Western Gas Partners (NYSE: WES) is a master limited partnership organized by Anadarko Petroleum Corporation to own, operate, acquire and develop midstream energy assets. With midstream assets in East and West Texas, the Rocky Mountains and the Mid-Continent, Western Gas Partners is engaged in the business of gathering, processing, compressing, treating and transporting natural gas, condensate, natural gas liquids and crude oil in the United States for Anadarko and other producers and customers. With Anadarko attributing for 74% of their volume, Western Gas Partners is very dependent on Anadarko’s continued production volumes near Western Gas Partner’s area of operations. In 2010, Western Gas Partners earned $126 million on revenues of $503 million.
In the past 3 years, Western Gas Partners has increased their processing throughput from 323 mcf to 681 mcf. They have fueled their growth through asset acquisitions and, in 2010, they bought 10% ownership in a pipeline and over a billion dollars of other midstream assets.
Although midstream operators are not directly exposed to commodity risks like producers, changing commodity prices heavily impact the revenue and volume of midstream companies. When prices are high, exploration and production companies have an incentive to produce more and, when prices are low, producers produce less. Because Western Gas Partners’ revenue depends on the volume of natural gas and oil that flows through, it is directly affected by the producer’s actions.
Over the past 6 months, FERC has allowed interstate liquid pipelines to raise their rates by the Producer Price Index (PPI) plus 2.65%. However, looking past “core inflation,” PPI has increased at an 11% annualized rate over the last six months. Continued increases in PPI over inflation will bring increased revenues for natural gas transporters.
Competitors are always expanding or constructing new midstream systems that would threaten Western Gas Partner’s operating area. In addition, customers may also develop their own current midstream systems.