<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, 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 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 1981-2 LIMITED PARTNERSHIP
BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1996 1995
-------- ------------
CURRENT ASSETS:
Cash and cash equivalents $314,575 $245,084
Accrued oil and gas sales, including
$58,366 due from related parties
in 1995 (Note 2) 57,101 62,818
-------- --------
Total current assets $371,676 $307,902
NET OIL AND GAS PROPERTIES, utilizing
the full cost method 160,579 164,698
DEFERRED CHARGE 51,226 51,226
-------- --------
$583,481 $523,826
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 26,903 $ 29,391
-------- --------
Total current liabilities $ 26,903 $ 29,391
ACCRUED LIABILITY 128,288 128,288
CONTINGENCIES (Note 3)
PARTNERS' CAPITAL:
General Partner, issued and
outstanding, 74 units 4,282 3,661
Limited Partners, issued and
outstanding 6,000 units 424,008 362,486
-------- --------
Total Partners' capital $428,290 $366,147
-------- --------
$583,481 $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 JUNE 30, 1996 AND 1995
(Unaudited)
1996 1995
-------- --------
REVENUES:
Oil and gas sales, including
$54,449 of sales to related
parties in 1995 (Note 2) $54,153 $58,828
Interest 3,173 2,587
------- -------
$57,326 $61,415
COST AND EXPENSES:
Oil and gas production $23,882 $26,049
Depreciation, depletion, and
amortization of oil and gas
properties 6,425 13,681
General and administrative (Note 2) 17,213 18,307
------- -------
$47,520 $58,037
------- -------
NET INCOME $ 9,806 $ 3,378
======= =======
GENERAL PARTNER (1%) - net
income $ 98 $ 34
======= =======
LIMITED PARTNERS (99%) - net
income $ 9,708 $ 3,344
======= =======
NET INCOME PER UNIT $ 2 $ 1
======= =======
UNITS OUTSTANDING 6,074 6,074
======= =======
The accompanying condensed notes are an
integral part of these financial statements.
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<PAGE>
DYCO OIL AND GAS PROGRAM 1981-2 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
1996 1995
-------- --------
REVENUES:
Oil and gas sales, including
$117,030 of sales to related
parties in 1995 (Note 2) $163,583 $140,988
Interest 5,713 4,835
-------- --------
$169,296 $145,823
COST AND EXPENSES:
Oil and gas production $ 51,802 $ 59,400
Depreciation, depletion, and
amortization of oil and gas
properties 17,631 32,594
General and administrative (Note 2) 37,720 38,723
-------- --------
$107,153 $130,717
-------- --------
NET INCOME $ 62,143 $ 15,106
======== ========
GENERAL PARTNER (1%) - net
income $ 621 $ 151
======== ========
LIMITED PARTNERS (99%) - net
income $ 61,522 $ 14,955
======== ========
NET INCOME PER UNIT $ 10 $ 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 SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 62,143 $ 15,106
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion, and
amortization of oil and gas
properties 17,631 32,594
Decrease in accrued oil and gas
sales 5,717 8,652
Increase (decrease) in accounts
payable ( 2,488) 431
-------- --------
Net cash provided by operating
activities $ 83,003 $ 56,783
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties ($ 14,470) ($ 11,377)
Retirements of oil and gas
properties 958 -
-------- --------
Net cash used by investing
activities ($ 13,512) ($ 11,377)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash used by financing
activities $ - $ -
-------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS $ 69,491 $ 45,406
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 245,084 163,279
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $314,575 $208,685
======== ========
The accompanying condensed notes are an
integral part of these financial statements.
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<PAGE>
DYCO OIL AND GAS PROGRAM 1981-2 LIMITED PARTNERSHIP
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
1. ACCOUNTING POLICIES
-------------------
The balance sheet as of June 30, 1996, statements of operations
for the three and six months ended June 30, 1996 and 1995, and
statements of cash flows for the six months ended June 30, 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 June 30, 1996, results of operations for
the three and six months ended June 30, 1996 and 1995 and changes
in cash flows for the six months ended June 30, 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 June 30, 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.
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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 June 30, 1996 and 1995 such expenses totaled $17,213 and
$18,307, respectively, of which $11,988 and $11,988 were paid to
Dyco. During the six months ended June 30, 1996 and 1995 such
expenses totaled $37,720 and $38,723, respectively, of which
$23,976 and $23,976 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 June 30, 1995
these sales totaled $54,449. During the six months ended June
30, 1995 these sales totaled $117,030. 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,
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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 June 30, 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 JUNE 30, 1996 AS COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1995.
Three months ended June 30,
---------------------------
1996 1995
------- ------
Oil and gas sales $54,153 $58,828
Oil and gas production expenses $23,882 $26,049
Barrels produced 322 267
Mcf produced 23,117 41,568
Average price/Bbl $ 22.63 $ 16.40
Average price/Mcf $ 2.03 $ 1.31
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As shown in the table, oil and gas sales decreased $4,675 (7.9%)
for the three months ended June 30, 1996 as compared to the three
months ended June 30, 1995. Of this decrease, $37,456 was
related to the decrease in the volumes of natural gas sold. This
amount was partially offset by a $31,592 increase related to the
increase in the average prices of oil and natural gas sold and a
$1,245 increase related to the increase in the volumes of oil
sold. Volumes of oil sold increased 55 barrels, while volumes of
natural gas sold decreased 18,451 Mcf for the three months ended
June 30, 1996 as compared to the three months ended June 30,
1995. The decrease in the volumes of natural gas sold resulted
primarily from (i) one well being shut-in during a portion of the
three months ended June 30, 1996 in order to improve production
capabilities and (ii) the normal declines in production from
diminished natural gas reserves during the three months ended
June 30, 1996 as compared to the three months ended June 30,
1995. Average oil and natural gas prices increased to $22.63 per
barrel and $2.03 per Mcf, respectively, for the three months
ended June 30, 1996 from $16.40 per barrel and $1.31 per Mcf,
respectively, for the three months ended June 30, 1995.
