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, 1998
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 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, 1998 and December 31, 1997 F-1
Consolidated Statements of Income
Three and Nine Months Ended September 30, 1998 and 1997 F-3
Consolidated Statements of Partners' Equity
Nine Months Ended September 30, 1998 and 1997 F-4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997 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 8
Signature 9
2
3
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and December 31, 1997
----------------------------------------
September 30, December 31,
1998 1997
(Unaudited) (Audited)
----------- ---------
ASSETS
------
CURRENT ASSETS
Cash and equivalents $ 131,969 $ 679,531
Accounts receivable:
Production 844,029 1,984,366
Officers and employees 794,398 1,011,203
Joint venture partners 124,967 278,641
Notes receivable 350,000 -
Other 148,290 63,418
------------- -------------
Total current assets 2,393,653 4,017,159
PROPERTY AND EQUIPMENT
Proved properties (successful efforts
accounting method) 107,672,193 105,080,039
Pipeline and support equipment 506,153 466,717
Corporate and other 1,228,345 1,115,969
------------- -------------
109,406,691 106,662,725
Less accumulated depreciation, depletion,
amortization and write down (59,939,326) (56,422,935)
------------- -------------
49,467,365 50,239,790
OTHER ASSETS 787,210 503,157
------------- -------------
$ 52,648,228 $ 54,760,106
============= =============
See notes to unaudited consolidated financial statements.
F-1
4
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and December 31, 1997
September 30, December 31,
1998 1997
(Unaudited) (Audited)
----------- ---------
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 29,746 $ 27,936
Revolving credit facility 800,000 4,100,000
Accounts payable 836,100 1,207,268
Accrued expenses 262,477 257,893
------------- -------------
Total current liabilities 1,928,323 5,593,097
LONG-TERM DEBT 436,216 461,207
DEFERRED INCOME TAXES 128,000 128,000
COMMITMENTS AND CONTINGENCIES - -
LIMITED PARTNERS' EQUITY, SUBJECT TO
REPURCHASE RIGHT
Authorized - 8,000,000 Units
Issued and outstanding - 6,172,537 and
6,207,651 Units, respectively 49,619,023 48,072,593
GENERAL PARTNER'S EQUITY 536,666 505,209
------------- -------------
Total partners' equity 50,155,689 48,577,802
------------- -------------
$ 52,648,228 $ 54,760,106
============= =============
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, 1998 and 1997
-------------------------------------------------------
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
REVENUES
Oil and gas sales $ 3,056,512 $ 2,434,207 $ 10,996,470 10,382,160
Well management and operating 84,740 108,451 331,578 385,196
Other 582 1,074 2,663 3,764
----------- ----------- ----------- -----------
3,141,834 2,543,732 11,330,711 10,771,120
DIRECT COST OF REVENUES
Production costs 414,594 392,490 1,454,378 1,367,457
Well management and operating 55,232 67,977 185,961 219,278
Depreciation, depletion and amortization 851,652 741,291 3,489,339 3,356,681
Abandonment of oil and gas properties 536,802 320,000 536,802 320,000
----------- ----------- ----------- -----------
Total direct cost of revenues 1,858,280 1,521,758 5,666,480 5,263,416
GENERAL AND ADMINISTRATIVE
EXPENSE 512,947 399,124 1,450,601 1,348,928
----------- ----------- ----------- -----------
Total cost of revenues 2,371,227 1,920,882 7,117,081 6,612,344
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 770,607 622,850 4,213,630 4,158,776
OTHER INCOME (EXPENSE)
Interest income 7,159 8,754 27,296 31,909
Interest expense ( 31,387) ( 34,125) ( 133,565) ( 132,594)
Gain (loss) on sale of property
and equipment ( 5,613) 5,904 ( 5,613) 5,904
----------- ----------- ----------- -----------
( 29,841) ( 19,467) ( 111,882) ( 94,781)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 740,766 603,383 4,101,748 4,063,995
PROVISION (CREDIT)
FOR INCOME TAXES
Current - - - -
Deferred - - - -
----------- ----------- ----------- -----------
- - - -
----------- ----------- ----------- -----------
NET INCOME $ 740,766 $ 603,383 $ 4,101,748 $ 4,063,995
=========== =========== =========== ===========
Allocation of Partnership Net Income
Limited Partners $ 732,803 $ 596,927 $ 4,057,791 $ 4,021,540
General Partner 7,963 6,456 43,957 42,455
----------- ----------- ----------- -----------
$ 740,766 $ 603,383 $ 4,101,748 $ 4,063,995
=========== =========== =========== ===========
Earnings per unit $ .12 $ .10 $ .65 $ .64
====== ===== ====== =====
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, 1998 and 1997
---------------------------------------------
(Unaudited)
1998 1997
---- ----
