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Summary

  • Primarily North-Carolina-based MRD plans to raise $612.0 million in its upcoming IPO.
  • An oil and gas E&P, MRD posted a loss for the first quarter of 2014, but a pro forma net income of $56.7 million for calendar 2013.
  • In an unpredictable industry, but with very strong underwriters, we suggest investors consider buying into this IPO.

Memorial Resource Development Corp. (NASDAQ:MRD), an oil and gas E&P, primarily operating out of North Louisiana, plans to raise $612.0 million in its upcoming IPO.

The Houston, Texas-based firm will offer 36.0 million shares, including approximately 32% insider shares, at an expected price range of $16-$18 per share. If the IPO can find the midpoint of that range at $17 per share, MRD will command a market value of $3.3 billion.

MRD filed on April 4, 2014.

Lead Underwriters: Barclays Capital Inc; Citigroup Global Markets Inc

Underwriters: BMO Capital Markets Corp; BofA Merrill Lynch; Comerica Securities, Inc.; Credit Suisse Securities LLC; Goldman, Sachs & Co; Mitsubishi UFJ Securities , Inc.; Morgan Stanley & Co. LLC; Scotia Capital Markets; Simmons and Co. International; Stephens Inc; Stifel Nicolaus & Company, Incorporated; UBS Investment Bank; Wells Fargo Securities, LLC; Wunderlich Securities, Inc

MRD Summary

MRD is an independent oil, gas and natural gas liquids (NGL) E&P, operating primarily in the Terryville Complex in North Louisiana, with smaller additional operations in Colorado and East Texas.

The firm is currently seeking to exploit over-pressured, liquids-rich natural gas in the Cotton Valley Formation. MRD has a total leasehold of 347,458 gross acres, including 60,041 gross acres that it believes are in the core of the Terryville Complex.

The firm's acreage includes a horizontal inventory equivalent to over 32 years based on MRD's expected 2014 drilling program, consisting of 1,582 gross (1,091 net) identified horizontal drilling locations.

For the three months ended March 31, 2014, MRD's average net daily production was 168 Mmcfe/d, consisting of approximately 70% natural gas, 21% NGLs, and 9% oil. As of December 31, 2013, MRD has estimated proved reserves of approximately 1,125 Bcfe, estimated probable reserves of approximately 800 Bcfe, and estimated possible reserves of 1,711 Bcfe. The firm operated 98% of its proved reserves as of that time; 71% of those reserves were natural gas.

MRD plans to use the great majority of its proceeds from this offering to repay outstanding debt.

Valuation

MRD offers the following figures in its S-1 balance sheet for the three months ended March 31, 2014:

Revenue: $190,828,000.00

Net Loss: ($23,516,000.00)

Total Assets: $3,039,091,000.00

Total Liabilities: $2,296,778,000.00

Stockholders' Equity: $222,889,000.00

MRD, Competitors Dependent on Fluctuating Prices of Gas and Oil

As with all gas and oil E&P firms, MRD's revenues and profits will be influenced by the fluctuating prices of natural gas and oil; as MRD's production is focused on natural gas, it will be most affected by gas prices.

MRD competes with other E&P firms operating in nearby areas for leaseholds, personnel, and equipment. Some of these competitors are much better capitalized than MRD, and as such may be able to outbid MRD for desirable acreage and other resources.

Management With Long History At NGP

CEO John A. Weinzierl has served in his current position with MRD since its formation; he also served as President and CEO for the firm's predecessor.

Mr. Weinzierl previously worked in various positions including managing director and operating partner for Natural Gas Partners (NGP); he was appointed a venture partner of NGP from February 2012 to February 2013. From October 2006 until November 2011, Mr. Weinzierl served as a director of Eagle Rock Energy G&P, LLC, from October 2006 until November 2011.

Mr. Weinzierl is a registered professional engineer in Texas. He received a B.S. in petroleum engineering and an MBA from the University of Texas at Austin.

Conclusion

We are positive on this IPO in the proposed range. We are hearing that the deal is shaping up nicely for Friday.

Though MRD posted a loss for the first quarter of 2014, the firm posted a pro forma net income of $56.7 million for calendar 2013.

MRD's drilling inventory is impressive, and it plans to pour some $316 million into drilling and production in the Terryville Complex this year-more than the total of $288 million that it has spent in the region over the past three years.

As always, oil/gas industry can be unpredictable, particularly with changing regulations and volatile prices; however, the IPO's solid host of underwriters is encouraging, as is its thoroughly experienced management team.

We suggest investors consider buying into MRD at its IPO.

Source: IPO Of Memorial Resource Looks Hot