Legacy Reserves 8-K Financial Statements and Exhibits

Exhibit 99.1

LEGACY RESERVES LP
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 2007
				Pro Forma
	Legacy			Adjustments				Pro Forma
ASSETS
Current assets:
Cash and cash equivalents	$	1,690,443		$	(27,270,000	)	(l)	$	1,320,443
					29,000,000		(m)
					(5,200,000	)	(n)
					5,000,000		(o)
					(14,900,000	)	(p)
					13,000,000		(q)
Accounts receivable, net:
Oil and natural gas		6,974,731			-				6,974,731
Joint interest owners		5,378,596			-				5,378,596
Affiliated entities and other		54,376			-				54,376
Fair value of oil and natural gas swaps		343,995			-				343,995
Prepaid expenses and other current assets		675,146			-				675,146
Total current assets		15,117,287			(370,000	)			14,747,287
Oil and natural gas properties, at cost:
Proved oil and natural gas properties, using the
successful efforts method of accounting:		295,873,482			44,855,000		(l)		360,978,482
					5,251,000		(n)
					14,999,000		(p)
Unproved properties		78,742			-				78,742
Accumulated depletion, depreciation and amortization		(47,124,125	)		-				(47,124,125	)
		248,828,099			65,105,000				313,933,099
Other property and equipment, net		289,088			-				289,088
Deposit on pending acquisition		2,250,000			(2,250,000	)	(l)		-
Equity method investment		-			600,000		(l)		600,000
Operating rights		6,574,795			-				6,574,795
Other assets, net		500,165			-				500,165
	$	273,559,434		$	63,085,000			$	336,644,434
See accompanying notes to unaudited pro forma combined financial statements.

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LEGACY RESERVES LP
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 2007
			Pro Forma
	Legacy		Adjustments			Pro Forma
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable	$	479,606	$	-		$	479,606
Accrued oil and natural gas liabilities		4,413,088		-			4,413,088
Fair value of oil and natural gas swaps		244,098		-			244,098
Asset retirement obligation		533,579		-			533,579
Other		759,244		-			759,244
Total current liabilities		6,429,615		-			6,429,615
Long-term debt		4,000,000		29,000,000	(m)		51,000,000
				5,000,000	(o)
				13,000,000	(q)
Asset retirement obligation		6,000,590		185,000	(l)		6,335,590
				51,000	(n)
				99,000	(p)
Fair value of oil and natural gas swaps		6,692,806		-			6,692,806
Total unitholders' equity		250,436,423		15,750,000	(l)		266,186,423
	$	273,559,434	$	63,085,000		$	336,644,434
See accompanying notes to unaudited pro forma combined financial statements.

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LEGACY RESERVES LP
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2006
				Formation			2006 Property
				Entities			Acquisitions			Binger		Ameristate		TSF
	Legacy			Historical			Historical			Acquisition		Acquisition		Acquisition		Pro Forma
	Historical			Note 2			Note 3			Historical		Historical		Historical		Adjustments				Pro Forma
Revenues:
Oil sales	$	45,351,122		$	2,910,059		$	5,107,379		$	8,404,221	$	411,472	$	3,378,849	$	-			$	65,563,102
Natural gas sales		14,446,193			829,695			354,526			1,883,982		1,193,736		1,181,403		-				19,889,535
Natural gas liquid sales		-			-			-			3,914,506		-		-		-				3,914,506
Realized and unrealized loss on oil and natural gas swaps		9,288,470			(1,304,472	)		-			-		-		-		-				7,983,998
Total revenues		69,085,785			2,435,282			5,461,905			14,202,709		1,605,208		4,560,252		-				97,351,141
Expenses:
Oil and natural gas production		15,938,276			820,906			1,549,329			3,982,341		282,689		245,400		-				22,818,941
Production and other taxes		3,745,793			291,447			419,175			1,163,078		151,469		438,595		-				6,209,557
General and administrative		3,691,018			292,098			(394,345	)		-		-		-		317,788		(e)		4,194,552
																	226,743		(e)
																	61,250		(f)
Depletion, depreciation, amortization and accretion		18,394,674			266,126			-			-		-		-		1,231,584		(b)		26,471,872
																	407,717		(c)
																	589,799		(g)
																	986,478		(i)
																	2,851,969		(l)
																	700,322		(n)
																	1,043,203		(p)
Impairment of long-lived assets		16,113,300			-			-			-		-		-		-				16,113,300
Loss on sale of assets		42,370			-			-			-		-		-		-				42,370
Total expenses		57,925,431			1,670,577			1,574,159			5,145,419		434,158		683,995		8,416,853				75,850,592
Operating income		11,160,354			764,705			3,887,746			9,057,290		1,171,050		3,876,257		(8,416,853	)			21,500,549
Other income (expense):
Interest income		129,712			301,380			-			-		-		-		(301,380	)	(d)		129,712
Interest expense		(6,644,721	)		(207,905	)		-			-		-		-		(434,070	)	(h)		(1,431,851	)
																	(578,760	)	(j)
																	9,580,455		(k)
																	(1,939,375	)	(m)
																	(346,875	)	(o)
																	(860,600	)	(q)
Equity in income (loss) of partnerships		(317,788	)		(609,306	)		-			70,540		-		-		317,788		(e)		70,540
																	226,743		(e)
																	382,563		(e)
Other		29,328			6,600			-			-		-		-		-				35,928
Net income	$	4,356,885		$	255,474		$	3,887,746		$	9,127,830	$	1,171,050	$	3,876,257	$	(2,370,364	)		$	20,304,878
Net income per unit:
basic	$	0.26																		$	0.78
diluted	$	0.26																		$	0.78
Units used in computing net income
per unit:
basic		16,567,287															1,750,229		(a)		25,904,034
																	75,271		(g)
																	6,900,000		(k)
																	611,247		(l)
diluted		16,568,879																			25,905,626
See accompanying notes to unaudited pro forma combined financial statements.

