Everflow Eastern Partners 10-Q 2007 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2007

OR

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                    to                     .

Commission File Number 0-19279

EVERFLOW EASTERN PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

Delaware	34-1659910
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

585 West Main Street P.O. Box 629
Canfield, Ohio	44406
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 330-533-2692

     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. Yesþ    Noo

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer as defined in Exchange Act Rule 12b-2.

Large accelerated filero            Accelerated filerþ            Non-accelerated filero

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

     There were 5,643,268 Units of limited partnership interest of the Registrant as of November 5, 2007. The Units generally do not have any voting rights, but, in certain circumstances, the Units are entitled to one vote per Unit.

Except as otherwise indicated, the information contained in this Report is as of September 30, 2007.

EVERFLOW EASTERN PARTNERS, L.P.

INDEX

DESCRIPTION	PAGE NO.
Part I.   Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets September 30, 2007 and December 31, 2006	F-1
Consolidated Statements of Income Three and Nine Months Ended September 30, 2007 and 2006	F-3
Consolidated Statements of Partners’ Equity Nine Months Ended September 30, 2007 and 2006	F-4
Consolidated Statements of Cash Flows Nine Months Ended September 30, 2007 and 2006	F-5
Notes to Unaudited Consolidated Financial Statements	F-6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3. Quantitative and Qualitative Disclosures About Market Risk	6
Item 4. Controls and Procedures	8
Part II.   Other Information
Item 6. Exhibits	9
Signature	10
EX-31.1
EX-31.2
EX-32.1

2

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

September 30, 2007 and December 31, 2006

	September 30,			December 31,
	2007			2006
	(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS
Cash and equivalents	$	2,866,357		$	7,424,183
Investments		9,103,701			8,580,618
Accounts receivable:
Production		6,323,611			7,833,519
Employees		305,733			157,093
Joint venture partners		72,660			6,035
Other		46,230			31,308
Total current assets		18,718,292			24,032,756
PROPERTY AND EQUIPMENT
Proved properties (successful efforts accounting method)		147,081,812			140,443,938
Pipeline and support equipment		532,822			528,193
Corporate and other		1,813,213			1,776,217
		149,427,847			142,748,348
Less accumulated depreciation, depletion, amortization and write down		(98,329,570	)		(94,401,699	)
		51,098,277			48,346,649
OTHER ASSETS		77,546			82,902
	$	69,894,115		$	72,462,307

See notes to unaudited consolidated financial statements.

F-1

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

September 30, 2007 and December 31, 2006

	September 30,		December 31,
	2007		2006
	(Unaudited)		(Audited)
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES
Accounts payable:
Production and other	$	948,845	$	838,539
Joint venture partners		175,650		90,834
Accrued expenses		774,346		955,260
Total current liabilities		1,898,841		1,884,633
DEFERRED INCOME TAXES		435,000		435,000
ASSET RETIREMENT OBLIGATIONS		1,967,187		1,743,707
COMMITMENTS AND CONTINGENCIES		—		—
LIMITED PARTNERS’ EQUITY, SUBJECT TO REPURCHASE RIGHT
Authorized - 8,000,000 Units
Issued and outstanding - 5,643,268 and 5,644,094 Units, respectively		64,831,882		67,595,381
GENERAL PARTNER’S EQUITY		761,205		803,586
Total partners’ equity		65,593,087		68,398,967
	$	69,894,115	$	72,462,307

See notes to unaudited consolidated financial statements.

