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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

/X/Quarterly Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2001

/ /Transition Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934

For the Transition Period Ended ______________________

Commission File Number 0-10501

STERLING GAS DRILLING FUND 1981

(Exact name of registrant as specified in charter)

New York

(State or other jurisdiction of incorporation or organization)

13-3098770

(IRS employer identification number)

One Landmark Square, Stamford, Connecticut 06901

(Address and Zip Code of principal executive offices)

(203) 358-5700

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the 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 / /

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Item 1. Financial Statements

The following Financial Statements are filed herewith:

Balance Sheets June 30, 2001 and December 31, 2000.

Statements of Operations for the Six and Three Months Ended June 30,

2001 and 2000.

Statements of Changes in Partners' Equity for the Six and Three Months Ended June 30, 2001 and 2000.

Statements of Cash Flows for the Six Months Ended June 30, 2001

and 2000.

Note to Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

1. Liquidity -

The oil and gas industry is intensely competitive in all its phases. There is also competition among this industry and other industries in supplying energy and fuel requirements of industrial and residential consumers. It is not possible for the Registrant to calculate its position in the industry as Registrant competes with many other companies having substantially greater financial and other resources. In accordance with the terms of the Prospectus, the General Partners of the Registrant will make cash distributions of as much of the Partnership cash credited to the capital accounts of the Partners as the General Partners have determined is not necessary or desirable for the payment of any contingent debts, liabilities or expenses or for the conduct of the Partnership's business. As of June 30, 2001, the General partners have distributed to the Limited partners $3,955,500. Such cash distributions are equivalent to 45% of original total Limited Partner capital contributions.

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. case) associated with such reserves, discounted at 10% as of December 31, 2000 was approximately $1,722,800 as compared to December 31, 1999, of about $686,493. The estimated reserve quantities and future income quantities are related to hydrocarbon prices. Therefore, volumes of reserves actually recovered and amounts of income actually received may differ significantly from the estimated quantities presented in this report.

In accordance with FASB Statement No. 69, December 31, 2000 market prices were determined using the daily oil price or daily gas sales price ("spot price") adjusted for oilfield or gas gathering hub and wellhead price differentials (e.g. grade, transportation, gravity, sulfur, and BS&W) as appropriate. Also, in accordance with SEC and FASB specifications, changes in market prices subsequent to December 31, 2000 were not considered. The spot price for gas at December 31, 2000 was $9.23 per MMBTU. The range of spot prices during the year 2000 was a low of $2.14 and a high of $10.50 and the average was $4.28. The range of spot prices during the first six months of 2001 has been from $3.21 to $10.69 with

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an average of $5.34. The Partnership actually received an average price for gas sold of $4.09 during the first six months of 2001. While it may reasonably be anticipated that the prices received by Sterling Gas Drilling Fund 1981 for the sale of its production may be higher or lower than the prices used in this evaluation, as described above, and the operating costs relating to such production may also increase or decrease from existing levels, such possible changes in prices and costs were, in accordance with rules adopted by the SEC, omitted from consideration in making this evaluation for the SEC case. Actual volumes produced, prices received and costs incurred by the partnership may vary significantly from the SEC case.

Capital Resources

The Registrant was formed for the sole purpose of drilling oil and gas wells. The Registrant entered into a drilling contract with an independent contractor in December 1981 for $6,900,000. Pursuant to the terms of this contract, wells have been drilled resulting in thirty-seven producing wells, three non-reserve value information, and such information is available to the Limited Partners pursuant to the buy-out provisions of the Prospectus as previously filed.

During May 2001, PrimeEnergy Management negotiated a Farmout Agreement with Eastern American Energy. (EAE) covering leasehold interests in approximately 5,000 acres in Clay County, West Virginia. Acreage held by Sterling Gas Drilling Fund 1981 Limited Partnership has been included in the Farmout Agreement. This agreement provided for a small cash bonus paid at closing and gives EAE the right but not the obligation to select acreage and drill a deep well on the selected acreage, subject to an overriding royalty interest due to the leasehold owners. This agreement closed in May 2001 and will be in effect until May 1, 2003. Sterling Gas Drilling Fund 1981's share of the acreage bonus was $26,635. There is no guarantee that EAE will exercise their rights under this agreement. After this contract terminates, PrimeEnergy will attempt to find other parties interested in the Partnership's acreage, however there is no guarantee that a new agreement will be made. This opportunity may come up again over the next few years, PrimeEnergy will continue to purse this type of potential revenue if feasible.

