UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE
Mail Stop 7010
June 14, 2006
Mr. Michael E. Mercer
Chief Financial Officer
EV Energy Partners, L.P.
1001 Fannin Street, Suite 900
Houston, Texas 77002
Re: EV Energy Partners, L.P.
Registration Statement on Form S-1
Filed May 15, 2006
File No. 333-134139
Dear Mr. Mercer:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
General
1. Where comments on a section also relate to disclosure in
another
section, please make parallel changes to all affected disclosure.
This will eliminate the need for us to repeat similar comments.
2. Please fill in all blanks throughout the registration
statement.
We note that information that you have excluded includes
information
you are not entitled to omit under Rule 430A.
3. Please file all omitted exhibits as soon as practicable. Note
that we will need additional time to review the exhibits once they
are filed. We may have further comments.
Cover Page
4. Please update to include the price range prior to
effectiveness.
5. We note that you will pay a financial advisory fee to A.G.
Edwards & Sons. Where appropriate, please provide disclosure
describing the components of the fee. Provide us also with
correspondence from NASD regarding your underwriting compensation.
Prospectus Summary, page 1
6. Revise to disclose the month and year you were formed.
Formation Transaction and Partnership Structure, page 7
7. To aid investor understanding, if practicable, please provide
graphical depiction of the transactions leading to the formation
of
the registrant.
8. Please identify the name of the limited partnership formed by
CGAS.
9. To help investors better understand how the properties were
controlled and operated historically, provide a before chart
relative
to the one on page 8. Also, these charts showed indicate the
percentage ownership between the different parties.
The Offering
Use of Proceeds, page 10
10. We note that you will pay $2.0 million to EnerVest to
reimburse
it for expenses of the offering. Briefly describe these
expenses.
Cash Distributions, page 10
11. Clarify the difference between "available cash" and
"available
cash from operating surplus." You appear to use these terms
interchangeably.
Limited Call Right, page 13
12. Explain how "the then-current market price" will be
determined.
Early conversion of subordinated units, page 12
13. We note that, subject to certain conditions, 25% of the
subordinated units may be converted into common units at end of a
certain period. Confirm that these will be converted on a pro
rata
basis.
Non-GAAP Financial Measure, page 19
14. You explain that you include exploration expense and dry hole
costs in Adjusted EBITDA so that your calculation will be
comparable
to companies which employ the full cost method of accounting for
oil
and gas properties, and have presented the measure because it is a
quantitative standard used throughout the investment community as
a
measure of performance. In response to Question 15 in the FAQ
regarding the use of non-GAAP measures, we explain that companies
presenting EBITDA as a performance measure must demonstrate the
usefulness of any measure that excludes recurring charges. We do
not
believe that excluding recurring charges to present a measure that
you believe is comparable to measures that companies using the
full
cost method disclose meets the burden of demonstrating usefulness
to
the reader. Further, we do not see any basis to suggest that your
measure would be comparable to measures prepared by other
companies.
Appropriate disclosure would generally advise that your measure of
adjusted EBITDA may not be comparable to other companies`
presentations of a similarly titled measure. For additional
guidance
please refer to the FAQ on non GAAP measures which cane be found
on
our website at the following address:
http://www.sec.gov/divisions/corpfin/faqs/nongaapfaq.htm
Risk Factors, page 20
15. Please revise the following subheadings. The subheadings
discuss
a fact or facts about your business but do not discuss the
associated
risks:
* "The amount of cash we have available for distribution to
holders..." on page 21;
* "Properties that we buy may not produce as projected and we may
be
unable..." on page 25;
* "We may incur significant costs and liabilities in the future
resulting..." on page 27; and
* "Seasonal weather conditions and lease stipulations adversely
affect..." on page 29.
16. We note that the partnership agreement requires the
distribution
of all your available cash, which might affect your ability to
grow.
Please discuss the risks associated with that possibility.
17. We note that you "may distribute as operating surplus up to
two
times the amount needed for any one quarter for [you] to pay a
distribution on all of [y]our units [you] receive in the future
from
non-operating sources ... that otherwise will be distributed as
capital surplus." This statement suggests that you may distribute
amounts derived from capital surplus, resulting in return of
capital.
Please discuss the risks that may result from engaging in such
practice
We may incur substantial debt in the future to enable us to
maintain..., page 24
18. Please expand this risk factor to state, if correct, that you
anticipate incurring debt to make distributions. Also discuss how
such borrowing affects your ability to make future distributions.
