- Adjusted Net Income, after consideration of specific non-cash
items, rose 41% to $7.3 million, or $0.58 per unit - -
Distributable Cash Flow of $11.3 million rose 88% over second
quarter 2008 - HOUSTON, July 30 /PRNewswire-FirstCall/ -- Vanguard
Natural Resources, LLC (NYSE:VNR) ("Vanguard" or "the Company")
today reported financial and operational results for the quarter
and six months ended June 30, 2009. Mr. Scott W. Smith, President
and CEO, commented, "We are very pleased with our second quarter
results as we recorded a consecutive quarter of record-level
Distributable Cash Flow, generating $11.3 million in the second
quarter of 2009, up from $10.0 million in the first quarter of
2009. This quarter's cash flow, in combination with a conservative
capital expenditure program, generated a distribution coverage
ratio of approximately 1.8 times. As part of our growth strategy,
we recently announced we have entered into an agreement to acquire
additional natural gas and oil producing properties in South Texas
from an affiliate of the Lewis Energy Group. These properties
expand our presence in South Texas and will build upon our
already-strong portfolio of long-lived producing natural gas and
oil assets." Mr. Richard Robert, Executive Vice President and CFO,
added, "Considering the limited amount of capital that has been
spent this year, our producing wells have performed well and kept
our production relatively stable. Furthermore, the hedging program
we put in place over the past year has insured the stability of our
cash flows and we feel confident in our ability to continue to
generate strong Distributable Cash Flow and coverage ratios for the
balance of the year and beyond." Second Quarter 2009 Highlights: --
Adjusted EBITDA (a non-GAAP financial measure defined below)
increased 11% to $13.3 million from $11.9 million generated in the
second quarter of 2008 and rose almost 5% over the $12.7 million
recorded in the first quarter of 2009. -- Distributable Cash Flow
(a non-GAAP financial measure defined below) increased 88% to $11.3
million from the $6.0 million generated in the second quarter of
2008 and grew 12% over the $10.0 million generated in the first
quarter of 2009. -- Net loss for the quarter was $6.8 million
compared to a net loss of $47.0 million in the second quarter of
2008. The recent quarter included $13.1 million of non-cash
unrealized net losses in our commodity and interest rate
derivatives contracts and a $1.0 million non-cash compensation
charge for the change in unrealized fair value of phantom units
granted to management. This compares to a $52.2 million unrealized
loss on other commodity derivative contracts in the second quarter
of 2008. -- Excluding the net impact of the specific non-cash items
mentioned above, Adjusted Net Income (a non-GAAP financial measure
defined below) was $7.3 million in the second quarter of 2009, or
$0.58 per unit, as compared to Adjusted Net Income of $5.2 million,
or $0.46 per unit, in the second quarter of 2008. -- Average daily
production increased 11% to 17,629 Mcfe compared to 15,888 Mcfe in
the second quarter of 2008, but declined 1% over the first quarter
of 2009 average daily volumes of 17,815 Mcfe. During the quarter we
produced 1,135 MMcf of natural gas and 78,155 Bbls of oil, which
represented an increase of 12% and 8% over the 1,012 MMcf and
72,247 Bbls produced, respectively, in the second quarter of 2008.
Sequentially, oil production in the second quarter of 2009 was 1%
higher than the 77,191 Bbls produced in the first quarter of 2009
and natural gas production in the second quarter of 2009 was
relatively flat with the 1,140 MMcf produced during the first
quarter of 2009. Including the positive impact of our hedges in the
second quarter of this year, we realized a net price of $10.71 per
Mcf on natural gas sales (excluding amortization of premiums paid
and non-cash settlements on derivative contracts) and $75.95 per
Bbl on crude oil sales. 2009 Six Month Highlights: -- Adjusted
EBITDA (a non-GAAP financial measure defined below) increased 16%
to $25.9 million from the $22.4 million produced in the first half
of 2008. -- Distributable Cash Flow (a non-GAAP financial measure
defined below) grew 64% to $21.3 million from the $13.0 million
generated in the comparable period of 2008. -- Net loss was $56.7
million for the first six months of 2009 compared to a net loss of
$63.0 million in the first half of 2008. The 2009 results included
a $63.8 million non-cash natural gas and oil property impairment
charge, a $3.3 million non-cash unrealized net loss on our
commodity and interest rate derivatives contracts and a $2.3
million non-cash compensation charge for the unrealized fair value
of phantom units granted to management. Last year's second quarter
results included a non-cash unrealized loss of $72.3 million on
other commodity derivative contracts. -- Excluding the net impact
of these specific non-cash items mentioned above, Adjusted Net
Income (a non-GAAP financial measure defined below) was $12.6
million in the first six months of 2009, or $1.01 per unit,
compared to Adjusted Net Income of $9.4 million, or $0.84 per unit,
in the comparable period of 2008. Impairment Charge The first half
of 2009 results included a $63.8 million impairment charge taken in
the first quarter related to the writedown of our capitalized costs
under full-cost accounting. Under full-cost accounting, our dry
hole and geological costs are capitalized into the full cost pool,
and are subject to amortization and ceiling test limitations. The
ceiling is based on the net present value of the estimated future
revenues, as determined by the commodity spot prices at the end of
each quarter, discounted at 10%. Capitalized costs must be equal to
or less than this ceiling. Because of the precipitous drop in gas
prices at the end of the first quarter 2009, the net present value
of future revenues declined significantly. As a result, Vanguard
was required to writedown its full-cost pool down to the revenue
ceiling. This impairment was calculated based on market prices of
$3.65 per MMBtu for natural gas and $49.64 per barrel of oil on
March 31, 2009. The impairment calculation did not consider the
positive impact of the company's commodity derivative positions as
generally accepted accounting principles only allows the inclusion
of derivatives designated as cash flow hedges. Hedging Activities
We enter into derivative transactions in the form of hedging
arrangements to reduce the impact of natural gas and oil price
volatility on our cash flow from operations. As required by our
reserve-based credit facility, we have mitigated this volatility
through 2011 by implementing a hedging program on a portion of our
total anticipated production. At June 30, 2009, the fair value of
commodity derivative contracts was approximately $32.4 million, of
which $21.5 million would settle during the next twelve months.
Currently, we use fixed-price swaps and NYMEX collars and put
options to hedge natural gas and oil prices. The following table
summarizes commodity derivative contracts in place at June 30,
2009: July 1- December 31, 2009 2010 2011 Gas Positions: Fixed
Price Swaps: Notional Volume (MMBtu) 1,756,188 3,782,040 3,328,312
Fixed Price ($/MMBtu) $9.32 $8.95 $7.83 Puts: Notional Volume
(MMBtu) 396,265 - - Floor Price ($/MMBtu) $7.50 $- $- Collars:
Notional Volume (MMBtu) 499,998 914,000 364,000 Floor Price
($/MMBtu) $7.50 $7.90 $7.50 Ceiling Price ($/MMBtu) $9.00 $9.24
$9.00 Total: Notional Volume (MMBtu) 2,652,451 4,696,040 3,692,312
Oil Positions: Fixed Price Swaps: Notional Volume (Bbls) 89,000
164,250 151,250 Fixed Price ($/Bbl) $87.23 $85.65 $85.50 Collars:
Notional Volume (Bbls) 18,400 - - Floor Price ($/Bbl) $100.00 $- $-
Ceiling Price ($/Bbl) $127.00 $- $- Total: Notional Volume (Bbls)
107,400 164,250 151,250 See Recent Events below for additional
hedges entered into after June 30, 2009 in conjunction with the
agreement to acquire certain natural gas and oil properties in
South Texas. Selling, General and Administrative Expense Our
selling, general and administrative expense rose $1.3 million to
$2.9 million in the second quarter of 2009 from the same period in
2008, primarily reflecting the recognition of non-cash expenses
associated with our unit-based compensation program. The 2009
second quarter charges included a $1.8 million non-cash
compensation expense, compared to $1.0 million a year ago, of which
$1.0 million was related to the grant of phantom units on January
1, 2009 and $0.8 million was related to the amortization of common
and Class B units granted to employees and directors under
employment agreements and our long-term incentive plan. On January
