Breitburn Energy Partners Reports Third Quarter 2015 Results

Breitburn Energy Partners LP (NASDAQ:BBEP) today announced financial and operating results for the third quarter 2015.

Key Highlights

• Reported third quarter total production of 5 MMBoe, in line with Breitburn's guidance.
• Reported pre-tax lease operating expenses of $99.3 million, or $19.83 per Boe, in line with Breitburn's guidance.
• Reported Adjusted EBITDA, a non-GAAP financial measure, of $156.3 million.
• Reported G&A expenses, excluding unit-based compensation, of $16.9 million in the third quarter compared to $16.8 million in the second quarter. Excluding $3.1 million of integration and acquisition costs in the third quarter and $2.7 million of integration and acquisition costs in the second quarter, G&A expenses improved to $2.76 per Boe in the third quarter compared to $2.81 per Boe in the second quarter.
• Reported distributable cash flow of $51.5 million, or $0.24 per common unit, and distribution coverage ratio of 1.9x based on current monthly distribution of $0.04166 per common unit, or $0.50 per common unit on an annualized basis.
• Based on Breitburn's current commodity hedge portfolio and assuming second half 2015 guidance production rate, total estimated production is 77% hedged for the remainder of 2015, 72% in 2016, and 45% in 2017 at attractive prices. The estimated value of Breitburn's commodity hedge portfolio was approximately $668 million as of September 30th.
• Borrowing base of $1.8 billion on bank credit facility remains unchanged through April 2016, resulting in liquidity of approximately $526 million as of quarter end.

Management Commentary

Halbert S. Washburn, Breitburn’s Chief Executive Officer, said: "I am pleased with our third straight quarter of solid operating results since we acquired QR Energy last November. Our production is on track to achieve our 20 million Boe full year 2015 production target with our reduced $200 million capital program. We remain focused on reducing our lease operating and G&A expenses, and those third quarter results are in line with our expectations. Earlier this year, we laid out a strategy of operating within our cash flow, reducing and high grading capital spending, lowering operating and G&A costs, decreasing debt, and increasing liquidity, and we continue to execute on all aspects of our plan."

Third Quarter 2015 Operating and Financial Results Compared to Second Quarter 2015

• Total production was 5,008 MBoe in the third quarter of 2015 compared to 5,015 MBoe in the second quarter of 2015. Average daily production was 54.4 MBoe/day in the third quarter of 2015 compared to 55.1 MBoe/day in the second quarter of 2015.
  • Oil production decreased to 2,741 MBbl compared to 2,822 MBbl in the second quarter of 2015.
  • NGL production increased to 485 MBbl compared to 483 MBbl in the second quarter of 2015.
  • Natural gas production increased to 10,689 MMcf compared to 10,264 MMcf in the second quarter of 2015.
• Adjusted EBITDA was $156.3 million in the third quarter of 2015 compared to $162.9 million (including $1.1 million of restructuring costs) in the second quarter of 2015, a 4% decrease primarily due to lower commodity prices, lower oil production, and one less Florida oil shipment, partially offset by higher commodity derivative settlements and higher gas production.
• Net loss attributable to common unitholders was $1,339 million, or $6.17 per diluted common unit, in the third quarter of 2015, which included non-cash impairments of long-lived assets of $1,440 million, or $6.80 per unit, primarily related to the impact of the drop in commodity prices on our projected net revenues for certain of our oil and gas properties, compared to net loss of $316.2 million, or $1.46 per diluted common unit, in the second quarter of 2015, which included a non-cash goodwill impairment charge of approximately $95.9 million, or $0.45 per unit.
• Oil, NGL and natural gas sales revenues were $153.3 million in the third quarter of 2015 compared to $189.6 million in the second quarter of 2015, primarily reflecting lower realized oil and NGL prices, lower oil production, and one less Florida oil shipment, partially offset by higher gas production.
• Lease operating expenses, which include district expenses, processing fees and transportation costs but exclude taxes, were $19.83 per Boe in the third quarter of 2015 compared to $18.72 per Boe in the second quarter of 2015, a 6% increase primarily due to additional spending of $5 million for a well reactivation program in the Midland Basin.
• General and administrative expenses, excluding non-cash unit-based compensation costs, were $16.9 million in the third quarter of 2015 compared to $16.8 million in the second quarter of 2015. Excluding $3.1 million of integration and acquisition costs in the third quarter and $2.7 million of integration and acquisition costs in the second quarter, G&A expenses improved to $13.8 million, or $2.76 per Boe, in the third quarter compared to $14.1 million, or $2.81 per Boe, in the second quarter.
• Gains on commodity derivative instruments were $253 million in the third quarter of 2015 compared to losses of $93.4 million in the second quarter of 2015, primarily due to a decrease in oil and natural gas futures prices during the third quarter of 2015. Derivative instrument settlement receipts were $129 million in the third quarter of 2015 compared to receipts of $100.6 million in the second quarter of 2015, primarily due to lower oil prices.
• NYMEX WTI oil spot prices averaged $46.64 per Bbl and Brent oil spot prices averaged $50.41 per Bbl in the third quarter of 2015 compared to $57.85 per Bbl and $61.65 per Bbl, respectively, in the second quarter of 2015. Henry Hub natural gas spot prices averaged $2.76 per Mcf in the third quarter of 2015 compared to $2.75 per Mcf in the second quarter of 2015.
• Average realized crude oil, NGL and natural gas prices, excluding the effects of commodity derivative settlements, were $43.38 per Bbl, $12.44 per Bbl and $2.76 per Mcf, respectively, in the third quarter of 2015 compared to $53.29 per Bbl, $18.35 per Bbl and $2.57 per Mcf, respectively, in the second quarter of 2015.
• Oil, NGL and natural gas capital expenditures were $46 million in the third quarter of 2015 compared to $58 million in the second quarter of 2015.
• Distributable cash flow, a non-GAAP financial measure, was $51.5 million in the third quarter of 2015 compared to $58.5 million in the second quarter of 2015.

