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Form 8-K/A Vanguard Natural Resourc For: Feb 12

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February 13, 2015 6:07 AM EST

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
 
FORM 8-K/A
 
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported):  February 12, 2015 (October 1, 2014)
 
Vanguard Natural Resources, LLC
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
001-33756
 
61-1521161
(State or other jurisdiction of
incorporation)
 
(Commission File Number)
 
(IRS Employer Identification
No.)
 
5847 San Felipe, Suite 3000
Houston, Texas 77057
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code (832) 327-2255
 
 
(Former name or former address, if changed since last report.)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 


As previously disclosed, Vanguard Natural Resources, LLC (“Vanguard” or the “Company”), through its wholly-owned subsidiary, Vanguard Operating, LLC (“Vanguard Operating”), completed the acquisition of natural gas, oil and natural gas liquids assets in the Piceance Basin in Colorado on September 30, 2014 (the “Piceance Acquisition”).

This current report on Form 8-K/A (“Amendment No. 2”) amends and supplements the Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) by Vanguard on October 1, 2014, as amended by the Current Report on Form 8-K/A filed with the SEC by Vanguard on November 3, 2014 (“Amendment No. 1”), in connection with the Piceance acquisition. The Current Report on Form 8-K filed on October 1, 2014 is being amended by this Amendment No. 2 to update the unaudited pro forma financial information provided related to the Piceance Acquisition, which has been prepared in accordance with Article 11 of Regulation S-X. No other amendments to the Form 8-K filing on October 1, 2014, as amended by Amendment No. 1, are being made by this Amendment No. 2.

References in this current report to “us,” “we,” “our,” the “Company,” “Vanguard” or “VNR” are to Vanguard Natural Resources, LLC and its subsidiaries.

Item 9.01. Financial Statements and Exhibits.

(b) The following unaudited combined pro forma financial information of the Company and the notes thereto are included in Exhibit 99.1 hereto and are incorporated herein by reference:

• Unaudited pro forma combined statement of operations for the nine months ended September 30, 2014; and

• Unaudited pro forma combined statement of operations for the year ended December 31, 2013.


(c) The summary pro forma combined oil, natural gas and natural gas liquids reserve data is included in Exhibit 99.2 hereto and incorporated herein by reference.

(d) Exhibits

EXHIBIT NUMBER
 
DESCRIPTION
 
 
 
Exhibit 99.1
 
Unaudited pro forma combined financial information of Vanguard Natural Resources, LLC for the nine months ended September 30, 2014 and for the year ended December 31, 2013.

 
 
 
Exhibit 99.2
 
Summary Pro Forma Combined Oil, Natural Gas and Natural Gas Liquids Reserve Data.





















SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.





 
VANGUARD NATURAL RESOURCES, LLC
 
 
 
 
 
By:
/s/ Richard A. Robert
 
 
Name:
Richard A. Robert
 
Title:
Executive Vice President and Chief Financial Officer
 
 
 (Principal Financial Officer and Principal Accounting Officer)
February 12, 2015
 
 
 



EXHIBIT INDEX

EXHIBIT NUMBER
 
DESCRIPTION
 
 
 
Exhibit 99.1
 
Unaudited pro forma combined financial information of Vanguard Natural Resources, LLC for the nine months ended September 30, 2014 and for the year ended December 31, 2013.

 
 
 
Exhibit 99.2
 
Summary Pro Forma Combined Oil, Natural Gas and Natural Gas Liquids Reserve Data.





EXHIBIT 99.1





Unaudited Pro Forma Combined
 Statement of Operations
 for the Nine Months Ended September 30, 2014
(in thousands)
 
Vanguard Historical
 
Pro forma
adjustments
Pinedale Acquisition
(Note 2)
 
Pro forma
adjustments
Piceance Acquisition
(Note 2)
 
Vanguard
Pro forma
Revenues:
 
 
 
 
 
 
 
Oil sales
$
211,197

 
$
2,145

(a) 
$
14,977

(f) 
$
228,319

Natural gas sales
201,175

 
8,533

(a) 
57,518

(f) 
267,226

NGLs sales
55,514

 
3,581

(a) 
27,356

(f) 
86,451

Net losses on commodity derivative contracts
(11,125
)
 
—

 
—

 
(11,125
)
Total revenues
456,761

 
14,259

 
99,851

 
570,871

 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
Production:
 
 
 
 
 
 
 
Lease operating expenses
95,726

 
4,178

(b) 
13,628

(g) 
113,532

Production and other taxes
46,693

 
1,607

(b) 
5,394

(g) 
53,694

Depreciation, depletion, amortization and accretion
150,798

 
5,287

(c) 
31,213

(h) 
187,298

Selling, general and administrative expenses
23,042

 
—

 
—

 
23,042

Total costs and expenses
316,259

 
11,072

 
50,235

 
377,566

 
 
