2008-08-07 07:00:00
Constellation Energy Partners Reports Second Quarter Results
- Highlights higher production and Adjusted EBITDA
- Delivers positive results from horizontal drilling pilot
HOUSTON, Aug. 7 /EMWNews/ -- Constellation Energy Partners
LLC (NYSE: CEP) today reported second quarter results highlighting higher
production, increased Adjusted EBITDA, and positive results from its
horizontal drilling pilot program during the second quarter.
The company produced 4,422 MMcfe for the second quarter, up 146 percent
from the second quarter of 2007 and 9 percent from the first quarter of
2008. Adjusted EBITDA was $20.5 million, an increase of 108 percent from
the second quarter of 2007 and 17 percent from the first quarter of 2008.
Net income on a Generally Accepted Accounting Principles (GAAP) basis for
the second quarter of 2008 was a loss of $8.8 million, down $10.9 million
from the second quarter of 2007 and down $11.3 million from the first
quarter of 2008.
Second quarter results included an unrealized noncash mark-to-market
(MTM) loss of $15 million from future period natural gas hedges primarily
as a result of higher natural gas prices as of June 30, 2008. Recent
volatility in future expected natural gas prices has resulted in
significant changes to the mark-to-market value of the company's hedges.
Since the hedging arrangements are under the company's reserve-based credit
facilities, cash margining on these hedges is not required.
"We continued to execute on our operational and financial objectives
during the second quarter. Our production levels and Adjusted EBITDA rose
from our first quarter performance. Our distribution coverage ratio
improved to just over one times for the second quarter," said Stephen R.
Brunner, president and chief executive officer of Constellation Energy
Partners. "We also saw a reduction in our lease operating expense per unit
of production as a result of our increased focus on cost controls."
During the second quarter, the company worked on 78 wells and
recompletions out of the 200 to 230 planned for its 2008 program. The
company completed 21 wells and seven recompletions during the second
quarter, bringing program results to 50 wells and 18 recompletions for the
six months of 2008. An additional 50 wells and recompletions were in
progress, the majority of which are expected to flow to sales by the end of
the third quarter and the remaining by the end of the year.
The company continued to deliver positive results on its horizontal
drilling pilot program, completing six wells year to date, producing at an
average rate of 128 Mcfe per day per well at the end of the second quarter.
The production levels of the four horizontal wells completed during 2007
continued to improve, increasing from an average rate of 166 Mcfe per day
per well at the end of the first quarter to 180 Mcfe per day per well at
the end of the second quarter.
"We saw continued success in our horizontal pilot program and are
optimistic about the potential of the program. Initial production results
and well costs are in line with our expectations," said Brunner.
"Production levels are continuing to improve and, compared to our
traditional vertical wells, are producing at a significantly higher rate.
Based on the results we are observing to date, we will continue to focus on
executing the pilot program.
"While our drilling program activity and production levels improved in
the second quarter, we continue to feel the impact of the delays in our
drilling program resulting from inclement weather and ongoing integration
challenges," said Brunner. "Although we expect to see further improvement
in the third and fourth quarters, it seems prudent that we temper our
expectation for the full year. We now expect to be at the low end or
slightly below the low end of our 2008 Adjusted EBITDA forecast range of
$94 million to $105 million and our net production forecast range of 17
Bcfe to 20 Bcfe.
"We have maintained our current production levels in the Black Warrior
and Cherokee Basins despite the delays in our drilling program, giving us
confidence in the value of our assets. Our focus continues to be on
building our organization and improving performance to better position us
for the future."
The company reaffirmed the 2008 operating expense range of $54.5
million to $57.5 million and capital spending forecast of $44.5 million.
Management expects to recommend to the board of managers maintaining a cash
distribution of $0.5625 per outstanding common unit and Class A unit for
the quarter ended Sept. 31, 2008, or $2.25 per unit on an annualized basis.
Management will continue to evaluate distribution levels on a quarterly
basis taking into consideration the company's overall portfolio performance
and coverage ratio as well as the market outlook. All distributions are
subject to approval by the company's board of managers.
Non-GAAP Measures
We present Adjusted EBITDA and Distributable Cash Flow in addition to
our reported net income in accordance with GAAP. Adjusted EBITDA is a
non-GAAP financial measure that is defined as net income (loss) plus
interest (income) expense; depreciation, depletion and amortization;
write-off of deferred financing fees; impairment of long-lived assets;
(gain) loss on sale of assets; (gain) loss from equity investment;
long-term incentive plan expense; accretion of asset retirement obligation;
unrealized (gain) loss on natural gas derivatives; and realized (gain) loss
on cancelled natural gas derivatives. Distributable Cash Flow is defined as
Adjusted EBITDA less maintenance capital expenditures and cash interest
expense. Maintenance capital expenditures are capital expenditures that we
expect to make on an ongoing basis to maintain our asset base (including
our undeveloped leasehold acreage) at a steady level over the long term.
