SOURCE: QR Energy

QR Energy

May 08, 2013 06:00 ET

QR Energy Announces First Quarter 2013 Results and Outlook

HOUSTON, TX--(Marketwired - May 8, 2013) - QR Energy, LP ("QRE" or "QR Energy") (NYSE: QRE) announced today its operating and financial results for the first quarter of 2013 and guidance for the remainder of 2013.

Highlights for the First Quarter 2013

  • Average production was 17,789 Boe per day, a 4% increase from fourth quarter due to the inclusion of a full quarter of results attributable to East Texas Oil Field acquisition

  • Revenue was $104.9 million, an 8% increase from fourth quarter, due to increased production and 6% higher realized oil prices

  • Adjusted EBITDA was $63.3 million, an 11% decrease from fourth quarter due to increased cash general and administrative expenses following the expiration of initial two year fixed-fee period under our services agreement

  • Distributable Cash Flow was $31.7 million, a 19% decrease from fourth quarter due to decreased Adjusted EBITDA

  • Distribution Coverage Ratio was 1.0x

  • $400 million of currently undrawn availability under credit facility

Note: Please see financial statements and related footnotes in QR Energy's 10-Q, as filed with the Securities and Exchange Commission ("SEC"). Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are non-GAAP measures. Please see definitions of these measures and the reconciliation to the most comparable measures calculated in accordance with GAAP in the "Non-GAAP Reconciliation" section of this press release.

Chief Executive Officer Alan L. Smith commented, "First quarter production increased primarily due to production from the properties acquired in our East Texas Oil Field acquisition in December. Our team has done an excellent job of integrating the properties and focusing on our highest return capital projects. We are pleased to have $400 million of available liquidity and continue to evaluate acquisition opportunities that are accretive to our Distributable Cash Flow."

First Quarter 2013 Results

  • Realized prices excluding commodity derivatives were $96.47 per barrel of oil, $2.97 per Mcf of natural gas and $37.71 per barrel of NGLs; Realized prices including commodity derivatives were $97.66 per barrel of oil and $5.74 per Mcf of natural gas

  • Lease operating expenses were $21.60 per Boe, a 7% increase from fourth quarter due to the East Texas Oil Field acquisition, which carries higher LOE due to 90% oil content

  • Cash general and administrative expenses were $9.1 million

  • Total capital expenditures were $19.4 million

  • Net loss of $8.2 million was impacted by $25.3 million of non-cash unrealized mark-to-market losses on commodity derivatives

Cash Distribution

On May 15, 2013, QR Energy will pay a cash distribution attributable to the first quarter of 2013 of $0.4875 per unit for all outstanding common units of record at the close of business on May 8, 2013. This represents an annualized distribution of $1.95 per common unit.

Guidance

The guidance set forth below is subject to all cautionary statements and limitations described below and under the "Forward-Looking Statements" section of this press release. In addition, estimates for QR Energy's future production volumes are based on, among other things, assumptions of capital expenditure levels and the assumption that market demand and prices for oil and natural gas will continue at levels that allow for economic production of these products. The production, transportation and marketing of oil and natural gas are extremely complex and are subject to disruption due to transportation and processing availability, mechanical failure, human error, weather and numerous other factors. Estimates are based on certain other assumptions, such as well performance, which may vary significantly from QR Energy's assumptions. Operating costs, which include major maintenance costs, vary in response to changes in prices of services and materials used in the operation of properties and the amount of maintenance required. Operating costs, including taxes, utilities and service company costs, move directionally with increases and decreases in commodity prices and QR Energy cannot fully predict such future commodity prices or operating costs. Capital expenditures are based on current expectations as to the level of capital expenditures that will be justified based upon the other assumptions set forth below as well as expectations about other operating and economic factors not set forth below. The guidance set forth below does not constitute any form of guarantee, assurance or promise that the matters indicated will actually be achieved. Rather, the guidance simply sets forth QR Energy's best estimate today for these matters. Estimates are based upon current expectations about the future and based upon both stated and unstated assumptions. Actual conditions and assumptions may change over the course of the year.

