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, 2001
Commission File Number 0-10442
DYCO OIL AND GAS PROGRAM 1981-1
(A LIMITED PARTNERSHIP)
(Exact name of registrant as specified in its charter)
Minnesota 41-1411953
(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 (Zip Code)
executive offices)
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.
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FORM 10-K405
DYCO OIL AND GAS PROGRAM 1981-1
(a Minnesota limited partnership)
TABLE OF CONTENTS
PART I.......................................................................3
ITEM 1. BUSINESS...................................................3
ITEM 2. PROPERTIES.................................................7
ITEM 3. LEGAL PROCEEDINGS.........................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS.......11
PART II.....................................................................11
ITEM 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP UNITS AND
RELATED LIMITED PARTNER MATTERS.. ........................11
ITEM 6. SELECTED FINANCIAL DATA...................................12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.........................................19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................34
PART III....................................................................34
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........34
ITEM 11. EXECUTIVE COMPENSATION....................................35
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............38
PART IV.....................................................................40
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K 41
SIGNATURES..................................................................42
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PART I
ITEM 1. BUSINESS
General
The Dyco Oil and Gas Program 1981-1 Limited Partnership (the "Program") is
a Minnesota limited partnership engaged in the production of oil and gas. The
Program commenced operations on February 7, 1981 with the primary financial
objective of investing its limited partners' subscriptions in the drilling of
oil and gas prospects and then distributing to its 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 Program.
Samson Resources Company, an affiliate of Dyco, currently owns one-half of the
Program's Units of limited partnership interest, making the Program a 50%
subsidiary of Samson Resources Company. See "Item 2. Properties" for a
description of the Program's reserves and properties.
The limited partnership agreement for the Program (the "Program
Agreement") 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 the 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 Program. 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, 2001, Samson owned
interests in approximately 14,000 oil and gas wells located in 19 states of the
United States and the countries of Canada, Venezuela, and Russia. At December
31, 2001, Samson operated approximately 3,000 oil and gas wells located in 14
states of the United States as well as Canada, Venezuela, and Russia.
As a limited partnership, the Program has no officers, directors, or
employees. It relies instead on the personnel of Dyco and Samson. As of February
15, 2002, Samson employed approximately 1,000 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."
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Dyco's and the Program's principal place of business is located at Samson
Plaza, Two West Second Street, Tulsa, Oklahoma 74103, and their telephone number
is (918) 583-1791 or (800) 283-1791.
Funding
Although the Program Agreement permits the Program to incur borrowings,
the Program's operations and expenses are currently funded out of the Program's
revenues from oil and gas sales. Dyco may, but is not required to, advance funds
to the Program for the same purposes for which Program borrowings are
authorized.
Principal Products Produced and Services Rendered
The Program's sole business is the development and production of oil and
gas with a concentration on gas. The Program does not hold any patents,
trademarks, licenses, or concessions and is not a party to any government
contracts. The Program has no backlog of orders and does not participate in
research and development activities. The Program is 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 Program 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
Program. Although virtually all of the Program's 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 Program's operations and projections of future oil and gas
production and revenues.
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Future Legislation -- Legislation affecting the oil and gas industry is
under constant review for amendment or expansion. 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 Program's 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 Program's operations or may affect
the Program's 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 97.7% of the Program's oil and gas sales during the year ended
December 31, 2001. 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.
The Program's principal customers for crude oil production are refiners
and other companies which have pipeline facilities near the producing properties
of the Program. 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 Program's revenues, net income or loss, cash flows, carrying value of
oil and gas properties, and amount of oil and gas which can be economically
produced depend substantially upon the prevailing prices for oil and gas. Oil
and gas prices (and consequently the Program's profitability) depend on a number
of factors which are beyond the control of the Partnerships. These factors
include worldwide political instability and terrorist activities (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), the level of domestic oil and gas
production, government regulations and taxes, the
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price and availability of alternative fuels, the overall economic environment,
and the availability and capacity of transportation and processing facilities.
The effect of these factors on future oil and gas industry trends cannot be
accurately predicted or anticipated. In addition, 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. Predicting
future prices is not possible. Concerning past trends, oil and gas prices in the
United States have been highly volatile for many years.
Over the past ten years average yearly wellhead gas prices have generally
been in the $1.50 to $2.50 per Mcf range. Due to unusual supply and demand
circumstances gas prices in late 2000 and early 2001 rose to a level not seen
since the early 1980s. Recent economic trends and the supply/demand ratio have
caused natural gas prices to decline significantly. Substantially all of the
Program's 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 Program's gas
production decreased from approximately $9.23 per Mcf at December 31, 2000 to
approximately $2.65 per Mcf at December 31, 2001. Such prices were on an MMBTU
basis and differ from the prices actually received by the Partnerships 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 three 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 $9.25 per barrel.
The current oil price range between the mid teens and low twenties is somewhat
dependent on production curtailment agreements among major oil producing
nations. Prices for the Program's oil production decreased from approximately
$23.75 per barrel at December 31, 2000 to approximately $16.75 per barrel at
December 31, 2001.
