Company Quick10K Filing
Everflow Eastern Partners
Price1.00 EPS-2,357,201
Shares-0 P/E-0
MCap-0 P/FCF-0
Net Debt-12 EBIT2
TEV-12 TEV/EBIT-5
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-14
10-K 2019-12-31 Filed 2020-03-26
10-Q 2019-09-30 Filed 2019-11-13
10-Q 2019-06-30 Filed 2019-08-13
10-Q 2019-03-31 Filed 2019-05-13
10-K 2018-12-31 Filed 2019-03-27
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-10
10-Q 2018-03-31 Filed 2018-05-11
10-K 2017-12-31 Filed 2018-03-27
10-Q 2017-09-30 Filed 2017-11-13
10-Q 2017-06-30 Filed 2017-08-10
10-Q 2017-03-31 Filed 2017-05-10
10-K 2016-12-31 Filed 2017-03-28
10-Q 2016-09-30 Filed 2016-11-10
10-Q 2016-06-30 Filed 2016-08-12
10-Q 2016-03-31 Filed 2016-05-11
10-K 2015-12-31 Filed 2016-03-25
10-Q 2015-09-30 Filed 2015-11-12
10-Q 2015-06-30 Filed 2015-08-12
10-Q 2015-03-31 Filed 2015-05-13
10-K 2014-12-31 Filed 2015-03-27
10-Q 2014-09-30 Filed 2014-11-12
10-Q 2014-06-30 Filed 2014-08-13
10-Q 2014-03-31 Filed 2014-05-13
10-K 2013-12-31 Filed 2014-03-26
10-Q 2013-09-30 Filed 2013-11-13
10-Q 2013-06-30 Filed 2013-08-13
10-Q 2013-03-31 Filed 2013-05-13
10-K 2012-12-31 Filed 2013-03-28
10-Q 2012-09-30 Filed 2012-11-13
10-Q 2012-06-30 Filed 2012-08-13
10-Q 2012-03-31 Filed 2012-05-11
10-K 2011-12-31 Filed 2012-03-27
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-12
10-Q 2011-03-31 Filed 2011-05-13
10-K 2010-12-31 Filed 2011-03-29
10-Q 2010-09-30 Filed 2010-11-12
10-Q 2010-06-30 Filed 2010-08-13
10-Q 2010-03-31 Filed 2010-05-14
10-K 2009-12-31 Filed 2010-03-31

EEPL 10Q Quarterly Report

Note 1. Organization and Summary of Significant Accounting Policies
Note 2. Current Liabilities
Note 3. Partners' Equity
Note 4. Gas Purchase Agreements
Note 5. Commitments and Contingencies
Note 6. Related Party Transactions
Part I: Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 6. Exhibits
EX-31.1 d776128dex311.htm
EX-31.2 d776128dex312.htm
EX-32.1 d776128dex321.htm

Everflow Eastern Partners Earnings 2014-09-30

Balance SheetIncome StatementCash Flow
655239261302012201420172020
Assets, Equity
4.5-0.4-5.3-10.2-15.1-20.02012201420172020
Rev, G Profit, Net Income
3.30.6-2.0-4.7-7.3-10.02012201420172020
Ops, Inv, Fin

10-Q 1 d776128d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

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, 2014

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

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.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

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 5,601,003 Units of limited partnership interest of the registrant as of November 10, 2014. 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, 2014.

 

 

 


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

INDEX

 

    

DESCRIPTION

  

PAGE NO.

 
Part I.    Financial Information   
   Item 1.    Financial Statements   
      Consolidated Balance Sheets September 30, 2014 and December 31, 2013      F-1   
      Consolidated Statements of Income Three and Nine Months Ended September 30, 2014 and 2013      F-3   
      Consolidated Statements of Partners’ Equity Nine Months Ended September 30, 2014 and 2013      F-4   
      Consolidated Statements of Cash Flows Nine Months Ended September 30, 2014 and 2013      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      7   
   Item 4.    Controls and Procedures      7   
Part II.    Other Information   
   Item 6.    Exhibits      9   
      Signature      10   

 

2


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

September 30, 2014 and December 31, 2013

 

