<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
March 31, 1996 2-59769-03
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 organization) Number)
Samson Plaza, Two West Second Street, Tulsa, Oklahoma 74103
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(918) 583-1791
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(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
March 31, December 31,
1996 1995
---------- ------------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . $ 50,288 $ 29,217
Accrued oil and gas sales, including
$22,308 due from related parties
in 1995 (Note 2) . . . . . . . . . . 30,508 30,588
-------- --------
Total current assets . . . . . . . $ 80,796 $ 59,805
NET OIL AND GAS PROPERTIES, utilizing
the full cost method . . . . . . . . . 212,287 220,435
DEFERRED CHARGE . . . . . . . . . . . . . 43,371 43,371
-------- --------
$336,454 $323,611
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . $ 4,200 $ 3,811
Gas imbalance payable . . . . . . . . 4,762 4,762
-------- --------
Total current liabilities . . . . . $ 8,962 $ 8,573
ACCRUED LIABILITY . . . . . . . . . . . . 23,848 23,848
CONTINGENCIES (Note 3)
PARTNERS' CAPITAL:
General Partner, issued and outstanding,
24 units . . . . . . . . . . . . . . 3,037 2,912
Limited Partners, issued and outstanding,
2,400 units . . . . . . . . . . . . 300,607 288,278
-------- --------
Total Partners' capital . . . . . . $303,644 $291,190
-------- --------
$336,454 $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 MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
---------- ---------
REVENUES:
Oil and gas sales, including
$27,291 of sales to related
parties in 1995 (Note 2) . . . . . . $46,783 $32,288
Interest . . . . . . . . . . . . . . . 228 413
------- -------
$47,011 $32,701
------- -------
COSTS AND EXPENSES:
Oil and gas production . . . . . . . . $16,063 $12,171
Depreciation, depletion, and amortization of
oil and gas properties . . . . . . . 8,312 11,044
General and administrative (Note 2) . 10,182 9,800
------- -------
$34,557 $33,015
------- -------
NET INCOME (LOSS) . . . . . . . . . . . . $12,454 ($ 314)
======= =======
GENERAL PARTNER (1%) - net income (loss) $ 125 ($ 3)
======= =======
LIMITED PARTNERS (99%) - net income (loss) $12,329 ($ 311)
======= =======
NET INCOME (LOSS) PER UNIT . . . . . . . $ 5 ($ .13)
======= =======
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 THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . $12,454 ($ 314)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation, depletion, and amortization
of oil and gas properties . . . . 8,312 11,044
Decrease in accrued oil gas sales 80 5,841
Increase (decrease) in accounts
payable . . . . . . . . . . . . 389 ( 163)
------- -------
Net cash provided by operating
activities . . . . . . . . . . . . $21,235 $16,408
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties . ($ 164) $ -
------- -------
Net cash used by investing activities ($ 164) $ -
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions . . . . . . . . . . $ - $ -
------- -------
Net cash used by financing activities $ - $ -
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS $21,071 $16,408
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD . . . . . . . . . . . . . . . . 29,217 35,769
------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD . . . . . . . . . . . . . . . . . $50,288 $52,177
======= =======
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
MARCH 31, 1996
(Unaudited)
1. ACCOUNTING POLICIES
-------------------
The balance sheet as of March 31, 1996, statements of operations
for the three months ended March 31, 1996 and 1995, and statements
of cash flows for the three months ended March 31, 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
March 31, 1996, results of operations for the three months ended
March 31, 1996 and 1995, and changes in cash flows for the three
months ended March 31, 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 March 31,
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
March 31, 1996 and 1995 the Program incurred such expenses totaling
$10,182 and $9,800, respectively, of which $6,219 and $6,219 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 March 31, 1995
these sales for the Program totaled $27,291. 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 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
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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. MANAGEMENT'S 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 MARCH 31, 1996 AS COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1995.
