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

Part I: Financial Information
Item 1. Financial Statements
Note 1. Organization and Summary of Significant Accounting Policies
Note 2. Current Liabilities
Note 3. Partners' Equity
Note 4. Commitments and Contingencies
Note 5. Related Party Transactions
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 ex_127658.htm
EX-31.2 ex_127659.htm
EX-32.1 ex_127660.htm

Everflow Eastern Partners Earnings 2018-09-30

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 eepl20180930_10q.htm FORM 10-Q eepl20180930_10q.htm
 

 

Table of Contents



 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly report pursuant to Section 13 or 15(d)  
  of the Securities Exchange Act of 1934  

 

For the quarterly period ended September 30, 2018

 

OR

 

Transition report pursuant to Section 13 or 15(d)  
  of the Securities Exchange Act of 1934  

 

For the transition period from                      to                     .

 

Commission File Number 0-19279

 

EVERFLOW EASTERN PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

 

  Delaware   34-1659910  
  (State or other jurisdiction of   (I.R.S. Employer  
  incorporation or organization)   Identification No.)  
         
  585 West Main Street      
  P.O. Box 629      
  Canfield, Ohio   44406  
  (Address of principal executive offices)   (Zip Code)  

 

Registrant’s telephone number, including area code: (330) 533-2692

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    X        No             

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes    X         No _____

 

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

 

  Large accelerated filer      Accelerated filer    
  Non-accelerated filer     Smaller reporting company X  
  Emerging growth company          

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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       

 

There were 5,549,355 Units of limited partnership interest of the registrant as of November 9, 2018. 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, 2018.

 

 

 

EVERFLOW EASTERN PARTNERS, L.P.

 

 

INDEX

 

 

 

DESCRIPTION

PAGE NO.

       
       

Part I.  

Financial Information

 
       
 

Item 1.

Financial Statements

 
       
   

Consolidated Balance Sheets September 30, 2018 and December 31, 2017

F-1
       
   

Consolidated Statements of Operations Three and Nine Months Ended September 30, 2018 and 2017

F-3
       
   

Consolidated Statements of Partners’ Equity Nine Months Ended September 30, 2018 and 2017

F-4
       
   

Consolidated Statements of Cash Flows Nine Months Ended September 30, 2018 and 2017

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

8
       
   

Signature

9

 

 

 

Part I:  Financial Information

 

Item 1. FINANCIAL STATEMENTS

 

EVERFLOW EASTERN PARTNERS, L.P.

 

CONSOLIDATED BALANCE SHEETS

 

September 30, 2018 and December 31, 2017

 

   

September 30,

   

December 31,

 
   

2018

   

2017

 
   

(Unaudited)

   

(Audited)

 

ASSETS

               
                 

CURRENT ASSETS

               

Cash and equivalents

  $ 11,952,810     $ 11,883,725  

Investments

    16,969,928       13,207,778  

Production accounts receivable

    1,089,521       1,189,524  

Employees' notes receivable

    -       33,500  

Other

    10,650       27,225  

Total current assets

    30,022,909       26,341,752  
                 

PROPERTY AND EQUIPMENT

               

Proved properties (successful efforts accounting method)

    174,965,155       179,141,990  

Pipeline and support equipment

    682,135       682,135  

Corporate and other

    2,094,423       2,127,423  

Gross property and equipment

    177,741,713       181,951,548  
                 

Less accumulated depreciation, depletion, amortization and write down

    168,723,919       172,431,241  

Net property and equipment

    9,017,794       9,520,307  
                 

OTHER ASSETS

               

Employees' notes receivable

    335       13,242  

Other

    122,348       123,048  

Total other assets

    122,683       136,290  
                 

TOTAL ASSETS

  $ 39,163,386     $ 35,998,349  

 

See notes to unaudited consolidated financial statements.

 

 

EVERFLOW EASTERN PARTNERS, L.P.

 

CONSOLIDATED BALANCE SHEETS

 

September 30, 2018 and December 31, 2017

 

 

   

September 30,

   

December 31,

 
   

2018

   

2017

 
   

(Unaudited)

   

(Audited)

 

LIABILITIES AND PARTNERS' EQUITY

               
                 

CURRENT LIABILITIES

               

Accounts payable

  $ 1,857,014     $ 1,958,042  

Accrued expenses

    881,211       1,624,205  

Total current liabilities

    2,738,225       3,582,247  
                 

DEFERRED INCOME TAXES

    37,700       37,700  
                 

OPERATIONAL ADVANCES

    2,022,254       1,513,924  
                 

ASSET RETIREMENT OBLIGATIONS

    16,650,670       16,591,270  
                 

COMMITMENTS AND CONTINGENCIES

               
                 

LIMITED PARTNERS' EQUITY, SUBJECT TO REPURCHASE RIGHT

               

Authorized - 8,000,000 Units

               

Issued and outstanding - 5,549,355 and 5,587,616 Units, respectively

    17,502,907       14,103,844  
                 

GENERAL PARTNER'S EQUITY

    211,630       169,364  

Total partners' equity

    17,714,537       14,273,208  
                 

TOTAL LIABILITIES AND PARTNERS' EQUITY

  $ 39,163,386     $ 35,998,349  

 

See notes to unaudited consolidated financial statements.

 

 

 

EVERFLOW EASTERN PARTNERS, L.P.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

Three and Nine Months Ended September 30, 2018 and 2017

 

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
                                 
   

2018

   

2017

   

2018

   

2017

 

REVENUES

                               

Crude oil and natural gas sales

  $ 2,642,422     $ 1,270,385     $ 6,992,525     $ 5,556,830  

Well management and operating

    120,591       110,785       413,356       389,186  

Other

    1,817       5,818       5,630       61,887  

Total revenues

    2,764,830       1,386,988       7,411,511       6,007,903  
                                 

DIRECT COST OF REVENUES

                               

Production costs

    1,138,454       399,083       2,377,360       1,604,213  

Well management and operating

    73,320       64,817       244,267       228,600  

Depreciation, depletion and amortization

    116,860       223,406       400,478       604,296  

Accretion expense

    79,100       89,900       246,500       276,600  

Total direct cost of revenues

    1,407,734       777,206       3,268,605       2,713,709  
                                 

GENERAL AND ADMINISTRATIVE EXPENSE

    518,493       535,315       1,628,461       1,606,617  

Total cost of revenues

    1,926,227       1,312,521       4,897,066       4,320,326  
                                 

INCOME FROM OPERATIONS

    838,603       74,467       2,514,445       1,687,577  
                                 

OTHER INCOME

                               

Interest and dividend income

    122,772       56,307       286,968       126,098  

Gain on disposal of property and equipment

    81,400       -       635,165       63,709  

Gain on sale of other assets

    -       -       8,960       159,037  

Total other income

    204,172       56,307       931,093       348,844  
                                 

NET INCOME

  $ 1,042,775     $ 130,774     $ 3,445,538     $ 2,036,421  
                                 
                                 

Allocation of Partnership Net Income:

                               

Limited Partners

  $ 1,030,308     $ 129,222     $ 3,404,561     $ 2,012,257  

General Partner

    12,467       1,552       40,977       24,164  
                                 

Net income

  $ 1,042,775     $ 130,774     $ 3,445,538     $ 2,036,421  
                                 

Net income per unit

  $ 0.19     $ 0.03     $ 0.61     $ 0.36  

 

See notes to unaudited consolidated financial statements.

 

 

 

EVERFLOW EASTERN PARTNERS, L.P.

 

CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY

 

Nine Months Ended September 30, 2018 and 2017

 

(Unaudited)

 

   

2018

   

2017

 
                 

PARTNERS' EQUITY - BEGINNING OF PERIOD

  $ 14,273,208     $ 12,197,583  
                 

Net income

    3,445,538       2,036,421  
                 

Repurchase of Units

    (7,509 )     -  
                 

Options exercised

    3,300       -  
                 

PARTNERS' EQUITY - END OF PERIOD

  $ 17,714,537     $ 14,234,004  

 

See notes to unaudited consolidated financial statements.

