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BreitBurn Energy Partners L.P. To Acquire Oklahoma Panhandle Assets From Whiting Oil And Gas Corporation For Approximately $860 Million

BreitBurn Energy Partners L.P. (the "Partnership") (NASDAQ:BBEP) today announced it has signed a definitive agreement with Whiting Oil and Gas Corporation, a wholly-owned subsidiary of Whiting Petroleum Corporation (NYSE:WLL), to acquire Whiting’s interests in the Postle and North East Hardesty oil fields, along with associated midstream assets, located primarily in the Oklahoma Panhandle, for approximately $860 million. In connection with the execution of the definitive agreement, the Partnership deposited approximately $86 million with Whiting, which will be credited toward the purchase price due at closing. The acquisition is subject to customary closing conditions and purchase price adjustments and is expected to close by July 31, 2013. The Partnership is acquiring additional interests in certain of the acquired assets from other sellers for an additional $30.2 million.

Hal Washburn, BreitBurn's CEO, said, “We expect this acquisition to generate significant accretion to our distributable cash flow per unit and create long-term value for unitholders. These assets are an excellent fit for our portfolio, with significant recoverable oil in place and a long horizon of production visibility. We anticipate a decade or more of very low decline production from these assets, which balances some of our more development-focused acquisitions completed last year. With current production from these properties comprised of 98% liquids, we expect our total net liquids production to increase by over 100% from the fourth quarter of 2012 to the fourth quarter of 2013 and exit 2013 with liquids comprising approximately 63% of our total net production. The acquisition is complementary to our Permian Basin operations, and we expect that it will strengthen our technical and exploitation capabilities and broaden our intellectual capital with tertiary flood expertise that can potentially be applied to other BreitBurn properties.”

Operating Highlights of the Acquired Properties

  • Addition of approximately 7,400 Boe/day net production as of April 2013 (approximately 87% oil and 11% NGLs).
  • Estimated reserve life index of approximately 13 years based on estimated proved reserves of approximately 35.0 MMBoe as of April 1, 2013.
  • Differential for oil is $8.00 per barrel below WTI and lifting costs are approximately $18.00 per Boe.
  • Control of midstream assets will enable integrated management of CO 2 compression, delivery and recycling as well as oil export via a wholly owned pipeline. These assets are strategically important, enhance the value of the acquired oil properties, and minimize reliance on third parties for CO 2 delivery and oil transportation.
  • Whiting will continue to operate the assets post-closing through October 31, 2013, affording the Partnership the opportunity to transition and integrate its operation of the new assets.

Financial Highlights of the Transaction

  • Immediately accretive to distributable cash flow (“DCF”) per unit. The Partnership expects second half 2013 total DCF to range between approximately $135 million and $145 million.
  • The expected accretion to DCF per unit from this transaction will support the Partnership’s target annual distribution growth rate of 5% and strengthen DCF coverage ratio for the second half of 2013 and in future years.
  • At closing, Whiting will novate to the Partnership oil derivative contracts, with a counterparty that is a participant in the Partnership’s current credit facility, consisting of swaps to NYMEX WTI crude oil at the following notional volumes and prices:
                     
Period         Swap Volume (Bbl/d)         Swap Price
4/1/13 – 12/31/13         6,100         $98.50
1/1/14 – 12/31/14 5,500 $94.75
1/1/15 – 12/31/15 5,000 $94.75
1/1/16 – 3/31/16         4,400         $93.50
 
  • The Partnership has a financing commitment to increase the borrowing base of its credit facility to $1.5 billion, with an elected commitment amount of $1.4 billion, at closing. The Partnership expects to fund the asset purchase price with borrowings under this amended credit facility.
  • At closing, the Partnership expects to have a pro forma total leverage ratio, equal to total debt divided by the last twelve months pro forma Adjusted EBITDA, of approximately 4.0-to-1.
  • To maximize financial flexibility, the Partnership’s amended credit facility will have a relaxed total leverage ratio covenant limitation for a period of five quarters following the transaction to allow for the gradual reduction of indebtedness from operating cash flow and opportunistic refinancing transactions. Specifically, the leverage ratio covenant limitation, defined as total debt divided by last twelve months pro forma Adjusted EBITDA, will be revised as follows
                                                 

Quarterly Period:

     

3Q’13

     

4Q’13

     

1Q’14

     

2Q’14

     

3Q’14

     

4Q’14

Existing Total Leverage Covenant:

      4.00x       4.00x       4.00x       4.00x       4.00x       4.00x

Amended Total Leverage Covenant:

      4.75x       4.75x       4.75x       4.50x       4.25x       4.00x
 

Second Half 2013 Guidance

In conjunction with the acquisition, BreitBurn is providing the following second half 2013 guidance which assumes the closing of the pending acquisition and the inclusion of the acquired assets as of August 1, 2013.

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