Tags: Western | Gas | Anadarko | WES

Western Gas Partners: Strong Anadarko Spinoff

Wednesday, 15 Feb 2012 10:27 AM

By Dan Weil

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Western Gas Partners (WES), a midstream master limited partnership (MLP), is turning into a strong spinoff of oil company Anadarko Petroleum (APC) with a healthy and rising dividend.

Anadarko spun off Western Gas in 2008 and still holds a controlling stake in the MLP. In 2010, 84 percent of Western Gas revenue came from its parent.

Western Gas gathers, processes, treats, and transports natural gas, natural gas liquids, and crude oil in the Rockies, Texas, and the central United States.

The MLP has done well by its shareholders. It has increased its dividend by 47 percent over the last three years. Western Gas shares have provided an annualized total return of 44 percent during that period, beating Morningstar’s midstream oil and gas average by more than 10 percentage points.

Given that steep run-up, you might want to wait for a correction before purchasing shares.

Anadarko’s benefits to Western Gas can’t be overstated. In the last three years, through five transactions totaling $1.2 billion, Anadarko dropped down a range of fee-based gathering, processing, and pipeline assets.

Juicy deals


The deals were priced between seven and nine times earnings before interest, taxes, depreciation, and amortization (EBITDA). That’s probably less than any other company would have charged Western Gas for such valuable assets and their fee-based contracts, according to Morningstar.

All of the partnership’s cash flow comes from long-term fee-based contracts with fixed prices. That insulates Western Gas from commodity price fluctuation, giving it a crucial advantage over its rivals.

Among analysts tracked by Thomson Reuters, four rate Western Gas shares a strong buy, six rate them a buy, and four rate them a hold.

The partnership reported profit of $40.7 million in the third quarter, up 22 percent from a year earlier. Revenue surged 43 percent to $175.9 million.

Western Gas next reports on Feb. 27.

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