<PAGE> 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 June 30, 1996
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 I.D. No.)
incorporation or organization)
P.O. Box 629, 585 West Main Street, 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 __________
<PAGE> 2
EVERFLOW EASTERN PARTNERS, L.P.
INDEX
<TABLE>
<CAPTION>
DESCRIPTION PAGE NO.
----------- --------
<S> <C>
Part I. Financial Information
-----------------------------
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 F-1
Consolidated Statements of Income
Three and Six Months Ended June 30, 1996 and 1995 F-3
Consolidated Statements of Partners' Equity
Six Months Ended June 30, 1996 and 1995 F-4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995 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 5
Signature 6
</TABLE>
2
<PAGE> 3
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995
-----------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and equivalents $ 241,404 $ 426,743
Accounts receivable:
Trade 626,278 1,869,045
Officers and employees 643,729 969,609
Joint venture partners 205,913 564,034
Other 58,438 75,899
------------ ------------
Total current assets 1,775,762 3,905,330
PROPERTY AND EQUIPMENT
Proved properties (successful efforts
accounting method) 96,908,345 95,362,378
Pipeline and support equipment 451,971 426,500
Corporate and other 908,442 806,370
------------ ------------
98,268,758 96,595,248
Less accumulated depreciation, depletion
and amortization (50,505,471) (47,809,014)
------------ ------------
47,763,287 48,786,234
OTHER ASSETS 58,940 64,910
------------ ------------
$ 49,597,989 $ 52,756,474
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
F-1
<PAGE> 4
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995
-----------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 12,227 $ 11,700
Accounts payable 1,199,486 1,243,830
Accrued expenses 167,883 299,059
----------- -----------
Total current liabilities 1,379,596 1,554,589
LONG-TERM DEBT 1,397,331 4,706,507
DEFERRED INCOME TAXES 228,000 288,000
COMMITMENTS AND CONTINGENCIES -- --
LIMITED PARTNERS' EQUITY SUBJECT TO
REPURCHASE RIGHT
Authorized - 8,000,000 Units
Issued and outstanding - 6,379,941 and
6,433,044 Units, respectively 46,108,494 45,731,442
GENERAL PARTNER'S EQUITY 484,568 475,936
----------- -----------
Total partners' equity 46,593,062 46,207,378
----------- -----------
$49,597,989 $52,756,474
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-2
<PAGE> 5
EVERFLOW EASTERN PARNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended June 30, 1996 and 1995
-------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales $ 2,311,441 $ 2,849,615 $ 6,789,661 $ 7,565,940
Well management and operating 122,830 121,666 287,672 292,834
Other 1,187 203 2,804 652
----------- ----------- ----------- -----------
2,435,458 2,971,485 7,080,137 7,859,427
DIRECT COST OF REVENUES
Production costs 407,309 411,493 928,755 928,374
Well management and operating 75,455 70,422 149,129 154,918
Depreciation, depletion and amortization 968,949 988,065 2,666,877 2,582,715
Abandonment of oil and gas properties -- -- -- 15,000
----------- ----------- ----------- -----------
Total direct cost of revenues 1,451,713 1,469,980 3,744,761 3,681,007
GENERAL AND ADMINISTRATIVE EXPENSE 528,450 491,216 1,039,764 1,000,680
----------- ----------- ----------- -----------
Total cost of revenues 1,980,163 1,961,196 4,784,525 4,681,687
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 455,295 1,010,289 2,295,612 3,177,740
OTHER INCOME (EXPENSE)
Interest income 9,822 6,816 15,797 15,485
Interest expense (38,117) (29,779) (121,725) (105,765)
Gain (loss) on sale of property
and equipment -- -- -- (5,234)
----------- ----------- ----------- -----------
(28,295) (22,963) (105,928) (95,514)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 427,000 987,326 2,189,684 3,082,226
PROVISION (CREDIT)
FOR INCOME TAXES
Current -- -- -- --
Deferred (30,000) (50,000) (60,000) (100,000)
----------- ----------- ----------- -----------
(30,000) (50,000) (60,000) (100,000)
----------- ----------- ----------- -----------
NET INCOME $ 457,000 $ 1,037,326 $ 2,249,684 $ 3,182,226
=========== =========== =========== ===========
Allocation of Partnership Net Income
Limited Partners $ 452,293 $ 1,026,745 $ 2,226,512 $ 3,149,767
General Partner 4,707 10,581 23,172 32,459
----------- ----------- ----------- -----------
$ 457,000 $ 1,037,326 $ 2,249,684 $ 3,182,226
=========== =========== =========== ===========
Earnings per unit $ .07 $ .16 $ .35 $ .48
=========== =========== =========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-3
<PAGE> 6
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
Six Months Ended June 30, 1996 and 1995
---------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
EQUITY - JANUARY 1 $ 46,207,378 $ 44,617,973
Net income 2,249,684 3,182,226
Cash distributions ($.25 per Unit) (1,625,036) (1,645,416)
Repurchase Right - Units tendered (238,964) --
------------ ------------
EQUITY - JUNE 30 $ 46,593,062 $ 46,154,783
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
F-4
<PAGE> 7
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1996 and 1995
---------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,249,684 $ 3,182,226
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 2,696,457 2,598,817
Abandonment of oil and gas properties -- 15,000
(Gain) loss on sale of property and equipment -- 5,234
Deferred income taxes (60,000) (100,000)
Changes in assets and liabilities:
Accounts and notes receivable 1,600,888 1,764,472
Other current assets 17,461 (9,177)
Other assets 5,970 (23,888)
Accounts payable (283,308) (361,543)
Accrued expenses (131,176) (129,891)
----------- -----------
Total adjustments 3,846,292 3,759,024
----------- -----------
Net cash provided by operating activities 6,095,976 6,941,250
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on receivables from officers and
employees 447,757 360,514
Advances disbursed to officers and employees (121,877) (303,024)
Purchase of property and equipment (1,673,510) (2,807,100)
Proceeds on sale of property and equipment -- 10,000
----------- -----------
Net cash used by investing activities (1,347,630) (2,739,610)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions (1,625,036) (1,645,416)
Proceeds from issuance of long-term debt 1,500,000 1,100,000
Payments on long-term debt (4,808,649) (4,200,000)
----------- -----------
Net cash used by financing activities (4,933,685) (4,745,416)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (185,339) (543,776)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 426,743 856,968
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
SECOND QUARTER $ 241,404 $ 313,192
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 155,239 $ 88,041
Income taxes -- --
</TABLE>
See notes to unaudited consolidated financial statements.
F-5
<PAGE> 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 29, 1996.
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.
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
F-6
<PAGE> 9
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 1. Organization and Summary of Significant Accounting Policies (Continued)
D. Allocation of Income and Per Unit Data (Continued)
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 amounted to 6,433,044 for
the three and six months ended June 30, 1996 and 6,514,566 for
the three and six months ended June 30, 1995.
E. New Accounting Standard - In March 1995, the Financial
Accounting Standards Board issued a new standard (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets to be
Disposed Of." SFAS 121 requires that long-lived assets
(including oil and gas properties) and certain identifiable
intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is effective for financial statements
for fiscal years beginning after December 15, 1995. Everflow
adopted SFAS 121 in the first quarter of 1996 and has
determined it will utilize a field by field basis for
assessing impairment of its oil and gas properties. The
impact of adopting SFAS 121 was not material.
Note 2. Long-Term Debt
Notes Payable - Bank
In January 1995, the Company entered into an agreement that replaced
the July 1993 credit agreement. The new credit agreement provides for a
revolving line of credit in the amount of $7,000,000, all of which is
available. The new revolving line of credit provides for interest
payable quarterly at the lending bank's prime rate plus 1/8% with the
principal due at maturity, November 1, 1997. 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
requires the borrower to pay an engineering fee of $10,000 per year and
commitment fees of 3/8% per annum on the daily average of the
difference between the current available amount and the aggregate of
loans outstanding. 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 and redetermined
semiannually; (2) tangible net worth of at least $30,000,000; (3) a
total debt to tangible net worth ratio of not more than 0.7 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.
F-7
<PAGE> 10
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2. Long-Term Debt (Continued)
Notes Payable - Bank (Continued)
In October 1995, the Company purchased a building and funded its cost,
in part, through a mortgage note of $320,000. The note, which had a
balance of $318,207 at December 31, 1995, bears interest at 8.22% per
annum until October 6, 1998 and then a variable rate of .5% above prime
until maturity. The note matures in 2010 and payments of principal and
interest are $3,121 per month. Maturities on the note are expected to
be as follows: 1996 - $11,700; 1997 - $12,700; 1998 - $13,700; 1999 -
$15,000; 2000 - $16,300; thereafter - $248,807.
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 as
so calculated, 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, 1995 calculation, was $4.23
per Unit, net of the distributions ($.125 per Unit each) made in
January and April 1996. The Company increased the price of the
Repurchase Right to $4.50 by offering a premium of $.27 over the
calculated price for the 1996 offer to Unitholders.
F-8
<PAGE> 11
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 3. Partners' Equity (Continued)
The Company accepted an aggregate of 53,103 of its Units of limited
partnership interest at $4.50 per Unit pursuant to the terms of the
Company's Offer to Purchase dated April 30, 1996. The Offer expired in
accordance with its terms on June 28, 1996. Immediately after the
acceptance of the tendered Units by the Company, there were 6,379,941
Units outstanding.
