<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-10501
STERLING GAS DRILLING FUND 1981
(Exact name of Registrant as specified in its charter)
NEW YORK 13-3098770
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE LANDMARK SQUARE
STAMFORD, CONNECTICUT 06901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 358-5700
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP
(Title of Class)
Indicate by check mark whether 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The Registrant has no voting stock. There is no market for the Units
and therefore no market value of the Units is reported.
The number of Units of the Registrant outstanding
as of March 15, 2000 was: 8,790.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
- --------------------------------------------------------------------------------
<PAGE> 2
STERLING GAS DRILLING FUND 1981
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
PART I
ITEM 1. BUSINESS
Sterling Gas Drilling Fund 1981 (the "Registrant" or the "Partnership")
is a limited partnership formed under the laws of the State of New York on
September 28, 1981. The sole business of the Partnership was the drilling of
formation extension wells principally for natural gas in various locations in
the State of West Virginia. No exploratory drilling was undertaken.
The principal place of business of the Partnership is at One Landmark
Square, Stamford, Connecticut 06901, telephone (203) 358-5700. The Managing
General Partner of the Partnership is PrimeEnergy Management Corporation, a New
York corporation, which is a wholly owned subsidiary of PrimeEnergy Corporation,
a publicly held Delaware corporation. Messrs. Charles E. Drimal, Jr., Oliver J.
Sterling and Samuel R. Campbell also are General Partners. Mr. Drimal is a
Director, President and Chief Executive Officer of PrimeEnergy Management
Corporation and PrimeEnergy Corporation, and Mr. Campbell is a Director of
PrimeEnergy Corporation.
The aggregate contributions to the Partnership were $8,790,000, all of
which, net of the organization expenses of the Partnership, was expended in the
drilling of such formation extension wells. Such properties are located in Clay,
Roane, Calhoun, and Wirt Counties, West Virginia. The Partnership does not
operate any of the properties in which it has an interest, but generally such
properties are operated and serviced by Prime Operating Company, a Texas
corporation, and Eastern Oil Well Service Company, a West Virginia corporation,
both wholly-owned subsidiaries of PrimeEnergy Corporation.
During 1999, the Partnership did not engage in any development drilling
activities or the acquisition of any significant additional properties, but
engaged in the production of oil and gas from its producing properties in the
usual and customary course. Since January 1, 2000, and to the date of this
Report, the Partnership has not engaged in any drilling activities nor
participated in the acquisition of any material producing oil and gas
properties.
COMPETITION AND MARKETS
Competitors of the Partnership in the marketing of its oil and gas
production include oil and gas companies, independent concerns, and individual
producers and operators, many of which have financial resources, staffs and
facilities substantially greater than those available to the Partnership.
Furthermore, domestic producers of oil and gas must not only compete with each
<PAGE> 3
other in marketing their output, but must also compete with producers of
imported oil and gas and alternative energy sources such as coal, nuclear power
and hydro-electric power.
The availability of a ready market for any oil and gas produced by the
Partnership at acceptable prices per unit of production will depend upon
numerous factors beyond the control of the Partnership, including the extent of
domestic production and importation of oil and gas, the proximity of the
Partnership's producing properties to gas pipelines and the availability and
capacity of such pipelines, the marketing of other competitive fuels,
fluctuation in demand, governmental regulation of production, refining,
transportation and sales, general national and worldwide economic conditions,
and pricing, use and allocation of oil and gas and their substitute fuels.
The Partnership does not currently own or lease any bulk storage
facilities or pipelines, other than adjacent to and used in connection with
producing wells. The Partnership deals with a number of major and independent
companies for the purchase of its oil and gas production, in the areas of
production. Sales are made under short-term contractual arrangements or monthly
spot prices. In 1999, approximately $143,851, or 59.88%, and $84,300, or 35.09%,
of the Partnership's gas production was purchased by the Brooklyn Union Gas
Company and Phoenix Diversified, respectively; approximately $7,229 or 100% of
oil production was purchased by the American Refining Group. None of such
purchasers has any relationship or is otherwise affiliated with the Partnership.
The Partnership believes that its current purchasers will continue to purchase
oil and gas products and, if not, could be replaced by other purchasers.
ENVIRONMENTAL MATTERS
The petroleum industry is subject to numerous federal and state
environmental statutes, regulations and other pollution controls. In general,
the Partnership is, and will be subject to, present and future environmental
statutes and regulations, and in the future the cost of its activities may
materially increase as a result thereof. The Partnership's expenses relating to
preserving the environment during 1999 as they relate to its oil and gas
operations were not significant in relation to operating costs and the
Partnership expects no material change in the near future. The Partnership
believes that environmental regulations should not, in the future, result in a
curtailment of production or otherwise have a materially adverse effect on the
Partnership's operations or financial condition.
REGULATION
The Partnership's oil and gas operations are subject to a wide variety
of federal, state and local regulations. Administrative agencies in such
jurisdictions may promulgate and enforce rules and regulations relating to,
among other things, drilling and spacing of oil and gas wells, production rates,
prevention of waste, conservation of natural gas and oil, pollution control, and
various other matters, all of which may affect the Partnership's future
operations and production of oil and gas. The Partnership's natural gas
production and prices received for natural gas are regulated by the Federal
Energy Regulatory Commission ("FERC") and the Natural Gas Policy
-2-
<PAGE> 4
Act of 1978 and various state regulations. The Partnership is also subject to
state drilling and proration regulations affecting its drilling operations and
production rates.
The FERC continues to regulate interstate natural gas pipeline
transportation rates and service conditions pursuant to the NGA and NGPA.
Federal regulation of interstate transporter's affects the marketing of natural
gas produced by the Partnership as well as the revenues received by the
Partnership for sales of such natural gas. Since the latter part of 1985,
through its Order Nos. 436, 500 and 636 rulemakings, the FERC has endeavored to
make natural gas transportation accessible to gas buyers and sellers on an open
and non-discriminatory basis. The FERC's efforts have significantly altered the
marketing and pricing of natural gas. No prediction can be made as to what
additional legislation may be proposed, if any, affecting the competitive status
of a gas producer, restricting the prices at which a producer may sell its gas,
or the market demand for gas, nor can it be predicted which proposals, including
those presently under consideration, if enacted, might be effective.
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. The Partnership cannot predict when or if any
such proposals might become effective, or their effect, if any, on the
Partnership's operations. The Partnership believes that it will comply with all
orders and regulation changes applicable to its operations. However, in view of
the many uncertainties with respect to the current controls, including their
duration and possible modification together with any new proposals that may be
enacted, the Partnership cannot predict the overall effect, if any, of such
controls on its operations.
TAXATION
The Partnership received an opinion of its counsel that the Partnership
would be classified as a partnership and the holders of Partnership Units would
be treated as limited partners for federal income tax purposes. The Partnership
itself, to the extent that it is treated for federal income tax purposes as a
partnership, is not subject to any federal income taxation, but it is required
to file annual partnership returns. Each holder of Partnership Units will be
allocated his distributive shares of the Partnership's income, gain, profit,
loss, deductions, credits, tax preference items and distributions for any
taxable year of the Partnership ending within or with his taxable year without
regard as to whether such holder has received or will receive any cash
distributions from the Partnership.
-3-
<PAGE> 5
ITEM 2. PROPERTIES
The Partnership has no interest in any properties other than its oil
and gas properties. The information set forth below summarizes the Partnership's
oil and gas wells, production and reserves, for the periods indicated.
PRODUCING WELLS AND OPERATING INFORMATION
The Partnership, following its formation, and in December, 1981,
contracted for the drilling of 41 development wells, which resulted in 37
producing wells, three non-commercial wells and one dry hole.
As of December 31, 1999, the Partnership had ownership interests in the
following gross and net producing oil and gas wells and gross and net producing
acres.(1) The Partnership has no material undeveloped leasehold, mineral or
royalty acreage.
Producing wells:
<TABLE>
<CAPTION>
Gross Net
-------- --------
<S> <C> <C>
Oil Wells................... 0 0.0
Gas Wells................... 42 32.6
Producing acres............. 2,798.75 2,172.39
</TABLE>
(1) A gross well is a well in which an interest is owned; a net well is the
sum of the interests owned in gross wells. The wells are classified b
their primary product. Some wells produce both oil and gas.
The following table sets forth the Partnership's oil and gas
production, average sales prices and average production costs as of and for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Production:
Oil and Condensate (bbl) .................... 369 709 515 541 416
Gas (Mcf) ............................. 89,430 102,850 85,541 88,693 93,101
Average Price of Sales:
Oil and Condensate ($ per bbl) ..... $ 19.61 $ 12.14 $ 18.34 $ 19.50 $ 16.72
Gas ($ per Mcf) .................... $ 2.69 $ 2.92 $ 2.93 $ 2.63 $ 2.66
Production Expense per Dollar
of Operating Revenue ............... $ 0.52 $ 0.39 $ 0.40 $ 0.38 $ 0.36
</TABLE>
-4-
<PAGE> 6
OIL AND GAS RESERVES
Ryder Scott Company, L. P. has evaluated the Partnership's interests in
proven developed oil and gas properties for the periods indicated below. All of
the Partnership's reserves are located in the continental United States. The
following table summarizes the Partnership's oil and gas reserves at the dates
shown (figures rounded):
<TABLE>
<CAPTION>
Proved Developed
As of -----------------------------------------------
12-31 Oil (bbls) Gas (Mcf)
----- ---------- ---------
<S> <C> <C>
1995 3,500 1,453,500
1996 3,600 1,435,000
1997 4,690 1,273,000
1998 4,620 1,472,000
1999 6,319 1,230,954
</TABLE>
The estimated future net revenue (using current prices and costs as of
the dates indicated, exclusive of income taxes (at a 10% discount for estimated
timing of cash flow) for the Partnership's proved developed oil and gas reserves
for the periods indicated are summarized as follows (figures rounded):
<TABLE>
<CAPTION>
Proved Developed
-----------------------------------------------------
As of Future Net Present Value of
12-31 Revenue Future Net Revenue
----- ---------- ------------------
<S> <C> <C>
1995 $1,745,700 $765,500
1996 $1,893,800 $817,000
1997 $1,558,300 $687,900
1998 $1,820,700 $807,750
1999 $1,437,450 $686,493
</TABLE>
Since January 1, 1999, the Partnership has not filed any estimates of
its oil and gas reserves with, nor were any such estimates included in any
reports, to any federal authority or agency, other than the Securities and
Exchange Commission.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not a party to, nor is any of its property the
subject of, any legal proceedings actual or threatened, which would have a
material adverse effect on the business and affairs of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during 1999 for vote by the holders of
Partnership Units.
-5-
<PAGE> 7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no market for the Limited Partnership Units (the "Units") of
the Partnership. As of March 15, 2000, there were 574 holders of record of the
Units.
The Units are not regarded as stock and payments or distributions to
holders of Units are not made in the form of dividends. There were no
distributions to the holders of Units in 1999 or 1998. Aggregate cash
distributions to the holders of the Units as of December 31, 1999, was
$3,955,500.
The Managing General Partner may purchase Units directly from the unit
holders if presented to the Managing General Partner, subject to conditions,
including limitations on numbers of Units, and at a price to be fixed by the
Managing General Partner in accordance with certain procedures, all as provided
for in the Limited Partnership Agreement of the Partnership.
