Breitburn Energy Partners LP's Earnings Fall With Oil Prices

The price of crude oil was quite volatile in the third quarter, ending down more than 20%. That plunge had an obvious impact on oil and gas companies, though the impact was a bit more muted at Breitburn Energy Partners (BBEPQ) due to the fact that 77% of its production during the quarter was hedged to protect against that volatility. Because of that, its third-quarter results, which were reported before the market opened on Thursday, were still right in line with its prior guidance.

Breitburn Energy Partners results: The raw numbers

Data source: Breitburn Energy Partners LP. (Note: BOE/d is barrels of oil equivalent per day.)

What happened with Breitburn Energy Partners this quarter? 
All things considered, Breitburn Energy Partners reported a solid quarter:

• Production was down slightly quarter over quarter due to weaker oil production. Normal field decline, and one less oil shipment from its operations in Florida, made the difference.
• That lower production, when combined with weaker realized oil and gas prices, pushed distributable cash flow lower.
• Breitburn's costs were also a bit higher during the quarter. The company's lease operating expenses increased by 6%, to $19.83 per BOE, due to $5 million in additional spending for a well reactivation program. General and administrative expenses were also slightly higher due to integration and acquisition costs, though lower on an adjusted basis.
• The company maintained a very healthy distribution coverage ratio, largely the result of reducing its distribution twice this year.

What management had to say 
CEO Hal Washburn, commenting on the company's results, said:

I am pleased with our third straight quarter of solid operating results since we acquired QR Energy last November. Our production is on track to achieve our 20 million BOE full year 2015 production target with our reduced $200 million capital program. We remain focused on reducing our lease operating and G&A expenses, and those third quarter results are in line with our expectations. Earlier this year, we laid out a strategy of operating within our cash flow, reducing and high grading capital spending, lowering operating and G&A costs, decreasing debt, and increasing liquidity, and we continue to execute on all aspects of our plan.

The key takeaway from Washburn's comments is that, despite continued commodity price volatility this year, Breitburn remains on track with its plan. It's a plan the company put in place to get it though what was expected to be a very tough year. While some adjustments have been made along the way, the outcome should be a company that's positioned to handle whatever 2016 brings. 

That has really been the theme of 2015 for the upstream MLP sector, which has been hit harder than most energy companies due to higher debt levels, and now, formerly high cash distributions. Those factors forced these companies to make tough decisions, especially to reduce expenses and preserve liquidity.

Because of this, BreitBurn was far from the only upstream MLP to reduce its distribution more than once, with Legacy Reserves (LGCY) recently joining it with a second cut. Legacy Reserves has likewise been focused on driving down its costs while only investing enough money to keep its production roughly flat. These moves, while painful in the short term, are expected to position both BreitBurn and Legacy Reserves to capture upside when prices recover.

Looking forward 
In the near term, the expectations are pretty low for Breitburn. Its focus right now is to continue to push its costs lower, and to generate excess cash flow and improve its balance sheet. At the moment, it has ample liquidity, with $526 million available on its credit facility through next April, and a commodity hedge portfolio worth $688 million as of the end of September. That buys the company time to improve its financial situation while it awaits a recovery in commodity prices.