Breitburn Energy Partners LP (NASDAQ:BBEP) today announced financial and operating results for the third quarter of 2014.

Key Highlights for the Third Quarter 2014:

  • Total production was 3.4 MMBoe, which represents an 8% increase from the third quarter of 2013
  • Total oil and natural gas liquids (NGL) production was 2.2 MMBoe, which represents a 14% increase from the third quarter of 2013
  • Increased Adjusted EBITDA, a non-GAAP financial measure, to a record quarterly high of $118.7 million, which represents a 6% increase from the third quarter of 2013
  • Declared cash distributions to our common unitholders attributable to the third quarter of 2014 of approximately $2.01 per unit on an annualized basis, which represents a 3% increase from the third quarter of 2013
  • In October, acquired ~4,600 gross (~3,700 net) acres in Howard County, increasing Breitburn’s Midland Basin gross surface acreage by ~25% and gross effective acreage by ~20%
    • Adds 32 potential horizontal locations to Breitburn's existing inventory and creates potential for at least 160 laterals (gross) on multiple benches

Management Commentary

Halbert S. Washburn, Breitburn’s Chief Executive Officer, said: “Our focus in the third quarter was on moving the pending QR Energy acquisition to closure, and as a result of our efforts, the QR Energy unitholder vote is scheduled for November 18th. As a reminder, certain QR Energy unitholders owning approximately 37% of the votes of the outstanding QRE units have agreed to vote in favor of the transaction. Based on the current schedule, we expect to close the transaction later this month, ahead of our original schedule. On the operations front, the team did a very good job adapting to a dynamic commodity price environment. Of note was the significant drop in LOE per Boe from last year’s, and last quarter’s, levels. Finally, with our recent bolt-on acquisition of contiguous acreage in Howard County, we continue our transition to a horizontal well program in the Permian. We believe our consolidated and expanded footprint will benefit us greatly as we evaluate our options for maximizing the long-term value of our Permian Basin acreage.”

Third Quarter 2014 Operating and Financial Results Compared to Second Quarter 2014

  • Total production was 3,353 MBoe in the third quarter of 2014 compared to 3,373 MBoe in the second quarter of 2014. Average daily production was 36.5 MBoe/day in the third quarter of 2014 compared to 37.1 MBoe/day in the second quarter of 2014.
    • Oil production increased to 1,904 MBbl compared to 1,901 MBbl in the second quarter of 2014
    • NGL production decreased to 253 MBbl compared to 279 MBbl in the second quarter of 2014
    • Natural gas production increased to 7,178 MMcf compared to 7,163 MMcf in the second quarter of 2014
  • Adjusted EBITDA was $118.7 million in the third quarter of 2014 compared to $110.0 million in the second quarter of 2014, which represents an 8% increase and a record quarterly high. The increase was primarily due to higher oil sales volumes and lower commodity derivative settlement payments, partially offset by lower commodity prices.
  • Net income attributable to common unitholders was $126.5 million, or $1.03 per diluted common unit, in the third quarter of 2014 compared to a net loss of $106.6 million, or $0.89 per diluted common unit, in the second quarter of 2014.
  • Oil, NGL and natural gas sales revenues were $216.1 million in the third quarter of 2014, compared to $219.1 million in the second quarter of 2014, primarily due to lower realized oil and natural gas prices partially offset by higher oil sales volumes.
  • Lease operating expenses, which include district expenses, processing fees and transportation costs, were $18.70 per Boe in the third quarter of 2014 compared to $21.03 per Boe in the second quarter of 2014.
  • General and administrative expenses, excluding non-cash unit-based compensation, were $3.85 per Boe in the third quarter of 2014 compared to $3.06 per Boe in the second quarter of 2014.
  • Gains on commodity derivative instruments were $146.2 million in the third quarter of 2014 compared to losses of $127.0 million in the second quarter of 2014, which primarily reflects decreases in oil and natural gas futures prices during the third quarter of 2014. Derivative instrument settlement payments were $3.7 million in the third quarter of 2014 compared to payments of $17.0 million in the second quarter of 2014.
  • WTI oil spot prices averaged $97.87 per barrel and Brent oil spot prices averaged $101.90 per barrel in the third quarter of 2014 compared to $103.35 per barrel and $109.69 per barrel, respectively, in the second quarter of 2014. Henry Hub natural gas spot prices averaged $3.96 per Mcf in the third quarter of 2014 compared to $4.61 per Mcf in the second quarter of 2014.
  • Realized crude oil, NGL, and natural gas prices, excluding the effects of commodity derivative settlements, averaged $90.12 per Bbl, $37.87 per Bbl and $4.12 per Mcf, respectively, in the third quarter of 2014, compared to $95.74 per Bbl, $38.26 per Bbl and $4.81 per Mcf, respectively, in the second quarter of 2014.
  • Oil, NGL and natural gas capital expenditures were $108.0 million in the third quarter of 2014 compared to $89.0 million in the second quarter of 2014.
  • Distributable cash flow, a non-GAAP financial measure, was $53.3 million in the third quarter of 2014 compared to $52.7 million in the second quarter of 2014. Distributable cash flow per common unit was approximately $0.390 in the third quarter of 2014, which includes the effect of our recent offering of 14.0 million common units in October 2014, compared to approximately $0.431 in the second quarter of 2014.