     September 30,      December 31,  
     2014      2013  
     (Unaudited)      (Audited)  

ASSETS

     

CURRENT ASSETS

     

Cash and equivalents

   $ 25,097,345       $ 24,461,680   

Accounts and notes receivable:

     

Production

     1,860,914         2,195,519   

Employees (including notes receivable)

     82,000         95,000   

Joint venture partners

     10,874         10,623   

Other

     101,438         139,681   
  

 

 

    

 

 

 

Total current assets

     27,152,571         26,902,503   

PROPERTY AND EQUIPMENT

     

Proved properties (successful efforts accounting method)

     174,229,954         174,811,480   

Pipeline and support equipment

     631,757         666,667   

Corporate and other

     2,106,094         2,092,582   
  

 

 

    

 

 

 
     176,967,805         177,570,729   

Less accumulated depreciation, depletion, amortization and write down

     147,326,022         145,560,225   
  

 

 

    

 

 

 
     29,641,783         32,010,504   

OTHER ASSETS

     

Employees’ accounts and notes receivable

     71,582         118,262   

Other

     188,363         165,279   
  

 

 

    

 

 

 
     259,945         283,541   
  

 

 

    

 

 

 
   $ 57,054,299       $ 59,196,548   
  

 

 

    

 

 

 

 

See notes to unaudited consolidated financial statements.

F-1


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

September 30, 2014 and December 31, 2013

 

     September 30,      December 31,  
     2014      2013  
     (Unaudited)      (Audited)  

LIABILITIES AND PARTNERS’ EQUITY

     

CURRENT LIABILITIES

     

Accounts payable

   $ 1,835,132       $ 1,684,610   

Accrued expenses

     725,775         1,364,183   
  

 

 

    

 

 

 

Total current liabilities

     2,560,907         3,048,793   

DEFERRED INCOME TAXES

     199,000         214,000   

JOINT VENTURE PARTNER ADVANCES

     949,718         880,270   

ASSET RETIREMENT OBLIGATIONS

     7,337,541         7,095,841   

COMMITMENTS AND CONTINGENCIES

     

LIMITED PARTNERS’ EQUITY, SUBJECT TO REPURCHASE RIGHT

     

Authorized - 8,000,000 Units

     

Issued and outstanding - 5,601,003 and 5,606,985 Units, respectively

     45,462,509         47,390,528   

GENERAL PARTNER’S EQUITY

     544,624         567,116   
  

 

 

    

 

 

 

Total partners’ equity

     46,007,133         47,957,644   
  

 

 

    

 

 

 
   $ 57,054,299       $ 59,196,548   
  

 

 

    

 

 

 

 

See notes to unaudited consolidated financial statements.

F-2


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

Three and Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2014     2013     2014     2013  

REVENUES

       

Crude oil and natural gas sales

  $ 3,310,032      $ 4,216,533      $ 10,904,086      $ 12,544,208   

Well management and operating

    139,554        157,187        443,692        471,095   

Other

    2,722        2,991        7,979        9,031   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    3,452,308        4,376,711        11,355,757        13,024,334   

DIRECT COST OF REVENUES

       

Production costs

    858,370        847,988        2,839,282        3,004,102   

Well management and operating

    63,508        94,675        244,786        284,180   

Depreciation, depletion and amortization

    700,774        1,371,845        2,523,746        4,108,539   

Accretion expense

    81,100        80,000        241,700        236,600   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total direct cost of revenues

    1,703,752        2,394,508        5,849,514        7,633,421   

GENERAL AND ADMINISTRATIVE EXPENSE

    521,432        554,608        1,781,781        1,767,785   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

    2,225,184        2,949,116        7,631,295        9,401,206   
 

 

 

   

 

 

   

 

 

   

 

 

 

INCOME FROM OPERATIONS BEFORE GAIN ON SALE OF DEEP RIGHTS

    1,227,124        1,427,595        3,724,462        3,623,128   

GAIN ON SALE OF DEEP RIGHTS

    —          —          —          2,761,705   
 

 

 

   

 

 

   

 

 

   

 

 

 

INCOME FROM OPERATIONS

    1,227,124        1,427,595        3,724,462        6,384,833   

INTEREST INCOME

    11,026        12,273        35,062        37,347   
 

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAXES

    1,238,150        1,439,868        3,759,524        6,422,180   

INCOME TAX EXPENSE (BENEFIT)

       

Current

    5,000        40,000        15,000        120,000   

Deferred

    (5,000     (15,000     (15,000     464,000   
 

 

 

   

 

 

   

 

 

   

 

 

 
    —          25,000        —          584,000   
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

  $ 1,238,150      $ 1,414,868      $ 3,759,524      $ 5,838,180   
 

 

 

   

 

 

   

 

 

   

 

 

 

Allocation of Partnership Net Income

       

Limited Partners

  $ 1,223,493      $ 1,398,132      $ 3,715,051      $ 5,769,180   

General Partner

    14,657        16,736        44,473        69,000   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 1,238,150      $ 1,414,868      $ 3,759,524      $ 5,838,180   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income per unit

  $ 0.22      $ 0.25      $ 0.66      $ 1.03   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

See notes to unaudited consolidated financial statements.

F-3


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

     2014     2013  

PARTNERS’ EQUITY - JANUARY 1

   $ 47,957,644      $ 49,303,756   

Net income

     3,759,524        5,838,180   

Quarterly cash distributions ($1.00 per unit in 2014 and $1.50 per unit in 2013)

     (5,671,092     (8,515,855

Repurchase Right - Units tendered

     (77,886     (46,543

Option Repurchase Plan - options exercised

     38,943        23,272   
  

 

 

   

 

 

 

PARTNERS’ EQUITY - SEPTEMBER 30

   $ 46,007,133      $ 46,602,810   
  

 

 

   

 

 

 

 

See notes to unaudited consolidated financial statements.

F-4


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

     2014     2013  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 3,759,524      $ 5,838,180   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation, depletion and amortization

     2,591,046        4,175,139   

Accretion expense

     241,700        236,600   

Gain on sale of deep rights

     —          (2,761,705

Deferred income taxes

     (15,000     464,000   

Changes in assets and liabilities:

    

Accounts receivable

     334,354        (164,085

Other current assets

     38,243        32,243   

Other assets

     (23,084     (4,020

Accounts payable

     150,522        13,170   

Accrued expenses

     (638,408     (683,797

Joint venture partner advances

     69,448        41,231   
  

 

 

   

 

 

 

Total adjustments

     2,748,821        1,348,776   
  

 

 

   

 

 

 

Net cash provided by operating activities

     6,508,345        7,186,956   

CASH FLOWS FROM INVESTING ACTIVITIES

    

Payments received on receivables from employees

     67,523        80,336   

Advances disbursed to employees

     (7,843     (36,062

Purchase of property and equipment

     (222,325     (843,436
  

 

 

   

 

 

 

Net cash used in investing activities

     (162,645     (799,162

CASH FLOWS FROM FINANCING ACTIVITIES

    

Distributions

     (5,671,092     (8,515,855

Proceeds from options exercised

     38,943        23,272   

Repurchase of Units

     (77,886     (46,543
  

 

 

   

 

 

 

Net cash used in financing activities

     (5,710,035     (8,539,126
  

 

 

   

 

 

 

NET CHANGE IN CASH AND EQUIVALENTS

     635,665        (2,151,332

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD

     24,461,680        25,397,117   
  

 

 

   

 

 

 

CASH AND EQUIVALENTS AT END OF PERIOD

   $ 25,097,345      $ 23,245,785   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information and non-cash activities:

    

Cash paid during the period for:

    

Income taxes

   $ 11,131      $ 247,932   

Gain on sale of deep rights reflects recognition of previously deferred revenue.

 

See notes to unaudited consolidated financial statements.

F-5


Table of Contents

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.

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 26, 2014.

The results of operations for the interim periods may not necessarily be indicative of the results to be expected for the full year.

 

  B. 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


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Organization and Summary of Significant Accounting Policies

 

  C. 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, nor does it have any liabilities. In addition, EML has no separate operations or role apart from its role as the Company’s general partner.

