vnr investor relations presentation
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VNR Investor Relations Presentation October 25, 2010TRANSCRIPT
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AAII
Philadelphia Chapter
October 26, 2010
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Forward Looking StatementsStatements made by representatives of Vanguard Natural Resources, LLCduring the course of this presentation that are not historical facts are forwardlooking statements. These statements are based on certain assumptions andexpectations made by the Company which reflect managements experience,estimates and perception of historical trends, current conditions, anticipatedfuture developments and other factors believed to be appropriate. Suchstatements are subject to a number of assumptions, risks and uncertainties,many of which are beyond the control of the Company, which may causeactual results to differ materially from those implied or anticipated in theforward looking statements. These include risks relating to financialperformance and results, our indebtedness under our revolving credit facility,availability of sufficient cash to pay our distributions and execute our businessplan, prices and demand for gas, oil and natural gas liquids, our ability toreplace reserves and efficiently develop our reserves, our ability to makeacquisitions on economically acceptable terms, and other important factorsthat could cause actual results to differ materially from those anticipated orimplied in the forward looking statements. See Risk Factors: in theCompanys 10-K Annual Report for 2009, Registration Statements on FormS-1 and Form S-3 and the related prospectuses, Form 10-Qs for 2009 and2010 and any other public filings and press releases. Vanguard NaturalResources, LLC undertakes no obligation to publicly update any forwardlooking statements, whether as a result of new information or future events.This presentation has been prepared as of October 25, 2010.
2
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Comparable Company Distribution Yields
CURRENT DISTRIBUTION YIELDS OF PEER GROUP
*Pipe Average Yield of Large Pipeline Companies (BWP, EEP, EPB, EPD, ETP, OKS, SEP, TCLP, TPP)
*G&P Average Yield of Gathering & Processing Companies (APL, DPM, CPNO, EROC, HLND, KGS, MWE, NGLS, RGNC, WES, WPZ, XTEK)
*USRT Average Yield of U.S. Royalty Trusts (CRT, HGT, MTR, PBT, SBR and SJT)
Yield calculated using the closing unit price on 10/25/10.
5.8% 6.2%6.8% 7.2%
7.7% 7.8% 7.9%8.3%
0%1%2%3%4%5%6%7%8%9%
10%
*Pipe *G&P *USRT PSE LINE LGCY BBEP EVEP VNR
$2.00 $2.52 $2.20$2.33
3
$2.08 $3.02$1.53
8.6%
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Price Performance Since 2009
Note: Market data as of 10/21/2010. (1) US Royalty Trust Index includes: CRT, HGT, MTR, PBT, SBR and SJT.(2) E&P MLP Index includes: BBEP, CEP, EVEP, LGCY, LINE and VNR.
0%
100%
200%
300%
400%
500%
01/01/09 05/12/09 09/21/09 01/30/10 06/11/10 10/21/10
US Royalty Trust E&P MLPs S&P 500 Alerian Index VNR
VNR: 332%
E&P MLPs: 135%
Alerian Index: 98%
S&P 500: 31%US Royalty Trust: 10%
(1) (2)
The results have been good. VNR has outperformed US Royalty Trusts, C-Corps and other E&P MLPs. The strategy works.
4
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Unit Price History Since IPO
$0.425$0.445
$0.50
$0.525$0.55
5
Distribution Increases with Acquisition Growth
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0%
10%
20%
30%
40%
50%
Dec-04 Dec-05 Dec-06 Nov-07 Nov-08 Nov-09 Oct-10
Liquids T&S Natural Gas T&S Natural Gas G&P Propane Shipping Upstream
16.3%
8.3% 6.8%
6.2% 6.3%
5.8%
Yield Compression Continues?
