<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 0-10478
DYCO OIL AND GAS PROGRAM 1981-2
(A LIMITED PARTNERSHIP)
(Exact Name of Registrant as specified in its charter)
Minnesota 41-1411952
(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
---------------------------------------------------
(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 1981-2 LIMITED PARTNERSHIP
BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
1996 1995
---------- ------------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . $303,565 $245,084
Accrued oil and gas sales, including
$58,366 due from related parties
in 1995 (Note 2) . . . . . . . . . . 66,237 62,818
-------- --------
Total current assets . . . . . . . $369,802 $307,902
NET OIL AND GAS PROPERTIES, utilizing
the full cost method . . . . . . . . . 154,051 164,698
DEFERRED CHARGE . . . . . . . . . . . . . 51,226 51,226
-------- --------
$575,079 $523,826
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . $ 28,307 $ 29,391
-------- --------
Total current liabilities . . . . . $ 28,307 $ 29,391
ACCRUED LIABILITY . . . . . . . . . . . . 128,288 128,288
CONTINGENCY (Note 3)
PARTNERS' CAPITAL:
General Partner, issued and outstanding,
74 units . . . . . . . . . . . . . . 4,184 3,661
Limited Partners, issued and outstanding,
6,000 units . . . . . . . . . . . . 414,300 362,486
-------- --------
Total Partners' capital . . . . . . $418,484 $366,147
-------- --------
$575,079 $523,826
======== ========
The accompanying condensed notes are an
integral part of these financial statements.
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DYCO OIL AND GAS PROGRAM 1981-2 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
--------- ---------
REVENUES:
Oil and gas sales, including
$62,581 of sales to related
parties in 1995 (Note 2) . . . . . . $109,430 $82,160
Interest . . . . . . . . . . . . . . . 2,540 2,248
-------- -------
$111,970 $84,408
-------- -------
COSTS AND EXPENSES:
Oil and gas production . . . . . . . . $ 27,920 $33,351
Depreciation, depletion, and amortization of
oil and gas properties . . . . . . . 11,206 18,913
General and administrative (Note 2) . 20,507 20,416
-------- -------
$ 59,633 $72,680
-------- -------
NET INCOME . . . . . . . . . . . . . . . $ 52,337 $11,728
======== =======
GENERAL PARTNER (1%) - net income . . . . $ 523 $ 117
======== =======
LIMITED PARTNERS (99%) - net income . . . $ 51,814 $11,611
======== =======
NET INCOME PER UNIT . . . . . . . . . . . $ 9 $ 2
======== =======
UNITS OUTSTANDING . . . . . . . . . . . . 6,074 6,074
======== =======
The accompanying condensed notes are an
integral part of these financial statements.
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DYCO OIL AND GAS PROGRAM 1981-2 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 . . . . . . . . . . . . . . $ 52,337 $ 11,728
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, and amortization
of oil and gas properties . . . . . 11,206 18,913
(Increase) decrease in accrued oil and
gas sales . . . . . . . . . . . . . ( 3,419) 9,292
Increase (decrease) in accounts
payable . . . . . . . . . . . . . ( 1,084) 134
-------- --------
Net cash provided by operating
activities . . . . . . . . . . . $ 59,040 $ 40,067
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties . ($ 559) ($ 11,383)
-------- --------
Net cash used by investing activities ($ 559) ($ 11,383)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash used by financing activities $ - $ -
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 58,481 $ 28,684
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD . . . . . . . . . . . . . . . . 245,084 163,279
-------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD . . . . . . . . . . . . . . . . . $303,565 $191,963
======== ========
The accompanying condensed notes are an
integral part of these financial statements.
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DYCO OIL AND GAS PROGRAM 1981-2 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 1981-2 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. 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.
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 such expenses totaled $20,507 and $20,416,
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respectively, of which $11,988 and $11,988 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 totaled $62,581. At December 31, 1995, accrued oil and
gas sales included $58,366 due from Premier.
3. CONTINGENCY
-----------
On November 12, 1992, two individuals filed a lawsuit against Dyco
and others in which the plaintiffs alleged damages to their land as
a result of remediation operations conducted on one of the
Program's wells located on an adjoining property. The lawsuit
alleged claims based on negligence, private nuisance, public
nuisance, trespass, unjust enrichment, constructive fraud, and
permanent injunctive relief, all in amounts to be determined at
trial. A trial was conducted in the matter on February 22, 1994 in
which the jury entered a verdict in favor of the plaintiffs in the
amount of approximately $5.5 million, consisting of approximately
$2.75 million in actual damages and approximately $2.75 million in
punitive damages. Dyco appealed the district court's verdict and
on March 5, 1996 the Oklahoma Court of Appeals reversed the
district court's verdict and ordered a new trial. Both Dyco and
the plaintiffs have filed petitions for certiorari with the Supreme
Court of Oklahoma seeking a further review of the Court of Appeals'
opinion. Included in these financial statements as of December 31,
1995 and March 31, 1996 is an accrual by the General Partner in the
amount of $20,000 representing the Program's share of estimated
ultimate damages resulting from this contingency.
