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WES > SEC Filings for WES > Form 10-Q on 7-May-2014All Recent SEC Filings

Show all filings for WESTERN GAS PARTNERS LP

Form 10-Q for WESTERN GAS PARTNERS LP


7-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion analyzes our financial condition and results of operations and should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements, which are included under Part I, Item 1 of this quarterly report, as well as our historical consolidated financial statements, and the notes thereto, which are included in

Part II, Item 8 of our 2013 Form 10-K as filed with the Securities and Exchange
Commission, or "SEC," on February 28, 2014, and our other public filings and press releases. For purposes of this report, "we," "us," "our," the "Partnership," or "Western Gas Partners" refers to Western Gas Partners, LP and its subsidiaries. Our general partner, Western Gas Holdings, LLC (the "general partner" or "GP"), is owned by Western Gas Equity Partners, LP ("WGP"), a Delaware master limited partnership formed by Anadarko Petroleum Corporation. Western Gas Equity Holdings, LLC is WGP's general partner and is a wholly owned subsidiary of Anadarko Petroleum Corporation. "Anadarko" refers to Anadarko Petroleum Corporation and its consolidated subsidiaries, excluding the Partnership and our general partner, and "affiliates" refers to wholly owned and partially owned subsidiaries of Anadarko, excluding the Partnership, and includes equity interests in Fort Union Gas Gathering, LLC ("Fort Union"), White Cliffs Pipeline, LLC ("White Cliffs"), Rendezvous Gas Services, LLC ("Rendezvous"), Enterprise EF78, LLC (the "Mont Belvieu JV"), Texas Express Pipeline LLC ("TEP"), Texas Express Gathering LLC ("TEG") and Front Range Pipeline LLC ("FRP"). The interests in TEP, TEG and FRP are referred to collectively as the "TEFR Interests." "Equity investment throughput" refers to our 14.81% share of average Fort Union throughput and our 22% share of average Rendezvous throughput, but excludes throughput measured in barrels consisting of our 10% share of average White Cliffs pipeline throughput, our 25% share of average Mont Belvieu JV throughput, our 20% share of average TEP and TEG throughput and our 33.33% share of average FRP throughput. The "DJ Basin complex" refers to the Platte Valley system, Wattenberg system, and Lancaster plant, all of which were combined into a single complex in the first quarter of 2014.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made in this report, and may from time to time otherwise make in other public filings, press releases and discussions by management, forward-looking statements concerning our operations, economic performance and financial condition. These statements can be identified by the use of forward-looking terminology including "may," "will," "believe," "expect," "anticipate," "estimate," "continue," or other similar words. These statements discuss future expectations, contain projections of results of operations or financial condition or include other "forward-looking" information. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will be realized.

These forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the following risks and uncertainties:

our ability to pay distributions to our unitholders;

our and Anadarko's assumptions about the energy market;

future throughput, including Anadarko's production, which is gathered or processed by or transported through our assets;

operating results;

competitive conditions;

technology;

availability of capital resources to fund acquisitions, capital expenditures and other contractual obligations, and our ability to access those resources from Anadarko or through the debt or equity capital markets;

supply of, demand for, and the price of, oil, natural gas, NGLs and related products or services;


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weather;

inflation;

availability of goods and services;

general economic conditions, either internationally or domestically or in the jurisdictions in which we are doing business;

changes in regulations at the federal, state and local level or the inability to timely obtain or maintain permits that could affect our and our customers' activities; environmental risks; regulations by the Federal Energy Regulatory Commission ("FERC"); and liability under federal and state laws and regulations;

legislative or regulatory changes affecting our status as a partnership for federal income tax purposes;

changes in the financial or operational condition of Anadarko;

changes in Anadarko's capital program, strategy or desired areas of focus;

our commitments to capital projects;

ability to use our revolving credit facility ("RCF");

creditworthiness of Anadarko or our other counterparties, including financial institutions, operating partners, and other parties;

our ability to repay debt;

our ability to mitigate commodity price risks inherent in our percent-of-proceeds and keep-whole contracts;