Based upon current estimates, QR Energy expects the following operating results for the second quarter and full year of 2013:

         
         
Guidance        
         
    2Q 2013   Full Year 2013
Average net daily production (Boed)   17,000 - 17,400   17,800 - 18,200
Lease operating expenses (per Boe)   $20.50 - $22.50   $20.00 - $22.00
Estimated maintenance capital expenditures ($ millions)   $17   $68
Estimated total capital expenditures ($ millions)   $33   $90
Cash general and administrative expenses ($ millions)   $9 - $10   $32 - $35
         
         
         

Quarterly Report on Form 10-Q

QR Energy's financial statements and related footnotes will be available in the 10-Q for the quarter ended March 31, 2013, which QR Energy will file with the SEC today. The 10-Q will be available on QR Energy's Investor Relations website at http://ir.qrenergylp.com or on the SEC website at www.sec.gov.

Webcast and Conference Call

QR Energy will host a webcast and conference call today at 9 a.m. central time to discuss these results.

Interested parties may join the webcast by visiting QR Energy's Investor Relations website at http://ir.qrenergylp.com and clicking on the webcast link or the conference call by dialing (877) 861-4516 or (706) 679-6295 five minutes before the call begins and providing the conference ID 48701001.

The webcast will be available on QR Energy's Investor Relations website at http://ir.qrenergylp.com for 14 days following the call and a telephonic replay will be available for 7 days following the call by dialing (855) 859-2056 or (404) 537-3406 and providing the conference ID 48701001.

About QR Energy, LP

QR Energy, LP is a publicly traded partnership engaged in the acquisition, production and development of onshore crude oil and natural gas properties in the United States. QR Energy is headquartered in Houston, Texas. For more information, visit QR Energy's website at www.qrenergylp.com.

Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of federal securities laws. QR Energy believes that its expectations and forecasts are based on reasonable assumptions; however, no assurance can be given that such expectations and forecasts will prove to be correct. A number of factors could cause actual results to differ materially from the expectations and forecasts, anticipated results or other forward-looking information expressed in this press release, including risks and uncertainties regarding future results, capital expenditures, liquidity and financial market conditions, sufficiency of cash from operations, adverse market conditions and governmental regulations. For a more complete list of these risk factors, please read QR Energy's filings with the SEC, which are available on QR Energy's Investor Relations website at http://ir.qrenergylp.com or on the SEC website at www.sec.gov.

Commodity Derivatives

As of May 8, 2013, the notional volumes and prices of QR Energy's commodity derivative contracts were as follows:

 
 
    Crude Oil        
 
 
Term
 
 
 
 
 
Index
 
 
 
 
Swaps
Bbls/d
 
 
 
Average
Price
($/Bbl)
 
 
 
 
Collars
Bbls/d
 
 
 
Floor
Price
($/Bbl)
 
 
 
Ceiling
Price
($/Bbl)
 
 
 
WTS/WTI
Basis Swaps
Bbl/d
 
 
 
Avg. Discount
to NYMEX-WTI
($/Bbl)
Apr. - Dec. 2013   WTI   7,635   $98.61   -   -   -   2,400   ($1.90)
Apr. - Dec. 2013   LLS   1,400   $99.51   -   -   -   -   -
2014   WTI   7,125   $96.17   425   $90.00   $106.50   2,400   ($2.10)
2014   LLS   1,900   $98.77   -   -   -   -   -
2015   WTI   6,721   $94.52   1,025   $90.00   $110.00   -   -
2016   WTI   5,698   $90.81   1,500   $80.00   $102.00   -   -
2017   WTI   4,997   $86.88   -   -   -   -   -
                                 
"WTI" is West Texas Intermediate crude oil; "LLS" is Louisiana Light Sweet crude oil; "WTS" is West Texas Sour crude oil.
 
    Natural Gas


Term
 

Index
 
Swaps
MMBtu/d
  Average
Price
($/MMBtu)
 
Collars
MMBtu/d
  Floor
Price
($/MMBtu)
  Ceiling
Price
($/MMBtu)
 
Puts
MMBtu/d
  Average
Price
($/MMBtu)
  Basis
Swaps
MMBtu/d
  Avg. Discount
to NYMEX - HHub
($/MMBtu)
Apr. - Dec. 2013   Henry Hub   30,419   $5.97   2,455   $6.50   $8.65           18,455   ($0.17)
2014   Henry Hub   26,622   $6.18   4,966   $5.74   $7.51           17,066   ($0.19)
2015   Henry Hub   7,191   $5.34   18,000   $5.00   $7.48   420   $4.00   14,400   ($0.19)
2016   Henry Hub   11,350   $4.27   630   $4.00   $5.55   11,350   $4.00        
2017   Henry Hub   10,445   $4.47   595   $4.00   $6.15   10,445   $4.00        
                                         
