LRR Energy, L.P. Announces 2013 Fourth Quarter and Year End Results and 2014 Guidance

HOUSTON--()--LRR Energy, L.P. (NYSE: LRE) (“LRR Energy”) announced today its operating and financial results for the three months and year ended December 31, 2013.

Eric Mullins, Chairman and Co-Chief Executive Officer, commented, "We are pleased with our fourth quarter 2013 results, and our 2013 full year results were in line with our public guidance.” Charlie Adcock, Co-Chief Executive Officer, reflected that, “During 2013, we closed two acquisitions from Lime Rock Resources, completed a follow-on equity offering and increased our distribution per unit each quarter.”

Selected Financial and Operating Information

LRR Energy’s financial statements have been recast to include all closed acquisitions through December 31, 2013 from Lime Rock Resources since its initial public offering, as the acquisitions were considered between entities under common control. A summary of selected financial and operating information follows. For consolidated financial statements for the three months and year ended December 31, 2013, please see the accompanying tables on pages 7-9.

             
Three Months Ended Year Ended
December 31, 2013 December 31, 2013
(unaudited)
(in thousands)
 
Oil, natural gas and natural gas liquids sales $ 29,885 $ 114,128
Gain on commodity derivative
instruments, net (1) $ 776 $ 781
Total revenues $ 30,741 $ 115,095
Lease operating expense $ 7,325 $ 25,397
Production and ad valorem taxes $ 2,136 $ 8,614
Impairment of oil and natural gas properties (2) $ 63,663 $ 63,663
General and administrative expense $ 3,099 $ 11,965
Interest expense $ 2,372 $ 9,235
Net loss $ (62,086 ) $ (48,281 )
Net loss available to unitholders $ (62,086 ) $ (48,729 )
Net loss per limited partner unit $ (2.37 ) $ (1.92

)

 
   

(1)

See commodity derivative settlements on page 6.

(2)

Non-cash charge to impair the value of our proved oil and natural gas properties in the Permian Basin and the Gulf Coast regions.

 
           
Three Months Ended Year Ended
December 31, 2013 December 31, 2013
(unaudited)
(in thousands)
 
Capital expenditures $ 10,948 $ 35,805
Adjusted EBITDA (1) $ 20,431 $ 79,550
Distributable Cash Flow (1) $ 12,873 $ 49,605
 
Cash distribution - common unitholders $ 9,580 $ 37,878
Cash distribution - all unitholders $ 12,884 $ 50,992
Distribution Coverage Ratio - common unitholders(1) 1.34 1.31
Distribution Coverage Ratio - all unitholders(1) 1.00 0.97
 
   

(1)

Non-GAAP financial measure. See reconciliation of non-GAAP financial measures beginning on page 10.

 
           
Three Months Ended Year Ended
December 31, 2013 December 31, 2013
 
Average net production (Boe/d) 6,522 6,466
Average cost per Boe:
Lease operating expense $ 12.21 $ 10.76
Production and ad valorem taxes $ 3.56 $ 3.65
General and administrative expense $ 5.17 $ 5.07
 

Proved Reserves

As of December 31, 2013, LRR Energy had 30.1 MMBoe of estimated proved reserves, of which approximately 88% were proved developed reserves. Our reserves are 51% natural gas and 49% oil and NGLs as measured by volume as of December 31, 2013. These estimates were calculated using the unweighted arithmetic average first-day-of-the-month closing price for each month of 2013. These prices were adjusted by lease for quality, transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price received at the wellhead. The average trailing twelve-month index prices were $96.78/Bbl for NYMEX-WTI and $3.67/MMBtu for NYMEX-Henry Hub natural gas. For NGL pricing, a differential is applied to the $96.78/Bbl average trailing twelve-month index price for oil. As of December 31, 2013, the standardized measure of our estimated proved reserves was $392.6 million.

Recent Events

As of March 4, 2014, LRR Energy had $205 million of outstanding borrowings under its revolving credit facility and $50 million of outstanding borrowings under its term loan. LRR Energy currently has $45 million of available borrowing capacity under its revolving credit facility. On February 4, 2014, LRR Energy entered into an At-the-Market Offering Program (the “ATM Program”) with MLV and Co. LLC which allows it to sell from time to time its common units having an aggregate offering amount of up to $75 million. Management believes cash flow from operations, the capacity under the revolving credit facility and the proceeds from the ATM Program will provide ample financial flexibility to execute its 2014 capital program and distribution strategy.

On January 17, 2014, LRR Energy announced that the Board of Directors of its general partner declared an increased cash distribution for the fourth quarter of 2013 of $0.4900 per outstanding unit, or $1.96 on an annualized basis. The distribution was paid on February 14, 2014 to all unitholders of record as of the close of business on January 31, 2014.

