ITEM 3. LEGAL PROCEEDINGS
The Partnership is involved in a number of legal and administrative proceedings arising in the ordinary course of its oil and gas business. Although the ultimate outcome of these proceedings cannot be ascertained at this time, it is reasonably possible that some of the proceedings could be resolved unfavorably to the Partnership. Management of the Company believes that any liabilities which may arise would not be material. The Company intends to maintain liability and other insurance for the Partnership of the type customary in the oil and gas business with such coverage limits as the Company deems prudent.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS
None.
PART II
ITEM 5.
ITEM 5.MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP UNITS AND RELATED SECURITY HOLDER MATTERS
The depositary units of Sun Energy Partners, L.P. are traded on the New York Stock Exchange, Inc. The following table sets forth the high and low sales prices per unit, as reported on the New York Stock Exchange Composite Transactions quotations, for the periods indicated:
The Partnership had approximately 2,656 holders of record of depositary units as of February 28, 1995.
During 1994 and 1993, the quarterly cash distributions per unit paid to unitholders were as follows:
The first quarterly cash distribution for 1995 in the amount of $.14 per unit was paid in March 1995. Future quarterly cash distributions to unitholders are expected to be paid on or about the 10th day of March, June, September and December in each year. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Cash Distribution Policy.")
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of the Partnership's financial position and results of operations follows. This discussion should be read in conjunction with the Consolidated Financial Statements and Selected Financial Data included in this report.
BUSINESS CLIMATE
The fundamentals in worldwide oil markets continue to reflect an excess of supply over demand. Following very depressed price levels in early 1994, prices improved as a result of OPEC's general adherence to announced quotas. Crude prices continue to be impacted by the overhang of Iraq oil production as well as increases in non-OPEC production. The Partnership's realized oil price in 1994
fell by $1.27 per barrel, or 8 percent less than the 1993 price. The decline in 1994 followed a 14 percent decline in the Partnership's realized oil price in 1993 compared to 1992. Prices in early 1995 approximate the levels realized in the fourth quarter of 1994.
As a result of unseasonable weather, natural gas supplies have exceeded demand causing higher storage levels and depressed prices. The Partnership's realized gas price in 1994 was $1.87 per mcf or 5 percent lower than the $1.96 per mcf realized in 1993. Natural gas prices remain depressed in early 1995.
The Partnership produced 50 million equivalent barrels of crude oil and natural gas in 1994, 35 percent crude oil and 65 percent natural gas. Production in 1995 is expected to be to approximately 44 million equivalent barrels of crude oil and natural gas, depending on the timing of any asset sales.
RESULTS OF OPERATIONS
The Partnership's income in 1994, excluding the cumulative effect of an accounting change, was $100 million, or $.24 per unit, as compared to net income of $44 million, or $.11 per unit, in 1993 and net income of $120 million, or $.29 per unit in 1992. (See Note 7 to the Consolidated Financial Statements.)
Higher income, before the cumulative effect of the accounting change, in 1994 as compared to 1993 was caused primarily by lower depreciation, depletion and amortization expense and lower general and administrative expense offset by lower crude oil production volumes and lower prices for both crude oil and natural gas. Additionally, net income in 1993 included $7 million in losses from the sale of assets while no gains or losses were included in net income in 1994. Depreciation, depletion and amortization expense declined by $93 million or 36 percent primarily because of the accounting change effective at the beginning of 1994 which decreased the Partnership's producing property balance by $577 million. (See Note 7 to the Consolidated Financial Statements.) General and administrative expense decreased by $15 million or 22 percent primarily because of fewer employees of the Company which decreased the Company's charge to the Partnership. Total costs and expenses decreased $119 million or 19 percent to $513 million in 1994 from $632 million in 1993.
Lower net income in 1993 as compared to 1992 was caused by lower production volumes and a lower average oil price partially offset by a higher average price for gas and lower costs and expenses. Additionally, results for 1992 include $115 million in gains from the sale of assets while results for 1993 include $7 million in losses from asset disposals. Oil volumes were 13 percent lower and gas volumes were 11 percent lower in 1993 resulting from divestments of producing properties in 1992. Total costs and expenses decreased $185 million or 23 percent to $632 million in 1993 from $817 million in 1992.
