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Eagle Rock Sees Upswing in Earnings, Production in 3Q

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   |    Thursday,October 30,2014

Eagle Rock Energy Partners, L.P. reported its unaudited financial results for the three months ended September 30, 2014.

Third Quarter 2014 Highlights

  • Adjusted EBITDA increased 42% over second quarter 2014
  • Distributable cash flow of $16.0 million, equivalent to $0.10/unit
  • Announced a distribution of $0.07/unit for the third quarter, or $0.28/unit annualized
  • Distribution coverage of 1.4x distributable cash flow
  • Total daily production increased 5.3% over second quarter 2014
  • Total liquidity of $374 million at quarter-end, including Regency (RGP) units
  • Announced a common unit repurchase program of up to $100 million

3Q2014 Financial and Operating Results

Significant results from continuing operations for the third quarter of 2014:

  • Adjusted EBITDA of $35.4 million, a 42% increase as compared to $24.9 million in second quarter 2014.
     
  • Distributable Cash Flow of $16.0 million, compared to $3.9 million for second quarter 2014.
     
  • Net Income of $266.3 million, driven largely by the $249.9 million gain recorded in the quarter related to the Midstream Business Contribution.
     
  • Drilled and completed 3 gross (3 net) operated wells and participated in 4 gross (1.4 net) non-operated wells in the Mid-Continent region.  Additionally, conducted 6 gross (3.8 net) workovers and 1 gross (1 net) recompletion.
     
  • Total production was 6.90 Bcfe compared to 6.48 Bcfe in second quarter 2014. Average daily production was 75.1 MMcfe/d compared to 71.2 MMcfe/d in second quarter 2014.
    • Oil production increased 13% quarter over quarter from 300 MBbl to 338 MBbl
       
    • NGL production increased 2% quarter over quarter from 290 MBbl to 297 MBbl
       
    • Natural gas production increased 5% quarter over quarter from 2.94 Bcf to 3.09 Bcf
       
    • The increase in production volumes was primarily due to:
      • Strong performance from three operated wells completed in the Golden Trend Field and four non-operated (Briar) wells completed in the prolific horizontal Woodford "SCOOP" play.
         
      • 98% average run-time at the Big Escambia Creek processing facility
         
  • Product revenue of $53.6 million, up 3% compared to $52.0 million for second quarter 2014, due to higher production volumes offset by lower commodity prices.
     
  • Cash Distributions of $4.0 million received from Regency Energy Partners, LP ("Regency") on the Regency units held by the Partnership.
     
  • Operating expenses, including taxes, of $13.9 million, 4% lower than second quarter 2014, primarily due to lower estimated ad valorem taxes and other items.
     
  • General and administrative expenses of $9.3 million (after excluding amortization of expenses pursuant to the Long-Term Incentive Plan), down 12% from second quarter 2014, primarily due to the elimination of shared services with the Partnership's former midstream business.
     
  • Operating income, excluding an impairment charge of $17.3 million, increased to $32.8 million as compared to the operating loss of $12.8 million for second quarter 2014, primarily due to unrealized gains on commodity derivatives and higher production.
     
  • Maintenance capital expenditures of $14.5 million, an increase of $0.2 million as compared to second quarter 2014.

Capitalization and Liquidity Update

As of September 30, 2014, the Partnership's borrowing base under its senior secured credit facility totaled approximately $330 million, and based on outstanding borrowings and letters of credit, the Partnership had approximately $104.3 million of availability under its senior secured credit facility. 

The Partnership announced on October 14, 2014 that it amended its five-year senior secured credit facility originally entered into on June 22, 2011 with a syndicate of banks led by Wells Fargo, N.A. as administrative agent, and Bank of America, N.A. and Royal Bank of Scotland plc as co-syndication agents. Pursuant to the amendment, the Partnership's borrowing base was reduced to $320 million and the facility term was extended to October 2019 (five years from amendment). The amendment coincided with the semi-annual redetermination of the borrowing base, and the next redetermination will be April 2015.

The 8.2 million Regency units held by the Partnership were not collateralized under the credit facility agreement.

The amended credit agreement is a more traditional reserve-based facility for a pure-play upstream company, and includes revised covenants and improved fee pricing, as follows:

  • Total Leverage Ratio of no greater than 4.0x LTM Adjusted EBITDA (increases to 4.5x LTM Adjusted EBITDA for the two periods following an acquisition above $50 million)
  • Current Ratio of no less than 1.0x
  • Removal of Senior Secured Leverage Ratio covenant
  • Removal of Interest Coverage Ratio covenant
  • Improved fee pricing by 25 basis points on all tranches except the Commitment Fee, which remains relatively the same

As of September 30, 2014 the value of the 8.2 million Regency units held by the Partnership was $269.0 million. The Partnership's cash balance at the end of the third quarter was $0.6 million.

As of October 27, 2014, the Partnership had 159.8 million common units outstanding eligible to receive the distribution, including 2.3 million unvested restricted common units eligible to receive the distribution, issued under its Amended and Restated Long-Term Incentive Plan. The Partnership had 160.1 million total common units outstanding as of October 27, 2014, including 2.7 million unvested restricted common units issued under its Amended and Restated Long-Term Incentive Plan.

Guidance

During the fourth quarter of 2014, the Partnership plans to spend approximately $28 million on capital expenditures and expects $14 million to be categorized as maintenance capital expenditures and $14 million to be categorized as growth capital expenditures. Subject to results from the Partnership's drilling program, the Partnership expects to average between 76 and 78 MMcfe/d during fourth quarter 2014. Eagle Rock currently expects its quarterly General & Administrative expenses, excluding amortization of expenses related to its Long Term Incentive Plan, to decrease over the next six months to a run rate between $8.5 and $8.7 million per quarter.