Memorial Production Partners acquires Eagle Ford properties

Memorial Production Partners

Memorial Production Partners LP (Nasdaq:MEMP) has acquired certain oil and gas producing properties in the Eagle Ford trend from Alta Mesa Holdings LP for $173 million, subject to customary purchase price adjustments.

The acquired properties are located in Karnes County in the core of the Eagle Ford oil window and consist of approximately 15,200 gross (800 net) acres that are currently producing approximately 1,650 Boe/d (80% oil, 10% NGLs and 10% natural gas) net to MEMP. The properties are 100% non-operated and include interests in 117 producing wells. In addition, MEMP is acquiring a 30% interest in the seller's Eagle Ford leasehold, which includes an interest in over 180 gross and 9 net PDNP and PUD locations. Murphy Oil Corp. is the primary operator of the acquired properties.

Under the transaction structure, MEMP will acquire all of the seller's working and net revenue interest in the producing wells subject to a net profits interest (NPI) retained by the seller that reduces annually and terminates after three years. At the end of three years, MEMP will own all of the seller's interests in the currently producing wells. The seller retained NPI results in a working and net revenue interest that escalates annually to MEMP. This structure is designed to offset natural production declines, minimize maintenance capital requirements and maintain more stable cash flow throughout the life of the assets.

MEMP's effective working and net revenue interest in the 117 producing wells will increase, as the NPI reduces, to: (i) 50% of seller's interest from January 1, 2014 through December 31, 2014; (ii) 70% of seller's interest from January 1, 2015 through December 31, 2015; (iii) 85% of seller's interest from January 1, 2016 through December 31, 2016; and (iv) 100% of seller's interest from January 1, 2017 and thereafter.

MEMP's initial average working and net revenue interest on January 1, 2014 in the 117 producing wells is 6.4% and 5.2%, respectively. Beginning January 1, 2017, MEMP's average working and net revenue interest in the 117 producing wells will be 12.8% and 10.3%, respectively. MEMP's average working and net revenue interest on the PDNP and PUD locations is approximately 4.9% and 4.0%, respectively.

MEMP funded the transaction with borrowings under its existing $2.0 billion multi-year revolving credit facility, which has an $845 million borrowing base prior to any increases related to this acquisition. As of March 25, 2014, MEMP had total debt outstanding of $1.01 billion, which included $310.0 million under its revolving credit facility and $700 million of senior notes due 2021. The revolving credit facility had $535.0 million of availability, which management believes will provide the financial flexibility to continue pursuing MEMP's acquisition growth strategy. Consistent with its hedging strategy, MEMP intends to hedge up to 85% of projected production volumes related to this acquisition for three to six years.                        

In 2014, MEMP's capital spending program is expected to be approximately $131 to $161 million, excluding potential acquisitions. MEMP anticipates spending approximately 56% in East Texas / North Louisiana, 22% in the Permian Basin, 18% in California and 4% in South Texas / Eagle Ford primarily on drilling, recompletions and capital workovers based on the maximum range of its capital spending program. Approximately 10% of MEMP's total capex will be spent on routine facilities maintenance across all of its properties, including plugging and abandonment liabilities associated with its California properties.

MEMP anticipates spending capital on 23 gross (10 net) horizontal Cotton Valley new drills in various fields in East Texas and North Louisiana. MEMP also anticipates drilling 39 gross (36 net) vertical wells in the Permian Basin, 6 gross (3 net) wells in California and approximately 30 gross (1.5 net) wells related to this Eagle Ford acquisition.


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