LRR Energy, L.P. (NYSE: LRE) (“LRR Energy”) announced today its operating and financial results for the three and nine months ended September 30, 2014.
Eric Mullins, Chairman and Co-Chief Executive Officer, commented, "Overall we are pleased with our third quarter 2014 results. Despite slightly lower production volumes during the quarter, adjusted EBITDA, distributable cash flow and distribution coverage ratio increased as compared to the second quarter of 2014.”
Selected Financial and Operating Information
A summary of selected financial and operating information follows. For consolidated financial statements for the three and nine months ended September 30, 2014, please see the accompanying tables on pages 7-9.
Three Months Ended | Nine Months Ended | |||||||
September 30, 2014 | September 30, 2014 | |||||||
(unaudited) | ||||||||
(in thousands, except distribution coverage ratio) | ||||||||
Oil, natural gas and natural gas liquids sales | $ | 28,571 | $ | 90,869 | ||||
Gain (loss) on commodity derivative | ||||||||
instruments, net (1) | $ | 19,771 | $ | 821 | ||||
Total revenues | $ | 48,382 | $ | 91,801 | ||||
Lease operating expense | $ | 6,024 | $ | 18,688 | ||||
Production and ad valorem taxes | $ | 2,172 | $ | 6,820 | ||||
General and administrative expense | $ | 2,629 | $ | 8,510 | ||||
Interest expense | $ | 2,551 | $ | 7,667 | ||||
Net income (loss) | $ | 26,232 | $ | 21,589 | ||||
Net income (loss) available to unitholders | $ | 26,232 | $ | 21,589 | ||||
Net income (loss) per limited partner unit | $ | 0.95 | $ | 0.80 | ||||
Capital expenditures | $ | 8,746 | $ | 25,840 | ||||
Adjusted EBITDA (2) | $ | 20,845 | $ | 61,522 | ||||
Distributable cash flow (2) | $ | 13,119 | $ | 38,307 | ||||
Cash distribution - common unitholders | $ | 11,599 | $ | 32,753 | ||||
Cash distribution - all unitholders | $ | 13,839 | $ | 40,542 | ||||
Distribution coverage ratio - common unitholders (2) | 1.13 | 1.17 | ||||||
Distribution coverage ratio - all unitholders (2) | 0.95 | 0.94 |
(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 | Nine Months Ended | ||||||||
September 30, 2014 | September 30, 2014 | ||||||||
Average net production (Boe/d) | 6,304 | 6,363 | |||||||
Average cost per Boe: | |||||||||
Lease operating expense | $ | 10.39 | $ | 10.76 | |||||
Production and ad valorem taxes | $ | 3.74 | $ | 3.93 | |||||
General and administrative expense | $ | 4.53 | $ | 4.90 | |||||
LRR Energy’s average net production for the three and nine months ended September 30, 2014 was negatively impacted by flaring at our Red Lake field of approximately 25 Boe/d and 40 Boe/d, respectively. During the third quarter, production at our non-operated Putnam field was approximately 85 Boe/d below our expectations because of delayed drilling activity and new well production performance. Due to flooding, production at our Corral Canyon field was negatively impacted by approximately 25 Boe/d during the third quarter. Finally, production at our non-operated Corral Canyon field was approximately 20 Boe/d below our third quarter expectations because of the deferment of drilling a well. Normal operations at our Corral Canyon field resumed on October 9, 2014. LRR Energy’s October 2014 average net production through October 24, 2014 was approximately 6,525 Boe/d.
Recent Events
As of October 30, 2014, LRR Energy had $233 million of outstanding borrowings under its revolving credit facility and $50 million of outstanding borrowings under its term loan. LRR Energy’s current liquidity position is approximately $39 million consisting of $27 million of availability under our revolving credit facility and approximately $12 million of available cash on hand. Management believes cash flow from operations, the capacity under the revolving credit facility and the proceeds from its current At-the-Market Offering Program will provide ample financial flexibility to execute its 2014 capital program and distribution strategy.
On October 17, 2014, LRR Energy announced that the Board of Directors of its general partner declared an increased cash distribution for the third quarter of 2014 of $0.4975 per outstanding unit, or $1.99 on an annualized basis. The distribution will be paid on November 14, 2014 to all unitholders of record as of the close of business on October 31, 2014. The declaration represents the ninth consecutive increase to LRR Energy’s quarterly distribution.
