Wednesday, April 1, 2015

Western Gas Partners - Undercovered Midstream Gem With Minimum Commodity Exposure

This article was first published by Seeking Alpha on March 9, 2015.

By Sarfaraz A. Khan

Amid the ongoing downturn in the energy space, the dividends of several energy companies have come under pressure. But the cash distributions offered by some midstream master limited partnerships - such as Western Gas Partners (NYSE:WES) -- offer protection against the commodity price swings.

Western Gas Partners is a relatively young midstream MLP which was formed by Anadarko Petroleum (NYSE:APC) and debuted at the stock market in 2008. Around 8% of the MLP's limited partner interest is owned by Anadarko while 35% of its limited partner and nearly 2% of the general partner interest is held by Western Gas Equity Partners (NYSE:WGP). Western Gas Partners owns and operates natural gas gathering systems, pipelines, treating and processing plants as well as NGL pipelines and a single oil pipeline. These assets are located in Colorado, Utah, Wyoming, Kansas, Oklahoma, Pennsylvania and Texas.

Western Gas has a fee-based business model under which it receives a payment at predetermined rates for every unit of gas gathered, treated or processed at its facilities. This rate of payment is usually underpinned by long-term agreements. These factors minimize the company's exposure to commodity price swings.

Western Gas Partner's cash flows have virtually no exposure to the volatility in commodity prices. That's because about 80% of its services are based on fee-based long-term agreements. In addition to this, the company also signs commodity price swap agreement for most of its percent-of-proceeds and keep-whole contracts. Consequently, last year, 99% of Western Gas's gross margins came from either long-term ...... read full article at Seeking Alpha.