UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For quarter ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from to
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 (IRS employer
incorporation or organization) identification no.)
5847 San Felipe, Suite 1900 Houston, Texas 77057
(Address of principal executive offices) (Zip Code)
(713) 783-8000
(Registrant's telephone number, including area code)
N/A
(Former name, address and former fiscal year, if changed since last
report.)
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
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<PAGE>
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY
QUARTERLY REPORT ON FORM 10-Q SEPTEMBER 30, 1996
INDEX
PART I - Financial information:
Item 1. Financial Statements
Balance Sheets for the periods September 30, 1996 and
December 31, 1995
Statements of Operations for three months and nine months ended
September 30, 1996 and 1995
Statement of Partners' Equity as of September 30, 1996
Statements of Cash Flow for the nine months ended
September 30, 1996 and 1995
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - Other information:
Item 1. Legal Proceedings
Item 2. Changes in Securities (not applicable)
Item 3. Defaults upon Senior Securities (not applicable)
Item 4. Submission of Matters to a Vote of Security Holders
(not applicable)
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
Sanchez-O'Brien 1981-A Drilling Company
(a limited partnership)
Balance Sheets
(Unaudited)
September 30, December 31,
1996 1995
ASSETS
Current assets:
Cash $ 437,863 521,334
Accounts receivable 9,423 69,457
Total current assets 447,286 590,791
Oil and natural gas properties (full cost
method), at cost, pledged (note 2) 30,952,097 30,931,350
Less accumulated depreciation, depletion
and amortization (note 2) 30,191,924 30,084,924
Net oil and natural gas properties 760,173 846,426
Organization costs, less applicable
amortization 0 0
1,207,459 1,437,217
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable 15,167 119,456
Suspense payable-investors 155,335 121,360
Total current liabilities 170,502 240,816
Partners' equity:
Limited partners 1,022,612 1,184,440
General partner 14,345 11,961
Total partners' equity 1,036,957 1,196,401
$ 1,207,459 1,437,217
See accompanying notes to financial statements.<PAGE>
<PAGE>
<S>
Sanchez-O'Brien 1981-A Drilling Company
(a limited partnership)
Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES:
Oil and natural gas sales $113,767 165,513 $494,188 585,725
Interest income 1,360 2,803 9,103 6,443
Other income 0 0 0 0
115,127 168,316 503,291 592,168
EXPENSES:
Operating expenses 38,164 45,726 132,549 271,722
General and administrative 4,119 4,000 25,386 43,555
Interest 0 0 0 0
Depreciation, depletion
and amortization (note 2) 22,000 62,000 107,000 172,000
64,283 111,726 264,935 487,277
Net income $ 50,844 56,590 $238,356 104,891
<PAGE>
</TABLE>
<TABLE>
See accompanying notes to financial statements.
<PAGE>
Sanchez-O'Brien 1981-A Drilling Company
(a limited partnership)
Statement of Partners' Equity
Nine Months Ended September 30, 1996
(Unaudited)
Limited General
Partners Partner Total
<S> <C> <C> <C>
Balances at December 31, 1995 $1,184,440 11,961 1,196,401
Cash distributions (397,800) 0 (397,800)
Net income 235,972 2,384 238,356
Balances at September 30, 1996 $1,022,612 14,345 1,036,957
See accompanying notes to financial statements.
<PAGE>
</TABLE>
TABLE
<PAGE>
Sanchez-O'Brien 1981-A Drilling Company
(a limited partnership)
Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $238,356 104,891
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, depletion and
amortization 107,000 172,000
Change in assets and liabilities:
Accounts receivable 60,034 6,791
Accounts payable (104,289) (21,997)
Suspense payable 33,975 (240)
Total adjustments 96,720 156,554
Net cash provided by operating
activities 335,076 261,445
Cash flows from investing activities:
Cash distributions (397,800) 0
Purchases of property and equipment (20,747) (62,249)
Net cash used in investing
activities (418,547) (62,249)
Cash flows from financing activities:
Payment of long-term debt 0 0
Proceeds from long-term debt 0 0
Net cash provided by (used) financing
activities 0 0
Net increase (decrease) in cash and
cash equivalents (83,471) 199,196
Cash and cash equivalents at beginning
year 521,334 204,048
Cash and cash equivalents at end of
quarter $437,863 403,244
See accompanying notes to financial statements.
<PAGE>
Sanchez-O'Brien 1981-A Drilling Company
(a limited partnership)
Notes to Financial Statements
September 30, 1996
(Unaudited)
(1) Organization and Summary of Significant Accounting Policies
a.Organization
Sanchez-O'Brien 1981-A Drilling Company (the Drilling
Company), is a Texas limited partnership formed on
December 18, 1980. Sanchez-O'Brien Drilling Corporation
is the General Partner and an Organizational Limited
Partner of the Drilling Company and has a 1% interest
therein.
The Drilling Company was initially formed with an
Organizational Limited Partner on December 18, 1980. Upon
the closing of subscriptions on June 23, 1981, with 3,207
Limited Partners contributing $26,520,000, the
Organizational Limited Partner was refunded his initial
contribution. In June, 1981, the Drilling Company entered
into a separate agreement to form a general partnership,
Sanchez-O'Brien 1981-A Drilling Partnership (the Drilling
Partnership), with Sanchez-O'Brien Oil & Gas Corporation
(Sanchez-O'Brien) as Managing General Partner. The
purpose of the Drilling Partnership is to conduct oil and
natural gas exploration activity in the continental United
States. Sanchez-O'Brien Drilling Corporation is a wholly
owned subsidiary of Sanchez-O'Brien Oil & Gas Corporation.
b.Basis of Financial Statement Presentation
The financial statements include the accounts of the
Drilling Company and its proportionate share in the
specific assets, liabilities and operating accounts of the
Drilling Partnership. All significant intercompany
balances have been eliminated.
<PAGE>
c.General
The financial statements included herein were prepared by
the Managing General Partner. In the opinion of
management, all adjustments have been made which are
necessary for a fair presentation of the financial
position of the Drilling Company at September 30, 1996 and the
results of operations for the period then ended.
(2) Oil and Gas Properties
The Drilling Company follows the full cost method of
accounting for its proportionate interest in the oil and 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 gas properties are
accounted for as adjustments to capitalized costs, with no
gain or loss recognized. Depreciation, depletion and
amortization of oil and gas properties is provided by the
units-of-production method based on proved oil and gas
reserves.
Under the full cost method of accounting for oil and gas
operations, capitalized costs of oil and gas properties are
not to exceed the present value of future net revenues from
estimated production of proved oil and 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.
(3) Notes Payable
As of September 30, 1996, The Drilling Company does not have any
debt.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
As of September 30, 1996, forty-three wells have been drilled. Of
this number, eleven wells are commercially productive,
twenty-four were dry holes or have been depleted and
abandoned, seven have been sold and one is shut-in.
The 3-Dimensional Seismic Program conducted by Pennzoil
Exploration and Production Company ("Pennzoil") in the S. W.
Escobas area has had to be reprocessed several times before
being interpreted. Because of this reprocessing, we have had
some delays in this evaluation, but once complete, the data
should determine whether or not we have an additional
location(s) on this prospect.
On September 26, 1996, The A. E. Gutierrez #1-A recompletion
to the 10,350' sand started. The well was put back on production on
October 8, 1996 at 1.15 mcf's per day. The 1981 Drilling Partnership
estimated cost is $37,234 with $18,617 being the Drilling Company's share.
As of September 30, 1996, the Drilling Company's share of capital
expenditures of the Drilling Partnership were in excess of the
available funds of the Drilling Company. Financing of these
expenditures was provided through borrowings from the Managing
General Partner.
As of September 30, 1996, each Limited Partner has received $355
per each $5,000 unit. During 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) is settled.
<PAGE>
PART II. Other Information
ITEM 1. LEGAL PROCEEDINGS
The litigation against Pennzoil and 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. 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 October 18, 1996, The Texas
Supreme Court ruled by a vote of 5 to 4 in favor of the plaintiffs.
An unfavorable ruling would force the Drilling Company to forfeit the
$203,996 currently being held in escrow by Sanchez-O'Brien Oil
& Gas Corporation. 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 $27,708. The total potential adverse effect would be
$43.25 per unit.
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
plaintiffs 7.29% of revenues from the wells on the Trevino
lease from May 1, 1987 forward, 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 gas revenues
The plaintiffs would be entitled to future revenues to be
derived from existing oil and gas revenues. The net
effect of losing these reserves at September 30, 1996 to the
Drilling Partnership is estimated to be $55,416, with
$27,708 being the interest of the Drilling Company, or
Limited Partners. The net impact per each $5,000 limited
partnership unit would be $5.17.
c.Funds retained in escrow
As mentioned, the Managing General Partner is currently
escrowing the net revenues applicable to the disputed
interest. At September 30, 1996, the total Drilling Company
funds being escrowed were $407,992, with $203,996 escrowed
for the Drilling Company, or Limited Partners. The net
impact per each $5,000 limited partnership unit would be
$38.07. 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 plaintiff.
However, if the defendants prevail, these additional
amounts would be available to the Drilling Company for
operations and/or distributions.
<PAGE>
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements 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
authorized.
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY
(Registrant)
By Sanchez-O'Brien Drilling Corporation.
General Partner
Date: 11/14/96 By: M. M. FREEMAN
M. M. Freeman
Senior Vice President, Treasurer,
Secretary and Director (Principal
Financial Officer)
Date: 11/14/96 By: OLIVER GARZA
Oliver Garza
Assistant Secretary - Controller
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 437863
<SECURITIES> 0
<RECEIVABLES> 9423
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 447286
<PP&E> 30952097
<DEPRECIATION> 30191924
<TOTAL-ASSETS> 1207459
<CURRENT-LIABILITIES> 170502
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 1036957
<TOTAL-LIABILITY-AND-EQUITY> 1207459
<SALES> 494188
<TOTAL-REVENUES> 494188
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 238356
<INCOME-TAX> 0
<INCOME-CONTINUING> 238356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 238356
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
