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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, 2001
OR
[ ] 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 (I.R.S. Employer
incorporation or organization) 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. Yes X No
---- ----
There were 5,771,174 Units of limited partnership interest of the
Registrant as of November 13, 2001. 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, 2001.
EVERFLOW EASTERN PARTNERS, L.P.
INDEX
DESCRIPTION PAGE NO.
----------- --------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2001 and December 31, 2000 F-1
Consolidated Statements of Income
Three and Nine Months Ended
September 30, 2001 and 2000 F-3
Consolidated Statements of Partners' Equity
Nine Months Ended September 30, 2001 and 2000 F-4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2001 and 2000 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
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 7
Signature 8
2
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
September 30, 2001 and December 31, 2000
----------------------------------------
September 30, December 31,
2001 2000
(Unaudited) (Audited)
----------- ---------
ASSETS
------
CURRENT ASSETS
Cash and equivalents $ 1,855,500 $ 1,997,978
Accounts receivable:
Production 1,921,296 3,078,235
Officers and employees 300,508 406,842
Joint venture partners 71,896 114,708
Short-term investments 3,772,618 3,623,374
Other 58,398 79,729
------------- -------------
Total current assets 7,980,216 9,300,866
PROPERTY AND EQUIPMENT
Proved properties (successful efforts
accounting method) 114,777,219 112,341,851
Pipeline and support equipment 504,222 504,222
Corporate and other 1,523,004 1,539,824
------------- -------------
116,804,445 114,385,897
Less accumulated depreciation, depletion,
amortization and write down (72,295,938) (68,746,486)
------------- -------------
44,508,507 45,639,411
OTHER ASSETS 103,017 103,017
------------- -------------
$ 52,591,740 $ 55,043,294
============= =============
See notes to unaudited consolidated financial statements.
F-1
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
September 30, 2001 and December 31, 2000
----------------------------------------
September 30, December 31,
2001 2000
(Unaudited) (Audited)
----------- ---------
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 59,200 $ 58,595
Accounts payable 535,722 1,018,959
Accrued expenses 166,458 292,684
----------- -----------
Total current liabilities 761,380 1,370,238
LONG-TERM DEBT, NET OF CURRENT PORTION 531,411 579,227
DEFERRED INCOME TAXES 50,000 50,000
COMMITMENTS AND CONTINGENCIES - -
LIMITED PARTNERS' EQUITY, SUBJECT TO
REPURCHASE RIGHT
Authorized - 8,000,000 Units
Issued and outstanding - 5,771,174 and
5,888,662 Units, respectively 50,659,956 52,446,234
GENERAL PARTNER'S EQUITY 588,993 597,595
----------- -----------
Total partners' equity 51,248,949 53,043,829
----------- -----------
$52,591,740 $55,043,294
=========== ===========
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, 2001 and 2000
-------------------------------------------------------
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2001 2000 2001 2000
---- ---- ---- ----
REVENUES
Oil and gas sales $ 3,816,514 $ 3,225,986 $ 12,223,778 $ 10,895,040
Well management and operating 93,842 87,383 334,528 329,787
Other 242 382 2,743 2,008
----------- ------------ ------------ ------------
3,910,598 3,313,751 12,561,049 11,226,835
DIRECT COST OF REVENUES
Production costs 580,407 583,788 1,934,624 1,944,676
Well management and operating 26,486 21,753 98,894 80,368
Depreciation, depletion and amortization 1,066,455 1,072,146 3,528,842 3,569,248
Abandonment and write down
of oil and gas properties 50,000 100,000 150,000 250,000
----------- ------------ ------------ ------------
Total direct cost of revenues 1,723,348 1,777,687 5,712,360 5,844,292
GENERAL AND ADMINISTRATIVE EXPENSE 338,773 295,058 1,011,006 955,213
----------- ------------ ------------ ------------
Total cost of revenues 2,062,121 2,072,745 6,723,366 6,799,505
----------- ------------ ------------ ------------
INCOME FROM OPERATIONS 1,848,477 1,241,006 5,837,683 4,427,330
OTHER INCOME (EXPENSE)
Interest income 38,797 72,484 186,625 208,516
Interest expense ( 11,219) ( 12,085) ( 34,544) ( 33,545)
----------- ------------ ------------ ------------
27,578 60,399 152,081 174,971
----------- ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,876,055 1,301,405 5,989,764 4,602,301
PROVISION FOR INCOME TAXES
Current - - - -
Deferred - - - -
----------- ------------ ------------ ------------
NET INCOME $ 1,876,055 $ 1,301,405 $ 5,989,764 $ 4,602,301
----------- ------------ ------------ ------------
Allocation of Partnership Net Income
Limited Partners $ 1,854,494 $ 1,286,738 $ 5,921,836 $ 4,551,599
General Partner 21,561 14,667 67,928 50,702
----------- ------------ ------------ ------------
$ 1,876,055 $ 1,301,405 $ 5,989,764 $ 4,602,301
----------- ------------ ------------ ------------
Net Income per unit $ .32 $ .22 $ 1.01 $ .76
===== ===== ====== =====
See notes to unaudited consolidated financial statements.
F-3
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
Nine Months Ended September 30, 2001 and 2000
---------------------------------------------
(Unaudited)
2001 2000
---- ----
PARTNERS' EQUITY - JANUARY 1 $ 53,043,829 $ 53,288,759
Net income 5,989,764 4,602,301
Cash distributions ( 6,641,486) ( 6,084,843)
Repurchase Right - Units tendered ( 1,143,158) ( 1,261,904)
------------ ------------
PARTNERS' EQUITY - SEPTEMBER 30 $ 51,248,949 $ 50,544,313
------------ ------------
See notes to unaudited consolidated financial statements.
F-4
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2001 and 2000
---------------------------------------------
(Unaudited)
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,989,764 $ 4,602,301
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 3,573,452 3,608,908
Abandonment and write down of oil and gas properties 150,000 250,000
Changes in assets and liabilities:
Accounts receivable 1,199,751 1,572,621
Short-term investments (149,244) (2,059,944)
Other current assets 21,331 (21,334)
Other assets 0 52,018
Accounts payable ( 483,237) ( 400,352)
Accrued expenses ( 126,226) ( 43,017)
------------ -----------
Total adjustments 4,185,827 2,958,900
------------ -----------
Net cash provided by operating activities 10,175,591 7,561,201
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on receivables from officers and
employees 237,967 263,275
Advances disbursed to officers and employees ( 131,633) ( 111,531)
Purchase of property and equipment ( 2,592,548) ( 1,504,585)
------------ -----------
Net cash used by investing activities ( 2,486,214) ( 1,352,841)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of Units ( 1,143,158) ( 1,261,904)
Distributions ( 6,641,486) ( 6,084,843)
Payments on debt, including revolver activity ( 47,211) ( 44,474)
------------ -----------
Net cash used by financing activities ( 7,831,855) ( 7,391,221)
------------ -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS ( 142,478) ( 1,182,861)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 1,997,978 2,684,605
------------ -----------
CASH AND EQUIVALENTS AT END OF THIRD QUARTER $ 1,855,500 $ 1,501,744
------------ -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 34,544 $ 31,460
Income taxes - -
See notes to unaudited consolidated financial statements.
F-5
EVERFLOW EASTERN PARTENRS, 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.
Information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. 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 report on Form 10-K filed with the
Securities and Exchange Commission on March 30, 2001.
The results of operations for the interim periods may not necessarily
be indicative of the results to be expected for the full year.
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.
B. 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 exploration and development.
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 limited partnership and
working interest programs managed or sponsored by EEI ("EEI Programs"
or "the Programs").
F-6
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
B. Organization (Continued)
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, a limited partnership controlled by 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.
C. 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.
D. 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 4).
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 were 5,771,174 and 5,849,499 for the three and nine
months ended September 30, 2001 and 5,888,662 and 6,026,349 for the
three and nine months ended September 30, 2000, respectively.
