LRR Energy, L.P. (NYSE: LRE) (“LRR Energy”) announced today its
operating and financial results for the three months ended March
31, 2015.
Selected Financial and Operating Information
A summary of selected financial and operating information
follows. For consolidated financial statements for the three months
ended March 31, 2015, please see the accompanying tables on pages
7-9.
Three Months Ended March 31, 2015
(unaudited) (in thousands, except per unit
amounts) Oil, natural gas and natural gas liquids sales
$ 17,501 Gain (loss) on commodity derivative instruments, net (1) $
18,682 Total revenues $ 36,212 Lease operating expense $ 6,772
Production and ad valorem taxes $ 1,266 General and administrative
expense $ 3,791 Interest expense $ 2,769 Net income (loss)
available to unitholders $ (24,936 ) Net income (loss) per limited
partner unit $ (0.82 ) Capital expenditures $ 12,280
Adjusted EBITDA (2) $ 19,565 Distributable cash flow (2) $ 11,834
Cash Distribution $ 5,268 Distribution coverage ratio (2)
2.25x
(1) See commodity derivative
settlements on page 6.
(2) Non-GAAP financial measure.
See reconciliation of non-GAAP financial measures beginning on page
10.
Three Months Ended March 31, 2015
Average net production (Boe/d) 6,867 Average unit costs per Boe:
Lease operating expense $ 10.96 Production and ad valorem taxes $
2.05 General and administrative expense $ 6.13
LRR Energy’s average net production for April 2015 was
approximately 6,760 Boe/d through April 24, 2015.
Recent Events
On April 20, 2015, LRR Energy and Vanguard Natural Resources,
LLC (“Vanguard”) announced the signing of a Purchase Agreement and
Plan of Merger pursuant to which a subsidiary of Vanguard will
merge into LRR Energy, and at the same time, Vanguard will acquire
LRE GP, LLC, the general partner of LRR Energy for total
consideration of $251 million in Vanguard common units and the
assumption of LRR Energy’s net debt of $288 million. As a result of
the transaction, LRR Energy and its general partner will become
wholly owned subsidiaries of Vanguard. The transaction, which has
been approved by the boards of directors of both companies,
including the Conflicts Committee of the Board of Directors of LRR
Energy, will be a tax-free, unit-for-unit transaction with an
exchange ratio of 0.55 Vanguard common units per LRE common unit.
In addition, Vanguard will acquire all of the limited liability
company interests in LRE GP, LLC in exchange for
12,320 Vanguard common units. The transaction is expected to
close in the third quarter of 2015.
On April 20, 2015, LRR Energy announced that the Board of
Directors of its general partner declared a reduced cash
distribution for the first quarter of 2015 of $0.1875 per
outstanding unit, or $0.75 on an annualized basis. The distribution
will be paid on May 15, 2015 to all unitholders of record as of the
close of business on May 1, 2015.
As of April 30, 2015, LRR Energy had $240 million of outstanding
borrowings under its revolving credit facility and $50 million of
outstanding borrowings under its term loan. LRR Energy is currently
in discussions with its lenders as it relates to the spring
redetermination of the borrowing base under its revolving credit
facility. LRR Energy expects to finalize the borrowing base
redetermination process by May 11, 2015.
LRR Energy’s term loan contains various covenants and
restrictive provisions as described in the Form 10-K for the year
ended December 31, 2014. LRR Energy is required to test the asset
coverage ratio at specified intervals as described in the term loan
agreement. LRR Energy does not expect to be in compliance with the
asset coverage ratio during the spring borrowing base
redetermination; however, it expects to receive a waiver from the
lender for the asset coverage ratio covenant in connection with the
redetermination.
Commodity Derivative Contracts
As of March 31, 2015, LRR Energy had the following outstanding
derivative contracts.
Index 2015
2016 2017 2018 Natural gas positions
Price swaps (MMBTUs) NYMEX-HH 4,078,287 5,433,888 5,045,760
3,452,172 Weighted average price $ 5.73 $ 4.29 $ 4.61 $ 4.05
Basis swaps (MMBTUs) (1) 3,948,029 2,877,047 - - Weighted average
price $ (0.1663 ) $ (0.1115 ) $ - $ -
Index 2015
2016 2017 2018 Oil positions Price
swaps (BBLs) NYMEX-WTI 553,718 610,131 473,698 562,524 Weighted
average price $ 93.27 $ 87.27 $ 84.34 $ 82.26 Basis swaps
(BBLs) Argus- 288,575 - - - Weighted average price Midland-Cushing
$ (3.3556 ) $ - $ - $ -
NGL positions Price swaps
(BBLs) Mont Belvieu 173,042 - - - Weighted average price $ 34.45 $
- $ - $ -
(1) Our natural gas swaps are
traded on the following indices: Centerpoint East, Houston Ship
Channel, AHA and TEXOK.