F-2

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

Three and Nine Months Ended September 30, 2007 and 2006
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
REVENUES
Oil and gas sales	$	7,918,189	$	8,472,660	$	25,259,879	$	25,804,667
Well management and operating		132,090		132,750		411,454		416,873
Other		1,791		1,939		2,315		4,576
		8,052,070		8,607,349		25,673,648		26,226,116
DIRECT COST OF REVENUES
Production costs		882,854		893,135		2,899,175		2,697,184
Well management and operating		37,921		38,453		153,059		156,391
Depreciation, depletion and amortization		1,369,159		1,227,941		4,080,283		3,660,722
Accretion expense		57,900		51,000		173,600		153,000
Total direct cost of revenues		2,347,834		2,210,529		7,306,117		6,667,297
GENERAL AND ADMINISTRATIVE EXPENSE		456,745		500,575		1,430,935		1,346,587
Total cost of revenues		2,804,579		2,711,104		8,737,052		8,013,884
INCOME FROM OPERATIONS		5,247,491		5,896,245		16,936,596		18,212,232
OTHER INCOME
Interest		145,181		192,641		542,951		538,071
Gain (loss) on sale of property and equipment		13,145		—		13,145		(34,526	)
		158,326		192,641		556,096		503,545
INCOME BEFORE INCOME TAXES		5,405,817		6,088,886		17,492,692		18,715,777
INCOME TAXES
Current		25,000		70,000		300,000		120,000
Deferred		—		150,000		—		200,000
		25,000		220,000		300,000		320,000
NET INCOME	$	5,380,817	$	5,868,886	$	17,192,692	$	18,395,777
Allocation of Partnership Net Income
Limited Partners	$	5,317,591	$	5,799,935	$	16,990,694	$	18,180,437
General Partner		63,226		68,951		201,998		215,340
	$	5,380,817	$	5,868,886	$	17,192,692	$	18,395,777
Net Income per unit	$	0.94	$	1.03	$	3.01	$	3.21

See notes to unaudited consolidated financial statements.

F-3

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

Nine Months Ended September 30, 2007 and 2006
(Unaudited)

	2007			2006
PARTNERS’ EQUITY — JANUARY 1	$	68,398,967		$	67,418,555
Net income		17,192,692			18,395,777
Cash distributions ($3.50 per Unit in 2007 and $3.00 per Unit in 2006)		(19,987,933	)		(17,179,452	)
Repurchase Right — Units tendered		(10,639	)		(699,456	)
PARTNERS’ EQUITY — SEPTEMBER 30	$	65,593,087		$	67,935,424

See notes to unaudited consolidated financial statements.

F-4

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2007 and 2006
(Unaudited)

	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	17,192,692		$	18,395,777
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		4,135,338			3,714,888
Accretion expense		173,600			153,000
(Gain) loss on sale of property and equipment		(13,145	)		34,526
Deferred income taxes		—			200,000
Changes in assets and liabilities:
Accounts receivable		1,443,283			1,601,707
Other current assets		(14,922	)		3,770
Other assets		5,356			28,499
Accounts payable		195,122			(520,656	)
Accrued expenses		(182,914	)		(120,971	)
Total adjustments		5,741,718			5,094,763
Net cash provided by operating activities		22,934,410			23,490,540
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments		(23,012,176	)		—
Proceeds on sale of investments		22,489,093			—
Proceeds received on receivables from employees		70,390			44,133
Advances disbursed to employees		(219,030	)		(61,819	)
Purchase of property and equipment		(6,868,841	)		(3,113,655	)
Proceeds on sale of property and equipment		46,900			—
Net cash used by investing activities		(7,493,664	)		(3,131,341	)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions		(19,987,933	)		(17,179,452	)
Repurchase of units		(10,639	)		(699,456	)
Net cash used by financing activities		(19,998,572	)		(17,878,908	)
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS		(4,557,826	)		2,480,291
CASH AND EQUIVALENTS AT BEGINNING OF YEAR		7,424,183			13,371,923
CASH AND EQUIVALENTS AT END OF THIRD QUARTER	$	2,866,357		$	15,852,214
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes	$	369,520		$	90,000

See notes to unaudited consolidated financial statements.

