UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 6, 2010
Constellation Energy Partners LLC
(Exact name of registrant as specified in its charter)
| Delaware | 001-33147 | 11-3742489 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
| 1801 Main Street, Suite 1300 Houston, TX |
77002 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (832) 308-3700
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02. | Results of Operations and Financial Condition. |
On August 6, 2010, Constellation Energy Partners LLC (the “Company”) issued a press release announcing its financial results for the quarter and six months ended June 30, 2010, and will hold a webcast conference call to discuss those results. A copy of the press release is furnished as a part of this Current Report on Form 8-K as Exhibit 99.1 but is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934. The webcast conference call will be available for replay on the Company’s website at www.constellationenergypartners.com.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
| Exhibit |
Description | |
| Exhibit 99.1 | Press release dated August 6, 2010, publicly announcing second quarter 2010 financial results. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Constellation Energy Partners LLC | ||||
| Date: August 6, 2010 | By: | /S/ CHARLES C. WARD | ||
| Charles C. Ward | ||||
| Chief Financial Officer and Treasurer | ||||
EXHIBIT INDEX
| Exhibit |
Description | |
| Exhibit 99.1 | Press release dated August 6, 2010, publicly announcing second quarter 2010 financial results. | |
Exhibit 99.1
| News Release
General Inquiries: (877) 847-0008 www.constellationenergypartners.com | ||||
| Investor Contact: |
Charles C. Ward (877) 847-0009 | |
Constellation Energy Partners
Reports Second Quarter 2010 Results
HOUSTON—(BUSINESS WIRE)—Aug. 6, 2010—Constellation Energy Partners LLC (NYSE Arca: CEP) today reported second quarter 2010 results.
The company produced 3,745 MMcfe for average daily net production of 41.2 MMcfe during the quarter and 42.0 MMcfe for the year-to-date ending June 30, 2010. Operating costs, which include lease operating expenses, production taxes and general and administrative expenses, net of certain non-cash items, averaged $3.20 per Mcfe during the quarter and $3.38 for the year-to-date.
On a GAAP basis, the company reported a net loss of $21.1 million for the second quarter 2010. Adjusted EBITDA for the quarter was $14.6 million. For the year-to-date, Adjusted EBITDA was $29.5 million.
During the quarter, the company completed eight net wells and recompletions with capital spending that totaled $2.1 million. As of June 30, 2010, the company had an additional 14 net wells and recompletions in progress.
“We’re focused this year on improving our financial strength through solid operating results, which we accomplished again this quarter,” said Stephen R. Brunner, President and Chief Executive Officer of Constellation Energy Partners. “Our performance has allowed us to reduce debt by 18% over the last nine months while at the same time funding our 2010 drilling program with cash from operations.”
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Liquidity Update
Outstanding debt under the company’s credit facility currently totals $180 million, leaving the company with $25 million in available borrowing capacity. The company had a cash balance of $12.7 million as of June 30, 2010.
The company’s borrowing base, which was reaffirmed at $205 million in April 2010, is scheduled for semi-annual review in the third quarter of 2010.
Financial Outlook for 2010
The company announced earlier this year that it anticipates total capital spending for 2010 to range between $10 million and $12 million to complete approximately 25 net wells.
Net production is forecast to range between 14.5 and 15.5 Bcfe for 2010, with operating costs expected to range between $52 million and $56 million for the year.
The company entered 2010 with approximately 9.5 Bcfe of its 2010 Mid-Continent production hedged at an average price of $7.49 per Mcfe and an additional 2.4 Bcfe of its remaining production hedged at an average price of $8.21 per Mcfe. Taking into account hedges executed in the second quarter 2010, for the balance of the year the company has hedged 4.6 Bcfe of its Mid-Continent production at an average price of $7.46 per Mcfe and an additional 1.1 Bcfe of its remaining production at an average price of $8.14 per Mcfe. The remainder of the company’s production for 2010 is subject to market conditions and pricing.
The company uses the mark-to-market accounting method for all of its derivatives and, as a result, will recognize all future changes in the fair value of its derivatives as gains and losses in earnings.
Distribution Outlook
The company previously announced that it expects distributions will remain suspended through the fourth quarter of 2010 and until after such time that debt levels are reduced and market conditions again warrant resumption of capital spending at maintenance levels.
Management will continue to evaluate the company’s quarterly distribution, taking into account debt levels, liquidity, the provisions of the company’s credit and operating agreements, and business plans. All distributions are subject to approval by the company’s Board of Managers.
