Vanguard Natural Resources, LLC (NYSE: VNR) (“Vanguard” or “the Company”) today announced it has entered into a definitive agreement to acquire natural gas and liquids assets in the Piceance Basin in Colorado and the Powder River and Wind River Basins in Wyoming for a purchase price of $335 million from Bill Barrett Corporation. The effective date of the acquisition is October 1, 2012 and the Company anticipates closing this acquisition on or before December 31, 2012.
Scott W. Smith, President and Chief Executive Officer, commented, “After both a successful bond and equity offering we are very pleased to sign an agreement that will put some of our new liquidity to work. These assets will be a great addition to our portfolio as they exhibit the characteristics we are looking for: a mature developed production base, predictable operating costs and significant free cash flow with very limited need for reinvested capital based on our acquisition structure.”
Significant benefits expected from the acquisition include:
- Immediately accretive to distributable cash flow;
- Proved reserves of approximately 300 Bcfe based on three-streams and forward strip pricing. Proved reserves are divided geographically as follows:
|Basins||Natural Gas (Bcf)||Oil (MMBl)||NGL (MMBl)||Total (Bcfe)||% Proved Developed|
- Current net production of approximately 65 MMcfe/d divided geographically as follows:
|Current Net Production|
|Basins||Natural Gas (MMcf/d)||Oil (MBbl/d)||NGL (MBbl/d)||Total (MMcfe/d)||% Natural Gas|
- Reserve to production ratio of approximately 13 years;
- Escalating working interest in Piceance Basin. Working interest begins at 18% but increases to 21% on January 1, 2014, increases to 24% on January 1, 2015 and remains at 26% beginning on January 1, 2016. This structure was designed to maintain cash flow from the acquisition without the need for any capital spending until 2016. By hedging natural gas at increasing strip pricing each successive year and having an increased working interest each successive year in the Piceance Basin we offset the impact of the expected natural production declines and consequently, the cash flow remains relatively stable through 2016;
- Vanguard intends to significantly hedge the expected natural gas and oil production through 2016 and the expected natural gas liquids production in 2013;
- Expands the Wyoming operating base with the addition of two offices and personnel to handle the Wind River and Powder River operations;
- Approximately 184,000 net acres in the Wind River Basin (97% undeveloped, 12% HBP with majority of leases expiring in 2015 and beyond) and 67,000 net acres in the Powder River Basin (42% undeveloped, 93% HBP) and 4,000 net acres in the Piceance Basin (37% undeveloped, 95% HBP); and
- Significant number of proved drilling locations in the Piceance Basin that can be drilled at attractive rates of return in a $4.50 natural gas price environment. In addition, there are a significant number of proved drilling locations in the Powder River Basin that are not economically attractive at current strip pricing but would be viable projects in an improved pricing environment.
The Company intends to fund this acquisition with borrowings under its existing reserve-based credit facility. Vanguard anticipates that after closing this acquisition and the banks perform an interim borrowing base redetermination, Vanguard will have ample liquidity to continue its growth through acquisitions strategy.
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