1, 2009, in accordance with their previously negotiated employment
agreements, phantom units were granted to two officers in amounts
equal to 1% of our units outstanding at January 1, 2009 and the
amount paid in either cash or units will equal the appreciation in
value of the units, if any, from the date of the grant until the
determination date (December 31, 2009), plus cash distributions
paid on the units, less an 8% hurdle rate. The fair value of the
phantom units at June 30, 2009 of $2.3 million was determined using
a Black Scholes model and will be recalculated at each quarter end
until the final value is known at December 31, 2009. Recent Events
On July 17, 2009 Vanguard entered into an agreement to acquire
certain natural gas and oil properties in South Texas for $52.3
million from an affiliate of Lewis Energy Group, L.P. The
properties to be acquired have total estimated proved reserves of
27 Bcfe as of July 1, 2009, of which 94% is natural gas and 74% is
proved developed. Lewis will operate all of the wells acquired in
this transaction. Based on the current net daily production of
approximately 5,000 Mcfe, the properties have a reserve to
production ratio of approximately 15 years. Vanguard is evaluating
options for financing this acquisition and is currently in the
process of amending its existing credit facility. At closing,
Vanguard will assume natural gas puts and swaps based on Nymex
pricing for approximately 67% of the estimated gas production from
existing producing wells related to the transaction for the period
beginning August of 2009 through 2010. In addition, Vanguard has
also added new derivative positions so that approximately 90% of
this new production will be hedged through 2011. A schedule of the
hedges assumed and added is shown below: Contract Period Volume
(MMBtu) Price Put and Swap Agreements Assumed: August - December
2009 765,000 $8.00 January - December 2010 949,000 $7.50 Collars
Added: January - December 2010 693,500 $7.50 - $8.50 January -
December 2011 1,569,500 $7.25 - $8.25 (1) (1) Weighted average
pricing. Cash Distributions On August 14, 2009, the Company will
pay a second-quarter cash distribution of $0.50 per unit to its
unitholders of record on July 31, 2009. This quarterly distribution
payment was unchanged from the amount distributed during the first
quarter of 2009 and represents an increase of $0.055 per unit, or
12%, over the $0.445 distribution set in the second quarter of
2008. Capital Expenditures Capital expenditures for the drilling,
capital workover and recompletion of natural gas and oil properties
were $0.7 million in the second quarter of 2009 compared to $4.7
million for the comparable quarter of 2008. For the first six
months of 2009, Vanguard spent $1.9 million for drilling, capital
workover and completion work, compared to $7.0 million during the
comparable period last year. In this uncertain commodity price
environment, Vanguard is allocating its capital judiciously and
will move forward with its development drilling program when market
conditions allow for an adequate return on the drilling investment
and are expected to be funded through cash from operations.
Reserve-Based Credit Facility At the end of the second quarter, we
had indebtedness under our reserve-based credit facility totaling
$132.5 million, had $21.5 million available for borrowing under our
reserve-based credit facility and had $3.7 million in cash on our
balance sheet. On May 29, 2009, Vanguard announced that the
borrowing base on its reserve-based credit facility had been
reduced from $175.0 million to $154.0 million in conjunction with
its semi-annual redetermination as per the terms of the credit
agreement due principally to banks utilizing lower natural gas and
oil price assumptions to reflect the lower commodity price
environment. No other terms under the facility changed as a result
of the redetermination. However, Vanguard is currently in the
process of amending the existing reserve-based credit facility in
conjunction with the recently announced agreement to acquire
additional natural gas and oil assets from an affiliate of Lewis
Energy Group, L.P. As part of the amendment, the term of the
reserve-based credit facility would be extended and the borrowing
base, margins and other fees are expected to increase. Conference
Call Information Vanguard will host a conference call today to
discuss its 2009 second quarter results on Thursday, July 30, 2009
at 11:00 a.m. Eastern Time (10:00 a.m. Central). To access the
call, please dial (888) 549-7880 or (480) 629-9866, for
international callers and ask for the "Vanguard Natural Resources"
call a few minutes prior to the start time. The conference call
will also be broadcast live via the Internet and can be accessed
through the investor relations section of Vanguard's website,
http://www.vnrllc.com/. A telephonic replay of the conference call
will be available until August 14, 2009 and may be accessed by
calling (303) 590-3030 and using the pass code 4106192#. A webcast
archive will be available on the Investor Relations page at
http://www.vnrllc.com/ shortly after the call and will be
accessible for approximately 30 days. For more information, please
contact Donna Washburn at DRG&E at (713) 529-6000 or email at .
