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EV Energy Partners Announces Third Quarter 2008 Results

Posted on: Monday, 10 November 2008, 21:00 CST

EV Energy Partners, L.P. (Nasdaq:EVEP) today announced results for the third quarter 2008 and filed its Form 10-Q with the Securities and Exchange Commission. In addition, EVEP's updated commodity hedge positions are presented in the Hedge Summary Table at the end of this release.

For the third quarter, EVEP closed over $200 million of acquisitions, increased to $0.75 per unit its distribution related to the quarter and entered into significant additional commodity hedge positions.

Third Quarter 2008 Results

Adjusted EBITDA for the quarter was $27.5 million, a 34% increase over the third quarter of 2007 and a 10% decrease versus the second quarter of 2008. Distributable Cash Flow for the quarter was $14.0 million, an 18% increase over the third quarter of 2007 and a 24% decrease versus the second quarter of 2008. Adjusted EBITDA and Distributable Cash Flow are described in the attached table under "Non-GAAP Measures".

EVEP reported net income of $204.1 million, or $10.14 per basic and diluted weighted average unit outstanding, for the third quarter of 2008. Included in net income were $189.3 million of non-cash net unrealized gains on derivatives. For the third quarter of 2007, net income was $13.7 million, or $0.80 per basic and diluted weighted average unit outstanding, which included $1.6 million of non-cash net unrealized gains on commodity derivatives and $0.4 million of non-cash costs contained in general and administrative expenses. For the second quarter of 2008, net loss was $99.5 million, or ($6.51) per basic and diluted weighted average unit outstanding, which included $118.1 million of non-cash net unrealized losses on commodity derivatives and $0.8 million of non-cash costs contained in general and administrative expenses.

The $189.3 million non-cash net unrealized gain on derivatives for the third quarter of 2008 was primarily due to the significant decrease in future oil and natural gas prices that occurred from June 30, 2008 to September 30, 2008 and the effect of such decreased prices on EVEP's commodity price hedges which extend through 2012.

For the quarter ended September 30, 2008, EVEP produced 3.285 Bcf of natural gas, 111 MBbls of crude oil and 127 MBbls of natural gas liquids, or 4.71 Bcfe. This is a 26% increase over third quarter 2007 production of 3.75 Bcfe, primarily due to acquisitions made during 2007 and 2008. Production decreased by 2% from the second quarter 2008 production of 4.80 Bcfe primarily due to curtailments, shut-ins and natural gas liquids fractionation delays related to Hurricane Ike, and to continuing pipeline curtailments experienced in the Monroe field, as described below. Absent these curtailments, shut-ins and natural gas liquids fractionation delays, EVEP estimates that production recorded for the third quarter would have been approximately 5.27 bcfe, or 57.3 mmcfe per day

Due to the effects of Hurricane Ike, production from EVEP's Austin Chalk, Permian Basin and San Juan Basin assets was curtailed or shut-in during part of September. EVEP estimates that these curtailments and shut-ins resulted in a reduction in third quarter 2008 production of approximately 3,850 bbls of crude oil, 75 mmcf of natural gas and 10,500 bbls of natural gas liquids, or a total of 161 mmcfe. EVEP experienced no damage to its assets in these areas and production in these areas was fully restored prior to the end of the quarter. However, third-party natural gas liquids fractionation facilities at Mt. Belvieu, TX did sustain damage from Hurricane Ike, which caused a reduction in the volume of natural gas liquids that were fractionated and sold during September after the Hurricane Ike curtailments and shut-ins had ended. These volumes of natural gas liquids, which EVEP estimates at approximately 11,000 bbls, or 66 mmcfe, were delivered into storage in Mt. Belvieu and will be recorded as production and revenues after they have been fractionated and sold, which is expected to occur primarily during the first quarter of 2009. In addition, these third-party fractionation facilities through which EVEP's natural gas liquids sent to Mt. Belvieu are fractionated are undergoing a mandatory five year turnaround for approximately one month during October and November. During this period EVEP estimates that approximately 80,000 bbls of natural gas liquids that it produces will be delivered into storage at Mt. Belvieu and will be fractionated and sold in the future, which is currently expected to occur primarily during the first quarter of 2009. Since EVEP records revenue and production under the sales method, these volumes and revenues will be recognized during the period in which they are fractionated and sold.

In addition, EVEP continued to experience production curtailments of approximately 3.6 mmcf per day in the Monroe field during the third quarter of 2008 and during the fourth quarter until October 25th. For the third quarter of 2008, these curtailments totaled approximately 330 mmcf of natural gas. However, during this period, EVEP was contractually entitled to receive payment from the purchaser for the amount of natural gas production curtailed, subject to the purchaser recouping all or part of such amounts out of a percentage of future production.

