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Exhibit (a)(5)
[Wright & Company, Inc. Letterhead]
[logo]
March 22, 2000
Everflow Eastern Partners, L.P.
585 West Main Street
P.O. Box 629
Canfield, OH 44406
ATTENTION: William A. Siskovic
Gentlemen:
SUBJECT: SUMMARY REPORT
Evaluation of Oil and Gas Reserves
To the Interests of
Everflow Eastern Partners, L.P.
In Certain Appalachian Basin Properties
Utilizing Constant Economics
Effective December 31, 1999
Job 9.531
Wright & Company, Inc. has performed an evaluation to estimate proved
reserves and cash flow from certain oil and gas properties to the subject
interests. This evaluation was authorized by Mr. William A. Siskovic of Everflow
Eastern Partners, L.P. (Everflow). Projections of the reserves and cash flow to
the evaluated interests were based on economic parameters and operating
conditions considered applicable as of December 31, 1999, and on projected
changes in these parameters and conditions as specified by Everflow. This
evaluation includes various economic and/or technical considerations which are
outside the guidelines of the Securities and Exchange Commission (SEC) for
disclosing reserves and cash flow in Form 10-K or other SEC filings. The
following is a summary of the results of the evaluation effective December 31,
1999:
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Proved Proved
Developed Developed Pipeline
Producing Nonproducing Revenues Total
(PDP) (PDNP) (Pipe) Proved
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Net Reserves to the
Evaluated Interests
Oil, Mbbl: 865.735 7.119 0.000 872.854
Gas, Mmcf: 49,992.795 1,279.078 0.000 51,271.873
Cash Flow (BTAX), M$
Undiscounted: 99,768.070 2,970.414 137.022 102,875.506
Discounted at 10%
Per Annum: 53,290.967 1,759.796 62.161 55,112.924
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Mr. William A. Siskovic
Everflow Eastern Partners, L.P.
March 22, 2000
Page 2
The attached Definitions of Oil and Gas Reserves describe all categories
of proved reserves, and the Discussion describes the bases of this evaluation.
It has been a pleasure to serve you by preparing this evaluation. All
related data will be retained in our files and are available for your review.
Yours very truly,
/s/ Wright & Company, Inc.
Wright & Company, Inc.
DRW/seb
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DEFINITIONS OF OIL AND GAS RESERVES
WRIGHT & COMPANY, INC. frequently prepares estimates of oil and gas
reserves. Such reserves usually include quantities which are represented as
"proved" and, depending upon the data base and/or the desire of the client,
occasionally include additional reserves which are classified as "probable." The
scope of the analyses may also include reserves classified as "possible." The
definitions of oil and as reserves used by WRIGHT & COMPANY, INC. are set out
below.
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DEFINITIONS OF PROVED RESERVES
I. PROVED OIL AND GAS RESERVES
Proved oil and gas reserves are the estimated quantities of crude
oil, natural gas, and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under the
economic criteria employed and existing operating conditions.
Prices include consideration of changes in existing prices proved
by contractual arrangements and for escalations based upon estimate
of future conditions.
A. Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation
test. The area of a reservoir considered proved includes:
1. that portion delineated by drilling and defined by gas-oil
and/or oil-water contacts, if any; and
2. the immediately adjoining portions not drilled, but which can
be reasonably judged as economically productive on the basis
of available geological and engineering data. In the absence
of information on fluid contacts, the lowest known
structural occurrence of hydrocarbons controls the lower
proved limit of the reservoir.
B. Reserves which can be produced economically through application
of improved recovery techniques (such as fluid injection) are
included in the "proved" classification when successful testing
by a pilot project, or the operation of an installed program in
the reservoir, provides support for the engineering analysis on
which the project or program was based.
C. Estimates of proved reserves do not include the following:
1. oil that may become available from known reservoirs but is
classified separately as "indicated additional reserves";
2. crude oil, natural gas, and natural gas liquids, the recovery
of which is subject to reasonable doubt because of
uncertainty as to geology, reservoir characteristics, or
economic factors:
3. crude oil, natural gas, and natural gas liquids, that may
occur in undrilled prospects; nor those quantities being
held in underground or surface storage.
