Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - EVERFLOW EASTERN PARTNERS LP | ex_211496.htm |
| EX-31.2 - EXHIBIT 31.2 - EVERFLOW EASTERN PARTNERS LP | ex_211495.htm |
| EX-31.1 - EXHIBIT 31.1 - EVERFLOW EASTERN PARTNERS LP | ex_211494.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2020
OR
☐ Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to .
Commission File Number 0-19279
EVERFLOW EASTERN PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
| Delaware | 34-1659910 | |||
| (State or other jurisdiction of | (I.R.S. Employer | |||
| incorporation or organization) | Identification No.) | |||
| 585 West Main Street | ||||
| P.O. Box 629 | ||||
| Canfield, Ohio | 44406 | |||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (330) 533-2692
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | ||
| Non-accelerated filer ☐ | Smaller reporting company ☒ | ||
| 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 ☒
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
| None |
There were 5,441,928 Units of limited partnership interest of the registrant as of November 10, 2020. 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, 2020.
EVERFLOW EASTERN PARTNERS, L.P.
INDEX
EVERFLOW EASTERN PARTNERS, L. P.
CONSOLIDATED FINANCIAL REPORT
SEPTEMBER 30, 2020
|
EVERFLOW EASTERN PARTNERS, L.P. |
|
September 30, 2020 and December 31, 2019 |
|
September 30, |
December 31, |
|||||||
|
2020 |
2019 |
|||||||
|
(Unaudited) |
(Audited) |
|||||||
|
ASSETS |
||||||||
|
CURRENT ASSETS |
||||||||
|
Cash and equivalents |
$ | 10,111,677 | $ | 11,757,057 | ||||
|
Investments |
20,354,466 | 20,107,580 | ||||||
|
Production accounts receivable |
546,631 | 1,208,634 | ||||||
|
Other |
15,650 | 8,150 | ||||||
|
Total current assets |
31,028,424 | 33,081,421 | ||||||
|
PROPERTY AND EQUIPMENT |
||||||||
|
Proved properties (successful efforts accounting method) |
142,983,792 | 174,633,910 | ||||||
|
Pipeline and support equipment |
719,988 | 791,756 | ||||||
|
Corporate and other |
2,090,250 | 2,090,250 | ||||||
|
Gross property and equipment |
145,794,030 | 177,515,916 | ||||||
|
|
||||||||
|
Less accumulated depreciation, depletion, amortization and write down |
138,065,383 | 168,720,741 | ||||||
|
Net property and equipment |
7,728,647 | 8,795,175 | ||||||
|
OTHER ASSETS |
131,567 | 131,624 | ||||||
|
TOTAL ASSETS |
$ | 38,888,638 | $ | 42,008,220 | ||||
See notes to unaudited consolidated financial statements.
|
EVERFLOW EASTERN PARTNERS, L.P. |
|
CONSOLIDATED BALANCE SHEETS |
|
September 30, 2020 and December 31, 2019 |
|
September 30, |
December 31, |
|||||||
|
2020 |
2019 |
|||||||
|
(Unaudited) |
(Audited) |
|||||||
|
LIABILITIES AND PARTNERS' EQUITY |
||||||||
|
CURRENT LIABILITIES |
||||||||
|
Accounts payable |
$ | 2,465,141 | $ | 2,136,590 | ||||
|
Accrued expenses |
978,139 | 1,425,492 | ||||||
|
Total current liabilities |
3,443,280 | 3,562,082 | ||||||
|
DEFERRED INCOME TAXES |
45,700 | 45,700 | ||||||
|
OPERATIONAL ADVANCES |
2,509,594 | 2,463,685 | ||||||
|
ASSET RETIREMENT OBLIGATIONS |
14,840,108 | 16,640,632 | ||||||
|
COMMITMENTS AND CONTINGENCIES |
||||||||
|
LIMITED PARTNERS' EQUITY, SUBJECT TO REPURCHASE RIGHT |
||||||||
|
Authorized - 8,000,000 Units Issued and outstanding - 5,441,928 and 5,492,967 Units, respectively |
17,830,114 | 19,063,258 | ||||||
|
GENERAL PARTNER'S EQUITY |
219,842 | 232,863 | ||||||
|
Total partners' equity |
18,049,956 | 19,296,121 | ||||||
|
TOTAL LIABILITIES AND PARTNERS' EQUITY |
$ | 38,888,638 | $ | 42,008,220 | ||||
See notes to unaudited consolidated financial statements.
