Vanguard Natural Resources Reports Third Quarter 2013 Results

Vanguard Natural Resources, LLC (NASDAQ: VNR) ("Vanguard" or "the Company") today reported financial and operational results for the quarter ended September 30, 2013.

Mr. Scott W. Smith, President and CEO, commented, "Our quality asset base continues to deliver solid operational results. We remain active in the acquisitions market and with approximately $900 million of liquidity available, we are well positioned to be competitive for MLP type assets that come to market in the fourth quarter."

Mr. Richard A. Robert, EVP and CFO, added, “We are pleased with where we stand today as a company. Stable cash flows and a strong balance sheet put us in very firm financial footing and bodes well for our continued ability to create long term value for our unitholders. In addition, we remain conservative and prudent with increases to our common unit monthly cash distribution that currently generates an approximate 9.0% yield for our unitholders.”
         
Three Months Ended

September 30,
Nine Months Ended

September 30,
2013 2012 2013   2012

($ in thousands, except per unit data)

(Unaudited)
Production (BOE/d) 35,250 24,367

 

34,957

 

16,786
Oil, natural gas and natural gas liquids sales $ 121,510 $ 78,871 $ 334,929 $ 228,029
Realized gain (loss) on commodity derivative contracts $ (5,359 ) $ 318 $ (2,175 ) $ (756 )
Unrealized gain (loss) on commodity derivative contracts $ (12,355 ) $ (51,332 ) $ 13,781 $ 9,243
Operating expenses $ 36,436 $ 26,567 $ 106,425 $ 75,918
Selling, general and administrative expenses $ 5,730 $ 5,499 $ 19,179 $ 15,298
Depreciation, depletion, amortization, and accretion $ 41,750 $ 31,245 $ 123,354 $ 73,897
Impairment of oil and natural gas properties $

-
$ 18,029 $

-
$ 18,029
Net income (loss) available to common and Class B unitholders $ 1,881 $ (68,727 ) $ 56,007 $ 32,696
Adjusted Net Income Available to Common and Class B Unitholders (1) $ 22,601 $ 17,932 $ 58,591 $ 48,153
Adjusted Net Income Available to Common and Class B Unitholders, per unit (1) $ 0.29 $ 0.34 $ 0.82 $ 0.92
Adjusted EBITDA(1) $ 82,687 $ 66,277 $ 235,401 $ 163,965
Interest expense, including realized losses on interest rate derivative contracts $ 15,819 $ 12,857 $ 49,129 $ 29,158
Drilling, capital workover and recompletion expenditures $ 12,774 $ 16,925 $ 42,192 $ 40,285
Distributions to preferred unitholders $ 1,240 $

-
$ 1,392 $

-
Distributable Cash Flow Available to Common and Class B Unitholders (1) $ 52,854 $ 36,640 $ 142,688 $ 100,044
Distributable Cash Flow per common and Class B unit (1) $ 0.68 $ 0.67 $ 1.93 $ 1.89
Common and Class B units distribution coverage (1)

1.09

x

1.12

x

 

1.05

x

 

1.06

x
Weighted average common and Class B units outstanding 77,903 53,139

 

71,351

 

52,555
 

(1) Non-GAAP financial measures. Please see Adjusted Net Income Available to Common and Class B Unitholders, Adjusted EBITDA and Distributable Cash Flow Available to Common and Class B Unitholders tables at the end of this press release for a reconciliation of these measures to their nearest comparable GAAP measure.
 

