BBEP will not be 'bought out'...
You have to understand what you are dealing with here in a BBEP or LINE MLP (master limited partnerships). Publicly listed MLPs have not been around all that long and have very stringent requirements and parameters they must meet to qualify for special tax treatment. One of these parameters is the straight through distribution of income to holders of public record, or the common shareholders which creates a tax advantage for the general partnership. It is rare that one gets to trade them for share appreciation as they are normally a tax sheltered or straight income play.
Linn Energy (LINE NASD) is not going up as fast as Breitburn (BBEP-NASD) because it didn't go down as fast as BBEP...which was tremendously oversold below $5 a partnership common share. Coming up with a single intelligent reason as to why a general partnership such as LINE or BBEP would sell out after a huge decline in common share price totally escapes me as it would be a major disadvantage to almost everyone involved. If you hold BBEP for a year or so you will very likely achieve an appreciation in your common share price that would far exceed any offer of a 'buyout' at this level. So I'd strongly advise forgetting about a 'buyout' and base your investment decision on where you think the price of oil is going to be in 12-18 months. If you think it will be back up over $85-$90 BBL at some point during that time as I do (and as T. Boone Pickens does ;-)), then you can safely assume BBEP's share price will reflect that at somewhere between $13 and $19 a share or more.
RISK: The dividend has already been cut (and it's currently .0833 cents per MONTH not quarter as some would have you believe) and capital spending trimmed dramatically. The partnership has set up to operate without a further cut in the dividend assuming oil trading at an average price of $65 - $75 BBL over the next two years. I think the partnership is well positioned from that standpoint. There is, however a situation with their $2.5B credit facility which is currently tapped to almost $2.2B. This facility is reviewable annually in April and can be adjusted downward by the lender. If oil continues to decline in price into this spring and they felt lending to BBEP in the face of further declining crude and NG prices was too risky they could lower the credit limit to $2.2B and in effect shut them off. This could force BBEP to go to a much higher interest lender or (more likely) their shelf registration and issue more shares...thereby diluting those you might be holding. Worst case scenario, if there was a real crisis and an even more massive glut in crude reserves plunged the PPB say into the teens, the common holders are going to have their dividend clipped before the preferred holders...evidenced by what just happened in December. That could send the price of those already diluted shares even lower. The odds of that happening I believe to be extraordinarily remote...but it is still something that needs to be considered.
I recently bought a lot of shares but sold them all yesterday when the price approached (and then later eclipsed) $7. I dumped them not because I've lost faith in BBEP but because I believed a) the price had moved up too far too fast to be sustained, b) that the Fed was going to generally crush the market today with an announced interest rate hike (which I was wrong about) and c) I believe BBEP is in the process of forming a classic 'W' bottom. I expect the second upper leg of the 'W' to decline near to $5.15 to $5.25 before resuming a steady upward recovery movement near mid February. That being said, trying to guess a top and a bottom in a traded commodity like BBEP which is exposed to multiple market pressures is pretty stupid as a general practice and a great way to lose money. But here BBEP fit a very rare set of trading parameters I look for and I am trading it as if they are going to play out as many have for me in the past. If the common shares decline back below $5.30 over the next couple weeks my parameters will have been verified and I will begin repurchasing even more shares than last time. If BBEP soars on past $7 and out of sight, I will have missed the train. But to invest in BBEP hoping for a 'buyout'? A complete and total waste of time and a pointless investment strategy...all IMHO of course.
SBB
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