AAII Annual Conference Las Vegas, Nevada November 11, 2011
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 6.4% average current yield for the AMZ MLP Index(1) Growth Potential 106.6% 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 227bps Historical Average: 163bps 1,000 MLPs currently at 120bps…
MLP Competitive Landscape - Participants There are a variety of structures available to satisfy the needs of different investors Publicly Traded Index-linked Separately Hedge MLPs Managed Funds Direct Accounts Open-end Closed…
MLP Structure Comparison Investor Liquidity Corporate Taxation Tax UBTI Suitability Level Tax of Reporting Drag Dividends Separately All Daily No Largely Multiple K-1s Does not return of block UBTI Managed capital Accounts…
Advantages of Vanguards LLC Structure Characteristics VNR Typical Typical MLP Corporation Non-Taxable Entity No Tax Shields on Distributions/ Taxable Dividends Distribution Distribution Dividend Tax Reporting Schedule Schedule…
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…
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) Ten strategic acquisitions totaling 900 MM expanded…
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…
Snapshot of Strategic Acquisitions Since IPO Acquisition Date Region Deal Proved Reserves/ Key Features Size PDP(1) Apache Feb 2008 Permian Basin 73.4M 4.4 MMBoe / 90% PDP 83% oil Dos Hermanos Jul 2008 South Texas 53.4M 20 Bcfe /…
ENP Transaction Rationale Largest acquisition to date at 380 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 & ENP Combined Operating Areas 17
Proved Reserves by Area Standalone (1) 28.2 MMBoe Combined (1)(2) 78.8 MMBoe VNR VNR + ENP PERMIAN & BIG HORN GULF COAST 29% 42% PERMIAN & MISS GULF COAST 15% 26% ARK-LA-TEX 1% MISS 4% SOUTH TEXAS WILLISTON 32%…
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 More than 60% 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 87.07 per barrel Approximately 60% of…
Interest Rate Hedges LIBOR swaps provide increased certainty in future financing costs The current low interest rate environment has provided for additional opportunities to lock-in historical low rates Currently, 40% of Encore and…
Comparable Company Distribution Increases VNR Leads Peer Group in Overall Distribution Growth 40% 36% 36% 35% Peer 1 30% 27% Peer 2 VNR 25% 21% Peer 3 20% Peer 4 15% 9% 10% Peer 5 10% 5% 2% VNR 0% Calculations include…
Consistent Distribution Growth VNR has raised its distribution +36% since IPO equating to 8.11 in cumulative distributions 2007* 2008 2009 2010 2011 *Q4 2007 distribution of 0.425 is pro rata for October 29, 2007-December 31,…
Price Performance Since 2009 The results have been good. VNR has outperformed US Royalty Trusts, C-Corps and other E&P MLPs. The strategy works. 800% 700% VNR Total Return: 563% 600% 500% VNR: 381% 400% E&P MLPs:…
Comparable Company Distribution Yields CURRENT DISTRIBUTION YIELDS OF PEER GROUP 9.1% 9.8% 10% 8.0% 8.3% 6.5% 6.6% 6.6% 7.2% 7.3% 7.5% 4.1% 5% 2.18 2.76 2.04 1.65 2.31 1.88 1.74 3.05 0% *Pipe *G&P *USRT EVEP PSE LGCY LINE…
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