Quarterly Report on Form 10-Q
LRR Energy expects to file its Quarterly Report on Form 10-Q
with the Securities and Exchange Commission (the “SEC”) no later
than May 11, 2015. 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,
May 1, 2015, at 10:00 a.m. Eastern time (9:00 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:
24969257). 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 from May 4, 2015 through
May 15, 2015. Participants may access this replay by dialing
1-800-585-8367 (conference ID: 24969257).
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.
Important Information and Where to Find It
In connection with the proposed merger, Vanguard intends to file
with the SEC a Registration Statement on Form S-4 that will include
a preliminary proxy statement of LRR Energy that also constitutes a
preliminary prospectus of Vanguard. A definitive proxy
statement/prospectus will be sent to security holders of LRR Energy
seeking their approval with respect to the proposed merger.
Vanguard and LRR Energy also plan to file other documents with the
SEC regarding the proposed transaction. INVESTORS AND SECURITY
HOLDERS ARE URGED TO CAREFULLY READ THE PROXY STATEMENT/PROSPECTUS
AND OTHER DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE,
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and
security holders will be able to obtain a free copy of the proxy
statement/prospectus (if and when it becomes available) and other
documents filed by Vanguard and LRR Energy with the SEC through the
website maintained by the SEC at http://www.sec.gov. Copies of the
documents filed with the SEC by Vanguard will be available free of
charge on Vanguard’s internet website at http://www.vnrllc.com or
by contacting Vanguard’s Investor Relations Department by email at
investorrelations@vnrllc.com or by phone at (832) 327-2234. Copies
of the documents filed with the SEC by LRR Energy will be available
free of charge on LRR Energy’s internet website at
http://www.lrrenergy.com or by contacting LRR Energy’s Investor
Relations Department by email at info@lrrenergy.com or by phone at
(713) 345-2145.
Participants in the Solicitation
Vanguard, LRR Energy, and their respective directors, executive
officers and other members of their management and employees may be
deemed to be “participants” in the solicitation of proxies in
connection with the proposed merger. Investors and security holders
may obtain information regarding Vanguard’s directors, executive
officers and other members of its management and employees in
Vanguard’s Annual Report on Form 10-K for the year ended December
31, 2014, which was filed with the SEC on March 2, 2015, Vanguard’s
proxy statement for its 2015 annual meeting, which was filed with
the SEC on April 20, 2015, and any subsequent statements of changes
in beneficial ownership on file with the SEC. Investors and
security holders may obtain information regarding LRR Energy’s
directors, executive officers and other members of their management
and employees in LRR Energy’s Annual Report on Form 10-K for the
year ended December 31, 2014, which was filed with the SEC on March
4, 2015, and any subsequent statements of changes in beneficial
ownership on file with the SEC. These documents can be obtained
free of charge from the sources listed above. Additional
information regarding the interests of these individuals will also
be included in the proxy statement/prospectus regarding the
proposed transaction when it becomes available.
Forward-Looking Statements
This press release includes “forward-looking statements” as
defined by the Securities and Exchange Commission. All statements
other than historical facts, including, without limitation,
statements regarding the expected benefits of the proposed
transaction to Vanguard and LRR Energy and their unitholders, the
anticipated completion of the proposed transaction or the timing
thereof, the expected future reserves, production, financial
position, business strategy, revenues, earnings, costs, capital
expenditures and debt levels of the combined company, and plans and
objectives of management for future operations, are forward-looking
statements. When used in this press release, words such as we
“may,” “can,” “expect,” “intend,” “plan,” “estimate,” “anticipate,”
“project,” “believe,” “will” or “should” or the negative thereof or
variations thereon or similar terminology are generally intended to
identify forward-looking statements. It is uncertain whether the
events anticipated will transpire, or if they do occur what impact
they will have on the results of operations and financial condition
of Vanguard, LRR Energy or of the combined company. Such
forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those
expressed in, or implied by, such statements.
