FORM 10-K405
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
Commission File Number 0-13578
DYCO OIL AND GAS PROGRAM 1984-2
(A LIMITED PARTNERSHIP)
(Exact name of registrant as specified in its charter)
Minnesota 41-1479080
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Samson Plaza
Two West Second Street
Tulsa, Oklahoma 74103
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (918) 583-1791
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Units of limited partnership interest
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 the
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K405 or any amendment to
this Form 10-K405. [X]
The units of limited partnership are not publicly traded, therefore,
registrant cannot compute the aggregate market value of the voting units held by
non-affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE: None.
<PAGE>
FORM 10-K405
DYCO OIL AND GAS PROGRAM 1984-2
(a Minnesota limited partnership)
TABLE OF CONTENTS
PART I.......................................................................3
ITEM 1. BUSINESS...................................................3
ITEM 2. PROPERTIES.................................................7
ITEM 3. LEGAL PROCEEDINGS.........................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS.......10
PART II.....................................................................11
ITEM 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP UNITS
AND RELATED LIMITED PARTNER MATTERS.......................11
ITEM 6. SELECTED FINANCIAL DATA...................................12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................29
PART III....................................................................29
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........29
ITEM 11. EXECUTIVE COMPENSATION....................................30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............34
PART IV.....................................................................36
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K...............................................36
SIGNATURES............................................................38
2
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PART I.
ITEM 1. BUSINESS.
General
The Dyco Oil and Gas Program 1984-2 Limited Partnership (the "Program") is
a Minnesota limited partnership engaged in the production of oil and gas. The
Program commenced operations on November 5, 1984 with the primary financial
objective of investing its limited partners' subscriptions in the drilling of
oil and gas prospects and then distributing to its limited partners all
available cash flow from the Program's on-going production operations. Dyco
Petroleum Corporation ("Dyco") serves as the General Partner of the Program. See
"Item 2. Properties" for a description of the Program's reserves and properties.
The limited partnership agreement for the Program (the "Program
Agreement") provides that limited partners are allocated 99% of all Program
costs and revenues and Dyco, as General Partner, is allocated 1% of all Program
costs and revenues. Included in such costs is the Program's reimbursement to
Dyco of the Program's proportionate share of Dyco's geological, engineering, and
general and administrative expenses.
Dyco currently serves as General Partner of 32 limited partnerships,
including the Program. Dyco is a wholly-owned subsidiary of Samson Investment
Company. Samson Investment Company and its various corporate subsidiaries,
including Dyco, (collectively, the "Samson Companies") are primarily engaged in
the production and development of and exploration for oil and gas reserves and
the acquisition and operation of producing properties. At December 31, 1997, the
Samson Companies owned interests in approximately 13,000 oil and gas wells
located in 19 states of the United States and the countries of Canada,
Venezuela, and Russia. At December 31, 1997, the Samson Companies operated
approximately 2,500 oil and gas wells located in 15 states of the United States,
as well as Canada, Venezuela, and Russia.
As a limited partnership, the Program has no officers, directors, or
employees. It relies instead on the personnel of Dyco and the other Samson
Companies. As of March 1, 1998, the Samson Companies employed approximately 820
persons. No employees are covered by collective bargaining agreements, and
management believes that the Samson Companies provide a sound employee relations
environment. For information regarding the executive officers of Dyco, see "Item
10. Directors and Executive Officers of the Registrant."
Dyco's and the Program's principal place of business is located at Samson
Plaza, Two West Second Street, Tulsa, Oklahoma 74103, and their telephone number
is (918) 583-1791 or (800) 283-1791.
3
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Funding
Although the Program Agreement permits the Program to incur borrowings,
the Program's operations and expenses are currently funded out of the Program's
revenues from oil and gas sales. Dyco may, but is not required to, advance funds
to the Program for the same purposes for which Program borrowings are
authorized.
Principal Products Produced and Services Rendered
The Program's sole business is the development and production of oil and
gas with a concentration on gas. The Program does not hold any patents,
trademarks, licenses, or concessions and is not a party to any government
contracts. The Program has no backlog of orders and does not participate in
research and development activities. The Program is not presently encountering
shortages of oilfield tubular goods, compressors, production material, or other
equipment.
Oil, Gas, and Environmental Control Regulations
Regulation of Production Operations -- The production of oil and gas is
subject to extensive federal and state laws and regulations governing a wide
variety of matters, including the drilling and spacing of wells, allowable rates
of production, prevention of waste and pollution, and protection of the
environment. In addition to the direct costs borne in complying with such
regulations, operations and revenues may be impacted to the extent that certain
regulations limit oil and gas production to below economic levels.
Regulation of Sales and Transportation of Oil and Gas -- Sales of crude
oil and condensate are made by the Program at market prices and are not subject
to price controls. The sale of gas may be subject to both federal and state laws
and regulations. The provisions of these laws and regulations are complex and
affect all who produce, resell, transport, or purchase gas, including the
Program. Although virtually all of the Program's gas production is not subject
to price regulation, other regulations affect the availability of gas
transportation services and the ability of gas consumers to continue to purchase
or use gas at current levels. Accordingly, such regulations may have a material
effect on the Program's operations and projections of future oil and gas
production and revenues.
Future Legislation -- Legislation affecting the oil and gas industry is
under constant review for amendment or expansion. Because such laws and
regulations are frequently amended or reinterpreted, management is unable to
predict what additional energy legislation may be proposed or enacted or the
future cost and impact of complying with existing or future regulations.
4
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Regulation of the Environment -- The Program's operations are subject to
numerous laws and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. Compliance with
such laws and regulations, together with any penalties resulting from
noncompliance, may increase the cost of the Program's operations or may affect
the Program's ability to timely complete existing or future activities.
Management anticipates that various local, state, and federal environmental
control agencies will have an increasing impact on oil and gas operations.
Significant Customers
Purchases of gas by El Paso Energy Marketing Company ("El Paso") accounted
for approximately 97.7% of the Program's oil and gas revenues during the year
ended December 31, 1997. In the event of interruption of purchases by this
significant customer or the cessation or material change in availability of
open-access transportation by the Program's pipeline transporters, the Program
may encounter difficulty in marketing its gas and in maintaining historic sales
levels. Alternative purchasers or transporters may not be readily available.
The Program's principal customers for crude oil production are refiners
and other companies which have pipeline facilities near the producing properties
of the Program. In the event pipeline facilities are not conveniently available
to production areas, crude oil is usually trucked by purchasers to storage
facilities.
Competition and Marketing
The domestic oil and gas industry is highly competitive, with a large
number of companies and individuals engaged in the exploration and development
of oil and gas properties. The ability of the Program to produce and market oil
and gas profitably depends on a number of factors that are beyond the control of
the Program. These factors include worldwide political instability (especially
in oil-producing regions), United Nations export embargoes, the supply and price
of foreign imports of oil and gas, the level of consumer product demand (which
can be heavily influenced by weather patterns), government regulations and
taxes, the price and availability of alternative fuels, the overall economic
environment, and the availability and capacity of transportation and processing
facilities. The effect of these factors on future oil and gas industry trends
cannot be accurately predicted or anticipated.
