Breitburn Energy Partners L.P. (NASDAQ:BBEP) announced financial and operating results for the first quarter 2015.

Key Highlights

  • Increased total production to 5.1 MMBoe, a 57% increase from the first quarter of 2014 and a 21% increase from the fourth quarter of 2014.
  • Increased Adjusted EBITDA, a non-GAAP financial measure, to $148.6 million (including costs of $4.1 million for restructuring), a 26% increase from the first quarter of 2014 and a 17% increase from the fourth quarter of 2014.
  • Reduced lease operating expenses by 9% to $19.81 per Boe in the first quarter of 2015 from $21.77 per Boe in the fourth quarter of 2014.
  • Announced a $1 billion strategic investment led by EIG Global Energy Partners, which was completed on April 8, 2015. Net proceeds were used to reduce borrowings under Breitburn’s bank credit facility.
  • Amended bank credit facility to reset the borrowing base to $1.8 billion through April 2016, subject to limited exceptions.
  • Reported distributable cash flow of $60.7 million, or $0.282 per common unit, and distribution coverage ratio of 2.26x based on current monthly distribution of $0.04166 per common unit, or $0.50 per common unit on an annualized basis.

Management Commentary

Halbert S. Washburn, Breitburn’s Chief Executive Officer, said: “We had a very solid first quarter, with Adjusted EBITDA, total production, and costs in line with our targets. The integration of QR Energy is going smoothly and our teams are doing a great job continuing to drive down both lease operating expenses and general and administrative costs. Our successful acquisitions strategy has given us an expanded and more diversified portfolio of development projects that deliver attractive returns even in the current commodity price environment. As a result, we expect to spend approximately half of our significantly reduced $200 million capital program on former QR Energy assets, and more than 90% of capital spending will be on assets we have acquired in the last three years. We also raised a substantial amount of capital during the quarter and used the proceeds to significantly reduce borrowings under our credit facility and greatly enhanced our liquidity position. Finally, we are on track to generate approximately $100 million of excess cash this year, which we plan to use to further reduce borrowings, and we currently have one of the strongest distribution coverage ratios in our peer group.”

First Quarter 2015 Operating and Financial Results Compared to Fourth Quarter 2014

  • Total production was 5,051 MBoe in the first quarter of 2015 compared to 4,170 MBoe in the fourth quarter of 2014. Average daily production was 56.1 MBoe/day in the first quarter of 2015 compared to 45.3 MBoe/day in the fourth quarter of 2014.
    • Oil production increased to 2,890 MBbl compared to 2,327 MBbl in the fourth quarter of 2014.
    • NGL production increased to 459 MBbl compared to 368 MBbl in the fourth quarter of 2014.
    • Natural gas production increased to 10,211 MMcf compared to 8,847 MMcf in the fourth quarter of 2014.
  • Adjusted EBITDA was $148.6 million (including $4.1 million of restructuring costs) in the first quarter of 2015 compared to $127.4 million in the fourth quarter of 2014, a 17% increase. The increase was primarily due to higher commodity derivative instrument settlements and higher production, partially offset by lower sales revenue driven by lower commodity prices.
  • Net loss attributable to common unitholders was $63.0 million, or $0.29 per diluted common unit, in the first quarter of 2015, which includes non-cash impairment charges of approximately $59.1 million, or $0.28 per unit, compared to net income of $401.0 million, or $2.27 per diluted common unit, in the fourth quarter of 2014, which includes non-cash impairment charges of approximately $119.6 million, or $0.68 per unit.
  • Oil, NGL and natural gas sales revenues were $162.6 million in the first quarter of 2015 compared to $197.1 million in the fourth quarter of 2014, primarily due to lower realized oil, natural gas and NGL prices.
  • Lease operating expenses, which include district expenses, processing fees and transportation costs but exclude taxes, were $19.81 per Boe in the first quarter of 2015 compared to $21.77 per Boe in the fourth quarter of 2014.
  • General and administrative expenses, excluding non-cash unit-based compensation costs, were $25.3 million in the first quarter of 2015 compared to $28.1 million in the fourth quarter of 2014.
  • Gains on commodity derivative instruments were $137.2 million in the first quarter of 2015 compared to gains of $587.6 million in the fourth quarter of 2014, primarily due to a smaller decrease in oil and natural gas futures prices during the first quarter of 2015 compared to the fourth quarter of 2014. Derivative instrument settlement receipts were $126.4 million in the first quarter of 2015 compared to receipts of $62.1 million in the fourth quarter of 2014, primarily due to lower oil and natural gas prices.
  • NYMEX WTI oil spot prices averaged $48.49 per Bbl and Brent oil spot prices averaged $53.98 per Bbl in the first quarter of 2015 compared to $73.21 per Bbl and $76.43 per Bbl, respectively, in the fourth quarter of 2014. Henry Hub natural gas spot prices averaged $2.90 per Mcf in the first quarter of 2014 compared to $3.78per Mcf in the fourth quarter of 2014.
  • Average realized crude oil, NGL and natural gas prices, excluding the effects of commodity derivative settlements, averaged $43.62 per Bbl, $16.54 per Bbl and $3.05 per Mcf, respectively, in the first quarter of 2015 compared to $69.36 per Bbl, $26.38 per Bbl and $4.07 per Mcf, respectively, in the fourth quarter of 2014.
  • Oil, NGL and natural gas capital expenditures were $73 million in the first quarter of 2015 compared to $113 million in the fourth quarter of 2014.
  • Distributable cash flow, a non-GAAP financial measure, was $60.7 million in the first quarter of 2015 compared to $43.9 million in the fourth quarter of 2014.