LRR Energy’s average net production for the first quarter of 2014 was approximately 6,400 Boe/d through February 28, 2014 inclusive of some downtime and weather interruptions over that period. LRR Energy estimates that the impact of the winter storms and other shut-ins on total first quarter production will be approximately 80-120 Boe/d.

2014 Guidance

Based on current estimates, and assuming no future acquisitions, the 2014 guidance is as follows:

     
2014 Guidance
Daily Production (Boe/d) 6,400-6,600
 
LOE ($/Boe) $10.50-$11.00
 
Capital Expenditures ($MM)
Maintenance $20.0
Growth and other 14.0
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 December 31, 2013, LRR Energy had the following outstanding derivative contracts.

                             
Index 2014 2015 2016 2017
Natural gas positions
Price swaps (MMBTUs) NYMEX-HH 6,077,016 5,500,236 5,433,888 5,045,760
Weighted average price $ 5.53 $ 5.72 $ 4.29 $ 4.61
 
Basis swaps (MMBTUs) NYMEX 5,876,098 5,326,559 2,877,047 -
Weighted average price $ (0.1521 ) $ (0.1661 ) $ (0.1115 ) $ -
 
Oil positions
Price swaps (BBLs) NYMEX-WTI 723,634 561,833 397,488 198,744
Weighted average price $ 95.76 $ 93.16 $ 86.02 $ 85.75
 
Basis swaps (BBLs) Argus- 410,400 - - -
Weighted average price Midland-Cushing $ (1.00 ) $ - $ - $ -
 
NGL positions
Price swaps (BBLs) Mont Belvieu 183,857 147,823 - -
Weighted average price $ 34.11 $ 34.50 $ - $ -
 

Subsequent to December 31, 2013, LRR Energy acquired the following commodity hedges:

         
Index 2014
NGL positions
Price swaps (BBLs) Mont Belvieu 60,112
Weighted average price $ 35.07
 

Annual Report

LRR Energy expects to file its Annual Report on Form 10-K with the Securities and Exchange Commission no later than March 17, 2014. The 10-K will be available on the Investor Relations page of LRR Energy’s website at www.lrrenergy.com or from the Securities and Exchange Commission website at www.sec.gov.

Webcast and Conference Call

LRR Energy will host a webcast and conference call on Thursday, March 6, 2014, 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: 35537678). 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 March 19, 2014. Participants may access this replay by dialing 1-800-585-8367 (conference ID: 35537678).

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. 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 and future events 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 December 31, Year Ended December 31,
2013 2012 2013 2012
 
Production:
Oil (MBbls) 223 200 837 834
Natural gas (MMcf) 1,746 1,980 7,246 8,487
NGLs (MBbls)   86   79   315   311
Total (MBoe) 600 609 2,360 2,560
Average net production (Boe/d) 6,522 6,620 6,466 6,995
 
Average sales price:
Oil (per Bbl)
Sales price $ 91.78 $ 81.74 $ 92.21 $ 87.43
Effect of settled commodity
derivative instruments   (1.16 )   7.60   (2.45 )   4.38
Realized price $ 90.62 $ 89.34 $ 89.76 $ 91.81
Natural gas (per Mcf)
Sales price $ 3.69 $ 3.30 $ 3.70 $ 2.77
Effect of settled commodity

derivative instruments

  1.55   1.73   1.44   2.13
Realized price $ 5.24 $ 5.03 $ 5.14 $ 4.90
NGLs (per Bbl)
Sales price $ 34.67 $ 33.65 $ 32.21 $ 37.39
Effect of settled commodity
derivative instruments   1.94   6.70   4.08   5.22
Realized price $ 36.61 $ 40.35 $ 36.29 $ 42.61
 
Average cost per Boe:
Lease operating expenses $ 12.21 $ 10.51 $ 10.76 $ 11.36
Production and ad valorem taxes 3.56 3.02 3.65 3.04
Depletion and depreciation 22.75 24.26 18.40 18.33
General and administrative
expenses 5.17 7.28 5.07 5.38
 
Derivative instrument settlements
and amortization (in thousands):
Commodity $ 2,612 $ 5,474 $ 9,661 $ 23,350
Interest rate $ (191 ) $ (170 ) $ (727 ) $ (465 )
 
               

LRR Energy, L.P.

