<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended
December 31, 1997 Commission File Number 2-71865
----------------- ------------------------------
TEXLAND DRILLING PROGRAM-1981
-----------------------------
(Name of Registrant)
TEXAS 75-1791491
---------------------- -----------------------------------
State of Organization) I. R. S. Employer Identification No.
500 Throckmorton Street, Suite 3100
Fort Worth, Texas 76102
------------------------------------- --------
(Address of Executive Offices) Zip Code
Registrant's Telephone Number (817) 336-2751
--------------
Securities registered pursuant to Section 12(b) of the Act:
Units of Limited Partnership Interest None
- ------------------------------------- -------------
(Title of Class) (Voting Units)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of 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 NO X
----- -----
This report contains a total of 22 pages.
1
<PAGE>
PART I
Item 1. Business
- -----------------
Texland Drilling Program-1981 (a Limited Partnership) was formed on July 20,
1981 with $12,125,000 in aggregate Limited Partnership subscriptions for the
purpose of engaging in the exploration for oil and gas. Such exploration has
taken place principally in the geological area known as the Texas Permian Basin.
The Partnership's drilling and exploration phase is complete. Development of
the Partnership's properties is also substantially complete; however,
development drilling may be undertaken on the Partnership's secondary recovery
properties to the extent necessary to insure the maximum commercial recovery of
reserves. During 1996 and 1997 the Partnership participated in the drilling of 4
and 6 gross wells, respectively, for such purpose.
The Partnership has no plans to borrow funds or reinvest significant amounts of
oil and gas revenues. To the extent that in-fill development is deemed
necessary, however; such operations will be funded from available cash flow.
See Note 6 of Notes to the Financial Statements on page 19 for information about
major purchasers. Sales to such purchasers are on a competitive basis on short-
term contracts customarily used in the industry. Should sales to these
refineries become interrupted, management believes alternative purchasers would
be immediately available on similar terms.
The price of oil and gas is affected by world wide supply and demand beyond the
Partnership's control. The average posted price during the past five years for
West Texas Sour (at an assumed gravity of 40 degrees), the primary type of
Partnership oil, is as follows:
1993 $15.60
1994 $14.28
1995 $15.42
1996 $19.10
1997 $16.86
From January 1, 1998 to March 30, 1998 oil prices of such oil ranged from a low
of $10.90 to a high of $13.90.
Item 2 - Properties
- -------------------
The Partnership currently has an interest in 279 active gross oil and gas wells,
representing 19.22 net wells. Two of the gross wells and .6393 of the net wells
are gas wells and the remainder are oil wells.
The Partnership currently has 279 oil wells included in 10 different enhanced
recovery projects operated by Texland Petroleum, Inc. Such enhanced recovery
projects are designed to pressurize the oil bearing reservoirs and increase the
producing rates, property life and overall ultimate recovery of oil.
2
<PAGE>
Item 3 - Legal Proceedings
- --------------------------
None
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
PART II
Item 5 - Market for Registrant's Common Equity and Related
- -----------------------------------------------------------
Stockholder Matters
- -------------------
Omitted. Not applicable.
Item 6 - Selected Financial Data
- --------------------------------
The following tables present selected financial data for each of the past five
years ended December 31, 1997 The data has been derived from the audited
financial statements:
TEXLAND DRILLING PROGRAM-1981
SELECTED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31
------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
- -----------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $1,481,650 $1,694,003 $1,213,648 $1,061,713 $1,292,410
Net Income/(Loss):
Limited Partners 111,810 314,195 86,433 (40,855) (51,272)
General Partners 198,949 402,096 141,732 29,776 45,305
---------- ---------- ---------- ---------- ----------
Net Income/(Loss) $ 310,759 $ 716,291 $ 228,165 $ (11,079) $ (5,967)
========== ========== ========== ========== ==========
Net Income/(Loss) per $5,000
Limited Partner Units (2,425
Units Outstanding)
$ 46 $ 130 $ 36 $ ( 17) $ ( 21)
========== ========== ========== ========== ==========
BALANCE SHEET DATA:
- --------------------------------
Total Assets $3,124,611 $3,402,265 $3,513,673 3,673,969 $3,969,544
Total Liabilities $ 46,981 $ 46,594 $ 64,086 $ 51,736 $ 46,240
Partners' Equity $3,077,630 $3,355,671 $3,449,587 $3,621,960 $3,923,304
PARTNERSHIP CASH DISTRIBUTIONS
- --------------------------------
Limited Partner (per $5,000
unit) $ 110 $ 155 $ 95 $ 57 $ 115
General Partner $ 430,700 $ 506,700 $ 247,450 $ 188,500 $ 335,000
</TABLE>
3
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
- --------------
Oil and gas sales decreased by approximately 12.5% in 1997 as compared to 1996.