Impact of Derivative Instruments

Breitburn uses commodity derivative instruments to mitigate risks associated with commodity price volatility and to help maintain cash flows for operating activities, acquisitions, capital expenditures and distributions. Breitburn does not enter into derivative instruments for speculative trading purposes. Since Breitburn does not use hedge accounting to account for its derivative instruments, changes in the fair value of derivative instruments are recorded in Breitburn’s earnings during each reporting period. These non-cash changes in the fair value of derivatives do not affect Adjusted EBITDA, cash flow from operations, distributable cash flow or Breitburn’s ability to pay cash distributions for the reporting periods presented.

Total gains from commodity derivative instruments were approximately $146.2 million for the third quarter of 2014, which included payments of $3.7 million for derivative instruments that settled during the period.

Production, Statement of Operations, and Realized Price Information

The following table presents production, selected income statement and realized price information for the three months ended September 30, 2014 and 2013 and the three months ended June 30, 2014:

    Three Months Ended September 30,     June 30,     September 30, Thousands of dollars, except as indicated 2014   2014   2013   Oil sales $ 176,986 $ 173,948 $ 162,709 NGL sales 9,582 10,675 7,888 Natural gas sales 29,578 34,428 26,816 Gain (loss) on commodity derivative instruments 146,171 (127,000 ) (54,765 ) Other revenues, net 1,585   1,071   737   Total revenues $ 363,902   $ 93,122   $ 143,385   Lease operating expenses and processing fees (a) $ 62,714 $ 70,923 $ 58,731 Production and property taxes (b) 16,327   16,001   14,476   Total lease operating expenses 79,041   86,924   73,207   Purchases and other operating costs 102 110 226 Change in inventory 3,761   (3,974 ) (4,931 ) Total operating costs $ 82,904   $ 83,060   $ 68,502   Lease operating expenses, pre taxes, per Boe (a) $ 18.70 $ 21.03 $ 18.96 Production and property taxes per Boe (b) 4.87   4.74   4.67   Total lease operating expenses per Boe $ 23.57   $ 25.77   $ 23.63   General and administrative expenses (excluding non-cash unit-based compensation) $ 12,908   $ 10,322   $ 11,227   Net income (loss) $ 130,643 $ (104,725 ) $ (25,011 ) Less: distributions to preferred unitholders 4,125   1,833   —   Net income (loss) attributable to common unitholders $ 126,518 $ (106,558 ) $ (25,011 )   Total production (MBoe) (c) 3,353 3,373 3,098 Oil (MBbl) 1,904 1,901 1,681 NGLs (MBbl) 253 279 206 Natural gas (MMcf) 7,178 7,163 7,258 Average daily production (Boe/d) 36,450   37,069   33,674   Sales volumes (MBoe) (d) 3,412   3,289   3,027   Average realized sales price (per Boe) (e) (f) $ 63.33 $ 66.59 $ 65.14 Oil (per Bbl) (e) (f) 90.12 95.74 100.94 NGLs (per Bbl) (e) 37.87 38.26 38.11 Natural gas (per Mcf) (e) $ 4.12   $ 4.81   $ 3.69   (a) Includes district expenses, transportation expenses and processing fees. (b) Includes ad valorem and severance taxes. (c) Natural gas is converted on the basis of six Mcf of gas per one Bbl of oil equivalent. This ratio reflects an energy content equivalency and not a price or revenue equivalency. Given commodity price disparities, the price for a Bbl of oil equivalent for natural gas is significantly less than the price for a Bbl of oil. (d) Oil sales were 1,964 MBbl, 1,817 MBbl and 1,610 MBbl for the three months ended September 30, 2014, June 30, 2014 and September 30, 2013, respectively. (e) Excludes the effect of commodity derivative settlements. (f) Includes oil purchases.

