UNITED STATES
SECURITIES AND
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORMFORM 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’sRegistrant’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) ofof 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,filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“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 X
There were 5,587,6165,549,355 Units of limited partnership interest of the registrant as of November 10, 2017.9, 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, 2017.2018.
EVERFLOW EASTERN PARTNERS, L.P.
INDEX
DESCRIPTION | PAGE NO. | |||
Part I. | ||||
Item 1. | ||||
Consolidated Balance Sheets September 30, | F-1 | |||
F-3 | ||||
Consolidated Statements of | F-4 | |||
Consolidated Statements of Cash Flows Nine Months Ended September 30, | F-5 | |||
F-6 | ||||
Item 2. |
| 3 | ||
Item 3. | 7 | |||
Item 4. | 7 | |||
Part II. | ||||
Item 6. |
| 8 | ||
EVERFLOW EASTERN PARTNERS, L.P.Part I: Financial Information
CONSOLIDATED BALANCE SHEETSItem 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS |
September 30, 2018 and December 31, 2017 |
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
(Unaudited) | (Audited) | (Unaudited) | (Audited) | |||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash and equivalents | $ | 11,511,541 | $ | 11,224,865 | $ | 11,952,810 | $ | 11,883,725 | ||||||||
Investments | 13,193,199 | 10,080,608 | 16,969,928 | 13,207,778 | ||||||||||||
Accounts receivable: | ||||||||||||||||
Production | 977,232 | 1,014,946 | ||||||||||||||
Joint venture partners | - | 3,366 | ||||||||||||||
Production accounts receivable | 1,089,521 | 1,189,524 | ||||||||||||||
Employees' notes receivable | 37,707 | 41,000 | - | 33,500 | ||||||||||||
Other | 10,650 | 52,831 | 10,650 | 27,225 | ||||||||||||
Total current assets | 25,730,329 | 22,417,616 | 30,022,909 | 26,341,752 | ||||||||||||
PROPERTY AND EQUIPMENT | ||||||||||||||||
Proved properties (successful efforts accounting method) | 181,123,808 | 181,447,571 | 174,965,155 | 179,141,990 | ||||||||||||
Pipeline and support equipment | 682,135 | 682,135 | 682,135 | 682,135 | ||||||||||||
Corporate and other | 2,127,423 | 2,116,482 | 2,094,423 | 2,127,423 | ||||||||||||
Gross property and equipment | 183,933,366 | 184,246,188 | 177,741,713 | 181,951,548 | ||||||||||||
Less accumulated depreciation, depletion, amortization and write down | 174,240,761 | 173,979,881 | 168,723,919 | 172,431,241 | ||||||||||||
Net property and equipment | 9,692,605 | 10,266,307 | 9,017,794 | 9,520,307 | ||||||||||||
OTHER ASSETS | ||||||||||||||||
Employees' notes receivable | - | 46,045 | 335 | 13,242 | ||||||||||||
Other | 122,579 | 176,558 | 122,348 | 123,048 | ||||||||||||
Total other assets | 122,579 | 222,603 | 122,683 | 136,290 | ||||||||||||
TOTAL ASSETS | $ | 35,545,513 | $ | 32,906,526 | $ | 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 |
CONSOLIDATED BALANCE SHEETS
September 30, 2017 and December 31, 2016
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
(Unaudited) | (Audited) | (Unaudited) | (Audited) | |||||||||||||
LIABILITIES AND PARTNERS' EQUITY | ||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
Accounts payable | $ | 1,937,652 | $ | 1,703,441 | $ | 1,857,014 | $ | 1,958,042 | ||||||||
Accrued expenses | 854,241 | 1,137,290 | 881,211 | 1,624,205 | ||||||||||||
Total current liabilities | 2,791,893 | 2,840,731 | 2,738,225 | 3,582,247 | ||||||||||||
DEFERRED INCOME TAXES | 74,000 | 74,000 | 37,700 | 37,700 | ||||||||||||
OPERATIONAL ADVANCES | 1,469,486 | 1,053,582 | 2,022,254 | 1,513,924 | ||||||||||||
ASSET RETIREMENT OBLIGATIONS | 16,976,130 | 16,740,630 | 16,650,670 | 16,591,270 | ||||||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
LIMITED PARTNERS' EQUITY, SUBJECT TO REPURCHASE RIGHT | ||||||||||||||||
Authorized - 8,000,000 Units | ||||||||||||||||
Issued and outstanding - 5,587,616 Units | 14,065,105 | 12,052,848 | ||||||||||||||
