##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from          to
 Commission file number 1-33249
 Legacy Reserves LP
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    16-1751069(I.R.S. Employer
Identification No.)303  W. Wall Street, Suite 1400
Midland, Texas(Address of principal executive offices)
    
    79701(Zip Code)
 Registrants telephone number, including area code:
(432) 689-5200
 Securities registered pursuant to Section 12(b) of the Act:
Units representing limited partner interests listed on the NASDAQ Stock Market LLC.
 Securities registered pursuant to 12(g) of the Act: None.
 o þ
 o þ
 þ o
 þ
  Large accelerated
filer o
Accelerated filer oNon-accelerated
filer þ (Do not check if a smaller reporting company)
Smaller reporting company o o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



LEGACY RESERVES LP
 Table of Contents
 Glossary of Terms
    
    iiPART I
       
    1ITEM 1. BUSINESS
       
    1ITEM 1A. RISK FACTORS
       
    7ITEM 1B. UNRESOLVED STAFF COMMENTS
       
    20ITEM 2. PROPERTIES
       
    20ITEM 3. LEGAL PROCEEDINGS
       
    27ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
       
    27PART II
       
    28ITEM 5. MARKET FOR REGISTRANTS UNITS, RELATED UNITHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
       
    28ITEM 6. SELECTED FINANCIAL DATA
       
    30ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
       
    32ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
       
    46ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
       
    46ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
       
    46ITEM
9A(T). CONTROLS AND PROCEDURES
       
    47ITEM 9B. OTHER INFORMATION
       
    47PART III
       
    47ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
       
    47ITEM 11. EXECUTIVE COMPENSATION
       
    48ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED UNITHOLDER MATTERS
       
    48ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
       
    48ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
       
    48PART IV
       
    49ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
       
    49Consent of BDO Seidman LLPConsent of LaRoche Petroleum Consultants, Ltd.Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to Section 906
  i




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GLOSSARY OF TERMS
 Bbl.
 Bcf.
 Boe.
 Boe/d.
 Btu.
 Developed acreage.
 Development Project.
 Development well.
 Dry hole or well.
 Field.
 Gross acres or gross wells.
 MBbls.
 MBoe.
 Mcf.
 MMBbls.
 MMBoe.
 MMBtu.
 MMcf.
 Net acres or net wells.
 NGLs.
 NYMEX.
 Oil.
 ii




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Productive well.
 Proved developed reserves.
 Proved developed non-producing or PDNPs.
 Proved reserves.
 Proved undeveloped drilling location.
 Proved undeveloped reserves or PUDs.
 Recompletion.
 Reserve acquisition cost.
 R/P ratio (reserve life).
 Reserve replacement.
 Reserve replacement cost.
 iii




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Reservoir.
 Standardized measure.
 Undeveloped acreage.
 Working interest.
 Workover.
 iv




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CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING INFORMATION
  
    
    our business strategy;
    
    the amount of oil and natural gas we produce;
    
    the price at which we are able to sell our oil and natural gas production;
    
    our ability to acquire additional oil and natural gas properties at economically
attractive prices;
    
    our drilling location and our ability to continue our development activities at
economically attractive costs;
    
    the level of our lease operating expenses, general and administrative costs and finding
and development costs, including payments to our general partner;
    
    the level of our capital expenditures;
    
    our future operating results; and
    
    our plans, objectives, expectations and intentions.
   v




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PART I
 
 ITEM 1. BUSINESS
 References in this annual report on Form 10-K to Legacy Reserves, Legacy, we, our,
us, or like terms prior to March 15, 2006 refer to the Moriah Group, Legacy Reserves LPs
predecessor, including the oil and natural gas properties we acquired in exchange for units and
cash from the Moriah Group, the Brothers Group, H2K Holdings, MBN Properties (our Founding
Investors) and certain charitable foundations in connection with our private equity offering on
March 15, 2006. When used for periods from March 15, 2006 forward, those terms refer to Legacy
Reserves LP and its subsidiaries.
 Legacy Reserves LP
     
    
    we had proved reserves of approximately 32.1 MMBoe, of which 74% were oil and natural gas
liquids and 87% were classified as proved developed producing, 3% were proved developed
non-producing, and 10% were proved undeveloped;
    
    our proved reserves had a standardized measure of $690.5 million; and
    
    our proved reserves to production ratio was approximately 14 years based on the average
daily net production of 6,453 Boe/d for the three months ended December 31, 2007.
 Recent Developments
  Acquisition Activities
   1




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Development Activities
 2
  2




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Oil and Natural Gas Derivative Activities
  Business Strategy
  
    
    Make accretive acquisitions of producing properties generally characterized by long-lived
reserves with stable production and reserve development potential;
    
    Add proved reserves and maximize cash flow and production through development projects
and operational efficiencies;
    
    Maintain financial flexibility; and
    
    Reduce commodity price risk through derivative transactions.
 Marketing and Major Purchasers
  2005
    
    
    2006
    
    
    2007Conoco Phillips
    
    
    10
    %
    
    
    4
    %
    
    
    3
    %Navajo Crude Oil Marketing
    
    
    16
    %
    
    
    12
    %
    
    
    11
    %Plains Marketing, LP
    
    
    18
    %
    
    
    14
    %
    
    
    13
    %Teppco Crude Oil, LP
    
    
    5
    %
    
    
    5
    %
    
    
    13
    %
  3




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Competition
   Seasonal Nature of Business
  Environmental Matters and Regulation
 General.
 
    
    require the acquisition of various permits before drilling commences;
    
    restrict the types, quantities and concentration of various substances that can be
released into the environment in connection with oil and natural gas drilling and production
activities;
    
    limit or prohibit drilling activities on certain lands lying within wilderness, wetlands
and other protected areas; and
    
    require remedial measures to mitigate pollution from former and ongoing operations, such
as requirements to close pits and plug abandoned wells.
   Waste Handling.
 4




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Comprehensive Environmental Response, Compensation and Liability Act.
  Water Discharges.
 Air Emissions.
 National Environmental Policy Act.
 OSHA and Other Laws and Regulation.
  5




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Massachusetts, et al. v. EPA
  Other Regulation of the Oil and Natural Gas Industry
   Drilling and Production.
 
    
    the location of wells;
    
    the method of drilling and casing wells;
    
    the surface use and restoration of properties upon which wells are drilled;
    
    the plugging and abandoning of wells; and
    
    notice to surface owners and other third parties.
  6




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Natural gas regulation.
  State regulation.
  Employees
  Offices
  
 ITEM 1A. RISK FACTORS
 Risks Related to our Business
 We may not have sufficient available cash to pay the full amount of our current quarterly
distribution or any distribution at all following establishment of cash reserves and payment of
fees and expenses, including payments to our general partner.
  
    
    the amount of oil and natural gas we produce;
    
    the price at which we are able to sell our oil and natural gas production;
 7




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
    
    whether we are able to acquire additional oil and natural gas properties at economically
attractive prices;
    
    whether we are able to continue our development projects at economically attractive
costs;
    
    the level of our lease operating expenses, general and administrative costs and
development costs, including payments to our general partner;
    
    the level of our interest expense, which depends on the amount of our indebtedness and
the interest payable thereon; and
    
    the level of our capital expenditures.
 If we are not able to acquire additional oil and natural gas reserves on economically acceptable
terms, our reserves and production will decline, which would adversely affect our business, results
of operations and financial condition and our ability to make cash distributions to our
unitholders.
  Because we distribute all of our available cash to our unitholders, our future growth may be
limited.
  If commodity prices decline significantly for a prolonged period, we may be forced to reduce our
distribution or not be able to pay distributions at all.
  
    
    the domestic and foreign supply of and demand for oil and natural gas;
    
    the price and quantity of imports of crude oil and natural gas;
    
    overall domestic and global economic conditions;
    
    political and economic conditions in other oil and natural gas producing countries,
including embargoes and continued hostilities in the Middle East and other sustained
military campaigns, and acts of terrorism or sabotage;
    
    the ability of members of the Organization of Petroleum Exporting Countries to agree to
and maintain oil price and production controls;
    
    the level of consumer product demand;
    
    weather conditions;
    
    the impact of the U.S. dollar exchange rates on oil and natural gas prices; and
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
    
    the price and availability of alternative fuels.
  If commodity prices decline significantly for a prolonged period, a significant portion of our
development projects may become uneconomic, which may adversely affect our ability to make
distributions to our unitholders.
  Our estimated reserves are based on many assumptions that may prove inaccurate. Any material
inaccuracies in these reserve estimates or underlying assumptions will materially affect the
quantities and present value of our reserves.
  Our credit facility has substantial restrictions and financial covenants, and our borrowing base
is subject to redetermination by our lenders which could adversely affect our business, results of
operations, financial condition and our ability to make cash distributions to our unitholders.
      9




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Our business depends on gathering and transportation facilities owned by others. Any limitation in
the availability of those facilities would interfere with our ability to market the oil and
natural gas we produce.
  Our development projects require substantial capital expenditures, which will reduce our cash
available for distribution. We may be unable to obtain needed capital or financing on satisfactory
terms, which could lead to a decline in our oil and natural gas reserves.
  
    
    our proved reserves;
    
    the level of oil and natural gas we are able to produce from existing wells;
    
    the prices at which our oil and natural gas are sold; and
    
    our ability to acquire, locate and produce new reserves.
  We do not control all of our operations and development projects and failure of an operator of
wells in which we own partial interests to adequately perform could adversely affect our business,
results of operations, financial condition and our ability to make cash distributions to our
unitholders.
    Shortages of drilling rigs, equipment and crews could delay our operations, adversely affect our
ability to increase our reserves and production and reduce our cash available for distribution to
our unitholders.
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Increases in the cost of drilling rigs, service rigs, pumping services and other costs in drilling
and completing wells could reduce the viability of certain of our development projects.
  Drilling for and producing oil and natural gas are high risk activities with many uncertainties
that could adversely affect our business, results of operations, financial condition and our
ability to make cash distributions to our unitholders.
   
    
    the high cost, shortages or delivery delays of equipment and services;
    
    unexpected operational events;
    
    adverse weather conditions;
    
    facility or equipment malfunctions;
    
    title disputes;
    
    pipeline ruptures or spills;
    
    collapses of wellbore, casing or other tubulars;
    
    unusual or unexpected geological formations;
    
    loss of drilling fluid circulation;
    
    formations with abnormal pressures;
    
    fires;
    
    blowouts, craterings and explosions; and
    
    uncontrollable flows of oil, natural gas or well fluids.
   11




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Increases in interest rates could adversely affect our business, results of operations, cash flows
from operations and financial condition.
  We may have assumed unknown liabilities in connection with the formation transactions and our
subsequent acquisitions.
  Properties that we buy may not produce as projected, and we may be unable to determine reserve
potential, identify liabilities associated with the properties or obtain protection from sellers
against such liabilities.
  Our identified drilling location inventories are scheduled out over several years, making them
susceptible to uncertainties that could materially alter the occurrence or timing of their
drilling.
  Our commodity derivative activities could result in cash losses, could reduce our cash available
for distributions and may limit potential gains.
   12




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The inability of one or more of our customers to meet their obligations may adversely affect
our financial condition and results of operations.
  We depend on a limited number of key personnel who would be difficult to replace.
  We may be unable to compete effectively with larger companies, which could have a material adverse
effect on our business, results of operations, financial condition and our ability to make cash
distributions to our unitholders.
  If we fail to maintain an effective system of internal controls, we may not be able to accurately
report our financial results or prevent fraud. As a result, current and potential unitholders
could lose confidence in our financial reporting, which would harm our business and the trading
price of our units.
  We are subject to complex federal, state, local and other laws and regulations that could
adversely affect the cost, manner or feasibility of conducting our operations.
  13




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Our operations expose us to significant costs and liabilities with respect to environmental and
operational safety matters.
   Risks Related to Our Limited Partnership Structure
 Units eligible for future sale may have adverse effects on our unit price and the liquidity of the
market for our units.
  
    
    All of our units issued in our private equity offerings were restricted securities within
the meaning of Rule 144 under the Securities Act. As more of our units become eligible for
sale under Rule 144, the volume of sales of our units may increase, which could reduce the
market price of our units.
    
    The Founding Investors and their affiliates, including members of our management, own
approximately 43% of our outstanding units. We granted the Founding Investors certain
registration rights to have their units registered under the Securities Act. Upon
registration, these units will be eligible for sale into the market. Because of the
substantial size of the Founding Investors holdings, the sale of a significant portion of
these units, or a perception in the market that such a sale is likely, could have a
significant impact on the market price of our units.
    
    We granted purchasers in our private equity offerings certain registration rights to have
the resale of their units registered under the Securities Act. If purchasers in our private
equity offerings were to resell a substantial portion of their units, it could reduce the
market price of our outstanding units.
 Our Founding Investors, including members of our management, own a 43% limited partner interest in
us and control our general partner, which has sole responsibility for conducting our business and
managing our operations. Our general partner has conflicts of interest and limited fiduciary
duties, which may permit it to favor its own interests to the detriment of our unitholders.
  14




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
    
    neither our partnership agreement nor any other agreement requires our Founding Investors
or their affiliates, other than our executive officers, to pursue a business strategy that
favors us;
    
    our general partner is allowed to take into account the interests of parties other than
us, such as our Founding Investors, in resolving conflicts of interest, which has the effect
of limiting its fiduciary duty to our unitholders;
    
    our Founding Investors and their affiliates (other than our executive officers and their
affiliates) may engage in competition with us;
    
    our general partner has limited its liability and reduced its fiduciary duties under our
partnership agreement and has also restricted the remedies available to our unitholders for
actions that, without the limitations, might constitute breaches of fiduciary duty. As a
result of purchasing units, unitholders consent to some actions and conflicts of interest
that might otherwise constitute a breach of fiduciary or other duties under applicable state
law;
    
    our general partner determines the amount and timing of asset purchases and sales,
capital expenditures, borrowings, issuance of additional partnership securities, and
reserves, each of which can affect the amount of cash that is distributed to our
unitholders;
    
    our general partner determines the amount and timing of any capital expenditures and
whether a capital expenditure is a maintenance capital expenditure, which reduces operating
surplus, or a growth capital expenditure, which does not. Such determination can affect the
amount of cash that is distributed to our unitholders;
    
    our general partner determines which costs incurred by it and its affiliates are
reimbursable by us;
    
    our partnership agreement does not restrict our general partner from causing us to pay it
or its affiliates for any services rendered to us or entering into additional contractual
arrangements with any of these entities on our behalf;
    
    our general partner intends to limit its liability regarding our contractual and other
obligations;
    
    our general partner controls the enforcement of obligations owed to us by it and its
affiliates; and
    
    our general partner decides whether to retain separate counsel, accountants, or others to
perform services for us.
 Even if unitholders are dissatisfied they cannot remove our general partner without the consent of
unitholders owning at least 66 2/3% of our units, including units owned by our general partner and
its affiliates.
  Our partnership agreement restricts the voting rights of those unitholders owning 20% or more of
our units.
  Our Founding Investors and their affiliates (other than our executive officers and their
affiliates) may compete directly with us.
  15




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Cost reimbursements due our general partner and its affiliates will reduce our cash available for
distribution to our unitholders.
  Our partnership agreement limits our general partners fiduciary duties to our unitholders and
restricts the remedies available to unitholders for actions taken by our general partner that
might otherwise constitute breaches of fiduciary duty.
  
