<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 September 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.
<TABLE>
<CAPTION>
INDEX
DESCRIPTION PAGE NO.
----------- --------
Part I. Financial Information
-----------------------------
<S> <C>
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 ....................... F-1
Consolidated Statements of Income
Three and Nine Months Ended September 30, 1996 and 1995 ........ F-3
Consolidated Statements of Partners' Equity
Nine Months Ended September 30, 1996 and 1995 .................. F-4
Consolidated Statements of Cash Flows
Nine Months Ended September 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 ....................................... 7
Signature .............................................................. 8
</TABLE>
2
<PAGE> 3
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
----------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited) (Audited)
------------ --------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 616,447 $ 426,743
Accounts receivable:
Trade 499,212 1,869,045
Officers and employees 697,441 969,609
Joint venture partners 304,103 564,034
Other 88,167 75,899
------------ --------------
Total current assets 2,205,370 3,905,330
PROPERTY AND EQUIPMENT
Proved properties (successful efforts
accounting method) 98,106,223 95,362,378
Pipeline and support equipment 451,971 426,500
Corporate and other 1,009,536 806,370
------------ --------------
99,567,730 96,595,248
Less accumulated depreciation, depletion
and amortization (51,302,509) (47,809,014)
------------ --------------
48,265,221 48,786,234
OTHER ASSETS 63,928 64,910
------------ --------------
$ 50,534,519 $ 52,756,474
============ =============
</TABLE>
See notes to unaudited consolidated financial statements.
F-1
<PAGE> 4
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited) (Audited)
----------- -----------
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 18,571 $ 11,700
Accounts payable 787,615 1,243,830
Accrued expenses 285,591 299,059
----------- -----------
Total current liabilities 1,091,777 1,554,589
LONG-TERM DEBT 2,991,288 4,706,507
DEFERRED INCOME TAXES 198,000 288,000
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 45,772,418 45,731,442
GENERAL PARTNER'S EQUITY 481,036 475,936
----------- -----------
Total partners' equity 46,253,454 46,207,378
----------- -----------
$50,534,519 $52,756,474
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-2
<PAGE> 5
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended September 30, 1996 and 1995
-------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- --------------------------------
1996 1995 1996 1995
----- ---- ----- ----
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales .............................. $ 2,018,122 $2,048,89 $ 8,807,783 $ 9,614,832
Well management and operating .................. 103,362 105,988 391,034 398,823
Other ......................................... 13,428 575 16,232 1,227
------------ --------- ------------ ------------
2,134,912 2,155,455 9,215,049 10,014,882
DIRECT COST OF REVENUES
Production costs ............................... 349,255 298,295 1,278,010 1,226,669
Well management and operating .................. 53,760 57,074 202,889 211,992
Depreciation, depletion and amortization ....... 789,077 695,454 3,455,954 3,278,169
Abandonment of oil and gas properties .......... -- -- -- 15,000
------------ --------- ------------ ------------
Total direct cost of revenues ................ 1,192,092 1,050,823 4,936,853 4,731,830
GENERAL AND ADMINISTRATIVE EXPENSE ..................... 443,150 372,881 1,482,914 1,373,561
------------ --------- ------------ ------------
Total cost of revenues ............................. 1,635,242 1,423,704 6,419,767 6,105,391
------------ --------- ------------ ------------
INCOME FROM OPERATIONS ................................. 499,670 731,751 2,795,282 3,909,491
OTHER INCOME (EXPENSE)
Interest income ................................ 6,091 4,993 21,888 20,478
Interest expense ............................... (69,491) (36,398) (191,216) (142,163)
Gain (loss) on sale of property
and equipment ................................. -- -- -- (5,234)
------------ --------- ------------ ------------
(63,400) (31,405) (169,328) (126,919)
------------ --------- ------------ ------------
INCOME BEFORE INCOME TAXES ............................. 436,270 700,346 2,625,954 3,782,572
PROVISION (CREDIT)
FOR INCOME TAXES
Current
Deferred ....................................... (30,000) (50,000) (90,000) (150,000)
------------ --------- ------------ ------------
(30,000) (50,000) (90,000) (150,000)
------------ --------- ------------ ------------
NET INCOME ............................................. $ 466,270 $ 750,346 $ 2,715,954 $ 3,932,572
============ ========= ============ ============
Allocation of Partnership Net Income
Limited Partners ............................... $ 461,465 $ 742,692 $ 2,688,156 $ 3,892,591
General Partner ................................ 4,805 7,654 27,798 39,981
------------ --------- ------------ ------------
$ 466,270 $ 750,346 $ 2,715,954 $ 3,932,572
============ ========= ============ ============
