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Press release from Business Wire

BreitBurn Energy Partners L.P. Reports Strong Second Quarter Results

Monday, August 08, 2011

BreitBurn Energy Partners L.P. Reports Strong Second Quarter Results12:49 EDT Monday, August 08, 2011 LOS ANGELES (Business Wire) -- BreitBurn Energy Partners L.P. (the “Partnership”) (NASDAQ:BBEP) today announced financial and operating results for its second quarter of 2011. Key Highlights The Partnership had another quarter of strong operating and financial results, with production and lease operating expenses trending in-line with guidance and EBITDA trending towards the high end of the guidance range. On June 14, 2011, the Partnership announced it entered into a definitive agreement to acquire crude oil properties in Niobrara County, Wyoming for $58.1 million. This acquisition closed on July 28, 2011 and is expected to immediately add approximately 500 Boe/day of net oil production to the Partnership. On July 27, 2011, the Partnership announced an increased cash distribution for the second quarter of 2011 at the rate of $0.4225 per unit, or $1.69 per common unit on an annualized basis, to be paid on August 12, 2011 to the record holders of common units at the close of business on August 9, 2011. This represents an increase of 10.5% over the cash distribution for the second quarter of 2010. On July 27, 2011, the Partnership announced it entered into a definitive agreement to acquire natural gas and oil producing properties in Wyoming for approximately $285 million in cash. The acquisition is subject to customary closing conditions and purchase price adjustments, including the exercise of preferential rights, and is expected to close before year end 2011. Management Commentary Hal Washburn, CEO, said: “The Partnership had strong performance this quarter with net production increasing 2% from the prior quarter, operating costs per Boe within the guidance range, and adjusted EBITDA trending towards the high end of the guidance range. In addition, we are excited to be executing on our acquisition strategy. Our two recent transactions in our Rocky Mountain region allow us to further expand our presence in the region and leverage our existing operational expertise in the area. Both acquisitions will be immediately accretive to distributable cash flow per unit and are consistent with our strategy of acquiring long-lived assets that have predictable production profiles and an inventory of low-risk exploitation and development opportunities.” Second Quarter 2011 Operating and Financial Results Compared to First Quarter 2011 Total production increased from 1,629 MBoe in the first quarter of 2011 to 1,662 MBoe in the second quarter of 2011 primarily as a result of a seasonal increase in Michigan production. Average daily production increased from 18,098 Boe/day in the first quarter of 2011 to 18,265 Boe/day in the second quarter of 2011. Oil and NGL production was 782 MBoe compared to 773 MBoe. Natural gas production was 5,277 MMcf compared to 5,138 MMcf. Adjusted EBITDA, a non-GAAP measure, was $51.6 million in the second quarter of 2011, down from $56.0 million in the first quarter of 2011. The decrease was primarily due to the timing of crude oil sales in Florida which impacted oil and natural gas sales revenue. Lease operating expenses per Boe, which include district expenses and processing fees and exclude production/property taxes and transportation costs, increased to $18.41 per Boe in the second quarter of 2011 from $16.87 per Boe in the first quarter of 2011. The increase was primarily due to increased activity in both the Eastern and Western divisions exiting the winter months and increased utility and fuel costs. General and administrative expenses, excluding non-cash unit-based compensation, decreased to $6.2 million, or $3.74 per Boe, in the second quarter of 2011 from $7.1 million, or $4.33 per Boe, in the first quarter of 2011, primarily reflecting higher first quarter expenses related to accounting and tax compliance. Oil and natural gas sales revenues, including realized gains and losses on commodity derivative instruments, were $93.0 million in the second quarter of 