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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 30, 2012

OR

 

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

For the transition period from          to         .

Commission File Number 0-19279

 

 

EVERFLOW EASTERN PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   34-1659910

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

585 West Main Street  
P.O. Box 629  
Canfield, Ohio   44406
(Address of principal executive offices)   (Zip Code)

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

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

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

 

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

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

There were 5,611,715 Units of limited partnership interest of the registrant as of November 10, 2012. 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, 2012.

 

 

 


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

INDEX

 

    

DESCRIPTION

  

PAGE NO.

 

Part I.

 

Financial Information

  
 

Item 1.

 

Financial Statements

  
   

Consolidated Balance Sheets
September 30, 2012 and December 31, 2011

     F-1   
   

Consolidated Statements of Income
Three and Nine Months Ended September 30, 2012 and 2011

     F-3   
   

Consolidated Statements of Partners’ Equity
Nine Months Ended September 30, 2012 and 2011

     F-4   
   

Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2012 and 2011

     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

     8   
 

Item 4.

 

Controls and Procedures

     9   

Part II.

 

Other Information

  
 

Item 6.

 

Exhibits

     10   
   

Signature

     11   

 

2


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

September 30, 2012 and December 31, 2011

 

     September 30,      December 31,  
     2012      2011  
     (Unaudited)      (Audited)  

ASSETS

     

CURRENT ASSETS

     

Cash and equivalents

   $ 32,216,602       $ 21,257,450   

Accounts and notes receivable:

     

Production

     1,921,040         3,301,508   

Employees (including notes receivable)

     122,382         120,226   

Joint venture partners

     32,750         39,548   

Other

     126,531         126,531   
  

 

 

    

 

 

 

Total current assets

     34,419,305         24,845,263   

PROPERTY AND EQUIPMENT

     

Proved properties (successful efforts accounting method)

     174,118,385         174,450,678   

Pipeline and support equipment

     666,667         654,273   

Corporate and other

     2,038,865         2,020,760   
  

 

 

    

 

 

 
     176,823,917         177,125,711   

Less accumulated depreciation, depletion, amortization and write down

     139,761,900         136,224,821   
  

 

 

    

 

 

 
     37,062,017         40,900,890   

OTHER ASSETS

     

Employees’ accounts and notes receivable

     185,531         327,600   

Other

     77,546         77,546   
  

 

 

    

 

 

 
     263,077         405,146   
  

 

 

    

 

 

 
   $ 71,744,399       $ 66,151,299   
  

 

 

    

 

 

 

 

See notes to unaudited consolidated financial statements.

F-1


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

September 30, 2012 and December 31, 2011

 

     September 30,      December 31,  
     2012      2011  
     (Unaudited)      (Audited)  

LIABILITIES AND PARTNERS’ EQUITY

     

CURRENT LIABILITIES

     

Accrued expenses

   $ 4,242,565       $ 1,023,197   

Accounts payable

     2,827,551         1,886,138   

Deferred revenue

     2,705,135         1,000,000   
  

 

 

    

 

 

 

Total current liabilities

     9,775,251         3,909,335   

JOINT VENTURE PARTNER ADVANCES

     711,966         —     

DEFERRED INCOME TAXES

     244,000         259,000   

ASSET RETIREMENT OBLIGATIONS

     6,141,667         5,823,467   

COMMITMENTS AND CONTINGENCIES

     

LIMITED PARTNERS’ EQUITY, SUBJECT TO REPURCHASE RIGHT

     

Authorized - 8,000,000 Units

     

Issued and outstanding - 5,611,715 and 5,616,422 Units, respectively

     54,223,181         55,496,494   

GENERAL PARTNER’S EQUITY

     648,334         663,003   
  

 

 

    

 

 

 

Total partners’ equity

     54,871,515         56,159,497   
  

 

 

    

 

 

 
   $ 71,744,399       $ 66,151,299   
  

 

 

    

 

 

 

See notes to unaudited consolidated financial statements.

 

F-2


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

Three and Nine Months Ended September 30, 2012 and 2011

(Unaudited)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2012     2011     2012     2011  

REVENUES

        

Oil and gas sales

   $ 3,822,793      $ 5,487,462      $ 11,788,888      $ 17,460,172   

Well management and operating

     134,334        144,783        425,335        452,321   

Other

     3,943        1,137        11,796        2,655   
  

 

 

   

 

 

   

 

 

   

 

 

 
     3,961,070        5,633,382        12,226,019        17,915,148   

DIRECT COST OF REVENUES

        

Production costs

     876,948        1,038,250        3,228,309        3,230,364   

Well management and operating

     89,598        57,324        229,486        202,508   

Depreciation, depletion and amortization

     1,318,768        1,685,199        3,836,012        4,921,527   

Accretion expense

     113,500        88,000        338,200        258,300   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total direct cost of revenues

