<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, 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> 2
Item 1. Financial Statements
The following Financial Statements are filed herewith:
Balance Sheets - June 30, 1999 and December 31, 1998.
Statements of Operations for the Six and Three Months Ended June 30,
1999 and 1998.
Statements of Changes in Partners' Equity for the Six and Three Months
Ended June 30, 1999 and 1998.
Statements of Cash Flows for the Six Months Ended June 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 June 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> 3
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.
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
<PAGE> 4
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 -
Operating Revenues decreased from $161,621 in 1998 to $117,283 in 1999
due to gas production decrease, from 54,339 MCF in 1998 to 44,979 MCF
in 1999, combined with a decrease in average price per MCF from $2.93
in 1998 to $ 2.60 in 1999. A substantial portion of the Partnership's
production was shut-in for the month of June 1999 due to required
maintenance of the gas transporter's pipeline. All properties were
returned to production in July 1999. 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
<PAGE> 5
expenses slightly decreased from $66,528 in 1998 to $ 64,396 in 1999.
The production expenses incurred in 1999 were of a normal and
recurring nature to upkeep the wells.
Overall general and administrative expenses remained stable and showed
little change from 1998 to 1999. 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 property's
basis in either 1998 or first half of 1999. Overall depreciation and
depletion was consistent with the current property basis and the rates
applied.
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>6
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 13, 1999
(date)
<PAGE>7
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Balance Sheets
June 30, December 31,
1999 1998
(unaudited) (audited)
Assets
Current Assets:
Cash and cash equivalents $ 26 $ 19
---------- -----------
Total current assets 26 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 (6,139,311) (6,101,369)
---------- ----------
1,125,158 1,161,857
---------- ----------
Total assets $ 1,125,184 $ 1,161,876
========== ==========
Liabilities and Partners' Equity
Current liabilities:
Due to affiliates $ 157,918 $ 152,677
---------- ----------
Total current liabilities 157,918 152,677
---------- ----------
Partners' Equity
Limited partners 1,066,809 1,107,736
General partners ( 99,543) ( 98,537)
---------- ----------
Total partners' equity 967,266 1,009,199
---------- ----------
Total liabilities and
partners' equity $ 1,125,184 $ 1,161,876
========== ==========
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, 1999
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 98,693 $ 18,590 $ 118,754
Other revenue 1,238 233 1,471
-------- -------- -------
Total Revenue 99,931 18,823 118,754
-------- -------- -------
Costs and Expenses:
Production expense 54,189 10,207 64,396
General and administrative
to a related party 42,082 7,920 50,002
General and administrative 7,024 1,323 8,347
Depreciation, depletion
and amortization 37,563 379 37,942
-------- -------- -------
Total Costs and Expenses 140,858 19,829 160,687
-------- -------- -------
Net Income(Loss) $ (40,927) $ (1,006) $ (41,933)
======== ======== =======
Net Income(Loss)
per equity unit $ (4.66)
======
See accompanying note to financial statements.
<PAGE>9
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Operations
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>10
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Three Months Ending
June 30, 1999
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 53,810 $ 10,136 $ 63,946
Other revenue 1,238 233 1,471
-------- -------- ---------
Total Revenue 55,048 10,369 65,417
-------- -------- ---------
Costs and Expenses:
Production expense 25,954 4,888 30,842
General and administrative
to a related party 21,037 3,962 24,999
General and administrative 3,955 745 4,700
Depreciation, depletion
and amortization 18,781 190 18,971
-------- -------- ---------
Total Costs and Expenses 69,727 9,785 79,512
-------- -------- ---------
Net Income(Loss) $ (14,679) $ 584 $ (14,085)
======== ======== =========
Net Income(Loss)
per equity unit $ (1.67)
========
See accompanying note to financial statements.
<PAGE> 11
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> 12
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Changes in Partners' Equity
(unaudited)
Six Months Ended
June 30, 1999
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,107,736 (98,537) $ 1,009,199
Net Income(Loss) (40,927) ( 1,006) (41,933)
--------- -------- -----------
Balance at end of period $ 1,066,809 (99,543) $ 967,266
========= ======== ===========
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
========= ======== ===========
See accompanying note to financial statements.
<PAGE>13
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Changes in Partners' Equity
(unaudited)
Three Months Ended
June 30, 1999
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,081,493 $ (100,132) $ 981,361
Net Income(Loss) (14,679) 584 (14,095)
-------- -------- ----------
Balance at end of period $ 1,066,814 $ (99,548) $ 967,266
======== ======== ==========
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
======== ======== ==========
See accompanying note to financial statements.
<PAGE>14
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Cash Flows
(unaudited)
Six Six
months months
ended Ended
June 30, June 30,
1999 1998
Net cash provided by operating
activities $ 1,250 $ 11,400
---------- ---------
Cash(used in)investment activities:
Investment in wells and related
Facilities (1,243) (11,409)
---------- ---------
Net Cash used in investment
Activities (1,243) (11,409)
---------- ---------
Net increase(decrease) in cash and
cash equivalents 7 (9)
Cash and cash equivalents at beginning
of period 19 16
---------- ---------
Cash and cash equivalents at end of
period $ 26 $ 7
========== =========
see accompanying note to financial statements.
<PAGE>15
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
Note to Financial Statements
June 30, 1999
1. The accompanying statements for the period ending June 30, 1999 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 1999 10Q and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 26
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26
<PP&E> 7,264,469
<DEPRECIATION> (6,139,311)
<TOTAL-ASSETS> 1,125,184
<CURRENT-LIABILITIES> 157,918
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 967,266<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,125,184
<SALES> 118,754
<TOTAL-REVENUES> 118,754
<CGS> 160,687
<TOTAL-COSTS> 160,687
<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> (41,933)
<EPS-BASIC> (4.66)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Other-SE includes total partners' equity.
<F2>The income associated with the limited partner's income
was divided by the total number of limited partners units of 8,790.
</FN>
</TABLE>
