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Legacy Reserves to Continue Its Focus on Permian Region in 2018

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Capital guidance

Legacy Reserves (LGCY) has 36% of its total reserves in the Permian Basin and 32% in the East Texas region. A total of ~34% of the partnership’s reserves are liquids, and the remaining ~66% of its reserves are natural gas. However, in the Permian region, 68% of the partnership’s total reserves are liquids.

The partnership expects to continue its focus in the prolific Permian region in 2018. It expects to spend 91% of its total 2018 net capital expenditure of $225 million on horizontal Permian development. The Permian region is currently the most active shale region in the United States. It currently has the most drilling rigs and drilled but uncompleted (or DUC) wells among all US shale regions. LGCY had an inventory of 21 DUCs in the region on December 31, 2017.

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Production guidance

Legacy Reserves expects to end 2018 with total production of 47.9–52.8 MBoepd (thousand barrels of oil equivalent per day). At the midpoint, this represents a 2.4% YoY increase compared to 2018. LGCY’s C corporation peer Chesapeake Energy (CHK) expects a 3% YoY rise in production, while Noble Energy (NBL) expects an 8.7% YoY fall in production.

Earnings guidance

The upstream MLP expects its 2018 adjusted EBITDA to lie between $300 million and $360 million, which at the midpoint represents a 45.9% YoY increase compared to the previous year. This huge YoY EBITDA growth is expected to be driven by production growth and a YoY increase in commodity prices. LGCY has assumed an average crude oil and natural gas price of $59.6 per barrel and $2.8 per MMBtu (million British thermal units).

In the next article, we’ll take a look at Legacy Reserves’ leverage position.

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