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LEGACY RESERVES LP
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2007
				Binger		Ameristate		TSF
	Legacy			Acquisition		Acquisition		Acquisition		Pro Forma
	Historical			Historical		Historical		Historical		Adjustments				Pro Forma
Revenues:
Oil sales	$	12,405,812		$	1,729,094	$	279,477	$	614,506	$	-			$	15,028,889
Natural gas sales		3,525,874			499,887		93,151		245,672		-				4,364,584
Natural gas liquid sales		-			837,359		-		-		-				837,359
Realized and unrealized loss on oil and natural gas swaps		(7,222,669	)		-		-		-		-				(7,222,669	)
Total revenues		8,709,017			3,066,340		372,628		860,178		-				13,008,163
Expenses:
Oil and natural gas production		4,739,552			1,034,253		67,021		54,377		-				5,895,203
Production and other taxes		993,573			270,143		33,249		87,543		-				1,384,508
General and administrative		1,827,136			-		-		-		-				1,827,136
Depletion, depreciation, amortization and accretion		5,295,056			-		-		-		674,516		(l)		6,355,065
											166,169		(n)
											219,324		(p)
Impairment of long-lived assets		89,970			-		-		-		-				89,970
Total expenses		12,945,287			1,304,396		100,270		141,920		1,060,009				15,551,882
Operating income (loss)		(4,236,270	)		1,761,944		272,358		718,258		(1,060,009	)			(2,543,719	)
Other income (expense):
Interest income		104,308			-		-		-		-				104,308
Interest expense		(625,383	)		-		-		-		(305,987	)	(k)		(931,370	)
Equity in income (loss)  of partnerships		-			12,210		-		-		-				12,210
Other		680			-		-		-		-				680
Net income (loss)	$	(4,756,665	)	$	1,774,154	$	272,358	$	718,258	$	(1,365,996	)		$	(3,357,891	)
Net loss per unit:
basic and diluted	$	(0.19	)											$	(0.13	)
Units used in computing net loss per unit:
basic and diluted		24,519,601									843,333		(k)		25,974,181
											611,247		(l)
See accompanying notes to unaudited pro forma combined financial statements.

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1.Basis of Presentation:

The financial statements included in this report present a pro forma balance sheet and pro forma results of operations reflecting the pro forma effect of certain transactions, discussed in detail below, entered into by Legacy Reserves LP (“Legacy” or the “Company”).

The unaudited pro forma combined balance sheet as of March 31, 2007 included in this report gives effect to:

·Legacy’s April 16, 2007 acquisition of certain oil and natural gas properties (referred to as the “Binger Properties”) acquired from Nielson & Associates, Inc. (“Nielson”);

·Legacy’s May 1, 2007 acquisition of certain oil and natural gas properties (referred to as the “Ameristate Properties”) acquired from Ameristate Exploration, LLC. (“Ameristate”); and

·Legacy’s May 25, 2007 acquisition of certain oil and natural gas properties (referred to as the “TSF Properties”) acquired from Terry S. Fields (“Fields”).

The unaudited pro forma combined balance sheet as of March 31, 2007 is derived from:

·the historical consolidated financial statements of Legacy; and

·the preliminary purchase price allocation of oil and natural gas properties acquired from Nielson;

·the preliminary purchase price allocation of oil and natural gas properties acquired from Ameristate; and

·the preliminary purchase price allocation of oil and natural gas properties acquired from Fields.

The unaudited pro forma combined statements of operations give effect to our private offering discussed below, the acquisition of the oil and natural gas properties of the Brothers Group, Foundations, H2K, South Justis Unit, Kinder Morgan, Binger Properties, Ameristate Properties, TSF Properties and the non-controlling interests in MBN Properties LP, and the distribution of certain assets to the owners of the Moriah Group and the Brothers Group, and our initial public offering discussed below and the use of the net proceeds therefrom, as if the transactions had occurred on January 1, 2006. Our private offering of 5,000,000 units at an offering price of $17.00 per unit, the concurrent redemption of an aggregate 4,400,000 units from our Founding Investors for $69.9 million, the acquisition of the oil and natural gas properties of the Brothers Group, Foundations, H2K and the non-controlling interests in MBN Properties LP, and the distribution of certain assets to the owners of the Moriah Group and the Brothers Group occurred on March 15, 2006. Accordingly, the operating results of the properties acquired in this transaction are included in Legacy’s historical results from that date. The acquisition from Henry Holding LP was completed as of June 29, 2006 and the operating results related to the acquired properties are included in Legacy Reserves LP’s historical results after June 30, 2006. The acquisition from Kinder Morgan was completed on July 31, 2006 and the operating results related to the acquired properties are included in Legacy’s historical results after July 31, 2006. Our initial public offering of 6,900,000 units at an offering price of $19.00 per unit closed on January 18, 2007 after trading began on January 12, 2007.

