Depressed commodity prices, declining production and lower distributable cash flow (DCF) are heralding a potential cut to EV Energy Partners unitholder distributions next year unless commodity prices improve, executives said Monday.
EV Energy DCF for the third quarter was $20.1 million, a 37% decrease from the third quarter of 2014 and a 23% decrease from the second quarter of 2015. The decline was mainly due to the sale of the company's Utica Shale midstream interests (see Shale Daily, April 6), lower production and lower realized commodity prices, partially offset by lower costs and expenses.
The 50 cent/unit distribution is likely covered for the fourth quarter, but management on Monday was talking of a distribution cut next year unless commodity prices improve. The company said it "...expects that its distributable cash flow, beginning in 2016, will be below levels necessary to maintain a 50 cent/unit quarterly distribution, absent a significant, near-term rebound in commodity prices."
During a conference call, CEO Michael Mercer said next year's drilling program will be smaller and garner less capital unless commodity prices "rebound some from current levels." Budget and distribution decisions are to be made in the coming weeks.
The company is active in the Utica and Barnett shales, the Appalachian Basin, the Midcontinent area, the San Juan Basin, the Monroe Field in Louisiana, the Permian Basin, Central and East Texas, and Michigan.
Third quarter production was 9.7 Bcf of natural gas, 212,000 bbl of oil and 526,000 bbl of natural gas liquids, or 153.8 MMcfe/d. This represents a 13% decrease from year-ago quarter production of 175.8 MMcfe/d and a 6% decrease from second quarter 2015 production of 162.8 MMcfe/d. Third quarter production was mainly impacted by adjustments from prior periods, timing of certain well completions and natural decline, the company said.
EV Energy reported a net loss of $9.8 million (minus 20 cents/unit) for the third quarter. For the second quarter the company had net income of $164.1 million ($3.25/unit), which included the sale of Utica midstream interests. For the third quarter of 2014, EV Energy reported net income of $42.6 million (85 cents/unit).
Chairman John Walker said during the conference call that EV Energy and the industry at large are in "the midst of a severe downturn" in commodity prices. A correction is expected, Walker said, but when is unknown. Until the forward curve for oil/gas prices improves, "sizeable acquisitions" will be delayed. If commodity prices do not rebound soon, acquisition prices "will become more attractive from a buyer's perspective," he said.
During the company's second quarter conference call in August, Walker said he expected assets to become available in the Eagle Ford Shale and Permian Basin (see Shale Daily, Aug. 17). Earlier this year, a Utica well stimulated with a waterless frack turned out to be a disappointment (see Shale Daily, May 14).