Constellation Energy Partners Reports First Quarter 2014 Results; Provides Acquisition And Hedging Update

Constellation Energy Partners LLC (NYSE MKT: CEP) today reported first quarter 2014 results.

The company produced 372 MBOE during the first quarter 2014 for average net production of 4,131 BOE per day for the quarter, which is an increase of 11% compared to the first quarter 2013 production from continuing operations. Net oil and liquids production for the first quarter 2014, which accounted for approximately 22% of the company’s total production during quarter, was 907 barrels per day, which represents an increase in net oil and liquids production of approximately 24% over the prior quarter and 71% over the first quarter of 2013.

Revenue of $11.7 million for the first quarter 2014 includes revenue from sales of $15.0 million, of which approximately 44% was from oil and liquids sales and 56% was from natural gas sales. The balance of the company’s first quarter 2014 revenue came from hedge settlements ($0.9 million), services provided to third parties ($0.8 million), and losses on mark-to-market activities ($5.0 million), which is a non-cash item.

Operating costs, which include lease operating expenses, production taxes and general and administrative expenses, net of certain non-cash items, averaged $25.18 per BOE in the first quarter 2014, a 5% increase when compared to first quarter 2013 operating costs of $23.98 per BOE, adjusted for non-recurring items.

Adjusted EBITDA for the first quarter 2014 was approximately $7.0 million, which is a 17% improvement when compared to results from continuing operations, adjusted for non-recurring items, for the first quarter 2013.

The company completed 7 net wells and recompletions using $2.7 million in cash flow from operations during the first quarter 2014. Drilling activities in 2014 continue to focus on oil potential in the company’s existing asset base as well as capital efficient recompletions. The company finished the first quarter 2014 with one net well in progress.

“The first quarter of this year was about building on positive momentum,” said Stephen R. Brunner, President and Chief Executive Officer of Constellation Energy Partners. “After a pivotal year in 2013, we successfully resolved the PostRock Litigation at the end of the first quarter 2014. This was key to setting up a number of initiatives that we have planned for the remainder of the year, and has resulted in further progress on our business plans since the end of the quarter. We look forward to continuing to build on this momentum, always with an eye toward returning value to our unitiholders.”

Reserve-Based Credit Facility and Hedging Update

The company currently has approximately $52.0 million in debt outstanding under its reserve-based credit facility, which has a borrowing base of $70.0 million.

In April 2014, the company executed oil swaps with a lender in its reserve-based credit facility on 52 MBbls of 2014 oil production at $98.01 per Bbl, 83 MBbls of 2015 oil production at $91.07 per Bbl, and 149 MBbls of 2016 oil production at $85.70 per Bbl.

Asset Acquisition

The company also reported that it acquired non-operated working interests in 9 producing wells (1.8 net producing wells) and other assets located in LaSalle Parish, Louisiana in April 2014. The assets were acquired at auction for less than $1.4 million and, as of late April, produced approximately 17 BOPD of oil. The wells are operated by Sanchez Oil & Gas Corporation.

Financial Outlook for 2014

The company forecasts capital spending of between $20.0 million and $22.0 million in 2014. The company forecasts maintenance capital of $23.0 million in 2014.

Net production is forecast to range between 1,346 MBOE and 1,552 MBOE for 2014, with operating costs forecast to range between $33.3 million and $37.3 million for the year.

For the remainder of 2014, the company has hedged approximately 4.8 Bcfe of its Mid-Continent natural gas production at an effective NYMEX fixed price of $5.75 per Mcfe with basis hedges on 3.3 Bcfe of this amount at an average differential of $0.39 per Mcfe. Including the oil hedges executed in April 2014, the company also has hedges in place on approximately 214 MBbl of its 2014 oil production at a fixed price of $95.53 per barrel.

Additional detail on the company’s 2014 forecast can be found in the tables included with the company’s fourth quarter and full year 2013 news release dated March 25, 2014.

Conference Call Information

The company will host a conference call at 10:00 a.m. (CDT) on Monday, May 19, 2014 to discuss first quarter 2014 results.

To participate in the conference call, analysts, investors, media and the public in the U.S. may dial (800) 857-0653 shortly before 10:00 a.m. (CDT). 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 (888) 296-6943 or (402) 998-0533 (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 first quarter 2014 Form 10-Q on or about May 15, 2014.

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; (gain) loss from equity investment; unit-based compensation programs; (gain) loss from mark-to-market activities; and gain (loss) on discontinued operations.

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 Mar. 31,
2014 2013
Net Production in MBOE and MMcfe:
Total production (MBOE) 372 335
Average daily production (BOE/day) 4,131 3,724
 
Total production (MMcfe) 2,231 2,010
Average daily production (Mcfe/day) 24,784 22,333
 
Average Net Sales Price per BOE and Mcfe:
BOE Net realized price, including hedges $ 44.06

(a)
$ 41.67

(a)
BOE Net realized price, excluding hedges $ 41.57

(b)
$ 27.63

(b)
 
Mcfe Net realized price, including hedges $ 7.34

(a)
$ 6.95

(a)
Mcfe Net realized price, excluding hedges $ 6.93

(b)
$ 4.61

(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 4 12
Net Recompletions 3 5
Developmental Dry Holes - -
Net Wells and Net Recompletions in Progress 1 4
 
 
Constellation Energy Partners LLCCondensed Consolidated Statements of Operations
       
Three Months Ended Mar. 31,
2014 2013
($ in thousands)
 
Oil and gas sales $ 16,738 $ 14,385
Gain/(Loss) from mark-to-market activities   (4,997 )   (9,285 )
Total revenues 11,741 5,100
 
Operating expenses:
Lease operating expenses 5,120 4,236
Cost of sales 360 420
Production taxes 772 487
General and administrative 3,571 4,404
(Gain)/Loss on sale of assets (7 ) (6 )
Depreciation, depletion and amortization 4,050 4,798
Asset impairments 149 -
Accretion expense   150     123  
Total operating expenses 14,165 14,462
 
Other expenses:
Interest (income) expense, net 525 1,352
Other (income) expense (10 ) (68 )
   
Total expenses 14,680 15,746
 
Income (loss) from continuing operations (2,939 ) (10,646 )
Discontinued operations   -     (2,686 )
Net income (loss) $ (2,939 ) $ (13,332 )
 
Adjusted EBITDA $ 7,026   $ 5,307  
 
Loss per unit
Loss from continuing operations per unit
Class A units - Basic and diluted $ (0.04 ) $ (0.44 )
Class B units - Basic and diluted $ (0.10 ) $ (0.44 )
Discontinued operations per unit
Class A units - Basic and diluted $ - $ (0.11 )
Class B units - Basic and diluted $ - $ (0.11 )
Net loss per unit
Class A units - Basic and diluted $ (0.04 ) $ (0.55 )
Class B units - Basic and diluted $ (0.10 ) $ (0.55 )
Weighted Average Units Outstanding
Class A units - Basic and diluted 1,615,017 484,396
Class B units - Basic and diluted 28,214,104 23,766,266
 
 
Constellation Energy Partners LLCCondensed Consolidated Balance Sheets
   
Mar. 31, Dec. 31,
2014 2013
($ in thousands)
 
Current assets $ 25,702 $ 23,260
Current assets from discontinued operations - -
Oil and natural gas properties, net of accumulated
depreciation, depletion and amortization 143,276 144,995
Other assets 3,988 6,278
Long-term assets from discontinued operations   -     -  
Total assets $ 172,966   $ 174,533  
 
Current liabilities, including short-term debt $ 16,095 $ 14,017
Current liabilities from discontinued operations - -
Long-term debt 50,700 50,700
Other long-term liabilities 11,079 10,911
Other long-term liabilities from discontinued operations     -  
Total liabilities 77,874 75,628
 
Common members' equity 95,092 98,905
Accumulated other comprehensive income   -     -  
Total members' equity   95,092     98,905  
Total liabilities and members' equity $ 172,966   $ 174,533  
 
 

Constellation Energy Partners LLCReconciliation of Net Income (Loss) to Adjusted EBITDA
       
Three Months Ended Mar. 31,
2014 2013
($ in thousands)
 
Reconciliation of Net Income (Loss) to
Adjusted EBITDA:
Net income (loss) $ (2,939 ) $ (13,332 )
Add:
Interest (income) expense, net 525 1,352
Depreciation, depletion and amortization 4,050 4,798
Asset impairments 149 -
Accretion expense 150 123
(Gain)/Loss on sale of assets (7 ) (6 )
Unit-based compensation programs 101 401
(Gain)/Loss from mark-to-market activities 4,997 9,285
(Gain)/Loss from discontinued operations   -     2,686  
Adjusted EBITDA(1) $ 7,026   $ 5,307  
 
             
Three Months Ended Dec. 31, Twelve Months Ended Dec. 31,
2013 2012 2013 2012
($ in thousands) ($ in thousands)
 
Reconciliation of Net Income (Loss) to
Adjusted EBITDA:
Net income (loss) $ (13,066 ) $ (76,255 ) $ (28,543 ) $ (86,543 )
Add:
Interest (income) expense, net 514 1,143 3,150 5,733
Depreciation, depletion and amortization 3,916 4,654 18,972 11,732
Asset impairments 2,357 2 2,357 109
Accretion expense 110 114 519 459
(Gain)/Loss on sale of assets (4 ) 7 4 7
Unit-based compensation programs 221 334 1,049 1,497
(Gain)/Loss from mark-to-market activities 5,997 253 17,281 8,706
(Gain)/Loss from discontinued operations   -     74,055     2,686     77,081  
Adjusted EBITDA(1) $ 45   $ 4,307   $ 17,475   $ 18,781  
 
(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;
-- (gain) loss from equity investment;
-- unit-based compensation programs;
-- (gain) loss from mark-to-market activities; and
-- gain (loss) on discontinued operations.

Copyright Business Wire 2010

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