1
Exhibit (a)(3)
1999 Annual Report April 28, 2000
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EVERFLOW EASTERN PARTNERS, L.P.
NEWSLETTER
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TO OUR EVERFLOW PARTNERS . . .
Everflow Eastern Partners, L.P. continues to achieve excellent drilling
results. The Company incurred development costs of $2.6 million, including $1.5
million of purchased producing oil and gas properties, in adding 4.0 million MCF
of natural gas and 38 thousand barrels of crude oil reserves. The value of these
additions amounted to $4.5 million using the Standardized Measure of Discounted
Future Net Cash Flows, which discounts estimated future net cash flows by 10%
annually. The Standardized Measure of Discounted Future Net Cash Flows increased
by $2.2 million between December 31, 1998 and 1999 due primarily to net changes
in prices. Total assets of the Company amounted to $55.4 million with partners'
equity accounting for $53.3 million. The Company continually evaluates whether
the Company can develop oil and gas properties at historical levels given the
current costs of drilling and development activities, the current prices of oil
and gas, and the Company's experience with regard to finding oil and gas in
commercially productive quantities. The Company has decreased its level of
activity in the development of oil and gas properties compared with historical
levels. As a result of the number of recent transactions involving the purchase
and sale of Appalachian Basin oil and gas companies and properties, management
of the Company has from time to time explored and evaluated the possible sale of
the Company. The Company intends to continue to evaluate this and other
alternatives to maximize Unitholder's value.
As you know, the Company entered into long-term "seasonal" contracts with
The East Ohio Gas Company beginning in September 1991. These contracts cover the
majority of our natural gas production and provide favorable pricing. The most
recent annual price adjustment under these contracts occurred in November 1999.
The amount of this adjustment was a $.36 per MCF decrease in natural gas pricing
for wells subject to these contracts. Oil prices, on the other hand, have
increased ranging from a low of $8.50 per barrel in December 1998 to a high of
$30.50 per barrel in March 2000.
FINANCIAL REPORT
Enclosed with this Newsletter is the following financial information:
- Everflow Eastern Partners, L.P. audited financial statements for the year
ended December 31, 1999, including Notes to Consolidated Financial Statements.
- "Management's Discussion and Analysis of Financial Condition and Results
of Operations" taken from the Company's Form 10-K Annual Report filed with the
Securities and Exchange Commission.
RESERVE REPORT
Enclosed is a copy of the letter prepared by Wright & Company, Inc.,
Petroleum Consultants, including a summary report of the remaining oil and gas
reserves, future net income and standardized measure of discounted future net
income for all properties in which the Company owns an interest. The Company's
reserve analysis as well as additional oil and gas information can be found in
the enclosed financial statements (see Note 10).
REPURCHASE RIGHT
As you know, the Partnership Agreement for Everflow Eastern Partners, L.P.
provides that each year the Company will repurchase for cash up to 10% of the
then outstanding Units of the Partnership.
Between April 28, 2000 and June 30, 2000, you as a Unitholder of the
Company, may exercise your right to require the Company to purchase all or any
(whole) number of your Units at a price equal to 66% of the Adjusted Book Value
as of December 31, 1999, as adjusted for distributions since that date.
Based on the enclosed audited financial statements, the Purchase Price this
year is $6.11 per Unit calculated as follows:
Total partners' equity at December $53,289,000
31, 1999
Add:
Standardized Measure of Discounted
Future Net Cash Flows 53,693,000
Tax effect adjustment 1,288,000
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54,981,000
Deduct:
Carrying value of oil and gas
properties (net of undeveloped
lease costs and prepaid well costs):
Historical cost 109,255,000
Depletion and Amortization 63,867,000
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45,388,000
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Adjusted Book Value 62,882,000
66% of Adjusted Book Value 41,502,000
98.91% Limited Partners' share 41,050,000
Unit price based on 6,095,193 Units $ 6.735
Distribution - January 3, 2000 .250
Distribution - April 3, 2000 .375
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Calculated Purchase Price $ 6.11
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Management of the Company believes that the Purchase Price may be less than
the value which could be realized by the Unitholders in the event of a
liquidation or sale of the Company.
The Offer is explained in detail in the enclosed Offer to Purchase and
Letter of Transmittal. In the event you as a Unitholder elect to consider such
right under the Partnership Agreement, instructions on how to do so are also
explained in detail in the enclosed materials.
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585 WEST MAIN STREET, POST OFFICE BOX 629, CANFIELD, OHIO 44406 O (330)533-2692