Constellation Energy Partners has reported fourth quarter and full year 2008 results.
The company produced 17,384 MMcfe for the full year 2008, resulting in adjusted EBITDA of $74.9 million, in line with the forecast. Net income on a generally accepted accounting principles (GAAP) basis for 2008 was $7.2 million. The company produced 4,442 MMcfe for the fourth quarter 2008, resulting in Adjusted EBITDA of $18.0 million. Net income on a GAAP basis for the fourth quarter 2008 was a loss of $13.3 million.
During the fourth quarter, the company completed 26 net wells and 11 net recompletions, bringing full year 2008 program results to 115 net wells and 43 net recompletions, in line with the forecast. An additional 39 net wells and recompletions were in progress at year end, of which 16 have already been completed in 2009.
For the full year, the company spent $59.1 million in operating expense, which includes lease operating expense, production tax and general and administrative expense, in line with the forecast.
For the full year, the company spent $47.9 million in capital, just above the high end of the forecast range of $40 million to $45 million. The variance was driven by spending related to infrastructure improvements in the field, inventory purchases for the 2009 program and activity on in progress wells and recompletions.
"In 2008, we demonstrated greater predictability in our primary asset areas. We made improvements in our operations, production and cost structure and set a solid foundation to build upon as we move forward," said Stephen R. Brunner, president and chief executive officer of Constellation Energy Partners. "We stabilized our average daily net production rate over the last three quarters and were successful in our efforts to improve our cost structure. Our performance coupled with a highly hedged production profile resulted in Adjusted EBITDA of $74.9 million and almost $51 million in distributions to our unitholders for the year."
Summary of Estimated Proved Reserves
The company reported 2008 estimated proved reserves totaling 232.4 Bcfe with a SEC value of $228.9 million, down approximately 70 Bcfe and $252 million from 2007. These reductions were driven primarily by pricing revisions and further impacted by performance revisions.
"The majority of our revisions, about 60 Bcfe, or $231 million in SEC value, were triggered by lower commodity prices," stated Brunner. "As commodity prices recover, we would expect to see some increase in our reserves."
The company also recorded an impairment charge totaling approximately $25.7 million related to the Woodford Shale asset. The reduction was largely driven by a decrease in commodity prices and lower than expected production levels with a higher than expected decline rate.
Financial Outlook for 2009
The company reaffirmed its 2009 business plan and forecast. The plan calls for total capital spending between $28.0 million and $33.0 million, which is expected to be used to complete 70 to 75 wells, primarily in the Cherokee Basin, and is expected to maintain net production at between 17.0 and 18.5 Bcfe. Operating expenses are expected to remain relatively flat compared to 2008, resulting in a range of between $57.5 million to $63.5 million, with the upper end of the range intended to provided flexibility for potential changes in the Management Services Agreement.
The company reported it has approximately 13.5 Bcfe of its estimated net production for 2009 hedged, including 9.7 Bcfe of its Mid-Continent production hedged at a weighted average price of $7.54 and 3.8 Bcfe of its additional production at a weighted average price of $8.52. The remainder of the company’s production for 2009 is subject to market conditions and pricing.
"We remain optimistic that our business plan and forecast will withstand the challenges of the upcoming year," said Brunner. "However, we also believe it is important to recognize the impact that commodity price volatility is likely to have on our efforts. As we work through our program and monitor market conditions, we will remain flexible and would expect to adjust our efforts as necessary to protect unitholder value and the sustainability of the company."
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