SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission file number 2-70390
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-2216121
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5847 San Felipe Suite 1900 Houston, Texas 77057
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 629-9800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interest
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Aggregate market value of the shares held by non affiliates of the
registrant: Non-Applicable
Documents incorporated by reference: None
<PAGE>
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY
ANNUAL REPORT ON FORM 10-K DECEMBER 31, 1996
INDEX
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Disagreements on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
SIGNATURES
<PAGE>
P A R T I
Item 1. Business
Purposes
The registrant, Sanchez-O'Brien 1981-A Drilling Company (the "Drilling
Company"), is a limited partnership formed on December 18, 1980, pursuant to
the provisions of the Texas Uniform Limited Partnership Act. On April 21,
1981, the effective date of the Securities Act of 1933 Registration covering
the offer and sale of the units (No. 2-70390), members of the National
Association of Securities Dealers, Inc. began the sale of limited partnership
interests. The sales period was closed June 23, 1981 with the sale of 5,304
units for a sum of $26,520,000. Sanchez-O'Brien Drilling Corporation (the
"General Partner"), the general partner of the Drilling Company, contributed
$246,438 to the Drilling Company's capital. Operations commenced on June 23,
1981.
Description of Business
The Drilling Company was formed to become a general partner in
Sanchez-O'Brien 1981-A Drilling Partnership (the "Drilling Partnership") to
participate in oil and natural gas exploration, drilling, development,
production and marketing in the United States with Sanchez-O'Brien Oil & Gas
Corporation (the "Managing General Partner") as Managing General Partner.
All of these activities were conducted in the states of Texas, Louisiana,
Oklahoma, New Mexico, Colorado and Wyoming. Substantially all of the
operations and activities of the Drilling Company relate to its interest in
the Drilling Partnership.
As of December 31, 1996, forty-three wells have been drilled. Of this
number, ten wells are commercially productive, twenty-four were dry holes
or have been depleted and abandoned, seven have been sold, and two are
shut-in.
Competitive Conditions
The petroleum industry is comprised of a large number of entities, many
with greater financial resources than the Drilling Company, competing in the
exploration, development, production and marketing of oil and natural gas.
Employees
The Drilling Company has no employees; however, the Managing General
Partner has a staff of geologists, petroleum engineers, landmen and
accounting personnel who administer all of the Drilling Company's operations.
The direct administrative and overhead expenses which are attributable to the
Drilling Company's operations are a cost of the Drilling Company.
<PAGE>
Major Purchasers
Delhi Gas Marketing Corporation ("Delhi") purchased over 80% of the
Drilling Company's total oil and natural gas sales during the year ended
December 31, 1996 (See Note 3 to the Financial Statements).
Long-term Debt
At December 31, 1996, The Drilling Company does not have any long term
debt.
Marketing Conditions
During 1996, the price of oil and natural gas products increased compared
to 1995. The major factors in the increase of prices for 1996 were 1.) Cold
weather in late 1995 and early 1996, gas storage was depleted and needed to be
replaced which kept the average price of natural gas products around $2.06/mcf.
2.) Mild weather in 1994, gas storage was low going into the winter season of
1995. We had cold weather in late 1995 and early 1996 which helped keep
prices higher than the year before.
Wellhead prices per MCF during March 1997 are in the $1.60 to $1.70 range,
and we are optimistic that prices will average $1.80 to $2.00 per MCF in 1997.
During January and February 1997 gas products were sold for an estimated $3.75
and $2.65 per MCF, respectively. The drop in natural gas prices during the
first quarter of 1997 was due to warmer weather and a correction to market
prices by March.
Regulation
Various aspects of the Drilling Partnership's oil and natural gas
operations are regulated by administrative agencies under statutory
provisions of the states where such operations are conducted and by certain
agencies of the Federal government for operations on Federal leases.
Future Operations
The A.E. Gutierrez #1-A recompletion to the 10,350' sand started on
September 26, 1996. The well was put back on production on October 8, 1996
at 1,015 MCF's per day. Currently the well is producing approximately 600
MCF's per day. The 1981-A Drilling Partnership cost through the February
1997 billing on this recompletion is $7,518, with $5,262 being the Drilling
Company's share. The 1981-A Drilling Partnership's estimated cost is $37,234,
with $26,064 being the Drilling Company's share.
As of December 31, 1996 each Limited Partner has received $355 per each
$5,000 unit. On June 24, 1996, a cash distribution was made for $75 per
each $5,000 unit. Future distributions will be made after litigation on the
S.W. Escobas (Trevino leases) prospect is settled.
<PAGE>
Item 2. Properties
The following table summarizes the Drilling Company's well count (#
wells) and average net working interest (ANWI) in oil and natural gas wells
by state that are commercially productive as of December 31, 1996:
Oil Natural Gas Total
# Wells ANWI # Wells ANWI # Wells ANWI
Texas............ - - 7 .11 7 .11
Louisiana........ - - 1 .35 1 .35
Oklahoma......... - - - - - -
New Mexico....... - - - - - -
Colorado......... - - - - - -
Wyoming.......... 2 .12 - - 2 .12
2 .12 8 .14 10 .14
See Note 8 to the Financial Statements for reserve information.
