1
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, 1997
[ ] 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 0-19279 34-1659910
- ----------------------------- ------------ -------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
585 West Main Street, P.O. Box 629, Canfield, Ohio 44406
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(330)533-2692
----------------------------------------------------
(Registrant's telephone number, including area code)
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
----- -----
2
EVERFLOW EASTERN PARTNERS, L.P.
INDEX
DESCRIPTION PAGE NO.
----------- --------
Part I. Financial Information
-----------------------------
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 F-1
Consolidated Statements of Income
Three and Nine Months Ended September 30, 1997 and 1996 F-3
Consolidated Statements of Partners' Equity
Nine Months Ended September 30, 1997 and 1996 F-4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996 F-5
Notes to Unaudited Consolidated Financial
Statements F-6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
Part II. Other Information
--------------------------
Exhibits and Reports on Form 8-K 6
Signature 7
2
3
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and December 31, 1996
----------------------------------------
September 30, December 31,
1997 1996
(Unaudited) (Audited)
----------- ---------
ASSETS
------
CURRENT ASSETS
Cash and equivalents $ 222,003 $ 739,370
Accounts receivable:
Production 528,517 2,195,525
Officers and employees 682,344 929,457
Joint venture partners 362,106 539,852
Other 99,863 82,824
------------- ------------
Total current assets 1,894,833 4,487,028
PROPERTY AND EQUIPMENT
Proved properties (successful efforts
accounting method) 101,457,207 98,321,815
Pipeline and support equipment 466,717 451,971
Corporate and other 1,136,973 1,025,175
------------- ------------
103,060,897 99,798,961
Less accumulated depreciation, depletion,
amortization and write down (54,877,234) (51,503,495)
------------- ------------
48,183,663 48,295,466
OTHER ASSETS 408,526 405,843
------------- ------------
$ 50,487,022 $ 53,188,337
============= ============
See notes to unaudited consolidated financial statements.
F-1
4
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and December 31, 1996
----------------------------------------
September 30, December 31,
1997 1996
(Unaudited) (Audited)
----------- ---------
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 1,049,000 $ 19,600
Accounts payable 825,771 1,246,050
Accrued expenses 138,547 298,980
----------- -----------
Total current liabilities 2,013,318 1,564,630
LONG-TERM DEBT 465,970 4,386,234
DEFERRED INCOME TAXES 278,000 278,000
COMMITMENTS AND CONTINGENCIES - -
LIMITED PARTNERS' EQUITY, SUBJECT TO
REPURCHASE RIGHT
Authorized - 8,000,000 Units
Issued and outstanding - 6,207,651 and
6,379,941 Units, respectively 47,219,026 46,471,094
GENERAL PARTNER'S EQUITY 510,708 488,379
----------- -----------
Total partners' equity 47,729,734 46,959,473
----------- -----------
$50,487,022 $53,188,337
=========== ===========
See notes to unaudited consolidated financial statements.
F-2
5
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended September 30, 1997 and 1996
-------------------------------------------------------
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES
Oil and gas sales $ 2,434,207 $ 2,018,122 $ 10,382,160 $ 8,807,783
Well management and operating 108,451 103,362 385,196 391,034
Other 1,074 13,428 3,764 16,232
----------- ------------ ------------ -----------
2,543,732 2,134,912 10,771,120 9,215,049
DIRECT COST OF REVENUES
Production costs 392,490 349,255 1,367,457 1,278,010
Well management and operating 67,977 53,760 219,278 202,889
Depreciation, depletion and amortization 741,291 789,077 3,356,681 3,455,954
Abandonment of oil and gas properties 320,000 - 320,000 -
----------- ------------ ------------ -----------
Total direct cost of revenues 1,521,758 1,192,092 5,263,416 4,936,853
GENERAL AND ADMINISTRATIVE
EXPENSE 399,124 443,150 1,348,928 1,482,914
----------- ------------ ------------ -----------
Total cost of revenues 1,920,882 1,635,242 6,612,344 6,419,767
----------- ------------ ------------ -----------
INCOME FROM OPERATIONS 622,850 499,670 4,158,776 2,795,282
OTHER INCOME (EXPENSE)
Interest income 8,754 6,091 31,909 21,888
Interest expense (34,125) (69,491) (132,594) (191,216)
Gain on sale of property
and equipment 5,904 - 5,904 -
----------- ------------ ------------ -----------
(19,467) (63,400) (94,781) (169,328)
----------- ------------ ------------ -----------
INCOME BEFORE INCOME TAXES 603,383 436,270 4,063,995 2,625,954
PROVISION (CREDIT)
FOR INCOME TAXES
Current - - - -
Deferred - (30,000) - (90,000)
----------- ------------ ------------ -----------
- (30,000) - (90,000)
----------- ------------ ------------ -----------
NET INCOME $ 603,383 466,270 $ 4,063,995 $ 2,715,954
=========== ============ ============ ===========
Allocation of Partnership Net Income
Limited Partners $ 596,927 $ 461,465 $ 4,021,540 $ 2,688,156
General Partner 6,456 4,805 42,455 27,798
----------- ------------ ------------ -----------
$ 603,383 $ 466,270 $ 4,063,995 $ 2,715,954
=========== ============ ============ ===========
Earnings per unit $ .10 $ .07 $ .64 $ .42
=========== ============ ============ ===========
See notes to unaudited consolidated financial statements.
F-3
6
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
Nine Months Ended September 30, 1997 and 1996
---------------------------------------------
(Unaudited)
1997 1996
---- ----
EQUITY - JANUARY 1 $ 46,959,473 $ 46,207,378
Net income 4,063,995 2,715,954
Cash distributions ($.375 per Unit) (2,396,103) (2,430,914)
Repurchase Right - Units tendered (897,631) (238,964)
------------ ------------
EQUITY - SEPTEMBER 30 $ 47,729,734 $ 46,253,454
============ ============
See notes to unaudited consolidated financial statements.
F-4
7
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 and 1996
---------------------------------------------
(Unaudited)
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,063,995 $ 2,715,954
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 3,411,714 3,493,495
Abandonment of oil and gas properties 320,000 -
(Gain) on sale of property and equipment (5,904) -
Deferred income taxes - (90,000)
Changes in assets and liabilities:
Accounts receivable 1,844,754 1,629,764
Other current assets (17,039) (12,268)
Other assets (2,683) 982
Accounts payable (420,279) (456,215)
Accrued expenses (160,433) (13,468)
----------- -----------
Total adjustments 4,970,130 4,552,290
----------- -----------
Net cash provided by operating activities 9,034,125 7,268,244
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on receivables from officers and
employees 526,294 503,408
Advances disbursed to officers and employees (279,181) (231,240)
Purchase of property and equipment (3,624,507) (2,972,482)
Proceeds on sale of property and equipment 10,500 -
----------- -----------
Net cash used by investing activities (3,366,894) (2,700,314)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of Units (897,631) (238,964)
Distributions (2,396,103) (2,430,914)
Proceeds from issuance of long-term debt 1,425,000 3,100,000
Payments on long-term debt (4,315,864) (4,808,348)
----------- -----------
Net cash used by financing activities (6,184,598) (4,378,226)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS (517,367) 189,704
CASH AND EQUIVALENTS AT BEGINNING
OF YEAR 739,370 426,743
----------- -----------
CASH AND EQUIVALENTS AT END OF
THIRD QUARTER $ 222,003 $ 616,447
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 140,321 $ 205,517
Income taxes - -
See notes to unaudited consolidated financial statements.
F-5
8
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 27, 1997.
The results of operations for the interim periods may
not necessarily be indicative of the results to be
expected for the full year.
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").
Everflow Management Company, an Ohio general
partnership, is the general partner of Everflow.
Everflow Management Company is authorized, in
general, to perform all acts necessary or desirable
to carry out the purposes and conduct of the business
of Everflow. The partners of Everflow Management
Company are Everflow Management Corporation ("EMC"),
three 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 general partner of
Everflow Management Company.
F-6
9
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 1. Organization and Summary of Significant Accounting Policies
(Continued)
C. Principles of Consolidation - The consolidated
financial statements include the accounts of
Everflow, 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 are allocated to
the Unitholders (the limited partners) and 1% of
revenues and costs are 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 were 6,207,651 and 6,322,511 for
the three and nine months ended September 30, 1997,
and 6,379,941 and 6,415,343 for the three and nine
months ended September 30, 1996, respectively.
E. Recently Issued Accounting Pronouncements - In
February 1997, the Financial Accounting Standards
Board issued SFAS No. 128, "Earnings Per Share,"
which is effective for fiscal years ending after
December 15, 1997. SFAS 128 specifies the
computation, presentation and disclosure requirements
for earnings per share. The objective of the
statement is to simplify the computation of earnings
per share. Earnings per Unit computed in accordance
with SFAS 128 is not expected to be materially
different than earnings per Unit as currently
reported by the Company.
Note 2. Long-Term Debt
In June 1997, the Company entered into an agreement that
replaced all prior credit agreements. The credit agreement
provides for a revolving line of credit in the amount of
$7,000,000, all of which is available. The revolving line of
credit provides for interest payable quarterly at LIBOR plus
175 basis points
F-7
10
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 2. Long-Term Debt (Continued)
with the principal due at maturity, May 31, 1998. 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: (1) loan balance not to exceed the borrowing base
of $7,000,000; (2) tangible net worth of at least
$40,000,000; (3) 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. Two
of the notes, which have an aggregate balance of $389,970 and
$405,834 at September 30, 1997 and December 31, 1996,
respectively, bear interest at 8.22% per annum until October
6, 1998 and then a variable rate of .5% above prime until
maturity. A third note, which has a balance of $125,000 at
September 30, 1997, bears interest at 8.41% per annum until
June 25, 2000 and then a variable rate of .5% above prime
until maturity. The notes require aggregate payments of
principal and interest of approximately $5,600 per month.
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 Company 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 are allocated to the
Unitholders (the limited partners) and 1% of revenues and
costs are allocated to the General Partner. Such allocation
has changed and will change in the future due to Unitholders
electing to exercise the Repurchase Right.
F-8
11
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 3. Partners' Equity (Continued)
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 will be
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 to 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
Investor's Units so 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, 1996 calculation was $5.21
per Unit, net of the distributions ($.125 per Unit) made in
January and April 1997.
The Company accepted an aggregate of 172,290 of its Units of
limited partnership interest at $5.21 per Unit pursuant to the
terms of the Company's Offer to Purchase dated April 30, 1997.
The Offer expired in accordance with its terms on June 30,
1997. Immediately after the acceptance of the tendered Units
by the Company, there were 6,207,651 Units outstanding.
F-9
12
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 3. Partners' Equity (Continued)
Units repurchased pursuant to the Repurchase Right, for each
of the last five years, are as follows:
Calculated Units
Price for Less # of Out-standing
Repurchase Premium Interim Net Units Following
Year Right Offered Distributions Price Paid Repurchased Repurchase
---- ----- ------- ------------- ---------- ----------- ----------
1993 $4.60 $ - $.250 $4.350 40,002 6,541,524
1994 $4.80 $ - $.250 $4.550 26,958 6,514,566
1995 $4.72 $.28 $.375 $4.625 81,522 6,433,044
1996 $4.48 $.27 $.250 $4.500 53,103 6,379,941
1997 $5.46 $ - $.250 $5.210 172,290 6,207,651
Note 4. Commitments and Contingencies
Everflow paid a quarterly dividend in October 1997 of $.125
per Unit to Unitholders of record on September 30, 1997. The
distribution amounted to approximately $784,000.
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 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
F-10
13
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 4. Commitments and Contingencies (Continued)
predict what effect, if any, current and future regulations
may have on the operations of the Company.
Note 5. Business Segments and Major Customers
The Company has various Intermediate Term Adjustable Price Gas
Purchase Agreements (the "East Ohio Contracts") with The East
Ohio Gas Company ("East Ohio"). Pursuant to Article V of the
East Ohio Contracts, the new adjusted base price will increase
by $0.59 per MCF per contract beginning with the November 1997
production period. The majority of the Company's Natural gas
production falls under the East Ohio Contracts.
