Memorial Production Partners LP (NASDAQ:MEMP)
Q4 2013 Earnings Conference Call
March 05, 2014 11:00 AM ET
Ronnetta Eaton - IR
John Weinzierl - CEO
Bill Scarff - President
Larry Forney - VP and COO
Drew Cozby -VP and CFO
Noel Parks - Ladenburg Thalmann
John Ragozzino - RBC Capital Markets
Praneeth Satish - Wells Fargo
Abhi Sinha - Wunderlich Securities
Good day, ladies and gentlemen and thank you for standing by. And welcome to the Memorial Production Partners LP Fourth Quarter and Full Year 2013 Investor Conference Call. Memorial's operating and financial results were released earlier today and are available on Memorial's website at www.memorialpp.com. During this call, all participants will be in a listen-only mode today. Today's conference call is being recorded. A replay of the call will be accessible until Tuesday, March 11 by dialing (855) 859-2056 and then entering conference ID 35795997 or by visiting Memorial's website, www.memorialpp.com.
I would now like to turn the conference over to Ronnetta Eaton, Manager of Investor Relations. Please go ahead ma’am.
Thank you, Huey. Good morning and welcome to the Memorial Production Partners LP conference call to discuss operating and financial results for the fourth quarter and full year of 2013. We appreciate you joining us today. John Weinzierl, Memorial's Chairman, and Chief Executive Officer will lead the call, followed by Bill Scarff, our President; Larry Forney, our Vice President and Chief Operating Officer and Drew Cozby, our Vice President and Chief Financial Officer. Afterwards securities analysts will be invited to participate in a question-and-answer session.
Please note that some of the remarks and answers to questions by management may contain forward-looking statements and are based on certain assumptions and expectations of management. These remarks and answers reflect management's current views with regard to future events and are subject to various risks, uncertainties and assumptions. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct and undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this earnings call.
Forward looking statements include, but are not limited to, our statements about and our discussion of our full year 2014 guidance. Please refer to our press release and our SEC filings for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. In addition, non-GAAP financial measures may be disclosed during this call. Reconciliations of those measures to comparable GAAP measures may be found in our press release and on our website at www.memorialpp.com.
With this in mind, I will now turn the call over to John Weinzierl. John?
Thanks, Ronnetta and good morning. Before jump into our performance, I'd like to introduce Bill Scarff, who was appointed President of the Memorial Production Partners General Partner in January. We are excited that Bill has joined in the MEMP team. He brings more than 30 years of experience in the oil and gas industry and has a wealth of experience and industry knowledge in leading companies. Bill has worked with several companies sponsored by Natural Gas Partners, most recently served as President and Chief Executive Officer of Propel Energy. We look forward to his leadership as we work together to continue the partnership's growth and success in enhancing long-term value for our unit holders.
Last year was an exciting year and one of growth for in MEMP. We closed $832 million of acquisitions, grew adjusted EBITDA and production by 24% and 30% year-over-year respectively and increased our annualized distribution to $3.20 per unit, an increase of approximately 8% year-over-year. The acquisitions added scale in our port area of East Texas and North Louisiana and marked our entry into two new regions, the Permian Basin and the Rockies. We now have a more balanced portfolio that has significant exposure to both natural gas and oil, as well as optionality across five ore producing regions, all of which we believe are ideal for an upstream MLP.
Ultimately, we believe this balance will better support our strategy of growing and maintaining production and distributions through accretive acquisitions and low risk development. We were able to achieve this growth and balance by maintaining a conservative and flexible capital structure and by funding our growth strategy by raising approximately $500 million in equity and $700 million in senior unsecured debt. Our conservative financial strategy and strong access to the capital market have allowed us to finance our $1.3 billion of acquisitions since our IPO with 54% of equity. I want to thank our debt and equity investors for their continued support.
We also grow our senior secured revolving credit facility significantly and have a strong base of over 20 banks supporting this facility. The availability under our credit facility of over $700 million provides us with significant financial flexibility to continue executing our strategies in 2014. We have delivered on all of our operational and financial reporting obligations in a timely and accurate manner and implemented processes and systems integrations and procedures as we continue to grow. I believe that we have the right foundation in place to expand our business and drive additional unit holder value.
Now, I will turn the call over to Bill Scarff.
Thank you, John. I'm pleased to be a part of Memorial and can say since my arrival, I've a company that has an enthusiastic spirit and I'm looking forward in sharing that spirit as well as sharing Memorial's story with investors. Our significant growth would not be possible without help of a very strong employee base and organizational structure. Our total headcount is approximately 480 and which have added exceptional staff across the organization from the field level to engineering, administrative, land and geosciences, accounting and finance, as well as senior management.
As we further integrate our acquired assets and ramp up our operations activity, we will continue to add key employees to continue our effective management of the asset base. Since the partnership's inception, we have increased our distribution five times to the current $2.20 per common unit, including two increases in 2013 which represents an increase of approximately 16% since our IPO.
On February 13, 2014 we paid our fourth quarter 2013 distribution at $0.55 per common unit to unit holders of record on February 6th. Through these distributions we are pleased to continue delivering consistent returns to our unit holders. We’re off to a great start this year with yesterday’s announcement of our first acquisition of 2014, acquiring primarily incremental interest in partnership owned producing properties in East Texas for Memorial Resource Development for $35 million. This transaction has an effective date of February 1 and is expected to close on or around April 1, 2014. Larry Forney will provide additional details relative to these assets.
Looking ahead we expect 2014 to be another active year. We will continue to emphasize consistent cash flow generation to support distributions to our unit holders, work to maintain and grow production by effectively operating our assets and we will actively pursue opportunistic transactions in line with our strategy.
At yesterday’s closing price of $22.53 per unit, our yield was approximately 9.8% based on our current annualized distribution rate of $2.20 per unit. Combined with our stable asset profile and significant growth potential, we believe our yield represents an attractive investment in the current market. We are well positioned operationally, organizationally and financially to continue executing on our growth strategy. We expect to file our 2013 Annual Report on Form 10-K by March 17, and anticipate our schedule K1s being available on or about March 10th.
Now Larry Forney our VP and Chief Operating Officer will walk you through our operating performance in greater detail. Larry?
Thank you Bill. I’d like to start by discussing our year-end reserves, production and operating expenses for 2013 before moving on to our 2013 activity and operating plans for 2014. With the inclusion of common control free cash for both 2012 and 2013, our year-end reserves were essentially unchanged, with our third party estimate coming in at 1,015 bcfe for all proved categories. On a non-cash year-over-year basis the partnership has increased its total proved reserves by 66.7% and its SEC PV-10 valuation by 93%. Memorial operates 94.6% of the SEC PV-10 value of these reserves.
Our reserve mix to year-end 2013 is 61% proved developed and balance at 50% gas with our liquid reserve split at 23% oil and 17% NGL. Geographically, reserves have split with 59% East Texas North Louisiana, 16% South Texas, 11% in the Permian, 8% in California and 6% in the Rocky.
Operationally approximately 66% of our daily net gas equivalent production is coming from the liquids rich East Texas and North Louisiana areas, while additional 13% is coming from our heavily oil weighted properties in the Permian and California areas. Our well count is now running at approximately 2,860 gross, 1,660 net and 1,920 operated. From an inventory standpoint, we have grown to over 890 development opportunities, including 542 PUD.
During the fourth quarter of 2013 average daily production was 167.7 million cubic feet equivalent, an increase of 33% compared to 125.7 million cubic feet equivalent in the fourth quarter of 2012. Production grew approximately 30% for full year 2013 to 154.3 million cubic feet equivalent per day from 118.4 million cubic feet equivalent per day in 2012. This growth was a result of the four acquisitions we closed in 2013, and our successful drilling and completion operations, primarily in East Texas and North Louisiana. The overall production split for 2013 was 64% gas, 19% crude oil and 17% NGL.
LOE averaged $1.55 per Mcfe for the fourth quarter of 2013, compared to $1.96 per Mcfe for the fourth quarter of 2012. Full year LOE averaged $1.58 per Mcfe for 2013, which was down from $1.85 per Mcfe for 2012. We are continuing our focus on operational efficiencies and we anticipate an ongoing downward trend in lease operating expenses for 2014.
Our drilling activity for 2013 had 100% success rate in East Texas, North Louisiana and included the initiation of production through 20 horizontal Cotton Valley new drills. Five of these wells returned to sales in the first quarter, six in the second quarter, three in the third quarter and six in the fourth quarter of 2013. Net revenue interest in these 20 wells averaged 45.6% and the wells have projected to deliver a net EUR of 63.4 Bcfe, with a greater than 100% rate of return due to their prolific gas rate and high liquid yields.
At our last earnings call, we anticipated having two of our new drills at Beta field in California turn to sales by year-end 2013. The first of these wells produced for one month following completion at better than anticipated rates but subsequently incurred a mechanical failure that will require a [indiscernible] operation to remediate. That work is scheduled for completion in the second quarter of 2014.
The second well operation resulted in the successful completion of the first inner liner gravel pack at Beta field in 18 years. This well was turned to sales late in the fourth quarter at anticipated rate. Our third well is currently under the final stages of completion and is expected to go sales over the next week.
In addition, four capital workovers and eight expense workovers were execute in 2013. Plus four expense workovers to-date in 2014, all with the combined economic payout of less than two months. The result of these efforts has allowed Beta to continue to deliver a production rate, the field has not seen in over a decade.
We closed our previously announced Cinco transaction at the beginning of the fourth quarter of 2013 and we have been actively integrating and exploiting those assets. We have drilled 13 wells to-date on the acquired Permian Basin properties with 2 gross, 1.875 net wells delivered to sales in the fourth quarter of 2013 and the balance scheduled to be online by the end of the first quarter of 2014. We’ve enjoyed a 100% success rate to-date and project the rate of return of 100% for these new completions.
In addition to the drilling operations we have been on average running five workovers rates for capital and expense workover projects in the Permian Basin. The area’s exploitation program is further supported by a number of CapEx projects to expand production, water flood and salt water disposal facility factories. Production in the Permian Basin for the fourth quarter was a challenge for almost all operators due to a series of ice storms, freezing weather conditions and related electrical power interruptions but our operational focus has mitigated those interruptions and set us up for an encouraging upturn to the first quarter of 2014.
As Bill mentioned we’re off to another exciting year for the Partnership. We’ve announced our first acquisition this year with a bolt-on to our producing properties in East Texas. The acquisition largely consists of additional interest in properties currently owned by the Partnership. The assets are located primarily in Double A Field of Polk and Tyler Counties with the balance of properties located in the Sunflower, Segno and Sugar Creek Field. The assets which are 100% held by production cover approximately 18,769 gross, 5,744 net acres and pro forma for the close of the transaction include 80 gross, 39.5 net wells. The Partnership will operate 86% of the producing wells which had a PDP decline rate of 8.4% and a ROP of 9.8 years.
Our current capital spending program remains unchanged from our previous guidance issued during our third quarter call and 2014 capital expenditures projected within the range of $98 million to $108 million. In 2014 we anticipate spending approximately 53% of our CapEx in East Texas, North Louisiana, 29% in the Permian Basin, 14% in California, 4% in South Texas primarily in drilling, recompletions and capital workovers based on the maximum range of our capital spending program.
For full year 2014 we anticipate spending approximately 80% of our capital on seven or more net horizontal Cotton Valley new drills in various fields in East Texas and North Louisiana, 29 net new drills in the Permian Basin and three net new completions on our Beta platform. We expect the remaining balance of our capital budget to be allocated to recompletions, capital workovers and good facility projects across all of our operating areas. In summary, we are quite pleased with our proactive operational performance as well as the positive exploitation results experienced to-date under the new acquisition.
With that, I’ll now hand it off to Drew Cozby to walk you through our financials.