     2,398,814        2,868,773        7,632,007        8,612,699   

GENERAL AND ADMINISTRATIVE EXPENSE

     560,671        531,688        1,857,318        1,746,649   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     2,959,485        3,400,461        9,489,325        10,359,348   
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME FROM OPERATIONS BEFORE GAIN ON SALE OF DEEP RIGHTS

     1,001,585        2,232,921        2,736,694        7,555,800   

GAIN ON SALE OF DEEP RIGHTS

     4,329,632        —          36,446,595        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME FROM OPERATIONS

     5,331,217        2,232,921        39,183,289        7,555,800   

OTHER INCOME

        

Interest income

     18,440        19,220        81,722        58,730   

Gain on sale of property and equipment

     2,990        —          2,990        2,183   
  

 

 

   

 

 

   

 

 

   

 

 

 
     21,430        19,220        84,712        60,913   
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAXES

     5,352,647        2,252,141        39,268,001        7,616,713   

INCOME TAX EXPENSE (BENEFIT)

        

Current

     200,000        15,000        3,592,000        90,000   

Deferred

     (5,000     (5,000     (15,000     (22,000
  

 

 

   

 

 

   

 

 

   

 

 

 
     195,000        10,000        3,577,000        68,000   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 5,157,647      $ 2,242,141      $ 35,691,001      $ 7,548,713   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allocation of Partnership Net Income

        

Limited Partners

   $ 5,096,641      $ 2,215,670      $ 35,269,527      $ 7,459,621   

General Partner

     61,006        26,471        421,474        89,092   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 5,157,647      $ 2,242,141      $ 35,691,001      $ 7,548,713   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per unit

   $ 0.91      $ 0.40      $ 6.28      $ 1.33   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited consolidated financial statements.

 

F-3


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY

Nine Months Ended September 30, 2012 and 2011

(Unaudited)

 

     2012     2011  

PARTNERS’ EQUITY - JANUARY 1

   $ 56,159,497      $ 58,585,488   

Net income

     35,691,001        7,548,713   

Quarterly cash distributions ($1.50 per unit in 2012 and $1.75 per unit in 2011)

     (8,522,362     (9,948,605

Special Distribution (see Note 7)

     (28,417,600     —     

Repurchase Right - Units tendered

     (78,042     (40,244

Option Repurchase Plan - options exercised

     39,021        20,122   
  

 

 

   

 

 

 

PARTNERS’ EQUITY - SEPTEMBER 30

   $ 54,871,515      $ 56,165,474   
  

 

 

   

 

 

 

See notes to unaudited consolidated financial statements.

 

F-4


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2012 and 2011

(Unaudited)

 

     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 35,691,001      $ 7,548,713   

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

    

Depreciation, depletion and amortization

     3,899,612        4,985,027   

Accretion expense

     338,200        258,300   

Gain on sale of deep rights

     (36,446,595     —     

Gain on sale of property and equipment

     (2,990     (2,183

Deferred income taxes

     (15,000     (22,000

Changes in assets and liabilities:

    

Accounts receivable

     1,387,266        881,706   

Other current assets

     —          137,046   

Accounts payable

     997,213        (614,559

Joint venture partner advances

     711,966        —     

Accrued expenses

     3,199,368        (306,274
  

 

 

   

 

 

 

Total adjustments

     (25,930,960     5,317,063   
  

 

 

   

 

 

 

Net cash provided by operating activities

     9,760,041        12,865,776   

CASH FLOWS FROM INVESTING ACTIVITIES

    

Proceeds received on receivables from employees

     159,404        233,016   

Advances disbursed to employees

     (19,491     (54,762

Proceeds from deferred revenue

     2,705,135        —     

Proceeds from sale of deep rights and property and equipment

     35,608,937        13,000   

Purchase of property and equipment

     (275,891     (1,450,736
  

 

 

   

 

 

 

Net cash provided (used) by investing activities

     38,178,094        (1,259,482

CASH FLOWS FROM FINANCING ACTIVITIES

    

Distributions

     (36,939,962     (9,948,605

Proceeds from options exercised

     39,021        20,122   

Repurchase of units

     (78,042     (40,244
  

 

 

   

 

 

 

Net cash used by financing activities

     (36,978,983     (9,968,727
  

 

 

   

 

 

 

NET INCREASE IN CASH AND EQUIVALENTS

     10,959,152        1,637,567   

CASH AND EQUIVALENTS AT BEGINNING OF PERIOD

     21,257,450        19,661,106   
  

 

 

   

 

 

 

CASH AND EQUIVALENTS AT END OF PERIOD

   $ 32,216,602      $ 21,298,673   
  

 

 

   

 

 

 

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

    

Cash paid during the period for:

    

Income taxes

   $ 155,635      $ 107,625   

Additions to proved properties reflect changes in accounts payable (see Note 2) and asset retirement obligations (see Note 1.F).