These risks and uncertainties include, but are not limited to:
the ability to obtain unitholder approval of the proposed
transaction; the ability to complete the proposed transaction on
anticipated terms and timetable; Vanguard’s and LRR Energy’s
ability to integrate successfully after the transaction and achieve
anticipated benefits from the proposed transaction; the possibility
that various closing conditions for the transaction may not be
satisfied or waived; risks relating to any unforeseen liabilities
of Vanguard or LRR Energy; declines in oil, natural gas liquids or
natural gas prices; the level of success in exploitation,
development and production activities; adverse weather conditions
that may negatively impact development or production activities;
the timing of exploitation and development expenditures;
inaccuracies of reserve estimates or assumptions underlying them;
revisions to reserve estimates as a result of changes in commodity
prices; impacts to financial statements as a result of impairment
write-downs; risks related to level of indebtedness and periodic
redeterminations of the borrowing base under Vanguard’s and LRR
Energy’s credit agreements; the ability of Vanguard and LRR Energy
to comply with covenants contained in the agreements governing
their indebtedness; ability to generate sufficient cash flows from
operations to meet the internally funded portion of any capital
expenditures budget; ability to obtain external capital to finance
exploitation and development operations and acquisitions; federal,
state and local initiatives and efforts relating to the regulation
of hydraulic fracturing; failure of properties to yield oil or gas
in commercially viable quantities; uninsured or underinsured losses
resulting from oil and gas operations; inability to access oil and
gas markets due to market conditions or operational impediments;
the impact and costs of compliance with laws and regulations
governing oil and gas operations; ability to replace oil and
natural gas reserves; any loss of senior management or technical
personnel; competition in the oil and gas industry; risks arising
out of hedging transactions; and other risks described under the
caption “Risk Factors” in Vanguard’s and LRR Energy’s Annual
Reports on Form 10-K for the period ended December 31, 2014.
Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of their dates.
Except as required by law, neither Vanguard nor LRR Energy intends
to update or revise its forward-looking statements, whether as a
result of new information, future events or otherwise.
LRR Energy, L.P.
Selected Operating Data
(unaudited)
Three Months Ended March 31, 2015
2014 Production: Oil (MBbls) 275 218 Natural gas
(MMcf) 1,518 1,622 NGLs (MBbls) 90 85 Total (MBoe)
618 573 Average net production (Boe/d) 6,867 6,367
Average sales price: Oil (per Bbl): Sales price $ 43.87 $
92.46 Effect of settled commodity derivative instruments
31.73 (0.79 ) Realized sales price $ 75.60 $ 91.67
Natural gas (per Mcf): Sales price $ 2.81 $ 4.99 Effect of settled
commodity derivative instruments 2.46 0.53 Realized
sales price $ 5.27 $ 5.52 NGLs (per Bbl): Sales price $
13.01 $ 39.58 Effect of settled commodity derivative instruments
10.51 (3.78 ) Realized sales price $ 23.52 $ 35.80
Average unit costs per Boe: Lease operating expenses
$ 10.96 $ 10.18 Production and ad valorem taxes $ 2.05 $ 4.19
General and administrative expenses $ 6.13 $ 5.55 Depletion and
depreciation $ 14.37 $ 14.76
Derivative instrument
settlements and amortization (in thousands): Commodity $
13,405 $ 366 Interest rate $ (405 ) $ (200 )
LRR Energy, L.P.
Consolidated Condensed Statement of
Operations
(in thousands, except per unit
amounts)
(unaudited)
Three Months Ended March 31, 2015
2014 Revenues: Oil sales $ 12,064 $ 20,156 Natural
gas sales 4,266 8,099 Natural gas liquids sales 1,171 3,364 Gain
(loss) on commodity derivative instruments, net 18,682 (5,622 )
Other income 29 31 Total revenues 36,212 26,028
Operating Expenses: Lease operating expense 6,772 5,835
Production and ad valorem taxes 1,266 2,400 Depletion and
depreciation 8,880 8,465 Impairment of oil and natural gas
properties 35,706 - Accretion expense 511 503 Loss (gain) on
settlement of asset retirement obligations 64 40 General and
administrative expense 3,791 3,182 Total operating
expenses 56,990 20,425 Operating income (loss) (20,778 )
5,603 Other income (expense), net Interest expense (2,769 )
(2,541 ) Gain (loss) on interest rate derivative instruments, net
(1,351 ) (294 ) Other income (expense), net (4,120 )
(2,835 ) Income (loss) before taxes (24,898 ) 2,768 Income
tax expense (38 ) (74 ) Net income (loss) available
to unitholders $ (24,936 ) $ 2,694
Computation of
net income (loss) per limited partner unit:
General partner’s interest in net income (loss) $ (1,839 ) $ 3
Limited partners’ interest in net income (loss) $ (23,097 )
$ 2,691 Net income (loss) per limited partner unit (basic
and diluted) $ (0.82 ) $ 0.10 Weighted average number of
limited partner units outstanding 28,072 26,342
LRR Energy, L.P.