Note: Market data as of 10/21/2010.Liquids T&S (BPL, GEL, GLP, HEP, KMP, NS, MMP, PAA, SXL, TLP, TPP)Natural Gas T&S (BWP, EEP, EPB, EPD, ETP, OKS, SEP, TCLP, WMZ)Natural Gas G&P (APL, DPM, CPNO, EROC, HLND, KGS, MWE, NGLS, RGNC, WES, WPZ, XTEX)Propane (APU, FGP, NRGY, SPH)Shipping (CPLP, KSP, NMM, OSP, TGP, TOO)Upstream (BBEP, ENP, EVEP, LGCY, LINE, PSE, VNR)6
Average Yield2004 2005 2006 2007 2008 2009 YTD Current
Liquids T&S 6.5% 6.2% 6.8% 6.1% 8.3% 8.2% 6.8% 6.3%Natural Gas T&S 6.8 6.4 6.7 6.1 7.8 8.1 6.5 5.8Natural Gas G&P 6.8 5.9 6.2 5.5 12.1 12.4 7.4 6.2Propane 8.3 8.1 8.2 7.5 9.8 9.3 7.4 6.8Shipping 6.8 5.6 5.8 5.6 12.2 15.3 13.8 16.3Upstream NA NA 6.6 6.2 12.4 12.5 9.4 8.3
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Acquisitions Drive Growth
Reserves (Bcfe) *
7
12/31/2007 12/31/2008 12/31/2009
12/31/2007 12/31/2008 12/31/2009 6/30/2010*
* Based on Internal Engineer Reserve Report as of 6/30/10
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VNR-Acquisitions Fuel Distribution Growth
8
$2.08
Note: As of 10/6/2010. Source: IHS Herold.Peer group includes: ENP, EVEP, LGCY, LINE and PSE.(1) Annual distribution growth reflects the % increase / (decrease) in announced quarterly distribution over the year.(2) Weighted average of peer distribution growth.
+18%
Yield Growth
+14%
+2%
+5%
-1%
-
Profitable Growth Through Accretive Acquisitions
9
*Annualized quarterly distributions**Based on current distribution rate of .55 and Q1 2010 distribution of .525
$1.70*
$2.18**
$2.00
$1.82
12/31/2007 12/31/2008 12/31/2009 12/31/2010(E)
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Overview of Vanguard Natural Resources
Upstream Energy LLC, headquartered in Houston Initial Public Offering VNR - October 2007Five strategic acquisitions totaling ~350MM expanded geographic profile and commodity diversityIncreased distributions 29% since IPO
Diverse portfolio of mature, long life gas and oil properties, combined with multi-year hedging program provide stable cash flow and support distributions
173 Bcfe total proved reserves, 66% proved developed,16 yr R/P * 49% gas / 39% oil / 12% NGLsApproximately 82% of expected natural gas production hedged through 2011 at floor price of $7.81 per MMbtuApproximately 48% of expected oil production hedged through 2013 at floor price of $87.69 per barrel
10
* Based on Internal Engineer Reserve Report as of 6/30/10
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Company Profile
Company ProfileEQUITY MARKET CAP (1) $690 million TOTAL DEBT 54 million LESS CASH 3 millionENTERPRISE VALUE $741 million
(1) Market pricing as of October 25, 2010; includes 420m Class B units
Positive Cash Distribution CoverageAnnualized distribution of $2.20 yields approximately 8.6% at current priceExpect approximately 1.25x to 1.30x coverage for 2010
Diverse asset base in mature basinsAppalachian Basin SE Kentucky and NE Tennessee South Texas Webb and LaSalle CountyPermian Basin W Texas, SE New Mexico Mississippi Jones County and Jasper County
11
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Advantages of Vanguards LLC Structure
LLC Partnership structure results in lower cost of capitalNo entity level income tax is competitive advantage in A&D market
No Incentive Distribution Rights (IDRs)Investors share equally in all cash flows no management or general partner double-dipping
Tax Shield minimum 60% of distributions through 2012 expected to be tax deferred
Unit holders benefit from favorable tax treatment compared to alternative yield products while having upside exposure through unit price appreciation
Fair governance all unit holders vote (no general partner)
Vanguards management aligned with public unit holders significant portion of compensation from unit ownership
12
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Multiple Operating Areas
Permian Basin
Appalachia
South Texas -Dos Hermanos and Sun TSH Fields
Proved Reserves: 52.7 Bcfe (1) 98% gas+ngl; 61% PDP 8.1 MMcfe/d current net production
Proved Reserves: 7.1 MMboe (1) 84% oil and 67% PDP 1.3 Mboe/d current net production
Proved Reserves: 50.4 Bcfe(1) 93% Gas, 67% PDP 9.9 MMcfe/d current net production