See notes to unaudited consolidated financial statements.

 

F-5


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Organization and Summary of Significant Accounting Policies

 

  A. Interim Financial Statements - The interim consolidated financial statements included herein have been prepared by the management of Everflow Eastern Partners, L.P., without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations have been made.

The accompanying condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the disclosures normally required by GAAP, or those normally made in an Annual Report on Form 10-K. 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, 2012.

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

 

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

 

F-6


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Organization and Summary of Significant Accounting Policies

 

  C. Organization - Everflow Eastern Partners, L.P. (“Everflow”) is a Delaware limited partnership which was organized in September 1990 to engage in the business of oil and gas acquisition, exploration, development and production. Everflow was formed to consolidate the business and oil and gas properties of Everflow Eastern, Inc. (“EEI”) and subsidiaries and the oil and gas properties owned by certain limited partnership and working interest programs managed or sponsored by EEI (“EEI Programs” or the “Programs”).

Everflow Management Limited, LLC (“EML”), an Ohio limited liability company, is the general partner of Everflow and, as such, is authorized to perform all acts necessary or desirable to carry out the purposes and conduct of the business of Everflow. The members of EML are Everflow Management Corporation (“EMC”); two individuals who are officers and directors of EEI and employees of Everflow; one individual who is the Chairman of the Board of EEI; one individual who is an employee of Everflow; and one private limited liability company co-managed by an individual who is a director of EEI. EMC is an Ohio corporation formed in September 1990 and is the managing member of EML. EML holds no assets other than its general partner’s interest in Everflow. In addition, EML has no separate operations or role apart from its role as the Company’s general partner.

 

  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. Cash and equivalents include $711,966 of joint venture partner advances at September 30, 2012, which are funds collected and held on behalf of joint venture partners for their anticipated share of future plugging and abandonment costs, including interest earned.

 

F-7


Table of Contents

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Organization and Summary of Significant Accounting Policies

 

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

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

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

The schedule below is a reconciliation of the Company’s liability for the nine months ended September 30, 2012 and 2011:

 

     Asset Retirement Obligations  
     Nine Months Ended September 30,  
     2012     2011  

Beginning of period

   $ 6,116,467      $ 5,661,740   

Liabilities incurred

     —          7,600   

Liabilities settled

     (20,000     (515

Accretion expense

     338,200        258,300   
  

 

 

   

 

 

 

End of period

   $ 6,434,667      $ 5,927,125   
  

 

 

   

 

 

 

 

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EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Organization and Summary of Significant Accounting Policies

 

  F. Asset Retirement Obligations (continued)

 

At September 30, 2012 and December 31, 2011, asset retirement obligations of $6,434,667 and $6,116,467 are included in accrued expenses (current portion) and asset retirement obligations (non-current portion) in the Company’s consolidated balance sheets. The current portion of the asset retirement obligations was $293,000 at September 30, 2012 and December 31, 2011.

 

  G. Revenue Recognition - The Company recognizes oil and gas revenues when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred, title and risk of loss have transferred to the purchaser, and collectability of the revenue is reasonably assured. The Company utilizes the sales method to account for gas production volume imbalances. Under this method, revenue is recognized only when gas is produced and sold on the Company’s behalf. The Company had no material gas imbalances at September 30, 2012 and December 31, 2011. Other revenue is recognized at the time services are rendered, the Company has a contractual right to such revenue and collection is reasonably assured.

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

Each owner, including the Company, has an undivided interest in the jointly owned properties. Generally, the joint venture partners and employees participate on the same drilling/development cost basis as the Company and, therefore, no revenue, expense or income is recognized on the drilling and development of the properties. Accounts and notes receivable from joint venture partners and employees consist principally of drilling and development costs the Company has advanced or incurred on behalf of joint venture partners and employees (see Note 5). The Company earns and receives monthly management and operating fees from certain joint venture partners and employees after the properties are completed and placed into production.

 

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

 

F-9


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EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Organization and Summary of Significant Accounting Policies

 

  H. Income Taxes (continued)

 

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

 

  I. Allocation of Income and Per Unit Data - Under the terms of the limited partnership agreement, initially, 99% of revenues and costs were allocated to the Unitholders (the limited partners) and 1% of revenues and costs were allocated to the General Partner. Such allocation has changed and will change in the future due to Unitholders electing to exercise the Repurchase Right (see Note 3) and select officers and employees electing to exercise options (see Note 6).

