Vanguard Natural Resources LLC (VNR) is an oil and gas E & P company that focuses on the development of mature, long lived oil and natural gas properties. VNR attempts to generate stable cash flows that it can distribute to its shareholders/unitholders. It attempts to grow its distribution over time. It has grown the dividend roughly 45% since its IPO (about 5 years ago). The dividend/distribution is currently $2.46 per year (8.9%). It is a limited liability company that behaves as an LP for distributions/dividends and tax purposes. It has no general partner and no IDRs. It pays its distribution/dividend monthly; and investors will need to file a K-1 form for this stock.
If you are looking for a stock to ride out the tough economic times ahead with, VNR may be a stock you want to look hard at. It is not overly in debt. It has a market capitalization of $2.031B with total debt of $1.264B. For many of its peers the market capitalization to debt ratio is closer to 1 to 1. Having manageable debt in troubled times is a big positive.
VNR is showing good growth with production expected to roughly double in FY2013. Its 2012 production rate was 18.3 Mboe/d. Its goal for the end of 2013 is 34.5 Mboe/d. Average daily production for Q1 2013 was 33.123 Boe/d, so VNR's FY2013 goal is very reachable. The Q1 average production rate was already a 45% increase over the Q4 2012 rate of 22,804 Boe/d. It was up 144% over the Q1 2012 average production level. The increases in the last year have been mostly due to the Arkoma acquisition and the Barrett acquisition. However, good growth is still growth; and VNR acquires new properties at bargain prices. Its average acquisition price since its IPO has been about $9.60/Boe with captured margins of about $45.60/Boe. This kind of acquisition history bodes well for VNR's future.
Further VNR has been acting like super-investor Warren Buffet of late. It has been buying when there is blood in the streets. After oil prices fell hard in 2008 and 2009, VNR scooped up liquids (mostly oil) properties cheaply. After natural gas prices hit a long term low of approximately $1.90/Mcf in the spring of 2012, VNR scooped up some great natural gas properties (see chart below). The blue color represents liquids, and the red color represents natural gas.
You have to admire VNR management's business acumen. Natural gas prices will make a comeback in time. More cities are converting their public transportation to natural gas. It is cleaner and cheaper. Some construction and drilling companies are converting their equipment to run on natural gas (such as Chesapeake Energy). Chesapeake Energy (CHK) and General Electric (GE) are leading the fight for proliferation of CNG (compressed natural gas) refilling stations. There are some LNG (liquefied natural gas) refilling stations too. Cheniere Energy (LNG) will be among the first companies to export LNG from North America. The first North American LNG exports are currently slated for 2015. The market psychology of beginning to export will drive natural gas prices up. 2015 is approaching quickly. Many plants are scheduled to come online in the ensuing years. Further there is a secular bull market in energy due to the increasing use of energy by the emerging markets. This is expected to drive all energy prices up over the longer term.
VNR also manages to grow its dividend/distribution and EBITDA without huge CAPEX expenditures (or huge debt as mentioned earlier). VNR has a FY2013 CAPEX budget of $55 million. It has an adjusted EBITDA for FY 2013 of $231 million. Its CAPEX expenses seem well within its budget. In fact it beats most if not all of its peers on its ratio of CAPEX to EBITDA (see chart below).
As you can see, all of its non-MLP peers listed have much bigger CAPEX than EBITDA. This is worrisome in tough economic times. VNR's MLP peers all have lower CAPEX than EBITDA. However, VNR still beats them with an EBITDA of 4.6x its CAPEX. On top of this VNR brought its operating wells drilled in Q1 in at a total cost of approximately $3.75 million/well (about 20% under estimates). These details ensure safety.
Finally VNR's revenues are virtually guaranteed. It has hedged approximately 90% of its expected oil production through 2014 at a floor price of $92.47/barrel. It has hedged approximately 85% of its expected natural gas production through 1H 2017 at $4.62 per MMBtu. Its acquisitions strategy incorporates an active hedging component to "lock in" anticipated margins. It may miss some profits this way, but its hedging actions make it a very comforting stock to own in troubled economic times. Don't forget the US could still have a double dip recession, especially if the EU credit crisis worsens substantially.
VNR is a buy. It has an average analysts' recommendation of 1.9 (a buy). It has a five star CAPS rating (a strong buy). Plus don't forget VNR is virtually doubling production in 2013. Even in a tough economic environment, it should grow profits immensely.
The two year chart of VNR provides some technical direction for this trade.
The slow stochastic sub chart indicates that VNR is currently oversold. The main chart shows that VNR has been in a consolidation pattern for the last two years. The yellow line across the recent bottoms shows that VNR has been setting higher bottoms (seemingly feeling upward pressure). The virtual doubling of production in 2013 could see VNR finally break higher out of its consolidation pattern. At the very least it should be able to hold its own in a troubled economic environment. VNR is a buy.
NOTE: Some of the fundamental financial data above is from Yahoo Finance.