<PAGE> 1
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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, 1996
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. 0-13457
STERLING DRILLING FUND 1984-1, L.P.
(Exact name of Registrant as specified in its charter)
NEW YORK 13-3234373
(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 14, 1997,
was: 9,236.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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<PAGE> 2
STERLING DRILLING FUND 1984-1, L.P.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996
PART I
ITEM 1. BUSINESS
Sterling Drilling Fund 1984-1, L.P., formerly Sterling-Fuel Resources
Drilling Fund 1984-1 (the "Registrant" or the "Partnership") is a limited
partnership formed under the laws of the State of New York on June 26, 1984.
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 $9,236,000 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, Boone, Wirt, Kanawha, Lincoln and Putnam Counties, West
Virginia and various counties in eastern Kentucky. 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 1996, 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, 1997, 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
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<PAGE> 3
each 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. In 1995, about $201,000, or 99%, of the Partnership's gas
production was sold to Phoenix Diversified and about $40,000 or 100%, of the
Partnership's oil production was sold to American Rivers Terminals. Neither
purchaser 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 1996 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 and the Natural Gas Policy Act of 1978 and various
state regulations. The Partnership was subject to the Crude Oil Windfall Profit
Tax Act of 1980, which imposed an excise tax on producers of crude oil at
various rates for prices received in excess of certain historical base prices.
That Act was repealed in August, 1988. The Partnership is also subject to state
drilling and proration regulations affecting its drilling operations and
production rates.
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<PAGE> 4
The FERC continues to regulate interstate natural gas pipeline
transportation rates and service conditions pursuant to the NGA and NGPA.
Federal regulation of interstate transporters 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.
A number of legislative proposals have been introduced in Congress and the
state legislatures of various states, that, if enacted, would significantly
affect the petroleum industry. Such proposals involve, among other things, the
imposition of land and use controls and certain measures designed to prevent
petroleum companies from acquiring assets in other energy areas. In addition,
there is always the possibility that if market conditions change dramatically
in favor of oil and gas producers that some new form of "windfall profit" or
severance tax may be proposed for and imposed upon either oil or gas. At the
present time it is impossible to predict which proposals, if any, will actually
be enacted by Congress or the various state legislatures. The Partnership
believes that it will comply with all orders and regulations 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.
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.
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PRODUCING WELLS AND OPERATING INFORMATION
The Partnership, following its formation, and in October, 1984, contracted
for the drilling of 32 development wells, which resulted in 32 producing wells.
As of December 31, 1996, 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 ................................ 1 1
Gas Wells ................................ 37 28.975
Producing acres .......................... 3,078 2,410
</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. Wells are classified
by 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,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Production:
Oil and Condensate (bbl) ......... 2,386 2,745 3,298 3,454 4,106
Gas (Mcf) ........................ 85,614 83,970 75,776 90,583 90,359
Average Price of Sales:
Oil and Condensate ($ per bbl) ... $ 16.67 15.70 13.36 16.95 17.76
Gas ($ per Mcf) .................. $ 2.36 2.38 3.14 2.83 2.32
Production Expense per Dollar
of Operating Revenue ............. $ 0.50 0.51 0.55 0.51 0.53
</TABLE>
OIL AND GAS RESERVES
The Partnership's interests in proved developed oil and gas properties
have been evaluated by Ryder Scott Company 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)
----- ---------- ---------
<C> <C> <C>
1992 46,000 1,538,000
1993 45,000 1,462,000
1994 36,000 1,242,000
1995 43,000 1,678,000
1996 40,100 1,689,500
</TABLE>
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<PAGE> 6
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
----- ---------- ------------------
<C> <C> <C>
1992 $ 2,392,000 $ 1,147,000
1993 2,108,000 1,042,000
1994 1,036,000 514,000
1995 1,632,000 689,000
1996 2,400,700 986,600
</TABLE>
Since January 1, 1996, 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 1996 for vote by the holders of
Partnership Units.
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<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 14, 1997, there were 711 holders of record of the
Units.
The Units are not regarded as stock and payments or distributions to
holders of the Units are not made in the form of dividends. Cash distributions
to the holders of Units for 1996 aggregated $23,090. Aggregate cash
distributions to the holders of the Units as of December 31, 1996, is
$1,662,480.
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.
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<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 14, 1996, Management acts as the Managing General Partner in a total of
51 limited partnerships and joint ventures, of which 6 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 155 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 who are involved with the conduct of the
business and operations of the Partnership.
Charles E. Drimal, Jr., age 48, 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 43, 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.
Bennie H. Wallace, Jr., age 44, is a Director and Vice President of
Management and has held such positions since May, 1989. He is also Acquisitions
Manager for Management, a Vice President of PrimeEnergy, a Director of
PrimeEnergy since June, 1993, and is a Vice President and Director of the
operating subsidiaries. He graduated from Louisiana State University in 1975
with a Bachelor of Science degree in petroleum engineering and is a registered
professional
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<PAGE> 9
engineer in the States of Texas and Louisiana and was an independent petroleum
engineer engaged in the evaluation and operation of oil and gas properties from
1983 to 1987.
Lynne G. Pizor, age 37, 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, 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 64, has been Secretary of Management since June,
1990, and has been 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 which are allocated to the Partnership for expenses incurred on
behalf of the Partnership, together with administrative work by third parties
limited annually to 5% of the aggregate capital contribution of the holders of
the Partnership Units. During 1996, the allocation of general and
administrative expenses to the Partnership was $60,000.
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<PAGE> 10
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 the General Partners as a group (including
affiliates) that beneficially owns more than five percent of the Partnership
Units. The following table shows as of March 14, 1997, the name and address of
such beneficial owners, and the number and percent of Partnership Units
beneficially owned by them, all of which are owned directly.
<TABLE>
<CAPTION>
Number
Name And Address Of Beneficial Owner Of Units Percent
------------------------------------ -------- -------
<S> <C> <C>
PrimeEnergy Management Corporation
One Landmark Square
Stamford, CT 06901 ........................... 930 10.07
General Partners as a Group
One Landmark Square
Stamford, CT 06901 ........................... 1,060 11.48
</TABLE>
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 1996 was paid well operating
fees ranging from about $380 to $530 per month per well. 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 1996, the Partnership paid an aggregate of
$79,253 in such fees and expenses.
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<PAGE> 11
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-Fuel
Resources Drilling Fund 1984-1, now Sterling Drilling Fund
1984-1, L.P. (Incorporated by reference to Exhibit (3) of
Sterling Drilling Fund 1984-1, L.P. Form 10-K for the year
ended December 31, 1994.)
(24) Consent of Ryder Scott Company (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.
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<PAGE> 12
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 20th day of
March, 1997.
Sterling Drilling Fund 1984-1, L.P.
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 20th day of March, 1997.
/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
/s/ BENNIE H. WALLACE, JR. Director, PrimeEnergy Management
- ------------------------------ Corporation
Bennie H. Wallace, Jr.
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<PAGE> 13
STERLING DRILLING FUND 1984-1, L.P.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE> 14
STERLING DRILLING FUND 1984-1, L.P.
(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 Accountant ............................ F-5
Financial Statements:
Balance Sheets, December 31, 1996 and 1995 ..................... F-6
Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 ............................... F-7
Statements of Changes in Partners' Equity for the
Years Ended December 31, 1996, 1995 and 1994 ................... F-8
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 ............................... F-9
Notes to Financial Statements .................................. F-10
Schedules:
V - Property and Equipment - Oil and Gas Properties for
the Years Ended December 31, 1996, 1995 and 1994 ......... F-18
VI - Accumulated Depreciation, Depletion, and
Amortization - Oil and Gas Properties for the
Years Ended December 31, 1996, 1995 and 1994 ............. F-19
</TABLE>
All other schedules have been omitted as the information required is either
included in the financial statements, or related notes, or is not applicable.
F-1
<PAGE> 15
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)
---------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues ......................... $ 246 317 283 323 283
Net Income (loss):
Limited Partners ............. (13) 40 (523) (107) (127)
General Partners ............. 6 23 (34) (10) (15)
Per equity unit .............. (1.44) 4.38 (56.66) (11.64) (13.78)
Total assets ..................... 1,023 1,060 1,058 1,612 1,758
Cash distributions:
Limited Partners ............. $ 23 23 23 23 23
General Partners ............. $ 6 6 6 6 6
Limited partners as a % of
original contribution ...... 0.25% 0.25% 0.25% 0.25% 0.25%
</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 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
Agreement of Limited Partnership of the Partnership, 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 for the conduct of the Partnership business. As
of December 31, 1996, the General Partners have distributed $1,662,480 or 18.0%
of original Limited Partner capital contributions, to the Limited Partners.
