LRR Energy, L.P. (NYSE: LRE) (“LRR Energy” or the “Partnership”) announced today its operating and financial results for the three and nine months ended September 30, 2013.

Eric Mullins, Chairman and Co-Chief Executive Officer, commented, "In the third quarter, we continued to deliver strong operating and financial results. Adjusted EBITDA, distributable cash flow and distribution coverage for the quarter were higher than average Wall Street research analyst estimates by approximately 5%, 8% and 9%, respectively. These results are also similar to the second quarter of 2013.” Charlie Adcock, Co-Chief Executive Officer, reflected that, “Our third quarter results benefited from higher oil price realizations and improved liquids production compared to the second quarter of 2013.”

Selected Financial and Operating Information

LRR Energy’s financial statements have been recast to include all closed acquisitions through September 30, 2013 from Lime Rock Resources since its initial public offering, as the acquisitions are considered between entities under common control. A summary of selected financial and operating information follows. For consolidated financial statements for the three and nine months ended September 30, 2013, please see the accompanying tables on pages 7-9.
    Three Months Ended     Nine Months Ended
September 30, 2013 September 30, 2013
(unaudited)
(in thousands)
 
Oil, natural gas and natural gas liquids sales $ 31,458 $ 84,243
Gain (loss) on commodity derivative
instruments, net (1) $ (6,282 ) $ 5
Total revenues $ 25,195 $ 84,354
Lease operating expense $ 6,005 $ 18,072
Production and ad valorem taxes $ 2,434 $ 6,478
General and administrative expense $ 2,669 $ 8,866
Interest expense $ 2,349 $ 6,863
Net income $ 284 $ 13,805
Net income per limited partner unit $ 0.01 $ 0.53
 

(1) See commodity derivative settlements on page 6.
    Three Months Ended       Nine Months Ended
September 30, 2013 September 30, 2013
(unaudited)
(in thousands)
 
Capital expenditures $ 10,482 $ 24,857
Adjusted EBITDA (1) $ 21,546 $ 59,119
Distributable Cash Flow (1) $ 13,998 $ 36,732
 
Cash distribution - common unitholders $ 9,481 $ 28,298
Cash distribution - all unitholders $ 12,768 $ 38,108
Distribution Coverage Ratio - common unitholders 1.48 1.30
Distribution Coverage Ratio - all unitholders 1.10 0.96
 

(1) Non-GAAP financial measure. See reconciliation of non-GAAP financial measures beginning on page 10.
      Three Months Ended       Nine Months Ended
September 30, 2013 September 30, 2013
 
Average net production (Boe/d) 6,609 6,447
Average cost per Boe:
Lease operating expense $ 9.87 $ 10.27
Production and ad valorem taxes $ 4.00 $ 3.68
General and administrative expense $ 4.39 $ 5.04

Recent Events

As of October 31, 2013, the Partnership had $190 million of outstanding borrowings under its revolving credit facility and $50 million of outstanding borrowings under its term loan. LRR Energy currently has $60 million of available borrowing capacity under its revolving credit facility which management believes provides ample financial flexibility to execute its 2013 capital program and distribution strategy.

On October 18, 2013, LRR Energy announced that the Board of Directors of its general partner declared an increased cash distribution for the third quarter of 2013 of $0.4875 per outstanding unit, or $1.95 on an annualized basis. The distribution will be paid on November 14, 2013 to all unitholders of record as of the close of business on October 31, 2013.

The Partnership’s October 2013 average net production through October 25, 2013 was approximately 6,530 Boe/d.

2013 Guidance

As with the Partnership’s previously disclosed 2013 guidance, the guidance below assumes that all of the acquisitions completed by the Partnership in 2013 closed on January 1, 2013. LRR Energy is increasing the bottom end of its daily production guidance range by 100 Boe/d and decreasing the top end by 50 Boe/d. The Partnership is decreasing the bottom and high ends of its LOE per Boe guidance by $0.25 and increasing its capital expenditure guidance by $2.0 million for 2013. Based on current estimates, and assuming no future acquisitions, the Partnership’s updated full year 2013 guidance is as follows:
    2013 Guidance
Daily Production (Boe/d) 6,400 - 6,500
 
LOE ($/Boe) $10.25 - $10.75
 
Capital Expenditures ($MM)
Maintenance $20.3
Growth and other 13.7
Total $34.0

The guidance above sets forth management’s best estimate based on current and anticipated market conditions and other factors. While management believes that these estimates and assumptions are reasonable, they are inherently uncertain and are subject to, among other things, significant business, economic, regulatory, environmental and competitive risks and uncertainties that could cause actual results to differ materially from those management anticipates, as set forth under “Forward-Looking Statements.”

