Form 8-K New Source Energy Partne For: Nov 06

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November 6, 2014 7:40 AM EST



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
�
�
FORM 8-K
�
�
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): November�6, 2014
�
�
NEW SOURCE ENERGY PARTNERS L.P.
(Exact name of registrant as specified in its charter)
�
�
Delaware
001-35809
38-3888132
(State or other jurisdiction
of incorporation)
(Commission
File Number)
(IRS Employer
Identification No.)
914 North Broadway, Suite 230
Oklahoma City, Oklahoma 73102
(405) 272-3028
(Address of Principal Executive Offices, Including Zip Code)
Not Applicable.
(Former name or former address, if changed since last report)
�
�
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
� Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
� Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
� Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
� Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))








ITEM 2.02����Results of Operations and Financial Condition.
On November�6, 2014, New Source Energy Partners L.P. (the Partnership) issued a press release announcing financial and operating results for the quarter ended September�30, 2014. The press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
ITEM 9.01 ����Financial Statements and Exhibits.����
(d) Exhibits
99.1
�
Press Release dated November 6, 2014




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
�
�
�
�
New Source Energy Partners L.P.
�
�
�
�
�
�
�
�
By:
New Source Energy GP, LLC, its general partner
�
�
�
�
�
�
�
�
�
�
Dated:
November�6, 2014
�
By:
/s/ Kristian B. Kos
�
�
�
Name:
Kristian B. Kos
�
�
�
Title:
Chairman and Chief Executive Officer




EXHIBIT INDEX
Exhibit No.
�
Description of Exhibit
99.1
�
Press Release dated November 6, 2014





FOR IMMEDIATE RELEASE
NEW SOURCE ENERGY PARTNERS REPORTS THIRD QUARTER 2014 RESULTS

OKLAHOMA CITY, OKLAHOMA, November�6, 2014 - New Source Energy Partners L.P., a Delaware limited partnership (NYSE: NSLP) (the Partnership or New Source), today announced financial and operating results for the quarter ended September�30, 2014 and updates guidance for the fourth quarter 2014 and full year 2015.

Third Quarter 2014 Highlights
"
Distributable cash flow ("DCF") per unit of $0.73 for the third quarter 2014, an increase of approximately 62% compared to the third quarter 2013
"
DCF of approximately $13.0 million and DCF coverage ratio of 1.25x for the third quarter of 2014
"
Adjusted EBITDA of approximately $19.3 million for the third quarter 2014 compared to approximately $7.1 million for the third quarter 2013
"
Declared quarterly cash distribution of $0.585 per unit, or $2.34 per unit on an annualized basis

"During the third quarter, the Partnership focused on strengthening the foundation of our business," said Kristian Kos, Chairman and CEO. "We continue to maintain a strong balance sheet, have ample liquidity with a low debt to EBITDA ratio and hold a strong coverage ratio putting the Partnership in position to continue our footprint expansion both organically and through acquisitions."





Exploration and Production Operational Results
The following table reflects production, pricing and cost for the Exploration and Production division for the third quarter of 2014 compared to the second quarter of 2014 and third quarter of 2013.
�
Three Months Ended
�
September�30, 2014
�
June 30, 2014
�
September�30, 2013
�
�
�
Production volumes:
�
�
�
�
�
Oil (Bbls)
39,990

�
43,625

�
19,900

Natural gas (Mcf)
960,434

�
927,828

�
755,889

NGLs (Bbls)
227,439

�
241,695

�
216,225

Total production volumes (Boe)
427,501

�
439,958

�
362,107

������Average daily volumes (Boe)
4,647

�
4,835

�
3,936

�
�
�
�
�
�
Average price:
�
�
�
�
�
Oil (per Bbl)
$
94.97

�
$
100.91

�
$
102.71

Natural gas (per Mcf)
$
3.86

�
$
4.15

�
$
3.42

NGL (per Bbl)
$
35.40

�
$
35.03

�
$
36.10

Total, excluding derivatives (per Boe)
$
36.40

�
$
38.00

�
$
34.33

�����Realized loss on derivative settlements (per Boe)
$
(0.79
)
�
$
(2.24
)
�
$
(0.15
)
Total, including derivatives (per Boe)
$
35.61

