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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 JUNE 30, 2002
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 5,748,773 Units of limited partnership interest of the
Registrant as of August 13, 2002. 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 June 30, 2002.
EVERFLOW EASTERN PARTNERS, L.P.
INDEX
DESCRIPTION PAGE NO.
----------- --------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001 F-1
Consolidated Statements of Income
Three and Six Months Ended June 30, 2002 and 2001 F-3
Consolidated Statements of Partners' Equity
Six Months Ended June 30, 2002 and 2001 F-4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001 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
Item 3. Quantitative and Qualitative Disclosures about Market
Risk 6
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 7
Signature 8
2
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
June 30, December 31,
2002 2001
(Unaudited) (Audited)
--------- -------
ASSETS
------
CURRENT ASSETS
Cash and equivalents $ 2,087,743 $ 1,128,835
Accounts receivable:
Production 2,241,830 2,475,123
Officers and employees 244,245 255,448
Joint venture partners 14,346 121,458
Short-term investments 4,316,716 3,790,562
Other 49,819 47,998
-------------- --------------
Total current assets 8,954,699 7,819,424
PROPERTY AND EQUIPMENT
Proved properties (successful efforts
accounting method) 116,366,405 114,964,451
Pipeline and support equipment 509,398 504,222
Corporate and other 1,473,109 1,465,910
-------------- --------------
118,348,912 116,934,583
Less accumulated depreciation, depletion,
amortization and write down (74,874,289) (72,609,314)
---------- --------------
43,474,623 44,325,269
OTHER ASSETS 172,772 109,572
-------------- --------------
$ 52,602,094 $ 52,254,265
============== ==============
See notes to unaudited consolidated financial statements.
F-1
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
June 30, December 31,
2002 2001
(Unaudited) (Audited)
--------- -------
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 51,833 $ 53,900
Accounts payable 783,544 505,246
Accrued expenses 151,244 275,010
-------------- --------------
Total current liabilities 986,621 834,156
LONG-TERM DEBT, NET OF CURRENT PORTION 430,061 458,114
DEFERRED INCOME TAXES - 50,000
COMMITMENTS AND CONTINGENCIES - -
LIMITED PARTNERS' EQUITY, SUBJECT TO
REPURCHASE RIGHT
Authorized - 8,000,000 Units
Issued and outstanding - 5,748,773 and
5,771,174 Units, respectively 50,594,883 50,326,874
GENERAL PARTNER'S EQUITY 590,529 585,121
-------------- --------------
Total partners' equity 51,185,412 50,911,995
-------------- --------------
$ 52,602,094 $ 52,254,265
============== ==============
See notes to unaudited consolidated financial statements.
F-2
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2002 2001 2002 2001
---- ---- ---- ----
REVENUES
Oil and gas sales $ 3,322,642 $ 3,663,270 $ 7,436,648 $ 8,407,264
Well management and operating 118,098 109,098 251,647 240,686
Other 51 981 850 2,501
----------- ----------- ----------- -----------
3,440,791 3,773,349 7,689,145 8,650,451
DIRECT COST OF REVENUES
Production costs 551,478 586,600 1,275,487 1,354,217
Well management and operating 57,020 38,376 107,279 72,408
Depreciation, depletion and amortization 956,266 987,589 2,268,089 2,462,387
Abandonment and write down of
oil and gas properties 50,000 50,000 100,000 100,000
----------- ----------- ----------- -----------
Total direct cost of revenues 1,614,764 1,662,565 3,750,855 3,989,012
GENERAL AND ADMINISTRATIVE
EXPENSE 309,773 302,473 691,401 672,233
----------- ----------- ----------- -----------
Total cost of revenues 1,924,537 1,965,038 4,442,256 4,661,245
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 1,516,254 1,808,311 3,246,889 3,989,206
OTHER INCOME (EXPENSE)
Interest income 18,191 73,168 34,345 147,828
Interest expense (8,093) (11,544) (16,271) (23,325)
Gain on sale of property and equipment 4,380 - 4,380 -
----------- ----------- ----------- -----------
14,478 61,624 22,454 124,503
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,530,732 1,869,935 3,269,343 4,113,709
PROVISION FOR INCOME TAXES
Current - - - -
Deferred (25,000) - (50,000) -
---------- ----------- ---------- -----------
(25,000) - (50,000) -
---------- ----------- ---------- -----------
NET INCOME $ 1,555,732 $ 1,869,935 $ 3,319,343 $ 4,113,709
========== =========== ========== ===========
Allocation of Partnership Net Income
Limited Partners $ 1,537,852 $ 1,848,868 $ 3,281,195 $ 4,067,364
General Partner 17,880 21,067 38,148 46,345
---------- ----------- ---------- -----------
$ 1,555,732 $ 1,869,935 $ 3,319,343 $ 4,113,709
========== =========== ========== ===========
Earnings per unit $ .27 $ .31 $ .57 $ .69
====== ====== ====== ======
See notes to unaudited consolidated financial statements.
