SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d)of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1999
or
Transition Report Pursuant to Section 13 or 15(d)of the Securities Exchange
Act of 1934
For the Transition Period Ended _______________________
Commission File Number 2-84452-01
STERLING DRILLING FUND 1983-2
(Exact name of registrant as specified in charter)
New York
(State or other jurisdiction of corporation or organization)
13-3167551
(IRS employer identification number)
One Landmark Square, Stamford, Connecticut 06901
(Address and Zip Code of principal executive offices)
(203) 358-5700
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes /X/ No / /
<PAGE> 1
PART I
Item 1. Financial Statements
The following Financial Statements are filed herewith:
Balance Sheets - September 30, 1999 and December 31, 1998.
Statements of Operations for the Nine and Three Months Ended September
30, 1999 and 1998.
Statements of Changes in Partners' Equity for the Nine and Three Months
Ended September 30, 1999 and 1998.
Statements of Cash Flows for the Nine Months Ended September 30, 1999 and
1998.
Note to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
1. Liquidity -
The oil and gas industry is intensely competitive in all its phases. There
is also competition between 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 as filed by the Registrant, 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 contingent debts, liabilities or expenses for the conduct of the
Partnership's business. As of September 30, 1999, the General Partners
have distributed $1,789,458.00 or 11.40% of original Limited Partner
capital contributions to the Limited Partners.
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.
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
<PAGE> 2
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 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 revenues (S.E.C. case) associated with such
reserves, discounted at 10% as of December 31, 1998, was approximately
$1,009,000 as compared to the discounted
<PAGE> 3
reserves as of December 31, 1997, which were approximately $1,288,000.
Overall reservoir engineering is a subjective process of estimating
underground accumulations of gas and oil that can not be measured in an
exact manner. The accuracy of any reserve estimate is a function of the
quality of available data and of the engineering and geological
interpretation and judgment. Accordingly, reserve estimates are generally
different from the quantities of gas and oil that are ultimately recovered
and such differences may have a material impact on the Partnership's
financial results and future liquidity.
2. Capital Resources -
The Registrant was formed for the sole intention of drilling oil and gas
wells. The Registrant entered into a drilling contract with an independent
contractor in December 1983 for $13,400,000. Pursuant to terms of this
contract, fifty-two wells have been drilled resulting in fifty-one
producing wells and one dry hole.
3. Results of Operations -
The Partnership experienced a mild decline in its gas production and a very
minor increase in its oil production, from 85,835 MCF and 1,363 BBLS in
1998 to 84,515 MCF and 1,447 BBLS in 1999. The average price per MCF
received for gas sold in 1998 was $2.95 per MCF as compared to $2.31 in
1999. The Partnership's main income comes from gas production sold but can
be influenced by changes to its oil income. The combination of lower gas
production and lower average price per MCF was the main contributing factor
in lower partnership income from $269,838 in 1998 to $216,064 in 1999. Gas
production fluctuations can be attributed to shut-ins, higher main
transport line pressures and down time on some compressors used by
Partnership wells. Production expenses decreased from $ 120,518 in 1998
to $108,776 in 1999. The production expenses were lower as a result of a
combination of items, including variable costs associated with volume
changes, repairs, and labor costs associated with the wells and well sites.
Current production expenses, during 1999, has been limited to normal
maintenance and upkeep of the wells and well sites.
General and administrative expenses have been segregated on the financial
statements to reflect expenses paid to PrimeEnergy Management Corporation,
a general partner. These expenses are charged in accordance with
guidelines set forth in the Registrant's Management Agreement and are
attributable to the affairs and operations of the Partnership and shall not
exceed an annual amount equal to 5% of the Limited Partners' capital
contributions. Amounts related to both 1998 and 1999 are substantially less
than the amounts allocable to the Registrant under the Partnership
Agreement. The lower amounts reflect management's efforts to limit costs,
both incurred and allocated to the Registrant.
<PAGE> 4
The Partnership records additional depreciation, depletion and amortization
to the extent that net capitalized costs exceed the undiscounted future net
cash flows attributable to the Partnership properties. No additional
depreciation, depletion or amortization was needed in 1998 or in the three-
quarters of 1999. The expense recorded is consistent with the current basis
of the Partnership's properties.
PART II
Items 1 through 5 have been omitted in that each item is either
inapplicable or the answer is negative.
Item 6: Exhibits and Reports on Form 8-K
The Partnership was not required to file any reports on Form 8-K and
no such form was filed during the period covered by this report.
