Stephen Brunner – President, Chief Executive Officer Charles Ward – Chief Financial Officer

Jay Abella – Investment Partners

Good morning and welcome to Constellation Energy Partners’ Second Quarter 2014 Earnings call. My name is Laurel and I’ll be moderating today’s call. At this time, all participants are in a listen-only mode. To participate during the question and answer portion of today’s call, please press star, one on your touchtone phone when prompted during the call. As a reminder, today’s call is being recorded, and if you object to such recording, you may disconnect at this time. I would now like to turn the call over to Stephen R. Brunner, President and Chief Executive Officer of Constellation Energy Partners. Mr. Brunner, you may begin.

Good morning. This is Steve Brunner, along with Chuck Ward. We’d like to thank everyone for joining us as we review our second quarter 2014 results. Before we get started, if you’ll turn with me to Slide 2, I’d like to remind you that this morning’s presentation is being webcast and our slide deck is available on our website, which is www.constellationenergypartners.com. I’d also like to note 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, which are also available on our website. Finally, 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. With that, if you’ll turn with me to Slide 3, our average daily net production during the second quarter was 4,212 BOE, which was up about 2% compared to the prior quarter and up about 24% when compared to the same quarter last year. Included in this figure was oil and liquids production of 1,143 barrels per day, which was up about 26% over the prior quarter and up about 144% over the same quarter last year. You’ll note that this is the first quarter that we reported oil and liquids production at a level that exceeds 1,000 barrels per day, which is a key milestone for us, something that we’re proud of and hope to continue to build upon. For the year-to-date ended June 30, our average daily net oil and liquids production was 1,026 barrels, which is up 105% over the same six-month period of 2013. Our oil and liquids production accounted for about 27% of our total production during this quarter as compared to 22% in the prior quarter and 14% in the same quarter last year. Given the run-up on oil prices during the early half of this year, our oil and liquids production also contributed about 60% of our total sales revenue in the second quarter. This represents another high water mark for us. For the year to date, oil and liquids production contributed 52% of our total sales and revenue, as shown on Slide 3. During the second quarter, our operating cost, which includes lease operating expenses, production taxes, and general and administrative expenses net of certain non-cash items and a $1 million non-recurring item related to the implementation of the services agreement with SOG, averaged $25.41 per BOE. This compares to $25.18 per BOE in the first quarter of this year and $25.50 per BOE adjusted for non-recurring items in the second quarter of 2013. Year-to-date, our operating costs net of the non-recurring item are running about $25.29 per BOE, which is in line with our forecast for the full year. Our adjusted EBITDA net of the non-recurring item was $8 million for the second quarter, which is up about 13% over the previous quarter and up about 62% over the same quarter last year after adjustments for non-recurring items recorded in that quarter. For the year to date, our adjusted EBITDA was $15 million as compared to $10.9 million for the same six-month period of last year, in each case adjusted for non-recurring items. Our drilling focus, which was limited during the quarter, remains on oil opportunities in our existing asset base. We completed one net recompletion during the second quarter and finished the quarter with one more in progress. Our capital spending during the quarter was $2.4 million. Looking beyond operations, there were two key developments I’d like to highlight for you in the second quarter. The first is settlement of litigation with our former sponsor, which is now an affiliate of Exelon, related to our Class B units. In conjunction with that settlement, we acquired and cancelled the Class C and D units that were previously owned by our former sponsor. This event significantly simplifies our capital structure and together with our settlement of the PostRock litigation at the end of the first quarter this year allows us to pursue the integration activities we contemplated when we entered into a business relationship with SOG this time last year. Related to the settlement of the PostRock litigation, note that PostRock has sold our Class B units in the market since April of this year and now owns less than 10% of our Class B units. As a result of the settlement, we anticipate PostRock will complete the exit of its investment in CEP later this year. If you’ll turn with me now to Slide 4, I’d like to provide some updates on our efforts to integrate operations with SOG and its affiliates, which we see as the path to reinstating our distribution. You’ll recall that during our last earnings call, we discussed a series of agreements entered into in May of this year with SOG and its affiliates, which we refer to as the services agreements. We’re happy to report that our efforts to implement these agreements has progressed considerably, and effective July 1 affiliates of SOG now provide services that the company requires to operate its business. As we noted during the last call, we anticipate that there will be no cost savings associated with the implementation of the services agreement in 2014, which we view as a year of integration and transition. Beyond 2014, cost savings will be a function of more efficient use of shared services resources and economies of scale that would not otherwise be available to a company of our size. As we progress through 2014, we look to rebrand CEP. By this, I mean that over the next few months you should anticipate an announcement that we will operate under a new name, logo, website and ticker symbol. We also anticipate that we may convert form a limited liability company to a limited partnership. As you know, the GPLP forum is a more traditional forum among publicly-traded MLPs. Note that such a proposal would be subject to board of manager and unitholder approvals, the latter of which we hope to seek this year or in early 2015. Long term, as we’ve previously discussed, we anticipate that there will be opportunities to complete drop-down transactions with affiliates of SOG. We see drop-downs as important to clearing the path to distributions for several reasons. First, drop-down transactions would be aimed at significantly increasing the size of the company’s asset base, which would ensure the company’s financial footing and better position us for future growth. Second, we anticipate that these transactions will provide opportunities for redeployment of capital at higher rates of return than may be available in our existing asset base, which will tend to positively impact the investment needed to keep our production and cash flow flat over time. Finally, we see drop-down transactions as key to a large-scale recapitalization in 2015 at which point we anticipate we’ll be in a position to operate as a company that fits within the more traditional MLP framework. With those updates, I’d like to now turn the presentation over to Chuck for a closer look at our second quarter financials.

