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Western Gas: Uinta Basin Midstream Poised for Growth

Western Gas Partners LP's Chipeta midstream operations in the Uinta Basin of Utah are positioned to become the top processing hub for the region's natural gas producers, CEO Bob Gwin said last week.

The partnership, launched through a public offering last year by Anadarko Petroleum Corp. (APC), said 2Q2009 profits grew 16% to $17.8 million (32 cents/unit) from the year-ago period on higher margins because of lower commodity prices. Revenue, however, slumped -- also because of lower prices. Total throughput averaged 1,060 MMcf/d, essentially flat compared with the first three months of 2009, and about 6% below 2Q2008.

"The throughput levels were encouraging, considering the natural gas environment," Gwin told energy analysts during a conference call. "We reported strong performance...primarily as a result of stable throughput and continued progress on cost reduction initiatives, with respect to both operating expenses and capital expenditures."

Last month the partnership acquired a 51% stake in Chipeta Processing LLC, which owns a gas processing complex in the Uinta Basin (see NGI, July 27). The complex includes two recently completed processing trains: a refrigeration unit with a design capacity of 240 MMcf/d and a 250 MMcf/d capacity cryogenic unit that was commissioned in April. APC continues to own a 24% interest in Chipeta, and a quarter stake is owned by Ute Energy Midstream Holdings LLC.

In its spin-off from APC last year, Western Gas acquired some Powder River Basin infrastructure (see NGI, Jan. 5). The onshore operator now has nine natural gas gathering systems, six treating facilities, three processing facilities, one regulated gas pipeline and one natural gas liquids pipeline, and it operates 4,600 miles of pipeline.

But it is the Chipeta system that holds visible promise, said Gwin. About 90% of the processing services now are for APC, "and that helps us drive down the breakeven on gas prices even more." Chipeta's current throughput is 375 MMcf/d, but with more production expected from the area's Greater Natural Buttes Field, more customers are expected, he said.

"In the current commodity environment, liquids are much more attractive," Gwin said. "Anadarko has [an estimated] 1.7 Tcf of proved reserves in the field in Uinta, and we've had a number of third parties interested in third-party processing...positioning us to become the premier hub to serve the Uinta Basin."

Producers continue to drill in the region, he said. APC has four rigs "actively drilling there, even at today's gas prices...It's still an economic play...Clearly the second half of the year will be challenging for industry. If all of the [gas] storage gets full later in the summer there may be no place for gas to go..."

But "assuming the status quo, we still have a pretty good degree of comfort that we'll be able to deliver consistently with what we've done in the past, plus more with Chipeta...There's a tremendous amount of reserves in the basin."

Looking beyond the Chipeta acquisition, Gwin told analysts that there are "lots of assets to choose from" among APC's midstream offerings. "Anadarko has high growth even in current environment, and it's spending a lot of capital. From an outside acquisition standpoint, we look at lots of stuff..."

Western Gas "is a drop down story in the traditional sense, but obviously there's been a lot of disruption in the market, and a rapidly changing environment," said Gwin. "We could be a very attractive acquirer of third-party assets, but we sit in an enviable position to not need those assets...I don't expect us to be in a competitive bid situation, given the robust portfolio of opportunities from Anadarko. Our model is built around those growth paths...and to build a growth profile that is continuous, dependable, and mostly boring, consistent, plodding growth is what we set out to deliver."

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