Index to Financial Statements

As filed with the Securities and Exchange Commission on November 4, 2014

Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Terryville Mineral & Royalty Partners LP

(Exact Name of Registrant as Specified in its Charter)

Delaware

1311

47-2131131

(State or Other Jurisdiction of

Incorporation or Organization)

(Primary Standard Industrial

Classification Code Number)

(IRS Employer

Identification Number)

500 Dallas St., Suite 1800

Houston, Texas 77002

(713) 588-8300

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

Kyle N. Roane

Vice President, General Counsel and

Corporate Secretary

TRVL Partners GP LLC

500 Dallas St., Suite 1800

Houston, Texas 77002

(713) 588-8300

(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)

Copies to:

Douglas E. McWilliams

Vinson & Elkins L.L.P.

1001 Fannin, Suite 2500

Houston, TX 77002

Tel: (713) 758-2222

J. Michael Chambers

Brett E. Braden

Latham & Watkins LLP

811 Main Street, Suite 3700

Houston, Texas 77002

Tel: (713) 546-5400

Approximate date of commencement of proposed sale to the public:

As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	¨		Accelerated filer	¨
Non-accelerated filer	x	(Do not check if a smaller reporting company)	Smaller reporting company	¨

CALCULATION OF REGISTRATION FEE



Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)(2)	Amount of Registration Fee
Common units representing limited partner interests	$150,000,000	$17,430

(1)	Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes common units issuable upon exercise of the underwriters’ option to purchase additional common units.

(2)	Estimated solely for the purpose of calculating the registration fee.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

Index to Financial Statements

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission becomes effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated November 4, 2014

PROSPECTUS

Terryville Mineral & Royalty Partners LP

Common Units

Representing Limited Partner Interests

This is the initial public offering of our common units representing limited partner interests. We are offering common units. Prior to this offering, there has been no public market for our common units.

We intend to apply to list our common units on the NASDAQ Global Select Market under the symbol “TRVL.”

We anticipate that the initial public offering price will be between $ and $ per common unit.

Investing in our common units involves risks. Please read “Risk Factors” beginning on page 23.

These risks include the following:

•

We may not have sufficient cash available for distribution to pay the minimum quarterly distribution on our common units.

•

Oil, natural gas and NGL prices are volatile, due to factors beyond our control, and will greatly affect our business, results of operations, liquidity and financial condition.

•

We depend on Memorial Resource Development Corp. (“Memorial Resource”) for all of the development and production on the properties underlying our royalty interests. All of our revenue is derived from royalty payments made by Memorial Resource. A reduction in the expected number of wells to be drilled on our acreage by Memorial Resource or the failure by it to adequately and efficiently develop and operate our acreage could have an adverse effect on our expected growth and our results of operations.

•

Our general partner and its affiliates will own a controlling interest in us and will have conflicts of interest with, and owe limited fiduciary duties to, us, which may permit them to favor their own interests to the detriment of our unitholders.

•

Neither we nor our general partner have any employees and we will rely solely on the employees of Memorial Resource to manage our business. The management team of Memorial Resource, which includes the individuals who will manage us, will also perform substantially similar services for itself and Memorial Production Partners LP and will own and operate its own assets, and thus will not be solely focused on our business.

•

Our unitholders have limited voting rights and are not entitled to elect our general partner or its board of directors. Memorial Resource, as owner of our general partner, will have the power to appoint and remove our general partner’s directors.

•

Our unitholders will experience immediate and substantial dilution of $ per unit.

•

Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service were to treat us as a corporation for federal income tax purposes or we were to become subject to entity-level taxation for state tax purposes, then our cash available for distribution to you could be substantially reduced.

•

Even if you do not receive any cash distributions from us, you will be required to pay taxes on your share of our taxable income.

We are an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012, and as such, we have elected to take advantage of certain reduced public company reporting requirements for this prospectus and future filings. See “Risk Factors” and “Summary—Emerging Growth Company Status.”


	Per Common Unit	Total
Public Offering Price	$	$
Underwriting Discount(1)	$	$
Proceeds to Terryville Mineral & Royalty Partners LP (before expenses)	$	$

(1)	Excludes an aggregate structuring fee equal to % of the gross proceeds of this offering payable to Barclays Capital Inc. Please read “Underwriting” for a description of all underwriting compensation payable in connection with this offering.

The underwriters may purchase up to an additional common units from us at the public offering price, less the underwriting discount and structuring fee, within 30 days from the date of this prospectus to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the common units to purchasers on or about , 2015 through the book-entry facilities of The Depository Trust Company.

Barclays

Prospectus dated , 2015

Index to Financial Statements

[map to come]

Index to Financial Statements

TABLE OF CONTENTS


SUMMARY			1
Overview			1
Our Initial Assets			3
Our Relationship with Memorial Resource			6
Business Strategies			6
Competitive Strengths			7
Risk Factors			9
Management of Our Partnership and Memorial Resource			9
Conflicts of Interest and Fiduciary Duties			9
Emerging Growth Company Status			10
Formation Transactions and Structure			11
Principal Executive Offices			13
The Offering			14
Summary Historical Financial Data			19
Non-GAAP Financial Measure			20
Summary Reserve Data			21

RISK FACTORS			23
Risks Related to Our Business			23
Risks Related to Our Operator			32
Risks Inherent in an Investment in Us			41
Tax Risks to Common Unitholders			54

USE OF PROCEEDS			59

CAPITALIZATION			60

DILUTION			61

CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS			62
General			62
Unaudited Pro Forma Cash Available for Distribution for the Year Ended December 31, 2013 and the Twelve Months Ended June 30, 2014			66
Estimated Cash Available for Distribution for the Twelve Months Ending December 31, 2015			68

PROVISIONS OF OUR PARTNERSHIP AGREEMENT RELATING TO CASH DISTRIBUTIONS			71
Distributions of Available Cash			71
Operating Surplus and Capital Surplus			72
Subordination Period			76
Distributions of Available Cash from Operating Surplus During the Subordination Period			78
Distributions of Available Cash from Operating Surplus After the Subordination Period			78
General Partner Interest and Incentive Distribution Rights			78
Percentage Allocations of Available Cash from Operating Surplus			79
General Partner’s Right to Reset Incentive Distribution Levels			79
Distributions from Capital Surplus			82
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels			82
Distributions of Cash Upon Liquidation			83

SELECTED HISTORICAL FINANCIAL DATA			85

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			86
Overview			86
Sources of Our Revenue			86
Principal Components of Our Cost Structure			87

Index to Financial Statements


Reserves and Pricing			87
Factors Affecting the Comparability of Our Results to the Historical Financial Results of Our Predecessor			88
Results of Operations			89
Liquidity and Capital Resources			90
Contractual Obligations			92
Internal Controls and Procedures			92
New and Revised Financial Accounting Standards			93
Critical Accounting Policies			93
Off-Balance Sheet Arrangements			95
Quantitative and Qualitative Disclosure about Market Risk			95

BUSINESS			97
Overview			97
Our Initial Assets			98
Our Relationship with Memorial Resource			101
Business Strategies			102
Competitive Strengths			103
Our Operations			104
Marketing and Major Customers			110
Our Royalty Interests			110
Seasonality			110
Competition			110
Hydraulic Fracturing			111
Regulation of the Oil and Natural Gas Industry			111
Regulation of Environmental and Occupational Health and Safety Matters			112
Employees			117
Our Offices			118
Legal Proceedings			118

MANAGEMENT			119
Management of Terryville Mineral & Royalty Partners LP			119
Executive Officers and Directors of Our General Partner			120
Director Independence			121
Committees of the Board of Directors			121
Indemnification Agreements			121
Executive Compensation			122
Long-Term Incentive Plan			123
Director Compensation			126

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			127

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			128
Distributions and Payments to Memorial Resource and Its Affiliates			128
Agreements and Transactions with Affiliates in Connection with this Offering			129
Other Transactions with Related Persons			130
Procedures for Review, Approval and Ratification of Transactions with Related Persons			130

CONFLICTS OF INTEREST AND FIDUCIARY DUTIES			132
Summary of Applicable Duties			132
Conflicts of Interest			132
Fiduciary Duties			139

DESCRIPTION OF OUR COMMON UNITS			142
Our Common Units			142
Transfer Agent and Registrar			142

Index to Financial Statements


Transfer of Common Units			142
Listing			143
THE PARTNERSHIP AGREEMENT			144
Organization and Duration			144
Purpose			144
Cash Distributions			144
Capital Contributions			144
Limited Voting Rights			145
Applicable Law; Forum, Venue and Jurisdiction			146
Reimbursement of Partnership Litigation Costs			146
Limited Liability			146
Issuance of Additional Securities			147
Amendment of the Partnership Agreement			148
Merger, Consolidation, Conversion, Sale or Other Disposition of Assets			150
Termination and Dissolution			151
Liquidation and Distribution of Proceeds			151
Withdrawal or Removal of Our General Partner			151
Transfer of General Partner Interest			153
Transfer of Subordinated Units and Incentive Distribution Rights			153
Transfer of Ownership Interests in Our General Partner			153
Change of Management Provisions			153
Limited Call Right			154
Meetings; Voting			154
Voting Rights of Incentive Distribution Rights			155
Status as Limited Partner			155
Non-Taxpaying Assignees; Redemption			155
Non-Eligible Holders; Redemption			156
Indemnification			156
Reimbursement of Expenses			157
Books and Reports			157
Right to Inspect Our Books and Records			157
Registration Rights			158

UNITS ELIGIBLE FOR FUTURE SALE			159

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES			161
Taxation of the Partnership			161
Tax Consequences of Unit Ownership			163
Tax Treatment of Operations			167
Disposition of Units			169
Uniformity of Units			172
Tax-Exempt Organizations and Other Investors			172
Administrative Matters			173
FATCA Withholding Requirements			174
State, Local and Other Tax Considerations			175

INVESTMENT IN TERRYVILLE MINERAL & ROYALTY PARTNERS LP BY EMPLOYEE BENEFIT PLANS			176

UNDERWRITING			177
Commissions and Expenses			177
Option to Purchase Additional Common Units			177
Lock-Up Agreements			178

iii

Index to Financial Statements


Offering Price Determination			178
Indemnification			178
Stabilization, Short Positions and Penalty Bids			178
Directed Unit Program			179
Electronic Distribution			180
Listing on the NASDAQ			180
Discretionary Sales			180
Stamp Taxes			180
Other Relationships			180
Direct Participation Program Requirements			181
Selling Restrictions			181

LEGAL MATTERS			184

EXPERTS			184

WHERE YOU CAN FIND MORE INFORMATION			184

FORWARD-LOOKING STATEMENTS			185

INDEX TO FINANCIAL STATEMENTS			F-1

APPENDIX A: AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF TERRYVILLE MINERAL & ROYALTY PARTNERS LP			A-1

APPENDIX B: GLOSSARY OF TERMS			B-1

APPENDIX C: NETHERLAND, SEWELL & ASSOCIATES, INC. SUMMARY RESERVE REPORT			C-1

Index to Financial Statements

You should rely only on the information contained in this prospectus, any free writing prospectus prepared by or on behalf of us or any other information to which we have referred you in connection with this offering. We have not, and the underwriters have not, authorized any other person to provide you with information different from that contained in this prospectus. Neither the delivery of this prospectus nor sale of our common units means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy our common units in any circumstances under which the offer or solicitation is unlawful.

INDUSTRY AND MARKET DATA

This prospectus includes industry data and forecasts that we obtained from internal company surveys, publicly available information and industry publications and surveys. Our internal research and forecasts are based on management’s understanding of industry conditions, and such information has not been verified by independent sources. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable.

COMMONLY USED DEFINED TERMS

As used in this prospectus, unless we indicate otherwise, the following terms have the following meanings:

•

“the Partnership,” “we,” “our,” “us” or like terms refer collectively to Terryville Mineral & Royalty Partners LP and its subsidiaries;

•

“our general partner” refers to TRVL Partners GP LLC, our general partner;

•

“our initial assets,” “our properties” or “our predecessor” refers to the royalty interests in horizontal producing wells and in adjacent undeveloped acreage that will be contributed to us by Memorial Resource in connection with the closing of this offering;

•

“the Funds” refers collectively to Natural Gas Partners VIII, L.P., Natural Gas Partners IX, L.P. and NGP IX Offshore Holdings, L.P., which collectively control MRD Holdco;

•

“Memorial Resource” refers collectively to Memorial Resource Development Corp. and its subsidiaries;

•

“MEMP” refers collectively to Memorial Production Partners LP and its subsidiaries;

•

“MRD Holdco” refers to MRD Holdco LLC, which owns a majority of the outstanding common stock of Memorial Resource;

•

“NGP” refers to Natural Gas Partners, a family of private equity investment funds organized to make direct equity investments in the energy industry, including the Funds;

•

“our royalty interests” refer to our 7% overriding royalty interests that have been carved out of and burden Memorial Resource’s working interests in certain natural gas, NGL and oil properties in the Terryville Complex of North Louisiana;

•

“our acreage” refers to the gross acres underlying our royalty interests; and

•

“our management,” “our employees,” or similar terms refer to the management or other personnel of our general partner or, as applicable, provided to us or our general partner by Memorial Resource under an omnibus agreement among us, our general partner and Memorial Resource.

Index to Financial Statements

SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common units. You should read the entire prospectus carefully, including the historical carve-out financial statements and the notes to those financial statements, before investing in our common units. The information presented in this prospectus assumes an initial public offering price of $ per common unit (the mid-point of the price range set forth on the cover page of this prospectus) and, unless otherwise indicated, that the underwriters’ option to purchase additional common units is not exercised. You should read “Risk Factors” for information about important risks that you should consider before buying our common units.

Our proved reserves as of September 30, 2014 have been prepared by Netherland, Sewell & Associates, Inc., our independent reserve engineers (“NSAI”), which are reflected in our reserve report (our “reserve report”), a summary of which is included as Appendix C of this prospectus. Our proved reserves as of December 31, 2013 have been prepared by our internal reserve engineers. References in this prospectus to “our initial assets” refer to the overriding royalty interests in horizontal producing wells and in adjacent undeveloped acreage that will be contributed to us by Memorial Resource in connection with the closing of this offering. These overriding royalty interests have been carved out of and burden Memorial Resource’s working interests in certain natural gas, NGL and oil properties in the Terryville Complex in North Louisiana and will remain in effect until the associated leases expire. We include a glossary of some of the terms used in this prospectus as Appendix B.

Terryville Mineral & Royalty Partners LP

Overview

We are a Delaware limited partnership formed by Memorial Resource to own and acquire natural gas, NGL and oil properties in North America. Our primary business objective is to provide an attractive return to unitholders by maximizing distributions through organic growth and pursuing accretive growth opportunities through acquisitions of royalty interests and mineral interests from Memorial Resource and third parties. Our initial assets consist of royalty interests in natural gas, NGL and oil properties in the Terryville Complex within the Cotton Valley formation in North Louisiana, all of which are operated by Memorial Resource. Because we own royalty interests, we are not required to pay capital or operating expenses associated with our existing wells, or expenses associated with the development of any future wells subject to our royalty interests. Memorial Resource will contribute these assets to us upon the closing of this offering.

Memorial Resource is a publicly traded independent natural gas and oil company focused on the exploitation, development, and acquisition of natural gas, NGL and oil properties with a majority of its activity in the Terryville Complex of North Louisiana, where it is targeting overpressured, liquids-rich natural gas opportunities in multiple zones in the Cotton Valley formation. Memorial Resource has assembled a largely contiguous acreage position of approximately 60,041 gross acres in the Terryville Complex as of December 31, 2013, including our approximately 26,931 gross acres. We own royalty interests in 44 of Memorial Resource’s 46 existing horizontal producing wells as well as in the undeveloped acreage surrounding these 44 wells. As of September 30, 2014, Memorial Resource has advised us that it has identified 1,022 additional drilling locations across our acreage. We believe Memorial Resource intends to continue focusing its development within our acreage. We believe that the acreage held by Memorial Resource that does not underlie our royalty interests may have, or with additional development will have, production and reserves characteristics that could make them attractive for inclusion in our partnership in the future. Upon the completion of this offering, Memorial Resource will own and control our general partner, and will own approximately % of our outstanding common units, all of our subordinated units and all of our incentive distribution rights. We believe Memorial Resource’s significant ownership interest in us will motivate it to offer additional royalty and mineral interests in oil and natural gas properties to us in the future.

Index to Financial Statements

The majority of Memorial Resource’s current and planned development is focused in and around a portion of what it believes to be the core of the Terryville Complex, where it currently operates six rigs and expects to increase to seven rigs in 2015, all of which are expected to operate exclusively within our acreage in 2015. Like Memorial Resource, we expect our initial focus will concentrate on the Terryville Complex within the Cotton Valley formation in North Louisiana. The Cotton Valley formation extends across East Texas, North Louisiana and Southern Arkansas. The formation has been under development since the 1930s and is characterized by thick, multi-zone natural gas and oil reservoirs with well-known geologic characteristics and long-lived, predictable production profiles. Over 21,000 vertical wells have been completed throughout the play. In 2005, operators began redeveloping the Cotton Valley using horizontal drilling and advanced hydraulic fracturing techniques. To date, operators, including Memorial Resource, have drilled an aggregate of over 600 horizontal Cotton Valley wells. Memorial Resource is currently engaged in the horizontal redevelopment of the Terryville Complex in Lincoln Parish, Louisiana utilizing horizontal drilling and completion techniques similar to those employed by others at the Nan-Su-Gail Field, Carthage Complex in East Texas and other major resource plays across the United States. As of September 30, 2014, 29 of Memorial Resource’s producing horizontal wells in the Terryville Complex were in the top 2.5% of all horizontal wells drilled in the United States in terms of peak 30-day production.

Memorial Resource entered the Terryville Complex through an acquisition from Petrohawk Energy Corporation in April 2010, with the goal of redeveloping the field with horizontal drilling and modern completion techniques. We believe the Terryville Complex, which has been producing since 1954, is one of North America’s most prolific natural gas fields, characterized by high recoveries relative to drilling and completion costs, high initial production rates with high liquids yields, long reserve life, multiple stacked producing zones, available infrastructure and a large number of service providers.

After initially drilling eight vertical pilot wells in the Terryville Complex, Memorial Resource commenced a horizontal drilling program in 2011 to further delineate and define its position. In 2013, Memorial Resource shifted its operational focus to full-scale horizontal redevelopment of the Terryville Complex, going from two rigs to four rigs by the end of that year. Additionally, in the fourth quarter of 2013, Memorial Resource moved to drilling on multi-well pads that allow it to more efficiently drill wells and control costs as it develops its stacked pay zones. Memorial Resource has continued to accelerate its development, adding two additional rigs in 2014 and intends to dedicate approximately $304 million of its $351 million drilling and completion budget in 2014 to develop multiple zones within the Terryville Complex.

Index to Financial Statements

The following chart provides information regarding Memorial Resource’s gross production growth associated with its Terryville Complex horizontal wells since the beginning of 2012.

Average Daily Production (MMcfe/d)

LOGO

Our Initial Assets

Our initial assets consist of overriding royalty interests in approximately 26,931 gross acres in the Terryville Complex, all of which are operated by Memorial Resource and substantially all of which are currently held by production. Our royalty interests entitle us to receive 7% of gross revenues from production on 44 of Memorial Resource’s 46 existing horizontal producing wells and all future horizontal or vertical wells completed by Memorial Resource at all depths within our acreage, regardless of the working interest that Memorial Resource owns. Memorial Resource’s two horizontal producing wells in which we will not receive a royalty interest were acquired from a third party and are not within or contiguous to our acreage. We are not required to pay any capital or operating expenses associated with any existing wells, or expenses associated with the development of any future wells on our existing acreage. For the year ended December 31, 2013 and six months ended June 30, 2014, revenue generated from these royalty interests was $12.6 million and $14.8 million, respectively.

As of September 30, 2014, Memorial Resource had 44 gross horizontal producing wells in the Terryville Complex in which we have a royalty interest, which had average gross daily production of 228.0 MMcfe/d during the three months ended September 30, 2014, which resulted in 16.0 MMcfe/d of aggregate daily production net to our royalty interests. As of September 30, 2014, Memorial Resource has advised us that it has identified 1,022 additional drilling locations across our acreage. We believe Memorial Resource intends to continue focusing its development within our acreage. Of Memorial Resource’s drilling, recompletion and workover capital expenditure budget for 2014 of $351 million, $304 million relates to the Terryville Complex and $295 million relates to wells within our acreage. Memorial Resource currently has six rigs operating in the Terryville Complex and expects to increase to seven rigs in 2015. Memorial Resource has indicated all of these rigs are currently scheduled to operate exclusively within our acreage in 2015. Based on Memorial Resource’s expected 2015 drilling program, our drilling locations represent an inventory of over years.

Index to Financial Statements

The estimated proved oil and natural gas reserves associated with our initial assets, as of September 30, 2014, were 71 Bcfe based on a report prepared by NSAI. PUD reserves included in the proved reserve estimate were attributable to 104 gross horizontal well locations. As of September 30, 2014, our proved reserves were approximately 71% natural gas, 24% NGLs and 5% oil.

Memorial Resource’s well results have shown consistency in initial production, decline rates and estimated ultimate recovery. The consistency of these results gives us confidence that the full-scale redevelopment of the Terryville Complex that Memorial Resource began in 2013 will continue to be successful. The table below details certain information on estimated ultimate recoveries and production on a gross basis for Memorial Resource’s 41 existing horizontal wells currently producing from its four primary target zones in the Terryville Complex in which we have a non-cost bearing royalty interest to the extent such data is available as of the dates and for the periods presented below. The wells below highlight the consistency of Memorial Resource’s drilling results in the four primary target zones in which it plans to focus its future development activity.


			Producing Wells										Gross Wellhead Flow Rates After Processing (MMcfe/d)(2)(3)
Well Name	Lateral Length (Feet)		EUR (Bcfe)(1)		EUR BCFe/ 1,000’		First Production		Days Producing		Cumulative Production (Bcfe)		0-30		0-90		91-180		181-360		D&C ($MM)(4)
Upper Red
LD Barnett 23H-2		4,015		12.3		3.1		1/30/2012		975		5.0		14.5		12.0		7.7		5.6		6.7
Colquitt 20 17H-1		4,357		11.5		2.6		7/30/2012		793		4.3		17.5		12.6		7.2		5.1		7.8
Dowling 22 15H-1		5,376		9.4		1.8		9/22/2012		739		5.7		16.3		15.6		11.1		8.2		8.8
Nobles 13H-1		4,216		9.1		2.1		11/17/2012		683		4.6		21.5		16.7		9.9		6.5		7.8
Sidney McCullin 16 21H-1		4,604		13.8		3.0		1/19/2013		620		5.0		17.4		14.2		10.8		8.4		8.1
Wright 14 11 HC-1		5,250		11.9		2.3		5/27/2013		492		5.5		19.6		18.1		16.1		8.4		8.8
BF Fallin 22 15H-1		5,122		12.3		2.4		6/17/2013		471		3.9		14.8		13.7		11.8		5.9		7.5
Dowling 20 17H-1		4,327		9.0		2.1		7/22/2013		436		2.6		15.2		11.0		5.7		4.5		10.7
Gleason 31H-1		3,692		2.4		0.7		8/12/2013		415		0.6		2.9		2.3		1.6		1.2		9.5
Burnett 26H-1		2,405		5.5		2.3		9/22/2013		374		1.2		6.9		5.6		3.5		2.4		6.9
Drewett 17 8H-1		4,010		15.6		3.9		11/13/2013		322		3.9		22.1		18.6		11.9				7.7
Wright 13 12 HC-2		6,009		24.0		4.0		12/21/2013		284		4.6		22.7		19.6		16.3				8.5
LA Minerals 15 22H-2		5,814		17.3		3.0		1/21/2014		253		3.4		17.8		16.1		13.4				8.8
Wright 13 24 HC-3		6,606		20.9		3.2		4/14/2014		170		3.4		30.3		24.6						10.8
Wright 13 24 HC-1		6,678		15.5		2.3		4/14/2014		170		2.8		25.0		20.4						11.8
TL McCrary 14 11 HC-5		5,875		30.0		5.1		4/14/2014		170		3.0		22.9		23.3						10.2
LA Minerals 19 30 HC-2		6,912		15.1		2.2		5/29/2014		125		2.3		25.1		20.4						10.8
LA Minerals 19 30 HC-1		6,519		19.6		3.0		6/1/2014		122		2.0		21.5		17.7						11.6
Werner 29H-1		3,410		4.7		1.4		8/13/2014		49		0.4		8.6								11.0
Werner 29 32 5 HC-1		6,810		9.7		1.4		8/13/2014		49		0.8		18.4								10.4
Werner 29 32 5 HC-2		8,300		16.5		2.0		8/13/2014		49		1.2		26.1								12.2
Temple 8H-1		2,403		6.3		2.6		8/24/2014		38		0.4		12.7								9.6
Temple 8 17 HC-1		6,210		2.9		0.5		8/29/2014		33		0.3		8.4								11.9
TL McCrary 14 11 HC-2		4,401		NA		NA		9/25/2014		6		0.1										7.7
TL McCrary 14 11 HC-4		4,810		NA		NA		9/25/2014		6		0.0										9.0

Lower Red
TL McCrary 14H-1		4,544		12.7		2.8		5/1/2012		883		4.5		14.4		11.7		8.3		5.4		7.7
Nobles 13H-2		4,060		5.6		1.4		11/17/2012		683		3.3		16.0		11.9		8.2		5.2		7.8
LA Methodist Orphanage 14H-1		3,637		9.5		2.6		2/15/2013		593		4.0		13.9		13.0		9.7		6.3		9.1
Dowling 21 16H-1		4,590		8.4		1.8		3/18/2013		562		3.0		13.0		10.1		6.5		4.5		6.6
Drewett 17 8H-2		3,700		4.2		1.1		11/13/2013		322		1.2		8.7		6.2		3.2				7.0
Wright 13 12 HC-1		5,409		9.4		1.7		12/21/2013		284		2.2		14.7		11.4		7.2				9.3
LA Minerals 15 22H-1		5,926		8.1		1.4		1/21/2014		253		1.9		13.8		10.9		6.4				7.8
Wright 13 24 HC-4		6,518		15.1		2.3		4/14/2014		170		2.6		25.7		19.6						13.4
LA Minerals 19 30 HC-3		5,356		2.5		0.5		5/29/2014		125		0.6		8.8		5.9						12.1
LA Minerals 19 30 HC-4		6,469		3.5		0.5		6/1/2014		122		0.9		13.6		8.5						13.8
TL McCrary 14 11 HC-1		4,010		NA		NA		9/25/2014		6		0.0										8.9
TL McCrary 14 11 HC-3		4,620		NA		NA		9/25/2014		6		0.0										8.3

Lower Deep Pink Zone
LA Methodist Orphanage 14H-2		3,550		6.1		1.7		2/15/2013		593		3.5		14.2		11.6		7.6		5.7		6.1
Wright 13 12 HC-4		5,010		5.8		1.2		12/21/2013		284		1.6		11.8		8.8		4.8				7.0
Wright 13 12 HC-3		5,706		5.4		0.9		12/21/2013		284		1.6		12.5		9.3		5.0				7.4

Upper Deep Pink Zone
Werner 29 32 5 HC-3		6,679		3.1		0.5		8/13/2014		49		0.3		7.2								10.1

Averages(5)
All Wells		5,071		10.7		2.1				319		2.4		16.1		13.6		8.4		5.6		9.2
Upper Red		5,125		12.8		2.5				314		2.7		17.7		15.7		9.8		5.6		9.4
Lower Red		4,903		7.9		1.6				334		2.0		14.3		10.9		7.1		5.4		9.3
Lower Deep Pink		4,755		5.8		1.3				387		2.2		12.8		9.9		5.8		5.7		6.8
Upper Deep Pink		6,679		3.1		0.5				49		0.3		7.2								10.1

Index to Financial Statements

(1)	EUR represents the estimated ultimate recovery or sum of total gross remaining proved reserves attributable to each location in our reserve report and cumulative gross production from such location. EUR is shown on a combined basis for oil/condensates, gas and NGLs after the effects of processing.

(2)	Production data is as of September 30, 2014 and shown gross on a combined basis after the effects of processing.

(3)	Periodic flow rates start on day 4, with days 1 through 3 used to allow clean up associated with well completion. The 30-day flow rates therefore start on day 4 and continue 30 days to day 33 and the 90-day flow rates go from day 4 to day 93.

(4)	Represents approximate historical drilling and completion costs incurred by Memorial Resource. As an owner of royalty interests, we are not required to pay any capital or operating expenses associated with any existing wells, or expenses associated with the development of any future wells.

(5)	We will also have a royalty interest in three horizontal producing wells outside of the four primary zones where Memorial Resource plans to continue to focus its development activity. These averages do not include such wells.

The following table provides information regarding drilling locations associated with our acreage by area as of September 30, 2014:


	Gross Horizontal Drilling Locations(1)(2)
Terryville Complex Zone	Proved		Management		Total		Memorial Resource Total
Upper Red		40		168		208		429
Lower Red		55		166		221		386
Lower Deep Pink		9		146		155		158
Upper Deep Pink		—		153		153		153
Other Zones		—		285		285		285

Total Terryville Complex		104		918		1,022		1,411

(1)

Please see “Business—Our Operations—Drilling Locations” for more information regarding the process and criteria through which these drilling locations were identified. The drilling locations on which Memorial Resource actually drills will depend on the availability of capital, regulatory approval, commodity prices, costs, actual drilling results and other factors. Please see “Risk Factors—Risks Related to Our Business—Identified drilling locations, which are scheduled out over many years, are susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.” Proved locations are based on our reserve report. Management locations are based on management estimates of additional identified drilling locations.

(2)

We do not control the drilling locations that Memorial Resource elects to drill. Please see “Risk Factors—Risks Related to Our Business—We depend on Memorial Resource for all of the development and production on the properties underlying our royalty interests. All of our revenue is derived from royalty payments made by Memorial Resource. A reduction in the expected number of wells to be drilled on our acreage by Memorial Resource or the failure by it to adequately and efficiently develop and operate our acreage could have an adverse effect on our expected growth and our results of operations.”

Index to Financial Statements

Our Relationship with Memorial Resource

Upon the completion of this offering, Memorial Resource will own and control our general partner and will own approximately % of our outstanding common units, all of our subordinated units and all of our incentive distribution rights. Memorial Resource has assembled a largely contiguous acreage position of approximately 60,041 gross acres in the Terryville Complex as of December 31, 2013, including our approximately 26,931 gross acres. As of September 30, 2014, Memorial Resource had 1,411 gross (981 net) identified horizontal drilling locations located in the Terryville Complex, of which 1,022 gross identified horizontal drilling locations were attributable to our acreage. Within the Terryville Complex, on a proved reserves basis, Memorial Resource operated approximately 99% of its acreage as of December 31, 2013 and holds an average working interest of approximately 74% across its acreage. We believe that the properties held by Memorial Resource beyond our acreage may include properties that have, or with additional development will have, production and reserves characteristics that could make them attractive for inclusion in our partnership. We believe Memorial Resource’s significant ownership in us will motivate it to offer additional royalty and mineral interests in such properties to us in the future, although Memorial Resource has no obligation to do so and may elect to dispose of royalty and mineral interests in such properties without offering us the opportunities to acquire them.

Furthermore, we believe Memorial Resource will provide us with opportunities to pursue additional royalty or mineral interest acquisitions from third parties that will be accretive to our unitholders. We believe Memorial Resource views our partnership as part of its growth strategy, and we believe that Memorial Resource will be incentivized to pursue acquisitions jointly with us in the future. However, Memorial Resource will regularly evaluate acquisitions and may elect to acquire properties without offering us the opportunity to participate in such transactions. Moreover, Memorial Resource may not be successful in identifying potential acquisitions. After this offering, Memorial Resource will continue to be free to act in a manner that is beneficial to its interests without regard to ours, which may include electing not to present us with acquisition or disposition opportunities. Please read “Conflicts of Interest and Fiduciary Duties.”

In addition, neither we nor our subsidiaries nor our general partner will have any employees. Memorial Resource will provide management, operating and administrative services to us and our general partner. Please read “Management” and “Certain Relationships and Related Party Transactions.”

Business Strategies

Our primary business objective is to provide an attractive return to unitholders by maximizing distributions through organic growth and pursuing accretive growth opportunities through acquisitions of royalty or mineral interests from Memorial Resource and third parties. We intend to accomplish this objective by executing the following strategies:

•

Capitalize on the development of the properties underlying our royalty interests to grow our distributions. As of the closing of this offering, our initial assets will consist of royalty interests in the Terryville Complex in North Louisiana. We believe the Terryville Complex offers attractive drilling economics and is characterized by high recoveries relative to low drilling and completion costs, high initial production rates with high liquids yields, long reserve life, multiple stacked producing zones, available infrastructure and a large number of service providers. We expect the production from our royalty interests will increase as Memorial Resource continues to focus its drilling and development of its acreage in the Terryville Complex. We expect to capitalize on this development, cost-free to us, and believe the resulting increase in our aggregate royalty payments will enable us to grow our distributions.

•

Seek to acquire from Memorial Resource, from time to time, royalty or mineral interests in producing oil and natural gas properties that meet our acquisition criteria. We may have additional opportunities to acquire royalty or mineral interests in producing oil and natural gas properties directly

Index to Financial Statements

from Memorial Resource or third parties from time to time in the future. As of December 31, 2013, Memorial Resource has a leasehold position of 60,041 gross acres in the Terryville Complex, including our 26,931 gross acres. We believe Memorial Resource will be incentivized to sell properties to us, including additional overriding royalty interests both within and outside our 26,931 gross acres. Following this offering, Memorial Resource will own and control our general partner as well as % of our outstanding common units, all of our subordinated units and all of our incentive distribution rights.

•

Pursue third-party acquisitions and leverage our relationship with Memorial Resource and its affiliates to participate in acquisitions of royalty or mineral interests and to increase the size and scope of our potential acquisition targets. We intend to make opportunistic acquisitions of royalty or mineral interests that have substantial resource and organic growth potential. Memorial Resource was formed in part to acquire and develop oil and natural gas properties, some of which will likely meet our acquisition criteria. In addition, Memorial Resource’s executives have long histories of evaluating, pursuing and consummating oil and natural gas property acquisitions in North America. Through our relationships with Memorial Resource and its affiliates, including MEMP, a publicly traded limited partnership engaged in the acquisition, exploitation, development and production of producing oil and natural gas properties that are located in Texas, Louisiana, Colorado, Wyoming, New Mexico and offshore Southern California, we have access to their significant pool of management talent and industry relationships, which we believe provide us with a competitive advantage in pursuing potential third-party acquisition opportunities. We may have additional opportunities to work jointly with Memorial Resource or MEMP to pursue certain acquisitions of royalty or mineral interests in oil and natural gas properties from third parties. For example, we and Memorial Resource may jointly pursue an acquisition where we would acquire royalty or mineral interests in properties and Memorial Resource would acquire the remaining working and revenue interests in such properties. We believe our relationship with Memorial Resource and its affiliates may give us access to third-party acquisition opportunities that we would not otherwise be in a position to pursue.

•

Reduce exposure to commodity price risk and stabilize cash flows through a disciplined commodity hedging policy. We intend to implement and maintain a portfolio of commodity derivative contracts covering approximately 65% to 85% of our estimated production from total proved developed producing reserves over a three-to-six year period at any given point in time. These commodity derivative contracts may consist of natural gas, oil and NGL financial swaps and collar contracts and natural gas basis financial swaps. We believe these commodity derivative contracts will allow us to mitigate the impact of oil and natural gas price volatility, thereby increasing the predictability of our cash flow.

Competitive Strengths

We believe that the following competitive strengths will allow us to successfully execute our business strategies and achieve our primary business objective:

•

Large, concentrated position in one of North America’s leading plays. All of our acreage is located in the Terryville Complex in North Louisiana, which is one of the most prolific liquids-rich natural gas plays in North America and which is characterized by consistent and predictable geology and multiple stacked pay formations confirmed by extensive vertical well control. Memorial Resource’s total leasehold position in the Terryville Complex was approximately 60,041 gross acres as of December 31, 2013, 26,931 gross acres of which underlie our royalty interests. Substantially all of our acreage is currently held by production and is not subject to lease expirations. Through September 30, 2014, Memorial Resource’s drilling program in the Terryville Complex has produced some of the top performing and most economic gas wells in the United States over the prior two years. Through September 30, 2014, Memorial Resource brought 41 horizontal wells online within its four primary

Index to Financial Statements

target zones with average 30-day initial production rates of 16.1 MMcfe/d and average drilling and completion costs of $9.2 million per well. We believe that we will have a strong, growing production profile driven by Memorial Resource, a growth-oriented operator.

•

Built-in organic growth potential with extensive inventory of highly economic horizontal locations in largely de-risked acreage. We expect our reserves, production and cash available for distributions to grow organically as Memorial Resource continues to drill new wells on our acreage, as it may be incentivized by the attractive well economics in the area. We believe that the risk and uncertainty associated with our acreage positions in the Terryville Complex have been largely reduced through Memorial Resource’s extensive drilling and production history in the area. Furthermore, we believe that the extensive midstream infrastructure in the region will allow Memorial Resource to accelerate its development plan without encountering significant constraints in either takeaway or processing capacity. Memorial Resource has advised us that, as of September 30, 2014, it has identified 1,022 gross horizontal drilling locations across our acreage. Memorial Resource believes area seismic data, as well as information gathered from the results of its existing 275 vertical and 46 horizontal wells throughout the field, support the existence of at least ten stacked pay zones across the Terryville Complex. Our gross identified horizontal drilling locations represent an inventory of over years based on Memorial Resource’s expected 2015 drilling program. We expect that our focus on owning royalty interests in acreage with extensive inventories of highly economic horizontal locations will result in substantial organic growth.

•

Single controlling and incentivized operator whose drilling plan is focused across our acreage. Following the completion of this offering, Memorial Resource, which will own our general partner, % of our common units, all of our subordinated units and all of our incentive distribution rights, will continue to own a substantial working interest in and operate all of the properties underlying our royalty interests, further aligning our goal of the profitable development of our acreage. We believe our acreage is located where Memorial Resource intends to continue to focus its development. Of Memorial Resource’s drilling, recompletion and workover capital expenditure budget for 2014 of $351 million, $304 million relates to the Terryville Complex and $295 million relates to wells within our acreage. Memorial Resource currently has six rigs operating in the Terryville Complex and expects to increase to seven rigs in 2015. Memorial Resource has indicated all of these rigs are currently scheduled to operate exclusively within our acreage in 2015.

•

Experienced and proven management team. We believe our management and technical teams are one of our principal competitive strengths due to our team’s significant industry experience and long history of working together in the identification, execution and integration of acquisitions, cost efficient management of profitable, large scale drilling programs and a focus on rates of return. Additionally, Memorial Resource’s technical team has substantial expertise in advanced drilling and completion technologies and decades of expertise in operating in the North Louisiana and East Texas regions. The members of our management team collectively have an average of 16 years of experience in the oil and natural gas industry. John A. Weinzierl, our Chief Executive Officer and the Chairman of the board of directors of our general partner, has 24 years of oil and natural gas industry experience as a petroleum engineer, a strong commercial and technical background and extensive experience acquiring and managing oil and natural gas properties. We believe our management team is motivated to deliver strong distributions to our unitholders and maintain safe and reliable operations.

•

Financial flexibility to fund acquisitions. We expect to have the financial flexibility to allow us to opportunistically purchase accretive royalty or mineral interests. We believe that our partnership structure should provide us with a relatively low cost of capital, thereby enhancing our ability to compete for future acquisitions, both individually and jointly with Memorial Resource and its affiliates. We also expect that the revolving credit facility we will enter into in connection with this offering,

Index to Financial Statements

which will be undrawn following the completion of this offering, and our ability to issue additional common units and other partnership interests will provide us with substantial financial flexibility to pursue acquisitions.

Risk Factors

An investment in our common units involves risks. You should carefully consider the risks described in “Risk Factors” and the other information in this prospectus, before deciding whether to invest in our common units. If any of these risks were to occur, our financial condition, results of our operations, cash flows and ability to make distributions to our unitholders would be adversely affected, and you could lose all or part of your investment. For more information regarding the known material risks that could impact our business, please read “Risk Factors.”

Management of Our Partnership and Memorial Resource

We are managed and operated by the board of directors and executive officers of our general partner, TRVL Partners GP LLC, a wholly owned subsidiary of Memorial Resource. As a result of owning our general partner, Memorial Resource will have the right to appoint all members of the board of directors of our general partner, including at least three directors meeting the independence standards established by The NASDAQ Stock Market LLC (“NASDAQ”). At least one of our independent directors will be appointed by the time our common units are first listed for trading on the NASDAQ Global Select Market. Our unitholders will not be entitled to elect our general partner or its directors or otherwise directly participate in our management or operations. In addition, neither we nor our subsidiaries nor our general partner will have any employees. Memorial Resource will provide management, operating and administrative services to us and our general partner. The executive officers and some of the directors of our general partner currently serve as executive officers and directors of Memorial Resource. Please read “Management” and “Certain Relationships and Related Party Transactions.”

The principal stockholder of Memorial Resource is MRD Holdco, which is controlled by the Funds, which are three of the private equity funds managed by NGP. As of September 30, 2014, MRD Holdco owned approximately 52% of Memorial Resource’s common stock. Pursuant to a voting agreement, MRD Holdco also has the right to direct the vote of an additional approximately 19% of Memorial Resource’s common stock owned by certain former management members of WildHorse Resources, LLC, a subsidiary of Memorial Resource (“WildHorse Resources”). The Funds also collectively indirectly own 50% of MEMP’s incentive distribution rights, and MRD Holdco owns 5,360,912 subordinated units of MEMP, representing an approximate 6.2% limited partner interest in MEMP.

Founded in 1988, NGP is a family of private equity investment funds, with cumulative committed capital of over $14.5 billion since inception, organized to make investments in the natural resources sector. NGP is part of the investment platform of NGP Energy Capital Management, a premier investment franchise in the natural resources industry, which together with its affiliates has managed over $17 billion in cumulative committed capital since inception.

Conflicts of Interest and Fiduciary Duties

Although our relationship with Memorial Resource may provide significant benefits to us, it may also become a source of potential conflicts. For example, Memorial Resource or its affiliates, including MEMP and NGP, are not restricted from competing with us. In addition, the executive officers and certain of the directors of our general partner also serve as officers or directors of Memorial Resource, and these officers and directors face conflicts of interest, including conflicts of interest regarding the allocation of their time between us and Memorial Resource.

Index to Financial Statements

Our general partner has a contractual duty to manage us in a manner that it believes is not adverse to our interest. However, the executive officers and directors of our general partner have fiduciary duties to manage our general partner in a manner beneficial to Memorial Resource, the owner of our general partner. As a result, conflicts of interest may arise in the future between us or our unitholders, on the one hand, and Memorial Resource and our general partner, on the other hand.

Our partnership agreement limits the liability of and replaces the fiduciary duties owed by our general partner to our unitholders. Our partnership agreement also restricts the remedies available to our unitholders for actions that might otherwise constitute a breach of duties by our general partner or its directors or executive officers. By purchasing a common unit, the purchaser agrees to be bound by the terms of our partnership agreement, and each unitholder is treated as having consented to various actions and potential conflicts of interest contemplated in the partnership agreement that might otherwise be considered a breach of fiduciary or other duties under Delaware law.

For a more detailed description of the conflicts of interest and duties of our general partner and its directors and executive officers, please read “Conflicts of Interest and Fiduciary Duties.” For a description of other relationships with our affiliates, please read “Certain Relationships and Related Party Transactions.”

Emerging Growth Company Status

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). For as long as we are an emerging growth company, we may take advantage of specified exemptions from reporting and other regulatory requirements that are otherwise applicable generally to other public companies. These exemptions include:

•

an exemption from providing an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002;

•

an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board (“PCAOB”), requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer;

•

an exemption from compliance with any other new auditing standards adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise; and

•

reduced disclosure of executive compensation.

We will cease to be an “emerging growth company” upon the earliest of:

•

the last day of the fiscal year in which we have $1.0 billion or more in annual revenues;

•

the date on which we become a large accelerated filer;

•

the date on which we issue more than $1.0 billion of non-convertible debt over a three-year period; or

•

the last day of the fiscal year following the fifth anniversary of our initial public offering.

In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, but we intend to irrevocably opt out of the extended transition period.

Index to Financial Statements

Formation Transactions and Structure

At or prior to the closing of this offering, the following transactions will occur:

•

Memorial Resource will contribute our initial assets to us in exchange for common units and subordinated units;

•

we will issue all of our incentive distribution rights to our general partner, and our general partner will maintain its non-economic general partner interest;

•

we will issue and sell common units to the public in this offering and pay the related underwriting discount and structuring fee and offering expenses; and

•

we will use the net proceeds from this offering in the manner described under “Use of Proceeds.”

We refer to these transactions collectively as the “formation transactions.”

We have granted the underwriters a 30-day option to purchase up to an aggregate of additional common units. Any net proceeds received from the exercise of this option will be distributed to Memorial Resource. If the underwriters do not exercise this option in full or at all, the common units that would have been sold to the underwriters had they exercised the option in full will be issued to Memorial Resource for no additional consideration at the expiration of the option period. Accordingly, the exercise of the underwriters’ option will not affect the total number of common units outstanding.

Index to Financial Statements

The following chart illustrates our organizational structure after giving effect to this offering and the other formation transactions described above:

LOGO

(1)	As of September 30, 2014.

Index to Financial Statements


Public Common Units			%
Interests of Memorial Resource:
Common Units			%
Subordinated Units			%
Non-Economic General Partner Interest	—	0	%(1)

Total		100	%

(1)	Our general partner owns a non-economic general partner interest in us and all of our incentive distribution rights. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—General Partner Interest and Incentive Distribution Rights.”

Principal Executive Offices

Our principal executive offices are located at 500 Dallas St., Suite 1800, Houston, Texas 77002, and our phone number is (713) 588-8300. Our website address is www. .com. We expect to make our periodic reports and other information filed with or furnished to the Securities and Exchange Commission, which we refer to as the SEC, available free of charge through our website as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into, and does not constitute a part of, this prospectus.

Index to Financial Statements

The Offering

Common units offered to the public

common units or common units if the underwriters exercise in full their option to purchase additional common units from us.

Units outstanding after this offering

common units and subordinated units, representing % and %, respectively, limited partner interests in us. If and to the extent the underwriters exercise their option to purchase additional common units, the number of common units purchased by the underwriters pursuant to any exercise will be sold to the public. Any common units not purchased by the underwriters pursuant to their exercise of the option will be issued to Memorial Resource at the expiration of the option period for no additional consideration. Accordingly, the exercise of the underwriters’ option will not affect the total number of common units outstanding or the amount of cash available for distribution needed to pay the minimum quarterly distribution on all units.

Use of proceeds

We intend to use the estimated net proceeds of approximately $ million from this offering (based on an assumed initial offering price of $ per common unit), after deducting the estimated underwriting discount and structuring fee and offering expenses payable by us, to make a distribution to Memorial Resource. Affiliates of certain of the underwriters are lenders under Memorial Resource’s revolving credit facility. Memorial Resource may, but is not required to, apply the distribution that it receives from us to repay amounts outstanding under its revolving credit facility. Accordingly, affiliates of certain of the underwriters may indirectly receive a portion of the proceeds from this offering in the form of repayment of debt by Memorial Resource.

Cash distributions

We expect to make a minimum quarterly distribution of $ per unit per quarter on all common and subordinated units ($ per unit on an annualized basis) to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner and its affiliates. We refer to this cash as “available cash,” and it is defined in our partnership agreement included in this prospectus as Appendix A. Our ability to pay the minimum quarterly distribution is subject to various restrictions and other factors described in more detail under the caption “Cash Distribution Policy and Restrictions on

Index to Financial Statements

Distributions.” For the first quarter that we are publicly traded, we will pay our unitholders a prorated distribution covering the period from the completion of this offering through March 31, 2015, based on the actual length of that period.

Our partnership agreement requires us to distribute all of our available cash each quarter in the following manner during the subordinated period:

•

first, to the holders of common units, until each common unit has received the minimum quarterly distribution of $ plus any arrearages from prior quarters;

•

second, to the holders of subordinated units until each subordinated unit has received the minimum quarterly distribution of $ ; and

•

third, to all unitholders, pro rata, until each unit has received a distribution of $ .

If cash distributions to our unitholders exceed $ per common and subordinated unit in any quarter, our general partner, as the holder of all of our incentive distribution rights, or IDRs, will receive increasing percentages, up to 25%, of the cash we distribute in excess of that amount. We refer to these distributions as “incentive distributions.” Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions.”

Our ability to pay the minimum quarterly distribution is subject to various restrictions and other factors described in more detail in “Cash Distribution Policy and Restrictions on Distributions.”

Our unaudited pro forma cash available for distribution that would have been generated during the year ended December 31, 2013 and the twelve months ended June 30, 2014, was approximately $9.8 million and $19.0 million, respectively. The amount of cash available for distribution we must generate to support the payment of the minimum quarterly distribution for four quarters on our common units and subordinated units to be outstanding immediately after this offering is approximately $ million (or an average of approximately $ million per quarter). As a result, for each of the year ended December 31, 2013 and the twelve months ended June 30, 2014, on a pro forma basis, we would not have generated sufficient cash available for distribution to support the payment of the aggregate annualized minimum quarterly distribution on all of our common units and subordinated units. Please read “Cash Distribution Policy and Restrictions on Distributions—Unaudited Pro Forma Cash Available for Distribution for the Year Ended December 31, 2013 and the Twelve Months Ended June 30, 2014.”

We believe, based on our financial forecast and related assumptions included in “Cash Distribution Policy and Restrictions on Distributions—Estimated Cash Available for Distribution for the

Index to Financial Statements

Twelve Months Ending December 31, 2015,” that we will have sufficient cash available for distribution to pay the aggregate annualized minimum quarterly distribution of $ million on all of our common units and subordinated units for the twelve months ending December 31, 2015. However, we do not have a legal obligation to pay distributions at our minimum quarterly distribution rate or at any other rate except as provided in our partnership agreement, and there is no guarantee that we will make quarterly cash distributions to our unitholders. Please read “Cash Distribution Policy and Restrictions on Distributions.”

Subordinated units

Memorial Resource will initially own all of our subordinated units. The principal difference between our common units and subordinated units is that, in any quarter during the subordination period, the subordinated units are entitled to receive the minimum quarterly distribution only after the common units have received their minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Accordingly, holders of subordinated units may receive a smaller distribution than holders of common units or no distribution at all. Subordinated units will not accrue arrearages.

The subordination period will begin on the closing date of this offering and will extend until the first business day on or after March 31, 2018 that we have earned and paid from operating surplus, in the aggregate, distributions on each outstanding common unit, subordinated unit and any other partnership interests that are senior or equal in right of distribution to the subordinated units equaling or exceeding the minimum quarterly distribution payable with respect to a period of twelve consecutive quarters immediately preceding such date, provided there are no arrearages in the minimum quarterly distribution on our common units at that time.

When the subordination period ends, all subordinated units will convert into common units on a one-for-one basis and all common units thereafter will no longer be entitled to arrearages.

Early conversion of subordinated units

The subordination period will end on the first business day after we have earned and paid at least $ (125% of the minimum quarterly distribution on an annualized basis) on each outstanding common and subordinated unit, and the related distribution on the IDRs, for any four-quarter period ending on or after March 31, 2016, provided that there are no arrearages on our common units at that time. In addition, the subordination period will end (i) with respect to 50% of the subordinated units, on the first business day after we have earned and paid from operating surplus at least $ (115% of the minimum quarterly distribution) on each outstanding common and subordinated unit, and the related distribution on the IDRs, for any full quarter ending on or after September 30, 2016 and (ii) with respect to 100% of the subordinated units, on the first business day after we have

Index to Financial Statements

earned and paid at least $ (125% of the minimum quarterly distribution) on each outstanding common and subordinated unit, and the related distribution on the IDRs, for any full quarter ending on or after September 30, 2016, in each case provided that there are no arrearages on our common units at that time. Please read “Risk Factors—Risks Inherent in an Investment in Us—Unlike most master limited partnerships with subordinated units, our partnership agreement allows for conversion of subordinated units into common units after paying a quarterly distribution at the highest target distribution level for only a single quarter.”

Issuance of additional units

Our partnership agreement authorizes us to issue an unlimited number of additional units without the approval of our unitholders. Please read “Units Eligible for Future Sale” and “The Partnership Agreement—Issuance of Additional Securities.”

Limited voting rights

Our general partner will manage and operate us. Unlike the holders of common stock in a corporation, our unitholders will have only limited voting rights on matters affecting our business. Our unitholders will have no right to elect our general partner or its directors on an annual or other continuing basis. Our general partner may not be removed except by a vote of the unitholders holding at least 66 2/3% of the outstanding units, including any units owned by our general partner and its affiliates, voting together as a single class. Upon the consummation of this offering, Memorial Resource will own an aggregate of % of our common units (or % of our common units, if the underwriters exercise their option to purchase additional common units in full). This will effectively give Memorial Resource the ability to prevent the removal of our general partner. Please read “The Partnership Agreement—Limited Voting Rights.”

Limited call right

If at any time our general partner and its affiliates (including Memorial Resource) own more than 80% of the outstanding common units, our general partner has the right, but not the obligation, to purchase all of the remaining common units at a purchase price not less than the then-current market price of the common units, as calculated pursuant to the terms of our partnership agreement. Upon the consummation of this offering, Memorial Resource will own approximately % of our outstanding common units (or % of our outstanding common units if the underwriters exercise their option to purchase additional common units in full) and 100% of our subordinated units. Please read “The Partnership Agreement—Limited Call Right.”

Estimated ratio of taxable income to distributions

We estimate that if you own the common units you purchase in this offering through the record date for distributions for the period ending December 31, 2017, you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be approximately % of the cash expected to be distributed to you with respect to that period. Because of the nature of our business and the

Index to Financial Statements

expected variability of our quarterly distributions, however, the ratio of our taxable income to distributions may vary significantly from one year to another. Please read “Material U.S. Federal Income Tax Consequences—Tax Consequences of Unit Ownership” for the basis of this estimate.

Material federal income tax consequences

For a discussion of the material federal income tax consequences that may be relevant to unitholders who are individual citizens or residents of the United States, please read “Material U.S. Federal Income Tax Consequences.”

Directed unit program

The underwriters have reserved for sale at the initial public offering price up to 10% of the common units being offered by this prospectus for sale to persons who are directors, officers or employees of our general partner and its affiliates and certain other persons with relationships with us and our affiliates. We do not know if these persons will choose to purchase all or any portion of these reserved common units, but any purchases they do make will reduce the number of common units available to the general public. Please read “Underwriting—Directed Unit Program.”

Exchange listing

We intend to apply to list our common units on the NASDAQ Global Select Market under the symbol “TRVL.”

Index to Financial Statements

Summary Historical Financial Data

Terryville Mineral & Royalty Partners LP was formed in October 2014 and does not have historical financial statements. Therefore, in this prospectus we present the historical carve-out financial statements of the royalty interests that will be contributed to us upon the closing of this offering. Our “predecessor” refers to the historical carve-out financial and operating data of such royalty interests. The following table presents summary historical financial data of the royalty interests as of the dates and for the periods indicated.

The summary historical financial data of the royalty interests presented as of the dates and for the periods indicated are derived from the audited historical financial statements and unaudited historical financial statements of the royalty interests included elsewhere in this prospectus.

For a detailed discussion of the summary historical financial data contained in the following table, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The following table should also be read in conjunction with “Use of Proceeds” and the audited historical financial statements and unaudited historical financial statements of the royalty interests included elsewhere in this prospectus. Among other things, the historical financial statements include more detailed information regarding the basis of presentation for the information in the following table.


	Six Months Ended June 30,						Year Ended December 31,
	2014			2013			2013			2012
	(unaudited)
	(in thousands, except per unit data)
Statement of Operations Data:
Royalty income	$	14,810		$	5,289		$	12,638		$	3,079
Costs and expenses:
Production taxes		353			65			247			10
Depletion		949			556			1,330			367
General and administrative		49			48			92			82

Total costs and expenses		1,351			669			1,669			459

Income before income taxes		13,459			4,620			10,969			2,620
Income tax expense		428			—			—			—

Net income	$	13,031		$	4,620		$	10,969		$	2,620

Statement of Cash Flow Data:
Net cash provided by (used in):
Operating activities	$	10,894		$	4,455		$	11,025		$	1,774
Investing activities		(133	)		(783	)		(963	)		(463	)
Financing activities		(10,761	)		(3,672	)		(10,062	)		(1,311	)
Other Financial Data:
EBITDA(1)	$	14,408		$	5,176		$	12,299		$	2,987
Pro forma net income per common unit (basic and diluted)(2)
Pro forma net income per subordinated unit (basic and diluted)(2)
Balance Sheet Data (at period end):
Total assets	$	29,467					$	26,780		$	25,872
Total liabilities		1,209						15			14
Predecessor capital		28,258						26,765			25,858

(1)	For more information, please read “—Non-GAAP Financial Measure” below.

(2)	For more information, please read Note 2 to our predecessor’s audited carve-out financial statements included elsewhere in this prospectus.

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Non-GAAP Financial Measure

EBITDA

EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies.

We include in this prospectus the non-GAAP financial measure EBITDA and provide our calculation of EBITDA and a reconciliation of EBITDA to net cash provided by operating activities, our most directly comparable financial measure calculated and presented in accordance with GAAP. We define EBITDA as net income (loss) plus income tax expense, interest expense and depletion.

We expect that we will be required to comply with certain EBITDA-related metrics under our new revolving credit facility.

EBITDA will be used as a supplemental financial measure by our management and by external users of our financial statements, such as investors, commercial banks and others, to assess:

•

our operating performance as compared to that of other companies and partnerships in our industry, without regard to financing methods, capital structure or historical cost basis; and

•

the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness, and make distributions on our units.

In addition, our management will use EBITDA to evaluate actual cash flow available to pay distributions to our unitholders or acquire additional oil and natural gas properties.

EBITDA should not be considered an alternative to net income, operating income, cash flow from operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP. Our EBITDA may not be comparable to similarly titled measures of another company because all companies may not calculate EBITDA in the same manner. The following table presents our calculation of EBITDA. The table below further presents a reconciliation of EBITDA to net cash flows provided by operating activities, our most directly comparable GAAP financial measure, for each of the periods indicated.


	Six Months Ended June 30,				Year Ended December 31,
	2014		2013		2013		2012
	(unaudited)
	(in thousands)
Calculation of EBITDA:
Net income	$	13,031	$	4,620	$	10,969	$	2,620
Income tax expense		428		—		—		—
Depletion		949		556		1,330		367

EBITDA(1)	$	14,408	$	5,176	$	12,299	$	2,987

(1)	We have not historically recognized interest expense. We may recognize interest expense in future periods.


	Six Months Ended June 30,				Year Ended December 31,
	2014		2013		2013		2012
	(unaudited)
	(in thousands)
Reconciliation of Net Cash From Operating Activities to EBITDA:
Net cash provided by operating activities	$	10,894	$	4,455	$	11,025	$	1,774
Changes in working capital		3,086		721		1,274		1,213
Income tax expense		428		—		—		—

EBITDA	$	14,408	$	5,176	$	12,299	$	2,987

Index to Financial Statements

Summary Reserve Data

The following tables present summary data with respect to the estimated historical net proved oil and natural gas reserves as of September 30, 2014.

The reserve estimates presented in the table below were prepared by NSAI. Regarding our properties, estimates comprising 100% of the total proved reserves in our reserve report were prepared by NSAI. These reserve estimates were prepared in accordance with current SEC rules regarding oil and natural gas reserve reporting. The following tables also contain certain summary information regarding production and sales of oil and natural gas with respect to such properties.

Please read “Business—Our Operations” as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the summary of our reserve report included herein as Appendix C in evaluating the material presented below.


	As of September 30, 2014
Estimated Proved Reserves
Natural Gas (MMcf)		50,227
Oil/Condensate (MBbls)		626
NGLs (MBbls)		2,816
Total estimated net proved reserves (MMcfe)		70,877
Proved developed producing (MMcfe)		21,022
Proved developed non-producing (MMcfe)		—
Proved undeveloped (MMcfe)		49,855
Proved developed reserves as a percentage of total proved reserves		30	%
PV-10 of proved reserves (in millions)(1)		249

(1)

In this prospectus, we have disclosed our PV-10 based on our reserve report. PV-10 represents the period-end present value of estimated future cash inflows from our natural gas and crude oil reserves, less future development and production costs, discounted at 10% per annum to reflect timing of future cash flows and using SEC pricing assumptions in effect at the end of the period. SEC pricing for natural gas and oil of $4.23 per Mcf and $95.56 per Bbl was based on the unweighted average of the first-day-of-the-month prices for each of the twelve months preceding September 2014. Because of this, PV-10 can be used within the industry and by creditors and securities analysts to evaluate estimated net cash flows from proved reserves on a more comparable basis. PV-10 differs from standardized measure because it does not include the effects of income taxes. However, because we are a limited partnership, we are generally not subject to federal income taxes and thus our PV-10 for proved reserves and standardized measure are equivalent. Neither PV-10 nor standardized measure represents an estimate of fair market value of our natural gas and oil properties. We and others in the industry use PV-10 as a measure to compare the relative size and value of estimated reserves held by companies without regard to the specific tax characteristics of such entities.

Index to Financial Statements


	Six Months Ended June 30, 2014		Year Ended December 31, 2013
	(unaudited)
Production and Operating Data:
Net production volumes:
Oil (MBbls)		26		25
NGLs (MBbls)		68		83
Natural gas (MMcf)		1,795		1,821

Total (MMcfe)		2,361		2,472
Average net production (MMcfe/d)		13.0		6.8
Average sales price:
Oil (per Bbl)	$	99.34	$	99.73
NGLs (per Bbl)	$	48.20	$	40.58
Natural gas (per Mcf)	$	4.97	$	3.71

Average price per Mcfe	$	6.27	$	5.11
Average unit costs per Mcfe:
Production taxes	$	0.15	$	0.10
General and administrative expenses	$	0.02	$	0.04
Depletion expense	$	0.40	$	0.54

Index to Financial Statements

RISK FACTORS

Limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business. You should carefully consider the following risk factors together with all of the other information included in this prospectus in evaluating an investment in our common units.

