Item 1. Business
Purposes
The registrant, Sanchez-O'Brien 1981-A Drilling Company (the "Drilling Company"), is a limited partnership formed on December 18, 1980, pursuant to the provisions of the Texas Uniform Limited Partnership Act. On April 21, 1981, the effective date of the Securities Act of 1933 Registration covering the offer and sale of the units (No. 2-70390), members of the National Association of Securities Dealers, Inc. began the sale of limited partnership interests. The sales period was closed June 23, 1981 with the sale of 5,304 units for a sum of $26,520,000. Sanchez-O'Brien Drilling Corporation (the "General Partner"), the General Partner of the Drilling Company, contributed $246,438 to the Drilling Company's capital. Operations commenced on June 23, 1981.
Description of Business
The Drilling Company was formed to become a general partner in Sanchez-O'Brien 1981-A Drilling Partnership (the "Drilling Partnership") to participate in oil and natural gas exploration, drilling, development, production and marketing in the United States with Sanchez-O'Brien Oil & Gas Corporation (the "Managing General Partner") as Managing General Partner. All of these activities were conducted in the states of Texas, Louisiana, Oklahoma, New Mexico, Colorado and Wyoming. Substantially all of the operations and activities of the Drilling Company relate to its interest in the Drilling Partnership.
As of December 31, 1997, forty-three wells have been drilled. Of this number, ten wells are commercially productive, twenty-four were dry holes or have been depleted and abandoned, seven have been sold, and two are shut-in.
Competitive Conditions
The petroleum industry is comprised of a large number of entities, many with greater financial resources than the Drilling Company, competing in the exploration, development, production and marketing of oil and natural gas.
Employees
The Drilling Company has no employees; however, the Managing General Partner has a staff of geologists, petroleum engineers, landmen and accounting personnel who administer all of the Drilling Company's operations. The direct administrative and overhead expenses which are attributable to the Drilling Company's operations are a cost of the Drilling Company.
Major Purchasers
Delhi Gas Marketing Corporation ("Delhi") purchased over 69% of the Drilling Company's total oil and natural gas sales during the year ended December 31, 1997 (See Note 3 to the Financial Statements).
Long-term Debt
At December 31, 1997, The Drilling Company does not have any long term debt.
Marketing Conditions
For 1997, the average price of oil decreased to $15.27/BBL from $17.76/BBL for 1996, while the average price for natural gas increased to $2.19/MCF for 1997 from $2.06/MCF in 1996. Several factors contributed to the increase of natural gas prices in 1997 compared to 1996. 1) New supply - despite an increase in drilling activity in 1997, U.S. gas production was flat. 2) Coal deliveries - several utilities reported low coal inventories and natural gas was used in its place. 3) Nuclear outages - Several outages have occurred in Canada and the U.S.
Wellhead prices per MCF during March 1998 are in the $2.10 to $2.20 range, and we are optimistic that prices will average $2.00 per MCF in 1998. During January and February 1998 gas products were sold for an estimated $1.90. Despite natural gas storage being higher in the first quarter 1998 vs 1997, prices should average about $2.00/MCF as new supply of natural gas, to meet current and future demand, is mixed this year.
Regulation
Various aspects of the Drilling Partnership's oil and natural gas operations are regulated by administrative agencies under statutory provisions of the states where such operations are conducted and by certain agencies of the Federal government for operations on Federal leases.
Future Operations
As of December 31, 1997 each Limited Partner has received $435 per each $5,000 unit. On October 10, 1997, a cash distribution was made for $80 per each $5,000 unit. Future distributions will be made after litigation on the S.W. Escobas (Trevino leases) prospect is settled.
Item 2.
Item 2. Properties
The following table summarizes the Drilling Company's well count (# wells) and average net working interest (ANWI) in oil and natural gas wells by state that are commercially productive as of December 31, 1997:
Oil Natural Gas Total # Wells ANWI # Wells ANWI # Wells ANWI
Texas............ - - 7 .11 7 .11
Louisiana........ - - 1 .35 1 .35
Oklahoma......... - - - - - -
New Mexico....... - - - - - -
Colorado......... - - - - - -
Wyoming.......... 2 .12 - - 2 .12
2 .12 8 .14 10 .14
See Note 8 to the Financial Statements for reserve information.
