Vanguard Natural Resources

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1 Management Scott W. Smith, CEO, President & Director Richard A. Robert, EVP, CFO & Secretary Britt Pence, EVP Operations EPG Commentary by Dan Steffens, LLC (NASDAQ: VNR) is an upstream MLP. It has a strong track record of production and proven reserve growth, but it has been a very rough year for all of the upstream MLP s. However, there is now light at the end of the tunnel for VNR. The successful sale of their SCOOP/STACK assets mid-may and the recent redetermination of their asset based credit facility, gives VNR a clear path to make it through this cycle. On May 26, 2016 Stifel raised VNR from a SELL to a HOLD. Here is what Stifel had to say: The partnership announced the (relatively) successful completion of its spring redetermination. While the partnership is overdrawn by $63.5 million net of cash on hand, we anticipate the partnership can cure the deficiency with excess free cash flow over the next six months (estimate $80 million in excess FCF). Assuming the partnership succeeds in curing the deficiency, we do not anticipate the partnership will trigger its current 5.25x leverage covenant in FY16 following the close of its SCOOP/STACK sale last week. In light of the near-term risk taken off the table, in our opinion, we are upgrading to Hold although view 2H16 at risk should commodity prices not improve and the partnership face another reduction during its fall credit redetermination. I now believe commodity prices will improve enough to allow VNR to layer on more hedges for 2017 that will lock in free cash flow from operations beyond this year. Higher oil, gas and NGL prices will also ease the pressure on the energy sector banks. Credit facilities are asset based loans based on the present value of proven reserves as of the redetermination date. VNR is heavily weighted to natural gas. Their production mix is approximately 66% natural gas, 15% NGLs and 19% crude oil. If you ve been reading our newsletter you know that the outlook for natural gas prices has improved over the last few weeks and that the U.S. natural gas market is going to be much tighter heading into the next winter heating season. As of the date of this report, NYMEX natural gas futures contracts for Q12017 are already trading at more than $3.30/mmbtu. VNR has strong cash flows locked in for 2016 with more than 80% of their natural gas hedged with swaps at $4.19/mmbtu and 82% of their crude oil hedged with swaps at $59.59/bbl. Low NGL prices have been the big problem for VNR this year. In the first quarter, VNR s realized NGL price (net of hedge settlements) was only $10.02/bbl. NGL prices have started to drift higher. The MLP does have approximately 63% of their 2017 natural gas production hedged at $3.75/mmbtu, so they are not totally naked beyond this year. See Hedges section below. Conclusion: Near-term, the risk of bankruptcy is very small. VNR will need to navigate through the end of this cycle, but it appears that they have a solid plan to do so and the management team to get it done. Commodity price cycles create some unique opportunities for patient investors.

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3 Prior to 2016, VNR had a very strong track record of production growth. Most of the growth was the result of acquisitions. For 2016, production should be up 5% to 10%. Production peaked in Q42015 and I am modeling a 10% decline in The company has not provided production guidance for 2017.

4 My Fair Value Estimate for VNR is $7.00/share Compare to First Call s Price Target of $2.00 Disclosure: I do not have a position in VNR and I do not intend on buying or selling it in the next 72 hours. I wrote this profile myself, and it expresses my own opinions. I am not receiving compensation for it from the company. I have no business relationship with any company whose stock is mentioned in this article. In addition to the common units, VNR has three publicly traded Preferred Units. They are all trading below par, so actual yields are more than what is shown below. Distributions have been suspended on the common and the preferred units Ø 2,881, % Series A Pfd units with $25 par Ø 7,000, % Series B Pfd units with $25 par Ø 4,000, % Series C Pfd units with $25 par