If any of the following risks were to occur, our business, financial condition, results of operations and cash available for distribution could be materially adversely affected. In that case, we might not be able to make distributions on our common units, the trading price of our common units could decline, and you could lose all or part of your investment.

Risks Related to Our Business

We may not have sufficient cash available for distribution to pay the minimum quarterly distribution on our common units.

We may not have sufficient cash available for distribution each quarter to pay the minimum quarterly distribution of $ per unit or any other amount. Under the terms of our partnership agreement, the amount of cash available for distribution will be reduced by the amount of any cash reserves established by our general partner to provide for future operations, future capital expenditures, including acquisitions of additional oil and natural gas properties, future debt service requirements and future cash distributions to our unitholders. The amount of cash we have to distribute each quarter principally depends upon the amount of royalty revenues we generate, which are dependent upon the prices that Memorial Resource, as the operator for 100% of the acreage associated with our initial assets, realizes from the sale of oil and natural gas. In addition, the actual amount of cash we will have to distribute each quarter under the cash distribution policy that the board of directors of our general partner will adopt will be reduced by replacement capital expenditures, payments in respect of debt service and other contractual obligations and fixed charges and increases in reserves for future operating or capital needs that the board of directors may determine are appropriate.

For a description of additional restrictions and factors that may affect our ability to make cash distributions, please read “Cash Distribution Policy and Restrictions on Distributions.”

On a pro forma basis, we would not have generated sufficient cash available for distribution to support the payment of the minimum quarterly distribution on all of our units for the year ended December 31, 2013 and the twelve months ended June 30, 2014.

We must generate approximately $ million of cash available for distribution to support the payment of the minimum quarterly distribution for four quarters on all of our common units and subordinated units that will be outstanding immediately following this offering. The amount of pro forma cash available for distribution generated during the year ended December 31, 2013 and the twelve months ended June 30, 2014 would not have been sufficient to support the payment of the full minimum quarterly distribution on our common units and subordinated units during each such period. Specifically, the amount of pro forma cash available for distribution generated during the year ended December 31, 2013 would have been sufficient to support a distribution of $ per common unit per quarter ($ per common unit on an annualized basis), or % of the minimum quarterly distribution, and would not have supported any distributions on our subordinated units. Similarly, the amount of pro forma cash available for distribution generated during the twelve months ended June 30, 2014 would have been sufficient to support a distribution of $ per common unit per quarter ($ per common unit on an annualized basis), or % of the minimum quarterly distribution, and would not have supported any distributions on our subordinated units. For a calculation of our ability to make cash distributions to our unitholders based on our pro forma results for the year ended December 31, 2013 and the twelve months ended June 30, 2014, please read “Cash Distribution Policy and Restrictions on Distributions.” If we are unable to

Index to Financial Statements

generate sufficient cash available for distribution in future periods, we may not be able to support the payment of the full minimum quarterly distribution or any amount on our common units or subordinated units, in which event the market price of our common units may decline materially.

The assumptions underlying the forecast of cash available for distribution that we include in “Cash Distribution Policy and Restrictions on Distributions” may prove inaccurate and are subject to significant risks and uncertainties, which could cause actual results to differ materially from our forecasted results.

The forecast of cash available for distribution set forth in “Cash Distribution Policy and Restrictions on Distributions” includes our forecast of our results of operations, EBITDA and cash available for distribution for the twelve months ending December 31, 2015. The assumptions underlying the forecast may prove inaccurate and are subject to significant risks and uncertainties that could cause actual results to differ materially from our forecasted results. If our actual results are significantly below forecasted results, or if our expenses are greater than forecasted, we may not be able to pay the forecasted annual distribution, which may cause the market price of our common units to decline materially.

We depend on Memorial Resource for all of the development and production on the properties underlying our royalty interests. All of our revenue is derived from royalty payments made by Memorial Resource. A reduction in the expected number of wells to be drilled on our acreage by Memorial Resource or the failure by it to adequately and efficiently develop and operate our acreage could have an adverse effect on our expected growth and our results of operations.

Our sole assets at the closing of this offering will be royalty interests from which we derive royalty income. The failure of Memorial Resource to adequately or efficiently perform operations or its failure to act in ways that are in our best interests could reduce production and revenues. Further, Memorial Resource is not obligated to undertake any development activities, so any development and production activities will be subject to its reasonable discretion. Memorial Resource could determine to drill and complete fewer wells on our acreage than is currently expected. The success and timing of drilling and development activities on our properties, and whether Memorial Resource elects to drill any additional wells on our acreage, depends on a number of factors that will be largely outside of our control, including:

•

the prices of oil, natural gas and NGLs;

•

the timing and amount of capital expenditures by Memorial Resource, which could be significantly more than anticipated;

•

Memorial Resource’s ability to access capital;

•

the availability of suitable drilling equipment, production and transportation infrastructure and qualified operating personnel;

•

Memorial Resource’s expertise, operating efficiency and financial resources;

•

approval of other participants in drilling wells;

•

Memorial Resource’s expected return on investment in wells drilled on our acreage as compared to opportunities in other areas;

•

the selection of technology;

•

the selection of counterparties for the sale of production; and

•

the rate of production of the reserves.

Memorial Resource may elect not to undertake development activities, or may undertake such activities in an unanticipated fashion, which may result in significant fluctuations in our royalty revenues and cash available for distribution to our unitholders. If reductions in production by Memorial Resource are implemented on our

Index to Financial Statements

properties and sustained, our revenues may also be substantially affected. Additionally, if Memorial Resource was to experience significant financial difficulty, it might not be able to pay its royalty payments or continue its operations, which could have a material adverse impact on us.

Oil, natural gas and NGL prices are volatile, due to factors beyond our control, and will greatly affect our business, results of operations, liquidity and financial condition.

Our revenues, operating results, profitability, liquidity, future growth and the value of our assets depend primarily on prevailing commodity prices. Historically, oil and natural gas prices have been volatile and fluctuate in response to changes in supply and demand, market uncertainty, and other factors that are beyond our control, including:

•

the regional, domestic and foreign supply of oil, natural gas and NGLs;

•

the level of commodity prices and expectations about future commodity prices;

•

the level of global oil and natural gas exploration and production;

•

localized supply and demand fundamentals, including the proximity and capacity of pipelines and other transportation facilities, and other factors that result in differentials to benchmark prices from time to time;

•

the cost of exploring for, developing, producing and transporting reserves;

•

the price and quantity of foreign imports;

•

political and economic conditions in oil producing countries;

•

the ability of members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;

•

speculative trading in crude oil and natural gas derivative contracts;

•

the level of consumer product demand;

•

weather conditions and other natural disasters;

•

risks associated with operating drilling rigs;

•

technological advances affecting exploration and production operations and overall energy consumption;

•

domestic and foreign governmental regulations and taxes;

•

the continued threat of terrorism and the impact of military and other action;

•

the price and availability of competitors’ supplies of oil and natural gas and alternative fuels; and

•

overall domestic and global economic conditions.

These factors and the volatility of the energy markets make it extremely difficult to predict future oil, natural gas and NGL price movements with any certainty. For example, for the five years ended December 31, 2013, the NYMEX-WTI oil future price ranged from a high of $113.93 per Bbl to a low of $33.98 per Bbl, while the NYMEX-Henry Hub natural gas future price ranged from a high of $7.50 per MMBtu to a low of $1.82 per MMBtu. Although we intend to have a hedging policy following the consummation of this offering, we will not have any hedges prior to the completion of this offering. Any substantial decline in commodity prices will likely have a material adverse effect on our results of operations, financial condition and cash available for distribution.

NGLs comprised 24% of our estimated proved reserves at September 30, 2014 and accounted for 15% of our production on a volume equivalent basis for the three months ended September 30, 2014. Realized NGL prices have decreased recently principally due to significant supply. NGLs are made up of ethane, propane,

Index to Financial Statements

isobutane, normal butane and natural gasoline, all of which have different uses and different pricing characteristics. A further or extended decline in NGL prices could materially and adversely affect our future business, financial condition, results of operations and cash available for distributions.

The prices that Memorial Resource receives for its oil and natural gas production often reflect a regional discount, based on the location of production, to the relevant benchmark prices, such as NYMEX or ICE, that are used for calculating hedge positions. The prices that Memorial Resource receives for its production are also affected by the specific characteristics of the production relative to production sold at benchmark prices. These discounts, if significant, could adversely affect our results of operations and financial condition.

Identified drilling locations, which are scheduled out over many years, are susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.

As of September 30, 2014, Memorial Resource has advised us that it has identified 1,022 gross horizontal drilling locations across our acreage. Only 104 of these gross identified drilling locations had proved undeveloped reserves attributed to them in our reserve report. These drilling locations, including those with attributed proved undeveloped reserves, represent a significant part of our growth strategy. Memorial Resource’s ability to drill and develop identified potential drilling locations will depend on a number of factors, including the availability of capital, seasonal conditions, regulatory changes and approvals, negotiation of agreements with third parties, commodity prices, costs, the generation of additional seismic or geological information, the availability of drilling rigs, drilling results, construction of infrastructure, inclement weather, and lease expirations.

Further, identified potential drilling locations are in various stages of evaluation, ranging from locations that are ready to drill to locations that will require substantial additional analysis of data. We will not be able to predict in advance of drilling and testing whether any particular drilling location will yield production in sufficient quantities for operators to recover drilling or completion costs or to be economically viable. Even if sufficient amounts of oil or natural gas reserves exist, the potentially productive hydrocarbon bearing formation may be damaged or mechanical difficulties may develop while drilling or completing the well, possibly resulting in a reduction in production from the well or abandonment of the well. If our operators drill dry holes in our current and future drilling locations, our business may be materially harmed. We will not be able to assure you that the analogies drawn from available data from other wells, more fully explored locations or producing fields will be applicable to our drilling locations. Further, initial production rates reported by us or our operators in our areas of operations may not be indicative of future or long-term production rates.

A majority of our gross horizontal drilling locations (as of September 30, 2014) within the Terryville Complex are identified within four distinct zones, with such gross horizontal drilling locations being roughly evenly distributed amongst such four zones. To date, Memorial Resource has drilled 44 horizontal wells, 41 of which are within these four distinct zones within the Terryville Complex. Accordingly, Memorial Resource has limited experience in drilling horizontal wells in the zones of the Terryville Complex to which it has ascribed a substantial majority of our gross identified drilling locations. Please see “Business—Our Operations—Drilling Locations” for more information on our gross identified drilling locations.

Because of these uncertainties, we do not know if the potential drilling locations identified on our acreage will ever be drilled or if oil or natural gas reserves will be able to be produced from these or any other potential drilling locations. As such, actual drilling activities with respect to our acreage may materially differ from those presently identified, which could adversely affect our business, financial condition, results of operations and cash available for distribution.

Index to Financial Statements

The development of our proved undeveloped may take longer and may require higher levels of capital expenditures than we anticipate and may not be economically viable.

Approximately 70% of our total proved reserves at September 30, 2014 were proved undeveloped reserves; those reserves may not be ultimately developed or produced. Recovery of proved undeveloped reserves requires significant capital expenditures and successful drilling operations by Memorial Resource. The reserve data included in our reserve report assumes that substantial capital expenditures are required to develop such undeveloped reserves. We cannot be certain that the estimated costs of the development of these reserves are accurate, that development will occur as scheduled or that the results of such development will be as estimated. Delays in the development of our reserves or increases in costs to drill and develop such reserves will reduce future net revenues of our estimated proved undeveloped reserves and may result in some projects becoming uneconomic to Memorial Resource. In addition, delays in the development of reserves could cause us to have to reclassify our proved reserves as unproved reserves.

Our future success depends on acquiring additional reserves.

Our future success depends upon our ability to acquire additional oil and natural gas reserves that are economically recoverable. Our proved reserves will generally decline as reserves are depleted, except to the extent that successful exploration or development activities are conducted on our properties or we acquire properties containing proved reserves, or both. Capital expenditures will be necessary for the potential acquisition of additional oil and natural gas reserves. Neither we nor our third-party operators may have sufficient resources to acquire additional reserves or to undertake exploration, development, production or other replacement activities, such activities may not result in significant additional reserves and efforts to drill productive wells at low finding and development costs may be unsuccessful. In addition, unlike most other master limited partnerships with depleting assets, we do not expect to initially retain cash from our operations for maintenance capital expenditures. See “Cash Distribution Policy and Restrictions on Distributions—Estimated Cash Available for Distribution for the Twelve Months Ending December 31, 2015—Assumptions and Considerations—Capital Expenditures.” Furthermore, although our revenues and cash available for distribution may increase if prevailing oil and natural gas prices increase significantly, finding costs for additional reserves could also increase.

Properties we acquire may not produce as projected, and we may be unable to determine reserve potential, identify liabilities associated with the properties that we acquire or obtain protection from sellers against such liabilities.

Acquiring oil and natural gas properties requires us to assess reservoir and infrastructure characteristics, including recoverable reserves, development and operating costs and potential environmental and other liabilities. Such assessments are inexact and inherently uncertain. In connection with the assessments, we perform a review of the subject properties, but such a review will not necessarily reveal all existing or potential problems. In the course of our due diligence, we may not inspect every well or pipeline. We cannot necessarily observe structural and environmental problems, such as pipe corrosion, when an inspection is made. We may not be able to obtain contractual indemnities from the seller for liabilities created prior to our purchase of the property. We may be required to assume the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with our expectations.

Our hedging strategy may not effectively mitigate the impact of commodity price volatility from our cash flows, and our hedging activities could result in cash losses and may limit potential gains.

The prices at which we enter into commodity derivative contracts covering our production in the future will be dependent upon oil and natural gas prices, and price expectations, at the time we enter into these transactions, which may be substantially higher or lower than current or future oil and natural gas prices. Accordingly, our price hedging strategy may not protect us from significant declines in oil and natural gas prices received for our

Index to Financial Statements

future production. Many of the derivative contracts to which we will be a party will require us to make cash payments to the extent the applicable index exceeds a predetermined price, thereby limiting our ability to realize the benefit of increases in oil and natural gas prices. If our actual production and sales for any period are less than our hedged production and sales for that period (including reductions in production due to operational delays) or if we are unable to perform our drilling activities as planned, we might be forced to satisfy all or a portion of our hedging obligations without the benefit of the cash flow from our sale of the underlying physical commodity, which may materially impact our liquidity.

In the future, we may enter into hedging transactions, which could expose us to counterparty credit risk.

In the future, we may enter into hedging transactions, which could expose us to risk of financial loss if a counterparty were to fail to perform under a derivative contract. Disruptions in the financial markets or other unforeseen events could lead to sudden changes in a counterparty’s liquidity, which could impair its ability to perform under the terms of a derivative contract and, accordingly, prevent us from realizing the benefit of such a derivative contract.

Reserve estimates depend on many assumptions that may turn out to be inaccurate. Any material inaccuracies in our reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves.

The process of estimating natural gas and oil reserves is complex. It requires interpretations of available technical data and many assumptions, including assumptions relating to current and future economic conditions and commodity prices. Any significant inaccuracies in these interpretations or assumptions could materially affect our estimated quantities and present value of our reserves.

In order to prepare our estimates, we must project production rates and timing of development expenditures. We must also analyze available geological, geophysical, production and engineering data. The extent, quality and reliability of this data can vary.

The process also requires economic assumptions about matters such as natural gas prices, oil prices, drilling and operating expenses, capital expenditures, taxes and availability of funds.

Actual future production, oil prices, natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable reserves will vary from our estimates. Any significant variance could materially affect the estimated quantities and present value of our reserves. In addition, we may adjust our reserve estimates to reflect production history, results of exploration and development, existing commodity prices and other factors, many of which are beyond our control.

You should not assume that the present value of future net revenues from our reserves is the current market value of our estimated reserves. We generally base the estimated discounted future net cash flows from our reserves on prices and costs on the date of the estimate. Actual future prices and costs may differ materially from those used in the present value estimate.

Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves, which could adversely affect our results of operations, financial condition and cash available for distribution.

SEC rules could limit our ability to book additional PUDs in the future.

SEC rules require that, subject to limited exceptions, PUDs may only be booked if they relate to wells scheduled to be drilled within five years after the date of booking. This requirement may limit our ability to book additional PUDs as Memorial Resource pursues its drilling program. Moreover, we may be required to write down our PUDs if those wells are not drilled within the required five-year timeframe.

Index to Financial Statements

The PV-10 of our estimated proved reserves is not necessarily the same as the current market value of our estimated proved oil and natural gas reserves.

The present value of future net cash flows from our proved reserves shown in this report, or PV-10, may not be the current market value of our estimated natural gas and oil reserves. In accordance with rules established by the SEC and the Financial Accounting Standards Board (“FASB”), we base the estimated discounted future net cash flows from our proved reserves on the 12-month average oil and gas index prices, calculated as the unweighted arithmetic average for the first-day-of-the-month price for each month and costs in effect on the date of the estimate, holding the prices and costs constant throughout the life of the properties. Actual future prices and costs may differ materially from those used in the net present value estimate, and future net present value estimates using then current prices and costs may be significantly less than the current estimate. In addition, the 10% discount factor we use when calculating discounted future net cash flows may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the natural gas and oil industry in general.

The properties in which we have royalty interests are concentrated in the Terryville Complex within the Cotton Valley formation in North Louisiana, making us vulnerable to risks associated with operating in one major geographic area.

The producing properties of Memorial Resource in which we have a royalty interest are geographically concentrated entirely in the Terryville Complex within the Cotton Valley formation in North Louisiana. As a result of this concentration, our results of operations may be disproportionately exposed to the impact of regional supply and demand factors, delays or interruptions of production from wells in this area caused by governmental regulation, processing or transportation capacity constraints, market limitations, availability of equipment and personnel, water shortages or other drought related conditions or interruption of the processing or transportation of oil, natural gas or NGLs.

Conservation measures and technological advances could reduce demand for oil and natural gas.

Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas, technological advances in fuel economy and energy generation devices could reduce demand for oil and natural gas. The impact of the changing demand for oil and natural gas services and products may have a material adverse effect on Memorial Resource’s and our business, financial condition, results of operations and cash flows.

We may be unable to compete effectively with larger companies.

The oil and natural gas industry is intensely competitive with respect to acquiring additional royalty or mineral interests. Our ability to acquire additional interests in the future will depend on our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. Many of our larger competitors not only drill for and produce oil and natural gas but also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis, and many of our competitors have access to capital at a lower cost than that available to us. These companies may be able to pay more for oil and natural gas properties and evaluate, bid for and purchase a greater number of properties than our financial, technical or personnel resources permit. Furthermore, we may not be able to aggregate sufficient quantities of production to compete with larger companies that are able to sell greater volumes of production to intermediaries, thereby reducing the realized prices attributable to our production. Any inability to compete effectively with larger companies could have a material adverse impact on our financial condition, results of operations and cash available for distribution.

Derivatives reform legislation and related regulations could have an adverse effect on our ability to hedge risks associated with our business.

The July 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, provides for federal oversight of the over-the-counter derivatives market and entities that participate in that

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market and mandates that the Commodity Futures Trading Commission, or CFTC, adopt rules or regulations implementing the Dodd-Frank Act and providing definitions of terms used in the Dodd-Frank Act. The Dodd-Frank Act establishes margin requirements and requires clearing and trade execution practices for certain market participants and may result in certain market participants needing to curtail or cease their derivatives activities. Although some of the rules necessary to implement the Dodd-Frank Act remain to be adopted, the CFTC has issued a large number of rules to implement the Dodd-Frank Act, including a rule establishing an “end-user” exception to mandatory clearing, referred to herein as the “End-User Exception,” and a rule imposing position limits, referred to herein as the Initial Position Limit Rule. The Initial Position Limit Rule was vacated and remanded to the CFTC for further proceedings by order of the United States District Court for the District of Columbia on September 28, 2012. The CFTC proposed a new version of the Initial Position Limit Rule in November 2013, referred to herein as the “Re-Proposed Position Limit Rule,” with respect to which the comment period has closed but a final rule has not been issued. The CFTC and bank regulators in September 2014 re-proposed rules which would impose margin requirements on uncleared swaps between banks, swap dealers and major swap participants, referred to herein as the “Re-Proposed SD/MSP Margin Rule.”

We qualify as a “non-financial entity” for purposes of the End-User Exception and we will likely utilize such exception in the future so that any future hedging activity is not subject to mandatory clearing or the margin requirements imposed in connection with mandatory clearing. However, we anticipate that most if not all of our future hedge counterparties will be subject to mandatory clearing in connection with their hedging activities with parties who do not qualify for the End-User Exception and, if the Re-Proposed SD/MSP Margin Rule is adopted, will be subject to such rule and required to post margin in accordance with such rule in connection with their swaps with other banks, swap dealers and major swap participants. The Dodd-Frank Act, the rules which have been adopted and not vacated, and, to the extent that the Re-Proposed Position Limit Rule and the Re-Proposed SD/MSP Margin Rule are ultimately effected, such proposed rules could significantly increase the cost of derivative contracts (including through requirements to post collateral), materially alter the terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter, reduce our ability to monetize or restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties. If we are limited in our use of derivatives in the future as a result of the Dodd-Frank Act and regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures. Finally, the Dodd-Frank Act was intended, in part, to reduce the volatility of oil and natural gas prices, which some legislators attributed to speculative trading in derivatives and commodity contracts related to oil and natural gas. Our revenues could therefore be adversely affected if a consequence of the Dodd-Frank Act and regulations is to lower commodity prices. Any of these consequences could have a material adverse effect on us, our financial condition, and our results of operations.

Our revolving credit facility will have restrictions and financial covenants that may restrict our business and financing activities and our ability to pay distributions to our unitholders.

We expect that our revolving credit facility will restrict, among other things, our ability to incur debt and pay distributions, and will require us to comply with customary financial covenants and specified financial ratios. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we violate any provisions of our revolving credit facility that are not cured or waived within the specified time periods, a significant portion of our indebtedness may become immediately due and payable, and we will be prohibited from making distributions to our unitholders. We might not have, or be able to obtain, sufficient funds to make these accelerated payments. In addition, our obligations under our revolving credit facility will be secured by substantially all of our assets, and if we are unable to repay our indebtedness under our revolving credit facility, the lenders could seek to foreclose on our assets. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Revolving Credit Facility” for additional detail regarding the covenants and restrictive provisions to be included in our revolving credit facility.

Index to Financial Statements

Our revolving credit facility will allow us to borrow in an amount up to the borrowing base, which is primarily based on the estimated value of our oil and natural gas properties and our commodity derivative contracts as determined semi-annually by our lenders in their sole discretion. Our borrowing base will be subject to redetermination on a semi-annual basis based on an engineering report with respect to our estimated natural gas, oil and NGL reserves, which will take into account the prevailing natural gas, oil and NGL prices at such time, as adjusted for the impact of our commodity derivative contracts. A future decline in commodity prices could result in a redetermination that lowers our borrowing base in the future and, in such case, we could be required to repay any indebtedness in excess of the borrowing base. If we are unable to repay any borrowings in excess of a decreased borrowing base, we would be in default and no longer able to make any distributions to our unitholders.

We may not be able to generate enough cash flow to meet our debt obligations and may be forced to take other actions to satisfy our debt obligations which may not be successful.

We expect our earnings and cash flow to vary significantly from year to year due to the cyclical nature of the exploration and production industry upon which our cash flows depend. As a result, the amount of debt that we can service in some periods may not be appropriate for us in other periods. Moreover, and subject to certain limitations, we and our subsidiaries may be able to incur substantial additional indebtedness in the future. Additionally, our future cash flow may be insufficient to meet our debt obligations and commitments. Any insufficiency could negatively impact our business. A range of economic, competitive, business and industry factors will affect our future financial performance, and, as a result, our ability to generate cash flow from operations and from our subsidiaries and to pay our debt. Many of these factors, such as oil and natural gas prices, economic and financial conditions in our industry and the global economy or competitive initiatives of our competitors, are beyond our control.

If we do not generate enough cash flow from operations and from our subsidiaries to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:

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refinancing or restructuring our debt;

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selling assets;

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reducing or delaying any capital investments; or

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seeking to raise additional capital.

However, we cannot assure you that undertaking alternative financing plans, if necessary, would allow us to meet our debt obligations. Our inability to generate sufficient cash flow to satisfy our debt obligations or to obtain alternative financing, could materially and adversely affect our ability to make payments on our indebtedness and our business, financial condition, results of operations and cash available for distribution.

Furthermore, our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments, including our revolving credit facility, may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of sufficient cash flows and capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We expect our revolving credit facility will restrict our ability to dispose of assets and our use of the proceeds from such disposition. We may not be able to consummate those dispositions, and the proceeds of any such disposition may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

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Risks Related to Our Operator

Memorial Resource, our current operator, is subject to the risks and uncertainties described below, and, as the owner of royalty interests, we are indirectly exposed to the same risks and uncertainties.

Memorial Resource may have difficulty managing growth in its business, which could adversely affect our financial condition, results of operations and cash available for distribution.

As a recently formed company, growth in accordance with Memorial Resource’s business plan, if achieved, could place a significant strain on Memorial Resource’s financial, technical, operational and management resources. As Memorial Resource expands its activities and increases the number of projects it is evaluating or in which it participates, there will be additional demands on its financial, technical, operational and management resources. Memorial Resource also currently depends on the services of an entity managed by certain former management members of WildHorse Resources for supervising and managing Memorial Resource’s drilling operations in the Terryville Complex. In addition, the failure of Memorial Resource to continue to upgrade its technical, administrative, operating and financial control systems or the occurrences of unexpected expansion difficulties, including the failure to recruit and retain experienced managers, geologists, engineers and other professionals in the oil and natural gas industry, could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution.

Unless Memorial Resource replaces the oil and natural gas reserves it produces, its revenues and production will decline, which would adversely affect our financial condition, results of operations and cash available for distribution.

Producing oil and natural gas reservoirs are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Memorial Resource’s future oil and natural gas reserves and production and therefore its cash flow and financial condition are highly dependent on its success in efficiently developing and exploiting its current reserves. Memorial Resource’s production decline rates may be significantly higher than currently estimated if its wells do not produce as expected. Further, Memorial Resource’s decline rate may change when it drills additional wells or makes acquisitions. Memorial Resource may not be able to develop, find or acquire additional reserves to replace its current and future production on economically acceptable terms, which would adversely affect our financial condition, results of operations and cash available for distribution.

If commodity prices decline, a significant portion of Memorial Resource’s development projects may become uneconomic and cause write downs of the value of its oil and natural gas properties, which may adversely affect our results of operations.

Significantly lower oil prices, or sustained lower natural gas prices, would render many of Memorial Resource’s development and production projects uneconomic and result in a reduction of its estimated reserves, which would reduce the borrowing base under its revolving credit facility and its ability to finance planned or desired capital expenditures or acquisitions. The inability of Memorial Resource to finance its planned capital expenditures with respect to our acreage would have an adverse effect on our results of operations and cash available for distribution.

Drilling for and producing oil and natural gas are high-risk activities with many uncertainties that may result in a total loss of investment or otherwise adversely affect our financial condition, results of operations and cash available for distribution.

Memorial Resource’s drilling activities are subject to many risks. For example, we cannot assure you that wells drilled by Memorial Resource will be productive. Drilling for oil and natural gas often involves unprofitable efforts, not only from dry holes but also from wells that are productive but do not produce sufficient oil or natural gas to return a profit at then realized prices after deducting drilling, operating and other costs. The

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seismic data and other technologies used do not allow Memorial Resource to know conclusively prior to drilling a well that oil or natural gas is present or that it can be produced economically. The costs of exploration, exploitation and development activities are subject to numerous uncertainties beyond Memorial Resource’s control, and increases in those costs can adversely affect the economics of a project. Further, Memorial Resource’s drilling and producing operations may be curtailed, delayed, canceled or otherwise negatively impacted as a result of other factors, including:

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unusual or unexpected geological formations;

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loss of drilling fluid circulation;

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loss of well control;

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title problems;

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facility or equipment malfunctions;

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unexpected operational events;

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shortages or delivery delays or increases in the cost of equipment and services;

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reductions in oil, natural gas and NGL prices;

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lack of proximity to and shortage of capacity of transportation facilities;

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the limited availability of financing at acceptable rates;

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delays imposed by or resulting from compliance with environmental and other governmental or regulatory requirements, which may include limitations on hydraulic fracturing or the discharge of greenhouse gases; and

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adverse weather conditions.

Any of these risks can cause substantial losses, including personal injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution, environmental contamination or loss of wells and other regulatory penalties. In the event that planned operations, including the drilling of development wells, are delayed or cancelled, or existing wells or development wells have lower than anticipated production due to one or more of the factors above or for any other reason, our financial condition, results of operations and cash available for distribution to our unitholders may be adversely affected.

Part of Memorial Resource’s strategy involves using horizontal drilling and completion techniques, which involve risks and uncertainties in their application.

Memorial Resource’s operations involve utilizing some of the latest drilling and completion techniques as developed by Memorial Resource and its service providers. Risks that Memorial Resource faces while drilling horizontal wells include, but are not limited to, the following:

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landing its wellbore in the desired drilling zone;

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staying in the desired drilling zone while drilling horizontally through the formation;

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running casing the entire length of the wellbore; and

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being able to run tools and other equipment consistently through the horizontal wellbore.

Risks that Memorial Resource faces while completing its wells include, but are not limited to, the following:

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the ability to fracture stimulate the planned number of stages;

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the ability to run tools the entire length of the wellbore during completion operations; and

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the ability to successfully clean out the wellbore after completion of the final fracture stimulation stage.

If Memorial Resource’s drilling results are less than anticipated, the return on Memorial Resource’s investment for a particular project may not be as attractive as it anticipated, and Memorial Resource could incur material write-downs of unevaluated properties, and the value of its undeveloped acreage could decline in the future.

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Memorial Resource’s development and exploratory drilling efforts and its well operations may not be profitable or achieve targeted returns.

Memorial Resource owns a significant amount of unproved property, which it expects to further its development efforts. Development and exploratory drilling and production activities are subject to many risks, including the risk that no commercially productive reservoirs will be discovered. We cannot assure you that all prospects will be economically viable or that Memorial Resource will not abandon its investments. Additionally, we cannot assure you that undeveloped acreage leased by Memorial Resource will be profitably developed, that wells drilled by Memorial Resource in prospects that it pursues will be productive or that Memorial Resource will recover all or any portion of its investment in such unproved property or wells.

Memorial Resource’s acreage must be drilled before lease expiration, generally within three to five years, in order to hold the acreage by production. In a highly competitive market for acreage, failure to drill sufficient wells to hold acreage may result in a substantial lease renewal cost, or if renewal is not feasible, loss of Memorial Resource’s lease, our royalty interests and prospective drilling opportunities.

