VNR

Vanguard Natural Resources LLC (VNR)

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Vanguard Natural Resources, LLC (VNR)

Q3 2010 Earnings Call Transcript

November 2, 2010 11:00 am ET

Executives

Lisa Godfrey – IR

Scott Smith – President and CEO

Richard Robert – EVP and CFO

Analysts

Richard Roy – Citi

Chad Potter – RBC Capital Markets

Michael Blum – Wells Fargo

Richard Dearnley – Longport Partners

Presentation

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Vanguard Natural Resources third quarter 2010 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today Tuesday, November 2, 2010. I'd now like to turn the conference over to Lisa Godfrey with Investor Relations. Please go ahead.

Lisa Godfrey

Good morning, everyone and welcome to the Vanguard Natural Resources, LLC third 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 December 2, 2010 and may be accessed by calling 303-590-3030 and using the passcode 4379639. A website 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 only as of today, November 2, 2010 and therefore, you are 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'd like to turn the call over to Scott Smith, President and Chief Executive Officer of Vanguard Natural Resources.

Scott Smith

Thank you, Lisa and welcome everyone and thanks for joining us this morning to review our results for the third quarter. With me on the call this morning are Richard Robert, our Executive Vice President and Chief Financial Officer and Britt Pence, our Senior Vice President of Operations.

I'll start off with the summary of our production and operations during the quarter then we'll discuss our development drilling activity. And I'll windup my portion of the call with some observations about the state of the A&D markets and our recent equity offering. Richard will then take over the call for a financial review followed by Q&A.

This quarter, we continue to set new highs in terms of production and adjusted EBITDA from our asset base. Another significant achievement is that for the first time our production mix is now weighted to greater than 50% of oil and natural gas liquids. This increase is – in relative oil production is supported by the contribution from our oil focused acquisitions and development activities over the last 12 months.

The levels of oil production we have seen are in line with the projections made when we closed these purchases. Over the next few months, we plan on focusing our development activities on additional oil projects primarily in the Appalachian region.

Now, on to production. During the third quarter our average daily production rose 49% to 30.5 million cubic feet equivalent per day, up from the 20.4 million cubic feet equivalent per day produced in the third quarter of 2009 and rose 11% over second quarter 2010 volumes.

Looking at the production on an individual product basis, our year-over-year natural gas production rose 11% to 1.9 Bcf, oil production rose 135% to just over 200,000 barrels and NGL production increased 50% to 2.2 million gallons. On a sequential basis, oil production was 30% higher than produced volumes in the second quarter of 2010. Natural gas and NGL production both remained stable at approximate increases of 2% and 4%, respectively, above last quarter's volumes.

The significant increase, we saw in overall oil production this quarter, is primarily attributable to the Mississippi oil acquisition that closed in May and to a lesser extent from a new well we drilled in the Permian Basin that we'll discuss in detail later. During the third quarter, inclusive of our hedges we realized a net price of $9.56 per Mcf of natural gas, $75.46 per barrel of crude oil and $0.99 per gallon of NGLs. These realized prices are comparable to the $10.09 per Mcf, $75.87 per barrel and $0.96 a gallon we realized last quarter and are reflective of the benefits of our overall hedging strategy.

Just an overview on our LOE, I'm very pleased to report that our average LOE [ph] during the quarter with the $1.73 per Mcfe, which is down 7% for the $1.86 per Mcfe, we saw in the second quarter of 2010. This reduction is attributable to several factors, the largest of which is the addition of the low cost production associated with the Mississippi transaction.

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