<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, 1998
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 06901
STAMFORD, CONNECTICUT (Zip Code)
(Address of principal executive offices)
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 16, 1999,
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, 1998
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 1998, 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, 1999, and to the date of this
Report, the Partnership has not engaged in any drilling activities nor
participated in the acquisition of any material producing oil and gas
properties.
COMPETITION AND MARKETS
Competitors of the Partnership in the marketing of its oil and gas
production include oil and gas companies, independent concerns, and individual
producers and operators, many of which have financial resources, staffs and
facilities substantially greater than those available to the Partnership.
Furthermore, domestic producers of oil and gas must not only compete with each
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<PAGE> 3
other in marketing their output, but must also compete with producers of
imported oil and gas and alternative energy sources such as coal, nuclear power
and hydro-electric power.
The availability of a ready market for any oil and gas produced by the
Partnership at acceptable prices per unit of production will depend upon
numerous factors beyond the control of the Partnership, including the extent of
domestic production and importation of oil and gas, the proximity of the
Partnership's producing properties to gas pipelines and the availability and
capacity of such pipelines, the marketing of other competitive fuels,
fluctuation in demand, governmental regulation of production, refining,
transportation and sales, general national and worldwide economic conditions,
and pricing, use and allocation of oil and gas and their substitute fuels.
The Partnership does not currently own or lease any bulk storage
facilities or pipelines, other than adjacent to and used in connection with
producing wells. The Partnership deals with a number of major and independent
companies for the purchase of its oil and gas production, in the areas of
production. In 1998, about $267,802, or 99.79% and $21,970, or 100%, of the
Partnership's gas and oil production was purchased by Phoenix Diversified and
American Refining Group, respectively. Neither purchaser has any relationship or
is otherwise affiliated with the Partnership. The Partnership believes that its
current purchasers will continue to purchase its 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 1998 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
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<PAGE> 4
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.
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<PAGE> 5
ITEM 2. PROPERTIES
The Partnership has no interest in any properties other than its oil
and gas properties. The information set forth below summarizes the Partnership's
oil and gas wells, production and reserves, for the periods indicated.
PRODUCING WELLS AND OPERATING INFORMATION
The Partnership, following its formation, and in October, 1984,
contracted for the drilling of 32 development wells, which resulted in 32
producing wells.
As of December 31, 1998, 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,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Production:
Oil and Condensate (bbl) .......... 1,833 2,600 2,386 2,745 3,298
Gas (Mcf) ......................... 80,855 86,945 85,614 83,970 75,776
Average Price of Sales:
Oil and Condensate ($ per bbl) .... $ 11.83 19.70 16.67 15.70 13.36
Gas ($ per Mcf) ................... $ 3.33 3.24 2.36 2.38 3.14
Production Expense per Dollar
of Operating Revenue .............. $ 0.49 0.47 0.50 0.51 0.55
</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):
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<PAGE> 6
<TABLE>
<CAPTION>
As of Proved Developed
12-31 Oil (bbls) Gas (Mcf)
----- --------- ---------
<S> <C> <C> <C>
1994 36,000 1,242,000
1995 43,000 1,678,000
1996 40,100 1,689,500
1997 34,000 1,683,000
1998 26,900 1,454,900
</TABLE>
The estimated future net revenue (using current prices and costs as of the
dates indicated, exclusive of income taxes (at a 10% discount for estimated
timing of cash flow) for the Partnership's proved developed oil and gas reserves
for the periods indicated are summarized as follows (figures rounded):
<TABLE>
<CAPTION>
Proved Developed
-------------------------------------------
As of Future Net Present Value of
12-31 Revenue Future Net Revenue
----- ---------- ------------------
<S> <C> <C> <C>
1994 $1,036,000 $514,000
1995 1,632,000 689,000
1996 2,400,700 986,600
1997 2,390,000 974,200
1998 1,684,700 649,800
</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 1998 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 16, 1999, there were 629 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 1998 aggregated $23,090. Aggregate cash
distributions to the holders of the Units as of December 31, 1998, is
$1,708,660.
