<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, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________________ to _______________________ .
Commission File Number 0-19279.
Everflow Eastern Partners, L.P.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 0-19279 34-1659910
- ---------------------------- ------------ --------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
585 West Main Street, P.O. Box 629, Canfield, Ohio 44406
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(330)533-2692
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X
Yes --------- No ------------
<PAGE> 2
EVERFLOW EASTERN PARTNERS, L.P.
INDEX
DESCRIPTION PAGE NO.
----------- --------
Part I. Financial Information
-----------------------------
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 F-1
Consolidated Statements of Income
Three and Six Months Ended June 30, 1998 and 1997 F-3
Consolidated Statements of Partners' Equity
Six Months Ended June 30, 1998 and 1997 F-4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997 F-5
Notes to Unaudited Consolidated Financial
Statements F-6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
Part II. Other Information
--------------------------
Exhibits and Reports on Form 8-K 6
Signature 7
2
<PAGE> 3
<TABLE>
<CAPTION>
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and December 31, 1997
-----------------------------------
June 30, December 31,
1998 1997
(Unaudited) (Audited)
----------- ---------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 43,949 $ 679,531
Accounts receivable:
Production 735,244 1,984,366
Officers and employees 796,496 1,011,203
Joint venture partners 206,298 278,641
Other 112,066 63,418
-------------- --------------
Total current assets 1,894,053 4,017,159
PROPERTY AND EQUIPMENT
Proved properties (successful efforts
accounting method) 107,182,372 105,080,039
Pipeline and support equipment 496,670 466,717
Corporate and other 1,197,407 1,115,969
-------------- --------------
108,876,449 106,662,725
Less accumulated depreciation, depletion,
amortization and write down (59,076,426) (56,422,935)
-------------- --------------
49,800,023 50,239,790
OTHER ASSETS 794,934 503,157
-------------- --------------
$ 52,489,010 $ 54,760,106
============== ==============
</TABLE>
See notes to unaudited consolidated financial statements.
F-1
<PAGE> 4
<TABLE>
<CAPTION>
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and December 31, 1997
-----------------------------------
June 30, December 31,
1998 1997
(Unaudited) (Audited)
----------- ---------
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 29,097 $ 27,936
Revolving credit facility 500,000 4,100,000
Accounts payable 1,053,612 1,207,268
Accrued expenses 139,572 257,893
-------------- --------------
Total current liabilities 1,722,281 5,593,097
LONG-TERM DEBT, NET OF CURRENT PORTION 443,851 461,207
DEFERRED INCOME TAXES 128,000 128,000
COMMITMENTS AND CONTINGENCIES - -
LIMITED PARTNERS' EQUITY, SUBJECT TO
REPURCHASE RIGHT
Authorized - 8,000,000 Units
Issued and outstanding - 6,172,537 and
6,207,651 Units, respectively 49,652,773 48,058,020
GENERAL PARTNER'S EQUITY 542,105 519,782
-------------- --------------
Total partners' equity 50,194,878 48,577,802
-------------- --------------
$ 52,489,010 $ 54,760,106
============== ==============
</TABLE>
See notes to unaudited consolidated financial statements.
F-2
<PAGE> 5
<TABLE>
<CAPTION>
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended June 30, 1998 and 1997
-------------------------------------------------
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales $ 2,971,179 $ 3,238,964 $ 7,939,958 $ 7,947,953
Well management and operating 109,994 126,999 246,838 276,745
Other 990 1,481 2,081 2,690
----------- ----------- ----------- -----------
3,082,163 3,367,444 8,188,877 8,227,388
DIRECT COST OF REVENUES
Production costs 475,401 443,736 1,039,784 974,967
Well management and operating 66,203 79,085 130,729 151,301
Depreciation, depletion and amortization 942,221 962,460 2,637,687 2,615,390
----------- ----------- ----------- -----------
Total direct cost of revenues 1,483,825 1,485,281 3,808,200 3,741,658
GENERAL AND ADMINISTRATIVE
EXPENSE 487,277 462,981 937,654 949,804
----------- ----------- ----------- -----------
Total cost of revenues 1,971,102 1,948,262 4,745,854 4,691,462
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 1,111,061 1,419,182 3,443,023 3,535,926
OTHER INCOME (EXPENSE)
Interest income 7,487 13,055 20,137 23,155
Interest expense ( 30,445) ( 27,368) ( 102,178) ( 98,469)
---------- ---------- ---------- ----------
( 22,958) ( 14,313) ( 82,041) ( 75,314)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,088,103 1,404,869 3,360,982 3,460,612
PROVISION (CREDIT)
FOR INCOME TAXES
Current - - - -
Deferred - - - -
----------- ----------- ----------- ----------
- - - -
----------- ----------- ----------- ----------
NET INCOME $ 1,088,103 $ 1,404,869 $ 3,360,982 $ 3,460,612
=============== ============ ============ ============
Allocation of Partnership Net Income
Limited Partners $ 1,076,460 $ 1,390,258 $ 3,325,019 $ 3,424,622
General Partner 11,643 14,611 35,963 35,990
----------- ----------- ----------- -----------
$ 1,088,103 $ 1,404,869 $ 3,360,982 $ 3,460,612
=========== =========== =========== ===========
Earnings per unit $ .17 $ .22 $ .54 $ .54
====== ===== ====== =====
</TABLE>
See notes to unaudited consolidated financial statements.