Updated Guidance

For the fourth quarter of 2008, EVEP has reduced its guidance range for natural gas liquids sales to 90 to 106 mbbls to account for the previously described estimate of 80 mbbls of natural gas liquids that it expects to be produced and delivered into storage at Mt. Belvieu to be fractionated and sold in the future. In addition, EVEP is revising its guidance range for lease operating expenses to $12.0 to $13.0 million.

Quarterly Report on Form 10-Q

EVEP's financial statements and related footnotes are available on our third quarter 2008 Form 10-Q, which was filed today and is available through the Investor Relations/SEC Filings section of the EVEP web site at http://www.evenergypartners.com.

Conference Call

As announced on November 6, 2008, EV Energy Partners, L.P. will host an investor conference call Tuesday, November 11, 2008, at 9:00am (Eastern Time). Investors interested in participating in the call may dial (303) 262-2139 and ask for the EV Energy Partners call at least 5 minutes prior to the start time, or may listen live over the internet through the Investor Relations section of the EVEP web site at http://www.evenergypartners.com.

EV Energy Partners, L.P., is a master limited partnership engaged in acquiring, producing and developing oil and gas properties. More information about EVEP is available on the internet at http://www.evenergypartners.com.

(code #: EVEP/G)

This press release may include "forward-looking statements" as defined by the Securities and Exchange Commission. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the partnership expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made by EVEP based on its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of EVEP, which may cause our actual results to differ materially from those implied or expressed by the forward-looking statements. These include risks relating to financial performance and results, availability of sufficient cash flow to pay distributions and execute our business plan, prices and demand for natural gas and oil, our ability to replace reserves and efficiently develop our current reserves and other important factors that could cause actual results to differ materially from those projected as described in the EVEP's reports filed with the Securities and Exchange Commission.

The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions at oil and gas prices in effect at the time of the estimate, without future escalation. We include in this press release an estimate of net proved reserves using strip prices, rather than prices at the time of the estimate, that the SEC's guidelines strictly prohibit us from including in filings with the SEC. Investors are urged to consider closely the disclosure in our Form 10-K, available from us at www.evenergypartners.com or from the SEC at www.sec.gov.

Any forward-looking statement speaks only as of the date on which such statement is made and EVEP undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.

Operating Statistics Three Months Nine Months Ended Ended September 30, September 30, --------------- -------------- 2008 2007 2008 2007 ------- ------ ------- ------ Production data: Oil (MBbls) 111 86 301 150 Natural gas liquids (MBbls) 127 68 386 71 Natural gas (MMcf) 3,285 2,828 10,305 6,129 ------- ------ ------- ------ Net production (MMcfe) 4,710 3,753 14,423 7,451 Average sales price per unit (1): Oil (Bbl) $115.55 $72.04 $111.40 $65.99 Natural gas liquids (Bbl) 68.41 45.02 65.63 44.86 Natural gas (Mcf) 9.80 6.04 9.37 6.71 Average unit cost per Mcfe: Production costs: Lease operating expenses $ 2.51 $ 1.97 $ 2.12 $ 1.87 Production taxes 0.55 0.22 0.50 0.22 ------- ------ ------- ------ Total 3.06 2.19 2.62 2.09 Depreciation, depletion and amortization 1.66 1.66 1.68 1.58 General and administrative expense 0.60 0.70 0.68 0.85

(1) Prior to ($10.4) and $4.2 million of net hedge (losses) gains for the three months ended September 30, 2008 and September 30, 2007, respectively, and prior to ($24.8) and $8.2 million of net realized hedge (losses) gains for the nine months ended September 30, 2008 and September 30, 2007, respectively.

Balance Sheet (in $ thousands) September 30, 2008 December 31, 2007 ------------------ ----------------- ASSETS Current assets: Cash and cash equivalents $ 25,663 $ 10,220 Accounts receivable: Oil, natural gas and natural gas liquids revenues 29,525 18,658 Related party 9,538 3,656 Other 306 15 Derivative asset 6,282 1,762 Prepaid expenses and other current assets 357 594 ------------------ ----------------- Total current assets 71,671 34,905 Oil and natural gas properties, net of accumulated depreciation, depletion and amortization; September 30, 2008, $56,124; December 31, 2007, $30,724 766,973 570,398 Other property, net of accumulated depreciation and amortization; September 30, 2008, $273; December 31, 2007, $239 190 225 Long-term derivative asset 24,075 - Other assets 3,028 2,013 ------------------ ----------------- Total assets $865,937 $607,541 ================== ================= LIABILITIES AND OWNERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 19,868 $ 12,113 Deferred revenues 4,832 1,122 Derivative liability 8,185 5,232 ------------------ ----------------- Total current liabilities 32,885 18,467 Asset retirement obligations 28,211 19,463 Long-term debt 467,000 270,000 Other long-term liabilities 1,394 1,507 Long-term derivative liability 11,030 15,074 Commitments and contingencies Owners' equity 325,417 283,030 ------------------ ----------------- Total liabilities and owners' equity $865,937 $607,541 ================== =================

Results of Operations (in $ thousands, except per unit data) Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------ 2008 2007 2008 2007 --------- -------- --------- -------- Revenues: Oil, natural gas and natural gas liquids revenues $ 53,672 $26,354 $155,336 $54,185 Gain on derivatives, net 563 869 1,225 2,563 Transportation and marketing- related revenues 3,169 2,206 9,649 7,826 --------- -------- --------- -------- Total revenues 57,404 29,429 166,210 64,574 --------- -------- --------- -------- Operating costs and expenses: Lease operating expenses 11,828 7,375 30,542 13,896 Cost of purchased natural gas 2,451 1,876 7,866 6,762 Production taxes 2,593 819 7,221 1,671 Asset retirement obligations accretion expense 381 181 987 395 Depreciation, depletion and amortization 7,832 6,241 24,187 11,777 General and administrative expenses 2,843 2,636 9,867 6,367 --------- -------- --------- -------- Total operating costs and expenses 27,928 19,128 80,670 40,868 --------- -------- --------- -------- Operating income 29,476 10,301 85,540 23,706 Other income (expense), net: Interest expense (3,736) (1,610) (10,563) (3,933) Gain on mark-to-market derivatives, net 178,384 4,985 4,919 2,985 Other income, net 90 147 252 420 --------- -------- --------- -------- Total other income (expense), net 174,738 3,522 (5,392) (528) --------- -------- --------- -------- Income before income taxes 204,214 13,823 80,148 23,178 Income taxes (75) (88) (205) (88) --------- -------- --------- -------- Net income $204,139 $13,735 $ 79,943 $23,090 ========= ======== ========= ======== General partner's interest in net income $ 49,315 $ 1,721 $ 18,287 $ 1,908 ========= ======== ========= ======== Limited partners' interest in net income $154,824 $12,014 $ 61,656 $21,182 ========= ======== ========= ======== Net income per limited partner unit: Common units (basic and diluted) $ 10.14 $ 0.80 $ 4.09 $ 1.73 Subordinated units (basic and diluted) $ 10.14 $ 0.80 $ 4.09 $ 1.73 Weighted average limited partner units outstanding: Common units (basic and diluted) 12,168 11,839 11,976 9,132 Subordinated units (basic and diluted) 3,100 3,100 3,100 3,100

Statement of Cash Flows (in $ thousands) Nine Months Ended Nine Months Ended September 30, 2008 September 30, 2007 ------------------ ------------------ Cash flows from operating activities: Net income $ 79,943 $ 23,090 Adjustments to reconcile net income to net cash flows provided by operating activities: Asset retirement obligations accretion expense 987 395 Depreciation, depletion and amortization 24,187 11,777 Share-based compensation cost 1,208 932 Amortization of deferred loan costs 220 87 Unrealized (gain) loss on derivatives, net (30,911) 2,671 Changes in operating assets and liabilities: Accounts receivable (12,061) (3,236) Prepaid expenses and other current assets 236 685 Other Assets (7) (285) Accounts payable and accrued liabilities 4,115 2,855 Deferred revenues 3,710 538 ------------------ ------------------ Net cash flows provided by operating activities 71,627 39,509 ------------------ ------------------ Cash flows from investing activities: Acquisitions of oil and natural gas properties (182,123) (255,228) Development of oil and natural gas properties (24,314) (7,316) Deposit on acquisition of oil and natural gas properties (16,000) ------------------ ------------------ Net cash flows used in investing activities (206,437) (278,544) ------------------ ------------------ Cash flows from financing activities: Debt borrowings 197,000 259,350 Repayment of debt borrowings - (196,350) Deferred loan costs (1,227) (152) Proceeds from private equity offerings - 220,000 Offering costs - (175) Distributions paid (31,602) (16,226) Distributions related to acquisitions (13,918) (5,826) ------------------ ------------------ Net cash flows provided by financing activities 150,253 260,621 ------------------ ------------------ Increase in cash and cash equivalents 15,443 21,586 Cash and cash equivalents - beginning of period 10,220 1,875 ------------------ ------------------ Cash and cash equivalents - end of period $ 25,663 $ 23,461 ================== ==================

Non GAAP Measures

We define Adjusted EBITDA as net income (loss) plus interest expense (income), including realized losses (gains) on interest rate swaps, depreciation, depletion and amortization, accretion of asset retirement obligation, unrealized loss (gain) on derivatives, non-cash compensation and other expense, write-off of deferred financing costs, income tax provision, exploration expense and dry hole cost and impairment of unproved properties. Distributable Cash flow is defined as Adjusted EBITDA less interest expense, net, income taxes and estimated maintenance capital expenditures.

