Recent Transaction - BreitBurn Energy Partners, L.P.

On Friday, the outstanding June $15 calls I had sold against my BreitBurn Energy Partners, L.P. (BBEP) units were exercised and the units called away. My profit on the position was $9,837.27, and the IRR for the position was 104% (beginning roughly a year and a half ago). The below chart shows the transaction history for the BBEP position.

BBEP is an oil and gas limited partnership that operates various oil and natural gas producing properties in the US. I began purchasing BBEP units in December of '08, and through April of '09 after the financial market crash. Oil and natural gas prices had plummeted due to concerns about the global economy, and many oil and gas companies faced liquidity crises. While BBEP's oil and gas production was substantially hedged at far higher prices than prevailing spot prices, BBEP's management announced a suspension of the company's distribution. In addition, the company was involved in a major lawsuit with its largest shareholder, Quicksilver Resources Inc., over control of the company (which has since been resolved), further compounding the market's pessimistic outlook. As a result, I was able to purchase BBEP units below fair value at a very low multiple of normalized cash flows.

As the credit markets stabilized and oil and gas prices began to recover, BBEP's unit price began to rise to a more rational level. In January of this year, when BBEP's unit price was in the mid $13s (a price I believed reflected a much more rational view of the company's future cash flow generation), I sold the June $15 calls against my units because of the substantial premium offered. My effective sale price, taking into account the call premium, was $15.90 before commissions. While the units certainly have some remaining upside and offer an attractive distribution yield at today's price (roughly 10%), I'm happy to look elsewhere for opportunities at this point.