|
CONSOLIDATED STATEMENTS OF OPERATIONS |
|
Three and Nine Months Ended September 30, 2020 and 2019 |
|
(Unaudited) |
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2020 |
2019 |
2020 |
2019 |
|||||||||||||
|
REVENUES |
||||||||||||||||
|
Crude oil and natural gas sales |
$ | 643,905 | $ | 1,309,638 | $ | 2,369,032 | $ | 5,838,935 | ||||||||
|
Well management and operating |
79,747 | 117,264 | 300,465 | 412,125 | ||||||||||||
|
Other |
753 | 2,096 | 4,257 | 6,342 | ||||||||||||
|
Total revenues |
724,405 | 1,428,998 | 2,673,754 | 6,257,402 | ||||||||||||
|
DIRECT COST OF REVENUES |
||||||||||||||||
|
Production costs |
384,397 | 557,408 | 1,399,634 | 1,941,890 | ||||||||||||
|
Well management and operating |
47,990 | 70,241 | 181,128 | 245,095 | ||||||||||||
|
Depreciation, depletion and amortization |
177,810 | 146,422 | 512,058 | 373,234 | ||||||||||||
|
Accretion expense |
61,800 | 68,300 | 190,900 | 214,900 | ||||||||||||
|
Total direct cost of revenues |
671,997 | 842,371 | 2,283,720 | 2,775,119 | ||||||||||||
|
GENERAL AND ADMINISTRATIVE EXPENSE |
429,545 | 545,825 | 1,493,345 | 1,641,789 | ||||||||||||
|
Total cost of revenues |
1,101,542 | 1,388,196 | 3,777,065 | 4,416,908 | ||||||||||||
|
INCOME (LOSS) FROM OPERATIONS |
(377,137 | ) | 40,802 | (1,103,311 | ) | 1,840,494 | ||||||||||
|
OTHER INCOME |
||||||||||||||||
|
Investment income |
47,500 | 136,451 | 254,166 | 479,007 | ||||||||||||
|
Gain on disposal of property and equipment |
540,044 | 400 | 1,036,890 | 37,700 | ||||||||||||
|
Total other income |
587,544 | 136,851 | 1,291,056 | 516,707 | ||||||||||||
|
NET INCOME |
$ | 210,407 | $ | 177,653 | $ | 187,745 | $ | 2,357,201 | ||||||||
|
Allocation of Partnership Net Income: |
||||||||||||||||
|
Limited Partners |
$ | 207,861 | $ | 175,436 | $ | 185,472 | $ | 2,328,946 | ||||||||
|
General Partner |
2,546 | 2,217 | 2,273 | 28,255 | ||||||||||||
|
Net income |
$ | 210,407 | $ | 177,653 | $ | 187,745 | $ | 2,357,201 | ||||||||
|
Net income per Unit |
$ | 0.03 | $ | 0.03 | $ | 0.03 | $ | 0.42 | ||||||||
See notes to unaudited consolidated financial statements.