Non-GAAP Financial Measures

This press release, the financial tables and other supplemental information, including the reconciliations of certain non-generally accepted accounting principles (“non-GAAP”) measures to their nearest comparable generally accepted accounting principles (“GAAP”) measures, may be used periodically by management when discussing Breitburn’s financial results with investors and analysts, and they are also available at www.breitburn.com.

Among the non-GAAP financial measures used are “Adjusted EBITDA” and “distributable cash flow.” These non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income, operating income, cash flow from operating activities or any other GAAP measure of liquidity or financial performance. Management believes that these non-GAAP financial measures enhance comparability to prior periods.

Adjusted EBITDA is presented because management believes it provides additional information relative to the performance of Breitburn’s assets, without regard to financing methods or capital structure. Distributable cash flow is used by management as a tool to measure the cash distributions we could pay to our unitholders. This financial measure indicates to investors whether or not we are generating cash flow at a level that can support our distribution rate to our unitholders. These non-GAAP financial measures may not be comparable to similarly titled measures of other publicly traded partnerships or limited liability companies because all companies may not calculate Adjusted EBITDA or distributable cash flow in the same manner.

Adjusted EBITDA

The following table presents a reconciliation of net income (loss) and net cash flows from operating activities, our most directly comparable GAAP financial performance and liquidity measures, to Adjusted EBITDA for each of the periods indicated.

  Three Months Ended   September 30,   June 30,   September 30, Thousands of dollars, except as indicated 2014   2014   2013   Reconciliation of net income (loss) to Adjusted EBITDA: Net income (loss) $ 130,643 $ (104,725 ) $ (25,011 ) Loss (gain) on commodity derivative instruments (146,171 ) 127,000 54,765 Commodity derivative instrument settlements (a) (b) (3,704 ) (17,024 ) (6,323 ) Depletion, depreciation and amortization expense 72,671 68,245 59,764 Impairment 29,434 — 361

 

Interest expense and other financing costs 29,494 30,208 23,548 Loss (gain) on sale of assets (63 ) 334 77 Income tax expense (benefit) 532 (159 ) 24 Unit-based compensation expense (c) 5,829   6,098   4,889  

Adjusted EBITDA

$ 118,665 $ 109,977 $ 112,094 Less: Maintenance capital (d) $ 33,434 $ 26,999 $ 25,782 Cash interest expense 27,849 28,399 21,747 Distributions to preferred unitholders 4,125   1,833   —   Distributable cash flow available to common unitholders $ 53,257   $ 52,746   $ 64,565   Distributable cash flow available per common unit (e) (f) 0.390 0.431 0.636 Common unit distribution coverage (f)

0.78

x

0.86

x

1.30

x

 

Reconciliation of net cash flows from operating activities to Adjusted EBITDA:

