UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Date of Report (Date of earliest event reported): February 19, 2016


Legacy Reserves LP
(Exact name of registrant as specified in its charter)

 
 
Delaware
 
1-33249
 
16-1751069
 
 
 
 
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
 

 
303 W. Wall, Suite 1800
 
79701
 
 
Midland, Texas
 
(Zip Code)
 
 
(Address of principal executive offices)
 
 
 

Registrant's telephone number, including area code: (432) 689-5200


NOT APPLICABLE
(Former name or former address, if changed since last report.)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


 
 
 
 
 





Item 1.01 Entry into a Material Definitive Agreement.
 
     Effective February 19, 2016, Legacy Reserves LP, a Delaware limited partnership (the “ Partnership ”), entered into an amendment (the “ Seventh Amendment ”) to its secured Third Amended and Restated Credit Agreement dated as of April 1, 2014,as amended, and filed on Form 8-K on April 2, 2014, (the “Credit Agreement ”) with Wells Fargo Bank, National Association, as administrative agent (the “ Administrative Agent ”) and certain other financial institution parties thereto as lenders (the “ Lenders ”). The Seventh Amendment amends certain provisons set forth in the Credit Agreement to:
•
establish the applicable margin on (i) Eurodollar loans of not less than 2.00% and not more than 3.00% (to be determined by the percentage of the borrowing base utilized by the Partnership) and (ii) alternate base rate loans of not less than 1.00% and not more than 2.00% (to be determined by the percentage of the borrowing base utilized by the Partnership); provided , that if the ratio of the Partnership’s first lien debt as of the last day of any fiscal quarter to its EBITDA for the four fiscal quarters ending on such day is greater than 3.00 to 1.00, then the applicable margin shall be increased by 0.50% during the next succeeding fiscal quarter;
•
in the event that the Partnership is required to redeem any secured second lien notes (described below), the Partnership shall first prepay the loans and cash collateralize any letter of credit exposure in an amount equal to the applicable redemption amount;
•
in the event that at the close of any business day the aggregate amount of cash and cash equivalents, marketable securities and other liquid financial assets of the Partnership exceeds $20 million (excluding funds received by the Partnership after 10:00 a.m. on such day), then the Partnership shall prepay the loans and cash collateralize any letter of credit exposure with such excess;
•
require that the oil and gas properties of the Partnership mortgaged in favor of the Lenders as collateral security for the loans represent not less than 90% of the total value of the oil and gas properties of the Partnership evaluated in the most recently completed reserve report;
•
permit the payment by the Partnership of cash dividends to its equity holders out of available cash in accordance with its partnership agreement so long as before and immediately after such payment (i) no default or event of default occurred or would result therefrom, (ii) the Partnership has unused commitments of not less than 15% of the total commitments then in effect under the Credit Agreement, (iii) the ratio of the Partnership’s total debt at the time of such payment to its EBITDA for the four fiscal quarters ending on the last day of the fiscal quarter immediately preceding the date of determination for which financial statements are available is equal to or less than 4.00 to 1.00;
•
permit the redemption or repurchase of preferred equity securities, preferred limited partnership interests or preferred units of the Partnership: (i) using cash proceeds from the sale of equity securities or in exchange for equity securities of the Partnership, or (ii) so long as before and immediately after such repurchase or redemption, (1) no default or event of default occurred or would result therefrom, (2) the Partnership has unused commitments of less than 15% of the total commitments then in effect under the Credit Agreement, and (3) the ratio of the Partnership’s total debt at the time of the redemption or repurchase to its EBITDA for the four fiscal quarters ending on the last day of the fiscal quarter immediately preceding the date of determination for which financial statements are available is equal to or less than 4.00 to 1.00;
•
permit the redemption or repurchase of the Partnership’s senior unsecured notes (a) using cash proceeds from the sale of equity securities or in exchange for equity securities of the Partnership, or with the proceeds of permitted refinancing debt, (b) so long as (1) before and immediately after such redemption (A) the Partnership has unused commitments of not less than the greater of (i) 20% of the total commitments then in effect under the Credit Agreement, and (ii) $100,000,000, (B) the Partnership is in pro forma compliance with the first lien debt to EBITDA covenant such that its ratio of first lien debt to EBITDA would not exceed 3.00 to 1.00 (or 2.50 to 1.00 on any date of determination occurring on or after July 1, 2017), (C) no default or event of default occurred or would result therefrom and (2) each such redemption is made solely with the proceeds from the permitted sales of property, provided, that (w) such redemption shall be made within 90 days of the related sale of property, (x) the amount of sale proceeds used for such redemption shall not exceed 50% of the sale proceeds of such property, (y) the redemption prices shall not exceed 50% of the stated principal amount of senior unsecured notes redeemed, and (z) the aggregate amount of all sale proceeds used for all such redemptions shall not exceed $75 million, and (c) in exchange for secured second lien notes pursuant to a senior debt exchange or in exchange for equity interests of the Partnership;





•
permit the issuance by the Company of secured second lien notes solely in exchange for the Partnership’s outstanding senior unsecured notes pursuant to one or more senior debt exchanges; provided that: (i) such debt shall be (A) in an aggregate principal amount not to exceed $400 million and (B) such debt is subject to an Intercreditor Agreement at all times; and (ii) such debt shall not (A) have any scheduled principal amortization or have a scheduled maturity date or a date of mandatory redemption in full prior to 120 days after April 1, 2019, or (B) contain terms and conditions, taken as a whole, more restrictive than those set forth in the Credit Agreement and (C) be guaranteed by any subsidiary or other person unless such subsidiary or other person has guaranteed the Partnership’s indebtedness under the Credit Agreement pursuant to the Guaranty Agreement;
•
restrict the redemption of any secured second lien notes; provided , that if no default, event of default or borrowing base deficiency has occurred or would result therefrom the Partnership may redeem secured second lien notes with the proceeds of the sale of equity securities or permitted refinancing debt, or in exchange for its equity interests;
•
reduce the borrowing base from $900 million to $725 million;
•
not permit, as of the last day of any fiscal quarter, the Partnership’s ratio of EBITDA for the four fiscal quarters then ending to interest expense for such period to be less than (i) 2.50 to 1.00 for the fiscal quarters ending December 31, 2015 and March 31, 2016, (ii) 2.00 to 1.00 for the fiscal quarters ending June 30, 2016, through the fiscal quarter ending June 30, 2017, and (iii) 2.50 to 1.00 for the fiscal quarter ending September 30, 2017 and each fiscal quarter thereafter; and
•
eliminate the Partnership’s ratio of secured debt to EBITDA covenant and not permit, at any time, the ratio of the Partnership’s first lien debt as of such time to EBITDA for the four fiscal quarters ending on last day of the fiscal quarter immediately preceding the date of determination for which financial statements are available to be greater than: (i) 3.50 to 1.00, at any time during the period from and including the effective date of the Seventh Amendment through December 31, 2016, (ii) 3.25 to 1.00, at any time during the fiscal quarter ending March 31, 2017, (iii) 3.00 to 1.00, at any time during the fiscal quarter ending June 30, 2017 and (iv) 2.50 to 1.00, at any time on or after July 1, 2017.
All capitalized terms not defined herein have the meaning assigned to them in the Credit Agreement, as amended by the Seventh Amendment. The description of the Seventh Amendment is qualified in its entirety by reference to the full text of the Seventh Amendment, which is filed as Exhibit 10.1 and incorporated herein by reference.




Item 2.02 Results of Operations and Financial Condition.
On February 24, 2016, the Partnership issued a press release, a copy of which is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
The information in this report, including the Exhibit attached hereto, shall not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934 (the " Exchange Act ") nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, or the Exchange Act, except as specifically identified therein as being incorporated by reference.
  Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth under Item 1.01 is hereby incorporated by reference into this Item 2.03.
Item 9.01  Financial Statements and Exhibits.   
(d)  Exhibits.
 
Exhibit No.
 
Description
 
 
 
10.1
 
Seventh Amendment to Third Amended and Restated Credit Agreement dated as of February 19, 2016.
99.1
 
Press release dated February 24, 2016.





SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
LEGACY RESERVES LP
 
 
 
 
 
 
By:
Legacy Reserves GP, LLC,
 
 
 
its general partner
 
 
 
 
 
Date: February 24, 2016
/s/ James Daniel Westcott
 
 
James Daniel Westcott
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
 
 
 
 
 





Exhibit Index
 
 
Exhibit No.
 
Description
 
 
 
10.1
 
Seventh Amendment to Third Amended and Restated Credit Agreement dated as of February 19, 2016.
99.1
 
Press release dated February 24, 2016.
 





Exhibit 10.1

Seventh Amendment
to
Third Amended and Restated Credit Agreement
among
Legacy Reserves LP,
as Borrower,
The Guarantors ,
                        
Wells Fargo Bank, National Association,
as Administrative Agent,
and
The Lenders Signatory Hereto
Dated as of February 19, 2016
Sole Lead Arranger and Sole Book Runner
Wells Fargo Securities, LLC

Syndication Agent
Compass Bank

Co-Documentation Agents
UBS Securities LLC
and
U.S. Bank National Association




Seventh Amendment to
Third Amended and Restated Credit Agreement
This Seventh Amendment to Third Amended and Restated Credit Agreement (this “ Seventh Amendment ”) dated as of February 19, 2016, among Legacy Reserves LP, a limited partnership duly formed under the laws of the State of Delaware (the “ Borrower ”); each of the undersigned guarantors (the “ Guarantors ”, and together with the Borrower, the “ Obligors ”); Wells Fargo Bank, National Association, as administrative agent for the Lenders (in such capacity, together with its successors, the “ Administrative Agent ”); and the Lenders signatory hereto.
Recitals
A.    The Borrower, the Administrative Agent and the Lenders are parties to that certain Third Amended and Restated Credit Agreement dated as of April 1, 2014 (as amended by the First Amendment to Third Amended and Restated Credit Agreement dated as of April 17, 2014, that certain Second Amendment to Third Amended and Restated Credit Agreement dated as of May 22, 2014, that certain Third Amendment to Third Amended and Restated Credit Agreement dated as of December 29, 2014, that certain Fourth Amendment to Third Amended and Restated Credit Agreement dated as of February 23, 2015, that certain Fifth Amendment to Third Amended and Restated Credit Agreement dated as of August 5, 2015 and that certain Sixth Amendment to Third Amended and Restated Credit Agreement dated as of November 13, 2015, the “ Credit Agreement ”), pursuant to which the Lenders have made certain credit available to and on behalf of the Borrower.
B.    The Guarantors are parties to that certain Third Amended and Restated Guaranty Agreement dated as of April 1, 2014 made by each of the Guarantors (as defined therein) in favor of the Administrative Agent (the “ Guaranty ”).
C.    The Borrower and the Guarantors are parties to that certain Security Agreement dated as of August 5, 2015 made by each of the Grantors (as defined therein) in favor of the Administrative Agent (the “ Security Agreement ”).
D.    The Borrower, the Guarantors, the Administrative Agent and the Lenders have agreed to amend certain provisions of the Credit Agreement, Guaranty and the Security Agreement as more fully set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
Section 1.     Defined Terms . Each capitalized term which is defined in the Credit Agreement, but which is not defined in this Seventh Amendment, shall have the meaning ascribed such term in the Credit Agreement. Unless otherwise indicated, all article, section and exhibit references in this Seventh Amendment refer to articles, sections and exhibits of the Credit Agreement.
Section 2.     Amendments to Credit Agreement .


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2.1     Amendments to Section 1.02 .    

(a)    The following definitions are hereby amended and restated in their entirety to read as follows:

“ Agreement ” means this Third Amended and Restated Credit Agreement, as amended by the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment and the Seventh Amendment, as the same may from time to time be amended, modified, supplemented or restated.

