The company aims to hit the $261 million capital program. It sets its production for the full year at around 9.5 million to 10.1 million Boe. Furthermore, it plans to have a total of 11 rigs running by the end of the year. This is relatively achievable with five rigs already operational in the first quarter.
BreitBurn Energy Partners L.P. (NASDAQ:BBEP)’s president and chief operating officer, Mark Pease, stated that the firm will focus 95% of its capital spending on high-margin oil projects. During the first quarter, the firm spent $45 million in total capital, which was aligned with expectations. Management is looking forward to increased drilling activities in the ensuing quarters.
Dividend history
BreitBurn is a lucrative dividend stock with a history of increasing distributions quarter-over-quarter since 2010. The annualized amount is above the $1.00 threshold. This makes it attractive to investors looking for stocks with alternative earning opportunities aside from gains on the trading floor.
In 2010, the annualized dividend paid by BreitBurn was slightly less than $1.15 per share. This was raised to approximately $1.68 per share in 2011, or a remarkable increase of 47%. In 2012, however, the increase was reduced to 8.4% growth; the annualized dividend was $1.83 per share.
Nevertheless, investors can always look forward to an increase in dividend payout every quarter. In 2013, BreitBurn has already paid out quarterly dividend of $0.47 and $0.475 for the first and second quarters, respectively. BreitBurn has one of the highest yields within the master limited partnership (MLP) space with a projected yield of approximately 9.7%.
BreitBurn vs. similar companies
Although there are various upstream MLPs, one of BreitBurn’s close peers is Linn Energy LLC (NASDAQ:LINE). Linn Energy LLC (NASDAQ:LINE) is a mid-cap company with a market capitalization of $8.5 billion. Just like BreitBurn, Linn Energy LLC (NASDAQ:LINE) is a dividend MLP energy stock with a very attractive dividend history.
The annualized dividend Linn Energy LLC (NASDAQ:LINE) paid in 2012 was $2.89 per share, which is higher than BreitBurn’s distribution. In 2013, Linn Energy LLC (NASDAQ:LINE) has already paid out a total of $1.45 per share at slightly higher than $0.72 per quarter. Linn Energy LLC (NASDAQ:LINE) also failed to meet its distribution coverage at about 0.9x. However, there is a higher chance that Linn will go beyond the acceptable coverage ratio of 1.0. This is based on the fact that the company just acquired Berry Petroleum Company (NYSE:BRY).
Another MLP of similar market cap is Vanguard Natural Resources, LLC (NASDAQ:VNR). The company also engages in the acquisition and development of oil and natural-gas properties in the United States. Headquartered in Houston, Vanguard Natural Resources, LLC (NASDAQ:VNR) has proved reserves of 152.2 million boe, as well as interests in 2,266 net productive wells. Its yield is closer to that of BreitBurn. However, Vanguard Natural Resources is trading at twice the book value, whereas Breitburn is trading slightly above its book value.
Similar to Breitburn, Vanguard also has a hedging program that consists of derivative contracts at commodity prices. The company expects its production to almost double this year thanks to the recent Range Permian acquisition. The future growth potential makes it an attractive MLP. However, unlike typical MLPs the company does not have a general partner and it does pay incentive distribution rights.
While most other financial indicators are similar to Breitburn, one positive thing about Vanguard is the insider position. Insiders seem to be pretty bullish on the company, acquiring thousands of shares in recent months.
Bottom line
While BreitBurn has relatively higher yield than Linn Energy, it is least secure due to its hedging strategy. Energy companies like BreitBurn and Linn will normally hedge their gas and oil production to improve cash flow. Linn’s 100% hedging provides a better stability to the company.
Although there is nothing wrong with BreitBurn’s planned 50% hedging, this is a bit risky. In the event of declining prices, BreitBurn might find itself with insufficient cash flow, partly due to its un-hedged production. This makes it a risky play despite its quite lucrative dividend history.
The article This Dividend Stock Is a Bit Risky originally appeared on Fool.com.
Nur Tarkak has no position in any stocks mentioned. The Motley Fool recommends BreitBurn Energy Partners L.P. (NASDAQ:BBEP). Nur is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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