Units repurchased pursuant to the Repurchase Right are as follows:
<TABLE>
<CAPTION>
No. of Units Price Paid Units Outstanding
Year Repurchased Per Unit Following Repurchase
---- ------------ ---------- --------------------
<S> <C> <C> <C>
1992 50,938 $ 4.260 6,581,526
1993 40,002 $ 4.350 6,541,524
1994 26,958 $ 4.550 6,514,566
1995 81,522 $ 4.625 6,433,044
1996 53,103 $ 4.500 6,379,941
</TABLE>
Note 4. Commitments and Contingencies
Everflow paid a quarterly dividend in July 1996 of $.125 per Unit to
Unitholders of record on June 30, 1996. The distribution amounted to
approximately $806,000.
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.
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-9
<PAGE> 12
Part I: Financial Information
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the Company's financial position at June
30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(Amounts in Thousands) Amount % Amount %
------ - ------ -
<S> <C> <C> <C> <C>
Working capital $ 396 1% $ 2,351 5%
Property and equipment (net) 47,763 99 48,786 95
Other 59 - 65 -
------ --- ------ ---
Total $ 48,218 100% $ 51,202 100%
====== === ====== ===
Long-term debt $ 1,397 3% 4,707 9%
Deferred income taxes 228 - 288 1
Partners' equity 46,593 97 46,207 90
------ --- ------ ---
Total $ 48,218 100% $ 51,202 100%
====== === ====== ===
</TABLE>
Working capital surplus of $396 thousand as of June 30, 1996
represented a decrease of $2.0 million from December 31, 1995. The primary
reason for this decrease in working capital was due to the Company's production
receivable being substantially lower at June 30, 1996 versus December 31, 1995.
Seasonal gas production is responsible for this occurrence. The Company paid
down $3.3 million of long-term debt (net of additional borrowings of $1.5
million) during the six months ended June 30, 1996. 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 quarterly distributions in July and October,
when cash generated from operations should decrease due to production
restrictions. The Company borrowed $1.3 million during July 1996, under the
Company's existing credit facility, for the repurchase of Units pursuant to the
Repurchase Right, the payment of a quarterly distribution and the funding of the
development of oil and gas properties.
The Company's cash flow from operations before the change in working
capital decreased $815 thousand, or 14%, during the six months ended June 30,
1996 as compared to the same period in 1995. Changes in working capital other
than cash and cash equivalents increased cash by $1.2 million during both the
six months ended June 30, 1996 and 1995. The reductions in accounts receivable
of $1.6 million and $1.8 million at June 30, 1996 and 1995, respectively,
compared to December 31, 1995 and 1994 are the result of lower production
revenues receivable and reduced accounts receivable balances from officers and
employees as well as joint venture partners. Accounts payable decreased $283
thousand and $362 thousand during the six months ended June 30, 1996 and 1995,
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 $131 thousand
and $130 thousand during the six months ended June 30,
3
<PAGE> 13
1996 and 1995, respectively. The primary reason for these changes is the
result of timing differences for accrued payroll expenses.
Cash flows provided by operating activities was $6.1 million for the
six months ended June 30, 1996. Cash was used to purchase property and
equipment, pay quarterly distributions and reduce long-term debt.
Additional borrowings for operations may be required during the third
quarter due to the seasonal nature of the gas purchase agreements with The East
Ohio Gas Company. 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 the fall of 1995, the Company received a significant 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. These pricing adjustments have and will continue to
reduce the Company's cash flows from operations during 1996.
RESULTS OF OPERATIONS
The following table and discussion is a review of the results of
operations of the Company for the three and six months ended June 30, 1996 and
1995. 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:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales 95% 96% 96% 96%
Well management and operating 5 4 4 4
Other - - - -
--- --- --- ---
Total Revenues 100% 100% 100% 100%
Expenses:
Production costs 17% 14% 13% 12%
Well management and operating 3 2 2 2
Depreciation, depletion and amortization 40 33 38 33
Abandonment of oil and gas properties - - - -
General and administrative 21 17 15 13
Other 1 1 1 1
Income taxes ( 1) ( 2) ( 1) ( 1)
---- ---- ---- ----
Total Expenses 81 65 68 60
---- ---- ---- ----
Earnings 19% 35% 32% 40%
==== ==== ==== ====
</TABLE>
Revenues for the three and six months ended June 30, 1996 decreased
$536 thousand and $779 thousand, respectively, compared to the same periods
in 1995. This decrease was
4
<PAGE> 14
due primarily to a decrease in oil and gas sales during the three and six months
ended June 30, 1996 compared to the same periods in 1995.
Oil and gas sales decreased $538 thousand, or 19%, during the three
months ended June 30, 1996 compared to the same period in 1995. Oil and gas
sales decreased $776 thousand, or 10%, during the six months ended June 30, 1996
compared to the same six month period in 1995. These decreases are the result of
lower gas prices during 1996 due to the pricing adjustments contained in the
East Ohio Gas Company contracts.
Production costs and depreciation, depletion and amortization remained
relatively stable during the three and six months ended June 30, 1996 compared
to the same periods in 1995.
General and administrative expenses increased $37 thousand, or 8%, and
$39 thousand, or 4%, during the three and six months ended June 30, 1996,
respectively, compared with the same periods in 1995. The primary reasons for
these increases were due to increases in professional fees and employee
compensation and benefits.
The Company reported net income of $457 thousand, a decrease of $580
thousand, or 56%, during the three months ended June 30, 1996 compared to the
same period in 1995. The Company reported net income of $2,250 thousand, a
decrease of $933 thousand, or 29%, during the six months ended June 30, 1996
compared to the same period in 1995. Decreases in oil and gas sales resulting
from gas price reductions were primarily responsible for these decreases in net
income.
NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued a new
standard (SFAS 121), "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of." SFAS 121 requires that long-lived assets (including oil and gas
properties) and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. SFAS 121
is effective for financial statements for fiscal years beginning after December
15, 1995. Everflow adopted SFAS 121 in the first quarter of 1996 and has
determined it will utilize a field by field basis for assessing impairment of
its oil and gas properties. The impact of adopting SFAS 121 was not material.
Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Intermediate Term Gas Purchase Agreement dated May
29, 1996, Contract #11245, between Everflow Eastern
Partners, L.P. and The East Ohio Gas Company.
10.2 Intermediate Term Gas Purchase Agreement dated May
29, 1996, Contract #11285, between Everflow Eastern
Partners, L.P. and The East Ohio Gas Company.
(b) On July 3, 1996, the Registrant filed a current report on Form
8-K
5
<PAGE> 15
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 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)
August 12, 1996
6
<PAGE> 1
INTERMEDIATE TERM
GAS PURCHASE AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Article I Term 1
Article II Points of Delivery and Quality of Gas 2
Article III Measurement 6
Article IV Obligations to Take and Deliver Gas 7
Article V Price 10
Article VI Force Majeure 11
Article VII Liability 13
Article VIII Notices 13
Article IX Production Period and Statement 14
Article X Further Obligations and Representations 14
Article XI Miscellaneous 16
Exhibit
- -------
A - Dedicated Wells 19
</TABLE>
GPA-INT Contract No. 11245
<PAGE> 2
INTERMEDIATE TERM
GAS PURCHASE AGREEMENT
THIS AGREEMENT, (the "Agreement"), effective as of the 29th day of May,
1996 is entered into by and between EVERFLOW EASTERN PARTNERS, L.P., the
"Seller," and EAST OHIO GAS, an Ohio corporation, the "Buyer."
RECITAL
-------
WHEREAS Seller desires to sell and deliver to Buyer, and Buyer desires
to purchase from Seller, at the Point(s) of Delivery specified in the Agreement,
all the natural gas produced during the term of the Agreement from the Ohio well
or wells described in Exhibit A attached and made a part of the Agreement, at
the prices and upon and subject to the terms, conditions and limitations
provided in the Agreement;
NOW THEREFORE, in consideration of their mutual covenants and promises
contained in the Agreement, Seller and Buyer agree as follows:
ARTICLE I
---------
TERM
----
1. The Agreement shall continue in force for a term of Fifteen (15)
months commencing at the beginning of the July, 1996 Production Period and
terminating at the end of the October, 1997 Production Period, provided however,
(1) that if at any time the delivery by Seller at the Point(s) of Delivery of
gas from any well subject to the Agreement shall be less than an average of
twenty thousand cubic feet per day for any Production Period in which the
delivery or receipt of gas has not been interrupted pursuant to Articles II, IV
or VI of the Agreement, then Buyer, at its sole option, may terminate the
Agreement as to the gas produced from any such well, or from
GPA-INT Page 1 Contract No. 11245
<PAGE> 3
each of such wells if there are more than one, by giving Seller thirty (30) days
prior written notice of such termination, and, (2) that either Buyer or Seller
may terminate the Agreement by giving the other thirty (30) days written notice
prior to the end of any Production Period, if the price to be paid pursuant to
Article V has been frozen pursuant to the provisions of Article V, paragraph 2.
No notice of termination or cancellation because of expiration of the term
stated in this paragraph shall be required.
2. During the term of the Agreement, Seller may make additional wells
subject to this Agreement only with Buyer's consent pursuant to the execution by
Buyer and Seller of supplements to Exhibit A identifying the well or wells to be
added. The execution of such supplements shall be at Buyer's sole discretion and
Buyer shall have no obligation to execute any such supplements. During the term
of the Agreement, any abandonment of a well or wells listed on Exhibit A or any
supplement thereto by Seller shall only be with the written permission and at
the sole discretion of Buyer. Such permission shall not be unreasonably
withheld.
3. The Agreement shall not extend to any well listed on Exhibit A
unless such well is turned on and gas from it is being received by Buyer at the
Point(s) of Delivery within ninety (90) days of the date of the Agreement.
4. Termination for any cause shall not affect either party's rights or
duties arising prior to such termination.
ARTICLE II
----------
POINT(S) OF DELIVERY AND QUALITY OF GAS
---------------------------------------
1. Seller shall promptly proceed with the construction of any necessary
pipe line extending from the well or wells subject to the Agreement to the
terminal point or points determined by Buyer, hereinafter referred to as the
"Point(s) of Delivery." The Point(s) of
GPA-INT Page 2 Contract No. 11245
<PAGE> 4
Delivery shall be measuring stations furnished, constructed, owned, operated and
maintained by Buyer, located on Buyer's pipe lines as now constructed or on any
extension which may later be constructed. The sites for said measuring stations
shall be furnished by Buyer, or, if by Seller, with rights of ingress and egress
granted to Buyer. As soon as practicable after completion of a pipe line by
Seller to a Point of Delivery, Buyer, at Seller's expense, shall construct the
necessary gas measuring stations at the Point of Delivery, if no suitable
measuring station then exists at the Point of Delivery. Prior to its
construction if possible Buyer shall provide Seller with its best estimate of
the costs of the measuring station, including station site. Seller shall pay
Buyer an amount equal to the estimate provided by Buyer to Seller. Such payment,
which will bear no interest, will be applied by Buyer toward the actual
construction costs of the measuring station. Following the accumulation of all
actual costs by Buyer for the measuring station, the parties shall reconcile any
differences within thirty (30) days. Buyer may at any time, at its option,
install additional measuring equipment so as to individually meter the gas from
any well subject to the Agreement. Seller may request that Buyer change any
Point of Delivery after its location has been originally established. If Buyer,
in its sole discretion, agrees to make such a change, all costs incurred by
Buyer for any alternate site, for the movement of any measuring and regulating
station equipment, or for any new or additional metering facilities, will be
promptly reimbursed to Buyer by Seller after receipt of an itemized invoice.
2. Seller's rights as Lessee under the terms of any lease pursuant to
which any well subject to the Agreement is drilled, for the purposes of
installing, operating, maintaining and removing any facilities and equipment,
including measuring equipment, and its rights of ingress and egress to the well
and measuring station, shall be extended to Buyer. Seller shall provide and
maintain in good repair access roads, suitable for use by Buyer's vehicles, to
all well sites and
GPA-INT Page 3 Contract No. 11245
<PAGE> 5
measuring stations. Should Seller not secure, provide and maintain both physical
and legal access to any well or wells subject to the Agreement for Buyer, then
Buyer shall, in its sole discretion, have the right to terminate the Agreement
as to such well or wells.
3. Seller may use such mechanical pressurization as it deems necessary
to deliver gas to Buyer at the Point(s) of Delivery, but the gas shall be taken
by Buyer against such pipe line pressures as Buyer in its sole judgment deems
necessary to maintain in its pipe line system either by reason of its market
demands and deliveries of gas into its pipe line system from other sources of
supply or in accordance with good safety practices and requirements and the
regulations of government authorities. Should Seller compress and pump the gas
to be delivered to Buyer at the Point(s) of Delivery, Seller shall also install
and maintain at its own expense the necessary equipment for the elimination or
suppression of pulsations in the flowing gas that are created by compression
equipment, and, in addition, Seller will install the necessary equipment to
insure a flowing temperature not to exceed 120 degrees (120degrees) Fahrenheit
at the Point(s) of Delivery.
4. Buyer may at any time suspend the taking of gas hereunder for safety
reasons or while making repairs or alterations to, or conducting tests of, its
pipelines or other facilities. When practicable Buyer shall notify Seller in
advance of its plans to suspend the taking of gas, giving its best estimate of
the duration of the suspension. Such repairs, alterations or tests shall be
completed with due diligence. Any period of suspension of Purchases pursuant to
this paragraph shall be in addition to all other rights of Buyer to suspend
purchases pursuant to the Agreement.
5. Seller shall install and maintain at Seller's expense, the necessary
equipment for separating and removing oil, water, salt, dust, sulfur or sulfur
compounds, nitrogen or nitrogen compounds and other gaseous impurities,
objectionable odors, and foreign matter or substances and mechanical pulsations
from the gas before its delivery to Buyer at Point(s) of Delivery.
GPA-INT Page 4 Contract No. 11245
<PAGE> 6
Seller is obligated to deliver, to Buyer at the Point(s) of Delivery only such
gas as is free from all substances or flowing conditions which might affect or
impair its marketability or cause injury to or interference with the operation
of the pipe lines, regulators, meters or other equipment of Buyer or Buyer's
customers. Buyer may refuse at any time any gas which contains gaseous
impurities or objectionable odors or otherwise does not meet Buyer's gas quality
standards. Other than as provided for in this paragraph, however, the gas
delivered to Buyer hereunder shall be delivered in its natural state without any
of its component parts having been extracted.
6. Seller at all times shall deliver to Buyer at the Point(s) of
Delivery gas having a gross heating value of not less than 1,000 British thermal
units per cubic foot at 14.73 pounds per square inch absolute ("PSIA"), sixty
degrees (6O(degree)) Fahrenheit and saturated with water vapor. Seller shall
deliver only such gas which does not contain more than 1/4 grain of hydrogen
sulfide per 100 cubic feet of gas volume (8 ppm of sulfur, by weight) nor
contain more than 3/4 grain of total sulfur per 100 cubic feet of gas volume (22
ppm of sulfur, by weight).
7. If, by reason of the presence of any impurities in the gas delivered
to Buyer, or as a result of any other act or failure to act which is
inconsistent with the provisions of this Article II, any of Buyer's property or
equipment is damaged or otherwise rendered inoperative, Buyer shall bill Seller,
and Seller shall pay within fifteen (15) days of receipt of an itemized invoice,
for the cost of all necessary repairs, corrections and replacements.
8. All pipe lines, fittings, and other properties furnished under the
Agreement shall remain the property of the party furnishing the same who shall
be solely responsible for the maintenance and operation thereof, and each party
may remove its property at the termination of the Agreement, provided however,
that any property the cost of which has been reimbursed to
GPA-INT Page 5 Contract No. 11245
<PAGE> 7
Buyer by Seller pursuant to paragraph 1 of this Article II shall remain the
property of, and shall be operated and maintained by, Buyer.
ARTICLE III
-----------
MEASUREMENT
-----------
1. The unit of measurement for gas hereunder shall be one cubic foot of
gas, and the term "cubic foot of gas" means a cubic foot of gas at a pressure of
14.73 PSIA and at a temperature of sixty degrees (6O(degree)) Fahrenheit. For
purposes of measurement and meter calibration, atmospheric pressure shall be
assumed to be 14.4 pounds per square inch. All gas delivered to Buyer by Seller
hereunder shall be measured by orifice or other measurement facility of standard
type to be selected and furnished by Buyer. Orifice meters of Buyer shall be
constructed and installed in accordance with the applicable provisions of the
American National Standard "Orifice Metering of Natural Gas," ANSI/API 2530,
First Edition, and any amendments thereto. The volumes of gas delivered to Buyer
at pipeline pressures and temperatures shall be computed from meter records and
converted into the cubic foot or MCF unit of measurement specified here in
accordance with standard industry practice. Correction shall not be made for
deviation from the Ideal Gas Laws. The temperature of the gas flowing through
each meter is assumed to be sixty degrees (6O(degree)) Fahrenheit, provided,
however, that Buyer may at any time install a recording thermometer to record
the temperatures of the gas flowing through the meter, in which event the
arithmetic average of the hourly temperatures recorded shall thereafter be used
in correcting the volumes delivered hereunder to the unit of measurement
specified herein above.
2. Buyer shall furnish, install and maintain in good condition all
meters and regulating equipment at the Point(s) of Delivery. Buyer shall read
the meters, which shall be accessible to inspection and examination by Seller at
all reasonable times. If Seller challenges the accuracy of
GPA-INT Page 6 Contract No. 11245
<PAGE> 8
any meter or measuring equipment in use under this Agreement and desires to have
the same tested, Buyer shall, if Seller desires, perform the test in the
presence of Seller or Seller's representative. The cost of testing the meter
shall be borne by Seller if the meter proves to be correct, and it shall be
deemed correct if there shall be no greater variation than three percent (3%),
either plus or minus. If the meter on test proves incorrect, then the cost of
testing shall be borne by Buyer. If a meter does prove incorrect, as provided
herein, the registration of such meter shall be corrected at the rate of such
inaccuracy for a period agreed upon by the Buyer and Seller. In no event will
the inaccuracy adjustment period exceed the lesser of one half the period of
time from the last test, or the period from the first of the preceding
Production Period prior to the date of challenge by either party. For the
purpose of testing, the meter shall be tested and adjusted on the ground. During
the time a meter is disconnected from the line, the gas delivered may be
estimated by Buyer until the meter is again connected to the line, such estimate
to be on the basis of the amount of gas registered at like pressures for like
periods of time when the meter was registering accurately.