4. crude oil, natural gas, and natural gas liquids, that may be
recovered from oil shales, coal and other such sources.
II. PROVED DEVELOPED OIL AND GAS RESERVES*
Proved developed oil and gas reserves are reserves that can be
expected to be recovered through existing wells with existing
equipment and operating methods. Additional oil and gas expected to
be obtained through the application of fluid injection or other
improved recovery techniques for supplementing the natural forces
and mechanisms of primary recovery should be included as "proved
developed reserves" only after testing by a pilot project or after
the operation of an installed program has confirmed through
production response that increased recovery will be achieved.
III. PROVED UNDEVELOPED OIL AND GAS RESERVES
Proved undeveloped oil and gas reserves are reserves that are
expected to be recovered from new wells on undrilled acreage, or
from existing wells where a relatively major expenditure is required
for recompletion. Reserves on undrilled acreage shall be limited to
those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be
demonstrated with certainty that there is continuity of production
from the existing productive formation. Under no circumstances
should estimates for proved undeveloped reserves be attributable to
any acreage for which an application of fluid injection or other
improved recovery technique is contemplated, unless such techniques
have been proved effective by actual tests in the area and in the
same reservoir.
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*WRIGHT & COMPANY, INC. may separate proved developed reserves into
proved developed producing and proved developed nonproducing reserves.
This is to identify proved developed producing reserves as those to be
recovered from actively producing wells. Proved developed nonproducing
reserves are those to be recovered from wells or intervals within
wells, which are completed but shut-in waiting on equipment or
pipeline connections, or wells where a relatively minor expenditure
is required for recompletion to another zone.
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The following additional classes of reserves may be assigned where they are
justified.
PROBABLE OIL AND GAS RESERVES
Probable oil and gas reserves are estimated quantities of crude oil, natural
gas, and natural gas liquids which are indicated by geological and engineering
data to exist, but which are subject to an element of uncertainty such that they
do not meet the criteria of the proved reserve category.
POSSIBLE OIL AND AS RESERVES
Possible oil and gas reserves are estimated quantities of crude oil, natural
gas, and natural gas liquids which are inferred to exist, but where available
geological and engineering data will not support a high classification.
Wright & Company, Inc.
Petroleum Consultants
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DISCUSSION
INTRODUCTION
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Wright & Company, Inc. (Wright) has performed an evaluation to estimate
proved reserves and cash flow from certain oil and gas properties to the total
interests of Everflow Eastern Partners, L.P. (Everflow). This evaluation was
authorized by Mr. William A. Siskovic of Everflow. The results of the evaluation
are summarized in the cover letter and are presented in detail in the summary
tables.
Total Everflow Interests are made up of direct working interests,
certain landowner royalty interests, and certain overriding royalty interests in
wells which Everflow also owns working interests. Additionally, over the years,
Everflow has acquired certain interests in wells from former working interest
owners, other area operators, or other non-affiliated entities. These
additionally acquired interests are identified in Wright's report as "Company
Owned Miscellaneous Interests" in accordance with the instructions of Everflow.
In the 1980's, Everflow Eastern, Inc. acted as the General Partner and
formed certain Limited Partnerships for the purpose of drilling and/or acquiring
new wells. It is the understanding of Wright that almost all of these Limited
Partnerships were terminated in 1991 after Everflow Eastern Partners, L.P.
acquired the majority ownership of the partnerships through an exchange offer.
Also in 1991, Everflow terminated three income programs in which it currently
owns interests. These programs are: Everflow Income Program 1-A (approximately
95.07 percent ownership); Everflow Income Program 1-B (approximately 95.12
percent ownership); and Everflow Private Income Program (approximately 91.36
percent ownership). According to Everflow, these programs are identified for
accounting purposes only, and are not identified in Wright's report in
accordance with the instructions of Everflow.
The individual projections of lease reserves and economics were
generated using certain data that describe the production forecasts and all
associated evaluation parameters such as interests, severance and ad valorem
taxes, product prices, operating expenses, investments, salvage values, and
abandonment costs as applicable. These data reports are not presented
individually, but are a part of Wright's
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work product and are retained in our files. This report is a SUMMARY REPORT as
requested by Everflow.
The properties evaluated in this report are located in the states of
Ohio, New York, and Pennsylvania. A List of Properties evaluated can be found in
the Summaries section. Maps showing the states and counties in which the
properties are located can be found at the end of the Location of Evaluated
Interests section of this Discussion.
Projections of the reserves and cash flow to the evaluated interests
were based on economic parameters and operating conditions considered to be
applicable as of December 31, 1999. This evaluation includes various economic
and/or technical considerations which are outside the guidelines of the
Securities and Exchange Commission (SEC) for disclosing reserves and cash flow
in Form 10-K or other SEC filings.
Net income to the evaluated interests is the cash flow after
consideration of royalty revenue payable to others, severance and ad valorem
taxes, operating expenses, investments, salvage values, and abandonment costs as
applicable. The cash flow is before federal income tax (BTAX) and excludes
consideration of any encumbrances against the properties if such exist. The Cash
Flow (BTAX) values presented in the Summaries section of this report and
summarized in the cover letter were based on projections of annual oil and gas
production. It was assumed there would be no significant delay between the date
of oil and gas production and the receipt of the associated revenue for this
production.
Unless specifically identified and documented by Everflow as having
curtailment problems, gas production forecasts have been assumed to be a
function of well productivity and not of market conditions. The effect of "take
or pay" clauses in gas contracts, if there were such clauses, was not considered
for this evaluation.
Oil and gas reserves were evaluated for the proved developed producing
(PDP) and proved developed nonproducing (PDNP) reserves categories. The summary
classification of proved developed reserves combines the PDP and PDNP
categories. For the PDP category, reserves were based primarily on decline curve
analysis projections where sufficient production history was available. For
reserves assigned to the PDNP category, the production start dates for wells
drilled during 1999 which were not producing at the effective date were
estimated by Everflow and used according to
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their instructions. There are two cases included in this evaluation to estimate
net future revenues from pipeline (PIPE) operations.
In preparing this evaluation, no attempt has been made to quantify the
element of uncertainty associated with any category. Reserves were assigned to
each category as warranted. The attached Definitions of Oil and Gas Reserves
describe all categories of proved reserves. The charts found at the end of this
Discussion indicate the percent allocation of net oil and net gas reserves by
reserves category.
Oil reserves are expressed in thousands of United States (U.S.) barrels
(Mbbl) of 42 U.S. gallons. Gas volumes are expressed in millions of standard
cubic feet (Mmcf) at 60 degrees Fahrenheit and at the legal pressure base that
prevails in the state in which the reserves are located. No adjustment of the
individual gas volumes to a common pressure base has been made.
No investigation was made of potential gas volume and/or value
imbalances which may have resulted from over/under delivery to the evaluated
interests. Therefore, the estimates of reserves and Cash Flow (BTAX) do not
include adjustments for the settlement of any such imbalances.
The Cash Flow (BTAX) was discounted at an annual rate of 10.00 percent
(10.00 PCT) as requested by Everflow. Future cash flow was also discounted at
several secondary rates as indicated on each reserves and economics page. These
additional discounted amounts are displayed as totals only. The cash flow was
discounted at the midpoint of the period, compounded annually. Capital costs
were discounted from the time they occurred and were compounded annually. It
should be noted that no opinion is expressed by Wright as to the fair market
value of the evaluated properties. The charts found at the end of this
Discussion indicate the percent allocation of 10.00 PCT cumulative discount
(Cum. Disc.) by reserves category.
This report includes only those costs and prices which were provided by
Everflow that are directly attributable to the individual leases and areas.
There could exist other revenues, overhead costs, or other costs associated with
Everflow which are not included in this report. Such additional costs and
revenues are outside the scope of this report. This report is not a financial
statement for Everflow and should not be used as the sole basis for any
transaction concerning Everflow or the evaluated properties.