Earnings per limited partner Unit have been computed based on the weighted average number of Units outstanding during each period presented. Average outstanding Units for earnings per limited partner Unit calculations amounted to 5,611,715 and 5,614,853 for the three and nine months ended September 30, 2012, respectively, and 5,616,422 and 5,618,052 for the three and nine months ended September 30, 2011, respectively.

 

  J. Subsequent Events - Everflow paid a cash distribution in October 2012 of $0.25 per Unit. The distribution amounted to approximately $1,420,000.

 

  K. New Accounting Standards – In May 2011, an accounting standard update was issued on “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The update outlines common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value”. The update is effective for interim and annual financial periods beginning after December 15, 2011. The Company adopted this update on January 1, 2012 and it did not have a material impact on the financial statements.

 

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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.

 

Note 2. Current Liabilities

The Company’s current liabilities consist of the following at September 30, 2012 and December 31, 2011:

 

     September 30,      December 31,  
     2012      2011  

Accrued Expenses:

     

Federal, state and local taxes

   $ 3,535,500       $ 76,500   

Payroll and retirement plan contributions

     414,065         653,697   

Current portion of asset retirement obligations

     293,000         293,000   
  

 

 

    

 

 

 
   $ 4,242,565       $ 1,023,197   
  

 

 

    

 

 

 

Accounts Payable:

     

Production and related other

   $ 1,429,936       $ 1,410,268   

Affiliates (see Note 7)

     573,860         —     

Outside Working Interests (see Note 7)

     491,349         —     

Other

     325,318         325,932   

Joint venture partner deposits

     7,088         94,138   

Drilling

     —           55,800   
  

 

 

    

 

 

 
   $ 2,827,551       $ 1,886,138   
  

 

 

    

 

 

 

Related to the Disposition as further described in Note 7, the Company recognized a $1 million deposit as deferred revenue in the consolidated balance sheet at December 31, 2011. Deferred revenue of $2,705,135 is recognized in the Company’s consolidated balance sheet at September 30, 2012 in association with funds held for Contingent Leases as further described in Note 7.

 

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EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 3. Partners’ Equity

Units represent limited partnership interests in Everflow. The Units are transferable subject to the approval of any transfer by EML and to the laws governing the transfer of securities. The Units are not listed for trading on any securities exchange nor are they quoted in the automated quotation system of a registered securities association. However, Unitholders have an opportunity to require Everflow to repurchase their Units pursuant to the Repurchase Right.

Under the terms of the limited partnership agreement, initially, 99% of revenues and costs were allocated to the Unitholders (the limited partners) and 1% of revenues and costs were allocated to the General Partner. Such allocation has changed and will change in the future due to Unitholders electing to exercise the Repurchase Right and select officers and employees electing to exercise options (see Note 6).

The partnership agreement provides that Everflow will repurchase for cash up to 10% of the then outstanding Units, to the extent Unitholders offer Units to Everflow for repurchase pursuant to the Repurchase Right. The Repurchase Right entitles any Unitholder, between May 1 and June 30 of each year, to notify Everflow that the Unitholder elects to exercise the Repurchase Right and have Everflow acquire certain or all Units. The price to be paid for any such Units is calculated based upon the audited financial statements of the Company as of December 31 of the year prior to the year in which the Repurchase Right is to be effective and independently prepared reserve reports. The price per Unit equals 66% of the adjusted book value of the Company allocable to the Units, divided by the number of Units outstanding at the beginning of the year in which the applicable Repurchase Right is to be effective less interim cash distributions received by a Unitholder. The adjusted book value is calculated by adding partners’ equity, the Standardized Measure of Discounted Future Net Cash Flows and the tax effect included in the Standardized Measure and subtracting from that sum the carrying value of oil and gas properties (net of undeveloped lease costs). If more than 10% of the then outstanding Units are tendered during any period during which the Repurchase Right is to be effective, the Investors’ Units tendered shall be prorated for purposes of calculating the actual number of Units to be acquired during any such period. The price associated with the Repurchase Right, based upon the December 31, 2011 calculation, was $8.29 per Unit, net of the distributions made in January 2012 ($0.50 per Unit) and April 2012 ($0.38 per Unit).

 

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EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 3. Partners’ Equity (continued)

 

Units repurchased pursuant to the Repurchase Right for each of the last three years are as follows:

 

     Per Unit                

Year

   Calculated
Price for
Repurchase
Right
     Less:
Interim
Distributions
     Net
Price
Paid
     # of
Units
Repurchased
     Units Out-
standing

Following
Repurchase
 

2010

   $ 7.86       $ 1.00       $ 6.86         5,968         5,615,883   

2011

   $ 9.23       $ 1.00       $ 8.23         4,890         5,613,977   

2012

   $ 9.17       $ 0.88       $ 8.29         9,414         5,607,008   

At June 29, 2012 and June 30, 2011, the Company granted a total of 4,707 and 2,445 options, respectively, to two officers and one employee, of which all were exercised on the same date. There were 5,611,715 and 5,616,422 Units outstanding on June 30, 2012 and 2011, respectively, after the exercise of these options.

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

There were no instruments outstanding at September 30, 2012 or 2011 that would potentially dilute net income per Unit.

 

Note 4. Commitments and Contingencies

The Company operates exclusively in the United States, almost entirely in Ohio and Pennsylvania, in the business of oil and gas acquisition, exploration, development and production. The Company operates in an environment with many financial risks, including, but not limited to, the ability to acquire additional economically recoverable oil and gas reserves, the inherent risks of the search for, development of and production of oil and gas, the ability to sell oil and gas at prices which will provide attractive rates of return, the volatility and seasonality of oil and gas production and prices, and the highly competitive and, at times, seasonal nature of the industry and worldwide economic conditions. The Company’s ability to expand its reserve base and diversify its operations is also dependent upon the Company’s ability to obtain the necessary capital through operating cash flow, borrowings or equity offerings. Various federal, state and governmental agencies are considering, and some have adopted, laws and regulations regarding environmental protection which could adversely affect the proposed business activities of the Company. The Company cannot predict what effect, if any, current and future regulations may have on the operations of the Company.

 

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EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 4. Commitments and Contingencies (continued)

 

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

The Company is subject to a legal claim seeking compensatory and punitive damages related to certain leases where deep rights were sold as part of the Disposition as further described in Note 7. The Company believes that the claim is without merit and intends to vigorously defend its position. The ultimate outcome of this litigation cannot presently be determined. However, the Company believes the likelihood of a material adverse outcome is remote. Adjustments, if any, which might result from the resolution of this matter have not been reflected in the consolidated financial statements.

The Company is holding funds at September 30, 2012 in conjunction with Contingent Leases as further described in Note 7.

 

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

Employees remain obligated for the entire loan amount regardless of a dry-hole event or otherwise insufficient production. The loans carry no loan forgiveness provisions, and no loans have ever been forgiven. The loans accrue interest at the prime rate, which was 3.25% at September 30, 2012.

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, 2012 and December 31, 2011, the Company has extended various loans, evidenced by notes, to two employees with origination dates ranging from December 2008 to December 2011. There have been no subsequent extensions or modifications to any of these notes since their original date of issuance. Employee receivables, including the notes, accrued interest, and additional

 

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EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 5. Related Party Transactions (continued)

 

amounts loaned during the current period (which will be termed in December 2012), amounted to $307,913 and $447,826 at September 30, 2012 and December 31, 2011, respectively.

 

Note 6. Option Repurchase Plan

The Company has an Option Repurchase Plan (the “Plan”) which permits the grant of options to repurchase certain Units to select officers and employees. The purpose of the Plan is to assist the Company to attract and retain officers and other key employees and to enable those individuals to acquire or increase their ownership interest in the Company in order to encourage them to promote the growth and profitability of the Company. The Plan is designed to align directly the financial interests of the participants with the financial interests of the Unitholders. At June 29, 2012 and June 30, 2011, the Company granted a total of 4,707 and 2,445 options, respectively, to two officers and one employee, of which all were exercised on the same date. Compensation expense associated with these grants was not material to the financial statements.

 

Note 7. Sale of Deep Rights

In November 2010, the Company agreed to sell their deep rights in certain Ohio properties for cash consideration (the “Disposition”). The Disposition includes no producing reserves, and the Company retains the rights to the shallow portion of the acreage subject to the agreement. The Company closed on the first segment of the Disposition during the first quarter of 2012 with the sale of approximately 28,000 acres, resulting in a Gain on Sale of Deep Rights of approximately $32,100,000. The Company closed on the final segment of the Disposition during the third quarter of 2012 with the sale of approximately 700 acres, resulting in a Gain on Sale of Deep Rights of approximately $900,000.

Included in the acreage sold as part of the Disposition, the Company sold approximately 2,200 acres with leases that contained terms and conditions which may require the Company to repurchase the acreage if certain claims are made by February 2013 (the “Contingent Leases”). The Company does not anticipate recognizing gain on the sale of the Contingent Leases until the claim period ending February 2013 has expired. Deferred revenue of $2,705,135 is recognized in the Company’s consolidated balance sheet at September 30, 2012 in association with the funds held for Contingent Leases. Funds held on behalf of the Working Interest Parties for their share of Contingent Leases are included in accounts payable to affiliates and outside working interests (see Note 2).

One of the conditions of the Disposition is that the Company perpetuate the producing leases from which the sold acreage is derived for a minimum period of five years. If the Company fails to perpetuate the producing leases during

 

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EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 7. Sale of Deep Rights (continued)

 

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

The Company received a $1 million deposit from the purchaser in November 2010 (the “Deposit”) that was credited to the purchaser upon closing of the Disposition. The Deposit was recognized as deferred revenue in the Company’s consolidated balance sheet at December 31, 2011 and was included in the Gain on Sale of Deep Rights in the Company’s consolidated statement of income for the nine months ended September 30, 2012.

In association with the proceeds received from the Disposition, the Company paid a special cash distribution in June 2012 to unitholders of record as of February 21, 2012, the date the Company closed on the first segment of the Disposition (the “Special Distribution”). The Special Distribution amounted to $28,417,600, or $5.00 per unit.

In July 2012, the Company, along with other additional affiliated entities and individuals, agreed to sell the majority of their deep rights in certain Mercer County, Pennsylvania properties for cash consideration (the “Mercer Disposition”). The Mercer Disposition includes no producing reserves, and the Company retains a portion of their rights to the deep portion of the acreage and all of their rights to the shallow portion of the acreage subject to the agreement. In September 2012, the Company closed on the Mercer Disposition with the sale of approximately 900 acres, resulting in a Gain on Sale of Deep Rights of approximately $3,400,000.

The Company also served as an agent for the sale of deep rights acreage owned by other affiliated and non-affiliated parties (the “Working Interest Parties”). Generally, the Working Interest Parties sold their acreage to the purchasers under the same terms and conditions as the Company’s Disposition and Mercer Disposition. The Company has recognized accounts payable to affiliates and outside working interests of $573,860 and $491,349, respectively, at September 30, 2012 in association with the funds held for the Working Interest Parties (see Note 2). Accounts payable to affiliates includes approximately $148,300 due to officers and directors at September 30, 2012.

 

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Table of Contents

Part I: Financial Information

 

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

Sale of Deep Rights

In November 2010, the Company agreed to sell their deep rights in certain Ohio properties for cash consideration (the “Disposition”). The Disposition includes no producing reserves, and the Company will retain the rights to the shallow portion of the acreage subject to the agreement. During the first quarter of 2012, the Company closed on the first segment of the Disposition with the sale of approximately 28,000 acres, resulting in a Gain on Sale of Deep Rights of $32.1 million. The Company closed on the final segment of the Disposition during the third quarter of 2012 with the sale of approximately 700 acres, resulting in a Gain on Sale of Deep Rights of approximately $900,000.

In July 2012, the Company, along with other additional affiliated entities and individuals, agreed to sell the majority of their deep rights in certain Mercer County, Pennsylvania properties for cash consideration (the “Mercer Disposition”; collectively with the Disposition referred to as the “Dispositions”). The Mercer Disposition includes no producing reserves, and the Company retains a portion of their rights to the deep portion of the acreage and all of their rights to the shallow portion of the acreage subject to the agreement. During the third quarter of 2012, the Company closed on the Mercer Disposition with the sale of approximately 900 acres, resulting in a Gain on Sale of Deep Rights of approximately $3.4 million.

The Company also served as an agent for the sale of deep rights acreage owned by other parties (the “Working Interest Parties”). Generally, the Working Interest Parties sold their acreage to the purchasers under the same terms and conditions as the Company’s Dispositions. The Company has recognized accounts payable of $1.1 million at September 30, 2012 in association with the funds held for the Working Interest Parties.

Included in the acreage sold as part of the Disposition, the Company sold approximately 2,200 acres with leases that contained terms and conditions which may require the Company to repurchase the acreage if certain claims are made by February 2013 (the “Contingent Leases”). The Company does not anticipate recognizing gain on the sale of the Contingent Leases until the claim period ending February 2013 has expired. The Company has recognized deferred revenue of $2.7 million at September 30, 2012 in association with the funds held for Contingent Leases. Also in association with the proceeds received from the Disposition, the Company paid a special cash distribution of $28.4 million, or $5.00 per unit, in June 2012 (the “Special Distribution”) to unitholders of record as of February 21, 2012, the date of the Disposition’s first closing.

The Company’s Sale of Deep Rights is further described in Note 7 of the Company’s consolidated financial statements included herein.