    
    permits our general partner to make a number of decisions in its individual capacity, as
opposed to in its capacity as our general partner. This entitles our general partner to
consider only the interests and factors that it desires, and it has no duty or obligation to
give any consideration to any interest of, or factors affecting, us, our affiliates or any
unitholder;
    
    provides that our general partner will not have any liability to us or our unitholders
for decisions made in its capacity as a general partner so long as it acted in good faith,
meaning it believed the decision was in the best interests of our partnership;
    
    provides that our general partner is entitled to make other decisions in good faith if
it believes that the decision is in our best interest;
    
    provides generally that affiliated transactions and resolutions of conflicts of interest
not approved by the conflicts committee of the board of directors of our general partner and
not involving a vote of unitholders must be on terms no less favorable to us than those
generally being provided to or available from unrelated third parties or be fair and
reasonable to us, as determined by our general partner in good faith, and that, in
determining whether a transaction or resolution is fair and reasonable, our general
partner may consider the totality of the relationships between the parties involved,
including other transactions that may be particularly advantageous or beneficial to us; and
    
    provides that our general partner and its officers and directors will not be liable for
monetary damages to us, our unitholders or assignees for any acts or omissions unless there
has been a final and non-appealable judgment entered by a court of competent jurisdiction
determining that the general partner or those other persons acted in bad faith or engaged in
fraud or willful misconduct.
 Our partnership agreement permits our general partner to redeem any partnership interests held by
a limited partner who is a non-citizen assignee.
  We may issue an unlimited number of additional units without the approval of our unitholders, which
would dilute their existing ownership interest in us.
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
    
    our unitholders proportionate ownership interests in us will decrease;
    
    the amount of cash available for distribution on each unit may decrease;
    
    the risk that a shortfall in the payment of our current quarterly distribution will
increase;
    
    the relative voting strength of each previously outstanding unit may be diminished; and
    
    the market price of the units may decline.
 The liability of our unitholders may not be limited if a court finds that unitholder action
constitutes control of our business.
  
    
    a court or government agency determined that we were conducting business in a state but
had not complied with that particular states partnership statute; or
    
    our unitholders right to act with other unitholders to take other actions under our
partnership agreement that constitute control of our business.
 Unitholders may have liability to repay distributions that were wrongfully distributed to them.
  Tax Risks to Unitholders
 Our tax treatment depends on our status as a partnership for federal income tax purposes, as well
as our not being subject to a material amount of additional entity-level taxation by states and
localities. If the IRS were to treat us as a corporation or if we were to become subject to a
material amount of additional entity-level taxation for state or local tax purposes, then our cash
available for distribution to our unitholders would be substantially reduced.
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The tax treatment of publicly traded partnerships or an investment in our units could be subject
to potential legislative, judicial or administrative changes and differing interpretations,
possibly on a retroactive basis.
  Our unitholders may be required to pay taxes on their share of our income even if they do not
receive any cash distributions from us.
  We prorate our items of income, gain, loss and deduction between transferors and transferees of
our units each month based upon the ownership of our units on the first day of each month, instead
of on the basis of the date a particular unit is transferred.
  A successful IRS contest of the federal income tax positions we take may adversely affect the
market for our units, and the costs of any contest will reduce our cash available for distribution
to our unitholders.
  18




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Tax-exempt entities and foreign persons face unique tax issues from owning units that may result
in adverse tax consequences to them.
  Tax gain or loss on the disposition of our units could be more or less than expected because prior
distributions in excess of allocations of income will decrease our unitholders tax basis in their
units.
  We will treat each purchaser of our units as having the same tax benefits without regard to the
units purchased. The IRS may challenge this treatment, which could adversely affect the value of
the units.
  A unitholder whose units are loaned to a short seller to cover a short sale of units may be
considered as having disposed of those units. If so, the unitholder would no longer be treated for
tax purposes as a partner with respect to those units during the period of the loan may recognize
gain or loss from the disposition.
  Our unitholders may be subject to state and local taxes and return filing requirements in states
where they do not live as a result of investing in our units.
  19




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We will be considered to have terminated for tax purposes due to a sale or exchange of 50% or more
of our interests within a twelve-month period.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
 None.
 
 ITEM 2. PROPERTIES
  As of December 31, 2007Proved Reserves
    
    
    Standardized MeasureField
    
    MMBoe
    
    
    R/P (a)
    
    
    % Oil and NGLs
    
    
    Amount
    
    
    % of Total($ in Millions)Texas Panhandle Fields
    
    
    4.6
    
    
    
    19
    
    
    
    81
    %
    
    $
    86.9
    
    
    
    12.6
    %Spraberry
    
    
    3.6
    
    
    
    14
    
    
    
    67
    
    
    
    84.7
    
    
    
    12.3East Binger
    
    
    3.4
    
    
    
    13
    
    
    
    83
    
    
    
    77.0
    
    
    
    11.1Denton
    
    
    2.2
    
    
    
    16
    
    
    
    87
    
    
    
    48.1
    
    
    
    6.9Farmer
    
    
    1.8
    
    
    
    19
    
    
    
    66
    
    
    
    30.9
    
    
    
    4.5Langlie Mattix
    
    
    1.3
    
    
    
    17
    
    
    
    85
    
    
    
    29.2
    
    
    
    4.2Howard Glasscock/Iatan/Iatan East Howard
    
    
    1.3
    
    
    
    17
    
    
    
    99
    
    
    
    26.7
    
    
    
    3.9Total  Top 7 fields
    
    
    18.2
    
    
    
    16
    
    
    
    79
    %
    
    $
    383.5
    
    
    
    55.5
    %All others
    
    
    13.9
    
    
    
    13
    
    
    
    66
    
    
    
    307.0
    
    
    
    44.5Total
    
    
    32.1
    
    
    
    14
    
    
    
    74
    %
    
    $
    690.5
    
    
    
    100.0
    %
 
 (a)
    
    Reserves as of December 31, 2007 divided by annual production volumes. Summary of Oil and Natural Gas Properties and Projects
  Texas Panhandle Fields.
 20




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Spraberry Field.
  East Binger Field.
  Denton Field.
 Farmer Field.
  Langlie Mattix Field.
  21




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Howard Glasscock, Iatan and Iatan East Howard Fields.
 Oil and Natural Gas Data
 Proved Reserves
  As of December 31,2005 (a)
    
    
    2006
    
    
    2007Reserve Data:Estimated net proved reserves:Oil (MMBbls)
    
    
    8.1
    
    
    
    13.4
    
    
    
    19.6Natural Gas Liquids (MMBbls)
    
    
    
    
    
    
    
    
    
    
    4.0Natural Gas (Bcf)
    
    
    24.5
    
    
    
    32.5
    
    
    
    50.9Total (MMBoe)
    
    
    12.2
    
    
    
    18.8
    
    
    
    32.1Proved developed reserves (MMBoe)
    
    
    9.8
    
    
    
    15.8
    
    
    
    29.0Proved undeveloped reserves (MMBoe)
    
    
    2.4
    
    
    
    3.0
    
    
    
    3.1Proved developed reserves as a percentage of total proved
reserves
    
    
    80
    %
    
    
    84
    %
    
    
    90
    %Standardized measure (in millions) (b)
    
    $
    192.0
    
    
    $
    240.6
    
    
    $
    690.5Oil and Natural Gas Prices(c)Oil  NYMEX WTI per Bbl
    
    $
    57.64
    
    
    $
    56.73
    
    
    $
    91.96Natural gas  NYMEX Henry Hub per MMBtu
    
    $
    8.82
    
    
    $
    5.82
    
    
    $
    6.39
 
 (a)
    
    Includes 3.2 MMBbls of oil, 13.0 Bcf of natural gas and $93.0 million
of standardized measure held by MBN Properties LP of which 1.7 MMBbls
of oil, 7.0 Bcf of natural gas and $50.2 million of standardized
measure was owned by the non-controlling interest.(b)
    
    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 prices and costs in effect as of the period end date) 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%.
Because we are a limited partnership that allocates our taxable income
to our unitholders, no provision for federal or state income taxes
have been provided for in the calculation of standardized measure.
Standardized measure does not give effect to derivative transactions.
For a description of our derivative transactions, please read
Managements Discussion and Analysis of Financial Condition and
Results of Operations  Cash Flow from Operating Activities.(c)
    
    Oil and natural gas prices as of each date are based on NYMEX prices
per Bbl of oil and per MMBtu of natural gas at such date, with these
representative prices adjusted by field to arrive at the appropriate
net price. 22




---



##### Table of Contents



Production and Price History
  23




---



##### Table of Contents



Year Ended December 31,2005 (a)
    
    
    2006 (b)
    
    
    2007 (c)Production:Oil (MBbl)
    
    
    354
    
    
    
    749
    
    
    
    1,179Natural gas liquids (Mgal)
    
    
    
    
    
    
    
    
    
    
    5,295Gas (MMcf)
    
    
    1,027
    
    
    
    2,200
    
    
    
    3,052Total (MBOE)
    
    
    525
    
    
    
    1,116
    
    
    
    1,814Average daily production (BOE per day)
    
    
    1,438
    
    
    
    3,058
    
    
    
    4,970Average sales price per unit (excluding swaps):Oil (per Bbl)
    
    $
    51.48
    
    
    $
    60.55
    
    
    $
    70.65NGL (per Gal)
    
    $
    
    
    
    $
    
    
    
    $
    1.42Gas (per Mcf)
    
    $
    7.13
    
    
    $
    6.57
    
    
    $
    7.02Combined (per BOE)
    
    $
    48.65
    
    
    $
    53.58
    
    
    $
    61.87Average sales price per unit (including realized swap gains/losses) (f):Oil (per Bbl)
    
    $
    41.51
    (d)
    
    $
    51.65
    (e)
    
    $
    67.58NGL (per Gal)
    
    $
    
    
    
    $
    
    
    
    $
    1.30Gas (per Mcf)
    
    $
    7.13
    
    
    $
    9.48
    
    
    $
    8.48Combined (per BOE)
    
    $
    41.93
    (d)
    
    $
    53.35
    (e)
    
    $
    61.99Average unit costs per BOE:Production costs, excluding production and other taxes
    
    $
    12.14
    
    
    $
    14.28
    
    
    $
    14.96Production and other taxes
    
    $
    3.12
    
    
    $
    3.36
    
    
    $
    4.35General and administrative
    
    $
    2.58
    
    
    $
    3.31
    
    
    $
    4.63Depletion, depreciation and amortization
    
    $
    4.36
    
    
    $
    16.48
    
    
    $
    15.66
 
 (a)
    
    Reflects the production and operating results of the PITCO properties from their acquisition on September 14, 2005.(b)
    
    Reflects the production and operating results of the oil and natural gas properties acquired in the March 15, 2006
formation transactions and the South Justis, Farmer Field and Kinder Morgan acquisitions from the closing dates of
such acquisitions through December 31, 2006.(c)
    
    Reflects the production and operating results of the oil and natural gas properties acquired in the Binger,
Ameristate, TSF, Raven Shenandoah, Raven OBO, TOC and Summit Acquisitions from the closing dates of such
acquisitions through December 31, 2007.(d)
    
    Includes the effects of approximately $2.0 million of derivative premiums for the year ended December 31, 2005 to
cancel and reset 2006 oil swaps from $51.31 to $59.38 per Bbl and approximately $0.8 million of premiums paid on
July 22, 2005 for an option to enter into a $55.00 per Bbl oil swap related to the PITCO acquisition that was not
exercised.(e)
    
    Includes the effect of approximately $4.0 million of derivative premiums for the year ended December 31, 2006 to
cancel and reset 2007 oil swaps from $60.00 to $65.82 per barrel for 372,000 barrels and for 2008 oil swaps from
$60.50 to $66.44 per barrel for 348,000 barrels, which reflected the prevailing oil swap market at the time of the
reset.(f)
    
    Includes only the realized gains (losses) from Legacys oil and natural gas swaps. Productive Wells
  24




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##### Table of Contents



Oil
    
    
    Natural GasGross
    
    
    Net
    
    
    Gross
    
    
    NetOperated
    
    
    1,184
    
    
    
    910.07
    
    
    
    110
    
    
    
    103.42Non-operated
    
    
    1,298
    
    
    
    89.70
    
    
    
    411
    
    
    
    41.12Total
    
    
    2,482
    
    
    
    999.77
    
    
    
    521
    
    
    
    144.54
 Developed and Undeveloped Acreage
  Developed
    
    UndevelopedAcreage (a)
    
    Acreage (b)Gross (c )
    
    Net (d)
    
    Gross (c )
    
    Net (d)Total
    
    
    351,618

    
    
    96,605

    
    
    480

    
    
    226
 
 (a)
    
    Developed acres are acres spaced or assigned to productive wells or wells capable of production.(b)
    
    Undeveloped acres are acres which are not held by commercially producing wells, regardless of
whether such acreage contains proved reserves. All of our proved undeveloped locations are
located on acreage currently held by production.(c)
    
    A gross acre is an acre in which we own a working interest. The number of gross acres is the
total number of acres in which we own a working interest.(d)
    
    A net acre is deemed to exist when the sum of the fractional ownership working interests in
gross acres equals one. The number of net acres is the sum of the fractional working interests
owned in gross acres expressed as whole numbers and fractions thereof. Drilling Activity
  25




---



##### Table of Contents



Year Ended December 31,2005
    
    
    2006
    
    
    2007Gross:DevelopmentProductive
    
    
    12
    
    
    
    14
    
    
    
    29Dry
    
    
    
    
    
    
    2
    
    
    
    Total
    
    
    12
    
    
    
    16
    
    
    
    29ExploratoryProductive
    
    
    
    
    
    
    
    
    
    
    Dry
    
    
    1
    
    
    
    
    
    
    
    Total
    
    
    1
    
    
    
    
    
    
    
    Net:DevelopmentProductive
    
    
    1.6
    
    
    
    6.2
    
    
    
    13.0Dry
    
    
    
    
    
    
    1.3
    
    
    
    Total
    
    
    1.6
    
    
    
    7.5
    
    
    
    13.0ExploratoryProductive
    
    
    
    
    
    
    
    
    
    
    Dry
    
    
    0.1
    
    
    
    
    
    
    
    Total
    
    
    0.1
    
    
    
    
    
    
    
    
 Summary of Development Projects
  Operations
 General
  Oil and Natural Gas Leases
  South Justis Unit Operating Agreement
 26




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##### Table of Contents



Derivative Activity
  Title to Properties
    
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS
  27




---



##### Table of Contents



PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS UNITS, RELATED UNITHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
   Price Ranges (a)
    
    Cash Distribution2007
    
    High
    
    Low
    
    per UnitFirst Quarter
    
    $
    28.19
    
    
    $
    18.90
    
    
    $
    0.4100
    (b)Second Quarter
    
    $
    30.42
    
    
    $
    25.14
    
    
    $
    0.4200
    (c)Third Quarter
    
    $
    27.61
    
    
    $
    18.50
    
    
    $
    0.4300
    (d)Fourth Quarter
    
    $
    24.57
    
    
    $
    20.15
    
    
    $
    0.4500
 Cash Distribution2006
    
    per UnitPeriod from March 15, 2006 to March 31, 2006
    
    $
    0.0774
    (e)(f)Second Quarter
    
    $
    0.4100
    (g)Third Quarter
    
    $
    0.4100
    (g)Fourth Quarter
    
    $
    0.4100
    (h)
 
 (a)
    
    Our units were not traded on an established public trading market prior to our initial public offering in January 2007.(b)
    
    We paid total cash distributions to our general partner with respect to its approximately 0.1% general partner interest of $7,508.(c)
    
    We paid total cash distributions to our general partner with respect to its approximately 0.1% general partner interest of $7,691.(d)
    
    We paid total cash distributions to our general partner with respect to its approximately 0.1% general partner interest of $7,874.(e)
    
    Reflects a pro-rated distribution for the period from March 15, 2006 through March 31, 2006.(f)
    
    We paid total cash distributions to our general partner with respect to its approximately 0.1% general partner interest of $1,417.(g)
    
    We paid total cash distributions to our general partner with respect to its approximately 0.1% general partner interest of $7,508.(h)
    
    The record date of our distribution attributable to the fourth quarter of 2006 was January 10, 2007 and preceeded the closing of
our initial public offering. Accordingly, unitholders of units issued in our initial public offering were not entitled to receive
a distribution attributable to the fourth quarter of 2006 on such units. Distribution Policy
  Recent Sales of Unregistered Securities
  28




---



##### Table of Contents



UnitsMoriah Group:Moriah Properties, Ltd.
    
    
    7,334,070DAB Resources, Ltd.
    
    
    859,703Brothers Group:Brothers Production Properties, Ltd.
    
    
    4,968,945Brothers Production Company , Inc.
    
    
    264,306Brothers Operating Company, Inc.
    
    
    52,861J&W McGraw Properties, Ltd.
    
    
    914,246MBN Properties LP
    
    
    3,162,438H2K Holdings, Ltd.
    
    
    83,499
          29




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
     30




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##### Table of Contents



Years Ended December 31,2003
    
    
    2004
    
    
    2005 (a)
    
    
    2006 (b)
    
    
    2007 (c)(In thousands, except
per unit data)Statement of Operations Data:Revenues:Oil sales
    
    $
    7,919
    
    
    $
    10,998
    
    
    $
    18,225
    
    
    $
    45,351
    
    
    $
    83,301Natural gas liquids sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,502Natural gas sales
    
    
    3,697
    
    
    
    3,945
    
    
    
    7,318
    
    
    
    14,446
    
    
    
    21,433Total Revenues
    
    
    11,616
    
    
    
    14,943
    
    
    
    25,543
    
    
    
    59,797
    
    
    
    112,236Expenses:Oil and natural gas production
    
    
    3,496
    
    
    
    4,345
    
    
    
    6,376
    
    
    
    15,938
    
    
    
    27,129Production and other taxes
    
    
    661
    
    
    
    928
    
    
    
    1,636
    
    
    
    3,746
    
    
    
    7,889General and administrative
    
    
    543
    
    
    
    731
    
    
    
    1,354
    
    
    
    3,691
    
    
    
    8,392Dry hole costs
    
    
    1,465
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Depletion, depreciation, amortization and accretion
    
    
    766
    
    
    
    883
    
    
    
    2,291
    
    
    
    18,395
    
    
    
    28,415Impairment of long-lived assets
    
    
    471
    
    
    
    
    
    
    
    
    
    
    
    16,113
    
    
    
    3,204Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    42
    
    
    
    527Total expenses
    
    
    7,402
    
    
    
    6,888
    
    
    
    11,677
    
    
    
    57,925
    
    
    
    75,556Operating income
    
    
    4,214
    
    
    
    8,055
    
    
    
    13,866
    
    
    
    1,872
    
    
    
    36,680Other income (expense):Interest income
    
    
    56
    
    
    
    419
    
    
    
    185
    
    
    
    130
    
    
    
    321Interest expense
    
    
    (94
    )
    
    
    (213
    )
    
    
    (1,584
    )
    
    
    (6,645
    )
    
    
    (7,118
    )Gain on sale of partnership investment
    
    
    
    
    
    
    1,292
    
    
    
    
    
    
    
    
    
    
    
    Equity in income (loss) of partnerships
    
    
    311
    
    
    
    183
    
    
    
    (495
    )
    
    
    (318
    )
    
    
    77Realized gain (loss) on oil,NGL and natural gas swaps
    
    
    (623
    )
    
    
    (74
    )
    
    
    (3,531
    )
    
    
    (262
    )
    
    
    211Unrealized gain (loss) on oil,NGL and natural gas swaps
natural gas swaps
    
    
    340
    
    
    
    (559
    )
    
    
    (2,628
    )
    
    
    9,551
    
    
    
    (85,367
    )Other
    
    
    3
    
    
    
    92
    
    
    
    45
    
    
    
    29
    
    
    
    (129
    )Income (loss) before non-controlling
interest and income taxes
    
    
    4,207
    
    
    
    9,195
    
    
    
    5,858
    
    
    
    4,357
    
    
    
    (55,325
    )Non-controlling interest
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Income before income taxes
    
    
    4,207
    
    
    
    9,195
    
    
    
    5,859
    
    
    
    4,357
    
    
    
    (55,325
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (337
    )Income (loss) from continuing
operations
    
    $
    4,207
    
    
    $
    9,195
    
    
    $
    5,859
    
    
    $
    4,357
    
    
    $
    (55,662
    )Earnings (loss) from continuing
operations per unitBasic and fully diluted
    
    $
    0.44
    
    
    $
    0.97
    
    
    $
    0.62
    
    
    $
    0.26
    
    
    $
    (2.13
    )Distributions per unit (d)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.8974
    
    
    $
    1.67
 31




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##### Table of Contents



Years Ended December 31,2003
    
    2004
    
    2005 (a)
    
    2006 (b)
    
    2007 (c)(In Thousands)Cash Flow Data:Net cash provided by
operating activities
    
    $
    6,799
    
    
    $
    8,586
    
    
    $
    14,409
    
    
    $
    29,590
    
    
    $
    57,147Net cash provided by
(used in) investing
activities
    
    $
    (8,475
    )
    
    $
    1,023
    
    
    $
    (68,965
    )
    
    $
    (62,505
    )
    
    $
    (196,505
    )Net cash provided by
(used in) financing
activities
    
    $
    1,717
    
    
    $
    (8,958
    )
    
    $
    55,742
    
    
    $
    32,022
    
    
    $
    147,900Capital expenditures
    
    $
    4,047
    
    
    $
    3,325
    
    
    $
    66,915
    
    
    $
    56,150
    
    
    $
    196,702
 HistoricalYear Ended December 31,2003
    
    
    2004
    
    
    2005 (a)
    
    
    2006 (b)
    
    
    2007 (c)(In Thousands)Balance Sheet DataCash and cash equivalents
    
    $
    117
    
    
    $
    769
    
    
    $
    1,955
    
    
    $
    1,062
    
    
    $
    9,604Other current assets
    
    
    7,826
    
    
    
    5,799
    
    
    
    6,316
    
    
    
    17,159
    
    
    
    23,954Oil and natural gas properties, net of
accumulated depletion, depreciation
and amortization
    
    
    9,954
    
    
    
    12,224
    
    
    
    77,172
    
    
    
    247,580
    
    
    
    440,180Other assets
    
    
    651
    
    
    
    
    
    
    
    1,499
    
    
    
    7,567
    
    
    
    7,840Total assets
    
    $
    18,548
    
    
    $
    18,792
    
    
    $
    86,942
    
    
    $
    273,368
    
    
    $
    481,578Current liabilities
    
    $
    9,157
    
    
    $
    4,898
    
    
    $
    4,562
    
    
    $
    10,834
    
    
    $
    43,457Long term debt
    
    
    
    
    
    
    
    
    
    
    52,473
    
    
    
    115,800
    
    
    
    110,000Other long-term liabilities
    
    
    2,113
    
    
    
    1,872
    
    
    
    19,998
    
    
    
    7,945
    
    
    
    72,391Unitholders equity
    
    
    7,278
    
    
    
    12,022
    
    
    
    9,909
    
    
    
    138,789
    
    
    
    255,730Total liabilities and unitholders equity
    
    $
    18,548
    
    
    $
    18,792
    
    
    $
    86,942
    
    
    $
    273,368
    
    
    $
    481,578
 
 (a)
    
    Reflects purchase of the PITCO properties on September 14, 2005. Consequently,
the operations of the PITCO properties are only included for the period
following the date of acquisition.(b)
    
    Reflects Legacys purchase of the oil and natural gas properties acquired in the
March 15, 2006 formation transactions and the South Justis, Farmer Field and
Kinder Morgan acquisitions in June and July 2006. Consequently, the operations
of these acquired properties are only included for the period from the closing
dates of such acquisitions through December 31, 2006.(c)
    
    Reflects Legacys purchase of the oil and natural gas properties acquired in the
Binger, Ameristate, TSF, Raven Shenandoah, Raven OBO, TOC and Summit
acquisitions as of the date of their acquisition. Consequently, the operations
of these acquired properties are only included for the period from the closing
dates of such acquisitions through December 31, 2007.(d)
    
    Amounts not presented for years prior to 2006 since they would not be meaningful. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 The following discussion and analysis should be read in conjunction with the Selected
Historical Consolidated Financial Data and the accompanying financial statements and related notes
included elsewhere in annual report on Form 10-K . The following discussion contains forward-looking
statements that reflect our future plans, estimates, beliefs and expected performance. The
forward-looking statements are dependent upon events, risks and uncertainties that may be outside
our control. Our actual results could differ materially from those discussed in these
forward-looking statements. Factors that could cause or contribute to such differences include, but
are not limited to, market prices for natural gas, production volumes, estimates of proved
reserves, capital expenditures, economic and competitive conditions, regulatory changes and other
uncertainties, as well as those factors discussed below and elsewhere in this report, particularly
in Risk Factors and Cautionary Note Regarding Forward-Looking Statements, all of which are
difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking
events discussed may not occur.
 32




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##### Table of Contents



Overview
        2
 33




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##### Table of Contents



Production and Operating Costs Reporting
   34




---



##### Table of Contents



Operating Data
  Year Ended December 31,2005(a)
    
    
    2006(b)
    
    
    2007(c)(In Thousands, except per unit data)Revenues:Oil sales
    
    $
    18,225
    
    
    $
    45,351
    
    
    $
    83,301Natural gas liquid sales
    
    
    
    
    
    
    
    
    
    
    7,502Natural gas sales
    
    
    7,318
    
    
    
    14,446
    
    
    
    21,433Total revenue
    
    $
    25,543
    
    
    $
    59,797
    
    
    $
    112,236Expenses:Oil and natural gas production
    
    $
    6,376
    
    
    $
    15,938
    
    
    $
    27,129Production and other taxes
    
    $
    1,636
    
    
    $
    3,746
    
    
    $
    7,889General and administrative
    
    $
    1,354
    
    
    $
    3,691
    
    
    $
    8,392Depletion, depreciation, amortization and accretion
    
    $
    2,291
    
    
    $
    18,395
    
    
    $
    28,415Realized swap settlements:Realized loss on oil swaps
    
    $
    (3,531
    )
    
    $
    (6,667
    )
    
    $
    (3,627
    )Realized loss on natural gas liquid swaps
    
    $
    
    
    
    $
    
    
    
    $
    (619
    )Realized gain on natural gas swaps
    
    $
    
    
    
    $
    6,405
    
    
    $
    4,457Production:Oil  barrels
    
    
    354
    
    
    
    749
    
    
    
    1,179Natural gas liquids  gallons
    
    
    
    
    
    
    
    
    
    
    5,295Natural gas  Mcf
    
    
    1,027
    
    
    
    2,200
    
    
    
    3,052Total (MBoe)
    
    
    525
    
    
    
    1,116
    
    
    
    1,814Average daily production (Boe/d)
    
    
    1,438
    
    
    
    3,058
    
    
    
    4,970Average sales price per unit:Oil price per barrel
    
    $
    51.48
    
    
    $
    60.55
    
    
    $
    70.65Natural gas liquid price per gallon
    
    $
    
    
    
    $
    
    
    
    $
    1.42Natural gas price per Mcf
    
    $
    7.13
    
    
    $
    6.57
    
    
    $
    7.02Combined (per Boe)
    
    $
    48.65
    
    
    $
    53.58
    
    
    $
    61.87Average sales price per unit (including realized swap settlements):Oil price per barrel
    
    $
    41.51
    (d)
    
    $
    51.65
    (e)
    
    $
    67.58Natural gas liquid price per gallon
    
    $
    
    
    
    $
    
    
    
    $
    1.30Natural gas price per Mcf
    
    $
    7.13
    
    
    $
    9.48
    
    
    $
    8.48Combined (per Boe)
    
    $
    41.93
    (d)
    
    $
    53.35
    (e)
    
    $
    61.99NYMEX oil index prices per barrel:Beginning of Period
    
    $
    43.45
    
    
    $
    61.04
    
    
    $
    61.05End of Period
    
    $
    61.04
    
    
    $
    61.05
    
    
    $
    95.98NYMEX gas index prices per Mcf:Beginning of Period
    
    $
    6.15
    
    
    $
    11.25
    
    
    $
    6.30End of Period
    
    $
    11.25
    
    
    $
    6.30
    
    
    $
    7.48Average unit costs per Boe:Production costs, excluding production and other taxes
    
    $
    12.14
    
    
    $
    14.28
    
    
    $
    14.96Production and other taxes
    
    $
    3.12
    
    
    $
    3.36
    
    
    $
    4.35General and administrative
    
    $
    2.58
    
    
    $
    3.31
    
    
    $
    4.63Depletion, depreciation, amortization and accretion
    
    $
    4.36
    
    
    $
    16.48
    
    
    $
    15.66
 
 (a)
    
    Reflects the production and operating results of the PITCO properties from their acquisition on
September 14, 2005. 35




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##### Table of Contents



(b)
    
    Reflects the production and operating results of the oil and natural gas properties acquired in
the March 15, 2006 formation transactions and the South Justis, Farmer Field and Kinder Morgan
Acquisitions from the closing dates of such acquisitions through December 31, 2006.(c)
    
    Reflects the production and operating results of the oil and natural gas properties acquired
in the Binger, Ameristate, TSF, Raven Shenandoah, Raven OBO, TOC and Summit Acquisitions from the
closing dates of such acquisitions through December 31, 2007.(d)
    
    Includes the effects of approximately $2.0 million of derivative premiums for the year ended
December 31, 2005 to cancel and reset 2006 oil swaps from $51.31 to $59.38 per Bbl and
approximately $0.8 million of premiums paid on July 22, 2005 for an option to enter into a $55.00
per Bbl oil swap related to the PITCO Acquisition that was not exercised.(e)
    
    Includes the effect of approximately $4.0 million of derivative premiums to cancel and reset
2007 oil swaps from $60.00 to $65.82 per barrel for 372,000 barrels and for 2008 oil swaps from
$60.50 to $66.44 per barrel for 348,000 barrels, which reflected the prevailing oil swap market at
the time of the reset. Results of Operations
 Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
    36




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##### Table of Contents



Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
  37




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##### Table of Contents



Capital Resources and Liquidity
  38




---



##### Table of Contents



Cash Flow from Operations
       39




---



##### Table of Contents



Annual
    
    Average
    
    PriceCalendar Year
    
    Volumes (Bbls)
    
    Price per Bbl
    
    Range per Bbl2008
    
    
    1,135,549
    
    
    $
    70.39
    
    
    $
    62.25 -       $87.652009
    
    
    1,052,413
    
    
    $
    68.70
    
    
    $
    61.05 -       $87.652010
    
    
    980,645
    
    
    $
    67.44
    
    
    $
    60.15 -       $87.652011
    
    
    755,040
    
    
    $
    72.22
    
    
    $
    67.33 -       $87.652012
    
    
    633,600
    
    
    $
    72.33
    
    
    $
    67.72 -       $87.65
 Annual
    
    Average
    
    PriceCalendar Year
    
    Volumes (MMBtu)
    
    Price per MMBtu
    
    Range per MMBtu2008
    
    
    2,725,170
    
    
    $
    8.09
    
    
    $
    6.85 -       $10.582009
    
    
    2,524,670
    
    
    $
    7.96
    
    
    $
    6.85-        $10.182010
    
    
    2,245,955
    
    
    $
    7.71
    
    
    $
    6.85 -       $9.732011
    
    
    956,824
    
    
    $
    7.30
    
    
    $
    6.85 -       $7.572012
    
    
    651,636
    
    
    $
    7.25
    
    
    $
    6.85 -       $7.57
  Annual
    
    BasisCalendar Year
    
    Volumes (MMBtu)
    
    Range per Mcf2008
    
    
    1,422,000
    
    
    
    ($0.84
    )2009
    
    
    1,320,000
    
    
    
    ($0.68
    )2010
    
    
    1,200,000
    
    
    
    ($0.57
    )
  Annual
    
    Average
    
    PriceCalendar Year
    
    Volumes (Gal)
    
    Price per Gal
    
    Range per Gal2008
    
    
    6,458,004
    
    
    $
    1.27
    
    
    $
    0.66-$1.622009
    
    
    2,265,480
    
    
    $
    1.15
    
    
    $
    1.15
  Investing Activities  Acquisitions and Capital Expenditures
    40




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##### Table of Contents



Financing Activities
 Our Revolving Credit Facility
   
    
    with respect to ABR loans, the alternate base rate equals the higher of the prime rate or the
Federal funds effective rate plus 0.50%, plus an applicable margin between 0% and 0.25%, or
    
    with respect to any Eurodollar loans, the London inter-bank rate, or LIBOR, plus an applicable
margin between 1.00% and 1.75% per annum.
   
    
    incur indebtedness;
    
    enter into certain leases;
    
    grant certain liens;
    
    enter into certain swaps;
    
    make certain loans, acquisitions, capital expenditures and investments;
 41




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##### Table of Contents




    
    make distributions other than from available cash;
    
    merge, consolidate or allow any material change in the character of its business; or
    
    engage in certain asset dispositions, including a sale of all or substantially all of our
assets.
  
    
    consolidated net income plus interest expense, income taxes, depreciation, depletion,
amortization and other similar charges excluding unrealized gains and losses under SFAS No. 133,
minus all non-cash income added to consolidated net income, and giving pro forma effect to any
acquisitions or capital expenditures, to interest expense of not less than 2.5 to 1.0; and
    
    consolidated current assets, including the unused amount of the total commitments, to
consolidated current liabilities of not less than 1.0 to 1.0, excluding non-cash assets and
liabilities under SFAS No. 133, which includes the current portion of oil, natural gas and interest
rate swaps.
  
    
    failure to pay any principal when due or any reimbursement amount, interest, fees or other
amount within certain grace periods;
    
    a representation or warranty is proven to be incorrect when made;
    
    failure to perform or otherwise comply with the covenants or conditions contained in the credit
agreement or other loan documents, subject, in certain instances, to certain grace periods;
    
    default by us on the payment of any other indebtedness in excess of $1.0 million, or any event
occurs that permits or causes the acceleration of the indebtedness;
    
    bankruptcy or insolvency events involving us or any of our subsidiaries;
    
    the loan documents cease to be in full force and effect our failing to create a valid lien,
except in limited circumstances;
    
    a change of control, which will occur upon (i) the acquisition by any person or group of
persons of beneficial ownership of more than 35% of the aggregate ordinary voting power of our
equity securities, (ii) the first day on which a majority of the members of the board of
directors of our general partner are not continuing directors (which is generally defined to mean
members of our board of directors as of March 15, 2006 and persons who are nominated for election
or elected to our general partners board of directors with the approval of a majority of the
continuing directors who were members of such board of directors at the time of such nomination
or election), (iii) the direct or indirect sale, transfer or other disposition in one or a series
of related transactions of all or substantially all of the properties or assets (including equity
interests of subsidiaries) of us and our subsidiaries to any person, (iv) the adoption of a plan
related to our liquidation or dissolution or (v) Legacy Reserves GP, LLC ceasing to be our sole
general partner;
    
    the entry of, and failure to pay, one or more adverse judgments in excess of $1.0 million or
one or more non-monetary judgments that could reasonably be expected to have a material adverse
effect and for which enforcement proceedings are brought or that are not stayed pending appeal;
and
    
    specified ERISA events relating to our employee benefit plans that could reasonably be expected
to result in liabilities in excess of $1,000,000 in any year.
 Off-Balance Sheet Arrangements
  42




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##### Table of Contents



Contractual Obligations
  Obligations Due in PeriodContractual Obligations
    
    2008
    
    
    2009-2010
    
    
    2011-2012
    
    
    Thereafter
    
    
    TotalLong-term debt (a)
    
    $
    
    
    
    $
    110,000,000
    
    
    $
    
    
    
    $
    
    
    
    $
    110,000,000Interest on long-term debt (b)
    
    
    7,150,000
    
    
    
    8,599,589
    
    
    
    
    
    
    
    
    
    
    
    15,749,589Commodity
derivatives (c)
    
    
    26,182,579
    
    
    
    38,279,240
    
    
    
    17,240,613
    
    
    
    569,068
    
    
    
    82,271,500Interest rate derivatives (c)
    
    
    259,581
    
    
    
    1,067,310
    
    
    
    168,871
    
    
    
    
    
    
    
    1,495,762Management
Compensation (d)
    
    
    1,060,000
    
    
    
    2,120,000
    
    
    
    2,120,000
    
    
    
    
    
    
    
    5,300,000Office Lease
    
    
    202,156
    
    
    
    416,645
    
    
    
    167,237
    
    
    
    
    
    
    
    786,038Total contractual cash
obligations
    
    $
    34,854,316
    
    
    $
    160,482,784
    
    
    $
    19,696,721
    
    
    $
    569,068
    
    
    $
    215,602,889
 
 (a)
    
    Represents amounts outstanding under our revolving credit facility as of December 31, 2007.(b)
    
    Based upon our interest rate of 6.50% under our revolving credit facility as of December 31,
2007.(c)
    
    Derivative obligations represent net liabilities for derivatives that were valued as of
December 31, 2007, the ultimate settlement of which are unknown because they are subject to
continuing market risk. Please read Item 7A. Quantitative and Qualitative Disclosure about Market
Risk and Note 9 of Notes to Consolidated Financial Statements included in Item 8. Financial
Statements and Supplementary Data for additional information regarding our derivative obligations.(d)
    
    Does not include any liability associated with management compensation subsequent to the
2011-2012 period as there is no estimated termination date of the employment agreements. Critical Accounting Policies and Estimates
  
    
    it requires assumptions to be made that were uncertain at the time the estimate was made, and
    
    changes in the estimate or different estimates that could have been selected could have a
material impact on our consolidated results of operations or financial condition.
  Nature of Critical Estimate Item:
 43




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##### Table of Contents



Assumptions/Approach Used:
 Effect if Different Assumptions Used:
 Nature of Critical Estimate Item:
 Assumptions/Approach Used:
 Effect if Different Assumptions Used:
 Nature of Critical Estimate Item:
  44




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##### Table of Contents



Consolidation of Variable Interest Entity
  Recently Issued Accounting Pronouncements
 Fair
Value Measurements.
 The
Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115.
 Amendment of FASB Interpretation
No. 39
 Business
Combinations
  45




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  Commodity Price Risk
     Interest Rate Risks
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  46




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##### Table of Contents



ITEM
9A(T). CONTROLS AND PROCEDURES
     Managements Annual Report on Internal Control over Financial Reporting
    
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 47




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##### Table of Contents



ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS
  
 ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  48




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a)(1) and (2) Financial Statements
  (a)(3) Exhibits
  49




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##### Table of Contents



ExhibitNumber
    
    
    Description3.1
    
    -
    Certificate of Limited Partnership of Legacy Reserves LP (Incorporated by reference to Legacy ReservesLPs Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 3.1)3.2
    
    -
    Amended and Restated Limited Partnership Agreement of Legacy Reserves LP (Incorporated by reference toLegacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006,included as Appendix A to the Prospectus and including specimen unit certificate for the units)3.3
    
    -
    Amendment No. 1, dated December 27, 2007, to the Amended and Restated Agreement of LimitedPartnership of Legacy Reserves LP (Incorporated by reference to Legacy Reserves LPs current report onForm 8-K filed January 2, 2008, Exhibit 3.1)3.4
    
    -
    Certificate of Formation of Legacy Reserves GP, LLC (Incorporated by reference to Legacy Reserves LPsRegistration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 3.3)3.5
    
    -
    Amended and Restated Limited Liability Company Agreement of Legacy Reserves GP, LLC (Incorporatedby reference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed May12, 2006, Exhibit 3.4)4.1
    
    -
    Registration Rights Agreement dated as of March 15, 2006 by and among Legacy Reserves LP, LegacyReserves GP, LLC and Friedman, Billings, Ramsey & Co. (Incorporated by reference to Legacy ReservesLPs Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 4.1)4.2
    
    -
    Registration Rights Agreement dated June 29, 2006 between Henry Holdings LP and Legacy Reserves LPand Legacy Reserves GP, LLC (the Henry Registration Rights Agreement) (Incorporated by reference toLegacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed September 5. 2006,Exhibit 4.2)4.3
    
    -
    Registration Rights Agreement dated March 15, 2006 by and among Legacy Reserves LP, Legacy ReservesGP, LLC and the other parties there to (the Founders Registration Rights Agreement) (Incorporated byreference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filedSeptember 5, 2006, Exhibit 4.3)4.4
    
    -
    Registration Rights Agreement dated April 16, 2007 by and among Nielson & Associates, Inc., LegacyReserves GP, LLC and Legacy Reserves LP (Incorporated by reference to Legacy Reserves LPs quarterlyreport on Form 10-Q filed May 14, 2007, Exhibit 4.4)4.5
    
    -
    Registration Rights Agreement dated as of November 8, 2007 by and among Legacy Reserves LP and thePurchasers named therein (Incorporated by reference to Legacy Reserves LPs current report on Form 8-Kfiled November 9, 2007, Exhibit 4.1)10.1
    
    -
    Credit Agreement dated as of March 15, 2006, among Legacy Reserves LP, the lenders from time to timeparty thereto, and BNP Paribas, as administrative agent (Incorporated by reference to Legacy Reserves LPsRegistration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 10.1)10.2
    
    -
    Contribution, Conveyance and Assumption Agreement dated as of March 15, 2006 by and among LegacyReserves LP, Legacy Reserves GP, LLC and the other parties thereto (Incorporated by reference to LegacyReserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 10.2)10.3
    
    -
    Omnibus Agreement dated as of March 15, 2006 by and among Legacy Reserves LP, Legacy Reserves GP,LLC and the other parties thereto (Incorporated by reference to Legacy Reserves LPs RegistrationStatement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 10.3)10.4
    
    -
    Purchase/Placement Agreement dated as of March 6, 2006 by and among Legacy Reserves LP, LegacyReserves GP, LLC and the other parties there to (Incorporated by reference to Legacy Reserves LPsRegistration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 10.4)10.5
    
    -
    Legacy Reserves, LP Long-Term Incentive Plan (Incorporated by reference to Legacy Reserves LPsRegistration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 10.5)
 50




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##### Table of Contents



10.6
    
    -
    First Amendment of Legacy Reserves LP to Long Term Incentive Plan dated June 16, 2006 (Incorporated byreference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filedOctober 5, 2006, Exhibit 10.17)10.7
    
    -
    Amended and Restated Legacy Reserves LP Long-Term Incentive Plan effective as of August 17, 2007(Incorporated by reference to Legacy Reserves LPs current report on Form 8-K filed August 23, 2007,Exhibit 10.1)10.8
    
    -
    Form of Legacy Reserves LP Long-Term Incentive Plan Restricted Unit Grant Agreement (Incorporated byreference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed May 12,2006, Exhibit 10.6)10.9
    
    -
    Form of Legacy Reserves LP Long-Term Incentive Plan Unit Option Grant Agreement (Incorporated byreference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filedSeptember 5, 2006, Exhibit 10.7)10.10
    
    -
    Form of Legacy Reserves LP Long-Term Incentive Plan Unit Grant Agreement (Incorporated by reference toLegacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed September 5, 2006,Exhibit 10.8)10.11
    
    -
    Form of Legacy Reserves LP Long-Term Incentive Plan Grant of Phantom Units (Incorporated by referenceto Legacy Reserves LPs current report on Form 8-K filed February 4, 2008, Exhibit 10.1)10.12
    
    -
    Employment Agreement dated as of March 15, 2006 between Cary D. Brown and Legacy Reserves Services,Inc. (Incorporated by reference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 10.9)10.13
    
    -
    Employment Agreement dated as of March 15, 2006 between Steven H. Pruett and Legacy ReservesServices, Inc. (Incorporated by reference to Legacy Reserves LPs Registration Statement on Form S-1 (FileNo. 333-134056) filed May 12, 2006, Exhibit 10.10)10.14
    
    -
    Employment Agreement dated as of March 15, 2006 between Kyle A. McGraw and Legacy ReservesServices, Inc. (Incorporated by reference to Legacy Reserves LPs Registration Statement on Form S-1 (FileNo. 333-134056) filed May 12, 2006, Exhibit 10.11)10.15
    
    -
    Employment Agreement dated as of March 15, 2006 between Paul T. Horne and Legacy Reserves Services,Inc. (Incorporated by reference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 10.12)10.16
    
    -
    Employment Agreement dated as of March 15, 2006 between William M. Morris and Legacy ReservesServices, Inc. (Incorporated by reference to Legacy Reserves LPs Registration Statement on Form S-1 (FileNo. 333-134056) filed May 12, 2006, Exhibit 10.13)10.17
    
    -
    First Amendment to Credit Agreement effective as of July 7, 2006 among Legacy Reserves LP, the lendersfrom time to time party thereto, and BNP Paribas, as administrative agent (Incorporated by reference toLegacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed September 5, 2006,Exhibit 10.14)10.18
    
    -
    Second Amendment to Credit Agreement dated May 3, 2007 among Legacy Reserves LP, the lenders fromtime to time party thereto, and BNP Paribas, as administrative agent (Incorporated by reference to LegacyReserves LPs current report on Form 8-K filed May 8, 2007, Exhibit 10.1)10.19
    
    -
    Third Amendment to Credit Agreement dated October 24, 2007 among Legacy Reserves LP, the lendersfrom time to time party thereto, and BNP Paribas, as administrative agent (Incorporated by reference toLegacy Reserves LPs current report on Form 8-K filed October 29, 2007, Exhibit 10.1)10.20
    
    -
    Purchase and Sale Agreement dated June 29, 2006 between Kinder Morgan Production Company LP andLegacy Reserves Operating LP (Incorporated by reference to Legacy Reserves LPs Registration Statementon Form S-1 (File No. 333-134056) filed October 5, 2006, Exhibit 10.15)
 51




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##### Table of Contents



10.21
    
-
    Purchase and Sale Agreement dated June 13, 2006 between Henry Holding LP and Legacy ReservesOperating LP (Incorporated by reference to Legacy Reserves LPs Registration Statement on Form S-1 (FileNo. 333-134056) filed September 5, 2006, Exhibit 10.16)10.22
    
-
    Purchase and Sale Agreement dated March 29, 2007, by and among Ameristate Exploration, LLC andLegacy Reserves Operating LP (Incorporated by reference to Legacy Reserves LPs current report on Form8-K filed May 4, 2007, Exhibit 10.1)10.23
    
-
    Purchase, Sale and Contribution Agreement dated March 20, 2007, by and among Nielson & Associates, Inc.and Legacy Reserves Operating LP (Incorporated by reference to Legacy Reserves LPs quarterly report onForm 10-Q filed May 14, 2007, Exhibit 10.1)10.24
    
-
    Purchase, Sale and Contribution Agreement dated March 20, 2007, by and among Terry S. Fields andLegacy Reserves Operating LP (Incorporated by reference to Legacy Reserves LPs quarterly report onForm 10-Q filed August 13, 2007, Exhibit 10.1)10.25
    
