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This might sound like a broken record, but Vanguard Natural Resources, LLC (NASDAQ: VNR) is bulking up on its natural gas assets yet again. The company's latest natural gas news is the announcement that it's buying Bill Barrett Corporation's (HPR) natural gas assets in the Piceance Basin for $525 million. It's just the latest in a string of deals that has turned nearly all of Vanguard Natural Resources' attention on natural gas.
Details on the deal
Under the terms of its latest deal Vanguard Natural Resources is acquiring 12,000 net acres that currently produce 67 MMcfe per day with about 76% of that production being natural gas. The company actually bought a non-operated interest in the properties from Bill Barrett Corporation in 2012. However, it's now taking over full operatorship of the 950 producing wells.
Once the deal closes the company will own an average working interest of 78% in the assets, which also includes 119 recompletion projects and 94 proved undeveloped drilling locations. Currently, the estimated reserve life is about 16 years as the acreage holds 389 billion cubic feet equivalent of proved natural gas reserves. Just for some perspective, that's enough natural gas to meet the energy needs of about 40 million homes for a full year. Suffice it to say that these assets will produce a lot of natural gas well into the future.
Natural gas news keeps flowing
Vanguard Natural Resources' latest natural gas news is just a continuation of the company's push to acquire cheap natural gas assets while everyone else is focused on oil. As the following slide shows, the company has made a very distinct shift toward natural gas production over the past few years.
Source: Vanguard Natural Resources LLC Investor Presentation.
Vanguard Natural Resources is focusing on natural gas because it can buy these assets for a better value than oil and it gives the company a long-term option on natural gas prices. However, the other reason why it's focusing on natural gas is that despite the low prices, these assets are a better fit for a master limited partnership than many oil assets on the market today.
Vanguard Natural Resources noted in the press release announcing the acquisition that these assets are projected to have an average production decline rate of 11% over the next three years. Because of that low decline rate the company will have an easier time keeping its dividend stable as it won't need to invest a lot of capital to maintain production. That is why low decline assets like this one are a perfect fit for an MLP.
Even better, Vanguard Natural Resources noted that it sees the deal improving its distribution coverage. In fact, it specifically pointed out that the deal would be immediately accretive to its distributable cash flow. This is why the company sees the deal accelerating its ability to resume its slow and steady distribution growth policy. So, investors should expect to see the company's dividend heading higher in the near future.
Investor takeaway
Vanguard Natural Resources continues to aggressively acquire natural gas assets. It's a move that could really pay off in the future if natural gas prices do begin to rise. That might not seem all that far-fetched given all of the natural gas export projects currently being developed in the U.S. So, while Vanguard Natural Resources' latest natural gas news might be another boring low decline natural gas asset, the company's investors could see some exciting dividend increases in the years ahead because of these deals.
