LRR Energy, L.P. (NYSE: LRE) (“LRR Energy”) announced today its
operating and financial results for the three and six months ended
June 30, 2015.
Selected Financial and Operating Information
A summary of selected financial and operating information
follows. For consolidated financial statements for the three and
six months ended June 30, 2015, please see the accompanying tables
on pages 7-9.
Three Months Ended Six
Months Ended June 30, 2015 June 30, 2015
(unaudited) (in thousands, except distribution coverage
ratio) Oil, natural gas and natural gas liquids sales $
19,608 $ 37,109 Gain (loss) on commodity derivative instruments,
net (1) $ (8,927 ) $ 9,755 Total revenues $ 10,707 $ 46,919 Lease
operating expense $ 6,008 $ 12,780 Production and ad valorem taxes
$ 1,482 $ 2,748 General and administrative expense $ 12,673 $
16,464 Interest expense $ 3,120 $ 5,889 Net income (loss) available
to unitholders $ (22,314 ) $ (47,250 ) Net income (loss) per
limited partner unit $ (0.52 ) $ (1.35 ) Capital
expenditures $ 5,096 $ 17,376 Adjusted EBITDA (2) $ 20,454 $ 40,169
Distributable cash flow (2) $ 11,962 $ 23,946 Cash
distribution $ 5,268 $ 10,536 Distribution coverage ratio (2) 2.27x
2.27x
(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 Six Months
Ended June 30, 2015 June 30, 2015
Average net production (Boe/d) 6,747 6,807 Average cost per Boe:
Lease operating expense $ 9.79 $ 10.37 Production and ad valorem
taxes $ 2.41 $ 2.23 General and administrative expense $ 20.64 $
13.36
LRR Energy’s average net production for July 2015 was
approximately 6,900 Boe/d through July 24, 2015.
Recent Events
As of July 29, 2015, LRR Energy had $235 million of outstanding
borrowings under its revolving credit facility and $50 million of
outstanding borrowings under its term loan. LRR Energy currently
has $8 million of available borrowing capacity under its revolving
credit facility and $11 million of cash on hand.
LRR Energy previously announced that the board of directors of
its general partner declared a cash distribution for the second
quarter of 2015 of $0.1875 per outstanding unit, or $0.75 on an
annualized basis. The distribution will be paid on August 14, 2015
to all unitholders of record as of the close of business on July
31, 2015.
Additionally, LRR Energy previously announced that the special
meeting of unitholders to approve its merger (the “Merger”) with
Vanguard Natural Resources, LLC (“Vanguard”) is scheduled to occur
on September 10, 2015. LRR Energy’s unitholders of record at the
close of business on July 24, 2015 will be entitled to receive
notice of the special meeting and vote at the special meeting. LRR
Energy expects the Merger to close in the third quarter of
2015.
Commodity Derivative Contracts
As of June 30, 2015, LRR Energy had the following outstanding
derivative contracts.
Index 2015 2016 2017 2018
Natural gas positions Price swaps (MMBtu) NYMEX-HH 2,688,648
5,433,888 5,045,760 3,452,172 Weighted average price $ 5.75 $ 4.29
$ 4.61 $ 4.05 Basis swaps (MMBtu)
(1)
2,601,807 2,877,047 - - Weighted average price $ (0.1666 ) $
(0.1115 ) $ - $ -
Oil positions Price swaps (Bbl)
NYMEX-WTI 360,683 610,131 473,698 562,524 Weighted average price $
93.42 $ 87.27 $ 84.34 $ 82.26 Basis swaps (Bbl) Argus-
187,000 364,800 - - Weighted average price Midland-Cushing $
(3.2500 ) $ (1.0500 ) $ - $ -
NGL positions Price
swaps (Bbl) Mont Belvieu 112,877 - - - Weighted average price $
34.45 $ - $ - $ -
(1) Our natural gas basis swaps are traded on the following
indices: Centerpoint East, Houston Ship Channel, WAHA and
TEXOK.
Quarterly Report on Form 10-Q
LRR Energy expects to file its Quarterly Report on Form 10-Q
(the “10-Q”) with the Securities and Exchange Commission (the
“SEC”) no later than August 10, 2015. The 10-Q will be available on
the Investor Relations page of LRR Energy’s website
www.lrrenergy.com or from the SEC website www.sec.gov.
