Vanguard Natural Resources Reports Third Quarter 2012 Results

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Vanguard Natural Resources Reports Third Quarter 2012 Results

HOUSTON--(BUSINESS WIRE)-- Vanguard Natural Resources, LLC (NYS: VNR) ("Vanguard" or "the Company") today reported financial and operational results for the quarter ended September 30, 2012.

Scott W. Smith, President and CEO, commented, "With the announcement of our agreement for the acquisition of natural gas and natural gas liquids properties in Colorado and Wyoming from Bill Barrett Corporation, we are on track to invest over $800 million in oil and gas assets in 2012. These acquisitions will drive our production and distribution growth as we head into 2013."


Selected Financial Information

A summary of selected financial information follows. For consolidated financial statements, please see accompanying tables.

    Three Months Ended    Nine Months Ended
September 30,September 30,
2012    20112012    2011
($ in thousands, except per unit data)
Production (Boe/d) (1)24,36713,37116,78613,312
Oil, natural gas and natural gas liquids sales (1)$78,871$74,429$228,029$226,838
Realized gain (loss) on commodity derivative contracts (1)$318$1,902$(756)$4,474
Unrealized gain (loss) on commodity derivative contracts (1)$(51,332)$

109,639

$9,243$68,625
Operating expenses (1)$26,567$21,923$75,918$63,002
Selling, general and administrative expenses (1)$5,499$6,493$15,298$18,713
Depreciation, depletion, amortization, and accretion (1)$31,245$21,419$73,897$62,797
Impairment of oil and natural gas properties$18,029$18,029
Net Income (Loss) attributable to Vanguard unitholders (1)$(68,727)$75,884$32,696$77,271
Adjusted Net Income attributable to Vanguard unitholders (2)$17,932$14,137$48,153$46,472
Adjusted Net Income per unit attributable to Vanguard unitholders (2)$0.34$0.47$0.92$1.54
Adjusted EBITDA attributable to Vanguard unitholders (2)$66,277$37,028$163,965$111,105
Interest expense, including realized losses on interest rate derivative contracts (1)$12,857$8,173$29,158$23,306
Drilling, capital workover and recompletion expenditures (1)$16,925$15,000$40,285$23,729
Distributable Cash Flow (2)$36,640$19,029$100,044$72,999
Distributable Cash Flow per unit (2)$0.67$0.63$1.89$2.42
(1)   The operating results and production of the subsidiaries we acquired in the ENP Purchase through the date of the completion of the ENP Merger on December 1, 2011 were subject to a 53.4% non-controlling interest.
(2)Non-GAAP financial measures. Please see Adjusted Net Income, Adjusted EBITDA and Distributable Cash Flow tables at the end of this press release for a reconciliation of these measures to their nearest comparable GAAP measure.

Proved Reserves

Total proved oil and natural gas reserves at September 30, 2012 were 138.6 million barrels of oil equivalent, consisting of 62.7 million barrels of crude oil, condensate, and natural gas liquids and 455.4 billion cubic feet of natural gas. Natural gas reserves accounted for 55% of total proved reserves. Sixty nine percent of our total reserves are proved developed.

Third Quarter 2012 Highlights:

  • Adjusted EBITDA attributable to Vanguard unitholders (a non-GAAP financial measure defined below) increased 79% to $66.3 million in the third quarter of 2012 from $37.0 million in the third quarter of 2011 and increased 49% from $44.5 million recorded in the second quarter of 2012.
  • Distributable Cash Flow attributable to Vanguard unitholders (a non-GAAP financial measure defined below) increased 93% to $36.6 million from the $19.0 million generated in the third quarter of 2011 and increased 94% from the $18.9 million generated in the second quarter of 2012.
  • We reported net loss attributable to Vanguard unitholders for the quarter of $68.7 million or $(1.29) per basic unit compared to reported net income of $75.9 million or $2.51 per basic unit in the third quarter of 2011. The recent quarter includes a loss of $86.7 million in non-cash adjustments and the third quarter 2011 results included a gain before non-controlling interest of $106.9 million in non-cash adjustments. Excluding these items, Adjusted Net Income attributable to Vanguard unitholders (a non-GAAP financial measure defined below) was $17.9 million in the third quarter of 2012, or $0.34 per basic unit, as compared to $14.1 million, or $0.47 per basic unit, in the third quarter of 2011.
  • Reported average production of 24,367 BOE per day in the third quarter of 2012 increased 82% from the 13,371 BOE per day produced in the third quarter of 2011 and increased 97% from the second quarter of 2012. On a BOE basis, crude oil, natural gas and natural gas liquids ("NGLs") accounted for 30%, 61%, and 9% of our third quarter 2012 production, respectively.

During the quarter we produced 8,238 MMcf of natural gas, an increase of 219% from the 2,585 MMcf of natural gas produced in the third quarter of 2011, 682 MBbls of oil, a decrease of 2% from the 695 MBbls of oil producing in the third quarter of 2011, and 187 MBbls of NGLs, an increase of 80% from the 104 MBbls of NGLs produced in the third quarter of 2011.

Including the impact of our natural gas hedges in the third quarter of 2012, we realized an average realized price of $4.01 per Mcf on natural gas sales, which is $2.17 per Mcf more than the unhedged realized average price of $1.84 per Mcf. Including the impact of our oil hedges, we realized an average price of $83.14 per barrel on crude oil sales, which is $0.16 per barrel more than the unhedged realized average price of $82.98 per barrel. The realized average price for our NGL production was $37.91 per barrel, which is a decline of 36%, when compared to the realized price in the third quarter of 2011.

2012 Nine Month Highlights:

  • Adjusted EBITDA attributable to Vanguard unitholders (a non-GAAP financial measure defined below) increased 48% to $164.0 million in the first nine months of 2012 from $111.1 million in the first nine months of 2011.
  • Distributable Cash Flow attributable to Vanguard unitholders (a non-GAAP financial measure defined below) for the first nine months of 2012 increased 37% to $100.0 million from the $73.0 million generated in the first nine months of 2011.
  • We reported net income attributable to Vanguard unitholders for the first nine months of 2012 of $32.7 million or $0.62 per basic unit compared to net income of $77.3 million or $2.56 per basic unit in the first nine months of 2011. The first nine months of 2012 include a loss of $15.5 million in non-cash adjustments and the first nine months of 2011 included a gain before non-controlling interest of $64.4 million in non-cash adjustments. Excluding these items, Adjusted Net Income attributable to Vanguard unitholders (a non-GAAP financial measure defined below) was $48.2 million in the first nine months of 2012, or $0.92 per basic unit, as compared to $46.5 million, or $1.54 per basic unit, in the comparable period of 2011. Reported average production of 16,786 BOE per day in the first nine months of 2012 increased 26% from the 13,312 BOE per day produced in the comparable period of 2011. On a BOE basis, crude oil, natural gas and NGLs accounted for 45%, 45%, and 10% of our production for the first nine months of 2012, respectively.

During the first nine months of 2012 we produced 12,505 MMcf of natural gas, an increase of 60% from the 7,795 MMcf of natural gas produced during the first nine months of 2011, 2,061 MBbls of oil, an increase of 1% from the 2,051 MBbls of oil produced during the first nine months of 2011, and 454 MBbls of NGLs, an increase of 60% from the 284 MBbls of NGLs produced in the first nine months of 2011.

Including the impact of our natural gas hedges in the first nine months of 2012, we realized an average realized price of $4.59 per Mcf on natural gas sales, which is $2.20 per Mcf more than the unhedged realized average price of $2.39 per Mcf. Including the impact of our oil hedges, we realized an average price of $84.16 per barrel on crude oil sales, which is $1.77 per barrel less than the unhedged realized average price of $85.93 per barrel. The realized average price for our NGL production was $46.21 per barrel, which is a decline of 23%, when compared to the realized price in the first nine months of 2011.

