OKLAHOMA CITY, OK today announced record unaudited financial
results for the first quarter of 2008 (excluding the impact of the
non-cash change in derivative fair value), raised its full year
2008 guidance ranges for Adjusted EBITDA and Distributable Cash
Flow, and provided an update on development activity.
Adjusted earnings before interest, income taxes, depreciation
and amortization (Adjusted EBITDA), a non-GAAP measure, totaled
$19.8 million for the period, up 80% from its predecessor's year
ago level. Distributable Cash Flow, also a non-GAAP measure,
totaled $12.9 million for the quarter, or 1.45 times the previously
announced distribution of $8.9 million. The quarter's $0.41 per
unit distribution was up 2.5% from the previously indicated level
and paid on May 15, 2008 to holders of record at the close of
business on May 5, 2008. Adjusted EBITDA and Distributable Cash
Flow are reconciled to Net Income and Net Cash from Operating
Activities, their most directly comparable GAAP measures in the
attached financial schedules.
The Partnership reported a net loss for the period of $17.3
million as results were impacted by a $23.8 million unrealized loss
on hedging instruments due to the large increase in natural gas
prices experienced over the quarter.
Selected financial information in a comparative format for the
quarters ended March 31, 2008 and 2007 is shown in the table below.
For additional detail, investors can access Quest Energy Partners'
Form 10-Q which was filed with the Securities and Exchange
Commission on May 15, 2008.
Select Financial Data (unaudited, in thousands, except per unit data)
Three Months Ended March 31,
--------------------------
2008 2007
------------ ------------
(Consolidated) (Carve out)
Total Revenue 37,403 25,536
Operating Income 8,589 3,501
Net Income (Loss) (17,346) (3,650)
GP's Interest in Net Loss (347) N/A
LP's Interest in Net Loss (16,999) N/A
Net Income (Loss) Per LP Unit (0.80) N/A
Adjusted EBITDA(1) 19,823 10,995
Distributable Cash Flow(1) 12,879 N/A
Weighted Average Total LP Units Outstanding 21,160 N/A
(1) A reconciliation of Adjusted EBITDA and Distributable Cash
Flow to Net Income and Net Cash from Operations, their most
directly comparable financial measures calculated and presented in
accordance with generally accepted accounting principles, or GAAP,
follows this news release.
Management Comment
"We are pleased to report strong results for the Partnership's
first full quarter as a separate, publicly-traded entity. First
quarter 2008 Adjusted EBITDA and Distributable Cash Flow exceeded
the high-end of our guidance ranges due to lower than projected
operating costs and higher realized natural gas prices. We continue
to work to lower costs through operating efficiency improvements
and benefit from our fully integrated approach to developing our
extensive land position in the Cherokee Basin. We successfully
drilled 118 gross wells and completed 101 gross wells in the
Cherokee Basin out of the 325 gross wells planned for the year and
production from the properties we acquired during the quarter
exceeded our expectations," said Jerry Cash, Chairman and Chief
Executive Officer of the general partner of Quest Energy
Partners.
"On May 15, 2008, we paid our first full quarterly distribution
of $0.41 per unit, or 2.5% higher than the level indicated at our
IPO in November 2007. Based on our projected production gains from
the 575 new wells drilled and completed in 2007 and our 325 well
program for 2008, the hedges we have added in recent months,
favorable operating costs trends, and attractive natural gas and
oil futures curves, we believe we are well positioned to continue
to increase distributions in coming quarters. We remain committed
to our strategy of using our large inventory of low-risk drilling
locations in the Cherokee Basin to drive internal distribution
growth while we continue to opportunistically pursue attractive
external opportunities."
Operating Performance
Quest Energy Partners was formed with the contribution of
substantially all of the oil and gas assets of Quest Resource
Corporation (NASDAQ: QRCP), and as a result the following
comparisons reflect the historical performance of Quest Resource
prior to November 15, 2007 and the Partnership after November 15,
2007.
Production and Prices
Total net natural gas equivalent production averaged 55.6
million cubic feet equivalents (Mmcfe) per day for the first
quarter 2008, a 34% increase from an average of 41.4 Mmcfe per day
from the first quarter 2007. The increase was driven by the
successful execution of Quest's development program over the past
twelve months as well as the $9.5 million acquisition of oil
producing properties in the first quarter 2008. Realized natural
gas sales prices for the quarter, including the impact of hedges,
was $7.26 per Mcf in the first quarter of 2008, up from $7.12 per
Mcf in the year ago quarter.
