Business Context and Reporting Period
This Form 8-K is filed by Western Gas Equity Partners, LP (WGP) on May 18, 2017, reporting events occurring on May 22, 2017. WGP controls Western Gas Partners, LP (WES), which operates midstream energy assets. The filing details a material definitive agreement regarding a deferred purchase price settlement and the appointment of a new Chief Financial Officer.
Key Financial Metrics and Agreements
- Accelerated Payment: WES agreed to settle a deferred purchase price obligation for Delaware Basin JV Gathering LLC (DBJV) with Anadarko Petroleum Corporation for $37.3 million.
- Asset Context: The DBJV holds a 50% interest in a 403-mile gathering system in the Delaware Basin, Texas, originally acquired in March 2015.
- Executive Compensation: Jaime R. Casas was appointed Senior Vice President, CFO, and Treasurer. His compensation package includes:
- Annual base salary: Approximately $337,500.
- Target bonus: 65% of base salary.
- Signing bonus: $45,000 cash.
- Equity award: $990,000 (50% stock options, 50% restricted stock units), vesting in two tranches (2019 and 2021).
Material Changes and Settlement Details
The filing reports a significant change to the original Purchase and Sale Agreement (PSA) dated March 2, 2015. Under the original terms, WES was obligated to make a one-time cash payment on March 31, 2020, calculated based on the average Net Earnings of the DBJV Gathering System for 2018 and 2019, less capital expenditures. Pursuant to Amendment No. 1 dated May 22, 2017, this variable deferred payment was replaced with a fixed $37.3 million accelerated payment.
Outlook, Risks, and Management Commentary
The settlement of the deferred payment removes future earnings-based variability from the obligation for the DBJV asset. The appointment of Mr. Casas, who previously served as CFO for Clayton Williams Energy, Inc. and LRR Energy, L.P., signals a focus on experienced financial leadership. The transaction involves related parties, as Anadarko indirectly owns 100% of WGP's general partner and holds a significant limited partner interest in WES. The terms were approved by WES's general partner board and an independent special committee.
Investor Verification Checklist
- Verify the impact of the $37.3 million accelerated payment on WES's immediate cash flow and liquidity position.
- Review the full text of Amendment No. 1 (Exhibit 2.1) to confirm there are no additional covenants or conditions attached to the settlement.
- Assess the related-party nature of the transaction given Anadarko's controlling interest in WGP and significant ownership in WES.
- Monitor the vesting schedule and performance metrics associated with Mr. Casas's $990,000 equity award.