No events during the first quarter of 1997 have substantially changed
these numbers.
Item 3. Legal Proceedings
The litigation against Pennzoil and Sanchez-O'Brien Gas Corporation
(Sanchez-O'Brien) on the Trevino leases in the S.W. Escobas Prospect is
ongoing. The interests in the Trevino Leases, which comprise part of the
S.W. Escobas Prospect, were acquired from Pennzoil. There are currently four
producing wells on the Trevino Leases, in which the Drilling Partnership
holds between 22.53%-23.177% gross working interest. The interest in dispute
in this lawsuit is 7/96 or 7.29% of Sanchez-O'Brien's and Pennzoil's
interest. The trial judge, on November 9, 1992, ruled in favor of the
defendants, Pennzoil and Sanchez-O'Brien. The plaintiffs appealed the trial
court ruling to the Court of Appeals for the Fourth District of Texas at San
Antonio. In May 1994, the San Antonio Court of Appeals affirmed the trial
court's judgement.The appellants (plaintiffs) filed an application for writ
of error to the Texas Supreme Court after the Fourth District Court rejected
a motion for a rehearing. On November 6, 1994, the Texas Supreme Court denied
the writ of error. On December 8, 1994, plaintiffs filed a motion for a
rehearing in the Texas Supreme Court. The Texas Supreme Court granted a
rehearing, and heard oral arguments during September 1995. On October 18,
1996, the Texas Supreme Court reversed the judgements of both lower courts.
On November 20, 1996, a motion for rehearing was filed and remains pending.
An unfavorable ruling would force the Drilling Company to forfeit the
$214,471 currently being held in escrow. In addition, the Drilling Company
would lose approximately 7.29% of its' interest in the Trevino properties,
which would reduce the Drilling Company valuation by $28,924. The total
potential adverse effect would be $45.43 per each $5,000 limited partnership
unit.
<PAGE>
Beginning June 1, 1992, Sanchez-O'Brien started escrowing the amounts in
dispute in order to mitigate the effect to the Drilling Partnership and the
Limited Partners. The following is an estimate of the net financial effect
of this litigation.
A. Revenues received and applicable interest
The Drilling Partnership would have to remit to the plantiffs 7.29%
of revenues from the wells on the Trevino lease starting May 1, 1987
less the applicable share of well costs and operating expenses. The
Drilling Partnership would also be responsible for any applicable
interest. The amount payable from the Drilling Partnership for net
revenues and applicable interest is estimated to be $260,570, with
$130,285 due from the Drilling Company, or Limited Partners. Because
this amount has already been paid out and used by the Drilling Company,
the amounts would have to come from current and future revenues. The net
impact per each $5,000 limited partnership unit would be $24.32.
B. Value of oil and natural gas reserves
The plaintiffs would be entitled to future revenues to be derived
from existing oil and natural gas reserves. The net effect of losing
these reserves at January 1, 1997 to the Drilling Partnership is
estimated to be $57,848, with $28,924 being the interest of the
Drilling Company, or Limited Partners. The net impact per each $5,000
limited partnership unit would be $5.40.
C. Funds retained in escrow
As mentioned, the Managing General Partner is currently escrowing
the net revenues applicable to the disputed interest. At January 1,
1997, the total Drilling Partnership funds escrowed were $428,942,
with $214,471 escrowed for the Drilling Company, or Limited Partners.
The net impact per each $5,000 limited partnership unit would be
$40.03. The Managing General Partner will continue to escrow the
amounts in dispute. If the plaintiffs were to prevail, the funds
would be paid to the plaintiffs. However, if the defendants prevail,
these additional amounts would be available to the Drilling Company
for operations and/or distributions.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the Security Holders during the fourth
quarter of 1996.
P A R T II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Drilling Company has no outstanding common stock at December 31,
1996. There is no market for the limited partnership interests of the
Drilling Company and transferability is subject to certain conditions,
including the consent of the Managing General Partner. The Drilling Company
has 1,478 limited partners as of December 31, 1996.
<PAGE>
As of December 31, 1996, each Limited Partner has received $355 per each
$5,000 unit. Future cash distributions will be made after litigation on
the S.W. Escobas (Trevino leases) has been settled.
According to the terms of the Drilling Company's Partnership Agreement,
the General Partner is obligated to repurchase, if requested, the interests
of limited partners in the Drilling Company. The maximum repurchase
obligation is 10% of the Aggregate Limited Partners Contributions. The
repurchase price will be based primarily on the discounted value of the
Drilling Company's share of the oil and natural gas properties. The
Managing General Partner repurchased 7 units during 1996. As of December
31, 1996, the Managing General Partner has repurchased 2,812 units, or
53.02%, of the total 5,304 units. A repurchase for each outstanding $5,000
unit at December 31, 1996 has not been made.
