Exhibit 99.1
LRR Energy, L.P. Announces Second Quarter 2015 Results
Houston, Texas (July 30, 2015) - LRR Energy, L.P. (NYSE: LRE) (“LRR Energy”) announced today its operating and financial results for the three and six months ended June 30, 2015.
Selected Financial and Operating Information
A summary of selected financial and operating information follows. For consolidated financial statements for the three and six months ended June 30, 2015, please see the accompanying tables on pages 7-9.
| | Three Months Ended | | Six Months Ended | |
| | June 30, 2015 | | June 30, 2015 | |
| | (unaudited) | |
| | (in thousands, except distribution coverage ratio) | |
| | | | | |
Oil, natural gas and natural gas liquids sales | | $ | 19,608 | | $ | 37,109 | |
Gain (loss) on commodity derivative instruments, net (1) | | $ | (8,927 | ) | $ | 9,755 | |
Total revenues | | $ | 10,707 | | $ | 46,919 | |
Lease operating expense | | $ | 6,008 | | $ | 12,780 | |
Production and ad valorem taxes | | $ | 1,482 | | $ | 2,748 | |
General and administrative expense | | $ | 12,673 | | $ | 16,464 | |
Interest expense | | $ | 3,120 | | $ | 5,889 | |
Net income (loss) available to unitholders | | $ | (22,314 | ) | $ | (47,250 | ) |
Net income (loss) per limited partner unit | | $ | (0.52 | ) | $ | (1.35 | ) |
| | | | | |
Capital expenditures | | $ | 5,096 | | $ | 17,376 | |
Adjusted EBITDA (2) | | $ | 20,454 | | $ | 40,169 | |
Distributable cash flow (2) | | $ | 11,962 | | $ | 23,946 | |
| | | | | |
Cash distribution | | $ | 5,268 | | $ | 10,536 | |
Distribution coverage ratio (2) | | 2.27x | | 2.27x | |
(1) See commodity derivative settlements on page 6.
(2) Non-GAAP financial measure. See reconciliation of non-GAAP financial measures beginning on page 10.
| | Three Months Ended | | Six Months Ended | |
| | June 30, 2015 | | June 30, 2015 | |
| | | | | |
Average net production (Boe/d) | | 6,747 | | 6,807 | |
Average cost per Boe: | | | | | |
Lease operating expense | | $ | 9.79 | | $ | 10.37 | |
Production and ad valorem taxes | | $ | 2.41 | | $ | 2.23 | |
General and administrative expense | | $ | 20.64 | | $ | 13.36 | |
LRR Energy’s average net production for July 2015 was approximately 6,900 Boe/d through July 24, 2015.
Recent Events
As of July 29, 2015, LRR Energy had $235 million of outstanding borrowings under its revolving credit facility and $50 million of outstanding borrowings under its term loan. LRR Energy currently has $8 million of available borrowing capacity under its revolving credit facility and $11 million of cash on hand.
LRR Energy previously announced that the board of directors of its general partner declared a cash distribution for the second quarter of 2015 of $0.1875 per outstanding unit, or $0.75 on an annualized basis. The distribution will be paid on August 14, 2015 to all unitholders of record as of the close of business on July 31, 2015.
Additionally, LRR Energy previously announced that the special meeting of unitholders to approve its merger (the “Merger”) with Vanguard Natural Resources, LLC (“Vanguard”) is scheduled to occur on September 10, 2015. LRR Energy’s unitholders of record at the close of business on July 24, 2015 will be entitled to receive notice of the special meeting and vote at the special meeting. LRR Energy expects the Merger to close in the third quarter of 2015.
