LRR Energy, L.P. Announces First Quarter 2013 Results

  LRR Energy, L.P. Announces First Quarter 2013 Results

Business Wire

HOUSTON -- May 1, 2013

LRR Energy, L.P. (NYSE:LRE) (“LRR Energy” or the “Partnership”) announced
today its operating and financial results for the three months ended March 31,
2013.

Selected Financial and Operating Information

LRR Energy’s financial statements for the previous period have been recast to
include all closed acquisitions through March 31, 2013 from Lime Rock
Resources since its initial public offering, as the acquisitions are
considered between entities under common control. A summary of selected
financial and operating information follows. For consolidated financial
statements for the period ended March 31, 2013, please see the accompanying
tables on pages 7-9.


                                              Three Months Ended
                                               March 31, 2013
                                               (unaudited)
                                               (in thousands)
                                                                        
Oil, natural gas and natural gas               $         21,613
liquids sales
Realized gain on commodity derivative          $         4,105
instruments
Unrealized loss on commodity derivative        $         (10,029        )
instruments
Total revenues                                 $         15,758
Lease operating expense                        $         6,213
Production and ad valorem taxes                $         1,693
General and administrative expense             $         3,299
Interest expense                               $         2,265
Net loss                                       $         (7,450         )
Net loss per limited partner unit              $         (0.32          )
                                                                        
Capital expenditures                           $         3,824
Adjusted EBITDA ^(1)                           $         14,944
Distributable cash flow ^(1)                   $         8,010
                                                                        
Cash Distribution - common unitholders         $         9,384          ^(2)
Cash Distribution - all unitholders            $         12,637         ^(2)
Distribution coverage ratio - common                     0.85x
unitholders ^(1)
Distribution coverage ratio - all                        0.63x
unitholders ^(1)

^(1) Non-GAAP financial measure. See reconciliation of non-GAAP financial
measures beginning on page 10.
^(2) Includes $1.8 million of distributions related to common units sold in
the March 2013 equity offering.



                                    Three Months Ended
                                     March 31, 2013
                                             
Average net production (Boe/d)               5,900
Average unit costs per Boe:
Lease operating expense              $       11.71
Production and ad valorem taxes      $       3.19
General and administrative expense   $       6.22


LRR Energy’s average daily production of 5,900 Boe/d for the quarter was
negatively impacted by the items below which resulted in lower production of
approximately 500 Boe/d. The Partnership estimates that its average net
production for April 2013 will be approximately 6,500 Boe/d.

At the Red Lake field, the third party gas processor required LRR Energy to
flare approximately 75 Boe/d due to plant capacity constraints and compressor
issues during the quarter. LRR Energy is currently flaring approximately 60
Boe/d due to plant capacity limits and expects that it will continue to flare
at this level until the gas plant is expanded, which the Partnership expects
will occur during the fourth quarter of 2013. Delays in LRR Energy’s
recompletion program at the Red Lake field during the quarter resulted in
lower production of approximately 42 Boe/d. The Partnership expects the
delayed projects to be completed during the second quarter.

The Putnam field experienced weather related shut-ins of approximately 67
Boe/d for the quarter. The Putnam field has resumed normal operations.

Production at the Pecos Slope field was curtailed by approximately 1.8 MMcf/d
(300 Boe/d) during the quarter due to the previously disclosed high nitrogen
content of the produced natural gas (1.0 MMcf/d or 167 Boe/d) and a compressor
failure (0.8 MMcf/d or 133 Boe/d). The compressor resumed service on February
18, 2013. The current nitrogen content curtailment is approximately 1.0 MMcf/d
(167 Boe/d), and LRR Energy expects it to remain at this level until the
field-wide nitrogen rejection facility is installed, which it expects will
occur in late 2013. A well at the New Years Ridge field had a tubing failure
resulting in curtailed production of approximately 150 Mcfe/d (25 Boe/d)
during the quarter. The well is back in service.

The actual timing and amount of resumed production related to the items above
may differ from these estimates.