“ Applicable Margin ” means, for any day, with respect to any ABR Loan or Eurodollar Loan, or with respect to the Commitment Fee Rate, as the case may be, the rate per annum set forth in the Borrowing Base Utilization Grid below based upon the Borrowing Base Utilization Percentage then in effect:

 
Borrowing Base Utilization Percentage
Eurodollar Loans
ABR Loans
Commitment Fee Rate
Level 1
less than 25%
2.00%
1.00%
0.375%
Level 2
greater than or equal to 25%, but less than 50%
2.25%
1.25%
0.375%
Level 3
greater than or equal to 50%, but less than 75%
2.50%
1.50%
0.500%
Level 4
greater than or equal to 75%, but less than 90%
2.75%
1.75%
0.500%
Level 5
greater than or equal to 90%
3.00%
2.00%
0.500%
; provided , however , that if the ratio of (i) First Lien Debt as of the last day of any fiscal quarter to (ii) EBITDA for the four fiscal quarters ending on such day (a “ Test Period ”) is greater than 3.00 to 1.00, then the Applicable Margin set forth in the above grid with respect to Eurodollar Loans and ABR Loans shall, in each case, be increased by 0.50% (the “ Increased Pricing ”) during the period from and including the first day immediately following the date a compliance certificate is delivered pursuant to Section 8.01(c) for such Test Period through and including the date of delivery of a compliance certificate pursuant to Section 8.01(c) for the immediately succeeding Test Period.
Each change in the Applicable Margin and Commitment Fee Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change, provided, however, that (a) if at any time the Borrower fails to deliver a Reserve Report pursuant to Section 8.12(a), then the “ Applicable Margin ” and

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“ Commitment Fee Rate ” shall mean the rate per annum set forth on the grid when the Borrowing Base Utilization Percentage is at its highest level; and (b) any increase or decrease in the Applicable Margin resulting from a change in the ratio of First Lien Debt to EBITDA shall become effective as of the first day immediately following the date a compliance certificate is delivered pursuant to Section 8.01(c); provided further, however, the Increased Pricing shall apply without regard to the ratio of First Lien Debt to EBITDA (x) at any time after the date on which any annual or quarterly financial statement was required to have been delivered pursuant to Section 8.01(a) or Section 8.01(b) but was not, commencing with the first day immediately following such date and continuing until the first day immediately following the date on which such financial statement is delivered or (y) at all times if an Event of Default shall have occurred and be continuing. Notwithstanding anything to the contrary contained in this definition, the determination of the Applicable Margin for any period shall be subject to the provisions of Section 3.02(f).
“ Pro Forma Compliance ” means, as of any date of determination, (a) for the purpose of testing Pro Forma Compliance pursuant to Section 9.02(f)(i)(C), that the Borrower would be in compliance with each of the covenants contained in Section 9.01(c) and Section 9.01(d), after giving pro forma effect to any incurrence or Redemption of Debt to be made on such date of determination, as each such ratio is recomputed on such date of determination using (a) First Lien Debt outstanding on such date of determination and (b) EBITDA and Interest Expense for the four fiscal quarters ending on the last day of the fiscal quarter immediately preceding the date of determination for which financial statements are available; and provided further that Section 9.01(c) shall be determined on a pro forma basis, as if any Debt incurred pursuant to Section 9.02(f) or Redeemed pursuant to Section 9.04(b) after such four-quarter period and prior to such date of determination, and any Debt to be incurred or Redeemed on such date of determination, had been incurred or Redeemed, as applicable, at the beginning of such four-quarter period; and (b) for the purpose of testing Pro Forma Compliance pursuant to Section 9.04(b), that the Borrower’s ratio of First Lien Debt to EBITDA would not exceed 3.00 to 1.00 (or 2.50 to 1.00 on any date of determination occurring on or after July 1, 2017), after giving pro forma effect to any Redemption of Debt to be made on such date of determination, as such such ratio is recomputed on such date of determination using (a) First Lien Debt outstanding on such date of determination and (b) EBITDA for the four fiscal quarters ending on the last day of the fiscal quarter immediately preceding the date of determination for which financial statements are available.

(b)    The following definitions are hereby added where alphabetically appropriate to read as follows:
“ Anti-Corruption Laws ” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower, the Borrower’s Subsidiaries or any Guarantor from time to time concerning or relating to bribery or corruption.
        

Page 3


“ AML Laws ” means all laws, rules, and regulations of any jurisdiction applicable to any Lender, the Borrower, the Borrower’s Subsidiaries or any Guarantor from time to time concerning or relating to anti-money laundering.

“ Bail-In Action ” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

“ Bail-In Legislation ” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

“ Consolidated Cash Balance ” means, at any time, the aggregate amount of cash and cash equivalents, marketable securities, treasury bonds and bills, certificates of deposit, investments in money market funds and commercial paper, in each case, held or owned by (whether directly or indirectly), credited to the account of, or otherwise reflected as an asset on the balance sheet of, the Borrower and its Consolidated Subsidiaries.
“ EEA Financial Institution ” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.

“ EAA Member Country ” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.

“ EEA Resolution Authority ” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

“ EU Bail-In Legislation Schedule ” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.

“ First Lien Debt ” means, at any date, the sum of (a) the total Revolving Credit Exposures of all Lenders on such date plus (b) the aggregate principal amount of Debt (other than Debt referred to in clause (a) of this definition) of the Borrower and its Consolidated Subsidiaries on such date that is secured by a first priority Lien on any asset or Property of the Borrower or any Consolidated Subsidiary.

“ Late Receipts ” means, as of any date of determination on any Business Day, any funds received by the Borrower on such Business Day after 10:00 a.m.,

Page 4


Houston time, from the sale of Property or otherwise to the extent such funds would cause the Consolidated Cash Balance to exceed $20,000,000 at the end of such Business Day.

“ Sanctioned Country ” means, at any time, a country or territory which is itself, or whose government is, the subject or target of any Sanctions broadly restricting or prohibiting dealing with such country, territory or government (at the time of this Agreement, Crimea, Cuba, Iran, North Korea, Sudan and Syria).
    
“ Sanctioned Person ” means, at any time, any Person with whom dealings are restricted or prohibited under Sanctions, including (a) any Person listed in any Sanctions-related list of designated Persons maintained by the United States (including by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, or the U.S. Department of Commerce), or by the United Nations Security Council, the European Union or any EU member state, or Her Majesty’s Treasury, (b) any Person located, operating, organized or resident in a Sanctioned Country or (c) any Person directly or indirectly owned or controlled by any such Person or Persons.

“ Sanctions ” means economic or financial sanctions or trade embargoes or restricted measures imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom.
“ Second Lien Indenture ” means any indenture pursuant to which any Second Lien Notes are issued by the Borrower, as the same may from time to time be amended, amended and restated, supplemented or otherwise modified to the extent permitted by Section 9.21.

“ Second Lien Intercreditor Agreement ” means an intercreditor agreement substantially in the form attached hereto as Exhibit F, or in such other form as shall be acceptable to the Administrative Agent and the Majority Lenders, in their sole discretion, and the Borrower, as the same may from time to time be amended, amended and restated, supplemented or otherwise modified in accordance with the terms thereof.

“ Second Lien Note Documents ” means each Second Lien Indenture, and any other note documents entered into in connection therewith, including, without limitation, the Second Lien Intercreditor Agreement, any promissory notes, mortgages, deeds of trust, security agreements and instruments, guarantees, collateral or credit support documents, and any other agreements, instruments consents or certificates executed by the Borrower or any of its Subsidiaries in connection with, or as security for the payment or performance of, any Second Lien Notes, in each case, as the same may from time to time be amended, amended and restated, supplemented or otherwise modified to the extent permitted by Section 9.21.

“ Second Lien Notes ” means senior secured second lien notes issued by the Borrower under a Second Lien Indenture, which Debt is intended to be secured on a junior basis by any collateral securing the Indebtedness; provided that such Debt

Page 5


is permitted to be incurred and remain outstanding hereunder pursuant to Section 9.02(i) and any Liens securing such Debt are permitted pursuant to Section 9.03(e), as the same may from time to time be amended, amended and restated, supplemented or otherwise modified to the extent permitted by Section 9.21.

“ Senior Debt Exchange ” means a tender offer for the exchange of any Senior Notes for Second Lien Notes, at the exchange price set forth in the related exchange offering materials, which exchange price shall in no event be greater than 50% of the stated principal amount of such Senior Notes exchanged.

“ Seventh Amendment ” means that certain Seventh Amendment to Third Amended and Restated Credit Agreement, dated as of February 19, 2016, among the Borrower, the Guarantors, the Administrative Agent and the Lenders party thereto.

“ Seventh Amendment Effective Date ” has the meaning ascribed to such term in the Seventh Amendment.

“ USA PATRIOT Act ” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. 107-56), as amended.

“ Write-Down and Conversion Powers ” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

(c)    The definition of “Borrowing Base” is hereby amended by deleting the period at the end of such definition and replacing such period with “or pursuant to the other provisions of this Agreement.”

(d)    The definition of “Defaulting Lender” is hereby amended by deleting the phrase “or (e)” therein and replacing such phrase with “, (e) or has a direct or indirect parent company that has become the subject of a Bail-In Action, or (f)”

(e)    The definition of “Material Domestic Subsidiary” is hereby amended by deleting the period at the end of such definition and replacing such period with the following proviso:

; provided that, notwithstanding the foregoing, each Domestic Subsidiary that owns Properties included in the Borrowing Base shall be a Material Domestic Subsidiary.

(f)    The definition of “Permitted Refinancing Debt” is hereby amended by (i) deleting each reference to “Senior Notes” therein and replacing each such reference with “Senior Notes or Second Lien Notes”, and (ii) adding the following sentence at the end of such definition: “Second Lien Notes issued pursuant to the Senior Debt Exchange shall not be Permitted Refinancing Debt hereunder.”

(g)    The definition of “Security Instruments” is hereby amended by deleting

Page 6


the phrase “the Pledge Agreement, mortgages” therein and replacing such phrase with “the Pledge Agreement, the Second Lien Intercreditor Agreement, mortgages”.

(h)    The definitions of “Designated Person” and “SDN” are hereby deleted in their entirety.
2.2      Amendment to Section 2.03 . Section 2.03 is hereby amended as follows:
(a)    Clause (g) of Section 2.03 is hereby amended by deleting the word “and” after the semicolon at the end thereof.
(b)    Clause (h) of Section 2.03 is hereby amended and restated as follows:

(h)    the Consolidated Cash Balance (without regard to the requested Borrowing or any Late Receipts) and the pro forma Consolidated Cash Balance (giving effect to the requested Borrowing but not any Late Receipts); and

(c)    A new clause (i) is hereby added after clause (h) to read as follows:

(i)    the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05.

(d)    The sentence “Each Borrowing Request shall constitute a representation that the amount of the requested Borrowing shall not cause the total Revolving Credit Exposures to exceed the total Commitments ( i.e. , the lesser of the Aggregate Maximum Credit Amounts and the then effective Borrowing Base).” is hereby amended and restated in its entirety to read as follows:

Each Borrowing Request shall constitute a representation that (a) the amount of the requested Borrowing shall not cause the total Revolving Credit Exposures to exceed the total Commitments (i.e., the lesser of the Aggregate Maximum Credit Amounts and the then effective Borrowing Base) and (b) as of the end of the Business Day on which such Requested Borrowing will be funded, after giving pro forma effect to the Requested Borrowing, the Consolidated Cash Balance (minus any Late Receipts) shall not exceed $20,000,000.

2.3     Amendment to Section 3.02 . Section 3.02 is hereby amended by adding a new subsection (f) to the end thereof to read as follows:

(f)     Applicable Margin Calculation . In the event that the certified calculation of the ratio of First Lien Debt to EBITDA previously delivered pursuant to Section 8.01(c) was inaccurate (and such inaccuracy is discovered while any Commitments are outstanding), and such inaccuracy, if corrected, would have led to the application of a higher Applicable Margin for the Loans for any period (an “ Applicable Period ”) than the Applicable Margin applied for such Applicable Period, then, to the extent any Commitments are outstanding at such time, (i) the Borrower shall as soon as practicable deliver to the Administrative Agent the correct certified calculation of the ratio of First Lien Debt to EBITDA

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for such Applicable Period, (ii) the Applicable Margin shall be determined as if the level for such higher Applicable Margin were applicable for such Applicable Period and (iii) the Borrower shall within ten (10) Business Days of written demand thereof by the Administrative Agent pay to the Administrative Agent the accrued additional interest owing as a result of such increased Applicable Margin for the Loans for such Applicable Period, which payment shall be promptly applied by the Administrative Agent in accordance with this Agreement.

2.4     Amendments to Section 3.04 . Section 3.04 is hereby amended by re-lettering subsection (d) as subsection (f) and by adding new subsections (d) and (e) thereto to read as follows:

(d)     Prepayments Prior to Redemption of Second Lien Notes . Without limitation of any other restrictions on the Borrower or any Subsidiary contained herein, if the Borrower or any Subsidiary is required to make a mandatory Redemption of, or is required to make an offer to Redeem, any Second Lien Notes pursuant to the terms of any Second Lien Indenture (including, without limitation, as a result of the occurrence of a change of control, the disposition of assets, the issuance of Equity Interests or the incurrence of prohibited indebtedness), then the Borrower shall prepay the Borrowings (and if any excess remains after prepaying Borrowings as a result of an LC Exposure, cash collateralize such excess as provided in Section 2.08(j)), together with accrued and unpaid interest thereon, in an amount equal to 100% of the amount required to be Redeemed, and such payment (and/or cash collateralization, as applicable) shall be due one (1) Business Day prior to the date on which the Borrower or such Subsidiary would be required to make such Redemption pursuant to the terms of such Second Lien Indenture. The provisions of Section 3.04(c)(v) and Section 3.04(c)(vi) shall apply, mutatis mutandis , to any prepayment required pursuant to this Section 3.04(d).