These expenditures include the drilling and completion of additional
development wells to offset the expected production decline during such
period from our producing properties, as well as additions to our inventory
of unproved properties or proved reserves required to maintain our asset
base.
Adjusted EBITDA and Distributable Cash Flow are used by management to
indicate (prior to the establishment of any cash reserves by our board of
managers) the cash distributions we expect to pay our unitholders.
Specifically, these financial measures indicate to investors whether or not
we are generating cash flow at a level that can sustain or support an
increase in our quarterly distribution rates. Adjusted EBITDA and
Distributable Cash Flow are also used as quantitative standards by our
management and by external users of our financial statements such as
investors, research analysts and others to assess the financial performance
of our assets without regard to financing methods, capital structure or
historical cost basis; the ability of our assets to generate cash
sufficient to pay interest costs and support our indebtedness; and our
operating performance and return on capital as compared to those of other
companies in our industry, without regard to financing or capital
structure. Adjusted EBITDA and Distributable Cash Flow are not intended to
represent cash flows for the period, nor are they presented as a substitute
for net income, operating income, cash flows from operating activities or
any other measure of financial performance or liquidity presented in
accordance with GAAP. We also provide our earnings forecast in terms of
Adjusted EBITDA. We are unable to reconcile our forecast to GAAP net income
or operating income because we do not predict the future impact of
adjustments to net income (loss), such as (gains) losses on gas derivatives
and equity investments or asset impairments, due to the difficulty of doing
so.
SEC Filings
CEP intends to file its Form 10-Q for the quarter ended June 30, 2008,
on or about August 8, 2008.
Forward-Looking Statements
We make statements in this news release that are considered forward-
looking statements within the meaning of the Securities Exchange Act of
1934. These forward-looking statements are largely based on our
expectations, which reflect estimates and assumptions made by our
management. These estimates and assumptions reflect our best judgment based
on currently known market conditions and other factors. Although we believe
such estimates and assumptions to be reasonable, they are inherently
uncertain and involve a number of risks and uncertainties that are beyond
our control. In addition, management's assumptions about future events may
prove to be inaccurate. Management cautions all readers that the
forward-looking statements contained in this news release are not
guarantees of future performance, and we cannot assure you that such
statements will be realized or the forward-looking events and circumstances
will occur. Actual results may differ materially from those anticipated or
implied in the forward-looking statements due to factors listed in the
"Risk Factors" section in our SEC filings and elsewhere in those filings.
All forward-looking statements speak only as of the date of this news
release. We do not intend to publicly update or revise any forward-looking
statements as a result of new information, future events or otherwise.
Conference Call Information
The company will host a conference call today at 8:30 a.m. (CDT) to
review its financial results and discuss its business outlook for 2008.
To participate, analysts, investors, media and the public in the U.S.
may dial (888) 322-9245 shortly before 8:30 a.m. (CDT). The international
phone number is (773) 756-0253. The conference password is PARTNERS.
A replay will be available approximately one hour after the end of the
call by dialing (866) 388-5359 or (203) 369-0414 (international). A live
audio webcast of the conference call, presentation slides and the earnings
press release will be available on the Investor Relations page of
Constellation Energy Partners' Web site
(http://www.constellationenergypartners.com). A webcast replay, as well as
a replay in downloadable MP3 format will also be available on the site
approximately one hour after the completion of the call.
Constellation Energy Partners LLC,
(http://www.constellationenergypartners.com), is a limited liability
company focused on the acquisition, development and exploitation of oil and
natural gas properties, as well as related midstream assets.
PRESS RELEASE
Constellation Energy Partners LLC
Operating Statistics
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Net Production:
Total production (MMcfe) 4,422 1,796 8,465 3,023
Average daily production
(Mcfe/day) 48,593 19,736 46,511 16,702
Average Net Sales Price per Mcfe:
Net realized price, including
hedges $8.31(a) $8.46(a) $8.03(a) $8.77
Net realized price, excluding
hedges $9.91 $7.44 $8.82 $7.25
(a) Excludes impact of mark-to-
market losses and net of cost
of sales.
