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QR Energy Announces Preliminary Second Quarter 2014 Results And Provides Updated Outlook

Stocks in this article: QRE

QR Energy, LP (“QRE” or “QR Energy”) (NYSE: QRE) announced today its preliminary operating and financial results for the second quarter of 2014 and provided third quarter 2014 and full-year guidance. The preliminary results provided herein are subject to review by QR Energy’s independent auditors.

QR Energy and Breitburn Energy Partners LP (“Breitburn”)(NASDAQ: BBEP) also announced today the signing of a definitive merger agreement pursuant to which Breitburn will merge with QR Energy in a unit-for-unit exchange valued at approximately $3.0 billion, including QR Energy’s existing net debt and the outstanding Class C Convertible Preferred Units. QR Energy has been designated one Board seat at closing.

Highlights for the Second Quarter 2014

  • Revenue was $133.3 million for the second quarter of 2014, a 9% increase over the first quarter of 2014
  • Average production of 20,264 Boe per day, up 8% from the first quarter, above stated guidance and comprised of approximately 71% crude oil and natural gas liquids
  • Adjusted EBITDA was $69.6 million, up 7% from the first quarter of 2014
  • Distributable Cash Flow was $34.9 million, a 13% increase over the first quarter of 2014
  • Distribution Coverage Ratio of 1.1x

Chief Executive Officer Alan L. Smith commented, “Our team achieved excellent results in the second quarter with the execution of our expanded capital program, and we are very excited to announce a strategic combination with Breitburn that we believe will create significant value for our unitholders, both today and over the long-term. The combined company will be a stronger and more competitive MLP, with increased asset diversification and scale, and enhanced distribution stability, coverage and growth potential.”

Note: Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are non-GAAP measures. Please see the definitions of these measures and the reconciliation to the most comparable measures calculated in accordance with GAAP in the “Non-GAAP Reconciliation” section of this press release.

Results for the Second Quarter 2014

  • Realized prices excluding commodity derivatives were $98.61 per barrel of oil, $4.58 per Mcf of natural gas and $34.56 per barrel of NGLs
  • Lease operating expenses were $22.23 per Boe and in-line with stated guidance range of $21.00 to $23.00 per Boe
  • Cash general and administrative expenses were $7.8 million, below the stated guidance range of $8.0 to $9.0 million
  • Total capital expenditures were $39.6 million; maintenance capital remained unchanged at $18 million
  • As of June 30, 2014, cash and equivalents were $6.4 million, and debt outstanding was approximately $1,012 million

Third Quarter and Full-Year Guidance

Based upon current estimates, QR Energy expects the following operating results for the third quarter and full year of 2014:

         
 

3Q 2014

 

Full Year 2014

Average net daily production (Boed) 20,500 - 21,000 19,900 - 20,500
LOE and workover expense (per Boe) $21.00 - $23.00 $21.00 - $23.00
Estimated maintenance capital expenditures ($ millions) $18 $72
Estimated total capital expenditures ($ millions) $55 - $60 $182
Cash and general administrative expenses ($ millions)   $8 - $9   $32 - $35
 

Commodity Derivatives

As of July 24, 2014, the notional volumes and prices of QR Energy’s commodity derivative contracts were as follows:

 
  Crude Oil        
    Average     Floor   Ceiling   WTS/WTI   Avg. Discount
Swaps Price Collars Price Price Basis Swaps to NYMEX-WTI
Term   Index   Bbls/d   ($/Bbl)   Bbls/d   ($/Bbl)   ($/Bbl)   Bbl/d   ($/Bbl)
2014 WTI 6,709 $95.30 425 $90.00 $106.50 2,400 ($2.10)
2014 LLS 3,000 $99.62 - - - - -
2015 WTI 7,356 $93.74 1,025 $90.00 $110.00 - -
2016 WTI 6,293 $90.03 1,500 $80.00 $102.00 - -
2017   WTI   5,547   $86.23   -   -   -   -   -
"WTI" is West Texas Intermediate crude oil; "LLS" is Louisiana Light Sweet crude oil; "WTS" is West Texas Sour crude oil.
                                         
  Natural Gas
    Average     Floor   Ceiling     Average   Basis   Avg. Discount
Swaps Price Collars Price Price Puts Price Swaps to NYMEX - HHub
Term   Index   MMBtu/d   ($/MMBtu)   MMBtu/d   ($/MMBtu)   ($/MMBtu)   MMBtu/d   ($/MMBtu)   MMBtu/d   ($/MMBtu)
2014 Henry Hub 26,169 $6.13 4,946 $5.74 $7.51 - - 17,046 ($0.19)
2015 Henry Hub 7,191 $5.34 18,000 $5.00 $7.48 420 $4.00 14,400 ($0.19)
2016 Henry Hub 11,350 $4.27 630 $4.00 $5.55 11,350 $4.00 - -
2017   Henry Hub   10,445   $4.47   595   $4.00   $6.15   10,445   $4.00   -   -
 

