-----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, Dn5UHik08XLSmsCIMeOhuDo4FuJcsDOw0gqmxAy91j2OhtpZeJN7FFS3w8lH3dLL Q6dQN199k6zDBkiwHPFybw== 0000850427-00-000059.txt : 20000329 0000850427-00-000059.hdr.sgml : 20000329 ACCESSION NUMBER: 0000850427-00-000059 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYCO OIL & GAS PROGRAM 1980-1 LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000806576 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 411378909 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-10346-09 FILM NUMBER: 581164 BUSINESS ADDRESS: STREET 1: GALLERIA TOWER I STE 300 STREET 2: 130 S LEWIS CITY: TULSA STATE: OK ZIP: 74136 BUSINESS PHONE: 6125914100 MAIL ADDRESS: STREET 1: SAMSON PLZ STREET 2: TWO W SECNOD ST CITY: TULSA STATE: OK ZIP: 74103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYCO OIL & GAS PROGRAM 1980-2 LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000806577 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-10346-10 FILM NUMBER: 581165 BUSINESS ADDRESS: STREET 1: GALLERIA TOWER STE 300 STREET 2: 7130 S LEWIS CITY: TULSA STATE: OK ZIP: 74136 BUSINESS PHONE: 9184967600 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 33-10346-09 (1980-1 Program) 33-10346-10 (1980-2 Program) DYCO 1980 OIL AND GAS PROGRAMS (TWO LIMITED PARTNERSHIPS) (Exact name of registrant as specified in its charter) 41-1378908 (1980-1 Program) Minnesota 41-1385165 (1980-2 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 1980 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...........12 PART II.......................................................................12 ITEM 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP UNITS AND RELATED LIMITED PARTNER MATTERS...........................12 ITEM 6. SELECTED FINANCIAL DATA.......................................14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................17 ITEM 7A...QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................................23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................24 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........................48 PART III......................................................................48 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............48 ITEM 11. EXECUTIVE COMPENSATION........................................49 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................54 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 1980-1 Limited Partnership (the "1980-1 Program") and Dyco Oil and Gas Program 1980-2 Limited Partnership (the "1980-2 Program") (collectively, the "Programs") are Minnesota limited partnerships engaged in the production of oil and gas. The 1980-1 Program and the 1980-2 Program commenced operations on February 15, 1980 and June 16, 1980, 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") provides 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 December 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 94.6% and 89.1% of the 1980-1 and the 1980-2 Programs' oil and gas sales, respectively, 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 fuels, the overall economic environment, and the availability and capacity of transportation and processing facilities. The effect -5- 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 1980-1 1980-2 Program Program ------- ------- Gross productive wells(2): Oil 2 1 Gas 32 41 -- -- Total 34 42 Net productive wells(3): Oil .34 .06 Gas 1.90 2.82 ---- ---- Total 2.24 2.88 - ----------------- (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 During 1999 the 1980-1 Program indirectly participated in the Kephart No. 1-7 well in Custer County, Oklahoma. The 1980-1 Program has a .00156 revenue interest in this well but did not incur any drilling expenses since it does not own a working interest in the well. The 1980-2 Program 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 -------- -------- -------- 1980-1 Program: - -------------- Production: Oil (Bbls)(1) 1,171 1,501 1,801 Gas (Mcf)(2) 146,511 177,782 262,111 Oil and gas sales: Oil $ 19,198 $ 19,696 $ 36,126 Gas 323,006 352,845 646,543 ------- ------- ------- Total $342,204 $372,541 $682,669 ======= ======= ======= Total direct operating expenses(3) $ 81,060 $114,156 $164,857 ======= ======= ======= Direct operating expense as a percentage of oil and gas sales 23.7% 30.6% 24.1% Average sales price: Per barrel of oil $16.39 $13.12 $20.06 Per Mcf of gas 2.20 1.98 2.47 Direct operating expenses per equivalent Mcf of gas(4) $ .53 $ .61 $ .60 -8- Year Ended December 31, -------------------------------- 1999 1998 1997 -------- -------- -------- 1980-2 Program: - -------------- Production: Oil (Bbls)(1) 910 1,399 1,256 Gas (Mcf)(2) 249,181 343,506 356,201 Oil and gas sales: Oil $ 15,086 $ 18,911 $ 25,629 Gas 521,466 649,235 804,952 ------- ------- ------- Total $536,552 $668,146 $830,581 ======= ======= ======= Total direct operating expenses(3) $150,187 $124,762 $228,362 ======= ======= ======= Direct operating expenses as a percentage of oil and gas sales 28.0% 18.7% 27.5% Average sales price: Per barrel of oil $16.58 $13.52 $20.41 Per Mcf of gas 2.09 1.89 2.26 Direct operating expenses per equivalent Mcf of gas(4) $ .59 $ .35 $ .63 - ---------- (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. -9- 