Western Gas Partners LP is buying the Wattenberg gathering system and related assets in the Denver-Julesberg Basin of northeastern Colorado from Anadarko Petroleum Corp. for consideration of $498 million, the partnership said Monday, noting that the acquisition gives it an opportunity to serve liquids-rich gas production in the basin.
"We are very excited to move into another liquids-rich basin with the acquisition of the Wattenberg assets, where producers are experiencing strong economic returns," said Western Gas CEO Don Sinclair. "We expect the transaction to be immediately accretive to distributable cash flow. Furthermore, the ongoing developments from horizontal drilling in the basin, as well as the emerging horizontal Niobrara play, provide substantial organic growth potential for these assets."
Western Gas will purchase Anadarko's 100% interest in Kerr-McGee Gathering LLC, which owns the 1,734-mile Wattenberg gathering system and related facilities, including the Fort Lupton processing plant with capacity of 105 MMcf/d. The average throughput on the gathering system for the second quarter was about 275 MMcf/d, with Anadarko's equity throughput representing about 60%.
Contracts covering Anadarko-affiliated throughput were recently converted to a 10-year, fee-based agreement. Given the change to the affiliate contracts, historic financial results are not reflective of future performance, Western Gas said. The acquisition price represents an approximate 8.2x-times multiple of the assets' forecasted earnings before interest, taxes, depreciation and amortization for the next 12 months.
To manage the remaining commodity-price risk associated with the assets, Western Gas and Anadarko will enter into five-year, fixed-price commodity swap agreements. "Consistent with the swap arrangements put in place with previous transactions, these agreements will cover all non fee-based system volumes and keep our distributable cash flow largely insulated from changes in commodity prices," said Sinclair.
Western Gas expects the acquisition to be financed through a bank-syndicated $250 million unsecured term loan scheduled to close concurrent with the transaction, a $200 million draw on its revolving credit facility, $23.1 million of cash on hand and the issuance of 1,048,196 common units to Anadarko and 21,392 general partner units to Western Gas Holdings LLC, the partnership's general partner, at an implied price of about $23.28/unit.
In addition, Western Gas said it expects to exercise the accordion feature on its revolving credit facility to increase total commitments from $350 million to $450 million, leaving $140 million in available borrowing capacity under the facility after the Wattenberg acquisition.
The deal is expected to close in early August with an effective date of July 1, 2010.
Early this year Western Gas completed another transaction with Anadarko, purchasing midstream assets in southwest Wyoming for $254.4 million (see Daily GPI, Feb. 2). At the time it was the largest acquisition since Western Gas' initial public offering. Western Gas Partners was launched by a public offering by Anadarko in 2008 in which it acquired some Powder River Basin infrastructure (see Daily GPI, Dec. 23, 2008).
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