Say Hello To LRR Energy

By Eric Fox | November 10, 2011 AAA

LRR Energy, L.P. (NYSE:LRE) is one of the newest public companies in the energy sector, after completing an initial public offering last week. This offering, and others completed in recent weeks, gives energy investors even more choices when playing this sector.
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IPO Details
LRR Energy, L.P. issued 9.4 million limited partner interests at $19 per unit. This was at the lower end of the $19 to $21 per unit pricing range established when underwriters started marketing the offering in October.

Summary
LRR Energy, L.P. is a limited partnership that was created in April 2011, to own and operate oil and gas properties in North America. The company looks for producing properties with predictable production profiles and is currently operating in the Permian Basin, the Mid Continent and the Gulf Coast regions of the United States.

Operational Summary
LRR Energy, L.P. reported proved reserves of 30.2 million barrels of oil equivalent (BOE) at the end of the first quarter of 2011, with 84% in the proved developed category. The company produced an average of 6,133 BOE per day, in the first half of 2011. (For related reading on oil, see Oil: A Big Investment With Big Tax Breaks.)

Investors tend to favor companies that produce crude oil and other liquid hydrocarbons; the company reported that 57% of pro forma revenue, in the six months ending June 30, 2011, were derived from oil and natural gas liquids.

LRR Energy, L.P. is active on both the Texas and New Mexico side of the Permian Basin and has a majority of its proved reserves in this basin. The company produces from more than 550 net wells in this region. It also has 33% of its proved reserves in the Mid Continent area, and 12% in the Gulf Coast. The company's reserves in the Gulf Coast have the shortest reserves to production ratio, at approximately eight years.

Organizational Structure
Like other limited partnerships in the energy sector, LRR Energy, L.P has a fairly convoluted organizational structure. The company was sponsored by affiliates of Lime Rock Resources and will remain closely tied to these entities. LRE GP, LLC is the general partner of LRR Energy, L.P, and is controlled by Lime Rock Management, a private equity firm active in the energy business. After the offering is complete, Lime Rock Resources will own approximately 58% of the units of LRR Energy, L.P. (For more on private equity, see A Primer On Private Equity.)

Distributions
LRR Energy, L.P. has stated its intention to pay out a minimum annual cash distribution of $1.90 per unit, or a 10% yield based on the offering price. This distribution is obviously dependent on the company having sufficient cash flow realized through the production and sale of crude oil and natural gas.

LRR Energy, L.P. is not the only energy company to go public in the last week. Enduro Royalty Trust (NYSE:NDRO) issued 13.2 million trust units at $22 per unit in early Nov. 2011, raising approximately $290 million. The company has oil and gas properties in the Permian Basin, as well as Texas and Louisiana.

Chesapeake Granite Wash Trust (NYSE:CHKR) issued 20 million units at $19 per share, raising $380 million in proceeds. The company operates properties in the Anadarko Basin and is closely aligned with Chesapeake Energy (NYSE:CHK). Both these IPO's were priced at the lower end of the expected pricing range.

The Bottom Line
The less than enthusiastic reception by the market of several recent IPO's in the Energy sector may be indicative of saturation and proving that even the hottest sectors can sometimes turn off the investing public.

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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