Future prices for both oil and gas will likely be different from the
prices in effect on December 31, 2001. Due to the many factors and uncertainties
discussed above, it is impossible to accurately predict whether future oil and
gas prices will (i) stabilize, (ii) increase, or (iii) decrease.
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Insurance Coverage
The Program is 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 Program maintains insurance coverage as is customary for
entities of a similar size engaged in operations similar to that of the Program,
but losses can occur from uninsurable risks or in amounts in excess of existing
insurance coverage. In particular, many types of pollution and contamination can
exist, undiscovered, for long periods of time and can result in substantial
environmental liabilities which are not insured. The occurrence of an event not
fully covered by insurance could have a material adverse effect on the Program's
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 Program as of December 31, 2001.
Well Statistics(1)
As of December 31, 2001
Gross productive wells(2):
Oil -
Gas 12
--
Total 12
Net productive wells(3):
Oil -
Gas .58
---
Total .58
- ----------
(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-K405 ("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.
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Drilling Activities
The Program did not participate in any drilling activities during 2001.
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 Program, revenues
attributable to such production, and certain price and cost information.
Net Production Data
Year Ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------
Production:
Oil (Bbls)(1) 127 122 88
Gas (Mcf)(2) 47,106 75,219 70,822
Oil and gas sales:
Oil $ 3,110 $ 3,583 $ 1,421
Gas 221,291 258,615 157,275
------- ------- -------
Total $224,401 $262,198 $158,696
======= ======= =======
Total direct operating expenses(3) $ 34,356 $ 29,958 $ 35,823
======= ======= =======
Direct operating expenses as a
percentage of oil and gas sales 15.3% 11.4% 22.6%
Average sales price:
Per barrel of oil $24.49 $29.37 $16.15
Per Mcf of gas 4.70 3.44 2.22
Direct operating expenses per
equivalent Mcf of gas(4) $ .72 $ .39 $ .50
- ----------
-8-
(1) As used throughout this Annual Report, "Bbls" refers to barrels of 42 U.S.
gallons and represents the basic unit for measuring the production of
crude oil and condensate oil.
(2) As used throughout this Annual Report, "Mcf" refers to volume of 1,000
cubic feet under prescribed conditions of pressure and temperature and
represents the basic unit for measuring the production of gas.
(3) Includes lease operating expenses and production taxes.
(4) Oil production is converted to gas equivalents at the rate of six Mcf per
barrel, representing the estimated relative energy content of gas and oil,
which rate is not necessarily indicative of the relationship of oil and
gas prices. The respective prices of oil and gas are affected by market
and other factors in addition to relative energy content.
Proved Reserves and Net Present Value
The following table sets forth the Program's estimated proved oil and gas
reserves and net present value therefrom as of December 31, 2001. 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, 2001. Such prices were not escalated
except in certain circumstances where escalations were fixed and readily
determinable in accordance with applicable contract provisions. Oil and gas
prices at December 31, 2001 were substantially lower than the very high prices
in effect on December 31, 2000. This decrease in oil and gas prices has caused
the estimates of remaining economically recoverable reserves, as well as the
values placed on said reserves, at December 31, 2001 to be significantly lower
than what such estimates and values would have been if oil and gas prices
remained unchanged from December 31, 2000 to December 31, 2001. The prices used
in calculating the net present value attributable to the Program's proved
reserves do not necessarily reflect market prices for oil and gas production
subsequent to December 31, 2001. There can be no assurance that the prices used
in calculating the net present
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value of the Program's proved reserves at December 31, 2001 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.
Proved Reserves and
Net Present Value
From Proved Reserves
As of December 31, 2001(1)
Estimated proved reserves:
Gas (Mcf) 337,345
Oil and liquids (Bbls) 3,106
Net present value (discounted at 10% per annum) $ 333,493
- --------------
(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 Program comparable to those
included herein have been included in reports to any federal agency other than
the SEC. Additional information relating to the Program's proved reserves is
contained in Note 4 to the Program's financial statements, included in Item 8 of
this Annual Report.
Significant Properties
As of December 31, 2001 the Program's properties consist of 12 gross (.58
net) productive wells. The Program also owns a non-working interest in an
additional 14 wells. Affiliates of the Program operate 5 (19%) of its total
wells. All of the Program's
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reserves are located in the Anadarko Basin of western Oklahoma and the Texas
panhandle, which is an established oil and gas producing basin.
Title to Oil and Gas Properties
Management believes that the Program has satisfactory title to its oil and
gas properties. Record title to substantially all of the Program's properties is
held by Dyco as nominee.
Title to the Program's 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 Program's interest therein or materially interfere with their use in the
operation of the Program's business.
ITEM 3. LEGAL PROCEEDINGS
To the knowledge of the management of Dyco and the Program, neither Dyco,
the Program, nor the Program's properties are subject to any litigation, the
results of which would have a material effect on the Program's 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 during
2001.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP UNITS AND RELATED
LIMITED PARTNER MATTERS
The Program does not have an established trading market for its units of
limited partnership interest ("Units"). Pursuant to the terms of the Program
Agreement, Dyco, as general partner, is obligated to annually issue a repurchase
offer which is based on the estimated future net revenues from the Program's
reserves and is calculated pursuant to the terms of the Program Agreement. Such
repurchase offer is recalculated monthly in order to reflect cash distributions
made to the limited partners and extraordinary events. The following table sets
forth, for the periods indicated, Dyco's repurchase offer per Unit and the
amount of the Program's cash distributions per Unit for the same period. For
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purposes of this Annual Report, a Unit represents an initial subscription of
$5,000 to the Program.
Repurchase Cash
Price Distributions
---------- -------------
2000:
First Quarter $51 $ -
Second Quarter 51 -
Third Quarter 65 20
Fourth Quarter 45 -
2001:
First Quarter $45 $ -
Second Quarter 45 25
Third Quarter 65 -
Fourth Quarter 65 -
2002:
First Quarter $65 $ -
As of March 1, 2002, the Program had 7,000 Units outstanding and
approximately 2,000 Limited Partners of record.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for the Program. This
data should be read in conjunction with the financial statements of the Program,
and the respective notes thereto, included elsewhere in this Annual Report. See
"Item 8. Financial Statements and Supplementary Data."
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Selected Financial Data
December 31,
-----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Summary of Operations:
Oil and gas sales $224,401 $262,198 $158,696 $193,025 $166,664
Total revenues 228,323 267,630 160,898 197,393 171,476
Lease operating expenses 17,490 15,367 29,641 20,807 75,972
Production taxes 16,866 14,591 6,182 14,666 10,453
General and administrative
expenses 43,328 41,668 67,397 67,858 74,456
Depreciation, depletion, and
amortization of oil and gas
properties 7,375 2,866 8,030 14,032 20,411
Net income (loss) 143,264 193,138 49,648 80,030 (9,816)
per Unit 20.26 27.32 7.02 11.32 (1.39)
Cash distributions 176,750 141,400 - 141,400 176,750
per Unit 25 20 - 20 25
Summary Balance Sheet Data:
Total assets 139,077 166,418 150,734 117,175 221,590
Partners' capital 92,302 125,788 74,050 24,402 85,772
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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 Program.
Use of forward-looking statements and estimates and assumptions involve
risks and uncertainties which include, but are not limited to, the volatility of
oil and gas prices, the uncertainty of reserve information, the operating risk
associated with oil and gas properties (including the risk of personal injury,
death, property damage, damage to the well or producing reservoir, environmental
contamination, and other operating risks), the prospect of changing tax and
regulatory laws, the availability and capacity of processing and transportation
facilities, the general economic climate, the supply and price of foreign
imports of oil and gas, the level of consumer product demand, and the price and
availability of alternative fuels. Should one or more of these risks or
uncertainties occur or should estimates or underlying assumptions prove
incorrect, actual conditions or results may vary materially and adversely from
those stated, anticipated, believed, estimated, or otherwise indicated.
General Discussion
The following general discussion should be read in conjunction with the
analysis of results of operations provided below. The Program's revenues, net
income or loss, cash flows, carrying value of oil and gas properties, and amount
of oil and gas which can be economically produced depend substantially upon the
prevailing prices for oil and gas. Oil and gas prices (and consequently the
Program's profitability) depend on a number of factors which are beyond the
control of the Partnerships. These factors include worldwide political
instability and terrorist activities (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), the level of domestic oil and gas production, 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 of these factors on future
-14-
oil and gas industry trends cannot be accurately predicted or anticipated. In
addition, 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. Predicting future prices is not possible. Concerning
past trends, oil and gas prices in the United States have been highly volatile
for many years.
Over the past ten years average yearly wellhead gas prices have generally
been in the $1.50 to $2.50 per Mcf range. Due to unusual supply and demand
circumstances gas prices in late 2000 and early 2001 rose to a level not seen
since the early 1980s. Recent economic trends and the supply/demand ratio have
caused natural gas prices to decline significantly. Substantially all of the
Program's 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 Program's gas
production decreased from approximately $9.23 per Mcf at December 31, 2000 to
approximately $2.65 per Mcf at December 31, 2001. Such prices were on an MMBTU
basis and differ from the prices actually received by the Partnerships 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 three 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 $9.25 per barrel.
The current oil price range between the mid teens and low twenties is somewhat
dependent on production curtailment agreements among major oil producing
nations. Prices for the Program's oil production decreased from approximately
$23.75 per barrel at December 31, 2000 to approximately $16.75 per barrel at
December 31, 2001.
Future prices for both oil and gas will likely be different from the
prices in effect on December 31, 2001. Due to the many factors and uncertainties
discussed above, it is impossible to accurately predict whether future oil and
gas prices will (i) stabilize, (ii) increase, or (iii) decrease.
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Results of Operations
Year Ended December 31, 2001 Compared to
Year Ended December 31, 2000
----------------------------------------
Total oil and gas sales decreased $37,797 (14.4%) in 2001 as compared to
2000. Of this decrease, approximately $97,000 was related to a decrease in
volumes of gas sold. This decrease was partially offset by an increase of
approximately $59,000 related to an increase in the average price of gas sold.
Volumes of oil sold increased 5 barrels, while volumes of gas sold decreased
28,113 Mcf in 2001 as compared to 2000. The decrease in volumes of gas sold was
primarily due to (i) the receipt of a reduced percentage of sales on two wells
during 2001 due to gas balancing and (ii) normal declines in production. These
decreases were partially offset by the receipt of an increased percentage of
sales on another well during 2001 due to gas balancing. As of the date of this
Annual Report, management expects the gas balancing adjustments to continue for
the foreseeable future, thereby continuing to affect volumes of gas sold.
Average oil prices decreased to $24.49 per barrel in 2001 from $29.37 per barrel
in 2000. Average gas prices increased to $4.70 per Mcf in 2001 from $3.44 per
Mcf in 2000.
Oil and gas production expenses (including lease operating expenses and
production taxes) increased $4,398 (14.7%) in 2001 as compared to 2000. This
increase was primarily due to (i) the settlement of a royalty dispute on one
well during 2001 and (ii) a production tax refund received during 2000. These
increases were partially offset by the sale of one well during late 2000. As a
percentage of oil and gas sales, these expenses increased to 15.3% in 2001 from
11.4% in 2000. 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
increased $4,509 (157.3%) in 2001 as compared to 2000. This increase was
primarily due to decreases in the oil and gas prices used in the valuation of
reserves at December 31, 2001 as compared to December 31, 2000. This increase
was partially offset by the decrease in volumes of gas sold. As a percentage of
oil and gas sales, this expense increased to 3.3% in 2001 from 1.1% in 2000.
This percentage increase was primarily due to the dollar increase in
depreciation, depletion, and amortization.
General and administrative expenses increased $1,660 (4.0%) in 2001 as
compared to 2000. As a percentage of oil and gas sales, these expenses increased
to 19.3% in 2001 from 15.9% in 2000. This percentage increase was primarily due
to the decrease in oil and gas sales.
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Year Ended December 31, 2000 Compared to
Year Ended December 31, 1999
----------------------------------------
Total oil and gas sales increased $103,502 (65.2%) in 2000 as compared to
1999. Of this increase, approximately $92,000 was related to an increase in the
average price of gas sold. Volumes of oil and gas sold increased 34 barrels and
4,397 Mcf, respectively, in 2000 as compared to 1999. Average oil and gas prices
increased to $29.37 per barrel and $3.44 per Mcf, respectively, in 2000 from
$16.15 per barrel and $2.22 per Mcf, respectively, in 1999.
Oil and gas production expenses (including lease operating expenses and
production taxes) decreased $5,865 (16.4%) in 2000 as compared to 1999. This
decrease was primarily due to (i) workover expenses incurred on one well during
1999 in order to improve the recovery of reserves and (ii) a production tax
refund received during 2000. These decreases were partially offset by (i) a
production tax refund received during 1999 and (ii) an increase in production
taxes associated with the increase in oil and gas sales. As a percentage of oil
and gas sales, these expenses decreased to 11.4% in 2000 from 22.6% in 1999.
This percentage decrease was primarily due to the increases in the average
prices of oil and gas sold and the dollar decrease in oil and gas production
expenses.
Depreciation, depletion, and amortization of oil and gas properties
decreased $5,164 (64.3%) in 2000 as compared to 1999. This decrease was
primarily due to (i) an increase in the gas price used in the valuation of
reserves at December 31, 2000 as compared to December 31, 1999 and (ii) an
upward revision in the estimate of remaining gas reserves at December 31, 2000.
As a percentage of oil and gas sales, this expense decreased to 1.1% in 2000
from 5.1% in 1999. This percentage decrease was primarily due to the increases
in the average prices of oil and gas sold and the dollar decrease in
depreciation, depletion, and amortization.
General and administrative expenses decreased $25,729 (38.2%) in 2000 as
compared to 1999. This decrease was primarily due to a change in allocation
among the Program and other affiliated programs of indirect general and
administrative expenses reimbursed to the General Partner. As a percentage of
oil and gas sales, these expenses decreased to 15.9% in 2000 from 42.5% in 1999.
This percentage decrease was primarily due to the increase in oil and gas sales
and the dollar decrease in general and administrative expenses.
-17-
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, where methods
are employed to permit more efficient recovery of reserves, or where identified
developmental drilling or recompletion opportunities are pursued, thereby
resulting in a positive economic impact. Assuming 2001 production levels for
future years, the Program's proved reserve quantities at December 31, 2001 would
have a remaining life of approximately 7.2 years for gas reserves and 24.5 years
for oil reserves. These life of reserves estimates are based on the current
estimates of remaining oil and gas reserves. See "Item 2. Properties" for a
discussion of these reserve estimates.
The Program's 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 Program for well completions or workovers, however, may reduce or eliminate
cash available for a particular quarterly cash distribution. The Program has no
debt commitments. Cash for operational purposes has generally been provided by
current oil and gas production. Management believes that cash for ordinary
operational purposes in the future will be provided by current oil and gas
production.
The Program's Statements of Cash Flows for the years ended December 31,
2001, 2000, and 1999 include proceeds from the sale of oil and gas properties.
It is possible that the Program's future repurchase values and the amount or
likelihood 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 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 Program's remaining properties.
There can be no assurance as to the amount of the Program's future cash
distributions. The Program's ability to make cash distributions depends
primarily upon the level of available cash flow generated by the Program's
operating activities, which will be affected (either positively or negatively)
by many factors beyond the control of the Program, 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
-18-
of production from producing properties declines) since the Program is not
replacing production through acquisitions of producing properties and drilling.
New Accounting Pronouncements
Below is a brief description of a Financial Accounting Standard ("FAS")
recently issued by the Financial Accounting Standards Board ("FASB") which may
have an impact on the Program's future results of operations and financial
position.
In July 2001, the FASB issued FAS No. 143, "Accounting for Asset
Retirement Obligations", which is effective for fiscal years beginning after
June 15, 2002 (January 1, 2003 for the Program). FAS No. 143 will require the
recording of the fair value of liabilities associated with the retirement of
long-lived assets (mainly plugging and abandonment costs for the Program's
depleted wells), in the period in which the liabilities are incurred (at the
time the wells are drilled). Management has not yet determined the effect of
adopting this statement on the Program's financial condition or results of
operations.
Inflation and Changing Prices
Prices obtained for oil and gas production depend upon numerous factors,
including the extent of domestic and foreign production, foreign imports of oil,
market demand, domestic and foreign economic conditions in general, and
governmental regulations and tax laws. The general level of inflation in the
economy did not have a material effect on the operations of the Program in 2001.
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."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The Program does not hold any market risk sensitive instruments.
-19-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE PARTNERS
DYCO OIL AND GAS PROGRAM 1981-1 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
1981-1 Limited Partnership, a Minnesota limited partnership, at December 31,
2001 and 2000, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America. 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 of America,
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 our opinion.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
March 11, 2002
-20-
DYCO OIL AND GAS PROGRAM
1981-1 LIMITED PARTNERSHIP
Balance Sheets
December 31, 2001 and 2000
ASSETS
------
2001 2000
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 96,490 $ 86,891
Accrued oil and gas sales 24,900 50,242
------- -------
Total current assets $121,390 $137,133
NET OIL AND GAS PROPERTIES, utilizing the
full cost method 17,374 28,872
DEFERRED CHARGE 313 413
------- -------
$139,077 $166,418
======= =======
LIABILITIES AND PARTNERS' CAPITAL
----------------------------------
CURRENT LIABILITIES:
Accounts payable $ 2,047 $ 2,543
Gas imbalance payable 13,841 -
------- -------
Total current liabilities $ 15,888 $ 2,543
ACCRUED LIABILITY $ 30,887 $ 38,087
PARTNERS' CAPITAL:
General Partner, 70 general
partner units $ 922 $ 1,256
Limited Partners, issued and
outstanding, 7,000 Units 91,380 124,532
------- -------
Total Partners' capital $ 92,302 $125,788
------- -------
$139,077 $166,418
======= =======
The accompanying notes are an integral
part of these financial statements
-21-
DYCO OIL AND GAS PROGRAM
1981-1 LIMITED PARTNERSHIP
Statements of Operations
For the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
-------- -------- --------
REVENUES:
Oil and gas sales $224,401 $262,198 $158,696
Interest 3,922 5,432 2,202
------- ------- -------
$228,323 $267,630 $160,898
COSTS AND EXPENSES:
Lease operating $ 17,490 $ 15,367 $ 29,641
Production taxes 16,866 14,591 6,182
Depreciation, depletion, and
amortization of oil and
gas properties 7,375 2,866 8,030
General and administrative 43,328 41,668 67,397
------- ------- -------
$ 85,059 $ 74,492 $111,250
------- ------- -------
NET INCOME $143,264 $193,138 $ 49,648
======= ======= =======
GENERAL PARTNER (1%) -
NET INCOME $ 1,433 $ 1,931 $ 496
======= ======= =======
LIMITED PARTNERS (99%) -
NET INCOME $141,831 $191,207 $ 49,152
======= ======= =======
NET INCOME per Unit $ 20.26 $ 27.32 $ 7.02
======= ======= =======
UNITS OUTSTANDING 7,070 7,070 7,070
======= ======= =======
The accompanying notes are an integral
part of these financial statements
-22-
DYCO OIL AND GAS PROGRAM
1981-1 LIMITED PARTNERSHIP
Statements of Changes in Partners' Capital
For the Years Ended December 31, 2001, 2000, and 1999
General Limited
Partner Partners Total
-------- ---------- ----------
Balances at December 31, 1998 $ 243 $ 24,159 $ 24,402
Net income 496 49,152 49,648
----- ------- -------
Balances at December 31, 1999 $ 739 $ 73,311 $ 74,050
Cash distributions ( 1,414) ( 139,986) ( 141,400)
Net income 1,931 191,207 193,138
----- ------- -------
Balances at December 31, 2000 $1,256 $124,532 $125,788
Cash distributions ( 1,767) ( 174,983) ( 176,750)
Net income 1,433 141,831 143,264
----- ------- -------
Balances at December 31, 2001 $ 922 $ 91,380 $ 92,302
===== ======= =======
The accompanying notes are an integral
part of these financial statements.
