Constellation Energy Partners (CEP) Reports Fourth Quarter and Full Year 2011 Results

The company produced 3,296 MMcfe during the fourth quarter, for average daily net production of 35.8 MMcfe for the quarter and 37.5 MMcfe for the full year 2011. Net oil production for the fourth quarter was 315 barrels per day, which represents an increase of approximately 81% compared to the fourth quarter of 2010. For the full year 2011, approximately 95% of the company’s production was natural gas and 5% of the company’s production was oil. During 2010, approximately 98% of the company’s production was natural gas and 2% of the company’s production was oil.

Revenue totaled $33.5 million for the fourth quarter 2011 and $105.2 million for the full year 2011. Included in total revenue for the full year 2011 is revenue from sales of $57.2 million, of which approximately 82% was from natural gas sales and 18% was from oil sales. The balance of the company’s full year 2011 total revenue came from hedge settlements ($82.7 million), services provided to third parties ($4.7 million), and losses on mark-to-market activities ($39.4 million), which is a non-cash item. During 2010, approximately 92% of the company’s sales revenue was from natural gas sales and 8% was from oil sales.

Operating costs, which include lease operating expenses, production taxes and general and administrative expenses, net of certain non-cash items, averaged $3.26 per Mcfe for the fourth quarter and $3.37 per Mcfe for the full year 2011, which is a 3% improvement compared to the $3.49 per Mcfe the company posted for operating costs for the full year 2010.

Adjusted EBITDA for the fourth quarter 2011 was $13.8 million, an improvement of 9% compared to the third quarter 2011. For the full year 2011, Adjusted EBITDA was $96.7 million, which includes $41.3 million in hedge settlements related to the hedge restructuring that the company announced in June 2011.

On a GAAP basis, the company recorded net income of $15.1 million for the fourth quarter 2011 and $19.6 million for the full year 2011.

The company completed 17 net wells and recompletions with total capital spending of $2.4 million during the fourth quarter 2011. The company’s full year 2011 capital spending totaled $11.3 million. For the full year, the company completed 84 net wells and recompletions, and there were 10 net wells and recompletions in progress at Dec. 31, 2011. Drilling activities in 2011 focused primarily on oil potential in the company’s existing asset base as well as capital efficient recompletions.

“When we reflect in the years to come about where we’ve been as a company,” said Stephen R. Brunner, President and Chief Executive Officer of Constellation Energy Partners, “I think we’ll talk about 2011 as an important transitional year. During the year, we reduced debt by more than 40%, reduced operating costs, improved our financial flexibility, and demonstrated that a more dynamic focus on the oil opportunities in our asset base is key to maintaining production and growing value. We intend to capitalize on the momentum developed in 2011 as we look to return value to unitholders in 2012 and over the longer term.”

Distribution Outlook

“Based on our 2011 successes, an available inventory of organic, capital efficient drilling opportunities, and our long-term forecast, we think we’re now able to return capital spending to maintenance levels. Accordingly, we believe that we have positioned the company to consider the reinstatement of a cash distribution to unitholders in 2012,” Brunner added. “We’re pleased to be in a position to reward the patience of our unitholders as we’ve worked to improve the company’s financial strength.”

All distributions are subject to approval by the company’s Board of Managers.

Liquidity Update

Borrowings outstanding under the company’s reserve-based credit facility currently total $98.4 million, leaving the company with $26.6 million in borrowing capacity at the company’s current borrowing base of $125.0 million. The company’s next semi-annual borrowing base redetermination by the lenders is expected in the second quarter 2012.

The company recorded $17.2 million in cash and equivalents as of Dec. 31, 2011.

Financial Outlook for 2012

The company forecasts capital spending of between $15.0 million and $19.0 million in 2012. Of this amount, $15.0 million is maintenance capital.

Net production is forecast to range between 13.3 and 14.1 Bcfe for 2012, with operating costs forecast to range between $42.5 million and $46.0 million for the year.

