BreitBurn Energy Partners L.P. (NASDAQ:BBEP) completed its own California deal last year, spending $40 million in cash and 3 million units to boost its reserves in the state. These are great cash flow assets for the company and a perfect fit for its MLP structure. The only problem, if you want to call it that, with California assets is that they are lacking opportunities for production growth. That’s what makes the company’s strategic entry into the Permian Basin last year even more exciting.
The Permian assets come with a lot of upside. The two separate deals, totaling $218 million, not only brought the company 40 very liquids-rich wells but the assets came with 160 future drilling locations. The acquired wells have an estimated reserve life of more than 13 years and are in the heart of one of the most attractive liquids plays in the country. The Permian Basin is a great place for BreitBurn to be, as it not only offers liquids-rich production growth, but also a lot of bolt-on acquisition opportunities as other companies with non-core positions look to cash out.
The final BreitBurn assets in its southern division are those in Florida. The company has 19 producing wells across five fields that yield 100% oil. BreitBurn has about 10 million barrels of oil equivalent of reserves in Florida which have an average reserve life of about 15 years. Again, you want to see long-life assets like these in an MLP’s portfolio, especially the oily kind.
What about growth?
When you add it all up, BreitBurn Energy Partners L.P. (NASDAQ:BBEP) certainly has the reserves it needs to continue to deliver its distribution to investors. However, production with these assets will decline over time, which is why the company will continually need to acquire new assets as well as grow organically.
Last year it budgeted to spend $68 million on production growth projects. Before the year had ended, it spent more than $150 million on these projects. The overage wasn’t because of skyrocketing expenses, the company simply saw more opportunities to invest capital. The company still has plenty of development opportunities at its legacy assets.
Looking further ahead, BreitBurn does have some future optionality from its 130,000 net acres in the Utica Collingwood Shale,and 75,000 potential net acres in the A-1 Carbonate. Others in the industry are currently drilling test wells in both plays; if successful these could represent significant upside for BreitBurn’s future.
The Foolish bottom line
Taking everything together, the company has enough reserves to secure its current distribution of more than 9% for years to come. The company also has a nice inventory of organic growth projects slated for the future, as well as the financial flexibly to continue to acquire additional reserves. This has given management the confidence to target a 5% annual distribution increase. When you add it all up, BreitBurn Energy Partners L.P. (NASDAQ:BBEP) has the solid foundation you want as an income-seeking investor. There’s enough potential here for me to give the company an outperform rating in my CAPS profile.
The article Adding It All Up: Why BreitBurn Energy’s Reserves Matter originally appeared on Fool.com.
Fool contributor Matt DiLallo owns shares of LINN Energy, LLC and LinnCo, LLC. The Motley Fool has no position in any of the stocks mentioned.
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