No events during the first quarter of 1998 have substantially changed these numbers.
Item 3.
Item 3. Legal Proceedings
The litigation against Pennzoil Exploration and Production Company (Pennzoil) and Sanchez-O'Brien Gas Corporation (Sanchez-O'Brien) on the Trevino leases in the S.W. Escobas Prospect is ongoing. The interests in the Trevino leases, which comprise part of the S.W. Escobas Prospect, were acquired from Pennzoil. There are currently four producing wells on the Trevino Leases, in which the Drilling Partnership holds between 22.53%-23.177% gross working interest. The interest in dispute in this lawsuit is 7/96 or 7.29% of Sanchez-O'Brien's and Pennzoil's interest. The trial judge, on November 9, 1992, ruled in favor of the defendants, Pennzoil and Sanchez-O'Brien. The plaintiffs appealed the trial court ruling to the Court of Appeals for the Fourth District of Texas at San Antonio. In May 1994, the San Antonio Court of Appeals affirmed the trial court's judgement.The appellants (plaintiffs) filed an application for writ of error to the Texas Supreme Court after the Fourth Court Appeals rejected a motion for a rehearing. On November 6, 1994, the Texas Supreme Court denied the writ of error. On December 8, 1994, plaintiffs filed a motion for a rehearing in the Texas Supreme Court. The Texas Supreme Court granted a rehearing and heard oral arguments during September 1995. On October 18, 1996, the Texas Supreme Court reversed the judgements of both lower courts.On November 20, 1996, a motion for rehearing was filed. The Texas Supreme Court granted the motion for a rehearing, but on February 26, 1998, The Texas Supreme Court rendered an opinion reversing the San Antonio Court of Appeals and the trial court and rendering judgement for plaintiff. A motion for a rehearing has been filed in March 1998.
An unfavorable ruling would force the Drilling Company to forfeit the $238,511 currently being held in escrow. In addition, the Drilling Company would lose approximately 7.29% of its' interest in the Trevino properties, which would reduce the Drilling Company valuation by $30,250. The total potential adverse effect would be $50.16 per each $5,000 limited partnership unit.
Beginning June 1, 1992, Sanchez-O'Brien started escrowing the amounts in dispute in order to mitigate the effect to the Drilling Partnership and the Limited Partners. The following is an estimate of the net financial effect of this litigation.
A. Revenues received and applicable interest
The Drilling Partnership would have to remit to the plantiffs 7.29% of revenues from the wells on the Trevino lease starting May 1, 1987 less the applicable share of well costs and operating expenses. The Drilling Partnership would also be responsible for any applicable interest. The amount payable from the Drilling Partnership for net revenues and applicable interest is estimated to be $260,570, with $130,285 due from the Drilling Company, or Limited Partners. Because this amount has already been paid out and used by the Drilling Company, the amounts would have to come from current and future revenues. The net impact per each $5,000 limited partnership unit would be $24.32.
B. Value of oil and natural gas reserves
The plaintiffs would be entitled to future revenues to be derived from existing oil and natural gas reserves. The net effect of losing these reserves at January 1, 1998 to the Drilling Partnership is estimated to be $60,510, with $30,250 being the interest of the Drilling Company, or Limited Partners. The net impact per each $5,000 limited partnership unit would be $5.65.
C. Funds retained in escrow
As mentioned, the Managing General Partner is currently escrowing the net revenues applicable to the disputed interest. At January 1, 1998, the total Drilling Partnership funds escrowed were $477,022, with $238,511 escrowed for the Drilling Company, or Limited Partners. The net impact per each $5,000 limited partnership unit would be $44.51. The Managing General Partner will continue to escrow the amounts in dispute. If the plaintiffs were to prevail, the funds would be paid to the plaintiffs. However, if the defendants prevail, these additional amounts would be available to the Drilling Company for operations and/or distributions.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the Security Holders during the fourth quarter of 1997.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Drilling Company has no outstanding common stock at December 31, 1997. There is no market for the limited partnership interests of the Drilling Company and transferability is subject to certain conditions, including the consent of the Managing General Partner. The Drilling Company has 1,471 limited partners as of December 31, 1997.