Three months ended March 31,
--------------------------------
1996 1995
---- ----
Oil and gas sales $46,783 $32,288
Oil and gas production expenses $16,063 $12,171
Barrels produced 224 167
Mcf produced 23,321 24,645
Average price/Bbl $ 16.50 $ 10.68
Average price/Mcf $ 1.85 $ 1.24
As shown in the table, oil and natural gas sales increased 44.9%
for the three months ended March 31, 1996 as compared to the
three months ended March 31, 1995. This increase resulted from
the increase in the average prices of oil and natural gas sold
and the increase in the volumes of oil sold during the three
months ended March 31, 1996, partially offset by the decrease in
the volumes of natural gas sold during the similar period.
Volumes of oil sold increased by 57 barrels, while the volumes of
natural gas sold decreased by 1,324 Mcf for the three months
ended March 31, 1996 as compared to the three months ended March
31, 1995. The increase in the volumes of oil sold during the
three months ended March 31, 1996 as compared to the three months
ended March 31, 1995 resulted primarily from the improved
production capabilities due to recent workover activities on one
well. Average oil and natural gas prices increased to $16.50 per
barrel and $1.85 per Mcf, respectively, for the three months
ended March 31, 1996 from $10.68 per barrel and $1.24 per Mcf,
-8-
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respectively, for the three months ended March 31, 1995.
Oil and gas production expenses (including lease operating
expenses and production taxes) increased $3,892 for the three
months ended March 31, 1996 as compared to the three months ended
March 31, 1995. This increase was primarily a result of workover
charges incurred on one of the Program's wells during the three
months ended March 31, 1996 to improve the recovery of reserves.
As a percentage of oil and gas sales, these expenses decreased to
34.3% for the three months ended March 31, 1996 from 37.7% for
the three months ended March 31, 1995. This percentage decrease
was primarily a result of the increase in the average prices of
oil and natural gas sold during the three months ended March 31,
1996 as compared to the three months ended March 31, 1995
Depreciation, depletion, and amortization of oil and gas
properties decreased $2,732 for the three months ended March 31,
1996 as compared to the three months ended March 31, 1995. This
decrease resulted primarily from a significant upward revision in
the estimate of the Program's remaining natural gas reserves. As
a percentage of oil and gas sales, this expense decreased to
17.8% for the three months ended March 31, 1996 from 34.2% for
the three months ended March 31, 1995. This decrease was
primarily a result of the increase in the average prices of oil
and natural gas sold during the three months ended March 31, 1996
as compared to the three months ended March 31, 1995.
General and administrative expenses increased slightly by $382
for the three months ended March 31, 1996 as compared to the
three months ended March 31, 1995. As a percentage of oil and
gas sales, these expenses decreased to 21.8% for the three months
ended March 31, 1996 from 30.4% for the three months ended March
31, 1995. This percentage decrease was primarily due to the
increase in the average prices of oil and natural gas sold during
the three months ended March 31, 1996 as compared to the three
months ended March 31, 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
March 31, 1996 and for the three months ended March 31,
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: May 3, 1996 By: /s/Dennis R. Neill
--------------------------
(Signature)
Dennis R. Neill
Senior Vice President
Date: May 3, 1996 By: /s/Patrick M. Hall
----------------------------
(Signature)
Patrick M. Hall
Senior Vice President - Controller
Principal Accounting 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 March 31, 1996 and for the three months ended
March 31, 1996, filed herewith.
All other exhibits are omitted as inapplicable.
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000215718
<NAME> DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 50,288
<SECURITIES> 0
<RECEIVABLES> 30,508
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 80,796
<PP&E> 14,966,320
<DEPRECIATION> 14,754,033
<TOTAL-ASSETS> 336,454
<CURRENT-LIABILITIES> 8,962
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 303,644
<TOTAL-LIABILITY-AND-EQUITY> 336,454
<SALES> 46,783
<TOTAL-REVENUES> 47,011
<CGS> 0
<TOTAL-COSTS> 34,557
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,454
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,454
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,454
<EPS-PRIMARY> 5
<EPS-DILUTED> 0
</TABLE>
