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Azure Midstream Partners, LP Reports Fourth Quarter 2015 Financial Results

DALLAS, March 30, 2016 /PRNewswire/ -- Azure Midstream Partners, LP (NYSE: AZUR) ("Azure" or the "Partnership"), announced financial and operating results for the three months ended December 31, 2015. Adjusted EBITDA for the fourth quarter 2015 was $11.0 million and distributable cash flow was $8.3 million, or $0.38 per limited partner unit. The Partnership recognized a net loss of ($1.8) million for the quarter. Adjusted EBITDA and distributable cash flow are explained in greater detail under "Non-GAAP Financial Measures," and reconciliations of these measures to their most directly comparable GAAP measures are included in the tables at the end of this release.

"We continue to work our way through the financial challenges presented by this unprecedented extreme swing in the commodity pricing pendulum while executing consistently on all other aspects of our business," said I.J. "Chip" Berthelot, President and Chief Executive Officer. "Our relentless focus is on doing everything possible to enhance corporate value for our unitholders."

Fourth Quarter 2015 Segment Results

The Partnership had strong fourth quarter results.  Adjusted EBITDA increased 4.7% over the third quarter, and distributable cash flow increased 4.4% over the third quarter.

Gathering & Processing Segment: Gross margin for the gathering and processing segment for the fourth quarter 2015 was $10.5 million. Gathered gas volumes were 249 MMcf/d and gas processed volumes were 114 MMcf/d for the fourth quarter 2015.

Logistics Segment: Gross margin for the logistics segment for the fourth quarter 2015 was $4.2 million. The logistics segment provided 22,350 BBls/d in transloading services for fourth quarter 2015.

The Partnership's fourth quarter 2015 recurring operating expenses were $4.9 million, recurring general and administrative expenses were $2.4 million, depreciation and amortization expenses were $6.0 million, and interest expense was $2.7 million.

Bank Waiver

The precipitous decline in oil and natural gas prices during 2015 and into 2016 has had a significant adverse impact on our business, and has impacted the Partnership's ability to comply with financial covenants and ratios in its credit agreement.  Pursuant to an amendment to the credit agreement entered into on March 29, 2016 (the "Third Amendment"), we have received an agreement from our lenders that the default resulting from non-compliance with our covenants and ratios has been waived for the 2015 consolidated financial statements.  Additionally, the Third Amendment includes waivers for certain other events of default through June 30, 2016.  Notwithstanding the effects of these waivers, it is unlikely that we can comply with the leverage covenant currently contained in the credit agreement during the next twelve months.

Our credit agreement requires us to deliver audited financial statements with an unqualified opinion free of any going concern language. Based upon our current estimates and expectations for commodity prices in 2016, we do not expect to remain in compliance with all of the restrictive covenants contained in the credit agreement throughout 2016 unless those requirements are waived or amended. Absent future waivers or amendments, failure to meet these covenants and ratios would result in a default and, to the extent the applicable lenders so elect, an acceleration of the existing indebtedness, causing such debt of approximately $231.7 million to be immediately due and payable.  The Partnership does not currently have adequate liquidity to repay all of its outstanding debt in full if such debt were accelerated. As a result of this potential default and acceleration, the Partnership's independent registered public accounting firm has informed us that its report on the Partnership's consolidated financial statements to be included in the Partnership's annual report on Form 10-K will include an explanatory paragraph to the effect that these conditions raise substantial doubt about the Partnership's ability to continue as a going concern for a reasonable period of time.

The partnership currently has $14.4M of cash on hand and intends to keep minimum liquidity of $9.0M through June 30, 2016.  We expect ongoing sources of liquidity to include cash generated from operations, and we believe that cash generated from these sources will be sufficient to sustain operations.

Associated Energy Services, LP ("AES") Contract Termination

During the first quarter of 2016, AES was delinquent in paying amounts invoiced under its gathering and processing contracts, as well as its logistics contracts with subsidiaries of the Partnership.  The contracts have provisions requiring AES to make payments based on minimum volume commitments.  AES caused its bank to issue a $15.0 million letter of credit to the administrative agent under our credit facility to secure the amount of its obligations under its logistics contracts.  As a result of such delinquency, the Partnership's general partner has approved a settlement agreement with AES and its parent, NuDevco Midstream Development, LLC (NuDevco) to resolve these issues under the gathering and processing agreements and the logistics contracts.  Principal terms of the settlement include a) AES cooperation in the administrative agent's drawing down the full $15.0 million amount of the letter of credit, allowing proceeds from the draw to be applied to pay down Partnership debt, b) the gathering and processing agreement and the logistics contracts are terminated effective as of January 1, 2016, c) NuDevco surrenders to the Partnership the 8,724,545 subordinated units, 1,939,265 common units and 10 IDR units held by NuDevco or its subsidiary, d) the parties release each other from other claims in respect of the terminated contracts, and e) AES will assign all of its rights and interests in third party contracts to Azure.  The settlement agreement is subject to final approval by the lenders of the credit agreement.

