Top Picks 2017: Western Gas Partners

01/12/2017 6:00 am EST


Peter Staas

Managing Editor, Capitalist Times and Energy & Income Advisor

Our Top Pick for conservative investors is an MLP that benefited from an uptick in throughput volumes on its gas-gathering and gas-processing systems, explains Peter Staas, editor of Capitalist Times.

Western Gas Partners LP (WES) hiked its third-quarter distribution by 1.8 percent sequentially and 9 percent year over year. Excluding one-time items, the MLP generated enough cash flow to cover this higher payout by an impressive 142 percent.

Management expects this volumetric growth to continue in the Permian Basin and Niobrara Shale - areas where Anadarko Petroleum (APC), the MLP's sponsor, plans to focus its capital expenditures over the next several years.

Western Gas Partners stands to benefit over the long haul from Anadarko Petroleum's plans to accelerate its drilling activity in the Permian Basin and Niobrara Shale.

Anadarko Petroleum boasts a leading position and some of the best economics in the Niobrara Shale, where the exploration and production company added two rigs to the one drilling team already operating there.

Management expects the company to drill 90 more wells than expected in the Niobrara Shale and complete an additional 50 wells that had accumulated in its inventory. These trends bode well for throughput volumes on Western Gas Partners' systems in the fourth quarter and in 2017.

Future growth opportunities in the Permian Basin include a second processing hub, a header pipeline system and takeaway capacity for residue gas.

In addition to these organic growth opportunities, Anadarko Petroleum still holds interests in the Panola and Saddlehorn pipelines that could be dropped down to Western Gas Partners at some point.

The sponsor has also demonstrated its support for the MLP repeatedly, dropping down midstream assets in the Permian Basin for what amounts to an IOU and providing protections against weak NGL prices. Buy Western Gas Partners LP up to $60 per unit.

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