Exhibit 27 - Financial Data Schedule is attached to the electronic
filing of this report.
<PAGE> 5
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
STERLING DRILLING FUND 1983-2
(Registrant)
By: /s/ Charles E.Drimal Jr.
------------------------------
Charles E. Drimal, Jr.
General Partner
November 12, 1999
(Date)
<PAGE> 6
STERLING DRILLING FUND 1983-2
(a New York Limited Partnership)
Balance Sheets
September 30, December 31,
1999 1998
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 69,387 $ 88,554
Due from affiliates 0 39,510
Due from others 29,137 0
----------- ------------
Total current assets 98,524 128,064
----------- -----------
Oil and gas properties -
successful efforts method:
Leasehold costs 497,639 497,639
Well and related facilities 12,934,544 12,934,194
less accumulated depreciation,
depletion and amortization (12,312,140) (12,268,244)
----------- ------------
1,120,043 1,163,589
----------- ------------
Total assets $ 1,218,567 $ 1,291,653
=========== ============
Liabilities and Partners' Equity
Current Liabilities:
Due to others $ 0 $ 0
Due to affiliates 2,050 0
------------ ------------
Total current liabilities 2,050 0
------------ ------------
Partners' equity
Limited partners $ 1,214,859 $ 1,279,323
General partners 1,658 12,330
----------- ------------
Total partners' equity $ 1,216,517 $ 1,291,653
----------- ------------
Total liabilities and
Partners' equity 1,218,567 1,291,653
$ =========== $ ============
See accompanying note to the financial statements.
<PAGE> 7
STERLING DRILLING FUND 1983-2
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Nine Months Ended
September 30, 1999
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 165,289 50,775 $ 216,064
Other revenue 1,854 570 2,424
Interest income 2,148 200 2,348
-------- -------- -------
Total Revenue 169,291 51,545 220,836
-------- -------- -------
Costs and Expenses:
Production expense 83,214 25,562 108,776
General and administrative
to a related party 57,376 17,625 75,001
General and administrative 13,758 4,226 17,984
Depreciation, depletion
and amortization 40,165 3,731 43,896
-------- -------- -------
Total Costs and Expenses 194,513 51,144 245,657
-------- -------- -------
Net Income/(Loss) $ (25,222) 401 $ (24,821)
======== ======== =======
Net (Loss) per equity unit $ (1.61)
======
See accompanying note to the financial statements.
<PAGE>8
STERLING DRILLING FUND 1983-2
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Nine Months Ended
September 30, 1998
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 206,426 $ 63,412 $ 269,838
Gain on sale of equipment 0 0 0
Interest income 2,851 265 3,116
-------- -------- -------
Total Revenue 209,277 63,677 272,954
-------- -------- -------
Costs and Expenses:
Production expense 92,196 28,322 120,518
General and administrative
to a related party 57,379 17,626 75,005
General and administrative 15,210 4,673 19,883
Depreciation, depletion
and amortization 40,779 3,788 44,567
-------- -------- -------
Total Costs and Expenses 205,564 54,409 259,973
-------- -------- -------
Net Income $ 3,713 $ 9,268 $ 12,981
======== ======== =======
Net Income per equity unit $ .24
======
See accompanying note to the financial statements.
<PAGE> 9
STERLING DRILLING FUND 1983-2
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Three Months Ended
September 30, 1999
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 71,108 21,844 $ 92,952
Other Income 0 0 0
Interest income 213 20 233
-------- -------- -------
Total Revenue 71,321 21,864 93,185
-------- -------- -------
Costs and Expenses:
Production expense 37,702 11,581 49,283
General and administrative
to a related party 19,124 5,875 24,999
General and administrative 4,080 1,253 5,333
Depreciation, depletion
and amortization 13,388 1,244 14,632
-------- -------- -------
Total Costs and Expenses 74,294 19,953 94,247
-------- -------- -------
Net Income/(Loss) $ (2,973) 1,911 $ (1,062)
======== ======== ========
Net (Loss) per equity unit $ (.19)
========
See accompanying note to the financial statements.