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 16, 1999,
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 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 176 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 51, 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 46, 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 47, 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
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<PAGE> 9
with a Bachelor of Science degree in petroleum engineering and is a registered
professional 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 39, 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 66, 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 1998 and 1997 the allocation of general and administrative
expenses to the Partnership was $60,000 in each year.
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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 PrimeEnergy Corporation that beneficially owns
more than five percent of the Partnership Units. The following table shows as of
March 16, 1999, 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%
PrimeEnergy Corporation
One Landmark Square
Stamford, CT 06901 ......................... 1,037 11.23%
</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 1998 was paid well operating
fees ranging from about $428 to $597 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 1998 and 1997, the Partnership paid an aggregate of $98,952 and
$125,544, respectively, 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 30th day of
March, 1999.
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 30th day of March, 1999.
/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.
<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-6
Financial Statements:
Balance Sheets, December 31, 1998 and 1997 F-7
Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 F-8
Statements of Changes in Partners' Equity for the
Years Ended December 31, 1998, 1997 and 1996 F-9
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 F-10
Notes to Financial Statements F-11
Schedules:
V - Property and Equipment - Oil and Gas Properties for
the Years Ended December 31, 1998, 1997 and 1996 F-19
VI - Accumulated Depreciation, Depletion, and
Amortization - Oil and Gas Properties for the
Years Ended December 31, 1998, 1997 and 1996 F-20
</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)
-------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues .......................... $ 291 334 246 317 283
Net Income (loss):
Limited Partners .............. 7 28 (13) 40 (523)
General Partners .............. 12 17 6 23 (34)
Per equity unit ............... .81 3.10 (1.44) 4.38 (56.66)
Total assets ...................... $1,035 1,049 1,023 1,060 1,058
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, 1998, the General Partners have distributed
$1,708,660 or 18.50% of original Limited Partner capital contributions, to the
Limited Partners.
The Year 2000 (Y2K) issue is the definition and resolution of potential
problems resulting from computer application programs or imbedded chip
instruction sets utilizing two-digits, as opposed to four digits, to define a
specific the year. Such date sensitive systems may be unable to properly
interpret dates, which could cause a system failure or other computer errors,
leading to disruptions in operations. The Partnership relies on the Managing
General Partner for all management and administrative functions. Consequently,
the Partnership's exposure to the Y2K
F-2
<PAGE> 15
problems is determined by what Year 2000 efforts have been undertaken by the
Managing General Partner.
In 1997, the Managing General Partner developed a three-phase program
for the Y2K information systems compliance. Phase I is to identify those systems
with which the Partnership has exposure to Y2K issues. Phase II is to remediate
systems and replace equipment where required. Phase III, to be completed by
mid-1999, is the final testing of each major area of exposure to ensure
compliance. The Managing General Partner has identified four major areas
determined to be critical for successful Y2K compliance: (1) financial and
informational system applications, (2) communications applications, (3) oil and
gas producing operations, and (4) third-party relationships.
The Managing General Partner, in accordance with Phase I of the
program, is in the process of conducting an internal review of all systems and
contacting all software suppliers to determine major areas of exposure to Y2K
issues. The Managing General Partner has completed the modifications to its core
financial and reporting systems and is continuing to test compliance in this
area. These modifications were made in conjunction with an upgrade of the
financial reporting applications provided by the Managing General Partner's
software vendor. Conversion to the new system was completed during 1998. Due to
the technology advances in the communications area the Managing General Partner
has upgraded such equipment regularly over the past three years. Y2K compliance
was a specification requirement of each installation. Consequently, the Managing
General Partner expects exposure in this area to be limited to third party
readiness. The Managing General Partner is in the process of identifying areas
of exposure resulting from equipment used in its oil and gas producing
operations. The Managing General Partner expects to complete identification of
critical systems by June 1999 and to continue remediation and testing throughout
1999. In the third-party area, the Managing General Partner has received
assurance from its significant service suppliers that they intend to be Y2K
compliant by 2000. The Managing General Partner has implemented a program to
request Year 2000 certification or other assurance from other third parties
during 1999.
The Partnership recognizes that, notwithstanding the efforts described
above, the Partnership could experience disruptions to its operations or
administrative functions, including those resulting from non-compliant systems
utilized by unrelated third party governmental and business entities. The
Managing General Partner is in the process of developing a contingency plan in
order to mitigate potential disruption to business operations. The Managing
General Partner expects to complete this contingency plan by the second quarter
of 1999 but also expects to refine this plan throughout 1999.
Through 1998, the Managing General Partner has handled identifying,
remediating and testing systems for Year 2000 compliance within the scope of
routine upgrades and systems evaluations. The Managing General Partner expects
to complete the review of oil and gas operations exposure in the same manner,
without incurring substantial additional costs. However, information resulting
from the oil and gas operations review may indicate required expenditures not
currently contemplated by the Partnership.
The net proved oil and gas reserves of the Partnership are considered
to be a primary indicator of financial strength and future liquidity. The
present value of unescalated future net revenues (S.E.C. case) associated with
such reserves, discounted at 10% as of
F-3
<PAGE> 16
December 31, 1998, was approximately $649,800, as compared to $974,200 as of
December 31, 1997. 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:
1998 compared to 1997
Overall operating revenue declined from $334,327 in 1997 to $291,943 in
1998. The reduction in revenue can be attributable to both gas and oil
production declines, from 86,945 mcf and 2,600 bbls in 1997 to 80,855 mcf and
1,833 bbls in 1998. Some production declines can be attributed to compressor
down times accompanied by high pressure in the main transport lines. The
variances in pressure may hinder the ease at which the Partnership's gas flows
into the transport lines. The Partnership does receive some of its revenue from
the oil it produces. The current year oil revenue is significantly lower due to
a much lower average price per barrel from $19.70 in 1997 to $11.83 in 1998.
Further declines in revenue were offset by a slightly better average price per
mcf, from $3.24 in 1997 to $3.33 in 1998.
Interest income fluctuates with changes in the interest rates received
as well as the amount of cash in the bank at any given time.
The Partnership production expenses declined from $157,503 in 1997 to
$140,776 in 1998. The operator expends funds on repairs, labor, maintenance, and
location costs based upon the needs at a particular well or well site. Also some
production costs vary based upon the volume of gas and oil produced. The 1998
expenditures were consistent with current production volumes and normal
recurring upkeep needed by the wells. During 1997, the operator performed
supplemental procedures, including but not limited to swabbing, stimulating or
acidizing various wells. The procedures were performed to increase, improve or
sustain production on a particular well at the discretion of the operator.
General and administrative costs remained substantially unchanged, from
$79,755 in 1997 to $79,205 in 1998. Management continues to use in-house
resources to provide efficient and timely services to the Partnership. Amounts
in both years are substantially less then the $461,800 allocable to the
Partnership under the Partnership Agreement. The stable amounts reflect
management's efforts to limit costs, both incurred and allocated to the
Partnership.
F-4
<PAGE> 17
The Partnership records additional depreciation, depletion and
amortization to the extent that the net capitalized costs exceed the
undiscounted future net cash flows attributable to the Partnership. No
additional revision was needed in 1998 or 1997. The overall Partnership
depreciation was consistent with the current remaining basis in the Partnership
properties and the rates applied.
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
depreciation was consistent with the current basis in the Partnership properties
and the rates applied.
