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What: Shares of Memorial Production Partners (NASDAQ: MEMP) saw shares decline by almost 20% in early-afternoon trading following the company's earnings release. The reason for the sell-off was twofold: completely whiffing on quarterly earnings and a distribution cut.

So what: Upon the release of Memorial's earnings prior to the opening bell today, Memorial Production Partners management announced that it will advise its board of directors to cut its future quarterly distribution from the current $0.55 per share by 45% to $0.30 per share as a means of conserving cash in this less-than-awesome oil market we find ourselves in. 

Based on the company's quarterly performance, it's pretty easy to see why. Excluding the fact that its earnings were rough since it's a master limited partnership, its distributable cash flow numbers completely withered on the vine, with its distribution coverage ratio coming in at 0.64 times for the past quarter. This means that the total amount paid out to shareholders was 36% more than what the company generated specifically for its distribution. Seeing how short the company was on distribution payments, the decision to cut the payments by 45% becomes an obvious one.

Now what: If we were to use the newly announced distribution payment and compare it to the company's distributable cash flow for this quarter, then the company has enough to cover this new payment, but just barely. Memorial Production Partners has one of the most robust hedging positions out there, with almost all of its estimated crude oil production protected by contracts out to 2018. So unless there are some other major issues in the near future, it appears that Memorial made the right move here. It may be a bit presumptuous to buy on this big price drop, but in making this cut, the company has made its future a little bit more secure. 

Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.com or on Twitter @TylerCroweFool.

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