Chuck Ward – CFO and Treasurer Steve Brunner - President, CEO and COO Tony Sanchez - President, Sanchez Oil & Gas Corporation Gerry Willinger - Managing Partner of Sanchez Capital Advisors

Gregg Abella - Investment Partners Asset Management Jay Abella - Investment Partners Group Frank Abella - Investment Partners Asset Management

Good morning, and welcome to Sanchez Production Partners Fourth Quarter 2014 Earnings and Post-Conversion Investor Call. My name is Candy, and I will be moderating today's call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today’s call is being recorded. If you have any objections to such recordings, please disconnect at this time. I would like to turn the call over to Chuck Ward, CFO and Treasurer of Sanchez Production Partners. Mr. Ward, Thank you. You may begin.

Good morning and thanks for joining us. As you know, we released fourth quarter earnings last Thursday, completed the conversion process from LLC to limited partnership with following day and began trading Sanchez Production Partners LP on Monday of this week. In anticipation of last week's headlines, when we originally scheduled today's call, the goal was to give ourselves a few days to ensure the conversion went smoothly before circling up with unitiholders to address questions about SPP's strategic direction in addition to our recent operating performance. Earlier this week, we learned that Steve Brunner's decision to part ways with SPP to pursue other interests, which was announced in our press release this morning. On his last call with me this morning, in our Houston office is Steve Brunner, SPP's President and CEO. Also, joining the call from outside the office today are Tony Sanchez, III third Co-President Sanchez Oil & Gas Corporation or SOG and Gerry Willinger, Managing member of Sanchez Capital Advisors. Both, Tony and Gerry are Directors on the board of SPP's General Partner Sanchez Production Partners GP LLC. Before we get started a few housekeeping items. First, this morning we posted a corporate presentation on our website, which is www.sanchezpp.com. We would encourage all of our unitiholders to take a look at that material as we think it provides a good overview of SPP and our strategic fit within the Sanchez group of companies. For your convenience, we have made our presentation available for those of you participating in today's discussion via webcast. Though it is not our intention to go slide by slide through that presentation this morning, we will make references to specific slides during our discussion and think it might be useful to have that material available to answer questions later on during the call. We also filed the slide deck in an 8-K with the SEC earlier today. Second, our slides and discussion this morning will 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. Note that we may use non-GAAP financial measures in this morning's discussion to help our unitiholders and 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. Finally, as I mentioned, we have Tony and Jerry dialing in today's call from outside of our Houston office. We ask that you please bear with us during the Q&A portion of the call as we will have multiple lines opened. This increases the likelihood of people talking over one another during the call. Managing that might result in some brief pauses between your question and our reply. With that, I would now like to turn over the call to Steve Brunner.

Thanks, Chuck. As you know I joined SPP in early 2008 at the time when the financial markets were about to undergo an unprecedented change. That change created significant volatility in the commodity markets, a condition that would shape and alter our company and its strategic plans for the next seven years. Over that timeframe, I have had the good fortune to work with a talented management team, supported by a top-notch technical and operational workforce. Together, we had confronted many challenges and I am proud the way our people have risen to the occasion to deliver meaningful results over the past seven years. In 2012, it became readily apparent to Chuck and me that given our size, asset base and operating environment, we needed a step change. After several years of our strategy focused on debt reduction and organic growth, we knew that operating without a sponsor was unsustainable. After evaluating a number of alternatives, we ultimately decided that a strategic relationship with the Sanchez Group of Companies provided the best opportunity for growth and path forward for our company. We embarked on our first transaction with Sanchez Energy Partners I LP in August of 2013 and have worked diligently since that time to integrate with the Sanchez Group of Companies leading to the completion of the conversion process last week. Having seen that conversion process to its end, it is now time for me to pursue other interests. To the management team and staff of SPP, I humbly offer my thanks for the support and dedicated effort that has led us to where we are today. SPP is about to embark on a new beginning and I firmly believe the future is very bright for our partnership. I would like now to turn the call over to Tony Sanchez.