Average net production of oil in 1994 was 47 thousand barrels daily, or 15 percent lower than the average net production in 1993 of 55 thousand barrels daily. The average price received for the Partnership's oil production in 1994 was $14.69 per barrel, representing an 8 percent decrease from the 1993 average price of $15.96.
Average net production of oil in 1993 was 55 thousand barrels daily, or 13 percent lower than the average net production in 1992 of 63 thousand barrels daily. The average price received for the Partnership's oil production in 1993 was $15.96 per barrel, representing a 14 percent decrease from the 1992 average price of $18.51.
Average net production of gas in 1994 was 533 million cubic feet daily, or 3 percent higher than average net production for 1993 of 517 million cubic feet daily. The Partnership received an average price of $1.87 per thousand cubic feet for its gas production in 1994 compared to an average price of $1.96 per thousand cubic feet in 1993, representing a 5 percent decrease.
Average net production of gas in 1993 was 517 million cubic feet daily, or 11 percent lower than average net production for 1992 of 578 million cubic feet daily. The Partnership received an average price of $1.96 per thousand cubic feet for its gas production in 1993 compared to an average price of $1.72 per thousand cubic feet in 1992, representing a 14 percent increase.
LIQUIDITY AND CAPITAL RESOURCES
In 1992, cash flow from operating activities decreased $208 million compared to 1991 primarily due to lower sales volumes and oil prices, and reductions in current liabilities, offset in part by an increase in gas prices and reductions in costs and expenses. Cash flow provided from investing activities declined by $28 million, reflecting a $258 million decrease in proceeds from divestments, partially offset by a $206 million decrease in capital expenditures. Cash flow used for financing activities decreased by $445 million in 1992, principally reflective of declines of $361 million and $175 million in cash used for repayments of long-term debt and cash distributions paid to unitholders, offset in part by a $101 million decrease in cash flow provided from the sale of limited partnership units.
In 1993, cash flow from operating activities increased $68 million from 1992 primarily due to favorable increases in cash from working capital components, a higher average price for gas and lower costs and expenses partially offset by lower production volumes and a lower average price for oil. Cash flow from investing activities used $148 million in 1993 compared to providing $252 million in 1992. Proceeds from divestments were $298 million lower in 1993 while capital expenditures increased by $99 million. Cash flow used for financing activities decreased by $305 million in 1993 primarily because of the repayment of $239 million in long-term debt in 1992 compared to repayment of $19 million in 1993.
In 1994, cash flow from operating activities decreased $129 million compared to 1993 primarily due to lower oil volumes, lower average prices for oil and gas and unfavorable decreases in cash flow working capital components. Cash flow from investing activities used $136 million in 1994 compared to a use of $148 million in 1993. Capital expenditures were $33 million lower and proceeds from divestments were $17 million lower in 1994. Cash flow from financing activities used $128 million in 1994 compared to a use of $284 million in 1993. Cash distributions paid to unitholders were $226 million lower in 1994 than 1993 and 1993 included $70 million of cash flow from the sale of limited partnership units. No such sale occurred in 1994.
In the fourth quarter of 1993, the Company's Board of Directors elected to change its investment policy concerning ownership of the Partnership. Effective in 1994, the policy of distributing all cash to unitholders and then selling newly issued Partnership units to the Company to fund capital outlays was changed. The Partnership now funds its capital outlays from internally generated funds and makes distributions of only that cash remaining after such outlays.
The Partnership's spending levels will be governed by its cash flow from operating activities which will continue to be affected by prevailing oil and gas prices, cost levels and production volumes. Any shortfall in expected cash flow from operating activities may require adjustment of the business plans. Options include deferral of discretionary ED&A outlays and the sale of Partnership units. The Partnership's long-term cash generation capability is ultimately tied to the value of proved reserves.
RESERVE REPLACEMENT
The ability to sustain cash flow is dependent, among other things, on the level of the Partnership's oil and gas reserves, oil and gas prices and cost containment. Replacement of proved reserves through extensions and discoveries, improved recovery, purchases and revisions to prior reserve estimates in 1994 was 35 percent of liquids production and 109 percent of gas production. Reserve replacement rates of liquids and gas were 74 and 93 percent in 1993 and 17 and 68 percent in 1992.