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. Concerning past trends, average yearly wellhead gas prices in the
United States have been volatile for a number of years. For the past ten years,
such average prices have
5
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generally been in the $1.40 to $2.40 per Mcf range, significantly below prices
received in the early 1980s. Average gas prices in the latter part of 1996 and
parts of 1997, however, were somewhat higher than those yearly averages. Gas
prices are currently in the middle portion of the 10-year average price range
described above.
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. In addition, such spot market sales are generally short-term in nature
and are dependent upon the obtaining of transportation services provided by
pipelines. Spot prices for the Program's gas decreased from approximately $3.57
per Mcf at December 31, 1996 to approximately $2.32 per Mcf at December 31,
1997. Such prices were on an MMBTU basis and differ from the prices actually
received by the Program due to transportation and marketing costs, BTU
adjustments, and regional price and quality differences.
For the past ten years, average oil prices have generally been in the
$16.00 to $24.00 per barrel range. Due to global consumption and supply trends
over the last several months, as well as expectations of at least a short-term
slowdown in Asian energy demand, oil prices have recently been in the mid to
lower portions of this pricing range, and in early 1998 dropped to as low as
$12.00 per barrel. It is not known whether this trend will continue. Prices for
the Program's oil decreased from approximately $23.75 per barrel at December 31,
1996 to approximately $16.25 per barrel at December 31, 1997.
Future prices for both oil and gas will likely be different from (and may
be lower than) the prices in effect on December 31, 1997. Primarily due to
heating season demand, year-end prices in many past years have tended to be
higher, and in some cases significantly higher, than the yearly average price
actually received by the Program for at least the following year. Management is
unable to predict whether future oil and gas prices will (i) stabilize, (ii)
increase, or (iii) decrease.
Insurance Coverage
The Program is subject to all of the risks inherent in the exploration for
and production of oil and gas, including blowouts, pollution, fires, and other
casualties. The Program maintains insurance coverage as is customary for
entities of a similar size engaged in operations similar to that of the Program,
but losses can occur from uninsurable risks or in amounts in excess of existing
insurance coverage. The occurrence of an event which is not fully covered by
insurance could have a material adverse effect on the Program's financial
position and results of operations.
6
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ITEM 2. PROPERTIES.
Well Statistics
The following table sets forth the numbers of gross and net productive
wells of the Program as of December 31, 1997.
Well Statistics(1)
As of December 31, 1997
Gross productive wells (2):
Oil -
Gas 12
--
Total 12
Net productive wells(3):
Oil -
Gas 1.62
----
Total 1.62
- ----------
(1) The designation of a well as an oil well or gas well is made by Dyco based
on the relative amount of oil and gas reserves for the well. Regardless of
a well's oil or gas designation, it may produce oil, gas, or both oil and
gas.
(2) As used throughout this Annual Report on Form 10-K ("Annual Report"),
"Gross Well" refers to a well in which a working interest is owned. The
number of gross wells is the total number of wells in which a working
interest is owned.
(3) As used throughout this Annual Report, "Net Well" refers to the sum of the
fractional working interests owned in gross wells. For example, a 15%
working interest in a well represents one Gross Well, but 0.15 Net Well.
Drilling Activities
The Program participated in no drilling activities for the year ended
December 31, 1997.
Oil and Gas Production, Revenue, and Price History
The following table sets forth certain historical information concerning
the oil (including condensates) and gas production, net of all royalties,
overriding royalties, and other third party interests, of the Program, revenues
attributable to such production, and certain price and cost information.
7
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Net Production Data
Year Ended December 31,
-----------------------------------
1997 1996 1995
-------- -------- --------
Production:
Oil (Bbls)(1) 288 344 469
Gas (Mcf)(2) 169,123 203,023 263,846
Oil and Gas Sales:
Oil $ 5,505 $ 6,978 $ 8,092
Gas 397,371 422,431 345,538
------- ------- -------
Total $402,876 $429,409 $353,630
======= ======= =======
Total direct operating expenses(3) $ 87,598 $106,935 $104,992
======= ======= =======
Direct operating expenses as a
percentage of oil and
gas sales 21.7% 24.9% 29.7%
Average sales price:
Per barrel of oil $19.11 $20.28 $17.25
Per Mcf of gas 2.35 2.08 1.31
Direct operating expenses per
equivalent Mcf of gas(4) $ .51 $ .52 $ .39
- ----------
(1) As used throughout this Annual Report, "Bbls" refers to barrels of 42 U.S.
gallons and represents the basic unit for measuring the production of
crude oil and condensate oil.
(2) As used throughout this Annual Report, "Mcf" refers to volume of 1,000
cubic feet under prescribed conditions of pressure and temperature and
represents the basic unit for measuring the production of gas.
(3) Includes lease operating expenses and production taxes.
(4) Oil production is converted to gas equivalents at the rate of six Mcf per
barrel, representing the estimated relative energy content of gas and oil,
which rate is not necessarily indicative of the relationship of oil and
gas prices. The respective prices of oil and gas are affected by market
and other factors in addition to relative energy content.
Proved Reserves and Net Present Value
The following table sets forth the Program's estimated proved oil and gas
reserves and net present value therefrom as of December 31, 1997. The schedule
of quantities of proved oil and gas reserves was prepared by Dyco in accordance
with the rules prescribed by the
8
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Securities and Exchange Commission (the "SEC"). As used throughout this Annual
Report, "proved reserves" refers to those estimated quantities of crude oil,
gas, and gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known oil and gas
reservoirs under existing economic and operating conditions.
Net present value represents estimated future gross cash flow from the
production and sale of proved reserves, net of estimated oil and gas production
costs (including production taxes, ad valorem taxes, and operating expenses),
and estimated future development costs, discounted at 10% per annum. Net present
value attributable to the Program's proved reserves was calculated on the basis
of current costs and prices at December 31, 1997. Such prices were not escalated
except in certain circumstances where escalations were fixed and readily
determinable in accordance with applicable contract provisions. The prices used
by Dyco in calculating the net present value attributable to the Program's
proved reserves do not necessarily reflect market prices for oil and gas
production subsequent to December 31, 1997. Year-end prices have generally been
higher than prices during the rest of the year. There can be no assurance that
the prices used in calculating the net present value of the Program's proved
reserves at December 31, 1997 will actually be realized for such production.
The process of estimating oil and gas reserves is complex, requiring
significant subjective decisions in the evaluation of available geological,
engineering, and economic data for each reservoir. The data for a given
reservoir may change substantially over time as a result of, among other things,
additional development activity, production history, and viability of production
under varying economic conditions; consequently, it is reasonably possible that
material revisions to existing reserve estimates may occur in the near future.
Although every reasonable effort has been made to ensure that these reserve
estimates represent the most accurate assessment possible, the significance of
the subjective decisions required and variances in available data for various
reservoirs make these estimates generally less precise than other estimates
presented in connection with financial statement disclosures.
Proved Reserves and
Net Present Value
From Proved Reserves
As of December 31, 1997
Estimated proved reserves:
Gas (Mcf) 1,394,943
Oil and liquids (Bbls) 5,777
Net present value
(discounted at 10% per annum) $1,473,653
9
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No estimates of the proved reserves of the Program comparable to those
included herein have been included in reports to any federal agency other than
the SEC. Additional information relating to the Program's proved reserves is
contained in Note 4 to the Program's financial statements, included in Item 8 of
this Annual Report.
