<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
September 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
September 30, December 31,
1996 1995
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $380,600 $245,084
Accrued oil and gas sales, including
$58,366 due from related parties
in 1995 (Note 2) 51,525 62,818
-------- --------
Total current assets $432,125 $307,902
NET OIL AND GAS PROPERTIES, utilizing
the full cost method 153,450 164,698
DEFERRED CHARGE 51,226 51,226
-------- --------
$636,801 $523,826
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 27,444 $ 29,391
-------- --------
Total current liabilities $ 27,444 $ 29,391
ACCRUED LIABILITY 128,288 128,288
CONTINGENCY (Note 3)
PARTNERS' CAPITAL:
General Partner, issued and
outstanding, 74 units 4,810 3,661
Limited Partners, issued and
outstanding, 6,000 units 476,259 362,486
-------- --------
Total Partners' capital $481,069 $366,147
-------- --------
$636,801 $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 SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
-------- --------
REVENUES:
Oil and gas sales, including
$23,878 of sales to related
parties in 1995 (Note 2) $107,314 $41,004
Interest 3,506 1,949
-------- -------
$110,820 $42,953
COST AND EXPENSES:
Oil and gas production $ 31,652 $29,898
Depreciation, depletion, and
amortization of oil and gas
properties 12,045 5,157
General and administrative (Note 2) 14,344 13,864
-------- -------
$ 58,041 $48,919
-------- -------
NET INCOME (LOSS) $ 52,779 ($ 5,966)
======== =======
GENERAL PARTNER (1%) - net
income (loss) $ 528 ($ 60)
======== =======
LIMITED PARTNERS (99%) - net
income (loss) $ 52,251 ($ 5,906)
======== =======
NET INCOME (LOSS) PER UNIT $ 8.69 ($ .98)
======== =======
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 OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
-------- --------
REVENUES:
Oil and gas sales, including
$140,908 of sales to related
parties in 1995 (Note 2) $270,897 $181,992
Interest 9,219 6,784
-------- --------
$280,116 $188,776
COST AND EXPENSES:
Oil and gas production $ 83,454 $ 89,298
Depreciation, depletion, and
amortization of oil and gas
properties 29,676 37,751
General and administrative (Note 2) 52,064 52,587
-------- --------
$165,194 $179,636
-------- --------
NET INCOME $114,922 $ 9,140
======== ========
GENERAL PARTNER (1%) - net
income $ 1,149 $ 91
======== ========
LIMITED PARTNERS (99%) - net
income $113,773 $ 9,049
======== ========
NET INCOME PER UNIT $ 18.92 $ 1.50
======== ========
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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $114,922 $ 9,140
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion, and
amortization of oil and gas
properties 29,676 37,751
Decrease in accrued oil and gas
sales 11,293 16,626
Increase (decrease) in accounts
payable ( 1,947) 312
-------- --------
Net cash provided by operating
activities $153,944 $ 63,829
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties ($ 19,818) ($ 11,418)
Retirements of oil and gas
properties 1,390 41
-------- --------
Net cash used by investing
activities ($ 18,428) ($ 11,377)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash used by financing
activities $ - $ -
-------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS $135,516 $ 52,452
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 245,084 163,279
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $380,600 $215,731
======== ========
The accompanying condensed notes are an
integral part of these financial statements.
-5-
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DYCO OIL AND GAS PROGRAM 1981-2 LIMITED PARTNERSHIP
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
1. ACCOUNTING POLICIES
-------------------
The balance sheet as of September 30, 1996, statements of
operations for the three and nine months ended September 30, 1996
and 1995, and statements of cash flows for the nine months ended
September 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 September 30, 1996, results of
operations for the three and nine months ended September 30, 1996
and 1995 and changes in cash flows for the nine months ended
September 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 September 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. 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 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.
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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, 1996 and 1995 such expenses totaled $14,344
and $13,864, respectively, of which $11,988 and $11,988 were paid
to Dyco. During the nine months ended September 30, 1996 and
1995 such expenses totaled $52,064 and $52,587, respectively, of
which $35,964 and $35,964 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 September 30,
1995 these sales totaled $23,878. During the nine months ended
September 30, 1995 these sales totaled $140,908. At December 31,
1995, accrued 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 filed
petitions for certiorari with the Supreme Court of Oklahoma
seeking a further review of the Court of Appeals' opinion, both
of which petitions for certiorari were denied on July 3, 1996.
The case has been remanded to the district court for a new trial.
Included in these financial statements as of December 31, 1995
and September 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.
-7-
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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 operational
purposes will be provided by current oil and gas production.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1995.
