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Press release from Business Wire

BreitBurn Energy Partners L.P. Reports Third Quarter Results

<p class='bwalignc'> <i>Key Metrics Continue To Exceed Expectations</i> </p>

Thursday, November 04, 2010

BreitBurn Energy Partners L.P. Reports Third Quarter Results08:00 EDT Thursday, November 04, 2010 LOS ANGELES (Business Wire) -- BreitBurn Energy Partners L.P. (the "Partnership") (NASDAQ:BBEP) today announced financial and operating results for its third quarter of 2010. Key Highlights The Partnership continues to perform well both operationally and financially, delivering another quarter of solid results. Adjusted EBITDA and production are trending above the high end of guidance. Production increased 4.7% from the prior quarter to 1,741 MBoe while lease operating expenses declined approximately 7.2% from the prior quarter to $16.54 per Boe. On October 6, 2010, the Partnership completed a private offering of $305 million in aggregate principal amount of 8.625% Senior Notes due 2020. The Partnership received net proceeds of approximately $291.4 million, which were primarily used to reduce borrowings under its bank credit facility. As of September 30, 2010, the Partnership had $516 million outstanding under the facility. As of October 31, 2010, the Partnership had $220 million outstanding under the facility and $439 million in borrowing capacity. On October 29, 2010, the Partnership announced an increased cash distribution for the third quarter of 2010 at the rate of $0.39 per unit, or $1.56 on an annualized basis, to be paid on November 12, 2010 to the record holders of common units at the close of business on November 9, 2010. The Partnership continues to layer in commodity price protection and has added new 2011 through 2014 hedges covering 3.6 million MMBtu of natural gas and approximately 1.8 million Bbls of oil at attractive prices. Management Commentary Hal Washburn, CEO, said, “The Partnership had a strong third quarter with Adjusted EBITDA coming in at $60.0 million, up 6% from the prior quarter, and production totaling 1.7 MMBoe, up almost 5% from the prior quarter. Year-to-date, the Partnership has demonstrated its commitment to delivering on its stated goals by continuing to meet or exceed expectations for key financial and operating metrics. The Board has approved an increase in distributions for the third quarter from an annual rate of $1.53 per unit to $1.56 per unit. In October, we completed our first Senior Notes offering, raising net proceeds of approximately $291.4 million which further reduced our reliance on our revolving credit facility. Our price protection portfolio continues to play a vital role in the predictability of our cash flows and we will continue to opportunistically add hedges going forward.” Third Quarter 2010 Operating and Financial Results Compared to Second Quarter 2010 Total production increased from 1,663 MBoe in the second quarter of 2010 to 1,741 MBoe in the third quarter of 2010. Average daily production increased from 18,270 Boe/day in the second quarter of 2010 to 18,927 Boe/day in the third quarter of 2010. Oil and NGL production was 827 MBoe compared to 812 MBoe. Natural gas production was 5,486 MMcf compared to 5,106 MMcf. Lease operating expenses per Boe, which include district expenses and processing fees and exclude production/property taxes and transportation costs, decreased to $16.54 per Boe in the third quarter of 2010 from $17.82 per Boe in the second quarter of 2010. General and administrative expenses, excluding non-cash unit-based compensation, were $7.2 million, or $4.13 per Boe, in the third quarter of 2010 compared to $5.0 million, or $3.01 per Boe, in the second quarter of 2010. Adjusted EBITDA, a non-GAAP measure, was $60.0 million in the third quarter, up from $56.7 million in the second quarter of 2010. Oil and natural gas sales revenues, including realized gains and losses on commodity derivative instruments, were $99.6 million in the third quarter of 2010, down from $100.5 million in the second quarter of 2010. Realized gains from commodity derivative instruments were $22.6 million in the third quarter of 2010 compared to $18.4 million in the second quarter of 2010. WTI crude oil spot prices averaged $76.06 per barrel and NYMEX natural gas prices averaged $4.24 per Mcf in the third quarter of 2010 compared to $77.82 per barrel and $4.35 per Mcf, respectively, in the second quarter of 2010. Realized crude oil and natural gas prices averaged $76.14 per Boe and $7.55 per Mcf, respectively, in the third quarter of 2010 compared to $69.99 per Boe and $7.70 per Mcf, respectively, in the second quarter of 2010. Net loss, including the effect of unrealized gains on commodity derivative instruments, was $5.7 million, or $0.11 per diluted limited partner unit, in the third quarter of 2010 compared to net income of $53.6 million, or $0.94 per diluted limited partner unit, in the second quarter of 2010. Capital expenditures totaled $25.6 million in the third quarter of 2010 compared to $20.9 million in the second 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 $22.6 million during the third quarter of 2010. Realized losses from interest rate derivative instruments were $2.9 million. Non-cash unrealized losses from commodity derivative instruments were $30.5 million and non-cash unrealized gains from interest rate derivative instruments were $1.3 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 September 30, 2010 and 2009 and the three months ended June 30, 2010:   Three Months EndedSeptember 30,   June 30,   September 30,Thousands of dollars, except as indicated201020102009 Oil, natural gas and NGL sales (a) $ 77,055 $ 82,079 $ 62,674 Realized gains on commodity derivative instruments 22,567 18,435 24,356 Unrealized gains (losses) on commodity derivative instruments (30,540 ) 33,215 (11,637 ) Other revenues, net   719     487   261   Total revenues $ 69,801   $ 134,216 $ 75,654   Lease operating expenses and processing fees $ 28,800 $ 29,627 $ 29,052 Production and property taxes   5,081     4,224   4,422   Total lease operating expenses $ 33,881   $ 33,851 $ 33,474   Transportation expenses 1,037 1,231 799 Purchases 90 74 18 Change in inventory   (1,801 )   4,215   (403 ) Total operating costs $ 33,207   $ 39,371 $ 33,888   Lease operating expenses pre taxes per Boe (b) $ 16.54 $ 17.82 $ 17.53 Production and property taxes per Boe 2.92 2.54 2.72 Total lease operating expenses per Boe   19.46     20.36   20.25   General and administrative expenses excluding unit-based compensation   $ 7,193   $ 5,004 $ 5,844   Net income (loss) $ (5,726 ) $ 53,597 $ (5,396 ) Net income (loss) per diluted limited partnership unit $ (0.11 ) $ 0.94 $ (0.10 )   Total production (MBoe) 1,741 1,663 1,628 Oil and NGL (MBoe) 827 812 743 Natural gas (MMcf) 5,486 5,106 5,308 Average daily production (Boe/d)   18,927     18,270   17,697   Sales volumes (MBoe)   1,680     1,725   1,605   Average realized sales price (per Boe) (c) (d) $ 59.32 $ 58.30 $ 54.37 Oil and NGL (per Boe) (c) (d) 76.14 69.99 67.40 Natural gas (per Mcf) (c)   7.55     7.70   7.30     (a) Q3 2010, Q2 2010 and Q3 2009 include approximately $124, $123 and $258, respectively, of amortization of an intangible asset related to crude oil sales contracts. (b) Includes lease operating expenses, district expenses and processing fees. Q3 2009 excludes amortization of intangible asset related to the Quicksilver Acquisition. (c) Includes realized gains on commodity derivative instruments. (d) 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 September 30, June 30, September 30, Thousands of dollars 2010 2010 2009 Reconciliation of net income (loss) to Adjusted EBITDA:   Net income (loss) attributable to the partnership ($5,754 ) $ 53,569 $ (5,408 )   Unrealized (gains) losses on commodity derivative instruments 30,540 (33,215 ) 11,637 Depletion, depreciation and amortization expense 23,636 23,909 24,130 