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 0-10478
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
------ ------
1
<PAGE>
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,
1998 1997
----------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 67,520 $116,852
Accrued oil and gas sales 43,023 71,787
-------- --------
Total current assets $110,543 $188,639
NET OIL AND GAS PROPERTIES, utilizing
the full cost method 96,699 135,634
DEFERRED CHARGE 39,180 39,180
-------- --------
$246,422 $363,453
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 7,021 $ 40,290
Gas imbalance payable 20,591 20,591
-------- --------
Total current liabilities $ 27,612 $ 60,881
ACCRUED LIABILITY $122,380 $126,219
PARTNERS' CAPITAL:
General Partner, issued and
outstanding, 74 units $ 965 $ 1,764
Limited Partners, issued and
outstanding, 6,000 units 95,465 174,589
-------- --------
Total Partners' capital $ 96,430 $176,353
-------- --------
$246,422 $363,453
======== ========
The accompanying condensed notes are an integral part of
these financial statements.
2
<PAGE>
DYCO OIL AND GAS PROGRAM 1981-2 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
1998 1997
-------- --------
REVENUES:
Oil and gas sales $67,257 $100,315
Interest 1,927 1,369
------- --------
$69,184 $101,684
COST AND EXPENSES:
Oil and gas production $21,207 $ 31,456
Depreciation, depletion, and
amortization of oil and gas
properties 8,502 5,721
General and administrative
(Note 2) 13,157 15,198
------- --------
$42,866 $ 52,375
------- --------
NET INCOME $26,318 $ 49,309
======= ========
GENERAL PARTNER (1%) - net income $ 264 $ 493
======= ========
LIMITED PARTNERS (99%) - net income $26,054 $ 48,816
======= ========
NET INCOME PER UNIT $ 4.33 $ 8.12
======= ========
UNITS OUTSTANDING 6,074 6,074
======= ========
The accompanying condensed notes are an integral part of
these financial statements.
3
<PAGE>
DYCO OIL AND GAS PROGRAM 1981-2 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
1998 1997
-------- --------
REVENUES:
Oil and gas sales $142,969 $273,009
Interest 3,365 4,193
-------- --------
$146,334 $277,202
COST AND EXPENSES:
Oil and gas production $ 51,790 $ 70,293
Depreciation, depletion, and
amortization of oil and gas
properties 16,387 28,549
General and administrative
(Note 2) 36,600 40,477
-------- --------
$104,777 $139,319
-------- --------
NET INCOME $ 41,557 $137,883
======== ========
GENERAL PARTNER (1%) - net income $ 416 $ 1,379
======== ========
LIMITED PARTNERS (99%) - net income $ 41,141 $136,504
======== ========
NET INCOME PER UNIT $ 6.84 $ 22.70
======== ========
UNITS OUTSTANDING 6,074 6,074
======== ========
The accompanying condensed notes are an integral part of
these financial statements.
4
<PAGE>
DYCO OIL AND GAS PROGRAM 1981-2 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 $ 41,557 $137,883
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation, depletion, and
amortization of oil and gas
properties 16,387 28,549
Decrease in accrued oil and
gas sales 28,764 43,588
Decrease in accounts payable ( 33,269) ( 929)
Decrease in accrued liability ( 3,839) -
-------- --------
Net cash provided by operating
activities $ 49,600 $209,091
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of oil and gas
properties $ 22,548 $ -
Additions to oil and gas
properties - ( 1,085)
-------- --------
Net cash provided (used) by
investing activities $ 22,548 ($ 1,085)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($121,480) ($303,700)
-------- --------
Net cash used by financing
activities ($121,480) ($303,700)
-------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS ($ 49,332) ($ 95,694)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 116,852 272,066
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 67,520 $176,372
======== ========
The accompanying condensed notes are an integral part of
these financial statements.
5
<PAGE>
DYCO OIL AND GAS PROGRAM 1981-2 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 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, 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 $13,157 and $15,198, respectively,
of which $11,988 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 $36,600 and $40,477, respectively, of which $23,976 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
<PAGE>
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 the Program's reserves which
would result in a positive economic impact.
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 debt
commitments. Cash for operational purposes will be provided by current oil
and gas production.
8
<PAGE>
The Program's Statement of Cash Flows for the six months ended June 30,
1998 includes proceeds from the sale of oil and gas properties during the
first quarter of 1998. These proceeds were included in the Program's cash
distribution paid in June 1998. It is possible that the Program's
repurchase values and future cash distributions could decline as a result
of the disposition of these properties. On the other hand, the General
Partner believes there will be beneficial operating efficiencies related
to the Program's remaining properties. This is primarily due to the fact
that the properties sold generally bore a higher ratio of operating
expenses as compared to reserves than the Program's remaining properties.
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 $67,257 $100,315
Oil and gas production expenses $21,207 $ 31,456
Barrels produced 184 302
Mcf produced 31,421 53,513
Average price/Bbl $ 12.14 $ 17.86
Average price/Mcf $ 2.07 $ 1.77
As shown in the table above, total oil and gas sales decreased $33,058
(33.0%) for the three months ended June 30, 1998 as compared to the
three months ended June 30, 1997. Of
9
<PAGE>
this decrease, approximately $39,000 was related to a decrease in volumes
of gas sold, which amount was partially offset by an increase of
approximately $9,000 related to an increase in the average price of gas
sold. Volumes of oil and gas sold decreased 118 barrels and 22,092 Mcf,
respectively, for the three months ended June 30, 1998 as compared to the
three months ended June 30, 1997. The decrease in volumes of oil sold was
primarily due to the shutting-in of one significant well for subsurface
repairs during the three months ended June 30, 1998. The decrease in
volumes of gas sold resulted primarily from the Program receiving a
reduced percentage of sales due to the Program's overproduced position on
one significant well. Average oil prices decreased to $12.14 per barrel
for the three months ended June 30, 1998 from $17.86 per barrel for the
three months ended June 30, 1997. Average gas prices increased to $2.07
per Mcf during the three months ended June 30, 1998 from $1.77 per Mcf for
the three months ended June 30, 1997.