                                         
Selected Operating Data        
         
    Three months ended
    3/31/2013   12/31/2012
Production data:            
  Oil (MBbls)     913     855
  Natural gas (MMcf)     2,976     3,144
  NGLs (MBbls)     192     188
Total production (MBoe)     1,601     1,567
Production by area (Boed):            
  Ark-La-Tex     6,498     5,766
  Permian Basin     6,191     6,483
  Gulf Coast     3,631     3,320
  Mid-Continent     1,388     1,376
  Michigan     81     88
Average daily production (Boed)     17,789     17,033
Prices:            
  Average NYMEX:            
  Crude oil (per Bbl)   $ 94.36   $ 88.23
  Natural gas (per Mcf)   $ 3.48   $ 3.54
             
  Average realized including commodity derivatives:            
  Crude Oil (per Bbl)   $ 97.66   $ 99.07
  Natural gas (per Mcf)   $ 5.74   $ 5.45
  NGLs (per Bbl)   $ 37.71   $ 46.46
             
  Average realized excluding commodity derivatives:            
  Crude oil (per Bbl)   $ 96.47   $ 91.40
  Natural gas (per Mcf)   $ 2.97   $ 3.04
  NGLs (per Bbl)   $ 37.71   $ 46.46
               

Note: Please see the financial statements and related footnotes in QR Energy's 10-Q, as filed with the SEC.

             
             
Consolidated Statement of Operations            
             
    Three months ended  
    3/31/2013     12/31/2012  
Revenues:   (In thousands)  
  Oil sales   $ 88,075     $ 78,145  
  Natural gas sales     8,853       9,570  
  NGLs sales     7,240       8,735  
  Processing and other     718       960  
  Total Revenue     104,886       97,410  
                 
Operating Expenses:                
  Lease operating expenses     34,577       31,725  
  Production and other taxes     7,705       6,903  
  Processing and transportation     466       1,251  
    Total production expenses     42,748       39,879  
  Depreciation, depletion and amortization     30,815       29,855  
  Accretion of asset retirement obligations     1,732       1,539  
  General and administrative and other     10,096       11,369  
  Acquisition and transaction costs     561       2,714  
    Total operating expenses     85,952       85,356  
    Operating income     18,934       12,054  
                 
Other income (expense):                
  Realized gains on commodity derivative contracts     9,310       14,132  
  Unrealized losses on commodity derivative contracts     (25,316 )     (13,062 )
  Interest expense, net     (11,053 )     (11,187 )
Total other expense, net     (27,059 )     (10,117 )
Income (loss) before income taxes     (8,125 )     1,937  
Income tax benefit (expense)     (49 )     -  
Net income (loss)   $ (8,174 )   $ 1,937  
Net loss per common unit   $ (0.33 )   $ (0.24 )
Adjusted EBITDA   $ 63,304     $ 71,086  
Distributable Cash Flow   $ 31,727     $ 39,251  
                 
                 

Note: Please see the financial statements and related footnotes in QR Energy's 10-Q, as filed with the SEC. Adjusted EBITDA and Distributable Cash Flow are non-GAAP measures. Please see the definitions of these measures and the reconciliation to the most comparable measures calculated in accordance with GAAP in the "Non-GAAP Reconciliation" section of this press release.

     
     
Consolidated Balance Sheet    
     
    March 31, 2013
    (In thousands)
ASSETS      
Current assets:      
  Total current assets   $ 101,901
Noncurrent assets:      
  Total property and equipment, net     1,454,820
  Derivative instruments     68,738
  Other assets     22,921
      Total noncurrent assets     1,546,479
      Total assets   $ 1,648,380
       
       
LIABILITIES AND PARTNERS' CAPITAL      
Current liabilities:      
  Total current liabilities   $ 63,001
Noncurrent liabilities:      
  Long-term debt     766,205
  Derivative instruments     14,112
  Asset retirement obligations     127,000
  Other liabilities     6,642
    Total noncurrent liabilities     913,959
Partners' capital:      
  Total partners' capital     671,420
  Total liabilities and partners' capital   $ 1,648,380
         
         

Note: Please see the financial statements and related footnotes in QR Energy's 10-Q, as filed with the SEC.

