Vanguard Boasts Record Third Quarter Results
Vanguard has reported financial and operational results for the third quarter of 2008. The Company reported the following highlights for the third quarter:
- Achieved Adjusted EBITDA (a non-GAAP financial measure defined below) of $13.8 million, up 65% over $8.4 million in the third quarter of 2007 and up 16% over second quarter 2008.
- Generated distributable cash flow (a non-GAAP financial measure defined below) of $5.6 million for the three months ended September 30, 2008 representing a 118% increase over the $2.6 million generated in the third quarter of 2007. In addition, we generated $19.0 million of distributable cash flow for the nine months ended September 30, 2008 as compared to $7.0 million in the same period in 2007, a 172% increase.
- Reported daily production of 16,932 Mcfe, up 46% over 11,632 Mcfe/day in the third quarter of 2007 and up 7% over second quarter 2008 volumes.
- Production rate of approximately 19,200 Mcfe for the month of September 2008, a 13% increase over average daily production volumes for the third quarter.
- Recorded net income of $71.8 million for the quarter ended September 30, 2008. Excluding the impact of non-cash unrealized gains and losses in our commodity and interest rate derivative contracts, Adjusted Net Income (a non-GAAP financial measure defined below) was $5.9 million, up 459% over $1.1 million in the third quarter of 2007 and up 14% over second quarter 2008.
- Increased quarterly distribution to $0.50 representing a 12% increase over the distribution in the second quarter of 2008 and an 18% increase over the initial distribution set at the time of our IPO in October 2007.
- Announced that the Company will restate first and second quarter 2008 financial results due to a change in the accounting treatment for derivative contracts. The restatement does not impact the economics of the hedge transactions nor does it affect the Company’s liquidity, adjusted EBITDA, distributable cash flow, total assets, total liabilities, members’ capital, or the amount of available cash to pay distributions in any historical or future period.
Scott W. Smith, President and CEO, commented, "Our results this quarter were in line with our expectations with the addition of the South Texas properties and the amount of capital expenditures we incurred in the drilling of over 14 net wells in our three operating areas. As we had stated previously, this increased level of investment was a direct result of lack of rig availability earlier in the year and is not reflective of our expected level of capital expenditures each quarter going forward.
"During the fourth quarter, we expect to see the full benefits of our drilling program and property acquisitions as illustrated by our enhanced production rate exiting the third quarter, and we will focus our capital expenditures on select re-completions and well-connects of previously drilled wells in Appalachia, the drilling of two additional wells in south Texas and well completion work on the newly drilled wells in the Permian Basin.
"In the current commodity environment, we and our operating partners have elected to defer the drilling of additional development wells until such time as drilling, completion and service costs decline to levels commensurate with the decline in the commodity prices. We are fortunate that our extensive inventory of proved undeveloped locations in Appalachia and South Texas is associated with acreage that is held by production."
Richard Robert, Executive Vice President and CFO, added, "As was expected, distributable cash flow this quarter was impacted by an unusually large amount of drilling, recompletions, and other capital expenditures. We anticipate that the results of the fourth quarter of 2008 will normalize our distribution coverage ratio for the year and bring it in line with our current expectation of approximately 1.15 to 1.20 times for 2008.
"Looking forward, our unitholders will benefit from the long-term hedging strategy that we have implemented. As outlined in detail in our press release on October 28, 2008, the price we receive for a significant percentage of our natural gas and oil is set at attractive levels for several years to come. We will continue to monitor our production and cash flows and will adjust our capital expenditures accordingly in order to maintain financial flexibility and liquidity in order to take advantage of opportunities which may arise in these volatile markets."
Third Quarter 2008 Results
During the third quarter of 2008, the Company produced 1,558 MMcfe, resulting in Adjusted EBITDA of $13.8 million and net income of $71.8 million. Excluding the impact of non-cash changes in the fair value of our commodity and interest rate derivative contracts, Adjusted Net Income was $5.9 million. Adjusted EBITDA is the primary measure used by Company management to evaluate cash flow and the Company’s ability to sustain or increase distributions. Our definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure, net income, are provided in this release. Our definition of Adjusted Net Income and a reconciliation of Adjusted Net Income to its most comparable GAAP financial measure, net income, are provided in this release.
In the third quarter of 2008, the Company participated in the drilling of 29 gross (12.2 net) wells in Appalachia. In the Permian Basin, the Company participated in 1 gross (1 net) well and in South Texas, the Company participated in 2 gross (0.9 net) wells. All of the wells drilled in the third quarter were successfully completed.
On October 15, 2008, the Company declared a cash distribution attributable to the third quarter of 2008 of $0.50 per unit, payable on November 14, 2008 to unitholders of record on October 31, 2008. This quarterly distribution of $0.50 per unit represents an increase of $0.055 per unit, or 12%, over the second quarter 2008 distribution of $0.445 and an increase of $0.075 per unit, or 18%, over the $0.425 distribution initially set forth in the prospectus for our initial public offering which was completed on October 29, 2007.