-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IE8fI8uZ2OCaCzwWz+bUr+zyY2cjKTxd36WgRMWyqX464M14vCLmaPCY3wFyE/2y BexLD0nCVyniEPJutrVAPg== 0000950134-99-002240.txt : 19990331 0000950134-99-002240.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950134-99-002240 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING DRILLING FUND 1983-1 CENTRAL INDEX KEY: 0000721538 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 133167549 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 002-84452 FILM NUMBER: 99578296 BUSINESS ADDRESS: STREET 1: ONE LANDMARK SQ CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2033585700 MAIL ADDRESS: STREET 1: 0NE LANDMARK SQ CITY: STAMFORD STATE: CT ZIP: 06901 FORMER COMPANY: FORMER CONFORMED NAME: STERLING FUEL RESOURCES DRILLING FUND 1983-1 DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1998 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, 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. 2-84452 STERLING DRILLING FUND 1983-1, L.P. (Exact name of registrant as specified in its charter) NEW YORK 13-3167549 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE LANDMARK SQUARE STAMFORD, CONNECTICUT 06901 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 358-5700 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: UNITS OF LIMITED PARTNERSHIP (Title of Class) Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o 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: 11,077. DOCUMENTS INCORPORATED BY REFERENCE NONE ================================================================================ 2 STERLING DRILLING FUND 1983-1, L.P. FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 PART I ITEM 1. BUSINESS Sterling Drilling Fund 1983-1, L.P., formerly Sterling-Fuel Resources Drilling Fund 1983-1 (the "Registrant" or the "Partnership") is a limited partnership formed under the laws of the State of New York on March 18, 1983. 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 $11,077,000, 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, Gilmer, Wirt, Kanawha, Lincoln and Putnam Counties, West Virginia. The Partnership does not operate any of the properties in which it has an interest, but generally such properties are operated and serviced by Prime Operating Company, a Texas corporation, and Eastern Oil Well Service Company, a West Virginia corporation, both wholly-owned subsidiaries of PrimeEnergy Corporation. During 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 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 hydroelectric power. -1- 3 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, approximately $314,253, or 94.86%, of the Partnership's gas production was sold to one unaffiliated purchaser, Phoenix Diversified and about $12,820, or 100%, of oil production was purchased by the American Refining Group. Neither purchaser has any relationship or is otherwise affiliated with the Partnership. Sales are made under short-term contractual arrangements. The Partnership believes that its current purchasers will continue to purchase oil and gas products and, if not, could be replaced by other purchasers. ENVIRONMENTAL MATTERS The petroleum industry is subject to numerous federal and state environmental statutes, regulations and other pollution controls. In general, the Partnership is, and will be subject to, present and future environmental statutes and regulations, and in the future the cost of its activities may materially increase as a result thereof. The Partnership's expenses relating to preserving the environment during 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 ("FERC") and the Natural Gas Policy Act of 1978 and various state regulations. The Partnership was subject to the Crude Oil Windfall Profit Tax Act of 1980, which imposed an excise tax on producers of crude oil at various rates for prices received in excess of certain historical base prices. That Act was repealed in August, 1988. The Partnership is also subject to state drilling and proration regulations affecting its drilling operations and production rates. 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 -2- 4 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. PRODUCING WELLS AND OPERATING INFORMATION The Partnership, following its formation, and in November, 1983, contracted for the drilling of 38 development wells, which resulted in 37 producing wells and one dry hole. -3- 5 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: Gross Net ----- --- Oil Wells......................... 0 0 Gas Wells......................... 39 31.3 Producing acres............................. 1,833 1,771
- -------------- (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:
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------ ------------ ------------ ------------ ------------ Production: Oil and Condensate (bbl) ................... 1,232 1,302 1,524 1,508 1,521 Gas (Mcf) .................................. 100,993 111,382 113,227 116,201 104,386 Average Price of Sales: Oil and Condensate ($ per bbl) ............. $ 12.05 19.64 16.37 17.82 12.89 Gas ($ per Mcf) ............................ $ 3.17 3.15 2.31 2.17 3.12 Production Expense per Dollar of Operating Revenue ....................... $ 0.45 0.44 0.47 0.46 0.53
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):
Proved Developed As of ---------------------------------------------- 12-31 Oil (bbls) Gas (Mcf) - ----- ---------- --------- 1994 11,000 1,837,000 1995 15,500 2,210,000 1996 13,850 2,233,000 1997 14,000 2,034,300 1998 13,000 1,808,900
-4- 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):
Proved Developed -------------------------------------------- As of Future Net Present Value of 12-31 Revenue Future Net Revenue ----- ---------- ------------------ 1994 $1,735,000 $ 782,000 1995 2,272,900 893,700 1996 3,414,800 1,313,750 1997 2,940,800 1,200,900 1998 2,293,000 915,800
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. -5- 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 694 holders of record of the Units. The Units are not regarded as stock and payments or distributions to holders of Units are not made in the form of dividends. Cash distributions to the holders of Units for 1998 aggregated $41,539. Aggregate cash distributions to the holders of the Units as of December 31, 1998, is $2,340,016. 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- 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 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 176 employees, including their principal officers providing management and administrative services, accounting, 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 Prime Energy and the operating subsidiaries. He graduated from the University of Maryland in 1970 and from Stamford 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 -7- 9 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 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 $100,000 for each year. -8- 10 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND PRIMEENERGY CORPORATION The Partnership does not know of any person, entity or group, other than the Managing General Partner 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 directly owned.
