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UNITED STATES
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, 2003.

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 0-18691

NORTH COAST ENERGY, INC.
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (330) 425-2330

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            .

Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12-b-2 of the Exchange Act).

Yes            .   No      X      .

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

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NORTH COAST ENERGY, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

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NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2003 and December 31, 2002

The accompanying notes are an integral part of these consolidated financial statements.

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NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2003 and December 31, 2002

The accompanying notes are an integral part of these consolidated financial statements.

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NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 2003 and 2002
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Accounting Policies

	A.		General
			The accompanying unaudited consolidated financial statements included herein, have been prepared by North Coast Energy, Inc. in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. These financial statements should be read in conjunction with the financial statements and notes thereto which are in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
			The balance sheet at December 31, 2002, presented in this report, has been derived from the audited financial statements at that date but does not include all of the information and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.
			The results of the operations for the interim periods may not necessarily be indicative of the results to be expected for the full year. In addition, the preparation of these financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
			The accompanying financial statements should be read in connection with the “Notes to Consolidated Financial Statements” included in “Item 8. Financial Statements and Supplemental Data” in the Company’s 2002 Annual Report on Form 10-K filed with the SEC. Following is a discussion of the Company’s most critical accounting policies.
	B.		Oil and Gas Investments and Properties
			The Company uses the successful efforts method of accounting for its oil and gas producing activities. Under successful efforts, costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip developmental wells are capitalized.
			Costs to drill exploratory wells that do not find proved reserves, costs of developmental wells on properties the Company has no further interest in, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed.
	C.		Oil and Gas Reserves
			The Company’s proved developed and proved undeveloped reserves are all located within the Appalachian and Illinois Basins in the United States. The Company cautions that there are many uncertainties inherent in estimating proved reserve quantities and in projecting future production rates and the timing of development expenditures. In addition, estimates of new discoveries are more imprecise than those of properties with a production history. Accordingly, these estimates are expected to change as future information becomes available.

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NORTH COAST ENERGY, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

			Material revisions of reserve estimates may occur in the future, development and production of the oil and gas reserves may not occur in the periods assumed, actual prices realized and actual costs incurred may vary significantly from assumptions used. Proved reserves represent estimated quantities of natural gas and oil that geological and engineering data demonstrate with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimates were made. Proved developed reserves are expected to be recovered through wells and equipment in place and under operating methods being utilized at the time the estimates were made. The accuracy of a reserve estimate is a function of the quality and quantity of available data, the accuracy of assumptions used and the judgment of the persons preparing the estimate.
			The Company’s proved reserve information is based on estimates it prepared. Estimates prepared by others may be higher or lower than the Company’s estimates. The Company’s estimates of proved reserves have been reviewed by independent petroleum engineers at each fiscal year end, most recently, December 31, 2002.
	D.		Capitalization, Depreciation, Depletion and Impairment of Long-Lived Assets
			When a property is determined to contain proved reserves, the capitalized costs of such properties are transferred from unproved properties to proved properties and are amortized on a group (pool) basis with proved properties having similar characteristics, by the unit-of-production method based upon estimated proved developed reserves. To the extent that capitalized costs of each pool of proved properties exceed the estimated future net cash flow from such pool, the excess capitalized costs are written down to the present value of such amount. Estimated future net cash flows are determined based primarily upon the estimated future proved reserves related to the Company’s current proved properties.
			On sale or abandonment of an entire interest in an unproved property, the gain or loss is recognized taking into consideration the amount of any recorded impairment. If a partial interest in an unproved property is sold, the amount received is treated as a reduction of the cost of the interest retained. The carrying cost of unproved properties is approximately $3,800,000 at September 30, 2003.
			Unproved oil and gas properties that are significant are periodically assessed for impairment of value and a loss is recognized at the time of impairment by providing an impairment allowance. Other unproved properties are expensed when surrendered or upon lease expiration.
			Property and equipment are stated at cost and are depleted or depreciated principally on methods and at rates designed to amortize their costs over their estimated useful lives (proved oil and gas properties using the unit-of-production method based upon estimated proved developed oil and gas reserves, gathering systems using the straight-line method over 10 to 25 years, vehicles, furniture and fixtures using various methods over 3 to 15 years and building and improvements using various methods over 7 — 31.5 years).
			The Company follows Statement of Financial Accounting Standards (“SFAS”) No. 144 which requires a review for impairment whenever circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is recorded as impaired properties are identified.
	E.		Derivatives and Hedging
			The hedging relationship between the hedging instruments and hedged item must be highly effective. The Company measures effectiveness at least on a monthly basis. Ineffective portions of a derivative instrument’s change in fair value are immediately recognized in net income (loss). If there is a discontinuance of a cash flow hedge because it is probable that the original forecasted transaction would not occur, deferred gains or losses are recognized in earnings immediately.