The company entered the year with approximately 6.9 Bcfe of its Mid-Continent natural gas production in 2012 hedged at an average price of $5.22 per Mcfe and an additional 2.0 Bcfe of its remaining natural gas production hedged at an average price of $5.75 per Mcfe. The company has also hedged approximately 83 thousand barrels of its 2012 oil production at an average price of $103.14 per barrel. The company’s 2012 hedges provide price certainty on approximately 69% of the company’s 2012 midpoint production forecast. The remainder of the company’s production for 2012 is subject to market conditions and pricing.

Additional detail on the company’s 2012 forecast can be found in the tables included with this news release.

Conference Call Information

The company will host a conference call at 8:30 a.m. (CST) on Wednesday, Feb. 29, 2012 to discuss fourth quarter and full year 2011 results.

To participate in the conference call, analysts, investors, media and the public in the U.S. may dial (800) 857-0653 shortly before 8:30 a.m. (CST). The international phone number is (773) 799-3268. The conference password is PARTNERS.

A replay will be available beginning approximately one hour after the end of the call by dialing (800) 835-3804 or (402) 280-1654 (international). A live audio webcast of the conference call, presentation slides and the earnings release will be available on Constellation Energy Partners’ Web site (www.constellationenergypartners.com) under the Investor Relations page. The call will also be recorded and archived on the site.

About the Company

Constellation Energy Partners LLC is a limited liability company focused on the acquisition, development and production of oil and natural gas properties, as well as related midstream assets.

SEC Filings

The company intends to file its 2011 Form 10-K on or about Feb. 29, 2012.

Non-GAAP Measures

We present Adjusted EBITDA in addition to our reported net income (loss) in accordance with GAAP. Adjusted EBITDA is a non-GAAP financial measure that is defined as net income (loss) adjusted by interest (income) expense, net; depreciation, depletion and amortization; write-off of deferred financing fees; asset impairments; accretion expense; (gain) loss on sale of assets; exploration costs; (gain) loss from equity investment; unit-based compensation programs; (gain) loss from mark-to-market activities; and unrealized (gain) loss on derivatives/hedge ineffectiveness.

Adjusted EBITDA is 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.

Forward-Looking Statements

We make statements in this news release that are considered forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. 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. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

	Constellation Energy Partners LLC
	Operating Statistics
			Three Months Ended Dec. 31,								Twelve Months Ended Dec. 31,
			2011				2010				2011				2010
	Net Production:
	Total production (MMcfe)			3,296				3,674				13,679				15,037
	Average daily production (Mcfe/day)			35,826				39,935				37,477				41,197
	Average Net Sales Price per Mcfe:
	Net realized price, including hedges			$7.44		(a)		$6.86		(a)		$10.41		(a)		$7.06		(a)
	Net realized price, excluding hedges			$4.02		(b)		$3.72		(b)		$4.37		(b)		$4.38		(b)
	(a) Excludes impact of mark-to-market gains (losses)
	and net cost of sales.
	(b) Excludes all hedges, the impact of mark-to-market
	gains (losses) and net cost of sales.
	Net Wells Drilled and Completed			14				6				35				17
	Net Recompletions			3				7				49				14
	Developmental Dry Holes			–				—				1				—
	Constellation Energy Partners LLC
	Condensed Consolidated Statements of Operations
			Three Months Ended Dec. 31,								Twelve Months Ended Dec. 31,
				2011				2010				2011				2010
			($ in thousands)								($ in thousands)
	Oil and gas sales		$	25,022			$	25,734			$	144,639			$	108,692
	Gain/(Loss) from mark-to-market activities			8,524				(9,751	)			(39,422	)			42,081
	Total revenues			33,546				15,983				105,217				150,773
	Operating expenses:
	Lease operating expenses			6,630				7,153				27,949				30,798
	Cost of sales			487				524				2,188				2,473
	Production taxes			619				730				2,897				3,179
	General and administrative			3,816				6,074				16,599				20,351
	Exploration costs			–				29				131				760
	(Gain)/Loss on sale of assets			(10	)			(5	)			19				(18	)
	Depreciation, depletion and amortization			4,518				5,665				22,139				85,263
	Asset impairments			1,000				1,521				2,935				272,487
	Accretion expense			227				205				907				822
	Total operating expenses			17,287				21,896				75,764				416,115
	Other expenses:
	Interest (income) expense, net			1,186				815				10,116				11,953
	Other (income) expense			(54	)			25				(249	)			(385	)
	Total expenses			18,419				22,736				85,631				427,683
	Net income (loss)		$	15,127			$	(6,753	)		$	19,586			$	(276,910	)
	Adjusted EBITDA		$	13,841			$	11,672			$	96,596			$	54,125
	EPU – Basic			$0.62				($0.28	)			$0.81				($11.36	)
	EPU – Basic Units Outstanding			24,253,033				24,420,284				24,273,491				24,370,545
	EPU – Diluted			$0.62				($0.28	)			$0.81				($11.36	)
	EPU – Diluted Units Outstanding			24,253,033				24,420,284				24,273,491				24,370,545
	Constellation Energy Partners LLC
	Condensed Consolidated Balance Sheets
			Dec. 31,				Dec. 31,
			2011				2010
			($ in thousands)
	Current assets		$	45,096			$	53,091
	Oil and Natural gas properties, net of accumulated
	depreciation, depletion and amortization			266,085				276,919
	Other assets			23,125				54,367
	Total assets		$	334,306			$	384,377
	Current liabilities		$	14,554			$	14,533
	Debt			98,400				165,000
	Other long-term liabilities			14,432				13,024
	Total liabilities			127,386				192,557
	Class D Interests			–				6,667
	Common members’ equity			201,483				174,233
	Accumulated other comprehensive income			5,437				10,920
	Total members’ equity			206,920				185,153
	Total liabilities and members’ equity		$	334,306			$	384,377
	Constellation Energy Partners LLC
	Reconciliation of Net Income (Loss) to
	Adjusted EBITDA
			Three Months Ended Dec. 31,								Twelve Months Ended Dec. 31,
			2011				2010				2011				2010
			($ in thousands)								($ in thousands)
	Reconciliation of Net Income (Loss) to
	Adjusted EBITDA:
	Net income (loss) (3)		$	15,127			$	(6,753	)		$	19,586			$	(276,910	)
	Add:
	Interest (income) expense, net (3)			1,186				815				10,116				11,953
	Depreciation, depletion and amortization			4,518				5,665				22,139				85,263
	Asset impairments			1,000				1,521				2,935				272,487
	Accretion expense			227				205				907				822
	(Gain)/Loss on sale of assets			(10	)			(5	)			19				(18	)
	Exploration costs			–				29				131				760
	Unit-based compensation programs			317				444				1,341				1,849
	(Gain)/Loss from mark-to-market activities			(8,524	)			9,751				39,422				(42,081	)
	Adjusted EBITDA (1),(2)		$	13,841			$	11,672			$	96,596			$	54,125
			Three Months Ended Sep. 30,								Nine Months Ended Sep. 30,
			2011				2010				2011				2010
			($ in thousands)								($ in thousands)
	Reconciliation of Net Income (Loss) to
	Adjusted EBITDA:
	Net income (loss) (3)		$	7,144			$	(267,123	)		$	4,459			$	(270,157	)
	Add:
	Interest (income) expense, net (3)			3,002				3,695				8,930				11,138
	Depreciation, depletion and amortization			5,863				26,175				17,621				79,598
	Asset impairments			1,935				270,408				1,935				270,966
	Accretion expense			228				205				680				617
	(Gain)/Loss on sale of assets			8				–				29				(13	)
	Exploration costs			–				284				131				731
	Unit-based compensation programs			310				375				1,024				1,405
	(Gain)/Loss from mark-to-market activities			(5,819	)			(21,100	)			47,946				(51,832	)
	Adjusted EBITDA (1),(2)		$	12,671			$	12,919			$	82,755			$	42,453
			Three Months Ended June 30,								Six Months Ended June 30,
			2011				2010				2011				2010
			($ in thousands)								($ in thousands)
	Reconciliation of Net Income (Loss) to
	Adjusted EBITDA:
	Net income (loss) (3)		$	2,467			$	(21,092	)		$	(2,685	)		$	(3,034	)
	Add:
	Interest (income) expense, net (3)			4,076				3,387				5,928				7,443
	Depreciation, depletion and amortization			5,893				26,733				11,758				53,981
	Accretion expense			226				205				452				412
	(Gain)/Loss on sale of assets			14				(5	)			21				(13	)
	Exploration costs			–				224				131				447
	Unit-based compensation programs			341				593				714				1,030
	(Gain)/Loss from mark-to-market activities			43,656				4,549				53,765				(30,732	)
	Adjusted EBITDA (1),(2)		$	56,673			$	14,594			$	70,084			$	29,534

	(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, net;
	— depreciation, depletion and amortization;
	— write-off of deferred financing fees;
	— asset impairments;
	— accretion expense;
	— (gain) loss on sale of assets;
	— exploration costs;
	— (gain) loss from equity investment;
	— unit-based compensation programs;
	— (gain) loss from mark-to-market activities; and
	— unrealized (gain) loss on derivatives/hedge ineffectiveness.
	(2) Results for the twelve months ended Dec. 31, 2011, nine months ended Sep. 30, 2011, and three months and six months ended June 30, 2011, include $41.3 million in hedge settlements related to the company’s June 2011 hedge restructuring.
	(3) As discussed in our 2011 Form 10-K, non-cash adjustments were made to our interest (income) expense, net during the three months ended Dec. 31, 2011 that were related to the three months ended June 30, 2011 and the three months ended Sep. 30, 2011, which also impacted our net income (loss) for those two periods.

	Constellation Energy Partners LLC
	2012 Forecast
	Forecast Component				2012 Forecast
	Total Capital Spending				$15.0MM – $19.0MM
	Total Net Production				13.3 Bcfe – 14.1 Bcfe
	Production Mix:		Mid-Con Oil		0.9 Bcfe (7% of Total)
			Total Natural Gas		12.8 Bcfe (93% of Total)
			Mid-Con Natural Gas		66% of Total Natural Gas
			Robinson’s Bend Natural Gas		34% of Total Natural Gas
	Market Price:		Natural Gas (Henry Hub)		$3.24 per Mcfe
			Oil (WTI, Cushing)		$98.50 per Bbl
	NYMEX/Basis Hedges		Mid-Con Natural Gas		6.9 Bcfe at $5.22 per Mcfe
	NYMEX Only Hedges:		Other Natural Gas		2.0 Bcfe at $5.75 per Mcfe
			Mid-Con Oil		83 MBbl at $103.14 per Bbl
	Hedges as a % of Total Net Production (Midpoint)				69%
	Differentials:		Mid-Con Natural Gas (Basis to NYMEX)		($0.18) per Mcfe
			Mid-Con Oil (Marketing)		($2.50) per Bbl
			Mid-Con Natural Gas (Gathering)		($0.50) per Mcfe
	Operating Costs (Blended):		LOE (1)		$1.84 per Mcfe
			Production Taxes		$0.20 per Mcfe
			G&A – Field Level (2)		$0.35 per Mcfe
			G&A – Corporate (2)		$0.84 per Mcfe
			Total		$42.5MM – $46.0MM
	Margin from Third Party Sales/Services				$2.0MM – $3.0MM
	Adjusted EBITDA (3)				$29.5MM – $31.5MM
	Interest Expense (5.9% Effective Rate)				~ $5.8MM
	Maintenance Capital				$15.0MM
	(1) Excludes exploration costs and unit-based compensation program expenses, which are non-cash items.
	(2) Excludes unit-based compensation program expenses, which is a non-cash item.
	(3) We are unable to reconcile our forecast range of Adjusted EBITDA 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 from mark-to-market activities and equity investments or asset impairments due to the difficulty of doing so, and we are unable to address the probable significance of the unavailable reconciliation, in significant part due to ranges in our forecast impacted by changes in oil and natural gas prices and reserves which affect certain reconciliation items.