Commodity Derivative Contracts

As of September 30, 2013, LRR Energy had the following outstanding derivative contracts.
    Index     2013     2014     2015     2016     2017
Natural gas positions
Price swaps (MMBTUs) NYMEX-HH 1,889,315 6,077,016 5,500,236 5,433,888 5,045,760
Weighted average price $ 5.13 $ 5.53 $ 5.72 $ 4.29 $ 4.61
 
Basis swaps (MMBTUs) NYMEX 1,861,575 5,876,098 5,326,559 2,877,047 -
Weighted average price $ (0.1365 ) $ (0.1521 ) $ (0.1661 ) $ (0.1115 ) $ -
 
Puts (MMBTUs) NYMEX-HH 29,265 - - - -
Strike price $ 3.00 $ - $ - $ - $ -
 
Oil positions
Price swaps (BBLs) NYMEX-WTI 189,210 673,994 420,381 397,488 198,744
Weighted average price $ 95.76 $ 95.85 $ 94.72 $ 86.02 $ 85.75
 
Basis swaps (BBLs) Argus- 116,090 410,400 - - -
Weighted average price Midland-Cushing $ (1.25 ) $ (1.00 ) $ - $ - $ -
 
NGL positions
Price swaps (BBLs) Mont Belvieu 52,829 183,857 - - -
Weighted average price $ 42.00 $ 34.11 $ - $ - $ -
 

Subsequent to September 30, 2013, we acquired the following commodity hedges:
    Index       2014       2015
Oil positions
Price swaps (BBLs) NYMEX-WTI 49,640 -
Weighted average price $ 94.50 $ -
       
Index 2014 2015
NGL positions
Price swaps (BBLs) Mont Belvieu - 147,823
Weighted average price $ - $ 34.50

Quarterly Report on Form 10-Q

LRR Energy expects to file its Quarterly Report on Form 10-Q with the Securities and Exchange Commission no later than November 12, 2013. The 10-Q will be available on the Investor Relations page of LRR Energy’s website www.lrrenergy.com or from the Securities and Exchange Commission website www.sec.gov.

Webcast and Conference Call

LRR Energy will host a webcast and conference call on Friday, November 1, 2013, at 9:00 a.m. eastern time (8:00 a.m. central time) to discuss these results. Interested parties are invited to participate in the call by dialing 1-877-493-8071 (conference ID: 82776448). It is recommended that participants dial in approximately 10 minutes prior to the start of the conference call. Participants may access the webcast from LRR Energy’s website, www.lrrenergy.com, under the tab for "Investor Relations."

A telephonic replay will be available after the call through November 19, 2013. Participants may access this replay by dialing 1-800-585-8367 (conference ID: 82776448).

About LRR Energy, L.P.

LRR Energy is a Delaware limited partnership formed in April 2011 by affiliates of Lime Rock Resources to operate, acquire, exploit and develop producing oil and natural gas properties in North America. LRR Energy's properties are located in the Permian Basin region in West Texas and southeast New Mexico, the Mid-Continent region in Oklahoma and East Texas and the Gulf Coast region in Texas.

Forward-Looking Statements

This press release includes "forward-looking statements" — that is, statements related to future events. Forward-looking statements are based on the current expectations of LRR Energy and include any statement that does not directly relate to a current or historical fact. In this context, forward-looking statements often address expected future business, operational and financial performance, and often contain words such as "may," "predict," "pursue," "expect," "estimate," "project," "plan," "believe," "intend," "achievable," "anticipate," "target," "continue," "potential," "should," "could" and other similar words. Actual results and future events could differ materially from those anticipated or implied in such statements. Forward-looking statements involve certain risks and uncertainties, and ultimately may not prove to be accurate. These risks and uncertainties include, among other things, a decline in oil, natural gas or NGL prices, the risk and uncertainties involved in producing oil and natural gas, competition in the oil and natural gas industry, governmental regulations and other factors. Actual results could differ materially from those anticipated or implied in the forward-looking statements due to the factors described under the captions "Risk Factors" in LRR Energy's Annual Report on Form 10-K for the year ended December 31, 2012 and LRR Energy's subsequent filings with the SEC. All forward-looking statements speak only as of the date of this press release. LRR Energy does not intend to update or revise any forward-looking statements as a result of new information, future events or otherwise. All forward-looking statements are qualified in their entirety by this cautionary statement.

