**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington, D.C.
      20549**


**Form 10-K/A**


**(Mark
      One)**


**þ**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF**
              **THE
                SECURITIES EXCHANGE ACT OF 1934****For
                the fiscal year ended December 31, 2007****OR****o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF**
              **THE
                SECURITIES EXCHANGE ACT OF 1934****For
                the transition period
                from          to          .**





**Commission
      File Number 001-33756**


**Vanguard
      Natural Resources, LLC**


(Exact
      Name of Registrant as Specified in Its Charter)


**Delaware**
            
            **61-1521161**(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            
            (I.R.S.
                Employer
              Identification
                No.)**7700
                San Felipe, Suite 485**
              **Houston,
                Texas**
            
            **77063**(Address
                of Principal Executive Offices)
            
            (Zip
                Code)


**Telephone
      Number: (832) 327-2255**


**Internet
      Website: www.vnrllc.com**


**Securities
      registered pursuant to Section 12(b) of the Act:**


**Title
                of Each Class**
            
            **Name
                of Each Exchange**
              **on
                which Registered**Common
                Units
            
            NYSE
                Arca, Inc.


**Securities
      registered pursuant to Section 12(g) of the Act: None**


Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes o  No þ


Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


Yes o  No þ


Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days.  Yes o  No þ


Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the
      best of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any
      amendment to this Form 10-K.  þ


Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definitions of “large
      accelerated filer,” “accelerated filer” and “smaller reporting company” in
      Rule 12b-2 of the Exchange Act. (Check one):


Large
                accelerated filero
            Non-accelerated
                filerþAccelerated
                filero
            Smaller
                reporting company


(Do
      not
      check if smaller reporting company)


Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act).


Yes o  No þ


The
      aggregate market value of Vanguard Natural Resources, LLC Common Units held
      by
      non-affiliates of the registrant as of March 12, 2008 was approximately
      $171,424,600 based upon the New York Stock Exchange composite transaction
      closing price.


As
      of
      March 12, 2008, 10,795,000 of the registrant’s Common Units remained
      outstanding.





**Documents
      Incorporated by Reference:**


**Portions
      of the registrant’s proxy statement furnished to unitholders on April 28, 2008
      in connection with its 2008 Annual Meeting of Unitholders are incorporated
      by
      reference in Part III, Items 10-14 of this annual report on Form 10-K for the
      year ending December 31, 2007 (“this Annual Report”).**







**Forward
      Looking Statements**





*The
      statements contained in this report, other than statements of historical fact,
      constitute forward-looking statements. Such statements include, without
      limitation, all statements as to the production of oil and gas, product prices,
      oil and gas reserves, drilling and completion results, capital expenditures
      and
      other such matters. These statements relate to events and/or future financial
      performance and involve known and unknown risks, uncertainties and other factors
      that may cause our actual results, levels of activity, performance or
      achievements or the industry in which we operate to be materially different
      from
      any future results, levels of activity, performance or achievements expressed
      or
      implied by the forward-looking statements. These risks and other factors include
      those listed under Item 1A "Risk Factors" and those described elsewhere in
      this
      report.*





*In
      some cases, you can identify forward-looking statements by our use of terms
      such
      as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
      "estimates," “intends,” "predicts," "potential," or the negative of these terms
      or other comparable terminology. These statements are only predictions. Actual
      events or results may differ materially. In evaluating these statements, you
      should specifically consider various factors, including the risks outlined
      under
      "Risk Factors." These factors may cause our actual results to differ materially
      from any forward-looking statement. Factors that could affect our actual results
      and could cause actual results to differ materially from those in
      forward-looking statements include, but are not limited to, the
      following:*




·
            the
                volatility of realized natural gas and oil
                prices;




·
            the
                conditions of the capital markets, interest rates, availability of
                credit
                facilities to support business requirements, liquidity and general
                economic conditions;


·
            the
                discovery, estimation, development and replacement of oil and natural
                gas
                reserves;




·
            our
                business and financial strategy;




·
            our
                drilling locations;




·
            technology;




·
            our
                cash flow, liquidity and financial
                position;




·
            our
                production volumes;




·
            our
                operating expenses, general and administrative costs, and finding
                and
                development costs;




·
            the
                availability of drilling and production equipment, labor and other
                services;




·
            our
                future operating results;




·
            our
                prospect development and property
                acquisitions;




·
            the
                marketing of oil and natural gas;




·
            competition
                in the oil and natural gas
                industry;




·
            the
                impact of weather and the occurrence of natural disasters such as
                fires,
                floods, hurricanes, earthquakes and other catastrophic events and
                natural
                disasters;




·
            governmental
                regulation of the oil and natural gas
                industry;




·
            environmental
                regulations;




·
            developments
                in oil-producing and natural gas producing countries;
                and




·
            our
                strategic plans, objectives, expectations and intentions for future
                operations.




Although
      we believe that the expectations reflected in the forward-looking statements
      are
      reasonable, we cannot guarantee future results, levels of activity, performance,
      or achievements. Moreover, neither we nor any other person assumes
      responsibility for the accuracy and completeness of these forward-looking
      statements. We do not intend to update any of the forward-looking statements
      after the date of this report to conform prior statements to actual
      results.





**EXPLANATORY
      NOTE**





Vanguard
      Natural Resources, LLC (the “Company”) is filing this Amendment No. 1 (this
“Amendment No. 1”) to its Annual Report on Form 10-K for the fiscal year ended
      December 31, 2007, which was originally filed on March 31, 2008 (the “Original
      Filing”). This Amendment No. 1 is being filed solely to amend Item 8 of Part II
      of the Original Filing. The corrections to Item 8 had no impact on the Company’s
      assets, liabilities, members’ equity, net income, operating cash flows or net
      cash flows as of and for the year ended December 31, 2007 as reported in the
      Original Report. The changes to Item 8 include the following corrections:




·
            in
                the Consolidated Statement of Operations for the year ended December
                31,
                2007, we have corrected the weighted average Common units outstanding,
                the
                weighted average Class B Units outstanding and the corresponding
                basic and
                diluted earnings per unit calculations for the year ended December
                31,
                2007. As corrected, basic and diluted earnings per unit for the year
                ended
                December 31, 2007 was $0.39, as changed from $0.24 as reported in
                the
                Original Filing;




·
            in
                the unaudited Supplemental Selected Quarterly Financial Information,
                we
                have corrected the total basic and diluted Net income per Common
&
                Class B unit calculations for the year ended December 31, 2007. As
                corrected, basic and diluted Net income per Common & Class B unit for
                the year ended December 31, 2007 was $0.39, as changed from $0.24
                as
                reported in the Original Filing;
                and




·
            in
                the Notes to the Financial Statements, we have added a Note 13 to
                detail
                the corrections to our Financial Statements that are described
                above.




In
      addition, in the unaudited Supplemental Selected Quarterly Financial
      Information, we have corrected a rounding error in the “Quarter Ended December
      31” basic and diluted Net income (loss) per Common & Class B unit so that it
      now reads $0.10 instead of $0.09 as set forth in the Original
      Filing.




Pursuant
      to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), this Amendment No. 1 amends the aforementioned items in their
      entirety and contains new certifications pursuant to Rules 13a-14 and 15d-14
      under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002. Other
      than as set forth above and the inclusion of new certifications pursuant to
      Rules 13a-14 and 15d-14 under the Exchange Act and Section 302 of the
      Sarbanes-Oxley Act of 2002, no other changes or amendments to the Original
      Filing are being made.




Except
      for the amendments described above, this Form 10-K/A does not modify or update
      other disclosures in, or exhibits to, the Original Filing. This Amendment No.
      1
      contains only the sections and exhibits to the Original Filing that are being
      amended, and those unaffected parts or exhibits are not included in this
      Amendment No. 1. This Amendment No. 1 continues to speak as of the date of
      the
      Original Filing and the Company has not updated the disclosure contained herein
      to reflect events that have occurred since the date of the Original Filing.
      Accordingly, this Amendment No. 1 should be read in conjunction with the
      Company’s other filings made with the Securities and Exchange Commission, and is
      subject to updating and supplementing as provided in the periodic reports that
      the Company has filed and will file after the date of the Original Filing with
      the Securities and Exchange Commission.





**PART
      II**





**ITEM 8.**  **FINANCIAL
        STATEMENTS AND SUPPLEMENTARY DATA**





**Index**





Below
      is
      an index to the items contained in Part II, Item 8, Financial
      Statements and Supplementary Data.




**Page**Reports
                of Independent Registered Public Accounting Firms
            1Consolidated
                Balance Sheet
            4Consolidated
                Statement of Operations
            5Consolidated
                Statement of Members’ Equity
            6Consolidated
                Statement of Cash Flows
            7Consolidated
                Statements of Comprehensive Income
            8Notes
                to Consolidated Financial Statements
            9Supplemental
                Financial InformationSupplemental
                Selected Quarterly Financial Information (Unaudited)
            23Supplemental
                Natural Gas and Oil Operations (Unaudited)
            24Financial
                Statement ScheduleSchedule II —
                Valuation and Qualifying Accounts
            27





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Unitholders of


Vanguard
      Natural Resources, LLC


and
      Subsidiaries





We
      have
      audited the accompanying consolidated balance sheet of Vanguard Natural
      Resources, LLC (a Delaware limited liability company) and subsidiaries (the
      “Company”) as of December 31, 2007, and the related consolidated statements
      of operations, members’ equity, comprehensive income and cash flows for the year
      then ended. Our audit also included the financial statement schedule listed
      in
      the Index in Item 15(a). These consolidated financial statements and schedule
      are the responsibility of the Company’s management. Our responsibility is to
      express an opinion on these consolidated financial statements and schedule
      based
      on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audit provides a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Vanguard
      Natural Resources, LLC and subsidiaries as of December 31, 2007, and the
      consolidated results of their operations and their cash flows for the year
      then
      ended, in conformity with accounting principles generally accepted in the United
      States of America. Also in our opinion, the financial statement schedule, when
      considered in relation to the basic consolidated financial statements taken
      as a
      whole, presents fairly, in all material respects, the information set forth
      therein.





As
      discussed in Note 13, the accompanying consolidated financial statements have
      been restated.





/s/
      UHY
      LLP





Houston,
      Texas


March
      31,
      2008 (except for effect of the


restatement
      discussed in Note 13,


as
      to
      which the date is May 12, 2008)


1


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Members of





Vanguard
      Natural Gas, LLC





and
      Subsidiaries





We
      have
      audited the accompanying consolidated balance sheet of Vanguard Natural Gas,
      LLC
      (formerly Nami Holding Company, LLC), and subsidiaries (the “Company”) as of
      December 31, 2006, and the related consolidated statements of operations
      and cash flows for the year then ended. These consolidated financial statements
      are the responsibility of the Company’s management. Our responsibility is to
      express an opinion on these consolidated financial statements based on our
      audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audit provides a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Vanguard
      Natural Gas, LLC and subsidiaries as of December 31, 2006, and the
      consolidated results of their operations and their cash flows for the year
      then
      ended, in conformity with accounting principles generally accepted in the United
      States of America.





/s/
      UHY
      LLP





Houston,
      Texas





April 20,
      2007





2


**Report
      of Independent Registered Public Accounting Firm**




CERTIFIED
                PUBLIC
              
              ACCOUNTANTS
              
              BUSINESS
              ADVISORS





To
                the Members
              
              Vanguard Natural Gas, LLC
            1729 Midpark Road
              
              Suite C-zoo
              
              Knoxville, TN 37921
              
              865.583.0091 phone





We have
      audited the accompanying consolidated statements of operations and cash flows
      of
      Vanguard Natural Gas, LLC (formerly Nami Holding Company, LLC) for the year
      ended December 31, 2005.  These financial statements are the responsibility
      of the Company’s management. Our responsibility is to express an opinion on
      these financial statements based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company has determined that
      it
      is not required to have, nor were we engaged to perform, an audit of the
      Company’s internal control over financial reporting. Our audit included
      consideration of internal control over financial reporting as a basis for
      designing audit procedures that are appropriate in the circumstances, but not
      for the purpose of expressing an opinion on the effectiveness of the Company’s
      internal control over financial reporting. Accordingly, we express no such
      opinion. An audit also includes examining, on a test basis, evidence supporting
      the amounts and disclosures in the financial statements, assessing the
      accounting principles used and significant estimates made by management, as
      well
      as evaluating the overall financial statement presentation. We believe that
      our
      audit provides a reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated results of Vanguard Natural Gas, LLC’s
      operations and cash flows for the year ended December 31, 2005, in conformity
      with U.S. generally accepted accounting principles.











