Memorial Production Partners's (MEMP) CEO John Weinzierl on Q1 2014 Results - Earnings Call Transcript

May. 7.14 | About: Memorial Production (MEMP)

Memorial Production Partners LP (NASDAQ:MEMP)

Q1 2014 Earnings Conference Call

May 07, 2014, 11:00 AM ET

Executives

Ronnetta Eaton – Manager, Investor Relations

John A. Weinzierl – Chairman & Chief Executive Officer

William J. Scarff – President

Larry R. Forney – Chief Operating Officer & Vice President

Andrew J. Cozby – Chief Financial Officer & Vice President

Analysts

Kevin C. Smith – Raymond James & Associates, Inc.

John Ragozzino – RBC Capital Markets LLC

Praneeth Satish – Wells Fargo Securities LLC

Nitin Kumar – Bank of America

Spiro M. Dounis – JPMorgan Securities LLC

Operator

Welcome to the Memorial Production Partners LP First Quarter 2014 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’s call is being recorded. A replay of the call will be accessible until Tuesday, May 13, by dialing 855-859-2056 and then entering conference ID number 30588387 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.

Ronnetta Eaton

Thank you, Michal. Good morning, and welcome to the Memorial Production Partners LP conference call to discuss operating and financial results for the first quarter 2014. 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; Andrew 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 these measures to comparable GAAP measures may be found in our press release or on our website at www.memorialpp.com.

With this in mind, I will now turn the call over to John Weinzierl.

John A. Weinzierl

Thanks, Ronnetta, and good morning. Before we get into specific results, I would like to mention and highlight the partnerships recent acquisition activity. We closed two acquisitions this year and announced the third just a couple of days ago that once closed will be our largest. This acquisition of oil producing properties in Wyoming is from affiliates of Merit Energy for approximately $935 million.

As expected to close during the third quarter of this year, it has an effective date of April 1, 2014. These assets consist of two individual CO2 floods located in Central Wyoming, what’s known as the Bairoil Complex in Sweetwater and Carbon counties. The properties lie near and our adjacent and complementary to our existing Rockies properties. We expect to fund those transactions borrowings under our revolving credit facility, which we expect a significant borrowing base increase in conjunction with the close of this acquisition.

Larry Forney will provide additional details on the acquisition. The partnerships first acquisition this year included oil and gas properties from Alta Mesa in the Eagle Ford for approximately $173 million. This property is a 100% non-op to us with Murphy Oil being the primary operator.

What’s exciting to us about this acquisition is that we are part of the proven operator like Murphy Oil, and we are able to structure the deal to enable us to manage production declines by far in Alta Mesa’s working and net revenue interest in the 117 producing wells and then 30% interest in leasehold interest effectively flattening the declines, the average PDP decline rates of approximately 9% over 10 years.

And we will see the effective working in that revenue interest in the producing wells increases over three years as the sellers net profit interest produces from 50% in 2014, 70% in 2015, 85% in 2016, and 100% in 2017 and thereafter. We also announced last quarter and have since closed the bolt-on acquisition of properties in East Texas, the Double A Field for $34 million. These properties have a reserved production ratio of 9.8 years then average PDP decline rate of about 8%.

So we are excited about what we’ve accomplished so far. We have a lot to look forward to as I continue to integrate our properties and focus on our strategy of growing and maintaining production and driving additional unitholder value.

Now, I will turn the call over to our President, Bill Scarff.

William J. Scarff

Thank you, John. It’s certainly an exciting time for the partnership. Year-to-date we have announced $1.1 billion in accretive acquisitions bringing to the partnership a significant amount of reserves and stable production. The properties we have acquired complement our existing portfolio very well and with their long lived assets, with low declined rates, and have high operating margins. As we integrate these newly acquired assets and ramp up our operations activity, we have confidence in our talented staff to continue the effective managements of our properties.

Now, I’m turning our attention to the first quarter of 2014, we saw increases in both average daily production and adjusted EBITDA of 29%. Average daily production increased to 166.1 million cubic feet equivalent in the first quarter of 2014 from 129 million cubic feet equivalent in the first quarter of 2013, and adjusted EBITDA increased to $55 million from $43.8 million during the same period.

Distributable cash flow for the quarter of $23.4 million provided a coverage ratio of 0.7 times, which is primarily the result of operational and weather related curtailments we experienced during the quarter. It is not uncommon to experience short-term lumpiness from time to time during the year due to weather – with other operational curtailments.