In addition to lower realized production, LRR Energy’s financial results for
the quarter were materially impacted by a higher Midland to Cushing oil
differential. The differential averaged $7.88 per barrel for the quarter
compared to the full year 2011 and 2012 average differential of $2.30 per
barrel. The Partnership estimated the impact of the higher differential
(compared to the 2011 and 2012 average differential) on revenue and Adjusted
EBITDA for the quarter to be approximately $0.8 million. In February 2013, LRR
Energy executed Midland to Cushing oil basis swaps for March 2013 through
December 2014 on the majority of its expected production that it expects will
be impacted by the differential. The average hedged differential per barrel
prices are $1.25 and $1.00 for 2013 and 2014, respectively. The differential
for May 2013 settled at $0.17 per barrel.

LRR Energy’s distribution coverage was further impacted by the timing of the
March equity offering and the closing of the April Acquisition (as defined
below). The majority of the net proceeds of the March equity offering were
used to fund the April Acquisition. Because the equity offering closed prior
to the first quarter distribution record date, the Partnership will pay
distributions of approximately $1.8 million on the units that were issued in
the March equity offering. Since the April Acquisition closed on April 1,
2013, the first quarter financial results have not been recasted for the April
Acquisition.

Recent Events

On April 1, 2013, LRR Energy closed its previously announced acquisition of
oil and natural gas properties in the Mid-Continent region in Oklahoma and
crude oil hedges from its sponsor, Lime Rock Resources (the “April
Acquisition”), for a purchase price of $38.2 million, subject to customary
purchase price adjustments. The Partnership funded the acquisition with the
net proceeds from the equity offering it completed in March 2013 in which it
raised approximately $59.6 million after deducting underwriting discounts and
estimated offering expenses.

In April 2013, LRR Energy’s senior secured revolving credit facility lending
group reaffirmed its borrowing base of $250 million. As of April 30, 2013, the
Partnership had $185 million of outstanding borrowings under its revolving
credit facility and $50 million of outstanding borrowings under its term loan.
LRR Energy currently has $65 million of available borrowing capacity under its
revolving credit facility which management believes provides ample financial
flexibility to execute its 2013 capital program and distribution strategy.

On April 17, 2013, LRR Energy announced that the Board of Directors of its
general partner declared an increased cash distribution for the first quarter
of 2013 of $0.4825 per outstanding unit, or $1.93 on an annualized basis. The
distribution will be paid on May 15, 2013 to all unitholders of record as of
the close of business on May 1, 2013.

2013 Guidance

LRR Energy has revised its full year 2013 guidance to reflect the April
Acquisition and the delays in production as noted above. Based on current
estimates, and assuming no future acquisitions, the Partnership’s full year
2013 guidance is as follows:


                            2013 Guidance
Daily Production (Boe/d)     6,250 - 6,550
                             
LOE ($/Boe)                  $10.50 - $11.00
                             
Capital Expenditures ($MM)
Maintenance                  $20.3
Growth and other             9.7
Total                        $30.0


The guidance above sets forth management’s best estimate based on current and
anticipated market conditions and other factors. While management believes
that these estimates and assumptions are reasonable, they are inherently
uncertain and are subject to, among other things, significant business,
economic, regulatory, environmental and competitive risks and uncertainties
that could cause actual results to differ materially from those management
anticipates, as set forth under “Forward-Looking Statements.”

Commodity Derivative Contracts

As of March 31, 2013, LRR Energy had the following outstanding derivative
contracts.


           Index        2013           2014           2015           2016           2017
Natural
gas
positions
Price
swaps       NYMEX-HH      5,642,670       6,077,016       5,500,236       5,433,888       5,045,760
(MMBTUs)
Weighted
average                 $ 5.09          $ 5.53          $ 5.72          $ 4.29          $ 4.61
price
                                                                                          
Basis
swaps       NYMEX         5,584,726       5,876,098       5,326,559       2,877,047       -
(MMBTUs)
Weighted
average                 $ (0.1363   )   $ (0.1521   )   $ (0.1661   )   $ (0.1115   )   $ -
price
                                                                                          
Puts        NYMEX-HH      122,625         -               -               -               -
(MMBTUs)
Strike                  $ 3.00          $ -             $ -             $ -             $ -
price
                                                                                          
