<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
September 30, 1997 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
September 30, December 31,
1997 1996
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 34,879 $ 54,327
Accrued oil and gas sales 31,736 46,841
-------- --------
Total current assets $ 66,615 $101,168
NET OIL AND GAS PROPERTIES, utilizing
the full cost method 149,625 172,686
DEFERRED CHARGE 40,747 40,747
-------- --------
$256,987 $314,601
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 2,226 $ 3,136
-------- --------
Total current liabilities $ 2,226 $ 3,136
ACCRUED LIABILITY 22,391 22,391
PARTNERS' CAPITAL:
General Partner, issued and
outstanding, 24 units 2,324 2,891
Limited Partners, issued and
outstanding, 2,400 units 230,046 286,183
-------- --------
Total Partners' capital $232,370 $289,074
-------- --------
$256,987 $314,601
======== ========
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 SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
-------- --------
REVENUES:
Oil and gas sales $46,720 $61,485
Interest 891 369
------- -------
$47,611 $61,854
COST AND EXPENSES:
Oil and gas production $10,263 $23,989
Depreciation, depletion, and
amortization of oil and gas
properties 5,203 7,623
General and administrative (Note 2) 7,509 7,171
------- -------
$22,975 $38,783
------- -------
NET INCOME $24,636 $23,071
======= =======
GENERAL PARTNER (1%) - net income $ 246 $ 231
======= =======
LIMITED PARTNERS (99%) - net income $24,390 $22,840
======= =======
NET INCOME PER UNIT $ 10.16 $ 9.52
======= =======
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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
-------- --------
REVENUES:
Oil and gas sales $154,876 $158,966
Interest 1,869 1,160
-------- --------
$156,745 $160,126
COST AND EXPENSES:
Oil and gas production $ 30,552 $ 48,825
Depreciation, depletion, and
amortization of oil and gas
properties 23,010 24,920
General and administrative (Note 2) 26,567 25,667
-------- --------
$ 80,129 $ 99,412
-------- --------
NET INCOME $ 76,616 $ 60,714
======== ========
GENERAL PARTNER (1%) - net income $ 766 $ 607
======== ========
LIMITED PARTNERS (99%) - net income $ 75,850 $ 60,107
======== ========
NET INCOME PER UNIT $ 31.61 $ 25.05
======== ========
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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 76,616 $60,714
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation, depletion, and
amortization of oil and gas
properties 23,010 24,920
(Increase) decrease in accrued
oil and gas sales 15,105 ( 668)
Decrease in accounts payable ( 910) ( 832)
-------- -------
Net cash provided by operating
activities $113,821 $84,134
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of oil and
gas properties $ 51 $26,139
Additions to oil and gas properties - ( 215)
-------- -------
Net cash provided by investing
activities $ 51 $25,924
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($133,320) ($48,480)
-------- -------
Net cash used by financing
activities ($133,320) ($48,480)
-------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ($ 19,448) $61,578
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 54,327 29,217
-------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 34,879 $90,795
======== =======
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
SEPTEMBER 30, 1997
(Unaudited)
1. ACCOUNTING POLICIES
-------------------
The balance sheet as of September 30, 1997, statements of
operations for the three and nine months ended September 30, 1997
and 1996, and statements of cash flows for the nine months ended
September 30, 1997 and 1996 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 September 30, 1997, results of
operations for the three and nine months ended September 30, 1997
and 1996, and changes in cash flows for the nine months ended
September 30, 1997 and 1996 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, 1996. The results of operations for the
period ended September 30, 1997 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. The Program's calculation
of depreciation, depletion, and amortization includes estimated
future expenditures to be incurred in developing proved reserves
and estimated dismantlement and abandonment costs, net of
estimated salvage values. 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 period 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
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have been capitalized, plus estimated future development costs.
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 September 30, 1997 and 1996 the Program incurred such
expenses totaling $7,509 and $7,171, respectively, of which
$6,219 was paid each period to Dyco and its affiliates. During
the nine months ended September 30, 1997 and 1996 the Program
incurred such expenses totaling $26,567 and $25,667,
respectively, of which $18,657 was paid each period to Dyco and
its affiliates.
Affiliates of the Program operate certain of the Program's
properties. Their policy is to bill the Program for all
customary charges and cost reimbursements associated with these
activities.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
USE OF FORWARD-LOOKING STATEMENTS AND ESTIMATES
- -----------------------------------------------
This Quarterly Report contains certain forward-looking
statements. The words "anticipate," "believe," "expect," "plan,"
"intend," "estimate," "project," "could," "may," and similar
expressions are intended to identify forward-looking statements.
