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Based in Houston, Texas, Memorial Production L.P. (NASDAQ:MEMP) scheduled a $200 million IPO with a market capitalization of $428 million at a price range mid-point of $20 for Friday, December 9, 2011. See the full IPO calendar.

SUMMARY

Memorial Production L.P. (MEMP) is being marketed as an oil and gas limited partnership, even though it is more comparable to a royalty trust (see below).

MEMP plans on selling s47% of itself in the IPO, and has a reserve to production ratio of 17 years -- more like a royalty trust than a standard oil/gas limited partnership.

MEMP is organized by a large, family-held private equity firm in Texas. Growth is expected to come from future acquisitions, presumably from the private equity parent, which will probably be a sweetheart deal for the parent.

At the price range mid-point of $20 MEMP is projected to yield 9.5% and sell at a price-to-book value of 1.5. However, MEMP intends to “retain any excess cash to repay indebtedness or for other general partnership purposes.”

CONCLUSION

MEMP’s original S-1 was filed S-1 in June 2011. If it there were better deal for investors for this IPO then it would have come out sooner this year.

Better yielding options are available, including royalty trusts that have IPO’d this year including the following (our SeekingAlpha pre-IPO articles).

CONCERNS

Based on pro forma average net production for the year ended December 31, 2010 of 52 MMcfe/d, total estimated proved reserves had a reserve-to-production ratio of 17 years.

As an oil and natural gas company, MEMP faces the challenge of natural production declines. As initial reservoir pressures are depleted, oil and natural gas production from a given well or formation decreases.

BUSINESS

MEMP is a limited partnership formed by Memorial Resource to own and acquire oil and natural gas properties in North America.

As of December 31, 2010, total estimated proved reserves were approximately 325 Bcfe, of which 81% were classified as proved developed reserves including approximately 14% classified as proved developed non-producing.

Based on pro forma proved reserves volumes at December 31, 2010, MEMP or Memorial Resource operates 94% of the properties in which MEMP has interests, and MEMP owns an average working interest of 43% across the oil and natural gas properties.

ABOUT THE PARENT

Memorial Resources was formed by Natural Gas Partners, which was founded in 1988. Natural Gas Partners manages $7.3 billion in a family of funds that invests private equity capital in oil and gas production, midstream, oilfield service and power companies.

The NGP platform consists of a series of nine private equity funds with cumulative commitments exceeding $6.9 billion since inception.

The firm also manages $350 million in two co-investment funds that invest in direct oil and gas property interests alongside NGP portfolio companies. Natural Gas Partners is an affiliate of NGP Energy Capital Management, a $9.5 billion firm based in Irving, Texas that invests across the entire natural resources sector.

MEMP PROPERTIES

Following the contribution of the Partnership Properties to MEMP, MEMP will own oil and natural gas properties located in South and East Texas. Based on proved reserves volumes at December 31, 2010, MEMP or Memorial Resource will operate 94% of the properties in which MEMP will have interests, and MEMP will own an average working interest of 43% across our oil and natural gas properties.

As of December 31, 2010, MEMP had interests in 1,290 gross (609 net) producing wells across its properties, with an average working interest of 47%. As of December 31, 2010, total estimated proved reserves were approximately 325 Bcfe, of which approximately 81% were classified as proved developed reserves including approximately 14% classified as proved developed non-producing.

As of December 31, 2010, estimated proved reserves had a standardized measure of $359.2 million. Based on our pro forma average net production for the year ended December 31, 2010 of 52 MMcfe/d, total estimated proved reserves had a reserve-to-production ratio of 17 years.

Memorial Resource’s Retained Properties

After giving effect to the formation transactions, Memorial Resource had (i) total estimated proved reserves of 1,036 Bcfe at December 31, 2010, primarily located in East Texas, North Louisiana and the Rockies, of which approximately 81% were natural gas, and approximately 34% were classified as proved developed reserves, and (ii) interests in over 398,000 gross (173,000 net) acres of undeveloped properties.

Memorial Resource’s total estimated proved reserves of 1,036 Bcfe includes 169 Bcfe of reserves associated with properties acquired by WHT Energy Partners LLC in April 2011 in which MEMP has a joint ownership interest.

ESTIMATED CASH EXCESS (SHORTFALL)

For the year ended September 2011 MEMP would have paid limited partners the minimum distribution and would have had a cash shortfall of $4 million in terms of payouts to subordinated and general partners.

S-1, page 63

For the year ending September 2012 MEMP estimates excess cash of $8 million, after payments to partners.

S-1, page 66

However, MEMP intends to “retain any excess cash to repay indebtedness or for other general partnership purposes”

S-1, page 68

MIMIMUM QUARTERLY DISTRIBUTION

$0.4750 per unit per whole quarter, or $1.90 per year, 9.5% annualized return at the price range mid-point of $20.

INCENTIVE DISTRIBUTION RIGHTS TO GENERAL PARTNER

Incentive distribution rights represent the right to receive an increasing percentage (14.9% and 24.9%) of quarterly distributions of available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved.

OIL/GAS PRICE ASSUMPTIONS

MEMP assumed NYMEX oil prices of $91.28 for the proforma September 2011 calculations and $92.72 for the estimated September 2011 calculations.

S-1 page 69

RISKS

Sustained periods of low prices for oil or natural gas could materially and adversely affect MEMP’s financial position, results of operations, the quantities of oil and natural gas reserves that MEMP can economically produce and may limit MEMP’s access to capital.

As an oil and natural gas company, MEMP faces the challenge of natural production declines. As initial reservoir pressures are depleted, oil and natural gas production from a given well or formation decreases.

GROWTH PLAN

MEMP’s future growth will depend on its ability to continue to add estimated reserves in excess of production. Accordingly, MEMP plans to maintain its focus on adding reserves through acquisitions and development projects and improving the economics of producing oil and natural gas from the Partnership Properties.

MEMP expects these acquisition opportunities may come from Memorial Resource, the Funds, and their respective affiliates, as well as from unrelated third parties.

USE OF PROCEEDS

Of $177 million plus $130 million from a new credit facility. Allocated to pay $300 million to the parent Memorial Resource, owned by its parent, Natural Gas Partners.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: IPO Preview: Memorial Production L.P.