|
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY |
|
Nine Months Ended September 30, 2020 and 2019 |
|
(Unaudited) |
|
2020 |
2019 |
|||||||
|
PARTNERS' EQUITY - BEGINNING OF PERIOD |
$ | 19,296,121 | $ | 18,709,962 | ||||
|
Net income |
187,745 | 2,357,201 | ||||||
|
|
||||||||
|
Cash distributions ($0.25 per unit in 2020 and $0.30 per unit in 2019, respectively) |
(1,390,016 | ) | (1,684,936 | ) | ||||
|
Repurchase of Units |
(69,694 | ) | (129,582 | ) | ||||
|
Options exercised |
25,800 | 45,000 | ||||||
|
PARTNERS' EQUITY - END OF PERIOD |
$ | 18,049,956 | $ | 19,297,645 | ||||
See notes to unaudited consolidated financial statements.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
Nine Months Ended September 30, 2020 and 2019 |
|
(Unaudited) |
|
2020 |
2019 |
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
|
Net income |
$ | 187,745 | $ | 2,357,201 | ||||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
|
Depreciation, depletion and amortization |
567,358 | 432,134 | ||||||
|
Accretion expense |
190,900 | 214,900 | ||||||
|
Unrealized gain on investments |
(20,638 | ) | (88,308 | ) | ||||
|
Gain on disposal of property and equipment |
(1,036,890 | ) | (37,700 | ) | ||||
|
Changes in assets and liabilities: |
||||||||
|
Production accounts receivable |
662,003 | 615,805 | ||||||
|
Other current assets |
(7,500 | ) | 56,531 | |||||
|
Other assets |
57 | (1,232 | ) | |||||
|
Accounts payable |
(37,001 | ) | 282,579 | |||||
|
Accrued expenses |
(417,172 | ) | (350,536 | ) | ||||
|
Operational advances |
45,909 | 302,266 | ||||||
|
Total adjustments |
(52,974 | ) | 1,426,439 | |||||
|
Net cash provided by operating activities |
134,771 | 3,783,640 | ||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
|
Purchase of investments |
(226,248 | ) | (2,852,061 | ) | ||||
|
Purchase of property and equipment |
(52,388 | ) | (113,457 | ) | ||||
|
Proceeds from disposal of property and equipment |
74,397 | 34,000 | ||||||
|
Settlement of disposal of property and equipment |
(468,934 | ) | - | |||||
|
Net cash used in investing activities |
(673,173 | ) | (2,931,518 | ) | ||||
|
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
|
Proceeds from loan |
326,932 | - | ||||||
|
Distributions |
(1,390,016 | ) | (1,684,936 | ) | ||||
|
Repurchase of Units |
(69,694 | ) | (129,582 | ) | ||||
|
Proceeds from options exercised |
25,800 | 45,000 | ||||||
|
Net cash used in financing activities |
(1,106,978 | ) | (1,769,518 | ) | ||||
|
NET CHANGE IN CASH AND EQUIVALENTS |
(1,645,380 | ) | (917,396 | ) | ||||
|
CASH AND EQUIVALENTS - BEGINNING OF PERIOD |
11,757,057 | 12,566,868 | ||||||
|
CASH AND EQUIVALENTS - END OF PERIOD |
$ | 10,111,677 | $ | 11,649,472 | ||||
|
Supplemental disclosures of cash flow information: |
||||||||
|
Cash paid during the period for income taxes |
$ | 8,949 | $ | 11,135 | ||||
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 26, 2020. |
| 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 include Everflow Management Corporation ("EMC"), two individuals who are officers and directors of EEI, one individual who is the Chairman of the Board of EEI, and a private limited liability company which also represents Everflow’s largest limited partner. EMC is an Ohio corporation formed in September 1990 and is the managing member of EML. |
|
D. |
Principles of Consolidation - The consolidated financial statements include the accounts of Everflow, its wholly-owned subsidiaries, including EEI, and interests with joint venture partners (collectively, the “Company”), which are accounted for under the proportional consolidation method. All significant accounts and transactions between the consolidated entities have been eliminated. |
|
E. |
Cash and Equivalents - The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains, at various financial institutions, cash and equivalents which may exceed federally insured amounts and which may, at times, significantly exceed balance sheet amounts due to float. |
|
F. |
Investments – The Company’s investments consist of shares held in a mutual fund that invests primarily in investment grade, U.S. dollar denominated short-term fixed and floating rate debt securities. The mutual fund seeks current income while seeking to maintain a low volatility of principal. |
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
Note 1. |
Organization and Summary of Significant Accounting Policies |
|
F. |
Investments (continued) |
| The Financial Accounting Standards Board established a framework for measuring fair value and expanded disclosures about fair value measurements by establishing a fair value hierarchy that prioritizes the inputs and defines valuation techniques used to measure fair value. The hierarchy gives highest priority to Level I inputs and lowest priority to Level III inputs. The three levels of the fair value hierarchy are described below: |
