1358831--3/14/2008--LEGACY_RESERVES

related topics

{debt, indebtedness, cash}

{gas, price, oil}

{tax, income, asset}

{stock, price, operating}

{interest, director, officer}

{cost, regulation, environmental}

{control, financial, internal}

{investment, property, distribution}

{loss, insurance, financial}

{operation, international, foreign}

{competitive, industry, competition}

{regulation, change, law}

{operation, natural, condition}

{loan, real, estate}

{personnel, key, retain}

{stock, price, share}

{condition, economic, financial}

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. The liability of our unitholders may not be limited if a court finds that unitholder action constitutes control of our business. Unitholders may have liability to repay distributions that were wrongfully distributed to them. 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. 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. 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.

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1358831--3/14/2008--LEGACY_RESERVES_LP