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 June 30, 1997 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)
1919 S. Shiloh Road, Suite 600 - LB 48, Garland, Texas 75042-8234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 864-8610
9696 Skillman Street, Suite 320 - LB 42, Dallas, Texas 75243-8200
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 July 31, 1997, 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
June 30, 1997
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets as of June 30, 1997 and
December 31, 1996 (Unaudited)
Condensed Statements of Earnings for the Three and Six
Months Ended June 30, 1997 and 1996 (Unaudited)
Condensed Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1996 (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)
June 30, 1997 and December 31, 1996
(In Thousands of Dollars)
June 30, Dec. 31,
1997 1996
-------- --------
ASSETS
Current assets:
Cash and temporary cash investments .............. $ 465 $ 115
Investments - available for sale ................. 3,308 2,646
Accounts receivable, net ......................... 1,640 3,054
Prepaid expenses and other current assets ........ 145 103
------- -------
Total current assets ........................... 5,558 5,918
Property and Equipment - at cost: 27,115 26,442
Less accum. depreciation, depletion and amort..... (10,578) (9,677)
------- --------
Net property and equipment ..................... 16,537 16,765
------- --------
Total Assets ......................................... $22,095 $22,683
======= =======
LIABILITIES AND PARTNERSHIP CAPITAL
Current liabilities:
Accounts payable and other current liabilities ... $ 537 $ 343
Production and property taxes payable or accrued . 727 755
Royalties and production payment payable ......... 476 1,199
Distributions payable to Unitholders ............. 1,962 1,853
------- -------
Total current liabilities ...................... 3,702 4,150
Long-term debt ....................................... 122 3,144
------- -------
Total liabilities .............................. 3,824 7,294
Commitments and contingencies (Note 2)
Partnership capital
General partners ................................. 106 77
Unitholders ...................................... 18,165 15,312
------- -------
Total partnership capital ...................... 18,271 15,389
------- -------
Total liabilities and partnership capital ............ $22,095 $22,683
======= =======
The accompanying condensed notes are an integral part of
these financial statements.
<PAGE>
DORCHESTER HUGOTON, LTD.
(A Texas Limited Partnership)
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
For the Three and Six Months Ended June 30, 1997 and 1996
(In Thousands of Dollars)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
-------- ------- ------- -------
Net operating revenues:
Natural gas sales .............. $ 3,840 $ 4,638 $ 9,863 $ 9,302
Other .......................... 42 33 92 66
Production payment (ORRI) ...... (187) -0- (531) -0-
Litigation settlement adjustment -0- -0- -0- -0-
------- ------- -------- --------
Total net operating revenues ....... 3,695 4,671 9,424 9,368
------- ------- -------- --------
Costs and expenses
Operating, including prod. taxes 849 821 1,833 1,635
Depletion, depreciation & amort. 458 353 943 734
General and administrative ..... 134 133 282 274
Management fees ................ 97 106 213 212
Interest ....................... 20 13 78 43
Litigation settlement .......... -0- -0- -0- -0-
Other income, net .............. (46) (37) (67) (58)
------- ------- -------- --------
Total costs and expenses ........... 1,512 1,389 3,282 2,840
------- ------- -------- -------
Net earnings ....................... $ 2,183 $ 3,282 $ 6,142 $ 6,528
======= ======= ======== =======
Net earnings per Unit (in dollars) . $ 0.21 $ 0.30 $ 0.57 $ 0.60
======= ======= ======== =======
The accompanying condensed notes are an integral part of
these financial statements.
<PAGE>
DORCHESTER HUGOTON, LTD.
(A Texas Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, 1997 and 1996
(In Thousands of Dollars)
1997 1996
------- -------
Cash flows provided by operating activities .......... $ 7,883 $ 8,664
------- -------
Cash flows used in investing activities:
Purchases of prop. & equipment, net of retirements (746) (717)
Cash received on sale of other prop. & equipment.. 34 -0-
------- -------
Cash flows used in investing activities .............. (712) (717)
------- -------
Cash flows used in financing activities:
Distributions paid to Unitholders ................ (3,799) (3,690)
Additions to long-term debt ...................... 5,200 4,766
Reductions of long-term debt ..................... (8,222) (6,347)
Other ............................................ -0- -0-
------- -------
Cash flows used in financing activities .............. (6,821) (5,271)
------- -------
Increase in cash and temp. cash investments .......... 350 2,676
Cash and temporary cash investments at January 1, .... 115 183
------- -------
Cash and temporary cash investments at June 30, ...... $ 465 $ 2,859
======= =======
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, recurring adjustments and certain adjustments 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 period. 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. Per-Unit
information is calculated by dividing the 99% interest owned by Unitholders
by the 10,744,380 Units outstanding.
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") $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 received confirmation of its ownership of
gas gathering pipelines connected to its Oklahoma wells and, prospectively
only, agreed to 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 of $1,034,472.39, was paid on May 15, 1997 and
covered the year ended February 28, 1997. An additional amount of
approximately $218,000 has been accrued for the period from March 1, 1997
through June 30, 1997. 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.