-
    Purchase, Sale and Contribution Agreement dated May 3, 2007, by and among Raven Resources, LLC andShenandoah Petroleum Corporation and Legacy Reserves Operating LP (Incorporated by reference toLegacy Reserves LPs quarterly report on Form 10-Q filed August 13, 2007, Exhibit 10.2)10.26
    
-
    Purchase, Sale and Contribution Agreement dated July 11, 2007, by and among Raven Resources, LLC andLegacy Reserves Operating LP (Incorporated by reference to Legacy Reserves LPs quarterly report onForm 10-Q filed November 9, 2007, Exhibit 10.1)10.27
    
-
    Purchase, Sale and Contribution Agreement dated August 28, 2007, by and among Summit PetroleumManagement Corporation and Legacy Reserves Operating LP (Incorporated by reference to Legacy ReservesLPs quarterly report on Form 10-Q filed November 9, 2007, Exhibit 10.3)10.28
    
-
    Purchase, Sale and Contribution Agreement dated August 30, 2007, by and among The Operating Companyand Legacy Reserves Operating LP (Incorporated by reference to Legacy Reserves LPs quarterly report onForm 10-Q filed November 9, 2007, Exhibit 10.4)10.29
    
-
    Unit Purchase Agreement dated as of November 7, 2007 by and among Legacy Reserves LP, LegacyReserves GP, LLC and the Purchasers named therein (Incorporated by reference to Legacy Reserves LPscurrent report on Form 8-K filed November 9, 2007, Exhibit 10.1)21.1
    
-
    List of subsidiaries of Legacy Reserves LP (Incorporated by reference to Legacy Reserves LPs RegistrationStatement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 21.1)23.1*
    
-
    Consent of BDO Seidman LLP23.2*
    
-
    Consent of LaRoche Petroleum Consultants, Ltd.31.1*
    
-
    Rule 13a-14(a) Certification of CEO (under Section 302 of the Sarbanes-Oxley Act of 2002)31.2*
    
-
    Rule 13a-14(a) Certification
of CFO (under Section 302 of the Sarbanes-Oxley Act of 2002)32.1*
    
-
    Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002)
 
 *
    
    Filed herewith
    
    Management contract or compensatory plan or arrangement 52




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##### Table of Contents



SIGNATURES
  LEGACY RESERVES LPBy:
    LEGACY RESERVES GP, LLC,its general partnerBy:

/s/ Steven H. PruettName:
    Steven H. PruettTitle:
    President, Chief Financial Officer and

Secretary (Principal Financial Officer)  Signature
    
    Title
    
    Date/s/ Cary D. Brown
    
    Chief Executive Officer and Director
    
    March 14, 2008Cary D. Brown
    
    (Principal Executive Officer)/s/ Steven H. Pruett
    
    President, Chief Financial Officer and Secretary
    
    March 14, 2008Steven H. Pruett
    
    (Principal Financial Officer)/s/ William M. Morris
    
    Vice President, Chief Accounting Officer and
    
    March 14, 2008William M. Morris
    
    Controller (Principal Accounting Officer)/s/ Kyle A. Mcgraw
    
    Executive Vice President and Director
    
    March 14, 2008Kyle A. McGraw/s/ Dale A. Brown
    
    Director
    
    March 14, 2008Dale A. Brown/s/ William D. Sullivan
    
    Director
    
    March 14, 2008William D. Sullivan/s/ Kyle D. Vann
    
    Director
    
    March 14, 2008Kyle D. Vann/s/
William R. Granberry
    
    Director
    
    March 14, 2008William
R. Granberry/s/
G. Larry Lawrence
    
    Director
    
    March 14, 2008G.
Larry Lawrence
 53




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Financial Statements:Consolidated Balance SheetsDecember 31, 2006 and 2007
    
    F-3Consolidated Statements of
OperationsYears Ended December 31, 2005, 2006 and 2007
    
    F-5Consolidated Statement of
Unitholders EquityYears Ended December 31, 2005, 2006 and 2007
    
    F-6Consolidated Statements of Cash
FlowsYears Ended December 31, 2005, 2006 and 2007
    
    F-7Notes to Consolidated
Financial Statements
    
    F-9
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    BDO SEIDMAN, LLP
 
 F-2




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##### Table of Contents



LEGACY RESERVES LP
 
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2006 AND 2007  dollars in thousands
 2006
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,062
    
    
    $
    9,604Accounts receivable, net:Oil and natural gas
    
    
    7,600
    
    
    
    19,025Joint interest owners
    
    
    4,345
    
    
    
    4,253Affiliated entities and other (Notes 3 and 6)
    
    
    21
    
    
    
    26Fair value of derivatives (Note 9)
    
    
    5,102
    
    
    
    310Prepaid expenses and other current assets
    
    
    91
    
    
    
    340Total current assets
    
    
    18,221
    
    
    
    33,558Oil and natural gas properties, at cost:Proved oil and natural gas properties, at cost, using the
successful efforts method of accounting (Note 14):
    
    
    289,519
    
    
    
    512,396Unproved properties
    
    
    68
    
    
    
    78Accumulated depletion, depreciation and amortization
    
    
    (42,007
    )
    
    
    (72,294
    )247,580
    
    
    
    440,180Other
property and equipment, net of accumulated depreciation and
amortization of $51 and $251, respectively
    
    
    304
    
    
    
    775Operating rights, net of amortization of $295 and $865, respectively (Note 1(k))
    
    
    6,721
    
    
    
    6,151Other assets, net of amortization of $167 and $391, respectively
    
    
    542
    
    
    
    822Investment in equity method investee (Note 5)
    
    
    
    
    
    
    92$
    273,368
    
    
    $
    481,578
 See accompanying notes to consolidated financial statements.
 F-3




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##### Table of Contents



LEGACY RESERVES LP
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2006 AND 2007  dollars in thousands
 2006
    
    
    2007LIABILITIES AND UNITHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,932
    
    
    $
    2,320Accrued oil and natural gas liabilities
    
    
    5,882
    
    
    
    10,102Fair value of derivatives (Note 9)
    
    
    
    
    
    
    26,761Asset retirement obligation (Note 11)
    
    
    553
    
    
    
    845Other (Note 13)
    
    
    1,467
    
    
    
    3,429Total current liabilities
    
    
    10,834
    
    
    
    43,457Long-term debt (Note 3)
    
    
    115,800
    
    
    
    110,000Asset retirement obligation (Note 11)
    
    
    5,939
    
    
    
    15,075Fair value of derivatives (Note 9)
    
    
    2,006
    
    
    
    57,316Total liabilities
    
    
    134,579
    
    
    
    225,848Commitments and contingencies (Note 7)Unitholders equity:Limited partners equity - 18,395,233 and 29,670,887 units issued
and outstanding at December 31,
2006 and 2007, respectively
    
    
    138,653
    
    
    
    255,663General partners equity (approximately 0.1%)
    
    
    136
    
    
    
    67Total unitholders equity
    
    
    138,789
    
    
    
    255,730Total liabilities and unitholders equity
    
    $
    273,368
    
    
    $
    481,578
 See accompanying notes to consolidated financial statements.
 F-4




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##### Table of Contents



LEGACY RESERVES LP
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007  dollars in thousands, except per unit data
 2005
    
    
    2006
    
    
    2007Revenues:Oil sales
    
    $
    18,225
    
    
    $
    45,351
    
    
    $
    83,301Natural gas liquid sales
    
    
    
    
    
    
    
    
    
    
    7,502Natural gas sales
    
    
    7,318
    
    
    
    14,446
    
    
    
    21,433Total revenues
    
    
    25,543
    
    
    
    59,797
    
    
    
    112,236Expenses:Oil and natural gas production
    
    
    6,376
    
    
    
    15,938
    
    
    
    27,129Production and other taxes
    
    
    1,636
    
    
    
    3,746
    
    
    
    7,889General and administrative
    
    
    1,354
    
    
    
    3,691
    
    
    
    8,392Depletion, depreciation, amortization and accretion
    
    
    2,291
    
    
    
    18,395
    
    
    
    28,415Impairment of long-lived assets
    
    
    
    
    
    
    16,113
    
    
    
    3,204Loss on disposal of assets
    
    
    20
    
    
    
    42
    
    
    
    527Total expenses
    
    
    11,677
    
    
    
    57,925
    
    
    
    75,556Operating income
    
    
    13,866
    
    
    
    1,872
    
    
    
    36,680Other income (expense):Interest income
    
    
    185
    
    
    
    130
    
    
    
    321Interest expense (Notes 3 and 9)
    
    
    (1,584
    )
    
    
    (6,645
    )
    
    
    (7,118
    )Equity in income (loss) of partnerships (Note 5)
    
    
    (495
    )
    
    
    (318
    )
    
    
    77Realized gain (loss) on oil, NGL and natural gas swaps (Note 9)
    
    
    (3,531
    )
    
    
    (262
    )
    
    
    211Unrealized gain (loss) on oil, NGL and natural gas swaps (Note 9)
    
    
    (2,628
    )
    
    
    9,551
    
    
    
    (85,367
    )Other
    
    
    45
    
    
    
    29
    
    
    
    (129
    )Income (loss) before non-controlling interest and income taxes
    
    
    5,858
    
    
    
    4,357
    
    
    
    (55,325
    )Non-controlling interest
    
    
    1
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    5,859
    
    
    
    4,357
    
    
    
    (55,325
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    (337
    )Net income (loss)
    
    $
    5,859
    
    
    $
    4,357
    
    
    $
    (55,662
    )Net income (loss) per unit  basic and diluted (Note 12)
    
    $
    0.62
    
    
    $
    0.26
    
    
    $
    (2.13
    )Weighted
average number of units used in computing net income (loss) per unit -basic
    
    
    9,488,921
    
    
    
    16,567,287
    
    
    
    26,155,439diluted
    
    
    9,488,921
    
    
    
    16,568,879
    
    
    
    26,155,439
 See accompanying notes to consolidated financial statements.
 F-5




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##### Table of Contents





LEGACY RESERVES LP





CONSOLIDATED STATEMENT OF UNITHOLDERS EQUITY


FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007  dollars in thousands


TotalNumber of
    
    
    Limited
    
    
    General
    
    
    Unitholders'Limited Partner Units
    
    
    Partner
    
    
    Partner
    
    
    EquityBalance December 31, 2004
    
    
    9,488,921
    
    
    $
    12,010
    
    
    $
    12
    
    
    $
    12,022Capital contributions
    
    
    
    
    
    
    144
    
    
    
    
    
    
    
    144Deemed capital distribution
    
    
    
    
    
    
    155
    
    
    
    
    
    
    
    155Distributions to partners
    
    
    
    
    
    
    (8,263
    )
    
    
    (8
    )
    
    
    (8,271
    )Net income
    
    
    
    
    
    
    5,853
    
    
    
    6
    
    
    
    5,859Balance December 31, 2005
    
    
    9,488,921
    
    
    
    9,899
    
    
    
    10
    
    
    
    9,909Capital contributions
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    19Net distributions to owners
    
    
    
    
    
    
    (2,295
    )
    
    
    (2
    )
    
    
    (2,297
    )Deemed dividend to Moriah Group owners
    
    
    
    
    
    
    (3,874
    )
    
    
    (4
    )
    
    
    (3,878
    )Net proceeds from private equity offering
    
    
    5,000,000
    
    
    
    76,707
    
    
    
    77
    
    
    
    76,784Redemption of Founding Investors units
    
    
    (4,400,000
    )
    
    
    (69,868
    )
    
    
    (70
    )
    
    
    (69,938
    )Units issued to MBN Properties LP in exchange
for the non-controlling interests share of oil
and natural gas properties
    
    
    1,867,290
    
    
    
    31,712
    
    
    
    32
    
    
    
    31,744Units issued to the Brothers Group in exchange
for oil and natural gas properties and other
assets
    
    
    6,200,358
    
    
    
    105,301
    
    
    
    105
    
    
    
    105,406Units issued to H2K Holdings Ltd in exchange
for oil and natural gas properties
    
    
    83,499
    
    
    
    1,418
    
    
    
    1
    
    
    
    1,419Dividend  reimbursement of offering costs paid
by MBN Management LLC
    
    
    
    
    
    
    (1,199
    )
    
    
    (1
    )
    
    
    (1,200
    )Units issued to Henry Holding LP in exchange for
oil and natural gas properties
    
    
    146,415
    
    
    
    2,489
    
    
    
    
    
    
    
    2,489Units issued to Legacy Board of Directors for services
    
    
    8,750
    
    
    
    149
    
    
    
    
    
    
    
    149Compensation expense on unit options granted to employees
    
    
    
    
    
    
    115
    
    
    
    
    
    
    
    115Compensation expense on restricted unit awards issued to
employees
    
    
    
    
    
    
    270
    
    
    
    
    
    
    
    270Distributions to unitholders, $0.8974 per unit
    
    
    
    
    
    
    (16,542
    )
    
    
    (16
    )
    
    
    (16,558
    )Net income
    
    
    
    
    
    
    4,352
    
    
    
    4
    
    
    
    4,356Balance, December 31, 2006
    
    
    18,395,233
    
    
    
    138,653
    
    
    
    136
    
    
    
    138,789Net proceeds from initial public equity offering
    
    
    6,900,000
    
    
    
    121,554
    
    
    
    
    
    
    
    121,554Net proceeds from private placement equity offering
    
    
    3,642,369
    
    
    
    73,073
    
    
    
    
    
    
    
    73,073Units issued to Legacy Board of Directors for services
    
    
    7,000
    
    
    
    149
    
    
    
    
    
    
    
    149Compensation expense on restricted unit awards issued to
employees
    
    
    
    
    
    
    341
    
    
    
    
    
    
    
    341Vesting of Restricted Units
    
    
    20,038
    
    
    
    
    
    
    
    
    
    
    
    Units issued to Greg McCabe in exchange for oil and natural
gas properties
    
    
    95,000
    
    
    
    2,271
    
    
    
    
    
    
    
    2,271Units issued to Nielson & Associates, Inc. in exchange for
oil and
natural gas properties
    
    
    611,247
    
    
    
    15,752
    
    
    
    
    
    
    
    15,752Reclass prior period compensation cost
on unit options granted to employees
to adjust for conversion to liability method
as described in FAS 123-R
    
    
    
    
    
    
    (115
    )
    
    
    
    
    
    
    (115
    )Distributions to unitholders, $1.67 per unit
    
    
    
    
    
    
    (40,388
    )
    
    
    (34
    )
    
    
    (40,422
    )Net loss
    
    
    
    
    
    
    (55,627
    )
    
    
    (35
    )
    
    
    (55,662
    )Balance, December 31, 2007
    
    
    29,670,887
    
    
    $
    255,663
    
    
    $
    67
    
    
    $
    255,730


See accompanying notes to consolidated financial statements.


