Earnings Labs

Western Midstream Partners, LP (WES)

Q2 2013 Earnings Call· Fri, Aug 2, 2013

$41.77

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Transcript

Operator

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

Management

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

Management

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…

Operator

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

Management

Good morning.

Donald R. Sinclair

Management

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

Management

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

Management

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

Management

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

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

Management

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

Management

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

Analyst · Selman Akyol with Stifel

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

(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

Management

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

Operator

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

Donald R. Sinclair

Management

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

Operator