Operating Costs
Total production costs, excluding gross production and ad
valorem taxes, were $1.12 per Mcfe for first quarter 2008 down from
$1.41 per Mcfe in the first quarter 2007. This decrease was the
result of rising production volumes and the benefits from certain
cost cutting programs started during the third quarter 2007. Quest
expects to continue to benefit from these programs and rising
volumes in 2008 and anticipates production costs, excluding gross
production and ad valorem taxes, of $1.00 per Mcfe to $1.15 per
Mcfe for the full year.
Capital Expenditures
During the first quarter, Quest Energy drilled a total of 118
gross wells and completed 101 gross wells in the Cherokee Basin out
of the 325 gross wells it plans to drill and complete in 2008. The
Partnership leased approximately 15,000 net acres in the Cherokee
Basin during the quarter at a cost of $100 per acre to $125 per
acre. At December 31, 2007, the Partnership had the right to
develop approximately 558,000 net acres in the Cherokee Basin, of
which approximately 48% were undeveloped. At year end 2007, Quest
had identified approximately 2,100 gross drilling locations on its
acreage in the Cherokee Basin, of which approximately 800 were
classified as proved undeveloped. These locations represent an
approximate six and a half year inventory of drilling activity at
the planned 2008 level of 325 wells.
As previously announced, the Partnership purchased certain oil
producing properties in Oklahoma during the quarter for $9.5
million. The acquisition was financed with borrowings under the
Partnership's credit facility. Production from the properties in
February and March exceeded internal estimates by approximately 6%.
Quest is evaluating exploitation opportunities on the properties
and currently plans to commence the drilling of a new well in the
third quarter of 2008.
Management Guidance
The Partnership provided the following guidance with respect to
certain financial and operational metrics for the second quarter
and full year 2008. Full year 2008 Adjusted EBITDA and
Distributable Cash Flow guidance ranges were both increased by
approximately $4 million from prior levels, mainly due to better
than expected first quarter 2008 results and the benefit of newly
added hedges. The Adjusted EBITDA guidance range represents a 62%
to 80% increase from 2007.
2Q08E FY 2008E
-------------- --------------
Total Production (Bcfe) 5.2 - 5.7 22.0 - 25.0
Avg Daily Production (MMcfe/d) 57.0 - 63.0 60.0 - 68.0
Total Operating Expenses ($mm) 18.0 - 20.0 74.0 - 82.0
General & Administrative ($mm) 2.2 - 2.6 10.0 - 12.0
Adjusted EBITDA ($mm) 20.0 - 23.0 76.0 - 84.0
Net Interest Expense ($mm) 2.4 - 2.6 10.0 - 11.0
Sustaining Capital Expenditures ($mm) 5.0 - 5.5 21.0 - 23.0
Distributable Cash Flow ($mm) 12.6 - 14.9 45.0 - 50.0
Distributable Cash Flow per unit 0.58 - 0.69 2.08 - 2.32
Distribution Coverage 1.4x - 1.7x 1.3x - 1.4x
% of Total Production Hedged 74% 82% 66% 75%
Avg Realized Gas Hedge Price ($/MMBtu) 7.20 7.20
Avg Realized Oil Hedge Price ($/bbl) 94.00 94.00
Unhedged Production Pricing Assumptions
---------------------------------------
NYMEX Gas Price ($/MMBtu) 8.00 8.00
NYMEX Gas Price Differential % 8% - 12% 8% - 12%
NYMEX Oil Price ($/bbl) 80.00 80.00
NYMEX Oil Price Differential % 2% - 4% 2% - 4%
The ranges for Adjusted EBITDA are based on oil and natural gas
sales equal to the anticipated range of production, the
Partnership's existing derivative contracts for hedged volumes,
and, for unhedged volumes, the assumed NYMEX Gas and Oil Prices
listed above less an assumed NYMEX Gas and Oil Price differential
(which is the difference between NYMEX Gas and Oil Prices and the
price received at the delivery point).
Management currently believes the assumed prices and
differentials to NYMEX are reasonable based on historical levels
and management experience. However, due to market conditions and
other factors outside the Partnership's control, the actual prices
and differentials realized by the Partnership will be different and
those differences may be material. On May 14, 2008, the closing
spot price at Henry Hub (the pricing point for NYMEX) was
$11.51/MMBtu and the differential from the Southern Star natural
gas price was 17% or $1.95/MMBtu.
Conference Call
Quest will host a conference call to discuss 2008 first quarter
operating and financial results on Tuesday, May 20, 2008 at 11:00
a.m. Eastern time. There will be a question and answer period
following the presentation.
Call: 877-604-9665 (US/Canada) and 719-325-4920 (International)
Passcode: 6804172
Internet: Live and rebroadcast over the Internet: simply log on to
www.qelp.net.
Replay: Available through May 30, 2008 at 888-203-1112 (US/Canada) and
719-457-0820 (International) using passcode 6804172 and at
www.qelp.net.
