Western Gas Equity Partners, LP — Form 10-Q summary
Filing identity: The supplied filing is for Western Gas Equity Partners, LP (WGP), not a registrant named Western Midstream Partners, LP. It covers the quarter and six months ended June 30, 2013; financial comparisons are with 2012, with certain prior-period figures recast for the Non-Operated Marcellus Interest. Dollar amounts below are in millions unless stated otherwise.
Business context and reporting period
WGP is a publicly traded partnership whose principal assets are its interests in Western Gas Partners, LP (WES), including WES’s general partner interest, incentive distribution rights and limited partner units. WES gathers, processes, treats and transports natural gas, NGLs and other hydrocarbons, with substantial business tied to Anadarko. WGP’s financial statements consolidate WES.
Financial and operating performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $255.1 | $220.3 | $484.9 | $445.0 |
| Operating income (WGP) | $69.2 | $59.3 | $132.0 | $126.5 |
| Net income attributable to WGP | $34.7 | $18.7 | $67.0 | $35.7 |
| Net income per common unit | Not clearly stated for Q2 in the supplied text | $0.29 | ||
| Operating cash flow (WGP) | Not provided for the quarter | $162.4 | $144.8 | |
| Investing cash flow (WGP) | Not provided for the quarter | $(1,049.5) | $(658.5) | |
| Financing cash flow (WGP) | Not provided for the quarter | $556.9 | $545.2 |
- WES reported Q2 gross margin of $161.7 million, up 17%; adjusted EBITDA attributable to WES of $107.6 million, up 23%; and distributable cash flow of $89.8 million, up 24%. For the first half, these measures were $308.3 million, $203.6 million and $168.9 million, respectively.
- WES’s Q2 distributable-cash-flow coverage ratio was 1.13x. WES cautions that distributable cash flow is a non-GAAP measure and is not the same as cash actually available for distribution.
- WES-attributable throughput was 3,139 MMcf/d in Q2, up 15%, and 3,023 MMcf/d for the first half, up 11%. WES’s reported gross margin per Mcf was $0.54 for Q2 and the first half; attributable gross margin per Mcf was $0.55.
- At June 30, WGP had $92.4 million cash, versus $422.6 million at year-end 2012. Long-term debt carrying value was $1,418.4 million, versus $1,168.3 million at year-end. WES had $537.2 million available on its $800 million revolving credit facility; WGP had no borrowings on its $30 million working-capital facility. WES reported $11 million working capital.
Material changes versus the prior comparable period
- Revenue increased 16% in Q2 and 9% in the first half; WGP-attributable net income increased to $34.7 million for Q2 and $67.0 million for the first half. The company attributes growth primarily to higher volumes, acquisitions and improved margins in several systems.
- WES’s May 2013 public offering generated $424.9 million net proceeds. WES also acquired Marcellus gathering interests and a 25% interest in the Mont Belvieu fractionation joint venture. First-half acquisitions totaled $679.6 million; cash capital expenditures were $339.8 million.
- First-half operating cash flow was lower at WES than in 2012 ($165.0 million versus $186.2 million), mainly because of working-capital changes, despite increased sales volumes and higher average natural-gas prices. WGP’s consolidated operating cash flow increased, reflecting differences including taxes and WGP-level expenses.
- WGP’s cash decline primarily reflects the substantial acquisition and capital-investment program. WES financed activity through borrowings, equity issuance and cash flow; its revolving-facility borrowings were $250 million at quarter-end.
- WES declared a Q2 distribution of $0.56 per unit, up 4% from Q1 and 17% year over year. WGP declared a Q2 distribution of $0.1975 per unit, up 10% from Q1.
Outlook, commentary, risks and unusual items
- No formal earnings or distribution guidance is provided. WES expected Lancaster processing capacity expansion of 300 MMcf/d to start in Q1 2015; the 200 MMcf/d Brasada plant began start-up operations in June 2013. Mont Belvieu fractionation facilities were expected to be completed by Q1 2014.
- Management said available cash, operating cash flow, and borrowing and capital-market access should meet near- and long-term needs, but WES expects to rely on external financing for expansion projects and acquisitions. The filing identifies construction, permitting, financing, throughput and project-return uncertainty as risks.
- Customer and affiliate concentration is material: Anadarko was the only customer representing more than 10% of revenue, and accounted for about 58% of gathering, transportation and treating throughput in Q2 and 54% of processing throughput. WES also holds a $260 million note receivable from Anadarko. WGP’s ability to pay distributions depends on distributions received from WES.
- WES reported $31.2 million of capital-project payment commitments, mostly due within 12 months, and an additional commitment of approximately $21.9 million for its share of remaining Mont Belvieu JV project costs. Debt covenants were reported in compliance.
- A DCP Midstream lawsuit concerning alleged diversion of gas and gathering agreements remained in discovery, with trial scheduled for April 2014. Management did not expect a material effect and cited contractual indemnities for WES’s exposure.
- WES recorded a $1.0 million impairment related primarily to cancelled projects at the Non-Operated Marcellus Interest. The Anadarko-Operated Marcellus purchase-price allocation remained preliminary. The filing also corrected a prior-period cash-flow classification error, which management said was not material.
- The filing’s executive summary says attributable gross margin per Mcf decreased year over year, while its key-metrics table reports $0.55 versus $0.53 for Q2 and $0.55 versus $0.54 for the first half, both increases. The source text is internally inconsistent on this point.
Most important facts for investors to verify
- Confirm the issuer and security being analyzed: this filing names Western Gas Equity Partners, LP (WGP), with WES as its consolidated operating partnership.
- Reconcile the gross-margin-per-Mcf discrepancy and verify the relevant attributable versus consolidated measure.
- Assess Anadarko concentration, counterparty credit exposure, and dependence on WES distributions to fund WGP distributions.
- Review acquisition economics, the preliminary Marcellus purchase-price allocation, project commitments and whether planned expansions achieve expected throughput and returns.
- Track liquidity and leverage after acquisitions and capital spending, including revolving-credit availability, debt covenants and future financing needs.