 

 

 

EVERFLOW EASTERN PARTNERS, L.P.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Nine Months Ended September 30, 2018 and 2017

 

(Unaudited)

 

   

2018

   

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net income

  $ 3,445,538     $ 2,036,421  

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

               

Depreciation, depletion and amortization

    458,878       669,096  

Accretion expense

    246,500       276,600  

Gain on disposal of property and equipment

    (635,165 )     (63,709 )

Gain on sale of other assets

    (8,960 )     (159,037 )

Changes in assets and liabilities:

               

Accounts receivable

    100,003       41,080  

Other current assets

    16,575       42,181  

Other assets

    700       (13,271 )

Accounts payable

    (101,028 )     234,211  

Accrued expenses

    (288,794 )     (324,149 )

Operational advances

    508,330       415,904  

Total adjustments

    297,039       1,118,906  

Net cash provided by operating activities

    3,742,577       3,155,327  
                 

CASH FLOWS FROM INVESTING ACTIVITIES

               

Purchase of investments

    (3,762,150 )     (3,112,591 )

Payments received on receivables from employees

    46,407       49,338  

Proceeds on disposal of property and equipment

    37,500       92,200  

Proceeds on sale of other assets

    8,960       226,287  

Purchase of property and equipment

    -       (123,885 )

Net cash used in investing activities

    (3,669,283 )     (2,868,651 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES

               

Repurchase of Units

    (7,509 )     -  

Proceeds from options exercised

    3,300       -  

Net cash used in financing activities

    (4,209 )     -  
                 

NET CHANGE IN CASH AND EQUIVALENTS

    69,085       286,676  
                 

CASH AND EQUIVALENTS - BEGINNING OF PERIOD

    11,883,725       11,224,865  
                 

CASH AND EQUIVALENTS - END OF PERIOD

  $ 11,952,810     $ 11,511,541  
                 

Supplemental disclosures of cash flow information:

               

Cash paid during the period for:

               

Income taxes

  $ 3,600     $ 499  

 

See notes to unaudited consolidated financial statements.

 

 

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 27, 2018.

 

 

 

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.

 

 

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. EMC is an Ohio corporation formed in September 1990 and is the managing member of EML.

 

 

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, 2018 and December 31, 2017, cash and equivalents include $2,022,254 and $1,513,924, respectively, of operational 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. Operational advances held on behalf of joint venture partners include those held on behalf of employees, including officers and directors (see Note 5).

 

 

F.

Investments – The Company’s investments are classified as available-for-sale securities and consist of shares held in a mutual fund that invests primarily in investment grade, U.S. dollar denominated short-term fixed and floating rate debt securities. The mutual fund seeks current income while seeking to maintain a low volatility of principal.

 

 

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1.

Organization and Summary of Significant Accounting Policies

 

 

F.

Investments (continued)

 

 

 

The Financial Accounting Standards Board established a framework for measuring fair value and expanded disclosures about fair value measurements by establishing a fair value hierarchy that prioritizes the inputs and defines valuation techniques used to measure fair value. The hierarchy gives highest priority to Level I inputs and lowest priority to Level III inputs. The three levels of the fair value hierarchy are described below:

 

 

 

Level I – Quoted prices are available in active markets for identical financial instruments as of the reporting date.

 

 

 

Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies.

 

 

 

Level III – Pricing inputs are unobservable for the financial instrument and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation.

 

 

 

The Company’s investments are carried at fair market value based on quoted prices available in active markets and are therefore classified as Level 1.

 

 

G.

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.

 

 

 

Gain on disposal of property and equipment includes approximately $81,500 and $641,300 associated with non-cash settlements of asset retirement obligations during the three and nine month periods ended September 30, 2018, respectively.

 

 

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1.

Organization and Summary of Significant Accounting Policies

 

 

H.

Revenue Recognition – As described in Note 1.K., beginning in 2018, the Company accounts for revenue from contracts in accordance with Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). Revenues from contracts with customers are recognized when performance obligations are satisfied in accordance with contractual terms.

 

 

 

The Company recognized 28% and 44% of crude oil and natural gas sales from two purchasers of natural gas from operated properties under sales contracts during the three and nine month periods ended September 30, 2018, respectively. Generally, each unit (MCF) is a separate performance obligation. The transaction price may consist of fixed and variable consideration, in which the variable amount is determinable each production period and is recognized as revenue upon delivery of the natural gas, which is the point in time that the customer obtains control of the natural gas and the Company's performance obligation is satisfied.