ARTICLE IV
----------
OBLIGATIONS TO TAKE AND DELIVER GAS
-----------------------------------
1. Subject to the terms and conditions of the Agreement, Buyer shall
buy all the gas delivered to it by Seller at the Point(s) of Delivery, and
Seller shall, and is obligated to use its best efforts to, produce, deliver and
sell to Buyer all the gas owned, produced or purchased by Seller from all wells
listed on Exhibit A on each day of the term of the Agreement, in an efficient
and expeditious manner, other than that required for drilling operations with
respect to such wells. However, with respect to the wells listed on Exhibit A,
if required by the terms of the oil and gas lease pursuant to which the gas
subject to the Agreement is produced, Seller may also
GPA-INT Page 7 Contract No. 11245
<PAGE> 9
provide a yearly free gas allowance. Seller represents that, with respect to the
wells listed on Exhibit A, the annual free gas allowances are for residential
only, or commercial/industrial use with one free gas allowance per well of 300
MCF per year, or less. Seller agrees that if any other or greater volumes are
diverted from Buyer, thaen Seller shall pay to Buyer $1.15 per MCF (to be
mutually agreed upon annually) on any diverted volumes in excess of 300 MCF per
well per contract year. Seller shall make such payment within thirty days after
the end of each year of the Agreement term. Buyer will immediately notify Seller
in writing of any unauthorized diverted volumes it becomes aware of. Upon
written request, Buyer shall have the right of access to Seller's records for
the stations related to the wells listed on Exhibit A and the right to audit
such stations.
2. It is understood and agreed, however, that Buyer's obligation to
take gas from any well or wells subject to the Agreement, in addition to the
limitations imposed elsewhere by the Agreement, is limited to two hundred and
seventy five (275) days in each or any calendar year beginning January 1 and
ending December 31, except for the initial calendar year, being the year in
which gas from each well listed on Exhibit A is first produced and delivered at
the Point(s) of Delivery, during which period Buyer agrees to take gas at least
seventy-five percent of the time remaining after the initial delivery date until
the end of the initial calendar year. Pursuant to this paragraph Buyer may
suspend taking gas at any time and for any reason, including price, but Buyer
shall have the right to require delivery or the resumption of delivery of gas on
each day of every year, subject to the terms of the Agreement.
3. If Buyer wishes Seller to cease delivering gas from any or all wells
subject to this Agreement pursuant to any provision of the Agreement, Buyer
shall notify Seller by telephone, facsimile, or letter, and Seller, on receipt
of such notice, shall immediately cease deliveries and
GPA-INT Page 8 Contract No. 11245
<PAGE> 10
shut in the well or wells as directed by Buyer. Should Seller fail to comply
with Buyer's instructions within a reasonable time in Buyer's sole judgment,
Buyer may take all action necessary to shut in such wells or otherwise interrupt
the receipt of gas at the Point(s) of Delivery or elsewhere, without additional
notice. If Buyer is unable to, or elects not to, shut in the wells or otherwise
interrupt receipt of the gas in the event Seller fails to do so after receiving
notice and instructions to do so pursuant to this paragraph, any continuing
deliveries to Buyer after such notice shall be deemed to have been supplied by
Seller to Buyer at no cost, and Buyer shall not be obligated to make any
payments to Seller therefor. Wells shut in pursuant to this Article shall remain
shut in, and deliveries of gas from such wells shall not resume, until Buyer in
its sole discretion notifies Seller, by telephone, facsimile, or letter, that
deliveries may be resumed. Buyer's right to recall shut-in gas and to resume
purchases shall be absolute. Upon notice from Buyer, Seller shall resume
deliveries as soon as practicable.
4. It is understood that Buyer has no obligation, implied or expressed,
to take gas on more than two hundred and seventy five (275) days in any year,
nor on consecutive days, nor any obligation to take any specific volume of gas,
nor gas from any specific well or wells during the periods in which Buyer is
taking gas, except as expressly provided for pursuant to the Agreement. It is
the intent of the Parties, by this provision, to recognize that the nature,
timing, frequency and duration of Buyer's shut-in of wells or other refusals to
accept gas shall be at Buyer's sole discretion, subject only to Buyer's express
obligations to take gas in accordance with the terms of the Agreement. Buyer
shall not be liable for any damages, direct or indirect, through loss of gas, or
otherwise, sustained by Seller, its heirs, executors, administrators or assigns,
resulting from or arising out of the failure or refusal of the Buyer to take
gas, or out of any
GPA-INT Page 9 Contract No. 11245
<PAGE> 11
actions incidental to its cessation of taking gas, or shutting in of wells, if
such failure, refusal or action is contemplated or permitted by the terms of the
Agreement.
5. Buyer's rights to suspend the taking of gas pursuant to this Article
IV shall be in addition to its rights to suspend taking gas pursuant to any
other provisions of the Agreement.
ARTICLE V
---------
PRICE
-----
1. The price to be paid by Buyer to Seller shall be the NYMEX
settlement plus $0.35 per MCF for each MCF received at the Point(s) of Delivery
during the November through March Production Periods and the NYMEX settlement
plus $0.15 per MCF for each MCF received at the Point(s) of Delivery during the
April through October Production Periods. In addition to the initial base price,
Buyer will pay $.20 per MCF to Seller as reimbursement for the cost of
delivering the gas to Buyer.The prices set forth in this Article V represent the
full and complete prices to be paid for gas subject to the Agreement as
delivered to the Point(s) of Delivery. Buyer is not obligated to pay any
additional or other prices than the prices set forth here, regardless of what it
may pay for any other gas at any other time or date. The prices provided for in
this Article shall be subject to the provisions of Article IV, paragraph 1;
Article X, paragraph 1; and Article XI, paragraphs 2 and 4 of the Agreement. The
NYMEX contract for the calendar month will be used to price the corresponding
production month (i.e., the November NYMEX contract will be used to price
November production; the December NYMEX contract will be used to price December
production).
ARTICLE VI
----------
FORCE MAJEURE
-------------
GPA-INT Page 10 Contract No. 11245
<PAGE> 12
1. The term "Force Majeure" as used herein, and as applied to either
party hereto, shall mean acts of the law, including governmental bodies acting
pursuant to law, acts of God, strikes, lockouts, or other labor disturbances,
acts of the public enemy, war, blockades, insurrections, riots, epidemics,
fires, lightning, storms, floods, washouts, arrests, and restraint by government
or people, civil disturbances, explosions, breakage or accidents to machinery or
lines of pipe, freezing of wells or pipe lines, partial or entire failure of
such wells, the necessity for making repair to or alteration of machinery or
line of pipe, or any other cause, whether of the kind herein enumerated or
otherwise, not reasonably within the control of the party invoking Force
Majeure. It is understood that settlement of strikes, lockouts or labor
disturbances shall be entirely within the discretion of the party having the
difficulty and that the above requirement that any Force Majeure shall be
remedied with all reasonable dispatch shall not require the settlement of
strikes, lockouts, or labor disturbances by acceding to the demands of an
opposing party when such course is inadvisable in the discretion or judgment of
the party having the difficulty.
2. Neither party to this Agreement shall be liable for any damage or
loss that may be occasioned by any failure, depletion, shortage, or interruption
in the production of gas from a well, or any decline in natural pressure. In the
event either party is rendered unable, wholly or in part, by Force Majeure to
carry out its obligations under this Agreement, other than the obligation to
make payment of amounts due hereunder, then the obligations of such party, so
far as they are affected by such Force Majeure, shall be suspended during the
continuance of any inability so caused. However, the party claiming the
existence of Force Majeure shall use all reasonable efforts to remedy promptly
any situation which may interfere with the performance of its obligations under
the Agreement.
GPA-INT Page 11 Contract No. 11245
<PAGE> 13
3. Neither Force Majeure or other causes or contingencies recognized
pursuant to the Agreement shall relieve either party of liability or
responsibility unless notice and full particulars are given in writing to the
other by the party relying on such facts, as soon as reasonably practicable
after the occurrence of the facts relied upon. Such facts shall not, however, in
any event, release either party from liability in the event of its concurring
negligence, nor from its obligations to make payments of amounts then due.
ARTICLE VII
-----------
LIABILITY
---------
1. Buyer and Seller shall each have responsibility for, and shall
indemnify and hold the other, its agents, employees, officers, directors and
parent, harmless from and against, any claim, demand, action, liability, cost,
expense (including reasonable attorneys' fees), damages or loss, arising from or
because of anything which may be done or may happen or arise with respect to the
gas while it is within its own control as defined in Article X, paragraph 2 of
the Agreement.
2. Neither Buyer nor Seller shall be liable in damages to the other for
any interruption in, or for any act, omission, or circumstance occasioned by or
in consequence of, or related to, any such interruption, if such interruption is
contemplated by any provision of the Agreement.
ARTICLE VIII
------------
NOTICES
-------
Notices to Buyer required under or relating to the Agreement shall be
addressed to it at P.O. Box 5759, Cleveland, Ohio 44101-0759, Attention:
Manager, Appalachian Gas Supply
GPA-INT Page 12 Contract No. 11245
<PAGE> 14
(216/736-5365). All notices and payments to Seller required under or relating
to the Agreement shall be made and mailed to:
Mr. Tom Korner
Everflow Eastern Partners, L.P.
585 W. Main Street
P.O. Box 629
Canfield, OH 44406
Phone: (330) 533-2692
ARTICLE IX
----------
PRODUCTION PERIOD AND STATEMENT
-------------------------------
1. Deliveries of gas to the Point(s) of Delivery shall be measured
during Production Periods. Production Periods shall be periods of between
twenty-eight (28) and thirty-five (35) days. Production Periods shall be
identified by the name of the month in which the period ends.
2. Once each month Buyer shall render a statement setting forth the
total quantity of gas received at the Point(s) of Delivery during the prior
month's Production Period, and any payment due to Seller. Any such payments may
be reduced by amounts due to Buyer from Seller pursuant to any provision of the
Agreement.
