Vanguard Natural’s market performance
Vanguard Natural Resources (VNR), an upstream MLP (master limited partnership) involved in crude oil, natural gas, and NGL (natural gas liquids) production, has gained over 100.0% in recent trading sessions. This gain can be attributed to the recent rally in natural gas prices and expectation of higher crude oil prices following the latest OPEC (Organization of Petroleum Exporting Countries) agreement to cut output. By comparison, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has gained 14.2% during the same time frame.
That said, the partnership has lost over 90% of its market value since the beginning of rout in energy prices and has lost 60.7% so far in 2016. Memorial Production Partners (MEMP) and EV Energy Partners (EVEP) have lost 79.2% and 8.2% in 2016, while Legacy Reserves (LGCY) has gained 33.1%. XOP has gained 0.2% in 2016.
VNR and other upstream MLPs have not only underperformed XOP but also similarly sized upstream C corporations including Callon Petroleum (CPE) and Clayton Williams Energy (CWEI). This underperformance could be due to VNR’s MLP structure.
Until recently, VNR was distributing the majority of its internally generated cash flow as distributions and depended upon external financing for funding growth capital expenditure or capex. With the slump in energy prices, cash flows have shrunk, making it tough for VNR to service its debt and interest payments.
Vanguard Natural’s 3Q16 adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose to $100.4 million from $88.2 million in 3Q15, which represents a YoY (year-over-year) rise of 13.8%.
In this series, we’ll look at VNR’s recent production and liquidity position. We’ll also look into VNR’s commodity price exposure, hedging position, and analyst projections.
Let’s begin with Vanguard Natural’s focus on natural gas.