The unaudited pro forma combined statements of operations for the year ended December 31, 2006 and for the three months ended March 31, 2007, are derived from:

·the historical consolidated financial statements of Legacy (formerly the Moriah Group);

·the historical combined financial statements of the Brothers Group;

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·the historical combined financial statements of the Selected Interests of the Charities Support Foundation Inc. (“Foundations”);

·the historical financial statements of the oil and natural gas operations of H2K Holdings Ltd. (“H2K”);

·the historical statements of revenues, operating fees and operating expenses of certain oil and natural gas properties acquired by Legacy from Henry Holding LP (“South Justis Unit”);

·the historical statements of revenues and direct operating expenses of certain oil and natural gas properties acquired by Legacy from Kinder Morgan (collectively “Kinder Morgan”);

·the historical statements of revenues, direct operating expenses and equity income of certain oil and natural gas properties and other interests acquired by Legacy from Nielson (Binger Properties);

·the historical statements of revenues and direct operating expenses of certain oil and natural gas properties acquired by Legacy from Ameristate (Ameristate Properties);

·the historical statements of revenues and direct operating expenses of certain oil and natural gas properties acquired by Legacy from Fields (TSF Properties);

·pro forma adjustments based on assumptions we have deemed appropriate.

The transactions and the related adjustments are described in the accompanying notes.  In the opinion of Company management, all adjustments have been made that are necessary to present fairly, in accordance with Regulation S-X, the pro forma combined financial statements.

The unaudited pro forma combined balance sheet and statements of operations are presented for illustrative purposes only, and do not purport to be indicative of the financial position or results of operations that would actually have occurred if the transactions described had occurred as presented in such statements or that may be obtained in the future.  In addition, future results may vary significantly from the results reflected in such statements due to factors described in “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2006 and elsewhere in the Company’s reports and filings with the Securities and Exchange Commission (“SEC”).  The following unaudited pro forma combined balance sheet and statements of operations should be read in conjunction with our historical consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006 and on our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.

The pro forma statements should also be read in conjunction with the historical financial statements and the notes thereto of the acquired businesses reflected therein as filed by Legacy with the SEC.

2. Formation Entities Historical

For the sake of brevity, we have combined the following historical statements of operations for the period from January 1 though March 14, 2006 into a single column labeled “Formation Entities Historical�� in the unaudited pro forma combined statement of operations for the year ended December 31, 2006:

·the historical combined statement of operations of the Brothers Group;

·the historical combined statement of operations of the Selected Interests of the Charities Support Foundation Inc. (“Foundations”);

·the historical statements of the oil and natural gas operations of H2K Holdings Ltd. (“H2K”);

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The table below details the historical statements of operations for the entities combined into the Formation Entities Historical column:

	For the period from January 1 through March 14, 2006
	Brothers			Charitable					Formation
	Group			Foundations		H2K Holdings			Entities
	Historical			Historical		Historical			Historical
Revenues:
Oil sales	$	2,614,139		$	255,280	$	40,640		$	2,910,059
Natural gas sales		748,765			80,930		-			829,695
Realized and unrealized loss on oil and natural gas swaps		(1,286,784	)		-		(17,688	)		(1,304,472	)
Total revenues		2,076,120			336,210		22,952			2,435,282
Expenses:
Oil and natural gas production		696,077			111,484		13,345			820,906
Production and other taxes		261,143			27,002		3,302			291,447
General and administrative		277,241			11,830		3,027			292,098
Depletion, depreciation, amortization and accretion		200,722			62,631		2,773			266,126
Total expenses		1,435,183			212,947		22,447			1,670,577
Operating income		640,937			123,263		505			764,705
Other income (expense):
Interest income		301,380			-		-			301,380
Interest expense		(207,905	)		-		-			(207,905	)
Equity in loss of partnerships		(609,306	)		-		-			(609,306	)
Other		6,600			-		-			6,600
Net income	$	131,706		$	123,263	$	505		$	255,474

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3. 2006 Property Acquisitions Historical

The following historical statements of operations for the year ended December 31, 2006 have been combined into a single column labeled “2006 Property Acquisitions Historical” in the unaudited pro forma combined statement of operations for the year ended December 31, 2006:

·the historical statements of revenues, operating fees and operating expenses of certain oil and natural gas properties acquired by Legacy from Henry Holding LP (“South Justis Unit”);