HEDGING ARRANGEMENTS
The Partnership, from time to time, enters into hedging arrangements for oil and natural gas prices. The Partnership has entered into swaps for approximately 26 percent of its estimated 1995
crude oil production under agreements with an average price of $18.24 per barrel. An additional 14 percent is under call option agreements at an average price ceiling of $18.56 per barrel. Approximately 44 percent of its estimated 1995 gas production is under swap agreements with an average price of $1.88 per mmbtu. The Partnership's hedging activities increased oil and gas revenue by $3 million in 1994 and decreased oil and gas revenue by $17 million in 1993. (See Note 2 to the Consolidated Financial Statements.)
ENVIRONMENTAL
The Partnership's oil and gas operations are subject to stringent environmental regulations. The Company is dedicated to the preservation of the environment and has committed significant resources to comply with such regulations. Although the Partnership has been named as a potentially responsible party at sites related to past operations, the Company believes the Partnership is in general compliance with applicable governmental regulations and that the potential costs to it, in the aggregate, are not material to its financial condition. However, risks of substantial costs and liabilities are inherent in the oil and gas business. Should other developments occur, such as increasingly strict environmental laws, regulations and enforcement policies or claims for damages resulting from the Partnership's operations, they could result in additional costs and liabilities in the future. (See Note 14 to the Consolidated Financial Statements.)
CASH DISTRIBUTION POLICY
In the fourth quarter of 1993, the Company's Board of Directors elected to change the Company's investment policy concerning purchase of additional Partnership units. Effective in 1994, the Company no longer routinely purchases newly issued Partnership units to fund capital outlays. The Partnership now funds its capital outlays from internally generated funds and make distributions of only that cash remaining after such outlays. The newly adopted policy reduced the cash paid to unitholders in 1994 and will reduce the cash paid to unitholders in the future, but will also end the ownership dilution caused by the issuance of additional units.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL AND OPERATING INFORMATION
SUN ENERGY PARTNERS, L.P. REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Sun Energy Partners, L.P. and the Board of Directors of Oryx Energy Company:
We have audited the accompanying consolidated balance sheets of Sun Energy Partners, L.P. and its Subsidiaries as of December 31, 1994 and 1993 and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of Oryx Energy Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sun Energy Partners, L.P. and its Subsidiaries as of December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 7 to the Consolidated Financial Statements, the Partnership changed its accounting policy for calculating the oil and gas ceiling test in 1994.
COOPERS & LYBRAND L.L.P.
Dallas, Texas February 19, 1995
SUN ENERGY PARTNERS, L.P CONSOLIDATED STATEMENTS OF INCOME (MILLIONS OF DOLLARS, EXCEPT PER UNIT AMOUNTS)
(See Accompanying Notes)
SUN ENERGY PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS (MILLIONS OF DOLLARS)
ASSETS
(See Accompanying Notes)
SUN ENERGY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (MILLIONS OF DOLLARS)
(See Accompanying Notes)
SUN ENERGY PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CONTROL
Sun Energy Partners, L.P. (Sun Energy Partners), a Delaware limited partnership, was formed on October 1, 1985 and prior to December 1, 1985 had no operations and nominal assets and equity. Effective as of December 1, 1985, Sun Energy Partners succeeded to all the domestic oil and gas operations of Oryx Energy Company and certain of its affiliates (collectively, the Company). These operations consist of the exploration for and development of oil and natural gas reserves in the United States.
Sun Energy Partners is controlled by the Company, which is the managing general partner. As of December 31, 1994, the Company had a partnership interest of 98 percent in Sun Energy Partners. The remaining two percent limited partnership interest is held by public unitholders in the form of depositary units. Eighty-five percent of the Company's Board of Directors must approve any additional issuance, sale or transfer of units which would reduce the Company's holdings in Sun Energy Partners below eighty-five percent.
Sun Energy Partners operates through Sun Operating Limited Partnership, a Delaware limited partnership, and several other operating partnerships (collectively, the Operating Partnerships). In all of the partnerships which comprise the Operating Partnerships, Sun Energy Partners holds a 99 percent interest as the sole limited partner, while the Company holds a one percent interest as the managing general partner.
Sun Energy Partners and the Operating Partnerships (collectively, the Partnership) have no officers or employees. The officers and employees of the Company perform all management functions.
BASIS OF PRESENTATION
The Partnership's consolidated financial statements have been prepared using the proportionate method of consolidation for Sun Energy Partners and its 99 percent interest in the Operating Partnerships. Such financial statements are prepared in accordance with generally accepted accounting principles which is different from the basis used for reporting taxable income or loss to unitholders.
CASH EQUIVALENTS
The Partnership considers highly liquid investments with original maturities of less than three months to be cash equivalents. Cash equivalents are stated at cost which approximates market value.
PROPERTIES, PLANTS AND EQUIPMENT
The successful efforts method of accounting is followed for costs incurred in oil and gas operations.
CAPITALIZATION POLICY. Acquisition costs are capitalized when incurred. Costs of unproved properties are transferred to proved properties when proved reserves are found. Exploration costs, including geological and geophysical costs and costs of carrying and retaining unproved properties, are charged against income as incurred. Exploratory drilling costs are capitalized initially; however, if it is determined that an exploratory well does not contain proved reserves, such capitalized costs are charged to expense, as dry hole costs, at that time. Development costs are capitalized. Costs incurred to operate and maintain wells and equipment are expensed.
LEASEHOLD IMPAIRMENT AND DEPRECIATION, DEPLETION AND AMORTIZATION. Periodic valuation provisions for impairment of capitalized costs of unproved properties are expensed. The acquisition costs of proved properties are depleted by the unit-of-production method based on proved reserves by field.
SUN ENERGY PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Capitalized exploratory drilling costs which result in the discovery of proved reserves and development costs are amortized by the unit-of-production method based on proved developed reserves by field.
CEILING TEST. The Partnership periodically compares the estimated undiscounted future cash flows of its proved reserves to their net book values, using current realized prices and costs held constant. Effective January 1, 1994, the Partnership changed its policy for performing ceiling test comparisons to a field-by-field basis (Note 7). Prior to 1994, the Partnership performed its ceiling test comparisons on a total partnership basis. The Partnership impairs the net book value of its proved properties to the extent that net book values exceed the estimated undiscounted future cash flows.
DISMANTLEMENT, RESTORATION AND ABANDONMENT COSTS. Estimated costs of future dismantlement, restoration and abandonment are accrued as a component of depreciation, depletion and amortization expense; actual costs are charged to the accrual.
RETIREMENTS. Gains and losses on the disposals of fixed assets are generally reflected in income. For certain property groups, the cost less salvage value of property sold or abandoned is charged to accumulated depreciation, depletion and amortization except that gains and losses for these groups are taken into income for unusual retirements or retirements involving an entire property group.
INVESTMENT IN AFFILIATE
Effective in 1988, the Company issued three million shares of its $1 par value common stock to an operating partnership of the Partnership in exchange for certain assets. These shares are not entitled to vote at the Company's annual meetings of shareholders. The Partnership accounts for this investment under the cost method, whereby investment income is recognized by the Partnership if and when common dividends are received from the Company. In January 1994, Oryx Energy Company suspended the payment of quarterly dividends to holders of its common stock.
CAPITALIZED INTEREST
The Partnership capitalizes interest costs incurred as a result of the acquisition and installation of significant assets.
INCOME TAXES
The Operating Partnerships and Sun Energy Partners are treated as partnerships for income tax purposes and, as a result, income or loss of the Partnership is includable in the tax returns of the individual unitholders. Accordingly, no recognition has been given to income taxes in the financial statements.
At December 31, 1994, 1993 and 1992, the Partnership's financial reporting bases of assets and liabilities exceeded the tax bases of its assets and liabilities (net temporary differences) by $544 million, $1,049 million and $1,077 million.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents includes cash, highly liquid investments with remaining maturities of less than three months (see "Cash Equivalents", above) and advances to affiliate.
Interest paid totaled $17 million, $13 million and $45 million in 1994, 1993 and 1992.
SUN ENERGY PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) During 1994, the Partnership exchanged its interest in an undeveloped block in the Gulf of Mexico for a royalty interest in Viosca Knoll 826. This transaction was accounted for by the Partnership as a non-cash property exchange. In accordance with Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," non-cash transactions are not reflected within the accompanying Consolidated Statements of Cash Flows.
SALES OF OIL AND GAS
Sales of oil and gas are recorded on the entitlement method. Differences between actual production and entitlements result in a receivable when underproduction occurs and a payable when overproduction occurs.
During 1994, sales of oil to the Partnership's top purchaser totaled approximately 8 percent of oil revenue. During 1993, sales of oil to the Partnership's top purchasers totaled approximately 21 and 16 percent. During 1994 and 1993, no individual customer accounted for more than 5 percent of the Partnership's gas sales. The Partnership believes that the loss of any major purchaser would not have a material adverse effect on its business.
OIL AND GAS PRICE HEDGING ACTIVITY
The Partnership, from time to time, enters into futures contracts to hedge the impact of price fluctuations on anticipated crude oil and natural gas sales. Advance payments under such contracts are deferred and charged to oil and gas revenue during the anticipated sales periods. The differentials paid or received during the terms of such agreements are accrued as oil and gas prices change and are charged or credited to oil and gas sales (Note 2).
ENVIRONMENTAL COSTS
The Partnership establishes reserves for environmental liabilities as such liabilities are incurred (Note 14).
STATEMENT PRESENTATION
Certain items in years prior to 1994 have been reclassified to conform to the 1994 presentation.
2) FINANCIAL INSTRUMENTS
DERIVATIVES
As discussed in Note 1, the Partnership enters into hedging arrangements for crude oil and natural gas prices with major financial institutions. The Partnership does not enter into derivative transactions for trading purposes.
At December 31, 1994, the Partnership was a party to crude oil and natural gas hedging contracts to hedge about 11 percent of its estimated 1995 crude oil production at $17.80 per barrel and 40 percent of its estimated 1995 natural gas production at $1.95 per mmbtu. At December 31, 1993, the Partnership was a party to natural gas hedging contracts to hedge about 30 percent of its 1994 natural gas production at an average floor of $2.04 per mmbtu and an average ceiling of $2.28 per mmbtu. These arrangements serve to reduce the volatility associated with prices of crude oil and natural gas. The aggregate carrying values of these assets at December 31, 1994 and 1993 were nil, and the aggregate fair values, based on quotes from brokers, were approximately $13 million and $4 million.
The above mentioned derivative contracts expose the Partnership to credit risks. The Partnership has established controls to manage this risk and closely monitors the creditworthiness of its counterparties which are major financial institutions. The Partnership believes that losses from nonperformance are unlikely to occur.
SUN ENERGY PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2) FINANCIAL INSTRUMENTS (CONTINUED) OTHER FINANCIAL INSTRUMENTS
At December 31, 1994 and 1993, the carrying values of the Partnership's long-term debt, including amounts due within one year, were $86 million and $100 million (Note 10). At December 31, 1994 and 1993, the aggregate fair values of the Partnership's long-term debt were approximately $93 million and $153 million, estimated primarily based on current rates available to the Partnership for debt of the same remaining maturities.
3) RELATED PARTY TRANSACTIONS
ADVANCES TO/FROM AFFILIATE
The Company has served as the Partnership's lender and borrower of funds and a clearing-house for the settlement of intercompany receivables and payables. Deposits earn interest at a rate equal to the rate paid by a major money market fund. Demand loans bear interest at a rate based on the prime rate.
LONG-TERM DEBT DUE AFFILIATE
The Partnership is indebted to the Company under a 9.75% note due 1995-2001. In 1992 the Partnership prepaid $213 million of such debt from proceeds of asset sales.
DIRECT AND INDIRECT COSTS
The Company is reimbursed by the Partnership for all direct costs incurred in performing management functions and indirect costs (including payroll and payroll related costs and the cost of postemployment benefits and management incentive plans) allocable to the Partnership. The full cost of direct and indirect costs incurred on behalf of the Partnership by the Company is allocated to the Partnership based on services rendered and extent of use. Such costs, which are charged principally to production cost, exploration cost and general and administrative expense, totaled $73 million, $104 million and $127 million for the years 1994, 1993 and 1992. The Company does not receive any carried interests, promotions, back-ins or other similar compensation as the general partner of the Partnership.
INTEREST INCOME
Interest income received from the Company, which is reflected in other revenues in the consolidated statements of income, was earned on advances to the Company and totaled $3 million, $5 million and $9 million during the years 1994, 1993 and 1992.
INTEREST COST
Interest cost paid to the Company, which is included in interest and debt expense in the consolidated statements of income, was primarily incurred on long-term debt due the Company and totaled $16 million, $12 million and $43 million during the years 1994, 1993 and 1992 (Note 10).
