UNITED STATES
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 MARCH 31, 1997 COMMISSION FILE NO. 0-20998
KELLEY PARTNERS 1992 DEVELOPMENT
DRILLING PROGRAM
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0373428
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
601 JEFFERSON ST.
SUITE 1100
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 652-5200
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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KELLEY PARTNERS 1992 DEVELOPMENT DRILLING PROGRAM
INDEX
PART I. FINANCIAL INFORMATION PAGE
Balance Sheets as of December 31, 1996 and
March 31, 1997 (unaudited) ..................................... 2
Statements of Income for the Three Months ended
March 31, 1996 and 1997 (unaudited) ............................ 3
Statements of Cash Flows for the Three Months
ended March 31, 1996 and 1997 (unaudited) ...................... 4
Notes to Financial Statements (unaudited)............................ 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 6
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KELLEY PARTNERS 1992 DEVELOPMENT DRILLING PROGRAM
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, MARCH 31,
1996 1997
-------- --------
(UNAUDITED)
ASSETS:
Cash and cash equivalents ............................ $ 22 $ --
Accounts receivable - trade .......................... 126 31
Accounts receivable - affiliates ..................... 1,577 2,044
-------- --------
Total current assets ............................... 1,725 2,075
-------- --------
Oil and gas properties, successful efforts method:
Properties subject to amortization ................. 44,333 44,341
Less: Accumulated depreciation,
depletion & amortization ......................... (40,346) (40,516)
-------- --------
Total oil and gas properties ....................... 3,987 3,825
-------- --------
TOTAL ASSETS ......................................... $ 5,712 $ 5,900
======== ========
LIABILITIES:
Accounts payable and accrued expenses ................ $ 143 $ 140
Notes payable - long term ............................ 5,400 5,400
-------- --------
TOTAL LIABILITIES .................................... 5,543 5,540
-------- --------
PARTNERS' EQUITY:
LP Unitholders' equity (deficit) ..................... (9) 9
GP Unitholders' equity ............................... 171 336
Managing and special general partners' equity ........ 7 15
-------- --------
TOTAL PARTNERS' EQUITY ............................... 169 360
-------- --------
TOTAL LIABILITIES AND PARTNERS' EQUITY ................. $ 5,712 $ 5,900
======== ========
See Notes to Financial Statements.
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KELLEY PARTNERS 1992 DEVELOPMENT DRILLING PROGRAM
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1996 1997
-------- --------
REVENUES:
Oil and gas sales ................................ $ 1,252 $ 806
Interest income .................................. 3 --
-------- --------
Total revenues ................................. 1,255 806
-------- --------
COSTS AND EXPENSES:
Lease operating expenses ......................... 200 158
Severance taxes .................................. 36 28
General and administrative expenses .............. 113 119
Interest expense ................................. 203 140
Depreciation, depletion and amortization ......... 380 170
-------- --------
Total expenses ................................. 932 615
-------- --------
NET INCOME ......................................... $ 323 $ 191
======== ========
NET INCOME ALLOCABLE TO LP UNITHOLDERS
AND GP UNITHOLDERS ............................... $ 310 $ 183
======== ========
NET INCOME ALLOCABLE TO MANAGING AND
INDIVIDUAL GENERAL PARTNERS ...................... $ 13 $ 8
======== ========
NET INCOME PER LP AND GP UNIT ...................... $ .02 $ .01
======== ========
Average LP and GP units outstanding ................ 16,033 16,033
======== ========
See Notes to Financial Statements.
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KELLEY PARTNERS 1992 DEVELOPMENT DRILLING PROGRAM
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
1996 1997
-------- --------
OPERATING ACTIVITIES:
Net income ........................................... $ 323 $ 191
Adjustments to reconcile net income to net cash
provided by(used in)operating activities:
Depreciation, depletion and amortization ........... 380 170
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ......... 249 (372)
Decrease in prepaid and other current assets ....... 12 --
Decrease in accounts payable and accrued expenses .. (943) (3)
-------- --------
Net cash provided by (used in) operating activities .. 21 (14)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures ................................. (69) (8)
Sale of other non-current assets ..................... 69 --
-------- --------
Net cash used in investing activities ................ -- (8)
-------- --------
FINANCING ACTIVITIES ................................... -- --
-------- --------
Increase (decrease) in cash and cash equivalents ....... 21 (22)
Cash and cash equivalents, beginning of period ......... 14 22
-------- --------
Cash and cash equivalents, end of period ............... $ 35 $ --
======== ========
See Notes to Financial Statements.
