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Breitburn Energy Partners L.P. Message Board

  • badbernanke badbernanke Apr 17, 2009 6:53 PM Flag

    Take that Quicksilver -- [unfortunately, and others]

    Interesting move by BBEP on the distribution. Not completely surprising that there is a reduction in distribution, the real surprise is that the cut is 100%.

    The only good news is that this takes $45 million directly out of KWK's funding this year. It will be interesting to see what that does to KWK on many fronts, including its own credit line.

    The press release included a cute little dig at KWK with the short note about the litigation and its negative impact on BBEP: "Unfortunately, the lawsuit diverts resources and manpower in the Partnership and has negative impacts on the Partnership's unit price and restricts the Partnership's flexibility in the market."

    The discussion about BBEP generating net income in 2009 is something that could bear clarification. Is management telling us that not only will the distribution be cut, but there will be taxable income in 2009 with no distributions to pay the taxes? Maybe some folks will get the opportunity to use prior year loss carryovers in 2009?

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    • Check this out http://bit.ly/7C6sa See where they are calling the bottom at

    • $55-60 Mil. to maintain production, per the press release.

    • The press release said $55-$60 million was required to keep production flat. They plan to spend $20-$24 million. That apparently accounts for the large decline in anticipated production from 2008 to 2009.

    • BB, I imagine Beard was using the guidance adjusted EBITDA figure (185M), but you are right that 22M CAPEX should not be enough to maintain production.

      Do you have a sense of the CAPEX level to keep production steady at current levels?

    • I wouldn't expect distributions from CEP or QELP going forward. I think your projection of $.72/unit at BBEP is realistic and likely sustainable if prices continue to recover and hold. I think Wall Street will need to lower its expectations of growth every Q. Maybe companies will begin to focus on balance sheet strength and not double digit growth. I think most investors would be fine with single digit growth or even flat distributions if they knew they were secure and sustainable.

    • Thanks guys,

      I own mostly E&P MLP's. When I first encountered the concept-low risk, predictable production, if seemed perfect for older income oriented individuals-particulary baby boomers in mass. Yet, it does require decent price to make it work. Perhaps the companies that were created in this time period will own the field for awhile.

      That held for production issue with ATN does seem important. I still like BBEP and it's assets, but will just have to wait and seem what happens. If they are not going to be paying distributions for awhile, going forward there just might be opportunities to pick up shares cheaply.

      As I have mentioned before, I am looking at companies that can sustain distributions in the 12% range for these E&P's after the recession when I expect pricing to return to livable levels. We are seeing some fall by the wayside-CEP, QELP. But, if BBEP falls to $6, it only needs to distribute .72/year to accomplish that. It wasn't all that long ago that we thought a 12% distribution was pretty good.

    • jdb_1234


      Yes, it does make sense to put shale wells into an MLP. The main question has been at what stage and also how much of the existing field should be developed.

      If you look at ATN, that is precisely what they are doing with the Marcellus. The issue with the shale wells is that the first say, 7 years, the decline rates are very high, on the order of at least 10% before finally tapering off into the 7% range, which is pretty typical for natural gas wells (both conventional and unconventional).

      Linn Energy had a sizeable position in the Marcellus and they sold it stating they did not want to develop the field (MLPs typically look to buy mature assets which are largely proven and are less risky and technically less challenging).

      Atlas has countered the developmental risk by using the fee based income they receive from managing drilling partnerships to develop the Marcellus. Essentially, they should be able to grow reserves and production at an above average clip compared to other MLPs, with the caveat that a greater and greater percentage of their overall production is coming from newer shale wells, which raises the overall company decline rate.

      Once you hop on the treadmill and start running, it is hard to slow down. That being said, Atlas, as well as Breitburn, both have a large stake in the Antrim, which, is very low risk and since most of the wells are not new, the overall decline rate is low and thus acts as an anchor in terms of company wide decline rate. So, the long lived Antrim is the anchor and the Marcellus is the sail.

      Of course, there are many other nuances that need to be noted. Much of Atlas's Marcellus acreage is already Held by Production (HBP) thanks in part to 30 yrs of drilling shallow (upper Devonian) wells throughout Appalachia. The shallow wells keep the acreage held, even though the much deeper Marcellus has not been tapped. This gives Atlas a huge advantage over many companies that have large acreage positions and must drill scattered wells all over to try and lock up acreage before the lease expires.

      BBEP and ATN both bought huge positions in the Antrim (so did Loews when it bought Dominions stake) and this field gets very little fanfare, but is really a high quality low risk field. It isn't another Barnett, but the wells are cheap to drill, predictable and technically not very challenging. These assets are the ballast and provide solid cash flow.

      Unfortunately, because of the credit crunch, I doubt we see any more new E&P MLPs issued for many years. If they do reappear, it would not shock me to see some of the large majors look to dump mature shale wells into an MLP, much like they divested non-operated wells and royalty rights into the royalty trusts years ago. It serves as a nice conduit to monetize production. I suspect the Barnett would be a prime target. Due to the large rig count decline in the Barnett, it is my belief that despite the field likely being able to grow production by another 50%, we have likely seen or will shortly see, the peak production from that field. Many of the majors will now be focusing on the Haynesville, the Marcellus, the Eagleford, the Fayetteville.

      Devon might be well served to monetize many of its early Barnett wells via an MLP. I suspect however that most of these majors which are flush with cash, will simply hold onto the mature wells because they help keep the overall company decline rate flatter.

    • Putting aside the shale aspect, that is basically the MLP model already. Mature wells in mature basins with step out drilling to keep production flat or slightly growing.

    • "The shale wells require high prices to be profitable because nearly half of the production is recovered in the first 3 or 4 years, with the rest coming over the next 20+ years, when the NPV is low."

      Just a crazy thought, but couldn't a collection of a large number of "old" shale wells be used in the creation of a new MLP. Drill a bunch of new wells, over the years build an inventory of old wells, create an MLP from them. Would this be economically feasible given their cost of operation?

    • The shale wells typically decline around 70% in yr 1(as a percentage of peak initial production rates which are high but fall off quickly) and as much as 50% in year 2. CHK has a presentation on their website worth reading. Essentially, something on the order of 25% of all gas production comes from wells less than a couple of years old. Overall decline rate for all production in the US is around 25%. If everyone stopped drilling, production would fall 25% in Yr 1. Of course, that decline would drop off as well in Yr 2. That is the beauty of rig count declines. Supply is being reduced and then you have normal usage and you also have depletion working for you as well, so it is a triple dip. The shale wells require high prices to be profitable because nearly half of the production is recovered in the first 3 or 4 years, with the rest coming over the next 20+ years, when the NPV is low.

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