Results of Operations

The majority of the Partnership's revenue is from gas production. The gas production remained stable showing very little change, from 45,853 MCF in 2000 to 45,731 MCF in 2001. The average price the Partnership received per MCF was $3.01 in 2000 and $4.09 in 2001. The combination of stable production combined with an increase in average price per MCF resulted in the overall gas revenue's increase from $138,021 in 2000 to $187,085 in 2001. Total operating revenue, which includes a minor amount of oil revenue, increased from $147,764 to $190,661. Production expenses increased from $59,260 in 2000 to $87,017 in 2001. The operator will perform various repairs including but not limited to location work, road repairs, pipeline repairs and additional labor cost as deemed appropriate. During 2001 the Partnership expended some operating funds on more specific repairs. In most cases these types of repairs are determined to be necessary by the operator in order to help maintain or increase overall production. These costs include variable components as well as direct costs which include but are not limited to, small tools, electrical, chemical and labor costs. During 2000 the Partnership expended the majority of its operating funds on light repairs and general upkeep and maintenance at the well and well-site

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The Partnerships other income is a result of a cash bonus paid to the partnership for a two-year farmout agreement. The farmout agreement allows a third party the right to drill a deep well on leasehold acerage owned by the partnership. If the third party exercises their rights with in the two years the Partnership could receive an overriding royalty interest. The amount of the cash bonus paid to the partnership is $26,635.

Overall general and administrative expenses remained stable and showed little change from 2000 to 2001. The amounts charged reflect management's efforts to limit costs, both incurred and allocated to the Registrant. Management continues to reduce third party costs and use in-house resources to provide efficient and timely services to the Partnership. The related party expenses attributable to the affairs and operations of the Partnership, reimbursed to PEMC, are limited to an annual amount not to exceed 5% of the Limited Partners capital contributions. Amounts related to both years are substantially less than the amounts allocable to the Registrant under the Partnership Agreement.

The Partnership records additional depreciation, depletion and amortization to the extent that net capitalized costs exceed the undiscounted future net cash flows attributable to the Partnership properties. The Partnership was not required to revise the property's basis in either 2000 or first six months of 2001. Overall depreciation and depletion was consistent with the current property basis and the rates applied.

PART II

Items 1 through 5 have been omitted in that each item is either inapplicable or the answer is negative.

Item 6. Exhibits and Reports on Form 8-K

The Partnership was not required to file any reports on Form 8-K and no such form was filed during the period covered by this report.

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S I G N A T U R E S

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

STERLING GAS DRILLING FUND 1981

BY: /s/ Charles E. Drimal Jr.

Charles E. Drimal, Jr.

General Partner

August 8, 2001

(date)

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STERLING DRILLING FUND 1981

(a New York Limited Partnership)

Balance Sheets

		June 30, 2001			December 31, 2000
		(unaudited)			(audited)
Assets
Current Assets:
Cash and cash equivalents	$	6	$		3
Due from others		0			0
		---------------			-------------------
Total current assets		6			3

Oil and Gas properties - Successful efforts method:
Leasehold costs		236,502			236,502
Well and related facilities		7,059,494			7,059,494
Less accumulated -Depreciation, depletion and
Amortization		(6,280,531)				(6,248,639)
		---------------			-------------------
		1,015,465			1,047,357
		---------------			-------------------
Total assets	$	1,015,471	$		1,047,360
		=========			===========

Liabilities and Partners' Equity
Current liabilities:
Due to affiliates	$	48,290	$		129,258
		---------------			-------------------
Total current liabilities		48,290			129,258
		---------------			-------------------

Partners' Equity
Limited partners		1,049,728			1,009,209
General partners		(82,547)		(91,107)
		---------------			-------------------
Total partners' equity		967,181			918,102
		---------------			-------------------

Total liabilities and partners' equity	$	1,015,471	$		1,047,360
		=========			===========

See accompanying note to financial statements.

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STERLING DRILLING FUND 1981

(a New York Limited Partnership)

Statement of Operations

(unaudited)

Six Months Ending June 30, 2001

		Limited Partners		General Partners		Total
Revenue:
Operating revenue	$	160,441	$	30,220	$	190,661
Other income		26,369		266		26,635
		-------------		-------------		-------------
Total Revenue		186,810		30,486		217,296
		-------------		-------------		-------------

Costs and Expenses:
Production expense		73,225		13,792		87,017
General and administrative to a related party		35,343		6,657		42,000
General and administrative		6,150		1,158		7,308
Depreciation, depletion and amortization		31,573		319		31,892
		-------------		-------------		-------------
Total Costs and Expenses		146,291		21,926		168,217
		-------------		-------------		-------------
Net Income(Loss)	$	40,519	$	8,560	$	49,079
		========		========		========
Net Income(Loss) per equity unit	$	4.61
		========

See accompanying note to financial statements.

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STERLING DRILLING FUND 1981

(a New York Limited Partnership)

Statement of Operations

Six Months Ending June 30, 2000

		Limited Partners		General Partners		Total
Revenue:
Operating revenue	$	124,343	$	23,421	$	147,764
Other income		0		0		0
		-------------		-------------		-------------
Total Revenue		124,343		23,421		147,764
		-------------		-------------		-------------

Costs and Expenses:
Production expense		49,867		9,393		59,260
General and administrative to a related party		42,074		7,924		49,998
General and administrative		9,283		1,748		11,031
Depreciation, depletion and
Amortization		37,271		376		37,647
		-------------		-------------		-------------
Total Costs and Expenses		138,495		19,441		157,936
		-------------		-------------		-------------
Net Income(Loss)	$	(14,152)	$	3,980	$	(10,172)
		========		========		========
Net Income(Loss) per equity unit	$	(1.61)
		======

See accompanying note to financial statements.