Item 6. Selected Financial Data
The financial results of operations of the Drilling Company as of and for
the years ended December 31, 1996, 1995 and 1994 are as follows:
[CAPTION]
1996 1995 1994
[S] [C] [C] [C]
Revenues. . . . . . . . . .$ 729,269 794,046 1,201,010
Expenses. . . . . . . . . . 350,923 718,122 844,365
Net income. . . . . . . . . 378,346 75,924 356,645
LP's net income (99%) . . . 374,563 75,165 353,079
LP's net income per unit. . 71 14 67
Total assets. . . . . . . . 1,339,406 1,437,217 1,337,650
Working capital increase
(decrease). . . . . . . ..$ 92,081 292,421 (448,591)
Partners' equity (deficit)
Limited partners . . . .$ 1,165,181 1,184,440 1,109,275
General partner. . . . .$ 11,766 11,961 11,202
See Notes 1, 2 and 3 to the Financial Statements for a discussion of the
Drilling Company's significant accounting policies, allocations of revenues,
costs and expenses and oil and gas producing activities.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Drilling Company commenced operations on June 23, 1981. Substantially
all of the Drilling Company's revenues are comprised of its proportionate
share of the oil and natural gas sales of the Drilling Partnership.
<PAGE>
Liquidity and Capital Resources
The principal sources of the Drilling Company's working capital have been
the capital contributions of the limited partners, bank borrowings (see Note
4 to the Financial Statements), advances from the Managing General Partner
and working capital provided from operations.
During 1996, the price of oil and natural gas products increased over
1995. The Drilling Company repaid the full amount of the note payable to
the Managing General Partner on July 1, 1993.
Results of Operations
The Drilling Company had net income of $378,346 in 1996, $75,924 in 1995,
and $356,645 in 1994.
Oil and natural gas sales totaled $716,938 in 1996, $784,339 in 1995, and
$1,191,979 in 1994.
Operating expenses as a percentage of oil and natural gas sales were
25.49% in 1996, 42.77% in 1995, and 45.97% in 1994.
Interest income was $12,331 in 1996, $9,707 in 1995, and $9,031 in 1994.
General and administrative expenses consist primarily of the Drilling
Company's proportionate share of such expenses allocated to the Drilling
Partnership from Sanchez-O'Brien Oil & Gas Corporation.
The current year depletion amounted to $138,000. Depletion per net
equivalent barrel of production was $2.48 in 1996, $3.73 in 1995, $1.82 in 1994.
The A.E. Gutierrez #1-A recompletion to the 10,350' sand started on
September 26, 1996. The well was put back on production on October 8, 1996
at a rate of 1,015 mcf/day. The Drilling Company's share of the recompletion
was $5,262 through the February 1997 billing for a 11.67% W.I. and was recorded
under oil and gas properties.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Sanchez-O'Brien 1981-A Drilling Company
(a limited partnership)
Index to Financial Statements
Balance Sheets - December 31, 1996 and 1995
Statements of Operations - Years ended December 31, 1996, 1995
and 1994
Statements of Partners' Equity (Deficit) - Years ended December
31, 1996, 1995 and 1994
Cash Flows Statement of - Years ended December 31, 1996, 1995
and 1994.
Notes to Financial Statements
Schedule V - Property and Equipment - Years ended December 31, 1996,
1995 and 1994
Schedule VI - Accumulated Depreciation, Depletion and Amortization of
Property and Equipment - Years ended December 31, 1996, 1995 and 1994
All other schedules are omitted as the required information is
unapplicable or the information is included in the financial statements
or related notes.
<PAGE>
<TABLE>
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY
(a limited partnership)
Balance Sheets
December 31, 1996 and 1995
(Unaudited)
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Current assets:
Cash $ 501,298 521,334
Accounts receivable 103,217 69,457
Total current assets 604,515 590,791
Oil and natural gas properties (full
cost method), at cost, pledged
(notes 3 and 4) 30,957,815 30,931,350
Less accumulated depreciation, depletion
and amortization (note 3) 30,222,924 30,084,924
Net oil and natural gas properties 734,891 846,426
Organization costs, less applicable
amortization - -
TOTAL ASSETS 1,339,406 1,437,217
<CAPTION>
LIABILITIES AND PARTNERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable 7,834 119,456
Suspense payable-investors 154,625 121,360
Total current liabilities 162,459 240,816
Partners' equity:
Limited partners 1,165,181 1,184,440
General partner 11,766 11,961
Total partners' equity 1,176,947 1,196,401
TOTAL LIABILITES AND
PARTNERS' EQUITY $ 1,339,406 1,437,217
See accompanying notes to financial statements.
<PAGE>
</TABLE>
<TABLE>
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY
(a limited partnership)
Statements of Operations
Years Ended December 31, 1996, 1995 and 1994
(Unaudited)
<CAPTION>
1996 1995 1994
<S>
Revenues: <C> <C> <C>
Oil and natural gas sales $ 716,938 784,339 1,191,979
Interest income 12,331 9,707 9,031
Other income - - -
729,269 794,046 1,201,010
Expenses:
Operating expenses 182,750 335,523 548,001
General and administrative
expenses (note 7) 30,173 47,599 56,364
Depreciation, depletion and
amortization (note 3) 138,000 335,000 240,000
Interest expense - - -
350,923 718,122 844,365
Net income $ 378,346 75,924 356,645
Net income applicable
to limited partners $ 374,563 75,165 353,079
Net income of limited
partners per unit
of limited partnership
interest $ 71 14 67
Number of units of limited
partnership interests
outstanding 5,304 5,304 5,304
See accompanying notes to financial statements.
<PAGE>
</TABLE>
<TABLE>
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY
(a limited partnership)
Statements of Partners' Equity (Deficit)
Years Ended December 31, 1996, 1995, and 1994
(Unaudited)
Limited Partners
Partners'
General Equity
Units Amount Partner (Deficit)
<CAPTION>
<S> <C> <C> <C> <C>
Balances at December 31, 1993 5,304 $1,753,878 $ 17,714 $1,771,592
Cash distribution - (997,682) (10,078) (1,007,760)
Net income - 353,079 3,566 356,645
Balances at December 31, 1994 5,304 1,109,275 11,202 1,120,477
Cash distribution - - - -
Net income - 75,165 759 75,924
Balances at December 31, 1995 5,304 1,184,440 11,961 1,196,401
Cash distribution (393,822) (3,978) (397,800)
Net income 374,563 3,783 378,346
Balances at December 31, 1996 5,304 $1,165,181 $ 11,766 $1,176,947
See accompanying notes to financial statements.
<PAGE>
</TABLE>
<TABLE>
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY
(a limited partnership)
Statements of Cash Flows
December 31, 1996, 1995 and 1994
(Unaudited)
1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 378,346 75,924 356,645
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, depletion and amortization 138,000 335,000 240,000
Change in assets and liabilities:
Accounts receivable (33,760) 1,222 36,038
Accounts payable (111,622) 23,883 (53,061)
Suspense payable 33,265 (240) 121,600
Total adjustments 25,883 359,865 344,577
Net cash provided by operating
activities 404,229 435,789 701,222
Cash flows from investing activities:
Cash distributions (397,800) - (1,007,760)
Additions to property and equipment (26,465) (118,503) (37,476)
Net cash used in investing activities (424,265) (118,503) (1,045,236)
Cash flows from financing activities:
Payments of long-term debt - - -
Proceeds fom long-term debt - - -
Net cash provided by financing activities - - -
Net increase (decrease) in cash and cash
equivalents (20,036) 317,226) (344,014)
Cash and cash equivalents at beginning of year 521,334 204,048 548,062
Cash and cash equivalents at end of year $ 501,298 521,334 204,048
</TABLE>
<PAGE>
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY
(a limited partnership)
Notes to Financial Statements
December 31, 1996 and 1995
(1) Organization and Summary of Significant Accounting Policies
Organization - Sanchez-O'Brien 1981-A Drilling Company
Sanchez-O'Brien 1981-A Drilling Company (the Drilling
Company), a Texas limited partnership, was formed on December
18, 1980 with Sanchez-O'Brien Drilling Corporation (a
wholly-owned subsidiary of Sanchez-O'Brien Oil & Gas
Corporation) as general partner and an organizational limited
partner. On June 23, 1981, Sanchez-O'Brien Drilling
Corporation, as general partner, and investors, representing
5,304 units of limited partnership interests ($5,000 per
unit), entered into an Agreement of Limited Partnership for
the Sanchez-O'Brien 1981-A Drilling Company. The Drilling
Company is to remain in existence until December 31, 2011,
unless dissolved prior to that date according to provisions of
the Drilling Company Partnership Agreement. Sanchez-O'Brien
Drilling Corporation and the individual limited partners are
not required to make additional capital contributions to the
Drilling Company.
The Drilling Company Partnership Agreement provides for
quarterly distributions from available cash.
Organization - Sanchez-O'Brien 1981-A Drilling Partnership
Sanchez-O'Brien 1981-A Drilling Partnership (the Drilling
Partnership), a Texas general partnership, was organized on
June 23, 1981 with Sanchez-O'Brien Oil & Gas Corporation as
managing general partner and Sanchez-O'Brien 1981-A Drilling
Company as general partner. The Drilling Partnership was
formed to engage in oil and natural gas exploration, drilling,
development, production and marketing in the United States.
The Drilling Partnership is to remain in existence until
December 31, 2011, unless dissolved prior to that date
according to provisions of the Drilling Partnership Agreement.
Sanchez-O'Brien Oil & Gas Corporation, as managing general
partner, is required to make capital contributions to the
Drilling Partnership on a current basis sufficient to pay the
costs allocated to the managing general partner under the
terms of the Drilling Partnership Agreement. The managing
general partner was required to make capital contributions in
an amount equal to 20 percent of the capital contributions of
the limited partners to the Drilling Company, reduced by any
organization or other costs incurred by the managing general
partner which were reimbursed by the Drilling Company or the
Drilling Partnership, by June 23, 1983. This capital
contribution requirement was met, and cumulative capital
contributions by the managing general partner total $5,331,953
as of December 31, 1996.
<PAGE>
The Drilling Partnership Agreement provides that funds in
excess of amounts necessary to pay the partners' share of
existing and anticipated expenditures, including the repayment
of borrowings, shall be distributed quarterly to the partners
of the Drilling Partnership.
Basis of Financial Statement Presentation
The financial statements of the Drilling Company include its
proportionate share in specific assets, liabilities, revenues
and expenses of the Drilling Partnership. All significant
intercompany balances and transactions have been eliminated.
Oil and Gas Properties
The Drilling Company follows the full cost method of
accounting for its proportionate interest in the oil and
natural gas operations of the Drilling Partnership. Under
this method, all costs incurred in the acquisition,
exploration and development of properties, including costs of
surrendered and abandoned leaseholds, delay lease rentals and
dry holes, are capitalized. Dispositions of oil and natural
gas properties are accounted for as adjustments to capitalized
costs, with no gain or loss recognized. Depreciation,
depletion and amortization of oil and natural gas properties
is provided by the units-of-production method based on proved
oil and natural gas reserves.
Under the full cost method of accounting for oil and natural
gas operations, capitalized costs of oil and natural gas
properties are not to exceed the present value of future net
revenues from estimated production of proved oil and natural
gas properties plus the lower of cost or estimated fair market
value of unproved properties. If capitalized costs exceed
this limitation, an additional provision is to be made to
depreciation, depletion and amortization.
Federal Income Taxes
For Federal income tax purposes, the partners' respective
interests in the revenues, expenses and other deductions and
credits of the Drilling Company are reportable in their
individual tax returns. Accordingly, no provision or liability
for Federal income taxes has been shown on the accompanying
financial statements.
Organization Costs
Organization costs were capitalized and amortized over five
years using the straight-line method.
<PAGE>
Syndication Costs
Syndication costs (sales commissions to brokers for their
sales of limited partnership interests) have been deducted
directly from the capital accounts in the Drilling Company.
(2) Allocations of Revenues, Costs and Expenses
Drilling Company
All revenues, costs and expenses of the Drilling Company are
allocated one percent to the general partner, Sanchez-O'Brien
Drilling Corporation, and 99 percent to the limited partners.
All revenues, costs and expenses are allocated to the
individual limited partners in proportion to their capital
accounts.
Drilling Partnership
Revenues and expenses of the Drilling Partnership which relate
to capital wells (wells which are funded principally by
capital contributions of the Drilling Company) are allocated
30 percent to the managing general partner, Sanchez-O'Brien
Oil & Gas Corporation, and 70 percent to the general partner,
the Drilling Company, until partnership payout is reached, and
50 percent to each partner thereafter. All costs of capital
wells which are non-capitalized costs for Federal income tax
purposes are charged to the Drilling Company. All capitalized
costs of capital wells and leasehold costs relating to
producing capital wells are charged to Sanchez-O'Brien Oil &
Gas Corporation.
All revenues, expenses, well costs and leasehold costs
relating to subsequent wells (all wells other than the capital
wells) are allocated 50 percent to Sanchez-O'Brien Oil & Gas
Corporation and 50 percent to the Drilling Company.
All interest earned as a result of the temporary investment of
the Drilling Company's capital contribution to the Drilling
Partnership was allocated 100 percent to the Drilling Company.
(3) Oil and Natural Gas Producing Activities
The aggregate amount of capitalized costs of the Drilling
Company's proportionate share of the oil and natural gas
properties of the Drilling Partnership for the years ended
December 31, 1996 and 1995 were as follows:
<PAGE>
[CAPTION]
1996 1995
[S] [C] [C]
Costs related to proved
properties $30,957,815 30,931,350
Costs related to unproved
properties - -
30,957,815 30,931,350
Less accumulated depletion 30,222,924 30,084,924
$ 734,891 846,426
The following schedule presents the results of operations of
the Drilling Company's proportionate share of the oil and
natural gas producing activities of the Drilling Partnership
for the years ended December 31, 1996, 1995 and 1994:
[CAPTION]
1996 1995 1994
[S] [C] [C] [C]
Oil and natural gas revenues $ 716,938 784,339 1,191,979
Operating expenses 182,750 335,523 548,001
Depreciation, depletion and
amortization 138,000 335,000 240,000
Results of operations from
producing activities
(excluding overhead and
interest costs)
Net income $ 396,188 113,816 403,978
Operating expenses include production taxes of $3,119, $23,617,
and $79,247 in 1996, 1995 and 1994, respectively.
