<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended Commission File Number
September 30, 1996 0-16488
DYCO OIL AND GAS PROGRAM 1986-2
(A LIMITED PARTNERSHIP)
(Exact Name of Registrant as specified in its charter)
Minnesota 41-1529976
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or Number)
organization)
Samson Plaza, Two West Second Street, Tulsa, Oklahoma 74103
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(918) 583-1791
----------------------------------------------------
(Registrant's telephone number, including area code)
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
---- ----
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DYCO OIL AND GAS PROGRAM 1986-2 LIMITED PARTNERSHIP
BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1996 1995
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 29,364 $ 55,853
Accrued oil and gas sales, including
$36,760 due from related parties
in 1995 (Note 2) 42,039 49,079
-------- --------
Total current assets $ 71,403 $104,932
NET OIL AND GAS PROPERTIES, utilizing
the full cost method 196,769 233,410
DEFERRED CHARGE 43,323 43,323
-------- --------
$311,495 $381,665
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 5,131 $ 7,021
-------- --------
Total current liabilities $ 5,131 $ 7,021
PARTNERS' CAPITAL:
General Partner, issued and
outstanding, 21 units 3,065 3,748
Limited Partners, issued and
outstanding, 2,020 units 303,299 370,896
-------- --------
Total Partners' capital $306,364 $374,644
-------- --------
$311,495 $381,665
======== ========
The accompanying condensed notes are an
integral part of these financial statements.
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DYCO OIL AND GAS PROGRAM 1986-2 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
-------- --------
REVENUES:
Oil and gas sales, including
$45,446 of sales to related
parties in 1995 (Note 2) $61,373 $60,494
Interest 696 438
------- -------
$62,069 $60,932
COST AND EXPENSES:
Oil and gas production $26,790 $32,149
Depreciation, depletion, and
amortization of oil and gas
properties 7,860 13,160
General and administrative (Note 2) 8,029 7,894
------- -------
$42,679 $53,203
------- -------
NET INCOME $19,390 $ 7,729
======= =======
GENERAL PARTNER (1%) - net
income $ 194 $ 77
======= =======
LIMITED PARTNERS (99%) - net
income $19,196 $ 7,652
======= =======
NET INCOME PER UNIT $ 9.50 $ 3.79
======= =======
UNITS OUTSTANDING 2,041 2,041
======= =======
The accompanying condensed notes are an
integral part of these financial statements.
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DYCO OIL AND GAS PROGRAM 1986-2 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
-------- ---------
REVENUES:
Oil and gas sales, including
$144,368 of sales to related
parties in 1995 (Note 2) $206,580 $219,320
Interest 1,556 942
-------- --------
$208,136 $220,262
COST AND EXPENSES:
Oil and gas production $ 58,371 $ 88,567
Depreciation, depletion, and
amortization of oil and gas
properties 27,485 45,595
General and administrative (Note 2) 27,280 27,277
-------- --------
$113,136 $161,439
-------- --------
NET INCOME $ 95,000 $ 58,823
======== ========
GENERAL PARTNER (1%) - net
income $ 950 $ 588
======== ========
LIMITED PARTNERS (99%) - net
income $ 94,050 $ 58,235
======== ========
NET INCOME PER UNIT $ 46.55 $ 28.82
======== ========
UNITS OUTSTANDING 2,041 2,041
======== ========
The accompanying condensed notes are an
integral part of these financial statements.
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DYCO OIL AND GAS PROGRAM 1986-2 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 95,000 $ 58,823
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion, and
amortization of oil and gas
properties 27,485 45,595
Decrease in accrued oil and gas
sales 7,040 934
Increase (decrease) in accounts
payable ( 1,890) 1,172
-------- --------
Net cash provided by operating
activities $127,635 $106,524
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas
properties $ - ($ 5,282)
Retirements of oil and gas
properties 9,156 -
-------- -------
Net cash provided (used) by
investing activities $ 9,156 ($ 5,282)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($163,280) ($102,050)
-------- --------
Net cash used by financing
activities ($163,280) ($102,050)
-------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS ($ 26,489) ($ 808)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 55,853 21,615
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 29,364 $ 20,807
======== ========
The accompanying condensed notes are an
integral part of these financial statements.