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, and South
Texas. More information on the Company can be found at
http://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 Six Months Ended June 30, June 30, --------------
-------------- 2009 2008 2009 2008 -------------- --------------
Net Natural Gas Production: Appalachian gas (MMcf) 794 903 1,599
1,770 Permian gas (MMcf) 70 109 129 151 (a) South Texas gas (MMcf)
271 - (b) 547 - (b) --- --- --- --- Total natural gas production
(MMcf) 1,135 1,012 2,275 1,921 ----- ----- ----- ----- Average
Appalachian daily gas production (Mcf/day) 8,726 9,922 8,837 9,724
Average Permian daily gas production (Mcf/day) 773 1,202 716 1,000
(a) Average South Texas daily gas production (Mcf/day) 2,977 - (b)
3,019 - (b) ----- --- ----- --- Average Vanguard daily gas
production (Mcf/day) 12,476 11,124 12,572 10,724 ------ ------
------ ------ Average Natural Gas Sales Price per Mcf: Net realized
gas price, including hedges $10.71 $10.35 (c) $10.68 $10.41 (c) Net
realized gas price, excluding hedges $4.50 $13.14 $5.02 $11.62 Net
Oil Production: Appalachian oil (Bbls) 21,186 10,430 37,697 21,421
Permian oil (Bbls) 56,969 61,817 117,649 102,539 (a) ------ ------
------- ------- Total oil (Bbls) 78,155 72,247 155,346 123,960
------ ------ ------- ------- Average Appalachian daily oil
production (Bbls/day) 233 115 208 118 Average Permian daily oil
production (Bbls/day) 626 679 650 679 (a) --- --- --- --- Average
Vanguard daily oil production (Bbls/day) 859 794 858 797 --- ---
--- --- Average Oil Sales Price per Bbls: Net realized oil price,
including hedges $75.95 $81.01 $73.26 $84.61 Net realized oil
price, excluding hedges $54.93 $104.44 $46.18 $101.06 (a) The
Permian Basin acquisition closed on January 31, 2008 and, as such,
only five months of operations are included in the six month period
ended June 30, 2008. (b) The South Texas acquisition closed on July
28, 2008 and, as such, no operations are included in the three
month period and six month period ended June 30, 2008. (c) Excludes
amortization of premiums paid and non-cash settlements on
derivative contracts. VANGUARD NATURAL RESOURCES, LLC AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands,
except per unit data) (Unaudited) Three Months Ended Six Months
Ended June 30, (a) June 30, (a)(b) ------------------
---------------- 2009 2008 2009 2008 ------------------
---------------- Revenues: Natural gas and oil sales $9,404 $20,852
$18,606 $34,854 Gain (loss) on commodity cash flow hedges (378) 155
(1,274) 571 Gain (loss) on other commodity derivative contracts
(6,137) (58,045) 11,512 (79,817) ----- ------ ------ ------ Total
revenues 2,889 (37,038) 28,844 (44,392) ----- ------ ------ ------
Costs and expenses: Lease operating expenses 2,778 2,300 5,911
4,315 Depreciation, depletion, amortization, and accretion 2,645
3,330 6,428 6,154 Impairment of natural gas and oil properties - -
63,818 - Selling, general and administrative expenses 2,941 1,637
6,093 3,283 Production and other taxes 921 1,429 1,563 2,395 ---
----- ----- ----- Total costs and expenses 9, 285 8,696 83,813
16,147 ------ ----- ------ ------ Loss from operations (6,396)
(45,734) (54,969) (60,539) ----- ------ ------ ------ Other income
and (expense): Interest income - 4 - 12 Interest expense (979)
(1,244) (1,992) (2,374) Gain (loss) on interest rate derivative
contracts 607 (46) 228 (51) --- -- --- -- Total other expense, net
(372) (1,286) (1,764) (2,413) --- ----- ----- ----- Net loss
$(6,768) $(47,020) $(56,733) $(62,952) ======= ======== ========
======== Net loss per unit: Common & Class B units - basic
$(0.54) $(4.19) $(4.51) $(5.61) ===== ====== ====== ====== Common
& Class B units - diluted $(0.54) $(4.19) $(4.51) $(5.61) =====
====== ====== ====== Weighted average units outstanding: Common
units - basic & diluted 12,145,873 10,795,000 12,145,873
