EV Energy Partners, L.P. (EVEP)

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EV Energy Partners, Ltd. (EVEP)

Q1 2011 Earnings Call

May 10, 2011 9:00 am ET


John B. Walker – Chairman & Chief Executive Officer

Michael E. Mercer – Chief Financial Officer

Mark A. Houser – President & Chief Operating Officer

Ronald J. Gajdica – Head of Engineering and Acquisition


Kevin Smith – Raymond James

Adam – RBC Capital Markets

Ethan Bellamy – Robert W. Baird

Unidentified Analyst

Yves Siegel – Credit Suisse

Michael Blum – Wells Fargo

Steward Starling – Private Investor



Ladies and gentlemen thank you for standing by and welcome to the EV Energy Partner’s Q1 2011 Earnings Conference. (Operator instructions.) I will now hand the conference over to Mr. John Walker, Chairman and CEO of EV Energy Partners. Please go ahead sir.

John Walker

Thank you. Good morning from Houston. EV Energy Partners Q1 for 2011 was very close to the mid point of our guidance. Production was adversely affected by some January and February weather in the Barnett Permian in Appalachia. The Mid-Continent was our star performer. The Barnett and Jamet in Eastern New Mexico were lagging production performers. Mark Houser will discuss the Barnett in more detail.

We’re pleased with our drilling and capital cost achievements in the Barnett, which are coming in about 10% below our AFE but production is not yet hitting our targets. I’ve asked Mike Mercer to adjust downwardly production guidance for the remainder of the year primarily related to the Barnett properties until our portfolio team has had adequate time to resolve a couple of issues that Mark will discuss.

General administrative expenses in Q1 got hit with some non-recurring costs, which are in our press release, but mike will discuss those. But rolling it all together, adjusted EBITDAX was right on the mid point of guidance.

I’d like to give you a key observation. Our balance sheet is in great shape after our $150 million equity offering in January. The $300 million 8% notes offering March and the new $1 billion five-year credit facility which was finalized in April. We had the financial capacity to easily do a $500 million acquisition and our stated goal is to do just that amount this year. We did $568 million, I believe, last year and so we think that we can at least repeat that.

We believe that the A&D market for oil deals is very overheated with Permian and (inaudible) deals being done at extremely low rates of return. Our focus remains in our core areas and long life reserves.

In Q1 we took the first loss in our history, $1.6 million, which is in the press release and this is the first loss in our company’s history when we sold some Oklahoma and Kansas marginal properties.

With the market overpaying for oil properties, we may sell another small oil field in Texas over the next few months. When the market goes on direction, we seek better values in the other direction.

As I mentioned in the past, we’re pleased with our Austin Chalk assets in Central Texas. We had mediocre drilling results last year but are having extremely good results this year. Historically we’ve spent 30% of cash flow there to keep the production flat.

Simple payout on all of our acquisitions that were done since 2007 is projected to occur at the end of next year and at that point in time reserves and value then will still be about what we pay for the acquisitions.

We’ve made positive progress in Utica including the course taken by us in our partnerships (inaudible) there have been nine wells into the Utica and it’s lower in (inaudible) then Point Pleasant. Information on the horizontal wells will be released this summer. EV has a positive position in this joint venture with Chesapeake; however, the preponderance of its acreage is held with EnerVest Fund 11 and will be developed or joint ventured separately.

We have a high regard for Chesapeake’s technical and functional skills but wanted to retain some acreage that’s separate from EnerVest’s very large joint venture with Chesapeake. The information in the Utica that we have to date is encouraging.

Overall I’m pleased with our team’s 2011 performance to date and believe that our goals for the year should be achieved. Now I’d like to turn it over to Mike Mercer who will give you some details about Q1.

Michael E. Mercer

Thank you John. For Q1 of 2011 our adjusted EBITDA was $50.6 million. That’s a 57% increase over Q1 of 2010 and a 22% sequential quarterly increase.

Distributable cash flow was $31.6 million as compared to our total distributions related to this Q1 of $29.5 million. That’s a 56% increase over Q1 of 2010 and an 18% increase over Q4 of 2010.

Production for the quarter was 7 Bcf of natural gas, 208,000 barrels of crude and 270,000 barrels of NGLs or 9.9 Bcfe and that’s a 69% increase over last year’s Q1 and a 19% quarter over quarter increase. Now these increases and adjusted EBITDAX, distributable cash flow and production were primarily attributable to our Appalachian, Mid-Continent and Barnett Shale acquisitions that we completed during 2010.

We reported a net loss for the quarter of $34 million or $1.14 per unit, however, included in the net loss were $54.6 million of non-cash unrealized losses on commodity and interest rate derivatives and $2.1 million of non-cash compensative related costs in G&A. It should be noted, and this is typical when commodity prices increase during a quarter, that the $54.6 million of non-cash unrealized losses on derivatives was primarily due to the increase in future commodity prices, oil and natural gas prices, that occurred from the beginning of the year through March 31st, the end of Q1. In the effect that this increase in prices has on the mark-to-market of our significant commodity hedge price derivatives it now runs through 2015.

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