5 Company Overview, LLC (NASDAQ: VNR), headquartered in Houston, is a publicly traded limited liability company focused on the acquisition, production and development of oil and natural gas properties. Vanguard s assets consist primarily of producing and non-producing oil and natural gas reserves located in the Green River Basin in Wyoming, the Piceance Basin in Colorado, the Permian Basin in West Texas and New Mexico, the Gulf Coast Basin in Texas, Louisiana and Mississippi, the Big Horn Basin in Wyoming and Montana, the Arkoma Basin in Arkansas and Oklahoma, the Williston Basin in North Dakota and Montana, the Wind River Basin in Wyoming, and the Powder River Basin in Wyoming. Reserves As of March 31, 2016, based on internal reserve estimates, Vanguard s total estimated proved reserves were 2,165 Bcfe, of which approximately 67% were natural gas reserves, 17% were oil reserves and 15% were NGLs reserves. Of these total estimated proved reserves, approximately 75%, or 1,615 Bcfe, were classified as proved developed. Also, at March 31, 2016, Vanguard owned working interests in 13,483 gross (4,756 net) productive wells. Vanguard operated wells accounted for approximately 57% of its total estimated proved reserves at March 31, Vanguard s average net daily production for the three months ended March 31, 2016 and the year ended December 31, 2015 was 473 MMcfe/day and 415 MMcfe/day, respectively. Vanguard has interests in approximately 789,181 gross undeveloped leasehold acres surrounding its existing wells. As of March 31, 2016, based on internal reserve estimates, approximately 25%, or 550 Bcfe, of its estimated proved reserves was attributable to Vanguard s interests in undeveloped acreage.

6 Business Strategy VNR s primary business objective is to generate stable cash flows allowing the company to make monthly cash distributions to its unit holders, and to increase distributions over time through specific strategies: Maintain Existing Production VNR looks to maintain or enhance production from its operated properties through re-completions, development drilling and other engineering practices. Acquire New Properties Make accretive acquisitions of natural gas and oil properties in the known producing basins of the continental United States characterized by a high percentage of producing reserves, long-lived, stable production and step-out development opportunities Ensure Financial Flexibility Maintain a conservative capital structure to ensure financial flexibility for opportunistic acquisitions Reduce Commodity Price Risk Hedge a significant portion of production to reduce the volatility in revenues resulting from changes in natural gas and oil prices Competitive Strengths VNR believes its competitive strengths position the company to successfully execute its business strategies. Their competitive strengths include: High-quality, long-lived reserve base with predictable decline rates and an estimated reserve life of approximately 14 years Inventory of low risk, low cost development drilling locations, which provides multiple years of development opportunities Geographically diversified reserve base comprised of nine regions within the continental U.S. Cost of capital, which as a pass-through entity without incentive distribution rights, provides VNR with a competitive advantage in pursuing acquisitions The sale of their SCOOP/STACK leasehold in May, 2016 has improved the MLP s financial position.

7 First Quarter 2016 Highlights Reported average production of 473,198 Mcfe per day in the first quarter of 2016 was up 21% compared to 394,317 Mcfe per day produced in the first quarter of 2015 and an 8% decrease compared to the fourth quarter of On a Mcfe basis, crude oil, natural gas, and NGLs accounted for 19%, 66% and 15%, respectively, of its production. Adjusted EBITDA increased 9% to $92.8 million in the first quarter of 2016 from $85.3 million in the first quarter of 2015 and decreased 30% from the $132.7 million recorded in the fourth quarter of Distributable Cash Flow Available to Common and Class B Unitholders increased 29% to $42.0 million from the $32.4 million generated in the first quarter of 2015 and decreased 36% from the $65.5 million generated in the fourth quarter of Vanguard reported a net loss attributable to Common and Class B Unitholders for the quarter of $152.0 million or $(1.16) per basic unit after deducting distributions to Preferred Unitholders compared to a net loss of $125.5 million or $(1.49) per basic unit in the first quarter of Adjusted Net Income Available to Common and Class B Unitholders was $8.5 million in the first quarter of 2016, or $0.07 per basic unit, as compared to Adjusted Net Income of $18.0 million, or $0.21 per basic unit, in the first quarter of 2015 and Adjusted Net Income of $63.0 million, or $0.49 per basic unit, in the fourth quarter of The first quarter of 2016 includes net non-cash losses of $160.1 million that are adjustments to arrive at Adjusted Net Income Attributable to Common and Class B Unitholders. The first quarter 2016 adjustments include a $207.8 million impairment charge on Vanguard s oil and natural gas properties offset by an $89.7 million gain on extinguishment of debt. The first quarter of 2015 results included net non-cash losses of $143.5 million primarily attributable to a $132.6 million impairment charge on Vanguard s oil and natural gas properties. We are very pleased to have announced the agreement to sell our SCOOP/STACK assets in Oklahoma and look forward to closing the divestiture in May and using the proceeds to reduce our borrowings under our revolving credit facility. We continue to look for opportunistic ways to improve our cash flow and strengthen our balance sheet. Overall we are pleased with our performance this quarter in the face of very low commodity prices. We continue to implement cost efficiencies throughout our organization and see the results in both our lease operating expenses and general and administrative expenses after consideration of the mergers with Eagle Rock

