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Breitburn Energy Partners LP Message Board

  • zjxn06 zjxn06 Sep 23, 2010 9:19 AM Flag

    Debt Offering: Collingwoood Utica

    Need to read more to figure out what this all means. They overstated their acreage in Michigan by 50%? How do you do that?

    Big error, probably minimal impact.

    First blush, looks like they are separating the Collingwood Utica rights and creating a new entity ...for possible sale?
    First Amendment to Bank Credit Facility

    On September 17, 2010, the Partnership entered into the First Amendment (the “First Amendment”) to the Second Amended and Restated
    Credit Agreement (the “Credit Agreement”), dated May 7, 2010, with BreitBurn Operating L.P. (“BOLP”), as borrower, and the Partnership
    and its wholly-owned subsidiaries, as guarantors, for a four-year, $1.5 billion revolving credit facility with Wells Fargo Bank, N.A., as

    Administrative Agent, Swing Line Lender and Issuing Lender and a syndicate of banks.
    The First Amendment includes (1) the consent to the formation of a new wholly owned subsidiary, BreitBurn Collingwood Utica LLC
    (“Utica”), (2) Utica’s designation as an Unrestricted Entity for purposes of the Credit Agreement and (3) the consent to transfer certain oil andgas properties from BOLP and Terra Energy Company LLC to Utica in Alpina, Antrim, Cheboygan, Crawford, Kalkaska, Montmorency, Otsego, Oscoda, Alcona and Presque Isle Counties, Michigan in the interval defined as being from the top of the Cincinnatian formation down to 100 feet above the top of the Glenwood formation, including the Collingwood Utica Shale. As an Unrestricted Entity, Utica will not be a guarantor of indebtedness under the Credit Agreement.

    As previously announced on August 4, 2010, the Partnership has completed a review of its ownership rights in the Collingwood-Utica shale
    play in Michigan. Based on current delineations of the prospective area, the Partnership has confirmed holdings of more than 120,000 net acresin the Collingwood-Utica shale play in Michigan. Substantially all of this acreage is held by production. The Partnership continues to evaluate the potential of these assets. Utica will hold the Partnership’s ownership rights in the Collingwood-Utica shale play.
    The descriptions of the First Amendment set forth above in this Current Report are qualified in their entirety by reference to the First Amendment, which has been filed as Exhibit 10.1 to this Current Report on Form 8-K.

    In connection with the Partnership’s review of its ownership rights in the Collingwood-Utica shale play in Michigan, the Partnership
    determined that its developed and undeveloped acreage in other plays in Michigan that was previously disclosed is incorrect. The Partnership
    previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2009 that as of December 31, 2009, with
    respect to Michigan, its gross developed acreage was 746,192 and its net developed acreage was 424,820; its gross undeveloped acreage was
    120,229 and its net undeveloped acreage was 48,891; and its gross total acreage was 866,421 and its net total acreage was 473,711. Based on a
    preliminary review of its Michigan acreage, the Partnership believes that the previously disclosed acreage was overstated by approximately
    50 percent. The Partnership’s detailed review is ongoing, and the Partnership intends to disclose the corrected acreage for Michigan upon
    completion of its review. The corrected acreage may be more or less than half of the previously disclosed acreage. Any change to the
    Partnership’s acreage in Michigan as a result of this review will not affect the reserve, production or financial and accounting information
    disclosed in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009. The review will not affect the
    previously announced over 120,000 net acres held by the Partnership in the prospective Collingwood-Utica shale play in Michigan.

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    • it would make bbep more "oily"
      however all bout the price.
      i sold enp whiles back since i had a profound distate for the management.
      however good assets.
      again all bout the price.
      im sure lgcy looking at them also.
      time will tell.

    • why ?

    • It was be nice to hear from them what their intentions are. Maybe in the next conference call they will discuss it. Basically what they have done is put in more stable financing. It will not be reevaluated every 6 months like the bank line is. The rate is fixed. I assume they did not have to pledge any specific assets, so this should leave them with plenty of room on their bank lines. Therefore, it is highly unlikely with the current balance sheet that they would be forced again to suspend the distribution. That comes at a cost of a higher interest rate than the bank debt. So, hard to say if it is worth it.