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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 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 the Program's reserves which would result in a
positive economic impact. Over the last several years, the
domestic energy industry and the Program 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 Program's 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
Program has no bank debt commitments. Cash for operations
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 $109,430 $82,160
Oil and gas production
expenses $ 27,920 $33,351
Barrels produced 300 244
Mcf produced 61,510 63,185
Average price/Bbl $ 16.79 $ 15.03
Average price/Mcf $ 1.70 $ 1.24
As shown in the table, oil and gas sales increased 33.2% for the
three months ended March 31, 1996 as compared to the three months
ended March 31, 1995. This increase was primarily the result of
increases 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. Volumes of oil sold increased
by 56 barrels, while volumes of natural gas sold decreased by
1,675 Mcf for the three months ended March 31, 1996 as compared
to the three months ended March 31, 1995. Average oil and
natural gas prices increased to $16.79 per barrel and $1.70 per
Mcf, respectively, for the three months ended March 31, 1996 from
$15.03 per barrel and $1.24 per Mcf, respectively, for the three
months ended March 31, 1995.
Oil and gas production expenses (including lease operating
expenses and production taxes) decreased $5,431 for the three
months ended March 31, 1996 as compared to the three months ended
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March 31, 1995. This decrease was primarily a result of higher
general repair and maintenance expenses incurred on two of the
Program's wells during the three months ended March 31, 1995. As
a percentage of oil and gas sales, these expenses decreased to
25.5% for the three months ended March 31, 1996 from 40.6% for
the three months ended March 31, 1995. This percentage decrease
was primarily a result of the dollar decrease in oil and gas
production expenses as discussed above and increases 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 $7,707 for the three months ended March 31,
1996 as compared to the three months ended March 31, 1995. This
decrease was primarily a result of an increase in the estimate of
the Program's remaining natural gas reserves. As a percentage of
oil and gas sales, this expense decreased to 10.2% for the three
months ended March 31, 1996 from 23.0% for the three months ended
March 31, 1995. This percentage decrease was primarily a result
of the increase in the estimate of the Program's remaining
natural gas reserves as discussed above and increases 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 remained relatively constant
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 18.7% for the three months
ended March 31, 1996 from 24.8% for the three months ended March
31, 1995. This percentage decrease was primarily a result of
increases 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.
-8-
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 12, 1992 Larry and Leona Beck filed a lawsuit against
Dyco Petroleum Corporation ("Dyco") and others in which the plaintiffs
alleged damages to their land as a result of remediation operations
conducted on the Paul King No. 1-7 well (Beck v. Trigg Drilling
Company, Inc., et al., C-92-227, District Court of Beckham County,
Oklahoma). The Program had an approximate 5.7% working interest in
the Paul King No. 1-7 well at the time the lawsuit was filed. The
lawsuit alleged claims based on negligence, private nuisance, public
nuisance, trespass, unjust enrichment, constructive fraud, and
permanent injunctive relief, all in amounts to be determined at trial.
A trial was conducted in the matter on February 22, 1994 in which the
jury entered a verdict in favor of the plaintiffs in the amount of
approximately $5.5 million, consisting of approximately $2.75 million
in actual damages and approximately $2.75 million in punitive damages.
Dyco appealed the district court's verdict and on March 5, 1996 the
Oklahoma Court of Appeals reversed the district court's verdict and
ordered a new trial. Both Dyco and the plaintiffs have filed
petitions for certiorari with the Supreme Court of Oklahoma seeking a
further review of the Court of Appeals opinion.
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
1981-2 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 1981-2 LIMITED
PARTNERSHIP
(Registrant)
By: DYCO PETROLEUM CORPORATION
General Partner
Date: May 2, 1996 By: /s/Dennis R. Neill
-------------------------
(Signature)
Dennis R. Neill
Senior Vice President
Date: May 2, 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
1981-2 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> 0000702403
<NAME> DYCO OIL AND GAS PROGRAM 1981-2 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> 303,565
<SECURITIES> 0
<RECEIVABLES> 66,237
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 369,802
<PP&E> 39,720,364
<DEPRECIATION> 39,566,313
<TOTAL-ASSETS> 575,079
<CURRENT-LIABILITIES> 28,307
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 418,484
<TOTAL-LIABILITY-AND-EQUITY> 575,079
<SALES> 109,430
<TOTAL-REVENUES> 111,970
<CGS> 0
<TOTAL-COSTS> 59,633
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 52,337
<INCOME-TAX> 0
<INCOME-CONTINUING> 52,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,337
<EPS-PRIMARY> 9.00
<EPS-DILUTED> 0
</TABLE>
