EXHIBIT 99.2
Vanguard Natural Resources, LLC and Subsidiaries
Unaudited Pro Forma Combined Financial Information
On December 30, 2013, Vanguard Natural Resources, LLC (“Vanguard” or the “Company”, or “we”) and its wholly-owned subsidiary, Encore Energy Partners Operating, LLC, entered into a purchase and sale agreement, dated December 23, 2013 to purchase natural gas and oil assets in the Pinedale and Jonah fields located in Southwestern Wyoming. We refer to this acquisition as the “Pinedale Acquisition.” We completed this acquisition on January 31, 2014 for an aggregate adjusted purchase price of $549.1 million, subject to customary post-closing adjustments, with an effective date of October 1, 2013. The purchase price was funded with borrowings under our reserve-based credit facility.
The following unaudited pro forma combined financial information is based on the historical consolidated financial statements of Vanguard, adjusted to reflect the Pinedale Acquisition.
The unaudited pro forma combined financial statements give effect to the Pinedale Acquisition and the increase in interest expense related to borrowings under Vanguard's reserve-based credit facility that were made to fund the acquisition.
The unaudited pro forma combined balance sheet gives effect to the Pinedale Acquisition as if it had occurred on December 31, 2013. The unaudited pro forma combined statement of operations for the year ended December 31, 2013 gives effect to Pinedale Acquisition as if it had occurred on January 1, 2013.
The unaudited pro forma combined financial information should be read in conjunction with Vanguard's Form 10-K for the year ended December 31, 2013.
The unaudited pro forma combined financial information is for informational purposes only and is not intended to represent or to be indicative of the combined results of operations or financial position that Vanguard would have reported had the Pinedale Acquisition been completed as of the dates set forth in this unaudited pro forma financial information and should not be taken as indicative of Vanguard's future performance for reasons, including, but not limited to, differences between the assumptions used to prepare the unaudited pro forma combined financial information and actual results.
Unaudited Pro Forma Combined
Balance Sheet as of December 31, 2013
(in thousands)
| Vanguard Historical | Pro forma adjustments Pinedale Acquisition (Note 2) | Vanguard Pro forma | |||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 11,818 | $ | 490,988 | (a) | $ | 11,818 | ||||
| (490,988 | ) | (b) | |||||||||
| Trade accounts receivable, net | 70,109 | — | 70,109 | ||||||||
| Derivative assets | 21,314 | — | 21,314 | ||||||||
| Other currents assets | 2,916 | 244 | (b) | 3,160 | |||||||
| Total current assets | 106,157 | 244 | 106,401 | ||||||||
| Oil and natural gas properties, at cost | 2,523,671 | 593,695 | (b) | 3,117,366 | |||||||
| Accumulated depletion, amortization and impairment | (713,154 | ) | — | (713,154 | ) | ||||||
| Oil and natural gas properties evaluated, net – full cost method | 1,810,517 | 593,695 | 2,404,212 | ||||||||
| Other assets | |||||||||||
| Goodwill | 420,955 | — | 420,955 | ||||||||
| Derivative assets | 60,474 | — | 60,474 | ||||||||
| Other assets | 91,538 | (58,100 | ) | (b) | 33,438 | ||||||
| Total assets | $ | 2,489,641 | $ | 535,839 | $ | 3,025,480 | |||||
| Liabilities and members’ equity | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable: | |||||||||||
| Trade | $ | 9,824 | $ | — | $ | 9,824 | |||||
| Affiliates | 249 | — | 249 | ||||||||
| Accrued liabilities: | |||||||||||
| Lease operating | 12,882 | — | 12,882 | ||||||||
| Developmental capital | 10,543 | — | 10,543 | ||||||||
| Interest | 11,989 | — | 11,989 | ||||||||
| Production and other taxes | 16,251 | — | 16,251 | ||||||||
| Derivative liabilities | 10,992 | — | 10,992 | ||||||||
| Oil and natural gas revenue payable | 23,245 | 209 | (b) | 23,454 | |||||||
| Distributions payable | 16,499 | — | 16,499 | ||||||||
| Other | 12,929 | — | 12,929 | ||||||||
| Total current liabilities | 125,403 | 209 | 125,612 | ||||||||
| Long-term debt | 1,007,879 | 490,988 | (a) | 1,498,867 | |||||||
| Derivative liabilities | 4,085 | — | 4,085 | ||||||||
| Asset retirement obligations | 82,208 | 12,404 | (b) | 94,612 | |||||||
| Other long-term liabilities | 1,731 | — | 1,731 | ||||||||
| Total liabilities | 1,221,306 | 503,601 | 1,724,907 | ||||||||
| Members’ equity | |||||||||||
| Preferred units | 61,021 | — | 61,021 | ||||||||
| Members’ capital | 1,205,311 | 32,238 | (b) | 1,237,549 | |||||||
| Class B units | 2,003 | — | 2,003 | ||||||||
| Total members’ equity | 1,268,335 | 32,238 | 1,300,573 | ||||||||
| Total liabilities and members’ equity | $ | 2,489,641 | $ | 535,839 | $ | 3,025,480 | |||||
Unaudited Pro Forma Combined
Statement of Operations
for the Year Ended December 31, 2013
(in thousands)
| Vanguard Historical | Pro forma adjustments Pinedale Acquisition (Note 2) | Vanguard Pro forma | |||||||||
| Revenues: | |||||||||||