Earnings per unit ...................................... $ .07 $ .12 $ .42 $ .60
============ ========= ============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
F-3
<PAGE> 6
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
Nine Months Ended September 30, 1996 and 1995
---------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
EQUITY - JANUARY 1 ........................ $ 46,207,378 $ 44,617,973
Net income ............................. 2,715,954 3,932,572
Cash distributions ($.375 per Unit)..... (2,430,914) (2,468,124)
Repurchase Right - Units tendered....... (238,964) (377,039)
------------ ------------
EQUITY - SEPTEMBER 30 ..................... $ 46,253,454 $ 45,705,382
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
F-4
<PAGE> 7
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996 and 1995
---------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,715,954 $ 3,932,572
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 3,493,495 3,303,649
Abandonment of oil and gas properties -- 15,000
(Gain) loss on sale of property and equipment -- 5,234
Deferred income taxes (90,000) (150,000)
Changes in assets and liabilities:
Accounts receivable 1,629,764 2,223,080
Other current assets (12,268) (15,200)
Other assets 982 (22,508)
Accounts payable (456,215) (220,960)
Accrued expenses (13,468) (101,123)
---------- ----------
Total adjustments 4,552,290 5,037,172
---------- ----------
Net cash provided by operating activities 7,268,244 8,969,744
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on receivables from officers and
employees 503,408 508,270
Advances disbursed to officers and employees (231,240) (584,073)
Purchase of property and equipment (2,972,482) (4,344,902)
Proceeds on sale of property and equipment -- 10,000
---------- ----------
Net cash used by investing activities (2,700,314) (4,410,705)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of Units (238,964) (377,039)
Distributions (2,430,914) (2,468,124)
Proceeds from issuance of long-term debt 3,100,000 2,000,000
Payments on long-term debt (4,808,348) (4,200,000)
---------- ----------
Net cash used by financing activities (4,378,226) (5,045,163)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 189,704 (486,124)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 426,743 856,968
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
THIRD QUARTER $ 616,447 $ 370,844
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 205,517 $ 111,931
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
were
F-6
<PAGE> 9
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
were
F-6
<PAGE> 10
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 were allocated to the General Partner. Such
allocation has changed and will change in the future due to
Unitholders electing to, exercise the Repurchase Right (see Note 3).
Earnings per limited partner Unit have been computed based on the
weighted average number of Units outstanding, during the period for
each period presented. Average outstanding Units for earnings per
Unit calculations were 6,379,941 and 6,415,343 for the three and
nine months ended September 30, 1996, respectively, and 6,443,677
and 6,490,677 for the three and nine months ended September 30,
1995, respectively.
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 and for 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 SPAS 121 was not
material.
Note 2. Long-Term Debt
Notes Payable - Bank
In January 1995, the Company entered into an agreement that replaced
its previous credit agreement. In October 1996, the agreement was
amended extending the maturity date from November 1, 1997 to
November 1, 1998. The credit agreement provides for a revolving line
of credit in the amount of $7,000,000, all of which is available.
The revolving line of credit provides for interest payable quarterly
at the lending bank's prime rate plus 1/8% with the principal due at
maturity, November 1, 1998. Borrowings under the facility are
unsecured; however, the Company has agreed, if requested by the
bank, to execute any supplements to the agreement including security
and mortgage agreements on the Company's assets. The agreement
requires the Company 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
F-7
<PAGE> 11
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2. Long-Term Debt (Continued)
Notes Payable - Bank (Continued)
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.
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 as of December 31, 1995 were 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 any 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 were allocated to the Unitholders (the limited
partners) and 1% of revenues and costs were allocated to the General
Partner. Such allocation has changed and will change in the future
due to Unitholders electing to exercise the Repurchase Right.
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
F-8
<PAGE> 12
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 3. Partners' Equity (Continued)
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 to be paid pursuant to the
Repurchase Right to $4.50 by offering a premium of $.27 over the
calculated price for the 1996 offer to Unitholders.
