<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 March 31, 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
PART I
Item 1. Financial Statements
The following Financial Statements are filed herewith:
Balance Sheets - March 31, 1998 and December 31, 1997.
Statements of Operations for the Three Months Ended March 31, 1998 and
1997.
Statements of Changes in Partners' Equity for the year ended December 31,
1997 and for the Three Months Ended March 31, 1998.
Statements of Cash Flows for the Three Months Ended March 31, 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 the 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 March 31, 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 is
handled through the use of the operating and managing general
partner's computer systems. Both , the operations 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 will be implemented with in the next nine
months by both the operating company and the managing general partner.
Both companies upgrades and year 2000 changes are part of their
normal course of business and no material costs should be allocated to
the partnership for the implementation necessary by either company.
<PAGE> 3
The net 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 -
The Partnership's operating revenues increased from $69,873 in 1997
to $80,990 in 1998 .This increase can be directly attributed to the an
increase in gas production from 23,280 MCF's in 1997 to 27,719 MCF's
in 1998. The Partnership did benefit from a stable average price per
mcf of $2.90 in 1997 and $2.86 in 1998. A large amount of the gas
produced by the Partnership is sold under a twelve month fixed price
contract that commenced in December 1997. The price received
currently is still more favorable and less changeable then the current
market spot price. Production expenses increased slightly from
$25,359 in 1997 to $27,471 in 1998. Most expenditures for repairs,
locations and labor in 1997 and 1998 were used to maintain the
general upkeep of the wells and well sites. Also, variable costs
associated with production data increased, for example the related
well taxes which are based upon production.
Overall general and administrative expenses, both related and third
party costs, changed very little between 1997 and 1998. The amounts
charged reflect management's efforts to limit costs, both incurred and
allocated to the Registrant. Management continues to use in-house
<PAGE> 4
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 downward the
properties basis in either 1997 or first quarter 1998. The
partnership did expend $3,045 in 1998 for capitalized costs. An
example of these types of costs are lift equipment , replacement of
tubing or piping. The operator will expend funds on capital
improvements if to do so would increase and stabilize production or
minimize declines. Overall depletion expense is consistent for each
year based upon the property basis and the rates used.
PART II
Items 1 through 5 have been omitted in that each item is either
inapplicable or the answer is negative.Item 6 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
May 12, 1998 BY: /S/Charles E.Drimal Jr.
(DATE) -----------------------
Charles E. Drimal, Jr.
General Partner
<PAGE> 6
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Balance Sheets
(unaudited)
March 31, December 31,
1998 1997
Assets
Current Assets:
Cash and cash equivalents $ 5 $ 16
---------- -----------
Total current assets 5 16
Oil and Gas properties -
successful efforts method:
Leasehold costs 236,502 236,502
Well and related facilities 6,951,108 6,948,063
less accumulated depreciation,
depletion and amortization (6,042,233) (6,023,905)
---------- ----------
1,145,377 1,160,660
---------- ----------
Total assets $ 1,145,382 $ 1,160,686
========== ==========
Liabilities and Partners' Equity
Current liabilities:
Due to affiliates $ 102,623 $ 124,096
---------- ----------
Total current liabilities 102,623 124,096
---------- ----------
Partners' Equity
Limited partners 1,145,309 1,142,831
General partners (102,550) (106,251)
---------- ----------
Total partners' equity 1,042,759 1,036,580
---------- ----------
Total liabilities and
partners' equity $ 1,145,382 $ 1,160,676
========== ==========
See accompanying note to the financial statements.
<PAGE> 7
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Three Months Ended
March 31, 1998
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 68,153 $ 12,837 $ 80,990
-------- -------- -------
Total Revenue 68,153 12,837 80,990
-------- -------- -------
Costs and Expenses:
Production expense 23,117 4,354 27,471
General and administrative
to a related party 21,043 3,964 25,007
General and administrative 3,370 635 4,005
Depreciation, depletion
and amortization 18,145 183 18,328
-------- -------- -------
Total Costs and Expenses 65,675 9,136 74,811
-------- -------- -------
Net Income $ 2,478 $ 3,701 $ 6,179
======== ======== =======
Net Income per equity unit $ 0.28
======
See accompanying note to the financial statements.
<PAGE> 8
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Three Months Ended
March 31, 1997
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 58,798 $ 11,075 $ 69,873
-------- -------- -------
Total Revenue 58,798 11,075 69,873
-------- -------- -------
Costs and Expenses:
Production expense 21,340 4,019 25,359
General and administrative
to a related party 21,037 3,962 24,999
General and administrative 3,045 573 3,618
Depreciation, depletion
and amortization 17,842 180 18,022
-------- -------- -------
Total Costs and Expenses 63,264 8,734 71,998
-------- -------- -------
Net Income(loss) $ (4,466) $ 2,341 $ (2,125)
======== ======== =======
Net Income(loss)
per equity unit $ (0.51)
======
See accompanying note to the financial statements.
<PAGE> 9
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Changes in Partners' Equity
(unaudited)
Limited General
Partners Partners Total
Balance at December 31, 1996 $ 1,183,494 $ (112,355) $ 1,071,139
Net Income(Loss) (40,663) 6,104 (34,559)
--------- --------- ---------
Balance at December 31, 1997 1,142,831 (106,251) 1,036,580
Net Income 2,478 3,701 6,179
--------- --------- ---------
Balance at March 31, 1998 $ 1,145,309 $ (102,550) $ 1,042,759
========= ========= =========
See accompanying note to the financial statements.
<PAGE> 10
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Cash Flows
(unaudited)
Three months Three months
ended March ended March
31,1998 31,1997
Net cash provided by operating
activities $ 3,034 $ 47
---------- ----------
Cash provided by/(used in)
investment activities:
Investment in wells and related
facilities (3,045) 0
---------- ----------
Net cash provided by/(used in)
investment activities (3,045) 0
---------- ----------
Net increase(decrease) in cash and
cash equivalents (11) 47
Cash and cash equivalents at
beginning of period 16 26
---------- ----------
Cash and cash equivalents at end of
period $ 5 $ 73
========== ==========
See accompanying note to the financial statements.
<PAGE> 11
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
Note to Financial Statements
March 31, 1998
1. The accompanying statements for the period ending March 31, 1998
are unaudited but reflect all 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 first quarter 10Q and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5
<PP&E> 7,187,610
<DEPRECIATION> (6,042,233)
<TOTAL-ASSETS> 1,145,382
<CURRENT-LIABILITIES> 102,623
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,042,759<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,145,382
<SALES> 80,990
<TOTAL-REVENUES> 80,990
<CGS> 74,811
<TOTAL-COSTS> 74,811
<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> 6,179
<EPS-PRIMARY> 0.28<F2>
<EPS-DILUTED> 0
<FN>
<F1>Other-se includes total limited and general partners' equity.
<F2>The limited partners' share of net income was divided by the
total number of limited partner units of 8,790.
</FN>
</TABLE>