F-5
<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, 1998 and 1997,
and the related statements of operations, changes in partners' equity, and cash
flows for the years ended December 31, 1998, 1997 and 1996. 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, 1998 and 1997, and the results of its operations and
cash flows for the years ended December 31, 1998, 1997 and 1996 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 9, 1999
F-6
<PAGE> 19
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Assets
1998 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 2) $ 43,948 $ 26,270
Due from affiliates (Note 6) 21,341 --
------------ ------------
Total Current Assets 65,289 26,270
------------ ------------
Oil and Gas Properties - successful efforts
method (Note 3) - (Schedules V and VI):
Leasehold costs 323,260 323,260
Wells and related facilities 7,658,884 7,658,354
------------ ------------
Total 7,982,144 7,981,614
Less - Accumulated depreciation and depletion
and amortization (7,011,961) (6,958,043)
------------ ------------
970,183 1,023,571
------------ ------------
Total Assets $ 1,035,472 $ 1,049,841
============ ============
Liabilities and Partners' Equity
Total Current Liabilities $ -- $ 7,441
------------ ------------
Partners' Equity:
Limited partners 1,033,627 1,049,271
General partners 1,845 (6,871)
------------ ------------
Total Partners' Equity 1,035,472 1,042,400
------------ ------------
Total Liabilities and Partners' Equity $ 1,035,472 $ 1,049,841
============ ============
</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 OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------- ------------------------------- --------------------------------
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 $ 230,635 $ 61,308 $ 291,943 $ 264,118 $ 70,209 $ 334,327 $ 193,942 $ 51,554 $ 245,496
Interest 1,279 82 1,361 1,607 103 1,710 391 25 416
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total Revenues 231,914 61,390 293,304 265,725 70,312 336,037 194,333 51,579 245,912
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Costs and Expenses:
Production expenses 111,213 29,563 140,776 124,427 33,076 157,503 96,257 25,587 121,844
Depreciation,
depletion and
amortization 50,683 3,235 53,918 49,703 3,173 52,876 47,547 3,035 50,582
General and
administrative
expenses (Note 7) 62,572 16,633 79,205 63,006 16,749 79,755 63,834 16,968 80,802
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total Expenses 224,468 49,431 273,899 237,136 52,998 290,134 207,638 45,590 253,228
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) $ 7,446 $ 11,959 $ 19,405 $ 28,589 $ 17,314 $ 45,903 $ (13,305) $ 5,989 $ (7,316)
========= ========= ========= ========= ========= ========= ========= ========= =========
Net Income (Loss)
Per Equity Unit
(Note 2) $ .81 $ 3.10 $ (1.44)
========= ========= =========
</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 CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
----------- ----------- -----
<S> <C> <C> <C>
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
Partners' contributions -- 1,742 1,742
Distributions to partners (23,090) (5,989) (29,079)
Net Income 28,589 17,314 45,903
----------- ----------- -----------
Balance at December 31, 1997 1,049,271 (6,871) 1,042,400
Partners' contributions -- 2,586 2,586
Distributions to partners (23,090) (5,829) (28,919)
Net Income 7,446 11,959 19,405
----------- ----------- -----------
Balance at December 31, 1998 $ 1,033,627 $ 1,845 $ 1,035,472
=========== =========== ===========
</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)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income/(loss) $ 19,405 $ 45,903 $ (7,316)
Adjustments to reconcile net income/(loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization 53,918 52,876 50,582
Changes in Assets and Liabilities:
(Increase) Decrease in Due from affiliates (21,341) (20,076) 7,645
Increase (Decrease) Due to affiliates (7,441) 31,899 11,268
---------- ---------- ----------
Net Cash Provided by Operating Activities 44,541 110,602 62,179
---------- ---------- ----------
Cash Flows From Investing Activities:
Equipment purchases (530) (77,615) (14,027)
---------- ---------- ----------
Net Cash Provided by Investing Activities (530) (77,615) (14,027)
---------- ---------- ----------
Cash Flows From Financing Activities:
Partners' contributions 2,586 1,742 162
Distributions to partners (28,919) (29,079) (29,095)
---------- ---------- ----------
Net Cash Used in Financing activities (26,333) (27,337) (28,933)
---------- ---------- ----------
Net increase in cash and cash equivalents 17,678 5,650 19,219
Cash and cash equivalents, beginning of year 26,270 20,620 1,401
---------- ---------- ----------
Cash and cash equivalents, end of year $ 43,948 $ 26,270 $ 20,620
========== ========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-10
<PAGE> 23
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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-11
<PAGE> 24
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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 may
be recorded if net capitalized costs exceed the undiscounted future net
cash flows attributable to Partnership properties. (See Note 4)
Federal Income Taxes:
As federal income taxes are the liability of the individual partners,
the accompanying financial statements do not include any provision for
federal income taxes. (See Note 8)
Limited Partners' Loss Per Equity Unit:
The limited partners' income (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.
