<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended Commission File Number
June 30, 1996 0-8881
DYCO OIL AND GAS PROGRAM 1978-1
(A LIMITED PARTNERSHIP)
(Exact Name of Registrant as specified in its charter)
Minnesota 41-1343930
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or Number)
organization)
Samson Plaza, Two West Second Street, Tulsa, Oklahoma 74103
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(918) 583-1791
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1996 1995
-------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 34,736 $ 29,217
Accrued oil and gas sales, including
$22,308 due from related parties
in 1995 (Note 2) 30,359 30,588
-------- --------
Total current assets $ 65,095 $ 59,805
NET OIL AND GAS PROPERTIES, utilizing
the full cost method 203,217 220,435
DEFERRED CHARGE 43,371 43,371
-------- --------
$311,683 $323,611
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 2,720 $ 3,811
Gas imbalance payable 4,762 4,762
-------- --------
Total current liabilities $ 7,482 $ 8,573
ACCRUED LIABILITY 23,848 23,848
CONTINGENCIES (Note 3)
PARTNERS' CAPITAL:
General Partner, issued and
outstanding, 24 units 2,803 2,912
Limited Partners, issued and
outstanding 2,400 units 277,550 288,278
-------- --------
Total Partners' capital $280,353 $291,190
-------- --------
$311,683 $323,611
======== ========
The accompanying condensed notes are an
integral part of these financial statements.
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DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
1996 1995
------- --------
REVENUES:
Oil and gas sales, including
$24,972 of sales to related
parties in 1995 (Note 2) $50,698 $33,576
Interest 563 520
------- -------
$51,261 $34,096
COST AND EXPENSES:
Oil and gas production $ 8,773 $13,197
Depreciation, depletion, and
amortization of oil and gas
properties 8,985 12,246
General and administrative (Note 2) 8,314 8,906
------- -------
$26,072 $34,349
------- -------
NET INCOME (LOSS) $25,189 ($ 253)
======= =======
GENERAL PARTNER (1%) - net
income (loss) $ 252 ($ 3)
======= =======
LIMITED PARTNERS (99%) - net
income (loss) $24,937 ($ 250)
======= =======
NET INCOME (LOSS) PER UNIT $ 10 $ -
======= =======
UNITS OUTSTANDING 2,424 2,424
======= =======
The accompanying condensed notes are an
integral part of these financial statements.
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DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
1996 1995
-------- -------
REVENUES:
Oil and gas sales, including
$52,263 of sales to related
parties in 1995 (Note 2) $97,481 $65,864
Interest 791 933
------- -------
$98,272 $66,797
COST AND EXPENSES:
Oil and gas production $24,836 $25,368
Depreciation, depletion, and
amortization of oil and gas
properties 17,297 23,290
General and administrative (Note 2) 18,496 18,706
------- -------
$60,629 $67,364
------- -------
NET INCOME (LOSS) $37,643 ($ 567)
======= =======
GENERAL PARTNER (1%) - net
income (loss) $ 376 ($ 6)
======= =======
LIMITED PARTNERS (99%) - net
income (loss) $37,267 ($ 561)
======= =======
NET INCOME (LOSS) PER UNIT $ 16 $ -
======= =======
UNITS OUTSTANDING 2,424 2,424
======= =======
The accompanying condensed notes are an
integral part of these financial statements.
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DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
1996 1995
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $37,643 ($ 567)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion, and
amortization of oil and gas
properties 17,297 23,290
Decrease in accrued oil and gas
sales 229 4,279
Increase (decrease) in accounts
payable ( 1,091) 528
------- -------
Net cash provided by operating
activities $54,078 $27,530
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties ($ 163) ($ 8,314)
Retirements of oil and gas
properties 84 -
------- -------
Net cash used by investing
activities ($ 79) ($ 8,314)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($48,480) $ -
------- -------
Net cash used by financing
activities ($48,480) $ -
------- -------
NET INCREASE IN CASH AND CASH
EQUIVALENTS $ 5,519 $19,216
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 29,217 35,769
------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $34,736 $54,985
======= =======
The accompanying condensed notes are an
integral part of these financial statements.
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DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
1. ACCOUNTING POLICIES
-------------------
The balance sheet as of June 30, 1996, statements of operations
for the three and six months ended June 30, 1996 and 1995, and
statements of cash flows for the six months ended June 30, 1996
and 1995 have been prepared by Dyco Petroleum Corporation
("Dyco"), the General Partner of the Dyco Oil and Gas Program
1978-1 Limited Partnership (the "Program"), without audit. In
the opinion of management all adjustments (which include only
normal recurring adjustments) necessary to present fairly the
financial position at June 30, 1996, results of operations for
the three and six months ended June 30, 1996 and 1995, and
changes in cash flows for the six months ended June 30, 1996 and
1995 have been made.