Third Quarter 2013 Highlights:
  • Adjusted EBITDA (a non-GAAP financial measure defined below) increased 25% to $82.7 million in the third quarter of 2013 from $66.3 million in the third quarter of 2012 and increased 3% from the $80.3 million recorded in the second quarter of 2013.
  • Distributable Cash Flow Available to Common and Class B Unitholders (a non-GAAP financial measure defined below) increased 44% to $52.9 million from the $36.6 million generated in the third quarter of 2012 and increased 9% from the $48.4 million generated in the second quarter of 2013.
  • We reported net income available to common and Class B unitholders for the quarter of $1.9 million or $0.02 per basic unit compared to a reported net loss of $68.7 million or $(1.29) per basic unit in the third quarter of 2012. The recent quarter includes net non-cash losses of $20.6 million that are adjustments to arrive at Adjusted Net Income Available to Common and Class B Unitholders (a non-GAAP financial measure defined below). The third quarter of 2012 results included net non-cash losses of $86.7 million.
  • Adjusted Net Income Available to Common and Class B Unitholders (a non-GAAP financial measure defined below) was $22.6 million in the third quarter of 2013, or $0.29 per basic unit, as compared to $17.9 million, or $0.34 per basic unit, in the third quarter of 2012.
  • Reported average production of 35,250 BOE per day in the third quarter of 2013, up 45% over 24,367 BOE per day produced in the third quarter of 2012 and a 3% decrease over 36,477 BOE per day produced in the second quarter of 2013. On a BOE basis, crude oil, natural gas and natural gas liquids (“NGLs”) accounted for 24%, 64%, and 12% of our third quarter 2013 production, respectively.

During the quarter, we produced 12,398 MMcf of natural gas, an increase of 50% from the 8,238 MMcf of natural gas produced in the third quarter of 2012, 793 MBbls of oil, an increase of 16% from the 682 MBbls of oil produced in the third quarter of 2012, and 383 MBbls of NGLs, an increase of 105% from the 187 MBbls of NGLs produced in the third quarter of 2012.

Including the impact of our natural gas hedges in the third quarter of 2013, we realized an average price of $3.48 per Mcf on natural gas sales, compared to the unhedged realized average price of $2.47 per Mcf. Our hedged realized average price for oil was $84.37 per barrel, compared to the unhedged realized average price of $97.38 per barrel. The impact of our NGL hedges resulted in an average realized price of $35.56 per barrel of NGLs sales, compared to the unhedged realized average price of $35.51 per barrel.

2013 Nine Month Highlights:
  • Adjusted EBITDA (a non-GAAP financial measure defined below) increased 44% to $235.4 million in the first nine months of 2013 from $164.0 million in the first nine months of 2012.
  • Distributable Cash Flow Available to Common and Class B Unitholders (a non-GAAP financial measure defined below) for the first nine months of 2013 increased 43% to $142.7 million from the $100.0 million generated in the first nine months of 2012.
  • We reported net income available to common and Class B unitholders for the first nine months of 2013 of $56.0 million or $0.78 per basic unit compared to a reported net income of $32.7 million or $0.62 per basic unit in the first nine months of 2012. The 2013 results include net non-cash losses of $1.7 million that are adjustments to arrive at Adjusted Net Income Available to Common and Class B Unitholders (a non-GAAP financial measure defined below). Results for the first nine months of 2012 included net non-cash losses of $15.5 million.
  • Adjusted Net Income Available to Common and Class B Unitholders (a non-GAAP financial measure defined below) was $58.6 million for the first nine months of 2013, or $0.82 per basic unit, as compared to $48.2 million, or $0.92 per basic unit, in the comparable period of 2012.
  • Reported average production of 34,957 BOE per day in the first nine months of 2013, up 108% over 16,786 BOE per day produced in the first nine months of 2012. On a BOE basis, crude oil, natural gas and NGLs accounted for 24%, 66%, and 10% of our production for the first nine months of 2013, respectively.

During the first nine months of 2013, we produced 37,565 MMcf of natural gas, an increase of 200% from the 12,505 MMcf of natural gas produced in the first nine months of 2012, 2,316 MBbls of oil, an increase of 12% from the 2,061 MBbls of oil produced in the first nine months of 2012, and 966 MBbls of NGLs, an increase of 113% from the 454 MBbls of NGLs produced in the first nine months of 2012.