ITEM 6. SELECTED FINANCIAL DATA
The information required hereunder is set forth under "Selected
Financial Data" in the Financial Information section included in this Report.
The index to the Financial Information section is at page F-1.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required hereunder is set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Financial Information section included in this Report. The index to the
Financial Information section is at page F-1.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required hereunder is set forth under "Report of
Independent Public Accountants," "Balance Sheets," "Statements of Operations,"
"Statements of Changes in Partners' Equity," "Statements of Cash Flows" and
"Notes to Financial Statements" in the Financial Information section included in
this Report. The index to the Financial Information section is at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There was no disagreement between the Partnership and its certified
public accountants on any matter of accounting principles or practices or
financial statement disclosure.
-6-
<PAGE> 8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Managing General Partner of the Partnership is PrimeEnergy
Management Corporation, a New York corporation ("Management"). The principal
business of Management is the management of the Partnership and other publicly
and privately held exploration and development limited partnerships and joint
ventures and publicly held asset and income fund limited partnerships. As of
March 15, 2000, Management acts as the Managing General Partner in a total of 51
limited partnerships and joint ventures, of which 5 are publicly held, and is
the Managing Trustee of 2 Delaware Business Trusts. The primary activity of such
Partnerships, joint ventures and trusts is the production of oil and gas and
Management, as the Managing General Partner of the Partnership, will devote such
of its time as it believes necessary in the conduct and management of the
business and affairs of the Partnership. Management, and other of the General
Partners of the Partnership, are engaged in and intend to continue to engage in
the oil and gas business for their own accounts and for the accounts of others.
Management, which provides all of the executive, management and
administrative functions of the Partnership, is a wholly owned subsidiary of
PrimeEnergy Corporation ("PrimeEnergy"), a publicly held Delaware corporation.
The principal offices of PrimeEnergy and Management are in Stamford,
Connecticut. The operating subsidiaries of PrimeEnergy, Prime Operating Company
and Eastern Oil Well Service Company maintain their principal offices in
Houston, Texas, with district offices in Midland, Texas, Oklahoma City,
Oklahoma, and Charleston, West Virginia. PrimeEnergy and its subsidiaries have
about 168 employees, including their principal officers, providing management
and administrative services, accounting, engineers, geologists, production
engineers, land department personnel and field employees.
Set forth below is information concerning the directors and executive
officers of Management and PrimeEnergy that are involved with the conduct of the
business and operations of the Partnership.
Charles E. Drimal, Jr., age 52, is a Director and President of
Management and has held those positions since May 1983. He is also a Director
and President of PrimeEnergy and the operating subsidiaries. He graduated from
the University of Maryland in 1970 and from Samford University School of Law in
1973 and is a member of the New York State Bar.
Beverly A. Cummings, age 47, has been a Director and Vice President,
Finance, of Management since August 1985. She is also a Director and Vice
President, Finance, and Treasurer of PrimeEnergy and the operating subsidiaries.
Ms. Cummings is a Certified Public Accountant and holds a Bachelor of Science
degree from the State University of New York and a Master in Business
Administration from Rutgers University.
Lynne G. Pizor, age 40, has been Controller of Prime Operating Company
since January 1992, and Eastern Oil Well Service Company since September 1990.
She also held that position with Management from January 1986 through August
1994, and PrimeEnergy from May 1990,
-7-
<PAGE> 9
through August 1994. She joined Management in October 1984, as Manager of
Partnership Accounting. She is a graduate of Wagner College with a Bachelor of
Science degree in Economics and Business Administration and is a Certified
Public Accountant.
James F. Gilbert, age 67, has been Secretary of Management since June
1990, Secretary of PrimeEnergy since March 1973, and was a Director of
PrimeEnergy from that date to October 1987. He also serves as Secretary of the
operating subsidiaries. He is an attorney in Dallas, Texas.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no officers, directors or employees. The officers
and employees of the Managing General Partner and PrimeEnergy perform all
management and operational functions of the Partnership. The Partnership does
not pay any direct salaries or other remuneration to the officers, directors or
employees of the Managing General Partner or PrimeEnergy. The Managing General
Partner is reimbursed for the general and administrative expenses of the
Partnership reasonably allocated to the Partnership for in-house expenses
incurred on behalf of the Partnership limited annually to an amount equal to 7%
of the first $7,000,000 and 6% thereafter, of capital contributions, or in the
case of third-party expenses, 3.5% of such contributions. During 1999 and 1998,
the allocation of general and administrative expenses to the Partnership was
$100,000 for both years.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Partnership does not know of any person, entity or group, other
than the Managing General Partner and PrimeEnergy Corporation that beneficially
owns more than five percent of the Units. The following table shows as of March
15, 2000, the name and address of such beneficial owners, and the number and
percent of Units beneficially owned by them, all of which are directly owned.
<TABLE>
<CAPTION>
Number
Name and Address of Beneficial Owner of Units Percent
------------------------------------ -------- -------
<S> <C> <C>
PrimeEnergy Management Corporation
One Landmark Square
Stamford, CT 06901.................................... 756 8.60%
PrimeEnergy Corporation
One Landmark Square
Stamford, CT 06901.................................... 2,040 23.21%
</TABLE>
-8-
<PAGE> 10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prime Operating Company acts as the operator for most of the producing
oil and gas wells of the Partnership pursuant to operating agreements with the
Partnership and other working interest owners, including other partnerships
managed by the Managing General Partner, and in 1999 was paid well operating
fees ranging from about $325 to $587 per month per well. Together with well
operating supplies and equipment and related servicing operations are generally
provided by Eastern Oil Well Service Company. The Partnership pays its
proportionate part of such operating fees and expenses. Such fees and expenses
vary depending on such matters as the location of the well, the complexity of
the producing equipment, whether wells produce oil or gas or both and similar
factors. The Partnership believes that such services are as favorable to the
Partnership as they would be if the Partnership entered into such transactions
with unaffiliated third parties. In 1999 and 1998, the Partnership paid an
aggregate of $79,275 and $78,979, respectively, in such fees and expenses.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements (Index to the Financial Information at
page F-1)
2. Exhibits:
(3) Form of Agreement of Limited Partnership of Sterling
Gas Drilling Fund 1981 (Incorporated by reference to
Exhibit (3) of Sterling Gas Drilling Fund 1981 Form
10-K for the year ended December 31, 1994.)