F-3
<PAGE> 6
<TABLE>
<CAPTION>
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
Six Months Ended June 30, 1998 and 1997
---------------------------------------
(Unaudited)
1998 1997
---- ----
<S> <C> <C>
EQUITY - JANUARY 1 $ 48,577,802 $ 46,959,473
Net income 3,360,982 3,460,612
Cash distributions ($.25 per Unit) ( 1,568,687) ( 1,611,760)
Repurchase Right - Units tendered ( 175,219) ( 897,631)
-------------- --------------
EQUITY - JUNE 30 $ 50,194,878 $ 47,910,694
=============== ===============
</TABLE>
See notes to unaudited consolidated financial statements.
F-4
<PAGE> 7
<TABLE>
<CAPTION>
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1998 and 1997
---------------------------------------
(Unaudited)
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 3,360,982 $ 3,460,612
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 2,653,491 2,648,854
Changes in assets and liabilities:
Accounts receivable 1,321,465 1,807,078
Other current assets ( 48,648) ( 96,915)
Other assets ( 291,777) 1,348
Accounts payable ( 328,875) ( 315,013)
Accrued expenses ( 118,321) ( 159,001)
------------- -------------
Total adjustments 3,187,335 3,886,351
------------- -------------
Net cash provided by operating activities 6,548,317 7,346,963
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on receivables from officers and
employees 453,574 444,995
Advances disbursed to officers and employees ( 238,867) ( 130,974)
Purchase of property and equipment ( 2,213,724) ( 1,652,750)
------------- -------------
Net cash used by investing activities ( 1,999,017) ( 1,338,729)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions ( 1,568,687) ( 1,611,760)
Proceeds from issuance of debt, including
revolver activity 1,100,000 -
Payments on debt, including revolver activity ( 4,716,195) ( 4,011,061)
------------- -------------
Net cash used by financing activities ( 5,184,882) ( 5,622,821)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS ( 635,582) 385,413
CASH AND EQUIVALENTS AT BEGINNING
OF YEAR 679,531 739,370
------------- -------------
CASH AND EQUIVALENTS AT END OF
SECOND QUARTER $ 43,949 $ 1,124,783
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 93,503 $ 119,528
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
(CONTINUED)
Note 1. Organization and Summary of Significant Accounting Policies
A. Interim Financial Statements - The interim
consolidated financial statements included herein
have been prepared by the management of Everflow
Eastern Partners, L.P., without audit. In the opinion
of management, all adjustments (which include only
normal recurring adjustments) necessary to present
fairly the financial position and results of
operations have been made.
Information and footnote disclosures normally
included in financial statements prepared in
accordance with generally accepted accounting
principles have been condensed or omitted. It is
suggested that these financial statements be read in
conjunction with the financial statements and notes
thereto which are incorporated in Everflow Eastern
Partners, L.P.'s report on Form 10-K filed with the
Securities and Exchange Commission on March 27, 1998.
The results of operations for the interim periods may
not necessarily be indicative of the results to be
expected for the full year.
B. Organization - Everflow Eastern Partners, L.P.
("Everflow") is a Delaware limited partnership which
was organized in September 1990 to engage in the
business of oil and gas exploration and development.
