Western Gas Partners LP Earnings Call Nuggets: Marcellus Asset and Organic Growth

Western Gas Partners, LP (NYSE:WES) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Marcellus Asset

Brett Reilly – Credit Suisse: Just a quick question on the dropdown on third-party acquisition. Can you maybe give us a little color on why you chose to go after the Marcellus asset versus some of the other areas in which Anadarko was operating?

Donald R. Sinclair – President and CEO: Brett, I want to make sure I understand the question you’re asking about. Is it the Anadarko drop or the Chesapeake acquisition? I want to make sure I answer the question….

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Brett Reilly – Credit Suisse: Just I guess more generally, why the Marcellus, I guess on the dropdown side of things, relative to maybe some of the systems in the Eagleford or other areas the Anadarko is really ramping?

Donald R. Sinclair – President and CEO: Right, you know we look at numerous variables before we determine what could be our next acquisition from Anadarko. There’s capital maturity, quality resources, contracts, and scale and scope. When we went to the inventory and looked at where we are in time, we thought the Marcellus assets based on the quality of the contracts, and the scale and scope fit us best at this time.

Brett Reilly – Credit Suisse: Then maybe just a little color on expected ramp in cash flow from those assets throughout the course of the year? It sounds like you’re expecting volumes to grow pretty significant throughout the course of the year?

Benjamin M. Fink – SVP, CFO and Treasurer: This is Ben. If you can see on our pie chart, we’re spending a big chunk of CapEx on those assets and we expect to realize some pretty good returns on those assets due to the cost of service model. So as we mentioned, we think the 2014 multiples would be a lot lower than the 2013 multiples.

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Organic Growth

Elvira Scotto – RBC Capital Markets: Couple of questions for me. So, it looks like with this dropdown, the assets were acquired maybe a little before reaching capital maturity and we’re seeing some more, I guess organic growth. How should we think about that maybe going forward? I know WES is a dropdown story first and foremost, but should we be thinking about sort of maybe some sort of base level of kind of organic growth built into the model now?

Benjamin M. Fink – SVP, CFO and Treasurer: This is Ben again. Elvira, good morning. I think when we talk about it last year when you saw the big step up in our growth CapEx we asked is this kind of a one-time aberration and what we said at the time is this is more like the new normal. We’re now a year into that and what you are seeing is that as WES has increased its own scale and scope we’re capable of having a larger growth CapEx burden. So, we’re comfortable at these levels. I think capital maturity will always be a factor in terms of attractiveness of near-term dropdown candidates, but we’re certainly more comfortable spending lot of CapEx than we used to.

Donald R. Sinclair – President and CEO: Elvira, one those thing if you think about organic growth projects the multiple on them, is lower than the estimate multiples, lower than what our usual acquisition is so for us, we like where it fits relative to accretion and in our mind it’s just part of preparing for future growth.

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Elvira Scotto – RBC Capital Markets: The other question that I had is really around ethane rejection, maybe talk a little bit about – because you kind of mentioned it how it impacted fourth quarter, maybe talk a little bit about how if at all you think it’s going to impact 2013 and if you’ve built some of that into the guidance.

Brett Reilly – Credit Suisse: Just a quick question on the dropdown on third-party acquisition. Can you maybe give us a little color on why you chose to go after the Marcellus asset versus some of the other areas in which Anadarko was operating?

Donald R. Sinclair – President and CEO: Brett, I want to make sure I understand the question you’re asking about. Is it the Anadarko drop or the Chesapeake acquisition? I want to make sure I answer the question….

Brett Reilly – Credit Suisse: Just I guess more generally, why the Marcellus, I guess on the dropdown side of things, relative to maybe some of the systems in the Eagleford or other areas the Anadarko is really ramping?

Donald R. Sinclair – President and CEO: Right, you know we look at numerous variables before we determine what could be our next acquisition from Anadarko. There’s capital maturity, quality resources, contracts, and scale and scope. When we went to the inventory and looked at where we are in time, we thought the Marcellus assets based on the quality of the contracts, and the scale and scope fit us best at this time.

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Brett Reilly – Credit Suisse: Then maybe just a little color on expected ramp in cash flow from those assets throughout the course of the year? It sounds like you’re expecting volumes to grow pretty significant throughout the course of the year?

Benjamin M. Fink – SVP, CFO and Treasurer: This is Ben. If you can see on our pie chart, we’re spending a big chunk of CapEx on those assets and we expect to realize some pretty good returns on those assets due to the cost of service model. So as we mentioned, we think the 2014 multiples would be a lot lower than the 2013 multiples.

A Closer Look: Western Gas Partners Earnings Cheat Sheet>>