01—Abstract
Summary
Summary of the 10-K filed February 23, 2017. Cited figures are marked; the original filing is the authoritative source.
Western Gas Equity Partners, LP (WGP) is a Delaware MLP formed by Anadarko to own its interests in Western Gas Partners, LP (WES), which is now Western Midstream Partners.
WGP's only cash-generating assets are a 1.5%a general partner interest in WES, 100% of WES's incentive distribution rights, and 50,132,046 WES common units, a 29.9% limited partner interest. WES gathers, compresses, treats, processes and transports natural gas, and gathers, stabilizes and transports condensate, NGLs and crude oil, primarily for Anadarko and third parties in the Rocky Mountains, North-central Pennsylvania and Texas. For 2016, 94% of WES's Adjusted gross margin was attributable to fee-based contracts, and 99% was derived from fee-based or hedged contracts.
Anadarko accounted for 68% of WES total revenues and 47% of throughput (excluding equity investment throughput) in 2016. Financially, WGP reported 2016 total revenues of $1.80 billionb, operating income of $704.5 million and net income attributable to WGP of $345.8 million, compared with $165.5 million in 2015, which included $515.5 million of impairments. WES Adjusted EBITDA rose to $1.03 billion from $907.6 million, and Distributable cash flow reached $852.4 million from $781.4 million, a coverage ratio of 1.29x.
WGP declared a fourth-quarter 2016 distribution of $0.46250c per unit, and WES declared $0.860 per unit. Major 2016 events included the $750.0 million Springfield acquisition from Anadarko, the issuance of $686.9 million of WES Series A Preferred units, and new senior notes.
Key risks include dependence on Anadarko, exposure to commodity prices as the WES commodity price swap agreements with Anadarko expire on December 31, 2017, and the expiration of the DJ Basin and MGR swaps. Subsequent events include WES's agreement to acquire WPZ's 50% interest in DBJV for $155.0 milliond in cash and a Consent and Conversion Agreement converting 50% of Series A Preferred units into common units on February 23, 2017, with the remainder on May 2, 2017.
02—Key points
Key Highlights
- 2016 total revenues were $1.80 billion and net income attributable to Western Gas Equity Partners, LP was $345.8 million, versus $165.5 million in 2015.
- WES Adjusted EBITDA was $1.03 billion for 2016 (2015: $907.6 million), and Distributable cash flow was $852.4 million, a coverage ratio of 1.29x.
- WGP's sole cash-generating assets are its WES partnership interests, including 100% of the incentive distribution rights, which capture up to 48.0% of incremental WES distributions.
- The Springfield acquisition from Anadarko for $750.0 million, funded partly by $686.9 million of net Series A Preferred unit proceeds, expanded WES's South Texas gathering footprint.
- Anadarko accounted for 68% of WES 2016 total revenues and 47% of throughput, and owns an 81.6% limited partner interest in WGP.
- WES commodity price swap agreements with Anadarko for the DJ Basin complex and MGR assets expire December 31, 2017, after which WES may face less favorable hedging terms.
- Fourth-quarter 2016 distributions were raised to $0.46250 per WGP unit and $0.860 per WES unit.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Western Midstream Partners kept $0.19.
- Revenue$1.80B100.0%
- Cost of revenue−$494.2M27.4%
- Gross profit$1.31B72.6%
- Operating costs−$605.5M33.6%
- Operating income$704.5M39.0%
- Interest, other & tax−$358.8M19.9%
- Net income$345.8M19.2%
Where FY2016 revenue went
$1.80B- Operating costs: $605.5M, 34% of revenue
- Cost of revenue: $494.2M, 27% of revenue
- Interest, other & tax: $358.8M, 20% of revenue
- Net income: $345.8M, 19% of revenue
Kept 19% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 23, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $1.80B$1.75B | +3.0% |
| Cost of Revenue | $494.19M— | — |
| Gross Profit | $1.31B— | — |
| Operating Expenses | $1.18B$1.73B | −31.6% |
| Operating Income | $704.53M$154.18M | +357.0% |
| Interest Expense | $116.63M$113.87M | +2.4% |
| Net Income | $345.77M$165.51M | +108.9% |
05—Questions
Frequently Asked Questions
How is WGP's cash flow tied to Western Gas Partners?
WGP's only cash-generating assets are its partnership interests in WES, so its distributions depend entirely on the cash WES distributes to its partners. WGP receives distributions on its 1.5% general partner interest, its 100% ownership of the IDRs and its 50,132,046 WES common units.
What drove the change in 2016 net income versus 2015?
2015 results included impairments of $515.5 million, mainly at the Red Desert complex and the Hilight system, whereas 2016 impairments were $15.5 million. Net income attributable to WGP rose to $345.8 million in 2016 from $165.5 million in 2015.
How much of WES's margin is protected from commodity price swings?
For 2016, 94% of WES Adjusted gross margin came from long-term, fee-based agreements. Together with hedged percent-of-proceeds and keep-whole contracts, 99% of Adjusted gross margin was derived from fee-based or hedged contracts.
What are the main risks to future distributions?
Key risks include dependence on Anadarko for a large share of throughput, the expiration of WES commodity price swap agreements with Anadarko on December 31, 2017, the possibility of further credit rating downgrades, and the potential dilution from conversions of Series A Preferred units into WES common units.
What subsequent events could change the partnership's structure or capital?
WES agreed to acquire WPZ's 50% non-operated interest in DBJV for $155.0 million in cash and its 33.75% interest in the Non-Operated Marcellus Interest systems. The Series A Preferred units will convert into common units, 50% on February 23, 2017 and the remainder on May 2, 2017, and Anadarko deferred the Class C unit conversion date to March 1, 2020.
06—Continue