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Vanguard Natural Resources Reports Third Quarter 2012 Results

Liquidity Update

In September 2012, we used net proceeds totaling $182.3 million from the offering of 6.9 million of our common units, previously mentioned above, to repay indebtedness outstanding under our reserve-based credit facility.

At September 30, 2012, Vanguard had indebtedness under its reserve-based credit facility totaling $570.0 million with a borrowing base of $975.0 million.

In October 2012, our borrowing base under the reserve-based credit facility was increased to $1.0 billion from $975.0 million pursuant to our semi-annual redetermination. The borrowing base was subsequently reduced by $40.0 million following the completion of the $200.0 million Additional Senior Notes offering, resulting in an adjusted borrowing base of $960.0 million. We used the net proceeds of $196.4 million from the Additional Senior Notes offering to pay down outstanding borrowings under our reserve-based credit facility.

Taking into consideration the deposit made on the recently announced acquisition of natural gas and oil assets from Bill Barrett Corporation, on November 1, 2012, there were $403.5 million of outstanding borrowings and $556.5 million of borrowing capacity under the reserve-based credit facility.

Cash Distributions

On November 14, 2012, the Company will pay a monthly cash distribution, attributable to the month of September, of $0.20 per unit ($2.40 on an annual basis) to its unitholders of record as of November 1, 2012.

Conference Call Information

Vanguard will host a conference call today (November 1, 2012) to discuss its third quarter results at 11:00 a.m. Eastern Time (10:00 a.m. Central). To access the call, please dial (877) 941-6010 and ask for the “Vanguard Natural Resources Earnings Call.” The conference call will also be broadcast live via the Internet and can be accessed through the Investor Relations section of Vanguard’s corporate website, http://www.vnrllc.com.

A telephonic replay of the conference call will be available until December 1, 2012 and may be accessed by calling (303) 590-3030 and using the pass code 4571904#. A webcast archive will be available on the Investor Relations page at www.vnrllc.com shortly after the call and will be accessible for approximately 30 days. For more information, please contact Lisa Godfrey at (832) 327-2234 or email at lgodfrey@vnrllc.com.

About Vanguard Natural Resources, LLC

Vanguard Natural Resources, LLC is a publicly traded limited liability company focused on the acquisition, production and development of oil and natural gas properties. Vanguard's assets consist primarily of producing and non-producing oil and natural gas reserves located in the Permian Basin in West Texas and New Mexico, the Big Horn Basin in Wyoming and Montana, the Arkoma Basin in Arkansas and Oklahoma, the Williston Basin in North Dakota and Montana, Mississippi, and South Texas. More information on Vanguard can be found at www.vnrllc.com.

Forward-Looking Statements

We make statements in this news release that are considered forward-looking statements within the meaning of the Securities Exchange Act of 1934. These forward-looking statements are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this news release are not guarantees of future performance, and we cannot assure you that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors listed in the “Risk Factors” section in our SEC filings and elsewhere in those filings. All forward-looking statements speak only as of the date of this news release. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.

 
VANGUARD NATURAL RESOURCES, LLC
Operating Statistics
(Unaudited)
 
      Three Months Ended       Nine Months Ended
September 30, September 30,
2012 (a)(b)       2011 (a)(c) 2012 (a)(b)       2011 (a)(c)
Average realized prices, excluding hedging :
Oil (Price/Bbl) $ 82.98 $ 78.19 $ 85.93 $ 84.16
Natural Gas (Price/Mcf) $ 1.84 $ 5.34 $ 2.39 $ 4.75
NGLs (Price/Bbl) $ 37.91 $ 58.96 $ 46.21 $ 59.94
 
Average realized prices, including hedging (d):
Oil (Price/Bbl) $ 83.14 $ 76.89 $ 84.16 $ 79.75
Natural Gas (Price/Mcf) $ 4.01 $ 8.00 $ 4.59 $ 7.43
NGLs (Price/Bbl) $ 37.91 $ 58.96 $ 46.21 $ 59.94
 