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 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 Program's 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) 1980-1 Program: - -------------- Estimated proved reserves: Gas (Mcf) 950,226 Oil and liquids (Bbls) 10,325 Net present value (discounted at 10% per annum) $1,063,018 1980-2 Program: - -------------- Estimated proved reserves: Gas (Mcf) 1,373,300 Oil and liquids (Bbls) 7,429 Net present value (discounted at 10% per annum) $1,279,121 (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 1980-1 Program -------------- As of December 31, 1999, the 1980-1 Program's properties consisted of 34 gross (2.24 net) productive wells. The 1980-1 Program also owned a non-working interest in 29 additional wells. Affiliates of the 1980-1 Program operate 23 (37%) of its total wells. All of the 1980-1 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- 1980-2 Program -------------- As of December 31, 1999, the 1980-2 Program's properties consisted of 42 gross (2.88 net) productive wells. The 1980-2 Program also owned a non-working interest in 21 additional wells. Affiliates of the 1980-2 Program operate 24 (38%) of its total wells. All of the 1980-2 Program's reserves are located in the Anadarko Basin. 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 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 Agreements. Such -12- 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. 1980-1 Program -------------- Repurchase Cash Price Distributions ---------- ------------- 1998: First Quarter $234 $45 Second Quarter 189 30 Third Quarter 317 30 Fourth Quarter 287 - 1999: First Quarter $287 $ - Second Quarter 287 35 Third Quarter 244 - Fourth Quarter 244 25 2000: First Quarter $219 $ - 1980-2 Program -------------- Repurchase Cash Price Distributions ---------- ------------- 1998: First Quarter $136 $30 Second Quarter 106 55 Third Quarter 175 40 Fourth Quarter 135 - 1999: First Quarter $135 $20 Second Quarter 115 - Third Quarter 288 25 Fourth Quarter 263 20 2000: First Quarter $243 $ - As of March 1, 2000 the 1980-1 Program has 4,000 Units outstanding and approximately 1,150 Limited Partners of record. The 1980-2 Program has 5,000 Units outstanding and approximately 1,450 Limited Partners of record. -13- 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." -14-
1980-1 Program -------------- December 31, ----------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- ---------- ---------- Summary of Operations Oil and gas sales $342,204 $372,541 $682,669 $ 770,955 $ 605,626 Total revenues 346,168 384,702 689,913 781,724 610,611 Lease operating expenses 57,375 87,871 115,306 74,882 152,105 Production taxes 23,685 26,285 49,551 54,409 41,248 General and admini- strative expenses 65,397 66,362 70,286 68,217 68,974 Depreciation, depletion, and amortization of oil and gas properties 53,478 65,273 103,658 88,047 122,879 Net income 146,233 138,911 351,112 496,169 225,405 per Unit 36.20 34.38 86.91 122.81 55.79 Cash distributions 242,400 424,200 565,600 424,200 - per Unit 60 105 140 105 - Summary Balance Sheet Data: Total assets 476,056 576,917 894,174 1,062,619 1,033,855 Partners' capital 422,337 518,504 803,793 1,018,281 946,312
-15-
1980-2 Program -------------- December 31, ----------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- ---------- ---------- Summary of Operations Oil and gas sales $536,552 $668,146 $830,581 $1,022,387 $ 820,418 Total revenues 540,625 680,153 845,202 1,038,028 827,427 Lease operating expenses 111,734 80,586 168,469 105,131 356,433 Production taxes 38,453 44,176 59,893 74,907 59,115 General and admini- strative expenses 97,389 98,310 103,189 100,208 101,606 Depreciation, depletion, and amortization of oil and gas properties 40,533 60,659 99,067 88,431 130,828 Net income 252,516 396,422 414,584 669,351 179,445 per Unit 49.91 78.36 81.95 132.31 35.47 Cash distributions 328,835 632,375 758,850 657,670 101,180 per Unit 65 125 150 130 20 Summary Balance Sheet Data: Total assets 326,825 357,732 736,604 1,009,945 1,070,692 Partners' capital 180,039 256,358 492,311 836,577 824,896
-16- 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 -17- 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 1980-1 Program -------------- Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 -------------------------------------- Total oil and gas sales decreased $30,337 (8.1%) in 1999 as compared to 1998. Of this decrease, approximately $4,000 and $62,000, respectively, were related to decreases in volumes of oil and gas sold. These decreases were partially offset by increases of approximately $4,000 and $32,000, respectively, related to increases in the average prices of oil and gas sold. Volumes of oil and gas sold decreased 330 barrels and 31,271 Mcf, respectively, in 1999 as compared to 1998. The decrease in volumes of gas sold was primarily due to (i) positive prior period volume adjustments made by the purchasers on two wells during 1998 and (ii) normal declines in production. Average oil and gas prices increased to $16.39 per barrel and $2.20 per Mcf, respectively, in 1999 from $13.12 per barrel and $1.98 per Mcf, respectively, in 1998. Oil and gas production expenses (including lease operating expenses and production taxes) decreased $33,096 (29.0%) in 1999 as compared to 