| Level I – Quoted prices are available in active markets for identical financial instruments as of the reporting date. |
| Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. |
| Level III – Pricing inputs are unobservable for the financial instrument and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. |
| The Company’s investments are carried at fair market value based on quoted prices available in active markets and are therefore classified as Level 1. |
|
G. |
Operational Advances - The Company collects and maintains funds on behalf of joint venture partners who own working interests in wells of which the Company manages for their anticipated share of future plugging and abandonment costs. As of September 30, 2020 and December 31, 2019, cash and equivalents include $2,509,594 and $2,463,685, respectively, of operational advances. Operational advances held on behalf of employees, including officers, and directors were approximately $578,100 and $390,000 as of September 30, 2020 and December 31, 2019, respectively. |
|
H. |
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. |
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
Note 1. |
Organization and Summary of Significant Accounting Policies |
|
H. |
Asset Retirement Obligations (continued) |
| 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 $492,900 and $988,100 associated with non-cash settlements of asset retirement obligations during the three and nine month periods ended September 30, 2020, respectively. Gain on disposal of property and equipment includes approximately $2,100 and $7,200 associated with non-cash settlements of asset retirement obligations during the three and nine month periods ended September 30, 2019, respectively. |
|
I. |
Revenue Recognition – Revenues from contracts with customers are recognized when performance obligations are satisfied in accordance with contractual terms. |
| For the sale of crude oil and natural gas from operated properties, the Company generally considers each unit (BBL or MCF) to be a separate performance obligation. The transaction price may consist of fixed and variable consideration, in which the variable amount is determinable each production period and is recognized as revenue upon pickup/delivery of the crude oil or natural gas, which is the point in time that the customer obtains control of the crude oil or natural gas and the Company's performance obligation is satisfied. |
| Crude oil and natural gas sales derived from third party operated wells are recognized under similar terms as sales of crude oil and natural gas from operated properties and revenue is recognized at a point in time when the product is delivered, the purchaser obtains control and the Company's performance obligation is satisfied. |
| Crude oil and natural gas sales represent the Company's share of revenues, net of royalties and other revenue interests owned by other parties. When settling crude oil and natural gas on behalf of royalty owners or working interest owners, the Company is acting as an agent and thus reports the revenue on a net basis. |
| Based on the Company's judgment, the Company's performance obligations have been satisfied and an unconditional right to consideration exists at September 30, 2020 and December 31, 2019, respectively; therefore, the Company recognized amounts due from contracts with customers as production accounts receivable within the Company’s consolidated balance sheets at September 30, 2020 and December 31, 2019, respectively. |
| 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, 2020 and December 31, 2019, respectively. |
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
Note 1. |
Organization and Summary of Significant Accounting Policies |
|
I. |
Revenue Recognition (continued) |
| The Company participates (and may act as drilling contractor) with unaffiliated and affiliated joint venture partners, employees, including officers, and directors 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, employees and directors 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. Well management and operating revenues are derived from a variety of both verbal and written operating agreements with joint venture partners and are recognized monthly as services are provided and properties are managed and operated. Other revenues consist of miscellaneous revenues that are recognized at the time services are rendered, the Company has a contractual right to such revenue and collection is reasonably assured. |
| J. | 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. |