EQUITY - JANUARY 1 $ 48,577,802 $ 46,959,473
Net income 4,101,748 4,063,995
Cash distributions ($.375 per Unit) ( 2,348,642) ( 2,396,103)
Repurchase Right - Units tendered ( 175,219) ( 897,631)
-------------- --------------
EQUITY - SEPTEMBER 30 $ 50,155,689 $ 47,729,734
=============== ===============
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, 1998 and 1997
---------------------------------------------
(Unaudited)
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,101,748 $ 4,063,995
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 3,518,893 3,411,714
Abandonment of oil and gas properties 536,802 320,000
Loss (gain) on sale of property and equipment 5,613 (5,904)
Deferred income taxes
Changes in assets and liabilities:
Accounts and notes receivable 944,011 1,844,754
Other current assets (84,872) (17,039)
Other assets (284,053) (2,683)
Accounts payable (371,168) (420,279)
Accrued expenses 4,584 (160,433)
-------------- --------------
Total adjustments 4,269,810 4,970,130
-------------- --------------
Net cash provided by operating activities 8,371,558 9,034,125
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on receivables from officers and
employees 516,501 526,294
Advances disbursed to officers and employees (299,696) (279,181)
Purchase of property and equipment (3,288,883) (3,624,507)
Proceeds on sale of property and equipment - 10,500
-------------- --------------
Net cash used by investing activities (3,072,078) (3,366,894)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of Units (175,219) (897,631)
Distributions (2,348,642) (2,396,103)
Proceeds from issuance of debt including
revolver activity 1,900,000 1,425,000
Payments on debt including revolver activity (5,223,181) (4,315,864)
-------------- --------------
Net cash used by financing activities (5,847,042) (6,184,598)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS (547,562) (517,367)
CASH AND EQUIVALENTS AT BEGINNING
OF YEAR 679,531 739,370
-------------- --------------
CASH AND EQUIVALENTS AT END OF
THIRD QUARTER $ 131,969 $ 222,003
============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 112,604 $ 140,321
Income taxes - -
See notes to unaudited consolidated financial statements.
F-5
8
EVERFLOW EASTERN PARTNERS, 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 27, 1998.
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 6,172,537 and 6,195,946 for
the three and nine months ended September 30, 1998,
and 6,207,651 and 6,322,511 for the three and nine
months ended September 30, 1997, respectively.
E. New Accounting Standard - In February 1997, SFAS 128,
"Earnings per Share" and SFAS 129, "Disclosure of
Information About Capital Structure," were issued.
SFAS 128 establishes new standards for computing and
reporting earnings per share. SFAS 129 requires an
entity to explain the pertinent rights and privileges
of outstanding securities. The effect of adoption of
the new standards was not significant.
In June 1997, SFAS 130, "Reporting Comprehensive
Income," was issued. SFAS 130 established new
standards for reporting comprehensive income and its
components and is effective for fiscal years
beginning after December 15, 1997. The Company's
comprehensive income does not differ materially from
net income.
In June 1997, the Financial Accounting Standards
Board issued SFAS 131, "Disclosure About Segments of
an Enterprise and Related
F-7
10
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 (Continued)
Information." SFAS 131 Changes the standards for
reporting financial results by operating segments,
related products and services, geographical areas and
major customers. The Company must adopt SFAS 131 no
later than December 31, 1998. The Company believes
that the effect of adoption will not be material.
Note 2. Credit Facilities and Long-Term Debt
In May 1998, 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
$7,000,000, all of which is available. The revolving line of
credit provides for interest payable quarterly at LIBOR plus
175 basis points with the principal due at maturity, May 31,
1999. The Company anticipates renewing the facility on a year
to year basis to minimize debt origination, carrying and
interest costs associated with long-term bank commitments. The
previous credit agreement contained generally the same terms.
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 $7,000,000; (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, which have an aggregate balance of $371,265 and
$388,979 at September 30, 1998 and December 31, 1997,
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 $94,697 and
$100,164 at September 30, 1998 and December 31, 1997,
respectively, 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.