Knoxville,
      Tennessee





April
      3,
      2007


GREENEVILLE
      - KNOXVILLE - NASHVILLE - TRI-CITIES


3


**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Consolidated
      Balance Sheet**


**As
      of December 31,**





**Vanguard**
            
            x
            
            **Vanguard**
              **Predecessor****2007**
            
            
            
            **2006****Assets****Current
                assets**Cash
                and cash equivalents
            
            $
            3,109,563
            
            
            
            $
            1,730,956Trade
                accounts receivable, net
            
            
            4,372,731
            
            
            
            
            5,269,067Receivables
                due from affiliates
            
            
            —
            
            
            
            
            14,650,936Other
                receivables
            
            
            —
            
            
            
            
            234,456Derivative
                assets
            
            
            4,017,085
            
            
            
            
            —Other
                currents assets
            
            
            453,198
            
            
            
            
            283,884**Total
                current assets**
            
            
            11,952,577
            
            
            
            
            22,169,299**Property
                and equipment**Land
            
            
            —
            
            
            
            
            46,350Buildings
            
            
            —
            
            
            
            
            10,850Furniture
                and fixtures
            
            
            72,893
            
            
            
            
            846,580Machinery
                and equipment
            
            
            138,719
            
            
            
            
            12,681,363Less:
                accumulated depreciation
            
            
            (45,157
            )
            
            
            
            (1,712,535
            )**Total
                property and equipment**
            
            
            166,455
            
            
            
            
            11,872,608**Natural
                gas and oil properties, net – full cost
                method**
            
            
            106,983,349
            
            
            
            
            104,683,610**Other
                assets**Derivative
                assets
            
            
            1,329,511
            
            
            
            
            —Deferred
                financing costs
            
            
            941,833
            
            
            
            
            —Non-current
                deposits
            
            
            8,285,883
            
            
            
            
            —Other
                assets
            
            
            1,519,577
            
            
            
            
            —**Total
                assets**
            
            $
            131,179,185
            
            
            
            $
            138,725,517**Liabilities
                and members’ equity****Current
                liabilities**Accounts
                payable - trade
            
            $
            1,056,627
            
            
            
            $
            8,756,937Accounts
                payable - natural gas and oil
            
            
            257,073
            
            
            
            
            1,441,941Payables
                to affiliates
            
            
            3,838,328
            
            
            
            
            —Derivative
                liabilities
            
            
            —
            
            
            
            
            2,022,079Accrued
                expenses
            
            
            203,159
            
            
            
            
            1,230,686Due
                to member
            
            
            —
            
            
            
            
            75,000**Total
                current liabilities**
            
            
            5,355,187
            
            
            
            
            13,526,643Long-term
                debt
            
            
            37,400,000
            
            
            
            
            94,067,500Derivative
                liabilities
            
            
            5,903,384
            
            
            
            
            —Asset
                retirement obligations
            
            
            189,711
            
            
            
            
            418,533**Total
                liabilities**
            
            
            48,848,282
            
            
            
            
            108,012,676**Commitments
                and contingencies****Members’
                equity**Members’
                capital, 10,795,000 common units issued and outstanding at
                December 31, 2007
            
            
            90,257,856
            
            
            
            
            30,712,841Class B
                units, 420,000 issued and outstanding at December 31,
                2007
            
            
            2,131,995
            
            
            
            
            —Other
                comprehensive loss
            
            
            (10,058,948
            )
            
            
            
            —**Total
                members’ equity**
            
            
            82,330,903
            
            
            
            
            30,712,841**Total
                liabilities and members’ equity**
            
            $
            131,179,185
            
            
            
            $
            138,725,517


See
      accompanying notes to consolidated financial statements.


4


**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Consolidated
      Statement of Operations**


**For
      the Years Ended December 31,**





**Vanguard**
            
            x
            
            **Vanguard**
              **Predecessor****2007**
            
            
            
            **2006**
            
            **2005****(Restated)****Revenues**Natural
                gas and oil sales
            
            $
            34,540,500
            
            
            
            $
            38,849,142
            
            $
            40,750,089Realized
                losses from derivative contracts
            
            
            (701,675
            )
            
            
            
            (2,207,902
            )
            
            (10,024,178
            )Change
                in fair value of derivative contracts
            
            
            —
            
            
            
            
            17,747,817
            
            
            (18,778,983
            )**Total
                revenues**
            
            
            33,838,825
            
            
            
            
            54,389,057
            
            
            11,946,928**Costs
                and expenses**Lease
                operating expenses
            
            
            5,066,230
            
            
            
            
            4,896,327
            
            
            4,607,198Depreciation,
                depletion and amortization
            
            
            8,981,179
            
            
            
            
            8,633,235
            
            
            6,189,478Selling,
                general and administrative
            
            
            3,506,539
            
            
            
            
            5,198,760
            
            
            5,945,613Bad
                debt expense
            
            
            1,007,458
            
            
            
            
            —
            
            
            —Taxes
                other than income
            
            
            2,053,604
            
            
            
            
            1,774,215
            
            
            1,248,946**Total
                costs and expenses**
            
            
            20,615,010
            
            
            
            
            20,502,537
            
            
            17,991,235**Income
                (loss) from operations**
            
            
            13,223,815
            
            
            
            
            33,886,520
            
            
            (6,044,307
            )**Other
                income (expense)**Interest
                income
            
            
            61,621
            
            
            
            
            40,256
            
            
            51,471Interest
                expense
            
            
            (8,134,600
            )
            
            
            
            (7,371,930
            )
            
            (4,565,712
            )Loss
                on extinguishment of debt expense
            
            
            (2,501,528
            )
            
            
            
            —
            
            
            —**Total
                other expense**
            
            
            (10,574,507
            )
            
            
            
            (7,331,674
            )
            
            (4,514,241
            )**Net
                income (loss)**
            
            $
            2,649,308
            
            
            
            $
            26,554,846
            
            $
            (10,558,548
            )Net
                income per unit:Common &
                Class B units - basic
            
            $
            0.39Common &
                Class B units - diluted
            
            $
            0.39Weighted
                average units outstanding:Common
                units – basic & diluted
            
            
            6,533,411Class B
                units – basic & diluted
            
            
            278,945





See
      accompanying notes to consolidated financial statements.


5


**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Consolidated
      Statement of Members’ Equity**


**For
      the Year Ended December 31, 2007**





**Common**
              **Units**
            
            **Class B**
              **Units**
            
            **Total Members’**
              **Equity****Balance,**January 1, 2007
            
            
            —
            
            
            —
            
            $
            —Initial contribution
            
            
            5,540,000
            
            
            —
            
            
            3,289,055Sale
                of private placement units
            
            
            —
            
            
            —
            
            
            41,220,000Distribution
                to member
            
            
            —
            
            
            —
            
            
            (41,220,000
            )Issuance
                of common units, net of offering costs of $9,804,085
            
            
            5,250,000
            
            
            —
            
            
            89,945,916Distribution
                to members
            
            
            —
            
            
            —
            
            
            (5,626,423
            )Unit-based
                compensation
            
            
            5,000
            
            
            420,000
            
            
            2,131,995Net
                income
            
            
            —
            
            
            —
            
            
            2,649,308Changes
                in fair value of commodity hedges
            
            
            —
            
            
            —
            
            
            (10,058,948
            )**Balance,**December 31,
                2007
            
            
            10,795,000
            
            
            420,000
            
            $
            82,330,903





See
      accompanying notes to consolidated financial statements.


6


**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Consolidated
      Statement of Cash Flows**


**For
      the Years Ended December 31,**





**Vanguard**
            
            x
            
            **Vanguard**
              **Predecessor****2007**
            
            
            
            **2006**
            
            **2005****Operating
                activities**Net
                income (loss)
            
            $
            2,649,308
            
            
            
            $
            26,554,846
            
            $
            (10,558,548
            )Adjustments
                to reconcile net income (loss) to net cash provided by operating
                activities:Depreciation,
                depletion and amortization
            
            
            8,981,179
            
            
            
            
            8,633,235
            
            
            6,189,478Amortization
                of deferred financing costs
            
            
            296,115
            
            
            
            
            —
            
            
            —Bad
                debt expense
            
            
            1,007,458
            
            
            
            
            —
            
            
            —Unit-based
                compensation
            
            
            2,131,995
            
            
            
            
            —
            
            
            —Change
                in fair value of derivative contracts
            
            
            —
            
            
            
            
            (17,747,817
            )
            
            18,778,983Changes
                in operating assets and liabilities:Trade
                accounts receivable
            
            
            (504,683
            )
            
            
            
            1,634,402
            
            
            (127,911
            )Receivables
                due from affiliates
            
            
            (530,809
            )
            
            
            
            (3,448,823
            )
            
            (8,488,293
            )Price
                risk management activities, net
            
            
            (11,524,239
            )
            
            
            
            —
            
            
            —Other
                receivables
            
            
            —
            
            
            
            
            1,004,464
            
            
            (989,545
            )Inventory
            
            
            —
            
            
            
            
            (54,988
            )
            
            (51,371
            )Other
                current assets
            
            
            (340,060
            )
            
            
            
            40,803
            
            
            91,098Accounts
                payable
            
            
            1,243,817
            
            
            
            
            373,381
            
            
            6,638,940Accrued
                expenses
            
            
            (2,037,794
            )
            
            
            
            (902,185
            )
            
            (952,988
            )**Net
                cash provided by operating activities**
            
            
            1,372,287
            
            
            
            
            16,087,318
            
            
            10,529,843**Investing
                activities**Additions
                to property and equipment
            
            
            (132,371
            )
            
            
            
            (8,486,055
            )
            
            (2,694,185
            )Additions
                to natural gas and oil properties
            
            
            (12,821,192
            )
            
            
            
            (28,896,671
            )
            
            (34,373,612
            )Acquisitions
                of natural gas and oil properties
            
            
            (3,649,702
            )
            
            
            
            —
            
            
            —Deposits
                and prepayments of natural gas and oil properties
            
            
            (9,805,460
            )
            
            
            
            —
            
            
            —**Net
                cash used in investing activities**
            
            
            (26,408,725
            )
            
            
            
            (37,382,726
            )
            
            (37,067,797
            )**Financing
                activities**Proceeds
                from borrowings
            
            
            126,200,000
            
            
            
            
            21,360,000
            
            
            30,390,000Repayment
                of debt
            
            
            (182,867,500
            )
            
            
            
            —
            
            
            —Proceeds
                from sale of initial public offering units
            
            
            89,946,916
            
            
            
            
            —
            
            
            —Proceeds
                from private placement units
            
            
            41,220,000
            
            
            
            
            —
            
            
            —Capital
                distributions
            
            
            (46,846,423
            )
            
            
            
            (1,375,104
            )
            
            (4,819,333
            )Financing
                costs
            
            
            (1,237,948
            )
            
            
            
            —
            
            
            —**Net
                cash provided by financing activities**
            
            
            26,415,045
            
            
            
            
            19,984,896
            
            
            25,570,667**Net
                increase (decrease) in cash and cash equivalents**
            
            
            1,378,607
            
            
            
            
            (1,310,512
            )
            
            (967,287
            )**Cash
                and cash equivalents,**beginning
                of year
            
            
            1,730,956
            
            
            
            
            3,041,468
            
            
            4,008,755**Cash
                and cash equivalents,**end
                of year
            
            $
            3,109,563
            
            
            
            $
            1,730,956
            
            $
            3,041,468**Supplemental
                cash flow information:**Cash
                paid for interest
            
            $
            8,839,169
            
            
            
            $
            7,233,549
            
            $
            5,735,952**Non-cash
                financing and investing activities:**Asset
                retirement obligations
            
            $
            177,153
            
            
            
            $
            187,638
            
            $
            69,900Initial
                contribution of assets
            
            $
            3,289,055
            
            
            
            $
            —
            
            $
            —





See
      accompanying notes to consolidated financial statements.


7


**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Consolidated
      Statement of Comprehensive Income**


**For
      the Years Ended December 31,**





**Vanguard**
            
            x
            
            **Vanguard**
              **Predecessor****2007**
            
            
            
            **2006**
            
            **2005****Net
                income (loss)**
            
            $
            2,649,308
            
            
            
            $
            26,554,846
            
            $
            (10,558,548
            )Net
                losses from cash flow hedging activities:Unrealized
                mark-to-market losses arising during the period
            
            
            (9,644,224
            )
            
            
            
            —
            
            
            —Reclassification
                of realized losses
            
            
            (414,724
            )
            
            
            
            —
            
            
            —Other
                comprehensive loss
            
            
            (10,058,948
            )
            
            
            
            —
            
            
            —**Comprehensive
                income (loss)**
            
            $
            (7,409,640
            )
            
            
            $
            26,554,846
            
            $
            (10,558,548
            )





See
      accompanying notes to consolidated financial statements.


