The Permian Basin, one of the largest and most prolific oil and natural gas producing basins in the United States, was discovered in 1921 and extends over 100,000 square miles in West Texas and southeast New Mexico. It is characterized by oil and natural gas fields with long production histories and multiple producing formations. These stacked formations have been further drilled and produced following the advent and refinement of horizontal drilling. Currently, the majority of the rigs running in the Permian Basin are drilling horizontal wells. The Permian Basin has historically been our largest operating region and still contains the majority of our drilling locations and development projects. Our producing wells in the Permian Basin are generally characterized as mature oil wells that also produce high-Btu casinghead gas with significant NGL content.

During 2015, one of our wholly owned subsidiaries, Legacy Reserves Operating LP (the "Operating Partnership"), entered into a Development Agreement (as subsequently amended, the "Development Agreement") with Jupiter JV LP ("Investor"), which was formed by certain of TPG Special Situations Partners' investment funds. Pursuant to the Development Agreement, Legacy and Investor participated in the funding, exploration, development and operation of certain of our undeveloped oil and natural gas properties within approximately 3,938 net acres in the Permian Basin (collectively, the "Subject Assets"). Under the terms of the Development Agreement, Investor paid 95% of the costs to the parties' combined interests to develop the assets and 80% of the costs to the parties' combined interests to develop or construct associated saltwater disposal wells and other infrastructure assets. In exchange for funding a portion of the parties' combined costs, Investor received an undivided 80% of our working interest in the assets, subject to a reversionary interest of 15% of our original working interest in the wells upon the occurrence of Investor achieving a 15% internal rate of return in the aggregate with respect to such tranche of wells. Investor's portion of the development costs was limited to $275 million for the initial carry period. 

On August 1, 2017, we, along with Investor, entered into the First Amended and Restated Development Agreement (the “Restated Agreement”).  In accordance with the Restated Agreement, we made a payment of $141 million (the “Acceleration Payment”) to cause the reversion of Investor's working interest from 80% to 15% of the parties' combined interests in all wells contained in the first tranche such that our working interest reverted from 20% to 85% of the parties' combined working interests in all wells contained in the tranche, and all undeveloped assets subject to the terms of the Restated Agreement reverted back to us. Pursuant to the Restated Agreement, Investor shall fund 40% of the costs to the parties' combined interests to develop the wells in the Second Tranche of 16 wells in exchange for an undivided 33.7% working interest of our original working interest in the wells, subject to a reversionary interest of 6.3% of our original working interest in the wells upon the occurrence of Investor achieving a 15% internal rate of return in the aggregate with respect to such tranche of wells. Investor will have the option to fund the Third Tranche on identical terms and will also have the opportunity to participate in a maximum of 6 additional wells per tranche in the Restated Agreement’s area of mutual interest. Investor’s share of its portion of development costs will be limited to $40 million for the Second Tranche, and, if Investor elects to participate in the Third Tranche, its portion of development costs will be limited to $50 million for those wells.