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, 2000 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
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(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
September 30, December 31,
2000 1999
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 18,965 $ 2,459
Accrued oil and gas sales 30,628 20,310
-------- --------
Total current assets $ 49,593 $ 22,769
NET OIL AND GAS PROPERTIES, utilizing
the full cost method 104,952 121,369
DEFERRED CHARGE 11,418 11,701
-------- --------
$165,963 $155,839
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 1,210 $ 1,518
Payable to General Partner (Note 2) - 5,000
-------- --------
Total current liabilities $ 1,210 $ 6,518
ACCRUED LIABILITY $ 30,264 $ 27,584
PARTNERS' CAPITAL:
General Partner, 24 general
partner units $ 1,345 $ 1,217
Limited Partners, issued and
outstanding, 2,400 Units 133,144 120,520
-------- --------
Total Partners' capital $134,489 $121,737
-------- --------
$165,963 $155,839
======== ========
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, 2000 AND 1999
(Unaudited)
2000 1999
-------- --------
REVENUES:
Oil and gas sales $42,100 $30,087
Interest 503 419
------- -------
$42,603 $30,506
COSTS AND EXPENSES:
Oil and gas production $ 6,707 $ 9,667
Depreciation, depletion, and
amortization of oil and gas
properties 2,323 1,566
General and administrative
(Note 2) 9,598 6,971
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$18,628 $18,204
------- -------
NET INCOME $23,975 $12,302
======= =======
GENERAL PARTNER (1%) - net income $ 240 $ 123
======= =======
LIMITED PARTNERS (99%) - net income $23,735 $12,179
======= =======
NET INCOME PER UNIT $ 9.89 $ 5.08
======= =======
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, 2000 AND 1999
(Unaudited)
2000 1999
-------- --------
REVENUES:
Oil and gas sales $116,874 $78,764
Interest 610 929
-------- -------
$117,484 $79,693
COSTS AND EXPENSES:
Oil and gas production $ 16,100 $21,620
Depreciation, depletion, and
amortization of oil and gas
properties 7,244 7,538
General and administrative
(Note 2) 32,908 24,116
-------- -------
$ 56,252 $53,274
-------- -------
NET INCOME $ 61,232 $26,419
======== =======
GENERAL PARTNER (1%) - net income $ 613 $ 264
======== =======
LIMITED PARTNERS (99%) - net income $ 60,619 $26,155
======== =======
NET INCOME PER UNIT $ 25.26 $ 10.90
======== =======
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, 2000 AND 1999
(Unaudited)
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $61,232 $26,419
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation, depletion, and
amortization of oil and gas
properties 7,244 7,538
Increase in accrued oil and
gas sales ( 10,318) ( 2,754)
Decrease in deferred charge 283 -
Increase (decrease) in accounts
payable ( 308) 555
Decrease in payable to General
Partner ( 5,000) -
Increase in accrued liability 2,680 -
------- -------
Net cash provided by operating
activities $55,813 $31,758
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of oil and gas
properties $11,702 $ -
Additions to oil and gas properties ( 2,529) -
------- -------
Net cash provided by investing
activities $ 9,173 $ -
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($48,480) ($48,480)
------- -------
Net cash used by financing
activities ($48,480) ($48,480)
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $16,506 ( $16,722)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,459 24,203
------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $18,965 $ 7,481
======= =======
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, 2000
(Unaudited)
1. ACCOUNTING POLICIES
-------------------
The balance sheet as of September 30, 2000, statements of operations for
the three and nine months ended September 30, 2000 and 1999, and
statements of cash flows for the nine months ended September 30, 2000 and
1999 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, 2000, results of
operations for the three and nine months ended September 30, 2000 and
1999, and changes in cash flows for the nine months ended September 30,
2000 and 1999 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, 1999. The results of operations for the period
ended September 30, 2000 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
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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, 2000 and 1999 the
Program incurred such expenses totaling $9,598 and $6,971, respectively,
of which $7,188 and $6,219, respectively, were paid each period to Dyco
and its affiliates. During the nine months ended September 30, 2000 and
1999 the Program incurred such expenses totaling $32,908 and $24,116,
respectively, of which $21,564 and $18,657, respectively, were 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.
The payable to General Partner at December 31, 1999 represents an
operating advance from the General Partner. Such amount was repaid in
January 2000.
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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.
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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. Management believes that cash for ordinary
operational purposes will be provided by current oil and gas production.
The Program's Statement of Cash Flows for the nine months ended September
30, 2000 includes proceeds from the sale of oil and gas properties during
the second quarter of 2000. These proceeds were included in cash
distributions for the Program paid in September 2000.
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
variables affecting the Program's revenues are the prices received for the
sale of oil and gas and the volumes of oil and gas produced. The Program's
production is mainly natural gas, so such pricing and volumes are the most
significant factors.
Due to the volatility of oil and gas prices, forecasting future prices is
subject to great uncertainty and inaccuracy. 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. It is likewise
difficult to predict production volumes. However, oil and gas are
depleting assets, so it can be expected that production levels will
decline over time. Recent gas prices have been significantly higher than
the Program's historical average. This is attributable to the higher
prices for crude oil, a substitute fuel in some markets, and reduced
production due to lower capital investments in 1998 and 1999.
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THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999.
