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The Reason Behind Legacy Reserves' Rapid Ascent

Mar. 08, 2018 12:56 PM ETLegacy Reserves Inc. (LGCY)87 Comments


  • Legacy Reserves has seen a real awakening this year, with investors piling back into the stocks.
  • The move, while doubtlessly driven in part by a stronger oil and gas market, owes a great deal to Baines Creek Capital.
  • The fund has rapidly acquired over 15% of Legacy's common units, as well as some preferred and call options.
  • This catalyst provides shareholders with yet one more reason to consider a purchase in Legacy, but it's not without its risks.

One of the most fascinating ticker stories so far this year has to be that of Legacy Reserves (NASDAQ:LGCY). Since 2018 began, shares of the E&P company have soared, not only because of a better outlook regarding oil and gas, but because a small, obscure hedge fund has rapidly accumulated a significant portion of the business. This has led to a rise in optimism surrounding the company and has the potential to create a great deal of volatility (both up and down) for shareholders moving forward.

A big buyer

Baines Creek Capital's public story with Legacy began in 2016 when the firm reported the purchase of, on December 31st, 546,350 of the E&P firm's Class B Preferred units. Due to the size of the purchases leading up to that date, which brought the company's control over Legacy's Class B units to 7.6% of what all was outstanding, the firm filed a Form SC 13G/A. Any increase in stock ownership to 5% or greater must generally be disclosed to the public.

After the purchase in question, Baines went dark. It wasn't until October of last year that the firm began making more substantive moves. That month, the company reported its ownership, spread between Baines Creek Partners, Baines Creek Special Purpose Partners, and some of its managers/investors, of a total of 3.69 million common shares, or 5.01% of what was outstanding at that time. Again, silence crept over the picture. Investors could be excused for thinking that Baines was just buying a slice of Legacy to benefit from the upside with the intention of not diving in too much, but such a conclusion would prove to be wrong.

*Created by Author

In January of this year, Baines began to rapidly accumulate shares. Their January 9th filing, for instance, showed that management had increased its share count

This article was written by

Daniel Jones profile picture
Robust cash flow analyses of oil and gas companies

Daniel is an avid and active professional investor. He runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein.

Analyst’s Disclosure: I am/we are long LGCY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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