-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hs7zMH9uUmligTaxm4val1rg5pdJUuDfapb77Fv+n+curXIErAmOfGNWcK+So+ix 0+nBcMqK3l61YEITRFvEyA== 0000850427-00-000044.txt : 20000327 0000850427-00-000044.hdr.sgml : 20000327 ACCESSION NUMBER: 0000850427-00-000044 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYCO OIL & GAS PROGRAM 1979-1 LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000806573 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 411358013 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-10346-07 FILM NUMBER: 577278 BUSINESS ADDRESS: STREET 1: SAMSON PLZ STREET 2: TWO W SECOND ST CITY: TULSA STATE: OK ZIP: 74103 BUSINESS PHONE: 9185831791 MAIL ADDRESS: STREET 1: SAMSON PLZ STREET 2: TWO W SECOND ST CITY: TULSA STATE: OK ZIP: 74103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYCO OIL & GAS PROGRAM 1979-2 LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000806574 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 411358015 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-10346-08 FILM NUMBER: 577279 BUSINESS ADDRESS: STREET 1: SAMSON PLZ 2 W SECOND ST CITY: TULSA STATE: OK ZIP: 74103 BUSINESS PHONE: 9185831791 MAIL ADDRESS: STREET 1: SAMSON PLZ STREET 2: TWO W SECOND ST CITY: TULSA STATE: OK ZIP: 74103 10-K405 1 ANNUAL REPORT 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, 1999 Commission File Number 33-10346-07 (1979-1 Program) 33-10346-08 (1979-2 Program) DYCO 1979 OIL AND GAS PROGRAMS (TWO LIMITED PARTNERSHIPS) (Exact name of registrant as specified in its charter) 41-1358013 (1979-1 Program) Minnesota 41-1358015 (1979-2 Program) (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 executive offices) (Zip Code) 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. -1- FORM 10-K405 DYCO 1979 OIL AND GAS PROGRAMS (Two Minnesota limited partnerships) TABLE OF CONTENTS PART I........................................................................3 ITEM 1. BUSINESS......................................................3 ITEM 2. PROPERTIES....................................................7 ITEM 3. LEGAL PROCEEDINGS............................................12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS..........13 PART II......................................................................13 ITEM 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP UNITS AND RELATED LIMITED PARTNER MATTERS....................13 ITEM 6. SELECTED FINANCIAL DATA......................................15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................18 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................................24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................25 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........................49 PART III.....................................................................49 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...........49 ITEM 11. EXECUTIVE COMPENSATION.......................................50 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .......................................55 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............55 PART IV......................................................................57 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K .........................................57 SIGNATURES.............................................................60 -2- PART I ITEM 1. BUSINESS General The Dyco Oil and Gas Program 1979-1 Limited Partnership (the "1979-1 Program") and Dyco Oil and Gas Program 1979-2 Limited Partnership (the "1979-2 Program") (collectively, the "Programs") are Minnesota limited partnerships engaged in the production of oil and gas. The 1979-1 Program and 1979-2 Program commenced operations on April 2, 1979 and July 2, 1979, respectively, with the primary financial objective of investing their limited partners' subscriptions in the drilling of oil and gas prospects and then distributing to their 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 Programs. See "Item 2. Properties" for a description of the Programs' reserves and properties. The limited partnership agreements for each of the Programs (the "Program Agreements") provide 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 each 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 31 limited partnerships, including the Programs. Dyco is a wholly-owned subsidiary of Samson Investment Company. Samson Investment Company and its various corporate subsidiaries, including Dyco, (collectively, "Samson") 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, 1999, Samson owned interests in approximately 14,000 oil and gas wells located in 17 states of the United States and the countries of Canada, Venezuela, and Russia. At January 31, 1999, Samson operated approximately 3,400 oil and gas wells located in 15 states of the United States, as well as Canada, Venezuela, and Russia. As limited partnerships, the Programs have no officers, directors, or employees. They rely instead on the personnel of Dyco and Samson. As of March 1, 2000 Samson employed approximately 920 persons. No employees are covered by collective bargaining agreements, and management believes that Samson provides 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 Programs' principal place of business is located at Samson Plaza, Two West Second Street, Tulsa, Oklahoma -3- 74103, and their telephone number is (918) 583-1791 or (800) 283-1791. Funding Although the Program Agreements permit the Programs to incur borrowings, each Program's operations and expenses are currently funded out of each Program's revenues from oil and gas sales. Dyco may, but is not required to, advance funds to each of the Programs for the same purposes for which Program borrowings are authorized. Principal Products Produced and Services Rendered The Programs' sole business is the development and production of oil and gas with a concentration on gas. The Programs do not hold any patents, trademarks, licenses, or concessions and are not a party to any government contracts. The Programs have no backlog of orders and do not participate in research and development activities. The Programs are 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 Programs 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 Programs. Although virtually all of the Programs' 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 Programs' 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. -4- 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. Regulation of the Environment -- The Programs' 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 Programs' operations or may affect the Programs' 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 95.3% of the 1979-1 Program's oil and gas sales during the year ended December 31, 1999. With respect to the 1979-2 Program, purchases of gas by El Paso and Warren Petroleum Company accounted for approximately 70.8% and 12.6%, respectively, of its oil and gas sales during the year ended December 31, 1999. In the event of interruption of purchases by these significant customers or the cessation or material change in availability of open-access transportation by the Programs' pipeline transporters, the Programs may encounter difficulty in marketing their gas and in maintaining historic sales levels. Alternative purchasers or transporters may not be readily available. The Programs' principal customers for crude oil production are refiners and other companies which have pipeline facilities near the producing properties of the Programs. 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 Programs to produce and market oil and gas profitably depends on a number of factors that are beyond the control of the Programs. 