Thank you, Steve. On behalf of SPP's unitiholders, our Board and our employees, I would like to thank you for the many years of service fueling the leadership of SPP. You and your team have met some significant challenges head-on and have overcome them successfully positioning SPP for the next phase of its development. The partnership is stronger today, because of your leadership. Let me first say that it is a pleasure to be speaking with SPP's investor base this morning. As Steve mentioned, we have been working diligently with SPP's management team since August of 2013 to transform SPP into a vehicle for growth that is positioned to leverage Sanchez Oil & Gas Corporation's operational platform and service relationships. We are happy to have completed the conversion process last week with the overwhelming support of SPP's unitiholders and look forward to sharing more information on our plans for SPP's growth in the coming months. But first, for those of you that may not be familiar with Sanchez Oil & Gas Corporation, I would like to focus your attention on pages six through eight of the slide deck posted by SPP this morning, which gives a good overview of our company and its relationship with SPP. Sanchez Oil & Gas is a full-service oil and gas operational platform that has over 200 full-time employees, including 46 technical staff and engineers. During our 40-year history, we have completed or participated in well over 1,000 wells and we now screen about 150 acquisition opportunities per year. Over the last two years for example, we managed five major acquisitions with a total transaction value of approximately $1.1 billion. Last year, we raised over $1 billion of capital for drilling and acquisition. Our senior management team averages over 20 years of experience. Given this level of business development activity and the range and experience of our people, I am pretty confident that we have touched on just about every U.S. on-shore play. As SPP's sponsor, we are already bringing this expertise to bear on SPP's plans for growth. We see SPP's growth coming from multiple sources. First, Sanchez Oil & Gas's operational platform and service relationships gives us an insight into extensive inventory of producing oil and gas assets as well as other assets with characteristics of 50 MLP model that are owned by the companies that we manage. As those companies' assets begin to approach a more mature phase of the production cycle, we see opportunities to develop structured transactions that promote growth plans and capital efficiency. Second, as we screen asset packages, we see joint bidding opportunities that may involve SPP, whose focus is on producing assets and other companies to which we provide services that may be more interested in drilling opportunities. Joint bids can facilitate the parsing of an asset packages to achieve capital efficiency and as a result a competitive advantage [indiscernible]. Finally, we see SPP on a standalone basis as particularly well positioned to capitalize on what we refer to as right-sized transactions with third parties or those that may fall off the radar of larger companies. Since our platform positions us to screen and work on larger number of transactions, we anticipate that our relationship with SPP, together with current conditions in the commodity markets will increase deal flow to SSP over time. Here, we would be looking for acquisition opportunities with a high percentage of proved oil and gas reserves, long-lived stable production low risk drilling opportunities and other integrated assets. With respect to this morning's announcement, I would like to note that we are not announcing a new CEO for SPP at this time. We will instead leverage the operating and management capabilities of the General Partner in the day-to-day management of SPP with an eye towards actively working to further minimize the partnerships' G&A costs over time. With that overview of SOG and our plans for SPP, I would now like to turn the call back to Chuck to briefly discuss SPP's fourth quarter and full year 2014 performance.