ARTICLE X
---------
FURTHER OBLIGATIONS AND REPRESENTATIONS
---------------------------------------
1. Seller warrants that all of the gas sold and delivered to Buyer has
been produced from wells in Ohio, that it has good, marketable title to the gas
sold as and when delivered to Buyer at the Point(s) of Delivery, and that gas so
delivered is free from all liens and encumbrances. Seller
GPA-INT Page 13 Contract No. 11245
<PAGE> 15
covenants and agrees to indemnify Buyer, its officers and directors, parents and
affiliates, for, and save them harmless from, all suits, actions, debts,
accounts, damages, costs, losses and expenses arising from or attributable to
the adverse claims of any and all other persons or parties to the gas delivered
to Buyer hereunder; provided, however, that if any person or party makes claim
to any gas delivered to Buyer hereunder adverse to Seller's claim of ownership
thereof, or obtains a lien or encumbrance against the same, Buyer may withhold
payment for such gas without liability for the payment of interest on the
amounts withheld, until such adverse claim or lien is released or disposed of by
the parties or by final court action and may pay such withheld amount or amounts
to the party or parties finally determined to be entitled thereto.
2. Seller shall be deemed to be in control and possession of the gas
sold by it hereunder until it shall have been delivered to Buyer at the Point(s)
of Delivery, after which delivery Buyer shall be deemed to be in control and
possession thereof. Buyer shall have no responsibility with respect to any gas
sold to it hereunder until it is delivered at any such delivery point, and no
responsibility therefore because of anything which may be done, or may happen or
arise with respect to said gas before delivery to Buyer at such delivery point;
and Seller shall have no responsibility with respect to said gas after its
delivery to Buyer and no responsibility because of anything which may be done or
may happen or arise with respect to said gas after its delivery to Buyer at such
delivery point, except that nothing contained herein shall release Seller from
its obligations pursuant to Articles II and X of the Agreement.
3. No action shall be brought by Seller against Buyer on account of any
claimed failure under the Agreement unless sixty (60) days written notice of
such claim of failure shall be served upon Buyer and unless Buyer shall have
failed to remedy such claim within such sixty day period. Such notice of claim
shall specify in detail the respects in which it is claimed the Buyer
GPA-INT Page 14 Contract No. 11245
<PAGE> 16
has failed to perform. Any such notice of claim must be served by Seller upon
Buyer within twelve months of the time such claim is or could have been
discovered, it being the intention of the parties to bar Seller's assertion of
any claim more than twelve months after it arises, and by doing so to supersede
any otherwise applicable statute of limitations on claims by Seller.
4. Seller warrants that if any of the output, production or reserves of
any of the wells listed on Exhibit A has ever been previously produced,
dedicated or sold to or for Buyer or any other entity, as to such output,
production, and wells, Seller has secured all necessary and appropriate releases
from all prior owners, producers, buyers or claimants.
5. In the event any tax is now or hereafter imposed on natural gas, or
the production, severance, gathering, transporting, sale, delivery or use
thereof, or upon the business or privilege of producing, severing, gathering,
transporting, selling, delivering, or using natural gas, or if such tax is
imposed in any other manner so as to constitute directly or indirectly a charge
upon the gas delivered to Buyer hereunder, then the amount of such tax shall be
borne by Seller so far as it affects or relates to or is apportionable to the
activities of Seller with respect to the gas delivered to Buyer under the
Agreement. In the event Buyer is required to pay such tax, the amount thereof
may be deducted from the payments accruing to Seller under the Agreement.
6. Seller shall pay or cause to be paid any royalty payments due or
owed on the gas delivered under the Agreement, and shall indemnify and hold
Buyer harmless from any responsibility, liability or obligation for payment of
any such royalty. In the event Buyer is obligated by law to make any royalty
payment directly to royalty owners which payment obligation would otherwise be,
or is, the responsibility of Seller, Seller shall reimburse Buyer for any such
payment or costs associated with such payment. If Seller fails to reimburse
Buyer,
GPA-INT Page 15 Contract No. 11245
<PAGE> 17
Buyer may deduct the amounts of such payments and any costs associated with such
payments from any amounts accruing to Seller under the Agreement.
ARTICLE XI
----------
MISCELLANEOUS
-------------
1. No waiver by either party of one or more failures or defaults of the
other party in the performance of any provisions of the Agreement shall operate
or be construed as a waiver of any future failures or defaults, whether of a
like or different character.
2. This Agreement and all of its provisions -- including the payment of
the prices stated in it --are subject to all federal, state and local laws and
to the regulations or orders of any court or governmental agency with
jurisdiction over it, but the Agreement shall be governed by and construed in
accordance with the law of the State of Ohio, without giving effect to the
principles of conflicts of laws of the State.
3. This Agreement and its Exhibits constitute the entire agreement
between Buyer and Seller with respect to its subject matter, and no modification
of its terms and provisions shall be made or become effective except by
execution of a supplementary written agreement.
4. In the event any of the prices stated herein ever exceed the
applicable Maximum Lawful Price under the Natural Gas Policy Act of 1978 or
other legislation for the category of gas from any well subject to the
Agreement, Buyer will be required to pay only the Maximum Lawful Price for the
applicable category of gas.
5. Seller shall not assign the Agreement, in whole or in part, without
the written consent of Buyer which shall not be unreasonably withheld. All the
covenants and obligations of this agreement shall extend to and be binding upon
the successors and assigns of the respective
GPA-INT Page 16 Contract No. 11245
<PAGE> 18
parties. Any sale, assignment, farmout or other disposition or agreement of or
concerning the well or wells described herein shall be subject to and expressly
made subject to, the Agreement.
6. Should any provision of the Agreement be determined by any court or
regulatory body having jurisdiction to be void, voidable or otherwise invalid,
such determination shall have no effect on the remaining provisions of the
Agreement to the extent the provision eliminated can be, reasonably construed as
severable from the remainder of the Agreement without materially altering the
rights, obligations, and purposes of Buyer and Seller as reflected in the
Agreement.
IN WITNESS WHEREOF the parties have set their signatures by their
officers duly authorized to do so the day and year first above written.
WITNESS: SELLER:
EVERFLOW EASTERN
/s/ ROSE CARSON By: /s/ THOMAS L. KORNER
- --------------------------------- ------------------------------
Thomas L. Korner
/s/ CLAUDIA MORGAN President
- --------------------------------- ------------------------------
Title
WITNESS: BUYER:
EAST OHIO GAS
/s/ BARRY FERGUSON By: /s/ BRUCE C. KLINK
- --------------------------------- ------------------------------
Senior Vice President
/s/ JEFFERY B. MURPHY /s/ MICHAEL G. BARTELS
- --------------------------------- ------------------------------
Secretary
GPA-INT Page 17 Contract No. 11245
<PAGE> 19
EXHIBIT A
<TABLE>
<CAPTION>
Well Name State Permit Lot/Sec Township County
- --------- ------------ ------- -------- ------
<S> <C> <C> <C> <C>
Mull Ave. #1D 2841 L12 Portage Summit
Superior Properties 3610 S47 Howland Trumbull
#1
Botelli #1 3602 S21 Warren Trumbull
St. Christines #2D 2688 T2N,R2W Boardman Mahoning
AME Church #1 2684 T2N,R2W Youngstown Mahoning
</TABLE>
GPA-INT Page 18 Contract No. 11245
<PAGE> 1
INTERMEDIATE TERM
GAS PURCHASE AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Article I Term 1
Article II Points of Delivery and Quality of Gas 2
Article III Measurement 6
Article IV Obligations to Take and Deliver Gas 7
Article V Price 10
Article VI Force Majeure 11
Article VII Liability 13
Article VIII Notices 13
Article IX Production Period and Statement 14
Article X Further Obligations and Representations 14
Article XI Miscellaneous 16
Exhibit
- -------
A - Dedicated Wells 19
</TABLE>
GPA-INT Contract No. 11285
<PAGE> 2
INTERMEDIATE TERM
GAS PURCHASE AGREEMENT
THIS AGREEMENT, (the "Agreement"), effective as of the 29th day of May,
1996 is entered into by and between EVERFLOW EASTERN PARTNERS, L.P., the
"Seller," and EAST OHIO GAS, an Ohio corporation, the "Buyer."
RECITAL
-------
WHEREAS Seller desires to sell and deliver to Buyer, and Buyer desires
to purchase from Seller, at the Point(s) of Delivery specified in the Agreement,
all the natural gas produced during the term of the Agreement from the Ohio well
or wells described in Exhibit A attached and made a part of the Agreement, at
the prices and upon and subject to the terms, conditions and limitations
provided in the Agreement;
NOW THEREFORE, in consideration of their mutual covenants and promises
contained in the Agreement, Seller and Buyer agree as follows:
ARTICLE I
---------
TERM
----
1. The Agreement shall continue in force for a term of Fifteen (15)
months commencing at the beginning of the July, 1996 Production Period and
terminating at the end of the October, 1997 Production Period, provided however,
(1) that if at any time the delivery by Seller at the Point(s) of Delivery of
gas from any well subject to the Agreement shall be less than an average of
twenty thousand cubic feet per day for any Production Period in which the
delivery or receipt of gas has not been interrupted pursuant to Articles II, IV
or VI of the Agreement, then Buyer, at its sole option, may terminate the
Agreement as to the gas produced from any such well, or from
GPA-INT Page 1 Contract No. 11285
<PAGE> 3
each of such wells if there are more than one, by giving Seller thirty (30) days
prior written notice of such termination, and, (2) that either Buyer or Seller
may terminate the Agreement by giving the other thirty (30) days written notice
prior to the end of any Production Period, if the price to be paid pursuant to
Article V has been frozen pursuant to the provisions of Article V, paragraph 2.