 

 

 

Other crude oil and natural gas sales not under contract from customers, as well as crude oil and natural gas sales derived from third party operated wells, is recognized under similar terms as sales contracts where revenue is recognized at a point in time when the product is delivered, the purchaser obtains control and the Company's performance obligation is satisfied. The Company does not track the purchasers of natural gas and crude oil derived from third party operated wells.

 

 

 

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, 2018 and December 31, 2017.

 

 

 

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. Notes receivable from employees consist principally of drilling and development costs the Company has advanced or incurred on behalf of employees (see Note 5). Well management and operating revenues are derived from a variety of both verbal and written operating agreements with joint venture partners, and are recognized monthly as services are provided and properties are managed and operated.

 

 

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1.

Organization and Summary of Significant Accounting Policies

 

 

I.

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.

 

 

J.

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 may 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.

 

 

K.

New Accounting Standards – In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, which 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. ASU 2014-09, through issuance of ASU 2015-14, is to be effective for financial statements issued for annual periods beginning after December 31, 2017 (including interim reporting periods within those periods). The Company adopted ASU 2014-09 using the modified retrospective method on January 1, 2018. There was no material impact to the Company's consolidated financial statements and, therefore, prior period amounts were not adjusted and no cumulative effect adjustment was recognized. However, ASU 2014-09 expanded disclosures regarding information of the Company's nature, amount and timing of revenue arising from contracts with customers.

 

 

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1.

Organization and Summary of Significant Accounting Policies

 

 

K.

New Accounting Standards (continued)

 

 

 

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.

 

 

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, 2018 and December 31, 2017:

 

   

September 30,

   

December 31,

 
   

2018

   

2017

 
                 

Accounts Payable:

               

Production and related other

  $ 1,517,438     $ 1,615,606  

Other

    292,647       295,507  

Joint venture partner deposits

    46,929       46,929  
                 

Total accounts payable

  $ 1,857,014     $ 1,958,042  
                 

Accrued Expenses:

               

Payroll and retirement plan contributions

  $ 436,013     $ 664,384  

Current portion of asset retirement obligations

    305,000       775,000  

Drilling

    106,100       106,100  

Federal, state and local taxes

    26,298       33,121  

Other

    7,800       45,600  
                 

Total accrued expenses

  $ 881,211     $ 1,624,205  

 

 

Note 3.

Partners’ Equity

 

 

Units represent limited partnership interests in Everflow. The Units are transferable subject to the approval of 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 may 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

 

 

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 3.

Partners’ Equity (continued)

 

 

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 2018 Repurchase Right, based upon the December 31, 2017 calculation, was $0.11 per Unit.

 

 

The Company has an Option Repurchase Plan (the “Option Plan”) which permits the grant of options to select officers and employees to purchase certain Units acquired by the Company pursuant to the Repurchase Right. The purpose of the Option 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 Option Plan is designed to align directly the financial interests of the participants with the financial interests of the Unitholders. In June 2018, the Company granted 30,000 options to officers and certain key employees. All options granted were exercised on the same date. The Company did not grant any options in 2017.

 

 

In June 2018, the Company repurchased 68,261 units pursuant to the Repurchase Right. The Company did not offer to repurchase any Units pursuant to the Repurchase Right during 2017 or 2016 because the price associated with the Repurchase Rights for both years was negative. There were 5,549,355 outstanding Units on June 30, 2018 following the Company’s repurchase of Units and issuance of options.

 

 

All Units repurchased pursuant to the Repurchase Right are retired except for those Units issued through the exercise of options pursuant to the Option Plan. There were no instruments outstanding at September 30, 2018 or 2017 that would potentially dilute net income per Unit.

 

 

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Note 4.

Commitments and Contingencies

 

 

The Company operates exclusively in Ohio and Pennsylvania of the United States 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 multiple contracts with Dominion Field Services (“Dominion”) which obligate Dominion 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. Management believes the Company can meet its delivery commitments based on estimated production.

 

 

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 5.

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. The Company has historically 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 from payments made by employees and 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.

 

 

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 5.

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 5.25% at September 30, 2018.

 

 

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, 2018, the Company has extended a loan to an employee with a note origination date of December 2017. Employees’ notes receivable, including accrued interest, amounted to $335 and $46,742 at September 30, 2018 and December 31, 2017, respectively.

