Business Context and Reporting Period
This Form 8-K was filed by Western Gas Equity Partners, LP (WES) on December 20, 2017, reporting events occurring on December 15 and December 20, 2017. The filing details the extension of commodity price swap agreements with Anadarko Petroleum Corporation and an amendment to a gas gathering agreement.
Key Financial Metrics and Agreements
The filing does not report consolidated revenue, profit, cash flow, or debt metrics. Instead, it discloses specific pricing terms for derivative and service agreements:
- Commodity Swaps: WES extended commodity price swap agreements with Anadarko for the DJ Basin complex and MGR assets through December 31, 2018. The swaps cover natural gas, condensate, and NGLs based on actual volumes purchased and sold.
- Pricing Advantage: The extended swap prices are significantly higher than prevailing market prices as of December 20, 2017. The difference between the swap price and market price will be recorded as a capital contribution from Anadarko to WES.
- Gathering Fee Amendment: The Wattenberg Gas Gathering Agreement was amended to increase the gathering fee by $0.16 per MMBtu and eliminate indexed annual escalation through December 2027.
Material Changes and Pricing Comparison
The primary material change is the locking in of favorable commodity prices for 2018 compared to the forward market strip. The table below summarizes the 2018 swap prices versus market prices (per barrel, except natural gas per MMBtu):
| Commodity | DJ Basin Swap Price | DJ Basin Market Price | MGR Swap Price | MGR Market Price |
|---|---|---|---|---|
| Ethane | $18.41 | $5.41 | $23.11 | $2.52 |
| Propane | $47.08 | $28.72 | $52.90 | $25.83 |
| Isobutane | $62.09 | $32.92 | $73.89 | $30.03 |
| Normal Butane | $54.62 | $32.71 | $64.93 | $29.82 |
| Natural Gasoline | $72.88 | $48.04 | $81.68 | $47.25 |
| Condensate | $76.47 | $49.36 | $81.68 | $56.76 |
| Natural Gas (MMBtu) | $5.96 | $2.21 | $4.87 | $2.21 |
Outlook, Risks, and Contingencies
- Renewal Risk: There is no assurance that the commodity price swap agreements will be renewed or extended beyond December 31, 2018, on similar terms or at all.
- Accounting Treatment: Revenues or costs attributable to volumes settled at market prices will be recognized in the consolidated statements of operations. The excess of the swap price over the market price will be recorded as a capital contribution in the statement of equity.
- Confidentiality: WES intends to request confidential treatment for certain portions of the gathering agreement amendment. The full text of the amendment is not included in this summary.
Key Facts for Investor Verification
- Verify the actual volumes of natural gas, condensate, and NGLs purchased and sold in 2018 to calculate the total value of the capital contribution from Anadarko.
- Confirm whether the commodity swap agreements are renewed after December 31, 2018, given the explicit lack of assurance in the filing.
- Review the redacted amendment to the Wattenberg Gas Gathering Agreement once filed to understand the full scope of the fee increase and escalation elimination.
- Monitor the impact of the $0.16 per MMBtu fee increase on WES's gathering revenue through 2027.