1998. This decrease was primarily due to (i) a decrease in lease operating expenses associated with the decreases in volumes of oil and gas sold and (ii) positive prior -18- period lease operating expense adjustments made on several wells during 1998. As a percentage of oil and gas sales, these expenses decreased to 23.7% in 1999 from 30.6% in 1998. This percentage decrease was primarily due to the dollar decrease in oil and gas production expenses and the increases in the average prices of oil and gas sold. Depreciation, depletion, and amortization of oil and gas properties decreased $11,795 (18.1%) in 1999 as compared to 1998. This decrease was primarily due to the decreases in volumes of oil and gas sold. As a percentage of oil and gas sales, this expense decreased to 15.6% in 1999 from 17.5% in 1998. This percentage decrease was primarily due to the increases in the average prices of oil and gas sold. General and administrative expenses decreased $965 (1.5%) in 1999 as compared to 1998. As a percentage of oil and gas sales, these expenses increased to 19.1% in 1999 from 17.8% 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 $310,128 (45.4%) in 1998 as compared to 1997. Of this decrease, approximately $208,000 was related to a decrease in volumes of gas sold and approximately $86,000 was related to a decrease in the average price of gas sold. Volumes of oil and gas sold decreased 300 barrels and 84,329 Mcf, respectively, in 1998 as compared to 1997. The decrease in volumes of gas sold resulted primarily from (i) the sale of several wells during 1997 and 1998, (ii) a positive prior period volume adjustment made by the purchaser on one well during 1997, and (iii) the 1980-1 Program receiving a reduced percentage of sales on two wells during 1998 due to the 1980-1 Program's overproduced gas balancing positions in those wells. These decreases were partially offset by positive prior period volume adjustments made by the purchasers on two wells during 1998. Average oil and gas prices decreased to $13.12 per barrel and $1.98 per Mcf, respectively, in 1998 from $20.06 per barrel and $2.47 per Mcf, respectively, in 1997. Oil and gas production expenses (including lease operating expenses and production taxes) decreased $50,701 (30.8%) in 1998 as compared to 1997. This decrease resulted primarily from (i) a decrease in production taxes associated with the decrease in oil and gas sales, (ii) a decrease in lease operating expenses associated with the decreases in volumes of oil and gas sold, and (iii) costs related to the settlement of a lawsuit during 1997. These decreases were partially offset by positive prior period lease operating expense adjustments made by the operator on several wells during 1998. As a percentage of oil and gas sales, -19- these expenses increased to 30.6% in 1998 from 24.1% 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 $38,385 (37.0%) 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 increased to 17.5% in 1998 from 15.2% in 1997. This percentage increase was primarily due to the decreases in the average prices of oil and gas sold. General and administrative expenses decreased $3,924 (5.6%) in 1998 as compared to 1997. As a percentage of oil and gas sales, these expenses increased to 17.8% in 1998 from 10.3% in 1997. This percentage increase was primarily due to the decrease in oil and gas sales. 1980-2 Program -------------- Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 -------------------------------------- Total oil and gas sales decreased $131,594 (19.7%) in 1999 as compared to 1998. Of this decrease, approximately $178,000 was related to a decrease in volumes of gas sold. This decrease was partially offset by an increase of approximately $51,000 related to an increase in the average price of gas sold. Volumes of oil and gas sold decreased 489 barrels and 94,325 Mcf, respectively, in 1999 as compared to 1998. The decrease in volumes of gas sold was primarily due to (i) positive prior period volume adjustments made by the purchasers on three wells during 1998 and (ii) normal declines in production. These decreases were partially offset by increased production on one well during 1999 due to an increase in pipeline capacity. Average oil and gas prices increased to $16.58 per barrel and $2.09 per Mcf, respectively, in 1999 from $13.52 per barrel and $1.89 per Mcf, respectively, in 1998. Oil and gas production expenses (including lease operating expenses and production taxes) increased $25,425 (20.4%) in 1999 as compared to 1998. This increase was primarily due to positive prior period lease operating expense adjustments made on several wells during 1999. As a percentage of oil and gas sales, these expenses increased to 28.0% in 1999 from 18.7% 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 $20,126 (33.2%) in 1999 as compared to 1998. This decrease was primarily due to the decreases in volumes of -20- oil and gas sold. As a percentage of oil and gas sales, this expense decreased to 7.6% in 1999 from 9.1% in 1998. This percentage decrease was primarily due to the increases in the average prices of oil and gas sold. General and administrative expenses remained relatively constant in 1999 as compared to 1998. As a percentage of oil and gas sales, these expenses increased to 18.2% in 1999 from 14.7% 