Exploration & Production | Quarterly / Earnings Reports | Second Quarter (2Q) Update | Deals - Acquisition, Mergers, Divestitures

Vanguard Touts East TX Acquisition, Non-Op Permian Activity

Email    |    Print    |    Bookmark

You Need to login first

   |    Monday,August 04,2014

Vanguard Natural Resources, LLC reported financial and operational results for the quarter ended June 30, 2014.

Mr. Scott W. Smith, President and CEO, commented, "We are very pleased to announce the $278 million East Texas and North Louisiana acquisition that will be immediately accretive to Vanguard’s cash flow upon close. This acquisition features both mature, long life natural gas and oil properties along with an inventory of low risk behind pipe development projects and a drilling inventory of vertical and potentially horizontal wells that can be developed over the next several years. This transaction is an excellent addition to our current portfolio of assets and establishes another core area from which we can continue to build upon in the future."

Second Quarter 2014 Highlights:

• Adjusted EBITDA increased 22% to $97.7 million in the second quarter of 2014 from $80.3 million in the second quarter of 2013 and increased 9% from the $89.9 million recorded in the first quarter of 2014.
• Distributable Cash Flow Available to Common and Class B Unitholders decreased 5% to $46.1 million from the $48.4 million generated in the second quarter of 2013 and increased 10% from the $41.8 million generated in the first quarter of 2014.
• We reported a net loss attributable to common and Class B unitholders for the quarter of $9.3 million or $(0.12) per basic unit compared to a reported net income of $81.1 million or $1.14 per basic unit in the second quarter of 2013.
• Adjusted Net Income Attributable to Common and Class B Unitholders was $22.0 million in the second quarter of 2014, or $0.27 per basic unit, as compared to $19.1 million, or $0.27 per basic unit, in the second quarter of 2013. The second quarter of 2014 includes net non-cash losses of $31.3 million that are adjustments to arrive at Adjusted Net Income Attributable to Common and Class B Unitholders. The second quarter of 2013 results included net non-cash gains of $62.2 million.
• Reported average production of 315 MMcfe per day in the second quarter of 2014, up 44% over 219 MMcfe per day produced in the second quarter of 2013 and an 18% increase over 268 MMcfe per day produced in the first quarter of 2014. On an Mcfe basis, crude oil, natural gas and natural gas liquids accounted for 17%, 68%, and 15% of our second quarter 2014 production, respectively.

During the quarter, we produced 19,649 MMcf of natural gas, an increase of 49% from the 13,176 MMcf of natural gas produced in the second quarter of 2013, 806 MBbls of oil, an increase of 1% from the 798 MBbls of oil produced in the second quarter of 2013, and 696 MBbls of NGLs, an increase of 114% from the 326 MBbls of NGLs produced in the second quarter of 2013.

Including the impact of our natural gas hedges in the second quarter of 2014, we realized an average price of $3.48 per Mcf on natural gas sales, compared to the unhedged realized average price of $3.55 per Mcf. Our hedged realized average price for oil was $84.40 per barrel, compared to the unhedged realized average price of $91.74 per barrel. The impact of our NGL hedges resulted in an average realized price of $25.37 per barrel of NGLs sales, compared to the unhedged realized average price of $25.49 per barrel.

2014 Six Month Highlights:

• Adjusted EBITDA increased 23% to $187.6 million in the first half of 2014 from $152.7 million in the first half of 2013.
• Distributable Cash Flow Available to Common and Class B Unitholders for the first six months of 2014 decreased 2% to $88.0 million from the $89.8 million generated in the first half of 2013.
• We reported net income attributable to common and Class B unitholders for the first six months of 2014 of $3.8 million or $0.05 per basic unit compared to a reported net income of $54.1 million or $0.80 per basic unit in the first half of 2013.
• Adjusted Net Income Attributable to Common and Class B Unitholders was $46.6 million for the first six months of 2014, or $0.59 per basic unit, as compared to $36.0 million, or $0.53 per basic unit, in the comparable period of 2013. The 2014 results include net non-cash charges of $42.7 million that are adjustments to arrive at Adjusted Net Income Attributable to Common and Class B Unitholders. Results for the first half of 2013 included net non-cash gains of $18.9 million.
• Reported average production of 292 MMcfe per day in the first six months of 2014, up 40% over 209 MMcfe per day produced in the first six months of 2013. On an Mcfe basis, crude oil, natural gas and NGLs accounted for 18%, 68%, and 14% of our production for the first six months of 2014, respectively.

During the first six months of 2014, we produced 35,689 MMcf of natural gas, an increase of 42% from the 25,167 MMcf of natural gas produced in the first six months of 2013, 1,581 MBbls of oil, an increase of 4% from the 1,523 MBbls of oil produced in the first six months of 2013, and 1,268 MBbls of NGLs, an increase of 118% from the 583 MBbls of NGLs produced in the first six months of 2013.