8





**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December 31,
      2007**





**1.      
      Basis of Presentation and Significant Accounting Policies**





**Basis
      of Presentation and Nature of Operations**





Vanguard
      Natural Resources, LLC is a publicly traded limited liability company focused
      on
      the acquisition, development and exploitation of mature, long-lived natural
      gas
      and oil properties. Through our operating subsidiaries, we own properties in
      the
      southern portion of the Appalachian Basin, primarily in southeast Kentucky
      and
      northeast Tennessee.





References
      in this report to (1) “us”, “we”, “our”, “the Company”, “Vanguard” or “VNR”
are to Vanguard Natural Resources, LLC and its subsidiaries, including Vanguard
      Natural Gas, LLC (“VNG”), Trust Energy Company, LLC, (“TEC”), VNR Holdings, Inc
      (“VNRH”) and Ariana Energy, LLC, (“Ariana Energy”) and (2) “Vanguard
      Predecessor”, “Predecessor”, “our operating subsidiary” or “VNG” are to Vanguard
      Natural Gas, LLC.





We
      were
      formed in October 2006 and effective January 5, 2007, Vanguard Natural
      Gas, LLC (formerly Nami Holding Company, LLC) was separated into our operating
      subsidiary and Vinland Energy Eastern, LLC (“Vinland”). As part of the
      separation, we retained all of our Predecessor’s proved producing wells and
      associated reserves. We also retained 40% of our Predecessor’s working interest
      in the known producing horizons in approximately 95,000 gross undeveloped acres
      and a contract right to receive approximately 99% of the net proceeds from
      the
      sale of production from certain producing gas and oil wells. In the separation,
      Vinland was conveyed the remaining 60% of our Predecessor’s working interest in
      the known producing horizons in this acreage, and 100% of our Predecessor’s
      working interest in depths above and 100 feet below our known producing
      horizons. Vinland acts as the operator of our existing wells in Appalachia
      and
      all of the wells that we drill in this area. We refer to these events as the
      “Restructuring.”





In
      October 2007, we completed our initial public offering (“IPO”) of 5.25
      million units representing limited liability interests in VNR at $19.00 per
      unit
      for net proceeds of $92.8 million after deducting underwriting discounts and
      fees of $7.0 million.  The proceeds were used to reduce indebtedness under
      our Credit Facility by $80.0 million and the balance was used for the payment
      of
      accrued distributions to pre-IPO unitholders and the payment of a deferred
      swap
      obligation.





VNG
      was
      formed in Kentucky on December 15, 2004 and its principal business is to
      hold interests in TEC, VNRH and Ariana Energy. TEC was formed in Kentucky on
      December 15, 2004. Its principal business consists of natural gas and oil
      development and exploitation of mature, long-lived natural gas and oil
      properties in the Appalachian region of eastern Kentucky. VNRH was formed in
      Delaware on March 28, 2007.  Its principal business it to provide
      general employment related services, including payroll and employment
      administration, as well as information technology and communication services
      to
      VNR.  Ariana Energy was formed in Tennessee on April 26, 2002 and its
      principal business consists of natural gas and oil development and exploitation
      of mature, long-lived natural gas and oil properties in Tennessee.





The
      consolidated financial statements as of and for the year ended December 31,
      2007 include the accounts of VNG, TEC, VNRH and Ariana Energy. In conjunction
      with the Restructuring, Nami Resources Company, LLC conveyed its assets to
      Vinland or TEC as appropriate and is no longer a wholly-owned subsidiary of
      VNG
      and therefore is no longer consolidated in these consolidated financial
      statements.  The consolidated financial statements as of December 31,
      2006 and for the year ended December 31, 2006 and 2005 are based on the
      annual audited financial statements of VNG prior to the Restructuring.  As
      such, these periods are labeled Vanguard Predecessor and are separated from
      VNR
      financial data by a bold black line.





Our
      consolidated financial statements are prepared in accordance with
      U.S. generally accepted accounting principles and include the accounts of
      all subsidiaries after the elimination of all significant intercompany accounts
      and transactions.  Additionally, our financial statements for prior periods
      include reclassifications that were made to conform to the current period
      presentation. Those reclassifications did not impact our reported net income
      or
      member’s equity.





**New
      Accounting Pronouncements Issued But Not Yet Adopted**





In
      September 2006, the Financial Accounting Standards Board (FASB) issued
      Statement of Financial Accounting Standards No. 157 “ *Fair
      Value Measurements* ”
(SFAS
      157). SFAS 157 introduces a framework for measuring fair value and expands
      required disclosure about fair value measurements of assets and liabilities.
      On
      February 6, 2008, the FASB issued a final FASB Staff Position (FSP)
      No. FAS 157-b, “ *Effective Date of FASB Statement No. 157* ”.
      This
      FSP delays the effective date of FASB Statement No. 157, *Fair
      Value Measurements,* for all
      non-financial assets and non-financial liabilities, except those that are
      recognized or disclosed at fair value in the financial statements on a recurring
      basis. In addition, the FSP removes certain leasing transactions from the scope
      of SFAS 157. The effective date of SFAS 157 for non-financial assets and
      liabilities has been delayed by one year to fiscal years beginning after
      November 15, 2008 and interim periods within those fiscal years. SFAS 157
      for financial assets and liabilities is effective for fiscal years beginning
      after November 15, 2007, and the Company adopted the standard for those
      assets and liabilities as of January 1, 2008. The principal impact to the
      Company will be to require the Company to expand its disclosure regarding its
      derivative instruments and to include credit risk as a part of the calculation
      of the fair value of derivatives. The adoption of this standard did not have
      a
      material impact on the consolidated financial statements.


9


**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December 31,
      2007**





In
      February 2007, the FASB issued SFAS No. 159, “ *The
      Fair Value Option for Financial Assets and Financial Liabilities, including
      an
      amendment of FASB Statement No. 115* ”
(“SFAS
      159”), which permits companies to choose, at specified dates, to measure certain
      eligible financial instruments at fair value. The objective of SFAS 159 is
      to reduce volatility in preparer reporting that may be caused as a result of
      measuring related financial assets and liabilities differently and to expand
      the
      use of fair value measurements. The provisions of SFAS 159 apply only to
      entities that elect to use the fair value option and to all entities with
      available-for-sale and trading securities. Additional disclosures are also
      required for instruments for which the fair value option is elected.
      SFAS 159 is effective for fiscal years beginning after November 15,
      2007. No retrospective application is allowed, except for companies that choose
      to adopt early. At the effective date, companies may elect the fair value option
      for eligible items that exist at that date, and the effect of the first
      remeasurement to fair value must be reported as a cumulative-effect adjustment
      to the opening balance of retained earnings. Effective January 1, 2008, the
      Company adopted, SFAS No.159 and the adoption did not have a material
      impact on its consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 141 (revised
      2007), *“Business
      Combinations”* (“SFAS
      141(R)”), which replaces FASB Statement No. 141. SFAS
      141(R) establishes principles and requirements for how an acquirer
      recognizes and measures in its financial statements the identifiable assets
      acquired, the liabilities assumed, any non-controlling interest in the acquiree
      and the goodwill acquired. The Statement also establishes disclosure
      requirements that will enable users to evaluate the nature and financial effects
      of the business combination. SFAS 141(R) is effective for acquisitions that
      occur in an entity’s fiscal year that begins after December 15, 2008, which
      will be our fiscal year 2009. The impact, if any, will depend on the nature
      and
      size of business combinations that we consummate after the effective
      date.





In
      December 2007, the FASB issued SFAS No. 160, *“Non-controlling
      Interests in Consolidated Financial statements—an amendment of ARB
      No. 51”* (“SFAS
      160”). SFAS 160 requires that accounting and reporting for minority interests
      will be recharacterized as non-controlling interests and classified as a
      component of equity. SFAS 160 also establishes reporting requirements that
      provide sufficient disclosures that clearly identify and distinguish between
      the
      interests of the parent and the interests of the non-controlling owners. SFAS
      160 applies to all entities that prepare consolidated financial statements,
      except not-for-profit organizations, but will affect only those entities that
      have an outstanding non-controlling interest in one or more subsidiaries or
      that
      deconsolidate a subsidiary. This statement is effective as of the beginning
      of
      an entity’s first fiscal year beginning after December 15, 2008, which will
      be our fiscal year 2009. Based upon the December 31, 2007 balance sheet,
      the statement would have no impact.





In
      March 2008, the FASB issued SFAS No. 161, “ *Disclosures
      about Derivative Instruments and Hedging Activities”* ( *“* SFAS
      No. 161”). SFAS No. 161 is intended to improve financial reporting
      about derivative instruments and hedging activities by requiring enhanced
      disclosures to enable investors to better understand their effects on an
      entity’s financial position, financial performance, and cash flows. SFAS
      No. 161 achieves these improvements by requiring disclosure of the fair
      values of derivative instruments and their gains and losses in a tabular format.
      It also provides more information about an entity’s liquidity by requiring
      disclosure of derivative features that are credit risk-related. Finally, it
      requires cross-referencing within footnotes to enable financial statement users
      to locate important information about derivative instruments. SFAS No. 161
      is effective for financial statements issued for fiscal years and interim
      periods beginning after November 15, 2008, with early application
      encouraged. We are evaluating the impact of SFAS No. 161 on our
      consolidated financial statements and do not expect the impact of implementation
      to be material.





10




**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December 31,
      2007**





**Cash
      Equivalents**





The
      Company considers all highly liquid short-term investments with original
      maturities of three months or less to be cash equivalents.





**Accounts
      Receivable and Allowance for Doubtful Accounts**





Accounts
      receivable are customer obligations due under normal trade terms and are
      presented on the consolidated balance sheet net of allowances for doubtful
      accounts. We establish provisions for losses on accounts receivable if we
      determine that we will not collect all or part of the outstanding balance.
      We
      regularly review collectibility and establish or adjust our allowance as
      necessary using the specific identification method.





**Inventory**





Materials,
      supplies and commodity inventories are valued at the lower of cost or market.
      The cost is determined using the first-in, first-out method.





**Property
      and Equipment**





Property
      and equipment is recorded at cost. Major property additions, replacements and
      betterments are capitalized, while maintenance and repairs that do not extend
      the useful life of an asset are expensed as incurred. Depreciation is recorded
      using the straight-line method over the respective estimated useful lives of
      our
      assets.





The
      estimated useful lives of our property and equipment are as
      follows:





**Lives**
              **(Years)**Furniture and fixtures
            3-5Machinery
                and equipment
            7





Depreciation
      expense for the year ended December 31, 2007 was $36,539. Our Predecessor’s
      consolidated statement of operations included depreciation expense in the amount
      of $693,266, and $485,121 at December 31, 2006 and 2005,
      respectively.





**Natural
      Gas and Oil Properties**





The
      full
      cost method of accounting is used to account for natural gas and oil properties.
      Under the full cost method, substantially all costs incurred in connection with
      the acquisition, development and exploration of natural gas and oil reserves
      are
      capitalized. These capitalized amounts include the costs of unproved properties,
      internal costs directly related to acquisitions, development and exploration
      activities, asset retirement costs and capitalized interest. Under the full
      cost
      method, both dry hole costs and geological and geophysical costs are capitalized
      into the full cost pool, which is subject to amortization and subject to ceiling
      test limitations as discussed below.





Capitalized
      costs associated with proved reserves are amortized over the life of the
      reserves using the unit of production method. Conversely, capitalized costs
      associated with unproved properties are excluded from the amortizable base
      until
      these properties are evaluated, which occurs on a quarterly basis. Specifically,
      costs are transferred to the amortizable base when properties are determined
      to
      have proved reserves. In addition, we transfer unproved property costs to the
      amortizable base when unproved properties are evaluated as being impaired and
      as
      exploratory wells are determined to be unsuccessful. Additionally, the
      amortizable base includes estimated future development costs, dismantlement,
      restoration and abandonment costs net of estimated salvage values, and
      geological and geophysical costs incurred that cannot be associated with
      unevaluated properties or prospects in which we own a direct
      interest.





Capitalized
      costs are limited to a ceiling based on the present value of future net revenues
      using end of period spot prices discounted at 10%, plus the lower of cost or
      fair market value of unproved properties. If the ceiling is not greater than
      or
      equal to the total capitalized costs, we are required to write-down capitalized
      costs to the ceiling. We perform this ceiling test calculation each quarter.
      Any
      required write-downs are included in the consolidated statement of operations
      as
      a ceiling test charge. Ceiling test calculations include the effects of
      derivative contracts. Ceiling test calculations exclude the estimated future
      cash outflows associated with asset retirement obligations related to proved
      developed reserves.





