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 March 31, 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)
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 April 30, 1997, 10,744,380 Depositary Receipts for Units of Limited
Partnership Interest were outstanding.
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DORCHESTER HUGOTON, LTD.
(A Texas Limited Partnership)
QUARTERLY REPORT ON FORM 10-Q
March 31, 1997
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets as of March 31, 1997 and
December 31, 1996 (Unaudited)
Condensed Statements of Earnings for the Three Months Ended
March 31, 1997 and 1996 (Unaudited)
Condensed Statements of Cash Flows for the Three Months Ended
March 31, 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
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DORCHESTER HUGOTON, LTD.
(A Texas Limited Partnership)
PART I
Item 1
CONDENSED BALANCE SHEETS
(Unaudited)
March 31, 1997 and December 31, 1996
(In Thousands of Dollars)
March 31, Dec. 31,
1997 1996
-------- --------
ASSETS
Current assets:
Cash and temporary cash investments .............. $ 119 $ 115
Investments - available for sale ................. 2,909 2,646
Accounts receivable, net ......................... 3,059 3,054
Prepaid expenses and other current assets ........ 66 103
------- -------
Total current assets ........................... 6,153 5,918
Property and Equipment - at cost: 26,555 26,442
Less accum. depreciation, depletion and amort..... (10,127) (9,677)
------- --------
Net property and equipment ..................... 16,428 16,765
------- --------
Total Assets ......................................... $22,581 $22,683
======= =======
LIABILITIES AND PARTNERSHIP CAPITAL
Current liabilities:
Accounts payable and other current liabilities ... $ 505 $ 343
Production and property taxes payable or accrued . 741 755
Royalties and production payment payable ......... 1,308 1,199
Distributions payable to Unitholders ............. 1,962 1,853
------- -------
Total current liabilities ...................... 4,516 4,150
Long-term debt ....................................... 422 3,144
------- -------
Total liabilities .............................. 4,938 7,294
Commitments and contingencies (Note 2)
Partnership capital
General partners ................................. 99 77
Unitholders ...................................... 17,544 15,312
------- -------
Total partnership capital ...................... 17,643 15,389
------- -------
Total liabilities and partnership capital ............ $22,581 $22,683
======= =======
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 Months Ended March 31, 1997 and 1996
(In Thousands of Dollars)
Three Months Ended
March 31,
---------------------
1997 1996
-------- --------
Net operating revenues:
Natural gas sales ............................. $ 6,023 $ 4,664
Other ......................................... 50 33
Production payment (ORRI) ..................... (344) -0-
Litigation settlement adjustment .............. -0- -0-
-------- --------
Total net operating revenues ....................... 5,729 4,697
-------- --------
Costs and expenses
Operating, including production taxes .......... 984 813
Depletion, depreciation & amortization ......... 485 381
General and administrative ..................... 148 141
Management fees ................................ 116 106
Interest ...................................... 58 31
Litigation settlement .......................... -0- -0-
Other income, net .............................. (21) (21)
-------- --------
Total costs and expenses ........................... 1,770 1,451
-------- --------
Net earnings ....................................... $ 3,959 $ 3,246
======== ========
Net earnings per Unit (in dollars) ................. $ 0.36 $ 0.30
======== ========
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 Three Months Ended March 31, 1997 and 1996
(In Thousands of Dollars)
1997 1996
------- -------
Cash flows provided by operating activities .......... $ 4,726 $ 3,050
------- -------
Cash flows used in investing activities:
Purchases of prop. & equipment, net of retirements (128) (267)
Cash received on sale of other prop. & equipment.. (27) -0-
------- -------
Cash flows used in investing activities .............. (155) (267)
------- -------
Cash flows used in financing activities:
Distributions paid to Unitholders ................ (1,845) (1,845)
Additions to long-term debt ...................... 2,700 3,766
Reductions of long-term debt ..................... (5,422) (4,847)
Other ............................................ -0- -0-
------- -------
Cash flows used in financing activities .............. (4,567) (2,926)
------- -------
Increase (decrease) in cash and temp. cash investments 4 (143)
Cash and temporary cash investments at January 1, .... 115 183
------- -------
Cash and temporary cash investments at March 31, ..... $ 119 $ 40
======= =======
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. The
weighted average number of Units outstanding for the period 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") $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 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 of $1,034,472.39, is payable on May 15, 1997
and covers the year ended February 28, 1997. An additional amount of
approximately $45,000 has been accrued for March, 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,
may pursue further judicial review or regulatory relief with respect to
this matter. Additional interest of $8,000 has been accrued through March,
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 May 6, 1997. All amounts borrowed under this facility will become due
and payable on July 31, 1999. As of May 6, 1997, letters of credit totaling
$25,000 were issued under the credit facility and the amount borrowed was
$100,000. The weighted average amount borrowed under the credit facility
was approximately $2,400,000 during the first 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 months ended March 31,
1997 were $4,726,000 compared to $3,050,000 for the same period of 1996.
