<PAGE> 1
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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, 2000
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 5,888,662 Units of limited partnership interest of the
Registrant as of November 13, 2000. 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, 2000.
<PAGE> 2
EVERFLOW EASTERN PARTNERS, L.P.
INDEX
<TABLE>
<CAPTION>
DESCRIPTION PAGE NO.
----------- --------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 F-1
Consolidated Statements of Income
Three and Nine Months Ended
September 30, 2000 and 1999 F-3
Consolidated Statements of Partners' Equity
Nine Months Ended September 30, 2000 and 1999 F-4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 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 7
Signature 8
</TABLE>
2
<PAGE> 3
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
September 30, December 31,
2000 1999
(Unaudited) (Audited)
--------- -------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 1,501,744 $ 2,684,605
Accounts receivable:
Production 810,394 2,040,298
Officers and employees 374,286 526,030
Joint venture partners 131,638 474,355
Short-term investments 3,573,217 1,513,273
Other 110,325 88,991
------------ ------------
Total current assets 6,501,604 7,327,552
PROPERTY AND EQUIPMENT
Proved properties (successful efforts
accounting method) 111,667,599 110,483,039
Pipeline and support equipment 507,472 507,472
Corporate and other 1,615,258 1,545,233
------------ ------------
113,790,329 112,535,744
Less accumulated depreciation,
depletion, amortization and
write down (68,130,243) (64,521,335)
------------ ------------
45,660,086 48,014,409
OTHER ASSETS 29,007 81,025
------------ ------------
$ 52,190,697 $ 55,422,986
============ ============
See notes to unaudited consolidated financial statements.
F-1
<PAGE> 4
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
September 30, December 31,
2000 1999
(Unaudited) (Audited)
--------- -------
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 53,548 $ 54,493
Accounts payable 802,253 1,202,605
Accrued expenses 146,316 189,333
----------- -----------
Total current liabilities 1,002,117 1,446,431
LONG-TERM DEBT, NET OF CURRENT PORTION 594,267 637,796
DEFERRED INCOME TAXES 50,000 50,000
COMMITMENTS AND CONTINGENCIES -- --
LIMITED PARTNERS' EQUITY, SUBJECT TO
REPURCHASE RIGHT
Authorized - 8,000,000 Units
Issued and outstanding - 5,888,662 and
6,095,193 Units, respectively 49,974,877 52,708,525
GENERAL PARTNER'S EQUITY 569,436 580,234
----------- -----------
Total partners' equity 50,544,313 53,288,759
----------- -----------
$52,190,697 $55,422,986
=========== ===========
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, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales $ 3,225,986 $ 2,509,170 $ 10,895,040 9,197,459
Well management and operating 87,383 95,567 329,787 340,091
Other 382 795 2,008 2,790
----------- ----------- ----------- -----------
3,313,751 2,605,532 11,226,835 9,540,340
DIRECT COST OF REVENUES
Production costs 583,788 416,085 1,944,676 1,475,978
Well management and operating 21,753 47,988 80,368 194,126
Depreciation, depletion and amortization 1,072,146 891,659 3,569,248 3,292,883
Abandonment and write down
of oil and gas properties 100,000 50,000 250,000 100,000
----------- ----------- ----------- ------------
Total direct cost of revenues 1,777,687 1,405,732 5,844,292 5,062,987
GENERAL AND ADMINISTRATIVE
EXPENSE 295,058 308,238 955,213 1,320,501
----------- ----------- ----------- -----------
Total cost of revenues 2,072,745 1,713,970 6,799,505 6,383,488
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 1,241,006 891,562 4,427,330 3,156,852
OTHER INCOME (EXPENSE)
Interest income 72,484 17,091 208,516 74,634
Interest expense (12,085) (10,058) (33,545) (82,632)
Gain (loss) on sale of property
and equipment - - - 8,994
----------- ----------- ----------- -----------
60,399 7,033 174,971 996
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,301,405 898,595 4,602,301 3,157,848
PROVISION FOR INCOME TAXES
Current - - - -
Deferred - - - -
----------- ----------- ----------- -----------
- - - -
----------- ----------- ----------- -----------
NET INCOME $ 1,301,405 $ 898,595 $ 4,602,301 $ 3,157,848
=========== =========== =========== ===========
Allocation of Partnership Net Income
Limited Partners $ 1,286,738 $ 888,809 $ 4,551,599 $ 3,123,754
General Partner 14,667 9,786 50,702 34,094
---------- ----------- ----------- -----------
$ 1,301,405 $ 898,595 $ 4,602,301 $ 3,157,848
========== =========== =========== ===========
Net Income per unit $ .22 $ .15 $ .76 $ .51
====== ===== ====== =====
</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, 2000 AND 1999
(Unaudited)
2000 1999
---- ----
EQUITY - JANUARY 1 $ 53,288,759 $ 52,171,076
Net income 4,602,301 3,157,848
Cash distributions (6,084,843) (3,110,149)
Repurchase Right - Units tendered (1,261,904) (447,822)
----------- ----------
EQUITY - SEPTEMBER 30 $ 50,544,313 $ 51,770,953
=========== ===========