      But, we don't know for sure what covenants might be in this debt. I assume they are less stringent than the credit line restrictions, otherwise it would not have made sense to do it.

      If they have high return investment or aquisition targets, then I assume that is what they will use their added financial flexibility for.

      Having more stable financing might allow them to leverage a bit more, but I don't think they would use all or most of it for a share buyback (baring some other asset monetization).

    • makes sense about the no buyback.
      however which ever direction they go in will be a plus for bbep in the future.
      plus as i understand now they have very little debt before this recent 305 million

    • Very unlikely that they will buy back shares. If they pay down debt to banks - this is the best thing that they can do.Bond covenants less tight that banks and probably the actual interest rate paid on the bond is lower. Therefore they can achieve greater independence through use of bonds. Right now this is their key goal.
      Buying back shares a much lower priority. Keep in mind that this is an mlp not a c-corp.

    • Thanks for your thoughts and perspective. You are probably correct.

      What if BBEP thought that the highest rate of return opportunities were inside BBEP and not outside.

      These would have to be opportunities in their "oily" areas.

      Maybe Florida, Californai or Wyoming?

    • My hunch is that is not the direction they are heading with this. I actually think they are shoring up their capital structure for long-term growth.

      You guys are implying that they should re-leverage their balance sheet right after they paid down debt to reinstate the distribution.

      The interest on this is debt $26.3MM/year. The proceeds are $291.4MM (not $305). If they buy back stock at $18.50 they could get 15.75MM shares. At a distribution rate of $1.60 (higher than current), that would save $25.2MM/year. So, the interest cost is a bit higher. Yes, the distribution can go up over time so it would look better then.

      What is the downside? Now they likely have new convenants to meet and the less equity they have, the more likely they are to violate them. Plus, distributions can be cut or reduced temporarily in times of financial strain. With debt, they have to make the interest payments or be put into bankruptcy. The debt principal also has to be repaid or refinanced. Hard to say what that will cost at that time.

      If they don't buy back the stock, then they have greater flexibilty on the bank lines and it is now much less likely the banks can force them to suspend the distributions. Plus they more flexibility ti finance more capex assuming they have high return opportunities.

      To me, a big buyback would make more sense if they are able to monetize one of their assets (e.g. Collingwood) to pay for it. Or if they were able to significantly hedge out their cashflow several more years at good prices (can't do that right now with NG). When they did the Provident buyback, they were able to do signifcant hedging at good prices.

    • u r right
      removing the kwk cloud is number one priority for bbep.
      and furthermore looking out over time an enormous savings. im not looking at todays debt compared to cost of notes.
      if thats the case then they will never make the deal since it will always cost them more to finance the buy back as oppossed to the cost of carriage.
      as for senior debt its no good to speculate without first seeing all the debt paper involved.
      be that as it may im sure the board wants to remove the kwk cloud.
      im hoping its done sooner then later.imho the
      sooner done then the faster this mlp can grow.

    • KWK would probably not give up their board seats unless they could sell everything. Also, remember that KWK is capped at 20% voting rights, so buying some will not have an impact on their control until you get them below the 20%.

      Personally, I don't see this happening. The company had to suspend the distribution last year due to too much leverage. They worked hard to get the debt down. Part of the reason for the leverage was their buyback of shares from Provident.

      If they sell off Collingwood or are able to lock in a large share of cashflow (Florida?) then maybe it has a chance. Right now with nat gas prices so low in the forward market, they have to also be thinking about the cashflow implications of that.

    • This is fantastic, remember this is an asset we were given for nothing.

      Reduce liability

      Borrow at a low cost fixed interest rate

      Allow for possible spin off / sale

      Use cash to increase oil drilling or acquire more land / leases.

      All good for the long term.

      To me this just makes my distribution even safer.


      • 1 Reply to ruthsimeone
      • we are all guessing. So here is mine.

        The Company was really constrained since 2007 by high debt when many opportunities where available. So the Bank debt goes from 550 to approx 260. Costs go up by 10mm/yr... Flexibility goes up 200%

        1. They have a deal in hand - could be KWK, expansion in MI or an acq.... we will soon hear if this the case. I expect no

        2. While the distr is only 70%, why not build flexibility and wait for the right opportunity which this time they can take advantage of.

        I think - 2

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