LEGACY RESERVES LP - FORM 8-K - EX-99.2 - UNAUDITED PRO FORMA BALANCE SHEET AND STATEMENTS OF OPERATIONS - October 13, 2017

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EX-99.1 - STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES - LEGACY RESERVES LPexhibit991jdaaccelerationp.htm
EX-23.1 - CONSENT OF INDEPENDENT AUDITOR - LEGACY RESERVES LPexhibit231auditorconsent.htm
8-K - CURRENT REPORT ON FORM 8-K - LEGACY RESERVES LPjdaaccelerationpayment8-k.htm


Exhibit 99.2
LEGACY RESERVES LP

UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 2017
 
Legacy
 
Pro Forma Adjustments
 
Pro Forma
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
 
Cash
$
1,214

 
$
(141,405
)
(a)
$
1,909

 
 
 
142,100

(b)
 
Accounts receivable, net:
 
 
 
 
 
Oil and natural gas
42,189

 
—

 
42,189

Joint interest owners
26,673

 
—

 
26,673

Other
401

 
—

 
401

Fair value of derivatives
24,343

 
—

 
24,343

Prepaid expenses and other current assets
8,457

 
—

 
8,457

Total current assets
103,277

 
695

 
103,972

Oil and natural gas properties using the successful efforts method, at cost:
 
 
 
 
 
Proved properties
3,276,421

 
141,467

(a)
3,417,888

Unproved properties
22,287

 
—

 
22,287

Accumulated depletion, depreciation, amortization and impairment
(2,125,166
)
 
—

 
(2,125,166
)
 
1,173,542

 
141,467

 
1,315,009

Other property and equipment, net
2,898

 
—

 
2,898

Operating rights, net
1,449

 
—

 
1,449

Fair value of derivatives
27,767

 
—

 
27,767

Other assets, net
8,452

 
—

 
8,452

Investment in equity method investee
658

 
—

 
658

Total assets
$
1,318,043

 
$
142,162

 
$
1,460,205

LIABILITIES AND PARTNERS’ EQUITY
Current liabilities:
 
 
 
 
 
Accounts payable
$
8,983

 
$
—

 
$
8,983

Accrued oil and natural gas liabilities
61,767

 
—

 
61,767

Fair value of derivatives
94

 
—

 
94

Asset retirement obligation
2,980

 
—

 
2,980

Other
9,016

 
—

 
9,016

Total current liabilities
82,840

 
—

 
82,840

Long-term debt
1,180,047

 
142,100

(b)
1,322,147

Asset retirement obligation
268,803

 
62

(a)
268,865

Fair value of derivatives
—

 
—

 
—

Other long-term liabilities
643

 
—

 
643

Total liabilities
1,532,333

 
142,162

 
1,674,495

Partners’ equity:
 
 
 
 
 
Series A Preferred equity
55,192

 
—

 
55,192

Series B Preferred equity
174,261

 
—

 
174,261

Incentive distribution equity
30,814

 
—

 
30,814

Limited partners’ equity
(474,412
)
 
—

 
(474,412
)
       General partner’s equity
(145
)
 
—

 
(145
)
Total partners’ equity
(214,290
)
 
—

 
(214,290
)
Total liabilities and partners’ equity
$
1,318,043

 
$
142,162

 
$
1,460,205

See accompanying notes to unaudited pro forma financial statements.




LEGACY RESERVES LP
 
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2017
 
 
Legacy Historical
 
Jupiter Acceleration Payment Interests
 
Pro Forma Adjustments
 
Pro Forma
 
(In thousands, except per unit data)
Revenues:
 
 
 
 
 
 
 
Oil sales
$
95,238

 
$
24,741

 
$
—

 
$
119,979

Natural gas liquids (NGL) sales
9,971

 
—

 
—

 
9,971

Natural gas sales
87,185

 
2,419

 
—

 
89,604

Total revenues
192,394

 
27,160

 
—

 
219,554

Expenses:
 
 
 
 
 
 
 
Oil and natural gas production
96,019

 
2,356

 
—

 
98,375

Production and other taxes
8,304

 
1,758

 
—

 
10,062

General and administrative
19,133

 
—

 
—

 
19,133

Depletion, depreciation, amortization and accretion
56,485

 
—

 
11,114

(a)
67,599

Impairment of long-lived assets
9,883

 
—

 
—

 
9,883

Loss on disposal of assets
5,525

 
—

 
—

 
5,525

Total expenses
195,349

 
4,114

 
11,114

 
210,577

Operating income (loss)
(2,955
)
 
23,046

 
(11,114
)
 
8,977

Other income (expense):
 
 
 
 
 
 
 
Interest income
9

 
—

 
—

 
9

Interest expense
(40,747
)
 