Significant Properties
As of December 31, 1997, the Program's properties consisted of 12 gross
(1.62 net) productive wells. The Program also owned a non-working interest in an
additional 6 wells. Affiliates of the Program operate 8 (44%) of the Program's
total wells. As of December 31, 1997, the Program had estimated total proved
reserves of 1,394,943 Mcf of gas and 5,777 barrels of oil, with a present value
(discounted at 10% per annum) of estimated future net cash flow of $1,473,653.
All of the Program's reserves are located in the Anadarko Basin of western
Oklahoma and the Texas panhandle, which is an established oil and gas producing
basin.
Title to Oil and Gas Properties
Management believes that the Program has satisfactory title to its oil and
gas properties. Record title to substantially all of the Program's properties is
held by Dyco as nominee.
Title to the Program's properties is subject to customary royalty,
overriding royalty, carried, working, and other similar interests and
contractual arrangements customary in the oil and gas industry, to liens for
current taxes not yet due, and to other encumbrances. Management believes that
such burdens do not materially detract from the value of such properties or from
the Program's interest therein or materially interfere with their use in the
operation of the Program's business.
ITEM 3. LEGAL PROCEEDINGS
To the knowledge of the management of Dyco and the Program, neither Dyco,
the Program, nor the Program's properties are subject to any litigation, the
results of which would have a material effect on the Program's or Dyco's
financial condition or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS
There were no matters submitted to a vote of the limited partners during
1997.
10
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP UNITS AND RELATED
LIMITED PARTNER MATTERS
The Program does not have an established trading market for its units of
limited partnership interest ("Units"). Pursuant to the terms of the Program
Agreement, Dyco, as General Partner, is obligated to annually issue a repurchase
offer which is based on the estimated future net revenues from the Program's
reserves and is calculated pursuant to the terms of the Program Agreement. Such
repurchase offer is recalculated monthly in order to reflect cash distributions
made to the limited partners and extraordinary events. The following table sets
forth, for the periods indicated, Dyco's repurchase offer per Unit and the
amount of the Program's cash distributions per Unit for the same period. For
purposes of this Annual Report, a Unit represents an initial subscription of
$5,000 to the Program.
Repurchase Cash
Price Distributions
---------- -------------
1996:
First Quarter $125 $20
Second Quarter 125 -
Third Quarter 151 30
Fourth Quarter 151 -
1997:
First Quarter $131 $20
Second Quarter 131 -
Third Quarter 167 20
Fourth Quarter 167 -
1998:
First Quarter $142 $25
The Program has 5,252 Units outstanding and approximately 1,939 limited
partners of record.
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ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data
The following table presents selected financial data for the Program. This
data should be read in conjunction with the financial statements of the Program,
and the respective notes thereto, included elsewhere in this Annual Report. See
"Item 8. Financial Statements and Supplementary Data."
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Oil and gas sales $402,876 $429,409 $353,630 $457,976 $ 647,203
Total revenues 406,105 432,467 357,036 460,984 650,190
Lease operating expenses 58,312 76,146 80,369 73,996 67,673
Production taxes 29,286 30,789 24,623 34,048 47,310
General and administrative
expenses 72,475 69,850 70,819 66,089 69,111
Depreciation, depletion, and
amortization of oil and gas
properties 62,721 44,908 76,731 207,274 216,161
Impairment provision - - 180,629 - -
Net income (loss) 183,311 210,774 ( 76,135) 79,577 249,935
per Unit 34.90 40.13 ( 14.50) 15.15 47.59
Cash distributions 210,080 262,600 131,300 341,380 498,940
per Unit 40 50 25 65 95
Summary Balance Sheet Data:
Total assets 624,851 661,880 712,462 928,421 1,164,028
Partners' capital 610,298 637,067 688,893 896,328 1,158,131
</TABLE>
12
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Use of Forward-Looking Statements and Estimates
This Annual 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 Annual 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, or otherwise indicated.
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. Concerning past trends, average
yearly wellhead gas prices in the United States have been volatile for a number
of years. For the past ten years, such average prices have generally been in the
$1.40 to $2.40 per Mcf range, significantly below prices received in the early
1980s. Average gas prices in the latter part of 1996 and parts of 1997 however,
were somewhat higher than those yearly averages. Gas prices are currently in the
middle portion of the 10-year average price range described above.
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. In addition, such spot market sales are generally short-term in nature
and are dependent upon the obtaining of transportation services provided by
pipelines.
13
<PAGE>
Spot prices for the Program's gas decreased from approximately $3.57 per Mcf at
December 31, 1996 to approximately $2.32 per Mcf at December 31, 1997. Such
prices were on an MMBTU basis and differ from the prices actually received by
the Program due to transportation and marketing costs, BTU adjustments, and
regional price and quality differences.
For the past ten years, average oil prices have generally been in the
$16.00 to $24.00 per barrel range. Due to global consumption and supply trends
over the last several months as well as expectations of at least a short-term
slowdown in Asian energy demand, oil prices have recently been in the mid to
lower portions of this pricing range, and in early 1998 dropped to as low as
$12.00 per barrel. It is not known whether this trend will continue. Prices for
the Program's oil decreased from approximately $23.75 per barrel at December 31,
1996 to approximately $16.25 per barrel at December 31, 1997.
Future prices for both oil and gas will likely be different from (and may
be lower than) the prices in effect on December 31, 1997. Primarily due to
heating season demand, year-end prices in many past years have tended to be
higher, and in some cases significantly higher, than the yearly average price
actually received by the Program for at least the following year. Management is
unable to predict whether future oil and gas prices will (i) stabilize, (ii)
increase, or (iii) decrease.
Results of Operations
Year Ended December 31, 1997 Compared
Year Ended December 31, 1996
-------------------------------------
Total oil and gas sales decreased $26,533 (6.2%) in 1997 as compared to
1996. Of this decrease, approximately $71,000 was related to a decrease in the
volumes of gas sold, which decrease was partially offset by an increase of
approximately $46,000 related to an increase in the average price of gas sold.
Volumes of oil and gas sold decreased 56 barrels and 33,900 Mcf, respectively,
in 1997 as compared to 1996. The decrease in volumes of gas sold resulted
primarily from (i) normal declines in production and (ii) a positive prior
period volume adjustment made by the purchaser on one well during 1996. Average
oil prices decreased to $19.11 per barrel in 1997 from $20.28 per barrel in
1996. Average gas prices increased to $2.35 per Mcf in 1997 from $2.08 per Mcf
in 1996.
Oil and gas production expenses (including lease operating expenses and
production taxes) decreased $19,337 (18.1%) in 1997 as compared to 1996. This
decrease resulted primarily from (i) a workover preformed on one well during
1996 and (ii) the decreases in volumes of oil and gas sold in 1997. As a
percentage of oil and gas sales, these expenses decreased to 21.7% in 1997 from
24.9% in 1996.
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This percentage decrease was primarily due to the decrease in oil and gas
production expenses discussed above.
