VNR: An Upstream MLP Favorite

10/09/2015 9:00 am EST

Focus: MLPS

Michael Berger

President & Founder,

This upstream MLP is deeply hedged against the price of oil and natural gas, which gives Michael Berger, of, confidence in the company’s ability to maintain its current distribution in a depressed price environment.

Although the price of crude oil has come off of it its lows, many analysts expect to see a number of upstream Master Limited Partnerships (MLPs) cut their current distribution rate during 2016. Upstream MLPs are more levered to the price of oil because they are oil and gas producers. This is different from Midstream MLPs which are engaged in the transportation of oil and gas through pipelines.

During the last three months, many Upstream MLPs have seen their share price fall by approximately 50% and we see further weakness ahead. Since the market has priced in a lot of the upcoming negative news, we expect to see a majority of the Upstream MLPs lower their distribution rate. The weak price environment coupled with the lack of clarity around the timing and magnitude of a rebound keeps us on the sidelines with the sub-sector.

Favorite Upstream MLP Investment

Our favorite investment in the Upstream MLP industry is Vanguard Natural Resources, LLC (VNR). The company acquires and develops oil and natural gas properties in the United States. VNR owns properties located in nine basins including the Arkoma Basin in Arkansas and Oklahoma, the Permian Basin in West Texas and New Mexico, the Big Horn Basin in Wyoming and Montana, the Piceance Basin in Colorado, the Gulf Coast Basin in Texas, Louisiana, and Mississippi, the Wind River Basin in Wyoming, the Williston Basin in North Dakota and Montana, the Green River Basin in Wyoming, and the Powder River Basin in Wyoming.  

VNR is deeply hedged against the price of oil and natural gas which helps protect them against the weak oil and gas price environment. These hedges provide the company a more stable cash flow and give us confidence in VNR’s ability to maintain its current distribution in the depressed price environment. 

More Distribution Cuts to Come

When looking at other players in the Upstream MLP sub-sector, the outlook is not pretty. We expect to see Breitburn Energy Partners (BBEP), EV Energy Partners (EVEP), Legacy Reserves LP (LGCY), Mid Con Energy Partners (MCEP), and Memorial Production Partners LP (MEMP) reduce their distribution during 2016.

Michael Berger, Founder and President,

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