Suspension of Distributions

On February 1, 2016, the Partnership announced a suspension of the distribution for the quarterly period ended December 31, 2015.  The Partnership's board of directors and management believe the suspension to be in the best long-term interest of all stakeholders.  The board of directors will continue to evaluate the Partnership's ability to reinstate the distribution, although reinstatement of distributions is not expected in the near term absent substantial improvement in our operating performance and compliance with the terms of our credit agreement.

Financial Presentation

On February 27, 2015, Azure Midstream Energy, LLC ("Azure Energy") completed certain transactions (the "Transactions") with Marlin Midstream GP, LLC and the Partnership. Azure Energy contributed its Legacy gathering system assets (the "Legacy System") to the Partnership in exchange for $162.5 million in consideration.

For accounting purposes, the Legacy System is the acquirer in the business combination because its General Partner obtained control of the Partnership. As a result, December 31, 2015 results determined in accordance with generally accepted accounting principles ("GAAP") included herein are not comparable to prior periods.

As a result of the accounting guidance for the reverse merger, the Partnership was required to record the assets acquired and liabilities assumed in the business combination at their fair values measured as of the Transaction Date. 

On August 6, 2015, Azure Energy contributed the ETG System to the Partnership.  This transaction was determined to be a transaction between entities under common control for financial reporting purposes.  The contribution agreement provides that the Partnership's acquisition of the ETG System was effective on July 1, 2015.  Accordingly, we reported a recast of the consolidated financial statements and footnotes of the Partnership to include the financial results of the ETG System for the three and six months ended June 30, 2015 and 2014.  The Form 8-K/A was filed with the SEC on October 5, 2015.

Fourth Quarter 2015 Conference Call and Webcast

Azure will host a conference call to discuss fourth quarter 2015 results at 10:00 am CT (11:00 am ET) on Wednesday, March 30, 2016.

Interested parties can listen to a live webcast of the call from the Events & Presentations page of the Azure Investor Relations website at http://investor.azuremidstreampartners.com/phoenix.zhtml?c=253822&p=irol-calendar.  An archived replay of the webcast will be available for 12 months following the live presentation.

The call can be accessed live over the telephone by dialing 1-877-815-2357, 1-330-968-0354 for international callers. The conference ID for the call is 36349369. A telephonic replay of the call will be available for 7 days and can be accessed by dialing 1-855-859-2056 or 1-404-537-3406 for international callers, with conference ID number 36349369.



AZURE MIDSTREAM PARTNERS, LP

SELECTED BALANCE SHEET DATA

(Unaudited)

(In Thousands, except unit amounts)




December 31,



2015

Selected Balance Sheet Data:



Cash and cash equivalents

$

7,511


Total assets

567,225


Long-term debt

231,735


Total partners' capital

$       316,447




Azure Limited Partners' Capital:



Limited partner units outstanding December 31, 2015

21,769,199





AZURE MIDSTREAM PARTNERS, LP

SELECTED STATEMENT OF OPERATIONS DATA

(Unaudited)

(In Thousands)



Quarter Ended


December 31, 2015

Total operating revenues

$

18,144

Operating expenses


   Cost of natural gas and NGLs

3,481

   Operation and maintenance

5,309

   General and administrative

3,374

   Depreciation and amortization expense

5,965

Total operating expenses

18,129

Operating income

15

Other income

(759)

Interest expense

2,662

Net loss before tax

(1,888)

Income tax expense

(82)

Net loss

$

(1,806)




The following table presents a reconciliation of the non-GAAP financial measure Adjusted EBITDA to the GAAP financial measure of net income (loss).


AZURE MIDSTREAM PARTNERS, LP

NON-GAAP FINANCIAL MEASURES

(Unaudited)

(In Thousands)



Quarter Ended


December 31, 2015

Net loss

$   (1,806)

Add (deduct)


Interest expense

2,662

Income tax expense

(82)

Depreciation and amortization expense

5,965

(Gain) loss on asset disposal

(237)

Non-cash equity based compensation

500

Deferred revenue (1)

3,231

Other adjustments (2)

760

Adjusted EBITDA

$   10,993



(1)

Adjustments relate to the deferred revenue associated with our minimum revenue commitment ("MRC") agreement and several minimum volume commitment ("MVC") agreements.  We include a proportional amount of the expected MRC/MVC cash receipts in each quarter in respect of the annual period for which we actually receive the payment to ensure our Adjusted EBITDA reflects the amount of cash we are entitled to receive on an annual basis under these MRC/MVC agreements.  Also included in this amount is a revenue adjustment of $1.2 million that relates to periods prior to the fourth quarter of 2015 that had not previously been added back to Adjusted EBITDA.