F-12
<PAGE> 25
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Average sales price per MCF of gas $ 3.33 $ 3.24 $ 2.36
Average sales price per BBL of oil
and other liquids 11.83 19.70 16.67
Production expense per dollar of
operating revenue 0.49 0.47 0.50
</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, 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
Revisions of previous estimates (147,340) (5,299)
Production (80,855) (1,833)
--------- --------
Reserves as of December 31, 1998 1,454,877 26,916
========= ========
</TABLE>
F-13
<PAGE> 26
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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 may record additional
depreciation, depletion and amortization if net capitalized costs
exceed the undiscounted future net cash flows attributable to
Partnership properties. Significant price declines affect estimated
future net revenues both directly and as a consequence of their impact
on estimates of future production. The partnership has recorded no
additional provision for 1998, 1997 or 1996. 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
1998, 1997 or 1996 would not have been reduced.
F-14
<PAGE> 27
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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 1998 and 1997, 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
$428 for each producing gas well and $597 for each producing or
combination gas and oil well, based on the Partnership's
F-15
<PAGE> 28
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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 1998, 1997 and 1996,
$90,797, $104,891, and $75,062, 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, 1998, $28,985 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, 1998 for which it was billed $98,952.
(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 1998, 1997 and 1996, the Partnership recognized general and
administrative expenses incurred on its behalf by a general partner of
$60,000, $60,000 and $60,000, respectively.
F-16
<PAGE> 29
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) as
reported on the
Partnership's federal
income tax return $ 69,450 $ 19,401 $ 40,461
Recompletion costs reported
differently for financial
reporting purposes and
for income tax reporting
purposes -- 74,207 --
Depreciation, depletion and
amortization for income
tax purposes in excess
of (less than) financial
reporting amount (50,045) (47,705) (47,777)
---------- ---------- ----------
Net income (loss) per
accompanying financial
statements $ 19,405 $ 45,903 $ (7,316)
========== ========== ==========
</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-17
<PAGE> 30
STERLING DRILLING FUND 1984-1, L.P.
(a New York limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(9) Major Customers:
A schedule of the major purchasers of the Partnership's production is
as follows:
<TABLE>
<CAPTION>
Purchaser 1998 1997 1996
--------- -------- -------- --------
<S> <C> <C> <C>
Phoenix Diversified $267,802 $271,203 $201,880
American River Terminals - $ 52,812 $ 40,458
American Refining Group $ 21,970 - -
</TABLE>
F-18
<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, 1998, 1997 AND 1996
<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, 1998:
Leasehold costs $ 323,260 $ -- $ -- $ -- $ 323,260
Wells and related facilities 7,658,354 530 -- -- 7,658,884
------------ ------------ ------------ ------------ ------------
$ 7,981,614 $ 530 $ -- $ -- $ 7,982,144
============ ============ ============ ============ ============
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
============ ============ ============ ============ ============
</TABLE>
F-19
<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, 1998, 1997 AND 1996
<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, 1998:
Wells and related facilities $ 6,677,126 $ 51,689 $ -- $ -- $ 6,728,815
Leasehold costs 280,917 2,229 -- -- 283,146
------------ ------------ ------------ ------------ ------------
$ 6,958,043 $ 53,918 $ -- $ -- $ 7,011,961
============ ============ ============ ============ ============
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
============ ============ ============ ============ ============
</TABLE>
F-20
<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 the 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
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Denver, Colorado
March 17, 1999
<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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 43,948
<SECURITIES> 0
<RECEIVABLES> 21,341
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 65,289
<PP&E> 7,982,144
<DEPRECIATION> (7,011,961)
<TOTAL-ASSETS> 1,035,472
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,035,472<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,035,472
<SALES> 293,304<F2>
<TOTAL-REVENUES> 293,304
<CGS> 273,899
<TOTAL-COSTS> 273,899
<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> 19,405
<EPS-PRIMARY> .81<F3>
<EPS-DILUTED> 0
<FN>
<F1>OTHER - SE IS COMPOSED OF PARTNERSHIP EQUITY.
<F2>THE SALES LINE INCLUDES 1,361 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>
