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Breitburn Energy Partners L.P. (NASDAQ:BBEP)

Q1 2011 Earnings Call

May 10, 2011 1:00 PM ET

Executives

Greg Brown – Executive Vice President and General Counsel

Hal Washburn – CEO

Randy Breitenbach – President

Jim Jackson – Chief Financial Officer

Analyst

Mike Jones – Imperial Capital

Bernie Colson – Oppenheimer

Joel Havard – Hilliard Lyons

Ethan Bellamy – Baird

Jeff Robertson – Barclays Capital

Michael Blum – Wells Fargo

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the BreitBurn Energy Partners investor conference call. The Partnership's news release made earlier today is available from its website at www.breitburn.com. During the presentation our participants will be in a listen-only mode. Afterwards, securities analysts and institutional portfolio managers will be invited to participate in a question-and-answer session. (Operator Instructions).

As a reminder, this call is being recorded, Tuesday, May 10, 2011. A replay of the call will be accessible until midnight, Tuesday, May 24 by dialing 877-870-5176 and entering conference ID 5588903. International callers should dial 858-384-5517. An archive of this call will also be available on the BreitBurn website at www.breitburn.com. I would now like to turn the conference over to Mr. Greg Brown, Executive Vice President and General Counsel of BreitBurn. Please go ahead, Sir.

Greg Brown

Thank you, operator. Good morning everyone. Presenting this morning will be Hal Washburn, BreitBurn's CEO, Randy Breitenbach BreitBurn's President and Jim Jackson BreitBurn's Chief Financial Officer. After their formal remarks, the call will be opened for questions from securities analysts and institution at investors. Let me remind you that today's conference call contains projections, guidance and other forward-looking statements within the meaning of the federal securities laws.

All statements other than statements of historical facts that address future activities and outcomes are forward-looking statements. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied in such statements. These forward-looking statements are our best estimates today and are based upon our current expectations and assumptions about future developments, many of which are beyond our control. Actual conditions and those assumptions may and probably will change from those we projected over the course of the year.

A detailed discussion of many of these uncertainties is set forth in the cautionary statement relative to forward-looking information section of today's release and under the heading risk factors incorporated by reference from our Annual Report on Form 10-K for the year ended December 31, 2010, our quarterly reports on Form 10-Q, our current reports on Form 8-K and our other filings with the Securities and Exchange Commission.

Unpredictable or unknown factors not discussed in those documents also could have material adverse effects on our forward-looking statements. The Partnership undertakes no obligation to update publicly any forward-looking statements to reflect new information or events.

Additionally, during the course of today's discussion, management will refer to adjusted EBITDA, which is a non-GAAP financial measure when discussing the Partnership's financial results. Adjusted EBITDA is reconciled to its most directly comparable GAAP measure in the earnings press release made earlier this morning and posted on the Partnership's website. This non-GAAP financial measure should not be considered as an alternative to GAAP measures, such as net income, operating income, cash flow from operating activities, or any other GAAP measure of liquidity or financial performance.

Adjusted EBITDA is presented, as management believes it provides additional information relative to the performance of the Partnership's business such as our ability to meet debt covenant compliance tests. This non-GAAP financial measure may not be comparable to similarly titled measures of other publicly traded Partnerships or limited liability companies because all companies may not calculate adjusted EBITDA in the same manner.

With that, let me turn the call over to Hal.

Hal Washburn

Thank you, Greg. Welcome everyone and thank you for joining us today to discuss our first quarter 2011 results, which were once again quite strong from both an operational and financial view. On an annualized basis, we managed to meet or exceed guidance on almost all key metrics.

Let me start by highlighting a few key quarterly accomplishments. During the first quarter, we produced 1629 MBoe of oil and natural gas or 18,098 Boe per day, which is within our full-year guidance range of 6.5 to 6.9 million Boe. As you will recall, we tend to weight our capital spending to the non-winter months and that as well as improved weather conditions in Michigan and Wyoming generally results in production increases in Q2 through Q4.

