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 MARCH 31, 1999
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 6,172,537 Units of limited partnership interest of the
Registrant as of May 12, 1999. 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 March 31, 1999.
2
EVERFLOW EASTERN PARTNERS, L.P.
INDEX
DESCRIPTION PAGE NO.
----------- --------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 F-1
Consolidated Statements of Income
Three Months Ended March 31, 1999 and 1998 F-3
Consolidated Statements of Partners' Equity
Three Months Ended March 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998 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 6
Signature 7
2
3
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and December 31, 1998
------------------------------------
March 31, December 31,
1999 1998
(Unaudited) (Audited)
----------- ---------
ASSETS
------
CURRENT ASSETS
Cash and equivalents $ 461,548 $ 294,518
Accounts receivable:
Production 2,027,147 2,323,510
Officers and employees 853,337 1,015,458
Joint venture partners 167,086 366,121
Short-term investments 2,250,148 2,221,056
Other 126,036 92,355
------------- -------------
Total current assets 5,885,302 6,313,018
PROPERTY AND EQUIPMENT
Proved properties (successful efforts
accounting method) 111,873,392 110,178,841
Pipeline and support equipment 530,538 506,153
Corporate and other 1,273,902 1,212,857
------------- -------------
113,677,832 111,897,851
Less accumulated depreciation, depletion,
amortization and write down (63,152,557) (61,651,637)
------------- -------------
50,525,275 50,246,214
OTHER ASSETS 53,047 53,721
------------- -------------
$ 56,463,624 $ 56,612,953
============= =============
See notes to unaudited consolidated financial statements.
F-1
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EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and December 31, 1998
------------------------------------
March 31, December 31,
1999 1998
(Unaudited) (Audited)
----------- ---------
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 133,366 $ 30,805
Revolving credit facility 1,600,000 1,800,000
Accounts payable 1,307,206 1,666,792
Accrued expenses 43,950 391,187
----------- -----------
Total current liabilities 3,084,522 3,888,784
LONG-TERM DEBT, NET OF CURRENT PORTION 416,352 425,093
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 Units 52,266,592 51,610,054
GENERAL PARTNER'S EQUITY 568,158 561,022
----------- -----------
Total partners' equity 52,834,750 52,171,076
----------- -----------
$56,463,624 $56,612,953
=========== ===========
See notes to unaudited consolidated financial statements.
F-2
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EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 1999 and 1998
------------------------------------------
(Unaudited)
1999 1998
---- ----
REVENUES
Oil and gas sales $ 4,085,041 $ 4,968,779
Well management and operating 134,224 136,844
Other 904 1,091
----------- -----------
4,220,169 5,106,714
DIRECT COST OF REVENUES
Production costs 592,797 564,383
Well management and operating 71,188 64,526
Depreciation, depletion and amortization 1,485,808 1,695,466
Abandonment and write down of
oil and gas properties 25,000 --
----------- -----------
Total direct cost of revenues 2,174,793 2,324,375
GENERAL AND ADMINISTRATIVE EXPENSE 591,596 450,377
----------- -----------
Total cost of revenues 2,766,389 2,774,752
----------- -----------
INCOME FROM OPERATIONS 1,453,780 2,331,962
OTHER INCOME (EXPENSE)
Interest income 36,317 12,650
Interest expense (46,469) (71,733)
----------- -----------
(10,152) (59,083)
----------- -----------
INCOME BEFORE INCOME TAXES 1,443,628 2,272,879
PROVISION FOR INCOME TAXES
Current -- --
----------- -----------
Deferred -- --
----------- -----------
NET INCOME $ 1,443,628 $ 2,272,879
=========== ===========
Allocation of Partnership Net Income
Limited Partners 1,428,104 2,248,559
General Partner 15,524 24,320
----------- -----------
$ 1,443,628 $ 2,272,879
=========== ===========
Earnings per unit $ .23 $ .36
=========== ===========
See notes to unaudited consolidated financial statements.
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EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
Three Months Ended March 31, 1999 and 1998
------------------------------------------
(Unaudited)
1999 1998
---- ----
PARTNERS' EQUITY - JANUARY 1 $ 52,171,076 $ 48,577,802
Net income 1,443,628 2,272,879
Cash distributions ($.125 per Unit) (779,954) (784,344)
------------ ------------
PARTNERS' EQUITY - MARCH 31 $ 52,834,750 $ 50,066,337
============ ============
See notes to unaudited consolidated financial statements.
