ITEM 1. BUSINESS
General
The Dyco Oil and Gas Program 1979-1 Limited Partnership (the "1979-1 Program") and Dyco Oil and Gas Program 1979-2 Limited Partnership (the "1979-2 Program") (collectively, the "Programs") are Minnesota limited partnerships engaged in the production of oil and gas. The 1979-1 Program and 1979-2 Program commenced operations on April 2, 1979 and July 2, 1979, respectively, with the primary financial objective of investing their limited partners' subscriptions in the drilling of oil and gas prospects and then distributing to their limited partners all available cash flow from the Program's on-going production operations. Dyco Petroleum Corporation ("Dyco") serves as the General Partner of the Programs. See "Item 2.
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, 1997.
Well Statistics(1) As of December 31, 1997
1979-1 1979-2 Program Program ------- ------- Gross productive wells(2): Oil 3 - Gas 33 19 -- -- Total 36 19
Net productive wells(3): Oil .15 - Gas 1.67 1.52 ---- ----
Total 1.82 1.52
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(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.
Drilling Activities
The Programs participated in no drilling activities for the year ended December 31, 1997.
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, -------------------------------------- 1997 1996 1995 ---------- --------- -------- 1979-1 Program: - --------------
Production: Oil (Bbls)(1) 366 378 817 Gas (Mcf)(2) 205,089 238,389 286,965 Oil and gas sales: Oil $ 7,208 $ 8,094 $ 14,730 Gas 461,659 492,114 381,763 ------- ------- ------- Total $468,867 $500,208 $396,493 ======= ======= ======= Total direct operating expenses (3) $ 87,871 $103,193 $118,370 ======= ======= ======= Direct operating expenses as a percentage of oil and gas sales 18.7% 20.6% 29.9%
Average sales price: Per barrel of oil $19.69 $21.42 $18.03 Per Mcf of gas 2.25 2.06 1.33
Direct operating expenses per equivalent Mcf of gas(4) $ .42 $ .43 $ .41
Year Ended December 31, ---------------------------------------- 1997 1996 1995 ---------- --------- ---------- 1979-2 Program: - --------------
Production: Oil (Bbls)(1) 1,325 1,336 1,614 Gas (Mcf)(2) 265,409 296,244 313,765
Oil and gas sales: Oil $ 26,891 $ 28,156 $ 26,983 Gas 669,037 700,890 456,484 ------- ------- ------- Total $695,928 $729,046 $483,467 ======= ======= ======= Total direct operating expenses(3) $127,516 $147,342 $103,957 ======= ======= ======= Direct operating expenses as a percentage of oil and gas sales 18.3% 20.2% 21.5%
Average sales price: Per barrel of oil $20.30 $21.07 $16.72 Per Mcf of gas 2.52 2.37 1.45
Direct operating expenses per equivalent Mcf of gas(4) $ .47 $ .48 $ .32
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(1) As used throughout this Annual Report, "Bbls" refers to barrels of 42 U.S. gallons and represents the basic unit for measuring the production of crude oil and condensate oil. (2) As used throughout this Annual Report, "Mcf" refers to volume of 1,000 cubic feet under prescribed conditions of pressure and temperature and represents the basic unit for measuring the production of gas. (3) Includes lease operating expenses and production taxes. (4) Oil production is converted to gas equivalents at the rate of six Mcf per barrel, representing the estimated relative energy content of gas and oil, which rate is not necessarily indicative of the relationship of oil and gas prices. The respective prices of oil and gas are affected by market and other factors in addition to relative energy content.
Proved Reserves and Net Present Value
The following table sets forth the Programs' estimated proved oil and gas reserves and net present value therefrom as of
December 31, 1997. 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"). As used throughout this Annual Report, "proved reserves" refers to those estimated quantities of crude oil, gas, and gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known oil and gas reservoirs under existing economic and operating conditions.
Net present value represents estimated future gross cash flow from the production and sale of proved reserves, net of estimated oil and gas production costs (including production taxes, ad valorem taxes, and operating expenses), and estimated future development costs, discounted at 10% per annum. Net present value attributable to the Programs' proved reserves was calculated on the basis of current costs and prices at December 31, 1997. 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, 1997. Year-end prices have generally been higher than prices during the rest of the year. There can be no assurance that the prices used in calculating the net present value of the Programs' proved reserves at December 31, 1997 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, 1997
1979-1 Program: - --------------
Estimated proved reserves: Gas (Mcf) 1,098,038 Oil and liquids (Bbls) 2,033
Net present value (discounted at 10% per annum) $1,139,944
1979-2 Program: - --------------
Estimated proved reserves: Gas (Mcf) 1,070,721 Oil and liquids (Bbls) 12,515
Net present value (discounted at 10% per annum) $1,231,791
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 Notes 4 and 5 to the Programs' financial statements, included in Item 8 of this Annual Report.
Significant Properties
1979-1 Program --------------
As of December 31, 1997, the 1979-1 Program's properties consisted of 36 gross (1.82 net) productive wells. The 1979-1 Program also owned a non-working interest in an additional 13 wells. Affiliates of the 1979-1 Program operate 17 (35%) of its total wells. As of December 31, 1997, the 1979-1 Program had estimated total proved reserves of 1,098,038 Mcf of gas and 2,033 barrels of oil, with a present value (discounted at 10% per annum) of estimated future net cash flow of $1,139,944. All of the 1979-1 Program's reserves are located in the Anadarko Basin of western Oklahoma and the Texas panhandle, which is an established oil and gas producing basin.
1979-2 Program --------------
As of December 31, 1997, the 1979-2 Program's properties consisted of 19 gross (1.52 net) productive wells. Affiliates of the 1979-2 Program operate 5 (26%) of its wells. As of December 31, 1997, the 1979-2 Program had estimated total proved reserves of 1,070,721 Mcf of gas and 12,515 barrels of oil, with a present value (discounted at 10% per annum) of estimated future net cash flow of $1,231,791. Substantially all of the 1979-2 Program's reserves are located in the Anadarko Basin. All of the 1979-2 Program's properties are located onshore in the continental United States.
As of December 31, 1997, the 1979-2 Program's properties in the Anadarko Basin consisted of 14 gross (1.23 net) productive wells. Affiliates of the 1979-2 Program operate 4 (29%) of its Anadarko Basin wells. As of December 31, 1997, the 1979-2 Program had estimated total proved reserves in the Anadarko Basin of approximately 951,522 Mcf of gas and approximately 12,109 barrels of crude oil, with a present value (discounted at 10% per annum) of estimated future net cash flow of approximately $1,146,877.