Increasing oil prices continue to put upward pressure on some of our material and service costs but our dedicated operating team has been managing costs well and our lease operating expenses including transportation fees and excluding r property taxes came in at $17.75 per Boe, well below the low end of our guidance range of $18.50 to $21 per Boe.

A combination of higher commodity prices and lower lease operating costs offset by lower realized gains on our hedge portfolio contributed to a first quarter 2011 adjusted EBITDA of $56 million, which on an annualized basis is well above our guidance range of $195 million to $205 million.

While we reported a large accounting loss for the quarter, it's important to point out that this loss reflects over $100 million in non-cash unrealized losses on our oil and gas hedge portfolio that resulted from oil and gas prices increasing dramatically during the quarter. Ignoring this non-cash charge, we generated $54.4 million in cash flow from our operating activities, which translates to $0.92 per unit for the quarter.

More recently, on April 28, we announced our first quarter distribution of $1.67 per unit on an annualized basis, which will be payable this Friday to the record holders of common units at the close of business today. This is our fourth consecutive quarterly distribution increase and 11.3% increase over first quarter 2010 distribution levels.

Additionally, on May 9, we completed the borrowing base re-determination and maturity extension of our Senior Credit Facility. Our borrowing base was raised from $659 million to $735 million, leaving us with over $600 million of borrowing capacity as of today. Jim will provide additional details about this shortly.

2011 started off well for the Partnership and as we said before we'll continue to focus on our core strategic goals for the remainder of the year, primarily delivering on our capital program most of which we plan to execute during the non-winter months and continuing to actively pursue acquisition opportunities with our ramped-up acquisitions team.

With that, I'll turn the call over to Randy, who will discuss selected results for the quarter, recap our hedging activity and provide an operations update. Randy?

Randy Breitenbach

Thanks, Hal. I'll start by summarizing our first quarter commodity hedging activity and provide an overview of the impact of these derivative instruments on our financial results. For the first quarter of 2011, crude oil and natural gas revenues totaled $99.0 million, compared to $99.8 million in the fourth quarter of 2010. $6.4million and $21.7 million of the sales totals for the first and fourth quarters respectively were a result of realized gains on commodity derivative instruments. Our realized natural gas prices for the first quarter averaged $7.38 per Mcf compared with NYMEX natural gas prices of $4.20 per Mcf, again, illustrating the value of our gas hedges.

Our realized crude oil and liquids prices averaged $73.81 per barrel for the quarter, while NYMEX crude prices averaged $94.07. Non-cash unrealized losses from commodity derivative instruments for the first quarter were 112 million, reflecting the rapid rise of crude oil prices over the last two months.

Now, turning to our recent hedging activity. We continue to layer in new hedges opportunistically. In the first quarter, we hedged 1.55 million barrels of oil production in 2014 and 2015 at an average weighted price of [$0.106 per barrel] and 1.8 million of MMBtu's of gas production for 2015 at an average weighted price of $6 per MMBtu.

Furthermore, in May, we hedged 0.9 million MMBtus of gas production for 2015, also at an average weighted price of $6 per MMBtu. Our hedge portfolio is a vital tool for mitigating commodity price volatility, stabilizing revenues and cash flows, and supporting our borrowing base and a significant portion of our oil and gas volumes are well protected at attractive prices through 2015.

Assuming the midpoint of 2011 production guidance is held flat, our production is hedged at 84% in 2011, 76% in 2012, 72% in 2013, 39% in 2014, and 23% in 2015. Average annual prices during this period range from $80.20 and $96 per barrel for oil and $6, and $8.05 per MMBtu for gas. An updated type portfolio of summary will be available on our website today.