F-6



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##### Table of Contents



LEGACY RESERVES LP
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007  dollars in thousands
 2005
    
    
    2006
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    5,859
    
    
    $
    4,357
    
    
    $
    (55,662
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depletion, depreciation, amortization and accretion
    
    
    2,291
    
    
    
    18,395
    
    
    
    28,415Amortization of debt issuance costs
    
    
    94
    
    
    
    361
    
    
    
    224Impairment of long-lived assets
    
    
    
    
    
    
    16,113
    
    
    
    3,204(Gain) loss on derivatives
    
    
    6,159
    
    
    
    (9,289
    )
    
    
    86,652Equity in (income) loss of partnership
    
    
    495
    
    
    
    318
    
    
    
    (77
    )Accrued interest on subordinated notes payable  partners
    
    
    818
    
    
    
    
    
    
    
    Accrued interest on subordinated notes receivable  partners
    
    
    (25
    )
    
    
    
    
    
    
    Amortization of unit-based compensation
    
    
    
    
    
    
    534
    
    
    
    166Non-controlling interest
    
    
    (1
    )
    
    
    
    
    
    
    Loss on disposal of assets
    
    
    21
    
    
    
    42
    
    
    
    527Changes in assets and liabilities:
    
    
    
    
    
    
    
    
    
    
    Increase in accounts receivable, oil and natural gas
    
    
    (3,412
    )
    
    
    (5,796
    )
    
    
    (11,425
    )(Increase) decrease in accounts receivable, joint interest owners
    
    
    605
    
    
    
    (4,481
    )
    
    
    92Increase in accounts receivable, other
    
    
    (91
    )
    
    
    (458
    )
    
    
    (5
    )Increase in prepaid expenses and other current assets
    
    
    (88
    )
    
    
    (565
    )
    
    
    (250
    )Increase (decrease) in accounts payable
    
    
    395
    
    
    
    2,694
    
    
    
    (611
    )Increase in accrued oil and natural gas liabilities
    
    
    1,107
    
    
    
    4,227
    
    
    
    4,221Increase in due to affiliates
    
    
    195
    
    
    
    1,059
    
    
    
    Increase (decrease) in other current liabilities
    
    
    (13
    )
    
    
    2,079
    
    
    
    1,676Total adjustments
    
    
    8,550
    
    
    
    25,233
    
    
    
    112,809Net cash provided by operating activities
    
    
    14,409
    
    
    
    29,590
    
    
    
    57,147Cash flows from investing activities:Investment in oil and natural gas properties
    
    
    (66,910
    )
    
    
    (55,907
    )
    
    
    (196,031
    )Investment in other equipment
    
    
    (4
    )
    
    
    (243
    )
    
    
    (671
    )Investment in operating rights
    
    
    
    
    
    
    (7,017
    )
    
    
    Investment in notes receivable
    
    
    (900
    )
    
    
    
    
    
    
    Collection of notes receivable
    
    
    2,380
    
    
    
    924
    
    
    
    Net cash settlements on oil and natural gas swaps
    
    
    (3,531
    )
    
    
    (262
    )
    
    
    211Investment in equity method investee
    
    
    
    
    
    
    
    
    
    
    (14
    )Net cash used in investing activities
    
    
    (68,965
    )
    
    
    (62,505
    )
    
    
    (196,505
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    56,573
    
    
    
    121,800
    
    
    
    183,000Payments of long-term debt
    
    
    (6,100
    )
    
    
    (73,190
    )
    
    
    (188,800
    )Payments of debt issuance costs
    
    
    (868
    )
    
    
    (293
    )
    
    
    (505
    )Proceeds from subordinated notes payable  partners
    
    
    14,264
    
    
    
    
    
    
    
    Proceeds from issuance of units, net
    
    
    
    
    
    
    76,784
    
    
    
    194,627Redemption of Founding Investors units
    
    
    
    
    
    
    (69,938
    )
    
    
    Dividend  reimbursement of offering costs paid by MBN Management LLC
    
    
    
    
    
    
    (1,200
    )
    
    
    Capital contributed by owner
    
    
    144
    
    
    
    19
    
    
    
    Cash not acquired in Legacy formation transactions
    
    
    
    
    
    
    (3,104
    )
    
    
    Distributions to unitholders
    
    
    (8,271
    )
    
    
    (18,856
    )
    
    
    (40,422
    )Net cash provided by financing activities
    
    
    55,742
    
    
    
    32,022
    
    
    
    147,900Net increase(decrease)in cash and cash
equivalents
    
    
    1,186
    
    
    
    (893
    )
    
    
    8,542Cash and cash equivalents, beginning of period
    
    
    769
    
    
    
    1,955
    
    
    
    1,062Cash and cash equivalents, end of period
    
    $
    1,955
    
    
    $
    1,062
    
    
    $
    9,604
 See accompanying notes to consolidated financial statements.
 F-7




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##### Table of Contents





LEGACY RESERVES LP
CONSOLIDATED STATEMENTS OF CASH FLOWS  Continued
FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007  dollars in thousands


2005
    
    
    2006
    
    
    2007NonCash Investing and Financing Activities:Asset retirement obligation costs and liabilities
    
    $
    12
    
    
    $
    2,273
    
    
    $
    6,296Asset retirement obligations associated with property acquisitions
    
    $
    445
    
    
    $
    1,889
    
    
    $
    3,034Contributed offering costs
    
    $
    155
    
    
    $
    
    
    
    $
    Non-controlling interests share of net financing costs of MBN
Properties LP capitalized to oil and natural gas properties
    
    $
    
    
    
    $
    164
    
    
    $
    Units issued to MBN Properties LP in exchange for the
non-controlling interests share of oil and natural gas
properties
    
    $
    
    
    
    $
    31,744
    
    
    $
    Units issued to Brothers Group in exchange for:Oil and natural gas properties
    
    $
    
    
    
    $
    105,299
    
    
    $
    Other property and equipment
    
    $
    
    
    
    $
    107
    
    
    $
    Units issued to H2K Holdings Ltd. in exchange for oil and
natural gas properties
    
    $
    
    
    
    $
    1,419
    
    
    $
    Oil and natural gas hedge liabilities assumed from the
Brothers Group and H2K Holdings Ltd.
    
    $
    
    
    
    $
    3,147
    
    
    $
    Units issued in exchange for oil and
natural gas properties
    
    $
    
    
    
    $
    2,489
    
    
    $
    18,023Deemed dividend to Moriah Group owners for accounts not acquired
in Legacy formation transaction:Accounts receivable, oil and natural gas
    
    $
    
    
    
    $
    4,248
    
    
    $
    Accounts receivable, joint interest owners
    
    $
    
    
    
    $
    250
    
    
    $
    Accounts receivable, other
    
    $
    
    
    
    $
    540
    
    
    $
    Other assets
    
    $
    
    
    
    $
    891
    
    
    $
    Accounts payable
    
    $
    
    
    
    $
    (214
    )
    
    $
    Accrued oil and natural gas liabilities
    
    $
    
    
    
    $
    (1,521
    )
    
    $
    Due to affiliates
    
    $
    
    
    
    $
    (1,254
    )
    
    $
    Other liabilities
    
    $
    
    
    
    $
    (2,166
    )
    
    $
    


See accompanying notes to consolidated financial statements. F-8




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##### Table of Contents



LEGACY RESERVES LP
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) Summary of Significant Accounting Policies
 (a) Organization, Basis of Presentation and Description of Business
     
    
    Right to receive distributions of available cash within 45 days after the end of each
quarter.
    
    No limited partner shall have any management power over our business and affairs; the
general partner shall conduct, direct and manage LRLPs activities.
    
    The general partner may be removed if such removal is approved by the unitholders holding
at least 66 2/3 percent of the outstanding units, including units held by LRLPs general
partner and its affiliates.
    
    Right to receive information reasonably required for tax reporting purposes within 90
days after the close of the calendar year
    F-9




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##### Table of Contents



(b) Cash Equivalents
  (c) Trade Accounts Receivable
  (d) Oil and Natural Gas Properties
     F-10




---



##### Table of Contents



(e) Oil and Natural Gas Reserve Quantities
    (f) Income Taxes
     F-11




---



##### Table of Contents



(g) Derivative Instruments and Hedging Activities
 Accounting for Derivative Instruments and
Hedging Activities
  (h) Use of Estimates
  (i) Revenue Recognition
     F-12




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##### Table of Contents



(j) Investments
  (k) Intangible assets
  (l) Environmental
  (m) Earnings (Loss) Per Unit
 Earnings per
Share
  (n) Redemption of Units
  (o) Segment Reporting
  (p) Unit-Based Compensation
  F-13




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##### Table of Contents



(q) Recently Issued Accounting pronouncements
 Fair
Value Measurements.
 The
Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115.
    (r) Prior Year Financial Statement Presentation
  (2) Fair Values of Financial Instruments
  F-14




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##### Table of Contents



Cash and cash equivalents, accounts receivable, other current assets, accounts payable and
other current liabilities.
 Notes receivable.
 Debt.
 Commodity price derivatives.
 Interest rate derivatives.
 (3) Credit Facility
    F-15




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##### Table of Contents



December 31,2006
    
    
    2007Legacy facility- due March 2010
    
    $
    115,800,000
    
    
    $
    110,000,000
 (4) Acquisitions
 PITCO Acquisition
  Legacy Formation Acquisition
  F-16




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##### Table of Contents



Number of unitsMPL
    
    
    7,334,070DAB Resources, Ltd.
    
    
    859,703Moriah Group
    
    
    8,193,773Brothers Group
    
    
    6,200,358H2K Holdings Ltd.
    
    
    83,499MBN Properties LP
    
    
    3,162,438LRLP units
    
    
    600,000Total units issued at Legacy Formation
    
    
    18,240,068
   Number of Units
    
    
    Purchase Priceat $17.00 per unit
    
    
    of Assets AcquiredBrothers Group
    
    
    6,200,358
    
    
    $
    105,406,069H2K Holdings Ltd.
    
    
    83,499
    
    
    
    1,419,483Cash paid to three charitable foundations
    
    
    
    
    
    
    7,682,854Total purchase price before liabilities assumed
    
    
    
    
    
    
    114,508,406Plus:Oil and natural gas swap liabilities assumed
    
    
    
    
    
    
    3,147,152Asset retirement obligations incurred
    
    
    
    
    
    
    1,467,241Less:Office furniture, equipment and vehicles acquired
    
    
    
    
    
    
    (107,275
    )Total purchase price allocated to oil and natural gas properties acquired
    
    
    
    
    
    $
    119,015,524
  Number of Units
    
    
    Purchase Price ofat $17.00 per unit
    
    
    Assets AcquiredUnits issued to MBN Properties LP
    
    
    3,162,438
    
    
    $
    53,761,446Cash paid to MBN Properties LP
    
    
    
    
    
    
    65,300,000Total purchase price before liabilities assumed
    
    
    
    
    
    
    119,061,446Plus:Oil and natural gas swap liabilities assumed
    
    
    
    
    
    
    2,539,625ARO liabilities assumed
    
    
    
    
    
    
    453,913Less:Net book value of other property and equipment on MBN Properties LP at March 14, 2006
    
    
    
    
    
    
    (39,056
    )122,015,928Less:Net book value of oil and gas assets on MBN Properties LP at March 14, 2006
    
    
    
    
    
    
    (62,990,390
    )Purchase price in excess of net book value of assets
    
    
    
    
    
    
    59,025,538Less:Share already owned by Moriah via consolidation of MBN Properties LP
    
    
    46.22
    %
    
    
    (27,281,604
    )Non-controlling interest share to record(a)
    
    
    
    
    
    
    31,743,934Plus:Elimination of deferred financing costs related to non-controlling interests share
of MBN Properties LP
    
    
    
    
    
    
    164,202Reimbursement of Brothers Groups share of MBN Management LLC losses from inception
through March 14, 2006
    
    
    
    
    
    
    780,239
 F-17




---



##### Table of Contents



Number of Units
    
    
    Purchase Price ofat $17.00 per unit
    
    
    Assets AcquiredMBN Properties LP purchase price to allocate to oil and natural gas properties
    
    
    
    
    
    $
    32,688,375Units related to purchase of non-controlling interest(a)
    
    
    1,867,290Units related to interest previously owned by Moriah Group
    
    
    1,295,148Total units issued to MBN Properties LP
    
    
    3,162,438
 Larron Acquisition
  South Justis Unit Acquisition
  Kinder Morgan Acquisition
  Binger Acquisition
  Ameristate Acquisition
  F-18




---



##### Table of Contents



TSF Acquisition
  Raven Shenandoah Acquisition
  Raven OBO Acquisition
  TOC Acquisition
  Summit Acquisition
  Pro Forma Operating Results
  F-19




---



##### Table of Contents



December 31,2005
    
    
    2006
    
    
    2007(dollars in thousands,
except per unit data)Revenues
    
    $
    64,128
    
    
    $
    115,414
    
    
    $
    133,628Net income (loss)
    
    $
    6,295
    
    
    $
    12,844
    
    
    $
    (53,261
    )Earnings per unit  basic:Income from continuing operations
    
    $
    0.34
    
    
    $
    0.68
    
    
    $
    (2.02
    )Net income
    
    $
    0.34
    
    
    $
    0.68
    
    
    $
    (2.02
    )Earnings per unit  diluted:Income from continuing operations
    
    $
    0.34
    
    
    $
    0.68
    
    
    $
    (2.02
    )Net income
    
    $
    0.34
    
    
    $
    0.68
    
    
    $
    (2.02
    )Units used in computing earnings per unit:basic
    
    
    18,386,482
    
    
    
    19,004,035
    
    
    
    26,331,107diluted
    
    
    18,386,482
    
    
    
    19,005,627
    
    
    
    26,331,107
 (5) Partnership Investments
   December 31,2005Current assets
    
    $
    1,233,338Other assets
    
    
    31,899Total assets
    
    $
    1,265,237Current liabilities
    
    $
    640,727Notes payable  affiliated entities
    
    
    1,952,753Members capital
    
    
    (1,328,243
    )Total liabilities and members capital
    
    $
    1,265,237
 F-20




---



##### Table of Contents



From InceptionThrough
    
    
    January 1, 2006December 31,
    
    
    to March 14,2005
    
    
    2006General and administrative expenses
    
    $
    (1,278,685
    )
    
    $
    (522,569
    )Operating loss
    
    
    (1,278,685
    )
    
    
    (522,569
    )Other expense
    
    
    (50,558
    )
    
    
    (21,961
    )Net loss
    
    $
    (1,329,243
    )
    
    $
    (544,530
    )
 (6) Related Party Transactions
    (7) Commitments and Contingencies
    (8) Business and Credit Concentrations
 Cash
  Revenue and Trade Receivables
  F-21




---



##### Table of Contents



(9)  Derivative Financial Instruments
  Accounting for Derivative Instruments and Hedging
Activities.
   December 31,2005
    
    
    2006
    
    
    2007Crude oil derivative contract settlements
    
    $
    (3,530,651
    )
    
    $
    (6,666,755
    )
    
    $
    (3,627,050
    )Natural gas liquid derivative contract settlements
    
    
    
    
    
    
    
    
    
    
    (619,466
    )Natural gas derivative contract settlements
    
    
    
    
    
    
    6,404,533
    
    
    
    4,457,519Total derivative contract settlements
    
    
    (3,530,651
    )
    
    
    (262,222
    )
    
    
    211,003Unrealized change in fair value  oil contracts
    
    
    (910,738
    )
    
    
    4,338,459
    
    
    
    (76,484,184
    )Unrealized change in fair value  natural gas liquid contracts
    
    
    
    
    
    
    
    
    
    
    (3,228,274
    )Unrealized change in fair value  natural gas contracts
    
    
    (1,717,476
    )
    
    
    5,212,233
    
    
    
    (5,654,577
    )Total unrealized change in fair value
    
    
    (2,628,214
    )
    
    
    9,550,692
    
    
    
    (85,367,035
    )Total effect of derivative contracts
    
    $
    (6,158,865
    )
    
    $
    9,288,470
    
    
    $
    (85,156,032
    )
    F-22




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##### Table of Contents



Annual
    
    Average
    
    PriceCalendar Year
    
    Volumes (Bbls)
    