-23-
DYCO OIL AND GAS PROGRAM
1981-1 LIMITED PARTNERSHIP
Statements of Cash Flows
For the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $143,264 $193,138 $49,648
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation, depletion,
and amortization of oil
and gas properties 7,375 2,866 8,030
(Increase) decrease in accrued
oil and gas sales 25,342 ( 23,234) 3,075
(Increase) decrease in
deferred charge 100 ( 413) 1,927
Increase (decrease) in
accounts payable ( 496) 8 ( 312)
Increase (decrease) in
gas imbalance payable 13,841 ( 17,787) 6,811
Decrease in accrued
liability ( 7,200) ( 18,275) ( 22,588)
------- ------- ------
Net cash provided by operating
activities $182,226 $136,303 $46,591
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of oil
and gas properties $ 4,123 $ 3,456 $10,734
------- ------- ------
Net cash provided by
investing activities $ 4,123 $ 3,456 $10,734
------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($176,750) ($141,400) $ -
------- ------- ------
Net cash used by financing
activities ($176,750) ($141,400) $ -
------- ------- ------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 9,599 ($ 1,641) $57,325
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 86,891 88,532 31,207
------- ------- ------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 96,490 $ 86,891 $88,532
======= ======= ======
The accompanying notes are an integral
part of these financial statements.
-24-
DYCO OIL AND GAS PROGRAM 1981-1 LIMITED PARTNERSHIP
Notes to Financial Statements
For the Years Ended December 31, 2001, 2000, and 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The Dyco Oil and Gas Program 1981-1 Limited Partnership (the
"Program"), a Minnesota limited partnership, commenced operations on
February 7, 1981. Dyco Petroleum Corporation ("Dyco") is the General
Partner of the Program. Affiliates of Dyco owned 3,555 (50.8%) of the
Program's Units at December 31, 2001.
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 obtaining 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 cost
-25-
amortization rates per equivalent Mcf of gas produced during the years
ended December 31, 2001, 2000, and 1999, were $0.15, $0.04, and $0.11,
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, 2001 and 2000 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 production costs per Mcf
during the period the underproduction occurred. At December 31, 2001,
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
700 Mcf, resulting in prepaid lease operating expenses of $313. At
December 31, 2000, 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 923 Mcf resulting in prepaid lease operating expenses
of $413.
Accrued Liability
The Accrued Liability at December 31, 2001 and 2000 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 production costs per Mcf
during the period the overproduction occurred. At December 31, 2001,
cumulative total gas sales volumes for overproduced wells exceeded the
Program's pro-rata share of total gas production from these wells by
69,068 Mcf, resulting in accrued lease operating expenses of $30,887. At
December 31, 2000, cumulative total gas sales volumes for overproduced
wells exceeded the Program's pro-rata share of total gas production from
these wells by 85,168 Mcf, resulting in accrued lease operating expenses
of $38,087.
-26-
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, 2001, total sales exceeded the
Program's share of estimated total gas reserves on two wells by $13,841
(9,227 Mcf). This amount was recorded as a gas imbalance payable at
December 31, 2001 in accordance with the sales method. At December 31,
2000, no such liability was recorded.
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 or incurred 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.
New Accounting Pronouncements
Below is a brief description of a Financial Accounting Standard
("FAS") recently issued by the Financial Accounting Standards Board
("FASB") which may have an impact on the
-27-
Program's future results of operations and financial position.
In July 2001, the FASB issued FAS No. 143, "Accounting for Asset
Retirement Obligations", which is effective for fiscal years beginning
after June 15, 2002 (January 1, 2003 for the Program). FAS No. 143 will
require the recording of the fair value of liabilities associated with the
retirement of long-lived assets (mainly plugging and abandonment costs for
the Program's depleted wells), in the period in which the liabilities are
incurred (at the time the wells are drilled). Management has not yet
determined the effect of adopting this statement on the Program's
financial condition or results of operations.
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. During 2000, upon
Samson Resources Company's ownership of Units first exceeding 50% and as
required by IRS Regulations, the Program's tax year was changed from
January 1/December 31 in order to coincide with Samson's tax year of July
1/June 30.
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, 2001, 2000, and 1999, such expenses
totaled $43,328, $41,668, and $67,397, respectively, of which $25,764,
$25,764, and $50,052, respectively, were 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.
-28-
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, 2001, 2000, and 1999:
Purchaser 2001 2000 1999
--------- ----- ----- -----
El Paso Energy
Marketing
Company 97.7% 97.3% 92.5%
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.
