NEW YORK (TheStreet) -- Vanguard Natural Resources (VNR) has struggled to increase the amount of cash it can distribute to its investors, but the natural-gas producer is hoping that two major acquisitions it has announced during the last two months will help mend that problem.
This year, in the first six months of operations, Vanguard's distributable cash flow fell by 2% to $88 million from the same period a year ago, largely because of declining prices for natural-gas liquids, or NGLs. Meanwhile, the company's distribution coverage ratio for the first two quarters of this year has been less than 1, meaning that the company has paid out more cash than it has generated as distributable cash flow.
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Ideally, a company can retain some of its distributable cash flow, which would translate into a coverage ratio of greater than 1 and give investors confidence about the company's ability to pay distributions in the future.
A coverage ratio of less than 1 is usually considered as a sign of unsustainable dividends. Structured as a master limited partnership, Houston-based Vanguard distributes quarterly payments to its unit holders which is derived from its cash flow.
Since Vanguard released its second-quarter results last month, its has announced two acquisitions of natural-gas fields and assets for more than $800 million, big transactions for a company with a market capitalization of $2.4 billion.
In August, the Vanguard said it agreed to buy 23,000 net acres in North Louisiana and East Texas from Dallas-based Hunt Oil for $278 million, and on Tuesday, Vanguard said it agreed to buy 12,000 net acres in Colorado from Bill Barrett Corp. (BBG) for $525 million.
Vanguard spokeswoman Lisa Godfrey said that these are largely mature natural-gas assets that aren't declining quickly and require little spending for maintenance.
In press releases, Vanguard said the deals will add to its distributable cash flow and could lead to a better coverage ratio.