Including the impact of our natural gas hedges in the first nine months of 2013, we realized an average price of $3.38 per Mcf on natural gas sales, compared to the unhedged realized average price of $2.51 per Mcf. Our hedged realized average price for oil was $83.45 per barrel, compared to the unhedged realized average price of $88.70 per barrel. The impact of our NGL hedges resulted in an average realized price of $36.68 per barrel of NGLs sales, compared to the unhedged realized average price of $36.51 per barrel.

Capital Expenditures

Capital expenditures for the drilling, capital workover and recompletion of oil and natural gas properties were approximately $12.8 million in the third quarter of 2013 compared to $16.9 million for the comparable quarter of 2012 and $14.8 million for the second quarter of 2013.

Operated capital expenditures totaled approximately $6.8 million and were focused largely on our Woodford and Permian operations. Non-operated capital totaled approximately $6.0 million during the quarter and spending in the Fayetteville Shale equated to approximately 45% of the activity. The remaining non-operated activity was spread across our assets on other maintenance related projects and drilling where we have low working interests.

Excluding any potential future acquisitions, we currently anticipate an approximate capital budget for the fourth quarter of $19.0 – $21.0 million.

Hedging Activities

We enter into derivative transactions in the form of hedging arrangements to reduce the impact of oil and natural gas price volatility on our cash flow from operations. We have mitigated some of the volatility by implementing a hedging program for approximately 85% of our anticipated production of crude oil through 2015, approximately 85% of our natural gas production through June 30, 2017 and approximately 15% of our NGLs production through 2014. At September 30, 2013, the fair value of commodity derivative contracts was an asset of approximately $83.9 million, of which $21.9 million settles during the next twelve months. Currently, we use fixed-price swaps, basis swaps, swaptions, put spread options, put options sold, collars, three-way collars and range bonus accumulators to hedge oil, natural gas and NGL prices.

New commodity derivative contracts put in place during the three months ended September 30, 2013 are as follows:

         
Year

2014
Year

2015
Oil Positions:
Fixed-Price Swaps
Notional Volume (Bbls)

-
181,000
Fixed Price ($/Bbls) $

-
$ 93.40
Puts Sold
Notional Volume (Bbls)

-
181,000
Put Sold ($/Bbls) $

-
$ 75.00
 
NGLs Positions:
Fixed-Price Swaps
Mont Belvieu Propane
Notional Volume (Bbls) 91,250 91,250
Fixed Price ($/Bbl) $ 42.00 $ 42.00
 

For a summary of all commodity and interest rate derivative contracts in place at September 30, 2013, please refer to our Quarterly Report on Form 10-Q which is expected to be filed on or about October 31, 2013.

Liquidity Update

At September 30, 2013, we had indebtedness under our reserve-based credit facility totaling $410.0 million with a borrowing base of $1.3 billion, which provided for $888.3 million in undrawn capacity, after consideration of a $1.7 million reduction in availability for letters of credit.

As of October 30, 2013, there were $425.0 million of outstanding borrowings and $873.2 million of borrowing capacity under the reserve-based credit facility, after consideration of a $1.8 million reduction in availability for letters of credit. We also have approximately $15.0 million in available cash. Our borrowing base as of October 30, 2013 is $1.3 billion. We are currently in the process of our semi-annual borrowing base redetermination and anticipate its completion in November 2013 with no material changes.

Cash Distributions

On October 21, 2013, our board of directors declared a cash distribution for our common and Class B unitholders attributable to the month of September 2013 of $0.2075 per common and Class B unit ($2.49 on an annualized basis) expected to be paid on November 14, 2013 to Vanguard unitholders of record on November 1, 2013.

Also on October 21, 2013, our board of directors declared a cash distribution for our preferred unitholders of $0.1641 per preferred unit expected to be paid on November 15, 2013 to Vanguard preferred unitholders of record on November 8, 2013.

On October 30, 2013, our board of directors declared a cash distribution for our common and Class B unitholders attributable to the month of October 2013 of $0.2075 per common and Class B unit ($2.49 on an annualized basis) expected to be paid on December 13, 2013 to Vanguard unitholders of record on December 2, 2013.