 

  D. 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.

 

  E. 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, 2014 and December 31, 2013, cash and equivalents include $949,718 and $880,270, 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


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Organization and Summary of Significant Accounting Policies

 

  F. 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, 2014 and 2013:

 

     Asset Retirement Obligations  
     Nine Months Ended September 30,  
     2014      2013  

Beginning of period

   $ 7,395,841       $ 6,996,744   

Liabilities incurred

     —           9,900   

Accretion expense

     241,700         236,600   
  

 

 

    

 

 

 

End of period

   $ 7,637,541       $ 7,243,244   
  

 

 

    

 

 

 

 

F-8


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Organization and Summary of Significant Accounting Policies

 

  G. 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, 2014 and December 31, 2013. Other revenue is recognized at the time services are rendered, the Company has a contractual right to such revenue and collection is reasonably assured. Gain on sale of deep rights is recognized when title to deep mineral interests has been transferred and all terms and conditions to the sale have been met.

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.

 

  H. 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.

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.

 

F-9


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Organization and Summary of Significant Accounting Policies

 

  I. 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 5,601,003 and 5,604,991 for the three and nine months ended September 30, 2014, respectively, and 5,606,985 and 5,610,138 for the three and nine months ended September 30, 2013, respectively.

 

  J. Subsequent Events - Everflow paid a cash distribution in October 2014 of $0.25 per Unit. The distribution amounted to approximately $1,417,000.

 

  K. New Accounting Standards – In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 is intended to improve the financial reporting requirements for revenue from contracts with customers by providing a principle based approach. The core principle of the standard is that revenue should be recognized when the transfer of promised goods or services is made in an amount that the entity expects to be entitled to in exchange for the transfer of goods and services. ASU 2014-09 also requires disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This standard will be effective for financial statements issued by public companies for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the potential impact of ASU 2014-09 on the financial statements.

The Company has reviewed all other 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.

 

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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, 2014 and December 31, 2013:

 

     September 30,      December 31,  
     2014      2013  

Accounts Payable:

     

Production and related other

   $ 1,428,266       $ 1,274,763   

Other

     295,843         287,460   

Joint venture partner deposits

     111,023         122,387   
  

 

 

    

 

 

 
   $ 1,835,132       $ 1,684,610   
  

 

 

    

 

 

 

Accrued Expenses:

     

Payroll and retirement plan contributions

   $ 402,243       $ 963,783   

Current portion of asset retirement obligations

     300,000         300,000   

Federal, state and local taxes

     23,532         28,200   

Other

     —           72,200   
  

 

 

    

 

 

 
   $ 725,775       $ 1,364,183   
  

 

 

    

 

 

 

 

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

 

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EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 3. Partners’ Equity (continued)

 

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 2014 Repurchase Right, based upon the December 31, 2013 calculation, was $6.51 per Unit, net of the distributions made in January 2014 ($0.25 per Unit) and April 2014 ($0.25 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. In June 2014 and 2013, the Company granted options to officers and an employee. All options granted were exercised on the same date.

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                    Units  
     Calculated                                  Outstanding  
     Price for      Less      Net                    Following  
     Repurchase      Interim      Price      Units      Units      Units  

Year

   Right      Distributions      Paid      Repurchased      Issued      Activity  

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   

2014

   $ 7.01       $ 0.50       $ 6.51         11,964         5,982         5,601,003   

There were no instruments outstanding at September 30, 2014 or 2013 that would potentially dilute net income per Unit.

 

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EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 4. Gas Purchase Agreements

The Company has multiple annual contracts with Dominion Field Services and Interstate Gas Supply (collectively, the “Major Gas Purchasers”), some of which were entered into during the nine month period ended September 30, 2014, 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 1.17 BCF through October 2015 at various monthly weighted-average pricing provisions averaging $3.10 per MCF, net of estimated regional basis adjustments. 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, plus or minus a current regional basis adjustment. 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.

 

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 may be required to purchase natural gas at market prices to meet such commitments which may 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 natural gas for redelivery (resale) to its customers.

In conjunction with the sale of approximately 28,800 acres of deep rights made in 2012, the Company agreed to perpetuate the producing leases for a minimum

 

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EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 5. Commitments and Contingencies (continued)

 

period of five years. 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, 2014.