 
 
 
 
 
 
Income from operations
140,502

 
3,187

 
49,616

 
193,305

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest expense
(49,529
)
 
(988
)
(d) 
(8,241
)
(i) 
(58,758
)
Net losses on interest rate derivative contracts
(1,068
)
 
—

 
—

 
(1,068
)
Gain on acquisition of oil and natural gas properties
34,523

 
(32,114
)
(e) 
427

(j) 
2,836

Other
54

 
—

 
—

 
54

Total other expense
(16,020
)
 
(33,102
)
 
(7,814
)
 
(56,936
)
 
 
 
 
 
 
 
 
Net income (loss)
124,482

 
(29,915
)
 
41,802

 
136,369

Less: Distributions to Preferred unitholders
(11,507
)
 
—

 
—

 
(11,507
)
Net income (loss) attributable to Common and
Class B unitholders
$
112,975

 
$
(29,915
)
 
$
41,802

 
$
124,862

 
 
 
 
 
 
 
 
Net income per Common and Class B unit:
 
 
 
 
 
 
 
Basic
$
1.39

 
 
 
 
 
$
1.53

Diluted
$
1.38

 
 
 
 
 
$
1.53

 
 
 
 
 
 
 
 
Weighted average units outstanding:
 
 
 
 
 
 
 
Common units – basic
80,957

 
 
 
 
 
80,957

Common units – diluted
81,231

 
 
 
 
 
81,231

Class B units – basic & diluted
420

 
 
 
 
 
420






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)
 
Pro forma
adjustments
Piceance Acquisition
(Note 2)
 
Vanguard
Pro forma
Revenues:
 
 
 
 
 
 
 
Oil sales
$
268,922

 
$
22,384

(a) 
$
28,318

(f) 
$
319,624

Natural gas sales
124,513

 
108,821

(a) 
75,632

(f) 
308,966

NGLs sales
49,813

 
31,292

(a) 
40,984

(f) 
122,089

Net gains on commodity derivative contracts
11,256

 
—

 
—

 
11,256

Total revenues
454,504

 
162,497

 
144,934

 
761,935

 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
Production:
 
 
 
 
 
 
 
Lease operating expenses
105,502

 
46,465

(b) 
17,102

(g) 
169,069

Production and other taxes
40,430

 
18,925

(b) 
5,377

(g) 
64,732

Depreciation, depletion, amortization and accretion
167,535

 
50,569

(c) 
59,095

(h) 
277,199

Selling, general and administrative expenses
25,942

 
—

 
—

 
25,942

Total costs and expenses
339,409

 
115,959

 
81,574

 
536,942

 
 
 
 
 
 
 
 
Income from operations
115,095

 
46,538

 
63,360

 
224,993

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Other income
69

 
—

 
—

 
69

Interest expense
(61,148
)
 
(10,542
)
(d) 
(9,767
)
(i) 
(81,457
)
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
)
 
(9,767
)
 
(75,893
)
 
 
 
 
 
 
 
 
Net income
59,511

 
35,996

 
53,593

 
149,100

Less: Distributions to Preferred unitholders
(2,634
)
 
—

 
—

 
(2,634
)
Net income attributable to Common and
Class B unitholders
$
56,877

 
$
35,996

 
$
53,593

 
$
146,466

 
 
 
 
 
 
 
 
Net income per Common and Class B unit:
 
 
 
 
 
 
 
Basic
$
0.78

 
 
 
 
 
$
2.00

Diluted
$
0.77

 
 
 
 
 
$
1.99

 
 
 
 
 
 
 
 
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 $555.6 million with an effective date of October 1, 2013. The purchase price was funded with borrowings under our reserve-based credit facility.

On September 16, 2014, the Company and its wholly-owned subsidiary, Vanguard Operating, LLC, entered into a purchase and sale agreement, dated September 15, 2014 with Bill Barrett Corporation to purchase natural gas, oil and natural gas liquids assets in the Piceance Basin in Colorado. We refer to this acquisition as the “Piceance Acquisition.” We completed this acquisition on September 30, 2014 for an aggregate adjusted purchase price of $502.1 million, subject to additional customary post-closing adjustments to be determined based on an effective date of July 1, 2014. 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 and the Piceance Acquisition. The related pro forma adjustments are described below.

The unaudited pro forma combined statement of operations for the nine months ended September 30, 2014 and year ended December 31, 2013 give effect to Pinedale Acquisition and Piceance Acquisition as if these acquisitions had occurred on January 1, 2013.

