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Memorial Production Partners LP (MEMP) Message Board

rrb1981 170 posts  |  Last Activity: Sep 7, 2014 7:55 PM Member since: Apr 18, 2001
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  • rrb1981 rrb1981 Aug 31, 2014 10:08 PM Flag


    The size is beyond what ARP can handle. Yes, it looks like a quality asset, but it is something like 170,000 mcf/d. That is likely pushing $900 million. It is indeed a nice, mature asset and would give them a really nice holding that is low decline.

    Instead, we have to sit by with minimal coverage ratio and wait until the market either reprices them upwards or until they can organically grow their liquids production in the Marble Falls and Miss Lime via the private drilling partnerships.

    I think ARP does need more scale but this seems out of reach.

    I could see EVEP making a play for it though, John Walker is very high on the SJB.

  • Reply to

    Sanchez Production Partners

    by rrb1981 Aug 28, 2014 8:10 PM
    rrb1981 rrb1981 Aug 31, 2014 5:02 PM Flag

    I'm surprised we haven't had more "noise" on the board. The developments that have been playing out over the past few months are huge long term.

    Sanchez will have a publicly traded E&P MLP that already is near critical mass, has a quality management team. Backing in to CEP via this conversion from an LLC to an MLP is highly unusual but clearly it speaks volumes about how difficult, costly and time consuming it can be to build and package up assets and IPO as an MLP. Sanchez can commit very little capital and end up with another excellent avenue which they can use to divest mature legacy production that currently is held in finite life private partnerships. This means they do not have to divest the assets to a "3rd party" but can keep them in the family. So, they keep knowledge of the assets in-house and gain operation efficiencies under the shared services agreement.

    I see, and keep in mind this is well into the future, CEP (soon to be SPP) as being significantly larger. SOG and SEP 1 can pursue larger acquisitions knowing that they can drop the PDP acreage into SPP and can therefore devote more of the cash into drilling (growing reserves, production and cash flow) which is really what they want to do in the limited life partnerships.

    What is amazing is that CEP is actually in decent shape financially. Their leverage is relatively low and their oil production is growing at a decent clip. They aren't in great shape to pay a large distribution, but they can afford what would amount to perhaps a 5-6% yield on current price. It sets them up for fabulous accretion if SOG/SEP 1 can make a $50+ million drop down. With such a low float, even if financed fully with equity, would allow for CEP to pay out a distribution that would put them perhaps in the lower end of the current E&P MLP sector based on yield.

    Really it is all about an effective "re-boot" and getting back to the point where CEP has a strong equity currency (say a 8%-10% yield).

  • Reply to


    by rrb1981 Aug 23, 2014 8:06 PM
    rrb1981 rrb1981 Aug 31, 2014 4:44 PM Flag

    Exactly. PostRock's overall gas production is declining, only an uplift in prices has kept them whole Q-Q.

    Production is the lifeblood of E&Ps, it is the source of cash flow.

    PostRock will HAVE to be recapitalized if it is to survive. The divestiture of the Appalachian assets will reduce leverage, but will leave them with even worse SG&A/LOE per mcfe metric than before.

    The only hope for PostRock is to have continued success in their oil development and that White Deer continues to allow them to pay the preferreds in-kind rather than in cash.

    This has been a slow-motion train wreck and PSTR now sits with very few assets with which they can divest.

    PSTR is really just a publicly traded gas call option for White Deer. In the interim, they need to get oil production up to a point where they can begin paying cash dividends on the White Deer preferred shares before they consume the entire capital structure.

  • rrb1981 by rrb1981 Aug 31, 2014 3:09 PM Flag

    Casey McManemin continues to prove he is one of the better evaluators and managers of royalty/mineral rights.

    DMLP is firing on all cylinders, with excellent exposure to both some of the hottest basins as well as to many of the predominantly dry gas basins (should prices recover).

    What is quite amazing is how they have managed to keep reserves and reserves per unit relatively flat year after year. I like how they manage the business without excessive leverage, you could in fact make a very good case for additional leverage, though management has made it clear that they shun debt.

    DMLP along with SBR are my workhorse royalty holdings and have been for some time.

  • Reply to

    BP San Juan Basin gas assets

    by rrb1981 Aug 31, 2014 9:41 AM
    rrb1981 rrb1981 Aug 31, 2014 12:39 PM Flag


    Yes, Ellis should be very familiar with the assets. It remains to be seen if PE firms will clamor in, looking to buy dry gas and capture some nice margin (even with a relatively flat strip) and simply wait till the market price of gas turns up before monetizing it again. It certainly won't be a likely active producer since the economics for drilling in the SJB right now are far less attractive than many of the wetter plays (think oil or ngl laden gas).

    Nevertheless, the lack of lucrative drilling prospects may make it less appealing to true E&P's and therefore make the price more attractive. It also has been pointed out that the deal does not contain rights to the Mancos, so this becomes a pure play on gas and not on prospective underlying zones (assuming that is indeed the case).

    I had heard a rumor that Merit was interested. Merit was in the news last year when they made a fairly large purchase of Hugoton assets from Oxy. They fit the mold of buying low and selling high.

  • BP looking to divest their New Mexico San Juan Basin natural gas assets.

    Would seem like a great fit within Linn. SJB decline is relatively low (high single digits to very low double digits). Of course, being part of BP, you can rest assured that the assets will be well maintained, certainly above and beyond the quality of what can be expected from some of the smaller independent producers. Also of significance is the meaningful size (~170,000 mcfe). Having made deals for the Jonah and Hugoton with BP, it is clear they have a working relationship. Will also be interesting to see if Enervest makes a bid, they have fairly large holdings in the SJB, both at Enervest and EVEP..

  • Reply to

    Divvy run up?

    by bigbear.2010 Aug 29, 2014 12:26 PM
    rrb1981 rrb1981 Aug 30, 2014 9:11 PM Flag


    Correct. Cohen is a senile old man.

    He will not be able to contain his lust for "making deals".

    As for the organic growth, it would be nice if they simply focused on operations rather than chasing the next big deal.

  • Reply to


    by rrb1981 Aug 23, 2014 8:06 PM
    rrb1981 rrb1981 Aug 30, 2014 3:15 PM Flag

    I know you would like to "think" you are right, but the PSTR 2nd Q report proves my original statement as correct. Note, I said volumes, not revenues. :)

    Total corporate gas production is down 8% from previous year.

    2014 Q2 production 3337 mmcf vs 2013 Q2 production of 3635 mmcf

  • Reply to

    Sanchez Production Partners

    by rrb1981 Aug 28, 2014 8:10 PM
    rrb1981 rrb1981 Aug 30, 2014 9:30 AM Flag

    The IDR structure is a concern for E&P MLPs. I think CEP will do fine for now. I think we will see them move steadily through the splits. The market cap is small, leverage is moderate and it all adds up to the ability to make acquisitions that are meaningfully accretive.

  • Reply to


    by rrb1981 Aug 23, 2014 8:06 PM
    rrb1981 rrb1981 Aug 29, 2014 11:28 AM Flag

    The only problem is they don't have enough cash to pay their preferred dividends, which means they pay them in-kind. They are growing oil volumes slowly while they let gas volumes decline rapidly.

    PSTR is essentially dead for all non White Deer holders. They are heavily laden in debt, which they are not paying down other than thru asset divestitures.

    This has been a major albatross for White Deer. I don't think they have an exit strategy.

  • Looks like the pieces are slowly falling into place. I'm thinking that obtaining majority approval is fairly probable on the conversion to an MLP.

    Hopefully PSTR will be nearly fully divested by the time the vote takes place. I can see them trying to throw a wrench in the works as one last parting shot. They are under 10% now.

  • rrb1981 by rrb1981 Aug 28, 2014 8:04 PM Flag

    Sure wish sandforbrains was still on the board. That way we could give him a hard time about Linn once again not increasing the distribution to $3.08 as he so pompously predicted (over, and over, and over again).

    Must have been something wrong with his finviz charts..

  • rrb1981 rrb1981 Aug 28, 2014 8:49 AM Flag

    What you haven't taken into account is the vast holdings of undeveloped mineral rights. Of course, it is extremely difficult to value these but what is evident is that Sabine seems to maintain reserves on a per unit basis and to maintain a constant reserve life year after year.

  • Reply to


    by rrb1981 Aug 25, 2014 8:09 PM
    rrb1981 rrb1981 Aug 28, 2014 7:51 AM Flag

    They won't buy back EROC. It makes very little sense unless it becomes extremely underpriced. They benefit far more by reinvesting proceeds of divesting RGP into producing assets. That helps increase their reserve based borrowing facility, which in turn allows them to lever up and make additional debt funded acquisitions.

