<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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM__________TO__________.
Commission File Number 0-19279
EVERFLOW EASTERN PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 34-1659910
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
585 West Main Street
P.O. Box 629
Canfield, Ohio 44406
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330)533-2692
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
There were 6,095,193 Units of limited partnership interest of the
Registrant as of October 12, 1999. The Units generally do not have any voting
rights, but, in certain circumstances, the Units are entitled to one vote per
Unit.
Except as otherwise indicated, the information contained in this Report
is as of September 30, 1999.
<PAGE> 2
EVERFLOW EASTERN PARTNERS, L.P.
INDEX
<TABLE>
<CAPTION>
DESCRIPTION PAGE NO.
----------- --------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998 F-1
Consolidated Statements of Income
Three and Nine Months Ended
September 30, 1999 and 1998 F-3
Consolidated Statements of Partners' Equity
Nine Months Ended September 30, 1999 and 1998 F-4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998 F-5
Notes to Unaudited Consolidated Financial Statements F-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 8
Signature 9
</TABLE>
2
<PAGE> 3
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998
----------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited) (Audited)
----------- ---------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 2,436,709 $ 294,518
Accounts receivable:
Production 598,408 2,323,510
Officers and employees 512,492 745,458
Joint venture partners 294,978 636,121
Short-term investments - 2,221,056
Other 99,737 92,355
------------- -------------
Total current assets 3,942,324 6,313,018
PROPERTY AND EQUIPMENT
Proved properties (successful efforts
accounting method) 112,603,522 110,178,841
Pipeline and support equipment 507,472 506,153
Corporate and other 1,332,641 1,212,857
------------- -------------
114,443,635 111,897,851
Less accumulated depreciation, depletion,
amortization and write down (64,953,096) (61,651,637)
------------- -------------
49,490,539 50,246,214
OTHER ASSETS 91,699 53,721
------------- -------------
$ 53,524,562 $ 56,612,953
============= =============
</TABLE>
See notes to unaudited consolidated financial statements.
F-1
<PAGE> 4
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998
----------------------------------------
September 30, December 31,
1999 1998
(Unaudited) (Audited)
----------- ---------
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 44,003 $ 30,805
Revolving credit facility - 1,800,000
Accounts payable 950,527 1,666,792
Accrued expenses 144,479 391,187
----------- -----------
Total current liabilities 1,139,009 3,888,784
LONG-TERM DEBT, NET OF CURRENT PORTION 486,600 425,093
DEFERRED INCOME TAXES 128,000 128,000
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNERS' EQUITY, SUBJECT TO
REPURCHASE RIGHT
Authorized - 8,000,000 Units
Issued and outstanding - 6,095,193 and
6,172,537 Units, respectively 51,206,650 51,610,054
GENERAL PARTNER'S EQUITY 564,303 561,022
----------- -----------
Total partners' equity 51,770,953 52,171,076
----------- -----------
$53,524,562 $56,612,953
=========== ===========
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, 1999 and 1998
-------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales $ 2,509,170 $ 3,056,512 $ 9,197,459 10,996,470
Well management and operating 95,567 84,740 340,091 331,578
Other 795 582 2,790 2,663
------------ ------------ ------------ ------------
2,605,532 3,141,834 9,540,340 11,330,711
DIRECT COST OF REVENUES
Production costs 416,085 414,594 1,475,978 1,454,378
Well management and operating 47,988 55,232 194,126 185,961
Depreciation, depletion and amortization 891,659 851,652 3,292,883 3,489,339
Abandonment and write down
of oil and gas properties 50,000 536,802 100,000 536,802
------------ ------------ ------------ ------------
Total direct cost of revenues 1,405,732 1,858,280 5,062,987 5,666,480
GENERAL AND ADMINISTRATIVE
EXPENSE 308,238 512,947 1,320,501 1,450,601
------------ ------------ ------------ ------------
Total cost of revenues 1,713,970 2,371,227 6,383,488 7,117,081
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 891,562 770,607 3,156,852 4,213,630
OTHER INCOME (EXPENSE)
Interest income 17,091 7,159 74,634 27,296