However, we feel confident in the gallons we’ve issued, which was included in our earnings release this morning are recently approved and we expect to pay MEMP’s first quarter 2014 distribution of $0.55 per common unit annualized $2.20 per common unit on May 13, 2014 to unitholders of record on May 6, delivering value and generating stable cash flows to make quarterly cash distributions is our core strategy.

We will continue to emphasis consistent cash flow generation to support these distributions to our unitholders, work to maintain and grow production by effectively operating our assets, and we will actively pursue opportunistic transactions in line with our strategy. Yesterday’s closing price of $22.66 per unit, our yield was approximately 9.7% 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 2014 quarterly report on form 10-Q by May 12.

Now, Larry Forney, our VP and Chief Operating Officer will walk you through our operating performance in greater detail. Larry?

Larry R. Forney

I would like to start by further discussing our 2014 acquisition activity before moving on to our first quarter activity and CapEx plan for the remainder of the year.

As mentioned earlier during the call, we closed our first transaction in market this year with the acquisition of oil and gas properties in the Eagle Ford. This creatively structured transaction allowed the partnership to enter into a world-class resource play that would otherwise typically not fit into an MLPs portfolio due to characteristically high initial production upon.

To mitigate the impact of these high declines, we acquired a three-year escalating working in net revenue interest in a 117 producing wells of varied ages, 72 seller retaining a decreasing net profits interest. In addition, we acquired a flat 30% interest in the perspective of the development opportunity in the six-county area of mutual interest. The progressively increasing working interest and net revenue infrastructure was designed to offset natural production decline and therefore the net PDP decline rates of the partnership was approximately 9% per year over the next five to 10 years.

These assets which was 63% proved developed added net proved reserves to 70.4 million barrels of oil equivalent with a current net production rate of approximately 1,600 barrels of oil equivalent per day, the assets have a reserve to production ratio of 12.3 years.

In April, we closed our second acquisition of the year with a purchase of asset located in East Texas in the Double A Field of Polk and Tyler Counties. These bolt-on properties are a 100% held by production, cover approximately 18,769 gross, 5,744 net acres, include 80 gross and 26 pro forma 39.5 net wells and are producing approximately 4.3 million cubic feet equivalent per day.

A couple of days ago, we announced the acquisition of the (indiscernible) in situ Wyoming and will common known as the Bairoil property. The transaction has an effective date of April 1, and is expected to close in the third quarter. The Bairoil properties were discovered in the early 1900, began secondary water flood development in the 1970s, and have been further advanced under very successful and well-established tertiary CO2 flooding project since the late 1980s.

This is the partnerships largest acquisition to-date and we will add approximately 5,900 barrels per day of production and $83 million barrels of proved reserves, 59% of which is proved developed. The properties include 140 producing wells and 166 injection wells and have a working interest and net revenue interest of 100% and 88% respectively. The acquisitions estimated average PDP decline rate is a manageable 5% over 5 years and 10 years and there is a long-term CO2 supply contract in place to support our ability to maintain these properties.

Pro forma with these outlined acquisitions, our reserved mix now runs approximately 61% proved developed with our reserves balance at 42% oil, 39% gas, and 19% NGL. Geographically, reserve just spilt 39% in East Texas, North Louisiana, 36% in the Rockies, 13% in Eagle Ford, South Texas, 7% in the Permian, and 5% in California. We operate 92% of the proved reserves and approximately 66% of our current well count.

Pro forma for full-year 2014 approximately 59% of our daily net gas equivalent production is projected from the liquids rich East Texas and North Louisiana areas. While and additional 0.6% is projected from the heavily oil weighted properties in the Rockies, Permian, and California areas.

Our well count excluding the Bairoil property is running at approximately 2,983 gross, 1,696 net and 1,921 operating. From an inventory standpoint, we have grown to over 1,078 development opportunities, including 710 PUDs.

Now moving on to our first quarter operational results, average daily production was $166.1 million cubic feet equivalent for the first quarter 2014, which was a 29% increase over the first quarter of 2013, average daily production of $129 million cubic feet equivalent, and a slight decrease from fourth quarter 2013 average daily production of $167.7 million cubic feet equivalent.

This year-over-year growth was a result of our successful new well drill operations primarily in each sectors in North Louisiana and the four acquisitions we closed in 2013. The overall productions led for our first quarter 2014 was approximately 55% natural gas, 18% crude oil, and 17% natural gas liquids.

LOE averaged $1.87 per Mcfe for the first quarter of 2014 compared to $1.84 per Mcfe for the first quarter of 2013 and $1.55 per Mcfe for the fourth quarter of 2013. This quarter-over-quarter increase is due to non-recurring workover expenses and expenses reserved for environmental cleanup work associated with our Cinco acquisition. Excluding the reserved environmental expenses, LOE for the first quarter of 2014 would have been $1.68 per Mcfe.

Our focus remains on maintaining operational efficiencies and we anticipate downward trend in leased operating expenses for 2014. Our drilling activities during the first quarter of 2014 resulted in a 100% success rate in East Texas North Louisiana and included the initiation of production from 5 gross, 4 net horizontal Cotton Valley new drills.

Net revenue interest on these five wells averaged 62% and the wells are projected to deliver a net EUR of 23 Bcfe with a greater than 100% rate of return due to prolific gas rates in the high liquid yields.

We are currently drilling and completing an additional seven gross wells and expect 7 gross, 3 net of these wells return to sales in the second quarter. As outlined on our last call, we experienced severe weather conditions in the Permian basin during the first quarter that caused some curtailment.

We would come from that setback late in a quarter, have enjoyed a respectable runtime soon. We placed 13 gross, 11 net wells in production in the Permian basin during the first quarter. We are actively drilling and completing 9 gross, 8 net wells and we expect these wells to be online in the second quarter of 2014.

We have maintained our actual remedial and exploitation programs in the Permian and we have further expanded the area of CapEx project relative to improving production gathering, water flooding, and salt water disposal facility capacity.

Our California Beta Field activity is also continues to be encouraging. We had one new drill completion returned to sale late in the first quarter had better than budgeted rates. Our second new drill for the year is currently initiating completion operations and is expected to be online over the next several weeks.

In addition, we successfully completed 8 expense workovers with projected rates of returns in excess of 100%. Our operational efforts at Beta Field continue to progressively deliver production rate surpassing those seen with the property since late 1990s.

Total capital spending for the first quarter of 2014 was $61 million. Total maintenance capital spending for the first quarter of 2014 was $16.8 million. Our pro forma capital spending program for 2014 includes total capital expenditures projected within the range of $135 million to $205 million including $90 million of maintenance capital.

We anticipate spending approximately 44% of our 2014 CapEx in East Texas, North Louisiana, 19% in the Permian basin, 17% in California, 10% in the Rockies, and 10% in the Eagle Ford South Texas area primarily on drilling, recompletion, and capital workovers.

For full-year 2014, we anticipate spending capital on 11 net horizontal Cotton Valley new drills in various fields in East Texas and North Louisiana, 37 net new drills in the Permian basin, 3 net new completions on our Beta platforms and 1 net new completion in the Rockies.

We expect the remaining balance for capital budget to be allocated to recompletions, capital workovers, and this facility enhancement project across all of our operating areas. These capital estimates include acquisition today, but exclude the assumptions for additional acquisitions by the partnership for the balance of the year.

With that, I will now hand it over to Drew Cozby to walk you through our financials.

Andrew J. Cozby

Thanks, Larry. I’ll start by discussing our first quarter 2014 financial results, and our liquidity and our hedge positions, gross guidance for 2014, which was included in the press release issued this morning.

As I mentioned on prior calls for accounting purposes, MEMP is required to treat acquisitions from affiliates of MEMP, including Memorial Resource development and certain fronts controlled by natural gas partners those transactions between entities under common control.

As such, we are required under GAAP to incorporate the financial results for all periods presented on a combined basis. For our financial results unless specifically identified will include the results of operation from certain assets acquired prior to our taking over operational control.

Reviewing financial highlights of unaudited preliminary financial information extracted from our 10-Q, I’ll make comparisons first quarter 2014 results to the first quarter 2013 and the fourth quarter 2013. For additional detail disclosure, we encourage you to read our form 10-Q, which will be available on ‎EDGAR and on our website on or before May 12.

Adjusted EBITDA for the first quarter of 2014 was $55 million compared to $42.8 million for the first quarter of 2013 and $65 million for the fourth quarter of 2013. Distributable cash flow available to limited partners for the first quarter of 2014 was $23.4 million, or $0.38 per unit, covering our distribution of 0.7 times for the first quarter. This compared to the first quarter of 2013 Bcf of $18.5 million and $34.4 million in the fourth quarter of 2013. First quarter 2014 trailing 12 months Bcf was approximately one times as compared to fourth quarter of 2013 trailing 12 months Bcf of 1.03 times.

Keep in mind that when evaluating coverage and making strategic decisions, we take a long-term trailing four quarter view on Bcf coverage rather than a quarterly view. The variances in both adjusted EBITDA and distributable cash flow were primarily attributable for results from our drilling program in East Texas, offset by weather in operational curtailments associated with our Permian basin assets and operational delays in California and non-recurring maintenance projects related to the acquisitions.

Total revenues for the first quarter of 2014 were approximately $101 million compared to $68.1 million for the first quarter of 2013 and $92.1 million for the fourth quarter of 2013. First quarter 2014 revenues were 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 $8 million of cash settlements paid on commodity derivatives in the first quarter of 2014. Cash settlements paid on commodity derivatives as I mentioned were $8 million, or $0.53 per Mcfe for the first quarter of 2014 and compared to cash settlements received of $7.1 million for the first quarter and $5.8 million for the fourth quarter of 2013.

The realized settlements variance is primarily due to higher natural gas prices in the first quarter 2014. The fair market values of the derivative financial instruments reflected on the balance sheet as of March 31 of this year was a net liability of approximately $3 million, and based on estimated forward commodity prices and forward interest rate yield curves.

Regarding our commodity hedging, total production hedged in the first quarter of 2014 was 12.9 Bcfe, or 86% of our first quarter production of 15 Bcfe at an average hedge price of $7 per Mcfe.

G&A for the first quarter of 2014 was $10 million compared to $7.3 million reported during the first quarter of 2013 and $10.1 million for the fourth quarter of 2013. Included in G&A were non-cash compensation expenses and acquisition related costs representing $3.1 million.

Net interest expense for the first quarter of 2014 was $16.1 million, which included $300,000 of losses on interest rates swaps and $1.2 million of non-cash amortization of deferred financing fees and accretion of senior notes discount.

Total capital expenditures for the first quarter as Larry mentioned were $61.0 million and maintenance capital expenditures for the first quarter of 2014 were $16.8 million.

Now moving on to a discussion of debt and liquidity. Our liquidity position remains strong. At the end of first quarter we had debt outstanding of $299 million under our revolving credit facility with liquidity of approximately $572.7 million consisting of $1.7 million in cash and $571 million of available borrowing capacity given the April 1 redetermination.

Our total debt outstanding as of April 30, 2014 was $1.07 billion, which included $374 million under our revolving credit facility, $700 million of senior notes due 2021.

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 have 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 hedging policy and the goal has been costless, margin-less, derivative contracts with our lenders as counterparties and covering approximately 65% to 85% of estimated production from total proved reserves on a rolling three to six year horizon. Through this policy, we have an extensive hedge program that gives us commodity price protection through the year 2019.

For natural gas, we’ve hedged 88% of targeted natural gas production through the year end 2014 at a weighted average floor of $4.40 per MMBtu, approximately 84% for 2015 and ‘16 and 75% through the year end 2019 and weighted average floor price ranges from $4.31 to $4.75 per MMBtu. It is also worth noting that approximately 100% of the partnerships our natural gas hedges are to the appropriate basis differential through the end of 2014.

Regarding oil, we have hedged 81% of targeted crude oil production through the end of 2014 at a weighted average floor $94.71 per barrel, approximately 93% for 2015 and 2016 and 64% through the year end of 2019 and weighted average floor price ranges from $83.33 to $94.71 per barrel. Our crude oil hedges are to their appropriate basis differential through the year end of 2015.

On the NGL side for calendar years 2014 and 2015, we hedged approximately 83% and 77% respectively of our targeted average NGL net production for those years at hedge prices were approximately $41.07 and $43.02 per barrel respectively. Again these hedges help protect our pricing position during the year.

Regarding our approach to hedging and important for US investors to note is that we hedge our production to better security at inspected 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, conduct our developmental drilling activity. Our hedge portfolio remains a key strength for the partnership in managing this commodity price volatility, stabilizing revenues and cash flows and supporting our volume base.

In each of these cases, it’s important to note that the targeted average net production estimates the production required to reach the lower boundary of the annual production range and our full-year 2014 guidance. For more detail on our hedging program, please visit our website under the Events and Presentation section, the Investor Relations tab.

Now shifting a discussion to MEMP’s full-year 2014 guidance. We updated our full-year 2014 guidance on Monday in conjunction with the acquisition announcement, which does not include any additional acquisitions and we may complete during the remainder of the year. The partnership forecast annual production and incremental production growth to average within the range of 74 Bcfe to 76 Bcfe, or 203 cubic feet equivalent per day to 208 cubic feet equivalent per day over the full year.

We anticipate adjusted EBITDA to be in the range of approximately $355 million to $375 million for the full-year 2014, with distributable cash flow or DCF, projected at approximately $183 million to $203 million, and corresponding DCF coverage to be in the 1.10 time to 21.20 time range for the full-year 2014.

Maintenance CapEx is expected to be $90 million for the full year, or approximately 25% the midpoint of our adjusted EBITDA expectations for the full year. Our total CapEx as Larry mentioned is expected to be in the range of approximately $175 million to $205 million.

That concludes our formal remarks regarding our first quarter 2014 earnings call. I appreciate your time on the call. And operator, we would now like to open up the line for any questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Kevin Smith of Raymond James. Your line is open.

Kevin C. Smith – Raymond James & Associates, Inc.

Good morning, gentlemen.

John A. Weinzierl

Good morning.

Kevin C. Smith – Raymond James & Associates, Inc.

Would you please go over the environmental reserve expense related to the Cinco acquisition, is that a one-time expense?

John A. Weinzierl

Kevin, we expect that to be a one-time expense, it’s going to be covered in our Q and it’s $2.9 million. It’s associated on the income statement and the LOE. The LOE would have been $1.68, otherwise as mentioned by Larry, it’s been involved with our Cinco properties, it’s an estimate at this time. So you evaluate that accordingly, and we’ll – it’s something that we look as routine with the acquisitions making sure we’re doing what we’re supposed to be doing on the environmental side.

Kevin C. Smith – Raymond James & Associates, Inc.

So is it just an accrual at this point, is not the cash charge?

John A. Weinzierl

Correct. It is an accrual and not a cash charge.

Kevin C. Smith – Raymond James & Associates, Inc.

Okay. And then I may have missed this in your prepared remarks, but was there a specific reason why NGL volumes declined sequentially?

John A. Weinzierl

Yes. That’s going to be associated with a plant that went offline in South Texas, which is approximately 35,000 barrels for the first quarter and that’s going to be the delta between 4Q and 1Q.

Kevin C. Smith – Raymond James & Associates, Inc.

Okay. And is that back online to plant?

Andrew J. Cozby

No.

John A. Weinzierl

No, we expected this summer.

Kevin C. Smith – Raymond James & Associates, Inc.

Okay, thanks. And then I know you touched on this a bit on your call on Monday, but can you tell me again, how many horizontal Cotton Valley wells you added to your budget with the increased CapEx and maybe thought process on that one?

Andrew J. Cozby

For full year it’s 11 net, East Texas and North Louisiana, and that – I mean that’s in line where we were at the beginning of the year.

Kevin C. Smith – Raymond James & Associates, Inc.

Okay. So you haven’t changed at all, with higher budget the dollars went elsewhere?

John A. Weinzierl

Yes, the gross CapEx is – the range there has increased for potential projects and as you mentioned East Texas, the Permian, and Wyoming as we go forward. In Alta Mesa, acquisition for the Eagle Ford or non-op there and there is a potential that additional CapEx maybe sent and we’ve allowed forward in the range.

Kevin C. Smith – Raymond James & Associates, Inc.

Okay. That’s all I had. Thank you very much.

Operator

Our next question comes from John Ragozzino of RBC Capital. Your line is open.

John Ragozzino – RBC Capital Markets LLC

Good morning, guys, how are you doing?

John A. Weinzierl

Good morning.

Andrew J. Cozby

Good morning.

John Ragozzino – RBC Capital Markets LLC

Kevin covered most of mine, but couple of quick ones with the MRD offering around the corner. How do you think that impacts the opportunities space by MEMP on the drop down front? Is the public entity going to be just as willing to divestiture assets?

Andrew J. Cozby

Nothing really exchanges from a strategy and the ability to do drop downs or co-bids, they are still in the process of – the partnership will go through, which we have done the independent and the complex committee. But from the ability to do things together there nothing will change.

John Ragozzino – RBC Capital Markets LLC

And then I guess from an intellectual bandwidth perspective, how do you guys see yourselves dividing up your time between operation of one end versus the other?

John A. Weinzierl

Well, we have been operating both MRD and the partnership since 2011. So it’s – business is usual other than we’re going to have a – MRD will be a public entity. So we had over 332 employees from the field level all the way up to Houston, and we feel that we’re well staffed, we are continuing to access. So we feel that we’re in very good shape to operate both. But from a field level perspective, we’ve been at us since 2011.

John Ragozzino – RBC Capital Markets LLC

Okay. And then Drew just kind of house-keeping item for full-year 2014 guidance, do you guys have anything assumes for downtime at the Beta Fields remain it’s not like anything?

Andrew J. Cozby

Our typical – we do allow for downtime in maintenance in our forecast and we’ve been doing that since recession, and there is always unexpected downtime. We don’t anticipate the unexpected. But we have allowed for comfortable downtime associated with the operations here based on what we’ve seen from an historical standpoint.

John Ragozzino – RBC Capital Markets LLC

I think it’s just one more, the number X the environmental remediation, I guess was about 16 change on the LOE side, is that a good run rate going forward or is there anything else aside from the approval for environmental stuff that is in the higher LOE number actually be aware of?

John A. Weinzierl

Yes. We stated that on the call on Monday and that’s still available in our website. But LOE, I think I said $1.60 range is a good assumption and I gave the average unit cost per Mcfe there for taxes LOE, G&A and DD&A.

John Ragozzino – RBC Capital Markets LLC

All right, thanks very much gentlemen.

Operator

(Operator Instructions) Our next question comes from Praneeth Satish of Wells Fargo. Your line is open.

Praneeth Satish – Wells Fargo Securities LLC

Yes, good morning. Sorry, if I maybe I miss this, but could you just quantify that the total production or EBITDA impact that the weather related disruptions in the Permian or operational disruptions caused?

John A. Weinzierl

Yes, I mean, probably in the Permian $5 million to $7 million from a quarter-over-quarter basis that we felt that impact that.

Praneeth Satish – Wells Fargo Securities LLC

Got it. And then in your 2014 guidance I just wanted just make sure the guidance for distribution coverage. Are you assuming any long-term debt offerings or equity raises there just trying to understand what’s in the guidance?

John A. Weinzierl

We look at – we try to be conservative on our guidance Praneeth as far as making realistic assumptions as we evaluate that on a long-term basis. So, you don’t see guidance swing one way or the other. We think that over the long-term with this acquisition that 1.1 times to 1.2 times, is what the market would expect from this partnership. Especially given that the significant low declines and what it does to our overall decline rate and puts it squarely in single digits on 5 year and 10 year basis. So, it’s a holistic view of those how we are going to finance and what we do with the partnership and distribution increase is going forward.

Praneeth Satish – Wells Fargo Securities LLC

Okay. And just last question for me, I guess, we’ve seen a bunch of deals in recent months with these working interests escalators like the one used in the Eagle Ford acquisition. Do you think we will see more of these types of deals this year or these kind of one of transactions what’s the appetite from E&P operators to continuing doing these type of deals?

John A. Weinzierl

I’m going to let Greg Robins who sits in for Michael who can answer that question?

Gregory M. Robbins

Praneeth, we are going to be opportunistic. It’s a great way to access not perfect MLP assets right now. So, I think you’re going to continue to see more or less.

John A. Weinzierl

(indiscernible) just yesterday, I think it’s going to – got us some traction.

Praneeth Satish – Wells Fargo Securities LLC

Great. Okay, thank you.

Operator

Our next question comes from the Nitin Kumar of Bank of America. Your line is open.

Nitin Kumar – Bank of America

Good morning guys, quick question for me you turn out a fair bit of acquisition activity here in the first quarter. I just wanted to understand both the organizational capacity and the financial capacity to continue doing deals through the year?