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<PAGE>
DYCO OIL AND GAS PROGRAM 1986-2 LIMITED PARTNERSHIP
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
1. ACCOUNTING POLICIES
-------------------
The balance sheet as of September 30, 1996, statements of
operations for the three and nine months ended September 30, 1996
and 1995, and statements of cash flows for the nine months ended
September 30, 1996 and 1995 have been prepared by Dyco Petroleum
Corporation ("Dyco"), the General Partner of the Dyco Oil and Gas
Program 1986-2 Limited Partnership (the "Program"), without
audit. In the opinion of management all adjustments (which
include only normal recurring adjustments) necessary to present
fairly the financial position at September 30, 1996, results of
operations for the three and nine months ended September 30, 1996
and 1995 and changes in cash flows for the nine months ended
September 30, 1996 and 1995 have been made.
Information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto
included in the Program's Annual Report on Form 10-K for the year
ended December 31, 1995. The results of operations for the
period ended September 30, 1996 are not necessarily indicative of
the results to be expected for the full year.
The limited partners' net income or loss per unit is based upon
each $5,000 initial capital contribution.
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. 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), the excess is charged to expense in the
period during which such excess occurs. 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.
The provision for depreciation, depletion, and amortization of
oil and gas properties is calculated by dividing the oil and gas
sales dollars during the year by the estimated future gross
income from the oil and gas properties and applying the resulting
rate to the net remaining costs of oil and gas properties that
have been capitalized, plus estimated future development costs.
2. TRANSACTIONS WITH RELATED PARTIES
---------------------------------
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Under the terms of the Program's partnership 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 Program. During the three months
ended September 30, 1996 and 1995 such expenses totaled $8,029
and $7,894, respectively, of which $7,341 and $7,341 were paid to
Dyco. During the nine months ended September 30, 1996 and 1995
such expenses totaled $27,280 and $27,277, respectively, of which
$22,023 and $22,023 were paid to Dyco.
Affiliates of the Program are the operators of certain of the
Program's properties and their policy is to bill the Program for
all customary charges and cost reimbursements associated with
their activities, together with any compressor rentals,
consulting, or other services provided.
The Program sold gas at market prices to Premier Gas Company
("Premier") and Premier then resold such gas to third parties at
market prices. Premier was an affiliate of the Program until
December 6, 1995. During the three months ended September 30,
1995 these sales totaled $45,446. During the nine months ended
September 30, 1995 these sales totaled $144,368. At December 31,
1995, accrued gas sales included $36,760 due from Premier.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net proceeds from the Program's operations less necessary
operating capital are distributed to investors on a quarterly
basis. 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 the Program's reserves which would result in a
positive economic impact. Over the last several years, the
domestic energy industry and the Program have contended with
volatile, but generally low, oil and gas prices. Over the past
few years, the oil and gas market appears to have moved from
periods of relative stability in supply and demand to excess
supply or weakened demand. These trends have led to the
volatility in pricing and demand noted over the past years.
The Program's available capital from subscriptions has been spent
on oil and gas drilling activities. There should not be any
further material capital resource commitments in the future. The
Program has no bank debt commitments. Cash for operational
purposes will be provided by current oil and gas production.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1995.
Three months ended September 30,
--------------------------------
1996 1995
------- -------
Oil and gas sales $61,373 $60,494
Oil and gas production expenses $26,790 $32,149
Barrels produced 45 684
Mcf produced 32,072 41,296
Average price/Bbl $ 21.49 $ 22.00
Average price/Mcf $ 2.01 $ 1.10
As shown in the table above, oil and gas sales remained
relatively constant for the three months ended September 30, 1996
as compared to the three months ended September 30, 1995. While
the average price of natural gas sold increased for the three
months ended September 30, 1996 as compared to the three months
ended September 30, 1995, any resulting increase in oil and
natural gas sales was offset by decreases in the volumes of oil
and natural gas sold and the decrease in the average price of oil
sold. Volumes of oil and natural gas sold decreased by 639
barrels and 9,224 Mcf, respectively, for the three months ended
September 30, 1996 as compared to the three months ended
September 30, 1995. The decrease in volumes of oil sold resulted
primarily from the sale of one significant oil producing well
during the three months ended September 30, 1995. The decrease
in volumes of natural gas sold resulted primarily from the normal
declines in production from diminished natural gas reserves on
two wells during the three months ended September 30, 1996 as
compared to the three months ended September 30, 1995. Average
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oil prices decreased to $21.49 per barrel for the three months
ended September 30, 1996 from $22.00 per barrel for the three
months ended September 30, 1995, while average natural gas prices
increased to $2.01 per Mcf for the three months ended September
30, 1996 from $1.10 per Mcf for the three months ended September
30, 1995.