Leases on oil and natural gas properties typically have a term of three to five years, after which they expire unless, prior to expiration, production is established within the spacing units covering the undeveloped acres. As of December 31, 2013, our acreage included 11 gross acres scheduled to expire in 2014, 1,980 gross acres scheduled to expire in 2015, 1,810 gross acres scheduled to expire in 2016 and 1,050 gross acres scheduled to expire in 2017. Our royalty interests would terminate if such associated leases expire. The cost to renew Memorial Resource’s leases may increase significantly, and Memorial Resource may not be able to renew such leases on commercially reasonable terms or at all. Memorial Resource is also under no obligation to offer us the opportunity to acquire royalty interests in such renewal leases. Moreover, many of Memorial Resource’s leases require lessor consent to pool, which would make it more difficult for Memorial Resource to hold its leases by production. Any reduction in Memorial Resource’s drilling program, either through a reduction in capital expenditures or the unavailability of drilling rigs, could result in the loss of acreage through lease expirations. We cannot assure you that Memorial Resource will have the liquidity to deploy these rigs when needed, or that commodity prices will warrant Memorial Resource operating such a drilling program. Any such losses of leases could materially and adversely affect the growth of our financial condition, results of operations and cash available for distribution.

Shortages of rigs, equipment and crews could delay our operations, increase Memorial Resource’s costs and delay forecasted revenue.

Higher oil and natural gas prices generally increase the demand for rigs, equipment and crews and can lead to shortages of, and increasing costs for, development equipment, services and personnel. Shortages of, or increasing costs for, experienced development crews and oil field equipment and services could restrict Memorial Resource’s ability to drill the wells and conduct the operations that it currently has planned. Any delay in the development of new wells or a significant increase in development costs could reduce Memorial Resource’s revenues and impact its development plan, which would thus affect our financial condition, results of operations and cash available for distribution.

Expenses not covered by Memorial Resource’s insurance could have a material adverse effect on our financial position, results of operations and cash available for distribution.

Memorial Resource’s operations are subject to all of the hazards and operating risks associated with drilling for and production of oil and natural gas, including natural disasters, the risk of fire, explosions, blowouts, surface cratering, uncontrollable flows of natural gas, oil and formation water, pipe or pipeline failures, abnormally pressured formations, casing collapses and environmental hazards such as oil spills, natural gas leaks, ruptures or discharges of toxic gases. In addition, Memorial Resource’s operations are subject to risks associated with hydraulic fracturing, including any mishandling, surface spillage or potential underground migration of fracturing fluids, including chemical additives. The location of any properties and other assets near populated

Index to Financial Statements

areas, including residential areas, commercial business centers and industrial sites, could significantly increase the level of damages resulting from these risks. The occurrence of any of these events could result in substantial losses to us due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and penalties, suspension of operations, substantial revenue losses and repairs to resume operations.

Memorial Resource maintains insurance coverage against potential losses that it believes is customary in the industry. However, these policies may not cover all liabilities, claims, fines, penalties or costs and expenses that Memorial Resource may incur in connection with its business and operations, including those related to environmental claims. Pollution and environmental risks generally are not fully insurable. In addition, we cannot assure you that Memorial Resource will be able to maintain adequate insurance at rates it considers reasonable. Memorial Resource may elect not to obtain insurance if it believes that the cost of available insurance is excessive relative to the perceived risks presented. A loss not fully covered by insurance could have a material adverse effect on Memorial Resource’s business, and as a result, our financial position, results of operations and cash available for distribution.

Memorial Resource requires substantial capital expenditures to conduct its operations, engage in acquisition activities and replace its production, and it may be unable to obtain needed financing on satisfactory terms necessary to execute its operating strategy.

Memorial Resource requires substantial capital expenditures to conduct its exploration, development and production operations, engage in acquisition activities and replace its production. Memorial Resource has established a capital budget for 2014 of approximately $351 million, and it intends to rely on cash flow from operating activities as its primary sources of liquidity. Memorial Resource also may engage in asset and equity sale transactions to, among other things, fund capital expenditures when market conditions permit it to complete transactions on terms it finds acceptable. There can be no assurance that such sources will be sufficient to fund Memorial Resource’s exploration, development and acquisition activities. If Memorial Resource’s revenues and cash flows decrease in the future as a result of a decline in commodity prices or a reduction in production levels, however, and Memorial Resource is unable to obtain additional equity or debt financing in the capital markets or access alternative sources of funds, Memorial Resource may be required to reduce the level of its capital expenditures and may lack the capital necessary to replace its reserves or maintain our production levels.

Memorial Resource may be unable to compete effectively with larger companies.

The oil and natural gas industry is intensely competitive with respect to acquiring prospects and productive properties, marketing oil and natural gas, and securing equipment and trained personnel. Memorial Resource’s ability to acquire additional properties and to discover reserves in the future will depend on its ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. Many of Memorial Resource’s larger competitors not only drill for and produce oil and natural gas but also carry on refining operations and market petroleum and other products on a regional, national or worldwide basis, and many of our competitors have access to capital at a lower cost than that available to Memorial Resource. These companies may be able to pay more for oil and natural gas properties and evaluate, bid for and purchase a greater number of properties than Memorial Resource’s financial, technical or personnel resources permit. In addition, there is substantial competition for investment capital in the oil and natural gas industry. These larger companies may have a greater ability to continue development activities during periods of low oil and natural gas prices and to absorb the burden of present and future federal, state, local and other laws and regulations. Furthermore, Memorial Resource may not be able to aggregate sufficient quantities of production to compete with larger companies that are able to sell greater volumes of production to intermediaries, thereby reducing the realized prices attributable to its production. Any inability to compete effectively with larger companies could have a material adverse impact on Memorial Resource’s financial condition, results of operations and our cash available for distribution.

Index to Financial Statements

Memorial Resource’s business depends in part on pipelines, gathering systems and processing facilities owned by Memorial Resource or others. Any limitation in the availability of those facilities could interfere with Memorial Resource’s ability to market its oil and natural gas production.

The marketability of Memorial Resource’s oil and natural gas production depends in part on the availability, proximity and capacity of pipelines and other transportation methods, gathering systems and processing facilities owned by third parties. The amount of oil and natural gas that can be produced and sold is subject to curtailment in certain circumstances, such as pipeline interruptions due to scheduled and unscheduled maintenance, excessive pressure, physical damage or lack of contracted capacity on such systems. Memorial Resource’s access to transportation options can also be affected by U.S. federal and state regulation of oil and natural gas production and transportation, general economic conditions and changes in supply and demand. The curtailments arising from these and similar circumstances may last from a few days to several months. In many cases, Memorial Resource is provided with only limited, if any, notice as to when these circumstances will arise and their duration. Any significant curtailment in gathering system or transportation or processing facility capacity could reduce Memorial Resource’s ability to market its oil and natural gas production and, as a result, harm our financial condition, results of operations and cash available for distribution.

Memorial Resource’s use of 2-D and 3-D seismic data is subject to interpretation and may not accurately identify the presence of oil and natural gas, which could adversely affect the results of its drilling operations.

Memorial Resource relies on 2-D and 3-D seismic data. Even when properly used and interpreted, 2-D and 3-D seismic data and visualization techniques are only tools used to assist geoscientists in identifying subsurface structures and hydrocarbon indicators and do not enable the interpreter to know whether hydrocarbons are, in fact, present in those structures. In addition, the use of 3-D seismic and other advanced technologies requires greater predrilling expenditures than traditional drilling strategies, and Memorial Resource could incur losses as a result of such expenditures. As a result, Memorial Resource’s drilling activities may not be successful or economical, which could have a material adverse impact on our financial condition, results of operations and cash available for distribution.

Memorial Resource is subject to complex federal, state, local and other laws and regulations that could adversely affect the cost, manner or feasibility of conducting its operations.

Memorial Resource’s natural gas and oil exploration, production, and transportation operations are subject to complex and stringent laws and regulations. To conduct its operations in compliance with these laws and regulations, Memorial Resource must obtain and maintain numerous permits, approvals and certificates from various federal, state and local governmental authorities. Memorial Resource may incur substantial costs in order to maintain compliance with these existing laws and regulations. In addition, the trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment and thus, Memorial Resource’s costs of compliance may increase if existing laws and regulations are revised or reinterpreted, or if new laws and regulations become applicable to its operations. Failure to comply with laws and regulations applicable to Memorial Resource’s operations, including any evolving interpretation and enforcement by governmental authorities, could have a material adverse effect on our financial condition, results of operations and cash available for distribution.

Memorial Resource’s oil and natural gas development and production operations are also subject to stringent and complex federal, state and local laws and regulations governing the discharge of materials into the environment, worker health and safety aspects of its operations, or otherwise relating to environmental protection. These laws and regulations may impose numerous obligations applicable to Memorial Resource’s operations including: (i) the acquisition of a permit before conducting regulated drilling activities, (ii) the restriction of types, quantities and concentration of materials that can be released into the environment, (iii) the limitation or prohibition of drilling activities on certain lands lying within wilderness, wetlands and other protected areas, (iv) the application of specific health and safety criteria addressing worker protection and (v) the imposition of substantial liabilities for pollution resulting from its operations. Numerous governmental

Index to Financial Statements

authorities, such as the U.S. Environmental Protection Agency, or the EPA, and analogous state agencies have the power to enforce compliance with these laws and regulations and the permits issued under them. Such enforcement actions often involve taking difficult and costly compliance measures or corrective actions. Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil or criminal penalties, the imposition of investigatory or remedial obligations, and the issuance of orders limiting or prohibiting some or all of Memorial Resource’s operations. In addition, Memorial Resource may experience delays in obtaining or be unable to obtain required permits, which may delay or interrupt its operations and limit its growth and revenues.

Certain environmental laws impose strict as well as joint and several liability for costs required to remediate and restore sites where hazardous substances, hydrocarbons, or solid wastes have been stored or released. Memorial Resource may be required to remediate contaminated properties currently or formerly operated by Memorial Resource or facilities of third parties that received waste generated by its operations regardless of whether such contamination resulted from the conduct of others or from consequences of Memorial Resource’s own actions that were in compliance with all applicable laws at the time those actions were taken. In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety impacts of Memorial Resource’s operations. Moreover, public interest in the protection of the environment has increased dramatically in recent years. The trend of more expansive and stringent environmental legislation and regulations applied to the crude oil and natural gas industry could continue, resulting in increased costs of doing business and consequently affecting profitability. To the extent laws are enacted or other governmental action is taken that restricts drilling or imposes more stringent and costly operating, waste handling, disposal and cleanup requirements, Memorial Resource’s business, prospects, and, as a result, our financial condition and results of operations could be materially adversely affected.

Please read “Business—Regulation of Environmental and Occupational Health and Safety Matters” for a further description of the laws and regulations that affect us.

Climate change legislation or regulations restricting emissions of “greenhouse gases,” or GHGs could result in increased operating costs for Memorial Resource and reduced demand for the oil and natural gas that Memorial Resource produces.

In December 2009, the EPA published its findings that emissions of GHGs present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth’s atmosphere and other climatic changes. Based on these findings, the EPA adopted regulations under existing provisions of the federal Clean Air Act (“CAA”) that establish Prevention of Significant Deterioration, or PSD, and Title V permit reviews for GHG emissions from certain large stationary sources. On June 23, 2014, the Supreme Court held that stationary sources could not become subject to PSD or Title V permitting solely by reason of their GHG emissions. The Court ruled, however, that the EPA may require installation of best available control technology for GHG emissions at sources otherwise subject to the PSD or Title V programs. The EPA has announced that it is currently evaluating the decision and awaiting further action by the courts, and that it will provide relevant guidance on GHG permitting requirements.

The EPA has also adopted rules requiring the monitoring and reporting of GHG emissions from specified sources on an annual basis in the United States, including certain oil and natural gas production facilities, which includes certain of Memorial Resource’s operations. The adoption and implementation of any regulations imposing reporting obligations on, or limiting emissions of GHGs from, Memorial Resource’s equipment and operations could require Memorial Resource to incur costs to reduce emissions of GHGs associated with its operations or could adversely affect demand for the oil and natural gas it produces. Any one of these climate change regulatory and legislative initiatives could have a material adverse effect on Memorial Resource’s business and, as a result, our financial condition and results of operations.

While Congress has from time to time considered legislation to reduce emissions of GHGs, there has not been significant activity in the form of adopted legislation to reduce GHG emissions at the federal level in recent

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years. In the absence of such federal climate legislation, a number of state and regional efforts have emerged that are aimed at tracking and/or reducing GHG emissions by means of cap and trade programs that typically require major sources of GHG emissions, such as electric power plants, to acquire and surrender emission allowances in return for emitting those GHGs. In addition, the Obama administration has announced in its Climate Action Plan that it intends to adopt additional regulations to reduce emissions of GHGs in the coming years, possibly including further restrictions on emissions of methane from oil and gas operations.

Although it is not possible at this time to predict how legislation or new regulations that may be adopted to address GHG emissions would impact our business, any such future laws and regulations that require reporting of GHGs or otherwise limit emissions of GHGs from Memorial Resource’s equipment and operations could require Memorial Resource to incur costs to monitor and report on GHG emissions or reduce emissions of GHGs associated with its operations, and such requirements also could adversely affect demand for the oil and natural gas that it produces. Finally, it should be noted that some scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts and floods and other climatic events. If any such effects were to occur, they could have an adverse effect on our financial condition, results of operations and cash available for distribution. Please read “Business—Regulation of Environmental and Occupational Health and Safety Matters” for a further description of the laws and regulations that affect us.

The listing of a species as either “threatened” or “endangered” under the federal Endangered Species Act could result in increased costs and new operating restrictions, loss of leasehold or delays on Memorial Resource’s operations, which could adversely affect our results of operations, financial condition and cash available for distribution.

The federal Endangered Species Act and analogous state laws restrict activities that may adversely affect endangered and threatened species or their habitat. Similar protections are offered to migratory birds under the Migratory Bird Treaty Act. The designation of previously unidentified endangered or threatened species in areas where Memorial Resource operates could cause Memorial Resource to incur additional costs or become subject to operating delays, restrictions or bans. Numerous species have been listed or proposed for protected status in areas in which Memorial Resource currently, or could in the future, undertake operations. The presence of protected species in areas where Memorial Resource operates could impair Memorial Resource’s ability to timely complete or carry out those operations, lose leaseholds as Memorial Resource may not be permitted to timely commence drilling operations, cause Memorial Resource, as our operator, to incur increased costs arising from species protection measures, and, consequently, adversely affect our results of operations, financial position and cash available for distribution.

The third parties on whom Memorial Resource relies for gathering and transportation services are subject to complex federal, state and other laws that could adversely affect the cost, manner or feasibility of conducting its business.

The operations of the third parties on whom Memorial Resource relies for gathering and transportation services are subject to complex and stringent laws and regulations that require obtaining and maintaining numerous permits, approvals and certifications from various federal, state and local government authorities. These third parties may incur substantial costs in order to comply with existing laws and regulations. If existing laws and regulations governing such third-party services are revised or reinterpreted, or if new laws and regulations become applicable to their operations, these changes may affect the costs that Memorial Resource pays for such services. Similarly, a failure to comply with such laws and regulations by the third parties on whom Memorial Resource relies could have a material adverse effect on Memorial Resource’s business and, as a result, our financial condition, results of operations and cash available for distribution. See “Business—Regulation of Environmental and Occupational Health and Safety Matters” and “Business—Regulation of the Oil and Natural Gas Industry” for a description of the laws and regulations that affect the third parties on whom we rely.

Index to Financial Statements

Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays and adversely affect our production.

Memorial Resource engages in hydraulic fracturing, which is an essential and common practice in the oil and gas industry used to stimulate production of natural gas and/or oil from dense subsurface rock formations. Hydraulic fracturing involves using water, sand, and certain chemicals to fracture the hydrocarbon-bearing rock formation to allow flow of hydrocarbons into the wellbore. Memorial Resource routinely applies hydraulic fracturing techniques in its drilling and completion programs. While hydraulic fracturing has historically been regulated by state oil and natural gas commissions, federal agencies have asserted regulatory authority over the process. For example, the EPA is updating chloride water quality criteria for the protection of aquatic life under the Clean Water Act, which criteria are used by states for establishing acceptable discharge limits. The EPA is expected to release draft criteria in late 2014. In October 2011, the EPA announced its plan to propose federal pre-treatment standards for wastewater generated during the hydraulic fracturing process. Hydraulic fracturing stimulation requires the use of a significant volume of water with some resulting “flowback,” as well as “produced water.” If adopted, the new pretreatment rules will require shale gas operations to pretreat wastewater before transferring it to treatment facilities. Proposed rules are expected sometime in 2014. In May 2014, the EPA issued an Advanced Notice of Proposed Rulemaking seeking public comment on its intent to develop and issue regulations under the Toxic Substances Control Act regarding the disclosure of information related to the chemicals used in hydraulic fracturing. The public comment period ended on September 18, 2014.

In August 2012, the EPA adopted rules that subject oil and natural gas production, processing, transmission, and storage operations to regulation under the New Source Performance Standards, or NSPS, and National Emission Standards for Hazardous Air Pollutants programs. The rules include NSPS standards for completions of hydraulically fractured gas wells and establishes specific new requirements for emissions from compressors, controllers, dehydrators, storage vessels, natural gas processing plants and certain other equipment. These standards, as well as any future laws and their implementing regulations, may require Memorial Resource to obtain pre-approval for the expansion or modification of existing facilities or the construction of new facilities expected to produce air emissions, impose stringent air permit requirements, or utilize specific equipment or technologies to control emissions. Compliance with such rules could result in significant costs, including increased capital expenditures and operating costs, and could adversely impact Memorial Resource’s business.

There are also certain governmental reviews either underway or being proposed that focus on environmental aspects of hydraulic fracturing practices. The EPA has commenced a study of the potential environmental effects of hydraulic fracturing on drinking water and groundwater. A draft report is expected to be released for public comment and review in late 2014. Other governmental agencies, including the U.S. Department of Energy and the U.S. Department of the Interior, have evaluated or are evaluating various other aspects of hydraulic fracturing. These ongoing or proposed studies could spur initiatives to further regulate hydraulic fracturing.

Additionally, Congress from time to time has considered the adoption of legislation to provide for federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the hydraulic fracturing process. Certain states, including Texas and Colorado, have adopted, and other states are considering adopting, regulations that could impose more stringent permitting, public disclosure, and well construction requirements on hydraulic-fracturing operations or otherwise seek to ban fracturing activities altogether. For example, in October 2011, the Louisiana Department of Natural Resources adopted new rules requiring the public disclosure of the composition and volume of fracturing fluids used in hydraulic fracturing operations. In addition to state laws, local land use restrictions, such as city ordinances, may restrict or prohibit the performance of well drilling in general and/or hydraulic fracturing in particular. In the event state, local, or municipal legal restrictions are adopted in areas where Memorial Resource is currently conducting, or in the future plans to conduct operations, Memorial Resource may incur additional costs to comply with such requirements that may be significant in nature, experience delays or curtailment in the pursuit of exploration, development, or production activities, and perhaps even be precluded from the drilling of wells.

Index to Financial Statements

If these or any other new laws or regulations that significantly restrict hydraulic fracturing are adopted at the state and local level, such laws could make it more difficult or costly for Memorial Resource, as our operator, to perform fracturing to stimulate production from dense subsurface rock formations and, in the event of local prohibitions against commercial production of natural gas, may preclude Memorial Resource’s ability to drill wells. In addition, if hydraulic fracturing becomes regulated at the federal level as a result of federal legislation or regulatory initiatives by the EPA or other federal agencies, Memorial Resource’s fracturing activities could become subject to additional permitting requirements and result in permitting delays as well as potential increases in costs. Restrictions on hydraulic fracturing could also reduce the amount of oil and natural gas that Memorial Resource, as our operator, is ultimately able to produce from its reserves, which could have a material adverse impact on our financial condition, results of operations and cash available for distribution.

Oil and natural gas producers’ operations, especially those using hydraulic fracturing, are substantially dependent on the availability of water and wastewater disposal options. Restrictions on Memorial Resource’s ability to obtain water or dispose of water may have an adverse effect on our financial condition, results of operations and cash available for distribution.

Water is an essential component of oil and natural gas production during the drilling, and in particular, hydraulic fracturing, process. Memorial Resource’s inability to locate sufficient amounts of water, or dispose of or recycle water used in its exploration and production operations, could adversely impact Memorial Resource’s business, and as a result, our financial condition, results of operations and cash available for distribution. Moreover, the imposition of new environmental initiatives and regulations could include restrictions on Memorial Resource’s ability to conduct certain operations such as hydraulic fracturing or disposal of waste, including, but not limited to, produced water, drilling fluids and other wastes associated with the exploration, development or production of natural gas. The Federal Water Pollution Control Act (the “CWA”) imposes restrictions and strict controls regarding the discharge of produced waters and other natural gas and oil waste into navigable waters. Permits must be obtained to discharge pollutants to waters and to conduct construction activities in waters and wetlands. The CWA and similar state laws provide for civil, criminal and administrative penalties for any unauthorized discharges of pollutants and unauthorized discharges of reportable quantities of oil and other hazardous substances. State and federal discharge regulations prohibit the discharge of produced water and sand, drilling fluids, drill cuttings and certain other substances related to the natural gas and oil industry into coastal waters. Also, the EPA has adopted regulations requiring certain natural gas and oil exploration and production facilities to obtain permits for storm water discharges. Compliance with current and future environmental regulations and permit requirements governing the withdrawal, storage and use of surface water or groundwater necessary for hydraulic fracturing of wells may increase Memorial Resource’s operating costs and cause delays, interruptions or termination of its operations, the extent of which cannot be predicted.

Memorial Resource’s operations may be exposed to significant delays, costs and liabilities as a result of environmental, health and safety requirements applicable to its business activities.

Memorial Resource may incur significant delays, costs and liabilities as a result of federal, state and local environmental, health and safety requirements applicable to its exploration, development and production activities. These laws and regulations may, among other things: (i) require Memorial Resource to obtain a variety of permits or other authorizations governing its air emissions, water discharges, waste disposal or other environmental impacts associated with drilling, producing and other operations; (ii) regulate the sourcing and disposal of water used in the drilling, fracturing and completion processes; (iii) limit or prohibit drilling activities in certain areas and on certain lands lying within wilderness, wetlands, frontier and other protected areas; (iv) require remedial action to prevent or mitigate pollution from former operations such as plugging abandoned wells or closing earthen pits; and/or (v) impose substantial liabilities for spills, pollution or failure to comply with regulatory filings. In addition, these laws and regulations may restrict the rate of oil or natural gas production. These laws and regulations are complex, change frequently and have tended to become increasingly stringent over time. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of cleanup and site restoration costs and liens, the

Index to Financial Statements

suspension or revocation of necessary permits, licenses and authorizations, the requirement that additional pollution controls be installed and, in some instances, issuance of orders or injunctions limiting or requiring discontinuation of certain operations. Under certain environmental laws that impose strict as well as joint and several liability, Memorial Resource may be required to remediate contaminated properties operated by it or facilities of third parties that received waste generated by its operations regardless of whether such contamination resulted from the conduct of others or from consequences of its own actions that were in compliance with all applicable laws at the time those actions were taken. In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety impacts of our operations. In addition, the risk of accidental and/or unpermitted spills or releases from our operations could expose Memorial Resource to significant liabilities, penalties and other sanctions under applicable laws. Moreover, public interest in the protection of the environment has increased dramatically in recent years. The trend of more expansive and stringent environmental legislation and regulations applied to the crude oil and natural gas industry could continue, resulting in increased costs of doing business and consequently affecting profitability. To the extent laws are enacted or other governmental action is taken that restricts drilling or imposes more stringent and costly operating, waste handling, disposal and cleanup requirements, our business, financial condition, results of operations and cash available for distribution could be materially adversely affected.

Risks Inherent in an Investment in Us

Our general partner will have control over all decisions related to our operations. Upon consummation of this offering, Memorial Resource will own and control our general partner, % of our outstanding common units and all of our subordinated units. MRD Holdco, in turn, owns % of the outstanding common stock of Memorial Resource. The directors and officers of our general partner have a fiduciary duty to manage our general partner in a manner beneficial to the owners of our general partner. However, certain directors and officers of our general partner are directors and/or officers of affiliates of our general partner (including Memorial Resource, MEMP, the Funds and NGP), and certain of our general partner’s executive officers and directors will continue to have economic interests, investments and other economic incentives in the Funds and other NGP-affiliated entities. Conflicts of interest may arise in the future between our general partner and its affiliates (including Memorial Resource, MEMP, the Funds and NGP), on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts, our general partner may favor its own interests and the interests of its affiliates over the interests of our unitholders and us. Please read “Conflicts of Interest and Fiduciary Duties.” These potential conflicts include, among others, the following situations:

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neither our partnership agreement nor any other agreement requires Memorial Resource, MEMP, the Funds or NGP to pursue a business strategy that favors us. The directors and officers of Memorial Resource, MEMP, the Funds and their respective affiliates (including NGP) have a fiduciary duty to make decisions in the best interests of their respective equity holders, which may be contrary to our interests;

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our general partner is allowed to take into account the interests of parties other than us, such as its owner, in exercising certain rights under our partnership agreement, including with respect to conflicts of interest;

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Memorial Resource, MEMP, the Funds and their affiliates (including NGP) are not limited in their ability to compete with us, including with respect to future acquisition opportunities, and are under no obligation to offer assets to us. Please read “Conflicts of Interest and Fiduciary Duties—Conflicts of Interest—Memorial Resource, MEMP, the Funds and other affiliates of our general partner will not be limited in their ability to compete with us, which could cause conflicts of interest and limit our ability to acquire additional assets or businesses”;

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except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval;

Index to Financial Statements

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many of the officers and directors of our general partner who will provide services to us will devote time to affiliates of our general partner, including Memorial Resource, MEMP, the Funds, and/or NGP, and may be compensated for services rendered to such affiliates;

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our partnership agreement replaces the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing its duties, limits our general partner’s liabilities and restricts the remedies available to our unitholders for actions that, without such limitations, might constitute breaches of fiduciary duty;

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our general partner determines the amount and timing of asset purchases and sales, borrowings, issuance of additional partnership interests, other investments, including investment capital expenditures in other partnerships with which our general partner is or may become affiliated, and the creation, reduction or increase of cash reserves, each of which can affect the amount of cash that is distributed to unitholders;

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our general partner determines the amount of our estimated maintenance capital expenditures, which reduces operating surplus. This determination can affect the amount of cash that is distributed to our unitholders and to our general partner, the amount of adjusted operating surplus in any given period and the ability of the subordinated units to convert into common units;

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we and our general partner will enter into an omnibus agreement with Memorial Resource in connection with this offering, pursuant to which, among other things, Memorial Resource will perform management, administrative and operating services for us and our general partner;

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our general partner is entitled to determine which costs, including allocated overhead, incurred by it and its affiliates, including Memorial Resource, are reimbursable by us, which will include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf, and expenses allocated to our general partner by its affiliates;

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our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units, to make incentive distributions or to accelerate the expiration of the subordination period;

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our partnership agreement permits us to classify up to $ million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions on our subordinated units or to our general partner in respect of the incentive distribution rights;

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our general partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our general partner’s incentive distribution rights without the approval of the conflicts committee of the board of directors of our general partner or our unitholders. This election may result in lower distributions to our common unitholders in certain situations;

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our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf;

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our general partner intends to limit its liability regarding our contractual and other obligations and, in some circumstances, is entitled to be indemnified by us;

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our general partner may exercise its limited right to call and purchase common units if it and its affiliates own more than 80% of our common units;

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our general partner controls the enforcement of obligations owed to us by our general partner and its affiliates, including Memorial Resource, MEMP, the Funds and NGP; and

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our general partner decides whether to retain separate counsel, accountants or others to perform services for us.

Please read “Certain Relationships and Related Party Transactions” and “Conflicts of Interest and Fiduciary Duties.”

Index to Financial Statements

Unlike most master limited partnerships with subordinated units, our partnership agreement allows for conversion of subordinated units into common units after paying a quarterly distribution at the highest target distribution level for only a single quarter.

Most master limited partnerships that have subordinated units in their capital structures allow for early conversion of subordinated units into common units only after a significant increase in quarterly distributions (typically at the highest target distribution level) measured over a four-quarter period. Unlike most master limited partnerships with subordinated units, our partnership agreement allows for conversion of subordinated units into common units after payment of quarterly distributions at the highest target distribution level for any single quarter ending on or after September 30, 2016. This early conversion provision could allow our sponsor to convert its subordinated units into common units solely as a result of a short-term increase in commodity prices or production volumes, rather than as a result of a more sustainable increase in operations measured over a longer period of time, as is the case with most other master limited partnerships with subordinated units.

Memorial Resource, MEMP, the Funds and other affiliates of our general partner will not be limited in their ability to compete with us, which could cause conflicts of interest and limit our ability to acquire additional assets or businesses.

Our partnership agreement provides that Memorial Resource and the Funds and their respective affiliates (including MEMP and NGP and its affiliates’ portfolio investments) are not restricted from owning assets or engaging in businesses that compete directly or indirectly with us. In addition, Memorial Resource, MEMP and the Funds and their respective affiliates may acquire, develop or dispose of additional oil and natural gas properties or other assets in the future, without any obligation to offer us the opportunity to purchase or develop any of those assets.

NGP and the Funds are established participants in the oil and natural gas industry, and have resources greater than ours, which factors may make it more difficult for us to compete with them with respect to commercial activities as well as for potential acquisitions. As a result, competition from these affiliates could adversely impact our results of operations and cash available for distribution to our unitholders. Please read “Conflicts of Interest and Fiduciary Duties.”

Neither we nor our general partner have any employees and we will rely solely on the employees of Memorial Resource to manage our business. The management team of Memorial Resource, which includes the individuals who will manage us, will also perform substantially similar services for itself and MEMP and will own and operate its own assets, and thus will not be solely focused on our business.

Neither we nor our general partner have any employees and we will rely solely on Memorial Resource to operate our assets. Upon consummation of this offering, we and our general partner will enter into an omnibus agreement with Memorial Resource, pursuant to which, among other things, Memorial Resource will agree to perform management, administrative and operating services for us and our general partner.

Memorial Resource will provide substantially similar activities with respect to its and MEMP’s assets and operations. Because Memorial Resource will be providing services to us that are substantially similar to those performed for itself and MEMP, Memorial Resource may not have sufficient human, technical and other resources to provide those services at a level that Memorial Resource would be able to provide to us if it were solely focused on our business and operations. Memorial Resource may make internal decisions on how to allocate its available resources and expertise that may not always be in our best interest compared to Memorial Resource’s interests. There is no requirement that Memorial Resource favor us over itself or MEMP in providing its services. If the employees of Memorial Resource and their affiliates do not devote sufficient attention to the management and operation of our business, our financial results may suffer and our ability to make distributions to our unitholders may be reduced.

Index to Financial Statements

If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential unitholders could lose confidence in our financial reporting, which would harm our business and the trading price of our units.

Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. We cannot be certain that our efforts to develop and maintain our internal controls will be successful, that we will be able to maintain adequate controls over our financial processes and reporting in the future or that we will be able to comply with our obligations under Section 404 of the Sarbanes Oxley Act of 2002. Any failure to develop or maintain effective internal controls, or difficulties encountered in implementing or improving our internal controls, could harm our operating results or cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our units.

Many of the directors and all of the officers who have responsibility for our management have significant duties with, and spend significant time serving, entities that may compete with us in seeking acquisitions and business opportunities and, accordingly, may have conflicts of interest in allocating time or pursuing business opportunities.

