01—Abstract
Summary
Summary of the 10-K filed February 26, 2015. 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 whose only cash-generating assets are its partnership interests in Western Gas Partners, LP (WES): a 1.8%a general partner interest, 100% of the incentive distribution rights, and a 34.9% limited partner interest (49,296,205 common units) as of December 31, 2014.
WES gathers, processes, compresses, treats and transports natural gas, condensate, NGLs and crude oil, with approximately 80% of its services provided under long-term fee-based agreements and 99% of 2014 gross margin derived from fee-based contracts or hedged percent-of-proceeds and keep-whole contracts. Anadarko is the dominant customer, accounting for 76% of WES total revenues and 53% of throughput (excluding equity investment throughput and barrel-measured throughput) in 2014. For fiscal 2014, WGP reported total revenues of $1,273.8 millionb, operating income of $448.3 million, and net income attributable to WGP of $221.9 million, or $1.02 per common unit.
WES completed the $1.55 billionc acquisition of Delaware Basin Midstream (DBM) in November 2014, funded partly by $750.0 million of Class C units issued to an Anadarko subsidiary, and acquired Anadarko's TEFR interests in March 2014. WES's Adjusted EBITDA attributable to WES rose to $646.0 million and distributable cash flow to $531.1 million, supporting a WGP distribution increase to $0.31250 per unit for the fourth quarter of 2014. The partnership carries significant structural considerations for investors: WGP's distributions depend entirely on WES distributions, incentive distribution rights share up to 48.0% of incremental cash, Anadarko owns 88.3% of WGP common units and controls the general partner, and WES's commodity price swap agreements with Anadarko expired for several systems on December 31, 2014, with further expirations scheduled for June and September 2015.
02—Key points
Key Highlights
- WGP's sole cash-generating assets are its WES interests: 49,296,205 WES common units (34.9% LP interest), 2,583,068 general partner units (1.8%), and 100% of WES incentive distribution rights.
- Fiscal 2014 total revenues were $1,273.8 million, up from $1,029.8 million in 2013, and net income attributable to WGP was $221.9 million ($1.02 per common unit) versus $159.7 million in 2013.
- WES acquired Delaware Basin Midstream (DBM) in November 2014 for a purchase price of $1,553.9 million, financed with $750.0 million of Class C units issued to Anadarko, $475.0 million of borrowings and cash on hand.
- WES Adjusted EBITDA attributable to WES was $646.0 million in 2014 versus $457.8 million in 2013, and distributable cash flow was $531.1 million, providing 1.20x coverage of $442.1 million in declared distributions.
- WGP raised its quarterly distribution to $0.31250 per unit for the fourth quarter of 2014, a 7% increase over the third quarter and 35% over the fourth quarter of 2013; WES raised its distribution to $0.70 per unit.
- Anadarko owns 88.3% of WGP common units and controls the general partner, and it accounted for 76% of WES total revenues in 2014; WES commodity price swaps with Anadarko expired on December 31, 2014 for Hilight, Newcastle and Granger, with DJ Basin and Hugoton expiring in 2015.
- WES's Lancaster Plant Train II (300 MMcf/d) is expected to begin service in Q2 2015, and DBM Trains IV and V are scheduled for Q1 and mid-2016, respectively.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 26, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $1.53B$1.09B | +41.3% |
| Operating Expenses | $1.04B$784.88M | +32.5% |
| Operating Income | $551.48M$323.55M | +70.4% |
| Interest Expense | $76.77M$51.80M | +48.2% |
| Net Income | $288.02M$163.80M | +75.8% |
05—Questions
Frequently Asked Questions
What does WGP actually own, and how does its cash flow depend on Western Gas Partners?
WGP's only cash-generating assets are its partnership interests in WES: a 1.8% general partner interest through WES GP, 100% of the incentive distribution rights, and 49,296,205 WES common units representing a 34.9% limited partner interest as of December 31, 2014. WGP has no independent operations, so its distributions depend entirely on the cash WES distributes to its partners.
How much of WES's business depends on Anadarko?
For 2014, 76% of WES total revenues and 53% of throughput (excluding equity investment and barrel-measured throughput) were attributable to Anadarko. 48% of gathering, transportation and treating throughput and 57% of processing throughput came from Anadarko-owned or controlled production, and Anadarko is under no contractual obligation to maintain those volumes.
How did the DBM acquisition and related financing affect WES?
WES acquired Nuevo Midstream, renamed Delaware Basin Midstream (DBM), in November 2014 for a total purchase price of $1,553.9 million. It was financed with $750.0 million of Class C units issued to an Anadarko subsidiary at $68.72 per unit, $475.0 million of borrowings under WES's revolving credit facility, and cash on hand, including proceeds from a November 2014 equity offering. The Class C units convert to common units on December 31, 2017, unless converted earlier.
What are the main risks to future distributions?
Key risks include dependence on Anadarko's production and capital spending, expiration of commodity price swaps (DJ Basin on June 30, 2015 and Hugoton on September 30, 2015), the IDR structure which makes incremental WES distributions disproportionately benefit WGP but reductions hurt it disproportionately, and the fact that distributions are not cumulative. Management also notes that a decline in crude oil prices in 2015 will likely lead most customers, including Anadarko, to reduce capital expenditures.
What is the investor's effective yield and coverage picture for 2014?
WGP declared distributions of $1.125 per unit for 2014, with the quarterly distribution rising from $0.25000 in Q1 to $0.31250 in Q4. WES declared $2.65 per unit for 2014, with a 1.20x distributable cash flow coverage ratio on total distributions declared of $442.1 million, which includes $121.2 million to the general partner of WES.
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