(23) Consent of Ryder Scott Company, L.P. (filed
herewith)
(27) Financial Data Schedule. (filed herewith)
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the last quarter
of the year covered by this Report.
-9-
<PAGE> 11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 28th day of
March, 2000.
Sterling Gas Drilling Fund 1981
By: PrimeEnergy Management Corporation
Managing General Partner
By: /s/ CHARLES E. DRIMAL, JR.
---------------------------------------
Charles E. Drimal, Jr.
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the 28th day of March 2000.
/s/ CHARLES E. DRIMAL, JR. Director and President,
- --------------------------------- PrimeEnergy Management Corporation;
Charles E. Drimal, Jr.
The Principal Executive Officer
/s/ BEVERLY A. CUMMINGS Director and Vice President and Treasurer,
- --------------------------------- PrimeEnergy Management Corporation;
Beverly A. Cummings
The Principal Financial
and Accounting Officer
-10-
<PAGE> 12
STERLING GAS DRILLING FUND 1981
(A New York limited partnership)
Index to Financial Information and Schedules
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Selected Financial Data F-2
Management's Discussion and Analysis of Financial Condition
and Results of Operations F-2
Report of Independent Public Accountants F-5
Financial Statements:
Balance Sheets, December 31, 1999 and 1998 F-6
Statements of Operations for the Years Ended December 31,
1999, 1998 and 1997 F-7
Statements of Changes in Partners' Equity for the Years
Ended December 31, 1999, 1998 and 1997 F-8
Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997 F-9
Notes to Financial Statements F-10
Schedules:
V - Property and Equipment - Oil and Gas Properties for
the Years Ended December 31, 1999, 1998 and 1997 F-18
VI - Accumulated Depreciation, Depletion, and Amortization -
Oil and Gas Properties for the Years Ended December 31,
1999, 1998 and 1997 F-19
</TABLE>
All other schedules have been omitted, as the information required is either
included in the financial statements, related notes, or is not applicable.
F-1
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data to
highlight significant trends in the Registrant's financial condition and results
of operations for the periods indicated. The selected financial data should be
read in conjunction with the financial statements and related notes included
elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (000'S OMITTED)
----------------------------------------------------------
1999 1998 1997 1996 1995
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues.......................... $249 $309 $264 $244 $ 291
Net income (loss):
Limited Partners............... (76) (35) (34) (48) (31)
General Partners............... 0.275 8 6 4 9
Per equity unit................ (8.62) (3.99) (4.63) (5.46) (3.47)
Total assets...................... 1,092 1,162 1,161 1,239 1,305
Cash distributions:
Limited Partners............... -- -- -- -- --
General Partners............... -- -- -- -- --
Limited partners as
a % of original
contribution.................. -- -- -- -- --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS
OF OPERATIONS
1. Liquidity: The oil and gas industry is intensely competitive in all
its phases. There is also competition between this industry and other industries
in supplying energy and fuel requirements of industrial and residential
consumers. It is not possible for the Partnership to calculate its position in
the industry as the Partnership competes with many other companies having
substantially greater financial and other resources. In accordance with the
terms of the Agreement of Limited Partnership of the Partnership, the General
Partners of the Partnership 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 for the conduct of the Partnership
business. As of December 31, 1999, the General Partners have distributed to the
Limited partners $3,955,500. Such cash distributions are equivalent to 45% of
the original Limited Partner capital contributions.
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, 1999 was approximately
$686,493 as compared to December 31, 1998, of about $807,750. 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
F-2
<PAGE> 14
ultimately recovered and such differences may have a material impact on the
Partnership's financial results and future liquidity.
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. The Partnership did not experience any problems as a result of
the Year 2000 issue.
2. Capital resources: The Partnership was formed for the sole intention
of drilling oil and gas wells. The Partnership entered into a drilling contract
with an independent drilling contractor in December 1981, for $6,900,000.
Pursuant to the terms of this contract, thirty-seven producing wells, three
non-commercial wells and one plugged well were drilled. The Partnership 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
provision of the Agreement of Limited Partnership of the Partnership.
3. Results of operations:
1999 compared to 1998
Operating revenue decreased from $309,715 in 1998 to $248,920 in 1999.
The Partnership did experience a decline in gas production, from 102,850 MCF in
1998 to 89,430 MCF in 1999. The decline in the average price per MCF received in
1999 and 1998 was a decrease of twenty-three cents. The lower average price
received for gas combined with the decline in MCF production were the main
factors in reduced revenue received from gas production. The Partnership
receives very little income from the production of oil. During 1999 oil
production also declined, 309 barrels in 1999 as compared to 709 barrels in
1998. The oil revenue from oil production was helped slightly due to higher
average prices per barrel received from the purchasers during the latter half of
1999, from $12.14 per average barrel in 1998 to $19.61 per average barrel in
1999.
