Vanguard Lands Buyer For Scoop/Stack Assets In Oklahoma

Vanguard Natural Resources LLC (NASDAQ: VNR) is shedding some of its Midcontinent assets following an eventful 2015 that saw the Houston company drop about $1.2 billion to acquire two upstream MLP companies.

Vanguard said March 30 it has entered an agreement to sell natural gas, oil and NGL assets in Oklahoma's Scoop and Stack plays to entities managed by Dallas-based Titanium Exploration Partners LLC. The purchase price is $280 million, subject to typical adjustments at closing.

In a report earlier this month, Kevin Smith, senior vice president at Raymond James, said Vanguard had been shopping its 25,000 net acres in the Scoop/Stack with expectations to announce a deal before its spring borrowing base redetermination. Smith estimated the assets would fetch about $350 million.

The Midcontinent has recently turned into a hotbed for A&D activity. In 2015, the region generated about $4 billion in deals, most notably with Devon Energy Corp.’s (NYSE: DVN) $1.9 billion acquisition in December.

Additionally, enthusiasm for the Midcontinent led the region’s Stack Play to become the “it” play among operators at the recent Scotia Howard Weil’s annual energy conference.

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Vanguard will use proceeds from its sale to pay down bank debt. As of March 3, the company had $1.68 billion drawn on its $1.78 billion revolver.

Smith said he expects Vanguard’s borrowing base will be reduced by 20-25% to roughly $1.4 billion as result of the Scoop/Stack sale.

So far this year, Vanguard has made moves to manage its expanded asset base despite the continued collapse in commodity prices.

In February, the company suspended its cash distributions to common, Class B and preferred unitholders. The company also completed a debt exchange for $550 million notes due 2020.

“Despite all the doom and gloom from the distribution cut, Vanguard posted a good [fourth] quarter as numbers were driven by higher-than-anticipated production volumes,” Smith said.

Lower operating costs—down 22% against Raymond James estimates—also helped, he added.

For 2016, the company has significantly reduced its capital budget. The company anticipates a capex of about $63 million, which is 44% less than the $112.6 million it spent in 2015.

The company plans to spend about 40% of its 2016 capex in the Green River Basin’s Pinedale Field. It also expects 21% of its capex will be spent on newly acquired Scoop and Stack assets from its 2015 mergers with Eagle Rock Energy Partners and LRR Energy. The remaining balance will be used in its other operating areas.

Given Vanguard’s “bare bones capital budget,” Smith said he forecasts the company’s production will decline about 12% quarter-over-quarter. However, he anticipates the company will generate roughly $126 million in free cash flow.

The effective date of Vanguard’s sale is Jan. 1. The transaction is expected to close on or before May 18. At closing, Vanguard plans to provide updated operating and financial guidance for 2016.

RBC Richardson Barr was Vanguard’s exclusive adviser for the transaction.

Vanguard’s assets consist primarily of producing and non-producing oil and natural gas reserves in the Green River, Wind River and Powder River basins in Wyoming; the Arkoma Basin in Arkansas and Oklahoma; the Permian Basin in West Texas and New Mexico; the Piceance Basin in Colorado; the Gulf Coast Basin in Texas, Louisiana and Mississippi; and the Williston Basin in North Dakota and Montana.

Emily Moser can be reached at emoser@hartenergy.com.