Constellation Energy Partners LLC Overview & How will the MLP Model Evolve?

Transcription

1 Constellation Energy Partners LLC Overview & How will the MLP Model Evolve? Platts 2 nd E&P MLP Symposium Charles Ward Chief Financial Officer June 12, 2008

2 Forward-looking Statements Disclaimer This presentation contains forward looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about: the volatility of realized natural gas prices; discovery, estimation, development and replacement of oil and natural gas reserves; business and financial strategy; drilling locations; technology; cash flow, liquidity and financial position; production volumes; lease operating expenses, general and administrative costs and finding and development costs; availability of drilling and production equipment, labor and other services; future operating results; prospect development and property acquisitions; marketing of oil and natural gas; competition in the oil and natural gas industry; the impact of weather and the occurrence of natural disasters such as fires, floods, hurricanes, tornados, earthquakes, snow and ice storms and other catastrophic events and natural disasters; governmental regulation of the oil and natural gas industry; developments in oil-producing and natural gas producing countries; and strategic plans, objectives, expectations and intentions for future operations. In some cases, you can identify forward looking statements by terminology such as may, could, should, expect, plan, project, intend, anticipate, believe, estimate, predict, potential, pursue, target, continue, the negative of such terms or other comparable terminology. The forward looking statements contained in this presentation 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 presentation 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 presentation. We do not intend to publicly update or revise any forward looking statements as a result of new information, future events or otherwise. 2

3 Overview of Constellation Energy Partners Growth-oriented oil & gas company Executed IPO in November 2006 Focused on acquisition and development of longlived, low-risk and predominantly proved developed assets Committed to maintaining cash flow stability and delivering future growth Significant achievements since IPO Continued stable production in Black Warrior Basin Completed three acquisitions in the Cherokee Basin Increased annual cash distribution by 22% Completed Woodford Shale dropdown transaction Assets are mature, long-lived and lower-risk Estimated 335 Bcfe proved reserves Over 50 MMcfe per day production (1) Statistics as of March 31, (1) Production as of April 30, 2008 Cherokee Basin Second largest producer in Basin Approximately 690,000 net acres Estimated 182 Bcfe proved reserves Woodford Shale Non-operated interest 83 producing wells 100% proved developed producing Estimated 12.7 Bcfe proved reserves Committed to building on our success Black Warrior Basin Approximately 59,000 net acres 487 net producing wells Estimated 120 Bcfe proved reserves 3

4 Strategic Focus Stability Potential Growth Deliver Cash Flow Stability Increased Operational Emphasis Deliver Additional Value through Inherent Portfolio Opportunities Continue Growth through Accretive Acquisition Maintain financial flexibility Continue disciplined management approach Deliver on operational commitments Execute program focused on capital efficient production growth Drive moderate organic portfolio growth Leverage economies of scale Utilize new horizontal technologies Develop partnerships to exploit upside potential in undeveloped acreage and resources Acquire assets in line with acquisition strategy and target asset profiles Focus on development of new core area and expansion of existing core areas Strategy provides stability required by MLP model and offers potential growth 4

5 Deliver Cash Flow Stability Maintain financial flexibility Optimize use of reserve-based credit facility Put in place $1 billion shelf registration Execute most appropriate financing options Continue disciplined management approach Execute hedging program to promote cash flow stability and sustainability Remain within debt covenants Target distribution coverage ratio of 1.1 to 1.3 Assess distribution levels on quarterly basis based on distribution coverage ratio and overall portfolio performance 5

6 Increased Operational Emphasis 2008 Focus First Quarter Achievements Deliver on operational commitments Completed strategic realignment Ramped up drilling and recompletion activity Managed weather related recovery and stabilized production Delivered net production of 4.0 Bcfe Expand operations organization and capabilities to meet needs of growing portfolio Identify synergies and improvement opportunities Hired critical personnel Commenced build-out of Tulsa office Performed discretionary repairs during recovery Rationalizing vendors across Cherokee Basin assets Optimizing field assets and operations to drive longer asset life and efficiency 6