F-8
11
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
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, 1997 calculation was $4.99
per Unit, net of the distributions ($.125 per Unit) made in
January and April 1998.
F-9
12
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 3. Partners' Equity (Continued)
The Company accepted an aggregate of 35,114 of its Units of
limited partnership interest at $4.99 per Unit pursuant to the
terms of the Company's Offer to Purchase dated April 30, 1998.
The Offer expired in accordance with its terms on June 30,
1998. Immediately after the acceptance of the tendered Units
by the Company, there were 6,172,537 Units outstanding.
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
---- ----- ------- ------------- ---------- ----------- ----------
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
1998 $5.24 $ - $.250 $4.990 35,114 6,172,537
Note 4. Commitments and Contingencies
Everflow paid a quarterly dividend in October 1998 of $.125
per Unit to Unitholders of record on September 30, 1998. The
distribution amounted to approximately $780,000.
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-10
13
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 4. 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.
The Company is aware of the implications and issues associated
with certain computer-based systems which are dependent upon
date routines that may cause errors in computer processing in
connection with the year 2000. The Company is evaluating and
responding to the potential impact of the year 2000 issue on
its computer and other operating systems. The Company is in
contact with certain key third parties, including financial
institutions, customers and suppliers with which the Company
does business electronically to address the compatibility of
systems. To the extent that these key third parties are
impacted by their failure to address the year 2000 problem,
such disruption could have a direct impact on the Company. The
Company does not anticipate that the total cost of being in
compliance with year 2000 needs will have a material effect on
the Company's financial position or results of operations.
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 decrease
by $0.19 per MCF per contract beginning with the November 1998
production period. The majority of the Company's Natural gas
production falls under the East Ohio Contracts.
Note 6. Significant Events
The Company is exploring and evaluating the advisability of
seeking a purchaser for the Company and currently is in the
process of soliciting bids from various prospective
purchasers.
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, 1998 and December 31, 1997:
September 30, 1998 December 31, 1997
------------------ -----------------
(Amounts in Thousands) Amount % Amount %
------ - ------ -
Working capital $ 465 1% $( 1,576) ( 3)%
Property and equipment (net) 49,467 97 50,240 102
Other 787 2 503 1
------ -- -------- ----
Total $ 50,719 100% $ 49,167 100%
====== ==== ======= ====
Long-term debt $ 436 1% 461 1%
Deferred income taxes 128 - 128 -
Partners' equity 50,155 99 48,578 99
------ --- ------ ----
Total $ 50,719 100% $ 49,167 100%
====== === ====== ====
Working capital of $465 thousand as of September 30, 1998 represented
an increase of $2.0 million from December 31, 1997. The primary reasons for this
increase in working capital were due to the Company's production receivable and
revolving credit facility being substantially lower at September 30, 1998 versus
December 31, 1997. Seasonal gas production is responsible for the decrease in
the Company's production receivable. The Company paid down $3.3 million of
long-term debt during the nine months ended September 30, 1998. 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 $1.0 million during October 1998, under the Company's
existing credit facility, to fund the payment of a quarterly distribution and
the development of oil and gas properties.
The Company's cash flow from operations before the change in working
capital increased $373 thousand, or 5%, during the nine months ended September
30, 1998 as compared to the same period in 1997. Changes in working capital
other than cash and equivalents increased cash by $209 thousand and $1,244
thousand during the nine months ended September 30, 1998 and 1997, respectively.
The reductions in accounts receivable of $944 thousand and $1,845 thousand at
September 30, 1998 and 1997, respectively, compared
3
15
to December 31, 1997 and 1996 are primarily the result of lower production
revenues receivable. Accounts payable decreased $371 thousand and $420 thousand
during the nine months ended September 30, 1998 and 1997, 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 $8.4 million for the
nine months ended September 30, 1998. 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.
The Company has various gas purchase agreements with The East Ohio Gas
Company. Pursuant to these agreements, the Company will receive a decrease in
the price received for natural gas production in the amount of $0.19 per MCF
beginning in November 1998. The majority of the Company's natural gas production
is subject to these agreements. As a result, Management expects a decrease in
natural gas sales for the remainder of 1998 and most of 1999, although no
assurance can be given. The impact on the Company cannot fully be measured until
actual production volumes are determined.