The unaudited pro forma combined financial information should be read in conjunction with Vanguard's Form 10-Q for the quarter ended September 30, 2014 and 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.

Note 2. Pro Forma Adjustments

The measurement of the fair value at acquisition date of the assets acquired in the Piceance Acquisition as compared to the fair value of consideration transferred, adjusted for purchase price adjustments, resulted in goodwill of $0.4 million, calculated in the following table, which was immediately impaired and recorded as a loss in current period earnings. The loss 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
$
521,401

Asset retirement obligations
(19,452
)
Imbalance and suspense liabilities
(236
)
Total fair value of assets and liabilities acquired
501,713

 
 
Cash paid
508,710

Estimated post-close adjustments:
 
Trade accounts receivable, net
(8,206
)
Accrued lease operating liabilities
1,636

Total fair value of consideration transferred
502,140

 
 
Loss on acquisition
$
(427
)

The unaudited pro forma combined statement of operations for the nine months ended September 30, 2014 and 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.
(e)
Represents the elimination of the nonrecurring gain from the acquisition of oil, natural gas and natural gas liquids properties in the Pinedale Acquisition.
(f)
Represents the increase in oil, natural gas and natural gas liquids sales resulting from the Piceance Acquisition.
(g)
Represents the increase in lease operating expenses and production and other taxes resulting from the Piceance Acquisition.
(h)
Represents the increase in depreciation, depletion, amortization and accretion resulting from the Piceance Acquisition.
(i)
Represents the pro forma interest expense related to borrowings under the reserve-based credit facility to fund the Piceance Acquisition.
(j)
Represents the elimination of the nonrecurring loss from the acquisition of oil, natural gas and natural gas liquids properties in the Piceance Acquisition.










EXHIBIT 99.2
Summary Pro Forma Combined
Oil, Natural Gas and Natural Gas Liquids
Reserve Data
 
The following tables set forth summary pro forma information with respect to Vanguard's pro forma combined estimated net proved and proved developed natural gas, oil and natural gas liquids reserves as of December 31, 2013. This pro forma information gives effect to the Pinedale Acquisition and the Piceance Acquisition as if they occurred on January 1, 2013. Future exploration, exploitation and development expenditures, as well as future commodity prices and service costs, will affect the reserve volumes attributable to the acquired properties and the standardized measure of discounted future net cash flows.
 
Estimated changes in the quantities of natural gas, oil and natural gas liquids reserves for the year ended December 31, 2013 are as follows:

 
Natural Gas (in MMcf)
 
Vanguard Historical
 
Pinedale Acquisition
 
Piceance Acquisition
 
Vanguard
Pro forma Combined (a)
Net proved reserves
 
 
 
 
 
 
 
January 1, 2013
546,513

 
605,911

 
319,171

 
1,471,595

Revisions of previous estimates
(9,589
)
 
—

 
—

 
(9,589
)
Extensions, discoveries and other
13,556

 
—

 
—

 
13,556

Purchases of reserves in place
86,245

 
—

 
—

 
86,245

Production
(50,236
)
 
(32,156
)
 
(25,171
)
 
(107,563
)
December 31, 2013
586,489

 
573,755

 
294,000

 
1,454,244


 
Oil (in MBbls)
 
Vanguard Historical
 
Pinedale Acquisition
 
Piceance Acquisition
 
Vanguard
Pro forma Combined (a)
Net proved reserves
 
 
 
 
 
 
 
January 1, 2013
42,218

 
5,102

 
2,809

 
50,129

Revisions of previous estimates
(765
)
 
—

 
—

 
(765
)
Extensions, discoveries and other
303

 
—

 
—

 
303

Purchases of reserves in place
6,649

 
—

 
—

 
6,649

Production
(3,089
)
 
(250
)
 
(332
)
 
(3,671
)
December 31, 2013
45,316

 
4,852

 
2,477

 
52,645


 
Natural Gas Liquids (in MBbls)
 
Vanguard Historical
 
Pinedale Acquisition
 
Piceance Acquisition
 
Vanguard
Pro forma Combined (a)
Net proved reserves
 
 
 
 
 
 
 
January 1, 2013
18,940

 
21,200

 
14,188

 
54,328

Revisions of previous estimates
4,836

 
—

 
—

 
4,836

Extensions, discoveries and other
343

 
—

 
—

 
343

Purchases of reserves in place
6,553

 
—

 
—

 
6,553

Production
(1,477
)
 
(1,156
)
 
(1,848
)
 
(4,481
)
December 31, 2013
29,195

 
20,044

 
12,340

 
61,579






(a)
Includes Vanguard’s, the Pinedale Acquisition’s and the Piceance Acquisition's estimated net proved and proved developed oil, natural gas and natural gas liquids reserves as of December 31, 2013.

