Geographic Location is Just as Important in the Energy Sector as it is in the Real Estate Market
Exploration and production MLP, BreitBurn Energy , has a winning strategy. Investors should be excited about management's focus on high-quality assets in the most promising geographic regions in the United States. In particular, BreitBurn has been very active recently in acquiring assets in the Permian Basin, which is one of the premier oil and gas fields in the country. These initiatives are sure to provide years of growth, and the benefits of the company's wise acquisitions are already being felt.
This is why income-oriented investors interested in the energy space would do themselves a huge favor by taking note of BreitBurn Energy's geographic strategies.
A major advantage for BreitBurn Energy is its focus on the most promising oil and gas properties in the United States. Management advises investors that a key part of its strategy is to pursue only high-quality plays characterized by long-lived assets and low depletion rates. BreitBurn Energy has a geographic presence in nine states, including Texas, Oklahoma, and Wyoming, where oil and gas production is booming.
For example, earlier this year BreitBurn Energy acquired $860 million in assets in the Oklahoma Panhandle that added 7,400 barrels of oil equivalent per day to its net production. The acquisition fulfilled one of BreitBurn's strategic initiatives, which is to enhance its liquids exposure, but it also allowed the company to complement its Permian Basin operations.
BreitBurn's Permian Basin footprint became even more pronounced when it very recently acquired additional properties there for $282 million. These assets, which are 60% oil, will increase production by 2,900 barrels of oil equivalent per day, and have an estimated reserve life of over 15 years.
All told, BreitBurn's operations in Texas include nearly 12,000 gross acres and 90 producing wells. Its acreage in Texas holds 21 million barrels of oil equivalent in proved reserves, as well as 315,000 barrels of oil equivalent in per-day production.
Why focusing on the Permian Basin is a winning strategy
Investors should be greatly encouraged by BreitBurn Energy targeting the Permian Basin. There's good reason for management devoting such huge resources to the area. The Permian Basin is playing a major role in the booming oil and gas production in the United States. The U.S. Energy Information Administration reports that total production at the Permian Basin hit one million barrels per day in 2011, making the region one of a select few in the United States to reach that level of daily production.
Oil and gas producers are flocking to the region, meaning competition is heating up to acquire the best properties for development. In fact, the EIA states that the active rig count at the Permian Basin has grown from 100 rigs in mid-2009 to over 500 rigs in May 2012.
Other companies, including Apache Corp. and Devon Energy have devoted significant resources into the Permian Basin, and their efforts are paying off. Apache controls more than 3.5 million gross acres in the Permian Basin. Apache operates more than 12,000 wells in 152 fields there. Apache's year-end estimated proved reserves were 800 million barrels of oil equivalent, which represented 28% of Apache's total proved reserves. Last year, Apache's liquids production in the region rose 25%.
Devon booked a $151 million profit over the first three quarters of this year, reversing the $227 million loss from the same period last year. Devon delivered 38% production growth in its U.S. oil operations, thanks to the hugely successful Permian Basin.
Get to know BreitBurn Energy
For oil and gas exploration and production companies in the United States, the Permian Basin represents a huge opportunity. The region's growth is in full throttle, and many companies are staking their claims there. Thankfully for its investors, BreitBurn Energy has made the Permian Basin a key priority for property acquisitions.
BreitBurn's efforts are sure to pay off in 2014 and beyond, and actually already have. The company reported record results the last two quarters, and assuming management can execute going forward as well as it has in the recent past, investors have many profitable years ahead.
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The article Geographic Location is Just as Important in the Energy Sector as it is in the Real Estate Market originally appeared on Fool.com.
Bob Ciura has no position in any stocks mentioned. The Motley Fool recommends BreitBurn Energy Partners L.P.. The Motley Fool owns shares of Devon Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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