Thanks, Steve. Slide 5 provides a comparison of our second quarter 2014 results to the first quarter 2014 and the second quarter 2013. Total production during the second quarter of 2014 was 383 MBOE, up about 3% versus the prior quarter and up about 24% when compared to the same quarter last year. Our oil and gas sales revenue of $18 million was up about 8% relative to the first quarter 2014 and then up about 38% relative to the same quarter of last year. These increases were due to the impact of higher commodity price levels during the quarter on unhedged production and the increase in oil and liquids in our production mix. The balance of our revenue was impacted by mark-to-market loss on the value of our hedged portfolio, which is again a function of higher commodity price levels quarter on quarter as compared to the fixed prices under our hedge contracts. Recall that this is a non-cash item and is removed from our net income in arriving at our adjusted EBITDA. Our operating expenses in the second quarter 2014 were up when compared to the prior quarter and the same quarter last year, which you’ll recall included about $200,000 in charges related in connection with an employee severance. Adjusting for the $1 million non-recurring item that Steve mentioned, our operating expenses during the second quarter of this year came in at about $10.8 million as compared to $9.5 million in the first quarter 2014, an increase of just under 14%, the majority of which relates to the vesting of units granted under our LTIP plan as Houston-based employees transition from CEP to SOG. Excluding the non-recurring items related to implementation and the services agreements, our adjusted EBITDA was $8 million during the second quarter of this year compared to $7 million in the prior quarter and $4.9 million in the same quarter of last year. The second quarter 2013 figure shown is also adjusted for the non-recurring item at that time. Ignoring the $1 million non-recurring item in the second quarter of 2014, our adjusted EBITDA was essentially flat in the second quarter relative to the first quarter 2014 at approximately $7 million. Regarding our forecast for the remainder of the year, the company has hedged approximately 3.2 Bcfe of natural gas production at an effective NYMEX fixed price of $5.75 per Mcfe with basis hedges on 2.1 Bcfe over mid-continent production at an average price differential of about $0.39 per Mcfe. The company has also put hedges in place on approximately 147,000 barrels of 2014 oil production at a fixed price of $95.71 per barrel. Additional information on our hedges can be found in the appendix to today’s slide deck. With respect to our credit facility, we currently have approximately $52 million in debt outstanding which leaves us with about $18 million in borrowing capacity. We continue to fund drilling activity with cash from operations. Back to Steve for some closing remarks.

