Constellation Energy Partners LLC (CEP)

Constellation Energy Partners is a limited liability company formed by Constellation Energy Group primarily to acquire oil and natural gas reserves. The company is involved in acquisition, development and production of oil and natural gas properties, as well as related midstream assets, with proven natural gas reserves of approximately 120.3 billion cubic feet, located in Robinson’s Bend Field in Alabama’s Black Warrior Basin, the most prolific coalbed methane basin in the country. The company derives it revenues primarily from sale of natural gas, though it has also recently started hedging activities.


Natural gas prices have observed a highly volatile trend in the past year. The prices tumbled from the near all time highs as a result of relatively mild winter that led to a reduced demand by households for heating. However the prices have now partly bounced back, due to renewed demand by households for heating and increased industrial usage, and such a rising trend is likely to continue for the rest of the year.


Constellation Energy Partners current performance has been a lackluster affair, with profits falling by over 30% due to a lower net realized prices of natural gas. Looking ahead, though natural gas prices will improve, it most likely will not reach the previous year highs in 2007. Moreover, as company has hedged about 75% of its natural gas production in the futures market, even if that will provide a secure future cash flow, it will also make very difficult for the company to deliver strong results. Further, the stock has risen by 15% in the past week, due to news of $115 Million acquisition of Coalbed Methane Properties. Although the property will provide additional reserves, it will be very difficult for the stock to beat the benchmark in 2007 from these high levels as most of the future cash flows appear to be reasonably discounted in the current price.