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> <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 October 1996 of $.125 per Unit
to Unitholders of record on September 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
F-9
<PAGE> 13
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 4. Commitments and Contingencies (Continued)
Company cannot predict what effect, if any, current and future
regulations may have on the operations of the Company.
Note 5. Business Segments and Major Customers
The Company has various Intermediate Term Adjustable Price Gas
Purchase Agreements (the "East Ohio Contracts") with The East Ohio
Gas Company ("East Ohio"). Pursuant to Article V of the East Ohio
Contracts, the new adjusted base price will increase by $0.47 per
MCF per contract beginning with the November 1996 production period.
The majority of the Company's Natural gas production falls under the
East Ohio Contracts.
F-10
<PAGE> 14
Part I: Financial Information
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the Company's financial position at
September 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -------------------
(Amounts in Thousands) Amount % Amount %
------- --- ------- ---
<S> <C> <C> <C> <C>
Working capital $ 1,113 2% $ 2,351 5%
Property and equipment (net) 48,265 98 48,786 95
Other 64 -- 65 --
------- --- ------- ---
Total $49,442 100% $51,202 100%
======= === ======= ===
Long-term debt $ 2,991 6% 4,707 9%
Deferred income taxes 198 -- 288 1
Partners' equity 46,253 94 46,207 90
------- --- ------- ---
Total $49,442 100% $51,202 100%
======= === ======= ===
</TABLE>
Working capital surplus of $1.1 million as of September 30, 1996
represented a decrease of $1.2 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 September 30, 1996 versus December 31,
1995. Seasonal gas production is responsible for this occurrence. The Company
paid down $1.7 million of long-term debt during the nine months ended September
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 anticipated
quarterly distributions. The Company borrowed $600 thousand during October 1996,
under the Company's existing credit facility, to fund a portion of the payment
of a quarterly distribution.
The Company's cash flow from operations before the change in working
capital decreased $987 thousand, or 14%, during the nine months ended September
30, 1996 as compared to the same period in 1995. Changes in working capital
other than cash and cash equivalents increased cash by $1.1 million and $1.9
million during the nine months ended September 30, 1996 and 1995, respectively.
The reductions in accounts receivable of $1.6 million and $2.2 million at
September 30, 1996 and 1995, respectively, compared to December 31, 1995 and
1994 are primarily the result of lower production revenues receivable. Accounts
payable decreased $456 thousand and $221 thousand during the nine months ended
September 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 $13 thousand and $101 thousand during the nine months
ended September 30, 1996 and 1995, respectively. The primary reason for these
changes is the result of timing differences for accrued payroll expenses.
3
<PAGE> 15
Cash flows provided by operating activities was $7.3 million for the
nine months ended September 30, 1996. Cash was used to purchase property and
equipment, repurchase Units, pay quarterly distributions and reduce long-term
debt
Additional borrowings for operations will be required during the fourth
quarter due to the seasonal nature of the gas purchase agreements with The East
Ohio Gas Company and the timing of revenue receipts associated with these
agreements. Seasonal price reductions and production restrictions during the
summer months will reduce operating revenues and consequently cash flows from
operations during such periods.
Management of the Company believes the existing revolving credit
facility of $7,000,000 should be sufficient to meet the funding requirements of
ongoing operations, capital investments to develop oil and gas properties, the
repurchase of Units pursuant to the Repurchase Right and the payment of
quarterly distributions. The existing loan agreement was amended in October 1996
extending the maturity date from November 1, 1997 to November 1, 1998.
In October of 1996, the Company received notification of an increase in
the price received for natural gas pursuant to the pricing adjustments contained
in the Company's Intermediate Term Adjustable Price Gas Purchase Agreements with
The East Ohio Gas Company.
These adjustments represent a $0.47 per MCF increase in the contract
price for each of three contracts beginning November 1996. The majority of the
Company's natural gas production falls under these Agreements. These pricing
adjustments will increase the Company's cash flows and income from operations,
beginning with November 1996 natural gas sales.
Management of the Company believes that income from operations, plus
the existing revolving credit facility of $7,000,000, should be sufficient to
meet the funding and financing requirements of the Company for both the short
and long term.
