The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from Business Wire

BreitBurn Energy Partners L.P. Reports Second Quarter Results

<p class=' bwtextaligncenter'> <i>Announces Increased Production and Key Metrics Exceeding Expectations</i> </p>

Wednesday, August 04, 2010

BreitBurn Energy Partners L.P. Reports Second Quarter Results08:30 EDT Wednesday, August 04, 2010 LOS ANGELES (Business Wire) -- BreitBurn Energy Partners L.P. (the "Partnership") (NASDAQ:BBEP) today announced financial and operating results for its second quarter of 2010. Key Highlights The Partnership had an excellent quarter both operationally and financially, with production at the high end of the guidance range and other key metrics exceeding expectations. The Partnership reinstated quarterly distributions on April 28 at an annualized rate of $1.50 per year and on July 30 announced an increased cash distribution for the second quarter of 2010 at the rate of $0.3825 per unit, or $1.53 on an annualized basis, to be paid on August 13, 2010 to the record holders of common units at the close of business on August 9, 2010. In May 2010, the Partnership completed a new infill development well in the Sunniland Trend in Florida. The well produced an average of approximately 1,100 Bopd gross (900 Bopd net) in June 2010. The Partnership commenced drilling a second well in May. The well required a side-track and the Partnership expects results from this second well within the next 60 days. The Partnership entered into new oil hedges in April covering approximately 465,000 Bbls of 2011 and 2014 production at weighted average prices of $88.86 and $91.75, respectively. On May 7, 2010, the Partnership completed the successful syndication of its amended bank credit facility. The amended facility, which expires in May 2014, has a borrowing base of $735 million. As of June 30, 2010, the Partnership had $534 million outstanding under the facility. The Partnership has completed a review of its ownership rights in the Collingwood-Utica play in Michigan and has now confirmed more than 120,000 net acres in the prospective area. Management Commentary Hal Washburn, CEO, said, “We are pleased to announce a strong second quarter, with Adjusted EBITDA up almost 11% to $56.7 million, due largely to a 3% increase in daily production and a significant reduction in operating expenses compared to the first quarter. The Board has approved an increase in quarterly distributions from an annual rate of $1.50 per unit to $1.53 per unit. Our capital spending for the period was significantly higher than the prior quarter, more accurately reflecting the capital program we anticipate for the remainder of the year. We are actively drilling in each of our core areas and will remain active in Florida where the drilling of our second well continues, with initial results expected in the near future. In Michigan, we have completed a full review of our ownership in the deep rights and have determined that we hold more than 120,000 net acres in the prospective Collingwood-Utica area. We continue to evaluate the potential of these deeper shale assets.” Second Quarter 2010 Operating and Financial Results Compared to First Quarter 2010 Total production increased to 1,663 MBoe from 1,595 MBoe in the second quarter of 2010. Average daily production increased from 17,725 Boe/day to 18,270 Boe/day in the second quarter of 2010. Oil and NGL production was 812 MBoe compared to 727 MBoe. Natural gas production was 5,106 MMcf compared to 5,207 MMcf. Lease operating expenses per Boe, which include district expenses and processing fees and exclude production/property taxes and transportation costs, decreased to $17.82 per Boe in the second quarter of 2010 from $19.12 per Boe in the first quarter of 2010. General and administrative expenses, excluding non-cash unit-based compensation, were $5.0 million, or $3.01 per Boe, in the second quarter of 2010 compared to $6.4 million, or $4.00 per Boe, in the first quarter of 2010. Adjusted EBITDA, a non-GAAP measure, was $56.7 million in the second quarter, up from $51.1 million in the first quarter of 2010. Oil and natural gas sales revenues, including realized gains and losses on