Consolidated Condensed Statement of Operations

(in thousands, except per unit amounts)

(unaudited)

 
Three Months Ended December 31, Year Ended December 31,
2013 2012 2013 2012
Revenues:
Oil sales $ 20,467 $ 16,347 $ 77,181 $ 72,916
Natural gas sales 6,436 6,534 26,800 23,502
Natural gas liquids sales 2,982 2,658 10,147 11,627
Gain on commodity derivative
instruments, net 776 4,773 781 12,748
Other income   80   12   186   45
Total revenues 30,741 30,324 115,095 120,838
 
Operating expenses:
Lease operating expense 7,325 6,401 25,397 29,069
Production and ad valorem taxes 2,136 1,840 8,614 7,790
Depletion and depreciation 13,648 14,776 43,420 46,928
Impairment of oil and natural gas
properties 63,663 - 63,663 3,544
Accretion expense 491 404 1,924 1,575
Loss (gain) on settlement of asset
retirement obligations 24 (17 ) 358 (31 )
General and administrative expense   3,099   4,433   11,965   13,758
Total operating expenses 90,386 27,837 155,341 102,633
 
Operating (loss) income (59,645 ) 2,487 (40,246 ) 18,205
 
Other income (expense), net
Interest expense (2,372 ) (2,055 ) (9,235 ) (6,596 )
Gain (loss) on interest rate
derivative instruments, net   (115 )   (184 )   1,256   (4,650 )
Other income (expense), net   (2,487 )   (2,239 )   (7,979 )   (11,246 )
 
(Loss) income before taxes (62,132 ) 248 (48,225 ) 6,959
Income tax (expense) benefit   46   (2 )   (56 )   (172 )
Net (loss) income $ (62,086 ) $ 246 $ (48,281 ) $ 6,787
Net (loss) income attributable to
predecessor operations   -   (745 )   (448 )   (6,790 )
Net (loss) income available to
unitholders $ (62,086 ) $ (499 ) $ (48,729 ) $ (3 )
 
Computation of net (loss) income
per limited partner unit:
 
General partners’ interest in net
(loss) income $ (62 ) $ - $ (49 ) $ -
 
Limited partners’ interest in net
(loss) income $ (62,024 ) $ (499 ) $ (48,680 ) $ (3 )
 
Net (loss) income per limited partner
unit (basic and diluted) $ (2.37 ) $ (0.02 ) $ (1.92 ) $ (0.00 )
 
Weighted average number of limited
partner units outstanding 26,183 22,429 25,372 22,425
 
 

LRR Energy, L.P.

Consolidated Condensed Statement of Cash Flows

(in thousands)

(unaudited)

 
    Year Ended December 31,
2013     2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (48,281 ) $ 6,787
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depletion and depreciation 43,420 46,928
Impairment of oil and natural gas properties 63,663 3,544
Accretion expense 1,924 1,575
Amortization of equity awards 549 313
Amortization of derivative contracts 1,002 20
Amortization of deferred financing costs and other 394 367
Loss (gain) on settlement of asset retirement obligations 358 (31 )
Purchase of derivative contracts - (59 )
Changes in operating assets and liabilities:
Change in receivables (2,617 ) 5,674
Change in prepaid expenses (855 ) (170 )
Change in derivative assets and liabilities 6,897 14,787
Change in trade accounts payable - (2,707 )
Change in amounts due to/from affiliates (1,722 ) 1,441
Change in accrued liabilities 885 (1,331 )
Change in deferred tax liabilities   (76 )   85
Net cash provided by operating activities 65,541 77,223
 
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of oil and natural gas properties - (10,020 )
Development of oil and natural gas properties (35,805 ) (30,397 )
Expenditures for other property and equipment   -   (16 )
Net cash used in investing activities (35,805 ) (40,433 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Contribution to Lime Rock Resources (734 ) (5,174 )
Deferred financing costs - (562 )
Borrowings under revolving credit facility 60,000 77,200
Principal payments on revolving credit facility (38,000 ) (55,000 )
Borrowings under term loan - 50,000
Equity offering, net of expenses 59,513 -
Distribution to Lime Rock Resources (60,672 ) (64,038 )
Distributions   (48,893 )   (37,262 )
Net cash used in financing activities (28,786 ) (34,836 )
 
NET INCREASE IN CASH AND CASH EQUIVALENTS 950 1,954
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   3,467   1,513
 
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,417 $ 3,467
 
Supplemental disclosure of non-cash items to reconcile
investing and financing activities
Property and equipment:
Change in accrued capital costs $ 1,663 $ (940 )
Asset retirement obligations (476 ) (364 )
 
       

LRR Energy, L.P.

Consolidated Condensed Balance Sheet

(in thousands, except unit amounts)

(unaudited)