The average price of Partnership oil decreased by approximately 11.8% in 1997.
The decrease in revenue is primarily due to such change in oil prices.
Oil and gas sales increased by approximately 40% in 1996 as compared to 1995.
The average price of Partnership oil increased by approximately 24% over the
same period. Also, average gas prices increased on the two gas wells in which
the Partnership owns an interest. In addition, several additional in-fill
development wells were drilled on a property in which the Partnership owns a 10%
working interest. Modest but normal declines in production were also experienced
on most Partnership properties in 1996 and 1997.
Fees to the managing general partner increased in 1997 as compared to 1996.
This increase is due to inflationary increases in the costs upon which these
charges are based and due to the relative increased activity in this
Partnership.
Depreciation, depletion and amortization are calculated on the units-of-
production method. Therefore, changes in these amounts are affected by upward
or downward revisions in future oil and gas reserve estimates. In addition, such
revisions are also caused by changes in current prices of oil and gas, which
correspondingly affect the number of future years that oil and gas properties
will remain economically viable.
In 1997, depreciation, depletion and amortization increased by approximately
$92,000. This increase is in part due to developmental drilling activity on a
property in which the Partnership owns a 10% interest. Such drilling increases
the Partnership's amortizable base. The remainder of the increase for 1997
was due to revisions in estimates of future recoverable reserves.
Production expenses increased by 15% in 1997. Such increase is due to increased
operating expense levels on the developmental property described above. Also, a
general overall inflationary increase in operating costs was experienced in
1997. Production expenses were relatively stable in 1996 as compared to 1995.
Changes in oil prices substantially impact the net income and cash flow of the
Partnership. All oil produced by the Partnership is sold under short term
contracts which that are immediately affected by changes in oil prices. Since
1981, world oil supply and demand conditions have caused prices to rise and
decline in an essentially unpredictable manner. No changes in these
circumstances are foreseen in the immediate future.
4
<PAGE>
Texland Drilling Program-1981 has substantially completed all the exploration
and development on the oil and gas properties in which it has an interest. No
long-term debt will be incurred and no new properties will be acquired.
Therefore, no future liquidity problems are anticipated by the Partnership.
Item 8 - Financial Statements and Supplementary Data:
- -----------------------------------------------------
See Index to Financial Statements on Page 10 of this report.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosures.
- ----------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The Partnership has no officers, employees or directors. The background of the
General Partners is as follows:
R. J. Schumacher - Age 69, President and Director of Texland Petroleum, Inc.
- ----------------
since May, 1967, has been an independent oil operator involved in drilling and
producing operations and the financing of oil and gas prospects, principally in
West Texas, Oklahoma and Arkansas. He has served as an executive officer with
Texland since its incorporation. For more than ten years prior to becoming an
independent oil operator, Mr. Schumacher was the chief financial officer,
contract drilling manager and land supervisor for an independent oil and gas
drilling contractor and operator. Mr. Schumacher is a Certified Public
Accountant. He received a Bachelor of Science in Commerce degree from Texas
Christian University in 1950 and a Master in Professional Accounting degree from
the University of Texas in 1951.