Consolidated Condensed Statement of
Cash Flows
(in thousands)
(unaudited)
Three Months Ended March 31, 2015
2014 CASH FLOWS FROM OPERATING ACTIVITIES Net income
(loss) $ (24,936 ) $ 2,694
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depletion and depreciation 8,880 8,465 Impairment of oil and
natural gas properties 35,706 - Accretion expense 511 503
Amortization of equity awards 345 285 Amortization of derivative
contracts 114 157 Amortization of deferred financing costs and
other 170 102 Loss (gain) on settlement of asset retirement
obligations 64 40 Changes in operating assets and liabilities:
Change in receivables 1,674 (996 ) Change in prepaid expenses (2 )
377 Change in derivative assets and liabilities (4,331 ) 6,082
Change in amounts due to/from affiliates (654 ) (4,412 ) Change in
accrued liabilities and deferred tax liabilities (1,893 )
2,829 Net cash provided by (used in) operating activities 15,648
16,126 CASH FLOWS FROM INVESTING ACTIVITIES Development of
oil and natural gas properties (12,280 ) (6,803 ) Acquisition of
oil and natural gas properties (229 ) - Disposition of oil and
natural gas properties - 65 Net cash provided by (used in)
investing activities (12,509 ) (6,738 ) CASH FLOWS FROM
FINANCING ACTIVITIES Borrowings under revolving credit facility
10,000 10,000 Principal payments on revolving credit facility -
(10,000 ) Equity offering, net of expenses 3 4,237 Distributions
(13,978 ) (12,884 ) Net cash provided by (used in) financing
activities (3,975 ) (8,647 ) NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (836 ) 741 CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,576 4,417 CASH AND CASH
EQUIVALENTS, END OF PERIOD $ 2,740 $ 5,158
LRR Energy, L.P.
Consolidated Condensed Balance
Sheet
(in thousands, except unit
amounts)
(unaudited)
March 31, 2015 December 31, 2014
ASSETS Current assets: Cash and cash equivalents $
2,740 $ 3,576 Accounts receivable 9,450 11,124 Commodity derivative
instruments 43,368 45,924 Due from affiliates 6,351 5,697 Prepaid
expenses 1,672 1,840 Total current assets 63,581
68,161 Property and equipment (successful efforts method) 963,400
956,326 Accumulated depletion, depreciation and impairment
(550,942 ) (506,368 ) Total property and equipment, net
412,458 449,958 Commodity derivative instruments 46,454 38,540
Deferred financing costs, net of accumulated amortization and other
assets 2,295 2,295 TOTAL ASSETS $ 524,788 $ 558,954
LIABILITIES AND UNITHOLDERS’ EQUITY Current
liabilities: Accrued liabilities $ 3,613 $ 5,506 Accrued
capital cost 3,801 9,176 Commodity derivative instruments 866 556
Interest rate derivative instruments 2,750 2,327 Asset retirement
obligations 1,079 1,065 Total current liabilities
12,109 18,630
Long-term liabilities: Commodity derivative
instruments 116 232 Interest rate derivative instruments 1,340 817
Term loan 50,000 50,000 Revolving credit facility 240,000 230,000
Asset retirement obligations 41,053 40,539 Deferred tax liabilities
99 99 Total long-term liabilities 332,608 321,687
Total liabilities 344,717 340,317
Unitholders’ Equity:
General partner (22,400 units issued and outstanding as of March
31, 2015 and December 31, 2014) (1,540 ) 310 Public common
unitholders (19,504,833 units issued and outstanding as of March
31, 2015 and 19,492,291 units issued and outstanding as of December
31, 2014) 181,611 208,273 Affiliated common unitholders (8,569,600
units issued and outstanding as of March 31, 2015 and 4,089,600
issued and outstanding as of December 31, 2014) - 4,643
Subordinated unitholders (4,480,000 units issued and outstanding as
of December 31, 2014) - 5,411 Total Unitholders’
Equity 180,071 218,637 TOTAL LIABILITIES AND
UNITHOLDERS’ EQUITY $ 524,788 $ 558,954
LRR Energy, L.P.
