As an investor who is always on the lookout for a high-yielding income-driven play, I've decided to shift my focus to the oil & gas drilling exploration sector and highlight several of the reasons behind my decision to remain bullish on shares of Breitburn Energy Partners, L.P. (NASDAQ:BBEP).
#1: Recent Performance & Trend Behavior
On Friday, shares of BBEP, which currently possess a market cap of $1.94 billion, a forward P/E ratio of 18.64, and a dividend yield of 10.01% ($1.95), settled at a price of $19.48/share. Based on their closing price of $19.48/share, shares of BBEP are trading 3.29% above their 20-day simple moving average, 4.31% above their 50-day simple moving average, and 8.60% above their 200-day simple moving average. These numbers indicate a short-term, mid-term, and long-term uptrend for the stock which generally translates into a moderate buying mode for both near-term traders and longer-term investors.
#2: 36-Month Dividend Behavior
Since November 5, 2010, the partnership has increased its quarterly distribution in each of the last twelve quarters, with the most recent increase having taken place in November of this year. The partnership's forward yield of 10.01% ($1.95) coupled with its ability to maintain its quarterly distribution over last three years, make this particular MLP play a highly considerable option, especially for those who may be in the market for a higher-yielding stream of quarterly income.
#3: Comparable Dividend Growth
Not only does the partnership's 10.01% dividend yield and 36-month dividend behavior make this particular stock a highly attractive option for most income-driven investors, its dividend growth over the last three years versus one of its sector-based peers is also something investors should almost certainly consider. From a comparable standpoint, BBEP's dividend has grown a solid 25% over the past three years, whereas the dividend growth of Enerplus (NYSE:ERF) has actually fallen 52.70% over the same period.
#4: Recent Acquisition of $282 Million in Permian Properties
On Friday, December 13 Breitburn Energy announced that it had agreed to acquire additional oil and natural gas properties in the Permian Basin for approximately $282 million from CrownRock LP.
The properties include an estimated average daily net production of approximately 2,900 boe per day (60% of which is oil), an estimated reserve life index of more than 15 years based on estimated proved reserves of roughly 16.6 million boe, and approximately 93 producing wells and 300-plus potential drilling locations. If Breitburn can take advantage of the properties estimated daily net production numbers, its reserve life index and the potential for an additional 300 drilling locations, I see no reason why both long-term earnings and revenue estimates can't be met and/or exceeded.
Risk Factors (Most Recent 10-K)
According to the Partnership's most recent 10-K there are a number of risk factors investors should consider before establishing a position Breitburn Energy Partners. These risk factors include but are not limited to:
#1 - The partnership may be unable to compete effectively with other companies in the oil and gas industry, which may adversely affect its ability to generate sufficient revenue that would further be used to pay distributions to its unit-holders.
#2 - Future oil and natural gas price declines may result in a write-down of the partnerships asset carrying values.
#3 - The partnerships inability to replace its reserves could result in a material decline in both the number of reserves it currently holds and its overall production, which could adversely affect its financial condition.
#4 - The partnerships derivative activities could result in financial losses and a reduction in income, which may adversely affect its ability to pay distributions to its unit-holders.
#5 - The partnerships estimated proved reserves are based on many assumptions that may prove to be inaccurate. Any material inaccuracies in these reserve estimates or their underlying assumptions could materially affect the quantities and the present value of the partnerships reserves.
For those of you who may be considering a position in Breitburn Energy Partners I'd keep a watchful eye on a number of things over the next 12-24 months as each could play a role in both the partnership's near-term and long-term growth. For example, near-term investors should focus on the recent performance and trend behavior of the partnership while longer-term investors should focus on how well the company's recent acquisition will impact its earnings, especially after its most recent earnings announcement which missed estimates by a fairly wide margin.
Disclosure: I am long BBEP. 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.