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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 JUNE 30, 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 [ ]
<PAGE>
KELLEY PARTNERS 1992 DEVELOPMENT DRILLING PROGRAM
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Balance Sheets as of June 30, 1997 (unaudited)
and December 31, 1996............................................. 2
Statements of Income for the three months and six
months ended June 30, 1997 and 1996 (unaudited)................... 3
Statements of Cash Flows for the six months ended June 30,
1997 and 1996 (unaudited)......................................... 4
Notes to Financial Statements (unaudited)............................ 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 6
PART II. OTHER INFORMATION................................................ 8
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KELLEY PARTNERS 1992 DEVELOPMENT DRILLING PROGRAM
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash and cash equivalents............................................................$ -- $ 22
Accounts receivable - trade.......................................................... 43 126
Accounts receivable - affiliates..................................................... 454 1,577
--------- ---------
Total current assets............................................................... 497 1,725
--------- ---------
Oil and gas properties, successful efforts method:
Properties subject to amortization................................................. 44,339 44,333
Less: Accumulated depreciation, depletion & amortization.......................... (40,675) (40,346)
--------- ---------
Total oil and gas properties....................................................... 3,664 3,987
--------- ---------
TOTAL ASSETS.........................................................................$ 4,161 $ 5,712
========= =========
LIABILITIES:
Accounts payable and accrued expenses................................................$ 173 $ 143
Long term note payable - affiliate................................................... 3,471 5,400
--------- ---------
TOTAL LIABILITIES.................................................................... 3,644 5,543
--------- ---------
PARTNERS' EQUITY:
LP Unitholders' equity (deficit)..................................................... 24 (9)
GP Unitholders' equity............................................................... 472 171
Managing and special general partners' equity........................................ 21 7
--------- ---------
TOTAL PARTNERS' EQUITY............................................................... 517 169
--------- ---------
TOTAL LIABILITIES AND PARTNERS' EQUITY..................................................$ 4,161 $ 5,712
========= =========
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
KELLEY PARTNERS 1992 DEVELOPMENT DRILLING PROGRAM
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales..........................................$ 699 $ 1,270 $ 1,505 $ 2,522
Interest income............................................ -- -- -- 3
--------- --------- -------- ---------
Total revenues........................................... 699 1,270 1,505 2,525
--------- --------- -------- ---------
COSTS AND EXPENSES:
Lease operating expenses................................... 159 136 317 336
Severance taxes............................................ 35 54 63 90
Exploration costs.......................................... -- (2) -- (2)
General and administrative expenses........................ 119 82 238 195
Interest expense........................................... 70 202 210 405
Depreciation, depletion and amortization................... 159 359 329 739
--------- --------- -------- ---------
Total expenses........................................... 542 831 1,157 1,763
--------- --------- -------- ---------
NET INCOME....................................................$ 157 $ 439 $ 348 $ 762
========= ========= ======== =========
NET INCOME ALLOCABLE TO LP UNITHOLDERS
AND GP UNITHOLDERS.........................................$ 151 $ 422 $ 334 $ 732
========= ========= ======== =========
NET INCOME ALLOCABLE TO MANAGING AND
SPECIAL GENERAL PARTNERS...................................$ 6 $ 17 $ 14 $ 30
========= ========= ======== =========
NET INCOME PER LP AND GP UNIT.................................$ .01 $ .03 $ .02 $ .05
========= ========= ======== =========
Average LP and GP units outstanding........................... 16,033 16,033 16,033 16,033
========= ========= ======== =========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
KELLEY PARTNERS 1992 DEVELOPMENT DRILLING PROGRAM
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1997 1996
--------- ------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income...........................................................................$ 348 $ 762
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization........................................... 329 739
Changes in operating assets and liabilities:
Decrease in accounts receivable.................................................... 1,206 215
Increase in prepaid and other current assets....................................... -- (10)
Increase (decrease) in accounts payable and accrued expenses....................... 30 (1,619)
--------- ---------
Net cash provided by operating activities............................................ 1,913 87
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures................................................................. (6) (180)
Sale of non-current assets........................................................... -- 85
--------- ---------
Net cash used in investing activities................................................ (6) (95)
--------- ---------
FINANCING ACTIVITIES:
Principal payments on long-term borrowings........................................... (1,929) --
--------- ---------
Net cash used in financing activities................................................ (1,929) --
--------- ---------
Decrease in cash and cash equivalents................................................... (22) (8)
Cash and cash equivalents, beginning of period.......................................... 22 14
--------- ---------
Cash and cash equivalents, end of period................................................$ -- $ 6
========= =========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
KELLEY PARTNERS 1992 DEVELOPMENT DRILLING PROGRAM
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
GENERAL. The accompanying unaudited interim financial statements of
Kelley Partners 1992 Development Drilling Program (the "Partnership") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission in accordance with generally accepted accounting principles for
interim financial information. These financial statements 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 periods ended June 30, 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. These
unaudited interim financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Partnership's