4
<PAGE> 16
RESULTS OF OPERATIONS
The following table and discussion is a review of the results of
operations of the Company for the three and nine months ended September 30, 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 Nine Months
Ended Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales 94% 95% 96% 96%
Well management and operating 5 5 4 4
Other 1 -- -- --
---- ---- ---- ----
Total Revenues 100% 100% 100% 100%
Expenses:
Production costs 16% 14% 14% 12%
Well management and operating 2 3 2 2
Depreciation, depletion and amortization 37 32 38 33
Abandonment of oil and gas properties -- -- -- --
General and administrative 21 17 16 14
Other 3 1 2 1
Income taxes (1) (2) (11) (1)
---- ---- ---- ----
Total Expenses 78 65 71 61
---- ---- ---- ----
Earnings 22% 35% 29% 39%
==== ==== ==== ====
</TABLE>
Revenues for the three and nine months ended September 30, 1996
decreased $21 thousand and $800 thousand, respectively, compared to the same
periods in 1995. These decreases were due primarily to decreases in oil and gas
sales during the three and nine months ended September 30, 1996 compared to the
same periods in 1995.
Oil and gas sales decreased $31 thousand, or 2%, during the three
months ended September 30, 1996 compared to the same period in 1995. Oil and gas
sales decreased $807 thousand, or 8%, during the nine months ended September 30,
1996 compared to the same nine 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 increased $51 thousand, or 17%, during the three
months ended September 30, 1996 compared to the same period in 1995. Production
costs increased $51 thousand, or 4%, during the nine months ended September 30,
1996 compared to the same period in 1995. An increase in the number of
productive properties is primarily responsible for these increases.
Depreciation, depletion and amortization increased $94 thousand, or
13%, during the three months ended September 30, 1996 compared to the same
period in 1995. Depreciation, depletion and amortization increased $178
thousand, or 5%, during the nine months ended September 30, 1996 compared to the
same period in 1995. Depreciation, depletion and amortization expense typically
reacts to increases or decreases in oil and gas production; although sales have
decreased from pricing adjustments, production has increased.
5
<PAGE> 17
General and administrative expenses increased $70 thousand, or 19%,
during the three months ended September 30, 1996 compared with the same period
in 1995. General and administrative expenses increased $109 thousand, or 8%,
during the nine months ended September 30, 1996 compared to the same period in
1995. The primary reasons for these increases are due to increases in
professional fees and employee compensation and benefits.
The Company reported net income of $466 thousand, a decrease of $284
thousand, or 38%, during the three months ended September 30, 1996 compared to
the same period in 1995. The Company reported net income of $2,716 thousand, a
decrease of $1.2 million, or 31%, during the nine months ended September 30,
1996 compared to the same period in 1995. The decrease in oil and gas sales and
increases in production costs, depreciation, depletion and amortization and
general and administrative expense were primarily responsible for the decreases
in net income during the three and nine months ended September 30, 1996.
The Company has various gas purchase agreements with the East Ohio Gas
Company. Pursuant to these agreements, the Company will receive an increase in
the price received for natural gas production in the amount of $0.47 per MCF
beginning in November 1996. The majority of the Company's natural gas production
is subject to these agreements. As a result, Management expects an increase in
natural gas sales for the remainder of 1996 and most of 1997, although no
assurance can be given. The impact on the Company cannot fully be measured until
actual production volumes are determined.
In March 1995, the Financial Accounting Standards Board issued a new
standard (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
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 SPAS 121 in the first
quarter of 1996 and its effect did not have a material impact on its financial
position or results of operations.
6
<PAGE> 18
Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 One Year Term Gas Purchase Agreement dated August 1, 1996
between Everflow Eastern Partners, L.P. and JDS Energy
Corporation.
(b) On October 23, 1996, the Registrant filed a current report on
Form 8-K relating to pricing adjustments under the Company's
Agreements with The East Ohio Gas Company.
7
<PAGE> 19
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 12, 1996 EVERFLOW EASTERN PARTNERS, L.P.
By: EVERFLOW MANAGEMENT COMPANY,
General Partner
By: EVERFLOW MANAGEMENT CORPORATION
Managing General Partner
By: /s/William A. Siskovic
----------------------------------------------
William A. Siskovic
Vice President and Principal Accounting Officer
(Duly Authorized Officer)
8
<PAGE> 1
Exhibit 10.1
ONE YEAR TERM
-------------
GAS PURCHASE AGREEMENT
----------------------
THIS AGREEMENT, entered into this 1st day of August, 1996, between Everflow
Eastern Partners, L.P. ("Seller"), and JDS Energy Corporation ("Buyer"),
WITNESSETH:
-----------
WHEREAS, Seller has available a supply of natural gas at certain points of
connection on the pipeline system of The East Ohio Gas Company; and
WHEREAS, Buyer desires to purchase natural gas for use in its customers' plants
located in Ohio.
