BreitBurn Energy Partners (OTC:BBEPQ) reported earnings on Aug. 6. This is the company's first report since it joined peer LINN Energy (OTC:LINEQ) as a target of short-sellers. The attack, which came on the heels of LINN announcing that the SEC had begun an informal investigation, called BreitBurn nothing more than LINN Energy junior while saying its distribution is "largely a mirage". With that as context, let's take a closer look at the company's very solid report.

Drilling down into the numbers
BreitBurn reported adjusted EBITDA of $84.8 million, which was up 31% year over year. It's also up significantly from the $64.1 million of last quarter. A combination of factors played a role in the increase, including higher oil and natural gas sales volumes and higher realized prices in addition to lower expenses.

Speaking of higher sales volumes, BreitBurn was able to deliver record quarterly production of 2.5 million barrels of oil equivalent in the quarter. That's a 26% jump over the second quarter of last year. Meanwhile, its higher-margin liquids production rose to 1.29 million barrels of oil equivalent in the quarter, a jump of 58% over last year. It's been BreitBurn's focus on high-margin liquids that have really boosted its earnings.

However, one area the company did not address in its earnings release was its distributable cash flow as well as the quarter's distribution coverage ratio. Last quarter its coverage ratio slipped to just 0.67 times, well below the critical level of 1.0 times. Because this is a number investors really need to know, expect a deeper dive follow up on as soon as the company provides additional color on that number. 

More to come
Getting back to the numbers we do know, it's important to note here that the strength in the quarter doesn't include the company's recently acquired oil and gas properties from Whiting Petroleum (NYSE:WLL). The $876 million deal, which was completed on July 15, is expected to be an important driver for BreitBurn. It really was a great deal for both companies as Whiting is using the cash it freed up to accelerate the development of its high-return capital program. The company expects to spend about $300 million of the deal's proceeds to replace all the production that is being lost in the sale to BreitBurn. Meanwhile, BreitBurn noted that the deal was immediately accretive to its distributable cash flow, though we don't know by how much just yet.  

The addition of these oil-focused assets from Whiting, as well as its own capital program, has BreitBurn expecting to produce between 5.95 million and 6.35 million barrels of oil equivalent in the second half. The plan is for the company to end the year with a production run rate between 34,700 and 36,100 barrels of oil equivalent per day. While the acquisition from Whiting will be a big driver of that increased output, it's important to note that BreitBurn's capital program is really delivering results. In fact, last quarter the addition of 38 wells and 21 workovers led to initial incremental net production of about 1,925 barrels of oil equivalent per day. While short-sellers don't like BreitBurn spending growth capital, it's hard to argue with the results.

Final Foolish thoughts
Overall, it was a very solid quarterly report for BreitBurn. The real key is to note that its earnings were up as it was able to take advantage of higher oil prices, which also keeping a lid on costs. That's not a mirage, which is why the company recently announced that it was raising its distribution by 4.3%. BreitBurn is working hard to ensure that its distribution remains on very solid ground.