The following discussion and analysis should be read in conjunction with the financial statements and related notes presented in Item 1 of this Quarterly Report on Form 10-Q and information disclosed in our 2007 Annual Report on Form 10-K.

Forward-Looking Statements

This report contains "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Statements included in this quarterly report that are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto), including, without limitation, the information set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations, are forward-looking statements. These statements can be identified by the use of forward-looking terminology including "may," "believe," "expect," "intend," "anticipate," "estimate," "continue," or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state other "forward-looking" information. We and our representatives may from time to time make other oral or written statements that are also forward-looking statements.

Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to be correct. Important factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include, among other things, those set forth in the Risk Factor section of the 2007 Annual Report on Form 10-K, and those set forth from time to time in our filings with the SEC, which are available on our website at www.vnrllc.com and through the SEC's Electronic Data Gathering and Retrieval System ("EDGAR") at http://www.sec.gov.

All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this report.

Overview

We are a publicly-traded limited liability company focused on the acquisition, development and exploitation of mature, long-lived natural gas and oil properties in the United States. Our primary business objective is to generate stable cash flows allowing us to make quarterly cash distributions to our unitholders and over time to increase our quarterly cash distributions through the acquisition of new natural gas and oil properties. Our properties are located in the southern portion of the Appalachian Basin, primarily in southeast Kentucky and northeast Tennessee, the Permian Basin, primarily in West Texas and Southeastern New Mexico and in South Texas, with the closing of our recent acquisition.

We owned working interests in 1,383 gross (917 net) productive wells at June 30, 2008 and our average net production for the twelve months ended December 31, 2007 and for the three months and six months ended June 30, 2008 was 11,610 Mcfe per day, 15,888 Mcfe per day and 15,505 Mcfe per day, respectively. We also have a 40% working interest in the known producing horizons in approximately 104,000 gross undeveloped acres surrounding or adjacent to our existing wells located in southeast Kentucky and northeast Tennessee. Vinland Energy Operations, LLC ("Vinland") acts as the operator of our existing wells in Appalachia and all of the wells that we will drill in this area.

Initial Public Offering

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 reserve-based 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.

Permian Basin Acquisition

On December 21, 2007, we entered in to a Purchase and Sale Agreement with the Apache Corporation for the purchase of certain oil and natural gas properties located in ten separate fields in the Permian Basin of West Texas and Southeastern New Mexico. The purchase price for said assets was $78.3 million with an effective date of October 1, 2007. We completed this acquisition on January 31, 2008 for an adjusted purchase price of $73.4 million, subject to customary post closing adjustments. The post closing adjustments reduced the final purchase price to $71.5 million and included a purchase price adjustment of $6.8 million for the cash flow from the acquired properties for the period between the effective date, October 1, 2007, and the final settlement date. This acquisition was funded with borrowings under our reserve-based credit facility. Through this acquisition, we acquired working interests in 390 gross wells (67 net wells), 49 of which we operate. With respect to operations, we have established two district offices, one in Lovington, New Mexico and the other in Christoval, Texas to manage these assets. Our operating focus will be on maximizing existing production and looking for complementary acquisitions that we can add to this operating platform. With this acquisition, based on internal reserve estimates, we acquired 4.4 million barrels of oil equivalent, 83% of which is oil and 90% of which is proved developed producing. The current net production attributable to this purchase is approximately 800 barrels of oil equivalent per day and the reserves-to-production ratio is approximately 15 years. With the closing of this acquisition, our daily production and total reserves increased approximately 40%.

South Texas Acquisition

On July 18, 2008, we entered into a Purchase and Sale Agreement with Segundo Navarro Drilling, Ltd., a wholly owned subsidiary of the Lewis Energy Group, for the acquisition of certain natural gas and oil properties located in the Dos Hermanos Field in Webb County, Texas. The purchase price for said assets was $53.4 million with an effective date of June 1, 2008. We completed this acquisition on July 28, 2008 for the purchase price, subject to customary post-closing adjustments to be determined. This acquisition was funded with borrowings under our reserve-based credit facility and through the issuance of 1,350,873 common units of the Company. In this purchase, we acquired an average of a 98% working interest in 91 producing wells and an average 47.5% working interest in approximately 4,705 gross acres with 41 identified proved undeveloped locations. An affiliate of Lewis Energy Group will operate all the properties and is contractually obligated to drill six wells in 2008 and seven wells in 2009 through 2011. Based on internal reserve estimates, we acquired 20 Bcfe of proved reserves, 98% of which is natural gas and 65% of which is proved developed producing. The current net production attributable to this purchase is approximately 3,000 Mcf per day and the reserves-to-production ratio is approximately 18 years. With the closing of this acquisition, our daily production and reserves increased approximately 19% and 20%, respectively. The effects of this acquisition are not reflected in the cash flows and other financial and operating information described herein due to the acquisition closing on July 28, 2008. Upon closing this transaction, we assumed natural gas swaps and collars based on Houston Ship Channel pricing for approximately 85% of the estimated gas production from existing producing wells for the period beginning July 2008 through December 2011.