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. New Accounting Standards - In June 2001, the Financial Accounting
Standards Board ("FASB") issued Statements of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations." SFAS No. 141
requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interest
method and further clarifies the criteria to recognize intangible
assets separately from goodwill.
In June 2001, FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." Under SFAS No. 142, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized
but will be subject to periodic impairment tests. Other intangible
assets will continue to be amortized over their useful lives. SFAS
No. 142 is effective for fiscal years beginning after December 15,
2001.
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which is effective the first quarter of
fiscal year 2003. SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of
long-lived assets and the associated asset retirement cost.
In August 2001, FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets," which is effective the
first quarter of fiscal year 2002. SFAS No. 144 modifies and expands
the financial accounting and reporting for the impairment or disposal
of long-lived assets other than goodwill.
The Company does not believe that the impact of these four SFAS will
have a significant impact on its financial position and results of
operations.
Note 2. Short-Term Investments
Short-term investments consist of marketable corporate debt securities
which are classified as trading. The fair values of the investments
approximate cost.
F-8
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 3. Credit Facilities and Long-Term Debt
In August 2001, the Company entered into an agreement that modified the
prior credit agreements. The credit agreement provides for a revolving
line of credit in the amount of $4,000,000, all of which is available.
The revolving line of credit provides for interest payable quarterly at
LIBOR plus 150 basis points with the principal due at maturity, May 31,
2003. Borrowings under the facility are unsecured; however, the Company
has agreed, if requested by the bank, to execute any supplements to the
agreement including security and mortgage agreements on the Company's
assets. The agreement contains restrictive covenants requiring the
Company to maintain the following: (i) loan balance not to exceed the
borrowing base of $4,000,000; (ii) tangible net worth of at least
$40,000,000; and (iii) a total debt to tangible net worth ratio of not
more than 0.5 to 1.0. In addition, there are restrictions on mergers,
sales and acquisitions, the incurrence of additional debt and the pledge
or mortgage of the Company's assets.
The Company purchased a building and funded its cost, including
improvements, in part, through mortgage notes. The notes have an
aggregate balance of $590,611 and $637,822 at September 30, 2001 and
December 31, 2000, respectively, and at September 30, 2001 bear interest
at fixed (converting in certain subsequent years to variable) rates
ranging from 6.51% - 8.65% and a weighted average rate of 7.27%. The
notes at September 30, 2001 require aggregate payments of principal and
interest of $8,647 per month.
The Company is exposed to market risk from changes in interest rates
since it, at times, funds its operations through long-term and
short-term borrowings. The Company's primary interest rate risk exposure
results from floating rate debt with respect to the Company's revolving
credit.
F-9
EVERFLOW EASTERN PARTENRS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 4. 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 he elects to exercise the
Repurchase Right and have Everflow acquire certain or all of his 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 will be
equal 66% of the adjusted book value of the Company allocable to the
Units, divided by the number of Units outstanding 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, 2000 calculation, was $9.73
F-10
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 4. Partners' Equity (Continued)
per Unit, net of the distributions ($.625 per Unit in total) made in
January and April 2001.
Units repurchased pursuant to the Repurchase Right for each of the last
five years are as follows:
Calculated Units
Price for Less # of Outstanding
Repurchase Interim Net Units Following
Year Right Distributions Price Paid Repurchased Repurchase
- ---- ----- ------------- ---------- ----------- ----------
1997 $5.46 $.250 $5.21 172,290 6,207,651
1998 $5.24 $.250 $4.99 35,114 6,172,537
1999 $6.16 $.375 $5.79 77,344 6,095,193
2000 $6.73 $.625 $6.11 206,531 5,888,662
2001 $10.35 $.625 $9.73 117,488 5,771,174
Note 5. Commitments and Contingencies
Everflow paid a quarterly dividend in October 2001 of $.375 per Unit to
Unitholders of record on September 30, 2001. The distribution amounted
to approximately $2,189,000.
EEI is the general partner in certain oil and gas partnerships. As
general partner, EEI shares in unlimited liability to third parties with
respect to the operations of the partnerships and may be liable to
limited partners for losses attributable to breach of fiduciary
obligations.