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 -5- 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 Programs' revenues is the prices received for the sale of oil and gas. Predicting future prices is not possible. Concerning past trends, average yearly wellhead gas prices in the United States have been volatile for many years. Over the past ten years such average prices have generally been in the $1.40 to $2.40 per Mcf range. Gas prices are currently in the upper end of this range. Substantially all of the Programs' 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 Programs' gas increased from approximately $1.93 per Mcf at December 31, 1998 to approximately $2.24 per Mcf at December 31, 1999. Such prices were on an MMBTU basis and differ from the prices actually received by the Programs 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, but have been extremely volatile over the past two years. Due to global consumption and supply trends as well as a slowdown in Asian energy demand, oil prices in late 1997 and early 1998 reached historically low levels, dropping to as low as approximately $9.00 per barrel. However, production curtailment agreements among major oil producing nations have caused recent oil prices to climb to over $30.00 per barrel in some markets. It is not known whether this trend will continue. Prices for the Programs' oil increased from approximately $9.50 per barrel at December 31, 1998 to approximately $22.75 per barrel at December 31, 1999. Future prices for both oil and gas will likely be different from the prices in effect on December 31, 1999. Management is unable to predict whether future oil and gas prices will (i) stabilize, (ii) increase, or (iii) decrease. -6- Insurance Coverage The Programs are 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 Programs maintain insurance coverage as is customary for entities of a similar size engaged in operations similar to that of the Programs, 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 Programs' financial condition and results of operations. ITEM 2. PROPERTIES Well Statistics The following table sets forth the numbers of gross and net productive wells of the Programs as of December 31, 1999. Well Statistics(1) As of December 31, 1999 1979-1 1979-2 Program Program ------- ------- Gross productive wells(2): Oil 2 - Gas 25 18 -- -- Total 27 18 Net productive wells(3): Oil .08 - Gas 1.15 1.50 ---- ---- Total 1.23 1.50 - --------------- (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. -7- Drilling Activities The Programs did not participate in any drilling activities during the year ended December 31, 1999. 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 Programs, revenues attributable to such production, and certain price and cost information. Net Production Data Year Ended December 31, --------------------------------- 1999 1998 1997 -------- -------- -------- 1979-1 Program: - -------------- Production: Oil (Bbls)(1) 209 291 366 Gas (Mcf)(2) 136,760 185,215 205,089 Oil and gas sales: Oil $ 3,440 $ 4,242 $ 7,208 Gas 268,718 337,457 461,659 ------- ------- ------- Total $272,158 $341,699 $468,867 ======= ======= ======= Total direct operating expenses (3) $ 72,863 $ 72,099 $ 87,871 ======= ======= ======= Direct operating expenses as a percentage of oil and gas sales 26.8% 21.1% 18.7% Average sales price: Per barrel of oil $16.46 $14.58 $19.69 Per Mcf of gas 1.96 1.82 2.25 Direct operating expenses per equivalent Mcf of gas(4) $ .53 $ .39 $ .42 -8- Year Ended December 31, ---------------------------------- 1999 1998 1997 -------- -------- -------- 1979-2 Program: - -------------- Production: Oil (Bbls)(1) 1,161 1,067 1,325 Gas (Mcf)(2) 127,056 191,087 265,409 Oil and gas sales: Oil $ 20,297 $ 14,380 $ 26,891 Gas 305,550 422,747 669,037 ------- ------- ------- Total $325,847 $437,127 $695,928 ======= ======= ======= Total direct operating expenses(3) $ 70,598 $113,900 $127,516 ======= ======= ======= Direct operating expenses as a percentage of oil and gas sales 21.7% 26.1% 18.3% Average sales price: Per barrel of oil $17.48 $13.48 $20.30 Per Mcf of gas 2.40 2.21 2.52 Direct operating expenses per equivalent Mcf of gas(4) $ .53 $ .58 $ .47 - --------------- (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 Programs' estimated proved oil and gas reserves and net present value therefrom as of -9- December 31, 1999. The schedule of quantities of proved oil and gas reserves was prepared by Dyco in accordance with the rules prescribed by the Securities and Exchange Commission (the "SEC"). Certain reserve information was reviewed by Ryder Scott Company, L.P. ("Ryder Scott"), an independent petroleum engineering firm. 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 Programs' proved reserves was calculated on the basis of current costs and prices at December 31, 1999. 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 Programs' proved reserves do not necessarily reflect market prices for oil and gas production subsequent to December 31, 1999. There can be no assurance that the prices used in calculating the net present value of the Programs' proved reserves at December 31, 1999 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. -10- Proved Reserves and Net Present Value From Proved Reserves As of December 31, 1999(1) 1979-1 Program: - -------------- Estimated proved reserves: Gas (Mcf) 1,037,725 Oil and liquids (Bbls) 2,487 Net present value (discounted at 10% per annum) $ 921,346 1979-2 Program: - -------------- Estimated proved reserves: Gas (Mcf) 1,051,164 Oil and liquids (Bbls) 12,671 Net present value (discounted at 10% per annum) $1,148,423 - --------------- (1) Includes certain gas balancing adjustments which cause the gas volumes and net present value to differ from the reserve reports prepared by Dyco and reviewed by Ryder Scott. No estimates of the proved reserves of the Programs comparable to those included herein have been included in reports to any federal agency other than the SEC. Additional information relating to the Programs' proved reserves is contained in Note 4 to the Programs' financial statements, included in Item 8 of this Annual Report. Significant Properties 1979-1 Program -------------- As of December 31, 1999, the 1979-1 Program's properties consisted of 27 gross (1.23 net) productive wells. The 1979-1 Program also owned a non-working interest in an additional 9 wells. Affiliates of the 1979-1 Program operate 12 (33%) of its total wells. All of the 1979-1 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. -11- 1979-2 Program -------------- As of December 31, 1999, the 1979-2 Program's properties consisted of 18 gross (1.50 net) productive wells. The 1979-2 Program also owned a non-working interest in an additional 2 wells. Affiliates of the 1979-2 Program operate 5 (25%) of its wells. All of the 1979-2 Program's properties are located onshore in the continental United States. Substantially all of the 1979-2 Program's reserves are located in the Anadarko Basin. As of December 31, 1999, the 1979-2 Program's properties in the Anadarko Basin consisted of 13 gross (1.20 net) productive wells. The 1979-2 Program also owned a non-working interest in an additional 2 wells in the Anadarko Basin. Affiliates of the 1979-2 Program operate 4 (27%) of its Anadarko Basin wells. As of December 31, 1999, the 1979-2 Program had estimated total proved reserves in the Anadarko Basin of approximately 1,073,358 Mcf of gas and approximately 12,093 barrels of crude oil, with a present value (discounted at 10% per annum) of estimated future net cash flow of approximately $1,125,455. Title to Oil and Gas Properties Management believes that the Programs have satisfactory title to their oil and gas properties. Record title to substantially all of the Programs' properties is held by Dyco as nominee. Title to the Programs' 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 Programs' interest therein or materially interfere with their use in the operation of the Programs' business. ITEM 3. LEGAL PROCEEDINGS On October 24, 1996, certain royalty owners filed a class action lawsuit against Dyco and certain other parties in which they alleged entitlement to a share of the proceeds from a gas contract involving one of the 1979-2 Program's wells, the Maxwell No. 1-23. (Thurman Horn, et al., v. Dyco, et al., Case No. 10,324, District Court of Wheeler County, Texas). The 1979-2 Program has a 22.5% working interest in the Maxwell No. 1-23. The plaintiffs are alleging causes of action based on breach of duty to market, breach of duty to pay royalties, and breach of duty of good faith and fair dealing and are seeking restitution and an accounting. The Plaintiffs have not quantified the amount of their damages. Dyco has filed its answer in the matter in -12- which it denied all of the plaintiffs' allegations, and discovery is proceeding in the matter. On November 24, 1998 Dyco filed a motion for summary judgment in the matter, which is awaiting a hearing by the district court. Discovery is proceeding in the matter. Dyco intends to vigorously defend the lawsuit. As of the date of this Annual Report, management cannot determine the amount of any alleged damages which would be allocable to the 1979-2 Program from this lawsuit. A Texas appellate court has previously ruled in a separate lawsuit that owners of royalty interests in Texas oil and gas properties do not have the right to share in the proceeds of take-or-pay settlements. Except for the foregoing, to the knowledge of the management of Dyco and the Programs, neither Dyco, the Programs, nor the Programs' properties are subject to any litigation, the results of which would have a material effect on the Programs' 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 of either Program during 1999. PART II ITEM 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP UNITS AND RELATED LIMITED PARTNER MATTERS The Programs do not have an established trading market for their units of limited partnership interest ("Units"). Pursuant to the terms of the Program Agreements, Dyco, as General Partner, is obligated to annually issue a repurchase offer which is based on the estimated future net revenues from the Programs' reserves and is calculated pursuant to the terms of the Program Agreements. 