F-5

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Summary of Significant Accounting Policies

A.	Interim Financial Statements - The interim consolidated financial statements included herein have been prepared by the management of Everflow Eastern Partners, L.P., without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations have been made.
	The accompanying condensed consolidated financial statements are presented in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America, or those normally made in an Annual Report on Form 10-K. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto which are incorporated in Everflow Eastern Partners, L.P.’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2007.
	The results of operations for the interim periods may not necessarily be indicative of the results to be expected for the full year.
B.	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. The Company’s financial statements are based on a number of significant estimates, including oil and gas reserve quantities which are the basis for the calculation of depreciation, depletion and impairment of oil and gas properties, and timing and costs associated with its retirement obligations.
C.	Organization - Everflow Eastern Partners, L.P. (“Everflow”) is a Delaware limited partnership which was organized in September 1990 to engage in the business of oil and gas acquisition, exploration development and production. Everflow was formed to consolidate the business and oil and gas properties of Everflow Eastern, Inc. (“EEI”) and Subsidiaries and the oil and gas properties owned by certain

F-6

EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Note 1. Organization and Summary of Significant Accounting Policies (Continued)

C.	Organization (Continued)
	limited partnership and working interest programs managed or sponsored by EEI (“EEI Programs” or “the Programs”).
	Everflow Management Limited, LLC, an Ohio limited liability company, is the general partner of Everflow, and, as such, is authorized to perform all acts necessary or desirable to carry out the purposes and conduct of the business of Everflow. The members of Everflow Management Limited, LLC are Everflow Management Corporation (“EMC”), two individuals who are Officers and Directors of EEI, and Sykes Associates, LLC, a limited liability company owned by four adult children of Robert F. Sykes, the Chairman of the Board of EEI. EMC is an Ohio corporation formed in September 1990 and is the managing member of Everflow Management Limited, LLC.
D.	Principles of Consolidation - The consolidated financial statements include the accounts of Everflow, its wholly owned subsidiaries, including EEI and EEI’s wholly owned subsidiaries, and investments in oil and gas drilling and income partnerships (collectively, “the Company”) which are accounted for under the proportional consolidation method. All significant accounts and transactions between the consolidated entities have been eliminated.
E.	Asset Retirement Obligations – The Company follows SFAS No. 143, which requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. For the Company, these obligations include dismantlement, plugging and abandonment of oil and gas wells and associated pipelines and equipment. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depleted over the estimated useful life of the related asset.
	The schedule below is a reconciliation of the Company’s liability for the nine months ended September 30, 2007 and 2006:

F-7

EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Note 1. Organization and Summary of Significant Accounting Policies (Continued)

E. Asset Retirement Obligations (Continued)

	Asset Retirement Obligations
	Nine Months Ended September 30,
	2007			2006
Beginning of period	$	2,103,707		$	1,854,996
Liabilities incurred		52,480			18,560
Liabilities settled		(2,600	)		—
Accretion expense		173,600			153,000
Total	$	2,327,187		$	2,026,556

	At September 30, 2007 and December 31, 2006, the asset retirement obligations are included in accrued expenses (current portion) and asset retirement obligations (non-current portion) in the Company’s consolidated balance sheets. The current portion of the asset retirement obligations was $360,000 at September 30, 2007 and December 31, 2006.
F.	Allocation of Income and Per Unit Data - Under the terms of the limited partnership agreement, initially, 99% of revenues and costs were allocated to the Unitholders (the limited partners) and 1% of revenues and costs were allocated to the General Partner. Such allocation has changed and will change in the future due to Unitholders electing to exercise the Repurchase Right (see Note 3).
	Earnings per limited partner Unit have been computed based on the weighted average number of Units outstanding, during the period for each period presented. Average outstanding Units for earnings per Unit calculations amounted to 5,643,268 and 5,643,819 for the three and nine months ended September 30, 2007, respectively, and 5,644,094 and 5,664,483 for the three and nine months ended September 30, 2006, respectively.
G.	Income Taxes – In June 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial

F-8

EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Note 1. Organization and Summary of Significant Accounting Policies (Continued)

G.	Income Taxes (Continued)
	statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” FIN 48
	prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
	The Company adopted the provisions of FIN 48 on January 1, 2007. The implementation of FIN 48 did not have a material impact on the Company’s financial statements, since EEI is the only tax paying entity and represents less than 10% of the Company’s total taxable income. There were no unrecognized tax benefits as of the date of adoption of FIN 48 and therefore, there is no anticipated effect upon the Company’s effective tax rate. Interest, if any, under FIN 48 will be classified in the financial statements as a component of interest expense and statutory penalties, if any, will be classified as a component of general and administrative expense.
	As of January 1, 2007, the Company’s 2003-2006 income tax years remain subject to examination by the Internal Revenue Service, as well as the Ohio Department of Taxation. In addition, Ohio Franchise Tax calendar years 2002-2006 remain subject to examination.
H.	New Accounting Standards – In September 2006, the FASB issued SFAS No. 157. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, where fair value has been determined to be the relevant measurement attribute. This statement is effective for fiscal periods beginning after November 15, 2007. Adoption of this standard is not expected to materially impact the Company’s financial statements.
	In February 2007, the FASB issued SFAS No. 159. This Statement permits the option to choose to measure selected financial assets and liabilities at fair value. If the fair value option is elected, reporting of unrealized gains and losses on those assets and liabilities occurs in each subsequent reporting date. This statement is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact, if any, that the adoption of SFAS No. 159 will have on its financial statements.

F-9

EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Note 1. Organization and Summary of Significant Accounting Policies (Continued)

I. Reclassification – Certain prior period amounts have been reclassified to conform with the current period’s presentation.

Note 2. Credit Facilities and Long-Term Debt

The Company had a revolving line of credit that expired in May 2003. The Company anticipates entering into a commitment for a new line of credit agreement in the event funds are needed for the purpose of funding future annual repurchase rights (see Note 3). The new line of credit would be utilized in the event the Company receives tenders pursuant to the repurchase rights in excess of cash on hand.

There were no borrowings outstanding during 2007 and 2006. The Company would be exposed to market risk from changes in interest rates if it funds its future operations through long-term or short-term borrowings.

Note 3. Partners’ Equity

Units represent limited partnership interests in Everflow. The Units are transferable subject only to the approval of any transfer by Everflow Management Limited, LLC and to the laws governing the transfer of securities. The Units are not listed for trading on any securities exchange nor are they quoted in the automated quotation system of a registered securities association. However, Unitholders have an opportunity to require Everflow to repurchase their Units pursuant to the Repurchase Right.

Under the terms of the limited partnership agreement, initially, 99% of revenues and costs were allocated to the Unitholders (the limited partners) and 1% of revenues and costs were allocated to the General Partner. Such allocation has changed and will change in the future due to Unitholders electing to exercise the Repurchase Right.

The partnership agreement provides that Everflow will repurchase for cash up to 10% of the then outstanding Units, to the extent Unitholders offer Units to Everflow for repurchase pursuant to the Repurchase Right. The Repurchase Right entitles any Unitholder, between May 1 and June 30 of each year, to notify Everflow that the Unitholder elects to exercise the Repurchase Right and have Everflow acquire certain or all Units. The price to be paid for any such Units is calculated based upon the audited financial statements of the Company as of December 31 of the year prior to the year in which the Repurchase Right is to be effective and independently prepared reserve reports. The price per Unit equals 66% of the adjusted book value of the Company allocable to the Units, divided by the number of Units outstanding

F-10

EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Note 3. Partners’ Equity (Continued)

at the beginning of the year in which the applicable Repurchase Right is to be effective less all Interim Cash Distributions received by a Unitholder. The adjusted book value is calculated by adding partners’ equity, the Standardized Measure of Discounted Future Net Cash Flows and the tax effect included in the Standardized Measure and subtracting from that sum the carrying value of oil and gas properties (net of undeveloped lease costs). If more than 10% of the then outstanding Units are tendered during any period during which the Repurchase Right is to be effective, the Investors’ Units tendered shall be prorated for purposes of calculating the actual number of Units to be acquired during any such period. The price associated with the Repurchase Right, based upon the December 31, 2006 calculation, is $12.88 per Unit, net of the distributions ($2.00 per Unit in total) made in January and April 2007. The repurchase of Units in the amount of $10,639 was paid in July 2007.

