Reserves are the lifeblood of an energy production company, but they matter even more if you’re an upstream MLP like BreitBurn Energy Partners L.P. (NASDAQ:BBEP). Most traditional exploration and production companies reinvest a majority, if not all, of their cash flow to explore for new sources of production in order to offset the natural decline of current production.
Companies like BreitBurn instead send that cash back to investors. That’s why it needs to be smart in buying assets that have a long reserve life that are also not in rapid decline. Let’s take a quick look at BreitBurn’s reserves and see how they stack up.
The big picture
BreitBurn Energy Partners L.P. (NASDAQ:BBEP) had an estimated 151 million barrels of oil equivalent in reserves at the end of last year. Those reserves are spread across seven states and are estimated to last about 18 years.
Source: BreitBurn Investor Presentation
The company’s production is split evenly between gas and oil. Not all of its assets are of equal importance to the company so let’s take a closer look at segment.
Northern division
The assets lumped into BreitBurn Energy Partners L.P. (NASDAQ:BBEP)’s northern division includes the Antrim Shale, New Albany Shale, and its Wyoming assets. The company’s Antrim Shale assets in Michigan make up the greatest portion of reserves at about 35% of the total. These primarily low-decline natural gas assets that are fairly predictable. Investors can expect the company’s more than 3,600 wells to produce for an average of 16 years.
These are solid MLP-type assets, which is why it’s no surprise that fellow upstream MLP Linn Energy LLC (NASDAQ:LINE) also owns assets in Michigan. LINN’s asset base is a much smaller portion of its overall reserves at less than 6%. The key here is that these are low-decline natural gas assets that are a good fit from an upstream MLP.
In addition to Michigan, BreitBurn has just over 250 wells in Indiana and Kentucky that are dedicated to the New Albany Shale. These just have an average reserve life of seven years and make up a very small portion of the company’s asset base. In Wyoming on the other hand, BreitBurn has a very large asset base, second only to its Michigan assets. These assets add an oily component to its production mix. Just last year the company spent $95 million to acquire a 100% oil asset in the Big Horn Basin. When you add in its crude oil producing Powder River Basin assets to the gassier Green River Basin assets you get a nice mix of production. These days the oilier the production you can get the better; however, given how well-hedged upstream MLPs are, it’s not as critical.
Southern division
BreitBurn Energy Partners L.P. (NASDAQ:BBEP)’s southern division produces out of three states: California, Florida, and Texas. Of the three, its California assets are its largest. California oil assets are among the best assets for an MLP to own because of the low-decline rate. That is one of the main reasons behind Linn Energy LLC (NASDAQ:LINE) and its affiliate LinnCo LLC (NASDAQ:LNCO)‘s deal to buy Berry Petroleum company (NYSE:BRY) . Nearly half of Berry’s production was is in California which prompted an analyst on the company’s conference call to congratulate the company on a great deal because “California assets aren’t easy to come by.”
