VNR

Vanguard Natural Resources LLC (VNR)

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Industry: Energy
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Vanguard Natural Resources, LLC (VNR)

Q4 2012 Earnings Call

March 4, 2013 11:00 am ET

Executives

Lisa Godfrey – Director-Investor Relations

Scott W. Smith – President and Chief Executive Officer

Richard A. Robert – Executive Vice President, Secretary and Chief Financial Officer

Analysts

Ethan Bellamy – Robert W. Baird & Company

Dan Guffey – Thomas Weisel Partners

Michael D. Peterson – MLV & Co. LLC

John J. Ragozzino – RBC Capital Markets

Adam Leight – RBC Capital Markets LLC

Praneeth Satish – Wells Fargo Securities LLC

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Vanguard Natural Resources Fourth Quarter and Year End 2012 Earnings 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, Monday, March 4, 2013. I would now like to turn the conference over to Lisa Godfrey, Director of Investor Relations. Please go ahead.

Lisa Godfrey

Good morning everyone and welcome to the Vanguard Natural Resources LLC fourth quarter and year-end 2012 earnings conference call. We appreciate you joining us today. On the call this morning are Scott Smith, our President and Chief Executive Officer, Richard Robert, our Executive Vice-President and Chief Financial Officer and Britt Pence, our Senior Vice President of Operations.

If you would like to listen to a replay of today’s call, it will be available through April 02, 2013, and may be accessed by calling 303-590-3030 and using the pass code 4599724#. 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 online for approximately 30 days.

For more information, or if you would like to be on our email distribution list to receive future news releases, please contact me at 832-327-2234 or via email at lgodfrey@vnrllc.com. This information was also provided in Friday’s earnings release. Please note, the information reported on this call speaks only as of today, March 04, 2012, 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 10-K that was filed last week and will be available on our website under the Investor Relations tab and on EDGAR.

Also on the Investor Relations tab on our website under Presentation, you can find the Q4 and year-end 2012 earnings results supplemental presentation. As a reminder, the most recent record date for our monthly cash distribution was March 1, with a March 15 payable date. Unitholders of records will receive $0.2025 for each units held or $2.43 on a per unit on an annualized basis.

In addition, the company’s 2012 K1 tax packages will be available for immediate download from our website at vnrllc.com by this Thursday, March 7, with original 2012 K1 tax packages mailed to all unitholders later this week as well. For any questions regarding schedule K1, unitholders are invited to call the tax package for helpline at toll free 866-536-1972 or via e-mail at VanguardK1Help@deloitte.com.

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

Scott W. Smith

Thanks, Lisa. Welcome everyone and thanks for joining us this morning on the fourth quarter and year-end 2012 conference call. This morning, I’ll start with the summary of our two large acquisitions in 2012 and our recently announced Permian transactions with Range Resources. Then we’ll review our results for the year and I’ll conclude my remarks with a brief discussion of our year-end reserves and operations. Richard will then proceed with the financial discussion and then we’ll open the line for Q&A.

Before we get started, I would like to point out that reserve and production numbers we will be referring to this morning in the call do not include any contribution with the Permian assets we are acquiring from Range.

2012 was a very active and successful year for Vanguard in the acquisition front, and marked a strategic shift towards natural gas property, a very different highlight when I spoke to you on last year’s call. Although our 2012 revenue was primarily weighted towards liquids at 85%, our production mix shifted from 35% natural gas in 2011, to 49% natural gas in 2012. We project natural gas will comprise approximately 65% of our total production in 2013, excluding the contribution from the new Permian assets.

Should the trajectory of natural gas hold true and prices rebound from the current 12-month strip of 350 to the mid $4 levels in 2017 as the futures markets predict, there are decision to invest in the large quality natural gas assets will create significant upside potential for the benefit of our unitholders.

First major transaction 2012 is the $434 million acquisition of Woodford in Fayetteville Shale assets near Arkoma basin that we purchased from Antero Resources and which closed in June of 2012. Highlights of this acquisition include total proved reserves of approximately 362 Bcf, calculated using year end SEC pricing. Approximately, 54% of the reserves will classify at year end as proved developed producing with the balance in the proved undeveloped category.

Fourth quarter net production in the Woodford was 52.8 million cubic feet equivalent per day, and the Fayetteville is right 8.7 million cubic equivalent per day. Using established production rate, we have an R over P ratio of 16 years from these two areas. A significant characteristic of this acquisition is the Woodford drilling location we are able to include in our PUD reserves, which add to our inventory of viable projects for this year’s capital budget, and which will be a significant portion of our capital spending plans for several years in the future. This acquisition added 180 drilling locations, which are economic at today’s script pricing, and there are approximately 1,100 gross Woodford locations that were not included in our services, but would be economic natural gas prices by $4, $5.

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