As of December 31, 1997, each Limited Partner has received $435 per each $5,000 unit. Future cash distributions will be made after litigation on the S.W. Escobas (Trevino leases) has been settled.
According to the terms of the Drilling Company's Partnership Agreement, the General Partner is obligated to repurchase, if requested, the interests of limited partners in the Drilling Company. The maximum repurchase obligation is 10% of the Aggregate Limited Partners Contributions. The repurchase price will be based primarily on the discounted value of the Drilling Company's share of the oil and natural gas properties. The Managing General Partner repurchased 10 units during 1997. As of December 31, 1997, the Managing General Partner has repurchased 2,822 units, or 53.20%, of the total 5,304 units. A repurchase offer for each outstanding $5,000 unit at December 31, 1997 has not been made.
Item 6.
Item 6. Selected Financial Data
The financial results of operations of the Drilling Company as of and for the years ended December 31, 1997, 1996 and 1995 are as follows: [CAPTION] 1997 1996 1995 [S] [C] [C] [C] Revenues. . . . . . . . . .$ 763,517 729,269 794,046 Expenses. . . . . . . . . . 373,281 350,923 718,122
Net income. . . . . . . . . 390,236 378,346 75,924
LP's net income (99%) . . . 386,334 374,563 75,165
LP's net income per unit. . 73 71 14
Total assets. . . . . . . . 1,380,407 1,339,406 1,437,217 Working capital increase ..$ 34,688 92,081 292,421
Partners' equity (deficit) Limited partners . . . .$ 1,131,434 1,165,181 1,184,440 General partner. . . . .$ 11,429 11,766 11,961
See Notes 1, 2 and 3 to the Financial Statements for a discussion of the Drilling Company's significant accounting policies, allocations of revenues, costs and expenses and oil and gas producing activities.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
General
The Drilling Company commenced operations on June 23, 1981. Substantially all of the Drilling Company's revenues are comprised of its proportionate share of the oil and natural gas sales of the Drilling Partnership.
Liquidity and Capital Resources
The principal sources of the Drilling Company's working capital have been the capital contributions of the limited partners, bank borrowings (see Note 4 to the Financial Statements), advances from the Managing General Partner and working capital provided from operations.
During 1997, the price of oil decreased and the price of natural gas increased over 1996. The Drilling Company repaid the full amount of the note payable to the Managing General Partner on July 1, 1993.
Results of Operations
The Drilling Company had net income of $390,236 in 1997, $378,346 in 1996, and $75,924 in 1995.
Oil and natural gas sales totaled $742,030 in 1997, $716,938 in 1996, and $784,339 in 1995.
Operating expenses as a percentage of oil and natural gas sales were 22.33% in 1997, 25.49% in 1996, and 42.77% in 1995.
Interest income was $21,487 in 1997, $12,331 in 1996, and $9,707 in 1995.
General and administrative expenses consist primarily of the Drilling Company's proportionate share of such expenses allocated to the Drilling Partnership from Sanchez-O'Brien Oil & Gas Corporation.
The current year depletion amounted to $154,000. Depletion per net equivalent barrel of production was $2.73 in 1997, $2.48 in 1996, $3.73 in 1995.
Item 8.
Item 8. Financial Statements and Supplementary Data
Sanchez-O'Brien 1981-A Drilling Company (a limited partnership)
Balance Sheets - December 31, 1997 and 1996
Statements of Operations - Years ended December 31, 1997, 1996 and 1995
Statements of Partners' Equity (Deficit) - Years ended December 31, 1997, 1996 and 1995
Cash Flows Statement of - Years ended December 31, 1997, 1996 and 1995.
Notes to Financial Statements
Schedule V - Property and Equipment - Years ended December 31, 1997, 1996 and 1995
Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property and Equipment - Years ended December 31, 1997, 1996 and 1995
All other schedules are omitted as the required information is unapplicable or the information is included in the financial statements or related notes.