Operating cash flows were positively impacted during 1997 by natural gas market
prices which were significantly higher compared to the same periods last year as
shown in the table below. The Partnership was pleased that favorable past winter
gas prices enabled a significant reduction in debt and also permitted an
increase in the distribution from $0.17 to $0.18 per Unit as announced March 13,
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 May 6, 1997, letters of credit
totaling $25,000 were issued under the credit facility and the amount borrowed
was $100,000. The weighted average amount borrowed under the credit facility was
approximately $2,400,000 during the first quarter of 1997 compared to
approximately $4,700,000 for the fourth quarter of 1996.
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 will pay a production payment on May 15,
1997 of $1,034,472.39 for the year ended February 28, 1997. An additional
$45,000 has been accrued for March, 1997.
The Partnership's portion of gas sales volumes (not reduced for Oklahoma
production payment) and weighted average sales prices were:
Three Months Ended
----------------------------
March 31,
---------------- Dec. 31
1997 1996 1996
Sales Volumes - MMCF: ----- ----- -----
Oklahoma ............... 1,491 1,723 1,531
Kansas ................. 500 606 503
----- ----- -----
Total MMCF ................ 1,991 2,329 2,034
===== ===== =====
Weighted Average Sales Prices - $/MCF:
Oklahoma ............... $3.02 $2.02 $2.69
Kansas ................. 3.03 1.95 2.81
Overall Weighted Average - $/MCF $3.03 $2.00 $2.72
Oklahoma natural gas sales volumes were lower during the first quarter compared
to the first quarter of 1996 as a result of routine state well tests during the
current quarter. Kansas natural gas sales volumes were also lower during the
first quarter compared to the same quarter of 1996 during which new compression
facilities began operation.
<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 is currently completing an additional 100% owned Kansas well to
better compete with adjoining wells of others for the existing gas reserves. The
Partnership anticipates filing a request during May or June 1997 for a permit to
drill a well to test the Fort Riley zone in Oklahoma (See 1996 Annual Report on
Form 10-K). Since drilling rigs are not readily available, no forecasted date of
drilling is currently possible. Additionally, it is not known how many wells
should be attempted to evaluate any potential of the Fort Riley formation. The
outcome of such exploration is unpredictable.
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: Effective May 22, 1997, the Partnership will
move its office in the Dallas area to 1919 S. Shiloh Road, Suite 600 -
LB48, Garland, TX 75042-8234. Our new telephone number will be (972)
864-8610.
Item 6. Exhibits and Reports on Form 8-K:
a) 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: May 7, 1997 /s/ Kathleen A. Rawlings
Kathleen A. Rawlings
Controller (Principal Accounting Officer)
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<CASH> 119
<SECURITIES> 2,909
<RECEIVABLES> 3,059
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,153
<PP&E> 26,555
<DEPRECIATION> 10,127
<TOTAL-ASSETS> 22,581
<CURRENT-LIABILITIES> 4,516
<BONDS> 422
0
0
<COMMON> 0
<OTHER-SE> 17,643
<TOTAL-LIABILITY-AND-EQUITY>22,581
<SALES> 5,729
<TOTAL-REVENUES> 5,729
<CGS> 1,770
<TOTAL-COSTS> 1,770
<OTHER-EXPENSES> 0
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<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,959
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
