EVERFLOW EASTERN PARTNERS LP - FORM 10-Q

EVERFLOW EASTERN PARTNERS LP - FORM 10-Q - November 13, 2013

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file	filename
EXCEL - IDEA: XBRL DOCUMENT - EVERFLOW EASTERN PARTNERS LP	Financial_Report.xls
EX-32.1 - EX-32.1 - EVERFLOW EASTERN PARTNERS LP	d593954dex321.htm
EX-31.2 - EX-31.2 - EVERFLOW EASTERN PARTNERS LP	d593954dex312.htm
EX-31.1 - EX-31.1 - EVERFLOW EASTERN PARTNERS LP	d593954dex311.htm

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, 2013

¨	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 incorporation or organization)		(I.R.S. Employer 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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

There were 5,606,985 Units of limited partnership interest of the registrant as of November 10, 2013. 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, 2013.

EVERFLOW EASTERN PARTNERS, L.P.

INDEX


	DESCRIPTION		PAGE NO.

Part I.	Financial Information

	Item 1.	Financial Statements

		Consolidated Balance Sheets September 30, 2013 and December 31, 2012		F-1

		Consolidated Statements of Income Three and Nine Months Ended September 30, 2013 and 2012		F-3

		Consolidated Statements of Partners’ Equity Nine Months Ended September 30, 2013 and 2012		F-4

		Consolidated Statements of Cash Flows Nine Months Ended September 30, 2013 and 2012		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		9

	Item 4.	Controls and Procedures		9

Part II.	Other Information

	Item 6.	Exhibits		10

		Signature		11

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

September 30, 2013 and December 31, 2012


	September 30,		December 31,
	2013		2012
	(Unaudited)		(Audited)
ASSETS
CURRENT ASSETS
Cash and equivalents	$	23,245,785	$	25,397,117
Accounts and notes receivable:
Production		2,428,753		2,260,340
Employees (including notes receivable)		90,000		95,349
Joint venture partners		17,822		22,150
Deferred income taxes		—		509,000
Other		94,288		126,531

Total current assets		25,876,648		28,410,487
PROPERTY AND EQUIPMENT
Proved properties (successful efforts accounting method)		175,033,808		174,044,579
Pipeline and support equipment		666,667		666,667
Corporate and other		2,092,582		2,049,315

		177,793,057		176,760,561
Less accumulated depreciation, depletion, amortization and write down		146,307,304		142,187,705

		31,485,753		34,572,856
OTHER ASSETS
Employees’ accounts and notes receivable		137,193		176,118
Other		163,619		159,599

		300,812		335,717

	$	57,663,213	$	63,319,060

See notes to unaudited consolidated financial statements.

F-1

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

September 30, 2013 and December 31, 2012


	September 30,		December 31,
	2013		2012
	(Unaudited)		(Audited)
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	2,182,033	$	2,225,433
Accrued expenses		983,135		1,432,232
Deferred revenue		—		2,705,135

Total current liabilities		3,165,168		6,362,800
DEFERRED INCOME TAXES		189,000		234,000
JOINT VENTURE PARTNER ADVANCES		766,991		725,760
ASSET RETIREMENT OBLIGATIONS		6,939,244		6,692,744
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNERS’ EQUITY, SUBJECT TO REPURCHASE RIGHT
Authorized - 8,000,000 Units Issued and outstanding - 5,606,985 and 5,611,715 Units, respectively		46,051,716		48,721,208
GENERAL PARTNER’S EQUITY		551,094		582,548

Total partners’ equity		46,602,810		49,303,756

	$	57,663,213	$	63,319,060

See notes to unaudited consolidated financial statements.

F-2

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

Three and Nine Months Ended September 30, 2013 and 2012

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013		2012
REVENUES
Oil and gas sales	$	4,216,533		$	3,822,793		$	12,544,208	$	11,788,888
Well management and operating		157,187			134,334			471,095		425,335
Other		2,991			3,943			9,031		11,796

Total revenues		4,376,711			3,961,070			13,024,334		12,226,019
DIRECT COST OF REVENUES
Production costs		847,988			876,948			3,004,102		3,228,309
Well management and operating		94,675			89,598			284,180		229,486
Depreciation, depletion and amortization		1,371,845			1,318,768			4,108,539		3,836,012
Accretion expense		80,000			113,500			236,600		338,200

Total direct cost of revenues		2,394,508			2,398,814			7,633,421		7,632,007
GENERAL AND ADMINISTRATIVE EXPENSE		554,608			560,671			1,767,785		1,857,318

