VNR

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Vanguard Natural Resources, LLC Signs Agreement to Acquire Natural Gas and Liquids Properties in the Piceance Basin in Colorado
BUSINESS WIRE 6:15 AM ET 9/16/2014

HOUSTON--(BUSINESS WIRE)-- Vanguard Natural Resources, LLC(VNR) (“Vanguard” or “the Company”) today announced it has entered into a definitive agreement to acquire natural gas, oil and natural gas liquids (“NGLs”) assets in the Piceance Basin in Colorado for a purchase price of $525 million from Bill Barrett Corporation. The properties consist of approximately 12,000 net acres that are currently producing approximately 67 MMcfe per day, after consideration of ethane rejection, with approximately 76% natural gas, 5% oil and 19% NGLs. The effective date of the acquisition is July 1, 2014 and the Company anticipates closing this acquisition on or before October 1, 2014.

Scott W. Smith, President and Chief Executive Officer, commented, “With this acquisition we are acquiring the balance of the working interest in properties where we first established a non-operated position in December of 2012. We will be taking over operations of 950 producing wells in a very large, prolific natural gas basin with an established infrastructure in place and multiple pipeline outlets to market our production. As the operator and majority interest owner in the assets, we can now govern the pace of development of both recompletion opportunities and development drilling projects to take advantage of positive changes in market conditions. This is an excellent addition to our Rockies natural gas platform and we look forward to continuing to grow in this area in the future.”

Richard A. Robert, Executive Vice-President and Chief Financial Officer, added, “We are anticipating significant benefits from this transaction including improved distribution coverage and accelerating our ability to resume our slow and steady distribution growth policy.”

Highlights of the acquisition include:

Immediately accretive to distributable cash flow at closing;
Estimated reserve life of approximately 16 years based on internally estimated proved reserves of approximately 389 Bcfe (79% proved developed and 77% natural gas);
Current net production of approximately 67 MMcfe/d (after consideration of ethane rejection);
An average working interest of 78% in approximately 950 producing wells, 119 recompletion projects and 94 proved undeveloped vertical drilling locations;
Projected proved developed production three-year average annual decline rate of approximately 11%;
LOE costs forecasted to average approximately $0.80 per Mcfe over the next three years and production and ad valorem taxes forecasted at 5% of revenue;
Forecasted natural gas realization of 80% of NYMEX Henry Hub, oil differential of $(12.00) per Bbl off of WTI and an average NGL realization of 47% of WTI (after consideration of ethane rejection); and
Vanguard has hedged a portion of the natural gas production through 2017 and intends to opportunistically hedge the remaining expected natural gas, oil and NGL production for 2015 through 2017.
The Company intends to fund this acquisition with borrowings under its existing reserve-based credit facility. Vanguard is currently going through its semi-annual borrowing base redetermination to include the recently acquired assets in North Louisiana and East Texas and the pending Piceance assets, and expects that after closing, will have ample liquidity to continue its growth through acquisitions strategy.

[dan_s]

We have a luncheon today, so I will take a look at VNR this afternoon.

[dan_s]

Vanguard Natural Resources (VNR): An updated Net Income & Cash Flow Forecast model has been posted under the MLP Tab.

There is a lot of SWAG in this forecast, but the acquisition from BBG of the Piceance Basin producing assets sure looks likes a winner for both companies. It appears to be immediately accretive to distributable cash flows ("DCF") for VNR, so they should be able to increase their cash distributions to unitholders in 2015.

My Fair Value Estimate for the common units increased to $33.90, compared to First Call's Target of $32.11.

One thing to remember is that most of the forecasts submitted to First Call will not include the impact of an acquisition until it closes. Therefore, it may be a month before you can compare my forecast earnings, cash flow or revenues to what First Call is showing. I include them in the model just so you can see the big impact this will make on Q4 results, assuming the deal closes on October 1 as planned.

For those of you new to VNR, it also has "Preferred Units" which are publicly traded.

> 7.875% Series A Cumulative Redeemable Perpetual Preferred Units (NASDAQ: “VNRAP”) should get a monthly dividend of $0.1641 per unit payable on October 15, 2014 to unitholders of record on October 1, 2014.
> 7.625% Series B Cumulative Redeemable Perpetual Preferred Units (NASDAQ: “VNRBP”) will get a monthly dividend of $0.15885 per unit payable on October 15, 2014 to unitholders of record on October 1, 2014

The pfd units have a lot less risk (they are call "preferred" for a reason) BUT their monthly dividends are fixed. The common units (VNR) will get a monthly cash distribution (mostly non-taxable) attributable to the month of August 2014 of $0.21 per unit ($2.52 on an annual basis) payable on October 15, 2014 to unitholders of record on October 1, 2014. The common units have more risk, but they have a lot more upside.

I picked VNR for our High Yield Income Portfolio because I believe they have a strong commitment to growth and plan to keep increasing their distributions. See table at: http://ir.vnrllc.com/phoenix.zhtml?c=21 ... -dividends