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Press release from Business Wire

BreitBurn Energy Partners L.P. Reports Third Quarter Results

Tuesday, November 08, 2011

BreitBurn Energy Partners L.P. Reports Third Quarter Results08:00 EST Tuesday, November 08, 2011 LOS ANGELES (Business Wire) -- BreitBurn Energy Partners L.P. (the “Partnership”) (NASDAQ:BBEP) today announced financial and operating results for its third quarter of 2011. Key Highlights The Partnership had another strong quarter of operating and financial results, with net production trending in-line with its annual guidance and EBITDA trending above the high end of its annual guidance range. On October 6, 2011, the Partnership completed its acquisition of gas and oil properties in the Evanston and Green River Basins in southwestern Wyoming for approximately $283 million. On July 28, 2011, the Partnership completed its acquisition of crude oil properties in the Greasewood Field in eastern Wyoming for approximately $57 million. On October 28, 2011, the Partnership announced an increased cash distribution for the third quarter of 2011 at the rate of $0.4350 per common unit, or $1.74 per common unit on an annualized basis, to be paid on November 14, 2011 to the record holders of common units at the close of business on November 9, 2011. This represents an increase of 11.5% over the cash distribution for the third quarter of 2010. In connection with the October 2011 scheduled borrowing base redetermination under the Partnership's existing credit facility, the Partnership's borrowing base was increased to $850 million from $735 million, effective October 11, 2011. As of October 31, 2011, the Partnership had $505 million outstanding under the facility. Management Commentary Hal Washburn, CEO, said: “Our solid performance in the third quarter continues to highlight the Partnership's consistent and predictable business model, with Adjusted EBITDA trending above the high end of our guidance range and net production trending in-line with guidance. We are excited to have recently completed two excellent acquisitions in the Rocky Mountains, allowing us to increase our presence in the region, continue our strategy of commodity diversification, and leverage our existing operational expertise in the area. The incremental cash flow from these acquisitions supports our distribution growth strategy. Having completed these acquisitions, we were pleased to announce a distribution increase of 3% from the prior quarter, from $1.69 per unit on an annualized basis to $1.74.” Due to increased production, expenses and EBITDA associated with the Partnership's recent acquisitions, the Partnership notes that its full-year guidance issued near the beginning of the year (March 2, 2011)will no longer be current or applicable for fourth quarter and year-end results. The Partnership intends to issue 2012 guidance in conjunction with its fourth quarter and full-year 2011 results during the first quarter of 2012. Third Quarter 2011 Operating and Financial Results Compared to Second Quarter 2011 Total production increased from 1,662 MBoe in the second quarter of 2011 to 1,681 MBoe in the third quarter of 2011 primarily as a result of production from acquired properties. Average daily production was 18,273 Boe/day in the third quarter of 2011 compared to 18,265 Boe/day in the second quarter of 2011. Oil and NGL production was 829 MBoe compared to 782 MBoe. Natural gas production was 5,114 MMcf compared to 5,277 MMcf. Adjusted EBITDA, a non-GAAP measure, was $52.9 million in the third quarter of 2011, up from $51.6 million in the second quarter of 2011. The increase was primarily due to the timing of crude oil sales in Florida which impacted oil sales revenue, partially offset by higher lease operating expenses. Lease operating expenses per Boe, which include district expenses and processing fees and exclude production/property taxes and transportation costs, increased to $21.66 per Boe in the third quarter of 2011 from $18.41 per Boe in the second quarter of 2011. The increase was primarily due to the intentional scheduling of maintenance activities in the third quarter to minimize costs, and to the upward pressure on the cost of services and materials due to continued strong oil prices. General and administrative expenses, excluding non-cash unit-based compensation, increased to $8.6 million, or $5.09 per Boe, in the third quarter of 2011 from $6.2 million, or $3.74 per Boe, in the second quarter of 2011, primarily reflecting acquisition related costs, personnel additions and higher employee related costs. Oil and natural gas sales revenues, including realized gains and losses on commodity derivative instruments, were $105.4 million in the third quarter of 2011, up from $93.0 million in the second quarter of 2011, primarily reflecting the timing of crude oil sales in Florida, with two sales occurring in the third quarter versus one sale in the second quarter. Realized gains from commodity derivative instruments were $8.1 million in the third quarter of 2011 compared to realized losses of $1.8 million in the second quarter of 2011, reflecting lower commodity prices in the third quarter. NYMEX WTI crude oil spot prices averaged $89.49 per barrel and NYMEX natural gas prices averaged $4.06 per Mcf in the third quarter of 2011 compared to $102.02 per barrel and $4.38 per Mcf, respectively, in the second quarter of 2011. Realized crude oil and natural gas liquids prices averaged $81.50 per Boe and realized natural gas prices averaged $6.72 per Mcf in the third quarter of 2011, compared to $79.48 per Boe and $6.42 per Mcf, respectively, in the second quarter of 2011. Net income, including the effect of unrealized gains on commodity derivative instruments, was $178.2 million, or $2.87 per diluted common unit, in the third quarter of 2011 compared to net income of $57.5 million, or $0.92 per diluted common unit, in the second quarter of 2011. Capital expenditures totaled $22.3 million in the third quarter of 2011 compared to $28.1 million in the second 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 gains from commodity derivative instruments were $8.1 million during the third quarter of 2011. Realized losses from interest rate derivative instruments were $1.1 million during the third quarter of 2011. Non-cash unrealized gains from commodity derivative instruments were $170.7 million and non-cash unrealized losses from interest rate derivative instruments were $0.1 million during the third quarter of 2011. Production, Statement of Operations, and Realized Price Information The following table presents production, selected Statement of Operations and realized price information for the three months ended September 30, 2011, June 30, 2011 and September 30, 2010:     Three Months EndedSeptember 30,     June 30,     September 30,Thousands of dollars, except as indicated201120112010 Oil, natural gas and NGLs sales (a) $ 97,356 $ 94,742 $ 77,055 Realized gain (loss) on commodity derivative instruments 8,092 (1,751 ) 22,567 Unrealized gain (loss) on commodity derivative instruments 170,734 48,234 (30,540 ) Other revenues, net   1,375   1,143     719   Total revenues $ 277,557 $ 142,368   $ 69,801   Lease operating expenses and processing fees $ 36,409 $ 30,595 $ 28,800 Production and property taxes   6,689   6,195     5,081   Total lease operating expenses $ 43,098 $ 36,790   $ 33,881   Transportation expenses 1,426 1,010 1,037 Purchases and other operating costs 329 268 90 Change in inventory   1,593   (1,860 )   (1,801 ) Total operating costs $ 46,446 $ 36,208   $ 33,207   Lease operating expenses pre taxes per Boe (b) $ 21.66 $ 18.41 $ 16.54 Production and property taxes per Boe 3.98 3.73 2.92 Total lease operating expenses per Boe   25.64   22.14     19.46   General and administrative expenses excluding unit-based compensation   $ 8,552 $ 6,221   $ 7,193   Net income (loss) $ 178,227 $ 57,523 $ (5,726 ) Net income (loss) per diluted common unit $ 2.87 $ 0.92   $ (0.11 )   Total production (MBoe) 1,681 1,662 1,741 Oil and NGLs (MBoe) 829 782 827 Natural gas (MMcf) 5,114 5,277 5,486 Average daily production (Boe/d)   18,273   18,265     18,927   Sales volumes (MBoe)   1,723   1,621     1,680   Average realized sales price (per Boe) (c) (d) $ 61.08 $ 57.29 $ 59.32 Oil and NGLs (per Boe) (c) (d) 81.50 79.48 76.14 Natural gas (per Mcf) (c)   6.72   6.42     7.55   (a) Q3 2010 includes $124 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 September 30,     June 30,     September 30, Thousands of dollars 2011 2011 2010 Reconciliation of net income (loss) to Adjusted EBITDA:   Net income (loss) attributable to the Partnership $ 178,181 $ 57,455 ($5,754 )   Unrealized (gain) loss on commodity derivative instruments (170,734 ) (48,234 ) 30,540 Depletion, depreciation and amortization expense 26,688 25,025 23,636 Interest expense and other financing costs (a) 10,342 10,145 8,090 Unrealized (gain) loss on interest rate derivatives 71 1,155 (1,314 ) (Gain) loss on sale of assets (94 ) 40 (359 ) Income taxes 1,895 616 (470 ) Amortization of intangibles - - 124 Unit-based compensation expense (b) 5,447 5,435 5,502 Net operating cash flow from acquisitions, effective date through closing date     1,078     -     -   Adjusted EBITDA $ 52,874   $ 51,637   $ 59,995       Three Months Ended September 30, June 30, September 30, Thousands of dollars 2011 2011 2010 