    Price per Bbl
    
    Range per Bbl2008
    
    
    1,068,449
    
    
    $
    69.31
    
    
    $
    62.25  -  $86.752009
    
    
    986,413
    
    
    $
    67.43
    
    
    $
    61.05  -  $86.752010
    
    
    919,445
    
    
    $
    66.10
    
    
    $
    60.15  -  $86.752011
    
    
    698,640
    
    
    $
    70.97
    
    
    $
    67.33  -  $86.752012
    
    
    580,800
    
    
    $
    70.94
    
    
    $
    67.72  -  $86.75
  Annual
    
    Average
    
    PriceCalendar Year
    
    Volumes (MMBtu)
    
    Price per MMBtu
    
    Range per MMBtu2008
    
    
    2,533,770
    
    
    $
    8.14
    
    
    $
    6.85  -  $10.582009
    
    
    2,331,470
    
    
    $
    7.99
    
    
    $
    6.85  -  $10.172010
    
    
    2,065,955
    
    
    $
    7.73
    
    
    $
    6.85  -  $9.732011
    
    
    788,824
    
    
    $
    7.25
    
    
    $
    6.85  -  $7.572012
    
    
    493,236
    
    
    $
    7.16
    
    
    $
    6.85  -  $7.57
  Annual
    
    BasisCalendar Year
    
    Volumes (MMBtu)
    
    Range per Mcf2008
    
    
    1,422,000
    
    
    
    ($0.84
    )2009
    
    
    1,320,000
    
    
    
    ($0.68
    )2010
    
    
    1,200,000
    
    
    
    ($0.57
    )
  Annual
    
    Average
    
    PriceCalendar Year
    
    Volumes (Gal)
    
    Price per Gal
    
    Range per Gal2008
    
    
    6,458,004
    
    
    $
    1.27
    
    
    $
    0.66  -  $1.622009
    
    
    2,265,480
    
    
    $
    1.15
    
    
    $
    1.15
  Accounting for
Derivative Instruments and Hedging Activities
  F-23




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##### Table of Contents



EstimatedFair Market ValueFixed
    
    Effective
    
    Maturity
    
    at December 31,Notional Amount
    
    Rate
    
    Date
    
    Date
    
    2007$29,000,000
    
    4.8200%
    
    10/16/2007
    
    10/16/2011
    
    $
    (797,823
    )$13,000,000
    
    4.8100%
    
    11/16/2007
    
    11/16/2011
    
    
    (366,241
    )$12,000,000
    
    4.8075%
    
    11/28/2007
    
    11/28/2011
    
    
    (331,698
    )Total Fair Market Value
    
    
    
    
    
    
    
    $
    (1,495,762
    )
 (10)  Sales to Major Customers
  2005
    
    2006
    
    2007Conoco Phillips
    
    
    10
    %
    
    
    4
    %
    
    
    3
    %Navajo Crude Oil Marketing
    
    
    16
    %
    
    
    12
    %
    
    
    11
    %Plains Marketing, LP
    
    
    18
    %
    
    
    14
    %
    
    
    13
    %Teppco Crude Oil, LP
    
    
    5
    %
    
    
    5
    %
    
    
    13
    %
  (11)  Asset Retirement Obligation
   December 31,2005
    
    
    2006
    
    
    2007Asset retirement obligation  beginning of period
    
    $
    1,952,866
    
    
    $
    2,302,147
    
    
    $
    6,492,780Liabilities incurred in Legacy formation
    
    
    
    
    
    
    1,467,241
    
    
    
    Liabilities incurred with properties acquired
    
    
    446,901
    
    
    
    1,888,954
    
    
    
    3,033,501Liabilities incurred with properties drilled
    
    
    
    
    
    
    22,882
    
    
    
    114,317Liabilities settled during the period
    
    
    (53,852
    )
    
    
    (213,343
    )
    
    
    (372,611
    )Current period accretion
    
    
    109,429
    
    
    
    242,432
    
    
    
    470,002Current period revisions to accretion expense
    
    
    (163,281
    )
    
    
    
    
    
    
    Current period revisions to oil and natural gas properties
    
    
    10,084
    
    
    
    782,467
    
    
    
    6,181,660Asset retirement obligation  end of period
    
    $
    2,302,147
    
    
    $
    6,492,780
    
    
    $
    15,919,649
  F-24




---



##### Table of Contents



(12)  Earnings (Loss) Per Unit
  December 31,2005
    
    
    2006
    
    
    2007Income (loss) available to unitholders
    
    $
    5,859
    
    
    $
    4,357
    
    
    $
    (55,662
    )Weighted average number of units outstanding
    
    
    9,488,921
    
    
    
    16,567,287
    
    
    
    26,155,439Effect of dilutive securities:Unit options
    
    
    
    
    
    
    
    
    
    
    Restricted units
    
    
    
    
    
    
    1,592
    
    
    
    Weighted average units and potential units outstanding
    
    
    9,488,921
    
    
    
    16,568,879
    
    
    
    26,155,439Basic earnings per unit
    
    $
    0.62
    
    
    $
    0.26
    
    
    $
    (2.13
    )Diluted earnings per unit
    
    $
    0.62
    
    
    $
    0.26
    
    
    $
    (2.13
    )
  (13)  Unit-Based Compensation
 Long Term Incentive Plan
    Unit Options and Unit Appreciation Rights
  F-25




---



##### Table of Contents



WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    ContractualUnits
    
    
    Price
    
    
    TermOutstanding at January 1, 2007
    
    
    260,000
    
    
    $
    17.01Granted
    
    
    179,116
    
    
    $
    23.09Exercised
    
    
    (23,038
    )
    
    $
    17.00Forfeited
    
    
    (16,656
    )
    
    $
    17.09Outstanding at December 31, 2007
    
    
    399,422
    
    
    $
    19.73
    
    
    3.6  yearsOptions exercisable at December 31, 2007
    
    
    62,800
    
    
    $
    17.04
    
    
    3.3  years
  Non-Vested OptionsWeighted-Number of
    
    
    Average FairUnits
    
    
    ValueNon-vested at January 1, 2007
    
    
    260,000
    
    
    $
    2.62Granted
    
    
    179,116
    
    
    
    3.40Vested  Unexercised
    
    
    (62,800
    )
    
    
    4.65Vested  Exercised
    
    
    (23,038
    )
    
    
    10.14Forfeited
    
    
    (16,656
    )
    
    
    9.56Non-vested at December 31, 2007
    
    
    336,622
    
    
    $
    4.09
  Year EndedDecember 31,2007Expected life (years)
    
    
    5Annual interest rate
    
    
    3.5
    %Annual distribution rate per unit
    
    $
    1.80Volatility
    
    
    41
    %
 F-26




---



##### Table of Contents



Restricted and Phantom Units
      (14)  Costs Incurred in Oil and Natural Gas Property Acquisition and Development Activities
  Year Ended December 31,2005
    
    
    2006
    
    
    2007Development costs
    
    $
    1,958,455
    
    
    $
    17,325,052
    
    
    $
    22,967,534Exploration costs
    
    
    
    
    
    
    
    
    
    
    Acquisition costs:Proved properties
    
    
    65,405,917
    
    
    
    187,006,693
    
    
    
    200,399,637Unproved properties
    
    
    2,928
    
    
    
    
    
    
    
    Total acquisition, development and exploration costs
    
    $
    67,367,300
    
    
    $
    204,331,745
    
    
    $
    223,367,171
  F-27




---



##### Table of Contents



(15) Net Proved Oil and Natural Gas Reserves (Unaudited)
  NaturalOil
    
    
    NGL
    
    
    Gas(MBbls)
    
    
    (MBbls)
    
    
    (MMcf)Total Proved Reserves:Balance, December 31, 2004
    
    
    4,109
    
    
    
    
    
    
    
    10,470Purchases of minerals-in-place
    
    
    3,541
    
    
    
    
    
    
    
    12,800Revisions of previous estimates due to infill drilling,
recompletions and
stimulations
    
    
    794
    
    
    
    
    
    
    
    1,258Revisions of previous estimates due to prices and performance
    
    
    28
    
    
    
    
    
    
    
    956Production
    
    
    (354
    )
    
    
    
    
    
    
    (1,027
    )Balance, December 31, 2005(a)
    
    
    8,118
    
    
    
    
    
    
    
    24,457Purchases of minerals-in-place
    
    
    6,352
    
    
    
    
    
    
    
    11,871Extensions and discoveries
    
    
    75
    
    
    
    
    
    
    
    207Revisions of previous estimates due to infill drilling,
recompletions and
stimulations
    
    
    233
    
    
    
    
    
    
    
    494Revisions of previous estimates due to prices and performance
    
    
    (657
    )
    
    
    
    
    
    
    (2,296
    )Production
    
    
    (749
    )
    
    
    
    
    
    
    (2,200
    )Balance, December 31, 2006
    
    
    13,372
    
    
    
    
    
    
    
    32,533Purchases of minerals-in-place
    
    
    6,367
    
    
    
    3,971
    
    
    
    19,417Sales of minerals-in-place
    
    
    (1
    )
    
    
    
    
    
    
    (2
    )Revisions from drilling and recompletions
    
    
    220
    
    
    
    
    
    
    
    386Revisions of previous estimates due to price and performance
    
    
    810
    
    
    
    180
    
    
    
    1,578Production
    
    
    (1,179
    )
    
    
    (126
    )
    
    
    (3,052
    )Balance, December 31, 2007
    
    
    19,589
    
    
    
    4,025
    
    
    
    50,860Proved Developed Reserves:December 31, 2004
    
    
    4,109
    
    
    
    
    
    
    
    10,470December 31, 2005
    
    
    6,380
    
    
    
    
    
    
    
    20,618December 31, 2006
    
    
    11,132
    
    
    
    
    
    
    
    28,126December 31, 2007
    
    
    17,434
    
    
    
    3,954
    
    
    
    45,455
 (a)
    
    Includes 3.2 MMBls of oil and 13.0 Bcf of natural gas held by MBN
Properties, LP of which 1.7 MMBls and 7.0 Bcf of natural gas was owned
by the non-controlling interest.
 (16) Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to
Proved Reserves (Unaudited)
  F-28




---



##### Table of Contents



December 31,2005(a)
    
    
    2006
    
    
    2007(thousands)Future production revenues
    
    $
    684,021
    
    
    $
    947,914
    
    
    $
    2,431,492Future costs:Production
    
    
    (242,796
    )
    
    
    (387,238
    )
    
    
    (925,450
    )Development
    
    
    (27,609
    )
    
    
    (43,419
    )
    
    
    (68,745
    )Future net cash flows before income taxes
    
    
    413,616
    
    
    
    517,257
    
    
    
    1,437,29710% annual discount for estimated timing of cash flows
    
    
    (221,619
    )
    
    
    (276,694
    )
    
    
    (746,759
    )Standardized measure of discounted net cash flows
    
    $
    191,997
    
    
    $
    240,563
    
    
    $
    690,538
 (a)
    
    Includes $93.0 million of standardized measure held by MBN Properties
LP of which $50.2 million was owned by the non-controlling interest.
  December 31,2005
    
    2006
    
    2007Oil (per Bbl)
    
    $
    57.64
    
    
    $
    56.73
    
    
    $
    91.96Natural Gas
(per Mcf)
    
    $
    8.82
    
    
    $
    5.82
    
    
    $
    6.39
 F-29




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##### Table of Contents



Year ended December 31,2005
    
    
    2006
    
    
    2007(dollars in thousands)Increase (decrease):Sales, net of production costs
    
    $
    (17,532
    )
    
    $
    (40,113
    )
    
    $
    (77,260
    )Net change in sales prices, net of production costs
    
    
    36,574
    
    
    
    (60,531
    )
    
    
    178,972Changes in estimated future development costs
    
    
    (21,401
    )
    
    
    4,582
    
    
    
    1,426Extensions and discoveries, net of future production and development
costs
    
    
    
    
    
    
    2,723
    
    
    
    Revisions of previous estimates due to infill drilling, recompletions and
stimulations
    
    
    19,319
    
    
    
    7,919
    
    
    
    7,347Revisions of previous quantity estimates due to prices and performance
    
    
    3,156
    
    
    
    (12,232
    )
    
    
    4,273Previously estimated development costs incurred
    
    
    (178
    )
    
    
    9,517
    
    
    
    7,345Purchases of minerals-in place
    
    
    102,289
    
    
    
    127,009
    
    
    
    300,907Ownership interest corrections
    
    
    
    
    
    
    
    
    
    
    1,480Sales of minerals in place
    
    
    
    
    
    
    
    
    
    
    (22
    )Other
    
    
    4,458
    
    
    
    (2,971
    )
    
    
    2,093Accretion of discount
    
    
    4,955
    
    
    
    12,663
    
    
    
    23,414Net increase
    
    
    131,640
    
    
    
    48,566
    
    
    
    449,975Standardized measure of discounted future net cash flows:Beginning of year
    
    
    60,357
    
    
    
    191,997
    
    
    
    240,563End of year
    
    $
    191,997
    
    
    $
    240,563
    
    
    $
    690,538
  F-30




---



##### Table of Contents



(17)  Selected Quarterly Financial Data (Unaudited)
 For the three-month periods ended:
 March 31
    
    
    June 30
    
    

September 30
    
    
    December 312007Revenues:Oil sales
    
    $
    12,301
    
    
    $
    16,653
    
    
    $
    22,442
    
    
    $
    31,905Natural gas liquids sales
    
    
    105
    
    
    
    1,072
    
    
    
    1,714
    
    
    
    4,611Natural gas sales
    
    
    3,526
    
    
    
    5,010
    
    
    
    5,241
    
    
    
    7,656Total revenues
    
    
    15,932
    
    
    
    22,735
    
    
    
    29,397
    
    
    
    44,172Expenses:Oil and natural gas production
    
    
    4,739
    
    
    
    6,088
    
    
    
    7,581
    
    
    
    8,721Production and other taxes
    
    
    994
    
    
    
    1,481
    
    
    
    1,886
    
    
    
    3,528General and administrative
    
    
    1,827
    
    
    
    2,769
    
    
    
    1,443
    
    
    
    2,353Depletion, depreciation, amortization and accretion
    
    
    5,295
    
    
    
    6,811
    
    
    
    6,960
    
    
    
    9,349Impairment of long-lived assets
    
    
    90
    
    
    
    190
    
    
    
    950
    
    
    
    1,974Loss on disposal of assets
    
    
    
    
    
    
    231
    
    
    
    156
    
    
    
    140Total expenses
    
    
    12,945
    
    
    
    17,570
    
    
    
    18,976
    
    
    
    26,065Operating Income
    
    
    2,987
    
    
    
    5,165
    
    
    
    10,421
    
    
    
    18,107Interest income
    
    
    104
    
    
    
    47
    
    
    
    54
    
    
    
    116Interest expense
    
    
    (625
    )
    
    
    (893
    )
    
    
    (1,905
    )
    
    
    (3,695
    )Equity in income of partnership
    
    
    
    
    
    
    11
    
    
    
    30
    
    
    
    36Realized gain (loss) on oil, NGL and natural gas swaps
    
    
    2,466
    
    
    
    1,362
    
    
    
    408
    
    
    
    (4,025
    )Unrealized
loss on oil, NGL and natural
gas swaps
    
    
    (9,689
    )
    
    
    (7,855
    )
    
    
    (6,844
    )
    
    
    (60,979
    )Other
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (130
    )Net income (loss) before income taxes
    
    
    (4,757
    )
    
    
    (2,162
    )
    
    
    2,164
    
    
    
    (50,570
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (337
    )Net income (loss)
    
    $
    (4,757
    )
    
    $
    (2,162
    )
    
    $
    2,164
    
    
    $
    (50,907
    )Net income (loss) per share  basic and diluted
    
    $
    (0.19
    )
    
    $
    (0.08
    )
    
