Business context and reporting period
The supplied filing is Western Gas Equity Partners, LP’s unaudited Form 10-Q for the quarter ended March 31, 2014—not a filing under the name Western Midstream Partners, LP. Western Gas Equity Partners (WGP) consolidates Western Gas Partners (WES), a midstream partnership gathering, processing, treating and transporting natural gas, NGLs and crude oil. WGP’s cash-generating assets are its interests in WES. Unless noted, amounts below are in millions of dollars; comparisons are with Q1 2013.
Prior-period financials were recast to include the TEFR interests acquired from Anadarko in March 2014. The filing cautions that pre-acquisition results use Anadarko historical cost-basis records and may not represent results had WES owned those interests throughout.
Financial and operating performance
- Revenue: $279.5 million, up 23.8% from $225.8 million. Gathering, processing and transportation revenue rose 37% to $141.4 million; product sales increased 12% to $136.4 million.
- Profit: Operating income was $99.2 million, up from $62.8 million; net income attributable to WGP was $49.5 million, versus $32.4 million. Limited partners’ interest in net income was $50.5 million, and diluted earnings per unit were $0.23 versus $0.12.
- Margins and cash generation: WES-reported adjusted gross margin was $194.7 million, up 35%; adjusted EBITDA was $141.0 million, up 47%; distributable cash flow (DCF) was $119.3 million, up 51%. These are non-GAAP measures. WES’s DCF coverage of its declared distribution was 1.21x.
- Cash flow: Operating cash flow was $122.5 million, down from $137.4 million. Cash capital expenditures were $189.3 million, including $180.4 million of expansion spending; investing cash outflow was $576.7 million, including acquisition spending. Financing provided $435.2 million. Cash ended the quarter at $94.1 million.
- Debt and liquidity: Long-term debt carrying value was $1.913 billion, versus $1.418 billion at year-end; principal was $1.920 billion. WES had no revolver borrowings and $1.19 billion available under its $1.2 billion revolving facility (expandable to $1.5 billion), with $12.8 million in letters of credit. WES reported $18.7 million of working capital.
- Balance sheet: Consolidated assets were $4.789 billion and total liabilities $2.166 billion at March 31. The consolidated balance sheet reported current assets of $202.6 million and current liabilities of $172.6 million.
Material changes versus the prior period
- Throughput attributable to WES for natural gas assets increased 17% to 3,404 MMcf/d. Growth reflected Marcellus volumes, the Brasada facility start-up and other capacity additions; crude/NGL throughput rose with the Mont Belvieu fractionation trains and TEP/TEG start-ups.
- WES acquired Anadarko’s 20% interests in Texas Express Gathering and Texas Express Pipeline and 33.33% interest in Front Range Pipeline for consideration funded with $350.0 million of borrowings, $6.3 million cash and 308,490 WES common units. The interests are equity-method investments.
- WES issued $400 million of 5.450% notes due 2044 and an additional $100 million of 2.600% notes due 2018; proceeds were used principally to repay revolver borrowings. Its amended revolver increased from $800 million to $1.2 billion.
- WES increased its quarterly distribution to $0.625 per unit, up 16% year over year. WGP declared a quarterly distribution of $0.25 per unit, up 40% year over year.
Outlook, commentary and risks
No specific earnings or operating forecast is provided. Management said available liquidity and expected cash flows were sufficient for short- and long-term requirements, while noting WES expects to rely on external financing for expansion projects and acquisitions. WES had $53.6 million of unconditional capital-project payment commitments, mostly due within 12 months, chiefly for the Lancaster plant and Fort Lupton compressor-station expansion. The board-approved 2014 estimated maintenance capital expenditure amount was $15.3 million per quarter.
Key risks include substantial dependence on Anadarko for throughput, revenue, affiliate transactions and the $260 million note receivable; counterparty credit and performance risk; access to debt and equity markets; commodity, regulatory, permitting and operating risks; and the ability to maintain distributions. WES reported that commodity swaps with Anadarko mitigate much of its commodity exposure and that a 10% price change was not expected to materially affect results over the next 12 months, excluding gas imbalances. A DCP Midstream lawsuit involving Wattenberg assets remained in discovery; management did not expect a material effect and cited contractual indemnities. WES reported compliance with debt covenants. Disclosure controls were deemed effective.
Investor verification priorities
- Confirm the issuer identity: this text is a 2014 Western Gas Equity Partners, LP filing, not a filing named Western Midstream Partners, LP.
- Review the TEFR acquisition accounting and recast-period comparability, including the distinction between WGP consolidated results and WES operating/non-GAAP metrics.
- Assess Anadarko concentration, including customer exposure, affiliate dealings, indemnities and the collectability of the note receivable.
- Evaluate debt growth, refinancing and funding needs against expansion capital requirements, distribution policy and reported DCF coverage.
- Check subsequent developments in the DCP litigation and the Lancaster and Fort Lupton projects.