Oil and gas production expenses (including lease operating expenses and
production taxes) decreased $10,249 (32.6%) for the three months ended
June 30, 1998 as compared to the three months ended June 30, 1997. This
decrease resulted primarily from a decrease in production taxes associated
with the decrease in oil and gas sales and a decrease in lease operating
expenses associated with the decrease in volumes of oil and gas sold
during the three months ended June 30, 1998. As a percentage of oil and
gas sales, these expenses remained relatively constant at 31.5% for the
three months ended June 30, 1998 and 31.4% for the three months ended June
30, 1997.
Depreciation, depletion, and amortization of oil and gas properties
increased $2,781 (48.6%) 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 oil 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 12.6% for the three months ended June 30, 1998 from
5.7% 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 $2,041 (13.4%) for the three
months ended June 30, 1998 as compared to the three months ended June 30,
1997. This decrease resulted primarily from a decrease in professional
fees during 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 increased to 19.6% for the three months ended June 30, 1998 from
15.2% for the three months ended
10
<PAGE>
June 30, 1997. This percentage increase was primarily due to the decrease
in oil and gas sales discussed above.
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 $142,969 $273,009
Oil and gas production expenses $ 51,790 $ 70,293
Barrels produced 441 656
Mcf produced 68,752 117,569
Average price/Bbl $ 12.39 $ 18.90
Average price/Mcf $ 2.00 $ 2.22
As shown in the table above, total oil and gas sales decreased $130,040
(47.6%) for the six months ended June 30, 1998 as compared to the six
months ended June 30, 1997. Of this decrease, approximately $108,000 was
related to a decrease in volumes of gas sold and approximately $15,000 was
related to a decrease in the average price of gas sold. Volumes of oil and
gas sold decreased 215 barrels and 48,817 Mcf, respectively, for the six
months ended June 30, 1998 as compared to the six months ended June 30,
1997. The decrease in volumes of oil sold was primarily due to the
shutting-in of one significant well for subsurface repairs during the six
months ended June 30, 1998 and normal declines in production on two
significant wells due to diminished oil reserves. The decrease in volumes
of gas sold resulted primarily from the Program receiving a reduced
percentage of sales due to the Program's overproduced position on one
significant well. Average oil and gas prices decreased to $12.39 per
barrel and $2.00 per Mcf, respectively, for the six months ended June 30,
1998 from $18.90 per barrel and $2.22 per Mcf, respectively, for the six
months ended June 30, 1997.
Oil and gas production expenses (including lease operating expenses and
production taxes) decreased $18,503 (26.3%) for the six months ended June
30, 1998 as compared to the six months ended June 30, 1997. This decrease
resulted primarily from a decrease in production taxes associated with the
decrease in oil and gas sales and a decrease in lease operating expenses
associated with the decrease in volumes of oil and gas sold during the six
months ended June 30, 1998, which decreases were partially offset by
expenses relating to the subsurface repairs on one well during the six
months ended June 30, 1998. As a percentage of oil and gas sales, these
expenses increased to 36.2% for the six months ended June 30, 1998 from
25.7% for the six months ended June 30, 1997. This percentage increase was
primarily due to the increase in subsurface repair expenses discussed
above and the decreases in the average prices of oil and gas sold
11
<PAGE>
during the six months ended June 30, 1998 as compared to the six months
ended June 30, 1997.
Depreciation, depletion, and amortization of oil and gas properties
decreased $12,162 (42.6%) for the six months ended June 30, 1998 as
compared to the six months ended June 30, 1997. This decrease resulted
primarily from the decrease in volumes of oil and gas sold during 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, this expense increased to
11.5% for the six months ended June 30, 1998 from 10.5% for the six months
ended June 30, 1997.
General and administrative expenses decreased $3,877 (9.6%) 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
25.6% for the six months ended June 30, 1998 from 14.8% for the six months
ended June 30, 1997. This percentage increase was primarily due to the
decrease in oil and gas sales discussed above.
12
<PAGE>
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, 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
<PAGE>
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 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
<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 June 30, 1998 and for the
six months ended June 30, 1998, filed herewith.
All other exhibits are omitted as inapplicable.
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000702403
<NAME> DYCO OIL & GAS PROGRAM 1981-2 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> 67,520
<SECURITIES> 0
<RECEIVABLES> 43,023
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 110,543
<PP&E> 39,747,751
<DEPRECIATION> 39,651,052
<TOTAL-ASSETS> 246,422
<CURRENT-LIABILITIES> 27,612
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 96,430
<TOTAL-LIABILITY-AND-EQUITY> 246,422
<SALES> 142,969
<TOTAL-REVENUES> 146,334
<CGS> 0
<TOTAL-COSTS> 104,777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 41,557
<INCOME-TAX> 0
<INCOME-CONTINUING> 41,557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,557
<EPS-PRIMARY> 6.84
<EPS-DILUTED> 0
</TABLE>