Information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto
included in the Program's Annual Report on Form 10-K for the year
ended December 31, 1995. The results of operations for the
period ended June 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
The limited partners' net income or loss per unit is based upon
each $5,000 initial capital contribution.
OIL AND GAS PROPERTIES
----------------------
Oil and gas operations are accounted for using the full cost
method of accounting. All productive and non-productive costs
associated with the acquisition, exploration and development of
oil and gas reserves are capitalized. In the event the
unamortized cost of oil and gas properties being amortized
exceeds the full cost ceiling (as defined by the Securities and
Exchange Commission), the excess is charged to expense in the
period during which such excess occurs. Sales and abandonments
of properties are accounted for as adjustments of capitalized
costs with no gain or loss recognized, unless such adjustments
would significantly alter the relationship between capitalized
costs and proved oil and gas reserves.
The provision for depreciation, depletion, and amortization of
oil and gas properties is calculated by dividing the oil and gas
sales dollars during the year by the estimated future gross
income from the oil and gas properties and applying the resulting
rate to the net remaining costs of oil and gas properties that
have been capitalized, plus estimated future development costs.
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2. TRANSACTIONS WITH RELATED PARTIES
---------------------------------
Under the terms of the Program's partnership agreement, Dyco is
entitled to receive a reimbursement for all direct expenses and
general and administrative, geological and engineering expenses
it incurs on behalf of the Program. During the three months
ended June 30, 1996 and 1995 the Program incurred such expenses
totaling $8,314 and $8,906, respectively, of which $6,219 and
$6,219 were paid to Dyco. During the six months ended June 30,
1996 and 1995 the Program incurred such expenses totaling $18,496
and $18,706, respectively, of which $12,438 and $12,438 were paid
to Dyco.
Affiliates of the Program are the operators of certain of the
Program's properties and their policy is to bill the Program for
all customary charges and cost reimbursements associated with
their activities, together with any compressor rentals,
consulting, or other services provided.
The Program sold gas at market prices to Premier Gas Company
("Premier") and Premier then resold such gas to third parties at
market prices. Premier was an affiliate of the Program until
December 6, 1995. During the three months ended June 30, 1995
these sales for the Program totaled $24,972. During the six
months ended June 30, 1995 these sales for the Program totaled
$52,263. At December 31, 1995, accrued oil and gas sales
included $22,308 due from Premier.
3. CONTINGENCIES
-------------
On November 12, 1993, two royalty owners filed a class action
lawsuit against Dyco in which the plaintiffs alleged entitlement
to a share of the proceeds of a take-or-pay settlement with a gas
purchaser which involved one of the Program's wells. This
lawsuit is a successor lawsuit to a suit that was filed in 1991
and dismissed in 1993 following a district court's failure to
certify a class action. The lawsuit also alleged claims based on
breach of contract, bad faith breach of contract, breach of an
implied covenant to market, unjust enrichment, and constructive
fraud and requested an accounting and a temporary restraining
order. The plaintiffs have not quantified the amount of their
alleged damages. The district court has certified the matter as
a class action. Dyco has denied all of the plaintiffs'
allegations and limited discovery is proceeding in the matter.
Dyco intends to vigorously defend the lawsuit. As of the date of
these financial statements, management cannot determine the
amount of any alleged damages which would be allocable to the
Program; however, it is possible that events could change in the
future resulting in a material liability to the Program.
On March 5, 1992, Walter K. Spurlin, et al. filed a lawsuit
against Dyco in which the plaintiffs alleged that Dyco, as
operator of one of the Program's wells, failed to respond to
their request for an accounting of production. The plaintiffs
are seeking a full accounting of all production from the well and
judgment for breach of contract and their alleged share of the
proceeds from certain gas contract settlements. The plaintiffs
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have not quantified the amount of their alleged damages. Dyco
has filed its answer in the matter in which it denied all of the
plaintiffs' allegations and discovery is ongoing. Dyco intends
to vigorously defend the lawsuit. On April 21, 1993, Dyco's
motion to dismiss plaintiffs' claim for tortious breach of
contract was granted, thereby eliminating any punitive damages
claims. As of the date of these financial statements, management
cannot determine the amount of alleged damages which would be
allocable to the Program; however, it is possible that events
could change in the future resulting in a material liability to
the Program.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net proceeds from the Programs' operations less necessary
operating capital are distributed to investors on a quarterly
basis. The net proceeds from production are not reinvested in
productive assets, except to the extent that producing wells are
improved or where methods are employed to permit more efficient
recovery of the Programs' reserves which would result in a
positive economic impact. Over the last several years, the
domestic energy industry and the Programs have contended with
volatile, but generally low, oil and gas prices. Over the past
few years, the oil and gas market appears to have moved from
periods of relative stability in supply and demand to excess
supply and weakened demand. These trends have led to the
volatility in pricing and demand noted over the past years.
