8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): June 20, 2016 (June 14, 2016)

MEMORIAL PRODUCTION PARTNERS LP

(Exact Name of Registrant as Specified in Charter)

 

Delaware   001-35364   90-0726667
(State or Other Jurisdiction of Incorporation or Organization)   (Commission File Number)   (I.R.S. Employer Identification No.)

 

500 Dallas Street, Suite 1600

Houston, Texas

  77002
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code: (713) 490-8900

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 


Item 2.01. Completion of Acquisition or Disposition of Assets.

On June 14, 2016, Memorial Production Partners LP (the “Partnership”) sold certain assets located in the Permian Basin to Boaz Energy II, LLC for total proceeds of approximately $37.4 million in cash, subject to customary post-closing adjustments. This disposition does not qualify as a discontinued operation.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On June 14, 2016, the Board of Directors (the “Board”) of Memorial Production Partners GP LLC (the “Company”), the general partner of the Partnership, approved a grant of phantom units (the “Phantom Units”) pursuant to the Company’s Long-Term Incentive Plan (the “Plan”) to certain executive officers of the Company as indicated in the following table:

 

Award Recipient   Number of Phantom Units

 

John A. Weinzierl

 

 

1,005,587

William J. Scarff   670,391
Christopher S. Cooper   558,659
Robert L. Stillwell, Jr.   363,128
Jason M. Childress   335,196
Matthew Hoss   139,665

Each Phantom Unit is the economic equivalent of one common unit representing a limited partner interest in the Partnership (“Common Unit”). The grants of Phantom Units to the executive officers were made pursuant to a Phantom Unit Agreement (an “Agreement”) on June 14, 2016. The form of Agreement was approved by the Board and filed as Exhibit 4.2 to the Partnership’s Annual Report on Form 10-K (File No. 001-35364) filed on February 24, 2016, and is incorporated by reference herein.

The Phantom Units are subject to restrictions on transferability and a substantial risk of forfeiture and are intended to retain and motivate members of the Company’s management. The Phantom Units vest and the forfeiture restrictions will lapse in substantially equal one-third (1/3) increments on each of June 14, 2017, June 14, 2018 and June 14, 2019, so long as the award recipient remains continuously employed by the Company and its affiliates. The award includes distribution equivalent rights pursuant to which the award recipient will receive a cash payment with respect to each Phantom Unit equal to any cash distribution paid by the Partnership to a holder of a Common Unit. Upon vesting, the Phantom Units will be settled through an amount of cash in a single lump sum payment equal to the product of (y) the closing price of the Common Units on the vesting date and (z) the number of such vested Phantom Units. In lieu of a cash payment, the Board, in its discretion, may elect for the award recipient to receive either a number of Common Units equal to the number of such vested Phantom Units or a combination of cash and Common Units.

If an award recipient’s service with the Company or its affiliates is terminated prior to full vesting of the Phantom Units for any reason, then the award recipient will forfeit all unvested Phantom Units to the Company, except that, if an award recipient’s service is terminated either by the Company (or an affiliate) without “cause” or by the award recipient for “good reason” (as such terms are defined in the Agreement) within one year following the occurrence of a change of control, all unvested Phantom Units will become immediately vested in full.

 

Item 9.01. Financial Statements and Exhibits.

 

  (b) Pro Forma Financial Information.

An unaudited pro forma condensed consolidated balance sheet as of March 31, 2016, an unaudited pro forma condensed statement of consolidated operations for the three months ended March 31, 2016 and an unaudited pro forma condensed statement of consolidated and combined operations for the year ended December 31, 2015, including notes thereto, are attached hereto as Exhibit 99.1 and incorporated herein by reference.


(d)   Exhibits.

 

Exhibit Number

 

Description

10.1

  Form of Phantom Unit Agreement under the Memorial Production Partners GP LLC Long-Term Incentive Plan (incorporated by reference to Exhibit 4.2 to Annual Report on Form 10-K (File No.001-35364) filed on February 24, 2016)

99.1

  Unaudited Pro Forma Condensed Consolidated and Combined Financial Statements of Memorial Production Partners LP


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    MEMORIAL PRODUCTION PARTNERS LP
  By:  

Memorial Production Partners GP LLC,

its general partner

Date: June 20, 2016   By:  

/s/ Jason M. Childress

    Jason M. Childress
    Vice President, General Counsel & Corporate Secretary                


EXHIBIT INDEX

 

Exhibit Number

 

Description

10.1

  Form of Phantom Unit Agreement under the Memorial Production Partners GP LLC Long-Term Incentive Plan (incorporated by reference to Exhibit 4.2 to Annual Report on Form 10-K (File No.001-35364) filed on February 24, 2016)

99.1

  Unaudited Pro Forma Condensed Consolidated and Combined Financial Statements of Memorial Production Partners LP
EX-99.1

Exhibit 99.1

MEMORIAL PRODUCTION PARTNERS LP

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Introduction

On June 14, 2016, Memorial Production Partners LP (the “Partnership”) sold certain assets located in the Permian Basin (“Permian Divestiture”) to Boaz Energy II, LLC for total proceeds of approximately $37.4 million, subject to customary post-closing adjustments.

The unaudited pro forma condensed consolidated balance sheet is based on the unaudited condensed consolidated balance sheet of the Partnership as of March 31, 2016 and includes pro forma adjustments to give effect to the Permian Divestiture as if the transaction occurred on March 31, 2016. The unaudited pro forma condensed statement of consolidated operations for the three months ended March 31, 2016 is based on the unaudited condensed statement of consolidated operations of the Partnership for the three months ended March 31, 2016 and includes pro forma adjustments to give effect to the Permian Divestiture as if the transaction occurred on January 1, 2015. The unaudited pro forma condensed statement of consolidated and combined operations for the year ended December 31, 2015 is based on the audited statement of consolidated and combined operations of the Partnership for the year ended December 31, 2015 and includes pro forma adjustments to give effect to the Permian Divestiture as if the transaction occurred on January 1, 2015.

The pro forma adjustments to the historical condensed consolidated and combined financial statements are based on currently available information and certain estimates and assumptions. The actual effect of the transactions discussed in the accompanying notes ultimately may differ from the unaudited pro forma adjustments included herein. However, management believes that the assumptions utilized to prepare the pro forma adjustments provide a reasonable basis for presenting the significant effects of the transactions and that the unaudited pro forma adjustments are factually supportable, give appropriate effect to the impact of events that are directly attributable to the transactions, and reflect those items expected to no longer have a continuing impact on the Partnership.


MEMORIAL PRODUCTION PARTNERS LP

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

MARCH 31, 2016

(in thousands, except outstanding units)

 

           Pro Forma        
     Historical      Adjustments      Pro Forma  

ASSETS

      

Current assets:

      

Cash and cash equivalents

   $ 836      $ 37,425    (a)    $ 836   
       (37,425 )  (b)   

Accounts receivable

     45,290               45,290   

Short-term derivative instruments

     259,854               259,854   

Prepaid expenses and other current assets

     4,839               4,839   
  

 

 

   

 

 

   

 

 

 

Total current assets

     310,819               310,819   

Property and equipment, at cost:

      

Oil and natural gas properties, successful efforts method

     3,639,835        (401,180 )  (a)      3,238,655   

Support equipment and facilities

     206,147               206,147   

Other

     2,491        (37 )  (a)      2,454   

Accumulated depreciation, depletion and impairment

     (1,931,091     363,267    (a)      (1,567,824
  

 

 

   

 

 

   

 

 

 

Property and equipment, net

     1,917,382        (37,950     1,879,432   

Long-term derivative instruments

     442,616               442,616   

Restricted investments

     154,766               154,766   

Other long-term assets

     4,519               4,519   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 2,830,102      $ (37,950   $ 2,792,152   
  

 

 

   

 

 

   

 

 

 
      

LIABILITIES AND EQUITY

      

Current liabilities:

      

Accounts payable

   $ 6,863      $      $ 6,863   

Accounts payable - affiliates

     5,137               5,137   

Revenues payable

     25,427               25,427   

Accrued liabilities

     61,744        (2,804 )  (a)      59,656   
       716    (c)   

Short-term derivative instruments

     2,098               2,098   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     101,269        (2,088     99,181   

Long-term debt

     1,957,984        (37,425 )  (b)      1,920,559   

Asset retirement obligations

     164,964        (5,727 )  (a)      159,237   

Long-term derivative instruments

     2,161               2,161   

Deferred tax liabilities

     2,158               2,158   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     2,228,536        (45,240     2,183,296   

Commitments and contingencies

      

Equity:

      

Partners’ equity:

      

Common units (82,925,302 units outstanding at March 31, 2016)

     600,767        7,998    (a)      608,050   
       (715 )  (c)   

General partner (86,797 units outstanding at March 31, 2016)

     799        8    (a)      806   
       (1 )  (c)   
  

 

 

   

 

 

   

 

 

 

Total partners’ equity

     601,566        7,290        608,856   
  

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $       2,830,102      $   (37,950   $       2,792,152   
  

 

 

   

 

 

   

 

 

 


MEMORIAL PRODUCTION PARTNERS LP

UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2016

(in thousands, except per share amounts)

 

           Permian     Pro Forma        
       Historical       Divestiture (d)      Adjustments     Pro Forma  

Revenues:

        

Oil & natural gas sales

   $       60,623      $ (3,046   $      $         57,577   

Other income

     243        (147            96   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     60,866        (3,193            57,673   
  

 

 

   

 

 

   

 

 

   

 

 

 
        

Costs and expenses:

        

Lease operating

     35,696        (3,068            32,628   

Gathering, processing, and transportation

     9,209        (21            9,188   

Exploration

     122        (78            44   

Taxes other than income

     4,008        (532            3,476   

Depreciation, depletion, and amortization

     44,429        (1,346            43,083   

Impairment of proved oil and natural gas properties

     8,342                      8,342   

General and administrative

     13,524                      13,524   

Accretion of asset retirement obligations

     2,707        (113            2,594   

(Gain) loss on commodity derivative instruments

     (51,745                   (51,745

(Gain) loss on sale of properties

     (96                   (96

Other, net

     119        (58            61   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     66,315        (5,216            61,099   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (5,449     2,023               (3,426

Other income (expense):

        

Interest expense, net

     (32,552     (3     227   (e)      (32,328
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (32,552     (3     227        (32,328
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (38,001     2,020        227        (35,754

Income tax benefit (expense)

     (96                   (96
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Memorial Production Partners LP

   $ (38,097   $         2,020      $         227      $ (35,850
  

 

 

   

 

 

   

 

 

   

 

 

 
        

Earnings per unit:

        

Basic and diluted earnings per unit

   $ (0.46       $ (0.43
  

 

 

       

 

 

 

Weighted average limited partner units outstanding:

        

Basic and diluted

     82,935            82,935   
  

 

 

       

 

 

 


MEMORIAL PRODUCTION PARTNERS LP

UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED AND COMBINED OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2015

(in thousands, except per share amounts)

 

           Permian     Pro Forma        
     Historical     Divestiture (d)      Adjustments     Pro Forma  

Revenues:

        

Oil & natural gas sales

   $       355,422      $ (22,615   $      $ 332,807   

Pipeline tariff income and other

     2,725        (843            1,882   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     358,147        (23,458            334,689   
  

 

 

   

 

 

   

 

 

   

 

 

 
        

Costs and expenses:

        

Lease operating

     168,199        (21,490            146,709   

Gathering, processing, and transportation

     34,939        (91            34,848   

Exploration

     2,317        (109            2,208   

Taxes other than income

     25,828        (1,998            23,830   

Depreciation, depletion, and amortization

     195,814        (7,116            188,698   

Impairment of proved oil and natural gas properties

     616,784        (52,606            564,178   

General and administrative

     56,671                      56,671   

Accretion of asset retirement obligations

     7,125        (456            6,669   

(Gain) loss on commodity derivative instruments

     (462,890                   (462,890

(Gain) loss on sale of properties

     (2,998                   (2,998

Other, net

     (665     (467            (1,132
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     641,124        (84,333            556,791   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (282,977     60,875               (222,102

Other income (expense):

        

Interest expense, net

     (114,732     (132     793   (e)      (114,071

Other income (expense)