Revised 2014 Guidance
LRR Energy has revised its full year 2014 guidance based on actual results for the nine months ended September 30, 2014 and a decreased capital development program for the second half of 2014. The majority of the $2.5 million capital decrease is due to expected lower non-operated development activity at our Putnam and Corral Canyon fields. Based on current estimates, and assuming no future acquisitions, LRR Energy’s revised full year 2014 guidance is as follows:
Previous | Revised | ||||||||
Daily Production (Boe/d) | 6,450-6,550 | 6,400-6,450 | |||||||
LOE ($/Boe) | $10.75-$11.00 | $10.75-$11.00 | |||||||
Capital Expenditures ($MM) | $37.5 | $35.0 |
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, 2014, LRR Energy had the following outstanding derivative contracts.
Index | 2014 | 2015 | 2016 | 2017 | 2018 | |||||||||||||||||||||
Natural gas positions | ||||||||||||||||||||||||||
Price swaps (MMBTUs) | NYMEX-HH | 1,462,599 | 5,500,236 | 5,433,888 | 5,045,760 | 2,374,800 | ||||||||||||||||||||
Weighted average price | $ | 5.61 | $ | 5.72 | $ | 4.29 | $ | 4.61 | $ | 4.28 | ||||||||||||||||
Basis swaps (MMBTUs) | (1) | 1,412,369 | 5,326,559 | 2,877,047 | - | - | ||||||||||||||||||||
Weighted average price | $ | (0.1534 | ) | $ | (0.1661 | ) | $ | (0.1115 | ) | $ | - | $ | - | |||||||||||||
Oil positions | ||||||||||||||||||||||||||
Price swaps (BBLs) | NYMEX-WTI | 204,595 | 757,321 | 610,131 | 266,574 | 65,280 | ||||||||||||||||||||
Weighted average price | $ | 96.14 | $ | 93.16 | $ | 87.27 | $ | 86.06 | $ | 86.45 | ||||||||||||||||
Basis swaps (BBLs) | Argus- | 95,570 | 397,035 | - | - | - | ||||||||||||||||||||
Weighted average price | Midland-Cushing | $ | (1.0000 | ) | $ | (3.4087 | ) | $ | - | $ | - | $ | - | |||||||||||||
NGL positions | ||||||||||||||||||||||||||
Price swaps (BBLs) | Mont Belvieu | 66,569 | 236,149 | - | - | - | ||||||||||||||||||||
Weighted average price | $ | 34.71 | $ | 34.46 | $ | - | $ | - | $ | - | ||||||||||||||||
(1) | Our natural gas basis swaps are traded on the following indices: Centerpoint East, Houston Ship Channel, WAHA and TEXOK. | ||||
Subsequent to September 30, 2014, LRR Energy acquired the following commodity hedges.
Index | 2017 | 2018 | ||||||||||
Oil positions | ||||||||||||
Price swaps (BBLs) | NYMEX- | 118,286 | 183,920 | |||||||||
Weighted average price | WTI | 83.75 | $ | 83.43 |
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 10, 2014. 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, October 31, 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: 14656771). 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 14, 2014. Participants may access this replay by dialing 1-800-585-8367 (conference ID: 14656771).
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, 2013 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 Data (unaudited) | ||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||
Production: | ||||||||||||||||||
Oil (MBbls) | 219 | 216 | 653 | 614 | ||||||||||||||
Natural gas (MMcf) | 1,609 | 1,849 | 4,897 | 5,500 | ||||||||||||||
NGLs (MBbls) | 93 | 84 | 268 | 229 | ||||||||||||||
Total (MBoe) | 580 | 608 | 1,737 | 1,760 | ||||||||||||||
Average net production (Boe/d) | 6,304 | 6,609 | 6,363 | 6,447 | ||||||||||||||
Average sales price: | ||||||||||||||||||
Oil (per Bbl): | ||||||||||||||||||
Sales price | $ | 87.94 | $ | 102.96 | $ | 91.53 | $ | 92.37 | ||||||||||
Effect of settled commodity | ||||||||||||||||||
derivative instruments | 2.96 | (9.76 | ) | (0.43 | ) | (2.92 | ) | |||||||||||
Realized price | $ | 90.90 | $ | 93.20 | $ | 91.10 | $ | 89.45 | ||||||||||
Natural gas (per Mcf): | ||||||||||||||||||
Sales price | $ | 4.07 | $ | 3.55 | $ | 4.53 | $ | 3.70 | ||||||||||
Effect of settled commodity | ||||||||||||||||||
derivative instruments | 1.22 | 1.40 | 0.82 | 1.40 | ||||||||||||||
Realized price | $ | 5.29 | $ | 4.95 | $ | 5.35 | $ | 5.10 | ||||||||||
NGLs (per Bbl): | ||||||||||||||||||
Sales price | $ | 29.83 | $ | 31.61 | $ | 33.21 | $ | 31.29 | ||||||||||
