Breitburn Energy Partners LP
Aug 7, 2012

BreitBurn Energy Partners L.P. Reports Second Quarter Results, Announces Substantial Increase in 2012 Capital Program and Updates Second Half 2012 Guidance

LOS ANGELES--(BUSINESS WIRE)-- BreitBurn Energy Partners L.P. (the "Partnership") (NASDAQ:BBEP) today announced financial and operating results for its second quarter of 2012, a substantial increase in its 2012 capital program, and updated second half 2012 guidance.

Key Highlights

Management Commentary

Hal Washburn, CEO, said: "The Partnership delivered a strong second quarter as we continued to execute on our growth through acquisitions strategy. We completed three very attractive acquisitions of primarily oil properties which expanded our operations to seven states and established our presence in the Permian Basin. Additionally, we are increasing our capital program for the second time this year by $50 million to develop our newly acquired assets and to pursue a series of attractive oil projects identified in our legacy assets as well. To reflect our increased capital program and recent acquisitions, we are increasing our full year production target to between approximately 8.3 MMBoe and 8.6 MMBoe and we are increasing our full year Adjusted EBITDA target to between approximately $280 million and $290 million. These increases demonstrate our focus on continually improving our operating performance and the ongoing success of our growth through acquisitions strategy."

Second Quarter 2012 Operating and Financial Results Compared to First Quarter 2012

Second Half of 2012 Guidance Update

The following guidance is subject to all of the cautionary statements and limitations described below and under the caption "Cautionary Statement Regarding Forward-Looking Information." In addition, estimates for the Partnership's future production volumes are based on, among other things, assumptions of capital expenditure levels and the assumption that market demand and prices for oil and gas will continue at levels that allow for economic production of these products. The production, transportation and marketing of oil and gas are extremely complex and are subject to disruption due to transportation and processing availability, mechanical failure, human error, weather and numerous other factors. The Partnership's estimates are based on certain other assumptions, such as well performance, which may actually prove to vary significantly from those assumed. Operating costs, which include major maintenance costs, vary in response to changes in prices of services and materials used in the operation of our properties and the amount of maintenance activity required. Operating costs, including taxes, utilities and service company costs, move directionally with increases and decreases in commodity prices, and we cannot fully predict such future commodity or operating costs. Similarly, interest rates and price differentials are set by the market and are not within our control. They can vary dramatically from time to time. Capital expenditures are based on our current expectations as to the level of capital expenditures that will be justified based upon the other assumptions set forth below as well as expectations about other operating and economic factors not set forth below. The guidance below does not constitute any form of guarantee, assurance or promise that the matters indicated will actually be achieved. Rather, the table simply sets forth our best estimate today for these matters based upon our current expectations about the future based upon both stated and unstated assumptions. Actual conditions and those assumptions may, and probably will, change over the course of the year.

                   
($ in 000s)           Second Half 2012 Guidance

Total Production (MBoe)

4,400 -   4,700
Oil Production (Mbbls) 2,050 - 2,250
Gas Production (MMcfe) 14,100 - 14,700
Average Price Differential %:
Oil Price Differential %(1) 88 % - 90 %
Gas Price Differential % 108 % - 110 %
Operating Costs / BOE(2)(3) $ 18.00 - $ 20.00
Production / Property Taxes (% of oil & gas revenue) 8.0 % - 9.0 %
G&A (Excl. Unit Based Compensation) $ 15,000 - $ 17,000
Cash Interest Expense(4) $ 32,000 - $ 34,000
Capital Expenditures(5) $ 90,000 - $ 94,000
Adjusted EBITDA(6)           $ 155,000   -   $ 165,000  
 
(1)     Represents the expected average price differential to both WTI crude oil and Brent crude oil pricing. Approximately 30% of oil production is expected to be sold based on Brent pricing.
(2)

Operating Costs include lease operating costs, processing fees, district expense, and transportation expense. Expected transportation expense totals approximately $3.4 million in the second half of 2012, largely attributable to our Florida production. Excluding transportation expense, our estimated operating costs per Boe are expected to range between approximately $17.25 - $19.25.