  Net cash provided by operating activities $ 103,807 $ 74,798 $ 69,520 Increase (decrease) in assets net of liabilities relating to operating activities (13,160 ) 7,300 20,663 Interest expense (g) 27,729 28,178 21,721 Income from equity affiliates, net 191 (388 ) 121 Incentive compensation expense (h) — — Income taxes 98   89   69   Adjusted EBITDA $ 118,665   $ 109,977   $ 112,094    

(a) Excludes premiums paid at contract inception related to those derivative contracts that settled during the periods of:

2,141

2,118

1,233

(b) Includes net cash settlements on derivative instruments:

- Oil settlements paid of:

(7,940

)

(18,125

)

(17,906

)

- Natural gas settlements received of:

4,236

1,101

11,583

(c) Represents non-cash long-term unit-based incentive compensation expense.

(d) Maintenance Capital is management's estimate of the investment in capital projects and obligatory spending on existing facilities and operations needed to hold production approximately flat year over year.

(e) Includes common units outstanding (including outstanding LTIP grants) at each distribution record date.

(f) Third quarter 2014 includes the effect of the offering of 14 million common units in October 2014.

(g) Excludes amortization of debt issuance costs and amortization of senior note discount/premium.

(h) Represents cash-based incentive compensation plan expense.

 

Hedge Portfolio Summary

The table below summarizes Breitburn’s commodity derivative hedge portfolio as of November 4, 2014. Please refer to the updated Commodity Price Protection Portfolio at www.breitburn.com for additional details related to our hedge portfolio.

  Year

2014

   

2015

   

2016

   

2017

   

2018

Oil Positions:

        Fixed Price Swaps - NYMEX WTI Hedged Volume (Bbls/d) 14,811 13,059 9,211 7,971 493 Average Price ($/Bbl) $ 92.59 $ 93.05 $ 86.73 $ 84.23 $ 82.20 Fixed Price Swaps - ICE Brent Hedged Volume (Bbls/d) 4,950 3,374 4,300 298 — Average Price ($/Bbl) $ 98.89 $ 97.89 $ 95.17 $ 97.50 $ — Collars - NYMEX WTI Hedged Volume (Bbls/d) 1,000 1,000 — — — Average Floor Price ($/Bbl) $ 90.00 $ 90.00 $ — $ — $ — Average Ceiling Price ($/Bbl) $ 112.00 $ 113.50 $ — $ — $ — Collars - ICE Brent Hedged Volume (Bbls/d) — 500 500 — — Average Floor Price ($/Bbl) $ — $ 90.00 $ 90.00 $ — $ — Average Ceiling Price ($/Bbl) $ — $ 109.50 $ 101.25 $ — $ — Puts - NYMEX WTI Hedged Volume (Bbls/d) 500 500 1,000 — — Average Price ($/Bbl) $ 90.00 $ 90.00 $ 90.00 $ — $ — Total: Hedged Volume (Bbls/d) 21,261 18,433 15,011 8,269 493 Average Price ($/Bbl) $ 93.87 $ 93.61 $ 89.48 $ 84.71 $ 82.20  

Gas Positions:

Fixed Price Swaps - MichCon City-Gate Hedged Volume (MMBtu/d) 7,500 7,500 17,000 10,000 — Average Price ($/MMBtu) $ 6.00 $ 6.00 $ 4.46 $ 4.48 $ — Fixed Price Swaps - Henry Hub Hedged Volume (MMBtu/d) 41,600 47,700 24,700 8,571 1,870 Average Price ($/MMBtu) $ 4.75 $ 4.77 $ 4.23 $ 4.39 $ 4.15 Puts - Henry Hub Hedged Volume (MMBtu/d) 6,000 1,500 — — — Average Price ($/MMBtu) $ 5.00 $ 5.00 $ — $ — $ — Total: Hedged Volume (MMBtu/d) 55,100 56,700 41,700 18,571 1,870 Average Price ($/MMBtu) $ 4.95 $ 4.94 $ 4.32 $ 4.44 $ 4.15   Calls - Henry Hub Hedged Volume (MMBtu/d) 15,000 — — — — Average Price ($/MMBtu) $ 9.00 $ — $ — $ — $ — Deferred Premium ($/MMBtu) $ 0.12 $ — $ — $ — $ —   Premiums paid in 2012 related to oil and natural gas derivatives to be settled in the fourth quarter of 2014 and beyond are as follows:   Year Thousands of dollars 2014   2015   2016   2017   2018 Oil $ 1,129 $ 4,683 $ 7,438 $ 734 $ — Natural gas $ 1,012 $ 1,989 $ 952 $ — $

