Rocked by the oil price crash and its own plummeting stock price, Breitburn Energy Partners has sliced its distributions to shareholders by just over 50 percent.
On Jan. 2, the Los Angeles oil and gas drilling partnership announced it was cutting its annualized distribution to shareholders to $1 from $2.08. The cutback took effect on Jan. 1 for the 2015 calendar year and was widely expected as energy company profits have plunged amid the global oil price crash.
Shareholder distributions are vital for Breitburn, which as a master limited partnership receives tax benefits in exchange for distributing the vast majority of its profits back to shareholders. The payouts are made monthly, which means at the new level, Breitburn unitholders will be receiving 8.3 cents a share each month.
Ironically, Breitburn had recently boosted its annualized distribution to $2.08 from $2.01 after its $2.8 billion purchase last summer of QR Energy of Houston.
In the last six months, the West Texas Intermediate crude oil benchmark price has dropped from roughly $100 a barrel to close Monday at $50 a barrel. Shares of Breitburn have fallen even more precipitously, dropping more than 70 percent since peaking at $23 a share on Sept. 2.
In a Business Journal article last month, Breitburn Chief Executive Hal Washburn said shareholders were punishing the company unfairly, not taking into account that the company has hedged the vast majority of its oil portfolio for 2014 and 2015 at prices exceeding $90 a barrel.
But analysts said that investors were pricing in an expected distribution cut, and last week, that cut finally came.
In announcing the cut, Washburn said, “Our decision today to reduce our common unit distribution was a difficult one but reflects our outlook for 2015 operating and financial performance measured against the ongoing weakness in commodity prices as well as our focus on financial flexibility throughout the year.”
Breitburn also announced it was cutting its annual capital expenditure budget to $200 million for this year from approximately $375 million last year.
The company announced the distribution cut after markets closed on Friday, Jan 2. On Monday, the first trading day since the announcement, shares fell by 11 percent to close at $6.82. Shares rose 1 percent Tuesday to close at $6.90.
