UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2021
Or
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-35753
WESTERN GAS EQUITY PARTNERS, LP
(Exact name of registrant as specified in its charter)
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Delaware | | 46-0967367WESTERN MIDSTREAM PARTNERS, LP |
| WESTERN MIDSTREAM OPERATING, LP |
| (Exact name of registrant as specified in its charter) |
( | | | | | | | | | | | |
| Commission file number: | State or other jurisdiction of incorporation or organization) organization: | | (I.R.S. Employer
Identification No.) : |
| Western Midstream Partners, LP | 001-35753 | Delaware | 46-0967367 |
1201 Lake Robbins Drive
The Woodlands, Texas
Western Midstream Operating, LP | 001-34046 | 77380 |
(Address of principal executive offices)Delaware | | (Zip Code)26-1075808 |
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| Address of principal executive offices: | Zip Code: | Registrant’s telephone number, including area code: |
| Western Midstream Partners, LP | 9950 Woodloch Forest Drive, Suite 2800 | The Woodlands, | Texas | 77380 | (832) | 636-1009 |
| Western Midstream Operating, LP | 9950 Woodloch Forest Drive, Suite 2800 | The Woodlands, | Texas | 77380 | (832) | 636-1009 |
(832) 636-6000
(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading symbol | Name of exchange
on which registered | Common units outstanding as of May 5, 2021: |
| Western Midstream Partners, LP | Common units | WES | New York Stock Exchange | 413,063,706 |
| Western Midstream Operating, LP | None | None | None | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
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| Western Midstream Partners, LP | Yes | þ | No | ¨ | |
| Western Midstream Operating, LP | Yes | þ | No | ¨ | |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-TS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
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| Western Midstream Partners, LP | Yes | þ | No | ¨ | |
| Western Midstream Operating, LP | Yes | þ | No | ¨ | |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-acceleratednon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-212b-2 of the Exchange Act.
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Western Midstream Partners, LP | Large accelerated filer þAccelerated Filer | Accelerated Filer | Accelerated filer ¨
Non-accelerated Filer | Smaller Reporting Company | Non-accelerated filer ¨
| | Smaller reporting company ¨
| | Emerging growth company ¨ Growth Company |
| þ | ☐ | ☐ | ☐ | (Do not check if a smaller reporting company)☐ |
| Western Midstream Operating, LP | Large Accelerated Filer | Accelerated Filer | Non-accelerated Filer | Smaller Reporting Company | Emerging Growth Company |
| ☐ | ☐ | þ | ☐ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
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| Western Midstream Partners, LP | ¨ |
| Western Midstream Operating, LP | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-212b-2 of the Exchange Act). Yes ¨ No þ
There were 218,933,141 common units outstanding as of October 30, 2017.
TABLE OF CONTENTS
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| Western Midstream Partners, LP | Yes | ☐ | PAGENo | þ | |
| Western Midstream Operating, LP | Yes | ☐ | No | þ | |
FILING FORMAT
This quarterly report on Form 10-Q is a combined report being filed by two separate registrants: Western Midstream Partners, LP and Western Midstream Operating, LP. Western Midstream Operating, LP is a consolidated subsidiary of Western Midstream Partners, LP that has publicly traded debt, but does not have any publicly traded equity securities. Information contained herein related to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrant.
Part I, Item 1 of this quarterly report includes separate financial statements (i.e., consolidated statements of operations, consolidated balance sheets, consolidated statements of equity and partners’ capital, and consolidated statements of cash flows) for Western Midstream Partners, LP and Western Midstream Operating, LP. The accompanying Notes to Consolidated Financial Statements, which are included under Part I, Item 1 of this quarterly report, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is included under Part I, Item 2 of this quarterly report, are presented on a combined basis for each registrant, with any material differences between the registrants disclosed separately.
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| TABLE OF CONTENTS |
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| PART I | | | |
| Item 1. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 3. | | |
| Item 4. | | |
| PART II | | | |
| Item 1. | | |
| Item 1A. | | |
| Item 6.2. | | |
| Item 6. | | |
COMMONLY USED TERMS AND DEFINITIONS
Western Gas Equity Partners, LP (“WGP”) is a Delaware master limited partnership formed by Anadarko Petroleum CorporationUnless the context otherwise requires, references to own three types of partnership interests in Western Gas Partners, LP and its subsidiaries (“WES”). For purposes of this Form 10-Q, “WGP,” “we,” “us,” “our,” “Western Gas Equity Partners,“WES,” “the Partnership,” or like terms refers“Western Midstream Partners, LP” refer to Western Midstream Partners, LP (formerly Western Gas Equity Partners, LP in its individual capacity or to Western Gas Equity Partners, LPLP) and its subsidiaries, including the general partner of WES, Western Gas Holdings, LLC, and WES, as the context requires.subsidiaries. As used in this Form 10-Q, the identified terms and definitions below have the following meanings:
Additional DBJV System Interest: WES’s additional 50% interest in the DBJV system acquired fromAESC: Anadarko Energy Services Company, a third party in March 2017.subsidiary of Occidental.
Affiliates: Subsidiaries of Anadarko excluding us, but including equity interests in Fort Union, White Cliffs, Rendezvous, the Mont Belvieu JV, TEP, TEG, and FRP.
Anadarko:or APC: Anadarko Petroleum Corporation and its subsidiaries, excluding usour general partner, which became a wholly owned subsidiary of Occidental upon closing of the Occidental Merger on August 8, 2019.
Anadarko note receivable: The 30-year $260.0 million note established in May 2008 between WES Operating as the lender and WGP GP.Anadarko as the borrower. The note bore interest at a fixed annual rate of 6.50%, payable quarterly. Following the Occidental Merger, Occidental became the ultimate counterparty. On September 11, 2020, the Partnership and Occidental entered into a Unit Redemption Agreement, pursuant to which (i) WES Operating transferred and assigned its interest in the Anadarko note receivable to its limited partners on a pro-rata basis, transferring 98% of its interest in (and accrued interest owed under) the Anadarko note receivable to the Partnership and the remaining 2% to WGRAH, a subsidiary of Occidental, (ii) the Partnership subsequently assigned the 98% interest in (and accrued interest owed under) the Anadarko note receivable to Anadarko, which Anadarko canceled and retired immediately upon receipt, in exchange for which Occidental caused certain of its subsidiaries to transfer an aggregate of 27,855,398 common units of the Partnership to the Partnership, and (iii) the Partnership canceled such common units immediately upon receipt.
Barrel or Bbl: 42 U.S. gallons measured at 60 degrees Fahrenheit.
Bbls/d: Barrels per day.
Board of Directors or Board:Directors: The board of directors of WGP GP.WES’s general partner.
Btu: British thermal unit; the approximate amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
Cactus II: Cactus II Pipeline LLC.
Chipeta: Chipeta Processing, LLC.
Condensate: A natural-gas liquid with a low vapor pressure compared to drip condensate, mainly composed of propane, butane, pentane, and heavier hydrocarbon fractions.
COP: Continuous offering programs.
Cryogenic: The process inby which liquefied gases are used to bring natural-gas volumes to very low temperatures (below approximately -238 degrees Fahrenheit) to separate natural-gas liquids from natural gas. Through cryogenic processing,processing, more natural-gas liquids are extracted than whenas compared to traditional refrigeration methods are used.methods.
DBJV: Delaware Basin JV Gathering LLC.
DBJV system: A gathering system and related facilities located in the Delaware Basin in Loving, Ward, Winkler and Reeves Counties in West Texas.
DBM: Delaware Basin Midstream, LLC.
DBM complex: The cryogenic processing plants, gas gathering system, and related facilities and equipment in West Texas that serve production from Reeves, Loving and Culberson Counties, Texas and Eddy and Lea Counties, New Mexico.
DBM water systems: Two produced-waterThe produced-water gathering and disposal systems in West Texas.
DJ Basin complex: The Platte Valley system, Wattenberg system, and Lancaster plant, all of which were combined into a single complex in the first quarter of 2014.Latham plant, and Wattenberg processing plant.
EBITDA: Earnings before interest, taxes, depreciation, and amortization. For a definition of “Adjusted EBITDA,” see the caption Key Performance Metrics under Part I, Item 2 of this Form 10-Q.
Equity investment throughput: WES’s 14.81% share of average Fort Union throughput, 22% share of average Rendezvous throughput, 10% share of average White Cliffs throughput, 25% share of average Mont Belvieu JV throughput, 20% share of average TEP and TEG throughput and 33.33% share of average FRP throughput.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Fixed-Rate Senior Notes: WES Operating’s fixed-rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050.
Floating-Rate Senior Notes: WES Operating’s floating-rate Senior Notes due 2023.
Fort Union: Fort Union Gas Gathering, LLC.
Fractionation: The process of applying various levels of higherhigh pressure and lowerlow temperature to separate a stream of natural-gas liquids into ethane, propane, normal butane, isobutane, and natural gasoline for end-useend-use sale.
FRP: Front Range Pipeline LLC.
GAAP: Generally accepted accounting principles in the United States.
General partner: Western Midstream Holdings, LLC, the general partner of the Partnership.
Hydraulic fracturing: The high-pressure injection of fluids into the wellbore to create fractures in rock formations, stimulating the production of oil or gas.
Imbalance: Imbalances result from (i) differences between gas and NGLNGLs volumes nominated by customers and gas and NGLNGLs volumes received from those customers and (ii) differences between gas and NGLNGLs volumes received from customers and gas and NGLNGLs volumes delivered to those customers.
IPO: Initial public offering.
LIBOR: London Interbank Offered Rate.
Marcellus Interest: WES’sThe 33.75% interest in the Larry’s Creek, Seely, and Warrensville gas-gathering systems and related facilities located in northern Pennsylvania. Formerly defined as the “Anadarko-Operated Marcellus Interest”.
MBbls/d: One thousandThousand barrels per day.
Mcf: Thousand cubic feet.
MGR: Mountain Gas Resources, LLC.
MGR assets: The Red Desert complex and the Granger straddle plant.
Mi Vida: Mi Vida JV LLC.
MLP: Master limited partnership.
MMBtu: One millionMillion British thermal units.
MMcf: One millionMillion cubic feet.
MMcf/d: One millionMillion cubic feet per day.
Mont Belvieu JV: Enterprise EF78 LLC.
Natural gasNatural-gas liquid(s) or NGL(s): The combination of ethane, propane, normal butane, isobutane, and natural gasolines that, when removed from natural gas, become liquid under various levels of higher pressure and lower temperature.
Non-Operated Marcellus Interest: The 33.75% interest inOccidental: Occidental Petroleum Corporation and, as the Liberty and Rome gas gathering systems and related facilities located in northern Pennsylvania that was transferred to a third party in March 2017context requires, its subsidiaries, excluding our general partner.
Occidental Merger: Occidental’s acquisition by merger of Anadarko pursuant to the Property Exchange.Agreement and Plan of Merger, dated as of May 9, 2019, by and among Occidental, Baseball Merger Sub 1, Inc., and Anadarko, which closed on August 8, 2019.
Panola: Panola Pipeline Company, LLC.
Produced water: Byproduct associated with the production of crude oil and natural gas that often contains a number of dissolved solids and other materials found in oil and gas reservoirs.
Property Exchange: WES’s acquisition
Purchase Program: The buyback program announced in November 2020, pursuant to which we may purchase up to $250.0 million in aggregate value of our common units through December 31, 2021. The common units may be purchased from time to time in the Additional DBJV System Interest from a third partyopen market at prevailing market prices or in exchange for the Non-Operated Marcellus Interest and $155.0 million of cash consideration, as further describedprivately negotiated transactions.
Ranch Westex: Ranch Westex JV LLC.
RCF: WES Operating’s $2.0 billion senior unsecured revolving credit facility that matures in our Forms 8-K filed with the SEC on February 9, 2017, and March 23, 2017.2025.
Red Bluff Express: Red Bluff Express Pipeline, LLC.
Red Desert complex: The Patrick Draw processing plant, the Red Desert processing plant, associated gathering lines, and related facilities.
Related parties: Occidental and the Partnership’s equity interests in Fort Union (until divested in October 2020), White Cliffs, Rendezvous, the Mont Belvieu JV, TEP, TEG, FRP, Whitethorn LLC, Cactus II, Saddlehorn, Panola, Mi Vida, Ranch Westex, and Red Bluff Express.
Rendezvous: Rendezvous Gas Services, LLC.
Residue: The natural gas remaining after the unprocessed natural-gas stream has been processed or treated.
Saddlehorn: Saddlehorn Pipeline Company, LLC.
SEC: U.S. Securities and Exchange Commission.
Springfield: Springfield Pipeline LLC.Services Agreement: That certain amended and restated Services, Secondment, and Employee Transfer Agreement, dated as of December 31, 2019, by and among Occidental, Anadarko, and WES Operating GP.
Springfield interest: Springfield’s 50.1% interest in the Springfield system.
Springfield gas gathering system: A gas gathering system and related facilities located in Dimmit, La Salle, Maverick and Webb Counties in South Texas.
Springfield oil gathering system: An oil gathering system and related facilities located in Dimmit, La Salle, Maverick and Webb Counties in South Texas.
Springfield system: The Springfield gas-gathering system and Springfield oil-gathering system.
TEFR Interests: The interests in TEP, TEG, and FRP.
TEG: Texas Express Gathering LLC.
TEP: Texas Express Pipeline LLC.
TEUs: 7.50% Tangible equity units.Term loan facility: WES Operating’s senior unsecured credit facility entered into in December 2018, which was repaid and terminated in January 2020.
WES:WES Operating: Western Midstream Operating, LP, formerly known as Western Gas Partners, LP.LP, and its subsidiaries.
WES Operating GP: Western Gas Holdings,Midstream Operating GP, LLC, the general partner of WES.WES Operating.
WES RCF: WES’s senior unsecured revolving credit facility.West Texas complex: The DBM complex and DBJV and Haley systems.
WGP:WGRI: Western Gas Equity Partners, LP.Resources, Inc., a subsidiary of Occidental.
WGP GP or general partner: Western Gas Equity Holdings, LLC, the general partner of WGP.
WGP RCF: The WGP senior secured revolving credit facility.
WGP LTIP: Western Gas Equity Partners, LP 2012 Long-Term Incentive Plan.
WGP WCF: The WGP working capital facility.
White Cliffs: White Cliffs Pipeline, LLC.
2018 Notes: WES’s 2.600% Senior Notes due 2018.Whitethorn LLC: Whitethorn Pipeline Company LLC.
2021 Notes: WES’s 5.375% Senior Notes due 2021.Whitethorn: A crude-oil and condensate pipeline, and related storage facilities, owned by Whitethorn LLC.
2022 Notes: WES’s 4.000% Senior Notes due 2022.2025 Notes: WES’s 3.950% Senior Notes due 2025.
2026 Notes: WES’s 4.650% Senior Notes due 2026.
2044 Notes: WES’s 5.450% Senior Notes due 2044.
$500.0 million COP: WES’s COP contemplated by the registration statement filed with the SEC in July 2017 authorizing the issuance of up to an aggregate of $500.0 million of WES common units.
PART I.FINANCIAL INFORMATION (UNAUDITED)
Item 1.Financial Statements
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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| | Three Months Ended
March 31, | | | | |
| thousands except per-unit amounts | | 2021 | | 2020 | | | | | | |
| Revenues and other | | | | | | | | | | |
| Service revenues – fee based | | $ | 572,275 | | | $ | 701,396 | | | | | | | |
| Service revenues – product based | | 31,652 | | | 15,921 | | | | | | | |
| Product sales | | 70,805 | | | 56,649 | | | | | | | |
| Other | | 242 | | | 347 | | | | | | | |
Total revenues and other (1) | | 674,974 | | | 774,313 | | | | | | | |
| Equity income, net – related parties | | 52,165 | | | 61,347 | | | | | | | |
| Operating expenses | | | | | | | | | | |
| Cost of product | | 88,969 | | | 103,270 | | | | | | | |
| Operation and maintenance | | 140,332 | | | 159,191 | | | | | | | |
| General and administrative | | 45,116 | | | 40,465 | | | | | | | |
| Property and other taxes | | 14,384 | | | 18,476 | | | | | | | |
| Depreciation and amortization | | 130,553 | | | 132,319 | | | | | | | |
Long-lived asset and other impairments | | 14,866 | | | 155,785 | | | | | | | |
| Goodwill impairment | | 0 | | | 441,017 | | | | | | | |
Total operating expenses (2) | | 434,220 | | | 1,050,523 | | | | | | | |
| Gain (loss) on divestiture and other, net | | (583) | | | (40) | | | | | | | |
| Operating income (loss) | | 292,336 | | | (214,903) | | | | | | | |
| Interest income – Anadarko note receivable | | 0 | | | 4,225 | | | | | | | |
| Interest expense | | (98,493) | | | (88,586) | | | | | | | |
| Gain (loss) on early extinguishment of debt | | (289) | | | 7,345 | | | | | | | |
| Other income (expense), net | | (1,207) | | | (1,761) | | | | | | | |
| Income (loss) before income taxes | | 192,347 | | | (293,680) | | | | | | | |
| Income tax expense (benefit) | | 1,112 | | | (4,280) | | | | | | | |
| Net income (loss) | | 191,235 | | | (289,400) | | | | | | | |
| Net income (loss) attributable to noncontrolling interests | | 5,444 | | | (32,873) | | | | | | | |
| Net income (loss) attributable to Western Midstream Partners, LP | | $ | 185,791 | | | $ | (256,527) | | | | | | | |
| Limited partners’ interest in net income (loss): | | | | | | | | | | |
| Net income (loss) attributable to Western Midstream Partners, LP | | $ | 185,791 | | | $ | (256,527) | | | | | | | |
| | | | | | | | | | |
| General partner interest in net (income) loss | | (3,993) | | | 5,131 | | | | | | | |
Limited partners’ interest in net income (loss) (3) | | 181,798 | | | (251,396) | | | | | | | |
Net income (loss) per common unit – basic and diluted (3) | | $ | 0.44 | | | $ | (0.57) | | | | | | | |
Weighted-average common units outstanding – basic and diluted | | 413,104 | | | 443,971 | | | | | | | |
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| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands except per-unit amounts | | 2017 | | 2016 | | 2017 | | 2016 |
| Revenues and other – affiliates | | | | | | | | |
| Gathering, processing and transportation | | $ | 157,303 |
| | $ | 189,465 |
| | $ | 484,601 |
| | $ | 563,916 |
|
| Natural gas and natural gas liquids sales | | 185,002 |
| | 135,847 |
| | 489,172 |
| | 336,385 |
|
| Other | | 8,822 |
| | — |
| | 8,822 |
| | — |
|
| Total revenues and other – affiliates | | 351,127 |
| | 325,312 |
| | 982,595 |
| | 900,301 |
|
| Revenues and other – third parties | | | | | | | | |
| Gathering, processing and transportation | | 148,884 |
| | 125,727 |
| | 428,835 |
| | 346,416 |
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| Natural gas and natural gas liquids sales | | 74,139 |
| | 28,189 |
| | 201,318 |
| | 43,200 |
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| Other | | 545 |
| | 2,417 |
| | 3,590 |
| | 3,533 |
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| Total revenues and other – third parties | | 223,568 |
| | 156,333 |
| | 633,743 |
| | 393,149 |
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| Total revenues and other | | 574,695 |
| | 481,645 |
| | 1,616,338 |
| | 1,293,450 |
|
| Equity income, net – affiliates | | 21,519 |
| | 20,294 |
| | 62,708 |
| | 56,801 |
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| Operating expenses | | | | | | | | |
Cost of product (1) | | 239,223 |
| | 145,643 |
| | 631,859 |
| | 326,959 |
|
Operation and maintenance (1) | | 79,536 |
| | 74,755 |
| | 229,444 |
| | 226,141 |
|
General and administrative (1) | | 12,922 |
| | 12,112 |
| | 37,595 |
| | 36,514 |
|
| Property and other taxes | | 11,215 |
| | 10,670 |
| | 35,433 |
| | 33,113 |
|
| Depreciation and amortization | | 72,539 |
| | 67,246 |
| | 216,272 |
| | 199,646 |
|
| Impairments | | 2,159 |
| | 2,392 |
| | 170,079 |
| | 11,313 |
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| Total operating expenses | | 417,594 |
| | 312,818 |
| | 1,320,682 |
| | 833,686 |
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| Gain (loss) on divestiture and other, net | | 72 |
| | (6,230 | ) | | 135,017 |
| | (8,769 | ) |
| Proceeds from business interruption insurance claims | | — |
| | 13,667 |
| | 29,882 |
| | 16,270 |
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| Operating income (loss) | | 178,692 |
| | 196,558 |
| | 523,263 |
| | 524,066 |
|
| Interest income – affiliates | | 4,225 |
| | 4,225 |
| | 12,675 |
| | 12,675 |
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Interest expense (2) | | (36,117 | ) | | (31,301 | ) | | (108,447 | ) | | (76,869 | ) |
| Other income (expense), net | | 311 |
| | 165 |
| | 1,029 |
| | 270 |
|
| Income (loss) before income taxes | | 147,111 |
| | 169,647 |
| | 428,520 |
| | 460,142 |
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| Income tax (benefit) expense | | 510 |
| | 472 |
| | 4,905 |
| | 7,431 |
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| Net income (loss) | | 146,601 |
| | 169,175 |
| | 423,615 |
| | 452,711 |
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| Net income (loss) attributable to noncontrolling interests | | 50,399 |
| | 77,778 |
| | 146,529 |
| | 190,635 |
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| Net income (loss) attributable to Western Gas Equity Partners, LP | | $ | 96,202 |
| | $ | 91,397 |
| | $ | 277,086 |
| | $ | 262,076 |
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| Limited partners’ interest in net income (loss): | | | | | | | | |
| Net income (loss) attributable to Western Gas Equity Partners, LP | | $ | 96,202 |
| | $ | 91,397 |
| | $ | 277,086 |
| | $ | 262,076 |
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| Pre-acquisition net (income) loss allocated to Anadarko | | — |
| | — |
| | — |
| | (11,326 | ) |
Limited partners’ interest in net income (loss) (3) | | 96,202 |
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| 91,397 |
| | 277,086 |
| | 250,750 |
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| Net income (loss) per common unit – basic and diluted | | $ | 0.44 |
| | $ | 0.42 |
| | $ | 1.27 |
| | $ | 1.15 |
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| Weighted-average common units outstanding – basic and diluted | | 218,933 |
| | 218,922 |
| | 218,931 |
| | 218,921 |
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(2)Total operating expenses includes related-party amounts of $39.9 million and $132.6 million for the three months ended March 31, 2021 and 2020, respectively. See Note 6.
| |
(3)See Note 5. (1)
| Cost of product includes product purchases from Anadarko (as defined in Note 1) of $22.9 million and $60.5 million for the three and nine months ended September 30, 2017, respectively, and $21.3 million and $68.0 million for the three and nine months ended September 30, 2016, respectively. Operation and maintenance includes charges from Anadarko of $18.1 million and $53.7 million for the three and nine months ended September 30, 2017, respectively, and $15.1 million and $50.7 million for the three and nine months ended September 30, 2016, respectively. General and administrative includes charges from Anadarko of $10.4 million and $29.6 million for the three and nine months ended September 30, 2017, respectively, and $9.7 million and $28.2 million for the three and nine months ended September 30, 2016, respectively. See Note 5.
|
| |
(2)
| Includes affiliate (as defined in Note 1) amounts of zero and $(0.1) million for the three and nine months ended September 30, 2017, respectively, and $1.2 million and $12.1 million for the three and nine months ended September 30, 2016, respectively. See Note 2 and Note 9.
|
| |
(3)
| Represents net income (loss) earned on and subsequent to the date of acquisition of WES assets (as defined in Note 1). See Note 4.
|
See accompanying Notes to Consolidated Financial Statements.