Interest expense (10,058) (31,387) (82,632) (133,565)
Gain (loss) on sale of property
and equipment - (5,613) 8,994 (5,613)
------------ ------------ ------------ ------------
7,033 (29,841) 996 (111,882)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 898,595 740,766 3,157,848 4,101,748
PROVISION FOR INCOME TAXES
Current - - - -
Deferred - - - -
------------ ------------ ------------ ------------
- - - -
------------ ------------ ------------ ------------
NET INCOME $ 898,595 740,766 $ 3,157,848 $ 4,101,748
============ ============ ============ ============
Allocation of Partnership Net Income
Limited Partners $ 888,809 $ 732,803 $ 3,123,754 $ 4,057,791
General Partner 9,786 7,963 34,094 43,957
------------ ------------ ------------ ------------
$ 898,595 $ 740,766 $ 3,157,848 $ 4,101,748
============ ============ ============ ============
Earnings per unit $ .15 $ .12 $ .51 $ .65
============ ============ ============ ============
</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, 1999 and 1998
---------------------------------------------
(Unaudited)
1999 1998
---- ----
EQUITY - JANUARY 1 $ 52,171,076 $ 48,577,802
Net income 3,157,848 4,101,748
Cash distributions (3,110,149) (2,348,642)
Repurchase Right - Units tendered (447,822) (175,219)
------------ ------------
EQUITY - SEPTEMBER 30 $ 51,770,953 $ 50,155,689
============ ============
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, 1999 and 1998
---------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,157,848 $ 4,101,748
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 3,338,222 3,518,893
Abandonment and write down of oil and gas properties 100,000 536,802
(Gain) loss on sale of property and equipment (8,994) 5,613
Deferred income taxes
Changes in assets and liabilities:
Accounts and notes receivable 2,066,245 1,004,011
Short-term investments 2,221,056 -
Other current assets ( 7,382) ( 84,872)
Other assets ( 37,978) ( 284,053)
Accounts payable ( 716,265) ( 371,168)
Accrued expenses ( 246,708) 4,584
----------- -----------
Total adjustments 6,708,196 4,329,810
----------- -----------
Net cash provided by operating activities 9,866,044 8,431,558
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on receivables from officers and
employees 299,317 376,501
Advances disbursed to officers and employees ( 66,351) ( 219,696)
Purchase of property and equipment ( 2,698,553) ( 3,288,883)
Proceeds on sale of property and equipment 25,000 -
----------- -----------
Net cash used by investing activities ( 2,440,587) ( 3,132,078)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of Units ( 447,822) ( 175,219)
Distributions ( 3,110,149) ( 2,348,642)
Proceeds from issuance of debt, including
revolver activity 2,000,000 1,900,000
Payments on debt, including revolver activity ( 3,725,295) ( 5,223,181)
----------- -----------
Net cash used by financing activities ( 5,283,266) ( 5,847,042)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS 2,142,191 (547,562)
CASH AND EQUIVALENTS AT BEGINNING
OF YEAR 294,518 679,531
----------- -----------
CASH AND EQUIVALENTS AT END OF
THIRD QUARTER $ 2,436,709 $ 131,969
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 93,521 $ 112,604
Income taxes - -
</TABLE>
See notes to unaudited consolidated financial statements.
F-5
<PAGE> 8
EVERFLOW EASTERN PARTNERS, L.P.
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.
Use of Estimates - The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Information and footnote disclosures normally
included in financial statements prepared in
accordance with generally accepted accounting
principles have been condensed or omitted. It is
suggested that these financial statements be read in
conjunction with the financial statements and notes
thereto which are incorporated in Everflow Eastern
Partners, L.P.'s report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1999.
The results of operations for the interim periods may
not necessarily be indicative of the results to be
expected for the full year.
B. Organization - Everflow Eastern Partners, L.P.
("Everflow") is a Delaware limited partnership which
was organized in September 1990 to engage in the
business of oil and gas exploration and development.
Everflow was formed to consolidate the business and
oil and gas properties of Everflow Eastern, Inc.
("EEI") and Subsidiaries and the oil and gas
properties owned by certain limited partnership and
working interest programs managed or sponsored by EEI
("EEI Programs" or "the Programs").
