BreitBurn Energy Elects to Monetize, Rehedge Portion of '11-'12 Portfolio
BreitBurn Energy Partners ("the Partnership") elected to terminate selected in-the-money natural gas and WTI crude oil hedge contracts covering a portion of its expected production in 2011 and 2012. Net proceeds from the terminated contracts, which had contract prices well in excess of current market levels, were approximately $25 million. These proceeds, which the Partnership expects to receive today, will be used to immediately reduce borrowings under the Partnership's credit facility. Simultaneously, the Partnership rehedged identical 2011 and 2012 volumes at prevailing market prices.
Assuming 2009 total expected production levels are held flat through 2012, the Partnership's hedge portfolio continues to provide price protection on approximately 70% of its oil and gas production in each of 2011 and 2012. The Partnership has 5,603 bbls per day and 5,016 bbls per day hedged in 2011 and 2012, respectively, at weighted average hedge prices of $77.60 and $88.35 per bbl and 41,971 MMBtu per day and 38,257 MMBtu per day hedged in 2011 and 2012, respectively, at weighted average hedge prices of $7.92 and $8.05 per MMBtu.
Giving effect to the monetization and the simultaneous debt reduction, the Partnership expects outstanding borrowings under its credit facility as of June 30th to be reduced to approximately $645 million. The Partnership has reduced bank borrowings by approximately $62 million since March 31st using internally generated cash flow and the net proceeds from the monetization. Simultaneous with the completion of the monetization, the Partnership's borrowing base of $760 million will be reduced by an amount equal to the monetization proceeds. The Partnership's new borrowing base will be $735 million.
New Hedges Added in 2009 and 2013
The Partnership has also taken advantage of recent improvements in commodity prices over early 2009 levels to increase its overall hedging program with the addition of new commodity hedges in 2009 and 2013. The addition of these hedges extends the Partnership’s commodity price protection on a portion of expected production for as long as four and one half years.
The new 2009 hedges cover approximately 138,000 Bbls of expected production during the period from July 1 to December 31, 2009. The recently added 2013 hedges cover 1,095,000 MMBtu and 912,500 Bbls of expected production during 2013. Including these recently added hedges, the Partnership has approximately 88% of 2009 total expected production hedged and, assuming production is held flat through 2013, now has approximately 17% of 2013 total expected production hedged. The Partnership will continue to review opportunistic hedging strategies for these and other periods to further support its financial flexibility.
Randy Breitenbach, Co-Chief Executive Officer, said, "Consistent with our announcement on April 17th, our primary focus given the prevailing economic outlook is to reduce debt to acceptable levels. In a proactive effort, we elected to unwind a portion of our 2011 and 2012 hedge portfolio to accelerate debt reduction. Proceeds from the termination of these hedge contracts will reduce our bank debt and, along with the rehedging of 2011 and 2012 volumes and additional hedging of 2009 and 2013 volumes, provide us with greater financial and operating flexibility which is essential in these uncertain times. Additionally, while we are not planning on reestablishing distributions at this time, the hedge monetization and debt reduction represents continued progress towards our goal of reinstating our quarterly distributions that were temporarily suspended on April 17th. Our operations continue to meet expectations and we are on track for a successful year. Given our focus on further reducing outstanding borrowings, we will continue to consider all reasonable alternatives for further debt reduction and will pursue them if management and the Board determine they are in the long term best interest of our unitholders."
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