Conference Call Information

Vanguard will host a conference call on Thursday (October 31, 2013) to discuss its third quarter 2013 financial results, at 11:00 a.m. Eastern Time (10:00 a.m. Central). To access the call, please dial (877) 941-6009 or (480) 629-9866 for international callers 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, 2013 and may be accessed by calling (303) 590-3030 and using the pass code 4645271#. 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 investorrelations@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 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, South Texas, the Williston Basin in North Dakota and Montana, the Wind River Basin in Wyoming, the Powder River Basin in Wyoming, and Mississippi. More information on Vanguard can be found at www.vnrllc.com.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the federal securities laws. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements include but are not limited to statements about the acquisition announced in this press release. These statements are based on certain assumptions made by the Company based on management's experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include risks relating to financial performance and results, availability of sufficient cash flow to pay distributions and execute our business plan, prices and demand for oil, natural gas and NGLs, our ability to replace reserves and efficiently develop our current reserves and other important factors that could cause actual results to differ materially from those projected as described in the Company's reports filed with the Securities and Exchange Commission. Please see "Risk Factors" in the Company's public filings.

Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to publicly correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.

         

VANGUARD NATURAL RESOURCES, LLC

Operating Statistics

(Unaudited)
 

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,
2013(a) 2012(a) 2013(a) 2012(a)(b)
Average realized prices, excluding hedges:
Oil (Price/Bbl) $ 97.38 $ 82.98 $ 88.70 $ 85.93
Natural Gas (Price/Mcf) $ 2.47 $ 1.84 $ 2.51 $ 2.39
NGLs (Price/Bbl) $ 35.51 $ 37.91 $ 36.51 $ 46.21
Average realized prices, including hedges (c):
Oil (Price/Bbl) $ 84.37 $ 83.14 $ 83.45 $ 84.16
Natural Gas (Price/Mcf) $ 3.48 $ 4.01 $ 3.38 $ 4.59
NGLs (Price/Bbl) $ 35.56 $ 37.91 $ 36.68 $ 46.21
Average NYMEX prices:
Oil Price (Price/Bbl) $ 105.82 $ 92.15 $ 98.22 $ 96.20
Natural Gas Price (Price/Mcf) $ 3.57 $ 2.81 $ 3.68 $ 2.70
Total production volumes:
Oil (MBbls) 793 682 2,316 2,061
Natural Gas (MMcf) 12,398 8,238 37,565 12,505
NGLs (MBbls) 383 187 966 454
Combined (MBOE) 3,243 2,242 9,543 4,599
Average daily production volumes:
Oil (Bbls/day) 8,621 7,415 8,484 7,523
Natural Gas (Mcf/day) 134,765 89,547 137,601 45,639
NGLs (Bbls/day) 4,168 2,028 3,540 1,656
Combined (BOE/day) 35,250 24,367 34,957 16,786
 

(a) During 2013 and 2012, we acquired certain oil and natural gas properties and related assets. The operating results of these properties are included with ours from the closing date of the acquisition forward.
 

(b) On March 30, 2012, we divested oil and natural gas properties in the Appalachian Basin. As such, there are no operating results from these properties included in our operating results from the closing date of the divestiture forward.
 

(c) Excludes amortization of premiums paid and amortization on derivative contracts acquired.
 

Proved Reserves

Total proved oil and natural gas reserves at September 30, 2013 were 175.2 million barrels of oil equivalent, consisting of 588.1 billion cubic feet of natural gas, 46.9 million barrels of crude oil and 30.2 million barrels of natural gas liquids. Natural gas, crude oil and natural gas liquids accounted for 56%, 27%, and 17%, respectively, of our total proved reserves. Of these total estimated proved reserves, approximately 75% were classified as proved developed.
     