Units repurchased pursuant to the Repurchase Right for each of the last five years are as follows:

	Calculated								Units Out-
	Price for		Less				# of		standing
	Repurchase		Interim		Net		Units		Following
Year	Right		Distributions		Price Paid		Repurchased		Repurchase
2003	$	8.94	$	.50	$	8.44		34,034		5,714,739
2004	$	13.44	$	1.00	$	12.44		23,865		5,690,874
2005	$	15.46	$	1.00	$	14.46		16,196		5,674,678
2006	$	24.37	$	1.50	$	22.87		30,584		5,644,094
2007	$	14.88	$	2.00	$	12.88		826		5,643,268

Note 4. Gas Purchase Agreements

The Company has numerous contracts with Dominion Field Services, Inc. and its affiliates (“Dominion”) to sell and deliver certain quantities of natural gas production on a monthly basis through October 2009. The agreements with Dominion provide for fixed pricing with current monthly weighted average pricing provisions ranging from $9.00 to $10.06 per MCF. The Company also has two annual contracts with Interstate Gas Supply, Inc. (“IGS”), which obligates IGS to purchase, and the Company to sell and deliver certain quantities of natural gas production on a monthly basis through October 2009. The agreement with IGS provides for fixed pricing with current monthly weighted average pricing provisions ranging from $9.00 to $10.03 per MCF. Fixed pricing with both Dominion and IGS applies to certain fixed quantities on a monthly basis with excess monthly quantities being priced based on the current spot market price. The impact on the Company cannot be fully measured until actual production volumes and prices are determined.

F-11

EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

Note 5. Commitments and Contingencies

Everflow paid a quarterly dividend in October 2007 of $0.50 per Unit to unitholders of record on September 30, 2007. The distribution amounted to approximately $2,855,000.

The Company operates exclusively in the United States, almost entirely in Ohio and Pennsylvania, in the business of oil and gas acquisition, exploration, development and production. The Company operates in an environment with many financial risks, including, but not limited to, the ability to acquire additional economically recoverable oil and gas reserves, the inherent risks of the search for, development of and production of oil and gas, the ability to sell oil and gas at prices which will provide attractive rates of return, the volatility and seasonality of oil and gas production and prices, and the highly competitive and, at times, seasonal nature of the industry and worldwide economic conditions. The Company’s ability to expand its reserve base and diversify its operations is also dependent upon the Company’s ability to obtain the necessary capital through operating cash flow, borrowings or equity offerings. Various federal, state and governmental agencies are considering, and some have adopted, laws and regulations regarding environmental protection which could adversely affect the proposed business activities of the Company. The Company cannot predict what effect, if any, current and future regulations may have on the operations of the Company.

The Company has significant natural gas delivery commitments to Dominion and IGS, its major customers. Management believes the Company can meet its delivery commitments based on estimated production. If, however, the Company cannot meet its delivery commitments, it will purchase gas at market prices to meet such commitments which will result in a gain or loss for the difference between the delivery commitment price and the price the Company is able to purchase the gas for redelivery (resale) to its customers.