 

 

The Company collects and holds operational advances from employees, including officers and directors, who own working interests in wells of which the Company operates (see Note 1). Operational advances held on behalf of employees, including officers and directors, as of September 30, 2018 and December 31, 2017 were approximately $278,800 and $180,300, respectively.

 

 

 

Item 2.

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

 

The following discussion is intended to assist in the understanding of the Company’s liquidity, capital resources and results of operations. It is suggested that this information be read in conjunction with the Company’s interim consolidated financial statements, the related notes to consolidated financial statements and the Company’s 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 27, 2018.

 

Liquidity and Capital Resources

 

The following table summarizes the Company's financial position at September 30, 2018 and December 31, 2017:

 

   

September 30, 2018

   

December 31, 2017

 
   

Amount

   

%

   

Amount

   

%

 
   

(Amounts in Thousands)

   

(Amounts in Thousands)

 
                                 

Working capital

  $ 27,285       75

%

  $ 22,760       70

%

Property and equipment (net)

    9,018       25       9,520       29  

Other

    123       -       136       1  

Total

  $ 36,426       100

%

  $ 32,416       100

%

                                 

Deferred income taxes

  $ 38       -

%

  $ 38       -

%

Long-term liabilities

    18,673       51       18,105       56  

Partners' equity

    17,715       49       14,273       44  

Total

  $ 36,426       100

%

  $ 32,416       100

%

 

Working capital of $27.3 million as of September 30, 2018 represented an increase of $4.5 million from December 31, 2017, due primarily to an increase in investments and a decrease in accrued expenses. The increase in investments was primarily the result of additional purchases of shares in a mutual fund during the nine months ended September 30, 2018 that invests primarily in investment grade, short-term fixed and floating rate debt securities. The decrease in accrued expenses is primarily the result of a decrease in the current portion of asset retirement obligations associated with oil and gas properties disposed of during the nine months ended September 30, 2018. In addition, all payroll and retirement contributions accrued at December 31, 2017 were paid during the nine months ended September 30, 2018.

 

The Company funds its operations with cash generated by operations and/or existing cash and equivalent balances. The Company has had no borrowings since 2003 and no principal indebtedness was outstanding as of November 9, 2018.

 

 

The Company’s cash flow provided by operations before the change in working capital was $4.0 million during the nine months ended September 30, 2018, an increase of $854,000 as compared to $3.2 million of cash flow provided by operations before the change in working capital during the prior comparable period. Changes in working capital from operations other than cash and equivalents decreased cash by $273,000 during the nine months ended September 30, 2018. Cash flows provided by operating activities was $3.7 million for the nine months ended September 30, 2018.

 

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 and the repurchase of Units pursuant to the 2019 repurchase right. The Company has not paid a cash distribution since October 2015.

 

The Company has multiple contracts with Dominion Field Services (“Dominion”) which obligate Dominion 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. Management believes the Company can meet its delivery commitments based on estimated production.

 

 

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, 2018 and 2017. All items in the table are calculated as a percentage of total revenues. This table should be read in conjunction with the discussions of select items below:

 

   

Three Months

   

Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2018

   

2017

   

2018

   

2017

 
                                 

Revenues:

                               

Crude oil and natural gas sales

    96

%

    92

%

    94

%

    93

%

Well management and operating

    4       8       6       6  

Other

    -       -       -       1  

Total revenues

    100

%

    100

%

    100

%

    100

%

                                 

Expenses:

                               

Production costs

    41       29       32       27  

Well management and operating

    3       5       3       4  

Depreciation, depletion and amortization

    4       16       6       10  

Accretion expense

    3       6       3       5  

General and administrative expense

    19       39       22       26  

Total expenses

    70

%

    95

%

    66

%

    72

%

                                 

Other income:

                               

Interest and dividend income

    5       4       4       2  

Gain on disposal of property and equipment

    3       -       9       1  

Gain on sale of other assets

    -       -       -       3  

Total other income

    8

%

    4

%

    13

%

    6

%

                                 

Net income

    38

%

    9

%

    47

%

    34

%

 

Revenues for the three and nine month periods ended September 30, 2018 increased $1.4 million, respectively, as compared to the prior comparable periods. The increases were primarily the result of increases in crude oil and natural gas sales.

