investor's guide to enormous oil & gas dividends
DESCRIPTION
Oil and gas MLPs offer investors enormous cash distributions. Some of the smaller MLPs like Legacy Reserves (NASDAQ: LGCY), QR Energy (NYSE: QRE), Atlas Resource Partners (NYSE: ARP), Eagle Rock Energy Partners (NASDAQ: EROC), and Memorial Production Partners (NASDAQ: MEMP) offer yields of more than 10%. The problem is that not all of these enormous yields are equal as each company is pursing a slightly different strategy. Atlas Resource Partners, for example is focused on buying up cheap natural-gas reserves in hopes of earning investors solid cash flow now and outsized future income as the value of those reserves increase. Meanwhile, both Legacy Reserves and QR Energy are focused on higher margin oil production. Finally, we have Eagle Rock Energy Partners and Memorial Production Partners, which have a more balanced production profile. These, however, are just some of the differences between these high-yielding oil and gas companies. To take an even deeper look, I've created the slide show below to help investors decide which of these enormous distributions belong in their portfolios.TRANSCRIPT
An Investor’s Guide to Oil & Gas MLPs (Part II)
Photo credit: Flickr/haymarketrebel
Part II Will Look at Five Growing MLPs
• Represent ~25% of segment’s value
• Less geographic diversity• Higher yields
Legacy Reserves LP
• $1.5 billion market cap
• 9.0% yield• Coverage ratio last
quarter: 1.3x• Distribution paid
quarterly
Ticker: LGCY
Photo credit: Flickr/Edward Stojakovic
Asset Map
Source: Legacy Investor Presentation
The Information that Matters
• Total Proved Reserves: 88.4 million BOE• Liquids production: 69%• Reserve to production index: ~12 years• General Partner: None• Areas to watch: Permian Basin development
QR Energy LP
• $1.2 billion• 11% yield• Distribution
coverage ratio last quarter: 1.1x
• Distribution paid monthly
Ticker: QRE
Photo credit: Flickr/Ray Bodden
Asset Map
Source: QR Energy Investor Presentation
The Information that Matters
• Total Proved Reserves: 99.1 million BOE• Liquids production: 68%• Reserve life index: ~16 years• General Partner: None• Areas to watch: Permian Basin development
and balance sheet
Atlas Resource Partners, L.P.
• $1.3 billion market cap
• 10.3% yield• Distribution coverage
ratio last quarter: 1.1x• Distributions paid
monthly
Ticker: ARP
Photo credit: Flickr/Nicholas A. Tonelli
Asset Map
Source: Atlas Resource Investor Presentation
The Information that Matters
• Total Proved Reserves: 1.4 Tcfe• Liquids production: 10%• Reserve life index: ~13 years• General Partner: Atlas Energy• Areas to watch: Direct investment program,
natural gas prices and shale focused drilling
Eagle Rock Energy Partners, L.P.
• $880.9 million market cap
• 10.9% yield• Distribution coverage
ratio last quarter: 1.05x
• Distribution paid quarterly
Ticker: EROC
Photo credit: Flickr/Kool Cats Photography
Asset Map
Source: Eagle Rock Investor Presentation
The Information that Matters
• Total Proved Reserves: 350 Billion Cfe• Liquids production: 44%• Reserve life index: ~13 years• General Partner: None• Areas to watch: Divestment of midstream
operations and SCOOP growth
Memorial Production Partners LP
• $1.34 billion market cap
• 10% yield• Distribution coverage
ratio last quarter: 0.67x
• Distribution paid quarterly
Ticker: MEMP
Photo credit: Flickr/Loco Steve
Asset Map
Source: Memorial Investor Presentation
The Information that Matters
• Total Proved Reserves: 1,063 Billion Cfe• Liquids production: 31%• Reserve life index: ~18 years• General Partner: Memorial Resource
Development and Natural Gas Partners• Areas to watch: Acquisitions outside of Texas
and distribution coverage ratio
Now Let’s See How Each Compares
• Scale• Reserves• Production • Hedging
Enterprise Value
Total Proved Reserves
Sources: Company presentations, SEC filings and author’s calculations
Where is the Cash Flowing From?
Sources: Company presentations, SEC filings and author’s calculations
How Secure is the Cash Flow?
Sources: Company presentations, SEC filings and author’s calculations
How Secure is the Cash Flow?
Sources: Company presentations, SEC filings and author’s calculations
Key Takeaways• Legacy Reserves – Solid balance sheet, oil rich production
though not as well hedged• QR Energy – Oil rich production with downside risk to
falling oil prices• Atlas Energy – Natural gas rich cash flows locked in for
near term, with long-term upside• Eagle Rock Energy – Balanced production and solid
hedges and lots of upside to the SCOOP• Memorial – Balanced production with locked in cash
flows
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