(1) Internal engineer reserve estimates as of 6/30/10
13
Parker Creek
Proved Reserves: 4.7 MMboe (1) 96% oil and 61% PDP 850 Boe/d current net production
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2009 - Growth in South Texas
Proved Reserves: 35.4 Bcfe (1)97% Gas/NGLs; 62% PDP 5.7 MMcfe/d current net production
(1) Based on Internal Engineer Reserve Estimates as of 6/30/10
ACQUISITION SUMMARY - SUN TSH
Acquisition from Lewis Energy, closed August 2009 for $52.3 million, cash funded with proceeds of equity offeringLewis to operate and conduct PUD drilling program through 2015 (7 wells per year)Drop-down opportunities possible as Lewis monetizes mature assets to focus on Eagle Ford Shale development
Largest operator in the Olmos trend ~1,100 operated producing wells~ 100,000 Mcfe/d of net production
Swaps/Collars on 90% of PDP through 2011, floor pricing of Nymex $7.52/MMbtu
La Salle County, TX
14
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2009 - Growth in Permian BasinAcquisition of producing assets in Ward County closed December 2009 for $55 million cash funded with equity proceedsIncreased net oil production from the Permian by more than 100%High margin assets with inventory of PUD locations to be developed through 2013Hedged ~90% of PDP production through 2013 at a weighted average price of $86.35/bbl
ACQUISITION SUMMARYProved Reserves: 3.5 MMboe (1)81% Oil and 44% PDP96% average working interest
(1) Based on Internal Engineer Reserve Estimates as of 6/30/10
15
Ward County, TX
PUDProbable
DrillingPUD
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2010 Mississippi Acquisition
MS, TX AND NM RESERVESMajor Producing Fields
Indian Wells
NE Collins Parker Creek
Acquisition of producing assets in Mississippi, Texas and New Mexico closed May 2010 for $113.1 million cash funded with equity proceedsInventory of infill PUD locations to develop oil reserves with drilling plan in place for the next 3-4 years designed to maintain production rateVery low operating costs (sub $5/bbl) and development costs ($6.90/bbl) equates to high marginsHedged ~56% of PDP production through 2013 at a weighted average price of $91.70/bbl
Proved Reserves: 4.7 MMboe (1)96% Oil; 61% PDP
(1) Based on Internal Engineer Reserve Estimates as of 6/30/10
Jones and Jasper Counties, MS
16
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67.1 , 100%
Appalachia
65.3 , 98%
1.5 , 2%
GAS, BCF
OIL, BCFE
Asset and Location Diversification12/31/07*: OIL, GAS AND NGL 6/30/10**: OIL, GAS AND NGL
* Outside engineer reserve report based on $92.50/Bbl WTI and $6.79/MMBtu Henry Hub
** Internal engineer reserve estimates as of 6/30/1017
12/31/07*: BCFE BY AREA 6/30/10**: BCFE BY AREA
GAS, BCFE
OIL, BCFE
NGL, BCFE
21.4, 12%
84.8, 49%66.6, 39%
Appalachia
Permian Basin
South Texas and Texas Gulf Coast
Mississippi
26.5, 15%
42.2, 25%
53.3, 31%
50.7, 29%
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FINANCIAL OVERVIEW
18
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Hedges Mitigate Distribution RiskApproximately 82% of expected natural gas production (total proved) through 2011 is hedged via a combination of swaps and collars at a weighted average floor price of $7.81 per MMBtu:
4th Qtr 2010 2011
% Hedged 93% 80%
Swaps 60%/$8.70 50%/$7.83
Collars 33%/$7.67-$8.94 30%/$7.34-$8.44
Approximately 48% of expected crude oil production (total proved) through 2013 is hedged via swaps and a collar at a weighted average floor price of $87.69 per barrel:
4th Qtr 2010 2011 2012 2013
% Hedged 68% 51% 45% 42%
Swaps 45%/$86.68 51%/$87.94 40%/$90.03 36%/$89.84
Collars 23%/$70-$80 N/A 5%/$80-$100.25 6%/$80-$100.25
19
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Hedged Cash Flow=Stable Distribution Coverage
$2.00 $3.00 $4.00 $5.00 $6.00
$50.00 1.22x 1.21x 1.19x 1.18x 1.17x
$60.00 1.25x 1.24x 1.23x 1.21x 1.20x
$70.00 1.28x 1.27x 1.26x 1.25x 1.23x
$80.00 1.33x 1.31x 1.30x 1.29x 1.28x
$90.00 1.36x 1.35x 1.33x 1.32x 1.31x
2010 Natural Gas Prices ($/MMBtu)
2010
Cru
de O
il Pr
ices
WTI
($
/Bar
rel)
Existing oil and gas hedges support the distributions in a period of volatile commodity prices
20
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Conservative Balance Sheet($ in millions)
June 30, 2009 June 30,2010Facility Size $ 400 $400Borrowing Base $ 154 $240Amount Outstanding $ 133 $172Borrowing Availability $ 22 $68
Maturity Date March 31, 2011 October 1, 2012
Interest Rate Pricing Grid (a):Borrowing Base Utilization of:less than 33% going to less than 50% L + 150 bps L + 225 bps33% to 66% going to 50% to 75% L + 175 bps L + 250 bps66% to 85% going to 75% to 90% L + 200 bps L + 275 bpsgreater than 85% going to greater than 90% L + 213 bps L + 300 bps
Interest Rate Hedges AmountWeighted Average Fixed LIBOR Rate
Expiring December 2010 through January 2013 $100 2.43%
Debt Covenants As of 6/30/10
Adjusted EBITDA / Interest Expense 2.5x Min 9.1xTotal Debt / Adjusted EBITDA 3.5x Max 2.6xCurrent Assets / Current Liabilities 1.0x Min 9.0xPercentage Drawn on Facility 90% threshold 72%
21
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Major Taxation Points
All investors receive a partnership K-1 at the end of the year
K-1 allocates the partnerships income and expenses to individual investors based on their percentage ownership of the partnership
Quarterly distributions received are not taxed as dividends.
Distributions lower the investors tax basis in the units which affects the capital gain calculation upon the sale of the unit.
Deferred portion of taxes are due upon the sale of the unit
Depreciation/Depletion expenses are recaptured and taxed at ordinary income rates
Attractive estate planning tool as heirs get a step-up in cost basis of units
22
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Key Investor Considerations
High quality, long lived reserves
Asset base generates stable cash flow
Multi-year hedge program mitigates commodity risk
Geographic and commodity diversity
LLC structure gives unitholders a voice
Management and unitholders are well aligned
Attractive distribution yield
Profitably grow company and increase distribution
23
AAIIPhiladelphia ChapterForward Looking StatementsComparable Company Distribution YieldsPrice Performance Since 2009Unit Price History Since IPOYield Compression Continues?Acquisitions Drive GrowthVNR-Acquisitions Fuel Distribution GrowthProfitable Growth Through Accretive AcquisitionsOverview of Vanguard Natural ResourcesCompany ProfileAdvantages of Vanguards LLC StructureMultiple Operating Areas 2009 - Growth in South Texas2009 - Growth in Permian Basin2010 Mississippi AcquisitionAsset and Location DiversificationSlide Number 18Hedges Mitigate Distribution RiskHedged Cash Flow=Stable Distribution CoverageConservative Balance SheetMajor Taxation PointsKey Investor Considerations
AAII
Philadelphia Chapter
October 26, 2010
Forward Looking Statements
Statements made by representatives of Vanguard Natural Resources, LLC during the course of this presentation that are not historical facts are forward looking statements. These statements are based on certain assumptions and expectations made by the Company which reflect managements experience, estimates and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or anticipated in the forward looking statements. These include risks relating to financial performance and results, our indebtedness under our revolving credit facility, availability of sufficient cash to pay our distributions and execute our business plan, prices and demand for gas, oil and natural gas liquids, our ability to replace reserves and efficiently develop our reserves, our ability to make acquisitions on economically acceptable terms, and other important factors that could cause actual results to differ materially from those anticipated or implied in the forward looking statements. See Risk Factors: in the Companys 10-K Annual Report for 2009, Registration Statements on Form S-1 and Form S-3 and the related prospectuses, Form 10-Qs for 2009 and 2010 and any other public filings and press releases. Vanguard Natural Resources, LLC undertakes no obligation to publicly update any forward looking statements, whether as a result of new information or future events. This presentation has been prepared as of October 25, 2010.