Overall production expenses declined slightly from $137,561 in 1998 to
$127,688 in 1999. Occasionally the Partnership will expend additional funds on
light repairs, which the operator has deemed necessary. These repairs are
considered an appropriate means to increase, sustain or halt changes in
production. These repairs as well as the additional or replacement equipment
contributed to additional cost incurred, which may include supplemental
maintenance, labor, location, access road work and other needed repairs. The
majority of the production expenditures for 1999 were for the general upkeep and
routine maintenance at the well and well sites. General and administrative costs
showed little to no changes from $118,363 in 1998 to $117,953 in 1999. Amounts
in both years are substantially less then the $439,500 allocable to the
Partnership under the Partnership Agreement. Management continues to use
in-house resources if it will provide efficient and timely services to the
Partnership. Slight changes to these type costs are in keeping with management's
overall goal to limit costs, both incurred and allocated to the Partnership.
F-3
<PAGE> 15
The Partnership records additional depreciation, depletion and
amortization to the extent that the net capitalized costs exceed the
undiscounted future net cash flows attributable to the Partnership. No
additional depletion deduction was needed in 1999 or 1998. Normal depletion and
depreciation, for both 1998 and 1999, was consistent with the Partnership's
remaining property basis and the appropriate rates applied.
1998 compared to 1997
Operating revenue increased from $264,531 in 1997 to $309,715 in 1998.
The Partnership did experience a significant increase in gas production, from
85,541 MCF in 1997 to 102,850 MCF in 1998. The difference in the average price
per MCF received in 1998 and 1997 was a slight decrease of one cent per MCF. The
stable price for gas combined with the increased MCF production were the main
factors in increased revenue received from gas production. The Partnership
receives very little income from the production of oil but during 1998 oil
production was slightly higher, 709 barrels as compared to 515 barrels in 1997.
The total revenue from oil production was offset due to significantly lower
average prices per barrel received from the purchasers throughout 1998, $18.54
per average barrel in 1997 to $12.14 per average barrel in 1998. The operator of
the wells may determine that additional equipment or replacement equipment may
assist in maintaining current production levels or reduce declines in
production. The additional equipment helped the Partnership's production
throughout 1998.
Overall production expenses increased from $103,551 in 1997 to $137,561
in 1998. Occasionally the Partnership will expend additional funds on light
repairs, which the operator has deemed necessary. These repairs are considered
an appropriate means to increase, sustain or halt changes in production. These
repairs as well as the additional or replacement equipment contributed to
additional cost incurred, which may include supplemental maintenance, labor,
location, access road work and other needed repairs. The majority of the
production expenditures for 1997 were for the general upkeep and routine
maintenance at the well and well sites. General and administrative costs showed
little to no changes from $117,548 in 1997 to $118,363 in 1998. Amounts in both
years are substantially less then the $439,500 allocable to the Partnership
under the Partnership Agreement. Management continues to use in-house resources
if it will provide efficient and timely services to the Partnership. Slight
changes to these type costs are in keeping with management's overall goal to
limit costs, both incurred and allocated to the Partnership.
The Partnership records additional depreciation, depletion and
amortization to the extent that the net capitalized costs exceed the
undiscounted future net cash flows attributable to the Partnership. No
additional depletion was needed in 1998 or 1997. Normal depletion for both 1998
and 1997 was consistent with the Partnership's remaining property basis and the
appropriate rates applied.
F-4
<PAGE> 16
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Sterling Gas Drilling Fund 1981:
We have audited the accompanying balance sheets of Sterling Gas Drilling Fund
1981 (a New York limited partnership) as of December 31, 1999 and 1998, and the
related statements of operations, changes in partners' equity, and cash flows
for the years ended December 31 1999, 1998 and 1997. These financial statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sterling Gas Drilling Fund 1981
as of December 31, 1999 and 1998, and the results of its operations and cash
flows for the years ended December 31, 1999, 1998 and 1997 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements and schedules are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the examination of the basic financial statements and, in
our opinion, fairly state in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken as a
whole.
PUSTORINO, PUGLISI & CO., LLP
New York, New York
March 3, 2000
F-5
<PAGE> 17
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
Assets
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 2) $ 7 $ 19
----------- -----------
Total Current Assets 7 19
----------- -----------
Oil and Gas Properties - successful efforts method (Note 3) -
(Schedules V and VI):
Leasehold costs 236,502 236,502
Wells and related facilities 7,036,647 7,026,724
----------- -----------
Total 7,273,149 7,263,226
Less - Accumulated depreciation, depletion and amortization (6,180,734) (6,101,369)
----------- -----------
1,092,415 1,161,857
----------- -----------
Total Assets $ 1,092,422 $ 1,161,876
=========== ===========
Liabilities and Partners' Equity
Current Liabilities:
Due to affiliates (Note 6) $ 159,309 $ 152,677
----------- -----------
Total Current Liabilities 159,309 152,677
----------- -----------
Partners' Equity:
Limited partners 1,031,925 1,107,736
General partners (98,812) (98,537)
----------- -----------
Total Partners' Equity 933,113 1,009,199
----------- -----------
Total Liabilities and Partners' Equity $ 1,092,422 $ 1,161,876
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-6
<PAGE> 18
STERLING GAS DRILLING FUND 1981
(A New York limited partnership)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------- --------------------------------- --------------------------------
Limited General Limited General Limited General
Partners Partners Total Partners Partners Total Partners Partners Total
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Operating revenues $ 208,228 $ 39,221 $ 247,449 $ 260,625 $ 49,090 $ 309,715 $ 222,603 $ 41,928 $ 264,531
Other Revenue (Note 10) 1,238 233 1,471 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total Revenue 209,466 39,454 248,920 260,625 49,090 309,715 222,603 41,928 264,531