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 $162,435 (19.6%) in 1998 as compared to 1997. Of this decrease, approximately $127,000 was related to a decrease in the average price of gas sold and approximately $29,000 was related to a decrease in volumes of gas sold. Volumes of oil sold increased 143 barrels, while volumes of gas sold decreased 12,695 Mcf in 1998 as compared to 1997. The decrease in volumes of gas sold resulted primarily from (i) a negative prior period volume adjustment made by the operator on one well during 1998, (ii) the sale of several wells during 1997 and 1998, and (iii) normal declines in production. These decreases were partially offset by positive prior period volume adjustments made by the purchasers on three wells during 1998. Average oil and gas prices decreased to $13.52 per barrel and $1.89 per Mcf, respectively, in 1998 from $20.41 per barrel and $2.26 per Mcf, respectively, in 1997. Oil and gas production expenses (including lease operating expenses and production taxes) decreased $103,600 (45.4%) in 1998 as compared to 1997. This decrease resulted primarily from (i) the costs related to the settlement of a lawsuit during 1997, (ii) a decrease in production taxes associated with the decrease in oil and gas sales, (iii) the sale of several wells during 1997 and 1998, and (iv) workover expenses incurred on one well during 1997 in order to improve the recovery of reserves. As a percentage of oil and gas sales, these expenses decreased to 18.7% in 1998 from 27.5% in 1997. This percentage decrease was primarily due to the dollar decrease in oil and gas production expenses. Depreciation, depletion, and amortization of oil and gas properties decreased $38,408 (38.8%) in 1998 as compared to 1997. This decrease resulted primarily from upward revisions in the estimates of remaining oil and gas reserves at December 31, 1998. As a percentage of oil and gas sales, this expense decreased to 9.1% in 1998 from 11.9% in 1997. This percentage decrease was primarily due to the dollar decrease in depreciation, depletion, and amortization. -21- General and administrative expenses decreased $4,879 (4.7%) in 1998 as compared to 1997. As a percentage of oil and gas sales, these expenses increased to 14.7% in 1998 from 12.4% 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 1980-1 and 1980-2 Program's proved reserve quantities at December 31, 1999 would have remaining lives of approximately 6.5 and 5.5 years, respectively, for gas reserves and approximately 8.8 and 8.2 years, respectively, 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 1980-1 Program's Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997 include proceeds from the sale of oil and gas properties of $51,540, $53,730, and $5,378, respectively. It is possible that the 1980-1 Program's repurchase values and the likelihood or amount of future cash distributions could decline as a result of the disposition of these properties. On the other hand, the General Partner believes there will be beneficial operating efficiencies related to the 1980-1 Program's remaining properties. This is primarily due to the fact that the properties sold generally bore a higher ratio of operating expenses as compared to reserves than the 1980-1 Program's remaining properties. In addition, the 1980-1 Program received proceeds during the first quarter of 1999 from the settlement of the gas imbalance position on one sold well. These proceeds were distributed during 1999. 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 provided by current oil and gas production. Management believes that cash for ordinary operational purposes will be provided by current oil and gas production. -22- 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 Programs 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. -23- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS TO THE PARTNERS DYCO OIL AND GAS PROGRAM 1980-1 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 1980-1 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 27, 2000 -24- DYCO OIL AND GAS PROGRAM 1980-1 LIMITED PARTNERSHIP Balance Sheets December 31, 1999 and 1998 ASSETS ------ 1999 1998 -------- -------- CURRENT ASSETS: Cash and cash equivalents $ 44,620 $ 57,478 Accrued oil and gas sales 66,174 48,350 Accounts receivable - related party (Note 2) - 57,688 ------- ------- Total current assets $110,794 $163,516 NET OIL AND GAS PROPERTIES, utilizing the full cost method 309,760 363,306 DEFERRED CHARGE 55,502 50,095 ------- ------- $476,056 $576,917 ======= ======= LIABILITIES AND PARTNERS' CAPITAL --------------------------------- CURRENT LIABILITIES: Accounts payable $ 5,712 $ 4,902 Gas imbalance payable 8,697 12,524 ------- ------- Total current liabilities $ 14,409 $ 17,426 ACCRUED LIABILITY $ 39,310 $ 40,987 PARTNERS' CAPITAL: General Partner, 40 general partner units $ 4,223 $ 5,185 Limited Partners, issued and outstanding, 4,000 Units 418,114 513,319 ------- ------- Total Partners' Capital $422,337 $518,504 ------- ------- $476,056 $576,917 ======= ======= The accompanying notes are an integral part of these financial statements. -25- DYCO OIL AND GAS PROGRAM 1980-1 LIMITED PARTNERSHIP Statements of Operations For the Years Ended December 31, 1999, 1998, and 1997 1999 1998 1997 -------- -------- -------- REVENUES: Oil and gas sales $342,204 $372,541 $682,669 Interest, including $6,216 from a related party in 1998 (Note 2) 3,964 12,161 7,244 ------- ------- ------- $346,168 $384,702 $689,913 COSTS AND EXPENSES: Lease operating $ 57,375 $ 87,871 $115,306 Production taxes 23,685 26,285 49,551 Depreciation, depletion, and amortization of oil and gas properties 53,478 65,273 103,658 General and administrative 65,397 66,362 70,286 ------- ------- ------- $199,935 $245,791 $338,801 ------- ------- ------- NET INCOME $146,233 $138,911 $351,112 ======= ======= ======= GENERAL PARTNER (1%) - NET INCOME $ 1,462 $ 1,389 $ 3,511 ======= ======= ======= LIMITED PARTNERS (99%) - NET INCOME $144,771 $137,522 $347,601 ======= ======= ======= NET INCOME per Unit $ 36.20 $ 34.38 $ 86.91 ======= ======= ======= UNITS OUTSTANDING 4,040 4,040 4,040 ======= ======= ======= The accompanying notes are an integral part of these financial statements. -26- DYCO OIL AND GAS PROGRAM 1980-1 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 $10,183 $1,008,098 $1,018,281 Cash distributions ( 5,656) ( 559,944) ( 565,600) Net income 3,511 347,601 351,112 ------ --------- --------- Balances at Dec. 31, 1997 $ 8,038 $ 795,755 $ 803,793 Cash distributions ( 4,242) ( 419,958) ( 424,200) Net income 1,389 137,522 138,911 ------ --------- --------- Balances at Dec. 31, 1998 $ 5,185 $ 513,319 $ 518,504 Cash distributions ( 2,424) ( 239,976) ( 242,400) Net income 1,462 144,771 146,233 ------ --------- --------- Balances at Dec. 31, 1999 $ 4,223 $ 418,114 $ 422,337 ====== ========= ========= The accompanying notes are an integral part of these financial statements. -27- DYCO OIL AND GAS PROGRAM 1980-1 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 $146,233 $138,911 $351,112 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization of oil and gas properties 53,478 65,273 103,658 (Increase) decrease in accrued oil and gas sales ( 17,824) 49,965 57,820 (Increase) decrease in accounts receivable - related party 6,216 ( 6,216) - (Increase) decrease in deferred charge ( 5,407) 21,043 ( 25,750) Increase (decrease) in accounts payable 810 ( 29,854) 26,880 Increase (decrease) in gas imbalance payable ( 3,827) 1,478 10,012 Increase (decrease) in accrued liability ( 1,677) ( 3,592) 9,151 ------- ------- ------- Net cash provided by operating activities $178,002 $237,008 $532,883 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of oil and gas properties $ 51,540 $ 53,730 $ 5,378 Additions to oil and gas properties - ( 6,666) ( 2,431) ------- ------- ------- Net cash provided by investing activities $ 51,540 $ 47,064 $ 2,947 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions ($242,400) ($424,200) ($565,600) ------- ------- ------- Net cash used by financing activities ($242,400) ($424,200) ($565,600) ------- ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS ($ 12,858) ($140,128) ($ 29,770) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 57,478 197,606 227,376 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 44,620 $ 57,478 $197,606 ======= ======= ======= -28- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: In connection with the sale of an oil and gas property in 1998, the 1980-1 Program settled a gas balancing position of $51,472 which was due from a related party at December 31, 1998 and collected during 1999. The accompanying notes are an integral part of these financial statements. -29- DYCO OIL AND GAS PROGRAM 1980-1 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 1980-1 Limited Partnership (the "Program"), a Minnesota limited partnership, commenced operations on February 15, 1980. Dyco Petroleum Corporation ("Dyco") is the General Partner of the Program. Affiliates of Dyco owned 1,909 (47.7%) 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 $0.35, $0.35, and $0.38, 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. 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 132,779 Mcf, resulting in prepaid lease operating expenses of $55,502. 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 133,160 Mcf, resulting in prepaid lease operating expenses of $50,095. 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 94,044 Mcf, resulting in accrued lease operating expenses of $39,310. 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 108,949 Mcf, resulting in accrued lease operating expenses of $40,987. -31- 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 six wells by $8,697 (5,798 Mcf). At December 31, 1998 total sales exceeded the Program's share of estimated total gas reserves on six wells by $12,524 (8,349 Mcf). These amounts were recorded as gas imbalance payables at December 31, 1999 and 1998 in accordance with the sales method. 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. -32- 2. TRANSACTIONS WITH RELATED PARTIES The related party receivable at December 31, 1998 represents $51,472 for a gas imbalance settlement and $6,216 in related interest (at prime plus 1%) due from an affiliate of the Program related to the sale of a well in early 1998. Such receivable was collected in the first quarter of 1999. 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 $65,397, $66,362, and $70,286, of which $56,088 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 purchaser 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 94.6% 93.5% 88.0% In the event of interruption of purchases by this significant customer 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. -33- 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 $29,703,832 $29,703,900 Less accumulated depreciation, depletion, amortization, and valuation allowance ( 29,394,072) ( 29,340,594) ---------- ---------- Net oil and gas properties $ 309,760 $ 363,306 ========== ========== 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 $ - $6,666 $2,431 ===== ===== ===== 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 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. -34-