Impact of Derivative Instruments

Breitburn uses commodity derivative instruments to mitigate risks associated with commodity price volatility and to help maintain cash flows for operating activities, acquisitions, capital expenditures and distributions. Breitburn does not enter into derivative instruments for speculative trading purposes. Since Breitburn does not use hedge accounting to account for its derivative instruments, changes in the fair value of derivative instruments are recorded in Breitburn’s earnings during each reporting period. These non-cash changes in the fair value of derivatives do not affect Adjusted EBITDA, cash flow from operations, distributable cash flow or Breitburn’s ability to pay cash distributions for the reporting periods presented.

Production, Statement of Operations, and Realized Price Information

The following table presents production, selected income statement and realized price information for the three months ended March 31, 2015 and 2014, and the three months ended December 31, 2014:

Three Months Ended
March 31, December 31, March 31,
Thousands of dollars, except as indicated 2015 2014 2014
Oil sales $ 123,843 $ 151,335 $ 167,086
NGL sales 7,591 9,709 11,065
Natural gas sales 31,189 36,023 45,405
Gain (loss) on commodity derivative instruments 137,192 587,590 (40,228 )
Other revenues, net 6,469 3,376 1,584
Total revenues $ 306,284 $ 788,033 $ 184,912
Lease operating expenses before taxes (a) $ 100,079 $ 90,768 $ 66,990
Production and property taxes (b) 13,544 14,084 15,659
Total lease operating expenses 113,623 104,852 82,649
Purchases and other operating costs 158 299 214
Salt water disposal costs 4,021 2,168
Change in inventory 176 201 (666 )
Total operating costs $ 117,978 $ 107,520 $ 82,197
Lease operating expenses before taxes per Boe (a) $ 19.81 $ 21.77 $ 20.81
Production and property taxes per Boe (b) 2.68 3.38 4.86
Total lease operating expenses per Boe $ 22.49 $ 25.15 $ 25.67
General and administrative expenses (excluding non-cash unit-based compensation) $ 25,335 $ 28,116 $ 12,180
Net income (loss) attributable to the partnership $ (58,825 ) $ 405,173 $ (9,758 )
Less: distributions to preferred unitholders 4,125 4,125
Net income (loss) attributable to common unitholders $ (62,950 ) $ 401,048 $ (9,758 )
Total production (MBoe) (c) 5,051 4,170 3,219
Oil (MBbl) 2,890 2,327 1,799
NGLs (MBbl) 459 368 258
Natural gas (MMcf) 10,211 8,847 6,971
Average daily production (Boe/d) 56,122 45,313 35,768
Sales volumes (MBoe) (d) 4,999 4,022 3,233
Average realized sales price (per Boe) (e) (f) $ 32.52 $ 48.96 $ 69.12
Oil (per Bbl) (e) (f) 43.62 69.36 92.12
NGLs (per Bbl) (e) 16.54 26.38 42.89
Natural gas (per Mcf) (e) $ 3.05 $ 4.07 $ 6.51
(a) Includes district expenses, processing fees and transportation costs.
(b) Includes ad valorem and severance taxes.
(c) Natural gas is converted on the basis of six Mcf of gas per one Bbl of oil equivalent. This ratio reflects an energy content equivalency and not a price or revenue equivalency. Given commodity price disparities, the price for a Bbl of oil equivalent for natural gas is significantly less than the price for a Bbl of oil.
(d) Oil sales were 2,835 MBbl, 2,320 MBbl and 1,813 MBbl for the three months ended March 31, 2015, December 31, 2014 and March 31, 2014, respectively.
(e) Excludes the effect of commodity derivative settlements.
(f) Includes the per Boe effect of crude oil purchases.