·the historical statements of revenues and direct operating expenses of certain oil and natural gas properties acquired by Legacy from Kinder Morgan (collectively “Kinder Morgan”);

The table below details the historical statements of operations for the entities combined into the 2006 Property Acquisitions Historical column:

	For the period from January 1 through June 30, 2006			For the period from  January 1 through July 31, 2006
						2006 Property
	South Justis			Kinder Morgan		Acquisitions
	Historical			Historical		Historical
Revenues:
Oil sales	$	1,067,065		$	4,040,314	$	5,107,379
Natural gas sales		246,866			107,660		354,526
Total revenues		1,313,931			4,147,974		5,461,905
Operating expenses:
Oil and natural gas production		311,809			1,237,520		1,549,329
Production and other taxes		109,948			309,227		419,175
General and administrative		(394,345	)		-		(394,345	)
Total operating expenses	$	27,412		$	1,546,747	$	1,574,159
Excess of revenue over direct operating expenses	$	1,286,519		$	2,601,227	$	3,887,746

4. Pro Forma Adjustments

The unaudited pro forma combined financial statements reflect the following adjustments:

a. To reflect the units issued in the Legacy Formation.

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On March 15, 2006, Legacy completed a private equity offering in which it issued 5,000,000 limited partnership units at a gross price of $17.00 per unit, netting $78.7 million after initial purchaser’s discount, placement agent’s fees and expenses. Simultaneous with the completion of this offering, Legacy purchased the oil and natural gas properties of the Brothers Group, H2K Holdings Ltd. and the Charitable Support Foundations, Inc. and its affiliates. Legacy also purchased the oil and natural gas properties owned by MBN Properties, LP. In the case of the Brothers Group and H2K Holdings Ltd. those entities exchanged their oil and natural gas properties for limited partnership units. The owners of the Moriah Group, the Brothers Group and H2K Holdings Ltd. (the ‘‘Founding Investors’’) exchanged 4.4 million of their units for $69.9 million in cash. The Moriah Group has been treated as the acquiring entity in the Legacy Formation. With the exception of its assumption of liabilities associated with the oil and natural gas swaps it acquired, the other depreciable assets of the Brothers Group (office furniture and equipment and vehicles) and certain unamortized deferred financing costs of the Moriah Group, Legacy did not acquire any other assets or liabilities of the Moriah Group, the Brothers Group, H2K Holdings Ltd. or the Charitable Support Foundations, Inc. and its affiliates. The removal of these assets and liabilities of the Moriah Group was reflected as a deemed dividend.

The following table sets forth the units issued in the Legacy Formation transaction:

	Number of units
Moriah Properties LP		7,334,070
DAB Resources, Ltd.		859,703
Moriah Group		8,193,773
Brothers Group		6,200,358
H2K Holdings Ltd.		83,499
MBN Properties LP		3,162,438
Legacy units		600,000
Total units issued at Legacy Formation		18,240,068

In addition to the 18,240,068 units issued at Legacy Formation, 52,616 restricted management units were issued to employees of Legacy concurrent with, but not as a part of, the Legacy Formation.

b. On March 15, 2006, Legacy Reserves LP, as part of its formation transactions, purchased oil and natural gas properties from the Brothers Group, H2K Holdings Ltd. and three charitable foundations, which included the     assumption of liabilities associated with oil and natural gas swaps. The following table sets forth the purchase price allocation of this transaction:

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	Number of Units		Purchase Price
	at $17.00 per unit		of Assets Acquired
Brothers Group		6,200,358	$	105,406,069
H2K Holdings Ltd.		83,499		1,419,483
Cash paid to three charitable foundations		-		7,682,854
Total purchase price before liabilities assumed				114,508,406
Plus:
Oil and natural gas swap liabilities assumed				3,147,152
Asset retirement obligations incurred				1,467,241
Less:
Office furniture, equipment and vehicles acquired				(107,275	)
Total purchase price allocated to oil and
natural gas properties acquired			$	119,015,524

As a result of the purchase above, to record incremental depreciation, depletion, amortization and accretion, using the units of production method.

c. On March 15, 2006, in addition to the 3,162,438 common units issued to MBN Properties LP as part of the Legacy Formation transaction, Legacy paid $65.3 million in cash to MBN Properties LP to acquire that portion of the oil and natural gas properties of MBN Properties LP it did not already own by virtue of the Moriah Group’s ownership of a 46.22% limited partnership interest in MBN Properties LP. In addition, Legacy paid $1,980,468 to MBN Management LLC to reimburse expenses incurred by that entity in anticipation of the Legacy Formation. The following table sets forth the calculation of the step-up of oil and natural gas property basis with respect to this interest acquired:

