01—Abstract
Summary
Summary of the 10-K filed February 20, 2019. 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): a 1.5%a general partner interest, 100% of the incentive distribution rights, and 50,132,046 WES common units representing a 29.6% limited partner interest.
WGP consolidates WES, which operates gathering, processing, treating, transportation and produced water disposal assets in the Rocky Mountains, North-central Pennsylvania, Texas and New Mexico. For 2018, WES reported total revenues and other of $1.99 billionb, operating income of $625.4 million, net income attributable to WGP of $369.4 million ($1.69 per common unit), and Adjusted EBITDA of $1.21 billion. Distributions to WGP unitholders were $2.34875 per unit for 2018, and the fourth-quarter 2018 distribution was raised to $0.60250 per unit.
The filing's most significant event is the pending Merger, announced November 7, 2018 and expected to close in the first quarter of 2019. Under the Merger Agreement, WGP will acquire WES, WGP will be renamed Western Midstream Partners, LP, and its units will trade under the symbol "WES." Anadarko's midstream assets are contributed to WES in exchange for $1.814 billionc in cash (less an intercompany note) and 45,760,201 WES common units, plus $193.9 million in cash for Saddlehorn and Panola interests. WES unitholders are to receive WGP units, and the transaction is funded by a $2.0 billion 364-day facility.
Anadarko owned 77.8%d of WGP common units at year end. Investors should note concentration and dependence risks. Anadarko accounted for 54% of WES total revenues and 38% of throughput in 2018, and WES's fee-based contracts covered 89% of wellhead natural gas volumes and 100% of crude oil and produced water throughput.
WES recorded $228.3 million of impairments in 2018, including $125.9 million at the Third Creek gathering system, and total long-term debt principal was $4.84 billion at year end. The filing also discloses a pending EPA and Department of Justice matter over leak detection and repair requirements, with fines expected to exceed $100,000 for each matter.
02—Key points
Key Highlights
- Pending Merger: WGP will combine with WES, with WGP renamed Western Midstream Partners, LP and trading under "WES"; closing expected in Q1 2019.
- Merger consideration: $1.814 billion in cash (net of an intercompany note) and 45,760,201 WES common units from Anadarko entities, plus $193.9 million cash for Saddlehorn and Panola interests; WES unitholders convert into WGP common units.
- 2018 financial results: total revenues and other of $1,990.3 million, operating income of $625.4 million, and net income attributable to WGP of $369.4 million ($1.69 per common unit).
- Adjusted EBITDA of $1,205.8 million and Distributable cash flow of $958.7 million for WES in 2018, with a WES distribution coverage ratio of 1.05x.
- Distribution growth: WGP's fourth-quarter 2018 distribution was $0.60250 per unit (up 10% year over year), and WES's was $0.980 per unit (up 7%).
- Anadarko concentration: 54% of WES total revenues and 38% of throughput were attributable to Anadarko; fee-based contracts covered 89% of wellhead natural gas volumes.
- Impairments and debt: $228.3 million of impairments in 2018 (led by $125.9 million at Third Creek), and $4.84 billion of principal long-term debt outstanding at December 31, 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Western Midstream Partners kept $0.24.
- Revenue$2.30B100.0%
- Cost of revenue−$431.9M18.8%
- Gross profit$1.87B81.2%
- Operating costs−$1.01B43.8%
- Operating income$861.3M37.5%
- Interest, other & tax−$309.7M13.5%
- Net income$551.6M24.0%
Where FY2018 revenue went
$2.30B- Operating costs: $1.01B, 44% of revenue
- Net income: $551.6M, 24% of revenue
- Cost of revenue: $431.9M, 19% of revenue
- Interest, other & tax: $309.7M, 13% of revenue
Kept 24% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 20, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $2.30B$2.43B | −5.3% |
| Cost of Revenue | $431.92M$908.69M | −52.5% |
| Gross Profit | $1.87B$1.52B | +22.8% |
| Operating Expenses | $1.64B$1.91B | −14.2% |
| Operating Income | $861.28M$801.70M | +7.4% |
| Interest Expense | $183.83M$142.52M | +29.0% |
| Net Income | $551.57M$540.79M | +2.0% |
05—Questions
Frequently Asked Questions
What happens to WGP unitholders and WES unitholders under the Merger?
The filing states that WES's common units will cease trading on the NYSE, and WGP common units will begin trading under the symbol "WES" after WGP changes its name to Western Midstream Partners, LP. The 45,760,201 WES common units issued to the Contributing Parties, less 6,375,284 units retained by WGRAH, will be converted into the right to receive an aggregate of 55,360,984 WGP common units.
How much of WES's business depends on Anadarko?
For 2018, Anadarko-owned or controlled production represented 7% of WES's natural gas gathering, treating and transportation throughput, 41% of natural gas processing throughput, and 73% of crude oil, NGLs and produced water throughput, excluding equity investments. The filing also states that 54% of total revenues and 38% of throughput were attributable to transactions with Anadarko. Anadarko is under no contractual obligation to maintain its production volumes dedicated to WES.
How is WGP's cash flow related to WES's distributions?
WGP's only cash-generating assets are its WES partnership interests, so its distributions depend entirely on WES's distributions. WGP receives distributions from its 1.5% general partner interest, its 100% ownership of the incentive distribution rights (which can reach a 48.0% sharing level), and its 50,132,046 WES common units. The filing notes that 34.4% of WES's total distributions in the fourth quarter of 2018 (excluding Class C units) were paid to WGP through its IDRs.
What are the main financial and legal risks disclosed in the filing?
WES recorded impairments of $228.3 million in 2018 and $178.4 million in 2017. The filing also discloses that WES is negotiating with the EPA and Department of Justice over alleged leak detection and repair non-compliance at its Fort Lupton and Granger facilities, and that resolution is reasonably likely to result in a fine or penalty exceeding $100,000 for each matter. Separately, WES's revolving credit facility requires a maximum consolidated leverage ratio of 5.0 to 1.0 (5.5 to 1.0 following certain acquisitions).
What is WES's liquidity position at year end 2018?
As of December 31, 2018, WES had $1.3 billion of available borrowing capacity under its WES RCF after $220.0 million of outstanding borrowings and $4.6 million of letters of credit. WES also had cash and cash equivalents and a $260.0 million note receivable from Anadarko. WES reported a $174.1 million working capital deficit, which the filing attributes primarily to construction costs at the West Texas and DJ Basin complexes and gathering system shutdowns.
06—Continue