Exhibit 99.1
Constellation Energy Partners Reports Third Quarter 2008 Results
HOUSTON, Nov. 7, 2008—Constellation Energy Partners LLC (NYSE Arca: CEP) today reported third quarter results and updated its full 2008 forecast.
The company produced 4,477 MMcfe for the third quarter, up 42 percent from the third quarter of 2007 and one percent from the second quarter of 2008. Adjusted EBITDA was $18.8 million, an increase of 19 percent from the third quarter of 2007 and a decrease of 8 percent from the second quarter of 2008. Net income on a Generally Accepted Accounting Principles (GAAP) basis for the third quarter of 2008 was $26.9 million, up from $6.9 million from the third quarter of 2007 and up $35.7 million from the second quarter of 2008.
Third quarter results included an unrealized noncash mark-to-market (MTM) gain of $22.0 million from future period natural gas hedges primarily as a result of lower natural gas prices as of Sept. 30, 2008.
During the third quarter, the company completed 40 net wells and 14 net recompletions, bringing program results to 90 net wells and 32 recompletions for the first nine months of 2008. An additional 33 wells and recompletions were in progress, of which 15 to 20 are expected to flow to sales by the end of the year.
The company revised its expectations for the full year 2008 drilling program, as a result of drilling program delays experienced at the beginning of the year. The company indicated it expects to deliver 105 to 115 net wells, down from its original forecast of 115 to 130 net wells. Total net recompletions for the year are expected to range from 35 to 40, down from 85 to 100 net recompletions.
“Although we have reduced the number of wells and recompletions we intend to complete during the year, we have observed greater predictability in the results that we have delivered. We have demonstrated that our projections and expectations for well costs and performance are reasonable and the current level of maintenance capital spending is maintaining our production levels and offsetting decline rates,” said Stephen R. Brunner, president and chief executive officer of Constellation Energy Partners. “This knowledge gives us better control of our program and improves our decision-making capabilities. As we move forward, our ability to select higher rate of return investments and deliver more predictable production should allow us to ultimately improve our capital efficiency.”
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The company also provided an update on its 2008 full year forecast. The company indicated it expects to spend between $40 million to $45 million in capital, compared to a forecast of $44.5 million. The company indicated it expects to deliver 17 to 18 Bcfe of production during the year, compared to a forecast range of 17 to 20 Bcfe. The company revised its operating expense forecast to $58 million to $59 million, up from $54.5 million to $57.5 million, among other things to reflect additional expenses related to the Torch arbitration and retention of a strategic advisor. The company also revised its Adjusted EBITDA forecast range to $70 million to $75 million, down from $94 million to $105 million, to reflect the impact of lower realized natural gas prices and production results and higher operating expenses.
“Based on our revised guidance for 2008, we anticipate that our full year distribution coverage ratio will be less than 1.0 times, a level we believe is not sustainable. We anticipate that our future distribution levels will be evaluated based on distribution coverage ratio, overall portfolio performance and market outlook, in conjunction with advice from our strategic advisor and approval from our Board of Managers,” said Brunner. “Once we finalize our 2009 business plan and gain approval from our Board of Managers, we will provide further guidance on both the plan and future distribution levels, which we anticipate doing prior to our next earnings call.”
Non-GAAP Measures
We present Adjusted EBITDA and Distributable Cash Flow in addition to our reported net income in accordance with GAAP. Adjusted EBITDA is a non-GAAP financial measure that is defined as net income (loss) plus interest (income) expense; depreciation, depletion and amortization; write-off of deferred financing fees; impairment of long-lived assets; (gain) loss on sale of assets; (gain) loss from equity investment; long-term incentive plan expense; accretion of asset retirement obligation; unrealized (gain) loss on natural gas derivatives; and realized (gain) loss on cancelled natural gas derivatives. Distributable Cash Flow is defined as Adjusted EBITDA less maintenance capital expenditures and cash interest expense. Maintenance capital expenditures are capital expenditures that we expect to make on an ongoing basis to maintain our asset base (including our undeveloped leasehold acreage) at a steady level over the long term. These expenditures include the drilling and completion of additional development wells to offset the expected production decline during such period from our producing properties, as well as additions to our inventory of unproved properties or proved reserves required to maintain our asset base.
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Adjusted EBITDA and Distributable Cash Flow are used by management to indicate (prior to the establishment of any cash reserves by our Board of Managers) the cash distributions we expect to pay our unitholders. Specifically, these financial measures indicate to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates. Adjusted EBITDA and Distributable Cash Flow are also used as quantitative standards 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 and Distributable Cash Flow are not intended to represent cash flows for the period, nor are they 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. We also provide our earnings forecast in terms of Adjusted EBITDA. We are unable to reconcile our forecast 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 on gas derivatives and equity investments or asset impairments, due to the difficulty of doing so.
SEC Filings
CEP intends to file its Form 10-Q for the quarter ended Sept. 30, 2008, on or about Nov. 7, 2008.
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 and the Securities Exchange Act of 1934. 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.
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Conference Call Information
The company will host a conference call today at 8:30 a.m. (CST) to review its financial results and discuss its business outlook for 2008.
To participate, analysts, investors, media and the public in the U.S. may dial (888) 322-9245 shortly before 8:30 a.m. (CST). The international phone number is (773) 756-0253. The conference password is PARTNERS.
A replay will be available approximately one hour after the end of the call by dialing (800) 294-3092 or (402) 220-9770 (international). A live audio webcast of the conference call, presentation slides and the earnings press release will be available on the Investor Relations page of Constellation Energy Partners’ web site (http://www.constellationenergypartners.com). A webcast replay, as well as a replay in downloadable MP3 format, will also be available on the site approximately one hour after the completion of the call.
Constellation Energy Partners LLC, (http://www.constellationenergypartners.com), is a limited liability company focused on the acquisition, development and exploitation of oil and natural gas properties, as well as related midstream assets.
Constellation Energy Partners LLC | ||||||||||||||||
Operating Statistics | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Net Production: | ||||||||||||||||
Total production (MMcfe) | 4,477 | 3,158 | 12,942 | 6,181 | ||||||||||||
Average daily production (Mcfe/day) | 48,663 | 34,326 | 47,234 | 22,641 | ||||||||||||
Average Net Sales Price per Mcfe: | ||||||||||||||||
Net realized price, including hedges(a) | $ | 7.83 | $ | 7.25 | $ | 7.96 | $ | 7.99 | ||||||||
Net realized price, excluding hedges | $ | 8.74 | $ | 5.63 | $ | 8.79 | $ | 6.46 | ||||||||
(a) Excludes impact of mark-to-market losses and net of cost of sales. | ||||||||||||||||
Net Wells Drilled and Completed | 40 | 34 | 90 | 54 | ||||||||||||
Net Recompletions | 14 | 17.5 | 32 | 20.5 |
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Constellation Energy Partners LLC | ||||||||
Condensed Consolidated Statements of Operations |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||||||
($ in thousands) | ($ in thousands) | |||||||||||||||||||
Oil and gas sales | $ | 37,674 | $ | 23,536 | $ | 109,056 | $ | 50,033 | ||||||||||||
Gain/(Loss) from mark-to-market activities | 21,976 | 2,635 | 3,987 | (2,766 | ) | |||||||||||||||
Total revenues | $ | 59,650 | $ | 26,171 | $ | 113,043 | $ | 47,267 | ||||||||||||
Operating expenses: | ||||||||||||||||||||
Lease operating expenses | 9,428 | 5,077 | 27,701 | 9,822 | ||||||||||||||||
Cost of sales | 2,633 | 656 | 6,020 | 656 | ||||||||||||||||
Production taxes | 2,241 | 992 | 6,791 | 2,136 | ||||||||||||||||
General and administrative | 3,800 | 2,667 | 10,922 | 6,057 | ||||||||||||||||
(Gain)/Loss on sale of equipment | (85 | ) | (8 | ) | (296 | ) | 86 | |||||||||||||
Depreciation, depletion and amortization | 11,318 | 7,619 | 32,340 | 13,162 | ||||||||||||||||
Accretion expense | 105 | 98 | 307 | 211 | ||||||||||||||||
Total operating expenses | 29,440 | 17,101 | 83,785 | 32,130 | ||||||||||||||||
Other expenses: | ||||||||||||||||||||
Interest (income) expense, net | 3,218 | 2,216 | 8,596 | 3,906 | ||||||||||||||||
Other (income) expense | 53 | (29 | ) | 49 | (99 | ) | ||||||||||||||
Total expenses | 32,711 | 19,288 | 92,430 | 35,937 | ||||||||||||||||
Net income (loss) | $ | 26,939 | $ | 6,883 | $ | 20,613 | $ | 11,330 | ||||||||||||
Adjusted EBITDA | $ | 18,806 | $ | 15,832 | $ | 56,856 | $ | 32,946 | ||||||||||||
EPS—Basic | $ | 1.21 | $ | 0.37 | $ | 0.92 | $ | 0.79 | ||||||||||||
EPS—Basic Units Outstanding | 22,351,667 | 18,398,146 | 22,350,239 | 14,289,600 | ||||||||||||||||
EPS—Diluted | $ | 1.21 | $ | 0.37 | $ | 0.92 | $ | 0.79 | ||||||||||||
EPS—Diluted Units Outstanding | 22,351,667 | 18,400,709 | 22,370,700 | 14,292,163 |
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Constellation Energy Partners LLC | ||||
Condensed Consolidated Balance Sheets |
September 30, 2008 | December 31, 2007 | |||||
($ in thousands) | ||||||
Current assets | $ | 48,156 | $ | 45,873 | ||
Natural gas properties, net of accumulated depreciation, depletion and amortization | 693,969 | 643,653 | ||||
Other assets | 19,941 | 17,129 | ||||
Total assets | $ | 762,066 | $ | 706,655 | ||
Current liabilities | $ | 24,181 | $ | 20,551 | ||
Debt | 216,000 | 153,000 | ||||
Other long-term liabilities | 19,789 | 16,702 | ||||
Total liabilities | 259,970 | 190,253 | ||||
Class D Interests | 6,667 | 7,000 | ||||
Common members’ equity | 488,333 | 505,178 | ||||
Accumulated other comprehensive income | 7,096 | 4,224 | ||||
Total members’ equity | 495,429 | 509,402 | ||||
Total liabilities and members’ equity | $ | 762,066 | $ | 706,655 | ||
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Constellation Energy Partners LLC
Reconciliation of Net Income to Adjusted EBITDA to Distributable Cash
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
($ in thousands) | ($ in thousands) | |||||||||||||||
Reconciliation of Net Income to | ||||||||||||||||
Net income | $ | 26,939 | $ | 6,883 | $ | 20,613 | $ | 11,330 | ||||||||
Add: | ||||||||||||||||
Interest expense/(income), net | 3,218 | 2,216 | 8,596 | 3,906 | ||||||||||||
Depreciation, depletion and amortization | 11,318 | 7,619 | 32,340 | 13,162 | ||||||||||||
Accretion of asset retirement obligation | 105 | 98 | 307 | 211 | ||||||||||||
(Gain)/Loss on sale of asset | (85 | ) | (8 | ) | (296 | ) | 86 | |||||||||
Loss from mark-to-market activities | (21,976 | ) | (2,635 | ) | (3,987 | ) | 2,766 | |||||||||
Long-term incentive plan | 118 | 22 | 273 | 22 | ||||||||||||
Unrealized (gain)/loss on natural gas derivatives/hedge ineffectiveness | (831 | ) | 1,637 | (990 | ) | 1,463 | ||||||||||
Adjusted EBITDA (1) | $ | 18,806 | $ | 15,832 | $ | 56,856 | $ | 32,946 | ||||||||
Maintenance capital (2) | 7,417 | 3,314 | 21,584 | 6,071 | ||||||||||||
Drilling fund | (366 | ) | (1,134 | ) | (3,366 | ) | (1,134 | ) | ||||||||
MSA Agreement | (850 | ) | — | (850 | ) | — | ||||||||||
Interest expense (cash) | 3,005 | 1,680 | 8,054 | 2,590 | ||||||||||||
Distributable Cash | $ | 9,600 | $ | 11,972 | $ | 31,434 | $ | 25,419 | ||||||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
($ in thousands) | ($ in thousands) | |||||||||||||||
Reconciliation of Net Income to | ||||||||||||||||
Net income | $ | (8,790 | ) | $ | 2,193 | $ | (6,326 | ) | $ | 4,447 | ||||||
Add: | ||||||||||||||||
Interest expense/(income), net | 3,059 | 1,182 | 5,378 | 1,690 | ||||||||||||
Depreciation, depletion and amortization | 11,489 | 3,584 | 21,022 | 5,543 | ||||||||||||
Accretion of asset retirement obligation | 101 | 77 | 202 | 113 | ||||||||||||
(Gain)/Loss on sale of asset | — | (1 | ) | (211 | ) | 94 | ||||||||||
Loss from mark-to-market activities | 15,033 | 2,619 | 17,989 | 5,401 | ||||||||||||
Long-term incentive plan | 57 | — | 155 | — | ||||||||||||
Unrealized (gain)/loss on natural gas derivatives/hedge ineffectiveness | (410 | ) | 223 | (159 | ) | (174 | ) | |||||||||
Adjusted EBITDA (1) | $ | 20,539 | $ | 9,877 | $ | 38,050 | $ | 17,114 | ||||||||
Maintenance capital (2) | 7,417 | 1,519 | 14,167 | 2,757 | ||||||||||||
Drilling fund | (1,500 | ) | — | (3,000 | ) | — | ||||||||||
Interest expense (cash) | 1,549 | 488 | 5,049 | 912 | ||||||||||||
Distributable Cash | $ | 13,073 | $ | 7,870 | $ | 21,834 | $ | 13,445 | ||||||||
(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;
— depreciation, depletion and amortization;
— write-off of deferred financing fees;
— impairment of long-lived assets;
— (gain) loss on sale of assets;
— (gain) loss from equity investment;
— long-term incentive plan expense;
— accretion of asset retirement obligation;
— unrealized (gain) loss on natural gas derivatives; and
— realized loss (gain) on cancelled natural gas derivatives
(2) | Maintenance capital expenditures are capital expenditures that we expect to make on an ongoing basis to maintain our asset base (including our undeveloped leasehold acreage) at a steady level over the long term. These expenditures include the drilling and completion or additional development wells to offset the expected production decline during such period from our producing properties, as well as additions to our inventory of unproved properties or proved reserves required to maintain our asset base. |
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