Memorial Production Partners to Buy Oil, Gas Properties from Memorial Resource; Offers 2013 Production Outlook
Memorial Production Partners LP (Nasdaq: MEMP) announced today that it has signed a definitive agreement to acquire certain oil and gas producing properties in East Texas and North Louisiana from its sponsor, Memorial Resource Development LLC, for a purchase price of $200 million, which includes $4 million of net working capital and other customary purchase price adjustments. The transaction will have an effective date of January 1, 2013 and is expected to close in March 2013. Terms of the transaction were approved by the Board of Directors of the general partner of MEMP and by the Board's conflicts committee, which is comprised entirely of independent directors.
Subject to the closing of this transaction, the Board of Directors of MEMP's general partner approved an increase in the distribution rate to $0.5125 per unit for the first quarter of 2013. This distribution rate will represent an annualized amount of $2.05 per unit and a 7.9% increase over the annualized minimum quarterly distribution of $1.90 per unit, as well as a 1.0% increase over the fourth quarter annualized distribution of $2.03 per unit.
The acquired properties represent additional working interests in MEMP's existing 697 gross (196 net) wells located in the Carthage, Minden, and Spider fields in Rusk and Panola Counties in East Texas and DeSoto Parish in North Louisiana. MEMP will operate approximately half of the producing wells and 80% of the PDP reserves.
o Expected to be immediately accretive to distributable cash flow o Third-party estimated net proved reserves of 162 Bcfe (65% proved developed) o December net production of approximately 21 MMcfe/d (66% natural gas and 34% liquids) o Proved reserve to production ratio of 21 years o Assets exhibit a stable long-lived production profile with a projected average annual proved developed producing decline rate of approximately 8% o Approximately 68,758 gross (29,778 net) acres, over 99% of which is held by production o Assets have high operating margins and moderate capital expenditure requirements o Significant percentage of acquired production is hedged through 2018 o Revising 2013 EBITDA guidance range to $154 - $158 million from the previously announced $120 - $124 million o Revising 2013 Distributable Cash Flow guidance range to $98 - $104 million from the previously announced $78 - $82 million
Updated 2013 Guidance
The updated 2013 guidance included in this press release is subject to the cautionary statements and limitations described under the "Forward-Looking Statements" caption at the end of this press release. MEMP's updated 2013 guidance is based on assumptions of capital expenditure levels and the assumption that market demand and prices for oil and natural gas will continue at levels that allow for economic production of these products. It also reflects the impact of forecasted growth capital spending and assumes the completion of the pending transaction. A summary of the guidance, assuming no additional acquisitions, is presented below:
Full Year 2013 Guidance Annual Production (Bcfe) 37– 39 Adjusted EBITDA ($MM)^(1) $154 – $158 Distributable Cash Flow ($MM)^(1) $98 – $104 DCF Coverage 1.15x – 1.25x Maintenance Capex ($MM) $37.2 Growth Capex ($MM) $40 – $50
These estimates reflect management's best judgment based on current expectations about the future and anticipated market conditions based upon both stated and unstated assumptions and other factors. Although management believes such estimates to be reasonable, they are inherently uncertain and involve a number of risks that are beyond MEMP's control. Actual conditions and assumptions may change over the course of the year.
In 2012, MEMP participated in the drilling and completion of 6 horizontal development wells targeting the liquids rich Cotton Valley formation. All of these wells were located in East Texas and North Louisiana, none of which were dry holes, for a success rate of 100%. Working interests in the wells averaged approximately 28%. MEMP met its 2012 production guidance, averaging 67.2 MMcfe/d, an increase of 16% over 2011 average production of 58.0 MMcfe/d. Total capital expenditures for the full year 2012 were $32.5 million and total maintenance capital expenditures were $14.8 million.
MEMP's capital spending program in 2013 is expected to be approximately $77 to $87 million, after giving effect to the assumed capital expenditures relating to the properties to be acquired in the pending transaction. MEMP anticipates spending approximately 65% of the capital program in East Texas / North Louisiana, 32% in California and 3% in South Texas, primarily on drilling, recompletions and capital workovers. The capital program in East Texas and North Louisiana will be focused on 14 or more horizontal Cotton Valley new drills in various fields. MEMP also anticipates upgrading its California facilities and drilling six additional operated wells from the Beta platforms. MEMP expects the balance of its capital budget will primarily be spent on recompletions and capital workovers in its South and East Texas areas.
East Texas / North Louisiana
MEMP continues to be encouraged by its drilling success in targeted liquids rich gas wells in the Cotton Valley formations of Carthage, East Henderson and Terryville fields. Assuming the consummation of the pending transaction, 2013 capital plans include drilling and completing 14 or more gross wells in East Texas and North Louisiana. Depending on the field, rates of return on these wells are expected to range from 50% to greater than 100% and working interests range from approximately 3% to 100%. Timing of the new wells is anticipated to be spaced throughout the year. Total capital expenditures in East Texas / North Louisiana for 2013 are expected to be approximately $53 million.
MEMP plans to continue pursuing a capital workover program on its extensive legacy assets. The capital workover program initiated in mid-2012 resulted in the completion of 34 well projects by year-end with an aggregate $2.8 million capex spend and a projected 100% rate of return.
MEMP closed the Beta acquisition and took over operations in December 2012 with production averaging approximately 3,909 gross (1,548 net) Bbls/d for the month. As previously announced, capital plans for 2013 include drilling and completing six operated wells from the Beta platforms and a number of facility upgrades, including the installation of an offshore power cable that will result in reduced operating costs and air emissions. Total capital expenditures for California in 2013 are expected to be approximately $26 million.
In January 2013, MEMP temporarily shut in the Eureka platform for 26 days to allow for maintenance and inspection services on segments of the Eureka and Elly platform piping systems. During this downtime, MEMP was able to accelerate several maintenance and inspection projects that were previously scheduled for this summer, including production vessel clean outs and the smart pigging of the inter-platform flow lines. Downtime for maintenance and inspection is taken into consideration in MEMP's budget projections as it is a prudent and practical part of platform facility operations. The production impact of the shut-in was approximately 72 MBbls gross (28 MBbls net). The shut-in volumes represent less than 1% of the mid-point of MEMP's updated 2013 production guidance. Eureka was returned to production on February 1. Production volumes for the six weeks since February 1 have been in-line with previous daily volumes, averaging 3,885 gross (1,538 net) Bbls/d.
^ (1)Adjusted EBITDA and Distributable Cash Flow are non-GAAP financial measures. Please see the reconciliation to the most comparable measure calculated in accordance with GAAP in the "Use of Non-GAAP Financial Measures" section of this press release.
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