Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Western Gas Partners, LP (NYSE:WES)

Q2 2013 Earnings Conference Call

August 1, 2013 12:00 PM ET

Executives

Donald R. Sinclair – President and Chief Executive Officer

Benjamin M. Fink – Senior Vice President, Treasurer and Chief Financial Officer

Danny J. Rea – Senior Vice President and Chief Operating Officer

Analysts

Bradley Olsen – Tudor Pickering Holt & Co.

Selman Akyol – Stifel, Nicolaus & Co., Inc.

Brett Reilly – Zimmer Partners LP

Operator

Good morning. My name is Lorelle, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Western Gas Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After our presenters’ remarks, we will have a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn the call over to your Mr. Benjamin Fink, Senior Vice President, CFO and Treasurer. Please go ahead?

Benjamin M. Fink

Thank you. Good morning, everyone. I’m glad you could join us today to discuss Western Gas’ Second Quarter 2013 Results. Please note, that on this call we will be referring to Western Gas Partners as WES and Western Gas Equity Partners as WGP.

Joining me on the call today are Don Sinclair, our President and CEO; Danny Rea, our COO; and other members of the management team, who will be available to answer your questions later in the call.

Before I turn the call over to Don, I’ll remind you that this presentation contains estimates that are based on the best information available to us at this time, and we believe that these estimates are reasonable. However, a number of factors could cause actual results to differ materially from what we discussed. You should read our full disclosure on forward-looking statements, our presentation slides, our latest 10-K, our other SEC filings, and our press releases for the risk factors associated with our business and other relevant information. In addition, we’ll be referencing certain non-GAAP measures on the call, so be sure to see the reconciliations in our earnings release.

As a reminder, you can view and download all of these materials, including the slides that we will refer to on this call, at www.westerngas.com.

With that, let me turn the call over to Don.

Donald R. Sinclair

Thanks, Ben. Good morning, everyone, and thank you for joining us today. As you can see on slide three, we achieved several milestones during the month of June. With the start-up of our Brasada facility, we successfully completed the largest capital project in our history.

We announced an expansion of our Lancaster facility with the sanctioning of a second 300 million a day processing train. We also announced our acquisition of a 25% interest in a joint venture formed to build and own fractionators 7 and 8 at Enterprise’s Mont Belvieu complex.

We raised WES’ second quarter distribution to $0.56 per unit, a 17% increase over last year and we raised WTP’s distribution to $0.1975 per unit, which is a 10% increase over the first quarter. Yesterday, we announced our second quarter results for 2013. We reported adjusted EBITDA of $107.6 million, and distributable cash flow of $89.8 million, both of which are solidly in line with our expectations. Our coverage ratio of 1.13 times meets our long-term target, and we still expect the next two quarters to fall below 1.1 times as additional maintenance CapEx is incurred in the second half of the year.

We are strongly encouraged by our second quarter throughput numbers, as we experienced sequential growth in the DJ and Marcellus basins, as well as our Chipeta, Red Desert, Hilight and Granger facilities. We completed repairs at Chipeta Train II and returned it to service at the end of the quarter.

As discussed last quarter during an outage, we were able to process substantially all the available gas through our refrigeration trains. The financial impact of lower refrigeration processing fee during the Chipeta Train II downtime was similar to what we experienced in the first quarter.

Our gross margin per Mcf was unchanged from what we reported in the first quarter. The Marcellus assets that we acquired in March represent the first assets in our portfolio that are both high growth and low margin, which means the portfolio of gross margin per Mcf may not trend in the same way it did, but only our high-margin assets were growing, and our lower margin assets were in decline.

Now with Brasada successfully completed, I’d like to quickly update you on the status of Lancaster Train I. Construction is approaching 40% complete and remains on time and on budget. We continue to monitor the progress of the Front Range Pipeline construction, which will need to be completed before Lancaster can come online.

Now I’d like to take a moment to discuss a small, but strategic, acquisition that we signed during the quarter. We’ve agreed to acquire the OTTCO Pipeline from a third party and as you can see from the map on slide six, this asset is valuable to us, because it connects our Patrick Draw and Granger facilities. The negotiated purchase price is $27.5 million and we expect the asset to generate approximately $3.5 million of annual EBITDA.

We’re excited to add this asset to our portfolio as it helps increase our operating flexibility in the Green River Basin. We anticipate the acquisition will close some time during the third quarter after all regulatory approvals are received.

As you read in yesterday’s release, our EBITDA guidance for 2013 is unchanged. We’re raising the total capital expenditure guidance to $670 million to $740 million to include the 2013 portion of Lancaster II, as well as additional expansion capital needed at both Wattenberg and Hilight.

Note that this capital expenditure range does not include acquisitions, nor does it includes approximately $140 million of equity investments we expect to make this year at [Lakecrest] and the Mont Belvieu fractionators. Also please note that we are not changing the full year maintenance CapEx as a percentage of EBITDA range of 9% to 12%, even though it was only 6% for the first half of the year.

