BreitBurn Energy Partners LP's (NASDAQOTH:BBEPQ) annual report is littered with risk factors that could impact the company's operations. Obviously, risk number one is the volatility of oil and gas prices. In fact, oil and gas prices are named in the company's first three risk factors in that annual report.
However, the company faces a number of additional risks outside of oil and gas prices. One running theme in its annual report was the fact that the company needs unhindered access to key products or markets in order to keep operating at optimal capacity. Because of this, if its access is limited in the future it could upend BreitBurn's operations and send units prices down.
No. 1: Access to capital
One risk factor that BreitBurn Energy Partners highlighted several times in its annual report was its access to capital. In the report it noted:
Low oil and natural gas prices and concern about the global financial markets have limited our ability to obtain funding in the capital and credit markets on terms we find acceptable, and could limit our ability to obtain additional or continued funding under our credit facility or obtain funding at all.
This risk has been very evident over the past year as BreitBurn Energy Partners attempted to raise new debt late last year to pay down its credit facility. It didn't like the terms, so it pulled back the offer. That forced the company to turn to private equity to raise capital, which it just did, bringing in $1 billion in debt and equity to pay down its credit facility.
The company also noted two more capital related risks in its annual report that investors need to keep an eye on. First, it noted that "our credit facility has substantial restrictions and financial covenants that may restrict our business and financing activities and our ability to pay distributions." The risk has an obvious direct impact on investors as the company's distribution has already been cut twice this year and could be cut again, or eliminated, if its banks start to worry.
In addition to that, the company notes that its "debt levels may limit our flexibility to obtain additional financing and pursue other business opportunities." Again, we saw this first hand as BreitBurn couldn't get new debt financing on acceptable terms, forcing it to take whatever private equity would give it.
No. 2: Access to carbon dioxide
Capital isn't the only thing BreitBurn Energy Partners needs to keep its business operating. The company also needs continued access to carbon dioxide for its enhance oil recovery operations in Oklahoma, which were acquired from Whiting Petroleum in 2013. BreitBurn relies on outside sources to supply it with this carbon. While those supplies are backed by contracts with suppliers, that doesn't necessarily mean they'll always flow.
Without unfettered access BreitBurn warns that "the production from our Oklahoma properties could be adversely affected by the cessation or interruption of the supply of carbon dioxide to those properties." That's because the company needs it to produce oil and gas, so without it the production would decline and so would the company's cash flow.
No. 3: Access to pipelines
One thing that could impact the company's carbon dioxide supplies would be a pipeline shutdown. That's not just a risk for its carbon supplies as BreitBurn Energy Partners also faces the risk of a pipeline shutdown that could prevent its oil and gas production from reaching customers.
In its annual report the company noted:
We depend upon third party pipelines and other facilities that provide delivery options to and from some of our wells and gathering and processing facilities. Since we do not own or operate these pipelines or other facilities, their continuing operation in their current manner is not within our control. If any of these third party pipelines and other facilities become partially or fully unavailable to transport natural gas, oil or NGLs, or if the gas quality specifications for the natural gas gathering or transportation pipelines or facilities change so as to restrict our ability to transport natural gas on those pipelines or facilities, our revenues and cash available for distribution could be adversely affected.
Should a pipeline leak or processing plant downtime occur it could cause BreitBurn's production to be shut in at the well head for quite some time. This would lead to weaker than expected production and cash flow, causing the company to miss expectations, likely sending units lower.
BreitBurn Energy Partners needs unrestricted access to capital, carbon dioxide, and pipelines in order to maintain smooth operations. If its access to any of these is cut, it could have a deep impact on the company's business, causing the unit price to sell off.