Attached files
| file | filename |
|---|---|
| 8-K/A - Vanguard Natural Resources, Inc. | form8-ka.htm |
| EX-99.2 - Vanguard Natural Resources, Inc. | exhibit99-2.htm |
EXHIBIT
99.1
STATEMENT
OF COMBINED REVENUES AND DIRECT OPERATING EXPENSES
OF
THE OIL AND GAS PROPERTIES PURCHASED DECEMBER 2, 2009 BY
VANGUARD
NATURAL RESOURCES, LLC FROM PRIVATE SELLERS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
private sellers:
We have
audited the accompanying statement of combined revenues and direct operating
expenses of the oil and gas properties purchased December 2, 2009 by Vanguard
Permian, LLC from private sellers (the “Company”) for the year ended December
31, 2008. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on
this financial statement based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. The Company is not required to have,
nor were we engaged to perform an audit of the Company’s internal control over
financial reporting of the oil and gas properties purchased by Vanguard Permian,
LLC from the
Company. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The
accompanying statement was prepared for the purpose of complying with the rules
and regulations of the Securities and Exchange Commission for inclusion in
Vanguard Natural Resources, LLC’s Form 8-K/A and is not intended to be a
complete financial presentation of the properties described above.
In our
opinion, the financial statement referred to above presents fairly, in all
material respects, the combined revenues and direct operating expenses of the
oil and gas properties purchased December 2, 2009 by Vanguard Permian, LLC from
the Company for the year ended December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.
/s/
Whitley Penn LLP
Fort
Worth, Texas
February
10, 2010
STATEMENT
OF COMBINED REVENUES AND DIRECT OPERATING EXPENSES
OF
THE OIL AND GAS PROPERTIES PURCHASED DECEMBER 2, 2009 BY
VANGUARD
NATURAL RESOURCES, LLC, FROM PRIVATE
SELLERS
(in
thousands)
|
For
the
Year
Ended
December
31, 2008
|
For
the
Nine
Months Ended
September
30,
2009
|
For
the
Nine
Months Ended
September
30,
2008
|
||||||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||||||
|
Revenues
|
$ | 14,723 | $ | 9,333 | $ | 11,162 | ||||||
|
Direct
operating expenses
|
(2,854 | ) | (1,695 | ) | (1,634 | ) | ||||||
|
Excess
of revenues over direct operating expenses
|
$ | 11,869 | $ | 7,638 | $ | 9,528 | ||||||
COMBINED
REVENUES AND DIRECT OPERATING EXPENSES OF THE OIL AND GAS
PROPERTIES
PURCHASED DECEMBER 2, 2009 BY VANGUARD NATURAL RESOURCES, LLC FROM PRIVATE
SELLERS
Notes
to Financial Statement
December
31, 2008
|
Note
1:
|
THE
PROPERTIES
|
On
December 2, 2009, Vanguard Natural Resources, LLC (“Vanguard”), through its
wholly-owned subsidiary Vanguard Permian, LLC, consummated a transaction to
purchase oil and natural gas producing properties in Ward County, Texas (the
“Properties”), from private sellers. The transaction was subject to
normal closing adjustments, with an effective date of October 1,
2009. Preliminary closing adjustments netted to zero, therefore had
no impact on the total consideration paid for the Properties of $55.0
million.
|
Note
2:
|
BASIS
OF PRESENTATION
|
During
the periods presented, the Properties were not accounted for or operated as a
separate division by the private sellers. Certain costs, such as
depreciation, depletion and amortization, interest, accretion, general and
administrative expenses, and corporate income taxes were not allocated to the
individual properties. Accordingly, full separate financial
statements prepared in accordance with accounting principles generally accepted
in the United States do not exist and are not practicable to obtain in these
circumstances.
Combined
revenues and direct operating expenses included in the accompanying statement
represent Vanguard’s net working interest in the properties acquired for the
year ended December 31, 2008 and the first nine months of 2009 and 2008 and are
presented on the accrual basis of accounting. Depreciation, depletion
and amortization, interest, accretion, general and administrative expenses and
corporate income taxes have been excluded. The financial statement
presented is not indicative of the results of operations of the Properties going
forward due to changes in the business including new commodity derivative
contracts and inclusion of the above mentioned expenses.
|
Note
3:
|
COMMITMENTS
AND CONTINGENCIES
|
Pursuant
to the terms of the Purchase and Sale Agreement between Vanguard and the private
sellers, any claims, litigation or disputes pending as of the effective date
(October 1, 2009) or any matters arising in connection with ownership of the
properties prior to the effective date are retained by the private
sellers. Notwithstanding this indemnification, Vanguard is not aware
of any legal, environmental or other commitments or contingencies that would
have a material effect on the statement of combined revenues and direct
operating expenses.
