Seeking Alpha
Long only, contrarian, special situations, value
Profile| Send Message| ()  

Energy master limited partnerships (MLPs) have been under pressure over the past two months due to rising interest rates. In addition, E & P MLPs have also been hit by a sell-off triggered by concerns over Linn Energy's (LINE) accounting methods which has been featured in several negative articles in Barron's and recently drew a S.E.C. inquiry as well. One such entity that has sold off unfairly is Breitburn Energy Partners (BBEP).

Company Overview:

Breitburn Energy Partners is an oil & gas E&P concern organized a master limited partnership which came public in 2006. The company has mature long-lived reserves and has grown through acquisitions as well as organic growth. It has assets throughout the country and an enterprise value of ~$2.6B. The shares have declined some 15% over the past 6-8 weeks for reasons covered previously and the recent sell-off presents a buying opportunity for patient value & income investors.


(Click to enlarge)

Reserves:

The company has proven reserves of ~150mmBOE (Barrels of Oil Equivalent) which consists of 49% oil, 47% natural gas and 4% natural gas liquids. The company has over 5400 gross producing wells and operating control of 84% of its production. Its reserves have an average life of 17 years. The company historically has done a solid job of acquiring assets that have been accretive to cash flow & distribution growth. Acquisitions have also helped it increase the amount of reserves provided by oil & liquids. Its capital budget is 90% allocated to growing oil & liquid production.


(Click to enlarge)

These accretive acquisitions have been a major factor in the company consistently being able to grow production & EBITDA at a fast clip since its IPO in 2006.


(Click to enlarge)

Distribution Growth:

BBEP provides a distribution yield of nearly twelve percent (11.9%). The company has increased its distribution payouts for 12 straight quarters. It has best in class distribution growth among E & P MLP concerns.


(Click to enlarge)

Balance Sheet:

The company is approximately a third less leveraged (Debt/EBITDA) than its peer MLP in the space. It maintains a strong liquidity profile and has very extensive hedging program.


(Click to enlarge)

Management:

The company has a deep and experienced management team and several officers bought over 45,000 shares in early July during the pullback.

Analyst View:

The 13 analysts that cover BBEP have a median price target of $22 a share on BBEP. Robert W Baird upgraded Breitburn this week from "Neutral" to "Outperform". Oppenheimer also named BBEP as one of its high yielding MLP plays and has a $23 price target on the shares. Consensus earnings estimates for both FY2013 & FY2014 have moved up substantially in the last month as well. Analysts project almost 60% revenue growth in FY2013 and over 25% sales gains in FY2014.

Summary:

Breitburn Energy Partners has been unfairly caught up in recent concerns around accounting practices that have been prevalent for years in the industry as well as the backup almost all high yielding sectors have experienced over the past 6-8 weeks on rising interest rates. The shares yield almost twelve percent after its recent decline. It has a long record of acquisitive acquisitions and distribution growth. Breitburn's production is well hedged and shares have drawn recent insider buying. Patient value & income investors should be rewarded over time as shares should creep back up in the low 20's in coming months as recent concerns ebb and investors collect a huge yield waiting for capital appreciation to return. BUY

Source: Breitburn Energy Partners: Negativity Is Overdone