VNR

Vanguard Natural Resources LLC (VNR)

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Exchange: NASDAQ
Industry: Energy
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Vanguard Natural Resources, LLC (VNR)

Q4 2010 Earnings Call

March 1, 2011 11:00 AM ET

Executives

Lisa Godfrey – IR

Scott Smith – President and CEO

Richard Robert – EVP, CFO and Secretary

Britt Pence – SVP, Engineering

Analysts

Ethan Bellamy – Robert W. Baird

James Jampel – HITE Hedge Asset Management

Joel Havard – Hilliard Lyons

Chad Potter – RBC Capital Markets

Presentation

Operator

Ladies and gentlemen, welcome to the Fourth Quarter and Year-End 2010 Earnings and 2011 Outlook Conference Call on Tuesday, 1st of March 2011. Throughout today’s recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be opportunity to ask questions. (Operator Instructions)

I’ll hand the conference over to Lisa Godfrey of Investor Relations. Please go ahead.

Lisa Godfrey

Good morning, everyone and welcome to the Vanguard Natural Resources LLC fiscal year-end and fourth 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 brief information to provide you. If you would like to listen to a replay of today’s call, it will be available through April 3, 2011 and may be accessed by calling 303-590-3030 and using the passcode 4407127. 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 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 this morning’s earnings release.

Please note, the information reported on this call speaks only as of today, March 1, 2011 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 10-K that will be filed later this week and will be available on our website under the Investor Relations tab and on EDGAR.

In addition, please note that the Schedule K-1 will be available to download from our website on or about March 9th and mail to our unit holders on or about March 15th.

Now, I would 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 today on this conference call to review our accomplishments and results for 2010 along with our outlook for 2011. Joining me on the call today are Richard Robert, our Executive Vice President and Chief Financial Officer, along with Britt Pence, our Senior Vice President of Operations.

This morning, I’ll start with the summary of our results for the year, briefly discuss our year-end results and operations and then I’ll turn the call over to Richard for financial review, then as always we’ll open up the call for Q&A.

2010 was an excellent year all respects for the company and our unit holders. Highlights for the year include, we posted record adjusted EBITDA production and reserves which I’ll go over briefly each point. In 2010, our adjusted EBITDA was $80.4 million, up 43% over 2009 levels. With respect to production, our average daily production averaged 4,721 barrels of oil equivalent per day, again up 42% over the average of 3,335 barrels a day reported in 2009, primarily these are all result of the acquisitions we made during the year.

Please keep in mind, these production numbers don’t include any contribution from the Encore acquisition which we closed in December 31st of last year. With respect to our reserves, since we closed the Encore acquisition on December 31st, the Encore balance sheet and reserves are included in Vanguard’s year-end numbers.

With this in mind, Vanguard’s year-end 2010 total proved reserves were 69.3 million barrels of oil equivalent, up approximately 191% from our year-end 2009 numbers. But if you consider our year-end reserves with the contribution of our net ownership share in the Encore reserves, our year-end reserves will be approximately 47.5 million barrels of oil equivalent or approximately 100% greater than year-end 2009.

During the year, we continued our track record of growth by successfully completing two oil focused accretive acquisitions with the highlighting our acquisition of 100% of the general partner and a 46.7% limited partner owner – partnership position in Encore Energy Partners LP. With this acquisition, we dramatically expanded our operating platform as we now have assets in both the Williston and Big Horn Basins along with dramatically increasing our presence in the Permian Basin.

These acquisitions further our goal of putting together our quality portfolio of assets with the balanced commodity mix in geographic diversity. From a commodity perspective, our 2010 activities increased our exposure to oil and liquids from 42% of proved reserves to 63% of proved reserves. We’re pleased with this increase in liquids and our asset allocation mix which can be attributable primarily to the last three acquisitions we’ve made, Ward County’s Bone Spring acquisition in December of ‘09 and the Mississippi Parker Creek and the Encore acquisitions in 2010.

In addition, I’d point out that our percentage of proved producing reserves has increased substantially from 68% to 80% of total proved reserves. With the addition of the accretive acquisitions and associated increases in our cash flow, we will increase distribution 77% in 2010. And I point that our distribution growth has been approximately 32% since 2008. We’re very product of the fact that these increases represent the highest in our peer group all through the year and since 2008. Our current distribution currently stands at $2.24 per unit on an annual basis.

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