A CFOs Perspective on MLP Investing Richard Robert
What are MLPs What are MLPs MLPs (master limited partnerships) are publicly traded partnerships: limited partnerships which are traded on stock exchanges. A share in an MLP is called a unit, and owning MLP units makes you a limited…
Companies Operating as MLPs What Kinds of Companies Operate as MLPs Due to the requirements of the tax code, the great majority of MLPsabout 80 percent by number, representing close to 90 percent of MLP market capital-- are in…
Most Common Energy MLP Subsector Descriptions These MLPs gather and process natural gas in the field and process it by removing and Natural Gas separating natural gas liquids (NGLs) to make the gas acceptable to transport on gas…
Most Common Energy MLP Subsector Descriptions (continued) The universe of coal MLPs consist of three coal producers and two coal royalty businesses that own, lease, and manage coal reserves. The royalty-oriented partnerships enter into…
Key MLP Investor Benefits 4 Specific Investor Benefits High Current Income 6.1% average current yield for the AMZ MLP Index(1) Growth Potential 387.8% total return for the AMZ MLP Index since 2003(2) Tax Advantaged…
MLP/LLC Tax Shield Advantages Because MLPs are partnerships or LLCs and not corporations, they do NOT pay taxes and instead the unitholders are required to pay tax on their allocated share of net income Typically the distributions…
Where Are MLPs Today MLPs remain attractive for three key reasons 1) Attractive valuations Still within historical average yields and yield spreads Still within historical averages EV/EBITDA and Price/DCF multiples Attractive to…
Relative Price Performance Since 01/01/2001 AMZ MLP Index Spread Over 10-Year Treasury AMZ MLP Index Spread to MSCI REIT Index 1,400 Current Spread 334bps 1,200 Historical Average: 150bps 1,000 MLPs currently at 79bps above…
U.S. Natural Gas Reserves / Resource Life Shale development has significantly increased the natural gas reserves / resource in the United States Natural gas can now be viewed as a long-term energy solution 2,000 Tcf 100 Yr…
U.S. Oil & Liquids Reserves / Resources Increase in U.S. liquids production is reducing imports 300 270 250 Billions of Barrels 200 150 100 100 50 20 - U.S Existing U.S. Unconventional Saudi Arabia…
Future Shale Development Requires Massive Capital Average of 70 billion per year in capital requirements for the next 30 years Creates opportunities for E&P MLPs to acquire higher PDP assets as Shale players try to close the funding…
Capital Sources for North American E&P Companies Since 2007 (B) More than 500 billion raised since 2007 297 112 74 53 M&A (Asset Only) Debt Equity Joint Ventures 15 Source: Jefferies January 2013 IPAA luncheon…
The Building Blocks of a Successful E&P (Upstream) MLP Mature Reserve Diverse portfolio of mature, long life oil and gas properties Base Primarily proved developed producing reserves with a long reserve life Low drilling risk and…
Overview of Vanguard Natural Resources Upstream oil & gas LLC, headquartered in Asset Profile* Houston, Texas 189 MMBoe total proved reserves Initial Public Offering VNR October 2007 Includes pending Barrett acquisition: 50 MMBoe…
Geographically Diversified Reserve Base Core Areas Overview Big Horn Basin 189 MMBoe proved reserves Proved Reserves: 24.2 MMBoe Williston Basin Proved Reserves: 5.3 MMBoe 61% gas and 72% proved developed 85% oil and 96% Proved…
Our Acquisition Strategy The U.S. has a large inventory of mature oil and natural gas basins which provide significant opportunity for future growth and consolidation Current E&P opportunity set is comprised of an estimated 1.5…
Locking in Margins Provides Stability Through the use of hedging, Vanguard is able to lock in significant acquisition margins for the foreseeable future, helping to insure distribution stability 98.49 100.00 92.82 92.27 93.42…
How We Spend Capital Disciplined approach to capital spending focus on maintaining cash flow from mature, long lived fields By contrast, resource players invest in growth to support equity valuation The nature of our capital program…
E&P (Upstream) Distribution Growth Peer Comparison Vanguard has the highest distribution growth rate since its IPO in October 2007 However, Vanguard is still trading at a higher yield than many of its peers 50% 8.7% 45% 43% 40%…
Key Investor Considerations Management and unitholders well aligned High quality, long lived reserves Asset base generates stable cash flow Multi-year hedge program mitigates commodity risk Geographic and commodity diversity LLC…
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