A look at Memorial Production Partners LP (NASDAQ: MEMP)’s operational and financial results for 2Q2016 show that the company made positive progress in many areas of its business. CEO John Weinzierl highlighted the gains made in debt reduction and generation of free cash flow. The gains came on the back of a 30% YoY reduction in operating costs.
MEMP’s 2Q has important takeaways that investors should keep in mind as they wait to see what the future holds for the company.
Improving balance sheet leverage
Memorial Production Partners LP (NASDAQ: MEMP) took the opportunity in 2Q to reduce its indebtedness as it tries to make its balance sheet less leveraged. The company said that it retired senior notes worth $84 million and reduced the outstanding borrowing under its credit revolver by $113 million. In the end, the company lowered its debt position by $197 million.
The debt repayment not only strengthens MEMP’s balance sheet, but also provides an opportunity to improve free cash flow because of lower interest expenses.
But debt repayment doesn’t mean that MEMP is sacrificing its liquidity. The company still has access to $200 million under its revolver loan. In 2Q, the company generated net cash from operating activities totaling $79 million.
Asset acquisition and monetization
During 2Q, Memorial Production Partners LP (NASDAQ: MEMP) closed the acquisition of Memorial Production Partners GP LLC (MEMP GP) at the cost of $0.75 million. The transaction was made in cash.
In the same period, the company divested its assets in Permian and elsewhere and managed to unlock about $55.3 million. Specifically, the divestiture in the Permian basin generated $37.2 million and the move marked the exit of MEMP from the basin.
To guard against market uncertainties, MEMP said that 94% of its expected product in 2016 has been hedged. But you find that the company’s portion of production in the hedge reduces as the years go by. For instance, 81% of the expected output in 2017 has been hedged and 74% of the 2018 is under hedge. However, only 57% of the expected production in 2019 is hedged.
Dividends distribution – Memorial Production Partners LP (NASDAQ: MEMP)
Memorial Production Partners LP (NASDAQ: MEMP) has announced a cash distribution of $0.03 per unit for 2Q. the company distributed the same amount in 1Q. The 2Q payout is planned for August 12 to shareholders of record as of August 5.