Vanguard Natural Resources, LLC (VNR), Linn Energy LLC (LINE): 1 Hidden Opportunity From the Shale Revolution

Page 1 of 2

One of the most surprising discoveries of the past decade has been the amount of oil and gas we have in the United States. The shale revolution has not only turned the Bakken and Eagle Ford into black-gold mines, but it has really changed the way that U.S.-based oil and gas companies operate. As we drill into the incredible numbers we’ll uncover a hidden opportunity could have investors cashing in for years to come.

Vanguard Natural Resources, LLC (NASDAQ:VNR)

It wasn’t that long ago that we thought we were about to run out of gas, quite literally. At the start of the decade it was estimated that we had enough natural gas left from conventional gas wells to last us about 12 years. This belief had several companies, including Dominion Energy, building natural gas import terminals. Today, Dominion is working to convert its Cove Point LNG terminal into an export facility because we have more than enough gas to meet our needs. As the following chart shows, the impact of the shales is significant:

Source: Vanguard Natural ResourcesInvestor Presentation (link opens a PDF).

Not only are our shale gas reserves significant, but we have tremendous potential liquid reserves as well:

Source: Vanguard Natural Resources Investor Presentation.

The problem is that those reserves will cost a substantial amount of money to develop over the next few decades. It’s estimated that oil and gas companies will need to spend an average of $70 billion a year over the next 30 years to develop these plays. The total price tag is estimated to be more than $1.8 trillion. The next chart breaks down the capital requirements per play:

Source: Vanguard Natural Resources Investor Presentation.

Because of the vast amounts of capital required to develop our shale plays, many E&P companies are struggling to find ways to pay to develop the acreage they have amassed. Investors will only tolerate so much equity dilation, and using debt can have serious consequences. One look at either Chesapeake Energy Corporation (NYSE:CHK) or SandRidge Energy Inc. (NYSE:SD) , and you’ll see what I mean. Chesapeake Energy Corporation (NYSE:CHK) has seen shares outstanding rise by about 30% over the past five years, while SandRidge Energy Inc. (NYSE:SD)’s share count has jumped by more than 200% over that same timeframe. In addition, both companies have taken on copious amounts of debt, all in an effort to fund production growth. Unfortunately, this hasn’t worked out very well, as investors have been killed by poor recent investment returns.

The only other option to fund these capital needs is to form foreign joint ventures, which could jeopardize our dream of energy independence, or simply unload mature oil and gas assets. That last option has opened up a hidden opportunity for upstream oil and gas MLPs such as Linn Energy LLC (NASDAQ:LINE) and Vanguard Natural Resources, LLC (NYSE:VNR) to consolidate these mature producing properties.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

The 20 Biggest Contracts in MLB History

The 7 Worst Blown Calls in Sports History

7 Free Ways to Advertise Your Business Online

The 18 Best R&B Songs of the 90’s

The 10 Most Dangerous States to be a Cop

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!