Most of our officers hold similar positions with Memorial Resource and the general partner of MEMP, which we refer to as MEMP GP, and many of our directors, who are responsible for managing the direction of our operations and acquisition activities, hold positions of responsibility with other entities (including NGP-affiliated entities) that are in the business of identifying and acquiring oil and natural gas properties. For example, the Funds and their affiliates (including NGP) are in the business of investing in oil and natural gas companies with independent management teams that also seek to acquire oil and natural gas properties, and Memorial Resource and MEMP are both in the business of acquiring and developing oil and natural gas properties. Mr. Weinzierl, our Chief Executive Officer and the Chairman of the board of directors of our general partner, is the Chief Executive Officer and Chairman of MEMP GP, the Chief Executive Officer and a director of Memorial Resource, and was a managing director and operating partner of NGP and continues to hold ownership interests in the Funds and certain of their affiliates. Our officers will continue to devote significant time to the business of Memorial Resource and MEMP and face conflicts in allocating their time on our behalf and on behalf of MEMP GP and Memorial Resource. Our officers have also historically received a significant portion of their overall compensation in MEMP restricted unit awards under the long term incentive plan of MEMP GP and expect to receive a significant portion in Memorial Resource restricted stock awards under Memorial Resource’s long-term incentive plan. We cannot assure you that any conflicts that may arise between us and our unitholders, on the one hand, and Memorial Resource, MEMP, or the Funds, on the other hand, will be resolved in our favor. The existing positions held by these directors and officers may give rise to fiduciary or other duties that are in conflict with the duties they owe to us. These officers and directors may become aware of business opportunities that may be appropriate for presentation to us as well as to the other entities with which they are or may become affiliated. Due to these existing and potential future affiliations, they may present potential business opportunities to other entities prior to presenting them to us, which could cause additional conflicts of interest. They may also decide that certain opportunities are more appropriate for other entities with which they are affiliated, and as a result, they may elect not to present those opportunities to us. These conflicts may not be resolved in our favor. For additional discussion of our management’s business affiliations and the potential conflicts of interest of which our unitholders should be aware, see “Certain Relationships and Related Party Transactions.”

Cost reimbursements due to Memorial Resource and our general partner for services provided to us or on our behalf will be substantial and will reduce our cash available for distribution to our unitholders.

Our partnership agreement requires us to reimburse our general partner and its affiliates for all actual direct and indirect expenses they incur or actual payments they make on our behalf and all other expenses allocable to us or otherwise incurred by our general partner or its affiliates in connection with operating our business, including overhead allocated to our general partner by its affiliates, including Memorial Resource. These expenses include salary, bonus, incentive compensation (including equity compensation) and other amounts paid

Index to Financial Statements

to persons who perform services for us or on our behalf, and expenses allocated to our general partner by its affiliates. Our general partner is entitled to determine the expenses that are allocable to us.

Prior to making distributions on our common units, we will reimburse our general partner and its affiliates for all such expenses. None of these reimbursements are capped. The reimbursements to Memorial Resource and our general partner will reduce the amount of cash otherwise available for distribution to our unitholders.

At the closing of this offering, we will enter into agreements with Memorial Resource and our general partner pursuant to which, among other things, we will make payments to Memorial Resource. These payments will be substantial and will reduce the amount of cash available for distribution to unitholders. These include an omnibus agreement pursuant to which, among other things, Memorial Resource will provide management, administrative and operating services for us and our general partner.

Our general partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our general partner’s incentive distribution rights without the approval of the conflicts committee of the board of directors of our general partner or our unitholders. This election may result in lower distributions to our common unitholders in certain situations.

Our general partner has the right (but not the obligation), at any time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (25%) for each of the prior four consecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on our cash distribution at the time of the exercise of the reset election. Following any reset election by our general partner, the minimum quarterly distribution will be reset to an amount equal to the cash contribution per common unit for the fiscal quarter immediately preceding the reset election (such amount is referred to as the “reset minimum quarterly distribution”) and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution.

If our general partner elects to reset the target distribution levels, it will be entitled to receive a number of common units. The number of common units to be issued to our general partner will be equal to that number of common units which would have entitled their holder to a quarterly cash distribution in the prior quarter equal to the distributions to our general partner on the incentive distribution rights in the prior quarter. We anticipate that our general partner would exercise this reset right (if at all) to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion; however, it is possible that our general partner could exercise this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its incentive distribution rights and may, therefore, desire to be issued common units rather than retain the right to receive incentive distributions based on the initial target distribution levels. As a result, a reset election may cause our common unitholders to experience a reduction in the amount of cash distributions that our common unitholders would have otherwise received had we not issued new common units to our general partner in connection with resetting the target distribution levels. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—General Partner’s Right to Reset Incentive Distribution Levels.”

Common units held by persons who are non-taxpaying assignees will be subject to the possibility of redemption.

If our general partner determines that our not being treated as an association taxable as a corporation or otherwise taxable as an entity for U.S. federal income tax purposes, coupled with the tax status (or lack of proof thereof) of one or more of our limited partners, has, or is reasonably likely to have, a material adverse effect on our ability to operate our assets or generate revenues from our assets, then our general partner may adopt such amendments to our partnership agreement as it determines are necessary or advisable to obtain proof of the U.S. federal income tax status of our limited partners (and their owners, to the extent relevant) and permit us to redeem the units held by any person whose tax status has or is reasonably likely to have a material adverse effect

Index to Financial Statements

on our ability to operate our assets or generate revenues from our assets or who fails to comply with the procedures instituted by our general partner to obtain proof of the U.S. federal income tax status. Please read “The Partnership Agreement—Non-Taxpaying Assignees; Redemption.”

Common unitholders who are not “Eligible Holders” will not be entitled to receive distributions on or allocations of income or loss on their common units, and their common units will be subject to redemption.

In order to comply with U.S. laws with respect to the ownership of interests in oil and natural gas leases on federal lands, we will adopt certain requirements regarding those investors who may own our common units. As used herein, an Eligible Holder means a person or entity qualified to hold an interest in oil and natural gas leases on federal lands. As of the date hereof, Eligible Holder means: (1) a citizen of the United States; (2) a corporation organized under the laws of the United States or of any state thereof; or (3) an association of United States citizens, such as a partnership or limited liability company, organized under the laws of the United States or of any state thereof, but only if this association does not have any direct or indirect foreign ownership, other than foreign ownership of stock in a parent corporation organized under the laws of the United States or of any state thereof. For the avoidance of doubt, onshore mineral leases or any direct or indirect interest therein may be acquired and held by aliens only through stock ownership, holding or control in a corporation organized under the laws of the United States or of any state thereof and only for so long as the alien is not from a country that the United States federal government regards as denying similar privileges to citizens or corporations of the United States. Common unitholders who are not persons or entities who meet the requirements to be an Eligible Holder will not be entitled to receive distributions or allocations of income and loss on their units and they run the risk of having their units redeemed by us at the lower of their purchase price cost or the then-current market price. The redemption price will be paid in cash or by delivery of a promissory note, as determined by our general partner.

Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders will not elect our general partner or its board of directors on an annual or other continuing basis. The board of directors of our general partner will be appointed by Memorial Resource. Furthermore, if the unitholders are dissatisfied with the performance of our general partner, they will have little ability to remove our general partner. As a result of these limitations, the price at which the common units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

Our general partner will have control over all decisions related to our operations. Since, upon consummation of this offering, Memorial Resource will own our general partner, approximately % of our outstanding common units and all of our subordinated units, the other unitholders will not have an ability to influence any operating decisions and will not be able to prevent us from entering into any transactions. Our partnership agreement generally may not be amended during the subordination period without the approval of our public common unitholders. However, our partnership agreement can be amended with the consent of our general partner and the approval of the holders of a majority of our outstanding common units (including common units held by Memorial Resource and its affiliates) after the subordination period has ended. Assuming we do not issue any additional common units and Memorial Resource does not transfer its common units, Memorial Resource will have the ability to amend our partnership agreement, including our policy to distribute all of our cash available for distribution to our unitholders, without the approval of any other unitholder once the subordination period ends. Furthermore, the goals and objectives of Memorial Resource and its affiliates that hold our common units relating to us may not be consistent with those of a majority of the other unitholders. Please read “—Our general partner and its affiliates will own a controlling interest in us and will have conflicts of interest with, and owe limited fiduciary duties to, us, which may permit them to favor their own interests to the detriment of our unitholders.”

Index to Financial Statements

Our general partner will be required to deduct estimated maintenance capital expenditures from our operating surplus, which may result in less cash available for distribution to unitholders from operating surplus than if actual maintenance capital expenditures were deducted.

Maintenance capital expenditures are those capital expenditures required to maintain our long-term production or asset base, including expenditures to replace our oil and natural gas reserves, whether through the development, exploitation and production of an existing leasehold or the acquisition of a new oil or natural gas property. Our partnership agreement requires our general partner to deduct estimated, rather than actual, maintenance capital expenditures from operating surplus in determining cash available for distribution from operating surplus. The amount of estimated maintenance capital expenditures deducted from operating surplus will be subject to review and change by our conflicts committee at least once a year. Our partnership agreement does not cap the amount of maintenance capital expenditures that our general partner may estimate. In years when our estimated maintenance capital expenditures are higher than actual maintenance capital expenditures, the amount of cash available for distribution to unitholders from operating surplus will be lower than if actual maintenance capital expenditures had been deducted from operating surplus. On the other hand, if our general partner underestimates the appropriate level of estimated maintenance capital expenditures, we will have more cash available for distribution from operating surplus in the short term but will have less cash available for distribution from operating surplus in future periods when we have to increase our estimated maintenance capital expenditures to account for the previous underestimation.

Due to our expectation that existing and planned development of our initial assets by Memorial Resource will lead to inclining production and revenues for at least the next several years, we have estimated that the amount of maintenance capital expenditures currently necessary to maintain our production or asset base over the long term is negligible. However, the board of directors of our general partner may in the future determine that capital expenditures are required to be made to maintain our production or asset base over the long term, in which case, we may be required to deduct such estimated amounts from our operating surplus, which would reduce the amount of cash available for distribution.

Our general partner intends to limit its liability regarding our obligations.

Our general partner intends to limit its liability under contractual arrangements between us and third parties so that the counterparties to such arrangements have recourse only against our assets, and not against our general partner or its assets. Our general partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our general partner. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of our general partner’s duties, even if we could have obtained more favorable terms without the limitation on liability.

Our partnership agreement replaces our general partner’s fiduciary duties to unitholders.

Our partnership agreement contains provisions that eliminate and replace the fiduciary standards to which our general partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner, or otherwise free of fiduciary duties to us and our unitholders. This entitles our general partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. Examples of decisions that our general partner may make in its individual capacity include:

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how to allocate business opportunities among us and its affiliates;

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whether to exercise its call right;

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how to exercise its voting rights with respect to the units it owns;

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whether to exercise its registration rights;

Index to Financial Statements

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whether to elect to reset target distribution levels; and

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whether or not to consent to any merger or consolidation of the partnership or amendment to the partnership agreement.

By purchasing a common unit, a unitholder is treated as having consented to the provisions in the partnership agreement, including the provisions discussed above. Please read “Conflicts of Interest and Fiduciary Duties—Fiduciary Duties.”

Our partnership agreement restricts the remedies available to holders of our units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

Our partnership agreement contains provisions that restrict the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example, our partnership agreement provides that:

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whenever our general partner makes a determination or takes, or declines to take, any other action in its capacity as our general partner, our general partner is generally required to make such determination, or take or decline to take such other action, in “good faith,” meaning it must act in a manner that it believes is not adverse to the interest of the partnership and will not be subject to any higher standard imposed by our partnership agreement, Delaware law, or any other law, rule or regulation, or at equity;

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our general partner and its officers and directors will not be liable for monetary damages or otherwise to us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that such losses or liabilities were the result of conduct in which our general partner or its officers or directors engaged in bad faith, meaning that they believed that the decision was adverse to the interest of the partnership or, with respect to any criminal conduct, with knowledge that such conduct was unlawful; and

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our general partner will not be in breach of its obligations under the partnership agreement or its duties to us or our limited partners if a transaction with an affiliate or the resolution of a conflict of interest is:

(1) approved by the conflicts committee of the board of directors of our general partner, although our general partner is not obligated to seek such approval; or

(2) approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner and its affiliates.

In connection with a situation involving a transaction with an affiliate or a conflict of interest, other than one where our general partner is permitted to act in its sole discretion, any determination by our general partner must be made in good faith. If an affiliate transaction or the resolution of a conflict of interest is not approved by our common unitholders or the conflicts committee then it will be presumed that, in making its decision, taking any action or failing to act, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Please read “Conflicts of Interest and Fiduciary Duties.”

Our partnership agreement provides that the conflicts committee of the board of directors of our general partner may be comprised of one or more independent directors. If the board of directors of our general partner establishes a conflicts committee with only one independent director, your interests may not be as well served as if the conflicts committee was comprised of at least two independent directors. A single-member conflicts committee would not have the benefit of discussion with, and input from, other independent directors.

Index to Financial Statements

Our partnership agreement includes exclusive forum, venue and jurisdiction provisions. By purchasing a common unit, a limited partner is irrevocably consenting to these provisions regarding claims, suits, actions or proceedings and submitting to the exclusive jurisdiction of Delaware courts. Our partnership agreement also provides that any unitholder bringing an unsuccessful action will be obligated to reimburse us for any costs we have incurred in connection with such unsuccessful claim.

Our partnership agreement is governed by Delaware law. Our partnership agreement includes exclusive forum, venue and jurisdiction provisions designating Delaware courts as the exclusive venue for most claims, suits, actions and proceedings involving us or our officers, directors and employees. Please read “The Partnership Agreement—Applicable Law; Forum, Venue and Jurisdiction.” If a dispute were to arise between a limited partner and us or our officers, directors or employees, the limited partner may be required to pursue its legal remedies in Delaware which may be an inconvenient or distant location and which is considered to be a more corporate-friendly environment. In addition, if any unitholder brings any of the aforementioned claims, suits, actions or proceedings and such person does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then such person shall be obligated to reimburse us and our affiliates for all fees, costs and expenses of every kind and description, including but not limited to all reasonable attorneys’ fees and other litigation expenses, that the parties may incur in connection with such claim, suit, action or proceeding. By purchasing a common unit, a limited partner is irrevocably consenting to these provisions and potential reimbursement obligations regarding claims, suits, actions or proceedings and submitting to the exclusive jurisdiction of Delaware courts. For additional information about the potential obligation to reimburse us for all fees, costs and expenses incurred in connection with claims, suits, actions or proceedings initiated by a unitholder that are not successful, please read “The Partnership Agreement—Reimbursement of Partnership Litigation Costs.”

Even if our unitholders are dissatisfied, they cannot remove our general partner without Memorial Resource’s consent.

The public unitholders will be unable initially to remove our general partner without Memorial Resource’s consent because Memorial Resource will own sufficient units upon completion of this offering to be able to prevent our general partner’s removal. The vote of the holders of at least 66²/₃% of all outstanding units voting together as a single class is required to remove our general partner. Upon consummation of this offering, Memorial Resource will own our general partner, approximately % of our outstanding common units (approximately % if the underwriters exercise their option to purchase additional common units in full) and all of our subordinated units.

Control of our general partner and its incentive distribution rights may be transferred to a third party without unitholder consent.

Our general partner may transfer its general partner interest to a third party without the consent of the unitholders. Furthermore, our partnership agreement does not restrict the ability of Memorial Resource from transferring all or a portion of its ownership interest in our general partner to a third party. The new owner of our general partner would then be in a position to replace the board of directors and officers of our general partner with its own choices and thereby influence the decisions made by the board of directors and officers in a manner that may not be aligned with the interests of our unitholders.

In addition, our general partner may transfer its incentive distribution rights to a third party at any time without the consent of our unitholders. If our general partner transfers its incentive distribution rights to a third party but retains its general partner interest, our general partner may not have the same incentive to grow our partnership and increase quarterly distributions to unitholders over time as it would if it had retained ownership of its incentive distribution rights.

Index to Financial Statements

We may not make cash distributions during periods when we record net income.

The amount of cash we have available for distribution to our unitholders depends primarily on our cash flow, including cash from reserves established by our general partner, working capital or other borrowings, and not solely on profitability, which will be affected by non-cash items. As a result, we may make cash distributions to our unitholders during periods when we record net losses and may not make cash distributions to our unitholders during periods when we record net income.

We may issue an unlimited number of additional units, including units that are senior to the common units, without unitholder approval, which would dilute unitholders’ ownership interests.

Our partnership agreement does not limit the number of additional common units that we may issue at any time without the approval of our unitholders. In addition, we may issue an unlimited number of units that are senior to the common units in right of distribution, liquidation and voting. The issuance by us of additional common units or other equity interests of equal or senior rank will have the following effects:

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our unitholders’ proportionate ownership interest in us will decrease;

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the amount of cash available for distribution on each unit may decrease;

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because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;

•

the ratio of taxable income to distributions may increase;

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the relative voting strength of each previously outstanding unit may be diminished; and

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the market price of our common units may decline.

Our partnership agreement restricts the limited voting rights of unitholders, other than our general partner and its affiliates, owning 20% or more of our common units, which may limit the ability of significant unitholders to influence the manner or direction of management.

Our partnership agreement restricts unitholders’ limited voting rights by providing that any common units held by a person, entity or group that owns 20% or more of any class of common units then outstanding (other than our general partner, its affiliates, their transferees and persons who acquired such common units with the prior approval of the board of directors of our general partner) cannot vote on any matter. Our partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting unitholders’ ability to influence the manner or direction of management.

Once our common units are publicly traded, Memorial Resource may sell common units in the public markets, which sales could have an adverse impact on the trading price of the common units.

After the sale of the common units offered hereby, Memorial Resource will own approximately % of our outstanding common units and all of our subordinated units, which convert into common units at the end of the subordination period. Once our common units are publicly traded, the sale of these units, including common units issued upon the conversion of the subordinated units, in the public markets could have an adverse impact on the price of the common units or on any trading market that may develop.

Our general partner has a call right that may require unitholders to sell their common units at an undesirable time or price.

If at any time our general partner and its affiliates (including Memorial Resource) own more than 80% of the common units, our general partner has the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price that

Index to Financial Statements

is the greater of (i) the highest cash price paid by either of our general partner or any of its affiliates for any common units purchased within the 90 days preceding the date on which our general partner first mails notice of its election to purchase those common units; and (ii) the average daily closing prices of our common units over the 20 days preceding the date three days before the date the notice is mailed. As a result, our unitholders may be required to sell their common units at an undesirable time or price and may not receive any return on their investment. Our unitholders also may incur a tax liability upon a sale of their common units. Upon consummation of this offering, Memorial Resource will own approximately % of our outstanding common units and all of our subordinated units. For additional information about this call right, please read “The Partnership Agreement—Limited Call Right.”

If we distribute cash from capital surplus, which is analogous to a return of capital, our minimum quarterly distribution will be reduced proportionately, and the distribution thresholds after which the incentive distribution rights entitle our general partner to an increased percentage of distributions will be proportionately decreased.

Our cash distributions will be characterized as coming from either operating surplus or capital surplus. Operating surplus is defined in our partnership agreement, and generally means amounts we receive from operating sources, such as sale of our oil and natural gas production, less operating expenditures, such as production costs and taxes, and less estimated average maintenance capital expenditures, which are generally amounts we estimate we will need to spend in the future to maintain our production levels over the long term. Capital surplus is defined in our partnership agreement, and generally would result from cash received from non-operating sources such as sales of properties and issuances of debt and equity interests. Cash representing capital surplus, therefore, is analogous to a return of capital. Distributions of capital surplus are made to our unitholders and will result in a decrease in our minimum quarterly distribution. For a more detailed description of operating surplus, capital surplus and the effect of distributions from capital surplus, please read “Provisions of Our Partnership Agreement Relating to Cash Distributions.”

Our partnership agreement allows us to add to operating surplus $ million. As a result, a portion of this amount, which is analogous to a return of capital, may be distributed to the general partner and its affiliates, as holders of incentive distribution rights, rather than to holders of common units as a return of capital.

Our unitholders’ liability may not be limited if a court finds that unitholder action constitutes control of our business.

A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is organized under Delaware law and we conduct business in other states. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some of the states in which we may do business. A unitholder could be liable for our obligations as if it was a general partner if:

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a court or government agency determined that we were conducting business in a state but had not complied with that particular state’s partnership statute; or

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a unitholder’s right to act with other unitholders to remove or replace the general partner, to approve some amendments to our partnership agreement or to take other actions under our partnership agreement constitute “control” of our business.

Please read “The Partnership Agreement—Limited Liability” for a discussion of the implications of the limitations of liability on a unitholder.

Index to Financial Statements

Our unitholders may have liability to repay distributions.

Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make distributions to unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Liabilities to partners on account of their partnership interests and liabilities that are non-recourse to us are not counted for purposes of determining whether a distribution is permitted. Delaware law provides that for a period of three years from the date of an impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. A purchaser of common units who becomes a limited partner is liable for the obligations of the transferring limited partner to make contributions to us that are known to such purchaser of common units at the time it became a limited partner and for unknown obligations if the liabilities could be determined from our partnership agreement.

Our unitholders may have limited liquidity for their common units, a trading market may not develop for the common units and our unitholders may be unable to resell their common units at the initial public offering price.

Prior to this offering, there has been no public market for the common units. After this offering, there will be publicly traded common units. We do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be. Our unitholders may not be able to resell their common units at or above the initial public offering price. Additionally, a lack of liquidity would likely result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common units and limit the number of investors who are able to buy the common units. All of the common units that are issued to affiliates of our general partner, or % of our outstanding common units, will be subject to resale restrictions under a 180-day lock-up agreement with the underwriters. Each of the lock-up agreements with the underwriters may be waived by Barclays Capital Inc. in its sole discretion. Sales by affiliates of our general partner of a substantial number of our common units in the public markets following this offering, or the perception that such sales might occur, could have a material adverse effect on the price of our common units or could impair our ability to obtain capital through an offering of equity securities. In addition, we have agreed to provide registration rights to our general partner and its affiliates. Under our partnership agreement, our general partner and its affiliates have registration rights relating to the offer and sale of any units that they hold, subject to certain limitations.

If our common unit price declines after the initial public offering, our unitholders could lose a significant part of their investment.

The initial public offering price for the common units will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of the market price of the common units that will prevail in the trading market. The market price of our common units could be subject to wide fluctuations in response to a number of factors, most of which we cannot control, including:

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changes in commodity prices;

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changes in securities analysts’ recommendations and their estimates of our financial performance;

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public reaction to our press releases, announcements and filings with the SEC;

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fluctuations in broader securities market prices and volumes, particularly among securities of oil and natural gas companies and securities of publicly traded limited partnerships and limited liability companies;

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changes in market valuations of similar companies;

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departures of key personnel;

Index to Financial Statements

•

commencement of or involvement in litigation;

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variations in our quarterly results of operations or those of other oil and natural gas companies;

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variations in the amount of our quarterly cash distributions to our unitholders;

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future issuances and sales of our common units; and

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changes in general conditions in the U.S. economy, financial markets or the oil and natural gas industry.

In recent years, the securities market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to the operating performance of these companies. Future market fluctuations may result in a lower price of our common units.

Our unitholders will experience immediate and substantial dilution of $ per unit.

The assumed initial offering price of $ per common unit (the midpoint of the price range set forth on the cover of this prospectus) exceeds our pro forma net tangible book value after this offering of $ per common unit. Based on the assumed initial offering price of $ per common unit, our unitholders will incur immediate and substantial dilution of $ per common unit. This dilution will occur primarily because the assets contributed by affiliates of our general partner are recorded, in accordance with GAAP at their historical cost, and not their fair value. The impact of such dilution would be magnified upon any conversion of the incentive distribution rights into common units. Please read “Dilution.”

We have the right to borrow to make distributions. Repayment of these borrowings will decrease cash available for future distributions.

Our partnership agreement allows us to borrow to make distributions. We may make short-term borrowings under our revolving credit facility to make distributions. The primary purpose of these borrowings would be to mitigate the effects of short-term fluctuation in our working capital that would otherwise cause volatility in our quarter-to-quarter distributions.

Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow our reserves and production.

Our partnership agreement provides that we will distribute all of our available cash each quarter. As a result, we may be dependent on the issuance of additional common units and other partnership securities and borrowings to finance our growth. A number of factors will affect our ability to issue securities and borrow money to finance growth, as well as the costs of such financings, including:

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general economic and market conditions, including interest rates, prevailing at the time we desire to issue securities or borrow funds;

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conditions in the oil and natural gas industry;

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the market price of, and demand for, our common units;

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our results of operations and financial condition; and

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prices for oil, NGLs and natural gas.

We will incur increased costs as a result of being a publicly traded partnership.

We have no history operating as a publicly traded partnership. As a publicly traded partnership, we will incur significant legal, accounting and other expenses that we did not incur prior to this offering. In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010, as well as rules implemented by the SEC and

Index to Financial Statements

NASDAQ, require, or will require, publicly traded entities to adopt various corporate governance practices that will further increase our costs. Before we are able to make distributions to our unitholders, we must first pay our expenses, including the costs of being a publicly traded partnership and other operating expenses. As a result, the amount of cash we have available for distribution to our unitholders will be affected by our expenses, including the costs associated with being a publicly traded partnership.

Following this offering, we will become subject to the public reporting requirements of the Exchange Act. We expect these requirements will increase certain of our legal and financial compliance costs and make compliance activities more time-consuming and costly. For example, as a result of becoming a publicly traded partnership, we are required to have at least three independent directors and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal control over financial reporting. We estimate that we will incur approximately $2.5 million of incremental costs per year associated with being a publicly traded partnership; however, it is possible that our actual incremental costs of being a publicly traded partnership will be higher than we currently estimate.

For as long as we are an emerging growth company, we will not be required to comply with certain disclosure requirements, including those relating to accounting standards and disclosure about our executive compensation and internal control auditing requirements that apply to other public companies.

We are classified as an “emerging growth company” under Section 2(a)(19) of the Securities Act. For as long as we are an emerging growth company, which may be up to five full fiscal years, unlike other public companies, we will not be required to, among other things, (1) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, (2) comply with any new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (3) comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise or (4) provide certain disclosure regarding executive compensation required of larger public companies.

NASDAQ does not require a publicly traded limited partnership like us to comply with certain of its corporate governance requirements.

We have applied to list our common units on NASDAQ. Because we will be a publicly traded limited partnership, NASDAQ does not require us to have a majority of independent directors on our general partner’s board of directors or to establish a compensation committee or a nominating and corporate governance committee. Accordingly, unitholders will not have the same protections afforded to certain corporations that are subject to all of NASDAQ corporate governance requirements. Please read “Management—Management of Terryville Mineral & Royalty Partners LP.”

Tax Risks to Common Unitholders

In addition to reading the following risk factors, you should read “Material U.S. Federal Income Tax Consequences” for a more complete discussion of the expected material federal income tax consequences of owning and disposing of common units.

The anticipated after-tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for federal income tax purposes.

Index to Financial Statements

Despite the fact that we are organized as a limited partnership under Delaware law, we would be treated as a corporation for U.S. federal income tax purposes unless we satisfy a “qualifying income” requirement. Based upon our current operations, we believe we satisfy the qualifying income requirement. However, we have not requested, and do not plan to request, a ruling from the IRS on this or any other matter affecting us. Failing to meet the qualifying income requirement or a change in current law could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to taxation as an entity.

If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 35%. Distributions to you would generally be taxed again as corporate distributions, and no income, gains, losses or deductions would flow through to you. Because a tax would be imposed upon us as a corporation, our cash available for distribution to you would be substantially reduced. In addition, changes in current state law may subject us to additional entity-level taxation by individual states. Because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Imposition of any such taxes may substantially reduce the cash available for distribution to you. Therefore, treatment of us as a corporation or the assessment of a material amount of entity-level taxation would result in a material reduction in the anticipated cash flow and after-tax return to the unitholders, likely causing a substantial reduction in the value of our common units.

The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.

The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. For example, from time to time, members of Congress propose and consider substantive changes to the existing U.S. federal income tax laws that affect publicly traded partnerships. One such legislative proposal would have eliminated the qualifying income exception to the treatment of all publicly traded partnerships as corporations upon which we rely for our treatment as a partnership for U.S. federal income tax purposes. We are unable to predict whether any of these changes, or other proposals, will be reintroduced or will ultimately be enacted. Any such changes could negatively impact the value of an investment in our common units. Any modification to U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible for us to meet the qualifying income requirement to be treated as a partnership for U.S. federal income tax purposes. For a discussion of the importance of our treatment as a partnership for federal income purposes, please read “Material U.S. Federal Income Tax Consequences—Taxation of the Partnership” for a further discussion.

If the IRS were to contest the federal income tax positions we take, it may adversely impact the market for our common units, and the costs of any such contest would reduce cash available for distribution to our unitholders.

We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes or any other matter affecting us. The IRS may adopt positions that differ from the conclusions of our counsel expressed in this prospectus or from the positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of our counsel’s conclusions or the positions we take. A court may not agree with some or all of our counsel’s conclusions or positions we take. Any contest with the IRS may materially and adversely impact the market for our common units and the price at which they trade. Moreover, the costs of any contest between us and the IRS will result in a reduction in cash available for distribution to our unitholders and thus will be borne indirectly by our unitholders.

Index to Financial Statements

Even if you do not receive any cash distributions from us, you will be required to pay taxes on your share of our taxable income.

You will be required to pay federal income taxes and, in some cases, state and local income taxes, on your share of our taxable income, whether or not you receive cash distributions from us. You may not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax due from you with respect to that income.

Tax gain or loss on disposition of our common units could be more or less than expected.

If you sell your common units, you will recognize a gain or loss equal to the difference between the amount realized and your tax basis in those common units. Because distributions in excess of your allocable share of our net taxable income decrease your tax basis in your common units, the amount, if any, of such prior excess distributions with respect to the units you sell will, in effect, become taxable income to you if you sell such units at a price greater than your tax basis in those units, even if the price you receive is less than your original cost. Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income due to potential recapture items, including depreciation and depletion recapture. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if you sell your common units, you may incur a tax liability in excess of the amount of cash you receive from the sale. Please read “Material U.S. Federal Income Tax Consequences—Disposition of Units—Recognition of Gain or Loss” for a further discussion of the foregoing.

Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.

Investment in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (known as IRAs), and non-U.S. persons raises issues unique to them. For example, a portion of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, may be unrelated business taxable income and may be taxable to them. Distributions to non-U.S. persons will be subject to withholding taxes imposed at the highest effective tax rate applicable to such non-U.S. persons, and each non-U.S. person may be required to file United States federal tax returns and pay tax on their share of our taxable income if it is treated as effectively connected income. If you are a tax-exempt entity or a non-U.S. person, you should consult your tax advisor before investing in our common units. Please read “Material U.S. Federal Income Tax Consequences—Tax-Exempt Organizations and Other Investors.”

We will treat each purchaser of common units as having the same tax benefits without regard to the common units actually purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.

Because we cannot match transferors and transferees of our common units and because of other reasons, we will adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. Our counsel is unable to opine as to the validity of this approach. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. It also could affect the timing of these tax benefits or the amount of gain from your sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to your tax returns. Please read “Material U.S. Federal Income Tax Consequences—Tax Consequences of Unit Ownership—Section 754 Election” for a further discussion of the effect of the depreciation and amortization positions we adopted.

