Over the past decade, Linn Energy LLC (NASDAQ:LINE) has spent about $14 billion via 58 separate transactions to scoop up mature oil and gas reserves. The smaller Vanguard Natural Resources, LLC (NYSE:VNR) has made 18 deals totaling nearly $3 billion since 2008. What’s really important to realize is that these two, as well as their industry peers, are just getting started. All signs are pointing to a sustained merger-and-acquisition boom, as there is a large inventory of mature oil and gas basins that exploration companies could tap as currency to fund production growth from shale plays.
We saw a prime example when Vanguard Natural Resources, LLC (NYSE:VNR) recently picked up $275 million in Permian Basin assets from Range Resources Corp. (NYSE:RRC) . For Vanguard, these were perfect MLP assets, with proven reserves of 137 billion cubic feet equivalent and a reserve-to-production ratio of about 20 years. Even better for the gassy Vanguard Natural Resources, LLC (NYSE:VNR) is that current production is liquids-focused, with natural gas just 41% of production from these Permian assets. The assets simply didn’t fit within Range’s current plans to grow its production and reserves per share by double digits, so by selling the Permian assets, Range was able to unlock some capital to help fund its higher growth Marcellus and Mississippian acreage.
Because of their MLP-type structure, Vanguard Natural Resources, LLC (NYSE:VNR) and Linn Energy LLC (NASDAQ:LINE) are able to scoop up these producing reserves and turn them into income machines. Since 2008, Vanguard’s acquisitions have fueled a 45% increase in its distribution, while LINN’s deals have helped it grow its distribution by more than 80% since 2006. Both companies currently yield around 8.75% and pay (or are planning to pay) investors on a monthly basis.
The bottom line here is that exploration and production companies need a boatload of capital to develop our shale resources. One of the most palpable ways to access that capital is to sell mature production assets, and oil and gas MLPs such as Linn Energy LLC (NASDAQ:LINE) and Vanguard Natural Resources, LLC (NYSE:VNR) are waiting there with open arms to scoop up these assets. This hidden opportunity could deliver substantial income to investors over the years as these companies continue to grow by acquisition.
The article 1 Hidden Opportunity From the Shale Revolution originally appeared on Fool.com.
Fool contributor Matt DiLallo owns shares of Linn Energy LLC (NASDAQ:LINE) and SandRidge Energy Inc. (NYSE:SD) and also has short September 2013 $5 puts on SandRidge Energy. The Motley Fool recommends Range Resources Corp. (NYSE:RRC) and has options on Chesapeake Energy Corporation (NYSE:CHK).
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