8 Energy Partners and LRE Energy. It is important to remember that the energy industry is a cyclical business and we are committed to taking the necessary steps to overcome the challenges our industry is currently facing. Mr. Scott W. Smith, CEO, President and Director of Capital Expenditures Total capital expenditures for the drilling, capital workover and recompletion of oil and natural gas properties were approximately $20.3 million in the first quarter of 2016 compared to $25.1 million for the comparable quarter of 2015 and $32.4 million for the fourth quarter of Vanguard has significantly reduced its capital expenditures budget for Vanguard currently anticipates a total capital expenditures budget for the remainder of 2016 to range between $54.0 million and $58.0 million or a range between $74.0 million and $78.0 million for the full year of This increase from its original 2016 capital expenditures budget is primarily attributable to increased spending in the Green River Basin where it expects to spend approximately 45% of the remaining 2016 capital expenditures budget participating as a non-operating partner in the drilling and completion of directional natural gas wells in the Pinedale Field. Additionally, not including the impact of the SCOOP/STACK Divestiture, which closed May 19, 2016, Vanguard expects to spend

9 approximately 21% of the remaining 2016 capital expenditures budget in the Anadarko Basin on the SCOOP and STACK assets, participating as a non-operated partner drilling standard length and extended length liquid rich horizontal gas and oil wells targeting the Woodford Shale and various stacked pay Mississippian reservoirs. Vanguard anticipates that after the closing of the SCOOP/STACK Divestiture, any remaining capital that was allocated to these properties may be spent on other projects in its portfolio that offer acceptable rates of return in the current commodity price environment. The balance of the remaining 2016 capital expenditures budget is related to recompletion and maintenance activities in Vanguard s other operating areas. Hedging Activities Vanguard has implemented a hedging program for approximately 82% and 21% of its anticipated crude oil production for the balance of 2016 and 2017, respectively, with 47% in the form of fixed-price swaps for the balance of Approximately 80% and 63% of Vanguard s natural gas production for the balance of 2016 and 2017, respectively, is hedged with 85% in the form of fixed-price swaps for the balance of NGLs production is under fixed-price swaps for approximately 22% of anticipated production for the balance of 2016.

10 Divestiture On May 19, 2016, Vanguard announced it consummated the previously announced sale of its natural gas, oil and natural gas liquids assets in the SCOOP/STACK area in Oklahoma to entities managed by Titanium Exploration Partners, LLC for an adjusted price of $272.5 million, subject to customary final post-closing adjustments. RBC Richardson Barr acted as exclusive advisor to Vanguard for this transaction. Liquidity On February 10, 2016, Vanguard issued approximately $75.6 million aggregate principal amount of new 7.0% Senior Secured Second Lien Notes due 2023 to certain eligible holders of Vanguard s outstanding 7.875% Senior Notes due 2020 in exchange for approximately $168.2 million aggregate principal amount of the Senior Notes due 2020 held by such holders. The Senior Secured Second Lien Notes were issued to certain eligible holders of Senior Notes due 2020 who validly tendered and did not validly withdraw their Senior Notes due 2020 pursuant to the terms of the exchange offer, which expired on February 5, Interest is payable on the Senior Secured Second Lien Notes on February 15 and August 15 of each year, beginning on August 15, The Senior Secured Second Lien Notes will mature on (i) February 15, 2023 or (ii) December 31, 2019 if, prior to December 31, 2019, Vanguard has not repurchased, redeemed or otherwise repaid in full all of the Senior Notes due 2020 outstanding at that time in excess of $50.0 million in aggregate principal amount and, to the extent Vanguard has repurchased, redeemed or otherwise repaid the Senior Notes due 2020 with proceeds of certain Indebtedness, such Indebtedness has a final maturity date no earlier than the date that is 91 days after February 15, This reduction in outstanding Senior Notes due 2020 reduced Vanguard s interest expense by $7.9 million on an annual basis. Under Vanguard s credit agreement, the issuance of new second lien debt requires, among other things, that it s borrowing base decrease by 25% of the amount of new second lien debt. Because of this, the $1.8 billion borrowing base decreased by $18.9 million to $1.78 billion. As of April 29, 2016, Vanguard had indebtedness under its Reserve-Based Credit facility totaling $1.69 billion with a borrowing base of $1.78 billion which provided for approximately $113.0 million of available liquidity, after consideration of a $4.5 million reduction in availability for letters of credit and a $25.0 million increase for available cash. Vanguard is currently in the process of its semi-annual borrowing base redetermination and anticipates the SCOOP/STACK Divestiture will be consummated at the same time in May 2016, allowing it to significantly reduce borrowings under its Reserve-Based Credit facility. However, based on market conditions, continued declines in oil and natural gas prices and recent conversations with its administrative agent, Vanguard expects that its borrowing base will be redetermined to a level below its outstanding borrowings in its May 2016 redetermination causing a small deficiency. Vanguard s internal forecasts show that it will generate a substantial amount of excess cash flow over the course of 2016 which it expects will be sufficient to repay the borrowing base deficiency. In the case of a borrowing base deficiency, Vanguard s Reserve-Based Credit facility requires it to repay the deficiency in equal monthly installments over a six month period. On May 26, 2016, Vanguard announced that it had entered into an amendment to its revolving credit facility and has completed the semi-annual redetermination of its borrowing base. The redetermination, which included the