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.
ITEM 3. LEGAL PROCEEDINGS
On October 24, 1996, certain royalty owners filed a class action lawsuit against Dyco and certain other parties in which they alleged entitlement to a share of the proceeds from a gas contract involving one of the 1979-2 Program's wells, the Maxwell No. 1-23. (Thurman Horn, et al., v. Dyco, et al., Case No. 10,324, District Court of Wheeler County, Texas). The 1979-2 Program has a 22.5% working interest in the Maxwell No. 1-23. The plaintiffs are alleging causes of action based on breach of duty to market, breach of duty to pay royalties, and breach of duty of good faith and fair dealing and are seeking restitution
and an accounting. The Plaintiffs have not quantified the amount of their damages. Dyco has filed its answer in the matter in which it denied all of the plaintiffs' allegations, and discovery is proceeding in the matter. Dyco intends to vigorously defend the lawsuit. As of the date of this Annual Report, management cannot determine the amount of any alleged damages which would be allocable to the 1979-2 Program from this lawsuit. A Texas appellate court has previously ruled in a separate lawsuit that owners of royalty interests in Texas oil and gas properties do not have the right to share in the proceeds of take-or-pay settlements.
On February 25, 1998, Randy Beutler filed a lawsuit against Dyco alleging that Dyco amended or terminated certain gas purchase contracts and fraudulently concealed the settlement of these contracts. (Randy Beutler, et al. v. Dyco Petroleum Corporation, CJ-98-16, District Court of Beckham County, Oklahoma.) The plaintiff has filed the petition as a class action on behalf of all individuals who leased Oklahoma mineral leases to Dyco which were subject to certain gas purchase contracts. The plaintiff alleges that Dyco's actions resulted in a breach of the express and implied obligations of the leases and reckless indifference and/or actual fraud on behalf of Dyco. The plaintiff has not specified the amount of alleged damages. As of the date of this Annual Report, Dyco has not determined what wells are subject to this lawsuit; however, the proposed class action representative is a lessor in the Johnson No. 1-22 well. The 1979-2 Program has an approximate 2.6% working interest in this well. To date, Dyco has not filed an answer in the lawsuit, however, Dyco intends to vigorously defend it.
Except for the foregoing, to the knowledge of the management of Dyco and the Programs, neither Dyco, the Programs, nor the Programs' properties are subject to any litigation, the results of which would have a material effect on the Programs' or Dyco's financial condition or operations.
ITEM 4.
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 1997.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP UNITS AND RELATED LIMITED PARTNER MATTERS
The Programs do not have an established trading market for their units of limited partnership interest ("Units"). Pursuant to the terms of the Program Agreements, Dyco, as General Partner, is obligated to annually issue a repurchase offer which is based on the estimated future net revenues from the Programs' reserves
and is calculated pursuant to the terms of the Program Agreements. Such repurchase offer is recalculated monthly in order to reflect cash distributions made to the limited partners and extraordinary events. The following table sets forth, for the periods indicated, Dyco's repurchase offer per Unit and the amount of the Programs' cash distributions per Unit for the same period. For purposes of this Annual Report, a Unit represents an initial subscription of $5,000 to a Program.
1979-1 Program --------------
Repurchase Cash Price Distributions ---------- -------------
1996: First Quarter $204 $25 Second Quarter 179 25 Third Quarter 250 30 Fourth Quarter 230 20
1997: First Quarter $195 $35 Second Quarter 155 40 Third Quarter 217 20 Fourth Quarter 197 20
1998: First Quarter $162 $35
1979-2 Program --------------
Repurchase Cash Price Distributions ---------- -------------
1996: First Quarter $245 $40 Second Quarter 205 40 Third Quarter 255 45 Fourth Quarter 210 45
1997: First Quarter $155 $55 Second Quarter 105 50 Third Quarter 184 50 Fourth Quarter 129 55
1998: First Quarter $ 94 $35
The 1979-1 Program has 3,172 Units outstanding and approximately 1,072 limited partners of record. The 1979-2 Program has 2,889 Units outstanding and approximately 821 limited partners of record.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
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."
ITEM 7.
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 very difficult. Concerning past trends, average yearly wellhead gas prices in the United States have been volatile for a number of years. For the past ten years, such average prices have generally been in the $1.40 to $2.40 per Mcf range, significantly below prices received in the early 1980s. Average gas prices in the latter part of 1996 and parts of 1997 however, were somewhat higher than those yearly averages. Gas prices are currently in the middle portion of the 10-year average price range described above.
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 decreased from approximately $3.57 per Mcf at December 31, 1996 to approximately $2.32 per Mcf at December 31, 1997. 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. Due to global consumption and supply trends over the last several months as well as expectations of at least a short-term slowdown in Asian energy demand, oil prices have recently been in the mid to lower portions of this pricing range, and in early 1998 dropped to as low as $12.00 per barrel. It is not known whether this trend will continue. Prices for the Programs' oil decreased from approximately $23.75 per barrel at December 31, 1996 to approximately $16.25 per barrel at December 31, 1997.
Future prices for both oil and gas will likely be different from (and may be lower than) the prices in effect on December 31, 1997. Primarily due to heating season demand, year-end prices in many past years have tended to be higher, and in some cases significantly higher, than the yearly average price actually received by the Programs for at least the following year. Management is unable to predict whether future oil and gas prices will (i) stabilize, (ii) increase, or (iii) decrease.
Results of Operations
1979-1 Program --------------
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 ----------------------------------------
Total oil and gas sales decreased $31,341 (6.3%) in 1997 as compared to 1996. Of this decrease, approximately $69,000 was related to a decrease in volumes of gas sold, which decrease was partially offset by an increase of approximately $39,000 related to an increase in the average price of gas sold. Volumes of oil and gas sold decreased 12 barrels and 33,300 Mcf, respectively, in 1997 as compared to 1996. The decrease in volumes of gas sold resulted primarily from (i) negative prior period volume adjustments made by the purchaser on one well in 1997, (ii) normal declines in production, and (iii) positive prior period volume adjustments made by the purchaser on one well in 1996. Average oil prices decreased to $19.69 per barrel in 1997 from $21.42 per barrel in 1996. Average gas prices increased to $2.25 per Mcf in 1997 from $2.06 per Mcf in 1996.
Oil and gas production expenses (including lease operating expenses and production taxes) decreased $15,322 (14.8%) in 1997 as compared to 1996. This decrease resulted primarily from the decreases in volumes of oil and gas sold in 1997 and a decrease in production taxes associated with the decrease in oil and gas sales discussed above. As a percentage of oil and gas sales, these expenses decreased to 18.7% in 1997 from 20.6% in 1996. This percentage decrease was primarily due to the increase in the average price of gas sold in 1997.
Depreciation, depletion, and amortization of oil and gas properties increased $5,600 (16.6%) in 1997 as compared to 1996. This increase resulted primarily from decreases in prices used to value oil and gas reserves in 1997 as compared to 1996, which decrease was partially offset by the decreases in volumes of oil and gas sold in 1997. As a percentage of oil and gas sales, this expense increased to 8.4% in 1997 from 6.7% in 1996. This percentage increase was primarily due to the dollar increase in depreciation, depletion, and amortization discussed above.
General and administrative expenses increased $1,481 (2.7%) in 1997 as compared to 1996. As a percentage of oil and gas sales, these expenses increased to 11.9% in 1997 from 10.8% in 1996. This percentage increase was primarily due to the decrease in oil and gas sales discussed above.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 -----------------------------------------
Total oil and gas sales increased $103,715 (26.2%) for 1996 as compared to 1995. Of this increase, approximately $209,000 was related to an increase in the average price of gas sold, partially offset by a decrease of approximately $100,000 related to a decrease in volumes of gas sold. Volumes of oil and gas sold decreased 439 barrels and 48,576 Mcf, respectively, for 1996 as compared to 1995. The decrease in volumes of oil sold resulted primarily from a positive prior period volume adjustment made by the purchaser on one well during 1995. The decrease in volumes of gas sold resulted primarily from (i) the depletion of reserves on one well during 1996 and (ii) normal declines in production due to diminished gas reserves on another well. Average oil and gas prices increased to $21.42 per barrel and $2.06 per Mcf, respectively, for 1996 from $18.03 per barrel and $1.33 per Mcf, respectively, for 1995.
Oil and gas production expenses (including lease operating expenses and production taxes) decreased $15,177 (12.8%) for 1996 as compared to 1995. This decrease resulted primarily from (i) the decreases in volumes of oil and gas sold during 1996 as compared to 1995 and (ii) workover expenses incurred on one well during 1995 in order to improve the recovery of reserves. As a
percentage of oil and gas sales, these expenses decreased to 20.6% for 1996 from 29.9% for 1995. This percentage decrease was primarily due to the increases in the average prices of oil and gas sold during 1996.
Depreciation, depletion, and amortization of oil and gas properties decreased $20,562 (37.9%) for 1996 as compared to 1995. This decrease resulted primarily from (i) the decreases in volumes of oil and gas sold during 1996 as compared to 1995 and (ii) an upward revision in the estimate of remaining gas reserves at December 31, 1996. As a percentage of oil and gas sales, this expense decreased to 6.7% for 1996 from 13.7% for 1995. This percentage decrease was primarily due to the dollar decrease in depreciation, depletion, and amortization discussed above and the increases in the average prices of oil and gas sold during 1996.
General and administrative expenses remained relatively constant for 1996 as compared to 1995. As a percentage of oil and gas sales, these expenses decreased to 10.8% for 1996 from 13.7% for 1995. This percentage decrease was primarily due to the increases in oil and gas sales during 1996 as compared to 1995 as discussed above.
1979-2 Program --------------
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 ----------------------------------------
Total oil and gas sales decreased $33,118 (4.5%) in 1997 as compared to 1996. Of this decrease, approximately $73,000 was related to a decrease in volumes of gas sold, which decrease was partially offset by an increase of approximately $40,000 related to an increase in the average price of gas sold. Volumes of oil and gas sold decreased 11 barrels and 30,835 Mcf, respectively, in 1997 as compared to 1996. The decrease in volumes of gas sold resulted primarily from negative prior period volume adjustments made by the purchasers on two wells in 1997. Average oil prices decreased to $20.30 per barrel in 1997 from $21.07 per barrel in 1996. Average gas prices increased to $2.52 per Mcf in 1997 from $2.37 per Mcf in 1996.
Oil and gas production expenses (including lease operating expenses and production taxes) decreased $19,826 (13.5%) in 1997 as compared to 1996. This decrease resulted primarily from (i) the decreases in volumes of oil and gas sold in 1997, (ii) decreased general operating expenses on one well in 1997 as compared to 1996, and (iii) decreased compression expenses on two wells in 1997 as compared to 1996. As a percentage of oil and gas sales, these expenses decreased to 18.3% in 1997 from 20.2% in 1996. This percentage decrease was primarily due to the increase in the average price of gas sold in 1997.
Depreciation, depletion, and amortization of oil and gas properties increased $5,688 (7.9%) in 1997 as compared to 1996. This increase resulted primarily from decreases in prices used to value oil and gas reserves in 1997 as compared to 1996, which decrease was partially offset by the decreases in volumes of oil and gas sold in 1997. As a percentage of oil and gas sales, this expense increased to 11.1% in 1997 from 9.8% in 1996. This percentage increase was primarily due to the dollar increase in depreciation, depletion, and amortization discussed above.
General and administrative expenses increased $1,250 (3.1%) in 1997 as compared to 1996. As a percentage of oil and gas sales, these expenses remained relatively constant at 6.0% in 1997 and 5.5% in 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 ----------------------------------------
Total oil and gas sales increased $245,579 (50.8%) for 1996 as compared to 1995. Of this increase, approximately $289,000 was related to an increase in the average price of gas sold, partially offset by a decrease of approximately $42,000 related to a decrease in volumes of gas sold. Volumes of oil and gas sold decreased 278 barrels and 17,521 Mcf, respectively, for 1996 as compared to 1995. The decrease in volumes of oil sold resulted primarily from normal declines in production due to diminished oil reserves on two wells. Average oil and gas prices increased to $21.07 per barrel and $2.37 per Mcf, respectively, for 1996 from $16.72 per barrel and $1.45 per Mcf, respectively, for 1995.
Oil and gas production expenses (including operating expenses and production taxes) increased $43,385 (41.7%) for 1996 as compared to 1995. This increase resulted primarily from an increase in severance taxes associated with the increase in the average prices of oil and gas sold. As a percentage of oil and gas sales, these expenses remained relatively constant at 20.2% for 1996 compared to 21.5% for 1995.
Depreciation, depletion, and amortization of oil and gas properties decreased $12,641 (15.0%) for 1996 as compared to 1995. This decrease resulted primarily from (i) the decrease in volumes of oil and gas sold during 1996 as compared to 1995 and (ii) an upward revision in the estimate of remaining gas reserves at December 31, 1996. As a percentage of oil and gas sales, this expense decreased to 9.8% for 1996 from 17.5% for 1995. This percentage decrease was primarily due to the dollar decrease in depreciation, depletion, and amortization discussed above and the increases in the average prices of oil and gas sold during 1996.
General and administrative expenses remained relatively constant for 1996 as compared to 1995. As a percentage of oil and gas sales, these expenses decreased to 5.5% for 1996 from 8.4% for 1995. This percentage decrease was primarily due to the increase in oil and gas sales during 1996 as compared to 1995, as discussed above.
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 production levels for 1997, the 1979-1 Program's proved reserve quantities at December 31, 1997 would have remaining lives of approximately 5.4 years for gas reserves and 5.6 years for oil reserves and the 1979-2 Program's proved oil and gas reserve quantities at December 31, 1997 would have remaining lives of approximately 4.0 years for gas reserves and 9.4 years for oil reserves. However, since the Programs' reserve estimates are based on oil and gas prices at December 31, 1997, it is possible that a significant decrease in oil and gas prices from December 31, 1997 levels will reduce such reserves and their corresponding life-span.
The Programs' available capital from the limited partners' subscriptions has been spent on oil and gas drilling activities and there should be no further material capital resource commitments in the future. Occasional expenditures by the Programs for well completions or workovers, however, may reduce or eliminate cash available for a particular quarterly cash distribution. The Programs have no debt commitments. Cash for operational purposes will be provided by current oil and gas production.
There can be no assurance as to the amount of the Programs' future cash distributions. The Programs' ability to make cash distributions depends primarily upon the level of available cash flow generated by the Programs' operating activities, which will be affected (either positively or negatively) by many factors beyond the control of the Programs, including the price of and demand for oil and gas and other market and economic conditions. Even if prices and costs remain stable, the amount of cash available for distributions will decline over time (as the volume of production from producing properties declines) since the Programs are not replacing production through acquisitions of producing properties and drilling.
Inflation and Changing Prices
Prices obtained for oil and gas production depend upon numerous factors, including the extent of domestic and foreign production, foreign imports of oil, market demand, domestic and foreign economic conditions in general, and governmental regulations and tax laws. The general level of inflation in the economy did not have a material effect on the operations of the Program in 1997. 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
Dyco has reviewed its computer systems and hardware to locate potential operational problems associated with the year 2000. Such review will continue until all potential problems are located and resolved. Dyco believes that all year-2000 problems in its computer system have been or will be resolved in a timely manner and have not caused and will not cause either (i) disruption of the Programs' operations or (ii) a material effect on the Programs' financial condition or results of operations. However, it is possible that the Programs' cash flows could be disrupted by year-2000 problems experienced by operators of the Programs' wells, buyers of the Programs' oil and gas, financial institutions or other persons. Dyco is unable to quantify the effect, if any, on the Program of year-2000 computer problems which may be experienced by these third parties.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE PARTNERS
DYCO OIL AND GAS PROGRAM 1979-1 LIMITED PARTNERSHIP
We have audited the financial statements of the Dyco Oil and Gas Program 1979-1 Limited Partnership (a Minnesota limited partnership) as listed in Item 14(a) of this Annual Report. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Dyco Oil and Gas Program 1979-1 Limited Partnership at December 31, 1997 and 1996, and the results of its operations and cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand, L.L.P.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma March 18, 1998
DYCO OIL AND GAS PROGRAM 1979-1 LIMITED PARTNERSHIP Balance Sheets December 31, 1997 and 1996
ASSETS ------
1997 1996 -------- --------
CURRENT ASSETS: Cash and cash equivalents $ 70,498 $ 59,449 Accrued oil and gas sales 69,687 101,981 ------- ------- Total current assets $140,185 $161,430
NET OIL AND GAS PROPERTIES, utilizing the full cost method 179,341 241,255
DEFERRED CHARGE 48,506 50,957 ------- ------- $368,032 $453,642 ======= =======
LIABILITIES AND PARTNERS' CAPITAL ---------------------------------
CURRENT LIABILITIES: Accounts payable $ 2,778 $ 4,342 Gas imbalance payable 105 11,643 ------- ------- Total current liabilities $ 2,883 $ 15,985
ACCRUED LIABILITY 37,026 33,832
PARTNERS' CAPITAL: General Partner, issued and outstanding, 32 Units 3,282 4,039 Limited Partners, issued and outstanding, 3,140 Units 324,841 399,786 ------- ------- Total Partners' Capital $328,123 $403,825 ------- ------- $368,032 $453,642 ======= =======
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1979-1 LIMITED PARTNERSHIP Statements of Operations For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 -------- -------- --------
REVENUES: Oil and gas sales, including $344,098 of sales to related parties in 1995 (Note 2) $468,867 $500,208 $396,493 Interest 3,073 2,353 2,066 ------- ------- -------
$471,940 $502,561 $398,559
COSTS AND EXPENSES: Lease operating $ 55,138 $ 67,719 $ 90,080 Production taxes 32,733 35,474 28,290 Depreciation, depletion, and amortization of oil and gas properties 39,290 33,690 54,252 General and administrative 55,701 54,220 54,317 ------- ------- ------- $182,862 $191,103 $226,939 ------- ------- ------- NET INCOME $289,078 $311,458 $171,620 ======= ======= ======= GENERAL PARTNER (1%) - NET INCOME $ 2,891 $ 3,115 $ 1,716 ======= ======= ======= LIMITED PARTNERS (99%) - NET INCOME $286,187 $308,343 $169,904 ======= ======= ======= NET INCOME per Unit $ 91.13 $ 98.19 $ 54.10 ======= ======= ======= UNITS OUTSTANDING 3,172 3,172 3,172 ======= ======= =======
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1979-1 LIMITED PARTNERSHIP Statements of Partners' Capital For the Three Years Ended December 31, 1997, 1996, and 1995
General Limited Partner Partners Total -------- ---------- ----------
Balances at December 31, 1994 $4,442 $439,685 $444,127 Cash distributions ( 2,062) ( 204,118) ( 206,180) Net income 1,716 169,904 171,620 ----- ------- -------
Balances at December 31, 1995 $4,096 $405,471 $409,567 Cash distributions ( 3,172) ( 314,028) ( 317,200) Net income 3,115 308,343 311,458 ----- ------- -------
Balances at December 31, 1996 $4,039 $399,786 $403,825 Cash distributions ( 3,648) ( 361,132) ( 364,780) Net income 2,891 286,187 289,078 ----- ------- -------
Balances at December 31, 1997 $3,282 $324,841 $328,123 ===== ======= =======
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1979-1 LIMITED PARTNERSHIP Notes to Financial Statements For the Years Ended December 31, 1997, 1996, and 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The Dyco Oil and Gas Program 1979-1 Limited Partnership (the "Program"), a Minnesota limited partnership, commenced operations on April 2, 1979. Dyco Petroleum Corporation ("Dyco") is the General Partner of the Program. Affiliates of Dyco owned 1,285 (40.5%) of the Program's Units at December 31, 1997.
