Business Context and Reporting Period
This Form 8-K Current Report, dated March 1, 2016, details material definitive agreements entered into by Western Gas Partners, LP ("WES") on February 24, 2016. The filing focuses on a strategic acquisition of midstream assets in the Eagleford shale region and the associated capital raising activities required to fund the transaction.
Key Financial Metrics and Transaction Details
- Acquisition Consideration: Total consideration of $712.5 million in cash plus 1,253,761 WES Common Units to acquire a 100% interest in Springfield Pipeline LLC.
- Asset Capacity: The acquired gathering system includes 548 miles of gas lines (795 MMcf/d capacity) and 241 miles of oil lines (130 MBbls/d capacity).
- Capital Raise - Preferred Units: Private placement of 14,030,611 Series A Convertible Preferred Units at $32.00 per unit, generating gross proceeds of approximately $449 million (net proceeds ~$440 million).
- Capital Raise - Common Units: Sale of 835,841 Common Units to Western Gas Equity Partners, LP ("WGP") at $29.91 per unit, generating approximately $25 million.
- Debt Financing: Planned borrowings of $247.5 million under WES's revolving credit facility to complete the cash portion of the acquisition.
- Preferred Unit Economics: Quarterly distribution of $0.68 per unit; distributions on Common Units are suspended until Preferred Unit distributions are paid in full.
Material Changes and Strategic Moves
The primary material change is the expansion of WES's asset base through the acquisition of the Springfield Pipeline LLC gathering system in South Texas (Dimmit, La Salle, Maverick, and Webb counties). This transaction represents a significant increase in infrastructure capacity dedicated to Eagleford shale production. Concurrently, the capital structure is being altered through the issuance of a new class of convertible preferred equity and additional common equity to fund the deal.
Outlook, Risks, and Contingencies
- Closing Conditions: The acquisition and related financings are subject to standard closing conditions, including review under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Closing is expected in the first quarter of 2016.
- Indemnification: Anadarko Petroleum Corporation has agreed to indemnify WES and its affiliates against losses resulting from breaches of representations and warranties. WES has provided reciprocal indemnification to Anadarko.
- Preferred Unit Rights: Purchasers of the Preferred Units have an option to purchase up to an additional 7,892,220 units by March 25, 2016. If WES fails to pay four quarterly distributions (two consecutive), Purchasers gain the right to appoint a non-voting board observer.
- Conversion Terms: Preferred Units are convertible to Common Units on a one-for-one basis after the second anniversary. WES may force conversion after the third anniversary if the Common Unit price exceeds 150% of the issue price for 20 of the preceding 30 trading days.
Investor Verification Checklist
- Verify the final closing date of the Springfield Pipeline LLC acquisition and confirm receipt of all regulatory approvals.
- Confirm the actual net proceeds received from the Series A Convertible Preferred Units private placement after all fees and expenses.
- Monitor the utilization of the $247.5 million revolving credit facility and its impact on WES's leverage ratios.
- Review the impact of the new Preferred Unit distribution obligation ($0.68/unit quarterly) on WES's available cash flow for Common Unit distributions.
- Assess the integration timeline for the new 548 miles of gas and 241 miles of oil gathering lines into WES's existing operations.