F-12

Part I:  Financial Information

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

     The following table summarizes the Company’s financial position at September 30, 2007 and December 31, 2006:

	September 30, 2007					December 31, 2006
(Amounts in Thousands)	Amount		%			Amount		%
Working capital	$	16,819		25	%	$	22,148		31	%
Property and equipment (net)		51,098		75			48,347		69
Other		78		—			83		—
Total	$	67,995		100	%	$	70,578		100	%
Deferred income taxes	$	435		1	%	$	435		1	%
Long-term liabilities		1,967		3			1,744		2
Partners’ equity		65,593		96			68,399		97
Total	$	67,995		100	%	$	70,578		100	%

     Working capital of $16.8 million as of September 30, 2007 represented a decrease of approximately $5.3 million from December 31, 2006 due primarily to a decrease in cash and equivalents resulting primarily from purchases of property and equipment and quarterly distributions, and a decrease in accounts receivable from production. These decreases were partially offset by an increase in investments.

     Property and equipment (net) of $51.1 million as of September 30, 2007 represented an increase of approximately $2.8 million from December 31, 2006 due primarily to the additional drilling of oil and gas properties.

     The Company had a revolving credit facility that expired in May 2003. The Company had no borrowings in 2006 or 2007 and no principal indebtedness was outstanding as of November 5, 2007. If necessary, the Company may enter into a new credit agreement for the purpose of funding future annual repurchase rights, although there is no assurance that additional financing will be available on terms as favorable as the previous credit facility, if at all. The Company currently has no alternate financing plan, nor does it anticipate that one will be necessary. The Company used cash on hand to fund the payment of a quarterly distribution amounting to approximately $2.9 million in October 2007.

3

     The Company’s cash flow from operations before the change in working capital was $21.5 million, a decrease of $1.0 million, or 5%, during the nine months ended September 30, 2007 as compared to the same period in 2006. Changes in working capital from operations other than cash and equivalents increased cash by $1.4 million during the nine months ended September 30, 2007 and $964,000 during the nine months ended September 30, 2006 primarily due to a decrease in accounts receivable resulting from timing differences in the receipt of production revenues.

     Cash flows provided by operating activities were $22.9 million for the nine months ended September 30, 2007. Cash was primarily used in investing and financing activities to purchase property and equipment, purchase investments, repurchase units of limited partnership interest of the Company (“Units”) and pay quarterly distributions.

     Management of the Company believes existing cash flows should be sufficient to meet the funding requirements of ongoing operations, capital investments to develop oil and gas properties, the repurchase of Units pursuant to the terms of the Company’s Agreement of Limited Partnership dated as of September 14, 1990 (the “Repurchase Right”) and the payment of quarterly distributions.

     The Company has numerous contracts with Dominion Field Services, Inc. and its affiliates (“Dominion”) to sell and deliver certain quantities of natural gas production on a monthly basis through October 2009. The agreements with Dominion provide for fixed pricing with current monthly weighted average pricing provisions ranging from $9.00 to $10.06 per MCF. The Company also has two annual contracts with Interstate Gas Supply, Inc. (“IGS”), which obligates IGS to purchase, and the Company to sell and deliver certain quantities of natural gas production on a monthly basis through October 2009. The agreement with IGS provides for fixed pricing with current monthly weighted average pricing provisions ranging from $9.00 to $10.03 per MCF. Fixed pricing with both Dominion and IGS applies to certain fixed quantities on a monthly basis with excess monthly quantities being priced based on the current spot market price. The impact on the Company cannot be fully measured until actual production volumes and prices are determined.

Results of Operations

     The following table and discussion is a review of the results of operations of the Company for the three and nine months ended September 30, 2007 and 2006. All items in the table are calculated as a percentage of total revenues. This table should be read in conjunction with the discussions of each item below:

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	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2007			2006			2007			2006
Revenues:
Oil and gas sales		98	%		98	%		98	%		98	%
Well management and operating		2			2			2			2
Total Revenues		100			100			100			100
Expenses:
Production costs		11			10			11			10
Well management and operating		—			—			1			1
Depreciation, depletion and amortization		17			14			16			14
Accretion expense		1			1			1			1
General and administrative		6			6			5			5
Other		(2	)		(2	)		(2	)		( 2	)
Current income taxes		—			1			1			—
Deferred income taxes		—			2			—			1
Total Expenses		33			32			33			30
Net Income		67	%		68	%		67	%		70	%

     Revenues for the three and nine months ended September 30, 2007 decreased $555,000 and $552,000, respectively, compared to the same periods in 2006. These decreases were due primarily to decreases in oil and gas sales during the three and nine months ended September 30, 2007 compared to the same periods in 2006.