Our Relationship with Vinland

On April 18, 2007 but effective as of January 5, 2007, we entered into various agreements with Vinland, under which we rely on Vinland to operate our existing producing wells in Appalachia and coordinate our development drilling program in this area. We expect to benefit from the substantial development and operational expertise of Vinland management in the Appalachian Basin. Under a management services agreement, Vinland advises and consults with us regarding all aspects of our production and development operations in Appalachia and provides us with administrative support services as necessary for the operation of our business. In addition, Vinland may, but does not have any obligation to, provide us with acquisition services under the management services agreement. While Vinland is not obligated to provide us with acquisition services, we expect that due to significant common ownership Vinland has an incentive to grow our business by helping us to identify, evaluate and complete acquisitions that will be accretive to our distributable cash. In addition, under a gathering and compression agreement that we entered into with Vinland Energy Gathering, LLC ("VEG"), VEG gathers, compresses, delivers and provides the services necessary for us to market our natural gas production in the area of mutual interest, or "AMI". VEG delivers our natural gas production to certain designated interconnects with third-party transporters. Since the various agreements were executed on April 18, 2007 but were effective as of January 5, 2007, Vinland reimbursed us for the drilling costs and expenses that we incurred on their behalf associated with their interest in the wells drilled between January 5, 2007 and April 18, 2007. In addition, Vinland reimbursed us for selling, general and administrative expenses that we incurred on their behalf between January 5, 2007 and April 18, 2007. We reimbursed Vinland for certain transaction costs and expenses relating to entering into these agreements.

Restructuring Plan

Prior to the separation, our Predecessor owned all of the assets that are currently owned by us and Vinland in Appalachia. As part of the separation of our operating company and Vinland, effective January 5, 2007, we conveyed to Vinland 60% of our Predecessor's working interest in the known producing horizons in approximately 95,000 gross undeveloped acres in the AMI, 100% of our Predecessor's interest in an additional 125,000 undeveloped acres and certain coalbed methane rights located in the Appalachian Basin, the rights to any natural gas and oil located on our acreage at depths above and 100 feet below our known producing horizons, all of our gathering and compression assets and all employees other than our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer. 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 in the AMI and a contract right 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 wells and overhead costs, from the sale of production from certain producing natural gas and oil wells, which accounted for approximately 4.5% of our estimated proved reserves as of December 31, 2007. In addition, we changed the name of our operating company from Nami Holding Company, LLC to Vanguard Natural Gas, LLC. Collectively, we refer to these events as the "Restructuring."

Private Offering

In April 2007, we completed a private equity offering pursuant to which we issued 2,290,000 units to certain private investors, which we collectively refer to as the Private Investors, for $41.2 million. We used the net proceeds of this private equity offering to make a distribution to Majeed S. Nami, VNR's largest unitholder, who used a portion of these funds to capitalize Vinland and also paid us $3.9 million to reduce outstanding accounts receivable from Vinland. We then used the $3.9 million to repay borrowings and interest under our reserve-based credit facility, and for general limited liability company purposes. Under the terms of the private offering, all outstanding units accrued distributions at $1.75 annually from the closing of the private offering to September 30, 2007 and then distributions payable to the Private Investors only increased to $2.40 until the completion of the initial public offering at which time all accrued distributions totaling $5.6 million were paid.

Reserve-Based Credit Facility

On January 3, 2007, our operating company entered into a reserve-based credit facility which is available for our general limited liability company purposes, including, without limitation, capital expenditures and acquisitions. Our obligations under the reserve-based credit facility are secured by substantially all of our assets. Our initial borrowing base under the reserve-based credit facility was set at $115.5 million. However, the borrowing base was subject to $1.0 million reductions per month starting on July 1, 2007 through November 1, 2007, which resulted in a borrowing base of $110.5 million as reaffirmed in November 2007 pursuant to a semi-annual borrowing base redetermination. We applied $80.0 million of the net proceeds from our IPO in October 2007 to reduce our indebtedness under the reserve-based credit facility. In February 2008, our reserve-based credit facility was amended and restated to extend the maturity 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 additional financial institutions as lenders. Additional borrowings were made pursuant to the acquisition of natural gas and oil properties in the Permian Basin in January 2008 and indebtedness under the reserve-based credit facility totaled $102.5 million at June 30, 2008. At June 30, 2008, the applicable margin and other fees increase as the utilization of the borrowing base increases as follows:

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 %

In July 2008, an additional $31.0 million was borrowed under the reserve-based credit facility to fund a portion of the cash consideration paid in the South Texas acquisition. As a result, as of August 12, 2008, borrowings under the reserve-based credit facility increased to $131.5 million and the borrowing base is in the process of being redetermined to include the natural gas and oil properties from the South Texas acquisition.

Outlook

Our revenue, cash flow from operations and future growth depend substantially on factors beyond our control, such as economic, political and regulatory developments, competition from other sources of energy, and access to capital. Natural gas and oil prices historically have been volatile and may fluctuate widely in the future. Sustained periods of low prices for natural gas or oil could materially and adversely affect our financial position, our results of operations, the quantities of natural gas and oil reserves that we can economically produce and our access to capital. As required by our reserve-based credit facility, we have mitigated this volatility for the years 2007 through 2011 by implementing a hedging program on our proved producing and total anticipated production during this time frame.

We face the challenge of natural gas and oil production declines. As a given well's initial reservoir pressures are depleted, natural gas and oil production decreases, thus reducing our total reserves. We attempt to overcome this natural decline both by drilling on our properties and acquiring additional reserves. We will maintain our focus on controlling costs to add reserves through drilling and acquisitions, as well as controlling the corresponding costs necessary to produce such reserves. Our ability to add reserves through drilling is dependent on our capital resources and can be limited by many factors, including the ability to timely obtain drilling permits and regulatory approvals. Any delays in drilling, completion or connection to gathering lines of our new wells will negatively impact the rate of our production, which may have an adverse effect on our revenues and as a result, cash available for distribution. In accordance with our business plan, we intend to invest the capital necessary to maintain our production at existing levels over the long-term.

Results of Operations

The following table sets forth selected financial and operating data for the
periods ended June 30:

                                         Three Months Ended             Six Months Ended
                                              June 30,                      June 30,
                                         2008           2007         2008(a)          2007
Revenues:
Natural gas and oil sales            $ 20,849,911   $ 10,106,737   $ 34,850,008   $ 19,068,353
Realized losses on derivative
contracts                              (5,749,947 )     (918,044 )   (6,900,419 )   (1,665,852 )
Total revenues                         15,099,964   $  9,188,693     27,949,589   $ 17,402,501
Costs and expenses:
Lease operating expenses             $  2,300,076   $  1,314,041   $  4,315,753   $  2,460,420
Depreciation, depletion and
amortization                            3,330,024      2,291,426      6,154,002      4,320,289
Selling, general and
administrative expenses                 1,636,675        781,198      3,282,466      1,215,489
Bad debt expense                                -              -              -      1,007,458
Taxes other than income taxes           1,428,965        380,110      2,395,078        890,992
Total costs and expenses             $  8,695,740   $  4,766,775   $ 16,147,299   $  9,894,648
Other Income and (Expense):
Interest expense, net                $ (1,240,056 ) $ (2,182,012 ) $ (2,362,102 ) $ (4,392,168 )
Loss on extinguishment of debt       $          -   $          -   $          -   $ (2,501,528 )

(a) The Permian acquisition closed on January 31, 2008 and as such only five months of operations are included in the six month period ended June 30, 2008.

Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007

Revenues

Natural gas and oil sales increased $10.7 million to $20.8 million during the
three months ended June 30, 2008 as compared to the same period in 2007. The key
revenue measurements were as follows:

                                                  Three Months Ended           Percentage
                                                        June 30,                Increase
                                                  2008            2007         (Decrease)
Net Natural Gas Production:
Appalachian gas (MMcf)                                 903          1,032               (13 )%
Permian gas (MMcf)                                     109              -               N/A
Total natural gas production (MMcf)                  1,012          1,032                (2 )%
Average Appalachian daily gas production
(Mcf/day)                                            9,922         11,340               (13 )%
Average Permian daily gas production
(Mcf/day)                                            1,202              -               N/A

Average Natural Gas Sales Price per Mcf:
Net realized gas price, including hedges       $     10.35 (a) $     9.12 (a)            13 %
Net realized gas price, excluding hedges       $     13.14     $     9.30                41 %

Net Oil Production:
Appalachian oil (Bbls)                              10,430          8,513                22 %
Permian oil (Bbls)                                  61,817              -               N/A
Total oil (Bbls)                                    72,247          8,513               749 %
Average Appalachian daily oil production
(Bbls/day)                                             115             94                22 %
Average Permian daily oil production
(Bbls/day)                                             679              -               N/A

Average Oil Sales Price per Bbls:
Net realized oil price, including hedges       $     81.01     $    60.46                34 %
Net realized oil price, excluding hedges       $    104.44     $    60.46                73 %

(a) Excludes amortization of premiums paid and non-cash settlement on derivative contracts.

