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OCTOBER 2013

INVESTOR PRESENTATION
Forward-looking Statements
Statements made by representatives of Legacy Reserves LP (the “Partnership”) during
the course ...
Legacy Reserves LP Overview
Legacy has a 6+ year history as a publicly traded MLP
(NASDAQ: LGCY) and a consistent track re...
Permian Basin: Our Home and a Great Fit for an MLP
Discovered in 1921, the Permian Basin is
one of the most prolific basin...
Acquisitions Drive Growth
Disciplined evaluation approach to making
acquisitions of mature, long-lived oil and
natural gas...
Core Asset Areas

Overview

Rocky Mountain
• 10.8 MMBoe PF proved reserves(1)
• 96% Oil and NGLs
• 95% PDP
• 2,171 Boe/d c...
Key Investment Highlights
High-quality, liquids-rich asset portfolio
69% Liquids
12.4 R/P(1)

Strong track record
123 acqu...
Financial Overview

8
Conservative Capital Structure
($ in millions)

June 30, 2013
Cash and cash equivalents

$4.0

Long-term debt:
Revolving c...
Production and EBITDA Growth with Modest Leverage
Average Daily Production (Boe / d)

Adjusted EBITDA ($ MM)

24,000

$300...
Quarterly Cash Distribution Profile

Quarterly Distribution per Unit

$0.700

$160

Cumulative distributions since
incepti...
Hedging Strategy
Clear objective to reduce cash flow volatility to protect our borrowing base and future
distribution leve...
Successful Historical Use of Hedging to Protect Cash Flows

Annual Revenues Without Hedging
$400
$337

Annual Hedging Sett...
Oil and Natural Gas Hedging Summary
Approximately 92% of expected PDP crude oil
production hedged through 2014 at a
weight...
Appendix

15
Permian Basin Drilling Opportunities

Note: Reflects proved and unproved locations as well as prospective acreage. Well co...
Ownership Structure and Governance
Significant insider ownership
No IDRs yields lower cost of
capital and ensures
unithold...
Adjusted EBITDA Reconciliation
The following presents a reconciliation of “Adjusted EBITDA”, which is a non-GAAP measure, ...
Reg G Reconciliation
($ in millions)
2007
Net income (loss)

2008

($55.7)

2009

$158.2

2010

2011

2012

1H 2013

($92....
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Legacy Reserves October 2013 Investor Presentation

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Transcript of "Legacy Reserves October 2013 Investor Presentation"

  1. 1. OCTOBER 2013 INVESTOR PRESENTATION
  2. 2. Forward-looking Statements Statements made by representatives of Legacy Reserves LP (the “Partnership”) during the course of this presentation that are not historical facts are forward-looking statements. These statements are based on certain assumptions made by the Partnership based on management’s experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Partnership, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include risks relating to financial performance and results, availability of sufficient cash flow to pay distributions or make payments on our notes and execute our business plan, prices and demand for oil and natural gas, our ability to replace reserves and efficiently exploit our current reserves, our ability to make acquisitions on economically acceptable terms, and other important factors that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. Please see the factors described in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2012 in Item 1A under “Risk Factors” and subsequent filings with the Securities and Exchange Commission. The Partnership undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information or future events. 2
  3. 3. Legacy Reserves LP Overview Legacy has a 6+ year history as a publicly traded MLP (NASDAQ: LGCY) and a consistent track record of growing its oil-weighted asset base and delivering unitholder value Current Enterprise Value: $2.4 billion $1.6 billion market cap(1) $869 million of net debt Tax-advantaged quarterly cash distribution of $0.58/unit ($2.32 annualized) provides 8.6% yield(1) Long-lived oil-weighted properties afford stable, lowdecline asset base that is well suited for an MLP Estimated 88.4 MMBoe of pro forma proved reserves(2) 69% Oil and NGLs 88% PDP 12.4 R/P(3) Core competencies have driven 41% distribution growth since Jan ‘07 IPO and 11 consecutive distribution increases Evaluating acquisitions and development projects Financing capital requirements Executing the plan (1) Based on closing price as of 9/25/13 of $27.06. (2) Proved reserves as of December 31, 2012 as disclosed in Legacy’s 2012 Form 10-K plus estimated proved reserves from 2013 acquisitions, including pending acquisitions. (3) Based on estimated pro forma proved reserves and Q2 2013 production of 19,516 Boe/d 3
  4. 4. Permian Basin: Our Home and a Great Fit for an MLP Discovered in 1921, the Permian Basin is one of the most prolific basins in the U.S. Industry Production Activity Cumulative production of over 30 billion Bbls Currently producing ~1.25 million Bbl/d and ~4.6 Bcf/d (Apr ’13) Oil production increased 30% since Jan ’11 Multiple producing formations Established and expanding infrastructure with constructive regulatory environment Long-lived reserves Predictable, shallow decline rates Fragmented ownership Over 1,275 companies currently operating in the basin Top 5 owners represent less than one third of total ownership(1) Permian holds nearly all of our PUDs and future capex Source: Map Source: (1) Texas Railroad Commission (Districts 7C, 8 & 8A) and the New Mexico Oil Conservation Division. Midland Map Company. Ownership based on 2011 total production. Permian Basin includes Texas Railroad Commission Districts 7C, 8, 8A as well as Lea and Eddy Counties, New Mexico. 4
  5. 5. Acquisitions Drive Growth Disciplined evaluation approach to making acquisitions of mature, long-lived oil and natural gas properties with high concentration of PDP reserves. $280 30 27 $250 $221 ($ Total Deal Value) 2012 acquisitions of approximately $635 million 35 24 25 $197 $200 19 16 $150 $137 15 15 $100 11 $100 2013 opportunities: 133 screened, 58 evaluated, 11 closed/pending (8%) Eleven acquisitions of producing properties for $100 million made in 2013 at attractive metrics, and current acquisition pipeline looks strong 20 10 8 $50 $32 5 3 $8 $0 0 2006 2007 2008 2009 2010 2011 2012 2013 Total Deal Value # of Transactions 5 (# of Transactions) Averaged over $200 million of acquisitions annually during 2007, 2008, 2010 and 2011 40 $300 Approximately $1.6 billion of acquisitions since 2006 focused in the Permian Basin, Mid-Continent and Rockies Purchased at an average of 5.6x estimated FTM cash flow $ 635 $350 $ 700
  6. 6. Core Asset Areas Overview Rocky Mountain • 10.8 MMBoe PF proved reserves(1) • 96% Oil and NGLs • 95% PDP • 2,171 Boe/d current production(2) Permian Basin • 67.6 MMBoe PF proved reserves(1) • 64% Oil and NGLs • 85% PDP • 15,148 Boe/d current production(2) (1) (2) (3) • 88.4 MMBoe PF proved reserves(1) • 69% Oil and NGLs • 88% PDP • 19,516 Boe/d current production(2) • Proved R/P of 12.4(3) • Over 80% of reserves are operated • Approx. 8,000 gross producing wells Mid-Continent • 9.9 MMBoe PF proved reserves(1) • 72% Oil and NGLs • 98% PDP • 2,118 Boe/d current production(2) SEC proved reserves at Dec. 31, 2012 as disclosed in Legacy’s Form 10-K plus estimated proved reserves from 2013 acquisitions, including pending acquisitions. Q2 2013 production. Based on estimated pro forma proved reserves and Q2 2013 production. 6
