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Constellation Energy Partners LLC Message Board

  • longtimefollower longtimefollower Nov 6, 2010 9:33 AM Flag

    Notes from cc.

    1. We don't anticipate being able to return to flat production until we return to maintainance levels on cap. ex.

    2. When mkt. conditions begin to improve, we believe NG levels above $6 per Mcf produce rates of return that support capex at maintenance levels...which is an important precursor to reinstating our distribution.

    3. But focus is on debt reduction until then. Have reduced by 22% over the last 12 months.

    4. Targeting $6.5 M of debt reduction additional this year, and $25-30 M next year.

    5. Are open to acquisition opportunities. Have looked at a number of them.

    6. CEG possible sale of their CEP shares: We recognize downward pressure on unit price....and continue to look for a way to resolve this issue.

    7. Semi-annual borrowing review is coming in over the next few/several weeks.

    8. Impairment charge: forward view of NG prices has come down, showing long term weakness. No effect on financial covenants. Net debt/adjusted ebitda has remained over each of the last 4 quarters at 2.7, well within limit of 3.75.

    9. Operating costs trending toward the low end of their forecast range.

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    • Good summary of the call.

      My key take aways after listening:

      They are in gambling that gas prices will return before their hedges run off.

      They have hedged a good portion of production from 2011-2014, however, it is a lesser amount each year and at lower prices. So, they can decrease debt by 25-30 million in '11, maybe 15-20 million in '12, 10-15 million in '13 and 5-10 million in '14.

      That still leaves them with around 100 million in '14 when the hedges run out. They still aren't even maintaining production flat.

      They seem to think they have some limited oil opportunities on their property which might allow them to last a few more years if they can divert all of the $10 million or so to this effort. They would need to boost oil production significantly and they didn't seem to think that this was likely.

    • This stock is going to take a dump,I'm out ,Dead money for another year,I can't think of a positive reason to hold this stock for the next 3 quarters, lost some money,but covered with gains from elseware,Good Luck !

    • 10. Expect 8% decline in production 2011.

      11. price certainty on 72% of production in 2011 (hedged)

      12. presuming halt of distribution through all of 2011

      13. NAV is $6.96.

      14. Even with today's gas prices, we're confident about the company's long term prospects. They see a lot of opportunities with their current properties for investing and making money(apparently, when NG prices recover).

      • 1 Reply to longtimefollower
      • Last questioner asked about a potential for a dilutive equity raise, and management seemed to say that that would not be desirable at this time, from a unitholder's perspective (reminding us that they own over 6% of the stock themselves). Surprisingly (to me), the caller was encouraging them to do a rights offering, since the primary purpose of the company is to do cash distributions, in his view.

        Personally, again, I'm puzzled why the caller thinks cash distributions are more important than protecting the NAV per share. I guess he belives NG prices are going to stay at current prices for the next 5 years, so CEP needs more economies of scale, to deal with that? Puzzling. Personally, I'd rather see the company sell itself, at $5 or more, than do a stupid dilutive rights offering at, what, $2.75?

 
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