Impact of Derivative Instruments

Breitburn uses commodity derivative instruments to mitigate risks associated with commodity price volatility and to help maintain cash flows for operating activities, acquisitions, capital expenditures and distributions. Breitburn does not enter into derivative instruments for speculative trading purposes. Since Breitburn does not use hedge accounting to account for its derivative instruments, changes in the fair value of derivative instruments are recorded in Breitburn’s earnings during each reporting period. These non-cash changes in the fair value of derivatives do not affect Adjusted EBITDA, cash flow from operations, distributable cash flow or Breitburn’s ability to pay cash distributions for the reporting periods presented.

Production, Statement of Operations, and Realized Price Information

The following table presents production, selected income statement and realized price information for the three months ended September 30, 2015 and 2014, and the three months ended June 30, 2015:

Non-GAAP Financial Measures

This press release, including the financial tables and other supplemental information, including the reconciliations of certain non-generally accepted accounting principles (“non-GAAP”) measures to their nearest comparable generally accepted accounting principles (“GAAP”) measures, may be used periodically by management when discussing Breitburn’s financial results with investors and analysts, and they are also available at www.breitburn.com.

“Adjusted EBITDA” and “distributable cash flow” are among the non-GAAP financial measures used in this press release. These non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income, operating income, cash flow from operating activities or any other GAAP measure of liquidity or financial performance. Management believes that these non-GAAP financial measures enhance comparability to prior periods.

Adjusted EBITDA is presented because management believes it provides additional information relative to the performance of Breitburn’s assets, without regard to financing methods or capital structure. Distributable cash flow is used by management as a tool to measure the cash distributions we could pay to our unitholders, and this financial measure indicates to investors whether or not we are generating cash flow at a level that can support our distribution rate to our unitholders. These non-GAAP financial measures may not be comparable to similarly titled measures of other publicly traded partnerships or limited liability companies because all companies may not calculate Adjusted EBITDA or distributable cash flow in the same manner.

Adjusted EBITDA

The following table presents a reconciliation of net loss and net cash flows from operating activities, our most directly comparable GAAP financial performance and liquidity measures, to Adjusted EBITDA for each of the periods indicated.

Summary of Commodity Derivative Instruments

The table below summarizes Breitburn’s commodity derivative hedge portfolio as of November 5, 2015. For an overview of Breitburn's commodity hedge portfolio, please refer to the Summary of Commodity Price Protection Portfolio at www.breitburn.com.

Premiums paid in 2012 related to oil and natural gas derivatives to be settled after September 30, 2015, are as follows:

Other Information

Breitburn will host a conference call Thursday, November 5, 2015, at 11:00 am (EST) to discuss Breitburn’s third quarter 2015 results. The conference call may be accessed by calling 888-389-5988 (international callers dial 719-325-2464) or via webcast at http://ir.breitburn.com/. An archived edition of the conference call will also be available through November 12th by calling 877-870-5176 (international callers dial 858-384-5517) and entering replay PIN 9034747 or by visiting http://ir.breitburn.com/. Breitburn will take questions from securities analysts and institutional portfolio managers; the call is open to all other interested parties on a listen-only basis.

About Breitburn Energy Partners LP

Breitburn Energy Partners LP is a publicly traded, independent oil and gas master limited partnership focused on the acquisition, development, and production of oil and gas properties throughout the United States. Breitburn’s producing and non-producing crude oil and natural gas reserves are located in the following seven producing areas: Ark-La-Tex, Michigan/Indiana/Kentucky, the Permian Basin, the Mid-Continent, the Rockies, Florida, and California. See www.breitburn.com for more information.

Cautionary Statement Regarding Forward-Looking Information

This press release contains forward-looking statements relating to Breitburn's operations that are based on management’s current expectations, estimates and projections about its operations. Words and phrases such as “believes,” “expect,” “future,” “impact,” “guidance,” “will be,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. These include risks relating to Breitburn's financial performance and results, availability of sufficient cash flow and other sources of liquidity to execute our business plan, prices and demand for natural gas and oil, increases in operating costs, uncertainties inherent in estimating our reserves and production, our ability to replace reserves and efficiently develop our current reserves, political and regulatory developments relating to taxes, derivatives and our oil and gas operations, risks relating to our acquisitions and the factors set forth under the heading “Risk Factors” incorporated by reference from our Annual Report on Form 10-K filed with the Securities and Exchange Commission, and if applicable, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The reader should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Unless legally required, Breitburn undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Unpredictable or unknown factors not discussed herein also could have material adverse effects on forward-looking statements.

BBEP-IR

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