Commodity Derivative Contracts
As of June 30, 2015, LRR Energy had the following outstanding derivative contracts.
| | Index | | 2015 | | 2016 | | 2017 | | 2018 | |
Natural gas positions | | | | | | | | | | | |
Price swaps (MMBtu) | | NYMEX-HH | | 2,688,648 | | 5,433,888 | | 5,045,760 | | 3,452,172 | |
Weighted average price | | | | $ | 5.75 | | $ | 4.29 | | $ | 4.61 | | $ | 4.05 | |
| | | | | | | | | | | |
Basis swaps (MMBtu) | | (1) | | 2,601,807 | | 2,877,047 | | — | | — | |
Weighted average price | | | | $ | (0.1666 | ) | $ | (0.1115 | ) | $ | — | | $ | — | |
| | | | | | | | | | | |
Oil positions | | | | | | | | | | | |
Price swaps (Bbl) | | NYMEX-WTI | | 360,683 | | 610,131 | | 473,698 | | 562,524 | |
Weighted average price | | | | $ | 93.42 | | $ | 87.27 | | $ | 84.34 | | $ | 82.26 | |
| | | | | | | | | | | |
Basis swaps (Bbl) | | Argus- | | 187,000 | | 364,800 | | — | | — | |
Weighted average price | | Midland-Cushing | | $ | (3.2500 | ) | $ | (1.0500 | ) | $ | — | | $ | — | |
| | | | | | | | | | | |
NGL positions | | | | | | | | | | | |
Price swaps (Bbl) | | Mont Belvieu | | 112,877 | | — | | — | | — | |
Weighted average price | | | | $ | 34.45 | | $ | — | | $ | — | | $ | — | |
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(1) Our natural gas basis swaps are traded on the following indices: Centerpoint East, Houston Ship Channel, WAHA and TEXOK.
Quarterly Report on Form 10-Q
LRR Energy expects to file its Quarterly Report on Form 10-Q (the “10-Q”) with the Securities and Exchange Commission (the “SEC”) no later than August 10, 2015. The 10-Q will be available on the Investor Relations page of LRR Energy’s website www.lrrenergy.com or from the SEC website www.sec.gov.
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.
Important Information and Where to Find It
In connection with the Merger, Vanguard filed with the SEC a preliminary Registration Statement on Form S-4 that includes a preliminary proxy statement of LRR Energy that also constitutes a preliminary prospectus of Vanguard. A definitive proxy statement/prospectus will be sent to security holders of LRR Energy seeking their approval with respect to the proposed merger. Vanguard and LRR Energy also plan to file other documents with the SEC regarding the proposed transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO CAREFULLY READ THE PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders will be able to obtain a free copy of the proxy statement/prospectus (if and when it becomes available) and other documents filed by Vanguard and LRR Energy with the SEC through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Vanguard will be available free of charge on Vanguard’s internet website at http://www.vnrllc.com or by contacting Vanguard’s Investor Relations Department by email at investorrelations@vnrllc.com or by phone at (832) 327-2234. Copies of the documents filed with the SEC by LRR Energy will be available free of charge on LRR Energy’s internet website at http://www.lrrenergy.com or by contacting LRR Energy’s Investor Relations Department by email at info@lrrenergy.com or by phone at (713) 345-2145.
Participants in the Solicitation
Vanguard, LRR Energy, and their respective directors, executive officers and other members of their management and employees may be deemed to be “participants” in the solicitation of proxies in connection with the proposed merger. Investors and security holders may obtain information regarding Vanguard’s directors, executive officers and other members of its management and employees in Vanguard’s Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the SEC on March 2, 2015, Vanguard’s proxy statement for its 2015 annual meeting, which was filed with the SEC on April 20, 2015, and any subsequent statements of changes in beneficial ownership on file with the SEC. Investors and security holders may obtain information regarding LRR Energy’s directors, executive officers and other members of their management and employees in LRR Energy’s Annual Report on
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Form 10-K for the year ended December 31, 2014, which was filed with the SEC on March 4, 2015, and any subsequent statements of changes in beneficial ownership on file with the SEC. These documents can be obtained free of charge from the sources listed above. Additional information regarding the interests of these individuals will also be included in the proxy statement/prospectus regarding the proposed transaction when it becomes available.
