Vanguard Reports Record Reserves, Production in 2010

Vanguard reported financial and operational results for the full year and fourth quarter ended December 31, 2010 and provided financial and operational guidance for 2011.

Mr. Scott W. Smith, President and CEO, commented, "Vanguard achieved excellent results on all fronts in 2010. During the year we continued our record of successfully closing accretive acquisitions with the highlight being our acquisition of the general partner and 46.7% limited partner ownership position in Encore Energy Partners, LP. With this acquisition, we dramatically expanded our operating platform as we now have assets in both the Williston and Big Horn basins along with increasing our presence in the Permian Basin. From a commodity perspective, our 2010 activities increased our exposure to oil and natural gas liquids from 42% of proved reserves to 63% of proved reserves. In addition, our percentage of proved producing reserves increased from 68% to 80% of total proved reserves. The current outlook for MLP's in the capital markets is bright and we are looking forward to continuing to grow Vanguard on behalf of our unitholders."

Proved Reserves

Total proved oil and natural gas reserves at December 31, 2010 were 69.3 million barrels of oil equivalent, consisting of 43.6 million barrels of crude oil, condensate, and natural gas liquids and 153.9 billion cubic feet of natural gas. As a result of our December 31, 2010 acquisition of all of the member interest in Encore Energy Partners GP LLC, the general partner of Encore Energy Partners and 20,924,055 common units representing limited partnership interests in Encore, the Vanguard reported proved reserve quantities and values reflect Vanguard's and Encore's proved reserves and values on a consolidated basis which includes the proved reserves attributable to the approximate 53.3% ownership interest that Vanguard does not own (the "non-controlling interest") in Encore. Proved reserves were calculated utilizing 12-month average prices during 2010, or $79.40 per Bbl of oil and $4.38 per Mcf of natural gas as compared to $61.04 per Bbl of oil and $3.87 per Mcf of natural gas for 2009.

Using 2010 average prices, the estimated discounted net present value of Vanguard's proved oil and natural gas reserves, before projected income taxes, using a 10 percent per annum discount rate (PV-10 Value) was approximately $1.1 billion (including $375.0 million of PV-10 Value attributable to the non-controlling interest) at December 31, 2010, as compared to a PV-10 Value of approximately $179 million at December 31, 2009.

At December 31, 2010, oil, condensate, and natural gas liquids reserves accounted for 63 percent of total proved reserves, and 80 percent of total proved reserves are developed.

Full Year 2010 Highlights:

  • Achieved Adjusted EBITDA (a non-GAAP financial measure defined below) of $80.4 million, up 43% over $56.2 million in 2009.
  • Generated Distributable Cash Flow of $57.5 million, representing a 28% increase over the $45.1 million generated in 2009.
  • Reported average daily production of 4,721 barrels of oil equivalent (BOE) per day, up 42% over the average of 3,335 BOE/day reported in 2009.
  • Reported net income of $21.9 million as compared to a net loss of $95.7 million for 2009. However, both years included non-recurring and/or non-cash charges. Excluding the impact of these charges, our Adjusted Net Income (a non-GAAP financial measure defined below) was $45.8 million in 2010 compared to $26.1 million in 2009, representing an increase of 75%.

Fourth Quarter 2010 Highlights:

  • Generated Adjusted EBITDA of $20.6 million, up 40% over $14.7 million in the fourth quarter of 2009 and essentially the same as was earned in the third quarter of 2010.
  • Generated Distributable Cash Flow (a non-GAAP financial measure defined below) of $16.9 million, representing a 56% increase over the $10.8 million generated in the fourth quarter of 2009.
  • Reported average production of 4,884 BOE/day, up 21% over 4,021 BOE/day produced in the fourth quarter of 2009 but down 4% over third quarter 2010 average volumes.
  • Recorded a net loss of $5.6 million compared to net loss of $39.7 million in the 2009 fourth quarter. However, both years included non-recurring and/or non-cash charges. Excluding the impact of these charges, our Adjusted Net Income was $11.8 million in the fourth quarter of 2010 as compared to Adjusted Net Income of $5.1 million in the fourth quarter of 2009, representing an increase of 134%.

Liquidity Update

At December 31, 2010, Vanguard had $176.5 million outstanding under its revolving credit facility and $48.5 million of remaining availability on its $225 million revolving credit facility. At December 31, 2010, Encore had $234 million outstanding under its revolving credit facility and $141 million of remaining availability on its $375 million revolving credit facility.

Cash Distributions

On February 14, 2011, the Company paid its 2010 fourth-quarter cash distribution of $0.56 per unit to its unit holders of record. This quarterly distribution payment was an increase of $0.01 per unit over the amount distributed for the third quarter of 2010 and represented an increase of $0.135 per unit, or a 32% increase from the $0.425 distribution initially set when our initial public offering was completed on October 29, 2007.

2011 Outlook

Overview

Vanguard has prepared this information to provide public disclosure of certain financial and operating estimates in order to permit the preparation of models to forecast our operating results for the year ending December 31, 2011. These estimates are based on information available to us as of the date of this filing, and actual results may vary materially from these estimates. We do not undertake any obligation to update these estimates as conditions change or as additional information becomes available.

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