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New Source Energy Partners L.P., a Delaware limited partnership (NSLP) (the “Partnership” or “New Source”), today announced financial and operating results for the quarter and year ended December 31, 2014.

Fourth Quarter 2014 Highlights

  • Increased Adjusted EBITDA to approximately $17.3 million in the fourth quarter 2014 compared to approximately $9.0 million in the fourth quarter 2013
  • Increased Distributable Cash Flow (“DCF”) to approximately $10.5 million in the fourth quarter 2014 compared to approximately $4.6 million in the fourth quarter 2013
  • DCF per unit of approximately $0.63 per common unit resulting in a coverage ratio of 3.16x, which reflects the declared distribution of $0.20 in the fourth quarter of 2014
  • Increased total revenue to approximately $55.0 million in the fourth quarter 2014 compared to approximately $18.2 million in the fourth quarter of 2013
  • Continued build-out and integration of Oilfield Services division

“In 2014, the Partnership realized growth in both revenue and EBITDA, and more importantly, growth was achieved in both EBITDA and DCF on a per unit basis,” said Kristian Kos, Chairman and Chief Executive Officer.  “We completed multiple acquisitions throughout the year, highlighted by our acquisitions of Erick Flowback Services LLC and Rod’s Production Services, L.L.C., which expanded our geographic footprint across premier oil and gas plays in the United States.  We are pleased with our performance in 2014 and believe that with our downward revised distribution and strong balance sheet, we are well positioned for 2015.”

Exploration and Production Operational Results

The following table reflects production, pricing and cost for the Exploration and Production (“E&P”) division for the fourth quarter of 2014 compared to the fourth quarter of 2013 and the year ended December 31, 2014 compared to the year ended December 31, 2013.

Three Months Ended
December 31,

Years Ended December 31,

2014

2013

2014

2013

Production volumes:

Oil (Bbls)

39,042

33,149

163,338

84,273

Natural gas (Mcf)

797,358

808,550

3,673,836

2,764,336

NGLs (Bbls)

210,400

201,803

885,117

790,234

Total production volumes (Boe)

382,335

369,710

1,660,761

1,335,230

     Average daily volumes (Boe)

4,156

4,019

4,550

3,658

Average price:

Oil (per Bbl)

$

70.69

$

96.87

$

91.26

$

96.00

Natural gas (per Mcf)

3.27

3.67

4.23

3.62

NGL (per Bbl)

23.73

41.21

35.08

36.50

Total, excluding derivatives (per Boe)

27.09

39.21

37.02

35.15

Realized gain (loss) on derivative settlements (per Boe)

5.17

(2.84)

(1.07)

(1.44)

Total, including derivatives (per Boe)

$

32.26

$

36.37

$

35.95

$

33.71

Average production costs (per Boe)

$

12.30

$

10.63

11.21

$

9.46

Average production tax (per Boe)

$

1.29

$

1.82

1.71

$

2.00

 

Derivative Position

The following table reflects the Partnership’s percentage of production hedged through 2016.  We utilize fixed price swaps, collars and put options as part of our strategy to hedge the variability of oil, natural gas, and NGL prices.  Additional information on our derivatives is available on our website,www.newsource.com, under the Investors tab.

Oil

Natural Gas

NGLs

Total

2015

76%

67%

30%

58%

2016

28%

26%

—%

18%

Credit Facility and Year End Reserves

In November 2014, the borrowing base on our senior secured revolving credit facility was reduced from $102.5 million to $90.0 million as a result of our semi-annual redetermination.  The borrowing base is dependent on our estimated oil, natural gas, and NGL reserves, which have declined as a result of lower commodity prices. As of December 31, 2014, our proved reserves were approximately 16.3 MMBoe.  At our next redetermination, scheduled for April 2015, we expect further reduction to our borrowing base based on the current decline in commodity prices and related anticipated impact to our reserves.  The precise amount of the reduction is not known at this time but the decrease could range from approximately $20 million to $30 million. Management believes it will obtain financing through additional debt or equity issuance that will address the reduction to the borrowing base.

Oilfield Services Results

Adjusted EBITDA for the Oilfield Services (“OFS”) division was approximately $12.4 million in the fourth quarter of 2014 compared to $11.5 million in the third quarter of 2014.  Revenue was approximately $44.6 million for the fourth quarter of 2014 with an average weekly rig count of 1,165 compared to $40.9 million in the third quarter of 2014 with an average weekly rig count of 1,166.  The Oilfield Services division utilizes 139 total pressure control spreads, consisting of blowout prevention and flowback spreads.  A blowout prevention spread generally consists of a semi-trailer that is specially configured with a pressure control service bed consisting of pressure pumps, winch assemblies and ancillary equipment necessary to perform our blowout prevention services.  A flowback spread generally consists of a group of sand separators, manifolds, plug catchers, flowback tanks, and other ancillary equipment necessary to perform our flowback services.  With the integration of EFS and RPS into our Oilfield Services division, we have expanded our pressure control oilfield service product lines, continuing to build these across the life cycle of the well in addition to growing our geographic footprint, including the premier basins in the United States.  The Partnership’s Oilfield Services division was established with the acquisition of MidCentral Energy Partners L.P. in November 2013. As such, information for the 2013 period is not comparable.

