Vanguard Steps Up M&A

Growing both its footprint in three major shale basins and adding more liquids to its portfolio, Houston-based Vanguard Natural Resources has a second upstream MLP acquisition in its sights.

Pending unitholder approval, Vanguard will acquire Eagle Rock Energy Partners in a $614 million unit-for-unit transaction that represents a 24 percent premium to Eagle Rock’s closing price on May 21. CFO Richard Robert told analysts in a conference call after Memorial Day that the deal, coupled with the previously stated intent to buy LRR Energy LP, will benefit investors in all three entities.

Robert said the two transactions will combine to form a larger, more diverse company better equipped to survive the current commodities environment. LRR and Eagle Rock have significant assets in parts of the Lower 48 where Vanguard already has operations, particularly in the Mid-Continent, Gulf Coast and Permian Basin areas.

Of the Eagle Rock deal, Robert said it isn’t often that a single acquisition can increase the scale and diversity of a company, while materially de-levering it all at one time. An added benefit, Robert said, is that the deal grows Vanguard’s talent pool.

“A top notch employee base is essential if you want to continue to be successful,” he said. Once the transactions close, which is expected in third quarter, there will be some employment changes. While some hiring is expected as part of the acquisitions, Robert said there will also be some redundancies between Eagle Rock and Vanguard, he said.

The transaction will benefit Vanguard’s hedge book, with Eagle Rock’s oil and gas production 80 percent hedged in 2015, 70 percent hedged in 2016, and additional hedges through 2019.  

Although mergers and acquisitions (M&A) activity has generally been low for 2015, Robert said that Vanguard always has an appetite for it.

“But, we have to be realistic in terms of effectively integrating entities,” he said.

Given that LRR only has employees in the field, that deal on paper is more of an asset transaction, which makes it much simpler than a complicated merger of corporate offices, such as the Eagle Rock deal.

As for additional M&A, he said the company has the bandwidth to do it, but Vanguard will need to close these transactions before moving on others.

“We anticipate [activity] a little bit slower, but there are still some good deals out there, and we will be on the lookout for deals after these mergers close,” he said.


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