Attached files
Exhibit
99.1
February
17, 2010
Mr. Scott
W. Smith
Vanguard
Natural Resources, LLC
7700 San
Felipe Street, Suite 485
Houston,
Texas 77063
Dear Mr.
Smith:
In
accordance with your request, we have estimated the proved reserves and future
revenue, as of December 31, 2009, to the Vanguard Natural Resources, LLC
(Vanguard) interest in certain oil and gas properties located in Kentucky, New
Mexico, Tennessee, and Texas. It is our understanding that the proved
reserves estimated in this report constitute approximately 64 percent of all
proved reserves owned by Vanguard. The estimates in this report have
been prepared in accordance with the definitions and guidelines of the U.S.
Securities and Exchange Commission (SEC) and conform to the FASB Accounting
Standards Codification Topic 932, Extractive Activities—Oil and Gas, except that
per-well overhead expenses are excluded for the operated properties and future
income taxes are excluded for all properties. Definitions are
presented immediately following this letter. This report has been
prepared for Vanguard's use in filing with the SEC.
We
estimate the net reserves and future net revenue to the Vanguard interest in
these properties, as of December 31, 2009, to be:
|
Net
Reserves
|
Future
Net Revenue ($)
|
|||||||||||||||
|
Oil
|
Gas
|
Present
Worth
|
||||||||||||||
|
Category
|
(Barrels)
|
(MCF)
|
Total
|
at
10%
|
||||||||||||
|
Proved
Developed Producing
|
4,553,129 | 33,498,316 | 216,729,700 | 117,270,700 | ||||||||||||
|
Proved
Developed Non-Producing
|
359,980 | 444,818 | 10,655,200 | 6,702,700 | ||||||||||||
|
Proved
Undeveloped
|
1,661,060 | 17,909,008 | 40,825,600 | 2,277,600 | ||||||||||||
|
Total Proved
|
6,574,169 | 51,852,142 | 268,210,500 | 126,251,000 | ||||||||||||
The oil
reserves shown include crude oil, condensate, and natural gas liquids
(NGL). Oil volumes are expressed in barrels that are equivalent to 42
United States gallons. Gas volumes are expressed in thousands of
cubic feet (MCF) at standard temperature and pressure bases. The
table following the definitions sets forth our estimates of net reserves and
future net revenue, by reserves category, to the Vanguard interest for each
area.
The
estimates shown in this report are for proved reserves only. As
requested, probable and possible reserves that exist for these properties have
not been included. This report does not include any value that could
be attributed to interests in undeveloped acreage beyond those tracts for which
undeveloped reserves have been estimated. Reserves categorization
conveys the relative degree of certainty; reserves subcategorization is based on
development and production status. The estimates of reserves and
future revenue included herein have not been adjusted for risk.
Future
gross revenue to the Vanguard interest is prior to deducting state production
taxes and ad valorem taxes. Future net revenue is after deductions
for these taxes, future capital costs, and operating expenses but before
consideration of federal income taxes. The future net revenue has
been discounted at an annual rate of 10 percent to determine its present
worth. The present worth is shown to indicate the effect of time on
the value of money and should not be construed as being the fair market value of
the properties.
For the
purposes of this report, we did not perform any field inspection of the
properties, nor did we examine the mechanical operation or condition of the
wells and facilities. We have not investigated possible environmental
liability related to the properties; therefore, our estimates do not include any
costs due to such possible liability. Also, our estimates do not
include any salvage value for the lease and well equipment or the cost of
abandoning the properties.
Prices
used in this report are based on the 12-month unweighted arithmetic average of
the first-day-of-the-month price for the period January through December
2009. For oil volumes, the average West Texas Intermediate posted
price of $57.65 per barrel is adjusted by field for quality, transportation
fees, and regional price differentials. For gas volumes, the average
regional spot prices are adjusted by field for energy content, transportation
fees, and local price differentials. As a reference, for the same
time period, the average Platts Gas Daily Henry Hub spot
price was $3.866 per MMBTU. All prices are held constant throughout
the lives of the properties.
Lease and
well operating costs used in this report are based on operating expense records
of Vanguard. For nonoperated properties, these costs include the
per-well overhead expenses allowed under joint operating agreements along with
estimates of costs to be incurred at and below the district and field
levels. As requested, lease and well operating costs for the operated
properties include only direct lease- and field-level costs. For all
properties, headquarters general and administrative overhead expenses of
Vanguard are not included. Lease and well operating costs are held
constant throughout the lives of the properties. Capital costs are
included as required for workovers, new development wells, and production
equipment. The future capital costs are held constant to the date of
expenditure.
We have
made no investigation of potential gas volume and value imbalances resulting
from overdelivery or underdelivery to the Vanguard
interest. Therefore, our estimates of reserves and future revenue do
not include adjustments for the settlement of any such imbalances; our
projections are based on Vanguard receiving its net revenue interest share of
estimated future gross gas production.
The
reserves shown in this report are estimates only and should not be construed as
exact quantities. Proved reserves are those quantities of oil and gas
which, by analysis of engineering and geoscience data, can be estimated with
reasonable certainty to be economically producible. If the reserves
are recovered, the revenues therefrom and the costs related thereto could be
more or less than the estimated amounts. Because of governmental
policies and uncertainties of supply and demand, the sales rates, prices
received for the reserves, and costs incurred in recovering such reserves may
vary from assumptions made while preparing this report. Estimates of
reserves may increase or decrease as a result of future operations, market
conditions, or changes in regulations.
For the
purposes of this report, we used technical and economic data including, but not
limited to, well logs, geologic maps, seismic data, well test data, production
data, historical price and cost information, and property ownership
interests. The reserves in this report have been estimated using
deterministic methods; these estimates have been prepared in accordance with
generally accepted petroleum engineering and evaluation
principles. We used standard engineering and geoscience methods, or a
combination of methods, such as performance analysis and analogy, that we
considered to be appropriate and necessary to establish reserves quantities and
reserves categorization that conform to SEC definitions and
guidelines. In evaluating the information at our disposal concerning
this report, we have excluded from our consideration all matters as to which the
controlling interpretation may be legal or accounting, rather than engineering
and geoscience. As in all aspects of oil and gas evaluation, there
are uncertainties inherent in the interpretation of engineering and geoscience
data; therefore, our conclusions necessarily represent only informed
professional judgment.
The
titles to the properties have not been examined by Netherland, Sewell &
Associates, Inc. (NSAI), nor has the actual degree or type of interest owned
been independently confirmed. The data used in our estimates were
obtained from Vanguard, public data sources, and the nonconfidential files of
NSAI and were accepted as accurate. Supporting geoscience, field
performance, and work data are on file in our office. The technical
persons responsible for preparing the reserves estimates presented herein meet
the requirements regarding qualifications, independence, objectivity, and
confidentiality set forth in the Standards Pertaining to the Estimating and
Auditing of Oil and Gas Reserves Information promulgated by the Society of
Petroleum Engineers. We are independent petroleum engineers,
geologists, geophysicists, and petrophysicists; we do not own an interest in
these properties and are not employed on a contingent basis.
Sincerely,
NETHERLAND, SEWELL & ASSOCIATES,
INC.
Texas Registered Engineering Firm
F-002699
By: /s/ C.H. (Scott) Rees
III
C.H. (Scott) Rees III,
P.E.
Chairman and Chief Executive
Officer
By: /s/ Richard
B. Talley,
Jr. By:
/s/ David E. Nice
Richard B. Talley, Jr., P.E.
102425 David
E. Nice, P.G. 346
Vice
President
Vice President
Date
Signed: February 17,
2010 Date
Signed: February 17, 2010
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TMS:EBL