EV Energy Partners, L.P. (EVEP)

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EV Energy Partners, L.P. (EVEP)

Q4 2012 Earnings Call

March 01, 2013, 09:00 am ET


John Walker - Executive Chairman

Mike Mercer - SVP & CFO

Mark Houser - President & CEO

Ron Gajdica - SVP, Acquisitions


Ethan Bellamy‎ - Robert W. Baird

John Ragozzino - RBC Capital Markets

Kevin Smith - Raymond James

Michael Peterson - MLV & Company

Praneeth Satish - Wells Fargo

Noah Lerner - Hartz Capital

Brett Reilly - Credit Suisse



Ladies and gentlemen welcome to the EV Energy Partners’ Fourth Quarter Earnings Conference Call on 1, March 2013. For today’s presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

I will now hand the conference over to John Walker, Executive Chairman. Please go ahead, sir.

John Walker

Thank you. Good morning everyone. I am in Abilene, Texas and the rest of our management team is in Houston. Thanks for joining us today.

Before we get started, I would like to direct you to the slide deck we will be referring to during our call this morning. You will find a PDF of the presentation on EV Energy Partners’ website under Investor Relations, Presentation and Events schedule. The web address is www.evenergypartners.com. You may want to take a moment to go ahead and open those slides.

Please note, our Safe Harbor clause on slide two and we will be making forward-looking statements.

I am going to defer comments on our fourth quarter and full-year 2012 results and move directly to an update on our Utica sale process. We opened the data rooms to sell our operated acreage this past summer. After obtaining additional drilling results we took bids in late October. There was one bid on the overall core position, multiple bids on four packages as well as individual bids on some of the counties.

As a reminder, EnerVest and Chesapeake have the largest blocks of acreage in the wet gas and volatile oil windows. We were initially offered several properties in exchange for some or all of our Utica holdings. Our valuation of the exchange properties from potential buyers was below the expectations of the parties offering those properties.

Therefore a deal was not going to be reached in exchange for those properties. We reverted to all cash offers with a confidence that we could complete a 1031 tax free exchange through EnerVest drop-downs or third party acquisitions. We spent considerable amount of time on a large transaction for most of these counties and that negotiation is still showing progress. In addition, we have reopened negotiations on two Northern counties with multiple parties. Some companies continue to press us into selling individual counties which may do if the price is right.

I want to share with you that I am disappointed that we've not executed the purchase and sale agreement yet. Fundamentally, the bids have to meet our expectation county-by-county and terms must also be acceptable and must conform to standard industry terms. I am leading the negotiations with a highly experienced team and I want to repeat we're not going to do a transaction that does not deliver an attractive price and acceptable terms. We will announce each deal as it is signed, but I believe that the process could take anywhere from a month to the remainder of the year. Believe me; I am spending an overwhelming amount of my time on this important process.

In my view, development drilling in the wet gas window continues to demonstrate ever increasing flow rates and steadily decreasing cost to develop. All existing wet gas pipelines are full; awaiting the delayed start-up of the Natrium plant in West Virginia. In addition, by early summer, UEO, Buckeye in which we own a 21% interest and a MarkWest plant, both will be processing and fractionating the NGL stream. Thus far, the industry is committed approximately $6 billion to the Utica Midstream infrastructure and that was prior to Kinder Morgan’s recent announcement of a possible processing and fractionation facility in Tuscarawas County.

By being patient, we believe that we will be able to demonstrate to that the sale of the approximately $100,000 networking interest acres being offered should enable us to use the proceeds to purchase assets on a tax free, equity free, debt free basis. We will have at least 70,000 more acres to sell, retain or exchange in Ohio and Western Pennsylvania.

The EVEP investments in Cardinal Gas Services and UEO Buckeye processing and fractionating systems will offer steady, but rapidly growing EBITDA to our entity. We expect that the Midstream will generate $50 million to $70 million pre-year in EBITDA once it's up and running. The approximate 2% over write in about 880,000 acres in Ohio could generate in excess of $50 million pre-year within five years. In Utica, we will just keep on going. And then it's our job to continue to position the company in other attractive basins.

Relative to our fourth quarter, we exceeded guidance. This was done with very little on the way of producing property acquisitions last year and with reduced capital expenditures, because of wet gas process and natural gas liquid process.

EVEP and EnerVest had good finding cost, lower LOE, lower drilling inflation cost and steadily better results from our major basin, the Barnett Shale which Mark will talk about a little bit later. In a few minutes Mark will discuss all of our operations, but first I want to turn it over to Mike Mercer who will provide an analysis of our financial results. Mike?

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