Number Name and Address of Beneficial Owner of Units Percent ------------------------------------ -------- ------- PrimeEnergy Management Corporation One Landmark Square Stamford, CT 06901...................... 1,152 10.40% PrimeEnergy Corporation One Landmark Square Stamford, Connecticut 06901............. 1,617 14.60%
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 $444 to $615 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 $106,181 and $116,779, respectively, in such fees and expenses. -9- 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 1983-1, now Sterling Drilling Fund 1983-1, L.P. (Incorporated by reference to Exhibit (3) of Sterling Drilling Fund 1983-1, 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- 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 1983-1, 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. -11- 13 STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership) Index to Financial Information and Schedules
PAGE NO. -------- Selected Financial Data F-2 Management's Discussion and Analysis of Financial Condition and Results of Operations F-2 Report of Independent Public Accountants F-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
All other schedules have been omitted as the information required is either included in the financial statements, related notes, or is not applicable. F-1 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.
YEAR ENDED DECEMBER 31, (000's omitted) ----------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- Revenues .......................... $ 346 386 297 361 350 Net income (loss): Limited Partners ................ $ (15) 1 (42) (3) (557) General Partners ................ $ 9 15 2 23 (54) Per equity unit ................. $ (1.35) 0.11 (3.79) (0.26) (50.25) Total assets ...................... $ 1,635 1,693 1,729 1,823 1,878 Cash distributions: Limited Partners ................ $ 42 42 42 28 28 General Partners ................ $ 11 11 12 7 7 Limited partners as a % of original contribution .................... 0.375% 0.375% 0.375% 0.25% 0.25%
ITEM 7. MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS 1. Liquidity: The oil and gas industry is intensely competitive in all its phases. There is also competition between this industry and other industries in supplying energy and fuel requirements of industrial and residential consumers. It is not possible for the Partnership to calculate its position in the industry as the Partnership competes with many other companies having substantially greater financial and other resources. In accordance with the terms of the Agreement of Limited Partnership of the Partnership, the General Partners of the Partnership will make cash distributions of as much of the Partnership cash credited to the capital accounts of the partners as the General Partners have determined is not necessary or desirable for the payment of any contingent debts, liabilities or expenses for the conduct of the Partnership business. As of December 31, 1998, the General Partners have distributed to the Limited Partners $2,340,016 or 21.125% of the total Limited Partner capital contributions to the Limited Partnership. 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 F-2 15 management and administrative functions. Consequently, the Partnership's exposure to the Y2K problems is determined by what Year 2000 efforts have been undertaken by the Managing General Partner. In 1997, the Managing General Partner developed a three-phase program for the Y2K information systems compliance. Phase I is to identify those systems with which the Partnership has exposure to Y2K issues. Phase II is to remediate systems and replace equipment where required. Phase III, 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 revenue (S.E.C. F-3 16 case) associated with such reserves, discounted at 10% as of December 31, 1998, was approximately $915,800 as compared to the discounted reserves as of December 31, 1997, which were approximately $1,200,900. 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 drilling contractor in November, 1983, for $9,400,000. Pursuant to the terms of this contract, thirty-eight wells were drilled resulting in thirty-seven producing wells and one dry-hole. 3. Results of Operations: 1998 compared to 1997 Overall operating revenues declined from $379,079 in 1997 to $337,678 in 1998. The Partnership receives some of its revenue from oil production as well as gas production. The Partnership's oil production did not change significantly from 1997 to 1998, 1302 bbls to 1232 bbls respectively. The stable production was offset by significantly lower average price per barrel, from $19.64 in 1997 to $12.05 in 1998. The Partnership main source of revenue is from its gas produced and sold. A decline in its gas production from 111,382 mcf in 1997 to 100,983 mcf in 1998 was only slightly offset by a very small increase in average price per mcf from $3.15 in 1997 to $3.17 in 1998. Normal production decline can sometimes be attributed to shut-ins and higher main transport line pressures. The higher main line pressure can inhibit or restrict the free movement of the Partnership's gas from the wells to the purchaser's transport line. 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 $165,863 in 1997 to $152,083 in 1998. Some production expenses can be variable based upon to the volumes of gas and oil produced. The operator also expends funds or repairs, labors, maintenance and location costs based upon the needs at a particular well or well site. During 1998, the majority of production expenses were associated with routine maintenance at the wells or well sites. Any variable costs incurred were reasonable based upon the current production volumes. During 1997, the operator performed supplemental repairs which included location work, road repairs, pipeline repairs and additional labor expenditures. In most cases large repairs are made to help maintain overall production or to minimize current declines. General and administrative costs remained relatively unchanged between 1997 and 1998, from $121,632 to $120,356, respectively. Management will use in-house resources if it will provide efficient and timely services to the partnership. Amounts in both years are substantially less than the $553,850 allocable to the Partnership under the Partnership Agreement. F-4 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 revisions to the basis of the Partnership properties were needed in 1998 or 1997. The overall depreciation for both years was consistent with the rates used and the remaining property basis. 1997 compared to 1996 Operating revenue increased from $290,733 in 1996 to $379,079 in 1997. This increase can be attributed to a variety of factors, including only minor fluctuations in gas and oil production, from 113,227 mcf and 1,524 barrels in 1996 to 111,382 mcf and 1,302 barrels in 1997. Both gas and oil revenues were helped substantially by the increased average price per mcf and barrel in 1997 when compared to 1996. On average, the Partnership was paid $2.31 per mcf and $16.37 per barrel in 1996 and $3.15 per mcf and $19.64 per barrel in 1997. The Partnership has locked into a favorable gas contract price that will be in place until November of 1998. Production expenses increased from $135,780 in 1996 to $165,863 in 1997. The Partnership did expend funds on additional capitalized well equipment and other repairs 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 repairs including but not limited to location work, road repairs, pipeline repairs and additional labor cost as deemed appropriate. In most cases large repairs are made to help maintain overall production. Also the Partnership in both years expended the necessary funds on the routine, general upkeep and maintenance of the well and well site. General and administrative costs remained relatively unchanged between 1996 and 1997, from $121,632 to $121,848, respectively. Management continues to monitor any third party costs and use in-house resources if it will provide efficient and timely services to the Partnership. Amounts in both years are substantially less than the $553,850 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 revisions to the basis of the Partnership properties was needed in 1997 or 1996. The overall depreciation for both years was consistent with the rates used and the remaining property basis. F-5 18 STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Sterling Drilling Fund 1983-1, L.P.: We have audited the accompanying balance sheets of Sterling Drilling Fund 1983-1, 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 1983-1, 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 19 STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership) BALANCE SHEETS DECEMBER 31, 1998 AND 1997
Assets 1998 1997 ----------- ----------- Current Assets: Cash and cash equivalents (Note 2) $ 174,678 $ 145,635 Due from affiliates (Note 6) 36,882 45,126 ----------- ----------- Total Current Assets 211,560 190,761 ----------- ----------- Oil and Gas Properties - successful efforts methods (Note 3) - (Schedules V and VI): Leasehold costs 321,314 321,314 Wells and related facilities 8,919,173 8,918,786 ----------- ----------- Total 9,240,487 9,240,100 Less - Accumulated depreciation, depletion (7,817,328) (7,737,872) ----------- ----------- and amortization 1,423,159 1,502,228 ----------- ----------- Total Assets $ 1,634,719 $ 1,692,989 =========== =========== Liabilities and Partners' Equity Total Liabilities $ -- $ -- ----------- ----------- Partners' Equity: Limited partners 1,579,044 1,635,538 General partners 55,675 57,451 ----------- ----------- Total Partners' Equity 1,634,719 1,692,989 ----------- ----------- Total Liabilities and Partners' Equity $ 1,634,719 $ 1,692,989 =========== ===========
The Notes to Financial Statements are an integral part of these statements. F-7 20 STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership) STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 --------------------------------- -------------------------------- --------------------------------- Limited General Limited General Limited General Partners Partners Total Partners Partners Total Partners Partners Total --------- --------- --------- --------- --------- --------- --------- --------- --------- Revenues: Operating revenues $ 258,324 $ 79,354 $ 337,678 $ 289,995 $ 89,084 $ 379,079 $ 222,411 $ 68,322 $ 290,733 Interest 7,840 728 8,568 6,565 610 7,175 5,856 544 6,400 --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Revenues 266,164 80,082 346,246 296,560 89,694 386,254 228,267 68,866 297,133 --------- --------- --------- --------- --------- --------- --------- --------- --------- Costs and Expenses: Production expenses 116,344 35,739 152,083 126,885 38,978 165,863 103,872 31,908 135,780 Depreciation, 72,703 6,754 79,457 75,263 6,992 82,255 73,291 6,809 80,100 depletion and amortization General and 92,072 28,284 120,356 93,214 28,634 121,848 93,048 28,584 121,632 --------- --------- --------- --------- --------- --------- --------- --------- --------- administrative expenses (Note 7) Total Expenses 281,119 70,777 351,896 295,362 74,604 369,966 270,211 67,301 337,512 --------- --------- --------- --------- --------- --------- --------- --------- --------- Net Income (Loss) $ (14,955) $ 9,305 $ (5,650) $ 1,198 $ 15,090 $ 16,288 $ (41,944) $ 1,565 $ (40,379) ========= ========= ========= ========= ========= ========= ========= ========= ========= Net income (Loss) Per $ (1.35) $ 0.11 $ (3.79) ========= ========= ========= Equity Unit (Note 2)
The Notes to Financial Statements are an integral part of these statements. F-8 21 STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership) STATEMENTS OF CHANGES IN PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Limited General Partners Partners Total ----------- ----------- ----------- Balance at December 31, 1995 $ 1,759,361 $ 63,506 $ 1,822,867 Partners' contributions -- 177 177 Distributions to partners (41,538) (11,621) (53,159) Net Income (Loss) (41,944) 1,565 (40,379) ----------- ----------- ----------- Balance at December 31, 1996 1,675,879 53,627 1,729,506 Partners' contributions -- 177 177 Distributions to partners (41,539) (11,443) (52,982) Net Income (Loss) 1,198 15,090 16,288 ----------- ----------- ----------- Balance at December 31, 1997 1,635,538 57,451 1,692,989 Partners' contributions -- 176 176 Distributions to partners (41,539) (11,257) (52,796) Net Income (Loss) (14,955) 9,305 (5,650) ----------- ----------- ----------- Balance at December 31, 1998 $ 1,579,044 $ 55,675 $ 1,634,719 =========== =========== ===========
The Notes to Financial Statements are an integral part of these statements. F-9 22 STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 --------- --------- --------- Net (loss) income $ (5,650) $ 16,288 $ (40,379) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation, depletion and amortization 79,457 82,255 80,100 Changes in Assets and Liabilities - Decrease (increase) in due from affiliates (36,882) (45,127) (9,595) Increase (decrease) in due to affiliates 45,125 9,595 94,873 --------- --------- --------- Net Cash Provided (Used) by 82,050 63,011 124,999 --------- --------- --------- Operating Activities Cash Flows From Investing Activities: Equipment purchases (387) (6,188) (17,601) --------- --------- --------- Net Cash Provided by Investing Activities (387) (6,188) (17,601) --------- --------- --------- Cash Flows From Financing Activities: Partners' contributions 176 177 177 Distributions to partners (52,796) (52,982) (53,159) --------- --------- --------- Net Cash Used in Financing activities (52,620) (52,805) (52,982) --------- --------- --------- Net increase in cash and cash equivalents 29,043 4,018 54,416 Cash and cash equivalents, beginning of year 145,635 141,617 87,201 --------- --------- --------- Cash and cash equivalents, end of year $ 174,678 $ 145,635 $ 141,617 ========= ========= =========