 
December 31, 2013 December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents $ 4,417 $ 3,467
Accounts receivable 9,867 7,250
Commodity derivative instruments 9,726 16,484
Prepaid expenses   1,603   748
Total current assets 25,613 27,949
Property and equipment (successful efforts method) 876,674 840,736
Accumulated depletion, depreciation and impairment   (431,837 )   (324,774 )
Total property and equipment, net 444,837 515,962
Commodity derivative instruments 16,746 20,000
Deferred financing costs, net of accumulated amortization, and other   1,154   1,559
TOTAL ASSETS $ 488,350 $ 565,470
LIABILITIES AND UNITHOLDERS’ EQUITY
Current liabilities:
Accrued liabilities $ 2,300 $ 1,415
Accrued capital cost 2,574 2,361
Due to affiliates 255 1,977
Commodity derivative instruments 2,217 1,671
Interest rate derivative instruments 648 659
Asset retirement obligations   488   500
Total current liabilities 8,482 8,583
Long-term liabilities:
Commodity derivative instruments 174 874
Interest rate derivative instruments 1,554 3,526
Term loan 50,000 50,000
Revolving credit facility 200,000 178,000
Asset retirement obligations 35,838 33,591
Deferred tax liabilities   44   120
Total long-term liabilities 287,610 266,111
Total liabilities 296,092 274,694
Unitholders’ equity:
Predecessors’ capital - 60,941
General partner (22,400 units issued and outstanding as of
December 31, 2013 and December 31, 2012) 303 396
Public common unitholders (17,710,334 units issued and
outstanding as of December 31, 2013 and 10,676,742 units
issued and outstanding as of December 31, 2012) 181,290 169,919
Affiliated common unitholders (1,849,600 units issued and
outstanding as of December 31, 2013 and 5,049,600 units
issued and outstanding as of December 31, 2012) 2,093 25,563
Subordinated unitholders (6,720,000 units issued and outstanding
as of December 31, 2013 and December 31, 2012)   8,572   33,957
Total unitholders’ equity   192,258   290,776
TOTAL LIABILITIES AND UNITHOLDERS’ EQUITY $ 488,350 $ 565,470
 

LRR Energy, L.P.

Non-GAAP Reconciliation

(in thousands)

(unaudited)

LRR Energy defines Adjusted EBITDA as net (loss) income plus or minus income tax expense; interest expense-net, including loss on interest rate derivative contracts, net; depletion and depreciation; accretion of asset retirement obligations; amortization of equity awards; loss (gain) on settlement of asset retirement obligations; gain 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 LRR Energy 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 LRR Energy’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 LRR Energy’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 LRR Energy’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 LRR Energy’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 (loss) income, LRR Energy’s most directly comparable GAAP financial performance measure, for the three months and years ended December 31, 2013 and 2012.

 

LRR Energy, L.P.

Non-GAAP Reconciliation

(continued)

(in thousands)

(unaudited)

       
Three Months Ended December 31, Year Ended December 31,
2013     2012 2013     2012
 
Net (loss) income $ (62,086 ) $ 246 $ (48,281 ) $ 6,787
Income tax expense (46 ) 2 56 172
Interest expense-net, including
loss on interest rate derivative
instruments, net 2,487 2,239 7,979 11,246
Depletion and depreciation 13,648 14,776 43,420 46,928
Accretion of asset retirement
obligations 491 404 1,924 1,575
Amortization of equity awards 158 82 549 313
Loss (gain) on settlement of asset
retirement obligations 24 (17 ) 358 (31 )
Gain on commodity derivative
instruments, net (776 ) (4,773 ) (781 ) (12,748 )
Commodity derivative instrument
settlements and amortization 2,612 5,474 9,661 23,350
Amortization of derivative contracts 256 13 1,002 20
Impairment of oil and natural gas
properties   63,663   -   63,663   3,544
Adjusted EBITDA $ 20,431 $ 18,446 $ 79,550 $ 81,156
 
Adjusted EBITDA 20,431 18,446 79,550 81,156
Cash income tax expense (24 ) (22 ) (132 ) (86 )
Cash interest expense (2,459 ) (2,147 ) (9,513 ) (7,012 )
Estimated maintenance capital (1)   (5,075 )   (5,075 )   (20,300 )   (20,300 )
Distributable Cash Flow $ 12,873 $ 11,202 $ 49,605 $ 53,758
 
 
Cash distribution - common unitholders $ 9,580 $ 7,549 $ 37,878 $ 29,972
Cash distribution - all unitholders $ 12,884 $ 10,785 $ 50,992 $ 42,834
Distribution Coverage Ratio - common
unitholders 1.34 1.48 1.31 1.79
Distribution Coverage Ratio - all
unitholders 1.00 1.04 0.97 1.26

 

   

(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. The 2012 maintenance capital expenditures were estimated using the 2013 amounts as the components of distributable cash flow were recasted for acquisitions under common control with Lime Rock Resources.

 

Contacts

LRR Energy, L.P.
Investor Contacts:
Angelique Brou, (713) 345-2145
Financial Reporting Manager
abrou@lrrenergy.com
or
Jaime Casas, (713) 345-2126
Chief Financial Officer
jcasas@lrrenergy.com

Sharing

Contacts

LRR Energy, L.P.
Investor Contacts:
Angelique Brou, (713) 345-2145
Financial Reporting Manager
abrou@lrrenergy.com
or
Jaime Casas, (713) 345-2126
Chief Financial Officer
jcasas@lrrenergy.com