7
6
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | | | | | | | | | | | | |
| | |
| | | | |
| thousands except number of units | | March 31,
2021 | | December 31,
2020 |
| ASSETS | | | | |
| Current assets | | | | |
| Cash and cash equivalents | | $ | 56,376 | | | $ | 444,922 | |
| Accounts receivable, net | | 480,705 | | | 452,880 | |
| Other current assets | | 74,079 | | | 45,262 | |
| Total current assets | | 611,160 | | | 943,064 | |
| Property, plant, and equipment | | | | |
| Cost | | 12,689,438 | | | 12,641,745 | |
| Less accumulated depreciation | | 4,049,900 | | | 3,931,800 | |
| Net property, plant, and equipment | | 8,639,538 | | | 8,709,945 | |
| Goodwill | | 4,783 | | | 4,783 | |
| Other intangible assets | | 768,492 | | | 776,409 | |
| Equity investments | | 1,215,875 | | | 1,224,813 | |
Other assets (1) | | 195,195 | | | 171,013 | |
Total assets (2) | | $ | 11,435,043 | | | $ | 11,830,027 | |
| LIABILITIES, EQUITY, AND PARTNERS’ CAPITAL | | | | |
| Current liabilities | | | | |
| Accounts and imbalance payables | | $ | 226,715 | | | $ | 210,691 | |
Short-term debt | | 7,752 | | | 438,870 | |
| Accrued ad valorem taxes | | 55,610 | | | 41,427 | |
| Accrued liabilities | | 200,185 | | | 269,947 | |
| | | | |
| Total current liabilities | | 490,262 | | | 960,935 | |
| Long-term liabilities | | | | |
Long-term debt | | 7,416,001 | | | 7,415,832 | |
| | | | |
| Deferred income taxes | | 22,752 | | | 22,195 | |
| Asset retirement obligations | | 267,962 | | | 260,283 | |
| Other liabilities | | 295,946 | | | 275,570 | |
Total long-term liabilities | | 8,002,661 | | | 7,973,880 | |
Total liabilities (3) | | 8,492,923 | | | 8,934,815 | |
| Equity and partners’ capital | | | | |
| Common units (413,062,133 and 413,839,863 units issued and outstanding at March 31, 2021, and December 31, 2020, respectively) | | 2,821,455 | | | 2,778,339 | |
| General partner units (9,060,641 units issued and outstanding at March 31, 2021, and December 31, 2020) | | (16,033) | | | (17,208) | |
| | | | |
| Total partners’ capital | | 2,805,422 | | | 2,761,131 | |
| Noncontrolling interests | | 136,698 | | | 134,081 | |
| Total equity and partners’ capital | | 2,942,120 | | | 2,895,212 | |
| Total liabilities, equity, and partners’ capital | | $ | 11,435,043 | | | $ | 11,830,027 | |
|
| | | | | | | | |
| thousands except number of units | | September 30,
2017 | | December 31,
2016 |
| ASSETS | | | | |
| Current assets | | | | |
| Cash and cash equivalents | | $ | 153,036 |
| | $ | 359,072 |
|
Accounts receivable, net (1) | | 192,437 |
| | 223,021 |
|
| Other current assets | | 13,497 |
| | 13,498 |
|
| Total current assets | | 358,970 |
| | 595,591 |
|
| Note receivable – Anadarko | | 260,000 |
| | 260,000 |
|
| Property, plant and equipment | | | | |
| Cost | | 7,582,178 |
| | 6,861,942 |
|
| Less accumulated depreciation | | 2,074,464 |
| | 1,812,010 |
|
| Net property, plant and equipment | | 5,507,714 |
| | 5,049,932 |
|
| Goodwill | | 417,610 |
| | 417,610 |
|
| Other intangible assets | | 782,376 |
| | 803,698 |
|
| Equity investments | | 573,622 |
| | 594,208 |
|
| Other assets | | 15,627 |
| | 15,058 |
|
| Total assets | | $ | 7,915,919 |
| | $ | 7,736,097 |
|
| LIABILITIES, EQUITY AND PARTNERS’ CAPITAL | | | | |
| Current liabilities | | | | |
Accounts and imbalance payables (2) | | $ | 302,848 |
| | $ | 247,076 |
|
| Accrued ad valorem taxes | | 33,020 |
| | 23,121 |
|
Accrued liabilities (3) | | 57,699 |
| | 45,190 |
|
| Total current liabilities | | 393,567 |
| | 315,387 |
|
| Long-term debt | | 3,371,886 |
| | 3,119,461 |
|
| Deferred income taxes | | 10,284 |
| | 6,402 |
|
| Asset retirement obligations and other | | 146,248 |
| | 142,641 |
|
Deferred purchase price obligation – Anadarko (4) | | — |
| | 41,440 |
|
| Total long-term liabilities | | 3,528,418 |
| | 3,309,944 |
|
| Total liabilities | | 3,921,985 |
| | 3,625,331 |
|
| Equity and partners’ capital | | | | |
| Common units (218,933,141 and 218,928,570 units issued and outstanding at September 30, 2017, and December 31, 2016, respectively) | | 1,067,269 |
| | 1,048,143 |
|
| Total partners’ capital | | 1,067,269 |
| | 1,048,143 |
|
| Noncontrolling interests | | 2,926,665 |
| | 3,062,623 |
|
| Total equity and partners’ capital | | 3,993,934 |
| | 4,110,766 |
|
| Total liabilities, equity and partners’ capital | | $ | 7,915,919 |
| | $ | 7,736,097 |
|
(3)Total liabilities includes related-party amounts of $215.5 million and $164.7 million as of March 31, 2021, and December 31, 2020, respectively. See Note 6.
| |
(1)
| Accounts receivable, net includes amounts receivable from affiliates (as defined in Note 1) of $78.3 million and $76.4 million as of September 30, 2017, and December 31, 2016, respectively. Accounts receivable, net as of December 31, 2016, also includes an insurance claim receivable related to an incident at the DBM complex. See Note 1.
|
| |
(2)
| Accounts and imbalance payables includes affiliate amounts of $0.2 millionand zero as of September 30, 2017, and December 31, 2016, respectively.
|
| |
(3)
| Accrued liabilities includes affiliate amounts of $0.3 millionand zero as of September 30, 2017, and December 31, 2016, respectively.
|
See accompanying Notes to Consolidated Financial Statements.
8
7
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP
CONSOLIDATED STATEMENTSTATEMENTS OF EQUITY AND PARTNERS’ CAPITAL
(UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| | | Partners’ Capital | | | | |
| thousands | | Net Investment by Anadarko | | Common Units | | Noncontrolling Interests | | Total |
| Balance at December 31, 2016 | | $ | — |
| | $ | 1,048,143 |
| | $ | 3,062,623 |
| | $ | 4,110,766 |
|
| Net income (loss) | | — |
| | 277,086 |
| | 146,529 |
| | 423,615 |
|
Above-market component of swap agreements with Anadarko (1) | | — |
| | 46,719 |
| | — |
| | 46,719 |
|
WES equity transactions, net (2) | | — |
| | 10,800 |
| | (10,983 | ) | | (183 | ) |
| Distributions to Chipeta noncontrolling interest owner | | — |
| | — |
| | (9,049 | ) | | (9,049 | ) |
| Distributions to noncontrolling interest owners of WES | | — |
| | — |
| | (262,888 | ) | | (262,888 | ) |
| Distributions to WGP unitholders | | — |
| | (324,290 | ) | | — |
| | (324,290 | ) |
| Acquisitions from affiliates | | (30 | ) | | 30 |
| | — |
| | — |
|
Revision to Deferred purchase price obligation – Anadarko (3) | | — |
| | 4,165 |
| | — |
| | 4,165 |
|
| Contributions of equity-based compensation to WES by Anadarko | | — |
| | 3,333 |
| | — |
| | 3,333 |
|
| Net pre-acquisition contributions from (distributions to) Anadarko | | 30 |
| | — |
| | — |
| | 30 |
|
| Net contributions from (distributions to) Anadarko of other assets | | — |
| | 1,373 |
| | — |
| | 1,373 |
|
| Other | | — |
| | (90 | ) | | 433 |
| | 343 |
|
| Balance at September 30, 2017 | | $ | — |
| | $ | 1,067,269 |
| | $ | 2,926,665 |
| | $ | 3,993,934 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Partners’ Capital | | | | |
| thousands | | Common
Units | | General Partner
Units | | Noncontrolling
Interests | | Total |
| Balance at December 31, 2020 | | $ | 2,778,339 | | | $ | (17,208) | | | $ | 134,081 | | | $ | 2,895,212 | |
| Net income (loss) | | 181,798 | | | 3,993 | | | 5,444 | | | 191,235 | |
| Distributions to Chipeta noncontrolling interest owner | | — | | | — | | | (276) | | | (276) | |
| Distributions to noncontrolling interest owners of WES Operating | | — | | | — | | | (2,551) | | | (2,551) | |
| Distributions to Partnership unitholders | | (128,447) | | | (2,818) | | | — | | | (131,265) | |
Unit repurchases (1) | | (16,241) | | | — | | | — | | | (16,241) | |
Contributions of equity-based compensation from Occidental | | 3,210 | | | — | | | — | | | 3,210 | |
Equity-based compensation expense | | 3,524 | | | — | | | — | | | 3,524 | |
| Net contributions from (distributions to) related parties | | 1,627 | | | — | | | — | | | 1,627 | |
| Other | | (2,355) | | | — | | | — | | | (2,355) | |
| Balance at March 31, 2021 | | $ | 2,821,455 | | | $ | (16,033) | | | $ | 136,698 | | | $ | 2,942,120 | |
(1)See Note 5.
| |
(2)
| Includes the impact of WES’s (as defined in Note 1) equity offerings as described in Note 4. The $10.8 million increase to partners’ capital, together with net income (loss) attributable to Western Gas Equity Partners, LP, totaled $287.9 million for the nine months ended September 30, 2017.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Partners’ Capital | | | | |
| thousands | | | | Common
Units | | General Partner
Units | | Noncontrolling
Interests | | Total |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Balance at December 31, 2019 | | | | $ | 3,209,947 | | | $ | (14,224) | | | $ | 149,570 | | | $ | 3,345,293 | |
| Net income (loss) | | | | (251,396) | | | (5,131) | | | (32,873) | | | (289,400) | |
| | | | | | | | | | |
| Distributions to Chipeta noncontrolling interest owner | | | | — | | | — | | | (1,738) | | | (1,738) | |
| Distributions to noncontrolling interest owner of WES Operating | | | | — | | | — | | | (5,807) | | | (5,807) | |
| Distributions to Partnership unitholders | | | | (276,151) | | | (5,635) | | | — | | | (281,786) | |
| Acquisitions from related parties | | | | (3,987) | | | — | | | 3,987 | | | 0 | |
Contributions of equity-based compensation from Occidental | | | | 4,105 | | | — | | | — | | | 4,105 | |
Equity-based compensation expense | | | | 1,129 | | | — | | | — | | | 1,129 | |
Net contributions from (distributions to) related parties (1) | | | | 489 | | | — | | | 20,000 | | | 20,489 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Balance at March 31, 2020 | | | | $ | 2,684,136 | | | $ | (24,990) | | | $ | 133,139 | | | $ | 2,792,285 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
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(1)See Services Agreement within Note 6.
See accompanying Notes to Consolidated Financial Statements.
9
8
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | | | | | | |
| | |
| | | Three Months Ended
March 31, | | |
| thousands | | 2021 | | 2020 | | |
| Cash flows from operating activities | | | | | | |
| Net income (loss) | | $ | 191,235 | | | $ | (289,400) | | | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | |
| Depreciation and amortization | | 130,553 | | | 132,319 | | | |
Long-lived asset and other impairments | | 14,866 | | | 155,785 | | | |
| Goodwill impairment | | 0 | | | 441,017 | | | |
Non-cash equity-based compensation expense | | 6,734 | | | 5,234 | | | |
| Deferred income taxes | | 557 | | | (2,168) | | | |
Accretion and amortization of long-term obligations, net | | 2,088 | | | 2,100 | | | |
| Equity income, net – related parties | | (52,165) | | | (61,347) | | | |
Distributions from equity-investment earnings – related parties | | 49,048 | | | 60,868 | | | |
| (Gain) loss on divestiture and other, net | | 583 | | | 40 | | | |
| (Gain) loss on early extinguishment of debt | | 289 | | | (7,345) | | | |
| | | | | | |
| | | | | | |
| Other | | 11 | | | 2,287 | | | |
| Changes in assets and liabilities: | | | | | | |
| (Increase) decrease in accounts receivable, net | | (30,182) | | | 7,702 | | | |
| Increase (decrease) in accounts and imbalance payables and accrued liabilities, net | | (16,467) | | | (28,924) | | | |
| Change in other items, net | | (35,600) | | | (24,857) | | | |
| Net cash provided by operating activities | | 261,550 | | | 393,311 | | | |
| Cash flows from investing activities | | | | | | |
| Capital expenditures | | (59,783) | | | (172,816) | | | |
| Acquisitions from related parties | | (2,000) | | | 0 | | | |
| | | | | | |
| Contributions to equity investments – related parties | | (86) | | | (10,960) | | | |
| Distributions from equity investments in excess of cumulative earnings – related parties | | 12,141 | | | 5,052 | | | |
| | | | | | |
| | | | | | |
| Decreases to materials and supplies inventory and other | | 3,256 | | | 0 | | | |
| Net cash used in investing activities | | (46,472) | | | (178,724) | | | |
| Cash flows from financing activities | | | | | | |
| Borrowings, net of debt issuance costs | | 100,000 | | | 3,586,173 | | | |
| Repayments of debt | | (531,085) | | | (3,470,139) | | | |
| Increase (decrease) in outstanding checks | | (22,017) | | | (7,308) | | | |
| | | | | | |
| | | | | | |
Distributions to Partnership unitholders (1) | | (131,265) | | | (281,786) | | | |
| Distributions to Chipeta noncontrolling interest owner | | (276) | | | (1,738) | | | |
| Distributions to noncontrolling interest owners of WES Operating | | (2,551) | | | (5,807) | | | |
| Net contributions from (distributions to) related parties | | 1,627 | | | 20,489 | | | |
| | | | | | |
| Finance lease payments | | (1,816) | | | (2,151) | | | |
| Unit repurchases | | (16,241) | | | 0 | | | |
| Net cash provided by (used in) financing activities | | (603,624) | | | (162,267) | | | |
| Net increase (decrease) in cash and cash equivalents | | (388,546) | | | 52,320 | | | |
| Cash and cash equivalents at beginning of period | | 444,922 | | | 99,962 | | | |
| Cash and cash equivalents at end of period | | $ | 56,376 | | | $ | 152,282 | | | |
| Supplemental disclosures | | | | | | |
| | | | | | |
| | | | | | |
| Interest paid, net of capitalized interest | | $ | 153,979 | | | $ | 75,844 | | | |
| Taxes paid (reimbursements received) | | 932 | | | (384) | | | |
| Accrued capital expenditures | | 22,964 | | | 120,233 | | | |
|
| | | | | | | | |
| | | Nine Months Ended September 30, |
| thousands | | 2017 | | 2016 |
| Cash flows from operating activities | | | | |
| Net income (loss) | | $ | 423,615 |
| | $ | 452,711 |
|
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
| Depreciation and amortization | | 216,272 |
| | 199,646 |
|
| Impairments | | 170,079 |
| | 11,313 |
|
| Non-cash equity-based compensation expense | | 3,751 |
| | 3,759 |
|
| Deferred income taxes | | 3,882 |
| | 2,321 |
|
| Accretion and amortization of long-term obligations, net | | 3,701 |
| | (8,820 | ) |
| Equity income, net – affiliates | | (62,708 | ) | | (56,801 | ) |
| Distributions from equity investment earnings – affiliates | | 64,313 |
| | 59,671 |
|
| (Gain) loss on divestiture and other, net | | (135,017 | ) | | 8,769 |
|
| Lower of cost or market inventory adjustments | | 140 |
| | 41 |
|
| Changes in assets and liabilities: | | | | |
| (Increase) decrease in accounts receivable, net | | (47,137 | ) | | (41,266 | ) |
| Increase (decrease) in accounts and imbalance payables and accrued liabilities, net | | 4,127 |
| | 24,227 |
|
| Change in other items, net | | (2,549 | ) | | (871 | ) |
| Net cash provided by operating activities | | 642,469 |
|
| 654,700 |
|
| Cash flows from investing activities | | | | |
| Capital expenditures | | (419,193 | ) | | (372,725 | ) |
| Contributions in aid of construction costs from affiliates | | 1,386 |
| | 4,927 |
|
| Acquisitions from affiliates | | (3,910 | ) | | (716,465 | ) |
| Acquisitions from third parties | | (155,298 | ) | | — |
|
| Investments in equity affiliates | | (384 | ) | | 139 |
|
| Distributions from equity investments in excess of cumulative earnings – affiliates | | 16,255 |
| | 16,592 |
|
| Proceeds from the sale of assets to affiliates | | — |
| | 623 |
|
| Proceeds from the sale of assets to third parties | | 23,370 |
| | 7,819 |
|
| Proceeds from property insurance claims | | 22,977 |
| | 18,398 |
|
| Net cash used in investing activities | | (514,797 | ) |
| (1,040,692 | ) |
| Cash flows from financing activities | | | | |
| Borrowings, net of debt issuance costs | | 249,989 |
| | 1,120,580 |
|
| Repayments of debt | | — |
| | (880,000 | ) |
Settlement of the Deferred purchase price obligation – Anadarko (1) | | (37,346 | ) | | — |
|
| Increase (decrease) in outstanding checks | | 3,310 |
| | (1,070 | ) |
| Proceeds from the issuance of WES common units, net of offering expenses | | (183 | ) | | — |
|
| Proceeds from the issuance of WES Series A Preferred units, net of offering expenses | | — |
| | 686,937 |
|
Distributions to WGP unitholders (2) | | (324,290 | ) | | (276,114 | ) |
| Distributions to Chipeta noncontrolling interest owner | | (9,049 | ) | | (11,257 | ) |
| Distributions to noncontrolling interest owners of WES | | (262,888 | ) | | (211,877 | ) |
| Net contributions from (distributions to) Anadarko | | 30 |
| | (29,335 | ) |
Above-market component of swap agreements with Anadarko (2) | | 46,719 |
| | 34,782 |
|
| Net cash provided by (used in) financing activities | | (333,708 | ) |
| 432,646 |
|
| Net increase (decrease) in cash and cash equivalents | | (206,036 | ) |
| 46,654 |
|
| Cash and cash equivalents at beginning of period | | 359,072 |
| | 99,694 |
|
| Cash and cash equivalents at end of period | | $ | 153,036 |
|
| $ | 146,348 |
|
| Supplemental disclosures | | | | |
Accretion expense and revisions to the Deferred purchase price obligation – Anadarko (1) | | $ | (4,094 | ) | | $ | (172,249 | ) |
| Net distributions to (contributions from) Anadarko of other assets | | (1,373 | ) | | 581 |
|
| Interest paid, net of capitalized interest | | 98,956 |
| | 83,352 |
|
| Taxes paid | | 189 |
| | 67 |
|
| Accrued capital expenditures | | 165,732 |
| | 49,328 |
|
Fair value of properties and equipment from non-cash third party transactions (1) | | 551,453 |
| | — |
|
See accompanying Notes to Consolidated Financial Statements.
10
9
WESTERN GASMIDSTREAM OPERATING, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | Three Months Ended
March 31, | | | | |
| thousands | | 2021 | | 2020 | | | | | | |
| Revenues and other | | | | | | | | | | |
| Service revenues – fee based | | $ | 572,275 | | | $ | 701,396 | | | | | | | |
| Service revenues – product based | | 31,652 | | | 15,921 | | | | | | | |
| Product sales | | 70,805 | | | 56,649 | | | | | | | |
| Other | | 242 | | | 347 | | | | | | | |
Total revenues and other (1) | | 674,974 | | | 774,313 | | | | | | | |
| Equity income, net – related parties | | 52,165 | | | 61,347 | | | | | | | |
| Operating expenses | | | | | | | | | | |
| Cost of product | | 88,969 | | | 103,270 | | | | | | | |
| Operation and maintenance | | 140,332 | | | 159,191 | | | | | | | |
| General and administrative | | 44,230 | | | 39,058 | | | | | | | |
| Property and other taxes | | 14,384 | | | 18,476 | | | | | | | |
| Depreciation and amortization | | 130,553 | | | 132,319 | | | | | | | |
Long-lived asset and other impairments | | 14,866 | | | 155,785 | | | | | | | |
| Goodwill impairment | | 0 | | | 441,017 | | | | | | | |
Total operating expenses (2) | | 433,334 | | | 1,049,116 | | | | | | | |
| Gain (loss) on divestiture and other, net | | (583) | | | (40) | | | | | | | |
| Operating income (loss) | | 293,222 | | | (213,496) | | | | | | | |
| Interest income – Anadarko note receivable | | 0 | | | 4,225 | | | | | | | |
| Interest expense | | (98,493) | | | (88,586) | | | | | | | |
| Gain (loss) on early extinguishment of debt | | (289) | | | 7,345 | | | | | | | |
| Other income (expense), net | | (1,210) | | | (1,763) | | | | | | | |
| Income (loss) before income taxes | | 193,230 | | | (292,275) | | | | | | | |
| Income tax expense (benefit) | | 1,112 | | | (4,280) | | | | | | | |
| Net income (loss) | | 192,118 | | | (287,995) | | | | | | | |
| Net income (loss) attributable to noncontrolling interest | | 1,633 | | | (27,665) | | | | | | | |
| Net income (loss) attributable to Western Midstream Operating, LP | | $ | 190,485 | | | $ | (260,330) | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
(1)Total revenues and other includes related-party amounts of $378.3 million and $482.4 million for the three months ended March 31, 2021 and 2020, respectively. See Note 6.
(2)Total operating expenses includes related-party amounts of $40.4 million and $132.5 million for the three months ended March 31, 2021 and 2020, respectively. See Note 6.
See accompanying Notes to Consolidated Financial Statements.
11
WESTERN MIDSTREAM OPERATING, LP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | | | | | | | | | | | | |
| | |
| | | | |
| thousands except number of units | | March 31,
2021 | | December 31,
2020 |
| ASSETS | | | | |
| Current assets | | | | |
| Cash and cash equivalents | | $ | 52,504 | | | $ | 418,537 | |
| Accounts receivable, net | | 458,089 | | | 407,549 | |
| Other current assets | | 72,488 | | | 43,244 | |
| Total current assets | | 583,081 | | | 869,330 | |
| Property, plant, and equipment | | | | |
| Cost | | 12,689,438 | | | 12,641,745 | |
| Less accumulated depreciation | | 4,049,900 | | | 3,931,800 | |
| Net property, plant, and equipment | | 8,639,538 | | | 8,709,945 | |
| Goodwill | | 4,783 | | | 4,783 | |
| Other intangible assets | | 768,492 | | | 776,409 | |
| Equity investments | | 1,215,875 | | | 1,224,813 | |
Other assets (1) | | 195,195 | | | 171,013 | |
Total assets (2) | | $ | 11,406,964 | | | $ | 11,756,293 | |
| LIABILITIES, EQUITY, AND PARTNERS’ CAPITAL | | | | |
| Current liabilities | | | | |
| Accounts and imbalance payables | | $ | 225,992 | | | $ | 210,532 | |
Short-term debt | | 7,752 | | | 438,870 | |
| Accrued ad valorem taxes | | 55,610 | | | 41,427 | |
| Accrued liabilities | | 174,163 | | | 230,833 | |
| | | | |
| Total current liabilities | | 463,517 | | | 921,662 | |
| Long-term liabilities | | | | |
Long-term debt | | 7,416,001 | | | 7,415,832 | |
| Deferred income taxes | | 22,752 | | | 22,195 | |
| Asset retirement obligations | | 267,962 | | | 260,283 | |
| Other liabilities | | 295,946 | | | 275,570 | |
Total long-term liabilities | | 8,002,661 | | | 7,973,880 | |
Total liabilities (3) | | 8,466,178 | | | 8,895,542 | |
| Equity and partners’ capital | | | | |
| Common units (318,675,578 units issued and outstanding at March 31, 2021, and December 31, 2020) | | 2,909,877 | | | 2,831,199 | |
| | | | |
| | | | |
| | | | |
| Total partners’ capital | | 2,909,877 | | | 2,831,199 | |
| Noncontrolling interest | | 30,909 | | | 29,552 | |
| Total equity and partners’ capital | | 2,940,786 | | | 2,860,751 | |
| Total liabilities, equity, and partners’ capital | | $ | 11,406,964 | | | $ | 11,756,293 | |
(1)Other assets includes $8.9 million and $4.2 million of NGLs line-fill inventory as of March 31, 2021, and December 31, 2020, respectively. Other assets also includes $68.5 million and $71.9 million of materials and supplies inventory as of March 31, 2021, and December 31, 2020, respectively.
(2)Total assets includes related-party amounts of $1.5 billion as of March 31, 2021, and December 31, 2020, which includes related-party Accounts receivable, net of $231.3 million and $246.1 million as of March 31, 2021, and December 31, 2020, respectively. See Note 6.
(3)Total liabilities includes related-party amounts of $215.2 million and $164.3 million as of March 31, 2021, and December 31, 2020, respectively. See Note 6.
See accompanying Notes to Consolidated Financial Statements.
12
WESTERN MIDSTREAM OPERATING, LP
CONSOLIDATED STATEMENTS OF EQUITY AND PARTNERS’ CAPITAL
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| thousands | | Common
Units | | Noncontrolling
Interests | | Total |
| Balance at December 31, 2020 | | $ | 2,831,199 | | | $ | 29,552 | | | $ | 2,860,751 | |
| Net income (loss) | | 190,485 | | | 1,633 | | | 192,118 | |
| Distributions to Chipeta noncontrolling interest owner | | — | | | (276) | | | (276) | |
| Distributions to WES Operating unitholders | | (127,470) | | | — | | | (127,470) | |
Contributions of equity-based compensation from Occidental | | 3,210 | | | — | | | 3,210 | |
Contributions of equity-based compensation from WES | | 10,826 | | | — | | | 10,826 | |
| Net contributions from (distributions to) related parties | | 1,627 | | | — | | | 1,627 | |
| | | | | | |
| Balance at March 31, 2021 | | $ | 2,909,877 | | | $ | 30,909 | | | $ | 2,940,786 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| thousands | | | | Common
Units | | | | | | Noncontrolling
Interest | | Total |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance at December 31, 2019 | | | | $ | 3,286,620 | | | | | | | $ | 55,199 | | | $ | 3,341,819 | |
| Net income (loss) | | | | (260,330) | | | | | | | (27,665) | | | (287,995) | |
| Distributions to Chipeta noncontrolling interest owner | | | | — | | | | | | | (1,738) | | | (1,738) | |
| Distributions to WES Operating unitholders | | | | (290,314) | | | | | | | — | | | (290,314) | |
| Acquisitions from related parties | | | | (3,987) | | | | | | | 3,987 | | | 0 | |
Contributions of equity-based compensation from Occidental | | | | 4,105 | | | | | | | — | | | 4,105 | |
Net contributions from (distributions to) related parties (1) | | | | 20,489 | | | | | | | — | | | 20,489 | |
| | | | | | | | | | | | |
| Balance at March 31, 2020 | | | | $ | 2,756,583 | | | | | | | $ | 29,783 | | | $ | 2,786,366 | |
(1)See Services Agreement within Note 6.
See accompanying Notes to Consolidated Financial Statements.
13
WESTERN MIDSTREAM OPERATING, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | | | | | | |
| | |
| | | Three Months Ended
March 31, | | |
| thousands | | 2021 | | 2020 | | |
| Cash flows from operating activities | | | | | | |
| Net income (loss) | | $ | 192,118 | | | $ | (287,995) | | | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | |
| Depreciation and amortization | | 130,553 | | | 132,319 | | | |
Long-lived asset and other impairments | | 14,866 | | | 155,785 | | | |
| Goodwill impairment | | 0 | | | 441,017 | | | |
Non-cash equity-based compensation expense | | 14,036 | | | 4,105 | | | |
| Deferred income taxes | | 557 | | | (2,168) | | | |
Accretion and amortization of long-term obligations, net | | 2,088 | | | 2,100 | | | |
| Equity income, net – related parties | | (52,165) | | | (61,347) | | | |
Distributions from equity-investment earnings – related parties | | 49,048 | | | 60,868 | | | |
| (Gain) loss on divestiture and other, net | | 583 | | | 40 | | | |
| (Gain) loss on early extinguishment of debt | | 289 | | | (7,345) | | | |
| | | | | | |
| | | | | | |
| Other | | 11 | | | 2,287 | | | |
| Changes in assets and liabilities: | | | | | | |
| (Increase) decrease in accounts receivable, net | | (50,540) | | | 15,334 | | | |
| Increase (decrease) in accounts and imbalance payables and accrued liabilities, net | | (3,748) | | | (35,474) | | | |
| Change in other items, net | | (36,028) | | | (25,176) | | | |
| Net cash provided by operating activities | | 261,668 | | | 394,350 | | | |
| Cash flows from investing activities | | | | | | |
| Capital expenditures | | (59,783) | | | (172,816) | | | |
| Acquisitions from related parties | | (2,000) | | | 0 | | | |
| | | | | | |
| Contributions to equity investments – related parties | | (86) | | | (10,960) | | | |
| Distributions from equity investments in excess of cumulative earnings – related parties | | 12,141 | | | 5,052 | | | |
| | | | | | |
| | | | | | |
| Decreases to materials and supplies inventory and other | | 3,256 | | | 0 | | | |
| Net cash used in investing activities | | (46,472) | | | (178,724) | | | |
| Cash flows from financing activities | | | | | | |
| Borrowings, net of debt issuance costs | | 100,000 | | | 3,586,173 | | | |
| Repayments of debt | | (531,085) | | | (3,470,139) | | | |
| Increase (decrease) in outstanding checks | | (22,209) | | | (7,308) | | | |
| | | | | | |
Distributions to WES Operating unitholders (1) | | (127,470) | | | (290,314) | | | |
| Distributions to Chipeta noncontrolling interest owner | | (276) | | | (1,738) | | | |
| Net contributions from (distributions to) related parties | | 1,627 | | | 20,489 | | | |
| | | | | | |
| Finance lease payments | | (1,816) | | | (2,151) | | | |
| Net cash provided by (used in) financing activities | | (581,229) | | | (164,988) | | | |
| Net increase (decrease) in cash and cash equivalents | | (366,033) | | | 50,638 | | | |
| Cash and cash equivalents at beginning of period | | 418,537 | | | 98,122 | | | |
| Cash and cash equivalents at end of period | | $ | 52,504 | | | $ | 148,760 | | | |
| Supplemental disclosures | | | | | | |
| | | | | | |
| | | | | | |
| Interest paid, net of capitalized interest | | $ | 153,979 | | | $ | 75,844 | | | |
| Taxes paid (reimbursements received) | | 932 | | | (384) | | | |
| Accrued capital expenditures | | 22,964 | | | 120,233 | | | |
(1)See Note 6.
See accompanying Notes to Consolidated Financial Statements.
14
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
General. Western Gas EquityMidstream Partners, LP is a Delaware master limited partnership (“MLP”) formed in September 2012 to own three types of partnership interests in2012. Western Gas Partners, LP. Western Gas Equity Partners, LP was formed by converting WGR Holdings, LLC into a limited partnership and changing its name. Western Gas Partners,Midstream Operating, LP (together with its subsidiaries, “WES”“WES Operating”) is a Delaware MLPlimited partnership formed by Anadarko Petroleum Corporation in 2007 to acquire, own, develop, and operate midstream energy assets. Western Midstream Partners, LP owns, directly and indirectly, a 98.0% limited partner interest in WES Operating, and directly owns all of the outstanding equity interests of Western Midstream Operating GP, LLC, which holds the entire non-economic general partner interest in WES Operating.
For purposes of these consolidated financial statements, “WGP”the “Partnership” refers to Western Gas EquityMidstream Partners, LP in its individual capacity or to Western Gas EquityMidstream Partners, LP and its subsidiaries, including Western Gas Holdings,Midstream Operating GP, LLC and WES Operating, as the context requires. “WES Operating GP” refers to Western Gas Holdings,Midstream Operating GP, LLC, individually as the general partner of WES and excludes WES. WGP’sOperating. The Partnership’s general partner, Western Gas EquityMidstream Holdings, LLC (“WGP GP”(the “general partner”), is a wholly owned subsidiary of AnadarkoOccidental Petroleum Corporation. WES GP owns all of“Occidental” refers to Occidental Petroleum Corporation, as the context requires, and its subsidiaries, excluding the general partner interest in WES, which constitutes substantially all of its business, which primarily is to manage the affairs and operations of WES. Refer to Note 4 for a discussion of WGP’s holdings of WES equity.partner. “Anadarko” refers to Anadarko Petroleum Corporation and its subsidiaries, excluding WGP and WGP GP, and “affiliates”Western Midstream Holdings, LLC. Anadarko became a wholly owned subsidiary of Occidental Petroleum Corporation as a result of Occidental Petroleum Corporation’s acquisition by merger of Anadarko on August 8, 2019. “Related parties” refers to subsidiaries of Anadarko, excluding WGP, but including equity interests in Fort Union Gas Gathering, LLC (“Fort Union”), White Cliffs Pipeline, LLC (“White Cliffs”), Rendezvous Gas Services, LLC (“Rendezvous”), Enterprise EF78 LLC (the “Mont Belvieu JV”), Texas Express Pipeline LLC (“TEP”), Texas Express Gathering LLC (“TEG”Occidental (see Note 6) and Front Range Pipeline LLC (“FRP”the Partnership’s investments accounted for under the equity method of accounting (see Note 7).
The interests in TEP, TEG and FRP are referred to collectively as the “TEFR Interests.” “MGR assets” refers to the Red Desert complex and the Granger straddle plant.
WESPartnership is engaged in the business of gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, natural-gas liquids (“NGLs”), and crude oil; and gathering and disposing of produced water. WES provides these midstream servicesIn its capacity as a natural-gas processor, the Partnership also buys and sells natural gas, NGLs, and condensate on behalf of itself and as an agent for Anadarko, as well as for third-party producers and customers.its customers under certain contracts. As of September 30, 2017, WES’sMarch 31, 2021, the Partnership’s assets and investments consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Wholly
Owned and
Operated | | Operated
Interests | | Non-Operated
Interests | | Equity
Interests |
Gathering systems (1) | | 17 | | | 2 | | | 3 | | | 1 | |
| Treating facilities | | 39 | | | 3 | | | — | | | — | |
Natural-gas processing plants/trains | | 25 | | | 3 | | | — | | | 5 | |
| NGLs pipelines | | 2 | | | — | | | — | | | 5 | |
Natural-gas pipelines | | 5 | | | — | | | — | | | 1 | |
Crude-oil pipelines | | 3 | | | 1 | | | — | | | 4 | |
|
| | | | | | | | | | | | |
| | | Owned and Operated | | Operated Interests | | Non-Operated Interests | | Equity Interests |
| Gathering systems | | 12 |
| | 3 |
| | 3 |
| | 2 |
|
| Treating facilities | | 19 |
| | 3 |
| | — |
| | 3 |
|
| Natural gas processing plants/trains | | 19 |
| | 5 |
| | — |
| | 2 |
|
| NGL pipelines | | 2 |
| | — |
| | — |
| | 3 |
|
| Natural gas pipelines | | 5 |
| | — |
| | — |
| | — |
|
| Oil pipelines | | — |
| | 1 |
| | — |
| | 1 |
|
These assets and investments are located in Texas, New Mexico, the Rocky Mountains (Colorado, Utah, and Wyoming), North-central Pennsylvania and Texas. During the second quarter of 2017, WES commenced operation of two produced-water disposal systems in West Texas, which are included within Gathering systems in the table above. Train VI, an additional processing plant at the DBM complex, is expected to commence operations during the fourth quarter of 2017.North-central Pennsylvania.
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
Basis of presentation. The following table outlines WES’s ownership interests and the accounting method of consolidation used in WES’s consolidated financial statements:
|
| | | |
| | Percentage Interest |
Equity investments (1)
| | |
Fort Union | | 14.81 | % |
White Cliffs | | 10 | % |
Rendezvous | | 22 | % |
Mont Belvieu JV | | 25 | % |
TEP | | 20 | % |
TEG | | 20 | % |
FRP | | 33.33 | % |
Proportionate consolidation (2)
| | |
Marcellus Interest systems | | 33.75 | % |
Newcastle system | | 50 | % |
Springfield system | | 50.1 | % |
Full consolidation | | |
Chipeta (3)
| | 75 | % |
DBJV system (4)
| | 100 | % |
| |
(1)
| Investments in non-controlled entities over which WES exercises significant influence are accounted for under the equity method. “Equity investment throughput” refers to WES’s share of average throughput for these investments. |
| |
(2)
| WGP proportionately consolidates WES’s associated share of the assets, liabilities, revenues and expenses attributable to these assets. |
| |
(3)
| The 25% interest in Chipeta Processing LLC (“Chipeta”) held by a third-party member is reflected within noncontrolling interests in the consolidated financial statements, in addition to the noncontrolling interests noted below. |
| |
(4)
| WES acquired an additional 50% interest in the DBJV system (the “Additional DBJV System Interest”) from a third party on March 17, 2017. See Note 2.
|
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The consolidated financial statements and include the accounts of WGPthe Partnership and entities in which it holds a controlling financial interest, including WES Operating, WES Operating GP, proportionately consolidated interests, and WES GP.equity investments (see table below). All significant intercompany transactions have been eliminated.
The following table outlines the ownership interests and the accounting method of consolidation used in the consolidated financial statements for entities not wholly owned:
| | | | | | | | |
| | Percentage Interest |
| Full consolidation | | |
Chipeta (1) | | 75.00 | % |
Proportionate consolidation (2) | | |
| Springfield system | | 50.10 | % |
| Marcellus Interest systems | | 33.75 | % |
Equity investments(3) | | |
| Mi Vida JV LLC (“Mi Vida”) | | 50.00 | % |
| Ranch Westex JV LLC (“Ranch Westex”) | | 50.00 | % |
| Front Range Pipeline LLC (“FRP”) | | 33.33 | % |
| Red Bluff Express Pipeline, LLC (“Red Bluff Express”) | | 30.00 | % |
| Enterprise EF78 LLC (“Mont Belvieu JV”) | | 25.00 | % |
| Rendezvous Gas Services, LLC (“Rendezvous”) | | 22.00 | % |
| Texas Express Pipeline LLC (“TEP”) | | 20.00 | % |
| Texas Express Gathering LLC (“TEG”) | | 20.00 | % |
| Whitethorn Pipeline Company LLC (“Whitethorn LLC”) | | 20.00 | % |
| Saddlehorn Pipeline Company, LLC (“Saddlehorn”) | | 20.00 | % |
| Cactus II Pipeline LLC (“Cactus II”) | | 15.00 | % |
| Panola Pipeline Company, LLC (“Panola”) | | 15.00 | % |
| White Cliffs Pipeline, LLC (“White Cliffs”) | | 10.00 | % |
(1)The 25% third-party interest in Chipeta Processing LLC (“Chipeta”) is reflected within noncontrolling interests in the consolidated financial statements. See Noncontrolling interests below.
(2)The Partnership proportionately consolidates its associated share of the assets, liabilities, revenues, and expenses attributable to these assets.
(3)Investments in non-controlled entities over which the Partnership exercises significant influence are accounted for under the equity method of accounting. “Equity-investment throughput” refers to the Partnership’s share of average throughput for these investments.
Certain information and note disclosures commonly included in annual financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, the accompanying consolidated financial statements and notes should be read in conjunction with WGP’s 2016the Partnership’s 2020 Form 10-K,10-K, as filed with the SEC on February 23, 2017.26, 2021. Management believes that the disclosures made are adequate to make the information not misleading.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The consolidated financial results of WES Operating are included in WGP’sthe Partnership’s consolidated financial statements due to WGP’s 100% ownership interest in WES GP and WES GP’s control of WES.statements. Throughout these notes to consolidated financial statements, and to the extent material, any differences between the consolidated financial results of WGPthe Partnership and WES Operating are discussed separately. WGP has no independent operations or material assets other than its partnership interests in WES. WGP’sThe Partnership’s consolidated financial statements differ from those of WES Operating primarily as a result of (i) the presentation of noncontrolling interest ownership (attributable to the limited partner(see Noncontrolling interests in WES held by the public, other subsidiaries of Anadarko and private investors, see Note 4) below), (ii) the elimination of WES Operating GP’s investment in WES Operating with WES Operating GP’s underlying capital account, (iii) the general and administrative expenses incurred by WGP,the Partnership, which are separate from, and in addition to, those incurred by WES Operating, and (iv) the inclusion of the impact of WGPPartnership equity balances and WGP distributions, and (v) WGP’s senior secured revolving credit facility (“WGP RCF”). See Note 9.Partnership distributions.
WESTERN GAS EQUITY PARTNERS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
Variable interest entity.WES is a variable interest entity (“VIE”) because the partners in WES with equity at risk lack the power, through voting or similar rights, to direct the activities that most significantly impact WES’s economic performance. A reporting entity that concludes it has a variable interest in a VIE must evaluate whether it has a controlling financial interest in the VIE, such that it is the VIE’s primary beneficiary and should consolidate. WGP is the primary beneficiary of WES and therefore should consolidate because (i) WGP has the power to direct the activities of WES that most significantly affect its economic performance and (ii) WGP has the right to receive benefits or the obligation to absorb losses that could be potentially significant to WES. As noted above, WGP has no independent operations or material assets other than its partnership interests in WES. The assets of WES cannot be used by WGP for general partnership purposes. WES’s long-term debt is recourse to WES GP, which is wholly owned by WGP. In turn, WES GP is indemnified by wholly owned subsidiaries of Anadarko for any claims made against WES GP under the indentures governing WES’s outstanding notes or borrowings under WES’s senior unsecured revolving credit facility (“WES RCF”). WES’s sources of liquidity include cash and cash equivalents, cash flows generated from operations, interest income on its $260.0 million note receivable from Anadarko, available borrowing capacity under the WES RCF, and issuances of additional equity or debt securities. As further discussed in Note 2, WGP purchased WES common units in connection with WES’s financing of an acquisition from Anadarko in March 2016.
Noncontrolling interests. WGP’s noncontrolling interests in the consolidated financial statements consistPresentation of the following for all periods presented: (i) the 25% interest in Chipeta held by a third-party member, (ii) the publicly held limited partner interests in WES, (iii) the 2,011,380 WES common units issued by WES to other subsidiaries of Anadarko as part of the consideration paid for the acquisitions of the Non-Operated Marcellus Interest, the TEFR Interests and Springfield, and (iv) the WES Class C units issued by WES to a subsidiary of Anadarko as part of the funding for the acquisition of Delaware Basin Midstream, LLC (“DBM”).Partnership’s assets. The WES Series A Preferred units issued to private investors as part of the funding of the Springfield acquisition were also noncontrolling interests in the consolidated financial statements until converted into WES common units in 2017. See Note 2 and Note 4.
When WES issues equity, the carrying amount of the noncontrolling interest reported by WGP is adjusted to reflect the noncontrolling ownership interest in WES. The resulting impact of such noncontrolling interest adjustment on WGP’s interest in WES is reflected as an adjustment to WGP’s partners’ capital.
Presentation of WES assets. The term “WES assets” includes both thePartnership’s assets indirectlyinclude assets owned and theownership interests accounted for by the Partnership under the equity method (see Note 7) by WGPof accounting, through its 98.0% partnership interestsinterest in WES Operating, as of September 30, 2017. Because WGPMarch 31, 2021 (see Note 7). The Partnership also owns and controls the entire non-economic general partner interest in and controls WES Operating GP, and WGP GPthe Partnership’s general partner is owned and controlled by Anadarko, each of WES’s acquisitions of WES assets from Anadarko has been considered a transfer of net assets between entities under common control. As such, WES assets acquired from Anadarko were initially recorded at Anadarko’s historic carrying value, which did not correlate to the total acquisition price paid by WES. Further, after an acquisition of WES assets from Anadarko, WES and WGP (by virtue of its consolidation of WES) may be required to recast their financial statements to include the activities of such WES assets from the date of common control.Occidental.
For those periods requiring recast, the consolidated financial statements for periods prior to the acquisition of WES assets from Anadarko are prepared from Anadarko’s historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if WES had owned the WES assets during the periods reported. Net income (loss) attributable to the WES assets acquired from Anadarko for periods prior to WES’s acquisition of the WES assets is not allocated to the limited partners.
Use of estimates. In preparing financial statements in accordance with GAAP, management makes informed judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. Management evaluates its estimates and related assumptions regularly, using historical experience and other methods considered reasonable.reasonable methods. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ from these estimates. Effects on the business, financial condition, and results of operations resulting from revisions to estimates are recognized when the facts that give rise to the revisions become known. The information furnishedincluded herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated financial statements.
Noncontrolling interests. The Partnership’s noncontrolling interests in the consolidated financial statements consist of (i) the 25% third-party interest in Chipeta and certain prior-period amounts have been reclassified(ii) the 2.0% Occidental subsidiary-owned limited partner interest in WES Operating. WES Operating’s noncontrolling interest in the consolidated financial statements consists of the 25% third-party interest in Chipeta. See Note 5.
Segments. The Partnership’s operations continue to conformbe organized into a single operating segment, the assets of which gather, compress, treat, process, and transport natural gas; gather, stabilize, and transport condensate, NGLs, and crude oil; and gather and dispose of produced water in the United States.
Equity-based compensation. During the three months ended March 31, 2021, the Partnership issued 338,078 common units under the Western Gas Equity Partners, LP 2012 Long-Term Incentive Plan (“WES LTIP”). Compensation expense for the WES LTIP was $3.5 million and $1.1 million for the three months ended March 31, 2021 and 2020, respectively.
On March 22, 2021, the Board of Directors approved the Western Midstream Partners, LP 2021 Long-Term Incentive Plan, which authorized the issuance of up to 9.5 million of the current-year presentation.Partnership’s common units. This plan provides for the grant of unit options, unit appreciation rights, restricted units, phantom units, other unit-based awards, cash awards, and a unit award or a substitute award to employees and directors of the Partnership and its general partner. Affiliates of Occidental who held a majority of the Partnership’s outstanding common units as of March 22, 2021, approved the 2021 Long-Term Incentive Plan via written consent. On April 7, 2021, the Partnership mailed an information statement on Schedule 14C to its unitholders of record as of March 22, 2021. The 2021 Long-Term Incentive Plan became effective on April 27, 2021, which is 20 calendar days after the Partnership mailed out the information statement.
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
Insurance recoveries. Involuntary conversions result fromDefined-contribution plan.Beginning in the lossfirst quarter of an asset because2020, employees of some unforeseen event (e.g., destruction duethe Partnership are eligible to fire). Some of these events are insurable and resultparticipate in property damage insurance recovery. Amountsthe Western Midstream Savings Plan, a defined-contribution benefit plan maintained by the Partnership. All regular employees may participate in the plan by making elective contributions that are received from insurance carriers are net of any deductiblesmatched by the Partnership, subject to certain limitations. The Partnership also makes other contributions based on plan guidelines. The Partnership recognized expense related to the covered event. A receivable is recordedplan of $6.9 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively.
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
The following table summarizes revenue from insurance to the extent a loss is recognizedcontracts with customers:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | Three Months Ended
March 31, | | | | |
| thousands | | 2021 | | 2020 | | | | | | |
| Revenue from customers | | | | | | | | | | |
| Service revenues – fee based | | $ | 529,413 | | | $ | 641,921 | | | | | | | |
| Service revenues – product based | | 31,652 | | | 15,921 | | | | | | | |
| Product sales | | 70,805 | | | 56,649 | | | | | | | |
| Total revenue from customers | | 631,870 | | | 714,491 | | | | | | | |
| Revenue from other than customers | | | | | | | | | | |
Lease revenue (1) | | 42,862 | | | 59,475 | | | | | | | |
| | | | | | | | | | |
| Other | | 242 | | | 347 | | | | | | | |
| Total revenues and other | | $ | 674,974 | | | $ | 774,313 | | | | | | | |
(1)Includes fixed- and variable-lease revenue from an involuntary conversion eventoperating and the likelihood of recovering such loss is deemed probable. To the extent that any insurance claim receivables are later judged not probable of recovery (e.g., due to new information), such amounts are expensed. A gain on involuntary conversion is recognized when the amount received from insurance exceeds the net book valuemaintenance agreement entered into with Occidental. See Operating lease within Note 6.
Certain of the retired asset(s). In addition, gainsPartnership’s midstream services contracts have minimum-volume commitment demand fees and fees that require periodic rate redeterminations based on the related to insurance recoveries are not recognized until all contingencies related to such proceeds have been resolved, that is, a cash payment is received fromfacility cost-of-service rate provisions. During the insurance carrier or there is a binding settlement agreement with the carrier that clearly states that a payment will be made. To the extent that an asset is rebuilt, the associated expenditures are capitalized, as appropriate, in the consolidated balance sheetsyear ended December 31, 2020, and presented as capital expenditures in the consolidated statements of cash flows. With respect to business interruption insurance claims, income is recognized only when cash proceeds are received from insurers, which are presented in the consolidated statements of operations as a component of Operating income (loss).
On December 3, 2015, there was an initial fire and secondary explosion at the processing facility within the DBM complex. The majority of the damage from the incident was to the liquid handling facilities and the amine treating units at the inlet of the complex. Train II (with capacity of 100 MMcf/d) sustained the most damage of the processing trains and returned to service in December 2016. Train III (with capacity of 200 MMcf/d) experienced minimal damage and returned to full service in May 2016. During the quarter ended March 31, 2017, a $5.7 million loss was recorded in Gain (loss)2021, the Partnership constrained revenue on divestiture and other, net incertain cost-of-service agreements based on the consolidated statementsstatus of operations, relatedcommercial negotiations relating to a change in WES’s estimatelegal dispute with one of our contract counterparties. Future revenue reversals could occur to the extent the outcome of the amount that would be recovered under the property insurance claim based on further discussions with insurers. During the second quarter of 2017, WES reached a settlement with insurerslegal proceedings and final proceeds were received. As of September 30, 2017, and December 31, 2016, the consolidated balance sheets include receivables of zero and $30.0 million, respectively, for the property insurance claim related to the incident at the DBM complex. During the nine months ended September 30, 2017, WES received $52.9 million in cash proceedscommercial negotiations differ from insurers in final settlement of WES’s claims related to the incident at the DBM complex, including $29.9 million in proceeds from business interruption insurance claims and $23.0 million in proceeds from property insurance claims.our current assumptions.
