Breitburn Energy Partners: High Yield, But High Debt And Limited Hedges
- Breitburn’s current yield of over 20% and projected 2015 distribution coverage of 2x looks remarkable.
- An analysis of Breitburn’s recent press release regarding 2015 projections is provided, integrated with hedging information.
- The rosy 2015 view turns down quickly as hedges roll off, if prices stay low.
- Debt is very high and pressing, but Breitburn can likely keep the banks at bay.
- Bloomberg is reporting that Breitburn is in “early discussions” for loan to pay down its credit facility.
- This move is a result of the looming April 2015 credit facility "redetermination".
- The company may have difficulty finding a lender as the high-yield energy credit market has frozen up due to lower oil prices.
Breitburn Energy Partners: There Is No Need To Panic About The Recent Unit Offering
- BBEP recently announced a shelf offering for the sale of up to 19.74M units.
- These units are held by former QR Energy unitholders and BBEP would not receive any proceeds from the sale.
- It is very unlikely that these unitholders would sell at current prices.
- Nevertheless, units of BBEP are down ~4% in AH trading as of this writing.
Breitburn Energy Partners: One Cut Would Be Better Than Two Half-Cuts
- Breitburn’s 2015 budget leaves little room for debt reductions, using the company’s $60 per barrel and $3.50 per MMBtu price assumptions.
- The partnership continues to prioritize distribution maximization over balance sheet health.
- This effectively “cut once there is a problem” approach may not be the best strategy in light of the daunting macro uncertainties.
- With leverage unaddressed, capex and distributions remain vulnerable to additional cuts in the near future.
- The partnership has announced a reduction in annual cash distributions from $2.08 to $1.
- The decision to slash cash distributions should allow the partnership to enhance its balance sheet.
- The reduction in cash distributions is not in line with our long-term thesis, but it is the right decision under the current circumstances.
Breitburn Energy Partners: The 50% Distribution Cut Is Not As Bad As It Seems
- Breitburn slashes its distribution 52% to $1.00 per unit, or $0.0833 per month.
- Furthermore, the company has lowered its capex budget to $200M.
- These reductions was widely anticipated by the market, sending units higher 5% in after-hours trading.
- Units of Breitburn have lost over 60% of their value since October due to lower oil prices.
- At current prices, Breitburn yields ~13%.
BreitBurn Energy Partners: Is The 30% Yield Sustainable?
- BBEP is now down 65% for the year.
- As a result, the stock now yields a massive 30% at current prices.
- Is this level of income sustainable?
- How well hedged is BBEP?
Is BreitBurn Energy Partners Ready For A Tough 2015?
- BreitBurn's oil hedging is now among best in industry.
- The unit price has been cut in half.
- Extensive hedging should keep the debt/EBITDA ratio in line through 2015 and 2016.
BreitBurn Energy Partners' Crude-Focused Production Will Produce A Derivatives Value Windfall In Q4
- The BBEP unit price is down 50% in the last 3 months, pushing the yield up to almost 18%.
- The BBEP hedging derivatives are heavily skewed to crude oil, which should produce a huge mark-to-market derivatives gain in Q4.
- The hedging practices of upstream MLPs like BBEP may produce larger-than-expected gains, solidifying the current distributions.
13.4% Distribution Breitburn Energy Closed QR Energy Deal But It Has A Growing Problem - Oil
- BBEP just closed its acquisition of QR Energy.
- BBEP raised its monthly distribution to $0.1733 (about $2.08 per year or 13.4%).
- However, BBEP had only a distribution coverage ratio of 0.78x in Q3 2014, which was surprisingly bad.
- Oil prices have weakened significantly since Q3 2014 to roughly $75/barrel for WTI; and they present a huge challenge to BBEP's distribution coverage ratio if they stay low.
- BBEP has completed its acquisition of QR Energy.
- This transaction should be very accretive for BBEP.
- BBEP has also announced a 3.5% increase to its annual distribution to $2.08 per unit.
- At current prices, BBEP yields around 13.50%.
BreitBurn Energy Partners: Trend Points To A Break For Energy MLPs
- Oil servicing costs are dropping for upstream MLPs.
- This trend will most benefit oil-weighted names. Article discusses three oil-weighted upstream MLPs.
- Dropping oil prices will still effect all oil-weighted MLPs if oil stays this low for the long-term.
BreitBurn Energy Partners L.P. Acquisitions Muddy The Water
- Coverage has dropped to 0.78 times.
