Exhibit 99.2
LEGACY RESERVES LP
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2012
| Legacy | Pro Forma Adjustments | Pro Forma | |||||||||
| (In thousands) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash | $ | 4,366 | $ | (502,617 | ) | (a) | $ | 6,447 | |||
| 286,700 | (b) | ||||||||||
| 217,998 | (c) | ||||||||||
| Accounts receivable, net: | |||||||||||
| Oil and natural gas | 35,161 | — | 35,161 | ||||||||
| Joint interest owners | 13,322 | — | 13,322 | ||||||||
| Other | 394 | — | 394 | ||||||||
| Fair value of derivatives | 9,633 | — | 9,633 | ||||||||
| Prepaid expenses and other current assets | 4,144 | — | 4,144 | ||||||||
| Total current assets | 67,020 | 2,081 | 69,101 | ||||||||
| Oil and natural gas properties, at cost: | |||||||||||
| Proved oil and natural gas properties using the successful efforts | |||||||||||
| method of accounting | 1,544,197 | 495,897 | (a) | 2,040,094 | |||||||
| Unproved properties | 28,746 | 37,994 | (a) | 66,740 | |||||||
| Accumulated depletion, depreciation, amortization and impairment | (531,184 | ) | — | (531,184 | ) | ||||||
| 1,041,759 | 533,891 | 1,575,650 | |||||||||
| Other property and equipment, net | 2,726 | — | 2,726 | ||||||||
| Deposits on pending acquisitions | 930 | — | 930 | ||||||||
| Operating rights, net | 3,610 | — | 3,610 | ||||||||
| Fair value of derivatives | 19,950 | — | 19,950 | ||||||||
| Other assets, net | 5,930 | — | 5,930 | ||||||||
| Investment in equity method investee | 369 | — | 369 | ||||||||
| Total assets | $ | 1,142,294 | $ | 535,972 | $ | 1,678,266 | |||||
| LIABILITIES AND UNITHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 6,224 | $ | — | $ | 6,224 | |||||
| Accrued oil and natural gas liabilities | 52,262 | — | 52,262 | ||||||||
| Fair value of derivatives | 9,024 | — | 9,024 | ||||||||
| Asset retirement obligation | 22,158 | 6,699 | (a) | 28,857 | |||||||
| Other | 8,596 | — | 8,596 | ||||||||
| Total current liabilities | 98,264 | 6,699 | 104,963 | ||||||||
| Long-term debt | 452,000 | 286,700 | (b) | 738,700 | |||||||
| Asset retirement obligation | 105,490 | 24,575 | (a) | 130,065 | |||||||
| Fair value of derivatives | 7,932 | 7,932 | |||||||||
| Other long-term liabilities | 1,628 | 1,628 | |||||||||
| Total liabilities | 665,314 | 317,974 | 983,288 | ||||||||
| Commitments and contingencies | |||||||||||
| Unitholders’ equity: | |||||||||||
| Limited partners’ equity | 476,883 | 217,998 | (c) | 694,881 | |||||||
| General partner’s equity | 97 | 97 | |||||||||
| Total unitholders’ equity | 476,980 | 217,998 | 694,978 | ||||||||
| Total liabilities and unitholders’ equity | $ | 1,142,294 | $ | 535,972 | $ | 1,678,266 | |||||
See accompanying notes to unaudited pro forma combined financial statements.
LEGACY RESERVES LP
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2012
| Legacy Historical | COG 2012 Acquisition Properties Historical | Pro Forma Adjustments | Pro Forma | ||||||||||||
| (In thousands, except per unit data) | |||||||||||||||
| Revenues: | |||||||||||||||
| Oil sales | $ | 212,097 | $ | 79,162 | $ | — | $ | 291,259 | |||||||
| Natural gas liquids (NGL) sales | 10,742 | 180 | — | 10,922 | |||||||||||
| Natural gas sales | 33,166 | 12,272 | — | 45,438 | |||||||||||
| Total revenues | 256,005 | 91,614 | — | 347,619 | |||||||||||
| Expenses: | |||||||||||||||
| Oil and natural gas production | 82,023 | 18,513 | — | 100,536 | |||||||||||
| Production and other taxes | 15,040 | 6,469 | — | 21,509 | |||||||||||
| General and administrative | 18,604 | — | — | 18,604 | |||||||||||
| Depletion, depreciation, amortization and accretion | 73,042 | — | 39,646 | (a) | 112,688 | ||||||||||
| Impairment of long-lived assets | 22,556 | — | — | 22,556 | |||||||||||
| Gain on disposal of assets | (3,064 | ) | — | — | (3,064 | ) | |||||||||
| Total expenses | 208,201 | 24,982 | 39,646 | 272,829 | |||||||||||
| Operating income | 47,804 | 66,632 | (39,646 | ) | 74,790 | ||||||||||
| Other income (expense): | |||||||||||||||
| Interest income | 11 | — | — | 11 | |||||||||||
| Interest expense | (14,256 | ) | — | (18,834 | ) | (b) | (33,090 | ) | |||||||
| Equity in income of partnership | 87 | — | — | 87 | |||||||||||
| Realized and unrealized net gains on commodity derivatives | 34,084 | — | — | 34,084 | |||||||||||
| Other | (87 | ) | — | — | (87 | ) | |||||||||
| Income before income taxes | 67,643 | 66,632 | (58,480 | ) | 75,795 | ||||||||||
| Income tax expense | (878 | ) | — | — | (878 | ) | |||||||||
| Net income | $ | 66,765 | $ | 66,632 | $ | (58,480 | ) | $ | 74,917 | ||||||
| Income per unit — basic and diluted | $ | 1.40 | $ | 1.31 | |||||||||||
| Weighted average number of units used in | |||||||||||||||
| computing net income per unit — | |||||||||||||||
| Basic | 47,840 | 9,170 | (c) | 57,010 | |||||||||||
| Diluted | 47,840 | 9,170 | (c) | 57,010 | |||||||||||
See accompanying notes to unaudited pro forma combined financial statements.
LEGACY RESERVES LP
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2011
| Legacy Historical | COG 2012 Acquisition Properties Historical | Pro Forma Adjustments | Pro Forma | ||||||||||||
| (In thousands, except per unit data) | |||||||||||||||
| Revenues: | |||||||||||||||
| Oil sales | $ | 264,473 | $ | 103,431 | $ | — | $ | 367,904 | |||||||
| Natural gas liquids (NGL) sales | 18,888 | 331 | — | 19,219 | |||||||||||
| Natural gas sales | 53,524 | 20,359 | — | 73,883 | |||||||||||
| Total revenues | 336,885 | 124,121 | — | 461,006 | |||||||||||
| Expenses: | |||||||||||||||
| Oil and natural gas production | 96,914 | 23,148 | — | 120,062 | |||||||||||
| Production and other taxes | 20,329 | 8,833 | — | 29,162 | |||||||||||
| General and administrative | 23,084 | — | — | 23,084 | |||||||||||
| Depletion, depreciation, amortization and accretion | 88,178 | — | 50,837 | (a) | 139,015 | ||||||||||
| Impairment of long-lived assets | 24,510 | — | — | 24,510 | |||||||||||
| Gain on disposal of assets | (625 | ) | — | — | (625 | ) | |||||||||
| Total expenses | 252,390 | 31,981 | 50,837 | 335,208 | |||||||||||
| Operating income | 84,495 | 92,140 | (50,837 | ) | 125,798 | ||||||||||
| Other income (expense): | |||||||||||||||
| Interest income | 15 | — | — | 15 | |||||||||||
| Interest expense | (18,566 | ) | — | (25,111 | ) | (b) | (43,677 | ) | |||||||
| Equity in income of partnership | 138 | — | — | 138 | |||||||||||
| Realized and unrealized net gains on commodity derivatives | 6,857 | — | — | 6,857 | |||||||||||
| Other | 152 | — | — | 152 | |||||||||||
| Income before income taxes | 73,091 | 92,140 | (75,948 | ) | 89,283 | ||||||||||
| Income tax expense | (1,030 | ) | — | — | (1,030 | ) | |||||||||
| Net income | $ | 72,061 | $ | 92,140 | $ | (75,948 | ) | $ | 88,253 | ||||||
| Income per unit — basic and diluted | $ | 1.63 | $ | 1.66 | |||||||||||
| Weighted average number of units used in | |||||||||||||||
| computing net income per unit — | |||||||||||||||
| Basic | 44,093 | 9,170 | (c) | 53,263 | |||||||||||
| Diluted | 44,112 | 9,170 | (c) | 53,282 | |||||||||||
See accompanying notes to unaudited pro forma combined financial statements.
1.Basis of Presentation:
The financial statements included in this report present a pro forma combined balance sheet and pro forma combined results of operations reflecting the pro forma effect of certain transactions, discussed in detail below, entered into by Legacy Reserves LP ("Legacy").
The unaudited pro forma combined balance sheet as of September 30, 2012 included in this report gives effect to Legacy's December 20, 2012 acquisition of certain oil and natural gas properties located primarily in the Permian Basin of west Texas and southeastern New Mexico acquired from COG Operating LLC and Concho Oil and Gas, LLC ("Concho"), both wholly owned subsidiaries of Concho Resources, Inc (the "COG 2012 Acquisition Properties") assuming the acquisition occurred on September 30, 2012.