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 Merger, Vanguard filed with the SEC a
preliminary Registration Statement on Form S-4 that includes 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 SEC. 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
June 30, Six Months Ended June 30, 2015
2014 2015 2014 Production: Oil
(MBbls) 270 216 545 434 Natural gas (MMcf) 1,470 1,666 2,988 3,288
NGLs (MBbls) 99 90 189 175 Total (MBoe)
614 584 1,232 1,157 Average net production (Boe/d) 6,747 6,418
6,807 6,392
Average sales price: Oil (per Bbl): Sales
price $ 52.69 $ 94.23 $ 48.24 $ 93.34 Effect of settled commodity
derivative instruments 23.74 (3.50 ) 27.77
(2.14 ) Realized sales price $ 76.43 $ 90.73 $ 76.01 $ 91.20
Natural gas (per Mcf): Sales price $ 2.53 $ 4.54 $ 2.67 $ 4.76
Effect of settled commodity derivative instruments 2.77
0.71 2.61 0.62 Realized sales price $ 5.30 $
5.25 $ 5.28 $ 5.38 NGLs (per Bbl): Sales price $ 16.78 $ 30.67 $
14.98 $ 34.99 Effect of settled commodity derivative instruments
9.41 (1.81 ) 9.94 (2.77 ) Realized
sales price $ 26.19 $ 28.86 $ 24.92 $ 32.22
Average cost
per Boe: Lease operating expenses $ 9.79 $ 11.70 $ 10.37 $
10.95 Production and ad valorem taxes 2.41 3.85 2.23 4.02 General
and administrative expenses 20.64 4.62 13.36 5.08 Depletion and
depreciation 14.16 14.87 14.26 14.82
Derivative
instrument settlements and amortization (in thousands):
Commodity 11,413 $ 271 24,818 $ 637 Interest rate (672 ) $ (204 )
(1,077 ) $ (404 )
LRR Energy, L.P.
Consolidated Condensed Statement of
Operations
(in thousands, except per unit
amounts)
(unaudited)
Three Months Ended
June 30, Six Months Ended June 30, 2015
2014 2015 2014 Revenues: Oil sales $ 14,227 $
20,354 $ 26,291 $ 40,510 Natural gas sales 3,720 7,565 7,986 15,664
Natural gas liquids sales 1,661 2,760 2,832 6,124 Gain (loss) on
commodity derivative instruments, net (8,927 ) (13,328 ) 9,755
(18,950 ) Other income 26 40 55 71
Total revenues 10,707 17,391 46,919 43,419 Operating
expenses: Lease operating expense 6,008 6,829 12,780 12,664
Production and ad valorem taxes 1,482 2,248 2,748 4,648 Depletion
and depreciation 8,694 8,680 17,574 17,145 Impairment of oil and
natural gas properties 256 - 35,962 - Accretion expense 518 510
1,029 1,013 Loss (gain) on settlement of asset retirement
obligations 4 21 68 61 General and administrative expense
12,673 2,699 16,464 5,881 Total operating
expenses 29,635 20,987 86,625 41,412 Operating income (loss)
(18,928 ) (3,596 ) (39,706 ) 2,007 Other income (expense),
net Interest expense (3,120 ) (2,575 ) (5,889 ) (5,116 ) Gain
(loss) on interest rate derivative instruments, net (322 )
(1,128 ) (1,673 ) (1,422 ) Other income
(expense), net (3,442 ) (3,703 ) (7,562 ) (6,538 ) Income
(loss) before taxes (22,370 ) (7,299 ) (47,268 ) (4,531 ) Income
tax (expense) benefit 56 (38 ) 18 (112
) Net income (loss) available to unitholders $ (22,314 ) $ (7,337 )
$ (47,250 ) $ (4,643 )
Computation of net income
(loss) per limited partner unit: General
partners’ interest in net income (loss) $ (7,595 ) $ (7 ) $ (9,434
) $ (4 ) Limited partners’ interest in net income (loss) $
(14,719 ) $ (7,330 ) $ (37,816 ) $ (4,639 ) Net income
(loss) per limited partner unit (basic and diluted) $ (0.52 ) $
(0.27 ) $ (1.35 ) $ (0.17 ) Weighted average number of
limited partner units outstanding 28,074 26,733 28,073 26,539
LRR Energy, L.P.
Consolidated Condensed Statement of
Cash Flows
(in thousands)
(unaudited)
Six Months Ended June 30, 2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (47,250 )
$ (4,643 ) Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: Depletion and
depreciation 17,574 17,145 Impairment of oil and natural gas
properties 35,962 - Accretion expense 1,029 1,013 Amortization of
equity awards 838 534 Amortization of derivative contracts 243 330
Amortization of deferred financing costs and other 341 208 Loss
(gain) on settlement of asset retirement obligations 68 61 Changes
in operating assets and liabilities: Change in receivables 2,465 75
Change in prepaid expenses 483 (209 ) Change in derivative assets
and liabilities 15,659 20,605 Change in amounts due to/from
affiliates 4,241 (5,992 ) Change in accrued liabilities and
deferred tax liabilities 4,301 2,536
Net cash provided by (used in) operating activities 35,954 31,663
CASH FLOWS FROM INVESTING ACTIVITIES Development of oil and
natural gas properties (17,376 ) (17,094 ) Acquisition of oil and
natural gas properties (230 ) - Disposition of oil and natural gas
properties - 65 Net cash provided by
(used in) investing activities (17,606 ) (17,029 ) CASH
FLOWS FROM FINANCING ACTIVITIES Borrowings under revolving credit
facility 10,000 20,000 Principal payments on revolving credit
facility (5,000 ) (25,000 ) Equity offering, net of expenses 3
14,810 Distributions (19,246 ) (25,990 ) Net cash
provided by (used in) financing activities (14,243 ) (16,180 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,105
(1,546 ) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
3,576 4,417 CASH AND CASH
EQUIVALENTS, END OF PERIOD $ 7,681 $ 2,871
LRR Energy, L.P.