W. E. Rector - Age 63 Chairman of the Board and Director of Texland Petroleum,
- ------------
Inc., has been an independent petroleum geologist and oil operator since May,
1969. He has served as an executive officer with Texland since its
incorporation. He has had experience as a consulting petroleum geologist and as
an independent oil operator, has been involved in the origination and
development of oil and gas prospects and in raising funds for their financing in
the Mid- to 1970 he was employed by Pan American Petroleum Corp. in the Fort
Continent area since 1969. For more than ten years prior to becoming an
independent oil operator, Mr. Rector was associated with Pan American Petroleum
as an exploration petroleum geologist. Mr. Rector received a Bachelor of
Science degree in Geology from Ohio State University in 1957 and a Master of
Science degree in Geology from the University of Michigan in 1958. He is a
member of the American Association of Petroleum Geologists and is a Certified
Petroleum Geologist.
5
<PAGE>
J. N. Namy - Age 59 Vice-President and Director of Texland Petroleum, Inc., was
- ----------
employed by Texland as a geologist in June 1978. From 1967 to 1970 he was
employed by Pan American Petroleum Corp. in the Fort Worth Division. From 1970
to 1978 he taught at Baylor University achieving the rank of Associate
Professor. During this time, he served as a consultant for several independent
petroleum companies working on exploration and development projects in the
Eastern Shelf and the Permian Basin of West Texas and New Mexico, as well as the
southern Rockies of New Mexico and Colorado. He received his Bachelor and
Master degrees from Western Reserve University in Cleveland, Ohio and his Ph. D.
degree from the University of Texas at Austin in 1969. Mr. Namy is a member of
the American Association of Petroleum Geologists, Geological Society of America
and the Society of Economic Paleontologists and Mineralogists.
J. H. Wilkes - Age 42, Senior Vice President of Production and Director of
- ------------
Texland Petroleum, Inc. , was employed by Texland as a reservoir engineer in
August 1984. From 1978 to 1984, he was employed by Sun Exploration and
Production Company in Midland and Abilene, Texas. The first three years he
served as a production engineer and for the remaining three years he served as a
reservoir engineer. He received a Bachelor of Science degree in Petroleum
Engineering from Texas A&M University in 1978. He is a member of the Society of
Petroleum Engineers, A.I.M.E. and is a registered professional engineer in
Texas.
Item 11. Executive Compensation
- --------------------------------
See Note 5 of Notes to Financial Statements on page 19 of this report for
information with respect to payments to the Managing General Partner.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Omitted. Not applicable to Registrant.
Texland Petroleum, Inc. and Texland Properties-1981 are General Partners of the
Partnership. Texland Petroleum, Inc. is the managing General Partner. Texland
Properties-1981 is a general partnership formed between W. E. Rector, R. J.
Schumacher and Texland Petroleum, Inc.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
See Notes 4 and 5 of Notes to Financial Statement on page 19 of this report for
information with respect to certain relationships and related transactions.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a)1 and (a)2 Financial Statement and Financial Statement Schedules
See Index to Financial Statements on page 10 of this report.
6
<PAGE>
(a)3 Item 601 (Reg S-K) Exhibits:
None
(b) Reports on Form 8-K:
None
(c) Item 601 (Reg. S-K) Exhibits:
None
(d) Other Financial Statements and Financial Statement Schedules:
Not applicable.
7
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TEXLAND DRILLING PROGRAM-1981
- -----------------------------
Registrant
By /s/ M.E. CHAPMAN .
---------------------------------
M.E.Chapman, Vice President
Texland Petroleum, Inc.,
Managing General Partner Date March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacities and on the dates indicated.
By /s/ W.E. RECTOR .
----------------------------------
W.E.Rector, Chairman of the
Board, Texland Petroleum, Inc.
Managing General Partner.
By /s/ R.J. SCHUMACHER .
-----------------------------------
R.J.Schumacher, President,
Director, Texland Petroleum, Inc.
Managing General Partner
By /s/ J.N. NAMY .
-----------------------------------
J.N.Namy, Executive Vice President,
Director, Texland Petroleum, Inc.