F-4
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EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1999 and 1998
------------------------------------------
(Unaudited)
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,443,628 $ 2,272,879
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,500,920 1,709,209
Abandonment and write down of
oil and gas properties 25,000
Changes in assets and liabilities:
Accounts receivable 495,398 321,827
Short-term investments (29,092) --
Other current assets (33,681) (31,080)
Other assets 674 (155,576)
Accounts payable (359,586) (38,284)
Accrued expenses (347,237) (18,173)
----------- -----------
Total adjustments 1,252,396 1,787,923
----------- -----------
Net cash provided by operating activities 2,696,024 4,060,802
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on receivables from officers and
employees 212,554 160,277
Advances disbursed to officers and employees (50,433) (79,583)
Purchase of property and equipment (1,804,981) (769,351)
----------- -----------
Net cash used by investing activities (1,642,860) (688,657)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions (779,954) (784,344)
Proceeds from issuance of debt, including
revolver activity 1,000,000 --
Payments on debt, including revolver activity (1,106,180) (3,109,365)
----------- -----------
Net cash used by financing activities (886,134) (3,893,709)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS 167,030 (521,564)
CASH AND EQUIVALENTS AT BEGINNING
OF YEAR 294,518 679,531
----------- -----------
CASH AND EQUIVALENTS AT END OF
FIRST QUARTER $ 461,548 $ 157,967
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 35,540 $ 83,943
Income taxes -- --
See notes to unaudited consolidated financial statements.
F-5
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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 31, 1999.
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 Limited, LLC, an Ohio limited
liability company, is the general partner of
Everflow. Everflow Management Limited, LLC is
authorized, in general, 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"), 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 member of Everflow Management Limited, LLC.
F-6
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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 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 amounted to 6,172,537 and 6,207,651
for the three months ended March 31, 1999 and 1998,
respectively.
E. New Accounting Standards - 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. In June 1997, the Financial Accounting
Standards Board issued SFAS 131, "Disclosure About
Segments of an Enterprise and Related Information."
SFAS 131 changes the standards for reporting
financial results by operating segments, related
products and services, geographical areas and major
customers and is adoptable by December 31, 1998. In
February 1998, SFAS 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits,"
was issued. SFAS 132 standardizes the disclosure
requirements for pension and other postretirement
benefit plans but does not change the measurement or
recognition of those plans. SFAS 132 is effective for
fiscal years beginning after December 15, 1997. In
June 1998, SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," was issued. SFAS
133 establishes accounting and reporting standards
for derivative instruments and hedging activities.
SFAS 133 is
F-7
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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)
effective for fiscal years beginning after June 15,
1999. The effect of adoption or anticipated adoption
of the above standards had no, or is expected to have
no, material effect on the Company's financial
statements.
F. Year 2000 - The Year 2000 problem, software, hardware
or an embedded chip that does not correctly process
date information for years after 1999, results from
the practice of storing date information with only
the last two digits of the year. The Company began to
address Year 2000 issues in 1997. The scope of the
Year 2000 readiness effort includes the Company's
internal information technology ("IT") systems, such
as hardware and software; non-IT systems with
date-sensitive characteristics; the status of key
third parties, including suppliers, service providers
and customers. The Company's major IT applications
are currently Year 2000 ready. Remediation and
testing of the balance of the IT systems are expected
to be completed by fall 1999. The Company is in the
early stages of analyzing the readiness of non-IT
systems and anticipates that remediation and testing
of any noncompliant systems will be completed by
October 1999. The Company also has taken initial
steps to determine the compliance of key third
parties and expects that it will have received and
reviewed responses from the majority of such parties
by October 1999. Although the Company expects to meet
the target dates for completion of remediation and
testing and for determining the status of key third
parties, the Company will attempt to develop
contingency plans should the programs not be
completed when anticipated or should the third
parties not be ready on a timely basis.
Costs of addressing the Year 2000 issue to date
approximate $50,000. It is anticipated that an
additional $100,000 will be incurred. Substantially
all of these outlays are expected to result from
remediation of existing systems as opposed to
replacing existing systems. Costs are being funded
from operating cash flows. The actual costs of the
Company's Year 2000 efforts may vary from current
estimates, which are based on information available
at this time.