Everflow was formed to consolidate the business and
oil and gas properties of Everflow Eastern, Inc.
("EEI") and Subsidiaries and the oil and gas
properties owned by certain limited partnership and
working interest programs managed or sponsored by EEI
("EEI Programs" or "the Programs").
Everflow Management Company, an Ohio general
partnership, is the general partner of Everflow.
Everflow Management Company is authorized, in
general, to perform all acts necessary or desirable
to carry out the purposes and conduct of the business
of Everflow. The partners of Everflow Management
Company are Everflow Management Corporation ("EMC"),
three individuals who are Officers and Directors of
EEI, and Sykes Associates, a limited partnership
controlled by Robert F. Sykes, the Chairman of the
Board of EEI. EMC is an Ohio corporation formed in
September 1990 and is the managing general partner of
Everflow Management Company.
F-6
<PAGE> 9
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 1. Organization and Summary of Significant Accounting Policies
(Continued)
C. Principles of Consolidation - The consolidated
financial statements include the accounts of
Everflow, EEI and EEI's wholly owned subsidiaries,
and investments in oil and gas drilling and income
partnerships (collectively, "the Company") which are
accounted for under the proportional consolidation
method. All significant accounts and transactions
between the consolidated entities have been
eliminated.
D. Allocation of Income and Per Unit Data - Under the
terms of the limited partnership agreement,
initially, 99% of revenues and costs are allocated to
the Unitholders (the limited partners) and 1% of
revenues and costs are allocated to the General
Partner. Such allocation has changed and will change
in the future due to Unitholders electing to exercise
the Repurchase Right (see Note 3).
Earnings per limited partner Unit have been computed
based on the weighted average number of Units
outstanding, during the period for each period
presented. Average outstanding Units for earnings per
Unit calculations amounted to 6,207,651 for the three
and six months ended June 30, 1998, and 6,379,941 for
the three and six months ended June 30, 1997.
E. New Accounting Standard - In February 1997, SFAS 128,
"Earnings per Share" and SFAS 129, "Disclosure of
Information About Capital Structure," were issued.
SFAS 128 establishes new standards for computing and
reporting earnings per share. SFAS 129 requires an
entity to explain the pertinent rights and privileges
of outstanding securities. The effect of adoption of
the new standards was not significant.
In June 1997, SFAS 130, "Reporting Comprehensive
Income," was issued. SFAS 130 established new
standards for reporting comprehensive income and its
components and is effective for fiscal years
beginning after December 15, 1997. The Company's
comprehensive income does not differ materially from
net income.
In June 1997, the Financial Accounting Standards
Board issued SFAS 131, "Disclosure About Segments of
an Enterprise and Related
F-7
<PAGE> 10
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 1. Organization and Summary of Significant Accounting Policies
(Continued)
E. New Accounting Standards (Continued)
Information." SFAS 131 Changes the standards for
reporting financial results by operating segments,
related products and services, geographical areas and
major customers. The Company must adopt SFAS 131 no
later than December 31, 1998. The Company believes
that the effect of adoption will not be material.
Note 2. Credit Facilities and Long-Term Debt
In May 1998, the Company entered into an agreement that
modified the prior credit agreements. The credit agreement
provides for a revolving line of credit in the amount of
$7,000,000, all of which is available. The revolving line of
credit provides for interest payable quarterly at LIBOR plus
175 basis points with the principal due at maturity, May 31,
1999. The Company anticipates renewing the facility on a year
to year basis to minimize debt origination, carrying and
interest costs associated with long-term bank commitments. The
previous credit agreement contained generally the same terms.
Borrowings under the facility are unsecured; however, the
Company has agreed, if requested by the bank, to execute any
supplements to the agreement including security and mortgage
agreements on the Company's assets. The agreement contains
restrictive covenants requiring the Company to maintain the
following: (i) loan balance not to exceed the borrowing base
of $7,000,000; (ii) tangible net worth of at least
$40,000,000; and (iii) a total debt to tangible net worth
ratio of not more than 0.5 to 1.0. In addition, there are
restrictions on mergers, sales and acquisitions, the
incurrence of additional debt and the pledge or mortgage of
the Company's assets.