�
$
35.76

�
$
34.18

�
�
�
�
�
�
Average production costs (per Boe)
$
11.45

�
$
10.26

�
$
9.47



Three Year 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
Quarter Ending 12/31/2014
74%
71%
65%
70%
2015
84%
69%
9%
54%
2016
30%
27%
%
19%

Oilfield Services Results
Adjusted EBITDA for the Oilfield Services division was approximately $11.5 million compared to $2.9 million in the second quarter of 2014. Revenue was approximately $40.9 million for the third quarter of 2014 with an average weekly rig count of 1,166 compared to $10.1 million in the second quarter of 2014 with an average weekly rig count of 1,057. The increase in Adjusted EBITDA and revenue in the third quarter of 2014 is primarily attributable to realizing a full quarter of activity from the acquisitions of Erick Flowback Services ("EFS") and Rod's Production Services ("RPS") on June 26, 2014. With the acquisitions of EFS and RPS, we are able to expand our oilfield services product line and geographic areas in which we operate, including the premier basins in the United States. The Partnership's oilfield




services segment was established with the MCE Acquisition that occurred in November 2013. As such, comparative information for the 2013 period is not available

Guidance Update
The Partnership is updating guidance for both its E&P and Oilfield Services divisions for the fourth quarter 2014 and full year 2015.
Oilfield Services Division
�
E&P Division
�
2H2014E
FY2015E
�
�
2H2014E
FY2015E
Revenue ($ in millions)
$70.00 - $90.00
$180.00 - $220.00
�
Production (Boe/d)
4,500 - 4,600
4,500 - 4,600
EBITDA Margin
25% - 29%
�
Production Taxes (% of Revenue)
5.25% - 5.75%
Maint. Capex (% of EBITDA)
10% - 15%
�
Production Costs ($ per Boe)
$10.75 - $11.25
�
�
Maint. Capex ($ per Boe)
$8.00 - $8.50

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, non-cash compensation expense, acquisition and transaction fees, (gain) loss on derivative contracts net of cash 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 Sources 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 MCE, LP, 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 Partnerships results as reported under GAAP.� Because Adjusted EBITDA, DCF and Coverage Ratio may be defined differently by other companies in our industry, New Sources 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
�
Nine Months Ended
�
September 30,
�
September 30,
�
2014
�
2013 (1)
�
2014
�
2013 (1)
�
(in thousands, except coverage ratio)
Net (loss) income attributable to New Source Energy Partners L.P.
$
(3,168
)
�
$
(1,986
)
�
$
(3,114
)
�
$
4,768

Interest expense
1,458

�
654

�
3,442

�
3,220

Franchise tax expense (income tax benefit)
41

�


�
41

�
(12,126
)
Depreciation, depletion and amortization
17,760

�
4,913

�
37,329

�
11,686

Accretion expense
77

�
59

�
219

�
145

Non-cash compensation expense
1,262

�


�
1,906

�
7,738

Acquisition and transaction fees
392

�
556

�
3,624

�
461

Gain on investment in acquired business


�


�
(2,298
)
�


(Gain) loss on derivative contracts, net
(3,768
)
�
3,453

�
760

�
2,597

Cash paid on settlement of derivative contracts
(338
)
�
(537
)
�
(3,750
)
�
(878
)
Change in fair value of contingent consideration
5,576

�


�
4,664

�


Adjusted EBITDA
19,292

�
7,112

�
42,823

�
17,611

Cash paid for interest
1,140

�
456

�
2,999

�
1,476

Estimated maintenance capital expenditures (2)
5,104

�
2,550

�
12,752

�
5,647

Distributable cash flow
$
13,048

�
$
4,106

�
$
27,072

�
$
10,488

Aggregate distributions for period (3)
$
10,413

�
�
�
�
�
�
Number of units
17,800

�
�
�
�
�
�
DCF per unit
$
0.73

�
�
�
�
�
�
Coverage Ratio
1.25

�
�
�
�
�
�
__________
(1) Reflects certain changes to align to current methodology for calculating Adjusted EBITDA.

