EV Energy Partners CEO Discusses Q2 2012 Results - Earnings Call Transcript

EV Energy Partners, L.P (EVEP)

Q2 2012 Earnings Results Conference

August 10 2012 10:00 AM ET

Executives

John B. Walker - Executive Chairman

Mark A. Houser - CEO, President and Director

Michael E. Mercer - CFO and SVP

Ronald J. Gajdica - SVP, Acquisitions

Analysts

John Ragozzino – RBC Capital Markets

Kevin Smith - Raymond James & Associates, Inc., Research Division

Praneeth Satish - Wells Fargo Securities, LLC

Ethan Bellamy - Robert W. Baird & Co. Incorporated, Research Division

Brett Reilly - Credit Suisse Securities (USA) LLC

Adam Lake – RBC Capital Markets

Brian Kuzma - Weiss Multi-Strategy Advisors

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the EV Energy Partners Second Quarter Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions)

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

John B. Walker

Thank you, and good morning. Welcome to EV Energy Partners second quarter earnings call. I’m in El Paso, while Mark Houser, who is having his birthday today. Mike Mercer and Ron Gajdica are in our Houston office.

This has been a very good quarter for EVEP. We exceeded the midpoint of guidance on production, LOE and distributable cash flow. G&A expenses were slightly above the expectations because of acquisition transition cost, which we do not include as part of our G&A guidance.

Obviously, natural gas and NGL prices hurt revenues for everyone this quarter. Our extensive hedge position however, particularly for natural gas and natural gas liquids provided the cash flow support we expected and needed this quarter and for the remainder of 2012. I’m particularly pleased with the $0.695 per gallon ethane swaps and the $1.028 per gallon propane swaps that we’ve put in place last December. And Mike Mercer will provide more financial information in a while.

You will see in the 10-Q that EVEP, in August entered into an agreement to purchase about $83 million of assets. For competitive and strategic reasons we cannot disclose location of these assets yet, but we will inform you later in the year.

As a point of clarification, Chesapeake announced this week that affiliates of EnerVest are buying its Midland basin position. This is a purchase by EnerVest’s institutional fund and EVEP is not a party to that transaction. Our Utica sales process own operated acreage is underway and we’re encouraged by the level of interest. We’ve had meetings on both the operated and non-operated packages. We plan to keep the shallow Clinton production, the deep Knox production, our recorded overrides and EVEP’s investment in the Midstream. Therefore we’re only marketing the Utica formation rights and delivering approximately an 80% net lease.

EVEP’s perspective Utica acreage in some non-core Ohio Counties and a few Northwestern Pennsylvania Counties will not be marketed this year. But it’s our intention to test this acreage and sell it in the future. I’m spinning most of my time on this landmark Utica effort. However, I’ve met with many CEOs of oil companies and spend quite a bit of time in meetings in Japan, Korea, and China. As I’ve said publicly before the wet-gas window is significantly derisked. The cost of Utica well to drill and complete is now a little above $6 million, one half the average cost from last year.

Chesapeake is drilled at least two wells on several multi well pads this year and in fact they plan on drilling six wells on one pad this year. The results from offset wells to some of our early Carroll County wells are two to three times better than those from the year-ago.

In the early stages of drilling results in the oil window, we and other Utica companies have proven that we’re able to produce oil plus gas in the NGLs and expect these results to continue to improve. Specifically we need to improve upon completion techniques and appropriate dissipation periods for the oil windows. And that’s just a very natural process and looking at the Eagle Ford, we believe that the results from oil wells in the Utica oil window right now are in excess of those from the early wells in the Eagle Ford.

Mark will address the encouraging results from EVEP operated wells in Stark and Guernsey Counties, the Chesapeake operated [Granby] wells performance from a six stage frac in Tuscarora County and the Anadarko and Antero wells in Guernsey and Noble Counties. Our Cairns well in western Carroll County and Habrun well in Southern Stark County, further supports the attractiveness of this window is we test them over the next month.

Now I’d like to turn the call over to Mike Mercer.

Michael E. Mercer

Thank you, John. For the second quarter of 2012 our adjusted EBITDA actually $66.1 million, which is a 20% increase over last year’s second quarter and it is primarily due to acquisitions we completed during 2011. And it’s a 3% sequential increase over the first quarter of 2012. Distributable cash flow for the second quarter was $34.5 million, a 4% increase over the second quarter of 2011 and basically flat versus the first quarter, even with the decline in commodity prices.

Distributions for the first quarter which are payable on August 14th, to the holders of record as of August 7, will be approximately $33 million. For the second quarter, production was 10.7 Bcf of natural gas, 282,000 barrels of crude oil and 403,000 barrels of natural gas liquids or 14.8 Bcfe. This is a 47% increase over the second quarter of last year, which is primarily due to the acquisitions that I had mentioned completed during the fourth quarter of 2011 and a 2% sequential increase over the first quarter production of this year of 14.5 Bcfe.

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