Forward-Looking Statements
This press release includes “forward-looking statements” as defined by the SEC. All statements other than historical facts, including, without limitation, statements regarding the expected benefits of the proposed transaction to Vanguard and LRR Energy and their unitholders, the anticipated completion of the proposed transaction or the timing thereof, the expected future reserves, production, financial position, business strategy, revenues, earnings, costs, capital expenditures and debt levels of the combined company, and plans and objectives of management for future operations, are forward-looking statements. When used in this press release, words such as we “may,” “can,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “project,” “believe,” “will” or “should” or the negative thereof or variations thereon or similar terminology are generally intended to identify forward-looking statements. It is uncertain whether the events anticipated will transpire, or if they do occur what impact they will have on the results of operations and financial condition of Vanguard, LRR Energy or of the combined company. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, such statements.
These risks and uncertainties include, but are not limited to: the ability to obtain unitholder approval of the proposed transaction; the ability to complete the proposed transaction on anticipated terms and timetable; Vanguard’s and LRR Energy’s ability to integrate successfully after the transaction and achieve anticipated benefits from the proposed transaction; the possibility that various closing conditions for the transaction may not be satisfied or waived; risks relating to any unforeseen liabilities of Vanguard or LRR Energy; declines in oil, natural gas liquids or natural gas prices; the level of success in exploitation, development and production activities; adverse weather conditions that may negatively impact development or production activities; the timing of exploitation and development expenditures; inaccuracies of reserve estimates or assumptions underlying them; revisions to reserve estimates as a result of changes in commodity prices; impacts to financial statements as a result of impairment write-downs; risks related to level of indebtedness and periodic redeterminations of the borrowing base under Vanguard’s and LRR Energy’s credit agreements; the ability of Vanguard and LRR Energy to comply with covenants contained in the agreements governing their indebtedness; ability to generate sufficient cash flows from operations to meet the internally funded portion of any capital expenditures budget; ability to obtain external capital to finance exploitation and development operations and acquisitions; federal, state and local initiatives and efforts relating to the regulation of hydraulic fracturing; failure of properties to yield oil or gas in commercially viable quantities; uninsured or underinsured losses resulting from oil and gas operations; inability to access oil and gas markets due to market conditions or operational impediments; the impact and costs of compliance with laws and regulations governing oil and gas operations; ability to replace oil and natural gas reserves; any loss of senior management or technical personnel; competition in the oil and gas industry; risks arising out of hedging transactions; and other risks described under the caption “Risk Factors” in Vanguard’s and LRR Energy’s Annual Reports on Form 10-K for the period ended December 31, 2014. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of their dates. Except as required by law, neither Vanguard nor LRR Energy intends to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.
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Investor Contacts:
Angelique Brou
Financial Reporting Manager
(713) 345-2145
abrou@lrrenergy.com
Jaime Casas
Chief Financial Officer
(713) 345-2126
jcasas@lrrenergy.com
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LRR Energy, L.P.