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 Programs' cash distributions per Unit for the same period. For purposes of this Annual Report, a Unit represents an initial subscription of $5,000 to a Program. -13- 1979-1 Program -------------- Repurchase Cash Price Distributions ---------- ------------- 1998: First Quarter $197 $35 Second Quarter 162 70(1) Third Quarter 203 40 Fourth Quarter 163 - 1999: First Quarter $163 $20 Second Quarter 143 - Third Quarter 260 20 Fourth Quarter 240 20 2000: First Quarter $220 $ - - -------------- (1) Includes proceeds from the sale of oil and gas properties. 1979-2 Program -------------- Repurchase Cash Price Distributions ---------- ------------- 1998: First Quarter $129 $35 Second Quarter 94 35 Third Quarter 358 60 Fourth Quarter 298 20 1999: First Quarter $278 $ - Second Quarter 278 20 Third Quarter 333 20 Fourth Quarter 313 20 2000: First Quarter $293 $25 As of March 1, 2000, the 1979-1 Program has 3,140 Units outstanding and approximately 950 Limited Partners of record. The 1979-2 Program has 2,860 Units outstanding and approximately 750 Limited Partners of record. -14- ITEM 6. SELECTED FINANCIAL DATA The following tables present selected financial data for the Programs. This data should be read in conjunction with the financial statements of the Programs, and the respective notes thereto, included elsewhere in this Annual Report. See "Item 8. Financial Statements and Supplementary Data." -15-
1979-1 Program -------------- December 31, ------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Summary of Operations: Oil and gas sales $272,158 $341,699 $468,867 $500,208 $396,493 Total revenues 274,337 491,495 471,940 502,561 398,559 Lease operating expenses 53,513 47,169 55,138 67,719 90,080 Production taxes 19,350 24,930 32,733 35,474 28,290 General and administrative expenses 51,794 52,637 55,701 54,220 54,317 Depreciation, depletion, and amortization of oil and gas properties 15,772 24,232 39,290 33,690 54,252 Net income 133,908 342,527 289,078 311,458 171,620 per Unit 42.22 107.98 91.13 98.19 54.10 Cash distributions 190,320 459,940 364,780 317,200 206,180 per Unit 60 145 115 100 65 Summary Balance Sheet Data: Total assets 209,297 247,907 368,032 453,642 467,816 Partners' capital 154,298 210,710 328,123 403,825 409,567
-16-
1979-2 Program -------------- December 31, ------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Summary of Operations: Oil and gas sales $325,847 $437,127 $695,928 $729,046 $483,467 Total revenues 330,581 445,030 705,215 735,326 490,205 Lease operating expenses 46,662 83,351 75,640 94,195 67,295 Production taxes 23,936 30,549 51,876 53,147 36,662 General and administrative expenses 37,696 38,742 41,613 40,363 40,709 Depreciation, depletion, and amortization of oil and gas properties 24,446 49,082 77,495 71,807 84,448 Net income 197,841 243,306 458,591 475,814 261,091 per Unit 68.48 84.22 158.74 164.70 90.37 Cash distributions 173,340 433,350 606,690 491,130 447,795 per Unit 60 150 210 170 155 Summary Balance Sheet Data: Total assets 428,921 414,072 559,776 709,662 705,367 Partners' capital 333,633 309,132 499,176 647,275 662,591
-17- 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 Programs. 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 Programs' revenues is the prices received for the sale of oil and gas. Predicting future prices is not possible. Concerning past trends, average yearly wellhead gas prices in the United States have been volatile for many years. Over the past ten years such average prices have generally been in the $1.40 to $2.40 per Mcf range. Gas prices are currently in the upper end of this range. Substantially all of the Programs' 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 Programs' gas increased from -18- approximately $1.93 per Mcf at December 31, 1998 to approximately $2.24 per Mcf at December 31, 1999. Such prices were on an MMBTU basis and differ from the prices actually received by the Programs 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, but have been extremely volatile over the past two years. Due to global consumption and supply trends as well as a slowdown in Asian energy demand, oil prices in late 1997 and early 1998 reached historically low levels, dropping to as low as approximately $9.00 per barrel. However, production curtailment agreements among major oil producing nations have caused recent oil prices to climb to over $30.00 per barrel in some markets. It is not known whether this trend will continue. Prices for the Programs' oil increased from approximately $9.50 per barrel at December 31, 1998 to approximately $22.75 per barrel at December 31, 1999. Future prices for both oil and gas will likely be different from the prices in effect on December 31, 1999. Management is unable to predict whether future oil and gas prices will (i) stabilize, (ii) increase, or (iii) decrease. Results of Operations 1979-1 Program -------------- Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 ---------------------------------------- Total oil and gas sales decreased $69,541 (20.4%) in 1999 as compared to 1998. Of this decrease, approximately $88,000 was related to a decrease in volumes of gas sold. This decrease was partially offset by an increase of approximately $20,000 related to an increase in the average price of gas sold. Volumes of oil and gas sold decreased 82 barrels and 48,455 Mcf, respectively, in 1999 as compared to 1998. The decrease in volumes of gas sold was primarily due to a positive prior period volume adjustment made during 1998 on one well. Average oil and gas prices increased to $16.46 per barrel and $1.96 per Mcf, respectively, in 1999 from $14.58 per barrel and $1.82 per Mcf, respectively, in 1998. The 1979-1 Program sold several wells during the first quarter of 1998 for $162,007 representing approximately 9% of its total reserves. The proceeds from these sales would have reduced the net book value of the 1979-1 Program's oil and gas properties by 90%, significantly altering its capitalized cost/proved reserves relationship. Accordingly, capitalized costs were reduced by approximately 9% and a gain on sale of oil and gas -19- properties of $145,376 was recognized. No such sales occurred during 1999. Oil and gas production expenses (including lease operating expenses and production taxes) increased $764 (1.1%) in 1999 as compared to 1998. This increase was primarily due to workover expenses incurred on one well during 1999 in order to improve the recovery of reserves. This increase was substantially offset by decreases in (i) lease operating expenses associated with the decreases in volumes of oil and gas sold and (ii) production taxes associated with the decrease in oil and gas sales. As a percentage of oil and gas sales, these expenses increased to 26.8% in 1999 from 21.1% in 1998. This percentage increase was primarily due to the dollar increase in oil and gas production expenses. Depreciation, depletion, and amortization of oil and gas properties decreased $8,460 (34.9%) in 1999 as compared to 1998. This decrease was primarily due to the decreases in volumes of oil and gas sold and upward revisions in the estimates of remaining oil and gas reserves at December 31, 1999. As a percentage of oil and gas sales, this expense decreased to 5.8% in 1999 from 7.1% in 1998. This percentage decrease was primarily due to the dollar decrease in depreciation, depletion, and amortization and the increase in the average prices of oil and gas sold. General and administrative expenses decreased $843 (1.6%) in 1999 as compared to 1998. As a percentage of oil and gas sales, these expenses increased to 19.0% in 1999 from 15.4% in 1998. This percentage increase was primarily due to the decrease in oil and gas sales. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 ---------------------------------------- Total oil and gas sales decreased $127,168 (27.1%) in 1998 as compared to 1997. Of this decrease, approximately $45,000 was related to a decrease in volumes of gas sold and approximately $79,000 was related to a decrease in the average price of gas sold. Volumes of oil and gas sold decreased 75 barrels and 19,874 Mcf, respectively, in 1998 as compared to 1997. The decrease in volumes of gas sold resulted primarily from the sale of several wells in 1997 and 1998 and normal declines in production. These decreases were partially offset by a positive prior period volume adjustment made during 1998 on one well. Average oil and gas prices decreased to $14.58 per barrel and $1.82 per Mcf, respectively, in 1998 from $19.69 per barrel and $2.25 per Mcf, respectively, 1997. As discussed in "Liquidity and Capital Resources" below, the 1979-1 Program sold several wells during the first quarter of 1998 for $162,007 representing approximately 9% of its total reserves. The proceeds from these sales would have reduced the -20- net book value of the oil and gas properties by 90%, significantly altering the 1979-1 Program's capitalized cost/proved reserves relationship. Accordingly, capitalized costs were reduced by approximately 9% and a gain on sale of oil and gas properties of $145,376 was recognized. Similar sales during 1997 did not significantly alter the 1979-1 Program's capitalized cost/proved reserves relationship. Oil and gas production expenses (including lease operating expenses and production taxes) decreased $15,772 (17.9%) in 1998 as compared to 1997. This decrease resulted primarily from decreases in (i) production taxes associated with the decrease in oil and gas sales and (ii) lease operating expenses associated with the decrease in volumes of oil and gas sold. As a percentage of oil and gas sales, these expenses increased to 21.1% in 1998 from 18.7% in 1997. This percentage increase was primarily due to the decreases in the average prices of oil and gas sold. Depreciation, depletion, and amortization of oil and gas properties decreased $15,058 (38.3%) in 1998 as compared to 1997. This decrease resulted primarily from (i) the decrease in volumes of oil and gas sold, (ii) the sale of several wells in 1998 which decreased the amortizable capitalized costs of the oil and gas properties, and (iii) upward revisions in the estimates of remaining oil and gas reserves as of December 31, 1998. As a percentage of oil and gas sales, this expense decreased to 7.1% in 1998 from 8.4% in 1997. This percentage decrease was primarily due to the dollar decrease in depreciation, depletion, and amortization, which decrease was partially offset by the decreases in the average prices of oil and gas sold. General and administrative expenses decreased $3,064 (5.5%) in 1998 as compared to 1997. As a percentage of oil and gas sales, these expenses increased to 15.4% in 1998 from 11.9% in 1997. This percentage increase was primarily due to the decrease in oil and gas sales. 1979-2 Program -------------- Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 ---------------------------------------- Total oil and gas sales decreased $111,280 (25.5%) in 1999 as compared to 1998. Of this decrease, approximately $142,000 was related to a decrease in volumes of gas sold. This decrease was partially offset by approximately $24,000 related to an increase in the average price of gas sold. Volumes of oil sold increased 94 barrels while volumes of gas sold decreased 64,031 Mcf in 1999 as compared to 1998. The decrease in volumes of gas sold was primarily due to (i) the curtailment of sales in 1999 on -21- one well due to the 1979-2 Program's overproduced gas balancing position in that well, (ii) a negative prior period volume adjustment made during 1999 by the purchaser on one well, and (iii) normal declines in production. Average oil and gas prices increased to $17.48 per barrel and $2.40 per Mcf, respectively, in 1999 from $13.48 per barrel and $2.21 per Mcf, respectively, in 1998. Oil and gas production expenses (including lease operating expenses and production taxes) decreased $43,302 (38.0%) in 1999 as compared to 1998. This decrease was primarily due to (i) a decrease in lease operating expenses associated with the decrease in volumes of gas sold, (ii) legal expenses incurred during 1998 related to operations on one well, and (iii) a decrease in production taxes associated with the decrease in oil and gas sales. As a percentage of oil and gas sales, these expenses decreased to 21.7% in 1999 from 26.1% in 1998. This percentage decrease was primarily due to the increases in the average prices of oil and gas sold. Depreciation, depletion, and amortization of oil and gas properties decreased $24,636 (50.2%) in 1999 as compared to 1998. This decrease was primarily due to the decrease in volumes of gas sold and upward revisions in the estimates of remaining oil and gas reserves at December 31, 1999. As a percentage of oil and gas sales, this expense decreased to 7.5% in 1999 from 11.2% in 1998. This percentage decrease was primarily due to the dollar decrease in depreciation, depletion, and amortization. General and administrative expenses decreased $1,046 (2.7%) in 1999 as compared to 1998. As a percentage of oil and gas sales, these expenses increased to 11.6% in 1999 from 8.9% in 1998. This percentage increase was primarily due to the decrease in oil and gas sales. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 ---------------------------------------- Total oil and gas sales decreased $258,801 (37.2%) in 1998 as compared to 1997. Of this decrease, approximately $187,000 was related to a decrease in volumes of gas sold and approximately $59,000 was related to a decrease in the average price of gas sold. Volumes of oil and gas sold decreased 258 barrels and 74,322 Mcf, respectively, in 1998 as compared to 1997. The decrease in volumes of gas sold resulted primarily from (i) the curtailment of sales in 1998 on one well due to the 1979-2 Program's overproduced position in that well and (ii) normal declines in production. Average oil and gas prices decreased to $13.48 per barrel and $2.21 per Mcf, respectively, in 1998 from $20.30 per barrel and $2.52 per Mcf, respectively, in 1997. -22- Oil and gas production expenses (including lease operating expenses and production taxes) decreased $13,616 (10.7%) in 1998 as compared to 1997. This decrease was primarily due to a decrease in production taxes associated with the decrease in oil and gas sales, which decrease was partially offset by an increase in lease operating expenses primarily due to the settlement of a lawsuit during 1998. As a percentage of oil and gas sales, these expenses increased to 26.1% in 1998 from 18.3% in 1997. This percentage increase was primarily due to the decreases in the average prices of oil and gas sold. Depreciation, depletion, and amortization of oil and gas properties decreased $28,413 (36.7%) in 1998 as compared to 1997. This decrease resulted primarily from the decreases in volumes of oil and gas sold. As a percentage of oil and gas sales, this expense remained relatively constant at 11.2% in 1998 and 11.1% in 1997. General and administrative expenses decreased $2,871 (6.9%) in 1998 as compared to 1997. As a percentage of oil and gas sales, these expenses increased to 8.9% in 1998 from 6.0% in 1997. This percentage increase was primarily due to the decrease in oil and gas sales. 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 1999 production levels for future years, the 1979-1 Program's proved reserve quantities at December 31, 1999 would have remaining lives of approximately 7.6 years for gas reserves and 11.9 years for oil reserves and the 1979-2 Program's proved oil and gas reserve quantities at December 31, 1999 would have remaining lives of approximately 8.3 years for gas reserves and 10.9 years for oil reserves. However, since the Programs' reserve estimates are based on oil and gas prices at December 31, 1999, it is possible that a significant decrease in oil and gas prices from December 31, 1999 levels will reduce such reserves and their corresponding life-span. The Programs' 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 Programs for well completions or workovers, however, may reduce or eliminate cash available for a particular quarterly cash distribution. Cash for operational purposes has generally been -23- provided by current oil and gas production. Management believes that cash for ordinary operational purposes will be provided by current oil and gas production. There can be no assurance as to the amount of the Programs' future cash distributions. The Programs' ability to make cash distributions depends primarily upon the level of available cash flow generated by the Programs' operating activities, which will be affected (either positively or negatively) by many factors beyond the control of the Programs, including the price of and demand for oil and gas and other market and economic conditions. Even if 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 Programs are 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 1999. 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 The year 2000 issue refers to the inability of computer and other information technology systems to properly process date and time information, stemming from the earlier programming practice of using two digits rather than four to represent the year in a date. To the knowledge of the General Partner, the Programs have not experienced any material effects from the year 2000 issue. Costs incurred by the Programs in order to ensure year 2000 compatibility were not material to the Programs. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Programs do not hold any market risk sensitive instruments. -24- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS TO THE PARTNERS DYCO OIL AND GAS PROGRAM 1979-1 LIMITED PARTNERSHIP In our opinion, the accompanying balance sheets and the related statements of operations, changes in partners' capital and cash flows present fairly, in all material respects, the financial position of the Dyco Oil and Gas Program 1979-1 Limited Partnership, a Minnesota limited partnership, at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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 of these financial statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Tulsa, Oklahoma March 20, 2000 -25- DYCO OIL AND GAS PROGRAM 1979-1 LIMITED PARTNERSHIP Balance Sheets December 31, 1999 and 1998 ASSETS ------ 1999 1998 -------- -------- CURRENT ASSETS: Cash and cash equivalents $ 8,884 $ 54,891 Accrued oil and gas sales 43,829 38,148 ------- ------- Total current assets $ 52,713 $ 93,039 NET OIL AND GAS PROPERTIES, utilizing the full cost method 107,520 123,292 DEFERRED CHARGE 49,064 31,576 ------- ------- $209,297 $247,907 ======= ======= LIABILITIES AND PARTNERS' CAPITAL --------------------------------- CURRENT LIABILITIES: Accounts payable $ 8,231 $ 2,872 Gas imbalance payable 3,254 5,084 ------- ------- Total current liabilities $ 11,485 $ 7,956 ACCRUED LIABILITY $ 43,514 $ 29,241 PARTNERS' CAPITAL: General Partner, 32 general partner units $ 1,544 $ 2,108 Limited Partners, issued and outstanding, 3,140 Units 152,754 208,602 ------- ------- Total Partners' Capital $154,298 $210,710 ------- ------- $209,297 $247,907 ======= ======= The accompanying notes are an integral part of these financial statements. -26- DYCO OIL AND GAS PROGRAM 1979-1 LIMITED PARTNERSHIP Statements of Operations For the Years Ended December 31, 1999, 1998, and 1997 1999 1998 1997 -------- -------- -------- REVENUES: Oil and gas sales $272,158 $341,699 $468,867 Interest 2,179 4,420 3,073 Gain on sale of oil and gas properties - 145,376 - ------- ------- ------- $274,337 $491,495 $471,940 COSTS AND EXPENSES: Lease operating $ 53,513 $ 47,169 $ 55,138 Production taxes 19,350 24,930 32,733 Depreciation, depletion, and amortization of oil and gas properties 15,772 24,232 39,290 General and administrative 51,794 52,637 55,701 ------- ------- ------- $140,429 $148,968 $182,862 ------- ------- ------- NET INCOME $133,908 $342,527 $289,078 ======= ======= ======= GENERAL PARTNER (1%) - NET INCOME $ 1,339 $ 3,425 $ 2,891 ======= ======= ======= LIMITED PARTNERS (99%) - NET INCOME $132,569 $339,102 $286,187 ======= ======= ======= NET INCOME per Unit $ 42.22 $ 107.98 $ 91.13 ======= ======= ======= UNITS OUTSTANDING 3,172 3,172 3,172 ======= ======= ======= The accompanying notes are an integral part of these financial statements. -27- DYCO OIL AND GAS PROGRAM 1979-1 LIMITED PARTNERSHIP Statements of Changes in Partners' Capital For the Years Ended December 31, 1999, 1998, and 1997 General Limited Partner Partners Total -------- ---------- ---------- Balances at Dec. 31, 1996 $4,039 $399,786 $403,825 Cash distributions ( 3,648) ( 361,132) ( 364,780) Net income 2,891 286,187 289,078 ----- ------- ------- Balances at Dec. 31, 1997 $3,282 $324,841 $328,123 Cash distributions ( 4,599) ( 455,341) ( 459,940) Net income 3,425 339,102 342,527 ----- ------- ------- Balances at Dec. 31, 1998 $2,108 $208,602 $210,710 Cash distributions ( 1,903) ( 188,417) ( 190,320) Net income 1,339 132,569 133,908 ----- ------- ------- Balances at Dec. 31, 1999 $1,544 $152,754 $154,298 ===== ======= ======= The accompanying notes are an integral part of these financial statements. -28- DYCO OIL AND GAS PROGRAM 1979-1 LIMITED PARTNERSHIP Statements of Cash Flows For the Years Ended December 31, 1999, 1998, and 1997 1999 1998 1997 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $133,908 $342,527 $289,078 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization of oil and gas properties 15,772 24,232 39,290 Gain on sale of oil and gas properties - ( 145,376) - (Increase) decrease in accrued oil and gas sales ( 5,681) 31,539 32,294 (Increase) decrease in deferred charge ( 17,488) 16,930 2,451 Increase (decrease) in accounts payable 5,359 94 ( 1,564) Increase (decrease) in gas imbalance payable ( 1,830) 4,979 ( 11,538) Increase (decrease) in accrued liability 14,273 ( 7,785) 3,194 ------- ------- ------- Net cash provided by operating activities $144,313 $267,140 $353,205 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of oil and gas properties $ - $177,387 $ 22,624 Additions to oil and gas properties - ( 194) - ------- ------- ------- Net cash provided by investing activities $ - $177,193 $ 22,624 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions ($190,320) ($459,940) ($364,780) ------- ------- ------- Net cash used by financing activities ($190,320) ($459,940) ($364,780) ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ($ 46,007) ($ 15,607) $ 11,049 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 54,891 70,498 59,449 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,884 $ 54,891 $ 70,498 ======= ======= ======= The accompanying notes are an integral part of these financial statements. -29- DYCO OIL AND GAS PROGRAM 1979-1 LIMITED PARTNERSHIP Notes to Financial Statements For the Years Ended December 31, 1999, 1998, and 1997 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Operations The Dyco Oil and Gas Program 1979-1 Limited Partnership (the "Program"), a Minnesota limited partnership, commenced operations on April 2, 1979. Dyco Petroleum Corporation ("Dyco") is the General Partner of the Program. Affiliates of Dyco owned 1,391 (44.3%) of the Program's Units at December 31, 1999. 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. The prices received for the Program's oil and gas are subject to influences such as global consumption and supply trends. 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. 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 -30- cost amortization rates per equivalent Mcf of gas produced during the years ended December 31, 1999, 1998, and 1997 were $0.11, $0.13, and $0.19, 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. 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. During the first quarter of 1998, the Program sold several wells for $162,007 representing approximately 9% of its total reserves. The proceeds from these sales would have reduced the net book value of the oil and gas properties by 90%, significantly altering the Program's capitalized cost/proved reserves relationship. Accordingly, capitalized costs were reduced by approximately 9% with the remainder recorded as a gain on sale of oil and gas properties. Deferred Charge The Deferred Charge at December 31, 1999 and 1998 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, 1999, 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 156,455 Mcf, resulting in prepaid lease operating expenses of $49,064. At December 31, 1998, 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 157,720 Mcf, resulting in prepaid lease operating expenses of $31,576. Accrued Liability The Accrued Liability at December 31, 1999 and 1998 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, 1999, cumulative total gas sales volumes for overproduced wells exceeded the Program's pro-rata share of total gas production from these wells by -31- 138,757 Mcf, resulting in accrued lease operating expenses of $43,514. At December 31, 1998, cumulative total gas sales volumes for overproduced wells exceeded the Program's pro-rata share of total gas production from these wells by 146,057 Mcf, resulting in accrued lease operating expenses of $29,241. 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 revenue 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 revenue 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. This also approximates the price for which the Program is currently settling this liability. At December 31, 1999, total sales exceeded the Program's share of estimated total gas reserves on one well by $3,254 (2,169 Mcf). At December 31, 1998, total sales exceeded the Program's share of estimated total gas reserves on two wells by $5,084 (3,389 Mcf). 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 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. -32- 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. 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 Program. During the years ended December 31, 1999, 1998, and 1997, such expenses totaled $51,794, $52,637, and $55,701, respectively, of which $44,520 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. 3. MAJOR CUSTOMERS The following purchasers individually accounted for 10% or more of the combined oil and gas sales of the Program for the years ended December 31, 1999, 1998, and 1997: Purchaser 1999 1998 1997 --------- ----- ----- ----- El Paso Energy Marketing Company 95.3% 79.1% 95.3% Enron Oil & Gas Company - % 18.6% - % In the event of interruption of purchases by these significant customers 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. -33- 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. Capitalized Costs The Program's capitalized costs and accumulated depreciation, depletion, amortization, and valuation allowance at December 31, 1999 and 1998 were as follows: December 31, ------------------------- 1999 1998 ------------- ------------ Proved properties $20,381,071 $20,381,071 Less accumulated depreciation, depletion, amortization, and valuation allowance ( 20,273,551) ( 20,257,779) ---------- ---------- Net oil and gas properties $ 107,520 $ 123,292 ========== ========== Costs Incurred The Program incurred no oil and gas property acquisition or exploration costs during 1999, 1998, and 1997. Costs incurred by the Program in connection with its oil and gas property development activities during 1999, 1998, and 1997 were as follows: December 31, --------------------- 1999 1998 1997 ---- ---- ---- Development costs $ - $194 $ - === === === 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, 1999, 1998, and 1997. Proved reserves were estimated by petroleum engineers employed by affiliates of Dyco. Certain reserve information was reviewed by Ryder Scott Company, L.P., an independent petroleum engineering firm. All of the Program's reserves -34- 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 and reviewed by Ryder Scott. -35-
1999 1998 1997 -------------------- -------------------- -------------------- Oil Gas Oil Gas Oil Gas (Bbls) (Mcf) (Bbls) (Mcf) (Bbls) (Mcf) ------- ---------- ------- ----------- ------- ----------- Proved reserves, beginning of year 1,697 1,045,294 2,033 1,098,038 3,193 1,077,521 Revisions of previous estimates 999 129,191 121 250,083 ( 736) 243,736 Sales of reserves - - ( 166) ( 117,612) ( 58) ( 18,130) Production ( 209) ( 136,760) ( 291) ( 185,215) ( 366) ( 205,089) ----- --------- ----- --------- ----- --------- Proved reserves, end of year 2,487 1,037,725 1,697 1,045,294 2,033 1,098,038 ===== ========= ===== ========= ===== ========= Proved developed reserves: Beginning of year 1,697 1,045,294 2,033 1,098,038 3,193 1,077,521 ----- --------- ----- --------- ----- --------- End of year 2,487 1,037,725 1,697 1,045,294 2,033 1,098,038 ===== ========= ===== ========= ===== =========
-36- 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, 1999 using oil and gas prices of $22.75 per barrel and $2.24 per Mcf, respectively. -37- REPORT OF INDEPENDENT ACCOUNTANTS TO THE PARTNERS DYCO OIL AND GAS PROGRAM 1979-2 LIMITED PARTNERSHIP In our opinion, the accompanying balance sheets and the related statements of operations, changes in partners' capital and cash flows present fairly, in all material respects, the financial position of the Dyco Oil and Gas Program 1979-2 Limited Partnership, a Minnesota limited partnership, at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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 of these financial statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Tulsa, Oklahoma March 20, 2000 -38- DYCO OIL AND GAS PROGRAM 1979-2 LIMITED PARTNERSHIP Balance Sheets December 31, 1999 and 1998 ASSETS ------ 1999 1998 -------- -------- CURRENT ASSETS: Cash and cash equivalents $ 97,905 $ 80,537 Accrued oil and gas sales 58,563 48,948 ------- ------- Total current assets $156,468 $129,485 NET OIL AND GAS PROPERTIES, utilizing the full cost method 209,357 233,381 DEFERRED CHARGE 63,096 51,206 ------- ------- $428,921 $414,072 ======= ======= LIABILITIES AND PARTNERS' CAPITAL --------------------------------- CURRENT LIABILITIES: Accounts payable $ 4,845 $ 5,817 Payable to General Partner - 11,439 Gas imbalance payable 64,289 58,811 ------- ------- Total current liabilities $ 69,134 $ 76,067 ACCRUED LIABILITY $ 26,154 $ 28,873 PARTNERS' CAPITAL: General Partner, 29 general partner units $ 3,337 $ 3,092 Limited Partners, issued and outstanding, 2,860 Units 330,296 306,040 ------- ------- Total Partners' Capital $333,633 $309,132 ------- ------- $428,921 $414,072 ======= ======= The accompanying notes are an integral part of these financial statements. -39- DYCO OIL AND GAS PROGRAM 1979-2 LIMITED PARTNERSHIP Statements of Operations For the Years Ended December 31, 1999, 1998, and 1997 1999 1998 1997 -------- -------- -------- REVENUES: Oil and gas sales $325,847 $437,127 $695,928 Interest 4,734 7,903 9,287 ------- ------- ------- $330,581 $445,030 $705,215 COSTS AND EXPENSES: Lease operating $ 46,662 $ 83,351 $ 75,640 Production tax 23,936 30,549 51,876 Depreciation, depletion, and amortization of oil and gas properties 24,446 49,082 77,495 General and administrative 37,696 38,742 41,613 ------- ------- ------- $132,740 $201,724 $246,624 ------- ------- ------- NET INCOME $197,841 $243,306 $458,591 ======= ======= ======= GENERAL PARTNER (1%) - NET INCOME $ 1,978 $ 2,433 $ 4,586 ======= ======= ======= LIMITED PARTNERS (99%) - NET INCOME $195,863 $240,873 $454,005 ======= ======= ======= NET INCOME per Unit $ 68.48 $ 84.22 $ 158.74 ======= ======= ======= UNITS OUTSTANDING 2,889 2,889 2,889 ======= ======= ======= The accompanying notes are an integral part of these financial statements. -40- DYCO OIL AND GAS PROGRAM 1979-2 LIMITED PARTNERSHIP Statements of Changes in Partners' Capital For the Years Ended December 31, 1999, 1998, and 1997 General Limited Partner Partners Total --------- ---------- ---------- Balances at Dec. 31, 1996 $6,473 $640,802 $647,275 Cash distributions ( 6,067) ( 600,623) ( 606,690) Net income 4,586 454,005 458,591 ----- ------- ------- Balances at Dec. 31, 1997 $4,992 $494,184 $499,176 Cash distributions ( 4,333) ( 429,017) ( 433,350) Net income 2,433 240,873 243,306 ----- ------- ------- Balances at Dec. 31, 1998 $3,092 $306,040 $309,132 Cash distributions ( 1,733) ( 171,607) ( 173,340) Net income 1,978 195,863 197,841 ----- ------- ------- Balances at Dec. 31, 1999 $3,337 $330,296 $333,633 ===== ======= ======= The accompanying notes are an integral part of these financial statements. -41- DYCO OIL AND GAS PROGRAM 1979-2 LIMITED PARTNERSHIP Statements of Cash Flows For the Years Ended December 31, 1999, 1998, and 1997 1999 1998 1997 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 197,841 $243,306 $458,591 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization of oil and gas properties 24,446 49,082 77,495 (Increase) decrease in accrued oil and gas sales ( 9,615) 32,210 87,713 (Increase) decrease in deferred charge ( 11,890) ( 13,134) 12,485 Decrease in accounts payable ( 972) ( 373) ( 4,924) Increase (decrease) in payable to General Partner ( 11,439) 11,439 - Increase in gas imbalance payable 5,478 4,958 8,893 Increase (decrease) in accrued liability ( 2,719) 28,316 ( 5,756) ------- ------- ------- Net cash provided by operating activities $191,130 $355,804 $634,497 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of oil and gas properties $ - $ 544 $ 6,213 Additions to oil and gas properties ( 422) - ( 84) ------- ------- ------- Net cash provided (used) by investing activities ($ 422) $ 544 $ 6,129 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions ($173,340) ($433,350) ($606,690) ------- ------- ------- Net cash used by financing activities ($173,340) ($433,350) ($606,690) ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 17,368 ($ 77,002) $ 33,936 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 80,537 157,539 123,603 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 97,905 $ 80,537 $157,539 ======= ======= ======= The accompanying notes are an integral part of these financial statements. -42- DYCO OIL AND GAS PROGRAM 1979-2 LIMITED PARTNERSHIP Notes to Financial Statements For the Years Ended December 31, 1999, 1998, and 1997 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Operations The Dyco Oil and Gas Program 1979-2 Limited Partnership (the "Program"), a Minnesota limited partnership, commenced operations on July 2, 1979. Dyco Petroleum Corporation ("Dyco") is the General Partner of the Program. Affiliates of Dyco owned 1,294 (45.2%) of the Program's Units at December 31, 1999. 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. 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, 1999, 1998, and 1997 were $0.18, $0.25, and $0.28, respectively. The Program's calculation of depreciation, depletion, and amortization -43- 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. 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, 1999 and 1998 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, 1999, 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 138,368 Mcf, resulting in prepaid lease operating expenses of $63,096. At December 31, 1998, 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 144,813 Mcf, resulting in prepaid lease operating expenses of $51,206. Payable to General Partner The payable to General Partner at December 31, 1998 represents an overpayment of gas sales in 1998. Such amount was repaid during 1999. Accrued Liability The Accrued Liability at December 31, 1999 and 1998 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, 1999, cumulative total gas sales volumes for overproduced wells exceeded the Program's pro-rata share of total gas production from these wells by 57,356 Mcf, resulting in accrued lease operating expenses of $26,154. At December 31, 1998, cumulative total gas sales volumes for overproduced wells exceeded the Program's pro-rata share of total gas production from these wells by -44- 81,654 Mcf, resulting in accrued lease operating expenses of $28,873. 