The Programs' available capital from subscriptions has been spent
on oil and gas drilling activities. There should not be any
further material capital resource commitments in the future. The
Programs' have no bank debt commitments. Cash for operational
purposes will be provided by current oil and gas production.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED JUNE 30, 1996 AS COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1995.
Three months ended June 30,
---------------------------
1996 1995
------- -------
Oil and gas sales $50,698 $33,576
Oil and gas production expenses $ 8,773 $13,197
Barrels produced 278 255
Mcf produced 23,362 21,004
Average price/Bbl $ 17.27 $ 18.40
Average price/Mcf $ 1.96 $ 1.38
As shown in the table, oil and natural gas sales increased
$17,122 (51.0%) for the three months ended June 30, 1996 as
compared to the three months ended June 30, 1995. Of this
increase, $12,182 was related to the increase in the average
price of natural gas sold and an $4,622 increase was related to
the increase in the volumes of natural gas sold. Volumes of oil
and natural gas sold increased by 23 barrels and 2,358 Mcf for
the three months ended June 30, 1996 as compared to the three
months ended June 30, 1995. The increase in the volumes of
natural gas sold resulted primarily from the purchaser on one
well receiving excess gas due to pipeline difficulties during the
three months ended June 30, 1996. Average oil prices decreased
to $17.27 per barrel for the three months ended June 30, 1996
from an average of $18.40 per barrel for the three months ended
June 30, 1995, while the average price of natural gas sold
increased to $1.96 per Mcf for the three months ended June 30,
1996 from an average of $1.38 per Mcf for the three months ended
June 30, 1995.
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Oil and gas production expenses (including lease operating
expenses and production taxes) decreased $4,424 for the three
months ended June 30, 1996 as compared to the three months ended
June 30, 1995. The decrease resulted primarily from (i) positive
prior period adjustments related to general operating expenses on
one well made by the operator during the three months ended June
30, 1995 and (ii) reduction of compression expenses due to the
release of a compressor on another well during the three months
ended June 30, 1996. As a percentage of oil and gas sales, these
expenses decreased to 17.3% for the three months ended June 30,
1996 from 39.3% for the three months ended June 30, 1995. This
percentage decrease was primarily a result of the increase in the
average price of natural gas sold during the three months ended
June 30, 1996 as compared to the three months ended June 30,
1995.
Depreciation, depletion, and amortization of oil and gas
properties decreased $3,261 for the three months ended June 30,
1996 as compared to the three months ended June 30, 1995. This
decrease resulted primarily from a significant upward revision in
the estimate of the Program's remaining natural gas reserves as
of December 31, 1995. As a percentage of oil and gas sales, this
expense decreased to 17.7% for the three months ended June 30,
1996 from 36.5% for the three months ended June 30, 1995. This
percentage decrease was primarily a result of the increase in the
average price of natural gas sold during the three months ended
June 30, 1996.
General and administrative expenses decreased by $592 for the
three months ended June 30, 1996 as compared to the three months
ended June 30, 1995. This decrease resulted primarily from a
decrease in printing and postage fees during the three months
ended June 30, 1996 as compared to the three months ended June
30, 1995. As a percentage of oil and gas sales, these expenses
decreased to 16.4% for the three months ended June 30, 1996 from
26.5% for the three months ended June 30, 1995. This percentage
decrease was primarily due to the increase in the average price
of natural gas sold during the three months ended June 30, 1996
as compared to the three months ended June 30, 1995.
SIX MONTHS ENDED JUNE 30, 1996 AS COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1995.