Total production volumes:
Oil (MBbls) 682 695 2,061 2,051
Natural Gas (MMcf) 8,238 2,585 12,505 7,795
NGLs (MBbls) 187 104 454 284
Combined (MBOE) 2,242 1,230 4,599 3,634
 
Average daily production volumes
Oil (Bbls/day) 7,415 7,556 7,523 7,513
Natural Gas (Mcf/day) 89,547 28,099 45,639 28,552
NGLs (Bbls/day) 2,028 1,131 1,656 1,040
Combined (BOE/day) 24,367 13,371 16,786 13,312
(a)       During 2011 and 2012, we and ENP acquired certain oil and natural gas properties and related assets in the Permian Basin, Arkoma Basin, and the Wyoming, South Texas and Louisiana Gulf Coast areas. The operating results of these properties are included with ours from the date of acquisition forward.
(b) On March 30, 2012, we divested oil and natural gas properties in the Appalachian Basin in connection with the Unit Exchange. As such, there are no operating results from these properties included in our operating results from the date of the divestiture forward.
(c) Production from the properties acquired related to the ENP Purchase during 2011 through the date of the completion of the ENP Merger on December 1, 2011 was subject to a 53.4% non-controlling interest in ENP.
(d) Excludes amortization of premiums paid and amortization on derivative contracts acquires.
 
VANGUARD NATURAL RESOURCES, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
(Unaudited)
 
      Three Months Ended       Nine Months Ended
September 30, September 30,
2012       2011   2012         2011
Revenues:
Oil, natural gas and NGLs sales $ 78,871 $ 74,429 $ 228,029 $ 226,838
Loss on commodity cash flow hedges (635 ) (2,307 )
Realized gain (loss) on commodity derivative contracts 318 1,902 (756 ) 4,474
Unrealized gain (loss) on commodity derivative contracts   (51,332 )   109,639   9,243   68,625
Total revenues   27,857   185,335   236,516   297,630
 
Costs and expenses:
Production:
Lease operating expenses 19,514 14,230 54,754 41,683
Production and other taxes 7,053 7,693 21,164 21,319
Depreciation, depletion, amortization, and accretion 31,245 21,419 73,897 62,797
Impairment of oil and natural gas properties 18,029 18,029
Selling, general and administrative expenses   5,499   6,493   15,298   18,713
Total costs and expenses   81,340   49,835   183,142   144,512
 
Income (loss) from operations   (53,483 )   135,500   53,374   153,118
 
Other income (expense):
Interest expense (12,389 ) (7,509 ) (27,548 ) (21,137 )
Realized loss on interest rate derivative contracts (468 ) (664 ) (1,610 ) (2,169 )
Unrealized loss on interest rate derivative contracts (2,463 ) (1,939 ) (5,507 ) (1,641 )
Net gain (loss) on acquisition of oil and natural gas properties 487 13,796 (383 )
Other   76   70   191   76
Total other expense   (15,244 )   (9,555 )   (20,678 )   (25,254 )
 
Net income (loss) (68,727 ) 125,945 32,696 127,864
Less:
Net income attributable to non-controlling interest     50,061     50,593
Net income (loss) attributable to Vanguard unitholders $ (68,727 ) $ 75,884 $ 32,696 $ 77,271
 
Net income (loss) per Common and Class B units – basic $ (1.29 ) $ 2.51 $ 0.62 $ 2.56
Net income (loss) per Common and Class B units – diluted $ (1.29 ) $ 2.50 $ 0.62 $ 2.55
 
Weighted average units outstanding:
Common units – basic   52,719   29,839   52,135   29,792
Common units – diluted   52,719   29,981   52,188   29,855
Class B units – basic & diluted   420     420   420   420
 
