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Memorial Production Partners LP Announces Second Quarter 2012 Results, Updated Commodity Hedge Positions And Updated 2012 Guidance

Review of Second Quarter 2012 (1)

  • Average daily production increased 6% to 57.0 MMcfe in the second quarter of 2012 from 53.8 MMcfe in the first quarter of 2012 due to production from MEMP's third party acquisition that closed on May 1, 2012 and increased development drilling, primarily in the East Texas fields.  
  • Average realized prices, excluding commodity derivatives settlements, were $3.21 per Mcfe in the second quarter of 2012, down 16% from $3.83 per Mcfe in the first quarter of 2012. Average realized natural gas prices decreased 18% to $2.37 per Mcf in the second quarter of 2012 from $2.89 per Mcf in the first quarter of 2012. Average realized oil prices decreased 9% to $92.91 per Bbl in the second quarter of 2012 from $102.63 per Bbl in the first quarter of 2012, and average realized natural gas liquids ("NGLs") prices decreased 33% to $33.67 per Bbl in the second quarter of 2012 from $50.55 per Bbl in the first quarter of 2012. Averaged realized prices, including commodity derivatives settlements, were $5.11 per Mcfe in the second quarter of 2012, compared to $5.28 per Mcfe in the first quarter of 2012.  
  • Natural gas, crude oil and NGLs sales, excluding commodity derivatives settlements, were $16.6 million in the second quarter of 2012, compared to $18.8 million in the first quarter of 2012. On a Mcfe basis, natural gas, crude oil and NGLs represented 87%, 4% and 9%, respectively, of sales volumes. On a revenue basis, natural gas, crude oil and NGLs sales represented 64%, 20% and 16%, respectively, of total oil and gas revenues.  
  • Adjusted EBITDA (2) increased 18% to $18.8 million during the second quarter of 2012 from $15.9 million during the first quarter of 2012 primarily due to results from MEMP's third party acquisition that closed on May 1, 2012, higher realized commodity derivative settlements and lower general and administrative cash expenses which were partially offset by lower realized commodity prices . Adjusted EBITDA includes $1.9 million of net operating cash flow from the third-party acquisition from effective date through closing date.  
  • Distributable cash flow (2) increased 15% in the second quarter of 2012 to $14.6 million compared to $12.7 million in the first quarter of 2012. Distributable cash flow per unit increased to $0.66 per unit in the second quarter of 2012 from $0.57 per unit in the first quarter of 2012.  
  • Total lease operating expenses decreased to $1.20 per Mcfe in the second quarter of 2012 from $1.23 per Mcfe in the first quarter of 2012, primarily due to a $0.5 million reduction in workover expenses, with workover expenses for the second quarter totaling $0.4 million compared to $0.9 million in the first quarter.  
  • Production and ad valorem taxes decreased $0.05 per Mcfe, or 13%, to $0.33 per Mcfe in the second quarter of 2012 from $0.38 per Mcfe in the first quarter of 2012 primarily due to lower realized commodity prices in the second quarter.  
  • General and administrative expense ("G&A") was $2.1 million for the second quarter of 2012 compared to the first quarter 2012 of $2.4 million, which included $0.6 million and $0.4 million respectively, of non-cash compensation expense and acquisition related costs.  
  • Cash settlements received on commodity derivatives during the second quarter of 2012 were $9.8 million or $1.90 per Mcfe, compared to $7.1 million received during the first quarter of 2012, with the increase attributable to lower prices for oil and natural gas during the second quarter as well as higher hedged volumes. Total hedged production in the second quarter was 3.9 Bcfe or 75% of second quarter production of 5.2 Bcfe, at an average hedge price of $5.38 per Mcfe compared to total hedged production in the first quarter of 3.5 Bcfe or 71% of first quarter production of 4.9 Bcfe, at an average hedge price of $5.40 per Mcfe. We reported an unrealized loss of $4.9 million on commodity derivatives portfolio in the second quarter of 2012 compared to an unrealized gain of $15.5 million in the first quarter of 2012. The unrealized loss in the second quarter of 2012 was primarily attributable to reversals of previously recorded unrealized gains as those positions settled, offset by unrealized gains related to a decrease in commodity futures prices at June 30, 2012 as compared to March 31, 2012.  
  • Depreciation, depletion and amortization expense was $7.8 million in the second quarter of 2012 compared to $7.3 million in the first quarter of 2012.  
  • Interest expense was $3.6 million during the second quarter of 2012 and included $2.1 million of unrealized losses on interest derivatives and $0.1 million of non-cash amortization of debt issuance cost.   
  • Total capital expenditures for the second quarter of 2012 were $3.0 million.  Total capital expenditures for the first half of 2012 were $13.6 million and are expected to be approximately $18 – $21 million for full year 2012.   
  • Total maintenance capital expenditures for the first half of 2012 were $5.2 million and are in line with MEMP's revised guidance of $11.8 million for maintenance capital expenditures budgeted for 2012. Maintenance capital expenditures for the second half of 2012 are expected to be $6.6 million. In addition, MEMP reduced forecasted growth capital expenditures and increased maintenance capital expenditures after giving effect to recent acquisitions.