- Article covers concerns about QR Energy acquisition.
- Article talks about operational difficulties and successes.
BreitBurn Energy Partners: The Weak Coverage Ratio Remains A Concern
- BBEP posts its Q3 2014 results.
- DCF per unit drops, leading to a very weak coverage ratio of 0.78x.
- At current prices, BBEP yields 11.70%.
The Curious Case Of BreitBurn Energy Resource Partners' Failed Senior Notes Offering
- Units of upstream MLP BBEP have fallen 25% in the past week.
- The company recently nixed a $400 million senior notes offering.
- Is the QRE merger still viable?
- At current prices, BBEP yields north of 14%.
Wed, Jan. 21, 6:20 PM
- The energy analyst team at Credit Suisse today cut price targets on 10 top MLPs even while upgrading Energy Transfer Partners, expecting the group to remain broadly under pressure in the near term until crude oil prices find a floor and despite positive valuation indicators based on yield spreads.
- Credit Suisse expects crude to bottom some time later in Q1, most likely in March as refineries are in full turnaround season, undercutting crude oil demand; the debate is how long crude takes to rebound off the lows.
- The firm applied price target cuts for BBEP, DPM, ENLC, [ETP, [EVEP]], MWE, MEP, NGLS, TRGP and RGP.
Thu, Jan. 15, 9:16 AM
Wed, Jan. 14, 12:43 PM
Tue, Jan. 13, 3:44 PM
- Breitburn Energy Partners (BBEP -4.4%), which reportedly canceled a bond offering three months ago because of volatile credit markets, says it may try again to raise debt to pay down its $2.5B credit line but tumbling crude prices mean it will not come cheap.
- Yields for speculative-grade energy borrowers have surged from ~5.7% as recently as June, averaging 9.6% yesterday after reaching a more-than five-year high of 10.4% in December.
- BBEP's credit line is ~88% drawn, so just a 10% cutback could prompt the company to raise money to repay borrowings, according to Bloomberg's report.
Thu, Jan. 8, 4:59 PM| 7 Comments
Wed, Jan. 7, 2:39 PM
- Breitburn Energy (BBEP -2.7%) slips as shares are downgraded to Hold from Buy at MLV, which believes units are fully valued following the recent distribution reduction and expects liquidity concerns to create additional headwinds to unit prices leading up the partnership's borrowing base re-determination in April.
- The firm thinks BBEP ultimately will benefit from its acquisition of QRE, but for now it sees lower-risk opportunities from other upstream MLPs offering comparable or superior return profiles.
- Barclays maintains its Equal Weight rating but cuts its BBEP price target to $8 from $21, believing concerns around liquidity and rising leverage ratios will impact unit performance (Briefing.com).
Mon, Jan. 5, 5:58 PM
- After last week's distribution cuts (I, II) from Linn Energy (NASDAQ:LINE) and Breitburn Energy Partners (NASDAQ:BBEP), Citigroup's Faisel Khan and Vikram Bagri write that distribution cuts by other exploration and production MLPs appear “imminent.”
- Linn's moves are positive but only a short-term fix, the analysts say, citing what it calls one of the highest leverage ratios in the group; absent any uplift in commodity prices, the firm does not see a clear way to improve leverage to a more manageable level, which could once again put the distribution at risk in 2016.
- Citi also cuts its target prices for Linn to $11.50 from $23.50 and LinnCo (NASDAQ:LNCO) to $11.00 from $22.75; its target for LINE assumes applying an 8.25x multiple to its near-term adjusted EBITDA forecast of $1.7B, while its target for LNCO assumes a 3% discount to its target for LINE.
Sat, Jan. 3, 12:11 AM
- Breitburn Energy Partners (NASDAQ:BBEP) follows Linn Energy's playbook and slashes shareholder payouts and capital spending, announcing after Friday's close a 52% distribution cut and reduced FY 2015 capex of $200M.
- BBEP says the lower distribution rate increases its estimated distribution coverage ratio to ~1.35x for 2015 and improves its financial flexibility.
- The moves by Linn and Breitburn could pressure - even encourage - rivals to take similar steps; Vanguard Natural Resources (NASDAQ:VNR) CEO Richard Robert seemed reassured by the market reaction to Linn, saying that if a distribution cut is "ultimately be the prudent thing for us to do, at least you sleep a little better at night.”
Dec. 23, 2014, 6:19 PM
- Although the energy sector led today's stock advance, a raft of companies downgraded by Global Hunter mostly took it on the chin - none more so than Key Energy (NYSE:KEG), which plunged 15% after shares were cut to Reduce from Neutral with a $1.50 price target that was reduced from $2.50.
