How Safe Is BreitBurn Energy Partners L.P. (BBEP)’s Distribution?

Looking ahead
BreitBurn is planning to spend $261 million to drill high-margin oil projects this year. As these wells come on line throughout the year it’ll have a significant impact on the company’s distribution coverage ratio. The company believes that these projects alone are enough to get that ratio into a more comfortable 1.1-1.2 times by the fourth quarter, even taking into account the recent distribution hike.

However, the company’s strong liquidity picture has it planning to be very active, yet disciplined, on the acquisition front this year. Its goal is to complete at least $500 million in acquisitions this year, which will really move the needle. For example, a hypothetical deal at its desired metrics could add as much as $0.21 in distributable cash flow per unit. So, given these numbers, that distribution is very safe and has the potential to go even higher this year if the company can secure the right deal.

Foolish bottom line
While BreitBurn Energy Partners L.P. (NASDAQ:BBEP)’s distribution isn’t the safest in its space from quarter to quarter, there certainly is nothing to worry about in the near term. The coverage ratio will slowly make its way back above the target ratio over the course of the year, and a highly accretive acquisition or two can move the needle further into positive territory. I see no reason why BreitBurn can’t keep up the growth of its best-it-class distribution for the foreseeable future.

The article How Safe Is BreitBurn’s Distribution? originally appeared on Fool.com and is written by Matt DiLallo.

Motley Fool contributor Matt DiLallo owns shares of Enterprise Products Partners and LINN Energy. The Motley Fool recommends BreitBurn Energy Partners (NASDAQ:BBEP) and Enterprise Products Partners.

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