(e)     Consolidated Cash Balance . If, at any time, (A) there are outstanding Borrowings or LC Exposure and (B) the Consolidated Cash Balance exceeds $20,000,000 as of the end of any Business Day, then the Borrower shall, within one Business Day, (1) prepay the Borrowings in an aggregate principal amount equal to such excess, and (2) if any excess remains after prepaying all of the Borrowings as a result of an LC Exposure, pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.08(j). To the extent that there are funds on deposit in, or credited to, any deposit account or other account maintained with the Administrative Agent (or any Affiliate thereof) or any Lender (or any Affiliate thereof) on any date that the Borrower is required to prepay Loans (and/or cash collateralize LC Exposure, as applicable) pursuant to this Section 3.04(c)(viii), the Borrower hereby irrevocably authorizes and instructs the Administrative Agent or such Lender to apply such funds to the prepayment of Loans (and/or cash collateralization of LC Exposure, as applicable). The provisions of Section 3.04(c)(v) and

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Section 3.04(c)(vi) shall apply, mutatis mutandis , to any prepayment required pursuant to this Section 3.04(e).

2.5     Amendment to Section 4.03(c)(iii)(A) . Section 4.03(c)(iii)(A) is hereby amended by adding the following phrase at the end thereof “ provided that, subject to Section 12.22, no reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation;”

2.6     Amendment to Section 6.02 . Section 6.02 is hereby amended as follows:

(a)    Section 6.02 is hereby amended by re-lettering subsection (e) as subsection (f) and by adding a new subsection (e) to read as follows:

(e)    At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, (i) the Consolidated Cash Balance (minus any Late Receipts) and (ii) the pro forma Consolidated Cash Balance (minus any Late Receipts) as of the end of the Business Day on which such Borrowing will be funded or such Letter of Credit will be issued, amended, renewed or extended, in each case, shall not exceed $20,000,000.

(b)    The last sentence of Section 6.02 is hereby amended by deleting the phrase “Section 6.02(a) through (d)” and replacing such phrase with “Section 6.02(a) through (e)”.

2.7     Amendment to Section 7.13 . Section 7.13 is hereby amended by deleting the phrase “or arrangement” therein and replacing such phrase with “or arrangement (other than any Second Lien Note Documents)”.

2.8     Amendment to Section 7.23 . Section 7.23 is hereby amended and restated in its entirety to read as follows:

Section 7.23     USA PATRIOT; AML Laws; Anti-Corruption Laws and Sanctions . The Borrower has implemented and maintains in effect policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with the USA PATRIOT Act, Anti-Corruption Laws, applicable AML Laws and applicable Sanctions. None of (a) the Borrower, any Guarantor, any Subsidiary or any of their respective directors or officers, or, to the knowledge of the Borrower, any of their respective employees or Affiliates, or (b) to the knowledge of the Borrower, any agent of the Borrower, any Guarantor, or any Subsidiary or other Affiliate that will act in any capacity in connection with or benefit from the credit facility established hereby, (i) is a Sanctioned Person, or (ii) is in violation of AML Laws, Anti-Corruption Laws, or Sanctions. No Borrowing or Letter of Credit, use of proceeds or other transaction contemplated by this Agreement will cause a violation of AML Laws, Anti-Corruption Laws or applicable Sanctions by

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any Person participating in the transactions contemplated by this Agreement, whether as lender, borrower, guarantor, agent, or otherwise. Neither the Borrower nor any of its Subsidiaries, nor its parent company or any Guarantor, or, to the knowledge of such Borrower, any other Affiliate has engaged in or intends to engage in any dealings or transactions with, or for the benefit of, any Sanctioned Person or with or in any Sanctioned Country.

2.9     Amendments to Section 8.01 . Section 8.01 is hereby amended as follows:

(a)    Section 8.01(j) is hereby amended by deleting the phrase “similar agreement” therein and replacing such phrase with “similar agreement (including, without limitation, the Second Lien Note Documents)”.

(b)     Section 8.01(p) is hereby amended by deleting the phrase “or supplement” therein and replacing such phrase with “or supplement to any of the Second Lien Note Documents or”.

(c)    A new subsection 8.01(r) is hereby added to the end of Section 8.01 to read as follows:

(r)     Notice of Second Lien Notes Issuance . Written notice at least three (3) Business Days prior to the closing of any Second Lien Notes offering, the amount thereof and the anticipated date of closing and a copy of the final offering memorandum (if any) and any other material documents relating to such offering of Second Lien Notes or the related Senior Debt Exchange; provided that, if a final offering memorandum is not available at such time, then the Borrower shall promptly deliver the same to the Administrative Agent once available.

2.10     Amendment to Section 8.09 . Section 8.09 is hereby amended and restated in its entirety to read as follows:

Section 8.09     Compliance with Laws Section 8.09    Compliance with Laws. The Borrower will, and will cause each Subsidiary to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its Property, except (other than with respect to Anti-Corruption Laws, applicable AML Laws and applicable Sanctions) where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The Borrower will maintain in effect and enforce policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws, applicable AML Laws and applicable Sanctions.

2.11     Amendment to Section 8.14(a) . Section 8.14(a) is hereby amended by deleting each reference to “85%” therein and replacing each such reference with “90%.”

2.12     Amendments to Article VIII . Article VIII is hereby amended by adding a new Section 8.18 and new Section 8.19 to the end of Article VIII to read as follows:

    

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Section 8.18     Consolidated Cash Balance Information . Upon the request of the Administrative Agent, and on any Business Day on which the Consolidated Cash Balance (minus any Late Receipts) exceeds $20,000,000, the Borrower shall provide to the Administrative Agent, within one (1) Business Day of any such request, and on any day on which the Consolidated Cash Balance (minus any Late Receipts) exceeds $20,000,000, as applicable, summary and balance statements, in a form reasonably acceptable to the Administrative Agent, for each deposit account, securities account or other account in which any Consolidated Cash Balance is held to which any Consolidated Cash Balance is credited.

Section 8.19     Liens Securing Second Lien Notes . In the event that the Borrower or any Subsidiary intends to grant any Lien on any Property to secure any Second Lien Notes, the Borrower will provide at least five (5) Business Days’ prior written notice thereof to the Administrative Agent (or such shorter time as the Administrative Agent may agree in its sole discretion), and the Borrower will, and will cause its Subsidiaries to, first grant to the Administrative Agent to secure the Indebtedness a prior Lien on the same Property pursuant to Security Instruments in form and substance satisfactory to the Administrative Agent to the extent a prior Lien has not already been granted to the Administrative Agent on such Property. In connection therewith, the Borrower shall, or shall cause its Subsidiaries to, execute and deliver such other additional closing documents, certificates and legal opinions as shall reasonably be requested by the Administrative Agent. The Borrower will cause any Subsidiary guaranteeing any Second Lien Notes to contemporaneously guarantee the Indebtedness pursuant to the Guaranty Agreement and execute a joinder to the Security Agreement to the extent such Subsidiary is not already a party to the Guaranty Agreement or the Security Agreement.

2.13     Amendments to Section 9.01 . Section 9.01 is hereby amended as follows:

(a)    Section 9.01(b) is hereby amended by deleting the phrase “, at any time” therein and replacing such phrase with “, at any time prior to but excluding the Seventh Amendment Effective Date”.

(b)    Section 9.01(c) is hereby amended and restated in its entirety to read as follows:

(c)     Interest Coverage Ratio . The Borrower will not permit,
as of the last day of any fiscal quarter, its ratio of EBITDA for the four fiscal quarters then ending to Interest Expense for such period to be less than: (i) 2.50 to 1.00 for the fiscal quarters ending December 31, 2015 and March 31, 2016, (ii) 2.00 to 1.00 for the fiscal quarters ending June 30, 2016, September 30, 2016, December 31, 2016, March 31, 2017 and June 30, 2017 and (iii) 2.50 to 1.00 for each fiscal quarter ending on or after September 30, 2017.
        

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(c)     A new subsection 9.01(d) is hereby added to the end of Section 9.01 to read as follows:

(d)     Ratio of First Lien Debt to EBITDA . The Borrower will not permit, at any time, the ratio of First Lien Debt as of such time to EBITDA for the four fiscal quarters ending on the last day of the fiscal quarter immediately preceding the date of determination for which financial statements are available to be greater than: (i) 3.50 to 1.00, at any time during the period from and including the Seventh Amendment Effective Date through December 31, 2016, (ii) 3.25 to 1.00, at any time during the fiscal quarter ending March 31, 2017, (iii) 3.00 to 1.00, at any time during the fiscal quarter ending June 30, 2017 and (iv) 2.50 to 1.00, at any time on or after July 1, 2017.

2.14     Amendments to Section 9.02 . Section 9.02 is hereby amended as follows:

(a)    Section 9.02(e) is hereby amended by deleting the reference to “$20,000,000” therein and replacing such reference with “$10,000,000.”

(b)    Section 9.02(f)(vi) is hereby amended and restated in its entirety to read as follows:
 
(vi) the aggregate stated principal amount (without regard to initial issue discount) of all Senior Notes issued or incurred on or after the Fourth Amendment Effective Date pursuant to this Section 9.02(f) shall not exceed $300,000,000.

(c)    A new subsection 9.02(i) is added to the end of Section 9.02 to read as follows:

(i)    Second Lien Notes issued by the Borrower solely in exchange for outstanding Senior Notes pursuant to one or more Senior Debt Exchanges, and any guarantees thereof, in an aggregate stated principal amount equal to the product of (x) the aggregate stated principal amount of Senior Notes exchanged for Second Lien Notes pursuant to all Senior Debt Exchanges and (y) the exchange price (calculated separately for each series of Senior Notes) of Senior Notes exchanged for Second Lien Notes pursuant all Senior Debt Exchanges, but in no event to exceed $400,000,000 in the aggregate; provided that: (i) the Borrower shall have complied with Section 8.01(r); (ii) such Debt shall be at all times subject to the Second Lien Intercreditor Agreement and the Indebtedness shall be secured on a senior priority basis to such Debt; (iii) such Second Lien Notes do not have any scheduled principal amortization; (iv) such Second Lien Notes do not have a scheduled maturity date or a date of mandatory redemption in full sooner than the date which is 120 days after the Maturity Date; (v) the covenants, events of default and guarantees of such Debt are not more restrictive on the Borrower and its Subsidiaries than the terms of this Agreement (as in effect at the time of such issuance or incurrence); and (vi) no Subsidiary or other Person is required to

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guarantee such Second Lien Notes unless such Subsidiary or other Person has guaranteed the Indebtedness pursuant to the Guaranty Agreement.

2.15     Amendment to Section 9.03 . Section 9.03 is hereby amended by adding a new subsection (e) to the end of Section 9.03 to read as follows:

(e)    Liens on Property securing Second Lien Notes permitted by Section 9.02(i); provided, however, that (i) such Liens securing Second Lien Notes are subordinate to the Liens securing the Indebtedness pursuant to the Second Lien Intercreditor Agreement and (ii) both before and immediately after giving effect to the incurrence of any such Lien, (1) the Borrower has, or has caused its Subsidiaries to, first grant to the Administrative Agent to secure the Indebtedness, a prior Lien on the same Property pursuant to Security Instruments in form and substance satisfactory to the Administrative Agent to the extent a prior Lien has not already been granted to the Administrative Agent on such Property (and in connection therewith, the Borrower shall, or shall cause its Subsidiaries to, execute and deliver such other additional closing documents, certificates and legal opinions as shall reasonably be requested by the Administrative Agent); and (2) the Borrower is in compliance with the Second Lien Intercreditor Agreement.

