Exhibit (a)(3)
2002 Annual Report April 30, 2003
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EVERFLOW EASTERN PARTNERS, L.P.
Newsletter
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TO OUR EVERFLOW PARTNERS . . .
Everflow Eastern Partners, L.P. incurred development costs of $3.7
million during 2002, including the purchase of approximately $222,000 of
producing oil and gas properties. The Standardized Measure of Discounted Future
Net Cash Flows increased by $22.8 million between December 31, 2001 and 2002 due
primarily to net changes in natural gas and crude oil prices. Total assets of
the Company amounted to $52.6 million with partners' equity of $51.5 million.
Over the ten years prior to 2002, the Company had been selling a
significant portion of its natural gas pursuant to Intermediate Term Adjustable
Price Gas Purchase Agreements with Dominion Field Services, Inc., its affiliates
and its predecessors ("Dominion"). The Company's last remaining long-term
contract with Dominion terminated during 2001. The Company replaced these
long-term contracts with short-term contracts, which obligate Dominion and
Interstate Gas Supply, Inc. to purchase, and the Company to sell and deliver,
certain natural gas production from the Company's wells throughout the contract
periods. Prices under these contracts range from $4.00 to $8.05 per MCF with
excess natural gas production priced at the NYMEX settled price plus a basis
adjustment.
The Company distributed $1.25 per Unit during 2002 and reported net
taxable income of $0.89. Net taxable income is determined by adding Ordinary
Income, Interest and Dividends less IDC and Depletion deductions on a per Unit
basis.
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, 2002, 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 11).
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 30, 2003 and June 30, 2003, 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, 2002, as adjusted for distributions since that date.
Based on the enclosed audited financial statements, the Purchase Price
this year is $8.44 per Unit calculated as follows:
Total partners' equity at December 31, 2002 $ 51,508,000
Add:
Standardized Measure of Discounted
Future Net Cash Flows 67,934,000
Tax effect adjustment 1,421,000
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69,355,000
Deduct:
Carrying value of oil and gas properties
(net of undeveloped lease costs and
prepaid well costs):
Historical cost 118,141,000
Depletion and Amortization 76,100,000
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42,041,000
Adjusted Book Value 78,822,000
66% of Adjusted Book Value 52,023,000
98.85% Limited Partners' share 51,423,000
Unit price based on 5,748,773 Units 8.94
Distribution - January 2, 2003 .25
Distribution - April 1, 2003 .25
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Calculated Purchase Price $ 8.44
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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.
Management of the Company believes that any proceeds on the sale of
Units for most Unitholders would likely result in these proceeds being taxed as
ordinary income and not capital gains. The sale of Units would require that all
prior deductions for intangible drilling and development costs (including
intangible drilling and development costs deducted originally when most of the
current Unitholders invested in drilling programs back in the 1980's) and
depletion deductions (except for percentage depletion deductions in excess of
the basis of a property) are subject to recapture and are treated as ordinary
income, with the amount recaptured limited to the amount of taxable gain on the
sale of the Units (see Section 11 of the Offer the Purchase).
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 - 330-533-2692