EV Energy Partners, L.P. (EVEP)

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EV Energy Partners, L.P. (EVEP)

Q3 2012 Earnings Call

November 9, 2012; 10:00 a.m. ET


John Walker - Executive Chairman

Mark Houser - President & Chief Executive Officer

Michael Mercer - Senior Vice President & Chief Financial Officer

Ronald Gajdica - Senior Vice President, Acquisitions


Kevin Smith - Raymond James

Ethan Bellamy - Robert W. Baird

Miller Lerner - Unidentified Company

Tony Langan - Unidentified Company

Praneeth Satish - Wells Fargo

John Ragozzino - RBC Capital Markets

Brett Reilly - Credit Suisse

Daniel Guffey - Stifel Nicolaus



Good morning ladies and gentlemen and thank you for standing by, and welcome to the EV Energy Partners, third quarter earnings conference call. During today’s presentation all parties will be in a listen-only mode and following the presentation the conference will be opened for questions and instructions will be given at that time.

At this time I would now like to turn the conference over to John Walker, Executive Chairman. Please go ahead, sir.

John Walker

Thank you Craig and good morning everyone. I’m in New Orleans at the Independent Petroleum Association of America’s annual meeting and I’ll be addressing them beginning at 10:30 on several industry topics.

Before I start my prepared remarks I wanted to briefly touch on this. Now I’ll touch on it in more detail at the latter part of my prepared remarks. On our unit transaction, this is a very large and sizable transaction, which I want to remind you of and we’ve had several bids and I feel very comfortable that we are going to reach agreement, but I’ll talk more about that in just a little bit.

EVEP had another consistent quarter, meeting expectation pretty much across the board. Driven by good growth in the Barnett Shale assets, our production was well within our guidance range. We’ve driven our unit LOE and G&A costs down in each quarter this year, as well as choosing lower drilling and completion costs.

Like everyone else, weak natural gas and NGL prices continue to affect revenues and our large hedge position, particularly for NGL really helped this quarter, and Mike Mercer will discuss our financials for the quarter a little bit later in more detail.

Production targets for us are really not as important as achieving acceptable rights for return on our capital, which I discussed with you on many occasions. That being said, our production and cost results over the past few quarters are particularly pleasing and we’ve actually slowed down our capital spending in upstream activity, to stay true to our targeted 20% risk adjusted return. But we have not drilled a gas well in quite a while, therefore we will likely spend $135 million on upstream capital spending this year versus the original goal of $160 million, because in many instances we were not able to achieve that 20% rate of return, so we cut capital.

As a result and factoring in some weather related downtime from Sandy, we anticipate that fourth quarter production will increase only slightly from the current quarter. Our field personnel are doing a very good job of driving down costs and the large predominant positions that we strategically achieved over the last several years in several basins also helps a lot. As Mark Houser will discuss, we are establishing new production records weekly in the Barnett, led by our exposure in the oil combo play.

The company as you’re aware continued to report great wells in the Utica and the midstream infrastructure continues to be developed. As you are also aware, we are in the midst of selling our operated assets in the quarter defined. The data room has had excellent attendance and we have had several offers as I’ve mentioned before.

The reality is we are making good progress, but until we have the definitive agreements signed, I really can’t go into more details about it. I’m very comfortable that we are going to achieve our goal of closing the transaction by year end and I’ll explain that and that we’ll be able to close if it’s primarily a land transaction, there’s not a lot of environmental due diligence, there’s title of due diligence, so we can close the transaction and allow the buying party to do the land due diligence post back up.

So during the period of a few months after closing, I can do their due diligence, so that’s the way we are able to choose that and I think that, I’ve noticed that some people that already they don’t understand the difference between an oil gas asset transaction and a land transaction. They don’t understand our ability to do post closing due diligence. So again, this is complex and our goal remains to close by year-end.

Now I will turn this discussion over to Mike Mercer.

Mike Mercer

Thank you John. For the third quarter of 2012 our adjusted EBITDAX was $67.3 million, which is a 29% increase over last year’s third quarter, and that’s primarily due to the Barnett Shale acquisitions we completed during the fourth quarter of last year and it’s a 2% sequential increase over the second quarter of this year.

Distributable cash flow for the third quarter was $35.3 million, that’s a 15% increase over last year’s third quarter and a 2% increase sequentially over the second quarter of this year. Distributions for the third quarter, which will be payable on November 14 to holders of record as of November 7 close will be approximately $33 million.

For the third quarter production was 10.8 Bcf of natural gas, 266,000 barrels of crude and 440,000 barrels of natural gas liquids or 15 Bcfe. That’s a 49% increase from life shares third quarter production of 10.1 Bcfe, once again primarily due to the Barnett Shale acquisitions that we closed in the fourth quarter of last year and a 1% increase sequentially over the second quarter’s production of this year, 14.8 Bcfe.

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