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, 1998 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, TX 75042-8234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 864-8610
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, 1998, 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
March 31, 1998
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets as of March 31, 1998 and
December 31, 1997 (Unaudited)
Condensed Statements of Earnings for the Three Months Ended
March 31, 1998 and 1997 (Unaudited)
Condensed Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 (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)
March 31, 1998 and December 31, 1997
(In Thousands of Dollars)
March 31, Dec. 31,
1998 1997
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 4,176 $ 3,344
Restricted cash .................................. 366 -0-
Investments - available for sale ................. 3,652 3,304
Accounts receivable, net ......................... 1,918 2,086
Prepaid expenses and other current assets ........ 113 136
------- -------
Total current assets ........................... 10,225 8,870
Property and equipment - at cost: 27,915 27,875
Less depreciation, depletion, and amortization ... (12,002) (11,530)
------- --------
Net property and equipment ..................... 15,913 16,345
------- --------
Total assets ......................................... $26,138 $25,215
======= =======
LIABILITIES AND PARTNERSHIP CAPITAL
Current liabilities:
Accounts payable and other current liabilities ... $ 412 $ 411
Production and property taxes payable or accrued . 718 820
Royalties and production payment payable ......... 1,250 1,063
Distributions payable to Unitholders ............. 1,958 1,958
------- -------
Total current liabilities ...................... 4,338 4,252
Long-term debt ....................................... 100 122
------- -------
Total liabilities .............................. 4,438 4,374
Commitments and contingencies (Note 2)
Partnership capital
General partners ................................. 140 131
Unitholders ...................................... 21,560 20,710
------- -------
Total partnership capital ...................... 21,700 20,841
------- -------
Total liabilities and partnership capital ............ $26,138 $25,215
======= =======
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 Months Ended March 31, 1998 and 1997
(In Thousands of Dollars)
Three Months Ended
March 31,
---------------------
1998 1997
-------- --------
Net operating revenues:
Natural gas sales ............................. $ 4,250 $ 6,023
Other ......................................... 49 50
Production payment (ORRI) ..................... (202) (344)
-------- -------
Total net operating revenues ....................... 4,097 5,729
-------- -------
Costs and expenses
Operating, including production taxes .......... 878 984
Depletion, depreciation & amortization ......... 505 485
General and administrative ..................... 143 148
Management fees ................................ 125 116
Interest ...................................... 10 58
Other income, net .............................. (28) (21)
-------- -------
Total costs and expenses ........................... 1,633 1,770
-------- -------
Net earnings ....................................... $ 2,464 $ 3,959
======== =======
Net earnings per Unit (in dollars) ................. $ 0.23 $ 0.36
======== =======
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 Three Months Ended March 31, 1998 and 1997
(In Thousands of Dollars)
1998 1997
------- -------
Cash flows provided by operating activities .......... $ 2,887 $ 4,726
------- -------
Cash flows used in investing activities:
Purchases of property & equipment ................ (79) (182)
Cash received on sale of
other property & equipment ................ -0- 27
------- -------
Cash flows used in investing activities .............. (79) (155)
------- -------
Cash flows used in financing activities:
Distributions paid to Unitholders ................ (1,954) (1,845)
Additions to long-term debt ...................... -0- 2,700
Reductions of long-term debt ..................... (22) (5,422)
------- -------
Cash flows used in financing activities .............. (1,976) (4,567)
------- -------
Increase in cash and cash equivalents ................ 832 4
Cash and cash equivalents at January 1, .............. 3,344 115
------- -------
Cash and cash equivalents at March 31, ............... $ 4,176 $ 119
======= =======
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 the
Unitholders by the 10,744,380 Units outstanding.
2. During 1996 the Partnership booked $395,000 to operating expenses for
refund of Kansas tax reimbursements (which included 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 received a refund
request from Panhandle Eastern Pipe Line Company ("PEPL") and an additional
amount of $105,000 was booked during 1997. Subsequently, the Partnership
and PEPL have reached agreement on a portion of the disputed amounts and on
March 9, 1998 $151,756.92 was paid to PEPL. An additional $366,633.13,
which is still awaiting possible regulatory/judicial/legislative action,
was placed into an escrow account. The escrowed funds include amounts
possibly waived, recovered or recoverable from others. A reduction to
operating expense of $51,000 offset by an allowance of $36,000 for the
uncollectible portion not waived has been booked through March 31, 1998.
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 $6,000,000, 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, 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 April 30, 1998. All amounts borrowed under
this facility will become due and payable on July 31, 1999. As of April 30,
1998, 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 $100,000 during the
first quarter of 1998.
4. As previously discussed in the 1997 Annual Report on Form 10-K, the
Partnership adopted a severance policy during the first quarter of 1998.
Benefits are generally payable to employees and General Partner(s) in the
event of a reduction in force or the elimination of a position or group of
positions. The policy provides for up to approximately $2.8 million of
severance payments if such obligations occur.
<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,
1998 were $2,887,000 compared to $4,726,000 for the same period of 1997 while
net earnings were $0.23 and $0.36 per Unit, respectively for the same periods.
Operating cash flows and net earnings were lower during 1998 primarily as a
result of significantly lower natural gas market prices compared to the same
period last year as shown in the table below.
The Partnership has available a $15,000,000 unsecured revolving credit facility
with a current borrowing base of $6,000,000. Please see Note 3 to the financial
statements for additional information. As of April 30, 1998, 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 $100,000 during the first quarter of 1998. Cash and temporary cash
investments totaled $4,542,000 on March 31, 1998 compared to $3,344,000 on
December 31, 1997.
