BreitBurn Energy Partners L.P. recently reported rather solid second-quarter results thanks to strong cost-cutting measures. That said, the company has a tough hill to climb as the low oil price has forced it to take action. Here are four things CEO Hal Washburn said on the company's second-quarter conference call that details its recent steps and future plans.
1. We're performing wellOne thing that has really been lost in the mess of plunging oil prices is that operationally BreitBurn Energy Partners has been performing well. According to Washburn:
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In the midst of the market turmoil, BreitBurn has focused on getting its costs down by very quickly integrating QR Energy into the fold. It has also worked hard to meet its production targets and cost reduction goals to generate more cash flow to help mute some of the oil price impact. It has met all of its goals so far, which is an unnoticed accomplishment.
2. We see lower oil prices in the second halfThat being said, the company still sees tough times ahead as it does not see an improvement in oil prices this year. Instead, Washburn said that the company has now "[...] reduced our WTI and Brent pricing assumptions by $10 per barrel to $50 per barrel WTI and $55 per barrel Brent and reduced natural gas pricing assumptions by $0.50 per Mcf to $3 per Mcf to better reflect current commodity prices."
In addition, he said:
The company is now forecasting a much lower oil price for the second half of the year, which at the moment is optimistic given that WTI is down to about $40 per barrel. It doesn't believe, though, that its distribution is at risk this year even in a more pessimistic scenario as it has a very strong coverage ratio. In fact, it expects to generate $100 million in cash flow after paying its distribution thanks to its strong hedge position.
3. We've stabilized our financialsOne of the reasons the market continues to be worried about BreitBurn is because it has a large debt load, which is a real weight in the current oil price environment. This is not lost on BreitBurn as Washburn reminded investors that it secured a $1 billion investment from EIG Global Energy Partners, which enabled it to reduce the borrowings under its credit facility. As a result of that investment, it now has about $500 million in liquidity on that facility on a borrowing base set at $1.8 billion. Furthermore, that base won't be redetermined by its banks until next April. This, Washburn believes, gives the company plenty of flexibility in the current market environment.
Also, he pointed out that:
In other words, the company has been through tough times before and it has always made it through. It plans to do the same this time, which is why it is positioning itself to drive long-term returns to investors.
4. We intend to develop our Midland Basin acreage with some helpOne of the ways the company plans to drive long-term returns is to develop its acreage position in the Midland Basin. While it has the option to sell or trade this position, Washburn said:
Washburn believes that the company can create more value from this position by developing it with a partner than by simply selling the acreage position it built up. That's because the economics of developing this acreage are still compelling, even in the current environment.
Investor takeawayBreitBurn Energy Partners' CEO is clearly not as worried about the company's ability to survive the storm in the oil market.He believes it is operating well and has plenty of liquidity. It's why he would rather develop the company's compelling Midland Basin position internally than simply sell it to pay down debt as he believes it's worth far more to the company over the long term as an oil-producing asset than a debt reduction tool.
The article 4 Things BreitBurn Energy Partners L.P.'s CEO Wants You to Know 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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