Thank you, Larry. I’ll start by discussing our financial results from the fourth quarter and full year 2013 and our liquidity and our hedge position, as well as our guidance for 2014. Before I discuss these results, I’d like to remind you of the common control accounting treatment of acquisitions from affiliates of MEMP, including Memorial Resource Development and certain funds controlled by Natural Gas Partner which requires us per GAAP to incorporate financial results for all periods presented on a combined basis.
Since these types of acquisitions are considered transaction between entities under common control, this means that our financial results, unless fiscally identified will include the results of operations on certain assets acquired prior to our taking over operational control.
Adjusted EBITDA for the fourth quarter of 2013 increased 49% to $65 million from $43.6 million during the fourth quarter of 2012 and 24% to 222.2 million for the full year of 2013 from $179.3 million from 2012. Distributable cash flow for the fourth quarter of 2013 was $34.4 million or $0.57 per unit covering our distribution by 1.02 times for the fourth quarter. Full year 2013 distributable cash flow was $116.7 million, providing a coverage ratio of 1.03 times. The increases in both adjusted EBITDA and distributable cash flow were primarily attributable to results from our drilling program in East Texas.
Total revenues for the fourth quarter of 2013 were approximately $92.1 million, compared to $70.9 million for the fourth quarter of 2012. Revenues for the full year 2013 were $343.6 million, compared to $258.4 million for the full year 2012. The increase in revenues for 2013 was primarily driven by MEMP’s drilling program in East Texas, as well as increases in natural gas average realized sales prices. Total revenues do not include $5.8 million of cash settlement received on commodity derivatives in the fourth quarter of 2013 and $19.9 million of cash settlements received on commodity derivatives for the full year 2013.
We recognized an impairment of $4.1 million during the fourth quarter of 2013, which was attributable to a downward revision of reserve primarily related to certain properties in South Texas. In accordance with GAAP accounting, under the successful efforts to method of accounting, the estimated future cash flows expected from properties in these fields were compared to their carrying values and determined to be unrecoverable as a result of a downward revision of estimated proved reserve based on updated well performance data. These impairments may occur periodically and part of our internal analysis is we continue to compare the estimated future cash flows to carrying values of certain assets each quarter. Considering our common control recap financials, we had $10.5 million in impairments in 2012.
Cash settlements received on commodity derivatives were $5.8 million or $0.38 per Mcfe for fourth quarter 2013 compared to $8.5 million in the fourth quarter of 2012 and $19.9 million or $0.35 per Mcfe for the full year 2013 and compared to $44.1 million recorded during 2012. The realized settlements variance is primarily due to lower hedge prices. The fair market values of derivative financial instruments reflected on the balance sheet as of December 31, 2013 was a net asset of $36.4 million based on estimated forward commodity prices and forward interest rate yield curves, representing MEMP’s strong hedging program.
Regarding our commodity hedging, total hedge production in the fourth quarter of 2013 was 12.2 Bcfe or 79% of fourth quarter production of 15.4 Bcfe and an average hedge price of $7.26 per Mcfe. Total hedge production for the full year 2013 was 37.7 Bcfe or 67% of 2013 production of 56.3 Bcfe and an average hedge price of $7.13 per Mcfe.
G&A for the fourth quarter of 2013 was $10.1 million and compared to $10.6 million reported during the fourth quarter of 2012. Included in G&A were non-cash compensation expenses and acquisition related costs representing $4.5 million. G&A for the full year of 2013 was $43.5 million, of which $15.3 million was attributable to previous owner compared to the $30.3 million for full year 2012. G&A in 2013 also included $10.3 million of non-cash compensation expenses and acquisition related cost.
Net interest expense for the fourth quarter of 2013 was $15.9 million, which included 200,000 of losses on interest rate swaps and $1.3 million of non-cash amortization of deferred financing fee. Net interest expense for the full year of 2013 was $41.9 million, including $1.5 million of gain from interest rate swaps and $5.8 million of non-cash amortization of deferred financing fees.
Total capital expenditures for the fourth quarter of 2013 were $30.9 million and $176.8 million for the full year 2013. Total capital expenditures for 2013 included approximately $45.8 million related to CapEx, prior to the effective date of common control transaction.
Maintenance capital expenditures for the fourth quarter of 2013 were $16.2 million and $43.2 million for the full year 2013. Total capital expenditures, excluding prior orders was in line with previously announced 2013 guidance of $113 million to a 133 million, that impacted due to the operational delays in California or weather-related curtailments we experienced in the Permian during the fourth quarter in additional transition expenses.
Now moving onto discussion of debt and liquidity; our liquidity position remains strong. During 2013 MEMP amended its revolving credit facility, increased its master note from 1 billion to 2 billion, as well as increased the number of lenders participating in the same curve to 21, and expanded its foreign base which is now $845 million. At the end of the fourth quarter of ‘13 we had a total debt outstanding of $133 million under our credit facility with liquidity of approximately $755.1 million and consisting of $13.1 million of cash and $742 million of available borrowing capacity.
Our total debt outstanding as of March 1, 2014 was $828 million, which included $128 million of debt under our revolving credit facility, $700 million of senior unsecured notes due 2021. As John mentioned, during 2013 we funded our growth by raising approximately $500 million in equity as well as $700 million in unsecured debt, all of which were completed at very efficient prices. We believe this financial flexibility will allow MEMP to further execute our strategy in 2014.
Next I'd like to take a few minutes to talk about hedging strategy and execution. Consistent with our strategy to mitigate commodity price volatility, throughout the quarter we layered on additional costless hedges that continue to play an integral role in our overall business strategy.
Our hedge portfolio provides more certainty to our cash flow and the sustainability of future distributions. Our hedge policy and goal is to enter into cost-less, margin-less, derivative contracts with our lenders as the counterparty and cover approximately 65% to 85% of estimated total proved reserves on a rolling three to six year horizon. Through this policy, we have an extensive hedge program and commodity price protection through 2019.
For natural gas, we have hedged 92% of targeted natural gas production through year end 2014 at a weighted average floor of $4.41 per MMBtu, approximately 83% for 2015 and '16 and 75% through the year end 2019 at weighted average floor price ranges from $4.31 to $4.77 per MMBtu. It is worth noting that approximately 100% of our natural gas hedges were to the appropriate basis through the year-end 2014.
Regarding oil, we have hedged 91% of targeted crude oil production through the end 2014 with a weighted average floor price of $93.95 per barrel, approximately 89% for 2015 and '16 and 73% through the year end of 2019 at weighted average floor price ranges from $85 to $93.95 per barrel. MEMP's crude oil hedges are also hedged to appropriate basis differential through the end of 2015.
Regarding NGLs for calendar years ‘14 and ‘15, we hedged approximately 84% and 72% respectively of our targeted average NGL net production for those years at hedge prices approximately $36.39, $35.04 per barrel respectively. All these hedges help protect our pricing position during the year.
Regarding MEMP's approach to hedging and important for investors to note is that our hedges provide protection to production, better security expected economic returns of the investments that we make in oil and gas properties, and therefore the cash flow available to pay our distributions, service our debt and conduct our developmental drilling activity.
Our hedge portfolio remains a key strength for the partnership in managing commodity price volatility and stabilizing these revenues and cash flows and supporting our borrowing base. In each of these cases it’s important to notes that the targeted average net production estimate represents the production to reach the lower boundary of our annual production range in our full year 2014 guidance. For more detail on our hedging program, please visit our website under the Events & Presentations section, under the Investor Relations tab.
In summary, regarding MEMP's full year 2013 performance, annual production excluding production attributable to the previous owners was 49 Bcfe for 2013, and in line with our 2013 guidance range of 48 to 50 Bcfe. Adjusted EBITDA excluding adjusted EBITDA attributable to the previous owners prior to the effective date of acquisition was approximately $195 million, and 7% below the $210 million midpoint of 2013 guidance range of $208 million to $212 million.
Distributable cash flow was a $117 million and 11% below the $132 million midpoint of our 2013 guidance range. Regarding our DCF coverage for full year 2013, MEMP delivered 1.03 times DCF coverage, which was below our target 1.10 times to 1.20 times. Capital expenditures, maintenance CapEx and growth CapEx for 2013 were all in line with 2013 guidance, at $131 million for the full year.
Several factors contributed to our results, some of which Larry discussed from the operations side. On the finance side we increased our capital cost throughout the year, raising $700 million of high yield debt at around, all-time best pricing for the sector, including raising $300 million in the fourth quarter. We also added 26.5 million units throughout 2013, including 16.7 million in October.
Additionally we announced in the fourth quarter distribution increase of 7% for the third quarter. We are comfortable that these were the right actions to take given the availability of capital and the opportunity to properly set our capital structure, along with the fact that we believe in rewarding our unit holders with distribution increases, particularly around significant acquisitions. Moving forward we’re very comfortable with our operating plan and are excited about the flexibility that we have of our having over $700 million of availability on our revolver and what that provides.
Now I’ll talk about our full year 2014 guidance which has remained unchanged. MEMP forecasts annual production and incremental production growth to average within the range of 62 to 64 Bcfe or a 170 to 175 million cubic feet equivalent per day, over the full year 2014.
We anticipate adjusted EBITDA to be in the range of $298 million to $306 million for the full year ’14 with distributable cash flow projected at approximately $158 million to $166 million with corresponding DCF coverage in line with a 1.15 times to 1.25 times range for the full year.
Maintenance CapEx is expected to be $78 million for the full year 2014, approximately 26% of the midpoint of our adjusted EBITDA expectation for the full year. Total CapEx is expected to be in the range of $98 million to $108 million in 2014.
That concludes our formal remarks regarding MEMP’s fourth quarter and full year 2013 earnings. Thank you for your time and operator, we would now like to open up the line for any further questions.
Yes, sir. [Operator Instructions] And it looks like our first phone question will come from the line of Noel Parks with Ladenburg Thalmann. Please go ahead. Your line is open.
Noel Parks - Ladenburg Thalmann
Actually I thought I’d start with calling up on some of the last comments that were made about capital structure. Just wanted some general thoughts about the rate environment. Of course there was a dash of really, really good high yield rate and I wondered if we see a fairly gradual increase in the rate environment going forward over the couple of years, we should perceive keeping your, your sort of debt target the same or at some point, especially if the rates increases are little sharper, could you see yourselves certainly be lowering your comfort range or debt.
Noel, this is Drew Cozby. So as we wait, we basically we turned down our revolver six months ago, in the month of early -- early month of October 2013. So the delta between that long term financing and our revolver is about 5% and so that’s about $7 million $8 million that was a cost for opting for a long term financing. That’s better for the overall long term capital structure of the MLP and the protection of the downside is if you mentioned interest rates rising, so far the bond market has been -- continuing to be very attractive for issuers. So 2013 was a record year comparatively for energy issuances and in our bonds had traded down to a yield’s worst, at the 6.5% range, and all the notes we’re looking at, probably a 104 to 105 which is very attractive. As a new issuer, there is somewhat of a discount for being the new guy on the block. Once we’ve become a seasoned issuer and I think we can expect that in the coming year and years to come, our rate will come down because we’re more known now in the bond market and so we will attract a lower coupon.
So we will always look to lock-in over the long-term but bond markets are still attractive, if that's what you're asking. I will say that we are approximately 93% plus fit on our interest rate exposure and that includes the significant amount of fixed rate that we have. And then if you look on our hedging presentation, we have half of our variable rate exposure under our revolver hedged right now. So along with our commodity prices, we're very well hedged against a potential rise in interest rate.
Noel Parks - Ladenburg Thalmann
And I guess just sort of a more general question, perhaps going forward; you cover increasing number of different fuel scenarios in East Texas. I was just wondering, are there real good opportunities for increasing working interest where, instead of the parent or another related entity having control, whoever the third-party interest owners are, are many of them receptive to selling or is that a sort of thing where they are in the established hands and aren’t going anywhere any time soon?
Thanks, Neil. This is Greg Robbins, Vice President, Corporate Development. We see a lot of opportunities in East Texas. We have a lot of external parties in our current operations and we discussed opportunities with these guys often, be it form outs and joint venture opportunities. So, we're actively looking at this stuff now and we will try to pursue bolt-on opportunities aggressively in our acquisition areas.
Noel Parks - Ladenburg Thalmann
And just wondering, with a potential transaction that like, are they typically sort of long, involved sort of back and forth discussions? I don’t know if you are talking to small or family-owned type holders. Are they pretty, do they move along pretty rapid, if you get somebody who is interested in selling?
Usually, when we buy stuff, the first thing that sounds suspicious to us is are we going to get results? One of the advantages that we have is in MLPs and we're looking for a production and slow steady consistent development. So, I think we can utilize that with the partners that we are in discussions with. If the assets are in high development area, there may be less of an opportunity for, [indiscernible] term leases stuff, but if it’s a production area, we are very good at paying for production. That’s what we want stable, consistent production and cash flow. So I think that we've seen a lot of people receptive on areas that are developed and I think that trend will continue in areas like East Texas where most of the assets are highly developed. So, we're going to continue to see assets turn lease over time.
The gas curve has caused a lot of acquisitions to fall apart over the year, just moving up and down in lot of our facilities. You see a little bit of stabilization in the gas curve now and that’s relatively flatter, lot flatter than it was and I'm optimistic in 2014 will allow some of the capacity weighted assets to turn lease.
Thank you sir. And it looks like our next phone question is from John Ragozzino with RBC Capital Markets. Please go ahead. Your line is open.
John Ragozzino - RBC Capital Markets
Too bad today. Drew quick one on the small acquisition that was announced. Can you give me an idea what the maintenance capital expenditures required for the properties are and given the fact that it’s a 100% PDP, is there sufficient opportunity to expand the production profile without utilizing an inventory of projects from elsewhere in the portfolio to offset decline?
So, John, I am going to answer your question and Greg's going to jump in as well and he is going to talk about the decline here, which is fairly modest. But I will say just kind of our maintenance cap philosophy; we look at it three different ways. We look at it in areas with our engineering team and look at overall decline over 10 years and look at actual projects in which to maintain our existing targeted production. We also look at our ratio analysis and percentage of EBITDA. So for full year we were 22% and then we project to be 26% for the coming year. And then we also look at it, as I told you kind of on a backwards looking analysis for three years, you look at our average decline rate of effectively 10% on our cash flow what is the cost -- is our maintenance CapEx on an implied rate of return? Are we meeting that? And if you look at our full cost both lifting plus F&D plus D&A et cetera versus how we're hedged, we're exceeding those thresholds as well. So it’s very important to us, replacing that production and then we suggest that overtime we’re going to be replacing the reserve cost this well, which is the top tier of some of the analysis concepts on maintenance CapEx that are out there. Regarding this acquisition, I'm going to hand it over to Greg to talk about how we’ve looked at the maintenance CapEx and that what that will add to.
Thanks for the question John. On this particular transaction, it has a slightly shallower decline than our overall portfolio. So the specific maintenance CapEx in this property will be a little bit lower as compared to our other stuff. But one of the benefits in determining both maintenance CapEx and the cap projects we want to work on is when we buy assets from the parent, we know these assets very well. Our parent has a little bit different business model than us and so there may be a little bit more development heavy, less focused on the singles and doubles of recompletions. The partnership is very focused on utilizing kind of low cost [indiscernible]. While we presented just a PDP number and reserves in the press release and information went out, we’re confident that over time we’re going to have recompletion opportunities and additional development, potential in these assets to keep production flat.
John just adding in here, I know your metric to whatever that has. On a cash flow basis whether you’re looking at it backwards or forward five times range and maintenance CapEx is going to be less than $1 million. We’re not revising guidance in this. Potentially later on in the year we’ll look to maybe refresh guidance but this is -- it’s a $35 million deal. We’ll say that these deals are what we said we were going to do when we did the project, kind of acquisition in October, being in five basins, we said that we’re going to be the sort of bolt-on, add on opportunity and this is delivering on that expectation that we delivered to the market. So we’re happy about that and we like this area. We’re a good operator in East Texas/North Louisiana and it’s a great area in which the country and which to operate. So we’re very excited about this acquisition albeit it is smaller.
