Linn Energy, Breitburn Could Be Tip of Iceberg for MLP Bankruptcies

With master limited partnership (MLP) Breitburn Energy Partners LP’s bankruptcy filing Monday, it becomes  the second upstream MLP to do so in less than a week. Houston-based Linn Energy filed for bankruptcy May 11.

But it wasn’t unexpected, said Hinds Howard, vice president and senior financial analyst for CBRE Clarion Securities.

“MLPs in general are going to continue to struggle … every single one of them has cut their distribution and every single one of them seems to be in real distress,” Howard told Rigzone, adding that he doesn’t believe the recent filings have any broader implications for midstream MLPs, which seem to be faring well. “The Alerian MLP Index, which doesn’t include any upstream MLPs anymore, is up 2.5 percent right now.”

Reuters reported that Breitburn listed its assets and liabilities as $1 billion to $10 billion.

Howard said the business model – trying to pay out cash flow on mature producing properties that have a high cost relative to current oil prices – just doesn’t make sense anymore.

For upstream MLPs to stay afloat, Howard said they’ll have to continue doing what they’re doing – restructuring debt, shedding assets, laying off workers, or ultimately, filing for bankruptcy.

“Midstream MLPs are OK. They don’t need oil prices to go up,” he said. “They need volumes to continue to stabilize and they need rigs to come back in 2017 and 2018 to drive volumes through their midstream assets, but I think they’re largely OK.”     


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