About Quest Energy Partners L.P.
Quest Energy Partners, L.P. was formed by Quest Resource
Corporation (NASDAQ: QRCP) to acquire, exploit and develop natural
gas and oil properties and to acquire, own, and operate related
assets. The partnership owns more than 2,300 wells and is the
largest producer of natural gas in the Cherokee Basin, which is
located in southeast Kansas and northeast Oklahoma and holds a
drilling inventory of nearly 2,100 locations. For more information,
visit the Quest Energy Partners website at www.qelp.net.
Quest Resource Corporation is a fully integrated E&P company
that owns 100% of the general partner and a 57% limited partner
interest in Quest Energy Partners, L.P. and 85% of the general
partner and a 36% limited partner interest in Quest Midstream
Partners, L.P. Quest Resource operates and controls Quest Energy
Partners and Quest Midstream Partners through its ownership of
their general partners. For more information, visit the Quest
Resource website at www.qrcp.net.
Quest Midstream Partners, L.P. was formed by Quest Resource
Corp. to acquire and develop transmission and gathering assets in
the midstream natural gas and oil industry. The partnership owns
approximately 2,000 miles of natural gas gathering pipelines and
over 1,100 miles of interstate natural gas transmission pipelines
in Oklahoma, Kansas, and Missouri. For more information, visit the
Quest Midstream Partners website at www.qmlp.net.
Forward-Looking Statements
Opinions, forecasts, projections or statements other than
statements of historical fact, are forward-looking statements that
involve risks and uncertainties. Forward-looking statements in this
announcement are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Although the
Partnership believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance
that such expectations will prove to be correct. In particular, the
forward looking statements made in this release are based upon a
number of financial and operating assumptions that are subject to a
number of risks, including without limitation: the uncertainty
involved in exploring for and developing new natural gas reserves,
the sale prices of natural gas and oil, labor and raw material
costs, the availability of sufficient capital resources to carry
out the Partnership's anticipated level of new well development and
Quest Midstream's construction of related pipelines, environmental
issues, weather conditions, competition, general market conditions.
Actual results may differ materially due to a variety of factors,
some of which may not be foreseen by Quest. These risks, and other
risks are detailed in the Partnership's filings with the Securities
and Exchange Commission. You can find the Partnership's filings
with the Securities and Exchange Commission at www.qelp.net or at
www.sec.gov. By making these forward-looking statements, the
Partnership undertakes no obligation to update these statements for
revisions or changes after the date of this release.
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA is defined as net income (loss) plus:
-- net interest expense;
-- depreciation, depletion and amortization expense;
-- gain (loss) on sale of assets;
-- provision for impairment of gas and oil properties;
-- cumulative effect of accounting change, net of tax;
-- change in derivative fair value; and
-- non-cash compensation expense.
Distributable Cash Flow is defined as Adjusted EBITDA minus:
-- cash interest expense; and
-- maintenance capital expenditures.
Adjusted EBITDA and Distributable Cash Flow are significant
performance metrics used by the Partnership's management, and by
external users of its financial statements, such as investors,
commercial banks, research analysts and others, to assess (prior to
the establishment of any cash reserves by the Partnership's general
partner) the cash distributions the Partnership expects to pay its
unitholders. Specifically, these financial measures indicate
whether or not the Partnership is generating cash flow at a level
that can sustain or support an increase in its quarterly
distribution rates without regard to the impact of financing
methods, capital structure or historical cost basis of its
assets.
Adjusted EBITDA is used as a supplemental liquidity measure by
the Partnership's management, and by external users of its
financial statements, such as investors, commercial banks, research
analysts and others, to assess the ability of the Partnership's
assets to generate cash sufficient to pay interest costs, support
its indebtedness, and make distributions to its unitholders.
The Partnership's revolving credit agreement requires the
Partnership to maintain a minimum ratio of consolidated EBITDA plus
distribution equivalents paid on unvested equity incentive
compensation awards, if any, to consolidated interest expense (as
defined in its credit facility) and a maximum ratio of total debt
(as defined in its credit facility) to consolidated EBITDA plus
distribution equivalents paid on unvested equity incentive
compensation awards, if any. Consolidated EBITDA under the
Partnership's revolving credit agreement is computed in the same
manner as the way Adjusted EBITDA is presented in this press
release. The Partnership's management believes it is important to
maintain consistency between the way the Partnership reports
Adjusted EBITDA and the way the Partnership is required to
calculate consolidated EBITDA for purposes of its revolving credit
agreement.
