A Quick Look at BreitBurn Energy Partners’ Earnings

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Oil and gas partnership BreitBurn Energy Partners (NASDAQ: BBEP  ) is out with its first quarter earnings. The company reported a loss of $0.38 a unit on revenue of $120.4 million. Both missed estimates, as analysts were expecting earnings of $0.15 a unit on revenue of $138.5 million. Adjusted EBITDA for the quarter came in at $64.1 million, which is up 4% from the first quarter of last year. However, this is down from last quarter, which saw adjusted EBITDA of $78 million.

Overall, BreitBurn missed analysts' expectations. The real driving force behind the numbers was that realized gains on its commodity hedges fell from $22.5 million last quarter to just $5.2 million this quarter. The bottom line was further affected by weaker oil, NGL and natural gas price differentials in several of its operating areas. Otherwise, it was a fine quarter for the company.

Total production for the quarter hit a quarterly record for the company, at 2.35 million barrels of oil equivalent, or MMBoe, which was an increase of 18% year over year. Liquids production drove the growth this quarter, as it, too, hit a new quarterly high. Overall, liquids production jumped 40% over the first quarter of last year, and now represents 51% of BreitBurn's production.

For the full year, the company sees its production coming in between 9.5 MMBoe and 10.1 MMBoe as it continues to deliver on its $261 million capital spending plan. It's focusing its efforts on high-margin oil opportunities, which will receive 95% of that planned capital spend. The company expects that this will drive its liquids production to comprise 55% of total production by the end of the year.

Capital plans
For the quarter, BreitBurn spent $45 million to drill 16 wells, complete 10 workovers, and start another 22 wells. The company is planning to ramp up its activity in the next two quarters as it moves forward on its plans to spend $261 million to drill 135 wells. Most of these projects will be concentrated on its oil-heavy assets in Texas and California. These high-margin oil projects should drive incremental cash flow, which is important to support the company's distribution growth. 

In addition to its capital plans, BreitBurn looks to be very active in the acquisition market. The company recently reduced borrowings on its credit facility to under $100 million, giving it plenty of dry powder to make a deal. It is targeting at least $500 million in acquisitions this year after spending $950 million over the past two years to close nine deals. Those acquisitions were a key reason why the BreitBurn was recently able to raise its distribution by 4%.

Foolish bottom line
While the numbers might not have met expectations, it was still a solid quarter. The company is reasonably well hedged; however, it's not as fully hedged as competitor LINN Energy. This can cause realized oil and gas prices to fluctuate from quarter to quarter along with the underlying commodities. LINN, which is 100% hedged for the next few years, doesn't have to deal with commodity price fluctuations to the same degree as BreitBurn, which is only around 80% hedged this year. While that can lead to upside in some quarters, as seen in the current quarter, this can have the opposite effect, as well. Despite that, BreitBurn pays a very generous and growing distribution that's now over 10%, which is an excellent yield given the current low yield environment. 

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Matthew DiLallo

Matthew is a Senior Energy and Materials Specialist with The Motley Fool. He graduated from the Liberty University with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest news and analysis of the energy and materials industries:

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