The 1996 full cost ceiling test did not warrant an additional
charge to depreciation, depletion and amortization. The
calculation of the limitation on capitalized costs as of
December 31, 1996 was based on $1.83 per MCF.
The regular provision for depreciation, depletion and
amortization per unit of production (net equivalent barrel)
for the years ended December 31, 1996, 1995 and 1994 was
$2.48, $3.73 and $1.82 respectively. These rates are
exclusive of the amounts attributable to the limitation on
capitalized costs.
Over eighty percent of oil and natural gas sales from seven
S. W. Escobas producing wells were sold to Delhi during 1996.
<PAGE>
(4) Notes Payable
As of December 31, 1996, the Drilling Company does not have
any debt.
(5) Federal Income Taxes
Under the method of accounting followed by the Drilling
Company for Federal income tax reporting purposes: (a)
expenditures incurred in acquiring undeveloped properties and
equipping productive oil and natural gas properties are
capitalized, whereas such expenditures relating to dry holes
are charged against earnings; (b) both productive and
nonproductive intangible drilling and development costs are
expensed currently; (c) revenues, expenses, capital
contributions and distributions are generally recognized as
cash received or paid; (d) tentative depletion expense is
computed using the greater of cost or percentage depletion for
each property; and (e) depreciation of lease and well
equipment is computed using the accelerated cost recovery
system over a five year period.
The following is a reconciliation of the net income of the
Drilling Company as reported herein, to its earnings reported
for Federal income tax purposes for the years ended December 31,
1996, 1995 and 1994.
[CAPTION]
1996 1995 1994
[S] [C] [C] [C]
Net income as reported
herein $ 378,346 75,924 356,645
Less costs capitalized for financial
reporting purposes which are expenses
for tax purposes (primarily
intangible drilling and dry hole
costs) 13,475 83,633 -
Add depreciation, depletion and
amortization for financial
reporting purposes 138,000 335,000 240,000
Less depreciation and cost depletion
for tax purposes 63,476 62,324 71,723
Differences in accrual method of
accounting for financial reporting
purposes and cash basis for tax
purposes 18,063 11,513 17,615
Income for Federal income tax
purposes $ 457,458 276,480 542,097
<PAGE>
(6) Repurchase Obligations
In accordance with the terms of the Drilling Company's
Partnership Agreement, Sanchez-O'Brien Drilling Corporation is
obligated to purchase, if requested, the interests of limited
partners in the Drilling Company. The purchase price is to be
based primarily on annual determinations of the discounted
value of the Drilling Company's share of the oil and natural
gas properties of the Drilling Partnership. The maximum
repurchase obligation is 10% of the Aggregate Limited
Partners' Capital Contributions. Sanchez-O'Brien Oil & Gas
Corporation purchased 7 units during 1996.
(7) Related Party Transactions
Sanchez-O'Brien Oil & Gas Corporation functions as operator
for the Drilling Partnership's wells. In this capacity,
Sanchez-O'Brien Oil & Gas Corporation receives monthly fees as
operator on drilling and producing wells, and under the terms
of the Drilling Company and Drilling Partnership Agreements,
Sanchez-O'Brien Oil & Gas Corporation is reimbursed for direct
costs of performing services for the Drilling Company and the
Drilling Partnership and for that part of its administrative
overhead that reasonably pertains to the Drilling Company and
the Drilling Partnership. These reimbursements amounted to
$46,321 in 1996 for both the Drilling Partnership and Drilling
Company. Of these amounts, $30,000 was paid for overhead
reimbursements and $16,321 for direct administrative charges.
The Drilling Company's share of the above reimbursements
included $11,721 of administrative charges, both overhead and
direct charges, for the year 1996.
Accounts payable on the accompanying balance sheets are due
the Managing General Partner.
Substantially all of the Drilling Partnership's oil and
natural gas leases were acquired from the Managing General
Partner at cost, plus carrying and administrative charges.
A staff overriding royalty pool, consisting of a maximum of 7%
of the Drilling Partnership's net revenue interest in all oil
and natural gas leases, is shared by certain geological,
engineering and other key employees of Sanchez-O'Brien Oil &
Gas Corporation.
<PAGE>
(8) Oil and Natural Gas Reserves (Unaudited)
The following is a summary of the Drilling Company's
proportionate share of the proved oil and natural gas reserve
quantities of the Drilling Partnership as estimated by Lone
Cypress Engineering, Inc. of Houston, Texas.
[CAPTION]
Oil and Natural
Condensate Gas
(Barrels) (MCF)
Proved developed and
undeveloped reserves:
[S] [C] [C]
Balance at December 31, 1995 44,636 1,671,220
1996 adjustments 3,193 148,110
Production (4,348) (307,718)
Balance at December 31, 1996 43,481 1,511,612
Proved developed and
undeveloped reserves:
December 31, 1994 49,413 2,714,558
December 31, 1995 44,636 1,671,220
December 31, 1996 43,481 1,511,612
All the reserves of the Drilling Company are attributable to
its interest in the Drilling Partnership, and all the reserves
are located within the United States.