The Company purchased a building and funded its cost,
including improvements, in part, through mortgage notes. The
notes, which have an aggregate balance of $376,459 and
$388,979 at June 30, 1998 and December 31, 1997, respectively,
bear interest at 8.22% per annum until October 6, 1998 and
then a variable rate of .5% above prime until maturity. A
third note, which has a balance of $96,489 and $100,164 at
June 30, 1998 and December 31, 1997, respectively, bears
interest at 8.41% per annum until June 25, 2000 and then a
variable rate of .5% above prime until maturity. The notes
require aggregate payments of principal and interest of
approximately $5,600 per month.
F-8
<PAGE> 11
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 3. Partners' Equity
Units represent limited partnership interests in Everflow. The
Units are transferable subject only to the approval of any
transfer by Everflow Management Company and to the laws
governing the transfer of securities. The Units are not listed
for trading on any securities exchange nor are they quoted in
the automated quotation system of a registered securities
association. However, Unitholders have an opportunity to
require Everflow to repurchase their Units pursuant to the
Repurchase Right.
Under the terms of the limited partnership agreement,
initially, 99% of revenues and costs are allocated to the
Unitholders (the limited partners) and 1% of revenues and
costs are allocated to the General Partner. Such allocation
has changed and will change in the future due to Unitholders
electing to exercise the Repurchase Right.
The partnership agreement provides that Everflow will
repurchase for cash up to 10% of the then outstanding Units,
to the extent Unitholders offer Units to Everflow for
repurchase pursuant to the Repurchase Right. The Repurchase
Right entitles any Unitholder, between May 1 and June 30 of
each year, to notify Everflow that he elects to exercise the
Repurchase Right and have Everflow acquire certain or all of
his Units. The price to be paid for any such Units will be
calculated based upon the audited financial statements of the
Company as of December 31 of the year prior to the year in
which the Repurchase Right is to be effective and
independently prepared reserve reports. The price per Unit
will be equal to 66% of the adjusted book value of the Company
allocable to the Units, divided by the number of Units
outstanding at the beginning of the year in which the
applicable Repurchase Right is to be effective less all
Interim Cash Distributions received by a Unitholder. The
adjusted book value is calculated by adding partners' equity,
the Standardized Measure of Discounted Future Net Cash Flows
and the tax effect included in the Standardized Measure and
subtracting from that sum the carrying value of oil and gas
properties (net of undeveloped lease costs). If more than 10%
of the then outstanding Units are tendered during any period
during which the Repurchase Right is to be effective, the
Investor's Units so tendered shall be prorated for purposes of
calculating the actual number of Units to be acquired during
any such period. The price associated with the Repurchase
Right, based upon the December 31, 1997 calculation was $4.99
per Unit, net of the distributions ($.125 per Unit each) made
in January and April 1998.
F-9
<PAGE> 12
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 3. Partners' Equity (Continued)
Units repurchased pursuant to the Repurchase Right, for each
of the last five years, are as follows:
<TABLE>
<CAPTION>
Calculated Units
Price for Less # of Out-standing
Repurchase Premium Interim Net Units Following
Year Right Offered Distributions Price Paid Repurchased Repurchase
---- ----- ------- ------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 $4.80 $ - $.250 $4.550 26,958 6,514,566
1995 $4.72 $.28 $.375 $4.625 81,522 6,433,044
1996 $4.48 $.27 $.250 $4.500 53,103 6,379,941
1997 $5.46 $ - $.250 $5.210 172,290 6,207,651
1998 $5.24 $ - $.250 $4.990 35,114 6,172,537
</TABLE>
Note 4. Commitments and Contingencies
Everflow paid a quarterly dividend in July 1998 of $.125 per
Unit to Unitholders of record on June 30, 1998. The
distribution amounted to approximately $780,000.
EEI is the general partner in certain oil and gas
partnerships. As general partner, EEI shares in unlimited
liability to third parties with respect to the operations of
the partnerships and may be liable to limited partners for
losses attributable to breach of fiduciary obligations.
The Company operates exclusively in the United States, almost
entirely in Ohio and Pennsylvania, in the exploration,
development and production of oil and gas.