The Program's sole business is the development and production of oil and gas with a concentration on gas. Substantially all of the Program's gas reserves are being sold regionally in the "spot market." Due to the highly competitive nature of the spot market, prices on the spot market are subject to wide seasonal and regional pricing fluctuations. In addition, such spot market sales are generally short-term in nature and are dependent upon the obtaining of transportation services provided by pipelines.
Cash and Cash Equivalents
The Program considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are not insured, which cause the Program to be subject to risk.
Credit Risk
Accrued oil and gas sales which are due from a variety of oil and gas purchasers subject the Program to a concentration of credit risk. Some of these purchasers are discussed in Note 3 - Major Customers. Subsequent to year-end, all oil and gas sales accrued as of December 31, 1997 have been collected.
Oil and Gas Properties
Oil and gas operations are accounted for using the full cost method of accounting. All productive and non-productive costs associated with the acquisition, exploration, and development of oil and gas reserves are capitalized. Capitalized costs are depleted on the gross revenue method using estimates of proved reserves. The full cost amortization rates per equivalent Mcf of gas produced
during the years ended December 31, 1997, 1996, and 1995 were $0.19, $0.14, and $0.19, respectively. The Program's calculation of depreciation, depletion, and amortization includes estimated future expenditures to be incurred in developing proved reserves and estimated dismantlement and abandonment costs, net of estimated salvage values. In the event the unamortized cost of oil and gas properties being amortized exceeds the full cost ceiling (as defined by the Securities and Exchange Commission("SEC")) the excess is charged to expense in the year during which such excess occurs. In addition, SEC rules provide that if prices decline subsequent to year end, any excess that results from these declines may also be charged to expense during the current year. 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, 1997 and 1996 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, 1997, 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 195,983 Mcf, resulting in prepaid lease operating expenses of $48,506. At December 31, 1996, 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 224,876 Mcf, resulting in prepaid lease operating expenses of $50,957.
Accrued Liability
The Accrued Liability at December 31, 1997 and 1996 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, 1997, cumulative total gas sales volumes for overproduced wells exceeded the Program's pro-rata share of total gas production from these wells by 149,598 Mcf, resulting in accrued lease operating expenses of $37,026. At December 31, 1996, cumulative total gas sales volumes for overproduced wells exceeded the Program's pro-rata share of total gas production from these wells by 149,301 Mcf, resulting in accrued lease operating expenses of $33,832.
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 income 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 income unless total sales from the well have exceeded the Program's share of estimated total gas reserves underlying the property at which time such excess is recorded as a liability. The rates per Mcf used to calculate this liability are based on the average gas prices received for the volumes at the time the overproduction occurred. This also reflects the price for which the Program is currently settling this liability. At December 31, 1997, total sales exceeded the Program's share of estimated total gas reserves on one well by $105 (70 Mcf). At December 31, 1996, total sales exceeded the Program's share of estimated total gas reserves on two wells by $11,643 (7,762 Mcf).
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Further, the deferred charge, the gas imbalance payable, and the accrued liability all involve estimates which could materially differ from the actual amounts ultimately realized in the near term. Oil and gas reserves (see Note 4) also involve significant estimates which could materially differ from the actual amounts ultimately realized.
Income Taxes
Income or loss for income tax purposes is includable in the income tax returns of the partners. Accordingly, no recognition has been given to income taxes in the accompanying financial statements.
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, 1997, 1996, and 1995, such expenses totaled $55,701, $54,220, and $54,317, respectively, of which $44,520 was paid each year to Dyco and its affiliates.
Affiliates of the Program operate certain of the Program's properties. Their policy is to bill the Program for all customary charges and cost reimbursements associated with these activities, together with any compressor rentals, consulting, or other services provided. Such charges are comparable to third party charges in the area where the wells are located and are the same as charged to other working interest owners in the wells.
During 1995 the Program sold gas at market prices to El Paso Energy Marketing Company, formerly known as Premier Gas Company ("El Paso"). El Paso, like other similar gas marketing firms, then resold such gas to third parties at market prices. El Paso was an affiliate of the Program until December 6, 1995. During 1995, these sales totaled $344,098.
3. MAJOR CUSTOMERS
The following purchasers individually accounted for 10% or more of the combined oil and gas sales of the Program for the years ended December 31, 1997, 1996, and 1995:
Purchaser 1997 1996 1995 --------- ----- ----- ----
El Paso 95.3% 94.8% 86.8% Apache - % - % 12.5%
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.
Capitalized Costs
The Program's capitalized costs and accumulated depreciation, depletion, amortization, and valuation allowance at December 31, 1997 and 1996 were as follows:
December 31, ----------------------------- 1997 1996 ------------- ------------
Proved properties $20,412,888 $20,435,512
Unproved properties, not subject to depreciation, depletion, and amortization - - ---------- ---------- $20,412,888 $20,435,512 Less accumulated depreciation, depletion, amortization, and valuation allowance ( 20,233,547) ( 20,194,257) ---------- ---------- Net oil and gas properties $ 179,341 $ 241,255 ========== ==========
Costs Incurred
The Program incurred no oil and gas property acquisition or exploration costs during 1997, 1996, and 1995. Costs incurred by the Program in connection with its oil and gas property development activities during 1997, 1996, and 1995 were as follows:
December 31, --------------------------- 1997 1996 1995 ---- ---- -------
Development costs $ - $ - $81,982 === === ======
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, 1997, 1996, and 1995. Proved reserves were estimated by petroleum engineers employed by affiliates of Dyco. 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.