Non-GAAP Financial Measures

This press release, including the financial tables and other supplemental information, including the reconciliations of certain non-generally accepted accounting principles (“non-GAAP”) measures to their nearest comparable generally accepted accounting principles (“GAAP”) measures, may be used periodically by management when discussing Breitburn’s financial results with investors and analysts, and they are also available at www.breitburn.com.

“Adjusted EBITDA” and “distributable cash flow” are among the non-GAAP financial measures used in this press release. These non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income, operating income, cash flow from operating activities or any other GAAP measure of liquidity or financial performance. Management believes that these non-GAAP financial measures enhance comparability to prior periods.

Adjusted EBITDA is presented because management believes it provides additional information relative to the performance of Breitburn’s assets, without regard to financing methods or capital structure. Distributable cash flow is used by management as a tool to measure the cash distributions we could pay to our unitholders, and this financial measure indicates to investors whether or not we are generating cash flow at a level that can support our distribution rate to our unitholders. These non-GAAP financial measures may not be comparable to similarly titled measures of other publicly traded partnerships or limited liability companies because all companies may not calculate Adjusted EBITDA or distributable cash flow in the same manner.

Adjusted EBITDA

The following table presents a reconciliation of net income (loss) and net cash flows from operating activities, our most directly comparable GAAP financial performance and liquidity measures, to Adjusted EBITDA for each of the periods indicated.

Three Months Ended
March 31, December 31, March 31,
Thousands of dollars, except as indicated 2015 2014 2014
Reconciliation of net income (loss) to Adjusted EBITDA:
Net income (loss) attributable to the partnership $ (58,825 ) $ 405,173 $ (9,758 )
Loss (gain) on commodity derivative instruments (137,192 ) (587,590 ) 40,228
Commodity derivative instrument settlements (a) (b) 126,357 62,053 (13,500 )
Depletion, depreciation and amortization expense 109,824 87,292 63,501
Impairments 59,113 119,566
Interest expense and other financing costs 41,477 36,110 30,658
Loss on sale of assets 15 306 86
Income tax expense (benefit) 92 (457 ) 11
Unit-based compensation expense (c) 6,927 4,947 6,549
Restructuring costs – unit-based compensation 814
Adjusted EBITDA $ 148,602 $ 127,400 $ 117,775
Less:
Maintenance capital (d) $ 45,000 $ 43,714 $ 28,932
Cash interest expense 38,729 35,651 28,571
Distributions to preferred unitholders 4,125 4,125
Distributable cash flow available to common unitholders $ 60,748 $ 43,910 $ 60,272
Distributable cash flow available per common unit (e) (f) 0.282 0.207 0.496
Common unit distribution coverage (f) 2.26x 0.83x 1.00x
Reconciliation of net cash flows from operating activities to Adjusted EBITDA:
Net cash provided by operating activities $ 142,047 $ 62,839 $ 116,311
Increase (decrease) in assets net of liabilities relating to operating activities (31,866 ) 29,199 (27,361 )
Interest expense (g) 38,729 35,563 28,674
Income from equity affiliates, net (325 ) (88 ) 107
Noncontrolling interest 93 17
Income taxes (76 ) (130 ) 44
Adjusted EBITDA $ 148,602 $ 127,400 $ 117,775
(a) Excludes premiums paid at contract inception related to those derivative contracts that settled during the applicable periods of: 1,645 2,141 2,095
(b) Includes net cash settlements on derivative instruments for:
– Oil settlements received (paid): 111,879 55,975 (11,680 )
– Natural gas settlements received (paid): 14,478 6,078 (1,820 )
(c) Represents non-cash long-term unit-based incentive compensation expense.
(d) Maintenance capital is management’s estimate of the investment in capital projects and obligatory spending on existing facilities and operations needed to hold production approximately flat over a multi-year period.
(e) Based on common units outstanding (including outstanding LTIP grants) at each distribution record date within the periods.
(f) The three months ended December 31, 2014 includes only 41 days of QR Energy operating results, $11.7 million of acquisition and integration costs, and the effect of 71.5 million common units issued in connection with the QR Energy merger in November 2014.
(g) Excludes amortization of debt issuance costs and amortization of senior note discount/premium.

Summary of Commodity Derivative Instruments

The table below summarizes Breitburn’s commodity derivative hedge portfolio as of May 4, 2015. For an overview of Breitburn’s commodity hedge portfolio, please refer to the Summary of Commodity Price Protection Portfolio at www.breitburn.com.