Three months ended September 30,
--------------------------------
1996 1995
-------- ------
Oil and gas sales $107,314 $41,004
Oil and gas production expenses $ 31,652 $29,898
Barrels produced 85 327
Mcf produced 54,157 25,930
Average price/Bbl $ 18.16 $ 15.98
Average price/Mcf $ 1.95 $ 1.38
As shown in the table above, oil and gas sales increased $66,310
(161.7%) for the three months ended September 30, 1996 as
compared to the three months ended September 30, 1995. Of this
increase, $55,043 was related to the increase in the volumes of
natural gas sold and $14,780 was related to the increase in the
average price of natural gas sold. Volumes of oil sold decreased
by 242 barrels, while volumes of natural gas sold increased by
28,227 Mcf for the three months ended September 30, 1996 as
compared to the three months ended September 30, 1995. The
decrease in the volumes of oil sold resulted primarily from
normal declines in production due to diminished reserves on three
wells during the three months ended September 30, 1996 as
compared to the three months ended September 30, 1995. The
increase in the volumes of natural gas sold resulted primarily
from (i) one well producing at less than maximum capacity due to
state imposed allowable restrictions during the three months
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ended September 30, 1995 and (ii) a negative prior period volume
adjustment made by a purchaser on one well during the three
months ended September 30, 1995, partially offset by the normal
decline in production due to diminished natural gas reserves on
another well during the three months ended September 30, 1996 as
compared to the three months ended September 30, 1995. Average
oil and natural gas prices increased to $18.16 per barrel and
$1.95 per Mcf, respectively, for the three months ended September
30, 1996 from $15.98 per barrel and $1.38 per Mcf, respectively,
for the three months ended September 30, 1995.
Oil and gas production expenses (including lease operating
expenses and production taxes) increased $1,754 for the three
months ended September 30, 1996 as compared to the three months
ended September 30, 1995. This increase was primarily the result
of higher production taxes associated with the increase in the
volumes of natural gas sold during the three months ended
September 30, 1996 as compared to the three months ended
September 30, 1995, partially offset by higher general repair and
maintenance expenses incurred on two wells during the three
months ended September 30, 1995. As a percentage of oil and gas
sales, these expenses decreased to 29.5% for the three months
ended September 30, 1996 from 72.9% for the three months ended
September 30, 1995. This percentage decrease resulted primarily
from the increases in the average prices of oil and natural gas
sold during the three months ended September 30, 1996 as compared
to the three months ended September 30, 1995.
Depreciation, depletion, and amortization of oil and gas
properties increased $6,888 for the three months ended September
30, 1996 as compared to the three months ended September 30,
1995. This increase was primarily due to the increase in the
volumes of natural gas sold during the three months ended
September 30, 1996 as compared to the three months ended
September 30, 1995. As a percentage of oil and gas sales, this
expense decreased to 11.2% for the three months ended September
30, 1996 from 12.6% for the three months ended September 30,
1995. This percentage decrease was primarily a result of the
increases in the average prices of oil and natural gas sold
during the three months ended September 30, 1996 as compared to
the three months ended September 30, 1995.
General and administrative expenses increased $480 for the three
months ended September 30, 1996 as compared to the three months
ended September 30, 1995. This increase was primarily the result
of an increase in professional fees during the three months ended
September 30, 1996 as compared to the three months ended
September 30, 1995. As a percentage of oil and gas sales, these
expenses decreased to 13.4% for the three months ended September
30, 1996 from 33.8% for the three months ended September 30,
1995. This percentage decrease resulted primarily from the
increases in the average prices of oil and natural gas sold
during the three months ended September 30, 1996 as compared to
the three months ended September 30, 1995.
-9-
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NINE MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1995.
Nine months ended September 30,
-------------------------------
1996 1995
-------- --------
Oil and gas sales $270,897 $181,992
Oil and gas production expenses $ 83,454 $ 89,298
Barrels produced 707 838
Mcf produced 138,784 130,683
Average price/Bbl $ 19.62 $ 15.84
Average price/Mcf $ 1.85 $ 1.29
As shown in the table above, oil and gas sales increased $88,905
(48.9%) for the nine months ended September 30, 1996 as compared
to the nine months ended September 30, 1995. Of this increase,
$73,182 was related to the increase in the average price of
natural gas sold and $14,987 was related to the increase in the
volumes of natural gas sold. Volumes of oil sold decreased by
131 barrels, while volumes of natural gas sold increased by 8,101
Mcf for the nine months ended September 30, 1996 as compared to
the nine months ended September 30, 1995. The decrease in the
volumes of oil sold was primarily due to normal declines in
production on three wells due to diminished reserves during the
nine months ended September 30, 1996 as compared to the nine
months ended September 30, 1995. Average oil and natural gas
prices increased to $19.62 per barrel and $1.85 per Mcf,
respectively, for the nine months ended September 30, 1996 from
$15.84 per barrel and $1.29 per Mcf, respectively, for the nine
months ended September 30, 1995.
