Vanguard Natural Resources Provides Updated Commodity Hedge Positions and Revised Financial Guidance for 2010

Jun 24, 2010, 07:40 ET from Vanguard Natural Resources, LLC

HOUSTON, June 24 /PRNewswire-FirstCall/ -- Vanguard Natural Resources, LLC (NYSE: VNR) ("Vanguard" or "the Company") is providing public disclosure of certain updated financial and operating estimates that were originally disclosed on March 3, 2010 in order to permit the preparation of updated models to forecast its operating results for the year ending December 31, 2010.  The primary reason for providing updated financial and operating estimates is to reflect the impact of the recently completed acquisition of oil properties from a private seller for approximately $113.1 million in cash (the "Acquisition").  As disclosed in the press release and 8-K filing on May 24, 2010, the Acquisition was consummated on May 20, 2010 and therefore the Acquisition will contribute to the Company's production and financial results for approximately the remaining seven months of 2010.

Updated Oil Hedge Positions

In conjunction with the Acquisition, Vanguard entered into new oil price commodity derivatives.  The following table reflects the new fixed price oil swaps currently entered into for the Acquisition as well as a revised total for all outstanding oil price derivative contracts for the Company:

Oil Price Derivatives:

2010

2011

2012

2013

2014

New Fixed Price Oil Swaps:    

   New Notional Volume (Bbls)

36,750

182,500

210,450

177,775

209,875

   Weighted Average Fixed Price ($/Bbl)

$94.00

$90.53

$91.28

$90.79

$94.37

Total Fixed Price Oil Swaps:

   Total Notional Volume (Bbls)

242,306

443,250

393,450

342,025

209,875

   Weighted Average Fixed Price ($/Bbl)

$87.15

$87.94

$88.87

$88.53

$94.37

   Percentage of Total Anticipated Oil Production Hedged

50%

51%

45%

42%

27%

In addition to the fixed oil price derivatives above, the Company sold calls and/or gave counterparties the option to extend certain swaps into subsequent years.  Proceeds from the sale of the calls or extendable options were used to improve the fixed price on some of the swaps indicated in the table above.  Specifically, calls were sold or options were provided to counterparties to extend the swap into subsequent years as follows:

Oil Price Derivatives:

2012

2013

2014

2015

Fixed Price Sold Calls or Extendable Options:    

   Notional Volume (Bbls)

45,750

32,100

127,750

292,000

   Weighted Average Fixed Price ($/Bbl)

$90.40

$95.00

$95.00

$95.63

The Company anticipates executing additional oil hedges over time based on market conditions.  The purpose of entering into these oil price commodity derivatives is to fix the oil price on a significant portion of the incremental production from the Acquisition which allows our future cash flow to be more predictable.  Predictable cash flow allows the Company to set the quarterly cash distribution to investors at a level that can be sustained for an extended period.

Revised Guidance for 2010

Overview

As a matter of policy, we generally do not attempt to provide estimates on:

(a)  production which may be obtained through future drilling;

(b)  dry hole and abandonment costs that may result from future drilling;

(c)  the unrealized gains and losses from derivative contracts under ASC Topic 815 "Derivatives and Hedging";

(d)  the non-cash effects of ASC Topic 718, "Compensation - Stock Compensation" unless the values are determinable;

(e)  the non-cash gains or losses resulting from the acquisition of oil and natural gas properties as provided in ASC Topic 805, "Business Combinations";

(f)  cash or stock bonuses to be paid in the future; and

(g)  capital expenditures related to acquisitions of proved properties until the expenditures are estimable and likely to occur.

Therefore, the potential impacts of these items are not included in the estimates provided below.  

These estimates are based on information available to us as of the date of this filing, and actual results may vary materially from these estimates.  We do not undertake any obligation to update these estimates as conditions change or as additional information becomes available.  

Summary of Estimates

The following tables set forth certain updated estimates being used by Vanguard to model its anticipated results of operations for the fiscal year ending December 31, 2010 based on the following average pricing:

Twelve Months Ending December 31, 2010

Assumed Average Pricing for Forecast

Original Forecast

Revised Forecast

Natural Gas – Henry Hub ($/MMbtu)

$5.59

$4.71

Natural Gas Liquids ($/Gallon)

$1.10

$1.10

Crude Oil – WTI Sweet ($/Bbl)

$75.90

$77.71

Each range of values provided below represents the expected low and high estimates for such financial or operating factor.  

Full Year 2010 Range

Average Daily Production:

          Original Forecast

        Revised Forecast

Appalachian Gas (Mcf)

7,000

-

7,360

7,315

-

7,700

Permian Gas (Mcf)

800

-

845

855

-

900

South Texas Gas (Mcf)

5,300

-

5,575

4,355

-

4,585

Mississippi Gas (Mcf)

n/a  

-

n/a  

0

-

0

Appalachian Oil (Bbls)

185

-

200

260

-

275

Permian Oil (Bbls)

1,100

-

1,160

1,050

-

1,105

South Texas Oil (Bbls)

50

-

55

50

-

55

Mississippi Oil (Bbls) (A)

n/a  

-

n/a  

430

-

450

Appalachian Natural Gas Liquids (Gallons)

0

-

0

0

-

0

Permian Natural Gas Liquids (Gallons)

3,990

-

4,200

3,400

-

3,570

South Texas Natural Gas Liquids (Gallons)

22,260

-

23,520

22,350

-

23,520

            Average daily production (Mcfe)

24,860

-

26,230

26,940

-

28,365

Differentials:

Appalachian Gas (Mcf) 

$0.15

-

$0.20

$0.15

-

$0.20

Permian Gas (Mcf)

$(0.13)

-

$(0.17)

$(0.30)