LRR Energy, L.P.

Selected Operating & Financial Data

(unaudited)
     
Three Months Ended September 30, Nine Months Ended September 30,
2013     2012 2013     2012
 
Production:
Oil (MBbls) 216 227 614 634
Natural gas (MMcf) 1,849 2,160 5,500 6,507
NGLs (MBbls)   84   89   229   232
Total (MBoe) 608 676 1,760 1,951
Average net production (Boe/d) 6,609 7,348 6,447 7,120
 
Average sales price:
Oil (per Bbl)
Sales price $ 102.96 $ 85.38 $ 92.37 $ 89.23
Effect of settled commodity
derivative instruments   (9.76 )   4.68   (2.92 )   3.37
Realized price $ 93.20 $ 90.06 $ 89.45 $ 92.60
Natural gas (per Mcf)
Sales price $ 3.55 $ 2.85 $ 3.70 $ 2.61
Effect of settled commodity
derivative instruments   1.40   1.92   1.40   2.25
Realized price $ 4.95 $ 4.77 $ 5.10 $ 4.86
NGLs (per Bbl)
Sales price $ 31.61 $ 31.27 $ 31.29 $ 38.66
Effect of settled commodity
derivative instruments   3.83   6.82   4.88   4.72
Realized price $ 35.44 $ 38.09 $ 36.17 $ 43.38
 
Average cost per Boe:
Lease operating expenses $ 9.87 $ 11.24 $ 10.27 $ 11.62
Production and ad valorem taxes 4.00 3.18 3.68 3.05
Depletion and depreciation 15.67 14.09 16.92 16.48
General and administrative
expenses 4.39 3.82 5.04 4.78
 
Derivative instrument settlements
and amortization (in thousands):
Commodity $ 801 $ 5,808 $ 7,049 $ 17,876
Interest rate $ (184 ) $ (154 ) $ (536 ) $ (295 )
       

LRR Energy, L.P.

Consolidated Condensed Statement of Operations

(in thousands, except per unit amounts)

(unaudited)
 
Three Months Ended September 30, Nine Months Ended September 30,
2013     2012 2013     2012
Revenues:
Oil sales $ 22,239 $ 19,381 $ 56,714 $ 56,569
Natural gas sales 6,564 6,158 20,364 16,968
Natural gas liquids sales 2,655 2,783 7,165 8,969
Gain (loss) on commodity
derivative instruments, net (6,282 ) (16,458 ) 5 7,975
Other income   19   30   106   33
Total revenues 25,195 11,894 84,354 90,514
 
Operating expenses:
Lease operating expense 6,005 7,597 18,072 22,668
Production and ad valorem taxes 2,434 2,150 6,478 5,950
Depletion and depreciation 9,533 9,525 29,772 32,152
Impairment of oil and natural gas
properties - 451 - 3,544
Accretion expense 486 397 1,433 1,171
Loss (gain) on settlement of asset
retirement obligations (1 ) 94 334 (14 )
General and administrative expense   2,669   2,580   8,866   9,325
Total operating expenses 21,126 22,794 64,955 74,796
 
Operating income (loss) 4,069 (10,900 ) 19,399 15,718
 
Other income (expense), net
Interest expense (2,349 ) (2,081 ) (6,863 ) (4,541 )
Gain (loss) on interest rate
derivative instruments, net   (1,401 )   (2,278 )   1,371   (4,466 )
Other income (expense), net   (3,750 )   (4,359 )   (5,492 )   (9,007 )
 
Income (loss) before taxes 319 (15,259 ) 13,907 6,711
Income tax expense   (35 )   (20 )   (102 )   (170 )
Net income (loss) $ 284 $ (15,279 ) $ 13,805 $ 6,541
Net income (loss) attributable to
predecessor operations   -   (279 )   (448 )   (6,045 )
Net income (loss) available to
unitholders $ 284 $ (15,558 ) $ 13,357 $ 496
 
Computation of net income (loss)
per limited partner unit:
 
General partners’ interest in net
income (loss) $ - $ (16 ) $ 13 $ -
 
Limited partners’ interest in net
income (loss) $ 284 $ (15,542 ) $ 13,344 $ 496
 
Net income (loss) per limited partner
unit (basic and diluted) $ 0.01 $ (0.69 ) $ 0.53 $ 0.02
 
Weighted average number of limited
partner units outstanding 26,169 22,428 25,098 22,426
 

LRR Energy, L.P.