Everflow Management Limited, LLC, an Ohio limited
liability company, is the general partner of
Everflow. Everflow Management Limited, LLC is
authorized, in general, to perform all acts necessary
or desirable to carry out the purposes and conduct of
the business of
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)
B. Organization (Continued)
Everflow. The members of Everflow Management Limited,
LLC are Everflow Management Corporation ("EMC"), two
individuals who are Officers and Directors of EEI,
and Sykes Associates, a limited partnership
controlled by Robert F. Sykes, the Chairman of the
Board of EEI. EMC is an Ohio corporation formed in
September 1990 and is the managing member of Everflow
Management Limited, LLC.
C. Principles of Consolidation - The consolidated
financial statements include the accounts of
Everflow, EEI and EEI's wholly owned subsidiaries,
and investments in oil and gas drilling and income
partnerships (collectively, "the Company") which are
accounted for under the proportional consolidation
method. All significant accounts and transactions
between the consolidated entities have been
eliminated.
D. Allocation of Income and Per Unit Data - Under the
terms of the limited partnership agreement,
initially, 99% of revenues and costs were allocated
to the Unitholders (the limited partners) and 1% of
revenues and costs were allocated to the General
Partner. Such allocation has changed and will change
in the future due to Unitholders electing to exercise
the Repurchase Right (see Note 4).
Earnings per limited partner Unit have been computed
based on the weighted average number of Units
outstanding, during the period for each period
presented. Average outstanding Units for earnings per
Unit calculations were 6,095,193 and 6,146,756 for
the three and nine months ended September 30, 1999,
and 6,172,537 and 6,195,946 for the three and nine
months ended September 30, 1998, respectively.
E. New Accounting Standards - In June 1997, SFAS 130,
"Reporting Comprehensive Income," was issued. SFAS
130 established new standards for reporting
comprehensive income and its components and is
effective for fiscal years beginning after December
15, 1997. In June 1997, the Financial Accounting
Standards Board issued SFAS 131, "Disclosure About
Segments of an Enterprise and Related Information."
SFAS 131 changes the standards for reporting
financial results by operating segments, related
products and services,
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)
geographical areas and major customers and is
adoptable by December 31, 1998. In February 1998,
SFAS 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits," was issued. SFAS 132
standardizes the disclosure requirements for pension
and other postretirement benefit plans but does not
change the measurement or recognition of those plans.
SFAS 132 is effective for fiscal years beginning
after December 15, 1997. In June 1998, SFAS 133,
"Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS 133 establishes
accounting and reporting derivative instruments and
hedging activities. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. The effect of
adoption or anticipated adoption of the above
standards had no, or is expected to have no, material
effect on the Company's financial statements.
F. Year 2000 - The Year 2000 problem, software, hardware
or an embedded chip that does not correctly process
date information for years after 1999, results from
the practice of storing date information with only
the last two digits of the year. The Company began to
address Year 2000 issues in 1997. The scope of the
Year 2000 readiness effort includes the Company's
internal information technology ("IT") systems, such
as hardware and software; non-IT systems with
date-sensitive characteristics; the status of key
third parties, including suppliers, service providers
and customers. The Company's major IT applications
are currently Year 2000 ready.
Although the Company believes that it is taking
appropriate precautions against disruption of its
systems due to the Year 2000 issue, there can be no
assurance that the Company will identify all Year
2000 problems in advance of their occurrence(s) or
that the Company will be able to successfully remedy
all problems that are discovered. Furthermore, there
can be no assurance that the Company's third party
relationships will not be adversely affected by Year
2000 issues. The Company is in the process of
developing contingency plans to address the potential
effects of problems arising from Year 2000
noncompliance. While the Company does not anticipate
that costs of Year 2000 disruptions will have a
material adverse effect, Year 2000 disruptions,
arising either from within the
F-8
<PAGE> 11
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 1. Organization and Summary of Significant Accounting Policies
(Continued)
F. Year 2000 (Continued)
Company or through third party relationships, could
have a material adverse effect on the Company's
business, operating results and financial condition.
Note 2. Short-Term Investments
Short-term investments consist of marketable corporate debt
securities which are classified as trading. The fair values of
the investments approximate cost.