Selected Operating Data
(unaudited)
| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2015 | | 2014 | | 2015 | | 2014 | |
| | | | | | | | | |
Production: | | | | | | | | | |
Oil (MBbls) | | 270 | | 216 | | 545 | | 434 | |
Natural gas (MMcf) | | 1,470 | | 1,666 | | 2,988 | | 3,288 | |
NGLs (MBbls) | | 99 | | 90 | | 189 | | 175 | |
Total (MBoe) | | 614 | | 584 | | 1,232 | | 1,157 | |
Average net production (Boe/d) | | 6,747 | | 6,418 | | 6,807 | | 6,392 | |
| | | | | | | | | |
Average sales price: | | | | | | | | | |
Oil (per Bbl): | | | | | | | | | |
Sales price | | $ | 52.69 | | $ | 94.23 | | $ | 48.24 | | $ | 93.34 | |
Effect of settled commodity derivative instruments | | 23.74 | | (3.50 | ) | 27.77 | | (2.14 | ) |
Realized sales price | | $ | 76.43 | | $ | 90.73 | | $ | 76.01 | | $ | 91.20 | |
Natural gas (per Mcf): | | | | | | | | | |
Sales price | | $ | 2.53 | | $ | 4.54 | | $ | 2.67 | | $ | 4.76 | |
Effect of settled commodity derivative instruments | | 2.77 | | 0.71 | | 2.61 | | 0.62 | |
Realized sales price | | $ | 5.30 | | $ | 5.25 | | $ | 5.28 | | $ | 5.38 | |
NGLs (per Bbl): | | | | | | | | | |
Sales price | | $ | 16.78 | | $ | 30.67 | | $ | 14.98 | | $ | 34.99 | |
Effect of settled commodity derivative instruments | | 9.41 | | (1.81 | ) | 9.94 | | (2.77 | ) |
Realized sales price | | $ | 26.19 | | $ | 28.86 | | $ | 24.92 | | $ | 32.22 | |
| | | | | | | | | |
Average cost per Boe: | | | | | | | | | |
Lease operating expenses | | $ | 9.79 | | $ | 11.70 | | $ | 10.37 | | $ | 10.95 | |
Production and ad valorem taxes | | 2.41 | | 3.85 | | 2.23 | | 4.02 | |
General and administrative expenses | | 20.64 | | 4.62 | | 13.36 | | 5.08 | |
Depletion and depreciation | | 14.16 | | 14.87 | | 14.26 | | 14.82 | |
| | | | | | | | | |
Derivative instrument settlements and amortization (in thousands): | | | | | | | | | |
Commodity | | 11,413 | | $ | 271 | | 24,818 | | $ | 637 | |
Interest rate | | (672 | ) | $ | (204 | ) | (1,077 | ) | $ | (404 | ) |
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LRR Energy, L.P.
Consolidated Condensed Statement of Operations
(in thousands, except per unit amounts)
(unaudited)
| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2015 | | 2014 | | 2015 | | 2014 | |
Revenues: | | | | | | | | | |
Oil sales | | $ | 14,227 | | $ | 20,354 | | $ | 26,291 | | $ | 40,510 | |
Natural gas sales | | 3,720 | | 7,565 | | 7,986 | | 15,664 | |
Natural gas liquids sales | | 1,661 | | 2,760 | | 2,832 | | 6,124 | |
Gain (loss) on commodity derivative instruments, net | | (8,927 | ) | (13,328 | ) | 9,755 | | (18,950 | ) |
Other income | | 26 | | 40 | | 55 | | 71 | |
Total revenues | | 10,707 | | 17,391 | | 46,919 | | 43,419 | |
| | | | | | | | | |
Operating expenses: | | | | | | | | | |
Lease operating expense | | 6,008 | | 6,829 | | 12,780 | | 12,664 | |
Production and ad valorem taxes | | 1,482 | | 2,248 | | 2,748 | | 4,648 | |
Depletion and depreciation | | 8,694 | | 8,680 | | 17,574 | | 17,145 | |
Impairment of oil and natural gas properties | | 256 | | — | | 35,962 | | — | |
Accretion expense | | 518 | | 510 | | 1,029 | | 1,013 | |
Loss (gain) on settlement of asset retirement obligations | | 4 | | 21 | | 68 | | 61 | |
General and administrative expense | | 12,673 | | 2,699 | | 16,464 | | 5,881 | |
Total operating expenses | | 29,635 | | 20,987 | | 86,625 | | 41,412 | |
| | | | | | | | | |
Operating income (loss) | | (18,928 | ) | (3,596 | ) | (39,706 | ) | 2,007 | |
| | | | | | | | | |
Other income (expense), net | | | | | | | | | |
