SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996 Commission file number 0-10697
DORCHESTER HUGOTON, LTD.
(Exact name of registrant as specified in its charter)
Texas 75-1829064
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
9696 Skillman Street, Suite 320-LB 42, Dallas, Texas 75243-8200
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 340-3443
None
Former name, former address and former fiscal
year, if changed since last report
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
As of October 31, 1996, 10,744,380 Depositary Receipts for Units of Limited
Partnership Interest were outstanding.
<PAGE>
DORCHESTER HUGOTON, LTD.
(A Texas Limited Partnership)
QUARTERLY REPORT ON FORM 10-Q
September 30, 1996
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets as of September 30, 1996 and
December 31, 1995 (Unaudited)
Condensed Statements of Earnings for the Three and Nine Months Ended
September 30, 1996 and 1995 (Unaudited)
Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 (Unaudited)
Notes to Condensed Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
DORCHESTER HUGOTON, LTD.
(A Texas Limited Partnership)
PART I
Item 1
CONDENSED BALANCE SHEETS
(Unaudited)
September 30, 1996 and December 31, 1995
(In Thousands of Dollars)
Sept. 30, Dec. 31,
1996 1995
-------- --------
ASSETS
Current Assets:
Cash and temporary cash investments .............. $ 62 $ 183
Investments - available for sale ................. 2,248 2,190
Accounts receivable, net ......................... 1,395 3,197
Prepaid expenses and other current assets ........ 141 136
------- -------
Total Current Assets ........................... 3,846 5,706
Net Property and Equipment ........................... 16,840 13,895
------- --------
Total Assets ......................................... $20,686 $19,601
======= =======
LIABILITIES AND PARTNERSHIP CAPITAL
Current Liabilities:
Accounts payable and other current liabilities ... $ 503 $ 1,001
Production and property taxes payable ............ 681 231
Royalties and production payment payable ......... 686 297
Distributions payable to Unitholders ............. 1,848 1,848
------- -------
Total Current Liabilities ...................... 3,718 3,377
Long-term debt ....................................... 3,744 1,725
------- -------
Total Liabilities .............................. 7,462 5,102
Commitments and Contingencies (Note 2) ............... - -
Partnership Capital .................................. 13,224 14,499
------- -------
Total Liabilities and Partnership Capital ............ $20,686 $19,601
======= =======
The accompanying condensed notes are an integral part of
these financial statements.
<PAGE>
DORCHESTER HUGOTON, LTD.
(A Texas Limited Partnership)
CONDENSED STATEMENT OF EARNINGS
(Unaudited)
For the Three and Nine Months Ended September 30, 1996 and 1995
(In Thousands of Dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
Net Operating Revenues ............. $ 2,388 $ 2,909 $11,756 $ 9,194
------- ------- ------- -------
Costs and Expenses:
Operating, including prod. taxes 1,024 706 2,659 2,303
Depletion, depreciation & amort. 363 326 1,096 1,021
General and administrative ..... 141 167 416 443
Management fees ................ 86 89 298 277
Interest ....................... 62 35 105 105
Litigation settlement .......... 3,036 - 3,036 -
Other income, net .............. (14) (22) (72) (66)
------- ------- ------- -------
Total Costs and Expenses ........... 4,698 1,301 7,538 4,083
------- ------- ------- -------
Net Earnings (Loss)................. $(2,310) $ 1,608 $ 4,218 $ 5,111
======= ======= ======= =======
Net Earnings (Loss)
per Unit (in dollars) $ (0.21) $ 0.15 $ 0.39 $ 0.47
======= ======= ======= =======
The accompanying condensed notes are an integral part of
these financial statements.
<PAGE>
DORCHESTER HUGOTON, LTD.
(A Texas Limited Partnership)
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, 1996 and 1995
(In Thousands of Dollars)
1996 1995
------- -------
Cash Flows Provided by Operating Activities .......... $ 7,442 $ 6,777
------- -------
Cash Flows Used in Investing Activities:
Purchases of prop. & equipment, net of retirements (4,063) (646)
Cash received on sale of other prop. & equipment.. 16 18
------- -------
Cash Flows Used in Investing Activities .............. (4,047) (628)
------- -------
Cash Flows Used in Financing Activities:
Distributions paid to Unitholders ................ (5,535) (5,553)
Additions to long-term debt ...................... 10,566 5,775
Reductions of long-term debt ..................... (8,547) (6,100)
Other ............................................ 0 (123)
------- -------
Cash Flows Used in Financing Activities .............. (3,516) (6,001)
------- -------
Increase (Decrease) in Cash and Temp. Cash Investments (121) 148
Cash and Temporary Cash Investments at January 1, .... 183 0
------- -------
Cash and Temporary Cash Investments at September 30, . $ 62 $ 148
======= =======
The accompanying condensed notes are an integral part of
these financial statements.
<PAGE>
DORCHESTER HUGOTON, LTD.
(A Texas Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed financial statements reflect all adjustments (consisting only
of normal and recurring adjustments except for certain adjustments related
to the litigation settlement discussed in Note 2) which are, in the opinion
of management, necessary for a fair presentation of Dorchester Hugoton,
Ltd.'s (the "Partnership's") financial position and operating results for
the interim periods. Interim period results are not necessarily indicative
of the results for the calendar year. Please refer to Management's
Discussion and Analysis of Financial Condition and Results of Operations
for additional information. The weighted average number of Units
outstanding for each of the periods was 10,744,380.
2. On August 14, 1996 the Partnership paid Parker & Parsley Petroleum Company
entities (successor to Damson Oil Corporation and Dorchester Master Limited
Partnership - collectively referred to as "P&P" or as "Parker & Parsley")
$7.0 million in settlement of all outstanding litigation. Some of the
numerous issues resolved by this settlement include the withdrawal by P&P
of its claims of gas processing rights to the Partnership's Oklahoma gas
production, its rights to participate in any Oklahoma gas wells, and its
claims for unpaid production payment amounts. The Partnership will,
prospectively only, pay P&P any production payment (overriding royalty
interest) amount that may be due as set forth in a 1986 amended agreement.
The first production payment to be paid in 1997 is estimated to be
$800,000, of which $471,000 is accrued through September 30, 1996. The
production payment calculation is based upon the difference between market
gas prices compared to a table of rising prices and based upon a table of
declining volumes. The Partnership also agreed to exchange with P&P its
interests in fourteen non-operated Kansas wells for P&P's interests in
eighteen Kansas wells which the Partnership presently operates.
Consequently, the Partnership increased its working interest ownership from
80% to 100% in each of these eighteen wells. In addition, the settlement
confirmed the Partnership's ownership of the gas gathering pipelines that
deliver gas from the Partnership's Oklahoma wells to its gas compressor
facilities. The settlement resulted in an earnings charge of approximately
$4,246,000, a reduction of liabilities of $200,000 and an increase in
natural gas properties of $3,025,000 as reflected in the Partnership's 1996
third quarter financial statements. Additionally, as a result of the
settlement, the Partnership incurred approximately $407,000 in costs during
the third quarter of 1996 which are primarily made up of mineral lease
royalties, Oklahoma production taxes, and legal fees related to the
settlement. The primary portion of these charges are included in the
Partnership's income statement as follows: $1,710,000 offset to net
operating revenues, $121,000 offset to operating expenses, and $3,036,000
to litigation settlement expenses. ALL OF THE OUTSTANDING LITIGATION WITH
P&P, AS WELL AS ANY RELATED JUDGMENTS, THAT ARE DESCRIBED IN THE
PARTNERSHIP'S 1995 FORM 10-K AND PREVIOUS 1996 FORMS 10-Q HAS BEEN OR WILL
BE DISMISSED. In addition, each party is responsible for its own legal
costs.
3. The third quarter of 1996's operating expenses also include a charge of
$387,000 for Kansas tax reimbursements (plus related interest through
September 30, 1996) received by the Partnership during the years 1983 to
1987. This charge results from a ruling by the United States Court of
Appeals for the District of Columbia which overruled a previous order by
the Federal Energy Regulatory Commission. The Partnership, as well as
numerous other parties, may pursue further judicial review or regulatory
relief with respect to this matter.