Six months ended June 30,
---------------------------
1996 1995
------- -------
Oil and gas sales $97,481 $65,864
Oil and gas production expenses $24,836 $25,368
Barrels produced 502 422
Mcf produced 46,683 45,649
Average price/Bbl $ 16.93 $ 15.34
Average price/Mcf $ 1.91 $ 1.30
As shown in the table, oil and natural gas sales increased
$31,617 (48.0%) for the six months ended June 30, 1996 as
compared to the six months ended June 30, 1995. Of this
increase, $27,846 was related to the increase in the average
price of natural gas sold. Volumes of oil and natural gas sold
increased by 80 barrels and 1,034 Mcf, respectively, for the six
months ended June 30, 1996 as compared to the six months ended
June 30, 1995. The increase in the volumes of natural gas sold
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resulted primarily from the purchaser on one well receiving
excess gas due to pipeline difficulties during the six months
ended June 30, 1996. Average oil and natural gas prices
increased to $16.93 per barrel and $1.91 per Mcf for the six
months ended June 30, 1996 from $15.34 per barrel and $1.30 per
Mcf for the six months ended June 30, 1995.
Oil and gas production expenses (including lease operating
expenses and production taxes) decreased by $532 for the six
months ended June 30, 1996 as compared to the six months ended
June 30, 1995. The decrease resulted primarily from (i) positive
prior period adjustments related to general operating expenses on
one well made by the operator during the six months ended June
30, 1995 and (ii) a reduction of compression expenses due to the
release of a compressor on another well during the six months
ended June 30, 1996, partially offset by the increases in
production taxes following the increases in volumes of oil and
natural gas sold during the six months ended June 30, 1996 as
compared to June 30, 1995. As a percentage of oil and gas sales,
these expenses decreased to 25.5% for the six months ended June
30, 1996 from 38.5% for the six months ended June 30, 1995. This
percentage decrease was primarily a result of increases in the
average prices of oil and natural gas sold during the six months
ended June 30, 1996 as compared to the six months ended June 30,
1995.
Depreciation, depletion, and amortization of oil and gas
properties decreased $5,993 for the six months ended June 30,
1996 as compared to the six months ended June 30, 1995. This
decrease resulted primarily from a significant upward revision in
the estimate of the Program's remaining natural gas reserves as
of December 31, 1995. As a percentage of oil and gas sales, this
expense decreased to 17.7% for the six months ended June 30, 1996
from 35.4% for the six months ended June 30, 1995. This
percentage decrease was primarily a result of increases in the
average prices of oil and natural gas sold during the six months
ended June 30, 1996 as compared to the six months ended June 30,
1995.
General and administrative expenses remained relatively constant
for the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995. As a percentage of oil and gas
sales, these expenses decreased to 19.0% for the six months ended
June 30, 1996 from 28.4% for the six months ended June 30, 1995.
This percentage decrease was primarily due to increases in the
average prices of oil and natural gas sold during the six months
ended June 30, 1996 as compared to the six months ended June 30,
1995.
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PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule containing summary
financial information extracted from the Dyco Oil
and Gas Program 1978-1 Limited Partnership's
financial statements as of June 30, 1996 and for
the six months ended June 30, 1996, filed
herewith.
(b) Reports on Form 8-K
None
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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.
DYCO OIL AND GAS PROGRAM 1978-1 LIMITED
PARTNERSHIP
(Registrant)
By: DYCO PETROLEUM CORPORATION
General Partner
Date: August 6, 1996 By: /s/Dennis R. Neill
--------------------------------------
(Signature)
Dennis R. Neill
President
Date: August 6, 1996 By: /s/Drew S. Phillips
--------------------------------------
(Signature)
Drew S. Phillips
Chief Financial Officer
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INDEX TO EXHIBITS
NUMBER DESCRIPTION
- ------ -----------
27.1 Financial Data Schedule containing summary financial
information extracted from the Dyco Oil and Gas Program
1978-1 Limited Partnership's financial statements as of June
30, 1996 and for the six months ended June 30, 1996, filed
herewith.
All other exhibits are omitted as inapplicable.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000215718
<NAME> DYCO OIL & GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 34,736
<SECURITIES> 0
<RECEIVABLES> 30,359
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 65,095
<PP&E> 14,966,235
<DEPRECIATION> 14,763,018
<TOTAL-ASSETS> 311,683
<CURRENT-LIABILITIES> 7,482
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 280,353
<TOTAL-LIABILITY-AND-EQUITY> 311,683
<SALES> 97,481
<TOTAL-REVENUES> 98,272
<CGS> 0
<TOTAL-COSTS> 60,629
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 37,643
<INCOME-TAX> 0
<INCOME-CONTINUING> 37,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,643
<EPS-PRIMARY> 16
<EPS-DILUTED> 0
</TABLE>