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, 1997 using oil and gas prices of $16.25 per barrel and $2.32 per Mcf, respectively.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE PARTNERS
DYCO OIL AND GAS PROGRAM 1979-2 LIMITED PARTNERSHIP
We have audited the financial statements of the Dyco Oil and Gas Program 1979-2 Limited Partnership (a Minnesota limited partnership) as listed in Item 14(a) of this Annual Report. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Dyco Oil and Gas Program 1979-2 Limited Partnership at December 31, 1997 and 1996, and the results of its operations and cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand, L.L.P.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma March 18, 1998
DYCO OIL AND GAS PROGRAM 1979-2 LIMITED PARTNERSHIP Balance Sheets December 31, 1997 and 1996
ASSETS ------ 1997 1996 -------- --------
CURRENT ASSETS: Cash and cash equivalents $157,539 $123,603 Accrued oil and gas sales 81,158 168,871 ------- ------- Total current assets $238,697 $292,474
NET OIL AND GAS PROPERTIES, utilizing the full cost method 283,007 366,631
DEFERRED CHARGE 38,072 50,557 ------- ------- $559,776 $709,662 ======= =======
LIABILITIES AND PARTNERS' CAPITAL ---------------------------------
CURRENT LIABILITIES: Accounts payable $ 6,190 $ 11,114 Gas imbalance payable 53,853 44,960 ------- ------- Total current liabilities $ 60,043 $ 56,074
ACCRUED LIABILITIES 557 6,313
CONTINGENCIES (Note 4)
PARTNERS' CAPITAL: General Partner, issued and outstanding, 29 Units 4,992 6,473 Limited Partners, issued and outstanding, 2,860 Units 494,184 640,802 ------- ------- Total Partners' Capital $499,176 $647,275 ------- ------- $559,776 $709,662 ======= =======
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1979-2 LIMITED PARTNERSHIP Statements of Operations For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 -------- -------- ----------
REVENUES: Oil and gas sales, including $452,687 of sales to related parties in 1995 (Note 2) $695,928 $729,046 $483,467 Interest and other income 9,287 6,280 6,738 ------- ------- -------
$705,215 $735,326 $490,205
COSTS AND EXPENSES: Lease operating $ 75,640 $ 94,195 $ 67,295 Production tax 51,876 53,147 36,662 Depreciation, depletion, and amortization of oil and gas properties 77,495 71,807 84,448 General and administrative 41,613 40,363 40,709 ------- ------- ------- $246,624 $259,512 $229,114 ------- ------- ------- NET INCOME $458,591 $475,814 $261,091 ======= ======= ======= GENERAL PARTNER (1%) - NET INCOME $ 4,586 $ 4,758 $ 2,611 ======= ======= ======= LIMITED PARTNERS (99%) - NET INCOME $454,005 $471,056 $258,480 ======= ======= ======= NET INCOME per Unit $ 158.74 $ 164.70 $ 90.37 ======= ======= ======= UNITS OUTSTANDING 2,889 2,889 2,889 ======= ======= =======
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1979-2 LIMITED PARTNERSHIP Statements of Partners' Capital For the Three Years Ended December 31, 1997, 1996, and 1995
General Limited Partner Partners Total --------- ---------- ----------
Balances at Dec. 31, 1994 $8,493 $840,802 $849,295 Cash distributions ( 4,478) ( 443,317) ( 447,795) Net income 2,611 258,480 261,091 ----- ------- -------
Balances at Dec. 31, 1995 $6,626 $655,965 $662,591 Cash distributions ( 4,911) ( 486,219) ( 491,130) Net income 4,758 471,056 475,814 ----- ------- -------
Balances at Dec. 31, 1996 $6,473 $640,802 $647,275 Cash distributions ( 6,067) ( 600,623) ( 606,690) Net Income 4,586 454,005 458,591 ----- ------- -------
Balances at Dec. 31, 1997 $4,992 $494,184 $499,176 ===== ======= =======
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1979-2 LIMITED PARTNERSHIP Notes to Financial Statements For the Years Ended December 31, 1997, 1996, and 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The Dyco Oil and Gas Program 1979-2 Limited Partnership (the "Program"), a Minnesota limited partnership, commenced operations on July 2, 1979. Dyco Petroleum Corporation ("Dyco") is the General Partner of the Program. Affiliates of Dyco owned 1,198 (41.5%) of the Program's Units at December 31, 1997.
The Program's sole business is the development and production of oil and gas with a concentration on gas. Substantially all of the Program's gas reserves are being sold regionally in the "spot market." Due to the highly competitive nature of the spot market, prices on the spot market are subject to wide seasonal and regional pricing fluctuations. In addition, such spot market sales are generally short-term in nature and are dependent upon the obtaining of transportation services provided by pipelines.
Cash and Cash Equivalents
The Program considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are not insured, which cause the Program to be subject to risk.
Credit Risk
Accrued oil and gas sales which are due from a variety of oil and gas purchasers subject the Program to a concentration of credit risk. Some of these purchasers are discussed in Note 3. Major Customers. Subsequent to year-end, all oil and gas sales accrued as of December 31, 1997 have been collected.
Oil and Gas Properties
Oil and gas operations are accounted for using the full cost method of accounting. All productive and non-productive costs associated with the acquisition, exploration, and development of oil and gas reserves are capitalized. Capitalized costs are depleted on the gross revenue method using estimates of proved reserves. The full cost amortization rates per equivalent Mcf of gas produced
during the years ended December 31, 1997, 1996, and 1995 were $0.28, $0.24, and $0.26, 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. In addition, SEC rules provide that if prices decline subsequent to year end, any excess that results from these declines may also be charged to expense during the current year. 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, 1997 and 1996 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, 1997, 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 151,078 Mcf, resulting in prepaid lease operating expenses of $38,072. At December 31, 1996, 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 213,322 Mcf, resulting in prepaid lease operating expenses of $50,557.
Accrued Liability
The Accrued Liability at December 31, 1997 and 1996 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, 1997, cumulative total gas sales volumes for overproduced wells exceeded the Program's pro-rata share of total gas production from these wells by 2,211 Mcf, resulting in accrued lease operating expenses of $557. At December 31, 1996, cumulative total gas sales volumes for overproduced wells exceeded the Program's pro-rata share of total gas production from these wells by 26,639 Mcf, resulting in accrued lease operating expenses of $6,313.
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 income 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 income 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, 1997, total sales exceeded the Program's share of estimated total gas reserves on one well by $53,853 (35,902 Mcf). At December 31, 1996, total sales exceeded the Program's share of estimated total gas reserves on one well by $44,960 (29,973 Mcf).
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Further, the deferred charge, the gas imbalance payable, the accrued liability, and the litigation contingency (see Note 4) all involve estimates which could materially differ from the actual amounts ultimately realized in the near term. Oil and gas reserves (see Note 5) 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.