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained, Seller agrees to sell and deliver from wells listed in Exhibit "A"
to Buyer and Buyer agrees to purchase and receive from Seller, a quantity of
natural gas pursuant to the terms and conditions hereinafter set forth, to-wit:
ARTICLE 1
---------
DEFINITIONS
-----------
Except where expressly stated otherwise, the following terms where used in this
Contract shall mean:
1.1 "Gas" means all elements and compounds and mixtures thereof comprising the
effluent vapor stream as produced at the mouth of Seller's natural gas wells.
1.2 "MCF" means one thousand (1,000) cubic feet of gas measured at the
temperature and pressure specified by The East Ohio Gas Company in their gas
transportation agreements.
ARTICLE 2
---------
POINTS OF DELIVERY
------------------
2.1 The points of delivery of gas to be delivered to Buyer from Seller hereunder
shall be at the point of interconnection of Seller's gathering facilities with
the metering facilities of The East Ohio Gas Company.
2.2 Seller shall be in control and possession of the gas and responsible for any
damage or injury caused thereby until same shall have been delivered to Buyer at
the point of delivery.
ARTICLE 3
---------
QUANTITY
--------
3.1 Commencing with the date of initial delivery and continuing for the term of
this Contract, Buyer agrees to purchase and Seller agrees to sell and endeavor
to deliver at the point specified in Article 2 hereunder, volumes of gas passing
through the stations listed in Exhibit "A", up to a monthly maximum volume of
15,000 mcf.
3.2 In the event Seller has increases or decreases in excess of ten percent
over such quantity stated in 3.1 above, Seller shall notify Buyer. Seller shall
also notify Buyer in the event of production variation due to force majeure
situations.
1
<PAGE> 2
ARTICLE 4
---------
MEASUREMENT OF GAS
------------------
4.1 All gas delivered to Buyer from Seller hereunder shall be measured by The
East Ohio Gas Company at the points of delivery and as specified in its gas
transportation agreements.
4.2 Seller shall provide the results of a twenty-four hour measurement test to
be taken monthly during the first week of each production period. Seller shall
notify Buyer of such test results within ten days of such tests.
ARTICLE 5
---------
QUALITY
-------
5.1 All gas delivered to Buyer from Seller at the point of delivery hereunder
shall be merchantable gas and shall conform to the standard contract quality
specifications of The East Ohio Gas Company.
ARTICLE 6
---------
TERM
----
6.1 The term of this contract shall commence with the September, 1996,
production period, and shall continue for twelve (12) full production periods.
At the end of the primary term, the contract will continue in effect on a month
to month basis unless cancelled by either party with thirty (30) days written
notice.
ARTICLE 7
---------
PRICE
-----
7.1 Commencing with the initial delivery of gas hereunder and extending through
twelve full production periods, Seller shall receive $2.89 per mcf at the point
of delivery. At the end of the initial twelve month period and each succeeding
twelve month period thereafter, the gas shall be priced on an annual basis.
Should the parties fail to reach an agreement thirty (30) days prior to the
effective date for the renegotiated price, either party may terminate this
Agreement in accordance with Article 6.1 above.
ARTICLE 8
---------
TAXES
-----
8.1 All production, severance, gathering, excise, and similar taxes imposed or
levied by the state, or other governmental authority on the gas produced,
delivered, or sold hereunder shall be paid by Seller. Buyer shall be responsible
to pay all taxes and assessments imposed upon Buyer with respect to its
facilities, gas delivered hereunder, and the purchase of the gas.
ARTICLE 9
---------
BILLING AND PAYMENT
-------------------
9.1 Buyer shall remit to Seller the full amount owed for the gas as measured by
East Ohio, within twenty-five days of the receipt of the East Ohio Gas Delivery
Statement.
2
<PAGE> 3
9.2 Should Buyer fail to pay the full amount due Seller when the same is due,
interest thereon shall accrue at the rate of one (1) percent per month from the
date when such payment is due until the same is paid.
