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Memorial Production Partners Updates on Unit Issue

Zacks Equity Research

Houston, TX-based Memorial Production Partners L.P. (MEMP) has announced that the underwriters have exercised in full their over-allotment option to purchase an additional 1,290,000 common units of its previously declared public offering of 8,600,000 common units priced. The offering, announced on Jul 9, is expected to close on Jul 15.

The energy explorer plans to use the proceeds from this offering – approximately $222.5 million before the underwriting discount and estimated offering expenses – to pay back part of the outstanding borrowings under its revolving credit facility.

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 $2.12, 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 EXCO Resources Inc. (XCO) and LRR Energy L.P. (LRE). Both the firms hold a Zacks Rank #1 (Strong Buy).
 

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