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY (a limited partnership)
Notes to Financial Statements
December 31, 1997 and 1996
(1) Organization and Summary of Significant Accounting Policies
Organization - Sanchez-O'Brien 1981-A Drilling Company
Sanchez-O'Brien 1981-A Drilling Company (the Drilling Company), a Texas limited partnership, was formed on December 18, 1980 with Sanchez-O'Brien Drilling Corporation (a wholly-owned subsidiary of Sanchez-O'Brien Oil & Gas Corporation) as general partner and an organizational limited partner. On June 23, 1981, Sanchez-O'Brien Drilling Corporation, as general partner, and investors, representing 5,304 units of limited partnership interests ($5,000 per unit), entered into an Agreement of Limited Partnership for the Sanchez-O'Brien 1981-A Drilling Company. The Drilling Company is to remain in existence until December 31, 2011, unless dissolved prior to that date according to provisions of the Drilling Company Partnership Agreement. Sanchez-O'Brien Drilling Corporation and the individual limited partners are not required to make additional capital contributions to the Drilling Company.
The Drilling Company Partnership Agreement provides for quarterly distributions from available cash.
Organization - Sanchez-O'Brien 1981-A Drilling Partnership
Sanchez-O'Brien 1981-A Drilling Partnership (the Drilling Partnership), a Texas general partnership, was organized on June 23, 1981 with Sanchez-O'Brien Oil & Gas Corporation as managing general partner and Sanchez-O'Brien 1981-A Drilling Company as general partner. The Drilling Partnership was formed to engage in oil and natural gas exploration, drilling, development, production and marketing in the United States. The Drilling Partnership is to remain in existence until December 31, 2011, unless dissolved prior to that date according to provisions of the Drilling Partnership Agreement.
Sanchez-O'Brien Oil & Gas Corporation, as managing general partner, is required to make capital contributions to the Drilling Partnership on a current basis sufficient to pay the costs allocated to the managing general partner under the terms of the Drilling Partnership Agreement. The managing general partner was required to make capital contributions in an amount equal to 20 percent of the capital contributions of the limited partners to the Drilling Company, reduced by any organization or other costs incurred by the managing general partner which were reimbursed by the Drilling Company or the Drilling Partnership, by June 23, 1983. This capital contribution requirement was met, and cumulative capital contributions by the managing general partner total $5,331,953 as of December 31, 1997.
The Drilling Partnership Agreement provides that funds in excess of amounts necessary to pay the partners' share of existing and anticipated expenditures, including the repayment of borrowings, shall be distributed quarterly to the partners of the Drilling Partnership.
Basis of Financial Statement Presentation
The financial statements of the Drilling Company include its proportionate share in specific assets, liabilities, revenues and expenses of the Drilling Partnership. All significant intercompany balances and transactions have been eliminated.
Oil and Gas Properties
The Drilling Company follows the full cost method of accounting for its proportionate interest in the oil and natural gas operations of the Drilling Partnership. Under this method, all costs incurred in the acquisition, exploration and development of properties, including costs of surrendered and abandoned leaseholds, delay lease rentals and dry holes, are capitalized. Dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recognized. Depreciation, depletion and amortization of oil and natural gas properties is provided by the units-of-production method based on proved oil and natural gas reserves.
Under the full cost method of accounting for oil and natural gas operations, capitalized costs of oil and natural gas properties are not to exceed the present value of future net revenues from estimated production of proved oil and natural gas properties plus the lower of cost or estimated fair market value of unproved properties. If capitalized costs exceed this limitation, an additional provision is to be made to depreciation, depletion and amortization.
Federal Income Taxes
For Federal income tax purposes, the partners' respective interests in the revenues, expenses and other deductions and credits of the Drilling Company are reportable in their individual tax returns. Accordingly, no provision or liability for Federal income taxes has been shown on the accompanying financial statements.
Organization Costs
Organization costs were capitalized and amortized over five years using the straight-line method.
Syndication Costs
Syndication costs (sales commissions to brokers for their sales of limited partnership interests) have been deducted directly from the capital accounts in the Drilling Company.
(2) Allocations of Revenues, Costs and Expenses
Drilling Company
All revenues, costs and expenses of the Drilling Company are allocated 1 percent to the general partner, Sanchez-O'Brien Drilling Corporation, and 99 percent to the limited partners. All revenues, costs and expenses are allocated to the individual limited partners in proportion to their capital accounts.