Issued and outstanding - 5,549,355 and 5,587,616 Units, respectively | 17,502,907 | 14,103,844 | ||||||||||||||
GENERAL PARTNER'S EQUITY | 168,899 | 144,735 | 211,630 | 169,364 | ||||||||||||
Total partners' equity | 14,234,004 | 12,197,583 | 17,714,537 | 14,273,208 | ||||||||||||
TOTAL LIABILITIES AND PARTNERS' EQUITY | $ | 35,545,513 | $ | 32,906,526 | $ | 39,163,386 | $ | 35,998,349 |
See notes to unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS |
Three and Nine Months Ended September 30, 2018 and 2017 |
(Unaudited) |
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 2017 and 2016
(Unaudited)
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
REVENUES | ||||||||||||||||||||||||||||||||
Crude oil and natural gas sales | $ | 1,270,385 | $ | 795,459 | $ | 5,556,830 | $ | 2,193,374 | $ | 2,642,422 | $ | 1,270,385 | $ | 6,992,525 | $ | 5,556,830 | ||||||||||||||||
Well management and operating | 110,785 | 93,864 | 389,186 | 297,051 | 120,591 | 110,785 | 413,356 | 389,186 | ||||||||||||||||||||||||
Other | 5,818 | 2,525 | 61,887 | 30,241 | 1,817 | 5,818 | 5,630 | 61,887 | ||||||||||||||||||||||||
Total revenues | 1,386,988 | 891,848 | 6,007,903 | 2,520,666 | 2,764,830 | 1,386,988 | 7,411,511 | 6,007,903 | ||||||||||||||||||||||||
DIRECT COST OF REVENUES | ||||||||||||||||||||||||||||||||
Production costs | 399,083 | 434,634 | 1,604,213 | 1,577,158 | 1,138,454 | 399,083 | 2,377,360 | 1,604,213 | ||||||||||||||||||||||||
Well management and operating | 64,817 | 54,256 | 228,600 | 174,532 | 73,320 | 64,817 | 244,267 | 228,600 | ||||||||||||||||||||||||
Depreciation, depletion and amortization | 223,406 | 1,001,542 | 604,296 | 3,096,470 | 116,860 | 223,406 | 400,478 | 604,296 | ||||||||||||||||||||||||
Accretion expense | 89,900 | 97,700 | 276,600 | 303,600 | 79,100 | 89,900 | 246,500 | 276,600 | ||||||||||||||||||||||||
Total direct cost of revenues | 777,206 | 1,588,132 | 2,713,709 | 5,151,760 | 1,407,734 | 777,206 | 3,268,605 | 2,713,709 | ||||||||||||||||||||||||
GENERAL AND ADMINISTRATIVE EXPENSE | 535,315 | 504,887 | 1,606,617 | 1,654,905 | 518,493 | 535,315 | 1,628,461 | 1,606,617 | ||||||||||||||||||||||||
Total cost of revenues | 1,312,521 | 2,093,019 | 4,320,326 | 6,806,665 | 1,926,227 | 1,312,521 | 4,897,066 | 4,320,326 | ||||||||||||||||||||||||
INCOME (LOSS) FROM OPERATIONS | 74,467 | (1,201,171 | ) | 1,687,577 | (4,285,999 | ) | ||||||||||||||||||||||||||
INCOME FROM OPERATIONS | 838,603 | 74,467 | 2,514,445 | 1,687,577 | ||||||||||||||||||||||||||||
OTHER INCOME | ||||||||||||||||||||||||||||||||
Interest and dividend income | 56,307 | 27,808 | 126,098 | 61,017 | 122,772 | 56,307 | 286,968 | 126,098 | ||||||||||||||||||||||||
Gain on disposal of property and equipment | - | - | 63,709 | - | 81,400 | - | 635,165 | 63,709 | ||||||||||||||||||||||||
Gain on sale of other assets | - | - | 159,037 | - | - | - | 8,960 | 159,037 | ||||||||||||||||||||||||
Total other income | 56,307 | 27,808 | 348,844 | 61,017 | 204,172 | 56,307 | 931,093 | 348,844 | ||||||||||||||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES | 130,774 | (1,173,363 | ) | 2,036,421 | (4,224,982 | ) | ||||||||||||||||||||||||||
NET INCOME | $ | 1,042,775 | $ | 130,774 | $ | 3,445,538 | $ | 2,036,421 | ||||||||||||||||||||||||
INCOME TAX EXPENSE (BENEFIT) | ||||||||||||||||||||||||||||||||
Current | - | 500 | - | 1,500 | ||||||||||||||||||||||||||||
Deferred | - | (1,000 | ) | - | (3,000 | ) | ||||||||||||||||||||||||||
Total income tax benefit | - | (500 | ) | - | (1,500 | ) | ||||||||||||||||||||||||||
NET INCOME (LOSS) | $ | 130,774 | $ | (1,172,863 | ) | $ | 2,036,421 | $ | (4,223,482 | ) | ||||||||||||||||||||||
Allocation of Partnership Net Income (Loss): | ||||||||||||||||||||||||||||||||
Allocation of Partnership Net Income: | ||||||||||||||||||||||||||||||||
Limited Partners | $ | 129,222 | $ | (1,158,946 | ) | $ | 2,012,257 | $ | (4,173,367 | ) | $ | 1,030,308 | $ | 129,222 | $ | 3,404,561 | $ | 2,012,257 | ||||||||||||||