The sale or exchange of 50% or more of our capital and profits
interests..., page 38
19. Please provide examples of events that could result in the
sale
or exchange of 50% or more of total interest in your capital and
profits.
The amount of cash we have available for distribution to holders
of
our..., page 21
20. Please expand this risk factor to discuss the fact that
historically you could not have generated sufficient cash to pay
the
minimum quarterly distribution on all your outstanding securities.
Our Cash Distribution Policy and Restrictions on Distributions,
page
53
21. Please revise to address the impact of your dividend policy on
your future growth. Your discussion should state your belief as
to
whether the dividend payments will limit or preclude your ability
to
pursue growth. Also state whether you expect to require
additional
financing to pursue growth opportunities requiring capital
expenditures or other investments significantly beyond your
current
expectations.
Pro Forma Financial Information and Financial Forecast, page 55
22. As you have included a detailed calculation of the forecasted
cash available for distribution for the twelve months ended June
20,
2007 on page 64, we see no utility in the information in the table
on
page 57 under the lined items bellows the "Cash Flows" heading.
23. On a related point, within the table of forecasted cash
available
for distribution for the twelve months ended June 30, 2007 on page
64, revise your table to begin with Net Cash Provided by Operating
Activities (GAAP measure), or identify the amount labeled as Net
Forecasted Operating Cash Flows as a non-GAAP measure and provide
the
disclosures required by Item 10(e) of Regulation S-K.
24. We note that you present pro forma cash available for
distribution for your most recently completed fiscal year in the
table on page 65. However, to provide the most current
information
to readers, please include an additional column for the twelve
months
ended as of your most recent interim period, March 31, 2006.
Selected Historical and Pro Forma Financial and Operating Data,
page
67
25. For the periods you identify as unaudited in the narrative
preceding the tables, please also label the respective periods as
unaudited in the tables as well.
26. We note that you have provided footnotes to the table,
although
the explanations provided on page 69 for (2) and (3) are not
identified in the table. Please revise the tables to include the
corresponding footnotes.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 70
27. We note that you address the three years` historical financial
statements for your predecessors. However, due to the
significance
of the properties being retained by the predecessors, we believe
that
you should augment your MD&A discussion to identify in your
comparative narratives the revenues and direct expenses associated
with the properties that will be contributed to you in conjunction
with the offering, as well as the production levels of those
properties in relation to the whole. Please also ensure that you
identify any significant events, uncertainties, trends and other
matters affecting the comparability of the results of operations
of
the properties being contributed to the partnership by the
predecessors, in order to sufficiently convey to readers the
historical performance of the properties that will be contributed
to
the partnership. This should be done in textual format,
supplementing the historical information of the predecessors.
Liquidity and Capital Resources, page 76
28. Please provide comparative discussion regarding the cash flow
for
the year ended December 31, 2003 and the year ended December 31,
2004.
29. Please disclose your material commitments for capital
expenditures as of the end of the latest fiscal year, and indicate
the general purpose of the commitments. See Item 303(a) (2) of
Regulation S-K. In this regard, we note that you intend to drill
wells in 2006, 2007 and 2008. Address the anticipated costs of,
and
funding for, such activities.
30. We note that your dividend policy requires you to distribute
all
your available cash. Please discuss how you intend to pay for
dividends. For example, your disclosure on page 83 indicates that
historically you would have relied on borrowings to make
distributions.
31. Discuss how your dividend policy affects your ability to
expand
and reinvest in your business.
Quantitative and Qualitative Disclosures and Market Risks, page 78
32. Revise your discussion to provide the quantitative information
about market risks required by Item 305 of Regulation S-K.
33. Please relocate the discussions of SFAS 154 and 123(R) to the
section labeled Recent Accounting Pronouncements beginning on page
77.
Business, page 79
34. Please disclose the month and year you were formed. Also,
consistent with the requirements of Item 101(a) of Regulation S-K,
please expand you disclosure to describe in more detail the
general
development of your business.
35. Please discuss whether in your opinion the proceeds of the
offering will satisfy your cash requirements and whether in the
next
six months it will be necessary to raise additional funds to meet
the
expenditures required to operate your business.
36. You state that one of your principal business attributes is
your
relationship with EnerVest. Please discuss in detail how such
relationship benefits your operations.
Natural Gas Gathering, page 89
37. Please disclose how much you anticipate paying EnerVest
Operating
for operating you natural gas systems.
Oil and Gas Leases, page 90
38. We note your disclosure in this section. Please identify
those
properties that are subject to leases and disclose the term and
the
cost of the leases.
Principal Customers and Marketing Arrangements, page 91
39. We note that Exelon accounted for more than 10% of your
revenues.
Please disclose whether any other customers accounted for more
than
10% of your revenues during 2005. Please file as an exhibit your
contracts with such customers.
Environmental Matters and Regulation, page 92
40. We note your statement on page 28 that you "must obtain and
maintain permits, approvals and certificates from various federal
state and local governmental authorities." If material, provide
an
estimate of the costs of obtaining such permits, approvals, and
certificates.
Management, page 97
Directors and Executive Officers, page 98
41. Please disclose the amount of time that John B. Walker and
Mark
A. House devote to your operations.
42. Please define the term "qualified," as used in the paragraph
following the table.
43. Please confirm that Gary R. Petersen has been Senior Managing
Director of EnCap Investments L. P. since 1988. We note your
statement that he co-founded the firm in 1988.
Certain Relationship and Related Transactions, page 103
Services, page 105
44. Estimate the approximate cost of EnerVest`s services. We may
have further comments.
Limited Call Right, page 124
45. We refer you to your discussion under the Limited Call Right.
Please advise us as to what consideration was given as to whether
you
will comply with the tender offer rules and file a Schedule TO
when,
or if, this right is exercised. If you believe an exemption from
the
tender offer rules is available, please advise.
Selling Unitholders, page 145
46. Please disclose the reasons for paying the structuring fee and
disclose its components.
Financial Statements - Unaudited Pro Forma Combined, page F-2
47. We note that the pro forma adjustment identified in point (f)
on
page F-10 serves to eliminate management fees and other
administrative costs reflected in the historical combined
financial
statements. Adjustments within the pro forma table should be
limited
to events that are directly attributable to the specific
transaction,
factually supportable and expected to have a continuing impact.
Any
historical charges that you believe impact results in a manner
that
is not indicative of the future should ordinarily be identified in
narrative disclosure in the pro forma area, rather than adjusted
in
the tabular presentation. Such disclose should convey the
specific
facts and circumstances underlying your view that future costs
will
be different than historical amounts.
48. Please expand the pro forma section to include the oil and gas
reserve information that is ordinarily required under paragraphs
10
through 17 and 30 through 34 of SFAS 69. This information should
be
presented in a manner similar to your unaudited pro forma
consolidated financial statement presentation, depicting, in
columnar
fashion, the historical amounts for The Combined Predecessor
Entities, pro forma adjustments with corresponding explanations,
and
partnership pro forma amounts.
Financial Statements - The Combined Predecessor Entities, page F-
11
General
49. It appears you will need to update your historical and pro
forma
financial statements to comply with the guidance in Rule 3-12 and
Rule 11-02(c) of Regulation S-X.
50. Please acknowledge that you understand that financial
statements
covering the period from January 1, 2006 to consummation of the
formation transactions and offering will need to be audited in
accordance with Rule 3-02 of Regulation S-X, since these
operations
represents a predecessor entity, as defined in Rule 405 of
Regulation
C. In conjunction with this effort, we suggest that you ensure
there
are no gaps in the audited financial statements to be included in
future filings.
Note 2 - Summary of Significant Accounting Policies, page F-17
Oil and Gas Properties, page F-18
51. You explain that your depreciation and depletion of oil and
gas
properties is determined using the units-of-production method,
based
on estimated proved recoverable oil and gas reserves. The
inclusion
of the qualifier recoverable seems to imply that a portion of your
reported reserves may also include unrecoverable oil and gas; or
that
you are including probable reserves along with proven reserves in
making your calculations. Please revise your disclosures
sufficiently to understand how your methodology compares to that
required under paragraph 30 of SFAS 19. Tell us how the measure
utilized in computing depreciation and amortization compares to
the
reserve quantities disclosed.
Note 3 - Oil and Gas Acquisition, page F-22
52. Please provide us the analysis you completed under Rule 3-05
of
Regulation S-X to conclude no financial statements were required
to
be prepared and audited in regards to the Primos Acquisition
mentioned under this heading.
53. On a related point, we note you present pro forma information
as
if the acquisition occurred on January 1, 2005. Paragraph 54 of
SFAS
141 explains that if comparative financial statements are
presented,
pro forma results of operations for the comparable prior period
should be presented as well.
Note 10 - Major Customers, page F-30
54. We note your disclosure in the Business section on page 91
explaining that Exelon accounted for 29 percent of your pro forma
revenues for 2005, and your top five customers accounted for 80
percent of pro forma oil and gas revenues. It appears you may
need
to expand this disclosure to also identify any other customers
accounting for 10 percent or more of revenues, or to disclose that
there were none if that is the case, as such disclosure would
ordinarily be anticipated under Item 101(c) (vii) of Regulation S-
K.
Please also expand the related disclosure in your financial
statements to the extent necessary to comply with the guidance in
paragraph 39 of SFAS 131.
Financial Statements - EV Energy Partners GP, L.P., page F-38
Balance Sheet, page F-39
55. We note your disclosure on page II-1 under Recent Sale of
Unregistered Securities, explaining that you issued the general
partner a 2% general partner interest for $20 and Enervest the 98
percent limited partner interest for $980. Please reconcile these
amounts to the corresponding but different amounts reported in
your
audited balance sheet as of May 12, 2006.
Engineering Comments
Summary ProForma Reserve and Operating Data, page 17
56. We note your pro forma proved reserve disclosure. Please
furnish
to us the reserve report - in hard copy and electronic spreadsheet
format - that you used as the basis for this disclosure. The
report
should include:
a) One-line recaps for each property sorted by field and by
present
worth within each proved reserve category including the estimated
date of first production for your proved undeveloped properties;
b) Total company summary income forecast schedules for each proved
reserve category with proved developed segregated into producing
and
non-producing properties;
c) Individual income forecasts for the largest property (net
equivalent reserve basis) in the proved developed and proved
undeveloped category for your Appalachian properties and for your
Northern Louisiana properties;
d) Engineering exhibits (e.g. maps, rate/time plots, volumetric
calculations) for each of these four largest properties.
e) Spread sheet comparisons by field of your projected annual
production cost components - e.g. labor, power, insurance, taxes -
with these same components` 2005 historical figures. Please
reconcile any significant differences between the historical
figures
and those that you used to estimate your proved reserves. Be
advised
we believe that a component for producing well overhead should be
included for operated as well as non-operated properties
Average Unit Costs per MCFE: page 18
57. The lease operating expense figures - $1.77/MCFE - do not
agree
with the same item on page 84. Please amend your document to
reconcile this inconsistency.
Risk Factors, page 20
The estimated oil and gas reserve quantities and future production
rates set forth..., page 23
58. As your average 2005 production is 4 MCFE per day per net
well,
it would appear that these proved reserves are particularly
sensitive
to future production cost assumptions. Please expand your
disclosure to address this fact.
Management`s Discussion and Analysis, page 70
Estimates of Proved Reserves, page 71
59. Please amend your document here to include at least one
reference
to Rule 4-10(a) as the definition of proved oil and gas reserves.
This is available at our website,
http://www.sec.gov/divisions/corpfin/forms/regsx.htm#gas.
Business, page 79
Our Areas of Operations, page 81
60. Here you disclose the average well costs for the last three
years. Please expand this to disclose the dates and cost figures
for
the most recently drilled wells in all areas.
Our Pro Forma Developed and Undeveloped Acreage, page 85
61. Paragraph 5 to SEC Industry Guide 2 requests the disclosure of
the minimum remaining terms of material leases and concessions.
Please amend your document to comply with this.
* * * * *
Closing Comments
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert staff comments and the declaration
of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Mark Wojciechowski at (202) 551-3759 or Karl
Hiller, Accounting Branch Chief at (202) 551-3686 if you have
questions regarding comments on the financial statements and
related
matters. Direct your questions relating to the engineering
comments
to Ronald Winfrey, Petroleum Engineer, at (202) 551- 3703. Please
contact Carmen Moncada-Terry at (202) 551-3687 or, in her absence,
the undersigned, at (202) 551-3745 with any other questions.
Sincerely,
H. Roger Schwall
Assistant Director
cc: VIA FACSIMILE
George G. Young III
Haynes and Boone LLP
713-236-5699
Mr. Michael E. Mercer
EV Energy Partners, L.P.
June 14, 2006
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