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, 1996, was approximately
$986,600, as compared to $689,000 as of December 31, 1995. The increase in
total estimated discounted future net revenue was due in part to higher year
end gas prices as of December 31, 1996, when compared to the low gas price in
effect as of December 31, 1995. 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
F-2
<PAGE> 16
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 Partnership was formed for the sole intention of
drilling oil and gas wells. The Partnership entered into a drilling contract
with an independent contractor in October, 1984, for $7,750,000. Pursuant to
the terms of this contract, thirty-two wells were drilled resulting in
thirty-two producing wells.
3. Results of operations:
1996 compared to 1995
Operating revenue showed a minor increase from $242,920 in 1995 to
$245,496 in 1996. This increase can be attributed to a production increase,
from 83,970 mcfs in 1995 to 85,614 mcfs in 1996, combined with a relatively
unchanged average gas price per mcf, $2.36 in 1995 and $2.38 in 1996. The
Partnership generally renews its contracts with gas purchasers as they come due
for an additional twelve month period. The Partnership was able to obtain fixed
price contracts on a significant amount of its gas production for 1996. The
Partnership also successfully renewed its contracts for 1997.
Interest income fluctuates with changes in the interest rates received as
well as the amount of cash in the bank at any given time.
Production expenses decreased from $123,898 in 1995 to $121,844 in 1996.
Most of the production expenses incurred in 1995 and 1996 were to maintain the
general upkeep of the wells and well sites. The Partnership did expend funds on
additional capitalized well equipment. The operator will determine if
additional equipment, for example lift equipment, will have a favorable effect
on production. The beneficial effect looked for by the operator is to increase,
improve or sustain production on a particular well. General and administrative
costs remained substantially unchanged, from $81,141 in 1995 to $80,802 in
1996. Management continues to monitor any third party costs and use in-house
resources if it will provide efficient and timely services to the Partnership.
The lower amounts reflect management's efforts to limit cots, both incurred and
allocated to the Partnership. Amounts in both years are substantially less then
the $461,800 allocable to the Partnership under the Partnership Agreement.
The Partnership records additional depreciation, depletion and
amortization to the extent that the net capitalized costs exceeds the
undiscounted future net cash flows attributable to the Partnership. No
additional revision was needed in 1996 or 1995. The overall Partnership
depreciation was consistent with the current basis in the Partnership
properties and the rates applied.
1995 compared to 1994
Operating revenue declined from $282,404 in 1994 to $242,920 in 1995. This
decline can be attributed to a production increase from 75,776 mcfs in 1994 to
83,970 mcfs in 1995, combined with an average price per mcf decrease from $3.14
in 1994 to $2.38 in 1995.
F-3
<PAGE> 17
The Partnership was paid spot prices throughout all of 1995 for its gas
produced. Spot prices fluctuate and were low during off peak usage times of the
year. The Partnership generally renews contracts as they come due for an
additional twelve month period. The Partnership was under a fixed contract
price for the first nine months of 1994. The price offered in 1994 at the
renewal date for the 1994-1995 contracts, was lower than was deemed favorable.
Therefore, the price remained at spot prices during 1994 and 1995. During the
fourth quarter of 1995, the Partnership locked into a twelve month fixed price
contract.
Columbia Gas Transmission Corp., a gas purchaser of the Partnership's gas,
filed a Chapter 11 petition in the U.S. Bankruptcy Court in Wilmington,
Delaware, on July 31, 1991. At that time, the Bankruptcy Court released
Columbia from any active contracts. The Partnership filed a claim with the
Bankruptcy Court to recover revenues suspended at the time the bankruptcy
occurred. Such amounts were not recorded during the applicable period since the
claim amount was undetermined and open-ended. The Court's settlement of the
Columbia bankruptcy proceedings were finalized in November of 1995. The
Partnership received $73,129, which was reported as other income for 1995.
Interest income fluctuates with changes in the interest rates received as
well as the amount of cash in the bank at any given time.
Production expenses decreased from $155,414 in 1994 to $123,898 in 1995.
The higher production expenses in 1994 were attributed to higher labor, repairs
and location costs associated with the inclement weather conditions throughout
1994. The weather caused line damages, floods and other situations that
increased normal maintenance costs. General and administrative costs showed a
substantial decrease from $130,339 in 1994 to $81,141 in 1995. Amounts in both
years are substantially less than the $461,800 allocable to the Partnership
under the Partnership Agreement. The lower amounts reflect management's efforts
to limit costs, both incurred and allocated to the Partnership. Management
continues to monitor any third party costs and use in-house resources if it
will provide efficient and timely services to the Partnership.