Note 3. Credit Facilities and Long-Term Debt
In May 1999, 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,
2001. 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 $346,368 and
$363,053 at September 30, 1999 and December 31, 1998,
respectively, bear interest at 6.51% per annum until October
6, 2001 and then a variable rate of .5% above prime or the
Three Year Constant Treasury Maturity Index plus 2.25% until
maturity. A third note, which has a balance of $87,074 and
$92,845 at September 30, 1999 and December 31, 1998,
respectively, bears interest at 8.41% per annum until June 25,
2000 and then a variable rate of .5% above prime or the Three
Year Constant Treasury Maturity Index plus 2.25% until
maturity. The three notes
F-9
<PAGE> 12
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 3. Credit Facilities and Long-Term Debt (Continued)
require aggregate payments of principal and interest of
approximately $5,300 per month. A fourth note, which has a
balance of $97,161 at September 30, 1999, bears interest at
7.35% per annum until May 28, 2004 and then the Five Year
Treasury Securities Rate plus 2.25% until maturity.
Note 4. Partners' Equity
Units represent limited partnership interests in Everflow. The
Units are transferable subject only to the approval of any
transfer by Everflow Management Limited, LLC and to the laws
governing the transfer of securities. The Units are not listed
for trading on any securities exchange nor are they quoted in
the automated quotation system of a registered securities
association. However, Unitholders have an opportunity to
require Everflow to repurchase their Units pursuant to the
Repurchase Right.
Under the terms of the limited partnership agreement,
initially, 99% of revenues and costs 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
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
F-10
<PAGE> 13
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 4. Partners' Equity (Continued)
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, 1998 calculation was $5.79
per Unit, net of the distributions ($.375 per Unit in total)
made in January and April 1999.
The Company accepted an aggregate of 77,344 of its Units of
limited partnership interest at $5.79 per Unit pursuant to the
terms of the Company's Offer to Purchase dated April 30, 1999.
The Offer expired in accordance with its terms on June 30,
1999. Immediately after the acceptance of the tendered Units
by the Company, there were 6,095,193 Units outstanding.
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>
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
1999 $6.16 $ - $.375 $5.790 77,344 6,095,193
</TABLE>
Note 5. Commitments and Contingencies
Everflow paid a quarterly dividend in October 1999 of $.125
per Unit to Unitholders of record on September 30, 1999. The
distribution amounted to approximately $770,000.
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.
F-11
<PAGE> 14
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 5. Commitments and Contingencies (Continued)
The Company operates exclusively in the United States, almost
entirely in Ohio and Pennsylvania, in the exploration,
development and production of oil and gas.
The Company operates in an environment with many financial
risks, including, but not limited to, the ability to acquire
additional economically recoverable oil and gas reserves, the
inherent risks of the search for, development of and
production of oil and gas, the ability to sell oil and gas at
prices which will provide attractive rates of return, and the
highly competitive nature of the industry and worldwide
economic conditions. The Company's ability to expand its
reserve base and diversify its operations is also dependent
upon the Company's ability to obtain the necessary capital
through operating cash flow, additional borrowings or
additional equity funds. Various federal, state and
governmental agencies are considering, and some have adopted,
laws and regulations regarding environmental protection which
could adversely affect the proposed business activities of the
Company. The Company cannot predict what effect, if any,
current and future regulations may have on the operations of
the Company.
Note 6. Business Segments and Major Customers
The Company has various Intermediate Term Adjustable Price Gas
Purchase Agreements (the "East Ohio Contracts") with The East
Ohio Gas Company ("East Ohio"). Pursuant to Article V of the
East Ohio Contracts, the new adjusted base price will decrease
by $0.36 per MCF per contract beginning with the November 1999
production period. The majority of the Company's Natural gas
production falls under the East Ohio Contracts.