<PAGE> 10
STERLING DRILLING FUND 1983-2
(a New York Limited Partnership)
Statement of Operations
(unaudited)
Three Months Ended
September 30, 1998
Limited General
Partners Partners Total
Revenue:
Operating revenue $ 65,915 $ 20,248 $ 86,163
Gain on sale of equipment 0 0 0
Interest income 764 71 835
-------- -------- --------
Total Revenue 66,679 20,319 86,998
-------- -------- --------
Costs and Expenses:
Production expense 24,733 7,598 32,331
General and administrative
to a related party 19,124 5,875 24,999
General and administrative 5,553 1,706 7,259
Depreciation, depletion
and amortization 13,593 1,263 14,856
-------- -------- --------
Total Costs and Expenses 63,003 16,442 79,445
-------- -------- --------
Net Income $ 3,676 $ 3,877 $ 7,553
======== ======== ========
Net Income per equity unit $ .24
========
See accompanying note to the financial statements.
<PAGE> 11
STERLING DRILLING FUND 1983-2
(a New York Limited Partnership)
Statement of Changes in Partners' Equity
(unaudited)
Nine Months Ended
September 30, 1999
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,279,323 12,330 $ 1,291,653
Partner's Contributions 0 112 112
Cash Distributions (39,242) (11,185) (50,427)
Net Income/(Loss) (25,222) 401 (24,821)
-------- -------- ----------
Balance at end of period $ 1,214,859 1,658 $ 1,216,517
========= ========= =========
Nine Months Ended
September 30, 1998
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,318,829 12,525 $ 1,331,354
Partner's Contributions 0 113 113
Cash Distributions (39,242) (11,497) (50,739)
Net Income 3,713 9,268 12,981
--------- -------- ---------
Balance at end of period $ 1,283,300 10,409 $ 1,293,709
========= ======== =========
See accompanying note to the financial statements.
<PAGE> 12
STERLING DRILLING FUND 1983-2
(a New York Limited Partnership)
Statement of Changes in Partners' Equity
(unaudited)
Three Months Ended
September 30, 1999
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,217,832 (365) $ 1,217,467
Partners' Contribution 0 112 112
Cash Distributions 0 0 0
Net Income/(Loss) (2,973) 1,911 (1,062)
--------- -------- ---------
Balance at end of period $ 1,214,859 1,658 $ 1,216,517
========= ======== =========
Three Months Ended
September 30, 1998
Limited General
Partners Partners Total
Balance at beginning of
period $ 1,279,624 6,419 $ 1,286,043
Partner's Contributions 0 113 113
Cash Distributions 0 0 0
Net Income(Loss) 3,676 3,877 7,553
--------- -------- ---------
Balance at end of period $ 1,283,300 10,409 $ 1,293,709
========= ======== =========
See accompanying note to the financial statements.
<PAGE> 13
STERLING DRILLING FUND 1983-2
(a New York Limited Partnership)
Statement of Cash Flows
(unaudited)
Nine months Nine months
ended Ended
September September
30, 1999 30, 1998
Net cash provided by operating activities $ 31,498 $ 78,590
---------- ----------
Cash flows from financing activities:
Partners contributions 112 113
Distribution to partners (50,427) (50,739)
---------- ----------
Net cash used in financing activities (50,315) (50,626)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of equipment 0 0
Investment in well and related
facilities (350) 0
---------- ----------
Net Cash used in investing activities (350) 0
---------- ----------
Net increase in cash and cash equivalents (19,167) 27,964
Cash and cash equivalents at
beginning of period 88,554 57,413
---------- ----------
Cash and cash equivalents at end of
period $ 69,387 $ 85,377
========== ==========
See accompanying note to the financial statements.
<PAGE>14
STERLING DRILLING FUND 1983-2
(a New York limited partnership)
Note to Financial Statements
September 30, 1999
1. The accompanying statements for the period ending September 30, 1999, are
unaudited but reflect all adjustments necessary to present fairly the results of
operations.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Sterling Drilling Fund 1983-2 third quarter 1999 10Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 69,387
<SECURITIES> 0
<RECEIVABLES> 29,137
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 98,524
<PP&E> 13,432,183
<DEPRECIATION> (12,312,140)
<TOTAL-ASSETS> 1,218,567
<CURRENT-LIABILITIES> 2,050
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,216,517<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,218,567
<SALES> 220,836<F2>
<TOTAL-REVENUES> 220,836
<CGS> 245,657
<TOTAL-COSTS> 245,657
<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> (24,821)
<EPS-BASIC> (1.61)<F3>
<EPS-DILUTED> 0
<FN>
<F1>Other -Se includes total partners' equity.
<F2>Sales includes $2,348 of interest income.
<F3>The income allocated to the limited partnership group was divided
by the total number of limited partnership units of 15,697.
</FN>
</TABLE>