—

 
(8,700
)
(b)
(49,447
)
Equity in income of equity method investee
12

 
—

 
—

 
12

Net gains on commodity derivatives
49,185

 
—

 
—

 
49,185

Other
362

 
—

 
—

 
362

Income (loss) before income taxes
5,866

 
23,046

 
(19,814
)
 
9,098

Income tax benefit
(571
)
 
—

 
—

 
(571
)
Net income (loss)
$
5,295

 
$
23,046

 
$
(19,814
)
 
$
8,527

Distributions to Preferred unitholders
$
(9,500
)
 
 
 
 
 
(9,500
)
Net loss attributable to unitholders
$
(4,205
)
 
 
 
 
 
$
(973
)
Loss per unit — basic and diluted
$
(0.06
)
 
 
 
 
 
$
(0.01
)
Weighted average number of units used in
 
 
 
 
 
 
 
computing net loss per unit —
 
 
 
 
 
 
 
Basic
72,229

 
 
 
—

 
72,229

Diluted
72,229

 
 
 
—

 
72,229


See accompanying notes to unaudited pro forma financial statements.





LEGACY RESERVES LP
 
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2016
 
 
Legacy Historical
 
Jupiter Acceleration Payment Interests
 
Pro Forma Adjustments
 
Pro Forma
 
(In thousands, except per unit data)
Revenues:
 
 
 
 
 
 
 
Oil sales
$
152,507

 
$
30,958

 
$
—

 
$
183,465

Natural gas liquids (NGL) sales
15,406

 
—

 
—

 
15,406

Natural gas sales
146,444

 
2,608

 
—

 
149,052

Total revenues
314,357

 
33,566

 
—

 
347,923

Expenses:
 
 
 
 
 
 
 
Oil and natural gas production
179,333

 
3,963

 
—

 
183,296

Production and other taxes
14,267

 
2,220

 
—

 
16,487

General and administrative
43,639

 
—

 
—

 
43,639

Depletion, depreciation, amortization and accretion
150,414

 
—

 
15,921

(a)
166,335

Impairment of long-lived assets
61,796

 
—

 
—

 
61,796

Gain on disposal of assets
(50,095
)
 
—

 
—

 
(50,095
)
Total expenses
399,354

 
6,183

 
15,921

 
421,458

Operating income (loss)
(84,997
)
 
27,383

 
(15,921
)
 
(73,535
)
Other income (expense):
 
 
 
 
 
 
 
Interest income
67

 
—

 
—

 
67

Interest expense
(79,060
)
 
—

 
(17,400
)
(b)
(96,460
)
Gain on extinguishment of debt
150,802

 
 
 
 
 
150,802

Equity in income of equity method investee
—

 
—

 
—

 
—

Net gains on commodity derivatives
(41,224
)
 
—

 
—

 
(41,224
)
Other
(179
)
 
—

 
—

 
(179
)
Income (loss) before income taxes
(54,591
)
 
27,383

 
(33,321
)
 
(60,529
)
Income tax benefit
(1,229
)
 
—

 
—

 
(1,229
)
Net income (loss)
$
(55,820
)
 
$
27,383

 
$
(33,321
)
 
$
(61,758
)
Distributions to Preferred unitholders
$
(19,000
)
 
 
 
 
 
(19,000
)
Net loss attributable to unitholders
$
(74,820
)
 
 
 
 
 
$
(80,758
)
Loss per unit — basic and diluted
$
(1.06
)
 


 
 
 
$
(1.14
)
Weighted average number of units used in
 
 
 
 
 
 
 
computing net loss per unit —
 
 
 
 
 
 
 
Basic
70,605

 
 
 
—

 
70,605

Diluted
70,605

 
 
 
—

 
70,605


See accompanying notes to unaudited pro forma financial statements.





1.Basis of Presentation:

The financial statements included in this report present a pro forma balance sheet and pro forma results of operations reflecting the pro forma effect of certain transactions, discussed in detail below, entered into by Legacy Reserves LP ("Legacy").

The unaudited pro forma balance sheet as of June 30, 2017 included in this report gives effect to the reversion of the working interest in all wells and associated personal property and infrastructure (collectively, the “Wells”) and all undeveloped assets subject to the First Amended and Restated Development Agreement (the “Restated Agreement”) between Legacy and Jupiter JV, LP (“Jupiter”) that reverted to Legacy pursuant to the terms of the Restated Agreement (collectively, the “Jupiter Acceleration Payment Interests”), assuming the transaction occurred on June 30, 2017.  Pursuant to the terms of the Restated Agreement, Legacy’s working interest in the Wells reverted from 20% to 85% of the parties’ interest in the Wells.

The unaudited pro forma balance sheet as of June 30, 2017 is derived from the historical consolidated financial statements of Legacy and the purchase price allocation of the Jupiter Acceleration Payment Interests.