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, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,602,301 $ 3,157,848
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 3,608,908 3,338,220
Abandonment and write down of oil and gas properties 250,000 100,000
(Gain) loss on sale of property and equipment -- (8,994)
Changes in assets and liabilities:
Accounts receivable 1,572,621 2,066,245
Short-term investments (2,059,944) 2,221,056
Other current assets (21,334) (7,382)
Other assets 52,018 (37,978)
Accounts payable (400,352) (716,265)
Accrued expenses (43,017) (246,708)
----------- -----------
Total adjustments 2,958,900 6,708,196
----------- -----------
Net cash provided by operating activities 7,561,201 9,866,044
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on receivables from officers and
employees 263,275 299,317
Advances disbursed to officers and employees (111,531) (66,351)
Purchase of property and equipment (1,504,585) (2,698,553)
Proceeds on sale of property and equipment -- 25,000
----------- -----------
Net cash used by investing activities (1,352,841) (2,440,587)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of Units (1,261,904) (447,822)
Distributions (6,084,843) (3,110,149)
Proceeds from issuance of debt, including
revolver activity -- 2,000,000
Payments on debt, including revolver activity (44,474) (3,725,295)
----------- -----------
Net cash used by financing activities (7,391,221) (5,283,266)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS (1,182,861) 2,142,191
CASH AND EQUIVALENTS AT BEGINNING
OF YEAR 2,684,605 294,518
----------- -----------
CASH AND EQUIVALENTS AT END OF
THIRD QUARTER $ 1,501,744 $ 2,436,709
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 31,460 $ 93,521
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, 2000.
The results of operations for the interim periods may not
necessarily be indicative of the results to be expected for the
full year.
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.
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").
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 Management Limited, LLC, an Ohio limited liability
company, is the general partner of Everflow. Everflow Management
Limited, LLC is authorized, in general, to perform all acts
necessary or desirable to carry out the purposes and conduct of
the business of Everflow. The members of Everflow Management
Limited, LLC are Everflow Management Corporation ("EMC"), 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 5,888,662 and 6,026,349 for the three
and nine months ended September 30, 2000 and 6,095,193 and
6,146,756 for the three and nine months ended September 30, 1999,
respectively.
E. New Accounting Standards - In June 1998, SFAS 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued.
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)
SFAS 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. SFAS 133, as
amended by SFAS 137 and SFAS 138, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The
effect of adoption of the standard is expected to have no
material effect on the Company's financial statements. In
December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in
Financial Statements." SAB 101 summarizes the staff's views and
provides guidance on applying generally accepted accounting
principles to revenue recognition. SAB 101, as amended by SAB
101A and SAB 101B, must be adopted no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999.
The Company has not determined the effects, if any, the SAB may
have on its financial statements.
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 September 2000, 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 $4,000,000, all of which is
available. The revolving line of credit provides for interest payable
quarterly at LIBOR plus 150 basis points with the principal due at
maturity, May 31, 2002. The previous credit agreement provided for a
revolving line of credit in the amount of $7,000,000 and interest at
LIBOR plus 175 basis points. 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 $4,000,000; (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
F-8
<PAGE> 11
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 3. Credit Facilities and Long-Term Debt (Continued)
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 have an
aggregate balance of $647,815 and $692,289 at September 30, 2000 and
December 31, 1999, respectively, and at September 30, 2000 bear
interest at fixed (converting in certain subsequent years to variable)
rates ranging from 6.51% - 8.65% and a weighted average rate of 7.27%.
The notes at September 30, 2000 require aggregate payments of
principal and interest of $8,647 per month.
The Company is exposed to market risk from changes in interest rates
since it, at times, funds its operations through long-term and
short-term borrowings. The Company's primary interest rate risk
exposure results from floating rate debt with respect to the Company's
revolving credit.
