Legacy Reserves CEO Discusses Q4 2010 Results - Earnings Call Transcript

Legacy Reserves LP (LGCY)

Q4 2010 Earnings Call

March 3, 2011 9:30 AM ET


Steven Pruett – President, CFO and Secretary

Cary Brown – Chairman and CEO

Paul Horne – EVP, Operations

Kyle McGraw – EVP, Business Development and Land


Kevin Smith – Raymond James

Bernard Colson – Oppenheimer

Ethan Bellamy – Robert W. Baird

Michael Blum – Well Fargo

Chad Potter – RBC Capital Markets

John Cusick – Wunderlich



Ladies and gentlemen, thank you for standing by. Welcome to the Legacy Reserves Fourth Quarter and Annual 2010 Results Conference Call. Your speakers for today are Cary Brown, Chairman and Chief Executive Officer; and Steve Pruett, President, and Chief Financial Officer. (Operator Instructions) As a reminder this call is being recorded today, March 3 of 2011.

I’ll now turn the conference over to Mr. Pruett.

Steven Pruett

Welcome everyone to Legacy Reserve LP’s fourth quarter and annual 2010 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 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, 2010, which will be released on March 4, and subsequent reports filed with the Securities and Exchange Commission. And we also refer you to our earnings release that’s available on various websites including Legacy’s site for greater discloser.

Legacy Reserves LP is an independent oil and natural gas limited partnership headquartered in Midland, Texas, focused on the acquisition and development of long life oil and natural gas properties located in the Permian Basin, Mid-continent and Rocky Mountain regions.

I’ll now turn the conference over to Cary Brown, Legacy’s Chairman and Chief Executive Officer.

Cary Brown

Thanks, Steve, and thanks to our friends and unit holders for joining us today. After the challenges in 2009, Legacy experienced its most productive year to-date 2010. We grew annual production by, and adjusted EBITDA by 17%, and our proved reserves by 42%. In addition, we’ve closed approximately 280 million of acquisitions, including our two largest acquisitions, which established a new core area for us in the Rockies, and significantly expanded our Permian Basin asset base.

We ended 2010 on a high note, as we grew our production by 5% and our EBITDA by 11% compared to the third quarter. We continued to be encouraged by the results for our development drilling and working projects, which are meeting or exceeding our expectations. Our Permian acquisition only contributed 10 days to the fourth quarter results.

Due to our growth in 2010, and our positive outlook for ‘11, we increased our quarterly distribution to $0.525, paid February 14. We’re pleased to report in the fourth quarter even after detecting 13.6 million of development capital expenditures and prefunding our Permian Basin acquisition with issuance of additional units, we generated 21.5 million of distributable cash flow of $0.52 a unit, covering our distribution of $0.525 just under one time.

With the blessing of higher oil prices, we also have a few challenges that faces and one of the challenges is we have a lot of people that want to get in the Permian Basin, as they try to get oil in here. And we’re blessed to be here and as we see increased competition, we still feel like we’re going to be competitive. We’re glad to have places in Wyoming and other places that we can look if we Permian gets over value in our opinion. But, we’ve seen a good increase in our development drilling inventory. We’ll get lots to do, we’re going to up our budget to 45 million this year. And we’d always try to keep a three to four inventory of drilling on the books.

It looks like even with the $45 million budget, we’re going to have trouble keeping that inventory to three or four years, as we see more and more development opportunities on the assets that we purchased. So, all in all, I think we’re setup for fantastic 2011, and I’m very pleased with the effort that our employees give in 2010.

With that, let me turn it over to Steve and let him go over the specific numbers.

Steven Pruett

Thank you, Cary. We are, as Cary said, we are very pleased with our fourth quarter and annual results from 2010. Particularly the fourth quarter, we have a lot of momentum coming out of the fourth quarter into 2011. So as Cary said, we are very well set up for excellent performance in 2011. Our acquisition program during 2010 was fully supported by our bank group. We are able to use our revolving credit facility to opportunistically fund our acquisitions.

And our unit holders and equity underwriters supported us through two successful follow-on offerings, raising about $179 million after expenses. As of December 31, 2010, Legacy had approximately $85 million of borrowing capacity under our credit facility, and our, with our current $410 million borrowing base. After our recent meeting with our banker, we anticipate an increase to over borrowing base due to our newly acquired Permian Basin assets, the conversion of PUDs and probables to PDP categories and our reserves, our additional commodity hedges, and some other smaller acquisitions that contributed to the increased borrowing base.

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