Constellation Energy Partners Reports First Quarter 2013 Results

Constellation Energy Partners Reports First Quarter 2013 Results

  • CEP's net oil production increases 34% in the first quarter 2013
  • Oil production accounts for 50% of CEP's revenue from sales
  • CEP's drilling efforts continue to target oil in the Mid-Continent asset base

HOUSTON--(BUSINESS WIRE)-- Constellation Energy Partners LLC (NYSE MKT: CEP) today reported first quarter 2013 results from continuing operations, which exclude results for the Robinson's Bend Field assets divested by the company in a transaction that closed in Feb. 2013.

The company produced 335 MBOE during the first quarter for average net production of 3,722 BOE per day for the quarter. Net oil production for the first quarter, which accounted for approximately 14% of the company's total production during quarter, was 531 barrels per day, which represents an increase in net oil production of approximately 34% over the prior quarter and 64% over the first quarter of 2012.

Revenue of $5.1 million for the first quarter 2013 includes revenue from sales of $8.7 million, of which approximately 50% was from oil sales and 50% was from natural gas sales. The balance of the company's first quarter 2013 revenue came from hedge settlements ($4.7 million), services provided to third parties ($0.9 million), and losses on mark-to-market activities ($9.2 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 and a one-time employee severance charge of $0.7 million, averaged $23.98 per BOE for the first quarter 2013. Including the one-time employee severance charge, operating costs were $26.04 per BOE.

Adjusted EBITDA for the first quarter 2013, excluding the one-time employee severance charge, was $6.0 million. Including the one-time employee severance charge, Adjusted EBITDA was $5.3 million, which is a 23% increase over the fourth quarter 2012 and a 15% increase over the first quarter 2012. On a GAAP basis, the company recorded a net loss of $10.6 million for the quarter.

The company completed 17 net wells and recompletions using $2.5 million in cash flow from operations during the first quarter 2013. Drilling activities in 2013 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 2013 with four net wells and recompletions in progress.

"We're seeing meaningful contributions from our focus on the oil opportunities in our Mid-Continent asset base," said Stephen R. Brunner, President and Chief Executive Officer of Constellation Energy Partners. "Our first quarter results were right on target relative to our forecast for 2013, and we look forward to continuing success from our drilling efforts for the remainder of the year."

Reserve-Based Credit Facility and Hedging Update

The company completed the first quarter 2013 with $34.0 million in debt outstanding under its reserve-based credit facility, leaving the company with $3.5 million in borrowing capacity under the facility. The company maintained $9.7 million in cash and cash equivalents as of Mar. 31, 2013.

The company noted that it is working to complete an amendment to its reserve-based credit facility and expects to complete that amendment during the second quarter 2013. In anticipation of the amendment, the company added NYMEX hedges that cover approximately 3.7 Bcfe of its natural gas production in the 2015 and 2016 timeframe.

Financial Outlook for 2013

The company forecasts capital spending of between $19.0 million and $21.0 million in 2013. Of this amount, $21.0 million is maintenance capital.

Net production is forecast to range between 1,267 MBOE and 1,433 MBOE for 2013, with operating costs forecast to range between $31.4 million and $34.2 million for the year.

For the remainder of 2013, the company has hedged approximately 5.1 Bcfe of its Mid-Continent natural gas production at an effective NYMEX fixed price of $6.17 per Mcfe with basis hedges on 3.8 Bcfe of this amount at an average differential of $0.39 per Mcfe. The company also has hedges in place on approximately 107 MBbl of its Mid-Continent oil production at a fixed price of $96.31 per barrel.

Additional detail on the company's 2013 forecast can be found in the tables included with the company's fourth quarter and full year 2012 news release dated Mar. 5, 2013.

Conference Call Information

The company will host a conference call at 8:30 a.m. (CDT) on Friday, May 17, 2013 to discuss first quarter 2013 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. (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) 568-0664 or (203) 369-3203 (international). A live audio webcast of the conference call, presentation slides and the earnings release will be available on Constellation Energy Partners' Web site ( 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 2013 Form 10-Q on or about May 15, 2013.

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 Mar. 31,

Net Production in MBOE and MMcfe:

Total production (MBOE)

Average daily production (BOE/day)3,7223,886
Total production (MMcfe)2,0102,122
Average daily production (Mcfe/day)22,33323,319
Average Net Sales Price per BOE and Mcfe:
BOE Net realized price, including hedges




BOE Net realized price, excluding hedges




Mcfe Net realized price, including hedges


Mcfe Net realized price, excluding hedges$4.61(b)$3.57(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 Completed125
Net Recompletions512
Developmental Dry Holes--
Net Wells and Net Recompletions in Progress438

Total Capital Spending ($ in thousands)

Constellation Energy Partners LLC
Condensed Consolidated Statements of Operations
Three Months Ended Mar. 31,
($ in thousands)
Oil and gas sales$14,385$14,012
Gain/(Loss) from mark-to-market activities (9,285) 6,602 
Total revenues5,10020,614
Operating expenses:
Lease operating expenses4,2365,171
Cost of sales420385
Production taxes487402
General and administrative4,4043,836
Exploration costs--
(Gain)/Loss on sale of assets(6)4
Depreciation, depletion and amortization4,7982,387
Asset impairments-107
Accretion expense 123  114 
Total operating expenses14,46212,406
Other expenses:
Interest (income) expense, net1,3521,619
Other (income) expense(68)(97)
Total expenses15,74613,928
Income (loss) from continuing operations(10,646)6,686
Discontinued operations (2,686) (801)
Net income (loss)$(13,332)$5,885 
Adjusted EBITDA$5,307 $4,595 
EPU - Basic($0.55)$0.24
EPU - Basic Units Outstanding24,250,66124,186,724
EPU - Diluted($0.55)$0.24
EPU - Diluted Units Outstanding24,250,66124,186,724
Constellation Energy Partners LLC
Condensed Consolidated Balance Sheets
Mar. 31,Dec. 31,
($ in thousands)
Current assets$26,828$26,848
Current assets from discontinued operations



Oil and natural gas properties, net of accumulated
depreciation, depletion and amortization116,564120,122
Other assets11,47311,793
Long-term assets from discontinued operations - 67,373
Total assets$154,865$228,022
Current liabilities, including short-term debt$


Current liabilities from discontinued operations



Long-term debt


Other long-term liabilities10,1938,891
Other long-term liabilities from discontinued operations  7,692
Total liabilities51,715111,756
Common members' equity103,150116,266
Accumulated other comprehensive income - -
Total members' equity 103,150 116,266
Total liabilities and members' equity$154,865$228,022
Constellation Energy Partners LLC
Reconciliation of Net Income (Loss) to

Adjusted EBITDA

Three Months Ended Mar. 31,
2013  2012
($ in thousands)
Reconciliation of Net Income (Loss) to
Adjusted EBITDA:
Net income (loss)$(13,332)$5,885
Interest (income) expense, net1,3521,619
Depreciation, depletion and amortization4,7982,387
Asset impairments-107
Accretion expense123114
(Gain)/Loss on sale of assets(6)4
Exploration costs--
Unit-based compensation programs401280
(Gain)/Loss from mark-to-market activities9,285(6,602)
Discontinued operations 2,686  801 
Adjusted EBITDA (1)$5,307 $4,595 
Three Months Ended Dec. 31,Twelve Months Ended Dec. 31,
($ in thousands)($ in thousands)
Reconciliation of Net Income (Loss) to
Adjusted EBITDA:
Net income (loss)$(76,255
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