Oil
positions
Price
swaps       NYMEX-WTI     496,216         550,357         420,381         397,488         198,744
(BBLs)
Weighted
average                 $ 95.20         $ 95.81         $ 94.72         $ 86.02         $ 85.75
price
                                                                                          
Basis
swaps       NYMEX-WTI     372,590         410,400         -               -               -
(BBLs)
Weighted
average                 $ (1.25     )   $ (1.00     )   $ -             $ -             $ -
price
                                                                                          
NGL
positions
Price       Mont
swaps       Belvieu       167,402         105,214         -               -               -
(BBLs)
Weighted
average                 $ 41.95         $ 35.35         $ -             $ -             $ -
price


Subsequent to March 31, 2013, as part of the April Acquisition, LRR Energy
acquired the following commodity hedges.


                        Index        2013      2014
                                                  
Oil positions
Price swaps (BBLs)       NYMEX-WTI     38,250     30,000
Weighted average price               $ 102.75   $ 98.20


Quarterly Report on Form 10-Q

LRR Energy expects to file its Quarterly Report on Form 10-Q with the
Securities and Exchange Commission no later than May 10, 2013. The 10-Q will
be available on the Investor Relations page of LRR Energy’s website
www.lrrenergy.com or from the Securities and Exchange Commission website
www.sec.gov.

Webcast and Conference Call

LRR Energy will host a webcast and conference call on Thursday, May 2, 2013,
at 10:00 a.m. EDT (9:00 a.m. CDT) to discuss these results. Interested parties
are invited to participate in the call by dialing 1-877-493-8071 (conference
ID: 39257761). It is recommended that participants dial in approximately 10
minutes prior to the start of the conference call. Participants may access the
webcast from LRR Energy’s website, www.lrrenergy.com, under the tab for
"Investor Relations."

A telephonic replay will be available after the call through May 20, 2013.
Participants may access this replay by dialing 1-800-585-8367 (conference ID:
39257761).

About LRR Energy, L.P.

LRR Energy is a Delaware limited partnership formed in April 2011 by
affiliates of Lime Rock Resources to operate, acquire, exploit and develop
producing oil and natural gas properties in North America. LRR Energy's
properties are located in the Permian Basin region in West Texas and southeast
New Mexico, the Mid-Continent region in Oklahoma and East Texas and the Gulf
Coast region in Texas.

Forward-Looking Statements

This press release includes "forward-looking statements" — that is, statements
related to future events. Forward-looking statements are based on the current
expectations of LRR Energy and include any statement that does not directly
relate to a current or historical fact. In this context, forward-looking
statements often address expected future business, operational and financial
performance, and often contain words such as "may," "predict," "pursue,"
"expect," "estimate," "project," "plan," "believe," "intend," "achievable,"
"anticipate," "target," "continue," "potential," "should," "could" and other
similar words. Actual results and future events could differ materially from
those anticipated or implied in such statements. Forward-looking statements
involve certain risks and uncertainties, and ultimately may not prove to be
accurate. These risks and uncertainties include, among other things, a decline
in oil, natural gas or NGL prices, the risk and uncertainties involved in
producing oil and natural gas, competition in the oil and natural gas
industry, governmental regulations and other factors. Actual results could
differ materially from those anticipated or implied in the forward-looking
statements due to the factors described under the captions "Risk Factors" in
LRR Energy's Annual Report on Form 10-K for the year ended December 31, 2012
and LRR Energy's subsequent filings with the SEC. All forward-looking
statements speak only as of the date of this press release. LRR Energy does
not intend to update or revise any forward-looking statements as a result of
new information, future events or otherwise. All forward-looking statements
are qualified in their entirety by this cautionary statement.