10,795,000 ========== ========== ========== ========== Class B
units - basic & diluted 420,000 420,000 420,000 420,000 =======
======= ======= ======= (a) The South Texas acquisition closed on
July 28, 2008 and as such no operations are included in the three
month period ended June 30, 2008 and the six month period ended
June 30, 2008. (b) The Permian Basin acquisition closed on January
31, 2008 and as such only five months of operations are included in
the six month period ended June 30, 2008. VANGUARD NATURAL
RESOURCES, LLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in
thousands) June 30, December 31, 2009 2008 --------- ------------
(Unaudited) Assets Current assets Cash and cash equivalents $3,715
$ 3 Trade accounts receivable, net 4,563 6,083 Derivative assets
21,538 22,184 Other receivables 3,160 2,763 Other current assets
691 845 --- --- Total current assets 33,667 31,878 ------ ------
Natural gas and oil properties, at cost 287,389 284,447 Accumulated
depletion (172,303) (102,178) ------- ------ Natural gas and oil
properties evaluated, net - full cost method 115,086 182,269
------- ------- Other assets Derivative assets 10,824 15,749
Deferred financing costs 709 882 Other assets 1,015 1,784 -----
----- Total assets $161,301 $232,562 ======== ======== Liabilities
and members' equity Current liabilities Accounts payable - trade
$427 $2,148 Accounts payable - natural gas and oil 1,113 1,327
Payables to affiliates 829 2,555 Derivative liabilities 156 486
Accrued expenses 3,673 1,248 ----- ----- Total current liabilities
6,198 7,764 Long-term debt 132,500 135,000 Derivative liabilities
1,682 2,313 Asset retirement obligations 2,185 2,134 ----- -----
Total liabilities 142,565 147,211 ------- ------- Commitments and
contingencies Members' equity Members' capital, 12,145,873 common
units issued and outstanding at June 30, 2009 and December 31, 2008
19,513 88,550 Class B units, 420,000 issued and outstanding at June
30, 2009 and December 31, 2008 5,784 4,606 Accumulated other
comprehensive loss (6,561) (7,805) ----- ----- Total members'
equity 18,736 85,351 ------ ------ Total liabilities and members'
equity $161,301 $232,562 ======== ======== Use of Non-GAAP Measures
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: -- Net interest expense, including write-off of
deferred financing fees and realized gains and losses on interest
rate derivative contracts; -- Depreciation, depletion, and
amortization (including accretion of asset retirement obligations);
-- Impairment of natural gas and oil properties; -- Amortization of
premiums paid and non-cash settlements on derivative contracts; --
Unrealized gains and losses on other commodity and interest rate
derivative contracts; -- Deferred taxes; and -- Unit-based
compensation expense. 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 quarterly 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.
Distributable Cash Flow We present Distributable Cash Flow in
addition to our reported net income (loss) in accordance with GAAP.
Distributable Cash Flow is a non-GAAP financial measure that is
defined as net income (loss) plus: -- Depreciation, depletion, and
amortization (including accretion of asset retirement obligations);
-- Impairment of natural gas and oil properties; -- Amortization of
premiums paid and non-cash settlements on derivative contracts; --
Unrealized gains and losses on other commodity and interest rate
derivative contracts; -- Deferred taxes; -- Unit-based compensation
expense; Less: -- Drilling, capital workover and recompletion
expenditures. Distributable Cash Flow 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
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 quarterly
distribution rates. While Distributable Cash Flow 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 quarterly distribution.
