Legacy Reserves January Investor Presentation

18
INVESTOR PRESENTATION JANUARY 2014

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Transcript of Legacy Reserves January Investor Presentation

Page 1: Legacy Reserves January Investor Presentation

INVESTOR PRESENTATIONJANUARY 2014

Page 2: Legacy Reserves January Investor Presentation

Forward-looking Statements

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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.

Page 3: Legacy Reserves January Investor Presentation

Legacy Reserves LP Overview

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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.

Page 4: Legacy Reserves January Investor Presentation

• 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

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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

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Permian Basin: Our Home and a Great Fit for an MLP

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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

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$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

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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

Page 7: Legacy Reserves January Investor Presentation

Production and EBITDA Growth with Modest Leverage

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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)

Page 8: Legacy Reserves January Investor Presentation

$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

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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

Page 9: Legacy Reserves January Investor Presentation

Hedging Strategy

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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

Page 10: Legacy Reserves January Investor Presentation

Key Investment Highlights

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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.

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Appendix

Page 12: Legacy Reserves January Investor Presentation

Conservative Capital Structure

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(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%

Page 13: Legacy Reserves January Investor Presentation

Successful Historical Use of Hedging to Protect Cash Flows

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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

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Natural Gas Hedging Summary(2)

Oil and Natural Gas Hedging Summary

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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

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Permian Basin Drilling Opportunities

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Note: Reflects proved and unproved locations as well as prospective acreage. Well costs are based on current estimates.

Page 16: Legacy Reserves January Investor Presentation

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

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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

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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.

Page 18: Legacy Reserves January Investor Presentation

Reg G Reconciliation

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(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