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Legacy Reserves LP Announces First Quarter 2016 Results and Provides Operational and Financial Update

MIDLAND, Texas, May 04, 2016 (GLOBE NEWSWIRE) -- Legacy Reserves LP (LGCY) ("Legacy") (NASDAQ:LGCY) today announced first quarter results for 2016 including the following Q1 highlights:

  • Increased production to 45,527 Boe/d

  • Reduced lease operating expenses, excluding ad valorem taxes, of $46.7 million representing a nearly 4% decrease compared to Q4 2015

  • Closed $68.5 million of asset sales, above our previously-announced target of $50 million

  • Reduced debt outstanding by $191.8 million including a $38.0 million reduction in borrowings under our credit facility and $153.8 million of senior notes

  • Reported net income of $105.3 million, representing earnings per unit of $1.47 driven by a gain on extinguishment of debt of $130.8 million

Operational Update

During Q1 2016 we spent $4.8 million of our $37 million 2016 capital budget representing 13% of the annual total. Approximately 20% was spent on recompletions and workovers in our East Texas region. The vast majority of the balance was deployed in the Permian on workovers and on horizontal development under our development agreement with an affiliate of TPG Special Situations Partners (“TSSP”) under which we operate all wells and fund 5% of the parties' development capital. Since September 2015 we have drilled and completed 12 horizontal wells under the program: 5 in Lea County, NM, 1 in Southern Reagan County, TX and 6 in Howard County, TX. Based on current strip pricing, we anticipate that our 2016 capital expenditures will be less than our initial $37 million capital budget. We do not maintain any long-term drilling contracts and serve as operator of approximately 90% of our anticipated capital program. Accordingly, we maintain significant control of the capital program budget and may deviate materially from the figures above based on market conditions (or otherwise) with the overriding intent to deploy capital prudently.

2016 Asset Sales Update

During Q1 2016, we closed seven divestitures generating net proceeds of $68.5 million. Below are the summary statistics of such sales:

Transaction Statistics:

Total Sales Price $ 68,459,288
Transaction Count 7
County Count 12
Total Net Acreage 13,225
% of Year-End 2015 Midland Basin Acreage (1) 28 %
Average Gross Midland Basin Tract Size (acres) 233
Q4 2015 Production (Boe/d) 521
Cash Flow (2) $ 1,902,194
Total Gross Well Count 129
YE 2015 PUDs 1
Multiple of Cash Flow 36.0x
$ / Net Midland Basin Acre (3) $ 11,789

______________________

(1) Excludes our and TSSP's combined interests in approximately 4,092 net acres in the Midland Basin committed to the parties' development agreement.

(2) Estimate based on last twelve months prior to closing each transaction.

(3) Calculated as sales price received attributable to Midland Basin acreage divided by Midland Basin acreage.

In April, we completed four additional divestments for approximately $5.4 million, which brings our year to date percent of year-end 2015 Midland Basin acreage divested to 35%. We are continuing to pursue a few other select opportunities with the aim to complete a total of $100 million of asset sales during the first half of 2016.

Capital Structure Update

Through May 4, 2016, we have utilized a portion of the proceeds from asset sales to repurchase a total of $169.4 million of our senior notes in the open market. Our debt balances as of each of the respective dates are as follows:

12/31/2015 3/31/2016 5/4/2016
(In thousands)
Credit Facility due 2019 $ 608,000 $ 570,000 $ 560,000
8% Senior Notes (1) 300,000 255,570 247,989
6.625% Senior Notes (1) 550,000 440,661 432,656
Total Debt Outstanding (1) $ 1,458,000 $ 1,266,231 $ 1,240,645

______________________

(1) Excludes unamortized discount on Senior Notes.

On May 4, 2016, as a result of the scheduled spring redetermination process, our borrowing base under our revolving credit facility was redetermined to $630 million, down from $725 million as set in February. With outstanding borrowings of $560 million and $1.4 million of outstanding letters of credit, we currently have $68.6 million of availability.