Capital Expenditures and Operational Update

Capital expenditures for the drilling, capital workover and recompletion of oil and natural gas properties were approximately $16.9 million in the third quarter of 2012 compared to $15.0 million for the comparable quarter of 2011 and $15.1 million for the second quarter of 2012. Total capital expenditures for the first nine months of the year totaled $40.3 million, or approximately 87% of our capital budget. In the third quarter of 2012, approximately $3.4 million in the Parker Field in Mississippi, $2.4 million was deployed in the Williston Basin on Red River horizontal reentries and vertical wells and $1.8 million was spent on our recently acquired Arkoma properties. $4.9 million was spent on our non-operated Bakken interests with the balance spent in the Permian Basin, the Elk Basin frac program and other maintenance related projects. The company expects to spend approximately $8.1 million in the last quarter of the year.

Recent Activities

On November 1, 2012, we announced that we had entered into a purchase and sale agreement to acquire producing natural gas and oil assets in Wyoming and Colorado from Bill Barrett Corporation for approximately $335 million. These assets have estimated total net proved reserves of approximately 300 Bcfe, of which approximately 78% are natural gas reserves and 80% are proved developed. The effective date of the acquisition is October 1, 2012 and the Company anticipates closing on or before December 31, 2012. For more information, please refer to the press release issued on November 1, 2012.

On October 9, 2012, we and our wholly-owned subsidiary, VNR Finance Corp., completed a public offering of $200.0 million aggregate principal amount of 7.875% senior unsecured notes due 2020 (the "Additional Senior Notes"), pursuant to a prospectus supplement to the 2012 Shelf Registration Statement. We received net proceeds of approximately $196.4 million from this offering, after deducting underwriting discounts of $3.5 million and offering costs of $0.1 million. We originally offered and sold $350.0 million aggregate principal amount of initial notes on April 4, 2012 (the "Senior Notes"). The Additional Senior Notes have identical terms, other than the issue date, and constitute part of the same series as and are fungible with the Senior Notes. Further, like the Senior Notes, the Additional Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by our Subsidiary Guarantors, subject to the same guaranty release conditions.

On September 17, 2012, we completed a public offering of 6,000,000 of our common units at a price of $27.51 per unit. Offers were made pursuant to a prospectus supplement to the 2012 Shelf Registration Statement. After consideration of an additional 900,000 of our common units that were offered to the underwriters to cover over-allotments pursuant to this offering, we received net proceeds of approximately $182.3 million, after deducting underwriting discounts of $7.4 million and offering costs of $0.1 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 through 2015 for crude oil and through 2017 for natural gas by implementing a hedging program on a portion of our total anticipated production. At September 30, 2012, the fair value of commodity derivative contracts was an asset of approximately $79.8 million, of which $36.6 million settles during the next twelve months. Currently, we use fixed-price swaps, basis swaps, swaptions, puts, three-way collars and NYMEX collars to hedge oil and natural gas prices.

The following table summarizes new commodity derivative contracts put in place during the three months ended September 30, 2012 (the natural gas hedges were entered into during the July 2012 Arkoma acquisition hedge restructure, which was previously disclosed):

   Year   Year   Year   Year   Year   Year
2012   2013 (1)   2014   2015 (1)   2016   2017
Gas Positions:
Fixed Price Swaps (Arkoma Basin acquisition):
Notional Volume (MMbtu)1,610,0005,475,0006,752,50010,950,00016,470,0007,602,000
Price ($/MMbtu)$5.03$3.32$5.04$4.69$5.04$5.04
 

Oil Positions:

Fixed Price Swaps:
Notional Volume (MMbtu)92,000378,400
Price ($/MMbtu)$91.50$95.62
Three-Way Collars:
Notional Volume (MBbls)91
Floor Price ($/Bbl)$90.00
Ceiling Price ($/Bbl)$100.00
Put Sold ($/Bbl)$70.50
(1)   In 2013 and 2015, the new natural gas hedges entered into in connection with the Arkoma acquisition hedge restructure were done at lower strike prices to obtain a weighted average strike price of $5.04/Mmbtu due to the acquired hedges being above $5.04/Mmbtu.

For a summary of all commodity and interest rate derivative contracts in place at September 30, 2012, please refer to our Quarterly Report on Form 10-Q which is expected to be filed on November 2, 2012.

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) Read Full Story

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