HOUSTON, TX — (Marketwired) — 10/28/14 — Western Gas Partners, LP (NYSE: WES) (“WES” or the “Partnership”) today announced that it has agreed to acquire Nuevo Midstream, LLC (“Nuevo”), a leading Delaware Basin gas gatherer and processor, for $1.5 billion. The Partnership expects the acquisition will close in the fourth quarter of 2014, subject to regulatory approval and customary closing conditions.
“We are excited to acquire the Nuevo assets, which are extremely valuable to us given their strategic location in the Delaware Basin and Anadarko–s significant acreage position and development plans in the area. The Nuevo management team has done an excellent job in utilizing their first-mover advantage to build a gathering and processing system that has over 150,000 dedicated acres plus volumetric commitments from high-quality producers,” said Chief Executive Officer, Don Sinclair. “Our top priority will be to provide excellent service to existing and future customers in a safe and reliable manner.”
Nuevo–s assets currently include a 300 MMcf/d cryogenic processing complex with an additional 400 MMcf/d of processing capacity that is scheduled to be in service in 2015, 275 miles of gathering pipeline, 1,800 gpm of amine treating capacity and four compressor stations. The assets serve production from Reeves, Loving and Culberson Counties, Texas and Eddy and Lea Counties, New Mexico. Over 70% of Nuevo–s gross margin is fee-based, and following the acquisition, the Partnership expects that over 95% of its consolidated gross margin will be either fee-based or covered under its fixed-price agreements with Anadarko.
The Partnership expects the acquisition to be accretive to its distributable cash flow per unit in 2015. The Partnership will partially finance the acquisition through the issuance to Anadarko of $750 million of Class C units, which will receive distributions in the form of additional Class C units until the end of 2017. The Class C units will convert into common units on a one-for-one basis on December 31, 2017, unless the Partnership converts such units earlier or Anadarko delays the conversion. The Class C units will be disregarded with respect to calculating the Partnership–s cash distributions until they are converted to common units.
Pursuant to the terms of a joint venture agreement between Anadarko and a third party, the Partnership will immediately offer the third party the right to acquire a 50% interest in Nuevo. The third party is required to respond to the Partnership–s offer within thirty days of receiving notice, and will have an additional thirty days to fund its share of the purchase price if it accepts the offer. As of September 30, 2014, the Partnership had $1 billion of available capacity under its revolving credit facility and the Partnership is prepared to purchase 100% of Nuevo if the third party does not participate.
“We are buying an early stage asset that we believe will deliver significant growth as the basin continues to develop,” added Sinclair, who also noted that the Partnership estimates that the purchase price represents an approximate 8.5 times multiple of the assets– forecasted 2016 earnings before interest, taxes, depreciation and amortization (“EBITDA”). “Both the current robust level of drilling activity and Anadarko–s recent success in the area fuel our optimism regarding the further potential of the Delaware Basin, which has quickly become one of the most prolific resource plays in North America.”
The terms of the acquisition and the issuance of the Class C units to Anadarko were unanimously approved by the board of directors of the Partnership–s general partner. The board–s special committee, which is comprised entirely of independent directors, also approved the issuance of the Class C units. The special committee engaged Evercore Partners to act as its financial advisor and Bracewell and Giuliani LLP to act as its legal advisor.
The Partnership and Western Gas Equity Partners, LP (NYSE: WGP) (“WGP”) today also announced third-quarter 2014 financial and operating results.
“We delivered strong financial performance combined with healthy distribution coverage in the quarter,” said Sinclair. “Our portfolio delivered solid results while overcoming throughput declines at some of our lower-margin assets and unscheduled downtime at two of our plants.”
Net income available to limited partners for the third quarter of 2014 totaled $71.6 million, or $0.60 per common unit (diluted). For the third quarter of 2014, Adjusted EBITDA(1) was $167.3 million and Distributable cash flow(1) was $136.7 million, resulting in a Coverage ratio(1) of 1.23 times for the period.
WES previously declared a quarterly distribution of $0.675 per unit for the third quarter of 2014, representing a 4% increase over the prior quarter–s distribution and a 16% increase over the third-quarter 2013 distribution of $0.58 per unit. The distribution will be paid on November 13, 2014, to unitholders of record at the close of business on October 31, 2014. The third-quarter 2014 Coverage ratio(1) of 1.23 times is based on the quarterly distribution of $0.675 per unit.
Total throughput attributable to WES for natural gas assets for the third quarter of 2014 averaged 3.5 Bcf/d, which was 3% below the prior quarter and 5% above the third quarter of 2013. Total throughput for crude/NGL assets for the third quarter of 2014 averaged 138 MBbls/d, which was 20% above the prior quarter.
Capital expenditures attributable to WES on a cash basis, including equity investments but excluding acquisitions, totaled $133.5 million during the third quarter of 2014. Of this amount, maintenance capital expenditures were $12.0 million, or 7% of Adjusted EBITDA(1). Capital expenditures attributable to WES on an accrual basis, including equity investments but excluding acquisitions, totaled $148.9 million during the third quarter of 2014.
(1) Please see the tables at the end of this release for a reconciliation of non-GAAP to GAAP measures and calculation of the Coverage ratio.
WGP indirectly owns the 2% general partner interest in WES, 100% of the incentive distribution rights in WES and 49,296,205 WES common units. Net income available to limited partners for the third quarter of 2014 totaled $60.0 million, or $0.27 per common unit (diluted).