Managing General Partner
By /s/ J.H. WILKES .
-----------------------------------
J.H.Wilkes, Senior Vice President
Director, Texland Petroleum, Inc.
Managing General Partner
8
<PAGE>
================================================================================
TEXLAND DRILLING PROGRAM-1981, LTD.
Financial Statements
DECEMBER 31, 1997 AND 1996
================================================================================
9
<PAGE>
TEXLAND DRILLING PROGRAM-1981,LTD.
INDEX TO FINANCIAL STATEMENTS
================================================================================
PAGE NO.
REPORT OF INDEPENDENT AUDITORS 11
FINANCIAL STATEMENTS
Balance Sheets 13
Statements of Operations 14
Statements of Partners'Capital 15
Statements of Cash Flows 16
Notes to Financial Statements 17
All financial statement schedules have been omitted since the required
information is included in the financial statements or the notes thereto or is
not applicable or not required.
================================================================================
10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Texland Drilling Program-1981, Ltd.
We have audited the balance sheets of Texland Drilling Program-1981, Ltd. as of
December 31, 1997 and 1996, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying index to the
financial statements present fairly, in all material respects, the financial
position of Texland Drilling Program-1981, Ltd. at December 31, 1997 and 1996,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Fort Worth, Texas
March 16, 1998
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
================================================================================
12
<PAGE>
TEXLAND DRILLING PROGRAM-1981, LTD. (A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
===============================================================================
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 63,132 $ 92,858
Accounts receivable - trade (Note 6) 114,817 179,111
----------------- -----------------
177,949 271,969
----------------- -----------------
Property and Equipment, at Cost
(Successful Efforts Method) (Notes 2, 3, 4, 5
and 8)
Intangible development costs 7,856,354 7,716,700
Lease and well equipment 4,562,176 4,456,082
Producing leaseholds 373,188 372,869
----------------- -----------------
12,791,718 12,545,651
Accumulated depreciation, depletion and amortization (9,845,056) (9,415,355)
----------------- -----------------
2,946,662 3,130,296
----------------- -----------------
$ 3,124,611 $ 3,402,265
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable:
Managing general partner $ 46,981 $ 46,594
----------------- -----------------
Partners' Capital (Notes 4 and 7)
Limited partners - 2,425 units outstanding 2,225,481 2,380,421
General partners 852,149 975,250
----------------- -----------------
3,077,630 3,355,671
----------------- -----------------
$ 3,124,611 $ 3,402,265
================= =================
</TABLE>
===============================================================================
See Accompanying Notes To Financial Statements.
13
<PAGE>
TEXLAND DRILLING PROGRAM-1981, LTD. (A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
===============================================================================
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ---------------- ----------------
<S> <C> <C> <C>
Revenue
Oil and gas sales (Note 6) $ 1,479,988 $ 1,691,058 $ 1,211,335
Interest income 1,662 2,945 2,313
------------------ ---------------- ----------------
1,481,650 1,694,003 1,213,648
------------------ ---------------- ----------------
Expense (Note 5)
Fees to managing general partner 99,700 64,200 64,200
Production expense 551,702 477,877 463,200
Severance tax 73,118 82,123 58,816
Depreciation, depletion and amortization 429,700 337,814 386,599
Other 16,671 15,698 12,668
------------------ ---------------- ----------------
1,170,891 977,712 985,483
------------------ ---------------- ----------------
Net Income $ 310,759 $ 716,291 $ 228,165
================== ================ ================
Allocation of Net Income (Note 7)
Limited partners $ 111,810 $ 314,195 $ 86,433
General partners 198,949 402,096 141,732
------------------ ---------------- ----------------
$ 310,759 $ 716,291 $ 228,165
================== ================ ================
Net Income (Loss) per $5,000 Limited Partner
Unit (2,425 Units Outstanding) $ 46 $ 130 $ 36
================== ================ ================
</TABLE>
===============================================================================
See Accompanying Notes To Financial Statements.
14
<PAGE>
TEXLAND DRILLING PROGRAM-1981, LTD. (A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
================================================================================
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
------------------ ------------------ -------------------
<S> <C> <C> <C>
Balance at December 31, 1994 $ 2,586,043 $ 1,035,917 $ 3,621,960
Partners' distributions (230,375) (247,450) (477,825)
Partners' contributions (Note 4) 77,287 77,287
Net income 86,433 141,732 228,165
------------------ ------------------ -------------------
Balance at December 31, 1995 2,442,101 1,007,486 3,449,587
Partners' distributions (375,875) (506,700) (882,575)
Partners' contributions (Note 4) 72,368 72,368
Net income 314,195 402,096 716,291
------------------ ------------------ -------------------
Balance at December 31, 1996 2,380,421 975,250 3,355,671
Partners' distributions (266,750) (430,700) (697,450)
Partners' contributions (Note 4) 108,650 108,650
Net income 111,810 198,949 310,759
------------------ ------------------ -------------------
Balance at December 31, 1997 $ 2,225,481 $ 852,149 $ 3,077,630
================== ================== ===================
</TABLE>
===============================================================================
See Accompanying Notes To Financial Statements.
15
<PAGE>
TEXLAND DRILLING PROGRAM-1981, LTD. (A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
================================================================================
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Operating Activities
Net income $ 310,759 $ 716,291 $ 228,165
---------------- ---------------- ----------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 429,700 337,814 386,599
Increase (decrease) in accounts receivable 64,294 (14,067) (58,178)
Increase (decrease) in accounts payable 387 (17,492) 12,350
Other 137
---------------- ---------------- ----------------
494,381 306,255 340,908
---------------- ---------------- ----------------
Net cash provided by operating activities 805,140 1,022,546 569,073
---------------- ---------------- ----------------
Investing Activities
Acquisition of property and equipment (246,066) (190,394) (142,375)
---------------- ---------------- ----------------
Net cash used in investing activities (246,066) (190,394) (142,375)
---------------- ---------------- ----------------
Financing Activities
Partners' contributions 108,650 72,368 77,287
Partners' distributions (697,450) (882,575) (477,825)
---------------- ---------------- ----------------
Net cash used in financing activities (588,800) (810,207) (400,538)
---------------- ---------------- ----------------
Net Increase in Cash (29,726) 21,945 26,160
Cash - beginning of year 92,858 70,913 44,753
---------------- ---------------- ----------------
Cash - End of Year $ 63,132 $ 92,858 $ 70,913
================ ================ ================
</TABLE>
===============================================================================
See Accompanying Notes To Financial Statements.
16
<PAGE>
TEXLAND DRILLING PROGRAM-1981,LTD. (A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Texland Drilling Program-1981, Ltd. (the "Partnership") was organized as a
limited partnership on July 20, 1981, for the purpose of engaging in oil and gas
exploration and production. Texland Properties-1981, a general partnership, and
Texland Petroleum, Inc. are the general partners. The managing general partner
is Texland Petroleum, Inc. Partnership operations are conducted predominately
in West Texas.
The Partnership shall continue in existence, unless terminated sooner through
the occurrence of a final terminating event as defined by the partnership
agreement, until December 31, 2001, as extended through approval by the limited
partners owning a majority of aggregate Partnership subscriptions.
The Partnership's accounting policies are summarized below:
BASIS OF ACCOUNTING
The Partnership maintains its financial records on the income tax basis. The
financial statements are presented in accordance with generally accepted
accounting principles. The primary differences in accounting methods are
identified in Note 7.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported revenues and expenses during the reported period. Actual results could
differ from those estimates.
PROPERTY AND EQUIPMENT
Costs incurred for the acquisition of producing and nonproducing leaseholds are
capitalized. Costs of intangible development and lease and well equipment
incurred to drill and equip successful exploratory and development wells are
capitalized. Costs to drill and equip unsuccessful exploratory wells are
charged to operations while costs of unsuccessful development wells remain
capitalized. Costs associated with uncompleted wells are capitalized as wells-
in-progress.