In closing, you may recall that WES celebrated its fifth birthday during the second quarter. It’s been a great five years since WES’ IPO. The unit prices increased by over 250%, quarterly distributions increased by 87%. We’ve completed over $2.5 billion of acquisitions. We’ve received investment-grade rating from all three agencies, and we’ve raised over $3 billion of committed capital.

Our management team achieved these results while managing through several challenging environments, including the financial crisis of 2008, and the precipitous drop in ethane and propane prices in early 2012.

We have seen challenging environments before, and no doubt we’ll see them again, but we believe our business model has withstood the test of time and our management team will continue to work diligently to maximize unit holder value regardless of market conditions.

None of what we’ve achieved would have been possible without the support from you, our unit holders and our lenders. We remain very grateful for your interest in us.

With that, operator, I’d like to open up the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Bradley Olsen with Tudor Pickering. Your line is open.

Bradley Olsen – Tudor Pickering Holt & Co.

Hi, good morning guys.

Benjamin M. Fink

Good morning.

Donald R. Sinclair

Good morning, Brad.

Bradley Olsen – Tudor Pickering Holt & Co.

First question is on CapEx. I noticed that between this quarter and last quarter the range that you provided for the full year ticked up between about $120 million and $140 million exclusive of the investments in the fractionators. And between the 50% of Lancaster II spending and the $30 million OTTCO acquisition, seems like there is maybe room for one other item in there. Is that timing around Marcellus well connects or is something else driving that delta?

Benjamin M. Fink

Thanks Brad. This is Ben and good morning again. OTTCO is actually not in there, because that is exclusive of acquisitions. So what you really have is, as you mentioned, the 2013 portion of Lancaster II. As Don mentioned, you’ve got expansion projects at Wattenberg and Hilight, and that’s just driven by additional development in those areas.

Bradley Olsen – Tudor Pickering Holt & Co.

All right, great, thanks. Thanks Ben. And as far as Brasada goes, congrats on getting that plant completed. What kind of ramp up schedule or EBITDA .contribution schedule are you looking at over the next couple of quarters as that gets ramped up?

Benjamin M. Fink

Sure. This is Ben again. As you know, starting January 1 of next year will be a 180 a day will be guaranteed and we’re going to ramp up slowly from, call it, less than 50 to 180 over the course of the year. Best guess of EBITDA contribution for this year call it $10 million to $20 million.

Bradley Olsen – Tudor Pickering Holt & Co.

Great, thanks. And on the OTTCO acquisition, connecting it looks like two of your other facilities from your presentation. Is that an asset that can provide you with more organic opportunities going forward, or does it just allow you to run your existing assets more efficiently? And that’s it for me. Thanks.

Donald R. Sinclair

Brad this is Don. Obviously, it will give us ability to use the hydraulics between the two plants with the pipe. We’ve got a quality end use around there as well as deliveries off-system. And the pipe is also laid through the checkerboard that Anadarko has some mineral interest in, so we do believe there is going to be some good, solid organic growth around it over time as well.

Bradley Olsen – Tudor Pickering Holt & Co.

Thanks, guys.

Operator

Your next question comes from the line of Selman Akyol with Stifel. Your line is open.

Selman Akyol – Stifel, Nicolaus & Co., Inc.

Thank you, good morning.

Donald R. Sinclair

Good morning.

Selman Akyol – Stifel, Nicolaus & Co., Inc.

Two quick questions for me. Last quarter you talked about how many hookups you had in the Marcellus. Can you give that number again?

Donald R. Sinclair

Sure. If you combine our non-op and our operated, close to 100.

Selman Akyol – Stifel, Nicolaus & Co., Inc.

Okay. And then also on Brasada, I know you just completed the first plant, but I guess there was maybe looking at starting a second train, given demand that you were seeing there. Is there any update on that?

Danny J. Rea

Yes. Hi, this is Danny Rea. Given the active program by Anadarko in that area, we have currently done some FEED studies on a potential Train II. We’ll be continuing to evaluate that.

Selman Akyol – Stifel, Nicolaus & Co., Inc.

All right. That’s it for me. Thanks.

Operator

(Operator Instructions) Your next question comes from the line of Brett Reilly with Zimmer Partners. Your line is open.

Brett Reilly – Zimmer Partners LP

Good morning, guys. Just a quick question on the acquisition you made today. Do you see other opportunities similar to the one you announced within the rest of your footprint?

Donald R. Sinclair

Brett, it’s hard to say. We’re always looking for anything that’s synergistic that we can add in existing footprint, whether it’s in Wyoming or Colorado or Utah or even in South Texas. So it’s just kind of hard in a market like this to determine what’s going to drop next. It’s safe to say we’re looking at everything we can that's attached to our systems.

Brett Reilly – Zimmer Partners LP

Okay. That’s all for me. Thanks.

Operator

With no further questions in queue, I’ll turn the call back over to our presenters.

Donald R. Sinclair

Thank you again for joining us today and for your interest in Western Gas. And we look forward to seeing all of you before too long. Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Western Gas Partners' CEO Discusses Q2 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts