<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, 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
PART I
Item 1. Financial Statements
The following Financial Statements are filed herewith:
Balance Sheets - March 31, 1999 and December 31, 1998.
Statements of Operations for the Three Months Ended March 31, 1999 and
1998.
Statements of Changes in Partners' Equity for the year ended December 31,
1998 and for the Three Months Ended March 31, 1999.
Statements of Cash Flows for the Three Months Ended March 31, 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 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, 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, to be completed by mid-1999, 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, is in the process of conducting an internal review of all
systems and contacting 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 expects to complete
identification of critical systems by June 1999 and to continue
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 this contingency plan by the second quarter of
1999 but also expects to refine this plan throughout 1999.
Through 1998, 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
<PAGE> 4
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 revenues decreased from $80,990 in 1998
to $53,337 in 1999. This decrease can be directly attributed to the a
decrease in gas production from 27,719 MCF's in 1998 to 21,324 MCF's
in 1999. The Partnership also received a lower average price per MCF
in 1999, $2.57, as compared to the average price received in 1998 of
$2.86. The combination of lower production and low prices resulted in
the overall decline of operating revenues. Production expenses
increased slightly from $27,471 in 1998 to $33,554 in 1999 Most
expenditures for repairs, locations and labor in 1998 and 1999 were
used to maintain the general upkeep of the wells and well sites.
Overall general and administrative expenses, both related and third
party costs, changed very little between 1998 and 1999. The amounts
charged reflect management's efforts to limit costs, both incurred and
allocated to the Registrant. Management continues to use in-house
<PAGE> 5
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 1998 or first quarter 1999. 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> 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
May 14, 1999
(Date)
<PAGE> 7
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Balance Sheets
(unaudited)
March 31, December 31,
1999 1998
Assets
Current Assets:
Cash and cash equivalents $ 8 $ 19
Due from others 11,765 0
---------- ----------
Total current assets 11,773 19
Oil and Gas properties -
successful efforts method:
Leasehold costs 236,502 236,502
Well and related facilities 7,026,967 7,026,724
less accumulated depreciation,
depletion and amortization (6,120,340) (6,101,369)
---------- ----------
1,143,129 1,161,857
---------- ----------
Total assets $ 1,154,902 $ 1,161,876
========== ==========
Liabilities and Partners' Equity
Current liabilities:
Due to affiliates $ 173,541 $ 152,677
---------- ----------
Total current liabilities 173,541 152,677
---------- ----------
Partners' Equity
Limited partners 1,081,493 1,107,736
General partners (100,132) (98,537)
---------- ----------
Total partners' equity 981,361 1,009,199
---------- ----------
Total liabilities and
partners' equity $ 1,154,902 $ 1,161,876
========== ==========
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, 1999
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 44,883 8,454 $ 53,337
-------- -------- -------
Total Revenue 44,883 8,454 53,337
-------- -------- -------
Costs and Expenses:
Production expense 28,236 5,318 33,554
General and administrative
to a related party 21,040 3,963 25,003
General and administrative 3,069 578 3,647
Depreciation, depletion
and amortization 18,781 190 18,971
-------- -------- -------
Total Costs and Expenses 71,126 10,049 81,175
-------- -------- -------
Net Income/(Loss) $ (26,243) (1,595) $ (27,838)
======== ======== =======
Net Income/(Loss)
per equity unit $ (3.00)
======
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
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(loss) $ 2,478 $ 3,701 $ 6,179
======== ======== =======
Net Income(loss)
per equity unit $ 0.28
======
See accompanying note to the financial statements.
<PAGE> 10
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, 1997 $ 1,142,831 (106,251) $ 1,036,580
Net Income(Loss) (35,095) 7,714 (27,381)
--------- --------- ---------
Balance at December 31, 1998 1,107,736 (98,537) 1,009,199
Net Income/(Loss) (26,243) (1,595) (27,838)
--------- --------- ---------
Balance at March 31, 1999 $ 1,081,493 (100,132) $ 981,361
========= ========= =========
See accompanying note to the financial statements.
<PAGE> 11
STERLING DRILLING FUND 1981
(a New York Limited Partnership)
Statement of Cash Flows
(unaudited)
Three months Three months
ended March ended March
31,1999 31,1998
Net cash provided by operating
activities $ 232 $ 3,034
---------- ----------
Cash provided by/(used in)
investment activities:
Investment in wells and related
facilities (243) (3,045)
---------- ----------
Net cash provided by/(used in)
investment activities (243) (3,045)
---------- ----------
Net increase(decrease) in cash and
cash equivalents (11) (11)
Cash and cash equivalents at
beginning of period 19 16
---------- ----------
Cash and cash equivalents at end of
period $ 8 $ 5
========== ==========
See accompanying note to the financial statements.
<PAGE> 12
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
Note to Financial Statements
March 31, 1999
1. The accompanying statements for the period ending March 31, 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 first quarter 1999 10Q and
is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 11,765
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,773
<PP&E> 7,263,469
<DEPRECIATION> (6,120,340)
<TOTAL-ASSETS> 1,154,902
<CURRENT-LIABILITIES> 173,541
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 981,361<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,154,902
<SALES> 53,337
<TOTAL-REVENUES> 53,337
<CGS> 81,175
<TOTAL-COSTS> 81,175
<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> (27,838)
<EPS-PRIMARY> (2.99)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Other se includes total partners' equity
<F2>The limited partner's share of net income was divided
by the total number of limited partnership units of 8,790.
</FN>
</TABLE>