Oil and gas production expenses (including lease operating
expenses and production taxes) decreased $5,844 for the nine
months ended September 30, 1996 as compared to the nine months
ended September 30, 1995. This decrease was primarily a result
of higher general repair and maintenance expenses incurred on
several wells during the nine months ended September 30, 1995,
partially offset by higher production taxes associated with the
increase in the volumes of natural gas sold during the nine
months ended September 30, 1996 as compared to the nine months
ended September 30, 1995. As a percentage of oil and gas sales,
these expenses decreased to 30.8% for the nine months ended
September 30, 1996 from 49.1% for the nine months ended September
30, 1995. This percentage decrease was primarily a result of the
increases in the average prices of oil and natural gas sold
during the nine months ended September 30, 1996 as compared to
the nine months ended September 30, 1995.
Depreciation, depletion, and amortization of oil and gas
properties decreased $8,075 for the nine months ended September
30, 1996 as compared to the nine months ended September 30, 1995.
This decrease was primarily a result of an increase in the
estimate of the Program's remaining natural gas reserves at
December 31, 1995, partially offset by the increase in the
volumes of natural gas sold during the nine months ended
September 30, 1996 as compared to the nine months ended September
30, 1995. As a percentage of oil and gas sales, this expense
decreased to 11.0% for the nine months ended September 30, 1996
from 20.7% for the nine months ended September 30, 1995. This
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percentage decrease was primarily a result of the increase in the
estimate of the Program's remaining natural gas reserves
discussed above and the increases in the average prices of oil
and natural gas sold during the nine months ended September 30,
1996 as compared to the nine months ended September 30, 1995.
General and administrative expenses remained relatively constant
for the nine months ended September 30, 1996 as compared to the
nine months ended September 30, 1995. As a percentage of oil and
gas sales, these expenses decreased to 19.2% for the nine months
ended September 30, 1996 from 28.9% for the nine months ended
September 30, 1995. This percentage decrease was primarily a
result of the increases in the average prices of oil and natural
gas sold during the nine months ended September 30, 1996 as
compared to the nine months ended September 30, 1995.
-11-
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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 filed petitions for certiorari with the Supreme
Court of Oklahoma seeking a further review of the Court of
Appeals opinion, both of which petitions for certiorari were
denied on July 3, 1996. The case has been remanded to the
district court for a new trial.
ITEM 5. OTHER INFORMATION
On October 1, 1996, Drew Phillips resigned as Chief Financial
Officer of Dyco. Mr. Phillips continues to serve as an
accounting officer of affiliates of Dyco.
On October 1, 1996, Patrick M. Hall was elected Chief Financial
Officer of Dyco. Mr. Hall joined affiliates of Dyco
(collectively, the "Samson Companies") in 1983. Prior to joining
the Samson Companies he was a senior accountant with Peat Marwick
Main & Co. in Tulsa. He holds a Bachelor of Science degree in
accounting from Oklahoma State University and is a Certified
Public Accountant. Mr. Hall is also Senior Vice President -
Controller of Samson Investment Company.
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 September 30, 1996 and
for the nine months ended September 30, 1996,
filed herewith.
All other exhibits are omitted as inapplicable.
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<PAGE>
(b) Reports on Form 8-K
Current Report on Form 8-K filed during third quarter of
1996:
Date of event: July 1, 1996
Date filed with SEC: July 8, 1996
Item Included:
Item 5 - Other Events
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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: October 25, 1996 By: /s/Dennis R. Neill
-----------------------------
(Signature)
Dennis R. Neill
President
Date: October 25, 1996 By: /s/Patrick M. Hall
-----------------------------
(Signature)
Patrick M. Hall
Chief Financial Officer
-14-
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<PAGE>
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
September 30, 1996 and for the nine months ended September
30, 1996, filed herewith.
All other exhibits are omitted as inapplicable.
-15-
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000702403
<NAME> DYCO OIL & GAS PROGRAM 1981-2 LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 380,600
<SECURITIES> 0
<RECEIVABLES> 51,525
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 432,125
<PP&E> 39,738,233
<DEPRECIATION> 39,584,783
<TOTAL-ASSETS> 636,801
<CURRENT-LIABILITIES> 27,444
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 481,069
<TOTAL-LIABILITY-AND-EQUITY> 636,801
<SALES> 270,897
<TOTAL-REVENUES> 280,116
<CGS> 0
<TOTAL-COSTS> 165,194
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 114,922
<INCOME-TAX> 0
<INCOME-CONTINUING> 114,922
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,922
<EPS-PRIMARY> 18.92
<EPS-DILUTED> 0
</TABLE>