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Costs and Expenses:
Production expenses 107,449 20,239 127,688 115,758 21,803 137,561 87,138 16,413 103,551
Depreciation,
depletion and
amortization 78,571 794 79,365 80,360 812 81,172 77,211 780 77,991
--------- --------- --------- --------- --------- --------- --------- --------- ---------
General and
administrative
expenses (Note 7) 99,257 18,696 117,953 99,602 18,761 118,363 98,917 18,631 117,548
Total Expenses 285,277 39,729 325,006 295,720 41,376 337,096 263,266 35,824 299,090
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) $ (75,811) $ (275) $ (76,086) $ (35,095) $ 7,714 $ (27,381) $ (40,663) $ 6,104 $ (34,559)
========= ========= ========= ========= ========= ========= ========= ========= =========
Net (Loss) Per
Equity Unit (Note 2) $ (8.62) $ (3.99) $ (4.63)
========= ========= =========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-7
<PAGE> 19
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
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 (Loss) (35,095) 7,714 (27,381)
----------- ----------- -----------
Balance at December 31, 1998 1,107,736 (98,537) 1,009,199
Net (Loss) (75,811) (275) (76,086)
----------- ----------- -----------
Balance at December 31, 1999 $ 1,031,925 $ (98,812) $ 933,113
=========== =========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-8
<PAGE> 20
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net (loss) $(76,086) $(27,381) $(34,559)
Adjustments to reconcile net (loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization 79,365 81,172 77,991
Changes in Assets and Liabilities:
Due to affiliates 6,631 28,581 (43,442)
-------- -------- --------
Net Cash Provided (Used) by Operating 9,910 82,372 (10)
-------- -------- --------
Activities
Cash Flows From Investing Activities:
Equipment purchases (9,922) (82,369) --
-------- -------- --------
Net Cash Used by Investing Activities (9,922) (82,369) --
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents (12) 3 (10)
Cash and cash equivalents, beginning of year 19 16 26
-------- -------- --------
Cash and cash equivalents, end of year $ 7 $ 19 $ 16
======== ======== ========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-9
<PAGE> 21
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(1) Organization and Capital Contributions:
Sterling Gas Drilling Fund 1981, a New York limited partnership (the
"Partnership"), was formed on September 28, 1981, for the primary
purpose of acquiring, drilling, developing and producing oil and gas in
the state of West Virginia. The general partners are: PrimeEnergy
Management Corporation (PEMC), a wholly owned subsidiary of PrimeEnergy
Corporation (PEC), Charles E. Drimal, Jr., Oliver J. Sterling and
Samuel R. Campbell. The subscription period began on October 9, 1981
and terminated December 15, 1981. Eight thousand seven hundred ninety
limited partnership units, (8,790), were sold at $1,000 per unit
aggregating total limited partner capital contributions of $8,790,000.
The general partners' made no capital contributions. Partnership
operations commenced on December 23, 1981.
(2) Summary of Significant Accounting Policies:
Revenue Recognition:
The Partnership recognizes operating revenues, consisting of sales of
oil and gas production, in the month of sale. Uncollected revenue is
accrued based on known facts and trends of the relevant oil and gas
properties on a monthly basis.
Basis of Accounting:
The accounts of the Partnership are maintained in accordance with
accounting practices permitted for federal income tax reporting
purposes. Under this method of accounting, (a) substantially all
exploration and development costs except leasehold and equipment costs
are expensed as paid, (b) costs of abandoned leases and equipment are
expensed when abandoned, and (c) depreciation (for equipment placed in
service) is provided on an accelerated basis. In order to present the
accompanying financial statements in accordance with generally accepted
accounting principles, memorandum adjustments have been made to account
for oil and gas properties, as discussed below.
Oil and Gas Producing Activities:
The Partnership accounts for its oil and gas operations using the
successful efforts method of accounting on a property by property
basis. The Partnership only participates in developmental drilling.
Accordingly, all costs of drilling and equipping these wells, together
with leasehold acquisition costs, are capitalized. These
F-10
<PAGE> 22
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(2) Summary of Significant Accounting Policies - (Cont'd):
capitalized costs are amortized on a property by property basis
(utilizing aggregations of common geological structures) by the
unit-of-production method based upon the ratio of production to proved
developed oil and gas reserves. Additional depreciation, depletion and
amortization may be recorded if net capitalized costs exceed the
undiscounted future net cash flows attributable to Partnership
properties. (See Note 4)
Federal Income Taxes:
As federal income taxes are the liability of the individual partners,
the accompanying financial statements do not include any provision for
federal income taxes. (See Note 8)
Limited Partners' (Loss) Per Equity Unit:
The limited partners' (loss) per equity unit is computed on the 8,790
limited partner equity units.
Cash and Cash Equivalents:
For purposes of the statements of cash flows the Partnership considers
all highly liquid debt instruments with a maturity of three months or
less to be cash equivalents.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
F-11
<PAGE> 23
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(3) Oil and Gas Properties:
The Partnership acquired leases or farmouts from PEMC at its cost. Cost
is defined as any amount paid for delay rentals, lease bonuses, if any,
surveys and other expenses including such portion of any of the general
partners', or their affiliates' reasonable, necessary and actual
expenses for geological, geophysical, seismic, land, engineering,
drafting, accounting, legal and other services. During 1981, the
Partnership, as reimbursement of costs for leases it acquired from
PEMC, paid PEMC $236,502. The Partnership currently pays royalties of
approximately 12.5% to 20.8% of the selling price of the gas and oil
extracted.
The following table sets forth certain revenue and expense data
concerning the Partnership's oil and gas activities for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Average sales price per MCF of gas $ 2.69 $ 2.92 $ 2.93
Average sales price per barrel of
oil and other liquids $19.61 $12.14 $18.54
Production expense per dollar of
operating revenue $ 0.52 $ 0.39 $ 0.40
</TABLE>
(4) Quantities of Oil and Gas Reserves:
The amount of proved reserves presented below has been estimated by an
independent firm of petroleum engineers as of January 1, 2000.
