<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
June 30, 1997 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
June 30, December 31,
1997 1996
----------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 18,412 $ 25,262
Accrued oil and gas sales 63,145 68,892
-------- --------
Total current assets $ 81,557 $ 94,154
NET OIL AND GAS PROPERTIES, utilizing
the full cost method 175,829 201,379
DEFERRED CHARGE 43,179 43,179
-------- --------
$300,565 $338,712
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 4,181 $ 3,798
-------- --------
Total current liabilities $ 4,181 $ 3,798
ACCRUED LIABILITY 1,768 1,768
PARTNERS' CAPITAL:
General Partner, issued and
outstanding, 21 units 2,947 3,333
Limited Partners, issued and
outstanding, 2,020 units 291,669 329,813
-------- --------
Total Partners' capital $294,616 $333,146
-------- --------
$300,565 $338,712
======== ========
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 JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
-------- --------
REVENUES:
Oil and gas sales $57,026 $79,001
Interest 766 227
------- -------
$57,792 $79,228
COST AND EXPENSES:
Oil and gas production $12,898 $20,641
Depreciation, depletion, and
amortization of oil and gas
properties 2,373 10,497
General and administrative (Note 2) 8,332 8,864
------- -------
$23,603 $40,002
------- -------
NET INCOME $34,189 $39,226
======= =======
GENERAL PARTNER (1%) - net
income $ 342 $ 392
======= =======
LIMITED PARTNERS (99%) - net
income $33,847 $38,834
======= =======
NET INCOME PER UNIT $ 16.75 $ 19.22
======= =======
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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
-------- --------
REVENUES:
Oil and gas sales $187,271 $145,207
Interest 1,140 860
-------- --------
$188,411 $146,067
COST AND EXPENSES:
Oil and gas production $ 31,471 $ 31,581
Depreciation, depletion, and
amortization of oil and gas
properties 22,835 19,625
General and administrative (Note 2) 19,560 19,251
-------- --------
$ 73,866 $ 70,457
-------- --------
NET INCOME $114,545 $ 75,610
======== ========
GENERAL PARTNER (1%) - net
income $ 1,145 $ 756
======== ========
LIMITED PARTNERS (99%) - net
income $113,400 $ 74,854
======== ========
NET INCOME PER UNIT $ 56.12 $ 37.05
======== ========
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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $114,545 $75,610
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion, and
amortization of oil and gas
properties 22,835 19,625
(Increase) decrease in accrued
oil and gas sales 5,747 ( 380)
Increase (decrease) in accounts
payable 383 ( 3,409)
-------- -------
Net cash provided by operating
activities $143,510 $91,446
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of oil and
gas properties $ 2,715 $ -
-------- -------
Net cash provided by investing
activities $ 2,715 $ -
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($153,075) ($81,640)
-------- -------
Net cash used by financing
activities ($153,075) ($81,640)
-------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ($ 6,850) $ 9,806
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 25,262 55,853
-------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 18,412 $65,659
======== =======
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
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
1. ACCOUNTING POLICIES
-------------------
The balance sheet as of June 30, 1997, statements of operations
for the three and six months ended June 30, 1997 and 1996, and
statements of cash flows for the six months ended June 30, 1997
and 1996 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 June 30, 1997, results of operations for
the three and six months ended June 30, 1997 and 1996 and changes
in cash flows for the six months ended June 30, 1997 and 1996
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, 1996. The results of operations for the
period ended June 30, 1997 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. 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),
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 period 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.
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2. TRANSACTIONS WITH RELATED PARTIES
---------------------------------
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 June 30, 1997 and 1996 such expenses totaled $8,332 and
$8,864, respectively, of which $7,341 was paid quarterly to Dyco
and its affiliates. During the six months ended June 30, 1997
and 1996 such expenses totaled $19,560 and $19,251, respectively,
of which $14,682 was paid each period 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
USE OF FORWARD-LOOKING STATEMENTS AND ESTIMATES
- -----------------------------------------------
This Quarterly 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 Quarterly
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.
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.
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
- ---------------------
GENERAL DISCUSSION
The following general discussion should be read in conjunction
with the analysis of results of operations provided below. The
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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. Substantially all of the Program's gas
reserves are being sold in 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. Management is
unable to predict whether future oil and gas prices will (i)
stabilize, (ii) increase, or (iii) decrease.
THREE MONTHS ENDED JUNE 30, 1997 AS COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1996.
Three months ended June 30,
---------------------------
1997 1996
------- -------
Oil and gas sales $57,026 $79,001
Oil and gas production expenses $12,898 $20,641
Barrels produced - 21
Mcf produced 27,223 42,648
Average price/Bbl $ - $ 18.53
Average price/Mcf $ 2.09 $ 1.84
As shown in the table above, total oil and gas sales decreased
$21,975 (27.8%) for the three months ended June 30, 1997 as
compared to the three months ended June 30, 1996. Of this
decrease, approximately $28,000 was related to a decrease in
volumes of gas sold, partially offset by an increase of
approximately $7,000 related to an increase in the average price
of gas sold. Volumes of oil and gas sold decreased 21 barrels
and 15,425 Mcf, respectively, for the three months ended June 30,
1997 as compared to the three months ended June 30, 1996. The
decrease in volumes of gas sold resulted primarily from normal
declines in production due to diminished gas reserves on two
wells. Average gas prices increased to $2.09 per Mcf for the
three months ended June 30, 1997 from $1.84 per Mcf for the three
months ended June 30, 1996.