The Company is party to various legal proceedings and claims in the ordinary course of its business. The Company believes certain of these matters will be covered by insurance and that the outcome of other matters will not have a material adverse effect on its consolidated financial position, results of operations, or liquidity.

 

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.

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, 2014.

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, 2014 and December 31, 2013, the Company has extended various loans, evidenced by notes, to two employees with origination dates ranging from December 2009 to December 2013. One subsequent addendum extending an additional two-year payment term to a certain note is outstanding at September 30, 2014 and December 31, 2013. Employee receivables, including the notes, accrued interest, and additional amounts loaned during the current period (which will be termed in December 2014), amounted to $153,582 and $213,262 at September 30, 2014 and December 31, 2013, respectively.

 

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Part I: Financial Information

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

The following table summarizes the Company’s financial position at September 30, 2014 and December 31, 2013:

 

     September 30, 2014     December 31, 2013  
     Amount      %     Amount      %  
     (Amounts in Thousands)     (Amounts in Thousands)  

Working capital

   $ 24,591         45   $ 23,853         42

Property and equipment (net)

     29,642         54        32,011         57   

Other

     260         1        284         1   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 54,493         100   $ 56,148         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Deferred income taxes

   $ 199         —     $ 214         —  

Long-term liabilities

     8,287         15        7,976         14   

Partners’ equity

     46,007         85        47,958         86   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 54,493         100   $ 56,148         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Working capital of $24.6 million as of September 30, 2014 represented an increase of $738,000 from December 31, 2013, due primarily to an increase in cash and equivalents and decrease in accrued expenses, offset somewhat by a decrease in accounts receivable from production and an increase in accounts payable. The increase in cash and equivalents is primarily the result of cash provided by operating activities exceeding cash used in investing and financing activities during the nine months ended September 30, 2014. The decrease in accrued expenses is primarily the result of all payroll and retirement contributions accrued at December 31, 2013 having been paid during the nine months ended September 30, 2014. The decrease in accounts receivable from production is primarily the result of decreases in natural gas volumes produced and natural gas prices received during the current receivable production period as compared to the prior comparable receivable production period. The primary reason for the decrease in natural gas volumes produced during the current receivable production period as compared to the prior comparable receivable production period is the result of additional operated oil and gas properties being voluntarily shut-in. The increase in accounts payable is primarily the result of timing associated with the receipt of invoices associated with production expenses.

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, 2014. The Company anticipates, although there is no assurance it will be able to, entering into a new credit agreement for the purpose,

 

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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 2014.

The Company’s cash flow from operations before the change in working capital was $6.6 million, a decrease of $1.1 million, or 14%, during the nine months ended September 30, 2014 as compared to the prior comparable period. Changes in working capital from operations other than cash and equivalents decreased cash by $115,000 during the nine months ended September 30, 2014 due primarily to a decrease in accrued expenses, offset somewhat by a decrease in accounts receivable and an increase in accounts payable.

Cash flows provided by operating activities was $6.5 million for the nine months ended September 30, 2014 and was used primarily to pay 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 and/or purchase oil and gas properties, the repurchase of Units pursuant to the 2015 repurchase right and the payment of quarterly distributions.

The Company has multiple annual contracts with Dominion Field Services and Interstate Gas Supply (collectively, the “Major Gas Purchasers”), some of which were entered into during the nine month period ended September 30, 2014, 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 1.17 BCF through October 2015 at various monthly weighted-average pricing provisions averaging $3.10 per MCF, net of estimated regional basis adjustments. 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, plus or minus a current regional basis adjustment. 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.

 

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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, 2014 and 2013. 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,  
     2014     2013     2014     2013  

Revenues:

        

Crude oil and natural gas sales

     96     96     96     96

Well management and operating

     4        4        4        4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     100     100     100     100

Expenses:

        

Production costs

     25        19        25        23   

Well management and operating

     2        2        2        2   

Depreciation, depletion and amortization

     20        31        22        32   

Accretion expense

     2        2        2        2   

General and administrative

     15        13        16        13   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     64     67     67     72

Gain on sale of deep rights

     —          —          —          21   

Income taxes

     —          (1     —          (4
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     36     32     33     45
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues for the three and nine month periods ended September 30, 2014 decreased $924,000 and $1.7 million, respectively, as compared to the prior comparable periods. The decreases were primarily the result of decreases in crude oil and natural gas sales during the three and nine month periods ended September 30, 2014 as compared to the prior comparable periods.

Crude oil and natural gas sales decreased $907,000, or 21%, during the three months ended September 30, 2014 as compared to the prior comparable period. The decrease was primarily the result of lower natural gas and crude oil volumes produced and lower average natural gas and crude oil prices received during the three month period ended September 30, 2014 as compared to the prior comparable period. Crude oil and natural gas sales decreased $1.6 million, or 13%, during the nine months ended September 30, 2014 as compared to the prior comparable period. The primary reason for this decrease was lower natural gas and crude oil volumes produced during the nine month period ended September 30, 2014 as compared to the prior comparable period. The decreases in natural gas and crude oil volumes produced during the three and nine month periods ended September 30, 2014 as compared to their prior comparable periods were primarily the result of operated properties being voluntarily shut-in during the three and nine month periods ended September 30, 2014 that were not shut-in during the prior comparable periods.

 

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Production costs decreased $165,000, or 5%, during the nine month period ended September 30, 2014 as compared to the prior comparable period. This decrease was primarily the result of decreases to ad valorem taxes, repairs and maintenance expenses, and other expenses associated with third party operated properties incurred during the nine month period ending September 30, 2014 as compared to the prior comparable period.

Depreciation, depletion and amortization (“DD&A”) decreased $671,000, or 49%, during the three months ended September 30, 2014 as compared to the prior comparable period. DD&A decreased $1.6 million, or 39%, during the nine months ended September 30, 2014 as compared to the prior comparable period. The primary reasons for these decreases are lower natural gas and crude oil volumes produced during the three and nine month periods ended September 30, 2014 as compared to the prior comparable periods, and higher natural gas and crude oil reserves. The increase in natural gas and crude oil reserves is primarily the result of higher benchmark natural gas and crude oil prices indexed throughout 2013 as compared to benchmark prices indexed throughout 2012. The higher 2013 benchmark prices were used to value reserves at December 31, 2013, the most recent valuation date, which increased the average economic life of the Company’s oil and gas properties as compared to December 31, 2012, the prior valuation date.

The Company recognized a gain on sale of deep rights of $2.8 million during the nine month period ended September 30, 2013 in association with the sale of deep mineral interests in certain Ohio properties (the “Disposition”). The Disposition included no producing reserves, and the Company retained the rights to the shallow portion of all acreage sold.

All current income tax expenses incurred by the Company during the three and nine month periods ended September 30, 2014 were offset by deferred income tax benefits. Income tax expenses were $584,000 during the nine month period ended September 30, 2013, and consisted primarily of deferred income taxes associated with revenue recognized in conjunction with the Disposition.

The Company reported net income of $1.2 million during the three months ended September 30, 2014, a decrease of $177,000, or 12%, from the prior comparable period amount of $1.4 million. The decrease in net income is primarily the result of a decrease in crude oil and natural gas sales, offset somewhat by a decrease in DD&A. The Company reported net income of $3.8 million during the nine months ended September 30, 2014, a decrease of $2.1 million, or 36%, from the prior comparable period amount of $5.8 million. The decrease in net income is primarily the result of decreases in gain on sale of deep rights and crude oil and natural gas sales, offset somewhat by decreases in production costs, DD&A, and income tax expenses. Net income represented 36% and 32% of total revenues during the three month periods ended September 30, 2014 and 2013, respectively, and 33% and 45% of total revenue during the nine month periods ended September 30, 2014 and 2013, respectively.

 

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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, 2013.

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 Rules 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.

 

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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, 2013, 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.

 

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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

 

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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
Dated: November 12, 2014     By:   

/s/ Brian A. Staebler

       Brian A. Staebler
      

Vice President, Secretary-Treasurer and

Principal Financial and Accounting Officer

       (Duly Authorized Officer)

 

10