During 1996 the Partnership booked $395,000 to operating expenses for
Kansas tax reimbursements (plus related interest through December 31, 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,
is currently pursuing regulatory relief with respect to this matter.
Additional interest of $17,000 has been accrued through June, 1997.
Effective May 1, 1997, the Partnership's Kansas gas was committed for sale
and processing to PanEnergy Field Services, Inc. for a period of 3 years.
PanEnergy will pay based on an index of the market price in the field plus
a premium.
3. Since 1994 the Partnership has maintained an unsecured revolving credit
facility for $15,000,000 (the "Agreement") with Bank One, Texas, N.A. The
Agreement has a current borrowing base of $8,500,000, which 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 8.5%
on August 6, 1997. All amounts borrowed under this facility will become due
and payable on July 31, 1999. As of August 6, 1997, letters of credit
totaling $25,000 were issued under the credit facility and the amount
borrowed was $900,000. The weighted average amount borrowed under the
credit facility was approximately $400,000 during the second quarter of
1997.
<PAGE>
DORCHESTER HUGOTON, LTD.
(A Texas Limited Partnership)
PART I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash flows from operating activities during the three and six months ended
June 30, 1997 were $3,157,000 and $7,883,000 compared to $5,614,000 and
$8,664,000 for the same period of 1996. Second quarter cash flows from operating
activities were impacted by lower natural gas market prices compared to the
second quarter of 1996 as well as lower gas sales volumes compared to the second
quarter of 1996 as shown in the table below. Six month operating cash flows have
been positively impacted during 1997 by natural gas market prices which were
higher compared to the same periods last year. Lower 1997 gas sales volumes
compared to the same period of 1996 tended to offset the improved gas pricing.
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 were settled during the third
quarter of 1996. In connection with the settlement, the Partnership paid a
production payment on May 15, 1997 of $1,034,472.39 for the year ended February
28, 1997. An additional amount of approximately $218,000 has been accrued for
the period from March 1, 1997 through June 30, 1997.
The Partnership has available a $15,000,000 unsecured revolving credit facility
with a current borrowing base of $8,500,000. Please see Note 3 to the financial
statements for additional information. As of August 6, 1997, letters of credit
totaling $25,000 were issued under the credit facility and the amount borrowed
was $900,000. The weighted average amount borrowed under the credit facility was
approximately $400,000 during the second quarter of 1997 compared to
approximately $2,400,000 for the first quarter of 1997.
The Partnership's portion of gas sales volumes (not reduced for Oklahoma
production payment) and weighted average sales prices were:
Three Months Ended Six Months Ended
---------------------------- -----------------
June 30, June 30,
---------------- Mar. 31, -----------------
1997 1996 1997 1997 1996
Sales Volumes - MMCF: ----- ----- ----- ----- -----
Oklahoma ............... 1,387 1,579 1,491 2,878 3,302
Kansas ................. 491 564 500 991 1,172
----- ----- ----- ----- -----
Total MMCF ................ 1,878 2,143 1,991 3,869 4,474
===== ===== ===== ===== =====
Weighted Average Sales Prices - $/MCF:
Oklahoma ............... $2.04 $2.19 $3.02 $2.55 $2.10
Kansas ................. 2.06 2.11 3.03 2.55 2.03
Overall Weighted Avg - $/MCF $2.04 $2.16 $3.03 2.55 2.08
Oklahoma gas sales volumes were lower during the 1997 second quarter compared to
the previous 1997 quarter and compared to the 1996 second quarter partly as a
result of different well shut-in scheduling for routine state well tests.
Shut-in of wells for Oklahoma test scheduling had a similar effect in comparing
the six months results of 1997 to 1996. Additional Oklahoma gas sales volume
decreases are a result of natural reservoir changes. Kansas 1997 gas sales
volumes during the second quarter were almost the same as the first quarter of
1997. Compared to 1996, Kansas 1997 gas sales volumes were lower than the
comparable 1996 second quarter and the 1996 same six month period. Such
decreases are primarily a result of declining reservoir pressures experienced by
the Partnership and other producers in the area. The Partnership is currently
completing design of additional gas gathering pipeline and compression
facilities to help overcome such lower pressures.
<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)
As announced July 28, 1997, the Partnership is pleased with the favorable
preliminary results of the Matter No. 2A gas well test of the Fort Riley portion
of the geological formation comprising the Oklahoma Guymon-Hugoton Field. At
present, the Partnership is making arrangements to complete the Matter No. 2A to
produce gas from both the Fort Riley zone and the zones from which the existing
Matter No. 2 well produces. Prior to producing the Matter No. 2A, state
regulatory rules require the Matter No. 2 gas well to be abandoned.
Consequently, it is expected to be several weeks before the Matter No. 2A gas
well can be in actual operation. Additionally, the Partnership believes that
continued operation of the Matter No. 2A for perhaps several months could be
necessary to determine the probability of attempting additional wells in the
Fort Riley. No estimate is currently possible of the ultimate number of
additional wells, if any, that may be attempted to test the Fort Riley zone. No
estimate of the amount of increased reserves, if any, is currently possible. The
Partnership also completed an additional 100% owned Kansas well to better
compete with adjoining wells of others for the existing gas reserves.