4. On July 19, 1994 the Partnership entered into a $15,000,000 unsecured
revolving credit facility (the "Agreement") with Bank One, Texas, N.A.
Effective August 12, 1996, the Agreement was restated to increase the
borrowing base from $4,250,000 to $8,500,000. The Agreement will be
re-evaluated by Bank One at least semi-annually. If, on any such date, the
aggregate amount of outstanding loans and letters of credit exceed the
current borrowing base as most recently determined by Bank One, the
Partnership is required to repay the excess. This credit facility covers
both cash advances and any letters of credit that the Partnership may need,
with interest being charged at the base rate for Bank One, which was 8.25%
on November 5, 1996. All amounts borrowed under this facility will become
due and payable on July 31, 1999. As of November 5, 1996, letters of credit
totaling $267,000 were issued under the credit facility and the amount
borrowed was $5,000,000. The weighted average amount borrowed under the
credit facility was approximately $2,600,000 during the third quarter of
1996.
<PAGE>
DORCHESTER HUGOTON, LTD.
(A Texas Limited Partnership)
PART I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As discussed in Note 2 to the Partnership's Condensed Financial Statements, all
of the Partnership's outstanding litigation, claims, and counterclaims with
Parker & Parsley Petroleum Company entities have been settled. In connection
with the settlement, the Partnership paid Parker & Parsley $7.0 million at the
settlement closing on August 14, 1996 and will prospectively pay a production
payment which is expected to be $800,000 in 1997. The settlement resulted in an
increase in natural gas properties of approximately $3,025,000, a decrease in
liabilities of approximately $200,000, and a charge to earnings of approximately
$4,246,000, which are included in the Partnership's 1996 third quarter financial
statements. As a direct result of the settlement, additional charges of
approximately $407,000 were incurred for various costs including mineral lease
royalties, Oklahoma production taxes, and legal fees during the third quarter of
1996. Third quarter 1996 net operating revenues of $2,388,000 have been reduced
by approximately $1,710,000 resulting from such litigation settlement. Operating
costs have also been reduced by approximately $121,000 resulting from the
litigation settlement. The litigation settlement expense of $3,036,000 is the
major portion of the remaining costs of settlement. The settlement, combined
with the Partnership's provision for a possible refund of approximately $387,000
(which includes related interest through September 30, 1996) of Kansas ad
valorem taxes (see Note 3 to the Condensed Financial Statements), resulted in
the third quarter loss of $2,310,000 or $0.21 per unit. Absent the settlement
and the Kansas ad valorem tax provision, the Partnership's earnings for the
quarter would have been approximately $2,730,000 or $0.25 per unit. Generally,
it is expected that for income tax purposes, the settlement will tend to offset
higher revenues resulting from higher gas prices during 1996.
Net cash flows from operating activities during the three and nine months ended
September 30, 1996 were ($1,222,000) and $7,442,000, respectively, compared to
$1,237,000 and $6,777,000 for the same periods of 1995. Absent the settlement,
net cash flows during the three and nine months ended September 30, 1996 were
$3,133,000 and $11,797,000, respectively. Operating cash flows were positively
impacted in both the three month and the nine month periods ended September 30,
1996 by natural gas market prices which were significantly higher compared to
the same periods last year.
The Partnership's settlement with P&P removes any uncertainties regarding the
status of its natural gas properties, its ability to transport its Oklahoma gas
to market, as well as its ability to obtain a market responsive price for all of
its natural gas. Consequently, the Partnership has canceled its previously
announced plans to build a new pipeline gathering system in Oklahoma. Through
September 30, 1996, approximately $707,000 in capital expenditures were made by
the Partnership for electronic meters, meter houses, and certain rights-of-way
necessary to construct the new pipeline. These expenditures include the cost of
installing the new metering facilities on the existing pipeline system serving
the Partnership's wells.