General Partner | 1,552 | (13,917 | ) | 24,164 | (50,115 | ) | 12,467 | 1,552 | 40,977 | 24,164 | ||||||||||||||||||||||
Net income (loss) | $ | 130,774 | $ | (1,172,863 | ) | $ | 2,036,421 | $ | (4,223,482 | ) | ||||||||||||||||||||||
Net income | $ | 1,042,775 | $ | 130,774 | $ | 3,445,538 | $ | 2,036,421 | ||||||||||||||||||||||||
Net income (loss) per unit | $ | 0.03 | $ | (0.21 | ) | $ | 0.36 | $ | (0.75 | ) | ||||||||||||||||||||||
Net income per unit | $ | 0.19 | $ | 0.03 | $ | 0.61 | $ | 0.36 |
See notes to unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY |
Nine Months Ended September 30, 2018 and 2017 |
(Unaudited) |
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
Nine Months Ended September 30, 2017 and 2016
(Unaudited)
2017 | 2016 | 2018 | 2017 | |||||||||||||
PARTNERS' EQUITY - BEGINNING OF PERIOD | $ | 12,197,583 | $ | 18,160,096 | $ | 14,273,208 | $ | 12,197,583 | ||||||||
Net income (loss) | 2,036,421 | (4,223,482 | ) | |||||||||||||
Net income | 3,445,538 | 2,036,421 | ||||||||||||||
Repurchase of Units | (7,509 | ) | - | |||||||||||||
Options exercised | 3,300 | - | ||||||||||||||
PARTNERS' EQUITY - END OF PERIOD | $ | 14,234,004 | $ | 13,936,614 | $ | 17,714,537 | $ | 14,234,004 |
See notes to unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS |
Nine Months Ended September 30, |
(Unaudited) |
2017 | 2016 | 2018 | 2017 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
Net income (loss) | $ | 2,036,421 | $ | (4,223,482 | ) | |||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) 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 | 669,096 | 3,162,270 | 458,878 | 669,096 | ||||||||||||
Accretion expense | 276,600 | 303,600 | 246,500 | 276,600 | ||||||||||||
Gain on disposal of property and equipment | (63,709 | ) | - | (635,165 | ) | (63,709 | ) | |||||||||
Gain on sale of other assets | (159,037 | ) | - | (8,960 | ) | (159,037 | ) | |||||||||
Deferred income taxes | - | (3,000 | ) | |||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Accounts receivable | 41,080 | 4,411 | 100,003 | 41,080 | ||||||||||||
Other current assets | 42,181 | 16,688 | 16,575 | 42,181 | ||||||||||||
Other assets | (13,271 | ) | - | 700 | (13,271 | ) | ||||||||||
Accounts payable | 234,211 | (86,351 | ) | (101,028 | ) | 234,211 | ||||||||||
Accrued expenses | (324,149 | ) | (305,056 | ) | (288,794 | ) | (324,149 | ) | ||||||||
Operational advances | 415,904 | 45,471 | 508,330 | 415,904 | ||||||||||||
Total adjustments | 1,118,906 | 3,138,033 | 297,039 | 1,118,906 | ||||||||||||
Net cash provided by (used in) operating activities | 3,155,327 | (1,085,449 | ) | |||||||||||||
Net cash provided by operating activities | 3,742,577 | 3,155,327 | ||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
Purchase of investments | (3,112,591 | ) | (10,052,733 | ) | (3,762,150 | ) | (3,112,591 | ) | ||||||||
Payments received on receivables from employees | 49,338 | 37,737 | 46,407 | 49,338 | ||||||||||||
Advances disbursed to employees | - | (1,594 | ) | |||||||||||||
Proceeds on disposal of property and equipment | 92,200 | - | 37,500 | 92,200 | ||||||||||||
Proceeds on sale of other assets | 226,287 | - | 8,960 | 226,287 | ||||||||||||
Purchase of property and equipment | (123,885 | ) | (201,638 | ) | - | (123,885 | ) | |||||||||
Net cash used in investing activities | (2,868,651 | ) | (10,218,228 | ) | (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 | 286,676 | (11,303,677 | ) | 69,085 | 286,676 | |||||||||||
CASH AND EQUIVALENTS - BEGINNING OF PERIOD | 11,224,865 | 22,734,047 | 11,883,725 | 11,224,865 | ||||||||||||
CASH AND EQUIVALENTS - END OF PERIOD | $ | 11,511,541 | $ | 11,430,370 | $ | 11,952,810 | $ | 11,511,541 | ||||||||
Supplemental disclosures of cash flow information and non-cash activities: | ||||||||||||||||
Supplemental disclosures of cash flow information: | ||||||||||||||||
Cash paid during the period for: | ||||||||||||||||
