Jonathan Christopher

Seth Klarman's Baupost Group Discloses Activist Stake in Breitburn Energy

Recently I was called by a management employee in response to an email I sent about current management and policies. While the person was scrupulously careful and did not pass on anything that could be considered insider information, I was impressed by the company's willingness to communicate with shareholders.

The company must re-negotiate/re-valuate their credit line every 6 months , and the very difficult financing market will, in my opinion, cramp their creativity. In addition, they now have two competing and potentially non-cooperative major shareholders: Quicksilver and Klarman, and are steering between Scylla and Charybdis. during a time when Natural Gas rates are extremely low, an limit their profitability.
Based on their past performance, we can expect that this company will continue to sell forward as much Gas and Oil as they can safely predict to produce. Roughly speaking, I expect that their recognized sales prices will be about $7.00 /K gas and $70.00/ BBL oil, and their interest expenses will likely increase slightly. This should result in an "OK" quarter, reduced debt outstanding, and still no dividend.

If they have firmed up their revenues by a continuing commitment to future contracts, I expect that dividends will return, though at a lower rate, at the end of the 3rd quarter.