John Ragozzino - RBC Capital Markets
Alright, and then just a little bit more of a housekeeping item on the same lines. Can you provide the three -- the stream product profile? Just liquids and gas and can you give breakout of NGLs and crude?
This is Greg again. The NGLs make as -- press releases is about 45%, 46% liquids and of that, about a third of the liquids is condensate and about two-thirds NGLs.
John Ragozzino - RBC Capital Markets
One-third condensate and two-thirds NGLs?
Correct. But coast to coast, in Polk county we’re getting pretty good pricing in the area.
John Ragozzino - RBC Capital Markets
Got you okay. What’s the remaining inventory of the horizontal Cotton Valley wells that you have in and do you have specific plans in the guidance that you provided earlier for a number of wells that will be built this year?
It’s Larry Forney. As far as our inventory we outlined in the script 542 we have on for year-end book reserves. About 37% of those are in the East Texas/North Louisiana area, which I think you’re referring to specifically and we outlined to you our schedule going forward with seven or more net Cotton Valley horizontal new drills in East Texas and 29 net new drills at Permian and three net completions at the Beta Field.
John Ragozzino - RBC Capital Markets
So you have to forgive me because I was hoping between two calls at the same time and you caught me out.
Inventory we’ve got well over six years of inventory for the pads that we currently have.
John Ragozzino - RBC Capital Markets
And this one probably also answered during the prepared remarks but weather impact, can you quantify it for me, so I don’t have to wait for the transcript?
We had a little bit of issues in South Texas and East Texas. It was a little more significant out in the Permian in about four different ways. Part of that was the icing but it was the delays after that with the power being down just the huge demand for repairs out there. So we did produce a bit in the Permian but the activity level we have with any wells as we have put online out there, we’re already turning that turn to production. So this course will be good.
Thank you sir and our next question in queue will come from Praneeth Satish with Wells Fargo. Please go ahead. Your line is currently open.
Praneeth Satish - Wells Fargo
Actually most of my questions were answered but I guess if you could just on the Permian impact for the quarter, is there any way to just quantify the impact to EBITDA that you saw or cash flow?
Well, just to take the Permian as a whole, on our annualized cash flow it's accounting for roughly just under 20%, and just for the quarter and the fourth quarter. But as far as exact dollars, no, I can’t give you the exact valuation on it. But what I can tell you is that, the impact we saw on the weather was brief, and then we hit with Kevin [ph] in the fourth quarter, and we're past that now. It’s not an ongoing problem.
[Operator Instructions] And our next question will come from the line of Abhi Sinha with Wunderlich Securities. Please go ahead. Your line is open.
Abhi Sinha - Wunderlich Securities
Just quick ones. How do you expect your cost to change in 2014 versus of what you had in 2013 fourth-quarter? And what natural gas prices do you have waiting in 2014 projections for EBITDA?
We had alternate parts there, some people may jump. From a cost structure we expected a $1.40 range on LOE, which is consistent with where we have them. $0.40 range per Mcfe of G&A and probably $0.35 to $0.40 on production at the lower Texas. So that’s been consistent. Year-over-year we expect that to be in that zip code. That is going to require -- you know, that drives the 65% plus margins -- cash margins, simply we’ve had on a hedge basis. And Larry, I will let you jump in, your other questions for more specifics.
Abhi Sinha - Wunderlich Securities
On natural gas price that you have for 2014
You know average ’14 commodity prices was around $4.96 on gas, $97 on oil. Those were in un-hedged realized prices of $4.38 and in oil $96 range.
Presenters, at this time it appears to be no additional questioners as on the phone queue. I would like to turn the program back over to the management for any additional closing remarks.
This is John Weinzierl, and thank you for joining us on the call today. And as always if there is any follow-up question, please don’t hesitate to reach out to us. Thank you very much.
Thank you presenters, and thank you ladies and gentlemen, this does conclude today’s call. Thank you for your participation and have a wonderful day. Attendees, you may log of at this time.
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