No notice of termination or cancellation because of expiration of the term
stated in this paragraph shall be required.
2. During the term of the Agreement, Seller may make additional wells
subject to this Agreement only with Buyer's consent pursuant to the execution by
Buyer and Seller of supplements to Exhibit A identifying the well or wells to be
added. The execution of such supplements shall be at Buyer's sole discretion and
Buyer shall have no obligation to execute any such supplements. During the term
of the Agreement, any abandonment of a well or wells listed on Exhibit A or any
supplement thereto by Seller shall only be with the written permission and at
the sole discretion of Buyer. Such permission shall not be unreasonably
withheld.
3. The Agreement shall not extend to any well listed on Exhibit A
unless such well is turned on and gas from it is being received by Buyer at the
Point(s) of Delivery within ninety (90) days of the date of the Agreement.
4. Termination for any cause shall not affect either party's rights or
duties arising prior to such termination.
ARTICLE II
----------
POINT(S) OF DELIVERY AND QUALITY OF GAS
---------------------------------------
1. Seller shall promptly proceed with the construction of any necessary
pipe line extending from the well or wells subject to the Agreement to the
terminal point or points determined by Buyer, hereinafter referred to as the
"Point(s) of Delivery." The Point(s) of
GPA-INT Page 2 Contract No. 11285
<PAGE> 4
Delivery shall be measuring stations furnished, constructed, owned, operated and
maintained by Buyer, located on Buyer's pipe lines as now constructed or on any
extension which may later be constructed. The sites for said measuring stations
shall be furnished by Buyer, or, if by Seller, with rights of ingress and egress
granted to Buyer. As soon as practicable after completion of a pipe line by
Seller to a Point of Delivery, Buyer, at Seller's expense, shall construct the
necessary gas measuring stations at the Point of Delivery, if no suitable
measuring station then exists at the Point of Delivery. Prior to its
construction if possible Buyer shall provide Seller with its best estimate of
the costs of the measuring station, including station site. Seller shall pay
Buyer an amount equal to the estimate provided by Buyer to Seller. Such payment,
which will bear no interest, will be applied by Buyer toward the actual
construction costs of the measuring station. Following the accumulation of all
actual costs by Buyer for the measuring station, the parties shall reconcile any
differences within thirty (30) days. Buyer may at any time, at its option,
install additional measuring equipment so as to individually meter the gas from
any well subject to the Agreement. Seller may request that Buyer change any
Point of Delivery after its location has been originally established. If Buyer,
in its sole discretion, agrees to make such a change, all costs incurred by
Buyer for any alternate site, for the movement of any measuring and regulating
station equipment, or for any new or additional metering facilities, will be
promptly reimbursed to Buyer by Seller after receipt of an itemized invoice.
2. Seller's rights as Lessee under the terms of any lease pursuant to
which any well subject to the Agreement is drilled, for the purposes of
installing, operating, maintaining and removing any facilities and equipment,
including measuring equipment, and its rights of ingress and egress to the well
and measuring station, shall be extended to Buyer. Seller shall provide and
maintain in good repair access roads, suitable for use by Buyer's vehicles, to
all well sites and
GPA-INT Page 3 Contract No. 11285
<PAGE> 5
measuring stations. Should Seller not secure, provide and maintain both physical
and legal access to any well or wells subject to the Agreement for Buyer, then
Buyer shall, in its sole discretion, have the right to terminate the Agreement
as to such well or wells.
3. Seller may use such mechanical pressurization as it deems necessary
to deliver gas to Buyer at the Point(s) of Delivery, but the gas shall be taken
by Buyer against such pipe line pressures as Buyer in its sole judgment deems
necessary to maintain in its pipe line system either by reason of its market
demands and deliveries of gas into its pipe line system from other sources of
supply or in accordance with good safety practices and requirements and the
regulations of government authorities. Should Seller compress and pump the gas
to be delivered to Buyer at the Point(s) of Delivery, Seller shall also install
and maintain at its own expense the necessary equipment for the elimination or
suppression of pulsations in the flowing gas that are created by compression
equipment, and, in addition, Seller will install the necessary equipment to
insure a flowing temperature not to exceed 120 degrees (120 degrees) Fahrenheit
at the Point(s) of Delivery.
4. Buyer may at any time suspend the taking of gas hereunder for safety
reasons or while making repairs or alterations to, or conducting tests of, its
pipelines or other facilities. When practicable Buyer shall notify Seller in
advance of its plans to suspend the taking of gas, giving its best estimate of
the duration of the suspension. Such repairs, alterations or tests shall be
completed with due diligence. Any period of suspension of Purchases pursuant to
this paragraph shall be in addition to all other rights of Buyer to suspend
purchases pursuant to the Agreement.
5. Seller shall install and maintain at Seller's expense, the necessary
equipment for separating and removing oil, water, salt, dust, sulfur or sulfur
compounds, nitrogen or nitrogen compounds and other gaseous impurities,
objectionable odors, and foreign matter or substances and mechanical pulsations
from the gas before its delivery to Buyer at Point(s) of Delivery.
GPA-INT Page 4 Contract No. 11285
<PAGE> 6
Seller is obligated to deliver, to Buyer at the Point(s) of Delivery only such
gas as is free from all substances or flowing conditions which might affect or
impair its marketability or cause injury to or interference with the operation
of the pipe lines, regulators, meters or other equipment of Buyer or Buyer's
customers. Buyer may refuse at any time any gas which contains gaseous
impurities or objectionable odors or otherwise does not meet Buyer's gas quality
standards. Other than as provided for in this paragraph, however, the gas
delivered to Buyer hereunder shall be delivered in its natural state without any
of its component parts having been extracted.
6. Seller at all times shall deliver to Buyer at the Point(s) of
Delivery gas having a gross heating value of not less than 1,000 British thermal
units per cubic foot at 14.73 pounds per square inch absolute ("PSIA"), sixty
degrees (6O(degree)) Fahrenheit and saturated with water vapor. Seller shall
deliver only such gas which does not contain more than 1/4 grain of hydrogen
sulfide per 100 cubic feet of gas volume (8 ppm of sulfur, by weight) nor
contain more than 3/4 grain of total sulfur per 100 cubic feet of gas volume (22
ppm of sulfur, by weight).
7. If, by reason of the presence of any impurities in the gas delivered
to Buyer, or as a result of any other act or failure to act which is
inconsistent with the provisions of this Article II, any of Buyer's property or
equipment is damaged or otherwise rendered inoperative, Buyer shall bill Seller,
and Seller shall pay within fifteen (15) days of receipt of an itemized invoice,
for the cost of all necessary repairs, corrections and replacements.
8. All pipe lines, fittings, and other properties furnished under the
Agreement shall remain the property of the party furnishing the same who shall
be solely responsible for the maintenance and operation thereof, and each party
may remove its property at the termination of the Agreement, provided however,
that any property the cost of which has been reimbursed to
GPA-INT Page 5 Contract No. 11285
<PAGE> 7
Buyer by Seller pursuant to paragraph 1 of this Article II shall remain the
property of, and shall be operated and maintained by, Buyer.
ARTICLE III
-----------
MEASUREMENT
-----------
1. The unit of measurement for gas hereunder shall be one cubic foot of
gas, and the term "cubic foot of gas" means a cubic foot of gas at a pressure of
14.73 PSIA and at a temperature of sixty degrees (6O(degree)) Fahrenheit. For
purposes of measurement and meter calibration, atmospheric pressure shall be
assumed to be 14.4 pounds per square inch. All gas delivered to Buyer by Seller
hereunder shall be measured by orifice or other measurement facility of standard
type to be selected and furnished by Buyer. Orifice meters of Buyer shall be
constructed and installed in accordance with the applicable provisions of the
American National Standard "Orifice Metering of Natural Gas," ANSI/API 2530,
First Edition, and any amendments thereto. The volumes of gas delivered to Buyer
at pipeline pressures and temperatures shall be computed from meter records and
converted into the cubic foot or MCF unit of measurement specified here in
accordance with standard industry practice. Correction shall not be made for
deviation from the Ideal Gas Laws. The temperature of the gas flowing through
each meter is assumed to be sixty degrees (6O(degree)) Fahrenheit, provided,
however, that Buyer may at any time install a recording thermometer to record
the temperatures of the gas flowing through the meter, in which event the
arithmetic average of the hourly temperatures recorded shall thereafter be used
in correcting the volumes delivered hereunder to the unit of measurement
specified herein above.
2. Buyer shall furnish, install and maintain in good condition all
meters and regulating equipment at the Point(s) of Delivery. Buyer shall read
the meters, which shall be accessible to inspection and examination by Seller at
all reasonable times. If Seller challenges the accuracy of
GPA-INT Page 6 Contract No. 11285
<PAGE> 8
any meter or measuring equipment in use under this Agreement and desires to have
the same tested, Buyer shall, if Seller desires, perform the test in the
presence of Seller or Seller's representative. The cost of testing the meter
shall be borne by Seller if the meter proves to be correct, and it shall be
deemed correct if there shall be no greater variation than three percent (3%),
either plus or minus. If the meter on test proves incorrect, then the cost of
testing shall be borne by Buyer. If a meter does prove incorrect, as provided
herein, the registration of such meter shall be corrected at the rate of such
inaccuracy for a period agreed upon by the Buyer and Seller. In no event will
the inaccuracy adjustment period exceed the lesser of one half the period of
time from the last test, or the period from the first of the preceding
Production Period prior to the date of challenge by either party. For the
purpose of testing, the meter shall be tested and adjusted on the ground. During
the time a meter is disconnected from the line, the gas delivered may be
estimated by Buyer until the meter is again connected to the line, such estimate
to be on the basis of the amount of gas registered at like pressures for like
periods of time when the meter was registering accurately.