commodity derivative instruments, were $100.5 million in the second quarter of 2010, up from $92.6 million in the first quarter of 2010. Realized gains from commodity derivative instruments were $18.4 million in the second quarter of 2010 compared to $12.1 million in the first quarter of 2010. WTI crude oil spot prices averaged $77.82 per barrel and NYMEX natural gas prices averaged $4.35 per Mcf in the second quarter of 2010 compared to $78.81 per barrel and $4.99 per Mcf, respectively, in the first quarter of 2010. Realized crude oil and natural gas prices averaged $69.99 per Boe and $7.70 per Mcf, respectively, compared to $72.79 per Boe and $7.65 per Mcf, respectively, in the first quarter of 2010. Net income, including the effect of unrealized gains on commodity derivative instruments, was $53.6 million, or $0.94 per diluted limited partner unit, in the second quarter of 2010 compared to net income of $57.9 million, or $1.02 per diluted limited partner unit, in the first quarter of 2010. Capital expenditures totaled $20.9 million in the second quarter of 2010 compared to $8.0 million in the first quarter of 2010. Impact of Derivative Instruments The Partnership uses commodity and interest rate derivative instruments to mitigate the risks associated with commodity price volatility and changing interest rates and to help maintain cash flows for operating activities, acquisitions, capital expenditures, and distributions. The Partnership does not enter into derivative instruments for speculative trading purposes. Non-cash gains or losses do not affect Adjusted EBITDA, cash flow from operations or the Partnership's ability to pay cash distributions. Realized gains from commodity derivative instruments were $18.4 million during the second quarter of 2010. Realized losses from interest rate derivative instruments were $2.9 million. Non-cash unrealized gains from commodity derivative instruments were $33.2 million and non-cash unrealized gains from interest rate derivative instruments were $1.5 million for the period. Production, Income Statement and Realized Price Information The following table presents production, selected income statement and realized price information for the three months ended June 30, 2010 and 2009 and the three months ended March 31, 2010:           Three Months EndedJune 30,           March 31,           June 30,Thousands of dollars, except as indicated201020102009 Oil, natural gas and NGL sales (a) $ 82,079 $ 80,469 $ 59,872 Realized gains on commodity derivative instruments (b) 18,435 12,146 51,468 Unrealized gains (losses) on commodity derivative instruments (b) 33,215 39,919 (148,727 ) Other revenues, net   487   632     393   Total revenues $ 134,216 $ 133,166   $ (36,994 ) Lease operating expenses and processing fees $ 29,627 $ 30,491 $ 28,442 Production and property taxes   4,224   5,579     4,188   Total lease operating expenses $ 33,851 $ 36,070   $ 32,630   Transportation expenses 1,231 847 851 Purchases 74 52 21 Change in inventory   4,215   (1,118 )   (1,498 ) Total operating costs $ 39,371 $ 35,851   $ 32,004   Lease operating expenses pre taxes per Boe (c) $ 17.82 $ 19.12 $ 16.88 Production and property taxes per Boe 2.54 3.50 2.53 Total lease operating expenses per Boe   20.36   22.62     19.41   General and administrative expenses excluding unit-based compensation   $ 5,004 $ 6,374   $ 5,255   Net income (loss) $ 53,597 $ 57,910 $ (108,525 ) Net income (loss) per diluted limited partnership unit $ 0.94 $ 1.02   $ (2.06 )   Total production (MBoe) 1,663 1,595 1,654 Oil and NGL (MBoe) 812 727 762 Natural gas (MMcf) 5,106 5,207 5,349 Average daily production (Boe/d)   18,270   17,725     18,172   Sales volumes (MBoe)   1,725   1,594     1,635   Average realized sales price (per Boe) (d) (e) (f) $ 58.30 $ 58.15 $ 52.97 Oil and NGL (per Boe) (d) (e) (f) 69.99 72.79 65.47 Natural gas (per Mcf) (d) (e)   7.70   7.65     7.09     (a) Q2 2010, Q1 2010 and Q2 2009 include approximately $123, $124 and $260, respectively, of amortization of an intangible asset related to crude oil sales contracts. (b) Q2 2009 includes the effect of the early termination of oil and natural gas hedge contracts monetized for $24,955. (c) Includes lease operating expenses, district expenses and processing fees. Q2 2009 excludes amortization of intangible asset related to the Quicksilver Acquisition. (d) Includes realized gains on commodity derivative instruments. (e) Q2 2009 excludes the effect of the early termination of oil and natural gas hedge contracts monetized for $24,955. (f) Excludes amortization of intangible asset related to crude oil sales contracts. Includes crude oil purchases.   