     43                      43   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (114,689     (132     793        (114,028
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (397,666     60,743        793        (336,130

Income tax benefit (expense)

     2,175                      2,175   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (395,491     60,743        793        (333,955

Net income (loss) attributable to noncontrolling interest

     386                      386   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Memorial Production Partners LP

   $ (395,877   $         60,743      $         793      $ (334,341
  

 

 

   

 

 

   

 

 

   

 

 

 
        

Earnings per unit:

        

Basic and diluted earnings per unit

   $ (4.71       $ (3.97
  

 

 

       

 

 

 

Weighted average limited partner units outstanding:

        

Basic and diluted

     83,528                    83,528   
  

 

 

       

 

 

 


MEMORIAL PRODUCTION PARTNERS LP

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED AND COMBINED

FINANCIAL STATEMENTS

Note 1. Basis of Presentation

On June 14, 2016, Memorial Production Partners LP (the “Partnership”) sold certain assets located in the Permian (“Permian Divestiture”) to Boaz Energy II, LLC for total proceeds of approximately $37.4 million, subject to customary post-closing adjustments.

The unaudited pro forma condensed consolidated balance sheet is based on the unaudited condensed consolidated balance sheet of the Partnership as of March 31, 2016 and includes pro forma adjustments to give effect to the Permian Divestiture as if the transaction occurred on March 31, 2016. The unaudited pro forma condensed statement of consolidated operations for the three months ended March 31, 2016 is based on the unaudited condensed statement of consolidated operations of the Partnership for the three months ended March 31, 2016 and includes pro forma adjustments to give effect to the Permian Divestiture as if the transaction occurred on January 1, 2015. The unaudited pro forma condensed statement of consolidated and combined operations for the year ended December 31, 2015 is based on the audited statement of consolidated and combined operations of the Partnership for the twelve months ended December 31, 2015 and includes pro forma adjustments to give effect to the Permian Divestiture as if the transaction occurred on January 1, 2015.

The pro forma adjustments to the historical condensed consolidated and combined financial statements are based on currently available information and certain estimates and assumptions. The actual effect of the transactions discussed in the accompanying notes ultimately may differ from the unaudited pro forma adjustments included herein. However, management believes that the assumptions utilized to prepare the pro forma adjustments provide a reasonable basis for presenting the significant effects of the transactions and that the unaudited pro forma adjustments are factually supportable, give appropriate effect to the impact of events that are directly attributable to the transactions, and reflect those items expected to no longer have a continuing impact on the Partnership.

The unaudited pro forma condensed consolidated and combined financial information should be read in conjunction with the Partnership’s 2015 Annual Report on Form 10-K filed on February 24, 2016 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 filed on May 4, 2016.

Note 2. Pro Forma Adjustments and Assumptions

Unaudited Pro Forma Condensed Consolidated Balance Sheet

The following adjustments were made in the preparation of the unaudited pro forma condensed consolidated balance sheet as of March 31, 2016:

 

  (a)

Pro forma adjustments to reflect the closing of the Permian Divestiture, including the receipt of $37.4 million in proceeds, subject to customary post-closing adjustments, the elimination of the associated net assets as of March 31, 2016, and the gain of approximately $8.0 million arising from the transaction as of March 31, 2016.

 

  (b)

Pro forma adjustment to reflect the use of the $37.4 million in proceeds to repay borrowings under the Partnership’s revolving credit facility.

 

  (c)

Pro forma adjustment to reflect estimated professional fees and closing costs related to the Permian Divestiture.


Unaudited Condensed Consolidated and Combined Statement of Operations

The following adjustments were made in the preparation of the unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2016 and the unaudited pro forma condensed statement of consolidated and combined operations for the year ended December 31, 2015:

 

  (d)

Pro forma adjustment to reflect the removal of operating revenues, operating expenses and capitalized interest related to the Permian Divestiture.

 

  (e)

Pro forma adjustment to reflect the reduction of interest expense, assuming the debt repayments described in (b) above occurred on January 1, 2015 using the Partnership’s revolving credit facility weighted average interest rate of 2.12% and 2.43% for the twelve months ended December 31, 2015 and three months ended March 31, 2016, respectively.