Depreciation, depletion, and amortization of oil and gas properties
increased $17,813 (39.7%) in 1997 as compared to 1996. This increase resulted
primarily from decreases in the prices used to value oil and gas reserves in
1997 as compared to 1996. As a percentage of oil and gas sales, this expense
increased to 15.6% in 1997 from 10.5% in 1996. This percentage increase was
primarily due to the increase in depreciation, depletion, and amortization
discussed above.
General and administrative expenses increased $2,625 (3.8%) in 1997 as
compared to 1996. As a percentage of oil and gas sales, these expenses increased
to 18.0% in 1997 from 16.3% in 1996. This percentage increase was primarily due
to the decrease in oil and gas sales discussed above.
Year Ended December 31, 1996 Compared
Year Ended December 31, 1995
-------------------------------------
Total oil and gas sales increased $75,779 (21.4%) for 1996 as compared to
1995. Of this increase, approximately $203,000 was related to an increase in the
average price of gas sold, which amount was partially offset by a decrease of
approximately $127,000 related to a decrease in volumes of gas sold. Volumes of
oil and gas sold decreased 125 barrels and 60,823 Mcf, respectively, for 1996 as
compared to 1995. The decrease in volumes of oil sold resulted primarily from
normal declines in production due to diminished oil reserves on two wells. The
decrease in volumes of gas sold resulted primarily from (i) the sale of one well
during 1995 and (ii) normal declines in production due to diminished gas
reserves on several wells. Average oil and gas prices increased to $20.28 per
barrel and $2.08 per Mcf, respectively, for 1996 from $17.25 per barrel and
$1.31 per Mcf, respectively, for 1995.
Oil and gas production expenses (including lease operating expenses and
production taxes) increased $1,943 (1.9%) for 1996 as compared to 1995. This
increase resulted primarily from an increase in production taxes due to the
increase in oil and gas sales during 1996, which amount was partially offset by
the decreases in volumes of oil and gas sold during 1996. As a percentage of oil
and gas sales, these expenses decreased to 24.9% for 1996 from 29.7% for 1995.
This percentage decrease was primarily due to the increases in the average
prices of oil and gas sold during 1996.
Depreciation, depletion, and amortization of oil and gas properties
decreased $31,823 (41.5%) for 1996 as compared to 1995. This decrease resulted
primarily from (i) the decreases in volumes of oil and gas sold during 1996 and
(ii) upward revisions in the estimates of remaining oil and gas reserves at
December 31, 1996. As a percentage of oil and gas sales, this expense decreased
to
15
<PAGE>
10.5% for 1996 from 21.7% for 1995. This percentage decrease was primarily due
to the dollar decrease in depreciation, depletion, and amortization discussed
above and the increases in the average prices of oil and gas sold during 1996.
As a result of a decline in gas prices, the Program recognized a non-cash
charge against earnings of $180,629 during 1995. This impairment provision for
oil and gas properties at December 31, 1995 was necessary due to the unamortized
costs of oil and gas properties exceeding the present value of the estimated
future net revenues from such oil and gas properties. No similar charge was
necessary during 1996.
General and administrative expenses remained relatively constant for 1996
as compared to 1995. As a percentage of oil and gas sales, these expenses
decreased to 16.3% for 1996 from 20.0% for 1995. This percentage decrease was
primarily due to the increase in oil and gas sales during 1996 as compared to
1995 discussed above.
Liquidity and Capital Resources
Net proceeds from operations less necessary operating capital are
distributed to the limited partners on a quarterly basis. See "Item 5. Market
for the Registrant's Limited Partnership Units and Related Limited Partner
Matters." 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 reserves, thereby resulting in
a positive economic impact. Assuming production levels for 1997, the Program's
proved reserve quantities at December 31, 1997 would have remaining lives of
approximately 8.2 years for gas reserves and 20.1 years for oil reserves.
However, since the Program's reserve estimates are based on oil and gas prices
at December 31, 1997, it is possible that a significant decrease in oil and gas
prices from December 31, 1997 levels will reduce such reserves and their
corresponding life-span.
The Program's available capital from the limited partners' subscriptions
has been spent on oil and gas drilling activities and there should be no further
material capital resource commitments in the future. Occasional expenditures by
the Program for well completions or workovers, however, may reduce or eliminate
cash available for a particular quarterly cash distribution. The Program has no
debt commitments. Cash for operational purposes will be provided by current oil
and gas production.
There can be no assurance as to the amount of the Program's future cash
distributions. The Program's ability to make cash distributions depends
primarily upon the level of available cash flow generated by the Program's
operating activities, which will be affected (either positively or negatively)
by many factors beyond the control of the Program, including the price of and
demand for oil and gas and other market and economic conditions. Even if
16
<PAGE>
prices and costs remain stable, the amount of cash available for distributions
will decline over time (as the volume of production from producing properties
declines) since the Program is not replacing production through acquisitions of
producing properties and drilling.
Inflation and Changing Prices
Prices obtained for oil and gas production depend upon numerous factors,
including the extent of domestic and foreign production, foreign imports of oil,
market demand, domestic and foreign economic conditions in general, and
governmental regulations and tax laws. The general level of inflation in the
economy did not have a material effect on the operations of the Program in 1997.
Oil and gas prices have fluctuated during recent years and generally have not
followed the same pattern as inflation. See "Item 2.
Properties - Oil and Gas Production, Revenue, and Price History."
Year 2000 Computer Issues
Dyco has reviewed its computer systems and hardware to locate potential
operational problems associated with the year 2000. Such review will continue
until all potential problems are located and resolved. Dyco believes that all
year-2000 problems in its computer system have been or will be resolved in a
timely manner and have not caused and will not cause either (i) disruption of
the Program's operations or (ii) a material effect on the Program's financial
condition or results of operations. However, it is possible that the Program's
cash flows could be disrupted by year-2000 problems experienced by operators of
the Program's wells, buyers of the Program's oil and gas, financial institutions
or other persons. Dyco is unable to quantify the effect, if any, on the Program
of year-2000 computer problems which may be experienced by these third parties.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE PARTNERS
DYCO OIL AND GAS PROGRAM 1984-2 LIMITED PARTNERSHIP
We have audited the financial statements of the Dyco Oil and Gas Program
1984-2 Limited Partnership (a Minnesota limited partnership) as listed in Item
14(a) of this Annual Report. These financial statements are the responsibility
of the Program's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Dyco Oil and Gas Program
1984-2 Limited Partnership at December 31, 1997 and 1996, and the results of its
operations and cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand, L.L.P.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
March 25, 1998
18
<PAGE>
DYCO OIL AND GAS PROGRAM
1984-2 LIMITED PARTNERSHIP
Balance Sheets
December 31, 1997 and 1996
ASSETS
------
1997 1996
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $108,931 $ 48,768
Accrued oil and gas sales 64,754 88,047
------- -------
Total current assets $173,685 $136,815
NET OIL AND GAS PROPERTIES, utilizing the
full cost method 426,804 494,608
DEFERRED CHARGE 24,362 30,457
------- -------
$624,851 $661,880
======= =======
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
Accounts payable $ 4,116 $ 5,971
Gas imbalance payable 3,519 6,143
------- -------
Total current liabilities $ 7,635 $ 12,114
ACCRUED LIABILITY 6,918 12,699
PARTNERS' CAPITAL:
General Partner, issued and
outstanding, 52 Units 6,103 6,371
Limited Partners, issued and
outstanding, 5,200 Units 604,195 630,696
------- -------
Total Partners' capital $610,298 $637,067
------- -------
$624,851 $661,880
======= =======
The accompanying notes are an integral part of these
financial statements.