Thanks Tony. I would like to first note that the slide deck we posted this morning includes information on our 2014 performance in the appendix. The following up on that information and our earnings release last Thursday, let us review. The company produced 374 MBOE during the fourth quarter 2014 for average net production of 4,063 BOE per day for the quarter, which was down less than 2% from the third quarter 2014. For the full-year 2014, the company produced 1,509 MBOE, an increase of nearly 11% over the full-year 2013 production. While down in the fourth quarter, our net oil and liquids production for the full-year 2014 was 978 barrels per day, an increase of approximately 52% compared to full-year 2013 results. Our operating costs, which include lease operating expenses, production taxes and general and administrative expenses net of certain non-cash items, averaged $25.48 per BOE in the fourth quarter 2014, comparing to $23.51 per BOE in the fourth quarter 2013, after adjustments for charges recorded in connection with litigation activity that quarter, a non-recurring item. For the full-year 2014, our operating costs averaged $25.46 per BOE, which excludes a charge related to the implementation of services agreements in the second quarter of 2014, also a non-recurring item. This compares to operating cost of $24.69 per BOE in the full-year 2013, which excludes non-recurring items related to employee severance charges in the first and second quarters of 2013 and charges recorded in connection with the litigation in the fourth quarter of 2013. Our adjusted EBITDA for the fourth quarter 2014 was approximately $4.8 million, which compares to $5.7 million in the third quarter 2014, and about $45,000 in the fourth quarter of 2013. For the full-year 2014, adjusted EBITDA was $24.4 million, up approximately 40% compared to full year 2013 before the adjustments for non-recurring items. Adjusting for these non-recurring items noted above, adjusted EBITDA for the full-year 2014 was $25.4 million, down less than 4% when compared to results for the full-year 2013, also adjusting again for the non-recurring items. We had no new wells or recompletions during the quarter and saw only about $800,000 in capital spending. For the full-year 2014, the company completed 14 net wells and recompletions with capital spending of $5.9 million. There were no wells or recompletions in progress as of December 31, 2014. You will recall that we announced in January that our borrowing base was reaffirmed by our lenders at $70 million. We finished the year with $42.5 million in debt outstanding, $42 million we maintained in cash and cash equivalents at the end of the year together with our available borrowing capacity give us about $31.7 million of liquidity at year-end. Although volatility in the commodity markets created new challenges late in the year, we benefited from our hedging program to achieve some solid financial results. Our performance allowed us to preserve liquidity heading into 2015, which is important as we look forward to advance plans for growth with the assistance of sponsor SOG. With that overview of our strategy and results, we would like to now turn the call back your moderator to open the lines for some questions.

Thank you. [Operator Instructions] We have our first question from Gregg Abella from Investment Partners Asset Management. Your line is open.

Good morning, guys.

Good morning.

Good morning.

I guess, the question is if I could summarize, what I am trying to determine is, the question is when, not just on distributions, but when we are going to really start to see dropdowns and consummate this relationship that there has been a year-and-a-half in the making with Sanchez.

Gregg, this is Tony. I will start it out. I am here with Gerry. When I think is, I will say we are working on looking at various asset groups right now, I think from a public disclosure standpoint, we need to be careful about giving specific dates and timing around events. Obviously, once it becomes probable, we need to put an 8-K out and announce the deal, so I think there is some sensitivity here around being too specific, just to put that blunt. We do have some very interesting assets that are candidates for dropdowns. Those assets are a combination and we could split them into different packages which is what I think makes sense. Working interest packages of groups of wells that are further along their decline curve in the Eagle Ford, principally, so very stable production, and I will talk about this in terms of a more generic asset, but let us just say working interest that are low declining and they can be structured in such a manner as to which they would require a very minimal amount of maintenance capital, so we are not talking about dropping down PUDs and then using SPP's capital to drill our PUDs, we are talking about dropping down PDP, with that cash flow and get us to a distribution point as fast as possible. Furthermore SN has a large amount of supportive gathering systems in midstream assets that I think would make very attractive candidates for sale and we are looking at what market-based rates would be and the related implied valuation of those assets, so there are a lot of assets that I think would be perfect candidates for dropdowns that are currently owned by one or several groups of individual companies that we manage. Does that put enough meat around the bones for you Gregg?

It does. I guess, since there is liquidity in the interim since I have folks that have just recently received their K-1s, they would certainly like to see distributions turned on in the interim. It sounds like we have gotten skinny enough to afford it, so I guess the question I am asking is that do you anticipate distributions being turned on regardless of whether you do dropdowns or not and when would that be?

Yes. You could split the numbers off then you could split that - this topic into two. Right, if we did not do a dropdown, we could do distributions and those distributions would last for probably a couple of years, but then the production would tail off. If we do drop-downs or asset sales to SPP, then we could maintain and grow distributions over the next few years into as long as you could see. The state of the company right now, we have cut CapEx, we are reducing G&A, we could pay a distribution in short order, we are managing the liquidity of the company to leave it with the balance sheet such that it could do acquisition, so we do not want to sacrifice the short-term for the long-term in this, but I think we could get to a point when we could be making distributions in a relatively short period of time and that would be around asset sales to the company. I am not talking about waiting eight months here. I am talking about much less than that.

2015 sort of start date?

