Welcome BreitBurn Energy Partners to the COT Fund

We are proud to announce that we have added BreitBurn Energy Partners [ticker BBEP] to the COT Fund. BreitBurn has picked up some recent analyst upgrades and with a reliable 10.2% dividend we felt it was a good addition to our list of MLP's. BreitBurn adds diversity to the MLP side of our portfolio as it focuses on the western portion of the U.S. yet still has holdings throughout the east.

Todd Johnson wrote on Seeking Alpha this week....Breitburn Energy Partners offers an enticing 10.2% dividend yield to retirees. The upstream master limited partnership (MLP) generates revenues via natural gas and oil production. I would like to highlight 3 reasons why this MLP has its financials in order to pay out reliable dividends. The 10.2% yield can't be ignored by retirees in the world of a 2.61% 30 Year Treasury Bond yield. Click here to read Todds entire article.

In May equities research analysts at Citigroup lifted their price target on shares of Breitburn Energy from $26.00 to $27.00. The analysts wrote, “BBEP announced on 05/10/2012 that it signed two separate purchase agreements to acquire oil and natural gas properties in the Permian Basin for a combined price of $220 million, subject to customary closing conditions. The acquisition is expected to close within 60 days from the date of the announcement and will be funded with the company’s revolving credit facility.”

BBEP has been the subject of a number of other recent research reports. Analysts at Global Hunter Securities initiated coverage on shares of Breitburn Energy in a research note to investors on Tuesday, April 17th. They set a “buy” rating and a $22.00 price target on the stock. Separately, analysts at Barclays Capital reiterated an “equal weight” rating on shares of Breitburn Energy in a research note to investors on Friday, March 30th. Finally, analysts at Deutsche Bank initiated coverage on shares of Breitburn Energy in a research note to investors on Tuesday, February 14th. They set a “hold” rating on the stock.

But just this week has been upgraded by TheStreet Ratings from hold to buy. With The StreetWire saying....The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, good cash flow from operations, impressive record of earnings per share growth and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins.

BreitBurn Energy Partners is an independent oil and gas limited partnership, focused on the acquisition, exploitation and development of oil and gas properties for the purpose of generating cash flow to make distributions to our unitholders. Our assets consist primarily of producing and non producing crude oil and natural gas reserves located in the Los Angeles Basin in California, the Wind River and Big Horn Basins in central Wyoming, the Powder River Basin in eastern Wyoming, the Evanston and Green River Basins in southwestern Wyoming, the Sunniland Trend in Florida, the Antrim Shale in Michigan, and the New Albany Shale in Indiana and Kentucky.

Historical Dividends

Declared	Ex-Date	Record	Payable	Amount	Type
Apr 19, 2012	May 3, 2012	May 7, 2012	May 14, 2012	0.4550	U.S. Currency
Jan 27, 2012	Feb 2, 2012	Feb 6, 2012	Feb 14, 2012	0.4500	U.S. Currency
Oct 28, 2011	Nov 7, 2011	Nov 9, 2011	Nov 14, 2011	0.4350	U.S. Currency
Jul 27, 2011	Aug 5, 2011	Aug 9, 2011	Aug 12, 2011	0.4225	U.S. Currency
Apr 28, 2011	May 6, 2011	May 10, 2011	May 13, 2011	0.4175	U.S. Currency
Jan 31, 2011	Feb 4, 2011	Feb 8, 2011	Feb 11, 2011	0.4125	U.S. Currency
Oct 29, 2010	Nov 5, 2010	Nov 9, 2010	Nov 12, 2010	0.3900	U.S. Currency
Jul 30, 2010	Aug 5, 2010	Aug 9, 2010	Aug 13, 2010	0.3825	U.S. Currency
Apr 28, 2010	May 6, 2010	May 10, 2010	May 14, 2010	0.3750	U.S. Currency
Jan 30, 2009	Feb 5, 2009	Feb 9, 2009	Feb 13, 2009	0.5200	U.S. Currency
Oct 29, 2008	Nov 6, 2008	Nov 10, 2008	Nov 14, 2008	0.5200	U.S. Currency
Aug 1, 2008	Aug 7, 2008	Aug 11, 2008	Aug 14, 2008	0.5200	U.S. Currency
Apr 28, 2008	May 7, 2008	May 9, 2008	May 15, 2008	0.5000	U.S. Currency
Jan 29, 2008	Feb 7, 2008	Feb 11, 2008	Feb 14, 2008	0.4525	U.S. Currency
Nov 1, 2007	Nov 7, 2007	Nov 12, 2007	Nov 14, 2007	0.4425	U.S. Currency
Jul 27, 2007	Aug 3, 2007	Aug 7, 2007	Aug 14, 2007	0.4225	U.S. Currency
Apr 26, 2007	May 3, 2007	May 7, 2007	May 15, 2007	0.4125	U.S. Currency
Jan 22, 2007	Feb 1, 2007	Feb 5, 2007	Feb 14, 2007	0.3990	U.S. Currency

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Who Offers the Highest Dividend Among the Offshore Drillers?