The Company operates exclusively in the United States, almost entirely
in Ohio and Pennsylvania, in the exploration, development and production
of oil and gas.
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, and the highly competitive nature of the industry and worldwide
economic conditions. The Company's
F-11
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 5. Commitments and Contingencies (Continued)
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, additional borrowings or additional equity
funds. 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.
Note 6. Gas Purchase Agreements
The Company executed a letter agreement that replaced certain other
agreements with Dominion Field Services, Inc., successor to The East
Ohio Gas Company, to sell Dominion a significant portion of the
Company's natural gas production through October 2003. The agreement
provides for fixed pricing ranging from $3.23 to $5.35 per MCF. Fixed
pricing applies to certain fixed quantities on a monthly basis with
excess monthly quantities being priced based on the NYMEX settled price.
The impact on the Company cannot fully be measured until actual
production volumes and prices are determined.
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, 2001 and December 31, 2000:
September 30, 2001 December 31, 2000
------------------ -----------------
(Amounts in Thousands) Amount % Amount %
------ - ------ -
Working capital $ 7,219 14% $ 7,931 15%
Property and equipment (net) 44,508 86 45,639 85
Other 103 - 103 -
------ -- ------ ---
Total $51,830 100% $53,673 100%
======= ==== ======= ====
Long-term debt $ 531 1% 579 1%
Deferred income taxes 50 - 50 -
Partners' equity 51,249 99 53,044 99
------ -- ------ ---
Total $51,830 100% $53,673 100%
======= ==== ======= ====
Working capital of $7.2 million as of September 30, 2001 represented a
decrease of $712 thousand from December 31, 2000. The primary reasons for this
decrease in working capital were due to the Company's accounts receivable and
accounts payable being substantially lower at September 30, 2001 versus December
31, 2000. Seasonal gas production is responsible for the decrease in the
Company's production receivable.
In August 2001, the Company entered into an agreement that modified prior
credit agreements. The new agreement provides for a revolving line of credit in
the amount of $4,000,000. Management of the Company believes this line of credit
is sufficient to meet the Company's funding requirements. Management of the
Company believes it can maintain the current level of bank debt until such time
as additional borrowings are required to fund the development and/or purchase of
oil and gas properties. The Company used cash on hand to fund the payment of a
quarterly distribution in October 2001.
The Company's cash flow from operations before the change in working
capital decreased $135 thousand, or 4%, during the nine months ended September
30, 2001 as compared to the same period in 2000. Abandonments and write down of
oil and gas properties decreased $100 thousand during the nine months ended
September 30, 2001 compared to the same period in 2000. Changes in working
capital other than cash and equivalents increased cash by $462 thousand and
decreased cash by $900 thousand
3
during the nine months ended September 30, 2001 and 2000, respectively. The
reductions in accounts receivable of $1,200 thousand and $1,573 thousand at
September 30, 2001 and 2000, respectively, compared to December 31, 2000 and
1999 are primarily the result of lower production revenues receivable.
Short-term investments increased $149 thousand and $2,060 thousand during the
nine months ended September 30, 2001 and 2000, respectively. Accounts payable
decreased $483 thousand and $400 thousand during the nine months ended September
30, 2001 and 2000, respectively. The reason for these changes is the result of
lower production revenues payable in the summer months due to production
restrictions associated with seasonal gas purchase agreements.
Cash flows provided by operating activities was $10.2 million for the nine
months ended September 30, 2001. Cash was used to purchase property and
equipment, repurchase Units, pay quarterly distributions and reduce debt.
Management of the Company believes the existing revolving credit facility
of $4,000,000 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 Repurchase Right and the payment of
quarterly distributions.
The Company executed a letter agreement that replaced certain other
agreements with Dominion Field Services, Inc., successor to The East Ohio Gas
Company, to sell Dominion a significant portion of the Company's natural gas
production through October 2003. The agreement provides for fixed pricing
ranging from $3.23 to $5.35 per MCF. Fixed pricing applies to certain fixed
quantities on a monthly basis with excess monthly quantities being priced based
on the NYMEX settled price. The impact on the Company cannot fully be measured
until actual production volumes and prices are determined.