Oil and gas production expenses (including lease operating
expenses and production taxes) decreased $5,359 for the three
months ended September 30, 1996 as compared to the three months
ended September 30, 1995. This decrease resulted primarily from
(i) the sale of one well during the three months ended September
30, 1995 and (ii) workover expenses incurred on another well
during the three months ended September 30, 1995 in order to
improve the recovery of reserves, partially offset by abandonment
expenses incurred on one well during the three months ended
September 30, 1996 and the purchase of an additional interest in
a producing property during the three months ended September 30,
1996. As a percentage of oil and gas sales, these expenses
decreased to 43.7% for the three months ended September 30, 1996
from 53.1% for the three months ended September 30, 1995. This
percentage decrease was primarily a result of the increase in the
average price of natural gas sold during the three months ended
September 30, 1996 as compared to the three months ended
September 30, 1995.
Depreciation, depletion, and amortization of oil and gas
properties decreased $5,300 for the three months ended September
30, 1996 as compared to the three months ended September 30,
1995. This decrease was primarily due to the decreases in the
volumes of oil and natural gas sold during the three months ended
September 30, 1996 as compared to the three months ended
September 30, 1995 and upward revisions of previous reserve
estimates at December 31, 1995. As a percentage of oil and gas
sales, this expense decreased to 12.8% for the three months ended
September 30, 1996 from 21.8% for the three months ended
September 30, 1995. This percentage decrease was primarily a
result of the decrease in depreciation, depletion, and
amortization of oil and gas properties related to the upward
reserve revisions discussed above and the increase in the average
price of natural gas sold during the three months ended September
30, 1996 as compared to the three months ended September 30,
1995.
General and administrative expenses remained relatively constant
for the three months ended September 30, 1996 as compared to the
three months ended September 30, 1995. As a percentage of oil
and gas sales, these expenses remained relatively constant at
13.1% for the three months ended September 30, 1996 as compared
to 13.0% for the three months ended September 30, 1995.
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NINE MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1995.
Nine months ended September 30,
-------------------------------
1996 1995
-------- --------
Oil and gas sales $206,580 $219,320
Oil and gas production expenses $ 58,371 $ 88,567
Barrels produced 85 3,907
Mcf produced 111,619 120,102
Average price/Bbl $ 18.71 $ 18.92
Average price/Mcf $ 1.87 $ 1.21
As shown in the table above, oil and gas sales decreased $12,740
(5.8%) for the nine months ended September 30, 1996 as compared
to the nine months ended September 30, 1995. Of this decrease,
$87,373 was related to the decreases in the volumes of oil and
natural gas sold, partially offset by a $79,267 increase related
to the increase in the average price of natural gas sold.
Volumes of oil and natural gas sold decreased by 3,822 barrels
and 8,483 Mcf, respectively, for the nine months ended September
30, 1996 as compared to the nine months ended September 30, 1995.
The decrease in volumes of oil sold resulted primarily from the
sale of one significant oil producing property during the nine
months ended September 30, 1995. Average oil prices decreased to
$18.71 per barrel for the nine months ended September 30, 1996
from $18.92 per barrel for the nine months ended September 30,
1995, while average natural gas prices increased to $1.87 per Mcf
for the nine months ended September 30, 1996 from $1.21 per Mcf
for the nine months ended September 30, 1995.