Total cost of revenues		2,949,116			2,959,485			9,401,206		9,489,325

INCOME FROM OPERATIONS BEFORE GAIN ON SALE OF DEEP RIGHTS		1,427,595			1,001,585			3,623,128		2,736,694
GAIN ON SALE OF DEEP RIGHTS		—			4,329,632			2,761,705		36,446,595

INCOME FROM OPERATIONS		1,427,595			5,331,217			6,384,833		39,183,289
OTHER INCOME
Interest income		12,273			18,440			37,347		81,722
Gain on sale of property and equipment		—			2,990			—		2,990

		12,273			21,430			37,347		84,712

INCOME BEFORE INCOME TAXES		1,439,868			5,352,647			6,422,180		39,268,001
INCOME TAX EXPENSE (BENEFIT)
Current		40,000			200,000			120,000		3,592,000
Deferred		(15,000	)		(5,000	)		464,000		(15,000	)

Total income tax expense		25,000			195,000			584,000		3,577,000

NET INCOME	$	1,414,868		$	5,157,647		$	5,838,180	$	35,691,001

Allocation of Partnership Net Income
Limited Partners	$	1,398,132		$	5,096,641		$	5,769,180	$	35,269,527
General Partner		16,736			61,006			69,000		421,474

	$	1,414,868		$	5,157,647		$	5,838,180	$	35,691,001

Net income per unit	$	0.25		$	0.91		$	1.03	$	6.28

See notes to unaudited consolidated financial statements.

F-3

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

Nine Months Ended September 30, 2013 and 2012

(Unaudited)


	2013			2012
PARTNERS’ EQUITY—JANUARY 1	$	49,303,756		$	56,159,497
Net income		5,838,180			35,691,001
Quarterly cash distributions ($1.50 per unit in 2013 and 2012)		(8,515,855	)		(8,522,362	)
Special Distribution (see Note 7)		—			(28,417,600	)
Repurchase Right—Units tendered		(46,543	)		(78,042	)
Option Repurchase Plan—options exercised		23,272			39,021

PARTNERS’ EQUITY—SEPTEMBER 30	$	46,602,810		$	54,871,515

See notes to unaudited consolidated financial statements.

F-4

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2013 and 2012

(Unaudited)


	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,838,180		$	35,691,001
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		4,175,139			3,899,612
Accretion expense		236,600			338,200
Gain on sale of deep rights		(2,761,705	)		(36,446,595	)
Gain on sale of property and equipment		—			(2,990	)
Deferred income taxes		464,000			(15,000	)
Changes in assets and liabilities:
Accounts receivable		(164,085	)		1,387,266
Other current assets		32,243			—
Other assets		(4,020	)		—
Accounts payable		13,170			997,213
Accrued expenses		(683,797	)		3,199,368
Joint venture partner advances		41,231			711,966

Total adjustments		1,348,776			(25,930,960	)

Net cash provided by operating activities		7,186,956			9,760,041
CASH FLOWS FROM INVESTING ACTIVITIES
Payments received on receivables from employees		80,336			159,404
Advances disbursed to employees		(36,062	)		(19,491	)
Proceeds from deferred revenue		—			2,705,135
Proceeds from sale of deep rights and property and equipment		—			35,608,937
Purchase of property and equipment		(843,436	)		(275,891	)

Net cash (used) provided by investing activities		(799,162	)		38,178,094
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions		(8,515,855	)		(36,939,962	)
Proceeds from options exercised		23,272			39,021
Repurchase of units		(46,543	)		(78,042	)

Net cash used by financing activities		(8,539,126	)		(36,978,983	)

NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS		(2,151,332	)		10,959,152
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD		25,397,117			21,257,450

CASH AND EQUIVALENTS AT END OF PERIOD	$	23,245,785		$	32,216,602

Supplemental disclosures of cash flow information and non-cash activities:
Cash paid during the period for:
Income taxes	$	247,932		$	155,635

Additions to proved properties reflect changes in asset retirement obligations (see Note 1.F) and accrued expenses (see Note 2). Gain on sale of deep rights reflects recognition of previously deferred revenue (see Note 7).

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

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.

The accompanying condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the disclosures normally required by GAAP, or those normally made in an Annual Report on Form 10-K, although the Company believes that the disclosures made are adequate to make the information not misleading. 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 annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 28, 2013.

