Western Gas to pay Anadarko $498MM for Colorado pipeline, gathering system focused on the Niobrara Shale

By Phaedra Friend Troy

Focusing on growth in the Niobrara Shale play, Western Gas Partners (NYSE:WES) has agreed to pay some $498 million to Anadarko (NYSE:APC) for its Wattenberg gathering system and related assets in the DJ Basin of northeastern Colorado.

“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 Partners’ President and CEO Don Sinclair. “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.”

The purchase agreement includes 100 percent interest in Kerr-McGee Gathering, which owns the 1,734-mile Wattenberg pipeline and gathering system. The purchase of the Fort Lupton processing plant with a 105 million cubic feet per day processing capacity is also included in the agreement.

The Wattenberg gathering system recorded an average throughput of 275 million cubic feet per day of natural gas for the second quarter of 2010, with Anadarko’s throughput equaling approximately 60 percent of this amount.

Contracts for Anadarkos throughput were recently converted into a 10-year fee-based agreement.

To handle the remaining commodity-price risk associated with the assets, Western Gas and Anadarko are entering a five-year, fixed price commodity swap agreement.

“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.

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