19
<PAGE>
DYCO OIL AND GAS PROGRAM
1984-2 LIMITED PARTNERSHIP
Statements of Operations
For the Years Ended December 31, 1997, 1996, and 1995
1997 1996 1995
-------- -------- ----------
REVENUES:
Oil and gas sales, including
$328,723 of sales to related
parties in 1995 (Note 2) $402,876 $429,409 $353,630
Interest 3,229 3,058 3,406
------- ------- -------
$406,105 $432,467 $357,036
COSTS AND EXPENSES:
Lease operating $ 58,312 $ 76,146 $ 80,369
Production taxes 29,286 30,789 24,623
Depreciation, depletion, and
amortization of oil and gas
properties 62,721 44,908 76,731
Impairment provision - - 180,629
General and administrative 72,475 69,850 70,819
------- ------- -------
$222,794 $221,693 $433,171
------- ------- -------
NET INCOME (LOSS) $183,311 $210,774 ($ 76,135)
======= ======= =======
GENERAL PARTNER (1%) -
NET INCOME (LOSS) $ 1,833 $ 2,108 ($ 761)
======= ======= =======
LIMITED PARTNERS (99%) -
NET INCOME (LOSS) $181,478 $208,666 ($ 75,374)
======= ======= =======
NET INCOME (LOSS) per Unit $ 34.90 $ 40.13 ($ 14.50)
======= ======= =======
UNITS OUTSTANDING 5,252 5,252 5,252
======= ======= =======
The accompanying notes are an integral part of these
financial statements.
20
<PAGE>
DYCO OIL AND GAS PROGRAM
1984-2 LIMITED PARTNERSHIP
Statements of Partners' Capital
For the Years Ended December 31, 1997, 1996, and 1995
General Limited
Partner Partners Total
--------- ---------- ----------
Balances at Dec. 31, 1994 $8,963 $887,365 $896,328
Cash distributions ( 1,313) ( 129,987) ( 131,300)
Net loss ( 761) ( 75,374) ( 76,135)
----- ------- -------
Balances at Dec. 31, 1995 $6,889 $682,004 $688,893
Cash distributions ( 2,626) ( 259,974) ( 262,600)
Net income 2,108 208,666 210,774
----- ------- -------
Balances at Dec. 31, 1996 $6,371 $630,696 $637,067
Cash distributions ( 2,101) ( 207,979) ( 210,080)
Net income 1,833 181,478 183,311
----- ------- -------
Balances at Dec. 31, 1997 $6,103 $604,195 $610,298
===== ======= =======
The accompanying notes are an integral part of these
financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
DYCO OIL AND GAS PROGRAM
1984-2 LIMITED PARTNERSHIP
Statements of Cash Flows
For the Years Ended December 31, 1997, 1996, and 1995
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $183,311 $210,774 ($ 76,135)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation, depletion, and
amortization of oil and
gas properties 62,721 44,908 76,731
Impairment provision - - 180,629
(Increase) decrease in accrued
oil and gas sales 23,293 ( 12,308) 801
(Increase) decrease in
deferred charge 6,095 ( 3,394) 16,289
Increase (decrease) in
accounts payable ( 1,855) 1,096 ( 482)
Increase (decrease) in gas
imbalance payable ( 2,624) 2,247 ( 5,047)
Decrease in accrued liability ( 5,781) ( 2,099) ( 2,995)
------- ------- -------
Net cash provided by operating
activities $265,160 $241,224 $189,791
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of oil
and gas properties $ 5,083 $ 3,333 $ 4,830
Additions to oil and gas
properties - ( 286) ( 28,990)
------- ------- -------
Net cash provided (used) by
investing activities $ 5,083 $ 3,047 ($ 24,160)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($210,080) ($262,600) ($131,300)
------- ------- -------
Net cash used by financing
activities ($210,080) ($262,600) ($131,300)
------- ------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 60,163 ($ 18,329) $ 34,331
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD $ 48,768 $ 67,097 32,766
------- ------- -------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $108,931 $ 48,768 $ 67,097
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
financial statements.
22
<PAGE>
DYCO OIL AND GAS PROGRAM 1984-2 LIMITED PARTNERSHIP
Notes to Financial Statements
For the Years Ended December 31, 1997, 1996, and 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The Dyco Oil and Gas Program 1984-2 Limited Partnership (the
"Program"), a Minnesota limited partnership, commenced operations on
November 5, 1984. Dyco Petroleum Corporation ("Dyco") is the General
Partner of the Program. Affiliates of Dyco owned 1,772 (33.7%) of the
Program's Units at December 31, 1997.
The Program's sole business is the development and production of oil
and gas with a concentration on gas. Substantially all of the Program's
gas reserves are being sold regionally in the "spot market." Due to the
highly competitive nature of the spot market, prices on the spot market
are subject to wide seasonal and regional pricing fluctuations. In
addition, such spot market sales are generally short-term in nature and
are dependent upon the obtaining of transportation services provided by
pipelines.
Cash and Cash Equivalents
The Program considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents. Cash
equivalents are not insured, which cause the Program to be subject to
risk.
Credit Risk
Accrued oil and gas sales which are due from a variety of oil and
gas purchasers subject the Program to a concentration of credit risk. Some
of these purchasers are discussed in Note 3 - Major Customers. Subsequent
to year-end, all oil and gas sales accrued as of December 31, 1997 have
been collected.
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. Capitalized costs are depleted on the gross revenue method
using estimates of proved reserves. The full cost amortization rates per
equivalent Mcf of gas produced during the years ended December 31, 1997,
1996, and 1995 were $0.37, $0.22, and $0.29,
23
<PAGE>
respectively. 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 ("SEC")) the excess
is charged to expense in the year during which such excess occurs. In
addition, SEC rules provide that if prices decline subsequent to year end,
any excess that results from these declines may also be charged to expense
during the current year. During the year ended December 31, 1995, the
Program charged to expense an impairment provision of $180,629, which
represented the amount of unamortized oil and gas properties which
exceeded the full cost ceiling. No such charge to expense was recorded in
1997 or 1996. Sales and abandonments of 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.
Deferred Charge
The Deferred Charge at December 31, 1997 and 1996 represents costs
deferred for lease operating expenses incurred in connection with the
Program's underproduced gas imbalance positions. The rate used in
calculating the deferred charge is the average of the annual production
costs per Mcf. At December 31, 1997, cumulative total gas sales volumes
for underproduced wells were less than the Program's pro-rata share of
total gas production from these wells by 74,049 Mcf, resulting in prepaid
lease operating expenses of $24,362. At December 31, 1996, cumulative
total gas sales volumes for underproduced wells were less than the
Program's pro-rata share of total gas production from these wells by
77,068 Mcf, resulting in prepaid lease operating expenses of $30,457.
