Summary Pro Forma Combined
Natural Gas, Oil and Natural Gas Liquids
Reserve Data
The following tables set forth summary pro forma information with respect to Vanguard's and Encore's pro forma combined estimated net proved and proved developed natural gas, oil and natural gas liquids reserves as of December 31, 2009. This pro forma information gives effect to the acquisition of the Encore Interests as if it occurred on December 31, 2009. The Vanguard pro forma combined reserves include the noncontrolling interest in the Encore reserves of approximately 53.2% at December 31, 2009. Future exploration, exploitation and development expenditures, as well as future commodity prices and service costs, will affect the reserve volumes attributable to the acquired properties and the standardized measure of discounted future net cash flows.
Estimated quantities of natural gas, oil and natural gas liquids reserves as of December 31, 2009
| | | Gas (MMcf) | |
| | | Vanguard historical | | | Encore historical | | | Vanguard pro forma combined | |
| Net proved reserves | | | | | | | | | |
| January 1, 2009 | | | 81,237 | | | | 78,011 | | | | 159,248 | |
| Revisions of previous estimates | | | (36,569 | ) | | | (7,164 | ) | | | (43,733 | ) |
| Extensions, discoveries and other | | | 3,191 | | | | 1,112 | | | | 4,303 | |
| Purchases of reserves in place | | | 39,832 | | | | 18,837 | | | | 58,669 | |
| Production | | | (4,542 | ) | | | (6,097 | ) | | | (10,639 | ) |
| December 31, 2009 | | | 83,149 | | | | 84,699 | | | | 167,848 | |
| | | Oil and Natural Gas Liquids (MBbls) | |
| | | Vanguard historical | | | Encore historical | | | Vanguard pro forma combined | |
| Net proved reserves | | | | | | | | | |
| January 1, 2009 | | | 4,547 | | | | 27,278 | | | | 31,825 | |
| Revisions of previous estimates | | | – | | | | 3,987 | | | | 3,987 | |
| Extensions, discoveries and other | | | 66 | | | | 2 | | | | 68 | |
| Purchases of reserves in place | | | 5,810 | | | | – | | | | 5,810 | |
| Production | | | (460 | ) | | | (2,337 | ) | | | (2,797 | ) |
| December 31, 2009 | | | 9,963 | | | | 28,930 | | | | 38,893 | |
| | | Vanguard historical | | | Encore historical | | | Vanguard pro forma combined | |
| Estimated proved reserves: | | | | | | | | | |
| Natural Gas (MMcf) | | | 83,149 | | | | 84,699 | | | | 167,848 | |
| Oil and Natural Gas Liquids (MBbls) | | | 9,963 | | | | 28,930 | | | | 38,893 | |
| MBOE | | | 23,821 | | | | 43,047 | | | | 66,868 | |
| | | | | | | | | | | | | |
| Estimated proved developed reserves: | | | | | | | | | | | | |
| Natural Gas (MMcf) | | | 54,129 | | | | 78,379 | | | | 132,508 | |
| Oil and Natural Gas Liquids (MBbls) | | | 7,126 | | | | 26,341 | | | | 33,467 | |
| MBOE | | | 16,148 | | | | 39,404 | | | | 55,552 | |
The standardized measure of discounted future net cash flows relating to the combined proved gas, oil and natural gas liquids reserves at December 31, 2009 is as follows (in thousands):
| | | Vanguard historical | | Encore historical | | Vanguard pro forma combined | | |
| Future cash inflows | | $ | 846,196 | | $ | 1,879,504 | | $ | 2,725,700 | | |
| Future production costs | | (362,386 | ) | (819,352 | ) | (1,181,738 | ) | |
| Future development costs | | (95,297 | ) | (46,852 | ) | (142,149 | ) | |
| Future abandonment costs, net of salvage | | – | | (29,339 | ) | (29,339 | ) | |
| Future net income tax expense | | – | | (1,217 | ) | (1,217 | ) | |
| Future net cash flows | | 388,513 | | 982,744 | | 1,371,257 | | |
| 10% annual discount for estimated timing of cash flows | | (209,840 | ) | (488,243 | ) | (698,083 | ) | |
| Standardized measure of discounted future net cash flows | | $ | 178,673 | | $ | 494,501 | | $ | 673,174 | | (a) |
(a) The total Vanguard pro forma combined standardized measure includes approximately $263.1 million attributable to the noncontrolling interest of Encore.
For the December 31, 2009 calculations in the preceding table, estimated future cash inflows from estimated future production of proved reserves were computed using the average natural gas and oil price based upon the 12-month average price of $3.87 and $3.83 per MMBtu for natural gas and $ 61.04 and $61.18 per barrel of crude oil for Vanguard and Encore historical, respectively, adjusted for quality, transportation fees and a regional price differential.
The following are the principal sources of change in the combined standardized measure of discounted future net cash flows (in thousands):
| | | Vanguard historical | | Encore historical | | Vanguard pro forma combined | |
| Sales and transfers, net of production costs | | $ | (29,313 | ) | $ | (95,270 | ) | | (124,583 | ) |
| Net changes in prices and production costs | | (21,697 | ) | 153,083 | | 131,386 | |
| Extensions discoveries and improved recovery, less related costs | | 1,673 | | 1,588 | | 3,261 | |
| Changes in estimated future development costs | | 2,557 | | (3,527 | ) | (970 | ) |
| Previously estimated development costs incurred during the period | | 5,825 | | 4,732 | | 10,557 | |
| Revision of previous quantity estimates | | (64,155 | ) | 65,300 | | 1,145 | |
| Accretion of discount | | 19,007 | | 32,662 | | 51,669 | |
| Purchases of reserves in place | | 80,776 | | 19,136 | | 99,912 | |
| Net change in income taxes | | – | | (457 | ) | (457 | ) |
| Change in production rates, timing and other | | (6,073 | ) | (9,368 | ) | (15,441 | ) |
| Net change in standardized measure | | $ | (11,400 | ) | $ | 167,879 | | $ | 156,479 | |
| Standardized measure, January 1, 2009 | | | 190,073 | | | 326,622 | | | 516,695 | |
| Standardized measure, December 31, 2009 | | $ | 178,673 | | $ | 494,501 | | $ | 673,174 | (a) |
(a) The total Vanguard pro forma combined standardized measure includes approximately $263.1 million attributable to the noncontrolling interest of Encore.
