BreitBurn Picks Up Majority Stake in California Oil Fields
BreitBurn Energy Partners L.P. has acquired the majority interest in an institutional partnership that owns two significant, high quality oil properties in the Los Angeles Basin in California for approximately $82 million. In addition, as part of the transaction, BreitBurn immediately broke unfavorable hedges associated with the properties at a cost of approximately $10 million. New derivative contracts have been put into place with respect to the properties.
This institutional partnership is managed by BreitBurn Energy Company L.P., an affiliate of BreitBurn's General Partner in which BreitBurn has no ownership interest. The two properties held by the partnership are the East Coyote Field and the Sawtelle Field, both of which have been operated by BreitBurn Energy Company L.P. for more than seven years.
California Assets Acquired
BreitBurn is acquiring an interest in two oil fields that it currently estimates to have net total proved producing reserves of approximately 6.5 million barrels of oil equivalent.
Additional details of this acquisition include:
--Immediately accretive to 2007 distributable cash flow per unit. --Expected current net production of approximately 900 boed (after royalties). --100% proved developed producing reserves. --Base production declines averaging less than 5% per year. --99% oil (averaging 23 degrees API). --50 producing wells at East Coyote and 10 producing wells at Sawtelle.
The above metrics take into account the effects of a 1.5% overriding royalty retained on the properties by the seller and the effects of a 35% reversionary interest held by the general partner (an affiliate of BreitBurn Energy Company L.P.) under the existing limited partnership agreement applicable to the properties which occurs at a defined payout, currently estimated to occur in 2015.
In connection with this acquisition, and the recently completed Calumet Florida acquisition, BreitBurn management expects to recommend its Board increase its annual distribution rate to $1.81 per unit over the next three quarters.
Based on closing this acquisition and the related equity placement, management expects to recommend the distribution rate for the third quarter of 2007 be increased by a total of $.02, to $.4425 cents per unit. This recommended $.02 per unit increase would be in place of the $.01 per unit increase that management was prepared to recommend as a result of the Calumet Florida acquisition announced on May 17, 2007 and completed on May 24, 2007. In addition, management expects to recommend to the Board an additional $.01 per unit increase effective for the fourth quarter of 2007. If approved by BreitBurn's Board, these increases would raise BreitBurn's distributions per unit to $.4525 per quarter, or $1.81 per year.
The Board's approval of each of these recommended increases is subject to a review of future operating results including production, commodity prices, operating costs, capital requirements, and other factors affecting BreitBurn's business.
In conjunction with the acquisition, BreitBurn completed a private placement with a group of institutional investors for $92 million of equity securities consisting of 2,967,744 common units at a per unit issue price of $31.00. Proceeds from the private placement were used to fund the acquisition, including payment of transaction related expenses, and funding of approximately $10 million in costs for terminating hedges related to future production from the institutional partnership.
The private placement investor group was led by Kayne Anderson Capital Advisors, L.P. Other investors included Lehman Brothers MLP Opportunity Fund L.P. and funds managed by Zimmer Lucas Capital, LLC.
BreitBurn Energy Partners L.P. is an independent oil and gas limited partnership, formed in 2006 by a subsidiary of Provident Energy Trust, focused on the acquisition, exploitation and development of oil and gas properties. BreitBurn's assets consist primarily of producing and non-producing crude oil reserves located in the Los Angeles Basin in California, the Wind River and Big Horn Basins in central Wyoming, the Permian Basin in West Texas, and the Sunniland Trend in Florida.
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