(2) Amounts reflect managements estimates of maintenance capital expenditures during the period presented. Actual 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 September�30, 2014, approximately $3.5 million (427,501 Boe produced x $8.20 Boe produced) relates to the Exploration and Production division and approximately $1.6 million relates to the Oilfield Services division.

(3) Excludes approximately $0.4 million of distributions paid on common units issued in October 2014. Including such distributions would result in a Coverage Ratio of 1.20x for the third quarter distribution.





Reconciliation of Adjusted EBITDA by segment to net (loss) income by segment:

�
Three Months Ended
�
Nine Months Ended
�
September�30, 2014
�
September�30, 2014
�
E&P
�
OFS
�
E&P
�
OFS
�
(in thousands)
Net (loss) income attributable to New Source Energy Partners L.P.
$
(1,770
)
�
$
(1,398
)
�
$
410

�
$
(3,524
)
Interest expense
936

�
522

�
2,681

�
761

Franchise tax expense


�
41

�


�
41

Depreciation, depletion and amortization
6,757

�
11,003

�
19,473

�
17,856

Accretion expense
77

�


�
219

�


Non-cash compensation expense


�
1,262

�
644

�
1,262

Acquisition and transaction fees
300

�
92

�
3,315

�
309

Gain on investment in acquired business


�


�
(2,298
)
�


(Gain) loss on derivative contracts, net
(3,768
)
�


�
760

�


Cash paid on settlement of derivative contracts
(338
)
�


�
(3,750
)
�


Change in fair value of contingent consideration
5,576

�


�
4,664

�


Adjusted EBITDA
$
7,770

�
$
11,522

�
$
26,118

�
$
16,705


Conference Call
A conference call for investors will be held today, November 6, 2014, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss the Partnerships third quarter 2014 results. Hosting the call will be Kristian B. Kos, Chairman and Chief Executive Officer, Dikran Tourian, President and Chief Operating Officer and Richard D. Finley, Chief Financial 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 13594289. The replay will be available until November 20, 2014.

Interested parties may also listen to a simultaneous webcast of the conference call by logging onto the Partnerships 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 a vertically integrated independent energy partnership. The Partnership is engaged in the development and production of its onshore oil and liquids-rich portfolio that extends across conventional resource reservoirs in east-central Oklahoma. In addition, the Partnership is engaged in oilfield services that specialize in increasing efficiencies and safety in drilling and completion processes through its subsidiaries. For more information on the Partnership, please visit www.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 Partnerships Annual Report on Form 10-K for the year ended December 31, 2013 and the information included in the Partnerships quarterly and current reports and other public filings. These forward-looking statements are based on and include the Partnerships 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.  Investor & Media Contact
Nick Hodapp
Director of Investor Relations
(405) 272-3028




New Source Energy Partners L.P.
Condensed Consolidated Statements of Operations
(Unaudited)�
�
Three Months Ended September 30,
�
Nine Months Ended September 30,
�
2014
�
2013
�
2014
�
2013
�
(in thousands, except per unit amounts)
Revenues:
�
�
�
�
�
�
�
Oil sales
$
3,798

�
$
2,044

�
$
12,146

�
$
4,879

Natural gas sales
3,711

�
2,582

�
12,928

�
7,031

NGL sales
8,052

�
7,805

�
26,056

�
20,530

Oilfield services
40,863

�


�
59,539

�


Total revenues
56,424

�
12,431

�
110,669

�
32,440

Operating costs and expenses:
�
�
�
�
�
�
�
Oil, natural gas and NGL production
4,894

�
3,428

�
13,913

�
8,702

Production taxes
668

�
557

�
2,339

�
1,996

Cost of providing oilfield services
24,315

�


�
34,849

�


Depreciation, depletion and amortization
17,760

�
4,913

�
37,329

�
11,686

Accretion
77

�
59

�
219

�
145

General and administrative
13,957

�
1,353

�
23,006

�
11,452

Total operating costs and expenses
61,671

�
10,310

�
111,655

�
33,981

Operating (loss) income
(5,247
)
�
2,121

�
(986
)
�
(1,541
)
Other income (expense):
�
�
�
�
�
�
�
Interest expense
(1,458
)
�
(654
)
�
(3,442
)
�
(3,220
)
Gain (loss) on derivative contracts, net
3,768