Interest expense | | (3,120 | ) | (2,575 | ) | (5,889 | ) | (5,116 | ) |
Gain (loss) on interest rate derivative instruments, net | | (322 | ) | (1,128 | ) | (1,673 | ) | (1,422 | ) |
Other income (expense), net | | (3,442 | ) | (3,703 | ) | (7,562 | ) | (6,538 | ) |
| | | | | | | | | |
Income (loss) before taxes | | (22,370 | ) | (7,299 | ) | (47,268 | ) | (4,531 | ) |
Income tax (expense) benefit | | 56 | | (38 | ) | 18 | | (112 | ) |
Net income (loss) available to unitholders | | $ | (22,314 | ) | $ | (7,337 | ) | $ | (47,250 | ) | $ | (4,643 | ) |
| | | | | | | | | |
Computation of net income (loss) per limited partner unit: | | | | | | | | | |
| | | | | | | | | |
General partners’ interest in net income (loss) | | $ | (7,595 | ) | $ | (7 | ) | $ | (9,434 | ) | $ | (4 | ) |
| | | | | | | | | |
Limited partners’ interest in net income (loss) | | $ | (14,719 | ) | $ | (7,330 | ) | $ | (37,816 | ) | $ | (4,639 | ) |
| | | | | | | | | |
Net income (loss) per limited partner unit (basic and diluted) | | $ | (0.52 | ) | $ | (0.27 | ) | $ | (1.35 | ) | $ | (0.17 | ) |
| | | | | | | | | |
Weighted average number of limited partner units outstanding | | 28,074 | | 26,733 | | 28,073 | | 26,539 | |
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LRR Energy, L.P.
Consolidated Condensed Statement of Cash Flows
(in thousands)
(unaudited)
| | Six Months Ended June 30, | |
| | 2015 | | 2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income (loss) | | $ | (47,250 | ) | $ | (4,643 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | |
Depletion and depreciation | | 17,574 | | 17,145 | |
Impairment of oil and natural gas properties | | 35,962 | | — | |
Accretion expense | | 1,029 | | 1,013 | |
Amortization of equity awards | | 838 | | 534 | |
Amortization of derivative contracts | | 243 | | 330 | |
Amortization of deferred financing costs and other | | 341 | | 208 | |
Loss (gain) on settlement of asset retirement obligations | | 68 | | 61 | |
Changes in operating assets and liabilities: | | | | | |
Change in receivables | | 2,465 | | 75 | |
Change in prepaid expenses | | 483 | | (209 | ) |
Change in derivative assets and liabilities | | 15,659 | | 20,605 | |
Change in amounts due to/from affiliates | | 4,241 | | (5,992 | ) |
Change in accrued liabilities and deferred tax liabilities | | 4,301 | | 2,536 | |
Net cash provided by (used in) operating activities | | 35,954 | | 31,663 | |
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Development of oil and natural gas properties | | (17,376 | ) | (17,094 | ) |
Acquisition of oil and natural gas properties | | (230 | ) | — | |
Disposition of oil and natural gas properties | | — | | 65 | |
Net cash provided by (used in) investing activities | | (17,606 | ) | (17,029 | ) |
| | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Borrowings under revolving credit facility | | 10,000 | | 20,000 | |
Principal payments on revolving credit facility | | (5,000 | ) | (25,000 | ) |
Equity offering, net of expenses | | 3 | | 14,810 | |
Distributions | | (19,246 | ) | (25,990 | ) |
Net cash provided by (used in) financing activities | | (14,243 | ) | (16,180 | ) |
| | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | 4,105 | | (1,546 | ) |
| | | | | |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | | 3,576 | | 4,417 | |
| | | | | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 7,681 | | $ | 2,871 | |
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LRR Energy, L.P.
