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Western Midstream Partners Annual Report, Year Ended Dec 31, 2017

Filing Date
Filed February 16, 2018
Period End
December 31, 2017
Security
WES
One revenue dollarkept$0.22
In the record · 2016–202610-K1210-Q368-K108

WES filed 12 annual reports (10-K), 36 quarterly reports (10-Q) and 108 current reports (8-K) between 2016 and 2026.

  1. Deal closed8-K · Mar ’19Mar ’19
  2. Leadership change8-K · Sep ’20Sep ’20
  3. Leadership change8-K · Aug ’22Aug ’22
  4. Material agreement8-K · Jun ’26Jun ’26

01—Abstract

Summary

Summary of the 10-K filed February 16, 2018. Cited figures are marked; the original filing is the authoritative source.

Western Gas Equity Partners, LP (WGP) is a Delaware MLP formed by Anadarko whose only cash-generating assets are its partnership interests in Western Gas Partners, LP (WES): 50,132,046 WES common units (a 29.8%a limited partner interest), a 1.5% general partner interest held through WES GP, and 100% of WES's incentive distribution rights.

WES is a midstream MLP providing gathering, compressing, treating, processing and transporting natural gas, plus gathering and stabilizing condensate, NGLs and crude oil and gathering and disposing of produced water, primarily for Anadarko and third parties. Anadarko owns an 81.6% limited partner interest in WGP. For 2017, WES's total revenues and other were $2,248.4 millionb (up from $1,804.3 million in 2016), operating income was $704.4 million, and net income attributable to WGP was $376.6 million, or $1.72 per common unit.

WES's Adjusted EBITDA was $1,061.0 millionc and Distributable cash flow was $929.0 million, which covered declared distributions of $824.9 million by a coverage ratio of 1.13x. WGP raised its quarterly distribution to $0.54875 per unit for the fourth quarter of 2017, and WES's distribution rose to $0.920 per unit. Total throughput attributable to WES for natural gas assets declined 9% to 3,575 MMcf/d, while crude oil, NGL and produced water throughput rose 9% to 201 MBbls/d.

Net impairments were $178.4 milliond, including $158.8 million at the Granger complex after a producer bankruptcy. Key risks highlighted include heavy dependence on Anadarko (61% of WES total revenues and 41% of natural gas throughput in 2017), the expiration in December 2018 of commodity price swap agreements with Anadarko that contributed $58.6 million of above-market cash contributions in 2017, the IDR structure that makes WGP's distribution growth highly sensitive to WES distributions, and a pending DBJV arbitration with SWEPI seeking about $190.0 million. Subsequent events include a February 2018 amendment expanding the WES revolving credit facility to $1.5 billion and a reduction of the WGP revolver commitments to $35.0 million.

02—Key points

Key Highlights

  1. WGP's only cash-generating assets are its interests in WES: 50,132,046 WES common units (29.8% LP interest), a 1.5% general partner interest, and 100% of the IDRs, with IDRs capped at 48.0% of incremental distributions.
  2. WES total revenues and other rose to $2,248.4 million in 2017 from $1,804.3 million in 2016, while operating income was $704.4 million, roughly flat year over year.
  3. WGP net income attributable to WGP was $376.6 million, or $1.72 per common unit, compared with $345.8 million in 2016.
  4. WES Adjusted EBITDA was $1,061.0 million and Distributable cash flow was $929.0 million, providing a 1.13x coverage ratio on $824.9 million of declared distributions.
  5. Distributions rose: WGP's fourth-quarter 2017 distribution was $0.54875 per unit, and WES's was $0.920 per unit, with annual WGP distributions of $2.105 per unit declared in 2017.
  6. Anadarko accounted for 61% of WES total revenues and 41% of its natural gas throughput in 2017; commodity swaps with Anadarko that support margins expire December 31, 2018.
  7. Capital expenditures were $673.6 million in 2017, with 2018 WES capex guided at $1.0 to $1.1 billion and new Mentone and Latham processing plants under construction.

03—One dollar

Follow one dollar

Of each $1.00 of revenue in FY2017, Western Midstream Partners kept $0.22.

  1. Revenue$2.43B100.0%
  2. Cost of revenue−$908.7M37.4%
  3. Gross profit$1.52B62.6%
  4. Operating costs−$719.2M29.6%
  5. Operating income$801.7M33.0%
  6. Interest, other & tax−$260.9M10.7%
  7. Net income$540.8M22.3%
Computed from 10-KFY2017filed February 16, 2018Computed from this filing’s revenue, gross profit, operating income and net income · right columngrey figure: share of revenue

Where FY2017 revenue went

$2.43B
  • Cost of revenue: $908.7M, 37% of revenue
  • Operating costs: $719.2M, 30% of revenue
  • Net income: $540.8M, 22% of revenue
  • Interest, other & tax: $260.9M, 11% of revenue

Kept 22% as net income

Full revenue history →

04—Financials

Financial Highlights

Figures from 10-KFY2017filed February 16, 2018
Revenue$2.43B62.6% Gross MarginNet Income$540.79M22.3% Net MarginTotal Assets$8.02BCash & Equivalents$79.59MFree Cash Flow$1.04B

Financial Statements

FY2017 against FY2016

Line itemFY2017FY2016Change
Revenue$2.43B$1.80B+34.7%
Cost of Revenue$908.69M$494.19M+83.9%
Gross Profit$1.52B$1.31B+16.1%
Operating Expenses$1.91B$1.18B+61.5%
Operating Income$801.70M$704.53M+13.8%
Interest Expense$142.52M$116.63M+22.2%
Net Income$540.79M$345.77M+56.4%

05—Questions

Frequently Asked Questions

  1. What does Western Gas Equity Partners own, and how does that drive its cash flow?

    WGP owns no operating assets. It holds 50,132,046 WES common units, a 1.5% general partner interest through WES GP, and 100% of WES's incentive distribution rights. Its cash flow therefore depends entirely on the cash distributions WES pays to its partners.

  2. How much distributable cash flow did WES generate, and does it cover distributions?

    WES reported Distributable cash flow of $928.967 million for 2017 against declared distributions of $824.868 million, a coverage ratio of 1.13x. Distributable cash flow includes $58.6 million of above-market swap contributions from Anadarko.

  3. What are the main risks tied to Anadarko?

    WES depends on Anadarko as its primary customer and the controlling party of its general partner. Anadarko owns 81.6% of WGP's common units and is not contractually required to maintain production or offer new assets to WES. The commodity price swap agreements with Anadarko expire December 31, 2018, and may be renewed on less favorable terms or not at all.

  4. What drove the change in WES results in 2017?

    Revenues increased to $2,248.4 million, helped by a $125.7 million gain on the DBJV property exchange and a $132.4 million net gain on divestiture and other. Natural gas throughput declined 9%, while impairments rose to $178.4 million from $15.5 million in 2016.

  5. What pending legal or financing developments should investors note?

    DBJV is pursuing arbitration against SWEPI LP seeking about $190.0 million in gathering fees, with SWEPI counterclaiming about $18.0 million; a decision is expected in the third quarter of 2018. In February 2018, WES amended its revolving credit facility to extend maturity to 2023 and expand capacity to $1.5 billion, and WGP reduced its revolver commitments to $35.0 million.

06—Continue

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