Drilling Partnership
Revenues and expenses of the Drilling Partnership which relate to capital wells (wells which are funded principally by capital contributions of the Drilling Company) are allocated 30 percent to the managing general partner, Sanchez-O'Brien Oil & Gas Corporation, and 70 percent to the general partner, the Drilling Company, until partnership payout is reached, and 50 percent to each partner thereafter. All costs of capital wells which are non-capitalized costs for Federal income tax purposes are charged to the Drilling Company. All capitalized costs of capital wells and leasehold costs relating to producing capital wells are charged to Sanchez-O'Brien Oil & Gas Corporation.
All revenues, expenses, well costs and leasehold costs relating to subsequent wells (all wells other than the capital wells) are allocated 50 percent to Sanchez-O'Brien Oil & Gas Corporation and 50 percent to the Drilling Company.
All interest earned as a result of the temporary investment of the Drilling Company's capital contribution to the Drilling Partnership was allocated 100 percent to the Drilling Company.
(3) Oil and Natural Gas Producing Activities
The aggregate amount of capitalized costs of the Drilling Company's proportionate share of the oil and natural gas properties of the Drilling Partnership for the years ended December 31, 1997 and 1996 were as follows:
[CAPTION] 1997 1996 [S] [C] [C] Costs related to proved properties $31,043,318 30,957,815 Costs related to unproved properties - -
31,043,318 30,957,815
Less accumulated depletion 30,376,924 30,222,924
$ 666,394 734,891
The following schedule presents the results of operations of the Drilling Company's proportionate share of the oil and natural gas producing activities of the Drilling Partnership for the years ended December 31, 1997, 1996 and 1995:
[CAPTION] 1997 1996 1995 [S] [C] [C] [C] Oil and natural gas revenues $ 742,030 716,938 784,339 Operating expenses 166,191 182,750 335,523 Depreciation, depletion and amortization 154,000 138,000 335,000
Results of operations from producing activities (excluding overhead and interest costs) Net income $ 421,839 396,188 113,816
Operating expenses include production taxes of $2,520, $ 3,119, and $23,617 in 1997, 1996 and 1995, respectively.
The 1997 full cost ceiling test did not warrant an additional charge to depreciation, depletion and amortization. The calculation of the limitation on capitalized costs as of December 31, 1997 was based on $1.83 per MCF.
The regular provision for depreciation, depletion and amortization per unit of production (net equivalent barrel) for the years ended December 31, 1997, 1996 and 1995 was $2.73, $2.48 and $3.73 respectively. These rates are exclusive of the amounts attributable to the limitation on capitalized costs.
Over sixty nine percent of oil and natural gas sales from seven S. W. Escobas producing wells were sold to Delhi during 1997.
(4) Notes Payable
As of December 31, 1997, the Drilling Company does not have any debt.
(5) Federal Income Taxes
Under the method of accounting followed by the Drilling Company for Federal income tax reporting purposes: (a) expenditures incurred in acquiring undeveloped properties and equipping productive oil and natural gas properties are capitalized, whereas such expenditures relating to dry holes are charged against earnings; (b) both productive and nonproductive intangible drilling and development costs are expensed currently; (c) revenues, expenses, capital contributions and distributions are generally recognized as cash received or paid; (d) tentative depletion expense is computed using the greater of cost or percentage depletion for each property; and (e) depreciation of lease and well equipment is computed using the accelerated cost recovery system over a five year period.
The following is a reconciliation of the net income of the Drilling Company as reported herein, to its earnings reported for Federal income tax purposes for the years ended December 31, 1997, 1996 and 1995.