COMBINED
REVENUES AND DIRECT OPERATING EXPENSES OF THE OIL AND GAS
PROPERTIES
PURCHASED DECEMBER 2, 2009 BY VANGUARD NATURAL RESOURCES, LLC
FROM
PRIVATE SELLERS
SUPPLEMENTAL
OIL AND GAS INFORMATION
(UNAUDITED)
December
31, 2008
OIL
AND GAS RESERVE INFORMATION
Proved
oil and gas reserve quantities are based on internal estimates prepared by
Vanguard and from information provided by the private sellers, in accordance
with guidelines established by the Securities and Exchange
Commission.
There are
numerous uncertainties inherent in estimating quantities of proved reserves and
projecting future rates of production and timing of development
expenditures. The following reserve data represents estimates only
and should not be construed as being exact.
|
Natural Gas
|
||||||||
|
(in thousands )
|
And
Natural
|
|||||||
|
|
Gas
Liquids
|
Crude Oil
|
||||||
|
|
(MMcf)
|
(Mbbl)
|
||||||
|
Total proved
reserves:
|
||||||||
| Balance, December 31, 2007 | 2,751 | 1,994 | ||||||
|
Extensions,
discoveries and other
|
2,251
|
1,732
|
||||||
|
Revisions
of previous estimates
|
(1,002
|
)
|
(646
|
)
|
||||
|
Production
|
(172
|
)
|
(146
|
)
|
||||
|
Balance,
December 31, 2008
|
3,828
|
2,934
|
||||||
|
Proved
developed reserves:
|
||||||||
|
Proved
developed producing
|
1,301
|
878
|
||||||
|
Balance,
December 31, 2007
|
1,301
|
878
|
||||||
|
Proved
developed producing
|
1,577
|
1,202
|
||||||
|
Proved
developed non-producing
|
575
|
442
|
||||||
|
Balance,
December 31, 2008
|
2,152
|
1,644
|
||||||
COMBINED
REVENUES AND DIRECT OPERATING EXPENSES OF THE OIL AND GAS
PROPERTIES
PURCHASED DECEMBER 2, 2009 BY VANGUARD NATURAL RESOURCES, LLC
FROM
PRIVATE SELLERS
SUPPLEMENTAL
OIL AND GAS INFORMATION
(UNAUDITED)
December
31, 2008
FUTURE
NET CASH FLOWS
Future
cash inflows are based on year-end oil and gas prices except in those instances
where future natural gas or oil sales are covered by physical contract terms
providing for higher or lower amounts. For the December 31, 2008
calculations in the following table, estimated future cash inflows from
estimated future production of proved reserves were computed using 2008 year-end
prices of $5.62 per MMBtu for natural gas, and $44.60 per barrel of oil with no
escalation in future years. Operating costs, production and ad valorem taxes and
future development costs are based on current costs with no escalation in future
years.
The
following table sets forth unaudited information concerning future net cash
flows for oil and gas reserves. Future income tax expense has not
been computed as Vanguard is not a tax paying entity. This
information does not purport to present the fair market value of Vanguard’s oil
and gas assets, but does present a standardized disclosure concerning possible
future net cash flows that would result under the assumptions used.
|
December 31,
2008
|
||||
|
(in thousands)
|
||||
|
Future
cash inflows
|
$
|
163,895
|
||
|
Future
production costs
|
(40,816
|
)
|
||
|
Future
development costs
|
(26,761
|
)
|
||
|
Future
net cash flows
|
96,318
|
|||
|
10
percent annual discount for estimated timing of cash flows
|
(46,626
|
)
|
||
|
|
|
|
||
|
Discounted
future net cash flows
|
$
|
49,692
|
||
COMBINED
REVENUES AND DIRECT OPERATING EXPENSES OF THE OIL AND GAS
PROPERTIES
PURCHASED DECEMBER 2, 2009 BY VANGUARD NATURAL RESOURCES, LLC
FROM
PRIVATE SELLERS
SUPPLEMENTAL
OIL AND GAS INFORMATION
(UNAUDITED)
December
31, 2008
The
following table sets forth the principal sources of change in discounted future
net cash flows for the years ended December 31, 2008.
|
(in
thousands)
|
2008
|
|||
|
Beginning
of Year
|
$
|
89,063
|
||
|
Sales,
net of production costs
|
(11,869
|
)
|
||
|
Net
change in prices and production costs
|
(50,096
|
)
|
||
|
Extensions,
discoveries and improved recovery, less related costs
|
22,666
|
|||
|
Change
in future development costs
|
(3,345
|
)
|
||
|
Previously
estimated development costs incurred during the period
|
22,278
|
|||
|
Accretion
of discount
|
8,906
|
|||
|
Revision
of quantity estimates
|
(14,573
|
)
|
||
|
Change
in production rates, timing and other
|
(13,338
|
)
|
||
|
End
of Year
|
$
|
49,692
|
||