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
F-9
<PAGE> 12
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 4. Partners' Equity (Continued)
Everflow acquire certain or all of his Units. The price to be
paid for any such Units is 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 66% of the adjusted book value of the Company allocable to the
Units, divided by the number of Units outstanding at the beginning of
the year in which the applicable Repurchase Right is to be effective
less all Interim Cash Distributions received by a Unitholder. The
adjusted book value is calculated by adding partners' equity, the
Standardized Measure of Discounted Future Net Cash Flows and the tax
effect included in the Standardized Measure and subtracting from that
sum the carrying value of oil and gas properties (net of undeveloped
lease costs). If more than 10% of the then outstanding Units are
tendered during any period during which the Repurchase Right is to be
effective, the Investors' Units 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, 1999 calculation, is $6.11 per
Unit, net of the distributions ($.625 per Unit in total) made in
January and April 2000.
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>
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
2000 $6.73 $ - $.625 $6.110 206,531 5,888,662
</TABLE>
Note 5. Commitments and Contingencies
Everflow paid a quarterly dividend in October 2000 of $.25 per Unit to
Unitholders of record on September 30, 2000. The distribution amounted
to approximately $1,489,000.
F-10
<PAGE> 13
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 5. Commitments and Contingencies (Continued)
EEI is the general partner in certain oil and gas partnerships. As
general partner, EEI shares in unlimited liability to third parties
with respect to the operations of the partnerships and may be liable
to limited partners for losses attributable to breach of fiduciary
obligations.
The Company operates exclusively in the United States, almost entirely
in Ohio and Pennsylvania, in the exploration, development and
production of oil and gas.
The Company operates in an environment with many financial risks,
including, but not limited to, the ability to acquire additional
economically recoverable oil and gas reserves, the inherent risks of
the search for, development of and production of oil and gas, the
ability to sell oil and gas at prices which will provide attractive
rates of return, and the highly competitive nature of the industry and
worldwide economic conditions. The Company's ability to expand its
reserve base and diversify its operations is also dependent upon the
Company's ability to obtain the necessary capital through operating
cash flow, additional borrowings or additional equity funds. Various
federal, state and governmental agencies are considering, and some
have adopted, laws and regulations regarding environmental protection
which could adversely affect the proposed business activities of the
Company. The Company cannot predict what effect, if any, current and
future regulations may have on the operations of the Company.
Note 6. Business Segments and Major Customers
The Company has an Intermediate Term Adjustable Price Gas Purchase
Agreement (the "East Ohio Contract") with The East Ohio Gas Company
("East Ohio"). Pursuant to Article V of the East Ohio Contract, the
new adjusted base price will increase by $1.48 per MCF per contract
beginning with the November 2000 production period. A significant
portion of the Company's natural gas production falls under the East
Ohio Contract.
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
The following table summarizes the Company's financial position at
September 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(Amounts in Thousands) AMOUNT % AMOUNT %
------ - ------ -
<S> <C> <C> <C> <C>
Working capital $ 5,499 11% $ 5,881 11%
Property and equipment (net) 45,660 89 48,015 89
Other 29 - 81 -
------ --- ------ ---
Total $ 51,188 100% $ 53,977 100%
====== === ====== ===
Long-term debt $ 594 1% 638 1%
Deferred income taxes 50 - 50 -
Partners' equity 50,544 99 53,289 99
------ --- ------ ---
Total $ 51,188 100% $ 53,977 100%
====== === ====== ===
</TABLE>
Working capital of $5,499 thousand as of September 30, 2000 represented
a decrease of $382 thousand from December 31, 1999. The primary reasons for this
decrease in working capital were due to the Company's accounts receivable and
accounts payable being substantially lower at September 30, 2000 versus December
31, 1999. In addition, cash and equivalents were also lower and short-term
investments were substantially higher at September 30, 2000 compared to December
31, 1999. Seasonal gas production and reduced development activities are
responsible for the decrease in the Company's production receivable.
In September 2000, the Company entered into an agreement that modified
prior credit agreements. The new agreement provides for a revolving line of
credit in the amount of $4,000,000. Management of the Company believes this
lower line of credit, which allowed the Company to secure an interest rate
reduction, is sufficient to meet the Company's funding requirements. Management
of the Company believes it can maintain the current level of bank debt until
such time as additional borrowings are required to fund the development and/or
purchase of oil and gas properties. The Company used cash on hand to fund the
payment of a quarterly distribution in October 2000.