The Company operates in an environment with many financial
risks, including, but not limited to, the ability to acquire
additional economically recoverable oil and gas reserves, the
inherent risks of the search for, development of and
production of oil and gas, the ability to sell oil and gas at
prices which will provide attractive rates of return, and the
highly competitive nature of the industry and worldwide
economic conditions. The Company's ability to expand its
reserve base and diversify its operations is also dependent
upon the Company's ability to obtain the necessary capital
through operating cash flow, additional borrowings or
additional equity funds. Various federal, state and
governmental agencies are considering, and some have adopted,
laws and regulations regarding environmental protection which
could adversely affect the proposed business activities of the
company. The Company cannot
F-10
<PAGE> 13
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 4. Commitments and Contingencies (Continued)
predict what effect, if any, current and future regulations
may have on the operations of the Company.
Note 5. Significant Events
The Company intends to explore and evaluate the advisability
of seeking a purchaser for the Company, and have engaged of an
investment banker to assist in the process.
F-11
<PAGE> 14
Part I: Financial Information
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
The following table summarizes the Company's financial position at June 30,
1998 and December 31, 1997:
June 30, 1998 December 31, 1997
------------- -----------------
(Amounts in Thousands) Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Working capital $ 172 - % $ (1,576) (3)%
Property and equipment (net) 49,800 98 50,240 102
Other 795 2 503 1
------ --- -------- ----
Total $ 50,767 100% $ 49,167 100%
====== === ======== ====
Long-term debt $ 444 1% 461 1%
Deferred income taxes 128 - 128 -
Partners' equity 50,195 99 48,578 99
------ --- -------- ----
Total $ 50,767 100% $ 49,167 100%
====== === ======== ====
</TABLE>
Working capital surplus of $172 thousand as of June 30, 1998
represented an increase of approximately $1.7 million from December 31, 1997.
The primary reasons for this increase in working capital was due to the
Company's revolving credit facility being significantly lower at June 30, 1998
versus December 31, 1997 and the Company's cash and production receivable also
being lower at June 30, 1998 versus December 31, 1997. Seasonal gas production
is responsible for these occurrences. The Company paid down $3.6 million of
long-term debt during the six months ended June 30, 1998. Management of the
Company believes it can maintain a reduced level of long-term debt until such
time as additional borrowings are required to fund the ongoing development of
oil and gas properties and the Company's quarterly distributions in July and
October, when cash generated from operations should decrease due to production
restrictions. The Company borrowed $800 thousand during July 1998, 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 $95 thousand, or 2%, during the six months ended June 30, 1998
as compared to the same period in 1997. Changes in working capital other than
cash and equivalents
3
<PAGE> 15
increased cash by $534 thousand and $1,237 thousand during the six months ended
June 30, 1998 and 1997, respectively. The reductions in accounts receivable of
$1.3 million and $1.8 million at June 30, 1998 and 1997, respectively, compared
to December 31, 1997 and 1996 are the result of lower production revenues
receivable and reduced accounts receivable balances from joint venture partners.
Other assets increased $292 thousand during the six months ended June 30, 1998
and decreased $1 thousand during the same period in 1997. Additional investments
in a related limited liability company that the Company owns an interest was
responsible for most of this increase. Accounts payable, exclusive of the
payable associated with the Repurchase Right of $175 thousand and $897 thousand
at June 30, 1998 and 1997, decreased $329 thousand and $315 thousand during the
six months ended June 30, 1998 and 1997, respectively. The reason for these
changes is the result of lower production revenues payable in the summer months
due to production restrictions associated with seasonal gas purchase agreements.
Accrued expenses decreased $118 thousand and $159 thousand during the six months
ended June 30, 1998 and 1997, respectively. The reason for these changes is the
result of timing differences.
Cash flows provided by operating activities was $6.5 million for the
six months ended June 30, 1998. Cash was used to purchase property and
equipment, pay quarterly distributions and reduce 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 1997, the Company received a significant 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 pricing adjustments have allowed the Company's
cash flows from operations to remain constant during 1998 even though it's
production has decreased slightly.
There have been a number of transactions involving the purchase and
sale of oil and gas properties in the Appalachian Basin recently. Management of
the Company intends to explore and evaluate the advisability of seeking a
purchaser for the Company, and have engaged an investment banker to assist in
the process.