Capitalized Costs
The Program's capitalized costs and accumulated depreciation,
depletion, amortization, and valuation allowance at December 31, 2001 and
2000 were as follows:
December 31,
----------------------------
2001 2000
------------- -------------
Proved properties $41,098,681 $41,102,804
Less accumulated depreciation,
depletion, amortization, and
valuation allowance ( 41,081,307) ( 41,073,932)
---------- ----------
Net oil and gas properties $ 17,374 $ 28,872
========== ==========
-29-
Cost Incurred
The Program incurred no oil and gas property acquisition,
exploration, or development costs during 2001, 2000, and 1999.
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,
2001, 2000, and 1999. 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.
-30-
2001 2000 1999
------------------- ------------------ ------------------
Oil Gas Oil Gas Oil Gas
(Bbls) (Mcf) (Bbls) (Mcf) (Bbls) (Mcf)
------- --------- ------- --------- ------- ---------
Proved reserves,
beginning of year 3,242 401,249 2,894 389,889 2,930 451,772
Revisions of previous
estimates ( 9) ( 16,798) 470 86,588 52 9,843
Sales of reserves - - - ( 9) - ( 904)
Production ( 127) ( 47,106) ( 122) ( 75,219) ( 88) (70,822)
----- ------- ----- ------- ----- -------
Proved reserves,
end of year 3,106 337,345 3,242 401,249 2,894 389,889
===== ======= ===== ======= ===== =======
Proved developed reserves:
Beginning of year 3,242 401,249 2,894 389,889 2,930 451,772
----- ------- ----- ------- ----- -------
End of year 3,106 337,345 3,242 401,249 2,894 389,889
===== ======= ===== ======= ===== =======
-31-
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 estimated recoverable reserves as of
December 31, 2001 were determined using oil and gas prices of $15.86 per
barrel and $2.43 per Mcf, respectively.
5. QUARTERLY FINANCIAL DATA (Unaudited)
Summarized unaudited quarterly financial data for 2001 and 2000 are as
follows:
-32-
Dyco 1981-1 Program
-------------------
2001
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter(2)
--------- --------- --------- ---------
Total Revenues $106,735 $52,134 $49,753 $ 19,701
Gross Profit (1) 90,145 44,443 40,603 18,776
Net Income 70,385 34,215 26,888 11,776
Limited Partners'
Net Income
Per Unit 9.96 4.83 3.81 1.66
2000
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Total Revenues $ 43,247 $49,387 $71,780 $103,216
Gross Profit (1) 33,005 42,417 60,505 101,745
Net Income 15,628 33,868 48,950 94,692
Limited Partners'
Net Income
Per Unit 2.21 4.79 6.92 13.40
- -----------------------
(1) Total revenues less oil and gas production expenses.
(2) Gross profit as a percentage of total revenues increased for the fourth
quarter due to a decrease in lease operating expense related to a decrease
in overproduction on two wells.
-33-
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 Program is a limited partnership and has 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 50 President and Director
Craig D. Loseke 33 Chief Financial Officer
Judy K. Fox 51 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 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.
Craig D. Loseke joined Samson in 1990 and was named Chief Financial officer
of Dyco on November 15, 2001. He received a Bachelor of Science in Accounting
and a Master of Business Administration from the University of Tulsa. He is a
Certified Public Accountant and Certified Management Accountant. Mr. Loseke also
serves as Vice President of Financial and Operational Reporting of Samson
Investment Company.
-34-
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 Program and Dyco, there were no officers,
directors, or ten percent owners who were delinquent filers during 2000 of
reports required under Section 16(a) of the Securities and Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION
The Program is a limited partnership and, therefore, has no officers or
directors. The following table summarizes the amounts paid by the Program as
compensation and reimbursements to Dyco and its affiliates for the three years
ended December 31, 2001:
Compensation/Reimbursement to Dyco and its affiliates
Three Years Ended December 31, 2001
Type of Compensation/Reimbursement(1) Expense
- ------------------------------------- -------------------------
2001 2000 1999
------- ------- -------
Compensation:
Operations (2) (2) (2)
Reimbursements:
General and Administrative,
Geological, and Engineering
Expenses and Direct Expenses(3) $25,764 $25,764 $50,052
- ----------
(1) The authority for all of such compensation and reimbursement is the
Program Agreement. 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 Program serve as operator of a significant portion of
the Program's 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
-35-
of such compensation paid by the Program to such affiliates is impossible
to quantify as of the date of this Annual Report.
(3) The Program reimburses Dyco and its affiliates for reasonable and
necessary general and administrative, geological, and engineering expenses
and direct expenses incurred in connection with their management and
operation of the Program. The directors, officers, and employees of Dyco
and its affiliates receive no direct remuneration from the Program for
their services to the Program. See "Salary Reimbursement Table" below. The
allocable general and administrative, geological, and engineering expenses
are apportioned on a reasonable basis between the Program's 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 Program 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 Program for their services. However, to the extent such
services represent direct involvement with the Program, as opposed to general
corporate functions, such persons' salaries are allocated to and reimbursed by
the Program. Such allocation to the Program's 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 Program's 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, 2001:
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Salary Reimbursements
Three Years Ended December 31, 2001
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) 1999 - - - - - - -
2000 - - - - - - -
2001 - - - - - - -
All Executive
Officers,
Directors,
and Employees
as a group(2) 1999 $30,572 - - - - - -
2000 $15,291 - - - - - -
2001 $14,304 - - - - - -
- ---------------
(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.