11 impact of the recently closed SCOOP/STACK divestiture, resulted in a revised borrowing base of $1.325 billion, a decrease of 26% from the previous level of $1.8 billion. In addition, Vanguard and its lending group have agreed to amend certain terms of Vanguard s revolving credit facility. Among other things, the new terms include: One time current ratio waiver for the second quarter of 2016; Increase in the mortgage requirement from 80% to 95%; and An Event of Default would occur should Vanguard make any payment of principal, accrued interest or fees to any Senior Notes or Second Lien Debt on or after September 15, 2016 if the Company s pro forma liquidity after giving pro forma effect to such payment is less than $50 million. As of May 26, 2016, Vanguard had $1.424 billion in outstanding borrowings and approximately $4.5 million in outstanding letters of credit, resulting in a deficiency of approximately $103.5 million not including current cash on hand of approximately $40 million. Under Vanguard s credit agreement, the Company will make six equal monthly installments of approximately $17.3 million beginning on June 27, Based on the updated 2016 financial outlook provided in the press release issued on May 19, 2016, Vanguard anticipates that its excess cash flow forecasted for the remainder of the year will allow the Company to satisfy this requirement. Cash Distributions On February 25, 2016, Vanguard s board of directors elected to suspend Vanguard s monthly cash distribution on its common, Class B and preferred units effective with the February 2016 distribution.

12 Area of Operations Green River Basin VNR s Green River Basin properties are comprised of assets in the Pinedale and Jonah Fields of southwestern Wyoming. Production in the Green River Basin is dominated by natural gas and NGLs from tight sands formations. The Pinedale Field lies at depths anywhere between 8,000 to 14,000 feet with similar depths in the adjacent Jonah Field Bcfe Total Proved Reserves 50% proved developed 5% oil / 84% natural gas / 11% NGLs Current net production of MMcfe/d (1/2015) 17.4 years proved R/P 2,460 gross / 409 net producing wells Developed Acreage 60,730 gross / 24,705 net Total Acreage 126,420 gross / 35,038 net

