If you woke up in a different place, at a different time, could you be owned by a different company?
Western Gas Partners (WES) will own 100% of the Delaware Basin JV (DBJV) gathering system after announcing plans to swap assets with Williams Partners (WPZ) on Thursday. WES agreed to pay $155 million and exchange its 33.75% interest in the Rome & Liberty gathering systems in the Marcellus, which are operated by WPZ. Interestingly, reported 2016 EBITDA for the DBJV system is only $35 million on an annual basis, versus $82 million for the Marcellus assets. This implies significant growth expectations for DBJV above our base-case estimates, and APC recently announced plans to operate 14 rigs in the Delaware Basin by the end of 1Q17. Allocating all of APC’s rig additions to DBJV and additional APC spending increases in 2018 makes the case for more than $80 million in EBTIDA by 2019 for the DBJV system. The main risk with DBJV is the fact that Shell is dedicated to Crestwood’s new Nautilus System, which is expected to steal future growth from DBJV starting this year. However, APC’s revised plans more than offset the loss from Shell. Beyond the outright numbers, the transaction also provides more flexibility for WES in that the company can combine its two primary gathering systems in the Permian: DBJV and Delaware Basin Midstream (purchased from Nuevo). The outlook provided by APC is likely guiding the deal, similar to Nuevo Midstream. In that case, WES appeared to overpay for Nuevo initially, but the purchase of that system proved to be one of the most important growth engines several years later. (Tickers: WES, WPZ)