EVERFLOW EASTERN PARTNERS, L. P.

 

CONSOLIDATED FINANCIAL REPORT

 

MARCH 31, 2020

 

 

 

 

 

 

Part I:  FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

March 31, 2020 and December 31, 2019

 

 

See notes to unaudited consolidated financial statements.

 

 

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

March 31, 2020 and December 31, 2019

 

 

See notes to unaudited consolidated financial statements.

 

 

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2020 and 2019

(Unaudited)

 

 

See notes to unaudited consolidated financial statements.

 

 

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY

Three Months Ended March 31, 2020 and 2019

(Unaudited)

 

 

See notes to unaudited consolidated financial statements.

 

 

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2020 and 2019

(Unaudited)

 

 

See notes to unaudited consolidated financial statements.

 

 

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Item 2.

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

 

The following discussion is intended to assist in the understanding of the Company’s liquidity, capital resources and results of operations. It is suggested that this information be read in conjunction with the Company’s interim consolidated financial statements, the related notes to consolidated financial statements and the Company’s 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 2020.

 

On March 11, 2020, the World Health Organization declared the outbreak of the novel strain of the coronavirus (“COVID-19”) a global pandemic. COVID-19 has led to global shutdowns as governments imposed regulations in efforts to control the spread of COVID-19. As a result, physical and economic uncertainties have arisen which have negatively impacted the Company’s operations, cash flows and financial condition.

 

Liquidity and Capital Resources

 

The following table summarizes the Company's financial position at March 31, 2020 and December 31, 2019:

 

		March 31, 2020								December 31, 2019
		Amount				%				Amount				%
		(Amounts in Thousands)								(Amounts in Thousands)
Working capital		$	28,852				78	%		$	29,519				77	%
Property and equipment (net)			8,180				22				8,795				23
Other			132				-				132				-
Total		$	37,164				100	%		$	38,446				100	%
Deferred income taxes		$	46				-	%		$	46				-	%
Long-term liabilities			17,677				48				19,104				50
Partners' equity			19,441				52				19,296				50
Total		$	37,164				100	%		$	38,446				100	%

 

Working capital of $28.9 million as of March 31, 2020 represented a decrease of $667,000 from December 31, 2019, due primarily to decreases in cash and equivalents, investments and production accounts receivable, and an increase in accounts payable, offset somewhat by a decrease in accrued expenses. The decrease in cash and equivalents is primarily the result of cash provided by operating activities and existing cash and equivalents being used in investing activities. The decrease in investments is primarily the result of unrealized market losses, offset somewhat by additional purchases of shares in a mutual fund that invests primarily in investment grade, short-term fixed and floating rate debt securities. The decrease in production accounts receivable is primarily the result of decreases in average crude oil and natural gas prices received during the current receivable period as compared to the prior comparable receivable period, offset somewhat by an increase in natural gas volumes produced and decreases in production costs incurred during the current receivable period as compared to the prior comparable receivable period. The increase in volumes produced is primarily the result of additional Company operated wells producing during the current receivable period that were otherwise voluntarily shut-in during the prior comparable receivable period. The decrease in production costs incurred is primarily associated with production reported by third party operators. The increase in accounts payable is primarily the result of additional other payables recognized at March 31, 2020 in association with the disposal of various oil and gas properties made during the three month period ending March 31, 2020. The decrease in accrued expenses is primarily the result of all payroll and retirement contributions accrued at December 31, 2019 being paid during the three months ended March 31, 2020, as well as less asset retirement obligations being classified as current liabilities at March 31, 2020 as compared to December 31, 2019.

 

 

The Company generally funds its operations with cash generated by operations and/or existing cash and equivalent balances. In April 2020, the Company was approved for a $327,000 loan associated with the United States Small Business Administration’s Paycheck Protection Program. The Company has no other borrowings and no other principal indebtedness is outstanding as of May 10, 2020.

 

The Company’s cash flow provided by operations before the change in working capital was $208,000 during the three months ended March 31, 2020, a decrease of $1.4 million as compared to $1.6 million of cash flow provided by operations before the change in working capital during the prior comparable period. Changes in working capital from operations other than cash and equivalents decreased cash by $153,000 during the three months ended March 31, 2020. Cash flows provided by operating activities was $54,000 for the three months ended March 31, 2020. The Company used existing cash and equivalents to fund the payment of a Unitholder distribution amounting to approximately $1.4 million in April 2020.

 

Management of the Company believes cash flows and existing cash and equivalents should be sufficient to meet the current funding requirements of ongoing operations, capital investments to develop and/or purchase oil and gas properties and the repurchase of Units pursuant to the 2020 repurchase right.

 

The Company has multiple contracts with Dominion Field Services (“Dominion”) which obligate Dominion to purchase, and the Company to sell and deliver, certain quantities of natural gas production from the Company’s oil and gas properties throughout the contract periods. Management believes the Company can meet its delivery commitments based on estimated production.

