A Deeper Look at BreitBurn Energy Partners L.P. (BBEP)’s Big Oil Deal

Overall, BreitBurn Energy Partners L.P. (NASDAQ:BBEP) is acquiring 35 million barrels of oil equivalent reserves which have an estimated reserve life of about 13 years. Further, these very low decline assets help to offset some of the company’s more development-focused assets acquired over the past year. As I mentioned, these assets will fit much better in BreitBurn’s MLP structure than in Whiting’s development-focused business model. Whiting already has plans to use the cash from the sale to help fund its development opportunities in the Rockies and the Permian Basin.

Distribution
One of the keys to this deal is that it immediately boosts BreitBurn Energy Partners L.P. (NASDAQ:BBEP)’s distributable cash flow per unit. The company had a rough first quarter; its distribution coverage ratio fell to just 0.67 times. That was well below its stated goal of 1.1-1.2 times. While no distribution increase was announced with this deal, the company did say that it supports the goal to target annual distribution increases of about 5% per year. BreitBurn has raised its distribution for 12 consecutive quarters now, so this transaction virtually assures that that trend will continue with the next distribution announcement.

Final Foolish thoughts
The transaction appears to be a solid one for BreitBurn. It has all the characteristics one likes to see — these are high-margin, low-decline assets with a long reserve life. The deal also helps stabilize the distributable cash flow, which is why with a yield of over 11%, BrietBurn is a very compelling opportunity for income-seeking investors.

The article A Deeper Look at BreitBurn’s Big Oil Deal originally appeared on Fool.com and is written by Matt DiLallo.

Fool contributor Matt DiLallo owns shares of LINN Energy, LLC. The Motley Fool recommends BreitBurn Energy Partners L.P. (NASDAQ:BBEP).

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