Petroleum engineers on the staff of PEC have reviewed the data
presented below, as of December 31, 1999, for consistency with current
year production and operating history. All of the Partnership's gas and
oil reserves are located within the United States:
F-12
<PAGE> 24
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(4) Quantities of Oil and Gas Reserves - (Cont'd):
<TABLE>
<CAPTION>
(Unaudited)
----------------------
GAS (MCF) OIL (BBL)
--------- ---------
<S> <C> <C>
Reserves as of December 31, 1996 1,434,906 3,644
Revisions of previous estimates (76,355) 1,564
Production (85,541) (515)
--------- ---------
Reserves as of December 31, 1997 1,273,010 4,693
Revisions of previous estimates 302,253 635
Production (102,850) (709)
--------- ---------
Reserves as of December 31, 1998 1,472,413 4,619
Revisions of Previous Estimates (152,029) 2,069
Production (89,430) (369)
--------- ---------
Reserves as of December 31, 1999 1,230,954 6,319
========= =========
</TABLE>
If future prices were to decline, operation of certain wells would
become uneconomic, on a pretax basis, as production levels decline with
age. In accordance with the rules and regulations of the Securities and
Exchange Commission, proved reserves exclude production which would be
uneconomic. The partners are entitled to certain tax benefits and
credits which, if available in the future, may result in production
continuing beyond that included above.
Revisions arise from changes in current prices, as well as, engineering
and geological data which would alter the useful life and therefore the
overall predicted production of each well. Future changes in these
estimates are common and would impact the reserve quantities used to
calculate depreciation, depletion, and amortization.
As discussed in Note 2, the Partnership may record additional
depreciation, depletion and amortization if net capitalized costs
exceed the undiscounted future net cash flows attributable to
Partnership properties. Significant price declines affect estimated
future net revenues both directly and because of they're impact on
estimates of future production. The Partnership has recorded no
additional provision in 1999, 1998 or 1997. If the additional provision
had been computed based on the limited partners' interest in
capitalized costs and estimated future net revenues, rather than on the
basis of total Partnership interests, the limited partners income
equity would not have been reduced in 1999, 1998 or 1997.
F-13
<PAGE> 25
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(5) Allocation of Partnership Revenues, Costs and Expenses:
Under the terms of the Limited Partnership Agreement, all Partnership
revenues and expenses, including deductions attributable thereto, are
to be allocated as follows:
Drilling and completion costs (paid out of initial capital
contributions):
<TABLE>
<S> <C>
Limited partners 99.00%
General partners 1.00%
------
100.00%
</TABLE>
Expenses of organization, costs of acquiring leases and the
nonrecurring management fee:
<TABLE>
<S> <C>
Limited partners 100.00%
General partners --%
------
100.00%
</TABLE>
Net Revenue from oil and gas operations, general and administrative
expenses and production operating fees:
<TABLE>
<S> <C>
Limited partners 84.15%
General partners 15.85%
------
100.00%
</TABLE>
All other income, gains, losses, costs, expenses, deductions and
credits:
<TABLE>
<S> <C>
Limited partners 99.00%
General partners 1.00%
------
100.00%
</TABLE>
(6) Transactions With Affiliates:
(a) The payable to affiliates at December 31, 1999 and 1998
represents all revenues and expenses collected or incurred on
behalf of the Partnership by PEC and its subsidiaries, including
the production operator's fees (Note 6(b)) and any advances made
to the Partnership. PEMC intends to continue to make advances to
the Partnership to fund any working capital deficiencies in the
future on an interest free basis.
F-14
<PAGE> 26
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(6) Transactions With Affiliates - (Cont'd):
(b) As operator of the Partnership's properties, Prime Operating
Company (POC), a subsidiary of PEC, receives, as compensation
from the Partnership, a monthly production operator's fee of
$325 for each producing gas well and $587 for each producing oil
or combination gas and oil well, based on the Partnership's
percentage of working interest in the well. These fees are
subject to annual adjustment by the percentage increase in the
Cost of Living Index published by the U.S. Department of Labor
over the year in which production began. During 1999, 1998 and
1997, $67,191, $74,107, and $68,976 of production operator's
fees were incurred, respectively.
(c) Eastern Oil Well Services Company (EOWSC), a subsidiary of PEC,
provided field services to the Partnership during the years
ending December 31, 1999, 1998, and 1997 for which it was billed
$12,084, $4,872, and $2,114 respectively.
(7) General and Administrative Expenses:
In accordance with the Management Agreement, PEMC will be reimbursed
for the portion of PEMC's in-house overhead, including salaries and
related benefits, attributable to the affairs and operations of the
Partnership not exceeding an annual maximum amount of $440,000.
In addition, the Partnership will pay for third party expenses for
geology, engineering, legal, accounting, auditing, insurance and other
items not exceeding an annual amount equal to 3.5% of limited partner
capital contributions. The excess, if any, shall be borne by the
general partners in their individual capacity.
During 1999, 1998 and 1997, the Partnership recognized general and
administrative expenses incurred on its behalf by a general partner of
$100,000, for each year.
F-15
<PAGE> 27
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(8) Federal Income Taxes:
The following is a reconciliation between the net income (loss) as
reported on the Partnership's federal income tax return and the net
income (loss) reported in the accompanying financial statements:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) as
reported on the
Partnership's federal
income tax return $ (8,748) $(28,344) $40,239
Recompletion costs reported
differently for financial
reporting purposes and for
income tax reporting
purposes 9,922 79,623 --
Depreciation, depletion and
amortization for financial
reporting purposes
(greater) less than income
tax amount (77,260) (78,660) (74,798)
-------- -------- --------
Net (loss) per accompanying
financial statements $(76,086) $(27,381) $(34,559)
======== ======== ========
</TABLE>
The tax returns of the Partnership, the qualifications of the
Partnership as such for tax purposes, and the amount of Partnership
income or loss are subject to examination by federal and state taxing
authorities. If such examinations result in changes with respect to
Partnership's qualifications or in changes to its income or loss, the
tax liability of the partners would be changed accordingly.