 

Crude oil and natural gas sales increased $1.4 million, or 108%, during the three months ended September 30, 2018 as compared to the prior comparable period. Crude oil and natural gas sales increased $1.4 million, or 26%, during the nine months ended September 30, 2018 as compared to the prior comparable period. The increases were primarily the result of recognition of $956,000 of crude oil and natural gas sales reported by a third party operator significantly in arrears during the three and nine months ended September 30, 2018, respectively. The increases were also impacted by increases in crude oil volumes produced and crude oil prices received during the three and nine months ended September 30, 2018 as compared to the prior comparable periods. The increase in crude oil and natural gas sales during the three months ended September 30, 2018 as compared to the prior comparable period was also the result of an increase in natural gas volumes produced and an increase in natural gas prices received during the three months ended September 30, 2018 as compared to the prior comparable period. The increase in natural gas volumes produced during the three month period ended September 30, 2018 as compared to the prior comparable period was primarily the result of less Company operated properties being voluntarily shut-in during the three months ended September 30, 2018 as compared to the prior comparable period.

 

 

Production costs increased $739,000, or 185%, during the three months ended September 30, 2018 as compared to the prior comparable period. Production costs increased $773,000, or 48%, during the nine months ended September 30, 2018 as compared to the prior comparable period. The increases were primarily the result of recognition of $637,000 of production costs reported by a third party operator significantly in arrears during the three and nine months ended September 30, 2018, respectively. The increases were also impacted by the effect of less Company operated properties being voluntarily shut-in during the three and nine month periods ended September 30, 2018 as compared to the prior comparable periods.

 

Depreciation, depletion and amortization (“DD&A”) decreased $107,000, or 48%, during the three months ended September 30, 2018 as compared to the prior comparable period. DD&A decreased $204,000, or 34%, during the nine months ended September 30, 2018 as compared to the prior comparable period. The primary reason for the decreases is less depletable bases of oil and gas properties available to deplete during the three and nine month periods ended September 30, 2018 as compared to the prior comparable periods. Less depletable bases of oil and gas properties is primarily the result of DD&A, write down/impairment and abandonment of properties recognized in prior fiscal periods.

 

Other income increased $148,000, or 263%, during the three months ended September 30, 2018 as compared to prior comparable period. Other income increased $582,000, or 167%, during the nine months ended September 30, 2018 as compared to the prior comparable period. The primary reasons for the increases were the result of increases in interest and dividend income and gain on disposal of property and equipment. The increase in interest and dividend income was primarily the result of additional investments held and the related dividends yielded on investments during the three and nine month periods ended September 30, 2018 as compared to the prior comparable periods. The increase in gain on disposal of property and equipment was primarily the result of additional oil and gas properties disposed of during the three and nine month periods ended September 30, 2018 as compared to the prior comparable periods. The majority of the gains on disposal of property and equipment during the three and nine month periods ended September 30, 2018 were associated with settlements of the properties’ related asset retirement obligations. The increase in other income from the nine month period ending September 30, 2018 as compared to the prior comparable period was offset somewhat by a decrease in gain on sale of other assets. The decrease in gain on sale of other assets was primarily the result of less other assets sold during the nine month period ending September 30, 2018 as compared to the prior comparable period.

 

The Company reported net income of $1.0 million and $131,000 during the three months ended September 30, 2018 and 2017, respectively, representing 38% and 9% of total revenues during the three month periods ended September 30, 2018 and 2017, respectively. The Company reported net income of $3.4 million and $2.0 million during the nine months ended September 30, 2018 and 2017, respectively, representing 47% and 34% of total revenues during the nine month periods ended September 30, 2018 and 2017, respectively. The increases in net income were primarily the result of increases in crude oil and natural gas sales and other income and a decrease in DD&A, offset somewhat by an increase in production costs.

 

 

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, 2017.

 

 

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 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.

 

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, 2017, 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  

 

 

Dated: November 9, 2018 

By:

/s/ Brian A. Staebler

 

    Brian A. Staebler  

 

 

Vice President, Secretary-Treasurer and

Principal Financial and Accounting Officer 

 

 

 

(Duly Authorized Officer) 

 

 

    

9