When
      we
      sell or convey interests in natural gas and oil properties, they reduce natural
      gas and oil reserves for the amount attributable to the sold or conveyed
      interest. We do not recognize a gain or loss on sales of natural gas and oil
      properties, unless those sales would significantly alter the relationship
      between capitalized costs and proved reserves. Sales proceeds on insignificant
      sales are treated as an adjustment to the cost of the
      properties.


11


**Asset
      Retirement Obligations**





Under
      SFAS No. 143 *,
      Accounting for Asset Retirement Obligations,* we
      record a liability for asset retirement obligations at fair value in the period
      in which the liability is incurred if a reasonable estimate of fair value can
      be
      made. The associated asset retirement cost is capitalized as part of the
      carrying amount of the long-lived asset. Subsequently, the asset retirement
      cost
      is allocated to expense using a systematic and rational method over the assets
      useful life. Our recognized asset retirement obligation exclusively relates
      to
      the plugging and abandonment of natural gas and oil wells. Management
      periodically reviews the estimate of the timing of well abandonments as well
      as
      the estimated plugging and abandonment costs, which are discounted at the credit
      adjusted risk free rate.  These retirement costs are recorded as a
      long-term liability on the consolidated balance sheet with an offsetting
      increase in natural gas and oil properties. An ongoing accretion expense is
      recognized for changes in the value of the liability as a result of the passage
      of time, which we record in depreciation, depletion and amortization expense
      in
      the consolidated statement of operations.





**Impairment
      of Long-Lived Assets**





We
      evaluate the carrying value of long-lived assets, other than investments in
      natural gas and oil properties, when events or changes in circumstances indicate
      that the carrying value of such assets may not be recoverable. For property
      and
      equipment used in operations, the determination of impairment is based upon
      expectations of undiscounted future cash flows, before interest, of the related
      asset. If the carrying value of the asset exceeds the undiscounted future cash
      flows, the impairment would be computed as the difference between the carrying
      value of the asset and the fair value.





**Revenue
      Recognition and Gas Imbalances**





We
      apply
      the sales method of accounting for natural gas and oil revenue. Under this
      method, revenues are recognized based on the actual volume of natural gas and
      oil sold to customers, net of any royalty interests owed on the sold product.
      In
      the movement of natural gas, it is common for differences to arise between
      the
      volume of gas contracted or nominated, and the volume of gas actually received
      or delivered. These variances or imbalances, are the result of certain
      attributes of the natural gas commodity and the industry itself. Consequently,
      the credit given by a pipeline for volumes received from producers may be
      different than volumes actually delivered by a pipeline. When all necessary
      information, such as the final pipeline statement for receipts and deliveries
      are available, the imbalances are resolved and adjustments to the trade accounts
      receivable or trade accounts payable is recorded as appropriate.  The
      amount of imbalances were not material at December 31, 2007 and
      2006.





**Concentration
      of Credit Risk**





Financial
      instruments that potentially subject us to concentrations of credit risk consist
      principally of cash and cash equivalents, accounts receivable and derivative
      contracts. We control our exposure to credit risk associated with these
      instruments by (i) placing our assets and other financial interests with
      credit-worthy financial institutions and (ii) maintaining policies over
      credit extension that include the evaluation of customers’ financial condition
      and monitoring payment history, although we do not have collateral
      requirements.





At
      December 31, 2007 and 2006, the cash and cash equivalents are concentrated
      in two financial institutions. We periodically assess the financial condition
      of
      these institutions and believe that any possible credit risk is minimal. At
      December 31, 2007 and 2006, seven and six customers comprised 87% and 90%
      of our total trade accounts receivable, respectively. This concentration of
      customers may impact the overall exposure to credit risk in that the customers
      are in the energy industry and they may be similarly affected by changes in
      economic or other conditions. In addition, receivables due from affiliates
      represented 66% of total current assets at December 31, 2006. All of the
      related party balances at December 31, 2006, were conveyed to other
      entities pursuant to the Restructuring and therefore no receivable balances
      were
      outstanding from these affiliates at December 31, 2007.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the Unites States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. The most significant estimates pertain to proved
      natural gas and oil reserves and related cash flow estimates used in impairment
      tests of natural gas and oil properties, the fair value of derivative contracts
      and asset retirement obligations, natural gas and oil revenues and expenses,
      as
      well as estimates of expenses related to depreciation, depletion and
      amortization.  Actual results could differ from those
      estimates.


12


**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December 31,
      2007**





**Price
      Risk Management Activities**





From
      time
      to time, the Company enters into derivative contracts, such as natural gas
      and
      oil swaps, collars and put option contracts, as a hedging strategy to manage
      commodity price risk associated with its production. Gains and losses on these
      hedging activities are generally recognized over the period that its production
      is hedged as an offset to the specific hedged item. Cash flows related to any
      recognized gains and losses associated with these hedges are reported as cash
      flows from operations. Changes in derivative fair values that are designated
      as
      hedges are deferred in other comprehensive income (loss) to the extent that
      they
      are effective and then recognized in operating revenues when the hedged
      transactions occur. The ineffective portion of a hedge’s change in value and the
      change in value of all derivative contracts not designated as hedges is
      recognized immediately in earnings as a separate line item in our consolidated
      statement of operations.





We
      record
      all derivative contracts on the consolidated balance sheet at fair value as
      either short-term or long-term assets or liabilities based upon their
      anticipated settlement date. We net derivative assets and liabilities for
      counterparties where we have a legal right of offset. The derivative contracts
      entered into in 2006 and 2005 were not specifically designated as hedges under
      SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities* and
      therefore did not qualify for hedge accounting treatment. The change in fair
      value of these derivative contracts is recorded in the consolidated statement
      of
      operations.





**Income
      Taxes**





The
      Company is treated as a partnership for federal and state income tax
      purposes.  As such, it is not a taxable entity and does not directly pay
      federal and state income tax. Its taxable income or loss, which may vary
      substantially from the net income or net loss reported in the consolidated
      statement of operations , is included in the federal and state income tax
      returns of each unitholder.  Accordingly, no recognition has been given to
      federal and state income taxes for the operations of the Company.  The
      aggregate difference in the basis of net assets for financial and tax reporting
      purposes cannot be readily determined as the Company does not have access to
      information about each unitholders’ tax attributes in the Company.





**2.   
      Accounts Receivable and Allowance for Doubtful Accounts**





We
      established an approximate $1.0 million provision for a loss on the entire
      amount due from a customer which filed for protection under Chapter 11 of the
      Bankruptcy Code in May 2007.  The account receivable was due from oil
      sales through December 2006 at which time we ceased selling oil to the
      customer. As the amount of any potential recovery is uncertain, we elected
      to
      reserve the entire balance and it is reflected as bad debt expense on our
      consolidated statement of operations for the year ended December 31, 2007.
      We began selling our oil production to a new customer beginning in
      March 2007. There are no allowances for doubtful accounts recorded against
      accounts receivable at December 31, 2006.





**3.   
      Other Receivables**





From
      time
      to time, our Predecessor advanced funds to third parties, primarily for the
      purpose of providing financing related to the purchase of drilling rigs or
      other
      related equipment. Amounts due from such parties amounted to $234,456 at
      December 31, 2006.  These receivables were non-interest bearing and
      due on demand. All other receivable balances at December 31, 2006, were
      conveyed to other entities pursuant to the Restructuring and therefore no other
      receivable balances were outstanding at December 31, 2007.





13


**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December 31,
      2007**





**4.   
      Natural Gas and Oil Properties**





Natural
      gas and oil properties are comprised of the following:





**Vanguard**
            
            x
            
            **Vanguard**
              **Predecessor****December 31,**
            
            **2007**
            
            
            
            **2006**Natural gas and oil properties, at cost
            
            $
            135,435,240
            
            
            
            $
            128,811,908Accumulated
                depletion
            
            
            (28,451,891
            )
            
            
            
            (24,128,298
            )Natural
                gas and oil properties, net
            
            $
            106,983,349
            
            
            
            $
            104,683,610





**5.   
      Credit Facilities and Long-Term Debt**





Our
      credit facilities and long-term debt consisted of the following at
      December 31,:


**Vanguard**
            
            x
            
            **Vanguard**
              **Predecessor****Description**
            
            **Interest Rate**
            
            **Maturity Date**
            
            **2007**
            
            
            
            **2006**$
            75
                million Senior Secured Revolver
            
            
            Variable
            
            
            January
                31, 2007
            
            $
            —
            
            
            
            $
            63,067,500$
            40
                million TCW Senior Secured Notes
            
            
            13
            %
            
            December 29, 2011
            
            
            —
            
            
            
            
            31,000,000$
            200
                million Senior Secured Revolver
            
            
            Variable
            
            
            January
                3, 2011
            
            
            37,400,000
            
            
            
            
            —Total
            
            
            
            
            
            
            $
            37,400,000
            
            
            
            $
            94,067,500





***$75
      million Senior Secured Revolver***





On
      June 30, 2003, we entered into a $75.0 million senior secured revolving
      credit facility with the Bank of Texas (“Senior Revolver”) which amended and
      restated in its entirety a loan agreement dated March 23, 2001. The Senior
      Revolver had an original maturity date of June 30, 2006 but was extended
      through amendments to January 31, 2007. The available credit line
      (“Borrowing Base”) was subject to adjustment from time to time but not less than
      on a semi-annual basis based on the projected discounted present value (as
      determined by independent petroleum engineers) of estimated future net cash
      flows from certain proved natural gas and oil reserves of the Company. At
      December 31, 2006, the Borrowing Base was $65.0 million. The Senior
      Revolver was secured by a mortgage lien on certain natural gas and oil
      properties, field equipment and accounts receivable, among other assets held
      by
      the Company. Interest rates under this credit facility were at the election
      of
      the Company based on Euro-Dollars (LIBOR) or Stated Rate (Prime) indications,
      plus a margin. The margin could range from Prime minus 0.25% to Prime plus
      0.25%
      or LIBOR plus 1.875% to LIBOR plus 2.625% depending on borrowing base
      utilization. At December 31, 2006, our interest rate was 8.5%. The
      availability of borrowings was subject to various conditions, which included
      compliance with the financial covenants and ratios required by the facility,
      absence of default under the facility and the continued accuracy of the
      representations and warranties contained in the facility. At December 31,
      2006, the financial coverage ratios under the facility required that our debt
      to
      EBITDA (as defined in the loan agreement) ratio not exceed 4.0 to 1.0 and our
      current ratio (as defined in the loan agreement) not be less than 1.0 to 1.0.
      In
      addition, affiliate investments (as defined in the loan agreement) could not
      exceed $10.0 million.





Since
      the
      inception of the Senior Revolver, seven amendments were entered into which
      amended certain terms of the loan agreement including increasing the number
      of
      participating lenders, changing the maximum borrowing base, extending the
      maturity date, reducing the interest costs, adding a new financial covenant
      and
      adding new reporting requirements. In addition, on December 30, 2004, our
      second amendment reduced the amount of natural gas and oil properties pledged
      under the Senior Revolver. Certain pledged natural gas and oil properties were
      released so that they could be pledged under a new $40.0 million note facility
      as described below. As consideration for releasing the pledged properties,
      indebtedness under the Senior Revolver was reduced by $16.0 million using
      proceeds from the new note facility.





On
      January 3, 2007, all amounts due under the Senior Revolver were repaid and
      a new long-term credit facility was established as discussed below, and
      therefore, amounts due under the Senior Revolver are reported on the balance
      sheet as a long-term obligation despite the maturity date falling within one
      year of December 31, 2006.





***$40
      million TCW Senior Secured Notes***





On
      December 30, 2004, we entered into a $40.0 million Senior Secured Notes
      facility due to TCW Asset Management Company (the “TCW Notes”). The TCW Notes
      original maturity was on December 29, 2011 and required quarterly interest
      payments at 13% per annum. The TCW Notes were secured by a mortgage lien on
      certain natural gas and oil properties. Prior to December 30, 2006, the
      availability of borrowings was subject to various conditions, which included
      compliance with the financial covenants and ratios required by the facility,
      absence of default under the facility and the continued accuracy of the
      representations and warranties contained in the facility. After
      December 30, 2006, no new borrowings were available. At December 31,
      2006, the financial coverage ratios under the facility required that our
      collateral coverage ratio (as defined in the loan agreement) not be less than
      1.2 to 1.0 and our current ratio (as defined in the loan agreement) not be
      less
      than 1.0 to 1.0. We could not borrow, repay, and reborrow under the facility.
      Optional prepayments were not permitted prior to December 31, 2006 and were
      subject to a range of penalties thereafter until December 31, 2008 at which
      point no prepayment penalties applied.


14


On
      January 3, 2007, all amounts due under the TCW Notes were repaid and a new
      credit facility was established as discussed below.  We recorded a $2.5
      million loss on the extinguishment of this debt as the loan agreement required
      an early prepayment penalty.





***New
      $200 Million Senior Secured Revolver***





In
      January 2007, we entered into a new four-year $200.0 million revolving
      credit facility (“Credit Facility”) with two banks. All outstanding debt under
      the TCW Notes (including an early payment penalty of $2.5 million) and the
      Senior Revolver were repaid with borrowings under the new Credit Facility.
      The
      available credit line (“Borrowing Base”) is subject to adjustment from time to
      time but not less than on a semi-annual basis based on the projected discounted
      present value (as determined by independent petroleum engineers) of estimated
      future net cash flows from certain proved natural gas and oil reserves. The
      initial Borrowing Base was set at $115.5 million and is secured by a first
      lien
      security interest in all of our natural gas and oil properties.  However,
      the borrowing base was subject to a $1.0 million reduction per month starting
      on
      July 1, 2007 through November 1, 2007.  In November 2007,
      with the sixth amendment to the Credit Facility, our borrowing base under our
      Credit Facility was set at $110.5 million pursuant to our semi-annual
      redetermination.





Interest
      rates under the Credit Facility are based on Euro-Dollars (LIBOR) or ABR (Prime)
      indications, plus a margin. The applicable margin and other fees increase as
      the
      utilization of the borrowing base increases. Pursuant to the sixth amendment
      to
      the Credit Facility, the applicable margins on our borrowing base utilization
      grid were lowered to reflect the following:





**Borrowing Base Utilization Grid**




**Borrowing
                Base Utilization Percentage**
            
            ***<25%***
            
            ***>25%
                <50%***
            
            ***>50%
                <75%***
            
            ***>75%***Eurodollar
                Loans
            
            
            1.000
            %
            
            1.250
            %
            
            1.500
            %
            
            1.750
            %ABR
                Loans
            
            
            0.000
            %
            
            0.250
            %
            
            0.500
            %
            
            0.750
            %Commitment
                Fee Rate
            
            
            0.250
            %
            
            0.300
            %
            
            0.375
            %
            
            0.375
            %Letter
                of Credit Fee
            
            
            1.000
            %
            
            1.250
            %
            
            1.500
            %
            
            1.750
            %





The
      Credit Agreement contains a number of customary covenants that require us to
      maintain certain financial ratios, limit our ability to incur additional debt,
      sell assets, create liens, or make certain distributions. At December 31,
      2007, we were in compliance with our debt covenants.  In addition, after
      consideration of the third amendment to the Credit Facility described below,
      the
      first $100.0 million of proceeds received from an equity infusion were to be
      applied to the repayment of borrowings under the Credit Facility (“Equity
      Event”). Pursuant to the fifth amendment, the amount of proceeds from the equity
      event that was to be applied to the repayment of borrowings under the Credit
      Facility was reduced from $100.0 million to $80.0 million. Since borrowings
      under the Credit Facility were not reduced by $100.0 million by July 1,
      2007, the applicable margin increased as follows:




Eurodollar
                Loans
            
            
            3.00
            %ABR
                Loans
            
            
            4.00
            %Commitment
                Fee Rate
            
            
            0.50
            %Letter
                of Credit Fee
            
            
            3.00
            %





The
      Credit Agreement required us to enter into a commodity price hedge position
      establishing certain minimum fixed prices for anticipated future production
      equal to approximately 84% of the projected production from proved developed
      producing reserves from the second half of 2007 through 2011. Also, the Credit
      Agreement required that certain production put option contracts for the years
      2007, 2008 and 2009 be put in place to create a price floor for anticipated
      production from new wells drilled.  See *Note
      6. Financial Instruments and Price Risk Management Activities* for
      further discussion.


15







**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December 31,
      2007**





In
      March 2007, the first amendment to the Credit Facility was executed. The
      amendment redefined the method to calculate a financial covenant to include
      the
      impact of acquisitions and divestitures. In addition, it clarified that the
      increase in the applicable margin, which commenced on July 1, 2007, will
      continue only until the Equity Event occurs.





In
      April 2007, the second amendment to the Credit Facility was executed. The
      amendment redefined change of control to allow for the sale of common units
      to
      private investors more fully described below in *Note
      10. Common Units and Net Income per Unit* ,
      recognized certain contract rights to receive approximately 99% of the net
      proceeds (after deducting royalties paid to other parties, severance taxes,
      third-party transportation costs, costs incurred in the operation of the wells
      and overhead costs) from the sale of production from certain producing gas
      and
      oil wells located within the Asher lease.





In
      May 2007, the third amendment to the Credit Facility was executed. The
      amendment increased the amount of proceeds from an equity infusion that must
      be
      applied to the repayment of borrowings under the Credit Facility from $80.0
      million to $100.0 million. A new Minimum Liquidity covenant was added which
      requires us to maintain unencumbered liquid assets of at least $2.0 million
      which includes unused availability under the borrowing base. Also, the amount
      of
      other debt we can incur was temporarily increased from $1.0 million to $7.5
      million which allowed us to incur the debt necessary to reset our 2007, 2008
      and
      2009 natural gas swaps at higher prices more fully described in *Note
      6. Financial Instruments and Price Risk Management Activities* . 
The other debt was required to be repaid at the earlier of five business days
      after closing of a public offering of equity securities or September 3,
      2007.  This date was extended to November 1, 2007 as discussed
      below.





In
      July 2007, a new borrowing base notice was received pursuant to our Credit
      Facility agreement which reaffirmed our $115.5 million borrowing base but
      required $1.0 million monthly reductions beginning on July 1, 2007 through
      the next redetermination date, which was October 1, 2007, at which time a
      new redetermination would be made.  The October 1, 2007
      redetermination date was subsequently moved to November 1, 2007 pursuant to
      the fifth amendment to the Credit Facility *.*





In
      August 2007, the fourth amendment to the Credit Facility was
      executed.  The amendment extended the date for which other debt outside the
      Credit Facility must be reduced below $1.0 million from September 3, 2007
      to October 8, 2007. The October 8, 2007 date was subsequently moved to
      November 1, 2007 pursuant to the fifth amendment to the Credit
      Facility *.*





In
      October 2007, the fifth amendment to the Credit Facility was
      executed.  There were five items addressed in this amendment. First, the
      borrowing base redetermination date was adjusted from October 1, 2007 to
      November 1, 2007 for purposes of this one redetermination.  Second,
      the date at which our other debt outside of the Credit Facility must be reduced
      to under $1.0 million was extended from October 8, 2007 to November 1,
      2007.  Third, the amount of proceeds from an equity infusion that must be
      applied to the repayment of borrowings under the Credit Facility was reduced
      from $100.0 million to $80.0 million and the outstanding borrowings under the
      Credit Facility must be reduced to less that 50% of our then-specified borrowing
      base after any equity infusion before making any subsequent distributions. 
Fourth, the covenant which prohibited us from making distributions if our
      borrowings exceeded 50% of our borrowing base was revised to allow us to make
      distributions if our borrowings were less than 80% of our borrowing base. 
Fifth, the amendment allowed us to borrow under the Credit Facility to make
      distributions as long as there has not been a default or event of default under
      the Credit facility and any such distributions for any quarter do not exceed
      EBITDA (as defined in the Credit Facility) for such quarter.





In
      November 2007, a sixth amendment to the Credit Facility was executed which
      set our borrowing base under our Credit Facility at $110.5 million pursuant
      to
      our semi-annual redetermination,  revised the covenant governing borrowing
      funds to make distributions, and lowered our borrowing rates. The covenant
      which
      prohibited us from making distributions if our borrowings exceeded 80% of our
      borrowing base was revised to allow us to make distributions if our borrowings
      were less than 90% of our borrowing base. In addition, the applicable margins
      on
      our borrowing base utilization grid were lowered as referenced
      above.





Our
      Credit Facility was amended and restated in February 2008 and additional
      borrowings were made pursuant to the acquisition of natural gas and oil
      properties in the Permian Basin. See *Note
      12. Subsequent Events* for
      further discussion.


16


**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December 31,
      2007**





**6.   
      Financial Instruments and Price Risk Management Activities**





The
      following table presents the carrying amounts and estimated fair values of
      our
      financial instruments as of December 31:




**Vanguard**
            
            x
            
            **Vanguard Predecessor****2007**
            
            
            
            **2006****Carrying**
              **Amount**
            
            **Fair**
              **Value**
            
            
            
            **Carrying**
              **Amount**
            
            **Fair**
              **Value**$75 million Senior Secured Revolver
            
            $
            —
            
            $
            —
            
            
            
            $
            63,067,500
            
            $
            63,067,500TCW Notes
            
            $
            —
            
            $
            —
            
            
            
            $
            31,000,000
            
            $
            31,000,000$200
                million Senior Secured Revolver
            
            $
            37,400,000
            
            $
            37,400,000
            
            
            
            $
            —
            
            $
            —Net
                liabilities from price risk management activities
            
            $
            556,788
            
            $
            556,788
            
            
            
            $
            2,022,079
            
            $
            2,022,079





At
      December 31, 2007 and 2006, the carrying amounts reported on the
      consolidated balance sheet for cash and cash equivalents, accounts receivable
      and accounts payable approximate fair value due to their short-term nature.
      The
      estimated fair value of financial instruments is the amount at which the
      instrument could be exchanged currently between willing parties. We use
      available marketing data and valuation methodologies to estimate the fair value
      of debt. This disclosure is presented in accordance with SFAS
      No. 107, *Disclosure about Fair Value of Financial Instruments* and does
      not impact our financial position, results of operations or cash flows. The
      Senior Revolver credit facilities approximate fair value because these
      instrument bear interest at current market rates.





From
      time
      to time, we enter into natural gas swap agreements with counterparties to hedge
      price risk associated with a portion of our production. These derivatives are
      not held for trading purposes. Under these price swaps, we receive a fixed
      price
      on a notional quantity of natural gas in exchange for paying a variable price
      based on a market index, such as the Columbia Gas Appalachian Index (“TECO
      Index”) natural gas futures.





During
      2006, natural gas swaps covered 2,673,000 MMBtu, fixing the sales price of
      this
      natural gas at an average of $6.29 per MMBtu. The derivative contracts entered
      into in 2006 were not specifically designated as hedges under SFAS
      No. 133 *Accounting for Derivative Instruments and Hedging Activities* and
      therefore did not qualify for hedge accounting treatment. These derivative
      contracts are recorded at fair value on the consolidated balance sheet as
      short-term and long-term liabilities based upon their anticipated settlement
      date. The change in fair value of these derivative contracts was recorded in
      the
      consolidated statement of operations.





On
      January 3, 2007, the natural gas price swaps referred to above were
      terminated which resulted in the Company incurring swap termination fees of
      $2.8
      million. New natural gas swaps and option derivative contracts were put in
      place
      in conjunction with entering into a new credit facility as described
      in *Note
      5. Credit Facilities and Long-Term Debt* . At our
      election, in January 2007 we entered into a NYMEX natural gas collar
      contract. A summary of the derivative contracts entered into in
      January 2007 is as follows:





**Swap
      Agreements**




**Contract Period**
              
              **Volume in MMBtu**
              
              **Weighted Average**
                **TECO Index Fixed Price**July – December 2007
              
              
              1,708,357
              
              $
              7.502008
              
              
              3,016,134
              
              $
              8.142009
              
              
              2,657,046
              
              $
              7.872010
              
              
              2,387,640
              
              $
              7.532011
              
              
              2,196,012
              
              $
              7.15





**Put
      Option Contracts**




**Contract Period**
            
            **Volume in MMBtu**
            
            **Purchased NYMEX Price Floor**February –
                December 2007
            
            
            1,356,480
            
            $
            7.502008
            
            
            2,211,366
            
            $
            7.502009
            
            
            1,840,139
            
            $
            7.50


17


**Collar
      Contracts**




**Contract Period**
            
            **Volume in MMBtu**
            
            **NYMEX**
              **Price Floor**
            
            **NYMEX**
              **Price Ceiling**February – June 2007
            
            
            1,500,000
            
            $
            6.45
            
            $
            7.45





January 2007,
      the Company paid $6.5 million for the put option contracts referenced above.
      Payments for the put option contracts and the swap termination fee were funded
      with borrowings under the Credit Facility.





In
      May 2007, we reset our 2007, 2008 and 2009 natural gas swaps at higher
      prices as follows:




**Contract Period**
            
            **Volume in**
              **MMBtu**
            
            **Original Weighted Average**
              **TECO Index**
              **Fixed Price**
            
            **New Weighted Average**
              **TECO Index**
              **Fixed Price**July – December 2007
            
            
            1,708,357
            
            
            
            
            $
            7.50
            
            
            
            
            $
            9.002008
            
            
            3,016,134
            
            
            
            
            $
            8.14
            
            
            
            
            $
            9.002009
            
            
            2,657,046
            
            
            
            
            $
            7.87
            
            
            
            
            $
            8.85





In
      connection with resetting our swaps as described above in May 2007, we
      incurred a $7.3 million deferred swap payment obligation with the derivative
      counterparty which accrued interest daily at 7.36% and was payable at the
      earlier of five days after the closing of an equity issuance or November 1,
      2007. The deferred swap obligation was paid in October 2007 using proceeds
      from our IPO.