Oil and gas production expenses (including lease operating
expenses and production taxes) decreased $30,196 for the nine
months ended September 30, 1996 as compared to the nine months
ended September 30, 1995. This decrease was primarily due to (i)
the sale of one well during the nine months ended September 30,
1995 and (ii) workover charges incurred on another well during
the nine months ended September 30, 1995 in order to improve the
recovery of reserves. As a percentage of oil and gas sales,
these expenses decreased to 28.3% for the nine months ended
September 30, 1996 from 40.4% for the nine months ended September
30, 1995. This percentage decrease was primarily due to the
decrease in oil and gas production expenses as discussed above
and the increase in the average price of natural gas sold during
the nine months ended September 30, 1996 as compared to the nine
months ended September 30, 1995.
Depreciation, depletion, and amortization of oil and gas
properties decreased $18,110 for the nine months ended September
30, 1996 as compared to the nine months ended September 30, 1995.
This decrease was primarily a result of the decreases in the
volumes of oil and natural gas sold and upward revisions of
previous reserve estimates at December 31, 1995. As a percentage
of oil and gas sales, this expense decreased to 13.0% for the
nine months ended September 30, 1996 from 20.8% for the nine
months ended September 30, 1995. This percentage decrease was
primarily due to the decrease in depreciation, depletion, and
amortization of oil and gas properties related to the upward
reserve revisions discussed above and the increase in the average
price of natural gas sold during the nine months ended September
30, 1996 as compared to the nine months ended September 30, 1995.
General and administrative expenses remained relatively constant
for the nine months ended September 30, 1996 as compared to the
nine months ended September 30, 1995. As a percentage of oil and
gas sales, these expenses remained relatively constant at 13.2%
for the nine months ended September 30, 1996 as compared to 12.4%
for the nine months ended September 30, 1995.
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PART II: OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On October 1, 1996, Drew Phillips resigned as Chief Financial
Officer of Dyco. Mr. Phillips continues to serve as an
accounting officer of affiliates of Dyco.
On October 1, 1996, Patrick M. Hall was elected Chief Financial
Officer of Dyco. Mr. Hall joined affiliates of Dyco
(collectively, the "Samson Companies") in 1983. 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 is also Senior Vice President -
Controller of Samson Investment Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule containing summary
financial information extracted from the Program's
financial statements as of September 30, 1996 and
for the nine months ended September 30, 1996,
filed herewith.
All other exhibits are omitted as inapplicable.
(b) Reports on Form 8-K
Current Report on Form 8-K filed during third quarter of
1996:
Date of event: July 1, 1996
Date filed with SEC: July 8, 1996
Item Included:
Item 5 - Other Events
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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.
DYCO OIL AND GAS PROGRAM 1986-2 LIMITED
PARTNERSHIP
(Registrant)
By: DYCO PETROLEUM CORPORATION
General Partner
Date: October 31, 1996 By: /s/Dennis R. Neill
--------------------------------
(Signature)
Dennis R. Neill
President
Date: October 31, 1996 By: /s/Patrick M. Hall
--------------------------------
(Signature)
Patrick M. Hall
Chief Financial Officer
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INDEX TO EXHIBITS
-----------------
NUMBER DESCRIPTION
- ------ -----------
27.1 Financial Data Schedule containing summary financial
information extracted from the Dyco Oil and Gas Program
1986-2 Limited Partnership's financial statements as of
September 30, 1996 and for the nine months ended September
30, 1996, filed herewith.
All other exhibits are omitted as inapplicable.
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000778961
<NAME> DYCO OIL AND GAS PROGRAM 1986-2 LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 29,364
<SECURITIES> 0
<RECEIVABLES> 42,039
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 71,403
<PP&E> 10,315,728
<DEPRECIATION> 10,118,959
<TOTAL-ASSETS> 311,495
<CURRENT-LIABILITIES> 5,131
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 306,364
<TOTAL-LIABILITY-AND-EQUITY> 311,495
<SALES> 206,580
<TOTAL-REVENUES> 208,136
<CGS> 0
<TOTAL-COSTS> 113,136
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 95,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 95,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,000
<EPS-PRIMARY> 46.55
<EPS-DILUTED> 0
</TABLE>
