News Column

Constellation Energy Partners Reports Second Quarter 2014 Results; Updates Activity Planned with Sanchez Oil & Gas

August 14, 2014

  • CEP’s oil and liquids production up 24% in the second quarter 2014 to the highest level ever reported by the company
  • CEP reports that affiliates of SOG now provide services that the company requires to operate its business
  • CEP’s efforts to further integrate with SOG and its affiliates include rebranding and potential conversion of the company to a limited partnership

    HOUSTON--(BUSINESS WIRE)-- Constellation Energy Partners LLC (NYSE MKT: CEP) today reported second quarter 2014 results.

    The company produced 383 MBOE during the second quarter for average net production of 4,212 BOE per day for the quarter, which represents an increase of approximately 3% when compared to the first quarter 2014 and an increase of 24% when compared to the second quarter 2013. Net oil and liquids production for the second quarter, which accounted for approximately 27% of the company’s total production during the quarter, was 1,143 barrels per day. This is the highest daily average oil and liquids production reported by the company since turning its focus to oil and liquids in 2010 and represents an increase of 26% when compared to first quarter 2014 and an increase of approximately 144% when compared to the second quarter 2013. For the year-to-date ended June 30, 2014, the company produced 755 MBOE for average net production of 4,172 BOE per day. Net oil and liquids production for the year-to-date was 1,026 barrels per day, which is an increase of 105% versus the same six month period of 2013.

    Revenue of $12.1 million for the second quarter 2014 includes revenue from sales of $16.0 million, of which approximately 40% was from natural gas sales and 60% was from oil and liquids sales. The balance of the company’s second quarter 2014 revenue came from hedge settlements ($1.2 million), services provided to third parties ($0.9 million), and losses on mark-to-market activities ($5.9 million), which is a non-cash item. For the year-to-date, revenue from sales and hedge settlements totaled $33.1 million, which is 28% higher than the same six month period of 2013.

    Operating costs, which include lease operating expenses, production taxes and general and administrative expenses, net of certain non-cash items and charges of approximately $1.0 million related to implementation of a series of agreements (the “Services Agreements”) with affiliates of Sanchez Oil & Gas Corporation (“SOG”), which is a non-recurring item, averaged $25.41 per BOE for the second quarter 2014. Including the non-recurring item, operating costs were $28.02 per BOE during the quarter. For the year-to-date, operating costs excluding the non-recurring item averaged $25.29 per BOE, which is an increase of approximately 2% versus operating costs, adjusted for non-recurring items, for the same six month period of 2013.

    Adjusted EBITDA for the second quarter 2014, excluding the non-recurring item, was approximately $8.0 million. Including the non-recurring item, Adjusted EBITDA was approximately $7.0 million. For the year-to-date, Adjusted EBITDA including the non-recurring item was approximately $15.0 million as compared to $10.9 million, adjusted for non-recurring items, for the same six month period of 2013.

    On a GAAP basis, the company recorded a net loss of $5.0 million for the second quarter 2013 and a net loss of $8.0 million for the year-to-date.

    Capital expenditures during the second quarter 2014 totaled $2.4 million. During the quarter, the company completed one net recompletion. The company finished the quarter with one net well in progress.

    “We undertook efforts in the early part of this year to resolve outstanding litigation and, in the process, simplify our ownership structure in a way that better positions us for some of the things we hope to achieve through our new relationship with SOG,” said Stephen R. Brunner, President and Chief Executive Officer of Constellation Energy Partners. “In conjunction with these efforts, we consciously dialed back our capital spending. Despite less drilling activity than we had planned going into 2014, however, we are seeing production levels and operating performance very much in line with our forecast. We see this as a testament to the quality of our asset base and an internal focus aimed at deploying capital on only the best opportunities in our portfolio. We look to build on our success in the early part of this year as we further integrate with SOG, and we look forward to updating you on these efforts in the months to come.”

    Implementation of Services Agreements

    In reporting on progress made toward implementing the Services Agreements, which were executed in May 2014, the company noted that as of July 1, 2014 affiliates of SOG provide services that the company requires to operate its business. These services include overhead, technical, administrative, marketing, accounting, operational, information systems, financial, compliance, insurance, professionals and acquisition, disposition and financing services. Management anticipates additional integration with SOG and its affiliates will involve rebranding and potential conversion of the company to a limited partnership. The latter proposal, if approved by the company’s board of managers, would be subject to unitholder approval, which the company hopes to seek later this year or in early 2015.

    Reserve-Based Credit Facility and Hedging Update

    The company currently has $52.0 million in debt outstanding under its reserve-based credit facility, which has a borrowing base of $70.0 million.

    Financial Outlook for 2014

    The company forecasts capital spending of between $20.0 million and $22.0 million in 2014. The company forecasts maintenance capital of $23.0 million in 2014.

    Net production is forecast to range between 1,346 MBOE and 1,552 MBOE for 2014, with operating costs forecast to range between $33.3 million and $37.3 million for the year.

    For the remainder of 2014, the company has hedged approximately 3.2 Bcfe of its natural gas production at an effective NYMEX fixed price of $5.75 per Mcfe with basis hedges on 2.1 Bcfe of its Mid-Continent production at an average differential of $0.39 per Mcfe. The company also has hedges in place on approximately 147 MBbl of its 2014 oil production at a fixed price of $95.71 per barrel.

    Additional detail on the company’s 2014 forecast can be found in the tables included with the company’s fourth quarter and full year 2013 news release dated March 25, 2014.

    Conference Call Information

    The company will host a conference call at 8:30 a.m. (CDT) on Friday, Aug. 15, 2014 to discuss second quarter 2014 results.

    To participate in the conference call, analysts, investors, media and the public in the U.S. may dial (800) 857-0653 shortly before 8:30 a.m. (CDT). The international phone number is (773) 799-3268. The conference password is PARTNERS.

    A replay will be available beginning approximately one hour after the end of the call by dialing (800) 925-5415 or (402) 530-8074 (international). A live audio webcast of the conference call, presentation slides and the earnings release will be available on Constellation Energy Partners’ Web site (www.constellationenergypartners.com) under the Investor Relations page. The call will also be recorded and archived on the site.

    About the Company

    Constellation Energy Partners LLC is a limited liability company focused on the acquisition, development and production of oil and natural gas properties, as well as related midstream assets.

    SEC Filings

    The company intends to file its second quarter 2014 Form 10-Q on Aug. 14, 2014.

    Non-GAAP Measures

    We present Adjusted EBITDA in addition to our reported net income (loss) in accordance with GAAP. Adjusted EBITDA is a non-GAAP financial measure that is defined as net income (loss) adjusted by interest (income) expense, net; depreciation, depletion and amortization; write-off of deferred financing fees; asset impairments; accretion expense; (gain) loss on sale of assets; (gain) loss from equity investment; unit-based compensation programs; (gain) loss from mark-to-market activities; and gain (loss) on discontinued operations.

    Adjusted EBITDA is used as a quantitative standard 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 is not intended to represent cash flows for the period, nor is it 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.

    Forward-Looking Statements

    We make statements in this news release that are considered forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. 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. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

           
    Constellation Energy Partners LLC
    Operating Statistics
                   
    Three Months Ended June 30,Six Months Ended June 30,
    2014201320142013
    Net Production in MBOE and MMcfe:
    Total production (MBOE) 383 308 755 643
    Average daily production (BOE/day) 4,212 3,386 4,171 3,553
     
    Total production (MMcfe) 2,300 1,849 4,530 3,859
    Average daily production (Mcfe/day) 25,271 20,315 25,028 21,322
     
    Average Net Sales Price per BOE and Mcfe:
    BOE Net realized price, including hedges $ 45.84

    (a)

    $ 41.10

    (a)

    $ 44.96

    (a)

    $ 41.41
    BOE Net realized price, excluding hedges $ 42.75

    (b)

    $ 31.11

    (b)

    $ 42.17

    (b)

    $ 29.31
     
    Mcfe Net realized price, including hedges $ 7.64

    (a)

    $ 6.85

    (a)

    $ 7.49

    (a)

    $ 6.90
    Mcfe Net realized price, excluding hedges $ 7.13

    (b)

    $ 5.18

    (b)

    $ 7.03

    (b)

    $ 4.88
     

    (a) Excludes impact of mark-to-market gains (losses)

    and net cost of sales.

    (b) Excludes all hedges, the impact of mark-to-market

    gains (losses) and net cost of sales.

     
    Net Wells Drilled and Completed - 14 4 26
    Net Recompletions 1 8 4 13
    Developmental Dry Holes - - - -
    Net Wells and Net Recompletions in Progress 1 5 1 5
     
     
    Constellation Energy Partners LLC
    Condensed Consolidated Statements of Operations
                   
    Three Months Ended June 30,Six Months Ended June 30,
    2014201320142013
    ($ in thousands)($ in thousands)
     
    Oil and gas sales $ 18,004 $ 13,042 $ 34,742 $ 27,427
    Gain/(Loss) from mark-to-market activities   (5,915 )   2,346     (10,912 )   (6,939 )
    Total revenues 12,089 15,388 23,830 20,488
     
    Operating expenses:
    Lease operating expenses 5,182 3,905 10,302 8,141
    Cost of sales 434 379 794 799
    Production taxes 995 622 1,767 1,109
    General and administrative 5,591 3,737 9,162 8,141
    (Gain)/Loss on sale of assets (16 ) (17 ) (23 ) (23 )
    Depreciation, depletion and amortization 4,320 4,767 8,370 9,565
    Asset impairments 45 - 194 -
    Accretion expense   150     123     300     246  
    Total operating expenses 16,701 13,516 30,866 27,978
     
    Other expenses:
    Interest (income) expense, net 533 864 1,058 2,216
    Other (income) expense (134 ) (104 ) (144 ) (172 )
           
    Total expenses 17,100 14,276 31,780 30,022
     
    Income (loss) from continuing operations (5,011 ) 1,112 (7,950 ) (9,534 )
    Discontinued operations   -       -     (2,686 )
    Net income (loss) $ (5,011 ) $ 1,112   $ (7,950 ) $ (12,220 )
     
    Adjusted EBITDA $ 6,965   $ 4,711   $ 13,991   $ 10,018  
     
    Loss per unit
    Loss from continuing operations per unit
    Class A units - Basic and diluted $ (0.21 ) $ 0.05 $ (0.15 ) $ (0.39 )
    Class B units - Basic and diluted $ (0.17 ) $ 0.05 $ (0.28 ) $ (0.40 )
    Discontinued operations per unit
    Class A units - Basic and diluted $ - $ - $ - $ (0.11 )
    Class B units - Basic and diluted $ - $ - $ - $ (0.11 )
    Net loss per unit
    Class A units - Basic and diluted $ (0.21 ) $ 0.05 $ (0.15 ) $ (0.50 )
    Class B units - Basic and diluted $ (0.17 ) $ 0.05 $ (0.28 ) $ (0.51 )
    Weighted Average Units Outstanding
    Class A units - Basic 484,505 484,370 1,046,638 484,383
    Class B units - Basic 28,305,380 23,345,280 25,259,994 23,306,269
    Class A units - Diluted 484,505 484,370 1,046,638 484,383
    Class B units - Diluted 28,305,380 23,720,732 28,259,994 23,306,269
     
     
    Constellation Energy Partners LLC
    Condensed Consolidated Balance Sheets
       
    June 30,Dec. 31,
    20142013
    ($ in thousands)
     
    Current assets $ 21,557 $ 23,260
    Current assets from discontinued operations - -
    Oil and natural gas properties, net of accumulated
    depreciation, depletion and amortization 141,299 144,995
    Other assets 2,951 6,278
    Long-term assets from discontinued operations   -     -  
    Total assets $ 165,807   $ 174,533  
     
    Current liabilities, including short-term debt $ 12,637 $ 14,017
    Current liabilities from discontinued operations - -
    Long-term debt 51,950 50,700
    Other long-term liabilities 11,760 10,911
    Other long-term liabilities from discontinued operations   -     -  
    Total liabilities 76,347 75,628
     
    Common members' equity 89,460 98,905
    Accumulated other comprehensive income   -     -  
    Total members' equity   89,460     98,905  
    Total liabilities and members' equity $ 165,807   $ 174,533  
     
     
    Constellation Energy Partners LLC
    Reconciliation of Net Income (Loss) to
    Adjusted EBITDA
                   
    Three Months Ended June 30,Six Months Ended June 30,
    2014201320142013
    ($ in thousands)($ in thousands)
     
    Reconciliation of Net Income (Loss) to
    Adjusted EBITDA:
    Net income (loss) $ (5,011 ) $ 1,112 $ (7,950 ) $ (12,220 )
    Add:
    Interest (income) expense, net 533 864 1,058 2,216
    Depreciation, depletion and amortization 4,320 4,767 8,370 9,565
    Asset impairments 45 - 194 -
    Accretion expense 150 123 300 246
    (Gain)/Loss on sale of assets (16 ) (17 ) (23 ) (23 )
    Unit-based compensation programs 1,029 208 1,130 609
    (Gain)/Loss from mark-to-market activities 5,915 (2,346 ) 10,912 6,939
    (Gain)/Loss from discontinued operations   -     -     -     2,686  
    Adjusted EBITDA(1) $ 6,965   $ 4,711   $ 13,991   $ 10,018  
     
           
    Three Months Ended March 31,
    20142013
    ($ in thousands)
     
    Reconciliation of Net Income (Loss) to
    Adjusted EBITDA:
    Net income (loss) $ (2,939 ) $ (13,332 )
    Add:
    Interest (income) expense, net 525 1,352
    Depreciation, depletion and amortization 4,050 4,798
    Asset impairments 149 -
    Accretion expense 150 123
    (Gain)/Loss on sale of assets (7 ) (6 )
    Unit-based compensation programs 101 401
    (Gain)/Loss from mark-to-market activities 4,997 9,285
    (Gain)/Loss from discontinued operations   -     2,686  
    Adjusted EBITDA(1) $ 7,026   $ 5,307  
    (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, net;
    -- depreciation, depletion and amortization;
    -- write-off of deferred financing fees;
    -- asset impairments;
    -- accretion expense;
    -- (gain) loss on sale of assets;
    -- (gain) loss from equity investment;
    -- unit-based compensation programs;
    -- (gain) loss from mark-to-market activities; and
    -- gain (loss) on discontinued operations.





    Constellation Energy Partners LLC

    Charles C. Ward, 877-847-0009

    Source: Constellation Energy Partners LLC


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