Constellation Energy Partners Reports Third Quarter 2012 Results

Constellation Energy Partners LLC (NYSE MKT: CEP) today reported third quarter 2012 results.

The company produced 3,126 MMcfe during the third quarter, which is down less than 1% versus the second quarter 2012, for average daily net production of 34.0 MMcfe during the third quarter. Year-to-date, the company produced 9,494 MMcfe for average daily net production of 34.6 MMcfe, which is down approximately 9% versus the first nine months of 2011.

The company’s revenue of $6.5 million for the third quarter 2012 includes revenue from sales of $9.7 million, revenue from hedge settlements of $6.3 million, a non-cash loss on mark-to-market activities of $10.2 million, and revenue from services provided to third parties of $0.7 million. Taken together, the company’s revenue from sales and hedge settlements totaled $16.0 million in the third quarter, which is unchanged from the second quarter of 2012. For the year-to-date, approximately 30% of the company’s revenue from sales has resulted from oil sales.

Operating costs, which include lease operating expenses, production taxes and general and administrative expenses, net of certain non-cash items, averaged $3.44 per Mcfe for the third quarter 2012 compared to $3.24 for second quarter 2012. For the year-to-date, operating costs averaged $3.36 per Mcfe, which compares to $3.41 for the first nine months of 2011.

Adjusted EBITDA for the third quarter 2012 was $5.6 million, which is down about 10% versus the second quarter 2012 as a result of higher operating expenses recorded by the company in the third quarter 2012. Adjusted EBITDA for the year-to-date was $17.8 million.

On a GAAP basis, the company recorded a net loss of $11.2 million for the third quarter 2012 and a net loss of $10.3 million for the year-to-date.

The company completed 14 net wells and recompletions on capital spending of $3.7 million in the third quarter 2012. These well additions resulted in 62 net wells and recompletions for the year-to-date, and the company had an additional 55 net wells and recompletions in progress as of Sep. 30, 2012. Drilling activities remain focused on oil potential in the company’s existing asset base as well as capital efficient recompletions. The company continues to fund its capital program using cash flow from operations.

“Our drilling activity in the Cherokee Basin is progressing according to our plans, and we continue to see meaningful results from our focus on oil opportunities,” said Stephen R. Brunner, President and Chief Executive Officer of Constellation Energy Partners. “We continue to look for opportunities to lower operating costs, and believe some of the initiatives we announced last quarter will begin to impact our results beginning later this year and throughout 2013. As we work to further improve our cost structure, we’ve maintained our focus on merger and acquisition opportunities and have also initiated several key strategic initiatives recently that we believe will benefit our unitholders.”

Distribution Outlook

The timing of any reinstatement of a quarterly distribution to CEP’s unitholders remains uncertain and may be impacted by the unitholder tax election vote currently scheduled at the company’s annual meeting. Any decision to reinstate any future quarterly distributions may also consider, among other things, the company’s outstanding indebtedness, the borrowing base under the company’s reserve-based credit facility, the renewal or replacement of the company’s reserve-based credit facility, the level of commodity prices at that time, and the cash reserved that are set by the company’s board of managers for the proper conduct of CEP’s business. Any future quarterly distributions must be approved by the company’s board of managers.

Conference Call Information

The company will host a conference call at 8:30 a.m. (CST) on Friday, Nov. 9, 2012 to discuss third quarter 2012 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) 214-3608 or (402) 220-3754 (international). A live audio webcast of the conference call, presentation slides and the earnings release will be available on CEP’s 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 third quarter 2012 Form 10-Q on or about Nov. 9, 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 LLCOperating Statistics
               
Three Months Ended Sep. 30, Nine Months Ended Sep. 30,
2012

2011
2012 2011
Net Production:
Total production (MMcfe) 3,126 3,414 9,494 10,383
Average daily production (Mcfe/day) 33,978 37,109 34,650 38,033
 
Average Net Sales Price per Mcfe:
Net realized price, including hedges $ 5.24 (a) $ 7.32 (a) $ 5.22 (a) $ 11.36
Net realized price, excluding hedges $ 3.24 (b) $ 4.49 (b) $ 3.16 (b) $ 4.48
 

(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 7 6 28 21
Net Recompletions 7 22 34 46
Developmental Dry Holes - - - 1
 
             
 

Constellation Energy Partners LLCCondensed Consolidated Statements of Operations
           
Three Months Ended Sep. 30, Nine Months Ended Sep. 30,
2012 2011 2012 2011
($ in thousands) ($ in thousands)
 
Oil and gas sales $ 16,653 $ 25,624 $ 50,520 $ 119,617
Gain/(Loss) from mark-to-market activities   (10,158 )   5,819     (8,453 )   (47,946 )
Total revenues 6,495 31,443 42,067 71,671
 
Operating expenses:
Lease operating expenses 6,683 7,297 19,728 21,319
Cost of sales 287 640 923 1,701
Production taxes 495 847 1,552 2,278
General and administrative 4,076 4,548 11,808 12,783
Exploration costs - - - 131
(Gain)/Loss on sale of assets - 8 - 29
Depreciation, depletion and amortization 4,412 5,863 13,186 17,621
Asset impairments - 1,935 107 1,935
Accretion expense   192     228     575     680  
Total operating expenses 16,145 21,366 47,879 58,477
 
Other expenses:
Interest (income) expense, net 1,534 3,002 4,590 8,930
Other (income) expense (21 ) (69 ) (114 ) (195 )
       
Total expenses 17,658 24,299 52,355 67,212
       
Net income (loss) $ (11,163 ) $ 7,144   $ (10,288 ) $ 4,459  
 
Adjusted EBITDA $ 5,639   $ 12,671   $ 17,810   $ 82,755  
 
EPU - Basic ($0.46 ) $ 0.29 ($0.43 ) $ 0.18
EPU - Basic Units Outstanding 24,169,012 24,259,018 24,171,669 24,280,385
 
EPU - Diluted ($0.45 ) $ 0.29 ($0.42 ) $ 0.18
EPU - Diluted Units Outstanding 24,568,292 24,259,018 24,345,079 24,280,385
 
               
 
Constellation Energy Partners LLCCondensed Consolidated Balance Sheets
   
Sep. 30, Dec. 31,
2012 2011
($ in thousands)
 
Current assets $ 31,781 $ 45,096
Oil and natural gas properties, net of accumulated
depreciation, depletion and amortization 262,061 266,085
Other assets   14,243   23,125
Total assets $ 308,085 $ 334,306
 
Current liabilities $ 10,539 $ 14,554
Debt 88,400 98,400
Other long-term liabilities   15,742   14,432
Total liabilities 114,681 127,386
 
Common members' equity 192,183 201,483
Accumulated other comprehensive income   1,221   5,437
Total members' equity   193,404   206,920
Total liabilities and members' equity $ 308,085 $ 334,306
 
 
 
Constellation Energy Partners LLC
Reconciliation of Net Income (Loss) to
Adjusted EBITDA
                     
Three Months Ended Sep. 30, Nine Months Ended Sep. 30,
2012   2011 2012   2011
($ in thousands) ($ in thousands)
 
Reconciliation of Net Income (Loss) to
Adjusted EBITDA:
Net income (loss) $ (11,163 ) $ 7,144 $ (10,288 ) $ 4,459
Add:
Interest (income) expense, net 1,534 3,002 4,590 8,930
Depreciation, depletion and amortization 4,412 5,863 13,186 17,621
Asset impairments - 1,935 107 1,935
Accretion expense 192 228 575 680
(Gain)/Loss on sale of assets - 8 - 29
Exploration costs - - - 131
Unit-based compensation programs 506 310 1,187 1,024
(Gain)/Loss from mark-to-market activities   10,158     (5,819 )   8,453     47,946  
Adjusted EBITDA (1), (2) $ 5,639   $ 12,671   $ 17,810   $ 82,755  
 
           
Three Months Ended June 30, Six Months Ended June 30,
2012 2011 2012 2011
($ in thousands) ($ in thousands)
 
Reconciliation of Net Income (Loss) to
Adjusted EBITDA:
Net income (loss) $ (5,010 ) $ 2,467 $ 875 $ (2,685 )
Add:
Interest (income) expense, net 1,437 4,076 3,056 5,928
Depreciation, depletion and amortization 4,358 5,893 8,774 11,758
Asset impairments - - 107 -
Accretion expense 192 226 383 452
(Gain)/Loss on sale of assets (4 ) 14 - 21
Exploration costs - - - 131
Unit-based compensation programs 394 341 681 714
(Gain)/Loss from mark-to-market activities   4,897     43,656     (1,705 )   53,765  
Adjusted EBITDA (1), (2) $ 6,264   $ 56,673   $ 12,171   $ 70,084  
 
 
(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 three months and six months ended June 30, 2011, and nine months ended Sep. 30, 2011, include $41.3 million in hedge settlements related to the company’s June 2011 hedge restructuring.
 

Copyright Business Wire 2010

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