BreitBurn Energy Partners L.P. today announced it has signed a definitive agreement with Whiting Oil and Gas Corporation, a wholly-owned subsidiary of Whiting Petroleum Corporation to acquire Whiting's interests in the Postle and North East Hardesty oil fields, along with associated midstream assets, located primarily
in the Oklahoma Panhandle, for approximately $860 million. In connection with the execution of the definitive agreement, the Partnership deposited approximately $86 million with Whiting, which will be credited toward the purchase price due at closing. The acquisition is subject to customary closing conditions and purchase price adjustments and is expected to close by July 31,2013. The Partnership is acquiring additional interests in certain of the acquired assets from other sellers for an additional $30.2 million.
Hal Washburn, BreitBurn's CEO, said, "We expect this acquisition to generate significant accretion to our distributable cash flow per unit and create lon g-term value for unitholders. These assets are an excellent
fit for our portfolio, with significant recoverable oil in place and a long horizon of production visibility. We anticipate a decade or more of very low decline production from these assets, which balances some of our more development-focused acquisitions completed last year. With current production from these properties comprised of 98% liquids, we expect our total net liquids production to increase by over 100% from the fourth quarter of 2012 to the fourth quarter of 2013 and exit 2013 with liquids comprising approximately 63%
of our total net production. The acquisition is complementary to our Permian Basin operations, and we expect that it will strengthen our technical and exploitation capabilities and broaden our intellectual capital with tertiary flood expertise that can potentially be applied to other BreitBurn properties."
My question is will the financing from the debt facility be FIXED RATE or FLOATING RATE debt. BBEP says this deal will add to distributable funds, but is that cast in stone or subject to increasing interest rate risk?
Good to see that they are going to be using bank financing for now. I wouldn't want to issue stock or bonds in the current market. Short rates should be low for at least a couple more years. Credit line will be pretty maxed out though, so it looks like they might be scaling back some of their other capex.
Taking on more leverage, so potentially more risk to moves in the commodities markets. Higher long-term rates and potential slowing in China and other places may put some downward pressure on oil.
The Partnership has a financing commitment to increase the borrowing base of its credit facility to $1.5 billion, with an elected commitment amount of $1.4 billion, at closing. The Partnership expects to fund the asset purchase price with borrowings under this amended credit facility.
At closing, the Partnership expects to have a pro forma total leverage ratio, equal to total debt divided by the last twelve months pro forma Adjusted EBITDA, of approximately 4.0-to-1.
To maximize financial flexibility, the Partnership’s amended credit facility will have a relaxed total leverage ratio covenant limitation for a period of five quarters following the transaction to allow for the gradual reduction of indebtedness from operating cash flow and opportunistic refinancing transactions.
Eventually, they'll have to issue more units. Hopefully by August the price will be back in the $20s and they won't have to issue more than 43 million or so.