Consolidated Condensed Balance Sheet
(in thousands, except unit amounts)
(unaudited)
| | June 30, 2015 | | December 31, 2014 | |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | | $ | 7,681 | | $ | 3,576 | |
Accounts receivable | | 8,659 | | 11,124 | |
Commodity derivative instruments | | 32,087 | | 45,924 | |
Due from affiliates | | 1,456 | | 5,697 | |
Prepaid expenses | | 1,240 | | 1,840 | |
Total current assets | | 51,123 | | 68,161 | |
Property and equipment (successful efforts method) | | 972,398 | | 956,326 | |
Accumulated depletion, depreciation and impairment | | (559,893 | ) | (506,368 | ) |
Total property and equipment, net | | 412,505 | | 449,958 | |
Commodity derivative instruments | | 37,159 | | 38,540 | |
Deferred financing costs, net of accumulated amortization and other assets | | 2,076 | | 2,295 | |
TOTAL ASSETS | | $ | 502,863 | | $ | 558,954 | |
LIABILITIES AND UNITHOLDERS’ EQUITY | | | | | |
Current liabilities: | | | | | |
Accrued liabilities | | $ | 9,910 | | $ | 5,506 | |
Accrued capital cost | | 7,642 | | 9,176 | |
Commodity derivative instruments | | 783 | | 556 | |
Interest rate derivative instruments | | 2,781 | | 2,327 | |
Asset retirement obligations | | 2,153 | | 1,065 | |
Total current liabilities | | 23,269 | | 18,630 | |
Long-term liabilities: | | | | | |
Commodity derivative instruments | | 94 | | 232 | |
Interest rate derivative instruments | | 960 | | 817 | |
Term loan | | 50,000 | | 50,000 | |
Revolving credit facility | | 235,000 | | 230,000 | |
Asset retirement obligations | | 40,558 | | 40,539 | |
Deferred tax liabilities | | — | | 99 | |
Total long-term liabilities | | 326,612 | | 321,687 | |
Total liabilities | | 349,881 | | 340,317 | |
Unitholders’ Equity: | | | | | |
General partner (22,400 units issued and outstanding as of June 30, 2015 and December 31, 2014) | | (9,139 | ) | 310 | |
Public common unitholders (19,504,833 units issued and outstanding as of June 30, 2015 and 19,492,291 units issued and outstanding as of December 31, 2014) | | 162,121 | | 208,273 | |
Affiliated common unitholders (8,569,600 units issued and outstanding as of June 30, 2015 and 4,089,600 issued and outstanding as of December 31, 2014) | | — | | 4,643 | |
Subordinated unitholders (4,480,000 units issued and outstanding as of December 31, 2014) | | — | | 5,411 | |
Total Unitholders’ Equity | | 152,982 | | 218,637 | |
TOTAL LIABILITIES AND UNITHOLDERS’ EQUITY | | $ | 502,863 | | $ | 558,954 | |
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LRR Energy, L.P.
Non-GAAP Reconciliation
(in thousands)
(unaudited)
LRR Energy defines Adjusted EBITDA as net income (loss) plus or minus income tax expense; interest expense-net, including loss (gain) on interest rate derivative instruments, net; depletion and depreciation; accretion of asset retirement obligations; amortization of equity awards; loss (gain) on settlement of asset retirement obligations; loss (gain) on commodity derivative instruments, net; commodity derivative instrument net cash settlements; impairment of oil and natural gas properties; and other non-recurring items that LRR Energy deems appropriate.
Adjusted EBITDA is used as a supplemental financial measure by LRR Energy’s management and by external users of its financial statements, such as investors, commercial banks, research analysts and others, to assess LRR Energy’s financial performance as compared to that of other companies and partnerships in the industry, without regard to financing methods, capital structure or historical cost basis.
Distributable Cash Flow is defined as Adjusted EBITDA less cash income tax expense; cash interest expense; and estimated maintenance capital. Distribution Coverage Ratio is defined as the ratio of Distributable Cash Flow to the total quarterly distribution payable on all of LRR Energy’s outstanding common, subordinated and general partner units.