Non-GAAP Financial Measures This press release, the financial tables and other supplemental information, including the reconciliations of certain non-generally accepted accounting principles ("non-GAAP") measures to their nearest comparable generally accepted accounting principles ("GAAP") measures, may be used periodically by management when discussing the Partnership's financial results with investors and analysts and they are also available on the Partnership's website under the Investor Relations tab. Among the non-GAAP financial measures used is “Adjusted EBITDA.” 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 our 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. Adjusted EBITDA The following table presents a reconciliation of net income or loss and net cash flows from operating activities, our most directly comparable GAAP financial performance and liquidity measures, to Adjusted EBITDA for each of the periods indicated.           Three Months Ended June 30,           March 31,           June 30, Thousands of dollars 2010 2010 2009 Reconciliation of net income (loss) to Adjusted EBITDA:   Net income (loss) attributable to the partnership $ 53,569 $ 57,839 $ (108,520 )   Unrealized (gains) losses on commodity derivative instruments (33,215 ) (39,919 ) 148,727 Depletion, depreciation and amortization expense 23,909 22,054 26,962 Interest expense and other financing costs (a) 7,882 6,551 8,551 Unrealized gains on interest rate derivatives (1,466 ) (691 ) (3,527 ) Gain on sale of commodity derivatives (b) - - (24,955 ) Loss on sale of assets 381 115 - Income tax provision 561 144 (809 ) Amortization of intangibles 123 124 777 Unit-based compensation expense (c) 4,937 4,883 3,641         Adjusted EBITDA $ 56,681   $ 51,100   $ 50,847       Three Months Ended June 30, March 31, June 30, Thousands of dollars 2010 2010 2009 Reconciliation of net cash flows from operating activities to Adjusted EBITDA:   Net cash from operating activities $ 36,429 $ 44,635 $ 70,788   Increase in assets net of liabilities relating to operating activities 13,528 770 (3,020 ) Interest expense (a) (d) 6,949 5,727 7,727 Gain on sale of commodity derivatives (b) - - (24,955 ) Equity earnings from affiliates, net (144 ) (158 ) (378 ) Incentive compensation expense (e) (19 ) - 510 Incentive compensation paid - 80 31 Income taxes (34 ) 117 139 Non-controlling interest (28 ) (71 ) 5         Adjusted EBITDA $ 56,681   $ 51,100   $ 50,847     (a) Includes realized gains/losses on interest rate derivatives. (b) Represents the early termination of hedge contracts monetized in Q2 2009. (c) Represents non-cash long term unit-based incentive compensation expense. (d) Excludes debt amortization. (e) Represents cash-based incentive compensation plan expense.   Hedge Portfolio Summary The table below summarizes the Partnership's commodity derivative hedge portfolio as of August 4, 2010.       Year2010         2011         2012         2013         2014Gas Positions: Fixed price swaps: Hedged volume (MMBtu/d) 43,425 25,955 19,128 27,000 - Average price ($/MMBtu) $ 8.20 $ 7.26 $ 7.10 $ 6.92 $ - Collars: Hedged volume (MMBtu/d) 3,753 16,016 19,129 - - Average floor price ($/MMBtu) $ 9.00 $ 9.00 $ 9.00 $ - $ - Average ceiling price ($/MMBtu) $ 12.01 $ 11.28 $ 11.89 $ - $ - Total: Hedged volume (MMBtu/d) 47,178 41,971 38,257 27,000 - Average price ($/MMBtu) $ 8.26 $ 7.92 $ 8.05 $ 6.92 $ -   Oil Positions: Fixed price swaps: Hedged volume (Bbls/d) 2,317 3,890 3,539 5,000 1,748 Average price ($/Bbl) $ 83.43 $ 72.78 $ 72.40 $ 79.32 $ 90.42 Participating swaps: (a) Hedged volume (Bbls/d) 1,683 1,439 - - - Average price ($/Bbl) $ 66.31 $ 61.29 $ - $ - $ - Average participation % 55.1 % 53.2 % - - - Collars: Hedged volume (Bbls/d) 