�
(3,453
)
�
(760
)
�
(2,597
)
Gain on investment in acquired business


�


�
2,298

�


Other income
11

�


�
18

�


Loss before income taxes
(2,926
)
�
(1,986
)
�
(2,872
)
�
(7,358
)
Income tax benefit


�


�


�
12,126

Net (loss) income
(2,926
)
�
(1,986
)
�
(2,872
)
�
4,768

Less: net income attributable to noncontrolling interest
242

�


�
242

�


Net (loss) income attributable to New Source Energy Partners L.P.
$
(3,168
)
�
$
(1,986
)
�
$
(3,114
)
�
$
4,768

�
�
�
�
�
�
�
�
Net income prior to purchase of properties from New Source Energy on February 13, 2013
�
�
�
�
�
�
$
5,303

Net loss subsequent to purchase of properties form New Source Energy on February 13, 2013 and allocable to units
$
(3,168
)
�
$
(1,986
)
�
$
(3,114
)
�
$
(535
)
�
�
�
�
�
�
�
�
Net loss per unit:
�
�
�
�
�
�
�
Net loss per general partner unit
$
(0.18
)
�
$
(0.22
)
�
$
(0.20
)
�
$
(0.19
)
Net loss per subordinated unit
$
(0.18
)
�
$
(0.22
)
�
$
(0.20
)
�
$
(0.20
)
Net loss per common unit
$
(0.18
)
�
$
(0.22
)
�
$
(0.21
)
�
$
(0.01
)




New Source Energy Partners L.P.
Condensed Consolidated Balance Sheets
(Unaudited)�
�
September 30, 2014
�
December 31, 2013
�
(in thousands, except unit amounts)
ASSETS
�
�
�
Current assets:
�
�
�
Cash
$
5,696

�
$
7,291

Restricted cash
25

�


Accounts receivable
40,492

�
12,609

Other current assets
7,867

�
1,114

Total current assets
54,080

�
21,014

�
�
�
�
Oil and natural gas properties, at cost using full cost method of accounting:
�
�
�
Proved oil and natural gas properties
329,864

�
291,829

Less: Accumulated depreciation, depletion, and amortization
(148,427
)
�
(128,961
)
Total oil and natural gas properties, net
181,437

�
162,868

Property and equipment, net
63,281

�
8,166

Intangible assets, net
89,813

�
35,009

Goodwill
38,694

�
23,974

Other assets
2,379

�
3,679

Total assets
$
429,684

�
$
254,710

�
�
�
�
LIABILITIES AND UNITHOLDERS' EQUITY
�
�
�
Current liabilities:
�
�
�
Accounts payable and accrued liabilities
$
12,636

�
$
3,267

Accounts payable-related parties
5,103

�
8,221

Factoring payable
15,526

�
1,907

Contingent consideration payable
32,185

�


Derivative contracts
608

�
3,167

Current portion of long-term debt
21,132

�
719

Total current liabilities
87,190

�
17,281

Long-term debt
96,301

�
80,014

Contingent consideration payable to related parties


�
6,320

Asset retirement obligations
3,877

�
3,455

Other liabilities
396

�
387

Total liabilities
187,764

�
107,457

Commitments and contingencies
�
�
�
Unitholders' equity:
�
�
�
Common units (15,440,381 units issued and outstanding at September 30, 2014 and 9,599,578 units issued and outstanding at December 31, 2013)
257,728

�
151,773

Common units held in escrow
(8,227
)
�


Subordinated units (2,205,000 units issued and outstanding at September 30, 2014 and December 31, 2013)
(21,604
)
�
(17,334
)
General partner's units (155,102 units issued and outstanding at September 30, 2014 and December 31, 2013)
(1,474
)
�
(1,174
)
Total New Source Energy Partners L.P. unitholders' equity
226,423

�
133,265

Noncontrolling interest
15,497

�
13,988

Total unitholders' equity
241,920

�
147,253

Total liabilities and unitholders' equity
$
429,684

�
$
254,710




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