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, 1998 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
------ ------
1
<PAGE>
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,
1998 1997
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 9,745 $ 78,463
Accrued oil and gas sales 19,036 138,683
-------- --------
Total current assets $ 28,781 $217,146
NET OIL AND GAS PROPERTIES, utilizing
the full cost method 101,950 128,114
DEFERRED CHARGE 12,336 12,336
-------- --------
$143,067 $357,596
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 2,207 $ 19,373
Gas imbalance payable 690 690
-------- --------
Total current liabilities $ 2,897 $ 20,063
ACCRUED LIABILITY $ 22,667 $ 22,667
PARTNERS' CAPITAL:
General Partner, issued and
outstanding, 24 units $ 1,175 $ 3,149
Limited Partners, issued and
outstanding, 2,400 units 116,328 311,717
-------- --------
Total Partners' capital $117,503 $314,866
-------- --------
$143,067 $357,596
======== ========
The accompanying condensed notes are an integral part of
these financial statements.
2
<PAGE>
DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
1998 1997
-------- --------
REVENUES:
Oil and gas sales $24,540 $46,720
Interest 576 891
------- -------
$25,116 $47,611
COSTS AND EXPENSES:
Oil and gas production $ 6,791 $10,263
Depreciation, depletion, and
amortization of oil and gas
properties 7,811 5,203
General and administrative
(Note 2) 7,030 7,509
------- -------
$21,632 $22,975
------- -------
NET INCOME $ 3,484 $24,636
======= =======
GENERAL PARTNER (1%) - net income $ 35 $ 246
======= =======
LIMITED PARTNERS (99%) - net income $ 3,449 $24,390
======= =======
NET INCOME PER UNIT $ 1.44 $ 10.16
======= =======
UNITS OUTSTANDING 2,424 2,424
======= =======
The accompanying condensed notes are an integral part of
these financial statements.
3
<PAGE>
DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
1998 1997
-------- --------
REVENUES:
Oil and gas sales $117,871 $154,876
Interest 2,403 1,869
-------- --------
$120,274 $156,745
COSTS AND EXPENSES:
Oil and gas production $ 40,404 $ 30,552
Depreciation, depletion, and
amortization of oil and gas
properties 22,448 23,010
General and administrative
(Note 2) 24,505 26,567
-------- --------
$ 87,357 $ 80,129
-------- --------
NET INCOME $ 32,917 $ 76,616
======== ========
GENERAL PARTNER (1%) - net income $ 329 $ 766
======== ========
LIMITED PARTNERS (99%) - net income $ 32,588 $ 75,850
======== ========
NET INCOME PER UNIT $ 13.58 $ 31.61
======== ========
UNITS OUTSTANDING 2,424 2,424
======== ========
The accompanying condensed notes are an integral part of
these financial statements.
4
<PAGE>
DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 32,917 $ 76,616
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation, depletion, and
amortization of oil and gas
properties 22,448 23,010
Decrease in accrued oil and
gas sales 119,647 15,105
Decrease in accounts payable ( 17,166) ( 910)
-------- --------
Net cash provided by operating
activities $157,846 $113,821
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of oil and
gas properties $ 3,716 $ 51
-------- --------
Net cash provided by investing
activities $ 3,716 $ 51
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($230,280) ($133,320)
-------- --------
Net cash used by financing
activities ($230,280) ($133,320)
-------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS ($ 68,718) ($ 19,448)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 78,463 54,327
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 9,745 $ 34,879
======== ========
The accompanying condensed notes are an integral part of
these financial statements.
5
<PAGE>
DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
1. ACCOUNTING POLICIES
-------------------
The balance sheet as of September 30, 1998, statements of operations for
the three and nine months ended September 30, 1998 and 1997, and
statements of cash flows for the nine months ended September 30, 1998 and
1997 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, 1998, results of
operations for the three and nine months ended September 30, 1998 and
1997, and changes in cash flows for the nine months ended September 30,
1998 and 1997 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, 1997. The results of operations for the period
ended September 30, 1998 are not necessarily indicative of the results to
be expected for the full year.