2.16     Amendments to Section 9.04 . Section 9.04 is hereby amended as follows:

(a)    Clause (iii) of Section 9.04(a) is hereby amended and restated in its entirety to read as follows:

(iii) so long as both before and immediately after giving effect to such Restricted Payment, (A) no Default or Event of Default has occurred and is continuing or would result therefrom, (B) the Borrower has unused Commitments of not less than 15% of the total Commitments then in effect and (C) the ratio of Total Debt as of such time to EBITDA for the four fiscal quarters ending on the last day of the fiscal quarter immediately preceding the date of determination for which financial statements are available is equal to or less than 4.00 to 1.00, the Borrower may declare and pay cash dividends to its Equity Interest holders of Available Cash in accordance with the Partnership Agreement,

(b)    Clause (v) of Section 9.04(a) is hereby amended and restated in its entirety to read as follows:

(v)    The Borrower may redeem, repurchase or otherwise acquire preferred equity securities, preferred limited partnership interests or preferred units of the Borrower from the holders thereof: (1) with the Net Cash Proceeds of any sale of Equity Interests (other than Disqualified Capital Stock) of the Borrower or in exchange solely for Equity Interests (other than Disqualified Stock) of the Borrower or (2) so long as both before and immediately after giving effect to such redemption, repurchase or acquisition, (A) no Default or Event of Default has occurred and is continuing or would result therefrom, (B) the Borrower has unused Commitments of not less than 15% of the total Commitments then in

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effect and (C) the ratio of Total Debt as of such time to EBITDA for the four fiscal quarters ending on the last day of the fiscal quarter immediately preceding the date of determination for which financial statements are available is equal to or less than 4.00 to 1.00.

(c)    Section 9.04(b) is hereby amended by deleting the phrase “or (b) so long as both before and immediately after giving effect to each such Redemption, (1) the Borrower has unused Commitments of not less than 20% of the Borrowing Base then in effect and (2) the Borrower shall be in Pro Forma Compliance,” therein and replacing such phrase with the following:

(b) so long as (1) both before and immediately after giving effect to each such Redemption, (A) the Borrower has unused Commitments of not less than the greater of (i) 20% of the total Commitments then in effect and (ii) $100,000,000, (B) the Borrower shall be in Pro Forma Compliance and (C) no Default or Event of Default has occurred and is continuing or would result therefrom and (2) each such Redemption is, directly or indirectly, made solely with cash proceeds from the sale of Property of the Borrower and its Subsidiaries to the extent such sale is permitted by Section 9.12(d) (provided that such proceeds may be utilized by the Borrower to prepay or repay Borrowings prior to such Redemption); provided that, (w) such Redemption shall be made within 90 days of the date of the related sale of Property by the Borrower or such Subsidiary, (x) the amount of sale proceeds used for such Redemption shall not exceed 50% of the sale proceeds from such sale of Property, (y) the Redemption price shall not exceed 50% of the stated principal amount of the Senior Notes Redeemed and (z) the aggregate amount of sale proceeds used for all such Redemptions pursuant to this Section 9.04(b)(i)(b) shall not exceed $75,000,000; and provided further that, notwithstanding the foregoing clauses (a) and (b), the Borrower may (i) exchange Senior Notes for Second Lien Notes permitted by Section 9.02(i) pursuant to the Senior Debt Exchange and (ii) Redeem Senior Notes solely in exchange for Equity Interests (other than Disqualified Capital Stock) of the Borrower,

2.17     Amendment to Section 9.08 . Section 9.08 is hereby amended by deleting the fourth and fifth sentences therein and replacing such sentence with the following:

The Borrower will not request any Borrowing or Letter of Credit, and the Borrower shall not use, and shall procure that its Subsidiaries and its or their respective directors, officers, employees, Affiliates and agents shall not use, directly or indirectly, the proceeds of any Borrowing or Letter of Credit, or lend, contribute or otherwise make available such proceeds to any Subsidiary, other Affiliate, joint venture partner or other Person, (A) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws or AML Laws, (B) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, or involving any goods originating in or with a Sanctioned Person or Sanctioned Country, or (C) in any manner that would result in the violation of any Sanctions by any Person (including any Person

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participating in the transactions contemplated hereunder, whether as underwriter, advisor lender, investor or otherwise).

2.18     Amendment to Section 9.16 . Section 9.16 is hereby amended by deleting the parenthetical therein and replacing such parenthetical with “(other than this Agreement, the Security Instruments, the Second Lien Note Documents or any agreement relating to an E&P Subsidiary Pledge)”.

2.19     Amendment to Article IX . Article IX is hereby amended by adding a new Section 9.21 to the end of Article IX to read as follows:

Section 9.21     Repayment of Second Lien Notes; Amendment to Terms of Second Lien Notes . The Borrower will not, and will not permit any of its Subsidiaries to, prior to the date that is 120 days after the Maturity Date: (a) call, make or offer to make any optional, voluntary or mandatory Redemption of or otherwise optionally, voluntarily or mandatorily Redeem (whether in whole or in part) any Second Lien Notes; provided that, (i) so long as no Default, Event of Default or Borrowing Base Deficiency would exist immediately after giving effect to any concurrent repayment of Debt with the proceeds of such issuance or sale, if any, the Borrower may Redeem Second Lien Notes with the Net Cash Proceeds of any issuance or sale of Equity Interests (other than Disqualified Capital Stock) of the Borrower, and (ii) the Borrower may Redeem Second Lien Notes solely in exchange for Equity Interests (other than Disqualified Capital Stock) of the Borrower; or (b) amend, modify, waive or otherwise change, consent or agree to any amendment, modification, waiver or other change to, any of the terms of any Second Lien Notes, the Second Lien Indenture or any other Second Lien Note Document, except in accordance with the terms of the Second Lien Intercreditor Agreement; provided that, without the prior written consent of the Majority Lenders, the Borrower will not, and will not permit any of its Subsidiaries to, amend, modify, waive or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of any Second Lien Notes, any Second Lien Indenture or any other Second Lien Note Document, if the effect thereof would be to: (i) make any of the covenants, events of default or guarantees set forth in any Second Lien Indenture or any other Second Lien Note Document more restrictive on the Borrower or any of its Subsidiaries than the covenants, events of default or guarantees set forth in this Agreement or any of the other Loan Documents or (ii) cause the Borrower or any of its Subsidiaries to violate any of the terms of Section 9.02(i).    

2.20     Amendment to Section 10.01 . Section 10.01 is hereby amended as follows:

(a) Section 10.01(d) is hereby amended by replacing the reference to “Section 8.03” therein with the phrase “Section 8.03, Section 8.18, Section 8.19,”.

(b) Section 10.01 is hereby amended by adding the following new subsections (o) and (p) to the end of Section 10.01:

(o)    the Second Lien Intercreditor Agreement, after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and

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enforceable in accordance with its terms against the Borrower, any Guarantor, any trustee, agent or representative of any of the holders of the Second Lien Notes, any of the holders of the Second Lien Notes, or any other party thereto, or shall be repudiated by any of them, or cease to establish the relative Lien priorities required or purported thereby, or the Borrower, any Guarantor, any trustee, agent or representative of any of the holders of the Second Lien Notes, any of the holders of the Second Lien Notes, or any of their respective Affiliates shall so state in writing.

(p)    an “Event of Default” shall occur and be continuing under the Second Lien Indenture.
2.21     Amendments to Section 12.04(b)(ii) . Section 12.04(b)(ii) is hereby amended as follows:

(a)    Section 12.04(b)(ii)(C) is hereby amended by deleting the word “and” at the end thereof.

(b)    Section 12.04(b)(ii)(D) is hereby amended by deleting the period at the end thereof and replacing such period with “; and”.

(c)    A new Section 12.04(b)(ii)(E) is hereby added to the end of Section 12.04(b)(ii) to read as follows:

(E)    no such assignment shall be made to the Borrower, any Affiliate of the Borrower, a Defaulting Lender (or any entity who, upon becoming a Lender hereunder, would constitute a Defaulting Lender), any Affiliate of a Defaulting Lender or a natural person.

2.22     Amendment to Section 12.16 . Section 12.16 is hereby amended and restated in its entirety to read as follows:

Section 12.16     USA PATRIOT Act Notice Section 12.16    USA Patriot Act Notice. Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies the Borrower and the Guarantors, which information includes the name and address of the Borrower and the Guarantors and other information that will allow such Lender to identify the Borrower and the Guarantors in accordance with the USA PATRIOT Act.

2.23     Amendment to Article XII . Article XII is hereby amended by adding a new Section 12.21 and Section 12.22 to the end of such Article XII to read as follows:

Section 12.21     INTERCREDITOR AGREEMENT .

(a)    EACH LENDER HEREBY (I) INSTRUCTS AND AUTHORIZES THE ADMINISTRATIVE AGENT TO EXECUTE AND DELIVER THE SECOND LIEN INTERCREDITOR AGREEMENT ON ITS BEHALF, (II) AUTHORIZES AND DIRECTS THE ADMINISTRATIVE AGENT TO EXERCISE ALL OF THE

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ADMINISTRATIVE AGENT’S RIGHTS AND TO COMPLY WITH ALL OF ITS OBLIGATIONS UNDER THE SECOND LIEN INTERCREDITOR AGREEMENT, (III) AGREES THAT THE ADMINISTRATIVE AGENT MAY TAKE ACTIONS ON ITS BEHALF AS IS CONTEMPLATED BY THE TERMS OF THE SECOND LIEN INTERCREDITOR AGREEMENT, AND (IV) UNDERSTANDS, ACKNOWLEDGES AND AGREES THAT AT ALL TIMES FOLLOWING THE EXECUTION AND DELIVERY OF THE SECOND LIEN INTERCREDITOR AGREEMENT SUCH LENDER (AND EACH OF ITS SUCCESSORS AND ASSIGNS) SHALL BE BOUND BY THE TERMS THEREOF.
(b)    EACH LENDER ACKNOWLEDGES THAT IT HAS REVIEWED AND IS SATISFIED WITH THE TERMS AND PROVISIONS OF THE SECOND LIEN INTERCREDITOR AGREEMENT AND ACKNOWLEDGES AND AGREES THAT SUCH LENDER IS RESPONSIBLE FOR MAKING ITS OWN ANALYSIS AND REVIEW OF THE SECOND LIEN INTERCREDITOR AGREEMENT AND THE TERMS AND PROVISIONS THEREOF, AND NO AGENT OR ANY OF ITS AFFILIATES MAKES ANY REPRESENTATION TO ANY LENDER AS TO THE SUFFICIENCY OR ADVISABILITY OF THE PROVISIONS CONTAINED IN THE SECOND LIEN INTERCREDITOR AGREEMENT.

Section 12.22     Acknowledgement and Consent to Bail-In of EEA Financial Institutions . Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:

(a)    the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and

(b)    the effects of any Bail-in Action on any such liability, including, if applicable:

(i) a reduction in full or in part or cancellation of any such liability;

(ii)    a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
        

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(iii)    the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.

Section 3.     Amendments to Guaranty . The Guaranty is hereby amended as follows:

(a)    Section 9.13 of the Guaranty is hereby amended by adding the following sentence at the end thereof to read as follows:

Each Subsidiary of the Borrower that is a party hereto or that becomes a party hereto as a Guarantor upon execution and delivery by such Subsidiary of an Assumption Agreement, hereby expressly agrees to be bound by the terms of the Second Lien Intercreditor Agreement regardless of whether such Subsidiary has executed the Second Lien Intercreditor Agreement.

(b)    Annex I (Assumption Agreement) to the Guaranty is hereby amended by adding the following new Section 4 at the end thereof to read as follows:

4.     Intercreditor Agreement . By executing and delivering this Assumption Agreement, the Additional Guarantor hereby becomes a party to the Second Lien Intercreditor Agreement with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly agrees to be bound by the terms of the Second Lien Intercreditor Agreement (and this Assumption Agreement shall be deemed to constitute a joinder agreement to the Second Lien Intercreditor Agreement for this purpose).

Section 4.     Amendments to Security Agreement . The Security Agreement is hereby amended as follows:

(a)    Section 8.14 of the Security Agreement is hereby amended by adding the following sentence at the end thereof to read as follows:

Each Subsidiary of the Borrower that is a party hereto or that becomes a party hereto as a Grantor upon execution and delivery by such Subsidiary of an Assumption Agreement, hereby expressly agrees to be bound by the terms of the Second Lien Intercreditor Agreement regardless of whether such Subsidiary has executed the Second Lien Intercreditor Agreement.

(b)    Annex I (Assumption Agreement) to the Security Agreement is hereby amended by adding the following new Section 4 at the end thereof to read as follows:

4.     Intercreditor Agreement . By executing and delivering this Assumption Agreement, the Additional Grantor hereby becomes a party to the Second Lien Intercreditor Agreement with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly agrees to be bound by the terms of the Second Lien Intercreditor Agreement (and this Assumption

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Agreement shall be deemed to constitute a joinder agreement to the Second Lien Intercreditor Agreement for this purpose).