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	Number of Units			Purchase Price of
	at $17.00 per unit			Assets Acquired
Units issued to MBN Properties LP		3,162,438		$	53,761,446
Cash paid to MBN Properties LP		-			65,300,000
Total purchase price before liabilities assumed					119,061,446
Plus:
Oil and natural gas swap liabilities assumed					2,539,625
ARO liabilities assumed					453,913
Less:
Net book value of other property and equipment on
MBN Properties LP at March 14, 2006					(39,056	)
					122,015,928
Less:
Net book value of oil and gas assets on
MBN Properties LP at March 14, 2006					(62,990,390	)
Purchase price in excess of net book value of assets					59,025,538
Less:
Share already owned by Moriah via consolidation
of MBN Properties LP		46.22	%		(27,281,604	)
Non-controlling interest share to record					31,743,934
Plus:
Elimination of deferred financing costs related to
non-controlling interests' share of MBN Properties LP					164,202
Reimbursement of Brothers Group's share of  MBN
Management LLC losses from inception through
March 14, 2006					780,239
MBN Properties LP purchase price to allocate
to oil and natural gas properties				$	32,688,375
Units related to purchase of non-controlling interest		1,867,290
Units related to interest previously owned by Moriah Group		1,295,148
Total units issued to MBN Properties LP		3,162,438

As a result of the purchase above, to record incremental depreciation, depletion, amortization and accretion, using the units of production method.

d. To eliminate interest income on notes receivable not acquired from the Brothers Group.

e. The Moriah Group and the Brothers Group also owned an interest in MBN Management LLC, whose purpose was to manage the oil and natural gas properties of MBN Properties LP and fund certain expenses and they accounted for their interests under the equity method of accounting. These interests were not acquired. The effect on the unaudited pro forma combined statements of operations is to reclassify the equity in loss of MBN Management LLC to general and administrative expense. In addition, the Brothers Group accounted for its investment in MBN Properties LP under the equity method, and an adjustment has been made to eliminate the equity method loss since the operations of MBN Properties LP are now wholly-owned. The adjustments are as follows:

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	Year Ended
	December 31, 2006
Moriah Group - MBN Management LLC	$	317,788
Brothers Group:
MBN Properties LP	$	382,563
MBN Management LLC		226,743
Total Brothers Group	$	609,306

f. Record additional compensation expense resulting from employment agreements executed at the closing of the private equity offering.

g. On June 29, 2006, Legacy purchased oil and natural gas properties from Henry Holding LP in eastern New Mexico in the South Justis Unit (‘‘SJU’’) and the right to operate these properties. The stated purchase price was $14 million cash plus the issuance of 138,000 units on June 29, 2006 and 8,415 units on November 10, 2006 at $17.00 per unit ($2,346,000 and $143,055, respectively) less final adjustments of approximately $624,000. The effective date of our ownership is May 1, 2006. Legacy has been elected operator of the SJU following the closing of the transaction, which entitles Legacy to a contractual overhead reimbursement of approximately $127,500 per month from its partners in the SJU. The $15.8 million net purchase price was allocated (not including the $143,055 relating to the 8,415 units issued on November 10, 2006) with $2.9 million recorded as lease and well equipment, $5.9 million of leasehold costs and $7.0 million capitalized as an intangible asset relating to the operating rights associated with the SJU. The lease and well equipment and leasehold costs will be depleted using the units of production method. The capitalized operating rights associated with the SJU will be amortized over the estimated total well months the wells in the SJU are expected to be operated. $137,453 of asset retirement obligations were recorded in connection with this transaction.

As a result of the purchase above, to record incremental depreciation, depletion, amortization and accretion.

h. To record incremental interest expense associated with the $12.6 million of borrowings under Legacy’s revolving credit agreement incurred to fund the acquisition of SJU oil and natural gas properties from Henry Holding LP, using an interest rate of 6.89% to reflect the interest rate at closing of the acquisition on June 29, 2006.

i. On July 31, 2006 Legacy purchased oil and natural gas properties from Kinder Morgan located in the Permian Basin. The stated purchase price was $18 million cash before post-closing adjustments. The effective date of our ownership is July 1, 2006. The $17.2 million net purchase price was allocated with $4.1 million recorded as lease and well equipment and $13.1 million of leasehold costs. Asset retirement obligations of $1,383,180 were recorded in connection with this transaction.

As a result of the purchase above, to record incremental depreciation, depletion, amortization and accretion, using the units of production method.

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j. To record incremental interest expense associated with $14.4 million of borrowings under Legacy’s revolving credit agreement incurred to fund the acquisition of oil and natural gas properties from Kinder Morgan, using an interest rate of 6.89% to reflect the interest rate at closing of the acquisition on July 31, 2006.

k. On January 18, 2007, Legacy closed its initial public offering in which 6,900,000 units were issued at $19.00 per unit. Net proceeds totaled approximately $121,554,464 or $17.62 per unit. Payment of then existing revolver debt and general business purposes was the use of proceeds.

To adjust interest expense downward as a result of the use of net proceeds of the initial public offering to repay debt. Since the $121,554,464 net proceeds are less than the $139,800,000 pro forma debt amounts of $65,800,000 related to the Formation Transaction, $12,600,000 related to the South Justis acquisition, $14,400,000 related to the Kinder Morgan acquisition, $29,000,000 related to the Binger acquisition, $5,000,000 related to the Ameristate acquisition and $13,000,000 related to the TSF acquisition, we have assumed the issuance of all 6,900,000 units at $17.62 per unit on January 1, 2006 to retire a portion of the $139,800,000 of pro forma debt.

l. To record the Binger acquisition and related incremental depreciation, depletion, amortization and accretion, using the units of production method.

