Legacy Reserves January Investor Presentation
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Transcript of Legacy Reserves January Investor Presentation
INVESTOR PRESENTATIONJANUARY 2014
Forward-looking Statements
2
Statements made by representatives of Legacy Reserves LP (the “Partnership”) duringthe course of this presentation that are not historical facts are forward-lookingstatements. These statements are based on certain assumptions made by thePartnership based on management’s experience and perception of historical trends,current conditions, anticipated future developments and other factors believed to beappropriate. Such statements are subject to a number of assumptions, risks anduncertainties, many of which are beyond the control of the Partnership, which may causeactual results to differ materially from those implied or expressed by the forward-lookingstatements. These include risks relating to financial performance and results, availabilityof sufficient cash flow to pay distributions or make payments on our notes and executeour business plan, prices and demand for oil and natural gas, our ability to replacereserves and efficiently exploit our current reserves, our ability to make acquisitions oneconomically acceptable terms, and other important factors that could cause actualresults to differ materially from those anticipated or implied in the forward-lookingstatements. Please see the factors described in the Partnership’s Annual Report onForm 10-K for the year ended December 31, 2012 in Item 1A under “Risk Factors” andsubsequent filings with the Securities and Exchange Commission. The Partnershipundertakes no obligation to publicly update any forward-looking statements, whether as aresult of new information or future events.
Legacy Reserves LP Overview
3
Legacy (NASDAQ: LGCY) IPO’d in January 2007 and has a consistent track record of growing its oil-weighted asset base and delivering unitholder valueCurrent Enterprise Value: $2.5 billion
$1.6 billion market cap(1)
$860 million of net debt
Tax-advantaged quarterly cash distribution of $0.585/unit ($2.34 annualized) provides 8.3% yield(1)
Straight-forward structure18% insider ownership
No IDRs
Long-lived, oil-weighted properties afford stable, low-decline asset base that is well suited for an MLPCore competencies have driven 43% distribution growth since IPO including 12 consecutive distribution increases
Evaluating acquisitions and development projects
Financing capital requirements
Executing the plan
(1) Based on closing price as of 1/8/13 of $28.30.
• 88.4 MMBoe PF proved reserves(1)
• 69% Oil and NGLs• 88% PDP• 20,043 Boe/d current production(2)
• Proved R/P of 12.1(3)
• Over 80% of reserves are operated• Approx. 8,000 gross producing wells
Core Asset Areas
4
Overview
Permian Basin• 67.6 MMBoe PF proved reserves(1)
• 64% Oil and NGLs• 85% PDP • 15,564 Boe/d current production(2)
Mid-Continent• 9.9 MMBoe PF proved reserves(1)
• 72% Oil and NGLs• 98% PDP • 2,195 Boe/d current production(2)
Rocky Mountain• 10.8 MMBoe PF proved reserves(1)
• 96% Oil and NGLs• 95% PDP• 2,216 Boe/d current production(2)
(1) SEC proved reserves at Dec. 31, 2012 as disclosed in Legacy’s Form 10-K plus estimated proved reserves from 2013 acquisitions.
(2) Q3 2013 production.(3) Based on estimated pro forma proved
reserves and Q3 2013 production.
Reserve Breakdown(1)
64%
31%
5%
Oil Gas NGL
76%
12%
11%
Permian Basin Rocky Mountain Mid-Continent
Permian Basin: Our Home and a Great Fit for an MLP
5
Source: Texas Railroad Commission (Districts 7C, 8 & 8A) and the New Mexico Oil Conservation Division.Map Source: Midland Map Company.(1) 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.
Industry Production ActivityDiscovered in 1921, the Permian Basin is one of the most prolific basins in the U.S.
Cumulative production of over 30 billion Bbls
Currently producing ~1.4 million Bbl/d and ~4.9 Bcf/d (Sep ’13)
Oil production increased 34% since Jan ’11
Multiple producing formationsEstablished and expanding infrastructure with constructive regulatory environmentLong-lived reservesPredictable, shallow decline ratesFragmented ownership
Over 1,275 companies currently operating in the basin
Top 5 owners represent less than one third of total ownership(1)
Permian holds over 90% of our PUDs
$32
$197
$221
$8
$280
$137
$100
3
1615
8
24
27
19
11
0
5
10
15
20
25
30
35
40
$0
$50
$100
$150
$200
$250
$300
$350
2006 2007 2008 2009 2010 2011 2012 2013
Total Deal Value # of Transactions
Acquisitions Drive Growth
6
Disciplined evaluation approach to making acquisitions of mature, long-lived oil and natural gas properties with high concentration of PDP reserves.
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
Averaged over $200 million of acquisitions annually during 2007, 2008, 2010 and 2011
2012 acquisitions of approximately $635 million
2013 opportunities: 160 screened, 75 evaluated, 11 closed (7%)
Eleven acquisitions of producing properties for $100 million made in 2013 at attractive metrics, and current acquisition pipeline looks strong
($ T
otal
Dea
l Val
ue) (# of Transactions)
$ 700 $ 635
Production and EBITDA Growth with Modest Leverage
7
Debt / Production ($ / Boe / d) Debt / Adjusted EBITDA
Average Daily Production (Boe / d) Adjusted EBITDA ($ MM)
(1) Excludes pro forma effects for acquisitions.
(1)
(1)
4,970 7,582 8,225 9,61113,071 14,811
20,043
0
6,000
12,000
18,000
24,000
2007 2008 2009 2010 2011 2012 Q32013
$70$104 $120 $141
$201 $198
$305
$0
$75
$150
$225
$300
2007 2008 2009 2010 2011 2012 LQA Q32013
$22,193
$37,295
$28,894$33,908
$25,853
$43,107
$0
$10,000
$20,000
$30,000
$40,000
$50,000
2007 2008 2009 2010 2011 Q3 2013
1.6x
2.7x
2.0x 2.3x
1.7x
2.8x
0.0x
1.0x
2.0x
3.0x
4.0x
2007 2008 2009 2010 2011 LQA Q32013
(1)
(1)
$0.200
$0.300
$0.400
$0.500
$0.600
$0.700
$0
$20
$40
$60
$80
$100
$120
$140
$160
(Qua
rterly
Dis
tribu
tion
/ Uni
t)($ / Bbl)
2009 2010 2011 2012
Legacy has increased its quarterly distribution by 3.5% year-over-year and 42.7% since its IPO
Quarterly Cash Distribution Profile
8
1Q 2Q 3Q 4Q
Cumulative distributions since inception = $14.080/unit
$0.52
20082007
Quarterly Distribution per Unit
WTI Spot Price ($ / Bbl)
$0.57$0.565$0.56$0.555$0.55$0.545$0.54$0.53$0.525
$0.49
$0.45$0.43
$0.42$0.41
$0.575$0.58
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
2013
$0.585
Hedging Strategy
9
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 84% of expected PDP crude oil production and approximately 55% of expected PDP natural gas production hedged through 2015 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
Key Investment Highlights
10
High-quality, liquids-rich asset portfolio69% Liquids
12.1 R/P(1)
Strong track record123 acquisitions of producing properties worth approximately $1.6 billion
12 consecutive quarters of distribution growth
Extensive, Low-Risk development Drilling InventoryOver 700 low-risk development opportunities
Experienced and Incentivized Management Team18% 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 Policy2.8x Debt/LQA EBITDA with no near-term debt maturities(2)
Substantial hedge portfolio(1) Based on estimated pro forma proved reserves (proved reserves as of 12/31/12 plus estimated proved reserves from 2013 acquisitions) and Q3 2013 production.(2) Annualized Q3 2013 Adjusted EBITDA ($76.2 million) which excludes pro forma effects for acquisitions.
11
Appendix
Conservative Capital Structure
12
(1) Reflects face value of the notes.(2) Annualized Q3 2013 Adjusted EBITDA ($76.2 million) which excludes pro forma effects for acquisitions.(3) Q3 2013 production.
($ in millions)
September 30, 2013
Cash and cash equivalents $4.1
Long-term debt:Revolving credit facility due 2016 $314.08% Senior Notes due 2020 (1) 300.06.625% Senior Notes due 2021 (1) 250.0
Total Debt $864.0
Market Capitalization $1,627.6
Total Enterprise Value (TEV) $2,487.6
Borrowing Base $800.0Liquidity $489.9
PF LQA Adjusted EBITDA (2) $305.0
PF Proved Reserves (MMBoe) 88.4PF Proved Developed Reserves (MMBoe) 79.9Avg. Daily Production (Boe/d) (3) 20,043
Annual Distribution ($/unit) $2.34Closing Unit Price (1/8/2014) $28.30Distribution Yield 8.3%
Successful Historical Use of Hedging to Protect Cash Flows
13
Annual Revenues Plus Hedging Annual Adjusted EBITDA
Annual Revenues Without Hedging Annual Hedging Settlements
$112
$215
$137
$216
$337 $346
$0
$100
$200
$300
$400
2007 2008 2009 2010 2011 2012
$0
($40)
$53
$20 $1 $6
($60)
($20)
$20
$60
$100
2007 2008 2009 2010 2011 2012
$70$104
$120$141
$201 $198
$0
$50
$100
$150
$200
$250
2007 2008 2009 2010 2011 2012
$112
$175 $190$237
$338 $352
$0
$100
$200
$300
$400
2007 2008 2009 2010 2011 2012
Natural Gas Hedging Summary(2)
Oil and Natural Gas Hedging Summary
14
Approximately 84% of expected PDP crude oil production hedged through 2015 at a weighted-averaged floor price of $92.80 / Bbl
Uses a combination of swaps, three-way collars and
enhanced swaps
Approximately 55% of expected PDP natural gas production hedged through 2015 at a weighted-averaged price of $4.40 / MMBtu
Oil 3-Way Collars Summary
(BBt
u H
edge
d)
(MBb
ls H
edge
d)(M
Bbls
Hed
ged)
Oil Hedging Summary(1)
(1) Hedging prices reflect a weighted average of swap prices, long put prices on 3-way collars, and enhanced swap prices.(2) Natural gas hedge prices reflect Waha (West Texas), ANR-OK, and CIG (Rockies) indexes.
