<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, 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
------ ------
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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,
1998 1997
---------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 50,303 $ 78,463
Accrued oil and gas sales 28,747 138,683
-------- --------
Total current assets $ 79,050 $217,146
NET OIL AND GAS PROPERTIES, utilizing
the full cost method 109,512 128,114
DEFERRED CHARGE 12,336 12,336
-------- --------
$200,898 $357,596
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 2,922 $ 19,373
Gas imbalance payable 690 690
-------- --------
Total current liabilities $ 3,612 $ 20,063
ACCRUED LIABILITY $ 22,667 $ 22,667
PARTNERS' CAPITAL:
General Partner, issued and
outstanding, 24 units $ 1,746 $ 3,149
Limited Partners, issued and
outstanding, 2,400 units 172,873 311,717
-------- --------
Total Partners' capital $174,619 $314,866
-------- --------
$200,898 $357,596
======== ========
The accompanying condensed notes are an integral part of
these financial statements.
2
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DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
1998 1997
-------- --------
REVENUES:
Oil and gas sales $52,048 $47,498
Interest 249 410
------- -------
$52,297 $47,908
COST AND EXPENSES:
Oil and gas production $16,468 $ 9,551
Depreciation, depletion, and
amortization of oil and gas
properties 8,731 5,073
General and administrative
(Note 2) 6,686 7,538
------- -------
$31,885 $22,162
------- -------
NET INCOME $20,412 $25,746
======= =======
GENERAL PARTNER (1%) - net income $ 204 $ 257
======= =======
LIMITED PARTNERS (99%) - net income $20,208 $25,489
======= =======
NET INCOME PER UNIT $ 8.42 $ 10.62
======= =======
UNITS OUTSTANDING 2,424 2,424
======= =======
The accompanying condensed notes are an integral part of
these financial statements.
3
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DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
1998 1997
-------- --------
REVENUES:
Oil and gas sales $93,331 $108,156
Interest 1,827 978
------- --------
$95,158 $109,134
COST AND EXPENSES:
Oil and gas production $33,613 $ 20,289
Depreciation, depletion, and
amortization of oil and gas
properties 14,637 17,807
General and administrative
(Note 2) 17,475 19,058
------- --------
$65,725 $ 57,154
------- --------
NET INCOME $29,433 $ 51,980
======= ========
GENERAL PARTNER (1%) - net income $ 294 $ 520
======= ========
LIMITED PARTNERS (99%) - net income $29,139 $ 51,460
======= ========
NET INCOME PER UNIT $ 12.14 $ 21.44
======= ========
UNITS OUTSTANDING 2,424 2,424
======= ========
The accompanying condensed notes are an integral part of
these financial statements.
4
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DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
1998 1997
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,433 $51,980
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation, depletion, and
amortization of oil and gas
properties 14,637 17,807
Decrease in accrued oil and
gas sales 109,936 17,289
Decrease in accounts payable ( 16,451) ( 862)
-------- -------
Net cash provided by operating
activities $137,555 $86,214
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of oil and
gas properties $ 3,965 $ 52
-------- -------
Net cash provided by investing
activities $ 3,965 $ 52
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($169,680) ($72,720)
-------- -------
Net cash used by financing
activities ($169,680) ($72,720)
-------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ($ 28,160) $13,546
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 78,463 54,327
-------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 50,303 $67,873
======== =======
The accompanying condensed notes are an integral part of
these financial statements.
5
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DYCO OIL AND GAS PROGRAM 1978-1 LIMITED PARTNERSHIP
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
1. ACCOUNTING POLICIES
-------------------
The balance sheet as of June 30, 1998, statements of operations for the
three and six months ended June 30, 1998 and 1997, and statements of cash
flows for the six months ended June 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 June 30, 1998, results of operations for the three and six
months ended June 30, 1998 and 1997, and changes in cash flows for the six
months ended June 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 June 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 June 30, 1998 and 1997 the
Program incurred such expenses totaling $6,686 and $7,538, respectively,
of which $6,219 was paid each period to Dyco and its affiliates. During
the six months ended June 30, 1998 and 1997 the Program incurred such
expenses totaling $17,475 and $19,058, respectively, of which $12,438 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
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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
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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 JUNE 30, 1998 AS COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1997.
Three Months Ended June 30,
---------------------------
1998 1997
------- -------
Oil and gas sales $52,048 $47,498
Oil and gas production expenses $16,468 $ 9,551
Barrels produced 114 179
Mcf produced 24,772 23,748
Average price/Bbl $ 13.22 $ 17.85
Average price/Mcf $ 2.04 $ 1.87
As shown in the table above, total oil and gas sales increased $4,550
(9.6%) for the three months ended June 30, 1998 as compared to the three
months ended June 30, 1997. Of this increase, approximately $2,000 was
related to an increase in volumes of gas sold and approximately $4,000 was
related to an increase in the average price of gas sold, which increases
were partially offset by decreases of approximately $1,000 related to a
decrease in the volumes of oil sold and approximately $500 related to a
decrease in the
9
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average price of oil sold. Volumes of oil sold decreased 65 barrels, while
volumes of gas sold increased 1,024 Mcf for the three months ended June
30, 1998 as compared to the three months ended June 30, 1997. Average oil
prices decreased to $13.22 per barrel for the three months ended June 30,
1998 from $17.85 per barrel for the three months ended June 30, 1997.