1996 Annual Report on Form 10-K.
Certain 1996 financial statement items have been reclassified to
conform to the 1997 presentation.
5
<PAGE>
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 1,647,500 Units of limited partner interests ("LP
Units") and 14,385,509 Units of general partner interests ("GP Units") at June
30, 1997. 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 (15.2 net) wells, of which 30 gross (11.1 net) wells were
found productive and 9 gross (4.1 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 its subsidiary
partnerships. Through natural gas swap agreements, approximately 64% and 65% of
the Partnership's natural gas production for the second quarter of 1997 and the
first six months of 1997, respectively, were affected by hedging transactions at
an average NYMEX quoted price of $2.31 per MMBtu and $2.44 per MMBtu,
respectively, before transaction and transportation costs. As of June 30, 1997,
approximately 43% 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 $2.19 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
increased Partnership revenues by $38,000 in the second quarter of 1997 and
reduced Partnership revenues by $69,000 in the first half of 1997, as compared
to estimated revenues had no hedging activities been conducted.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996. Oil and gas revenues of
$699,000 for the second quarter of 1997 decreased 45% compared to $1,270,000 in
the corresponding quarter of 1996 as a result of lower production and prices.
Production of natural gas decreased 37% from 478,000 Mcf in the second quarter
of 1996 to 303,000 Mcf in the current quarter, while the average price of
natural gas decreased 10% from $2.30 per Mcf in the second quarter of 1996 to
$2.08 per Mcf in the current quarter. Production of crude oil in the current
quarter totaled 3,621 barrels, with an average sales price of $19.27 per barrel
compared to 6,771 barrels at $25.77 per barrel in the same quarter last year,
representing a volume decrease of 47% and a price decrease of 25%. Oil and gas
production decreased due to natural depletion and a reduction in the drilling of
new wells to offset that decline.
Lease operating expenses and severance taxes were $194,000 in the
current quarter versus $190,000 in the second quarter of 1996, an increase of
2%. On a unit of production basis, these expenses increased to $0.60 per Mcfe in
the second quarter of 1997 from $0.37 per Mcfe in the same quarter of 1996.
General and administrative expenses of $119,000 in the current quarter
increased 45% from $82,000 in the second quarter of 1996. On a unit of
production basis, these expenses increased from $0.16 per Mcfe in the second
quarter of 1996 to $0.37 per Mcfe in the current quarter.
6
<PAGE>
In the second quarters of 1997 and 1996, the Partnership incurred
interest expenses of $70,000 and $202,000, respectively, on a loan advanced to
it by Kelley Oil in August 1994 ("Initial Loan") to fund part of its drilling
expenses in excess of contributed capital. See "Liquidity and Capital Resources"
below.
Depreciation, depletion and amortization ("DD&A") decreased 56% from
$359,000 in the second quarter of 1996 to $159,000 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 second quarter of 1997 from $0.69
per Mcfe in the same quarter last year.
The Partnership recognized net income of $157,000 or $0.01 per Unit for
the second quarter of 1997. For the second quarter of 1996, the Partnership
recognized net income of $439,000 or $0.03 per Unit. The reasons for the
variance between the second quarter of 1997 and the second quarter of 1996 are
described in the foregoing discussion.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996. Oil and gas revenues of
$1,505,000 for the first six months of 1997 decreased 40% compared to $2,522,000
in the corresponding period of 1996 as a result of lower oil and gas production.
During the current period, production of natural gas decreased 36% from 980,000
Mcf in the first six months of 1996 to 627,000 Mcf. Production of crude oil in
the current period totaled 7,243 barrels compared to 14,549 barrels in the same
quarter last year, representing a decrease of 50%. Oil and gas production
decreased due to natural depletion and a reduction in the drilling of new wells
to offset that decline.
Lease operating expenses and severance taxes were $380,000 in the
current period versus $426,000 in the first half of 1996, a decrease of 11%,
reflecting lower production levels. On a unit of production basis, these
expenses increased to $0.57 per Mcfe in the first six months of 1997 from $0.40
per Mcfe in the year-earlier period.
General and administrative expenses of $238,000 in the current period
increased 22% from $195,000 in the first half of 1996. On a unit of production
basis, these expenses increased from $0.18 per Mcfe in the first six months of
1996 to $0.35 per Mcfe in the current period.
In the first six months of 1997 and 1996, the Partnership incurred
interest expenses of $210,000 and $405,000, respectively, on a loan advanced to
it by Kelley Oil in August 1994 to fund part of its drilling expenses in excess
of contributed capital. See "Liquidity and Capital Resources" below.
DD&A decreased 55% from $739,000 in the first six months of 1996 to
$329,000 in the current period 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 half of 1997 from $0.69 per Mcfe in the same period last year.
The Partnership recognized net income of $348,000 or $0.02 per Unit for
the first half of 1997. For the first half of 1996, the Partnership recognized
net income of $762,000 or $0.05 per Unit. The reasons for the variance between
the first six months of 1997 and the first six months of 1996 are described in
the foregoing discussion.
The results of operations for the quarter and six months ended June 30,
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 provided by the Partnership's operating activities
during the first six months of 1997, as reflected on its statement of cash
flows, totaled $1,913,000. During the period, funds used in investing activities
were comprised of capital expenditures of $6,000 for development of the
Partnership's oil and gas properties, and funds used in financing activities
included a reduction in the loan principal of approximately $1,929,000. As a
result of these activities, the Partnership's cash and cash equivalents were
reduced to zero at June 30, 1997 from $22,000 at December 31, 1996.
7
<PAGE>
CAPITAL RESOURCES. The partners' equity at June 30, 1997 increased to
$517,000 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 June 30, 1997, the Partnership was fully capitalized with contributions
aggregating $50,082,285.
DISTRIBUTION POLICY. The Partnership maintains a policy of distributing
cash which is not required for the conduct of Partnership business to
Unitholders on a quarterly basis. 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. At June 30, 1997, $3,471,000 of the $6,000,000
Initial Loan remained outstanding. By continuing to service its debt from
operating cash flow, the Partnership expects to further reduce the outstanding
balance of the Initial Loan.
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 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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NUMBER: EXHIBIT
------- -------
27 Financial Data Schedule (included only in
the electronic filing of this document)
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the
second quarter of 1997.
8
<PAGE>
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: August 14, 1997 By: /S/ DAVID C. BAGGETT
David C. Baggett
Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer)
(Principal Financial Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 497
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 497
<PP&E> 44,339
<DEPRECIATION> 40,675
<TOTAL-ASSETS> 4,161
<CURRENT-LIABILITIES> 173
<BONDS> 3,471
0
0
<COMMON> 0
<OTHER-SE> 517
<TOTAL-LIABILITY-AND-EQUITY> 4,161
<SALES> 1,505
<TOTAL-REVENUES> 1,505
<CGS> 0
<TOTAL-COSTS> 380
<OTHER-EXPENSES> 567
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 210
<INCOME-PRETAX> 348
<INCOME-TAX> 0
<INCOME-CONTINUING> 348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 348
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