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, 1997, 1996, and 1995, such expenses totaled $41,613, $40,363, and $40,709, respectively, of which $31,212 was paid each year to Dyco and its affiliates.
Affiliates of the Program operate certain of the Program's properties. Their policy is to bill the Program for all customary charges and cost reimbursements associated with these activities, together with any compressor rentals, consulting, or other services provided. Such charges are comparable to third party charges in the area where the wells are located and are the same as charged to other working interest owners in the wells.
During 1995 the Program sold gas at market prices to El Paso Energy Marketing Company, formerly known as Premier Gas Company ("El Paso"). El Paso, like other similar gas marketing firms, then resold such gas to third parties at market prices. El Paso was an affiliate of the Program until December 6, 1995. During 1995, these sales totaled $452,687.
3. MAJOR CUSTOMERS
The following purchasers individually accounted for 10% or more of the combined oil and gas sales for the years ended December 31, 1997, 1996, and 1995:
Purchaser 1997 1996 1995 --------- ----- ----- -----
El Paso 60.0% 74.8% 93.6% Williams 22.9% - % - %
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. CONTINGENCIES
On February 25, 1998, a royalty owner filed a lawsuit against Dyco alleging that Dyco amended or terminated certain gas purchase contracts and fraudulently concealed
the settlement of these contracts. Although Dyco has not yet determined which wells are subject to this lawsuit, the proposed class action representative is a lessor in one of the Program's wells. As of the date of these financial statements, the Program is not able to determine the ultimate outcome of this lawsuit or the assessment of any damages that may result.
5. 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, 1997 and 1996 were as follows:
December 31, ------------------------------- 1997 1996 ------------- -------------
Proved properties $18,554,492 $18,560,621
Unproved properties, not subject to depreciation, depletion, and amortization - - ---------- ---------- $18,554,492 $18,560,621
Less accumulated depreciation, depletion, amortization, and valuation allowance ( 18,271,485) ( 18,193,990) ---------- ----------
Net oil and gas properties $ 283,007 $ 366,631 ========== ==========
Costs Incurred
The Program incurred no oil and gas property acquisition or exploration costs during 1997, 1996, and 1995. Costs incurred by the Program in connection with its oil and gas property development activities during 1997, 1996, and 1995 were as follows:
December 31, -------------------------- 1997 1996 1995 ---- ------ ------
Development costs $ 84 $1,152 $3,546 === ===== =====
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, 1997, 1996, and 1995. Proved reserves were estimated by petroleum engineers employed by affiliates of the Program. 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.
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, 1997 using oil and gas prices of $16.25 per barrel and $2.32 per Mcf, respectively.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
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, which serves as the General Partner. The business address of such directors and executive officers is Two West Second Street, Tulsa, Oklahoma 74103.
NAME AGE POSITION WITH GENERAL PARTNERS ---------------- --- -------------------------------- Dennis R. Neill 46 President and Director
Patrick M. Hall 39 Chief Financial Officer
Judy K. Fox 47 Secretary
The director will hold office until the next annual meeting of shareholders of Dyco and 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 the Samson Companies 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 the Samson Companies, 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.
Patrick M. Hall joined the Samson Companies 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 the Samson Companies 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 the Samson Companies in 1990 and was named Secretary of Dyco on June 30, 1996. Prior to joining the Samson Companies, 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 1997 of reports required under Section 16(a) of the Securities and Exchange Act of 1934.
ITEM 11.
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, 1997:
Compensation/Reimbursement to Dyco and its affiliates Three Years Ended December 31, 1997
Type of Compensation/Reimbursement(1) Expense - ------------------------------------- ----------------------------- 1997 1996 1995 ------- ------- -------
1979-1 Program - --------------
Compensation: Operations (2) (2) (2) Gas Marketing (3) (3) (3)
Reimbursements: General and Administrative, Geological, and Engineering Expenses and Direct Expenses(4) $44,520 $44,520 $44,520
1979-2 Program - --------------
Compensation: Operations (2) (2) (2) Gas Marketing (3) (3) (3)
Reimbursements: General and Administrative, Geological, and Engineering Expenses and Direct Expenses(4) $31,212 $31,212 $31,212
- ---------------
(1) The authority for all of such compensation and reimbursement is the Program Agreements. With respect to the Operations activities noted in the table, management believes that such compensation is equal to or less than that charged by unaffiliated persons in the same geographic areas and under the same conditions. (2) Affiliates of the Programs serve as operator of some of the Programs' wells. Dyco, as General Partner, contracts with such affiliates for services as operator of the wells. As operator, such affiliates are compensated at rates provided in the operating agreements in effect and charged to all parties to such agreement. The dollar amount of such compensation paid by the Programs to such affiliates is impossible to quantify as of the date of this Annual Report. (3) During 1995 El Paso, an affiliate of the Programs until December 6, 1995, purchased a portion of the Programs' gas at market prices and resold such gas at market prices directly to end-users and local distribution companies. During 1995, the 1979-1 Program sold $344,098 of gas to El Paso. During 1995, the 1979-2 Program sold $452,687 of gas
to El Paso. After December 6, 1995, the Programs' gas was marketed by Dyco and its affiliates, who were reimbursed for such activities as general and administrative expenses.
(4) The Programs reimburse Dyco and its affiliates for reasonable and necessary general and administrative, geological, and engineering expenses and direct expenses incurred in connection with their management and operation of the Programs. The directors, officers, and employees of Dyco and its affiliates receive no direct remuneration from the Programs for their services to the Programs. See "Salary Reimbursement Table" below. The allocable general 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. 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, 1997:
In addition to the compensation/reimbursements noted above, during the three years ended December 31, 1997, the Samson Companies were in the business of supplying field and drilling equipment and services to affiliated and unaffiliated parties in the industry. These companies may have provided equipment and services for wells in which the Programs have an interest. Such equipment and services were 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.
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 February 28, 1998 by each beneficial owner of more than 5% of the issued and outstanding Units and by the directors, officers, and affiliates of Dyco. The address of each of such persons is Samson Plaza, Two West Second Street, Tulsa, Oklahoma 74103.