  7. 7. Key Investment Highlights High-quality, liquids-rich asset portfolio 69% Liquids 12.4 R/P(1) Strong track record 123 acquisitions of producing properties worth approximately $1.6 billion 11 consecutive quarters of distribution growth Extensive, Low-Risk development Drilling Inventory Over 700 low-risk development opportunities Experienced and Incentivized Management Team 18% of outstanding units held by management/insiders No Incentive Distribution Rights promotes unitholder alignment with 100% of incremental cash flows going to LPs Conservative Financial and Hedging Policy 3.2x Debt/LQA EBITDA with no near-term debt maturities(2) Substantial hedge portfolio (1) (2) Based on estimated pro forma proved reserves (proved reserves as of 12/31/12 plus estimated proved reserves from 2013 acquisitions, including pending acquisitions) and Q2 2013 production. Annualized Q2 2013 Adjusted EBITDA ($67.9 million) which excludes pro forma effects for acquisitions. 7
  8. 8. Financial Overview 8
  9. 9. Conservative Capital Structure ($ in millions) June 30, 2013 Cash and cash equivalents $4.0 Long-term debt: Revolving credit facility due 2016 8% Senior Notes due 2020 (1) 6.625% Senior Notes due 2021 (1) $323.0 300.0 250.0 Total Debt $873.0 Market Capitalization $1,559.2 Total Enterprise Value (TEV) $2,428.2 Borrowing Base Liquidity $418.3 PF LQA Adjusted EBITDA (2) $271.7 Proved Reserves (MMBoe) Proved Developed Reserves (MMBoe) Avg. Daily Production (Boe/d) (3) 88.4 79.9 19,516 Annual Distribution ($/unit) Closing Unit Price (9/25/2013) Distribution Yield (1) (2) (3) $737.5 $2.32 $27.06 8.6% Reflects face value of the notes. Annualized Q2 2013 Adjusted EBITDA ($67.9 million) which excludes pro forma effects for acquisitions. Q2 2013 production. 9
  10. 10. Production and EBITDA Growth with Modest Leverage Average Daily Production (Boe / d) Adjusted EBITDA ($ MM) 24,000 $300 18,000 $225 12,000 $150 $272 19,516 6,000 7,582 4,970 8,225 9,611 13,071 14,811 $70 0 2007 2008 2009 $201 $75 2010 2011 2012 (1) 2007 Q2 2013 $30,000 2008 2009 2010 2011 2012 LQA Q2 2013 (1) Debt / Adjusted EBITDA 4.0x $44,733 3.2x $37,295 $40,000 $120 $0 Debt / Production ($ / Boe / d) $50,000 $104 $198 $141 $33,908 $28,894 2.7x 3.0x $25,853 $22,193 2.0x 2.0x 2.3x 1.7x 1.6x $20,000 1.0x $10,000 $0 (1) 2007 (1) 2008 2009 2010 2011 Q2 2013 0.0x 2007 2008 2009 2010 2011 LQA Q2 2013 (1) Excludes pro forma effects for acquisitions. 10
  11. 11. Quarterly Cash Distribution Profile Quarterly Distribution per Unit $0.700 $160 Cumulative distributions since inception = $13.495/unit WTI Spot Price ($ / Bbl) $140 $0.525 $0.53 $0.52 $0.55 $0.555 $0.54 $0.545 $0.57 $0.56 $0.565 $0.575 $0.58 $120 $100 $0.49 $0.500 $0.45 $0.42 $80 $0.43 $0.41 $0.400 $60 $40 $0.300 $20 $0 $0.200 1Q 2Q 3Q 2007 4Q 1Q 2Q 3Q 2008 4Q 1Q 2Q 3Q 2009 4Q 1Q 2Q 3Q 2010 4Q 1Q 2Q 3Q 2011 4Q 1Q 2Q 3Q 4Q 2012 1Q 2Q 2013 Legacy has increased its quarterly distribution by 3.6% year-over-year and 41.5% since its IPO 11 ($ / Bbl) (Quarterly Distribution / Unit) $0.600
  12. 12. Hedging Strategy Clear objective to reduce cash flow volatility to protect our borrowing base and future distribution levels Target approximately 85% of estimated PDP production over the next 18-24 months on a rolling quarterly basis with declining percentage hedging thereafter Approximately 92% of expected PDP crude oil production and approximately 67% of expected PDP natural gas production hedged through 2014 at favorable prices Hedge production from acquisitions for 3-5 years upon signing of a purchase and sale agreement to help lock-in acquisition economics Hedge within our bank group to capitalize on right-way risk and reduce capital constraints Primarily use swaps, 3-way collars and enhanced swaps All hedges (both prior and current) are costless Hedge interest rates to further mitigate volatility 12
  13. 13. Successful Historical Use of Hedging to Protect Cash Flows Annual Revenues Without Hedging $400 $337 Annual Hedging Settlements $346 $100 $53 $60 $300 $216 $215 $20 $20 $200 $112 $100 $0 ($60) $6 2011 2012 $198 2011 2012 ($20) $0 $1 $201 $137 2007 2008 2009 2010 2011 ($40) 2007 2012 Annual Revenues Plus Hedging $400 $338 2008 2009 2010 Annual Adjusted EBITDA $352 $250 $200 $300 $237 $175 $200 $141 $150 $190 $104 $100 $112 $100 $120 $70 $50 $0 $0 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 13
