Memorial Production To Buy Certain Oil Producing Assets; Lifts Earnings View

(RTTNews) - Memorial Production Partners LP (MEMP) Monday announced that it has signed a definitive agreement to acquire certain oil producing properties in Wyoming for approximately $935 million. The deal is expected to be immediately accretive to distributable cash flow and net asset value.

In connection with the pending acquisition and current operations forecast, MEMP also lifted its fiscal 2014 forecast for adjusted earnings before interest, tax, depreciation and amortization or EBITDA, a key earnings metric, to $355 million to $375 million range from the previously announced range of $303 million to $311 million.

The company also revised 2014 distributable cash flow guidance range to $183 million- $203 million from the previously announced range of $158 million - $166 million. The company now expects annual production between 74 Bcfe to 76 Bcfe.

Regarding the acquisition, the company noted that the purchase price is subject to customary purchase price adjustments. The transaction, with an effective date of April 1, would close in the third quarter.

The acquired properties consist of established tertiary CO2 floods located in two fields in the Bairoil Complex in Sweetwater and Carbon Counties in Wyoming. The 100 percent operated Bairoil Complex properties have an average working and net revenue interest of 100 percent and 88 percent, respectively. The properties cover approximately 6,800 net acres and include 140 producing wells and 166 injection wells.

These properties have a stable, long-lived production profile with a projected average annual PDP decline rate of approximately 5 percent.

According to the company, these properties' estimated proved reserves are approximately 83 MMBbls and estimated current net production is about 5.9 Mbbls/d. Proved reserve to production ratio is 39 years.

Memorial Production expects to fund the transaction through borrowings under its $2.0 billion multi-year revolving credit facility.

The company's liquidity position is expected to be in excess of $200 million following the close of the transaction.

In the deal, Citigroup Global Markets Inc. acted as MEMP's financial advisor. Consistent with its hedging strategy, MEMP added that it intends to hedge up to 85 percent of projected production volumes related to this acquisition for three to six years.

John Weinzierl, Chairman and Chief Executive Officer of the general partner of MEMP, said, "These assets complement our existing portfolio due to their very shallow decline rate, low operating cost structure and low maintenance capital requirements. … Given the long-life nature of these assets and the significant remaining oil in place, we expect these assets to create long-term value for our unitholders."

According to Bill Scarff, President of the general partner of MEMP, the deal expands the company's presence in the Rockies, and represents an opportunity to acquire a very large resource base with low-decline production, which should provide a stable cash flow stream for years to come.

MEMP shares closed Friday's trading at $23.14, up $0.14 or 0.61 percent.