| Oil sales | $ | 268,922 | $ | 22,384 | (a) | $ | 291,306 | ||||
| Natural gas sales | 124,513 | 108,821 | (a) | 233,334 | |||||||
| NGLs sales | 49,813 | 31,292 | (a) | 81,105 | |||||||
| Net gains on commodity derivative contracts | 11,256 | — | 11,256 | ||||||||
| Total revenues | 454,504 | 162,497 | 617,001 | ||||||||
| Costs and expenses: | |||||||||||
| Production: | |||||||||||
| Lease operating expenses | 105,502 | 46,465 | (b) | 151,967 | |||||||
| Production and other taxes | 40,430 | 18,925 | (b) | 59,355 | |||||||
| Depreciation, depletion, amortization and accretion | 167,535 | 50,398 | (c) | 217,933 | |||||||
| Selling, general and administrative expenses | 25,942 | — | 25,942 | ||||||||
| Total costs and expenses | 339,409 | 115,788 | 455,197 | ||||||||
| Income from operations | 115,095 | 46,709 | 161,804 | ||||||||
| Other income (expense): | |||||||||||
| Other income | 69 | — | 69 | ||||||||
| Interest expense | (61,148 | ) | (10,542 | ) | (d) | (71,690 | ) | ||||
| Net losses on interest rate derivative contracts | (96 | ) | — | (96 | ) | ||||||
| Net gain on acquisition of oil and natural gas properties | 5,591 | — | 5,591 | ||||||||
| Total other expense | (55,584 | ) | (10,542 | ) | (66,126 | ) | |||||
| Net income | 59,511 | 36,167 | 95,678 | ||||||||
| Less: Distributions to Preferred unitholders | (2,634 | ) | — | (2,634 | ) | ||||||
Net income available to Common and Class B unitholders | $ | 56,877 | $ | 36,167 | $ | 93,044 | |||||
| Net income per Common and Class B unit: | |||||||||||
| Basic | $ | 0.78 | $ | 1.27 | |||||||
| Diluted | $ | 0.77 | $ | 1.26 | |||||||
| Weighted average units outstanding: | |||||||||||
| Common units – basic | 72,644 | 72,644 | |||||||||
| Common units – diluted | 72,992 | 72,992 | |||||||||
| Class B units – basic & diluted | 420 | 420 | |||||||||
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
Note 1. Basis of Presentation
On December 30, 2013, Vanguard Natural Resources, LLC (“Vanguard” or the “Company”, or “we”) and its wholly-owned subsidiary, Encore Energy Partners Operating, LLC, entered into a purchase and sale agreement, dated December 23, 2013 to purchase natural gas and oil assets in the Pinedale and Jonah fields located in Southwestern Wyoming. We refer to this acquisition as the “Pinedale Acquisition.” We completed this acquisition on January 31, 2014 for an aggregate adjusted purchase price of $549.1 million, subject to customary post-closing adjustments, with an effective date of October 1, 2013. The purchase price was funded with borrowings under our reserve-based credit facility.
Note 2 Unaudited Pro forma Combined Balance Sheet
Pro Forma Adjustments to the Unaudited Pro Forma Combined Balance Sheet
Adjustments (a) – (b) to the unaudited pro forma combined balance sheet as of December 31, 2013 are to reflect the Pinedale Acquisition completed on January 31, 2014 as follows:
(a) | To record the financing of the acquisition with borrowings under our reserve-based credit facility. |
(b) | To record the acquisition of certain natural gas and liquids properties, other assets and imbalance liabilities and asset retirement obligation associated with the oil and natural gas and liquids properties acquired and reclassification of the previously paid deposit for the acquisition. |
Total cash consideration was $549.1 million. The measurement of the fair value at acquisition date of the assets acquired as compared to the fair value of consideration transferred, adjusted for purchase price adjustments, resulted in a gain of $32.1 million, calculated in the following table. The gain resulted primarily from the changes in oil and natural gas prices between the date the purchase and sale agreement was entered into and the closing date, which were used to value the reserves acquired.
| (in thousands) | |||
| Fair value of assets and liabilities acquired: | |||
| Oil and natural gas properties | $ | 593,695 | |
| Inventory | 244 | ||
| Asset retirement obligations | (12,404 | ) | |
| Imbalance liabilities | (209 | ) | |
| Other | (124 | ) | |
| Total fair value of assets and liabilities acquired | 581,202 | ||
| Fair value of consideration transferred: | |||
| Deposit | 58,100 | ||
| Cash paid at closing | 490,988 | ||
| Total fair value of consideration transferred | 549,088 | ||
| Gain on acquisition | $ | 32,114 | |
Note 3 Unaudited Pro Forma Combined Statements of Operations
The unaudited pro forma combined statements of operations for the year ended December 31, 2013 include adjustments to reflect the following:
(a) | Represents the increase in oil, natural gas and natural gas liquids sales resulting from the Pinedale Acquisition. |
(b) | Represents the increase in lease operating expenses and production and other taxes resulting from the Pinedale Acquisition. |
(c) | Represents the increase in depreciation, depletion, amortization and accretion resulting from the Pinedale Acquisition. |
(d) | Represents the pro forma interest expense related to borrowings under the reserve-based credit facility to fund the Pinedale Acquisition. |