The increase in natural gas and oil sales was due primarily to the impact of the Permian Basin acquisition completed on January 31, 2008 and increases in commodity prices. Production from the Permian Basin contributed $8.0 million of natural gas and oil sales for the three month period ended June 30, 2008. In Appalachia, a decline in natural gas production was partially offset by an increase in oil production for a net production decline of 11% on an Mcfe basis. However, the negative impact of the production decline was offset by a 41% increase in the average realized natural gas sales price received (excluding hedges) and a 73% increase in the average realized oil price (excluding hedges).

Hedging Activities

During the three months ended June 30, 2008, we had hedges in place for approximately 95% of our total production, which resulted in reported revenues that were $5.7 million lower than we would have achieved at unhedged prices. During the three months ended June 30, 2007, we hedged approximately 96% of our total production, which resulted in an additional loss on derivative contracts of approximately $0.9 million.

Costs and Expenses

Production costs consist of the lease operating expenses and taxes other than income taxes (severance and ad valorem taxes). Lease operating expenses include third-party transportation costs, gathering and compression fees, field personnel and other customary charges. Lease operating expenses in Appalachia also include a $60 per month per well administrative charge pursuant to a management services agreement with Vinland, a $0.25 per Mcf and $0.55 per Mcf gathering and compression charge for production from wells drilled pre and post January 1, 2007, respectively, paid to Vinland pursuant to a gathering and compression agreement with Vinland. Lease operating expenses increased by $1.0 million to $2.3 million for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007 of which $0.9 million related to the Permian Basin acquisition. Severance taxes are a function of volumes and revenues generated from production. Ad valorem taxes vary by state/county and are based on the value of our reserves. Taxes other than income taxes increased by $1.0 million for the three months ended June 30, 2008 as compared to the same period in 2007 of which $0.6 million related to the Permian Basin acquisition.

Depreciation, depletion and amortization increased to approximately $3.3 million for the three months ended June 30, 2008 from approximately $2.3 million for the three months ended June 30, 2007 due primarily to the additional depletion recorded on oil and gas properties acquired in the Permian Basin acquisition.

Selling, general and administrative expenses include the costs of our administrative employees and executive officers, related benefits, office leases, professional fees and other costs not directly associated with field operations. These expenses for the three months ended June 30, 2008 increased $0.8 million as compared to the three months ended June 30, 2007. For the three months ended June 30, 2008 and 2007 these expenses included a $1.0 million and $0.6 million, respectively, non-cash compensation charge related to the grant of restricted Class B units to management and an employee, the grant of unit options to management, the grant of common units to board members and the grant of phantom units to management during 2007 and 2008. Excluding the impact of the non-cash compensation, selling, general and administrative expenses were $0.6 million for the three months ended June 30, 2008 representing a $0.4 million increase from the same period in 2007 principally due to costs associated with additional employees.

Interest expense declined to $1.2 million for the three months ended June 30, 2008 compared to $2.2 million for the three months ended June 30, 2007 primarily due to a reduction in the weighted average outstanding borrowings and lower interest rates.

Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007

Revenues

Natural gas and oil sales increased $15.7 million to $34.8 million during the
six months ended June 30, 2008 as compared to the same period in 2007. The key
revenue measurements were as follows:

                                                   Six Months Ended           Percentage
                                                       June 30,                Increase
                                                  2008           2007         (Decrease)
Net Natural Gas Production:
Appalachian gas (MMcf)                              1,770          2,100               (16 )%
Permian gas (MMcf)                                    151 (a)          -               N/A
Total natural gas production (MMcf)                 1,921          2,100                (9 )%
Average Appalachian daily gas production
(Mcf/day)                                           9,724         11,602               (16 )%
Average Permian daily gas production
(Mcf/day)                                           1,000 (a)          -               N/A

Average Natural Gas Sales Price per Mcf:
Net realized gas price, including hedges       $    10.41 (b) $     8.39 (b)            24 %
Net realized gas price, excluding hedges       $    11.62     $     8.84                31 %

Net Oil Production:
Appalachian oil (Bbls)                             21,421          8,513               151 %
Permian oil (Bbls)                                102,539 (a)          -               N/A
Total oil (Bbls)                                  123,960          8,513             1,356 %
Average Appalachian daily oil production
(Bbls/day)                                            118             47               151 %
Average Permian daily oil production
(Bbls/day)                                            679 (a)          -               N/A

Average Oil Sales Price per Bbls:
Net realized oil price, including hedges       $    84.61     $    60.46                40 %
Net realized oil price, excluding hedges       $   101.06     $    60.46                67 %

(a) The Permian acquisition closed on January 31, 2008 and as such only five months of operations are included in the six month period ended June 30, 2008.

(b) Excludes amortization of premiums paid and non-cash settlement on derivative contracts.

. . .