ARTICLE IV
----------
OBLIGATIONS TO TAKE AND DELIVER GAS
-----------------------------------
1. Subject to the terms and conditions of the Agreement, Buyer shall
buy all the gas delivered to it by Seller at the Point(s) of Delivery, and
Seller shall, and is obligated to use its best efforts to, produce, deliver and
sell to Buyer all the gas owned, produced or purchased by Seller from all wells
listed on Exhibit A on each day of the term of the Agreement, in an efficient
and expeditious manner, other than that required for drilling operations with
respect to such wells. However, with respect to the wells listed on Exhibit A,
if required by the terms of the oil and gas lease pursuant to which the gas
subject to the Agreement is produced, Seller may also
GPA-INT Page 7 Contract No. 11285
<PAGE> 9
provide a yearly free gas allowance. Seller represents that, with respect to the
wells listed on Exhibit A, the annual free gas allowances are for residential
only, or commercial/industrial use with one free gas allowance per well of 300
MCF per year, or less. Seller agrees that if any other or greater volumes are
diverted from Buyer, then Seller shall pay to Buyer $1.15 per MCF (to be
mutually agreed upon annually) on any diverted volumes in excess of 300 MCF per
well per contract year. Seller shall make such payment within thirty days after
the end of each year of the Agreement term. Buyer will immediately notify Seller
in writing of any unauthorized diverted volumes it becomes aware of. Upon
written request, Buyer shall have the right of access to Seller's records for
the stations related to the wells listed on Exhibit A and the right to audit
such stations.
2. It is understood and agreed, however, that Buyer's obligation to
take gas from any well or wells subject to the Agreement, in addition to the
limitations imposed elsewhere by the Agreement, is limited to two hundred and
seventy five (275) days in each or any calendar year beginning January 1 and
ending December 31, except for the initial calendar year, being the year in
which gas from each well listed on Exhibit A is first produced and delivered at
the Point(s) of Delivery, during which period Buyer agrees to take gas at least
seventy-five percent of the time remaining after the initial delivery date until
the end of the initial calendar year. Pursuant to this paragraph Buyer may
suspend taking gas at any time and for any reason, including price, but Buyer
shall have the right to require delivery or the resumption of delivery of gas on
each day of every year, subject to the terms of the Agreement.
3. If Buyer wishes Seller to cease delivering gas from any or all wells
subject to this Agreement pursuant to any provision of the Agreement, Buyer
shall notify Seller by telephone, facsimile, or letter, and Seller, on receipt
of such notice, shall immediately cease deliveries and
GPA-INT Page 8 Contract No. 11285
<PAGE> 10
shut in the well or wells as directed by Buyer. Should Seller fail to comply
with Buyer's instructions within a reasonable time in Buyer's sole judgment,
Buyer may take all action necessary to shut in such wells or otherwise
interrupt the receipt of gas at the Point(s) of Delivery or elsewhere, without
additional notice. If Buyer is unable to, or elects not to, shut in the wells
or otherwise interrupt receipt of the gas in the event Seller fails to do so
after receiving notice and instructions to do so pursuant to this paragraph,
any continuing deliveries to Buyer after such notice shall be deemed to have
been supplied by Seller to Buyer at no cost, and Buyer shall not be obligated
to make any payments to Seller therefor. Wells shut in pursuant to this Article
shall remain shut in, and deliveries of gas from such wells shall not resume,
until Buyer in its sole discretion notifies Seller, by telephone, facsimile, or
letter, that deliveries may be resumed. Buyer's right to recall shut-in gas and
to resume purchases shall be absolute. Upon notice from Buyer, Seller shall
resume deliveries as soon as practicable.
4. It is understood that Buyer has no obligation, implied or expressed,
to take gas on more than two hundred and seventy five (275) days in any year,
nor on consecutive days, nor any obligation to take any specific volume of gas,
nor gas from any specific well or wells during the periods in which Buyer is
taking gas, except as expressly provided for pursuant to the Agreement. It is
the intent of the Parties, by this provision, to recognize that the nature,
timing, frequency and duration of Buyer's shut-in of wells or other refusals to
accept gas shall be at Buyer's sole discretion, subject only to Buyer's express
obligations to take gas in accordance with the terms of the Agreement. Buyer
shall not be liable for any damages, direct or indirect, through loss of gas, or
otherwise, sustained by Seller, its heirs, executors, administrators or assigns,
resulting from or arising out of the failure or refusal of the Buyer to take
gas, or out of any
GPA-INT Page 9 Contract No. 11285
<PAGE> 11
actions incidental to its cessation of taking gas, or shutting in of wells, if
such failure, refusal or action is contemplated or permitted by the terms of the
Agreement.
5. Buyer's rights to suspend the taking of gas pursuant to this Article
IV shall be in addition to its rights to suspend taking gas pursuant to any
other provisions of the Agreement.
ARTICLE V
---------
PRICE
-----
1. The price to be paid by Buyer to Seller shall be $2.45 per MCF for
each MCF received at the Point(s) of Delivery. In addition to the initial base
price, Buyer will pay $.20 per MCF to Seller as reimbursement for the cost of
delivering the gas to Buyer. The prices set forth in this Article V represent
the full and complete prices to be paid for gas subject to the Agreement as
delivered to the Point(s) of Delivery. Buyer is not obligated to pay any
additional or other prices than the prices set forth here, regardless of what it
may pay for any other gas at any other time or date. The prices provided for in
this Article shall be subject to the provisions of Article IV, paragraph 1;
Article X, paragraph 1; and Article XI, paragraphs 2 and 4 of the Agreement.
2. In no event shall the price paid hereunder, whether initial or adjusted,
ever exceed Buyer's current GCR. In any period when the provisions of this
Article would produce that result, the price shall be frozen at the level of the
current GCR, until any subsequent adjustment of either price or current GCR
which results in the price pursuant to the Agreement being below the level of
the then current GCR. In such event, no make-up payments shall be due or paid
with respect to amounts previously unpaid due to the GCR limit on the prices to
be paid hereunder.
3. If the method of calculating the GCR reflected in Buyer's rate
schedules is materially changed in accordance with PUCO procedures, or if the
use of a GCR is eliminated, then the
GPA-INT Page 10 Contract No. 11285
<PAGE> 12
price in effect as of the day of such change or elimination shall remain in
effect for the duration of the term of the Agreement.
ARTICLE VI
----------
FORCE MAJEURE
-------------
1. The term "Force Majeure" as used herein, and as applied to either
party hereto, shall mean acts of the law, including governmental bodies acting
pursuant to law, acts of God, strikes, lockouts, or other labor disturbances,
acts of the public enemy, war, blockades, insurrections, riots, epidemics,
fires, lightning, storms, floods, washouts, arrests, and restraint by government
or people, civil disturbances, explosions, breakage or accidents to machinery or
lines of pipe, freezing of wells or pipe lines, partial or entire failure of
such wells, the necessity for making repair to or alteration of machinery or
line of pipe, or any other cause, whether of the kind herein enumerated or
otherwise, not reasonably within the control of the party invoking Force
Majeure. It is understood that settlement of strikes, lockouts or labor
disturbances shall be entirely within the discretion of the party having the
difficulty and that the above requirement that any Force Majeure shall be
remedied with all reasonable dispatch shall not require the settlement of
strikes, lockouts, or labor disturbances by acceding to the demands of an
opposing party when such course is inadvisable in the discretion or judgment of
the party having the difficulty.
2. Neither party to this Agreement shall be liable for any damage or
loss that may be occasioned by any failure, depletion, shortage, or interruption
in the production of gas from a well, or any decline in natural pressure. In the
event either party is rendered unable, wholly or in part, by Force Majeure to
carry out its obligations under this Agreement, other than the obligation to
make payment of amounts due hereunder, then the obligations of such party, so
far as they are affected by such Force Majeure, shall be suspended during the
continuance of any
GPA-INT Page 11 Contract No. 11285
<PAGE> 13
inability so caused. However, the party claiming the existence of Force Majeure
shall use all reasonable efforts to remedy promptly any situation which may
interfere with the performance of its obligations under the Agreement.
3. Neither Force Majeure or other causes or contingencies recognized
pursuant to the Agreement shall relieve either party of liability or
responsibility unless notice and full particulars are given in writing to the
other by the party relying on such facts, as soon as reasonably practicable
after the occurrence of the facts relied upon. Such facts shall not, however, in
any event, release either party from liability in the event of its concurring
negligence, nor from its obligations to make payments of amounts then due.
ARTICLE VII
-----------
LIABILITY
---------
1. Buyer and Seller shall each have responsibility for, and shall
indemnify and hold the other, its agents, employees, officers, directors and
parent, harmless from and against, any claim, demand, action, liability, cost,
expense (including reasonable attorneys' fees), damages or loss, arising from or
because of anything which may be done or may happen or arise with respect to the
gas while it is within its own control as defined in Article X, paragraph 2 of
the Agreement.