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Wright is an independent consulting firm and does not own any interests
in the properties covered by this report. No employee, officer, or director of
Wright is an employee, officer, or director of Everflow. Neither the employment
of nor the compensation received by Wright is contingent upon the values
assigned to the properties covered by this report.
DATA SOURCES
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All data utilized in the preparation of this report with respect to
interests, oil and gas prices, gas contract terms, operating expenses,
investments, salvage values, abandonment costs, well information, and current
operating conditions, as applicable, were provided by Everflow. The reserves
category assignments reflect the status of the wells as of the effective date.
Production data provided by Everflow were utilized. All data have been reviewed
for reasonableness and, unless obvious errors were detected, have been accepted
as correct. It should be emphasized that revisions to the projections of
reserves and economics included in this report may be required if the provided
data are revised for any reason. No inspection of the properties was made, as
this was not considered to be within the scope of this evaluation.
METHODS OF RESERVES DETERMINATION
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The estimates of reserves contained in this report were determined by
accepted industry methods and in accordance with the attached Definitions of Oil
and Gas Reserves. Methods utilized in this report include extrapolation of
historical production trends and analogy to similar producing properties.
Where sufficient production history and other data were available,
reserves for producing properties were determined by extrapolation of historical
production trends. Analogy to similar producing properties was used for those
properties which lacked sufficient production history to yield a definitive
estimate of reserves. Reserves projections based on analogy are subject to
change due to subsequent changes in the
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analogous properties or subsequent production from the evaluated properties. On
newer producing properties with limited production history, field chart readings
may have been utilized to establish the estimated performance trends.
When observing the historical production on some of the wells, it can be
seen that various gas purchase contracts have different restrictions and
adjustments. The contracts may provide that certain wells can be shut-in for a
period of time and limits the obligation of the gas purchaser to purchase gas.
These production restrictions result in frequent fluctuations in production.
Wright did not attempt to project the continuation of these fluctuations on a
monthly basis, but instead based the initial production rates and estimated
produced volumes on an average annual production schedule. Therefore, the actual
production at the effective date may be more or less than the initial rate
estimated by Wright.
There are significant uncertainties inherent in estimating reserves,
future rates of production, and the timing and amount of future costs. Oil and
gas reserves estimates must be recognized as a subjective process that cannot be
measured in an exact way and estimates of others might differ materially from
those of Wright. The accuracy of any reserves estimate is a function of the
quality of available data and of subjective interpretations and judgments. It
should be emphasized that production data subsequent to the date of these
estimates or changes in the analogous properties may warrant revisions of such
estimates. Accordingly, reserves estimates are often different from the
quantities of oil and gas that ultimately are recovered.
OIL PRICING
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An initial oil price of $22.25 per barrel was provided by Everflow and
was used as the effective date price in accordance with their instructions.
After the effective date, prices were held constant for the life of the
properties. No attempt has been made to account for oil price fluctuations if
they have occurred in the market subsequent to the effective date of this
report.
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GAS PRICING
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Over the last several years, Everflow established various intermediate
term adjustable price gas purchase agreements. The provisions of these contracts
varied from short-term month-to-month arrangements up to the life of a
particular well. Some of these agreements are in effect through the end of 2001.
Everflow provided the prices to be applied at the effective date. Gas prices are
held constant from the first uncommitted year's estimated price for the life of
the properties.
Everflow did not identify a specific gas purchase agreement or
expiration for certain wells. For those wells, the effective date price was held
constant for the life of the properties. For other wells that are subject to
life of well contracts, the effective date price was held constant for the life
of the properties. It is the understanding of Wright that the gas prices
provided by Everflow are net of any transportation, compression and gathering
fees.
PRICING STATEMENT
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It should be emphasized that with current economic uncertainties,
fluctuations in market conditions could significantly change the economics in
this report.
