Memorial Production Partners LP (NASDAQ:MEMP) investors are heading for the hills after the company announced that the board of directors of its general partner has elected to suspend MEMP’s quarterly cash distributions to unitholders, effective immediately. The board believes the suspension is in the best interest of the Partnership. The Partnership also announced a reduction of its borrowing base under MEMP’s credit facility from $925 million to $740 million, effective October 28, 2016, which will be further reduced to $720 million, effective December 1, 2016. These reductions are part of the Partnership’s semi-annual borrowing base redetermination process. As of October 28, 2016, MEMP had approximately $714 million outstanding under its revolving credit facility.
MEMP shares reacted to the news, crashing nearly 47% in Monday’s trading session.
“Our board and management team believe that suspending the distribution at this time will help preserve liquidity and enhance MEMP’s operational and financial flexibility,” said William J. Scarff, President and Chief Executive Officer and a Director of MEMP GP. “The scope of the redetermination is disappointing given the strength of our operations and significant cash flow generation. We look forward to continuing discussions with our lenders, and we note that the redetermination will have no impact on current operations, which will continue in the normal course.”
Scarff continued, “Over the course of the last year, in addition to reducing MEMP’s outstanding debt, driving down costs, divesting non-core assets and managing our cash flows, we have also explored opportunities to further enhance liquidity and improve our leverage profile. We are now taking additional steps to preserve our financial flexibility and have retained advisors to help us determine the best path forward for MEMP as we continue discussions with our lenders regarding our capital structure. Despite the challenging commodity pricing environment, our assets are generating strong cash flow and we remain committed to operational excellence. We thank our employees for their continued focus on working safely and maintaining strong production across our asset base.” (Original Source)
On the ratings front, MEMP has been the subject of a number of recent research reports. In a report released today, FBR analyst Chad Mabry downgraded MEMP to Hold, with a price target of $1.00, which implies an upside of 59% from current levels. Separately, on September 29, Citigroup’s Faisel Khan maintained a Hold rating on the stock and has a price target of $1.80.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Chad Mabry and Faisel Khan have a yearly average loss of -19.8% and a return of 17.2% respectively. Mabry has a success rate of 35% and is ranked #4016 out of 4178 analysts, while Khan has a success rate of 81% and is ranked #103.
Memorial Production Partners LP is engaged in the acquisition, exploitation, development and production of oil and natural gas properties. Its properties are located in South Texas, East Texas/Louisiana, Rockies, California and Permian. Memorial Production Partners was founded in April 2011 and is headquartered in Houston, TX.