Upstream oil and gas MLP Vanguard Natural Resources (OTC:VNRSQ) released solid second-quarter results. While earnings of $0.27 per share were $0.05 below estimates, that's not the number to focus on. Instead, the focus should be on the company's distributable cash flow per unit, which was strong. With that in mind, let's take a closer look at the numbers that matter.
Drilling down into the numbers
Vanguard reported distributable cash flow of $48.4 million, or $0.65 per unit. That was more than enough to cover its distribution to unit holders. In fact, the company reported a solid 1.05 times distribution coverage ratio, which is up from a ratio 1.0 times last quarter, despite the fact that the company had more units outstanding this quarter. It's clear to see that the company is doing a solid job producing cash, which suggests its distribution is very safe.
Vanguard was able to produce all that cash because it saw a huge spike in its oil and gas production. For the quarter, the company was able to produce an average of 36,477 barrels of oil equivalent per day, which is up substantially from last year's average of 12,338. The key driver here was the company's recent acquisitions, including this year's deal in the Permian Basin with Range Resources (NYSE:RRC).
One of the important aspects of that deal was that it provided Vanguard with low-cost recompletion projects that are starting to bear fruit. Because these assets weren't core to Range's future, it didn't invest capital into the assets. Vanguard, on the other hand, thrives on these types of assets, which is why the $266.3 million deal made sense for both companies.
Vanguard is well positioned heading into the second half of the year to continue growing by way of acquisition. The company has over $850 million of liquidity available, which will enable it to be very competitive in what it feels will be a very strong acquisition market later this year. In fact, it might have a leg up on its competition as both BreitBurn Energy Partners (OTC:BBEPQ) and LINN Energy (OTC:LINEQ) have already announced large deals this year. Not only that, but both companies have come under attack by short-sellers, which is causing their management teams to focus elsewhere. This is where Vanguard can step in and prudently use its capital to make a big splash if the right deal comes along. That would really boost the company's ability to continue to grow its distribution. Which it was just able to do as the benefits from its recent deal for Range's Permian Basin assets started to show up.
In addition to acquisitions, Vanguard also announced that it will be boosting its capital budget to a range of $30 million-$35 million for the remainder of the year. The original plan was to spend about $55 million this year, but it will be adding nearly $10 million to that after already spending $29.4 million through the first half of the year. The company is able to boost its program thanks to the success it's having in its Woodford Shale program. Vanguard spends the least amount of capital on organic growth among its peers; however, given the solid results it's getting, the company sees increasing its capital spending as a prudent use of the funds it has at its disposal.
Final Foolish thoughts
Overall, it was a very solid quarter by Vanguard. The company appears to have fully digested the assets it acquired from Range and looks ready to make its next move. I would not be surprised to see a deal announced before the end of the current quarter.