<PAGE> 1
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 the Quarterly Period Ended June 30, 1998
or
/ /Transition Report Pursuant to Section 13 or 15(d)of the
Securities Exchange Act of 1934
For the Transition Period Ended ______________________
Commission File Number 0-10501
STERLING GAS DRILLING FUND 1981
(Exact name of registrant as specified in charter)
New York
(State or other jurisdiction of incorporation or
organization)
13-3098770
(IRS employer identification number)
One Landmark Square, Stamford, Connecticut 06901
(Address and Zip Code of principal executive offices)
(203) 358-5700
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former 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 / /
<PAGE> 2
Item 1. Financial Statements
The following Financial Statements are filed herewith:
Balance Sheets - June 30, 1998 and December 31, 1997.
Statements of Operations for the Six and Three Months Ended June 30,
1998 and 1997.
Statements of Changes in Partners' Equity for the Six and Three Months
Ended June 30, 1998 and 1997.
Statements of Cash Flows for the Six Months Ended June 30, 1998
and 1997.
Note to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
1. Liquidity -
The oil and gas industry is intensely competitive in all its phases.
There is also competition among this industry and other industries in
supplying energy and fuel requirements of industrial and residential
consumers. It is not possible for the Registrant to calculate its
position in the industry as Registrant competes with many other
companies having substantially greater financial and other resources.
In accordance with the terms of the Prospectus, the General Partners
of the Registrant will make cash distributions of as much of the
Partnership cash credited to the capital accounts of the Partners as
the General Partners have determined is not necessary or desirable for
the payment of any contingent debts, liabilities or expenses or for
the conduct of the Partnership's business. As of June 30, 1998, the
General partners have distributed to the Limited partners $3,955,500.
Such cash distributions are equivalent to 45% of original total
Limited Partner capital contributions.
All aspects of the Partnership's operations and administration are
handled through the use of managing general partner's computer
systems. Both, the operating company and the managing general partner
are taking steps to minimize any potential computer issues with regard
to any necessary changes for the year 2000. A complete system upgrade,
which includes but is not limited to, the year 2000 issue has been
implemented by both the operating company and the managing general
partner. During the remainder of this year both companies will
continue to monitor, test and verify data in detail to avoid any
potential reporting concerns or delays.
<PAGE>3
proved oil and gas reserves of the Partnership are considered to be a
indicator of financial strength and future liquidity. The present
value of unescalated future net revenue (S.E.C. case) associated with
such reserves, discounted at 10% as of December 31, 1997 was
approximately $687,900 as compared to the value as of December 31,
1996 which was approximately $817,000. Overall reservoir engineering
is a subjective process of estimating underground accumulations of gas
and oil that can not be measured in an exact manner. The accuracy of
any reserve estimate is a function of the quality of available data
and of the engineering and geological interpretation and judgment.
Accordingly, reserve estimates are generally different from the
quantities of gas and oil that are ultimately recovered and such
differences may have a material impact on the partnership's financial
results and future liquidity.
2. Capital Resources -
The Registrant was formed for the sole purpose of drilling oil and gas
wells. The Registrant entered into a drilling contract with an
independent contractor in December 1981 for $6,900,000. Pursuant to
the terms of this contract, wells have been drilled resulting in
thirty-seven producing wells, three non commercial wells and one
plugged well. The Registrant has had a reserve report prepared which
details reserve value information, and such information is available
to the Limited Partners pursuant to the buy-out provisions of the
Prospectus as previously filed.
3. Results of Operations -
Operating Revenues increased from $132,533 in 1997 to $161,621 in
1998, due to gas production increase, from 43,399 MCF in 1997 to
54,339 MCF in 1998, combined with a slight increase in average price
per MCF from $2.85 in 1997 to $2.93 in 1998. The Partnership has
expended funds to purchase additional equipment and to complete light
repairs which , based upon the operator's evaluation, are designed to
increase production or to halt any further significant declines. The
beneficial effect looked for by the operator is to increase, improve
or sustain production on a particular well. These costs are
capitalized if they meet the appropriate criteria. Production
expenses increased from $55,947 in 1997 to $66,528 in 1998 as a result
of a combination of repairs and labor costs associated with the wells
and well sites. These repairs may also
<PAGE> 4
result in the well's temporarily shut-in which could account for some
declines in production. The production expenses incurred in 1997 were
of a normal and recurring nature to upkeep the wells.
Overall general and administrative expenses remained stable and showed
little change from 1997 to 1998. The amounts charged reflect
management's efforts to limit costs, both incurred and allocated to
the Registrant. Management continues to reduce third party costs and
use in-house resources to provide efficient and timely services to the
Partnership. The related party expenses attributable to the affairs
and operations of the Partnership, reimbursed to PEMC, are limited to
an annual amount not to exceed 5% of the Limited Partners capital
contributions. Amounts related to both years are substantially less
than the amounts allocable to the Registrant under the Partnership
Agreement.
The Partnership records additional depreciation, depletion and
amortization to the extent that net capitalized costs exceed the
undiscounted future net cash flows attributable to the Partnership
properties. The Partnership was not required to revise the properties
basis in either 1997 or first half of 1998. The lower depletion
expense in 1998 is due to overall lower depletable cost basis in oil
and gas properties.
PART II
Items 1 through 5 have been omitted in that each item is either
inapplicable or the answer is negative.Item . Exhibits and Reports on
Form 8-K
The Partnership was not required to file any reports on Form 8-K and
no such form was filed during the period covered by this report.
Exhibit 27 - Financial Data Schedule is attached to the electronic
filing of this report.
<PAGE>5
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
STERLING GAS DRILLING FUND 1981
BY: /s/ Charles E. Drimal Jr.
--------------------------
Charles E. Drimal, Jr.
General Partner
August 12, 1998
<PAGE>6
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Balance Sheets
June 30, December 31,
1998 1997
(unaudited) (audited)
Assets
Current Assets:
Cash and cash equivalents $ 7 $ 16
---------- -----------
Total current assets 7 16
Oil and Gas properties -
successful efforts method:
Leasehold costs 236,502 236,502
Well and related facilities 6,959,472 6,948,063
less accumulated
depreciation, depletion and
amortization (6,060,825) (6,023,905)
---------- ----------
1,135,149 1,160,660
---------- ----------
Total assets $ 1,135,156 $ 1,160,676
========== ==========
Liabilities and Partners' Equity
Current liabilities:
Due to affiliates $ 99,178 $ 124,096
---------- ----------
Total current liabilities 99,178 124,096
---------- ----------
Partners' Equity
Limited partners 1,136,842 1,142,831
General partners (100,864) (106,251)
---------- ----------
Total partners' equity 1,035,975 1,036,580
---------- ----------
Total liabilities and
partners' equity $ 1,135,156 $ 1,160,676
========== ==========
See accompanying note to financial statements.
<PAGE>7
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Six Months Ending
June 30, 1998
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 136,003 $ 256,170 $ 161,620
-------- -------- -------
Total Revenue 136,003 25,617 161,620
-------- -------- -------
Costs and Expenses:
Production expense 55,983 10,545 66,528
General and administrative
to a related party 42,080 7,926 50,006
General and administrative 7,378 1,390 8,768
Depreciation, depletion
and amortization 36,551 369 36,920
-------- -------- -------
Total Costs and Expenses 141,992 20,230 162,222
-------- -------- -------
Net Income(loss) $ (5,989) $ 5,387 $ (602)
======== ======== =======
Net Income(loss)
per equity unit $ (.68)
======
See accompanying note to financial statements.
<PAGE>8
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Six Months Ending
June 30, 1997
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 111,527 $ 21,006 $ 132,533
-------- -------- -------
Total Revenue 111,527 21,006 132,533
-------- -------- -------
Costs and Expenses:
Production expense 47,079 8,868 55,947
General and administrative
to a related party 42,073 7,925 49,998
General and administrative 8,811 1,660 10,471
Depreciation, depletion
and amortization 35,685 360 36,045
-------- -------- -------
Total Costs and Expenses 133,648 18,813 152,461
-------- -------- -------
Net Income(loss) $ (22,121) $ 2,193 $ (19,928)
======== ======== =======
Net Income(loss)
per equity unit $ (2.52)
======
See accompanying note to financial statements.
<PAGE>9
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Three Months Ending
June 30, 1998
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 67,850 $ 12,780 $ 80,630
-------- -------- ---------
Total Revenue 67,850 12,780 80,630
-------- -------- ---------
Costs and Expenses:
Production expense 32,866 6,191 39,057
General and administrative
to a related party 21,037 3,960 24,999
General and administrative 4,008 755 4,763
Depreciation, depletion
and amortization 18,406 11,094 18,592
-------- -------- ---------
Total Costs and Expenses 76,317 11,094 87,411
-------- -------- ---------
Net Income(loss) $ (8,467) $ 1,686 $ (6,781)
======== ======== =========
Net Income(loss)
per equity unit $ (.96)
========
See accompanying note to financial statements.
<PAGE> 10
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Three Months Ending
June 30, 1997
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 52,729 $ 9,931 $ 62,660
-------- -------- ---------
Total Revenue 52,729 9,931 62,660
-------- -------- ---------
Costs and Expenses:
Production expense 25,739 4,849 30,588
General and administrative
to a related party 21,036 3,963 24,999
General and administrative 5,766 1,087 6,853
Depreciation, depletion
and amortization 17,843 180 18,023
-------- -------- ---------
Total Costs and Expenses 70,384 10,079 80,463
-------- -------- ---------
Net Income(loss) $ (17,655) $ (148) $ (17,803)
======== ======== =========
Net Income(loss)
per equity unit $ (2.01)
========
See accompanying note to financial statements.
<PAGE> 11
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Changes in Partners' Equity
(unaudited)
Six Months Ended
June 30, 1998
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,142,831 (106,251) $ 1,036,580
Net Income(loss) (5,989) 5,387 (602)
--------- -------- -----------
Balance at end of period $ 1,136,842 (100,864) $ 1,035,978
========= ======== ===========
Six Months Ended
June 30, 1997
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,183,494 (112,355) $ 1,071,139
Net Income(Loss) (22,121) 2,193 (19,928)
--------- -------- -----------
Balance at end of period $ 1,161,373 (110,162) $ 1,051,211
========= ======== ===========
See accompanying note to financial statements.
<PAGE>12
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Changes in Partners' Equity
(unaudited)
Three Months Ended
June 30, 1998
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,145,309 $ (102,550) $ 1,042,759
Net Income(Loss) (8,467) 1,686 (6,781)
-------- -------- ----------
Balance at end of period $ 1,136,842 $ (100,864) $ 1,035,978
======== ======== ==========
Three Months Ended
June 30, 1997
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,179,028 $ (110,014) $ 1,069,014
Net Income(Loss) (17,655) (148) (17,803)
-------- -------- ----------
Balance at end of period $ 1,161,373 $ (110,162) $ 1,051,211
======== ======== ==========
See accompanying note to financial statements.
<PAGE>13
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Cash Flows
(unaudited)
Six Six
months months
ended ended
June 30, June 30,
1998 1997
Net cash provided by operating
activities $ 11,400 $ 37
---------- ---------
Cash(used in)investment activities:
Investment in wells and related
facilities (11,409) 0
---------- ---------
Net Cash used in investment
activities (11,409) 0
---------- ---------
Net increase(decrease) in cash and
cash equivalents (9) 37
Cash and cash equivalents at beginning
of period 16 26
---------- ---------
Cash and cash equivalents at end of
period $ 7 $ 63
========== =========
see accompanying note to financial statements.
<PAGE>14
STERLING GAS DRILLING FUND 1981(a New York limited partnership)Note to
Financial StatementsJune 30, 1998
1. The accompanying statements for the period ending June 30, 1998 are
unaudited but reflect all reflect the adjustments necessary to present
fairly the results of operations.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Sterling Gas Drilling Fund 1981 second quarter 1998 10Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7
<PP&E> 7,195,974
<DEPRECIATION> (6,060,825)
<TOTAL-ASSETS> 1,135,156
<CURRENT-LIABILITIES> 99,178
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,035,975<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,135,156
<SALES> 161,620
<TOTAL-REVENUES> 161,620
<CGS> 162,222
<TOTAL-COSTS> 162,222
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (602)
<EPS-PRIMARY> (0.68)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Other-se includes total partner's equity.
<F2>the limited partner's sharre of net income was divided by the
total number of limited partnership units of 8,790.
</FN>
</TABLE>