Section 5.     Borrowing Base Reduction . For the period from and including the Seventh Amendment Effective Date (as defined below) to but excluding the next Redetermination Date, the Borrowing Base shall be an amount equal to $725,000,000. Notwithstanding the foregoing, the Borrowing Base may be subject to further adjustments from time to time pursuant to Section 2.07(e), Section 2.07(f), Section 8.13(c), Section 9.12(d) or Section 9.12(e). For the avoidance of any doubt, this Borrowing Base reduction shall not constitute a Scheduled Redetermination or Interim Redetermination.

Section 6.     Conditions Precedent . This Seventh Amendment shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 12.02 of the Credit Agreement) (the “ Seventh Amendment Effective Date ”):

6.1    The Administrative Agent shall have received from the Required Lenders, the Borrower and the Guarantors, counterparts (in such number as may be requested by the Administrative Agent) of this Seventh Amendment signed on behalf of such Person.

6.2    The Administrative Agent and the Lenders shall have received all fees and other amounts due and payable on or prior to the Seventh Amendment Effective Date (including fees and expenses invoiced by Paul Hastings LLP prior to the Seventh Amendment Effective Date).

6.3    The Administrative Agent shall have received, together with title information previously delivered to the Administrative Agent, satisfactory title information on at least 80% of the total value of the Oil and Gas Properties of the Borrower and the Subsidiaries evaluated in the most recently delivered Reserve Report.

6.4    The Administrative Agent shall have received duly executed and notarized deeds of trust/mortgages or supplements to existing deeds of trust/mortgages in form satisfactory to the Administrative Agent, to the extent necessary so that the Mortgaged Properties represent at least 90% of the total value of the Oil and Gas Properties of the Borrower and the Subsidiaries evaluated in the most recently delivered Reserve Report.

6.5    The Administrative Agent shall have received evidence that on the Seventh Amendment Effective Date, after giving effect to the reduction of the Borrowing Base pursuant to Section 5 of this Seventh Amendment, no Borrowing Base Deficiency shall exist.

6.6    No Default shall have occurred and be continuing as of the Seventh Amendment Effective Date.

6.7    The Administrative Agent shall have received such other documents as the Administrative Agent or its special counsel may reasonably require.

The Administrative Agent is hereby authorized and directed to declare this Seventh Amendment to be effective and to declare the occurrence of the Seventh Amendment Effective Date when it has received documents confirming or certifying, to the satisfaction of the Administrative Agent, compliance with the conditions set forth in this Section 6 or the waiver of

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such conditions as permitted in Section 12.02 of the Credit Agreement. Such declaration shall be final, conclusive and binding upon all parties to the Credit Agreement for all purposes.

Section 7. Miscellaneous .

7.1     Confirmation .  The provisions of the Credit Agreement, as amended by this Seventh Amendment, shall remain in full force and effect following the effectiveness of this Seventh Amendment.

7.2     Ratification and Affirmation; Representations and Warranties .  Each Obligor hereby (a) acknowledges the terms of this Seventh Amendment; (b) ratifies and affirms its obligations under, and acknowledges its continued liability under, each Loan Document to which it is a party and agrees that each Loan Document to which it is a party remains in full force and effect as expressly amended hereby; (c) represents and warrants to the Lenders that as of the date hereof, after giving effect to the terms of this Seventh Amendment: (i) all of the representations and warranties contained in each Loan Document to which it is a party are true and correct, except to the extent any such representations and warranties are expressly limited to an earlier date, in which case, such representations and warranties shall continue to be true and correct as of such specified earlier date, (ii) no Default or Event of Default has occurred and is continuing and (iii) no event or events have occurred which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect; and (d) agrees that from and after the Seventh Amendment Effective Date each reference to the Credit Agreement and in the other Loan Documents shall be deemed to be a reference to the Credit Agreement, as amended by this Seventh Amendment.

7.3     Counterparts .  This Seventh Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of this Seventh Amendment by telecopy, facsimile, email or other electronic means shall be effective as delivery of a manually executed counterpart hereof.

7.4     No Oral Agreement .  This Seventh Amendment, the Credit Agreement and the other Loan Documents executed in connection herewith and therewith represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or unwritten oral agreements of the parties. There are no subsequent oral agreements between the parties.

7.5     GOVERNING LAW .  THIS SEVENTH AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

7.6     Payment of Expenses .  In accordance with Section 12.03 of the Credit Agreement, the Borrower agrees to pay or reimburse the Administrative Agent for all of its reasonable out-of-pocket costs and reasonable expenses incurred in connection with this Seventh Amendment, any other documents prepared in connection herewith and the transactions contemplated hereby, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent.

Page 20


7.7     Severability .  Any provision of this Seventh Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

7.8     Successors and Assigns .  This Seventh Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

7.9     Loan Document . This Seventh Amendment is a “Loan Document” as defined and described in the Credit Agreement, and all of the terms and provisions of the Credit Agreement relating to Loan Documents shall apply hereto.

[SIGNATURES BEGIN NEXT PAGE]


Page 21


IN WITNESS WHEREOF, the parties hereto have caused this Seventh Amendment to be duly executed as of the date first written above.
BORROWER:
LEGACY RESERVES LP
 
 
 
 
 
 
 
 
By:
Legacy Reserves GP, LLC
 
 
 
 
its general partner
 
 
 
 
 
 
 
 
By:
/s/ James Daniel Westcott
 
 
 
Name:
James Daniel Westcott
 
 
 
Title:
Executive Vice President and Chief Financial Officer
 
 
 
 
 
 
GUARANTORS:
LEGACY RESERVES OPERATING LP
 
 
 
 
 
 
 
 
By:
Legacy Reserves Operating GP LLC, its general partner
 
 
 
By:
Legacy Reserves LP, its sole member
 
 
 
By:
Legacy Reserves GP, LLC, its general partner
 
 
 
 
 
 
 
 
By:
/s/ James Daniel Westcott
 
 
 
Name:
James Daniel Westcott
 
 
 
Title:
Executive Vice President and Chief Financial Officer
 
 
 
 
 
 
 
LEGACY RESERVES OPERATING GP LLC
 
 
 
 
 
 
 
 
By:
Legacy Reserves LP, its sole member
 
 
 
By:
Legacy Reserves GP, LLC, its general partner
 
 
 
 
 
 
 
 
By:
/s/ James Daniel Westcott
 
 
 
Name:
James Daniel Westcott
 
 
 
Title:
Executive Vice President and Chief Financial Officer
 


SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
LEGACY RESERVES SERVICES, INC.
 
 
 
 
 
 
 
 
By:
/s/ James Daniel Westcott
 
 
 
Name:
James Daniel Westcott
 
 
 
Title:
Executive Vice President and Chief Financial Officer
 
 
DEW GATHERING LLC
 
 
 
 
 
 
 
 
By:
/s/ James Daniel Westcott
 
 
 
Name:
James Daniel Westcott
 
 
 
Title:
Executive Vice President and Chief Financial Officer
 
 
PINNACLE GAS TREATING LLC
 
 
 
 
 
 
 
 
By:
/s/ James Daniel Westcott
 
 
 
Name:
James Daniel Westcott
 
 
 
Title:
Executive Vice President and Chief Financial Officer
 
 
LEGACY RESERVES ENERGY SERVICES LLC
 
 
 
 
 
 
 
 
By:
/s/ James Daniel Westcott
 
 
 
Name:
James Daniel Westcott
 
 
 
Title:
Executive Vice President and Chief Financial Officer
 




SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



ADMINISTRATIVE AGENT:
WELLS FARGO BANK, NATIONAL ASSOCIATION,
 
 
as Administrative Agent and a Lender
 
 
 
 
 
 
 
 
By:
/s/ Greg Smothers
 
 
 
 
Greg Smothers
 
 
 
 
Director
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



LENDERS:
COMPASS BANK
 
 
 
 
 
 
 
 
By:
/s/ Gabriela Albino
 
 
 
Name:
Gabriela Albino
 
 
 
Title:
Vice President
 
 
 
 
 
 


SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
UBS AG, STAMFORD BRANCH
 
 
 
 
 
 
 
 
By:
/s/ Darlene Arias
 
 
 
Name:
Darlene Arias
 
 
 
Title:
Director
 
 
 
 
 
 
 
 
By:
/s/ Houssem Daly
 
 
 
Name:
Houssem Daly
 
 
 
Title:
Associate Director
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
U.S. BANK NATIONAL ASSOCIATION
 
 
 
 
 
 
 
 
By:
/s/ Nicholas T. Hanford
 
 
 
Name:
Nicholas T. Hanford
 
 
 
Title:
Vice President
 
 
 
 


SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
BANK OF AMERICA, N.A.
 
 
 
 
 
 
 
 
By:
 
 
 
 
Name:
 
 
 
 
Title:
 
 
 
 
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
ROYAL BANK OF CANADA
 
 
 
 
 
 
 
 
By:
/s/ Evans Swann
 
 
 
Name:
Evans Swann
 
 
 
Title:
Authorized Signatory
 
 
 
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
THE BANK OF NOVA SCOTIA
 
 
 
 
 
 
 
 
By:
/s/ John Frazell
 
 
 
Name:
John Frazell
 
 
 
Title:
Director
 
 
 
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
KEYBANK NATIONAL ASSOCIATION
 
 
 
 
 
 
 
 
By:
/s/ John Dravenstott
 
 
 
Name:
John Dravenstott
 
 
 
Title:
Vice President
 
 
 
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
MUFG UNION BANK, N.A. f/k/a UNION BANK, N.A.
 
 
 
 
 
 
 
 
By:
/s/ Joshua Patterson
 
 
 
Name:
Joshua Patterson
 
 
 
Title:
Managing Director
 
 
 
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
JPMORGAN CHASE BANK, N.A.
 
 
 
 
 
 
 
 
By:
/s/ Stephanie Balette
 
 
 
Name:
Stephanie Balette
 
 
 
Title:
Authorized Officer
 
 
 
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
BMO HARRIS FINANCING, INC.
 
 
 
 
 
 
 
 
By:
/s/ Gumaro Tijerina
 
 
 
Name:
Gumaro Tijerina
 
 
 
Title:
Managing Director
 
 
 
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
BARCLAYS BANK PLC
 
 
 
 
 
 
 
 
By:
/s/ Ronnie Glenn
 
 
 
Name:
Ronnie Glenn
 
 
 
Title:
Vice President
 
 
 
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK
 
 
 
 
 
 
 
 
By:
/s/ Michael Willis
 
 
 
Name:
Michael Willis
 
 
 
Title:
Managing Director
 
 
 
 
 
 
 
 
By:
/s/ Sharada Manne
 
 
 
Name:
Sharada Manne
 
 
 
Title:
Managing Director
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
CITIBANK, N.A.
 
 
 
 
 
 
 
 
By:
/s/ Phil Ballard
 
 
 
Name:
Phil Ballard
 
 
 
Title:
Managing Director
 
 
 
 
 
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
SOCIETE GENERALE
 
 
 
 
 
 
 
 
By:
/s/ David Bornstein
 
 
 
Name:
David M. Bornstein
 
 
 
Title:
Director
 
 
 
 
 
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
BRANCH BANKING AND TRUST COMPANY
 
 
 
 
 
 
 
 
By:
/s/ Ryan K. Michael
 
 
 
Name:
Ryan K. Michael
 
 
 
Title:
Senior Vice President
 
 
 
 
 
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
WEST TEXAS NATIONAL BANK
 
 
 
 
 
 
 
 
By:
/s/ Chris L. Whigham
 
 
 
Name:
Chris L. Whigham
 
 
 
Title:
SVP - Manager of Energy Lending
 
 
 
 
 
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
SANTANDER BANK, N.A.
 
 
 
 
 
 
 
 
By:
/s/ Aidan Lanigan
 
 
 
Name:
Aidan Lanigan
 
 
 
Title:
Senior Vice President
 
 
 
 
 
 
 
 
By:
/s/ Puiki Lok
 
 
 
Name:
Puiki Lok
 
 
 
Title:
Vice President
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
TEXAS CAPITAL BANK, N.A.
 
 
 
 
 
 
 
 
By:
/s/ Frank K. Stowers
 
 
 
Name:
Frank K. Stowers
 
 
 
Title:
Senior Vice President
 
 
 
 
 
 

SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



 
FIFTH THIRD BANK
 
 
 
 
 
 
 
 
By:
/s/ Justin Bellamy
 
 
 
Name:
Justin Bellamy
 
 
 
Title:
Director
 
 
 
 
 
 



SIGNATURE PAGE
SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT



Legacy Reserves LP Announces Fourth Quarter and Annual 2015 Results
MIDLAND, Texas, February 24, 2016- (GLOBENEWSWIRE) -- Legacy Reserves LP ("Legacy") (NASDAQ: LGCY ) today announced fourth quarter and annual results for 2015 . Financial results contained herein are preliminary and subject to the audited financial statements included in Legacy’s Form 10-K to be filed on or about February 26, 2016 .
A summary of selected financial information follows. For consolidated financial statements, please see accompanying tables.

 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 31,
 
December 31,
 
 
2015
 
2014
 
2015
 
2014
 
 
(dollars in millions)
Production (Boe/d)
 
45,435

 
32,783

 
38,523

 
26,962

Revenue
 
$
79.9

 
$
119.6

 
$
338.8

 
$
532.3

Net Loss (a)
 
$
(344.1
)
 
$
(331.5
)
 
$
(701.5
)
 
$
(283.6
)
Adjusted EBITDA (b)
 
$
45.2

 
$
64.7

 
$
232.4

 
$
278.2

Distributable Cash Flow (b)
 
$
12.9

 
$
24.2

 
$
103.5

 
$
128.1

(a)
Includes non-cash impairment charges of $326.3 million and $440.1 million for the fourth quarter of 2015 and 2014 , respectively, and $633.8 million and $448.7 million for the years ended December 31, 2015 and 2014 , respectively.
(b)
Non-GAAP financial measure. Please see Adjusted EBITDA and Distributable Cash Flow table at the end of this press release for a reconciliation of these measures to their nearest comparable GAAP measure.
2015 highlights include:
•
Completed $489.3 million of acquisitions, net of properties immediately divested after acquisition
•
Generated record annual production of 38,523 Boe/d up 43% from 26,962 Boe/d in 2014

•
Reduced production expenses, excluding ad valorem taxes, by 2% despite significant growth in our asset base
•
Year-end proved reserves increased 18% to a record 164.2 MMBoe ( 97% PDP, 27% liquids)
Paul T. Horne, President and Chief Executive Officer of Legacy's general partner, commented, "Despite the challenging commodity price environment in 2015, I’m exceedingly proud of our team’s accomplishments this year. We knew coming into the year that, should prices not improve, we were going to face significant headwinds. However, in light of these challenges, we were able to achieve several milestones. We made expense reduction a significant goal in 2015 and were able to reduce production expenses to a level below our 2014 costs, even when including recent acquisitions. From Q4 2014 to Q4 2015, excluding the effect of any acquisitions made during that time, we have reduced our production expenses (excluding taxes) by just over 23% which, quite frankly, I did not believe was possible. Our previously announced development agreement with an affiliate of TPG Special Situation Partners allowed us to monetize a portion of our undeveloped assets in the Permian. We have drilled and completed six wells under the agreement and are in the process of completing six more wells. Our drilling costs have outperformed expectations and we anticipate strong production results once all wells are completed. Our acquisitions of natural gas properties and related gathering and processing assets in East Texas have provided a significant entry into a new basin as well as exposure to a new cash flow stream. Our team has done a fantastic job integrating these assets and we look forward to the opportunity to pursue some accretive capital projects on these assets in 2016.
"We anticipate 2016 will be another challenging year. Commodity prices have remained depressed and have further deteriorated our cash-flow projections. As previously announced, we suspended distributions to our unitholders and our preferred unitholders in order to focus on our balance sheet, liquidity position and leverage metrics. We continue to work through select credit-accretive asset sales and other opportunities. As we have stated in the past, we strongly believe that today’s current commodity price environment is unsustainable and believe our efforts in 2015 and our planned efforts in 2016 will best position us to capitalize when a recovery occurs.”
Dan Westcott, Executive Vice President and Chief Financial Officer of Legacy's general partner, commented, "Though low commodity prices have persisted in our industry for the last 18 months, I’m proud of our results and efforts to date. We have been taking difficult, but important steps to improve our balance sheet position: cutting operation costs, suspending distributions and initiating credit-accretive asset sales. We also recently amended our revolving credit facility, providing greater

Page 1


flexibility under certain covenants to better weather this storm. In particular, we have modified our Secured Debt to EBITDA covenant to a 1 st Lien Debt to EBITDA covenant that begins at 3.5x and tapers to 2.5x by Q3 2017 and have reduced our EBITDA to Interest Expense covenant to 2.0x beginning Q2 2016 through Q2 2017. As part of the amendment, we reduced our borrowing base to $725 million leaving us with $105.6 million of current availability. Based on current strip prices, we project we are slightly free cash flow positive in 2016 and we have sufficient liquidity for the year. We plan to use any asset sale proceeds to generate additional cash to reduce our total debt outstanding and improve our financial metrics.”
Proved Reserves
The following information represents estimates of our proved reserves as of December 31, 2015 which have been prepared in compliance with the SEC rules and accounting standards using current costs and the average annual prices based on the unweighted arithmetic average of the first-day-of-the-month price for each month in the year ending December 31, 2015. Our average WTI price, as posted by Plains Marketing L.P., was $46.79 per Bbl for oil and our average natural gas price, as posted by Platts Gas Daily, was $2.59 per MMBtu. Our proved reserves by operating region as of December 31, 2015 are as follows:

Operating Regions
 
Oil (MBbls)
 
Natural
Gas (MMcf)
 
NGLs(MBbls)
 
Total (MBoe)
 
% Liquids
 
% PDP
 
% Total
 
Standardized Measure
($ thousands) (1)
Permian Basin
 
28,111

 
100,414

 
1,091

 
45,938

 
63.6
%
 
91.8
%
 
28.0
%
 
$
361,514

East Texas
 
31

 
429,274

 
4

 
71,580

 
—
%
 
97.9
%
 
43.6
%
 
211,220

Rocky Mountain
 
5,772

 
180,019

 
4,369

 
40,144

 
25.3
%
 
98.8
%
 
24.5
%
 
87,710

Mid-Continent
 
2,185

 
10,861

 
2,180

 
6,175

 
70.7
%
 
99.8
%
 
3.8
%
 
33,284

Other
 
44

 
1,065

 
107

 
329

 
45.9
%
 
100.0
%
 
0.1
%
 
1,213

Total
 
36,143

 
721,633

 
7,751

 
164,166

 
26.7
%
 
96.5
%
 
100.0
%
 
$
694,941

(1)
Standardized measure is the present value of estimated future net revenues to be generated from the production of proved reserves, determined in accordance with assumptions required by the Financial Accounting Standards Board and the Securities and Exchange Commission (using current costs and the average annual prices based on the unweighted arithmetic average of the first-day-of-the-month price) without giving effect to non-property related expenses such as general administrative expenses and debt service or to depletion, depreciation and amortization and discounted using an annual discount rate of 10%. For the purpose of calculating the standardized measure, the costs and prices are unescalated. Federal income taxes have not been deducted from future production revenues in the calculation of standardized measure as each partner is separately taxed on its share of Legacy's taxable income. In addition, Texas margin taxes and the federal income taxes associated with a corporate subsidiary have not been deducted from future production revenues in the calculation of the standardized measure as the impact of these taxes would not have a significant effect on the calculated standardized measure. Standardized measure does not give effect to derivative transactions.


Page 2


2016 Capital Program By Category
 
 
Percent of Total
 
 
 
Horizontal Permian Drilling
 
30
%
East Texas (Workovers, G&P, Facilities)
 
30
%
Other Workovers
 
20
%
CO 2 + Other Facilities
 
20
%
Total Capital Expenditures
 
100
%
Total Capital Expenditures Dollars
 
$
37,000

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 condition (or otherwise) with the overriding intent to deploy capital prudently. Should current commodity prices persist, we may reduce our capital program meaningfully to further our capital preservation efforts.


Page 3


LEGACY RESERVES LP
SELECTED FINANCIAL AND OPERATING DATA
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2015
 
2014
 
2015
 
2014
 
(In thousands, except per unit data)
Revenues
 
 
 
 
 
 
 
Oil sales
$
40,653

 
$
80,348

 
$
199,841

 
$
396,774

Natural gas liquids sales
3,778

 
8,002

 
16,645

 
27,483

Natural gas sales
35,510

 
31,256

 
122,293

 
108,042

Total revenues
$
79,941

 
$
119,606

 
$
338,779

 
$
532,299

Expenses:
 
 
 
 
 
 
 
Oil and natural gas production
$
48,436

 
$
53,222

 
$
183,163

 
$
186,750

Ad valorem taxes
3,169

 
1,745

 
11,328

 
12,051

Total
$
51,605

 
$
54,967

 
$
194,491

 
$
198,801

Production and other taxes
$
3,345

 
$
7,242

 
$
16,383

 
$
31,534

General and administrative excluding LTIP & acquisition costs
$
8,574

 
$
8,164

 
$
30,919

 
$
29,760

Acquisition costs
743

 
95

 
8,919

 
5,425

LTIP expense (benefit)
1,689

 
(60
)
 
6,673

 
3,795

Total general and administrative
$
11,006

 
$
8,199

 
$
46,511

 
$
38,980

Depletion, depreciation, amortization and accretion
$
54,952

 
$
53,436

 
$
177,258

 
$
173,686

Commodity derivative cash settlements:
 
 
 
 
 
 
 
Oil derivative cash settlements received (paid)
$
15,298

 
$
9,609

 
$
91,953

 
$
(5,431
)
Natural gas derivative cash settlements received
13,314

 
5,031

 
40,972

 
8,097

Total commodity derivative cash settlements
$
28,612

 
$
14,640

 
$
132,925

 
$
2,666

Production:
 
 
 
 
 
 
 
Oil (MBbls)
1,088

 
1,253

 
4,608

 
4,784

Natural gas liquids (MGal)
10,874

 
11,283

 
42,210

 
30,861

Natural gas (MMcf)
16,997

 
8,966

 
50,687

 
25,936

Total (MBoe)
4,180

 
3,016

 
14,061

 
9,841

Average daily production (Boe/d)
45,435

 
32,783

 
38,523

 
26,962

Average sales price per unit (excluding commodity derivative cash settlements):
 
 
 
 
Oil price (per Bbl)
$
37.36

 
$
64.12

 
$
43.37

 
$
82.94

Natural gas liquids price (per Gal)
$
0.35

 
$
0.71

 
$
0.39

 
$
0.89

Natural gas price (per Mcf)(a)
$
2.09

 
$
3.49

 
$
2.41

 
$
4.17

Combined (per Boe)
$
19.12

 
$
39.66

 
$
24.09

 
$
54.09

Average sales price per unit (including commodity derivative cash settlements):
 
 
 
 
Oil price (per Bbl)
$
51.43

 
$
71.79

 
$
63.32

 
$
81.80

Natural gas liquids price (per Gal)
$
0.35

 
$
0.71

 
$
0.39

 
$
0.89

Natural gas price (per Mcf)(a)
$
2.87

 
$
4.05

 
$
3.22

 
$
4.48

Combined (per Boe)
$
25.97

 
$
44.51

 
$
33.55

 
$
54.36

 
 
 
 
 
 
 
 
Average WTI oil spot price (per Bbl)
$
42.07

 
$
73.20

 
$
48.81

 
$
92.91

Average Henry Hub natural gas index price (per Mcf)
$
2.23

 
$
3.83

 
$
2.63

 
$
4.26

 
 
 
 
 
 
 
 
Average unit costs per Boe:
 
 
 
 
 
 
 