F-8
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EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 1. Organization and Summary of Significant Accounting Policies
(Continued)
F. Year 2000 (Continued)
Although the Company believes that it is taking
appropriate precautions against disruption of its
systems due to the Year 2000 issue, there can be no
assurance that the Company will identify all Year
2000 problems in advance of their occurrence(s) or
that the Company will be able to successfully remedy
all problems that are discovered. Furthermore, there
can be no assurance that the Company's third party
relationships will not be adversely affected by Year
2000 issues. The Company is in the process of
developing contingency plans to address the potential
effects of problems arising from Year 2000
noncompliance. While the Company does not anticipate
that costs of Year 2000 disruptions will have a
material adverse effect, Year 2000 disruptions,
arising either from within the Company or through
third party relationships, could have a material
adverse effect on the Company's business, operating
results and financial condition.
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.
Note 3. Credit Facilities and Long-Term Debt
In May 1998, the Company entered into an agreement that
replaced its prior credit agreements. The 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 (as renewed),
May 31, 1999. The Company anticipates renewing the facility on
a yearly basis to minimize debt origination, carrying and
interest costs associated with long-term bank commitments.
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
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EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 3. Credit Facilities and Long-Term Debt (Continued)
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 $358,783 and
$363,053 at March 31, 1999 and December 31, 1998,
respectively, bear interest at 6.51% per annum until October
6, 2001 and then a variable rate of .5% above prime or the
three year constant treasury maturity index plus 2.25% until
maturity. A third note, which has a balance of $90,935 and
$92,845 at March 31, 1999 and December 31, 1998, respectively,
bears interest at 8.41% per annum until June 25, 2000 and then
a variable rate of .5% above prime or the three year constant
treasury maturity index plus 2.25% until maturity. The three
notes require aggregate payments of principal and interest of
approximately $5,300 per month. A fourth note, which has a
balance of $100,000 at March 31, 1999, bears interest at 7.75%
per annum. This note has not yet been termed out and currently
is an interest only note.
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 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
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EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 4. Partners' Equity (Continued)
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
Investors' 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, 1998 calculation, is $5.79
per Unit, net of the distributions ($.375 per Unit in total)
made in January and April 1999.
Units repurchased pursuant to the Repurchase Right for each of
the four years in the period ended December 31, 1998 are as
follows:
Calculated Units
Price for Less # of Outstanding
Repurchase Premium Interim Net Units Following
Year Right Offered Distributions Price Paid Repurchased Repurchase
---- ---------- ------- ------------- ---------- ----------- ----------
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 5. Commitments and Contingencies
Everflow paid a quarterly dividend in April 1999 of $.25 per
Unit to Unitholders of record on March 31, 1999. The
distribution amounted to approximately $1,560,000.
F-11
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EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 5. Commitments and Contingencies (Continued)
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 predict what effect, if any,
current and future regulations may have on the operations of
the Company.
F-12
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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
March 31, 1999 and December 31, 1998:
March 31, 1999 December 31, 1998
-------------------- -------------------
(Amounts in Thousands) Amount % Amount %
------ --- ------ ---
Working capital $ 2,801 5% $ 2,424 5%
Property and equipment (net) 50,525 95 50,246 95
Other 53 -- 54 --
------- ------- ------- -------
Total $53,379 100% $52,724 100%
======= ======= ======= =======
Long-term debt $ 416 1% 425 1%
Deferred income taxes 128 -- 128 --
Partners' equity 52,835 99 52,171 99
------- ------- ------- -------
Total $53,379 100% $52,724 100%
======= ======= ======= =======
Working capital surplus of $2,801 thousand as of March 31, 1999
represented an increase of $377 thousand from December 31, 1998 due to
reductions in accounts payable, accrued expenses and payments on the Company's
revolving credit facility. These reductions were partially offset by a reduction
in accounts receivable and an increase in cash.
In May 1998, the Company modified its revolving credit facility. The
facility provides for a revolving line of credit in the amount of $7.0 million,
all of which is available. The revolving line of credit provides for interest
payable quarterly at LIBOR plus 175 basis points with principal due at maturity,
May 31, 1999. The Company anticipates renewing the facility on a yearly basis to
minimize debt origination, carrying and interest costs associated with long-term
bank commitments. Management of the Company believes this revolving credit
facility is sufficient to allow the Company to continue to fund the development
of oil and gas properties, repurchase Units pursuant to the Repurchase Right and
make quarterly Cash Distributions.
The Company's cash flow from operations before the change in working
capital decreased $1.0 million, or 25%, during the three months ended March 31,
1999 as compared to the same period in 1998. Changes in working capital other
than cash and cash equivalents decreased cash by $274 thousand during the three
months ended March 31, 1999. The
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16
reductions in accounts payable of $360 thousand and accrued expenses of $347
thousand at March 31, 1999 compared to December 31, 1998 are primarily the
result of lower production payables and accrued payroll expenses at March 31,
1999.
Cash flows provided by operating activities was $2.7 million for the
three months ended March 31, 1999. Cash was primarily used to purchase property
and equipment and pay a quarterly distribution.
Additional borrowings for operations may be required during the summer
months due to the seasonal nature of the gas purchase agreements with The East
Ohio Gas Company entered into beginning in 1991. Seasonal price reductions and
production restrictions during the summer months reduce operating revenues and
consequently cash flows from operations during such periods.
In the fall of 1998, the Company received a decrease 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. The Company anticipates these pricing adjustments should
decrease cash flows from operations during 1999.
Recently, management of the Company has explored the possible sale of
the Company. Although management may, from time to time, continue to engage in
discussions concerning a potential sale, management does not intend to pursue
actively a sale of the Company at the present time. Management will continue to
evaluate other alternatives in attempting to maximize Unitholder value.
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17
RESULTS OF OPERATIONS
The following table and discussion is a review of the results of
operations of the Company for the three months ended March 31, 1999 and 1998.
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
Ended March 31,
-----------------------
1999 1998
---- ----
Revenues:
Oil and gas sales 97% 97%
Well management and operating 3 3
----- ----
Total Revenues 100 100
Expenses:
Production costs 14 11
Well management and operating 2 1
Depreciation, depletion and amortization 35 33
Abandonment and write down of
oil and gas properties 1 -
General and administrative 14 9
Other - 1
----- ----
Total Expenses 66 55
----- ----
Earnings 34% 45%
===== ====
Revenues for the three months ended March 31, 1999 decreased $887
thousand, or 17%, compared to the same period in 1998. This decrease was due to
a decrease in oil and gas sales during the first three months of 1999, as
compared to the same period in 1998.
Oil and gas sales decreased $884 thousand, or 18%, during the three
months ended March 31, 1999 compared to the same period in 1998. Lower
production volumes and gas prices during the first quarter of 1999, due to a
$.19 pricing adjustment received in the Company's Intermediate Term Adjustable
Price Gas Purchase Agreements with The East Ohio Gas Company, were responsible
for this decrease compared to this same period in 1998.
Production costs increased $28 thousand, or 5%, during the three months
ended March 31, 1999 compared to the same period in 1998. Additional producing
properties and increased costs were responsible for this increase between 1998
and 1999.
Depreciation, depletion and amortization decreased $210 thousand, or
12%, during the three months ended March 31, 1999 compared to the same period in
1998. The decrease
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in depreciation, depletion and amortization is the result of decreased
production from producing oil and gas properties.
General and administrative expenses increased $141 thousand, or 31%,
during the first quarter of 1999 compared to the first quarter of 1998. This
increase was the result of higher professional fees and associated costs
involved with exploring the possible sale of the Company during the first
quarter of 1999.
The Company reported net income of $1.4 million, a decrease of $829
thousand, or 36%, during the three months ended March 31, 1999 compared to the
same period in 1998. The decrease in oil and gas sales was primarily responsible
for this decrease in net income. Net income represented 34% and 45% of total
revenue during the three months ended March 31, 1999 and 1998, respectively.
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 statement 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, the
weather in the Northeast Ohio area, the number of Units tendered pursuant to the
Repurchase Right and the ability to locate economically productive oil and gas
prospects for development by the Company.
Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.15 Articles of Organization of Everflow
Management Limited, LLC.
4.16 Operating Agreement of Everflow Management
Limited, LLC dated March 8, 1999.
(b) No reports on Form 8-K were filed with the Commission
during the Company's first 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.
EVERFLOW EASTERN PARTNERS, L.P.
By: EVERFLOW MANAGEMENT LIMITED, LLC
General Partner
By: EVERFLOW MANAGEMENT CORPORATION
Managing Member
May 12, 1999 By: /s/William A. Siskovic
------------------------
William A. Siskovic
Vice President and Principal Financial and
Accounting Officer
(Duly Authorized Officer)
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