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 revenue 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 revenue 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, 1999, total sales exceeded the Program's share of estimated total gas reserves on one well by $64,289 (42,859 Mcf). At December 31, 1998, total sales exceeded the Program's share of estimated total gas reserves on one well by $58,811 (39,207 Mcf). 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 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. -45- 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 Program. During the years ended December 31, 1999, 1998, and 1997, such expenses totaled $37,696, $38,742, and $41,613, respectively, of which $31,212 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. 3. MAJOR CUSTOMERS The following purchasers individually accounted for 10% or more of the combined oil and gas sales for the years ended December 31, 1999, 1998, and 1997: Purchaser 1999 1998 1997 --------- ----- ----- ----- El Paso Energy Marketing Company 70.8% 74.6% 60.0% Williams Energy Services Company - % - % 22.9% Warren Petroleum Company 12.6% - % - % In the event of interruption of purchases by these significant customers 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. -46- Capitalized Costs The Program's capitalized costs and accumulated depreciation, depletion, amortization, and valuation allowance at December 31, 1999 and 1998 were as follows: December 31, ---------------------------- 1999 1998 ------------- ------------- Proved properties $18,554,370 $18,553,948 Less accumulated depreciation, depletion, amortization, and valuation allowance ( 18,345,013) ( 18,320,567) ---------- ---------- Net oil and gas properties $ 209,357 $ 233,381 ========== ========== Costs Incurred The Program incurred no oil and gas property acquisition or exploration costs during 1999, 1998, and 1997. Costs incurred by the Program in connection with its oil and gas property development activities during 1999, 1998, and 1997 were as follows: December 31, ------------------------ 1999 1998 1997 ------ ------ ------ Development costs $422 $ - $ 84 === === === 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, 1999, 1998, and 1997. Proved reserves were estimated by petroleum engineers employed by affiliates of the Program. Certain reserve information was reviewed by Ryder Scott Company, L.P., an independent petroleum engineering firm. 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 and reviewed by Ryder Scott. -47-
1999 1998 1997 -------------------- -------------------- -------------------- Oil Gas Oil Gas Oil Gas (Bbls) (Mcf) (Bbls) (Mcf) (Bbls) (Mcf) -------- ----------- ------- ----------- ------- ----------- Proved reserves, beginning of year 11,871 1,023,297 12,515 1,070,721 12,678 955,767 Revisions of previous estimates 1,961 154,923 423 143,663 1,202 388,548 Sales of reserves - - - - ( 40) ( 8,185) Production ( 1,161) ( 127,056) ( 1,067) ( 191,087) ( 1,325) ( 265,409) ------ --------- ------ --------- ----- --------- Proved reserves, end of year 12,671 1,051,164 11,871 1,023,297 12,515 1,070,721 ====== ========= ====== ========= ===== ========= Proved developed reserves: Beginning of year 11,871 1,023,297 12,515 1,070,721 12,678 955,767 ------ --------- ------ --------- ----- --------- End of year 12,671 1,051,164 11,871 1,023,297 12,515 1,070,721 ====== ========= ====== ========= ===== =========
-48- 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, 1999 using oil and gas prices of $22.75 per barrel and $2.24 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 Programs are limited partnerships and have no directors or executive officers. The following individuals are directors and executive officers of Dyco, the General Partner. The business address of such directors and executive officers is Two West Second Street, Tulsa, Oklahoma 74103. NAME AGE POSITION WITH GENERAL PARTNERS ---------------- --- -------------------------------- Dennis R. Neill 48 President and Director Patrick M. Hall 41 Chief Financial Officer Judy K. Fox 49 Secretary The director will hold office until the next annual meeting of shareholders of Dyco or 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 Samson 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 Samson, he was associated with a Tulsa law firm, Conner and Winters, where -49- his principal practice was in the securities area. He received a Bachelor of Arts degree in political science 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 Samson 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 Samson 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 Samson in 1990 and was named Secretary of Dyco on June 30, 1996. Prior to joining Samson, 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 Programs and Dyco, there were no officers, directors, or ten percent owners who were delinquent filers during 1999 of reports required under Section 16(a) of the Securities and Exchange Act of 1934. ITEM 11. EXECUTIVE COMPENSATION The Programs are limited partnerships and, therefore, have no officers or directors. The following table summarizes the amounts paid by the Programs as compensation and reimbursements to Dyco and its affiliates for the three years ended December 31, 1999: -50- Compensation/Reimbursement to Dyco and its affiliates Three Years Ended December 31, 1999 Type of Compensation/Reimbursement(1) Expense - ------------------------------------- -------------------------- 1999 1998 1997 ------- ------- ------- 1979-1 Program - -------------- Compensation: Operations (2) (2) (2) Reimbursements: General and Administrative, Geological, and Engineering Expenses and Direct Expenses(3) $44,520 $44,520 $44,520 1979-2 Program - -------------- Compensation: Operations (2) (2) (2) Reimbursements: General and Administrative, Geological, and Engineering Expenses and Direct Expenses(3) $31,212 $31,212 $31,212 - --------------- (1) The authority for all of such compensation and reimbursement is the Program Agreements. 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 Programs serve as operator of some of the Programs' 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 Programs to such affiliates is impossible to quantify as of the date of this Annual Report. (3) The Programs reimburse 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 Programs. The directors, officers, and employees of Dyco and its affiliates receive no direct remuneration from the Programs for their services to the Programs. See "Salary Reimbursement Table" below. The allocable general -51- and administrative, geological, and engineering expenses are apportioned on a reasonable basis between the Programs' 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 Programs of these costs is made by Dyco as General Partner. As noted in the Compensation/Reimbursement Table above, the directors, officers, and employees of Dyco and their affiliates receive no direct remuneration from the Programs for their services. However, to the extent such services represent direct involvement with the Programs, as opposed to general corporate functions, such persons' salaries are allocated to and reimbursed by the Programs. Such allocation to the Programs' 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 Programs' operations. When actual costs incurred benefit other partnerships and affiliates, the allocation of costs is based on the relationship of the Program's reserves to the total reserves owned by all partnerships and affiliates. 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, 1999: -52-
1979-1 Program -------------- Salary Reimbursement Three Years Ended December 31, 1999 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 ($) ($) ($) ($) SARs(#) ($) ($) - --------------- ---- ------- ------- ------- ---------- -------- ------- ------- Dennis R. Neill, President(1) 1997 - - - - - - - 1998 - - - - - - - 1999 - - - - - - - All Executive Officers, Directors, and Employees as a group(2) 1997 $26,596 - - - - - 1998 $26,347 - - - - - 1999 $27,193 - - - - - - --------------- (1) 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. Neill. (2) 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 $100,000 per annum.
-53-
1979-2 Program -------------- Salary Reimbursement Three Years Ended December 31, 1999 Long Term Compensation ------------------------------- Annual Compensation Awards Payouts ------------------------- --------------------- ------- Securi- Other ties All Name Annual Restricted Under- Other and Compen- Stock lying LTIP Compen- Principal Salary Bonus sation Award(s) Options/ Payouts sation Position Year ($) ($) ($) ($) SARs(#) ($) ($) - --------------- ---- ------- ------- ------- ---------- -------- ------- ------- Dennis R. Neill, President(1) 1997 - - - - - - - 1998 - - - - - - - 1999 - - - - - - - All Executive Officers, Directors, and Employees as a group(2) 1997 $18,646 - - - - - - 1998 $18,471 - - - - - - 1999 $19,064 - - - - - - - --------------- (1) 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. Neill. (2) 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.