F-3
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)
2002 2001
---- ----
PARTNERS' EQUITY - JANUARY 1 $ 50,911,995 $ 53,043,829
Net income 3,319,343 4,113,709
Cash distributions (2,919,136) (3,722,350)
Repurchase Right - Units tendered (126,790) (1,143,158)
-------------- --------------
PARTNERS' EQUITY - JUNE 30 $ 51,185,412 $ 52,292,030
=============== ===============
See notes to unaudited consolidated financial statements.
F-4
EVERFLOW EASTERN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,319,343 $ 4,113,709
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 2,276,535 2,492,907
Abandonment and write down of
oil and gas properties 100,000 100,000
(Gain) loss on sale of property and equipment (4,380) -
Deferred income taxes (50,000) -
Changes in assets and liabilities:
Accounts receivable 340,405 1,425,454
Short-term investments (526,154) (3,117,604)
Other current assets (1,821) 14,714
Other assets (63,200) -
Accounts payable 151,508 (313,764)
Accrued expenses (123,766) (232,378)
------------- -------------
Total adjustments 2,099,127 369,329
------------- -------------
Net cash provided by operating activities 5,418,470 4,483,038
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on receivables from officers and
employees 105,990 134,902
Advances disbursed to officers and employees (94,787) (108,579)
Purchase of property and equipment (1,549,009) (1,891,722)
Proceeds on sale of property and equipment and
and other assets 27,500 -
-------------- --------------
Net cash used by investing activities (1,510,306) (1,865,399)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions (2,919,136) (3,722,350)
Payments on debt, including revolver activity (30,120) (32,413)
------------- -------------
Net cash used by financing activities (2,949,256) (3,754,763)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 958,908 (1,137,124)
-------------- -------------
CASH AND EQUIVALENTS AT BEGINNING
OF YEAR 1,128,835 1,997,978
-------------- -------------
CASH AND EQUIVALENTS AT END OF
SECOND QUARTER $ 2,087,743 $ 860,854
============== =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 16,271 $ 23,325
Income taxes - -
See notes to unaudited consolidated financial statements.
F-5
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 accounting
principles generally accepted in the United States of America
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 28, 2002.
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
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, and, as such, is
authorized 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, its wholly owned
subsidiaries, including 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 amounted to 5,771,174 for the three and six
months ended June 30, 2002 and 5,888,662 for the three and six
months ended June 30, 2001.
E. New Accounting Standards - In June 2001, FASB issued SFAS No.
142, "Goodwill and Other Intangible Assets." Under SFAS No. 142,
goodwill and intangible assets deemed to have indefinite lives
will no
F-7
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)
longer be amortized but will be subject to periodic impairment
tests. Other intangible assets will continue to be amortized over
their useful lives. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. In June 2001, FASB issued SFAS
No. 143, "Accounting for Asset Retirement Obligations," which is
effective the first quarter of fiscal year 2003. SFAS 143
addresses financial accounting and reporting for obligations
associated with the retirement of long-lived assets and the
associated asset retirement cost. In August 2001, FASB issued
SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-lived Assets," which is effective the first quarter of
fiscal year 2002. SFAS No. 144 modifies and expands the financial
accounting and reporting for the impairment or disposal of
long-lived assets other than goodwill. The adoption of SFAS Nos.
142 and 144 had no material effect on the Company's financial
statements. The Company is still evaluating the impact of SFAS
No. 143, but at this time does not believe its adoption will have
a significant impact on its financial position and results of
operations.