F-12
<PAGE> 15
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, 1999 and December 31, 1998:
September 30, 1999 December 31, 1998
------------------ -----------------
(Amounts in Thousands) Amount % Amount %
------ - ------ -
Working capital $ 2,803 5% $ 2,424 5%
Property and equipment (net) 49,491 95 50,246 95
Other 92 - 54 -
------- ------- ------- -------
Total $52,386 100% $52,724 100%
======= ======= ======= =======
Long-term debt $ 487 1% 425 1%
Deferred income taxes 128 - 128 -
Partners' equity 51,771 99 52,171 99
------- ------- ------- -------
Total $52,386 100% $52,724 100%
======= ======= ======= =======
Working capital of $2,803 thousand as of September 30, 1999 represented
an increase of $379 thousand from December 31, 1998. The primary reasons for
this increase in working capital were due to the Company's accounts receivable,
accounts payable and revolving credit facility being substantially lower at
September 30, 1999 versus December 31, 1998. In addition, cash and cash
equivalents were substantially higher at September 30, 1999 compared to December
31, 1998. Seasonal gas production and reduced development activities are
responsible for the decrease in the Company's production receivable. The Company
paid down $1.8 million of bank debt during the nine months ended September 30,
1999. Management of the Company believes it can maintain a reduced level of bank
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 used cash on hand to fund the payment of a quarterly
distribution in October 1999.
The Company's cash flow from operations before the change in working
capital decreased $1,576 thousand, or 19%, during the nine months ended
September 30, 1999 as compared to the same period in 1998. Abandonments and
write down of oil and gas properties decreased $436 thousand during the nine
months ended September 30, 1999 compared to the same period in 1998. Changes in
working capital other than cash and equivalents increased cash by $3,279
thousand and $269 thousand during the nine months
3
<PAGE> 16
ended September 30, 1999 and 1998, respectively. The reductions in accounts
receivable of $2,066 thousand and $1,004 thousand at September 30, 1999 and
1998, respectively, compared to December 31, 1998 and 1997 are primarily the
result of lower production revenues receivable. Short-term investments decreased
$2,221 thousand during the nine months ended September 30, 1999. Accounts
payable decreased $716 thousand and $371 thousand during the nine months ended
September 30, 1999 and 1998, respectively. The reason for these changes is the
result of lower production revenues payable in the summer months due to
production restrictions associated with seasonal gas purchase agreements.
Cash flows provided by operating activities was $9.9 million for the
nine months ended September 30, 1999. Cash was used to purchase property and
equipment, repurchase Units, pay quarterly distributions and reduce debt.
Management of the Company believes the existing revolving credit
facility of $7,000,000 should be sufficient to meet the funding requirements of
ongoing operations, capital investments to develop oil and gas properties, the
repurchase of Units pursuant to the Repurchase Right and the payment of
quarterly distributions.
The Company has various gas purchase agreements with The East Ohio Gas
Company. Pursuant to these agreements, the Company will receive a decrease in
the price received for natural gas production in the amount of $0.36 per MCF
beginning in November 1999. The majority of the Company's natural gas production
is subject to these agreements. As a result, Management expects a decrease in
natural gas sales for the remainder of 1999 and most of 2000, although no
assurance can be given. The impact on the Company cannot fully be measured until
actual production volumes are determined.
4
<PAGE> 17
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, 1999
and 1998. All items in the table are calculated as a percentage of total
revenues. This table should be read in conjunction with the discussions of each
item below:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales 96% 97% 96% 97%
Well management and operating 4 3 4 3
Other - - - -
---- ---- --- ---
Total Revenues 100 100 100 100
Expenses:
Production costs 16 13 15 13
Well management and operating 2 2 2 1
Depreciation, depletion and amortization 34 27 35 31
Abandonment and write down
of oil and gas properties 2 17 1 5
General and administrative 12 16 14 13
Other - 1 - 1
Income taxes - - - -
---- --- --- --
Total Expenses 66 76 67 64
==== ==== === ===
Earnings 34% 24% 33% 36%
==== ==== === ===
</TABLE>
Revenues for the three and nine months ended September 30, 1999
decreased $536 thousand and $1,790 thousand, respectively, compared to the same
periods in 1998. These decreases were due primarily to decreases in oil and gas
sales during the three and nine months ended September 30, 1999 compared to the
same periods in 1998.
Oil and gas sales decreased $547 thousand, or 18%, during the three
months ended September 30, 1999 compared to the same period in 1998. Oil and gas
sales decreased $1,799 thousand, or 16%, during the nine months ended September
30, 1999 compared to the same nine month period in 1998. These decreases are
primarily the result of reduced production from a decrease in the level of
development activities and lower gas prices during 1999 due to pricing
adjustments contained in the East Ohio Gas Company contracts.