Selected Operating Data

               
                               
Three months ended Three months ended Six months ended Six months ended
June 30, 2014 March 31, 2014 June 30, 2014 June 30, 2013
Production data:
Oil (MBbls) 1,072 1,008 2,080 1,785
Natural gas (MMcf) 3,259 2,844 6,103 5,799
NGLs (MBbls) 229 219 448 420
Total production (MBoe) 1,844 1,701 3,545 3,172
Average daily production (Boed) 20,264 18,900 19,586 17,525
 
Prices:
Average realized excluding commodity derivatives:
Crude oil (per Bbl) $98.61 $95.75 $97.22 $96.77
Natural gas (per Mcf) $4.58 $4.87 $4.75 $3.70
NGLs (per Bbl)           $34.56     $35.58     $35.06     $34.81
 

Please see the financial statements and related footnotes in QR Energy’s 10-Q which will be filed with the SEC.

 

Consolidated Statement of Operations

                     
       
Three months ended Three months ended Six months ended Six months ended
June 30, 2014 March 31, 2014 June 30, 2014 June 30, 2013
Revenues: (In thousands)
Oil sales $ 105,706 $ 96,516 $ 202,222 $ 172,741
Natural gas sales 15,018 13,840 28,858 21,445
NGLs sales 7,915 7,791 15,706 14,620
Disposal, processing and other   4,667     4,476       9,143     1,510  
Total Revenue   133,306     122,623       255,929     210,316  
Operating Expenses:
Lease operating expenses 40,999 38,100 79,099 69,118
Production and other taxes 8,360 7,655 16,015 14,788
Processing and transportation   1,032     870       1,902     1,331  
Total production expenses 50,391 46,625 97,016 85,237
Disposal and related expenses 3,714 3,994 7,708 -
Depreciation, depletion and amortization 30,756 29,836 60,592 57,478
Accretion of asset retirement obligations 2,179 2,134 4,313 3,490
General and administrative and other 9,461 10,155 19,616 20,194
Acquisition and transaction costs   651     3,655       4,306     620  
Total operating expenses   97,152     96,399       193,551     167,019  
Operating income 36,154 26,224 62,378 43,297
 
Other income (expense):
Gain (loss) on commodity derivative contracts, net (65,757 ) (23,165 ) (88,922 ) 33,517
Loss on Deferred Class B unit obligation (6,732 ) (5,240 ) (11,972 ) -
Interest expense, net (14,449 ) (12,220 ) (26,669 ) (21,323 )
Other income (expense), net   141     100       241     -  
Total other income (loss), net   (86,797 )   (40,525 )     (127,322 )   12,194  
Income (loss) before income taxes (50,643 ) (14,301 ) (64,944 ) 55,491
Income tax benefit (expense) (257 ) (95 ) (352 ) (51 )
Net income (loss) $ (50,900 ) $ (14,396 )   $ (65,296 ) $ 55,440  
Less: Net income attributable to noncontrolling interest $ 454 $ 214 $ 668 $ -
Net income (loss) attributable to QR Energy, LP $ (51,354 ) $ (14,610 )   $ (65,964 ) $ 55,440  
Net income (loss) per common unit $ (1.05 ) $ (2.86 ) $ (3.91 ) $ 0.58
Adjusted EBITDA $ 69,567 $ 64,801 $ 134,368 $ 124,377
Distributable Cash Flow   $ 34,856       $ 30,913       $ 65,769     $ 59,540  
 

Note: Please see the financial statements and related footnotes in QR Energy’s 10-Q, as filed with the SEC. Adjusted EBITDA and Distributable Cash Flow are non-GAAP measures. Please see the definitions of these measures and the reconciliation to the most comparable measures calculated in accordance with GAAP in the “Non-GAAP Reconciliation” section of this press release.

 

Please see the financial statements and related footnotes in QR Energy’s 10-Q which will be filed with the SEC.

 

Non-GAAP Reconciliation

QR Energy defines Adjusted EBITDA as net income from which it adds or subtracts net interest expense (including gains and losses on interest rate derivative contracts), depreciation, depletion and amortization, accretion of asset retirement obligations, gains or losses due to effects of change in prices on natural gas imbalances, net gains or losses on commodity derivative contracts, net cash received or paid on the settlement of commodity derivative contracts, income tax expense or benefit, other income or expense, interest expense, impairments, non-cash general and administrative expense and acquisition and transaction costs, non-cash pension and postretirement expense or credit, and beginning with the third quarter 2013, noncontrolling interest amounts attributable to each of these items, which revert the calculation back to the Adjusted EBITDA attributable to QR Energy. Prior period results have been revised to conform to the current presentation.

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