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Conference Call Information
The company will host a conference call at 8:30 a.m. (CDT) on Friday, Aug. 6, 2010 to discuss second quarter 2010 results.
To participate in the conference call, analysts, investors, media and the public in the U.S. may dial (888) 810-6805 shortly before 8:30 a.m. (CDT). The international phone number is (517) 308-9398. The conference password is PARTNERS.
A replay will be available beginning approximately one hour after the end of the call by dialing (866) 489-8052 or (203) 369-1677 (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 second quarter 2010 Form 10-Q on or about Aug. 6, 2010.
Non-GAAP Measures
We present Adjusted EBITDA 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) adjusted by interest (income) expense; depreciation, depletion and amortization; write-off of deferred financing fees; impairment of long-lived assets; accretion of asset retirement obligation; (gain) loss on sale of assets; exploration costs; (gain) loss from equity investment; unit-based compensation programs; unrealized (gain) loss on derivatives; and realized (gain) loss on cancelled derivatives.
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
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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 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. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
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Constellation Energy Partners LLC
Operating Statistics
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| Net Production: |
||||||||||||||||
| Total production (MMcfe) |
3,745 | 4,242 | 7,605 | 8,606 | ||||||||||||
| Average daily production (Mcfe/day) |
41,154 | 46,615 | 42,017 | 47,547 | ||||||||||||
| Average Net Sales Price per Mcfe: |
||||||||||||||||
| Net realized price, including hedges |
$ | 7.07 | (a) | $ | 7.09 | (a) | $ | 7.23 | (a) | $ | 7.22 | (a) | ||||
| Net realized price, excluding hedges |
$ | 4.03 | (b) | $ | 3.02 | (b) | $ | 4.72 | (b) | $ | 3.50 | (b) | ||||
| (a) Excludes impact of mark-to-market losses and net of cost of sales. |
||||||||||||||||
| (b) Excludes all hedges, the impact of mark-to-market losses and net of cost of sales. |
||||||||||||||||
| Net Wells Drilled and Completed |
4 | 30 | 4 | 60 | ||||||||||||
| Net Recompletions |
4 | 1 | 4 | 17 | ||||||||||||
| Developmental Dry Holes |
— | — | — | 1 | ||||||||||||
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Constellation Energy Partners LLC
Condensed Consolidated Statements of Operations
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||||
| Oil and gas sales |
$ | 27,078 | $ | 30,698 | $ | 56,315 | $ | 63,560 | ||||||||
| Gain/(Loss) from mark-to-market activities |
(4,549 | ) | (12,134 | ) | 30,732 | 7,197 | ||||||||||
| Total Revenues |
22,529 | 18,564 | 87,047 | 70,757 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Lease operating expenses |
7,729 | 8,289 | 15,692 | 17,074 | ||||||||||||
| Cost of sales |
585 | 612 | 1,357 | 1,444 | ||||||||||||
| Production taxes |
677 | 560 | 1,802 | 1,530 | ||||||||||||
| General and administrative |
4,188 | 4,208 | 9,250 | 9,441 | ||||||||||||
| Exploration costs |
224 | 103 | 447 | 206 | ||||||||||||
| (Gain)/Loss on sale of equipment |
(5 | ) | (3 | ) | (13 | ) | 14 | |||||||||
| Depreciation, depletion and amortization |
26,733 | 18,195 | 53,981 | 32,629 | ||||||||||||
| Accretion expense |
205 | 56 | 412 | 157 | ||||||||||||
| Total operating expenses |
40,336 | 32,020 | 82,928 | 62,495 | ||||||||||||
| Other expenses: |
||||||||||||||||
| Interest (income) expense, net |
3,387 | 3,278 | 7,443 | 6,119 | ||||||||||||
| Other (income) expense |
(102 | ) | 10 | (290 | ) | (47 | ) | |||||||||
| Total expenses |
43,621 | 35,308 | 90,081 | 68,567 | ||||||||||||