Reconciliation of net cash flows from operating activities to Adjusted EBITDA:   Net cash from operating activities $ 41,267 $ 33,118 $ 62,236   Increase (decrease) in assets net of liabilities relating to operating activities 1,199 9,837 (9,149 ) Interest expense (a) (c) 9,273 8,896 6,997 Income from equity affiliates, net (10 ) (262 ) 9 Incentive compensation expense (d) (29 ) 14 (45 ) Incentive compensation paid 78 - 11 Income taxes 64 102 (36 ) Non-controlling interest (46 ) (68 ) (28 ) Net operating cash flow from acquisitions, effective date through closing date 1,078 - -         Adjusted EBITDA $ 52,874   $ 51,637   $ 59,995   (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 November 8, 2011. Please refer to the updated Commodity Price Protection Portfolio via our website for additional details related to our hedge portfolio. In October 2011, the Partnership terminated certain crude oil fixed price swaps at NYMEX WTI prices for $33.8 million and entered into new crude oil fixed price swaps at IPE Brent prices. The new crude oil swaps were entered into to mitigate future price volatility associated with our California production. Historically WTI oil prices and Brent oil prices have fluctuated together, but they have recently diverged and management believes that Brent pricing will better correlate with local California pricing. These new positions, as well as the hedges entered into in conjunction with our recent Wyoming acquisitions, are reflected in the table below.     Year 2011   2012   2013   2014   2015Oil Positions: Fixed Price Swaps: Hedged Volume (Bbl/d) 5,316 5,039 6,480 5,000 2,500 Average Price ($/Bbl) $ 76.95 $ 96.58 $ 93.21 $ 89.41 $ 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) 2,166 2,477 500 1,000 1,000 Average Floor Price ($/Bbl) $ 103.61 $ 110.00 $ 77.00 $ 90.00 $ 90.00 Average Ceiling Price ($/Bbl) $ 153.50 $ 145.39 $ 103.10 $ 112.00 $ 113.50 Total: Hedged Volume (Bbl/d) 8,859 7,516 6,980 6,000 3,500 Average Price ($/Bbl) $ 80.84 $ 101.00 $ 92.05 $ 89.51 $ 96.79   Gas Positions: Fixed Price Swaps: Hedged Volume (MMBtu/d) 30,000 35,128 56,000 30,500 30,500 Average Price ($/MMBtu) $ 6.11 $ 6.09 $ 5.96 $ 5.43 $ 5.55 Collars: Hedged Volume (MMBtu/d) 20,000 19,129 - - - Average Floor Price ($/MMBtu) $ 9.00 $ 9.00 $ - $ - $ - Average Ceiling Price ($/MMBtu) $ 12.05 $ 11.89 $ - $ - $ - Calls: Hedged Volume (MMBtu/d) - - 30,000 15,000 - Average Price ($/MMBtu) $ - $ - $ 8.00 $ 9.00 $ - Total: Hedged Volume (MMBtu/d) 50,000 54,257 86,000 45,500 30,500 Average Price ($/MMBtu) $ 7.27 $ 7.12 $ 6.67 $ 6.61 $ 5.55 (a) Reflects NYMEX WTI average prices for 2011 and 2015. For 2012 through 2014, an average volume of 2,346 Bbl/d is hedged at a weighted average IPE Brent price of $99.75 per Bbl and the remaining volume is hedged at NYMEX WTI.(b) A participating swap combines a swap and a call option with the same strike price.(c) A weighted average volume of 19,647 MMBtu/d for 2011 through 2015 is hedged at a weighted average NYMEX Henry Hub price of $5.11 per MMBtu and the remaining volume is hedged at Mich Con City-Gate.(d) Reflects NYMEX Henry Hub prices. Call options for 2013 and 2014 have a deferred premium of $0.0815 per MMBtu and $0.1200 per MMBtu, respectively. List of 2012-2014 NYMEX WTI Swaps Terminated and Replaced with IPE Brent Swaps:Period     NYMEXWTI $/Bbl     IPE Brent$/Bbl     VolumeBbl/d January 1, 2012 to December 31, 2012 $ 63.30   $ 105.75   1,939 January 1, 2012 to June 30, 2012 79.55 106.20 600 January 1, 2012 to December 31, 2013 84.30 103.50 400 January 1, 2013 to December 31, 2013 83.60 92.65 500 January 1, 2013 to December 31, 2013 80.10 92.10 500 January 1, 2013 to December 31, 2013 80.15 94.25 500 January 1, 2013 to December 31, 2013 75.85 94.00 500 January 1, 2013 to December 31, 2013 77.85 100.60 500 January 1, 2013 to December 31, 2013 70.00 101.00 1,000 January 1, 2014 to December 31, 2014 81.05 89.25 500 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 877-718-5098(international callers dial +1-719-325-4796) 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 22, 2011 by dialing 877-870-5176 (international callers dial +1-858-384-5517) and entering replay PIN 7215054, 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 Michigan, Wyoming,California, Florida, 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 the Partnership'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, and if applicable, 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, the Partnership 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         September 30,December 31,Thousands20112010ASSETSCurrent assets Cash $ 4,777 $ 3,630 Accounts and other receivables, net 64,542 53,520 Derivative instruments 