Adjusted EBITDA and Distributable Cash Flow are used by our management to provide additional information and metrics relative to the performance of our business, including (prior to the creation of any reserves) the cash available to pay distributions to our unitholders. 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 quantitative standards used throughout the investment community with respect to performance of publicly-traded partnerships. Adjusted EBITDA and Distributable Cash Flow should not be considered as alternatives to net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA and Distributable Cash Flow exclude some, but not all, items that effect net income and operating income and these measures may vary among companies. Therefore, our Adjusted EBITDA and Distributable Cash Flow may not be comparable to similarly titled measures of other companies.

Reconciliation of Net Income to Adjusted EBITDA and Distributable Cash Flow (in $ thousands) Three Months Ended Nine Months Ended September 30, September 30, ------------------- ----------------- 2008 2007 2008 2007 ---------- -------- --------- ------- Net income $ 204,139 $13,735 $ 79,943 $23,090 Add: Income taxes 75 88 205 88 Interest expense, net 3,645 1,431 10,321 3,479 Cash losses on interest rate swaps 857 0 857 0 Depreciation, depletion and amortization 7,832 6,241 24,187 11,777 Asset retirement obligation accretion expense 381 181 987 395 Non-cash (gains) losses on derivatives (189,336) (1,633) (30,911) 2,671 Non-cash unit based compensation expense (53) 434 1,208 962 ---------- -------- --------- ------- Adjusted EBITDA 27,539 20,477 86,797 42,462 Less: Interest expense, net 3,645 1,431 10,321 3,479 Cash losses on interest rate swaps 857 0 857 0 Income taxes 75 88 205 88 Estimated maintenance capital expenditures (1) 8,950 7,100 27,405 13,400 ---------- -------- --------- ------- Distributable Cash Flow 14,013 11,858 48,009 25,495

(1) Estimated maintenance capital expenditures are those expenditures estimated to be necessary to maintain the production levels of our oil and gas properties over the long term and the operating capacity of our other assets over the long term.

Hedge Summary Table (as of 11/10/2008) Swap Swap Collar Collar Collar Volume Price Volume Floor Ceiling -------------- -------- -------------- ------- ------- (Mmmbtu/Mbbls) (Mmmbtu/Mbbls) Natural Gas: 4th Qtr 2008 Dominion Appalachia 598 $ 9.07 El Paso Permian 276 $ 7.23 Houston Ship Channel 472 $ 8.16 MichCon Citygate 322 $ 8.16 184 $ 8.00 $ 9.55 NYMEX 368 $ 8.85 92 $ 7.50 $ 9.65 NYMEX 92 $ 7.50 $ 9.85 NYMEX 184 $ 7.50 $ 9.70 NYMEX 184 $ 8.00 $ 11.30 NYMEX 184 $ 7.50 $ 8.50 NYMEX 184 $ 7.50 $ 8.45 2009 Dominion Appalachia 2,336 $ 9.03 El Paso Permian 1,228 $ 7.80 Houston Ship Channel 2,051 $ 8.25 MichCon Citygate 1,825 $ 8.27 NYMEX 2,738 $ 8.43 NYMEX 365 $ 7.50 $ 8.80 NYMEX 1,460 $ 7.75 $ 9.15 NYMEX 730 $ 8.00 $ 10.55 2010 Dominion Appalachia 2,044 $ 8.65 El Paso Permian 913 $ 7.68 Houston Ship Channel 1,278 $ 7.25 $ 9.55 MichCon Citygate 1,825 $ 8.34 NYMEX 3,833 $ 8.64 NYMEX 548 $ 7.50 $ 10.00 2011 Dominion Appalachia 913 $ 8.69 1,095 $ 9.00 $ 12.15 El Paso Permian 913 $ 9.30 Houston Ship Channel 1,278 $ 8.25 $ 11.65 MichCon Citygate 1,643 $ 8.70 $ 11.85 NYMEX 3,468 $ 8.95 2012 Dominion Appalachia 1,830 $ 8.95 $ 11.45 El Paso Permian 732 $ 9.21 Houston Ship Channel 1,098 $ 8.25 $ 11.10 MichCon Citygate 1,647 $ 8.75 $ 11.05 NYMEX 3,477 $ 9.60 Crude Oil: (NYMEX) 4th Qtr 2008 182.9 $ 91.98 11.5 $ 62.00 $ 73.95 2009 650.1 $ 93.09 45.6 $ 62.00 $ 73.90 2010 629.6 $ 90.84 2011 175.2 $109.38 401.5 $110.00 $166.45 2012 168.4 $108.76 366.0 $110.00 $170.85 Interest Rate Swap Agreements: Notional Fixed Floating Amount Rate Rate ----------- ------- -------- (in $ mill) July 2008 - June 2012 1 month $200 4.163% LIBOR

Source: Business Wire

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