1999 1998 1997 -------------------- --------------------- --------------------- Oil Gas Oil Gas Oil Gas (Bbls) (Mcf) (Bbls) (Mcf) (Bbls) (Mcf) -------- ----------- -------- ----------- -------- ----------- Proved reserves, beginning of year 5,009 1,110,887 11,049 1,376,965 15,699 1,326,820 Revisions of previous estimates 6,487 ( 14,150) ( 4,487) 27,151 ( 2,837) 313,700 Sale of reserves - - ( 52) ( 116,917) ( 12) ( 1,444) Extensions and discoveries - - - 1,470 - - Production ( 1,171) ( 146,511) ( 1,501) ( 177,782) ( 1,801) ( 262,111) ------ --------- ------ --------- ------ --------- Proved reserves, end of year 10,325 950,226 5,009 1,110,887 11,049 1,376,965 ====== ========= ====== ========= ====== ========= Proved developed reserves: Beginning of year 5,009 1,110,887 11,049 1,376,965 15,699 1,326,820 ------ --------- ------ --------- ------ --------- End of year 10,325 950,226 5,009 1,110,887 11,049 1,376,965 ====== ========= ====== ========= ====== =========
-35- 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. -36- REPORT OF INDEPENDENT ACCOUNTANTS TO THE PARTNERS DYCO OIL AND GAS PROGRAM 1980-2 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 1980-2 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 27, 2000 -37- DYCO OIL AND GAS PROGRAM 1980-2 LIMITED PARTNERSHIP Balance Sheets December 31, 1999 and 1998 ASSETS ------ 1999 1998 -------- -------- CURRENT ASSETS: Cash and cash equivalents $ 52,257 $ 62,393 Accrued oil and gas sales 91,782 88,634 ------- ------- Total current assets $144,039 $151,027 NET OIL AND GAS PROPERTIES, utilizing the full cost method 134,686 173,280 DEFERRED CHARGE 48,100 33,425 ------- ------- $326,825 $357,732 ======= ======= LIABILITIES AND PARTNERS' CAPITAL --------------------------------- CURRENT LIABILITIES: Accounts payable $ 8,842 $ 5,459 Gas imbalance payable 20,136 16,840 ------- ------- Total current liabilities $ 28,978 $ 22,299 ACCRUED LIABILITY $117,808 $ 79,075 PARTNERS' CAPITAL: General Partner, 59 general partner units $ 1,801 $ 2,564 Limited Partners, issued and outstanding, 5,000 Units 178,238 253,794 ------- ------- Total Partners' Capital $180,039 $256,358 ------- ------- $326,825 $357,732 ======= ======= The accompanying notes are an integral part of these financial statements. -38- DYCO OIL AND GAS PROGRAM 1980-2 LIMITED PARTNERSHIP Statements of Operations For the Years Ended December 31, 1999, 1998, and 1997 1999 1998 1997 -------- -------- -------- REVENUES: Oil and gas sales $536,552 $668,146 $830,581 Interest 4,073 12,007 14,621 ------- ------- ------- $540,625 $680,153 $845,202 COSTS AND EXPENSES: Lease operating $111,734 $ 80,586 $168,469 Production taxes 38,453 44,176 59,893 Depreciation, depletion, and amortization of oil and gas properties 40,533 60,659 99,067 General and administrative 97,389 98,310 103,189 ------- ------- ------- $288,109 $283,731 $430,618 ------- ------- ------- NET INCOME $252,516 $396,422 $414,584 ======= ======= ======= GENERAL PARTNER (1%) - NET INCOME $ 2,525 $ 3,964 $ 4,146 ======= ======= ======= LIMITED PARTNERS (99%) - NET INCOME $249,991 $392,458 $410,438 ======= ======= ======= NET INCOME per Unit $ 49.91 $ 78.36 $ 81.95 ======= ======= ======= UNITS OUTSTANDING 5,059 5,059 5,059 ======= ======= ======= The accompanying notes are an integral part of these financial statements. -39- DYCO OIL AND GAS PROGRAM 1980-2 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 $8,366 $828,211 $836,577 Cash distributions ( 7,589) ( 751,261) ( 758,850) Net income 4,146 410,438 414,584 ----- ------- ------- Balances at Dec. 31, 1997 $4,923 $487,388 $492,311 Cash distributions ( 6,323) ( 626,052) ( 632,375) Net income 3,964 392,458 396,422 ----- ------- ------- Balances at Dec. 31, 1998 $2,564 $253,794 $256,358 Cash distributions ( 3,288) ( 325,547) ( 328,835) Net income 2,525 249,991 252,516 ----- ------- ------- Balances at Dec. 31, 1999 $1,801 $176,238 $180,039 ===== ======= ======= The accompanying notes are an integral part of these financial statements. -40- DYCO OIL AND GAS PROGRAM 1980-2 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 $252,516 $396,422 $414,584 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization of oil and gas properties 40,533 60,659 99,067 (Increase) decrease in accrued oil and gas sales ( 3,148) 37,657 51,176 (Increase) decrease in deferred charge ( 14,675) 42,095 ( 2,636) Increase (decrease) in accounts payable 3,383 ( 34,463) 28,889 Increase (decrease) in gas imbalance payable 3,296 ( 54,365) 6,444 Increase (decrease) in accrued liability 38,733 ( 43,603) 35,592 -------- ------- ------- Net cash provided by operating activities $320,638 $404,402 $633,116 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of oil and gas properties $ 72 $ 28,442 $ 26,556 Additions to