Interest expense and other financing costs (a) 8,090 7,882 7,960 Unrealized (gains) losses on interest rate derivatives (1,314 ) (1,466 ) 381 (Gain) loss on sale of assets (359 ) 381 5,470 Income taxes (470 ) 561 (13 ) Amortization of intangibles 124 123 777 Unit-based compensation expense (b) 5,502 4,937 3,416         Adjusted EBITDA $ 59,995   $ 56,681   $ 48,350       Three Months Ended September 30, June 30, September 30, Thousands of dollars 2010 2010 2009 Reconciliation of net cash flows from operating activities to Adjusted EBITDA:   Net cash from operating activities $ 62,236 $ 36,429 $ 42,436   Increase (decrease) in assets net of liabilities relating to operating activities (9,149 ) 13,528 (1,293 ) Interest expense (a) (c) 6,997 6,949 7,136 Income from equity affiliates, net 9 (144 ) (106 ) Incentive compensation expense (d) (45 ) (19 ) (31 ) Incentive compensation paid 11 - 7 Income taxes (36 ) (34 ) 213 Non-controlling interest (28 ) (28 ) (12 )         Adjusted EBITDA $ 59,995   $ 56,681   $ 48,350     (a) Includes realized gains/losses on interest rate derivatives. (b) Represents non-cash long term unit-based incentive compensation expense. (c) Excludes debt amortization. (d) Represents cash-based incentive compensation plan expense.   Hedge Portfolio Summary The table below summarizes the Partnership's commodity derivative hedge portfolio as of November 4, 2010.   Year   2010       2011       2012     2013     2014Gas Positions: Fixed price swaps: Hedged volume (MMBtu/d) 43,113 25,955 19,128 37,000 - Average price ($/MMBtu) $ 8.22 $ 7.26 $ 7.10 $ 6.50 $ - Collars: Hedged volume (MMBtu/d) 3,837 16,016 19,129 - - Average floor price ($/MMBtu) $ 9.00 $ 9.00 $ 9.00 $ - $ - Average ceiling price ($/MMBtu) $ 12.65 $ 11.28 $ 11.89 $ - $ - Total: Hedged volume (MMBtu/d) 46,950 41,971 38,257 37,000 - Average price ($/MMBtu) $ 8.29 $ 7.92 $ 8.05 $ 6.50 $ -   Oil Positions: Fixed price swaps: Hedged volume (Bbls/d) 2,267 4,767 4,539 6,000 3,748 Average price ($/Bbl) $ 83.67 $ 75.45 $ 75.81 $ 80.74 $ 88.88 Participating swaps: (a) Hedged volume (Bbls/d) 1,433 1,439 - - - Average price ($/Bbl) $ 65.67 $ 61.29 $ - $ - $ - Average participation % 58.0 % 53.2 % - - - Collars: Hedged volume (Bbls/d) 2,140 2,048 2,477 500 - Average floor price ($/Bbl) $ 105.72 $ 103.42 $ 110.00 $ 77.00 $ - Average ceiling price ($/Bbl) $ 140.02 $ 152.61 $ 145.39 $ 103.10 $ - Floors: Hedged volume (Bbls/d) 500 - - - - Average floor price ($/Bbl) $ 100.00 $ - $ - $ - $ - Total: Hedged volume (Bbls/d) 6,340 8,254 7,016 6,500 3,748 Average price ($/Bbl) $ 88.33 $ 79.90 $ 87.88 $ 80.45 $ 88.88   (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 9:00 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 888-539-3686(international callers dial +1-719-325-2368) 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 November 18, 2010 by dialing 877-870-5176 (international callers dial +1-858-384-5517) and entering replay PIN 7476456, 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 EndedNine Months EndedSeptember 30,September 30,Thousands of dollars, except per unit amounts     2010     2009     2010     2009     Revenues and other income items Oil, natural gas and natural gas liquid sales $ 77,055 $ 62,674 $ 239,603 $ 180,189 Gains (losses) on commodity derivative instruments, net (7,973 ) 12,719 95,742 (14,520 ) Other revenue, net   719     261     1,838     930   Total revenues and other income items 69,801 75,654 337,183 166,599 Operating costs and expenses Operating costs 33,207 33,888 108,429 100,273 Depletion, depreciation and amortization 23,636 24,130 69,599 81,393 General and administrative expenses 12,740 9,318 33,957 27,265 (Gain) loss on sale of assets   (359 )   5,470     137     5,470   Total operating costs and expenses   69,224     72,806     212,122     214,401     Operating income (loss) 577 2,848 125,061 (47,802 )   Interest and other financing costs, net 5,147 4,549 13,762 14,682 Losses on interest rate swaps 1,629 3,792 5,290 5,557 Other income, net   (3 )   (84 )   (7 )   (124 )   Income (loss) before taxes (6,196 ) (5,409 ) 106,016 (67,917 )   Income tax expense (benefit)   (470 )   (13 )   235     (354 )   Net income (loss) (5,726 ) (5,396 ) 105,781 (67,563 ) Less: Net income attributable to noncontrolling interest (28 ) (12 ) (127 ) (14 )         Net income (loss) attributable to the partnership   (5,754 )   (5,408 )   105,654     (67,577 )   Basic net income (loss) per unit $ (0.11 ) $ (0.10 ) $ 1.86   $ (1.28 ) Diluted net income (loss) per unit $ (0.11 ) $ (0.10 ) $ 1.86   $ (1.28 )     BreitBurn Energy Partners L.P. and SubsidiariesUnaudited Consolidated Balance Sheets       September 30,December 31,Thousands of dollars, except units outstanding   2010     2009   ASSETSCurrent assets Cash $ 3,409 $ 5,766 Accounts and other receivables, net 52,248 65,209 Derivative instruments 75,534 57,133 Related party receivables 2,062 2,127 Inventory 4,621 5,823 Prepaid expenses 7,235 5,888 Intangibles   124     495   Total current assets 145,233 142,441 Equity investments 7,857 8,150 Property, plant and equipment Property, plant and equipment 2,121,173 2,066,685 Accumulated depletion and depreciation   (392,917 )   (325,596 ) Net property, plant and equipment 1,728,256 1,741,089 Other long-term assets Derivative instruments 78,347 74,759 Other long-term assets 11,909 4,590     Total assets $ 1,971,602   $ 1,971,029   LIABILITIES AND EQUITYCurrent liabilities Accounts payable $ 25,345 $ 21,314 Derivative instruments 23,418 20,057 Related party payables - 13,000 Revenue and royalties payable 16,830 18,224 Salaries and wages payable 9,272 10,244 Accrued liabilities   10,170     9,051   Total current liabilities 85,035 91,890   Long-term debt 516,000 559,000 Deferred income taxes 2,680 2,492 Asset retirement obligation 37,261 36,635 Derivative instruments 22,672 50,109 Other long-term liabilities   2,102     2,102   Total liabilities 665,750 742,228 Equity Partners' equity 1,305,394 1,228,373 Noncontrolling interest   458     428   Total equity 1,305,852 1,228,801     Total liabilities and equity $ 1,971,602   $ 1,971,029     Common units outstanding (in thousands) 53,308 52,784     BreitBurn Energy Partners L.P. and SubsidiariesUnaudited Consolidated Statements of Cash Flows       Nine Months EndedSeptember 30,Thousands of dollars   2010     2009     Cash flows from operating activities Net income (loss) $ 105,781 $ (67,563 ) Adjustments to reconcile to cash flow from operating activities: Depletion, depreciation and amortization 69,599 81,393 Unit based compensation expense 15,386 9,736 Unrealized (gains) losses on derivative instruments (46,065 ) 160,319 Income from equity affiliates, net 293 766 Deferred income tax expense (benefit) 188 (897 ) Amortization of intangibles 371 2,334 Loss on sale of assets 137 5,470 Other 2,850 2,472 Changes in net assets and liabilities Accounts receivable and other assets 13,315 3,590 Inventory 1,202 (3,710 ) Net change in related party receivables and payables (12,935 ) 340 Accounts payable and other liabilities   (6,822 )   (10,279 ) Net cash provided by operating activities   143,300     183,971   Cash flows from investing activities Capital expenditures (46,418 ) (18,603 ) Proceeds from sale of assets 225 23,034 Property acquisitions   (1,550 )   -   Net cash provided (used) by investing activities   (47,743 )   4,431   Cash flows from financing activities Distributions (43,043 ) (28,038 ) Proceeds from long-term debt 683,500 218,475 Repayments of long-term debt (726,500 ) (369,475 ) Book overdraft - (9,711 ) Long-term debt issuance costs   (11,871 )   -   Net cash used by financing activities   (97,914 )   (188,749 ) Decrease in cash (2,357 ) (347 ) Cash beginning of period   5,766     2,546   Cash end of period $ 3,409   $ 2,199     Investor Relations Contacts:BreitBurn Energy Partners L.P.James G. JacksonExecutive Vice President and Chief Financial Officer213-225-5900 x273orGloria ChuInvestor Relations213-225-5900 x210