Legacy Reserves LP (LGCY)
Q1 2010 Earnings Call
May 6, 2010 9:30 AM ET
Cary Brown – Chairman and CEO
Steve Pruett – President and CFO
Kyle McGraw – EVP, Business Development and Land
Kevin Smith – Raymond James
TJ Schultz – RBC Capital
Ethan Bellamy – Wunderlich Investments
Richard Roy – Citigroup
Michael Blum – Wells Fargo
Todd Blue – Private Investor
Previous Statements by LGCY
» Legacy Reserves LP Q4 2009 Earnings Call Transcript
» Legacy Reserves LP Q3 2009 Earnings Call Transcript
» Legacy Reserves LP. Q2 2009 Earnings Call Transcript
I would now turn over the conference to Mr. Pruett.
Welcome to Legacy Reserves LP’s first quarter earnings call. Thank you for joining us this morning. 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 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 Legacy Reserves LP’s Form 10-Q for the quarter ended March 31, 2010, which will be released on or about May 7th, and subsequent reports as filed with the Securities and Exchange Commission. We also refer you to our annual report filed on Form 10-K that’s available on our website.
Legacy Reserves 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.
Thanks, Steve. Thanks to our friends and unitholders for joining us today. We’ve had a great start to 2010 with over $154 million of oil and gas properties either acquired or under contact.
In the first quarter we issued 4.87 million units receiving net proceeds of that $95.4 million which we used to fund our largest acquisition today that would be Wyoming purchase of properties for $125 million closed on February 17th. We’ve been successful in opening our Cody office and I got some great people up there, we’re really proud of what they’re doing and feel like that’s off to a good start.
We are integrating the assets with these acquisitions although we only have a portion of the first quarter results are that we’ve increased production to 8,767 barrels a day up from 8,250 50 barrels a day in the prior quarter.
Very pleased to report, first quarter we generated $0.55 of distributable cash flow covering our $0.52 distribution 1.06 times. Even as with the increase in CapEx, we’ve decided to double our CapEx little over double going to $31 million from $13 million this year.
Rather than increased distributions and felt like increasing CapEx, we’ve got great projects to drill, it’s a good time to be drilling oil projects, most of the wells we are drilling are oil projects. So we are very pleased with what we’re doing with CapEx and that should lead to move in the right direction. We even added a few hedges recently not the first quarter but just this week, Steve will talk about that. We were able to get those off at pretty attractive prices.
So all in all, I feel great about where we are and where we are headed. Balance sheet is in good shape with less than two times EBITDA drawn, we got over $140 million of undrawn capacity to make acquisitions. So we can do quite a bit of acquisition even without issuing new equity.
We got solid protections with our hedges in place and because of the contango or the increasing nature of our hedged prices should see increase in EBITDA even without additional acquisitions.
Although, we expect to continue to make acquisitions and if we continue to make acquisitions and continue to execute on our current asset base, I think you’ll see us start looking at increasing distributions here in the next few quarters – no, that will be next quarter or even this year, but I would expect potentially later this year with some acquisitions that we’d be headed towards increasing distributions.
With that, I’ll turn it over to Steve.
Thank you, Cary. On March 31st, our bank group increased our borrowing base to $410 million from $340 million, which reflects the impact of the Wyoming acquisition and the conversion of PUDs and probables to PDP status.
In addition to the increased borrowing base, we added two new banks to our syndicate, which now has 11 banks, and we’re very grateful to our banks for their support. And I will say that our banks are once again enjoying, having outstandings and are very supportive of our business plan.
We’re borrowing money on a marginal basis at 3% today. We expect that’s going to drop overtime, which is why we have in place $264 million of LIBOR swaps at an average interest of about 3.05%.