oil and gas properties ( 2,011) ( 6,096) ( 2,533) ------- ------- ------- Net cash provided (used) by investing activities ($ 1,939) $ 22,346 $ 24,023 CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions ($328,835) ($632,375) ($758,850) ------- ------- ------- Net cash used by financing activities ($328,835) ($632,375) ($758,850) ------- ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS ($ 10,136) ($205,627) ($101,711) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $ 62,393 $268,020 $369,731 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,257 $ 62,393 $268,020 ======= ======= ======= The accompanying notes are an integral part of these financial statements. -41- DYCO OIL AND GAS PROGRAM 1980-2 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 1980-2 Limited Partnership (the "Program"), a Minnesota limited partnership, commenced operations on June 16, 1980. Dyco Petroleum Corporation ("Dyco") is the General Partner of the Program. Affiliates of Dyco owned 2,266 (45.3%) 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 -42- cost amortization rates per equivalent Mcf of gas produced during the years ended December 31, 1999, 1998, and 1997 were $0.16, $0.17, and $0.27, 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. 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 143,839 Mcf, resulting in prepaid lease operating expenses of $48,100. 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 147,375 Mcf, resulting in prepaid lease operating expenses of $33,425. 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 352,298 Mcf, resulting in accrued lease operating expenses of $117,808. 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 348,657 Mcf, resulting in accrued lease operating expenses of $79,075. -43- 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 three wells by $20,136 (13,424 Mcf). At December 31, 1998 total sales exceeded the Program's share of estimated total gas reserves on five wells by $16,840 (11,227 Mcf). These amounts were recorded as gas imbalance payables at December 31, 1999 and 1998 in accordance with the sales method. 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. -44- 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 $97,389, $98,310, and $103,189, respectively, of which $85,620 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 purchaser 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 89.1% 74.2% 92.1% Chevron U.S.A. Inc. - 22.0% - 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. -45- 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 $35,360,437 $35,358,498 Less accumulated depreciation, depletion, amortization, and valuation allowance ( 35,225,751) ( 35,185,218) ---------- ---------- Net oil and gas properties $ 134,686 $ 173,280 ========== ========== 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 $2,011 $6,096 $2,533 ===== ===== ===== 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 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. -46-
1999 1998 1997 --------------------- --------------------- --------------------- Oil Gas Oil Gas Oil Gas (Bbls) (Mcf) (Bbls) (Mcf) (Bbls) (Mcf) ------- ----------- ------- ----------- -------- ----------- Proved reserves, beginning of year 8,854 1,478,948 7,002 1,301,400 8,699 1,456,279 Revisions of previous estimates ( 515) 143,533 3,344 566,011 ( 420) 223,282 Sales of reserves - - ( 93) ( 46,488) ( 21) ( 21,960) Extensions and discoveries - - - 1,531 - - Production ( 910) ( 249,181) (1,399) ( 343,506) (1,256) ( 356,201) ----- --------- ----- --------- ----- --------- Proved reserves, end of year 7,429 1,373,300 8,854 1,478,948 7,002 1,301,400 ===== ========= ===== ========= ===== ========= Proved developed reserves: Beginning of year 8,854 1,478,948 7,002 1,301,400 8,699 1,456,279 ----- --------- ----- --------- ----- --------- End of year 7,429 1,373,300 8,854 1,478,948 7,002 1,301,400 ===== ========= ===== ========= ===== =========
-47- 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 DYCO ---------------- --- -------------------------------- 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 -48- 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: -49- Compensation/Reimbursement to Dyco and its Affiliates Three Years Ended December 31, 1999 Type of Compensation/ Reimbursement(1) Expense ---------------------- --------------------------- 1999 1998 1997 ------- ------- ------- 1980-1 Program - -------------- Compensation: Operations (2) (2) (2) Reimbursements: General and Adminis- trative, Geological, and Engineering Expenses and Direct Expenses(3) $56,088 $56,088 $56,088 1980-2 Program - -------------- Compensation: Operations (2) (2) (2) Reimbursements: General and Adminis- trative, Geological, and Engineering Expenses and Direct Expenses(3) $85,620 $85,620 $85,620 - ---------- (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 -50- 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 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: -51-
1980-1 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)(2) 1997 - - - - - - - 1998 - - - - - - - 1999 - - - - - - - All Executive Officers, Directors, and Employees as a group(2) 1997 $33,507 - - - - - - 1998 $33,193 - - - - - - 1999 $34,259 - - - - - - - --------------- (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 $100,000 per annum.