| Net income (loss) |
$ | (21,092 | ) | $ | (16,744 | ) | $ | (3,034 | ) | $ | 2,190 | |||||
| Adjusted EBITDA |
$ | 14,594 | $ | 17,103 | $ | 29,534 | $ | 34,537 | ||||||||
| EPS—Basic |
$ | (0.87 | ) | $ | (0.74 | ) | $ | (0.12 | ) | $ | 0.10 | |||||
| EPS—Basic Units Outstanding |
24,538,151 | 22,500,701 | 24,271,742 | 22,443,699 | ||||||||||||
| EPS—Diluted |
$ | (0.87 | ) | $ | (0.74 | ) | $ | (0.12 | ) | $ | 0.10 | |||||
| EPS—Diluted Units Outstanding |
24,538,151 | 22,500,701 | 24,271,742 | 22,443,699 | ||||||||||||
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Constellation Energy Partners LLC
Condensed Consolidated Balance Sheets
| June 30, 2010 |
Dec. 31, 2009 | |||||
| ($ in thousands) | ||||||
| Current assets |
$ | 54,008 | $ | 45,265 | ||
| Natural gas properties, net of accumulated depreciation, depletion and amortization |
563,903 | 612,625 | ||||
| Other assets |
60,747 | 50,427 | ||||
| Total assets |
$ | 678,658 | $ | 708,317 | ||
| Current liabilities |
$ | 13,277 | $ | 16,484 | ||
| Debt |
180,000 | 195,000 | ||||
| Other long-term liabilities |
12,532 | 12,129 | ||||
| Total liabilities |
205,809 | 223,613 | ||||
| Class D Interests |
6,667 | 6,667 | ||||
| Common members’ equity |
447,365 | 449,670 | ||||
| Accumulated other comprehensive income |
18,817 | 28,367 | ||||
| Total members’ equity |
466,182 | 478,037 | ||||
| Total liabilities and members’ equity |
$ | 678,658 | $ | 708,317 | ||
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Constellation Energy Partners LLC
Reconciliation of Net Income to Adjusted EBITDA
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||||
| Reconciliation of Net Income to |
||||||||||||||||
| Adjusted EBITDA: |
||||||||||||||||
| Net income |
$ | (21,092 | ) | $ | (16,744 | ) | $ | (3,034 | ) | $ | 2,190 | |||||
| Add: |
||||||||||||||||
| Interest expense/(income), net |
3,387 | 3,278 | 7,443 | 6,119 | ||||||||||||
| Depreciation, depletion and amortization |
26,733 | 18,195 | 53,981 | 32,629 | ||||||||||||
| Accretion of asset retirement obligation |
205 | 56 | 412 | 157 | ||||||||||||
| (Gain)/Loss on sale of asset |
(5 | ) | (3 | ) | (13 | ) | 14 | |||||||||
| Exploration costs |
224 | 103 | 447 | 206 | ||||||||||||
| Loss from mark-to-market activities |
4,549 | 12,134 | (30,732 | ) | (7,197 | ) | ||||||||||
| Unit-based compensation programs |
593 | 84 | 1,030 | 152 | ||||||||||||
| Unrealized (gain)/loss on natural gas derivatives/hedge ineffectiveness |
— | — | — | 267 | ||||||||||||
| Adjusted EBITDA (1) |
$ | 14,594 | $ | 17,103 | $ | 29,534 | $ | 34,537 | ||||||||
| Three Months Ended Mar. 31, |
||||||||||||||||
| 2010 | 2009 | |||||||||||||||
| ($ in thousands) | ||||||||||||||||
| Reconciliation of Net Income to |
||||||||||||||||
| Adjusted EBITDA: |
||||||||||||||||
| Net income |
$ | 18,058 | $ | 18,933 | ||||||||||||
| Add: |
||||||||||||||||
| Interest expense/(income), net |
4,056 | 2,841 | ||||||||||||||
| Depreciation, depletion and amortization |
27,248 | 14,434 | ||||||||||||||
| Accretion of asset retirement obligation |
207 | 102 | ||||||||||||||
| (Gain)/Loss on sale of asset |
(8 | ) | 17 | |||||||||||||
| Exploration costs |
223 | 103 | ||||||||||||||
| Loss from mark-to-market activities |
(35,281 | ) | (19,331 | ) | ||||||||||||
| Unit-based compensation programs |
437 | 68 | ||||||||||||||
| Unrealized (gain)/loss on natural gas derivatives/hedge ineffectiveness |
— | 267 | ||||||||||||||
| Adjusted EBITDA (1) |
$ | 14,940 | $ | 17,434 | ||||||||||||
(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;
— exploration costs;
— (gain) loss from equity investment;
— unit-based compensation programs;
— accretion of asset retirement obligation;
— unrealized (gain) loss on derivatives; and
— realized loss (gain) on cancelled derivatives.
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