4) CHANGES IN BUSINESS In 1991, the Company commenced a major restructuring program (Restructuring) to reduce the Company's and Partnership's cost structures. The program outlined a plan to sell substantially all of the Partnership's gas plant business (Note 5) and certain onshore producing oil and gas properties.
Associated with the Restructuring, the Partnership recognized a $62 million provision for the early relinquishment of certain non-producing properties in 1992. At December 31, 1994, the asset disposals were complete.
In the first quarter of 1994, the Partnership recognized an $84 million restructuring charge. This provision was revised to zero because of the accounting change (Note 7).
SUN ENERGY PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5) OTHER REVENUES -- NET The components of other revenues were as follows:
6) PRODUCTION TAXES Production taxes consisted of the following:
7) ACCOUNTING CHANGE Effective January 1, 1994, the Partnership changed its accounting policy for calculating the oil and gas asset ceiling test from a total Partnership basis to an individual field basis. The Partnership believes the field basis is preferable because it is the way the Partnership manages its business. The basis underlying the calculation of the cumulative effect of this change is a comparison of the undiscounted cash flows of each field's then existing proved reserves to its net book value at each quarter-end during the life of the asset. This subjects the ceiling test valuation to the lowest quarter-end price experienced over the asset's life. As a result of this change, the Partnership recognized a non-cash cumulative effect charge of $577 million to 1994 results. Excluding the cumulative charge, the Partnership's income for 1994 was $100 million ($.24 per unit). On a pro forma basis, the Partnership reported net earnings for 1993 and 1992 would have been a net loss of $198 million ($.47 per unit) and net earnings of $63 million ($.15 per unit) if this accounting change had been enacted prior to 1992.
SUN ENERGY PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8) PROPERTIES, PLANTS AND EQUIPMENT At December 31, the Partnership's properties, plants and equipment and accumulated depreciation, depletion and amortization were as follows:
9) ACCRUED LIABILITIES At December 31, the Partnership's accrued liabilities were comprised of the following:
10) LONG-TERM DEBT At December 31, the Partnership's long-term debt consisted of the following:
Under the Partnership's existing capitalized lease obligation, the Partnership is obligated to make an annual payment of $2 million in each of the years 1995 and 1996.
SUN ENERGY PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10) LONG-TERM DEBT (CONTINUED) Repayment obligations under the Partnership's long-term debt due affiliate are $10 million, $11 million, $12 million, $13 million and $14 million in 1995, 1996, 1997, 1998 and 1999.
11) COMMITMENTS AND CONTINGENT LIABILITIES The Partnership has operating leases for office space and other property and equipment. Total rental expense for such leases for the years 1994, 1993 and 1992 was $33 million, $28 million and $28 million. Under contracts existing as of December 31, 1994, future minimum annual rentals applicable to noncancellable operating leases that have initial or remaining lease terms in excess of one year were as follows (in millions of dollars):
Several legal and administrative proceedings are pending against the Partnership. Although the ultimate outcome of these proceedings cannot be ascertained at this time, and it is reasonably possible that some of them could be resolved unfavorably to the Partnership, management believes that any liabilities which may arise would not be material.
12) PARTNERS' CAPITAL
13) CASH DISTRIBUTIONS Beginning with the fourth quarter 1993, Distributable Cash was reduced by the cash needed for capital outlays. This policy change reduced the cash paid to unitholders but ended the ongoing ownership dilution faced by unitholders due to Oryx Energy's purchases of newly issued partnership units to fund Sun Energy's capital outlays. Distributable Cash is defined as revenues (including interest income) less production cost; seismic, geological and geophysical costs (including related costs); payments of principal of and interest on debt; general and administrative expenses including
SUN ENERGY PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13) CASH DISTRIBUTIONS (CONTINUED) reimbursements of the Company as managing general partner; adjustments for capital expenditures (net of proceeds from divestments); and cash exploration costs. No deduction is made for depreciation, depletion and amortization, for property acquisition, and development expenditures.
