<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, 1997
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 [ ] 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 16,
1998, was: 9,236.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
==============================================================================
<PAGE> 2
STERLING DRILLING FUND 1984-1, L.P.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997
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 1997, 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, 1998, 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
-1-
<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 1997, about $271,200, or 99.78%, of the Partnership's gas
production was sold to Phoenix Diversified and about $52,800 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 gas purchaser will continue to
purchase its gas products and, if not, could be replaced by other purchasers.
Beginning in January, 1998, American Rivers Terminal sold its business to Ohio
River Gathering. Ohio River Gathering has assured the operating company that it
will continue to purchase the Partnership's oil production.
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 1997 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
-2-
<PAGE> 4
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.
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.
-3-
<PAGE> 5
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, 1997, 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.
<TABLE>
<CAPTION>
Producing wells:
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,
----------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Production:
Oil and Condensate (bbl) 2,600 2,386 2,745 3,298 3,454
Gas (Mcf) 86,945 85,614 83,970 75,776 90,583
Average Price of Sales:
Oil and Condensate ($ per bbl) $ 19.70 16.67 15.70 13.36 16.95
Gas ($ per Mcf) $ 3.24 2.36 2.38 3.14 2.83
Production Expense per Dollar
of Operating Revenue $ 0.47 0.50 0.51 0.55 0.51
</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)
----- ---------- ---------
<S> <C> <C>
1993 45,000 1,462,000
1994 36,000 1,242,000
1995 43,000 1,678,000
1996 40,100 1,689,500
1997 34,000 1,683,000
</TABLE>
-4-
<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
----- ---------- ------------------
<S> <C> <C>
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
1997 2,390,000 974,200
</TABLE>
Since January 1, 1998, 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 1997 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 16, 1998, there were 672 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 1997 aggregated $23,090. Aggregate cash
distributions to the holders of the Units as of December 31, 1997, is
$1,685,570.
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 16, 1998, 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 164 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 49, 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 44, 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 45, 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
-7-
<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 38, 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 65, 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 1997 and 1996 the allocation of general and
administrative expenses to the Partnership was $60,000 in each year.
-8-
<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 16, 1998, 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 1,283 13.89
</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 1997 was paid well operating
fees ranging from about $388 to $541 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 1997 and 1996, the Partnership paid an aggregate
of $125,544 and $79,253, respectively, in such fees and expenses.
-9-
<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.
-10-
<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 23rd day of
March, 1998.
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 23rd day of March, 1998.
/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.
-11-
<PAGE> 13
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, 1997 and 1996 F-6
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 F-7
Statements of Changes in Partners' Equity for the
Years Ended December 31, 1997, 1996 and 1995 F-8
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-9
Notes to Financial Statements F-10
Schedules:
V - Property and Equipment - Oil and Gas Properties for
the Years Ended December 31, 1997, 1996 and 1995 F-18
VI - Accumulated Depreciation, Depletion, and
Amortization - Oil and Gas Properties for the
Years Ended December 31, 1997, 1996 and 1995 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> 14
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)
---------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues $ 334 246 317 283 323
Net Income (loss):
Limited Partners $ 28 (13) 40 (523) (107)
General Partners $ 17 6 23 (34) (10)
Per equity unit $ 3.10 (1.44) 4.38 (56.66) (11.64)
Total assets $1,049 1,023 1,060 1,058 1,612
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, 1997, the General Partners have
distributed $1,685,570 or 18.25% of original Limited Partner capital
contributions, to the Limited Partners.
All aspects of the Partnership's operations and administration are
handled through the use of the operating and Managing General Partner's
computer systems. Both the operations company and the Managing General Partner
are taking steps to minimize any potential computer issues with regard to any
necessary changes for the year 2000. A complete systems upgrade, which includes
but is not limited to, the year 2000 issue will be implemented with in the next
year by both the operating company and the Managing General Partner. Both
companies' upgrades and year 2000 changes are part of their normal course of
business and no material costs should be allocated to the Partnership for the
implementation necessary by either company.
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
F-2
<PAGE> 15
revenues (S.E.C. case) associated with such reserves, discounted at 10% as of
December 31, 1997, was approximately $974,200, as compared to $986,600 as of
December 31, 1996. 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 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:
1997 compared to 1996
Operating revenue showed an increase from $245,496 in 1996 to $334,327
in 1997. This increase can be attributed to a variety of factors, including
increased gas and oil production, from 85,614 mcf and 2,386 barrels in 1996 to
86,945 mcf and 2,600 barrels in 1997. The Partnership also benefited from
increased average price per mcf, $2.36 in 1996 and $3.24 in 1997, and increased
average oil price per barrel, from $16.67 in 1996 to $19.70 in 1997. The
Partnership did expend funds on additional capitalized well equipment and
additional procedures performed on a few wells. The operator will determine if
additional equipment, for example lift equipment, will have a beneficial effect
on production. The operator will also perform various procedures, including but
not limited to swabbing, stimulating or acidizing the well as deemed
appropriate. The beneficial effect looked for by the operator is to increase,
improve or sustain production on a particular well.
