BreitBurn Energy Partners, L.P. Makes Its Biggest Deal Yet

Breitburn Energy Partners buys QR Energy in a $3 billion deal.

Jul 24, 2014 at 10:35AM

For the second year in a row, with one stroke of the pen, BreitBurn Energy Partners (NASDAQ:BBEP) blew past its annual acquisition target by announcing a big oil deal. This time, however, the company didn't just purchase one big asset, instead it announced this morning that it is buying the entirety of fellow upstream MLP QR Energy (NYSE:QRE) in a $3 billion deal. The deal is coming at a 19% premium to QR Energy's previous closing price.

Drilling down into the deal
The unit-for-unit transaction will create the largest oil-weighted upstream MLP as the combined company will have an enterprise value of $7.8 billion. Further, the combined entity will have average daily production of 57,300 barrels of oil per day with reserves 67% weighted toward liquids.

As the map on the following slide points out, the combination of BreitBurn Energy Partners and QR Energy is a highly complementary pairing.

Breitburn Qr Energy Map

Source: BreitBurn Energy Partners Investor Presentation (opens a PDF). 

As noted on that map, QR Energy adds overlapping assets in the Permian Basin and Michigan while extending BreitBurn Energy Partners' reach into the Mid-Continent and Ark-La-Tex region. Further, it adds the Jay Field along the Gulf Coast.

Because of the overlap, BreitBurn Energy Partners sees the deal immediately saving the combined company $13 million per year from synergies. Further, the company sees future upside from operational efficiencies, portfolio optimization, and cost of capital reduction.

These synergies, along with the accretive nature of the transaction, will provide an immediate boost to investors. BreitBurn Energy Partners plans to increase its distribution by $0.07 per share, or 3.5% upon closing. That boost also represents a 5% increase for QR Energy investors.

Getting bigger and better in one deal
The other really important aspect of this deal is that it solidifies BreitBurn Energy Partners' place as the second largest upstream MLP. That increased scale will enable it to better compete for deals in the future as it should lower the company's cost of capital while providing it with the scale it needs to be in the position to acquire larger asset packages.

Further, BreitBurn Energy Partners is adding scale where scale matters. It's becoming a much larger oil producer as QR Energy is among the most levered MLPs in the space, as noted on the following slide.

Breitburn Qr Energy Scale

Source: BreitBurn Energy Partners Investor Presentation.

As the chart on the bottom of that slide notes, 67% of the reserves of the pro forma company will be in higher valued liquids. That's a meaningful boost from the 60% liquids weighting of reserves that BreitBurn Energy Partners had before the deal. Further, these reserves are heavily weighted toward oil as 58% of the reserves are oil and just 8% are natural gas liquids, compared to 53% oil for BreitBurn Energy Partners as a stand-alone entity. That oil weighting is a big deal given that NGLs are tough to hedge, which adds volatility to the cash flow stream, while natural gas isn't as valuable these days.

Investor takeaway
This really is a transformative acquisition for BreitBurn Energy Partners. The company is shifting its reserve mix further toward oil and is expanding its geographic reach, both of which should improve its cost of capital. That should make it even easier for the combined entity to grow in the future. Further, the deal boosts the company's cash distribution to investors while strengthening its ability to keep that payout both flowing and growing in the years ahead.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends BreitBurn Energy Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers