BreitBurn Energy Partners LP (BBEP) is an independent oil and gas limited partnership. It acquires, explores, and develops oil and natural gas properties for the purpose of generating cash flow to distribute to its unitholders. It is currently paying a 9.76% annual distribution/dividend, which it distributes monthly. It requires a K-1 for taxes. Not long ago, it was a preponderantly natural gas-producing company; but with its latest acquisitions, the production breakout has shifted in favor of oil. At 2013E, BBEP's proved reserves were 53% oil, 40% natural gas, and 7% NGLs (natural gas liquids). Further, BBEP is a relatively "safe" company, with 76% of its oil and natural gas production for FY2014 hedged at $93.70/bbl for oil and $4.95/mmbtu for natural gas. Most of the hedges are swaps, so there is very little wiggle room in the prices that will be obtained (except for in the unhedged production).
For Q4 2013, BBEP increased production 40% year-over-year. It increased adjusted EBITDA 50% from Q4 2012. For FY2013, it increase net production and adjusted EBITDA 32% and 34% respectively over FY2012 levels. Oil and NGLs (natural gas liquids) production increased 90% year-over-year to a quarterly record 1.9 MMBoe. The annualized monthly distributions of $1.97 (as paid on February 14, 2014 and attributable to Q4 2013) represent a 4.8% increase over the annualized quarterly distribution of $1.88 per unit for Q4 2012. Further, BBEP completed its recent $302-million Permian Basin acquisition on December 30, 2013. Therefore, that cash flow will be accretable to Q1 2014 distributable cash flow and quarters beyond.
The above all sound good. However, the distribution coverage ratio for Q4 2013 for common units went down from 1.31x in Q3 2013 and 0.95x in Q4 2012 to 0.93x for Q4 2013. The major reason for this appears to be the large impairments charge of $54 million in Q4 2013. Impairments were only $361,000 in Q3 2013 and $147,000 in Q4 2012. Without the impairments charge, distributable cash flow ($55.419 million for Q4 2013) attributable to common unitholders would have been hugely higher. This bodes well for BBEP's future, if the amount of impairments charges can be kept low.
A few of the FY2013 statistics are worthy of mention. Total estimated proved reserves were 214.3 MMBoe as of December 31, 2013. This was up from 149.4 MMBoe as of December 31, 2012. Adjusted EBITDA increase 34% year-over-year to $370.4 million in FY2013. Total production was 10,983 MBoe in FY2013. This was a 32% increase from 2012. A more complete table of adjusted EBITDA and other data is below.
The guidance table below give a good idea of what is likely to improve in FY2014.
A few FY2014 guidance items stand out. First, total production guidance is for 13,600 Mboe -14,400 Mboe (or 14,000 Mboe as a mid-point). This will be a 27.5% improvement over FY2013 (before any new acquisitions). Adjusted EBITDA is expected to be $500-$510 million. The mid-point of $505 million is a 36% improvement over FY2013's EBITDA. Both of these statistics should stand BBEP in good stead in FY2014. Investors should expect good results, especially with natural gas and NGLs prices currently up nicely so far in 2014. Plus, the recent gains in natural gas and NGLs prices bode well for BBEP's longer-term future.
Keep in mind that all of the above guidance is without the benefit of any acquisitions done in FY2014. BBEP guided for $600 million in acquisitions, which would be expected to be accretable to distributed cash flow. In sum, as long as BBEP can keep impairments charges down, it should have a great FY2014. Even with considerable impairments charges, it should have a good 2014. BBEP is a buy.
The two-year chart of BBEP provides some technical direction for this trade.
The slow stochastic sub-chart shows that BBEP is neither overbought not oversold. The main chart shows that BBEP has been in an uptrend since the middle of 2013. It plunged on earnings; but this was likely due to the lower oil sales numbers in Q4 versus Q3. I think the company explained many of these well. There was the weather that every company saw. There was a problem with CO2 supply for the tertiary production wells. This last has been largely resolved. There were some other minor problems. None of these things should stop BBEP from doing well in FY2014. The uptrend seems likely to remain intact. Further, a much smaller impairments number by itself should push the BBEP distributable cash flow number far upward.
The blips downward in adjusted EBITDA and distribution coverage ratio were likely misunderstood by many perusing the earnings. Investors will want to keep an eye on the impairments numbers. However, BBEP is a buy. Perhaps it is a strong buy in these troubled times. It has relatively "safe" production revenues (well-hedged). It has good growth. It appears to be well-managed.
I don't have good comparison figures for the number of units. The common units outstanding as of December 31, 2013 were 119,170,000 versus 84,668 as of December 31, 2012. This sounds exact, but you have to take into account that the last deal ($302 million) closed December 30, 2013; and other deals closed toward the end of the year. BBEP, after FY2013 additions, only has a $4.15B enterprise value. Total deals in FY2103 amounted to about $1.2B, which was about double the amount planned for FY2013. This is more than enough to make a comparison on a per unit basis of FY2012 and FY2013 very hard to do adequately (nearly pointless). It is more helpful to see that the distribution coverage ratio of 1.31x in Q3 2013 fell to 0.93x in Q4 2013, mostly due to a large impairments charge taken in Q4 2013. BBEP should have a great Q1 2014; and the rest of the year is likely to be good-to-great also.
The average analysts' recommendation on BBEP is 1.8 (a buy). CAPS rates BBEP five stars (a strong buy). You won't go too far wrong buying BBEP, although investors may wish to average in. The recent world events have been very unsettling. These include a Chinese HSBC February PMI of 48.5 (contraction). They include the troubles in Ukraine, which are perpetually in the news of late. World events and world economics could easily take the US equities market down. BBEP would likely follow the market.
NOTE: Some of the above fundamental financial information is from Yahoo Finance.
Good Luck Trading.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BBEP over the next 72 hours. 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.