Subsequent to discussions in the Partnership's 1996 Annual Report on Form 10-K,
in late February, 1997, Oklahoma did not pass legislation that would have
allowed "infill drilling" similar to Kansas where regulations permit two gas
wells per each 640 acres versus one well in Oklahoma. Such Oklahoma legislation,
if passed, also would have eliminated the Guymon-Hugoton field rules that
regulate the amount of gas production by all producers in the field. The
Partnership believes the field rules are proven conservation measures and
necessary to protect correlative rights among mineral owners and producers and
to prevent waste. At present, a similar proposal to essentially remove field
rules and encourage infill drilling is pending before the Oklahoma Corporation
Commission, which administers oil and gas conservation in Oklahoma. Such
proposal is set for hearing in September, 1997.
The Partnership continues to be active in supporting its views regarding
possible Oklahoma regulatory action on rules regulating gas production
quantities and on infill drilling. Both infill drilling and elimination of field
rules could require considerable capital expenditures. The cost and outcome of
such activities is unpredictable. On May 7, 1996 the Partnership announced a
Unit repurchase program. While the Partnership has not repurchased and retired
any Units to date, that program is still in place.
<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: On July 2, 1997, the Partnership amended its
Partnership agreement to change its address to 1919 S. Shiloh Road,
Suite 600 - LB48, Garland, TX 75042-8234.
Item 6. Exhibits and Reports on Form 8-K:
a) Exhibit 3 - Certificate of Amendment
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K - None.
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:August 8, 1997 /s/ Kathleen A. Rawlings
Kathleen A. Rawlings
Controller (Principal Accounting Officer)
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE AND
AGREEMENT OF LIMITED PARTNERSHIP OF
DORCHESTER HUGOTON, LTD.
July 2, 1997
This Certificate of Amendment to Amended and Restated Certificate and
Agreement of Limited Partnership of Dorchester Hugoton, Ltd., a Texas limited
partnership (the "Partnership") is made and adopted on behalf of the Partnership
by P.A. Peak, Inc., a Delaware corporation ("Peak") and James E. Raley, Inc., a
Delaware corporation ("Raley"), the General Partners (herein so called) of the
Partnership.
A. The Partnership was originally formed by the filing of a Certificate and
Agreement of Limited Partnership in the office of the Secretary of State of
Texas on June 17, 1982. The original Certificate and Agreement was amended and
restated by that certain Amended and Restated Certificate and Agreement of
Limited Partnership of the Partnership filed in the office of the Secretary of
State of Texas on August 20, 1982 and subsequently amended by Certificates of
Amendment filed in the office of the Secretary of State of Texas on or about
July 30, 1985, October 20, 1987, November 10, 1988, August 3, 1989, April 26,
1990, August 30, 1990, February 15, 1991, December 29, 1994 and August 9, 1995
(as so amended, the "Restated Certificate and Agreement").
B. Effective September 1, 1992, the Partnership became subject to and
thereafter governed by the Texas Revised Limited Partnership Act (the "TRLPA").
C. The General Partners hereby amend the Restated Certificate and
Agreement, as permitted by and in accordance with the TRLPA and Section 11.03 of
the Restated Certificate and Agreement, as follows:
<PAGE>
1. Article 2.02 is deleted in entirety and the following is
substituted therefor:
2.02 Principal Office. The principal office of the
Partnership is 1919 South Shiloh Road, Suite 600 - LB 48,
Garland, Texas 75042-8234. The General Partners may change the
principal office of the Partnership and the Limited Partners
shall be furnished with written notice of any such change. The
General Partners may establish such other places of business as
they may determine to be in the best interests of the
Partnership.
IN WITNESS WHEREOF, this Certificate of Amendment to Amended and Restated
Certificate and Agreement of Limited Partnership of Dorchester Hugoton, Ltd. has
been executed by the following General Partners on the date(s) indicated below,
to be effective as of the day and year this Certificate of Amendment is filed in
the office of the Secretary of State of Texas.
GENERAL PARTNER:
P.A. PEAK, INC.
DATED: July 3, 1997 By:________________________________
Preston A. Peak, President
Address: 4208 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
GENERAL PARTNER:
JAMES E. RALEY, INC.
DATED: July 3, 1997 By: ________________________________
James E. Raley, President
Address: 9666 Atherton Drive
Dallas, Texas 75243
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 465
<SECURITIES> 3,308
<RECEIVABLES> 1,640
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,558
<PP&E> 27,115
<DEPRECIATION> 10,578
<TOTAL-ASSETS> 22,095
<CURRENT-LIABILITIES> 3,702
<BONDS> 122
0
0
<COMMON> 0
<OTHER-SE> 18,271
<TOTAL-LIABILITY-AND-EQUITY>22,095
<SALES> 9,424
<TOTAL-REVENUES> 9,424
<CGS> 3,282
<TOTAL-COSTS> 3,282
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78
<INCOME-PRETAX> 6,142
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,142
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