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
6
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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 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, 1998 and 1997 the
Program incurred such expenses totaling $7,030 and $7,509, respectively,
of which $6,219 was paid each period to Dyco and its affiliates. During
the nine months ended September 30, 1998 and 1997 the Program incurred
such expenses totaling $24,505 and $26,567, 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.
7
<PAGE>
ITEM 2. MANAGEMENT'S 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, and 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.
8
<PAGE>
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 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 on 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. Such spot market sales are generally short-term in nature and
are dependent upon the obtaining of transportation services provided by
pipelines. In addition, crude oil prices are at or near their lowest level
in the past decade due primarily to the global surplus of crude oil.
Management is unable to predict whether future oil and gas prices will (i)
stabilize, (ii) increase, or (iii) decrease.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1997.
Three Months Ended September 30,
--------------------------------
1998 1997
------- -------
Oil and gas sales $24,540 $46,720
Oil and gas production expenses $ 6,791 $10,263
Barrels produced 71 162
Mcf produced 14,612 21,165
Average price/Bbl $ 10.61 $ 17.75
Average price/Mcf $ 1.63 $ 2.07
As shown in the table above, total oil and gas sales decreased $22,180
(47.5%) for the three months ended September 30, 1998 as compared to the
three months ended September 30, 1997. Of this decrease, approximately
$14,000 was related to a decrease in volumes of gas sold and approximately
$6,000 was related to a decrease in the average price of gas sold. Volumes
of oil and gas sold decreased 91 barrels and 6,553 Mcf, respectively, for
the three months ended September 30, 1998 as compared to the three months
9
<PAGE>
ended September 30, 1997. The decrease in volumes of gas sold resulted
primarily from a negative prior period volume adjustment made by the
purchaser on one well during the three months ended September 30, 1998 and
normal declines due to diminishing reserves on several wells during the
three months ended September 30, 1998. Average oil and gas prices
decreased to $10.61 per barrel and $1.63 per Mcf, respectively, for the
three months ended September 30, 1998 from $17.75 per barrel and $2.07 per
Mcf, respectively, for the three months ended September 30, 1997.
Oil and gas production expenses (including lease operating expenses and
production taxes) decreased $3,472 (33.8%) for the three months ended
September 30, 1998 as compared to the three months ended September 30,
1997. This decrease resulted primarily from a decrease in production taxes
associated with the decrease in oil and gas sales and a decrease in lease
operating expenses associated with the decreases in the volumes of oil and
gas sold. As a percentage of oil and gas sales, these expenses increased
to 27.7% for the three months ended September 30, 1998 from 22.0% for the
three months ended September 30, 1997. This percentage increase was
primarily due to the negative prior period volume adjustment discussed
above and the decreases in the average prices of oil and gas sold during
the three months ended September 30, 1998 as compared to the three months
ended September 30, 1997.
Depreciation, depletion, and amortization of oil and gas properties
increased $2,608 (50.1%) for the three months ended September 30, 1998 as
compared to the three months ended September 30, 1997. This increase
resulted primarily from a decrease in the oil and gas prices used in the
valuation of reserves at September 30, 1998 as compared to September 30,
1997. As a percentage of oil and gas sales, this expense increased to
31.8% for the three months ended September 30, 1998 from 11.1% for the
three months ended September 30, 1997. This percentage increase was
primarily due to the dollar increase in depreciation, depletion, and
amortization discussed above and the decreases in the average prices of
oil and gas sold during the three months ended September 30, 1998 as
compared to the three months ended September 30, 1997.
General and administrative expenses decreased $479 (6.4%) for the three
months ended September 30, 1998 as compared to the three months ended
September 30, 1997. As a percentage of oil and gas sales, these expenses
increased to 28.6% for the three months ended September 30, 1998 from
16.1% for the three months ended September 30, 1997. This percentage
increase was primarily due to the decrease in oil and gas sales discussed
above.
10
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997.
Nine Months Ended September 30,
-------------------------------
1998 1997
-------- --------
Oil and gas sales $117,871 $154,876
Oil and gas production expenses $ 40,404 $ 30,552
Barrels produced 256 377
Mcf produced 59,602 67,039
Average price/Bbl $ 11.97 $ 17.94
Average price/Mcf $ 1.93 $ 2.21
As shown in the table above, total oil and gas sales decreased $37,005
(23.9%) for the nine months ended September 30, 1998 as compared to the
nine months ended September 30, 1997. Of this decrease, approximately
$16,000 was related to a decrease in volumes of gas sold and approximately
$17,000 was related to a decrease in the average price of gas sold.