VANGUARD NATURAL RESOURCES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit data)

(Unaudited)
 

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,
2013   2012 2013   2012
Revenues:
Oil, natural gas and NGLs sales $ 121,510 $ 78,871 $ 334,929 $ 228,029
Realized gain (loss) on commodity derivative contracts (5,359 ) 318 (2,175 ) (756 )
Unrealized gain (loss) on commodity derivative contracts (12,355 ) (51,332 ) 13,781   9,243  
Total revenues 103,796   27,857   346,535   236,516  
 
Costs and expenses:
Production:
Lease operating expenses 25,339 19,514 76,021 54,754
Production and other taxes 11,097 7,053 30,404 21,164
Depreciation, depletion, amortization, and accretion 41,750 31,245 123,354 73,897
Impairment of oil and natural gas properties

-
18,029

-
18,029
Selling, general and administrative expenses 5,730   5,499   19,179   15,298  
Total costs and expenses 83,916   81,340   248,958   183,142  
 
Income (loss) from operations 19,880   (53,483 ) 97,577   53,374  
 
Other income (expense):
Interest expense (14,832 ) (12,389 ) (46,233 ) (27,548 )
Realized loss on interest rate derivative contracts (987 ) (468 ) (2,896 ) (1,610 )
Unrealized gain (loss) on interest rate derivative contracts (742 ) (2,463 ) 3,294 (5,507 )
Gain (loss) on acquisition of oil and natural gas properties, net (236 )

-
5,591 13,796
Other 38   76   66   191  
Total other expense (16,759 ) (15,244 ) (40,178 ) (20,678 )
Net income (loss) $ 3,121 $ (68,727 ) $ 57,399 $ 32,696
Distributions to Preferred unitholders (1,240 )

-
  (1,392 )

-
 
Net income (loss) available to Common and

Class B unitholders
$ 1,881   $ (68,727 ) $ 56,007   $ 32,696  
 
Net income (loss) per Common and Class B units – basic and diluted $ 0.02   $ (1.29 ) $ 0.78   $ 0.62  
 
Weighted average common units outstanding:
Common units – basic 77,483   52,719   70,931   52,135  
Common units – diluted 77,748   52,719   71,361   52,188  
Class B units – basic & diluted 420   420   420   420  
     

VANGUARD NATURAL RESOURCES, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit data)
 

September 30,2013

December 31,2012
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 7,426 $ 11,563
Trade accounts receivable, net 75,050 51,880
Derivative assets 30,733 46,690
Other current assets 4,051   3,858  
Total current assets 117,260   113,991  
 
Oil and natural gas properties, at cost 2,492,082 2,126,268
Accumulated depletion, amortization and impairment (670,413 ) (550,032 )
Oil and natural gas properties evaluated, net – full cost method 1,821,669   1,576,236  
 
Other assets
Goodwill 420,955 420,955
Derivative assets 62,849 53,240
Other assets 33,262   35,712  
Total assets $ 2,455,995   $ 2,200,134  
 
Liabilities and members’ equity
Current liabilities
Accounts payable:
Trade $ 9,638 $ 8,417
Affiliates 163 32
Accrued liabilities:
Lease operating 9,421 7,884
Development capital 8,231 4,754
Interest 22,693 11,573
Production and other taxes 19,393 12,852
Derivative liabilities 11,638 5,366
Oil and natural gas revenue payable 19,333 8,226
Distribution payable 16,339 11,919
Other 10,819   8,479  
Total current liabilities 127,668   79,502  
 
Long-term debt 957,815 1,247,631
Derivative liabilities 5,337 11,996
Asset retirement obligations, net of current portion 70,059 60,096
Other long-term liabilities 1,345   3,445  
Total liabilities 1,162,224   1,402,670  
 
Commitments and contingencies
Members’ equity
Preferred units, 2,520,000 units issued and outstanding at September 30, 2013 60,635

-
Common units, 77,498,386 units issued and outstanding at September 30, 2013and 58,706,282 at December 31, 2012 1,230,871 794,426
Class B units, 420,000 issued and outstanding at September 30, 2013and December 31, 2012 2,265   3,038  
Total members’ equity 1,293,771   797,464  
Total liabilities and members’ equity $ 2,455,995   $ 2,200,134  
 

Adjusted EBITDA

We present Adjusted EBITDA in addition to our reported net income (loss) in accordance with GAAP. Adjusted EBITDA is a non-GAAP financial measure that is defined as net income (loss) plus the following adjustments:
  • Net interest expense, including 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;
  • Gains and losses on acquisition of oil and natural gas properties, net;
  • Taxes;
  • Compensation related items, which include unit-based compensation expense and unrealized fair value of phantom units granted to officers; and
  • Material transaction costs incurred on acquisitions.

