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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 September 30, 2000

/ /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 September 30, 2000 and December 31, 1999.

Statements of Operations for the Nine and Three Months Ended September 30,

2000 and 1999.

Statements of Changes in Partners' Equity for the Nine and Three Months Ended September 30, 2000 and 1999.

Statements of Cash Flows for the Nine Months Ended September 30, 2000

and 1999.

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 September 30, 2000, 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, 1999 was approximately $686,493 as compared to December 31, 1998, of about $807,750. Overall reservoir engineering is a subjective process of estimating underground accumulations of gas and oil that can not be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of the engineering and geological interpretation and judgment. Accordingly, reserve estimates are generally different from the quantities of gas and oil that are ultimately recovered and such differences may have a material impact on the Partnership's financial results and future liquidity.

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.

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Results of Operations -

The majority of the Partnership's revenue is from gas production. The gas production remained stable showing very little change, from 69,381 MCF in 1999 to 69,053 MCF in 2000. The average price the Partnership received per MCF was $2.64 in 1999 and $2.98 in 2000. The combination of stable production combined with an increase in average price per mcf resulted in the overall operating revenue's increase from $185,360 in 1999 to $213,758 in 2000. Production expenses decreased slightly from $95,562 in 1999 to $87,970 in 2000. 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 1999 the Partnership expended the majority of its operating funds on light repairs and general upkeep and maintenance at the well and well-site. During 2000 the Partnership expended some operating funds on capitalizable repairs. In most cases these types of repairs are decided by the operator in order to help maintain or increase overall production. The lease operating costs for 2000 related to normal maintenance and general upkeep at the well or well site.

Overall general and administrative expenses remained stable and showed little change from 1999 to 2000. 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 1999 or first nine monthsof 2000. 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.

Exhibit 27 - Financial Data Schedule is attached to the electronic filing of 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

November 9, 2000

(date)

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STERLING DRILLING FUND 1981

(a New York Limited Partnership)

Balance Sheets

		September 30, 2000			December 31, 1999
		(unaudited)			(audited)
Assets
Current Assets:
Cash and cash equivalents	$	5	$		7
Due from others		26,753			0
		-------------------			-------------------
Total current assets		26,758			7

Oil and Gas properties - Successful efforts method:
Leasehold costs		236,502			236,502
Well and related facilities		7,056,395			7,036,647
Less accumulated -Depreciation, depletion and
Amortization		(6,237,204)				(6,180,734)
		-------------------			-------------------
		1,055,693			1,092,415
		-------------------			-------------------
Total assets	$	1,082,451	$		1,092,422
		===========			===========

Liabilities and Partners' Equity
Current liabilities:
Due to affiliates	$	168,749	$		159,309
		-------------------			-------------------
Total current liabilities		168,749			159,309
		-------------------			-------------------

Partners' Equity
Limited partners		1,007,205			1,031,925
General partners		(93,503)		(98,812)
		-------------------			-------------------
Total partners' equity		913,702			933,113
		-------------------			-------------------

Total liabilities and partners' equity	$	1,082,451	$		1,092,422
		===========			===========

See accompanying note to financial statements.

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STERLING DRILLING FUND 1981

(a New York Limited Partnership)

Statement of Operations

(unaudited)

Nine Months Ending

September 30, 2000

		Limited Partners		General Partners		Total
Revenue:
Operating revenue	$	179,877	$	33,881	$	213,758
		---------------		---------------		---------------
Total Revenue		179,877		33,881		213,758
		---------------		---------------		---------------

Costs and Expenses:
Production expense		74,027		13,943		87,970
General and administrative to a related party		63,110		11,887		74,997
General and administrative		11,555		2,177		13,732
Depreciation, depletion and
amortization		55,905		565		56,470
		---------------		---------------		---------------
Total Costs and Expenses		204,597		28,572		233,169
		---------------		---------------		---------------
Net Income(Loss)	$	(24,720)	$	5,309	$	(19,411)
		=========		=========		=========
Net Income(Loss) per equity unit	$	(2.81)
		=========

See accompanying note to financial statements.