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KELLEY PARTNERS 1992 DEVELOPMENT DRILLING PROGRAM
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
GENERAL. The accompanying financial statements of Kelley Partners 1992
Development Drilling Program (the "Partnership") have been prepared in
accordance with generally accepted accounting principles and, in the opinion of
management, reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair statement of the results for the interim periods presented.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of results to be expected for the full year. The
accounting policies followed by the Partnership are set forth in Note 1 to the
financial statements included in its Annual Report on Form 10-K for the year
ended December 31, 1996.
Certain financial statement items in the interim 1996 period have been
reclassified to conform to the interim 1997 presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
In 1992, the Partnership issued a total of 16,033,009 units of limited
and general partner interests ("Units") at $3 per Unit for a total of
$48,099,027. The Units represent 96.04% of the total interests in the
Partnership and consist of 1,647,502 Units of limited partner interests ("LP
Units") and 14,385,507 Units of general partner interests ("GP Units"). In
addition, the Partnership issued managing and special general partner interests
on a pro rata basis for $1,983,258, representing 3.96% of the total interests in
the Partnership. Kelley Oil Corporation, managing general partner of the
Partnership ("Kelley Oil") and a wholly owned subsidiary of Kelly Oil & Gas
Corporation ("KOGC"), owns 83.72% of the Units, together with its 3.94% managing
general partnership interest.
RECENT DEVELOPMENTS
DRILLING OPERATIONS. Since inception, the Partnership participated in
drilling 39 gross (15.23 net) wells, of which 30 gross (11.07 net) wells were
found productive and 9 gross (4.16 net) wells were dry.
HEDGING ACTIVITIES. KOGC has periodically used forward sales contracts,
natural gas swap agreements and options to reduce exposure to downward price
fluctuations on its natural gas production. The swap agreements generally
provide for KOGC to receive or make counterparty payments on the differential
between a fixed price and a variable indexed price for natural gas. KOGC's
hedging activities also cover the oil and gas production attributable to the
interest in such production of the public unitholders in KOGC's subsidiary
partnerships. Through natural gas swap agreements, approximately 64% of the
Partnership's natural gas production for the first quarter of 1997 was affected
by hedging transactions at an average NYMEX quoted price of $2.56 per MMBtu
before transaction and transportation costs. As of March 31, 1997, approximately
38% of the Partnership's anticipated natural gas production for the remainder of
1997 had been hedged by natural gas swap agreements at an average NYMEX quoted
price of $2.29 per MMBtu before transaction and transportation costs. Gains and
losses realized from hedging activities are included in oil and gas revenues and
average sales prices. Hedging activities reduced Partnership revenues by
approximately $0.1 million in the first quarter of 1997 as compared to estimated
revenues had no hedging activities been conducted.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996. Oil and gas revenues of
$806,000 for the first quarter of 1997 decreased 35.6% compared to $1,252,000 in
the corresponding quarter of 1996 as a result of lower oil and gas production.
During the current quarter, production of natural gas decreased 35.1% from
501,000 Mcf in the first quarter of 1996 to 325,000 Mcf, while the average price
of natural gas increased 1.8% from $2.21 per Mcf in the first quarter of 1996 to
$2.25 per Mcf in the current quarter. Production of crude oil in the current
quarter totaled 3,622 barrels, with an average sales price of $21.25 per barrel
compared to 7,778 barrels at $17.40 per barrel in the same quarter last year,
representing a volume decrease of 53.4% and a price increase of 22.1%.
Lease operating expenses and severance taxes were $186,000 in the
current quarter versus $236,000 in the first quarter of 1996, a decrease of
21.2%, reflecting lower production levels and reduced workover costs. On a unit
of production basis, these expenses increased to $0.53 per Mcfe in the first
quarter of 1997 from $0.43 per Mcfe in the same quarter of 1996.
General and administrative expenses of $119,000 in the current quarter
increased 5.3% from $113,000 in the first quarter of 1996. On a unit of
production basis, these expenses increased from $0.21 per Mcfe in the first
quarter of 1996 to $0.34 per Mcfe in the current quarter.
In the first quarters of both 1997 and 1996, the Partnership incurred
interest expenses of $140,000 and $203,000, respectively, on a loan advanced in
August 1994 to fund part of its drilling expenses in excess of contributed
capital. See "Liquidity and Capital Resources" below.
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Depreciation, depletion and amortization ("DD&A") decreased 55.3% from
$380,000 in the first quarter of 1996 to $170,000 in the current quarter due to
lower production levels and lower depletion rates. On a unit of production
basis, DD&A decreased to $0.49 per Mcfe in the first quarter of 1997 from $0.69
per Mcfe in the same quarter last year.
The Partnership recognized net income of $191,000 or $0.01 per Unit for
the first quarter of 1997. For the first quarter of 1996, the Partnership
recognized net income of $323,000 or $0.02 per Unit. The variance between first
quarter 1997 and first quarter 1996 is reflected in the foregoing discussion.
