BreitBurn Energy Partners (BBEP) is focusing on acquisitions to improve its liquid production in the Permian Basin. It plans to acquire assets that have long liquid production capability and development opportunities. With two already acquired properties in Postle and North East Hardesty from Whiting Petroleum (WLL), and another recent acquisition agreement with CrownRock, BreitBurn continues to strengthen its operation in the Permian Basin.
The use of CO2 enhanced oil recovery, or EOR, technology in Permian basin is causing BreitBurn to focus on these properties. The CO2 EOR technique generally helps increase the total recovery of oil and gas by 10% to 25%. The CO2 injection process is primarily suitable for formations with a carbonated or sandstone oil reservoir, and the Permian Basin is one of the formations that is highly permeable to the CO2 injection process, as most of the large reservoirs in this formation are carbonate formations. The CO2 injection technique occurs after the completion of the primary and secondary phase of oil recovery. Due to lower pressure in the reservoir after the primary and secondary stage of oil recovery, CO2 is used to recover the remaining oil in the reservoir. Moreover, particularly in the Permian Basin, 30% to 45% of the oil recovery can be achieved with CO2 EOR post secondary phase of oil recovery.
Whiting Petroleum operated in the Postle and North East Hardesty fields until October this year. During the Whiting Petroleum operation in the Postle and North East Hardesty fields, the company produced oil using primary and secondary phases of oil recovery. To increase the total production from these fields, it focused on the CO2 EOR technique after the primary and secondary phase. With the technology, it reported production of 113.1 thousands barrels of oil equivalent, for the three months ended in September 2013.
Now, BreitBurn will continue with the second stage of CO2 injection technology to increase production after Whiting Petroleum. BreitBurn will benefit since the required CO2 for the production will be supplied by the company's acquired Dry Trails gas plant in Texas county and Bravo Dome field in New Mexico. The CO2 will be delivered to the producing wells via the 120 mile Transpetco pipeline for the Postle field, Oklahoma. The supply of CO2 for production purposes is contracted for the next 10 to 15 years for 129,000,000 Million cubic feet, or mcf.
The estimated proven reserves at the acquired Postle field and North East Hardesty properties are expected to be around 41.4 million barrels of oil equivalent, or mboe, and the reserve life is expected to be around 15 years. Along with these, the new acquisition from CrownRock L.P has 300 well drilling locations, and it currently has 93 producing wells, which will impact BreitBurn's incremental production from the play using the CO2 EOR technique. The total estimated proved reserves of the field is 16.6 Mmboe with 15 years of reserve life.
(click to enlarge)Source: Energy.gov
Occidental Petroleum (OXY), another major oil and gas producer in the Permian Basin, uses CO2 EOR technology. The company produces 60% of its oil through this technology. This technology is expected to enable Occidental Petroleum to produce around 1 billion to 3 billion barrels of additional oil from the Permian field. Additional oil is the incremental amount of oil produced from reservoirs by providing external pressure through EOR techniques. Every year, it injects 600 billion cubic feet of CO2 into its Permian oil reservoir. To ensure the efficient supply of the CO2 for the oil reservoir, Occidental depends on its own Carbon dioxide production from the Bravo Dome Field in New Mexico.
Equity Offerings: Better cash flow
With its continuous acquisition activity, BreitBurn is creating a strong position in the U.S. oil producing industry. It requires a large amount of capital expenditure, resulting in increasing debt. The company has come up with certain initiatives to offset its long-term debt and provide strong cash flow for its unit holders.
BreitBurn initiated recent equity offerings of 16.5 million with a quoted price of $18.22 per unit. This particular equity offering will help it reduce its outstanding debt and strengthen its cash flow. Along with this, the company offered a 30 day option to purchase an additional 2.47 million common units.
In the third quarter, the company's total long-term debt this year was $1.84 billion, which is higher than the previous quarter. So, BreitBurn will receive the total net proceedings of approximately $333.2 million from the equity offerings, provided the underwriter exercises the 30 day option. The amount will help the company reduce its long-term debt in the coming quarter. This will result in lower interest expenses, resulting in a strong cash flow.
Although BreitBurn's equity offerings caused share dilution, as the outstanding shares will be increased to 118.97 million, I believe that reducing debt and interest expenses will help the company perform better in the coming quarters.
With the CO2 enhanced oil and gas production in the Permian Basin, and continued acquisition of the developed field, BreitBurn has shown an improvement in its third quarter. To continue with the present improvement, the company also initiated equity offerings to offset its long-term debt. I believe this company will witness long-term growth in the future, and I would recommend investors to add this stock to their portfolio to get a modest return in the future.