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EVEP Seeking JV Partners to Unlock Utica Volatile Oil Window

Officials with EV Energy Partners LP (EVEP) say the company is still looking to sell thousands of wet gas acres in the Utica Shale and is looking for one or more joint venture (JV) partners in the play to develop the volatile oil window.

During a conference call with financial analysts to discuss 1Q2013 earnings, Executive Chairman John Walker said the sale of 103,800 net acres in Ohio, spread across eight counties in the Utica's wet gas window "is the highest priority" for Houston-based EVEP and its parent company, EnerVest Ltd.

"It's our most valuable acreage at this time because of the tremendous success with wells there," Walker said Friday. "Through this revised process we have already received offers on some of the acreage."

EnerVest, the second biggest leaseholder in Ohio's Utica after Chesapeake Energy Corp., had originally hoped to sell its acreage in four packages in 2012, but it received insufficient offers (see Shale Daily, Dec. 27, 2012). The portfolio has since been re-packaged into 13 parts, one for each Ohio county in the acreage (see Shale Daily, April 18). Most of the 103,800 net acres being currently marketed are in Stark and Tuscarawas counties -- with 40,300 and 21,800 net acres, respectively -- but acreage is also for sale in Carroll, Guernsey, Harrison, Mahoning, Muskingum, Noble and Trumbull counties.

"In our re-packaging, allowing companies to buy as little as one county, we have received interest both from large companies that just wanted a few counties to small companies that can only afford one or two counties," Walker said. "These are encouraged on a first-come basis at prices at or above our county thresholds. We will require a mark-up response to our asset purchase agreement to expedite negotiations and immediately advance foreclosing."

During the Bank of America and Merrill Lynch Global Energy and Power Leveraged Finance Conference on Monday, CFO Michael Mercer also said there was the potential for smaller sales of acreage.

"We are continuing to move forward on marketing this acreage," Mercer said. "It's going to be, I think, a smaller chunk than we had originally planned on a county-by-county basis."

EVEP also holds another 73,500 net acres -- 56,000 in Ohio and 16,900 in Pennsylvania -- which the company plans to either sell, exchange or retain. These include 16,000 non-operated acres in Ohio. Combined, EnerVest and EVEP hold 434,700 net acres in Ohio and 156,600 net acres in Pennsylvania.

After the sale of its wet gas acreage, Walker said EVEP's second area of focus is creating JVs in the Utica's volatile oil window.

"There is very little production data from this area, so the market evaluates it correctly as being more risky then the wet gas window acreage," Walker said. "From our cores, logs, and pressure tests, we know that some of the best rock in the Point Pleasant [Formation] is in Tuscarawas and Stark counties. These are well pressured, have excellent porosity, low order saturation and high total organic carbon [TOC] in the play.

"We need to learn how to get the volatile oil out in commercial qualities. [CEO] Mark Houser is leading an effort to achieve this which includes negotiations with service companies, financial entities and oil companies with technically advanced experience in complex oil shale."

EVEP currently has two JV partners in the Utica: Chesapeake and France's Total SA (see Shale Daily, Jan. 4, 2012).

In his separate comments, Mercer said that in the Utica's volatile oil window "there is the potential to do...one or more JVs to get some drilling there. As of today, most of the drilling occurred in the wet gas window, and most of the drilling has been Chesapeake so far. Others really, other than a few, haven't ramped up drilling in a while yet. Part of it is that there is not takeaway capacity, processing capacity for this gas."

Walker said it would take time to figure out how to unlock oil from the Utica Shale. "Until we solve this issue, and they evolve to volatile oil window on the consistency in the amount of flow from the volatile oil window, I don't think that we are going to get the type of offer for our position there that's satisfactory," Walker said. "And so I purposely said that we are focusing on JVs to get people to carry us to in that position to help solve this problem, and it's not that different from the Eagle Ford or the Bakken.

"I will remind people that it took seven years in the Bakken to solve the problem. We think it will take a lot less time for us to solve this problem in the [Utica's] volatile oil window. It has all the characteristics that should allow the volatile oil window to flow at commercial rates."

For 1Q2013, EVEP reported a net loss of $46.6 million, or $1.08/share. The net loss included $38.3 million of unrealized losses on commodity and interest rate derivatives. By comparison, the company recorded net income of $28.6 million, or $0.69/share, during 1Q2012.

Production during 1Q2013 totaled 10.3 Bcf of natural gas, 263,000 bbl of crude oil and 503,000 bbl of natural gas liquids, averaging 165.2 MMcfe/d for the quarter. The daily production average for 1Q2013 was 3.6% higher than 1Q2013 (159.5 MMcfe/d), but 0.7% lower than 4Q2012 (166.3 MMcfe/d).

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