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Memorial Production Strikes Multi-Play Deal

Houston-based Memorial Production Partners LP (MEMP) has agreed to acquire oil and gas properties in the Permian Basin, East Texas and the Rockies from its sponsor, Memorial Resource Development LLC, and affiliates of Natural Gas Partners for $606 million. The deal is MEMP's largest acquisition to date and gets the partnership's foot in the door in the Permian and Rockies.

The properties being acquired consist of 973 gross (648.6 net) wells on 363,000 gross (136,000 net) acres in Texas, New Mexico, Wyoming and Colorado. MEMP will operate 94% of total proved reserves and 74% of the producing wells. MEMP will acquire about 275 Bcfe of proved reserves, which are located about 48% in the Permian Basin, 31% in East Texas and 21% in the Rockies. The acquisition will increase MEMP's proved reserves by 36% to more than 1 Tcfe and average daily production for May by 42% to about 152 MMcfe/d.

The deal provides "meaningful entries" in the Permian Basin and the Rockies as well as adding scale in the company's core area of East Texas, said CEO John Weinzierl. "These assets are an excellent fit for our existing portfolio as they provide established, low-decline production with high operating margins," Weinzierl said. "Additionally, MEMP will have enhanced commodity and basin diversity providing a great platform for future development."

In the Permian, key fields are Anita, Atoka, Dimmitt, Elkhorn, Kingdom Abo and North Square Lake, and key formations being targeted are Abo Reef, Cherry Canyon, Clearfork and Palo Pinto, MEMP said. In East Texas, key acquisition fields are Oak Hill, Lansing, Gladewater, Willow Springs and Waskom, targeting the Cotton Valley and Travis Peak formations. And in the Rockies, key fields are Fort Collins and Moxa Arch, targeting the Muddy, Frontier and Dakota formations, MEMP said.

The properties have a stable, long-lived production profile with a projected average annual proved developed producing (PDP) decline rate of about 10%, MEMP said. During a conference call with financial analysts, Weinzierl emphasized that the assets being acquired are ideal to be held within a master limited partnership.

Estimated proved reserves are 275 Bcfe (57% proved developed and 51% liquids). Estimated May net production was 45.3 MMcfe/d (63% natural gas and 37% liquids). The proved reserve to production ratio is 16.7 years, and there are 370 low-risk, low-cost liquids-weighted development opportunities on the acreage, MEMP said.

The acquisition is expected to be immediately accretive to distributable cash flow and net asset value. The deal is to be effective July 1, 2013 and is expected to close in October.

MEMP expects to fund the transaction through borrowings under its $1 billion multi-year revolving credit facility, which carries a current borrowing base of $480 million prior to any increases for the acquisition. As of July 1, 2013, MEMP had $441 million of available borrowing capacity.

As part of the transaction, MEMP said it will acquire commodity hedges that cover about 72% of acquired PDP volumes through 2015 (82% through 2014).

Last September, MEMP agreed to acquire East Texas oil and gas properties in the South Henderson field of Rusk County from Goodrich Petroleum Corp. for $95 million (see Shale Daily, Sept. 25, 2012).

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