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 August 2001, the Company entered into an agreement that modified
the prior credit agreements. The 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, 2003. The Company anticipates renewing the facility every other
year to minimize debt origination, carrying and interest costs
associated with long-term bank commitments. 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
F-8
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 3. Credit Facilities and Long-Term Debt (Continued)
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 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 $481,894 and $512,014 at June 30, 2002 and
December 31, 2001, respectively, and at June 30, 2002 bear interest at
fixed (with options to adjust or convert to variable in certain
subsequent years) rates ranging from 5.47% - 8.06% and a weighted
average rate of 6.51%. The notes at June 30, 2002 require aggregate
payments of principal and interest of $7,175 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. At June 30, 2002, none of the Company's total long-term debt
consisted of floating rate debt.
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 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
F-9
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 4. Partners' Equity (Continued)
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 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 equals 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, 2001 calculation, is
$5.66 per Unit, net of the distributions ($.50 per Unit in total) made
in January and April 2002.
Units repurchased pursuant to the Repurchase Right for each of the
last five years are as follows:
Calculated Units
Price for Less # of Out-standing
Repurchase Interim Net Units Following
Year Right Distributions Price Paid Repurchased Repurchase
---- ---------- ------------- ---------- ----------- ----------
1998 $5.24 $.250 $4.99 35,114 6,172,537
1999 $6.16 $.375 $5.79 77,344 6,095,193
2000 $6.73 $.625 $6.11 206,531 5,888,662
2001 $10.35 $.625 $9.73 117,488 5,771,174
2002 $6.16 $.500 $5.66 22,401 5,748,773
F-10
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 5. Commitments and Contingencies
Everflow paid a quarterly dividend in July 2002 of $.50 per Unit to
Unitholders of record on June 30, 2002. The distribution amounted to
approximately $2,900,000.
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, the volatility and seasonality of oil and gas
production and prices, and the highly competitive and, at times,
seasonal 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.
F-11
Part I: Financial Information
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the Company's financial position at
June 30, 2002 and December 31, 2001:
June 30, 2002 December 31, 2001
------------- -----------------
(Amounts in Thousands) Amount % Amount %
------ - ------ -
Working capital $ 7,968 16% $ 6,985 14%
Property and equipment (net) 43,475 84 44,325 86
Other 172 - 110 -
-------- ----- -------- -----
Total $ 51,615 100% $ 51,420 100%
======== ===== ======== =====
Long-term debt $ 430 1% 458 1%
Deferred income taxes - - 50 -
Partners' equity 51,185 99 50,912 99
-------- ----- -------- -----
Total $ 51,615 100% $ 51,420 100%
======== ===== ======== =====
Working capital surplus of $8.0 million as of June 30, 2002 represented an
increase of approximately $983 thousand from December 31, 2001. The increase was
the result of increases in cash and equivalents and short-term investments.
In August 2001, the Company modified its revolving credit facility. The
facility provides for a revolving line of credit in the amount of $4.0 million,
all of which is available. The revolving line of credit provides for interest
payable quarterly at LIBOR plus 150 basis points with principal due at maturity,
May 31, 2003. The Company anticipates renewing the facility every other year to
minimize debt origination, carrying and interest costs associated with long-term
bank commitments. Management of the Company believes this revolving credit
facility is sufficient to allow the Company to continue to fund the development
of oil and gas properties, repurchase Units pursuant to the Repurchase Right and
make quarterly Cash Distributions.
The Company's cash flow from operations before the change in working
capital decreased $1,065 thousand, or 16%, during the six months ended June 30,
2002 as compared to the same period in 2001. Changes in working capital other
than cash and equivalents decreased cash by $223 thousand during the six months
ended June 30, 2002. The increase
3
in short-term investments of $526 thousand at June 30, 2002 compared to December
31, 2001 is primarily the result of higher investments in marketable corporate
debt securities at June 30, 2002.
Cash flows provided by operating activities was $5.4 million for the six
months ended June 30, 2002. Cash was used to purchase property and equipment,
pay quarterly distributions and reduce debt.
Management of the Company believes the existing revolving credit facility
of $4.0 million 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 executed an agreement that replaced certain other agreements
with Dominion Field Services, Inc. and its affiliates ("Dominion") (including
The East Ohio Gas Company), to sell Dominion a significant portion of the
Company's natural gas production through October 2003. The agreement provides
for fixed pricing ranging from $3.35 to $5.35 per MCF. The Company also has an
agreement with Interstate Gas Supply, Inc. ("IGS"), which obligates IGS to
purchase, and the Company to sell and deliver certain quantities of natural gas
production on a monthly basis throughout the contract periods. The agreement
with IGS provides for fixed pricing ranging from $3.19 to $4.56 per MCF. Fixed
pricing with both Dominion and IGS applies to certain fixed quantities on a
monthly basis with excess monthly quantities being priced based on the current
spot market price. The impact on the Company cannot fully be measured until
actual production volumes and prices are determined.
4
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, 2002 and 2001. 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:
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Oil and gas sales 97% 97% 97% 97%
Well management and operating 3 3 3 3
---- ---- ---- ----
Total Revenues 100% 100% 100% 100%
Expenses:
Production costs 16% 16% 17% 15%
Well management and operating 2 1 1 1
Depreciation, depletion and amortization 28 26 30 28
Abandonment and write down of
oil and gas properties 1 1 1 1
General and administrative 9 8 9 8
Other - (2) - (1)
Income taxes (1) - (1) -
---- ---- ---- ----
Total Expenses 55 50 57 52
==== ==== ==== ====
Net income 45% 50% 43% 48%
==== ==== ==== ====
Revenues for the three and six months ended June 30, 2002 decreased $333
thousand and $961 thousand, respectively, compared to the same periods in 2001.
These decreases were due primarily to a decrease in oil and gas sales during the
three and six months ended June 30, 2002 compared to the same periods in 2001.
Oil and gas sales decreased $341 thousand, or 9%, during the three months
ended June 30, 2002 compared to the same period in 2001. Oil and gas sales
decreased $971 thousand, or 12%, during the six months ended June 30, 2002
compared to the same six month period in 2001. These decreases are the result of
lower production volumes and natural gas prices during the three and six months
ended June 30, 2002 compared to the same periods in 2001.
Production costs decreased $35 thousand, or 6%, during the three months
ended June 30, 2002 and decreased $79 thousand, or 6%, during the six months
ended June 30, 2002 compared to the same periods in 2001. The decreases are the
result of lower operating costs during the three and six months ended June 30,
2002 compared to the same periods in 2001.
5
Depreciation, depletion and amortization expenses decreased $31 thousand,
or 3%, and $194 thousand, or 8%, during the three and six months ended June 30,
2002, respectively, compared with the same periods in 2001.
General and administrative expenses increased $7 thousand, or 2%, and $19
thousand, or 3%, during the three and six months ended June 30, 2002,
respectively, compared with the same periods in 2001.
The Company reported net income of $1,556 thousand, a decrease of $314
thousand, or 17%, during the three months ended June 30, 2002 compared to the
same period in 2001. The Company reported net income of $3,319 thousand, a
decrease of $794 thousand, or 19%, during the six months ended June 30, 2002
compared to the same period in 2001. The decreases in oil and gas sales were
primarily responsible for these decreases in net income. Net income represented
45% and 50% of total revenues during the three months ended June 30, 2002 and
2001, respectively. Net income represented 43% and 48% of total revenues during
the six months ended June 30, 2002 and 2001, respectively.
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 natural gas and crude oil markets
in the Appalachian Basin, 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. At June 30, 2002, none of
the Company's long-term debt consisted of floating rate debt.
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Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 99.1 Certification Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant To Section 906 Of The
Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant To Section 906 Of The
Sarbanes-Oxley Act of 2002
(b) No reports on Form 8-K were filed with the Commission during the
Company's second quarter.
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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.
EVERFLOW EASTERN PARTNERS, L.P.
By: EVERFLOW MANAGEMENT LIMITED, LLC,
General Partner
By: EVERFLOW MANAGEMENT CORPORATION
Managing Member
By: /s/William A. Siskovic
---------------------------------------
August 13, 2002 William A. Siskovic
Vice President and Principal Accounting
Officer (Duly Authorized Officer)
8