Including the impact of our natural gas hedges in the first six months of 2014, we realized an average price of $3.45 per Mcf on natural gas sales, compared to the unhedged realized average price of $3.74 per Mcf. Our hedged realized average price for oil was $84.36 per barrel, compared to the unhedged realized average price of $89.90 per barrel. The impact of our NGL hedges resulted in an average realized price of $30.10 per barrel of NGLs sales, compared to the unhedged realized average price of $30.55 per barrel.

Recent Activities

Acquisitions

On May 1, 2014, we completed an asset exchange transaction with Marathon Oil Company in which we acquired natural gas and NGLs properties in the Wamsutter natural gas field in Wyoming in exchange for 75% of our working interests in the Gooseberry Field properties in Wyoming. The total consideration for this transaction was the mutual exchange and assignment of interests in the properties and a net cash consideration of $9.6 million paid to Marathon Oil Company. The cash consideration was funded with borrowings under our existing Reserve-Based Credit Facility and is subject to customary final post-closing adjustments to be determined based on an effective date of January 1, 2014.

On July 30, 2014, we entered into a purchase and sale agreement to acquire natural gas and oil properties in North Louisiana and East Texas for a purchase price of $278.0 million from an undisclosed seller. The properties consist of approximately 23,000 net acres that are currently producing approximately 17.5 MMcfe per day with approximately 67% natural gas and 33% oil and NGLs. Based on internal estimates, total proved reserves being acquired are approximately 150 Bcfe of which 57% are currently proved developed. The effective date of the acquisition is June 1, 2014 and we anticipate closing this acquisition on or before October 1, 2014. We intend to fund this acquisition with borrowings under our existing reserve-based credit facility.

Non-Operated Permian Activity

We signed an agreement with Athlon Energy where Athlon will carry Vanguard for five oil wells (two in Andrews County, Texas and three in Glasscock County, Texas) with a working interest of approximately 30%. One well in Andrews County and one well in Glasscock County have already been drilled and are currently waiting on completion. The third well is expected to begin drilling in September. We anticipate that all five wells under this agreement will be completed by the end of the year.

Additional non-operated activity has occurred with the drilling and completion of the Caprock St #1H in the Lockridge Block of Ward County, Texas operated by Atlantic Exploration, LLC. This well began flowing back in late July and Vanguard has an approximate 24% working interest. Initial results have been very good with a high seven day average IP rate of approximately 750 barrels of oil per day and 1,050 Mcf per day. Diamondback Energy, Inc has also drilled the Brown & Martin 21-1H well in Dawson County and completions are currently underway. Vanguard has approximately a 16.4% working interest in this well.

Capital Expenditures

Total capital expenditures for the drilling, capital workover and recompletion of oil and natural gas properties were approximately $36.4 million in the second quarter of 2014 compared to $14.8 million for the comparable quarter of 2013 and $31.2 million for the first quarter of 2014. Estimated maintenance capital expenditures in the second quarter of 2014 totaled $31.3 million. The balance of $5.1 million was attributable to growth capital expenditures associated with the Pinedale Acquisition in the Green River Basin during the second quarter of 2014. Total capital expenditures were approximately $67.7 million for the first six months of 2014 compared to $29.4 million in the comparable period of 2013.

We currently anticipate a total capital expenditures budget for the remainder of 2014 to range between $65.0 million and $70.0 million, excluding any potential future acquisitions. We expect to spend approximately 60% of the remaining 2014 capital budget on the newly acquired assets in the Pinedale Acquisition in the Green River Basin, participating as a non-operated partner in the drilling and completion of vertical natural gas wells. Additionally, we expect to spend approximately 20% of the remaining 2014 capital budget in the Permian Basin, 5% in the Big Horn Basin and the balance in our other operating areas.

Hedging Activities

We enter into derivative transactions in the form of hedging arrangements to reduce the impact of oil and natural gas price volatility on our cash flow from operations. We have mitigated some of the volatility on our cash flow price with derivative contracts through 2017 for oil and natural gas production and through 2015 for NGLs production. Specifically, we have implemented a hedging program for approximately 85% of our anticipated production of crude oil through 2015, approximately 80% of our natural gas production through 2017 and approximately 6% of our NGLs production through 2015. At June 30, 2014, the fair value of commodity derivative contracts was a liability of approximately $2.9 million, of which $22.8 million of net current liability settles during the next twelve months. Currently, we use fixed-price swaps, basis swap contracts, three-way collars, swaptions, call options sold, put options sold and range bonus accumulators to hedge oil, natural gas and NGLs prices.

Liquidity Update

As of July 31, 2014, there were $715.0 million of outstanding borrowings and $807.2 million of borrowing capacity under the reserve-based credit facility, after consideration of a $2.8 million reduction in availability for letters of credit and a $1.525 billion borrowing base. We also have approximately $10.0 million in available cash.

Total net proceeds received under our At-The-Market Equity Program were approximately $34.6 million, $65.9 million and $32.6 million, after commissions, for the first quarter 2014, second quarter 2014 and July 2014, respectively. In total for 2014, we have raised net proceeds of $133.1 million, after commissions, from the sales of 4,360,247 common units. Additionally, we raised $0.7 million, after commissions, from the sales of 28,034 Series A Preferred Units during 2014.