The Partnership records additional depreciation, depletion and
amortization to the extent that the net capitalized costs exceeds the
undiscounted future net cash flows attributable to the Partnership. The
Partnership recorded a downward revision of $450,000 in 1994. No additional
revision was needed in 1995. Depreciation, depletion and amortization rates as
well as the Partnership's basis in its properties were significantly lower in
1995 compared to 1994. Therefore, the Partnership's depreciation, depletion and
amortization expense was lower in 1995 than in 1994, $48,661 and $104,898
respectively.
F-4
<PAGE> 18
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Sterling Drilling Fund 1984-1, L.P.:
We have audited the accompanying balance sheets of Sterling Drilling Fund
1984-1, L.P. (a New York limited partnership) as of December 31, 1996 and 1995,
and the related statements of operations, changes in partners' equity, and cash
flows for the years ended December 31, 1996, 1995 and 1994. 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 Drilling Fund 1984-1,
L.P. as of December 31, 1996 and 1995, and the results of its operations and
cash flows for the years ended December 31, 1996, 1995 and 1994 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
January 31, 1997
F-5
<PAGE> 19
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
Assets
------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 2) ............. $ 20,620 $ 1,401
Due from affiliates (Note 6) ................... 4,382 23,295
----------- -----------
Total Current Assets ......................... 25,002 24,696
----------- -----------
Oil and Gas Properties - successful efforts
method (Note 3) - (Schedules V and VI):
Leasehold costs .............................. 323,260 323,260
Wells and related facilities ................. 7,580,739 7,566,712
----------- -----------
Total ...................................... 7,903,999 7,889,972
Less - Accumulated depreciation and depletion
and amortization .............................. (6,905,167) (6,854,585)
----------- -----------
998,832 1,035,387
----------- -----------
Total Assets ............................... $ 1,023,834 $ 1,060,083
=========== ===========
Liabilities and Partners' Equity
--------------------------------
Total Current Liabilities ........................ $ -- $ --
Partners' Equity:
Limited partners ............................... 1,043,772 1,080,167
General partners ............................... (19,938) (20,084)
----------- -----------
Total Partners' Equity ....................... 1,023,834 1,060,083
----------- -----------
Total Liabilities and Partners' Equity ....... $ 1,023,834 $ 1,060,083
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-6
<PAGE> 20
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------- ------------------------------ ----------------------------------
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 ... $193,942 $ 51,554 $245,496 $191,907 $ 51,013 $242,920 $ 223,099 $ 59,305 $ 282,404
Interest ............. 391 25 416 950 252 1,202 943 60 1,003
Other Revenue
(Note 10) ........... -- -- -- 57,772 15,357 73,129 -- -- --
-------- -------- -------- -------- -------- -------- --------- -------- ---------
Total Revenues ..... 194,333 51,579 245,912 250,629 66,622 317,251 224,042 59,365 283,407
-------- -------- -------- -------- -------- -------- --------- -------- ---------
Costs and Expenses:
Production expenses .. 96,257 25,587 121,844 97,879 26,019 123,898 122,777 32,637 155,414
Depreciation,
depletion and
amortization ........ 47,547 3,035 50,582 48,174 487 48,661 521,604 33,294 554,898
General and
administrative
expenses (Note 7) ... 63,834 16,968 80,802 64,101 17,040 81,141 102,968 27,371 130,339
-------- -------- -------- -------- -------- -------- --------- -------- ---------
Total Expenses ..... 207,638 45,590 253,228 210,154 43,546 253,700 747,349 93,302 840,651
-------- -------- -------- -------- -------- -------- --------- -------- ---------
Net Income (Loss) .. $(13,305) $ 5,989 $ (7,316) $ 40,475 $ 23,076 $ 63,551 $(523,307) $(33,937) $(557,244)
======== ======== ======== ======== ======== ======== ========= ======== =========
Net Income (Loss)
Per Equity Unit
(Note 2) ............... $ (1.44) $ 4.38 $ (56.66)
======== ======== =========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-7
<PAGE> 21
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1993 ...... $ 1,609,179 $ 2,325 $ 1,611,504
Partners' contributions ........... -- 162 162
Distributions to partners ......... (23,090) (5,984) (29,074)
Net (Loss) ........................ (523,307) (33,937) (557,244)
----------- ----------- -----------
Balance at December 31, 1994 ...... 1,062,782 (37,434) 1,025,348
Partners' contributions ........... -- 162 162
Distributions to partners ......... (23,090) (5,888) (28,978)
Net Income ........................ 40,475 23,076 63,551
----------- ----------- -----------
Balance at December 31, 1995 ...... 1,080,167 (20,084) 1,060,083
Partners' contributions ........... -- 162 162
Distributions to partners ......... (23,090) (6,005) (29,095)
Net Income (Loss) ................. (13,305) 5,989 (7,316)