9.3 Buyer agrees to diligently pursue and use its best efforts to recover any
monies owed to Buyer by the ultimate purchaser which would effect the payment to
Seller hereunder. In the event that Seller does not receive payment for gas sold
hereunder, Seller may terminate this Agreement. However, termination does not
absolve Buyer of its responsibility to pay Seller for gas delivered hereunder.
ARTICLE 10
----------
FORCE MAJEURE
-------------
10.1 Neither party shall be liable for any failure of performance due to causes
beyond its reasonable control, the occurrence of which could have not been
prevented by the exercise of due diligence, including but not limited to acts of
God, acts of the other party, acts of civil or military authority, fires,
strikes, floods, epidemics, force majeure under any agreement with a producer,
supplier or intrastate transporter, war or riot. Provided, however, that neither
party shall be relieved of any of its financial obligations hereunder solely by
reason of an event of force majeure.
ARTICLE 11
----------
MISCELLANEOUS
-------------
11.1 This Contract is subject to all valid legislation, both State and Federal,
and to all valid present and future orders, rules and regulations of duly
constituted authorities having jurisdiction.
11.2 This Contract shall bind and inure to the benefit of the parties hereto,
their successors and assigns, but no party may assign any of its rights
hereunder without the written consent of the other, which consent shall not be
unreasonably withheld.
11.3 This Contract contains the entire agreement between the parties and there
are no oral promises, agreements or warranties affecting it.
11.4 The numbering and titling of particular provisions of this Contract is for
the purpose of facilitating administration and shall not be construed as having
any substantive effect on the terms of this agreement.
11.5 Seller warrants its title and right to sell all natural gas delivered
hereunder, and warrants that such gas shall be free and clear from liens and
adverse claims and is in conformity with all valid laws, orders, rules, and
regulations of duly constituted authorities having jurisdiction.
11.6 Seller warrants it will not circumvent Buyer in order to negotiate with or
sell Buyer's end use customer for natural gas during the term of Buyer's
agreement with such end user.
3
<PAGE> 4
ARTICLE 12
----------
NOTICES
-------
12.1 The address of Buyer for the purpose of all notices and communications
hereunder, unless another address is designated by Buyer in writing shall be:
JDS Energy Corporation
7033 Mill Road
Brecksville, Ohio 44141
Attn: David I. Mansbery, President
12.2 The address of Seller for the purpose of all notices and communications
hereunder, unless another address is designated by the Seller in writing, shall
be:
Everflow Eastern Partners, L.P.
585 W. Main Street
P.O. Box 629
Canfield, Ohio 44406
Attn: Thomas L. Korner, President
EXECUTED this 8th day of August, 1996.
Witness: Buyer: JDS Energy Corporation
By: /s/ Cindy Thomas By: /s/ John ?? Treasurer for
------------------------ ----------------------------------
David I. Mansbery, President
Witness: Seller: Everflow Eastern Partners, L.P.
By: /s/ Claudia By: /s/ Thomas L. Korner
------------------------ ----------------------------------
Its: Thomas L. Korner, President
----------------------------------
JDS:GPALT
8/01/96
4
<PAGE> 5
EXHIBIT "A"
-----------
Well Name Permit # S/L Township County
- --------- -------- --- -------- ------
Newport Unit #1 2693 G.L.2, Div. 4 Boardman Mahoning
Northwood Unit #1 3615 Lot 9 Weathersfield Trumbull
Savon Unit #1D 2695 Lot 20 Boardman Mahoning
Sollinger #1D 3622 Sect. 18 City of Warren Trumbull
Wilhelm #2D 3617 Lot 9 Weathersfield Trumbull
5
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 616,447
<SECURITIES> 0
<RECEIVABLES> 1,500,756
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,205,370
<PP&E> 99,567,730
<DEPRECIATION> 51,302,509
<TOTAL-ASSETS> 50,534,519
<CURRENT-LIABILITIES> 1,091,777
<BONDS> 2,991,288
<COMMON> 0
0
0
<OTHER-SE> 46,253,454
<TOTAL-LIABILITY-AND-EQUITY> 50,534,519
<SALES> 8,807,783
<TOTAL-REVENUES> 9,215,049
<CGS> 1,278,010
<TOTAL-COSTS> 6,419,767
<OTHER-EXPENSES> 169,328
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191,216
<INCOME-PRETAX> 2,625,954
<INCOME-TAX> (90,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,715,954
<EPS-PRIMARY> .42
<EPS-DILUTED> 0
</TABLE>
