$ | 310 | $ | 493 | $ | 419 | $ | 1,162 | ||||||||
WEIGHTED AVERAGE INVESTING PARTNER
UNITS OUTSTANDING |
1,021.5 | 1,021.5 | 1,021.5 | 1,021.5 | ||||||||||||
The accompanying notes to financial statements
are an integral part of this statement.
are an integral part of this statement.
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Table of Contents
APACHE OFFSHORE INVESTMENT PARTNERSHIP
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
For the Six Months | ||||||||
Ended June 30, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 622,737 | $ | 1,621,099 | ||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||
Depreciation, depletion and amortization |
374,025 | 593,723 | ||||||
Asset retirement obligation accretion |
65,300 | 59,116 | ||||||
Changes in operating assets and liabilities: |
||||||||
(Increase) decrease in accrued receivables |
(77,508 | ) | 90,867 | |||||
Increase (decrease) in receivable from/payable to
Apache Corporation |
(118,440 | ) | 120,254 | |||||
Increase (decrease) in accrued operating expenses |
3,025 | 26,839 | ||||||
Increase (decrease) in deferred credits and other |
| (91,849 | ) | |||||
Net cash provided by operating activities |
869,139 | 2,420,049 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Additions to oil and gas properties |
(2,391,635 | ) | (75,011 | ) | ||||
Net cash used in investing activities |
(2,391,635 | ) | (75,011 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Distributions to Investing Partners |
| | ||||||
Distributions to Managing Partner |
(85,501 | ) | (173,673 | ) | ||||
Net cash used in financing activities |
(85,501 | ) | (173,673 | ) | ||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(1,607,997 | ) | 2,171,365 | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
2,971,900 | 2,048,412 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 1,363,903 | $ | 4,219,777 | ||||
The accompanying notes to financial statements
are an integral part of this statement.
are an integral part of this statement.
2
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APACHE OFFSHORE INVESTMENT PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(Unaudited)
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 1,363,903 | $ | 2,971,900 | ||||
Accrued revenues receivable |
315,939 | 238,431 | ||||||
Accrued insurance receivable |
24,449 | 24,449 | ||||||
Receivable from Apache Corporation |
55,457 | | ||||||
1,759,748 | 3,234,780 | |||||||
OIL AND GAS PROPERTIES, on the basis of full cost accounting: |
||||||||
Proved properties |
192,943,350 | 191,277,205 | ||||||
Less Accumulated depreciation, depletion and amortization |
(183,894,256 | ) | (183,520,231 | ) | ||||
9,049,094 | 7,756,974 | |||||||
$ | 10,808,842 | $ | 10,991,754 | |||||
LIABILITIES AND PARTNERS CAPITAL |
||||||||
CURRENT LIABILITIES: |
||||||||
Payable to Apache Corporation |
$ | | $ | 668,573 | ||||
Accrued operating expenses |
112,819 | 109,794 | ||||||
Accrued development costs |
401,050 | 520,950 | ||||||
513,869 | 1,299,317 | |||||||
ASSET RETIREMENT OBLIGATION |
2,274,962 | 2,209,662 | ||||||
PARTNERS CAPITAL: |
||||||||
Managing Partner |
491,856 | 383,005 | ||||||
Investing Partners (1,021.5 units outstanding) |
7,528,155 | 7,099,770 | ||||||
8,020,011 | 7,482,775 | |||||||
$ | 10,808,842 | $ | 10,991,754 | |||||
The accompanying notes to financial statements
are an integral part of this statement.
are an integral part of this statement.
3
Table of Contents
APACHE OFFSHORE INVESTMENT PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. 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
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 Partnerships Annual Report on Form 10-K for the fiscal year ended
December 31, 2010, and which contains a summary of the Partnerships significant accounting
policies and other disclosures.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As of June 30, 2011, the Partnerships significant accounting policies are consistent with
those discussed in Note 2 of its consolidated financial statements contained in the Annual Report
of Form 10-K for the fiscal year ended December 31, 2010.
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 reserves and
related present value estimates of future net cash flow therefrom and asset retirement obligations.
Actual results could differ from those estimates.