----------- ----------- -----------
Balance at December 31, 1996 ...... $ 1,043,772 $ (19,938) $ 1,023,834
=========== =========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-8
<PAGE> 22
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net (loss) ...................................... $ (7,316) $ 63,551 $ (557,244)
Adjustments to reconcile net (loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization ...... 50,582 48,661 554,898
Changes in Assets and Liabilities:
Due to affiliates ............................. 7,645 (23,295) 36,962
Due from affiliates ........................... 11,268 (33,321) --
---------- ---------- ----------
Net Cash Provided by Operating Activities ... 62,179 55,596 34,616
---------- ---------- ----------
Cash Flows From Investing Activities:
Equipment purchases ............................. (14,027) (63,903) --
---------- ---------- ----------
Net Cash (Used) by Investing Activities ....... (14,027) (63,903) --
---------- ---------- ----------
Cash Flows From Financing Activities:
Partners' contributions ......................... 162 162 162
Distributions to partners ....................... (29,095) (28,978) (29,074)
---------- ---------- ----------
Net Cash (Used) in Financing Activities ....... (28,933) (28,816) (28,912)
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents ...................................... 19,219 (37,123) 5,704
Cash and cash equivalents, beginning of year ...... 1,401 38,524 32,820
---------- ---------- ----------
Cash and cash equivalents, end of year ............ $ 20,620 $ 1,401 $ 38,524
========== ========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-9
<PAGE> 23
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) Organization and Capital Contributions:
Sterling Drilling Fund 1984-1, L.P., was formed on June 26, 1984, in the
state of West Virginia, for the primary purpose of acquiring, 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. Nine thousand two hundred
thirty-six limited partnership units, (9,236), were sold at $1,000 per
unit aggregating total limited partner contributions of $9,236,000. The
general partners' contributions amounted to $506,656. Partnership
operations commenced on October 19, 1984.
(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 capitalized costs are amortized
on a property by property basis by the unit-of-production method based
upon the ratio of production to proved oil and gas reserves. Additional
depreciation, depletion and amortization is recorded to the extent that
net capitalized costs exceed the undiscounted future net cash flows
attributable to Partnership properties. (See Note 4)
F-10
<PAGE> 24
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(2) Summary of Significant Accounting Policies - (Cont'd):
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 9,236
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.
Recently Issued Accounting Standards:
The Partnership has implemented the provisions of FAS Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The implementation of this standard has had no
material effect on the financial statements.
(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. The Partnership currently pays
royalties of approximately 12.5% to 18.4% of the selling price of the oil
and gas extracted.
F-11
<PAGE> 25
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(3) Oil and Gas Properties - (Cont'd):
The following table sets forth certain revenue and expense data concerning
the Partnership's oil and gas activities for the years ended December 31,
1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Average sales price per MCF of gas .... $ 2.36 $ 2.38 $ 3.14
Average sales price per BBL of oil
and other liquids .................... 16.67 15.70 13.36
Production expense per dollar of
operating revenue .................... 0.50 0.51 0.55
</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, 1997. Petroleum
engineers on the staff of PEC have reviewed the data presented below, as
of December 31, 1996, for consistency with current year production and
operating history. All of the Partnership's oil and gas reserves are
located within the United States.
<TABLE>
<CAPTION>
(Unaudited)
--------------------------
GAS (MCF) OIL (BBL)
---------- ----------
<S> <C> <C>
Reserves as of December 31, 1993 .... 1,461,852 44,823
Revisions of previous estimates ..... (144,033) (5,213)
Production .......................... (75,776) (3,298)
---------- ----------
Reserves as of December 31, 1994 .... 1,242,043 36,312
Revisions of previous estimates ..... 519,599 9,268
Production .......................... (83,970) (2,745)
---------- ----------
Reserves as of December 31, 1995 .... 1,677,672 42,835
Revisions of previous estimates ..... 97,462 (325)
Production .......................... (85,614) (2,386)
---------- ----------
Reserves as of December 31, 1996 .... 1,689,520 40,124
========== ==========
</TABLE>
F-12
<PAGE> 26
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(4) Quantities of Oil and Gas Reserves - (Cont'd):
Should current prices continue into the future, 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 the level included in the above table.
