VNR announced yesterday that it was set to complete a $581 million acquisition in Wyoming in January.
The land is estimated to produce 113 million cubic feet everyday of which 80% is natural gas. This is estimated to increase VNR’s reserves by 80% and it’s daily production by 55%. It’s also noted that this involves working with Ultra Petroleum to develop new drilling options. This means that Ultra Petroleum will be fronting most of the cash for new drilling activities, allowing VNR to hedge the risk.
People have noted that in the past, VNR has been very conservative. Given that their distribution is paid out on a monthly basis instead of a quarterly one, it appears they have a strong focus on providing cash flow to unit holders. Given this big of an increase in production, I easily see another distribution increase coming soon. But I also predict that VNR will hedge things in order to produce a stable increase. They don’t want to increase things too fast and have to cut later on.
People are predicting that this will catapult VNR into the ranks of LINN Energy and BreitBurn Energy Partners. Those two are strong industry leaders in the MLP market space.