Production costs, excluding production and other taxes
$
11.59

 
$
17.65

 
$
13.03

 
$
18.98

Ad valorem taxes
$
0.76

 
$
0.58

 
$
0.81

 
$
1.22

Production and other taxes
$
0.80

 
$
2.40

 
$
1.17

 
$
3.20

General and administrative excluding LTIP & acquisition costs
$
2.05

 
$
2.71

 
$
2.20

 
$
3.02

Total general and administrative
$
2.63

 
$
2.72

 
$
3.31

 
$
3.96

Depletion, depreciation, amortization and accretion
$
13.15

 
$
17.72

 
$
12.61

 
$
17.65




Page 4


Annual Financial and Operating Results - 2015 Compared to 2014
•
Production increased 43% to an annual record of 38,523 Boe/d from 26,962 Boe/d primarily due to $540.3 million of acquisitions in 2015 including our acquisition of various oil and natural gas properties and associated production assets from Anadarko E&P Onshore LLC ("Anadarko Acquisition") for a net purchase price of $335.5 million .
•
Average realized price, excluding net cash settlements from commodity derivatives, decreased 55% to $24.09 per Boe in 2015 from $54.09 per Boe in 2014 . Average realized oil price decreased 48% to $43.37 in 2015 from $82.94 in 2014 . This decrease was primarily driven by a decrease in the average West Texas Intermediate ("WTI") crude oil price of $44.10 per Bbl partially offset by a decrease in realized differentials, primarily in the Permian Basin. Average natural gas price decreased 42% to $2.41 per Mcf in 2015 from $4.17 per Mcf in 2014 . This decrease was primarily driven by a decrease in the average Henry Hub natural gas index price of $1.63 per Mcf. Finally, our average realized NGL price decreased 56% to $0.39 per gallon in 2015 from $0.89 per gallon in 2014 .
•
Production expenses, excluding ad valorem taxes, decreased 2% to $183.2 million in 2015 from $186.8 million in 2014 due to our cost containment efforts on our base assets, partially offset by costs associated with the Anadarko Acquisition and other recent acquisitions, as well as a full year of production costs on the properties acquired from WPX in June 2014. On an average cost per Boe basis, production expenses decreased 31% to $13.03 per Boe in 2015 from $18.98 per Boe in 2014 , driven primarily by the inclusion of lower cost natural gas properties from the Anadarko and WPX acquisitions as well as a reduction in the production expenses from our base assets.
•
Non-cash impairment expense totaled $633.8 million driven by the significant decline in oil and natural gas prices during 2015 .
•
General and administrative expenses, excluding acquisition costs and unit-based Long-Term Incentive Plan ("LTIP") compensation expense totaled $30.9 million in 2015 compared to $29.8 million in 2014 . This increase was primarily attributable to a $1.9 million increase in salary and benefit expenses, net of overhead recovery, due to the hiring of additional personnel commensurate with the growth of our asset base, partially offset by general cost reduction efforts.
•
Cash settlements received on our commodity derivatives during 2015 were $132.9 million as compared to $2.7 million in 2014 .
•
Total development capital expenditures decreased to $36.8 million in 2015 from $133.4 million in 2014 . During 2015 we entered into a Development Agreement (the "Development Agreement") with Jupiter JV, LP ("Investor"), which was formed by certain of TPG Special Situations Partners' investment funds. Under the Development Agreement, we drilled and completed 6 wells in 2015 and had another 6 wells in process at December 31, 2015. During 2015 we also incurred capital costs related to our CO 2 injection on properties acquired during 2014 . Our non-operated capital expenditures were 22% of our total capital expenditures in 2015 as compared to 28% in 2014 .
Financial and Operating Results - Fourth Quarter 2015 Compared to Fourth Quarter 2014
•
Production increased 39% to 45,435 Boe/d from 32,783 Boe/d primarily due to the Anadarko Acquisition and other recent acquisitions.
•
Average realized price, excluding net cash settlements from commodity derivatives, decreased 52% to $19.12 per Boe in 2015 from $39.66 per Boe in 2014 . Average realized oil price decreased 42% to $37.36 per Bbl in 2015 from $64.12 per Bbl in 2014 . This decrease of $26.76 was primarily attributable to the sharp decline in the average WTI crude oil price of $31.13 partially offset by lower realized regional differentials. Average realized natural gas prices declined 40% to $2.09 per Mcf in 2015 from $3.49 per Mcf in 2014 . This decrease of $1.40 was primarily attributable to a $1.60 decline in the average Henry Hub natural gas price index partially offset by lower realized regional differentials. Finally, our average realized NGL price decreased 51% to $0.35 per gallon in 2015 from $0.71 per gallon in 2014 .
•
Production expenses, excluding ad valorem taxes, decreased 9% to $48.4 million in 2015 from $53.2 million in 2014 . Production expenses decreased primarily due to cost reduction efforts on our historical properties partially offset by additional expenses on properties acquired in 2015 . On a per Boe basis, production expenses decreased to $11.59 from $17.65 or 34% driven by acquisitions of properties with lower per Boe production expenses as well as cost reductions in our ongoing operations.
•
Non-cash impairment expense totaled $326.3 million due to the significant decline of oil and natural gas prices during the period.

Page 5


•
General and administrative expenses, excluding acquisition costs and LTIP compensation expense, increased to $8.6 million in 2015 from $8.2 million in 2014 . This increase was primarily attributable to an increase in salary and benefit expenses related to the hiring of additional personnel to manage our larger asset base partially offset by general cost reduction efforts.
•
Cash settlements received on our commodity derivatives were $28.6 million during 2015 compared to $14.6 million in 2014 , resulting from the continued decline in commodity prices during 2015 .
•
Total development capital expenditures were $7.2 million in the fourth quarter of 2015 . Non-operated capital expenditures comprised 13% of our total capital expenditures during the period with activity primarily in the Permian.
Commodity Derivative Contracts
We enter into oil and natural gas derivative contracts to help mitigate the risk of changing commodity prices. As of February 22, 2016 , we had entered into derivative agreements to receive average NYMEX WTI crude oil prices and NYMEX Henry Hub, Waha, NWPL, SoCal and San Juan natural gas prices as summarized below:
WTI Crude Oil Swaps:
Calendar Year
 
Volumes (Bbls)
 
Average Price per Bbl
 
Price Range per Bbl
2016
 
594,600

 
$68.37
 
$56.15
-
$99.85
2017
 
182,500

 
$84.75
 
$84.75
WTI Crude Oil 3-Way Collars. As an illustrative example, at an annual average WTI market price of $35.00 , the summary positions below would result in a net price of $60.00 for both 2016 and 2017 .
 
 
 
 
Average Short Put
 
Average Long Put
 
Average Short Call
Calendar Year
 
Volumes (Bbls)
 
Price per Bbl
 
Price per Bbl
 
Price per Bbl
2016
 
621,300

 
$63.37
 
$88.37
 
$106.40
2017
 
72,400

 
$60.00
 
$85.00
 
$104.20
Crude Oil Enhanced Swaps. As an illustrative example, at an annual average WTI market price of $35.00 , the summary positions below would result in a net price of $66.70 , $65.85 and $65.50 , for 2016 , 2017 and 2018 , respectively.
 
 
 
 
Average Long Put
 
Average Short Put
 
Average Swap
Calendar Year
 
Volumes (Bbls)
 
Price per Bbl
 
Price per Bbl
 
Price per Bbl
2016
 
183,000

 
$57.00
 
$82.00
 
$91.70
2017
 
182,500

 
$57.00
 
$82.00
 
$90.85
2018
 
127,750

 
$57.00
 
$82.00
 
$90.50
Midland-to-Cushing WTI Crude Oil Differential Swaps:
Time Period
 
Volumes (Bbls)
 
Average Price per Bbl
 
Price Range per Bbl
2016
 
2,928,000

 
$(1.60)
 
$(1.50)
-
$(1.75)
2017
 
2,190,000

 
$(0.30)
 
$(0.05)
-
$(0.75)
Natural Gas Swaps (Henry Hub, Waha and CIG-Rockies):
 
 
 
 
Average
 
 
 
 
Calendar Year
 
Volumes (MMBtu)
 
Price per MMBtu
 
Price Range per MMBtu
2016
 
29,019,200

 
$3.40
 
$3.29
-
$5.30
2017
 
27,600,000

 
$3.36
 
$3.29
-
$3.39
2018
 
27,600,000

 
$3.36
 
$3.29
-
$3.39
2019
 
25,800,000

 
$3.36
 
$3.29
-
$3.39

Page 6


Natural Gas 3-Way Collars (Henry Hub). As an illustrative example, at an annual average Henry Hub market price of $2.50 , the summary positions below would result in a net price of $3.00 for both 2016 and 2017 .
 
 
Volumes
 
Average Short Put
 
Average Long Put
 
Average Short Call
Calendar Year
 
 (MMBtu)
 
Price per MMBtu
 
Price per MMBtu
 
Price per MMBtu
2016
 
5,580,000
 
$3.75
 
$4.25
 
$5.08
2017
 
5,040,000
 
$3.75
 
$4.25
 
$5.53
Natural Gas Basis Swaps (NWPL, SoCal and San Juan):
 
 
2016
 
2017
 
 
 
 
Average
 
 
 
Average
 
 
Volumes (MMBtu)
 
Price per MMBtu
 
Volumes (MMBtu)
 
Price per MMBtu
NWPL
 
14,977,818

 
$(0.19)
 
7,300,000

 
$(0.16)
SoCal
 
—

 
$—
 
2,500,250

 
$0.11
San Juan
 
2,499,780

 
$(0.16)
 
2,500,250

 
$(0.10)
Location and quality differentials attributable to our properties are not reflected in the above prices. The agreements provide for monthly settlement based on the difference between the agreement fixed price and the actual reference oil and natural gas index prices.
Annual Report on Form 10-K
Our consolidated, audited financial statements and related footnotes will be available in our annual 2015 Form 10-K which will be filed on or about February 26, 2016 .
Conference Call
As announced on January 21, 2016, Legacy will host an investor conference call to discuss Legacy's results on Thursday, February 25, 2016 at 9:00 a.m. (Central Time). Those wishing to participate in the conference call should dial 877-266-0479. A replay of the call will be available through Thursday, March 3, 2016, by dialing 855-859-2056 or 404-537-3406 and entering replay code 22745604. Those wishing to listen to the live or archived web cast via the Internet should go to the Investor Relations tab of our website at www.legacylp.com. Following our prepared remarks, we will be pleased to answer questions from securities analysts and institutional portfolio managers and analysts; the complete call is open to all other interested parties on a listen-only basis.
About Legacy Reserves LP
Legacy Reserves LP is a master limited partnership headquartered in Midland, Texas, focused on the acquisition and development of oil and natural gas properties primarily located in the Permian Basin, East Texas, Rocky Mountain and Mid-Continent regions of the United States. Additional information is available at www.LegacyLP.com .

Page 7


Additional Information for Holders of Legacy Units
Although Legacy has suspended distributions to both the 8% Series A and Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (the "Preferred Units"), such distributions continue to accrue. Pursuant to the terms of Legacy's partnership agreement, Legacy is required to pay or set aside for payment all accrued but unpaid distributions with respect to the Preferred Units prior to or contemporaneously with making any distribution with respect to Legacy's units. Accruals of distributions on the Preferred Units are treated for tax purposes as guaranteed payments for the use of capital that will generally be taxable to the holders of such Preferred Units as ordinary income even in the absence of contemporaneous distributions. In addition, Legacy unitholders, just like unitholders of other master limited partnerships, are allocated taxable income irrespective of cash distributions paid.
This release is intended to be a qualified notice under Treasury Regulation Section 1.1446-4(b). Brokers and nominees should treat one hundred percent (100.0%) of Legacy's distributions to foreign investors as being attributable to income that is effectively connected with a United States trade or business. Accordingly, Legacy's distributions to foreign investors are subject to federal income tax withholding at the highest applicable rate.
Cautionary Statement Relevant to Forward-Looking Information
This press release contains forward-looking statements relating to our operations that are based on management's current expectations, estimates and projections about its operations. Words such as "anticipates," "expects," "intends," "plans," "targets," "projects," "believes," "seeks," "schedules," "estimated," and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. Among the important factors that could cause actual results to differ materially from those in the forward-looking statements are: realized oil and natural gas prices; production volumes, lease operating expenses, general and administrative costs and finding and development costs; future operating results and the factors set forth under the heading "Risk Factors" in our annual and quarterly reports filed with the SEC. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The reader should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Unless legally required, Legacy undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Page 8


LEGACY RESERVES LP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2015
 
2014
 
2015
 
2014
 
(In thousands, except per unit data)
Revenues:
 
 
 
 
 
 
 
Oil sales
$
40,653

 
$
80,348

 
$
199,841

 
$
396,774

Natural gas liquids (NGL) sales
3,778

 
8,002

 
16,645

 
27,483

Natural gas sales
35,510

 
31,256

 
122,293

 
108,042

Total revenues
79,941

 
119,606

 
338,779

 
532,299

Expenses:
 
 
 
 
 
 
 
Oil and natural gas production
51,605

 
54,967

 
194,491

 
198,801

Production and other taxes
3,345

 
7,242

 
16,383

 
31,534

General and administrative
11,006

 
8,199

 
46,511

 
38,980

Depletion, depreciation, amortization and accretion
54,952

 
53,436

 
177,258

 
173,686

Impairment of long-lived assets
326,349

 
440,130

 
633,805

 
448,714

(Gain) loss on disposal of assets
(5,539
)
 
756

 
(3,972
)
 
(2,479
)
Total expenses
441,718

 
564,730

 
1,064,476

 
889,236

Operating income (loss)
(361,777
)
 
(445,124
)
 
(725,697
)
 
(356,937
)
Other income (expense):
 
 
 
 
 
 
 
Interest income
2

 
211

 
329

 
873

Interest expense
(17,988
)
 
(17,971
)
 
(76,891
)
 
(67,218
)
Equity in income of equity method investees
29

 
119

 
126

 
428

Net gains (losses) on commodity derivatives
34,270

 
129,417

 
98,253

 
138,092

Other
120

 
120

 
841

 
258

Income (loss) before income taxes
(345,344
)
 
(333,228
)
 
(703,039
)
 
(284,504
)
Income tax (expense) benefit
1,208

 
1,729

 
1,498

 
859

Net income (loss)
$
(344,136
)
 
$
(331,499
)
 
$
(701,541
)
 
$
(283,645
)
Distributions to preferred unitholders
(4,750
)
 
(4,750
)
 
(19,000
)
 
(11,694
)
Net income (loss) attributable to unitholders
$
(348,886
)
 
$
(336,249
)
 
$
(720,541
)
 
$
(295,339
)
Income (loss) per unit — basic and diluted
$
(5.06
)
 
$
(4.94
)
 
$
(10.45
)
 
$
(4.92
)
Weighted average number of units used in
 
 
 
 
 
 
 
computing income (loss) per unit —
 
 
 
 
 
 
 
Basic
68,950

 
68,035

 
68,928

 
60,053

Diluted
68,950

 
68,035

 
68,928

 
60,053


Page 9


LEGACY RESERVES LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
 
December 31,
 
2015
 
2014
 
(In thousands)
ASSETS
Current assets:
 
 
 
Cash
$
2,006

 
$
725

Accounts receivable, net:
 
 
 
Oil and natural gas
33,944

 
49,390

Joint interest owners
25,378

 
16,235

Other
86

 
237

Fair value of derivatives
63,711

 
120,305

Prepaid expenses and other current assets
4,334

 
5,362

Total current assets
129,459

 
192,254

Oil and natural gas properties, at cost:
 
 
 
Proved oil and natural gas properties using the successful efforts method of accounting
3,485,634

 
2,946,820

Unproved properties
13,424

 
47,613

Accumulated depletion, depreciation, amortization and impairment
(2,090,102
)
 
(1,354,459
)
 
1,408,956

 
1,639,974

Other property and equipment, net of accumulated depreciation and amortization of $8,915 and $7,446, respectively
4,575

 
3,767

Operating rights, net of amortization of $4,953 and $4,509, respectively
2,064

 
2,508

Fair value of derivatives
56,373

 
32,794

Other assets, net of amortization of $15,563 and $12,551, respectively
23,829

 
24,255

Investments in equity method investees
646

 
3,054

Total assets
$
1,625,902

 
$
1,898,606

LIABILITIES AND PARTNERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
13,581

 
$
2,787

Accrued oil and natural gas liabilities
50,573

 
78,615

Fair value of derivatives
2,019

 
2,080

Asset retirement obligation
3,496

 
3,028

Other
11,424

 
11,066

Total current liabilities
81,093

 
97,576

Long-term debt
1,440,396

 
938,876

Asset retirement obligation
282,909

 
223,497

Fair value of derivatives
—

 
—

Other long-term liabilities
1,181

 
1,452

Total liabilities
1,805,579

 
1,261,401

Commitments and contingencies
 
 
 
Partners’ equity:
 
 
 
Series A Preferred equity - 2,300,000 units issued and outstanding at December 31, 2015 and December 31, 2014
55,192

 
55,192

Series B Preferred equity - 7,200,000 units issued and outstanding at December 31, 2015 and December 31, 2014
174,261

 
174,261

Incentive distribution equity - 100,000 units issued and outstanding at December 31, 2015 and December 31, 2014
30,814

 
30,814

Limited partners' equity (deficit) - 68,949,961 and 68,910,784 units issued and outstanding at December 31, 2015 and 2014, respectively
(439,811
)
 
376,885

       General partner’s equity (deficit) (approximately 0.03%)
(133
)
 
53

Total partners’ equity
(179,677
)
 
637,205

Total liabilities and partners’ equity
$
1,625,902

 
$
1,898,606


Page 10


Non-GAAP Financial Measures
This press release, the financial tables and other supplemental information include "Adjusted EBITDA" and "Distributable Cash Flow", both of which are non-generally accepted accounting principles ("non-GAAP") measures which may be used periodically by management when discussing our financial results with investors and analysts. The following presents a reconciliation of each of these non-GAAP financial measures to their nearest comparable generally accepted accounting principles ("GAAP") measure.
Adjusted EBITDA and Distributable Cash Flow are presented as management believes they provide additional information concerning the performance of our business and are used by investors and financial analysts to analyze and compare our current operating and financial performance relative to past performance and such performances relative to that of other publicly traded partnerships in the industry. Adjusted EBITDA and Distributable Cash Flow may not be comparable to similarly titled measures of other publicly traded limited partnerships or limited liability companies because all companies may not calculate such measures in the same manner.
Distributable Cash Flow is one of the factors used by the board of directors of our general partner (the “Board”) to help determine the amount of Available Cash as defined in our partnership agreement, that is to be distributed to our unitholders for such period. Under our partnership agreement, Available Cash is defined generally to mean, cash on hand at the end of each quarter, plus working capital borrowings made after the end of the quarter, less cash reserves determined by our general partner. The Board determines whether to increase, maintain or decrease the current level of distributions in accordance with the provisions of our partnership agreement based on a variety of factors, including without limitation, Distributable Cash Flow, cash reserves established in prior periods, reserves established for future periods, borrowing capacity for working capital, temporary, one-time or uncharacteristic historical results, and forecasts of future period results including the impact of pending acquisitions. Management and the Board consider the long-term view of expected results in determining the amount of its distributions. Certain factors impacting Adjusted EBITDA and Distributable Cash Flow may be viewed as temporary, one-time in nature, or being offset by reserves from past performance or near-term future performance. Financial results are also driven by various factors that do not typically occur evenly throughout the year that are difficult to predict, including rig availability, weather, well performance, the timing of drilling and completions and near-term commodity price changes. Consistent with practices common to publicly traded partnerships, the Board historically has not varied the distribution it declares based on such timing effects.
"Adjusted EBITDA" and "Distributable Cash Flow" should not be considered as alternatives to GAAP measures, such as net income, operating income, cash flow from operating activities, or any other GAAP measure of financial performance.
Adjusted EBITDA is defined as net income (loss) plus:
•
Interest expense;
•
Income taxes;
•
Depletion, depreciation, amortization and accretion;
•
Impairment of long-lived assets;
•
(Gain) loss on sale of partnership investment;
•
(Gain) loss on disposal of assets;
•
Equity in (income) loss of equity method investees;
•
Unit-based compensation expense (benefit) related to LTIP unit awards accounted for under the equity or liability methods;
•
Minimum payments received in excess of overriding royalty interest earned;
•
Equity in EBITDA of equity method investee;
•
Net (gains) losses on commodity derivatives;
•
Net cash settlements received (paid) on commodity derivatives; and
•
Transaction related expenses.

Page 11


Distributable Cash Flow is defined as Adjusted EBITDA less:
•
Cash interest expense including the accrual of interest expense related to our senior notes which is paid on a semi-annual basis;
•
Cash income taxes;
•
Cash settlements of LTIP unit awards;
•
Estimated maintenance capital expenditures; and
•
Distributions on Series A and Series B preferred units.
The following table presents a reconciliation of our consolidated net income (loss) to Adjusted EBITDA and Distributable Cash Flow:
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Net loss
$
(344,136
)
 
$
(331,499
)
 
$
(701,541
)
 
$
(283,645
)
      Plus:
 
 
 
 
 
 
 
Interest expense
17,988

 
17,971

 
76,891

 
67,218

Income tax expense (benefit)
(1,208
)
 
(1,729
)
 
(1,498
)
 
(859
)
Depletion, depreciation, amortization and accretion
54,952

 
53,436

 
177,258

 
173,686

Impairment of long-lived assets
326,349

 
440,130

 
633,805

 
448,714

(Gain) loss on disposal of assets
(5,539
)
 
756

 
(3,972
)
 
(2,479
)
Equity in income of equity method investees
(29
)
 
(119
)
 
(126
)
 
(428
)
Unit-based compensation expense (benefit)
1,688

 
(60
)
 
6,673

 
3,795

Minimum payments received in excess of overriding royalty interest earned (1)
—

 
358

 
1,130

 
1,381

Equity in EBITDA of equity method investee (2)
—

 
156

 
169

 
805

Net gains on commodity derivatives
(34,270
)
 
(129,417
)
 
(98,253
)
 
(138,092
)
Net cash settlements received on commodity derivatives
28,612

 
14,640

 
132,925

 
2,666

Transaction related expenses
743

 
95

 
8,919

 
5,425

Adjusted EBITDA
$
45,150

 
$
64,718

 
$
232,380

 
$
278,187

 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
Cash interest expense
20,295

 
17,597

 
72,919

 
65,236

Cash settlements of LTIP unit awards
—

 
1

 
—

 
772

Estimated maintenance capital expenditures (3)
NM*

 
18,200

 
NM*

 
72,400

Development capital expenditures (4)
7,179

 
NM*

 
36,842

 
NM*

Distributions on Series A and Series B preferred units
4,750

 
4,750

 
19,000

 
11,694

Distributable Cash Flow (3)
$
12,926

 
$
24,170

 
$
103,619

 
$
128,085

 
 
 
 
 
 
 
 
Distributions Attributable to Each Period (5)
$
—

 
$
42,208

 
$
58,957

 
$
153,829

 
 
 
 
 
 
 
 
Distribution Coverage Ratio (3)(6)
N/A

 
0.57x

 
1.76x

 
0.83x

(1)
Minimum payments received in excess of overriding royalties earned under a contractual agreement expiring December 31, 2019. The remaining amount of the minimum payments are recognized in net income.
(2)
EBITDA applicable to equity method investee is defined as the equity method investee's net income or loss plus interest expense and depreciation.

Page 12


(3)
Estimated maintenance capital expenditures are intended to represent the amount of capital required to fully offset declines in production, but do not target specific levels of proved reserves to be achieved. Estimated maintenance capital expenditures do not include the cost of new oil and natural gas reserve acquisitions, but rather the costs associated with converting proved developed non-producing, proved undeveloped and unproved reserves to proved developed producing reserves. These costs, which are incorporated in our annual capital budget as approved by the Board, include development drilling, recompletions, workovers and various other procedures to generate new or improve existing production on both operated and non-operated properties. Estimated maintenance capital expenditures are based on management's judgment of various factors including the long-term (generally 5-10 years) decline rate of our current production and the projected productivity of our total development capital expenditures. Actual production decline rates and capital efficiency may materially differ from our projections and such estimated maintenance capital expenditures may not maintain our production. Further, because estimated maintenance capital expenditures are not intended to target specific levels of reserves, if we do not acquire new proved or unproved reserves, our total reserves will decrease over time and we would be unable to sustain production at current levels, which could adversely affect our ability to pay a distribution at the current level or at all.
(4)
Represents total capital expenditures for the development of oil and natural gas properties as presented on an accrual basis. For 2016, we intend to fund our total oil and natural gas development program from net cash provided by operating activities. Previously, we intended to fund only a portion of our oil and natural gas development program from net cash provided by operating activities.
(5)
Represents the aggregate cash distributions declared for the respective period and paid by Legacy to our unitholders within 45 days after the end of each quarter within such period.
(6)
We refer to the ratio of Distributable Cash Flow over Distributions Attributable to Each Period ("Available Cash" available for distribution to our unitholders per our partnership agreement) as "Distribution Coverage Ratio." If the Distribution Coverage Ratio is equal to or greater than 1.0x, then our cash flows are sufficient to cover our quarterly distributions to our unitholders with respect to such period. If the Distribution Coverage Ratio is less than 1.0x, then our cash flows with respect to such period were not sufficient to cover our quarterly distributions to our unitholders and we must borrow funds or use cash reserves established in prior periods to cover our quarterly distributions to our unitholders. The Board uses its discretion in determining if such shortfalls are temporary or if distributions should be adjusted downward.


CONTACT:    Legacy Reserves LP
Dan Westcott
Executive Vice President and Chief Financial Officer
432-689-5200


Page 13