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 records additional depreciation,
depletion and amortization to the extent that 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 as a consequence of their impact on estimates
of future production. The Partnership has recorded no additional provision
of 1996 and 1995, however, an additional provision of $450,000 was
recorded for 1994. 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 for the year ended December 31, 1996 and 1995
would not have been reduced , however, for the year ended December 31,
1994 it would have been reduced by an additional $125,000.
F-13
<PAGE> 27
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(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:
<TABLE>
<CAPTION>
Limited General
Partners Partners
-------- --------
<S> <C> <C>
Participation in Costs:
Sales commissions and dealer manager fees ... 100% --%
Offering costs other than $75,000
paid by the Partnership and the
Sterling Drilling Fund 1984-1, L.P. ......... -- 100
Management fee .............................. 100 --
Lease acquisition costs ..................... 94 6
Drilling and completion costs ............... 94 6
General and administrative expenses ......... 79 21
Production operator's fee ................... 79 21
Operating expenses .......................... 79 21
All other costs ............................. 94 6
Participation in Revenues:
Sale of production .......................... 79 21
Sale of properties .......................... 94 6
Sale of equipment ........................... 94 6
All other revenues .......................... 94 6
</TABLE>
(6) Transactions With Affiliates:
(a) The due from affiliates at December 1996 and 1995, represents net
revenue collected by and costs incurred on behalf of the Partnership
by PEC or its subsidiaries.
(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 $380 for each
producing gas well and $530 for each producing or combination gas and
oil well, based on the Partnership's percentage of working interest
in the well. Such fee is subject to annual adjustment by the
percentage increase in the Consumer Price Index published by the U.S.
Department of Labor over the year in which production began. During
1996, 1995 and 1994, $75,062, $64,538, and $85,154 of production
operators fees were incurred respectively.
F-14
<PAGE> 28
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(6) Transactions With Affiliates - (Cont'd):
(c) In accordance with the terms of the Partnership Agreement, the
general partners are required to pay 8.5% of drilling and completion
costs, lease acquisition costs and certain other costs, of which 1%
will be paid for by the general partners out of revenues received by
them from the Partnership. At December 31, 1996, $33,313 was due from
certain general partners for such costs.
(d) Eastern Oil Well Services Company (EOWSC), a subsidiary of PEC,
provided field services to the Partnership during the year ending
December 31, 1996 for which it was billed $4,191.
(7) General and Administrative Expenses:
In accordance with the Management Agreement, the general partners will be
reimbursed for the portion of their in-house overhead, including salaries
and related benefits, attributable to the affairs and operations of the
Partnership.
This amount, combined with certain direct expenses for geology,
engineering, legal, accounting, auditing, insurance and other items shall
not exceed an annual amount equal to 5% of limited partner capital
contributions. Excess expenses shall be borne by the general partners in
their individual capacity.
During 1996, 1995 and 1994, the Partnership recognized general and
administrative expenses incurred on its behalf by a general partner of
$60,000, $60,000 and $110,800.
F-15
<PAGE> 29
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(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,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) as
reported on the
Partnership's federal
income tax return ........... $ 40,461 $ 48,107 $ (2,975)
Recompletion costs reported
differently for financial
reporting purposes and
for income tax reporting
purposes .................... -- 63,903 --
Depreciation, depletion and
amortization for income
tax purposes in excess
of (less than) financial
reporting amount ............ (47,777) (48,661) (554,269)
---------- ---------- ----------
Net income (loss) per
accompanying financial
statements .................. $ (7,316) $ 63,349 $ (557,244)
========== ========== ==========
</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> 30
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(9) Major Customers:
A schedule of the major purchases of the Partnership's production is as
follows:
<TABLE>
<CAPTION>
Purchaser 1996 1995 1994
--------- -------- -------- --------
<S> <C> <C> <C>
CNG ........................... $ -- $ -- $104,489
Phoenix Diversified ........... $201,880 $163,351 $127,082
American River Terminals ...... $ 40,458 $ 43,458 $ 39,537
</TABLE>
The Partnership renewed its gas purchase contract in December, 1996
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> 31
SCHEDULE V
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
PROPERTY AND EQUIPMENT - OIL AND GAS PROPERTIES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<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, 1996:
- -----------------------------
Leasehold costs ................. $ 323,260 $ -- $ -- $ -- $ 323,260
Wells and related facilities .... 7,566,712 14,027 -- -- 7,580,739
----------- ----------- ----------- ----------- -----------
$ 7,889,972 $ 14,027 $ -- $ -- $ 7,903,999
=========== =========== =========== =========== ===========
Year ended December 31, 1995:
- -----------------------------
Leasehold costs ................. $ 323,260 $ -- $ -- $ -- $ 323,260
Wells and related facilities .... 7,502,809 63,903 -- -- 7,566,712
----------- ----------- ----------- ----------- -----------
$ 7,826,069 $ 63,903 $ -- $ -- $ 7,889,972
=========== =========== =========== =========== ===========
Year Ended December 31, 1994:
- -----------------------------
Leasehold costs ................. $ 323,260 $ -- $ -- $ -- $ 323,260
Wells and related facilities .... 7,502,809 -- -- -- 7,502,809
----------- ----------- ----------- ----------- -----------
$ 7,826,069 $ -- $ -- $ -- $ 7,826,069
=========== =========== =========== =========== ===========
</TABLE>
F-18
<PAGE> 32
SCHEDULE VI
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
- OIL AND GAS PROPERTIES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<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, 1996:
- -----------------------------
Wells and related facilities .... $ 6,578,110 $ 48,327 $ -- $ -- $ 6,626,437
Leasehold costs ................. 276,475 2,255 -- -- 278,730
----------- ----------- ----------- ----------- -----------
$ 6,854,585 $ 50,582 $ -- $ -- $ 6,905,167
=========== =========== =========== =========== ===========
Year ended December 31, 1995:
- -----------------------------
Wells and related facilities .... $ 6,531,792 $ 46,318 $ -- $ -- $ 6,578,110
Leasehold costs ................. 274,132 2,343 -- -- 276,475
----------- ----------- ----------- ----------- -----------
$ 6,805,924 $ 48,661 $ -- $ -- $ 6,854,585
=========== =========== =========== =========== ===========
Year Ended December 31, 1994:
- -----------------------------
Wells and related facilities .... $ 5,980,399 $ 551,393 $ -- $ -- $ 6,531,792
Leasehold costs ................. 270,627 3,505 -- -- 274,132
----------- ----------- ----------- ----------- -----------
$ 6,251,026 $ 554,898 $ -- $ -- $ 6,805,924
=========== =========== =========== =========== ===========
</TABLE>
F-19
<PAGE> 33
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- ------------
<S> <C> <C>
(3) Form of Agreement of Limited Partnership of Sterling- Fuel
Resources Drilling Fund 1984-1. (now Sterling Drilling Fund
1984-1, L.P.) (incorporated by reference to Exhibit (3) of
Sterling Drilling Fund 1984-1, L.P., Form 10-K for the year
ended December 31, 1994)
(24) Consent of Ryder Scott Company (filed herewith)
(27) Financial Data Schedule. (filed herewith)
</TABLE>
<PAGE> 1
EXHIBIT 24
[RYDER SCOTT COMPANY LETTERHEAD]
CONSENT OF RYDER SCOTT COMPANY
We consent to the use on form 10-K of Sterling Drilling Fund 1984-1 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
PETROLEUM ENGINEERS
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Denver, Colorado
March 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STERLING
DRILLING FUND 1984-1 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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 20,620
<SECURITIES> 0
<RECEIVABLES> 4,382
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,002
<PP&E> 7,903,999
<DEPRECIATION> 6,905,167
<TOTAL-ASSETS> 1,023,834
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,023,834<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,023,834
<SALES> 245,912<F2>
<TOTAL-REVENUES> 245,912
<CGS> 253,228
<TOTAL-COSTS> 253,228
<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> (7,316)
<EPS-PRIMARY> (1.44)<F3>
<EPS-DILUTED> 0
<FN>
<F1>Other - Se is composed of partnership equity.
<F2>Sales - The sales line includes $1,202 of net interest income.
<F3>EPS - Primary is based upon limited partners share of net income
divided by the outstanding partnership units of 9,236.
</FN>
</TABLE>