Thanks Chuck. We undertook efforts in the early part of this year to resolve outstanding litigation and in the process simplify our ownership structure in a way that better positions us for some of the things we hope to achieve through our new relationship with SOG. In conjunction with these efforts, we consciously dialed back our capital spending. Despite drilling less activity than we had planned going into 2014, however, we are seeing production levels and operating performance very much in line with our forecast. We see this as a testament to the quality of our asset base and an internal focus to deploying capital only on the best opportunities in our portfolio. We look to build on our success in the early part of this year as we further integrate with SOG and we look forward to updating you on these efforts in the months to come. With that, I’d like to turn the call back to the Operator for any questions.

[Operator instructions] Our first question today comes from Jay Abella. Your line is open and please state your affiliation, sir. Jay Abella – Investment Partners: Hi guys, Jay Abella from Investment Partners here. How are you?

Morning Jay. Good to hear from you. Jay Abella – Investment Partners: Good to hear from you guys too. I like Slide 4 a lot, the road to distributions looks good. I just wanted to ask a question about some of the moving parts with respect to how that might be—if there are any additional deals out there, what’s available to you guys and what do they look like in terms of what the leverage is right now within the company. Do you think—

Jay, if you don’t mind, I’ll start with answering and then I’ll let Chuck finish up. I think what I’d like to point to is the quality of the first transaction we did with Sanchez. It was a group of South Texas and Louisiana properties, and over time it has proven to be a good deal for us. It was actually in part instrumental to us increasing our oil production and liquids production the way we did. I think it’s indicative of the relationship, the commitment that Sanchez has to this enterprise, and I think all of our unitholders should take some comfort in that. Now with regard to additional transactions, I can tell you that we’re reviewing multiple opportunities and we’re looking for the best path forward, both short term and long term. Chuck, did you want to add anything?

Sure. I guess what I’d say is that it’s really the range from even including us looking at the transaction that was not a Sanchez transaction just this last quarter and bidding, unfortunately unsuccessfully, last week; but we actually just picking up the incremental technical assistance post-the share services agreement put in place gives us, I would say, a deeper bench to look at opportunities than kind of what we had the day before, and that’s really helpful and makes so that really we can do the trifecta of looking at things directly from Sanchez associates and affiliates to things looking at them together, and then still looking at thing separately. So it’s just broadened the scope of potential transactions for us. Jay Abella – Investment Partners: Okay, I guess what I’m asking – and thanks for that – is whether any transaction that you’re looking at would bring leverage per reserve down from what it is now. The reason I’m asking that is because I think that that provides us a much clearer path to distributions. You’ll get larger, you’ll realize some economies of scale as time goes on, and your costs should come down relative to the whole thing.

Well certainly adding any top line operating income is going to diminish, say, the G&A impact. As we roll forward, we expect to see G&A benefits as well, so I think the combination of any growth will move towards that, Jay. Jay Abella – Investment Partners: Okay, so you don’t know—you can’t really provide any color as to whether the leverage for the entire company per reserve would go down? The reason I’m asking is because if you use more debt and it goes, let’s say, temporarily over the 90% for distribution in the covenant, if you acquire enough gas or oil, your borrowing base would be redetermined higher the next time it comes up, is what I’m thinking. So you’d recognize cost savings as synergies, have a larger organization, and be able to very easily provide distributions on something that was that accretive, so is that kind of what the thinking is on your end?

Yeah, we’re very cognizant of, as I say, the multiple as-ifs and logic problems that we’re trying to solve there on growing, being efficient about our leverage but not, obviously maximizing the leverage. What I’d say is, though, is while we’re in the growth mode of the relationship to the Sanchez’s, we’re not afraid of using debt but it’s got to be on the path towards ending up at that state of distribution. Jay Abella – Investment Partners: Okay, great. I’ll get back in the queue. Thanks.

As we have no further questions, that will conclude the question and answer segment of today’s conference.

Okay, thanks for joining us this morning. We look forward to speaking to you again in November as we review our third quarter 2014 results.

That does conclude today’s conference. Thank you all for joining. You may now disconnect.