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EP Energy Reports Solid First Quarter 2016 Results And Significant Progress Improving Financial Position

HOUSTON, May 4, 2016 /PRNewswire/ -- EP Energy Corporation EPE, +0.23% today reported first quarter 2016 financial and operational results.

First quarter 2016 results

  • 50.8 thousand barrels of oil production per day (MBbls/d)
  • $278 million Adjusted EBITDAX
  • $0.19 adjusted earnings per share (Adjusted EPS)
  • $0.80 Discretionary Cash Flow Per Share
  • Adjusted cash operating costs of $8.71 per barrel of oil equivalent (Boe)
  • $122 million of positive free cash flow
  • Reduced well costs and increased operational performance

Significant progress in reducing debt and increasing financial flexibility

  • Completed semi-annual borrowing base redetermination and obtained covenant relief into 2018
  • Previously announced $420 million Haynesville divestiture — closed
  • Repurchased $609 million of face value debt for $287 million
  • $4.0 billion pro forma net debt at 3/31/16 compared to $4.8 billion at 12/31/15

"In the first quarter we delivered solid results from operations. We continue to drive down costs while improving well performance," said Brent Smolik, chairman, president, and chief executive officer of EP Energy Corporation. "Our top priorities for 2016 are to improve liquidity and reduce leverage. We've made good progress on both. In the first quarter, we generated $122 million of free cash flow. In May, we closed the Haynesville asset sale, increasing liquidity by approximately $250 million, net of the corresponding borrowing base reduction. To date, we have executed repurchases of $609 million principal amount of debt for $287 million, capturing $322 million of discounts and approximately $50 million of annualized interest savings. We also reached agreement with our bank group to reset our borrowing base at $1.65 billion, with much improved covenant flexibility through early 2018. We remain well positioned to benefit as commodity prices improve."

EP Energy reported $0.19 Adjusted EPS and $0.80 Discretionary Cash Flow Per Share for the first quarter of 2016. Adjusted EBITDAX for the first quarter of 2016 was $278 million, down from $366 million in the first quarter of 2015, due primarily to lower oil production volumes and lower realized pricing, partially offset by lower operating costs. Total adjusted cash operating costs for the quarter ended March 31, 2016 were $8.71 per Boe, well below $11.44 per Boe for the first quarter of 2015, due primarily to lower general and administrative costs, lower production taxes, and lower lease operating costs related to continued operational efficiencies and cost reductions.

During the quarter, the company's activity levels were significantly reduced compared to the same period in 2015. Total capital expenditures in the first quarter of 2016 were $132 million, with more than half invested in the company's Eagle Ford program. During the first quarter of 2016, the company completed 23 wells. Average daily oil production decreased 15 percent to 50.8 MBbls/d, down from 60.0 MBbls/d in the first quarter of 2015. Total equivalent production grew to 104 thousand barrels of oil equivalent per day (MBoe/d), up from 102.4 MBoe/d in the same period last year.

Note: See Disclosure of Non-GAAP Financial Measures section of this release for applicable definitions and reconciliations to GAAP terms.

Liquidity and Liability Management

In the first quarter of 2016, EP Energy generated free cash flow of $122 million, continuing the trend from the second half of 2015.

On May 2, the company completed its semi-annual borrowing base redetermination with the value reset to $1.65 billion from the previous value of $2.75 billion. The reduced value is primarily due to significantly lower bank commodity price forecasts, the sale of Haynesville assets and the roll-off of certain hedge positions.

As part of the redetermination process, EP Energy executed a covenant amendment to provide additional future flexibility. The amendment included replacing the 4.5 times debt to EBITDAX covenant with a 3.5 times first lien debt to EBITDAX covenant through the first quarter of 2018.

The company began repurchasing debt in the open-market in February 2016. As of May 4, 2016, the company had executed repurchases of $609 million of face value debt for $287 million in cash. The company expects to reduce annualized interest expense by approximately $50 million as a result of the debt repurchases and retirement.

In the first quarter of 2016, EP Energy announced its agreement to divest its Haynesville assets for approximately $420 million subject to customary closing adjustments. The transaction closed on May 3. The cash proceeds were used to pay down borrowings on the company's RBL Facility. The divestiture provided additional liquidity by eliminating $60 million in letters of credit and reduces future transportation commitments by $106 million.

As of March 31, 2016, EP Energy had liquidity of approximately $800 million and net debt of $4.0 billion pro forma for the borrowing base redetermination, Haynesville asset divestiture and open-market debt repurchases to date.

Eagle Ford Program

In the first quarter of 2016, the company completed 16 wells across its Eagle Ford program with oil production of 32.4 MBbls/d, a 15 percent decrease compared with the first quarter of 2015. Oil production declined primarily due to lower activity levels in the latter part of 2015 and in the quarter. Downtime at a third-party processing plant in South Texas also negatively affected production. Total equivalent production was 50.8 MBoe/d.

The company is currently running one rig in the program and remains focused on further well and lifting costs reductions along with enhancing lateral placement and completion optimization.

Wolfcamp Program

In the first quarter of 2016, the company completed five wells in its Wolfcamp program and produced 7.0 MBbls/d of oil, down 26 percent from the same period in 2015. Oil production declined primarily due to lower activity levels in the latter part of 2015 and in the quarter. EP Energy is encouraged by early results from the five wells drilled in Reagan County, which included three completions in the A-bench. Total equivalent production for the first quarter of 2016 was 18.3 MBoe/d.

The company has no current drilling rigs running in the Wolfcamp. All Wolfcamp completions in the first half of 2016 will come from its drilled and uncompleted (DUC) well inventory.

Altamont Program

In the first quarter of 2016, EP Energy completed two wells in its Altamont program, and oil production was 11.4 MBbls/d, a 9 percent decrease compared with the same period in 2015. Oil production declined primarily due to lower activity levels, partially offset by the company's increased focus on its recompletion program. Altamont total equivalent production was 16.2 MBoe/d.

The company commenced its drilling partnership in March and will have one rig running through 2016.

In the first quarter of 2016, realized pricing in the program improved relative to WTI compared to the same period in 2015.

Multi-year Commodity Hedge Program

EP Energy maintains a solid hedge program, which provides substantial near-term commodity price protection. Year-to-date through the first quarter, the company has realized $212 million of settlements on its financial derivatives.

A summary of the company's open hedge positions is listed below:



2016


2017


Total Fixed Price Hedges






Oil volumes (MMBbls)(1)


10.5



5.1



Average floor price ($/Bbl)


$

80.29



$

65.87









Natural gas volumes (TBtu)


5.5





Average floor price ($/MMBtu)


$

4.20



$




Note: Positions are as of March 31, 2016 (contract months:April 2016 - Forward).

(1) 2017 positions include WTI three way collars of 1.1 MMBbls.

In addition to the 2016 positions above, the company entered into offsetting contracts to lock-in a portion of its oil hedge gains during the quarter. As a result of these contracts, EP Energy will receive an approximate $40 per barrel spread, in addition to LLS index settlement prices, on 3.1 MMBbls for the remainder of 2016.

At March 31, 2016, the mark-to-market value of the company's hedge contracts was approximately $600 million including the value of the offsetting contracts.

Updated 2016 Outlook

EP Energy continues to manage to positive free cash flow for the full year. The company updated its 2016 outlook to reflect its Haynesville asset sale which closed on May 3, 2016. No additional changes have been made to the original...


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