Thesis:
BreitBurn Energy is a relatively unknown name, trading with an $878.75M market cap that offers a 9.3% dividend yield, and trades 8.9X free cash flow, making it one of the cheapest oil exploration stocks in the industry on a cash flow basis. It trades less than 200,000 shares a day on average, but there has been increased activity in the past two weeks. Shares have tripled since the 2009 lows, but are still trading 50% below 2007 highs around $30.
Overview:
BreitBurn Energy engages in the exploration and development of oil and gas properties in the United States. Its assets consists of crude oil and natural gas reserves primarily in the Antrim shale in Michigan, the Los Angeles Basin, the Wind River and Big Horn Basins in Wyoming, the Sunniland Trend in Florida, and the New Albany Shale in Indiana and Kentucky. The Company had 668 Bcfe estimated proven reserves as of the end of 2009, 91% proved developed, with a presence in 6 states (See Appendix). The Company sees gas as under-valued and is pursuing acquisitions.
Fundamentals:
BreitBurn shares trade 15X earnings, 0.66X book value, and 8.9X free cash flow with a 9.3% dividend yield. It has an EV/EBITDA of 7.25. In terms of price/book and price/free cash flow the stock is one of the top 5 valuations in an industry group that has more than 80 components. Profit Margins are near historic highs, while Debt/Equity is near a historic low. The Company has 85% of oil production hedged, and upside participation in 35% of 2010 production (See Appendix for Details). 2010 production guidance is split with 47% oil and 63% natural gas. With a coverage ratio of 1.4, dividend distributions are safe and recent credit facilities protect distributions for the long term.
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