Accrued Liability
The Accrued Liability at December 31, 1997 and 1996 represents
charges accrued for lease operating expenses incurred in connection with
the Program's overproduced gas imbalance positions. The rate used in
calculating the accrued liability is the average of the annual production
costs per Mcf. At December 31, 1997, cumulative total gas sales volumes
for overproduced wells exceeded the Program's pro-rata share of total gas
production from these wells by 21,028 Mcf, resulting in accrued lease
operating expenses of $6,918. At December 31, 1996, cumulative total gas
sales volumes for overproduced wells exceeded the Program's pro-rata share
of total gas production from these wells by 32,134 Mcf, resulting in
accrued lease operating expenses of $12,699.
24
<PAGE>
Oil and Gas Sales and Gas Imbalance Payable
The Program's oil and condensate production is sold, title passed,
and revenue recognized at or near the Program's wells under short-term
purchase contracts at prevailing prices in accordance with arrangements
which are customary in the oil industry. Sales of gas applicable to the
Program's interest in producing oil and gas leases are recorded as income
when the gas is metered and title transferred pursuant to the gas sales
contracts covering the Program's interest in gas reserves. During such
times as the Program's sales of gas exceed its pro rata ownership in a
well, such sales are recorded as income unless total sales from the well
have exceeded the Program's share of estimated total gas reserves
underlying the property at which time such excess is recorded as a
liability. The rates per Mcf used to calculate this liability are based on
the average gas prices received for the volumes at the time the
overproduction occurred. At December 31, 1997, total sales exceeded the
Program's share of estimated total gas reserves on one well by $3,519
(2,346 Mcf). At December 31, 1996, total sales exceeded the Program's
share of estimated total gas reserves on one well by $6,143 (4,095 Mcf).
These amounts were recorded as gas imbalance payables at December 31, 1997
and 1996 in accordance with the sales method.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Further, the deferred charge, the gas imbalance payable, and
the accrued liability all involve estimates which could materially differ
from the actual amounts ultimately realized or incurred in the near term.
Oil and gas reserves (see Note 4) also involve significant estimates which
could materially differ from the actual amounts ultimately realized.
Income Taxes
Income or loss for income tax purposes is includable in the income
tax returns of the partners. Accordingly, no recognition has been given to
income taxes in the accompanying financial statements.
25
<PAGE>
2. TRANSACTIONS WITH RELATED PARTIES
Under the terms of the Program 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 Partnership. During the years ended December 31, 1997, 1996, and
1995, such expenses totaled $72,475, $69,850, and $70,819, respectively,
of which $56,472 was paid each year 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, together with
any compressor rentals, consulting, or other services provided. Such
charges are comparable to third party charges in the area where the wells
are located and are the same as charged to other working interest owners
in the wells.
During 1995 the Program sold gas at market prices to El Paso Energy
Marketing Company, formerly known as Premier Gas Company ("El Paso"). El
Paso, like other similar gas marketing firms, then resold such gas to
third parties at market prices. El Paso was an affiliate of the Program
until December 6, 1995. During 1995, these sales totaled $328,723.
3. MAJOR CUSTOMERS
The following purchaser individually accounted for 10% or more of
the combined oil and gas revenues of the Program for the years ended
December 31, 1997, 1996, and 1995:
Purchaser 1997 1996 1995
--------- ----- ----- -----
El Paso 97.7% 96.5% 93.0%
In the event of interruption of purchases by this significant
customer or the cessation or material change in availability of
open-access transportation by the Program's pipeline transporters, the
Program may encounter difficulty in marketing its gas and in maintaining
historic sales levels. Alternative purchasers or transporters may not be
readily available.
4. SUPPLEMENTAL OIL AND GAS INFORMATION
The following supplemental information regarding the oil and gas
activities of the Program is presented pursuant to the disclosure
requirements promulgated by the SEC.
26
<PAGE>
Capitalized Costs
The Program's capitalized costs and accumulated depreciation,
depletion, amortization, and valuation allowance at December 31, 1997 and
1996 were as follows:
December 31,
-------------------------------
1997 1996
------------- -------------
Proved properties $23,988,226 $23,993,309
Unproved properties, not
subject to depreciation,
depletion, and amortization - -
---------- ----------
$23,988,226 $23,993,309
Less accumulated depreciation,
depletion, amortization, and
valuation allowance ( 23,561,422) ( 23,498,701)
---------- ----------
Net oil and gas properties $ 426,804 $ 494,608
========== ==========
Costs Incurred
The Program incurred no acquisition and development costs during
1997, 1996, and 1995. Costs incurred by the Program in connection with its
oil and gas property development activities during 1997, 1996, and 1995
were as follows:
December 31,
-------------------------------
1997 1996 1995
---- ---- -------
Development costs $ - $286 $28,990
=== === ======
27
<PAGE>
Quantities of Proved Oil and Gas Reserves - Unaudited
Set forth below is a summary of the changes in the net quantities of the
Program's proved crude oil and gas reserves for the years ended December 31,
1997, 1996, and 1995. Proved reserves were estimated by petroleum engineers
employed by affiliates of Dyco. All of the Program's reserves are located in the
United States. The following information includes certain gas balancing
adjustments which cause the gas volumes to differ from the reserve information
prepared by Dyco.
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
Oil Gas Oil Gas Oil Gas
(Bbls) (Mcf) (Bbls) (Mcf) (Bbls) (Mcf)
------- ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves,
beginning of year 5,971 1,346,071 1,541 1,274,196 1,431 1,126,954
Revisions of previous
estimated 94 217,995 4,774 274,898 674 413,551
Sales of reserves - - - - ( 95) ( 2,463)
Production ( 288) ( 169,123) ( 344) ( 203,023) ( 469) ( 263,846)
----- --------- ----- --------- ----- ---------
Proved reserves,
end of year 5,777 1,394,943 5,971 1,346,071 1,541 1,274,196
===== ========= ===== ========= ===== =========
Proved developed reserves:
Beginning of year 5,971 1,346,071 1,541 1,274,196 1,431 1,126,954
----- --------- ----- --------- ----- ---------
End of year 5,777 1,394,943 5,971 1,346,071 1,541 1,274,196
===== ========= ===== ========= ===== =========
</TABLE>
28
<PAGE>
The process of estimating oil and gas reserves is complex, requiring
significant subjective decisions in the evaluation of available
geological, engineering, and economic data for each reservoir. The data
for a given reservoir may change substantially over time as a result of,
among other things, additional development activity, production history,
and viability of production under varying economic conditions;
consequently, it is reasonably possible that material revisions to
existing reserve estimates may occur in the near future. Although every
reasonable effort has been made to ensure that the reserve estimates
reported herein represent the most accurate assessment possible, the
significance of the subjective decisions required and variances in
available data for various reservoirs make these estimates generally less
precise than other estimates presented in connection with financial
statement disclosures. The Program's reserves were determined at December
31, 1997 using oil and gas prices of $16.25 per barrel and $2.32 per Mcf,
respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Program is a limited partnership and has no directors or executive
officers. The following individuals are directors and executive officers of
Dyco, General Partner. The business address of such directors and executive
officers is Two West Second Street, Tulsa, Oklahoma 74103.
NAME AGE POSITION WITH DYCO
---------------- --- --------------------------------
Dennis R. Neill 46 President and Director
Patrick M. Hall 39 Chief Financial Officer
Judy K. Fox 47 Secretary
The director will hold office until the next annual meeting of
shareholders of Dyco and until his successor has been duly elected and
qualified. All executive officers serve at the discretion of the Board of
Directors.
