VNR

Vanguard Natural Resources LLC (VNR)

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Vanguard Natural Resources, LLC (VNR)

Q2 2010 Earnings Call

August 2, 2010 11:00 am ET

Executives

Lisa Godfrey - IR

Scott Smith - President and CEO

Richard Robert - EVP and CFO

Britt Pence - SVP of Operations

Analysts

Joel Havard - Hilliard Lyons

Ethan Bellamy - Wunderlich Securities

Michael Blum - Wells Fargo

Presentation

Operator

Welcome to the second quarter 2010 earnings conference call on August 2, 2010. (Operator Instructions) I would now like to hand the conference over to Ms. Lisa Godfrey, Investor Relations.

Lisa Godfrey

Good morning, everyone, and welcome to the Vanguard Natural Resources, LLC second quarter 2010 earnings conference call. We appreciate you joining us today. Before I introduce Scott Smith, our President and Chief Executive Officer, I have some information to provide you.

If you would like to listen to a replay of today's call, it will be available through September 2, 2010, and may be accessed by calling 303-590-3030 and using the pass code 4339640. A webcast archive will also be available on the Investor Relations page of the company's website at www.vnrllc.com and will be accessible for approximately 30 days. For more information or if you would like to be on our e-mail distribution list to receive future news releases, please contact me at 832-327-2234 or via e-mail at lgodfrey@vnrllc.com. This information was also provided in this morning's earnings release.

Please note the information reported on this call speaks as of today, August 2, 2010, and therefore you're advised that time-sensitive information may no longer be accurate as of the time of any replay.

Before we get started, please note that some of the comments today could be considered forward-looking statements and are based on certain assumptions and expectations of management. For a detailed list of all the risk factors associated with our business, please refer to our 2009 10-K that is available on our website under the Investor Relations tab or on EDGAR.

Now, I would like to turn the call over to Scott Smith, President and Chief Executive Officer of Vanguard Natural Resources, LLC.

Scott Smith

Thank you, Lisa, and welcome everyone and thanks for joining us this morning to review our results for the second quarter. As usual, I'm joined today by Richard Robert, our Executive Vice President and Chief Financial Officer; and Britt Pence, our Senior Vice President of Operations.

I'd like to point out one thing. As I'm actually calling in from California and while Richard and Britt and Lisa are there in the office, things may be a little more disjoint than our typical conference call when we get to the Q&A section. So please forgive us for that.

I'll start off with a brief summary of our production during the quarter, then review our development drilling activities and will conclude my portion of the call with some observations about the A&D markets and where we see opportunities for Vanguard for the rest of the year. Richard will then take over the call for a financial review, and then we'll open the line for Q&A.

With respect to this quarter, our results came in about where we expected, as we had another full quarter's contribution from the Ward County acquisition that we completed in December of last year and with the initial contribution from the Mississippi transaction that we closed on May 20.

With respect to our production, during the second quarter, our average daily production rose 55% to 24.7 million cubic feet equivalent per day, up from the 17.6 million cubic feet equivalent per day we produced in the second quarter of 2009 and rose 5.2% over the first quarter 2010 volumes.

Looking at our production on an individual product basis, our year-over-year natural gas production rose 21% to 1.27 Bcf. Oil production rose 98% to 155,000 barrels, and NGL production increased 241% to 50,000 barrels.

On a sequential basis, oil production was 17% higher than produced volumes in the 2010 first quarter. Natural gas production was 5% above last quarter's volumes, and NGL production was 12% lower than first quarter 2010 volumes. This reduction was attributable to the Enterprise plant in South Texas being shut down for much of the June period. But we're glad to report that plant is now back up and running.

During the second quarter, inclusive of our hedges, we realized a net price of $10.09 per Mcf of natural gas, $75.87 per barrel of crude oil and $0.96 per gallon of NGL. These realized prices were essentially flat to last quarter for natural gas and crude; however, we did see a 20% drop in our realized NGL pricing from the prices we had seen last quarter.

With respect to our LOE, we came in, in our second quarter LOE with $1.86 per Mcfe, which compares to $1.74 per Mcfe in the first quarter of 2010. During the quarter, we had several nominal non-recurring events that led to this increase. And now that these are behind us, we believe our LOE per Mcf will be back to the lower levels we had seen previously.

As we discussed in our last call, this quarter would be the highest capital spending period for the year; however, we are pleased that as far as spending $6.1 million in capital in development drilling activities, we managed to post a positive coverage ratio of right at 1 times. Our largest capital expenditures were in the drilling of a 100% well in the Ward County properties and the drilling of a 50% working interest well in the Parker Creek field in Mississippi.

Read the rest of this transcript for free on seekingalpha.com