More than 25 years ago, Stanford University petroleum engineering graduates Halbert S. Washburn and Randall H. Breitenbach had a brainstorm.
The major U.S. oil companies were abandoning oil fields nationwide for cheaper crude opportunities abroad. Why not form a company to fill the void by buying existing oil fields at low cost and extracting all of the crude that remained in the fields the industry giants had left behind?
So they formed BreitBurn Energy Partners, now based in downtown Los Angeles.
Even today, said Washburn, the company’s chief executive, “we don’t explore for new wells.” Instead, the company acquires existing oil fields still flush with reserves.
Some of the company’s earliest acquisitions included the old West Pico Unit of the Beverly Hills East Oil Field, just south of Beverly Hills. It is part of one of the oldest continuously operating oil fields in the U.S., first tapped 113 years ago.
“We thought we could build a company and create a lot of value for investors by using newly developed tools to increase production and cash flow in older wells,” Washburn said. “That has been our thesis, and it remains our strategy today.”
Breitenbach no longer serves as co-chief executive but remains with the company as vice chairman.
From its 2006 initial public offering, the company used the $100 million it netted in proceeds to boost acquisitions. Today, BreitBurn Energy Partners has become a player at the smaller end of the scale of oil production in the U.S.
With a market value of about $1.8 billion, it is much smaller than such giants as Chevron Corp. in San Ramon, Calif., which is valued at $232.6 billion.
BreitBurn has about 500 employees operating wells in California, Florida, Indiana, Kentucky, Michigan, Oklahoma, Texas and Wyoming.
BreitBurn has been on a roll. In August, the company said it had increased total net production to a quarterly record of 2.45 million barrels of oil a day, up 26% over the second quarter last year.
For the quarter that ended June 30, the company earned $76.4 million, a turnaround from a $36.3-million loss for the same quarter a year earlier.
In July, BreitBurn boosted production in the Oklahoma panhandle by buying oil properties and related assets from Whiting Oil and Gas Corp. and others for $876 million.
BreitBurn Energy is one of the companies that has brought an increasing amount of sophistication to the search for oil in older wells by finding new ways to locate and extract oil.
BreitBurn Energy uses relatively recent advances in computer technology and sophisticated software to analyze seismic data and provide 3-D images of subsurface rock formations.
It’s a process that allows engineers to pinpoint oil and gas reservoirs in existing oil fields that previous owners couldn’t find or didn’t exploit. The technique lowers the risk in exploring by allowing scientists to locate and identify the best locations to drill.
On computer screens at the company’s headquarters, for example, 3-D models show exactly where the most likely sources of oil are, eliminating much of the guesswork.
The technologies have given BreitBurn engineers “the ability to make the ground below seem transparent,” said Jonathan G. Kuespert, BreitBurn’s senior geoscience advisor.
BreitBurn faces stiff competition in its attempts to acquire new oil fields. Some of BreitBurn’s most important employees are dedicated to assessing potential acquisition deals, Washburn said, and the number of deals that actually pan out is extremely small.
Last year, the company looked at 500 potential acquisitions and wound up making seven. The year before, three deals panned out, out of 300.
Washburn said the numbers showed an increasing level of competition for the best opportunities. “It’s a very robust and competitive marketplace,” Washburn said.
California and its high taxes and high cost of living also make operating here difficult. All of the company’s growth, in terms of new employees, has been in BreitBurn’s Houston office.
“We struggled for years to build technical and operating teams here in California. About a decade ago, we gave up,” Washburn said. “When we are hiring new people, we are hiring them in Houston.”
Of the 15 analysts who follow BreitBurn, nine rate the stock as a strong buy. Three others rate it as a buy, and three recommend holding it.
Bret Jensen, chief investment strategist for Simplified Asset Management, likes that the company has increased distribution payouts for 13 straight quarters.
Alpha Street Research, however, suggested that future earnings are suspect.
Oppenheimer and Co. took a broader view in a recent note to investors, saying BreitBurn’s “long-term growth outlook remains intact.”