Dennis R. Neill joined the Samson Companies in 1981, was named Senior Vice
President and Director of Dyco on June 18, 1991, and was named President of Dyco
on June 30, 1996. Prior to joining the Samson Companies, he was associated with
a Tulsa law firm, Conner and Winters, where his principal practice was in the
securities area. He received a Bachelor of Arts degree in political science
29
<PAGE>
from Oklahoma State University and a Juris Doctorate degree from the University
of Texas. Mr. Neill also serves as Senior Vice President of Samson Investment
Company and as President and Director of Samson Properties Incorporated, Samson
Hydrocarbons Company, Berry Gas Company, Circle L Drilling Company, Compression,
Inc., and Geodyne Resources, Inc. and its subsidiaries.
Patrick M. Hall joined the Samson Companies in 1983, was named a Vice
President of Dyco on June 18, 1991, and was named Chief Financial Officer of
Dyco on June 30, 1996. Prior to joining the Samson Companies he was a senior
accountant with Peat Marwick Main & Co. in Tulsa. He holds a Bachelor of Science
degree in accounting from Oklahoma State University and is a Certified Public
Accountant. Mr. Hall also serves as Senior Vice President - Controller of Samson
Investment Company.
Judy K. Fox joined the Samson Companies in 1990 and was named Secretary of
Dyco on June 30, 1996. Prior to joining the Samson Companies, she served as Gas
Contract Manager for Ely Energy Company. Ms. Fox is also Secretary of Berry Gas
Company, Circle L Drilling Company, Compression, Inc., Samson Hydrocarbons
Company, Samson Properties Incorporated, and Geodyne Resources, Inc. and its
subsidiaries.
Section 16(a) Beneficial Ownership Reporting Compliance
To the best knowledge of the Program and Dyco, there were no officers,
directors, or ten percent owners who were delinquent filers during 1997 of
reports required under Section 16(a) of the Securities and Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION
The Program is a limited partnership and, therefore, has no officers or
directors. The following table summarizes the amounts paid by the Program as
compensation and reimbursements to Dyco and its affiliates for the three years
ended December 31, 1997:
30
<PAGE>
Compensation/Reimbursement to Dyco and its affiliates
Three Years Ended December 31, 1997
Type of Compensation/Reimbursement(1) Expense
- ------------------------------------- -------------------------------
1997 1996 1995
------- ------- -------
Compensation:
Operations (2) (2) (2)
Gas Marketing (3) (3) (3)
Reimbursements:
General and Administrative,
Geological, and Engineering
Expenses and Direct
Expenses(4) $56,472 $56,472 $56,472
- ----------
(1) The authority for all of such compensation and reimbursement is the
Program Agreement of the Program. With respect to the Operations
activities noted in the table, management believes that such compensation
is equal to or less than that charged by unaffiliated persons in the same
geographic areas and under the same conditions.
(2) Affiliates of the Program serve as operator of a significant portion of
the Program's wells. Dyco, as General Partner, contracts with such
affiliates for services as operator of the wells. As operator, such
affiliates are compensated at rates provided in the operating agreements
in effect and charged to all parties to such agreement. The dollar amount
of such compensation paid by the Program to such affiliates is impossible
to quantify as of the date of this Annual Report.
(3) During 1995 El Paso, an affiliate of the Program until December 6, 1995,
purchased a portion of the Program's gas at market prices and resold such
gas at market prices directly to end-users and local distribution
companies. During 1995, the Program sold $328,723 of gas to El Paso. After
December 6, 1995 the Program's gas was marketed by Dyco and its
affiliates, who were reimbursed for such activities as general and
administrative expenses.
(4) The Program reimburses Dyco and its affiliates for reasonable and
necessary general and administrative, geological, and engineering expenses
and direct expenses incurred in connection with their management and
operation of the Program. The directors, officers, and employees of Dyco
and its affiliates receive no direct remuneration from the Program for
their services to the Program. See "Salary Reimbursement Table" below. The
allocable general and administrative, geological, and engineering expenses
are apportioned on a reasonable basis between the Program's business and
all other oil and gas activities of Dyco and its affiliates, including
Dyco's management and operation of affiliated oil and gas limited
partnerships. The allocation to the Program of these costs is made by Dyco
as General Partner.
31
<PAGE>
As noted in the Compensation/Reimbursement Table above, the directors,
officers, and employees of Dyco and their affiliates receive no direct
remuneration from the Program for their services. However, to the extent such
services represent direct involvement with the Program, as opposed to general
corporate functions, such persons' salaries are allocated to and reimbursed by
the Program. Such allocation to the Program's general and administrative,
geological, and engineering expenses of the salaries of directors, officers, and
employees of Dyco and its affiliates is based on internal records maintained by
Dyco and its affiliates, and represents investor relations, legal, accounting,
data processing, management, gas marketing and other functions directly
attributable to the Program's operations. The following table indicates the
approximate amount of general and administrative expense reimbursement
attributable to the salaries of the directors, officers, and employees of Dyco
and its affiliates for the three years ended December 31, 1997:
32
<PAGE>
<TABLE>
<CAPTION>
Salary Reimbursement
Three Years Ended December 31, 1997
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------- ------------------------ -------
Securi-
Other ties All
Name Annual Restricted Under- Other
and Compen- Stock lying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
- --------------- ---- ------- ------- ------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. Philip
Tholen,
President,
Chief Executive
Officer(1)(2) 1995 - - - - - - -
1996 - - - - - - -
Dennis R. Neill,
President(2)(3) 1996 - - - - - - -
1997 - - - - - - -
All Executive
Officers,
Directors,
and Employees
as a group(4) 1995 $30,834 - - - - - -
1996 $33,036 - - - - - -
1997 $33,736 - - - - - -
- ----------
(1) Mr. Tholen served as President and Chief Executive Officer of Dyco until
June 30, 1996.
(2) The general and administrative expenses paid by the Program and
attributable to salary reimbursements do not include any salary or other
compensation attributable to Mr. Tholen or Mr. Neill.
(3) Mr. Neill became President of Dyco on June 30, 1996.
(4) No officer or director of Dyco or its affiliates provides full-time
services to the Program and no individual's salary or other compensation
reimbursement from the Program equals or exceeds $100,000 per annum.
</TABLE>
33
<PAGE>
In addition to the compensation/reimbursements noted above, during the
three years ended December 31, 1997, the Samson Companies were in the business
of supplying field and drilling equipment and services to affiliated and
unaffiliated parties in the industry. Such companies may have provided equipment
and services for wells in which the Program has an interest. These equipment and
services were provided at prices or rates equal to or less than those normally
charged in the same or comparable geographic area by unaffiliated persons or
companies dealing at arm's length. The operators of these wells bill the Program
for a portion of such costs based upon the Program's interest in the well.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as to the beneficial ownership of
the Program's Units as of February 28, 1998 by each beneficial owner of more
than 5% of the issued and outstanding Units and by the directors, officers, and
affiliates of Dyco. The address of each of such persons is Samson Plaza, Two
West Second Street, Tulsa, Oklahoma 74103.