Sun Energy Partners' quarterly cash distributions per unit for the years 1994, 1993 and 1992 were as follows:
14) DEFERRED CREDITS AND OTHER LIABILITIES At December 31, the Partnership's deferred credits and other liabilities were comprised of the following:
Environmental cleanup costs have been accrued in response to the identification of several sites that require cleanup based on environmental pollution, some of which have been designated as superfund sites by the Environmental Protection Agency (EPA). The Partnership has been named as a Potentially Responsible Party (PRP) at four sites pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. At two of these sites, the Partnership has been named as a de minimis party and therefore expects its liability to be small. At a third site, the Partnership is reviewing its options and anticipates that it will participate in steering committee activities with the Environmental Protection Agency. At the fourth and largest site, the Operating Industries, Inc. site in California, the Partnership has participated in a steering committee consisting of 139 companies. The steering committee and other PRP's previously entered into two partial consent decrees with the EPA providing for remedial actions which have been or are to be completed. The steering committee has successfully negotiated a third partial consent decree which provides for the following remedial actions: a clay cover, methane capturing wells, and leachate destruction facilities. The remaining work at the site involves groundwater evaluation and long-term operation and maintenance. The Partnership is a member of the group that is responsible for carrying out the first phase of the work, which is expected to take 5 to 8 years. Completion of all phases is estimated to take up to 30 years. The maximum liability of the group, which is joint and several for each member of the group, is expected to range from approximately $450 million to $600 million, of which the Partnership's share is expected to be approximately $10 million (net of $3 million in recoveries from third parties). Cleanup costs are payable over the period that the work is completed.
Based on the facts outlined above and the Partnership's ongoing analyses of the actions where it has been identified as a PRP, the Partnership believes that it has accrued sufficient reserves to absorb the ultimate cost of such actions and that such costs therefore will not have a material impact on the Partnership's liquidity, capital resources or financial condition. While liability at superfund sites is typically joint and several, the Partnership has no reason to believe that defaults by other PRPs will result in liability of the Partnership materially larger than expected.
SUN ENERGY PARTNERS, L.P. SUPPLEMENTARY FINANCIAL AND OPERATING INFORMATION (UNAUDITED)
OIL AND GAS DATA CAPITALIZED COSTS
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
EXPLORATION COSTS
ESTIMATED NET QUANTITIES OF PROVED OIL AND GAS RESERVES
Proved reserve quantities were based on estimates prepared by Company engineers in accordance with guidelines established by the Securities and Exchange Commission and were reviewed by Gaffney, Cline & Associates, Inc., independent petroleum engineers. The Partnership considers such estimates to be reasonable; however, due to inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are imprecise and subject to change over time as additional information becomes available.
SUN ENERGY PARTNERS, L.P.
There has been no major discovery or other favorable or adverse event that has caused a significant change in estimated proved reserves since December 31, 1994. The Partnership has no long-term supply agreements or contracts with governments or authorities in which it acts as producer nor does it have any interest in oil and gas operations accounted for by the equity method. All reserves are located onshore and offshore within the United States.
SUN ENERGY PARTNERS, L.P.
STANDARDIZED MEASURE
The standardized measure of discounted future net cash flows from estimated production of proved oil and gas reserves is presented in accordance with the provisions of Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing Activities" (SFAS No. 69). In computing this data, assumptions other than those mandated by SFAS No. 69 could produce substantially different results. The Partnership cautions against viewing this information as a forecast of future economic conditions or revenues.
The standardized measure has been prepared assuming year-end selling prices adjusted for future fixed and determinable contractual price changes, year-end development, production and direct general and administrative costs and a ten percent annual discount rate. No future income tax expense has been provided for the Partnership since it incurs no income tax liability. (See Summary of Significant Accounting Policies Income Taxes in the Notes to Consolidated Financial Statements.) The year-end realized prices were $15.30 and $11.58 per barrel of oil and $1.75 and $1.91 per mcf of gas for 1994 and 1993.
SUMMARY OF CHANGES IN THE STANDARDIZED MEASURE
SUN ENERGY PARTNERS, L.P.
QUARTERLY FINANCIAL INFORMATION
SUN ENERGY PARTNERS, L.P.
QUARTERLY OPERATING INFORMATION
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no employees. The Company, as the managing general partner of the Partnership, has the responsibility for the Partnership's conduct of operations. Set forth below is information concerning the ten current directors of the Company and the nine current executive officers of the Company (three of which are also directors). All elected executive officers of the Company are elected annually by the Board of Directors of the Company. The directors are divided into three classes with approximately one-third of the directors constituting the Board being elected each year to serve a three-year term. Class I directors (whose term expires in 1995) are Mr. Gill, Mr. Hollingsworth and Mr. Pistor. Class II directors (whose term expires in 1996) are Mr. Keiser, Mr. Seegers and Mr. White-Thomson. Class III directors (whose term expires in 1997) are Mr. Box, Mr. Bradford and Mr. Moneypenny.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The directors, officers, and employees of the Company (the managing general partner) receive no direct compensation from the Partnership for their services to the Partnership. Such persons receive compensation from the Company, a substantial portion of which is generally reimbursed to the Company by the Partnership as costs allocable to it. (See Note 2 to the Consolidated Financial Statements.)