The Partnership has available a $15,000,000 unsecured revolving credit facility
with a current borrowing base of $8,500,000. Please see Note 4 to the financial
statements for additional information. As of November 5, 1996, letters of credit
totaling $267,000 were issued under the credit facility and the amount borrowed
was $5,000,000. The Partnership's cash position was zero on January 1, 1995 as a
result of cash management practices which minimize borrowings. The weighted
average amount borrowed under the credit facility was approximately $2,600,000
during the third quarter of 1996 compared to approximately $260,000 for the
previous quarter of 1996. The current amount borrowed is primarily due to the
Partnership's need for additional cash to fund the litigation settlement
discussed above.
<PAGE>
DORCHESTER HUGOTON, LTD.
(A Texas Limited Partnership)
PART I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Partnership's portion of gas sales volumes (in MMCF) and weighted average
BTU adjusted sales prices per MCF were as follows:
Three Months Ended Nine Months Ended
---------------------------- -----------------
September 30, September 30,
---------------- June 30 -----------------
1996 1995 1996 1996 1995
Sales Volumes: ----- ----- ----- ----- -----
Oklahoma ............. 1,416 1,594 1,578 4,717 4,719
Kansas ............... 526 505 564 1,696 1,586
----- ----- ----- ----- -----
Total ................... 1,942 2,099 2,142 6,413 6,305
===== ===== ===== ===== =====
Weighted Average BTU Adjusted Sales Prices:
Oklahoma ............... $2.10 $1.38 $2.19 $2.10 $1.46
Kansas ................. 2.08 1.32 2.11 2.04 1.40
Overall Weighted Average. $2.09 $1.36 $2.16 $2.08 $1.44
Oklahoma natural gas sales volumes were lower during the third quarter compared
to the second quarter of 1996 due to routine annual state well tests. Also,
Oklahoma third quarter sales volumes were lower than 1995 third quarter volumes
although nine month volumes were essentially unchanged from 1995 to 1996. Kansas
natural gas sales volumes were lower during the third quarter compared to the
second quarter of 1996 as a result of beginning annual state well testing and
slightly higher compared to the third quarter of 1995. Neither the volumes or
prices stated above have been adjusted for litigation settlement other than the
exchange of Kansas properties effective September 1, 1996. Consideration of the
current production payment would reduce Oklahoma volumes approximately 5%.
The Partnership is pleased to have resolved its litigation with P&P and looks
forward to reducing debt during the near term and then emphasizing the
previously announced unit repurchase program. The increase in current borrowing
base from $4,250,000 to $8,500,000 was needed to complete funding of the
litigation settlement payment and remains adequate to fund current anticipated
capital expenditures. Presently, the Partnership is drilling and completing one
replacement well in Oklahoma and one infill development well in Kansas. The
maximum amount borrowed during 1996 has been $5,800,000.
<PAGE>
DORCHESTER HUGOTON, LTD.
(A Texas Limited Partnership)
OTHER INFORMATION
PART II
Item 1. Legal Proceedings: See Notes to Condensed Financial Statements.
Item 5. Other Information: Mr. W. Randall Blank was re-appointed to the
Partnership's Advisory Committee for a two year term. Mr. Rawles
Fulgham, initially appointed for a two year term, will be eligible for
re-appointment to the Advisory Committee in 1997.
Item 6. Exhibits and Reports on Form 8-K:
a) Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K - On August 14, 1996 the Partnership announced
that it had closed with Parker & Parsley Petroleum Company Entities
the previously announced settlement agreement resolving all out-
standing litigation.
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.
DORCHESTER HUGOTON, LTD.
Registrant
Date: November 11, 1996 /s/ Kathleen A. Rawlings
Kathleen A. Rawlings
Controller (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 62
<SECURITIES> 2,248
<RECEIVABLES> 1,395
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,846
<PP&E> 16,840
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,686
<CURRENT-LIABILITIES> 3,718
<BONDS> 3,744
0
0
<COMMON> 0
<OTHER-SE> 13,224
<TOTAL-LIABILITY-AND-EQUITY>20,686
<SALES> 11,756
<TOTAL-REVENUES> 11,756
<CGS> 7,538
<TOTAL-COSTS> 7,538
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 4,218
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,218
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.39
</TABLE>
