Constellation Energy Partners Reports Fourth Quarter And Full Year 2011 Results

Constellation Energy Partners LLC (NYSE Amex: CEP) today reported fourth quarter and full year 2011 results.

The company produced 3,296 MMcfe during the fourth quarter, for average daily net production of 35.8 MMcfe for the quarter and 37.5 MMcfe for the full year 2011. Net oil production for the fourth quarter was 315 barrels per day, which represents an increase of approximately 81% compared to the fourth quarter of 2010. For the full year 2011, approximately 95% of the company’s production was natural gas and 5% of the company’s production was oil. During 2010, approximately 98% of the company’s production was natural gas and 2% of the company’s production was oil.

Revenue totaled $33.5 million for the fourth quarter 2011 and $105.2 million for the full year 2011. Included in total revenue for the full year 2011 is revenue from sales of $57.2 million, of which approximately 82% was from natural gas sales and 18% was from oil sales. The balance of the company’s full year 2011 total revenue came from hedge settlements ($82.7 million), services provided to third parties ($4.7 million), and losses on mark-to-market activities ($39.4 million), which is a non-cash item. During 2010, approximately 92% of the company’s sales revenue was from natural gas sales and 8% was from oil sales.

Operating costs, which include lease operating expenses, production taxes and general and administrative expenses, net of certain non-cash items, averaged $3.26 per Mcfe for the fourth quarter and $3.37 per Mcfe for the full year 2011, which is a 3% improvement compared to the $3.49 per Mcfe the company posted for operating costs for the full year 2010.

Adjusted EBITDA for the fourth quarter 2011 was $13.8 million, an improvement of 9% compared to the third quarter 2011. For the full year 2011, Adjusted EBITDA was $96.7 million, which includes $41.3 million in hedge settlements related to the hedge restructuring that the company announced in June 2011.

On a GAAP basis, the company recorded net income of $15.1 million for the fourth quarter 2011 and $19.6 million for the full year 2011.

The company completed 17 net wells and recompletions with total capital spending of $2.4 million during the fourth quarter 2011. The company’s full year 2011 capital spending totaled $11.3 million. For the full year, the company completed 84 net wells and recompletions, and there were 10 net wells and recompletions in progress at Dec. 31, 2011. Drilling activities in 2011 focused primarily on oil potential in the company’s existing asset base as well as capital efficient recompletions.

“When we reflect in the years to come about where we’ve been as a company,” said Stephen R. Brunner, President and Chief Executive Officer of Constellation Energy Partners, “I think we’ll talk about 2011 as an important transitional year. During the year, we reduced debt by more than 40%, reduced operating costs, improved our financial flexibility, and demonstrated that a more dynamic focus on the oil opportunities in our asset base is key to maintaining production and growing value. We intend to capitalize on the momentum developed in 2011 as we look to return value to unitholders in 2012 and over the longer term.”

Distribution Outlook

“Based on our 2011 successes, an available inventory of organic, capital efficient drilling opportunities, and our long-term forecast, we think we’re now able to return capital spending to maintenance levels. Accordingly, we believe that we have positioned the company to consider the reinstatement of a cash distribution to unitholders in 2012,” Brunner added. “We’re pleased to be in a position to reward the patience of our unitholders as we’ve worked to improve the company’s financial strength.”

All distributions are subject to approval by the company's Board of Managers.

Liquidity Update

Borrowings outstanding under the company’s reserve-based credit facility currently total $98.4 million, leaving the company with $26.6 million in borrowing capacity at the company’s current borrowing base of $125.0 million. The company’s next semi-annual borrowing base redetermination by the lenders is expected in the second quarter 2012.

The company recorded $17.2 million in cash and equivalents as of Dec. 31, 2011.

Financial Outlook for 2012

The company forecasts capital spending of between $15.0 million and $19.0 million in 2012. Of this amount, $15.0 million is maintenance capital.

Net production is forecast to range between 13.3 and 14.1 Bcfe for 2012, with operating costs forecast to range between $42.5 million and $46.0 million for the year.

The company entered the year with approximately 6.9 Bcfe of its Mid-Continent natural gas production in 2012 hedged at an average price of $5.22 per Mcfe and an additional 2.0 Bcfe of its remaining natural gas production hedged at an average price of $5.75 per Mcfe. The company has also hedged approximately 83 thousand barrels of its 2012 oil production at an average price of $103.14 per barrel. The company’s 2012 hedges provide price certainty on approximately 69% of the company’s 2012 midpoint production forecast. The remainder of the company’s production for 2012 is subject to market conditions and pricing.

Additional detail on the company’s 2012 forecast can be found in the tables included with this news release.

Conference Call Information

The company will host a conference call at 8:30 a.m. (CST) on Wednesday, Feb. 29, 2012 to discuss fourth quarter and full year 2011 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. (CST). 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) 835-3804 or (402) 280-1654 (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 2011 Form 10-K on or about Feb. 29, 2012.

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; exploration costs; (gain) loss from equity investment; unit-based compensation programs; (gain) loss from mark-to-market activities; and unrealized (gain) loss on derivatives/hedge ineffectiveness.

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 Dec. 31,

Twelve Months Ended Dec. 31,
2011   2010   2011   2010  
Net Production:
Total production (MMcfe) 3,296 3,674 13,679 15,037
Average daily production (Mcfe/day) 35,826 39,935 37,477 41,197
 
Average Net Sales Price per Mcfe:
Net realized price, including hedges

 

$7.44

(a)

 

$6.86
(a)

 

$10.41
(a)

 

$7.06
(a)
Net realized price, excluding hedges

 

$4.02
(b)

 

$3.72
(b)

 

$4.37
(b)

 

$4.38
(b)
 
(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 6 35 17
Net Recompletions 3 7 49 14
Developmental Dry Holes - -- 1 --
 
 

Constellation Energy Partners LLC
Condensed Consolidated Statements of Operations
           
Three Months Ended Dec. 31, Twelve Months Ended Dec. 31,
  2011     2010     2011     2010  
($ in thousands) ($ in thousands)
 
Oil and gas sales $ 25,022 $ 25,734 $ 144,639 $ 108,692
Gain/(Loss) from mark-to-market activities   8,524     (9,751 )   (39,422 )   42,081  
Total revenues 33,546 15,983 105,217 150,773
 
Operating expenses:
Lease operating expenses 6,630 7,153 27,949 30,798
Cost of sales 487 524 2,188 2,473
Production taxes 619 730 2,897 3,179
General and administrative 3,816 6,074 16,599 20,351
Exploration costs - 29 131 760
(Gain)/Loss on sale of assets (10 ) (5 ) 19 (18 )
Depreciation, depletion and amortization 4,518 5,665 22,139 85,263
Asset impairments 1,000 1,521 2,935 272,487
Accretion expense   227     205     907     822  
Total operating expenses 17,287 21,896 75,764 416,115
 
Other expenses:
Interest (income) expense, net 1,186 815 10,116 11,953
Other (income) expense (54 ) 25 (249 ) (385 )
       
Total expenses 18,419 22,736 85,631 427,683
       
Net income (loss) $ 15,127   $ (6,753 ) $ 19,586   $ (276,910 )
 
Adjusted EBITDA $ 13,841   $ 11,672   $ 96,596   $ 54,125  
 
EPU - Basic

 

$0.62

($0.28
)

 

$0.81
($11.36 )
EPU - Basic Units Outstanding 24,253,033 24,420,284 24,273,491 24,370,545
 
EPU - Diluted

 

$0.62
($0.28 )

 

$0.81
($11.36 )
EPU - Diluted Units Outstanding 24,253,033 24,420,284 24,273,491 24,370,545
 
 
Constellation Energy Partners LLC
Condensed Consolidated Balance Sheets
   
Dec. 31, Dec. 31,
2011   2010  
($ in thousands)
 
Current assets $ 45,096 $ 53,091
Oil and Natural gas properties, net of accumulated
depreciation, depletion and amortization 266,085 276,919
Other assets   23,125     54,367  
Total assets $ 334,306   $ 384,377  
 
Current liabilities $ 14,554 $ 14,533
Debt 98,400 165,000
Other long-term liabilities   14,432     13,024  
Total liabilities 127,386 192,557
 
Class D Interests - 6,667
 
Common members' equity 201,483 174,233
Accumulated other comprehensive income   5,437     10,920  
Total members' equity   206,920     185,153  
Total liabilities and members' equity $ 334,306   $ 384,377  
 
 
 
Constellation Energy Partners LLC
Reconciliation of Net Income (Loss) to
Adjusted EBITDA
           
Three Months Ended Dec. 31, Twelve Months Ended Dec. 31,
2011   2010   2011   2010  
($ in thousands) ($ in thousands)
 
Reconciliation of Net Income (Loss) to
Adjusted EBITDA:
Net income (loss) (3) $ 15,127 $ (6,753 ) $ 19,586 $ (276,910 )
Add:
Interest (income) expense, net (3) 1,186 815 10,116 11,953
Depreciation, depletion and amortization 4,518 5,665 22,139 85,263
Asset impairments 1,000 1,521 2,935 272,487
Accretion expense 227 205 907 822
(Gain)/Loss on sale of assets (10 ) (5 ) 19 (18 )
Exploration costs - 29 131 760
Unit-based compensation programs 317 444 1,341 1,849
(Gain)/Loss from mark-to-market activities   (8,524 )   9,751     39,422     (42,081 )
Adjusted EBITDA (1),(2) $ 13,841   $ 11,672   $ 96,596   $ 54,125  
 
           
Three Months Ended Sep. 30, Nine Months Ended Sep. 30,
2011   2010   2011 2010  
($ in thousands) ($ in thousands)
 
Reconciliation of Net Income (Loss) to
Adjusted EBITDA:
Net income (loss) (3) $ 7,144 $ (267,123 ) $ 4,459 $ (270,157 )
Add:
Interest (income) expense, net (3) 3,002 3,695 8,930 11,138
Depreciation, depletion and amortization 5,863 26,175 17,621 79,598
Asset impairments 1,935 270,408 1,935 270,966
Accretion expense 228 205 680 617
(Gain)/Loss on sale of assets 8 - 29 (13 )
Exploration costs - 284 131 731
Unit-based compensation programs 310 375 1,024 1,405
(Gain)/Loss from mark-to-market activities   (5,819 )   (21,100 )   47,946     (51,832 )
Adjusted EBITDA (1),(2) $ 12,671   $ 12,919   $ 82,755   $ 42,453  
 
           

Three Months Ended June 30,

Six Months Ended June 30,
2011   2010   2011   2010  
($ in thousands) ($ in thousands)
 
Reconciliation of Net Income (Loss) to
Adjusted EBITDA:
Net income (loss) (3) $ 2,467 $ (21,092 ) $ (2,685 ) $ (3,034 )
Add:
Interest (income) expense, net (3) 4,076 3,387 5,928 7,443
Depreciation, depletion and amortization 5,893 26,733 11,758 53,981
Accretion expense 226 205 452 412
(Gain)/Loss on sale of assets 14 (5 ) 21 (13 )
Exploration costs - 224 131 447
Unit-based compensation programs 341 593 714 1,030
(Gain)/Loss from mark-to-market activities   43,656     4,549     53,765     (30,732 )
Adjusted EBITDA (1),(2) $ 56,673   $ 14,594   $ 70,084   $ 29,534  
  (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;
-- exploration costs;
-- (gain) loss from equity investment;
-- unit-based compensation programs;
-- (gain) loss from mark-to-market activities; and
-- unrealized (gain) loss on derivatives/hedge ineffectiveness.
 

(2) Results for the twelve months ended Dec. 31, 2011, nine months ended Sep. 30, 2011, and three months and six months ended June 30, 2011, include $41.3 million in hedge settlements related to the company’s June 2011 hedge restructuring.
 

(3) As discussed in our 2011 Form 10-K, non-cash adjustments were made to our interest (income) expense, net during the three months ended Dec. 31, 2011 that were related to the three months ended June 30, 2011 and the three months ended Sep. 30, 2011, which also impacted our net income (loss) for those two periods.
     
 

Constellation Energy Partners LLC

2012 Forecast
 
 
Forecast Component       2012 Forecast
 
Total Capital Spending $15.0MM - $19.0MM
 
Total Net Production 13.3 Bcfe - 14.1 Bcfe
 
Production Mix: Mid-Con Oil 0.9 Bcfe (7% of Total)
Total Natural Gas 12.8 Bcfe (93% of Total)
Mid-Con Natural Gas 66% of Total Natural Gas
Robinson’s Bend Natural Gas 34% of Total Natural Gas
 
Market Price: Natural Gas (Henry Hub) $3.24 per Mcfe
Oil (WTI, Cushing) $98.50 per Bbl
 
NYMEX/Basis Hedges Mid-Con Natural Gas 6.9 Bcfe at $5.22 per Mcfe
 
NYMEX Only Hedges: Other Natural Gas 2.0 Bcfe at $5.75 per Mcfe
Mid-Con Oil 83 MBbl at $103.14 per Bbl
 
Hedges as a % of Total Net Production (Midpoint) 69%
 
Differentials: Mid-Con Natural Gas (Basis to NYMEX) ($0.18) per Mcfe
Mid-Con Oil (Marketing) ($2.50) per Bbl
Mid-Con Natural Gas (Gathering)

($0.50) per Mcfe
 
Operating Costs (Blended):

LOE (1)
$1.84 per Mcfe
Production Taxes $0.20 per Mcfe

G&A - Field Level (2)
$0.35 per Mcfe

G&A - Corporate (2)
$0.84 per Mcfe
Total $42.5MM - $46.0MM
 
Margin from Third Party Sales/Services $2.0MM - $3.0MM
 

Adjusted EBITDA (3)
$29.5MM - $31.5MM
 
Interest Expense (5.9% Effective Rate) ~ $5.8MM
 
Maintenance Capital $15.0MM
 
 
(1) Excludes exploration costs and unit-based compensation program expenses, which are non-cash items.

(2) Excludes unit-based compensation program expenses, which is a non-cash item.

(3) We are unable to reconcile our forecast range of Adjusted EBITDA 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 from mark-to-market activities and equity investments or asset impairments due to the difficulty of doing so, and we are unable to address the probable significance of the unavailable reconciliation, in significant part due to ranges in our forecast impacted by changes in oil and natural gas prices and reserves which affect certain reconciliation items.

 

Copyright Business Wire 2010

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