Number of Units
Beneficially
Owned (Percent
Beneficial Owner of Outstanding)
-------------------------------- -----------------
Samson Resources Company 1,774 (33.8%)
All directors, officers, and
affiliates of Dyco as a group
and Dyco (5 persons) 1,774 (33.8%)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain affiliates of Dyco engage in oil and gas activities independently
of the Program which result in conflicts of interest that cannot be totally
eliminated. The allocation of acquisition and drilling opportunities and the
nature of the compensation arrangements between the Program and such affiliates
also create potential conflicts of interest. An affiliate of the Program owns a
significant amount of the Program's Units and therefore has an identity of
interest with other limited partners with respect to the operations of the
Program.
In order to attempt to assure limited liability for limited partners as
well as an orderly conduct of business, management of the Program is exercised
solely by Dyco. The Program Agreement grants Dyco broad discretionary authority
with respect to the Program's participation in drilling prospects and
expenditure and
34
<PAGE>
control of funds, including borrowings. The provisions are similar to those
contained in prospectuses and partnership agreements for other public oil and
gas partnerships. Broad discretion as to general management of the Program
involves circumstances where Dyco has conflicts of interest and where it must
allocate costs and expenses, or opportunities, among the Program and other
competing interests.
Dyco does not devote all of its time, efforts, and personnel exclusively
to the Program. Furthermore, the Program does not have any employees, but
instead relies on the personnel of the Samson Companies. The Program thus
competes with the Samson Companies (including other currently sponsored oil and
gas programs) for the time and resources of such personnel. The Samson Companies
devote such time and personnel to the management of the Program as are indicated
by the circumstances and as are consistent with Dyco's fiduciary duties.
Affiliates of the Program are solely responsible for the negotiation,
administration, and enforcement of oil and gas sales agreements covering the
Program's leasehold interests. Because affiliates of the Program who provide
services to the Program have fiduciary or other duties to other members of the
Samson Companies, contract amendments and negotiating positions taken by them in
their effort to enforce contracts with purchasers may not necessarily represent
the positions that the Program would take if it were to administer its own
contracts without involvement with other members of the Samson Companies. On the
other hand, management believes that the Program's negotiating strength and
contractual positions have been enhanced by virtue of its affiliation with the
Samson Companies.
For a description of certain other relationships and related transactions
see "Item 11. Executive Compensation".
35
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules, and
Exhibits.
(1) Financial Statements: The following financial statements for
the Program as of December 31, 1997 and 1996 and for the
years ended December 31, 1997, 1996, and 1995 are filed as
part of this report:
Report of Independent Accountants
Balance Sheets
Statements of Operations
Statements of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statement Schedules:
None.
(3) Exhibits:
4.1 Drilling Agreement dated July 31, 1984 for Dyco
Drilling Program 1984-2 by and between Dyco Oil and Gas
Program 1984-2, Dyco Petroleum Corporation, and Jaye F.
Dyer filed as Exhibit 4.1 to Annual Report on Form 10-K
for the year ended December 31, 1991 on April 7, 1992
and is hereby incorporated by reference.
4.2 Form of Program Agreement for Dyco Oil and Gas Program
1984-2 by and between Dyco Petroleum Corporation and
the Participants filed as Exhibit 4.2 to Annual Report
on Form 10-K for the year ended December 31, 1991 on
April 7, 1992 and is hereby incorporated by reference.
4.3 Amendment to Program Agreement for Dyco Oil and Gas
Program 1984-2 dated February 9, 1989 filed as Exhibit
4.3 to Annual Report on Form 10-K for the year ended
December 31, 1991 on April 7, 1992 and is hereby
incorporated by reference.
4.4 Certificate of Limited Partnership, as amended, for
Dyco Oil and Gas Program 1984-2 Limited Partnership
filed as Exhibit 4.4 to Annual Report on Form 10-K for
the year ended December 31, 1991 on April 7, 1992 and
is hereby incorporated by reference.
36
<PAGE>
*27.1 Financial Data Schedule containing summary financial
information extracted from the Dyco Oil and Gas Program
1984-2 Limited Partnership's financial statements as of
December 31, 1997 and for the year ended December 31,
1997.
All other Exhibits are omitted as inapplicable.
------------------
* Filed herewith.
(b) Reports on Form 8-K filed during the fourth quarter of 1997.
None.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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 organized.
DYCO OIL AND GAS PROGRAM 1984-2
LIMITED PARTNERSHIP
By: DYCO PETROLEUM CORPORATION
General Partner
March 31, 1998
By: /s/Dennis R. Neill
------------------------------
Dennis R. Neill
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities on the dates indicated.
By: /s/Dennis R. Neill President and March 31, 1998
------------------- Director (Principal
Dennis R. Neill Executive Officer)
/s/Patrick M. Hall Chief Financial March 31, 1998
------------------- Officer (Principal
Patrick M. Hall Financial and
Accounting Officer)
/s/Judy K. Fox Secretary March 31, 1998
-------------------
Judy K. Fox
38
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
4.1 Drilling Agreement dated July 31, 1984 for Dyco Drilling Program
1984-2 by and between Dyco Oil and Gas Program 1984-2, Dyco
Petroleum Corporation, and Jaye F. Dyer filed as Exhibit 4.1 to
Annual Report on Form 10-K for the year ended December 31, 1991
on April 7, 1992 and is hereby incorporated by reference.
4.2 Form of Program Agreement for Dyco Oil and Gas Program 1984-2
by and between Dyco Petroleum Corporation and the Participants
filed as Exhibit 4.2 to Annual Report on Form 10-K for the year
ended December 31, 1991 on April 7, 1992 and is hereby
incorporated by reference.
4.3 Amendment to Program Agreement for Dyco Oil and Gas Program
1984-2 dated February 9, 1989 filed as Exhibit 4.3 to Annual
Report on Form 10-K for the year ended December 31, 1991 on April
7, 1992 and is hereby incorporated by reference.
4.4 Certificate of Limited Partnership, as amended, for Dyco Oil and
Gas Program 1984-2 Limited Partnership filed as Exhibit 4.4 to
Annual Report on Form 10-K for the year ended December 31, 1991
on April 7, 1992 and is hereby incorporated by reference.
*27.1 Financial Data Schedule containing summary financial information
extracted from the Dyco Oil and Gas Program 1984-2 Limited
Partnership's financial statements as of December 31, 1997 and
for the year ended December 31, 1997.
- ------------------
* Filed herewith.
39
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000725262
<NAME> Dyco Oil & Gas Program 1984-2 Ltd Partnership
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 108,931
<SECURITIES> 0
<RECEIVABLES> 64,754
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 173,685
<PP&E> 23,988,226
<DEPRECIATION> 23,561,422
<TOTAL-ASSETS> 624,851
<CURRENT-LIABILITIES> 7,635
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 610,298
<TOTAL-LIABILITY-AND-EQUITY> 624,851
<SALES> 402,876
<TOTAL-REVENUES> 406,105
<CGS> 0
<TOTAL-COSTS> 222,794
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 183,311
<INCOME-TAX> 0
<INCOME-CONTINUING> 183,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 183,311
<EPS-PRIMARY> 34.90
<EPS-DILUTED> 0
</TABLE>