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STERLING DRILLING FUND 1981

(a New York Limited Partnership)

Statement of Operations

(unaudited)

Three Months Ending June 30, 2001

		Limited Partners		General Partners		Total
Revenue:
Operating revenue	$	87,462	$	16,474	$	103,936
Other income		26,369		266		26,635
		------------		------------		------------
Total Revenue		113,831		16,740		130,571
		------------		------------		------------

Costs and Expenses:
Production expense		34,016		6,407		40,423
General and administrative to a related party		17,671		3,329		21,000
General and administrative		2,962		557		3,519
Depreciation, depletion and amortization		15,786		160		15,946
		------------		------------		------------
Total Costs and Expenses		70,435		10,453		80,888
		------------		------------		------------
Net Income(Loss)	$	43,396	$	6,287	$	49,683
		=======		=======		========
Net Income(Loss) per equity unit	$	4.94
		=======

See accompanying note to financial statements.

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STERLING DRILLING FUND 1981

(a New York Limited Partnership)

Statement of Operations

(unaudited)

				Three Months Ending June 30, 2000
		Limited Partners			General Partners		Total
Revenue:
Operating revenue	$	57,204	$		10,775	$	67,979
		------------			------------		------------
Total Revenue		57,204			10,775		67,979
		------------			------------		------------

Costs and Expenses:
Production expense		23,444			4,416		27,860
General and administrative to a related party		21,037			3,962		24,999
General and administrative		5,481			1,032		6,513
Depreciation, depletion and amortization		18,636			188		18,824
		------------			------------		------------
Total Costs and Expenses		68,598			9,598		78,196
		------------			------------		------------
Net Income(Loss)	$	(11,394)	$		1,177	$	(10,217)
		=======			=======		========
Net Income(Loss) per equity unit	$	(1.30)
		=======

See accompanying note to financial statements.

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STERLING DRILLING FUND 1981

(a New York Limited Partnership)

Statement of Changes in Partners' Equity

(unaudited)

Six Months Ending June 30, 2001

		Limited Partners			General Partners		Total

Balance at beginning of period	$	1,009,209	$		(91,107)	$	918,102
Net Income(Loss)		40,519			8,560		49,079
		--------------			-------------		---------------
Balance at end of period	$	1,049,728	$		(82,547)	$	967,181
		========			========		=========

				Six Months Ending June 30, 2000

		Limited Partners			General Partners		Total

Balance at beginning of period	$	1,031,925	$		(98,812)	$	933,113
Net Income(Loss)		(14,152)			3,980		(10,172)
		--------------			------------		--------------
Balance at end of period	$	1,017,773	$		(94,832)	$	922,941
		========			========		=========

See accompanying note to financial statements.

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STERLING DRILLING FUND 1981

(a New York Limited Partnership)

Statement of Changes in Partners' Equity

(unaudited)

Three Months Ending June 30, 2001

		Limited Partners				General Partners		Total

Balance at beginning of period	$	1,006,332	$			(88,834)	$	917,498
Net Income(Loss)		43,396				6,287		49,683
		------------				------------		-------------
Balance at end of period	$	1,049,728	$			(82,547)	$	967,181
		=======				=======		========
Three Months Ended June 30, 2000
		Limited Partners			General Partners			Total

Balance at beginning of period	$	1,029,167		$	(96,009)		$	933,158
Net Income(Loss)		(11,394)			1,177			(10,217)
		-------------			------------			-------------
Balance at end of period	$	1,017,773		$	(94,832)		$	922,941
		========			=======			========

See accompanying note to financial statements.

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STERLING DRILLING FUND 1981

(a New York Limited Partnership)

Statement of Cash Flows

(unaudited)

		Six Months Ended June 30, 2001		Six months Ended June 30, 2000

Net cash provided by operating activities	$	3	$	19,743
		--------------		--------------
Cash used in investment activities:
Investment in wells and related Facilities		0		(19,748)
		--------------		--------------
Net Cash used in investment Activities		0		(19,748)
		-------------		--------------
Net increase(decrease) in cash and cash equivalents		3		(5)
Cash and cash equivalents at beginning of period		3		7
		--------------		--------------
Cash and cash equivalents at end of period	$	6	$	2
		=========		========

See accompanying note to financial statements.

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STERLING GAS DRILLING FUND 1981

(a New York limited partnership)

Note to Financial Statements

June 30, 2001

1. The accompanying statements for the period ending June 30, 2001 are unaudited but reflect all the adjustments necessary to present fairly the results of operations.

STERLING GAS DRILLING FUND 1981 10-Q