Index to Financial Statements

We will prorate our items of income, gain, loss and deduction between transferors and transferees of our common units each month based upon the ownership of our common units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.

We will prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The use of this proration method may not be permitted under existing Treasury regulations, and, accordingly, our counsel is unable to opine as to the validity of this method. The U.S. Treasury Department has issued proposed Treasury Regulations that provide a safe harbor pursuant to which a publicly-traded partnership may use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders. Nonetheless, the proposed regulations do not specifically authorize the use of the proration method we have adopted. If the IRS were to challenge our proration method or new Treasury Regulations were issued, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders. Please read “Material U.S. Federal Income Tax Consequences—Disposition of Units—Allocations Between Transferors and Transferees.”

A unitholder whose units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of units) may be considered to have disposed of those units. If so, he would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and could recognize gain or loss from the disposition.

Because there are no specific rules governing the U.S. federal income tax consequence of loaning a partnership interest, a unitholder whose units are the subject of a securities loan may be considered to have disposed of the loaned units. In that case, the unitholder may no longer be treated for tax purposes as a partner with respect to those units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those units could be fully taxable as ordinary income. Our counsel has not rendered an opinion regarding the treatment of a unitholder where common units are loaned to a short seller to effect a short sale of common units. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a securities loan are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their units.

The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.

We will be considered to have terminated for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. Immediately following this offering, affiliates of Memorial Resource will directly and indirectly own more than % of the total interests in our capital and profits. Therefore, a transfer by affiliates of Memorial Resource of all or a portion of their interests in us could result in a termination of our partnership for federal income tax purposes. Our termination would, among other things, result in the closing of our taxable year for all unitholders. In the case of a unitholder reporting on a taxable year other than the calendar year, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect our classification as a partnership for federal income tax purposes, but instead, after our termination we would be treated as a new partnership for federal income tax purposes. If treated as a new partnership, we must make new tax elections and could be subject to penalties if we are unable to determine that a termination occurred. Please read “Material U.S. Federal Income Tax Consequences—Disposition of Units—Constructive Termination” for a discussion of the consequences of our termination for federal income tax purposes.

Index to Financial Statements

You may be subject to state and local taxes and return filing requirements in states where you do not live as a result of investing in our common units.

In addition to federal income taxes, you may be subject to other taxes, including state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or own property now or in the future, even if you do not live in any of those jurisdictions. We will initially own assets and conduct business in Louisiana, which currently imposes a personal income tax on individuals. As we make acquisitions or expand our business, we may own assets or conduct business in additional states or foreign jurisdictions that impose a personal income tax. You may be required to file state and local income tax returns and pay state and local income taxes in these jurisdictions. Further, you may be subject to penalties for failure to comply with those requirements. It is your responsibility to file all U.S. federal, foreign, state and local tax returns. Our counsel has not rendered an opinion on the foreign, state or local tax consequences of an investment in our common units.

Index to Financial Statements

USE OF PROCEEDS

We intend to use the estimated net proceeds of approximately $ million from this offering (based on an assumed initial offering price of $ per common unit, the mid-point of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discount and structuring fee and offering expenses payable by us, to make a distribution to Memorial Resource. Affiliates of certain of the underwriters are lenders under Memorial Resource’s revolving credit facility. Memorial Resource may, but is not required to, apply the distribution that it receives from us to repay amounts outstanding under its revolving credit facility. Accordingly, affiliates of certain of the underwriters may indirectly receive a portion of the proceeds from this offering in the form of repayment of debt by Memorial Resource.

The net proceeds from any exercise of the underwriters’ option to purchase additional common units (approximately $ million based on an assumed initial offering price of $ per common unit after deducting the estimated underwriting discount and structuring fee, if exercised in full) will be used to make a distribution to Memorial Resource. If the underwriters do not exercise their option to purchase additional common units in full, we will issue the remaining additional common units to Memorial Resource at the expiration of the option period for no additional consideration. If and to the extent the underwriters exercise their option to purchase additional common units, the number of units purchased by the underwriters pursuant to such exercise will be issued to the public and the remainder, if any, will be issued to Memorial Resource. Accordingly, the exercise of the underwriters’ option will not affect the total number of units outstanding. Please read “Underwriting.”

Index to Financial Statements

CAPITALIZATION

The following table shows our cash and cash equivalents and capitalization as of June 30, 2014:

•

on an actual basis for our predecessor; and

•

on a pro forma basis to reflect the offering and the other formation transactions described under “Summary—Formation Transactions and Structure” and the application of the net proceeds from this offering as described under “Use of Proceeds.”

This table is derived from, and should be read together with, the audited historical financial statements and accompanying notes and the unaudited historical financial statements and accompanying notes included elsewhere in this prospectus. You should also read this table in conjunction with “Summary—Formation Transactions and Structure,” “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


	As of June 30, 2014
	Actual		Pro Forma
	(in thousands)
Cash and cash equivalents	$	—	$

Long-term debt(1)	$	—	$
Predecessor capital/Partners’ capital:
Predecessor capital	$	28,258	$	—
Common units held by purchasers in this offering		—
Common units held by Memorial Resource		—
Subordinated units held by Memorial Resource		—

Total predecessor capital/partners’ capital	$	28,258	$

Total capitalization	$	28,258	$

(1)	We expect to enter into a revolving credit facility in connection with the closing of this offering. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Revolving Credit Facility.”

Index to Financial Statements

DILUTION

Purchasers of common units offered by this prospectus will suffer immediate and substantial dilution in net tangible book value per unit. Dilution in net tangible book value per unit represents the difference between the amount per unit paid by purchasers of our common units in this offering and the pro forma net tangible book value per unit immediately after this offering. After giving effect to the sale of common units in this offering at an initial public offering price of $ per common unit, and after deduction of the estimated underwriting discount and structuring fee and estimated offering expenses payable by us, our pro forma net tangible book value as of June 30, 2014 would have been approximately $ million, or $ per unit. This represents an immediate decrease in net tangible book value of $ per unit to our existing unitholders and an immediate pro forma dilution of $ per unit to purchasers of common units in this offering. The following table illustrates this dilution on a per unit basis:


Assumed initial public offering price per common unit		$
Pro forma net tangible book value per common unit before the offering(1)	$
Decrease in net tangible book value per common unit attributable to purchasers in the offering

Less: Pro forma net tangible book value per common unit after the offering(2)
Immediate dilution in net tangible book value per common unit to purchasers in the offering		$

(1)	Determined by dividing the pro forma net tangible book value of the contributed assets and liabilities by the number of common units to be issued to Memorial Resource for its contribution of assets and liabilities to us.

(2)	Determined by dividing our pro forma net tangible book value, after giving effect to the use of the net proceeds of the offering, by the total number of common units outstanding after this offering.

The following table sets forth the number of units that we will issue and the total consideration contributed to us by Memorial Resource and by the purchasers of our common units in this offering upon consummation of the transactions contemplated by this prospectus ($ in thousands).


	Units				Total Consideration
	Number	Percent			Amount		Percent
Memorial Resource(1)				%	$				%
New investors				%		(2)			%

Total			100	%	$			100	%

(1)	Reflects the value of the assets to be contributed to us by Memorial Resource recorded at historical cost.

(2)	Reflects the net proceeds of this offering after deducting the underwriting discount and structuring fee and estimated offering expenses payable by us.

Index to Financial Statements

CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

You should read the following discussion of our cash distribution policy in conjunction with the specific assumptions included in this section. Please read “—Estimated Cash Available for Distribution for the Twelve Months Ending December 31, 2015—Assumptions and Considerations” below. In addition, you should read “Forward-Looking Statements” and “Risk Factors” for information regarding statements that do not relate strictly to historical or current facts and certain risks inherent in our business.

For additional information regarding our historical results of operations, you should refer to our predecessor’s audited historical financial statements as of and for the years ended December 31, 2012 and 2013 and unaudited historical financial statements as of and for the six months ended June 30, 2014 included elsewhere in this prospectus.

General

Rationale for Our Cash Distribution Policy

Our partnership agreement requires us to distribute all of our available cash on a quarterly basis. Our available cash is our cash on hand at the end of a quarter after the payment of our expenses and the establishment of reserves for future capital expenditures, operational needs and certain future distributions, including cash from borrowings. We intend to fund any acquisitions and growth capital expenditures with additional borrowings or issuances of additional units. We may also borrow to make distributions to unitholders, for example, in circumstances where we believe that the distribution level is sustainable over the long term, but short-term factors have caused available cash from operations to be insufficient to pay the distribution at the current level. Our cash distribution policy reflects a basic judgment that our unitholders will be better served by us distributing our available cash, after expenses and reserves, rather than retaining it. Also, because we are not subject to an entity-level federal income tax, we will have more cash to distribute to our unitholders than would be the case if we were subject to federal income tax.

Restrictions and Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy

There is no guarantee that unitholders will receive quarterly distributions from us. We do not have a legal obligation to pay the minimum quarterly distribution or distributions at any other rate except as provided in our partnership agreement. Our distribution policy is subject to certain restrictions and may be changed at any time, including:

•

Our cash distribution policy may be subject to restrictions on distributions under our new revolving credit facility or other debt agreements that we may enter into in the future. Specifically, we anticipate that the agreement related to our new revolving credit facility will contain financial tests and covenants that we must satisfy. These financial ratios and covenants are described under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Revolving Credit Facility.” Should we be unable to satisfy these restrictions, or if a default occurs under our new revolving credit facility, we would be prohibited from making cash distributions to our unitholders notwithstanding our stated cash distribution policy.

•

Our general partner will have the authority to establish reserves for the prudent conduct of our business and for future cash distributions to our unitholders, and the establishment of or increase in those reserves could result in a reduction in cash distributions to our unitholders from levels we currently anticipate under our stated distribution policy. Any determination to establish or increase reserves made by our general partner will be binding on the unitholders. Due to our expectation that existing and planned development of our initial assets by Memorial Resource will lead to inclining production and revenues for at least the next several years, we have estimated that the amount of maintenance capital expenditures currently necessary to maintain our production or asset base over the long term is negligible. However, the board of directors of our general partner may in the future determine that capital expenditures are required to be made to maintain our production or asset base over the long term, in which case, we may be required to deduct such estimated amounts from our operating surplus, which would reduce the

Index to Financial Statements

amount of cash available for distribution. Over a longer period of time, if our general partner does not set aside sufficient cash reserves or make sufficient cash expenditures to maintain our production or asset base, we will be unable to pay the minimum quarterly distribution from cash generated from operations and would therefore expect to reduce our distributions. If our production or asset base decrease and we do not reduce our distributions, a portion of the distributions may be considered a return of part of our unitholders’ investment in us as opposed to a return on our unitholders’ investment.

•

Prior to making any distribution on our common units, we will reimburse our general partner and its affiliates for all direct and indirect expenses they incur on our behalf. Our partnership agreement does not set a limit on the amount of expenses for which our general partner and its affiliates may be reimbursed. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our general partner by its affiliates. Our partnership agreement provides that our general partner will determine the expenses that are allocable to us, and Memorial Resource will be entitled to such reimbursement under the omnibus agreement. The reimbursement of expenses and payment of fees, if any, to our general partner and its affiliates will reduce the amount of cash available to pay cash distributions to our unitholders.

•

Although our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including the provisions requiring us to make cash distributions contained therein, may be amended. Our partnership agreement may not be amended during the subordination period without the approval of our public common unitholders, other than in certain limited circumstances where no unitholder approval is required. However, our partnership agreement can be amended with the consent of our general partner and the approval of the holders of a majority of our outstanding common units (including common units that are held by Memorial Resource and its affiliates) after the subordination period has ended. Upon consummation of this offering, Memorial Resource will own our general partner and will control the voting of an aggregate of approximately % of our outstanding common units and all of our subordinated units. Assuming we do not issue any additional common units and Memorial Resource does not transfer its common units, Memorial Resource will have the ability to amend our partnership agreement without the approval of any other unitholder once the subordination period ends.

•

Even if our cash distribution policy is not modified or revoked, the amount of distributions we pay under our cash distribution policy and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement, our new revolving credit facility and any other agreements we may enter into in the future.

•

Under Section 17-607 of the Delaware Act, we may not make a distribution if the distribution would cause our liabilities to exceed the fair value of our assets.

•

We may lack sufficient cash to pay distributions to our unitholders due to a number of factors, including reductions in commodity prices, reductions in our oil and natural gas production, increases in our general and administrative expenses, principal and interest payments on our outstanding debt, tax expenses, working capital requirements and anticipated cash needs. For a discussion of additional factors that may affect our ability to pay distributions, please read “Risk Factors.”

•

If and to the extent our cash available for distribution materially declines, we may reduce our quarterly distribution in order to service or repay our debt or fund growth capital expenditures.

•

All available cash distributed by us on any date from any source will be treated as distributed from operating surplus until the sum of all available cash distributed since the closing of this offering equals the cumulative operating surplus from the closing of this offering through the end of the quarter immediately preceding that distribution. We anticipate that distributions from operating surplus will generally not represent a return of capital. However, operating surplus, as defined in our partnership agreement, includes certain components that represent non-operating sources of cash, including a cash basket equal to $ million and working capital borrowings. Consequently, it is possible that distributions from operating surplus may represent a return of capital. For example, the $ million cash basket would allow us to distribute as operating surplus cash proceeds we receive in the future from non-operating sources such as

Index to Financial Statements

asset sales, issuances of securities and long-term borrowings, which would represent a return of capital. Distributions representing a return of capital could result in a corresponding decrease in our asset base. Additionally, any cash distributed by us in excess of operating surplus will be deemed to be capital surplus under our partnership agreement. Our partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price from this initial public offering, which is similar to a return of capital. Distributions from capital surplus could result in a corresponding decrease in our asset base. We do not anticipate that we will make any distributions from capital surplus. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Operating Surplus and Capital Surplus” and “Provisions of Our Partnership Agreement Relating to Cash Distributions—Distributions from Capital Surplus—Effect of a Distribution from Capital Surplus.

•

Our ability to make distributions to our unitholders depends on the performance of our operating subsidiaries and its ability to distribute cash to us. The ability of our operating subsidiaries to make distributions to us may be restricted by, among other things, the provisions of existing and future indebtedness, applicable state partnership and limited liability company laws and other laws and regulations.

Our Minimum Quarterly Distribution

Upon completion of this offering, the board of directors of our general partner will establish a minimum quarterly distribution of $ per unit per whole quarter, or $ per unit per year on an annualized basis, to be paid no later than 60 days after the end of each fiscal quarter beginning with the quarter ending March 31, 2015. This equates to an aggregate cash distribution of approximately $ million per quarter or $ million per year, in each case based on the number of common units and subordinated units outstanding immediately after completion of this offering, but excluding any common units that may be issued under the long-term incentive plan that our general partner is expected to adopt prior to the closing of this offering. Our ability to make cash distributions at the minimum quarterly distribution will be subject to the factors described above under the caption “—General—Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy.”

Because our general partner’s interest entitles it to control us without a right to any percentage of our distributions, our general partner will not receive ongoing distributions in respect of its general partner interest.

The table below sets forth the number of outstanding common and subordinated units upon the closing of this offering and the aggregate distribution amounts payable on such units during the year following the closing of this offering at our minimum quarterly distribution of $ per unit per quarter, or $ per unit on an annualized basis.


		Distributions
	Number of Units	One Quarter	Four Quarters
Common units held by purchasers in this offering(1)(2)		$	$
Common units held by Memorial Resource and its affiliates(1)(2)		$	$
Subordinated units		$	$

Total		$	$

(1)	Does not include any common units that may be issued under the long-term incentive plan that our general partner is expected to adopt prior to the closing of this offering.

(2)

Assumes no exercise of the underwriters’ option to purchase additional common units. If and to the extent the underwriters exercise their option to purchase additional common units, the number of common units purchased by the underwriters pursuant to any exercise will be sold to the public. Any common units not purchased by the underwriters pursuant to their exercise of the option will be issued to Memorial Resource at the expiration of the option period for no additional consideration. Accordingly, the exercise of the underwriters’ option will not affect the total number of common units outstanding or the aggregate distribution payable on such units during the year following the closing of this offering.

Index to Financial Statements

If the minimum quarterly distribution on our common units is not paid with respect to any quarter, the common unitholders will not be entitled to receive such payments in the future except that, during the subordination period, to the extent we distribute cash in any future quarter in excess of the amount necessary to make cash distributions at the minimum quarterly distribution to holders of our common units, we will use this excess cash to pay any of these arrearages related to prior quarters before any cash distribution is made to holders of subordinated units. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordination Period.”

We do not have a legal obligation to pay the minimum quarterly distribution or distributions at any other rate except as provided in our partnership agreement. Our distribution policy is consistent with the terms of our partnership agreement, which requires that we distribute all of our available cash quarterly. Under our partnership agreement, available cash is defined to generally mean, for each fiscal quarter, cash generated from our business in excess of expenses and the amount of reserves our general partner determines is necessary or appropriate to provide for the prudent conduct of our business (including payments to our general partner for reimbursement of expenses it incurs on our behalf), to comply with applicable law, any of our debt instruments or other agreements or to provide for future distributions to our unitholders for any one or more of the next four quarters. Please read “Provisions of our Partnership Agreement Relating to Cash Distributions—Distributions of Available Cash—Definition of Available Cash.”

Our cash distribution policy, as expressed in our partnership agreement, may not be modified or repealed without amending our partnership agreement. The actual amount of our cash distributions for any quarter is subject to fluctuation based on the amount of cash we generate from our business and the amount of reserves our general partner establishes in accordance with our partnership agreement as described above. Our partnership agreement, including provisions contained therein requiring us to make cash distributions, may be amended by a vote of the holders of a majority of our common units. Upon consummation of this offering, Memorial Resource will own our general partner, approximately % of our outstanding common units (assuming no exercise of the underwriters’ option to purchase additional common units) and all of our subordinated units. Assuming we do not issue any additional common units and Memorial Resource does not transfer a controlling portion of its equity interests in our general partner or its common units, Memorial Resource will have the ability to amend our partnership agreement without the approval of any other unitholders once the subordination period ends.

We expect to pay our distributions on or about the last day of each February, May, August and November to holders of record on or about the 15th day of each such month. If the distribution date does not fall on a business day, we will make the distribution on the business day immediately preceding the indicated distribution date. For our initial quarterly distribution, we will adjust the quarterly distribution for the period from the closing of this offering through March 31, 2015 based on the actual length of the period. We expect to pay this initial quarterly cash distribution on or before May 31, 2015.

In the sections that follow, we present in detail the basis for our belief that we will be able to fully fund our minimum quarterly distribution of $ per unit each quarter for the four quarters ending December 31, 2015. In those sections, we present two tables, consisting of:

•

“Unaudited Pro Forma Cash Available for Distribution for the Year Ended December 31, 2013 and Twelve Months Ended June 30, 2014,” in which we present the amount of cash we would have had available for distribution to our unitholders and our general partner for the year ended December 31, 2013 and the twelve months ended June 30, 2014, based on the historical carve-out financial statements of our predecessor. Our calculation of unaudited pro forma cash available for distribution in this table should only be viewed as a general indication of the amount of cash available for distribution that we might have generated had the transactions contemplated in this prospectus occurred in an earlier period.

Index to Financial Statements

•

“Estimated Cash Available for Distribution for the Twelve Months Ending December 31, 2015,” in which we demonstrate our ability to generate sufficient cash available for distribution to pay the full minimum quarterly distribution on all the outstanding units for the twelve months ending December 31, 2015.

Unaudited Pro Forma Cash Available for Distribution for the Year Ended December 31, 2013 and the Twelve Months Ended June 30, 2014

If we had completed this offering and the related transactions on January 1, 2013, we estimate that we would have generated $9.8 million and $19.0 million of cash available for distribution for the year ended December 31, 2013 and the twelve months ended June 30, 2014, respectively.

Our unaudited pro forma cash available for distribution for each of the year ended December 31, 2013 and the twelve months ended June 30, 2014 includes $0.1 million and $0.1 million, respectively, of general and administrative expenses as well as an incremental $2.5 million of general and administrative expenses we expect to incur as a result of becoming a publicly traded partnership. Incremental general and administrative expenses related to being a publicly traded partnership include: expenses associated with annual and quarterly reporting; tax return and Schedule K-1 preparation and distribution expenses; Sarbanes-Oxley compliance expenses; expenses associated with listing on the NASDAQ; independent auditor fees; legal fees; investor relations expenses; registrar and transfer agent fees; director and officer liability insurance expenses; and director compensation. These expenses are not reflected in the historical carve-out financial statements of our predecessor included elsewhere in this prospectus.

We based the pro forma adjustments upon currently available information and specific estimates and assumptions. The pro forma amounts below do not purport to present our results of operations had this offering and related formation transactions been completed as of the date indicated. In addition, cash available for distribution is primarily a cash accounting concept, while the historical carve-out financial statements of our predecessor included elsewhere in this prospectus have been prepared on an accrual basis. As a result, you should view the amount of pro forma cash available for distribution only as a general indication of the amount of cash available for distributions that we might have generated had we completed this offering on the date indicated. Our unaudited pro forma cash available for distribution should be read together with “Selected Historical Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited historical financial statements and the notes to those statements included elsewhere in this prospectus.

Neither our independent registered public accounting firm nor any other independent registered public accounting firm has compiled, examined or performed any procedures with respect to the forecasted financial information contained herein, nor has it expressed any opinion or given any other form of assurance on such information or its achievability, and it assumes no responsibility for such forecasted financial information. Our independent registered public accounting firm’s reports included elsewhere in this prospectus relate to our audited historical financial statements. These reports do not extend to the table and the related forecasted information contained in this section and should not be read to do so.

Index to Financial Statements

The following table illustrates the amount of cash available for distribution that we estimate that we would have generated for the year ended December 31, 2013 and the twelve months ended June 30, 2014. All of the amounts for the year ended December 31, 2013 and the twelve months ended June 30, 2014 in the table below are estimates.

Terryville Mineral & Royalty Partners LP

Unaudited Pro Forma Cash Available for Distribution


	Year Ended December 31, 2013 (In thousands, except per unit data)		Twelve-Month Period Ended June 30, 2014 (In thousands, except per unit data)
Average sale prices:
Oil (per Bbl)	$	99.73	$	100.14
NGLs (per Bbl)	$	40.58	$	44.97
Natural gas (per Mcf)	$	3.71	$	4.48
Royalty income	$	12,638	$	22,159
Cost and expenses:
Production taxes		247		535
Depletion		1,330		1,723
General and administrative expenses		92		93

Total costs and expenses		1,669		2,351

Income before income taxes		10,969		19,808
Income tax expense(1)		—		—

Net income		10,969		19,808
Adjustments to reconcile net income to EBITDA:
Add:
Depletion		1,330		1,723
Interest expense(2)		—		—

EBITDA(3)		12,299		21,531
Less:
Cash interest expense(2)		—		—
Incremental public partnership general and administrative expenses(4)		2,500		2,500
Maintenance capital expenditures		—		—

Estimated cash available for distribution(5)	$	9,799	$	19,031

Estimated cash distribution:
Distribution per unit (based on a minimum quarterly distribution of $ per unit)	$		$
Estimated aggregate distributions to:
Common units held by the public
Common units held by Memorial Resource

Subordinated units held by Memorial Resource
Total Distributions
Excess Cash (Shortfall)	$		$

Percent of minimum quarterly distributions payable to common unitholders

Percent of minimum quarterly distributions payable to subordinated unitholders

Index to Financial Statements

(1)

Prior to the completion of Memorial Resource’s initial public offering on June 18, 2014, its predecessor was a pass-through entity not subject to federal tax. As a limited partnership, we will not be subject to federal income tax following the completion of this offering. Accordingly, we made a pro forma adjustment to exclude income tax that was recognized by our predecessor.

(2)	We will not have any indebtedness outstanding following the completion of this offering and consequently did not recognize any pro forma interest expense during the periods presented.

(3)	For more information, please read “Summary—Summary Historical Financial Data—Non-GAAP Financial Measure.”

(4)

We expect to incur $2.5 million of estimated incremental annual general and administrative expenses associated with being a publicly traded partnership. Please read “—Estimated Cash Available for Distribution for the Twelve Months Ending December 31, 2015—Assumptions and Considerations—Expenditures—General and Administrative Expenses.”

(5)

As an owner of overriding royalty interests, we are not responsible for capital costs of developing our acreage, and consequently we did not make any capital expenditures during the periods presented. Please read “—Estimated Cash Available for Distribution for the Twelve Months Ending December 31, 2015—Assumptions and Considerations—Capital Expenditures” for a discussion of our anticipated capital expenditures following the completion of this offering.

Estimated Cash Available for Distribution for the Twelve Months Ending December 31, 2015

We forecast that our estimated cash available for distribution during the year ending December 31, 2015 will be approximately $ million. The forecasted estimated cash available for distribution would exceed by $ million the amount needed to pay the minimum quarterly distribution of $ per unit on all of our common and subordinated units for the year ending December 31, 2015. In “—Assumptions and Considerations” below, we discuss the major assumptions underlying this estimate. The cash available for distribution discussed in the forecast should not be viewed as management’s projection of the actual cash available for distribution that we will generate during the twelve months ending December 31, 2015.

When considering our ability to generate cash available for distribution and how we calculate forecasted cash available for distribution, please keep in mind all the risk factors and other cautionary statements under the headings “Risk Factors” and “Forward-Looking Statements,” which discuss factors that could cause our results of operations and cash available for distribution to vary significantly from our estimates.

Management has prepared the prospective financial information set forth in the table below to present our expectations regarding our ability to generate $ million of cash available for distribution for the twelve months ending December 31, 2015. The accompanying prospective financial information was not prepared with a view toward public disclosure or complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of our management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected course of action and our expected future financial performance. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this prospectus are cautioned not to place undue reliance on this prospective financial information.

The assumptions and estimates underlying the prospective financial information are inherently uncertain and, though considered reasonable by the management team of our general partner as of the date of its preparation, are subject to a wide variety of significant business, economic, and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the prospective financial information. Accordingly, there can be no assurance that the prospective results are indicative of our future performance or that actual results will not differ materially from those presented in the prospective financial information. Inclusion of the prospective financial information in this prospectus should not be regarded as a representation by any person that the results contained in the prospective financial information will be achieved.

Index to Financial Statements

We do not undertake any obligation to release publicly the results of any future revisions we may make to the financial forecast or to update this financial forecast to reflect events or circumstances after the date of this prospectus. In light of the above, the statement that we believe that we will have sufficient cash available for distribution to allow us to make the full minimum quarterly distribution on all of our outstanding common units for the twelve months ending December 31, 2015 should not be regarded as a representation by us or the underwriters or any other person that we will make such distributions. Therefore, you are cautioned not to place undue reliance on this information.

The following table shows how we calculate estimated cash available for distribution for the twelve months ending December 31, 2015. The assumptions that we believe are relevant to particular line items in the table below are explained in the corresponding footnotes and in “—Assumptions and Considerations.”

The following table illustrates the amount of cash that we estimate that we will generate for the twelve months ending December 31, 2015 that would be available for distribution to our unitholders. All of the amounts for the twelve months ending December 31, 2015 in the table below are estimates.


		Twelve Months Ending December 31, 2015
Royalty income		$
Forecasted realized prices:
Natural gas price per Mcf		$
Oil price per Bbl		$
Natural gas liquids price per Bbl		$
Expenditures:
Production taxes
Depletion
Interest expense
Income Taxes General and administrative expenses

Net income		$
Adjustments to reconcile net income to EBITDA:
Add:
Depletion		$
Interest expense
Income Taxes

EBITDA(1)		$
Less:
Cash interest expense
Maintenance capital expenditures(2)

Estimated cash available for distribution		$

Index to Financial Statements


		Twelve Months Ending December 31, 2015
Estimated cash distributions:
Distribution per unit (based on a minimum quarterly distribution of $ per unit)		$
Estimated aggregate distributions to:
Common units held by the public
Common units held by Memorial Resource
Subordinated units held by
Memorial Resource

Total distributions		$
Excess cash available for distribution		$

(1)	For more information, please read “Summary—Summary Historical Financial Data—Non-GAAP Financial Measure.”

(2)

As an owner of overriding royalty interests, we are not responsible for capital costs of developing our acreage, and consequently we did not make any capital expenditures during the periods presented. Please read “—Assumptions and Considerations—Capital Expenditures” for a discussion of our anticipated capital expenditures following the completion of this offering.

Assumptions and Considerations

Index to Financial Statements

PROVISIONS OF OUR PARTNERSHIP AGREEMENT RELATING TO CASH DISTRIBUTIONS

Set forth below is a summary of the significant provisions of our partnership agreement that relate to cash distributions.

Distributions of Available Cash

General

Our partnership agreement requires that, within 60 days after the end of each quarter, beginning with the quarter ending March 31, 2015, we distribute all of our available cash to unitholders of record on the applicable record date. We will adjust the minimum quarterly distribution payable in respect of the quarter ending March 31, 2015 for the period from the closing of the offering through March 31, 2015.

Definition of Available Cash

Available cash, for any quarter, consists of all cash and cash equivalents on hand at the end of that quarter:

•

less, the amount of cash reserves established by our general partner at the date of determination of available cash for the quarter to:

•

provide for the proper conduct of our business, which could include, but is not limited to, amounts reserved for capital expenditures, working capital and operating expenses;

•

comply with applicable law, any of our debt instruments or other agreements; or

•

provide funds for distributions to our unitholders (including our general partner) for any one or more of the next four quarters (provided that our general partner may not establish cash reserves for future distributions on our common and subordinated units unless it determines that the establishment of reserves will not prevent us from distributing the minimum quarterly distribution on all common units and any cumulative arrearages on such common units for such quarter);

•

plus, if our general partner so determines, all or a portion of cash on hand on the date of determination of available cash for the quarter resulting from borrowing (including working capital borrowings) made after the end of the quarter.

The purpose and effect of the last bullet point above is to allow our general partner, if it so decides, to use cash from borrowing (including working capital borrowings) made after the end of the quarter but on or before the date of determination of available cash for that quarter to pay distributions to unitholders.

Working capital borrowings are borrowings that are made under a credit facility, commercial paper facility or similar financing arrangement, and in all cases are used solely for working capital purposes or to pay distributions to partners and with the intent of the borrower to repay such borrowings within twelve months from sources other than additional working capital borrowings.

Intent to Distribute the Minimum Quarterly Distribution

We intend to distribute to the holders of common units and subordinated units on a quarterly basis at least the minimum quarterly distribution of $ per unit, or $ per unit on an annualized basis, to the extent we have sufficient cash from our operations after the establishment of cash reserves and payment of fees and expenses, including payments (or reserving for payment) of fees and expenses to our general partner and its affiliates. However, there is no guarantee that we will pay the minimum quarterly distribution on the units in any quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement.

Index to Financial Statements

General Partner Interest and Incentive Distribution Rights

Our general partner owns a non-economic general partner interest in us, which does not entitle it to receive cash distributions. However, our general partner owns the incentive distribution rights and may in the future own common units or other equity interests in us and will be entitled to receive distributions on any such interests.

Our general partner also holds incentive distribution rights that entitle it to receive increasing percentages, up to a maximum of 25%, of the cash we distribute from operating surplus (as defined below) in excess of $ per unit per quarter. The maximum distribution of 25% does not include any distributions that our general partner may receive on common units or subordinated units that it owns.

