Legacy Reserves CEO Discusses Q3 2010 Results - Earnings Call Transcript
Legacy Reserves LP (
)
Q3 2010 Earnings Conference Call
November 4, 2010 9:30 PM ET
Executives
Steve Pruett – President and CFO
Cary Brown – Chairman and CEO
Paul Horne – VP, Operations of Legacy Reserves GP, LLC
Kyle McGraw – Director, Legacy Reserves GP, LLC
Analysts
Kevin Smith – Raymond James
Michael Blum – Wells Fargo
Chad Potter – RBC Capital Markets
Presentation
Operator
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Legacy Reserves LP Q3 2009 Earnings Call Transcript
Ladies and gentlemen thank you for standing by. Welcome to the Legacy Reserves third quarter results conference call. Your speakers for today are Cary Brown, Chairman and Chief Executive Officer and Steve Pruett, President and Chief Financial Officer. At this time, all participants are in a listen-only mode. Following the call, there will be a question-and-answer session. As a reminder this call is being recorded today November 4, 2010. I will now turn the conference over to Mr. Pruett.
Steve Pruett
Good morning everyone. Welcome to Legacy Reserves LP’s third quarter earnings call. Before we begin, we’d like to remind you that during the course of this call, Legacy management will make certain statements concerning the future performance of Legacy and other statements that will be forward-looking as defined by securities laws.
These statements reflect our current views with regard to future events and are subject to various risk, uncertainties and assumptions. Actual results may materially differ from those discussed in these forward-looking statements and you should refer to the additional information contained in our earnings release last night, Legacy Reserves Form 10-Q for the quarter ended September 30, 2010, which will be released tomorrow morning November 5, and subsequent reports as filed with the Securities and Exchange Commission.
Legacy Reserves LP is an independent oil and natural gas limited partnership, headquartered in Midland, Texas focused on the acquisition and development of long-lived oil and natural gas properties primarily located in the Permian Basin, Mid-Continent and Rocky Mountain regions.
I will now turn the conference over to Cary Brown, Legacy’s Chairman, Chief Executive Officer and Co-Founder.
Cary Brown
Thanks, Steve and thanks to our friends and unit holders for joining us today. I’m very encouraged by our third quarter results. Despite a slight decline in commodity prices, we realized 11% growth in EBITDA during the quarter due to increased production, lower production expenses and higher cash settlements on our commodity derivatives.
Although we continued to experience gathering and processing issues in the Texas Panhandle, we increased production in the third quarter to 9,804 barrels of oil equivalent per day up from 9,516 in the second quarter. These increases were due to bolt-on acquisitions in the Permian Basin and Wyoming, operational improvements on our Wyoming and other base properties, and increased development drilling. From July 1 through October 4, we closed an additional 8 transactions for approximately $16.3 million, bringing us to a total of 20 transactions for approximately $173 million of acquisitions for 2010.
Our current backlog of potential acquisitions is sizable, and we feel confident about our ability to grow through acquisitions. In addition, we continue to be encouraged by the results of our drilling – development drilling activity and recompletion projects, which are meeting or exceeding our expectations. Finally, we are pleased to report that during the third quarter, even after we deducted $9 million of capital expenditures for development, we still generated $22.2 million or $0.55 per unit of distributable cash flow, covering our $0.52 distribution by 1.06 times. During the year – our year-to-date coverage is 1.09 times and we maintained positive momentum in the third quarter, and look forward to continued growth in the fourth quarter as well as 2011.
I’ll now turn over to Steve to cover our third quarter results in detail.
Steve Pruett
Thank you Cary. As we’ve previously reported, our bank group redetermined our borrowing base maintaining our $410 million borrowing base on our $600 million credit facility in early October. As of November 3, we have approximately $120 million of borrowing capacity under this credit agreement. I’m happy to report that our bank group is very strong, healthy and desirous of advancing additional funds to Legacy, so we don’t see any constrains on growth relative to our borrowing facility.
Furthermore, the equity markets continue to be friendly and the high yield debt market is also very attractive probably even having recently issued, high yield at a very attractive 79% [ph] coupon. Our leverage is modest with a trailing 12-month debt-to-EBITDA of 2.18 times, while our debt-to-EBITDA covenant or credit agreement is 3.75 times. So we have a lot of rooms there.
It’s our intent to maintain a healthy balance sheet and our opportunistic acquisition program. Our debt-to-book capitalization ratio is 45% as of September 30, 2010. With the strong public capital markets in the favorable lending environment, we are very confident in our ability to finance potential acquisitions. Our fuel flow frankly has never been better. I want to thank and acknowledge our employees efforts in this quarter, an excellent quarter in particular given the fact that we were able to restore production on our acquired properties and reduce lifting cost by 10% per Boe. We have very strong momentum coming out of the, into third quarter due to successful development drilling and production improvement projects namely recompletion, major workovers that generated very strong results towards the back end of the quarter.
So we’ll have a full quarter’s benefit from that in the fourth quarter and our drilling momentum particularly in the Wolfberry
trend continues into the fourth quarter.
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