 
VANGUARD NATURAL RESOURCES, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
 
      September 30,       December 31,
2012   2011  
(Unaudited)
Assets  
Current assets  
Cash and cash equivalents $ 24,420 $ 2,851  
Trade accounts receivable, net 54,131 48,046  
Derivative assets 37,635 2,333  
Other current assets   2,497   3,462  
Total current assets   118,683     56,692  
 
Oil and natural gas properties, at cost 1,767,497 1,549,821
Accumulated depletion   (290,466 )   (331,836 )
Oil and natural gas properties evaluated, net – full cost method   1,477,031   1,217,985
 
Other assets
Goodwill 420,955 420,955
Derivative assets 46,077 1,105
Other assets   29,181   19,626  
Total assets $ 2,091,927 $ 1,716,363
 
Liabilities and members’ equity
Current liabilities
Accounts payable:
Trade $ 6,861 $ 7,867
Affiliate 317 718
Accrued liabilities:
Lease operating 6,042 5,828
Developmental capital 7,463 563
Interest 13,906 103
Production and other taxes 15,147 12,768
Derivative liabilities 4,279 12,774
Deferred swap premium liability 274 275
Oil and natural gas revenue payable 9,919 505
Distribution payable 11,761
Other   7,115   4,437
Total current liabilities   83,084   45,838
 
Long-term debt 570,000 771,000
Senior notes, net of discount 347,572
Derivative liabilities 11,230 20,553
Asset retirement obligations, net of current portion 43,363 34,776
Other long-term liabilities   3,443   275
Total liabilities   1,058,692   872,442
 
Commitments and contingencies
 
Members’ equity

Members’ capital, 58,661,188 common units issued and outstanding atSeptember 30, 2012 and 48,320,104 at December 31, 2011

1,029,943 839,714

Class B units, 420,000 issued and outstanding at September 30, 2012 andDecember 31, 2011

  3,292   4,207
Total members’ equity   1,033,235   843,921
Total liabilities and members’ equity $ 2,091,927 $ 1,716,363
 

Use of Non-GAAP Measures

Adjusted EBITDA

We present Adjusted EBITDA in addition to our reported net income (loss) attributable to Vanguard unitholders in accordance with GAAP. Adjusted EBITDA is a non-GAAP financial measure that is defined as net income (loss) attributable to Vanguard unitholders plus:

  • For 2011, net income attributable to the non-controlling interest.

The result is net income which includes the non-controlling interest for 2011. From this we add or subtract the following:

  • Net interest expense, including write-off of deferred financing fees and realized gains and losses on interest rate derivative contracts;
  • Depreciation, depletion, amortization and accretion;
  • Impairment of oil and natural gas properties;
  • Amortization of premiums paid on derivative contracts;
  • Amortization of value on derivative contracts acquired;
  • Unrealized gains and losses on commodity and interest rate derivative contracts;
  • Net gains and losses on acquisition of oil and natural gas properties;
  • Deferred taxes;
  • Unit-based compensation expense;
  • Unrealized fair value of phantom units granted to officers;
  • Material transaction costs incurred on acquisitions and mergers;
  • For 2011, non-controlling interest amounts attributable to each of the items above from the beginning of year through the completion of the Encore Merger on December 1, 2011, which revert the calculation back to an amount attributable to the Vanguard unitholders; and
  • For 2011, administrative services fees charged to Encore, excluding the non-controlling interest, which are eliminated in consolidation.

Adjusted EBITDA is used by management as a tool to measure (prior to the establishment of any cash reserves by our board of directors, debt service and capital expenditures) the cash distributions we could pay our unitholders. Specifically, this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our monthly distribution rates. Adjusted EBITDA is also used as a quantitative standard by our management and by external users of our financial statements such as investors, research analysts and others to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis; the ability of our assets to generate cash sufficient to pay interest costs and support our indebtedness; and our operating performance and return on capital as compared to those of other companies in our industry. Adjusted EBITDA is not intended to represent cash flows for the period, nor is it presented as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP.

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