NONPRODUCING LEASEHOLDS
Costs of nonproducing properties are charged to expense at such time as they are
deemed to be impaired, based upon periodic assessments of such costs.
AMORTIZATION AND DEPLETION
Leasehold costs of producing properties are amortized on the unit-of-production
method based on estimated proved oil and gas reserves. Intangible development
costs of producing properties are amortized on the unit-of-production method
based on estimated proved developed oil and gas reserves.
================================================================================
17
<PAGE>
TEXLAND DRILLING PROGRAM-1981,LTD. (A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Depreciation of equipment is provided by the unit-of-production method based on
estimated proved developed oil and gas reserves.
FEDERAL INCOME TAX
The Partnership (which pays no federal income tax) files its federal income tax
return on the accrual basis maintained for income tax purposes.
STATEMENT OF CASH FLOWS
For purposes of these statements, the Partnership considers cash on deposit and
highly liquid money market funds as cash and cash equivalents.
ALLOCATION OF NET INCOME
Revenues and costs of the Partnership are allocated between the general and
limited partners in accordance with the Partnership agreement.
2. Costs Incurred in Oil and Gas Producing Activities
The following summarizes the Partnership's costs incurred in its oil and gas
activities, all of which were conducted within the United States, for the years
ended December 31:
<TABLE>
<CAPTION>
Lease Acquisition Costs Development Costs
------------------------- --------------------------
Expensed Capitalized Expensed Capitalized
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
1995 $ 3,504 $ 205 $ 138,871
1996 38 554 189,591
1997 320 203 245,746
</TABLE>
3. ACQUISITION OF NONPRODUCING PROPERTIES
The Partnership acquired working interests in certain oil and gas properties
through assignments from other Texland Drilling Program partnerships. These
acquisitions involved no cost to the Partnership and are subject to retained
nonworking interests by the assignor. Upon payout of these properties, the
assignor has an option to convert the retained nonworking interest to a working
interest.
================================================================================
18
<PAGE>
================================================================================
4. CONTRIBUTIONS BY GENERAL PARTNERS
Under terms of the Partnership agreement, Texland Properties-1981 is charged for
certain costs related to drilling and production operations, which are required
to be capitalized for federal income tax purposes. These costs are treated as
capital contributions. In addition, Texland Properties-1981 and Texland
Petroleum, Inc. have invested in limited partnership units in the amount of
$95,000 and $30,000, respectively. These investments as a limited partner are
reported with other limited partners' capital in the accompanying financial
statements.
5. PAYMENTS TO MANAGING GENERAL PARTNER
The Partnership was charged $185,191, $147,247, and $138,998 in 1997, 1996 and
1995, respectively, for technical and accounting services performed by employees
of the managing general partner. These charges are included in intangible
development costs, production expenses and fees to managing general partner.
Supervisory fees charged to the Partnership by the managing general partner for
drilling and operating the partnership wells were $162,519, $155,357, and
$142,980 in 1997, 1996, and 1995, respectively, and are included in intangible
development costs and production expenses.
These charges are allocated between the general and limited partners based upon
applicable revenue and expense sharing rates.
6. Major Purchasers
Purchasers which accounted for 10% or more of the Partnership's sales were:
1997 1996 1995
--------- -------- --------
BHT Marketing, Inc.
AMOCO Production Company 44% 38%
Tristar Gas Marketing 36% 45%
ARCO Oil and Gas Company 12% 45%
Lantern Petroleum Corp. 21%
Scurlock Permian Corporation 12%
--------- -------- --------
92% 83% 78%
========= ======== ========
Texland Petroleum receives substantially all revenues directly from the
purchasers and subsequently disburses these revenues to interest owners.
Substantially all trade accounts receivable were due from Texland Petroleum,
Inc. at December 31, 1997 and 1996.
================================================================================
19
<PAGE>
TEXLAND DRILLING PROGRAM-1981,LTD. (A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
================================================================================
7. RECONCILIATION OF BOOK-TAX REPORTING DIFFERENCES
Although the Partnership financial statements are prepared in accordance with
generally accepted accounting principles, its books and records are maintained
on the basis of accounting used for federal income tax purposes.
