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Vanguard Natural Resources: Despite Restructuring, Debt Remains An Issue


  • Despite restructuring, Vanguard still has a high amount of debt.
  • It also has a substantial amount of negative value hedges.
  • Combined with low natural gas prices, Vanguard is in danger of violating its credit facility debt to EBITDA convenant.
  • Vanguard is likely to sell a number of assets in an attempt to alleviate its covenant issue.

Vanguard Natural Resources (OTCQX:VNRR)(NYSE:VNR) is still struggling with its a high level of debt despite exiting restructuring in 2017. Many oil and gas companies that have restructured have been able to shed most of their debt, but due to Vanguard's large proportion of credit facility debt, it still has over $900 million in debt remaining. This is around half of its debt level when it restructured, but its production is also down around 15% since then.

This has led Vanguard to look at selling assets, which appears necessary to deal with its credit facility debt covenant. The combination of negative value hedges and relatively weak natural gas prices will likely result in that debt to EBITDA covenant being violated by late 2018 without future asset sales.

Vanguard's Hedges

Vanguard has a significant amount of hedges, with around 72% of its estimated 2018 natural gas production hedged, along with 85% of its estimated 2018 oil production and around 42% of its estimated 2018 NGL production.

The problem for Vanguard is that its hedged prices are generally pretty low. It has oil hedged at $46.59 for 2018 and some NGL components hedged well below current strip prices as well. Vanguard's natural gas hedges are at $3.00 for 2018, so those have positive value, but overall, Vanguard's hedges are expected to provide around negative $43 million in value during 2018.

Vanguard's hedges are at fairly low prices in future years as well, although the negative value may not be as much due to the smaller amount of hedges and expectations for weaker oil and gas prices (as indicated by the futures curve).

Source: Vanguard Natural Resources

Vanguard's 2018 Outlook

The midpoint of Vanguard's production guidance is 372,500 Mcfe per day. At that level of production and $62 NYMEX oil and $2.85 NYMEX natural gas (around current 2018

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