After several years of consistent growth fueled by a combination of acquisitions and organically drilling new wells,BreitBurn Energy Partners, L.P. hit a brick wall in 2015. Oil prices crashed 50%, forcing the company to cut its 2015 capex program from the original $600 million to a much reduced budget of just $200 million, just enough to basically maintain its production. Further, given the company's already tight leverage, it has its hands tied on acquisitions for the time being. All that being said, while its growth is limited at the moment, when conditions improve the company already has its eyes on one key area to drive growth in the future.
Central focusAt a recent industry conference BreitBurn's CEO Hal Wasburn discussed the company's future growth plans by pointing to a map of the country, which highlighted the company's seven core areas.
Source: BreitBurn Energy Partners, L.P. Investor Presentation.
As Washburn points out, the middle of the country is already vitally important to the company as half of its production and reserves are located in that region. There's a reason for this: this region just happens to be the core area for the onshore oil and gas industry. Because there is still so much oil and gas left in the middle of the country, it's likely that there will be plenty of opportunity for BreitBurn to acquireunderutilized properties and exploit them by investing to develop them to their full potential.
The sweet spotWhile the middle of the country is important to the company's overall growth, there was one area in the middle that Washburn pointed out that BreitBurn is really excited about. This area is highlighted on the map below, which shows the company's acreage in the Permian Basin.
Source: BreitBurn Energy Partners L.P. Investor Presentation
In discussing this map, Washburn noted:
Washburn then notes that the area in red is where the company really has a concentrated acreage position, so that's a key area. However, all of the acreage outlined in green is prime real estate, as it contains up to six layers of oil-baring rocks.
The company sees the potential for upwards of 618 net horizontal wells to be drilled in that general area. That's a lot of wells considering the fact that the company isn't currently drilling any horizontal wells in the region at all. It is actually too many wells for the company to develop internally due to the cost of horizontal wells and the fact that the production from these wells declines rapidly, making them a less than ideal fit for the company's MLP model. Still, despite those drawbacks the region has the potential to drive a lot of growth -- the company could be creative and trade some of the acreage for wells that are a better fit for its MLP model, or it could find a financial sponsor to fund the development in exchange for a cut of the production. Either way, exploiting this area is expected to drive a lot of future growth for BreitBurn.
Investor takeawayBreitBurn Energy Partners has been hurt by oil prices, which forced it to slam the brakes on growth. However, once conditions improve the company knows right where its growth will come from, as it has its eyes squarely on some very valuable oil real estate in Texas' Permian Basin.
The article 1 Area Thats Key to BreitBurn Energy Partners L.Ps Growth originally appeared on Fool.com.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends BreitBurn Energy Partners. 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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