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NORTH COAST ENERGY, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

	F.		Revenue Recognition
			Gas production revenue is recognized as production takes place. Oil production is recognized as oil is removed from the well site. Oil and gas marketing revenues are recognized when title passes. Oilfield service revenues are recognized when services have been provided.
	G.		Per Share Amounts
			The average number of shares used in computing basic and diluted net income per share was 15,251,806 and 15,464,490 and 15,208,516 and 15,241,877 for the three months ended September 30, 2003 and 2002, respectively, and 15,251,798 and 15,454,692 and 15,208,423 and 15,241,867 for the nine months ended September 30, 2003 and 2002, respectively.
	H.		Reclassifications
			Certain reclassifications were made to prior period financial statement presentations to conform with current period presentations.

Note 2. Stock Options

			At the Annual Meeting of Stockholders held June 12, 2003, the security holders adopted a proposal to amend the Company’s 1999 Employee Stock Option Plan to add 400,000 shares of common stock for issuance under such plan.
			The Company accounts for stock based compensation issued to its employees and directors in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, no compensation cost has been recognized for the stock option plans, as all options granted under the plans have an exercise price equal to the average of the closing price for each of the twenty trading days prior to the date of the grant. The fair value of options granted was determined using the Black-Scholes option pricing model, assuming no dividend yield, and weighted average risk-free interest rates of 2.5% and 4.6% for 2003 and 2002, respectively; volatility of 67% and 52% for 2003 and 2002, respectively; and expected life of 5 years.
			The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-based Compensation” to stock-based employee compensation:

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NORTH COAST ENERGY, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Note 3. Preferred Stock

The Company paid a dividend of $58,167 on the Cumulative Convertible Series B Preferred stock during the nine months ended September 30, 2002. All shares of Series B Preferred stock were redeemed March 31, 2002. In June 2003, the Company redeemed all of its outstanding Series A Preferred stock for $720,610.

Note 4. Related Party Transactions

			Prior to January 2002, a large portion of the Company’s revenues, other than oil and gas production revenue, was generated from, or was a result of, the organization and management of oil and gas drilling partnerships sponsored by the Company. The Company ceased offering these partnerships in 2002. The Company believes that the terms of any remaining related party transactions involving the remaining partnerships are consistent with terms that could have been obtained from unaffiliated third parties.
			Accounts receivable from affiliates amounted to $97,095 and $72,385 at September 30, 2003, and December 31, 2002, respectively, consisting primarily of receivables from the partnerships managed by the Company and are for administrative fees charged to the partnerships and to reimburse the Company for amounts paid on behalf of the partnerships.

Note 5. Financial Instruments

			Derivative Financial Instruments: The Company uses financial derivatives solely for hedging purposes. The following is a summary of the Company’s risk management strategies and the effect of these strategies on the Company’s consolidated financial statements.
			Cash Flow Hedging Strategy: The Company is exposed to commodity price risks related to the sale of its natural gas and oil. As a result, the Company’s financial results can be significantly impacted by changes in commodity prices. “Costless collars” are financial derivatives that consist of a sold call option and a purchased put option such that the combined revenue and cost of these individual transactions is equal to or near zero. As of September 30, 2003, the Company had entered into the following costless collar arrangements:

Gains or losses on the hedges relative to the market are recognized monthly as additions to or subtractions from oil and gas sales. To lessen its exposure to commodity price risk, the Company expects to continue to sell natural gas under fixed price contracts, on the spot market and to use financial hedging instruments to realize a defined price on a portion of its production. As a result of the costless collars, revenues were decreased by $820,340 and increased by $15,000 for the three months ended September 30, 2003 and 2002, respectively, and revenues were decreased by $5,383,000 and increased by $789,170 for the nine months ended September 30, 2003 and 2002, respectively. The mark-to-market liability associated with the costless collars at September 30, 2003, was $1,038,000.