F-11
14
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, 1997 and December 31, 1996:
September 30, 1997 December 31, 1996
------------------ -----------------
(Amounts in Thousands) Amount % Amount %
---------------------- ------ - ------ -
Working capital $( 118) - % $ 2,922 6%
Property and equipment (net) 48,184 99 48,295 93
Other 408 1 406 1
------ -- -------- ---
Total $ 48,474 100% $ 51,623 100%
====== === ====== ===
Long-term debt $ 466 1% 4,386 8%
Deferred income taxes 278 1 278 1
Partners' equity 47,730 98 46,959 91
------ ---- ------ ---
Total $ 48,474 100% $ 51,623 100%
====== === ====== ===
Working capital deficit of $118 thousand as of September 30, 1997
represented a decrease of $3.0 million from December 31, 1996. The primary
reasons for this decrease in working capital were due to the Company's
production receivable being substantially lower at September 30, 1997 versus
December 31, 1996 and the Company's line of credit classified as current as of
September 30, 1997 in the amount of $1.0 million. Seasonal gas production is
responsible for the decrease in the Company's production receivable. The Company
paid down $2.9 million of long-term debt during the nine months ended September
30, 1997. Management of the Company believes it can maintain a reduced level of
long-term debt until such time as additional borrowings are required to fund the
ongoing development of oil and gas properties and the Company's anticipated
quarterly distributions. The Company borrowed $700 thousand during October 1997,
under the Company's existing credit facility, to fund the payment of a quarterly
distribution.
The Company's cash flow from operations before the change in working
capital increased $1.7 million, or 27%, during the nine months ended September
30, 1997 as compared to the same period in 1996. Changes in working capital
other than cash and equivalents increased cash by $1.2 million and $1.1 million
during the nine months ended September 30, 1997 and 1996, respectively. The
reductions in accounts receivable of $1.8 million and $1.6 million at September
30, 1997 and 1996, respectively, compared to
3
15
December 31, 1996 and 1995 are primarily the result of lower production revenues
receivable. Accounts payable decreased $420 thousand and $456 thousand during
the nine months ended September 30, 1997 and 1996, 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. Accrued expenses decreased $160 thousand and $13 thousand during the
nine months ended September 30, 1997 and 1996, respectively. The primary reason
for these changes is the result of timing differences for accrued payroll
expenses.
Cash flows provided by operating activities was $9.0 million for the
nine months ended September 30, 1997. Cash was used to purchase property and
equipment, repurchase Units, pay quarterly distributions and reduce long-term
debt.
Additional borrowings for operations may be required during the fourth
quarter due to the seasonal nature of the gas purchase agreements with The East
Ohio Gas Company and the timing of revenue receipts associated with these
agreements. Seasonal price reductions and production restrictions during the
summer months will reduce operating revenues and consequently cash flows from
operations during such periods.
Management of the Company believes the existing revolving credit
facility of $7,000,000 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.
In October of 1997, the Company received notification of an increase in
the price received for natural gas pursuant to the pricing adjustments contained
in the Company's Intermediate Term Adjustable Price Gas Purchase Agreements with
The East Ohio Gas Company.
These adjustments represent a $0.59 per MCF increase in the contract
price for three of the Company's contracts beginning November 1997. The majority
of the Company's natural gas production falls under these agreements. These
pricing adjustments will increase the Company's cash flows and income from
operations, beginning with November 1997 natural gas sales.
Management of the Company believes that income from operations, plus
the existing revolving credit facility of $7,000,000, should be sufficient to
meet the funding and financing requirements of the Company for both the short
and long term.