The unaudited pro forma combined balance sheet as of September 30, 2012 is derived from the historical consolidated financial statements of Legacy and the purchase price allocation of the COG 2012 Acquisition Properties.
The unaudited pro forma combined statements of operations for the nine months ended September 30, 2012 and the year ended December 31, 2011 give effect to the COG 2012 Acquisition Properties assuming the acquisition occurred on January 1, 2011. They are derived from the historical consolidated financial statements of Legacy, the historical statements of revenues and direct operating expenses of the COG 2012 Acquisition Properties and pro forma adjustments based on assumptions Legacy has deemed appropriate. No adjustments have been made to reflect the pro forma effects of the acquisition made by Concho on July 3, 2012 (which is discussed in Note 3 to the statements of revenues and direct operating expenses) as if it had occurred as of an earlier date.
The related pro forma adjustments are described below. In the opinion of Legacy's management, all adjustments have been made that are necessary to present, in accordance with the Securities and Exchange Commision's (the "SEC") 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 acquisition of the COG 2012 Acquisition Properties 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, 2012 and elsewhere in Legacy's reports and filings with the SEC. The 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 Reports on Form 10-K for the year ended December 31, 2011 and 2012 and on our Quarterly Reports on Form 10-Q for the quarters ended September 30, 2012, June 30, 2012 and March 31, 2012.
The pro forma statements should also be read in conjunction with the historical financial statements and the notes thereto of the acquired business reflected therein as filed herewith by Legacy with the SEC.
2.Pro Forma Adjustments
The unaudited pro forma combined financial statements reflect the following adjustments:
a.On December 20, 2012, Legacy closed the acquisition of the COG 2012 Acquisition Properties for a net cash purchase price of $502.6 million. The effective date of our ownership is October 1, 2012. The allocation of purchase price to the fair value of the acquired assets and liabilities assumed was as follows:
| Proved oil and natural gas properties including related equipment | $ | 495,897 | |
| Unproved properties | 37,994 | ||
| Total assets | 533,891 | ||
| Future abandonment costs | (31,274 | ) | |
| Fair value of net assets acquired | $ | 502,617 | |
To record the acquisition of the COG 2012 Acquisition Properties and related incremental depreciation, depletion, amortization and accretion, using the units of production method.
b.To record the issuance of $300 million in aggregate principal amount of senior unsecured notes due 2020, issued to fund a portion of the COG 2012 Acquisition Properties and the associated interest expense, including accretion of original purchasers discount.
c.To reflect the units issued in November 2012 to fund the remainder of the COG 2012 Acquisition Properties.
3.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, 2011, giving effect to the acquisition of the COG 2012 Acquisition Properties. 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 Historical | COG 2012 Acquisition Properties | Pro Forma Total | ||||||
| Total Proved Reserves: | ||||||||
| Balance, December 31, 2010 | 34,152 | 10,669 | 44,821 | |||||
| Purchases of minerals-in-place | 2,406 | — | 2,406 | |||||
| Revisions from drilling and recompletions | 897 | 501 | 1,398 | |||||
| Revisions of previous estimates due to price | 1,514 | 430 | 1,944 | |||||
| Revisions of previous estimates due to performance | 2,160 | — | 2,160 | |||||
| Production | (2,951 | ) | (1,144 | ) | (4,095 | ) | ||
| Balance, December 31, 2011 | 38,178 | 10,456 | 48,634 | |||||
| Proved Developed Reserves: | ||||||||
| December 31, 2010 | 29,579 | 8,849 | 38,428 | |||||
| December 31, 2011 | 32,481 | 9,259 | 41,740 | |||||
| Proved Undeveloped Reserves: | ||||||||
| December 31, 2010 | 4,573 | 1,820 | 6,393 | |||||
| December 31, 2011 | 5,697 | 1,197 | 6,894 | |||||
| Gas (MMcf) | ||||||||
| Legacy Historical | COG 2012 Acquisition Properties | Pro Forma Total | ||||||
| Total Proved Reserves: | ||||||||
| Balance, December 31, 2010 | 82,736 | 20,193 | 102,929 | |||||
| Purchases of minerals-in-place | 39,264 | — | 39,264 | |||||
| Revisions from drilling and recompletions | 3,344 | 711 | 4,055 | |||||
| Revisions of previous estimates due to price | 2,286 | 329 | 2,615 | |||||