Mark Pease our COO is unable to join us this morning, so I will be providing this quarter's operations update and go over results of the Partnership level, followed by some details by division. In the first quarter, we produced 1.629 million Boe or 18,098 Boe per day, compared to fourth quarter 2010 production of 1.7 million Boe, or 18,480 Boe per day, which is within our 2011 guidance range.

Historically, the first quarter is one of our lowest production quarters. But despite harsher than normal winter operating conditions this year, we were able to increase production over Q1 2010 by over 2%. We expect production to increase over the course of the year.

Total oil and gas capital expenditures in the first quarter were $9.7 million. We have more than $60 million in capital expenditures remaining for the year. Consistent with our normal pattern of increased capital activity during the non-winter months.

Lease operating expenses and processing fees excluding transportation expenses came in at $27.5 million, or $16.87 per Boe for the first quarter of 2011, which compares favorably with fourth quarter lease operating expenses and processing fees of $29.5 million, or $17.37 per Boe.

Controlling operating costs continues to be an important focus for our operations team but with rapidly increasing commodity prices, we have seen the costs of materials and services increase about 10% in the first quarter of this year compared to the prior quarter. Despite the upward pressure on the costs of services and materials, we were able to reduce LOE by 3% on a per Boe basis compared to the fourth quarter.

Moving on to the first quarter performance of our two operating divisions, production in the Eastern division, which consists of Michigan, Indiana and Kentucky, was impacted somewhat by the colder than normal winter in Michigan, which resulted in plant down time and numerous well freeze-ups.

Continued focus by our operating group contributed to lower controllable LOE in the Eastern division. Capital spend in the Eastern division was minimal and consisted mainly of one facility project in Indiana and warehouse inventory purchases made in the preparation for the 2011 Easter drilling program which will commence in the second quarter.

In the Western division, which includes primary oil production in California, Wyoming and Florida, first quarter production came in as expected due to good performance in a number of fields across the division. We had particularly strong performance in two of our California fields, Santa Fe Springs, and Coyote. Continued strong focus on cost control resulted in lower controllable LOE for the division.

In addition, we postponed certain well repairs in California due to permitting issues, which we expect to complete during 2011. Capital spend in Western was also lowered during the quarter due to the deferral of some of our facility projects in Florida and California. Those projects are now under way and should be completed in the second quarter.

Drilling and completion activity continues at our Raccoon Point Field in Florida. Our third horizontal well in Raccoon point was completed ahead of schedule and below budget in mid-April. The well is in the early phase of testing. We will know more details about the well's productivity over the next coming weeks. The drilling rig has been moved and is currently drilling our fourth well.

With that, I'll turn the call over to Jim.

Jim Jackson

Thank you, Randy. I'll start by reviewing some more specific results for the quarter and the year and conclude with an update on our liquidity position. Oil and natural gas revenues including realized gains on commodity derivative instruments were $99 million in the first quarter, compared to $99.8 million in the prior quarter.

Realized gains on commodity derivative instruments were $6.4 million, compared to $21.7 million in the prior quarter, reflecting significantly increased commodity prices.

General and administrative expenses excluding unit based compensation expense were $7.1 million or $4.33 per Boe in the first quarter, versus $5.9 million or $3.47 per Boe in the fourth quarter of 2010. I should note, for the first quarter of 2011, G&A expenses included approximately $400,000 of employer taxes related to the vesting of restricted units around year-end.

First quarter adjusted EBITDA was $56 million, down slightly from the prior quarter, but still trending above the high end of our guidance range. Production and property taxes totaled $5.8 million in the first quarter, up from $5.6 million in the fourth quarter, primarily due to increased taxes in Florida as a result of higher crude oil prices.

Net interest and other financing costs excluding realized and unrealized gains and losses on interest swaps for the first quarter were $9.4 million, compared to $10.8 million in the fourth quarter.

Cash interest expense including realized losses on interest rate swaps totaled $9.2 million in the first quarter of 2011. We recorded a net loss of $94.7 million or $1.67 for limited partnerships unit for the first quarter of 2011.