|
K. |
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. |
|
L. |
New Accounting Standards - The Company has reviewed 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 1. | Organization and Summary of Significant Accounting Policies |
|
M. |
Reclassifications – Certain prior period amounts have been reclassified to conform with the current period’s presentation. |
| Note 2. | Current Liabilities |
| The Company’s current liabilities consist of the following at September 30, 2020 and December 31, 2019: |
|
September 30, |
December 31, |
|||||||
|
2020 |
2019 |
|||||||
|
Accounts Payable: |
||||||||
|
Production and related other |
$ | 1,640,057 | $ | 1,768,723 | ||||
|
Other |
761,705 | 304,488 | ||||||
|
Joint venture partner deposits |
63,379 | 63,379 | ||||||
|
Total accounts payable |
$ | 2,465,141 | $ | 2,136,590 | ||||
|
Accrued Expenses: |
||||||||
|
Payroll and retirement plan contributions |
$ | 406,673 | $ | 651,856 | ||||
|
Paycheck Protection Program loan |
326,932 | - | ||||||
|
Current portion of asset retirement obligations |
121,000 | 581,000 | ||||||
|
Drilling |
96,419 | 96,419 | ||||||
|
Federal, state and local taxes |
27,115 | 35,917 | ||||||
|
Other |
- | 60,300 | ||||||
|
Total accrued expenses |
$ | 978,139 | $ | 1,425,492 | ||||
|
In March 2020, the Coronavirus Aid, Relief and Economic Security Act was enacted into law. The Paycheck Protection Program Flexibility Act (the “Flexibility Act”) was enacted into law in June 2020. Among several other economic stimulus benefits, these laws established the United States Small Business Administration’s |
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
Note 2. |
Current Liabilities (Continued) |
|
Paycheck Protection Program (the “PPP”). In April 2020, EEI received a $326,932 unsecured PPP loan through a commercial bank. Provisions of the PPP allow the Company to apply for partial or full forgiveness of the loan provided the proceeds are used for covered expenditures and certain other requirements are satisfied. The unforgiven portion of the loan, if any, is payable in eighteen monthly installments (plus interest at a rate of 0.98% per annum). Under the Flexibility Act, certain provisions of the PPP loan are eligible to be modified and the Company is currently evaluating the impact of these provisions. |
|
Disposals of property and equipment reflect changes to accounts payable. |
| 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 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 2020 Repurchase Right, based upon the December 31, 2019 calculation, was $0.86 per Unit, net of a $0.25 per Unit distribution made in April 2020. |
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
Note 3. |
Partners’ Equity (Continued) |
|
In June 2020, the Company repurchased 81,039 Units pursuant to the Repurchase Right at a price of $0.86 per Unit. In June 2019, the Company repurchased 86,388 Units pursuant to the Repurchase Right at a price of $1.50 per Unit. In June 2018, the Company repurchased 68,261 Units pursuant to the Repurchase Right at a price of $0.11 per Unit. |
| The Company has an Option Repurchase Plan (the “Option Plan”) which permits the grant of options to select officers and employees to purchase certain Units acquired by the Company pursuant to the Repurchase Right. The purpose of the Option Plan is to assist the Company to attract and retain officers and other key employees and to enable those individuals to acquire or increase their ownership interest in the Company in order to encourage them to promote the growth and profitability of the Company. The Option Plan is designed to align directly the financial interests of the participants with the financial interests of the Unitholders. The Company granted 30,000 options to officers and key employees in June 2020, 2019 and 2018, respectively. All options granted were exercised on the same date. |
| All Units repurchased pursuant to the Repurchase Right are retired except for those Units issued through the exercise of options pursuant to the Option Plan. There were 5,441,928 outstanding Units following the Company’s repurchase of Units and issuance of options in June 2020. There were no instruments outstanding at September 30, 2020 or 2019 that would potentially dilute net income per Unit. |
| Note 4. | Commitments and Contingencies |
