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The Deal: Vanguard Natural Resources Buys $581M in Wyoming Assets

Stocks in this article: VNR APC

NEW YORK (The Deal) -- Vanguard Natural Resources  (VNR) said in a statement Monday that it agreed to buy natural gas and oil properties in the Pinedale and Jonah fields of southwestern Wyoming from an unnamed seller for $581 million, greatly boosting its reserves and daily production.

A Vanguard filing with the Securities and Exchange Commission revealed the seller as Anadarko E&P Onshore, a unit of The Woodlands, Texas-based Anadarko Petroleum  (APC). The purchaser was Vanguard unit Encore Energy Partners Operating.

The properties cover 87,000 gross acres, or 14,000 net acres, and produce 113.4 million cubic feet equivalent per day with 80% being natural gas, 4% oil and 16% natural gas liquids.

Houston-based Vanguard will have a 10% average working interest in the properties, which are operated by Ultra Petroleum and QEP Resources.

Vanguard said it expects to close the purchase by Jan. 31. It will fund the acquisition with borrowings under its reserve-based credit facility.

CEO and president Scott Smith said in a statement the deal will increase the company's reserves by 80% and its daily production by 55% and give it 970 proved undeveloped drilling locations.

"Acquiring an interest in one of the country's most prolific natural gasfields, operated by companies with an unparalleled history of successful development, is a milestone event for Vanguard," he said. "This property will be an excellent addition to our portfolio of long life, mature assets and represents a great start to our 2014 acquisition program."

CFO Richard Robert said the transaction is a change in strategy for the company, which for the first time will be allocating capital to drilling wells on properties that are expected to maintain and grow cash flow for over 10 years.

"Furthermore, this strategy change will allow Vanguard to more effectively compete for new acquisitions that contain both mature stable production and a significant inventory of proven undeveloped drilling locations," he said.

The properties' estimated reserve life is over 20 years, based on internally estimated proved reserves of 847 billion cubic feet equivalent.

The Jonah field has reserves of 22.3 billion cubic feet equivalent, 49% of which is proved developed, and production of 2.5 million cubic feet equivalent per day, 79% of which is natural gas.

Pinedale has reserves of 825 billion cubic feet equivalent, 43% of which is proved developed, and production of 110.9 million cubic feet equivalent per day, 80% of which is natural gas.

The property has 2,000 producing wells and 5,200 additional locations not booked right now because they aren't expected to be drilled within a five-year period, which is required by the SEC for recording proved reserves.

Vanguard said it expects an eight-rig drilling program, with each rig anticipated to drill two wells per month next year. Vanguard intends to significantly hedge the expected natural gas and oil production through 2017 and will continue to evaluate hedging the natural gas liquids component, acting "prudently and swiftly" if the NGL pricing market justifies it.

Vanguard has been a busy acquirer since its 2007 initial public offering, expanding its resource base beyond Appalachia and picking up natural gas properties from eager sellers given low commodity prices.

Last year it bought natural gas and liquids assets in the Arkoma Basin's Woodford Shale and Fayetteville Shale in Oklahoma and Arkansas from Warburg Pincus- and Trilantic Capital Partners-backed Antero Resources (AR) for $445 million, nonoperated oil and natural gas assets in Montana from an undisclosed seller for $131 million, and properties in the Rockies from Bill Barrett Corp. for $335 million.

This past April, it completed its acquisition of oil and natural gas assets in southeast New Mexico and west Texas from units of Fort Worth's Range Resources  (RRC) for $268.8 million.

The Jonah field has been of interest to other buyers, with Linn Energy (LINE) picking up properties there last year from the U.K.'s BP  (BP) for $1.025 billion.

J. Patrick Doherty of Doherty & Doherty counseled Vanguard. Handling the deal from Anadarko were transactions vice president Joe Carroll and senior counsel Susan Aldridge.

--Written by Claire Poole in Houston

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