No question. Yes. I mean assuming that we execute on our plans then there's no question that 2015 start date and we could get to it in short order. Of course that comes with my reticence around being more specific has more to do with market risk, right. We need to know that the market is there as we go raise capital, we could raise the capital to fund the acquisitions. We have got to go through our process, we have an independent committee at SPP, we have got an independent committee at SN and we need to go through that process, check-off all the boxes and make sure that this is done correctly in order to get us there. On paper right now, it looks very good, but like I said we need to go through this process. Frankly, we have not been able to go through, we really couldn't be doing this from a filings perspective until we got the entity converted, but that is all behind us now. If you follow us, just take SN for instance, in our history there, we really did not let the grass grow under our feet, right. We moved very quickly in taking advantage of these opportunities and I think we are going to approach the management of this company with the same sort of rigor.

That answered my questions. Thanks so much.

Yes.

Thank you. Next question is Jay Abella from Investment Partners Group. Your line is open.

Hi, guys. Jay Abella here. First, I want to say thanks to Steve and best wishes, wish you well, also the second thing is I am going to ask the same question like Gregg did in a slightly different way? Can you all hear me by the way?

Yes. You are fine.

Okay. Great. If you guys have borrowed now $2.40 per barrel in reserve, I am wondering whether you can lever the company less by using debt to [eq] [ph] more barrels. Then second part of that, does it necessarily have to come from Sanchez-controlled entities in order for you to do that, because, it seems to me that there is a lot of distress out there and the opportunities coming from other places as well might add accretive barrels if you were to use debt initially to grow the company and would like your comments on that?

Yes, Jay. Yes, there is debt capacity at the company currently. We think that debt capacity will continue to increase as we acquire assets. Some of those acquisitions will come from other entities that we control and I think you are spot on. We have looked at several assets that would be acquisition opportunities for SPP on a standalone basis. I alluded to this in my prepared comments, we get a lot of deal flow, so any given day, anybody in our company, particularly senior management, gets emails saying, we have got an asset that is flowing at 1,000 barrels a day, would you be interested and generally they tend to be either blast type emails or they tend to be specifically targeted to us. When I look at that, I would say this asset may not be particularly well-suited for SN, but it makes a lot of sense for SPP. Let us look at it that way. We have got a fully staffed A&D group that is well-versed in repetitive-type acquisitions, so we are tuned into the market. I think we will see and we are seeing a steady flow of third-party acquisition opportunities that would be very well-suited for SPP on a standalone basis.

You are seeing therefore deals that can accrete on a number of barrels acquired per unit of debt basis? Meaning, the company, if it does not wait and acquire more barrels either of oil or gas for less than $2.40, and if it does that then therefore the leverage of the company even if it uses debt will come down, is that what we are talking about? Fewer dollars per barrel even though you used that to buy them, do you understand me?

Yes. To some extent, Jay, at some point you began to catch with the debt metrics, so there would need to be equity added. I think, we would only add equity if we believe it would be accretive on a per unit basis to what our dividend goals are, so we would expect that at some point obviously we are looking at this, right. We are running our numbers that we have been scrubbing them. We are targeting, initiating, reinitiating the dividend. As I mentioned to your brother, I think it is going to happen this year certainly. We are now in a position where we are perfectly aligned with the company. We want to increase dividends. We want to establish them and keep them increasing. As you look at this from a capital finance perspective, you can acquire with debt up to a certain point and then you need to equitize, but you look at layering equity in such a manner that it is still accretive to the pro forma per unit share account, so you got to look at it both ways, right? Otherwise you just get over levered. I will add to that I will say look at the slide deck we put out. The profile of the assets that we are looking, if we are going to buy something, we do not intend and we will do everything possible to minimize. We do not intend to stand large amounts of maintenance capital. We fundamentally believe that the weakness in the upstream MLP market, is there necessity to spend drilling capital, so you have MLPs, you have companies that are structured as MLPs, they need to pay dividends, but they are acting like sea corps and the reinvesting cash in drilling their PUDs and step out wells and exploration and things like that, every dollar that goes into drilling a well is one less dollars you have for paying a dividend and I think that that is the major weakness in the upstream MLP space at this point and we are structuring SPP to minimize its maintenance capital spend. If you look at the slide deck, we took capital spend from upwards of $20 million basically to zero, where it was before $20 million, it was necessary, SPP formally Constellation was sitting there on a standalone basis, they were independent, they needed to fund their own growth, so they had to drill. Now this is a different world now. They do not need to drill. They can rely on acquisitions and those acquisitions need to be accretive to the dividend.