2011, down from $99.0 million in the first quarter of 2011, primarily reflecting the timing of crude oil sales in Florida, with one sale occurring in the second quarter versus two sales in the first quarter. Realized losses from commodity derivative instruments were $1.8 million in the second quarter of 2011 compared to realized gains of $6.4 million in the first quarter of 2011. NYMEX WTI crude oil spot prices averaged $102.02 per barrel and NYMEX natural gas prices averaged $4.38 per Mcf in the second quarter of 2011 compared to $94.07 per barrel and $4.20 per Mcf, respectively, in the first quarter of 2011. Realized crude oil and natural gas liquids prices averaged $79.48 per Boe and natural gas prices averaged $6.42 per Mcf in the second quarter of 2011, compared to $73.81 per Boe and $7.38 per Mcf, respectively, in the first quarter of 2011. Net income, including the effect of unrealized gains on commodity derivative instruments, was $57.5 million, or $0.92 per diluted limited partner unit, in the second quarter of 2011 compared to a net loss of $94.7 million, or $1.67 per diluted limited partner unit, in the first quarter of 2011. Capital expenditures totaled $28.1 million in the second quarter of 2011 compared to $9.7 million in the first quarter of 2011. 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 losses from commodity derivative instruments were $1.8 million during the second quarter of 2011. Realized losses from interest rate derivative instruments were $1.1 million during the second quarter of 2011. Non-cash unrealized gains from commodity derivative instruments were $48.2 million and non-cash unrealized losses from interest rate derivative instruments were $1.2 million during the second quarter of 2011. 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, 2011, March 31, 2011 and June 30, 2010:   Three Months EndedJune 30,   March 31,   June 30,Thousands of dollars, except as indicated   2011     2011     2010 Oil, natural gas and NGL sales (a) $ 94,742 $ 92,575 $ 82,079 Realized gain (loss) on commodity derivative instruments (1,751 ) 6,443 18,435 Unrealized gain (loss) on commodity derivative instruments 48,234 (112,620 ) 33,215 Other revenues, net   1,143     898     487 Total revenues $ 142,368   $ (12,704 ) $ 134,216 Lease operating expenses and processing fees $ 30,595 $ 27,485 $ 29,627 Production and property taxes   6,195     5,769     4,224 Total lease operating expenses $ 36,790   $ 33,254   $ 33,851 Transportation expenses 1,010 1,423 1,231 Purchases and other operating costs 268 154 74 Change in inventory   (1,860 )   1,980     4,215 Total operating costs $ 36,208   $ 36,811   $ 39,371 Lease operating expenses pre taxes per Boe (b) $ 18.41 $ 16.87 $ 17.82 Production and property taxes per Boe 3.73 3.54 2.54 Total lease operating expenses per Boe   22.14     20.41     20.36 General and administrative expenses excluding unit-based compensation $ 6,221   $ 7,058   $ 5,004 Net income (loss) $ 57,523 $ (94,713 ) $ 53,597 Net income (loss) per diluted limited partnership unit $ 0.92   $ (1.67 ) $ 0.94   Total production (MBoe) 1,662 1,629 1,663 Oil and NGL (MBoe) 782 773 812 Natural gas (MMcf) 5,277 5,138 5,106 Average daily production (Boe/d)   18,265     18,098     18,270 Sales volumes (MBoe)   1,621     1,682     1,725 Average realized sales price (per Boe) (c) (d) $ 57.29 $ 58.78 $ 58.30 Oil and NGL (per Boe) (c) (d) 79.48 73.81 69.99 Natural gas (per Mcf) (c)   6.42     7.38     7.70   (a) Q2 2010 includes $123 of amortization of an intangible asset related to crude oil sales contracts. (b) Includes lease operating expenses, district expenses and processing fees. (c) Includes realized gain (loss) on commodity derivative instruments. (d) Includes crude oil purchases. 2010 excludes amortization of intangible asset related to crude oil sales contracts.     