VNR

Vanguard Natural Resources LLC (VNR)

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Vanguard Natural Resources, LLC (VNR)

Q1 2011 Earnings Call

May 10, 2011 12:00 p.m. 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

Bernard Colson – Oppenheimer & Co.

James Jampel – HITE Hedge Asset Management

Joel Harvard – Hilliard Lyons

Presentation

Operator

Good morning ladies and gentlemen, thank you for standing by. Welcome to the Vanguard Natural Resources first quarter 2011 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 May 10, 2011 and I would now like turn the conference over to Lisa Godfrey with Investor Relations. Please go ahead.

Lisa Godfrey

Thank you. Good morning, everyone and welcome to the Vanguard Natural Resources LLC first quarter 2011 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 June 10, 2011 and may be accessed by calling 303-590-3030 and using the passcode 443-51-08. 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 this morning’s earnings release.

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

Thanks, Lisa. Welcome everyone and thanks for joining us this morning to review our results for first quarter of 2011. Joining me on the call is Richard Robert, our Executive Vice President and Chief Financial Officer, and Britt Pence, our Senior Vice President of Operations.

This morning I’ll start with a summary of our production results for the quarter, recently discussed capital spending acquisition activity, and the current status of our merger proposal with Encore Energy Partners. I’ll then turn the call over to Richard for financial review, and then we’ll open up the line for Q&A.

Before we get started, I want to remind everyone that our recorded results are consolidated with a full contribution of the assets in Encore as required by generally accepted principles. We consolidated the company’s results at the consequence of the transaction of tender that closed on December 31, of last year.

In that transaction, we acquired 100% of the general partnership interest and approximately 46% of the limited partnership interest. Thereby, effectively gaining control of Encore. Using this consolidated approach, it’s clear that comparisons to the first quarter of 2010 aren’t really very [inaudible]. For any investors interested in getting into the production details, you will find the standard production information within the body of the press release that we announced.

With respect to our production, during the quarter our average daily production was 13,273 barrels of oil per day, up 205% over the 4,345 BOe per day produced in the first quarter of 2010. And up 172% over the fourth quarter production rate, 4,884 BOe per day.

On a product basis, the average daily production was 76,011 barrels of oil, 982 barrels of natural gas liquids, just over 28 million cubic feet of natural gas.

On standalone basis, Vanguard produced approximately 4,801 BOe per day, which represents an 11% increase over the comparable period in 2010, is relatively flat compared to previous quarter.

We were pleased with the level of progression from the first quarter in line with the fact that our capital spending was pretty light at 2 million in the fourth quarter of last year and the growing capital spend in the first quarter didn’t really contribute any production.

Also, we lost approximately 225 BOe per day on consolidated basis, approximately 190 BOe per day at Encore, and 35 barrels a day at Vanguard to weather-related issues.

On to capital spending, with respect to our 2011 CapEx program, during the first quarter we spent just under $3.5 million in total, which is split between Vanguard with 2.3 million and Encore at 1.2 million. The bulk of this spending in Vanguard was for the drilling of the first and second development wells in the Parker Creek Field in Mississippi, where we have an approximate 50% working interest.

Both of these wells drilled as anticipated and we are now in the process of completing them. We are currently drilling a third development well and hope to have all the wells completed and online before the start of the third quarter.

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