2. RECEIVABLE FROM / PAYABLE TO APACHE CORPORATION
The receivable from/payable to Apache represents the net result of the Investing Partners
revenue and expenditure transactions 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 Partnerships
transactions are processed and the net results of operations are determined.
3. RIGHT OF PRESENTMENT
As provided in the Partnership Agreement, as amended (the Amended Partnership Agreement), a
first right of presentment valuation was computed during the first quarter of 2011. The per-unit
value was determined to be $14,917 based on the valuation date of December 31, 2010. The
Partnership did not repurchase any Units during the first half of 2011, as a result of the
Partnerships limited amount of cash available for discretionary purposes. The per-unit right of
presentment value computed during the first quarter of 2010 based on the valuation date of December
31, 2009 was $15,411. The Partnership did not repurchase any Units during the first half of 2010.
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Table of Contents
The Partnership is not in a position to predict how many Units will be presented for
repurchase during the remainder of 2011 and cannot, at this time, determine if the Partnership will
have sufficient funds available to repurchase any Units. Pursuant to
the Amended Partnership Agreement, the Partnership has no obligation to
repurchase any Units presented to the extent it determines that it has insufficient funds for such
purchases.
4. ASSET RETIREMENT OBLIGATIONS
The following table is a reconciliation of the asset retirement obligation for the six months
of 2011:
Asset retirement obligation at December 31, 2010 |
$ | 2,209,662 | ||
Accretion expense |
65,300 | |||
Asset retirement obligation at June 30, 2011 |
$ | 2,274,962 | ||
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ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion relates to Apache Offshore Investment Partnership (the Partnership) and should
be read in conjunction with the Partnerships consolidated financial statements as of June 30,
2011, and the period then ended, and accompanying notes included under Part I, Item 1, of this
Quarterly Report on Form 10-Q, as well as its consolidated financial statement as of December 31,
2010, and the year then ended, and the related Managements Discussion and Analysis of Financial
Condition and Results of Operations, both of which are contained in the Partnerships Annual Report
on Form 10-K for the fiscal year ended December 31, 2010.
The Partnerships business is participation in oil and gas exploration, development and
production activities on federal lease tracts in the Gulf of Mexico, offshore Louisiana and Texas.
RESULTS OF OPERATIONS
Net Income and Revenue
The Partnership reported net income of $446,305 for the second quarter of 2011, down from
$683,723 in the second quarter of 2010. Net income per Investing Partner Unit decreased to $310
per Unit in the second quarter of 2011, down from $493 per Unit in the second quarter of 2010.
The decline in earnings and earnings per Unit were driven by the shut-in of the South Timbalier 295
production for most of the second quarter of 2011 and a three percent decline in natural gas prices
from the second quarter of 2010.
Net income for the six months ending June 30, 2011, totaled $622,737 compared to $1,621,099
for the six months ending June 30, 2010. Net income per Investing Partner Unit for the six-month
period ending June 30, 2011 of $419 was down from $1,162 per Unit in the first six months of 2010.
The decline in earnings and earnings per Unit were driven by the shut-in of the South Timbalier 295
production for most of the first six months of 2011, lower gas production at Matagorda Island
681/682 and North Padre Island 969/976 in 2011 from natural depletion and a 15 percent decline in
natural gas prices from the first half of 2010.
The Partnerships production from South Timbalier 295 had been shut-in since July 11, 2010, as
a result of a leak in a third-party pipeline. After evaluation of the leaking pipeline and other
transportation alternatives, Apache and the Partnership constructed a new oil pipeline from the
field. On June 14, 2011, the operator resumed production from the South Timbalier 295 field with
production from two wells to test the fields equipment and new pipeline. Production was resumed
from other wells in the field over the course of the next two weeks as to not damage the fields
equipment or reservoir. Operations were initiated in July 2011 to bring on production from
recompletions performed during the construction of the new pipeline. Production from the field
accounted for approximately 47 percent of the Partnerships total second quarter 2010 oil and gas sales
and 44 percent of oil and gas sales for the first six months of 2010.
