Yesterday Anadarko Petroleum ($APC) filed an S-1 registration statement to take the General Partner of Western Gas Partners $WES public. The GP will be named Western Gas Equity Partners, LP and trade under the ticker $WGP. $WGP will own the 2% GP interest in $WES, all of the Incentive Distribution Rights (IDR’s), and a 47% limited partner interest in $WES. Basically the GP’s only asset will be its investment in $WES and its preferential right to a larger portion of the cash distributed.
This is a great potential long term investment for those yield hungry investors. $WES is only 5 years old and $APC has billions in midstream assets for potential drop drowns, which 2013/2014 could see significant growth in distributions. The table below represents the “hypothetical” distributions for $WGP over the next six years. Basically this table tells investors you can buy $WGP and if management executes on the plan in the next six years we plan to increase distributions by 60%. That does not include the likely rise in the equity value of $WGP as the units increase in value in harmony with distribution growth. Of course no one can predict what will happen in six years, but this is pretty good picture for investors to knaw on.
The only downside in my view in this announcement is that $WGP is not a C-Corp or an LLC, but rather an LP. This means the owners of the GP will also receive a K-1 at year end for tax purposes, instead of the simpler 1099-DIV. $KMI, $WMB, and $SEMG chose the C-Corp route for GP ownership. The C-Corp route is preferred by institutional investors and friendly to tax deferred accounts.
$WGP should be a great investment for yield investors, but after last nights US election all investment decisions should be re-evaluated. The US is likely to go over the fiscal cliff, receive another downgrade from rating agencies, and face a shrinking GDP. All of those factors are recipe for a recession and likely put pressure on equity values in the short-medium-long term time period.