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, 1998
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, 1998
INDEX
PART I - Financial information:
Item 1. Financial Statements
Balance Sheets for the periods September 30, 1998 and
December 31, 1997
Statements of Operations for the nine months ended
September 30, 1998 and 1997
Statement of Partners' Equity as of September 30, 1998
Statements of Cash Flow for the nine months ended
September 30, 1998 and 1997
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)
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash $ 948,752 665,680
Accounts receivable 27,151 48,333
Total current assets 975,903 714,013
Oil and natural gas properties (full cost
method), at cost, pledged (note 2) 31,016,515 31,043,318
Less accumulated depreciation, depletion
and amortization (note 2) 30,448,924 30,376,924
Net oil and natural gas properties 567,591 666,394
Organization costs, less applicable
amortization 0 0
1,543,494 1,380,407
<CAPTION>
<S> <C> <C>
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable 50,000 53,074
Suspense payable-investors 180,555 184,470
Total current liabilities 230,555 237,544
Partners' equity:
Limited partners 1,299,810 1,131,439
General partner 13,129 11,424
Total partners' equity 1,312,939 1,142,863
$ 1,543,494 1,380,407
See accompanying notes to financial statements.<PAGE>
<PAGE>
</TABLE>
<TABLE>
Sanchez-O'Brien 1981-A Drilling Company
(a limited partnership)
Statements of Operations
(Unaudited)
Nine Months Ended
September 30,
1998 1997
<CAPTION>
<S> <C> <C>
REVENUES:
Oil and natural gas sales $357,038 560,838
Interest income 17,406 15,704
Other income 0 0
374,444 576,542
EXPENSES:
Operating expenses 96,379 112,474
General and administrative 35,989 46,516
Interest 0 0
Depreciation, depletion
and amortization (note 2) 72,000 113,000
204,368 271,990
Net income $170,076 304,552
See accompanying notes to financial statements.
<PAGE>
</TABLE>
<TABLE>
<PAGE>
Sanchez-O'Brien 1981-A Drilling Company
(a limited partnership)
Statement of Partners' Equity
Nine Months Ended September 30, 1998
(Unaudited)
Limited General
Partners Partner Total
<CAPTION>
<S> <C> <C> <C>
Balances at December 31, 1997 $1,131,439 11,424 1,142,863
Cash distributions 0 0 0
Net income 168,371 1,705 170,076
Balances at September 30, 1998 $1,299,810 13,129 1,312,939
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,
1998 1997
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income $ 170,076 304,522
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, depletion and
amortization 72,000 113,000
Change in assets and liabilities:
Accounts receivable 21,182 60,377
Accounts payable (3,074) 71,229
Suspense payable (3,915) (6,445)
Total adjustments 86,193 238,161
Net cash provided by operating
activities 256,269 542,713
Cash flows from investing activities:
Cash distributions - -
Purchases of property and equipment 26,803 (83,695)
Net cash used in investing
activities 26,803 (83,695)
Cash flows from financing activities:
Payment of long-term debt 0 0
Proceeds from long-term debt 0 0
Net cash provided (used) by financing
activities 0 0
Net increase in cash and cash equivalents 283,072 459,018
Cash and cash equivalents at beginning of
year 665,680 501,298
Cash and cash equivalents at end of
quarter $948,752 960,316
See accompanying notes to financial statements.
<PAGE>
Sanchez-O'Brien 1981-A Drilling Company
(a limited partnership)
Notes to Financial Statements
September 30, 1998
(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.
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 June 30, 1998 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, 1998, 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, 1998, forty-three wells have been drilled.
Of this number, nine wells are commercially productive,
twenty-four were dry holes or have been depleted and
abandoned, seven have been sold and three are shut-in.
As of September 30, 1998, 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, 1998, each Limited Partner has received $435
per each $5,000. Future distributions will be made after
litigation on the S. W. Escobas (Trevino leases) has been settled.
<PAGE>
PART II. Other Information
ITEM 1. LEGAL PROCEEDINGS
The litigation against Pennzoil Exploration and Production Company
(Pennzoil) and Sanchez-O'Brien on the Trevino lease in the S.W.
Escobas Prospect is ongoing. The interests in the Trevino lease,
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 and Pennzoil's interest. The trial judge, on
November 9, 1992, ruled in favor of the defendants, Pennzoil and
Sanchez. 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 judgment.
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
judgments of both lower courts. On November 20, 1996, a motion for
rehearing was filed. The Texas Supreme Court granted the motion for a
rehearing, but on February 26, 1998, The Texas Supreme court rendered an
opinion reversing the San Antonio Court of Appeals and the trial court and
rendering judgement for plaintiff. A motion for a rehearing was filed in
March 1998. The Supreme Court has refused to rehear the case, essentially
bringing finality to the case in favor of the plaintiffs. Besides the
actual amounts owed, the defendents will also owe interest to the plaintiffs,
although the respective start dates for the accrual of interest are still
being discussed.
An unfavorable ruling would force the Drilling Company to forfeit the
$252,417 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 $21,595
The total potential adverse effect would be $51.14 per each $5,000 limited
partnership 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 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 October 1, 1998 to the
Drilling Partnership is estimated to be $43,192, with
$21,595 being the interest of the Drilling Company, or
Limited Partners. The net impact per each $5,000 limited
partnership unit would be $4.03.
c. Funds retained in escrow
As mentioned, the Managing General Partner is currently
escrowing the net revenues applicable to the disputed
interest. At July 1, 1998, the total Drilling Company
funds being escrowed were $504,834, with $252,417 escrowed
for the Drilling Company, or Limited Partners. The net
impact per each $5,000 limited partnership unit would be
$47.11. 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: 11/13/98 By: M. M. FREEMAN
M. M. Freeman
Senior Vice President, Treasurer,
Secretary and Director (Principal
Financial Officer)
Date: 11/13/98 By: OLIVER GARZA
Oliver Garza
Vice President
Acctg./Administration
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 948752
<SECURITIES> 0
<RECEIVABLES> 27151
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 975903
<PP&E> 31016515
<DEPRECIATION> 30448924
<TOTAL-ASSETS> 1543494
<CURRENT-LIABILITIES> 230555
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 1312939
<TOTAL-LIABILITY-AND-EQUITY> 1543494
<SALES> 374444
<TOTAL-REVENUES> 374444
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 204368
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 170076
<INCOME-TAX> 0
<INCOME-CONTINUING> 170076
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170076
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