Net Wells Drilled and Completed 21 20.5 50 28.5
Net Recompletions 7 3.0 18 3.0
Constellation Energy Partners LLC
Condensed Consolidated Statements of Operations
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
($ in thousands) ($ in thousands)
Oil and gas sales $38,994 $15,190 $71,382 $26,497
Gain/(Loss) from mark-to-
market activities (15,033) (2,619) (17,989) (5,401)
Total Revenues $23,961 $12,571 $53,393 $21,096
Operating expenses:
Lease operating
expenses 9,209 3,150 18,273 4,745
Cost of sales 2,239 - 3,387 -
Production taxes 2,885 685 4,550 1,144
General and
administrative 3,787 1,771 7,122 3,390
(Gain)/Loss on sale of
equipment - (1) (211) 94
Depreciation, depletion
and amortization 11,489 3,584 21,022 5,543
Accretion expense 101 77 202 113
Total operating expenses 29,710 9,266 54,345 15,029
Other expenses:
Interest (income)
expense, net 3,059 1,182 5,378 1,690
Other (income) expense (18) (70) (4) (70)
Total expenses 32,751 10,378 59,719 16,649
Net income (loss) $(8,790) $2,193 $(6,326) $4,447
Adjusted EBITDA $20,539 $9,877 $38,050 $17,114
EPS - Basic $(0.39) $0.17 $(0.28) $0.36
EPS - Basic Units
Outstanding 22,351,353 13,072,577 22,349,517 12,201,279
EPS - Diluted $(0.39) $0.17 $(0.28) $0.36
EPS - Diluted Units
Outstanding 22,351,353 13,072,577 22,349,517 12,201,279
Constellation Energy Partners LLC
Condensed Consolidated Balance Sheets
June 30, December 31,
2008 2007
($ in thousands)
Current assets $43,843 $45,873
Natural gas properties, net of accumulated
depreciation, depletion and amortization 693,143 643,653
Other assets 15,071 17,129
Total assets $752,057 $706,655
Current liabilities $87,776 $20,551
Debt 216,000 153,000
Other long-term liabilities 106,598 16,702
Total liabilities 410,374 190,253
Class D Interests 6,667 7,000
Common members' equity 473,854 505,178
Accumulated other comprehensive income (138,838) 4,224
Total members' equity 335,016 509,402
Total liabilities and members'
equity $752,057 $706,655
Constellation Energy Partners LLC
Reconciliation of Net Income to Adjusted EBITDA to Distributable Cash
Three Months Six Months Ended
Ended June 30, June 30,
2008 2007 2008 2007
($ in thousands) ($ in thousands)
Reconciliation of Net Income to
Adjusted EBITDA to Distributable Cash:
Net income $(8,790) $2,193 $(6,326) $4,447
Add:
Interest expense/(income), net 3,059 1,182 5,378 1,690
Depreciation, depletion and
amortization 11,489 3,584 21,022 5,543
Accretion of asset retirement
obligation 101 77 202 113
(Gain)/Loss on sale of asset - (1) (211) 94
Loss from mark-to-market activities 15,033 2,619 17,989 5,401
Long-term incentive plan 57 - 155 -
Unrealized (gain)/loss on natural
gas derivatives/hedge ineffectiveness (410) 223 (159) (174)
Adjusted EBITDA (1) $20,539 $9,877 $38,050 $17,114
Maintenance capital (2) 7,417 1,519 14,167 2,757
Drilling fund (1,500) - (3,000) -
Interest expense (cash) 1,549 488 5,049 912
Distributable Cash $13,073 $7,870 $21,834 $13,445
Three Months Ended March 31,
2008 2007
($ in thousands)
Reconciliation of Net Income to
Adjusted EBITDA to Distributable Cash:
Net income $2,464 $2,254
Add:
Interest expense/(income), net 2,319 508
Depreciation, depletion and amortization 9,533 1,959
Accretion of asset retirement obligation 101 36
(Gain)/Loss on sale of asset (211) 95
Loss from mark-to-market activities 2,956 2,782
Long-term incentive plan 98 -
Unrealized (gain)/loss on natural gas
derivatives/hedge ineffectiveness 251 (397)
Adjusted EBITDA (1) $17,511 $7,237
Maintenance capital (2) 6,750 1,238
Drilling fund (1,500) -
Interest expense (cash) 3,500 424
Distributable Cash $8,761 $5,575
(1) Our Adjusted EBITDA should not be considered as an alternative to net
income, operating income, cash flows from operating activities or any
other measure of financial performance or liquidity presented in
accordance with GAAP. Our Adjusted EBITDA excludes some, but not all,
items that affect net income and operating income and these measures
may vary among other companies. Therefore, our Adjusted EBITDA may
not be comparable to similarly titled measures of other companies.
We define Adjusted EBITDA as net income (loss) plus:
-- interest (income) expense;
-- depreciation, depletion and amortization;
-- write-off of deferred financing fees;
-- impairment of long-lived assets;
-- (gain) loss on sale of assets;
-- (gain) loss from equity investment;
-- Long-term incentive plan expense;
-- accretion of asset retirement obligation;
-- unrealized (gain) loss on natural gas derivatives; and
-- realized loss (gain) on cancelled natural gas derivatives
(2) Maintenance capital expenditures are capital expenditures that we
expect to make on an ongoing basis to maintain our asset base
(including our undeveloped leasehold acreage) at a steady level over
the long term. These expenditures include the drilling and
completion of additional development wells to offset the expected
production decline during such period from our producing properties,
as well as additions to our inventory of unproved properties or proved
reserves required to maintain our asset base.
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