EV Energy Partners, L.P. (EVEP)

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EV Energy Partners L.P. (EVEP)

Q3 2010 Earnings Call Transcript

November 9, 2010 9:00 am ET


John Walker – Chairman & CEO

Mike Mercer – SVP & CFO

Mark Houser – President & COO



Ladies and gentlemen, thank you for standing by. Welcome to the EV Energy L.P. third quarter 2010 earnings release conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions)

Now, I would like to turn the conference over to Mr. John Walker, Chairman and CEO. Please go ahead, sir.

John Walker

Thank you, Barbara. I am calling from Tuscan. We’re at the IPAA attending its Annual Meeting and Mark Houser, Mike Mercer, Ron Gajdica and the rest of our team are in Houston and will join me in the call.

Third quarter results were in line with our expectations and Mike Mercer will go into some detail about it shortly. I however want to add that our operations people are doing a great job. As you know, we don’t commit capital without a risk adjusted 20% rate of return, something that we continue to emphasize to tell you.

That means that that cuts out several natural gas projects that we budgeted for this year, and through a combination of the good performance of the EXCO and Range acquisitions, and our liquids area is helping.

But most important, our field people diligently using expense workovers, we are keeping our production at expected levels, and they really are doing a great job and we actually have monthly incentives on both cost as well as production targets.

We close our Petrohawk acquisition and we’re integrating the assets and that seems to be going well. The Barnett acquisition due diligence team is up in the Fort Worth area and that’s going very well.

There are several fracs on new laterals and re-fracs on older wells that are scheduled both this month and in December, and we really believe that this is going to be an excellent acquisition that’s similar to the Chalk in that we believe that we’re going to be able to grow it at our pace. We can dial-in and they’ll dial-out here.

We can use one rig, generate significant excess cash flow. Two rigs, takes a little more cash flow but we still have cash flow that we can distribute, so we that it’s something that really will help our growth in the future. It’s going to be an excellent acquisition and it’s going to be a major step in resuming significant distribution growth.

Our joint venture in Ohio provided about $40 million of cash in the third and fourth quarter that you see in our third quarter report. I can say that we are quarrying the Utica as we drill Knox wells and are encouraged by the results in the oil and natural gas windows today.

EnerVest’s institutional partnerships in EVEP with their combined 1.6 million gross acres are doing the science first and moving cautiously without wasting money, and of course that’s our business model.

I’d now like to turn it over Mike Mercer.

Mike Mercer

Thank you, John. For the third quarter of 2010, our adjusted EBITDA was $37.2 million, which is a 10.8% increase over the third quarter of 2009 and a 0.3% increase over the prior quarter. Distributable cash flow was $24 million, 22% increase over the third quarter of ‘09 and 4.3% increase over the prior quarter’s distributable cash flow.

Our net income was $58.1 million or $1.88 per basic unit and $1.87 per fully diluted unit. Now, included in that $58.1 million of net income was $4.1 million of non-cash gains on derivatives, which is primarily due to the decrease in natural gas prices, partially offset by an increase in crude prices during the third quarter on our mark-to-market; $1.3 million of non-cash cost in G&A, and $36.8 million gain on the sale of unproved acreage that John just mentioned. Now, excluding those items, net income for the quarter would have been $15.9 million.

Production for the quarter; we had 4.8 Bcf of natural gas production, 179,000 barrels of crude and 181,000 barrels of NGLs or approximately 7 Bcfe of production, that was a 2.1% sequential growth in production over the second quarter of 2010 and 13.9% over the third quarter of ‘09. So as John mentioned, you can see that we are maintaining the slightly growing production levels here with some relatively modest capital expenditures.

Now, our G&A for the quarter, one thing I’ll mention is that for the third quarter, G&A did include and we’ll have this anytime, we have acquisitions included over $300,000 of one-time cost related to the Petrohawk acquisition, our Mid-Continent region acquisition we closed at the end of the third quarter in September 29.

I’ll also mention that on capital expenditures, we spent $8.1 million this quarter and that brings our total to the year about $16.4 million. If you compare that to our deduction for estimated maintenance capital, it continues to be below what we deduct for that. For the nine months this year, our estimated maintenance capital deduction in calculating distributable cash flow has been about $9 million higher than that at $25.1 million.

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