Vanguard Natural Resources Is On Track To Grow

Sep. 1.14 | About: Vanguard Natural (VNR)


The strong asset base of the company will allow it to further grow its revenues.

Focus on mature assets will allow Vanguard to grow its revenues and cash flows at a stable rate.

Recovering natural gas prices will result in better performance of the natural gas segment of the partnership as it remains the major segment for the partnership.

Vanguard Natural Resources (NYSE:VNR) has grown tremendously over the last few years by enhancing its asset portfolio and growing its revenues at an impressive rate. The asset base of the company has differentiated it from the other players in the market. However, the partnership did not manage to gain the desired operating benefits from its Pinedale acquisition due to delays in drillings and irregular capital expenditure decisions from the operating partners.

Nonetheless, the long-term prospects of Pinedale-Jonah field are intact and this will result in strong growth from the region. Moreover, Vanguard's recent agreement to acquire mature assets in North Louisiana and East Texas will also ensure strong growth in revenues and distributable cash flows over the next few years. We will try to pinpoint the most productive and lucrative assets of the company that will largely contribute to future growth.

A Look at the Assets

The partnership, through its operating subsidiaries, owns assets in the highest yielding acreages located in eight operating basins. Vanguard owns estimated proved reserves of around 325 MMBoe [1.95 Tcfe], of which approximately 16% are oil reserves, 65% are natural gas reserves and 19% are NGLs as of the first half of this year. Oil heavy companies have seen lower volatility and the performance of these companies have been far superior to the gas heavy companies. However, the natural gas prices have been getting better and it is expected that the natural gas segment will also contribute significantly.

Further, of these total estimated proved reserves, approximately 66%, or 1,193 Bcfe, were classified as proved developed reserves with a total of 2,807 net productive wells in the U.S. The partnership's core asset acreage mainly includes Green River Basin, which have proved reserves of around 127.5 MMBoe, of which 79% are natural gas with a proved developed content of 45%. The partnership has further increased its acreage in this region by acquiring Pinedale and Jonah Fields assets in the Southwestern Wyoming. These assets are mature in nature and are in line with Vanguard's acquisition strategy of acquiring mature oil and gas properties which have stable, long life production with a shallow decline rate.

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Source: Investor Presentation, Citigroup One-on-One MLP Conference.

Future Growth is Coming from the Impressive Asset Base

The useful reserves play a key role in the success and growth of any oil and gas company in the long run. Similarly, Vanguard is one of the energy MLPs which has been able to replace its reserves at an impressive rate. The partnership has completed twenty two strategic acquisitions totaling approximately $3.7 billion by the end of the last year, which significantly increased its natural gas holdings in its portfolio.

Source: Investor Presentation, Citigroup One-on-One MLP Conference.

The Green River Basin has the highest proved reserves amongst the asset acreage of Vanguard, with a 45% proved developed acreage in the region. Proved developed acreages are less capital intensive than proved undeveloped acreage and ensures higher profits to the companies with minor costs. Further, this region is expected to be a major contributor towards the total production of the partnership. The inclusion of Pinedale-Jonah acquisition has further improved the total yield of the acreage by adding estimated proved reserves of around 765 Bcfe. The Pinedale well economies are strong and based on recent Ultra results and natural gas prices, the partnership can achieve rates of return in excess of 45%.

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Source: Investor Presentation, Citigroup One-on-One MLP Conference.

The Hunt Acquisition

Vanguard recently announced to enter an agreement with Hunt Oil Company in order to acquire 23,000 net acres in North Louisiana and East Texas for a purchase price of $278 million. The properties are located in the Cotton Valley and East Haynesville Fields and are capable of producing approximately 17.5 MMcfe per day. Moreover, the acreage holds an estimated reserve life of over 23 years based on estimated proved reserves of around 150 Bcfe.

Click to enlarge

Source: Investor Presentation, Citigroup One-on-One MLP Conference.

The partnership is anticipating the acquisition will improve the distributable cash flows and improve the distribution coverage ratio by the second half of the current year. Further, the new acreage acquisition in Cotton Valley also has some of the most cost efficient reserves in the U.S.


The asset mix of the partnership shows that it is exposed to the price volatility of natural gas segment. However, as the natural gas prices have been rising over the last few months, we are not likely to see another major decline in natural gas prices due to the prospect of exports. Furthermore, the focus on mature assets will allow the partnership to have stable production levels, which should result in stable cash flows and cash distributions to the unitholders. The integration of new acquisitions will allow the company to enhance its production and cash flows and better results will further push the stock price up.

Additional Disclosure: This article is for educational purposes only and it should not be taken as an investment recommendation. Investing in stock markets involves a number of risks and readers/investors are encouraged to do their own due diligence and familiarize themselves with the risks involved.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.