The
      derivative contracts entered into in January 2007, and reset in
      May 2007, were specifically designated as hedges under SFAS
      No. 133 *Accounting for Derivative Instruments and Hedging Activities* and
      therefore qualify for hedge accounting treatment. These derivative contracts
      are
      recorded at fair value on the consolidated balance sheet as short-term and
      long-term assets and liabilities based upon their anticipated settlement date.
      The change in fair value of these derivative contracts is recorded in other
      comprehensive income.





At
      December 31, 2007, the Company had open natural gas derivative contracts
      covering its production as follows:





**Swap
      Agreements**




**Contract Period**
            
            **Volume in MMBtu**
            
            **Weighted Average**
              **TECO Index Fixed Price**2008
            
            
            3,016,134
            
            $
            9.002009
            
            
            2,657,046
            
            $
            8.852010
            
            
            2,387,640
            
            $
            7.532011
            
            
            2,196,012
            
            $
            7.15





**Put
      Option Contracts**




**Contract Period**
            
            **Volume in MMBtu**
            
            **Purchased NYMEX Price Floor**2008
            
            
            2,211,366
            
            $
            7.502009
            
            
            1,840,139
            
            $
            7.50





In
      addition, in December 2007, we entered into an interest rate swap agreement
      which fixed LIBOR at 3.875% on $20.0 million of borrowings for the period from
      December 2007 to December 2010 to minimize the effect of fluctuating
      interest rates. If LIBOR is lower than the fixed rate in the contract, we are
      required to pay the counterparty the difference, and conversely, the
      counterparty is required to pay us if LIBOR is higher than the fixed interest
      rate in the contract. We designated the interest rate swap as a cash flow hedge
      under SFAS 133; therefore, the change in fair value of this instrument is
      recorded in other comprehensive income (loss).





In
      February 2008, in connection with our recent acquisition of certain oil and
      gas properties in the Permian Basin of West Texas and Southeastern New Mexico,
      we assumed fixed-price oil swaps for approximately 90% of the estimated 2008
      through 2011 oil production which effectively fixes the sales price on that
      portion of the production at a weighted average price of $87.29 per
      barrel.  Also, in February 2008, we entered into natural gas collars
      for 2,730,000 MMBtu for gas production in 2008 through 2010, reset the price
      on
      2,387,640 MMBtu of natural gas swaps settling in 2010 from $7.53 to $8.76 per
      MMBtu and entered into a 2012 fixed-price oil swap at $80.00 for 87% of the
      estimated proved developed producing reserves. In February and
      March 2008, we entered into additional interest rates swaps on $40.0
      million of borrowings which settle in January 2008 through 2011. 
See *Note
      12. Subsequent Events* for
      further discussion.


18


**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December 31,
      2007**





**7.  
      Asset Retirement Obligations**





The
      asset
      retirement obligations as of December 31 reported on our consolidated
      balance sheet and the changes in the asset retirement obligations for the year
      ended December 31, were as follows:





**Vanguard**
            
            x
            
            **Vanguard**
              **Predecessor****2007**
            
            
            
            **2006**Asset retirement obligation at January 1,
            
            $
            —
            
            
            
            $
            212,588Liabilities
                added during the current period
            
            
            177,153
            
            
            
            
            50,496Accretion
                expense
            
            
            12,558
            
            
            
            
            18,307Revisions
                to estimated cash flows
            
            
            —
            
            
            
            
            137,142Asset
                retirement obligation at December 31,
            
            $
            189,711
            
            
            
            $
            418,533





Accretion
      expense for the years ended December 31, 2007, 2006 and 2005 was $12,558,
      $18,307 and $12,533, respectively.





**8.   
      Related Party Transactions**





At
      December 31, 2007 and 2006, amounts payable to our largest unitholder were
      none and $75,000, respectively.  Historically, our Predecessor maintained
      relationships with several closely related companies that directly supported
      it
      through administrative and operational services.  The total cost for
      services performed by these affiliates was none and $1.3 million for the year
      ended December 31, 2007 and 2006, respectively.  Our Predecessor also
      historically funded certain capital requirements of its affiliates. As of
      December 31, 2006, receivables due from these affiliates were $14.7
      million.  These companies are affiliated through common ownership with our
      largest unitholder.   All of the related party balances at
      December 31, 2006, were conveyed to other entities pursuant to the
      Restructuring and therefore no receivable balances were outstanding from these
      affiliates at December 31, 2007.  In addition, as of the Restructuring
      no additional funding of these related parties has occurred.





Pursuant
      to the Restructuring, we rely on Vinland to execute our drilling program,
      operate our wells and gather our natural gas in Appalachia. We reimburse Vinland
      $60 per well per month (in addition to normal third party operating costs)
      for
      operating our current natural gas and oil properties in Appalachia under a
      Management Services Agreement (“MSA”) which costs are reflected in our lease
      operating expenses.  Also, Vinland receives a $0.25 per mcf transportation
      fee for producing wells as of January 5, 2007 and $0.55 per mcf
      transportation fee on any new wells drilled after January 5, 2007 within
      the area of mutual interest.  This transportation fee only encompasses
      transporting the natural gas to third party pipelines at which point additional
      transportation fees to natural gas markets apply.  These transportation
      fees are outlined under a Gathering and Compression Agreement (“GCA”) with
      Vinland and are reflected in our lease operating expenses. For the year ended
      December 31, 2007, costs incurred under the MSA were $0.5 million and costs
      incurred under the GCA were $1.2 million. In addition, Vinland reimburses us
      for
      certain gas sales contracts that were fixed at prices below market.  For
      the year ended December 31, 2007, Vinland’s reimbursement of $1.0 million
      is reflected in natural gas and oil sales. A net payable of $3.8 million is
      reflected on our December 31, 2007 consolidated balance sheet in connection
      with these agreements and direct expenses incurred by Vinland related to the
      drilling of new wells and operations of all of our existing wells in
      Appalachia.





**9.    
      Commitments and Contingencies**





The
      Company is a defendant in a legal proceedings arising in the normal course
      of
      our business. While the outcome and impact of such legal proceedings on the
      Company cannot be predicted with certainty, management does not believe that
      it
      is probable that the outcome of any action will have a material adverse effect
      on the Company’s consolidated financial position, results of operations or cash
      flow.





**10.   
      Common Units and Net Income per Unit**





In
      April 2007, the sole member of VNG contributed all of the issued and
      outstanding common units in VNG to VNR for six million common units representing
      all of the issued and outstanding common units of VNR at such time. VNR then
      completed a private equity offering pursuant to which it sold 2.29 million
      common units to certain private investors for $41.2 million.


19


**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December 31,
      2007**




The
      proceeds of this private equity offering were used to make a distribution to
      Majeed S. Nami, VNR’s largest unitholder.  Mr. Nami used a portion of
      these funds to capitalize Vinland and Vinland paid us $3.9 million to reduce
      outstanding accounts receivable from Vinland. In October 2007, we
      successfully completed our IPO of 5.25 million common units.





Basic
      earnings per unit is computed in accordance with SFAS No. 128, *“Earnings
      Per Share”* (“SFAS 128”) by dividing net earnings attributable to unitholders by the
      weighted average number of units outstanding during the period. Diluted
      earnings per unit is computed by adjusting the average number of units
      outstanding for the dilutive effect, if any, of unit equivalents.  The
      Company uses the treasury stock method to determine the dilutive effect. 
At December 31, 2007, the Company had two classes of units
      outstanding:  (i) units representing limited liability company
      interests (“common units”) listed on NYSE Arca, Inc. under the symbol VNR and
      (ii) Class B units, issued to management and an employee as discussed
      in *Note
      11.Unit-Based Compensation* . 
The Class B units participate in distributions and no forfeiture is
      expected; therefore, all Class B units were considered in the computation
      of basic earnings per unit.





In
      accordance with SFAS 128, dual presentation of basic and diluted earnings
      per unit has been presented in the consolidated statements of operations for
      the
      year ended December 31, 2007 for each class of units issued and outstanding
      at that date, common units and Class B units.  Net income per unit was
      allocated to the units and the Class B units on an equal basis. No
      calculation was made for the Vanguard Predecessor period.





**11.  
      Unit-Based Compensation**





In
      April 2007, the sole member reserved 460,000 restricted Class B units
      in VNR for issuance to employees of VNRH.  Certain members of management
      were granted 365,000 restricted Class B units in VNR in April 2007,
      which vest two years from the date of grant. In addition, another 55,000
      restricted VNR Class B units were issued in August 2007 to two other
      employees that were hired in April and May, 2007, which will vest over
      three years.  The remaining 40,000 restricted Class B units will be
      awarded to new employees or members of our board of directors as they are
      retained.  In October 2007, a board member was granted 5,000 common
      units which vest over one year. These common units and Class B units were
      granted as partial consideration for services to be performed under employment
      contracts and thus will be subject to accounting for these grants under SFAS
      No. 123(R), *Share-Based Payment.*





The
      fair
      value of restricted units issued is determined based on the fair market value
      of
      VNR units on the date of the grant.  This value is amortized over the
      vesting period as referenced above.  A summary of the status of the
      non-vested units as of December 31, 2007 is presented below:




**Number of**
              **Non-vested Units**
            
            **Weighted Average**
              **Grant Date**
              **Fair Value**Non-vested units at December 31, 2006
            
            
            —
            
            $
            —Granted
            
            
            425,000
            
            
            18.14Non-vested
                units at December 31, 2007
            
            
            425,000
            
            $
            18.14





At
      December 31, 2007, there was approximately $5.6 million of unrecognized
      compensation cost related to non-vested restricted units.  The cost is
      expected to be recognized over an average period of approximately 1.8 years.
      Our
      consolidated statement of operations reflects non-cash compensation of $2.1
      million in the selling, general and administrative line item for the year ended
      December 31, 2007.





**12.   
      Subsequent Events**





In
      January 2008, we completed the acquisition of certain oil and gas
      properties in the Permian Basin of West Texas and Southeastern New Mexico for
      an
      adjusted purchase price of $73.4 million, subject to customary post-closing
      adjustments.  The effective date of the acquisition was October 1,
      2007. The purchase price includes a payment of $7.8 million paid by us to the
      seller in December 2007. At December 31, 2007, this amount is reported
      in non-current deposits in our consolidated balance sheet. In this acquisition,
      based on internal reserve forecasts, we acquired approximately 4.4 million
      barrels of oil equivalent, 83% of which are oil and 90% are proved developed
      producing. The current net production attributable to this purchase is estimated
      to be approximately 800 barrels of oil equivalent per day and the
      reserves-to-production ratio is 15 years.


20





**Vanguard
      Natural Resources, LLC and Subsidiaries**


**Notes
      to Consolidated Financial Statements**


**December 31,
      2007**





As
      part
      of this acquisition, in February 2008, we have assumed fixed-price oil
      swaps covering approximately 90% of the estimated proved developed producing
      oil
      reserves through 2011 at a weighted average price of $87.29. This acquisition
      was funded with borrowings under our existing Credit Facility and after
      consideration of this acquisition and other borrowings, indebtedness under
      the
      Credit Facility totaled $103.0 million. In conjunction with these new
      borrowings, in February and March 2008, we entered into interest rate
      swaps which effectively fix the LIBOR rate at 2.66% to 3.00% on $40.0 million
      of
      borrowings. Also, in February 2008, we entered into natural gas collars for
      2,730,000 MMBtu for gas production in 2008 through 2010, reset the price on
      2,387,640 MMBtu of natural gas swaps settling in 2010 from $7.53 to $8.76 per
      MMBtu and entered into a 2012 fixed-price oil swap at $80.00 for 87% of the
      estimated proved developed producing reserves.





The
      following summarizes information concerning our net positions in open commodity
      derivatives entered into subsequent to December 31, 2007.  The
      settlement prices of commodity derivatives are based on NYMEX futures prices
      for
      collars and put options and are based on the TECO Index for swaps.





**Collars**




**Gas****MMBtu (a)**
            
            **Floor**
            
            **Ceiling**Production
                Period:March –
                September 2008
            
            
            700,000
            
            $
            7.50
            
            $
            9.00October –
                December 2008
            
            
            300,000
            
            $
            7.50
            
            $
            9.25January 2009
                – December 2009
            
            
            1,000,000
            
            $
            7.50
            
            $
            9.00January 2010
                – December 2010
            
            
            730,000
            
            $
            8.00
            
            $
            9.30




(a)  
      One MMBtu equals one Mcf at a Btu factor of 1,000.