2
Comparable Company Distribution Yields
CURRENT DISTRIBUTION YIELDS OF PEER GROUP
*Pipe Average Yield of Large Pipeline Companies (BWP, EEP, EPB, EPD, ETP, OKS, SEP, TCLP, TPP)*G&P Average Yield of Gathering & Processing Companies (APL, DPM, CPNO, EROC, HLND, KGS, MWE, NGLS, RGNC, WES, WPZ, XTEK)*USRT Average Yield of U.S. Royalty Trusts (CRT, HGT, MTR, PBT, SBR and SJT)Yield calculated using the closing unit price on 10/25/10.
3
$2.08
$3.02
$1.53
8.6%
Price Performance Since 2009
Note: Market data as of 10/21/2010. US Royalty Trust Index includes: CRT, HGT, MTR, PBT, SBR and SJT.E&P MLP Index includes: BBEP, CEP, EVEP, LGCY, LINE and VNR.
(1)
(2)
The results have been good. VNR has outperformed US Royalty Trusts, C-Corps and other E&P MLPs. The strategy works.
4
Unit Price History Since IPO
$0.425
$0.445
$0.50
$0.525
$0.55
5
Distribution Increases with Acquisition Growth
Yield Compression Continues?
Note: Market data as of 10/21/2010.Liquids T&S (BPL, GEL, GLP, HEP, KMP, NS, MMP, PAA, SXL, TLP, TPP)Natural Gas T&S (BWP, EEP, EPB, EPD, ETP, OKS, SEP, TCLP, WMZ)Natural Gas G&P (APL, DPM, CPNO, EROC, HLND, KGS, MWE, NGLS, RGNC, WES, WPZ, XTEX)Propane (APU, FGP, NRGY, SPH)Shipping (CPLP, KSP, NMM, OSP, TGP, TOO)Upstream (BBEP, ENP, EVEP, LGCY, LINE, PSE, VNR)
6
Acquisitions Drive Growth
Reserves (Bcfe) *
7
12/31/2007 12/31/2008 12/31/2009
12/31/2007 12/31/2008 12/31/2009 6/30/2010*
* Based on Internal Engineer Reserve Report as of 6/30/10
Chart1
67
109
143
173
258% Reserve Growth Since IPO
Series 1
Sheet1
Series 1
67
109
143
173
To resize chart data range, drag lower right corner of range.
VNR-Acquisitions Fuel Distribution Growth
8
$2.08
Note: As of 10/6/2010. Source: IHS Herold.Peer group includes: ENP, EVEP, LGCY, LINE and PSE.Annual distribution growth reflects the % increase / (decrease) in announced quarterly distribution over the year.Weighted average of peer distribution growth.
+18%
Yield Growth
+14%
+2%
+5%
-1%
Chart1
5391
108195
115297
+5%
VNR
Peer Acquisition Average
Sheet1
VNRPeer Acquisition Average
2008$53$91
2009$108$195
2010$115$297
To resize chart data range, drag lower right corner of range.
Profitable Growth Through Accretive Acquisitions
9
*Annualized quarterly distributions**Based on current distribution rate of .55 and Q1 2010 distribution of .525
$1.70*
$2.18**
$2.00
$1.82
12/31/2007 12/31/2008 12/31/2009 12/31/2010(E)
Chart1
30.437
48.8135
56.2130
82165
Adjusted EBITDA
Debt
Sheet1
Adjusted EBITDADebt
30.437
48.8135
56.2130
82165
To resize chart data range, drag lower right corner of range.
