OilVoice - Legacy Reserves Announces Fourth Quarter and Full Year 2008 Results

Legacy Reserves Announces Fourth Quarter and Full Year 2008 Results

Wednesday, March 04, 2009

Legacy Reserves LP today announced annual and fourth quarter results for 2008. This unaudited financial information is preliminary and is subject to adjustments in connection with the final audited financial statements to be released on or about March 6, 2009.

Highlights of the fourth quarter of 2008 compared to the third quarter of 2008:

• Adjusted EBITDA decreased 24% to $17.7 million from $23.4 million due to lower commodity prices in the period and the timing of commodity swap settlements.
• Production increased 13% to 8,553 Boe per day from 7,587 Boe per day due to a combination of acquisitions and development drilling.
• Net income of $127.1 million, or $4.09 per unit, was supported by $230.4 million of unrealized gains on our commodity derivatives offset by $76.5 million of impairment and DD&A of $30.1 million related to the dramatic reduction in oil and natural gas prices during the fourth quarter. Net income was $228.0 million in the third quarter which included $222.1 million of unrealized gains on our commodity derivatives.
• Cash settlements received on our commodity swaps were $1.4 million compared to cash payments to our counterparties of $19.8 million in the third quarter.

Comparisons of 2008 results to 2007:

• Adjusted EBITDA increased 42% to $99.9 million from $70.2 million.
• Production increased 53% to 7,582 Boe per day from 4,970 Boe per day.
• Net income was $158.2 million for the year, or $5.17 per unit, compared to a loss of $55.7 million in 2007, or ($2.13) per unit. Unrealized gains of $217.2 million were recorded on our commodity derivatives in 2008 compared to unrealized losses of $85.4 million in 2007.
• Proved reserves decreased 4% to 30.8 MMBoe from 32.1 MMBoe due to the impact of lower year-end oil, natural gas liquids ("NGLs"), and natural gas prices and elevated production and capital costs based on the average costs from 2008, resulting in an 8.1 MMBoe decrease in reserves.
• Year-end standardized measure of discounted future net cash flows decreased 66% to $235.0 million from $690.5 million, with a $456.1 million reduction due to net changes in hydrocarbon sales prices net of production costs. The standardized measure does not take into account our oil, NGL and natural gas hedges.
• Distributions attributable to the fourth quarter 2008 were $0.52 per unit compared to $0.45 per unit attributable to the fourth quarter 2007, a 15.6% increase.

Cary Brown, Chairman and Chief Executive Officer of Legacy Reserves GP, LLC, the general partner of Legacy, said, "We delivered record fourth quarter production, and I am pleased with the rapid cost containment response of our operating team which was primarily responsible for a decrease of production costs from $22.61 per Boe in the third quarter to $16.74 per Boe in the fourth quarter including ad valorem taxes. Given current oil, NGL and natural gas prices, we expect production and capital costs to continue to fall in 2009.

"We acquired $50.2 million of properties in the fourth quarter, and we hedged approximately 85% of the related expected production at average prices of $108.90 per barrel of oil and $8.10 per MMBtu for ANR-Oklahoma natural gas for a period of four years. We invested $14.5 million in development projects, including drilling and completing 11 gross and 5.5 net wells."

Capital Program and Revised 2009 Budget

Mr. Brown continued, "While I am pleased with the performance of our third and fourth quarter development projects that contributed to a 966 Boe per day increase in quarterly production, we executed $25.4 million of projects in the second half of 2008 during a period of high capital costs and falling commodity prices. There was no way to predict the dramatic decline in oil, NGL and natural gas prices in the second half of the year, though the wells we drilled and completed in late 2008 are expected to have a long producing life. The elevated level of growth capital investment in the fourth quarter coupled with a $7.3 million unfavorable impact due to a one-month lag in the receipt of our oil and NGL commodity swap settlements resulted in 0.02 times coverage of our fourth quarter distribution. Given our maintenance capital target of 20% of Adjusted EBITDA, $3.5 million of our capital spending was maintenance capital with the $11 million balance considered discretionary growth capital. This would result in an adjusted distribution coverage of approximately 0.7 times our fourth quarter distribution. Our annual distribution coverage in 2008 was 0.94 times based on $32.8 million of development capital expenditures; however, if we consider only maintenance capital expenditures of an estimated $20 million, our 2008 annual distribution coverage would improve to 1.27 times.

"Our Board of Directors has approved a 2009 development capital budget of $20 million, reduced from $25 million previously announced. This is predicated on an improvement in oil and natural gas prices to $50 per barrel and $5.00 per MMBtu, respectively, by mid-year. Should prices continue to trade significantly below these levels, further reductions in our capital budget to $15 million will be considered. We have drilled two wells in the first quarter, but have no further plans to drill wells in the balance of the quarter or in the second quarter on properties we operate or have the ability to make an election on participation in drilling. We will continue to perform well workovers, recompletions, and restimulations in existing wellbores, which generally offer higher rates of return on capital than drilling and help us to offset natural decline. As capital costs are expected to continue to decline in 2009, and as we shift a larger portion of our capital investment from drilling to behind pipe and workover projects, the productivity of our capital is expected to increase relative to 2008 when we experienced elevated costs and a higher percentage of our capital budget directed toward drilling projects."