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 six months ended June 30, 1998 and
1997. All items in the table are calculated as a percentage of total revenues.
This table should be read in conjunction with the discussions of each item
below:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Oil and gas sales 96% 96% 97% 97%
Well management and operating 4 4 3 3
---- ---- --- ---
Total Revenues 100% 100% 100% 100%
Expenses:
Production costs 15% 13% 13% 12%
Well management and operating 2 2 2 2
Depreciation, depletion and amortization 31 29 32 32
General and administrative 16 14 11 11
Other 1 - 1 1
Income taxes - - - -
---- -- --- ---
Total Expenses 65 58 59 58
==== ==== === ===
Earnings 35% 42% 41% 42%
==== ==== === ===
</TABLE>
Revenues for the three and six months ended June 30, 1998 decreased
$285 thousand and $39 thousand, respectively, compared to the same periods in
1997. This decrease was due primarily to a decrease in oil and gas sales during
the three months ended June 30, 1998 compared to the same period in 1997.
Oil and gas sales decreased $268 thousand, or 8%, during the three
months ended June 30, 1998 compared to the same period in 1997. Oil and gas
sales decreased $8 thousand, or less than 1%, during the six months ended June
30, 1998 compared to the same six month period in 1997. These decreases are the
result of decreased production levels resulting from normal declines where new
producing well activity has yet to replace these reduced production levels.
Well management and operating revenues decreased $17 thousand and $30
thousand, or 13% and 11%, during the three and six months ended June 30, 1998,
respectively, compared to the same periods in 1997. Well management and
operating costs decreased $13 thousand and $21 thousand, or 16% and 14%, during
the three and six months ended June 30, 1998, respectively, compared to the same
period in 1997. These decreases were the result of the Company's purchase of
additional working interests in operated properties in which the Company already
had a significant interest.
5
<PAGE> 17
Production costs increased $32 thousand and $65 thousand, or 7%, during
the three and six months ended June 30, 1998, respectively, compared to the same
periods in 1997.
Depreciation, depletion and amortization and general and administrative
expenses remained relatively stable during the three and six months ended June
30, 1998 compared with the same periods in 1997.
The Company reported net income of $1,088 thousand, a decrease of $317
thousand, or 23%, during the three months ended June 30, 1998 compared to the
same period in 1997. The Company reported net income of $3,361 thousand, a
decrease of $100 thousand, or 3%, during the six months ended June 30, 1998
compared to the same period in 1997.
Except for historical financial information contained in this Form
10-Q, the statements made in this report are forward-looking statements. Factors
that may cause actual results to differ materially from those in the forward
looking statement include price adjustments pursuant to the Company's
Intermediate Term Adjustable Price Gas Purchase Agreements with The East Ohio
Gas Company, price fluctuations in the gas market in the Appalachian Basin and
the weather in the Northeast Ohio area.
Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Loan Modification Agreement dated May 29,
1998 between Bank One, N.A., successor to
Bank One Texas, N.A. and Everflow Eastern,
Inc. and Everflow Eastern Partners, L.P.
27 Financial Data Schedule
(b) On July 6, 1998, the Registrant filed a current
report on Form 8-K
6
<PAGE> 18
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
------------------------------------------------
August 11, 1998 William A. Siskovic
Vice President and Principal Accounting Officer
(Duly Authorized Officer)
7
<PAGE> 1
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement (hereinafter "Agreement") is entered into
this 29 day of May, 1998, by and between Bank One, N.A. (hereinafter "Bank
One"), successor in interest to Bank One, Youngstown, N.A. (hereinafter "Bank
One, Youngstown"), successor in interest to Bank One, Texas, N.A. (hereinafter
"Bank One, Texas") and Everflow Eastern, Inc. and Everflow Eastern Partners,
L.P. (hereinafter collectively referred to as "Borrowers").
WHEREAS, on or about January 19, 1995 the Borrowers entered into a Credit
Agreement with Bank One, Texas. Pursuant to the Credit Agreement, Bank One,
Texas extended credit to Borrowers in the total principal amount of Seven
Million and 00/100 Dollars ($7,000,000.00) (hereinafter "Credit"), pursuant to
which Borrowers jointly and severally executed a Promissory Note in the
principal amount of Seven Million and 00/100 Dollars ($7,000,000.00) dated
January 19, 1995.
WHEREAS, on or about January 25, 1995, Bank One, Texas and Bank One,
Youngstown entered into a Participation Agreement with respect to the Credit,
whereby Bank One, Youngstown participated with Bank one, Texas with respect to
the Credit.
