Vanguard Natural Resources LLC (NASDAQ: VNR) captured a new core area in the Haynesville and Cotton Valley shale plays in a $278 million deal, the company announced Aug. 4.
Vanguard entered into an agreement to acquire natural gas, oil and NGL assets in North Louisiana and East Texas from Dallas-based Hunt Oil Co. The properties stretch across about 23,000 net acres and are currently producing 17.5 million cubic feet equivalent per day (MMcfe/d), consisting of about 67% natural gas and 33% oil and NGLs.
Houston’s Vanguard is gaining working interest in more than 290 producing wells and 78 proved undeveloped vertical drilling locations. The proved developed production average decline rate is about 10%.
The assets currently produce 11.7 million cubic feet per day (MMcf/d) of gas and 400 barrels per day (bbl/d) of oil. Estimated reserve life is more than 23 years based on internal estimates of about 150 billion cubic feet equivalent (Bcfe) in proved reserves.
The acquisition of mature, long life natural gas and oil properties in the Haynesville and Cotton Valley plays is an excellent addition to the company’s current portfolio of assets, said Scott W. Smith, Vanguard president and CEO, in a statement.
"Along with an established base of producing assets, this acquisition features an inventory of behind pipe and low risk vertical drilling projects that we will begin to develop in 2015,” Smith said. “Based on our initial evaluation work, we believe there is the potential for meaningful horizontal drilling opportunities across some of the operated assets.”
Vanguard's portfolio includes holdings in nine other core areas—the Green River, Arkoma, Permian, Big Horn, Piceance Basin, Gulf Coast, Williston, Wind River and the Powder River basins. As of Dec. 31, 2013, it held proved reserves of about 300 million barrels of oil equivalent, of which 60% was proved developed producing.
Lease operating expenses on the acquired acreage are forecasted to average about $1 per Mcfe over the next three years and production taxes forecasted at 7.75% of revenue. Forecasted natural gas realization is 115% of NYMEX Henry Hub, oil differential of $2.50 per barrel off of WTI and an average NGL realization of 55% of WTI.
Vanguard intends to opportunistically hedge the expected natural gas and oil production for 2015 through 2017. Management will continue to evaluate hedging the NGLs component and act prudently and swiftly should the NGL pricing market justify a hedged component.
The effective date of the acquisition is June 1 and closing is expected on or before Oct. 1. Vanguard intends to fund this acquisition with borrowings under its existing reserve-based credit facility. The acquisition is expected to be immediately accretive to distributable cash flow at closing.
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