Volumes of oil and gas sold decreased 121 barrels and 7,437 Mcf,
respectively, for the nine months ended September 30, 1998 as compared to
the nine months ended September 30, 1997. The decrease in volumes of gas
sold resulted primarily from a negative prior period volume adjustment
made by the purchaser on one well during the nine months ended September
30, 1998. Average oil and gas prices decreased to $11.97 per barrel and
$1.93 per Mcf, respectively, for the nine months ended September 30, 1998
from $17.94 per barrel and $2.21 per Mcf, respectively, for the nine
months ended September 30, 1997.
Oil and gas production expenses (including lease operating expenses and
production taxes) increased $9,852 (32.2%) for the nine months ended
September 30, 1998 as compared to the nine months ended September 30,
1997. This increase resulted primarily from workover expenses incurred on
two wells during the nine months ended September 30, 1998 in order to
improve the recovery of reserves. As a percentage of oil and gas sales,
these expenses increased to 34.3% for the nine months ended September 30,
1998 from 19.7% for the nine months ended September 30, 1997. This
percentage increase was primarily due to the dollar increase in production
expenses discussed above and the decreases in the average prices of oil
and gas sold during the nine months ended September 30, 1998 as compared
to the nine months ended September 30, 1997.
11
<PAGE>
Depreciation, depletion, and amortization of oil and gas properties
decreased $562 (2.4%) for the nine months ended September 30, 1998 as
compared to the nine months ended September 30, 1997. Any decrease which
resulted from an upward revision in the estimate of remaining gas reserves
at December 31, 1997 was substantially offset by an increase which
resulted from the decrease in the oil and gas prices used in the valuation
of reserves at September 30, 1998 as compared to September 30, 1997. As a
percentage of oil and gas sales, this expense increased to 19.0% for the
nine months ended September 30, 1998 from 14.9% for the nine months ended
September 30, 1997. This percentage increase was primarily due to the
decreases in the average prices of oil and gas sold during the nine months
ended September 30, 1998 as compared to the nine months ended September
30, 1997.
General and administrative expenses decreased $2,062 (7.8%) for the nine
months ended September 30, 1998 as compared to the nine months ended
September 30, 1997. As a percentage of oil and gas sales, these expenses
increased to 20.8% for the nine months ended September 30, 1998 from 17.2%
for the nine months ended September 30, 1997. This percentage increase was
primarily due to the decrease in oil and gas sales discussed above.
12
<PAGE>
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, 1998 and for the nine months ended
September 30, 1998, filed herewith.
All other exhibits are omitted as inapplicable.
(b) Reports on Form 8-K.
None.
13
<PAGE>
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: October 28, 1998 By: /s/Dennis R. Neill
-------------------------------
(Signature)
Dennis R. Neill
President
Date: October 28, 1998 By: /s/Patrick M. Hall
-------------------------------
(Signature)
Patrick M. Hall
Chief Financial Officer
14
<PAGE>
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, 1998 and for
the nine
months ended September 30, 1998, filed herewith.
All other exhibits are omitted as inapplicable.
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000215718
<NAME> DYCO OIL & GAS PROGRAM 1978-1 LIMITED PSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,745
<SECURITIES> 0
<RECEIVABLES> 19,036
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,781
<PP&E> 14,936,350
<DEPRECIATION> 14,834,400
<TOTAL-ASSETS> 143,067
<CURRENT-LIABILITIES> 2,897
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 117,503
<TOTAL-LIABILITY-AND-EQUITY> 143,067
<SALES> 117,871
<TOTAL-REVENUES> 120,274
<CGS> 0
<TOTAL-COSTS> 87,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 32,917
<INCOME-TAX> 0
<INCOME-CONTINUING> 32,917
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,917
<EPS-PRIMARY> 13.58
<EPS-DILUTED> 0
</TABLE>
