EV Energy Partners Management CEO Discusses Q1 2012 Results - Earnings Call Transcript

EV Energy Partners, L.P. (EVEP)

Q1 2012 Earnings Call

May 9, 2012 4:30 PM ET

Executives

John Walker – Executive Chairman

Mike Mercer – SVP and CFO

Ron Gajdica – SVP, Acquisitions

Analysts

Kevin Smith – Raymond James

John Ragozzino – RBC Capital Markets

Ethan Bellamy – Robert W Baird

Bernie Colson – Global Hunter Securities

Tony Lingham – Macquarie Partners

Richard Roy – Citi

William Adams – GAMCO

Tom Wise – CenterPoint Properties

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the EV Energy Partners First Quarter Earnings Conference Call.

(Operator Instructions)

This conference is being recorded today, Wednesday, May 9, 2012.

I would now like to turn the conference over to Mr. John Walker, Executive Chairman. Please go ahead, sir.

John Walker

Thank you, Camille and welcome, everyone this afternoon. Thank you for joining us for the first quarter call for EVEP. Presenters this afternoon will be me, Mike Mercer and Ron Gajdica. Mark Houser, our CEO, is with his family at the funeral for his wife’s mother who had a courageous eight-year fight against cancer.

Relative to our production, revenues and distributable cash flow, we exceeded the midpoint of guidance. We fell short on LOE and G&A expenses because of some reclassification of expenses and non-recurring quarterly items, which Mike Mercer will address. Overall, it was another steady quarter for EVEP. Production into May continues to meet our forecast and I’m saying that because I want to spend just a little bit of time talking to you about the probable impact of the giant surplus of gas that has to be worked off by fall.

Unless we have an incredibly hot summer, and I want to remind you that last summer was 22% hotter than normal, it’s likely that sometime in the late summer, we will begin seeing much higher line pressures, the in mandatory curtailments, followed by rotating shut-ins of fields all over the country. EnerVest and EVEP have been exceeding – have been – I’m sorry – have been expecting this set of events since February when it was apparent that we were experiencing the warmest winter in recorded history.

Approximately 90% of EVEP’s expected production is this year and 80% next year, and I want to elaborate on that slightly in that really, 100% of our current production is hedged as well as our PDP for next year; it’s just that we continue to drill wells instead of some of those – the results from those PUDs are not hedged at this point. There’s no question, however, that all companies in the US with natural gas production will fall short of forecasts in the third and fourth quarters.

On a more optimistic note, and this is going to sound strange when you hear the title here, I’m giving a speech next week at Bentek’s BENPOSIUM titled, Why $1 Gas Prices Are Good For Our Industry. And I’ve spent a lot of time analyzing supply and demand in our industry and for the first time since 2007, I’m optimistic that natural gas supply and demand will start coming into balance in 2014 and beyond for a period. My work would suggest $5 gas prices in 2015 based upon demand strength and some supply constraints.

Turning back to EVEP, Ron will talk about the details of our operations, but I specifically want to address the Utica formation at the 10,000-foot level. The core of the wet-gas window is significantly de-risked and pad drilling has commenced or has been conducted by four wells on four pads now. Drilling and completion costs, on average have declined on Chesapeake-operated wells by over 30% this year. The condensate and NGL yields have noticeably improved and stabilized at higher levels from wells in which the frac water has dissipated into the formation.

In the oil window, we’re encouraged by the oil flows or tests from five wells. EnerVest has completed one well in Guernsey County and one in Stark County, about which Ron will discuss in just a few minutes. Both wells will be shut-in for a minimum of 30 to 60 days to dissipate the pads. And this is a procedure that we and Chesapeake are following and the results of these shut-ins in this dissipation process has proven to be significantly better – particularly in NGL wells, and we believe it will help in the oil window too.

We’ve hired Jefferies & Company to act as our advisor on the Utica monetization process and will formally launch the process by the end of the second quarter with a data room for our operated acreage opening in early July and we’re going to follow this with a data room for the outside operated leases opening about 30 to 45 days later.

Many companies have met with us informally, and some several times, and have expressed an interest in our large Utica position, particularly in the core of the NGL and oil windows. And so we’re encouraged by the interests that we’re seeing, and we are awaiting more information on the oil window before we open our data rooms in early July.

Now I’d like to turn over the discussion to Mike Mercer for our financial performance in the first quarter.

Mike Mercer

Thank you, John. For the first quarter of the year, adjusted EBITDA was $64.5 million, which is a 27% increase over the first quarter of 2011 and an 18% sequentially increase over the fourth quarter of last year. This is primarily due to the acquisitions that we completed and closed in the fourth quarter of 2011.

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