Total revenues decreased 19 percent from the second quarter of 2010 to the second quarter of
2011 on lower oil volumes in the second quarter of 2011. Year-to-date revenues in 2011 decreased
41 percent from the first half of 2010 on lower oil and gas production and the 15 percent decline
in natural gas prices. With the Partnerships production from South Timbalier 295 shut-in for most
of the first six months of 2011, it was not able to fully capitalize on the 38 percent increase in
oil prices from a year ago.
The Partnerships oil, gas and natural gas liquids (NGL) production volume and price
information is summarized in the following table (gas volumes presented in thousand cubic feet
(Mcf) per day):
For the Quarter Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||||
2011 | 2010 | Increase (Decrease) |
2011 | 2010 | Increase (Decrease) |
|||||||||||||||||||
Gas volume Mcf per day |
1,931 | 1,793 | 8 | % | 1,756 | 1,915 | (8 | )% | ||||||||||||||||
Average gas price per Mcf |
$ | 4.31 | $ | 4.46 | (3 | )% | $ | 4.31 | $ | 5.09 | (15 | )% | ||||||||||||
Oil volume barrels per day |
24 | 81 | (70 | )% | 14 | 87 | (84 | )% | ||||||||||||||||
Average oil price per barrel |
$ | 107.81 | $ | 77.58 | 39 | % | $ | 106.27 | $ | 77.25 | 38 | % | ||||||||||||
NGL volume barrels per day |
16 | 9 | 78 | % | 20 | 10 | 100 | % | ||||||||||||||||
Average NGL price per barrel |
$ | 61.37 | $ | 44.76 | 37 | % | $ | 50.15 | $ | 50.28 | |
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Oil and Gas Sales
Natural gas sales totaled $757,986 in the second quarter of 2011, increasing $30,426 or four
percent from the same period in 2010. Natural gas volumes increased eight percent from the second
quarter of 2010, boosting sales by $54,416. Increased production at Ship Shoal 258/259 from 2011
drilling more than offset the impact of shut-in production at South Timbalier 295 and natural
depletion at North Padre Island 969/976 and Matagorda Island 681/682. The Partnerships average
realized natural gas price for the quarter decreased $.15 per Mcf, or three percent, from the
second quarter of 2010, decreasing sales by $23,990 from a year ago.
The Partnerships crude oil sales for the second quarter of 2011 totaled $232,821 or 59
percent lower than the $574,371 of crude oil sales in the second quarter of 2010. Crude oil
volumes on a per day basis fell 70 percent during the quarter, dropping from 81 barrels per day in
2010 to 24 barrels per day in 2011. The decline in volumes in 2011 was attributable to the shut-in
of the South Timbalier 295 field for most of the quarter for the construction of a new pipeline.
The average realized price in the second quarter of 2011 increased $30.23 per barrel, or 39
percent, from the second quarter of 2010, partially offsetting the impact of the lower production.
During the second quarter of 2011, the Partnership sold 16 barrels per day of natural gas
liquids, up from 9 barrels per day during the second quarter of 2010. The increase reflected an
increase in processed volumes at Ship Shoal 258/259 in 2011 from new wells.
Natural gas sales for the first half of 2011 decreased 22 percent from a year ago, dropping to
$1,371,569 in the current period. An eight percent decrease in natural gas volumes during the
first six months of 2011 from the same period a year ago curtailed sales by $270,363 while a 15
percent decrease in the Partnerships average gas price decreased sales by $120,761. The
Partnerships gas production in 2011 was hindered by the shut-in of South Timbalier 295 and
declining production from the North Padre Island 969/976 and Matagorda Island 681/682. The
Partnerships average realized gas prices decreased to $4.31 per Mcf in 2011 from $5.09 per Mcf in
the first six months of 2010.
Crude oil sales for the six months of 2011 decreased 78 percent from the same period in the
prior year. Oil sales decreased from $1,209,802 in the first six months of 2010 to $264,814 in the
first six months of 2011. The Partnerships crude oil volumes decreased from 87 barrels per day
during the first six months of 2010 to 14 barrels per day during the same period of 2011 as a
result of the shut-in of production at the South Timbalier 295 field. The 73 barrel per day
decline in production reduced sales by approximately $1.4 million but was partially offset by the
impact of higher oil prices. The Partnerships average realized price for the oil increased 38
percent between the second-quarter 2011 and 2010, rising to $106.27 per barrel in 2011.