-52-
1980-2 Program -------------- Salary Reimbursement Three Years Ended December 31, 1999 Long Term Compensation ------------------------------- Annual Compensation Awards Payouts -------------------------- --------------------- ------- Securi- Other ties All Name Annual Restricted Under- Other and Compen- Stock lying LTIP Compen- Principal Salary Bonus sation Award(s) Options/ Payouts sation Position Year ($) ($) ($) ($) SARs(#) ($) ($) - --------------- ---- ------- ------- ------- ---------- -------- ------- ------- Dennis R. Neill, President(1)(2) 1997 - - - - - - - 1998 - - - - - - - 1999 - - - - - - - All Executive Officers, Directors, and Employees as a group(2) 1997 $51,149 - - - - - - 1998 $50,670 - - - - - - 1999 $52,297 - - - - - - - --------------- (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- 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) - ------------------------------------------- --------------- 1980-1 Program: - -------------- Samson Resources Company 1,917 (47.9%) All directors, officers, and affiliates of Dyco as a group and Dyco (5 persons) 1,917 (47.9%) 1980-2 Program: - -------------- Samson Resources Company 2,270 (45.4%) All directors, officers, and affiliates of Dyco as a group and Dyco (5 persons) 2,270 (45.4%) -54- ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During early 1998 the 1980-1 Program sold an oil and gas property which had an underproduced gas imbalance position. This imbalance was settled with an affiliate of the 1980-1 Program during the first quarter of 1999. In connection with this settlement, the 1980-1 Program received $6,216 in interest from the affiliate (at prime plus one percent). 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 Programs owns a significant amount of the 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 provided 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. -55- Samson Resources Company, an affiliate of Dyco, ("Resources") owns approximately 48% and 45%, respectively, of the 1980-1 and 1980-2 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 February 15, 1980 for Dyco Drilling Program 1980-1 by and between Dyco Oil and Gas Program 1980-1, 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 1980-1 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 1980-1 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. -57- 4.4 Certificate of Limited Partnership (as amended) for Dyco Oil and Gas Program 1980-1 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 June 20, 1980 for Dyco Drilling Program 1980-2 by and between Dyco Oil and Gas Program 1980-2, 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 1980-2 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 1980-2 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 1980-2 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 1980-1 Limited Partnership *23.2 Consent of Ryder Scott Company, L.P. for Dyco Oil and Gas Program 1980-2 Limited Partnership. *27.1 Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1980-1 Limited Partnership's financial statements as of December 31, 1999 and for the year ended December 31, 1999. -58- *27.2 Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1980-2 Limited Partnership's financial statements as of December 31, 1999 and for the year ended December 31, 1999. 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 1980-1 LIMITED PARTNERSHIP By: DYCO PETROLEUM CORPORATION General Partner March 28, 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 28, 2000 ------------------- Director (Principal Dennis R. Neill Executive Officer) //s// Patrick M. Hall Chief Financial March 28, 2000 ------------------- Officer (Principal Patrick M. Hall Financial and Accounting Officer) //s// Judy K. Fox Secretary March 28, 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 1980-2 LIMITED PARTNERSHIP By: DYCO PETROLEUM CORPORATION General Partner March 28, 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 28, 2000 ------------------- Director (Principal Dennis R. Neill Executive Officer) //s// Patrick M. Hall Chief Financial March 28, 2000 ------------------- Officer (Principal Patrick M. Hall Financial and Accounting Officer) //s// Judy K. Fox Secretary March 28, 2000 ------------------- Judy K. Fox -61- INDEX TO EXHIBITS Exhibit Number Description - ------- ----------- 4.1 Drilling Agreement dated February 15, 1980 for Dyco Drilling Program 1980-1 by and between Dyco Oil and Gas Program 1980-1, 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 1980-1 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 1980-1 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 1980-1 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 June 20, 1980 for Dyco Drilling Program 1980-2 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 1980-2 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 1980-2 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. -62- 4.8 Certificate of Limited Partnership (as amended) for Dyco Oil and Gas Program 1980-2 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 1980-1 Limited Partnership. *23.2 Consent of Ryder Scott Company, L.P. for Dyco Oil and Gas Program 1980-2 Limited Partnership. *27.1 Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1980-1 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 1980-2 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 1980-1 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 1980-2 Limited Partnership. RYDER SCOTT COMPANY, L.P. Houston, Texas February 4, 2000 EX-27.1 4 FDS --
5 0000806576 DYCO OIL AND GAS PROGRAM 1980-1 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 44,620 0 66,174 0 0 110,794 29,703,832 29,394,072 476,056 14,409 0 0 0 0 422,337 476,056 342,204 346,168 0 199,935 0 0 0 146,233 0 146,233 0 0 0 146,233 36.20 0
EX-27.2 5 FDS --
5 0000806577 DYCO OIL AND GAS PROGRAM 1980-2 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 52,257 0 91,782 0 0 144,039 35,360,437 35,225,751 326,825 28,978 0 0 0 0 180,039 326,825 536,552 540,625 0 288,109 0 0 0 252,516 0 252,516 0 0 0 252,516 49.91 0
-----END PRIVACY-ENHANCED MESSAGE-----