Cash Distributions

The Board of Directors of New Source’s general partner declared a cash distribution for the fourth quarter of 2014 of $0.20 per unit, or $0.80 per year on an annualized basis. The fourth quarter distribution was paid on February 13, 2015, to all common unit holders of record on February 2, 2015.

2015 Guidance

The Partnership is reiterating guidance for both its E&P and Oilfield Services divisions for the full year 2015.

Oilfield Services Division

E&P Division

FY2015E

FY2015E

Revenue ($ in millions)

$120.00 – $140.00

Production (Boe/d)

3,750 – 3,950

EBITDA Margin

21% – 25%

Production Taxes (% of Revenue)

5.25% – 5.75%

Production Costs ($ per Boe)

$10.50 – $11.50

 

Company Outlook

“During the fourth quarter 2014 and continuing into the beginning of 2015, there has been significant pressure on commodity and oilfield services prices which has had an impact on our business,” said Kristian Kos, Chairman and Chief Executive Officer.  “We are controlling our costs by curtailing our drilling program at the current commodity prices and focusing on internal cost reduction efforts across both of our divisions.  We continue to work with our customers to help them optimize their own cost structures.  As a result of our efforts, we believe we will emerge more efficient as a result of the current downturn, and positioned to take advantage of any opportunities in 2015.”

Use of Non-GAAP Financial Measures

New Source presents Adjusted EBITDA, DCF and Distributable Cash Flow Coverage Ratio (“Coverage Ratio”), which are non-GAAP financial measures, in this press release.  New Source defines Adjusted EBITDA as earnings before interest expense, taxes, depreciation, depletion and amortization, accretion expense, impairment, non-cash compensation expense, acquisition and transaction fees, (gain) loss on derivative contracts net of cash received (paid) on settlement of derivative contracts and other non-recurring gains and losses.  New Source defines DCF as Adjusted EBITDA less cash interest expense and estimated maintenance capital expenditures, as defined below.  New Source calculates its Coverage Ratio using DCF generated during the period compared to the aggregate cash distributions paid with respect to the period.

Estimated maintenance capital expenditures represent New Source’s estimate of the amount of capital expenditures necessary to maintain the revenue generating capabilities of its assets at current levels over the long term.  Following the acquisition of MidCentral Energy Partners L.P. in November 2013, management and the Board of Directors changed the method of estimating maintenance capital expenditures to a calculation based on the estimated capital expenditures required to replace revenue generating assets (including production and producing reserves from its oil and natural gas operations and vehicles and other equipment from its oilfield services operations) on an individualized basis. With respect to its oil and natural gas operations, estimated maintenance capital expenditures represents the average cost to replace a barrel of oil equivalent, using the historical average finding and development costs over the preceding five-year period and the actual production volume for such period.  With respect to its oilfield services operations, estimated maintenance capital expenditures represent the estimated replacement costs for current equipment whose useful lives are scheduled to be completed during the given year.

New Source believes that the presentation of these non-GAAP financial measures provides useful information to investors in assessing our results of operations. The tables included in this press release provide reconciliations of these non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP.  Non-GAAP financial measures should not be considered as an alternative to GAAP measures such as net income or any other measure of liquidity or financial performance calculated and presented in accordance with GAAP.  Investors should not consider Adjusted EBITDA, DCF or Coverage Ratio in isolation or as a substitute for analysis of the Partnership’s results as reported under GAAP.   Because Adjusted EBITDA, DCF and Coverage Ratio may be defined differently by other companies in our industry, New Source’s definitions may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

The following tables present a reconciliation of Adjusted EBITDA and DCF to net (loss) income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

 

Reconciliation of Adjusted EBITDA and DCF to Net (Loss) Income:

Three Months Ended

Years Ended

December 31,

December 31,

2014

2013

2014

2013

(in thousands, except coverage ratio)

Net (loss) income attributable to New Source Energy Partners L.P.