Non-GAAP Reconciliation
(in thousands)
(unaudited)
LRR Energy defines Adjusted EBITDA as net income (loss) plus or
minus income tax expense; interest expense-net, including loss
(gain) on interest rate derivative instruments, net; depletion and
depreciation; accretion of asset retirement obligations;
amortization of equity awards; loss (gain) on settlement of asset
retirement obligations; loss (gain) on commodity derivative
instruments, net; commodity derivative instrument net cash
settlements; impairment of oil and natural gas properties; and
other non-recurring items that LRR Energy deems appropriate.
Adjusted EBITDA is used as a supplemental financial measure by
LRR Energy’s management and by external users of its financial
statements, such as investors, commercial banks, research analysts
and others, to assess LRR Energy’s financial performance as
compared to that of other companies and partnerships in the
industry, without regard to financing methods, capital structure or
historical cost basis.
Distributable Cash Flow is defined as Adjusted EBITDA less cash
income tax expense; cash interest expense; and estimated
maintenance capital. Distribution Coverage Ratio is defined as the
ratio of Distributable Cash Flow to the total quarterly
distribution payable on all of LRR Energy’s outstanding common,
subordinated and general partner units.
Distributable Cash Flow and the Distribution Coverage Ratio are
used as supplemental financial measures by LRR Energy’s management
and by external users of its financial statements, such as
investors, commercial banks, research analysts and others to
compare basic cash flows generated by LRR Energy (prior to the
establishment of any retained cash reserve by its general partner)
to the cash distributions it expects to pay its unitholders.
Distributable Cash Flow and the Distribution Coverage Ratio are
also important financial measures for LRR Energy’s unitholders as
they serve as indicators of its success in providing a cash return
on investment. Specifically, these metrics indicate to investors
whether or not LRR Energy is generating cash flow at a level that
can sustain or support an increase in its quarterly distribution
rates. Distributable Cash Flow and the Distribution Coverage Ratio
are quantitative standards used throughout the investment community
with respect to publicly traded partnerships and limited liability
companies because the yield is based on the amount of cash
distributions the entity pays to a unitholder compared to the unit
price.
LRR Energy’s management believes that Adjusted EBITDA,
Distributable Cash Flow and the Distribution Coverage Ratio 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 its 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 should
not be considered alternatives to net income, operating income or
any other measures of financial performance presented in accordance
with GAAP. LRR Energy’s Adjusted EBITDA, Distributable Cash Flow
and Distribution Coverage Ratio 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 in the same manner. The following table
presents a reconciliation of Adjusted EBITDA, Distributable Cash
Flow and Distribution Coverage Ratio to net income (loss), LRR
Energy’s most directly comparable GAAP financial performance
measure, for the three months ended March 31, 2015 and 2014.
LRR Energy, L.P.
Non-GAAP Reconciliation
(continued)
(in thousands)
(unaudited)
Three Months Ended March 31, 2015
2014 Net income (loss) $ (24,936 ) $ 2,694 Income tax
expense 38 74 Interest expense-net, including loss (gain) on
interest rate derivative instruments, net 4,120 2,835 Depletion and
depreciation 8,880 8,465 Accretion of asset retirement obligations
511 503 Amortization of equity awards 345 285 Loss (gain) on
settlement of asset retirement obligations 64 40 Loss (gain) on
commodity derivative instruments, net (18,682 ) 5,622 Commodity
derivative instrument net cash settlements 13,519 523 Impairment of
oil and natural gas properties 35,706 - Adjusted
EBITDA $ 19,565 $ 21,041 Adjusted EBITDA 19,565 21,041 Cash
income tax expense (38 ) (44 ) Cash interest expense (2,943 )
(2,644 ) Estimated maintenance capital (1) (4,750 )
(5,000 ) Distributable Cash Flow $ 11,834 $ 13,353
Cash distribution s $ 5,268 $ 13,106 Distribution Coverage Ratio
2.25x 1.02x
(1) 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.
LRR Energy, L.P.Investor Contacts:Angelique Brou,
713-345-2145Financial Reporting Managerabrou@lrrenergy.comorJaime
Casas, 713-345-2126Chief Financial Officerjcasas@lrrenergy.com
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