The Partnership reimburses the Company for all direct costs and indirect costs associated with the Partnership's activities. For the year 1994, the Company received $73 million as reimbursement of costs allocable to the Partnership. Such amounts included salaries of employees and allocations of certain executive and administrative expenses. The aggregate amount reimbursed by the Partnership to the Company for salaries paid to each person serving as Chief Executive Officer of the Company during 1994 and each of the four most highly compensated executive officers of the Company during 1994 other than the Chief Executive Officer was approximately $1,330,000 for 1994. (See Note 3 to the Consolidated Financial Statements.)
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides certain information regarding beneficial ownership of the limited partnership units of Sun Energy Partners, L.P. as of December 31, 1994.
UNITS OF SUN ENERGY PARTNERS, L.P.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In its capacity as managing general partner of the Partnership, the Company controls the Partnership and its operations, and has served as a lender and borrower of funds for the Partnership. Following is a table which summarizes lending activities between the Partnership and the Company during the year ended December 31, 1994:
During 1994, the largest balance owed to the Partnership by the Company for variable rate advances was $14 million. The largest balance owed to the Company by the Partnership during 1994 resulting from advances from Oryx Energy Company and amounts due under the 9.75% Note Payable was $137 million. Certain information required by this section is included in Notes to the Consolidated Financial Statements. See Notes 1, 3 and 10 included elsewhere in this Form 10-K.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following Documents are filed as a part of this report:
1. Financial Statements:
See Index to Financial Statements, Supplementary Financial and Operating Information on page 12.
2. Exhibits:
(b) Reports on Form 8-K:
The Partnership did not file any reports on Form 8-K during the quarter ended December 31, 1994.
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.
SUN ENERGY PARTNERS, L.P.
By: ORYX ENERGY COMPANY (MANAGING GENERAL PARTNER)
*By: /s/ EDWARD W. MONEYPENNY
----------------------------------- Edward W. Moneypenny EXECUTIVE VICE PRESIDENT, FINANCE, CHIEF FINANCIAL OFFICER AND DIRECTOR Date March 22, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by or on behalf of the following persons on behalf of the Registrant and in the capacities with Oryx Energy Company, Managing General Partner, and on the date indicated:
SIGNATURE TITLE DATE ----------------------------------- ------------------------- ---------------- JERRY W. BOX** Executive Vice President, ----------------------------------- Exploration and Jerry W. Box Production, and Director
WILLIAM E. BRADFORD** Director ----------------------------------- William E. Bradford
ROBERT B. GILL** Director ----------------------------------- Robert B. Gill
DAVID S. HOLLINGSWORTH** Director ----------------------------------- David S. Hollingsworth
ROBERT L. KEISER** Chairman of the Board, ----------------------------------- Chief Robert L. Keiser Executive Officer, and President (principal executive officer) March 22, 1995
/s/ EDWARD W. MONEYPENNY Executive Vice President, ----------------------------------- Finance, Chief Edward W. Moneypenny Financial Officer (principal financial officer), and Director
CHARLES H. PISTOR, JR.** Director ----------------------------------- Charles H. Pistor, Jr.
PAUL R. SEEGERS** Director ----------------------------------- Paul R. Seegers
IAN L. WHITE-THOMSON** Director ----------------------------------- Ian L. White-Thomson
**By: /s/ EDWARD W. MONEYPENNY ----------------------------------- Edward W. Moneypenny ATTORNEY-IN-FACT
------------------------ *Attorney-in-Fact pursuant to Resolution of the Board of Directors of the Managing General Partner which is being filed as an Exhibit to this Form 10-K.
**Original powers of attorney authorizing Robert L. Keiser and Edward W. Moneypenny or any one of them, to sign this Form 10-K Annual Report on behalf of Sun Energy Partners, L.P., is being filed as an Exhibit to this Form 10-K.