Year
2015 2016 2017 2018
Oil Positions:
Fixed Price Swaps – NYMEX WTI
Volume (Bbl/d) 20,044 15,504 13,519 493
Average Price ($/Bbl) $ 93.28 $ 88.07 $ 85.05 $ 82.20
Fixed Price Swaps – ICE Brent
Volume (Bbl/d) 3,300 4,300 298
Average Price ($/Bbl) $ 97.73 $ 95.17 $ 97.50 $
Collars – NYMEX WTI
Volume (Bbl/d) 2,025 1,500
Average Floor Price ($/Bbl) $ 67.81 $ 80.00 $ $
Average Ceiling Price ($/Bbl) $ 111.73 $ 102.00 $ $
Collars – ICE Brent
Volume (Bbl/d) 500 500
Average Floor Price ($/Bbl) $ 67.81 $ 90.00 $ $
Average Ceiling Price ($/Bbl) $ 109.50 $ 101.25 $ $
Puts – NYMEX WTI
Volume (Bbl/d) 500 1,000
Average Price ($/Bbl) $ 90.00 $ 90.00 $ $
Total:
Volume (Bbl/d) 26,369 22,804 13,817 493
Average Price ($/Bbl) $ 93.46 $ 89.01 $ 85.32 $ 82.20
Gas Positions:
Fixed Price Swaps – MichCon City-Gate
Volume (MMBtu/d) 7,500 17,000 10,000
Average Price ($/MMBtu) $ 6.00 $ 4.46 $ 4.48 $
Fixed Price Swaps – Henry Hub
Volume (MMBtu/d) 54,891 36,050 19,016 1,870
Average Price ($/MMBtu) $ 4.84 $ 4.24 $ 4.43 $ 4.15
Collars – Henry Hub
Volume (MMBtu/d) 18,000 630 595
Average Floor Price ($/MMBtu) $ 5.00 $ 4.00 $ 4.00 $
Average Ceiling Price ($/MMBtu) $ 7.48 $ 5.55 $ 6.15 $
Puts – Henry Hub
Volume (MMBtu/d) 1,920 11,350 10,445
Average Price ($/MMBtu) $ 4.78 $ 4.00 $ 4.00 $
Deferred Premium ($/MMBtu) $ 0.64 (a) $ 0.66 $ 0.69 $
Total:
Volume (MMBtu/d) 82,311 65,030 40,056 1,870
Average Price ($/MMBtu) $ 4.98 $ 4.25 $ 4.33 $ 4.15
Basis Swaps – Henry Hub
Volume (MMBtu/d) 14,400
Average Price ($/MMBtu) $ (0.19 ) $ $ $
(a) Deferred premiums of $0.64 apply to 420 MMBtu/d of the 2015 volume.

Premiums paid in 2012 related to oil and natural gas derivatives to be settled after March 31, 2015, are as follows:

Year
Thousands of dollars 2015 2016 2017 2018
Oil $ 3,528 $ 7,438 $ 734 $
Natural gas $ 1,499 $ 952 $ $

Other Information

Breitburn will host a conference call Tuesday, May 5, 2015, at 12:00 pm (EDT) to discuss Breitburn’s first quarter 2015 results. The conference call may be accessed by calling 888-539-3678 (international callers dial 719-325-2354) or via webcast at http://ir.breitburn.com/. An archived edition of the conference call will also be available through May 12th by calling 877-870-5176 (international callers dial 858-384-5517) and entering replay PIN 1121312 or by visiting http://ir.breitburn.com/. Breitburn will take questions from securities analysts and institutional portfolio managers; the call is open to all other interested parties on a listen-only basis. (Original Source)

Shares of Breitburn Energy Partners closed yesterday at $6.62 . BBEP has a 1-year high of $23.15 and a 1-year low of $4.55. The stock’s 50-day moving average is $6.06 and its 200-day moving average is $8.65.

On the ratings front, Breitburn has been the subject of a number of recent research reports. In a report issued on March 31, MLV & Co. analyst Adam Fackler maintained a Hold rating on BBEP. Separately, on March 25, UBS’s Shneur Gershuni downgraded the stock to Sell .

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Adam Fackler and Shneur Gershuni have a total average return of -6.9% and -6.9% respectively. Fackler has a success rate of 50.0% and is ranked #3174 out of 3589 analysts, while Gershuni has a success rate of 51.5% and is ranked #3359.

The street is mostly Bearish on BBEP stock. Out of 5 analysts who cover the stock, 3 suggest a Sell rating and 2 recommend to Hold the stock. The 12-month average price target assigned to the stock is $8.00, which implies an upside of 20.8% from current levels.

BreitBurn Energy Partners LP is engaged in the acquisition, exploitation and development of oil, NGL and gas properties in the United States.