WHEREAS, on or about June 16, 1997, Bank One, Texas, Bank One, Youngstown
and Borrowers entered into a Loan Modification Agreement whereby Bank One,
Youngstown became the sole lender with respect to the Credit.
WHEREAS, the parties have agreed to modify the terms and conditions set
forth in the Credit Agreement and Promissory Note.
NOW, THEREFORE, tor mutual consideration and intending to be legally bound
hereby, the parties hereto agree as follows:
1. COMMITMENT TERMINATION DATE. The Promissory Note and Credit Agreement
are hereby modified to provide that the outstanding balance of principal,
interest and other charges due pursuant to the Promissory Note, Credit Agreement
and prior Loan Modification Agreement shall be due and payable in full on or
before May 31, 1999. All other payments of interest or other amounts provided
for in the Promissory Note and/or Credit Agreement shall continue to be
<PAGE> 2
due and owing in accordance with the terms of the Promissory Note and/or Credit
Agreement.
2. MODIFICATION OF OTHER DOCUMENTS. The terms and conditions set forth in
the Credit Agreement, Promissory Note and prior Loan Modification Agreement
shall remain in full force and affect except as expressly modified herein.
3. GOVERNING LAW\VENUE. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Ohio, and the venue for any
legal action commenced in connection with this transaction, the Promissory Note,
the Credit Agreement and/or the Prior Loan Modification Agreement shall be the
Courts of Mahoning County, Ohio.
4. SEGREGATION. The invalidity of any portion of this Agreement will not
and shall not be deemed to affect the validity of any other provision. In the
event that any provision of this Agreement is held to be invalid, the parties
agree that the remaining provisions shall be deemed to be in full force and
effect as if they had been executed by all parties subsequent to the expungement
of the invalid provision. This clause shall also be applicable to any documents
executed in connection herewith.
5. INTEGRATION. This Agreement, the Promissory Note, as modified, the
Credit Agreement, as modified, and the Loan Modification Agreement constitute
the entire agreement between the parties with respect to the subject hereof, and
any prior understanding or representation of any kind shall not be binding upon
any party hereto.
6. MODIFICATION. Any modification of this Agreement or any Related
Documents shall be binding only if placed in writing and signed by the parties
hereto with the same formality as this Agreement, the Promissory Note, the
Credit Agreement and/or the prior Loan Modification Agreement.
7. EFFECTIVE TIME OF AGREEMENT. This Agreement shall remain in full force
and effect until the Credit, including any extensions, modifications, and/or
renewals thereof, and any additional amounts due from Borrowers to Bank One
under this Agreement, the Promissory Note, the Credit Agreement and/or Loan
2
<PAGE> 3
Modification Agreement, including any extensions, modifications and\or renewals
thereof, are paid in full.
8. PARAGRAPH HEADINGS. The titles to the paragraphs of this Agreement are
solely for the convenience of the parties, and any ambiguity between the
language and the heading, if any, shall be resolved in favor of the language of
the paragraph, without consideration of the language of the heading.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Borrowers,
their successors and, subject to Paragraph Ten (10) of this Agreement,
assigns.
10. ASSIGNMENT. This Agreement, the Promissory Note, the Credit Agreement
and/or Loan Modification Agreement are not assignable by Borrowers without Bank
One's prior written consent, and any attempt by Borrowers to assign this
Agreement, the Promissory Note, the Credit Agreement and/or Loan Modification
Agreement without the prior written consent of Bank One shall be deemed void.
Bank One may make such an assignment at any time without consent of other
limitation.
11. FURTHER ACTION. Borrowers will, upon request of Bank One execute any
other documents and take any other action deemed by Bank One necessary or
appropriate in connection with this Agreement.
NOW THEREFORE, this Agreement is entered into by the parties hereto on
the day and year written above.
Bank One, N.A.
By: /s/ Richard J. Lis
------------------------------------
Name: Richard J. Lis
Title: Vice President
Everflow Eastern Partners, L.P.
through its General Partner,
Everflow Management Company,
through its Managing General
Partner, Everflow Management
Corporation
By: /s/ William A. Siskovic
------------------------------------
Name: William A. Siskovic
Title: Vice President
3
<PAGE> 4
Everflow Eastern, Inc.
By: /s/ William A. Siskovic
----------------------------------
Name: William A. Siskovic
Title: Vice President
4
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