Legacy has adopted ASU 2017-01, Business Combinations, Clarifying the Definition of a Business, and determined that the Jupiter Acceleration Payment Interests do no qualify as a business under U.S. GAAP. As a result, Legacy's purchase of the Jupiter Acceleration Payment Interests constitutes an acquisition of assets, and accordingly, the Jupiter Acceleration Payment Interests purchase consideration has been allocated to oil and natural gas properties based on their relative fair values as of the acquisition date.

The unaudited pro forma statements of operations for the six months ended June 30, 2017 and the year ended December 31, 2016 give effect to the Jupiter Acceleration Payment Interests assuming the reversion of the Jupiter Acceleration Payment Interests occurred on January 1, 2016. They are derived from the historical consolidated financial statements of Legacy, the historical statements of revenues and direct operating expenses of the Jupiter Acceleration Payment Interests and pro forma adjustments based on assumptions Legacy has deemed appropriate.

The related pro forma adjustments are described below. In the opinion of Legacy's management, all adjustments have been made that are necessary to present the pro forma financial statements in accordance with the Securities and Exchange Commission's (the "SEC") Regulation S-X.

The unaudited pro forma balance sheet and statements of operations are presented for illustrative purposes only, and do not purport to be indicative of the financial position or results of operations that would actually have occurred if the reversion of the Jupiter Acceleration Payment Interests had occurred as presented in such statements or that may be obtained in the future. In addition, future results may vary significantly from the results reflected in such statements due to factors described in "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2016 and elsewhere in Legacy's reports and filings with the SEC. The unaudited pro forma balance sheet and statements of operations should be read in conjunction with our historical consolidated financial statements and the notes thereto included in our Annual Reports on Form 10-K for the year ended December 31, 2016 and on our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2017 and March 31, 2017.

The pro forma statements should also be read in conjunction with the historical financial statements and the notes thereto of the acquired business reflected therein as filed herewith by Legacy with the SEC.

2.Pro Forma Adjustments

The unaudited pro forma financial statements reflect the following adjustments:

a.To record the Jupiter Acceleration Payment Interests and related incremental depreciation, depletion and amortization, using the units of production method, and accretion of associated asset retirement obligation.

On August 1, 2017, Legacy made an acceleration payment in the amount of $141.4 million (the "Jupiter Acceleration Payment") in connection with the execution of the Restated Agreement. In addition, Legacy also recognized an asset retirement obligation of $62,000 in conjunction with the asset acquisition.

b.To record the draw of $145 million in aggregate principal amount net of $2.9 million discount on Legacy's second lien term loan to fund the acquisition of the Jupiter Acceleration Payment Interests and the associated interest expense.





3.Oil, Natural Gas and NGL Reserve Disclosures

The following table sets forth certain unaudited pro forma information concerning our proved oil, natural gas and NGL reserves as of December 31, 2015 and 2016, giving effect to the Jupiter Acceleration Payment. There are numerous uncertainties inherent in estimating the quantities of proved reserves and projecting future rates of production and timing of development expenditures. The following reserve data represent estimates only and should not be construed as being exact:

 
Oil (MBbls)
 
Legacy Historical
 
Jupiter Acceleration Payment Interests
 
Pro Forma Total
Total Proved Reserves:
 
 
 
 
 
       Balance, December 31, 2015
36,143

 
3,488

 
39,631

Purchases of minerals-in-place
13

 
—

 
13

Sales of minerals-in-place
(1,185
)
 
—

 
(1,185
)
Revisions from ownership changes
(142
)
 
—

 
(142
)
Revisions from drilling and recompletions
1,400

 
1,086

 
2,486

Revisions of previous estimates due to price
(3,358
)
 
(32
)
 
(3,390
)
Revisions of previous estimates due to performance
3,606

 
2,545

 
6,151

Production
(4,019
)
 
(759
)
 
(4,778
)
Balance, December 31, 2016
32,458

 
6,328

 
38,786

Proved Developed Reserves:
 
 
 
 
 
December 31, 2015
34,297

 
1,209

 
35,506

December 31, 2016
28,092

 
3,307

 
31,399

Proved Undeveloped Reserves:
 
 
 
 
 
December 31, 2015
1,846

 
2,279

 
4,125

December 31, 2016
4,366

 
3,021

 
7,387






 
Gas (MMcf)
 
Legacy Historical
 
Jupiter Acceleration Payment Interests
 
Pro Forma Total
Total Proved Reserves:
 
 
 
 
 
       Balance, December 31, 2015
721,633

 
5,787

 
727,420

Purchases of minerals-in-place
156

 
—

 
156

Sales of minerals-in-place
(5,573
)
 
—

 
(5,573
)
Revisions from ownership changes
180

 
—

 
180

Revisions from drilling and recompletions
2,165

 
1,572

 
3,737

Revisions of previous estimates due to price
(12,987
)
 