Consolidated Condensed Statement of Cash Flows

(in thousands)

(unaudited)
 
  Nine Months Ended September 30,
2013     2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 13,805 $ 6,541

Adjustments to reconcile net income to net cash provided by operating activities:
Depletion and depreciation 29,772 32,152
Impairment of oil and natural gas properties - 3,544
Accretion expense 1,433 1,171
Amortization of equity awards 391 231
Amortization of derivative contracts 746 7
Amortization of deferred financing costs and other 290 262
Loss (gain) on settlement of asset retirement obligations 334 (14 )
Purchase of derivative contracts - (59 )
Changes in operating assets and liabilities:
Change in receivables (3,317 ) 4,891
Change in prepaid expenses (230 ) 58
Change in derivative assets and liabilities 5,137 14,072
Change in accrued liabilities and deferred tax liabilities 3,618 (2,245 )
Change in amounts due to/from affiliates   (4,270 ) (3,001 )
Net cash provided by operating activities 47,709 57,610
 
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of oil and natural gas properties - (8,035 )
Development of oil and natural gas properties (24,857 ) (26,905 )
Expenditures for other property and equipment   - (16 )
Net cash used in investing activities (24,857 ) (34,956 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under revolving credit facility 45,000 77,200
Principal payments on revolving credit facility (28,000 ) (50,000 )
Borrowings under term loan - 50,000
Equity offering, net of expenses 59,513 -
Deferred financing costs - (561 )
Distribution to Lime Rock Resources (60,672 ) (64,038 )
Contribution to Lime Rock Resources (734 ) (3,925 )
Distributions   (36,125 ) (26,542 )
Net cash used in financing activities (21,018 ) (17,866 )
 
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,834 4,788
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   3,467 1,513
 
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,301 $ 6,301
 

Supplemental disclosure of non-cash items to reconcile investing and financing activities
Property and equipment:
Change in accrued capital costs $ 2,892 $ (960 )
Asset retirement obligations (417 ) (257 )
   

LRR Energy, L.P.

Consolidated Condensed Balance Sheet

(in thousands, except unit amounts)

(unaudited)
 
  September 30, 2013   December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents $ 5,301 $ 3,467
Accounts receivable 10,567 7,250
Commodity derivative instruments 11,635 16,484
Due from affiliates 2,293 -
Prepaid expenses   978   748
Total current assets 30,774 27,949
Property and equipment (successful efforts method) 868,191 840,736
Accumulated depletion, depreciation and impairment   (354,527 )   (324,774 )
Total property and equipment, net 513,664 515,962
Commodity derivative instruments 17,491 20,000
Deferred financing costs, net of accumulated amortization   1,245   1,559
TOTAL ASSETS $ 563,174 $ 565,470
LIABILITIES AND UNITHOLDERS’ EQUITY
Current liabilities:
Accrued liabilities $ 5,039 $ 1,415
Accrued capital cost 5,253 2,361
Due to affiliates - 1,977
Commodity derivative instruments 2,807 1,671
Interest rate derivative instruments 650 659
Asset retirement obligations   333   500
Total current liabilities 14,082 8,583
Long-term liabilities:
Commodity derivative instruments 147 874
Interest rate derivative instruments 1,629 3,526
Term loan 50,000 50,000
Revolving credit facility 195,000 178,000
Asset retirement obligations 35,248 33,591
Deferred tax liabilities   114   120
Total long-term liabilities 282,138 266,111
Total liabilities 296,220 274,694
Unitholders’ equity:
Predecessors’ capital - 60,941

General partner (22,400 units issued and outstanding as of September 30, 2013 and December 31, 2012)
376 396

Public common unitholders (17,598,939 units issued and outstanding as of September 30, 2013 and 10,676,742 units issued and outstanding as of December 31, 2012)
231,482 169,919

Affiliated common unitholders (1,849,600 units issued and outstanding as of September 30, 2013 and 5,049,600 units issued and outstanding as of December 31, 2012)
7,355 25,563

Subordinated unitholders (6,720,000 units issued and outstanding as of September 30, 2013 and December 31, 2012)
  27,741   33,957
Total unitholders’ equity   266,954   290,776
TOTAL LIABILITIES AND UNITHOLDERS’ EQUITY $ 563,174 $ 565,470

LRR Energy, L.P. Non-GAAP Reconciliation (in thousands) (unaudited)