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 increased from $121,844 in 1996 to $157,503 in
1997. Some production expenses may be variable in nature, vary with production
volumes or others a direct correlation with additional repairs and labor
performed on particular wells. Also the Partnership in both years expended the
necessary funds on the general upkeep and maintenance of the well and well
site. General and administrative costs remained substantially unchanged, from
$80,802 in 1996 to $79,755 in 1997. Management continues to monitor any third
party costs and use in-house resources if it will provide efficient and timely
services to the partnership. Any reductions reflect management's efforts to
limit costs, both incurred and allocated to the Partnership. Amounts in both
years are substantially less than 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 1997 or 1996. The overall partnership
F-3
<PAGE> 16
depreciation was consistent with the current basis in the Partnership
properties and the rates applied.
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, $2.38 in 1995 and $2.36 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.
F-4
<PAGE> 17
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, 1997 and 1996,
and the related statements of operations, changes in partners' equity, and cash
flows for the years ended December 31, 1997, 1996 and 1995. 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, 1997 and 1996, and the results of its operations and
cash flows for the years ended December 31, 1997, 1996 and 1995 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
February 5, 1998
F-5
<PAGE> 18
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Assets
------
1997 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 2) $ 26,270 $ 20,620
Due from affiliates (Note 6) - 4,382
----------- -----------
Total Current Assets 26,270 25,002
----------- -----------
Oil and Gas Properties - successful efforts
method (Note 3) - (Schedules V and VI):
Leasehold costs 323,260 323,260
Wells and related facilities 7,658,354 7,580,739
----------- -----------
Total 7,981,614 7,903,999
Less - Accumulated depreciation and depletion (6,958,043) (6,905,167)
and amortization ----------- -----------
1,023,571 998,832
----------- -----------
Total Assets $ 1,049,841 $ 1,023,834
=========== ===========
Liabilities and Partners' Equity
--------------------------------
Total Current Liabilities $ 7,441 $ -
----------- -----------
Partners' Equity:
Limited partners 1,049,271 1,043,772
General partners (6,871) (19,938)
----------- -----------
Total Partners' Equity 1,042,400 1,023,834
----------- -----------
Total Liabilities and Partners' Equity $ 1,049,841 $ 1,023,834
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-6
<PAGE> 19
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------- -------------------------------------------
Limited General Limited General
Partners Partners Total Partners Partners Total
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Operating revenues $264,118 $ 70,209 $334,327 $193,942 $51,554 $245,496
Interest 1,607 103 1,710 391 25 416
Other Revenue - - - - - -
(Note 10) -------- -------- -------- -------- ------- --------
Total Revenues 265,725 70,312 336,037 194,333 51,579 245,912
-------- -------- -------- -------- ------- --------
Costs and Expenses:
Production expenses 124,427 33,076 157,503 96,257 25,587 121,844
Depreciation, 49,703 3,173 52,876 47,547 3,035 50,582
depletion and
amortization
General and
administrative
expenses (Note 7) 63,006 16,749 79,755 63,834 16,968 80,802
-------- -------- -------- -------- ------- --------
Total Expenses 237,136 52,998 290,134 207,638 45,590 253,228
-------- -------- -------- -------- ------- --------
Net Income (Loss) $ 28,589 $ 17,314 $ 45,903 $(13,305) $ 5,989 $ (7,316)
======== ======== ======== ======== ======= ========
Net Income (Loss) $ 3.10 $ (1.44)
Per Equity Unit ======== ========
(Note 2)
<CAPTION>
1995
--------------------------------------------
Limited General
Partners Partners Total
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Operating revenues $191,907 $51,013 $242,920
Interest 950 252 1,202
Other Revenue 57,772 15,357 73,129
(Note 10) -------- ------- --------
Total Revenues 250,629 66,622 317,251
-------- ------- --------
Costs and Expenses:
Production expenses 97,879 26,019 123,898
Depreciation, 48,174 487 48,661
depletion and
amortization
General and
administrative
expenses (Note 7) 64,101 17,040 81,141
-------- ------- --------
Total Expenses 210,154 43,546 253,700
-------- ------- --------
Net Income (Loss) $ 40,475 $23,076 $ 63,551
======== ======= ========
Net Income (Loss) $ 4.38
Per Equity Unit ========
(Note 2)
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-7
<PAGE> 20
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
---------- ---------- ----------
<S> <C> <C> <C>
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 (Loss) 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 (13,305) 5,989 (7,316)
----------- ----------- -----------
Balance at December 31, 1996 1,043,772 (19,938) 1,023,834
Partners' contributions -- 1,742 1,742
Distributions to partners (23,090) (5,989) (29,079)
Net Income (Loss) 28,589 17,314 45,903
----------- ----------- -----------
Balance at December 31, 1997 $ 1,049,271 $ (6,871) $ 1,042,400
=========== =========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-8
<PAGE> 21
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net (loss) $ 45,903 $ (7,316) $ 63,551
Adjustments to reconcile net (loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization 52,876 50,582 48,661
Changes in Assets and Liabilities:
Due to affiliates (20,076) 7,645 (23,295)
Due from affiliates 31,899 11,268 (33,321)
--------- --------- ---------
Net Cash Provided by Operating Activities 110,602 62,179 55,596
--------- --------- ---------
Cash Flows From Investing Activities:
Equipment purchases (77,615) (14,027) (63,903)
--------- --------- ---------
Net Cash Provided by Investing Activities (77,615) (14,027) (63,903)
--------- --------- ---------
Cash Flows From Financing Activities:
Partners' contributions 1,742 162 162
Distributions to partners (29,079) (29,095) (28,978)
--------- --------- ---------
Net Cash Used in Financing Activities (27,337) (28,933) (28,816)
--------- --------- ---------
Net increase (decrease) in cash and cash 5,650 19,219 (37,123)
equivalents
Cash and cash equivalents, beginning of year 20,620 1,401 38,524
--------- --------- ---------
Cash and cash equivalents, end of year $ 26,270 $ 20,620 $ 1,401
========= ========= =========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-9
<PAGE> 22
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(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-
F-10
<PAGE> 23
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(2) Summary of Significant Accounting Policies - (Cont'd):
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)
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.
