Charles C. Ward - Chief Financial Officer, Interim Chief Accounting Officer and Treasurer Stephen R. Brunner - Chief Executive Officer, President and Chief Operating Officer

Gregg T. Abella - Investment Partners Group, Inc.

Good morning, and welcome to Constellation Energy Partners' Second Quarter 2013 Earnings Call. [Operator Instructions] This conference is being recorded. I will now turn the call over to Charles C. Ward, Chief Financial Officer of Constellation Energy Partners. Charles C. Ward: Hello, everyone. This is Chuck Ward along with Steve Brunner. We'd like to thank everyone on the call for taking the time to join us as we review our second quarter 2013 results and discuss other recent events. As we anticipate the better part of today's call will be spent discussing the Sanchez transaction, we're changing things up a bit this morning. I'll start today's discussion with a quick overview of our second quarter financial results, then turn things over to Steve to discuss the Sanchez transaction and how we see that transaction and our relationship with Sanchez Oil & Gas impacting our strategy going forward. But before we get started, I like to remind everyone that this morning's presentation is being webcast and slides are available on our website, which is constellationenergypartners.com. I'd also like to remind everyone that our slides and discussion this morning include forward-looking statements, which are subject to certain risks and uncertainties. These are described more fully in our documents on file with the SEC. As we normally do, we'll use non-GAAP financial measures in this morning's presentation to help our unitholders and the investment community better understand our operating performance. The presentation available on our website includes an appendix that reconciles these non-GAAP financial measures to GAAP measures. If you'll turn with me now to Slide 3 of our presentation, I'll begin with some updates since our last call. For year-to-date ending June 30, our total average net production was 3,553 BOE per day. Oil production at about 500 barrels per day accounted for about 47% of our total sales revenue during the first half of the year. We remain focused on exploiting oil opportunities in our existing asset base and completed 22 net wells and recompletions using $4 million in cash from operations, which brings our total for the year to 39 net wells and recompletions on capital spending of $6.4 million. We finished the second quarter with 5 additional net wells and recompletions in progress and see a net oil production rate of just over 550 barrels per day at the end of July. Operating costs, which include lease operating expenses, production taxes and general and administrative expenses, net of certain non-cash items and an employee severance charge of approximately $200,000, averaged $25.50 per BOE for the second quarter 2013. For the year-to-date, operating costs, excluding employee severance charges, averaged $24.71 per BOE, which is a decline of approximately 2% versus operating costs for the same 6-month period in 2012. Our adjusted EBITDA, excluding the employee severance charges, was $4.9 million for the second quarter and $10.9 million for the year-to-date. Including the employee severance charges, adjusted EBITDA was $4.7 million during the quarter, and $10 million for the year-to-date, which compared to $10.1 million for the same 6-month period in 2012. After the end of the second quarter, we executed hedges on 69,000 barrels of 2013 to '14 oil production and announced the Sanchez transaction, which Steve will discuss shortly. Turning now to Slide 4. Here we compare our second quarter 2013 results to the first quarter 2013 and the second quarter 2012. In each case, we're showing results for continuing operations, which is to say we've adjusted Robinson's Bend out of the prior quarter's reported results. Our total production during the second quarter at 308 MBOE was down about 8% versus the prior quarter. First quarter 2013 oil and gas sales revenue of $13 million compares to $14.4 million in the prior quarter and $14.1 million in the second quarter 2012. This lower level of production in revenue was due in part to the ramp up of our drilling and capital spending with the results of drilling expected to more meaningfully impact our results later in the year. Operating expenses, even with the employee severance charges that I mentioned earlier, were down about 9% in the second quarter 2013 compared to the first quarter 2013 and down about 6% compared to the second quarter 2012. Our adjusted EBITDA, excluding the employee severance charges, was $4.9 million versus a comparable measure of $6 million in the prior quarter and $4.4 million in the second quarter of 2012. As we reported in our news release this morning, our year-to-date adjusted EBITDA, including the employee severance charge, was $10 million as compared to $10.1 million for the same 6-month period of 2012. On our hedged positions, I'd like to note for the remainder of 2013, we've hedged about 3.4 Bcfe of our natural gas production at an effective NYMEX fixed price of $6.17 per Mcfe with Mid-Continent basis hedges on 2.5 Bcfe of this amount at an average differential of $0.39 per Mcfe. We've also had -- have hedges in place on approximately 91,000 barrels of our oil production at a fixed price of $97.88 per barrel. This includes the impact of the oil hedges we executed in July. We look to layer on additional hedges in the coming months to lock in revenue related to production from continuing operations, including production from the assets acquired earlier this month. With that overview of our financial results, I'll turn the presentation over to Steve for a discussion on the Sanchez transaction. Steve will begin on Slide 5. Stephen R. Brunner: Thanks, Chuck. As we noted in our news release last week, the Sanchez transaction involved the acquisition of interest in 67 producing wells in Texas and Louisiana for a purchase price of $30.4 million. The assets are 75% operated by Sanchez Oil & Gas and provide a revenue contribution that is greater than 50% oil, with the balance in natural gas and natural gas liquids. Based on June 30, 2013, forward prices and an August 1, 2013, transaction effective date, the assets provide total proved reserves of 1,658 MBOE, of which approximately 87% is proved developed. The assets are typical of what you'd expect from onshore production in South Texas and the Gulf Coast, with producing horizons in the Miocene, Frio, Wilcox and Vicksburg. Current production from the assets is about 1,167 BOE per day, of which, about 25% is oil and NGLs. Consideration provided to Sanchez Energy Partners I, LP, which we refer to as SEP I, included a combination of cash and equity in CEP. On the cash side of the equation, SEP I received a cash payment of $20.1 million, $16.7 million of which was financed with a borrowing under our $55 million reserve base credit facility. In terms of equity, SEP I received about 1.1 million Class A units which represents 70% of our Class A units, more than 4.7 million Class B units and 1 class Z unit, which provides certain anti-dilution protections for a limited period of time. As for the transaction benefits, we anticipate an immediate earnings uplift from the acquired assets, which should be reflected in our results for the third quarter of 2013. But more importantly, we see our new relationship with Sanchez as a means to achieving enhanced deal flow, which may occur through future asset contributions or joint acquisitions. At the same time, we see an opportunity to leverage the skills of Sanchez Oil & Gas, a proven operator with an outstanding technical team and experience that spans across multiple basins in the U.S. If you'll turn with me now to Slide 6. Here we show CEP's ownership after closing the Sanchez transaction. As you can see, in exchange for oil and gas assets, SEP I received a combined equity interest that equals to a 17.7% limited liability company interest in CEP. In addition to SEP I, PostRock remains a large unitholder. Also, Exelon Corp., successor in interest to our former sponsor Constellation Energy Group, continues to hold the C class management incentive interests and the B class unit which we view as having essentially no economic value. Note also that as a result of the Sanchez transaction, we now have $50.7 million in debt outstanding under our reserve base credit facility, which currently has a borrowing base of $55 million. We anticipate that the borrowing base upside from the recently acquired assets will be reflected in our next borrowing base redetermination, with that result expected in the fourth quarter of this year. Turning now to Slide 7. Here, we show our net asset value or NAV for continuing operations based on forward prices observed at the end of each quarter shown, with the second quarter adjusted for the pro forma impact of the Sanchez transaction. The pro forma figures reflect the impact of oil additions from our drilling program, hedge settlements, forward price movements, reserve additions in Texas and Louisiana in the third quarter 2013 and the cash and unit consideration paid in the Sanchez transaction. Taken together, our NAV is essentially flat on a pro forma basis as compared to the first quarter 2013, which is another reason why we executed the Sanchez transaction. Now, on to Slide 8. With the addition of the Sanchez assets, we thought we'd take this opportunity to update some key components of our forecast for 2013. Our forecasted capital spending of $19 million to $21 million is unchanged, with maintenance capital spending setting the high end of this range. However, with the addition of the Sanchez assets, we're now forecasting total net production of 1,400 MBOE to 1,566 MBOE, which includes oil production of approximately 235,000 barrels for the year at the midpoint of our forecast. With the hedges we've added and repositioned since the beginning of the year, we're hedged on approximately 104% of the midpoint of our 2013 natural gas production forecast and approximately 72% of the midpoint of our 2013 oil production forecast. Additional detail on our hedges can be found in the appendix of today's presentation and in our documents filed with the SEC. Our operating costs are now forecast to range from $32.5 million to $35.3 million in 2013, and we anticipate that adjusted EBITDA will run between $27.5 million and $29.5 million for the full year, which compares to the $24.5 million in adjusted EBITDA we showed in 2012. With that overview of the Sanchez transaction and our 2013 forecast, I'd like to turn the call back to our moderator for questions.

[Operator Instructions] Your first question is from Gregg Abella of Investment Partners Asset Management. Gregg T. Abella - Investment Partners Group, Inc.: I think you probably know what I'm going to ask because I've been a broken record on this. But let me preface why I'm going to ask what I'm going to ask. If you look at MLPs that are distributing MLPs, they tend to trade at higher valuations on a flowing barrel basis than straight E&Ps, at least that's our experience currently. So I guess what I'm asking is since there -- over time, since CEG wandered off and did its own thing, there have been sort of differing opinions as to what the company is and what it should be among various participants and interested parties here. So now that Sanchez is in the picture, do we have an MLP with a sponsor that is anticipated to pay distributions? Stephen R. Brunner: I guess, let me answer that as directly as I can. Yes. We view the Sanchez transaction as a significant benefit to CEP unitholders. As you know, we've had our struggles in the past and we've worked hard over the past 9 to 12 months to correct some of those issues. We went through a sale at Robinson’s Bend to pay down debt. We had to also then have our credit facility refinanced with a different bank group. And most recently, we announced the Sanchez transaction. Now in addition to that, we've been working to execute in a good way a transition from gas production to oil production, which we have been successful in the Cherokee Basin with. That said, we were still too small to be in the MLP space as a non-sponsored MLP. I think I can say this with clarity, part of the Sanchez organization business strategy is to have a sponsored MLP available to drop down mature production from their other exploration and production efforts. We have been working through the debt reduction, through the oil program, through the new relationship with Sanchez and, quite frankly, over the next -- or I guess over the balance of the year, our plan forward is, of course, to continue with our capital execution so that we have oil production, we have to work through a redetermination of the credit facility with our banks, we are going to work with the Sanchez organization on a master service agreement so that we achieve the efficiencies that can be achieved with the 2 organizations, and we're going to work on the next transaction, a drop down from the Sanchez organization. Now that doesn't limit us because, as we stated, our goal forward is both assets currently owned and operated by Sanchez and we hope to participate with Sanchez on future acquisition opportunities. Everything we're doing is to achieve company growth, increase financial strength so that we can reinstate a distribution.

There are no further questions in the queue. Stephen R. Brunner: Well, okay. Thanks again for joining us this morning, and we look forward to speaking to you in November when we will review our third quarter results.

This does conclude today's conference call. Thank you for joining. You may disconnect your lines at this time.