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Based in Houston, Texas, LRR Energy, L.P. (proposed LRE) scheduled a $190 million IPO with a market capitalization of $448 million at the price range mid-point of $20 for Friday, November 11, 2010. The full IPO calendar for the week of November 7 includes five scheduled IPOs.

SUMMARY
LRE is a oil and gas limited partnership controlled by a private equity firm. Limited partnerships with a strong operating company usually perform better than partnerships controlled by a private equity firm.

The parent/sponsor has cash available for acquisitions, but the terms haven’t yet been set. In other words, it could be ‘expensive’ money.

VALUATION & CONCLUSION
LRE ‘s minimum projected yield is 9.5%, with little if any projected growth from current operations. When the yield gets to 11%, incentive distributions kick in for the general partner.

If an investor is interested in dividend yields, we believe that Chesapeake Granite Wash Trust (proposed CHKR), also scheduled for this week, is better than LRE. CHKR is projected to pay a 13% dividend yield for 2012.

PRIVATE EQUITY PARENT/SPONSOR
LRE’s general partner, LRE GP, LLC, is controlled by Lime Rock Management LP, or Lime Rock Management, which was founded in 1998 and manages approximately $3.9 billion of private capital for investment in the energy industry through its investment funds.

NO GROWTH FROM CURRENT BUSINESS
The annual cash available for distribution was $51 million for the 12months ended June 2011, and is also $51 million projected for the 12 months ending June 2012. Cash available for distribution peaked at $62 million for the 12 months ended June 2010. S-1 pages 62 & 63

MINIMUM CASH DISTRIBUTION
$0.4750 per unit per whole quarter, or $1.90 per unit per year annualized. 9.5% projected minimum yield. S-1, page 60

INCENTIVE DISTRIBUTION
LRE’s general partner will hold the incentive distribution rights, which entitle the holder to increasing percentages, up to a maximum of 23% of the cash LRE distributes in excess of $0.54625 per common unit per quarter.

Incentive distribution rights start at a 11% return to limited partners, at the price range mid-point of $20

USE OF PROCEEDS
Of $176 million from the IPO and $156 million from new borrowings.

  • Sponsor-owned Fund I $299
  • $27 million of additional debt
  • $1.9 million in new credit facility fees
  • $3.9 million of offering expenses.

LRR Energy, L.P.

LRE, C+, 6

Post IPO shares: 47mm

Oil/gas partnership

IPO Mkt

Houston, TX

Cap (mm)

$448

@$20

Mrkt

Target 2012

Price /

Price /

% offered

Cap (mm)

min yield

BookValue

TangibleBV

in IPO

LRR Energy, L.P.

$448

9.5%

2.0

2.0

42%

Source: IPO Preview: LRR Energy, L.P.