 

Other Information

Breitburn will host a conference call later today, Wednesday, November 5, 2014, at 1:00 pm (EDT) to discuss Breitburn’s third quarter results. The conference call may be accessed by calling 888-401-4668 (international callers dial 719-457-2664) or via webcast at http://ir.breitburn.com/. An archived edition of the conference call will also be available through November 12th by calling 877-870-5176 (international callers dial 858-384-5517) and entering replay PIN 6782123 or by visiting http://ir.breitburn.com/. Breitburn will take questions from securities analysts and institutional portfolio managers; the call is open to all other interested parties on a listen-only basis.

About Breitburn Energy Partners LP

Breitburn Energy Partners LP is a publicly traded independent oil and gas master limited partnership focused on the acquisition, development, and production of oil and gas properties throughout the United States. Breitburn’s producing and non-producing crude oil and natural gas reserves are located in Michigan, Oklahoma, Texas, Wyoming, California, Florida, Indiana and Kentucky. See www.breitburn.com for more information.

Additional Information about the Proposed Transactions and Where to Find It

In connection with the previously announced merger with QR Energy, LP (proposed transaction), Breitburn has filed with the SEC a registration statement on Form S-4 that includes a prospectus of Breitburn and a proxy statement of QR Energy. Each of Breitburn and QR Energy also filed other relevant documents with the SEC regarding the proposed transaction. INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE THEY CONTAIN IMPORTANT INFORMATION. You may obtain a free copy of the proxy statement/prospectus and other relevant documents filed by Breitburn and QR Energy with the SEC at the SEC’s website at www.sec.gov. You may also obtain these documents by contacting Breitburn Investor Relations in writing at 515 S. Flower Street, Suite 4800, Los Angeles, CA, 90071, or via e-mail by using the “Contact Form” located at the Investor Relations tab at www.breitburn.com or by calling (213) 225-0390; or by contacting QR Energy Investor Relations in writing at 1401 McKinney Street, Suite 2400, Houston, TX 77010, or via e-mail at ir@qracq.com or by calling (713) 452-2990.

Participants in the Solicitation

Breitburn and QR Energy and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information about Breitburn’s directors and executive officers is available in Breitburn’s proxy statement dated April 25, 2014, for its 2014 Annual Meeting of Unitholders. Information about QR Energy’s directors and executive officers is available in QR Energy’s proxy statement dated February 3, 2014, for its Special Meeting of Unitholders held on March 10, 2014. Other information regarding the participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the proxy statement/prospectus and other relevant materials that have been filed with the SEC regarding the proposed transaction. Investors should read the proxy statement/prospectus carefully before making any voting or investment decisions. You may obtain free copies of these documents from Breitburn or QR Energy using the sources indicated above.

This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.

Cautionary Statement Regarding Forward-Looking Information

This press release contains statements that Breitburn believes to be “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements other than historical facts, including, without limitation, statements regarding the expected benefits of the proposed transaction to Breitburn and QR Energy and their unitholders, the anticipated completion of the proposed transaction or the timing thereof, the expected future reserves, production, financial position, business strategy, revenues, earnings, costs, capital expenditures and debt levels of the combined company, and plans and objectives of management for future operations, are forward-looking statements. When used in this press release, words such as we “may,” “can,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “project,” “believe,” “will” or “should” or the negative thereof or variations thereon or similar terminology are generally intended to identify forward-looking statements. It is uncertain whether the events anticipated will transpire, or if they do occur what impact they will have on the results of operations and financial condition of Breitburn, QR Energy or of the combined company. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, such statements.

These risks and uncertainties include, but are not limited to: the ability to obtain unitholder, court and regulatory approvals of the proposed transaction; the ability to complete the proposed transaction on anticipated terms and timetable; Breitburn’s and QR Energy’s ability to integrate successfully after completion of the proposed transaction and achieve anticipated benefits from the proposed transaction; the possibility that various closing conditions for the proposed transaction may not be satisfied or waived; risks relating to any unforeseen liabilities of Breitburn or QR Energy; declines in oil, NGL or natural gas prices; the level of success in exploitation, development and production activities; adverse weather conditions that may negatively impact development or production activities; the timing of exploitation and development expenditures; the ability to obtain sufficient quantities of CO2 necessary to carry out EOR projects; inaccuracies of reserve estimates or assumptions underlying them; revisions to reserve estimates as a result of changes in commodity prices; impacts to financial statements as a result of impairment write-downs; risks related to level of indebtedness and periodic redeterminations of the borrowing base under Breitburn’s credit agreement; ability to generate sufficient cash flows from operations to meet the internally funded portion of any capital expenditures budget; ability to obtain external capital to finance exploitation and development operations and acquisitions; federal, state and local initiatives and efforts relating to the regulation of hydraulic fracturing; the ability to successfully complete potential asset dispositions and the risks related thereto; the impacts of hedging on results of operations; failure of properties to yield oil or natural gas in commercially viable quantities; uninsured or underinsured losses resulting from oil and natural gas operations; inability to access oil and natural gas markets due to market conditions or operational impediments; the impact and costs of compliance with laws and regulations governing oil and gas operations; ability to replace oil and natural gas reserves; any loss of senior management or technical personnel; competition in the oil and natural gas industry; risks arising out of hedging transactions; and other risks described under the caption “Risk Factors” in Breitburn’s and QR Energy’s respective Annual Reports on Form 10-K for the period ended December 31, 2013. Breitburn assumes no obligation, and disclaim any duty, to update the forward-looking statements in this press release to reflect subsequent events or circumstances.

BBEP-IR

       

Breitburn Energy Partners LP and Subsidiaries

Unaudited Consolidated Balance Sheets

    September 30, December 31, Thousands of dollars 2014 2013  

ASSETS

Current assets

Cash $ 3,227 $ 2,458 Accounts and other receivables, net 98,360 96,862 Derivative instruments 44,256 7,914 Related party receivables 1,509 2,604 Inventory 4,418 3,890 Prepaid expenses 3,831   3,334   Total current assets 155,601 117,062

Equity investments

6,551 6,641

Property, plant and equipment

Oil and gas properties 5,102,392 4,818,639 Other assets 36,138   21,338   5,138,530 4,839,977 Accumulated depletion and depreciation (1,148,185 ) (924,601 ) Net property, plant and equipment 3,990,345 3,915,376

Other long-term assets

Intangibles, net 9,286 11,679 Derivative instruments 25,863 71,319 Other long-term assets 76,008 74,205            

Total assets

$ 4,263,654   $ 4,196,282    

LIABILITIES AND EQUITY

Current liabilities

Accounts payable $ 64,199 $ 69,809 Derivative instruments 7 24,876 Distributions payable 733 — Revenue and royalties payable 32,401 26,233 Wages and salaries payable 12,173 15,359 Accrued interest payable 42,856 19,690 Accrued liabilities 32,604   26,922   Total current liabilities 184,973 182,889   Credit facility 719,000 733,000 Senior notes, net 1,156,589 1,156,675 Deferred income taxes 2,902 2,749 Asset retirement obligation 133,216 123,769 Derivative instruments 5,145 2,560 Other long-term liabilities 5,530   4,820   Total liabilities 2,207,355 2,206,462  

Equity

Series A preferred units, 8.0 million units issued and outstanding at September 30, 2014 and 0 at December 31, 2013 193,215 — Common units, 120.5 million units issued and outstanding at September 30, 2014 and 119.2 million at December 31, 2013 1,863,084   1,989,820   Total equity 2,056,299 1,989,820        