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STERLING DRILLING FUND 1981

(a New York Limited Partnership)

Statement of Operations

Nine Months Ending

September 30, 1999

		Limited Partners		General Partners		Total
Revenue:
Operating revenue	$	155,981	$	29,379	$	185,360
Other revenue		1,238		233		1,471
		---------------		---------------		---------------
Total Revenue		157,219		29,612		186,831
		---------------		---------------		---------------

Costs and Expenses:
Production expense		80,415		15,147		95,562
General and administrative to a related party		63,113		11,888		75,001
General and administrative		10,140		1,910		12,050
Depreciation, depletion and
amortization		56,344		569		56,913
		---------------		---------------		---------------
Total Costs and Expenses		210,012		29,514		239,526
		---------------		---------------		---------------
Net Income(Loss)	$	(52,793)	$	98	$	(52,695)
		=========		=========		========
Net Income(Loss) per equity unit	$	(6.01)
		======

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

September 30, 2000

		Limited Partners		General Partners		Total
Revenue:
Operating revenue	$	55,534	$	10,460	$	65,994
		--------------		--------------		--------------
Total Revenue		55,534		10,460		65,994
		--------------		--------------		--------------

Costs and Expenses:
Production expense		24,160		4,550		28,710
General and administrative to a related party		21,036		3,963		24,999
General and administrative		2,272		429		2,701
Depreciation, depletion and amortization		18,634		189		18823
		--------------		--------------		--------------
Total Costs and Expenses		66,102		9,131		75,233
		--------------		--------------		--------------
Net Income(Loss)	$	(10,568)	$	1,329	$	(9,239)
		========		========		=========
Net Income(Loss) per equity unit	$	(1.20)
		========

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

September 30, 1999

		Limited Partners		General Partners		Total
Revenue:
Operating revenue	$	57,288	$	10,789	$	68,077
		--------------		--------------		--------------
Total Revenue		57,288		10,789		68,077
		--------------		--------------		--------------

Costs and Expenses:
Production expense		26,226		4,940		31,166
General and administrative to a related party		21,036		3,963		24,999
General and administrative		3,116		587		3,703
Depreciation, depletion and amortization		18,781		190		18,971
		--------------		--------------		--------------
Total Costs and Expenses		69,159		9,680		78,839
		--------------		--------------		--------------
Net Income(Loss)	$	(11,871)	$	1,109	$	(10,762)
		========		========		=========
Net Income(Loss) per equity unit	$	(1.35)
		========

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)

Nine Months Ended

September 30, 2000

		Limited Partners		General Partners		Total

Balance at beginning of period	$	1,031,925	$	(98,812)	$	933,113
Net Income(Loss)		(24,720)		5,309		(19,411)
		----------------		---------------		-----------------
Balance at end of period	$	1,007,205	$	(93,503)	$	913,702
		=========		=========		===========
Nine Months Ended September 30, 1999
		Limited Partners		General Partners		Total

Balance at beginning of period	$	1,107,736	$	(98,537)	$	1,009,199
Net Income(Loss)		(52,793)		98		(52,695)
		----------------		--------------		-------------------
Balance at end of period	$	1,054,943	$	(98,439)	$	956,504
		=========		========		===========

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 Ended

September 30, 2000

		Limited Partners				General Partners		Total

Balance at beginning of period	$	1,017,773	$			(94,832)	$	922,941
Net Income(Loss)		(10,568)				1,329		(9,239)
		--------------				--------------		-----------------
Balance at end of period	$	1,007,205	$			(93,503)	$	913,702
		========				========		==========
Three Months Ended September 30, 1999
		Limited Partners			General Partners			Total

Balance at beginning of period	$	1,066,814		$	(99,548)		$	967,266
Net Income(Loss)		(11,871)			1,109			(10,762)
		-----------------			-----------------			-----------------
Balance at end of period	$	1,054,943		$	(98,439)		$	956,504
		==========			==========			==========

See accompanying note to financial statements.

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STERLING DRILLING FUND 1981

(a New York Limited Partnership)

Statement of Cash Flows

(unaudited)

		Nine Months Ended September 30, 2000		Nine months Ended September 30, 1999

Net cash provided by operating activities	$	19,746	$	1,236
		-----------------		-----------------
Cash(used in)investment activities:
Investment in wells and related Facilities		(19,748)		(1,243)
		-----------------		-----------------
Net Cash used in investment Activities		(19,748)		(1,243)
		----------------		-----------------
Net increase(decrease) in cash and cash equivalents		(2)		(7)
Cash and cash equivalents at beginning of period		7		19
		-----------------		-----------------
Cash and cash equivalents at end of period	$	5	$	12
		==========		=========

See accompanying note to financial statements.

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STERLING GAS DRILLING FUND 1981

(a New York limited partnership)

Note to Financial Statements

September 30, 2000

1. The accompanying statements for the period ending September 30, 2000 are unaudited but reflect all reflect the adjustments necessary to present fairly the results of operations.

STERLING GAS DRILLING FUND 1981 10-Q