Consolidated Condensed Balance
Sheet
(in thousands, except unit
amounts)
(unaudited)
June 30, 2015 December 31, 2014 ASSETS
Current assets: Cash and cash equivalents $ 7,681 $ 3,576
Accounts receivable 8,659 11,124 Commodity derivative instruments
32,087 45,924 Due from affiliates 1,456 5,697 Prepaid expenses
1,240 1,840 Total current assets 51,123
68,161 Property and equipment (successful efforts method) 972,398
956,326 Accumulated depletion, depreciation and impairment
(559,893 ) (506,368 ) Total property and equipment, net
412,505 449,958 Commodity derivative instruments 37,159 38,540
Deferred financing costs, net of accumulated amortization and other
assets 2,076 2,295 TOTAL ASSETS $
502,863 $ 558,954
LIABILITIES AND UNITHOLDERS’
EQUITY Current liabilities: Accrued liabilities $ 9,910
$ 5,506 Accrued capital cost 7,642 9,176 Commodity derivative
instruments 783 556 Interest rate derivative instruments 2,781
2,327 Asset retirement obligations 2,153 1,065
Total current liabilities 23,269 18,630
Long-term
liabilities: Commodity derivative instruments 94 232 Interest
rate derivative instruments 960 817 Term loan 50,000 50,000
Revolving credit facility 235,000 230,000 Asset retirement
obligations 40,558 40,539 Deferred tax liabilities -
99 Total long-term liabilities 326,612 321,687 Total
liabilities 349,881 340,317
Unitholders’ Equity: General
partner (22,400 units issued and outstanding as of June 30, 2015
and December 31, 2014) (9,139 ) 310 Public common unitholders
(19,504,833 units issued and outstanding as of June 30, 2015 and
19,492,291 units issued and outstanding as of December 31, 2014)
162,121 208,273 Affiliated common unitholders (8,569,600 units
issued and outstanding as of June 30, 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 152,982 218,637 TOTAL
LIABILITIES AND UNITHOLDERS’ EQUITY $ 502,863 $ 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 and six months ended June 30, 2015 and
2014.
LRR Energy, L.P.
Non-GAAP Reconciliation
(continued)
(in thousands)
(unaudited)
Three Months Ended June 30, Six Months Ended June
30, 2015 2014 2015 2014 Net
income (loss) $ (22,314 ) $ (7,337 ) $ (47,250 ) $ (4,643 ) Income
tax expense (benefit) (56 ) 38 (18 ) 112 Interest expense-net,
including loss (gain) on interest rate derivative instruments, net
3,442 3,703 7,562 6,538 Depletion and depreciation 8,694 8,680
17,574 17,145 Accretion of asset retirement obligations 518 510
1,029 1,013 Amortization of equity awards 493 249 838 534 Loss
(gain) on settlement of asset retirement obligations 4 21 68 61
Loss (gain) on commodity derivative instruments, net 8,927 13,328
(9,755 ) 18,950 Commodity derivative instrument net cash
settlements 11,542 444 25,061 967 Impairment of oil and natural gas
properties 256 - 35,962 - Other non-recurring items (1)
8,948 - 9,098 -
Adjusted EBITDA $ 20,454 $ 19,636 $ 40,169 $
40,677 Adjusted EBITDA 20,454 19,636 40,169 40,677
Cash income tax expense (47 ) (44 ) (85 ) (88 ) Cash interest
expense (3,695 ) (2,757 ) (6,638 ) (5,401 ) Estimated maintenance
capital (2) (4,750 ) (5,000 ) (9,500 )
(10,000 ) Distributable Cash Flow $ 11,962 $ 11,835 $
23,946 $ 25,188 Cash distribution $
5,268 $ 13,597 $ 10,536 $ 26,703 Distribution Coverage Ratio 2.27x
0.87x 2.27x 0.94x
(1)
Includes one-time costs associated with the merger with
Vanguard including consulting and legal fees and severance
payments.
(2)
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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150730006656/en/
LRR Energy, L.P.Angelique Brou, (713) 345-2145Financial
Reporting Managerabrou@lrrenergy.comorJaime Casas, (713)
345-2126Chief Financial Officerjcasas@lrrenergy.com
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