It's SeaDrill! As any of our regular readers know SeaDrill is a COT Fund favorite, today the guys at Power Hedge give us an insight into the SDRL business model.....

SeaDrill Ltd. (SDRL) currently offers the highest dividend yield of any major offshore drilling company. At the time of writing, SeaDrill pays an annualized dividend of $3.20 which gives the stock an 8.74% yield. Here is how that compares to other major offshore drilling companies:

click to enlarge images

Source: International Hedges

As we can see, SeaDrill is by far the highest-yielding dividend stock in the group. One reason for this lies with the company's financial model which is somewhat different than its peers. Most dividend-paying companies set their dividends at a level that management expects to be sustainable over an extended period of time. SeaDrill's philosophy, on the other hand, is summed up quite well by a statement given on page 21 of the company's annual report, "Our primary objective is to profitably grow our business to increase long term distributable cash flow per share to our shareholders." In effect, SeaDrill pays out a significant percentage of its operating cash flows to investors and finances its growth through debt.

This business model has worked out quite well for SeaDrill and its stockholders. SeaDrill's fleet has grown rapidly since 2005. In that year, the company's fleet consisted of five rigs. Since that time, the company's fleet has grown to 62 rigs at the end of March 2012.

Investors in the company have also been amply reward for their investment. SeaDrill began trading on the NYSE on April 15, 2010. However, the company began trading on the Oslo Børs exchange well before then. The company was listed on the exchange in 2005. Since that time, it has delivered a rather impressive run.

SeaDrill has also delivered substantial rewards to its shareholders in the form of dividends over the years. The company began paying dividends in the fourth quarter of 2007 according to SeaDrill's website.

The dividend has had significant volatility from year to year and even from quarter to quarter. This is because of the company's dividend philosophy which I mentioned earlier in this article. Essentially, the dividend tends to rise and fall with the company's operating cash flows.

It is because of this dividend philosophy that I believe that SeaDrill will increase its dividend going forward. SeaDrill generates most of its cash flows through the rigs that it manages. The company contracts out the rigs in its fleet to oil and gas companies to perform drilling operations in offshore locations all over the world. In exchange, the oil and gas companies pay a dayrate to SeaDrill for the use of these rigs.

The fundamentals for the offshore drilling industry are quite strong and getting stronger. In a recent article posted here on Seeking Alpha, I stated that dayrates are currently back up to the highest levels that were reached during the previous cycle. There is evidence that dayrates could climb even higher still. SeaDrill has 25 rigs that will be available to be contracted out between now and the end of 2014, excluding newbuilds, according to the company's most recent fleet status report. Nine of these units are ultra-deepwater floaters, per the company's fourth quarter press release. This is important because ultra-deepwater rigs carry the highest dayrates and the highest profits. As these rigs come off of their current contracts, SeaDrill should be able to obtain new contracts for these rigs at higher dayrates due to the prevailing tight market. This should increase the company's revenues and operating cash flows.

In addition to re-contracting out existing rigs, SeaDrill has a large newbuild program that is likely to increase the company's operating cash flows. SeaDrill has been on something of a building spree lately and has ordered four new rigs from shipyards since the beginning of April. The newly ordered rigs consist of one ultra deepwater drillship, one new tender assist rig, and two ultra deepwater semisubmersible rigs, one of which will belong to SeaDrill's 74%-owned subsidiary, North Atlantic Drilling (NATDF.PK). As SeaDrill stated on May 4, the company now has a total of eighteen rigs under construction. These rigs should significantly increase SeaDrill's operating cash flows upon leaving the shipyard. This is because these rigs will greatly increase the number of rigs that SeaDrill has contracted out and thus is able to generate revenues from.

SeaDrill looks very likely to increase its operating cash flows going forward. The combination of re-contracting out existing rigs at higher dayrates and fleet growth through newbuilds should ensure that SeaDrill will see strong growth in its cash flows through the current industry upcycle. As previously discussed, the company's philosophy is to return as much of its operating cash flows to investors as it reasonably can. Therefore, SeaDrill will likely boost its dividend even further going forward.

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