13 Piceance Basin The Piceance Basin is located in northwestern Colorado. VNR s Piceance Basin properties, which it operates, are located in the Gibson Gulch. The Gibson Gulch area is a basin-centered gas play along the north end of the Divide Creek anticline near the eastern limits of the Piceance Basin s productive Mesaverde (Williams Fork) trend at depths of approximately 7,500 feet Bcfe Total Proved Reserves 79% proved developed 4% oil / 79% natural gas / 17% NGLs Current net production of 95.8 MMcfe/d (1/2015) 13.8 years proved R/P 1,056 gross / 918 net producing wells Developed Acreage 16,112 gross / 10,477 net Total Acreage 24,040 gross / 16,075 net Permian Basin The Permian Basin is one of the largest and most prolific oil and natural gas producing basins in the United States extending over West Texas and southeast New Mexico. The majority of VNR s producing wells in the Permian Basin are mature oil wells that also produce high-btu casinghead gas with significant NGLs content Bcfe Total Proved Reserves 77% proved developed 34% oil / 49% natural gas / 17% NGLs Current net production of 37.9 MMcfe/d (1/2015) 17.9 years proved R/P 3,090 gross / 955 net producing wells Developed Acreage 115,254 gross / 83,536 net Total Acreage 131,797 gross / 93,389 net Big Horn Basin The Big Horn Basin is a prolific basin which is characterized by oil and natural gas fields with long production histories and multiple producing formations. VNR s Big Horn Basin properties are comprised of assets in Wyoming and the Elk Basin field in south central Montana Bcfe Total Proved Reserves 95% proved developed 84% oil / 5% natural gas / 11% NGLs Current net production of 17.0 MMcfe/d (1/2015) 17.0 years proved R/P 304 gross / 218 net producing wells Developed Acreage 23,392 gross / 14,559 net Total Acreage 24,512 gross / 15,632 net Gulf Coast Basin VNR s Gulf Coast Basin properties include properties in the onshore Gulf Coast area, North Louisiana, East Texas, South Texas and Mississippi Bcfe Total Proved Reserves

14 58% proved developed 28% oil / 63% natural gas / 9% NGLs Current net production of 25.2 MMcfe/d (1/2015) 21.5 years proved R/P 718 gross / 369 net producing wells Developed Acreage 73,942 gross / 33,159 net Total Acreage 93,342 gross / 45,099 net Arkoma/Anadarko Basin VNR s Arkoma Basin properties include properties in the Woodford Shale, located in eastern Oklahoma, the Fayetteville Shale, located in Arkansas, and royalty interests and non-operated working interest in both states Bcfe Total Proved Reserves 81% proved developed 0% oil / 91% natural gas / 9% NGLs Current net production of 48.8 MMcfe/d (1/2015) 12.0 years proved R/P 1,133 gross / 183 net producing wells Developed Acreage 132,701 gross / 64,686 net Total Acreage 148,467 gross / 73,140 net Williston Basin VNR s Williston Basin properties are located in North Dakota and Montana, which include, among others, the Horse Creek Field, the Charlson Madison Unit and the Elk field Bcfe Total Proved Reserves 97% proved developed 94% oil / 6% natural gas / 0% NGLs Current net production of 7.5 MMcfe/d (1/2015) 10.4 years proved R/P 167 gross / 85 net producing wells Developed Acreage 65,270 gross / 35,280 net Total Acreage 550,996 gross / 71,960 net Wind River Basin The Wind River Basin is located in central Wyoming. VNR s activities are concentrated in the eastern Wind River Basin, along the greater Waltman Arch. VNR s natural gas production in this basin is gathered through their own gathering systems and delivered to markets through pipelines owned by Kinder Morgan Interstate and CIG Bcfe Total Proved Reserves 95% proved developed 7% oil / 82% natural gas / 11% NGLs Current net production of 8.8 MMcfe/d (1/2015) 11.6 years proved R/P 144 gross / 136 net producing wells Developed Acreage 22,989 gross / 21,026 net Total Acreage 231,685 gross / 197,369 net

15 Powder River Basin The Powder River Basin is primarily located in northeastern Wyoming. VNR s development operations are conducted in their coalbed methane ( CBM ) fields. CBM wells are drilled to 1,500 feet on average, targeting the Big George Coals, typically producing water in a process called dewatering Bcfe Total Proved Reserves 77% proved developed 0% oil / 100% natural gas / 0% NGLs Current net production of 22.3 MMcfe/d (1/2015) 3.0 years proved R/P 687 gross / 391 net producing wells Developed Acreage 65,106 gross / 37,868 net Total Acreage 114,287 gross / 66,866 net

16 2016 Outlook

17 , LLC Net Income and Cash Flow Forecast Model DMS Publishing, LLC) and is intended for informational purposes only. Readers are encouraged to do their own research and due diligence before making any investment decisions. The publishers will not be held liable for any actions taken by the reader. Although the information in the newsletters and