Vanguard Natural Resources
In this article, we’ll look at the liquidity position for our four upstream MLPs under review. These MLPs are going through a liquidity crisis due to a decline in earnings driven by a fall in commodity prices. Let’s start with Vanguard Natural Resources (VNR).
The above chart shows the liquidity available under credit facility and cash available on the balance sheet for the four upstream MLPs.
VNR announced a borrowing base redetermination under its credit facility on May 26, 2016. The revised borrowing base of ~$1.3 billion is below the outstanding borrowings of ~$1.4 billion under its credit facility, which resulted in a deficiency of $103.5 million. This includes $4.5 million of outstanding letters of credit. Now, VNR has to repay the deficiency amount in six equal monthly installments of $17.3 million.
The partnership expects to fund the deficiency amount from the excess cash flows in 2016. According to a recent press release, VNR expects to generate $190.8 million in excess cash flow in 2016. $103.5 million of this would be used for deficiency payments, leaving $87.3 million for planned capital expenditure and debt repayments. VNR’s 2016 capital expenditure is expected to be $73 million. This indicates that VNR’s liquidity position at the end of 2016 will be tight at current commodity price and production estimates. If VNR falls short of its estimates, the situation will be even worse.
Memorial Production Partners
Memorial Production Partners (MEMP) had $135 million of liquidity as of March 31, 2016. This includes $134 million available under its credit facility and $0.84 million of cash. MEMP expects to generate $105 million to $125 million of distributable cash flow in 2016, which is expected to be used for funding capital expenditure, distributions, and debt repayments. The partnership expects to spend $75 million on capital expenditure in 2016. This might indicate MEMP’s slightly better liquidity position until its next borrowing base redetermination in the fall of 2016.
EV Energy Partners
EV Energy Partners (EVEP) has the highest liquidity among the four upstream MLPs. EVEP had $165 million of liquidity under its credit facility and $3.9 million of cash as of April 29, 2016. However, the significant decline in EVEP’s earnings might erode its liquidity in the coming quarters. EVEP reported a distributable cash flow of -$1.2 million in 1Q16.
Legacy Reserves (LGCY) has the lowest liquidity among the four upstream MLPs. The partnership has $74 million of liquidity including $68.6 million available under its credit facility and $5.3 million of cash as of May 4, 2016. This includes the effect of a $69 million asset sale completed in 1Q16. If LGCY continues to experience a decline in earnings in the coming quarters, then its liquidity position is expected to become worse.