There have been a number of transactions involving the purchase and
sale of oil and gas properties in the Appalachian Basin recently. Management of
the Company is exploring and evaluating the advisability of seeking a purchaser
for the Company and currently is in the process of soliciting bids from various
prospective purchasers.
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, 1998
and 1997. 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,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Oil and gas sales 97% 96% 97% 96%
Well management and operating 3 4 3 4
Other - - - -
--- --- --- ---
Total Revenues 100% 100% 100% 100%
Expenses:
Production costs 13% 15% 13% 13%
Well management and operating 2 3 1 2
Depreciation, depletion and amortization 27 29 31 31
Abandonment of oil and gas properties 17 13 5 3
General and administrative 16 16 13 12
Other 1 1 1 1
Income taxes - - - -
--- --- --- ---
Total Expenses 76 77 64 62
=== === === ===
Earnings 24% 23% 36% 38%
=== === === ===
Revenues for the three and nine months ended September 30, 1998
increased $598 thousand and $560 thousand, respectively, compared to the same
periods in 1997. These increases were due primarily to increases in oil and gas
sales during the three and nine months ended September 30, 1998 compared to the
same periods in 1997.
Oil and gas sales increased $622 thousand, or 26%, during the three
months ended September 30, 1998 compared to the same period in 1997. Oil and gas
sales increased $614 thousand, or 6%, during the nine months ended September 30,
1998 compared to the same nine month period in 1997. These increases are
primarily the result of higher gas prices during 1998 due to pricing adjustments
contained in the East Ohio Gas Company contracts.
Production costs increased $22 thousand, or 6%, during the three months
ended September 30, 1998, compared to the same period in 1997. Production costs
increased $87 thousand, or 6%, during the nine months ended September 30, 1998
compared to the same period in 1997. An increase in the number of productive
properties during these periods is primarily responsible for these increases.
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Depreciation, depletion and amortization increased $110 thousand, or
15%, during the three months ended September 30, 1998 compared to the same
period in 1997. Depreciation, depletion and amortization increased $133
thousand, or 4%, during the nine months ended September 30, 1998 compared to the
same period in 1997.
Abandonments of oil and gas properties increased $217 thousand during
the three and nine months ended September 30, 1998 compared to the same periods
in 1997. This increase was attributable to the abandonment of oil and gas
properties associated with dry hole costs.
General and administrative expenses increased $114 thousand, or 29%,
during the three months ended September 30, 1998 compared with the same period
in 1997. General and administrative expenses increased $102 thousand, or 8%,
during the nine months ended September 30, 1998 compared to the same period in
1997. The primary reasons for these increases are due to professional fees
increasing as a result of costs associated with the Company's evaluation process
of seeking a purchaser for the Company.
Net other expense increased $10 thousand, or 53%, during the three
months ended September 30, 1998 compared to the same period in 1997. Net other
expense increased $17 thousand, or 18%, during the nine months ended September
30, 1998 compared to the same period in 1997. These increases are the result of
losses generated from the sale of property and equipment.
The Company reported net income of $741 thousand, an increase of $137
thousand, or 23%, during the three months ended September 30, 1998 compared to
the same period in 1997. The Company reported net income of $4,102 thousand, an
increase of $38 thousand, or 1%, during the nine months ended September 30, 1998
compared to the same period in 1997.
The Company has various gas purchase agreements with The East Ohio Gas
Company. Pursuant to these agreements, the Company will receive a decrease in
the price received for natural gas production in the amount of $0.19 per MCF
beginning in November 1998. The majority of the Company's natural gas production
is subject to these agreements. As a result, Management expects a decrease in
natural gas sales for the remainder of 1998 and most of 1999, 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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Year 2000 Readiness Disclosure
- ------------------------------
The Company is aware of the implications and issues associated with
certain computer-based systems which are dependent upon date routines that may
cause errors in computer processing in connection with the year 2000. The
Company is evaluating and responding to the potential impact of the year 2000
issue on its computer and other operating systems. The Company is in contact
with certain key third parties, including financial institutions, customers and
suppliers with which the Company does business electronically to address the
compatibility of systems. To the extent that these key third parties are
impacted by their failure to address the year 2000 problem, such disruption
could have a direct impact on the Company. The Company does not anticipate that
the total cost of being in compliance with year 2000 needs will have a material
effect on the Company's financial position or results of operations.
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Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) On November 10, 1998, 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, 1998 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)
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