On April 16, 2007 Legacy purchased oil and natural gas properties from Nielson located in Caddo County, Oklahoma. The estimated net purchase price was $45.3 million before post-closing adjustments which have not been finally determined, with $29.52 million paid in cash and the remaining $15.75 million via the issuance of 611,247 Legacy units at $25.77 per unit. The effective date of our ownership is February 1, 2007. The assets acquired consist of: (1) a 54.5% working interest in the East Binger (Marchand) Unit in Caddo County, Oklahoma with respect to 51 producing wells and 32 water injection wells and (2) a 50% ownership interest in Binger Operations, LLC (“BOL”), the principal purpose of which is to operate the East Binger Unit. Via Legacy’s 50% ownership of BOL, we own an additional 0.74% working interest in the East Binger Unit. Legacy accounts for its 50% ownership of BOL under the equity method. The estimated $45.3 million net purchase price was allocated as follows: $14.7 million recorded as lease and well equipment, $30.0 million as leasehold costs and $0.6 million as investment in BOL. Legacy had paid a $2.25 million cash deposit to Nielson on March 21, 2007 which is recorded on Legacy’s consolidated balance sheet at March 31, 2007 as deposit on property acquisition. Asset retirement obligations of approximately $185,000 were recorded in connection with this transaction.

m. To record incremental interest expense associated with $29.0 million of borrowings under Legacy’s revolving credit agreement incurred to fund the acquisition of oil and natural gas properties from Nielson, using an interest rate of 6.69% to reflect the interest rate at closing of the acquisition on April 16, 2007.

n. To record the Ameristate acquisition and related incremental depreciation, depletion, amortization and accretion, using the units of production method.

On May 1, 2007 Legacy purchased oil and natural gas properties from Ameristate located in the Permian Basin of southeast New Mexico. The stated purchase price was $5.5 million cash before post-closing adjustments which have not been finally determined. The effective date of our ownership is January 1, 2007. The Ameristate Properties consist primarily of working interests in 39 producing wells located in Lea and Eddy counties in southeast New Mexico, 15 of which are operated and 24 of which are non-operated. The estimated $5.2 million net purchase price was allocated with $0.5 million recorded as lease and well equipment and $4.7 million of leasehold costs. Asset retirement obligations of approximately $51,000 were recorded in connection with this transaction.

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o. To record incremental interest expense associated with $5.0 million of borrowings under Legacy’s revolving credit agreement incurred to fund the acquisition of oil and natural gas properties from Ameristate, using an interest rate of 6.94% to reflect the interest rate at closing of the acquisition on May 1, 2007.

p. To record the TSF acquisition and related incremental depreciation, depletion, amortization and accretion, using the units of production method.

On May 25, 2007 Legacy purchased oil and natural gas properties from Fields located in the Permian Basin of west Texas. The stated purchase price was $15.3 million cash before post-closing adjustments which have not been finally determined. The effective date of our ownership is March 1, 2007. The TSF Properties consist primarily of working interests in 19 operated producing wells located in Midland, Reagan and Upton counties in west Texas. The estimated $14.9 million net purchase price was allocated with $1.9 million recorded as lease and well equipment and $13.0 million of leasehold costs. Asset retirement obligations of approximately $99,000 were recorded in connection with this transaction.

q. To record incremental interest expense associated with $13.0 million of borrowings under Legacy’s revolving credit agreement incurred to fund the acquisition of oil and natural gas properties from Ameristate, using an interest rate of 6.62% to reflect the interest rate at closing of the acquisition on May 25, 2007.

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5. Oil, Natural Gas and NGL Reserve Disclosures

The following table sets forth certain unaudited pro forma information concerning our proved oil, natural gas and NGL reserves for the year ended December 31, 2006, giving effect to the acquisition of oil and natural gas properties from the Formation Entities (the Brothers Group, Charitable Foundations and H2K Holdings), the 2006 Acquisitions (South Justis Unit acquired from Henry and the Kinder Morgan Properties), Nielson, Amerisate and TSF as if the transactions had occurred on January 1, 2006. For the sake of brevity as in Notes 2 and 3 above, we have provided supporting tables detailing the Formation Entities and the 2006 Acquisitions. There are numerous uncertainties inherent in estimating the quantities of proved reserves and projecting future rates of production and timing of development expenditures. The following reserve data represent estimates only and should not be construed as being exact:

 

