EX-99.2 4 exhibit992pinedaleproformas.htm EXHIBIT992PinedaleProformas

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.