Such statements reflect management's current views with respect
to future events and financial performance. This Quarterly
Report also includes certain information, which is, or is based
upon, estimates and assumptions. Such estimates and assumptions
are management's efforts to accurately reflect the condition and
operation of the Program.
Use of forward-looking statements and estimates and assumptions
involve risks and uncertainties which include, but are not
limited to, the volatility of oil and gas prices, the uncertainty
of reserve information, the operating risk associated with oil
and gas properties (including the risk of personal injury, death,
property damage, damage to the well or producing reservoir,
environmental contamination, and other operating risks), the
prospect of changing tax and regulatory laws, the availability
and capacity of processing and transportation facilities, the
general economic climate, the supply and price of foreign imports
of oil and gas, the level of consumer product demand, and the
price and availability of alternative fuels. Should one or more
of these risks or uncertainties occur or should estimates or
underlying assumptions prove incorrect, actual conditions or
results may vary materially and adversely from those stated,
anticipated, believed, estimated, or otherwise indicated.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net proceeds from the Program's 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 reserves, thereby resulting in a positive economic
impact.
The Program's available capital from the limited partners'
subscriptions has been spent on oil and gas drilling activities
and there should be no further material capital resource
commitments in the future. The Program has no debt commitments.
Cash for operational purposes will be provided by current oil and
gas production.
RESULTS OF OPERATIONS
- ---------------------
GENERAL DISCUSSION
The following general discussion should be read in conjunction
with the analysis of results of operations provided below. The
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most important variable affecting the Program's revenues is the
prices received for the sale of oil and gas. Predicting future
prices is very difficult. Substantially all of the Program's gas
reserves are being sold in the "spot market". Prices on the spot
market are subject to wide seasonal and regional pricing
fluctuations due to the highly competitive nature of the spot
market. In addition, such spot market sales are generally short-
term in nature and are dependent upon the obtaining of
transportation services provided by pipelines. Management is
unable to predict whether future oil and gas prices will (i)
stabilize, (ii) increase, or (iii) decrease.
THREE MONTHS ENDED SEPTEMBER 30, 1997 AS COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1996.
Three Months Ended September 30,
--------------------------------
1997 1996
------- -------
Oil and gas sales $46,720 $61,485
Oil and gas production expenses $10,263 $23,989
Barrels produced 162 730
Mcf produced 21,165 25,691
Average price/Bbl $ 17.75 $ 17.58
Average price/Mcf $ 2.07 $ 1.89
As shown in the table above, total oil and gas sales decreased
$14,765 (24.0%) for the three months ended September 30, 1997 as
compared to the three months ended September 30, 1996. Of this
decrease, approximately $10,000 and $9,000, respectively, were
related to the decreases in volumes of oil and gas sold,
partially offset by an increase of approximately $4,000 related
to an increase in the average price of gas sold. Volumes of oil
and gas sold decreased 568 barrels and 4,526 Mcf, respectively,
for the three months ended September 30, 1997 as compared to the
three months ended September 30, 1996. The decrease in volumes
of oil sold resulted primarily from the sale of one well during
1996. The decrease in volumes of gas sold resulted primarily
from a normal decline in production due to diminished gas
reserves on one of the Program's wells. Average oil prices
increased to $17.75 per barrel and $2.07 per Mcf, respectively,
for the three months ended September 30, 1997 from $17.58 per
barrel and $1.89 per Mcf, respectively, for the three months
ended September 30, 1996.
Oil and gas production expenses (including lease operating
expenses and production taxes) decreased $13,726 (57.2%) for the
three months ended September 30, 1997 as compared to the three
months ended September 30, 1996. This decrease resulted
primarily from (i) decreases in volumes of oil and gas sold
during the three months ended September 30, 1997, (ii) a decrease
in on-going operating expenses due to the abandonment of one
well, (iii) workover expenses incurred on one well during the
three months ended September 30, 1996, and (iv) the sale of one
well during 1996. As a percentage of oil and gas sales, this
expense decreased to 22.0% for the three months ended September
30, 1997 from 39.0% for the three months ended September 30,
1996. This percentage decrease was primarily due to the decrease
in production expenses discussed above and the increases in the
average prices of oil and gas sold during the three months ended
September 30, 1997 as compared to the three months ended
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September 30, 1996.
Depreciation, depletion, and amortization of oil and gas
properties decreased $2,420 (31.7%) for the three months ended
September 30, 1997 as compared to the three months ended
September 30, 1996. This decrease resulted primarily from (i)
decreases in volumes of oil and gas sold during the three months
ended September 30, 1997 as compared to the three months ended
September 1996, partially offset by a downward revision in the
estimate of remaining gas reserves at December 31, 1996. As a
percentage of oil and gas sales, this expense remained relatively
constant at 11.1% for the three months ended September 30, 1997
as compared to 12.4% for the three months ended September 30,
1996.
