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Legacy Reserves LP (



Q4 2011 Earnings Conference Call

February 22, 2012 10:00 ET


Cary Brown – Chairman and Chief Executive Officer

Steve Pruett – President and Chief Financial Officer


Kevin Smith – Raymond James

Ethan Bellamy – Baird

Michael Blum – Wells Fargo

T. J. Schultz – RBC Capital Markets

Chris Sighinolfi – UBS



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Good day, ladies and gentlemen and thank you for standing by. Welcome to the Legacy Reserves' Fourth Quarter and Annual 2011 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, February 22, 2012.

I'll now turn the call over to Mr. Pruett.

Steve Pruett – President and Chief Financial Officer

Thank you, (Caron) and thank you for joining us on this fine morning. Welcome to Legacy Reserves LP's fourth quarter and annual 2011 conference call.

Before we begin, we would 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 statements as defined by securities laws. These statements reflect our current views with regard to future events and are subject to various risks, 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 Legacy Reserves LP's Form 10-K for the year ended December 31, 2011 which will be released on or about February 23, that’s tomorrow and subsequent reports and press releases 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 of the United States.

I will now turn the call over to Cary Brown, Legacy's Chairman, Chief Executive Officer, and Co-Founder.

Cary Brown – Chairman and Chief Executive Officer

Thanks, Steve and thank you to our friends and unit holders joining us today. After an outstanding 2010, Legacy continued its strong growth in 2011 as we set new records for production, adjusted EBITDA, and proved reserves. We increased our annual production by 36% to an average of over 13,000 barrel oil equivalents per day. We increased our adjusted EBITDA by 44% to over $200 million and we grew our proved reserves by 20% to 63.4 million barrels through our robust acquisition program and a record $71.6 million of development capital expenditure.

After closing our $100 million Permian Basin acquisition at the end of 2010, we closed 28 transactions during 2011, including $136 million of producing properties, another $5.5 million of undeveloped acreage in the Permian. While approximately 96% of our 2011 acquisitions were in the Permian, we continue to evaluate and expect to close accretive acquisitions in all of our core areas.

Due to our strong results, we increased our distribution every quarter during 2011 resulting in distribution growth of 4.8% since the fourth quarter of 2010. We are pleased to report that during the fourth quarter even after deducting $19.5 million of development capital expenditures and additional $1.9 million of G&A related to the termination of the potential acquisition in Wyoming, we still generated approximately $29.4 million or $0.64 per unit of distributable cash flow with coverage of 1.16 times or $0.55 distribution.

For the year, after deducting all of our $71.6 million of development capital expenditures, we generated approximately $108 million or $2.46 per unit of distributable cash flow, covering our 216 distribution by 1.14 times. We continue to be encouraged by the results of our Wolfberry drilling program, which are meeting or exceeding our expectations. While our Wolfberry program will remain the focus of our operated drilling activity in 2012, our $62 million capital budget also includes two operated horizontal Bone Spring wells and two operated Yeso wells. With the multi-year oil-weighted drilling inventory that's largely within the Permian and our strong acquisition efforts, we believe we are well-positioned for the future and look forward to another highly productive year in 2012.

I'll now turn it back over to Steve to cover the fourth quarter and annual 2011 results in detail. Thanks Steve.

Steve Pruett – President and Chief Financial Officer

Thank you, Cary. We are very pleased with our fourth quarter and record annual results in 2011. With our successful November 2011 equity offering, where we raised $106.7 million of proceeds net of expenses, combined with our amended $1 billion credit facility, we are well-positioned to execute our acquisition development plans in 2012.

As of February 21, 2012, we had $200 million of borrowing capacity under our revolving credit facility, which has a current $550 million borrowing base. This will be re-determined effective April 1 of this year. With favorable conditions in the public capital markets and ample availability under our credit facility, we look forward to another year of strong organic growth and acquisitions. We thank our employees and our directors and all of our unit holders for another solid performance. We thank our investors and our banks for supporting our growth this year.

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