-54- Samson maintains necessary inventories of new and used field equipment. Samson may have provided some of this equipment for wells in which the Programs have an interest. This equipment was 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 Programs for a portion of such costs based upon the Programs' 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 Programs' Units as of March 1, 2000 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) - ---------------------------------------------- --------------- 1979-1 Program: - -------------- Samson Resources Company 1,394 (44.4%) All directors, officers, and affiliates of Dyco as a group and Dyco (5 persons) 1,394 (44.4%) 1979-2 Program: - -------------- Samson Resources Company 1,296 (45.3%) All directors, officers, and affiliates of Dyco as a group and Dyco (5 persons) 1,296 (45.3%) ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain affiliates of Dyco engage in oil and gas activities independently of the Programs 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 Programs and such affiliates also create potential conflicts of interest. An affiliate of the Program owns a significant amount of the -55- Programs' Units and therefore has an identity of interest with other limited partners with respect to the operations of the Programs. In order to attempt to assure limited liability for limited partners as well as an orderly conduct of business, management of the Programs is exercised solely by Dyco. The Program Agreements grant Dyco broad discretionary authority with respect to the Programs' participation in drilling prospects and expenditure and control of funds, including borrowings. These 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 Programs involves circumstances where Dyco has conflicts of interest and where it must allocate costs and expenses, or opportunities, among the Programs and other competing interests. Dyco does not devote all of its time, efforts, and personnel exclusively to the Programs. Furthermore, the Programs do not have any employees, but instead rely on the personnel of Samson. The Programs thus compete with Samson (including other oil and gas programs) for the time and resources of such personnel. Samson devotes such time and personnel to the management of the Programs as are indicated by the circumstances and as are consistent with Dyco's fiduciary duties. Affiliates of the Programs are solely responsible for the negotiation, administration, and enforcement of oil and gas sales agreements covering the Programs' leasehold interests. Because affiliates of the Programs who provide services to the Programs have fiduciary or other duties to other members of Samson, contract amendments and negotiating positions taken by them in their effort to enforce contracts with purchasers may not necessarily represent the positions that a Program would take if it were to administer its own contracts without involvement with other members of Samson. On the other hand, management believes that the Programs' negotiating strength and contractual positions have been enhanced by virtue of its affiliation with Samson. Samson Resources Company, an affiliate of Dyco, ("Resources") owns approximately 44% and 45% of the 1979-1 and 1979-2 Programs' outstanding Units as of March 1, 2000. The Program Agreements permit Resources to independently vote its Units. Resources' significant Unit ownership will therefore likely determine the outcome of any matter submitted for a vote of the Limited Partners. -56- 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 Programs as of December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998, and 1997 are filed as part of this report: Reports of Independent Accountants Balance Sheets Statements of Operations Statements of Changes in Partners' Capital Statements of Cash Flows Notes to Financial Statements (2) Financial Statement Schedules: None. (3) Exhibits: 4.1 Drilling Agreement dated April 2, 1979 for Dyco Drilling Program 1979-1 by and between Dyco Oil and Gas Program 1979-1, 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 10, 1992 and is hereby incorporated herein. 4.2 Form of Program Agreement for Dyco Oil and Gas Program 1979-1 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 10, 1992 and is hereby incorporated herein. 4.3 Amendment to Program Agreement for Dyco Oil and Gas Program 1979-1 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 10, 1992 and is hereby incorporated herein. 4.4 Certificate of Limited Partnership (as amended) for Dyco Oil and Gas Program 1979-1 Limited Partnership filed as Exhibit 4.4 to Annual Report on Form 10-K for the year ended -57- December 31, 1991 on April 10, 1992 and is hereby incorporated herein. 4.5 Drilling Agreement dated July 2, 1979 for Dyco Drilling Program 1979-2 by and between Dyco Oil and Gas Program 1979-2, Dyco Petroleum Corporation, and Jaye F. Dyer filed as Exhibit 4.5 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein. 4.6 Form of Program Agreement for Dyco Oil and Gas Program 1979-2 by and between Dyco Petroleum Corporation and the Participants filed as Exhibit 4.6 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein. 4.7 Amendment to Program Agreement for Dyco Oil and Gas Program 1979-2 dated February 9, 1989 filed as Exhibit 4.7 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein. 4.8 Certificate of Limited Partnership (as amended) for Dyco Oil and Gas Program 1979-2 Limited Partnership filed as Exhibit 4.8 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein. *23.1 Consent of Ryder Scott Company, L.P. for Dyco Oil and Gas Program 1979-1 Limited Partnership. *23.2 Consent of Ryder Scott Company, L.P. for Dyco Oil and Gas Program 1979-2 Limited Partnership. *27.1 Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1979-1 Limited Partnership's financial statements as of December 31, 1999 and for the year ended December 31, 1999. *27.2 Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1979-2 Limited Partnership's financial statements as of December 31, 1999 and for the year ended December 31, 1999. -58- All other Exhibits are omitted as inapplicable. ------------------ * Filed herewith. (b) Reports on Form 8-K filed during the fourth quarter of 1999: None. -59- 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 1979-1 LIMITED PARTNERSHIP By: DYCO PETROLEUM CORPORATION General Partner March 24, 2000 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 24, 2000 ------------------- Director (Principal Dennis R. Neill Executive Officer) //s// Dennis R. Neill Chief Financial March 24, 2000 ------------------- Officer (Principal Patrick M. Hall Financial and Accounting Officer) //s// Judy K. Fox Secretary March 24, 2000 ------------------- Judy K. Fox -60- 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 1979-2 LIMITED PARTNERSHIP By: DYCO PETROLEUM CORPORATION General Partner March 24, 2000 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 24, 2000 ------------------- Director (Principal Dennis R. Neill Executive Officer) //s// Dennis R. Neill Chief Financial March 24, 2000 ------------------- Officer (Principal Patrick M. Hall Financial and Accounting Officer) //s// Judy K. Fox Secretary March 24, 2000 ------------------- Judy K. Fox -61- INDEX TO EXHIBITS Exhibit Number Description - ------- ----------- 4.1 Drilling Agreement dated April 2, 1979 for Dyco Drilling Program 1979-1 by and between Dyco Oil and Gas Program 1979-1, 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 10, 1992 and is hereby incorporated herein. 4.2 Form of Program Agreement for Dyco Oil and Gas Program 1979-1 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 10, 1992 and is hereby incorporated herein. 4.3 Amendment to Program Agreement for Dyco Oil and Gas Program 1979-1 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 10, 1992 and is hereby incorporated herein. 4.4 Certificate of Limited Partnership (as amended) for Dyco Oil and Gas Program 1979-1 Limited Partnership filed as Exhibit 4.4 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein. 4.5 Drilling Agreement dated July 2, 1979 for Dyco Drilling Program 1979-2 by and between Dyco Oil and Gas Program 1979-2, Dyco Petroleum Corporation, and Jaye F. Dyer filed as Exhibit 4.5 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein. 4.6 Form of Program Agreement for Dyco Oil and Gas Program 1979-2 by and between Dyco Petroleum Corporation and the Participants filed as Exhibit 4.6 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein. 4.7 Amendment to Program Agreement for Dyco Oil and Gas Program 1979-2 dated February 9, 1989 filed as Exhibit 4.7 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein. 4.8 Certificate of Limited Partnership (as amended) for Dyco Oil and Gas Program 1979-2 Limited Partnership filed as Exhibit 4.8 to Annual Report on Form 10-K for -62- the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein. *23.1 Consent of Ryder Scott Company, L.P. for Dyco Oil and Gas Program 1979-1 Limited Partnership. *23.2 Consent of Ryder Scott Company, L.P. for Dyco Oil and Gas Program 1979-2 Limited Partnership. *27.1 Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1979-1 Limited Partnership's financial statements as of December 31, 1999 and for the year ended December 31, 1999. *27.2 Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1979-2 Limited Partnership's financial statements as of December 31, 1999 and for the year ended December 31, 1999. - ------------------ * Filed herewith. -63- EX-23.1 2 RYDER SCOTT CONSENT RYDER SCOTT COMPANY PETROLEUM CONSULTANTS Fax (713) 651-0849 1100 Louisiana Suite 3800 Houston, Texas 77002-5218 Telephone (713) 651-9191 CONSENT OF PETROLEUM ENGINEERING FIRM We consent to the reference to our name included in this Annual Report on Form 10-K for the year ended December 31, 1999 for Dyco Oil and Gas Program 1979-1 Limited Partnership. RYDER SCOTT COMPANY, L.P. Houston, Texas February 4, 2000 EX-23.2 3 RYDER SCOTT CONSENT RYDER SCOTT COMPANY PETROLEUM CONSULTANTS Fax (713) 651-0849 1100 Louisiana Suite 3800 Houston, Texas 77002-5218 Telephone (713) 651-9191 CONSENT OF PETROLEUM ENGINEERING FIRM We consent to the reference to our name included in this Annual Report on Form 10-K for the year ended December 31, 1999 for Dyco Oil and Gas Program 1979-2 Limited Partnership. RYDER SCOTT COMPANY, L.P. Houston, Texas February 4, 2000 EX-27.1 4 FDS --
5 0000806573 DYCO OIL & GAS PROGRAM 1979-1 LIMITED PARTNERSHIP 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 8,884 0 43,829 0 0 52,713 20,381,071 20,273,551 209,297 11,485 0 0 0 0 154,298 209,297 272,158 274,337 0 140,429 0 0 0 133,908 0 133,908 0 0 0 133,908 42.22 0
EX-27.2 5 FDS --
5 0000806574 DYCO OIL & GAS PROGRAM 1979-2 LIMITED PARTNERSHIP 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 97,905 0 58,563 0 0 156,468 18,554,370 18,345,013 428,921 69,134 0 0 0 0 333,633 428,921 325,847 330,581 0 132,740 0 0 0 197,841 0 197,841 0 0 0 197,841 68.48 0
-----END PRIVACY-ENHANCED MESSAGE-----