Gerry would like to add to that.

This is Gerry Willinger. Also in relation to third-party acquisitions, I think the activity to-date has been somewhat slow, because there is still a bit difference in the market. I think as we move through the year, you will be seeing greater amount of activity and greater amounts of opportunities borrowing basis get re-determined and you move to the price deck in a deeper fashion, because people are still working off their hedges. Right now, we are seeing people that are selling specific assets that were probably under hedged as they approached the price decline in oil and gas here over the last of three, four months, so we expect that activity, to your point, pick up dramatically as we go through the summer months and into the fall and as bid ask sort of separation comes together. That was the first topic, I would say The other topic to emphasize that Tony was saying regarding maintenance CapEx. Our goal is to define maintenance capital as that which keeps the distributable cash flow flat as opposed to that which keeps production flat.

Right.

With that goal in mind, that is how we are going to approach the business and approach acquisitions.

I appreciate it guys. Thank you.

Thank you. Next question is from Frank Abella Junior with Investment Partners Asset Management. Your line is open.

Good morning, gentlemen. Now you get the father of the two sons who have been asking questions. My questions.

I am sorry.

At some point I would love to meet you, Tony. The occasion will probably arise I would hope sooner rather than later. In any event, let me kind of comment to first those divestments of the current assets that the company has come into the picture in 2015?

Yes. Sure. I would say the current assets; let us just refer those as the legacy assets Cherokee Basin. We are looking at divesting those, so we put a package together, we will be retaining a third-party marketing firm, we have actually contacted a couple potential buyers directly. In our financial models, I think we have a pretty good understanding of the price point at which we would sell it and over which we would sell and under which we would keep. It makes a lot of sense to sell if we could get it sold for the right price, because it enables us to refocus on the asset base that we have that is closer to home. It also allows us to lower G&A costs somewhere on the order of $3 million to $5 million a year. Short answer, for the right price, we would sell it.

Great. My next comment really is not so much a question, but a suggestion. I have seen a lot of ALPs [ph] along the way, so has Jay and certainly Gregg too. The one thing that they have in common is they get their story out. To get out there and press the flesh with analysts, they press the flesh at IPA shows. They unfurl the banner and I know it has been difficult for Steve along these many tortuous months to do that and for Chuck, but it would seem to me that this is the time and there or more occasions now to be able to distinguish oneself from the rest of the pack, because you look more like a fresh dart then something that is a little bit sharp one. In essence, our other LPs or MLPs are going to be just suffering through the fact that they have too much debt, too little production, that can actually be considered profitable production, hedges that are coming off, all the reasons why in comparison to our story it would seem to me we are more apt to attract investment dollars, because of the potential growth plan. To be direct about the sponsorship is far greater than it has been in the last six years that any time that this company has basically had. With all those good things happening, what is the IR plan and the plan to get out and tell the story?

We have an active IR process in-house already. We will approach investor relations and conferences, non-deal road shows, hopefully deal road shows, much the same way as we do it at SN, so I believe there is 15 or so conferences and road shows that we do a year at SN. We will be doing the same thing for SPP. You are right we are going to look at this is an opportunity to have a fresh start here in terms of how we position the company and it is incumbent on us to get out and tell the story, so we are doing some repositioning in-house of some people, some resources, time and responsibilities and we will be actively marketing this company. We experienced that at SN. When we get out there and tell the story, volume picks up, people get interested, they start buying in and they participate in our offerings and I think there is no other way to do it, but just to get on the road and fly to different cities and meet with different people and that is what we do and I think we are going to replicate that at SPP.

Wonderful. I have no further comment.

Thank you.

Thank you. We are showing no further question at this time. I will now turn the call back over to Mr. Ward for closing remarks.

Thanks again for joining from Tony, Gerry, Steve and I this morning. We look forward to speaking again with you very soon. Thanks.

Thank you for your participation. You may disconnect at this time.