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

Stocks in this article: MEMP

Use of Non-GAAP Financial Measures

This press release and accompanying schedules include the non-GAAP financial measures of Adjusted EBITDA and Distributable Cash Flow. The accompanying schedules provide a reconciliation of these non-GAAP financial measures to their most directly comparable financial measure calculated and presented in accordance with GAAP. MEMP's non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income, operating income, net cash flows provided by operating activities or any other measure of financial performance calculated and presented in accordance with GAAP. MEMP's non-GAAP financial measures may not be comparable to similarly-titled measures of other companies because they may not calculate such measures in the same manner as MEMP does.

Adjusted EBITDA. MEMP defines Adjusted EBITDA as net income or loss, plus interest expense; net operating cash flow from acquisitions and divestitures, effective date through closing date; income tax expense; depreciation, depletion and amortization; impairment of goodwill and long-lived assets; accretion of asset retirement obligations; unrealized losses on commodity derivative contracts; losses on sale of assets; unit-based compensation expenses; exploration costs; acquisition costs; and other non-routine items, less interest income; income tax benefit; unrealized gains on commodity derivative contracts; gains on sale of assets and other non-routine items. Adjusted EBITDA is commonly used as a supplemental financial measure by management and external users of MEMP's financial statements, such as investors, commercial banks, research analysts and rating agencies, to assess: (1) the financial performance of its assets without regard to financing methods, capital structures or historical cost basis; (2) the ability of its assets to generate cash sufficient to pay interest and support MEMP's indebtedness; and (3) the viability of projects and the overall rates of return on alternative investment opportunities. Since Adjusted EBITDA excludes some, but not all, items that affect net income or loss and because these measures may vary among other companies, the Adjusted EBITDA data presented in this press release may not be comparable to similarly titled measures of other companies. The GAAP measure most directly comparable to Adjusted EBITDA is net cash flows provided by operating activities.

Distributable Cash Flow. MEMP defines distributable cash flow as Adjusted EBITDA, less cash income taxes; cash interest expense; and estimated maintenance capital expenditures. Management compares the distributable cash flow MEMP generates to the cash distributions it expects to pay MEMP's partners. Using this metric, management computes MEMP's distribution coverage ratio. Distributable cash flow is an important non-GAAP financial measure for MEMP's limited partners since it serves as an indicator of MEMP's success in providing a cash return on investment. Specifically, this financial measure indicates to investors whether or not MEMP are generating cash flows at a level that can sustain or support an increase in its quarterly cash distributions. Distributable cash flow is also a quantitative standard used by the investment community with respect to publicly traded partnerships because the value of a partnership unit is, in part, measured by its yield, which is based on the amount of cash distributions a partnership can pay to a unitholder. The GAAP measure most directly comparable to distributable cash flow is net cash flows provided by operating activities.

Selected Operating and Financial Data (Tables)

Memorial Production Partners LP    
Selected Financial Data – Unaudited    
Statement of Operations Data For the Three Months For the Six Months
(In thousands, except per unit data)   Ended June 30, 2012   Ended June 30, 2012 
     
Revenues:    
Oil & natural gas sales $16,639 $35,399
Other income 31 141
Total revenues $16,670 $35,540
     
Costs and expenses:    
Lease operating 6,213 12,234
Exploration 414 414
Production and ad valorem taxes 1,708 3,568
Depreciation, depletion, and amortization 7,754 15,012
General and administrative 2,117 4,474
Accretion of asset retirement obligations 274 562
Realized gain on commodity derivative instruments (9,828) (16,908)
Unrealized (gain) loss on commodity derivative instruments 4,851 (10,677)
Gain on sale of properties (192) (192)
Other, net 197 327
Total costs and expenses 13,508 8,814
Operating income  3,162 26,726
Interest expense 3,577 4,901
Income (loss) before income taxes (415) 21,825
Income tax expense - 183
Net income (loss) (415) 21,642
Net income (loss) attributable to predecessor (161) 1,001
Net income (loss) attributable to partners $(254) $20,641
     
Allocation of net income (loss) attributable to partners:    
Limited partners $(254) $20,620
General partner $ -  $21
     
Earnings per unit:    
Basic and diluted earnings per limited partner unit $(0.01) $0.93
     
Cash distribution declared per unit $0.48 $0.96
     
Weighted average number of limited partner units outstanding 22,236 22,210
     
Oil and natural gas revenue:    
Oil sales 3,374 6,595
NGL sales 2,616 5,595
Natural gas sales 10,649 23,209
Total oil and natural gas revenue $16,639 $35,399
     
