VNR

Vanguard Natural Resources LLC (VNR)

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Industry: Energy
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Vanguard Natural Resources, LLC (VNR)

Q2 2011 Earnings Call

August 4, 2011 12:00 pm ET

Executives

Scott Smith – President and Chief Executive Officer

Richard Robert – Executive Vice President and Chief Financial Officer

Britt Pence – Senior Vice President of Operations

Lisa Godfrey – Investor Relations

Analysts

Ethan Bellamy – Robert W. Baird & Co.

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Vanguard Natural Resources Q2 2011 Earnings Conference Call. (Operator instructions.) This conference is being recorded today, Thursday, August 4th, of 2011, and I’d now like to turn the call over to Ms. Lisa Godfrey of Investor Relations. Please go ahead, ma’am.

Lisa Godfrey

Thank you. Good morning everyone, and welcome to the Vanguard Natural Resources LLC Q2 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 to you.

If you would like to listen to a replay of today’s call it will be available through September 4th, 2011, and may be accessed by calling 303-590-3030 and using the passcode 4461501. 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, August 4th, 2011, and therefore you are advised that time sensitive information may no longer be accurate at 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 of the risk factors associated with our business please refer to our 10Q that will be filed by early next week and 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.

Scott Smith

Thank you, Lisa, and good morning everyone and thanks for joining us on our conference call to review our results for Q2 2011. Joining me are Richard Robert, our Executive Vice President and Chief Financial Officer; and Britt Pence, our Senior Vice President of Operations.

During the call this morning I’ll briefly review the Q2 production results along with capital expenditures and then we’ll turn the call over to Britt for more specifics on the drilling we have done this year and our current activities in Q3. I’ll then wind up with a discussion of our business development efforts and provide an update on the timeline of the proposed merger with Encore Energy Partners, LP.

I’ll begin with a brief summary of this quarter’s production. Average daily production for Q2 was 13,286 BOE per day, consistent with Q1’s average daily production of 13,273 BOE per day and up 191% from the 4,569 BOE per day produced in Q2 2010. The increase in total production on a BOE basis is primarily due to the Encore acquisition effective December 31, 2010. The combined asset base of both companies continues to deliver production results which are very impressive when one takes into account the minimal amount of capital that has been expended on the properties during the first half of the year. Much of the credit for our stable production profile is attributable to the hard work done by our field-level employees, but primarily those in our largest operating areas being the Bighorn and Williston region and the Permian Basin.

Breaking down the production of each on an individual product, during Q2 average daily oil production was 7,367 barrels, NGL production averaged just over 1000 barrels of NGLs per day, and our natural gas volumes averaged 29,482 MCF per day. With respect to our 2011 CAPEX program, during Q2 we spent $4.5 million in total, which was split between Vanguard with $3.8 million and our approximately 46% of ENP’s CAPEX at $1.5 million.

Now Britt will provide a more detailed summary of our activities to date and what we have planned for the balance of Q3.

Britt Pence

Thanks, Scott. As a reminder in the 2011 guidance that we put out in March, Vanguard’s capital budget was forecast to be between $27 million to $28.5 million which includes VNR’s 46% interest attributable to ENP’s planned capital spending for the year. Our 2011 drilling efforts are focused in three areas: the Parker Creek Field in Mississippi, the Bone Spring play in Permian Basin, and the Sun TSH Field in South Texas.

The drilling in the first half of the year has been in the Parker Creek Field. These wells have some of the best economics in our drilling inventory of proved locations. Therefore we wanted to get these wells drilled first in the first part of this year. Prior to initiating this year’s drilling program we and our partners reworked the 3D seismic data and decided to drill three 14,200-foot [Hawston] development wells, which were [ASE] for $3.5 million per well. Vanguard’s working interest is 53% in each well. Now that all the wells have been drilled, we believe the actual average well cost will be approximately $2.8 million or 20% less than budget.

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