- Also downgraded to Reduce were HERO -6.1%, NBR -3.2%, DO +1.3%.
- Lowered to Neutral were HAL +0.5%, GEOS -8.9%, HP -2.9%, BAS -2.5%, PKD -2.5%, BHI +0.6%, BBEP -0.2%, MEP +0.1%.
- Downgraded to Accumulate: PES -3.5%, PTEN -1.1%, NGLS +2.9%.
- The firm upgraded five stocks - ATW, NOV, OII, RES and SPN - all of which gained in today's trading.
Dec. 23, 2014, 12:49 PM
- Stifel downgrades Breitburn Energy Partners (BBEP -1.7%), LRR Energy (LRE -4.4%) and New Source Energy Partners (NSLP -1.4%) to Hold from Buy due to pressure in the commodity markets and near-term concerns over credit facilities.
- The firm believes BBEP's ability to fund its reduced organic spending while funding the near-term shortfall in DPU coverage will be challenged, but it continues to believe the long-term outlook is attractive because of BBEP’s diversified geographic footprint.
- On LRE, Stifel says it is moving to the sidelines given near-term financing issues, even though LRE does not pose operational risk and the firm thinks the market likely is pricing in at least a DPU cut.
Dec. 16, 2014, 9:10 AM
Dec. 15, 2014, 5:37 PM
Dec. 12, 2014, 10:40 AM
- Breitburn Energy (BBEP -6.3%) is downgraded to Hold from Buy with a $9 price target, lowered from $20, at Wunderlich, which cites rising risks of a potential distribution cut.
- The firm says although BBEP has strong hedges, it would still have coverage well below 1x in the current oil price environment; BBEP has $300M of liquidity available, which could help cover a distribution shortfall, but it already is highly levered with debt/EBITDA of 4.3x vs. the peer average 3.5x.
- Although a joint venture partner could strengthen BBEP's balance sheet, Wunderlich thinks it will grow increasingly difficult in the current environment to find a partner.
Dec. 5, 2014, 10:38 AM
- Indebted U.S. shale companies are facing financial pressure from falling oil prices, raising fears that liquidity could dry up for companies with the greatest debt burdens, but Fitch thinks they may find their lenders are inclined to go easy on them.
- The rating agency believes that, as in the previous oil price crash of 2008-09, banks are likely to show forbearance rather than pushing many companies towards restructuring or bankruptcy.
- Fitch identifies Kodiak Oil and Gas (KOG -2.9%), which has already accepted a takeover offer from Whiting Petroleum (WLL -2.6%), as showing the most warning signs.
- Linn Energy (LINE -0.9%), Breitburn Energy (BBEP -2.6%) and Energy XXI (EXXI -2.8%) are among the companies that have less than half of their revolving credit facilities still unused and available, while Clayton Williams (CWEI -3.5%) had hedged less than half its production for next year, according to Fitch.
Dec. 1, 2014, 12:21 PM
- Oil prices are rebounding, with both WTI and Brent crude up ~2%, but only a handful of energy stocks are rising.
- Exxon Mobil (XOM +1.4%) and Chevron (CVX +1.3%) are both up more than 1%, but the vast majority of energy stocks - led by Denbury Resources (DNR -8.9%), Newfield Exploration (NFX -7.6%) and Goodrich Petroleum (GDP -22.3%) - are seeing heavy selling.
- The SPDR Energy Select Sector ETF (XLE -1.2%) is lower despite gains in XOM and CVX, XLE’s two most heavily weighted stocks, as 38 of its 43 equity components trade lower; the ETF has now lost 7.5% since OPEC sent oil prices plunging by agreeing last Thursday not to cut production.
- Among XLE’s most actively traded components, Kinder Morgan (KMI -3.3%), Halliburton (HAL -3.4%), Transocean (RIG -6.1%) and Schlumberger (SLB -2.1%) are sharply lower.
- Other big decliners include BBEP -17.8%, SD -12.1%, SN -13%, CWEI -8.8%, CPE -14.6%, EXXI -18.9%, LRE -22.8%, REI -16.9%, SSE -15.3%.
- Other ETFs: ERX, VDE, OIH, XOP, ERY, DIG, DUG, IYE, XES, IEO, IEZ, PXE, FENY, PXJ, RYE, FXN, DDG
Nov. 5, 2014, 8:33 AM
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