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Breitburn (BBEP) management up to its old tricks!

February 7, 2013

I can’t resist posting about this even if I sold my remaining units some three weeks ago. I knew it would happen. These guys are soooo predictable. As soon as the units begin trading at a reasonable price they announce a secondary offering. They just did it again last night. I sold because I was afraid they just couldn’t help themselves. And, yep, I was right. No wonder BBEP trades at a lower valuation and has a higher yield than other similar MLPs. Management is loath to let unit holders get any capital gains. They just want to grow the business so they can get MORE and MORE FEE INCOME for themselves. I did miss $0.50-$0.75 of upside on my trade, but I’m happy to be done with these guys.

From → Positions Closed

  1. Peter Brotchie permalink

    I think you have the right mind set about this. I sold my LINE in Dec. 2010 at about these same levels for exactly the same reason…and more. When LINE started out they were buying long lived low risk assets and growing the dividend and earnings by arbitraging the contango in the 5 year strip against the purchase price of the long lived asset. They rightly thought shale drilling was much too capital intensive and risky. I liked the fact that management was not getting all kinds of IDR’s automatically.
    It did not take too long before they were buying riskier assets and constantly diluting shareholders by doing seemingly constant secondary’s. Although the price has held up and I could have been receiving the 6-7% yield for the last 2 years, it was a much riskier asset than when I bought it ( some shares were bought with a 25% +/-yield) and no margin of safety. From my point of view, the remaining or recent investor in LINE has basically been getting a junk bond kind of instrument with an equity’s position in the capital structure where the appreciation is capped/managed by the management ( Although I must confess that I have only glanced at the press releases and progress since selling it….but that seems to have been enough)

  2. Ruyiswick permalink

    it’s all about yield in the MLPs; if they yield is above 10%, buy; if it is below 8%, sell, end of story
    you sold breits? great. now buy NRP and hold until its yield hits 8%, then sell that and find another double-digit yielder

  3. Ruyiswick,
    I think you didn’t quite get what I meant. I’m not trading MLPs. This was a special situation for me; I purchased in 2008/9 when BBEP suspended its distribution because of financing issues. I was anticipating that the units would trade back up to book value as the distributions were reinstated. Instead, management has kept diluting BV over the past two years with secondaries without fully reinstated the previous level of distributions; Distributions are still below pre 2008 levels. Almost 2 years ago units traded within 85% of book (when book value was higher); I should have understood sooner that the dilution from secondary offerings meant that management no longer targeted the same return on assets they were getting prior to 2009. That was my point. Sorry if I didn’t make it clearer.

    • Ruyiswick permalink

      “I should have understood sooner that the dilution from secondary offerings meant that management no longer targeted the same return on assets they were getting prior to 2009”

      that’s significant. thank you.

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  1. That fish don’t fly and MLPs ain’t equity | Mallet's Conspiracy

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