LRR Energy, L.P.
Selected Operating Data
(unaudited)

                                               Three Months Ended March 31,
                                                2013            2012
Production:
Oil (MBbls)                                          164             169
Natural gas (MMcf)                                   1,774           2,150
NGLs (MBbls)                                        71             66
Total (MBoe)                                         531             593
Average net production (Boe/d)                       5,900           6,516
                                                                             
Average sales price:
Oil (per Bbl):
Sales price                                     $    81.92       $   97.98
Effect of realized commodity derivative             1.45           (0.25   )
instruments
Realized sales price                            $    83.37       $   97.73
                                                                             
Natural gas (per Mcf):
Sales price                                     $    3.36        $   2.71
Effect of realized commodity derivative             1.99           2.46
instruments
Realized sales price                            $    5.35        $   5.17
                                                                             
NGLs (per Bbl):
Sales price                                     $    31.25       $   48.97
Effect of realized commodity derivative             4.77           0.09
instruments
Realized sales price                            $    36.02       $   49.06
                                                                             
Average unit costs per Boe:
Lease operating expenses                        $    11.71       $   11.03
Production and ad valorem taxes                 $    3.19        $   2.90
General and administrative expenses             $    6.22        $   5.36
Depletion and depreciation                      $    17.74       $   16.83



LRR Energy, L.P.
Consolidated Condensed Statement of Operations
(in thousands, except per unit amounts)
(unaudited)

                                               Three Months Ended March 31,
                                                2013             2012
                                                                             
Revenues:
Oil sales                                       $  13,435         $  16,558
Natural gas sales                                  5,959             5,828
Natural gas liquids sales                          2,219             3,232
Realized gain on commodity derivative              4,105             5,248
instruments
Unrealized loss on commodity derivative            (10,029  )        (271    )
instruments
Other income                                      69               3
Total revenues                                     15,758            30,598
                                                                             
Operating Expenses:
Lease operating expense                            6,213             6,544
Production and ad valorem taxes                    1,693             1,720
Depletion and depreciation                         9,416             9,983
Impairment of oil and natural gas properties       -                 3,093
Accretion expense                                  457               373
Gain on settlement of asset retirement             (25      )        (98     )
obligations
General and administrative expense                3,299            3,183
Total operating expenses                           21,053            24,798
                                                                             
Operating income (loss)                            (5,295   )        5,800
                                                                             
Other income (expense), net
Interest expense                                   (2,265   )        (1,128  )
Realized loss on interest rate derivative          (174     )        (33     )
instruments
Unrealized gain on interest rate derivative       289              805
instruments
Other income (expense), net                        (2,150   )        (356    )
                                                                             
Income (loss) before taxes                         (7,445   )        5,444
Income tax expense                                (5       )       (126    )
Net income (loss)                                  (7,450   )        5,318
Net income attributable to predecessor            -                (1,469  )
operations
Net income (loss) available to unitholders      $  (7,450   )     $  3,849
                                                                             
                                                                             
Computation of net income (loss) per
limited partner unit:
                                                                             
General partners’ interest in net income        $  (7       )     $  4
(loss)
                                                                             
Limited partners’ interest in net income        $  (7,443   )     $  3,845
(loss)
                                                                             
Net income (loss) per limited partner unit      $  (0.32    )     $  0.17
(basic and diluted)
                                                                             
Weighted average number of limited partner         22,923            22,421
units outstanding



LRR Energy, L.P.
Consolidated Condensed Statement of Cash Flows
(in thousands)
(unaudited)

                                               Three Months Ended March 31,
                                                2013                2012
                                                                             
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                             $ (7,450    )       $  5,318
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depletion and depreciation                      9,416                9,983
Impairment of oil and natural gas               -                    3,093
properties
Unrealized (gain) loss on derivative            9,740                (534    )
instruments, net
Accretion expense                               457                  373
Amortization of equity awards                   115                  69
Amortization of derivative contracts            247                  -
Amortization of deferred financing costs        82                   74
and other
Gain on settlement of asset retirement          (25       )          (98     )
obligations
Changes in operating assets and
liabilities:
Change in receivables                           (437      )          3,977
Change in prepaid expenses                      29                   (334    )
Change in accrued liabilities and deferred      2,457                (427    )
tax liabilities
Change in amounts due to/from affiliates        (4,777    )          (1,201  )
Net cash provided by operating activities       9,854                20,293
                                                                             
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of oil and natural gas              -                    (1,624  )
properties
Development of oil and natural gas              (3,824    )          (4,747  )
properties
Expenditures for other property and             -                    (16     )
equipment
Net cash used in investing activities           (3,824    )          (6,387  )
                                                                             