OPERATING EXPENSES
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Operating expenses were provided by Everflow on a well, area, or field
basis, and represented, when possible, the latest available estimated average of
all recurring expenses which are billable to the working interest owners. These
expenses included, but were not limited to, all direct operating expenses, field
overhead costs, and any ad valorem taxes not deducted separately. Expenses for
workovers, well stimulations, and other maintenance were not included in the
operating expenses unless such work was expected on a recurring basis. Judgments
for the exclusion of the nonrecurring expenses were made by Everflow. Any
internal indirect overhead costs (general and administrative) were not included.
For new and developing properties where data were unavailable, operating
expenses were estimated by Everflow based on analogy with similar properties.
Operating costs were held constant for the life of the properties.
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SEVERANCE AND AD VALOREM TAXES
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Standard state severance taxes have been deducted as appropriate. All
taxes were based on current published rates and were used in accordance with the
instructions of Everflow. Any ad valorem taxes for properties in which the tax
rate was unknown were assumed to be included in the operating expenses.
SALVAGE AND PROPERTY ABANDONMENT
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In accordance with the instructions of Everflow, neither salvage values
nor abandonment costs were included in the projections of reserves and
economics. It was assumed that any salvage value would be directly offset by the
cost to abandon the property.
ENVIRONMENTAL CONSIDERATIONS
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No consideration was given in this report to potential environmental
liabilities which may exist concerning the properties evaluated. There are no
costs included in this evaluation for potential liability for restoration and to
clean up damages, if any, caused by past or future operating practices.
AREAS OF SIGNIFICANT INTERESTS
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INTRODUCTION
Everflow's operations are almost exclusively focused in the Appalachian
Basin, and specifically in Eastern Ohio and Western Pennsylvania. Historically,
Everflow has focused its activities on the Clinton Sandstone formation.
Production in these formations occurs at depths ranging from 3,500 to 6,000
feet. These reserves are found in relatively tight reservoirs and "typically"
follow a hyperbolic decline with a flattening steady decline in subsequent
years. Average well life ranges from 20 to 30 years or more.
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PROVED DEVELOPED RESERVES
At the request of Everflow, Wright evaluated approximately 1,163 gross
productive wells. These developed properties are focused in approximately 26
counties in the Appalachian Basin and can be found in the Location of Evaluated
Interests section at the end of this Discussion. According to Everflow, they
operate approximately 80% of the wells in which they own working interests.
The majority of the value of the properties evaluated in this report is
found in Ohio and assigned to the PDP reserves category. The PDP 10.00 PCT Cum.
Disc. (BTAX) of 53,290.967 M$ represents approximately 97 percent of the Total
Proved Developed of 55,050.763 M$. Most of the PDP wells have production
histories of five to ten years or longer.
There are approximately 9 wells assigned to the PDNP reserves category
with a 10.00 PCT Cum. Disc. (BTAX) of 1,759.796 M$ or approximately three
percent of the Total Proved Developed of 55,050.763 M$. In addition, Wright
evaluated net pipeline revenues with a 10.00 PCT Cum. Disc. (BTAX) of
approximately 62.161 M$.
LOCATION OF EVALUATED INTERESTS
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The following map depicts the states and counties in which the evaluated
properties are located.
CHARTS
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The following charts depict the percent allocation of net oil and gas
reserves and 10.00 PCT Cum. Disc. (BTAX) by reserves category.
KGD/EKL/seb
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LOCATION OF EVALUATED INTERESTS
EVERFLOW EASTERN PARTNERS, L.P.
APPALACHIAN BASIN PROPERTIES
JOB 9.531
[Picture - Map of Location of Appalachian Basin Properties]
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EVERFLOW EASTERN PARTNERS, L.P.
Certain Appalachian Basin Properties
Job 9.531
[CHARTS]
NET OIL RESERVES (Mbbl)
BY RESERVES CATEGORY
PDP 99%
PDNP 1%
NET GAS RESERVES (Mmcf)
BY RESERVES CATEGORY
PDP 98%
PDNP 2%
10.00 PCT CUM. DISC. (BTAX) M$,
BY RESERVES CATEGORY
PDP 97%
PDNP 3%