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Samson maintains necessary inventories of new and used field equipment.
Samson may have provided some of this equipment for wells in which the Program
has 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 Program for a portion of such costs based upon the
Program's 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 Program's Units as of March 1, 2002 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)
- ----------------------------------------- -----------------
Samson Resources Company 3,557 (50.8%)
All directors, officers, and affiliates
of Dyco as a group and Dyco (5 persons) 3,557 (50.8%)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain affiliates of Dyco engage in oil and gas activities independently
of the Program 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 Program and such affiliates
also create potential conflicts of interest. An affiliate of the Program owns a
significant amount of the Program's Units and therefore has an identity of
interest with other limited partners with respect to the operations of the
Program.
In order to attempt to assure limited liability for limited partners as
well as an orderly conduct of business, management of the Program is exercised
solely by Dyco. The Program Agreement grants Dyco broad discretionary authority
with respect to the Program's participation in drilling prospects and
expenditure and control of funds, including borrowings. These provisions are
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similar to those contained in prospectuses and partnership agreements for other
public oil and gas partnerships. Broad discretion as to general management of
the Program involves circumstances where Dyco has conflicts of interest and
where it must allocate costs and expenses, or opportunities, among the Program
and other competing interests.
Dyco does not devote all of its time, efforts, and personnel exclusively
to the Program. Furthermore, the Program does not have any employees, but
instead relies on the personnel of Samson. The Program thus competes 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
Program as are indicated by the circumstances and as are consistent with Dyco's
fiduciary duties.
Affiliates of the Program are solely responsible for the negotiation,
administration, and enforcement of oil and gas sales agreements covering the
Program's leasehold interests. Because affiliates of the Program who provide
services to the Program 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 Program's negotiating strength and contractual positions have
been enhanced by virtue of its affiliation with Samson.
Samson Resources Company, an affiliate of Dyco, ("Resources") owns
approximately 51% of the Program's outstanding Units as of March 1, 2002, making
the Program a 50% subsidiary of Resources. The Program Agreement permits
Resources to independently vote its Units. Resources' majority Unit ownership
will determine the outcome of any matter submitted for a vote of the Limited
Partners.
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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
Program as of December 31, 2001 and 2000 and for the years ended
December 31, 2001, 2000, and 1999 are filed as part of this
report:
Report 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 11, 1981 for Dyco Oil and
Gas Program 1981-1 by and between Dyco Oil and Gas Program
1981-1, 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 13, 1992 and is hereby
incorporated herein.
4.2 Form of Program Agreement for Dyco Oil and Gas Program
1981-1 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 13, 1992
and is hereby incorporated herein.
4.3 Amendment to Program Agreement for Dyco Oil and Gas Program
1981-1 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 13, 1992 and is hereby incorporated herein.
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4.4 Certificate of Limited Partnership, as amended for Dyco Oil
and Gas Program 1981-1 Limited Partnership filed as Exhibit
4.4 to Annual Report on Form 10-K for the year ended
December 31, 1991 on April 13, 1992 and is hereby
incorporated herein.
*23.1 Consent of Ryder Scott Company, L.P. for Dyco Oil and
Gas Program 1981-1 Limited Partnership.
All other Exhibits are omitted as inapplicable.
-------------------
* Filed herewith.
(b) Reports on Form 8-K filed during the fourth quarter of 2001:
None.
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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 1981-1
LIMITED PARTNERSHIP
By: DYCO PETROLEUM CORPORATION
General Partner
March 20, 2002
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 20, 2002
------------------- Director (Principal
Dennis R. Neill Executive Officer)
//s//Craig D. Loseke Chief Financial March 20, 2002
------------------- Officer (Principal
Craig D. Loseke Financial and
Accounting Officer)
//s//Judy K. Fox Secretary March 20, 2002
-------------------
Judy K. Fox
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INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
4.1 Drilling Agreement dated February 11, 1981 for Dyco Oil and Gas
Program 1981-1 by and between Dyco Oil and Gas Program 1981-1, 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 13, 1992 and is hereby incorporated herein.
4.2 Form of Program Agreement for Dyco Oil and Gas Program 1981-1 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 13, 1992 and is hereby incorporated herein.
4.3 Amendment to Program Agreement for Dyco Oil and Gas Program 1981-1
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 13, 1992 and is
hereby incorporated herein.
4.4 Certificate of Limited Partnership, as amended for Dyco Oil and Gas
Program 1981-1 Limited Partnership filed as Exhibit 4.4 to Annual
Report on Form 10-K for the year ended December 31, 1991 on April 13,
1992 and is hereby incorporated herein.
*23.1 Consent of Ryder Scott Company, L.P. for Dyco Oil and Gas Program
1978-1 Limited Partnership.
- -------------------
* Filed herewith.
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