NEW YORK (TheStreet) -- BreitBurn Energy Partners L.P. (BBEP) , a master limited partnership that develops oil and natural gas fields in the U.S., should be appealing to investors seeking income because it has a dividend yield of 10% and will start giving monthly cash distributions in January.
Founded 25 years ago, BreitBurn, with a market cap of almost $2 billion, has grown from just two wells in California to more than 5,000 wells in nine states, with significant exposure to the Permian Basin in Texas, one of the leading oil-producing regions of the world.
The firm has a history of successful acquisitions. In 2012, it spent more than $600 million on seven deals. Of these, nearly $420 million were spent on acquiring oil-rich properties at the Permian Basin from several different buyers.
In July, BreitBurn acquired oil and gas properties, as well as their related midstream assets, in the Oklahoma Panhandle and New Mexico for $864 million.
Last week, BreitBurn agreed to acquire additional properties at the Permian Basin from CrownRock for $282 million. BreitBurn will tap into its credit facility to fund this acquisition. This is a fairly low risk acquisition as the properties purchased are next to BreitBurn's existing acreage.
About two-thirds of the BreitBurn's assets are oil and the rest is natural gas. The latest acquisition represents average daily production of 2,900 barrels of oil equivalents. With proven reserves of 16.6 million barrels, the properties have reserve life of more than 15 years. BreitBurn's unit holders will immediately start seeing the benefits of this acquisition in their distributable cash flows.
In a conference held before the announcement of the Permian acquisition, BreitBurn Chief Financial Officer James Jackson pointed out that the business has amassed a little less than 200 million barrels of reserves. Add the latest purchase to this portfolio and BreitBurn's reserves are now well over the 200 million barrel mark.
Any company that relies heavily on acquisitions will usually have above-average level of debt. This is also true in BreitBurn's case. The firm has a long-term debt-to-equity ratio of 104.5%, nearly twice as large as the industry's average. That's not alarming, however, because management has a good track record of effectively managing debt.
The acquisitions that have been powered by this debt have added to earnings, translating into higher returns for unit holders.
As for the current debt, the business has recently announced the pricing of $400 million senior notes, due 2022, to repay some of its debt to improve its flexibility. Moreover, BreitBurn has also announced public offering 16.5 million units, which would fetch around $290 million. This amount will also be used to repay some of the debt.
In the third quarter, the firm's total production rose 43% to record levels of 3.1 million barrels of oil equivalents.
In its latest earnings release, BreitBurn also announced that like other energy firms, such as Linn Energy (LINE) and its affiliate LinnCo (LNCO) , QR Energy (QRE) and Vanguard Natural Resources (VNR) , it will start paying monthly distributions in January. That, coupled with the increasing output, may make BreitBurn a must buy for income investors looking for steady returns on a monthly basis.
Investors should also note that despite downward pressure on oil prices, BreitBurn's business is almost completely hedged. Management keeps the firm's production hedged out above 85% for the next 12 months and almost 75% for the year after that, with further hedging into the future. Therefore, despite BreitBurn's oil-rich portfolio, there is little risk associated with the decline in oil prices.
At the time of publication, the author had no position in any of the stocks mentioned.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.