Average gas prices increased to $2.04 per Mcf for the three months ended
June 30, 1998 from $1.87 per Mcf for the three months ended June 30, 1997.
Oil and gas production expenses (including lease operating expenses and
production taxes) increased $6,917 (72.4%) for the three months ended June
30, 1998 as compared to the three months ended June 30, 1997. This
increase resulted primarily from workover expenses incurred on one well
during the three months ended June 30, 1998 in order to improve the
recovery of reserves. As a percentage of oil and gas sales, these expenses
increased to 31.6% for the three months ended June 30, 1998 from 20.1% for
the three months ended June 30, 1997. This percentage increase was
primarily due to the dollar increase in production expenses discussed
above.
Depreciation, depletion, and amortization of oil and gas properties
increased $3,658 (72.1%) for the three months ended June 30, 1998 as
compared to the three months ended June 30, 1997. This increase resulted
primarily from a decrease in the gas prices used in the valuation of
reserves at June 30, 1998 as compared to March 31, 1998 and an increase in
the gas prices used in the valuation of reserves at June 30, 1997 as
compared to March 31, 1997. As a percentage of oil and gas sales, this
expense increased to 16.8% for the three months ended June 30, 1998 from
10.7% for the three months ended June 30, 1997. This percentage increase
was primarily due to the dollar increase in depreciation, depletion, and
amortization discussed above.
General and administrative expenses decreased $852 (11.3%) for the three
months ended June 30, 1998 as compared to the three months ended June 30,
1997. As a percentage of oil and gas sales, these expenses decreased to
12.8% for the three months ended June 30, 1998 from 15.9% for the three
months ended June 30, 1997. This percentage decrease was primarily due to
the dollar decrease in general and administrative expenses and the
increase in oil and gas sales discussed above.
10
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SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO THE SIX MONTHS ENDED JUNE
30, 1997.
Six Months Ended June 30,
-------------------------
1998 1997
------- --------
Oil and gas sales $93,331 $108,156
Oil and gas production expenses $33,613 $ 20,289
Barrels produced 185 215
Mcf produced 44,990 45,874
Average price/Bbl $ 12.50 $ 18.09
Average price/Mcf $ 2.02 $ 2.27
As shown in the table above, total oil and gas sales decreased $14,825
(13.7%) for the six months ended June 30, 1998 as compared to the six
months ended June 30, 1997. Of this decrease, approximately $2,000 was
related to a decrease in volumes of gas sold and approximately $11,000 was
related to a decrease in the average price of gas sold. Volumes of oil and
gas sold decreased 30 barrels and 884 Mcf, respectively, for the six
months ended June 30, 1998 as compared to the six months ended June 30,
1997. Average oil and gas prices decreased to $12.50 per barrel and $2.02
per Mcf, respectively, for the six months ended June 30, 1998 from $18.09
per barrel and $2.27 per Mcf, respectively, for the six months ended June
30, 1997.
Oil and gas production expenses (including lease operating expenses and
production taxes) increased $13,324 (65.7%) for the six months ended June
30, 1998 as compared to the six months ended June 30, 1997. This increase
resulted primarily from workover expenses incurred on two wells during the
six months ended June 30, 1998 in order to improve the recovery of
reserves. As a percentage of oil and gas sales, these expenses increased
to 36.0% for the six months ended June 30, 1998 from 18.8% for the six
months ended June 30, 1997. This percentage increase was primarily due to
the dollar increase in production expenses discussed above.
Depreciation, depletion, and amortization of oil and gas properties
decreased $3,170 (17.8%) for the six months ended June 30, 1998 as
compared to the six months ended June 30, 1997. This decrease resulted
primarily from an upward revision in the estimate of remaining gas
reserves at December 31, 1997. As a percentage of oil and gas sales, this
expense remained relatively constant at 15.7% for the six months ended
June 30, 1998 and 16.5% for the six months ended June 30, 1997.
11
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General and administrative expenses decreased $1,583 (8.3%) for the six
months ended June 30, 1998 as compared to the six months ended June 30,
1997. As a percentage of oil and gas sales, these expenses increased to
18.7% for the six months ended June 30, 1998 from 17.6% for the six months
ended June 30, 1997.
12
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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, 1998 and for the six months ended June 30,
1998, filed herewith.
All other exhibits are omitted as inapplicable.
(b) Reports on Form 8-K.
None.
13
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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 4, 1998 By: /s/Dennis R. Neill
-------------------------------
(Signature)
Dennis R. Neill
President
Date: August 4, 1998 By: /s/Patrick M. Hall
-------------------------------
(Signature)
Patrick M. Hall
Chief Financial Officer
14
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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, 1998 and for the
six months ended June 30, 1998, filed herewith.
All other exhibits are omitted as inapplicable.
<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 50,303
<SECURITIES> 0
<RECEIVABLES> 28,747
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 79,050
<PP&E> 14,936,101
<DEPRECIATION> 14,826,589
<TOTAL-ASSETS> 200,898
<CURRENT-LIABILITIES> 3,612
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 174,619
<TOTAL-LIABILITY-AND-EQUITY> 200,898
<SALES> 93,331
<TOTAL-REVENUES> 95,158
<CGS> 0
<TOTAL-COSTS> 65,725
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 29,433
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,433
<EPS-PRIMARY> 12.14
<EPS-DILUTED> 0
</TABLE>