**Swaps**




**Oil****Bbls**
            
            **Price**Production
                Period:2008
            
            
            182,500
            
            $
            90.302009
            
            
            181,500
            
            $
            87.232010
            
            
            164,250
            
            $
            85.652011
            
            
            151,250
            
            $
            85.502012
            
            
            144,000
            
            $
            80.00





**Interest
      Rates**





The
      following summarizes information concerning our positions in open interest
      rate
      swaps entered into subsequent to December 31, 2007.




**Principal**
            
            **Fixed**
              **Libor****Balance**
            
            **Rates**Period:January 31,
                2008 to January 31, 2011
            
            $
            30,000,000
            
            
            3.00
            %March 31,
                2008 through March 31, 2011
            
            $
            10,000,000
            
            
            2.66
            %





We
      designated all of the derivatives shown in the preceding tables as cash flow
      hedges under SFAS 133; therefore, all changes in the fair value of these
      contracts prior to maturity are not shown on the statement of operations but
      rather are shown in other comprehensive income (loss).  Any realized gains
      or losses including premiums paid for the derivative will be reflected as
      realized gains (losses) on derivative contracts in the consolidated statement
      of
      operations at the time of maturity.





Our
      Credit Facility was amended and restated in February 2008 to extend the
      maturity date from January 3, 2011 to March 31, 2011, increase the
      facility amount from $200.0 million to $400.0 million, increase our borrowing
      base from $110.5 million to $150.0 million and add two financial
      institutions.


21





**13.**  **Restatement**





The
      accompanying consolidated financial statements for the year ended December
      31,
      2007 have been restated as described below.




*Recalculation
      of weighted average units outstanding and earnings per unit* .





The
      Company by error calculated the earnings per unit for the year ended December
      31, 2007 using the common units outstanding as of that date instead of the
      weighted average units for the year. The Company has restated the weighted
      average Common and Class B units outstanding and earnings per unit. In
      addition, in the unaudited Supplemental Selected Quarterly Financial
      Information, we have corrected a rounding error in the “Quarter Ended December
      31” basic and diluted Net income (loss) per Common & Class B
      unit.





Changes
      to earnings per unit are summarized in the table below:





**Year Ended**
                **December 31,**
                **2007**Net
                  income
              
              $
              2,649,308**AS
                  ORIGINALLY REPORTED:**Weighted
                  average units Common units —basic and diluted
              
              
              10,795,000Weighted
                  average units Class B units —basic and diluted
              
              
              276,795Basic
                  and diluted earnings per unit
              
              $
              0.24**AS
                  RESTATED:**


Weighted
                average units Common units—basic and diluted
            
            
            6,533,411Weighted
                average units Class B units—basic and diluted
            
            
            278,945Basic
                and diluted earnings per unit
            
            $
            0.39





Changes
      to Supplemental Selected Quarterly Financial Information are summarized in
      the
      table below:




**Quarters Ended****March 31**
            
            **June 30**
            
            **September 30**
            
            **December 31**
            
            **Total****2007
                AS ORIGINALLY REPORTED**Net
                income (loss) per unit:Common &
                Class B units – basic
            
            $
            (0.29
            )
            $
            0.38
            
            $
            0.18
            
            $
            0.09
            
            $
            0.24Common &
                Class B units – diluted
            
            $
            (0.29
            )
            $
            0.38
            
            $
            0.18
            
            $
            0.09
            
            $
            0.24


**2007
                AS RESTATED**Net
                income (loss) per unit:Common &
                Class B units – basic
            
            $
            (0.29
            )
            $
            0.38
            
            $
            0.18
            
            $
            0.10
            
            $
            0.39Common &
                Class B units – diluted
            
            $
            (0.29
            )
            $
            0.38
            
            $
            0.18
            
            $
            0.10
            
            $
            0.39


22


**Supplemental
      Selected Quarterly Financial Information (Unaudited)**





Financial
      information by quarter is summarized below.




**Quarters Ended****March 31**
            
            **June 30**
            
            **September 30**
            
            **December 31**
            
            **Total****(in thousands, except per unit amounts)****2007**Natural
                gas and oil sales
            
            $
            8,962
            
            $
            10,107
            
            $
            7,641
            
            $
            7,831
            
            $
            34,541Realized
                gain (losses) on derivative contracts
            
            
            (748
            )
            
            (918
            )
            
            940
            
            
            24
            
            
            (702
            )Total
                Revenues
            
            
            8,214
            
            
            9,189
            
            
            8,581
            
            
            7,855
            
            
            33,839Total
                costs and expenses(1)
            
            
            5,128
            
            
            4,767
            
            
            5,026
            
            
            5,694
            
            
            20,615Net
                income (loss)
            
            $
            (1,626
            )
            $
            2,240
            
            $
            1,051
            
            $
            984
            
            $
            2,649Net
                income (loss) per unit:Common &
                Class B units – basic
            
            $
            (0.29
            )
            $
            0.38
            
            $
            0.18
            
            $
            0.10
            
            $
            0.39Common &
                Class B units – diluted
            
            $
            (0.29
            )
            $
            0.38
            
            $
            0.18
            
            $
            0.10
            
            $
            0.39**2006(2)**Natural
                gas and oil sales
            
            $
            11,163
            
            $
            8,253
            
            $
            9,574
            
            $
            9,859
            
            $
            38,849Realized
                gain (losses) on derivative contracts
            
            
            (2,020
            )
            
            (322
            )
            
            (161
            )
            
            295
            
            
            (2,208
            )Change
                in fair value of derivative contracts
            
            
            8,814
            
            
            2,610
            
            
            4,428
            
            
            1,896
            
            
            17,748Total
                Revenues
            
            
            17,957
            
            
            10,541
            
            
            13,841
            
            
            12,050
            
            
            54,389Total
                costs and expenses(1)
            
            
            4,452
            
            
            3,580
            
            
            4,162
            
            
            8,308
            
            
            20,502Net
                income (loss)
            
            $
            11,702
            
            $
            4,998
            
            $
            7,666
            
            $
            2,189
            
            $
            26,555





(1)  Includes
      lease operating expenses, depreciation, depletion and amortization, selling,
      general and administration expenses, bad debt expense and taxes other than
      income.





(2)  Amounts
      for 2006 are for Vanguard Predecessor. No per unit calculations were made for
      this period.


23


**Supplemental
      Natural Gas and Oil Information (Unaudited)**





We
      are a
      publicly traded limited liability company focused on the development and
      exploitation of mature, long-lived natural gas and oil properties in the United
      States.




Capitalized
      costs related to natural gas and oil producing activities and related
      accumulated depletion were as follows at December 31:




**Vanguard**
            
            x
            
            **Vanguard**
              **Predecessor****2007**
            
            
            
            **2006**Aggregate
                capitalized costs relating to natural gas and oil producing
                activities
            
            $
            135,435,240
            
            
            
            $
            128,811,908Aggregate
                accumulated depletion
            
            
            (28,451,891
            )
            
            
            
            (24,128,298
            )Net
                capitalized costs
            
            $
            106,983,349
            
            
            
            $
            104,683,610FAS
                143 asset retirement obligations
            
            $
            189,711
            
            
            
            $
            418,533





Costs
      incurred in natural gas and oil producing activities, whether capitalized or
      expensed, were as follows for the years ended December 31:




**Vanguard**
            
            x
            
            **Vanguard**
              **Predecessor****2007**
            
            
            
            **2006**
            
            **2005**Property acquisition costs
            
            $
            3,670,561
            
            
            
            **$**
            **—**
            
            **$**
            **—**Development
                costs
            
            
            12,859,838
            
            
            
            
            37,467,066
            
            
            37,023,753Total
                cost incurred
            
            $
            16,530,399
            
            
            
            $
            37,467,066
            
            $
            37,023,753





The
      table
      above includes capitalized internal costs incurred in connection with the
      development of natural gas and oil reserves of $3,880,000 and $1,071,584 in
      2006
      and 2005, respectively. No internal costs were capitalized in 2007.
      Additionally, capitalized interest of $75,672, $117,097 and $1,170,240 for
      the
      years ended December 31, 2007, 2006 and 2005, respectively, are included in
      the table above.





In
      our
      December 31, 2007 reserve report, the amounts estimated to be spent in
      2008, 2009 and 2010 to develop our proved undeveloped reserves are $13.5
      million, $13.8 million and $8.5 million, respectively.





Net
      quantities of proved developed and undeveloped reserves of natural gas and
      oil
      and changes in these reserves at December 31, 2007, 2006 and 2005 are
      presented below. Information in these tables is based on reserve reports
      prepared by our independent petroleum engineers, Netherland, Sewell &
Associates, Inc. for 2007 and 2006 and Schlumberger Data & Consulting
      Services for 2005.




**Gas (in Mcf)**
            
            **Oil (in Bbls)**Net
                proved reservesJanuary 1,
                2005
            
            
            73,564,492
            
            
            38,900Revisions
                of previous estimates
            
            
            31,072,849
            
            
            431,344Extensions,
                discoveries and other
            
            
            6,842,125
            
            
            10,937Production
            
            
            (3,789,185
            )
            
            (17,488
            )December 31,
                2005
            
            
            107,690,281
            
            
            463,693Revisions
                of previous estimates
            
            
            (17,529,333
            )
            
            (106,630
            )Extensions,
                discoveries and other
            
            
            8,205,425
            
            
            18,623Production
            
            
            (4,181,708
            )
            
            (32,718
            )December 31,
                2006
            
            
            94,184,665
            
            
            342,968Revisions
                of previous estimates
            
            
            (31,943,375
            )
            
            798Extensions,
                discoveries and other
            
            
            4,544,443
            
            
            16,725Purchases
                of reserves in place
            
            
            2,387,113
            
            
            6,165Production
            
            
            (4,044,380
            )
            
            (30,629
            )December 31,
                2007
            
            
            65,128,466
            
            
            336,027Proved
                developed reservesDecember 31,
                2005
            
            
            53,900,263
            
            
            246,595December 31,
                2006
            
            
            48,166,327
            
            
            249,329December 31,
                2007
            
            
            48,897,929
            
            
            233,507





24




There
      are
      numerous uncertainties inherent in estimating quantities of proved reserves,
      projecting future rates of production and projecting the timing of development
      expenditures, including many factors beyond our control. The reserve data
      represents only estimates. Reservoir engineering is a subjective process of
      estimating underground accumulations of natural gas and oil that cannot be
      measured in an exact manner. The accuracy of any reserve estimate is a function
      of the quality of available data and of engineering and geological
      interpretations and judgment. All estimates of proved reserves are determined
      according to the rules prescribed by the SEC. These rules indicate
      that the standard of “reasonable certainty” be applied to proved reserve
      estimates. This concept of reasonable certainty implies that as more technical
      data becomes available, a positive, or upward, revision is more likely than
      a
      negative, or downward, revision. Estimates are subject to revision based upon
      a
      number of factors, including reservoir performance, prices, economic conditions
      and government restrictions. In addition, results of drilling, testing and
      production subsequent to the date of an estimate may justify revision of that
      estimate. Reserve estimates are often different from the quantities of natural
      gas and oil that are ultimately recovered. The meaningfulness of reserve
      estimates is highly dependent on the accuracy of the assumptions on which they
      were based. In general, the volume of production from natural gas and oil
      properties we own declines as reserves are depleted. Except to the extent we
      conduct successful development activities or acquire additional properties
      containing proved reserves, or both, our proved reserves will decline as
      reserves are produced. There have been no major discoveries or other events,
      favorable or adverse, that may be considered to have caused a significant change
      in the estimated proved reserves since December 31, 2007, except for the
      increased reserves associated with the Permian Basin acquisition which is not
      reflected below due to the acquisition being completed subsequent to December
      31, 2007.





Results
      of operations from producing activities were as follows for the years ended
      December 31:




**Vanguard**
            
            x
            
            **Vanguard**
              **Predecessor****2007**
            
            
            
            **2006**
            
            **2005**Production revenues(1)
            
            $
            33,838,191
            
            
            
            $
            35,976,571
            
            $
            30,275,108Production
                costs(2)
            
            
            (7,119,834
            )
            
            
            
            (6,670,542
            )
            
            (5,856,144
            )Depreciation,
                depletion and amortization
            
            
            (8,960,524
            )
            
            
            
            (8,511,390
            )
            
            (6,075,293
            )Results
                of operations from producing activities
            
            $
            17,757,833
            
            
            
            $
            20,794,639
            
            $
            18,343,671







(1)   Production
      revenues include realized losses on derivative contracts.





