Permian Basin
The next largest portion of reserves is the company’s Permian Basin assets which were recently boosted by an acquisition from Range Resources Corp. (NYSE:RRC). The $275 million deal brought the Permian to 28% of total reserves. These assets tilt toward oil which is about 51% of the total, while being mostly at 85% proved developed. What’s great about these assets is that the reserve to production ratio is about 20 years while still leaving a lot of room to the upside from drilling opportunities. Upstream MLPs thrive on these types of low-decline assets with just enough upside to grow production to at least offset natural production declines.
The Rockies
Another recent acquisition, this time from the Bill Barrett Corporation (NYSE:BBG), added a large reserve position in the Piceance Basin as well as smaller reserves in both the Powder River and Wind River Basins. The company was able to take advantage of cheap natural gas prices to pick up these inexpensive gas-heavy assets. In doing so Vanguard added 25.7 million barrels of oil equivalent reserves in the region, which are about 96% natural gas. The structure of the deal leaves a lot of future upside to natural gas as Vanguard Natural Resources, LLC (NASDAQ:VNR)’s working interest increases over time.
Big Horn Basin
The last major reserve basin is the oil-rich Big Horn Basin. These reserves consist of 22.7 million barrels of oil equivalent of reserves and consists of about 83% oil. This is an excellent low-decline asset that has been producing oil and gas for decades.
Additional reserves
In addition to the reserves mentioned, Vanguard Natural Resources, LLC (NASDAQ:VNR) does have several smaller reserve basins, including reserves in South Texas, Mississippi, and the Williston Basin. These are mainly high-margin oil assets and represent less than 10% of the company’s overall reserves. These cash flow assets can be further built up by making bolt-on acquisitions with the Williston Basin being a prime place as producers look to unload mature assets to free up cash to reinvest to higher growth assets.
Adding it all up
When you look across Vanguard Natural Resources, LLC (NASDAQ:VNR)’s portfolio you will first realize that a majority of the company’s largest reserves were just acquired within the past two years. What the company has done is take advantage of the dip the price of natural gas to scoop up cheap natural gas reserves. If the price of natural gas does rise over the next few years these reserves could be worth substantially more, which could lead to additional upside in the form of distribution increases.
The article Adding It All Up: Why Vanguard Natural Resources’ Reserves Matter originally appeared on Fool.com and is written by Matt DiLallo.
Fool contributor Matt DiLallo owns shares of LINN Energy, LLC. The Motley Fool recommends BreitBurn Energy Partners L.P. (NASDAQ:BBEP)
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