Legacy Reserves LP
A. G. Edwards Yield Conference
May 2007
Page 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 and execute our business plan, prices and
demand for o il 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
projected as described in the Partnership’s registration statements filed 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.
Legacy Reserves LP
Legacy Overview
Page 4
Legacy History
1981
•Dale Brown and Jack McGraw formed Brothers Production
Company
•McGraws bought out Dale Brown in Brothers Production
Company
•Petroleum Strategies and Moriah Properties, Ltd. are formed
by Dale and Cary Brown
•Significant growth through acquisition through
Brothers-Moriah joint venture
•Initiated process of forming MLP
•Completed private equity placement and acquired properties
from Brothers, Moriah, MBN and related entities
•Completed first IPO of the year
1990
1991
1999 - 2005
2005
2006
2007
Page 5
S. Wil VanLoh, Jr.
Managing Partner
Quantum Energy Partners
William D. Sullivan
Former EVP
Anadarko Petroleum
G. Larry Lawrence
Former Controller
Pure Resources
Kyle D. Vann
Former CEO
Entergy - Koch, LP
Legacy Management Team
Page 6
(1)Taken from reserve reports prepared by LaRoche Petroleum Consultants, Ltd. as of 12/31/06 for Legacy Reserves LP plus proved reserves from announced acquisitions from internal
reserve reports: Binger (4.1 MMBoe), TSF/Ameristate (1.4 MMBoe), and Slaughter/Rocker A (1.0 MMBoe).
(2)4th quarter 2006 plus the estimated current production from announced acquisitions: Binger (734 Boe/d), TSF/Ameristate (284 Boe/d), and Slaughter/Rocker A (215 Boe/d).
Asset Overview
•25.3 MMBoe of proved reserves (1)
•Reserves-to-production ratio of
over 14 years
•Diversified across over 1,900
wells
•70% operated
•Over 4,800 net Boe per day (2)
•70% oil
Page 7
(1)Source: http://www.utpb.edu
Map Source: Midland Map Company.
Why the Permian Basin?
•Over 24 BBbls produced since
1921
•Represents 20% of lower 48 states
and 68% of Texas oil production (1)
•Multiple producing formations
•Established infrastructure and
ample take-away capacity
•Long-lived reserves
•Predictable, shallow decline rates
•Fragmented ownership
Page 8
Top 5
Operators
1,700+
Operators
0.3%
(1) Ownership based on production. Permian Basin includes Texas Railroad Commission Districts 7C, 8, 8A and Lea and Eddy County, New Mexico.
Permian Basin data as of July 31, 2005; Legacy production data as of September 30, 2006.
63.6%
36.1%
Consolidation Opportunities in the Permian Basin
•Fragmented ownership provides
numerous acquisition opportunities
•Acquisition niche - large PDP
component
•Connected in Permian Basin deal
network
Page 9
Note: Per John S. Herold, Inc’s 2007 Global Upstream M&A Review (from publicly available data). Mid-Continent includes the Permian Basin, excludes corporate transactions.
Active Acquisition Market
Page 10
Aggregate cost of $146
million at an average cost
of $6.42 per Boe
Acquisition Track Record
Page 11
Binger Acquisition
•Closed the purchase on April 16, 2007 of properties from Nielson & Associates, Inc., for an aggregate
purchase price of approximately $44.5 million subject to further post-closing adjustments
•$29.5 million cash and 611,247 Legacy units issued to Nielson
•Acquired interests in the East Binger (Marchand) Unit in Caddo County, Oklahoma
•Estimated proved reserves of 4.1 MMBoe, 83% Proved Developed Producing
•Miscible nitrogen injection project
•Reserve life index of approximately 15.7 years
•Current net production of approximately 734 Boe per day
•Over 50 producing wells and 30 gas injection wells
•13,000 gross acres within the unit boundary
•Operated through joint venture company to be 50% owned by Legacy
•Agreement with Iron Creek (Nielson affiliate) to jointly pursue acquisitions in the N. Rockies
Page 12
TSF & Ameristate Acquisitions
•Signed definitive purchase agreements to acquire properties from two private companies for an
aggregate stated purchase price of $20.8 million in cash
•Closed Ameristate on May 1, TSF to close by end of May
•Located in Midland, Upton and Reagan counties of West Texas and Lea and Eddy counties of
southeast New Mexico
•Estimated proved reserves of 1.44 MMBoe
•Approximately 89% proved developed producing reserves
•Reserve life index of approximately 12 years
•Current net production of approximately 284 Boe per day
•19 operated and 30 non-operated producing wells
•Near existing Permian Basin properties
•Negotiated transaction
Page 13
Slaughter and Rocker A Field Acquisitions
•Signed definitive purchase agreement to acquire properties from two private companies for an
aggregate stated purchase price of $12.9 million in cash
•Located in Cochran and Garza counties of West Texas
•Estimated proved reserves of 1.0 MMBoe
•100% proved developed producing reserves
•Reserve life index of approximately 13 years
•Current net production of approximately 215 Boe per day (98% oil)
•83 producing wells, 90% operated
•Near existing Permian Basin properties
•Negotiated transaction
Legacy Reserves LP
Financial Summary
Page 15
GP Interest
<0.1%
New Unitholders
27%
144A
Unitholders
20%
Sellers of Assets to
Legacy
1%
Founding Investors,
Directors and Management
52%
IPO Offering Summary - Post IPO Ownership
Page 16
Legacy Balance Sheet
Page 17
Note: Adjusted EBITDA for the quarter ended 9-30-06 unfavorably impacted by $4.0 million swap termination payment for 2007-2008 oil swaps.