-

$(0.36)

South Texas Gas (Mcf)

$(0.12)

-

$(0.18)

$(0.12)

-

$(0.16)

Appalachian Oil (Bbls)

$(9.75)

-

$(10.25)

$(9.75)

-

$(10.25)

Permian Oil (Bbls)

$(4.00)

-

$(6.00)

$(3.50)

-

$(4.00)

South Texas Oil (Bbls)

$(5.00)

-

$(7.00)

$(3.50)

-

$(4.00)

Mississippi Oil (Bbls) (A)

n/a    

-

n/a  

$(5.75)

-

$(6.25)

BTU Content:

Appalachian Gas 

1,210

-

1,210

1,210

-

1,210

Permian Gas

1,001

-

1,001

1,002

-

1,002

South Texas Gas

1,005

-

1,005

1,005

-

1,005

Costs Variable by Production ($/Mcfe):

Production expenses (including Severance and Ad Valorem taxes)

$2.15

-

$2.25

$2.30

-

$2.40

DD&A – Oil and gas properties

$1.25

-

$1.35

$2.10

-

$2.20

Statement of Operations (in thousands)(A):

Total natural gas, natural gas liquids, and oil sales

$76,000

-

$79,655

$82,270

-

$86,600

Realized gains on other commodity derivative contracts

20,750

-

20,750

26,350

-

26,350

Amortization of premiums paid on derivative contracts

(3,285)

-

(3,285)

(3,285)

-

(3,285)

Amortization of value on derivative contracts acquired

(2,000)

-

(2,000)

(2,000)

-

(2,000)

   Total Revenues

91,465

-

95,120

103,335

-

107,665

Lease operating expenses

(13,775)

-

(14,500)

(16,600)

-

(17,600)

Depreciation, depletion, amortization and accretion

(12,000)

-

(13,000)

(21,500)

-

(22,100)

General and administrative (B)

(3,800)

-

(4,200)

(4,000)

-

(4,300)

General and administrative – unit-based compensation (B)

(680)

-

(680)

(700)

-

(700)

Taxes other than income taxes

(6,125)

-

(6,450)

(6,555)

-

(6,900)

  Total Costs and Expenses

(36,380)

-

(38,830)

(49,355)

-

(51,600)

  Income from Operations

55,085

-

56,290

53,980

-

56,065

Interest expense, net

(4,730)

-

(4,730)

(5,700)

-

(5,700)

Realized losses on interest rate derivative contracts

(2,170)

-

(2,170)

(2,000)

-

(2,000)

           Adjusted Net Income

$48,185

-

$49,390

$46,280

-

$48,365

Reconciliation of Adjusted Net Income to Adjusted EBITDA

and Distributable Cash Flow (in thousands)(A)(B):

           Adjusted Net Income

$48,185

-

$49,390

$46,280

-

$48,365

     Plus:

      Interest expense, including realized losses on interest rate derivatives

6,900

-

6,900

7,700

-

7,700

     Depreciation, depletion, amortization and accretion

12,000

-

13,000

21,500

-

22,100

     Amortization of premiums paid on derivative contracts

1,950

-

1,950

1,950

-

1,950

     Amortization of value on derivative contracts acquired  

2,000

-

2,000

2,000

-

2,000

     Amortization of unit-based compensation expense

680

-

680

700

-

700

          Adjusted EBITDA

$71,715

-

$73,920

$80,130

-

$82,815

       Less:

      Interest expense, including realized losses on interest rate derivatives

(6,900)

-

(6,900)

(7,700)

-

(7,700)

      Drilling, recompletions and other capital expenditures

(12,500)

-

(13,500)

(14,500)

-

(15,500)

           Distributable Cash Flow

$52,315

-

$53,520

$57,930

-

$59,615

Weighted Average Units Outstanding (in thousands):

Basic

18,836

-

18,836

20,866

-

20,866

A. The Acquisition was completed on May 20, 2010.  As such, the production and financial results for 2010 only include the impact of the Acquisition for approximately the final seven months of 2010.  

B. Does not include any potential payout related to bonuses.

About Vanguard Natural Resources, LLC

Vanguard Natural Resources, LLC is a publicly traded limited liability company focused on the acquisition, production and development of natural gas and oil properties. The Company's assets consist primarily of producing and non-producing natural gas and oil reserves located in the southern portion of the Appalachian Basin, the Permian Basin, South Texas and Mississippi. More information on the Company can be found at www.vnrllc.com.

Forward-Looking Statements

The estimates provided in this document are based on assumptions that we believe are reasonable.  Until our actual results of operations have been compiled and released, all of the estimates and assumptions set forth herein constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements, other than statements of historical facts, included in this document that address activities, events or developments that we expect, project, believe or anticipate will or may occur in the future, or may have occurred through the date of this filing, including such matters as production of oil and gas, product prices, oil and gas reserves, drilling and completion results, capital expenditures and other such matters, are forward-looking statements.  Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the results, performance, or achievements expressed or implied by such forward-looking statements.  Such factors include, among others, the following:  the volatility of oil and natural gas prices, the unpredictable nature of our drilling results; the reliance upon estimates of proved reserves; operating hazards and uninsured risks; competition; government regulation; and other factors referenced in filings made by us with the Securities and Exchange Commission.

(Logo:  http://photos.prnewswire.com/prnh/20091208/LA22476LOGO)

(Logo:  http://www.newscom.com/cgi-bin/prnh/20091208/LA22476LOGO)

CONTACT: Vanguard Natural Resources, LLC

Investor Relations

Lisa Godfrey, 832-327-2234

investorrelations@vnrllc.com

SOURCE Vanguard Natural Resources, LLC



RELATED LINKS

http://www.vnrllc.com