Overview of Vanguard Natural Resources
Upstream Energy LLC, headquartered in Houston Initial Public Offering VNR - October 2007Five strategic acquisitions totaling ~350MM expanded geographic profile and commodity diversityIncreased distributions 29% since IPODiverse portfolio of mature, long life gas and oil properties, combined with multi-year hedging program provide stable cash flow and support distributions 173 Bcfe total proved reserves, 66% proved developed,16 yr R/P * 49% gas / 39% oil / 12% NGLsApproximately 82% of expected natural gas production hedged through 2011 at floor price of $7.81 per MMbtuApproximately 48% of expected oil production hedged through 2013 at floor price of $87.69 per barrel
10
* Based on Internal Engineer Reserve Report as of 6/30/10
Company Profile
Company Profile EQUITY MARKET CAP (1) $690 million TOTAL DEBT 54 million LESS CASH 3 million ENTERPRISE VALUE $741 million(1) Market pricing as of October 25, 2010; includes 420m Class B unitsPositive Cash Distribution CoverageAnnualized distribution of $2.20 yields approximately 8.6% at current priceExpect approximately 1.25x to 1.30x coverage for 2010Diverse asset base in mature basinsAppalachian Basin SE Kentucky and NE Tennessee South Texas Webb and LaSalle CountyPermian Basin W Texas, SE New Mexico Mississippi Jones County and Jasper County
11
Advantages of Vanguards LLC Structure
LLC Partnership structure results in lower cost of capitalNo entity level income tax is competitive advantage in A&D market No Incentive Distribution Rights (IDRs)Investors share equally in all cash flows no management or general partner double-dippingTax Shield minimum 60% of distributions through 2012 expected to be tax deferred Unit holders benefit from favorable tax treatment compared to alternative yield products while having upside exposure through unit price appreciationFair governance all unit holders vote (no general partner)Vanguards management aligned with public unit holders significant portion of compensation from unit ownership
12
Multiple Operating Areas
Permian Basin
Appalachia
South Texas -Dos Hermanos and Sun TSH Fields
Proved Reserves: 52.7 Bcfe (1) 98% gas+ngl; 61% PDP 8.1 MMcfe/d current net production
Proved Reserves: 7.1 MMboe (1) 84% oil and 67% PDP 1.3 Mboe/d current net production
Proved Reserves: 50.4 Bcfe(1) 93% Gas, 67% PDP 9.9 MMcfe/d current net production
(1) Internal engineer reserve estimates as of 6/30/10
13
Parker Creek
Proved Reserves: 4.7 MMboe (1) 96% oil and 61% PDP 850 Boe/d current net production
2009 - Growth in South Texas
Proved Reserves: 35.4 Bcfe (1)97% Gas/NGLs; 62% PDP 5.7 MMcfe/d current net production
(1) Based on Internal Engineer Reserve Estimates as of 6/30/10
ACQUISITION SUMMARY - SUN TSH
Acquisition from Lewis Energy, closed August 2009 for $52.3 million, cash funded with proceeds of equity offeringLewis to operate and conduct PUD drilling program through 2015 (7 wells per year)Drop-down opportunities possible as Lewis monetizes mature assets to focus on Eagle Ford Shale developmentLargest operator in the Olmos trend ~1,100 operated producing wells ~ 100,000 Mcfe/d of net production Swaps/Collars on 90% of PDP through 2011, floor pricing of Nymex $7.52/MMbtu
La Salle County, TX
14
2009 - Growth in Permian Basin
Acquisition of producing assets in Ward County closed December 2009 for $55 million cash funded with equity proceedsIncreased net oil production from the Permian by more than 100%High margin assets with inventory of PUD locations to be developed through 2013Hedged ~90% of PDP production through 2013 at a weighted average price of $86.35/bbl
ACQUISITION SUMMARY
Proved Reserves: 3.5 MMboe (1)81% Oil and 44% PDP96% average working interest
(1) Based on Internal Engineer Reserve Estimates as of 6/30/10
15
Ward County, TX
PUDProbable
DrillingPUD
2010 Mississippi Acquisition
MS, TX AND NM RESERVES
Major Producing Fields