LRR Energy defines Adjusted EBITDA as net income plus or minus income tax expense; interest expense-net, including (gain) loss on interest rate derivative contracts, net; depletion and depreciation; accretion of asset retirement obligations; amortization of equity awards; (gain) loss on settlement of asset retirement obligations; (gain) loss on commodity derivative contracts, net; commodity derivative instrument settlements and amortization; amortization of derivative contracts; impairment of oil and natural gas properties; and other non-recurring items that the Partnership deems appropriate. Distributable Cash Flow is defined as Adjusted EBITDA less cash income tax expense; cash interest expense; and estimated maintenance capital expenditures. Distribution Coverage Ratio-common unitholders is defined as the ratio of Distributable Cash Flow to the total quarterly distribution payable on all of the Partnership’s outstanding common units. Distribution Coverage Ratio-all unitholders is defined as the ratio of Distributable Cash Flow to the total quarterly distribution payable on all of the Partnership’s outstanding common, subordinated and general partner units.

Adjusted EBITDA, Distributable Cash Flow and the Distribution Coverage Ratio-common and all unitholders are used as supplemental financial measures by LRR Energy’s management and by external users of its financial statements, such as investors, commercial banks and others, to assess the Partnership’s operating performance as compared to that of other companies and partnerships in the industry, without regard to financing methods, capital structure or historical cost basis and the ability of its assets to generate sufficient cash flow to make distributions to the Partnership’s unitholders.

LRR Energy’s management believes that Adjusted EBITDA, Distributable Cash Flow and the Distribution Coverage Ratio-common and all unitholders are useful to investors because these measures are used by many partnerships in the industry as measures of operating and financial performance and are commonly employed by financial analysts and others to evaluate our operating and financial performance from period to period and to compare it with the performance of other publicly traded partnerships within the industry. Adjusted EBITDA, Distributable Cash Flow and the Distribution Coverage Ratio-common and all unitholders should not be considered alternatives to net income, operating income, cash flow from operating activities or any other measures of financial performance presented in accordance with GAAP. LRR Energy’s Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio-common and all unitholders may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted EBITDA, Distributable Cash Flow or the Distribution Coverage Ratio-common and all unitholders in the same manner. The following table presents a reconciliation of Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio-common and all unitholders to net income, the Partnership’s most directly comparable GAAP financial performance measure, for the three and nine months ended September 30, 2013 and 2012.
   

LRR Energy, L.P.

Non-GAAP Reconciliation

(continued)

(in thousands)

(unaudited)
 
Three Months Ended September 30, Nine Months Ended September 30,
2013   2012 2013   2012
 
Net income $ 284 $ (15,279 ) $ 13,805 $ 6,541
Income tax expense 35 20 102 170
Interest expense-net, including
(gain) loss on interest rate
derivative instruments, net 3,750 4,359 5,492 9,007
Depletion and depreciation 9,533 9,525 29,772 32,152
Accretion of asset retirement
obligations 486 397 1,433 1,171
Amortization of equity awards 138 81 391 231
Loss (gain) on settlement of asset
retirement obligations (1 ) 94 334 (14 )
Loss (gain) on commodity derivative
instruments, net 6,282 16,458 (5 ) (7,975 )
Commodity derivative instrument
Settlements and amortization 801 5,808 7,049 17,876
Amortization of derivative contracts 238 6 746 7
Impairment of oil and natural gas
properties   -   451   -   3,544
Adjusted EBITDA $ 21,546 $ 21,920 $ 59,119 $ 62,710
 
Adjusted EBITDA 21,546 21,920 59,119 62,710
Cash income tax expense (35 ) (20 ) (108 ) (64 )
Cash interest expense (2,438 ) (2,234 ) (7,054 ) (4,865 )
Estimated maintenance capital (1)   (5,075 )   (5,075 )   (15,225 )   (15,225 )
Distributable Cash Flow $ 13,998 $ 14,591 $ 36,732 $ 42,556
 
 
Cash distribution - common unitholders $ 9,481 $ 7,501 $ 28,298 $ 22,424
Cash distribution - all unitholders $ 12,768 $ 10,720 $ 38,108 $ 32,049
Distribution Coverage Ratio - common
unitholders 1.48 1.95 1.30 1.90
Distribution Coverage Ratio - all
unitholders 1.10 1.36 0.96 1.33
 

(1) Amount represents pro-rated capital for the period. Estimated maintenance capital expenditures as defined by our partnership agreement represent our estimate of the amount of capital required on average per year to maintain our production over the long term.

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