01—Abstract
Summary
Summary of the 10-K filed March 28, 2013. Cited figures are marked; the original filing is the authoritative source.
Western Gas Equity Partners, LP (WGP) is a Delaware master limited partnership formed by Anadarko Petroleum Corporation to own partnership interests in Western Gas Partners, LP (WES).
Its only cash-generating assets are its interests in WES: a 2.0% general partner interest, 100% of the incentive distribution rights (IDRs), and a limited partner interest of 49,296,205 WES common units, or 46.2% of WES. WGP completed its initial public offering of 19,758,150 common units at $22.00a per unit on December 12, 2012, with Anadarko holding 91.0% of the limited partner interest. WGP has no independent operations, so its results closely track those of WES, which gathers, processes, treats and transports natural gas, NGLs, condensate and crude oil, largely for Anadarko.
For 2012, WES reported total revenues of $849.4 millionb, operating income of $147.5 million at WGP, and net income attributable to WGP of $34.0 million. Throughput attributable to WES rose 9% to 2,432 MMcf/d, and gross margin per Mcf attributable to WES averaged $0.55, a 5% decrease. Adjusted EBITDA attributable to WES was $327.7 million and distributable cash flow was $264.4 million, with a coverage ratio of 1.20x.
WES raised its quarterly distribution to $0.52c per unit for the fourth quarter of 2012, its fifteenth consecutive quarterly increase. WGP's initial estimated quarterly distribution is $0.165 per unit.
Investors should weigh the heavy reliance on Anadarko, which accounted for approximately 76% of WES's gathering, transportation and treating throughput and about 79% of its total revenues, along with the incentive-based and affiliate-related conflicts of interest. Growth depends on acquisitions from Anadarko and third parties and on expansion projects, including the Brasada and Lancaster plants, with expansion capital expenditures of $426.8 milliond in 2012 and 2013 total capital expenditures projected at $550 million to $600 million.
02—Key points
Key Highlights
- WGP's IPO closed December 12, 2012: 19,758,150 common units at $22.00 per unit, with $409.4 million of net proceeds used to buy WES common and general partner units.
- WGP's only cash-generating assets are its WES interests: 49,296,205 WES common units (46.2% limited partner interest), a 2.0% general partner interest, and 100% of the IDRs, which rise to a maximum of 48.0%.
- WES 2012 total revenues were $849.4 million, with throughput attributable to WES up 9% to 2,432 MMcf/d and gross margin per Mcf of $0.55.
- WES Adjusted EBITDA attributable to WES was $327.7 million and distributable cash flow was $264.4 million, a 1.20x coverage ratio on $220.5 million of declared distributions.
- WES raised its quarterly distribution to $0.52 per unit for Q4 2012, a 4% increase over Q3 2012 and an 18% increase over Q4 2011.
- Anadarko is the dominant counterparty: about 76% of WES's gathering, transportation and treating throughput and about 79% of total revenues were attributable to Anadarko, and Anadarko owns 91.0% of WGP.
- WES issued $670.0 million of 4.000% Senior Notes due 2022 and, in March 2013, completed acquisitions from Anadarko and Chesapeake, including a $465.5 million cash payment for the Liberty and Rome systems.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed March 28, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $894.48M$869.40M | +2.9% |
| Operating Expenses | $716.21M$624.11M | +14.8% |
| Operating Income | $194.31M$245.29M | −20.8% |
| Interest Expense | $42.06M$30.34M | +38.6% |
| Net Income | $61.38M$94.16M | −34.8% |
05—Questions
Frequently Asked Questions
What does WGP own, and how is its cash flow generated?
WGP owns a 2.0% general partner interest in WES through WES GP, 100% of WES's incentive distribution rights, and 49,296,205 WES common units representing a 46.2% limited partner interest. Its cash flow depends entirely on the distributions it receives from WES, and it has no independent operations.
How concentrated is WES's business with Anadarko?
Anadarko is WES's primary customer and was the only customer whose revenues exceeded 10% of consolidated revenues in each period presented. Approximately 76% of WES's gathering, transportation and treating throughput and 59% of its processing throughput in 2012 came from Anadarko-owned or controlled production, and approximately 79% of total revenues were attributable to Anadarko transactions.
What are the main risks to future distributions?
Key risks include the dependence on Anadarko's production and drilling, lower natural gas, NGL or oil prices, the expiration of some commodity price swap agreements with Anadarko beginning December 31, 2013, and the reliance on acquisitions and capital access. The filing also notes that distributions are not cumulative and that a reduction in WES distributions disproportionately reduces WGP's cash receipts because of the IDR structure.
How much debt and liquidity does WES have?
As of December 31, 2012, WES had $1,170.0 million of principal outstanding, consisting of $670.0 million of 4.000% Senior Notes due 2022 and $500.0 million of 5.375% Senior Notes due 2021. The $800.0 million WES revolving credit facility had no borrowings outstanding and $6.7 million of letters of credit, and WES reported $308.1 million of working capital.
What growth projects and acquisitions are planned?
WES is constructing the Brasada plant in South Texas, a 200 MMcf/d cryogenic facility expected to start in the second quarter of 2013, and the Lancaster plant in the DJ Basin, a 300 MMcf/d facility expected in the first quarter of 2014. Both have fee-based 10-year throughput commitments from Anadarko. WES's 2013 capital expenditure estimate is $550 million to $600 million, excluding acquisitions.
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