| The Company operates exclusively in Ohio and Pennsylvania of the United States in the business of oil and gas acquisition, exploration, development and production. The Company operates in an environment with many financial risks, including, but not limited to, the ability to acquire additional economically recoverable oil and gas reserves, the inherent risks of the search for, development of and production of oil and gas, the ability to sell oil and gas at prices which will provide attractive rates of return, the volatility and seasonality of oil and gas production and prices, and the highly competitive and, at times, seasonal nature of the industry and worldwide economic conditions. The Company’s ability to expand its reserve base and diversify its operations is also dependent upon the Company’s ability to obtain the necessary capital through operating cash flow, borrowings or equity offerings. Various federal, state and governmental agencies are considering, and some have adopted, laws and regulations regarding environmental protection which could adversely affect the proposed business activities of the Company. The Company cannot predict what effect, if any, current and future regulations may have on the operations of the Company. |
EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| Note 4. | Commitments and Contingencies (Continued) |
| The Company has multiple contracts with a gas purchaser which obligate the gas purchaser 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. |
| In March 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 position. |
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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 September 30, 2020 and December 31, 2019:
|
September 30, 2020 |
December 31, 2019 |
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|
Amount |
% |
Amount |
% |
|||||||||||||
|
(Amounts in Thousands) |
(Amounts in Thousands) |
|||||||||||||||
|
Working capital |
$ | 27,585 | 78 |
% |
$ | 29,519 | 77 |
% |
||||||||
|
Property and equipment (net) |
7,729 | 22 | 8,795 | 23 | ||||||||||||
|
Other |
132 | - | 132 | - | ||||||||||||
|
Total |
$ | 35,446 | 100 |
% |
$ | 38,446 | 100 |
% |
||||||||
|
Long-term liabilities |
$ | 17,396 | 49 |
% |
$ | 19,150 | 50 |
% |
||||||||
|
Partners' equity |
18,050 | 51 | 19,296 | 50 | ||||||||||||
|
Total |
$ | 35,446 | 100 |
% |
$ | 38,446 | 100 |
% |
||||||||
Working capital of $27.6 million as of September 30, 2020 represented a decrease of $1.9 million from December 31, 2019, due primarily to decreases in cash and equivalents and production accounts receivable, as well as an increase in accounts payable; offset somewhat by an increase in investments and 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 and financing activities. The decrease in production accounts receivable is the combined result of decreases in natural gas volumes produced, crude oil volumes sold, lower natural gas and crude oil prices received and receipt of an arrears balance from a third party operator during the current receivable production period as compared to the prior comparable period, offset somewhat by decreases in production costs incurred during the current receivable period as compared to the prior comparable receivable period. The decreases in natural gas volumes produced and production costs are primarily the result of additional Company operated properties being shut-in during the current receivable period that were otherwise producing during the prior comparable receivable period. The decrease in crude oil volumes sold during the current receivable period as compared to the prior comparable receivable period is primarily the result of the Company strategically holding much of its crude oil production in field tanks and delaying shipment during the COVID-19 pandemic while extreme market price volatility has been prevalent. The arrears balance receipt from a third party operator represented payment for several production periods for which crude oil and natural gas sales, net of production expenses, had been recognized in prior periods. The increase in accounts payable is primarily the result of additional other payables outstanding at September 30, 2020 as compared to the prior comparable reporting date associated with disposal of various oil and gas properties made during the nine month period ending September 30, 2020, offset somewhat by less production and related other payables outstanding at September 30, 2020 as compared to the prior comparable reporting period. The increase in investments was primarily the result of 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 accrued expenses is primarily the result of less current asset retirement obligations at September 30, 2020 as compared to the prior comparable reporting period, and all payroll and retirement plan contributions accrued at December 31, 2019 being paid during the nine months ended September 30, 2020; offset somewhat by the balance of a loan obtained through the United States Small Business Administration’s Paycheck Protection Program which is further described below.