The following summarizes book-tax reporting differences for the year ended
December 31, 1997:
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
------------ ------------ ------------
<S> <C> <C> <C>
Net Income Differences:
Net income for financial reporting
purposes $ 111,810 $ 198,949 $ 310,759
------------ ------------ ------------
Expenses for federal income tax purposes
capitalized for financial reporting purposes (138,535) 1,118 (137,417)
Excess of depreciation, depletion and
amortization expense for financial
reporting purposes over amounts for
federal income tax purposes 250,916 130,974 381,890
------------ ------------ ------------
Additional income for federal income
tax purposes 112,381 132,092 244,473
------------ ------------ ------------
Net income for federal income tax purposes $ 224,191 $ 331,041 $ 555,232
============ ============ ============
</TABLE>
20
<PAGE>
===============================================================================
<TABLE>
<CAPTION>
PARTNERS' CAPITAL DIFFERENCES:
Limited General
Partners Partners Total
---------------- ---------------- ----------------
<S> <C> <C> <C>
Partners' capital at December 31, 1997,
for financial reporting purposes $ 2,225,481 $ 852,149 $ 3,077,630
Additional income (loss) for federal income tax purposes:
1997 112,381 132,092 244,473
1996 99,228 74,176 173,404
1995 157,172 120,204 277,376
1994 197,999 107,966 305,965
1993 277,730 214,742 492,472
1992 240,459 100,370 340,829
1991 318,408 152,615 471,023
1990 550,882 160,269 711,151
1989 552,963 120,851 673,814
1988 795,772 (36,000) 759,772
1987 517,630 (3,242) 514,388
1986 332,931 (253,798) 79,133
1985 921,282 (682,039) 239,243
1984 1,276,759 (479,063) 797,696
1983 1,145,881 76,871 1,222,752
1982 (503,533) (134,627) (638,160)
1981 (8,051,462) (125,697) (8,177,159)
Investment tax credit basis reduction not
recognized for financial reporting purposes (39,178) (39,178)
---------------- ---------------- ----------------
Partners' capital December 31, 1997,
for federal income tax purposes $ 1,167,963 $ 358,661 $ 1,526,624
================ ================ ================
</TABLE>
21
<PAGE>
8. ESTIMATED FUTURE NET REVENUES FROM PROVED RESERVES
At December 31, 1997, the estimated future net reserves from partnership proved
reserves as determined by Texland Petroleum, Inc., using product prices and
operating conditions existing as of that date were as follows:
Future Net
Revenue
Future Net Discounted
Revenue at 10%
---------- ----------
Limited partners $ 2,288,239 $ 1,350,840
General partners 2,200,333 1,299,248
----------- -----------
$ 4,488,572 $ 2,650,088
Because of uncertainties inherent in the reserve estimation process,
management's estimate of future net revenues and the timing of such revenues may
change in the near term as the result of engineering or economic conditions.
However, the amount of the change that is reasonably possible cannot be
estimated.
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT DECEMBER 31, 1997 AND DECEMBER 31, 1996 AND THE STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 63,132 92,858
<SECURITIES> 0 0
<RECEIVABLES> 114,817 179,111
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 177,949 271,969
<PP&E> 12,791,718 12,545,651
<DEPRECIATION> 9,845,056 9,415,355
<TOTAL-ASSETS> 3,124,611 3,402,265
<CURRENT-LIABILITIES> 46,981 46,594
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 3,077,630 3,355,671
<TOTAL-LIABILITY-AND-EQUITY> 3,124,611 3,402,265
<SALES> 1,479,988 1,691,058
<TOTAL-REVENUES> 1,481,650 1,694,003
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,170,891 977,712
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 310,759 716,291
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 310,759 716,291
<EPS-PRIMARY> 46.11 129.56
<EPS-DILUTED> 46.11 129.56
</TABLE>
