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, 1999
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) 783-8000
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, 1999
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 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.
Effective January 1, 1998, Sanchez-O'Brien Drilling Corporation's name was
changed to Sanchez Drilling Corporation. Also, Sanchez-O'Brien Oil & Gas
Corporation, name was changed to Sanchez Oil & Gas Corporation.
Effective January 1, 1999, remaining wells were sold to Coastal Oil & Gas
USA, L.P., for $1,219,585 with the 1981 Drilling Company's share being
$714,489. Cash distribution of $191.47 per unit was issued to investors
on December 30, 1999. A Final K-1 was sent to investors on March 14, 2000.
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 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, 1998, forty-three wells were 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.
Effective January 1, 1999, the ten commercially productive and two
shut in wells were sold to Coastal Oil & Gas USA, L.P.
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
During 1999, revenues recorded were for 1998 Production as the wells were
sold effective January 1, 1999.
Long-term Debt
At December 31, 1999, The Drilling Company does not have any long term
debt.
Marketing Conditions
All wells were sold effective January 1, 1999.
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
As of December 31, 1999, each Limited Partner has received $626 per each
$5,000 unit.
A check representing the Investors share of the final cash distributions
of the Sanchez-O'Brien 1981-A Drilling Company, for $191.47 per limited
partnership unit was mailed out December 30, 1999. During 1999, the
following events occured:
1.) All remaining properties of Sanchez-O'Brien 1981-A Drilling Partnership
were sold to Coastal Oil & Gas USA, L.P., in transaction that closed
May 20, 1999 but was effective January 1, 1999. The total consideration
received for the properties was $1,219,585 with the Drilling Company's
share being $714,489.
2.) The ongoing litigation by Concord Oil Company vs. Pennzoil Producing
and Sanchez-O'Brien Oil & Gas Company on the Southwest escobas Properties
was finally settled. The SW Escobas properties comprised the majority of
the value owned by the Drilling Partnership. Concord brought their suit
in 1992 claiming that they had, through previous assignments, a 7/48th
interest in the oil and gas mineral leases claimed by Pennzoil and
Sanchez-O'Brien. While Pennzoil and Sanchez-O'Brien won the case at the
District Court level, the plaintiffs prevailed with the Court of Appeals
and the Texas Supreme Court heard the case twice - the original hearing
and a rehearing granted to the defendants. Bothe times, the Supreme
Court ruled 5 to 4 in favor of the plaintiffs, with strong dissenting
opinions.
The damages on the litigation were comprised of paying to Concord their
pro-rata share of oil and gas income from the properties, net of their
share of costs and expenses. The parties also settled on the issue of
interest, rather than continue to litigate the matter. A majority of
the funds due Concord for their share of production had been escrowed
by Sanchez-O'Brien beginning in 1992.
The accounting firm of KPMG Peat Marwick calculated the gain/loss
resulting from activities during 1999, in order to determine the final
distribution to Partners. The distribution to Partners was based on the
respective Article 8 of the Sanchez-O'Brien 1981-A Drilling Company and
Sanchez-O'Brien 1981-A Drilling Partnership Agreements. Specifically, the
agreements required that the partnership assets (cash), after payment of
expenses, be distributed to Partners in proportion to their respective Capital
Accounts. Based on the capital accounts of partners in the Drilling
Partnership, the remaining cash of $1,794,620 was distributed 56.87% to the
Drilling Company (Limited Partners) and 43.13% to the General Parnter
(Sanchez Oil & Gas Corp.)
A Final Schedule K-1 was mailed out on March 14, 2000 to Partners for
the 1999 tax year. Because we are terminating the business of the
partnership as of December, 1999, the Schedule K-1 will be the final one for
Partners.
<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, 1998:
Oil Natural Gas Total
# Wells ANWI # Wells ANWI # Wells ANWI
Texas............ - - - - - -
Louisiana........ - - - - - -
Oklahoma......... - - - - - -
New Mexico....... - - - - - -
Colorado......... - - - - - -
Wyoming.......... - - - - - -
- - - - - -
See Note 8 to the Financial Statements for reserve information.
Item 3. Legal Proceedings
The litigation against Pennzoil Exploration and Production Company
(Pennzoil) and Sanchez Oil and Gas Corporation (Sanchez) on the Trevino leases
in the S.W. Escobas Prospect was settled in 1999.
See Item 1 - Future Operations for explorations.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the Security Holders during the fourth
quarter of 1999.
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,
1999. There is no market for the limited partnership units of the
Drilling Company and transferability is subject to certain conditions,
including the consent of the Managing General Partner. The Drilling Company
has 1,479 limited partners as of December 30, 1999.
<PAGE>
As of December 31, 1999, each Limited Partner has received $626 per each
$5,000 unit. Included in the $626 is a final cash distribution of $191.47
which was issued on December 30, 1999.
According to the terms of the Drilling Company's Partnership Agreement,
the General Partner is obligated to repurchase, if requested, the interests
of limited partners in the Drilling Company. The maximum repurchase
obligation is 10% of the Aggregate Limited Partners Contributions. The
repurchase price will be based primarily on the discounted value of the
Drilling Company's share of the oil and natural gas properties. The
Managing General Partner repurchased 1 unit during 1999. As of December
31, 1999, the Managing General Partner has repurchased 2,823 units, or
53.20%, of the total 5,304 units. At January 1, 1998, the managing general
partner assigned 941 units to Mr. Brian E. O'Brien, a former stockholder in
Sanchez-O'Brien Oil & Gas Corporation.
Item 6. Selected Financial Data
The financial results of operations of the Drilling Company as of and for
the years ended December 31, 1999, 1998 and 1997 are as follows:
[CAPTION]
1999 1998 1997
[S] [C] [C] [C]
Revenues. . . . . . . . . .$ 74,766 462,242 763,517
Expenses. . . . . . . . . . 214,142 267,426 373,281
Gain on sale of properties. 161,920 0 0
Net income. . . . . . . . . 22,544 194,816 390,236
LP's net income (99%) . . . 22,318 192,868 386,334
LP's net income per unit. . 4 36 73
Total assets. . . . . . . . 0 1,582,964 1,380,407
Working capital
increase <decrease>. . .$ <785,110> 308,641 34,688
Partners' equity (deficit)
Limited partners . . . .$ 0 1,324,307 1,131,434
General partner. . . . .$ 0 13,372 11,424
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.
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 $22,544 in 1999, $194,816 in 1998,
and $390,236 in 1997.
Effective January 1, 1999, all remaining wells were sold to Coastal Oil
& Gas, L.P.
<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, 1999 and 1998
Statements of Operations - Years ended December 31, 1999, 1998
and 1997
Statements of Partners' Equity (Deficit) - Years ended December
31, 1999, 1998 and 1997
Cash Flows Statement of - Years ended December 31, 1999, 1998
and 1997.
Notes to Financial Statements
Schedule V - Property and Equipment - Years ended December 31, 1999,
1998 and 1997
Schedule VI - Accumulated Depreciation, Depletion and Amortization of
Property and Equipment - Years ended December 31, 1998, 1997 and 1996
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, 1999 and 1998
(Unaudited)
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
Current assets:
Cash $ 0 1,011,552
Accounts receivable 0 18,843
Total current assets 0 1,030,395
Oil and natural gas properties (full
cost method), at cost, pledged
(notes 3 and 4) 0 31,022,493
Less accumulated depreciation,
depletion and amortization (note 3) 0 30,469,924
Net oil and natural gas
properties 0 552,569
Organization costs, less applicable
amortization 0 0
TOTAL ASSETS 0 1,582,964
<CAPTION>
LIABILITIES AND PARTNERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable 0 64,730
Suspense payable-investors 0 180,555
Total current liabilities 0 245,285
Partners' equity:
Limited partners 0 1,324,307
General partner 0 13,372
Total partners' equity 0 1,337,679
TOTAL LIABILITES AND
PARTNERS' EQUITY $ 0 1,582,964
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, 1999, 1998 and 1997
(Unaudited)
<CAPTION>
1999 1998 1997
<S>
Revenues: <C> <C> <C>
Oil and natural gas sales $ 20,897 438,068 742,030
Interest income 47,409 24,174 21,487
Gain on sale of properties 161,920
Other income 6,460 - -
236,686 462,242 763,517
Expenses:
Operating expenses 15,608 134,437 168,710
General and administrative
expenses (note 7) 198,534 39,989 50,571
Depreciation, depletion and
amortization (note 3) 0 93,000 154,000
Interest expense - - -
214,142 267,426 373,281
Net income $ 22,544 194,816 390,236
Net income applicable
to limited partners $ 22,318 192,868 386,334
Net income of limited
partners per unit
of limited partnership
interest $ 4 36 73
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, 1999, 1998, and 1997
(Unaudited)
Limited Partners
Partners'
General Equity
Units Amount Partner (Deficit)
<CAPTION>
<S> <C> <C> <C> <C>
Balances at December 31, 1996 5,304 $1,176,947 11,766 1,165,181
Cash distribution (424,320) (4,244) (420,076)
Net income 390,236 3,902 386,334
Balances at December 31, 1997 5,304 1,142,863 11,424 1,131,439
Cash distribution - - -
Net income 194,816 1,948 192,868
Balnaces at December 31, 1998 5,304 1,337,679 13,372 1,324,307
Cash distribution (1,043,070) (27,527) (1,015,543)
Net income 22,544 226 22,318
Other Adjustments (317,153) 13,929 (331,082)
Balances at December 31, 1999 5,304 $ 0 0 0
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, 1999, 1998 and 1997
(Unaudited)
1999 1998 1997
<CAPTION>
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 22,544 194,816 390,236
Adjustments to reconcile net earnings
to net cash provided by operating
activities: Depreciation, depletion 0 93,000 154,000
and amortization (161,920) 0 0
Sale of wells - non cash items
Change in assets and liabilities:
Accounts receivable 18,843 29,490 54,884
Accounts payable (64,730) 11,656 45,240
Suspense payable (180,555) (3,915) 29,845
Total adjustments (388,362) 130,231 283,969
Net cash provided by operating
activities (365,818) 325,047 674,205
Cash flows from investing activities:
Cash distributions to investors (1,043,070) - (424,320)
cash distribution to general partner
Additions to property and equipment (774,037) 20,825 (85,503)
Future Proffesional & Legal Fees (48,212)
Net cash used in investing activities (1,865,319) 20,825 (509,823)
Cash flows from financing activities:
Payments of long-term debt 0 - -
Proceeds fom long-term debt 0 - -
Proceeds from sale of wells 1,219,585
Net cash provided by financing
activities 1,219,585 - -
Net increase (decrease) in cash and cash
equivalents (1,011,552) 345,872 164,382
Cash and cash equivalents at beginning
of year 1,011,552 665,680 501,298
Cash and cash equivalents at end of year $ 0 1,011,552 665,680
</TABLE>
<PAGE>
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY
(a limited partnership)
Notes to Financial Statements
December 31, 1999 and 1998
(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 Drilling Corporation (a
wholly-owned subsidiary of Sanchez Oil & Gas
Corporation) as general partner and an organizational limited
partner. On June 23, 1981, Sanchez 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 was to remain in existence until December 31, 2011,
unless dissolved prior to that date according to provisions of
the Drilling Company Partnership Agreement. Sanchez 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 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 was to remain in existence until
December 31, 2011, unless dissolved prior to that date
according to provisions of the Drilling Partnership Agreement.
Sanchez 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 $5,356,232
as of December 31, 1999.
<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 1 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 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 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 Oil & Gas
Corporation and 50 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, 1999 and 1998 were as follows:
<PAGE>
[CAPTION]
1999 1998
[S] [C] [C]
Costs related to proved
properties $ 0 31,022,493
Costs related to unproved
properties - -
0 31,022,493
Less accumulated depletion 0 30,469,924
$ 0 552,569
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, 1999, 1998 and 1997:
[CAPTION]
1999 1998 1997
[S] [C] [C] [C]
Oil and natural gas revenues $ 20,897 438,068 742,030
Operating expenses 15,608 134,437 166,191
Depreciation, depletion and
amortization 0 93,000 154,000
Results of operations from
producing activities
(excluding overhead and
interest costs)
Net income $ 5,289 210,631 421,839
Operating expenses include production taxes of $581, $ 2,456,
and $2,520 in 1999, 1998 and 1997, respectively.
The 1999 full cost ceiling test did not warrant an additional
charge to depreciation, depletion and amortization.
The regular provision for depreciation, depletion and
amortization per unit of production (net equivalent barrel)
for the years ended December 31, 1999, 1998 and 1997 was
$0.00, $2.40 and $2.73 respectively. These rates are
exclusive of the amounts attributable to the limitation on
capitalized costs.
<PAGE>
(4) Notes Payable
As of December 31, 1998, 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,
1999, 1998 and 1997.
[CAPTION]
1999 1998 1997
[S] [C] [C] [C]
Net income as reported
herein $ 22,544 194,816 390,236
Less costs capitalized for
financial reporting purposes
which are expenses for tax
purposes (primarily intangible
drilling and dry hole costs) 0 (20,825) 83,524
Add depreciation, depletion and
amortization for financial
reporting purposes 0 93,000 154,000
Less depreciation and cost
depletion for tax purposes 0 68,732 53,755
Differences in accrual method
of accounting for financial
reporting purposes and cash
basis for tax purposes 307,040 (40,156) 31,397
Income for Federal income tax
purposes $ 335,363 199,753 438,354
<PAGE>
(6) Repurchase Obligations
In accordance with the terms of the Drilling Company's
Partnership Agreement, Sanchez 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 Oil & Gas
Corporation purchased 1 units during 1999.
(7) Related Party Transactions
Sanchez Oil & Gas Corporation functions as operator
for the Drilling Partnership's wells. In this capacity,
Sanchez 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 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
$40,595 in 1999 for both the Drilling Partnership and Drilling
Company. Of these amounts, $10,000 was paid for overhead
reimbursements and $30,595 for direct administrative charges.
The Drilling Company's share of the above reimbursements
included $20,377 of administrative charges, both overhead and
direct charges, for the year 1999.
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 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, 1998 22,470 594,599
Sole of properties (22,470) (594,599)
Production 0 0
Balance at December 31, 1999 0 0
Proved developed and
undeveloped reserves:
December 31, 1997 41,421 1,210,495
December 31, 1998 22,470 594,599
December 31, 1999 0 0
All the reserves of the Drilling Company are attributable to
its interest in the Drilling Partnership, and 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, 1999, 1998 and 1997
[CAPTION]
Balance at Balance at
Beginning of End of
Classification Period Additions Retirements Period
1997
[S] [C] [C] [C] [C]
Oil and natural gas properties $30,957,815 85,503 0 31,043,318
1998
Oil and natural gas properties $31,043,318 0 20,825 31,022,493
1999
Oil and natural gas properties $31,022,493 0 (31,022,493) 0
<PAGE>
Schedule VI
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY
(a limited partnership)
Accumulated Depreciation, Depletion
and Amortization
Years Ended December 31, 1999, 1998 and 1997
[CAPTION]
Balance at Balance at
Beginning of End of
Classification Period Additions Retirements Period
1997
[S] [C] [C] [C] [C]
Oil and natural gas properties $30,222,924 154,000 0 30,376,924
1998
Oil and natural gas properties $30,376,924 93,000 0 30,469,924
1999
Oil and natural gas properties $30,469,924 0 (30,469,924) 0
<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 Drilling Corporation, is a wholly
owned subsidiary of Sanchez Oil & Gas Corporation. The names,
ages (as of March 1, 2000) and positions of the directors and
executive officers of Sanchez Drilling Corporation are as
follows:
NAME AGE POSITION
Antonio R. Sanchez, Jr. 57 Chairman of the Board and
Chief Executive Officer
Frank A. Guerra 51 President, COO and CFO
Antonio R. Sanchez, Jr., age 57, 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.
<PAGE>
Frank A. Guerra, age 51, President, COO and CFO, 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.
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 1999. 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, 1999, Sanchez Oil & Gas Corporation, owned a 35.63
percent interest (1,891 units) in the Drilling Company. One investor,
Brian E. O'Brien, owned 17.74 percent interest (941 units), but 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 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 Oil & Gas Corporation Securities Owned by
Officers and Directors of Sanchez Oil & Gas Corporation
At March 1, 2000, various entities owned by the families of Antonio R.
Sanchez (deceased) and Antonio R. Sanchez Jr. own one hundred percent of the
outstanding common stock of Sanchez Oil & Gas Corporation.
(c) Changes in control
There have been no changes in control of the Drilling Company during the
period ended December 31, 1999.
Item 13. Certain Relationships and Related Transactions
During 1981, the Drilling Company paid Sanchez 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 Oil & Gas Corporation receives monthly
fees on drilling and producing wells. The Drilling Partnership also paid
Sanchez Oil & Gas Corporation a management fee of $1,193,400 in 1981.
Substantially all of the Drilling Partnership's oil and natural gas leases
were acquired from Sanchez Oil & Gas Corporation at cost plus administrative
and carrying charges. Certain key employees of Sanchez 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, 1999.
<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 31, 1999.
SANCHEZ OIL & GAS CORPORATION
By Sanchez 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 30, 2000.
Frank A. Guerra
President
(Principal Operating 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 30, 2000.
SANCHEZ OIL & GAS CORPORATION
By Sanchez 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/Frank A. Guerra
Frank A. Guerra
President
(Principal Operating Officer)
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