 

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Table of Contents

Liquidity and Capital Resources

The following table summarizes the Company’s financial position at September 30, 2012 and December 31, 2011:

 

     September 30, 2012     December 31, 2011  
     Amount      %     Amount      %  
     (Amounts in Thousands)     (Amounts in Thousands)  

Working capital

   $ 24,644         40   $ 20,936         34

Property and equipment (net)

     37,062         60        40,901         65   

Other

     263         —          405         1   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 61,969         100   $ 62,242         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Deferred income taxes

   $ 244         —     $ 259         —  

Long-term liabilities

     6,853         11        5,823         10   

Partners’ equity

     54,872         89        56,160         90   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 61,969         100   $ 62,242         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Working capital of $24.6 million as of September 30, 2012 represented an increase of $3.7 million from December 31, 2011, due primarily to an increase in cash and equivalents, offset somewhat by a decrease in accounts receivable from production and increases in accrued expenses, accounts payable and deferred revenue. The increase in cash and equivalents is primarily the result of cash provided by the Dispositions and the related agency role that the Company held with the Working Interest Parties. Cash provided by the Dispositions and other operating and investing activities was offset somewhat by cash used in financing activities to pay quarterly distributions and the Special Distribution. The decrease in accounts receivable from production is primarily the result of decreases in natural gas volumes produced and natural gas prices received. The increase in accrued expenses is primarily the result of additional federal income taxes due in relation to Everflow Eastern, Inc.’s interest in the Disposition. As further described in Note 1 of the Company’s consolidated financial statements, the Company is not a tax-paying entity and the net taxable income or loss, other than the taxable income or loss allocable to Everflow Eastern, Inc., which is a C corporation owned by Everflow Eastern Partners, L.P., is allocated directly to its respective partners. The effect of these additional federal income taxes due on accrued expenses is offset somewhat by a decrease in payroll and retirement plan contributions accrued. The increase in accounts payable is primarily the result of proceeds received and held on behalf of the Working Interest Parties. The increase in deferred revenue is primarily the result of proceeds received from the Contingent Leases.

 

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Table of Contents

The Company funds its operation with cash generated by operations and existing cash and equivalent balances. The Company has had no borrowings since 2003 and no principal indebtedness was outstanding as of November 10, 2012. The Company anticipates, although there is no assurance it will be able to, entering into a new credit agreement for the purpose, if necessary, of funding future annual repurchase rights. The Company has no current alternate financing plan, nor does it anticipate that one will be necessary. The Company used cash on hand to fund the payment of a distribution amounting to approximately $1.4 million in October 2012.

The Company’s cash flow from operations before the change in regular operational working capital, which excludes the effects of the Dispositions, was $8.7 million, a decrease of $4.0 million, or 32%, during the nine months ended September 30, 2012, as compared to the same period in 2011. Changes in regular operational working capital other than cash and equivalents increased cash by $1.0 million during the nine months ended September 30, 2012 due primarily to a decrease in accounts receivable from production, offset somewhat by a decrease to accrued expenses other than accrued federal income taxes associated with the Dispositions.

Cash flows provided by operating activities was $9.8 million for the nine months ended September 30, 2012. Cash flows provided by investing activities was $38.2 million for the nine months ended September 30, 2012, as the Company received proceeds from the sale of deep rights and deferred revenue in conjunction with the Disposition. Cash was used to pay quarterly distributions and the Special Distribution, held as accounts payable to the Working Interest Parties, held as accrued expenses for federal income taxes in conjunction with the Dispositions, and held as deferred revenue associated with the Contingent Leases.

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

The Company has various annual contracts with two of its major customers which obligate the Company’s customers to purchase and the Company to sell and deliver certain quantities of natural gas production with fixed pricing provisions on a monthly basis through October 2013. While the impact of these contracts cannot fully be measured until actual production volumes and prices have been determined, the Company does not expect the contracts to have a significant effect on the Company’s future oil and gas sales.

 

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Results of Operations

The following table and discussion is a review of the results of operations of the Company for the three and nine months ended September 30, 2012 and 2011. All items in the table are calculated as a percentage of total revenues. This table should be read in conjunction with the discussions of each item below:

 

     Three Months     Nine Months  
     Ended September 30,     Ended September 30,  
     2012     2011     2012     2011  

Revenues:

        

Oil and gas sales

     97     97     96     98

Well management and operating

     3        3        4        2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     100     100     100     100

Expenses:

        

Production costs

     22     18     26     18

Well management and operating

     2        1        2        1   

Depreciation, depletion and amortization

     33        30        32        27   

Accretion expense

     3        2        3        2   

General and administrative

     14        9        15        10   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     74     60     78     58

Gain on sale of deep rights

     109        —          298        —     

Other income

     —          —          1        —     

Income taxes

     (5     —          (29     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     130     40     292     42
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues for the three and nine months ended September 30, 2012 decreased $1.7 million and $5.7 million, respectively, compared to the same periods in 2011. These decreases were primarily due to decreases in oil and gas sales during the first three and nine months of 2012, as compared to the same periods in 2011.

