Eagle Rock Energy Partners, L.P. (EROC)

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Eagle Rock Energy Partners, L.P. (EROC)

Q4 2012 Earnings Call

February 26, 2013 2:00 pm ET


Adam Altsuler - Director of Corporate Finance and Investor Relations of Eagle Rock Energy G&P LLC

Joseph A. Mills - Chairman of Eagle Rock Energy G&P LLC, Chief Executive Officer of Eagle Rock Energy G&P LLC and Member of Enterprise Risk Committee

Jeffrey P. Wood - Chief Financial Officer of Eagle Rock Energy G&P LLC, Principal Accounting Officer of Eagle Rock Energy G&P LLC, Senior Vice President of Eagle Rock Energy G&P LLC and Treasurer of Eagle Rock Energy G&P LLC


James Spicer - Wells Fargo Securities, LLC, Research Division

Sunil Sibal - Citigroup Inc, Research Division

TJ Schultz - RBC Capital Markets, LLC, Research Division

Michael D. Peterson - MLV & Co LLC, Research Division

Eric B. Anderson - Hartford Financial Management, Inc.

Jeffrey Rudner



Good day, ladies and gentlemen, and welcome to the Eagle Rock Energy Partners Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] as a reminder, this conference call is being recorded. I would now like introduce your host for today's conference, Mr. Adam Altsuler. Sir, you may -- Director of Corporate Finance and Investor Relations. Sir, you may begin.

Adam Altsuler

Thank you, Kate, and thank you to our unitholders, analysts and other interested parties for joining us today on Eagle Rock Energy's fourth quarter and full year 2012 earnings call.

Before we get started commenting on our fourth quarter results, there are a few legal items that we would like to cover. First, I want to point out that remarks and answers to questions by partnership representatives on today's call may refer to or contain forward-looking statements. Such remarks or answers are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Such statements speak only as of today's date or, if different, as of the date specified. The partnership assumes no responsibility to update any forward-looking statements as of any future date. The partnership has included in its SEC filings cautionary language identifying important factors, but not necessarily all factors, that could cause actual results to be materially different from those set forth in any forward-looking statements.

A more complete discussion of these risks is included in the partnership's SEC filings, including in our 2012 Annual Report on Form 10-K, which we intend to file on or around February 27, as well as any other public filings. Our SEC filings are publicly available on the SEC's EDGAR system. Also, you may access both the fourth quarter 2012 earnings press release and a transcript to this call on our website at

Management may discuss its views on future distributions during this call. Management's objective around future distribution recommendations are subject to change should factors affecting the general business climate, market conditions, commodity prices, our specific operations, performance of our underlying assets, applicable regulatory mandates or our ability to consummate accretive growth projects differ from current expectations. Actual future distributions will be determined, declared and paid at the discretion of the Board of Directors.

I'll now turn the call over to Joe Mills, our Chairman and CEO, for a review of the quarter.

Joseph A. Mills

Good. Thank you, Adam. Good afternoon, ladies and gentlemen. Thank you for joining us today. We had another solid quarter to finish a good year in 2012. For the fourth quarter, we reported adjusted EBITDA of $66.2 million, up 12% as compared to our third quarter adjusted EBITDA of approximately $59 million. Distributable cash flow totaled $29.5 million, up 9% as compared to our third quarter. For the year, Eagle Rock reported $245 million of adjusted EBITDA and distributable cash flow totaling $129 million. This represented an 18% increase to our adjusted EBITDA as compared to 2011 and an 8% increase to our distributable cash flows as compared to 2011. This increase was despite a very challenging commodity price environment, especially the meaningful drop in natural gas and NGL prices during the year. 2012 was a year of achievement and overcoming challenges for Eagle Rock. We made significant progress strengthening our 2 businesses while overcoming weak price realizations, which impacted our financial results. We significantly increased the scale of our Midstream business with the acquisition of BP's Texas Panhandle Midstream assets and the successful startup of our newest cryogenic processing facility, the Woodall Plant, while our Upstream business delivered 25% more oil and gas production in 2012 as compared to 2011.

The acquisition from BP was a meaningful contributor to our improved results in the fourth quarter. We closed this acquisition on October 1, and assumed operational control of the assets on January 1 of this year. We are very pleased with the acquisition and the impact it is having on our growing Texas Panhandle business. The newly-acquired assets contributed over $6.8 million of adjusted EBITDA to our fourth quarter results.

During the past 6 months, we have negotiated and executed meaningful gathering and processing agreements with BP and Anadarko covering new dedication areas of over 1.2 million additional acres in the prolific Texas Panhandle and East Texas basins. We feel that our Midstream business has very strong momentum today.

We are currently in active negotiations with several large oil and gas operators, specifically in the Panhandle, to execute significant additional acreage dedications under fee-based arrangements. We believe our gathering footprint is enabling us to reach more active producers in the area under favorable fixed-fee commercial terms.

Our Upstream business had a solid year drilling in the Cana, Woodford and Golden Trend plays of Western Oklahoma. We reported total proved reserves at year-end 2012 of 58.3 million barrels of oil equivalent, which is down approximately 6% from our year-end 2011 reserves. Reserves were lower primarily due to the sale of our non-core Barnett Shale assets in December of last year for $15 million and to negative revisions to our natural gas reserves as a result of lower natural gas prices, which combined were greater than the increases to reserves related to extensions and discoveries and positive performance.

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