Adjusted EBITDA is a significant performance metric used by 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 (loss), operating income (loss), cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Our Adjusted EBITDA excludes some, but not all, items that affect net income (loss) and operating income (loss) and these measures may vary among other companies. Therefore, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

Distributable Cash Flow Available to Common and Class B Unitholders

We present Distributable Cash Flow Available to Common and Class B Unitholders in addition to our reported net income (loss) in accordance with GAAP. Distributable Cash Flow Available to Common and Class B Unitholders is a non-GAAP financial measure that is defined as net income (loss) plus the following adjustments:
  • 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;
  • Gains and losses on acquisition of oil and natural gas properties, net;
  • Taxes;
  • Compensation related items, which include unit-based compensation expense and unrealized fair value on phantom units granted to officers; and
  • Material transaction costs incurred on acquisitions;

Less:
  • Drilling, capital workover and recompletion expenditures;
  • Distributions to Preferred unitholders;

Plus:
  • Proceeds from the sale of leasehold interests.

Distributable Cash Flow Available to Common and Class B Unitholders is used by management as a tool to measure (prior to the establishment of any cash reserves by our board of directors) the cash distributions we could pay our common and Class B 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 rate to our common and Class B unitholders. While Distributable Cash Flow Available to Common and Class B Unitholders is measured on a quarterly basis for reporting purposes, management must consider the timing and size of its planned capital expenditures in determining the sustainability of its monthly distribution to common and Class B unitholders. Capital expenditures are typically not spent evenly throughout the year due to a variety of factors including weather, rig availability, and the commodity price environment. As a result, there will be some volatility in Distributable Cash Flow Available to Common and Class B Unitholders measured on a quarterly basis. Distributable Cash Flow Available to Common and Class B Unitholders is not intended to be a substitute for net income (loss), operating income (loss), cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP.
         

VANGUARD NATURAL RESOURCES, LLC

Reconciliation of Net Income (Loss) to Adjusted EBITDA (a) and

Distributable Cash Flow Available to Common and Class B Unitholders

(Unaudited)

(in thousands, except per unit amounts)
 

Three Months EndedSeptember 30,

Nine Months Ended September 30,
2013 2012 2013 2012
Net income (loss) $ 3,121 $ (68,727 ) $ 57,399 $ 32,696
Plus:
Interest expense, including realized losses on interest rate derivative contracts 15,819 12,857 49,129 29,158
Depreciation, depletion, amortization, and accretion 41,750 31,245 123,354 73,897
Impairment of oil and natural gas properties

-
18,029

-
18,029
Amortization of premiums paid on derivative contracts 56 3,441 165 10,516
Amortization of value on derivative contracts acquired 7,444 14,213 22,872 14,096
Unrealized (gains) losses on commodity and interest rate derivative contracts 13,097 53,795 (17,075 ) (3,736 )
(Gain) loss on acquisition of oil and natural gas properties, net 236

-
(5,591 ) (13,796 )
Taxes 101 (16 ) (140 ) (153 )
Compensation related items 942 1,440 4,445 3,258
Material transaction costs incurred on acquisitions 121  

-
  843  

-
 
Adjusted EBITDA $ 82,687 $ 66,277 $ 235,401 $ 163,965
Less:
Interest expense, net (15,819 ) (12,857 ) (49,129 ) (29,158 )
Drilling, capital workover and recompletion expenditures (12,774 ) (16,925 ) (42,192 ) (40,285 )
Distributions to Preferred unitholders (1,240 )

-
(1,392 )

