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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, 2011. |
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SUMMARY |
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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. |
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The parent/sponsor has cash available for acquisitions, but the terms haven’t yet been set. In other words, it could be ‘expensive’ money. |
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VALUATION & CONCLUSION |
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LRE ‘s minimum projected yield is 9.5%, with little if any projected growth from current operations. When the yield gets to 11% then incentive distributions kick in for the general partner |
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If an investor is interested in dividend yields, we believe this week that Chesapeake Granite Wash Trust (proposed CHKR) is better than LRE. CHKR is projected to pay a 13% dividend yield for2012. |
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PRIVATE EQUITY PARENT/SPONSOR |
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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, |
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NO GROWTH FROM CURRENT BUSINESS |
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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. |
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S-1 pages 62 & 63 |
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http://www.sec.gov/Archives/edgar/data/1519632/000104746911008771/a2204407zs-1a.htm#dk73001_use_of_proceeds |
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MINIMUM CASH DISTRIBUTION |
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$0.4750 per unit per whole quarter, or $1.90 per unit per year annualized |
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9.5% projected minimum yield |
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S-1, page 60 |
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http://www.sec.gov/Archives/edgar/data/1519632/000104746911008771/a2204407zs-1a.htm#dk73001_use_of_proceeds |
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INCENTIVE DISTRIBUTION |
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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 |
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Incentive distribution rights start at a 11% return to limited partners, at the price range mid-point of $20 |
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USE OF PROCEEDS |
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Of $176 million from the IPO and $156 million from new borrowings. |
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. Sponsor-owned Fund I $299 |
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. $27 million of additional debt |
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. $1.9 million in new credit facility fees |
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. $3.9 million of offering expenses. |
