EV Energy Partners, LP (EVP)
Q1 2010 Earnings Call
May 11, 2010 10:00 am ET
John B. Walker – Chairman of the Board & Chief Executive Officer of EV Management
Mark A. Houser – President, Chief Operating Officer & Director of EV Management
Michael E. Mercer – Chief Financial Officer & Senior Vice President
Frederick Dwyer – Controller of EV Management
Kenneth Mariani – General Manager Eastern Division
Kathryn S. MacAskie – Senior Vice President Acquisitions and Divestitures
TJ Schultz – RBC Capital Markets
Richard Dearnley – Longport Partners
Previous Statements by EVEP
» EV Energy Partners, L.P. Q4 2009 Earnings Call Transcript
» EV Energy Partners, L.P. Q3 2009 Earnings Call Transcript
» EV Energy Partners L.P. Q2 2009 Earnings Call Transcript
Welcome to the EV Energy Partners, LP first quarter 2010 earnings release conference call. During today’s presentation all parties will be in a listen only mode and following the presentation the conference will be opened for questions. (Operator Instructions) Now, I’d like to turn the conference over to Mr. John Walker, Chairman and CEO.
John B. Walker
In attendance here in Houston we have Mark Houser, Mike Mercer, Fred Dwyer, we’ve got Ken Mariani in from our Charlestown West Virginia Office where he runs our eastern division and for our last phone call we’ve got Kathy MacAskie here who is Senior VP. This is her last week, she’s done a terrific job for us and we wish her well in her future endeavors. I’m going to provide an overview and then Mike and Mark will provide more details on our financials and offer [inaudible] for the first quarter.
The big event of the quarter was the closing of Range’s Ohio properties and EVEP’s share was roughly $150 million. Although about 7% of that didn’t close because of a lack of consents and other issues. We hope that our support of Range’s work and its irresponsibility in this area that we will have these issues resolved so that we can get it closed on the full amount by either the third or fourth quarter. On February 12
we issued 3.45 million common units and received $94.7 million to finance about 64% of the final acquisition. I want to point out that 31% of the reserves are oil and 35% of the cash flow is oil from this acquisition.
In the first quarter we received no production from the Range’s properties but have suffered the full dilatation of the incremental 3.45 million units and I think all of you understand that. In addition, the oil in the tanks at closing is treated strangely, at least by my terms by accounting by creating a non-recurring $240,000 hit to LOE in the first quarter and an anticipated $3 million onetime LOE increase in the second quarter and Mike will explain that.
Taking in to account Range and EXCO combined, we added 810,000 acres and approximately 7,000 wells. The most important feature of the acquisition is that we project that production in 2014 from the Knox formation will exceed that of the PDP Clinton sands. Relative to the quarter, all measurements where within guidelines. Mark will discuss in detail some of the production short falls because of freeze off, free gas in Appalachia, capital spending reductions versus our budget and our first dry hole in the Chalk. All of these caused about a 3% short fall in production from the midpoint of guideline.
Gas prices declined throughout the quarter and as I’ve always emphasized we do not spend capital if we cannot receive a risk adjusted 20% rate of return on it. For the quarter and full year we have reduced our capital budgets which Mark will discuss. To me that translates in to more money for Range type acquisitions.
As a separate matter, you will notice a subsequent event announcement of our sale of undeveloped acres for $5 million. Because of EVEP’s large HPV acreage position in a lot of developing plays, you should expect to see further joint ventures, farm outs and outright sales in ensuing months and I can assure you of that. For example, there are recent announcements in Ohio and Michigan about the Utica Shale. Our 1.6 million growth acre position in Ohio means that any new play there has to come through us.
The outlook for natural gas prices this year probably will get worse but my concern is a likely oversupply situation for many years implying I think a gas price cap of something about the order of $6.50 tops. That’s not all a bad thing though, it’s allowing us to acquire assets for only PDP and specific basins. Let me explain by talking about our A&D strategy and asset positioning that began much more than a year ago. Both EVEP and EnerVest, its parent are building areas of concentration and in some instances areas of dominance.
With the EXCO and Range transaction, EnerVest partnerships and EVEP produced a gross amount of 87 million cubic feet equivalent per day in Ohio which is 25% to 30% of the state’s production. We operate there about 7,800 wells and control 1.6 million acres. You cannot be efficient with scattered acres and wells. With our concentration we’re driving down costs of course and we have large pools of gas that we can market and I think that is going to be very important in the gas market over the next 10 years or more but we can also justify buying from transportation which people with scattered production can’t justify.
As important in EVEP’s big three basins: the Appalachia; the Austin Chalk; and the San Juan, there are plays developing that will come through us as I have already mentioned. In the Chalk EnerVest and EVEP have one million acres. Not only is the Eagle Ford below the Chalk but the Chalk itself has rarely been fraced at all and the gas in place is enormous. Something you probably don’t know, the matrix for the Austin Chalk is greater than for the Eagle Ford. We will soon do the industry’s first multistage frac in the Chalk.