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.
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