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 GAAP 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. Significant estimates impacting the Company’s financial statements include revenue and expense accruals and oil and gas reserve quantities. In the oil and gas industry, and especially as related to the Company’s natural gas sales, the processing of actual transactions generally occurs 60-90 days after the month of delivery of its product. Consequently, accounts receivable from production and oil and gas sales are recorded using estimated production volumes and market or contract prices. Differences between estimated and actual amounts are recorded in subsequent period’s financial results. As is typical in the oil and gas industry, a significant portion of the Company’s accounts receivable from production and oil and gas sales consists of unbilled receivables. Oil and gas reserve quantities are utilized in the calculation of depreciation, depletion and amortization and the impairment of oil and gas wells and also impact the timing and costs associated with asset retirement obligations. The Company’s estimates, especially those related to oil and gas reserves, could change in the near term and could significantly impact the Company’s results of operations and financial position.

F-6

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.

Organization and Summary of Significant Accounting Policies

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 acquisition, exploration, development and production. 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 (“EML”), 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 EML are Everflow Management Corporation (“EMC”); two individuals who are officers and directors of EEI and employees of Everflow; one individual who is the Chairman of the Board of EEI; one individual who is an employee of Everflow; and one private limited liability company founded by an individual who is a director of EEI. EMC is an Ohio corporation formed in September 1990 and is the managing member of EML. EML holds no assets other than its general partner’s interest in Everflow. In addition, EML has no separate operations or role apart from its role as the Company’s general partner.

Principles of Consolidation—The consolidated financial statements include the accounts of Everflow, its wholly-owned subsidiaries, including EEI, and interests with joint venture partners (collectively, the “Company”), which are accounted for under the proportional consolidation method. All significant accounts and transactions between the consolidated entities have been eliminated.

Cash and Equivalents—The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains, at various financial institutions, cash and equivalents which may exceed federally insured amounts and which may, at times, significantly exceed balance sheet amounts due to float. As of September 30, 2013 and December 31, 2012, cash and equivalents include $766,991 and $725,760, respectively, of joint venture partner advances, which are funds collected and held on behalf of joint venture partners for their anticipated share of future plugging and abandonment costs, including interest earned.

F-7

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.

Organization and Summary of Significant Accounting Policies

Asset Retirement Obligations - GAAP requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. For the Company, these obligations include dismantlement, plugging and abandonment of oil and gas wells and associated pipelines and equipment. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depleted over the estimated useful life of the related asset.

The estimated liability is based on historical experience in dismantling, plugging and abandoning wells, estimated remaining lives of those wells based on reserves estimates, estimates of the external cost to dismantle, plug and abandon the wells in the future and federal and state regulatory requirements. The liability is discounted using an assumed credit-adjusted, risk-free interest rate. Revisions to the liability will likely occur due to: changes in estimates of dismantlement, plugging and abandonment costs; changes in estimated remaining lives of the wells; changes in federal or state regulations regarding plugging and abandonment requirements; and other factors.

The Company has no assets legally restricted for purposes of settling its asset retirement obligations. The Company has determined that there are no other material retirement obligations associated with tangible long-lived assets.

The schedule below is a reconciliation of the Company’s liability for the nine months ended September 30, 2013 and 2012:


	Asset Retirement Obligations Nine Months Ended September 30,
	2013		2012
Beginning of period	$	6,996,744	$	6,116,467
Liabilities incurred		9,900		—
Liabilities settled		—		(20,000	)
Accretion expense		236,600		338,200

End of period	$	7,243,244	$	6,434,667

F-8

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.

Organization and Summary of Significant Accounting Policies

Revenue Recognition—The Company recognizes oil and gas revenues when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred, title and risk of loss have transferred to the purchaser, and collectability of the revenue is reasonably assured. The Company utilizes the sales method to account for gas production volume imbalances. Under this method, revenue is recognized only when gas is produced and sold on the Company’s behalf. The Company had no material gas imbalances at September 30, 2013 and December 31, 2012. Other revenue is recognized at the time services are rendered, the Company has a contractual right to such revenue and collection is reasonably assured.

The Company participates (and may act as drilling contractor) with unaffiliated joint venture partners and employees in the drilling, development and operation of jointly owned oil and gas properties.

Each owner, including the Company, has an undivided interest in the jointly owned properties. Generally, the joint venture partners and employees participate on the same drilling/development cost basis as the Company and, therefore, no revenue, expense or income is recognized on the drilling and development of the properties. Accounts and notes receivable from joint venture partners and employees consist principally of drilling and development costs the Company has advanced or incurred on behalf of joint venture partners and employees (see Note 6). The Company earns and receives monthly management and operating fees from certain joint venture partners and employees after the properties are completed and placed into production.