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   2011     2011     2010   Reconciliation of net income (loss) to Adjusted EBITDA:     Net income (loss) attributable to the Partnership $ 57,455 ($94,747 ) $ 53,569   Unrealized (gain) loss on commodity derivative instruments (48,234 ) 112,620 (33,215 ) Depletion, depreciation and amortization expense 25,025 24,641 23,909 Interest expense and other financing costs (a) 10,145 10,443 7,882 Unrealized (gain) loss on interest rate derivatives 1,155 (1,366 ) (1,466 ) Loss on sale of assets 40 14 381 Income taxes 616 (1,002 ) 561 Amortization of intangibles - - 123 Unit-based compensation expense (b) 5,435 5,413 4,937         Adjusted EBITDA $ 51,637   $ 56,016   $ 56,681       Three Months Ended June 30, March 31, June 30, Thousands of dollars   2011     2011     2010   Reconciliation of net cash flows from operating activities to Adjusted EBITDA:   Net cash from operating activities $ 33,118 $ 54,399 $ 36,429   Increase (decrease) in assets net of liabilities relating to operating activities 9,837 (7,597 ) 13,528 Interest expense (a) (c) 8,896 9,139 6,949 Income from equity affiliates, net (262 ) 103 (144 ) Incentive compensation expense (d) 14 (24 ) (19 ) Income taxes 102 30 (34 ) Non-controlling interest (68 ) (34 ) (28 )         Adjusted EBITDA $ 51,637   $ 56,016   $ 56,681     (a) Includes realized gain/loss on interest rate derivatives. (b) Represents non-cash long-term unit-based incentive compensation expense. (c) Excludes amortization of debt issuance costs and amortization of Senior Note discount. (d) Represents cash-based incentive compensation plan expense.     Hedge Portfolio Summary The table below summarizes the Partnership's commodity derivative hedge portfolio as of August 8, 2011.           Year   2011     2012   2013   2014   2015Oil Positions: Fixed Price Swaps: Hedged Volume (Bbl/d) 5,316 5,039 6,480 5,000 2,500 Average Price ($/Bbl) $ 76.95 $ 77.15 $ 81.37 $ 88.59 $ 99.50 Participating Swaps: (a) Hedged Volume (Bbl/d) 1,377 - - - - Average Price ($/Bbl) $ 60.00 $ - $ - $ - $ - Average Participation % 53.1 % - - - - Collars: Hedged Volume (Bbl/d) 2,190 2,477 500 1,000 1,000 Average Floor Price ($/Bbl) $ 103.68 $ 110.00 $ 77.00 $ 90.00 $ 90.00 Average Ceiling Price ($/Bbl) $ 153.32 $ 145.39 $ 103.10 $ 112.00 $ 113.50 Floors: Hedged Volume (Bbl/d) - - - - - Average Floor Price ($/Bbl) $ - $ - $ - $ - $ - Total: Hedged Volume (Bbl/d) 8,883 7,516 6,980 6,000 3,500 Average Price ($/Bbl) $ 80.91 $ 87.97 $ 81.06 $ 88.83 $ 96.79   Gas Positions: Fixed Price Swaps: Hedged Volume (MMBtu/d) 26,454 35,128 53,000 27,500 27,500 Average Price ($/MMBtu) $ 6.28 $ 6.09 $ 6.01 $ 5.48 $ 5.61 Collars: Hedged Volume (MMBtu/d) 20,109 19,129 - - - Average Floor Price ($/MMBtu) $ 9.00 $ 9.00 $ - $ - $ - Average Ceiling Price ($/MMBtu) $ 11.61 $ 11.89 $ - $ - $ - Total: Hedged Volume (MMBtu/d) 46,563 54,257 53,000 27,500 27,500 Average Price ($/MMBtu) $ 7.46 $ 7.12 $ 6.01 $ 5.48 $ 5.61 (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 888-417-2254(international callers dial +1-719-457-1529) 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 22, 2011 by dialing 877-870-5176 (international callers dial +1-858-384-5517) and entering replay PIN 4066557, 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 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 Greasewood Field in eastern 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,” “expects,” “future,” “impact,” “guidance,” “will be” 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 and other sources of liquidity to execute our business plan, prices and demand for natural gas and oil, increases in operating costs, uncertainties inherent in estimating our reserves and production, 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, risks relating to our completed and pending acquisitions, 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 9, 2011, 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 Balance Sheets       June 30,December 31,Thousands   2011     2010   ASSETSCurrent assets Cash $ 2,747 $ 3,630 Accounts and other receivables, net 50,450 53,520 Derivative instruments 51,266 54,752 Related party receivables 2,632 4,345 Inventory 7,342 7,321 Prepaid expenses   6,344     6,449   Total current assets 120,781 130,017 Equity investments 7,541 7,700 Property, plant and equipment Oil and gas properties 2,169,988 2,133,099 Other assets   11,702     10,832   2,181,690 2,143,931 Accumulated depletion and depreciation   (469,594 )   (421,636 ) Net property, plant and equipment 1,712,096 1,722,295 Other long-term assets Derivative instruments 19,400 50,652 Other long-term assets 19,314 19,503     Total assets $ 1,879,132   $ 1,930,167   LIABILITIES AND EQUITYCurrent liabilities Accounts payable $ 27,924 $ 26,808 Derivative instruments 39,659 37,071 Revenue and royalties payable 17,534 16,427 Salaries and wages payable 6,730 12,594 Accrued liabilities   11,256     8,417   Total current liabilities 103,103 101,317   Credit facility 127,000 228,000 Senior notes, net 300,364 300,116 Deferred income taxes 1,571 2,089 Asset retirement obligation 46,402 47,429 Derivative instruments 66,572 39,722 Other long-term liabilities   2,055     2,237   Total liabilities 647,067 720,910 Equity Partners' equity 1,231,617 1,208,803 Noncontrolling interest   448     454   Total equity 1,232,065 1,209,257     Total liabilities and equity $ 1,879,132   $ 1,930,167     Common units outstanding 59,040 53,957       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   2011     2010     2011     2010     Revenues and other income items Oil, natural gas and natural gas liquid sales $ 94,742 $ 82,079 $ 187,317 $ 162,548 Gain (loss) on commodity derivative instruments, net 46,483 51,650 (59,694 ) 103,715 Other revenue, net   1,143     487     2,041     1,119   Total revenues and other income items 142,368 134,216 129,664 267,382 Operating costs and expenses Operating costs 36,208 39,371 73,019 75,222 Depletion, depreciation and amortization 25,025 23,909 49,666 45,963 General and administrative expenses 11,656 9,960 24,127 21,217 Loss on sale of assets   40     381     54     496   Total operating costs and expenses   72,929     73,621     146,866     142,898     Operating income (loss) 69,439 60,595 (17,202 ) 124,484   Interest expense, net of capitalized interest 9,080 4,998 18,500 8,615 Loss on interest rate swaps 2,220 1,418 1,877 3,661 Other (income) expense, net   -     21     (3 )   (4 )   Income (loss) before taxes 58,139 54,158 (37,576 ) 112,212   Income tax expense (benefit)   616     561     (386 )   705     Net income (loss) 57,523 53,597 (37,190 ) 111,507   Less: Net income attributable to noncontrolling interest   (68 )   (28 )   (102 )   (99 )   Net income (loss) attributable to the partnership   57,455     53,569     (37,292 )   111,408     Basic net income (loss) per unit $ 0.93   $ 0.94   $ (0.64 ) $ 1.96   Diluted net income (loss) per unit $ 0.92   $ 0.94   $ (0.64 ) $ 1.96       BreitBurn Energy Partners L.P. and SubsidiariesUnaudited Consolidated Statements of Cash Flows       Six months endedJune 30,Thousands of dollars   2011     2010     Cash flows from operating activities Net income (loss) $ (37,190 ) $ 111,507 Adjustments to reconcile to cash flow from operating activities: Depletion, depreciation and amortization 49,666 45,963 Unit based compensation expense 10,858 9,839 Unrealized (gain) loss on derivative instruments 64,175 (75,291 ) Income from equity affiliates, net 159 302 Deferred income taxes (518 ) 622 Amortization of intangibles - 247 Loss on sale of assets 54 496 Other (244 ) 1,757 Changes in net assets and liabilities Accounts receivable and other assets 4,171 7,890 Inventory (21 ) 3,909 Net change in related party receivables and payables 1,713 (13,377 ) Accounts payable and other liabilities   (5,306 )   (12,800 ) Net cash provided by operating activities   87,517     81,064   Cash flows from investing activities Capital expenditures (35,136 ) (24,997 ) Proceeds from sale of assets 110 225 Property acquisitions   -     (1,550 ) Net cash used in investing activities   (35,026 )   (26,322 ) Cash flows from financing activities Issuance of common units 100,204 - Distributions (49,470 ) (21,312 ) Proceeds from issuance long-term debt 133,500 622,000 Repayments of long-term debt (234,500 ) (647,000 ) Change in book overdraft 5 798 Long-term debt issuance costs   (3,113 )   (11,647 ) Net cash used in financing activities   (53,374 )   (57,161 ) Decrease in cash (883 ) (2,419 ) Cash beginning of period   3,630     5,766   Cash end of period $ 2,747   $ 3,347   Investor Relations Contacts:BreitBurn Energy Partners L.P.James G. JacksonExecutive Vice President and Chief Financial Officer(213) 225-5900 x273orJessica TangInvestor Relations(213) 225-5900 x210