[CAPTION] 1997 1996 1995 [S] [C] [C] [C] Net income as reported herein $ 390,236 378,346 75,924
Less costs capitalized for financial reporting purposes which are expenses for tax purposes (primarily intangible drilling and dry hole costs) 83,524 13,475 83,633
Add depreciation, depletion and amortization for financial reporting purposes 154,000 138,000 335,000
Less depreciation and cost depletion for tax purposes 53,755 63,476 62,324
Differences in accrual method of accounting for financial reporting purposes and cash basis for tax purposes 31,397 18,063 11,513
Income for Federal income tax purposes $ 438,354 457,458 276,480
(6) Repurchase Obligations
In accordance with the terms of the Drilling Company's Partnership Agreement, Sanchez-O'Brien Drilling Corporation is obligated to purchase, if requested, the interests of limited partners in the Drilling Company. The purchase price is to be based primarily on annual determinations of the discounted value of the Drilling Company's share of the oil and natural gas properties of the Drilling Partnership. The maximum repurchase obligation is 10% of the Aggregate Limited Partners' Capital Contributions. Sanchez-O'Brien Oil & Gas Corporation purchased 10 units during 1997.
(7) Related Party Transactions
Sanchez-O'Brien Oil & Gas Corporation functions as operator for the Drilling Partnership's wells. In this capacity, Sanchez-O'Brien Oil & Gas Corporation receives monthly fees as operator on drilling and producing wells, and under the terms of the Drilling Company and Drilling Partnership Agreements, Sanchez-O'Brien Oil & Gas Corporation is reimbursed for direct costs of performing services for the Drilling Company and the Drilling Partnership and for that part of its administrative overhead that reasonably pertains to the Drilling Company and the Drilling Partnership. These reimbursements amounted to $83,720 in 1997 for both the Drilling Partnership and Drilling Company. Of these amounts, $30,000 was paid for overhead reimbursements and $53,720 for direct administrative charges.
The Drilling Company's share of the above reimbursements included $12,692 of administrative charges, both overhead and direct charges, for the year 1997.
Accounts payable on the accompanying balance sheets are due the Managing General Partner.
Substantially all of the Drilling Partnership's oil and natural gas leases were acquired from the Managing General Partner at cost, plus carrying and administrative charges.
A staff overriding royalty pool, consisting of a maximum of 7% of the Drilling Partnership's net revenue interest in all oil and natural gas leases, is shared by certain geological, engineering and other key employees of Sanchez-O'Brien Oil & Gas Corporation.
(8) Oil and Natural Gas Reserves (Unaudited)
The following is a summary of the Drilling Company's proportionate share of the proved oil and natural gas reserve quantities of the Drilling Partnership as estimated by Lone Cypress Engineering, Inc. of Houston, Texas. [CAPTION] Oil and Natural Condensate Gas (Barrels) (MCF) Proved developed and undeveloped reserves: [S] [C] [C] Balance at December 31, 1996 43,481 1,511,612
1997 adjustments 1,535 15,397
Production (3,595) (316,514)
Balance at December 31, 1997 41,421 1,210,495
Proved developed and undeveloped reserves:
December 31, 1995 44,636 1,671,220
December 31, 1996 43,481 1,511,612
December 31, 1997 41,421 1,210,495
All the reserves of the Drilling Company are attributable to its interest in the Drilling Partnership, and all the reserves are located within the United States.
Schedule V
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY (a limited partnership)
Property and Equipment
Years Ended December 31, 1997, 1996 and 1995 [CAPTION]
Balance at Balance at Beginning of End of Classification Period Additions Retirements Period [S] [C] [C] [C] [C] Oil and natural gas properties $30,812,847 124,923 6,420 30,931,350
Oil and natural gas properties $30,931,350 26,465 0 30,957,815
Oil and natural gas properties $30,957,815 85,503 0 31,043,318
Schedule VI
SANCHEZ-O'BRIEN 1981-A DRILLING COMPANY (a limited partnership)
Accumulated Depreciation, Depletion and Amortization
Years Ended December 31, 1997, 1996 and 1995 [CAPTION]
Balance at Balance at Beginning of End of Classification Period Additions Retirements Period
[S] [C] [C] [C] [C] Oil and natural gas properties $29,749,924 225,000 0 30,084,924
Oil and natural gas properties $30,084,924 138,000 0 30,222,924
Oil and natural gas properties $30,222,924 154,000 0 30,376,924
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure
There have been no disagreements by the Drilling Company with its accountants on accounting or financial disclosures which would warrant disclosure pursuant to this item.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The Drilling Company has no directors or executive officers. The General Partner, Sanchez-O'Brien Drilling Corporation, is a wholly owned subsidiary of Sanchez-O'Brien Oil & Gas Corporation. The names, ages (as of March 1, 1997) and positions of the directors and executive officers of Sanchez-O'Brien Drilling Corporation are as follows:
NAME AGE POSITION
Antonio R. Sanchez, Jr. 55 Chairman of the Board and Chief Executive Officer
Brian E. O'Brien 64 Vice Chairman of the Board and President
Minita M. Freeman 77 Senior Vice President, Secretary, Treasurer and Director
Frank A. Guerra 49 Vice President - Finance
Olivero F. Garza, III 51 Assistant Secretary - Controller
Antonio R. Sanchez, Jr., age 55, is Chairman of the Board and Chief Executive Officer. He holds a Bachelor of Business Administration degree and a Doctor of Jurisprudence degree from St. Mary's University of San Antonio, Texas. Prior to 1973, Mr. Sanchez, Jr., practiced law in both San Antonio and Laredo, Texas, and served as an administrative assistant to the Lieutenant Governor of Texas. In addition to his oil and natural gas investments, Mr. Sanchez, Jr. has other substantial investments.