-
Proceeds from sale of leasehold interests

-
  145  

-
  5,522  
Distributable Cash Flow Available to Common and Class B Unitholders $ 52,854   $ 36,640   $ 142,688   $ 100,044  
 
Distributable Cash Flow per Common and Class B Unit $ 0.68 $ 0.67 $ 1.93 $ 1.89
Common and Class B unit distribution coverage

1.09

x

1.12

x

1.05

x

1.06

x
 

(a) Our Adjusted EBITDA should not be considered as an alternative to net income (loss), operating income (loss), cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Our Adjusted EBITDA excludes some, but not all, items that affect net income (loss) and operating income (loss) and these measures may vary among other companies. Therefore, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
 

Adjusted Net Income Available to Common and Class B Unitholders

We present Adjusted Net Income Available to Common and Class B Unitholders in addition to our reported net income (loss) available to common and Class B unitholders in accordance with GAAP. Adjusted Net Income Available to Common and Class B Unitholders is a non-GAAP financial measure that is defined as net income available to common and Class B unitholders plus the following adjustments:
  • Unrealized gains and losses on commodity derivative contracts;
  • Unrealized gains and losses on interest rate derivative contracts;
  • Unrealized fair value on phantom units granted to officers;
  • Amortization of value on derivative contracts acquired;
  • Gains and losses on acquisition of oil and natural gas properties, net; and
  • Material transaction costs incurred on acquisitions.

This information is provided because management believes exclusion of the impact of these items will help investors compare results between periods and identify operating trends that could otherwise be masked by these items and to highlight the significant fluctuations that commodity price volatility has on our results, particularly as it relates to unrealized changes in the fair value of our derivative contracts. Adjusted Net Income Available to Common and Class B Unitholders is not intended to represent cash flows for the period, nor is it presented as a substitute for net income (loss), operating income (loss), cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP.
     

VANGUARD NATURAL RESOURCES, LLC

Reconciliation of Net Income (Loss) Available to Common and Class B Unitholders to

Adjusted Net Income Available to Common and Class B Unitholders

(in thousands, except per unit data)

(Unaudited)
 

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,
2013   2012 2013   2012
Net income (loss) available to common and Class B unitholders $ 1,881 $ (68,727 ) $ 56,007 $ 32,696
Plus (less):
Unrealized (gain) loss on commodity derivative contracts 12,355 51,332 (13,781 ) (9,243 )
Unrealized (gain) loss on interest rate derivative contracts 742 2,463 (3,294 ) 5,507
Unrealized fair value on phantom units granted to officers (178 ) 622 1,535 864
Amortization of value on derivative contracts acquired 7,444 14,213 22,872 14,096
(Gain) loss on acquisition of oil and natural gas

properties, net
236

-
(5,591 ) (13,796 )
Impairment of oil and natural gas properties

-
18,029

-
18,029
Material transaction costs incurred on acquisitions 121  

-
  843  

-
 
Adjusted Net Income Available to Common and Class B Unitholders $ 22,601   $ 17,932   $ 58,591   $ 48,153  
 
Net income (loss) available to common and Class B unitholders, per unit $ 0.02 $ (1.29 ) $ 0.78 $ 0.62
Plus (less):
Unrealized (gain) loss on commodity derivative contracts 0.16 0.96 (0.19 ) (0.17 )
Unrealized (gain) loss on interest rate derivative contracts 0.01 0.05 (0.04 ) 0.10
Unrealized fair value on phantom units granted to officers

-
0.01 0.02 0.02
Amortization of value on derivative contracts acquired 0.10 0.27 0.32 0.27
(Gain) loss on acquisition of oil and natural gas

properties, net

-

-
(0.08 ) (0.26 )
Impairment of oil and natural gas properties

-
0.34

-
0.34
Material transaction costs incurred on acquisitions

-
 

-
  0.01  

-
 
Adjusted Net Income Available to Common and Class B Unitholders, per unit $ 0.29   $ 0.34   $ 0.82   $ 0.92  

Copyright Business Wire 2010