1 Problem That Continues to Plague BreitBurn Energy Partners L.P.

Acquisitions are proving to be a problem for BreitBurn Energy Partners.

May 25, 2014 at 2:53PM

Colorado Oil Well

Photo credit: Flickr/Maarten Heerlien

The strength of an oil and gas MLP is supposed to be its ability to acquire and quickly integrate acquisitions. These deals are the fuel that MLPs use to grow distributions to investors. Unfortunately, BreitBurn Energy Partners (NASDAQ:BBEP) is having a little trouble in that department.

Recurring theme
For the past two quarters BreitBurn Energy Partners has noted that its most recent acquisitions have underperformed expectations. In the fourth quarter the company noted that the Postle assets it acquired from Whiting Petroleum (NYSE:WLL) in a big oil deal fell short of expectations. Problems with getting a new carbon dioxide facility online caused BreitBurn Energy Partners to miss out on an average of 600 barrels of oil equivalent production per day in that quarter.

Then just this past quarter BreitBurn Energy Partners noted that its newly acquired oil wells in Texas weren't performing as expected. In fact, several wells were offline when the company took over operations, causing it to scramble to secure drilling rigs and equipment to get the wells back into production. That again caused the company's production to be lower than it should have been.

These issues, along with some other problems, caused the company's key distribution coverage ratio to come in lower than hoped. In the fourth quarter that ratio was just 0.93 times while the company managed to achieve a 1.0 times ratio in the first-quarter. While that's not a worrisome ratio, it still could be improved, which is what these deals are supposed to be doing for the company.

Oklahoma Well In Field

Photo credit: Flickr/Kool Cats Photography

Problems in the pipeline
Looking ahead, acquisitions could continue to plague BreitBurn Energy Partners if the company isn't careful. While it only closes on the very best deals it finds, its recent deals suggest that it might need to do even better in the future. There is, however, just one problem: It's not alone in its hunt for new deals.

On the company's last conference call CEO Hal Washburn noted that while the company is actively looking for new deals it's facing stiff competition for those deals. Washburn said,

We have been in the market, we looked at a lot of transactions, the deal flow, in gross levels is down slightly from last year we think but the number of deals that we are looking for and the number that we fully evaluated is actually higher than what it was in the first quarter of 2013. We're just not really successful, as you know, we look at several hundred deals a year generally closed fewer than 10, and so far this year we have not been successful bidder, we have looked at some properties that some of our peers acquired recently or in those processes, but obviously weren't willing to pay with what they pay.

In the past month alone there have been several significant deals within the oil and gas MLP sector. Among the notable deals was an enhanced oil recovery project that Atlas Resource Partners (NYSE:ARP) acquired for $420 million. In that deal Atlas Resource Partners picked up 47 million barrels of oil equivalent in oil and natural gas liquids reserves. These assets feature an ultra-low decline rate of just 3%-4% per year, making them an excellent fit within an MLP like Atlas Resource Partners.

Oil Oil Well

Photo credit: Flickr/Ray Bodden 

The assets would have also been a nice fit for BreitBurn Energy Partners as they would have added to the company's growing number of enhanced oil recovery projects, including last year's acquisition from Whiting Petroleum. While we don't know if BreitBurn Energy Partners even bid on this deal, that still doesn't negate the fact that it's not alone in its quest to acquire these low-decline oil and gas properties.

Investor takeaway
The issue here is that BreitBurn Energy Partners' recent struggles with quickly integrating newly acquired assets, combined with growing competition for deals, could impact the company's ability to grow its distribution to investors. The company obviously doesn't want to get in a bidding war with its peers, nor does it want to be acquiring properties that will cause it issues down the road as that won't help with distribution growth. Because of this, investors need to keep a close eye on what BreitBurn Energy Partners buys next. What we don't want to see is a repeat of the rough starts experienced by the last two acquired properties.

BreitBurn Energy Partners has a secret
BreitBurn Energy Partners is among a select group of companies using a small IRS "loophole" to help line its investors' pockets with cash. You can learn the secret to its success by checking out our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends BreitBurn Energy Partners L.P.. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information