Constellation Energy Partners Reports First Quarter Results

HOUSTON, May 8 /PRNewswire-FirstCall/ -- Constellation Energy Partners LLC NYSE: CEP today reported first quarter results, announced strong performance on its 2008 program for newly drilled wells and recompletions, and reaffirmed the Adjusted EBITDA, net production, and capital spending forecast for 2008.

The company produced 4,043 MMcfe for the first quarter, up 230 percent from first quarter 2007, resulting in Adjusted EBITDA of $17.5 million, an increase of 142 percent over first quarter 2007. Net income on a generally accepted accounting principles (GAAP) basis for first quarter 2008 was $2.5 million, up 9 percent from first quarter 2007.

During the first quarter, the company worked on 97 wells and recompletions out of the 200 to 230 planned for its 2008 program. The company completed 29 wells and 11 recompletions. An additional 57 wells and recompletions were in progress, which are expected to flow to sales by the end of the third quarter.

"Our program performance for the first quarter was very strong. We completed the 2008 program in the Black Warrior Basin and have now turned our focus to preparing for 2009," said Stephen Brunner, chief executive officer of Constellation Energy Partners. "Our efforts in the Cherokee Basin were equally as impressive considering the extreme inclement winter weather and subsequent recovery efforts, which delayed our program at the beginning of the year. Our ability to bring production back to pre-storm levels is a significant achievement. Our activities in the first quarter establish a solid foundation for the remainder of the year."

The company reaffirmed the 2008 Adjusted EBITDA forecast range of $94 million to $105 million, an increase of 79 percent to 100 percent over 2007 results. The company also reaffirmed the 2008 net production forecast range of 17 Bcfe to 20 Bcfe and forecast capital spending of $44.5 million.

The company revised the 2008 Operating Expense forecast range to $54.5 million to $57.5 million, up from the original forecast range of $47.5 million to $57.5 million. The revision was driven by higher than expected one-time Lease Operating Expenses (LOE) related to field realignment, the extreme impact of last winter's weather and subsequent recovery costs, and an accumulation of other smaller charges such as the true up for the Newfield transition services agreement. The company estimates LOE for the remainder of the year will return to an estimated run rate of $1.90 to $2.10 per Mcfe.

"Our first quarter performance has positioned us well to achieve our full year forecast for Adjusted EBITDA, net production and capital spending and we are comfortable that our new operating expense forecast is both appropriate and achievable," said Brunner.

"As we look to the remainder of the year, we are optimistic about our efforts to drive cash flow stability through our producing asset base and hedging program. We also are targeting potential additional value through horizontal drilling, operational efficiencies and partnership opportunities. We are progressing well with each of these areas and believe our efforts will further enhance cash flow stability and drive future value."

Non-GAAP Measures

We present Adjusted EBITDA and Distributable Cash Flow 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; long-term incentive plan expense; accretion of asset retirement obligation; unrealized (gain) loss on natural gas derivatives; and realized (gain) loss on cancelled natural gas derivatives. Distributable Cash Flow is defined as Adjusted EBITDA less maintenance capital expenditures and cash interest expense. 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.

Adjusted EBITDA and Distributable Cash Flow are 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, these financial measures indicate 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 and Distributable Cash Flow are also used as quantitative standards 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 and Distributable Cash Flow are not intended to represent cash flows for the period, nor are they 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. We also provide our earnings forecast in terms of Adjusted EBITDA. We are unable to reconcile our forecast to GAAP net income or operating income because we do not predict the future impact of adjustments to net income (loss), such as (gains) losses on gas derivatives and equity investments or asset impairments, due to the difficulty of doing so.

SEC Filings

CEP intends to file its Form 10-Q for the quarter ended March 31, 2008, on or about May 9, 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 9:00 a.m. (CDT). 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) 375-1053 or (203) 369-0293 (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 March 31,
                                                   2008              2007
    Net Production:
    Total production (MMcfe)                       4,043             1,227
    Average daily production (Mcfe/day)           44,429            13,633

    Average Net Sales Price per Mcfe:
    Net realized price, including hedges           $7.73 (a)         $9.22 (a)
    Net realized price, excluding hedges           $7.62             $6.97
    (a) Excludes impact of mark-to-market
     losses and net of cost of sales.


    Net Wells Drilled and Completed                   29                 8
    Net Recompletions                                 11                 -



    Constellation Energy Partners LLC
    Condensed Consolidated Statements of Operations

                                                 Three Months Ended March 31,
                                                     2008              2007
                                                        ($ in thousands)

    Oil and gas sales                              $32,388           $11,307
    Gain/(Loss) from mark-to-market
     activities                                     (2,956)           (2,782)
        Total Revenues                             $29,432            $8,525

    Operating expenses:
      Lease operating expenses                       9,064             1,595
      Cost of sales                                  1,148                 -
      Production taxes                               1,665               459
      General and administrative                     3,335             1,619
      (Gain)/Loss on sale of equipment                (211)               95
      Depreciation, depletion and
       amortization                                  9,533             1,959
      Accretion expense                                101                36
        Total operating expenses                    24,635             5,763

    Other expenses:
      Interest (income) expense, net                 2,319               508
      Other (income) expense                            14                 -

        Total expenses                              26,968             6,271

    Net income (loss)                               $2,464            $2,254

    Adjusted EBITDA                                $17,511            $7,237

    EPS - Basic                                      $0.11             $0.20
    EPS - Basic Units Outstanding               22,347,682        11,320,300

    EPS - Diluted                                    $0.11             $0.20
    EPS - Diluted Units Outstanding             22,351,672        11,320,300



    Constellation Energy Partners LLC
    Condensed Consolidated Balance Sheets

                                                 March 31,        December 31,
                                                    2008              2007
                                                       ($ in thousands)

    Current assets                                 $40,756           $45,873
    Natural gas properties, net of
     accumulated depreciation, depletion and
     amortization                                  695,083           643,653
    Other assets                                    15,321            17,129
      Total assets                                $751,160          $706,655

    Current liabilities                            $48,572           $20,551
    Debt                                           212,000           153,000
    Other long-term liabilities                     32,779            16,702
      Total liabilities                            293,351           190,253

    Class D Interests                                6,667             7,000

    Common members' equity                         495,167           505,178
    Accumulated other comprehensive income         (44,025)            4,224
     Total members' equity                         451,142           509,402
      Total liabilities and members' equity       $751,160          $706,655



    Constellation Energy Partners LLC
    Reconciliation of Net Income to Adjusted EBITDA to Distributable Cash

                                                  Three Months Ended March 31,
                                                     2008               2007
                                                        ($ in thousands)

    Net income                                       $2,464            $2,254
    Add:
     Interest expense/(income), net                   2,319               508
     Depreciation, depletion and amortization         9,533             1,959
     Accretion of asset retirement obligation           101                36
     (Gain)/Loss on sale of asset                      (211)               95
     Loss from mark-to-market activities              2,956             2,782
     Long-term incentive plan                            98                 -
     Unrealized (gain)/loss on natural gas
      derivatives/hedge ineffectiveness                 251              (397)
    Adjusted EBITDA (1)                             $17,511            $7,237

     Maintenance capital (2)                          6,750             1,238
     Drilling fund                                   (1,500)                -
     Interest expense (cash)                          3,500               424

    Distributable Cash                               $8,761            $5,575



    (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 assets;
    -- (gain) loss on sale of assets;
    -- (gain) loss from equity investment;
    -- long-term incentive plan expense;
    -- 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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