F-11
<PAGE> 24
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(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.
The following table sets forth certain revenue and expense data
concerning the Partnership's oil and gas activities for the years
ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Average sales price per MCF of gas $ 3.24 $ 2.36 $ 2.38
Average sales price per BBL of oil 19.70 16.67 15.70
and other liquids
Production expense per dollar of 0.47 0.50 0.51
operating revenue
</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, 1997, 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, 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
Revisions of previous estimates 80,497 (3,476)
Production (86,945) (2,600)
--------- --------
Reserves as of December 31, 1997 1,683,072 34,048
========= ========
</TABLE>
F-12
<PAGE> 25
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(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 for 1997, 1996 or
1995. 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 1997, 1996 or 1995 would not have been
reduced.
F-13
<PAGE> 26
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(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 1997 and 1996, 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
$388 for each producing gas well and $541 for each producing or
combination gas and oil well, based on the Partnership's
F-14
<PAGE> 27
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(6) Transactions With Affiliates - (Cont'd):
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 1997, 1996 and 1995,
$104,891, $75,062, and $64,538 of production operators fees
were incurred respectively.
(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, 1997, $31,571 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, 1997 for which it was billed $20,653.
(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 1997, 1996 and 1995, the Partnership recognized general and
administrative expenses incurred on its behalf by a general partner of
$60,000, $60,000 and $60,000.
F-15
<PAGE> 28
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(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,
-----------------------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Net income (loss) as
reported on the
Partnership's federal
income tax return $ 19,401 $ 40,461 $ 48,107
Recompletion costs reported
differently for financial
reporting purposes and
for income tax reporting
purposes 74,207 - 63,903
Depreciation, depletion and
amortization for income
tax purposes in excess
of (less than) financial
reporting amount (47,705) (47,777) (48,661)
-------- -------- --------
Net income (loss) per
accompanying financial
statements $ 45,903 $ (7,316) $ 63,349
======== ======== ========
</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> 29
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(9) Major Customers:
A schedule of the major purchases of the Partnership's production is
as follows:
<TABLE>
<CAPTION>
Purchaser 1997 1996 1995
--------- -------- -------- --------
<S> <C> <C> <C>
Phoenix Diversified $271,203 $201,880 $163,351
American River Terminals $ 52,812 $ 40,458 $ 43,458
</TABLE>
The Partnership renewed its gas purchase contract with Phoenix
Diversified in December 1997, 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> 30
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, 1997, 1996 AND 1995
<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, 1997:
- ----------------------------
Leasehold costs $ 323,260 $ -- $ -- $ -- $ 323,260
Wells and related facilities 7,580,739 77,615 -- -- 7,658,354
---------- ---------- ------ ---------- ----------
$7,903,999 $ 77,615 $ -- $ -- $7,981,614
========== ========== ====== ========== ==========
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
========== ========== ====== ========== ==========
</TABLE>
F-18
<PAGE> 31
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, 1997, 1996 AND 1995
<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, 1997:
Wells and related facilities $6,626,437 $ 50,689 $-- $ -- $6,677,126
Leasehold costs 278,730 2,187 -- -- 280,917
---------- ---------- ----- ---------- ----------
$6,905,167 $ 52,876 $-- $ -- $6,958,043
========== ========== ===== ========== ==========
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
========== ========== ===== ========== ==========
</TABLE>
F-19
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <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 10, 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 26,270
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,270
<PP&E> 7,981,614
<DEPRECIATION> (6,958,043)
<TOTAL-ASSETS> 1,049,841
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,049,841<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,049,841
<SALES> 336,037<F2>
<TOTAL-REVENUES> 336,037
<CGS> 290,134
<TOTAL-COSTS> 290,134
<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> 45,903
<EPS-PRIMARY> 3.10<F3>
<EPS-DILUTED> 0
<FN>
<F1>OTHER - SE IS COMPOSED OF PARTNERSHIP EQUITY.
<F2>SALES - THE SALES LINE INCLUDES 1,710 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>