<PAGE>
Schedule V
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY
(a limited partnership)
Property and Equipment
Years Ended December 31, 1996, 1995 and 1994
[CAPTION]
Balance at Balance at
Beginning of End of
Classification Period Additions Retirements Period
1994
[S] [C] [C] [C] [C]
Oil and natural gas properties $30,775,371 37,476 0 30,812,847
1995
Oil and natural gas properties $30,812,847 124,923 6,420 30,931,350
1996
Oil and natural gas properties $30,931,350 26,465 0 30,957,815
<PAGE>
Schedule VI
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY
(a limited partnership)
Accumulated Depreciation, Depletion
and Amortization
Years Ended December 31, 1996, 1995 and 1994
[CAPTION]
Balance at Balance at
Beginning of End of
Classification Period Additions Retirements Period
1994
[S] [C] [C] [C] [C]
Oil and natural gas properties $29,509,924 240,000 0 29,749,924
1995
Oil and natural gas properties $29,749,924 225,000 0 30,084,924
1996
Oil and natural gas properties $30,084,924 138,000 0 30,222,924
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure
There have been no disagreements by the Drilling Company with
its accountants on accounting or financial disclosures which would
warrant disclosure pursuant to this item.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Drilling Company has no directors or executive officers.
The General Partner, Sanchez-O'Brien Drilling Corporation, is a
wholly owned subsidiary of Sanchez-O'Brien Oil & Gas Corporation.
The names, ages (as of March 1, 1997) and positions of the
directors and executive officers of Sanchez-O'Brien Drilling
Corporation are as follows:
NAME AGE POSITION
Antonio R. Sanchez, Jr. 54 Chairman of the Board and
Chief Executive Officer
Brian E. O'Brien 63 Vice Chairman of the Board and
President
Minita M. Freeman 76 Senior Vice President,
Secretary, Treasurer and
Director
Frank A. Guerra 48 Vice President - Finance
Olivero F. Garza, III 50 Assistant Secretary -
Controller
Antonio R. Sanchez, Jr., age 54, is Chairman of the Board and
Chief Executive Officer. He holds a Bachelor of Business
Administration degree and a Doctor of Jurisprudence degree from St.
Mary's University of San Antonio, Texas. Prior to 1973, Mr.
Sanchez, Jr., practiced law in both San Antonio and Laredo, Texas,
and served as an administrative assistant to the Lieutenant
Governor of Texas. In addition to his oil and natural gas
investments, Mr. Sanchez, Jr. has other substantial investments.
Brian E. O'Brien, age 63, is Vice Chairman of the Board and President.
Mr. O'Brien received a Bachelor of Science degree in geology from the
University of Oklahoma in 1958 and a Master of Science degree in geology from
the same university in 1963. From 1961 to 1969, Mr. O'Brien was employed by
the Atlantic Refining Company where his principal responsibilities included
geological evaluation and exploration of oil and natural gas prospects situated
primarily along the Gulf Coast of Louisiana and Texas, and from 1969 to 1973,
he was employed by Mesa Petroleum Company as that Company's geologist for the
Gulf Coast area of Texas. In addition to his oil and natural gas investments,
Mr. O'Brien has other substantial investments.
<PAGE>
Minita M. Freeman, age 76, is Senior Vice President, Secretary, Treasurer
and a Director. Mrs. Freeman holds a Bachelor of Business Administration
degree from the University of Texas at Austin with a major in accounting.
Prior to joining affiliates of the Managing General Partner in 1975,
Mrs. Freeman practiced accounting primarily in Laredo, Texas.
Frank A. Guerra, age 48, Vice President-Finance, was employed by the
Managing General Partner in early 1979. He is in charge of accounting for the
Managing General Partner and all affiliates. Mr. Guerra was previously
employed by Exxon Corporation as an accounting supervisor in the Exploration
and Production Department from 1977 to 1979 and as a senior auditor on various
staffs from 1972 to 1977. Mr. Guerra received a Bachelor of Business
Administration degree in accounting from Texas A & M Universiry in 1971 and
is a Certified Public Accountant.
Olivero F. Garza, III, age 50, is Assistant Secretary and Controller for
the Managing General Partner. He was employed in March 1980 as Manager of
Corporate Accounting. Mr. Garza has twenty-six years of oil and natural gas
experience with companies such as Exxon Corporation, Coastal Corporation and
TransOcean Oil Company. Mr. Garza received a Bachelor of Business
Administration degree in accounting from Pan American College in
Edinburg, Texas in 1968.
The terms of each officer and director named above expire at the Company's
annual meeting of directors or such other time as his successor is duly elected
and qualified.