$108.15 $110.53 $112.21 $106.40 $104.20
$91.56 $96.78 $89.67 $88.37 $85.00
$66.34$71.78 $64.67 $63.37 $60.00
$0.00
$35.00
$70.00
$105.00
$140.00
0
400
800
1,200
1,600
Q4 2013 2014 2015 2016 2017
3W Collars (MBbls) Avg. 3W Short Call (Price)Avg. 3W Long Put (Price) Avg. 3W Short Put (Price)
$4.33
$4.32
$4.58
$4.30
-
2,000
4,000
6,000
8,000
10,000
Q4 2013 2014 2015 2016Swaps
$92.45
$94.18
$90.87
$88.86$87.34
$90.50 -
800
1,600
2,400
3,200
4,000
4,800
Q4 2013 2014 2015 2016 2017 2018Swaps 3W Collars Enhanced Swaps
Permian Basin Drilling Opportunities
15
Note: Reflects proved and unproved locations as well as prospective acreage. Well costs are based on current estimates.
Founding Investors, Directors
and Management
Legacy ReservesGP, LLC
Public
Legacy Reserves LP (NASDAQ:LGCY)
Legacy Reserves LP (NASDAQ:LGCY)
Legacy Reserves Operating LP
100%
18% LimitedPartner Interest
<0.1% General Partner Interest
100% Ownership Interest
82% LimitedPartner Interest
Ownership Structure and Governance
16
Significant insider ownership
No IDRs yields lower cost of capital and ensures unitholder alignment
Unitholder voting rights similar to typical LLC structure
Independent board members enhance corporate governance
Independent Reserve Engineers:
LaRoche Petroleum Consultants, Ltd.
Independent Auditors: BDO USA, LLP
$1.0 Bn Revolving Credit Facility with $800MM Borrowing Base
$300MM 8.00% Senior Notes$250MM 6.625% Senior Notes
17
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 long-
lived 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; net
(gains) losses on commodity derivatives; and net cash settlements received (paid) on commodity 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.
Reg G Reconciliation
18
(1) 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.
(2) EBITDA applicable to equity method investee is defined as the equity method investee’s net income plus interest expense and depreciation.
($ in millions)
2007 2008 2009 2010 2011 2012 9M 2013
Net income (loss) ($55.7) $158.2 ($92.8) $10.8 $72.1 $68.6 $11.6
Interest expense 7.1 21.2 13.2 25.8 18.6 20.3 36.1Income taxes 0.3 0.0 0.6 0.5 1.0 1.1 0.6Depletion, depreciation, amortization and accretion 28.4 63.3 58.8 62.9 88.2 102.1 118.5Impairment of long-lived assets 3.2 76.9 9.2 13.4 24.5 37.1 23.4(Gain) loss on disposal of assets 0.5 0.6 0.4 0.6 (0.6) (2.5) 0.5Equity in income of partnership (0.1) (0.1) (0.0) (0.1) (0.1) (0.1) (0.4)Unit-based compensation expense 1.0 1.1 3.1 5.5 4.0 3.5 3.6Minimum payments earned in excess of overriding royalty interest (1) 0.7EBITDA applicable to equity method investee (2) 0.4Net (gains) losses on commodity derivatives 85.2 (176.9) 75.5 1.4 (6.8) (38.5) 18.1Net cash settlements received (paid) on commodity derivatives 0.2 (40.2) 52.5 20.1 0.6 5.9 (4.7)
Adjusted EBITDA $70.2 $104.1 $120.4 $141.0 $201.4 $197.6 $208.5