The Company's cash flow from operations before the change in working
capital increased $1,874 thousand, or 28%, during the nine months ended
September 30, 2000 as
3
<PAGE> 15
compared to the same period in 1999. Abandonments and write down of oil and gas
properties increased $150 thousand during the nine months ended September 30,
2000 compared to the same period in 1999. Changes in working capital other than
cash and equivalents decreased cash by $900 thousand and increased cash by
$3,279 thousand during the nine months ended September 30, 2000 and 1999,
respectively. The reductions in accounts receivable of $1,573 thousand and
$2,066 thousand at September 30, 2000 and 1999, respectively, compared to
December 31, 1999 and 1998 are primarily the result of lower production revenues
receivable. Short-term investments increased $2,060 thousand during the nine
months ended September 30, 2000. Accounts payable decreased $400 thousand and
$716 thousand during the nine months ended September 30, 2000 and 1999,
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 7,561 thousand for the
nine months ended September 30, 2000. 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 $4,000,000 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 a gas purchase agreement with The East Ohio Gas
Company. Pursuant to this agreement, the Company will receive an increase in the
price received for natural gas production in the amount of $1.48 per MCF
beginning in November 2000. A significant portion of the Company's natural gas
production is subject to this agreement. As a result, Management expects an
increase in natural gas sales for the remainder of 2000 and most of 2001,
although no assurance can be given. The impact on the Company cannot fully be
measured until actual production volumes are determined.
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, 2000
and 1999. 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,
-------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales 97% 96% 97% 96%
Well management and operating 3 4 3 4
Other - - - -
---- ---- --- ---
Total Revenues 100 100 100 100
Expenses:
Production costs 18 16 17 15
Well management and operating 1 2 1 2
Depreciation, depletion and amortization 32 34 32 35
Abandonment and write down
of oil and gas properties 3 2 2 1
General and administrative 9 12 9 14
Other (2) - (2) -
Income taxes - - - -
---- --- --- --
Total Expenses 61 66 59 67
==== ==== === ===
Net Income 39% 34% 41% 33%
==== ==== === ===
</TABLE>
Revenues for the three and nine months ended September 30, 2000
increased $708 thousand and $1,686 thousand, respectively, compared to the same
periods in 1999. These increases were due primarily to increases in oil and gas
sales during the three and nine months ended September 30, 2000 compared to the
same periods in 1999.
Oil and gas sales increased $717 thousand, or 29%, during the three
months ended September 30, 2000 compared to the same period in 1999. Oil and gas
sales increased $1,698 thousand, or 18%, during the nine months ended September
30, 2000 compared to the same nine-month period in 1999. These increases are
primarily the result of increased production and higher oil prices during 2000.
Production costs increased $168 thousand, or 40%, during the three
months ended September 30, 2000 compared to the same period in 1999. Production
costs increased $469 thousand, or 32%, during the nine months ended September
30, 2000 compared to the same period in 1999. An increase in producing
properties resulting from seasonal contract expirations earlier this year being
replaced by year-round contracts is primarily responsible for these increases.
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Depreciation, depletion and amortization increased $180 thousand, or
20%, during the three months ended September 30, 2000 compared to the same
period in 1999. Depreciation, depletion and amortization increased $276
thousand, or 8%, during the nine months ended September 30, 2000 compared to the
same period in 1999.
Abandonments and write down of oil and gas properties increased $50
thousand and $150 thousand during the three and nine months ended September 30,
2000, respectively, compared to the same periods in 1999. These increases were
attributable to increases in the abandonment of leasehold costs.
General and administrative expenses decreased $13 thousand, or 4%,
during the three months ended September 30, 2000 compared with the same period
in 1999. General and administrative expenses decreased $365 thousand, or 28%,
during the nine months ended September 30, 2000 compared to the same period in
1999. 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 $53 thousand during the three months ended
September 30, 2000 compared to the same period in 1999. Net other income
increased $174 thousand during the nine months ended September 30, 2000 compared
to the same period in 1999. These increases are the result of increased interest
income and decreased interest expense.
The Company reported net income of $1,301 thousand, an increase of $403
thousand, or 45%, during the three months ended September 30, 2000 compared to
the same period in 1999. The Company reported net income of $4,602 thousand, an
increase of $1,444 thousand, or 46%, during the nine months ended September 30,
2000 compared to the same period in 1999.
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 statements include price fluctuations in the gas market in the
Appalachian Basin, actual oil and gas production and the weather in the
Northeast Ohio area and the ability to locate economically productive oil and
gas prospects for development by the Company.
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Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 10.1 Loan Modification Agreement dated September 19, 2000 between
Bank One, N.A., successor to Bank One Texas, N.A., and
Everflow Eastern, Inc. and Everflow Eastern Partners, L.P.
(b) On October 25, 2000, the Registrant filed a Current Report on
Form 8-K relating to pricing adjustment under the Company's
agreement with The East Ohio Gas Company.
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SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 2000 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)
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