From the desk of
IJ “Chip” Berthelot II

Transformation & Accomplishment

April 2018

Dear Friends and Colleagues-

The past year has been characterized by transformation and accomplishment for Azure.

The transformation occurred as we spent the past 15 months winding down the MLP following last January’s Chapter 11 filing. Through maximizing asset sale price and dramatically slashing costs, Azure’s management team preserved stakeholder value under the most challenging conditions. All debtholders and vendors were paid in full, and even after the bankruptcy process took over $20 million to execute, there was a final distribution made to unit holders of 14.5 cents per share. In the months following the asset sale, we transitioned the assets and field employees successfully and seamlessly to the new owners, Enterprise Products, and we wish them all the best.

The accomplishment occurred as our outstanding team turned their attention toward managing and enhancing the value of our private company, Azure Midstream Energy (“Azure”). We are proud to report that Azure is on track to more than double its throughput EBITDA from 2017 to 2018, driven by growth in volumes, active business development, and a continued focus on cost rationalization

The Haynesville formation is experiencing an unprecedented resurgence in drilling activity and production. Our producer customers are seeing double digit returns with their upstream investment dollars, even with today’s mediocre gas prices, and Azure’s vast footprint is ideally positioned to service the gathering and treating needs of the increased activity in the area. 

During 2017, Azure connected 14 horizontal Haynesville & Cotton Valley wells, generating volume growth exceeding 20% year over year. 2018 is off to an excellent start with 11 new wells connected in Q1 and volume growing to 425 mmscfd. We are also on track to connect 10 additional (contracted and scheduled) wells for the remainder of 2018 and we are still working to add additional wells and customers!

Azure recently contracted with one of our major customers to restart our Holly 6 treating facility (capacity ~200 mmscfd), giving us a total treating capacity exceeding 1.1 Bcf/day. We’ve also recently completed our 11-mile Muslow lateral step-out to our western-most acreage dedication (as seen here).

As always, we maintain our firm focus on safety. In 2017, Azure's track record of safe and reliable operations continued with our 5th consecutive GPA safety award. Our Azure culture focuses on continuous improvement and leadership initiatives for the development of our individuals and teams. We believe it is our culture that will make us better than ever in 2018!!!

It is truly an honor for me to continue to lead this amazing Azure team, including our management team of industry-leading veterans with over 100 years of cumulative experience. The future for Azure looks bright. We will be aggressively working for the remainder of this year to protect our position as one of our counterparties works through a restructuring. Our full expectation is that they will emerge as a healthy and active customer for many years to come. 

As we approach 2019, we will be looking hard at strategic alternatives, specifically the potential sale of Azure. We are also working toward the start-up of a new partnership that will enable us to capture untapped business opportunities in the months and years ahead in areas outside of the counties and parishes where Azure operates. As always, we will diligently optimize the business proposition that we offer to our Azure customers, team members and investors.

Stay tuned, as we expect to make more news in 2018.

 l.J. "Chip" Berthelot, II
President, Azure Midstream Energy