The Partnership sold 20 barrels per day of natural gas liquids in the first half of 2011, up
from 10 barrels per day in the first half of 2010. The increase reflected higher processed volumes
at Ship Shoal 258/259 in 2011.
With the resumption of production from South Timablier 295 over the last two weeks of June
2011, the Partnership expects that production, oil and gas sales and net income will increase from
levels reported in the second quarter of 2011. Since the South Timbalier 295 field was shut-in for
nearly the entire second half of 2010, the Partnership projects that production, sales and net
income for the second half of 2011 will be higher than reported in the second half of 2010.
Barring any extended downtime for inclement weather or operational issues, the Partnership
estimates that oil production in the second half of 2011 will increase approximately 100 barrels
per day from levels reported in the first half of 2011.
Since the Partnership does not anticipate acquiring additional acreage or conducting
exploratory drilling on leases in which it currently holds 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 in the
Gulf of Mexico, the Partnerships production in the second half of 2011 and beyond may be subject
to more volatility than those companies with a larger or more diversified property portfolio.
Operating Expenses
The Partnerships depreciation, depletion and amortization (DD&A) rate, expressed as a
percentage of oil and gas sales, was approximately 20 percent during the second quarter of 2011
compared to 17 percent for the same period in 2010. DD&A, expressed as a percentage of oil and gas
sales, for the six months was 21 percent and 19 percent for the
7
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respective years. The higher rates as a percentage of sales reflected capital cost required
to build a new pipeline from South Timablier 295 and higher drilling cost.
The Partnership recognized $32,888 in asset retirement obligation accretion for the second
quarter of 2011 compared to $29,130 for the second quarter of 2010. For the six months ending June
30, 2011 and 2010, the Partnership recognized $65,300 and $59,116, respectively. The increase
reflected the increase in the Partnerships asset retirement obligation liability during the fourth
quarter of 2010. Gathering and transportation costs increased 51 percent for the quarterly period
and 22 percent for the six month period with increases in processed volumes at Ship Shoal 258/259
in 2011.
Lease operating expenses (LOE) for the second quarter of 2011 of $241,549 decreased six
percent from the second quarter of 2010 on lower workover and repair and maintenance costs.
Maintenance was performed on the Matagorda Island 681 platform during the first half of 2010 while
the field was shut-in for third-party pipeline repairs and workovers were performed by an outside
operator on North Padre 969/976 during the second quarter of 2010.
LOE for the first half of 2011 was down five percent from the same period a year ago, dropping
to $481,911 in the first half of 2011. The Partnership has not had any significant repair projects
during the first half of 2010 or 2011. Administrative expense for 2011 decreased eight percent for
the six-month period.
Capital Resources and Liquidity
The Partnerships primary capital resource is net cash provided by operating activities, which
totaled $0.9 million for the first six months of 2011. Net cash provided by operating activities
during the first six months of 2011 was down 64 percent from a year ago as a result of the shut-in
of the South Timbalier 295 field for the majority of the first half of 2011. Future cash flows
will be influenced by fluctuations in these same components.
At June 30, 2011, the Partnership had approximately $1.4 million in cash and cash equivalents,
down from approximately $3.0 million at December 31, 2010. The Partnerships goal of maintaining
cash at least sufficient to cover the undiscounted value of its future asset retirement obligation
(ARO) liability had to be temporarily suspended in 2011 as a result of the Partnerships production
from South Timbalier 295 being shut-in for nearly a year and the Partnerships capital expenditures
at Ship Shoal 258/259 and South Timbalier 295. The Partnership intends to replenish cash reserves
in 2011 and 2012 with cash from operating activities.
The Partnerships 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 Partnerships 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 Partnerships 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.