4
16
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, 1997
and 1996. 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,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Oil and gas sales 96% 94% 96% 96%
Well management and operating 4 5 4 4
Other - 1 - -
---- ---- --- ---
Total Revenues 100% 100% 100% 100%
Expenses:
Production costs 15% 16% 13% 14%
Well management and operating 3 2 2 2
Depreciation, depletion and amortization 29 37 31 38
Abandonment of oil and gas properties 13 - 3 -
General and administrative 16 21 12 16
Other 1 3 1 2
Income taxes - ( 1) - ( 1)
---- ---- --- ---
Total Expenses 77 78 62 71
==== ==== === ===
Earnings 23% 22% 38% 29%
==== ==== === ===
Revenues for the three and nine months ended September 30, 1997
increased $409 thousand and $1,556 thousand, respectively, compared to the same
periods in 1996. These increases were due primarily to increases in oil and gas
sales during the three and nine months ended September 30, 1997 compared to the
same periods in 1996.
Oil and gas sales increased $416 thousand, or 21%, during the three
months ended September 30, 1997 compared to the same period in 1996. Oil and gas
sales increased $1,574 thousand, or 18%, during the nine months ended September
30, 1997 compared to the same nine month period in 1996. These increases are
primarily the result of higher gas prices during 1997 due to pricing adjustments
contained in the East Ohio Gas Company contracts.
Production costs increased $43 thousand, or 12%, during the three
months ended September 30, 1997, compared to the same period in 1996. Production
costs increased $89 thousand, or 7%, during the nine months ended September 30,
1997 compared to the same period in 1996. An increase in the number of
productive properties during these periods is primarily responsible for these
increases.
Depreciation, depletion and amortization decreased $48 thousand, or 6%,
during the three months ended September 30, 1997 compared to the same period in
1996. Depreciation,
5
17
depletion and amortization decreased $99 thousand, or 3%, during the nine months
ended September 30, 1997 compared to the same period in 1996.
Abandonments of oil and gas properties increased $320 thousand during
the three and nine months ended September 30, 1997 compared to the same periods
in 1996. This increase was attributable to the write down and abandonment of oil
and gas properties associated with leasehold prospects the Company has
determined it will not likely develop.
General and administrative expenses decreased $44 thousand, or 10%,
during the three months ended September 30, 1997 compared with the same period
in 1996. General and administrative expenses decreased $134 thousand, or 9%,
during the nine months ended September 30, 1997 compared to the same period in
1996. The primary reasons for these decreases are due to timing differences in
the Company's general and administrative expenses.
Net other expense decreased $44 thousand, or 69%, during the three
months ended September 30, 1997 compared to the same period in 1996. Net other
expense decreased $75 thousand, or 44%, during the nine months ended September
30, 1997 compared to the same period in 1996. These decreases are the result of
lower interest costs during 1997 from a reduced level of debt.
The Company reported net income of $603 thousand, an increase of $137
thousand, or 29%, during the three months ended September 30, 1997 compared to
the same period in 1996. The Company reported net income of $4,064 thousand, an
increase of $1.3 million, or 50%, during the nine months ended September 30,
1997 compared to the same period in 1996. The increase in oil and gas sales was
primarily responsible for the increases in net income during the three and nine
months ended September 30, 1997.
The Company has various gas purchase agreements with The East Ohio Gas
Company. Pursuant to these agreements, the Company will receive an increase in
the price received for natural gas production in the amount of $0.59 per MCF
beginning in November 1997. The majority of the Company's natural gas production
is subject to these agreements. As a result, Management expects an increase in
natural gas sales for the remainder of 1997 and most of 1998, although no
assurance can be given. The impact on the Company cannot fully be measured until
actual production volumes are determined.
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 adjustments pursuant to the Company's
Intermediate Term Adjustable Price Gas Purchase Agreements with The East Ohio
Gas Company, price fluctuations in the gas market in the Appalachian Basin,
actual oil and gas production and the weather in the Northeast Ohio area.
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Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) On November 7, 1997, the Registrant filed a current
report on Form 8-K relating to pricing adjustments
under the Company's Agreements with The East Ohio Gas
Company.
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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 12, 1997 EVERFLOW EASTERN PARTNERS, L.P.
By: EVERFLOW MANAGEMENT COMPANY,
General Partner
By: EVERFLOW MANAGEMENT CORPORATION
Managing General Partner
By: /s/William A. Siskovic
---------------------------------------
William A. Siskovic
Vice President and Principal Accounting
Officer
(Duly Authorized Officer)
8