Oil and gas sales decreased $1.7 million, or 30%, during the three months ended September 30, 2012 compared to the same period in 2011. Oil and gas sales decreased $5.7 million, or 33%, during the nine months ended September 30, 2012 compared to the same period in 2011. The primary reasons for these decreases were lower natural gas prices received and less natural gas and crude oil volumes produced during the three and nine month periods ended September 30, 2012 as compared to the same periods in 2011. Less natural gas and crude oil production volumes produced during the three and nine month periods ended September 30, 2012 as compared to the comparable periods in 2011 was primarily the result of operated properties being voluntarily shut-in during the three and nine month periods ended September 30, 2012 that were not shut-in during the comparable periods in 2011.

 

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Production costs decreased $161,000 or 16%, during the three month period ended September 30, 2012 compared to the same period in 2011. Production costs decreased $2,000 during the nine month period ended September 30, 2012 compared to the same period in 2011. These decreases were primarily the result of decreases in costs to operate and manage the Company’s producing oil and gas properties relative to the shut-ins, though the decrease during the nine month period ended September 30, 2012 as compared to the same period in 2011 was offset somewhat by a one-time charge by a third party operator in association with cumulative costs incurred relative to their operations of various oil and gas properties of which the Company participates as a joint venture partner.

Depreciation, depletion and amortization decreased $366,000, or 22%, during the three months ended September 30, 2012 compared to the same period in 2011. Depreciation, depletion and amortization decreased $1.1 million, or 22%, during the nine months ended September 30, 2012 compared to the same period in 2011. The primary reason for these decreases is the result of less natural gas and crude oil volumes produced during the three and nine months ended September 30, 2012 as compared to the prior comparable periods.

Accretion expense increased $26,000, or 29%, during the three months ended September 30, 2012 compared to the same period in 2011. Accretion expense increased $80,000, or 31%, during the nine months ended September 30, 2012 compared to the same period in 2011. The primary reason for these increases was due to the discount factor being applied to larger liabilities during the three and nine month periods ended September 30, 2012 as compared to the prior comparable periods.

General and administrative expenses increased $29,000, or 5%, during the three months ended September 30, 2012 compared to the same period in 2011. General and administrative expenses increased $111,000, or 6%, during the nine months ended September 30, 2012 compared to the same period in 2011. The primary reason for the increases is due to higher overhead expenses associated with ongoing administration. Specific categories of expenses that have increased during these three and nine month periods include accounting and auditing, filing fees and health benefits. Additional categories of expenses that have increased during the nine month period ending September 30, 2012 as compared to the prior comparable period include postage, printing, telephone and state and local taxes.

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

The Company recognized income taxes of $195,000 and $3.6 million during the three and nine month periods ended September 30, 2012, respectively. Income taxes recognized during the three and nine month periods ended September 30, 2012 were substantially higher than those recognized during the prior comparable periods. The primary reason for the increases is the result of additional federal income taxes due in relation to Everflow Eastern, Inc.’s interest in the Dispositions.

 

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Table of Contents

The Company reported net income of $5.2 million during the three months ended September 30, 2012, an increase of $3.0 million over the prior comparable period amount of $2.2 million. The Company reported net income of $35.7 million during the nine months ended September 30, 2012, an increase of $28.2 million over the prior comparable period amount of $7.5 million. The primary reason for the increases in net income is the result of the Gain on Sale of Deep Rights, offset somewhat by the decrease in oil and gas sales and increase in income tax expenses. Net income represented 130% and 40% of total revenue during the three months ended September 30, 2012 and 2011, respectively. Net income represented 292% and 42% of total revenue during the nine months ended September 30, 2012 and 2011, respectively.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The critical accounting policies that affect the Company’s more complex judgments and estimates are described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Forward-Looking Statements

Except for historical financial information contained in this Form 10-Q, the statements made in this report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). In addition, words such as “expects,” “anticipate,” “intends,” “plans,” “believes,” “estimates,” variations of such words and similar expressions are intended to identify forward-looking statements. Factors that may cause actual results to differ materially from those in the forward-looking statements include price fluctuations in the gas market in the Appalachian Basin, actual oil and gas production and the weather in the Northeast Ohio area and the ability to locate economically productive oil and gas prospects for development by the Company. In addition, any forward-looking statements speak only as of the date on which such statement is made and the Company does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

 

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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, 2011, for a more complete understanding of the matters covered by such certifications.

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

 

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Part II. Other Information

 

Item 6. EXHIBITS

 

Exhibit 31.1    Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2    Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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SIGNATURE

Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    EVERFLOW EASTERN PARTNERS, L.P.
    By:   EVERFLOW MANAGEMENT LIMITED, LLC
      General Partner
    By:   EVERFLOW MANAGEMENT CORPORATION
      Managing Member
November 13, 2012     By:  

/s/ Brian A. Staebler

      Brian A. Staebler
      Vice President, Secretary-Treasurer and
      Principal Financial and Accounting Officer
      (Duly Authorized Officer)

 

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