4
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, 2001 and 2000.
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:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues:
Oil and gas sales 98% 97% 97% 97%
Well management and operating 2 3 3 3
Other - - - -
--- --- --- ---
Total Revenues 100 100 100 100
Expenses:
Production costs 15 18 15 17
Well management and operating 1 1 1 1
Depreciation, depletion and
amortization 27 32 28 32
Abandonment and write down
of oil and gas properties 1 3 1 2
General and administrative 9 9 8 9
Other (1) (2) (1) (2)
Income taxes - - - -
--- --- --- ---
Total Expenses 52 61 52 59
--- --- --- ---
Net Income 48% 39% 48% 41%
--- --- --- ---
Revenues for the three and nine months ended September 30, 2001 increased
$597 thousand and $1,334 thousand, respectively, compared to the same periods in
2000. These increases were due primarily to increases in oil and gas sales
during the three and nine months ended September 30, 2001 compared to the same
periods in 2000.
Oil and gas sales increased $591 thousand, or 18%, during the three months
ended September 30, 2001 compared to the same period in 2000. Oil and gas sales
increased $1,329 thousand, or 12%, during the nine months ended September 30,
2001 compared to the same nine-month period in 2000. These increases are
primarily the result of higher natural gas prices during 2001.
Production costs decreased $3 thousand, or 1%, during the three months
ended September 30, 2001 compared to the same period in 2000. Production costs
decreased $10 thousand, or 1%, during the nine months ended September 30, 2001
compared to the same period in 2000.
5
Depreciation, depletion and amortization decreased $6 thousand, or 1%,
during the three months ended September 30, 2001 compared to the same period in
2000. Depreciation, depletion and amortization decreased $40 thousand, or 1%,
during the nine months ended September 30, 2001 compared to the same period in
2000.
Abandonments and write down of oil and gas properties decreased $50
thousand and $100 thousand during the three and nine months ended September 30,
2001, respectively, compared to the same periods in 2000. These decreases were
attributable to decreases in the abandonment of leasehold costs.
General and administrative expenses increased $44 thousand, or 15%, during
the three months ended September 30, 2001 compared with the same period in 2000.
General and administrative expenses increased $56 thousand, or 6%, during the
nine months ended September 30, 2001 compared to the same period in 2000. The
primary reasons for these increases are due to increasing overhead costs
associated with ongoing operations of the Company.
Net other income decreased $33 thousand during the three months ended
September 30, 2001 compared to the same period in 2000. Net other income
decreased $23 thousand during the nine months ended September 30, 2001 compared
to the same period in 2000. These decreases are the result of decreases in
interest income resulting from reductions in short term investments and lower
interest rates.
The Company reported net income of $1,876 thousand, an increase of $575
thousand, or 44%, during the three months ended September 30, 2001 compared to
the same period in 2000. The Company reported net income of $5,990 thousand, an
increase of $1,387 thousand, or 30%, during the nine months ended September 30,
2001 compared to the same period in 2000.
Except for historical financial information contained in this Form 10-Q,
the statements made in this report are 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.
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Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 10.1 Loan Modification Agreement dated August 28, 2001 between
Bank One, N.A., successor to Bank One Texas, N.A., and
Everflow Eastern, Inc. and Everflow Eastern Partners, L.P.
(b) No reports on Form 8-K were filed with the Commission during the
Company's third quarter.
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SIGNATURE
Pursuant to the requirement 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.
Dated: November 13, 2001 EVERFLOW EASTERN PARTNERS, L.P.
By: EVERFLOW MANAGEMENT LIMITED, LLC,
General Partner
By: EVERFLOW MANAGEMENT CORPORATION
Managing Member
By: /s/ William A. Siskovic
------------------------------------------------
William A. Siskovic
Vice President and Principal Accounting Officer
(Duly Authorized Officer)
8