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 measured
on a quarterly basis. Distributable Cash Flow is not intended to be
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. VANGUARD NATURAL
RESOURCES, LLC Reconciliation of Net Loss to Adjusted EBITDA (a)
and Distributable Cash Flow (Unaudited) (in thousands) Three Months
Ended Six Months Ended June 30, June 30, ------------------
-------------------- 2009 2008(b) 2009 2008(b)(c)
------------------ ------------------- Net loss $(6,768) $(47,020)
$(56,733) $(62,952) Plus: Interest expense, including realized
losses on interest rate derivative contracts 1,377 1,244 2,726
2,374 Depreciation, depletion, amortization, and accretion 2,645
3,330 6,428 6,154 Impairment of natural gas and oil properties - -
63,818 - Amortization of premiums paid and non-cash settlements on
derivative contracts 1,107 1,230 2,572 2,531 Unrealized losses on
other commodity and interest rate derivative contracts 13,096
52,186 3,310 72,396 Deferred taxes (4) - (201) - Unit-based
compensation expense 1,827 981 4,015 1,896 Less: Interest income -
4 - 12 --- --- --- --- Adjusted EBITDA $13,280 $11,947 $25,935
$22,387 Less: Interest expense, net 1,377 1,240 2,726 2,362
Drilling, capital workover, and recompletion expenditures 652 4,724
1,912 7,040 --- ----- ----- ----- Distributable Cash Flow $11,251
$5,983 $21,297 $12,985 ======= ====== ======= ======= (a) Our
Adjusted EBITDA should not be considered as an alternative to net
income, operating income, 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 and operating income and these
measures may vary among other companies. Therefore, our Adjusted
EBITDA may not be comparable to similarly titled measures of other
companies. (b) The South Texas acquisition closed on July 28, 2008
and as such no operations are included in the three month period
ended June 30, 2008 and the six month period ended June 30, 2008.
(c) The Permian Basin acquisition closed on January 31, 2008 and as
such only five months of operations are included in the six month
period ended June 30, 2008. Adjusted Net Income We present Adjusted
Net Income in addition to our reported net income in accordance
with GAAP. Adjusted Net Income is a non-GAAP financial measure that
is defined as net income (loss) plus: -- Unrealized gains and
losses on other commodity derivative contracts; -- Unrealized gains
and losses on interest rate derivative contracts; -- Unrealized
fair value of phantom units granted to management; and --
Impairment of natural gas and oil properties. This information is
provided because management believes exclusion of the impact of our
unrealized derivatives not accounted for as cash flow hedges and
non-cash natural gas and oil property impairment charge will help
investors compare results between periods and identify operating
trends that could otherwise be masked by these items and to
highlight the impact that commodity price volatility has on our
results. Adjusted Net Income 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. VANGUARD NATURAL RESOURCES, LLC
Reconciliation of Net Loss to Adjusted Net Income (in thousands,
except per unit data) (Unaudited) Three Months Ended Six Months
Ended June 30, June 30, ------------------ ------------------ 2009
2008 2009 2008 ------------------ ------------------ Net loss
$(6,768) $(47,020) $(56,733) $(62,952) Plus: Unrealized loss on
other commodity derivative contracts 14,101 52,186 4,272 72,396
Unrealized fair value of phantom units granted to management 951 -
2,252 - Impairment of natural gas and oil properties - - 63,818 -
Less: Unrealized gain on interest rate derivative contracts (1,005)
- (962) - ----- --- --- --- Total adjustments 14,047 52,186 69,380
72,396 ------ ------ ------ ------ Adjusted Net Income $7,279
$5,166 $12,647 $9,444 ====== ====== ======= ====== Basic and
diluted net loss per unit: $(0.54) $(4.19) $(4.51) $(5.61) Plus:
Impairment of natural gas and oil properties - - 5.08 - Unrealized
fair value of phantom units granted to management 0.08 - 0.18 -
Unrealized loss on other commodity derivative contracts 1.12 4.65
0.34 6.45 Less: Unrealized gain on interest rate derivative
contracts (0.08) - (0.08) - ---- --- ---- --- Basic and diluted
adjusted net income per unit: $0.58 $0.46 $1.01 $0.84 ===== =====
===== ===== INVESTOR RELATIONS CONTACT: Vanguard Natural Resources,
LLC Richard Robert, EVP and CFO, 832-327-2258 DRG&E Jack
Lascar/Carol Coale, 713-529-6600 or DATASOURCE: Vanguard Natural
Resources, LLC CONTACT: Richard Robert, EVP and CFO of Vanguard
Natural Resources, LLC, +1-832-327-2258, ; or Jack Lascar, , or
Carol Coale, , both of DRG&E, +1-713-529-6600, for Vanguard
Natural Resources, LLC Web Site: http://www.vnrllc.com/
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