Effect of settled commodity | ||||||||||||||||||
derivative instruments | (0.22 | ) | 3.83 | (1.88 | ) | 4.88 | ||||||||||||
Realized price | $ | 29.61 | $ | 35.44 | $ | 31.33 | $ | 36.17 | ||||||||||
Average cost per Boe: | ||||||||||||||||||
Lease operating expenses | $ | 10.39 | $ | 9.87 | $ | 10.76 | $ | 10.27 | ||||||||||
Production and ad valorem taxes | 3.74 | 4.00 | 3.93 | 3.68 | ||||||||||||||
Depletion and depreciation | 15.02 | 15.67 | 14.89 | 16.92 | ||||||||||||||
General and administrative | ||||||||||||||||||
expenses | 4.53 | 4.39 | 4.90 | 5.04 | ||||||||||||||
Derivative instrument settlements | ||||||||||||||||||
and amortization (in thousands): | ||||||||||||||||||
Commodity | 2,594 | $ | 801 | 3,231 | $ | 7,049 | ||||||||||||
Interest rate | (238 | ) | $ | (184 | ) | (642 | ) | $ | (536 | ) |
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, | |||||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||||
Revenues: | ||||||||||||||||||||
Oil sales | $ | 19,258 | $ | 22,239 | $ | 59,768 | $ | 56,714 | ||||||||||||
Natural gas sales | 6,542 | 6,564 | 22,206 | 20,364 | ||||||||||||||||
Natural gas liquids sales | 2,771 | 2,655 | 8,895 | 7,165 | ||||||||||||||||
Gain (loss) on commodity | ||||||||||||||||||||
derivative instruments, net | 19,771 | (6,282 | ) | 821 | 5 | |||||||||||||||
Other income | 40 | 19 | 111 | 106 | ||||||||||||||||
Total revenues | 48,382 | 25,195 | 91,801 | 84,354 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Lease operating expense | 6,024 | 6,005 | 18,688 | 18,072 | ||||||||||||||||
Production and ad valorem taxes | 2,172 | 2,434 | 6,820 | 6,478 | ||||||||||||||||
Depletion and depreciation | 8,711 | 9,533 | 25,856 | 29,772 | ||||||||||||||||
Accretion expense | 519 | 486 | 1,532 | 1,433 | ||||||||||||||||
Loss (gain) on settlement of asset | ||||||||||||||||||||
retirement obligations | 10 | (1 | ) | 71 | 334 | |||||||||||||||
General and administrative expense | 2,629 | 2,669 | 8,510 | 8,866 | ||||||||||||||||
Total operating expenses | 20,065 | 21,126 | 61,477 | 64,955 | ||||||||||||||||
Operating income (loss) | 28,317 | 4,069 | 30,324 | 19,399 | ||||||||||||||||
Other income (expense), net | ||||||||||||||||||||
Interest expense | (2,551 | ) | (2,349 | ) | (7,667 | ) | (6,863 | ) | ||||||||||||
Gain (loss) on interest rate | ||||||||||||||||||||
derivative instruments, net | 492 | (1,401 | ) | (930 | ) | 1,371 | ||||||||||||||
Other income (expense), net | (2,059 | ) | (3,750 | ) | (8,597 | ) | (5,492 | ) | ||||||||||||
Income (loss) before taxes | 26,258 | 319 | 21,727 | 13,907 | ||||||||||||||||
Income tax expense | (26 | ) | (35 | ) | (138 | ) | (102 | ) | ||||||||||||
Net income (loss) | $ | 26,232 | $ | 284 | $ | 21,589 | $ | 13,805 | ||||||||||||
Net loss (income) attributable to | ||||||||||||||||||||
common control operations | - | - | - | (448 | ) | |||||||||||||||
Net income (loss) available to | ||||||||||||||||||||
unitholders | $ | 26,232 | $ | 284 | $ | 21,589 | $ | 13,357 | ||||||||||||
Computation of net income (loss) | ||||||||||||||||||||
per limited partner unit: | ||||||||||||||||||||
General partners’ interest in net | ||||||||||||||||||||
income (loss) | $ | 26 | $ | - | $ | 22 | $ | 13 | ||||||||||||
Limited partners’ interest in net | ||||||||||||||||||||
income (loss) | $ | 26,206 | $ | 284 | $ | 21,567 | $ | 13,344 | ||||||||||||
Net income (loss) per limited partner | ||||||||||||||||||||
unit (basic and diluted) | $ | 0.95 | $ | 0.01 | $ | 0.80 | $ | 0.53 | ||||||||||||
Weighted average number of limited | ||||||||||||||||||||
partner units outstanding (basic and | 27,481 | 26,169 | 26,856 | 25,098 | ||||||||||||||||
diluted) |
LRR Energy, L.P. Consolidated Condensed Statement of Cash Flows (in thousands) (unaudited) | ||||||||||
Nine Months Ended September 30, | ||||||||||
2014 | 2013 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||
Net income (loss) | $ | 21,589 | $ | 13,805 | ||||||
