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$750 Million Dropdown from Anadarko: Will Western Gas Benefit?

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Asset dropdown from Anadarko Petroleum Corporation

Western Gas Partners (WES) announced the acquisition of 100% interest in Springfield Pipeline from its sponsor, Anadarko Petroleum (APC), for $750 million. Antero Midstream Partners (AM), EQT Midstream Partners (EQM), and Rice Midstream Partners (RMP) are among the midstream MLPs that benefit from sponsors’ midstream assets. WES forms ~0.72% of the Global X MLP & Energy Infrastructure ETF (MLPX).

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Acquired assets

According to a press release, “The Springfield system consists of 548 miles of gas gathering lines with a capacity of 795 MMcf/d and 241 miles of oil gathering lines with a capacity of 130 MBbls/d, located in Dimmit, La Salle, Maverick and Webb Counties in South Texas. The assets to be acquired also include 24 compressor stations with centralized delivery points, 260,000 barrels of oil storage capacity and 75,000 Bbls/d of stabilization capacity.”

Will WES benefit or lose from this acquisition?

The Springfield system gathers Anadarko’s shale production in the Eagle Ford shale region. The Eagle Ford formation has experienced a decline in crude oil and natural gas production due to a decline in commodity prices. This might negatively impact the Springfield system’s throughput volumes. However, according to WES, “The Springfield system generates 100% fee-based revenues through gathering agreements with four shippers having primary terms through December 31, 2034. Furthermore, approximately 75% of the annual volume forecast for the system is covered under minimum volume commitments from the four shippers throughout the term of the agreements.” We’ll have to wait and see whether WES benefits or loses from this acquisition in the long run.

Means of financing

The partnership intends to finance the acquisition through the following means:

  • ~$449 million through the issuance of perpetual convertible preferred units to First Reserve Advisors and Kayne Anderson Capital Advisors
  • ~$54 million through the issuance of common units to Anadarko and Western Gas Equity Partners (WGP)
  • ~$247.5 million through borrowing under a revolving credit facility
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