Oil and gas production expenses (including lease operating
expenses and production taxes) decreased $2,167 for the three
months ended June 30, 1996 as compared to the three months ended
June 30, 1995. This decrease was primarily a result of higher
general repair and maintenance expenses incurred on several wells
during the three months ended June 30, 1995. As a percentage of
oil and gas sales, these expenses remained relatively constant at
44.1% for the three months ended June 30, 1996 as compared to
44.3% for the three months ended June 30, 1995.
Depreciation, depletion, and amortization of oil and gas
properties decreased $7,256 for the three months ended June 30,
1996 as compared to the three months ended June 30, 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 11.9% for the three
months ended June 30, 1996 from 23.3% for the three months ended
June 30, 1995. This percentage decrease was primarily a result
of the increase in the estimate of the Program's remaining
natural gas reserves as previously discussed and increases in the
average prices of oil and natural gas sold during the three
months ended June 30, 1996 as compared to the three months ended
June 30, 1995.
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General and administrative expenses decreased $1,094 for the
three months ended June 30, 1996 as compared to the three months
ended June 30, 1995. This decrease was primarily a result of a
decrease in printing and postage expenses during the three months
ended June 30, 1996 as compared to the three months ended June
30, 1995. As a percentage of oil and gas sales, these expenses
remained relatively constant at 31.8% for the three months ended
June 30, 1996 as compared to 31.1% for the three months ended
June 30, 1995.
SIX MONTHS ENDED JUNE 30, 1996 AS COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1995.
Six months ended June 30,
---------------------------
1996 1995
-------- ------
Oil and gas sales $163,583 $140,988
Oil and gas production expenses $ 51,802 $ 59,400
Barrels produced 622 511
Mcf produced 84,627 104,753
Average price/Bbl $ 19.82 $ 15.74
Average price/Mcf $ 1.79 $ 1.27
As shown in the table, oil and gas sales increased $22,595
(16.0%) for the six months ended June 30, 1996 as compared to the
six months ended June 30, 1995. Of this increase, $54,472 was
related to an increase in the average price of natural gas sold,
partially offset by a $36,026 decrease related to the decrease in
the volumes of natural gas sold. Volumes of oil sold increased
111 barrels, while volumes of natural gas sold decreased 20,126
Mcf for the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995. The increase in the volumes of oil
sold was primarily due to positive prior period volume
adjustments by a purchaser on one well during the six months
ended June 30, 1996. The decrease in the volumes of natural gas
sold resulted primarily from (i) one well being shut-in during a
portion of the six months ended June 30, 1996 in order to improve
production capabilities and (ii) the normal declines in
production from diminished natural gas reserves on two wells
during the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995. Average oil and natural gas prices
increased to $19.82 per barrel and $1.79 per Mcf, respectively,
for the six months ended June 30, 1996 from $15.74 per barrel and
$1.27 per Mcf, respectively, for the six months ended June 30,
1995.
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Oil and gas production expenses (including lease operating
expenses and production taxes) decreased $7,598 for the six
months ended June 30, 1996 as compared to the six months ended
June 30, 1995. This decrease was primarily a result of higher
general repair and maintenance expenses incurred on several wells
during the six months ended June 30, 1995. As a percentage of
oil and gas sales, these expenses decreased to 31.7% for the six
months ended June 30, 1996 from 42.1% for the six months ended
June 30, 1995. This percentage decrease was primarily a result
of increases in the average prices of oil and natural gas sold
during the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995.
Depreciation, depletion, and amortization of oil and gas
properties decreased $14,963 for the six months ended June 30,
1996 as compared to the six months ended June 30, 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 10.8% for the six
months ended June 30, 1996 from 23.1% for the six months ended
June 30, 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 six months
ended June 30, 1996 as compared to the six months ended June 30,
1995.
General and administrative expenses remained relatively constant
for the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995. As a percentage of oil and gas
sales, these expenses decreased to 23.1% for the six months ended
June 30, 1996 from 27.5% for the six months ended June 30, 1995.
This percentage decrease was primarily a result of increases in
the average prices of oil and natural gas sold during the six
months ended June 30, 1996 as compared to the six months ended
June 30, 1995.
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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 1981-2 Limited Partnership's
financial statements as of June 30, 1996 and for
the six months ended June 30, 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: August 5, 1996 By: /s/Dennis R. Neill
-----------------------------------
(Signature)
Dennis R. Neill
President
Date: August 5, 1996 By: /s/Drew S. Phillips
-----------------------------------
(Signature)
Drew S. Phillips
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
1981-2 Limited Partnership's financial statements as of June
30, 1996 and for the six months ended June 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 314,575
<SECURITIES> 0
<RECEIVABLES> 57,101
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 371,676
<PP&E> 39,733,317
<DEPRECIATION> 39,572,738
<TOTAL-ASSETS> 583,481
<CURRENT-LIABILITIES> 26,903
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 428,290
<TOTAL-LIABILITY-AND-EQUITY> 583,481
<SALES> 163,583
<TOTAL-REVENUES> 169,296
<CGS> 0
<TOTAL-COSTS> 107,153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 62,143
<INCOME-TAX> 0
<INCOME-CONTINUING> 62,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,143
<EPS-PRIMARY> 10
<EPS-DILUTED> 0
</TABLE>