(3) Operating Costs are based on flat $85 per barrel WTI crude oil, $100 per barrel Brent crude oil, and $3.00 per Mcfe natural gas price levels for the second half of 2012. Operating costs generally move with commodity prices but do not typically increase or decrease as rapidly as commodity prices.
(4) The Partnership typically borrows on a 1-month LIBOR basis, plus an applicable spread. Estimated cash interest expense assumes a 1-month LIBOR rate of 1% and includes the impact of interest rate swaps covering approximately $194 million of borrowings at a weighted average swap rate of 1.84% for the second half of 2012.
(5) Total Capital Expenditures for 2012 include maintenance and obligatory capital expenditures as well as growth capital expenditures and exclude capital expense for acquisitions as well as information technology spending. Maintenance and obligatory capital expenditures are defined as the estimated amount of investment in capital projects and obligatory spending on existing facilities and operations needed to hold production approximately constant for the period. Management estimates that the Partnership would need to spend approximately $35 million in the second half of 2012 to hold production flat.
(6) Assuming the high and low range of our guidance, Adjusted EBITDA for the second half of 2012 is expected to range between $155 million and $165 million, and is comprised of estimated net income (before non-cash compensation) between $58 million and $70 million, less estimated unrealized gain on commodity derivative instruments of approximately $5 million, plus estimated DD&A of approximately $63 million, plus estimated interest expense between $32 million (high end of Adjusted EBITDA) and $34 million (low end of Adjusted EBITDA), and plus other adjustments of approximately $5 million. Estimated 2012 net income is based on oil prices of $85 per barrel for WTI crude oil, $100 per barrel Brent crude oil, and $3.00 per Mcfe for natural gas. Consequently, differences between actual and forecast prices could result in changes to unrealized gains or losses on commodity derivative instruments, DD&A, including potential impairments of long-lived assets, and ultimately, net income.
 

Impact of Derivative Instruments

The Partnership uses commodity and interest rate derivative instruments to mitigate the risks associated with commodity price volatility and changing interest rates and to help maintain cash flows for operating activities, acquisitions, capital expenditures and distributions. The Partnership does not enter into derivative instruments for speculative trading purposes. Non-cash gains or losses do not affect Adjusted EBITDA, cash flow from operations or the Partnership's ability to pay cash distributions.

Realized gains from commodity derivative instruments were $25.1 million during the second quarter of 2012. Realized losses from interest rate derivative instruments were $0.8 million during the second quarter of 2012. Non-cash unrealized gains from commodity derivative instruments were $82.2 million and non-cash unrealized gains from interest rate derivative instruments were $0.6 million during the second quarter of 2012.

Production, Statement of Operations and Realized Price Information

The following table presents production, selected income statement and realized price information for the three months ended June 30, 2012, March 31, 2012 and June 30, 2011:

                 
Three Months Ended
June 30,           March 31,           June 30,
Thousands of dollars, except as indicated 2012 2012 2011
Oil, natural gas and NGLs sales $ 94,981 $ 94,007 $ 94,742
Realized gain (loss) on commodity derivative instruments 25,063 17,591 (1,751 )
Unrealized gain (loss) on commodity derivative instruments 82,225 (53,596 ) 48,234
Other revenues, net   907   1,145     1,143  
Total revenues $ 203,176 $ 59,147   $ 142,368  
Lease operating expenses and processing fees $ 39,122 $ 38,073 $ 31,605
Production and property taxes   6,525   7,573     6,195  
Total lease operating expenses $ 45,647 $ 45,646   $ 37,800  
Purchases and other operating costs 647 370 268
Change in inventory   2,600   (2,755 )   (1,860 )
Total operating costs $ 48,894 $ 43,261   $ 36,208  

Lease operating expenses pre taxe