87,824 54,752 Related party receivables 3,413 4,345 Inventory 4,683 7,321 Prepaid expenses   6,611     6,449   Total current assets 171,850 130,017 Equity investments 7,531 7,700 Property, plant and equipment Oil and gas properties 2,248,035 2,133,099 Other assets   11,916     10,832   2,259,951 2,143,931 Accumulated depletion and depreciation   (494,704 )   (421,636 ) Net property, plant and equipment 1,765,247 1,722,295 Other long-term assets Derivative instruments 64,418 50,652 Other long-term assets 32,315 19,503     Total assets $ 2,041,361   $ 1,930,167   LIABILITIES AND EQUITYCurrent liabilities Accounts payable $ 31,748 $ 26,808 Derivative instruments 14,630 37,071 Revenue and royalties payable 17,876 16,427 Salaries and wages payable 9,090 12,594 Accrued liabilities   12,264     8,417   Total current liabilities 85,608 101,317   Credit facility 211,000 228,000 Senior notes, net 300,489 300,116 Deferred income taxes 3,402 2,089 Asset retirement obligation 47,083 47,429 Derivative instruments 2,514 39,722 Other long-term liabilities   2,043     2,237   Total liabilities 652,139 720,910 Equity Partners' equity 1,388,771 1,208,803 Noncontrolling interest   451     454   Total equity 1,389,222 1,209,257     Total liabilities and equity $ 2,041,361   $ 1,930,167     Common units outstanding 59,040 53,957           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 amounts2011201020112010   Revenues and other income items Oil, natural gas and natural gas liquid sales $ 97,356 $ 77,055 $ 284,673 $ 239,603 Gain (loss) on commodity derivative instruments, net 178,826 (7,973 ) 119,132 95,742 Other revenue, net   1,375     719     3,416     1,838   Total revenues and other income items 277,557 69,801 407,221 337,183 Operating costs and expenses Operating costs 46,446 33,207 119,465 108,429 Depletion, depreciation and amortization 26,688 23,636 76,354 69,599 General and administrative expenses 13,999 12,740 38,126 33,957 (Gain) loss on sale of assets   (94 )   (359 )   (40 )   137   Total operating costs and expenses   87,039     69,224     233,905     212,122     Operating income 190,518 577 173,316 125,061   Interest expense, net of capitalized interest 9,270 5,147 27,770 13,762 Loss on interest rate swaps 1,143 1,629 3,020 5,290 Other income, net   (17 )   (3 )   (20 )   (7 )   Income (loss) before taxes 180,122 (6,196 ) 142,546 106,016   Income tax expense (benefit)   1,895     (470 )   1,509     235     Net income (loss) 178,227 (5,726 ) 141,037 105,781   Less: Net income attributable to noncontrolling interest (46 ) (28 ) (148 ) (127 )         Net income (loss) attributable to the partnership   178,181     (5,754 )   140,889     105,654     Basic net income (loss) per unit $ 2.87   $ (0.11 ) $ 2.30   $ 1.86   Diluted net income (loss) per unit $ 2.87   $ (0.11 ) $ 2.29   $ 1.86             BreitBurn Energy Partners L.P. and SubsidiariesUnaudited Consolidated Statements of Cash Flows   Nine months endedSeptember 30,Thousands of dollars20112010   Cash flows from operating activities Net income $ 141,037 $ 105,781 Adjustments to reconcile to cash flow from operating activities: Depletion, depreciation and amortization 76,354 69,599 Unit-based compensation expense 16,334 15,386 Unrealized gain on derivative instruments (106,488 ) (46,065 ) Income from equity affiliates, net 169 293 Deferred income taxes 1,313 188 Amortization of intangibles - 371 (Gain) loss on sale of assets (40 ) 137 Other 417 2,850 Changes in net assets and liabilities Accounts receivable and other assets (9,858 ) 13,315 Inventory 2,638 1,202 Net change in related party receivables and payables 932 (12,935 ) Accounts payable and other liabilities   5,976     (6,822 ) Net cash provided by operating activities   128,784     143,300   Cash flows from investing activities Capital expenditures (61,264 ) (46,418 ) Proceeds from sale of assets 1,118 225 Deposit for oil and gas properties (14,250 ) - Property acquisitions   (57,380 )   (1,550 ) Net cash used in investing activities   (131,776 )   (47,743 ) Cash flows from financing activities Issuance of common units 99,826 - Distributions (75,690 ) (43,043 ) Proceeds from issuance of long-term debt 283,500 683,500 Repayments of long-term debt (300,500 ) (726,500 ) Change in book overdraft 141 - Long-term debt issuance costs   (3,138 )   (11,871 ) Net cash provided by (used in) financing activities   4,139     (97,914 ) Increase (decrease) in cash 1,147 (2,357 ) Cash beginning of period   3,630     5,766   Cash end of period $ 4,777   $ 3,409   Investor Relations Contacts:BreitBurn Energy Partners L.P.James G. JacksonExecutive Vice President and Chief Financial Officer213-225-5900 x273orJessica TangInvestor Relations213-225-5900 x210