 
 
Vanguard Historical
 
Pinedale Acquisition
 
Piceance Acquisition
 
Vanguard
Pro forma Combined (a)
Estimated proved reserves:
 
 
 
 
 
 
 
 
Natural Gas (MMcf)
 
586,489

 
573,755

 
294,000

 
1,454,244

Oil (MBbls)
 
45,316

 
4,852

 
2,477

 
52,645

Natural Gas Liquids (MBbls)
 
29,195

 
20,044

 
12,340

 
61,579

MMcfe
 
1,033,555

 
723,131

 
382,902

 
2,139,588

 
 
 
 
 
 
 
 
 
Estimated proved developed reserves:
 
 
 
 
 
 
 
 
Natural Gas (MMcf)
 
455,162

 
274,723

 
245,249

 
975,134

Oil (MBbls)
 
40,099

 
2,126

 
1,981

 
44,206

Natural Gas Liquids (MBbls)
 
18,962

 
9,586

 
10,294

 
38,842

MMcfe
 
809,528

 
344,995

 
318,899

 
1,473,422


(a)
Includes Vanguard’s, the Pinedale Acquisition’s and the Piceance Acquisition's estimated net proved and proved developed oil, natural gas and natural gas liquids reserves as of December 31, 2013.

The standardized measure of discounted future net cash flows relating to the combined proved oil, natural gas and natural gas liquids reserves at December 31, 2013 is as follows (in thousands):

 
 
Vanguard
Historical
 
Pinedale Acquisition
 
Piceance Acquisition
 
Vanguard
Pro forma Combined (a)
Future cash inflows
 
$
6,670,299

 
$
2,290,161

 
$
1,908,366

 
$
10,868,826

Future production costs
 
(2,352,721
)
 
(876,434
)
 
(577,132
)
 
(3,806,287
)
Future development costs
 
(358,119
)
 
(333,861
)
 
(104,385
)
 
(796,365
)
Future net cash flows
 
3,959,459

 
1,079,866

 
1,226,849

 
6,266,174

10% annual discount for estimated timing of cash flows
 
(2,125,488
)
 
(619,767
)
 
(692,142
)
 
(3,437,397
)
Standardized measure of discounted future net cash flows
 
$
1,833,971

 
$
460,099

 
$
534,707

 
$
2,828,777


(a)
The pro forma standardized measure includes Vanguard, the Pinedale Acquisition and the Piceance Acquisition.

For the December 31, 2013 calculations in the preceding table, estimated future cash inflows from estimated future production of proved reserves were computed using the average oil and natural gas price based upon the 12-month average price of $96.90 per barrel of crude oil and $3.67 per MMBtu for natural gas adjusted for quality, transportation fees and a regional price differential, and the volume-weighted average price of $36.28 per barrel of natural gas liquids. The natural gas liquids prices were calculated using the differentials for each property to West Texas Intermediate reference price of $96.90. We may receive amounts different than the standardize measure of discounted cash flow for a number of reasons, including price changes and the effects of our hedging activities.

The following are the principal sources of change in the combined standardized measure of discounted future net cash flows for the year ended December 31, 2013 (in thousands):





 
 
Vanguard Historical
 
Pinedale Acquisition
 
Piceance Acquisition
 
Vanguard 
Pro forma Combined (a)
Sales and transfers, net of production costs
 
$
(297,316
)
 
$
(97,107
)
 
$
(122,455
)
 
$
(516,878
)
Net changes in prices and production costs
 
(13,797
)
 
—

 
—

 
(13,797
)
Extensions discoveries and improved recovery, less related costs
 
24,110

 
—

 
—

 
24,110

Changes in estimated future development costs
 
43,496

 
—

 
—

 
43,496

Previously estimated development costs incurred during the period
 
56,661

 
—

 
—

 
56,661

Revision of previous quantity estimates
 
28,462

 
—

 
—

 
28,462

Accretion of discount
 
157,655

 
50,655

 
59,742

 
268,052

Purchases of reserves in place
 
333,530

 
—

 
—

 
333,530

Change in production rates, timing and other
 
(75,377
)
 
—

 
—

 
(75,377
)
Net change in standardized measure
 
257,424

 
(46,452
)
 
(62,713
)
 
148,259

Standardized measure, January 1, 2013
 
1,576,547

 
506,551

 
597,420

 
2,680,518

Standardized measure, December 31, 2013
 
$
1,833,971

 
$
460,099

 
$
534,707

 
$
2,828,777


(a)
The pro forma standardized measure includes Vanguard, the Pinedale Acquisition and the Piceance Acquisition.






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