(2)   Production
      cost includes lease operating expenses and production related taxes, including
      ad valorem and severance taxes.





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




**Vanguard**
            
            x
            
            **Vanguard**
              **Predecessor****2007**
            
            
            
            **2006**
            
            **2005**Future cash inflows
            
            $
            587,639
            
            
            
            $
            663,604
            
            $
            1,337,090Future
                production costs
            
            
            (173,485
            )
            
            
            
            (192,520
            )
            
            (138,912
            )Future
                development costs
            
            
            (36,842
            )
            
            
            
            (66,906
            )
            
            (76,945
            )Future
                net cash flows
            
            
            377,312
            
            
            
            
            404,178
            
            
            1,121,23310%
                annual discount for estimated timing of cash flows
            
            
            (226,315
            )
            
            
            
            (255,357
            )
            
            (720,804
            )Standardized
                measure of discounted future net cash flows
            
            $
            150,997
            
            
            
            $
            148,821
            
            $
            400,429


25





For
      the
      December 31, 2007 calculations in the preceding table, estimated future
      cash inflows from estimated future production of proved reserves were computed
      using year-end prices of $6.79 per MMBtu for natural gas, adjusted by field
      for
      energy content, and $92.50 per barrel of oil, adjusted for quality,
      transportation fees and a regional price differential. We may receive amounts
      different than the standardized 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 our standardized measure of
      discounted future net cash flows (in thousands):




**Year Ended December 31,(1)**




**Vanguard**
            
            x
            
            **Vanguard**
              **Predecessor****2007**
            
            
            
            **2006**
            
            **2005**Sales
                and transfers, net of production costs
            
            $
            (26,718
            )
            
            
            $
            (29,306
            )
            $
            (24,419
            )Net
                changes in prices and production costs
            
            
            52,625
            
            
            
            
            (231,630
            )
            
            125,520Extensions
                discoveries and improved recovery, less related costs
            
            
            10,791
            
            
            
            
            21,110
            
            
            20,027Changes
                in estimated future development costs
            
            
            18,045
            
            
            
            
            (24,336
            )
            
            (58,972
            )Previously
                estimated development costs incurred during the period
            
            
            16,531
            
            
            
            
            37,467
            
            
            37,024Revision
                of previous quantity estimates
            
            
            (75,071
            )
            
            
            
            (31,726
            )
            
            144,471Accretion
                of discount
            
            
            14,882
            
            
            
            
            40,043
            
            
            17,305Purchases
                of reserves in place
            
            
            4,249
            
            
            
            
            —
            
            
            —Change
                in production rates, timing and other
            
            
            (13,158
            )
            
            
            
            (33,230
            )
            
            (33,574
            )Net
                change
            
            $
            2,176
            
            
            
            $
            (251,608
            )
            $
            227,382








(1)  This
      disclosure reflects changes in the standardized measure calculation excluding
      the effects of hedging activities.


26


**SCHEDULE II**





**VANGUARD
      NATURAL RESOURCES, LLC**


**VALUATION
      AND QUALIFYING ACCOUNTS**





**Year
      Ended December 31, 2007**




**Description**
            
            **Balance at**
              **Beginning**
              **of Period**
            
            **Charged to**
              **Costs and**
              **Expenses**
            
            **Deductions**
            
            **Charged**
              **to Other**
              **Accounts**
            
            **Balance at**
              **End of**
              **Period**Allowance
                for doubtful accounts
            
            $
            —
            
            $
            1,007,461
            
            $
            —
            
            $
            —
            
            $
            1,007,461





There
      was
      no allowance for doubtful accounts at December 31, 2005 or
      2006.


27


**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act
      of 1934, Vanguard Natural Resources, LLC has duly caused this report to be
      signed on its behalf by the undersigned, thereunto duly authorized on the
      12th day of May, 2008.




VANGUARD NATURAL RESOURCES, LLCBy
              /s/  Scott W. SmithScott W. Smith*President and Chief Executive Officer*




Pursuant to
      the requirements of the Securities Exchange Act of 1934, this report has been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.




May
                    12,
                    2008
                /s/
                    Scott W. SmithScott
                    W. Smith
                  President,
                    Chief Executive Officer and Director
                  (Principal
                    Executive Officer)May
                    12,
                    2008
                /s/
                    Richard A. RobertRichard
                    A. Robert
                  Executive
                    Vice President and Chief
                  Financial
                    Officer (Principal Financial Officer)May
                    12,
                    2008
                *W.
                    Richard Anderson
                  DirectorMay
                    12,
                    2008
                *Thomas
                    M. Blake
                  DirectorMay
                    12,
                    2008
                *Bruce
                    W. McCullough
                  DirectorMay
                    12,
                    2008
                *John
                    R. McGoldrick
                  DirectorMay
                    12,
                    2008
                *Loren
                    Singletary
                  DirectorMay
                    12,
                    2008
                *Lasse
                    Wagene
                  Director
 
 *
                  By:
              /s/
                  Scott W. SmithAttorney-in-fact


28


**Vanguard
      Natural Resources, LLC**


**EXHIBIT
      INDEX**





Each
      exhibit identified below is filed as a part of this Report.




**Exhibit**
              **No.**
            
            **Exhibit Title**
            
            **Incorporated by Reference to the Following**3.1
            
            Certificate
                of Formation of Vanguard Natural Resources, LLC
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)3.2
            
            Second
                Amended and Restated Limited Liability Company Agreement of Vanguard
                Natural Resources, LLC (including specimen unit certificate for the
                units)
            
            Form
                8-K, filed November 2, 2007 (File No. 001-33756)10.1
            
            Amended
                and Restated Credit Agreement, dated February 14, 2008, by and between
                Nami Holding Company, LLC, Citibank, N.A., as administrative agent
                and L/C
                issuer and the lenders party thereto
            
            Previously
                filed with our Form 10-K on March 31, 200810.2
            
            Vanguard
                Natural Resources, LLC Long-Term Incentive Plan
            
            Form
                8-K, filed October 24, 2007 (File No. 001-33756)10.3
            
            Form of
                Vanguard Natural Resources, LLC Long-Term Incentive Plan Phantom
                Options
                Grant Agreement
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.4
            
            Vanguard
                Natural Resources, LLC Class B Unit Plan
            
            Form
                8-K, filed October 24, 2007 (File No. 001-33756)10.5
            
            Form of
                Vanguard Natural Resources, LLC Class B Unit Plan Restricted
                Class B Unit Grant
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.6
            
            Management
                Services Agreement, effective January 5, 2007, by and between Vinland
                Energy Operations, LLC, Vanguard Natural Gas, LLC, Trust Energy Company,
                LLC and Ariana Energy, LLC
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.7
            
            Participation
                Agreement, effective January 5, 2007, by and between Vinland Energy
                Eastern, LLC, Vanguard Natural Gas, LLC, Trust Energy Company, LLC
                and
                Ariana Energy, LLC
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.8
            
            Gathering
                and Compression Agreement, effective January 5, 2007, by and between
                Vinland Energy Gathering, LLC, Vinland Energy Eastern, LLC, Vanguard
                Natural Gas, LLC and Ariana Energy, LLC
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.9
            
            Gathering
                and Compression Agreement, effective January 5, 2007, by and between
                Vinland Energy Gathering, LLC, Vinland Energy Eastern, LLC, Vanguard
                Natural Gas, LLC and Trust Energy Company
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.10
            
            Gathering
                and Compression Agreement, effective January 5, 2007, by and between
                Vinland Energy Gathering, LLC and Nami Resources Company,
                L.L.C.
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.11
            
            Well
                Services Agreement, effective January 5, 2007, by and between Vinland
                Energy Operations, LLC, Vanguard Natural Gas, LLC and Ariana Energy,
                LLC
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.12
            
            Well
                Services Agreement, effective January 5, 2007, by and between Vinland
                Energy Operations, LLC, Vanguard Natural Gas, LLC and Trust Energy
                Company, LLC
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.13
            
            Well
                Services Agreement, effective January 5, 2007, by and between Vinland
                Energy Operations, LLC and Nami Resources Company, L.L.C.
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.14
            
            Amended
                and Restated Operating Agreement by and between Vinland Energy Operations,
                LLC, Vinland Energy Eastern, LLC and Ariana Energy, LLC, dated October
                2,
                2007 and effective as of January 5, 2007
            
            Form
                S-1/A, filed October 22, 2007 (File No. 333-142363)10.15
            
            Operating
                Agreement, effective January 5, 2007, by and between Vinland Energy
                Operations, LLC, Vinland Energy Eastern, LLC and Trust Energy Company,
                LLC
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.16
            
            Amended
                and Restated Indemnity Agreement by and between Nami Resources Company,
                L.L.C., Vinland Energy Eastern, LLC, Trust Energy Company, LLC, Vanguard
                Natural Gas, LLC and Vanguard Natural Resources, LLC, dated September
                11,
                2007
            
            Form
                S-1/A, filed September 18, 2007 (File No. 333-142363)10.17
            
            Revenue
                Payment Agreement by and between Nami Resources Company, L.L.C. and
                Trust
                Energy Company, dated April 18, 2007 and effective as of January
                5,
                2007
            
            Form
                S-1/A, filed August 21, 2007 (File No. 333-142363)10.18
            
            Gas
                Supply Agreement, dated April 18, 2007, by and between Nami Resources
                Company, L.L.C. and Trust Energy Company
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.19
            
            Amended
                Employment Agreement, dated April 18, 2007, by and between Scott W.
                Smith, VNR Holdings, LLC and Vanguard Natural Resources,
                LLC
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.20
            
            Amended
                Employment Agreement, dated April 18, 2007, by and between Richard A.
                Robert, VNR Holdings, LLC and Vanguard Natural Resources,
                LLC
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.21
            
            Registration
                Rights Agreement, dated April 18,
                2007,between
                Vanguard Natural Resources, LLC and the private investors named
                therein
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.22
            
            Purchase
                Agreement, dated April 18,2007,between
                Vanguard Natural Resources, LLC, Majeed S. Nami and the private investors
                named therein
            
            Form
                S-1/A, filed April 25, 2007 (File No. 333-142363)10.23
            
            Omnibus
                Agreement, dated October 29, 2007, among Majeed S. Nami, Vanguard
                Natural
                Resources, LLC, Vanguard Natural Gas, LLC, Ariana Energy, LLC and
                Trust
                Energy Company, LLC.
            
            Form
                8-K, filed November 2, 2007 (File No. 001-33756)10.24
            
            Employment
                Agreement, dated May 15, 2007, by and between Britt Pence, VNR Holdings,
                LLC and Vanguard Natural Resources, LLC
            
            Form
                S-1/A, filed July 5, 2007 (File No. 333-142363)10.25
            
            Natural
                Gas Contract, dated May 26, 2003, between Nami Resources Company,
                Inc. and Osram Sylvania Products, Inc.
            
            Form
                S-1/A, filed August 21, 2007 (File No. 333-142363)10.26
            
            Natural
                Gas Purchase Contract, dated December 16, 2004, between Nami
                Resources Company, LLC and Dominion Field Services, Inc.
            
            Form
                S-1/A, filed August 21, 2007 (File No. 333-142363)10.27
            
            Natural
                Gas Purchase Contract, dated December 28, 2004, between Nami
                Resources Company, LLC and Dominion Field Services, Inc.
            
            Form
                S-1/A, filed August 21, 2007 (File No. 333-142363)10.28
            
            Director
                Compensation Agreement
            
            Form
                S-1/A, filed September 18, 2007 (File No. 333-142363)10.29
            
            Purchase
                and Sale Agreement, dated December 21, 2007, among Vanguard Permian,
                LLC
                and Apache Corporation
            
            Form
                8-K/A, filed February 13, 2008 (File No. 001-33756)10.30
            
            Amended
                Purchase and Sale Agreement, dated January 31, 2008, among Vanguard
                Permian, LLC and Apache Corporation
            
            Form
                8-K/A, filed February 4, 2008 (File No. 001-33756)21.1
            
            List
                of subsidiaries of Vanguard Natural Resources, LLC
            
            Previously
                filed with our Form 10-K on March 31, 200824.1
            
            Powers
                of Attorney (contained on the signature page)
            
            Previously
                filed with our Form 10-K on March 31, 200831.1
            
            Certification
                of Chief Executive Officer Pursuant to Rule 13a — 14 of the
                Securities and Exchange Act of 1934, as Adopted Pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002
            
            Filed
                herewith31.2
            
            Certification
                of Chief Financial Officer Pursuant to Rule 13a — 14 of the
                Securities and Exchange Act of 1934, as Adopted Pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002
            
            Filed
                herewith32.1
            
            Certification
                of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
                as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002
            
            Filed
                herewith32.2
            
            Certification
                of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
                as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002
            
            Filed
                herewith


29