     Oil and gas sales decreased $554,000, or 7%, during the three months ended September 30, 2007 compared to the same period in 2006. Oil and gas sales decreased $545,000, or 2%, during the nine months ended September 30, 2007 compared to the same period in 2006. These decreases are the result of lower natural gas production during the three and nine months ended September 30, 2007 compared to the same periods in 2006.

     Production costs decreased $10,000, or 1%, during the three months ended September 30, 2007 compared to the same period in 2006. Production costs increased $202,000, or 7%, during the nine months ended September 30, 2007 compared to the same period in 2006. The decrease during the three months ended September 30, 2007 is the result of lower operating costs from a reduction in the number of producing properties due to shut-ins during summer months. The increase during the nine months ended September 30, 2007 is the result of higher operating costs during the first two quarters of 2007, primarily from an increase in the number of producing properties compared to the same period in 2006.

     Depreciation, depletion and amortization increased $141,000, or 12%, during the three months ended September 30, 2007 compared to the same period in 2006. Depreciation, depletion and amortization increased $420,000, or 11%, during the nine months ended September 30, 2007 compared to the same period in 2006. The primary reason for these increases is the result of a decrease in oil and gas reserves that resulted from lower year-end pricing for estimated future production.

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     Accretion expense increased $7,000, or 14% and $21,000, or 13% during three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006. Increases in asset retirement obligations are primarily responsible for these increases.

     General and administrative expenses decreased $44,000, or 9%, during the three months ended September 30, 2007 compared with the same period in 2006. General and administrative expenses increased $84,000, or 6%, during the nine months ended September 30, 2007 compared to the same period in 2006. The primary reason for the decrease during the three months ended September 30, 2007 compared to the same period in 2006 was due to a reduction in consulting services, legal costs and health insurance benefits resulting from a change in health insurance carriers. The primary reason for the increase during the nine months ended September 30, 2007 was due to higher overhead expenses during the first two quarters of 2007 associated with the land and lease acquisition department as a result of the Company’s efforts to increase its undeveloped lease inventory.

     Net other income decreased $34,000, or 18%, and increased $53,000, or 10%, during the three and nine months ended September 30, 2007 compared to the same period in 2006. The decrease during the three months ended September 30, 2007 is primarily the result of a decrease in interest income earned on lower cash and equivalent balances and investments. The increase during the nine months ended September 30, 2007 is primarily the result of the recognition of a gain on sale of oil and gas properties during 2007 compared to the recognition of a loss on sale of a corporate asset during 2006.

     The Company reported net income of $5.4 million, a decrease of $488,000, or 8%, during the three months ended September 30, 2007 compared to the same period in 2006. The Company reported net income of $17.2 million, a decrease of $1.2 million, or 7%, during the nine months ended September 30, 2007 compared to the same period in 2006. The primary reason for the decreases in net income was decreased oil and gas sales and increases in depreciation, depletion and amortization during the three and nine months ended September 30, 2007. Net income represented 67% and 68% of total revenues during the three months ended September 30, 2007 and 2006, respectively. Net income represented 67% and 70% of total revenues during the nine months ended September 30, 2007 and 2006, respectively.