Production costs increased $1 thousand, or 0%, during the three months
ended September 30, 1999, compared to the same period in 1998. Production costs
increased $22 thousand, or 1%, during the nine months ended September 30, 1999
compared to the same period in 1998. A slight increase in the number of
productive properties during these periods is primarily responsible for these
increases.
5
<PAGE> 18
Depreciation, depletion and amortization increased $40 thousand, or 5%,
during the three months ended September 30, 1999 compared to the same period in
1998. Depreciation, depletion and amortization decreased $196 thousand, or 6%,
during the nine months ended September 30, 1999 compared to the same period in
1998.
Abandonments and write down of oil and gas properties decreased $487
thousand and $437 thousand during the three and nine months ended September 30,
1999, respectively, compared to the same periods in 1998. This decrease was
attributable to a reduction in the abandonment of oil and gas properties
associated with dry hole costs.
General and administrative expenses decreased $205 thousand, or 40%,
during the three months ended September 30, 1999 compared with the same period
in 1998. General and administrative expenses decreased $130 thousand, or 9%,
during the nine months ended September 30, 1999 compared to the same period in
1998. The primary reasons for these decreases are due to reduced personnel costs
resulting from the Company's decision to decrease its level of activity in the
development of oil and gas properties.
Net other income increased $37 thousand during the three months ended
September 30, 1999 compared to the same period in 1998. Net other income
increased $113 thousand during the nine months ended September 30, 1999 compared
to the same period in 1998. These increases are the result of increased interest
income and decreased interest expense.
The Company reported net income of $899 thousand, an increase of $158
thousand, or 21%, during the three months ended September 30, 1999 compared to
the same period in 1998. The Company reported net income of $3,158 thousand, a
decrease of $944 thousand, or 23%, during the nine months ended September 30,
1999 compared to the same period in 1998.
The Company has various gas purchase agreements with The East Ohio Gas
Company. Pursuant to these agreements, the Company will receive a decrease in
the price received for natural gas production in the amount of $0.36 per MCF
beginning in November 1999. The majority of the Company's natural gas production
is subject to these agreements. As a result, Management expects a decrease in
natural gas sales for the remainder of 1999 and most of 2000, although no
assurance can be given. The impact on the Company cannot fully be measured until
actual production volumes are determined.
Management continually evaluates whether the Company can develop oil
and gas properties at historical levels given the Company's experience with
regard to finding oil and gas in commercially productive quantities. As a
result, the Company expects to decrease its level of activity in the development
of oil and gas properties compared with historical levels. Although net income
is lower during 1999 compared to 1998, the Company believes it will be able to
continue to pay quarterly distributions.
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
6
<PAGE> 19
results to differ materially from those in the forward looking statements
include price adjustments pursuant to the Company's Intermediate Term Adjustable
Price Gas Purchase Agreements with The East Ohio Gas Company, price fluctuations
in the gas market in the Appalachian Basin, actual oil and gas production and
the weather in the Northeast Ohio area, the number of Units tendered pursuant to
the Repurchase Right and the ability to locate economically productive oil and
gas prospects for development by the Company.
7
<PAGE> 20
Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) On October 15, 1999, 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.
8
<PAGE> 21
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 11, 1999 EVERFLOW EASTERN PARTNERS, L.P.
By: EVERFLOW MANAGEMENT LIMITED, LLC
General Partner
By: EVERFLOW MANAGEMENT CORPORATION
Managing Member
By: /s/William A. Siskovic
------------------------------------------------
William A. Siskovic
Vice President and Principal Accounting Officer
(Duly Authorized Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,436,709
<SECURITIES> 0
<RECEIVABLES> 1,405,878
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,942,324
<PP&E> 114,443,635
<DEPRECIATION> 64,953,096
<TOTAL-ASSETS> 53,524,562
<CURRENT-LIABILITIES> 1,139,009
<BONDS> 486,600
0
0
<COMMON> 0
<OTHER-SE> 51,770,953
<TOTAL-LIABILITY-AND-EQUITY> 53,524,562
<SALES> 9,197,459
<TOTAL-REVENUES> 9,540,340
<CGS> 1,475,978
<TOTAL-COSTS> 6,383,488
<OTHER-EXPENSES> (996)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,632
<INCOME-PRETAX> 3,157,848
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,157,848
<EPS-BASIC> .51
<EPS-DILUTED> 0
</TABLE>
