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How Does Vanguard Natural Resources’ Hedging Program Compare?

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Vanguard Natural Resources’ hedging program

In this article, we’ll look at Vanguard Natural Resources’ (VNR) hedging program for 2016 and 2017. Vanguard Natural Resources gained $169.4 million from commodity derivative contracts in 2015, an increase of 3.6% over the $163.4 million in 2014.

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Gas hedges

The partnership has hedged 78% of its 2016 natural gas (UNG) production, at $4.15 per MMBtu (British thermal units in millions). The 22% unhedged volumes are exposed to natural gas price fluctuation. The partnership’s natural gas exposure is expected to increase in 2017, as only 49% of its 2017 natural gas production was hedged as of December 31, 2015. Plus, considering the current price environment, the new hedges would be at lower prices.

Peers Breitburn Energy Partners (BBEP), Legacy Reserves (LGCY), and Linn Energy (LINE) have hedged 75%, 50%, and 100%, respectively, of their expected 2016 natural gas production volumes.

Liquid hedges

VNR has hedged 67% of its crude oil (USO) and 22% of its NGLs (natural gas liquids) for 2016, at a weighted average price of $67.52 per barrel and $30.31 per barrel, respectively. The partnership’s average crude oil price assumption of $36.30 per barrel for 2016 is higher than the EIA’s (U.S. Energy Information Administration) WTI (West Texas Intermediate) crude oil forecast of $34.60 per barrel. While VNR has hedged 21% of its 2017 crude oil production volumes, its NGLs are completely unhedged.

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