Why BreitBurn Energy's Strategy Will Pay Off
BreitBurn Energy Partners is a truly impressive company. It's succeeding in its core operations -- the exploration and production of oil and gas -- and is committed to sharing its success with investors. As the new year beckons, investors interested in the energy space with an eye for outsized yield need to consider BreitBurn Energy and its massive distribution.
The company is executing on its key strategic priorities, which are locating and acquiring high-quality assets for production. This means that BreitBurn Energy is set up extremely well heading into the new year, and as a result, investors are likely to enjoy a very profitable 2014.
Wise acquisitions set to fuel future growth
As is the case with any company focused on the development and production of oil and gas, acquisitions are key to ensure future growth. Once one field is depleted, others need to take its place in order to keep profits flowing. This is where management skill becomes imperative, and thankfully BreitBurn has a management team that is adept at pursuing highly attractive opportunities. BreitBurn made several beneficial acquisitions over the past two years which have helped it to achieve impressive results.
Last year, BreitBurn made $600 million in acquisitions. In all, BreitBurn has successfully closed 12 acquisitions since July 2011 totaling $1.8 billion. These investments are coming on-line now, and are the main reason for BreitBurn's impressive growth so far in 2013. BreitBurn's total production rose to a record 3.1 million barrels of oil equivalent in the most recent quarter, which amounted to a 43% increase from the same quarter last year. Liquids production also skyrocketed, almost doubling year-over-year.
Acquiring new properties for development and production serves as the lifeblood of companies like BreitBurn. Fellow exploration and production MLP LINN Energy is equally dedicated to finding promising assets to purchase. In September, LINN purchased $525 million of oil and natural gas properties in the Permian Basin. Assets include proved reserves of approximately 30 million barrels of oil equivalents. This should provide steady growth, and LINN's guidance reflects that. For the full-year 2013, LINN estimates 8% to 10% production growth.
BreitBurn has spent even more this year on acquiring properties than last year, and investors should be excited about the potential for future growth. During the most recent quarter, BreitBurn made an $864 million acquisition of a pool of midstream assets in Oklahoma and New Mexico. BreitBurn anticipates ten or more years of low-decline production from these assets. It will generate approximately 7,400 additional barrels of oil equivalents per day in net production.
Don't be dissuaded by capital raises and acquisitions
Such high rates of spending may make investors nervous, but significant expenditures are a necessary business function for oil and gas producers. BreitBurn's portfolio contains high quality assets with long-lived properties and significant reserves. To finance these efforts, exploration and production MLPs need to raise cash. This is done through debt issues as well as secondary equity offerings. BreitBurn sold 16.5 million units last quarter to raise up to $333 million.
While equity offerings are normally dilutive, it's nothing for investors to be concerned with. LINN Energy raises capital through the equity markets as well. In fact, that's why LINN created its financial holding entity LinnCo : to more easily access equity financing when necessary. These actions are what allow for BreitBurn, LINN, and LinnCo to grow their businesses, and pay their hefty distributions.
Stick with BreitBurn Energy
BreitBurn Energy offers an impressive 10% yield, thanks to its robust oil and gas-producing assets. The company is committed to distribution growth and has a track record to prove it. BreitBurn's distributions have increased for 14 consecutive quarters. In all, distributions have increased 30% since the first quarter of 2010.
BreitBurn is switching to a monthly distribution to greater enhance shareholder value, which places it on par with LINN's and LinnCo's monthly payouts. Like BreitBurn, both LINN and LinnCo yield approximately 10%. The bottom line is that for energy investors looking for growing businesses and huge yields, BreitBurn Energy, as well as LINN Energy and LinnCo, represent compelling opportunities.
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The article Why BreitBurn Energy's Strategy Will Pay Off originally appeared on Fool.com.Bob Ciura owns shares of Linn Co, LLC. The Motley Fool recommends BreitBurn Energy Partners L.P.. 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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