BreitBurn Energy Partners (NASDAQOTH:BBEPQ) is out with strong third-quarter results. The pursuit of oil-rich production is paying dividends, quite literally, for the company. Let's drill down into the quarter.

A closer look at the numbers that matter
BreitBurn reported record quarterly production of 3.1 million barrels of oil equivalent. That's 43% higher than the third quarter of last year. The combination of organic and acquired growth fueled the jump in quarterly production.

The focus on oil over the past year has had a positive impact on BreitBurn's results. The production of oil and natural gas liquids is up 94% from the past year. Higher-margin liquids now represent 61% of total production, which is up from 45% a year ago. This oil-rich production is falling right to the bottom line for BreitBurn.

This fueled BreitBurn to report a distribution coverage ratio of 1.3 times, meaning the company is earning 30% more income than it's paying out in distributions -- a fantastic ratio. It's also about double the worrisome rate the company reported earlier this year. Overall, the company has grown its distributable cash flow per unit by 20% year over year. Right now, BreitBurn has a better distribution coverage ratio than either Vanguard Natural Resources (NASDAQOTH:VNRSQ) or LINN Energy (NASDAQOTH:LINEQ), which is saying a lot considering where the company began the year.

Beat them and then join them
One thing LINN Energy and Vanguard Natural Resources do have on BreitBurn is that both pay a monthly distribution to investors. Starting this January, BreitBurn will join the party and convert to a monthly distribution. That's not all: Because of the company's solid coverage ratio investors should expect to see a distribution increase in the not-too-distant future.

A look ahead
One other thing investors should expect to see at some point in the future is an equity raise. While this will bring down the coverage ratio, it will also improve debt metrics that are a bit stretched right now after BreitBurn bought the Postle assets from Whiting Petroleum (NYSE:WLL).

The company's units plunged earlier this year after some negative comments surfaced about its accounting. BreitBurn was called "LINN Energy Junior" and its distribution characterized as nothing more than a mirage. Because of this, the company had no choice but to put the whole purchase of the Whiting assets on its credit facility. Given the size of the deal, BreitBurn had its banks relax its total leverage ratio to give the company time to digest the deal and move past the negativity.

With the company on solid footing and LINN Energy pretty much in the clear, BreitBurn will likely take advantage of the recovery in its units to tap the equity markets to improve debt metrics. Furthermore, because the company's growth is fueled mostly by acquisition, it needs some dry powder so it can make its next deal. Bottom line, expect an equity raise within the next quarter or two.

Investor takeaway
BreitBurn delivered another really solid quarter. The company has more than made up for earlier missteps that had it earning much less than it was paying out to investors. Today, BreitBurn stands strong with oil-rich cash flows that are yielding a rock-solid distribution.

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