(2)

Other adjustments primarily consists of non-recurring and non-cash items, including non-recurring expenses associated with the Transactions and a transition services agreement between Partnership and Azure Energy. 



The following table presents a reconciliation of net income (loss) to Adjusted EBITDA and DCF for fourth quarter 2015.


AZURE MIDSTREAM PARTNERS, LP

NON-GAAP FINANCIAL MEASURES

(Unaudited)


(In Thousands)

Quarter Ended


December 31, 2015

Net loss

$

(1,806)

Add (deduct):


Interest expense

2,662

Income tax expense

(82)

Depreciation and amortization expense

5,965

(Gain) loss on asset disposal

(237)

Non-cash equity based compensation

500

Deferred revenue (1)

3,231

Other adjustments (2)

760

Adjusted EBITDA

$

10,993

Deduct:


Cash interest expense

(2,045)

  Cash taxes

(6)

  Maintenance capital expenditures

(673)

Distributable cash flow

$

8,269



DCF per limited partner unit

$

0.38

Distributions to limited partners (3)

$

-

Distributions per limited partner unit

$

-

Distribution coverage ratio

1.03x



(1)

Adjustments relate to the deferred revenue associated with our minimum revenue commitment ("MRC") agreement and several minimum volume commitment ("MVC") agreements.  We include a proportional amount of the expected MRC/MVC cash receipts in each quarter in respect of the annual period for which we actually receive the payment to ensure our Adjusted EBITDA reflects the amount of cash we are entitled to receive on an annual basis under these MRC/MVC agreements.  Also included in this amount is a revenue adjustment of $1.2 million that relates to periods prior to the fourth quarter of 2015 that had not previously been added back to Adjusted EBITDA.



(2)

Other adjustments primarily consists of non-recurring and non-cash items, including non-recurring expenses associated with the Transactions and a transition services agreement between Partnership and Azure Energy. 



(3)

On February 1, 2016, the Partnership announced a suspension of the distribution for the quarterly period ended December 31, 2015.




AZURE MIDSTREAM PARTNERS, LP

SELECTED OPERATING DATA

(Unaudited)



Quarter Ended


Quarter Ended


December 31, 2015


December 31, 2014

Average throughput volumes of natural gas (MMcf/d)

249


240

Average volume of processed gas (MMcf/d)

114


n/a

Transloading facilities (BBls/d)

22,350


n/a











The Partnership has provided Adjusted EBITDA for each quarter of 2015, and reconciled Adjusted EBITDA to net loss determined in accordance with GAAP as previously reported in each press release. The Partnership has provided below a quarterly and annual view of Pro Forma Adjusted EBITDA, Pro Forma Distributable Cash Flow ("DCF") and Pro Forma net loss for 2015, which consists of the results of the Marlin historical business for the full year of 2015, the results of the Legacy System for the period subsequent to the Transactions, and the results of the ETG System subsequent to the Contribution, including the impacts of the business combination that were realized by the combined company. We view Pro Forma Adjusted EBITDA and Pro Forma DCF as the key financial metrics used to evaluate the performance of the combined company during the period.

AZURE MIDSTREAM PARTNERS, LP

PRO FORMA NON-GAAP FINANCIAL MEASURES

(Unaudited)

(In Thousands)



Quarter ended



March
31, 2015

June
30, 2015

September
30, 2015

December
31, 2015

Pro Forma
2015

Net loss

(7,625)

1,702

(216,434)

(1,806)

(224,163)

Add (deduct):






Interest expense

828

1,980

1,973

2,662

7,443

Income tax expense

81

646

269

(82)

914

Depreciation and amortization expense

3,234

5,233

5,914

5,965

20,346

Asset impairment

-

-

215,758

-

215,758

(Gain) loss on asset disposal

-

-

-

(237)

(237)

Non-cash equity based compensation

5,005

-

432

500

5,937

Deferred revenue

-

-

852

3,231

4,083

Other adjustments

7,105

1,864

1,734

760

11,463

Adjusted EBITDA

8,628

11,425

10,498

10,993

41,544

Deduct:






Cash interest expense

(738)

(1,708)

(1,667)

(2,045)

(6,158)

Cash taxes

(81)

(225)

-

(6)

(312)

Maintenance capital expenditures

(609)

(292)

(909)

(673)

(2,483)

Distributable cash flow

7,200

9,200

7,922

8,269

32,591



About Azure Midstream Partners, LP

Azure Midstream Partners, LP, headquartered in Dallas, Texas, is a fee-based, growth oriented limited partnership formed to develop, operate, and acquire midstream energy assets. The Partnership provides natural gas gathering, transportation, and processing services; as well as NGL transportation and crude oil logistics services. The Partnership's assets include 1,002 miles of gathering lines in the Shelby Trough sub-play of the Haynesville Shale and the horizontal Cotton Valley play located in east Texas and north Louisiana that are capable of gathering 1.9 Bcf/d.  The Partnership also has four natural gas processing facilities with 305 MMcf/d of cumulative processing capacity located in the Panola, San Augustine and Tyler Counties of Texas, two NGL transportation pipelines that connect its Panola County and Tyler County processing facilities to third party NGL pipelines capable of transporting 20,000 barrels per day, and three crude oil transloading facilities containing six crude oil transloaders with a combined capacity of 31,200 Bbls/d.

Additional information about Azure Midstream Partners, LP can be found at www.azuremidstreampartners.com.

About Azure Midstream Energy, LLC

Azure Energy is a midstream company with a focus on owning, operating, developing and acquiring midstream energy infrastructure in core producing areas in the United States. Azure Energy owns 100% of Azure Midstream Partners GP, LLC, the Partnership's general partner, and 90% of the incentive distribution rights in the Partnership. In addition to its ownership of the Partnership, Azure Energy provides natural gas gathering, compression, treating and processing services in north Louisiana and east Texas in the prolific Haynesville and Bossier Shale formations.

www.azuremidstream.com

Use of Non-GAAP Financial Measures

We report financial results in accordance with GAAP. We also present adjusted EBITDA and distributable cash flow each of which are non-GAAP financial measures. We define gross margin as total revenues less cost of natural gas and NGLs. We define Adjusted EBITDA as net income (loss), plus interest expense, income tax expense, depreciation and amortization expense, certain non-cash charges (such as non-cash equity based compensation, impairments, gains and losses on the sale of assets), transaction-related costs and selected charges that are unusual and non-recurring; less interest income, income tax benefit and select gains that are unusual or non-recurring.

We define distributable cash flow as adjusted EBITDA plus cash interest income, less cash interest paid, income tax expense and maintenance capital expenditures. Our definitions of these non-GAAP financial measures may differ from the definitions of similar measures used by other companies. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our financial performance. Furthermore, management believes that these non-GAAP financial measures may provide users with additional meaningful comparisons between current results and results of prior periods as they are expected to be reflective of our core ongoing business. These measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Reconciliations of GAAP to non-GAAP financial measures are attached to this release.

Forward-Looking Statements

This press release contains forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. In particular, statements, express or implied, concerning future actions, conditions or events, future operating results or the ability to generate revenues, income or cash flow or to make distributions are forward-looking statements. The forward-looking statements in this press release include statements regarding Azure and its affiliates, including statements about (1) the benefits of the recent transactions described herein, including Azure's ability to successfully make future acquisitions, to maintain or increase future distributions, and to capitalize on certain commercial and operational synergies, (2) future expectations and projections of results of operations or financial condition (3) the anticipated financial performance of Azure, and (4) our ability to comply with the restrictions contained in the agreements governing our debt. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations of Azure may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond Azure's ability to control or predict. These statements are necessarily based upon various assumptions involving judgments with respect to the future, including, among others, conditions in the capital and credit markets; the ability to achieve synergies and revenue growth; national, international, regional and local economic, competitive and regulatory conditions and developments; technological developments; inflation rates; interest rates; the political and economic stability of oil producing nations; energy markets; commodity prices; weather conditions; environmental conditions; business and regulatory or legal decisions; the timing and success of business development efforts; terrorism; and other uncertainties. In addition, an extensive list of specific material risks and uncertainties affecting Azure is contained in its 2014 Annual Report on Form 10-K, as amended, and in our other public filings and press releases. There is no assurance that any of the actions, events or results of the forward-looking statements will occur, or if any of them do, what impact they will have on Azure's results of operations or financial condition. Because of these uncertainties, you are cautioned not to put undue reliance on any forward-looking statement.

 

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SOURCE Azure Midstream Partners, LP

Steven C. Sullivan 518-587-5995