Income Taxes—Everflow is not a tax-paying entity and the net taxable income or loss, other than the taxable income or loss allocable to EEI, which is a C corporation owned by Everflow, will be allocated directly to its respective partners. The Company is not able to determine the net difference between the tax bases and the reported amounts of Everflow’s assets and liabilities due to separate elections that were made by owners of the working interests and limited partnership interests that comprised the Programs.

F-9

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.

Organization and Summary of Significant Accounting Policies

Income Taxes (continued)

The Company believes that it has appropriate support for any tax positions taken and, as such, does not have any uncertain tax positions that are material to the financial statements. The Company’s tax returns are subject to examination by the Internal Revenue Service, as well as various state and local taxing authorities, generally for three years after they are filed.

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 and select officers and employees electing to exercise options (see Note 3).

Earnings per limited partner Unit have been computed based on the weighted average number of Units outstanding during each period presented. Average outstanding Units for earnings per limited partner Unit calculations amounted to 5,606,985 and 5,610,138 for the three and nine months ended September 30, 2013, respectively, and 5,611,715 and 5,614,853 for the three and nine months ended September 30, 2012, respectively.

Subsequent Events—Everflow paid a cash distribution in October 2013 of $0.25 per Unit. The distribution amounted to approximately $1,420,000.

New Accounting Standards – The Company has reviewed all recently issued accounting standards in order to determine their effects, if any, on the consolidated financial statements. Based on that review, the Company believes that none of these standards will have a significant effect on current or future earnings or results of operations.

F-10

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 2.

Current Liabilities

The Company’s current liabilities consist of the following at September 30, 2013 and December 31, 2012:


	September 30, 2013		December 31, 2012
Accounts Payable:
Production and related other	$	1,729,930	$	1,434,657
Other		329,639		385,495
Joint venture partner deposits		122,464		44,407
Outside Working Interests (see Note 7)		—		360,874

	$	2,182,033	$	2,225,433

Accrued Expenses:
Payroll and retirement plan contributions	$	433,235	$	1,019,532
Current portion of asset retirement obligations		304,000		304,000
Proved properties		234,700		—
Federal, state and local taxes		11,200		108,700

	$	983,135	$	1,432,232

The Company recognized $2,705,135 as deferred revenue in the consolidated balance sheet at December 31, 2012 in association with funds held for Contingent Leases as further described in Note 7.

F-11

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 3.

Partners’ Equity

Units represent limited partnership interests in Everflow. The Units are transferable subject to the approval of any transfer by EML 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.

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 the Unitholder elects to exercise the Repurchase Right and have Everflow acquire certain or all 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 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 2013 Repurchase Right, based upon the December 31, 2012 calculation, was $4.92 per Unit, net of the distributions made in January 2013 ($0.50 per Unit) and April 2013 ($0.50 per Unit).

The Company has an Option Repurchase Plan (the “Plan”) which permits the grant of options to purchase certain Units to select officers and employees. The purpose of the Plan is to assist the Company to attract and retain officers and other key employees and to enable those individuals to acquire or increase their ownership interest in the Company in order to encourage them to promote the growth and profitability of the Company. The Plan is designed to align directly the financial interests of the participants with the financial interests of the Unitholders. At June 28, 2013 and June 29, 2012, the Company granted a total of 4,730 and 4,707 options, respectively, to two officers and one employee, of which all were exercised on the same date. Compensation expense associated with these grants was not material to the financial statements.

F-12

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 3.

Partners’ Equity (continued)

Units repurchased pursuant to the Repurchase Right and Units issued through the exercise of options pursuant to the Option Repurchase Plan (collectively the “Units Activity”) for each of the last three years are as follows:


	Per Unit						# of Units Repurchased		# of Units Issued		Units Out- standing Following Units Activity
Year	Calculated Price for Repurchase Right		Less Interim Distributions		Net Price Paid		# of Units Repurchased		# of Units Issued		Units Out- standing Following Units Activity
2011	$	9.23	$	1.00	$	8.23		4,890		2,445		5,616,422
2012	$	9.17	$	0.88	$	8.29		9,414		4,707		5,611,715
2013	$	5.92	$	1.00	$	4.92		9,460		4,730		5,606,985

In June 2012, the Company paid a Special Distribution as further described in Note 7. The Special Distribution was not considered an interim distribution for purposes of calculating the 2012 Repurchase Right price.

There were no instruments outstanding at September 30, 2013 or 2012 that would potentially dilute net income per Unit.

Note 4.

Gas Purchase Agreements

The Company has multiple annual contracts with Dominion Field Services and Interstate Gas Supply (collectively, the “Major Gas Purchasers”), many of which were entered into during the nine month period ended September 30, 2013, which obligate the Major Gas Purchasers to purchase, and the Company to sell and deliver, certain quantities of natural gas production from the Company’s oil and gas properties throughout the contract periods. The Company may elect to lock-in specific volumes of natural gas to be sold in specific months at a mutually agreeable price. The Company has elected to lock-in various monthly quantities of natural gas which total 1.31 BCF through October 2014 at various monthly weighted-average pricing provisions averaging $3.88 per MCF. Pricing provisions with the Major Gas Purchasers apply to certain fixed quantities on a monthly basis with excess monthly quantities being priced based on the current spot market price. The impact of these contracts on the Company’s future oil and gas sales cannot fully be measured until actual production volumes and prices have been determined.

F-13

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 5.

Commitments and Contingencies

The Company operates exclusively in the United States, almost entirely in Ohio and Pennsylvania, in the business of oil and gas acquisition, exploration, development and production. 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, borrowings or equity offerings. 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.

The Company has significant natural gas delivery commitments to its Major Gas Purchasers. Management believes the Company can meet its delivery commitments based on estimated production. If, however, the Company cannot meet its delivery commitments, it will purchase gas at market prices to meet such commitments which will result in a gain or loss for the difference between the delivery commitment price and the price at which the Company is able to purchase the gas for redelivery (resale) to its customers.

The Company held funds at December 31, 2012 in conjunction with Contingent Leases as further described in Note 7.

Note 6.

Related Party Transactions

The Company’s officers, directors, affiliates and certain employees have frequently participated, and will likely continue to participate in the future, as working interest owners in wells in which the Company has an interest. Frequently, the Company has loaned the funds necessary for certain employees to participate in the drilling and development of such wells. Initial terms of the unsecured loans call for repayment of all principal and accrued interest at the end of four years, however, the loan amounts are reduced as production proceeds attributable to the employees’ working interests are not remitted to the employees but rather used to reduce the amounts owed by the employees to the Company. If an outstanding balance remains after the initial four-year term, the Company and employee shall, acting in good faith, agree upon further repayment terms.

F-14

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 6.

Related Party Transactions (continued)

Employees remain obligated for the entire loan amount regardless of a dry-hole event or otherwise insufficient production. The loans carry no loan forgiveness provisions, and no loans have ever been forgiven. The loans accrue interest at the prime rate, which was 3.25% at September 30, 2013.

In accordance with the Sarbanes-Oxley Act of 2002, the Company has not extended any loans to officers or directors since 2002. At September 30, 2013 and December 31, 2012, the Company has extended various loans, evidenced by notes, to two employees with origination dates ranging from December 2009 to December 2011. Subsequent addenda have been made to extend additional one-year payment terms to certain notes since their original date of issuance. Employee receivables, including the notes, accrued interest, and additional amounts loaned during the current period (which will be termed in December 2013), amounted to $227,193 and $271,467 at September 30, 2013 and December 31, 2012, respectively.

Note 7.

Sale of Deep Rights

In recent years, the Company had agreed to sell its deep rights in certain Ohio and Pennsylvania properties for cash consideration as part of various agreements with more than one purchaser that closed at various times throughout 2012 (the “Dispositions”). The Dispositions included no producing reserves, and the Company retained the rights to the shallow portion of all acreage sold in addition to some of the rights to a portion of the deep acreage sold, subject to the agreements. During the nine months ended September 30, 2012, the Company sold approximately 29,600 acres in conjunction with the Dispositions, resulting in a gain on sale of deep rights of $36,446,595.

Included in the acreage sold as part of one of the Dispositions, the Company sold approximately 2,200 acres with leases that contained terms and conditions which would have required the Company to repurchase the acreage if certain claims were made by February 2013 (the “Contingent Leases”). Deferred revenue of $2,705,135 was recognized in the Company’s consolidated balance sheet at December 31, 2012 in association with the funds held for Contingent Leases. The Company did not recognize gain on sale of the Contingent Leases until the claim period ending February 2013 had expired, with no claims having been made.

Gain on sale of deep rights of $2,761,705 recognized during the nine month period ended September 30, 2013 includes funds previously recognized as deferred revenue. Deferred income tax expense of $509,000 was also recognized during the nine months ended September 30, 2013 in conjunction with revenues recognized from expired contingencies.

F-15

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 7.