Near-Term Outlook and Commentary

Paul T. Horne, President and Chief Executive Officer of Legacy's general partner commented, “Q1 represented our lowest realized pricing in our company history at $15.90 per Boe, or 34% and 71% lower than our 2015 and 2014 realized pricing on a per Boe basis, respectively. Despite this difficult challenge, our team continues to make meaningful operational improvements. LOE was down 4% from last quarter and down 19% on a comparable basis to Q1 2015 while G&A excluding LTIP and transaction related expenses was down 10% relative to last quarter. We remain incredibly disciplined with our capital spending, as during the quarter we only spent 13% of our previously announced annual budget, and now expect our capital expenditures to be lower for 2016. We are pleased with our initial results on our East Texas recompletion efforts and anticipate dedicating more capital to this effort. We are very pleased with our results to date under our horizontal Permian development program with TSSP, having beat our estimated drilling and completion costs by 19% driven by a 39% improvement in estimated drilling days while achieving very encouraging early production rates. Despite funding only 5% of the development capital net to our combined interests under this program, we generated 567 Boe/d of net production in the quarter. We are currently evaluating the resumption of the development program which could potentially occur in early Q3 2016.

“The recent rise in commodity prices has certainly been helpful to Legacy and the energy industry as a whole. However, given the gravity of the price depression relative to prior years, we are still operating in a highly challenging environment. Our focus for at least the remainder of the year will be to continue to maintain liquidity and reduce our debt outstanding and therefore we have no near-term plans to resume our distributions on either our preferred units or common units. As always, we will continue to closely watch the market and respond with business objectives that match accordingly.”

Dan Westcott, Executive Vice President and Chief Financial Officer of Legacy's general partner commented, “We were able to make significant strides on improving our balance sheet during the quarter. The approximately $69 million of asset sales closed in Q1 have generated liquidity, reduced future plugging obligations, and improved our leverage statistics. Since the beginning of the year, we have used $21.5 million to repurchase $169.4 million of our senior notes, reflecting a projected cash interest savings of $11.9 million per year. In total, we have reduced our debt outstanding by $217.4 million since year-end. Our recently redetermined borrowing base of $630 million certainly narrows our liquidity and, given our earlier credit agreement amendment, prohibits any cash distributions on our preferred units and common units given our Total Debt / EBITDA currently exceeds 4.0x, and prohibits Senior Notes repurchases given we no longer meet the required minimum liquidity levels. However, in the final three quarters of the year, we currently project to generate $15-$20 million of free cash flow (excluding asset sales) from approximately 44.2 mboe/d of production, with differentials and lifting costs consistent with prior periods, and believe our current liquidity position is sustainable to run the business for the foreseeable future. We recognize that we have additional levers available to us, whether those are further asset sales, financings or otherwise and will pull such levers if needed based upon the financial and commodity markets presented. Our goals remain to continue to improve our balance sheet and position Legacy for success.”

Ongoing Proxy Process

We are currently seeking the vote of all unitholders through our 2016 proxy process. Our proxy can be found at: http://ir.legacylp.com/proxy.cfm. If you have lost your voting instructions or if you have questions about the voting process, please do not hesitate to contact our proxy solicitor, Morrow & Co., toll free at 800-662-5200. Every vote is important and we strongly encourage you to vote your units.

Three Months Ended
March 31,
(In thousands, except per unit data)
Oil sales $ 30,320 $ 50,296
Natural gas liquids sales 2,453 4,192
Natural gas sales 33,086 27,051
Total revenue $ 65,859 $ 81,539
Oil and natural gas production, excluding ad valorem taxes $ 46,661 $ 45,944
Ad valorem taxes $ 3,362 $ 3,276
Total oil and natural gas production $ 50,023 $ 49,220
Production and other taxes $ 2,573 $ 4,218
General and administrative, excluding transaction related costs and LTIP $ 7,692 $ 7,756
Transaction related costs $ 77 $ 25
LTIP expense $ 1,665 $ 1,088
Total general and administrative $ 9,434 $ 8,869
Depletion, depreciation, amortization and accretion $ 36,959 $ 41,068
Commodity derivative cash settlements:
Oil derivative cash settlements received $ 12,585 $ 32,200
Natural gas derivative cash settlements received $ 10,192 $ 8,137
Oil (MBbls) 1,069 1,200
Natural gas liquids (MGal) 8,241 9,686
Natural gas (MMcf) 17,266 9,658
Total (MBoe) 4,143 3,040
Average daily production (Boe/d) 45,527 33,778
Average sales price per unit...

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