1,922 2,048 2,477 500 - Average floor price ($/Bbl) $ 105.30 $ 103.42 $ 110.00 $ 77.00 $ - Average ceiling price ($/Bbl) $ 139.41 $ 152.61 $ 145.39 $ 103.10 $ - Floors: Hedged volume (Bbls/d) 500 - - - - Average floor price ($/Bbl) $ 100.00 $ - $ - $ - $ - Total: Hedged volume (Bbls/d) 6,422 7,377 6,016 5,500 1,748 Average price ($/Bbl) $ 86.76 $ 79.02 $ 87.88 $ 79.11 $ 90.42   (a) A participating swap combines a swap and a call option with the same strike price   Other Information The Partnership will host an investor conference call to discuss its results today at 10:00 a.m. (Pacific Time). Investors may access the conference call over the Internet via the Investor Relations tab of the Partnership's website (www.breitburn.com), or via telephone by dialing 888-500-6973(international callers dial +1-719-325-2352) a few minutes prior to register. Those listening via the Internet should go to the site 15 minutes early to register, download and install any necessary audio software. In addition, a replay of the call will be available through August 18, 2010 by dialing 877-870-5176 (international callers dial +1-858-384-5517) and entering replay PIN 9833247, or by going to the Investor Relations tab of the Partnership's website (www.breitburn.com). The Partnership will take live questions from securities analysts and institutional portfolio managers; the complete call is open to all other interested parties on a listen-only basis. About BreitBurn Energy Partners L.P. BreitBurn Energy Partners L.P. is a California-based publicly traded independent oil and gas limited partnership focused on the acquisition, exploitation, development and production of oil and gas properties. The Partnership's producing and non-producing crude oil and natural gas reserves are located in Northern Michigan, the Los Angeles Basin in California, the Wind River and Big Horn Basins in central Wyoming, the Sunniland Trend in Florida, and the New Albany Shale in Indiana and Kentucky. See www.BreitBurn.com for more information. Cautionary Statement Regarding Forward-Looking Information This press release contains forward-looking statements relating to BreitBurn's operations that are based on management's current expectations, estimates and projections about its operations. Words and phrases such as "believes," “future,” “impact,” “guidance,” “expectations,” “to be paid,” “continue,” “anticipate,” “will remain,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. These include risks relating to the Partnership's financial performance and results, availability of sufficient cash flow to execute our business plan, our level of indebtedness, a significant reduction in the borrowing base under our bank credit facility, our ability to raise capital, prices and demand for natural gas and oil, our ability to replace reserves and efficiently develop our current reserves, political and regulatory developments relating to taxes, derivatives and our oil and gas operations, and the factors set forth under the heading "Risk Factors" incorporated by reference from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 11, 2010, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The reader should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Unless legally required, BreitBurn undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Unpredictable or unknown factors not discussed herein also could have material adverse effects on forward-looking statements. BBEP-IR   BreitBurn Energy Partners L.P. and SubsidiariesUnaudited Consolidated Statements of Operations                                         Three Months EndedSix Months EndedJune 30,June 30,Thousands of dollars, except per unit amounts   2010200920102009   Revenues and other income items Oil, natural gas and natural gas liquid sales $ 82,079 $ 59,872 $ 162,548 $ 117,515 Gains (losses) on commodity derivative instruments, net 51,650 (97,259 ) 103,715 (27,239 ) Other revenue, net   487     393     1,119     669   Total revenues and other income (loss) items 134,216 (36,994 ) 267,382 90,945 Operating costs and expenses Operating costs 39,371 32,004 75,222 66,385 Depletion, depreciation and amortization 23,909 26,962 45,963 57,263 