General and administrative expenses remained relatively constant
for the three months ended September 30, 1997 as compared to the
three months ended September 30, 1996. As a percentage of oil
and gas sales, this expense increased to 16.1% for the three
months ended September 30, 1997 from 11.7% for the three months
ended September 30, 1996. This percentage decrease was primarily
due to the decrease in oil and gas sales discussed above.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AS COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1996.
Nine Months Ended September 30,
-------------------------------
1997 1996
-------- --------
Oil and gas sales $154,876 $158,966
Oil and gas production expenses $ 30,552 $ 48,825
Barrels produced 377 1,232
Mcf produced 67,039 72,374
Average price/Bbl $ 17.94 $ 17.31
Average price/Mcf $ 2.21 $ 1.90
As shown in the table above, total oil and gas sales decreased
$4,090 (2.6%) for the nine months ended September 30, 1997 as
compared to the nine months ended September 30, 1996. Of this
decrease, approximately $15,000 and $10,000, respectively, were
related to decreases in volumes of oil and gas sold, partially
offset by an increase of approximately $21,000 related to an
increase in the average price of gas sold. Volumes of oil and
gas sold decreased 855 barrels and 5,335 Mcf, respectively, for
the nine months ended September 30, 1997 as compared to the nine
months ended September 30, 1996. The decrease in volumes of oil
sold resulted primarily from (i) a positive prior period volume
adjustment made by the operator on one well during the nine
months ended September 30, 1996 and (ii) the sale of one well
during 1996. Average oil and gas prices increased to $17.94 per
barrel and $2.21 per Mcf, respectively, for the nine months ended
September 30, 1997 from $17.31 per barrel and $1.90 per Mcf,
respectively, for the nine months ended September 30, 1996.
Oil and gas production expenses (including lease operating
expenses and production taxes) decreased $18,273 (37.4%) for the
nine months ended September 30, 1997 as compared to the nine
months ended September 30, 1996. This decrease resulted
primarily from (i) decreases in volumes of oil and gas sold
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during the nine months ended September 30, 1997, (ii) the sale of
one well during 1996, (iii) the decrease in workover expenses
incurred on two wells during the nine months ended September 30,
1996, and (iv) a decrease in on-going expenses due to the
abandonment of a well. As a percentage of oil and gas sales,
this expense decreased to 19.7% for the nine months ended
September 30, 1997 from 30.7% for the nine months ended September
30, 1996. This percentage decrease was primarily due to the
dollar decrease in production expenses discussed above and the
increases in the average prices of oil and gas sold during the
nine months ended September 30, 1997 as compared to the nine
months ended September 30, 1996.
Depreciation, depletion, and amortization of oil and gas
properties decreased $1,910 (7.7%) for the nine months ended
September 30, 1997 as compared to the nine months ended September
30, 1996. This decrease resulted primarily from (i) decreases in
volumes of oil and gas sold during the nine months ended
September 30, 1997 as compared to the nine months ended September
1996, partially offset by the downward revision in the estimate
of remaining gas reserves at December 31, 1996. As a percentage
of oil and gas sales, this expense remained relatively constant
at 14.9% for the nine months ended September 30, 1997 as compared
to 15.7% for the nine months ended September 30, 1996.
General and administrative expenses remained relatively constant
for the nine months ended September 30, 1997 as compared to the
nine months ended September 30, 1996. As a percentage of oil and
gas sales, these expenses remained relatively constant at 17.2%
for the nine months ended September 30, 1997 as compared to 16.1%
for the nine months ended September 30, 1996.
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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 September 30, 1997 and
for the nine months ended September 30, 1997,
filed herewith.
All other exhibits are omitted as inapplicable.
(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: November 3, 1997 By: /s/Dennis R. Neill
---------------------------------
(Signature)
Dennis R. Neill
President
Date: November 3, 1997 By: /s/Patrick M. Hall
--------------------------------
(Signature)
Patrick M. Hall
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
September 30, 1997 and for the nine months ended September
30, 1997, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 34,879
<SECURITIES> 0
<RECEIVABLES> 31,736
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 66,615
<PP&E> 14,940,109
<DEPRECIATION> 14,790,484
<TOTAL-ASSETS> 256,987
<CURRENT-LIABILITIES> 2,226
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 232,370
<TOTAL-LIABILITY-AND-EQUITY> 256,987
<SALES> 154,876
<TOTAL-REVENUES> 156,745
<CGS> 0
<TOTAL-COSTS> 80,129
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 76,616
<INCOME-TAX> 0
<INCOME-CONTINUING> 76,616
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,616
<EPS-PRIMARY> 31.61
<EPS-DILUTED> 0
</TABLE>