Critical Accounting Policies

     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. The critical accounting policies that affect the Company’s more complex judgments and estimates are described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

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Forward-Looking Statements

     Except for historical financial information contained in this Form 10-Q, the statements made in this report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, (“Exchange Act”). In addition, words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, variations of such words and similar expressions are intended to identify forward-looking statements. Factors that may cause actual results to differ materially from those in the forward-looking statements include price fluctuations in the gas market in the Appalachian Basin, actual oil and gas production and the weather in the Northeast Ohio area and the ability to locate economically productive oil and gas prospects for development by the Company. In addition, any forward-looking statements speak only as of the date on which such statement is made and the Company does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changes in oil and gas prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market-risk exposure. All of our market-risk sensitive instruments were entered into for purposes other than trading. All accounts are U.S. dollar denominated.

     There were no borrowings during 2007 and 2006. The Company would be exposed to market risk from changes in interest rates if it funds its future operations through long-term or short-term borrowings.

     The Company is also exposed to market risk from changes in commodity prices. Realized pricing is primarily driven by the prevailing worldwide prices for crude oil and spot market prices applicable to United States natural gas production. Pricing for gas and oil production has been volatile and unpredictable for many years. These market risks can impact the Company’s results of operations, cash flows and financial position. The Company’s primary commodity price risk exposure results from contractual delivery commitments with respect to the Company’s gas purchase contracts. The Company periodically makes commitments to sell certain quantities of natural gas to be delivered in future months at certain contract prices. This affords the Company the opportunity to “lock in” the sale price for those quantities of natural gas. Failure to meet these delivery commitments would result in the Company being forced to purchase any short fall at current market prices. The Company’s risk management objective is to lock in a range of pricing for no more than 80% to 90% of expected production volumes. This allows the Company to forecast future cash flows and earnings within a predictable range.

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Item 4. CONTROLS AND PROCEDURES

     (a) Disclosure Controls and Procedures. The Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”) have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of September 30, 2007 (the “Evaluation Date”), and have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were not effective. As reported in our annual report on Form 10-K for the year ended December 31, 2006, we have identified material weaknesses in our internal control over financial reporting, which we view as an integral part of our disclosure controls and procedures. See Item 9A. Controls and Procedures of our annual report on Form 10-K for the year ended December 31, 2006, which was filed on March 16, 2007, and which is incorporated by reference into this Item 4 for a more detailed explanation of these material weaknesses and remedial actions taken and planned which we expect will materially affect such controls.

     The certifications of the Company’s CEO and CFO are attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q and include, in paragraph 4 of such certifications, information concerning the Company’s disclosure controls and procedures and internal control over financial reporting. Such certifications should be read in conjunction with the information contained in this Item 4, including the information incorporated by reference to our filing on Form 10-K for the year ended December 31, 2006, for a more complete understanding of the matters covered by such certifications.

     (b) Changes in internal control over financial reporting. While we are continuing to develop and implement remediation plans with respect to the identified material weaknesses, there have been no changes in our internal control over financial reporting other than those discussed below that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting beyond those identified in our Form 10-K for the year ended December 31, 2006.

     Continued development of formalized finance and accounting policies and formalized written policies and procedures governing the financial reporting process are continuing. The development of these policies and procedures are key to the remediation of our material weaknesses regarding establishing and maintaining an effective control environment and maintaining sufficient, formalized written policies and procedures over financial reporting as disclosed in Item 9A. Controls and Procedures of our annual report on our Form 10-K for the year ended December 31, 2006.

     As noted in Item 1A. Risk Factors in our annual report on Form 10-K for the year ended December 31, 2006, failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material effect on our business and our failure to maintain sustained improvements in our controls or successfully implement compensating controls and procedures as part of our disclosure controls and procedures may further adversely impact our existing internal control structure.

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Part II.  Other Information

Item 6. EXHIBITS

Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURE

     Pursuant to the requirements 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.

	EVERFLOW EASTERN PARTNERS, L.P.
	By:	everflow management limited, llc,
		General Partner
	By:	everflow management corporation
		Managing Member
	By:	/s/William A. Siskovic
November 9, 2007		William A. Siskovic
		Vice President and Principal Financial Accounting Officer (Duly Authorized Officer)

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