General and administrative expenses 9,960 8,386 21,217 17,947 Loss on sale of assets   381     -     496     -   Total operating costs and expenses   73,621     67,352     142,898     141,595     Operating income (loss) 60,595 (104,346 ) 124,484 (50,650 )   Interest and other financing costs, net 4,998 5,360 8,615 10,133 Losses (gains) on interest rate swaps 1,418 (336 ) 3,661 1,766 Other expense (income), net   21     (36 )   (4 )   (40 )   Income (loss) before taxes 54,158 (109,334 ) 112,212 (62,509 )   Income tax expense (benefit)   561     (809 )   705     (341 )   Net income (loss) 53,597 (108,525 ) 111,507 (62,168 ) Less: Net income (loss) attributable to noncontrolling interest (28 ) 5 (99 ) (2 )         Net income (loss) attributable to the partnership   53,569     (108,520 )   111,408     (62,170 )   Basic net income (loss) per unit $ 0.94   $ (2.06 ) $ 1.96   $ (1.18 ) Diluted net income (loss) per unit $ 0.94   $ (2.06 ) $ 1.96   $ (1.18 )     BreitBurn Energy Partners L.P. and SubsidiariesUnaudited Consolidated Balance Sheets                 June 30,               December 31,Thousands of dollars, except units outstanding20102009ASSETSCurrent assets Cash $ 3,347 $ 5,766 Accounts and other receivables, net 59,513 65,209 Derivative instruments 74,718 57,133 Related party receivables 2,504 2,127 Inventory 1,914 5,823 Prepaid expenses 5,434 5,888 Intangibles   248     495   Total current assets 147,678 142,441 Equity investments 7,848 8,150 Property, plant and equipment Property, plant and equipment 2,095,764 2,066,685 Accumulated depletion and depreciation   (369,937 )   (325,596 ) Net property, plant and equipment 1,725,827 1,741,089 Other long-term assets Derivative instruments 97,627 74,759 Other long-term assets 12,739 4,590     Total assets $ 1,991,719   $ 1,971,029   LIABILITIES AND EQUITYCurrent liabilities Accounts payable $ 21,351 $ 21,314 Book overdraft 798 - Derivative instruments 16,594 20,057 Related party payables - 13,000 Revenue and royalties payable 15,978 18,224 Salaries and wages payable 5,165 10,244 Accrued liabilities   8,591     9,051   Total current liabilities 68,477 91,890   Long-term debt 534,000 559,000 Deferred income taxes 3,114 2,492 Asset retirement obligation 37,332 36,635 Derivative instruments 18,734 50,109 Other long-term liabilities   2,102     2,102   Total liabilities 663,759 742,228 Equity Partners' equity 1,327,497 1,228,373 Noncontrolling interest   463     428   Total equity 1,327,960 1,228,801     Total liabilities and equity $ 1,991,719   $ 1,971,029     Common units outstanding (in thousands) 53,294 52,784     BreitBurn Energy Partners L.P. and Subsidiaries   Unaudited Consolidated Statements of Cash Flows                               Six Months EndedJune 30,Thousands of dollars20102009   Cash flows from operating activities Net income (loss) $ 111,507 $ (62,168 ) Adjustments to reconcile to cash flow from operating activities: Depletion, depreciation and amortization 45,963 57,263 Unit based compensation expense 9,839 6,289 Unrealized (gains) losses on derivative instruments (75,291 ) 148,302 Income from equity affiliates, net 302 660 Deferred income tax expense (benefit) 622 (671 ) Amortization of intangibles 247 1,557 Loss on sale of assets 496 - Other 1,757 1,648 Changes in net assets and liabilities Accounts receivable and other assets 7,890 4,731 Inventory 3,909 (2,943 ) Net change in related party receivables and payables (13,377 ) 996 Accounts payable and other liabilities   (12,800 )   (14,129 ) Net cash provided by operating activities   81,064     141,535   Cash flows from investing activities Capital expenditures (24,997 ) (12,126 ) Proceeds from sale of assets 225 - Property acquisitions   (1,550 )   -   Net cash used by investing activities   (26,322 )   (12,126 ) Cash flows from financing activities Distributions (21,312 ) (28,038 ) Proceeds from long-term debt 622,000 181,975 Repayments of long-term debt (647,000 ) (277,975 ) Book overdraft 798 (5,624 ) Long-term debt issuance costs   (11,647 )   -   Net cash used by financing activities   (57,161 )   (129,662 ) Decrease in cash (2,419 ) (253 ) Cash beginning of period   5,766     2,546   Cash end of period $ 3,347   $ 2,293