Distributable Cash Flow and the Distribution Coverage Ratio are used as supplemental financial measures by LRR Energy’s management and by external users of its financial statements, such as investors, commercial banks, research analysts and others to compare basic cash flows generated by LRR Energy (prior to the establishment of any retained cash reserve by its general partner) to the cash distributions it expects to pay its unitholders. Distributable Cash Flow and the Distribution Coverage Ratio are also important financial measures for LRR Energy’s unitholders as they serve as indicators of its success in providing a cash return on investment. Specifically, these metrics indicate to investors whether or not LRR Energy is generating cash flow at a level that can sustain or support an increase in its quarterly distribution rates. Distributable Cash Flow and the Distribution Coverage Ratio are quantitative standards used throughout the investment community with respect to publicly traded partnerships and limited liability companies because the yield is based on the amount of cash distributions the entity pays to a unitholder compared to the unit price.
LRR Energy’s management believes that Adjusted EBITDA, Distributable Cash Flow and the Distribution Coverage Ratio 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 its 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 should not be considered alternatives to net income, operating income or any other measures of financial performance presented in accordance with GAAP. LRR Energy’s Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio 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 in the same manner. The following table presents a reconciliation of Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio to net income (loss), LRR Energy’s most directly comparable GAAP financial performance measure, for the three and six months ended June 30, 2015 and 2014.
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LRR Energy, L.P.
Non-GAAP Reconciliation
(continued)
(in thousands)
(unaudited)
| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2015 | | 2014 | | 2015 | | 2014 | |
| | | | | | | | | |
Net income (loss) | | $ | (22,314 | ) | $ | (7,337 | ) | $ | (47,250 | ) | $ | (4,643 | ) |
Income tax expense (benefit) | | (56 | ) | 38 | | (18 | ) | 112 | |
Interest expense-net, including loss (gain) on interest rate derivative instruments, net | | 3,442 | | 3,703 | | 7,562 | | 6,538 | |
Depletion and depreciation | | 8,694 | | 8,680 | | 17,574 | | 17,145 | |
Accretion of asset retirement obligations | | 518 | | 510 | | 1,029 | | 1,013 | |
Amortization of equity awards | | 493 | | 249 | | 838 | | 534 | |
Loss (gain) on settlement of asset retirement obligations | | 4 | | 21 | | 68 | | 61 | |
Loss (gain) on commodity derivative instruments, net | | 8,927 | | 13,328 | | (9,755 | ) | 18,950 | |
Commodity derivative instrument net cash settlements | | 11,542 | | 444 | | 25,061 | | 967 | |
Impairment of oil and natural gas properties | | 256 | | — | | 35,962 | | — | |
Other non-recurring items (1) | | 8,948 | | — | | 9,098 | | — | |
Adjusted EBITDA | | $ | 20,454 | | $ | 19,636 | | $ | 40,169 | | $ | 40,677 | |
| | | | | | | | | |
Adjusted EBITDA | | 20,454 | | 19,636 | | 40,169 | | 40,677 | |
Cash income tax expense | | (47 | ) | (44 | ) | (85 | ) | (88 | ) |
Cash interest expense | | (3,695 | ) | (2,757 | ) | (6,638 | ) | (5,401 | ) |
Estimated maintenance capital (2) | | (4,750 | ) | (5,000 | ) | (9,500 | ) | (10,000 | ) |
Distributable Cash Flow | | $ | 11,962 | | $ | 11,835 | | $ | 23,946 | | $ | 25,188 | |
| | | | | | | | | |
Cash distribution | | $ | 5,268 | | $ | 13,597 | | $ | 10,536 | | $ | 26,703 | |
Distribution Coverage Ratio | | 2.27x | | 0.87x | | 2.27x | | 0.94x | |
(1) Includes one-time costs associated with the merger with Vanguard including consulting and legal fees and severance payments.
(2) Estimated maintenance capital expenditures as defined by our partnership agreement represent our estimate of the amount of capital required on average per year to maintain our production over the long term.
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