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Little LRR Energy Has Big Hedges, Strong Prospects

LRR Energy (NYSE: [[LRE]]) is the smallest of the upstream MLPs I've investigated as part of my efforts to understand how declining oil and natural gas prices will impact future performance. With MLP prices fluctuating wildly (LRE was up 10.97% today), it's hard to recalibrate quickly enough. However, after digging in, I like what I see:

  • Very good cash flow generation and the ability to almost cover their remarkable 28% yield (as of the time of this writing) with distributable cash flow (DCF) for Q4.
  • Strong hedges that remain impactful through 2018.
  • Hedges that are simple, easy-to-understand swaps, which avoid risk even at low prices - in other words, no 3-way collars or sales of risky put options.
  • A debt situation that's a bit tight, but should be manageable for at least another year.
  • A general partner with a lot of skin in the game and plenty of incentive to