Oppenheimer Advisors Houston, Texas February 16, 2012
MLP OVERVIEW 3
MLP Subsector Descriptions Natural Gas Gatherers These MLPs gather and process natural gas in the field and process it by removing and separating natural gas liquids (NGLs) to make the gas acceptable to transport on gas transmission…
Key MLP Investor Benefits 4 Specific Investor Benefits High Current Income 5.7% average current yield for the AMZ MLP Index(1) Growth Potential 118.0% total return for the AMZ MLP Index over 10 year period (2) Tax Advantaged…
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…
MLP Yield Spreads Still at Attractive Levels AMZ MLP Index Spread Over 10-Year Treasury AMZ MLP Index Spread to S&P REIT Index 1,400 Current Spread 1,200 189bps Historical Average: 165bps 1,000 MLPs currently at 63bps above…
Current Yields Across MLP Segments Current Yields 16.0% 15.4% 15.5% 11.8% 12.0% 11.0% 11.5% 7.9% 8.7% 7.8% 8.3% 8.0% 8.4% 7.7% 6.0% 5.3% 6.5% 6.1% 4.0% 5.3% 4.0% 4.4% 4.1% 3.8% 3.1% 0.0% Public GP Entities…
The Building Blocks to a Successful E&P MLP Building Blocks 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…
How VNR Fit in the Upstream Cycle Oil & Gas Company (C-Corp) Discovers new reserves via exploratory drilling (Shale and Resource) Oil & Gas Company Oil & Gas Company Develops reserves, Redeploys capital captures higher IP…
Overview of Vanguard Natural Resources Upstream oil & gas LLC, headquartered in Houston, Texas Initial Public Offering VNR - October 2007 (Total Enterprise Value of 240 MM) Twelve strategic acquisitions totaling 1.37 billion expanded…
Snapshot of Strategic Acquisitions Since IPO Deal Size Proved Reserves/ Acquisition Date Region Key Features ( MM) PDP(1) Apache Feb 2008 Permian Basin 73.4 4.4 MMBoe / 90% PDP 83% oil Dos Hermanos Jul 2008 South Texas 53.4 20 Bcfe…
ENP Transaction Rationale Largest acquisition to date at 826 million Increased exposure to crude oil for VNR unitholders Significantly increases size and scale, overall operating reach and cash flow stability Improved ability to…
VNR Operating Areas 15
VNR Growth and Diversity Standalone (1) 28.2 MMBoe Combined (2) 79.3 MMBoe NGLs NGLs 15% 9% Gas Gas Oil Reserves 34% Oil 47% 38% 57% Standalone (1) 4,723 Boe/d Combined (3) 13,310 Boe/d NGLs NGLs 12% Gas 8% 36% Gas Oil…
Hedging Philosophy Hedge commodity prices on estimated production from acquisitions for three to five years upon signing the Purchase and Sale Agreement to protect rate of return from price fluctuations Opportunistic hedging program…
Hedges Mitigate Distribution Risk Approximately 65% of expected crude oil production (total proved) thru 2014 is hedged via a combination of swaps and collars at a weighted average floor price of 88.42 per barrel Approximately 55% of…
Locking in Acquisition Margins Through the use of hedging, Vanguard is able to lock in significant acquisition margins for the foreseeable future, helping to insure distribution stability 100.00 92.82 92.27 93.42 90.00 84.87 80.28…
Current Upstream MLP Distributions Vanguard currently has the third highest distribution rate, yet still trading at a discount to many of its peers 2.90 40.00 2.76 2.70 36.58 35.00 Current Unit Price (/unit) Current…
Current Upstream MLP Yields Vanguards current yield of 8.6% is 100 basis points more than the average yield of its peers (excluding the recent IPOs) Average of 7.6% Recent IPOs 12.0% 11.0% 10.0% 9.5% 9.0% 8.6% 8.7% 8.2% 7.3%…
Vanguards Value Proposition Vanguard is one of the more liquids-rich E&P MLPs and has the highest distribution growth rate since its IPO in October 2007 However, it is still trading at a higher yield than many of its peers At 66%…
Consistent Distribution Growth VNR has raised its distribution +38% since IPO equating to 8.70 in cumulative distributions 9.00 8.70 8.110.5875 7.54 0.5775 8.00 6.96 0.575 Quarterly Distribution 6.39 0.57 7.00 Cumulative…
Price Performance Since 2009 The results have been great. VNR has outperformed US Royalty Trusts, C-Corps and other E&P MLPs. The strategy works. 600% 500% +365.6% 400% Price Performance (%) 300% +185.3% +128.9%…
Key Investor Considerations Management and unitholders are well aligned High quality, long lived reserves Asset base generates stable cash flow Multi-year hedge program mitigates commodity risk Geographic and commodity…
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