The Company generally funds its operations with cash generated by operations and/or existing cash and equivalent balances. In April 2020, the Company obtained a $327,000 loan through the United States Small Business Administration’s Paycheck Protection Program. The Company has had no other borrowings and no other principal indebtedness was outstanding as of November 10, 2020.
The Company’s cash flow used by operations before the change in working capital was $45,000 during the nine months ended September 30, 2020, a decrease of $3.3 million as compared to $3.3 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 increased cash by $180,000 during the nine months ended September 30, 2020. Cash flows provided by operating activities was $135,000 for the nine months ended September 30, 2020. The Company used cash provided by operating activities as well as existing cash and equivalents to fund the payment of a 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 2021 Repurchase Right, if necessary.
The Company has multiple contracts with Dominion Field Services (“Dominion”) which obligate Dominion to purchase, and the Company to sell and deliver, certain quantities of natural gas production from the Company’s oil and gas properties throughout the contract periods. Management believes the Company can meet its delivery commitments based on estimated production.
Results of Operations
The following table and discussion is a review of the results of operations of the Company for the three and nine month periods ended September 30, 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 |
Nine Months |
|||||||||||||||
|
Ended September 30, |
Ended September 30, |
|||||||||||||||
|
2020 |
2019 |
2020 |
2019 |
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|
Revenues: |
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|
Crude oil and natural gas sales |
89 |
% |
92 |
% |
89 |
% |
93 |
% |
||||||||
|
Well management and operating |
11 | 8 | 11 | 7 | ||||||||||||
|
Total revenues |
100 |
% |
100 |
% |
100 |
% |
100 |
% |
||||||||
|
Expenses: |
||||||||||||||||
|
Production costs |
53 | 39 | 52 | 31 | ||||||||||||
|
Well management and operating |
7 | 5 | 7 | 4 | ||||||||||||
|
Depreciation, depletion and amortization |
25 | 10 | 19 | 6 | ||||||||||||
|
Accretion expense |
9 | 5 | 7 | 3 | ||||||||||||
|
General and administrative expense |
58 | 38 | 56 | 26 | ||||||||||||
|
Total expenses |
152 |
% |
97 |
% |
141 |
% |
70 |
% |
||||||||
|
Other income: |
||||||||||||||||
|
Investment income |
7 | 9 | 10 | 8 | ||||||||||||
|
Gain on disposal of property and equipment |
74 | - | 38 | - | ||||||||||||
|
Total other income |
81 |
% |
9 |
% |
48 |
% |
8 |
% |
||||||||
|
Net income |
29 |
% |
12 |
% |
7 |
% |
38 |
% |
||||||||
Revenues for the three month period ended September 30, 2020 decreased $705,000, or 49%, as compared to the prior comparable period. Revenues for the nine month period ended September 30, 2020 decreased $3.6 million, or 57%, as compared to the prior comparable period. Both revenue variances were primarily the result of decreases in crude oil and natural gas sales.
Crude oil and natural gas sales decreased $666,000, or 51%, during the three months ended September 30, 2020 as compared to the prior comparable period. Crude oil and natural gas sales decreased $3.5 million, 59%, during the nine months ended September 30, 2020 as compared to the prior comparable period. The decreases were primarily the result of less natural gas volumes produced and less crude oil volumes sold, as well as lower average natural gas and crude oil prices received, during the three and nine month periods ended September 30, 2020 as compared to the prior comparable periods. The decrease in natural gas volumes produced during the three and nine month periods ended September 30, 2020 as compared to the prior comparable periods was primarily the result of Company operated properties being voluntarily shut-in during the three and nine month periods ended September 30, 2020 that were not shut-in during the prior comparable periods. The decrease in crude oil volumes sold during the three and nine month periods ended September 30, 2020 as compared to the prior comparable periods was primarily the result of the Company strategically holding much of its crude oil production in field tanks and delaying shipment during the COVID-19 pandemic while extreme market price volatility was prevalent.
Production costs decreased $173,000, or 31%, during the three months ended September 30, 2020 as compared to the prior comparable period. Production costs decreased $542,000, or 28% during the nine months ended September 30, 2020 as compared to the prior comparable period. The primary reasons for the decreases are the result of less costs recognized in association with third party operated properties and decreased costs associated with Company operated properties as more Company operated properties were voluntarily shut-in during the three and nine month periods ended September 30, 2020 as compared to the prior comparable periods, offset somewhat by increased insurance costs during the three and nine month periods ended September 30, 2020 as compared to the prior comparable periods.
Depreciation, depletion and amortization (“DD&A”) increased $31,000, or 21% during the three months ended September 30, 2020 as compared to the prior comparable period. DD&A increased $139,000, or 37% during the nine months ended September 30, 2020 as compared to the prior comparable period. The primary reasons for the increases are lower projected crude oil and natural gas reserves during the three and nine month periods ended September 30, 2020 as compared to the prior comparable periods. 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 and nine months of 2020 as compared to the benchmark prices indexed throughout the prior comparable periods. 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 and nine month periods ended September 30, 2020 as compared to the prior comparable periods.
General and administrative expense decreased $116,000, or 21%, during the three months ended September 30, 2020 as compared to the prior comparable period. General and administrative expense decreased $148,000, or 9%, during the nine months ended September 30, 2020 as compared to the prior comparable period. The primary reasons for the decreases are less legal costs and information technology costs incurred during the three and nine month periods ended September 30, 2020 as compared to the prior comparable periods, as well as various cost-cutting measures management has implemented during the three and nine month periods ended September 30, 2020 in response to operational challenges caused by the COVID-19 pandemic.
Other income increased $451,000, or 329%, during the three months ended September 30, 2020 as compared to the prior comparable period. Other income increased $774,000, or 150%, during the nine months ended September 30, 2020 as compared to the prior comparable period. The primary reason for the increases was the result of an increase in gain on disposal of property and equipment, offset somewhat by a decrease in investment income recognized during the three and nine month periods ended September 30, 2020 as compared to the prior comparable periods. The increase in gain on disposal of property and equipment was primarily the result of the Company having a substantial increase in the number of properties disposed during the three and nine months ended September 30, 2020 as compared to the prior comparable periods. The decrease in investment income is primarily due to the Company having received less dividends from its investments during the three and nine month periods ended September 30, 2020 as compared to the prior comparable periods. Additionally, the Company recognized less unrealized gains on investments during the nine month period ended September 30, 2020 as compared to the prior comparable period.
The Company reported net income of $210,000 and $178,000 during the three months ended September 30, 2020 and 2019, respectively, representing 29% and 12% of total revenues during the three month periods ended September 30, 2020 and 2019, respectively. The increase in net income was primarily the result of an increase in other income and decreases in production costs and general and administrative expenses, offset somewhat by a decrease in crude oil and natural gas sales and an increase in DD&A. The Company reported net income of $188,000 and $2.4 million during the nine months ended September 30, 2020 and 2019, respectively, representing 7% and 38% of total revenues during the nine month periods ended September 30, 2020 and 2019, respectively. The decrease in net income was primarily the result of a decrease in crude oil and natural gas sales and an increase in DD&A, offset somewhat by decreases in production costs and general and administrative expenses 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 and 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 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.
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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.
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Part II: |
OTHER INFORMATION |
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Item 6. |
EXHIBITS |
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Exhibit 31.1 |
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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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 |
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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EVERFLOW EASTERN PARTNERS, L.P. |
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By: |
everflow management limited, llc |
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General Partner |
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| By: | everflow management corporation | ||
| Managing Member | |||
| Dated: November 12, 2020 | By: | /s/ Brian A. Staebler | |
| Brian A. Staebler | |||
| Vice President, Secretary-Treasurer and | |||
| Principal Financial and Accounting Officer | |||
| (Duly Authorized Officer) | |||