				Oil (MBbls)
				Legacy/	Formation	2006	Legacy	Binger	Ameristate	TSF	Pro Forma
				Moriah	Entities	Acquisitions	Total	Acquisition	Acquisition	Acquisition	Total
Total Proved Reserves:
	Balance, December 31, 2005			8,118	4,191	1,769	14,078	1,926	55	630	16,689
		Purchases (sales) of minerals
			in place	6,352	(4,141)	(1,698)	513	-	-	-	513
		Extensions and discoveries		75	-	-	75	-	-	-	75
		Revisions of previous
			estimates due to infill
			drilling, recompletions and
			stimulations	233	-	-	233	-	-	-	233
		Revisions of previous
			estimates due to prices and
			performance	(657)	-	-	(657)	(4)	7	13	(641)
		Production		(749)	(50)	(71)	(870)	(131)	(7)	(53)	(1,061)
	Balance, December 31, 2006			13,372	-	-	13,372	1,791	55	590	15,808
Proved Developed Reserves:
		December 31, 2005		6,380	3,631	1,695	11,706	1,526	51	630	13,913
		December 31, 2006		11,132	-	-	11,132	1,391	51	590	13,164

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				Gas (MMcf)
				Legacy/	Formation	2006	Legacy	Binger	Ameristate	TSF	Pro Forma
				Moriah	Entities	Acquisitions	Total	Acquisition	Acquisition	Acquisition	Total
Total Proved Reserves:
	Balance, December 31, 2005			24,457	9,322	1,624	35,403	6,641	1,462	1,691	45,197
		Purchases (sales) of minerals
			in place	11,871	(9,204)	(1,569)	1,098	-	-	-	1,098
		Extensions and discoveries		207	-	-	207	-	-	-	207
		Revisions of previous
			estimates due to infill
			drilling, recompletions and
			stimulations	494	-	-	494	-	-	-	494
		Revisions of previous
			estimates due to prices and
			performance	(2,296)	-	-	(2,296)	(27)	(12)	100	(2,235)
		Production		(2,200)	(118)	(55)	(2,373)	(331)	(192)	(150)	(3,046)
	Balance, December 31, 2006			32,533	-	-	32,533	6,283	1,258	1,641	41,715
Proved Developed Reserves:
		December 31, 2005		20,618	8,535	1,498	30,651	5,957	1,330	1,691	39,629
		December 31, 2006		28,126	-	-	28,126	5,599	1,126	1,641	36,492

 

				NGL (MBbls)
				Legacy/	Formation	2006	Legacy	Binger	Ameristate	TSF	Pro Forma
				Moriah	Entities	Acquisitions	Total	Acquisition	Acquisition	Acquisition	Total
Total Proved Reserves:
	Balance, December 31, 2005			-	-	-	-	1,479	-	-	1,479
		Purchases of minerals-in-place		-	-	-	-	-	-	-	-
		Extensions and discoveries		-	-	-	-	-	-	-	-
		Revisions of previous
			estimates due to infill
			drilling, recompletions and
			stimulations	-	-	-	-	-	-	-	-
		Revisions of previous
			estimates due to prices and
			performance	-	-	-	-	(4)	-	-	(4)
		Production		-	-	-	-	(87)	-	-	(87)
	Balance, December 31, 2006			-	-	-	-	1,388	-	-	1,388
Proved Developed Reserves:
		December 31, 2005		-	-	-	-	1,246	-	-	1,246
		December 31, 2006		-	-	-	-	1,155	-	-	1,155

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The following tables set forth the oil, natural gas and NGL reserve quantities for the Formation Entities:

 

			Oil (MBbls)
			Brothers	Charitable	H2K	Pro Forma
			Group	Foundations	Holdings	Total
Total Proved Reserves:
	Balance, December 31, 2005		3,685	457	49	4,191
		Sales of minerals in place	(3,640)	(453)	(48)	(4,141)
		Production	(45)	(4)	(1)	(50)
	Balance, December 31, 2006		-	-	-	-
Proved Developed Reserves:
		December 31, 2005	3,213	377	41	3,631
		December 31, 2006	-	-	-	-

			Gas (MMcf)
			Brothers	Charitable	H2K	Pro Forma
			Group	Foundations	Holdings	Total
Total Proved Reserves:
	Balance, December 31, 2005		8,013	1,185	124	9,322
		Sales of minerals in place	(7,907)	(1,174)	(123)	(9,204)
		Production	(106)	(11)	(1)	(118)
	Balance, December 31, 2006		-	-	-	-
Proved Developed Reserves:
		December 31, 2005	7,346	1,076	113	8,535
		December 31, 2006	-	-	-	-

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The following tables set forth the oil, natural gas and NGL reserve quantities for the 2006 Acquisitions:

			Oil (MBbls)
			South	Kinder	Pro Forma
			Justis	Morgan	Total
Total Proved Reserves:
	Balance, December 31, 2005		538	1,231	1,769
		Sales of minerals in place	(522)	(1,176)	(1,698)
		Production	(16)	(55)	(71)
	Balance, December 31, 2006		-	-	-
Proved Developed Reserves:
		December 31, 2005	464	1,231	1,695
		December 31, 2006	-	-	-

			Gas (MMcf)
			South	Kinder	Pro Forma
			Justis	Morgan	Total
Total Proved Reserves:
	Balance, December 31, 2005		1,079	545	1,624
		Sales of minerals in place	(1,044)	(525)	(1,569)
		Production	(35)	(20)	(55)
	Balance, December 31, 2006		-	-	-
Proved Developed Reserves:
		December 31, 2005	953	545	1,498
		December 31, 2006	-	-	-