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under revolving credit facility      29,000               -
Principal payments on revolving credit          (22,000   )          -
facility
Equity offering, net of expenses                59,583               -
Distribution to Fund I                          (22,086   )          -
Contribution to Fund I                          -                    (3,403  )
Distributions                                   (10,785   )          (5,213  )
Net cash provided by (used in) financing        33,712               (8,616  )
activities
                                                                             
NET INCREASE IN CASH AND CASH EQUIVALENTS       39,742               5,290
                                                                             
CASH AND CASH EQUIVALENTS, BEGINNING OF         3,467                1,513
PERIOD
                                                                             
CASH AND CASH EQUIVALENTS, END OF PERIOD      $ 43,209            $  6,803
                                                                             
Supplemental disclosure of non-cash items
to reconcile investing and financing
activities
Property and equipment:
Change in accrued capital costs               $ 3,885             $  (2,590  )
Asset retirement obligations                    (167      )          (81     )



LRR Energy, L.P.
Consolidated Condensed Balance Sheet
(in thousands, except unit amounts)
(unaudited)

                                      March 31, 2013    December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents             $ 43,209           $ 3,467
Accounts receivable                     7,687              7,250
Commodity derivative instruments        10,342             16,134
Due from affiliates                     2,800              -
Prepaid expenses                       719               748
Total current assets                    64,757             27,599
Property and equipment (successful      808,442            800,624
efforts method)
Accumulated depletion, depreciation    (330,794       )  (321,377          )
and impairment
Total property and equipment, net       477,648            479,247
Commodity derivative instruments        17,377             19,821
Deferred financing costs, net of       1,454             1,559
accumulated amortization
TOTAL ASSETS                          $ 561,236          $ 528,226
LIABILITIES AND UNITHOLDERS’ EQUITY
Current liabilities:
Accrued liabilities                   $ 3,892            $ 1,415
Accrued capital cost                    6,246              2,361
Due to affiliates                       -                  1,977
Commodity derivative instruments        3,373              1,671
Interest rate derivative                605                659
instruments
Asset retirement obligations           423               500
Total current liabilities               14,539             8,583
Long-term liabilities:
Commodity derivative instruments        1,189              874
Interest rate derivative                3,291              3,526
instruments
Term loan                               50,000             50,000
Revolving credit facility               185,000            178,000
Asset retirement obligations            33,232             32,615
Deferred tax liabilities               100               120
Total long-term liabilities             272,812            265,135
Total liabilities                       287,351            273,718
Unitholders’ Equity:
Predecessors’ capital                   -                  24,673
General partner (22,400 units
issued and outstanding as of March      380                396
31, 2013 and December 31, 2012)
Public common unitholders
(17,598,939 units issued and
outstanding as of March 31, 2013        235,996            169,919
and 10,676,742 units issued and
outstanding as of December 31,
2012)
Affiliated common unitholders
(1,849,600 units issued and
outstanding as of March 31, 2013        7,911              25,563
and 5,049,600 units issued and
outstanding as of December 31,
2012)
Subordinated unitholders (6,720,000
units issued and outstanding as of     29,598            33,957
March 31, 2013 and December 31,
2012)
Total Unitholders’ Equity              273,885           254,508
TOTAL LIABILITIES AND UNITHOLDERS’    $ 561,236          $ 528,226
EQUITY


                               LRR Energy, L.P.
                           Non-GAAP Reconciliation
                                (in thousands)
                                 (unaudited)

LRR Energy defines Adjusted EBITDA as net income (loss) plus income tax
expense (benefit); interest expense-net, including realized and unrealized
losses on interest rate derivative contracts; depletion and depreciation;
accretion of asset retirement obligations; amortization of equity awards;
(gain) loss on settlement of asset retirement obligations; unrealized losses
on commodity derivative contracts; amortization of derivative contracts;
impairment of oil and natural gas properties; less interest income; unrealized
gains on commodity derivative contracts and other non-recurring items that the
Partnership deems appropriate. Distributable Cash Flow is defined as Adjusted
EBITDA less income tax expense; cash interest expense; and estimated
maintenance capital expenditures. Distribution Coverage Ratio-common
unitholders is defined as the ratio of Distributable Cash Flow to the total
quarterly distribution payable on all of the Partnership’s outstanding common
units. Distribution Coverage Ratio-all unitholders is defined as the ratio of
Distributable Cash Flow to the total quarterly distribution payable on all of
the Partnership’s outstanding common, subordinated and general partner units.