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NORTH COAST ENERGY, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The following table reflects the natural gas volumes and the weighted average prices under financial hedges and fixed price contracts at September 30, 2003. One MMBtu is approximately equal to one Mcf.

Interest Rate Swaps: During 2001, the Company entered into interest rate swap agreements that effectively converted a portion of its variable rate, long-term debt to fixed rate debt for periods of up to two years, thus reducing the impact of interest rate changes on future income. As a result of the swap agreements, interest expense was increased by approximately $203,400 and $132,100 for the three months ended September 30, 2003 and 2002 respectively, and $604,000 and $363,400 for the nine months ended September 30, 2003 and 2002 respectively.

			The mark-to-market liability associated with the two interest rate swap contracts was approximately $907,000 at September 30, 2003. In February 2003 the Company extended the term of both swaps to December 31, 2004.
			The Company qualifies for special hedge accounting treatment under SFAS 133, whereby the fair value of the hedge is recorded in the balance sheet as either an asset or liability and changes in fair value are recognized in other comprehensive income (loss) until settled, when the resulting gains and losses are recorded in earnings. The effect on earnings and other comprehensive income as a result of SFAS 133 will vary from period to period and will be dependent upon prevailing natural gas prices and interest rates, the volatility of forward prices for such commodities, the amount and terms of the Company’s hedges and the time periods covered by such hedges.

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NORTH COAST ENERGY, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The following table summarizes other comprehensive income of the Company for the three and nine months ended September 30, 2003 and 2002.

Note 6. Accounting Standards

			In June 2001, FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” which was 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. The adoption of this standard has not had a material effect on the Company’s financial position, results of operations or cash flows.
			In June 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS 146 is effective for the Company for disposal activities initiated after December 31, 2002. The adoption of this standard has not had a material effect on the Company’s financial position, results of operations or cash flows.
			In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation” Transition and Disclosure (SFAS 148) that amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition to Statement 123’s fair value method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, Interim Financial Reporting, to require disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. The Statement does not amend SFAS 123 to require companies to account for employee stock options using the fair value method. The Statement is effective for fiscal years beginning after December 15, 2002. The adoption of SFAS 148 has not had a material effect on the Company’s results of operations.
			In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company does not expect the application of the provisions of SFAS No. 149 to have a material impact on its financial position, results of operations or cash flows.
			In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect the application of the provisions of SFAS No. 150 to have a material impact on its financial position, results of operations or cash flows.

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NORTH COAST ENERGY, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Note 7. Commitments and Contingencies

			The Company leases certain equipment used in its field operations under non-cancellable operating leases. Rents under existing leases are approximately $33,400 per month and continue in decreasing amounts until 2005.
			The Company has unlimited liability to third parties with respect to the operations of the partnerships it has sponsored and may be liable to limited partners for losses attributable to breach of fiduciary obligations. In certain partnerships, certain investors have participated as co-general partners. All such general partner investors have subsequently been converted to limited partners in all outstanding partnerships.
			From time to time and in the ordinary course of business, the Company may be subject to various claims, charges, and litigation. In the opinion of management, final judgments from such pending claims, charges, and litigation against the Company, if any, would not have a material adverse effect on its consolidated financial position, results of operations or cash flows.

Note 8. Industry Segment Information

The Company operates in one reportable industry segment as an independent energy company engaged in exploring for, developing and producing natural gas and oil reserves, acquiring and enhancing existing reserves and gathering and marketing natural gas and oil. The Company’s operations are entirely within the United States.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations

			Forward Looking Information
			The information in this document includes forward-looking statements that are made pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and projections about future events. Forward-looking statements and the business prospects of the Company are subject to a number of risks and uncertainties, which may cause the Company’s actual results in future periods to differ from the forward-looking statements contained herein. These risks and uncertainties include, but are not limited to, the Company’s access to capital, the market demand for and prices of oil and natural gas, the Company’s oil and gas production and costs of operation, the results of the Company’s future drilling activities, the uncertainties of reserve estimates, general economic conditions, new legislation or regulation changes, changes in accounting principles, policies or guidelines and environmental risks. These and other risks are described in the Company’s Annual Report on Form 10-K reports and other filings with the SEC.