As Hal mentioned, the loss was primarily due to significant unrealized losses on commodity derivative instruments of $112.6 million, caused by the significant change in the mark-to-market on our commodity hedge portfolio due to increasing oil prices during the period.

Let me now turn to our liquidity position. Our outstanding long-term debt as of March 31 was $418 million and consisted of borrowings of $113 million under our credit facility and $305 million in senior notes. This includes $5 million in unamortized discount on the senior notes.

As of April 30, we had $121 million outstanding under the credit facility. As Hal mentioned, our borrowing base redetermination was completed yesterday and we are pleased to announce an increase in our borrowing base from $659 million to $735 million.

In addition to increasing our borrowing base, we took the opportunity to amend some of the facility's key terms. Key changes include an extension of the maturity date out to five years. The facility now matures in May of 2016.

A reduction of 25 basis points in the LIBOR and base rate margin on outstanding borrowings and an increase in the maximum ratio of total indebtedness to EBITDAX to four times from 3.75 times, the elimination of the interest coverage ratio test and the elimination of certain restricted payments provisions. And we were also able to increase our ability to issue senior unsecured notes from $350 million to $700 million outstanding.

I'll note this process went very smoothly and we would like to thank our 15 member bank group for their continued support.

Lastly, as a reminder, we will be holding our second annual meeting of the limited partners on June 23 at the Wilshire grand hotel in Los Angeles. Additional details are available in the proxy statement that we filed on April 29, which is available on our website.

We look forward to seeing and meeting any attending unitholders then. This concludes our formal remarks.

Operator, you may now open the call for questions.

Question-and-Answer Session

Operator

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions) We'll take our first question from Mike Jones with Imperial Capital.

Mike Jones – Imperial Capital

Hi, guys. Good morning. How you doing?

Randy Breitenbach

Hi, Mike.

Mike Jones – Imperial Capital

All right. So, should I take that your increasing your credit facility as your appetite for acquisitions increase, or is it just more dry powder to go do something if something comes up?

Randy Breitenbach

We've got a strong appetite for acquisitions. We have been consistent and we're looking at a lot of different opportunities, raising the borrowing base was really a function of the value of the business, value of the reserves currently, but we do value having the dry powder and the liquidity as we are actively looking at deals.

Mike Jones – Imperial Capital

Okay. And as you're out in the market, do you feel like it might be beneficial to have a partner, either private equity or a sponsor to come in to sort of assist given the competitiveness out there?

Randy Breitenbach

Well, right now we're in a very strong position. We've got more liquidity than we've ever had. Our operations are running very smoothly. We've built a team that we believe is evaluating acquisitions, a lot of acquisitions. So, we don’t see a need for partner now but we do have -- we do have the relationship with BreitBurn Energy company that allows us that in a situation where it could be valuable.

Mike Jones – Imperial Capital

Great. And then just one operational question. Give us sort of updated production on your Florida wells, the existing wells?

Randy Breitenbach

Yeah, regarding our drilling performance in Florida, we've completed our third well as we said and are currently running a pump and at this point it's really too early to tell what the long-term performance will be. It's still really in a testing phase. As you would expect, we've experienced fairly large variability in well performance throughout the field, which I have to say is not unexpected and at this point we're proving up the economic viability of additional wells in each of the areas of the field. We're currently drilling our fourth well and as you know, we still have two more planned for this year, additional wells to be drilled in our capital plans. So we're still optimistic and moving forward.

Hal Washburn

And Mike, this is Hal. As far as the first two wells, we haven't disclosed publicly, but I think it's fair to say that the first well is performing as we expected to see and second well, we've said, is actually increasing the oil cut and oil production slowly from what we've announced. So we're pleased with where we are in those two wells.

Mike Jones – Imperial Capital

Great. Thank you very much.

Operator

(Operator Instructions) Our next question comes from Bernie Colson with Oppenheimer.

Bernie Colson – Oppenheimer

Hey, guys.

Randy Breitenbach

Hi, Bernie.

Bernie Colson – Oppenheimer

Hi. Wanted to get your -- maybe your color on the kind of supply and demand in the acquisition market and any color you could provide would be good about who are the participants in the process and are there new one that's we haven't seen before, I guess we could start with that.

Randy Breitenbach

Sure. Bernie, I mean, it is a competitive process, but it has been, for the 23 years we've been in business. There are new entrants all the time. There are a lot of recycle management teams and I don't mean that pejoratively, but there's a lot of management teams that are back for their second, third and fourth round of private equity funding. We see different competitors in every deal we look at.

We see all the rest of the (inaudible) piece, as we all have private equity backed guys, depending on the profile of the properties. We're looking at -- we think virtually everything that is at all appropriate for an MLP, so we see a lot of properties across the country. We have a footprint from coast to coast and up into Michigan, so we have the ability to look at a lot of different types of assets. We see a lot of different competitors and it is a competitive marketplace. There's no doubt about it, but it always has been. It's not significantly different today than it was a few years ago or, frankly, 20 years ago.

Bernie Colson – Oppenheimer

And, what I'm hearing on the natural gas side of things, is that because private equity has a little bit more flexibility, that they're willing to bid up assets a little bit more and I guess the question is, would you guys consider, given the strength in your kind of coverage and cash flows, would you consider doing a deal that may be dilutive in the near-term, if it was something that was a very good longer term deal?

Randy Breitenbach

Bernie, we're looking at the value in the acquisition and how does it increase the value for our unit holders. We don't like the idea of short-term dilution. However, if there's a tremendous amount of accretion to value and accretion to cash flow after that short-term period, we would certainly consider it. We would like to do a deal that's accretive to value in cash flow right out of the box, though.

Bernie Colson – Oppenheimer

Yeah. Okay. All right. Thank you.

Operator

Thank you. Our next question comes from Joel Havard with Hilliard Lyons.

Joel Havard – Hilliard Lyons

Thanks. Randy, you've made it clear that you're primed and loaded for acquisition opportunities. But, if we could get a little bit more organic for a second, I was writing as quick as I could. You referenced the one, I believe, that was done in April in Florida. Was there and you said another is teed up behind that?

Hal Washburn

Sure. We announced our first well from last year. We have two wells on production and we've announced the results of those and they are producing as we expected them. The third well is being tested today. It's still in the early stages as Randy said. We are drilling the fourth well for the program and the second well for 2011 and we have two more teed up in the capital program in Florida this year. They may not all end up online.

The fourth well will probably be drilled during the fourth quarter of this year and put online next year, but the majority of the costs and the drilling will be incurred this year. So, we'll have two additional wells. We haven't started in Florida, at least we have those in our capital program and those are our plan.

Joel Havard – Hilliard Lyons

Okay. Is that the extent of the drilling that's occurred year-to-date and is that the extent of the drilling that you've got sort of on the books organically for this year?

Hal Washburn

No. It's not. That's just our Florida program.

Joel Havard – Hilliard Lyons

Can you plan for the year then?

Hal Washburn

Sure. Our capital program for the year, our guidance is $70 million to $74 million and unfortunately Mark is traveling so let me pull my notes out on the exact capital program for the year and the number of wells. Give me a second on that one. Chris, do you have that?

Chris Williamson

Yeah, certainly.

Hal Washburn

For the Eastern division, we plan to drill four deep wells in the Prairie du Chien and then about 22 interim wells.

Chris Williamson

Yeah. And this is Chris Williamson. And at Western division, we started our drilling program in Wyoming which we’ll have seven wells in it and then we've got a three well program starting in California, Santa Fe Springs, within the next month. That should start, again, late May, early June that we should get kicked off there, besides our Florida drilling.

Joel Havard – Hilliard Lyons

Okay. And is that CapEx program then for these new wells entirely or I'm presuming there's a lot of workover as usual built into that?

Hal Washburn

Those are new wells, guys. We also have a whole program of workovers, recompletions, et cetera, but those are new wells and redrills.

Joel Havard – Hilliard Lyons

Okay. The 70, 74 applies just to the development drilling.

Hal Washburn

No, the number of wells that Chris and Dave outlined and later when we talked about in Florida. The 70 to 74 is all of our capital spending on our oil and gas properties, ex-acquisitions. It does not include acquisitions.

Joel Havard – Hilliard Lyons

I understand that. And has the -- as you've gotten now to the third, moving on to the fourth back in Florida, is the cost structure staying relatively the same or are you starting to find some efficiencies or has anything gotten squirrely?

Hal Washburn

We're actually pretty pleased. As you know, we had a lot of drilling difficulties with the second well and number of problems with the drilling rig. We've made a series of changes to those as well as personnel changes and the third well was completed as a significantly lower cost than the second well and actually lower than the first. And today we're looking very good on the fourth well as far as costs. So we think that the changes we've made and the upgrades we've made to the drilling rig and to our operations has paid off.

Joel Havard – Hilliard Lyons

That's good news. Final question from me, gentlemen. Weather related interruption or slowdown in Q1, that's behind us now, I presume. Are we back to daily rates that we were in Q4 or are we moving up?

Hal Washburn

Well, we expect to grow -- we expect to grow production through the year, guys, as a result of our capital program as well as getting out of the winter. We did have a pretty harsh winter in Michigan. We had a lot of freeze-ups and plant shutdowns but we spent a little over $9 million in the quarter against the capital program of $70 million to $74 million. Obviously, we expect to spend the rest of the money this year and grow and get results from that capital spend.

Joel Havard – Hilliard Lyons

Great, guys. Thanks. That's all I had. Good luck.

Hal Washburn

Thank you.

Operator

Thank you. And next we'll hear from Ethan Bellamy with Baird.

Ethan Bellamy – Baird

Hello, everybody. Couple questions for you. So your run rate on EBITDA, you're crushing the guidance. Should we take that as you're expected to outperform here for the year or how should we think about that?

Hal Washburn

You know, guys, we had the benefit of very strong commodity prices. We had the benefit of some great work with the operating group and keeping the lease operating expenses low. We're comfortable, very comfortable with our guidance. But it's far too early to say we're going to crush it for the year but we had a very good quarter. We're very pleased with where we are and we're comfortable with where we said we’d be for the year.

Ethan Bellamy – Baird

All right. Fair enough. With respect to -- we see a lot of politicians at the federal level coming on, it's that time again, where the oil industry is under the microscope and taxes are in play. Is there anything specific to California that you guys are aware of that we should be concerned about?

Hal Washburn

California primarily proposes severance taxes on the oil and gas industry. It's been going on I think as long as we've been in business here. We have another set of taxes in the state of California that are pretty high and so in most cases, the legislators and the voters have said let's not add taxes to the California oil producer.

There always are severance tax initiatives, both the state and local level that are being proposed and to date, none of them passed. So we constantly monitor them and we constantly try to educate the voters and legislators on why it doesn't make sense to further tax the production in our state.

Ethan Bellamy – Baird

Okay. Any interest or change in Quicksilver's position with respect to the disposition -- ultimate disposition of their units?

Hal Washburn

Not that I'm aware of. We talk to Quicksilver and their representatives quite frequently and not aware of any change.

Ethan Bellamy – Baird

Okay. Last question. What was the average gas price deck that your lenders were using for the redetermination?

Hal Washburn

Jim, do you have that?

Jim Jackson

No. I don't have that for -- I don't have that for the entire group. Yeah. We've got 15 banks in the group guys. So I'm not certain that we even have that really for the entire year.