Indian Wells
NE Collins
Parker Creek
Acquisition of producing assets in Mississippi, Texas and New Mexico closed May 2010 for $113.1 million cash funded with equity proceedsInventory of infill PUD locations to develop oil reserves with drilling plan in place for the next 3-4 years designed to maintain production rateVery low operating costs (sub $5/bbl) and development costs ($6.90/bbl) equates to high marginsHedged ~56% of PDP production through 2013 at a weighted average price of $91.70/bbl
Proved Reserves: 4.7 MMboe (1)96% Oil; 61% PDP
(1) Based on Internal Engineer Reserve Estimates as of 6/30/10
Jones and Jasper Counties, MS
16
Asset and Location Diversification
12/31/07*: OIL, GAS AND NGL 6/30/10**: OIL, GAS AND NGL
* Outside engineer reserve report based on $92.50/Bbl WTI and $6.79/MMBtu Henry Hub** Internal engineer reserve estimates as of 6/30/10
17
12/31/07*: BCFE BY AREA 6/30/10**: BCFE BY AREA
FINANCIAL OVERVIEW
18
Hedges Mitigate Distribution Risk
Approximately 82% of expected natural gas production (total proved) through 2011 is hedged via a combination of swaps and collars at a weighted average floor price of $7.81 per MMBtu:
Approximately 48% of expected crude oil production (total proved) through 2013 is hedged via swaps and a collar at a weighted average floor price of $87.69 per barrel:
19
4th Qtr 20102011
% Hedged93%80%
Swaps60%/$8.7050%/$7.83
Collars33%/$7.67-$8.9430%/$7.34-$8.44
4th Qtr 2010201120122013
% Hedged68%51%45%42%
Swaps45%/$86.6851%/$87.9440%/$90.0336%/$89.84
Collars23%/$70-$80N/A5%/$80-$100.256%/$80-$100.25
Hedged Cash Flow=Stable Distribution Coverage
2010 Natural Gas Prices ($/MMBtu)
2010 Crude Oil Prices WTI ($/Barrel)
Existing oil and gas hedges support the distributions in a period of volatile commodity prices
20
$2.00$3.00$4.00$5.00$6.00
$50.001.22x1.21x1.19x 1.18x 1.17x
$60.001.25x1.24x 1.23x 1.21x 1.20x
$70.001.28x1.27x 1.26x 1.25x 1.23x
$80.001.33x1.31x 1.30x 1.29x 1.28x
$90.001.36x1.35x 1.33x 1.32x 1.31x
Conservative Balance Sheet
21
($ in millions)
June 30, 2009June 30,2010
Facility Size$ 400$400
Borrowing Base$ 154$240
Amount Outstanding$ 133$172
Borrowing Availability $ 22 $68
Maturity DateMarch 31, 2011October 1, 2012
Interest Rate Pricing Grid (a):
Borrowing Base Utilization of:
less than 33% going to less than 50%L + 150 bpsL + 225 bps
33% to 66% going to 50% to 75%L + 175 bpsL + 250 bps
66% to 85% going to 75% to 90%L + 200 bpsL + 275 bps
greater than 85% going to greater than 90%L + 213 bpsL + 300 bps
Interest Rate HedgesAmountWeighted Average Fixed LIBOR Rate
Expiring December 2010 through January 2013 $1002.43%
Debt Covenants As of 6/30/10
Adjusted EBITDA / Interest Expense2.5x Min9.1x
Total Debt / Adjusted EBITDA 3.5x Max 2.6x
Current Assets / Current Liabilities1.0x Min9.0x
Percentage Drawn on Facility90% threshold 72%
Major Taxation Points
All investors receive a partnership K-1 at the end of the yearK-1 allocates the partnerships income and expenses to individual investors based on their percentage ownership of the partnership Quarterly distributions received are not taxed as dividends. Distributions lower the investors tax basis in the units which affects the capital gain calculation upon the sale of the unit.Deferred portion of taxes are due upon the sale of the unitDepreciation/Depletion expenses are recaptured and taxed at ordinary income ratesAttractive estate planning tool as heirs get a step-up in cost basis of units
22
Key Investor Considerations
High quality, long lived reserves Asset base generates stable cash flowMulti-year hedge program mitigates commodity riskGeographic and commodity diversityLLC structure gives unitholders a voice Management and unitholders are well alignedAttractive distribution yieldProfitably grow company and increase distribution
23
26,922,499 shares outstanding (includes the 420,000 B)
22,086,173 units at a September 1st close price of $24.30