John A. Weinzierl

We always look for assets that put our strategy and goal of growing and maintaining distributions this will involve with opportunistic. We have to look every time do we have the people in financial resources and we do. As I mentioned we have over 300 employees and we are able to in this particular acquisition in Wyoming royalty concentrate about 300 wells. So, from a scaleability perspective, we will be able to integrate that I think fairly easily. We have showing the ability to acquire and integrate finance like account for acquisition, I think very well.

So, as we look forward this I can’t give you a specific answer, but I can give you general answers that will continue to look at do we have the people resources, organizational resources and processes, which I think we definitely have the organizational processes, but from the people perspective as well as our financial capabilities is going to dictate whether we as a management team can buy out something later on in the year, but we are going to be optimistic. We mentioned on earlier this week, I would anticipate that we will be doing more bolt-ons, but we’ll look at it on a case-by-case basis.

Nitin Kumar – Bank of America

Okay, great. And just maybe round of the LOE stuff a little bit long-term with your CO2 floods. Is there an impact on your long-term LOE guidance, if we go fast maybe 2015, what is the profile there does it stabilize or does it increase or decrease?

John A. Weinzierl

Nitin, as far as LOE on a CO2 flood and with this particular acquisition we made for Merit in Wyoming. We expect LOE to be stable going forward lot of that is driven on CO2 contract that we indicated is secured through 2019. And in the localized operations that exist in Wyoming at 6,800 acres they’re less than 30 employees that we met within I’ll turn this question over to Larry in a second whose been in Wyoming. As we have already started that integration process with the operations on the acquisitions, but we expected to be stable, because that’s the nature of the CO2 floods, its been operating for multiple years and we expected to be as you see the significant 30 year plus reserve life to be operating and stable fashion going forward.

Larry R. Forney

This is Larry, the only think I would add to that is that you’re employing very low lifting cost with those properties. We are looking at just over $20 per barrel for the lifting cost now and its very high margin asset.

Nitin Kumar – Bank of America

Okay, thank you. That’s it from me.

Operator

Our next question comes from Spiro Dounis of JP Morgan. Your line is open.

Spiro M. Dounis – JPMorgan Securities LLC

Hey, good morning guys. Thanks for taking my question. Just another one guidance, if you don’t mind, trying to get a better senses to have a baseline in the MEMP assets are performing. I’m wondering if production guidance would have been held constant, how do you feel all that done?

Andrew J. Cozby

Spiro, so your question is regarding, I guess you are asking about production quarter-over-quarter?

Spiro M. Dounis – JPMorgan Securities LLC

Yes, just in general, I mean, obviously had a first tough quarter and now with these deals it’s difficult to tell, exactly what guidance will look like as we started at the beginning of the year. I guess what’s saying is are you seeing enough positive results out there, your drilling activity you say despite of that first quarter toughest quarter looking at positive about there?

John A. Weinzierl

We talked about that in the fourth quarter call that there was with the single acquisition and integrating what was five or more companies in the Permian that there is a transitional period of operating those assets. And so we saw a little softness in the fourth quarter and the first quarter, but we allowed for that and our full year guidance. And we are confidence in the guidance that we both delivered first of the year. And then basically we are crashed on Monday.

Spiro M. Dounis – JPMorgan Securities LLC

Yes that makes sense. And would you guys be able to share maybe once you production negative run rate or what are you seeing of it most of the issues has been worked out?

John A. Weinzierl

You’re saying share our negative run rate or?

Spiro M. Dounis – JPMorgan Securities LLC

1Q production negative run rate?

John A. Weinzierl

When we gave the production number in the press release $166 million in your production safety flat with the fourth quarter, if that where we had we put for additional wells online, but we also had to set some wells in for offsetting frac and so forth. So, we were online, we are looking to good with our on our projection.

Andrew J. Cozby

Yes, that the exact number is there, $166.1 million for first quarter versus a $167 million in the fourth quarter. And then – but for the NGL volumes that were negatively impacted by 34,000 barrels due to the plant and one of King range facilities, you’re probably flat quarter-over-quarter.

Spiro M. Dounis – JPMorgan Securities LLC

Got it, thanks, that’s it for me.

Operator

I’m showing no further questions. I would like to turn the call back over to John Weinzierl, for any further remarks.

John A. Weinzierl

Well, thank you everyone for your participation in the call today and like always, if you have any follow-up questions please reach out to any one of us. Thank you very much and have good day.

Operator

Ladies and gentlemen, thank you for your participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!