2. Neither Buyer nor Seller shall be liable in damages to the other for
any interruption in, or for any act, omission, or circumstance occasioned by or
in consequence of, or related to, any such interruption, if such interruption is
contemplated by any provision of the Agreement.
ARTICLE VIII
------------
NOTICES
-------
GPA-INT Page 12 Contract No. 11285
<PAGE> 14
Notices to Buyer required under or relating to the Agreement shall be
addressed to it at P.O. Box 5759, Cleveland, Ohio 44101-0759, Attention:
Manager, Appalachian Gas Supply (216/736-5365). All notices and payments to
Seller required under or relating to the Agreement shall be made and mailed to:
Mr. Tom Korner
Everflow Eastern Partners, L.P.
585 W. Main Street
P.O. Box 629
Canfield, OH 44406
Phone: (330) 533-2692
ARTICLE IX
----------
PRODUCTION PERIOD AND STATEMENT
-------------------------------
1. Deliveries of gas to the Point(s) of Delivery shall be measured
during Production Periods. Production Periods shall be periods of between
twenty-eight (28) and thirty-five (35) days. Production Periods shall be
identified by the name of the month in which the period ends.
2. Once each month Buyer shall render a statement setting forth the
total quantity of gas received at the Point(s) of Delivery during the prior
month's Production Period, and any payment due to Seller. Any such payments may
be reduced by amounts due to Buyer from Seller pursuant to any provision of the
Agreement.
ARTICLE X
---------
FURTHER OBLIGATIONS AND REPRESENTATIONS
---------------------------------------
GPA-INT Page 13 Contract No. 11285
<PAGE> 15
1. Seller warrants that all of the gas sold and delivered to Buyer has
been produced from wells in Ohio, that it has good, marketable title to the gas
sold as and when delivered to Buyer at the Point(s) of Delivery, and that gas so
delivered is free from all liens and encumbrances. Seller covenants and agrees
to indemnify Buyer, its officers and directors, parents and affiliates, for, and
save them harmless from, all suits, actions, debts, accounts, damages, costs,
losses and expenses arising from or attributable to the adverse claims of any
and all other persons or parties to the gas delivered to Buyer hereunder;
provided, however, that if any person or party makes claim to any gas delivered
to Buyer hereunder adverse to Seller's claim of ownership thereof, or obtains a
lien or encumbrance against the same, Buyer may withhold payment for such gas
without liability for the payment of interest on the amounts withheld, until
such adverse claim or lien is released or disposed of by the parties or by final
court action and may pay such withheld amount or amounts to the party or parties
finally determined to be entitled thereto.
2. Seller shall be deemed to be in control and possession of the gas
sold by it hereunder until it shall have been delivered to Buyer at the Point(s)
of Delivery, after which delivery Buyer shall be deemed to be in control and
possession thereof. Buyer shall have no responsibility with respect to any gas
sold to it hereunder until it is delivered at any such delivery point, and no
responsibility therefore because of anything which may be done, or may happen or
arise with respect to said gas before delivery to Buyer at such delivery point;
and Seller shall have no responsibility with respect to said gas after its
delivery to Buyer and no responsibility because of anything which may be done or
may happen or arise with respect to said gas after its delivery to Buyer at such
delivery point, except that nothing contained herein shall release Seller from
its obligations pursuant to Articles II and X of the Agreement.
GPA-INT Page 14 Contract No. 11285
<PAGE> 16
3. No action shall be brought by Seller against Buyer on account of any
claimed failure under the Agreement unless sixty (60) days written notice of
such claim of failure shall be served upon Buyer and unless Buyer shall have
failed to remedy such claim within such sixty day period. Such notice of claim
shall specify in detail the respects in which it is claimed the Buyer has failed
to perform. Any such notice of claim must be served by Seller upon Buyer within
twelve months of the time such claim is or could have been discovered, it being
the intention of the parties to bar Seller's assertion of any claim more than
twelve months after it arises, and by doing so to supersede any otherwise
applicable statute of limitations on claims by Seller.
4. Seller warrants that if any of the output, production or reserves of
any of the wells listed on Exhibit A has ever been previously produced,
dedicated or sold to or for Buyer or any other entity, as to such output,
production, and wells, Seller has secured all necessary and appropriate releases
from all prior owners, producers, buyers or claimants.
5. In the event any tax is now or hereafter imposed on natural gas, or
the production, severance, gathering, transporting, sale, delivery or use
thereof, or upon the business or privilege of producing, severing, gathering,
transporting, selling, delivering, or using natural gas, or if such tax is
imposed in any other manner so as to constitute directly or indirectly a charge
upon the gas delivered to Buyer hereunder, then the amount of such tax shall be
borne by Seller so far as it affects or relates to or is apportionable to the
activities of Seller with respect to the gas delivered to Buyer under the
Agreement. In the event Buyer is required to pay such tax, the amount thereof
may be deducted from the payments accruing to Seller under the Agreement.
6. Seller shall pay or cause to be paid any royalty payments due or
owed on the gas delivered under the Agreement, and shall indemnify and hold
Buyer harmless from any responsibility, liability or obligation for payment of
any such royalty. In the event Buyer is
GPA-INT Page 15 Contract No. 11285
<PAGE> 17
obligated by law to make any royalty payment directly to royalty owners which
payment obligation would otherwise be, or is, the responsibility of Seller,
Seller shall reimburse Buyer for any such payment or costs associated with such
payment. If Seller fails to reimburse Buyer, Buyer may deduct the amounts of
such payments and any costs associated with such payments from any amounts
accruing to Seller under the Agreement.
ARTICLE XI
----------
MISCELLANEOUS
-------------
1. No waiver by either party of one or more failures or defaults of the
other party in the performance of any provisions of the Agreement shall operate
or be construed as a waiver of any future failures or defaults, whether of a
like or different character.
2. This Agreement and all of its provisions -- including the payment of
the prices stated in it --are subject to all federal, state and local laws and
to the regulations or orders of any court or governmental agency with
jurisdiction over it, but the Agreement shall be governed by and construed in
accordance with the law of the State of Ohio, without giving effect to the
principles of conflicts of laws of the State.
3. This Agreement and its Exhibits constitute the entire agreement
between Buyer and Seller with respect to its subject matter, and no modification
of its terms and provisions shall be made or become effective except by
execution of a supplementary written agreement.
4. In the event any of the prices stated herein ever exceed the
applicable Maximum Lawful Price under the Natural Gas Policy Act of 1978 or
other legislation for the category of gas from any well subject to the
Agreement, Buyer will be required to pay only the Maximum Lawful Price for the
applicable category of gas.
GPA-INT Page 16 Contract No. 11285
<PAGE> 18
5. Seller shall not assign the Agreement, in whole or in part, without
the written consent of Buyer which shall not be unreasonably withheld. All the
covenants and obligations of this agreement shall extend to and be binding upon
the successors and assigns of the respective parties. Any sale, assignment,
farmout or other disposition or agreement of or concerning the well or wells
described herein shall be subject to and expressly made subject to, the
Agreement.
6. Should any provision of the Agreement be determined by any court or
regulatory body having jurisdiction to be void, voidable or otherwise invalid,
such determination shall have no effect on the remaining provisions of the
Agreement to the extent the provision eliminated can be, reasonably construed as
severable from the remainder of the Agreement without materially altering the
rights, obligations, and purposes of Buyer and Seller as reflected in the
Agreement.
IN WITNESS WHEREOF the parties have set their signatures by their
officers duly authorized to do so the day and year first above written.
WITNESS: SELLER:
EVERFLOW EASTERN
/s/ ROSE CARSON By: /s/ THOMAS L. KORNER
- --------------------------------- ------------------------------
Thomas L. Korner
/s/ CLAUDIA MORGAN President
- --------------------------------- ------------------------------
Title
WITNESS: BUYER:
EAST OHIO GAS
/s/ BARRY FERGUSON By: /s/ BRUCE C. KLINK
- --------------------------------- ------------------------------
Senior Vice President
/s/ JEFFERY B. MURPHY /s/ MICHAEL G. BARTELS
- --------------------------------- ------------------------------
Secretary
GPA-INT Page 17 Contract No. 11285
<PAGE> 19
EXHIBIT A
<TABLE>
<CAPTION>
Well Name State Permit Lot/Sec Township County
- --------- ------------ ------- -------- ------
<S> <C> <C> <C> <C>
Akron Zoo #1 2834 Tr 7 Portage Summit
Akron Zoo #2 2832 Tr 7 Portage Summit
Akron Zoo #3 2833 Tr 7 Portage Summit
Selle #1D 2826 Tr 8 Portage Summit
</TABLE>
GPA-INT Page 18 Contract No. 11285
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 241,404
<SECURITIES> 0
<RECEIVABLES> 1,475,920
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,775,762
<PP&E> 98,268,758
<DEPRECIATION> 50,505,471
<TOTAL-ASSETS> 49,597,989
<CURRENT-LIABILITIES> 1,379,596
<BONDS> 1,397,331
<COMMON> 0
0
0
<OTHER-SE> 46,593,062
<TOTAL-LIABILITY-AND-EQUITY> 49,597,989
<SALES> 6,789,661
<TOTAL-REVENUES> 7,080,137
<CGS> 928,755
<TOTAL-COSTS> 4,784,525
<OTHER-EXPENSES> 105,928
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,725
<INCOME-PRETAX> 2,189,684
<INCOME-TAX> (60,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,249,684
<EPS-PRIMARY> .35
<EPS-DILUTED> 0
</TABLE>
