Investors Cool to BreitBurn Energy IPO, Opens Below Offering Price
Oil and gas producer BreitBurn Energy Partners LP encountered a cool reception from investors on its IPO debut Wednesday, the latest in a series of new energy stocks to face market resistance.
The Los Angeles-based company’s stock closed at $18.21 on the Nasdaq, down 1.6 percent from its initial public offering price of $18.50. BreitBurn sold six million limited partnership units, the equivalent of shares, at a price below its expected range of $19 to $21 a share.
BreitBurn, which owns reserves in California and Wyoming, is the 12th energy company to launch a public offering of limited partnership or limited liability shares. Unlike an ordinary corporation, limited partnerships tend to pay out all their available cash in the form of dividends; BreitBurn is planning an annual dividend of $1.65 a year, or a 9 percent yield.
The company said it would not have generated enough cash to pay that dividend in 2005 or in the 12 months that ended on June 30, but it believes it has sufficient cash to pay it for the next 12 months.
Four of the last five limited partnerships that have come public since July are now trading below their offering prices. BreitBurn says in its prospectus that a decline in oil and gas prices could decrease its cash flow, leading it to cut or eliminate its dividend, an ominous warning given that commodities prices are currently on the wane.
In the first six months of the year, BreitBurn’s revenue rose 35 percent to $50.3 million, compared with the same period in 2005. The company said that its revenue increased because 2006 included a full six months of production from Wyoming properties that it acquired, compared with just four months of production in the first half of 2005. Its income declined 24 percent to $8.9 million as expenses outpaced revenue growth, particularly for operating costs and general and administrative costs.
BreitBurn’s IPO was managed by underwriters RBC Capital Markets, a unit of Royal Bank of Canada, and Citigroup Inc.