The results of operations for the quarter ended March 31, 1997 are not
necessarily indicative of the Partnership's operating results to be expected for
the full year.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. Net cash used in the Partnership's operating activities
during the first three months of 1997, as reflected on its statement of cash
flows, totaled $14,000. During the period, funds used in investing activities
were comprised primarily of property and equipment expenditures of $8,000 for
development of the Partnership's oil and gas properties. As a result of these
activities, the Partnership's cash and cash equivalents decreased to $-0- at
March 31, 1997 from $22,000 at December 31, 1996.
CAPITAL RESOURCES. The partners' equity at March 31, 1997 increased to
$360,000 as compared to $169,000 at December 31, 1996. The Partnership has
completed its development stage. Accordingly, cash flow from operations should
be adequate to meet its expected capital and general working capital needs. As
of March 31, 1997, the Partnership was fully capitalized with contributions
aggregating $50,082,285.
DISTRIBUTION POLICY. The Partnership maintains a policy of distributing
the maximum amount of its net available cash to Unitholders on a quarterly
basis. For these purposes, net available cash generally represents the net
operating cash flow of the Partnership after deducting working capital
requirements. To meet its financial obligations for the drilling
overexpenditures, the Partnership suspended distributions commencing in October
1994 and reinstated a quarterly distribution for only one quarter in 1995. The
Partnership's operating cash flows in 1996 were applied to pay interest on the
Initial Loan and to reduce unfunded payables for third party drilling
overexpenditures. While $5,400,000 of the $6,000,000 Initial Loan remained
outstanding at March 31, 1997, the balance of the outstanding drilling
overexpenditures was repaid in 1996. By continuing to service its debt from
operating cash flow, the Partnership expects to further reduce the outstanding
balance of the Initial Loan in 1997.
Net available cash per Unit from operations for the three months ended
March 31, 1996 and 1997 was determined as follows:
THREE MONTHS ENDED
MARCH 31,
1996 1997
-------- --------
Net income per Unit ................................ $ .02 $ .01
Depreciation, depletion and
amortization charges per Unit ................. .02 .01
-------- --------
Net available cash per Unit for
reduction of debt and accrued interest ........ $ .04 $ .02
======== ========
INFLATION AND CHANGING PRICES. Oil and natural gas prices, as with most
commodities, are highly volatile, have fluctuated during recent years and
generally have not followed the same pattern as inflation.
FORWARD-LOOKING STATEMENTS
FROM TIME TO TIME, THE COMPANY MAY PUBLISH FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, RELATING TO
MATTERS SUCH AS ANTICIPATED OPERATING AND FINANCIAL PERFORMANCE, BUSINESS
PROSPECTS, DEVELOPMENTS AND RESULTS OF THE
7
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COMPANY. ACTUAL PERFORMANCE, PROSPECTS, DEVELOPMENTS AND RESULTS MAY DIFFER
MATERIALLY FROM ANY OR ALL ANTICIPATED RESULTS DUE TO ECONOMIC CONDITIONS AND
OTHER RISKS, UNCERTAINTIES AND CIRCUMSTANCES PARTLY OR TOTALLY OUTSIDE THE
CONTROL OF THE COMPANY, INCLUDING RATES OF INFLATION, NATURAL GAS PRICES,
RESERVE ESTIMATES, RATES AND TIMING OF FUTURE PRODUCTION OF OIL AND GAS, AND
CHANGES IN THE LEVEL AND TIMING OF FUTURE COSTS AND EXPENSES RELATED TO DRILLING
AND OPERATING ACTIVITIES.
WORDS SUCH AS "ANTICIPATED," "EXPERT," "ESTIMATE," "PROJECT" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING
STATEMENTS MAY BE MADE IN MANAGEMENT'S STATEMENTS (ORALLY OR IN WRITING)
INCLUDING PRESS RELEASES, AND IN FILINGS OF THE SEC, INCLUDING THIS REPORT.
8
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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.
KELLEY PARTNERS 1992
DEVELOPMENT DRILLING PROGRAM
By: KELLEY OIL CORPORATION
Managing General Partner
Date: May 15, 1997 By: /S/ DAVID C. BAGGETT
David C. Baggett
Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer)
(Principal Accounting Officer)
9
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,075
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,075
<PP&E> 44,341
<DEPRECIATION> 40,516
<TOTAL-ASSETS> 5,900
<CURRENT-LIABILITIES> 140
<BONDS> 5,400
0
0
<COMMON> 0
<OTHER-SE> 360
<TOTAL-LIABILITY-AND-EQUITY> 5,900
<SALES> 806
<TOTAL-REVENUES> 806
<CGS> 0
<TOTAL-COSTS> 186
<OTHER-EXPENSES> 289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> 191
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 191
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