(1) In accordance with United States Generally Accepted Accounting Principles, acquisitions from Memorial Resource are considered transactions between entities under common control, therefore the comparison of results for the first quarter of 2012 and second quarter of 2012, along with the financial statements below and the financial statements to be filed in MEMP's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 are presented as if MEMP had owned the assets for all periods presented on a consolidated basis.   

(2)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.

Acquisitions Update

Year-to-date 2012, MEMP has executed a total of $82.8 million in closed acquisitions. These acquisitions expanded MEMP's footprint near its core operating areas in East Texas and also marked its entry into Louisiana. Combined, these transactions have the following characteristics:

  • Average net daily production of approximately 10 MMcfe at the time of acquisition;
  • Proved reserves of approximately 70.3 Bcfe;
  • Reserve life of more than 19 years;
  • Approximately 73% natural gas; 27% oil and NGLs; and
  • Multiple drilling and recompletion opportunities and significant organic growth potential.

Hedging Update

Consistent with its hedging policy, MEMP executed additional hedges on a portion of its expected oil and natural gas volumes through the third quarter of 2017. MEMP has entered into natural gas, crude oil and NGL derivatives contracts covering the period from July 2012 through September 2017, consisting of swaps, collars and puts to help mitigate the risk of fluctuating commodity prices. MEMP's hedging policy is designed to reduce the impact to cash flows from commodity price and interest rate volatility. Effective July 1, 2012, the notional volumes and prices of MEMP's commodity derivative contracts were as follows:

  • Regarding natural gas hedges, commodity derivative contracts for the last six months of 2012, the years ending December 31, 2013, 2014, 2015, 2016 and the first nine months of 2017 cover approximately 88%, 87%, 81%, 73%, 68% and 63% respectively, of MEMP's targeted average net production of natural gas. Regarding natural gas prices, MEMP has total hedged volumes for the last six months of 2012, the years ending December 31, 2013, 2014, 2015, 2016 and the first nine months of 2017, respectively, at weighted-average floor hedge prices of $4.66, $4.54, $4.43, $4.35, $4.56 and $4.33 per MMBtu.  
  • Regarding crude oil hedges, commodity derivative contracts for the last six months of 2012, the years ending December 31, 2013, 2014, 2015, 2016 and the first nine months of 2017 cover approximately 82%, 84%, 76%, 72%, 67% and 67%, respectively, of MEMP's targeted average net production of crude oil. Regarding crude oil prices, MEMP has total hedged volumes for the last six months of 2012, the years ending December 31, 2013, 2014, 2015, 2016 and the first nine months of 2017, respectively, at weighted-average floor hedge prices of $92.81, $93.26, $89.99, $90.93, $91.03 and $87.75 per barrel.  
  • Regarding NGL hedges, commodity derivative contracts for the years ending December 31, 2012 and 2013, cover approximately 56% of MEMP's targeted average net production of NGLs for both years. Regarding NGL prices, MEMP has total hedged volumes for the years ending December 31, 2012 and 2013, respectively, at weighted-average floor hedge prices of $52.73 and $52.94 per barrel.  
  • Targeted average net production estimates represent the lower boundary of annual production range in MEMP's updated 2012 full year guidance.

The following table reflects the volumes of MEMP's production covered by commodity derivative contracts and the average fixed or floor prices at which production is hedged:

Stock quotes in this article: MEMP 

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