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 September 30, 1999
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> 1
Item 1. Financial Statements
The following Financial Statements are filed herewith:
Balance Sheets - September 30, 1999 and December 31, 1998.
Statements of Operations for the Nine and Three Months Ended September
30, 1999 and 1998.
Statements of Changes in Partners' Equity for the Nine and Three
Months Ended September 30, 1999 and 1998.
Statements of Cash Flows for the Nine Months Ended September 30, 1999
and 1998.
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
September 30, 1999, 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.
The Year 2000 (Y2K) issue is the definition and resolution of
potential problems resulting from computer application programs
or imbedded chip instruction sets utilizing two-digits, as
opposed to four digits, to define a specific year. Such date
sensitive systems may be unable to properly interpret dates,
which could cause a system failure or other computer errors,
leading to disruptions in operations. The Partnership relies on
the Managing General Partner for all management and
administrative functions. Consequently, the Partnership's
exposure to the Y2K problems is determined by what Year 2000
efforts have been undertaken by the Managing General Partner.
<PAGE> 2
In 1997, the Managing General Partner developed a three-phase
program for the Y2K information systems compliance. Phase I is to
identify those systems with which the Partnership has exposure to
Y2K issues. Phase II is to remediate systems and replace
equipment where required. Phase III is the final testing of each
major area of exposure to ensure compliance. The Managing General
Partner has identified four major areas determined to be critical
for successful Y2K compliance: (1) financial and informational
system applications, (2) communications applications, (3) oil and
gas producing operations, and (4) third-party relationships.
The Managing General Partner, in accordance with Phase I of the
program, conducted an internal review of all systems and
contacted all software suppliers to determine major areas of
exposure to Y2K issues. The Managing General Partner has
completed the modifications to its core financial and reporting
systems and is continuing to test compliance in this area. These
modifications were made in conjunction with an upgrade of the
financial reporting applications provided by the Managing General
Partner's software vendor. Conversion to the new system was
completed during 1998. Due to the technology advances in the
communications area the Managing General Partner has upgraded
such equipment regularly over the past three years. Y2K
compliance was a specification requirement of each installation.
Consequently, the Managing General Partner expects exposure in
this area to be limited to third party readiness. The Managing
General Partner is in the process of identifying areas of
exposure resulting from equipment used in its oil and gas
producing operations. The Managing General Partner intends to
continue identification, remediation and testing throughout 1999.
In the third-party area, the Managing General Partner has
received assurance from its significant service suppliers that
they intend to be Y2K compliant by 2000. The Managing General
Partner has implemented a program to request Year 2000
certification or other assurance from other third parties during
1999.
The Partnership recognizes that, notwithstanding the efforts
described above, the Partnership could experience disruptions to
its operations or administrative functions, including those
resulting from non-compliant systems utilized by unrelated third
party governmental and business entities. The Managing General
Partner is in the process of developing a contingency plan in
order to mitigate potential disruption to business operations.
The Managing General Partner expects to complete and to refine
this plan throughout 1999.
<PAGE> 3
The Managing General Partner has handled identifying, remediating
and testing systems for Year 2000 compliance within the scope of
routine upgrades and systems evaluations. The Managing General
Partner expects to complete the review of oil and gas operations
exposure in the same manner, without incurring substantial
additional costs. However, information resulting from the oil and
gas operations review may indicate required expenditures not
currently contemplated by the Partnership.
The net proved oil and gas reserves of the Partnership are
considered to be a primary 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, 1998 was approximately $807,750 as
compared to December 31, 1997, of about $687,900. 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 revenue decreased from $234,571 in
1998 to $185,360 in 1999. The majority of the Partnership's
revenue is from gas production. The Partnership experienced a
decline in gas production from 79,177 MCF in 1998 to 69,381 MCF
in 1999. There was also a small decline in the average price per
MCF the Partnership received, from $2.92 in 1998 to $2.64 in
1999. The main reason for production declines during this part
of the year includes shut-in of transport lines due to the main
line purchaser completeing annual repairs. The combination of
<PAGE> 4
lower production and lower average price per mcf contributed
significantly to the overall revenue decline.
Production expenses increased slightly from $91,504 in 1998 to
$95,562 in 1999. The operator will perform various repairs
including but not limited to location work, road repairs,
pipeline repairs and additional labor cost as deemed
appropriate. In most cases large repairs are made to help
maintain or increase overall production. In both 1998 and 1999
the Partnership expended the majority of its operating funds on
light repairs and general upkeep and maintenance at the well and
well-site.
General and administrative expenses have been segregated on the
financial statements to show expenses paid to PrimeEnergy
Management Corporation(PEMC), a general partner. These expenses
are charged in accordance with guidelines set forth in the
Registrant's Management Agreement. The expenses attributable to
the affairs and operations of the Partnership, reimbursed to
PEMC, shall not exceed an annual amount equal to 5% of the
Limited Partners capital contributions. Amounts related to both
1999 and 1998 are substantially less than the amounts allocable
to the Registrant under the Partnership Agreement. The lower
amounts 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. General and
administrative charges were relatively unchanged from 1998 to
1999.
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. No additional depreciation, depletion or
amortization was needed in 1998 or in the three-quarters of
1999. The expense recorded is consistent with the current basis
of the Partnership's 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\: Charles E. Drimal Jr.
------------------------------------
Charles E.Drimal Jr.
General Partner
November 12, 1999
(Date)
<PAGE> 6
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Balance Sheets
September December
30,1999 31, 1998
(unaudited) (audited)
Assets
Current Assets:
Cash and cash equivalents $ 12 $ 19
---------- -----------
Total current assets 12 19
Oil and Gas properties -
successful efforts method:
Leasehold costs 236,502 236,502
Well and related facilities 7,027,967 7,026,724
less accumulated depreciation,
depletion and amortization (6,158,282) (6,101,369)
---------- -----------
Net oil & gas properties 1,106,187 1,161,857
---------- -----------
Total assets $ 1,106,199 $ 1,161,876
========== =========
Liabilities and Partners' Equity
Current liabilities:
Due to affiliates $ 149,695 $ 152,677
---------- -----------
Total current liabilities 149,695 152,677
---------- -----------
Partners' Equity
Limited partners 1,054,943 1,107,736
General partners (98,439) ( 98,537)
---------- -----------
Total partners' equity 956,504 1,009,199
---------- -----------
Total liabilities and
partners' equity $ 1,106,199 $ 1,161,876
========= =========
See accompanying note to the financial statements.
<PAGE> 7
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Nine Months Ended
September 30, 1999
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 155,981 $ 29,379 $ 185,360
Other revenue 1,238 233 1,471
-------- -------- -------
Total Revenue 157,219 29,612 186,831
-------- -------- -------
Costs and Expenses:
Production expense 80,415 15,147 95,562
General and administrative
to a related party 63,113 11,888 75,001
General and administrative 10,140 1,910 12,050
Depreciation, depletion
and amortization 56,344 569 56,913
-------- -------- -------
Total Costs and Expenses 210,012 29,514 239,526
-------- -------- -------
Net Income(loss) $ (52,793) $ 98 $ (52,695)
======== ======== =======
Net Income(loss)
per equity unit $ (6.01)
======
See accompanying note to the financial statements.
<PAGE> 8
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Nine Months Ended
September 30, 1998
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 197,391 $ 37,180 $ 234,571
Gain on sale of Equipment 0 0 0
-------- -------- -------
Total Revenue 197,391 37,180 234,571
-------- -------- -------
Costs and Expenses:
Production expense 77,001 14,503 91,504
General and administrative
to a related party 63,117 11,888 75,005
General and administrative 12,601 2,373 14,974
Depreciation, depletion
and amortization 54,826 554 55,380
-------- -------- -------
Total Costs and Expenses 207,545 29,318 236,863
-------- -------- -------
Net Income(loss) $ (10,154) $ 7,862 $ (2,292)
======== ======== =======
Net Income(loss)
per equity unit $ (1.16)
======
See accompanying note to the financial statements.
<PAGE> 9
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Three Months Ended
September 30, 1999
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 57,288 $ 10,789 $ 68,077
Other revenue 0 0 0
-------- -------- ---------
Total Revenue 57,288 10,789 68,077
-------- -------- ---------
Costs and Expenses:
Production expense 26,226 4,940 31,166
General and administrative
to a related party 21,036 3,963 24,999
General and administrative 3,116 587 3,703
Depreciation, depletion
and amortization 18,781 190 18,971
-------- -------- ---------
Total Costs and Expenses 69,159 9,680 78,839
-------- -------- ---------
Net Income(loss) $ (11,871) $ 1,109 $ (10,762)
======== ======== =========
Net Income(loss)
per equity unit $ (1.35)
========
See accompanying note to the financial statements.
<PAGE> 10
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Three Months Ended
September 30, 1998
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 61,388 $ 11,563 $ 72,951
Gain on sale of Equipment 0 0 0
-------- -------- ---------
Total Revenue 61,388 11,563 72,951
-------- -------- ---------
Costs and Expenses:
Production expense 21,018 3,958 24,976
General and administrative
to a related party 21,037 3,958 24,999
General and administrative 5,223 983 6,206
Depreciation, depletion
and amortization 18,275 185 18,460
-------- -------- ---------
Total Costs and Expenses 65,553 9,088 (1,690)
-------- -------- ---------
Net Income(loss) $ (4,165) $ 2,475 $ (1,690)
======== ======== =========
Net Income(loss)
per equity unit $ (.48)
========
See accompanying note to the financial statements.
<PAGE> 11
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Changes in Partners' Equity
(unaudited)
Nine Months Ended
September 30, 1999
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,107,736 (98,537) $ 1,009,199
Net Income(Loss) (52,793) 98 (52,695)
--------- --------- ----------
Balance at end of period $ 1,054,943 (98,439) $ 956,504
========= ========= ==========
Nine Months Ended
September 30, 1998
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,142,831 (106,251) $ 1,036,580
Net Income(Loss) (10,154) 7,862 (2,292)
--------- --------- ----------
Balance at end of period $ 1,132,677 (98,389) $ 1,034,288
========= ========= ==========
See accompanying note to the financial statements.
<PAGE> 12
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Changes in Partners' Equity
(unaudited)
Three Months Ended
September 30, 1999
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,066,814 (99,548) $ 967,266
Net Income(Loss) (11,871) 1,109 (10,762)
--------- --------- ----------
Balance at end of period $ 1,054,943 (98,439) $ 956,504
========= ========= ==========
Three Months Ended
September 30, 1998
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,136,842 (100,864) $ 1,035,978
Net Income(Loss) (4,165) 2,475 (1,690)
--------- --------- ----------
Balance at end of period $ 1,132,677 (98,389) $ 1,034,288
========= ========= ==========
See accompanying note to the financial statements.
<PAGE> 13
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Cash Flows
(unaudited)
Nine months Nine months
Ended ended
September September
30, 1999 30, 1998
Net cash provided by(used in)
operating activities $ 1,236 $ 43,075
---------- ----------
Cash flows from investing
activities:
Proceeds from sale of equipment 0 0
Investment in well and related
Facilities (1,243) (43,088)
---------- --------
Net Cash provided by (used in)
investing activities (1,243) (43,088)
---------- --------
Net increase(decrease) in cash
and cash equivalents (7) (13)
Cash and cash equivalents at
beginning of period 19 16
--------- --------
Cash and cash equivalents at end
of period $ 12 $ 3
========= =========
See accompanying note to the financial statements.
<PAGE> 14
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
Note to Financial Statements
September 30, 1999
1. The accompanying statements for the period ending September
30, 1999 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 information extracted from
Sterling Gas Drilling fund 1981 third quarter financial statements
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12
<PP&E> 7,264,469
<DEPRECIATION> (6,158,282)
<TOTAL-ASSETS> 1,106,199
<CURRENT-LIABILITIES> 149,695
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 956,504<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,106,199
<SALES> 186,831
<TOTAL-REVENUES> 186,831
<CGS> 239,526
<TOTAL-COSTS> 239,526
<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> (52,695)
<EPS-BASIC> (6.01)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Other-SE Includes total partner's equity.
<F2>The income allocated to the limited partner's group was divided
by the total number of limited partnership units of 8,790.
</FN>
</TABLE>