  14. 14. Oil and Natural Gas Hedging Summary Approximately 92% of expected PDP crude oil production hedged through 2014 at a weighted-averaged floor price of $91.79 / Bbl enhanced swaps Approximately 67% of expected PDP natural gas production hedged through 2014 at a weighted-averaged floor price of $4.32 / MMBtu 2,000 $140.00 1,200 $108.15 $108.62 $112.21 $106.40 $104.20 $91.56 1,600 (MBbls Hedged) Uses a combination of swaps, three-way collars and Oil 3-Way Collars Summary $91.58 $89.67 $88.37 $85.00 $66.34 $66.43 $64.67 $63.37 $60.00 $105.00 $70.00 800 $35.00 400 0 $0.00 Q4 2013 2014 2015 3W Collars (MBbls) Avg. 3W Long Put (Price) Natural Gas Hedging Summary(1)(2) 2016 2017 Avg. 3W Short Call (Price) Avg. 3W Short Put (Price) Oil Hedging Summary(1) 10,000 4,000 $91.62 $4.32 (MBbls Hedged) (BBtu Hedged) 8,000 6,000 4,000 $4.33 $5.65 2,000 3,200 $90.68 2,400 1,600 $88.86 $92.45 800 $87.34 $5.30 - Q4 2013 2014 2015 Swaps (1) (2) $90.50 2016 Q4 2013 Swaps 2014 2015 3W Collars 2016 2017 2018 Enhanced Swaps Hedging prices reflect a weighted average of swap prices, long put prices on 3-way collars, and enhanced swap prices. Natural gas hedge prices reflect Waha (West Texas), ANR-OK, and CIG (Rockies) indexes. 14
  15. 15. Appendix 15
  16. 16. Permian Basin Drilling Opportunities Note: Reflects proved and unproved locations as well as prospective acreage. Well costs are based on current estimates. 16
  17. 17. Ownership Structure and Governance Significant insider ownership No IDRs yields lower cost of capital and ensures unitholder alignment Founding Investors, Directors and Management Public Unitholder voting rights similar to typical LLC structure 100% 18% Limited Partner Interest Independent Reserve Engineers: LaRoche Petroleum Consultants, Ltd. Legacy Reserves GP, LLC 82% Limited Partner Interest Independent board members enhance corporate governance <0.1% General Partner Interest Legacy Reserves LP (NASDAQ:LGCY) Independent Auditors: BDO USA, LLP $1.0 Bn Revolving Credit Facility with $737.5MM Borrowing Base $300MM 8.00% Senior Notes $250MM 6.625% Senior Notes 100% Ownership Interest Legacy Reserves Operating LP 17
  18. 18. Adjusted EBITDA Reconciliation The following presents a reconciliation of “Adjusted EBITDA”, which is a non-GAAP measure, to its nearest comparable GAAP measure. “Adjusted EBITDA” should not be considered as an alternative to GAAP measures, such as net income, operating income, cash flow from operating activities, or any other GAAP measure of financial performance. Adjusted EBITDA is defined as net income (loss) plus interest expense; income taxes; depletion, depreciation, amortization and accretion; impairment of longlived assets; (gain) loss on sale of partnership investment; (gain) loss on disposal of assets; equity in (income) loss of equity method investees; unit-based compensation expense related to LTIP unit awards accounted for under the equity or liability methods; minimum payments earned in excess of overriding royalty interests; EBITDA applicable to equity method investee; and unrealized (gain) loss on oil and natural gas derivatives. The management of Legacy Reserves LP uses Adjusted EBITDA as a tool to provide additional information and metrics relative to the performance of Legacy’s business. Legacy’s management believes that Adjusted EBITDA is useful to investors because this measure is used by many companies in the industry as a measure of operating and financial performance and is commonly employed by financial analysts and others to evaluate the operating and financial performance of the Partnership from period to period and to compare it with the performance of other publicly traded partnerships within the industry. Adjusted EBITDA may not be comparable to a similarly titled measure of other publicly traded limited partnerships or limited liability companies because all companies may not calculate Adjusted EBITDA in the same manner. 18
  19. 19. Reg G Reconciliation ($ in millions) 2007 Net income (loss) 2008 ($55.7) 2009 $158.2 2010 2011 2012 1H 2013 ($92.8) $10.8 $72.1 $68.6 $15.0 Interest expense 7.1 21.2 13.2 25.8 18.6 20.3 21.9 Income taxes 0.3 0.0 0.6 0.5 1.0 1.1 0.6 28.4 63.3 58.8 62.9 88.2 102.1 80.8 Impairment of long-lived assets 3.2 76.9 9.2 13.4 24.5 37.1 22.5 (Gain) loss on disposal of assets 0.5 0.6 0.4 0.6 (0.6) (2.5) (0.3) Equity in income of partnership (0.1) (0.1) (0.0) (0.1) (0.1) (0.1) (0.2) 1.0 1.1 3.1 5.5 4.0 3.5 2.3 Depletion, depreciation, amortization and accretion Unit-based compensation expense Minimum payments earned in excess of overriding royalty interest EBITDA applicable to equity method investee (1) (2) 0.4 (2) Unrealized (gains) losses on oil and natural gas derivatives Adjusted EBITDA (1) 0.2 85.4 (217.2) 128.0 21.5 $70.2 $104.1 $120.4 $141.0 (6.2) $201.4 (32.6) $197.6 (11.0) $132.3 A portion of minimum payments earned in excess of overriding royalties earned under a contractual agreement expiring December 31, 2019. The remaining amount of the minimum payments are recognized in net income. EBITDA applicable to equity method investee is defined as the equity method investee’s net income plus interest expense and depreciation. 19
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