    $
    0.08
    
    
    $
    (1.81
    )Production volumes:Oil (MBbl)
    
    
    228
    
    
    
    273
    
    
    
    312
    
    
    
    365Natural Gas Liquids (Mgal)
    
    
    104
    
    
    
    856
    
    
    
    1,345
    
    
    
    2,991Natural Gas (MMcf)
    
    
    588
    
    
    
    718
    
    
    
    801
    
    
    
    945Total (Mboe)
    
    
    329
    
    
    
    413
    
    
    
    478
    
    
    
    594
 F-31




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##### Table of Contents



For the three-month periods ended:
 March 31
    
    
    June 30
    
    
    September 30
    
    
    December 312006Revenues:Oil sales
    
    $
    7,440
    
    
    $
    11,800
    
    
    $
    13,204
    
    
    $
    12,907Natural gas sales
    
    
    2,995
    
    
    
    3,588
    
    
    
    4,239
    
    
    
    3,624Total revenues
    
    
    10,435
    
    
    
    15,388
    
    
    
    17,443
    
    
    
    16,531Expenses:Oil and natural gas production
    
    
    2,677
    
    
    
    3,186
    
    
    
    4,297
    
    
    
    5,778Production and other taxes
    
    
    738
    
    
    
    943
    
    
    
    1,030
    
    
    
    1,035General and administrative(a)
    
    
    956
    
    
    
    1,253
    
    
    
    1,057
    
    
    
    426Dry hole costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depletion, depreciation, amortization and accretion
    
    
    2,388
    
    
    
    4,967
    
    
    
    5,346
    
    
    
    5,693Impairment of long-lived assets
    
    
    
    
    
    
    
    
    
    
    8,573
    
    
    
    7,540Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42Total expenses
    
    
    6,759
    
    
    
    10,349
    
    
    
    20,303
    
    
    
    20,514Operating Income
    
    
    3,676
    
    
    
    5,039
    
    
    
    (2,860
    )
    
    
    (3,983
    )Interest income
    
    
    33
    
    
    
    5
    
    
    
    55
    
    
    
    36Interest expense
    
    
    (1,445
    )
    
    
    (1,210
    )
    
    
    (1,857
    )
    
    
    (2,133
    )Realized gain (loss) on oil, NGL and natural gas swaps
    
    
    1,398
    
    
    
    548
    
    
    
    (4,128
    )
    
    
    1,920Unrealized gain (loss) on oil, NGL and natural
gas swaps
    
    
    (5,294
    )
    
    
    (9,724
    )
    
    
    22,734
    
    
    
    1,835Other
    
    
    (303
    )
    
    
    
    
    
    
    
    
    
    
    14Net income (loss)
    
    $
    (1,935
    )
    
    $
    (5,342
    )
    
    $
    13,944
    
    
    $
    (2,311
    )Net income (loss) per share  basic and diluted
    
    $
    (0.17
    )
    
    $
    (0.29
    )
    
    $
    0.76
    
    
    $
    (0.13
    )Production volumes:Oil (MBbl)
    
    
    129
    
    
    
    184
    
    
    
    203
    
    
    
    233Natural Gas (MMcf)
    
    
    434
    
    
    
    594
    
    
    
    571
    
    
    
    601Total (Mboe)
    
    
    201
    
    
    
    283
    
    
    
    298
    
    
    
    333
 (a)
    
    General and administrative expenses for the quarter ended December 31,
2006 reflect an adjustment to reverse certain accruals which had been recorded
during the first three quarters and were not deemed necessary.
 (18)  Subsequent Events
   F-32




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##### Table of Contents



Swap
    
    
    ContractTime Period
    
    Volumes
    
    
    Oil PriceCalendar Contracts
    
    (Bbls.)
    
    
    ($/Bbl)June-Dec. 2008
    
    
    90,300
    
    
    $
    101.472009
    
    
    145,200
    
    
    $
    101.472010
    
    
    134,400
    
    
    $
    101.472011
    
    
    124,800
    
    
    $
    101.472012
    
    
    116,400
    
    
    $
    101.47Total
    
    
    611,100
    
    
    $
    101.47
  ContractSwap
    
    
    NaturalTime Period
    
    Volumes
    
    
    Gas PriceCalendar Contracts
    
    (MMBtu)
    
    
    ($/MMBtu)June-Dec. 2008
    
    
    253,463
    
    
    $
    8.702009
    
    
    399,372
    
    
    $
    8.702010
    
    
    364,404
    
    
    $
    8.702011
    
    
    951,792
    
    
    $
    8.702012
    
    
    719,400
    
    
    $
    8.70Total
    
    
    2,688,431
    
    
    $
    8.70
 F-33




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    
    
    Description3.1
    
    -
    
    Certificate of Limited Partnership of Legacy Reserves LP (Incorporated by reference to Legacy Reserves
LPs Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 3.1)3.2
    
    -
    
    Amended and Restated Limited Partnership Agreement of Legacy Reserves LP (Incorporated by reference to
Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006,
included as Appendix A to the Prospectus and including specimen unit certificate for the units)3.3
    
    -
    
    Amendment No. 1, dated December 27, 2007, to the Amended and Restated Agreement of Limited
Partnership of Legacy Reserves LP (Incorporated by reference to Legacy Reserves LPs current report on
Form 8-K filed January 2, 2008, Exhibit 3.1)3.4
    
    -
    
    Certificate of Formation of Legacy Reserves GP, LLC (Incorporated by reference to Legacy Reserves LPs
Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 3.3)3.5
    
    -
    
    Amended and Restated Limited Liability Company Agreement of Legacy Reserves GP, LLC (Incorporated
by reference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed May
12, 2006, Exhibit 3.4)4.1
    
    -
    
    Registration Rights Agreement dated as of March 15, 2006 by and among Legacy Reserves LP, Legacy
Reserves GP, LLC and Friedman, Billings, Ramsey & Co. (Incorporated by reference to Legacy Reserves
LPs Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 4.1)4.2
    
    -
    
    Registration Rights Agreement dated June 29, 2006 between Henry Holdings LP and Legacy Reserves LP
and Legacy Reserves GP, LLC (the Henry Registration Rights Agreement) (Incorporated by reference to
Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed September 5. 2006,
Exhibit 4.2)4.3
    
    -
    
    Registration Rights Agreement dated March 15, 2006 by and among Legacy Reserves LP, Legacy Reserves
GP, LLC and the other parties there to (the Founders Registration Rights Agreement) (Incorporated by
reference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed
September 5, 2006, Exhibit 4.3)4.4
    
    -
    
    Registration Rights Agreement dated April 16, 2007 by and among Nielson & Associates, Inc., Legacy
Reserves GP, LLC and Legacy Reserves LP (Incorporated by reference to Legacy Reserves LPs quarterly
report on Form 10-Q filed May 14, 2007, Exhibit 4.4)4.5
    
    -
    
    Registration Rights Agreement dated as of November 8, 2007 by and among Legacy Reserves LP and the
Purchasers named therein (Incorporated by reference to Legacy Reserves LPs current report on Form 8-K
filed November 9, 2007, Exhibit 4.1)10.1
    
    -
    
    Credit Agreement dated as of March 15, 2006, among Legacy Reserves LP, the lenders from time to time
party thereto, and BNP Paribas, as administrative agent (Incorporated by reference to Legacy Reserves LPs
Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 10.1)10.2
    
    -
    
    Contribution, Conveyance and Assumption Agreement dated as of March 15, 2006 by and among Legacy
Reserves LP, Legacy Reserves GP, LLC and the other parties thereto (Incorporated by reference to Legacy
Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 10.2)10.3
    
    -
    
    Omnibus Agreement dated as of March 15, 2006 by and among Legacy Reserves LP, Legacy Reserves GP,
LLC and the other parties thereto (Incorporated by reference to Legacy Reserves LPs Registration
Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 10.3)10.4
    
    -
    
    Purchase/Placement Agreement dated as of March 6, 2006 by and among Legacy Reserves LP, Legacy
Reserves GP, LLC and the other parties there to (Incorporated by reference to Legacy Reserves LPs
Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 10.4)10.5
    
    -
    
    Legacy Reserves, LP Long-Term Incentive Plan (Incorporated by reference to Legacy Reserves LPs
Registration Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 10.5)




---



##### Table of Contents



ExhibitNumber
    
    
    
    Description10.6
    
    -
    
    First Amendment of Legacy Reserves LP to Long Term Incentive Plan dated June 16, 2006 (Incorporated by
reference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed
October 5, 2006, Exhibit 10.17)10.7
    
    -
    
    Amended and Restated Legacy Reserves LP Long-Term Incentive Plan effective as of August 17, 2007
(Incorporated by reference to Legacy Reserves LPs current report on Form 8-K filed August 23, 2007,
Exhibit 10.1)10.8
    
    -
    
    Form of Legacy Reserves LP Long-Term Incentive Plan Restricted Unit Grant Agreement (Incorporated by
reference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed May 12,
2006, Exhibit 10.6)10.9
    
    -
    
    Form of Legacy Reserves LP Long-Term Incentive Plan Unit Option Grant Agreement (Incorporated by
reference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed
September 5, 2006, Exhibit 10.7)10.10
    
    -
    
    Form of Legacy Reserves LP Long-Term Incentive Plan Unit Grant Agreement (Incorporated by reference to
Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed September 5, 2006,
Exhibit 10.8)10.11
    
    -
    
    Form of Legacy Reserves LP Long-Term Incentive Plan Grant of Phantom Units (Incorporated by reference
to Legacy Reserves LPs current report on Form 8-K filed February 4, 2008, Exhibit 10.1)10.12
    
    -
    
    Employment Agreement dated as of March 15, 2006 between Cary D. Brown and Legacy Reserves Services,
Inc. (Incorporated by reference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-
134056) filed May 12, 2006, Exhibit 10.9)10.13
    
    -
    
    Employment Agreement dated as of March 15, 2006 between Steven H. Pruett and Legacy Reserves
Services, Inc. (Incorporated by reference to Legacy Reserves LPs Registration Statement on Form S-1 (File
No. 333-134056) filed May 12, 2006, Exhibit 10.10)10.14
    
    -
    
    Employment Agreement dated as of March 15, 2006 between Kyle A. McGraw and Legacy Reserves
Services, Inc. (Incorporated by reference to Legacy Reserves LPs Registration Statement on Form S-1 (File
No. 333-134056) filed May 12, 2006, Exhibit 10.11)10.15
    
    -
    
    Employment Agreement dated as of March 15, 2006 between Paul T. Horne and Legacy Reserves Services,
Inc. (Incorporated by reference to Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-
134056) filed May 12, 2006, Exhibit 10.12)10.16
    
    -
    
    Employment Agreement dated as of March 15, 2006 between William M. Morris and Legacy Reserves
Services, Inc. (Incorporated by reference to Legacy Reserves LPs Registration Statement on Form S-1 (File
No. 333-134056) filed May 12, 2006, Exhibit 10.13)10.17
    
    -
    
    First Amendment to Credit Agreement effective as of July 7, 2006 among Legacy Reserves LP, the lenders
from time to time party thereto, and BNP Paribas, as administrative agent (Incorporated by reference to
Legacy Reserves LPs Registration Statement on Form S-1 (File No. 333-134056) filed September 5, 2006,
Exhibit 10.14)10.18
    
    -
    
    Second Amendment to Credit Agreement dated May 3, 2007 among Legacy Reserves LP, the lenders from
time to time party thereto, and BNP Paribas, as administrative agent (Incorporated by reference to Legacy
Reserves LPs current report on Form 8-K filed May 8, 2007, Exhibit 10.1)10.19
    
    -
    
    Third Amendment to Credit Agreement dated October 24, 2007 among Legacy Reserves LP, the lenders
from time to time party thereto, and BNP Paribas, as administrative agent (Incorporated by reference to
Legacy Reserves LPs current report on Form 8-K filed October 29, 2007, Exhibit 10.1)10.20
    
    -
    
    Purchase and Sale Agreement dated June 29, 2006 between Kinder Morgan Production Company LP and
Legacy Reserves Operating LP (Incorporated by reference to Legacy Reserves LPs Registration Statement
on Form S-1 (File No. 333-134056) filed October 5, 2006, Exhibit 10.15)




---



##### Table of Contents



10.21
    
    -
    
    Purchase and Sale Agreement dated June 13, 2006 between Henry Holding LP and Legacy Reserves
Operating LP (Incorporated by reference to Legacy Reserves LPs Registration Statement on Form S-1 (File
No. 333-134056) filed September 5, 2006, Exhibit 10.16)10.22
    
    -
    
    Purchase and Sale Agreement dated March 29, 2007, by and among Ameristate Exploration, LLC and
Legacy Reserves Operating LP (Incorporated by reference to Legacy Reserves LPs current report on Form
8-K filed May 4, 2007, Exhibit 10.1)10.23
    
    -
    
    Purchase, Sale and Contribution Agreement dated March 20, 2007, by and among Nielson & Associates, Inc.
and Legacy Reserves Operating LP (Incorporated by reference to Legacy Reserves LPs quarterly report on
Form 10-Q filed May 14, 2007, Exhibit 10.1)10.24
    
    -
    
    Purchase, Sale and Contribution Agreement dated March 20, 2007, by and among Terry S. Fields and
Legacy Reserves Operating LP (Incorporated by reference to Legacy Reserves LPs quarterly report on
Form 10-Q filed August 13, 2007, Exhibit 10.1)10.25
    
    -
    
    Purchase, Sale and Contribution Agreement dated May 3, 2007, by and among Raven Resources, LLC and
Shenandoah Petroleum Corporation and Legacy Reserves Operating LP (Incorporated by reference to
Legacy Reserves LPs quarterly report on Form 10-Q filed August 13, 2007, Exhibit 10.2)10.26
    
    -
    
    Purchase, Sale and Contribution Agreement dated July 11, 2007, by and among Raven Resources, LLC and
Legacy Reserves Operating LP (Incorporated by reference to Legacy Reserves LPs quarterly report on
Form 10-Q filed November 9, 2007, Exhibit 10.1)10.27
    
    -
    
    Purchase, Sale and Contribution Agreement dated August 28, 2007, by and among Summit Petroleum
Management Corporation and Legacy Reserves Operating LP (Incorporated by reference to Legacy Reserves
LPs quarterly report on Form 10-Q filed November 9, 2007, Exhibit 10.3)10.28
    
    -
    
    Purchase, Sale and Contribution Agreement dated August 30, 2007, by and among The Operating Company
and Legacy Reserves Operating LP (Incorporated by reference to Legacy Reserves LPs quarterly report on
Form 10-Q filed November 9, 2007, Exhibit 10.4)10.29
    
    -
    
    Unit Purchase Agreement dated as of November 7, 2007 by and among Legacy Reserves LP, Legacy
Reserves GP, LLC and the Purchasers named therein (Incorporated by reference to Legacy Reserves LPs
current report on Form 8-K filed November 9, 2007, Exhibit 10.1)21.1
    
    -
    
    List of subsidiaries of Legacy Reserves LP (Incorporated by reference to Legacy Reserves LPs Registration
Statement on Form S-1 (File No. 333-134056) filed May 12, 2006, Exhibit 21.1)23.1*
    
    -
    
    Consent of BDO Seidman LLP23.2*
    
    -
    
    Consent of LaRoche Petroleum Consultants, Ltd.31.1*
    
    -
    
    Rule 13a-14(a) Certification of CEO (under Section 302 of the Sarbanes-Oxley Act of 2002)31.2*
    
    -
    
    Rule 13a-14(a) Certification
of CFO (under Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    -
    
    Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002)
 
 *
    
    Filed herewith
    
    Management contract or compensatory plan or arrangement