$

(39,374)

$

21,854

$

(42,317)

$

26,622

Interest expense

1,599

858

5,041

4,078

Franchise tax (benefit) expense (income tax benefit)

(36)

5

(12,126)

Depreciation, depletion and amortization

17,023

6,870

54,352

18,556

Accretion expense

108

64

327

209

Impairment of goodwill and other intangible assets

(1)

59,000

59,000

Non-cash compensation expense

1,321

101

3,233

7,839

Acquisition and transaction fees

35

1,617

3,659

2,078

Other non-cash expense

591

585

Gain on investment in acquired business

(22,709)

(2,298)

(22,709)

(Gain) loss on derivative contracts, net

(11,467)

2,951

(10,707)

5,548

Cash received (paid) on settlement of derivative contracts

1,977

(1,051)

(1,773)

(1,929)

Change in fair value of contingent consideration

(13,524)

(1,600)

(9,031)

(1,600)

Adjusted EBITDA

17,253

8,955

60,076

26,566

Cash paid for interest

1,341

690

4,378

2,166

Estimated maintenance capital expenditures (2)

5,446

3,670

18,197

9,317

Distributable cash flow

$

10,466

$

4,595

$

37,501

$

15,083

Aggregate distributions for period

$

3,312

Number of units (3)

16,558

DCF per unit

$

0.63

Coverage Ratio(4)

3.16

__________

(1)Represents impairment of goodwill and other intangible assets associated with our Oilfield Services division.

(2)Amounts reflect management’s estimates of maintenance capital expenditures during the period presented. Future maintenance capital expenditures will vary depending on various factors, including, but not limited to, maintenance schedules and the timing of capital projects. Of the estimated maintenance capital expenditures for the three months ended December 31, 2014, approximately $3.1 million (382,335 Boe produced x $8.20 per Boe produced) relates to the Exploration and Production division and approximately $2.3 million relates to the Oilfield Services division.

(3) Since the fourth quarter cash distribution of $0.20 per unit is below the Partnership’s declared minimum quarterly distribution of $0.525 per unit, distributions were not paid on Subordinated Units for the fourth quarter.

(4) Coverage ratio reflects the declared distribution of $0.20 in the fourth quarter of 2014.

 

 

Reconciliation of Adjusted EBITDA by Segment to Net Income (Loss) by Segment:

Three Months Ended

Years Ended

December 31, 2014

December 31, 2014

E&P

OFS

E&P

OFS

(in thousands)

Net income (loss) attributable to New Source Energy Partners L.P.

$

21,362

$

(60,736)

$

21,942

$

(64,259)

Interest expense

1,045

554

3,726

1,315

Franchise tax expense

(36)

5

Depreciation, depletion and amortization

5,313

11,710

24,786

29,566

Accretion expense

108

327

Impairment of goodwill and other intangible assets

59,000

59,000

Non-cash compensation expense

1,321

644

2,589

Acquisition and transaction fees

25

10

3,340

319

Other non-cash expense

591

585

Gain on investment in acquired business

(2,298)

Gain on derivative contracts, net

(11,467)

(10,707)

Cash received (paid) on settlement of derivative contracts

1,977

(1,773)

Change in fair value of contingent consideration

(13,524)

(9,031)

Adjusted EBITDA

$

4,839

$

12,414

$

30,956

$

29,120

 

Conference Call

A conference call for investors will be held Friday, March 20, 2015, at 8:00 a.m. Central Time (9:00 a.m. Eastern Time) to discuss the Partnership’s fourth quarter and year end 2014 results.  Hosting the call will be Kristian B. Kos, Chairman and Chief Executive Officer, Dikran Tourian, President and Chief Operating Officer and Amber Bonney, Principal Accounting Officer.

The call can be accessed live over the telephone by dialing (877) 407-4018, or for international callers, (201) 689-8471. A replay will be available shortly after the call and can be accessed by dialing (877) 870-5176 or for international callers, (858) 384-5517. The passcode for the replay is 13604737. The replay will be available until April 3, 2015.

Interested parties may also listen to a simultaneous webcast of the conference call by logging onto the Partnership’s website at www.newsource.com in the Investors-Presentations link. A replay of the webcast will also be available for approximately 30 days following the call.

About New Source Energy Partners L.P.

New Source Energy Partners L.P. is an independent energy partnership engaged in the production of its onshore oil and natural gas properties that extends across conventional resource reservoirs in east-central Oklahoma and in oilfield services that specialize in increasing efficiencies and safety in drilling and completion processes. For more information on the Partnership, please visitwww.newsource.com.

Forward-Looking Statements

This news release contains “forward-looking statements” within the meaning of federal securities laws.  These statements express a belief, expectation or intention and are generally accompanied by words that convey projected future events or outcomes.  We have based these forward-looking statements on our current expectation and assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances.  However, whether actual results and developments will conform with our expectations and predictions is subject to a number of risks and uncertainties, many of which are beyond our control. For a full discussion of these risks and uncertainties, please refer to the “Risk Factors” section of the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2014 and the information included in the Partnership’s quarterly and current reports and other public filings. These forward-looking statements are based on and include the Partnership’s expectations as of the date hereof.  We undertake no obligation to update or revise any forward-looking statements except as may be required by applicable law.