Operating Surplus and Capital Surplus

General

All cash distributed to unitholders will be characterized as either “operating surplus” or “capital surplus.” Our partnership agreement requires that we distribute available cash from operating surplus differently than available cash from capital surplus.

Operating Surplus

Our partnership agreement requires that we distribute available cash from operating surplus differently than available cash from capital surplus. Operating surplus for any period consists of:

•

$ million (as described below); plus

•

all of our cash receipts after the closing of this offering, excluding cash from interim capital transactions, which include the following:

•

borrowings (including sales of debt securities) that are not working capital borrowings;

•

sales of equity interests; and

•

sales or other dispositions of assets outside the ordinary course of business;

provided that cash receipts from the termination of a commodity hedge or interest rate hedge prior to its specified termination date shall be included in operating surplus in equal quarterly installments over the remaining scheduled life of such commodity hedge or interest rate hedge; plus

•

working capital borrowings made after the end of the period but on or before the date of determination of operating surplus for the period; plus

•

cash distributions paid (including incremental incentive distributions) on equity issued to finance all or a portion of the construction, replacement, acquisition, development or improvement of a capital improvement or replacement of a capital asset (such as reserves) in respect of the period beginning on the date that we enter into a binding obligation to commence the construction, replacement, acquisition, development or improvement of a capital improvement, construction, replacement, acquisition, development or improvement of a capital asset and ending on the earlier to occur of the 60^th day following the date the capital improvement or capital asset is acquired, begins producing in paying quantities or is placed into service, as applicable, and the date that it is abandoned or disposed of; plus

•

cash distributions paid (including incremental incentive distributions) on equity issued to pay the construction period interest on debt incurred (including periodic net payments under related interest rate swap arrangements), or to pay construction period distributions on equity issued, to finance the capital improvements or capital assets referred to above; less

•

all of our operating expenditures (as described below) after the closing of this offering and the completion of the formation transactions; less

Index to Financial Statements

•

the amount of cash reserves established by our general partner to provide funds for future operating expenditures; less

•

all working capital borrowings not repaid within twelve months after having been incurred, or repaid within such twelve month period with the proceeds of additional working capital borrowings; less

•

any cash loss realized on disposition of an investment capital expenditure.

As described above, operating surplus does not reflect actual cash on hand that is available for distribution to our unitholders and is not limited to cash generated by our operations. For example, it includes a basket of $ million that will enable us, if we choose, to distribute as operating surplus $ million cash we receive in the future from non-operating sources such as asset sales, issuances of securities and long-term borrowings that would otherwise be distributed as capital surplus. In addition, the effect of including (as described above) certain cash distributions on equity interests in operating surplus will be to increase operating surplus by the amount of any such cash distributions. As a result, we may also distribute as operating surplus up to the amount of any such cash that we receive from non-operating sources.

The proceeds of working capital borrowings increase operating surplus and repayments of working capital borrowings are generally operating expenditures (as described below) and thus reduce operating surplus when repayments are made. However, if a working capital borrowing is not repaid during the twelve-month period following the borrowing, it will be deemed repaid at the end of such period, thus decreasing operating surplus at such time. When such working capital borrowing is in fact repaid, it will be excluded from operating expenditures because operating surplus will have been previously reduced by the deemed repayment.

We define operating expenditures in our partnership agreement, and it generally means all of our cash expenditures, including, but not limited to, taxes, reimbursement for expenses of our general partner and its affiliates, payments made in the ordinary course of business under interest rate and commodity hedge contracts, (provided that (i) with respect to amounts paid in connection with the initial purchase of an interest rate hedge contract or a commodity hedge contract, such amounts will be amortized over the life of the applicable interest rate hedge contract or commodity hedge contract and (ii) payments made in connection with the termination of any interest rate hedge contract or commodity hedge contract prior to the expiration of its stipulated settlement or termination date will be included in operating expenditures in equal quarterly installments over the remaining scheduled life of such interest rate hedge contract or commodity hedge contract), officer compensation, repayment of working capital borrowings, debt service payments (except as otherwise provided in our partnership agreement) and estimated maintenance capital expenditures (as discussed in further detail below), provided that operating expenditures will not include:

•

repayment of working capital borrowings previously deducted from operating surplus pursuant to the provision described in the penultimate bullet point of the description of operating surplus above when such repayment actually occurs;

•

payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness, other than working capital borrowings;

•

growth capital expenditures;

•

actual maintenance capital expenditures (as discussed in further detail below);

•

investment capital expenditures;

•

payment of transaction expenses relating to interim capital transactions;

•

distributions to our partners; or

•

repurchases of equity interests except to fund obligations under employee benefit plans.

Index to Financial Statements

Capital Surplus

Capital surplus is defined in our partnership agreement as any distribution of available cash in excess of our cumulative operating surplus. Accordingly, capital surplus would generally be generated by:

•

borrowings (including sales of debt securities) other than working capital borrowings;

•

sales of our equity interests; and

•

sales or other dispositions of assets outside the ordinary course of business.

Characterization of Cash Distributions

Our partnership agreement requires that we treat all available cash distributed as coming from operating surplus until the sum of all available cash distributed since the closing of this offering equals the operating surplus from the closing of this offering through the end of the quarter immediately preceding that distribution. Our partnership agreement requires that we treat any amount distributed in excess of operating surplus, regardless of its source, as capital surplus. As reflected above, operating surplus includes $ million, which does not reflect actual cash on hand that is available for distribution to our unitholders. Rather, it is a provision that will enable us, if we choose, to distribute as operating surplus up to this amount of cash we receive in the future from non-operating sources such as asset sales, issuances of securities, and borrowings, that would otherwise be distributed as capital surplus. We do not anticipate that we will make any distributions from capital surplus.

Capital Expenditures

Estimated maintenance capital expenditures reduce operating surplus, but growth capital expenditures, actual maintenance capital expenditures and investment capital expenditures do not. Maintenance capital expenditures are those capital expenditures required to maintain our production or asset base over the long term. We expect that a primary component of maintenance capital expenditures will be capital expenditures associated with the replacement of oil and natural gas reserves through the acquisition of a new royalty or mineral interest in an oil and natural gas property. Maintenance capital expenditures will also include interest (and related fees) on debt incurred and distributions on equity issued (including incremental distributions on incentive distribution rights) to finance all or any portion of the construction, replacement, acquisition or improvement of a capital asset that is paid in respect of the period from such financing until the earlier to occur of the date that any such construction replacement, acquisition or improvement of a capital asset begins producing in paying quantities or is placed into service, as applicable, and the date that it is abandoned or disposed of. Capital expenditures made solely for investment purposes will not be considered maintenance capital expenditures.

Because our maintenance capital expenditures can be irregular, the amount of our actual maintenance capital expenditures may differ substantially from period to period, which could cause similar fluctuations in the amounts of operating surplus and adjusted operating surplus if we subtracted actual maintenance capital expenditures from operating surplus. To address this issue, our partnership agreement will require that an estimate of the average quarterly maintenance capital expenditures necessary to maintain our production or asset base over the long term be subtracted from operating surplus each quarter as opposed to the actual amounts spent. The amount of estimated maintenance capital expenditures deducted from operating surplus is subject to review and change by our general partner’s board of directors at least once a year, provided that any change is approved by the conflicts committee of our general partner’s board of directors. The estimate will be made at least annually and whenever an event occurs that is likely to result in a material adjustment to the amount of our maintenance capital expenditures, such as a major acquisition. For purposes of calculating operating surplus, any adjustment to this estimate will be prospective only. For a discussion of the amounts we have allocated toward estimated maintenance capital expenditures, please read “Cash Distribution Policy and Restrictions on Distributions.”

Index to Financial Statements

The use of estimated maintenance capital expenditures in calculating operating surplus will have the following effects:

•

it will reduce the risk that maintenance capital expenditures in any one quarter will be large enough to render operating surplus less than the minimum quarterly distribution to be paid on all the units for the quarter;

•

will increase our ability to distribute as operating surplus cash we receive from non-operating sources;

•

in quarters where estimated maintenance capital expenditures exceed actual maintenance capital expenditures, it will be more difficult for us to raise our distribution above the minimum quarterly distribution, because the amount of estimated maintenance capital expenditures will reduce the amount of cash available for distribution from operating surplus to our unitholders, even in quarters where there are no corresponding actual capital expenditures; conversely, the use of estimated maintenance capital expenditures in calculating operating surplus will have the opposite effect for quarters in which actual maintenance capital expenditures exceed our estimated maintenance capital expenditures; and

•

it will reduce the likelihood that a large maintenance capital expenditure during a particular quarter will prevent our general partner’s affiliates from being able to convert some or all of their subordinated units to common units since the effect of an estimate is to spread the expected expense over several periods, thereby mitigating the effect of the actual payment of the expenditure on any single period.

Growth capital expenditures are those capital expenditures that we expect will increase our production or asset base over the long term. Examples of growth capital expenditures include the acquisition of a new royalty or mineral interest with attributable reserves or production, to the extent such expenditures are incurred to increase our production or asset base over the long term. Growth capital expenditures will also include interest (and related fees) on debt incurred and distributions on equity issued (including incremental distributions on incentive distribution rights) to finance all or any portion of such capital improvement during the period from such financing until the earlier to occur of the date any such capital improvement begins producing in paying quantities or is placed into service, as applicable, or the date that it is abandoned or disposed of. Capital expenditures made solely for investment purposes will not be considered growth capital expenditures.

Investment capital expenditures are those capital expenditures that are neither maintenance capital expenditures nor growth capital expenditures. Investment capital expenditures largely will consist of capital expenditures made for investment purposes. Examples of investment capital expenditures include traditional capital expenditures for investment purposes, such as purchases of securities, as well as other capital expenditures that might be made in lieu of such traditional investment capital expenditures, such as the acquisition of a capital asset for investment purposes or development of our undeveloped properties in excess of the maintenance of our production or asset base, but which are not expected to expand our production or asset base for more than the short term.

As described above, neither investment capital expenditures nor growth capital expenditures will be included in operating expenditures, and thus will not reduce operating surplus. Because growth capital expenditures include interest payments (and related fees) on debt incurred to finance all or a portion of the construction, replacement or improvement of a capital asset (such as equipment or reserves) during the period from such financing until the earlier to occur of the date any such capital asset begins producing in paying quantities or is placed into service, as applicable, and the date that it is abandoned or disposed of, such interest payments also do not reduce operating surplus. Losses on disposition of an investment capital expenditure will reduce operating surplus when realized and cash receipts from an investment capital expenditure will be treated as a cash receipt for purposes of calculating operating surplus only to the extent the cash receipt is a return on principal.

Capital expenditures that are made in part for maintenance capital purposes and in part for investment capital or growth capital purposes will be allocated as maintenance capital expenditures, investment capital expenditures or growth capital expenditure by our general partner’s board of directors, based upon its good faith determination, subject to approval by the conflicts committee of our general partner’s board of directors.

Index to Financial Statements

Subordination Period

General

Our partnership agreement provides that, during the subordination period (which we describe below), the common units will have the right to receive distributions of available cash from operating surplus each quarter in an amount equal to $ per common unit, which amount is defined in our partnership agreement as the minimum quarterly distribution, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating surplus may be made on the subordinated units. These units are deemed “subordinated” because for a period of time, referred to as the subordination period, the subordinated units will not be entitled to receive any distributions from operating surplus until the common units have received the minimum quarterly distribution plus any arrearages from prior quarters. Furthermore, no arrearages will be paid on the subordinated units. The practical effect of the subordinated units is to increase the likelihood that during the subordination period there will be available cash from operating surplus to be distributed on the common units.

Expiration of the Subordination Period

Except as described below under “—Early Conversion of Subordinated Units,” the subordination period will extend until the first business day after the distribution to unitholders in respect of any quarter ending on or after March 31, 2018 that each of the following tests are met:

•

distributions of available cash from operating surplus on each of the outstanding common units, subordinated units and any other partnership interests that are senior or equal in right of distribution to the subordinated units equaled or exceeded, in the aggregate, the sum of the minimum quarterly distributions payable with respect to a period of twelve consecutive quarters immediately preceding such date;

•

the “adjusted operating surplus” (as defined below) generated during the period of twelve consecutive quarters immediately preceding that date equaled or exceeded, in the aggregate, the sum of the minimum quarterly distributions on all of the outstanding common units, subordinated units and any other partnership interests that are senior or equal in right of distribution to the subordinated units that were outstanding during these periods payable with respect to such period on a fully diluted weighted average basis; and

•

there are no arrearages in payment of the minimum quarterly distribution on the common units.

Early Conversion of Subordinated Units

The subordination period will automatically terminate, and all of the subordinated units will convert into an equal number of common units, on the first business day after the distribution to unitholders in respect of any quarter ending on or after March 31, 2016, if the following tests are met:

•

distributions of available cash from operating surplus on each of the outstanding common units and subordinated units and any other partnership interests that are senior or equal in right of distribution to the subordinated units equaled or exceeded $ (125% of the minimum quarterly distribution) per quarter for the four quarter period immediately preceding that date;

•

the “adjusted operating surplus” generated during the four-quarter period immediately preceding that date equaled or exceeded the sum of a distribution of $ (125% of the annualized minimum quarterly distribution) on all of the outstanding common units and subordinated units and any other partnership interests that are senior or equal in right of distribution to the subordinated units, in each case that were outstanding during such four quarter period on a fully diluted weighted average basis, and the corresponding distributions on the incentive distribution rights; and

•

there are no arrearages in payment of the minimum quarterly distribution on the common units.

Index to Financial Statements

In addition, and notwithstanding the foregoing, the subordination period will also automatically terminate,

•

with respect to 50% of the subordinated units, on the first business day following the distribution of available cash in respect of any quarter, beginning with the quarter ending September 30, 2016, that each of the following tests are met:

•

distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded $ per unit (115% of the minimum quarterly distribution), for the quarter immediately preceding that date;

•

the “adjusted operating surplus” (as defined below) generated during the quarter immediately preceding that date equaled or exceeded the sum of (i) $ per unit (115% of the minimum quarterly distribution) on all of the outstanding common units and subordinated units during that period on a fully diluted, weighted average basis and (ii) the corresponding distributions on the IDRs; and

•

there are no arrearages in payment of the minimum quarterly distribution on the common units.

•

with respect to 100% of the subordinated units, on the first business day following the distribution of available cash in respect of any quarter, beginning with the quarter ending September 30, 2016, that each of the following tests are met:

•

distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded $ per unit (125% of the minimum quarterly distribution), for the quarter immediately preceding that date;

•

the “adjusted operating surplus” (as defined below) generated during the quarter immediately preceding that date equaled or exceeded the sum of (i) $ per unit (125% of the minimum quarterly distribution) on all of the outstanding common units and subordinated units during that period on a fully diluted, weighted average basis and (ii) the corresponding distributions on the IDRs; and

•

there are no arrearages in payment of the minimum quarterly distribution on the common units.

Please read “Risk Factors—Risks Inherent in an Investment in Us—Unlike most master limited partnerships with subordinated units, our partnership agreement allows for conversion of subordinated units into common units after paying a quarterly distribution at the highest target distribution level for only a single quarter.”

Effect of the Expiration of the Subordination Period

When the subordination period ends, each outstanding subordinated unit will convert into one common unit and will then participate pro rata with the other common units in distributions of available cash. Common units will then no longer be entitled to arrearages.

Effect of the Expiration of the Subordination Period Following Removal of our General Partner

If the unitholders remove our general partner other than for cause and units held by our general partner and its affiliates are not voted in favor of such removal:

•

the subordination period will end and each subordinated unit will immediately convert into one common unit; and

•

any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished.

Index to Financial Statements

Adjusted Operating Surplus

Adjusted operating surplus is intended to reflect the cash generated from operations during a particular period and therefore excludes net increases in working capital borrowings and net drawdowns of reserves of cash generated in prior periods. Adjusted operating surplus for any period consists of:

•

operating surplus generated with respect to that period (excluding the amount described in the first bullet point under “—Operating Surplus and Capital Surplus—Operating Surplus”); less

•

any net increase in working capital borrowings with respect to that period; less

•

any net decrease in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; plus

•

any net decrease in working capital borrowings with respect to that period; plus

•

any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium; plus

•

any net decrease made in subsequent periods in cash reserves for operating expenditures initially established with respect to such period to the extent such decrease results in a reduction of adjusted operating surplus in subsequent periods pursuant to the third bullet point above.

Distributions of Available Cash from Operating Surplus During the Subordination Period

Our partnership agreement requires that we make distributions of available cash from operating surplus for any quarter during the subordination period in the following manner:

•

first, to the common unitholders, pro rata, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter;

•

second, to the common unitholders, pro rata, until we distribute for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period;

•

third, to the subordinated unitholders, pro rata, until we distribute for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and

•

thereafter, in the manner described in “—General Partner Interest and Incentive Distribution Rights” below.

Distributions of Available Cash from Operating Surplus After the Subordination Period

Our partnership agreement requires that we make distributions of available cash from operating surplus for any quarter after the subordination period in the following manner:

•

first, to all unitholders, pro rata, until we distribute for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter; and

•

thereafter, in the manner described in “—General Partner Interest and Incentive Distribution Rights” below.

General Partner Interest and Incentive Distribution Rights

Incentive distribution rights represent the right to receive an increasing percentage (15% and 25%) of quarterly distributions of available cash from operating surplus after the minimum quarterly distribution and the

Index to Financial Statements

target distribution levels have been achieved. Our general partner currently holds the incentive distribution rights, but may transfer these rights separately from its general partner interest, subject to restrictions in the partnership agreement. The following discussion assumes that there are no arrearages on common units and that our general partner continues to own the incentive distribution rights.

If for any quarter:

•

we have distributed available cash from operating surplus to the common and subordinated unitholders in an amount equal to the minimum quarterly distribution; and

•

we have distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution;

then, our partnership agreement requires that we distribute any additional available cash from operating surplus for that quarter among the unitholders and the general partner in the following manner:

•

first, to all unitholders, pro rata, until each unitholder receives a total of $ per unit for that quarter (the “first target distribution”);

•

second, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives a total of $ per unit for that quarter (the “second target distribution”); and

•

thereafter, 75.0% to all unitholders, pro rata, and 25% to our general partner.

Percentage Allocations of Available Cash from Operating Surplus

The following table illustrates the percentage allocations of available cash from operating surplus between the unitholders and our general partner based on the specified target distribution levels. The amounts set forth under “Marginal Percentage Interest in Distributions” are the percentage interests of our general partner and the unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column “Total Quarterly Distribution per Unit.” The percentage interests shown for our unitholders and our general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests set forth below assume there are no arrearages on common units and our general partner has not transferred its incentive distribution rights.


					Marginal Percentage Interest in Distributions
	Total Quarterly Distribution per Unit				Unitholders			IDR Holders
Minimum Quarterly Distribution			$			100	%		—
First Target Distribution		above	$	up to $		100	%		—
Second Target Distribution		above	$	up to $		85.0	%		15.0	%
Thereafter		above	$			75.0	%		25.0	%

General Partner’s Right to Reset Incentive Distribution Levels

Our general partner, as the holder of all of our incentive distribution rights, has the right under our partnership agreement to elect to relinquish the right to receive incentive distribution payments based on the initial cash target distribution levels and to reset, at higher levels, the minimum quarterly distribution amount and cash target distribution levels upon which the incentive distribution payments to our general partner would be set. Our general partner’s right to reset the minimum quarterly distribution amount and the target distribution levels upon which the incentive distributions payable to our general partner are based may be exercised, without approval of our unitholders or the conflicts committee of our general partner, at any time when there are no subordinated units outstanding and we have made cash distributions to the holders of the incentive distribution

Index to Financial Statements

rights at the highest level of incentive distribution for each of the prior four consecutive fiscal quarters. The reset minimum quarterly distribution amount and target distribution levels will be higher than the minimum quarterly distribution amount and the target distribution levels prior to the reset such that our general partner will not receive any incentive distributions under the reset target distribution levels until cash distributions per unit following this event increase as described below. We anticipate that our general partner would exercise this reset right (if at all) to facilitate acquisitions or internal growth projects that would otherwise not be sufficiently accretive to cash distributions per common unit, taking into account the existing levels of incentive distribution payments being made to our general partner.

In connection with the resetting of the minimum quarterly distribution amount and the target distribution levels and the corresponding relinquishment by our general partner of incentive distribution payments based on the target cash distributions prior to the reset, our general partner will be entitled to receive a number of newly issued common units based on a predetermined formula described below that takes into account the “cash parity” value of the cash distributions related to the incentive distribution rights received by our general partner for the quarter prior to the reset event as compared to the cash distributions per common unit during such quarter.

The number of common units to be issued in connection with a resetting of the minimum quarterly distribution amount and the target distribution levels then in effect would be equal to the quotient determined by dividing (x) the amount of cash distributions received by our general partner in respect of its incentive distribution rights during the fiscal quarter ended immediately prior to the date of such reset election by (y) the amount of cash distributed per common unit during such quarter.

Following any reset election by our general partner, the minimum quarterly distribution amount will be reset to an amount equal to the cash distribution amount per unit for the fiscal quarter immediately preceding the reset election (which amount we refer to as the “reset minimum quarterly distribution”) and the target distribution levels will be reset to be correspondingly higher such that we would distribute all of our available cash from operating surplus for each quarter thereafter as follows:

•

first, to all unitholders, pro rata, until each unitholder receives an amount equal to 115% of the reset minimum quarterly distribution for that quarter;

•

second, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives an amount per unit equal to 125% of the reset minimum quarterly distribution for the quarter; and

•

thereafter, 75.0% to all unitholders, pro rata, and 25.0% to our general partner.

The following table illustrates the percentage allocation of available cash from operating surplus between the unitholders and our general partner at various cash distribution levels (i) pursuant to the cash distribution provisions of our partnership agreement in effect at the closing of this offering, as well as (ii) following a hypothetical reset of the minimum quarterly distribution and target distribution levels based on the assumption that the quarterly cash distribution amount per common unit during the fiscal quarter immediately preceding the reset election was $ .


			Marginal Percentage Interest in Distributions
	Quarterly Distribution per Unit Prior to Reset		Unitholders			IDR Holders			Quarterly Distribution per Unit Following Hypothetical Reset
Minimum quarterly distribution		$		100	%		—			$
First target distribution		up to $		100	%		—			up to $	(1)
Second target distribution	above $	up to $		85.0	%		15.0	%	above $	(1) up to $	(2)
Thereafter		above $		75.0	%		25.0	%		above $	(2)

Index to Financial Statements

(1)	This amount is 115.0% of the hypothetical reset minimum quarterly distribution.

(2)	This amount is 125.0% of the hypothetical reset minimum quarterly distribution.

The following table illustrates the total amount of available cash from operating surplus that would be distributed to the unitholders and our general partner, including in respect of incentive distribution rights based on the amount distributed for the quarter immediately prior to the reset. The table assumes that immediately prior to the reset there would be common units outstanding, and the distribution to each common unit would be $ for the quarter prior to the reset.

Cash Distributions to General
Partner Prior to Reset

Quarterly Distributions
per Unit Prior to Reset

Cash
Distributions
to Common
Unitholders
Prior to
Reset

Common
Units

Incentive
Distribution
Rights

Total

Total
Distributions

Minimum quarterly distribution

—

First target distribution

up to $

—

Second target distribution

above $

up to $

—

Thereafter

above $

—

The following table illustrates the total amount of available cash from operating surplus that would be distributed to the unitholders and our general partner, including in respect of incentive distribution rights, with respect to the quarter in which the reset occurs. The table reflects that as a result of the reset there would be common units outstanding and the distribution to each common unit would be $ . The number of common units to be issued to our general partner upon the reset was calculated by dividing (i) the amount received by our general partner in respect of its incentive distribution rights for the quarter prior to the reset as shown in the table above, or $ , by (ii) the available cash distributed on each common unit for the quarter prior to the reset as shown in the table above, or $ .

Cash Distributions to General
Partner After Reset

Unit Quarterly
Distributions per Prior
to Reset

Cash
Distributions
to Common
Unitholders
Prior to
Reset

Common
Units

Incentive
Distribution
Rights

Total

Total
Distributions

Minimum quarterly distribution

—

First target distribution

up to $

—

Second target distribution

above $

up to $

—

Thereafter

above $

—

$—

Our general partner will be entitled to cause the minimum quarterly distribution amount and the target distribution levels to be reset on more than one occasion, provided that a reset election may not be made except at a time when it has received incentive distributions for the prior four consecutive fiscal quarters based on the highest level of incentive distributions that they are entitled to receive under our partnership agreement.

Index to Financial Statements

Distributions from Capital Surplus

How Distributions from Capital Surplus Will Be Made

We will make distributions of available cash from capital surplus, if any, in the following manner:

•

First, to all unitholders, pro rata, until the minimum quarterly distribution is reduced to zero, as described below;

•

Second, to the common unitholders, pro rata, until we distribute for each common unit, an amount of available cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution on the common units; and

•

Thereafter, we will make all distributions of available cash from capital surplus as if they were from operating surplus.

Effect of a Distribution from Capital Surplus

Our partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price from this initial public offering, which is a return of capital. Each time a distribution of capital surplus is made, the minimum quarterly distribution and the target distribution levels will be reduced in the same proportion as the distribution of capital surplus to the fair market value of the common units prior to the announcement of the distribution. Because distributions of capital surplus will reduce the minimum quarterly distribution after any of these distributions are made, it may be easier for our general partner to receive incentive distributions and for the subordinated units to convert into common units.

Once we reduce the minimum quarterly distribution and target distribution levels to zero, all future distributions will be made such that 75.0% is paid to the holders of units, pro rata, and 25.0% is paid to our general partner. The percentage interest shown for our general partner assumes our general partner has not transferred the incentive distribution rights.

Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels

In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if we combine our units into fewer units or subdivide our units into a greater number of units, our partnership agreement specifies that the following items will be proportionately adjusted:

•

the minimum quarterly distribution;

•

target distribution levels;

•

the initial unit price, as described below under “—Distributions of Cash Upon Liquidation”; and

•

the number of common units into which a subordinated unit is convertible.

For example, if a two-for-one split of the common units should occur, the minimum quarterly distribution, the target distribution levels and the initial unit price would each be reduced to 50% of its initial level, and each subordinated unit would be convertible into two common units. Our partnership agreement provides that we do not make any adjustment by reason of the issuance of additional units for cash or property.

In addition, if legislation is enacted or if existing law is modified or interpreted by a governmental taxing authority, so that we become taxable as a corporation or otherwise subject to taxation as an entity for federal, state or local income tax purposes, our partnership agreement specifies that the minimum quarterly distribution and the target distribution levels may be reduced by multiplying each distribution level by a fraction, the numerator of which is available cash for that quarter and the denominator of which is the sum of available cash for that quarter plus our general partner’s estimate of our aggregate liability for the quarter for such income taxes payable by reason of such legislation or interpretation. To the extent that the actual tax liability differs from the

Index to Financial Statements

estimated tax liability for any quarter, the difference will be accounted for in subsequent quarters. In addition, if as a result of a change in law or interpretation thereof, we or any of our subsidiaries is treated as an association taxable as a corporation or is otherwise subject to additional taxation as an entity for U.S. federal, state, local or non-U.S. income or withholding tax purposes, our general partner may, in its sole discretion, reduce the minimum quarterly distribution and the target distribution levels by multiplying each by a fraction, the numerator of which is available cash for that quarter (after deducting our general partner’s estimate of our aggregate liability for the quarter for such income and withholding taxes payable by reason of such change in laws or interpretation) and the denominator of which is the sum of available cash for that quarter plus our general partner’s estimate of our aggregate liability for the quarter for such income and withholding taxes payable by reason of such change in laws or interpretation. To the extent that the actual tax liability differs from the estimated tax liability for any quarter, the difference will be accounted for in subsequent quarters.

Distributions of Cash Upon Liquidation

General

If we dissolve in accordance with the partnership agreement, we will sell or otherwise dispose of our assets in a process called liquidation. We will first apply the proceeds of liquidation to the payment of our creditors. We will distribute any remaining proceeds to the unitholders and the general partner, in accordance with their capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of our assets in liquidation.

The allocations of gain and loss upon liquidation are intended, to the extent possible, to entitle the holders of units to a repayment of the initial value contributed by unitholders for their units in this offering, which we refer to as the “initial unit price” for each unit. The allocations of gain and loss upon liquidation are also intended, to the extent possible, to entitle the holders of outstanding common units to a preference over the holders of outstanding subordinated units upon our liquidation, to the extent required to permit common unitholders to receive their initial unit price plus the minimum quarterly distribution for the quarter during which liquidation occurs plus any unpaid arrearages in payment of the minimum quarterly distribution on the common units. However, there may not be sufficient gain upon our liquidation to enable the holders of common units to fully recover all of these amounts, even though there may be cash available for distribution to the holders of subordinated units. Any further net gain recognized upon liquidation will be allocated in a manner that takes into account the incentive distribution rights of our general partner.

Manner of Adjustments for Gain

The manner of the adjustment for gain is set forth in the partnership agreement. If our liquidation occurs before the end of the subordination period, we will allocate any gain to the partners in the following manner:

•

first, to our general partner and the holders of units who have negative balances in their capital accounts to the extent of and in proportion to those negative balances;

•

second, to the common unitholders, pro rata, until the capital account for each common unit is equal to the sum of: (1) the initial unit price; (2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; and (3) any unpaid arrearages in payment of the minimum quarterly distribution;

•

third, to the subordinated unitholders, pro rata, until the capital account for each subordinated unit is equal to the sum of: (1) the initial unit price; and (2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs;

•

fourth, to all unitholders, pro rata, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the first target distribution per unit over the minimum quarterly distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the minimum quarterly distribution per unit that we distributed % to the unitholders, pro rata, for each quarter of our existence;

Index to Financial Statements

•

fifth, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until we allocate under this paragraph an amount per unit equal to: (1) the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter of our existence; less (2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the first target distribution per unit that we distributed 85.0% to the unitholders, pro rata, and 15.0% to our general partner for each quarter of our existence; and

•

thereafter, 75.0% to all unitholders, pro rata, and 25.0% to our general partner.

The percentage interests set forth above for our general partner assume our general partner has not transferred the incentive distribution rights.

If the liquidation occurs after the end of the subordination period, the distinction between common and subordinated units will disappear, so that clause (3) of the second bullet point above and all of the third bullet point above will no longer be applicable.

Manner of Adjustments for Losses

If our liquidation occurs before the end of the subordination period, we will generally allocate any loss to our general partner and the unitholders in the following manner:

•

first, to holders of subordinated units in proportion to the positive balances in their capital accounts, until the capital accounts of the subordinated unitholders have been reduced to zero;

•

second, to the holders of common units in proportion to the positive balances in their capital accounts, until the capital accounts of the common unitholders have been reduced to zero; and

•

thereafter, 100.0% to our general partner.

If the liquidation occurs after the end of the subordination period, the distinction between common and subordinated units will disappear, so that all of the first bullet point above will no longer be applicable.