Production volumes:    
Oil (MBbls) 36 68
NGLs (MBbls) 78 136
Natural gas (MMcf) 4,499 8,856
Total (MMcfe) 5,183 10,080
Average net production (MMcfe/d) 57.0 55.4
     
Average sales price (excluding commodity derivatives):    
Oil (per Bbl) $92.91 $97.42
NGL (per Bbl) $33.67 $41.06
Natural gas (per Mcf) $2.37 $2.62
Total (Mcfe) $3.21 $3.51
     
Average unit costs per Mcfe:    
Lease operating expense $1.20 $1.21
Production and ad valorem taxes $0.33 $0.35
General and administrative expenses $0.41 $0.44
Depletion, depreciation, and amortization $1.50 $1.49
   
Memorial Production Partners LP  
Selected Financial Data – Unaudited  
Balance Sheet Data  
(In thousands)  
  June 30, 2012
Balance Sheet Data:  
Total current assets $42,499
Oil and natural gas properties, net 484,592
Other assets 23,381
Total assets 550,472
   
Total current liabilities 11,858
Long-term debt 204,000
Other long-term liabilities 17,672
Total liabilities $233,530
   
Total partners' equity $316,942
     
  For the Three Months For the Six Months
  Ended June 30, 2012 Ended June 30, 2012
     
Calculation of Adjusted EBITDA:    
Net income (loss) $(415) $21,642
Interest expense 3,577 4,901
Deferred income tax expense - 183
DD&A 7,754 15,012
Accretion of AROs 274 562
Unrealized (gains) losses on commodity derivative instruments 4,851 (10,677)
Gain on sale of properties (192) (192)
Acquisition related expenses 285 398
Unit-based compensation expense 327 575
Exploration costs 414 414
Net operating cash flow from acquisitions, effective date through closing date 1,888 1,888
Adjusted EBITDA $18,763 $34,706
     
     
  For the Three Months For the Six Months
  Ended June 30, 2012 Ended June 30, 2012
     
Reconciliation of Net Cash from Operating Activities to Adjusted EBITDA:  
Net cash provided by operating activities $11,783 $27,414
Changes in working capital 3,079 2,345
Interest expense 3,577 4,901
Unrealized (loss) gain on interest rate swaps (2,135) (2,397)
Amortization of deferred financing fees (128) (257)
Exploration costs 414 414
Acquisition related expenses 285 398
Net operating cash flow from acquisitions, effective date through closing date 1,888 1,888
Adjusted EBITDA $18,763 $34,706
   
   
Memorial Production Partners LP  
Reconciliation of Unaudited GAAP Financial Measures to Non-GAAP Financial Measures
Distributable Cash Flow Three  Six
(In thousands) Months Ended  Months Ended 
  June 30, 2012  June 30, 2012
Calculation of Adjusted EBITDA:  
Net income (loss) $(415) $21,642
Interest expense 3,577 4,901
Deferred income tax expense - 183
Depreciation, depletion and amortization 7,754 15,012
Accretion of asset retirement obligations 274 562
Unrealized (gains) losses on commodity derivative instruments 4,851 (10,677)
Gain on sale of properties (192) (192)
Acquisition related expenses 285 398
Unit-based compensation expense 327 575
Exploration costs 414 414
Net operating cash flow from acquisitions, effective date through closing date 1,888 1,888
     
Adjusted EBITDA 18,763 34,706
Less: Cash interest expense 1,211 2,168
Less: Estimated Maintenance Capital Expenditures 2,926 5,214
Distributable cash flow $14,626 $27,324
     
Cash distribution  $10,714 $21,382
     
Distribution coverage ratio 1.37x 1.28x
     

2012 Adjusted EBITDA Guidance Reconciliation Table

Memorial Production Partners LP    
Reconciliation of Unaudited GAAP Financial Measures to Non-GAAP Financial Measures
2012 Adjusted EBITDA Guidance    
(In millions)   Low High
    For Year Ended For Year Ended
    December 31, 2012 December 31, 2012
       
Calculation of Adjusted EBITDA:    
Net income   $  27 $  29
Interest expense   5 5
Net operating cash flow from acquisitions, effective date through closing date 2 2
Depletion, depreciation, and amortization 35 35
Adjusted EBITDA   $  69 $  71
       
Reconciliation of Net Cash From Operating Activities to Adjusted EBITDA:  
Net cash provided by operating activities $  62 $  64
Changes in working capital   - -
Net operating cash flow from acquisitions, effective date through closing date 2 2
Interest expense   5 5
Adjusted EBITDA   $  69 $  71
CONTACT: Memorial Production Partners LP
         Ronnetta Eaton - Manager, Investor Relations
         (713) 588-8350
         ir@memorialpp.com

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