Item 11. Executive Compensation
Inasmuch as the Drilling Company has no directors, officers or employees,
it paid no remuneration during 1996. In accordance with the Agreement of
Limited Partnership, the Drilling Company reimbursed the Managing General
Partner for direct expenses and administrative and overhead expenses
attributable to the operations of the Drilling Company (see Note 7 to the
Financial Statements).
All of the oil and natural gas properties of the Drilling Partnership were
acquired at cost (including carrying costs) or were obtained on its behalf by
the Managing General Partner from third parties. The Managing General Partner
acts as operator for certain drilling or producing wells of the Drilling
Partnership.
Item 12. Security Owenership of Certain Benefical Owners and Management
(a) Principal Security Holders
At December 31, 1996, Sanchez-O'Brien Oil & Gas Corporation, owned a 53.02
percent interest (2,812 units) in the Drilling Company. No other limited
partner owned, of record or beneficially, more than one percent of the
Drilling Company (See Note 6 to the Financial Statements).
As provided under the terms of the Agreement of Limited Partnership, the
General Partner has a one percent interest in all of the Drilling Company's
revenues, expenses, profits or losses, and upon liquidation, a one percent
interest in the Drilling Company's properties.
As provided under the terms of the Articles of Partnership of the
Drilling Partnership, Sanchez-O'Brien Oil & Gas Corporation, the Managing
General Partner of the Drilling Partnership, has a revenue interest which
varies from 30 percent to 50 percent in the Drilling Partnership's revenues.
(b) Amount of Sanchez-O'Brien Oil & Gas Corporation Securities Owned by
Officers and Directors of Sanchez-O'Brien Oil & Gas Corporation
At March 1, 1997, the Estate of Antonio R. Sanchez, Antonio R. Sanchez, Jr.
and Brian E. O' Brien own one hundred percent of the outstanding common stock
of Sanchez-O'Brien Oil & Gas Corporation.
(c) Changes in control
There have been no changes in control of the Drilling Company during the
period ended December 31, 1996.
Item 13. Certain Relationships and Related Transactions
During 1981, the Drilling Company paid Sanchez-O'Brien Drilling Corporation
$300,000 for costs related to organizing the Drilling Company and offering the
limited partnership interests therein. As operator of the Drilling
Partnership's wells, Sanchez-O'Brien Oil & Gas Corporation receives monthly
fees on drilling and producing wells. The Drilling Partnership also paid
Sanchez-O'Brien Oil & Gas Corporation a management fee of $1,193,400 in 1981.
In addition, the Drilling Company and Drilling Partnership. Substantially
all of the Drilling Partnership's oil and natural gas leases were acquired
from Sanchez-O'Brien Oil & Gas Corporation at cost plus administrative and
carrying charges. Certain key employees of Sanchez-O'Brien Oil & Gas
Corporation participate in a staff overriding royalty pool consisting of a
maximum of 7% of the Drilling Partnership's net revenue interest in all oil
and natural gas leases. (See Note 7 to the Financial Statements).
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements and Schedules
(a) The following documents are filed as part of this annual report on
Form 10-K:
1. Financial Statements
(See Index to Financial Statements in Item 8)
2. Financial Statement Schedules
The financial statement schedules are filed as part
of this report as listed in the Index to Financial Statements
in Item 8.
3. Exhibits:
*3.1-Articles of Limited Partnership, as amended,
filed as exhibit 4.1 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 2-70390).
*3.2-Articles of Partnership, as amended, filed as exhibit
4.2 to the Registrant's Registration Statement on
Form S-1 (Reg. No. 2-70390).
*Incorporated by reference, as indicated.
(b) Reports on Form 8-K
There were no reports on Form 8-K for the twelve months ended
December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section13 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 aythorized on March 27, 1997.
SANCHEZ-O'BRIEN OIL & GAS CORPORATION
By Sanchez-O'Brien Drilling Corporation
By Antonio R. Sanchez, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements iof 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 indicated on March 27, 1997.
Brian E. O'Brien Minita M. Freeman
Vice Chairman of the Board and President Senior Vice President,
(Principal Operating Officer) Secretary, Treasurer and Director
(Principal Financial Officer and Director
Frank A. Guerra Oliver F. Garza, III
Vice President - Finance Assistant Secretary - Controller
(Principal Accounting Officer)
<PAGE>
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant hasduly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 27, 1997.
SANCHEZ-O'BRIEN OIL & GAS CORPORATION
By Sanchez-O'Brien Drilling Corporation
By s/Antonio R. Sanchez, Jr.
Antonio R. Sanchez, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
s/Brian E. O'Brien s/Minita M. Freeman
Brian E. O'Brien Minita M. Freeman
Vice Chairman of the Board and President Senior Vice President,
(Principal Operating Officer) Secretary, Treasurer and Director
(Principal Financial Officer and Director
s/Frank A. Guerra s/Olivero F. Garza, III
Frank A. Guerra Olivero F. Garza, III
Vice President - Finance Assistant Secretary - Controller
(Principal Accounting Officer)