Three Months Ended September 30,
--------------------------------
2000 1999
------- -------
Oil and gas sales $42,100 $30,087
Oil and gas production expenses $ 6,707 $ 9,667
Barrels produced - 52
Mcf produced 10,258 12,016
Average price/Bbl $ - $ 21.08
Average price/Mcf $ 4.10 $ 2.41
As shown in the table above, total oil and gas sales increased $12,013
(39.9%) for the three months ended September 30, 2000 as compared to the
three months ended September 30, 1999. Of this increase, approximately
$17,000 was related to an increase in the average price of gas sold, which
increase was partially offset by a decrease of approximately $4,000
related to a decrease in volumes of gas sold. Volumes of oil and gas sold
decreased 52 barrels and 1,758 Mcf, respectively, for the three months
ended September 30, 2000 as compared to the three months ended September
30, 1999. The decrease in volumes of gas sold was primarily due to the
sale of two wells during early 2000 and normal declines in production. The
average price of oil sold was $21.08 per barrel for the three months ended
September 30, 1999. Average gas prices increased to $4.10 per Mcf for the
three months ended September 30, 2000 from $2.41 per Mcf for the three
months ended September 30, 1999.
Oil and gas production expenses (including lease operating expenses and
production taxes) decreased $2,960 (30.6%) for the three months ended
September 30, 2000 as compared to the three months ended September 30
1999. This decrease was primarily due to (i) expenses incurred to plug and
abandon one well during the three months ended September 30, 1999 and (ii)
a positive prior period lease operating expense adjustment made by the
operator on one well during the three months ended September 30, 1999. As
a percentage of oil and gas sales, these expenses decreased to 15.9% for
the three months ended September 30, 2000 from 32.1% for the three months
ended September 30, 1999. This percentage decrease was primarily due to
the increases in the average prices of oil and gas sold.
Depreciation, depletion, and amortization of oil and gas properties
increased $757 (48.3%) for the three months ended September 30, 2000 as
compared to the three months ended September 30, 1999. This increase was
primarily due to the decreased dollar amount of depreciation, depletion,
and amortization charged during the third quarter of 1999 which
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resulted from a significant increase in the gas price used in the
valuation of reserves at September 30, 1999 as compared to June 30, 1999.
As a percentage of oil and gas sales, this expense increased to 5.5% for
the three months ended September 30, 2000 from 5.2% for the three months
ended September 30, 1999.
General and administrative expenses increased $2,627 (37.7%) for the three
months ended September 30, 2000 as compared to the three months ended
September 30, 1999. This increase was primarily due to (i) a change in
allocation among the Program and other affiliated programs of indirect
general and administrative expenses reimbursed to the General Partner and
(ii) accounting review fees incurred during the three months ended
September 30, 2000 as a result of new ongoing requirements imposed by the
Securities and Exchange Commission. As a percentage of oil and gas sales,
these expenses remained relatively constant at 22.8% for the three months
ended September 30, 2000 and 23.2% for the three months ended September
30, 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999.
Nine Months Ended September 30,
-------------------------------
2000 1999
-------- -------
Oil and gas sales $116,874 $78,764
Oil and gas production expenses $ 16,100 $21,620
Barrels produced 106 229
Mcf produced 36,765 39,186
Average price/Bbl $ 24.87 $ 14.13
Average price/Mcf $ 3.11 $ 1.93
As shown in the table above, total oil and gas sales increased $38,110
(48.4%) for the nine months ended September 30, 2000 as compared to the
nine months ended September 30, 1999. Of this increase, approximately
$43,000 was related to an increase in the average price of gas sold, which
increase was partially offset by a decrease of approximately $5,000
related to a decrease in volumes of gas sold. Volumes of oil and gas sold
decreased 123 barrels and 2,421 Mcf, respectively, for the nine months
ended September 30, 2000 as compared to the nine months ended September
30, 1999. Average oil and gas prices increased to $24.87 per barrel and
$3.11 per Mcf, respectively, for the nine months ended September 30, 2000
from $14.13 per barrel and $1.93 per Mcf, respectively, for the nine
months ended September 30, 1999.
Oil and gas production expenses (including lease operating expenses and
production taxes) decreased $5,520 (25.5%) for the nine months ended
September 30, 2000 as compared to the
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nine months ended September 30, 1999. This decrease was primarily due to a
negative prior period lease operating expense adjustment made by the
operator on one well during the nine months ended September 30, 2000. As a
percentage of oil and gas sales, these expenses decreased to 13.8% for the
nine months ended September 30, 2000 from 27.4% for the nine months ended
September 30, 1999. This percentage decrease was primarily due to the
dollar decrease in oil and gas production expenses and the increases in
the average prices of oil and gas sold.
Depreciation, depletion, and amortization of oil and gas properties
decreased $294 (3.9%) for the nine months ended September 30, 2000 as
compared to the nine months ended September 30, 1999. As a percentage of
oil and gas sales, this expense decreased to 6.2% for the nine months
ended September 30, 2000 from 9.6% for the nine months ended September 30,
1999. This percentage decrease was primarily due to the increases in the
average prices of oil and gas sold.
General and administrative expenses increased $8,792 (36.4%) for the nine
months ended September 30, 2000 as compared to the nine months ended
September 30, 1999. This increase was primarily due to a change in
allocation among the Program and other affiliated programs of audit fees
and indirect general and administrative expenses reimbursed to the General
Partner. As a percentage of oil and gas sales, these expenses decreased to
28.2% for the nine months ended September 30, 2000 from 30.6% for the nine
months ended September 30, 1999.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The Program does not hold any market risk sensitive instruments.
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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, 2000 and
for the nine months ended September 30, 2000, 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 8, 2000 By: /s/Dennis R. Neill
-------------------------------
(Signature)
Dennis R. Neill
President
Date: November 8, 2000 By: /s/Patrick M. Hall
-------------------------------
(Signature)
Patrick M. Hall
Chief Financial Officer
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INDEX TO EXHIBITS
NUMBER DESCRIPTION
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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, 2000 and for
the nine months ended September 30, 2000, filed herewith.
All other exhibits are omitted as inapplicable.
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