| Revisions of previous estimates due to performance | 3,816 | — | 3,816 | |||||
| Production | (8,842 | ) | (2,621 | ) | (11,463 | ) | ||
| Balance, December 31, 2011 | 122,604 | 18,612 | 141,216 | |||||
| Proved Developed Reserves: | ||||||||
| December 31, 2010 | 72,850 | 14,969 | 87,819 | |||||
| December 31, 2011 | 110,909 | 16,654 | 127,563 | |||||
| Proved Undeveloped Reserves: | ||||||||
| December 31, 2010 | 9,886 | 5,224 | 15,110 | |||||
| December 31, 2011 | 11,695 | 1,958 | 13,653 | |||||
| NGL (MBbls) | ||||||||
| Legacy Historical | COG 2012 Acquisition Properties | Pro Forma Total | ||||||
| Total Proved Reserves: | ||||||||
| Balance, December 31, 2010 | 4,901 | — | 4,901 | |||||
| Purchases of minerals-in-place | 25 | — | 25 | |||||
| Revisions from drilling and recompletions | 180 | — | 180 | |||||
| Revisions of previous estimates due to price | 338 | — | 338 | |||||
| Revisions of previous estimates due to performance | (263 | ) | — | (263 | ) | |||
| Production | (347 | ) | — | — | ||||
| Balance, December 31, 2011 | 4,834 | — | 5,181 | |||||
| Proved Developed Reserves: | ||||||||
| December 31, 2010 | 4,701 | — | 4,701 | |||||
| December 31, 2011 | 4,439 | — | 4,439 | |||||
| Proved Undeveloped Reserves: | ||||||||
| December 31, 2010 | 200 | — | 200 | |||||
| December 31, 2011 | 395 | — | 395 | |||||
Summarized in the following tables is information for our standardized measure of discounted cash flows relating to proved reserves as of December 31, 2011, giving effect to the COG 2012 Acquisition Properties as if the transaction had occurred on January 1, 2011. Future cash flows are computed by applying the 12-month un-weighted first-day-of-the-month average price for the year ended December 31, 2011 to the year-end quantity of proved reserves. Future production, development, site restoration and abandonment costs are derived based on current costs assuming continuation of existing economic conditions. Federal income taxes have not been deducted from future production revenues in the calculation of standardized measure as each partner is separately taxed on their share of Legacy's taxable income. 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 value. Reference is made to our Annual Report on Form 10-K for the year ended December 31, 2011 as well as to the historical statements of revenues and direct operating expenses of certain oil and natural gas properties acquired from Concho for a discussion of the assumptions used in preparing the information presented.
| December 31, 2011 | |||||||||||
| Legacy Historical | COG 2012 Acquisition Properties | Pro Forma Total | |||||||||
| (In thousands) | |||||||||||
| Future production revenues | $ | 4,430,377 | $ | 1,087,885 | $ | 5,518,262 | |||||
| Future costs: | |||||||||||
| Production | (1,933,503 | ) | (403,744 | ) | (2,337,247 | ) | |||||
| Development | (192,642 | ) | (56,847 | ) | (249,489 | ) | |||||
| Future net cash flows before income taxes | 2,304,232 | 627,294 | 2,931,526 | ||||||||
| 10% annual discount for estimated timing of cash flows | (1,163,831 | ) | (282,436 | ) | (1,446,267 | ) | |||||
| Standardized measure of discounted net cash flows | $ | 1,140,401 | $ | 344,858 | $ | 1,485,259 | |||||
The following table sets forth the principal sources of change in discounted future net cash flows:
| Year ended December 31, 2011 | |||||||||||
| Legacy Historical | COG 2012 Acquisition Properties | Pro Forma Total | |||||||||
| (In thousands) | |||||||||||
| Increase (decrease): | |||||||||||
| Sales, net of production costs | $ | (219,642 | ) | $ | (92,140 | ) | $ | (311,782 | ) | ||
| Net change in sales prices, net of production costs | 264,410 | 75,101 | 339,511 | ||||||||
| Changes in estimated future development costs | 5,499 | — | 5,499 | ||||||||
| Revisions of previous estimates due to infill drilling, | |||||||||||
| recompletions and stimulations | 34,462 | 15,172 | 49,634 | ||||||||
| Revisions of previous quantity estimates due to performance | 56,389 | — | 56,389 | ||||||||
| Previously estimated development costs incurred | 26,009 | 27,379 | 53,388 | ||||||||
| Purchases of minerals-in place | 121,395 | — | 121,395 | ||||||||
| Other | 3,367 | (1,481 | ) | 1,886 | |||||||
| Accretion of discount | 73,688 | 27,630 | 101,318 | ||||||||
| Net increase | 365,577 | 51,661 | 417,238 | ||||||||
| Standardized measure of discounted future net cash flows: | |||||||||||
| Beginning of year | 774,824 | 293,197 | 1,068,021 | ||||||||
| End of year | $ | 1,140,401 | $ | 344,858 | $ | 1,485,259 | |||||