Adjusted EBITDA, Distributable Cash Flow and the Distribution Coverage
Ratio-common and all unitholders are used as supplemental financial measures
by LRR Energy’s management and by external users of its financial statements,
such as investors, commercial banks and others, to assess the Partnership’s
operating performance as compared to that of other companies and partnerships
in the industry, without regard to financing methods, capital structure or
historical cost basis and the ability of its assets to generate sufficient
cash flow to make distributions to the Partnership’s unitholders.

LRR Energy’s management believes that Adjusted EBITDA, Distributable Cash Flow
and the Distribution Coverage Ratio-common and all unitholders are useful to
investors because these measures are used by many partnerships in the industry
as measures of operating and financial performance and are commonly employed
by financial analysts and others to evaluate our operating and financial
performance from period to period and to compare it with the performance of
other publicly traded partnerships within the industry. Adjusted EBITDA,
Distributable Cash Flow and the Distribution Coverage Ratio-common and all
unitholders should not be considered alternatives to net income, operating
income, cash flow from operating activities or any other measures of financial
performance presented in accordance with GAAP. LRR Energy’s Adjusted EBITDA,
Distributable Cash Flow and Distribution Coverage Ratio-common and all
unitholders may not be comparable to similarly titled measures of another
company because all companies may not calculate Adjusted EBITDA, Distributable
Cash Flow or the Distribution Coverage Ratio-common and all unitholders in the
same manner. The following table presents a reconciliation of Adjusted EBITDA
to net income, the Partnership’s most directly comparable GAAP financial
performance measure, for the three months ended March 31, 2013 and 2012.


                                               Three Months Ended March 31,
                                                2013             2012
                                                                             
(in thousands)
Net income (loss)                               $   (7,450  )     $  5,318
Income tax expense                                  5                126
Interest expense-net                                2,150            356
Depletion and depreciation                          9,416            9,983
Accretion of asset retirement obligations           457              373
Amortization of equity awards                       115              69
Gain on settlement of asset retirement              (25     )        (98     )
obligations
Unrealized losses on commodity derivative           10,029           271
instruments
Amortization of derivative contracts                247              -
Impairment of oil and natural gas                   -                3,093
Interest income                                     -                -
Unrealized gain on commodity derivative            -               -
instruments
Adjusted EBITDA                                 $   14,944        $  19,491


                               LRR Energy, L.P.
                           Non-GAAP Reconciliation
                                 (continued)
                                (in thousands)
                                 (unaudited)

The following table presents a reconciliation of Distributable Cash Flow and
the Distribution Coverage Ratio-common and all unitholders to Adjusted EBITDA
for the three months ended March 31, 2013 and 2012. Adjusted EBITDA is
reconciled to net income, the Partnership’s most directly comparable GAAP
financial performance measure, above.


                                     Three Months Ended March 31,
                                      2013                   2012
                                                                           
(in thousands)
Adjusted EBITDA                       $   14,944              $   19,491
Income tax expense                        (5       )              (126     )
Cash interest expense                     (2,129   )              (1,410   )
Estimated maintenance capital            (4,800   )             (4,800   )
^(1)
Distributable Cash Flow               $   8,010               $   13,155
                                                                           
Cash Distribution - common                9,384    ^(2)           7,462
unitholders
Cash Distribution - all                   12,637   ^(2)           10,664
unitholders
Distribution coverage ratio -             0.85x                   1.76x
common unitholders ^(1)
Distribution coverage ratio -             0.63x                   1.23x
all unitholders ^(1)

^(1) Amount represents pro-rated for the period.
^(2) Includes $1.8 million of distributions related to common units sold in
the March 2013 equity offering.


Contact:

LRR Energy, L.P.
Todd Hassen, 713-292-9534
Director of Finance
thassen@lrrenergy.com
or
Jaime Casas, 713-345-2126
Chief Financial Officer
jcasas@lrrenergy.com
 
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