Brian E. O'Brien, age 64, is Vice Chairman of the Board and President. Mr. O'Brien received a Bachelor of Science degree in geology from the University of Oklahoma in 1958 and a Master of Science degree in geology from the same university in 1963. From 1961 to 1969, Mr. O'Brien was employed by the Atlantic Refining Company where his principal responsibilities included geological evaluation and exploration of oil and natural gas prospects situated primarily along the Gulf Coast of Louisiana and Texas, and from 1969 to 1973, he was employed by Mesa Petroleum Company as that Company's geologist for the Gulf Coast area of Texas. In addition to his oil and natural gas investments, Mr. O'Brien has other substantial investments.
Minita M. Freeman, age 77, is Senior Vice President, Secretary, Treasurer and a Director. Mrs. Freeman holds a Bachelor of Business Administration degree from the University of Texas at Austin with a major in accounting. Prior to joining affiliates of the Managing General Partner in 1975, Mrs. Freeman practiced accounting primarily in Laredo, Texas.
Frank A. Guerra, age 49, Vice President-Finance, was employed by the Managing General Partner in early 1979. He is in charge of accounting for the Managing General Partner and all affiliates. Mr. Guerra was previously employed by Exxon Corporation as an accounting supervisor in the Exploration and Production Department from 1977 to 1979 and as a senior auditor on various staffs from 1972 to 1977. Mr. Guerra received a Bachelor of Business Administration degree in accounting from Texas A & M Universiry in 1971 and is a Certified Public Accountant.
Olivero F. Garza, III, age 51, is Assistant Secretary and Controller for the Managing General Partner. He was employed in March 1980 as Manager of Corporate Accounting. Mr. Garza has been employed in the oil and natural gas industry since 1968 with companies such as Exxon Corporation, Coastal Corporation and TransOcean Oil Company. Mr. Garza received a Bachelor of Business Administration degree in accounting from Pan American College in Edinburg, Texas in 1968.
The terms of each officer and director named above expire at the Company's annual meeting of directors or such other time as his successor is duly elected and qualified.
Item 11.
Item 11. Executive Compensation
Inasmuch as the Drilling Company has no directors, officers or employees, it paid no remuneration during 1997. In accordance with the Agreement of Limited Partnership, the Drilling Company reimbursed the Managing General Partner for direct expenses and administrative and overhead expenses attributable to the operations of the Drilling Company (see Note 7 to the Financial Statements).
All of the oil and natural gas properties of the Drilling Partnership were acquired at cost (including carrying costs) or were obtained on its behalf by the Managing General Partner from third parties. The Managing General Partner acts as operator for certain drilling or producing wells of the Drilling Partnership.
Item 12.
Item 12. Security Owenership of Certain Benefical Owners and Management
(a) Principal Security Holders
At December 31, 1997, Sanchez-O'Brien Oil & Gas Corporation, owned a 53.20 percent interest (2,822 units) in the Drilling Company. No other limited partner owned, of record or beneficially, more than one percent of the Drilling Company (See Note 6 to the Financial Statements).
