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Master Limited Partnerships

One for Growth, One for Income

By Roger S. Conrad, on Sep. 23, 2013

Western Gas Equity Partners owns the general-partner interest and an almost 45 percent equity stake in Western Gas Partners LP (NYSE: WES), one of our top picks for low-risk distribution growth.

Not does Western Gas Partners boast an incredibly supportive sponsor, Anadarko Petroleum Corp (NYSE: APC), that plans to drop down much of its midstream infrastructure, but the partnership also stands to benefit from rising throughput as its parent ramps up drilling activity in the liquids-rich Niobrara Shale.

The symbiotic relationship between parent company and child partnership has yielded one drop-down deal thus far in 2013–a 33.75 percent interest in the Liberty and Rome gas gathering systems that serve producers in the north-central portion of the Marcellus Shale.

More recently, Western Gas Partners recently announced the construction of a second cryogenic train at its Lancaster gas-processing plant in the Denver-Julesburg basin. This expansion, which is expected to come onstream in 2015, will handle guaranteed volumes of at least 200 million cubic feet per day from Anadarko Petroleum.

In addition to these growth drivers, we expect Western Gas Partners to continue to pursue opportunistic third-party deals in a bid to diversify its geographic footprint and customer base.

For example, in mid-June, the midstream operator announced the purchase of a 25 percent stake in a joint venture with blue-chip MLP Enterprise Products Partners LP (NYSE: EPD) that will own two fractionation trains at Mont Belvieu, Texas. These facilities separate the stream of natural gas liquids (NGL)–a heavier group of hydrocarbons that includes ethane, propane and butane–into purity components.

What does this mean for Western Gas Equity Partners? This visible pipeline of expansion opportunities and acquisitions at the limited-partner level will translate into outsized distribution growth for the general partner. Whereas management’s 2013 guidance calls for Western Gas Partners to grow its payout by at least 15 percent, Western Gas Equity Partners looks poised to increase its distribution by a whopping 33 percent.

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