 

New Source Energy Partners L.P.

Consolidated Statements of Operations

Three Months Ended December 31,

Years Ended December 31,

2014

2013

2014

2013

(Unaudited)

(in thousands, except per unit amounts)

Revenues:

Oil sales

$

2,760

$

3,211

$

14,906

$

8,090

Natural gas sales

2,606

2,969

15,534

10,000

NGL sales

4,992

8,317

31,048

28,847

Oilfield services

44,616

3,738

104,155

3,738

Total revenues

54,974

18,235

165,643

50,675

Operating costs and expenses:

Oil, natural gas and NGL production

4,704

3,929

18,617

12,631

Production taxes

494

673

2,833

2,669

Cost of providing oilfield services

26,055

2,040

60,904

2,040

Depreciation, depletion and amortization

17,023

6,870

54,352

18,556

Accretion

108

64

327

209

Impairment of goodwill and other intangible assets

59,000

59,000

General and administrative

10,329

3,308

28,671

14,760

Change in fair value of contingent consideration

(13,524)

(1,600)

(9,031)

(1,600)

Total operating costs and expenses

104,189

15,284

215,673

49,265

Operating (loss) income

(49,215)

2,951

(50,030)

1,410

Other income (expense):

Interest expense

(1,599)

(858)

(5,041)

(4,078)

Gain (loss) on derivative contracts, net

11,467

(2,951)

10,707

(5,548)

Gain on investment in acquired business

22,709

2,298

22,709

Other (expense) income

(27)

3

(9)

3

(Loss) income before income taxes

(39,374)

21,854

(42,075)

14,496

Income tax benefit

12,126

Net (loss) income

(39,374)

21,854

(42,075)

26,622

Less: net income attributable to noncontrolling interest

242

Net (loss) income attributable to New Source Energy Partners L.P.

$

(39,374)

$

21,854

$

(42,317)

$

26,622

Net income prior to purchase of properties from New Source Energy on February 13, 2013

$

5,303

Net (loss) income subsequent to purchase of properties form New Source Energy on February 13, 2013 and allocable to units

$

(39,374)

$

21,854

$

(42,317)

$

21,319

Net (loss) income per unit:

Net (loss) income per general partner unit

$

(2.11)

$

2.05

$

(2.64)

$

1.88

Net (loss) income per subordinated unit

$

(2.31)

$

2.05

$

(2.84)

$

1.86

Net (loss) income per common unit

$

(2.11)

$

2.05

$

(2.64)

$

2.42

 

New Source Energy Partners L.P.

Consolidated Balance Sheets

December 31, 2014

December 31, 2013

(in thousands, except unit amounts)

ASSETS

Current assets:

Cash

$

5,504

$

7,291

Restricted cash

350

Accounts receivable

38,784

12,609

Derivative contracts

8,248

130

Inventory

4,236

162

Other current assets

3,116

822

Total current assets

60,238

21,014

Oil and natural gas properties, at cost using full cost method of accounting:

Proved oil and natural gas properties

332,413

291,829

Less: Accumulated depreciation, depletion, and amortization

(153,734)

(128,961)

Total oil and natural gas properties, net

178,679

162,868

Property and equipment, net

68,886

8,166

Intangible assets, net

56,377

35,009

Goodwill

9,315

23,974

Derivative contracts

1,818

660

Other assets

2,152

3,019

Total assets

$

377,465

$

254,710

LIABILITIES AND UNITHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

15,326

$

3,267

Accounts payable-related parties

4,237

8,221

Factoring payable

13,152

1,907

Contingent consideration payable

11,572

Derivative contracts

3,167

Current portion of asset retirement obligations

113

Current portion of long-term debt

11,825

719

Total current liabilities

56,225

17,281

Long-term debt

95,218

80,014

Contingent consideration payable

10,801

6,320

Asset retirement obligations

3,568

3,455

Other liabilities

339

387

Total liabilities

166,151

107,457

Commitments and contingencies

Unitholders’ equity:

Common units (16,160,381 units issued and outstanding at December 31, 2014 and 9,599,578 units issued and outstanding at December 31, 2013)

231,510

151,773

Common units held in escrow

(6,955)

Subordinated units (2,205,000 units issued and outstanding at December 31, 2014 and 2013)

(28,717)

(17,334)

General partner’s units (155,102 units issued and outstanding at December 31, 2014 and 2013)

(1,944)

(1,174)

Total New Source Energy Partners L.P. unitholders’ equity

193,894

133,265

Noncontrolling interest

17,420

13,988

Total unitholders’ equity

211,314

147,253

Total liabilities and unitholders’ equity

$

377,465

$

254,710