Oil and gas production expenses (including lease operating
expenses and production taxes) decreased $7,743 (37.5%) for the
three months ended June 30, 1997 as compared to the three months
ended June 30, 1996. This decrease resulted primarily from (i) a
decrease in volumes of gas sold during the three months ended
June 30, 1997 as compared to the three months ended June 30, 1996
and (ii) a decrease in production taxes associated with the
decrease in gas sales discussed above. As a percentage of oil
and gas sales, these expenses decreased to 22.6% for the three
months ended June 30, 1997 from 26.1% for the three months ended
June 30, 1996. This percentage decrease was primarily due to the
increase in the average price of gas sold during the three months
ended June 30, 1997 as compared to the three months ended June
30, 1996.
Depreciation, depletion, and amortization of oil and gas
properties decreased $8,124 (77.4%) for the three months ended
June 30, 1997 as compared to the three months ended June 30,
1996. This decrease resulted primarily from (i) the decrease in
volumes of gas sold during the three months ended June 30, 1997
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as compared to the three months ended June 30, 1996 and (ii) an
upward revision in the estimate of remaining gas reserves at
December 31, 1996. As a percentage of oil and gas sales, this
expense decreased to 4.2% for the three months ended June 30,
1997 from 13.3% for the three months ended June 30, 1996. This
percentage decrease was primarily due to the dollar decrease in
depreciation, depletion, and amortization discussed above.
General and administrative expenses decreased $532 (6.0%) for the
three months ended June 30, 1997 as compared to the three months
ended June 30, 1996. This decrease resulted primarily from a
decrease in professional fees during the three months ended June
30, 1997 as compared to the three months ended June 30, 1996. As
a percentage of oil and gas sales, these expenses increased to
14.6% for the three months ended June 30, 1997 as compared to
11.2% for the three months ended June 30, 1996. This percentage
increase was primarily due to the decrease in oil and gas sales
discussed above.
SIX MONTHS ENDED JUNE 30, 1997 AS COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1996.
Six months ended June 30,
-------------------------
1997 1996
-------- --------
Oil and gas sales $187,271 $145,207
Oil and gas production expenses $ 31,471 $ 31,581
Barrels produced - 34
Mcf produced 86,788 79,547
Average price/Bbl $ - $ 18.33
Average price/Mcf $ 2.16 $ 1.82
As shown in the table above, total oil and gas sales increased
$42,604 (29.0%) for the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996. Of this
increase, approximately $13,000 and $30,000, respectively, were
related to increases in the volumes and average prices of gas
sold. Volumes of oil sold decreased 34 barrels, while volumes of
gas sold increased 7,241 Mcf for the six months ended June 30,
1997 as compared to the six months ended June 30, 1996. The
increase in volumes of gas sold resulted primarily from a
positive prior period volume adjustment made by the purchaser on
one well during the six months ended June 30, 1997. Average gas
prices increased to $2.16 per Mcf for the six months ended June
30, 1997 from $1.82 per Mcf for the six months ended June 30,
1996.
Oil and gas production expenses (including lease operating
expenses and production taxes) remained relatively constant for
the six months ended June 30, 1997 as compared to the six months
ended June 30, 1996. As a percentage of oil and gas sales, these
expenses decreased to 16.8% for the six months ended June 30,
1997 from 21.7% for the six months ended June 30, 1996. This
percentage decrease was primarily due to the increase in the
average price of gas sold during the six months ended June 30,
1997 as compared to the six months ended June 30, 1996.
Depreciation, depletion, and amortization of oil and gas
properties increased $3,210 (16.4%) for the six months ended June
30, 1997 as compared to the six months ended June 30, 1996. This
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increase resulted primarily from (i) an increase in volumes of
gas sold during the six months ended June 30, 1997 as compared to
the six months ended June 30, 1996 and (ii) a decrease in the gas
price used in the valuation of reserves at June 30, 1997. As a
percentage of oil and gas sales, this expense remained relatively
constant at 12.2% for the six months ended June 30, 1997 and
13.5% for the six months ended June 30, 1996.
General and administrative expenses remained relatively constant
for the six months ended June 30, 1997 as compared to the six
months ended June 30, 1996. As a percentage of oil and gas
sales, these expenses decreased to 10.4% for the six months ended
June 30, 1997 as compared to 13.3% for the six months ended June
30, 1996. This percentage decrease was primarily due to the
increase in oil and gas sales discussed above.
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PART II: OTHER INFORMATION
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 June 30, 1997 and for
the six months ended June 30, 1997, filed
herewith.
All other exhibits are omitted as inapplicable.
(b) Reports on Form 8-K
None.
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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: August 5, 1997 By: /s/Dennis R. Neill
--------------------------------
(Signature)
Dennis R. Neill
President
Date: August 5, 1997 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 June
30, 1997 and for the six months ended June 30, 1997, filed
herewith.
All other exhibits are omitted as inapplicable.
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000778961
<NAME> DYCO OIL & GAS PROGRAM 1986-2 LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 18,412
<SECURITIES> 0
<RECEIVABLES> 63,145
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 81,557
<PP&E> 10,313,014
<DEPRECIATION> 10,137,185
<TOTAL-ASSETS> 300,565
<CURRENT-LIABILITIES> 4,181
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 294,616
<TOTAL-LIABILITY-AND-EQUITY> 300,565
<SALES> 187,271
<TOTAL-REVENUES> 188,411
<CGS> 0
<TOTAL-COSTS> 73,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 114,545
<INCOME-TAX> 0
<INCOME-CONTINUING> 114,545
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,545
<EPS-PRIMARY> 56.12
<EPS-DILUTED> 0
</TABLE>