(54
)
 
(13,041
)
Revisions of previous estimates due to performance
(11,730
)
 
3,479

 
(8,251
)
Production
(66,824
)
 
(839
)
 
(67,663
)
Balance, December 31, 2016
627,020

 
9,945

 
636,965

Proved Developed Reserves:
 
 
 
 
 
December 31, 2015
718,094

 
1,978

 
720,072

December 31, 2016
619,959

 
5,657

 
625,616

Proved Undeveloped Reserves:
 
 
 
 
 
December 31, 2015
3,539

 
3,809

 
7,348

December 31, 2016
7,061

 
4,288

 
11,349





 
NGL (MBbls)
 
Legacy Historical
 
Jupiter Acceleration Payment Interests
 
Pro Forma Total
Total Proved Reserves:
 
 
 
 
 
       Balance, December 31, 2015
7,750

 
—

 
7,750

Purchases of minerals-in-place
—

 
—

 
—

Sales of minerals-in-place
(40
)
 
—

 
(40
)
Revisions from ownership changes
5

 
—

 
5

Revisions from drilling and recompletions
—

 
—

 
—

Revisions of previous estimates due to price
746

 
—

 
746

Revisions of previous estimates due to performance
257

 
—

 
257

Production
(875
)
 
—

 
(875
)
Balance, December 31, 2016
7,843

 
—

 
7,843

Proved Developed Reserves:
 
 
 
 
 
December 31, 2015
7,729

 
—

 
7,729

December 31, 2016
7,743

 
—

 
7,743

Proved Undeveloped Reserves:
 
 
 
 
 
December 31, 2015
21

 
—

 
21

December 31, 2016
100

 
—

 
100


Summarized in the following tables is information for our standardized measure of discounted cash flows relating to proved reserves as of December 31, 2016. Future cash flows are computed by applying the 12-month un-weighted first-day-of-the-month average price for the year ended December 31, 2016 to the year-end quantity of proved reserves. Future production, development, site restoration and abandonment costs are derived based on current costs assuming continuation of existing economic conditions. Federal income taxes have not been deducted from future production revenues in the calculation of standardized measure as each partner is separately taxed on their share of Legacy's taxable income. The information should be viewed only as a form of standardized disclosure concerning possible future cash flows that would result under the assumptions used, but should not be viewed as indicative of fair value. Reference is made to our Annual Report on Form 10-K for the year ended December 31, 2016 as well as to the historical statements of revenues and direct operating expenses of certain oil and natural gas properties acquired from Jupiter for a discussion of the assumptions used in preparing the information presented.

 
December 31, 2016
 
Legacy Historical
 
Jupiter Acceleration Payment Interests
 
Pro Forma Total
 
(In thousands)
Future production revenues
$
2,814,259

 
$
283,588

 
$
3,097,847

Future costs:
 
 
 
 
 
Production
(1,618,241
)
 
(79,820
)
 
(1,698,061
)
Development
(202,304
)
 
(46,514
)
 
(248,818
)
Future net cash flows before income taxes
993,714

 
157,254

 
1,150,968

10% annual discount for estimated timing of cash flows
(418,088
)
 
(79,181
)
 
(497,269
)
Standardized measure of discounted net cash flows
$
575,626

 
$
78,073

 
$
653,699






The following table sets forth the principal sources of change in discounted future net cash flows:

 
Year ended December 31, 2016
 
Legacy Historical
 
Jupiter Acceleration Payment Interests
 
Pro Forma Total
 
(In thousands)
Increase (decrease):
 
 
 
 
 
Sales, net of production costs
$
(120,757
)
 
$
(27,383
)
 
$
(148,140
)
Net change in sales prices, net of production costs
(109,125
)
 
(13,660
)
 
(122,785
)
Changes in estimated future development costs
99

 
—

 
99

Revisions of previous estimates due to infill drilling,
 
 
 
 
 
recompletions and stimulations
15,632

 
19,304

 
34,936

Revisions of previous quantity estimates due to performance
57,188

 
22,789

 
79,977

Previously estimated development costs incurred
2,097

 
9,969

 
12,066

Purchases of minerals-in place
294

 
—

 
294

Sales of minerals-in-place
(14,781
)
 
—

 
(14,781
)
Ownership interest changes
(3,886
)
 
—

 
(3,886
)
Other
(9,028
)
 
—

 
(9,028
)
Accretion of discount
62,952

 
6,003

 
68,955

Net increase (decrease)
(119,315
)
 
17,022

 
(102,293
)
Standardized measure of discounted future net cash flows:
 
 
 
 
 
Beginning of year
694,941

 
61,051

 
755,992

End of year
$
575,626

 
$
78,073

 
$
653,699




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