Summary Financial Information
Page 18
(1) Production volumes based on a reserve report prepared by LaRoche Petroleum Consultants, Ltd. as of 12/31/06 for Legacy Reserves LP and from an
internal report for the Binger acquisition. Waha-NYMEX basis swaps in place on all hedged gas volumes. Natural gas and oil prices shown are for NYMEX
futures, except for certain gas volumes hedged on ANR-Oklahoma which trades at a discount to NYMEX Henry Hub. Additional natural gas liquids swaps have
been placed for the Binger acquisition as previously announced.
Commodity Price Hedging Summary
Legacy Reserves LP
Upstream MLP / LLC Sector Overview
Page 20
•Harvest properties need the right home - all properties are eventually
harvest properties
•Lower cost of capital than a C-Corp as the yield is the cost of equity
•MLPs are not subject to entity level federal taxation
–Income and tax benefits flow through to the limited partners:
cost/statutory depletion, IDC’s L&WE depreciation
–40-90%+ tax shield among peer group, Legacy >90%
•Appetite for yield in the marketplace
•Mature assets may have been neglected by their C-Corp owners focused on
drilling
Why Should MLPs Own Mature Producing Assets?
Page 21
Drivers of New Upstream MLP / LLC Activity
Long-Lived,
Predictable
Reserve Base
Availability of
Longer-Term
Hedging
Exploitation
Strategy, Not
Exploration
Conservative
Balance Sheet /
Coverage Ratio
•Low decline rates / High R/P ratios
•High levels of PDP with predictable PUD opportunities
•Low development costs
•New upstream MLPs/LLCs focus on exploitation, rather than rely
on exploration to support cash flow.
•Factory-like development of a well-known reserve base is ideal.
•Development of the longer-term hedging market has provided
support to MLPs by facilitating visibility into production
economics and available cash for distribution.
•Analysts are emphasizing more robust coverage ratios of
distributions to distributable cash flow in new MLPs/LLCs, in
order to support the sustainability of cash flows.
Page 22
Significant Advantages of MLP without IDR
•Lower cost of capital than traditional MLP structure
–Unit distribution growth not burdened by IDRs to the GP
–Cost of equity equals market yield
•Simple and fair alignment of interests among all investors
–Investors share equally in all cash flows
–With significant ownership, management is strongly motivated to
increase distributions
•Facilitates accretive acquisitions
–Acquisitions are more accretive at a given price
–Ability to use units as acquisition currency
Page 23
Note: Market data as of 5/10/2007.
Large Cap Pipeline / Midstream MLPs Index: Market Cap > $1.4 B. Includes Buckeye, Boardwalk, Enbridge, Energy, Enterprise, Kinder Morgan, Magellan, Oneok, Plains, TEPPCO, Valero/NuStar.
Coal MLPs Index: Alliance, Natural Resource, Penn Virginia.
Small Cap Pipeline / Midstream MLPs Index: Market Cap < $1.4 B. Includes Atlas, Copano, Crosstex, DCP, Genesis, Global, Hiland, Holly, MarkWest, Martin, Pacific, Regency, Sunoco, TC, Transmontaigne, Williams.
Public MLP General Partner Index: General Partners of Alliance, Atlas, Buckeye, Crosstex, Energy Transfer, Enterprise, Inergy, Magellan, Valero/NuStar, Penn Virginia, Hiland.
Distribution Yield
Page 24
Legacy Summary
•Only MLP focused on the oil-weighted Permian Basin
•Experienced management team with significant equity ownership
•Tax advantaged yield
•Significant organic and external growth opportunities
•Long-lived, diversified multi-pay properties
•Demonstrated reserve replacement capability
•Long-term hedges in place
•Low level of debt
•MLP structure with no IDRs
Page 25
Adjusted EBITDA Reconciliation
This presentation, the financial tables and other supplemental information, including the
reconciliations of certain non-generally accepted accounting principles ("non-GAAP")
measures to their nearest comparable generally accepted accounting principles
("GAAP") measures, may be used periodically by management when discussing
Legacy's financial results with investors and analysts and they are also available on
Legacy's website under the Investor Relations tab. Adjusted EBITDA is defined in our
revolving credit facility as net income (loss) plus interest expense; depletion,
depreciation, amortization and accretion; impairment of long-lived assets; (gain) loss on
sale of partnership investment; (gain) loss on sale of assets; equity in (income) loss of
partnerships; non-cash compensation expense and unrealized (gain) loss on oil and
natural gas swaps. Adjuste d EBITDA is presented as management believes it provides
additional information and metrics relative to the performance of Legacy's business, such
as the cash distributions we expect to pay to our unitholders, as well as our ability to
meet our debt covenant compliance tests. Management believes that these financial
measures indicate to investors whether or not cash flow is being generated at a level that
can sustain or support an increase in our quarterly distribution rates. 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 26
Note: Adjusted EBITDA is a non-GAAP financial measure.
Adjusted EBITDA Reconciliation