Income taxes | $ | 499 | $ | 390 | $ | 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 |
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 |
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, |
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 |
| 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 | |
| Revenue Recognition |
The Company |
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 |
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, |
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. |
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. |
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
| |
| 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 |
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, |
September 30, | December 31, | September 30, | December 31, | |||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
Accounts Payable: | ||||||||||||||||
Production and related other | $ | 1,597,462 | $ | 1,364,131 | $ | 1,517,438 | $ | 1,615,606 | ||||||||
Other | 292,956 | 292,076 | 292,647 | 295,507 | ||||||||||||
Joint venture partner deposits | 47,234 | 47,234 | 46,929 | 46,929 | ||||||||||||
Total accounts payable | $ | 1,937,652 | $ | 1,703,441 | $ | 1,857,014 | $ | 1,958,042 | ||||||||
Accrued Expenses: | ||||||||||||||||
Payroll and retirement plan contributions | $ | 437,300 | $ | 641,326 | $ | 436,013 | $ | 664,384 | ||||||||
Current portion of asset retirement obligations | 384,000 | 384,000 | 305,000 | 775,000 | ||||||||||||
Drilling | 106,100 | 106,100 | ||||||||||||||
Federal, state and local taxes | 24,841 | 32,464 | 26,298 | 33,121 | ||||||||||||
Other | 8,100 | 79,500 | 7,800 | 45,600 | ||||||||||||
Total accrued expenses | $ | 854,241 | $ | 1,137,290 | $ | 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 |
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
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 |
In June 2018, the Company repurchased 68,261 units pursuant to the Repurchase Right. The Company did not offer to repurchase any Units |
Per Unit | Units Out- | |||||||||||||||||||||||
Calculated | standing | |||||||||||||||||||||||
Price for | Less | Net | Following | |||||||||||||||||||||
Repurchase | Interim | Price | Units | Units | Units | |||||||||||||||||||
Year | Right | Distributions | Paid | Repurchased | Issued | Activity | ||||||||||||||||||
2014 | $ | 7.010 | $ | 0.500 | $ | 6.51 | 11,964 | 5,982 | 5,601,003 | |||||||||||||||
2015 | $ | 4.935 | $ | 0.375 | $ | 4.56 | 26,774 | 13,387 | 5,587,616 |
EVERFLOW EASTERN PARTNERS, L.P. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
EVERFLOW EASTERN PARTNERS, L.P. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following discussion is intended to assist in the understanding of the
Liquidity and Capital Resources
The following table summarizes the Company's financial position at September 30,
Working capital of
The Company funds its
The Company’s cash flow provided by operations before the change in working capital was
Management of the Company believes cash flows and existing cash and equivalents should be sufficient to meet the current funding requirements of ongoing operations,
The Company has multiple contracts with Dominion Field Services
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,
Revenues for the three and nine month periods ended September 30,
Crude oil and natural gas sales increased 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,
Depreciation, depletion and amortization (“DD&A”) decreased
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
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
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.
This information has been omitted, as the Company qualifies as a smaller reporting company.
(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,
(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.
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.
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