7 Execute Capital Efficient Production Program Program provides for maintaining production, reserves and asset base Focus on driving capital efficient production growth Program comprised of vertical, horizontal, reach and recompletion opportunities Mix of opportunities may vary over the course of the year based on actual results Program economics Estimated capital efficiency ~ $3,000 per flowing Mcfe (1) Plan allows for opportunistic field improvements Focus on maintaining and enhancing the long-term performance of the portfolio Mix of capital and expense spending Program Summary (2) Q1 2008E Completed Wells Recompletions In Progress Wells and Recompletions 57 Total (1) Estimated capital efficiency represents total forecasted capital expenditures divided by forecasted resulting average production per day; forecasted capital expenditures and production rates from year-end 2007 third-party reserve reports (2) As of March 31, 2008; Completed wells and recompletions are flowing to sales; In progress wells and recompletions On-site activity initiated 7

8 Drive Moderate Organic Growth Basin characteristics suitable for MLP model Long-lived, stable production Ample low-cost, low-risk program opportunities Less complex operating environment Potential Program Opportunities (1) Production Potential Growth Existing Wells > 3,000 2,015 Time Existing assets could provide the opportunity to organically sustain 3% to 5% production growth for over 15 years (1) Potential program opportunities include estimated drilling and recompletion opportunities; Existing wells as of March 31, 2008; Illustrative purposes only does not reflect forecast 8

9 Deliver Additional Value from Portfolio Leveraging Cherokee Basin position may provide economies of scale and additional operational efficiencies Deploying horizontal drilling technologies may change basin economics Conducting pilot program in Cherokee Basin Assessing options for broader application Accelerating stable cash flows from potential partnership opportunities Structuring could limit capital investment Focusing on CBM, conventional oil and gas, and shale resources on undeveloped acreage Asset base provides opportunity to generate potential upside 9

10 Continued Growth Through Acquisition Preferred Asset Characteristics Target Asset Profile Long-lived production Lower-risk drilling opportunities High percentage proved developed Basin Consolidation Coalbed Methane Unconventional Gas Long-lived, Stable Producing Oil & Gas 11 10

11 What s Next in the Evolution of the E&P MLP Sector? Past Present Future Cash flow stability Focus on rapid organic growth Lack of hedging Focus on cash flow management Active hedging Continued commitment to cash flow management and hedging Asset types Less disciplined approach to appropriate assets Commitment to longlived, lower-risk reserves Balance between stable cash flow streams and asset maturity Significant capital requirements Potential broadening of acceptable MLP assets Balance sheet Overleveraged balance sheets Conservative use of debt Focus on investment cycle and optimization What else could we see? Asset rationalization New entrants Consolidation Varied ownership structures Organic growth Asset price arbitrage Sector evolution will continue to be dynamic and exciting 11

12 Key Takeaways High quality MLP suitable assets Stable, long-lived production Low-risk, low-cost drilling opportunities Ample organic growth potential Potential inherent upside value Opportunistic acquisition orientation Accretive and low-risk ventures Suitable for stability Disciplined organization committed to delivering Financial flexibility and risk mitigation ($ in millions) PV-10 At Market (1) Proved Reserves $887.0 Less PV-10 of Hedges (2) Net Asset Value Debt Working Capital (8.1) ARO (6.3) (43.3) Net Asset Value $617.2 Shares Outstanding 22.3 Net Asset Value Per Unit $27.61 Operational efficiency CEP Unit Price (3) $22.00 Committed to cash flow stability and future growth (1) Market price as of March 31, 2008 is NYMEX $9.365 (2) PV-10 of hedges in place on March 31, 2008 reflects present value of hedges at March 31, 2008 prices (3) CEP price as of market close on June 11,

13 Constellation Energy Partners LLC Overview & How will the MLP Model Evolve? Platts 2 nd E&P MLP Symposium Charles Ward Chief Financial Officer June 12, 2008