The Tax Reform Act of 1976 provides that no part of any depletion
deduction with respect to oil and gas wells is to be determined by the
Partnership but must be computed separately by the partners. Thus, cost
or percentage depletion, as applicable, must be computed by each
partner so that a specific depletion computation can be made when each
partner files his U.S. income tax return. Information is furnished to
the partners to compute the depletion deduction.
F-16
<PAGE> 28
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(9) Major Customers:
A schedule of the major purchases of the Partnership's production is as
follows:
<TABLE>
<CAPTION>
Purchaser 1999 1998 1997
--------- -------- -------- --------
<S> <C> <C> <C>
Brooklyn Union $143,851 $140,133 $146,923
Phoenix Diversified $ 84,300 $ 97,986 $ 97,986
American Refining Group $ 7,229 $ 5,094 $ --
</TABLE>
The partnership renewed its gas purchase contracts in December, 1999
resulting in a fixed price for one year.
(10) Other Revenue:
Other revenue represents settled claims against Columbia Gas
Transmission Corp. (Columbia) arising from amounts due from Columbia
when they declared bankruptcy. No significant additional claims are
expected concerning this matter.
F-17
<PAGE> 29
SCHEDULE V
STERLING GAS DRILLING FUND 1981
(A New York limited partnership)
PROPERTY AND EQUIPMENT - OIL AND GAS PROPERTIES
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Balance at Balance
Beginning Additions Other at End
of Year at Cost Retirements Changes of Year
---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Leasehold costs $ 236,502 $ -- $ -- $ -- $ 236,502
Wells and related facilities 7,026,724 9,922 -- -- 7,036,647
---------- -------- -------- ---------- ----------
$7,263,226 $ 9,922 $ -- $ -- $7,273,149
========== ======== ======== ========== ==========
Year Ended December 31, 1998:
Leasehold costs $ 236,502 $ -- $ -- $ -- $ 236,502
Wells and related facilities 6,944,355 82,369 -- -- 7,026,724
---------- -------- -------- ---------- ----------
$7,180,857 $ 82,369 $ -- $ -- $7,263,226
========== ======== ======== ========== ==========
Year ended December 31, 1997:
Leasehold costs $ 236,502 $ -- $ -- $ -- $ 236,502
Wells and related facilities 6,944,355 -- -- -- 6,944,355
---------- -------- -------- ---------- ----------
$7,180,857 $ -- $ -- $ -- $7,180,877
========== ======== ======== ========== ==========
</TABLE>
F-18
<PAGE> 30
SCHEDULE VI
STERLING GAS DRILLING FUND 1981
(a New York limited partnership)
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION - OIL AND GAS PROPERTIES
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Balance at Charges to Balance
Beginning Costs and Other at End
of Year Expenses Retirements Changes of Year
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Wells and related facilities $5,864,867 $ 79,365 $ -- $ -- $5,944,232
Leasehold costs 236,502 -- -- -- 236,502
---------- ---------- ----- ---------- ----------
$6,101,369 $ 79,365 $ -- $ -- $6,180,734
---------- ---------- ----- ---------- ----------
Year Ended December 31, 1998:
Wells and related facilities $5,783,695 $ 81,172 $ -- $ -- $5,864,867
Leasehold costs 236,502 -- -- -- 236,502
---------- ---------- ----- ---------- ----------
6,020,197 81,172 $ -- $ -- $6,101,369
---------- ---------- ----- ---------- ----------
Year ended December 31, 1997:
Wells and related facilities $5,705,704 $ 77,991 $ -- $ -- $5,783,695
Leasehold costs 236,502 -- -- -- 236,502
---------- ---------- ----- ---------- ----------
$5,942,206 $ 77,991 $ -- $ -- $6,020,197
========== ========== ===== ========== ==========
</TABLE>
F-19
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
(3) Form of Agreement of Limited Partnership of Sterling Gas
Drilling Fund 1981 (incorporated by reference to Exhibit (3)
of Sterling Gas Drilling Fund 1981 Form 10-K for the year
ended December 31, 1994)
(23) Consent of Ryder Scott Company, L.P. (filed herewith)
(27) Financial Data Schedule. (filed herewith)
</TABLE>
<PAGE> 1
EXHIBIT 23
[RYDER SCOTT COMPANY, L.P. LETTERHEAD]
CONSENT OF RYDER SCOTT COMPANY, L.P.
We consent to the use on the Form 10-K of Sterling Gas Drilling Fund 1981
of our reserve report and all schedules, exhibits, and attachments thereto
incorporated by reference of Form 10-K and to any reference made to us on Form
10-K as a result of such incorporation.
Very truly yours,
/s/ RYDER SCOTT COMPANY, L.P.
RYDER SCOTT COMPANY, L.P.
Denver, Colorado
March 20, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STERLING
DRILLING FUND 1981 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7
<PP&E> 7,273,149
<DEPRECIATION> (6,180,734)
<TOTAL-ASSETS> 1,092,422
<CURRENT-LIABILITIES> 159,309
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 933,113<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,092,422
<SALES> 248,920
<TOTAL-REVENUES> 248,920
<CGS> 325,006
<TOTAL-COSTS> 325,006
<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> (76,086)
<EPS-BASIC> (8.62)<F2>
<EPS-DILUTED> 0
<FN>
<F1>OTHER - SE IS COMPOSED OF PARTNERSHIP EQUITY.
<F2>EPS - PRIMARY IS BASED UPON LIMITED PARTNERS SHARE OF NET INCOME DIVIDED BY THE
OUTSTANDING PARTNERSHIP UNITS OF 8,790.
</FN>
</TABLE>