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Summarized in the following unaudited tables is information for our standardized measure of discounted cash flows relating to proved reserves as of December 31, 2006, giving effect to the acquisition of oil and natural gas properties from Nielson, Ameristate and TSF as if the transactions had occurred on January 1, 2006. Future cash flows are computed by applying year-end pricing relating to our proved reserves to the year-end quantities of those reserves. Future production, development, site restoration and abandonment costs are derived based on current costs assuming continuation of existing economic conditions. The information should be viewed only as a form of standardized disclosure concerning possible future cash flows that would result under the assumptions used, but should not be viewed as indicative of fair market value. Reference is made to our Annual Report on Form 10-K for the year ended December 31, 2006 as well as to the historical statements of direct revenues and direct operating expenses of certain natural gas and oil properties acquired from Nielson, Ameristate and TSF for a discussion of the assumptions used in preparing the information presented.

	December 31, 2006
	Legacy/			Binger			Ameristate			TSF			Pro Forma
	Moriah			Acquisition			Acquisition			Acquisition			Total
	(in thousands)
Future production revenues	$	947,914		$	195,500		$	10,186		$	44,923		$	1,198,523
Future costs:
Production		(387,238	)		(118,403	)		(3,306	)		(15,323	)		(524,270	)
Development		(43,419	)		(7,904	)		(959	)		-			(52,282	)
Future net cash flows
before income taxes		517,257			69,193			5,921			29,600			621,971
10% annual discount for
estimated timing of
cash flows		(276,694	)		(30,474	)		(2,348	)		(15,671	)		(325,187	)
Standardized measure of
discounted net cash
flows	$	240,563		$	38,719		$	3,573		$	13,929		$	296,784

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The following table sets forth the principal sources of change in discounted future net cash flows (dollars in thousands):

 

	December 31, 2006
	Legacy/			Formation			2006			Legacy			Binger			Ameristate			TSF			Pro Forma
	Moriah			Entities			Acquisitions			Total			Acquisition			Acquisition			Acquisition			Total
	(in thousands)
Increase (decrease):
Sales, net of production
costs	$	(40,113	)	$	(2,628	)	$	(3,493	)	$	(46,234	)	$	(9,057	)	$	(1,171	)	$	(3,876	)	$	(60,338	)
Net change in sales prices,
net of production costs		(60,531	)		-			-			(60,531	)		(15,785	)		(2,539	)		(3,275	)		(82,130	)
Changes in estimated future
development costs		4,582			-			-			4,582			18			(89	)		-			4,511
Extensions and discoveries,
net of future production
and development costs		2,723			-			-			2,723			-			-			-			2,723
Previously estimated
development costs
incurred		9,517			-			-			9,517			1,759			100			141			11,517
Revisions of previous
estimates due to infill
drilling, recompletions
and stimulations		7,919			-			-			7,919			-			-			-			7,919
Revisions of previous
estimates due to prices
and performance		(12,232	)		-			-			(12,232	)		(122	)		78			468			(11,808	)
Purchases (sales) of minerals
in place		127,009			(82,563	)		(27,125	)		17,321			-			-			-			17,321
Other		(2,971	)		-			-			(2,971	)		4,852			(615	)		877			2,143
Accretion of discount		12,663			-			-			12,663			5,005			701			1,575			19,944
Net Increase (decrease)		48,566			(85,191	)		(30,618	)		(67,243	)		(13,330	)		(3,535	)		(4,090	)		(88,198	)
Standardized measure of
discounted net cash
flows:
Beginning of year		191,997			85,191			30,618			307,806			52,049			7,108			18,019			384,982
End of year	$	240,563		$	-		$	-		$	240,563		$	38,719		$	3,573		$	13,929		$	296,784

The following table sets forth the changes in the standardized measure for the Formation Entities:

	December 31, 2006
	Brothers			Charitable			H2K			Pro Forma
	Group			Foundations			Holdings			Total
	(in thousands)
Increase (decrease):
Sales, net of production costs	$	(2,406	)	$	(198	)	$	(24	)	$	(2,628	)
Sales of minerals in place		(72,441	)		(9,140	)		(982	)		(82,563	)
Net decrease		(74,847	)		(9,338	)		(1,006	)		(85,191	)
Standardized measure of
discounted net cash
flows:
Beginning of year		74,847			9,338			1,006			85,191
End of year	$	-		$	-		$	-		$	-

The following table sets forth the changes in the standardized measure for the 2006 Acquisitions:

	December 31, 2006
	South			Kinder			Pro Forma
	Justis			Morgan			Total
	(in thousands)
Increase (decrease):
Sales, net of production costs	$	(892	)	$	(2,601	)	$	(3,493	)
Sales of minerals-in-place		(10,096	)		(17,029	)		(27,125	)
Net decrease		(10,988	)		(19,630	)		(30,618	)
Standardized measure of
discounted net cash
flows:
Beginning of year		10,988			19,630			30,618
End of year	$	-		$	-		$	-

20