Distributable Cash Flow is a significant performance metric used
by management, and by external users of its financial statements,
such as investors, commercial banks, research analysts and others,
to compare basic cash flows generated by the Partnership (prior to
the establishment of any retained cash reserves by our general
partner) to the cash distributions the Partnership expects to pay
our unitholders.
Using this metric, management can quickly compute the coverage
ratio of estimated cash flows to cash distributions. Distributable
Cash Flow is also an important non-GAAP financial measure because
it serves as an indicator of the cash return on investment provided
to investors. Specifically, this financial measure indicates to
investors whether or not the Partnership is generating cash flow at
a level that can sustain or support an increase in the
Partnership's quarterly distribution rates. Distributable Cash Flow
is also a quantitative standard used throughout the investment
community with respect to publicly-traded partnerships and limited
liability companies because the value of a unit of such an entity
is generally determined by the unit's yield (which in turn is based
on the amount of cash distributions the entity pays to a
unitholder). The economic substance behind management's use of
Distributable Cash Flow is to measure the ability of the
Partnership's assets to generate cash flows sufficient to make
distributions to our investors.
Adjusted EBITDA and Distributable Cash Flow should not be
considered an alternative to, or more meaningful than, net income,
operating income, cash flows from operating activities or any other
measure of financial performance presented in accordance with GAAP
as measures of operating performance, liquidity or ability to
service debt obligations. Adjusted EBITDA does not include interest
expense and Adjusted EBITDA and Distributable Cash Flow do not
include income taxes, depreciation and amortization expense, change
in derivative fair value or non-cash compensation expense. Because
the Partnership's predecessor has borrowed, and the Partnership
intends to borrow, money to finance the Partnership's operations,
interest expense is a necessary element of the Partnership's costs.
Because the Partnership uses capital assets, depreciation and
amortization are also necessary elements of its costs. Because the
Partnership's predecessor has used, and the Partnership intends to
use, derivative contracts to hedge its exposure to commodity
prices, changes in the fair value of those contracts is also a
necessary element of its costs. Because the Partnership's
predecessor has used, and the Partnership intends to use, non-cash
equity awards as part of its overall compensation package for
directors, non-cash compensation expense is a necessary element of
its costs. Due to fluctuations in commodity prices, Impairments of
oil and gas properties may at times be a material element of the
Partnership's business. Therefore, any measures that exclude these
elements have material limitations. To compensate for these
limitations, the Partnership's management believes that it is
important to consider both net income and net cash provided by
operating activities determined under GAAP, as well as Adjusted
EBITDA and Distributable Cash Flow, to evaluate the Partnership's
financial performance and its liquidity.
Management compensates for the limitations of Adjusted EBITDA
and Distributable Cash Flow as analytical tools by reviewing the
comparable GAAP measures, understanding the differences between the
measures and incorporating this knowledge into management's
decision-making processes.
Reconciliation of Net Income to Adjusted EBITDA and Distributable Cash Flow
(unaudited, $ in thousands)
Three Months Ended March 31,
--------------------------
2008 2007
------------ ------------
(Consolidated) (Carve out)
Net income (loss) (17,346) (3,650)
Net interest expense 2,123 6,794
Change in unrealized derivative value 23,831 464
Depreciation, depletion, and amortization(1) 10,191 7,332
(Gain) loss on sale of assets (47) (65)
Non-cash equity compensation 1,071 120
------------ ------------
Adjusted EBITDA 19,823 10,995
Cash interest expense (1,944) (5,845)
Maintenance capital expenditures(2) (5,000) N/A
Distributable Cash Flow 12,879 N/A
Reconciliation of Net Cash from Operating Activities to Adjusted EBITDA
and Distributable Cash Flow (unaudited, $ in thousands)
Three Months Ended March 31,
--------------------------
2008 2007
------------ ------------
(Consolidated) (Carve out)
Net cash from operating activities (6,774) 2,728
Net interest expense 2,123 6,794
Change in current assets and liabilities 24,651 2,014
Other net cash changes (177) (541)
------------ ------------
Adjusted EBITDA 19,823 10,995
Cash interest expense (1,944) (5,845)
Maintenance capital expenditures(2) (5,000) N/A
Distributable Cash Flow 12,879 N/A
(1) Includes depreciation and amortization expense associated
with company owned equipment which is included in oil and gas
production costs.
(2) Maintenance capital expenditures are those capital
expenditures management estimates are required to maintain the
Partnership's production levels and asset base over the long term.
The Partnership's predecessor did not characterize capital
expenditures as maintenance or expansion and did not plan capital
expenditures in a manner intended to maintain versus expand its
production or asset base. As a result, management has not included
an estimate of maintenance capital expenditures for the first
quarter 2007.
Company Contact: Jack Collins Investor Relations Phone: (405)
702-7460 Website: www.qelp.net
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