Sale of Deep Rights (continued)

A condition of one of the Dispositions is that the Company perpetuate the producing leases, for a minimum period of five years, from which approximately 28,800 acres of the total 2012 acreage was sold. If the Company fails to perpetuate the producing leases during such five-year period, it shall refund to the purchaser the portion of the purchase price attributable to the affected properties based on an allocated value of $1,250 per acre (the “Refund Price”), provided however, that should the Company revive or otherwise renew such expired leases within three months of their expiration, the purchaser shall have the right to acquire the deep rights on such revived or renewed leases for the Refund Price. The Company has assessed the shallow operations of all properties from which deep acreage was sold and does not believe a reserve for potential refunded acreage to be necessary at September 30, 2013 or December 31, 2012.

The Company also served as an agent for the sale of deep rights acreage owned by other affiliated and non-affiliated parties (the “Working Interest Parties”). Generally, the Working Interest Parties sold their acreage to the purchasers under the same terms and conditions as the Company’s Dispositions. The Company has recognized accounts payable to outside working interests of $360,874 at December 31, 2012 in association with the funds held for the Working Interest Parties, including funds held for their share of Contingent Leases (see Note 2).

In association with the proceeds received from the Dispositions, the Company paid a special cash distribution in June 2012 of $5.00 per Unit (the “Special Distribution”). The Special Distribution amounted to $28,417,600.

F-16

Part I: Financial Information

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Sale of Deep Rights

In recent years, the Company had agreed to sell its deep rights in certain Ohio and Pennsylvania properties for cash consideration as part of various agreements with more than one purchaser (the “Dispositions”). The Dispositions included no producing reserves, and the Company retained the rights to the shallow portion of all acreage sold in addition to some of the rights to a portion of the deep acreage sold, subject to the agreements. During the three month period ended September 30, 2012, the Company sold approximately 1,600 acres in conjunction with the Dispositions, resulting in a gain on sale of deep rights of approximately $4.3 million. During the nine month period ended September 30, 2012, the Company sold approximately 29,600 acres in conjunction with the Dispositions, resulting in a gain on sale of deep rights of approximately $36.4 million.

Included in the acreage sold as part of one of the Dispositions, the Company sold approximately 2,200 acres with leases that contained terms and conditions which would have required the Company to repurchase the acreage if certain claims were made by February 2013 (the “Contingent Leases”). The Company did not recognize gain on sale of the Contingent Leases until the claim period ending February 2013 had expired, with no claims having been made. Deferred revenue of $2.7 million as recognized in the Company’s consolidated balance sheet at December 31, 2012 in conjunction with the Contingent Leases was recognized as gain on sale of deep rights during the nine month period ending September 30, 2013.

The gains from the Dispositions significantly affected the Company’s results for the three and nine month periods ending September 30, 2012 and to a lesser extent the nine month period ending September 30, 2013. The majority of the proceeds received from the Dispositions were used to pay special cash distributions to the Unitholders in June and December of 2012.

The Company’s sales of deep rights are further described in Note 7 of the Company’s consolidated financial statements included herein.

Liquidity and Capital Resources

The following table summarizes the Company’s financial position at September 30, 2013 and December 31, 2012:


	September 30, 2013					December 31, 2012
	Amount		%			Amount		%
	(Amounts in Thousands)					(Amounts in Thousands)
Working capital	$	22,711		42	%	$	22,048		39	%
Property and equipment (net)		31,486		58			34,573		61
Other		301		—			336		—

Total	$	54,498		100	%	$	56,957		100	%

Deferred income taxes	$	189		—	%	$	234		—	%
Long-term liabilities		7,706		14			7,419		13
Partners’ equity		46,603		86			49,304		87

Total	$	54,498		100	%	$	56,957		100	%

Working capital of $22.7 million as of September 30, 2013 represented an increase of $663,000 from December 31, 2012, due primarily to an increase in accounts receivable from production and decreases in deferred revenue and accrued expenses, offset somewhat by decreases to cash and equivalents and deferred income tax assets. The increase in accounts receivable from production is primarily due to higher crude oil prices received and increased crude oil volumes produced during the current receivable production period as compared to the prior receivable production period. The effect of higher crude oil prices and increased crude oil volumes produced is offset somewhat by a decrease in natural gas volumes produced. The decrease in deferred revenue is the result of revenue being recognized in conjunction with the Contingent Leases. The decrease in accrued expenses is primarily the result of all payroll and retirement contributions accrued at December 31, 2012 having been paid during the nine months ended September 30, 2013, offset somewhat by an increase in expenses accrued for the drilling of proved properties. The decrease in cash and equivalents is primarily the result of cash used by investing and financing activities exceeding cash provided by operating activities during the nine months ended September 30, 2013. The decrease in deferred income tax assets is primarily the result of a deferred income tax asset being exhausted in conjunction with the revenue recognition of the Contingent Leases.

