Occidental, Western Midstream Partners take steps to separate MLP into standalone co.

Houston-based Occidental Petroleum Corp. (NYSE: OXY) and The Woodlands-based Western Midstream Partners LP (NYSE: WES) announced on Jan. 6 several steps they’ve taken to start separating.

Occidental gained control of the master limited partnership via its acquisition of The Woodlands-based Anadarko Petroleum Corp. Prior to the $55 billion acquisition closing in August 2019, reports surfaced that Occidental was considering selling half of Anadarko’s interest in the MLP and its general partner. That plan was paused in the fall after Occidental failed to find an attractive offer, Reuters reported at the time.

Now, the companies have revealed they’ve been working on separating WES into a standalone midstream company. Occidental said it would reduce its stake in WES below 50 percent during 2020.

In December, the WES management team’s employment was transferred from Occidental to WES, “which ensures independent managerial control of WES’s strategic initiatives and day-to-day operations,” a Jan. 6 press release from WES states. Some of Occidental’s employees also are slated to transfer to WES in 2020 and were fully dedicated and seconded to WES in December.

“We strongly believe that the formal identification of a WES-dedicated workforce enhances employee focus, which in turn empowers employees to deliver operational efficiencies and improved customer service, establishes heightened accountability, and positions WES, beginning in 2020, to directly align compensation incentives for all WES-dedicated employees with WES’s internally developed midstream performance targets,” WES CEO Michael Ure said in his company’s release.

Occidental also agreed to provide limited administrative services to WES for up to two years. Occidental also will give WES $20 million in cash in the first quarter of 2020 “in recognition of WES’s historical financial support of existing administrative infrastructure, thereby significantly defraying anticipated transition costs required to establish stand-alone human resources and information technology functions at WES,” the WES release states.

Additionally, WES unitholders’ rights to replace WES’s general partner will be expanded under an amended limited partnership agreement, per the release. And Occidental will dedicate approximately 21,000 oil- and gas-gathering acres in Weld County, Colorado, “supported by minimum volume commitments and complemented by previously executed DJ Basin gas-processing dedications.” The separation-related agreements support WES’s pursuit of third-party growth opportunities, as well.

Taking these agreements into account, WES’s 2020 outlook has been updated. The company now expects 2020 adjusted EBITDA to range between $1.875 billion and $1.975 billion and 2020 total capital expenditures to be between $875 million and $950 million.

A special committee, which includes only independent members of the board of directors of WES’s general partner, approved the agreements with Occidental. The special committee was advised by Bracewell LLP as legal counsel and by Lazard as financial adviser.