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Western Gas moves closer to full processing capacity, scans for M&A targets

Aftera quarter in which AnadarkoPetroleum Corp. affiliate WesternGas Partners LP posted year-over-year gains, partnership executivestouted the prospects for their Delaware Basin assets and offered a window intoM&A opportunities.

"Thedrivers behind [Western Gas'] first-quarter results were sequential natural gasthroughput growth in the DJ Basin and an uptick in Marcellus volumes due to flushproduction related to wells coming back online," President and CEO DonaldSinclair told analysts during the company's first-quarter earnings call May 4.

"DelawareBasin gathering volumes were up sequentially, while Delaware processing volumeswere significantly lower due to Ramsey being offline for the entire quarter,"he added.

Thepartnership has made significant progress toward the completion of Ramseytrains 4 and 5 at its DelawareBasin Midstream LLC complex, Sinclair noted.

Ramsey3, which has been partially operational since the beginning of April, isrunning at about 125 MMcf/d.

Ramsey4 and 5 are slated to go online during the second and third quarters,respectively. Ramsey's second train is expected to begin commercial operationsduring the fourth quarter.

Ramsey3, 4 and 5 are expected to collectively generate 600 MMcf/d.

Managementis also optimistic about the scope for M&A activity in the second half of2016. "We'll continue to be engaged in the process and look for assetsthat we think fit our model," Sinclair said. "I think you'll seeincreased M&A. I think you'll see it in the back half of this year."

Highermargins compensated for slightly weaker volumes, Deutsche Bank analyst KristinaKazarian said in a May 4 note, stating that Western Gas' natural gas throughputof 3.8 Bcf/d was 11% lower year over year due to a decline in volumes after afire that damagedRamsey 2 in December.

Onthe possibility of volumes getting stronger, Sinclair said: "These playsaren't uniform. … We're just waiting to see where capital gets deployed andwhere rigs are stood up."

"Someof our largest producers … need to see price plus stability on the demand side,"Western Gas Partners CFO and Treasurer Benjamin Fink said.

WesternGas Partners reaffirmed its 2016 financial outlook during its fourth-quarter callin February. This includes an adjusted EBITDA ranging between $860 million and$950 million and distribution growth of 10% at Western Gas Partners and 20% atWestern Gas Equity Partners LP.The outlook does not include the effect of any potential future acquisitions.

Themaster limited partnership achieveda coverage ratio of 1.21x, calculated on the basis of a full quarter ofearnings from its Springfield Pipeline LLC acquisition from Anadarko, as wellas 18 days of financing costs associated with the convertible preferredoffering in March, Fink said.

Forthe first quarter, Western Gas reported net income available to limitedpartners of $47.0 million, or 31 cents per unit, comparedto a net loss available to limited partners of $218.7 million, or a loss of$1.61 per unit, in the year-ago quarter.

The S&P Capital IQ consensus normalized EPS estimate for thefirst quarter was 40 cents.

First-quarter adjusted EBITDAamounted to $231.1 million, compared to $220.0 million in the same period lastyear.