 

 

Results of Operations

 

The following table and discussion is a review of the results of operations of the Company for the three month periods ended March 31, 2020 and 2019. All items in the table are calculated as a percentage of total revenues. This table should be read in conjunction with the discussions of select items below:

 

		Three Months
		Ended March 31,
		2020				2019
Revenues:
Crude oil and natural gas sales			90	%			95	%
Well management and operating			10				5
Total revenues			100	%			100	%
Expenses:
Production costs			49				30
Well management and operating			6				3
Depreciation, depletion and amortization			13				4
Accretion expense			5				3
General and administrative			41				20
Total expenses			114	%			60	%
Other income:
Investment income (loss)			(11	)			6
Gain on disposal of property and equipment			36				1
Total other income			25	%			7	%
Net income			11	%			47	%

 

Revenues for the three month period ended March 31, 2020 decreased $1.5 million, or 52%, as compared to the prior comparable period. The decrease was primarily the result of a decrease in crude oil and natural gas sales.

 

Crude oil and natural gas sales decreased $1.5 million, or 55%, during the three months ended March 31, 2020 as compared to the prior comparable period. The decrease was primarily the result of less natural gas and crude oil volumes produced, as well as lower average natural gas and crude oil prices received, during the three months ended March 31, 2020 as compared to the prior comparable period. The decrease in volumes produced was primarily the result of less reported volumes recognized from third party operated properties, during the three months ended March 31, 2020 as compared to the prior comparable period.

 

Production costs decreased $177,000, or 21%, during the three months ended March 31, 2020 as compared to the prior comparable period. The decrease was primarily the result of less costs recognized in association with third party operated properties during the three month period ended March 31, 2020, as well as decreases in various repairs and maintenance expenses associated with Company operated properties during the three month period ended March 31, 2020, each as compared to the prior comparable period.

 

 

Depreciation, depletion and amortization (“DD&A”) increased $70,000, or 61%, during the three months ended March 31, 2020 as compared to the prior comparable period. The primary reasons for the increase are lower projected crude oil and natural gas reserves during the three month period ended March 31, 2020 as compared to the prior comparable period. The decrease in projected crude oil and natural gas reserves is primarily the result of lower benchmark crude oil and natural gas prices indexed throughout the first three months of 2020 as compared to the benchmark prices indexed throughout the prior comparable period. The lower 2020 benchmark prices project to decrease reserves at December 31, 2020, the next scheduled valuation date, which will decrease the average economic life of the Company’s oil and gas properties as compared to December 31, 2019, the prior valuation date. The effect that lower projected crude oil and natural gas reserves had on DD&A was offset somewhat by less crude oil and natural gas volumes produced during the three month period ended March 31, 2020 as compared to the prior comparable period.

 

Other income increased $128,000, or 59%, during the three months ended March 31, 2020 as compared to prior comparable period. The primary reason for the increase was the result of an increase in gain on disposal of property and equipment recognized during the three months ended March 31, 2020 as compared to the prior comparable period, offset somewhat by the effect of investment loss recognized during the three months ended March 31, 2020 as compared to investment gain recognized during the prior comparable period. The increase in gain on disposal of property and equipment was primarily the result of the Company selling substantially all of its interests in 190 oil and gas properties during the three month period ended March 31, 2020 as compared to the sale of 1 oil and gas property during the prior comparable period. The Company recognized $261,000 of unrealized loss on investments during the three month period ended March 31, 2020, as compared to $51,000 of unrealized gain on investments recognized during the prior comparable period.        

 

The Company reported net income of $145,000 and $1.4 million during the three months ended March 31, 2020 and 2019, respectively, representing 11% and 47% of total revenues during the three month periods ended March 31, 2020 and 2019, respectively. The decrease in net income was primarily the result of a decrease in crude oil and natural gas sales, offset somewhat by decreases in production costs and an increase in other income.

 

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, 2019.

 

 

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, the ability to locate economically productive oil and gas prospects for development by the Company and the impact of COVID-19 on the Company’s business and the global economy generally. In addition, any forward-looking statements speak only as of the date on which such statement is made and the Company does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

 

Item 4.

CONTROLS AND PROCEDURES

 

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

 

The certifications of the Company’s CEO and CFO are attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q and include, in paragraph 4 of such certifications, information concerning the Company’s disclosure controls and procedures and internal control over financial reporting. Such certifications should be read in conjunction with the information contained in this Item 4., including the information incorporated by reference to our filing on Form 10-K for the year ended December 31, 2019, for a more complete understanding of the matters covered by such certifications.

 

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

 

 

Part II:          OTHER INFORMATION

 

Item 6.          EXHIBITS

 

Exhibit 31.1

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

 

Exhibit 31.2

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

 

	Exhibit 32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101.INS	Instance Document
	101.SCH	XBRL Taxonomy Extension Schema Document
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
	101.DEF	XBRL Taxonomy Definition Linkbase Document

 

 

SIGNATURE

 

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

 

	EVERFLOW EASTERN PARTNERS, L.P.
	By:	everflow management limited, llc
		General Partner
	By:	everflow management corporation
		Managing Member
Dated: May 14, 2020	By:	/s/ Brian A. Staebler
		Brian A. Staebler
		Vice President, Secretary-Treasurer and
		Principal Financial and Accounting Officer
		(Duly Authorized Officer)