EXHIBIT 99.1
Unaudited Pro Forma Combined
Statement of Operations
for the Six Months Ended June 30, 2014
(in thousands)
| Vanguard Historical | Pro forma adjustments Pinedale Acquisition (Note 2) | Vanguard Pro forma | |||||||||
| Revenues: | |||||||||||
| Oil sales | $ | 142,163 | $ | 2,145 | (a) | $ | 144,308 | ||||
| Natural gas sales | 133,348 | 8,533 | (a) | 141,881 | |||||||
| NGLs sales | 38,748 | 3,581 | (a) | 42,329 | |||||||
| Net losses on commodity derivative contracts | (94,436 | ) | — | (94,436 | ) | ||||||
| Total revenues | 219,823 | 14,259 | 234,082 | ||||||||
| Costs and expenses: | |||||||||||
| Production: | |||||||||||
| Lease operating expenses | 64,715 | 4,178 | (b) | 68,893 | |||||||
| Production and other taxes | 31,563 | 1,607 | (b) | 33,170 | |||||||
| Depreciation, depletion, amortization and accretion | 95,118 | 5,287 | (c) | 100,405 | |||||||
| Selling, general and administrative expenses | 15,902 | — | 15,902 | ||||||||
| Total costs and expenses | 207,298 | 11,072 | 218,370 | ||||||||
| Income from operations | 12,525 | 3,187 | 15,712 | ||||||||
| Other income (expense): | |||||||||||
| Other income | 131 | — | 131 | ||||||||
| Interest expense | (32,808 | ) | (988 | ) | (d) | (33,796 | ) | ||||
| Net losses on interest rate derivative contracts | (1,579 | ) | — | (1,579 | ) | ||||||
| Gain on acquisition of oil and natural gas properties | 32,114 | (32,114 | ) | (e) | — | ||||||
| Total other expense | (2,142 | ) | (33,102 | ) | (35,244 | ) | |||||
| Net income (loss) | 10,383 | (29,915 | ) | (19,532 | ) | ||||||
| Less: Distributions to Preferred unitholders | (6,558 | ) | — | (6,558 | ) | ||||||
| Net income (loss) attributable to Common and Class B unitholders | $ | 3,825 | $ | (29,915 | ) | $ | (26,090 | ) | |||
| Net income (loss) per Common and Class B unit: | |||||||||||
| Basic & diluted | $ | 0.05 | $ | (0.32 | ) | ||||||
| Weighted average units outstanding: | |||||||||||
| Common units – basic & diluted | 79,865 | 79,865 | |||||||||
| Class B units – basic & diluted | 420 | 420 | |||||||||
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 attributable 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 $555.6 million with an effective date of October 1, 2013. The purchase price was funded with borrowings under our reserve-based credit facility.
The unaudited pro forma combined financial information included in this report is based on the historical consolidated financial statements of Vanguard, adjusted to reflect the Pinedale Acquisition, as if it had occurred on January 1, 2013. The related pro forma adjustments are described below.
The unaudited pro forma combined financial information should be read in conjunction with Vanguard's Form 10-Q for the quarter ended June 30, 2014 and 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.
Note 2. Pro Forma Adjustments
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 | $ | 600,123 | |
| Inventory | 244 | ||
| Asset retirement obligations | (12,404 | ) | |
| Imbalance liabilities | (172 | ) | |
| Other | (124 | ) | |
| Total fair value of assets and liabilities acquired | 587,667 | ||
| Total fair value of consideration transferred | 555,553 | ||
| Gain on acquisition | $ | 32,114 | |
The unaudited pro forma combined statements of operations for the six months ended June 30, 2014 and 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. |
| (e) | Represents the elimination of the nonrecurring gain from the acquisition of oil, natural gas and natural gas liquids properties in the Pinedale Acquisition. |