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'Sustaining Company' Is Aim of Constellation Energy Partners

On the sale block for two and a half months now, Constellation Energy Partners LLC (CEP) last Thursday reaffirmed its 2008 forecast and provided an overview of its 2009 business plan as its management gave a nod to challenging financial and commodity markets.

"We remain encouraged by what we are seeing in terms of more predictability in our operational execution and asset performance," said CEP CEO Stephen R. Brunner. "Based on our performance to date in the fourth quarter, we are confident in reaffirming our 2008 forecast. We expect to deliver results within our net production range of 17 to 18 Bcfe and adjusted [earnings before interest, taxes, depreciation and amortization] range of $70 million to $75 million, with lease operating expense trending toward $2.10/Mcfe for calendar year 2008."

CEP is a master limited partnership that is partially owned by Constellation Energy Group Inc., which last Wednesday announced a nuclear generation asset sale to Electricite de France designed to bolster the troubled company's balance sheet (see related story). CEP was formed by Constellation in June 2005. In 2006 CEP conducted an initial public offering, and Constellation assumed the role of sponsor and provider of support services (see NGI, Aug. 14, 2006). CEP was put up for sale in this past summer (see NGI, Sept. 1).

The 2009 plan and forecast was prepared in conjunction with the ongoing review undertaken with Tudor, Pickering, Holt & Co. Securities Inc., the company's strategic advisor.

"Our primary focus for the 2009 business plan will be to operate in a manner that provides the financial flexibility required to navigate the challenging market conditions we expect next year. We expect our efforts to continue to be impacted by commodity price volatility, financial market instability, and uncertainty related to our relationship with our sponsor, Constellation Energy Group," said Brunner. "Our goal is to sustain our company through the current business cycle and position our operations for success over the long-term. We plan to do that by reducing our total capital expenditures to maintenance levels and taking other measures to enhance liquidity."

The 2009 plan calls for capital spending of $28-33 million, which is expected to be used to complete 70 to 75 wells, primarily in the Cherokee Basin, and is expected to maintain net production at between 17 Bcfe and 18.5 Bcfe. Operating expenses are expected to remain relatively flat compared to 2008, resulting in a range of between $57.5 million to $63.5 million for 2009.

As of Thursday, the company had approximately 13.5 Bcfe of its estimated net production for 2009 hedged, including hedges on 9.7 Bcfe of its Midcontinent production at a weighted average price of $7.54 and hedges on 3.8 Bcfe of its remaining production at a weighted average price of $8.52. The remainder of estimated net production for 2009 is subject to market conditions and pricing.

The company received reaffirmation of the total borrowing base under its reserve-based credit facilities in late November. The current borrowing base is $265 million, which leaves $51 million available. Management expects to recommend to the board that its fourth quarter distribution, payable in February, be set at 13 cents/common unit and class A unit.

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