The Company funds its operation with cash generated by operations and existing cash and equivalent balances. The Company has had no borrowings since 2003 and no principal indebtedness was outstanding as of November 10, 2013. The Company anticipates, although there is no assurance it will be able to, entering into a new credit agreement for the purpose, if necessary, of funding future annual repurchase rights. The Company has no current alternate financing plan, nor does it anticipate that one will be necessary. The Company used cash on hand to fund the payment of a distribution amounting to approximately $1.4 million in October 2013.

The Company’s cash flow from operations before the change in regular operational working capital, which excludes the effects of the Dispositions, was $7.7 million, a decrease of $1.0 million, or 11%, during the nine months ended September 30, 2013, as compared to the comparable period in 2012. Changes in regular operational working capital other than cash and equivalents decreased cash by $559,000 during the nine months ended September 30, 2013 due primarily to an increase in accounts receivable from production and a decrease in accrued expenses, offset somewhat by an increase to accounts payable.

Cash flows provided by operating activities was $7.2 million for the nine months ended September 30, 2013. Cash flows provided by operating activities and existing cash and equivalents were used primarily to develop oil and gas properties and pay three quarterly distributions.

Management of the Company believes cash flows and existing cash and equivalents should be sufficient to meet the current funding requirements of ongoing operations, capital investments to develop oil and gas properties, the repurchase of Units pursuant to the 2014 repurchase right and the payment of quarterly distributions.

Results of Operations

The following table and discussion is a review of the results of operations of the Company for the three and nine month periods ended September 30, 2013 and 2012. 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						Nine Months
	Ended September 30,						Ended September 30,
	2013			2012			2013			2012
Revenues:
Oil and gas sales		96	%		97	%		96	%		96	%
Well management and operating		4			3			4			4

Total revenues		100	%		100	%		100	%		100	%
Expenses:
Production costs		19	%		22	%		23	%		26	%
Well management and operating		2			2			2			2
Depreciation, depletion and amortization		31			33			32			32
Accretion expense		2			3			2			3
General and administrative		13			14			13			15

Total expenses		67	%		74	%		72	%		78	%
Gain on sale of deep rights		—			109			21			298
Other income		—			—			—			1
Income taxes		(1	)		(5	)		(4	)		(29	)

Net income		32	%		130	%		45	%		292	%

Revenues for the three and nine month periods ended September 30, 2013 increased $416,000 and $798,000, respectively, as compared to the prior comparable periods. The increases were primarily due to increases in oil and gas sales during the three and nine month periods ended September 30, 2013 as compared to the prior comparable periods.

Oil and gas sales increased $394,000, or 10%, during the three month period ended September 30, 2013 as compared to the prior comparable period. Oil and gas sales increased $755,000, or 6%, during the nine month period ended September 30, 2013 as compared to the prior comparable period. The primary reasons for these increases were higher average natural gas and crude oil prices received and increased natural gas volumes produced during the three and nine month periods ended September 30, 2013 as compared to the prior comparable periods. The effect of higher average natural gas and crude oil prices and increased natural gas volumes produced were offset somewhat by a decrease in crude oil volumes produced. The increase in natural gas volumes produced during the three and nine month periods ended September 30, 2013 as compared to the prior comparable periods were primarily the result of operated properties being voluntarily shut-in during the three and nine month periods ended September 30, 2012 that were not shut-in during the current comparable periods.

Production costs decreased $224,000, or 7%, during the nine month period ended September 30, 2013 compared to the prior comparable period. The primary reason for this decrease was due to a one-time charge by a third party operator during the nine month period ended September 30, 2012 in association with cumulative costs incurred relative to their operations of various oil and gas properties of which the Company participates as a joint venture partner.

Depreciation, depletion and amortization increased $53,000, or 4%, during the three month period ended September 30, 2013 as compared to the prior comparable period. Depreciation, depletion and amortization increased $273,000, or 7%, during the nine month period ended September 30, 2013 as compared to the prior comparable period. The primary reasons for these increases are the result of increased natural gas volumes produced during the three and nine month periods ended September 30, 2013 as compared to the prior comparable periods and the result of lower crude oil and natural gas reserves. The decrease in crude oil and natural gas reserves is primarily the result of lower benchmark crude oil and natural gas prices indexed throughout 2012 as compared to benchmark prices indexed throughout 2011. The lower 2012 benchmark prices were used to value reserves at December 31, 2012, the most recent valuation date, which reduced the average economic life of the Company’s wells as compared to December 31, 2011, the prior valuation date.