Adjustments to Capital Accounts

Our partnership agreement requires that we make adjustments to capital accounts upon the issuance of additional units. In this regard, our partnership agreement specifies that we allocate any unrealized and, for tax purposes, unrecognized gain or loss resulting from the adjustments to the unitholders and the general partner in the same manner as we allocate gain or loss upon liquidation. In the event that we make positive adjustments to the capital accounts upon the issuance of additional units, our partnership agreement requires that we allocate any later negative adjustments to the capital accounts resulting from the issuance of additional units or upon our liquidation in a manner which results, to the extent possible, in the general partner’s capital account balances equaling the amount which they would have been if no earlier positive adjustments to the capital accounts had been made.

Index to Financial Statements

SELECTED HISTORICAL FINANCIAL DATA

Terryville Mineral & Royalty Partners LP was formed in October 2014 and does not have historical financial statements. Therefore, in this prospectus we present the historical carve-out financial statements of the royalty interests that will be contributed to us upon the closing of this offering. Our “predecessor” refers to the historical carve-out financial and operating data of such royalty interests. The following table presents selected historical financial data of the royalty interests as of the dates and for the periods indicated.

The selected historical financial data of the royalty interests presented as of the dates and for the periods indicated are derived from the audited historical carve-out financial statements and unaudited historical carve-out financial statements of the royalty interests included elsewhere in this prospectus.

For a detailed discussion of the selected historical financial data contained in the following table, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The following table should also be read in conjunction with “Use of Proceeds” and the audited historical carve-out financial statements and unaudited historical carve-out financial statements of the royalty interests included elsewhere in this prospectus. Among other things, the historical carve-out financial statements include more detailed information regarding the basis of presentation for the information in the following table.


	Six Months Ended June 30,						Year Ended December 31,
	2014			2013			2013			2012
	(unaudited)
	(in thousands, except per unit data)
Statement of Operations Data:
Royalty income	$	14,810		$	5,289		$	12,638		$	3,079
Costs and expenses:
Production taxes		353			65			247			10
Depletion		949			556			1,330			367
General and administrative		49			48			92			82

Total costs and expenses		1,351			669			1,669			459

Income before income taxes		13,459			4,620			10,969			2,620
Income tax expense		428			—			—			—

Net income	$	13,031		$	4,620		$	10,969		$	2,620

Statement of Cash Flow Data:
Net cash provided by (used in):
Operating activities	$	10,894		$	4,455		$	11,025		$	1,774
Investing activities		(133	)		(783	)		(963	)		(463	)
Financing activities		(10,761	)		(3,672	)		(10,062	)		(1,311	)
Other Financial Data:
EBITDA(1)	$	14,408		$	5,176		$	12,299		$	2,987
Pro forma net income per common unit (basic and diluted)(2)
Pro forma net income per subordinated unit (basic and diluted)(2)
Balance Sheet Data (at period end):
Total assets	$	29,467					$	26,780		$	25,872
Total liabilities		1,209						15			14
Predecessor capital		28,258						26,765			25,858

(1)	For more information, please read “Summary—Summary Historical Financial Data—Non-GAAP Financial Measure.”

(2)	For more information, please read Note 2 to our predecessor’s audited carve-out financial statements included elsewhere in this prospectus.

Index to Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our historical performance, financial condition and future prospects in conjunction with our predecessor’s audited historical carve-out financial statements as of and for the years ended December 31, 2013 and 2012 and the unaudited historical financial statements as of and for the six months ended June 30, 2014 included elsewhere in this prospectus. The information provided below supplements, but does not form part of our predecessor’s financial statements. This discussion contains forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact our future operating performance or financial condition, see the section entitled “Risk Factors” elsewhere in this prospectus.

Overview

Terryville Mineral & Royalty Partners LP is a Delaware limited partnership formed by Memorial Resource to own and acquire oil natural gas, NGL and oil properties in North America.

Our initial assets consist of overriding royalty interests in approximately 26,931 gross acres in the Terryville Complex, all of which are operated by Memorial Resource and substantially all of which are currently held by production. Our royalty interests entitle us to receive 7% of gross revenues from production on 44 of Memorial Resource’s 46 existing horizontal producing wells and all future horizontal or vertical wells completed by Memorial Resource at all depths within our acreage regardless of the working interest that Memorial Resource owns. We are not required to pay any capital or operating expenses associated with any existing wells, or expenses associated with the development of any future wells. For the year ended December 31, 2013 and six months ended June 30, 2014, revenue generated from these royalty interests was $12.6 million and $14.8 million, respectively.

Sources of Our Revenue

Our revenues are derived from royalty payments we receive from Memorial Resource based on the sale of oil and natural gas production, as well as the sale of natural gas liquids that are extracted from natural gas during processing. Our royalty payments are not burdened with any post production costs such as gas gathering and processing costs. For the year ended December 31, 2013, our revenues were derived 20% from oil sales, 27% from natural gas liquid sales and 53% from natural gas sales. For the six months ended June 30, 2014, our revenues were derived 18% from oil sales, 22% from natural gas liquid sales and 60% from natural gas sales. Our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in commodity prices. Oil, natural gas liquids and natural gas prices have historically been volatile. During 2013, West Texas Intermediate posted prices ranged from $86.68 to $110.53 per Bbl and the Henry Hub spot market price of natural gas ranged from $3.08 to $4.52 per MMBtu. During the six months ended June 30, 2014, West Texas Intermediate posted prices ranged from $91.66 to $107.26 per Bbl and the Henry Hub spot market price of natural gas ranged from $3.95 to $7.92 per MMBtu.

Natural gas, NGL and oil prices are inherently volatile and are influenced by many factors outside their control. We expect to adopt a hedging policy designed to reduce the impact to our cash flows from commodity price volatility. Under this policy, we intend to enter into commodity derivative contracts covering approximately 65% to 85% of our estimated production from total proved developed producing reserves over a three-to-six year period at any given point of time. We may, however, from time to time hedge more or less than this approximate range. Additionally, we intend to individually identify these non-speculative hedges as “designated hedges” for U.S. federal income tax purposes as we enter into them. These commodity derivative contracts may consist of natural gas, oil and NGL financial swaps and collar contracts and natural gas basis financial swaps.

Index to Financial Statements

Principal Components of Our Cost Structure

Production Taxes

Production taxes are paid on produced natural gas, NGLs and oil based on a percentage of market prices and at fixed per unit rates established by federal, state or local taxing authorities. We take full advantage of all credits and exemptions in the various taxing jurisdictions where we operate. For example, Louisiana allows the suspension of severance taxes on qualifying horizontal wells for two years from the date of first production or until payout of qualified costs, whichever comes first.

General and Administrative

At the closing of this offering, we and our general partner will enter into an omnibus agreement with Memorial Resource pursuant to which, among other things, it will perform all operational, management and administrative services on our general partner’s and our behalf. Our partnership agreement provides that our general partner will determine the expenses that are allocated to us, including expenses incurred by our general partner and its affiliates on our behalf. Memorial Resource currently intends to allocate its expected general and administrative costs on a quarterly basis based on estimated time spent on each entity. For a detailed description of the omnibus agreement, please read “Certain Relationships and Related Party Transactions—Agreements and Transactions with Affiliates in Connection with this Offering—Omnibus Agreement.” Under our partnership agreement and the omnibus agreement, we will reimburse Memorial Resource for all direct and indirect costs incurred on our behalf, including the $2.5 million of incremental annual expenses we expect to incur as a result of becoming a publicly traded partnership. General and administrative expenses related to being a publicly traded partnership include expenses associated with annual and quarterly reporting; tax return and Schedule K-1 preparation and distribution expenses; Sarbanes-Oxley compliance expenses; expenses associated with listing on NASDAQ; independent auditor fees; legal fees; investor relations expenses; registrar and transfer agent fees; director and officer liability insurance costs and director compensation.

Our predecessor’s carve-out financial statements included elsewhere in this prospectus include allocations of costs for salaries, benefits and other general and administrative expenses incurred by Memorial Resource. These costs were allocated based on estimated full-time equivalent labor hours that would have been devoted to running our predecessor’s business. In management’s estimation, the allocation methodology used is reasonable; however, amounts allocated may not be indicative of the cost of future operations or the amount of future allocations.

Depletion

Oil and natural gas producing activities are accounted for in accordance with the successful efforts method of accounting. Depletion of capitalized costs is provided using the units-of-production method based on proved oil and gas reserves related to the associated field.

Reserves and Pricing

The following tables present summary data with respect to the estimated historical net proved oil and natural gas reserves as of September 30, 2014.

Index to Financial Statements

Please read “Business—Our Operations” and the summaries of our reserve report included herein as Appendix C in evaluating the material presented below.


	As of September 30, 2014
Estimated Proved Reserves
Natural Gas (MMcf)		50,227
Oil/Condensate (MBbls)		626
NGLs (MBbls)		2,816
Total estimated net proved reserves (MMcfe)		70,877
Proved developed producing (MMcfe)		21,022
Proved developed non-producing (MMcfe)		0
Proved undeveloped (MMcfe)		49,855
Proved developed reserves as a percentage of total proved reserves		30	%
PV-10 of proved reserves (in millions)(1)		249

(1)

Factors Affecting the Comparability of Our Results to the Historical Financial Results of Our Predecessor

Our results of operations and our future results of operations may not be comparable to the historical results of operations of our predecessor for the periods presented, primarily for the reasons described below:

•

We have not historically had any outstanding indebtedness and consequently incurred no interest expense. In connection with the closing of this offering, we expect to enter into a revolving credit facility to be used for general partnership purposes and thus may incur interest expense in future periods.

•

We anticipate incurring incremental general and administrative expenses of approximately $2.5 million annually as a result of being a publicly traded partnership, consisting of expenses associated with SEC reporting requirements, including annual and quarterly reports to unitholders, tax return and Schedule K-1 preparation and distribution, Sarbanes-Oxley Act compliance, NASDAQ Global Select Market listing, independent auditor fees, legal fees, investor relations activities, registrar and transfer agent fees, director and officer insurance and director compensation.

•

In connection with the closing of this offering, we and our general partner will enter into an omnibus agreement with Memorial Resource pursuant to which Memorial Resource will perform management, administrative and operating services for us and our general partner, and we will reimburse our general partner for amounts paid to Memorial Resource pursuant to such agreement. Please read “Certain Relationships and Related Party Transactions—Agreements and Transactions with Affiliates in Connection with this Offering.”

Index to Financial Statements

Results of Operations

The following table summarizes our revenue and expenses and production data for the periods indicated.


	Six Months Ended June 30,				Year Ended December 31,
	2014		2013		2013		2012
	(unaudited)
	(in thousands)
Operating Results:
Royalty income	$	14,810	$	5,289	$	12,638	$	3,079
Costs and expenses:
Production taxes		353		65		247		10
Depletion		949		556		1,330		367
General and administrative		49		48		92		82

Total costs and expenses		1,351		669		1,669		459

Net income before income taxes		13,459		4,620		10,969		2,620
Income tax expense		428		—		—		—

Net income	$	13,031	$	4,620	$	10,969	$	2,620

Production Data:
Oil (MBbls)		26		12		25		6
NGLs (MBbls)		68		30		83		25
Natural Gas (MMcf)		1,795		787		1,821		501

Total (MMcfe)		2,361		1,035		2,472		684
Average net production (MMcfe/d)		13.0		5.7		6.8		1.9
Average Sales Price:
Oil (per Bbl)	$	99.34	$	97.40	$	99.73	$	93.72
NGLs (per Bbl)	$	48.20	$	40.07	$	40.58	$	41.43
Natural gas (per Mcf)	$	4.97	$	3.78	$	3.71	$	3.01

Total (Mcfe)	$	6.27	$	5.11	$	5.11	$	4.50

Six Months Ended June 30, 2014 Compared to the Six Months Ended June 30, 2013

Royalty Income

Our royalty income for the six months ended June 30, 2014 was $14.8 million, an increase of $9.5 million, or 180%, from $5.3 million for the six months ended June 30, 2013. Our revenues are a function of oil, natural gas liquids and natural gas production volumes sold and average prices received for those volumes. Production increased 1.3 Bcfe (approximately 128%), primarily from increased drilling activities by Memorial Resource. The average realized sales price increased $1.16 per Mcfe primarily due to higher natural gas prices. The favorable volume and pricing variance contributed to an approximate $6.7 million and $2.8 million increase in revenues, respectively.

Depletion

The $0.4 million increase in depletion expense was primarily due to increased production volumes related to increased drilling activities by Memorial Resource. Increased production volumes increased depletion expense by $0.7 million, while a 25% decrease in the depletion rate between periods decreased depletion expense by $0.3 million. On a per Mcfe basis, depletion expense decreased by $0.14 per Mcfe from the six months ended June 30, 2013 to the same period in 2014. An increase in proved reserve volumes more than offset the impact of increases to the depletable cost base.

Index to Financial Statements

Income Tax

Income tax expense has been presented for the six months ended June 30, 2014, as Memorial Resource became subject to federal income tax on June 18, 2014. Prior to Memorial Resource’s initial public offering on June 18, 2014, its predecessor was a pass-through entity not subject to federal tax. Accordingly, income tax expense was based on estimated income from June 18, 2014 to June 30, 2014 on a separate return basis at a statutory rate of 40%.

Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

Royalty Income

Our royalty income for the year ended December 31, 2013 was $12.6 million, an increase of $9.6 million, or 310%, from $3.1 million for the year ended December 31, 2012. Production increased 1.8 Bcfe (approximately 261%), primarily from increased drilling activities by Memorial Resource. The average realized sales price increased $0.61 per Mcfe primarily due to higher natural gas and crude oil prices. The favorable volume and pricing variance contributed to an approximate $8.1 million and $1.5 million increase in revenues, respectively.

Depletion

The $1.0 million increase in depletion expense was primarily due to increased production volumes related to increased drilling activities by Memorial Resource. Increased production volumes increased depletion expense by $1.0 million. On a per Mcfe basis, depletion expense remained flat between 2012 and 2013.

Liquidity and Capital Resources

Overview

Following the completion of this offering, we expect our primary sources of liquidity will be cash flows from operations, borrowings under our revolving credit facility and equity and debt financings and our primary uses of cash will be for paying distributions to our unitholders and any growth capital expenditures such as the acquisition of additional royalty or mineral interests in oil and gas properties. Because we own royalty interests, we will not be required to pay any capital or operating expenses associated with any existing wells, or expenses associated with the of the development of any future wells related to our initial assets.

Our partnership agreement requires that we distribute all of our available cash (as defined in the partnership agreement) to our unitholders. In making cash distributions, our general partner will attempt to avoid large variations in the amount we distribute from quarter to quarter. In order to facilitate this, our partnership agreement will permit our general partner to establish cash reserves to be used to pay distributions for any one or more of the next four quarters. In addition, our partnership agreement allows us to borrow funds to make distributions.

We may borrow to make distributions to our unitholders, for example, in circumstances where we believe that the distribution level is sustainable over the long-term, but short-term factors have caused available cash from operations to be insufficient to sustain our level of distributions. In addition, we plan to hedge a significant portion of our production. We generally will be required to settle our commodity hedge derivatives within five days of the end of the month. As is typical in the oil and natural gas industry, we do not generally receive the proceeds from the sale of our hedged production until 45 to 60 days following the end of the month. As a result, when commodity prices increase above the fixed price in the derivative contracts, we will be required to pay the derivative counterparty the difference between the fixed price in the derivative contract and the market price before we receive the proceeds from the sale of the hedged production. If this occurs, we may make working capital borrowings to fund our distributions.

Index to Financial Statements

Cash Flows

The following table presents our cash flows for the period indicated.


	Six Months Ended June 30,				Year Ended December 31,
	2014		2013		2013		2012
	(in thousands)
Cash Flow Data:
Cash flows provided by operating activities	$	10,894	$	4,455	$	11,025	$	1,774
Cash flows used in investing activities		133		783		963		463
Cash flows used in financing activities		10,761		3,672		10,062		1,311

Six Months Ended June 30, 2014 Compared to the Six Months Ended June 30, 2013

Operating Activities

Our operating cash flow is sensitive to many variables, the most significant of which is the volatility of prices for oil and natural gas. Prices for these commodities are determined primarily by prevailing market conditions. Regional and worldwide economic activity, weather and other substantially variable factors influence market conditions for these products. These factors are beyond our control and are difficult to predict.

Production increased 1.3 Bcfe (approximately 128%) and average realized sales price increased $1.16 per Mcfe as previously discussed under “—Results of Operations.” Net cash provided by operating activities included a $2.4 million period-to-period increase in cash flow attributable to the timing of cash receipts and disbursements related to operating activities during the six months ended June 30, 2014 compared to the six months ended June 30, 2013.

Investing Activities

On March 18, 2013, a purchase and sale agreement was executed by a subsidiary of Memorial Resource for the purchase of certain oil and gas properties and leases in Louisiana from a third party. The amount allocable to our predecessor’s financial statements was $0.7 million. This transaction closed on April 30, 2013. Additions to oil and natural gas interests related to leasing was approximately $0.1 million for both the six months ended June 30, 2014 and 2013.

Financing Activities

Distributions, as presented on the cash flow statement under financing activities, are equal to net cash provided by operating activities less cash used in investing activities since the Partnership’s predecessor operated within the Memorial Resource cash management program. Distributions for the six months ended June 30, 2014 were $10.7 million, an increase of $7.0 million from $3.7 million for the six months ended June 30, 2013.

Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

Operating Activities

Production increased 1.8 Bcfe (approximately 261%) and average realized sales price increased $0.61 per Mcfe as previously discussed under “—Results of Operations.”

Investing Activities

Index to Financial Statements

On May 1, 2012, two subsidiaries of Memorial Resource jointly acquired operating and non-operating interests in certain oil and natural gas properties located in East Texas and North Louisiana from an undisclosed third party seller. The amount allocable to our predecessor’s financial statements was less than $0.1 million.

Additions to oil and natural gas interests related to leasing were $0.2 million for the year ended December 31, 2013 compared to $0.4 million for the year ended December 31, 2012.

Financing Activities

Distributions for the year ended December 31, 2013 were $10.0 million, an increase of $8.7 million from $1.3 million for the year ended December 31, 2012.

Revolving Credit Facility

In connection with the closing of this offering, we expect to enter into a credit agreement providing for a revolving credit facility. The facility would be secured by substantially all of our assets. We expect that the credit agreement will contain various affirmative, negative and financial maintenance covenants. These covenants would, among other things, limit additional indebtedness, additional liens, sales of assets, mergers and consolidations, transactions with affiliates and entering into certain swap agreements and require the maintenance of certain financial ratios. We also expect that the credit agreement will contain customary events of default, including non-payment, breach of covenants, materially incorrect representations, cross-default, bankruptcy and change of control.

Commodity Derivative Contracts

Our cash flow from operations is subject to many variables, the most significant of which is the volatility of oil and natural gas prices. Oil and natural gas prices are determined primarily by prevailing market conditions, which are dependent on regional and worldwide economic activity, weather and other factors beyond our control. Our future cash flow from operations will depend on the prices of oil and natural gas and our ability to maintain and increase production through acquisitions and exploitation and development projects.

We expect to adopt a hedging policy designed to reduce the impact to our cash flows from commodity price volatility. Under this policy, we intend to enter into commodity derivative contracts covering approximately 65% to 85% of our estimated production from total proved developed producing reserves over a three-to-six year period at any given point of time. We may, however, from time to time hedge more or less than this approximate range. Additionally, we intend to individually identify these non-speculative hedges as “designated hedges” for U.S. federal income tax purposes as we enter into them. These commodity derivative contracts limit our exposure to declines in prices, but also limit the benefits if prices increase. We do not specifically designate derivative contracts as cash flow hedges; therefore, the mark-to-market adjustment reflecting the change in the unrealized gains or losses on these contracts is recorded in current period earnings. When prices for oil and natural gas are volatile, a significant portion of the effect of our hedging activities consists of non-cash income or expenses due to changes in the fair value of our derivative contracts. Realized gains or losses only arise from payments made or received on monthly settlements or if a derivative contract is terminated prior to its expiration.

Contractual Obligations

Our predecessor did not have any contractual obligations and other commitments as of December 31, 2013.

Internal Controls and Procedures

We are not currently required to comply with the SEC’s rules implementing Section 404 of the Sarbanes-Oxley Act of 2002, and are therefore not required to make a formal assessment of the effectiveness of our internal controls over financial reporting for that purpose. Upon becoming a public company, we will be required

Index to Financial Statements

to comply with the SEC’s rules implementing Section 302 of the Sarbanes-Oxley Act of 2002, which will require our management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal controls over financial reporting. We will not be required to make our first assessment of our internal controls over financial reporting until the year following our first annual report required to be filed with the SEC. To comply with the requirements of being a public company, we will need to implement additional financial and management controls, reporting systems and procedures and hire additional accounting, finance and legal staff.

Further, our independent registered public accounting firm is not yet required to formally attest to the effectiveness of our internal controls over financial reporting, and will not be required to do so for as long as we are an “emerging growth company” pursuant to the provisions of the JOBS Act or as long as we are a non-accelerated filer. See “Summary—Emerging Growth Company Status.” Please also see “Risk Factors—Risks Inherent in an Investment in Us—For as long as we are an emerging growth company, we will not be required to comply with certain disclosure requirements, including those relating to accounting standards and disclosure about our executive compensation and internal control auditing requirements that apply to other public companies.”

New and Revised Financial Accounting Standards

We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act, enacted on April 5, 2012. Section 102 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our election to “opt-out” of the extended transition period is irrevocable.

Critical Accounting Policies

Natural Gas and Oil Interests

Oil and natural gas producing activities are accounted for in accordance with the successful efforts method of accounting. Under this method, costs of acquiring properties, including royalty interests, are capitalized. Depletion of capitalized costs is provided using the units-of-production method based on proved oil and gas reserves related to the associated field. On the sale or retirement of a complete or partial unit of a proved property, the cost and related accumulated depletion are removed from the property accounts, and any gain or loss is recognized.

Proved Natural Gas and Oil Reserves

The estimates of proved oil and natural gas reserves utilized in the preparation of the carve-out financial statements are estimated in accordance with the rules established by the SEC and the Financial Accounting Standards Board (“FASB”). These rules require that reserve estimates be prepared under existing economic and operating conditions using a trailing 12-month average price with no provision for price and cost escalations in future years except by contractual arrangements. We intend to use NSAI to prepare a reserve report as of December 31 of each year for a vast majority of our proved reserves and to prepare internal estimates of our proved reserves as of June 30 of each year.

Reserve estimates are inherently imprecise. Accordingly, the estimates are expected to change as more current information becomes available. It is possible that, because of changes in market conditions or the inherent imprecision of reserve estimates, the estimates of future cash inflows, future gross revenues, the amount of oil and natural gas reserves, the remaining estimated lives of oil and natural gas interests, or any combination of the above may be increased or reduced. Increases in recoverable economic volumes generally reduce per unit depletion rates while decreases in recoverable economic volumes generally increase per unit depletion rates.

Index to Financial Statements

A decline in proved reserves may result from lower market prices, which may make it uneconomical for Memorial Resource to drill for and produce higher cost fields. In addition, a decline in proved reserve estimates may impact the outcome of our assessment of oil and gas producing properties for impairment.

Impairments

Proved oil and natural gas interests are reviewed for impairment when events and circumstances indicate a possible decline in the recoverability of the carrying value of such interests, such as a downward revision of the reserve estimates, less than expected production or lower commodity prices. The estimated undiscounted future cash flows expected in connection with the mineral interests are compared to the carrying value of the mineral interests to determine if the carrying amount is recoverable. If the carrying value of the mineral interests exceeds its estimated undiscounted future cash flows, the carrying amount of the mineral interest is reduced to its estimated fair value using Level 3 inputs. The factors used to determine fair value include, but are not limited to, estimates of proved reserves, future commodity prices, the timing of future production and a discount rate commensurate with the risk reflective of the lives remaining for the respective oil and natural gas interests.

Royalty Interests and Revenue Recognition

Overriding royalty interests represent the right to receive revenues (oil and natural gas sales), less production taxes. Revenue is recorded when title passes to the purchaser. Overriding royalty interests have no rights or obligations to explore, develop or operate the property and do not incur any of the costs of exploration, development, and operation of the property. Our royalty interests are not burdened by post-production costs.

Royalty Income Receivable

Royalty income receivable consist of receivables from oil and natural gas sales delivered to purchasers. Those purchasers remit payment for production to the operator of the properties and the operator, in turn, remits payment to us. Substantially all of our royalty interests in oil and natural gas properties are operated by Memorial Resource. Most payments are received within two months after the production date. Royalty income receivable are stated at amounts due from operators, net of an allowance for doubtful accounts when we believe collection is doubtful.

Derivative Instruments

Commodity derivative financial instruments (e.g., swaps, floors, collars, and put options) are used to reduce the impact of natural gas and oil price fluctuations. Interest rate swaps are used to manage exposure to interest rate volatility, primarily as a result of variable rate borrowings under credit facilities. Every derivative instrument is recorded in the balance sheet as either an asset or liability measured at its fair value. Changes in the derivative’s fair value are recognized currently in earnings as we have not elected hedge accounting for any of our derivative positions. Although our predecessor did not have any derivative instruments, we intend to enter into commodity derivative contracts covering approximately 65% to 85% of our estimated production from total proved developed producing reserves over a three-to-six year period at any given point of time.

Allocation of General and Administrative Cost

The accompanying carve-out financial statements include allocations of costs for salaries, benefits and other general and administrative expenses incurred by Memorial Resource. These costs have been allocated to the carve-out financials based on estimated full-time equivalent labor hours that would have been devoted to running our predecessor’s business. In management’s estimation, the allocation methodology used is reasonable and results in an allocation of the cost of doing business borne by Memorial Resource on behalf of us; however, amounts allocated may not be indicative of the cost of future operations or the amount of future allocations.

Index to Financial Statements

Income Tax

We will be organized as a pass-through entity for federal income tax purposes. As a result, our partners will be responsible for federal income taxes on their share of our taxable income.

Unaudited Pro Forma Earnings Per Unit (“EPU”)

Pro forma net income (loss) per basic unit is determined by dividing the pro forma net income (loss) available to common unit holders by the number of common units expected to be outstanding immediately following the offering.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Quantitative and Qualitative Disclosure about Market Risk

Commodity Price Risk

Our major market risk exposure is in the pricing applicable to the oil and natural gas production of Memorial Resource. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot market prices applicable to our natural gas production. Pricing for oil and natural gas production has been volatile and unpredictable for several years, and we expect this volatility to continue in the future. The prices that Memorial Resource receives for production depend on many factors outside of our or their control.

Concentrations of Credit Risk

Cash balances and royalty income receivable are financial instruments potentially subject to credit risk. Cash and cash equivalents are maintained in bank deposit accounts which, at times, may exceed the federally insured limits. Management periodically reviews and assesses the financial condition of the banks to mitigate the risk of loss.

Our royalty income receivable is derived from oil and natural gas sales delivered to purchasers. Memorial Resource, as operator, markets and collects proceeds of production on our behalf and remits payments to us. We receive payments on a monthly basis typically within 60 to 90 days following the end of the calendar month in which production is sold. This industry concentration has the potential to impact our overall exposure to credit risk, either positively or negatively, in that both the purchaser and Memorial Resource may be similarly affected by changes in economic, industry or other conditions. Management believes that any credit risk imposed by a concentration in the oil and natural gas industry is mitigated by the creditworthiness of the underlying purchasers and Memorial Resource. We do not require collateral and do not believe the loss of any single purchaser would materially impact our operating results, as crude oil and natural gas are fungible products with well-established markets and numerous purchasers. Additionally, an allowance for doubtful accounts is recorded after all reasonable efforts have been exhausted to collect or settle the amount owed. Any amounts outstanding longer than the contractual terms are considered past due.

Index to Financial Statements

The following individual purchasers each accounted for 10% or more of total reported revenues for the period indicated:


	Year Ending December 31,
Major customers:	2013			2012
Energy Transfer Equity, L.P. and subsidiaries		100	%		80	%
Sunoco, Inc.(1)		n/a			20	%

(1)	Sunoco, Inc. became a subsidiary of Energy Transfer Equity, L.P. in October 2012.

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BUSINESS

Overview

Index to Financial Statements

completion costs, high initial production rates with high liquids yields, long reserve life, multiple stacked producing zones, available infrastructure and a large number of service providers.

The following chart provides information regarding Memorial Resource’s gross production growth associated with its Terryville Complex horizontal wells since the beginning of 2012.

Average Daily Production (MMcfe/d)

LOGO

Our Initial Assets

Index to Financial Statements


			Producing Wells										Gross Wellhead Flow Rates After Processing (MMcfe/d)(2)(3)
Well Name	Lateral Length (Feet)		EUR (Bcfe)(1)		EUR BCFe/ 1,000’		First Production		Days Producing		Cumulative Production (Bcfe)		0-30		0-90		91-180		181-360		D&C ($MM)(4)
Upper Red
LD Barnett 23H-2		4,015		12.3		3.1		1/30/2012		975		5.0		14.5		12.0		7.7		5.6		6.7
Colquitt 20 17H-1		4,357		11.5		2.6		7/30/2012		793		4.3		17.5		12.6		7.2		5.1		7.8
Dowling 22 15H-1		5,376		9.4		1.8		9/22/2012		739		5.7		16.3		15.6		11.1		8.2		8.8
Nobles 13H-1		4,216		9.1		2.1		11/17/2012		683		4.6		21.5		16.7		9.9		6.5		7.8
Sidney McCullin 16 21H-1		4,604		13.8		3.0		1/19/2013		620		5.0		17.4		14.2		10.8		8.4		8.1
Wright 14 11 HC-1		5,250		11.9		2.3		5/27/2013		492		5.5		19.6		18.1		16.1		8.4		8.8
BF Fallin 22 15H-1		5,122		12.3		2.4		6/17/2013		471		3.9		14.8		13.7		11.8		5.9		7.5
Dowling 20 17H-1		4,327		9.0		2.1		7/22/2013		436		2.6		15.2		11.0		5.7		4.5		10.7
Gleason 31H-1		3,692		2.4		0.7		8/12/2013		415		0.6		2.9		2.3		1.6		1.2		9.5
Burnett 26H-1		2,405		5.5		2.3		9/22/2013		374		1.2		6.9		5.6		3.5		2.4		6.9
Drewett 17 8H-1		4,010		15.6		3.9		11/13/2013		322		3.9		22.1		18.6		11.9				7.7
Wright 13 12 HC-2		6,009		24.0		4.0		12/21/2013		284		4.6		22.7		19.6		16.3				8.5
LA Minerals 15 22H-2		5,814		17.3		3.0		1/21/2014		253		3.4		17.8		16.1		13.4				8.8
Wright 13 24 HC-3		6,606		20.9		3.2		4/14/2014		170		3.4		30.3		24.6						10.8
Wright 13 24 HC-1		6,678		15.5		2.3		4/14/2014		170		2.8		25.0		20.4						11.8
TL McCrary 14 11 HC-5		5,875		30.0		5.1		4/14/2014		170		3.0		22.9		23.3						10.2
LA Minerals 19 30 HC-2		6,912		15.1		2.2		5/29/2014		125		2.3		25.1		20.4						10.8
LA Minerals 19 30 HC-1		6,519		19.6		3.0		6/1/2014		122		2.0		21.5		17.7						11.6
Werner 29H-1		3,410		4.7		1.4		8/13/2014		49		0.4	<

Terryville Mineral & Royalty Partners LP S-1