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  • Roger S. Conrad

High Yields + Low Valuations = Buying Opportunity

By Elliott H. Gue on Jan. 29, 2014

The bulk of Memorial Production Partners’ reserves sit in the Cotton Valley and Travis Peak formations in east Texas and Louisiana; the proximity of these fields to the petrochemical complex on the Gulf Coast gives the MLP a significant price advantage relative to further-flung fields saddled with higher transportation costs.

Output from these plays consists of 70 percent natural gas, 24 percent natural gas liquids (NGL) and 6 percent crude oil.

The MLP’s assets in California and the Permian Basin account for the majority of its oil output and offer the most upside for organic growth.

Memorial Production Partners extracts 2,433 barrels of oil equivalent per day from its 384 net producing wells in the Permian Basin and has identified 23 proven but undeveloped drilling locations and as many as 258 unproven sites for development.

In California, the MLP operates two fixed drilling platforms 11 miles offshore Long Beach, as well as associated midstream infrastructure to transport production volumes onshore. This operation includes 27 net producing wells, though the firm has identified 28 additional drilling sites.

Although Memorial Production Partners’ higher percentage of proven undeveloped reserves offers ample opportunity for organic growth, these sites also entail more risk than acquiring and maintaining wells that are already in production.

However, acquisitions will drive much of Memorial Production Partners’ production and distribution growth, with the majority of these opportunities coming from a visible pipeline of asset drop-downs from its general partner, Memorial Resource Development.

Management estimates that these transactions could double the MLP’s existing reserve base over time.

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    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor