Constellation Energy Partners Reports Solid Fourth Quarter and Full Year 2007 Results

BALTIMORE, Feb. 20 /PRNewswire-FirstCall/ -- Constellation Energy Partners LLC NYSE: CEP today reported fourth quarter and full year 2007 solid results, and announced a $53.4 million dropdown acquisition of interest in producing wells located in the Woodford Shale in Oklahoma from an affiliate of its sponsor, Constellation Energy NYSE: CEG.

The company produced 10,393 MMcfe for the full year 2007, up 124 percent from 2006 and resulting in adjusted EBITDA of $52.5 million, an increase of 128 percent over 2006. Net income on a generally accepted accounting principles (GAAP) basis for 2007 was $14.2 million. The company produced 4,212 MMcfe for the fourth quarter of 2007, resulting in adjusted EBITDA of $19.6 million and net income of $2.9 million on a GAAP basis.

The company expects 2008 adjusted EBITDA to range from $94 million to $105 million, an increase of 79 percent to 100 percent over 2007 results. Production in 2008 is expected to range from 17 Bcfe to 20 Bcfe, an increase of 64 percent to 92 percent over 2007.

In addition, CEP announced it is acquiring from an affiliate of its sponsor, Constellation Energy, non-operating interest in producing wells located in the Woodford Shale in Oklahoma, a portion of the asset originally acquired in 2004. Upon closing of the acquisition, which is expected by the end of the first quarter and subject to customary purchase price adjustments, CEP will obtain 13.1 Bcfe of proved developed producing reserves with an estimated daily net production of 5.7 MMcfe. CEP intends to finance the transaction with debt from its reserve-based lending facility.

"We delivered solid results and achieved the core objectives we identified at the start of the year," said Felix Dawson, chief executive officer. "Performance was strong throughout the year in our Black Warrior Basin asset, and through a trio of acquisitions in the Cherokee Basin, we doubled net proved reserves and tripled production. We executed well in 2007, maintaining stable cash flows and delivered on our commitment to increase distributions with a 22 percent increase announced in the fourth quarter.

"Going forward, a key to driving the sustainability of our business will be balancing acquisition driven growth and operational success, and that will be a top priority in 2008," said Dawson. "The effort to expand and strengthen our operational capabilities is well under way and we anticipate it will allow us to increase efficiency, exploit the organic growth potential of our Cherokee Basin assets and pursue consolidation opportunities in both the Cherokee and Black Warrior Basins.

"The announcement of the dropdown acquisition of the Woodford Shale asset highlights an important competitive advantage," Dawson said. "CEP has grown its portfolio in multiple ways, through basin consolidation, coalbed methane plays and now, a dropdown acquisition from our sponsor. This demonstrated flexibility in acquisition approaches is an important differentiator for CEP in the MLP sector. The ability to execute mutually beneficial dropdown transactions was one of the main commercial concepts considered when Constellation Energy formed CEP, and we think this transaction highlights the benefits of that capability. In the future, as Constellation Energy further develops its properties, we will look to make other dropdown acquisitions.

"We begin 2008 with a strong foundation for portfolio growth and a sharpened focus on our operations," Dawson said. "CEP continues to execute well overall and we're in a good position to build on our past accomplishments over the coming year."

Non-GAAP Measures

We present Adjusted EBITDA in addition to our reported net income in accordance with GAAP. Adjusted EBITDA is a non-GAAP financial measure that is defined as net income (loss) plus interest (income) expense; depreciation, depletion and amortization; write-off of deferred financing fees; impairment of long-lived assets; (gain) loss on sale of assets; (gain) loss from equity investment; accretion of asset retirement obligation; unrealized (gain) loss on natural gas derivatives; and realized (gain) loss on cancelled natural gas derivatives.

Adjusted EBITDA is used by management to indicate (prior to the establishment of any cash reserves by our board of managers) the cash distributions we expect to pay our unitholders. Specifically, this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates. Adjusted EBITDA is also used as a quantitative standard by our management and by external users of our financial statements such as investors, research analysts and others to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis; the ability of our assets to generate cash sufficient to pay interest costs and support our indebtedness; and our operating performance and return on capital as compared to those of other companies in our industry, without regard to financing or capital structure. Adjusted EBITDA is not intended to represent cash flows for the period, nor is it presented as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP.

    SEC Filings
    CEP intends to file its 2007 Form 10-K on or about February 28, 2008.

Forward-Looking Statements

We make statements in this news release that are considered forward- looking statements within the meaning of the Securities Exchange Act of 1934. These forward-looking statements are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management's assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this news release are not guarantees of future performance, and we cannot assure you that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors listed in the "Risk Factors" section in our SEC filings and elsewhere in those filings. All forward-looking statements speak only as of the date of this news release. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.

Conference Call Information

The company will host a conference call today at 10:00 a.m. (ET) to review its financial results and discuss its business outlook for 2008.

To participate, analysts, investors, media and the public in the U.S. may dial (888) 322-9245 shortly before 10:00 a.m. (ET). The international phone number is (773) 756-0253. The conference password is PARTNERS.

A replay will be available approximately one hour after the end of the call by dialing (888) 457-6652 or (203) 369-1301 (international). A live audio webcast of the conference call, presentation slides and the earnings press release will be available on the Investor Relations page of Constellation Energy Partners' Web site (http://www.constellationenergypartners.com). A webcast replay, as well as a replay in downloadable MP3 format will also be available on the site approximately one hour after the completion of the call.

Constellation Energy Partners LLC, (http://www.constellationenergypartners.com), is a limited liability company focused on the acquisition, development and exploitation of oil and natural gas properties, as well as related midstream assets.

    Constellation Energy Partners LLC
    Operating Statistics

                                        Three Months Ended     Year Ended
                                            December 31,       December 31,
                                          2007       2006    2007       2006
    Net Production:
    Total production (MMcfe)              4,212      1,250  10,393      4,641
    Average daily production (Mcfe/day)  45,783     13,587  28,474     12,715

    Average Sales Price per Mcfe:
    Net realized price, including hedges  $7.49(a)   $8.61   $7.79(a)   $7.95
    Net realized price, excluding hedges  $6.15      $6.78   $6.34      $7.43
    (a) Excludes impact of mark-to-
     market losses.

    Net Proved Reserves:
    Proved developed (Bcfe)                                  186.7       97.4
    Proved undeveloped (Bcfe)                                116.1       22.9
    Total proved (Bcfe)                                      302.8      120.3

    Net Wells Drilled and Completed          35          6      89         31
    Net Recompletions                         -          -      21          -



    Constellation Energy Partners LLC
    Condensed Consolidated Statements of Operations

                                  Three Months Ended         Year Ended
                                     December 31,            December 31,
                                    2007        2006        2007        2006
                                   ($ in thousands)        ($ in thousands)

    Oil and gas sales             $32,692     $10,763     $82,725     $36,917
    (Loss) from mark-to-market
     activities                    (4,091)          -      (6,856)          -
      Total Revenues              $28,601     $10,763     $75,869     $36,917

    Operating expenses:
      Lease operating expenses      7,319       1,913      17,141       7,234
      Cost of sales                 1,132           -       1,788           -
      Production taxes              1,511         443       3,646       1,783
      General and administrative    3,051       1,128       9,109       4,573
      Loss on sale of equipment         -           -          86           -
      Depreciation, depletion
       and amortization            10,027       1,457      23,190       7,444
      Accretion expense               101          35         312         141
        Total operating expenses   23,141       4,976      55,272      21,175

    Other (income) expenses:
      Interest (income) expense,
       net                          2,558         114       6,465        (247)
      Other (income)                   (9)          -        (109)          -

        Total expenses             25,690       5,090      61,628      20,928

    Net income                     $2,911      $5,673     $14,241     $15,989

    Adjusted EBITDA               $19,573      $7,106     $52,520     $23,025

    EPS - Basic                     $0.13       $0.50       $0.87       $1.41
    EPS - Basic Units
     Outstanding               22,351,128  11,320,300  16,321,547  11,320,300

    EPS - Diluted                   $0.13       $0.50       $0.87       $1.41
    EPS - Diluted Units
     Outstanding               22,353,691  11,320,300  16,325,508  11,320,300



    Constellation Energy Partners LLC
    Condensed Consolidated Balance Sheets

                                                December 31,      December 31,
                                                     2007              2006
                                                      ($ in thousands)

    Current assets                                 $45,873           $26,087
    Natural gas properties, net of
     accumulated depreciation, depletion
     and amortization                              643,653           171,639
    Other assets                                    17,129             5,971
      Total assets                                $706,655          $203,697

    Current liabilities                            $20,551            $9,007
    Debt                                           153,000            22,000
    Other long-term liabilities                     16,702             2,730
      Total liabilities                            190,253            33,737

    Class D Interests                                7,000             8,000

    Common members' equity                         505,178           148,847
    Accumulated other comprehensive income           4,224            13,113
      Total members' equity                        509,402           161,960
        Total liabilities and members' equity     $706,655          $203,697



    Constellation Energy Partners LLC
    Reconciliation of Net Income to Adjusted EBITDA

                                           Three Months Ended   Year Ended
                                              December 31,     December 31,
                                              2007    2006     2007     2006
                                            ($ in thousands)  ($ in thousands)

    Reconciliation of Net Income to
     Adjusted EBITDA:
    Net income                               $2,911  $5,673  $14,241  $15,989
    Add:
      Interest expense/(income), net          2,558     114    6,465     (247)
      Depreciation, depletion and
       amortization                          10,027   1,457   23,190    7,444
      Accretion of asset retirement
       obligation                               101      35      312      141
      Loss on sale of asset                       -       -       86        -
      Loss from mark-to-market activities     4,091       -    6,856        -
      Long-term incentive plan                  123       -      145        -
      Unrealized (gain)/loss on natural gas
       derivatives/hedge ineffectiveness       (238)   (173)   1,225     (302)
    Adjusted EBITDA (1)                     $19,573  $7,106  $52,520  $23,025

      Maintenance capital (2)                 4,625           10,696
      Drilling fund                          (1,500)          (2,634)
      Interest expense (cash)                 3,345            5,935

    Distributable Cash                      $13,103          $38,523

    (1) Our Adjusted EBITDA should not be considered as an alternative to net
        income, operating income, cash flows from operating activities or any
        other measure of financial performance or liquidity presented in
        accordance with GAAP. Our Adjusted EBITDA excludes some, but not all,
        items that affect net income and operating income and these measures
        may vary among other companies. Therefore, our Adjusted EBITDA may
        not be comparable to similarly titled measures of other companies.
        We define Adjusted EBITDA as net income (loss) plus:
        -- interest (income) expense;
        -- depreciation, depletion and amortization;
        -- write-off of deferred financing fees;
        -- impairment of long-lived;
        -- (gain) loss on sale of assets;
        -- (gain) loss from equity investment;
        -- Long-term incentive plan;
        -- accretion of asset retirement obligation;
        -- unrealized (gain) loss on natural gas derivatives; and
        -- realized loss (gain) on cancelled natural gas derivatives

    (2) Maintenance capital expenditures are capital expenditures that we
        expect to make on an ongoing basis to maintain our asset base
        (including our undeveloped leasehold acreage) at a steady level over
        the long term. These expenditures include the drilling and
        completion of additional development wells to offset the expected
        production decline during such period from our producing properties,
        as well as additions to our inventory of unproved properties or proved
        reserves required to maintain our asset base.

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