Total liabilities and equity

$ 4,263,654   $ 4,196,282          

Breitburn Energy Partners LP and Subsidiaries

Unaudited Consolidated Statements of Operations

    Three Months Ended Nine Months Ended September 30, September 30, Thousands of dollars, except per unit amounts 2014     2013   2014     2013     Revenues and other income items Oil, natural gas and natural gas liquid sales $ 216,146 $ 197,413 $ 658,753 $ 467,061 Gain (loss) on commodity derivative instruments, net 146,171 (54,765 ) (21,057 ) (11,948 ) Other revenue, net 1,585   737   4,240   2,197   Total revenues and other income items 363,902 143,385 641,936 457,310 Operating costs and expenses Operating costs 82,904 68,502 248,161 181,889 Depletion, depreciation and amortization 72,671 59,764 204,417 154,095 Impairments 29,434 361 29,434 361 General and administrative expenses 18,737 16,116 53,886 44,695 Loss (gain) on sale of assets (63 ) 77   357   139   Total operating costs and expenses 203,683   144,820   536,255   381,179    

Operating income (loss)

160,219 (1,435 ) 105,681 76,131   Interest expense, net of capitalized interest 29,494 23,548 90,360 60,387 Other expense (income), net (450 ) 4   (1,223 ) (5 ) Total other expense 29,044   23,552   89,137   60,382    

Income (loss) before taxes

131,175 (24,987 ) 16,544 15,749  

Income tax expense

532   24   384   628    

Net income (loss)

130,643 (25,011 ) 16,160 15,121  

Less: distributions to preferred unitholders

4,125   —   5,958   —    

Net income (loss) attributable to common unitholders

$ 126,518   $ (25,011 ) $ 10,202   $ 15,121     Basic net income (loss) per common unit $ 1.03   $ (0.25 ) $ 0.08   $ 0.15   Diluted net income (loss) per common unit $ 1.03   $ (0.25 ) $ 0.08   $ 0.15      

Breitburn Energy Partners LP and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

    Nine Months Ended September 30, Thousands of dollars 2014     2013    

Cash flows from operating activities

Net income $ 16,160 $ 15,121 Adjustments to reconcile to cash flows from operating activities: Depletion, depreciation and amortization 204,417 154,095 Impairments 29,434 361 Unit-based compensation expense 18,440 14,700 Loss on derivative instruments 21,057 11,948 Derivative instrument settlement receipts (payments) (34,228 ) 3,633 Income from equity affiliates, net 90 (122 ) Deferred income taxes 153 252 Loss on sale of assets 357 139 Other 5,172 3,989 Changes in net assets and liabilities Accounts receivable and other assets (3,345 ) (62,882 ) Inventory (528 ) (8,032 ) Net change in related party receivables and payables 1,095 883 Accounts payable and other liabilities 36,642   32,857   Net cash provided by operating activities 294,916   166,942  

Cash flows from investing activities

Property acquisitions (6,422 ) (861,601 ) Capital expenditures (293,275 ) (191,472 ) Proceeds from sale of assets 366 226 Other (9,242 ) —   Net cash used in investing activities (308,573 ) (1,052,847 )

Cash flows from financing activities

Proceeds from issuance of preferred units, net 193,215 — Proceeds from issuance of common units, net 25,917 285,011 Distributions to preferred unitholders (5,225 ) — Distributions to common unitholders (181,430 ) (137,447 ) Proceeds from long-term debt 693,000 1,381,000 Repayments of long-term debt (707,000 ) (636,000 ) Change in bank overdraft (2,417 ) (316 ) Debt issuance costs (1,634 ) (8,032 ) Net cash provided by financing activities 14,426   884,216  

Increase (decrease) in cash

769 (1,689 )

Cash beginning of period

2,458   4,507  

Cash end of period

$ 3,227   $ 2,818  

Breitburn Energy Partners LPAntonio D'AmicoVice President, Investor Relations & Government AffairsorJessica Tang, 213-225-0390Investor Relations Manager