The Partnerships oil and gas reserves and production will also significantly impact future
results of operations and cash from operating activities. The Partnerships production is subject
to fluctuations in response to remaining quantities
of oil and gas reserves, weather, pipeline capacity, consumer demand, mechanical performance and
workover, recompletion and drilling activities. Declines in oil and gas production can be expected
in future years as a result of normal depletion and the Partnership not participating in
acquisition or exploration activities. Based on production estimates from independent engineers
and current market conditions, the Partnership expects it will be able to meet its liquidity needs
for routine operations in the foreseeable future. The Partnership will reduce capital expenditures
and distributions to partners as cash from operating activities decline.
In the event that future short-term operating cash requirements are greater than the
Partnerships 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.
On an ongoing basis, the Partnership reviews the possible sale of lower value properties prior
to incurring associated dismantlement and abandonment costs.
8
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Capital Commitments
The Partnerships primary needs for cash are for operating expenses, drilling and recompletion
expenditures, future dismantlement and abandonment costs, distributions to Investing Partners, and
the purchase of Units offered by Investing Partners under the right of presentment. To the extent
there is discretion, the Partnership allocates available capital to investment in the Partnerships
properties so as to maximize production and resultant cash flow. The Partnership had no
outstanding debt or lease commitments at June 30, 2011. The Partnership did not have any
contractual obligations as of June 30, 2011, other than the liability for dismantlement and
abandonment costs of its oil and gas properties. The Partnership has recorded a separate liability
for the present value of this asset retirement obligation as discussed in the notes to the
financial statements included in the Partnerships latest annual report on Form 10-K.
The Partnerships capital expenditures totaled $1.7 million during the first six months of
2011, as the Partnership participated in drilling two wells at Ship Shoal 258/259 during the period
and continued with the construction of a new pipeline from the South Timablier 295 field. With the
2011 development activity and the reduction of accrued drilling and development liabilities from
December 31, 2010, the Partnerships cash outlay during the first six months of 2011 totaled $2.4
million. During the first six months of 2010, the Partnerships capital expenditures totaled
$238,034 as it participated in recompletion projects at South Timbalier 295.
The Partnership expects to participate in drilling two wells at Ship Shoal 258/259 during the
second half of 2011, although the timing may be delayed for permitting or the availability of rigs.
Based on information supplied by the operators of the properties, the Partnership anticipates
capital expenditures of approximately $1.0 million for the remainder of 2011. Such estimates may
change based on realized prices, drilling results, changes by the operator to the development plan,
drilling rig availability, obtaining government permits or changes in government regulations.
No distributions were made to Investing Partners during the first half of 2011, as cash was
used to fund capital expenditures for the period. The Partnership made no distribution to
Investing Partners during the first half of 2010 as cash was being accumulated to increase the
reserve for future asset retirement obligations and fund capital expenditures planned for the
remainder of 2010.
The amount of future distributions will be dependent on actual and expected production levels,
realized and expected oil and gas prices, expected drilling and recompletion expenditures, and
prudent cash reserves for future dismantlement and abandonment costs that will be incurred after
the Partnerships reserves are depleted. The Partnerships goal is to maintain cash and cash
equivalents in the Partnership at least sufficient to cover the undiscounted value of its future
asset retirement obligations. With planned development projects in the second half of 2011 and the
need to replenish the Partnerships cash reserves for future ARO
expenditures, the Partnership does not expect to fund a distribution to Investing Partners during the remainder of 2011.
As provided in the Partnership Agreement, as amended (the Amended Partnership Agreement), a
first right of presentment valuation was computed during the first quarter of 2011. The per-unit
value was determined to be $14,917 based on the valuation date of December 31, 2010. The
Partnership did not repurchase any Units during the first half of 2011, as a result of the
Partnerships limited amount of cash available for discretionary purposes. The per-unit right of
presentment value computed during the first quarter of 2010 based on the valuation date of December
31, 2009 was $15,411. The Partnership did not repurchase any Units during the first half of 2010.
The Partnership is not in a position to predict how many Units will be presented for
repurchase during the remainder of 2011 and cannot, at this time, determine if the Partnership will
have sufficient funds available to repurchase any Units. Pursuant to
the Amended Partnership Agreement, the Partnership has no obligation to
repurchase any Units presented to the extent it determines that it has insufficient funds for such
purchases.
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ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnerships major market risk exposure is in the pricing applicable to its oil and gas
production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil
and spot prices applicable to its natural gas production. Prices received for oil and gas
production have been and remain volatile and unpredictable. The Partnership has not used
derivative financial instruments or otherwise engaged in hedging activities during 2010 or the
first six months of 2011.
The information set forth under Commodity Risk in Item 7A of the Partnerships Form 10-K for
the year ended December 31, 2010, is incorporated by reference. Information about market risks for
the current quarter is not materially different.
ITEM 4 CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
G. Steven Farris, the Managing Partners Chairman and Chief Executive Officer (in his capacity
as principal executive officer), and Thomas P. Chambers, the Managing Partners Executive Vice
President and Chief Financial Officer (in his capacity as principal financial officer), evaluated
the effectiveness of the Partnerships disclosure controls and procedures as of June 30, 2011, 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 Partnerships 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 in the Commissions rules and forms and communicated to our management,
including the Managing Partners 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 our 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, our internal controls over financial reporting.
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 our 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 our examination of historical operating trends, the information that was
used to prepare our estimate of proved reserves as of December 31, 2010, and other data in our
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, expect, intend,
project, estimate, anticipate, believe, or continue or similar terminology. Although we
believe that the expectations reflected in such forward-looking statements are reasonable, we can
give no assurance that such expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from our expectations include, but are not limited
to, our assumptions about:
| the market prices of oil, natural gas, NGLs and other products or services; | ||
| the supply and demand for oil, natural gas, NGLs and other products or services; | ||
| production and reserve levels; | ||
| drilling risks; | ||
| economic and competitive conditions; | ||
| the availability of capital resources; |
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| capital expenditure and other contractual obligations; | ||
| weather conditions; | ||
| inflation rates; | ||
| the availability of goods and services; | ||
| legislative or regulatory changes; | ||
| terrorism; | ||
| occurrence of property acquisitions or divestitures; | ||
| the securities or capital markets and related risks such as general credit, liquidity, market and interest-rate risks; and | ||
| other factors disclosed under Items 1 and 2 Business and Properties Estimated Proved Reserves and Future Net Cash Flows, Item 1A Risk Factors, Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations, Item 7A Quantitative and Qualitative Disclosures About Market Risk, and elsewhere in our most recently filed Form 10-K. |
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. We assume no duty to update or revise our forward-looking statements based on changes
in internal estimates or expectations or otherwise.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
During the quarter ended June 30, 2011, there were no material changes from the risk
factors as previously disclosed in the Partnerships Form 10-K for the fiscal year ended
December 31, 2010.
ITEM 2. UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDS
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
a. | Exhibits |
*3.1 | Partnership Agreement of Apache Offshore Investment Partnership (incorporated by reference to Exhibit (3)(i) to Form 10 filed by Partnership with the Commission on April 30, 1985, Commission File No. 0-13546). |
*3.2 | Amendment No. 1, dated February 11, 1994, to the Partnership Agreement of Apache Offshore Investment Partnership (incorporated by reference to Exhibit 3.3 to Partnerships Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 0-13546). |
*3.3 | Limited Partnership Agreement of Apache Offshore Petroleum Limited Partnership (incorporated by reference to Exhibit (3)(ii) to Form 10 filed by Partnership with the Commission on April 30, 1985, Commission 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.INS | XBRL Instance Document. |
***101.SCH | XBRL Taxonomy Schema Document. |
***101.CAL | XBRL Calculation Linkbase Document. |
***101.LAB | XBRL Label Linkbase Document. |
***101.PRE | XBRL Presentation Linkbase Document. |
* | Incorporated by reference herein. | ||
** | Filed herewith. | ||
*** | Furnished herewith. |
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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: August 8, 2011 | /s/ Thomas P. Chambers | |||
Thomas P. Chambers Executive Vice President and Chief Financial Officer (principal financial officer) of Apache Corporation, Managing Partner |
||||
Dated: August 8, 2011 | /s/ Rebecca A. Hoyt | |||
Rebecca A. Hoyt Vice President, Chief Accounting Officer and Controller (principal accounting officer) of Apache Corporation, Managing Partner |