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Memorial Production Partners Prices $500M of Senior Notes

Zacks Equity Research

Houston, TX-based Memorial Production Partners L.P. (MEMP) – together with its wholly owned subsidiary Memorial Production Finance Corp. – announced the pricing of its $500 million aggregate principal amount of 6.875% senior unsecured notes due Aug 2022 at a price of 98.485% of par, in a private placement to qualified buyers. The closing of the offering is expected to occur on Jul 17, 2014, subject to certain customary conditions.

The energy explorer plans to use the proceeds from this private placement to pay back part of the outstanding borrowings under its revolving credit facility as well as for corporate purposes.

Memorial Production Partners, which went public in Dec 2011, is a publicly traded exploration and production master limited partnership (MLP) engaged in the acquisition, finding and development of oil and gas properties in the U.S. The company’s operations are concentrated primarily in the East Texas / North Louisiana, Rockies, Permian, Eagle Ford/South Texas and California.

Having done a stellar job at raising volumes and cash distribution, analysts are predicting strong earnings growth for Memorial Production Partners over the next couple of years. The 2014 Zacks Consensus Estimate is $1.90, representing 23% earnings per share growth over 2013. Next year’s average forecast is $2.13, corresponding with 12% growth. Moreover, Memorial Production Partners continues to leverage its relationship with parent Memorial Resource Development Corp. (MRD) to make ‘drop-down’ transactions (or asset buys from the partnership's sponsor company).

However, as is the case with other exploration and production firms, Memorial Production Partners’ results are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the company’s revenues, earnings and cash flow.

As a result, Memorial Production Partners currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

However, some better-ranked domestic upstream energy stocks include Swift Energy Co. (SFY) and WPX Energy Inc. (WPX). Both the firms hold a Zacks Rank #1 (Strong Buy).

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