Number of Units Beneficially Owned (Percent Beneficial Owner of Outstanding) - ---------------------------------------------- ---------------
1979-1 Program: - --------------
Samson Resources Company 1,285 (40.5%)
All directors, officers, and affiliates of Dyco as a group and Dyco (5 persons) 1,285 (40.5%)
1979-2 Program: - --------------
Samson Resources Company 1,198 (41.5%)
All directors, officers, and affiliates of Dyco as a group and Dyco (5 persons) 1,198 (41.5%)
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain affiliates of Dyco engage in oil and gas activities independently of the Programs which result in conflicts of interest that cannot be totally eliminated. The allocation of acquisition and drilling opportunities and the nature of the
compensation arrangements between the Programs and such affiliates also create potential conflicts of interest. An affiliate of the Program owns a significant amount of the 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 the Samson Companies. The Programs thus compete with the Samson Companies (including other currently sponsored oil and gas programs) for the time and resources of such personnel. The Samson Companies devote such time and personnel to the management of the Programs as are indicated by the circumstances and as are consistent with Dyco's fiduciary duties.
Affiliates of the Programs are solely responsible for the negotiation, administration, and enforcement of oil and gas sales agreements covering the Programs' leasehold interests. Because affiliates of the Programs who provide services to the Programs have fiduciary or other duties to other members of the Samson Companies, 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 the Samson Companies. On the other hand, management believes that the Programs' negotiating strength and contractual positions have been enhanced by virtue of its affiliation with the Samson Companies.
For a description of certain other relationships and related transactions see "Item 11. Executive Compensation."
PART IV
ITEM 14.
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, 1997 and 1996 and for the years ended December 31, 1997, 1996, and 1995 are filed as part of this report:
Reports of Independent Accountants Balance Sheets Statements of Operations Statements of Partners' Capital Statements of Cash Flows Notes to Financial Statements
(2) Financial Statement Schedules:
None.
(3) Exhibits:
4.1 Drilling Agreement dated April 2, 1979 for Dyco Drilling Program 1979-1 by and between Dyco Oil and Gas Program 1979-1, Dyco Petroleum Corporation, and Jaye F. Dyer filed as Exhibit 4.1 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.2 Form of Program Agreement for Dyco Oil and Gas Program 1979-1 by and between Dyco Petroleum Corporation and the Participants filed as Exhibit 4.2 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.3 Amendment to Program Agreement for Dyco Oil and Gas Program 1979-1 dated February 9, 1989 filed as Exhibit 4.3 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.4 Certificate of Limited Partnership (as amended) for Dyco Oil and Gas Program 1979-1 Limited Partnership filed as Exhibit 4.4 to Annual Report on Form 10-K for the year ended
December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.5 Drilling Agreement dated July 2, 1979 for Dyco Drilling Program 1979-2 by and between Dyco Oil and Gas Program 1979-2, Dyco Petroleum Corporation, and Jaye F. Dyer filed as Exhibit 4.5 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.6 Form of Program Agreement for Dyco Oil and Gas Program 1979-2 by and between Dyco Petroleum Corporation and the Participants filed as Exhibit 4.6 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.7 Amendment to Program Agreement for Dyco Oil and Gas Program 1979-2 dated February 9, 1989 filed as Exhibit 4.7 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.8 Certificate of Limited Partnership (as amended) for Dyco Oil and Gas Program 1979-2 Limited Partnership filed as Exhibit 4.8 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
*27.1Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1979-1 Limited Partnership's financial statements as of December 31, 1997 and for the year ended December 31, 1997.
*27.2Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1979-2 Limited Partnership's financial statements as of December 31, 1997 and for the year ended December 31, 1997.
All other Exhibits are omitted as inapplicable.
------------------ * Filed herewith.
(b) Reports on Form 8-K filed during the fourth quarter of 1997:
None.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly organized.
DYCO OIL AND GAS PROGRAM 1979-1 LIMITED PARTNERSHIP
By: DYCO PETROLEUM CORPORATION General Partner
March 24, 1998
By: /s/Dennis R. Neill ------------------------------ Dennis R. Neill President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated.
By: /s/Dennis R. Neill President and March 24, 1998 ------------------- Director (Principal Dennis R. Neill Executive Officer)
/s/Patrick M. Hall Chief Financial March 24, 1998 ------------------- Officer (Principal Patrick M. Hall Financial and Accounting Officer)
/s/Judy K. Fox Secretary March 24, 1998 ------------------- Judy K. Fox
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly organized.
DYCO OIL AND GAS PROGRAM 1979-2 LIMITED PARTNERSHIP
By: DYCO PETROLEUM CORPORATION General Partner
March 24, 1998
By: /s/Dennis R. Neill ------------------------------ Dennis R. Neill President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated.
By: /s/Dennis R. Neill President and March 24, 1998 ------------------- Director (Principal Dennis R. Neill Executive Officer)
/s/Patrick M. Hall Chief Financial March 24, 1998 ------------------- Officer (Principal Patrick M. Hall Financial and Accounting Officer)
/s/Judy K. Fox Secretary March 24, 1998 ------------------- Judy K. Fox
INDEX TO EXHIBITS
Exhibit Number Description - ------- -----------
4.1 Drilling Agreement dated April 2, 1979 for Dyco Drilling Program 1979-1 by and between Dyco Oil and Gas Program 1979-1, Dyco Petroleum Corporation, and Jaye F. Dyer filed as Exhibit 4.1 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.2 Form of Program Agreement for Dyco Oil and Gas Program 1979-1 by and between Dyco Petroleum Corporation and the Participants filed as Exhibit 4.2 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.3 Amendment to Program Agreement for Dyco Oil and Gas Program 1979-1 dated February 9, 1989 filed as Exhibit 4.3 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.4 Certificate of Limited Partnership (as amended) for Dyco Oil and Gas Program 1979-1 Limited Partnership filed as Exhibit 4.4 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.5 Drilling Agreement dated July 2, 1979 for Dyco Drilling Program 1979-2 by and between Dyco Oil and Gas Program 1979-2, Dyco Petroleum Corporation, and Jaye F. Dyer filed as Exhibit 4.5 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.6 Form of Program Agreement for Dyco Oil and Gas Program 1979-2 by and between Dyco Petroleum Corporation and the Participants filed as Exhibit 4.6 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.7 Amendment to Program Agreement for Dyco Oil and Gas Program 1979-2 dated February 9, 1989 filed as Exhibit 4.7 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
4.8 Certificate of Limited Partnership (as amended) for Dyco Oil and Gas Program 1979-2 Limited Partnership filed as Exhibit 4.8 to Annual Report on Form 10-K for
the year ended December 31, 1991 on April 10, 1992 and is hereby incorporated herein.
*27.1 Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1979-1 Limited Partnership's financial statements as of December 31, 1997 and for the year ended December 31, 1997.
*27.2 Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1979-2 Limited Partnership's financial statements as of December 31, 1997 and for the year ended December 31, 1997.
- ------------------ * Filed herewith.