    It is all about increasing PDP reserves and ebitda and lowering SG&A on a per unit basis.

    These guys will either need to run without a distribution for a year or more and reinvest all of the proceeds into developing their asset base, which is rich in prospects but is not nearly as PDP as they (or the market) would like, or they will have to pursue the paths they have already highlighted, which is JV (farm-outs with carried interests) or a swap/direct-sale.

  • Reply to


    by rrb1981 Aug 25, 2014 8:09 PM
    rrb1981 rrb1981 Aug 27, 2014 1:54 PM Flag


    Agree. I haven't purchased any, but am watching intently. They are trapped in a tight spot. Where the market may trade them down below NAV because of either a lousy distribution or no distribution at all. It smells like opportunity but patience and timing are key.

    Management is a complete cluster but buying dollars for $.50 can compensate for that.

  • Reply to


    by rrb1981 Aug 23, 2014 8:06 PM
    rrb1981 rrb1981 Aug 26, 2014 9:38 PM Flag

    Why do they need a recap?

    They are struggling to maintain a share price above $1. They have divested their midstream assets, are looking to divest their Appalachian assets, gas prices are low, they are swamped in debt, White Deer is having their preferred paid in kind.

    Equity holders here have very little chance of ever seeing any meaningful gains. White Deer will need to pump more money into this concern to keep them alive.

    The shift to oil focus has helped them, but it appears to be too little, too late.

  • Reply to


    by rrb1981 Aug 23, 2014 1:51 PM
    rrb1981 rrb1981 Aug 26, 2014 10:48 AM Flag

    It might not need to be rolled out to the market if Sanchez takes the equity via a drop down, thereby allowing an increase of the distribution to something like $.32/unit

  • rrb1981 by rrb1981 Aug 25, 2014 8:09 PM Flag

    I've been following EROC for a while. Management is terrible, but at some point it is going to bottom, and that bottom is getting very close. While the latest presentation shows that SG&A still is out of control, we are getting to the point where the market has eroded all of the premium and it is trading at NAV.

    Clearly the golden lining is their ability to divest their Regency holdings and redeploy those proceeds into producing assets or to help develop some of their holdings.

    At present, it appears that EROC is better suited to hold onto their cash and work to develop some of their premier SCOOP holdings. It remains to be seen however if they will have the patience to develop them, or instead will opt to go the route of Linn and divest them in lieu of something more heavily PDP and lower decline.

    It's an interesting story when it drops below $4/unit and worthy of watching more closely.

  • Reply to


    by rrb1981 Aug 23, 2014 1:51 PM
    rrb1981 rrb1981 Aug 25, 2014 6:15 PM Flag


    White Deer made a huge mistake when they invested in PostRock. I see very little chance of PostRock surviving without a major capital infusion. At this point, I think White Deer is simply trying to decide if they walk away and write-off the loss, or pump cash into the concern and try to recoup their original investment.

    I am holding my CEP. It may indeed drop back some, but longer term, with the potential for a simply becomes another E&P MLP, but with a small capital base upon which to build, meaning deals should be meaningfully accretive.

  • Reply to


    by rrb1981 Aug 23, 2014 1:51 PM
    rrb1981 rrb1981 Aug 25, 2014 6:09 PM Flag


    I hear what you are saying, but I think you missed my point. CEP can initiate with a low .01/unit per quarter distribution and increase it by .01/unit per quarter thereafter. That would be $.16/unit at the end of the year which is a little over 4.4% based on current price. Two years from now would be a market yield. The recap will be "dilutive" as you state, but isn't that the case any time an MLP does an offering? It may dilute your ownership stake but the cash that is received by the company will be deployed into something that should be accretive and ultimately additive to DCF on a per unit basis.

    I suspect Sanchez will be buying a portion of the units during the recap, perhaps in essence a decent sized drop-down that is equity financed. Of course, one could argue that if they wanted more units, they would have purchased PSTR's directly. Once the GP/LP relationship is established, I think Sanchez will utilize CEP as a conduit to acquire mature (i.e. low decline legacy production) both from affiliates of Sanchez as well as from 3rd parties.

    I do not know how much equity they intend to raise. I'm holding for now. I like the story in this, in my opinion, very overpriced market. In essence, if CEP can make deals using equity, it will boost their borrowing base, which in turn will give them leverage to make more deals.

    It's a slow process, but one that I believe will be very, very profitable for those willing to ride it out.

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