As provided under the terms of the Agreement of Limited Partnership, the General Partner has a one percent interest in all of the Drilling Company's revenues, expenses, profits or losses, and upon liquidation, a one percent interest in the Drilling Company's properties.
As provided under the terms of the Articles of Partnership of the Drilling Partnership, Sanchez-O'Brien Oil & Gas Corporation, the Managing General Partner of the Drilling Partnership, has a revenue interest which varies from 30 percent to 50 percent in the Drilling Partnership's revenues.
(b) Amount of Sanchez-O'Brien Oil & Gas Corporation Securities Owned by Officers and Directors of Sanchez-O'Brien Oil & Gas Corporation
At March 1, 1998, the Estate of Antonio R. Sanchez, Antonio R. Sanchez, Jr. and Brian E. O' Brien own one hundred percent of the outstanding common stock of Sanchez-O'Brien Oil & Gas Corporation.
(c) Changes in control
There have been no changes in control of the Drilling Company during the period ended December 31, 1997.
Item 13.
Item 13. Certain Relationships and Related Transactions
During 1981, the Drilling Company paid Sanchez-O'Brien Drilling Corporation $300,000 for costs related to organizing the Drilling Company and offering the limited partnership interests therein. As operator of the Drilling Partnership's wells, Sanchez-O'Brien Oil & Gas Corporation receives monthly fees on drilling and producing wells. The Drilling Partnership also paid Sanchez-O'Brien Oil & Gas Corporation a management fee of $1,193,400 in 1981. In addition, the Drilling Company and Drilling Partnership. Substantially all of the Drilling Partnership's oil and natural gas leases were acquired from Sanchez-O'Brien Oil & Gas Corporation at cost plus administrative and carrying charges. Certain key employees of Sanchez-O'Brien Oil & Gas Corporation participate in a staff overriding royalty pool consisting of a maximum of 7% of the Drilling Partnership's net revenue interest in all oil and natural gas leases. (See Note 7 to the Financial Statements).
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements and Schedules
(a) The following documents are filed as part of this annual report on Form 10-K:
1. Financial Statements (See Index to Financial Statements in Item 8)
2. Financial Statement Schedules The financial statement schedules are filed as part of this report as listed in the Index to Financial Statements in Item 8.
3. Exhibits:
*3.1-Articles of Limited Partnership, as amended, filed as exhibit 4.1 to the Registrant's Registration Statement on Form S-1 (Reg. No. 2-70390).
*3.2-Articles of Partnership, as amended, filed as exhibit 4.2 to the Registrant's Registration Statement on Form S-1 (Reg. No. 2-70390).
*Incorporated by reference, as indicated.
(b) Reports on Form 8-K
There were no reports on Form 8-K for the twelve months ended December 31, 1997.
SIGNATURES
Pursuant to the requirements of Section13 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 aythorized on March 27, 1997.
SANCHEZ-O'BRIEN OIL & GAS CORPORATION
By Sanchez-O'Brien Drilling Corporation
By Antonio R. Sanchez, Jr. Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)
Pursuant to the requirements iof 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 on March 27, 1997.
Brian E. O'Brien Minita M. Freeman Vice Chairman of the Board and President Senior Vice President, (Principal Operating Officer) Secretary, Treasurer and Director (Principal Financial Officer and Director
Frank A. Guerra Olivero F. Garza, III Vice President - Finance Assistant Secretary - Controller (Principal Accounting Officer)
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 27, 1997.
SANCHEZ-O'BRIEN OIL & GAS CORPORATION
By Sanchez-O'Brien Drilling Corporation
By s/Antonio R. Sanchez, Jr. Antonio R. Sanchez, Jr. Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)
s/Brian E. O'Brien s/Minita M. Freeman Brian E. O'Brien Minita M. Freeman Vice Chairman of the Board and President Senior Vice President, (Principal Operating Officer) Secretary, Treasurer and Director (Principal Financial Officer and Director
s/Frank A. Guerra s/Olivero F. Garza, III Frank A. Guerra Olivero F. Garza, III Vice President - Finance Assistant Secretary - Controller (Principal Accounting Officer)