WGP previously declared a quarterly distribution of $0.29125 per unit for the third quarter of 2014, representing a 7% increase over the prior quarter–s distribution and a 36% increase over the third-quarter 2013 distribution of $0.21375. The distribution will be paid on November 21, 2014, to unitholders of record at the close of business on October 31, 2014. WGP will receive distributions from WES of $64.5 million attributable to the third quarter and will pay out $63.8 million in distributions for the same period.
Based on its current estimate, which does not include any 2014 contribution from Nuevo, WES–s Adjusted EBITDA(1) for 2014 is now expected to be between $625 million and $650 million. Total capital expenditures including equity investments, but excluding acquisitions, are expected to be between $670 million and $720 million with maintenance capital expenditures expected to be between 7% and 10% of Adjusted EBITDA(1). WES and WGP now expect 2014 distribution growth to be 16% and 36%, respectively, and WES also expects no less than 15% distribution growth in 2015.
(1) Please see the tables at the end of this release for a reconciliation of non-GAAP to GAAP measures and calculation of the Coverage ratio.
WES and WGP will host a joint conference call on Wednesday, October 29, 2014, at 11:00 a.m. Central Daylight Time (12:00 p.m. Eastern Daylight Time) to discuss the acquisition, third-quarter 2014 results and the updated outlook for 2014. To participate via telephone, please dial 877.621.4819 and enter participant code 95243621. Please call in 10 minutes prior to the scheduled start time. To access the live audio webcast of the conference call and slide presentation, please visit . A replay of the call will also be available on the website for approximately two weeks following the conference call.
Western Gas Partners, LP (“WES”) is a growth-oriented Delaware master limited partnership formed by Anadarko Petroleum Corporation to own, operate, acquire and develop midstream energy assets. With midstream assets in the Rocky Mountains, the Mid-Continent, north-central Pennsylvania and Texas, WES is engaged in the business of gathering, processing, compressing, treating and transporting natural gas, condensate, natural gas liquids and crude oil for Anadarko and other producers and customers.
Western Gas Equity Partners, LP (“WGP”) is a Delaware master limited partnership formed by Anadarko to own the following types of interests in WES: (i) the 2.0% general partner interest and all of the incentive distribution rights in WES, both owned through WGP–s 100% ownership of WES–s general partner, and (ii) a significant limited partner interest in WES.
For more information about Western Gas Partners, LP and Western Gas Equity Partners, LP, please visit .
This news release contains forward-looking statements. Western Gas Partners and Western Gas Equity Partners believe that their expectations are based on reasonable assumptions. No assurance, however, can be given that such expectations will prove to have been correct. A number of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this news release. These factors include the ability to meet financial guidance or distribution growth expectations; the ability to safely and efficiently operate WES–s assets; the ability to obtain new sources of natural gas supplies; the effect of fluctuations in commodity prices and the demand for natural gas and related products; the ability to meet projected in-service dates for capital growth projects; construction costs or capital expenditures exceeding estimated or budgeted costs or expenditures; the ability to close and realize the expected benefits from the Nuevo acquisition; and the other factors described in the “Risk Factors” sections of WES–s and WGP–s most recent Forms 10-K filed with the Securities and Exchange Commission and in their other public filings and press releases. Western Gas Partners and Western Gas Equity Partners undertake no obligation to publicly update or revise any forward-looking statements.
Below are reconciliations of (i) WES–s Distributable cash flow (non-GAAP) to net income attributable to Western Gas Partners, LP (GAAP), (ii) Adjusted EBITDA attributable to Western Gas Partners, LP (“Adjusted EBITDA”) (non-GAAP) to net income attributable to Western Gas Partners, LP (GAAP) and to net cash provided by operating activities (GAAP), and (iii) Adjusted gross margin attributable to Western Gas Partners, LP (“Adjusted gross margin”) (non-GAAP) to operating income (GAAP), as required under Regulation G of the Securities Exchange Act of 1934. Management believes that WES–s Distributable cash flow, Adjusted EBITDA, Adjusted gross margin, and Coverage ratio are widely accepted financial indicators of WES–s financial performance compared to other publicly traded partnerships and are useful in assessing its ability to incur and service debt, fund capital expenditures and make distributions. Distributable cash flow, Adjusted EBITDA, Adjusted gross margin and Coverage ratio, as defined by WES, may not be comparable to similarly titled measures used by other companies. Therefore, WES–s Distributable cash flow, Adjusted EBITDA, Adjusted gross margin, and Coverage ratio should be considered in conjunction with net income and other applicable performance measures, such as operating income or cash flows from operating activities.
WES defines Distributable cash flow as Adjusted EBITDA, plus interest income, less net cash paid for interest expense (including amortization of deferred debt issuance costs originally paid in cash, offset by non-cash capitalized interest), maintenance capital expenditures, and income taxes.
WES defines Adjusted EBITDA as net income (loss) attributable to Western Gas Partners, LP, plus distributions from equity investees, non-cash equity-based compensation expense, interest expense, income tax expense, depreciation, amortization and impairments, and other expense, less income from equity investments, interest income, income tax benefit, and other income.
WES defines Adjusted gross margin as total revenues less cost of product, plus distributions from equity investees and excluding the noncontrolling interest owner–s proportionate share of revenue and cost of product.
(1) Includes equity investments but excludes acquisitions.
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Benjamin Fink, CFA
SVP, Chief Financial Officer and Treasurer
832.636.6010