conflicts of interest among us, our general partner, WGP and its general partner, and affiliates, including Anadarko;

our ability to maintain and/or obtain rights to operate our assets on land owned by third parties;

our ability to acquire assets on acceptable terms;

non-payment or non-performance of Anadarko or other significant customers, including under our gathering, processing and transportation agreements and our $260.0 million note receivable from Anadarko;

timing, amount and terms of future issuances of equity and debt securities; and

other factors discussed below, in "Risk Factors" included in our 2013 Form 10-K, in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates," in our quarterly reports on Form 10-Q and elsewhere in our other public filings and press releases.

The risk factors and other factors noted throughout or incorporated by reference in this report could cause our actual results to differ materially from those contained in any forward-looking statement. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


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EXECUTIVE SUMMARY

We are a growth-oriented Delaware master limited partnership formed by Anadarko to own, operate, acquire and develop midstream energy assets. We currently own or have investments in assets located in the Rocky Mountains (Colorado, Utah and Wyoming), the Mid-Continent (Kansas and Oklahoma), north-central Pennsylvania and Texas, and are engaged in the business of gathering, processing, compressing, treating and transporting natural gas, condensate, NGLs and crude oil for Anadarko, as well as for third-party producers and customers. As of March 31, 2014, our assets and investments accounted for under the equity method consisted of the following:

                                          Owned and     Operated      Non-Operated      Equity
                                          Operated      Interests      Interests       Interests
Natural gas gathering systems                   13             1                5             2
NGL gathering systems                            -             -                -             2
Natural gas treating facilities                  8             -                -             1
Natural gas processing facilities                8             3                -             2
NGL pipelines                                    3             -                -             2
Natural gas pipelines                            3             -                -             -
Oil pipeline                                     -             -                -             1

Significant financial and operational highlights during the first three months of 2014 included the following:

We issued $400.0 million aggregate principal amount of 5.450% Senior Notes due 2044 and an additional $100.0 million aggregate principal amount of 2.600% Senior Notes due 2018. Net proceeds were used to repay amounts then outstanding under our RCF. See Liquidity and Capital Resources within this Item 2 for additional information.

We completed the acquisition of Anadarko's 20% interests in TEG and TEP, and its 33.33% interest in FRP. See Acquisitions below.

We entered into an amended and restated $1.2 billion (expandable to $1.5 billion) senior unsecured RCF replacing our $800.0 million credit facility. See Liquidity and Capital Resources within this Item 2 for additional information.

We raised our distribution to $0.625 per unit for the first quarter of 2014, representing a 4% increase over the distribution for the fourth quarter of 2013, a 16% increase over the distribution for the first quarter of 2013, and our twentieth consecutive quarterly increase.

Significant operational highlights during the first three months of 2014 included the following:

Throughput attributable to Western Gas Partners, LP totaled 3,404 MMcf/d for the three months ended March 31, 2014, representing a 17% increase compared to the three months ended March 31, 2013.

Adjusted gross margin attributable to Western Gas Partners, LP for natural gas assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $0.60 per Mcf for the three months ended March 31, 2014, representing an 11% increase compared to the three months ended March 31, 2013.


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                                  ACQUISITIONS

Acquisitions. The following table presents our acquisitions during 2013 and
2014, and identifies the funding sources for such acquisitions.
thousands except unit and      Acquisition    Percentage                         Cash           Common
  percent amounts                 Date         Acquired        Borrowings       On Hand      Units Issued
Non-Operated Marcellus
Interest (1)                    03/01/2013         33.75 %   $    250,000     $ 215,500          449,129
Anadarko-Operated Marcellus
Interest (2)                    03/08/2013         33.75 %        133,500         1,145                -
Mont Belvieu JV (3)             06/05/2013            25 %              -        78,129                -
OTTCO (4)                       09/03/2013           100 %         27,500             -                -
TEFR Interests (5)              03/03/2014   Various (5)          350,000         6,250          308,490

(1) We acquired Anadarko's 33.75% interest (non-operated) in the Liberty and Rome gas gathering systems, serving production from the Marcellus shale in north-central Pennsylvania. The interest acquired is referred to as the "Non-Operated Marcellus Interest." In connection with the issuance of the common units, our general partner purchased 9,166 general partner units for consideration of $0.5 million to maintain its 2.0% general partner interest in us.

(2) We acquired a 33.75% interest in each of the Larry's Creek, Seely and Warrensville gas gathering systems, which are operated by Anadarko and serve production from the Marcellus shale in north-central Pennsylvania, from a third party. The interest acquired is referred to as the "Anadarko-Operated Marcellus Interest."

(3) We acquired a 25% interest in the Mont Belvieu JV, an entity formed to design, construct, and own two fractionation trains located in Mont Belvieu, Texas, from a third party. The interest acquired is accounted for under the equity method of accounting.

(4) We acquired Overland Trail Transmission, LLC ("OTTCO"), a Delaware limited liability company, from a third party. OTTCO owns and operates an intrastate pipeline that connects our Red Desert and Granger complexes in southwestern Wyoming.

(5) We acquired a 20% interest in each of TEG and TEP, and a 33.33% interest in FRP, from Anadarko. These assets gather and transport NGLs primarily from the Anadarko and DJ Basin. TEG consists of two NGL gathering systems that link natural gas processing plants to TEP. TEP is an NGL pipeline that originates in Skellytown, Texas and extends approximately 580 miles to Mont Belvieu, Texas. FRP is a 435 mile NGL pipeline that extends from Weld County, Colorado to Skellytown, Texas. The interests in these entities are accounted for under the equity method of accounting. In connection with the issuance of the common units, our general partner purchased 6,296 general partner units for consideration of $0.4 million to maintain its 2.0% general partner interest in us. See Note 2-Acquisitions in the Notes to Consolidated Financial Statements under Item 1 of this Form 10-Q.


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Presentation of Partnership assets. References to the "Partnership assets" refer collectively to the assets and interests accounted for under the equity method owned by us as of March 31, 2014. Because Anadarko controls us through its ownership and control of WGP, which owns our general partner, each of our acquisitions of assets or interests from Anadarko has been considered a transfer of net assets between entities under common control. As such, the Partnership assets or interests we acquired from Anadarko were initially recorded at Anadarko's historic carrying value, which did not correlate to the total acquisition price paid by us (see Note 2-Acquisitions in the Notes to Consolidated Financial Statements under Item 1 of this Form 10-Q). Further, after an acquisition of assets or interests from Anadarko, we may be required to recast our financial statements to include the activities of such assets or interests as of the date of common control.
The historical financial statements previously filed with the SEC have been recast in this Form 10-Q to include the results attributable to the TEFR Interests as if we owned such interests for all periods presented. The consolidated financial statements for periods prior to our acquisition of the Partnership assets or interests from Anadarko, including the TEFR Interests, have been prepared from Anadarko's historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if we had owned the assets or interests during the periods reported.

                                EQUITY OFFERINGS

Equity offerings. We completed the following public equity offerings during 2013
and 2014:
                                                                               Underwriting
                                                                               Discount and
thousands except unit            Common         GP Units       Price Per      Other Offering         Net
and per-unit amounts          Units Issued     Issued (1)        Unit            Expenses         Proceeds
May 2013 equity offering (2)    7,015,000        143,163     $     61.18     $        13,203     $ 424,733
December 2013 equity
offering (3)                    4,800,000         97,959           61.51               9,395       291,879
Continuous Offering Program
- 2013 (4)                        685,735         13,996           60.84                 965        41,603
Continuous Offering Program
- 2014 (5)                              -              -               -                   -             -

(1) Represents general partner units issued to the general partner in exchange for the general partner's proportionate capital contribution to maintain its 2.0% general partner interest.

(2) Includes the issuance of 915,000 common units pursuant to the full exercise of the underwriters' over-allotment option granted in connection with the May 2013 equity offering.

(3) Includes the issuance of 300,000 common units on January 3, 2014, pursuant to the partial exercise of the underwriters' over-allotment option granted in connection with the December 2013 equity offering. Net proceeds from this partial exercise (including the general partner's proportionate capital contribution) were $18.2 million.

(4) Represents common and general partner units issued during the year ended December 31, 2013, pursuant to our registration statement filed with the SEC in August 2012 authorizing the issuance of up to an aggregate of $125.0 million of common units (the "Continuous Offering Program"). Gross proceeds generated (including our general partner's proportionate capital contributions) were $42.6 million. The price per unit in the table above represents an average price for all issuances under our Continuous Offering Program during 2013.

(5) During the three months ended March 31, 2014, we did not issue any common units under our Continuous Offering Program.


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                             RESULTS OF OPERATIONS

                               OPERATING RESULTS

The following tables and discussion present a summary of our results of
operations:
                                                                  Three Months Ended
                                                                       March 31,
thousands                                                         2014          2013
Gathering, processing and transportation of natural gas and
natural gas liquids                                            $ 141,449     $ 102,890
Natural gas, natural gas liquids and condensate sales            136,438       121,729
Other, net                                                         1,570         1,147
Total revenues (1)                                               279,457       225,766
Equity income, net                                                 9,251         3,968
Total operating expenses (1)                                     188,550       165,711
Operating income                                                 100,158        64,023
Interest income, net - affiliates                                  4,225         4,225
Interest expense                                                 (13,961 )     (11,811 )
Other income (expense), net                                          477           674
Income before income taxes                                        90,899        57,111
Income tax expense                                                  (228 )       4,166
Net income                                                        91,127        52,945
Net income attributable to noncontrolling interest                 3,692         2,231
Net income attributable to Western Gas Partners, LP            $  87,435     $  50,714
Key performance metrics (2)
Adjusted gross margin attributable to Western Gas Partners,
LP                                                             $ 194,726     $ 143,986
Adjusted EBITDA attributable to Western Gas Partners, LP       $ 140,999     $  95,928
Distributable cash flow                                        $ 119,321     $  79,129

(1) Revenues include amounts earned from services provided to our affiliates, as well as from the sale of residue, condensate and NGLs to our affiliates. Operating expenses include amounts charged by our affiliates for services as well as reimbursement of amounts paid by affiliates to third parties on our behalf. See Note 5-Transactions with Affiliates in the Notes to Consolidated Financial Statements under Item 1 of this Form 10-Q.

(2) Adjusted gross margin attributable to Western Gas Partners, LP, Adjusted EBITDA attributable to Western Gas Partners, LP and Distributable cash flow are defined under the caption Key Performance Metrics within this Item 2. Such caption also includes reconciliations of Adjusted gross margin attributable to Western Gas Partners, LP, Adjusted EBITDA attributable to Western Gas Partners, LP and Distributable cash flow to their most directly comparable financial measures calculated and presented in accordance with Generally Accepted Accounting Principles ("GAAP").

For purposes of the following discussion, any increases or decreases "for the three months ended March 31, 2014" refer to the comparison of the three months ended March 31, 2014, to the three months ended March 31, 2013.


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Throughput
                                                                 Three Months Ended
                                                                      March 31,
                                                                                     Inc/
MMcf/d (except throughput measured in barrels)               2014        2013       (Dec)
Throughput for natural gas assets
Gathering, treating and transportation (1)                  1,592        1,251        27  %
Processing (1)                                              1,799        1,609        12  %
Equity investment (2)                                         186          201        (7 )%
Total throughput for natural gas assets                     3,577        3,061        17  %
Throughput attributable to noncontrolling interest for
natural gas assets                                            173          155        12  %
Total throughput attributable to Western Gas Partners,
LP for natural gas assets (3)                               3,404        2,906        17  %
Total throughput (MBbls/d) for crude/NGL assets (4)            79           27       193  %

(1) The combination of our Wattenberg and Platte Valley systems in the first quarter of 2014 into the entity now referred to as the "DJ Basin complex" resulted in the following: (i) the Wattenberg system volumes previously reported as "Gathering, treating and transportation" are now reported as "Processing" for all periods presented, and (ii) volumes both gathered and processed by the two systems are no longer separately reported.

(2) Represents our 14.81% share of average Fort Union and our 22% share of average Rendezvous throughput. Excludes equity investment throughput measured in barrels (captured in "Total throughput (MBbls/d) for crude/NGL assets" as noted below).

(3) Includes affiliate, third-party and equity investment throughput (as equity investment throughput is defined in the above footnote), excluding the noncontrolling interest owner's proportionate share of throughput.

(4) Represents total throughput measured in barrels consisting of throughput from our Chipeta NGL pipeline, our 10% share of average White Cliffs throughput, our 25% share of average Mont Belvieu JV throughput, our 20% share of average TEG and TEP throughput and our 33.33% share of average FRP throughput.

Gathering, treating and transportation throughput increased by 341 MMcf/d for the three months ended March 31, 2014, due to increased throughput from the Non-Operated Marcellus Interest as a result of additional connection of wells that were waiting on pipeline infrastructure and the Anadarko-Operated Marcellus Interest beginning in March 2013.
Processing throughput increased by 190 MMcf/d for the three months ended March 31, 2014, primarily due to the start-up of the Brasada facility in June 2013. Equity investment throughput decreased by 15 MMcf/d for the three months ended March 31, 2014, primarily due to lower throughput at the Fort Union system due to production declines in the area.
Throughput for crude/NGL assets measured in barrels increased by 52 MBbls/d for the three months ended March 31, 2014, due to the start-up of the Mont Belvieu JV fractionation trains, TEP and TEG in the fourth quarter of 2013.

Natural Gas Gathering, Processing and Transportation Revenues

                                                                  Three Months Ended
                                                                       March 31,
                                                                                       Inc/
thousands except percentages                                 2014          2013        (Dec)
Gathering, processing and transportation of natural gas
and natural gas liquids                                   $ 141,449     $ 102,890        37 %

Revenues from gathering, processing and transportation of natural gas and natural gas liquids increased by $38.6 million for the three months ended March 31, 2014, primarily due to revenue increases of $11.3 million, $7.4 million, and $4.5 million at the Non-Operated Marcellus Interest, the Anadarko-Operated Marcellus Interest, and Chipeta, respectively, all due to higher throughput, and an increase of $11.3 million due to the start-up of the Brasada facility in June 2013.


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Natural Gas, Natural Gas Liquids and Condensate Sales

                                                          Three Months Ended
                                                                March 31,
                                                                               Inc/
thousands except percentages and per-unit amounts      2014         2013      (Dec)
Natural gas sales                                   $  30,875    $  25,517     21  %
Natural gas liquids sales                              95,813       87,217     10  %
Drip condensate sales                                   9,750        8,995      8  %
Total                                               $ 136,438    $ 121,729     12  %
Average price per unit:
Natural gas (per Mcf)                               $    4.25    $    4.21      1  %
Natural gas liquids (per Bbl)                       $   44.77    $   47.04     (5 )%
Drip condensate (per Bbl)                           $   79.34    $   74.56      6  %

Including the effects of commodity price swap agreements, total natural gas, natural gas liquids and condensate sales increased by $14.7 million for the three months ended March 31, 2014, which consisted of a $5.4 million increase in sales of natural gas, an $8.6 million increase in NGLs sales and a $0.7 million increase in drip condensate sales.
The growth in natural gas sales for the three months ended March 31, 2014, was primarily due to higher sales volumes at the Hilight system and the Red Desert complex.
The growth in NGLs sales for the three months ended March 31, 2014, was primarily due to increases of $3.8 million, $2.2 million, and $1.6 million resulting from higher volumes processed and sold at Chipeta, the Granger straddle plant, and the Hilight system, respectively.
The increase in drip condensate sales for the three months ended March 31, 2014, was primarily due to an increase of $1.3 million at the DJ Basin complex, . . .

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