Adjustments to reconcile net income (loss) to net cash provided by | ||||||||||
(used in) operating activities: | ||||||||||
Depletion and depreciation | 25,856 | 29,772 | ||||||||
Accretion expense | 1,532 | 1,433 | ||||||||
Amortization of equity awards | 819 | 391 | ||||||||
Amortization of derivative contracts | 510 | 746 | ||||||||
Amortization of deferred financing costs and other | 313 | 290 | ||||||||
Loss (gain) on settlement of asset retirement obligations | 71 | 334 | ||||||||
Changes in operating assets and liabilities: | ||||||||||
Change in receivables | 598 | (3,317 | ) | |||||||
Change in prepaid expenses | (1,515 | ) | (230 | ) | ||||||
Change in derivative assets and liabilities | 2,698 | 5,137 | ||||||||
Change in amounts due to/from affiliates | (6,015 | ) | (4,270 | ) | ||||||
Change in accrued liabilities and deferred tax liabilities | 1,838 | 3,618 | ||||||||
Net cash provided by (used in) operating activities | 48,294 | 47,709 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||
Development of oil and natural gas properties | (25,840 | ) | (24,857 | ) | ||||||
Disposition of oil and natural gas properties | 50 | - | ||||||||
Net cash provided by (used in) investing activities | (25,790 | ) | (24,857 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||
Borrowings under revolving credit facility | 30,000 | 45,000 | ||||||||
Principal payments on revolving credit facility | (30,000 | ) | (28,000 | ) | ||||||
Equity offering, net of expenses | 23,419 | 59,513 | ||||||||
Distributions | (39,589 | ) | (36,125 | ) | ||||||
Distribution to Lime Rock Resources | - | (60,672 | ) | |||||||
Contribution to Lime Rock Resources | - | (734 | ) | |||||||
Net cash provided by (used in) financing activities | (16,170 | ) | (21,018 | ) | ||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 6,334 | 1,834 | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 4,417 | 3,467 | ||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 10,751 | $ | 5,301 | ||||||
Supplemental disclosure of non-cash items to reconcile | ||||||||||
investing and financing activities | ||||||||||
Property and equipment: | ||||||||||
Accrued capital costs | $ | 2,125 | $ | 2,892 | ||||||
Asset retirement obligations | (235 | ) | (417 | ) |
LRR Energy, L.P. Consolidated Condensed Balance Sheet (in thousands, except unit amounts) (unaudited) | |||||||||||
September 30, 2014 | December 31, 2013 | ||||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 10,751 | $ | 4,417 | |||||||
Accounts receivable | 9,269 | 9,867 | |||||||||
Commodity derivative instruments | 14,508 | 9,726 | |||||||||
Due from affiliates | 5,760 | - | |||||||||
Prepaid expenses | 2,858 | 1,603 | |||||||||
Total current assets | 43,146 | 25,613 | |||||||||
Property and equipment (successful efforts method) | 904,497 | 876,674 | |||||||||
Accumulated depletion, depreciation and impairment | (457,732 | ) | (431,837 | ) | |||||||
Total property and equipment, net | 446,765 | 444,837 | |||||||||
Commodity derivative instruments | 7,722 | 16,746 | |||||||||
Deferred financing costs, net of accumulated amortization and other | 1,100 | 1,154 | |||||||||
TOTAL ASSETS | $ | 498,733 | $ | 488,350 | |||||||
LIABILITIES AND UNITHOLDERS’ EQUITY | |||||||||||
Current liabilities: | |||||||||||
Accrued liabilities | $ | 4,094 | $ | 2,300 | |||||||
Accrued capital cost | 4,507 | 2,574 | |||||||||
Due to affiliates | - | 255 | |||||||||
Commodity derivative instruments | 510 | 2,217 | |||||||||
Interest rate derivative instruments | 1,781 | 648 | |||||||||
Asset retirement obligations | 510 | 488 | |||||||||
Total current liabilities | 11,402 | 8,482 | |||||||||
Long-term liabilities: | |||||||||||
Commodity derivative instruments | 559 | 174 | |||||||||
Interest rate derivative instruments | 709 | 1,554 | |||||||||
Term loan | 50,000 | 50,000 | |||||||||
Revolving credit facility | 200,000 | 200,000 | |||||||||
Asset retirement obligations | 37,479 | 35,838 | |||||||||
Deferred tax liabilities | 88 | 44 | |||||||||
Total long-term liabilities | 288,835 | 287,610 | |||||||||
Total liabilities | 300,237 | 296,092 | |||||||||
Unitholders’ equity: | |||||||||||
General partner (22,400 units issued and outstanding as of | |||||||||||
September 30, 2014 and December 31, 2013) | 290 | 303 | |||||||||
Public common unitholders (19,078,939 units issued and | |||||||||||
outstanding as of September 30, 2014 and 17,710,334 units | |||||||||||
issued and outstanding as of December 31, 2013) | 193,516 | 181,290 | |||||||||
Affiliated common unitholders (4,089,600 units issued and | |||||||||||
outstanding as of September 30, 2014 and 1,849,600 units | |||||||||||
issued and outstanding as of December 31, 2013) | 2,088 | 2,093 | |||||||||
Subordinated unitholders (4,480,000 units issued and outstanding | |||||||||||
as of September 30, 2014 and 6,720,000 units issued and | |||||||||||
outstanding as of December 31, 2013) | 2,602 | 8,572 | |||||||||
Total unitholders’ equity | 198,496 | 192,258 | |||||||||
TOTAL LIABILITIES AND UNITHOLDERS’ EQUITY | $ | 498,733 | $ | 488,350 |
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-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.
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, 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-common and all unitholders 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-common and all unitholders 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-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 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-common and all unitholders 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-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 (loss), LRR Energy’s most directly comparable GAAP financial performance measure, for the three and nine months ended September 30, 2014 and 2013.
LRR Energy, L.P. Non-GAAP Reconciliation (continued) (in thousands, except distribution coverage ratio) (unaudited) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net income (loss) | $ | 26,232 | $ | 284 | $ | 21,589 | $ | 13,805 | ||||||||
Income tax expense | 26 | 35 | 138 | 102 | ||||||||||||
Interest expense-net, including loss | ||||||||||||||||
(gain) on interest rate derivative | ||||||||||||||||
instruments, net | 2,059 | 3,750 | 8,597 | 5,492 | ||||||||||||
Depletion and depreciation | 8,711 | 9,533 | 25,856 | 29,772 | ||||||||||||
Accretion of asset retirement | ||||||||||||||||
obligations | 519 | 486 | 1,532 | 1,433 | ||||||||||||
Amortization of equity awards | 285 | 138 | 819 | 391 | ||||||||||||
Loss (gain) on settlement of asset | ||||||||||||||||
retirement obligations | 10 | (1 | ) | 71 | 334 | |||||||||||
Loss (gain) on commodity derivative | ||||||||||||||||
instruments, net | (19,771 | ) | 6,282 | (821 | ) | (5 | ) | |||||||||
Commodity derivative instrument net | ||||||||||||||||
cash settlements | 2,774 | 1,039 | 3,741 | 7,795 | ||||||||||||
Impairment of oil and natural gas | ||||||||||||||||
properties | - | - | - | - | ||||||||||||
Adjusted EBITDA | $ | 20,845 | $ | 21,546 | $ | 61,522 | $ | 59,119 | ||||||||
Adjusted EBITDA | 20,845 | 21,546 | 61,522 | 59,119 | ||||||||||||
Income tax expense | (9 | ) | (35 | ) | (97 | ) | (108 | ) | ||||||||
Cash interest expense | (2,717 | ) | (2,438 | ) | (8,118 | ) | (7,054 | ) | ||||||||
Estimated maintenance capital (1) | (5,000 | ) | (5,075 | ) | (15,000 | ) | (15,225 | ) | ||||||||
Distributable Cash Flow | $ | 13,119 | $ | 13,998 | $ | 38,307 | $ | 36,732 | ||||||||
Cash distribution - common unitholders | $ | 11,599 | $ | 9,481 | $ | 32,753 | $ | 28,298 | ||||||||
Cash distribution - all unitholders | $ | 13,839 | $ | 12,768 | $ | 40,542 | $ | 38,108 | ||||||||
Distribution coverage Ratio - common | ||||||||||||||||
unitholders | 1.13 | 1.48 | 1.17 | 1.30 | ||||||||||||
Distribution coverage Ratio - all | ||||||||||||||||
unitholders | 0.95 | 1.10 | 0.94 | 0.96 |
(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. |
Contacts:
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