The Notes to Financial Statements are an integral part of these statements. F-10 23 STERLING DRILLING FUND 1983-1, 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 1983-1, L.P., formerly Sterling-Fuel Resources Drilling Fund 1983-1, a New York limited partnership (the "Partnership"), was formed on March 18, 1983 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. Eleven thousand seventy-seven limited partnership units, (11,077), were sold at $1,000 per unit aggregating total limited partner contributions of $11,077,000. The general partners' contributions amounted to $902,847. Partnership operations commenced on November 10, 1983. (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 24 STERLING DRILLING FUND 1983-1, 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 11,077 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 25 STERLING DRILLING FUND 1983-1, 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 17.9% 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:
1998 1997 1996 --------- -------- ------ Average sales price per MCF of gas $ 3.17 $ 3.15 $ 2.31 Average sales price per BBL of oil 12.05 19.64 16.37 and other liquids Production expense per dollar of .45 .44 .47 operating revenue
(4) Quantities of Oil and Gas Reserves: The amount of proved developed reserves presented below have been estimated by an independent firm of petroleum engineers as of January 1, 1998. Petroleum engineers on the staff of PEC have reviewed the data presented below, as of December 31, 1998, for consistency with current year production and operating history. All of the Partnership's oil and gas reserves are located within the United States:
(Unaudited) -------------------------- GAS (MCF) OIL (BBL) ----------- ----------- Reserves as of December 31, 1995 2,208,803 15,545 Revisions of previous estimates 137,611 (172) Production (113,227) (1,524) ----------- ----------- Reserves as of December 31, 1996 2,233,187 13,849 Revisions of previous estimates (87,617) 1,490 Production (111,382) (1,302) ----------- ----------- Reserves as of December 31, 1997 2,034,188 14,037 Revisions of previous estimates (124,297) 207 Production (100,993) (1,232) ----------- ----------- Reserves as of December 31, 1998 1,808,898 13,012 =========== ===========
F-13 26 STERLING DRILLING FUND 1983-1, 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. 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 would not have been reduced for 1998, 1997 or 1996. F-14 27 STERLING DRILLING FUND 1983-1, 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:
Limited General Partners Partners -------- -------- Participation in Costs: Sales commissions and dealer manager fees 100.0% -% in excess of the $50,000 paid by PEMC Offering costs other than $75,000 paid by the Partnership and the Sterling Drilling Fund 1983-2, L.P. -% 100.0% Management fee 100.0% -% Lease acquisition costs 91.5% 8.5% Drilling and completion costs 91.5% 8.5% General and administrative expenses 76.5% 23.5% Production operator's fee 76.5% 23.5% Operating expenses 76.5% 23.5% All other costs 91.5% 8.5% Participation in Revenues: Sale of production 76.5% 23.5% Sale of properties 91.5% 8.5% Sale of equipment 91.5% 8.5% All other revenues 91.5% 8.5%
(6) Transactions With Affiliates: (a) The due from affiliates at December 1998 and 1997 represents general and administrative and certain other expenses incurred on behalf of the Partnership by PEC and its subsidiaries, and amounts due for production operator's fees (Note 6(b)), net of production revenues collected on behalf of the Partnership. (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 $444 for each producing gas well and $615 for each producing oil or combination gas and oil well, based on the Partnership's F-15 28 STERLING DRILLING FUND 1983-1, 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 Cost of Living Index published by the U.S. Department of Labor over the year in which production began. During 1998, 1997 and 1996, $104,801, $110,512, and $87,747 of production operator's 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, $21,720 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 years ending December 31, 1998 and 1997 for which it was billed $1,380 and $6,267 respectively. (7) General and Administrative Expenses: In accordance with the Management Agreement, the general partners are 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. During 1998, 1997 and 1996, the Partnership recognized general and administrative expenses incurred on its behalf by a general partner of $100,000, $100,000, and $100,000 respectively. F-16 29 STERLING DRILLING FUND 1983-1, 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:
Year Ended December 31, ----------------------------------- 1998 1997 1996 -------- -------- -------- Net income (loss) as reported on the Partnership's federal income tax return $ 68,370 $ 91,673 $ 36,200 Depreciation, depletion and amortization for income tax purposes in excess of (less than) financial reporting amount (74,020) (75,385) (76,579) -------- -------- -------- Net income (loss) per accompanying financial statements $ (5,650) $ 16,288 $(40,379) ======== ======== ========
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 30 STERLING DRILLING FUND 1983-1, 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 purchases of the Partnership's production is as follows:
Purchaser 1998 1997 1996 --------- -------- -------- -------- Phoenix Diversified $314,253 $323,563 $251,463
F-18 31 SCHEDULE V STERLING DRILLING FUND 1983-1, L.P. (a New York limited partnership) PROPERTY AND EQUIPMENT - OIL AND GAS PROPERTIES FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Balance at Balance Beginning Additions Other at End of Year at Cost Retirements Changes of Year ---------- ---------- ----------- ---------- ---------- Year Ended December 31, 1998: Leasehold costs $ 321,314 $ -- $ -- $ -- $ 321,314 Wells and related facilities 8,918,786 387 -- -- 8,919,173 ---------- ---------- ---------- ---------- ---------- $9,240,100 $ 387 $ -- $ -- $9,240,487 ========== ========== ========== ========== ========== Year ended December 31, 1997: $ 321,314 $ -- $ -- $ -- $ 321,314 Leasehold costs 8,912,598 6,188 -- -- 8,918,786 ---------- ---------- ---------- ---------- ---------- Wells and related facilities $9,233,912 $ 6,188 $ -- $ -- $9,240,100 ========== ========== ========== ========== ========== Year Ended December 31, 1996: Leasehold costs $ 321,314 $ -- $ -- $ -- $ 321,314 Wells and related facilities 8,894,997 17,601 -- -- 8,912,598 ---------- ---------- ---------- ---------- ---------- $9,216,311 $ 17,601 $ -- $ -- $9,233,912 ========== ========== ========== ========== ==========
F-19 32 SCHEDULE VI STERLING DRILLING FUND 1983-1, 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
Balance at Charges to Balance Beginning Costs and Other at End of Year Expenses Retirements Changes of Year ---------- ---------- ----------- -------- ---------- Year Ended December 31, 1998: Wells and related facilities $7,416,558 $79,456 $ - $ - $7,496,014 Leasehold costs 321,314 - - - 321,314 ---------- ------- --------- -------- ---------- $7,737,872 $79,456 $ - $ - $7,817,328 ========== ======= ========= ======== ========== Year ended December 31, 1997: Wells and related facilities 7,334,303 $82,255 $ - $ - $7,416,558 Leasehold costs 321,314 - - - 321,314 ---------- ------- --------- -------- ---------- $7,655,617 $82,255 $ - $ - $7,737,872 ========== ======= ========= ======== ========== Year Ended December 31, 1996: Wells and related facilities $7,254,203 $80,100 $ - $ - $7,334,303 Leasehold costs 321,314 - - - 321,314 ---------- ------- --------- -------- ---------- $7,575,517 $80,100 $ - $ - $7,655,617 ========== ======= ========= ======== ==========
F-20 33 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBIT PAGE - ------- ------- ------------ (3) Form of Agreement of Limited Partnership of Sterling-Fuel Resources Drilling Fund 1983-1 (now Sterling Drilling Fund 1983-1, L.P.) (incorporated by reference to Exhibit (3) of Sterling Gas Drilling Fund 1983-1 Form 10-K for the year ended December 31, 1994) (24) Consent of Ryder Scott Company (filed herewith) (27) Financial Data Schedule. (filed herewith)
EX-24 2 CONSENT OF RYDER SCOTT COMPANY 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 1983-1 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 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STERLING DRILLING FUND 1983-1 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1998 DEC-31-1998 174,678 0 36,882 0 0 211,560 9,240,487 7,817,328 1,634,719 0 0 0 0 0 1,634,719 1,634,719 346,246 346,246 351,896 351,896 0 0 0 0 0 0 0 0 0 (5,650) (1.35) 0 OTHER - SE IS COMPOSED OF PARTNERSHIP EQUITY. THE SALES LINE INCLUDES 8,568 OF NET INTEREST INCOME. EPS - PRIMARY IS BASED UPON LIMITED PARTNERS SHARE OF NET INCOME DIVIDED BY THE OUTSTANDING PARTNERSHIP UNITS OF 11,077.
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