Accretion expense decreased $34,000, or 30%, during the three month period ended September 30, 2013 as compared to the prior comparable period. Accretion expense decreased $102,000, or 30%, during the nine month period ended September 30, 2013 as compared to the prior comparable period. The primary reason for these decreases was the result of more asset retirement obligations being fully accreted at January 1, 2013 as compared to January 1, 2012, which resulted in less discounted asset retirement obligations available to accrete during the three and nine month periods ended September 30, 2013 as compared to the prior comparable periods.

General and administrative expenses decreased $90,000, or 5%, during the nine month period ended September 30, 2013 as compared to the prior comparable period. The primary reason for this decrease is due to decreases in various administrative costs incurred relative to the Dispositions during the nine month period ended September 30, 2013 as compared to the prior comparable period.

The Company recognized gains on sale of deep rights of $0 and $2.8 million during the three and nine month periods ended September 30, 2013, respectively. The Company recognized gains on sale of deep rights of $4.3 million and $36.4 million during the three and nine month periods ended September 30, 2012, respectively. All gains on sale of deep rights recognized were in association with the Dispositions as further described under “Sale of Deep Rights”, herein.

Interest income decreased $44,000, or 54%, during the nine month period ended September 30, 2013 as compared to the prior comparable period. The primary reason for this decrease was the result of lower average cash and equivalents held during the nine month period ended September 30, 2013 as compared to the prior comparable period. Higher average cash and equivalents during the nine month period ended September 30, 2012 were primarily the result of cash received in association with the Dispositions as further described under “Sale of Deep Rights”, herein.

Income tax expenses were $25,000 and $195,000 during the three month periods ended September 30, 2013 and 2012, respectively. Income tax expenses were $584,000 and $3.6 million during the nine month periods ended September 30, 2013 and 2012, respectively. Income tax expenses incurred during the nine month period ended September 30, 2013 consisted primarily of previously deferred income taxes associated with revenue recognized in conjunction with the Contingent Leases. Income tax expenses incurred during the three and nine month periods ended September 30, 2012 consisted primarily of federal income taxes due in relation to Everflow Eastern, Inc.’s interest in the Dispositions.

The Company reported net income of $1.4 million during the three month period ended September 30, 2013, a decrease of $3.8 million from the prior comparable period amount of $5.2 million. The primary reason for the decrease is the result of no gain on sale of deep rights recognized during the three month period ended September 30, 2013 as compared to $4.3 million of gain on sale of deep rights recognized during the prior comparable period. The effect of less gain on sale of deep rights is offset somewhat by the increase in oil and gas sales. The Company reported net income of $5.8 million during the nine month period ended September 30, 2013, a decrease of $29.9 million from the prior comparable period amount of $35.7 million. The primary reason for the decrease is the result of the $33.7 million decrease in gain on sale of deep rights, offset somewhat by the increase in oil and gas sales and decrease in income tax expenses. Net income represented 32% and 130% of total revenues during the three month periods ended September 30, 2013 and 2012, respectively, and 45% and 292% of total revenues during the nine month periods ended September 30, 2013 and 2012, respectively.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. The critical accounting policies that affect the Company’s more complex judgments and estimates are described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Forward-Looking Statements

Except for historical financial information contained in this Form 10-Q, the statements made in this report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). In addition, words such as “expects,” “anticipate,” “intends,” “plans,” “believes,” “estimates,” variations of such words and similar expressions are intended to identify 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. In addition, any forward-looking statements speak only as of the date on which such statement is made and the Company does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information has been omitted, as the Company qualifies as a smaller reporting company.

Item 4.

CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. As of the end of the period covered by this report, management performed, with the participation of our Principal Executive Officer (the “CEO”) and Principal Financial and Accounting Officer (the “CFO”), an evaluation of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15 (the “evaluation”). Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosures. Based on the evaluation, management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

The certifications of the Company’s CEO and CFO are attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q and include, in paragraph 4 of such certifications, information concerning the Company’s disclosure controls and procedures and internal control over financial reporting. Such certifications should be read in conjunction with the information contained in this Item 4., including the information incorporated by reference to our filing on Form 10-K for the year ended December 31, 2012, for a more complete understanding of the matters covered by such certifications.

(b) Changes in internal control over financial reporting. No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 6.

EXHIBITS

Exhibit 31.1

Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2

Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

XBRL Taxonomy Definition Linkbase Document

SIGNATURE

Pursuant to the requirements 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

November 13, 2013	By:	/s/ Brian A. Staebler
		Brian A. Staebler
		Vice President, Secretary-Treasurer and Principal Financial and Accounting Officer (Duly Authorized Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company