Non-GAAP Reconciliation

QR Energy defines Adjusted EBITDA as net income plus interest expense (including realized and unrealized gains and losses on interest rate derivative contracts), unrealized gains and losses on commodity derivative contracts, unrealized gains and losses on gas imbalances, depletion, depreciation and amortization, accretion of asset retirement obligations, impairments, non-cash general and administrative expense and acquisition and transaction costs, less interest income and unrealized gains on commodity derivative contracts.

QR Energy defines Distributable Cash Flow as Adjusted EBITDA less cash interest expense (including realized gains and losses on interest rate derivative contracts), distributions on its preferred units, payments to its general partner in respect of its management incentive fee and estimated maintenance capital expenditures, the capital required to maintain QR Energy's production for five years, on average.

QR Energy defines the Distribution Coverage Ratio for a given quarter as the ratio of Distributable Cash Flow per outstanding unit (including general partner units and Class B units and excluding preferred units) to the actual cash distribution payable per outstanding unit (including general partner units and Class B units and excluding preferred units). Holders of the preferred units may elect to convert the preferred units into common units at any time after October 3, 2013, or sooner upon QR Energy's achievement of certain trading price criteria. Please see QR Energy's 10-K for a more fulsome description of the terms of the preferred units.

Adjusted EBITDA, Distributable Cash Flow and the Distribution Coverage Ratio are used by management of QR Energy to provide additional information related to the performance of QR Energy's business. Adjusted EBITDA provides information about the cash flow generated by our assets, without regard to financing methods or historical cost basis and the ability of our assets to generate sufficient cash to pay interest costs and support our indebtedness. Distributable Cash Flow and the Distribution Coverage Ratio provide information comparing cash flows generated by us to cash distributions we expect to pay to our unitholders and indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates. In addition, Adjusted EBITDA, Distributable Cash Flow and the Distribution Coverage Ratio are quantitative standards used by external users of our financial statements such as investors, research analysts and others to assess QR Energy's performance and liquidity without regard to capital structure. Adjusted EBITDA, Distributable Cash Flow and the Distribution Coverage Ratio are not presentations made in accordance with GAAP. Because Adjusted EBITDA, Distributable Cash Flow and the Distribution Coverage Ratio exclude some, but not all, items that affect net income and are defined differently by different companies in our industry, our definitions may not be comparable to similarly titled measures of other companies. Adjusted EBITDA, Distributable Cash Flow and the Distribution Coverage Ratio have important limitations as analytical tools, and you should not consider them in isolation, or as a substitute for net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP.

             
             
             
    Three months ended  
    3/31/2013     12/31/2012  
    (In thousands, except ratios)  
Reconciliation of net income to Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio:                
Net income (loss)   $ (8,174 )   $ 1,937  
  Plus:                
Unrealized (gain) on commodity derivative contracts     25,316       13,062  
Unrealized loss (gain) on gas imbalances     926       1,268  
Depletion, depreciation and amortization     30,815       29,855  
Accretion of asset retirement obligations     1,732       1,539  
Interest expense     11,053       11,187  
Income tax expense     49       -  
Non-cash general and administrative expense and acquisition and transaction costs     1,587       12,238  
Adjusted EBITDA   $ 63,304     $ 71,086  
                 
  Less:                
Cash interest expense     (11,077 )     (11,587 )
Estimated maintenance capital expenditures (1)     (17,000 )     (16,000 )
Distributions to preferred unitholders     (3,500 )     (3,500 )
Management incentive fee     -       (748 )
Distributable Cash Flow(2)   $ 31,727     $ 39,251  
                 
Distributions to unitholders (other than preferred units)   $ 31,990     $ 31,774  
Distribution Coverage Ratio     1.0x       1.2x  
                 
(1)   Estimated maintenance capital expenditures are those needed on average to maintain production over a five-year period.
(2)   Prior to any retained cash reserves established by QR Energy's general partner's board of directors.
     

Note: Please see the financial statements and related footnotes in QR Energy's 10-Q, as filed with the SEC.

Contact Information

  • Investor Contacts:

    Investor Relations
    (713) 452-2990

    Cedric W. Burgher
    Chief Financial Officer
    (713) 452-2200