Legacy Reserves LP
RBC Capital Markets Energy Conference
June 5-6, 2007
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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
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Legacy History
1981
•Dale Brown and Jack McGraw formed Brothers Production
Company
•Kyle McGraw joins Brothers Production as a Petroleum
Engineer
•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 Legacy Reserves LP
•Completed private equity placement and Legacy acquired
properties from Brothers, Moriah, MBN and related entities
•Completed first IPO of the year; closed 5 acquisitions
1983
1991
1999 - 2005
2005
2006
2007
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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
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(1)Taken from reserve reports prepared by LaRoche Petroleum Consultants, Ltd. as of 12/31/06 for Legacy Reserves LP plus proved reserves from 2007 acquisitions from internal
reserve reports: Binger (4.1 MMBoe), TSF/Ameristate (1.4 MMBoe), and Slaughter/Rocker A (1.0 MMBoe).
(2)1st quarter 2007 production (3,655 Boepd) plus the estimated current production from 2007 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 2,100
wells
•70% operated
•4,888 net Boe per day (2)
•70% oil
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(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
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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
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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
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Aggregate cost of $227
million at an average
cost of $7.75 per Boe
13.1
20.1
29.3
7.0
13.1
7.0
13.1
9.2
Acquisition Track Record
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5 negotiated transactions averaging:
•$12.22 per Boe of proved reserves
•84% PDP, 14.3 year R/P
•$63,579 per Boepd
•4.7 times 2006 cash flow
2007 Acquisition Summary
Legacy Reserves LP
Financial Summary
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GP Interest
<0.1%
New Unitholders
29%
144A & Reg D
Unitholders
17%
Sellers of Assets to
Legacy
3%
Founding Investors,
Directors and Management
51%
Ticker:LGCY
Exchange:NASDAQ
Unit Price (5/31/07):$29.68 per unit
Quarterly Distribution:$0.41 per unit
Yield:5.5%
Market Capitalization:$774 million
Note: As of 4/20/07
Ownership
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Legacy Balance Sheet
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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
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(1) All hedges are floating for fixed price swaps. Swap volumes and prices starting April 1, 2007 through December 31, 2012. Waha-NYMEX basis swaps in
place on Henry Hub gas swaps. Natural gas and oil prices shown are for NYMEX futures, except for certain gas volumes hedged on ANR-Oklahoma and
Waha which trades at a discount to NYMEX Henry Hub. Additional natural gas liquids swaps have been placed for Binger are not shown.
1,042
1,885
1,736
1,514
274
437
809
747
655
70
132
119
Commodity Price Hedging Summary
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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
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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
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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.
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Note: Adjusted EBITDA is a non-GAAP financial measure.
Adjusted EBITDA Reconciliation