Ethan Bellamy – Baird

Ballpark, Jim, is it like 450 or five bucks?

Jim Jackson

Yeah, somewhere in there but I will have to check specifically.

Randy Breitenbach

Normally always trends just below the futures curve. So I don't think it gets above $6 but it probably gets up to $5.50 in the outer years and it usually…

Ethan Bellamy – Baird

Thanks, guys. Good quarter. Congrats.

Hal Washburn

Thank you.

Operator

(Operator Instructions) Next, we will hear from Jeff Robertson with Barclays Capital.

Jeff Robertson – Barclays Capital

Thanks. Hal, is there anything new in Michigan with any of the exploration targets that people are looking for that has any implications for your acreage?

Hal Washburn

You know, the Collingwood Utica is still something that people are talking about. I don’t know think there is a lot of great results to date. These are not direct results, we have heard that Chevron is ramping up to drill number of wells in their 2012 program, but that's kind of hearsay. At this point, I think we're all on a wait-and-see mode. I know Encana is doing some stuff. It sounds like Chevron's going to do some stuff. Some of the private independents are drilling, but nobody's seen any public results that are new from what we've talked about in the past.

Jeff Robertson – Barclays Capital

Okay. And, then, secondly, just on acquisitions, are you seeing opportunities that are sizable enough for you to enter any new basins or are you looking at things mostly in the areas that you already operate?

Randy Breitenbach

We're looking at both and we are seeing deals that are sizable enough for us to enter a new basin. We've said on a number of occasions at some point, would like to see ourselves in West Texas. We liked assets, a lot of different types of assets, in the mid-continent area. We are, of course, though, looking at deals in the areas that we're in. We'd love to do more Michigan. We'd love to do more here in California and in the Rockies. So, we're looking at a lot of different opportunities, both smaller as well as large enough ones to provide.

Jeff Robertson – Barclays Capital

Lastly, is your preference if you were to go into a new basin, is it to go in as an operator or in the right circumstance, would you consider a non-operated position?

Hal Washburn

We'd consider non-operated positions. We generally operate and historically we've preferred operations, but we've been pleased with the non-operating positions we have in Michigan. And we would enter, given the right situation, a basin as a non-operator.

Jeff Robertson – Barclays Capital

Thank you.

Operator

Our next question comes from Michael Blum with Wells Fargo.

Michael Blum – Wells Fargo

Good morning. Just two quick ones from me. One, can you just talk about anything going on at the private company. Are the assets there at a stage of maturity that they would be appropriate for the MLP and is that a possibility this year?

Randy Breitenbach

Michael, we're always looking at that and the assets are far more mature than they were at the time of the IPO, when they weren't put into the public partnership because they required significant additional development. So, the assets are far more developed now and some fully developed. So we would consider that and that's something that is on our agenda at this point.

Michael Blum – Wells Fargo

Okay. And then, just so I'm thinking about it correctly. In the event, that you don't do any acquisitions this year, is it still fair to think about the fact that you have a fair amount of visibility to increase the distribution, just given where your coverage ratio is?

Randy Breitenbach

I mean, Michael, if you look at our coverage ratio, if you look at our public guidance, I think it's pretty fair to say that we've got a pretty high coverage ratio today and, we've said publicly that we think that running the business on a long-term at 1.2 makes sense. So, absent unexpected production shortfalls or cost increases or commodity price changes, I think that would be a fair assessment.

Michael Blum – Wells Fargo

Okay. Thank you.

Operator

There are no further questions, Mr. Washburn. I'll turn the call back over to you for any closing remarks.

Hal Washburn

Thank you very much, Operator. On behalf of Randy, Mark, Jim, Greg and the entire BreitBurn team, I thank everyone on the call today for their participation. Operator, you may now bring this call to a close.

Operator

Thank you. And, this does conclude today's conference call. Thank you everyone for joining us. You may now disconnect.

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