In connection with the Oklahoma properties, on May 15, 1998 the Partnership will
pay approximately $847,000 in production payments for the year ended February
28, 1998. An additional $62,000 has been accrued for March, 1998.
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
1998 1997 1997
Sales Volumes - MMCF: ----- ----- -----
Oklahoma ............... 1,439 1,491 1,495
Kansas ................. 466 500 496
----- ----- -----
Total MMCF ................ 1,905 1,991 1,991
===== ===== =====
Weighted Average Sales Prices - $/MCF:
Oklahoma ............... $2.21 $3.02 $2.98
Kansas ................. 2.30 3.03 3.07
Overall Weighted Average - $/MCF $2.23 $3.03 $3.01
Oklahoma natural gas sales volumes were slightly lower during the first quarter
compared to the first quarter of 1997 as a result of routine state well tests
during the current quarter. Kansas natural gas sales volumes were also slightly
lower during the first quarter compared to the same quarter of 1997 partly as a
result of natural reservoir changes.
<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)
During April, 1998 the Partnership drilled its second well to test the Fort
Riley zone in Oklahoma (see 1997 Annual Report on Form 10-K). Preliminary
results do not appear as favorable as the 1997 test well although evaluation
will continue. It is not known how many wells should be attempted to evaluate
the potential of the Fort Riley formation. The outcome of such exploration is
unpredictable. Unrelated to the Fort Riley zone, the two Oklahoma wells that
have been fracture treated continue to produce at approximately the same
increased volumes and pressures. Additional fracture treatments are planned.
As previously discussed in the 1997 Annual Report on Form 10-K, on February 4,
1998 the Oklahoma Corporation Commission ("OCC"), which administers state oil
and gas conservation, adopted rules that will essentially remove limits on all
gas well production volume in mid-1998 in the Guymon Hugoton field including gas
from the Partnership's wells. The OCC specifically provided that the rule
changes have no bearing on the question of infill drilling which must be decided
separately. Infill drilling, if adopted, would likely allow one well for each
320 acres (as in the Partnership's Kansas properties) versus the present one
well for each 640 acres. Both infill drilling and elimination of field rules
could require considerable capital expenditures. THE OUTCOME AND THE COST OF
SUCH ACTIVITIES IS UNPREDICTABLE.
While the Partnership has not repurchased and retired any of its publicly traded
Units to date, the previously announced program is still in place. The
Partnership anticipates no material impact on operations or on the financial
statements due to Year 2000 computer issues.
As previously discussed in the 1997 Annual Report on Form 10-K, the Partnership
is reviewing its strategic alternatives in light of the various mergers and
other business transactions occurring in the natural gas and energy industry.
Although no decision to sell or combine the Partnership's business with others
has been made, the Partnership anticipates possible discussions with third
parties which could result in such a decision. The Partnership has no timetable
for any such discussions, and there is no assurance that any such discussions
will lead to a transaction. As discussed in Note 4, during the first quarter of
1998 the Partnership adopted a severance policy which would provide up to
approximately $2.8 million of severance payments if such obligations occur.
<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 April 3, 1998 the Partnership amended Section
3.08(a) of the Restated Certificate and Agreement to provide for
reasonable severance payments for the General Partners.
Item 6. Exhibits and Reports on Form 8-K:
a) Exhibit 3.02 - Amendment to the Partnership Agreement dated April
3, 1998
b) Exhibit 27 - Financial Data Schedule
c) Reports on Form 8-K - On April 7, 1998, the Partnership announced
that it had changed its principal accountant from Coopers &
Lybrand, L.L.P. to Grant Thornton, LLP effective April 3, 1998.
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: April 30, 1998 /s/ Kathleen A. Rawlings
Kathleen A. Rawlings
Controller (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,542
<SECURITIES> 3,652
<RECEIVABLES> 1,918
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,225
<PP&E> 27,915
<DEPRECIATION> 12,002
<TOTAL-ASSETS> 26,138
<CURRENT-LIABILITIES> 4,338
<BONDS> 100
0
0
<COMMON> 0
<OTHER-SE> 21,700
<TOTAL-LIABILITY-AND-EQUITY>26,138
<SALES> 4,097
<TOTAL-REVENUES> 4,097
<CGS> 1,633
<TOTAL-COSTS> 1,633
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 2,464
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,464
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE AND
AGREEMENT OF LIMITED PARTNERSHIP OF
DORCHESTER HUGOTON, LTD.
April 3, 1998
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, August 9, 1995,
July 2, 1997, and December 15, 1997 (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. Effective March 1, 1998 Section 3.08(a) of the Restated Certificate and
Agreement is hereby amended in its entirety to read as follows:
3.08 COMPENSATION OF GENERAL PARTNERS.
(a) Subject to the provisions of Section 3.08(b) below, in addition to
reasonable severance payments, the General Partners shall be entitled to
receive reasonable compensation from the Partnership for services rendered
in operating and managing the Partnership in an annual aggregate amount
equal to $350,000 plus one percent (1%) of Gross Income, or such lesser
amount as the General Partners may from time to time determine is
appropriate. The compensation and severance payments payable to the General
Partners under this Section 3.08(a) shall be divided among the General
Partners equally or as they may otherwise mutually agree. For purposes of
this Section, the term "Gross Income" shall mean the annual gross income of
the Partnership from the Partnership Properties.
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: March 26, 1998 By:________________________________
Preston A. Peak, President
Address: 4208 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
GENERAL PARTNER:
JAMES E. RALEY, INC.
DATED: March 26, 1998 By: ________________________________
James E. Raley, President
Address: 9666 Atherton Drive
Dallas, Texas 75243