Recently adopted accounting standards. Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business assists in determining whether a transaction should be accounted for as an acquisition or disposal of assets or a business. This ASU provides a screen that when substantially all of the fair value of the gross assets acquired, or disposed of, are concentrated in a single identifiable asset, or a group of similar identifiable assets, the assets will not be considered a business. If the screen is not met, the assets must include an input and a substantive process that together significantly contribute to the ability to create an output to be considered a business. WGP’s adoption of this ASU on January 1, 2017, using a prospective approach, could have a material impact on future consolidated financial statements as goodwill will not be allocated to divestitures or recorded on acquisitions that are not considered businesses.
ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs and eliminates the exception for an intra-entity transfer of an asset other than inventory. WGP adopted this ASU on January 1, 2017, using a modified retrospective approach, with no impact to its consolidated financial statements.
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
Contract balances. Receivables from customers, which are included in Accounts receivable, net on the consolidated balance sheets were $469.3 million and $428.2 million as of March 31, 2021, and December 31, 2020, respectively.
New accounting standards issuedContract assets primarily relate to (i) revenue accrued but not yet adopted. ASU 2016-18, Statement billed under cost-of Cash Flows (Topic 230): Restricted Cash requires an entity-service contracts with fixed and variable fees and (ii) accrued deficiency fees the Partnership expects to explain the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents on the statement of cash flows and to provide a reconciliation of the totals in that statement tocharge customers once the related captions in the balance sheet when the cash, cash equivalents, restricted cash, and restricted cash equivalentsperformance periods are presented in more than one line item on the balance sheet. This ASU is effective for annual and interim periods beginning after December 15, 2017, and is requiredcompleted. The following table summarizes activity related to be adopted using a retrospective approach, with early adoption permitted. WGP will adopt this ASU on January 1, 2018, and does not expect the adoption to have a material impact on its consolidated financial statements.
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments provides clarification on how certain cash receipts and cash payments are presented and classified on the statement of cash flows. This ASU is effective for annual and interim periods beginning after December 15, 2017, and is required to be adopted using a retrospective approach if practicable, with early adoption permitted. WGP will adopt this ASU on January 1, 2018, and does not expect the adoption to have a material impact on its consolidated statement of cash flows.
ASU 2016-02, Leases (Topic 842) requires lessees to recognize a lease liability and a right-of-use asset for all leases, including operating leases, with a term greater than 12 months on the balance sheet. The provisions of ASU 2016-02 also modify the definition of a lease and outline the requirements for recognition, measurement, presentation, and disclosure of leasing arrangements by both lessees and lessors. WGP plans to elect certain practical expedients when implementing the new lease standard, which means WGP will not have to reassess the accounting for contracts that commenced prior to adoption. WGP has preliminarily determined WES’s portfolio of leasedcontract assets and is reviewing all related contracts to determine the impact that adoption will have on its consolidated financial statements. WGP is also evaluating the impact of this ASU on its systems, processes, and internal controls. WGP will complete its evaluation in 2018 and adopt this new standard on January 1, 2019, using a modified retrospective approach for all comparative periods presented.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606) supersedes current revenue recognition requirements and requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Additional disclosures will be required to describe the nature, amount, timing, and uncertainty of revenue and cash flows from contracts with customers. WGP has completed an initial reviewcustomers:
| | | | | | | | | | |
| | |
| | | | |
| thousands | | | | |
| Contract assets balance at December 31, 2020 | | $ | 56,344 | | | |
| | | | |
| Additional estimated revenues recognized | | 4,571 | | | |
| | | | |
| Contract assets balance at March 31, 2021 | | $ | 60,915 | | | |
| | | | |
| | |
| | | | |
| Contract assets at March 31, 2021 | | | | |
| Other current assets | | $ | 14,745 | | | |
| Other assets | | 46,170 | | | |
| Total contract assets from contracts with customers | | $ | 60,915 | | | |
Contract liabilities primarily relate to (i) aid-in-construction payments received from customers that must be recognized over the expected period of customer benefit, (ii) fixed and variable fees under cost-of-service contracts in each of itsthat are received from customers for which revenue streamsrecognition is deferred, and is developing accounting policies(iii) fees that are charged to address the provisionscustomers for only a portion of the ASU. While WGP does not currently expect net income tocontract term and must be materially impacted, it has concluded that WES is actingrecognized as an agent inrevenues over the saleexpected period of certain volumes on behalf of WES’s customers based on the requirements of the new ASU. This conclusion will result in the reduction of Natural gas and natural gas liquids sales revenues and a corresponding reduction to cost of product expensecustomer benefit. The following table summarizes activity related to WES’scontract liabilities from contracts with these customers. In addition, WGP expects to recognize revenue for commodities received as noncash consideration in exchange for services provided and revenue and associated cost of product expense for the subsequent sale of those same commodities. This recognition will result in an increase to revenues for gathering and processing activities and cost of product expense with no impact on net income. WGP expects to recognize additional revenues for certain customer contributions related to capital cost recoveries that were previously accounted for as a reduction to capitalized property, plant and equipment. WGP also expects changes in the timing of recognizing revenue for certain fees due to the fee structure of certain contracts. WGP continues to evaluate the impact of these and other provisions of the ASU on its accounting policies, internal controls, and consolidated financial statements. Although WGP has not finalized the quantitative impact of the new standard, based on the assessment completed to date, WGP does not expect the adoption of this standard will have a material impact on its net income. WGP will complete its evaluation during the fourth quarter of 2017 and will adopt this new standard on January 1, 2018, using the modified retrospective method with a cumulative adjustment to equity and partners’ capital.customers:
| | | | | | | | | | |
| | |
| | | | |
| thousands | | | | |
| Contract liabilities balance at December 31, 2020 | | $ | 266,937 | | | |
| Cash received or receivable, excluding revenues recognized during the period | | 15,260 | | | |
| | | | |
Revenues recognized that were included in the contract liability balance at the beginning of the period | | (2,067) | | | |
| | | | |
| Contract liabilities balance at March 31, 2021 | | $ | 280,130 | | | |
| | | | |
| | |
| | | | |
| Contract liabilities at March 31, 2021 | | | | |
| Accrued liabilities | | $ | 19,250 | | | |
| Other liabilities | | 260,880 | | | |
| Total contract liabilities from contracts with customers | | $ | 280,130 | | | |
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
2.
Transaction price allocated to remaining performance obligations. Revenues expected to be recognized from certain performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2021, are presented in the following table. The Partnership applies the optional exemptions in Revenue from Contracts with Customers (Topic 606) and does not disclose consideration for remaining performance obligations with an original expected duration of one year or less or for variable consideration related to unsatisfied (or partially unsatisfied) performance obligations. Therefore, the following table represents only a portion of expected future revenues from existing contracts as most future revenues from customers are dependent on future variable customer volumes and, in some cases, variable commodity prices for those volumes.
| | | | | | | | |
| thousands | | |
| Remainder of 2021 | | $ | 618,392 | |
| 2022 | | 1,055,916 | |
| 2023 | | 1,000,434 | |
| 2024 | | 971,137 | |
| 2025 | | 888,850 | |
| Thereafter | | 2,715,378 | |
| Total | | $ | 7,250,107 | |
3. ACQUISITIONS AND DIVESTITURES
The following table presentsFort Union and Bison facilities. In October 2020, the acquisitions completed by WES during 2017Partnership (i) sold its 14.81% interest in Fort Union Gas Gathering, LLC (“Fort Union”), which was accounted for under the equity method of accounting, and 2016, and identifies(ii) entered into an option agreement to sell the funding sources for such acquisitions:
|
| | | | | | | | | | | | | | | | | | | |
| thousands except unit and percent amounts | | Acquisition Date | | Percentage
Acquired | | Borrowings | | Cash On Hand | | WES Common Units Issued | | WES Series A Preferred Units Issued |
Springfield system (1) | | 03/14/2016 | | 50.1 | % | | $ | 247,500 |
| | $ | — |
| | 2,089,602 |
| | 14,030,611 |
|
DBJV system (2) | | 03/17/2017 | | 50 | % | | — |
| | 155,000 |
| | — |
| | — |
|
| |
(1)
| WES acquired Springfield Pipeline LLC (“Springfield”) from Anadarko for $750.0 million, consisting of $712.5 million in cash and the issuance of 1,253,761 of WES common units. Springfield owns a 50.1% interest in an oil gathering system and a gas gathering system, such interest being referredBison treating facility, located in Northeast Wyoming, to in this report as the “Springfield interest.” The Springfield oil and gas gathering systems (collectively, the “Springfield system”) are located in Dimmit, La Salle, Maverick and Webb Counties in South Texas. WES financed the cash portion of the acquisition through: (i) borrowings of $247.5 million on the WES RCF, (ii) the issuance of 835,841 of WES common units to WGP and (iii) the issuance of WES Series A Preferred units to private investors. See Note 4 for further information regarding WES’s Series A Preferred units. WGP financed the purchase of the WES common units by borrowing $25.0 million under the WGP RCF. See Note 9.
|
| |
(2)
| WES acquired the Additional DBJV System Interest from a third party. See Property exchange below.
|
Property exchange. On March 17, 2017, WES acquired the Additional DBJV System Interest from a third party, in exchange for (a) WES’s 33.75% non-operated interest in two natural gas gathering systems located in northern Pennsylvania (the “Non-Operated Marcellus Interest”), commonly referredinitially exercisable during the first quarter of 2021 and subsequently extended to as the Liberty and Rome systems, and (b) $155.0May 9, 2021. The Partnership received combined proceeds of $27.0 million, of cash consideration (collectively, the “Property Exchange”). WES previously held a 50% interest in, and operated, the DBJV system.
The Property Exchange is reflected as a nonmonetary transaction whereby the acquired Additional DBJV System Interest is recorded at the fair value of the divested Non-Operated Marcellus Interest plus the $155.0 million of cash consideration. The Property Exchange resultedresulting in a net gain on sale of $125.7$21.0 million related to the Fort Union interest that was recorded in the fourth quarter of 2020 as Gain (loss) on divestiture and other, net in the consolidated statements of operations. Results
During the second quarter of operations attributable2021, the third party exercised its option to purchase the Property Exchange were includedBison treating facility and it satisfied the held-for-sale criteria. The sale is expected to close in the consolidated statement of operations beginning on the acquisition date in the firstsecond quarter of 2017.2021.
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. ACQUISITIONS AND DIVESTITURES (CONTINUED)
DBJV acquisition - Deferred purchase price obligation - Anadarko.Prior to WES’s agreement with Anadarko to settle its deferred purchase price obligation early, the consideration that would have been paid by WES for the March 2015 acquisition of Delaware Basin JV Gathering LLC (“DBJV”) from Anadarko, consisted of a cash payment to Anadarko due on March 31, 2020. The cash payment would have been equal to (a) eight multiplied by the average of WES’s share in the Net Earnings (see definition below) of DBJV for the calendar years 2018 and 2019, less (b) WES’s share of all capital expenditures incurred for DBJV between March 1, 2015, and February 29, 2020. Net Earnings was defined as all revenues less cost of product, operating expenses and property taxes, in each case attributable to DBJV on an accrual basis. In May 2017, WES reached an agreement with Anadarko to settle this obligation whereby WES made a cash payment to Anadarko of $37.3 million, equal to the estimated net present value of the obligation at March 31, 2017.
The following table summarizes the financial statement impact of the Deferred purchase price obligation - Anadarko:
|
| | | | | | | | |
| | | Deferred purchase price obligation - Anadarko | | Estimated future payment obligation (1) |
| Balance at December 31, 2016 | | $ | 41,440 |
| | $ | 56,455 |
|
Accretion expense (2) | | 71 |
| | |
Revision to Deferred purchase price obligation – Anadarko (3) | | (4,165 | ) | | |
| Settlement of the Deferred purchase price obligation – Anadarko | | (37,346 | ) | | |
| Balance at September 30, 2017 | | $ | — |
| | $ | — |
|
| |
(1)
| Calculated using Level 3 inputs. |
| |
(2)
| Accretion expense was recorded as a charge to Interest expense in the consolidated statements of operations. |
| |
(3)
| Recorded as revisions within Common units in the consolidated balance sheet and consolidated statement of equity and partners’ capital. |
Helper and Clawson systems divestiture. During the second quarter of 2017, the Helper and Clawson systems, located in Utah, were sold to a third party, resulting in a net gain on sale of $16.4 million recorded as Gain (loss) on divestiture and other, net in the consolidated statements of operations.
Hugoton system divestiture. During the fourth quarter of 2016, the Hugoton system, located in Southwest Kansas and Oklahoma, was sold to a third party, resulting in a net loss on sale of $12.0 million recorded as Gain (loss) on divestiture and other, net in the consolidated statements of operations. WES allocated $1.6 million in goodwill to this divestiture.
WESTERN GAS EQUITY PARTNERS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3.4. PARTNERSHIP DISTRIBUTIONS
WGP partnershipPartnership distributions. WGP’sUnder its partnership agreement, requires WGP to distributethe Partnership distributes all of its available cash (as(beyond proper reserves as defined in its partnership agreement) to WGP unitholders of record on the applicable record date within 55 days of the end offollowing each quarter.quarter’s end. The Board of Directors of WGP GPthe general partner (the “Board of Directors”) declared the following cash distributions to WGPthe Partnership’s unitholders for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
thousands except per-unit amounts Quarters Ended | | Total Quarterly
Per-unit
Distribution | | Total Quarterly
Cash Distribution | | Distribution
Date |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| 2020 | | | | | | |
| March 31 | | $ | 0.31100 | | | $ | 140,893 | | | May 2020 |
| June 30 | | 0.31100 | | | 140,900 | | | August 2020 |
| September 30 | | 0.31100 | | | 132,255 | | | November 2020 |
| December 31 | | 0.31100 | | | 131,265 | | | February 2021 |
| 2021 | | | | | | |
March 31 (1) | | $ | 0.31500 | | | $ | 132,969 | | | May 2021 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | |
|
| | | | | | | | | | | |
thousands except per-unit amounts Quarters Ended | | Total Quarterly Distribution per Unit | | Total Quarterly Cash Distribution | | Date of Distribution |
| 2016 | | | | | | |
| March 31 | | $ | 0.42375 |
| | $ | 92,767 |
| | May 2016 |
| June 30 | | 0.43375 |
| | 94,958 |
| | August 2016 |
| September 30 | | 0.44750 |
| | 97,968 |
| | November 2016 |
| December 31 | | 0.46250 |
| | 101,254 |
| | February 2017 |
| 2017 | | | | | | |
| March 31 | | $ | 0.49125 |
| | $ | 107,549 |
| | May 2017 |
| June 30 | | 0.52750 |
| | 115,487 |
| | August 2017 |
September 30 (1) | | 0.53750 |
| | 117,677 |
| | November 2017 |
| |
(1)
| The Board of Directors declared a cash distribution to WGP unitholders for the third quarter of 2017 of $0.53750 per unit, or $117.7 million in aggregate. The cash distribution is payable on November 22, 2017, to WGP unitholders of record at the close of business on November 2, 2017. |
WES partnership distributions. WES’s partnership agreement requires WES to distribute all of its available cash (as defined in WES’s partnership agreement) to WES unitholders of record on the applicable record date within 45 days of the end of each quarter. (1)The Board of Directors of WES GP declared a cash distribution to the following cash distributions to WES’s common and general partnerPartnership’s unitholders for the periods presented:first quarter of 2021 of $0.31500 per unit, or $133.0 million in aggregate. The cash distribution is payable on May 14, 2021 to unitholders of record at the close of business on April 30, 2021, including the general partner units.
|
| | | | | | | | | | | |
thousands except per-unit amounts
Quarters Ended | | Total Quarterly
Distribution
per Unit | | Total Quarterly
Cash Distribution | | Date of
Distribution |
| 2016 | | | | | | |
| March 31 | | $ | 0.815 |
| | $ | 158,905 |
| | May 2016 |
| June 30 | | 0.830 |
| | 162,827 |
| | August 2016 |
| September 30 | | 0.845 |
| | 166,742 |
| | November 2016 |
| December 31 | | 0.860 |
| | 170,657 |
| | February 2017 |
| 2017 | | | | | | |
| March 31 | | $ | 0.875 |
| | $ | 188,753 |
| | May 2017 |
| June 30 | | 0.890 |
| | 207,491 |
| | August 2017 |
September 30 (1) | | 0.905 |
| | 212,038 |
| | November 2017 |
| |
(1)
| The Board of Directors of WES GP declared a cash distribution to WES unitholders for the third quarter of 2017 of $0.905 per unit, or $212.0 million in aggregate, including incentive distributions, but excluding distributions on WES Class C units (see WESClass C unit distributions below). The cash distribution is payable on November 13, 2017, to WES unitholders of record at the close of business on November 2, 2017.
|
WESTERN GAS EQUITY PARTNERS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. PARTNERSHIP DISTRIBUTIONS (CONTINUED)
WES’s availableAvailable cash. The amount of available cash (as(beyond proper reserves as defined in WES’sour partnership agreement) generally is all cash on hand at the end of the quarter, plus, at the discretion of WES GP,the general partner, working capital borrowings made subsequent to the end of such quarter, less the amount of cash reserves established by WES GPthe general partner to provide for the proper conduct of WES’sthe Partnership’s business, including reserves to fund future capital expenditures; to comply with applicable laws, debt instruments, or other agreements; or to provide funds for unitholder distributions to WES unitholders and to WES GP for any one or more of the next four quarters. Working capital borrowings generally include borrowings made under a credit facility or similar financing arrangement. Working capital borrowings may only be those that, at the time of such borrowings, werearrangement and are intended to be repaid or refinanced within 12 months. In all cases, working capital borrowings are used solely for working capital purposes or to fund unitholder distributions.
WES Operating partnership distributions. WES Operating makes quarterly cash distributions to partners.
WES Class C unit distributions. WES’s Class C units receive quarterly distributions atthe Partnership and WGR Asset Holding Company LLC (“WGRAH”), a rate equivalentsubsidiary of Occidental, in proportion to WES’s common units. The distributions are paid in the formtheir share of additional Class C units (“PIK Class C units”) until the scheduled conversion date on March 1, 2020 (unless earlier converted), and the Class C units are disregarded with respect to WES’s distributions of WES’s available cash until they are converted to WES common units. The number of additional PIK Class C units to be issued in connection with a distribution payable on the Class C units is determined by dividing the corresponding distribution attributable to the Class C units by the volume-weighted-average price of WES’s common units for the ten days immediately preceding the payment date for the WES common unit distribution, less a 6% discount. WES records the PIK Class C unit distributions at fair value at the time of issuance. This Level 2 fair value measurement uses WES’s unit price as a significant input in the determination of the fair value. See Note 4 for further discussion of the WES Class C units.
WES Series A Preferred unit distributions. As further described in Note 4, WES issued Series A Preferred units representing limited partner interests in WES to private investors in 2016. The Series A Preferred unitholders received quarterly distributions in cash equal to $0.68 per Series A Preferred unit, subject to certain adjustments. TheOperating. See Note 5. WES Operating made the following table summarizes the Series A Preferred unitholders’ cash distributions to its limited partners for the periods presented:
|
| | | | | | | | | | | |
thousands except per-unit amounts Quarters Ended | | Total Quarterly Distribution per Unit | | Total Quarterly Cash Distribution | | Date of Distribution |
| 2016 | | | | | | |
March 31 (1) | | $ | 0.68 |
| | $ | 1,887 |
| | May 2016 |
June 30 (2) | | 0.68 |
| | 14,082 |
| | August 2016 |
| September 30 | | 0.68 |
| | 14,907 |
| | November 2016 |
| December 31 | | 0.68 |
| | 14,908 |
| | February 2017 |
| 2017 | | | | | | |
| March 31 | | $ | 0.68 |
| | $ | 7,453 |
| | May 2017 |
| | | | | | | | | | | | | |
(1)thousands
Quarters Ended | | Total Quarterly per unit distribution prorated for the 18-day period during which 14,030,611 WES Series A Preferred units were outstanding during the first quarter of 2016.
Cash Distribution |
| |
(2)
2020 | Full quarterly per unit distribution on 14,030,611 WES Series A Preferred units and quarterly per unit distribution prorated for the 77-day period during which 7,892,220 WES Series A Preferred units were outstanding during the second quarter of 2016. | | | |
| March 31 | | $ | 143,404 | | | |
| June 30 | | 143,404 | | | |
| September 30 | | 143,404 | | | |
| December 31 | | 127,470 | | | |
| 2021 | | | | |
| March 31 | | $ | 137,030 | | | |
| | | | |
| | | | |
| | | | |
On March 1, 2017, 50% of the outstanding WES Series A Preferred units converted into WES common units on a one-for-one basis, and on May 2, 2017, the remaining WES Series A Preferred units converted into WES common units on a one-for-one basis. Such converted WES common units were entitled to distributions made to WES common unitholders with respect to the quarter during which the applicable conversion occurred and did not include a prorated WES Series A Preferred unit distribution.
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. PARTNERSHIP DISTRIBUTIONS (CONTINUED)
WES’s general partner interest and incentive distribution rights. As of September 30, 2017, WES GP was entitled to 1.5% of all quarterly distributions that WES makes prior to its liquidation and, as the holder of the incentive distribution rights (“IDRs”), was entitled to incentive distributions at the maximum distribution sharing percentage of 48.0% for all periods presented, after the minimum quarterly distribution and the target distribution levels had been achieved. The maximum distribution sharing percentage of 49.5% does not include any distributions that WES GP may receive on common units that it may acquire.
4.5. EQUITY AND PARTNERS’ CAPITAL
Holdings of WGPPartnership equity. WGP’s The Partnership’s common units are listed on the New York Stock Exchange under the ticker symbol “WGP.“WES.” As of September 30, 2017, AnadarkoMarch 31, 2021, Occidental held 178,587,365 of WGP’s202,781,578 common units, representing an 81.6%a 48.0% limited partner interest in WGP,the Partnership, and through its ownership of WGP GP, Anadarkothe general partner, Occidental indirectly held the entire non-economic9,060,641 general partner units, representing a 2.2% general partner interest in WGP.the Partnership. The public held 40,345,776 WGP210,280,555 common units, representing an 18.4%a 49.8% limited partner interest in WGP.the Partnership.
In June 2016, AnadarkoMarch 2021, an affiliate of Occidental sold 12,500,00011,500,000 of its WGPthe Partnership’s common units it held to the public through an underwritten offering. WGP did not receive any proceeds from, or incur any expense in, the public offering.
Tangible equity units. In June 2015, Anadarko completed the public issuance of 9,200,000 7.50% tangible equityoffering, including 1,500,000 common units (“TEUs”), including 1,200,000 TEUs pursuant to the full exercise of the underwriters’ over-allotment option, at a price to the public of $50.00 per TEU. Each TEU that Anadarko issued consists of (1) a prepaid equity purchase contract for WGP common units owned by Anadarko (subject to Anadarko’s right to elect to deliver shares of its common stock in lieu of such WGP common units) and (2) a senior amortizing note due June 7, 2018. WGPover-allotment option. The Partnership did not receive any proceeds from or incur any expensethe public offering.
On September 11, 2020, the Partnership assigned its 98% interest in the public offering.30-year $260.0 million note established in May 2008 between WES Operating and Anadarko (the “Anadarko note receivable”) to Anadarko, which Anadarko canceled and retired immediately upon receipt, in exchange for which Occidental caused certain of its subsidiaries to transfer an aggregate of 27,855,398 common units representing limited partner interests in the Partnership to the Partnership. The units were canceled by the Partnership immediately upon receipt. See Note 6.
NetPartnership equity repurchases. In November 2020, the Board of Directors authorized the Partnership to buy back up to $250.0 million of the Partnership’s common units through December 31, 2021 (the “Purchase Program”). The common units may be purchased from time to time in the open market at prevailing market prices or in privately negotiated transactions. During the quarter ended March 31, 2021, the Partnership repurchased 1,115,808 common units on the open market for an aggregate purchase price of $16.2 million. The units were canceled by the Partnership immediately upon receipt. As of March 31, 2021, the Partnership had an authorized amount of $201.2 million remaining under the Purchase Program.
Holdings of WES Operating equity. As of March 31, 2021, (i) the Partnership, directly and indirectly through its ownership of WES Operating GP, owned a 98.0% limited partner interest and the entire non-economic general partner interest in WES Operating and (ii) Occidental, through its ownership of WGRAH, owned a 2.0% limited partner interest in WES Operating, which is reflected as a noncontrolling interest within the consolidated financial statements of the Partnership (see Note 1).
Partnership’s net income (loss) per common unit. For WGP, The common and general partner unitholders’ allocation of net income (loss) attributable to the Partnership was equal to their cash distributions plus their respective allocations of undistributed earnings or losses using the two-class method. Specifically, net income equal to the amount of available cash (beyond proper reserves as defined by the partnership agreement) was allocated to the common and general partner unitholders consistent with actual cash distributions and capital account allocations. Undistributed earnings (net income in excess of distributions) or undistributed losses (available cash in excess of net income (loss)) were then allocated to the common and general partner unitholders in accordance with their weighted-average ownership percentage during each period.
The Partnership’s basic net income (loss) per common unit is calculated by dividing the limited partners’ interest in net income (loss) by the weighted-averageweighted-average number of common units outstanding during the period. Dilutive
WES Operating’s net income (loss) per common unit is calculated by dividing the limited partners’ interest in net income (loss) adjusted for distributions on the WES Series A Preferred units and a reallocation of the limited partners’ interest in net income (loss) assuming conversion of the WES Series A Preferred units into WES common units by the weighted-average number of WGP common units outstanding during the period. As of May 2, 2017, all WES Series A Preferred units were converted into WES common units on a one-for-one basis. The impact of the Series A Preferred units assuming conversion to WES common units would be anti-dilutive for all periods presented.unit. Net income (loss) per common unit is calculated assuming that cash distributions are equal to the net income attributable to WGP. Net income (loss) attributable to thefor WES assets (as defined in Note 1) acquired from Anadarko for periods prior to WES’s acquisition of the WES assetsOperating is not allocated to the limited partners when calculating net income (loss) per common unit. Net income equal to the amount of available cash (as defined by WGP’s partnership agreement) is allocated to WGP common unitholders consistent with actual cash distributions.calculated because it has no publicly traded units.
Holdings of WES equity. As of September 30, 2017, WGP held 50,132,046 WES common units, representing a 29.8% limited partner interest in WES, and, through its ownership of WES GP, WGP indirectly held 2,583,068 general partner units, representing a 1.5% general partner interest in WES, and 100% of WES’s incentive distribution rights. As of September 30, 2017, (i) other subsidiaries of Anadarko collectively held 2,011,380 WES common units and 12,977,633 Class C units, representing an aggregate 9.0% limited partner interest in WES and (ii) the public held 100,458,679 WES common units, representing a 59.7% limited partner interest in WES, which are all reflected as noncontrolling interests within the consolidated financial statements of WGP (see Note 1 and Note 2).
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS
4. EQUITY AND PARTNERS’ CAPITAL (CONTINUED)
Summary of related-party transactions. The following tables summarize material related-party transactions included in the Partnership’s consolidated financial statements:
WES Class C units. In November 2014, WES issued 10,913,853 Class C units to Anadarko Midstream Holdings (“AMH”), | | | | | | | | | | | | | | | | | | | | |
| Consolidated statements of operations | | | | | | | | | | |
| | | Three Months Ended
March 31, | | | | |
| thousands | | 2021 | | 2020 | | | | | | |
| Revenues and other | | | | | | | | | | |
| Service revenues – fee based | | $ | 367,475 | | | $ | 447,783 | | | | | | | |
| Service revenues – product based | | 4,505 | | | 2,978 | | | | | | | |
| Product sales | | 6,271 | | | 31,624 | | | | | | | |
| Total revenues and other | | 378,251 | | | 482,385 | | | | | | | |
Equity income, net – related parties (1) | | 52,165 | | | 61,347 | | | | | | | |
| Operating expenses | | | | | | | | | | |
| Cost of product | | 17,647 | | | 77,903 | | | | | | | |
| Operation and maintenance | | 18,122 | | | 32,841 | | | | | | | |
General and administrative (2) | | 4,093 | | | 21,855 | | | | | | | |
| Total operating expenses | | 39,862 | | | 132,599 | | | | | | | |
| | | | | | | | | | |
| Interest income – Anadarko note receivable | | 0 | | | 4,225 | | | | | | | |
| Interest expense | | 0 | | | (43) | | | | | | | |
(1)See Note 7.
(2)Includes (i) amounts charged by Occidental pursuant to a Unit Purchasethe shared services agreement (see Services Agreement with Anadarkowithin this Note 6) and AMH. The Class C units were issued to partially fund WES’s acquisition of DBM.
When issued, the WES Class C units were scheduled to convert into WES common units on a one-for-one basis on December 31, 2017. In February 2017, Anadarko elected to extend the conversion date of the WES Class C units to March 1, 2020. WES can elect to convert the Class C units earlier or Anadarko can extend the conversion date again.
WES Series A Preferred units. In 2016, WES issued 21,922,831 WES Series A Preferred units to private investors. Pursuant to an agreement between WES and the holders of the WES Series A Preferred units, 50% of the WES Series A Preferred units converted into WES common units on a one-for-one basis on March 1, 2017, and the remaining Series A Preferred units converted on a one-for-one basis on May 2, 2017. WES has an effective registration statement with the SEC relating(ii) equity-based compensation expense allocated to the public resalePartnership by Occidental, which is not reimbursed to Occidental and is reflected as a contribution to partners’ capital in the consolidated statements of the WES common units issued upon conversion of the WES Series A Preferred units.equity and partners’ capital (see Incentive Plans within this Note 6).
WES interests. The following table summarizes WES’s common, Class C, Series A Preferred and general partner units issued during the nine months ended September 30, 2017:
|
| | | | | | | | | | | | | | | |
| | | WES Common Units | | WES Class C Units | | WES Series A Preferred Units | | WES General Partner Units | | Total |
| Balance at December 31, 2016 | | 130,671,970 |
| | 12,358,123 |
| | 21,922,831 |
| | 2,583,068 |
| | 167,535,992 |
|
| PIK Class C units | | — |
| | 619,510 |
| | — |
| | — |
| | 619,510 |
|
| Conversion of Series A Preferred units | | 21,922,831 |
| | — |
| | (21,922,831 | ) | | — |
| | — |
|
| Long-Term Incentive Plan award vestings | | 7,304 |
| | — |
| | — |
| | — |
| | 7,304 |
|
| Balance at September 30, 2017 | | 152,602,105 |
| | 12,977,633 |
| | — |
| | 2,583,068 |
| | 168,162,806 |
|
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS
5.
| | | | | | | | | | | | | | |
| | | | |
| | |
| | | | |
| Consolidated balance sheets | | | | |
| | | | |
| thousands | | March 31,
2021 | | December 31,
2020 |
| Assets | | | | |
| Accounts receivable, net | | $ | 253,553 | | | $ | 291,253 | |
| Other current assets | | 14,096 | | | 5,493 | |
| | | | |
Equity investments (1) | | 1,215,875 | | | 1,224,813 | |
Other assets (2) | | 46,124 | | | 50,967 | |
| Total assets | | 1,529,648 | | | 1,572,526 | |
| Liabilities | | | | |
| Accounts and imbalance payables | | 8,929 | | | 6,664 | |
| | | | |
| Accrued liabilities | | 52,779 | | | 19,195 | |
| Other liabilities | | 153,841 | | | 138,796 | |
| Total liabilities | | 215,549 | | | 164,655 | |
(1)See Note 7.
(2)For the three months ended March 31, 2021, includes the addition of a $30.0 million right-of-use (“ROU”) asset recognized in connection with related-party operating leases (see Operating lease within this Note 6).
| | | | | | | | | | | | | | | | |
| Consolidated statements of cash flows | | | | | | |
| | Three Months Ended
March 31, | | |
| thousands | | 2021 | | 2020 | | |
Distributions from equity-investment earnings – related parties | | $ | 49,048 | | | $ | 60,868 | | | |
| Acquisitions from related parties | | (2,000) | | | 0 | | | |
| Contributions to equity investments – related parties | | (86) | | | (10,960) | | | |
| Distributions from equity investments in excess of cumulative earnings – related parties | | 12,141 | | | 5,052 | | | |
| | | | | | |
| | | | | | |
Distributions to Partnership unitholders (1) | | (66,642) | | | (150,609) | | | |
Distributions to WES Operating unitholders (2) | | (2,551) | | | (5,807) | | | |
| Net contributions from (distributions to) related parties | | 1,627 | | | 20,489 | | | |
| | | | | | |
| Finance lease payments | | 0 | | | (202) | | | |
(1)Represents distributions paid to Occidental pursuant to the partnership agreement of the Partnership (see Note 4 and Note 5).
(2)Represents distributions paid to a certain subsidiary of Occidental pursuant to WES Operating’s partnership agreement (see Note 4 and Note 5).
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS WITH AFFILIATES
Affiliate transactions. RevenuesThe following tables summarize material related-party transactions for WES Operating (which are included in the Partnership’s consolidated financial statements) to the extent the amounts differ from affiliatesthe Partnership’s consolidated financial statements:
| | | | | | | | | | | | | | | | | | | | |
| Consolidated statements of operations | | | | | | | | | | |
| | | | | | |
| | | | | Three Months Ended
March 31, | | |
| thousands | | | | | | 2021 | | 2020 | | |
General and administrative (1) | | | | | | $ | 4,587 | | | $ | 21,738 | | | |
| | | | | | | | | | |
(1)Includes (i) amounts charged by Occidental pursuant to the shared services agreement (see Services Agreementwithin this Note 6) and (ii) equity-based compensation expense allocated to WES Operating by Occidental, which is not reimbursed to Occidental and is reflected as a contribution to partners’ capital in the consolidated statements of equity and partners’ capital (see Incentive Plans within this Note 6).
| | | | | | | | | | | | | | |
| | | | |
| | |
| | | | |
| Consolidated balance sheets | | | | |
| thousands | | March 31,
2021 | | December 31,
2020 |
| Accounts receivable, net | | $ | 231,286 | | | $ | 246,083 | |
| | | | | | | | | | | | | | | | | | | | |
| Consolidated statements of cash flows | | | | | | | | | | |
| | | | | | |
| | | | Three Months Ended
March 31, | | |
| thousands | | | | | | 2021 | | 2020 | | |
| | | | | | | | | | |
Distributions to WES Operating unitholders (1) | | | | | | $ | (127,470) | | | $ | (290,314) | | | |
(1)Represents distributions paid to the Partnership and a certain subsidiary of Occidental pursuant to WES Operating’s partnership agreement (see Note 4 and Note 5).
Related-party revenues. Related-party revenues include (i) income from the Partnership’s investments accounted for under the equity method of accounting (see Note 7) and (ii) amounts earned by WESthe Partnership from services provided to Anadarko as well asOccidental and from the sale of residuenatural gas, condensate, and NGLs to Anadarko. Occidental.
Gathering and processing agreements. The Partnership has significant gathering and processing arrangements with affiliates of Occidental on most of its systems. While Occidental is the contracting counterparty of the Partnership, these arrangements with Occidental include not just Occidental-produced volumes, but also, in some instances, the volumes of other working-interest owners of Occidental who rely on the Partnership’s facilities and infrastructure to bring their volumes to market. Natural-gas throughput (excluding equity-investment throughput) attributable to production owned or controlled by Occidental was 35% and 42% for the three months ended March 31, 2021 and 2020, respectively. Crude-oil and NGLs throughput (excluding equity-investment throughput) attributable to production owned or controlled by Occidental was 88% and 89% for the three months ended March 31, 2021 and 2020, respectively. Produced-water throughput attributable to production owned or controlled by Occidental was 86% and 89% for the three months ended March 31, 2021 and 2020, respectively.
The Partnership is currently involved in a dispute with Occidental regarding the calculation of the cost-of-service rates under an oil-gathering contract related to the Partnership’s DJ Basin oil-gathering system. If such dispute is resolved in a manner adverse to the Partnership, such resolution could have a negative impact on our financial condition and results of operations, including a reduction in rates and a non-cash charge to earnings.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS
In addition, WES purchasesconnection with the sale of its Eagle Ford assets in 2017, Anadarko remained the primary counterparty to the Partnership’s Brasada gas processing agreement and entered into an agency relationship with Sanchez Energy Corporation (“Sanchez”), now Mesquite Energy, Inc. (“Mesquite”) that allows Mesquite to process gas under such agreement. For this reason, Anadarko continues to be liable under the Brasada gas processing agreement through 2034 to the extent Mesquite does not perform. For all periods presented, Mesquite has performed Anadarko’s obligations under the Brasada gas processing agreement pursuant to its agency arrangement with Anadarko.
Further, in connection with the sale of its Uinta Basin assets in 2020, Kerr McGee Oil & Gas Onshore LP, a subsidiary of Occidental, retained the deficiency payment obligations under a gas processing agreement at the Chipeta plant. This contingent payment obligation extends through the earlier of October 1, 2022, or the termination of the processing agreement.
Commodity purchase and sale agreements. Through December 31, 2020, the Partnership purchased and sold a significant amount of natural gas and NGLs from and to Anadarko Energy Services Company (“AESC”), Occidental’s marketing affiliate. Prior to April 1, 2020, AESC acted as an agent on behalf of either the Partnership or the Partnership’s customers for third-party sales. Where AESC sold natural gas and NGLs on the Partnership’s customers’ behalf, the Partnership recognized associated service revenues and cost of product expense for the marketing services performed by AESC. When product sales were on the Partnership’s behalf, the Partnership recognized product sales revenues based on Occidental’s sales price to the third party and recorded the associated cost of product expense associated with the marketing activities provided by AESC. Effective April 1, 2020, changes to marketing-contract terms with AESC terminated AESC’s prior status as an agent of the Partnership for third-party sales and established AESC as a customer of the Partnership. Accordingly, the Partnership no longer recognizes service revenues and/or product sales revenues and the equivalent cost of product expense for the marketing services performed by AESC. This change has no impact to Operating income (loss), Net income (loss), the balance sheets, cash flows, or any non-GAAP metric used to evaluate the Partnership’s operations (see Key Performance Metrics under Part I, Item 2 of this Form 10-Q).
Marketing Transition Services Agreement. Effective December 31, 2019, certain subsidiaries of Anadarko entered into a transition services agreement (the “Marketing Transition Services Agreement”) to provide marketing-related services to certain of the Partnership’s subsidiaries through December 31, 2020, subject to the option to extend such services for an additional six-month period. The Marketing Transition Services Agreement was terminated on December 31, 2020. While the Partnership still has some marketing agreements with affiliates of Occidental, the Partnership began marketing and selling substantially all of its natural gas and NGLs directly to third parties beginning on January 1, 2021.
Operating lease. As a result of the surface-use and salt-water disposal agreements being amended under the CUA (see Related-party Commercial Agreement below), these agreements are now classified as operating leases and a $30.0 million ROU asset was recognized during the first quarter of 2021. The ROU asset will be amortized to Operation and maintenance expense over the remaining term of the agreements.
Effective December 31, 2019, an affiliate of AnadarkoOccidental and a wholly owned subsidiary of the Partnership, the lessor, entered into an operating and maintenance agreement pursuant to gas purchase agreements. which Occidental provides operational and maintenance services with respect to a crude-oil gathering system and associated treating facilities owned by the Partnership through December 31, 2021. The agreement and underlying contracts include (i) fixed consideration, which is measured as the minimum-volume commitment for both gathering and treating, and (ii) variable consideration, which consists of all volumes above the minimum-volume commitment. Subsequent to the initial two-year term, the agreement provides for automatic one-year extensions, unless either party exercises its option to terminate the lease with advance notice. In April 2021, the Partnership exercised its option to terminate the operating and maintenance agreement with Occidental effective December 31, 2021. For each of the three months ended March 31, 2021 and 2020, the Partnership recognized fixed-lease revenues of $43.9 million and variable-lease revenue of $(1.1) million and $15.6 million, respectively, related to these agreements, with such amounts included in Service revenues – fee based in the consolidated statements of operations.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS
Related-party expenses. Operation and maintenance expense includes amounts accrued for or paid to affiliatesrelated parties for field-related costs provided by related parties at certain of the operation of WES assets, whether in providing services to affiliates or to third parties, including field labor, measurement and analysis, and other disbursements.Partnership’s assets. A portion of general and administrative expensesexpense is paid by Anadarko,Occidental, which results in affiliaterelated-party transactions pursuant to the reimbursement provisions of the omnibusPartnership’s and WES Operating’s agreements with Occidental. Cost of WESproduct expense includes amounts related to certain continuing marketing arrangements with affiliates of Occidental, related-party imbalances, and WGP. Affiliatetransactions with affiliates accounted for under the equity method of accounting. See Commodity purchase and sale agreements and Marketing Transition Services Agreement in the sections above. Related-party expenses do not bear a direct relationship to affiliaterelated-party revenues, and third-partythird-party expenses do not bear a direct relationship to third-partythird-party revenues. See Note 2 for further information related to contributions of assets to WES by Anadarko.
Cash management. Anadarko operates a cash management system whereby excess cash from most of its subsidiaries’ separate bank accounts is generally swept to centralized accounts. Prior to the acquisition of WES assets, third-party sales and purchases related to such assets were received or paid in cash by Anadarko within its centralized cash management system. The outstanding affiliate balances were entirely settled through an adjustment to net investment by Anadarko in connection with the acquisition of WES assets. Subsequent to the acquisition of WES assets from Anadarko, transactions related to such assets are cash-settled directly with third parties and with Anadarko affiliates. Chipeta cash settles its transactions directly with third parties and Anadarko, as well as with the other subsidiaries of WES.
Note receivable - Anadarko. Concurrently with the closing of WES’s May 2008 initial public offering, WES loaned $260.0 million to Anadarko in exchange for a 30-year note bearing interest at a fixed annual rate of 6.50%, payable quarterly. The fair value of the note receivable from Anadarko was $313.2 million and $313.3 million at September 30, 2017, and December 31, 2016, respectively. The fair value of the note reflects consideration of credit risk and any premium or discount for the differential between the stated interest rate and quarter-end market interest rate, based on quoted market prices of similar debt instruments. Accordingly, the fair value of the note receivable from Anadarko is measured using Level 2 inputs.
WGP working capital facility.On November 1, 2012, WGP entered into a $30.0 million working capital facility (the “WGP WCF”) with Anadarko as the lender. The WGP WCF is available exclusively to fund WGP’s working capital borrowings. The WGP WCF will mature on November 1, 2017. See Note 9.
Commodity price swap agreements. WES has commodity price swap agreements with Anadarko to mitigate exposure to a majority of the commodity price risk inherent in its percent-of-proceeds and keep-whole contracts. Notional volumes for each of the commodity price swap agreements are not specifically defined. Instead, the commodity price swap agreements apply to the actual volume of natural gas, condensate and NGLs purchased and sold. The commodity price swap agreements do not satisfy the definition of a derivative financial instrument and, therefore, are not required to be measured at fair value.
WESTERN GAS EQUITY PARTNERS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. TRANSACTIONS WITH AFFILIATES (CONTINUED)
The following table summarizes gains and losses upon settlement of WES’s commodity price swap agreements recognized in the consolidated statements of operations:
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands | | 2017 | | 2016 | | 2017 | | 2016 |
Gains (losses) on commodity price swap agreements related to sales: (1) | | | | | | | | |
| Natural gas sales | | $ | 6,284 |
| | $ | 719 |
| | $ | 12,022 |
| | $ | 12,962 |
|
| Natural gas liquids sales | | (7,210 | ) | | 15,939 |
| | (9,680 | ) | | 56,489 |
|
| Total | | (926 | ) | | 16,658 |
| | 2,342 |
| | 69,451 |
|
Gains (losses) on commodity price swap agreements related to purchases (2) | | (117 | ) | | (9,248 | ) | | (2,928 | ) | | (45,032 | ) |
| Net gains (losses) on commodity price swap agreements | | $ | (1,043 | ) | | $ | 7,410 |
| | $ | (586 | ) | | $ | 24,419 |
|
| |
(1)
| Reported in affiliate Natural gas and natural gas liquids sales in the consolidated statements of operations in the period in which the related sale is recorded. |
| |
(2)
| Reported in Cost of product in the consolidated statements of operations in the period in which the related purchase is recorded. |
Revenues or costs attributable to volumes settled during 2016 and 2017 for the DJ Basin complex and 2017 for the MGR assets are recognized in the consolidated statements of operations at the applicable market price in the tables below. WES also records a capital contribution from Anadarko in its consolidated statement of equity and partners’ capital for the amount by which the swap price exceeds the applicable market price in the tables below. The commodity price swap agreement for the Hugoton system was in place until its divestiture in October 2016. For the nine months ended September 30, 2017, the capital contribution from Anadarko was $46.7 million. The tables below summarize the swap prices compared to the forward market prices:
|
| | | | | | | | | | | | |
| | | DJ Basin Complex |
| per barrel except natural gas | | 2016 - 2017 Swap Prices | | 2016 Market Prices (1) | | 2017 Market Prices (1) |
| Ethane | | $ | 18.41 |
| | $ | 0.60 |
| | $ | 5.09 |
|
| Propane | | 47.08 |
| | 10.98 |
| | 18.85 |
|
| Isobutane | | 62.09 |
| | 17.23 |
| | 26.83 |
|
| Normal butane | | 54.62 |
| | 16.86 |
| | 26.20 |
|
| Natural gasoline | | 72.88 |
| | 26.15 |
| | 41.84 |
|
| Condensate | | 76.47 |
| | 34.65 |
| | 45.40 |
|
| Natural gas (per MMBtu) | | 5.96 |
| | 2.11 |
| | 3.05 |
|
| |
(1)
| Represents the New York Mercantile Exchange (“NYMEX”) forward strip price as of December 8, 2015 and December 1, 2016, for the 2016 Market Prices and 2017 Market Prices, respectively, adjusted for product specification, location, basis and, in the case of NGLs, transportation and fractionation costs. |
WESTERN GAS EQUITY PARTNERS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. TRANSACTIONS WITH AFFILIATES (CONTINUED)
|
| | | | | | | | |
| | | MGR Assets |
| per barrel except natural gas | | 2016 - 2017 Swap Prices | | 2017 Market Prices (1) |
| Ethane | | $ | 23.11 |
| | $ | 4.08 |
|
| Propane | | 52.90 |
| | 19.24 |
|
| Isobutane | | 73.89 |
| | 25.79 |
|
| Normal butane | | 64.93 |
| | 25.16 |
|
| Natural gasoline | | 81.68 |
| | 45.01 |
|
| Condensate | | 81.68 |
| | 53.55 |
|
| Natural gas (per MMBtu) | | 4.87 |
| | 3.05 |
|
| |
(1)
| Represents the NYMEX forward strip price as of December 1, 2016, adjusted for product specification, location, basis and, in the case of NGLs, transportation and fractionation costs. |
Gathering and processing agreements. WES has significant gathering and processing arrangements with affiliates of Anadarko on a majority of its systems. WES’s natural gas gathering, treating and transportation throughput (excluding equity investment throughput) attributable to production owned or controlled by Anadarko was 33% and 34% for the three and nine months ended September 30, 2017, respectively, and 37% and 38% for the three and nine months ended September 30, 2016, respectively. WES’s natural gas processing throughput (excluding equity investment throughput) attributable to production owned or controlled by Anadarko was 39% and 42% for the three and nine months ended September 30, 2017, respectively, and 51% and 55% for the three and nine months ended September 30, 2016, respectively. WES’s crude, NGL and produced water gathering, treating and transportation throughput (excluding equity investment throughput) attributable to production owned or controlled by Anadarko was 54% and 50% for the three and nine months ended September 30, 2017, respectively, and 67% and 64% for the three and nine months ended September 30, 2016, respectively.
Commodity purchase and sale agreements. WES sells a significant amount of its natural gas, condensate and NGLs to Anadarko Energy Services Company (“AESC”), Anadarko’s marketing affiliate. In addition, WES purchases natural gas, condensate and NGLs from AESC pursuant to purchase agreements. WES’s purchase and sale agreements with AESC are generally one-year contracts, subject to annual renewal.
Acquisitions from Anadarko. On March 14, 2016, WES acquired Springfield from Anadarko (see Note 2).
WESTERN GAS EQUITY PARTNERS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. TRANSACTIONS WITH AFFILIATES (CONTINUED)
WGP LTIP. WGP GP awards phantom units under the Western Gas Equity Partners, LP 2012 Long-Term Incentive Plan (“WGP LTIP”) to its independent directors and executive officers. The phantom units awarded to the independent directors vest one year from the grant date, while awards granted to executive officers are subject to graded vesting over a three-year service period. Compensation expense under the WGP LTIP is recognized over the vesting period and was $63,000 and $0.2 million for the three and nine months ended September 30, 2017, respectively, and $57,000 and $0.2 million for the three and nine months ended September 30, 2016, respectively.
WGP LTIP and Anadarko Incentive Plan.Agreement.General and administrative expenses included $1.2 million and $3.2 millionexpense includes costs incurred pursuant to the Services Agreement, under which Occidental has performed certain centralized corporate functions for the threePartnership and nine months ended September 30, 2017, respectively,WES Operating.
Pursuant to the Services Agreement, which was amended and $1.4 millionrestated on December 31, 2019, specified employees of Occidental were seconded to WES Operating GP to provide, under the direction, supervision, and $3.7 millioncontrol of the general partner, (i) operating and routine maintenance service and (ii) corporate, administrative, and other services, with respect to the assets owned and operated by the Partnership. Occidental was reimbursed for the threeservices provided by the seconded employees. In January 2020, pursuant to the Services Agreement, Occidental made a one-time cash contribution of $20.0 million to WES Operating for anticipated transition costs required to establish stand-alone human resources and nine months ended September 30, 2016, respectively, of equity-basedinformation technology functions. In late March 2020, seconded employees’ employment was transferred to the Partnership. Occidental continues to provide certain limited administrative and operational services to the Partnership, with most services expected to be fully transitioned to the Partnership by December 31, 2021.
Incentive Plans.General and administrative expense includes non-cash equity-based compensation expense allocated to WESthe Partnership by Anadarko,Occidental for awards granted to the executive officers of WES GPthe general partner and to other employees prior to their employment with the Partnership under the WGP LTIP and(i) the Anadarko Petroleum Corporation 2012 Omnibus Incentive Compensation Plan, (“Anadarkoas amended and restated, (ii) Occidental’s 2015 Long-Term Incentive Plan”Plan, and (iii) Occidental’s Phantom Share Unit Award Plan (collectively referred to as the “Incentive Plans”). Of this amount, $3.3General and administrative expense includes allocated expense related to the Incentive Plans of $3.2 million isand $4.1 million for the three months ended March 31, 2021 and 2020, respectively. These amounts are reflected as contributions to partners’ capital in the consolidated statementstatements of equity and partners’ capitalcapital.
Related-party Commercial Agreement. During the first quarter of 2021, an affiliate of Occidental and certain wholly owned subsidiaries of the Partnership entered into a Commercial Understanding Agreement (“CUA”). Under the CUA, certain West Texas surface-use and salt-water disposal agreements were amended to reduce usage fees owed by the Partnership in exchange for the nine months ended September 30, 2017.
WES LTIP. WES GP awards phantom unitsforgiveness of certain deficiency fees owed by Occidental and other unrelated contractual amendments. The present value of the reduced usage fees under the Western Gas Partners, LPCUA was $30.0 million.
Anadarko note receivable. In May 2008, Long-Term Incentive Plan (“WES LTIP”) primarilyOperating loaned $260.0 million to its independent directors, but also from time to time to its executive officers and Anadarko employees performing servicesin exchange for WES. The phantom units awarded to the independent directors vest one a 30-year from the grant date, while all other awards are subject to graded vesting overnote that bore interest at a three-year service period. Compensation expense is recognized over the vesting periodfixed annual rate and was $0.1 million for each of the three months ended September 30, 2017 and 2016, and $0.3 million for each of the nine months ended September 30, 2017 and 2016.
Equipment purchases and sales. The following table summarizes WES’s purchases from and sales to Anadarko of pipe and equipment:
|
| | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| thousands | | Purchases | | Sales |
| Cash consideration | | $ | 3,910 |
| | $ | 3,965 |
| | $ | — |
| | $ | 623 |
|
| Net carrying value | | (5,283 | ) | | (3,366 | ) | | — |
| | (605 | ) |
| Partners’ capital adjustment | | $ | (1,373 | ) | | $ | 599 |
| | $ | — |
| | $ | 18 |
|
Contributionsclassified as interest income in aid of construction costs from affiliates. On certain of WES’s capital projects, Anadarko is obligated to reimburse WES for all or a portion of project capital expenditures. The majority of such arrangements are associated with projects related to pipeline construction activities and production well tie-ins. The cash receipts resulting from such reimbursements are presented as “Contributions in aid of construction costs from affiliates” within the investing section of the consolidated statements of operations. On September 11, 2020, the Partnership and Occidental entered into a Unit Redemption Agreement, pursuant to which WES Operating transferred the note receivable to Anadarko, which Anadarko immediately canceled and retired upon receipt.
Purchases from related parties. During the fourth quarter of 2020, a subsidiary of the Partnership entered into an agreement to purchase three electrical substations located in the DJ Basin from a subsidiary of Occidental for $2.0 million. This purchase was recorded as an Accrued capital expenditure as of December 31, 2020, and cash flows.was paid in January of 2021.
WESTERN GAS EQUITY PARTNERS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Summary of affiliate transactions. The following table summarizes material affiliate transactions. See Note 2 for discussion of affiliate acquisitions and related funding.
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands | | 2017 | | 2016 | | 2017 | | 2016 |
Revenues and other (1) | | $ | 351,127 |
| | $ | 325,312 |
| | $ | 982,595 |
| | $ | 900,301 |
|
Equity income, net – affiliates (1) | | 21,519 |
| | 20,294 |
| | 62,708 |
| | 56,801 |
|
Cost of product (1) | | 22,902 |
| | 21,254 |
| | 60,497 |
| | 67,979 |
|
Operation and maintenance (2) | | 18,110 |
| | 15,052 |
| | 53,661 |
| | 50,688 |
|
General and administrative (3) | | 10,414 |
| | 9,655 |
| | 29,637 |
| | 28,179 |
|
| Operating expenses | | 51,426 |
| | 45,961 |
| | 143,795 |
| | 146,846 |
|
Interest income (4) | | 4,225 |
| | 4,225 |
| | 12,675 |
| | 12,675 |
|
Interest expense (5) | | — |
| | (1,173 | ) | | 71 |
| | (12,097 | ) |
Settlement of the Deferred purchase price obligation – Anadarko (6) | | — |
| | — |
| | (37,346 | ) | | — |
|
Distributions to WGP unitholders (7) | | 94,205 |
| | 77,462 |
| | 264,533 |
| | 235,587 |
|
Distributions to WES unitholders (8) | | 1,790 |
| | 1,670 |
| | 5,280 |
| | 3,915 |
|
| Above-market component of swap agreements with Anadarko | | 18,049 |
| | 18,417 |
| | 46,719 |
| | 34,782 |
|
| |
(1)
| Represents amounts earned or incurred on and subsequent to the date of the acquisition of WES assets, as well as amounts earned or incurred by Anadarko on a historical basis related to WES assets prior to the acquisition of such assets by WES, recognized under gathering, treating or processing agreements, and purchase and sale agreements. |
| |
(2)
| Represents expenses incurred on and subsequent to the date of the acquisition of WES assets, as well as expenses incurred by Anadarko on a historical basis related to WES assets prior to the acquisition of such assets by WES. |
| |
(3)
| Represents general and administrative expense incurred on and subsequent to the date of WES’s acquisition of WES assets, as well as a management services fee for reimbursement of expenses incurred by Anadarko for periods prior to the acquisition of WES assets by WES. These amounts include equity-based compensation expense allocated to WES and WGP by Anadarko (see WES LTIP and WGP LTIP and Anadarko Incentive Plan within this Note 5) and amounts charged by Anadarko under the WGP and WES omnibus agreements.
|
| |
(4)
| Represents interest income recognized on the note receivable from Anadarko. |
| |
(5)
| Includes amounts related to WES’s Deferred purchase price obligation - Anadarko (see Note 2 and Note 9).
|
| |
(6)
| Represents the cash payment to Anadarko for the settlement of the Deferred purchase price obligation - Anadarko (see Note 2).
|
| |
(7)
| Represents distributions paid under WGP’s partnership agreement (see Note 3 and Note 4).
|
| |
(8)
| Represents distributions paid to other subsidiaries of Anadarko under WES’s partnership agreement (see Note 3 and Note 4).
|
Concentration of credit risk. Anadarko Occidental was the only customer from whomwhich revenues exceeded 10% of consolidated revenues for all periods presented in the consolidated statements of operations.
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. EQUITY INVESTMENTS
6.
The following table presents the financial statement impact of the Partnership’s equity investments for the three months ended March 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| thousands | | Balance at December 31, 2020 | | | | | | Equity
income, net | | Contributions | | Distributions | | Distributions in excess of cumulative earnings (1) | | | | Balance at March 31, 2021 |
| White Cliffs | | $ | 45,623 | | | | | | | $ | 381 | | | $ | 0 | | | $ | (236) | | | $ | (2,644) | | | | | $ | 43,124 | |
| Rendezvous | | 28,198 | | | | | | | (145) | | | 0 | | | (341) | | | (539) | | | | | 27,173 | |
| Mont Belvieu JV | | 98,874 | | | | | | | 6,718 | | | 0 | | | (6,400) | | | 0 | | | | | 99,192 | |
| TEG | | 16,661 | | | | | | | 1,107 | | | 0 | | | (1,116) | | | (129) | | | | | 16,523 | |
| TEP | | 195,189 | | | | | | | 9,161 | | | 0 | | | (6,506) | | | (4,491) | | | | | 193,353 | |
| FRP | | 199,881 | | | | | | | 8,723 | | | 0 | | | (8,767) | | | (3,369) | | | | | 196,468 | |
| Whitethorn LLC | | 156,729 | | | | | | | 2,085 | | | 31 | | | (1,799) | | | (761) | | | | | 156,285 | |
| Cactus II | | 173,921 | | | | | | | 6,259 | | | 55 | | | (3,835) | | | 0 | | | | | 176,400 | |
| Saddlehorn | | 111,717 | | | | | | | 8,434 | | | 0 | | | (8,063) | | | 0 | | | | | 112,088 | |
| Panola | | 20,867 | | | | | | | 655 | | | 0 | | | (655) | | | (152) | | | | | 20,715 | |
| Mi Vida | | 55,031 | | | | | | | 2,055 | | | 0 | | | (2,080) | | | (56) | | | | | 54,950 | |
| Ranch Westex | | 18,898 | | | | | | | 3,357 | | | 0 | | | (6,348) | | | 0 | | | | | 15,907 | |
| Red Bluff Express | | 103,224 | | | | | | | 3,375 | | | 0 | | | (2,902) | | | 0 | | | | | 103,697 | |
| Total | | $ | 1,224,813 | | | | | | | $ | 52,165 | | | $ | 86 | | | $ | (49,048) | | | $ | (12,141) | | | | | $ | 1,215,875 | |
(1)Distributions in excess of cumulative earnings, classified as investing cash flows in the consolidated statements of cash flows, are calculated on an individual-investment basis.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. PROPERTY, PLANT, AND EQUIPMENT
A summary of the historical cost of WES’s property, plant, and equipment is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | |
| thousands | | Estimated Useful Life | | March 31,
2021 | | December 31,
2020 |
| Land | | N/A | | $ | 9,741 | | | $ | 9,696 | |
| Gathering systems – pipelines | | 30 years | | 5,286,821 | | | 5,231,212 | |
| Gathering systems – compressors | | 15 years | | 2,133,889 | | | 2,096,905 | |
| Processing complexes and treating facilities | | 25 years | | 3,434,442 | | | 3,424,368 | |
| Transportation pipeline and equipment | | 6 to 45 years | | 168,205 | | | 168,205 | |
Produced-water disposal systems | | 20 years | | 844,794 | | | 831,719 | |
| Assets under construction | | N/A | | 94,005 | | | 176,834 | |
| Other | | 3 to 40 years | | 717,541 | | | 702,806 | |
| Total property, plant, and equipment | | | | 12,689,438 | | | 12,641,745 | |
| Less accumulated depreciation | | | | 4,049,900 | | | 3,931,800 | |
| Net property, plant, and equipment | | | | $ | 8,639,538 | | | $ | 8,709,945 | |
|
| | | | | | | | | | |
| thousands | | Estimated Useful Life | | September 30, 2017 | | December 31, 2016 |
| Land | | n/a | | $ | 4,271 |
| | $ | 4,012 |
|
| Gathering systems and processing complexes | | 3 to 47 years | | 6,972,302 |
| | 6,462,053 |
|
| Pipelines and equipment | | 15 to 45 years | | 139,344 |
| | 139,646 |
|
| Assets under construction | | n/a | | 434,432 |
| | 226,626 |
|
| Other | | 3 to 40 years | | 31,829 |
| | 29,605 |
|
| Total property, plant and equipment | | | | 7,582,178 |
| | 6,861,942 |
|
| Accumulated depreciation | | | | 2,074,464 |
| | 1,812,010 |
|
| Net property, plant and equipment | | | | $ | 5,507,714 |
| | $ | 5,049,932 |
|
The cost of property classified as “Assets under construction” is excluded from capitalized costs being depreciated. These amounts represent property that is not yet suitable to be placed into productive service as of the respective balance sheet date.
Impairments.Long-lived asset and other impairments. During the ninethree months ended September 30, 2017, WESMarch 31, 2021, the Partnership recognized impairments of $170.1$14.9 million, including an impairmentprimarily attributable to $13.5 million of $158.8 millionimpairments at the GrangerDJ Basin complex which wasdue to cancellation of projects.
During the three months ended March 31, 2020, the Partnership recognized impairments of $155.8 million, primarily due to $145.1 million of impairments for assets located in Wyoming and Utah. These assets were impaired to its estimated fair values of $91.0 million and estimated salvage value of $6.7 million. The Partnership assesses whether events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of $48.5 millionassets with impairment triggers were measured using the income approach and Level-3 fair value inputs, due to a reduced throughput fee as a result of a producer’s bankruptcy. Also during the period, WES recognized additional impairments of $11.3 million, primarily related to (i) a $3.7 million impairment at the Granger straddle plant, which was impaired to its estimated salvage value of $0.6 million using theinputs. The income approach was based on the Partnership’s projected future EBITDA and Level 3 fair value inputs, (ii) a $3.1 million impairmentfree cash flows, which requires significant assumptions including, among others, future throughput volumes based on current expectations of the Fort Union equity investment (see Note 7), (iii) a $2.0 million impairment of an idle facility in northeast Wyoming, which was impaired to its estimated salvage value of $0.4 million using the market approachproducer activity and Level 3 fair value inputs, and (iv) the cancellation of a pipeline project in West Texas.
During 2016, WES recognizedoperating costs. These impairments of $15.5 million, including an impairment of $6.1 million at the Newcastle system, which was impaired to its estimated fair value of $3.1 million using the income approach and Level 3 fair value inputs, due to a reductionwere primarily triggered by reductions in estimated future cash flows caused by the lowresulting from lower forecasted producer throughput and lower commodity price environment. Also during 2016, WES recognizedprices. The remaining impairments of $9.4$10.7 million were primarily related to the cancellation of projects at the DJ Basin complex due to cancellation of projects and impairments of rights-of-way.
Potential future long-lived asset impairments. As of March 31, 2021, it is reasonably possible that future commodity-price declines, prolonged depression of commodity prices, changes to producers’ drilling plans in response to lower prices, and potential producer bankruptcies could result in future long-lived asset impairments. For example, on April 29, 2020, the Partnership received notice that Sanchez, in its bankruptcy, is attempting to reject a number of midstream and downstream agreements with commercial counterparties, including Sanchez’s Springfield gathering agreements and DBJV systems, andagreements obligating Sanchez to deliver the abandonmentgas volumes gathered by the Springfield system to our Brasada processing plant. On May 6, 2021, the Bankruptcy Court issued an opinion determining, among other things, that Sanchez’s Springfield gathering agreements were rejected, but that such agreements contain covenants running with the land that survive rejection, thus preserving the acreage dedication to the Partnership’s Springfield system. Depending on the ultimate outcome of compressors at the MIGC system.Partnership’s continuing efforts to defend its contractual rights in the bankruptcy proceeding, as well as the Partnership’s ongoing commercial discussions, the Partnership’s South Texas assets could be impaired.
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. GOODWILL
7. EQUITY INVESTMENTS
Goodwill is recorded when the purchase price of a business acquired exceeds the fair market value of the tangible and separately measurable intangible net assets. Goodwill also includes the allocated historic carrying value of midstream goodwill attributed to the Partnership’s assets previously acquired from Anadarko. The Partnership’s goodwill has been allocated to 2 reporting units: (i) gathering and processing and (ii) transportation.
The following table presentsPartnership evaluates goodwill for impairment at the activityreporting-unit level on an annual basis, as of WES’s equity investmentsOctober 1, or more often as facts and circumstances warrant. An initial qualitative assessment is performed to determine the likelihood of whether goodwill is impaired and if deemed necessary based on this assessment, a quantitative assessment is then performed. If the quantitative assessment indicates that the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment is recorded for the nineamount by which the reporting unit’s carrying value exceeds its fair value.
During the three months ended September 30, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Equity Investments |
| thousands | Fort
Union | | White
Cliffs | | Rendezvous | | Mont
Belvieu JV | | TEG | | TEP | | FRP | | Total |
| Balance at December 31, 2016 | $ | 12,833 |
| | $ | 47,319 |
| | $ | 46,739 |
| | $ | 112,805 |
| | $ | 15,846 |
| | $ | 189,194 |
| | $ | 169,472 |
| | $ | 594,208 |
|
| Investment earnings (loss), net of amortization | 2,964 |
| | 9,984 |
| | 840 |
| | 20,430 |
| | 2,325 |
| | 13,332 |
| | 12,833 |
| | 62,708 |
|
Impairment expense (1) | (3,110 | ) | | — |
|
| — |
| | — |
| | — |
| | — |
| | — |
| | (3,110 | ) |
| Contributions | — |
| | 277 |
| | — |
| | — |
| | — |
| | 107 |
| | — |
| | 384 |
|
| Distributions | (3,359 | ) | | (9,548 | ) | | (2,296 | ) | | (20,459 | ) | | (2,167 | ) | | (13,520 | ) | | (12,964 | ) | | (64,313 | ) |
Distributions in excess of cumulative earnings (2) | (1,662 | ) | | (2,325 | ) | | (1,616 | ) | | (2,316 | ) | | — |
| | (6,091 | ) | | (2,245 | ) | | (16,255 | ) |
| Balance at September 30, 2017 | $ | 7,666 |
| | $ | 45,707 |
| | $ | 43,667 |
| | $ | 110,460 |
| | $ | 16,004 |
| | $ | 183,022 |
| | $ | 167,096 |
| | $ | 573,622 |
|
| |
(1)
| Recorded in Impairments in the consolidated statements of operations. |
| |
(2)
| Distributions in excess of cumulative earnings, classified as investing cash flows in the consolidated statements of cash flows, is calculated on an individual investment basis. |
The investment balance in Fort Union at September 30, 2017, is $3.1 million less than WES’s underlying equity in Fort Union’s net assetsMarch 31, 2020, the Partnership performed an interim goodwill impairment test due to an impairment loss recognized by WESa significant decline in the second quartertrading price of 2017 for its investment in Fort Union. This investment was impairedthe Partnership’s common units, triggered by the combined impacts from the global outbreak of COVID-19 and the oil-market disruption resulting from significantly lower global demand and corresponding oversupply of crude oil. The Partnership primarily used the market approach and Level-3 inputs to its estimatedestimate the fair value of $8.5 million, usingits two reporting units. The market approach was based on multiples of EBITDA and the Partnership’s projected future EBITDA. The EBITDA multiples were based on current and historic multiples for comparable midstream companies of similar size and business profit to the Partnership. The EBITDA projections require significant assumptions including, among others, future throughput volumes based on current expectations of producer activity and operating costs. The reasonableness of the market approach was tested against an income approach that was based on a discounted cash-flow analysis. Key assumptions in this analysis include the use of an appropriate discount rate, terminal-year multiples, and Level 3estimated future cash flows, including estimates of throughput, capital expenditures, operating, and general and administrative costs. The Partnership also reviewed the reasonableness of the total fair value inputs.of both reporting units to the market capitalization as of March 31, 2020, and the reasonableness of an implied acquisition premium. Impairment determinations involve significant assumptions and judgments, and differing assumptions regarding any of these inputs could have a significant effect on the valuations. As a result of the interim impairment test, the Partnership recognized a goodwill impairment of $441.0 million during the first quarter of 2020, which reduced the carrying value of goodwill for the gathering and processing reporting unit to 0. Goodwill allocated to the transportation reporting unit of $4.8 million as of March 31, 2020, was not impaired. Recurring goodwill impairment assessments have indicated no further impairment.
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8.10. SELECTED COMPONENTS OF WORKING CAPITAL
A summary of accounts receivable, net is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | The Partnership | | WES Operating |
| | | | |
| | | | | | | | |
| thousands | | March 31,
2021 | | December 31,
2020 | | March 31,
2021 | | December 31,
2020 |
| Trade receivables, net | | $ | 480,265 | | | $ | 452,718 | | | $ | 457,998 | | | $ | 407,547 | |
| Other receivables, net | | 440 | | | 162 | | | 91 | | | 2 | |
| Total accounts receivable, net | | $ | 480,705 | | | $ | 452,880 | | | $ | 458,089 | | | $ | 407,549 | |
|
| | | | | | | | |
| thousands | | September 30, 2017 | | December 31, 2016 |
| Trade receivables, net | | $ | 192,394 |
| | $ | 192,606 |
|
| Other receivables, net | | 43 |
| | 30,415 |
|
| Total accounts receivable, net | | $ | 192,437 |
| | $ | 223,021 |
|
A summary of other current assets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | The Partnership | | WES Operating |
| | | | |
| | | | | | | | |
| thousands | | March 31,
2021 | | December 31,
2020 | | March 31,
2021 | | December 31,
2020 |
| NGLs inventory | | $ | 4,373 | | | $ | 882 | | | $ | 4,373 | | | $ | 882 | |
| Imbalance receivables | | 29,723 | | | 12,976 | | | 29,723 | | | 12,976 | |
| Prepaid insurance | | 6,741 | | | 8,131 | | | 5,150 | | | 6,113 | |
| Contract assets | | 14,745 | | | 5,338 | | | 14,745 | | | 5,338 | |
| Other | | 18,497 | | | 17,935 | | | 18,497 | | | 17,935 | |
| Total other current assets | | $ | 74,079 | | | $ | 45,262 | | | $ | 72,488 | | | $ | 43,244 | |
|
| | | | | | | | |
| thousands | | September 30, 2017 | | December 31, 2016 |
| Natural gas liquids inventory | | $ | 8,459 |
| | $ | 7,126 |
|
| Imbalance receivables | | 2,103 |
| | 3,483 |
|
| Prepaid insurance | | 2,935 |
| | 2,889 |
|
| Total other current assets | | $ | 13,497 |
| | $ | 13,498 |
|
A summary of accrued liabilities is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | The Partnership | | WES Operating |
| | | | |
| | | | | | | | |
| thousands | | March 31,
2021 | | December 31,
2020 | | March 31,
2021 | | December 31,
2020 |
| Accrued interest expense | | $ | 73,940 | | | $ | 137,307 | | | $ | 73,940 | | | $ | 137,307 | |
Short-term asset retirement obligations | | 16,181 | | | 20,215 | | | 16,181 | | | 20,215 | |
Short-term remediation and reclamation obligations | | 5,951 | | | 2,950 | | | 5,951 | | | 2,950 | |
| Income taxes payable | | 3,023 | | | 3,399 | | | 3,023 | | | 3,399 | |
| Contract liabilities | | 19,250 | | | 31,477 | | | 19,250 | | | 31,477 | |
Other (1) | | 81,840 | | | 74,599 | | | 55,818 | | | 35,485 | |
| Total accrued liabilities | | $ | 200,185 | | | $ | 269,947 | | | $ | 174,163 | | | $ | 230,833 | |
(1)As of March 31, 2021, includes $29.1 million of field-related accruals owed to related parties, portions of which include the weather-related impacts caused by winter storm Uri.
|
| | | | | | | | |
| thousands | | September 30, 2017 | | December 31, 2016 |
| Accrued interest expense | | $ | 45,624 |
| | $ | 39,834 |
|
| Short-term asset retirement obligations | | 3,976 |
| | 3,114 |
|
| Short-term remediation and reclamation obligations | | 630 |
| | 630 |
|
| Income taxes payable | | 1,024 |
| | 1,006 |
|
| Other | | 6,445 |
| | 606 |
|
| Total accrued liabilities | | $ | 57,699 |
| | $ | 45,190 |
|
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.11. DEBT AND INTEREST EXPENSE
At September 30, 2017, WGP’sWES Operating is the borrower for all outstanding debt consisted of borrowings underand is expected to be the WGP RCF and WES’s 5.375% Senior Notes due 2021 (the “2021 Notes”), 4.000% Senior Notes due 2022 (the “2022 Notes”), 2.600% Senior Notes due 2018 (the “2018 Notes”), 5.450% Senior Notes due 2044 (the “2044 Notes”), 3.950% Senior Notes due 2025 (the “2025 Notes”), 4.650% Senior Notes due 2026 (the “2026 Notes”) and borrowings on the WES RCF.
borrower for all future debt issuances. The following table presents WES and WGP’s outstanding debt as of September 30, 2017, and December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| thousands | | Principal | | Carrying Value | | Fair Value (1) | | Principal | | Carrying Value | | Fair Value (1) |
| WGP RCF | | $ | 28,000 |
| | $ | 28,000 |
| | $ | 28,000 |
| | $ | 28,000 |
| | $ | 28,000 |
| | $ | 28,000 |
|
| 2021 Notes | | 500,000 |
| | 495,541 |
| | 536,712 |
| | 500,000 |
| | 494,734 |
| | 536,252 |
|
| 2022 Notes | | 670,000 |
| | 668,795 |
| | 693,789 |
| | 670,000 |
| | 668,634 |
| | 681,723 |
|
| 2018 Notes | | 350,000 |
| | 349,558 |
| | 351,770 |
| | 350,000 |
| | 349,188 |
| | 351,531 |
|
| 2044 Notes | | 600,000 |
| | 593,206 |
| | 634,283 |
| | 600,000 |
| | 593,132 |
| | 615,753 |
|
| 2025 Notes | | 500,000 |
| | 491,653 |
| | 503,322 |
| | 500,000 |
| | 490,971 |
| | 492,499 |
|
| 2026 Notes | | 500,000 |
| | 495,133 |
| | 525,069 |
| | 500,000 |
| | 494,802 |
| | 518,441 |
|
| WES RCF | | 250,000 |
| | 250,000 |
| | 250,000 |
| | — |
| | — |
| | — |
|
| Total long-term debt | | $ | 3,398,000 |
| | $ | 3,371,886 |
| | $ | 3,522,945 |
| | $ | 3,148,000 |
| | $ | 3,119,461 |
| | $ | 3,224,199 |
|
| |
(1)
| Fair value is measured using the market approach and Level 2 inputs. |
Debt activity. The following table presents WES and WGP’s debt activity for the nine months ended September 30, 2017:
|
| | | | |
| thousands | | Carrying Value |
| Balance at December 31, 2016 | | $ | 3,119,461 |
|
| WES RCF borrowings | | 250,000 |
|
| Other | | 2,425 |
|
| Balance at September 30, 2017 | | $ | 3,371,886 |
|
WGP RCF. As of September 30, 2017, WGP had $28.0 million of outstanding borrowings and $222.0 million available for borrowing under the WGP RCF, which matures in March 2019. As of September 30, 2017 and 2016, the interest rate on the outstanding WGP RCF borrowings was 3.24%debt:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2021 | | December 31, 2020 |
| thousands | | Principal | | Carrying
Value | | Fair Value (1) | | Principal | | Carrying
Value | | Fair Value (1) |
Short-term debt | | | | | | | | | | | | |
| 5.375% Senior Notes due 2021 | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 431,081 | | | $ | 430,606 | | | $ | 436,241 | |
| Finance lease liabilities | | 7,752 | | | 7,752 | | | 7,752 | | | 8,264 | | | 8,264 | | | 8,264 | |
Total short-term debt | | $ | 7,752 | | | $ | 7,752 | | | $ | 7,752 | | | $ | 439,345 | | | $ | 438,870 | | | $ | 444,505 | |
| | | | | | | | | | | | |
Long-term debt | | | | | | | | | | | | |
| 4.000% Senior Notes due 2022 | | $ | 580,917 | | | $ | 580,613 | | | $ | 596,358 | | | $ | 580,917 | | | $ | 580,555 | | | $ | 597,568 | |
Floating-Rate Senior Notes due 2023 | | 239,978 | | | 239,013 | | | 237,964 | | | 239,978 | | | 238,879 | | | 235,066 | |
| 3.100% Senior Notes due 2025 | | 1,000,000 | | | 993,300 | | | 1,035,754 | | | 1,000,000 | | | 992,900 | | | 1,028,614 | |
| 3.950% Senior Notes due 2025 | | 500,000 | | | 495,132 | | | 514,220 | | | 500,000 | | | 494,866 | | | 512,807 | |
| 4.650% Senior Notes due 2026 | | 500,000 | | | 496,840 | | | 527,584 | | | 500,000 | | | 496,708 | | | 524,880 | |
| 4.500% Senior Notes due 2028 | | 400,000 | | | 395,746 | | | 415,374 | | | 400,000 | | | 395,617 | | | 415,454 | |
| 4.750% Senior Notes due 2028 | | 400,000 | | | 396,649 | | | 418,284 | | | 400,000 | | | 396,555 | | | 418,786 | |
| 4.050% Senior Notes due 2030 | | 1,200,000 | | | 1,189,637 | | | 1,304,379 | | | 1,200,000 | | | 1,189,407 | | | 1,342,996 | |
| 5.450% Senior Notes due 2044 | | 600,000 | | | 593,631 | | | 617,579 | | | 600,000 | | | 593,598 | | | 607,234 | |
| 5.300% Senior Notes due 2048 | | 700,000 | | | 687,101 | | | 703,739 | | | 700,000 | | | 687,048 | | | 694,172 | |
| 5.500% Senior Notes due 2048 | | 350,000 | | | 342,571 | | | 342,609 | | | 350,000 | | | 342,543 | | | 343,928 | |
| 5.250% Senior Notes due 2050 | | 1,000,000 | | | 983,561 | | | 1,082,044 | | | 1,000,000 | | | 983,512 | | | 1,100,375 | |
| | | | | | | | | | | | |
| Finance lease liabilities | | 22,207 | | | 22,207 | | | 22,207 | | | 23,644 | | | 23,644 | | | 23,644 | |
Total long-term debt | | $ | 7,493,102 | | | $ | 7,416,001 | | | $ | 7,818,095 | | | $ | 7,494,539 | | | $ | 7,415,832 | | | $ | 7,845,524 | |
| | | | | | | | | | | | |
(1)Fair value is measured using the market approach and 2.53%, respectively. The commitment fee rate was 0.30% at September 30, 2017 and 2016. At September 30, 2017, WGP was in compliance with all covenants under the WGP RCF.Level-2 fair value inputs.
WGP WCF. As of September 30, 2017, WGP had no outstanding borrowings and $30.0 million available for borrowing under the WGP WCF. The interest rate on the WGP WCF was 2.74% and 2.03% at September 30, 2017 and 2016, respectively. At September 30, 2017, WGP was in compliance with all covenants under the WGP WCF. The WGP WCF will mature on November 1, 2017, and WGP does not intend to renew this facility.
WES Senior Notes. The 2018 Notes, which are due in August 2018, were classified as long-term debt on the consolidated balance sheet at September 30, 2017, as WES has the ability and intent to refinance these obligations using long-term debt. At September 30, 2017, WES was in compliance with all covenants under the indentures governing its outstanding notes.
WESTERN GAS EQUITYMIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9.11. DEBT AND INTEREST EXPENSE (CONTINUED)
Debt activity. The following table presents the debt activity for the three months ended March 31, 2021:
| | | | | | | | |
| thousands | | Carrying Value |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Balance at December 31, 2020 | | $ | 7,854,702 | |
| RCF borrowings | | 100,000 | |
| Repayments of RCF borrowings | | (100,000) | |
| Repayment of 5.375% Senior Notes due 2021 | | (431,081) | |
| Finance lease liabilities | | (1,949) | |
| Other | | 2,081 | |
| Balance at March 31, 2021 | | $ | 7,423,753 | |
WES RCF. AsOperating Senior Notes. In mid-January 2020, WES Operating issued the Fixed-Rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050 (collectively referred to as the “Fixed-Rate Senior Notes”) and the Floating-Rate Senior Notes due 2023 (the “Floating-Rate Senior Notes”). Including the effects of September 30, 2017, WES had $250.0 millionthe issuance prices, underwriting discounts, and interest-rate adjustments, the effective interest rates of outstanding WES RCF borrowingsthe Senior Notes due 2025, 2030, and $4.6 million in outstanding letters of credit, resulting in $945.4 million available for borrowing under the WES RCF, which matures in February2050, were 4.542%, 5.424%, and 6.629%, respectively, at March 31, 2021, and were 3.287%, 4.168%, and 5.362%, respectively, at March 31, 2020. As of September 30, 2017 and 2016, theThe interest rate on the outstanding WES RCF borrowingsFloating-Rate Senior Notes was 2.54%2.33% and 1.82%,2.69% at March 31, 2021 and 2020, respectively. The facility feeeffective interest rate was 0.20%of these notes is subject to adjustment from time to time due to a change in credit rating.
During the first quarter of 2021, WES Operating redeemed the total principal amount outstanding of the 5.375% Senior Notes due 2021 at September 30, 2017 and 2016.par value, pursuant to the optional redemption terms in WES Operating’s indenture. At September 30, 2017,March 31, 2021, WES Operating was in compliance with all covenants under the relevant governing indentures.
Revolving credit facility.WES RCF.Operating’s $2.0 billion senior unsecured revolving credit facility (“RCF”) is expandable to a maximum of $2.5 billion, and matures in February 2025 for each extending lender. The non-extending lender’s commitments mature in February 2024 and represent $100.0 million out of $2.0 billion of total commitments from all lenders.
As of March 31, 2021, there were 0 outstanding borrowings and $5.1 million of outstanding letters of credit, resulting in $2.0 billion of available borrowing capacity under the RCF. As of March 31, 2021 and 2020, the interest rate on any outstanding RCF borrowings was 1.61% and 2.13%, respectively. The facility-fee rate was 0.25% and 0.20% at March 31, 2021 and 2020, respectively. At March 31, 2021, WES Operating was in compliance with all covenants under the RCF.
Term loan facility. In January 2020, WES Operating repaid the outstanding borrowings with proceeds from the issuance of the Fixed-Rate Senior Notes and Floating-Rate Senior Notes and terminated its $3.0 billion senior unsecured credit facility (“Term loan facility”), see WES Operating Senior Notes above. During the first quarter of 2020, a loss of $2.3 million was recognized for the early termination of the Term loan facility.
Finance lease liabilities. The Partnership subleased equipment from Occidental via finance leases through April 2020. During the first quarter of 2020, the Partnership entered into finance leases with third parties for equipment and vehicles extending through 2029, with future lease payments of $34.5 million as of March 31, 2021.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. DEBT AND INTEREST EXPENSE
Interest expense. The following table summarizes the amounts included in interest expense:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | Three Months Ended
March 31, | | |
| thousands | | | | | | 2021 | | 2020 | | |
| Third parties | | | | | | | | | | |
Long-term and short-term debt | | | | | | $ | (95,722) | | | $ | (89,769) | | | |
| Finance lease liabilities | | | | | | (298) | | | (405) | | | |
| Amortization of debt issuance costs and commitment fees | | | | | | (3,338) | | | (3,127) | | | |
| Capitalized interest | | | | | | 865 | | | 4,758 | | | |
| Total interest expense – third parties | | | | | | (98,493) | | | (88,543) | | | |
| Related parties | | | | | | | | | | |
| | | | | | | | | | |
| Finance lease liabilities | | | | | | 0 | | | (43) | | | |
| Total interest expense – related parties | | | | | | 0 | | | (43) | | | |
| Interest expense | | | | | | $ | (98,493) | | | $ | (88,586) | | | |
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands | | 2017 | | 2016 | | 2017 | | 2016 |
| Third parties | | | | | | | | |
| Long-term debt | | $ | (36,223 | ) | | $ | (31,795 | ) | | $ | (106,412 | ) | | $ | (88,123 | ) |
| Amortization of debt issuance costs and commitment fees | | (2,009 | ) | | (2,022 | ) | | (5,955 | ) | | (5,517 | ) |
| Capitalized interest | | 2,115 |
| | 1,343 |
| | 3,991 |
| | 4,674 |
|
| Total interest expense – third parties | | (36,117 | ) | | (32,474 | ) | | (108,376 | ) | | (88,966 | ) |
| Affiliates | | | | | | | | |
Deferred purchase price obligation – Anadarko (1) | | — |
| | 1,173 |
| | (71 | ) | | 12,097 |
|
| Total interest expense – affiliates | | — |
| | 1,173 |
| | (71 | ) | | 12,097 |
|
| Interest expense | | $ | (36,117 | ) | | $ | (31,301 | ) | | $ | (108,447 | ) | | $ | (76,869 | ) |
| |
(1)
| See Note 2 for a discussion of the Deferred purchase price obligation - Anadarko.
|
10.12. COMMITMENTS AND CONTINGENCIES
Litigation and legal proceedings. From time to time, WGP, through its partnership interests in WES,the Partnership is involved in legal, tax, regulatory, and other proceedings in various forums regarding performance, contracts, and other matters that arise in the ordinary course of business. Management is not aware of any such proceeding for which the final disposition of which could have a material adverse effect on the Partnership’s financial condition, results of operations, or cash flows of WGP.flows.
Other commitments. WES The Partnership has short-term payment obligations, or commitments, that include, among other things, a revolving credit facility, other third-party long-term debt, obligations related to itsthe Partnership’s capital spending programs, as well as those of its unconsolidated affiliates. As of September 30, 2017, WES had unconditionalpipeline commitments, and various operating and finance leases. The payment obligations for servicesrelated to be rendered or products to be delivered in connection with itsthe Partnership’s capital projects of $143.3 million,spending programs, the majority of which is expected to be paid in the next twelve months. These commitmentsmonths, primarily relate primarily to construction, expansion, and asset-integrity projects at the DBJV system and theWest Texas complex, DBM water systems, DJ Basin complex, and DBM complexes.oil system.
Lease commitments. Anadarko, on WES’s behalf, has entered into lease arrangements for corporate offices, shared field offices and a warehouse supporting WES’s operations, and equipment leases for which Anadarko charges WES rent. The leases for the corporate offices and shared field offices extend through 2028 and 2033, respectively, and the lease for the warehouse expired in February 2017.
WES’s rent expense associated with office, warehouse and equipment leases was $11.3 million and $30.7 million for the three and nine months ended September 30, 2017, respectively, and $8.9 million and $26.2 million for the three and nine months ended September 30, 2016, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion analyzes our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, in whichwherein WES Operating is fully consolidated, and which are included under Part I, Item 1 of this quarterly report, as well as ourand the historical consolidated financial statements, and the notes thereto, which are included under Part II, Item 8 of our 2016the 2020 Form 10-K as filed with the SEC on February 23, 2017.26, 2021.
The Partnership’s assets include assets owned and ownership interests accounted for by us under the equity method of accounting, through our 98.0% partnership interest in WES Operating, as of March 31, 2021 (see Note 7—Equity Investments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q). We also own and control the entire non-economic general partner interest in WES Operating GP, and our general partner is owned by Occidental.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made in this Form 10-Q, and may from time to time make in other public filings, press releases, and statements by management, forward-lookingforward-looking statements concerning WES’sour operations, economic performance, and financial condition. These forward-lookingforward-looking statements include statements preceded by, followed by, or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “target,” “goal,” “plans,” “objective,” “should”“should,” or similar expressions or variations on such expressions. These statements discuss future expectations, contain projections of results of operations or financial condition, or include other “forward-looking”“forward-looking” information.
Although we and WGP GPour general partner believe that the expectations reflected in such forward-lookingour forward-looking statements are reasonable, neither we nor WGP GPour general partner can giveprovide any assurance that such expectations will prove to have been correct. These forward-lookingforward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from expectations include, but are not limited to, the following:
•our ability to pay distributions to our unitholders;
•our expected receipt of, and the amounts of, distributions from WES;
WES’s and Anadarko’s assumptions about the energy market;
WES’s •future throughput (including AnadarkoOccidental production) whichthat is gathered or processed by, or transported through WES’sour assets;
•our operating results of WES;results;
•competitive conditions;
•technology;
•the availability of capital resources to fund acquisitions, capital expenditures, and other contractual obligations, of WES, and WES’sour ability to access those resources from Anadarko orfinancing through the debt or equity capital markets;
•the supply of, demand for, and price of, oil, natural gas, NGLs, and related products or services;
WES’s ability to mitigate exposure to the •commodity-price risks inherent in its percent-of-proceedspercent-of-proceeds, percent-of-product, and keep-whole contracts through the extension of WES’s commodity price swap agreements with Anadarko, or otherwise;keep-whole contracts;
•weather and natural disasters;
•inflation;
•the availability of goods and services;
•general economic conditions, internationally, domestically, or in the jurisdictions in which WES iswe are doing business;
•federal, state, and local laws and state-approved voter ballot initiatives, including those laws or ballot initiatives that limit Anadarko and other producers’ hydraulic-fracturing activities or other oil and natural-gas development or operations;
•environmental liabilities;
•legislative or regulatory changes, including changes affecting our or WES’s status as a partnership for federal income tax purposes;
•changes in the financial or operational condition of WES or Anadarko;Occidental;
•the creditworthiness of AnadarkoOccidental or WES’sour other counterparties, including financial institutions, operating partners, and other parties;
•changes in WES’s or Anadarko’sOccidental’s capital program, corporate strategy, or other desired areas of focus;
WES’s•our commitments to capital projects;
WES’s•our ability to useaccess liquidity under the WES RCF;
•our and WES’s ability to repay debt;
•the impact from disruptions caused by winter storm Uri or the recent blizzard in the state of Colorado or resolution of litigation or other disputes;
•conflicts of interest among WES, WES GP, WGPus, our general partner and WGP GP,its related parties, including Occidental, with respect to, among other things, the allocation of capital and affiliates, including Anadarko;operational and administrative costs, and our future business opportunities;
WES’s•our ability to maintain and/or obtain rights to operate itsour assets on land owned by third parties;
•our or WES’s ability to acquire assets on acceptable terms from Anadarkothird parties;
•non-payment or third parties, and Anadarko’s ability to generate an inventorynon-performance of assets suitable for acquisition;
non-payment or non-performance of Anadarko or WES’s other significant customers, including under WES’s gathering, processing, transportation, and transportation agreements and its $260.0 million note receivable from Anadarko;disposal agreements;
•the timing, amount, and terms of our or WES’s future issuances of equity and debt securities;
•the outcome of pending and future regulatory, legislative, or other proceedings or investigations, including the investigation by the National Transportation Safety Board (“NTSB”), related to Anadarko’s operations in Colorado, and continued or additional disruptions in operations that may occur as Anadarkowe and WESour customers comply with any regulatory orders or other state or local changes in laws or regulations in Colorado;regulations;
•the economic uncertainty from the worldwide outbreak of the coronavirus (“COVID-19”); and
•other factors discussed below, in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” included in our 2016the 2020 Form 10-K, and10-K, in our quarterly reports on Form 10-Q,10-Q, and in our other public filings and press releases.
The riskRisk factors and other factors noted throughout or incorporated by reference in this Form 10-Q could cause actual results to differ materially from those contained in any forward-lookingforward-looking statement. Except as required by law, we undertake no obligation to publicly update or revise any forward-lookingforward-looking statements, whether as a result of new information, future events, or otherwise.
EXECUTIVE SUMMARY
We were formed by Anadarko in September 2012 by converting WGR Holdings, LLC into an MLP and changing its name to Western Gas Equity Partners, LP. We closed our IPO in December 2012 and own WES GP andare a significant limited partner interest in WES, a growth-oriented Delaware MLP formed by Anadarko to acquire, own, develop and operate midstream energy assets. Our consolidated financial statements include the consolidated financial results of WES due to our 100% ownership interest in WES GP and WES GP’s control of WES. Our only cash-generating assets consist of ourcompany organized as a publicly traded partnership, interests in WES, and we currently have no independent operations.
WES currently owns or has investments in assets located in the Rocky Mountains (Colorado, Utah and Wyoming), North-central Pennsylvania and Texas. WES is engaged in the business of gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, NGLs, and crude oil; and gathering and disposing of produced water. WES provides these midstream servicesIn our capacity as a natural-gas processor, we also buy and sell natural gas, NGLs, and condensate on behalf of ourselves and as an agent for Anadarko, as well as for third-party producersour customers under certain contracts. We own or have investments in assets located in Texas, New Mexico, the Rocky Mountains (Colorado, Utah, and customers.Wyoming), and North-central Pennsylvania. As of September 30, 2017, WES’sMarch 31, 2021, our assets and investments consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Wholly
Owned and
Operated | | Operated
Interests | | Non-Operated
Interests | | Equity
Interests |
Gathering systems (1) | | 17 | | | 2 | | | 3 | | | 1 | |
| Treating facilities | | 39 | | | 3 | | | — | | | — | |
Natural-gas processing plants/trains | | 25 | | | 3 | | | — | | | 5 | |
| NGLs pipelines | | 2 | | | — | | | — | | | 5 | |
Natural-gas pipelines | | 5 | | | — | | | — | | | 1 | |
Crude-oil pipelines | | 3 | | | 1 | | | — | | | 4 | |
|
| | | | | | | | | | | | |
| | | Owned and Operated | | Operated Interests | | Non-Operated Interests | | Equity Interests |
| Gathering systems | | 12 |
| | 3 |
| | 3 |
| | 2 |
|
| Treating facilities | | 19 |
| | 3 |
| | — |
| | 3 |
|
| Natural gas processing plants/trains | | 19 |
| | 5 |
| | — |
| | 2 |
|
| NGL pipelines | | 2 |
| | — |
| | — |
| | 3 |
|
| Natural gas pipelines | | 5 |
| | — |
| | — |
| | — |
|
| Oil pipelines | | — |
| | 1 |
| | — |
| | 1 |
|
Significant financial and operational events during the ninethree months ended September 30, 2017,March 31, 2021, included the following:
•WES Operating redeemed the total principal amount outstanding of the 5.375% Senior Notes due 2021 at par value, pursuant to the optional redemption terms in WES Operating’s indenture.
•We raised our distribution to $0.53750 per unitrepurchased 1,115,808 common units for the third quarter of 2017, representing a 2% increase over the distribution for the second quarter of 2017 and a 20% increase over the distribution for the third quarter of 2016.
In March 2017, WES acquired the Additional DBJV System Interest from a third party in exchange for the Non-Operated Marcellus Interest and $155.0 million of cash consideration, resulting in a net gain of $125.7 million. See Acquisitions and Divestitures within this Item 2 for additional information.
In May 2017, WES reached an agreement with Anadarko to settle the outstanding Deferredaggregate purchase price obligation - Anadarko, whereby WES made a cash payment to Anadarko of $37.3$16.2 million during the second three months ended March 31, 2021.
•Our first-quarter 2021 per-unit distribution of 2017.$0.31500 increased $0.004 from the fourth-quarter 2020 per-unit distribution of $0.31100.
On March 1, 2017, 50% of the outstanding WES Series A Preferred units converted into WES common units on a one-for-one basis, and on May 2, 2017, the remaining WES Series A Preferred units converted into WES common units on a one-for-one basis. See Equity Offerings within this Item 2 for additional information.
During the second quarter of 2017, WES commenced operation of the DBM water systems (included within Gathering systems in the table above).
In June 2017, WES closed on the sale of its Helper and Clawson systems, which resulted in a net gain on divestiture of $16.4 million. See Acquisitions and Divestitures within this Item 2 for additional information.
In February 2017, Anadarko elected to extend the conversion date of the WES Class C units from December 31, 2017, to March 1, 2020.
WES received $52.9 million in cash proceeds from insurers in final settlement of its claims related to the incident at the DBM complex, including $29.9 million for business interruption insurance claims and $23.0 million for property insurance claims. See Liquidity and Capital Resources within this Item 2 for additional information.
WES raised its distribution to $0.905 per unit for the third quarter of 2017, representing a 2% increase over the distribution for the second quarter of 2017 and a 7% increase over the distribution for the third quarter of 2016.
Throughput•Natural-gas throughput attributable to WES for natural gas assets totaled 3,427 MMcf/d and 3,6104,045 MMcf/d for the three and nine months ended September 30, 2017, respectively,March 31, 2021, representing a 16%2% increase and 8%9% decrease respectively, compared to the same periods in 2016.three months ended December 31, 2020, and March 31, 2020, respectively.
Throughput for crude, NGL•Crude-oil and produced water assetsNGLs throughput attributable to WES totaled 209 MBbls/d and 187604 MBbls/d for the three and nine months ended September 30, 2017, respectively,March 31, 2021, representing a 13%2% decrease and 1% increase, respectively, 21% decreasecompared to the same periods in 2016.three months ended December 31, 2020, and March 31, 2020, respectively.
WES’s operating income (loss) was $179.5 million and $525.5 million•Produced-water throughput attributable to WES totaled 595 MBbls/d for the three and nine months ended September 30, 2017, respectively,March 31, 2021, representing a 9% decrease and 0% change, respectively,15% decrease compared to the same periods in 2016.three months ended December 31, 2020, and March 31, 2020, respectively.
•Operating income (loss) was $292.3 million for the three months ended March 31, 2021, compared to $373.0 million and $(214.9) million for the three months ended December 31, 2020, and March 31, 2020, respectively. The three months ended March 31, 2020, included goodwill and long-lived asset impairments of $596.8 million.
•Adjusted gross margin attributable to WES for natural-gas assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $0.97 per Mcf and $0.92$1.19 per Mcf for the three and nine months ended September 30, 2017, respectively,March 31, 2021, representing an 18%no change and 12%a 3% increase respectively, compared to the same periods in 2016.three months ended December 31, 2020, and March 31, 2020, respectively.
•Adjusted gross margin for crude NGL-oil and NGLs assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $2.45 per Bbl for the three months ended March 31, 2021, representing a 9% decrease and 1% increasecompared to the three months ended December 31, 2020, and March 31, 2020, respectively.
•Adjusted gross margin for produced-water assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $2.03 per Bbl and $2.05$0.92 per Bbl for the three and nine months ended September 30, 2017, respectively,March 31, 2021, representing an 8%a 6% decrease and 2% 5% decrease respectively, compared to the samethree months ended December 31, 2020, and March 31, 2020, respectively.
The following table provides additional information on throughput for the periods presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 | | Inc/
(Dec) | | | | March 31, 2020 | | Inc/ (Dec)(1) | | | | | | | | |
| Throughput for natural-gas assets (MMcf/d) |
| Delaware Basin | 1,133 | | | 1,196 | | | (5) | % | | | | 1,389 | | | (18) | % | | | | | | | | |
| DJ Basin | 1,344 | | | 1,197 | | | 12 | % | | | | 1,407 | | | (4) | % | | | | | | | | |
| Equity investments | 439 | | | 429 | | | 2 | % | | | | 444 | | | (1) | % | | | | | | | | |
| Other | 1,279 | | | 1,298 | | | (1) | % | | | | 1,392 | | | (8) | % | | | | | | | | |
Total throughput for natural-gas assets | 4,195 | | | 4,120 | | | 2 | % | | | | 4,632 | | | (9) | % | | | | | | | | |
| Throughput for crude-oil and NGLs assets (MBbls/d) |
| Delaware Basin | 162 | | | 178 | | | (9) | % | | | | 192 | | | (16) | % | | | | | | | | |
| DJ Basin | 82 | | | 78 | | | 5 | % | | | | 128 | | | (36) | % | | | | | | | | |
| Equity investments | 337 | | | 339 | | | (1) | % | | | | 418 | | | (19) | % | | | | | | | | |
| Other | 35 | | | 36 | | | (3) | % | | | | 41 | | | (15) | % | | | | | | | | |
Total throughput for crude-oil and NGLs assets | 616 | | | 631 | | | (2) | % | | | | 779 | | | (21) | % | | | | | | | | |
| Throughput for produced-water assets (MBbls/d) |
| Delaware Basin | 607 | | | 670 | | | (9) | % | | | | 717 | | | (15) | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total throughput for produced-water assets | 607 | | | 670 | | | (9) | % | | | | 717 | | | (15) | % | | | | | | | | |
(1)Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.
Weather-related impacts. In February 2021, the U.S. experienced winter storm Uri, bringing extreme cold temperatures, ice, and snow to the central U.S., including Texas, and in 2016.
Anadarko’sMarch 2021, Colorado Response. Followingexperienced a home explosionhistoric blizzard. Winter storm Uri adversely affected our volumes for approximately ten days and the blizzard in Firestone, Colorado likewise disrupted our assets in April 2017, Anadarko took precautionary measuresthat state. We estimate the impact of these weather events to shut in all operated vertical wellshave reduced net income and Adjusted EBITDA (as defined under the caption Key Performance Metrics within this Item 2) for the quarter ended March 31, 2021, by approximately $30 million due to lower volumes, the impact of commodity-prices, and higher operating expenses related to utilities. The estimated impact of the adverse winter weather on our operations and financial results may change and those changes may be material. Any additional inclement weather in the DJ Basinfuture, or other adverse conditions, including resolution of litigation and other legal disputes and the COVID-19 pandemic and resulting mitigation factors, may have an adverse impact on our operations and financial results.
COVID-19. During 2020, the global outbreak of COVID-19 caused a sharp decline in the worldwide demand for oil, natural gas, and NGLs, which contributed significantly to conductcommodity-price declines and oversupplied commodities markets. These market dynamics have had an adverse impact on producers that provide throughput into our systems, and we have experienced decreased throughput at many of our locations.
Additionally, many of our employees have been and may continue to be subject to pandemic-related work-from-home requirements, which require us to take additional inspections. It subsequently testedactions to ensure that the number of personnel accessing our network remotely does not lead to excessive cyber-security risk levels. Similarly, we are working continually to ensure operational changes that we have made to promote the health and permanently plugged, abandoned,safety of our personnel during this pandemic do not unduly disrupt intracompany communications and capped all one-inch return lines associated with these wells. In May 2017,key business processes. We consider our risk-mitigation efforts adequate; however, the Colorado Oil & Gas Conservation Commission (“COGCC”) issued a two-phase Notice to Operators (“NTO”) requiring all operators to inventory and integrity test existing flowlines within 1,000 feet of a building unit and abandon all inactive flowlines in such areas. During the third quarter, Anadarko substantially completed the requirementsultimate impact of the NTO. In August 2017, following a three-month review of oilongoing pandemic is unpredictable, with direct and gas operations, the Governor of Colorado announced several policy initiatives designedindirect impacts to enhance public safety, which are to be implemented over the next several months through rulemaking or legislation. Anadarkoour business.
WES continues to monitor the COVID-19 situation closely, and as state and federal governments issue additional guidance, we will update our own policies in response to ensure the safety and health of our workforce and communities. The federal government has provided guidance to states on how to safely return personnel to the workplace, which we are following as our workforce returns to WES locations. All WES facilities, including field locations, have been conducting enhanced routine cleaning and disinfecting of common areas and frequently touched surfaces using CDC- and EPA-approved products. Our return-to-work cooperativelyprotocols include daily required application-based health self-assessments that must be completed prior to accessing WES work locations.
Commodity purchase and sale agreements. Effective April 1, 2020, changes to marketing-contract terms with state regulatorsAESC terminated AESC’s prior status as an agent of the Partnership for third-party sales and othersestablished AESC as a customer of the Partnership. Accordingly, we no longer recognize service revenues and/or product sales revenues and is also cooperating with the NTSB in its investigationequivalent cost of product expense for the marketing services performed by AESC. Year-over-year variances for the three months ended March 31, 2021, include the following impacts related to this change (i) decrease of $45.9 million in Service revenues – fee based, (ii) decrease of $20.4 million in Product sales, and (iii) decrease of $66.3 million in Cost of product expense. These changes had no impact to Operating income (loss), Net income (loss), the incident.
Significantbalance sheets, cash flows, or any non-GAAP metric used to evaluate our operations (see Key Performance Metrics within this Item Affecting Comparability. On December 3, 2015, there was an initial fire and secondary explosion at the processing facility within the DBM complex. The majority of the damage was to the liquid handling facilities and the amine treating units at the inlet of the complex. Train II (with capacity of 100 MMcf/d) sustained the most damage of the processing trains and returned to service in December 2016. Train III (with capacity of 200 MMcf/d) experienced minimal damage and returned to full service in May 2016. For ease of reference throughout the remainder of this Management’s Discussion and Analysis, the damage to the processing facility and resulting lack of processing capacity and associated financial statement impact is referred to as the “DBM outage.”2). See Note 1—Description of Business and Basis of Presentation6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
OUTLOOK
We expect our business to continue to be affected by the below-described key trends and uncertainties. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove incorrect, our actual results may vary materially from expected results.
Impact of crude-oil, natural-gas, and NGLs prices. Crude-oil, natural-gas, and NGLs prices can fluctuate significantly, and have done so over time. Commodity-price fluctuations affect the level of our customers’ activities and our customers’ allocations of capital within their own asset portfolios. During the first quarter of 2020, oil and natural-gas prices decreased significantly, driven by the expectation of increased supply and sharp declines in demand resulting from the worldwide macroeconomic downturn that followed the global outbreak of COVID-19. For example, NYMEX West Texas Intermediate crude-oil daily settlement prices ranged from a high of $63.27 per barrel in January 2020 to a low below $20.00 per barrel in April 2020, with prices rebounding to $59.16 per barrel at March 31, 2021. While the extent and duration of the recent commodity-price volatility cannot be predicted, potential impacts to our business include the following:
•We have exposure to increased credit risk to the extent any of our customers, including Occidental, is in financial distress. See Liquidity and Capital Resources—Credit risk within this Item 2 for additional information.
•An extended period of diminished earnings may restrict our ability to fully access our RCF, which contains various customary covenants, certain events of default, and a maximum consolidated leverage ratio based on Adjusted EBITDA (as defined in the covenant) related to the trailing twelve-month period. Further, any future waivers or amendments to the RCF also may trigger pricing increases for available credit. See Liquidity and Capital Resources—Debt and credit facilities within this Item 2 for additional information.
•As of March 31, 2021, it is reasonably possible that future commodity-price declines, prolonged depression of commodity prices, changes to producers’ drilling plans in response to lower prices, and potential producer bankruptcies could result in future long-lived asset impairments.
To the extent producers continue with development plans in our areas of operation, we will continue to connect new wells or production facilities to our systems to maintain throughput on our systems and mitigate the impact of production declines. However, our success in connecting additional wells or production facilities is dependent on the activity levels of our customers. Additionally, we will continue to evaluate the crude-oil, NGLs, and natural-gas price environments and adjust our capital spending plans to reflect our customers’ anticipated activity levels, while maintaining appropriate liquidity and financial flexibility.
ACQUISITIONS AND DIVESTITURES
Acquisitions. The following table presents the acquisitions completed by WES during 2017Fort Union and 2016, and identifies the funding sources for such acquisitions. See Note 2—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
|
| | | | | | | | | | | | | | | | | | | |
| thousands except unit and percent amounts | | Acquisition Date | | Percentage
Acquired | | Borrowings | | Cash On Hand | | WES Common Units Issued | | WES Series A Preferred Units Issued |
Springfield system (1) | | 03/14/2016 | | 50.1 | % | | $ | 247,500 |
| | $ | — |
| | 2,089,602 |
| | 14,030,611 |
|
DBJV system (2) | | 03/17/2017 | | 50 | % | | — |
| | 155,000 |
| | — |
| | — |
|
| |
(1)
| WES acquired Springfield from Anadarko for $750.0 million, consisting of $712.5 million in cash and the issuance of 1,253,761 of WES common units. Springfield owns a 50.1% interest in the Springfield system. WES financed the cash portion of the acquisition through: (i) borrowings of $247.5 million on the WES RCF, (ii) the issuance of 835,841 of WES common units to WGP and (iii) the issuance of WES Series A Preferred units to private investors. See Note 4—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further information regarding WES’s Series A Preferred units. WGP financed the purchase of the WES common units by borrowing $25.0 million under the WGP RCF. See Note 9—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
|
| |
(2)
| WES acquired the Additional DBJV System Interest from a third party. See Property exchange below.
|
Property exchange. On March 17, 2017, WES acquired the Additional DBJV System Interest from a third party in exchange for the Non-Operated Marcellus Interest and $155.0 million of cash consideration. WES previously held a 50%Bison facilities. In October 2020, we (i) sold our 14.81% interest in and operated, the DBJV system. The Property Exchange resulted in a net gain of $125.7 million recorded as Gain (loss) on divestiture and other, net in the consolidated statements of operations. See Note 2—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Divestitures. During the second quarter of 2017, the Helper and Clawson systems, located in Utah, were sold to a third party, resulting in a net gain on sale of $16.4 million recorded as Gain (loss) on divestiture and other, net in the consolidated statements of operations.
During the fourth quarter of 2016, the Hugoton system, located in Southwest Kansas and Oklahoma,Fort Union, which was sold to a third party, resulting in a net loss on sale of $12.0 million recorded as Gain (loss) on divestiture and other, net in the consolidated statements of operations.
Presentation of WES assets.The term “WES assets” includes both the assets indirectly owned and the interests accounted for under the equity method (See Note 7—Equity Investmentsof accounting, and (ii) entered into an option agreement to sell the Bison treating facility, located in Northeast Wyoming, to a third party, initially exercisable during the first quarter of 2021 and subsequently extended to May 9, 2021. During the second quarter of 2021, the third party exercised its option to purchase the Bison treating facility and it satisfied the held-for-sale criteria. The sale is expected to close in the second quarter of 2021. See Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q) by us through our partnership interests in WES as of September 30, 2017. Because Anadarko controls WES through its ownership and control of us, and because we own the entire interest in WES GP, each of WES’s acquisitions of WES assets from Anadarko has been considered a transfer of net assets between entities under common control. As such, WES assets acquired from Anadarko were initially recorded at Anadarko’s historic carrying value, which did not correlate to the total acquisition price paid by WES (see Note 2—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q). Further, after an acquisition of WES assets from Anadarko, we (by virtue of our consolidation of WES) and WES may be required to recast our financial statements to include the activities of such WES assets from the date of common control.
EQUITY OFFERINGS
Public equity offerings. In June 2016, Anadarko sold 12,500,000 of its WGP common units to the public through an underwritten offering. We did not receive any proceeds from, or incur any expense in, the public offering.
Tangible equity units. In June 2015, Anadarko completed the public issuance of 9,200,000 7.50% TEUs, including 1,200,000 TEUs pursuant to the full exercise of the underwriters’ over-allotment option, at a price to the public of $50.00 per TEU. Each TEU that Anadarko issued consists of (1) a prepaid equity purchase contract for WGP common units owned by Anadarko (subject to Anadarko’s right to elect to deliver shares of its common stock in lieu of such WGP common units) and (2) a senior amortizing note due June 7, 2018. We did not receive any proceeds from, or incur any expense in, the public offering.
WES Series A Preferred units. In 2016, WES issued 21,922,831 WES Series A Preferred units to private investors. Pursuant to an agreement between WES and the holders of the WES Series A Preferred units, 50% of the WES Series A Preferred units converted into WES common units on a one-for-one basis on March 1, 2017, and the remaining WES Series A Preferred units converted on a one-for-one basis on May 2, 2017. See Note 4—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
ITEMS AFFECTING THE COMPARABILITY OF FINANCIAL RESULTS
Our consolidated financial statements include the consolidated financial results of WES due to our 100% ownership interest in WES GP and WES GP’s control of WES. Our only cash-generating assets consist of our partnership interests in WES, and we currently have no independent operations. As a result, our results of operations do not differ materially from the results of operations and cash flows of WES, which are reconciled below.
General and administrative expenses. As a separate publicly traded partnership, we incur general and administrative expenses which are separate from, and in addition to, those incurred by WES.
The following table summarizes the amounts we reimbursed to Anadarko, separate from, and in addition to, those reimbursed by WES:
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands | | 2017 | | 2016 | | 2017 | | 2016 |
| General and administrative expenses | | $ | 131 |
| | $ | 64 |
| | $ | 197 |
| | $ | 192 |
|
| Public company expenses | | 386 |
| | 408 |
| | 1,452 |
| | 2,062 |
|
| Total reimbursement | | $ | 517 |
| | $ | 472 |
| | $ | 1,649 |
| | $ | 2,254 |
|
Noncontrolling interests. The interest in Chipeta held by a third-party member is already reflected as a noncontrolling interest in WES’s consolidated financial statements. In addition, the limited partner interests in WES held by other subsidiaries of Anadarko, private investors (up to the final conversion date of the Series A Preferred units on May 2, 2017) and the public are reflected as noncontrolling interests in the consolidated financial statements (see Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further information).information.
When
RESULTS OF OPERATIONS
OPERATING RESULTS
In November 2020, the SEC issued a final rule to modernize and simplify Management’s Discussion and Analysis and certain financial disclosure requirements in SEC Regulation S-K. As permitted by this final rule, the analysis herein reflects the optional approach to discuss results of operations on a sequential-quarter basis, which we believe will provide information that is most useful to investors in assessing our quarterly results of operations going forward. Also as required by the final rule, we have included the comparison of the current quarter to the prior-year quarter for this filing only, and will cease to provide this comparison in future filings.
For purposes of the following discussion, any increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended December 31, 2020, or to the three months ended March 31, 2020, as applicable.
The following tables and discussion present a summary of our results of operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | |
| | | | | | | | |
| thousands | | March 31, 2021 | | December 31, 2020 | | | | | | | | March 31, 2020 |
Total revenues and other (1) | | $ | 674,974 | | | $ | 647,480 | | | | | | | | | $ | 774,313 | |
| Equity income, net – related parties | | 52,165 | | | 49,962 | | | | | | | | | 61,347 | |
Total operating expenses (1) | | 434,220 | | | 336,773 | | | | | | | | | 1,050,523 | |
| Gain (loss) on divestiture and other, net | | (583) | | | 12,285 | | | | | | | | | (40) | |
| Operating income (loss) | | 292,336 | | | 372,954 | | | | | | | | | (214,903) | |
| Interest income – Anadarko note receivable | | — | | | — | | | | | | | | | 4,225 | |
| Interest expense | | (98,493) | | | (101,247) | | | | | | | | | (88,586) | |
| Gain (loss) on early extinguishment of debt | | (289) | | | 862 | | | | | | | | | 7,345 | |
| Other income (expense), net | | (1,207) | | | 413 | | | | | | | | | (1,761) | |
| Income (loss) before income taxes | | 192,347 | | | 272,982 | | | | | | | | | (293,680) | |
| Income tax expense (benefit) | | 1,112 | | | 2,206 | | | | | | | | | (4,280) | |
| Net income (loss) | | 191,235 | | | 270,776 | | | | | | | | | (289,400) | |
| Net income (loss) attributable to noncontrolling interests | | 5,444 | | | 6,885 | | | | | | | | | (32,873) | |
Net income (loss) attributable to Western Midstream Partners, LP (2) | | $ | 185,791 | | | $ | 263,891 | | | | | | | | | $ | (256,527) | |
Key performance metrics (3) | | | | | | | | | | | | |
| Adjusted gross margin | | $ | 614,624 | | | $ | 648,404 | | | | | | | | | $ | 701,315 | |
| Adjusted EBITDA | | 443,110 | | | 483,980 | | | | | | | | | 513,587 | |
| Free cash flow | | 213,822 | | | 464,735 | | | | | | | | | 214,587 | |
(1)Total revenues and other includes amounts earned from services provided to related parties and from the sale of residue gas and NGLs to related parties. Total operating expenses includes amounts charged by related parties for services and reimbursements of amounts paid by related parties to third parties on our behalf. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(2)For reconciliations to comparable consolidated results of WES issuesOperating, see Items Affecting the Comparability of Financial Results with WES Operating within this Item 2.
(3)Adjusted gross margin, Adjusted EBITDA, and Free cash flow are defined under the caption Key Performance Metrics within this Item 2. For reconciliations of these non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP, see Key Performance Metrics—Reconciliation of non-GAAP financial measures within this Item 2.
Throughput
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 | | Inc/
(Dec) | | | | | | | | | | | March 31, 2020 | | Inc/ (Dec)(1) |
| Throughput for natural-gas assets (MMcf/d) |
| Gathering, treating, and transportation | | 519 | | | 521 | | | — | % | | | | | | | | | | | 539 | | | (4) | % |
| Processing | | 3,237 | | | 3,170 | | | 2 | % | | | | | | | | | | | 3,649 | | | (11) | % |
Equity investments (2) | | 439 | | | 429 | | | 2 | % | | | | | | | | | | | 444 | | | (1) | % |
| Total throughput | | 4,195 | | | 4,120 | | | 2 | % | | | | | | | | | | | 4,632 | | | (9) | % |
Throughput attributable to noncontrolling interests (3) | | 150 | | | 149 | | | 1 | % | | | | | | | | | | | 166 | | | (10) | % |
Total throughput attributable to WES for natural-gas assets | | 4,045 | | | 3,971 | | | 2 | % | | | | | | | | | | | 4,466 | | | (9) | % |
| Throughput for crude-oil and NGLs assets (MBbls/d) |
| Gathering, treating, and transportation | | 279 | | | 292 | | | (4) | % | | | | | | | | | | | 361 | | | (23) | % |
Equity investments (4) | | 337 | | | 339 | | | (1) | % | | | | | | | | | | | 418 | | | (19) | % |
| Total throughput | | 616 | | | 631 | | | (2) | % | | | | | | | | | | | 779 | | | (21) | % |
Throughput attributable to noncontrolling interests (3) | | 12 | | | 12 | | | — | % | | | | | | | | | | | 16 | | | (25) | % |
Total throughput attributable to WES for crude-oil and NGLs assets | | 604 | | | 619 | | | (2) | % | | | | | | | | | | | 763 | | | (21) | % |
| Throughput for produced-water assets (MBbls/d) |
| Gathering and disposal | | 607 | | | 670 | | | (9) | % | | | | | | | | | | | 717 | | | (15) | % |
Throughput attributable to noncontrolling interests (3) | | 12 | | | 13 | | | (8) | % | | | | | | | | | | | 14 | | | (14) | % |
Total throughput attributable to WES for produced-water assets | | 595 | | | 657 | | | (9) | % | | | | | | | | | | | 703 | | | (15) | % |
(1)Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.
(2)Represents the 14.81% share of average Fort Union throughput (until divested in October 2020), 22% share of average Rendezvous throughput, 50% share of average Mi Vida and Ranch Westex throughput, and 30% share of average Red Bluff Express throughput.
(3)For all periods presented, includes (i) the 2.0% Occidental subsidiary-owned limited partner interest in WES Operating and (ii) for natural-gas assets, the 25% third-party interest in Chipeta, which collectively represent WES’s noncontrolling interests.
(4)Represents the 10% share of average White Cliffs throughput; 25% share of average Mont Belvieu JV throughput; 20% share of average TEG, TEP, Whitethorn, and Saddlehorn throughput; 33.33% share of average FRP throughput; and 15% share of average Panola and Cactus II throughput.
Natural-gas assets
Gathering, treating, and transportation throughput decreased by 2 MMcf/d and 20 MMcf/d compared to the three months ended December 31, 2020, and March 31, 2020, respectively, primarily due to (i) production declines and the impact of winter storm Uri at the Springfield gas-gathering system and (ii) lower throughput at the Bison facility due to production declines in the area. These decreases were offset partially by increased production in areas around the Marcellus Interest systems.
Processing throughput increased by 67 MMcf/d compared to the three months ended December 31, 2020, primarily due to an additional third-party connection to Latham Train II at the DJ Basin complex beginning January 1, 2021, partially offset by lower production and the impact of winter storm Uri at the West Texas complex.
Processing throughput decreased by 412 MMcf/d compared to the three months ended March 31, 2020, primarily due to (i) lower production and the impact of winter storm Uri at the West Texas complex, (ii) lower throughput at the DJ Basin complex due to production declines in the area, partially offset by an additional third-party connection to Latham Train II beginning January 1, 2021, and (iii) lower throughput at the Chipeta and Granger complexes due to production declines in the area.
Equity-investment throughput increased by 10 MMcf/d compared to the three months ended December 31, 2020, primarily due to increased volumes on Red Bluff Express resulting from increased pipeline commitments, partially offset by decreased volumes at the Fort Union system, which was sold to a third party during the fourth quarter of 2020.
Equity-investment throughput decreased by 5 MMcf/d compared to the three months ended March 31, 2020, primarily due to (i) decreased volumes at the Fort Union system, which was sold to a third party during the fourth quarter of 2020 and (ii) decreased volumes at the Rendezvous system due to production declines in the area. These decreases were offset partially by increased volumes on Red Bluff Express resulting from increased pipeline commitments.
Crude-oil and NGLs assets
Gathering, treating, and transportation throughput decreased by 13 MBbls/d compared to the three months ended December 31, 2020, primarily due to decreased throughput at the DBM oil system resulting from lower production and the impact of winter storm Uri.
Gathering, treating, and transportation throughput decreased by 82 MBbls/d compared to the three months ended March 31, 2020, primarily due to (i) lower throughput at the DJ Basin oil system due to production declines in the area and (ii) lower throughput at the DBM oil system resulting from lower production and the impact of winter storm Uri.
Equity-investment throughput decreased by 2 MBbls/d compared to the three months ended December 31, 2020, primarily due to decreased volumes on the Whitethorn pipeline, partially offset by increased volumes on Cactus II and the Saddlehorn pipeline.
Equity-investment throughput decreased by 81 MBbls/d compared to the three months ended March 31, 2020, primarily due to decreased volumes on the Whitethorn pipeline and Cactus II.
Produced-water assets
Gathering and disposal throughput decreased by 63 MBbls/d and 110 MBbls/d compared to the three months ended December 31, 2020, and March 31, 2020, respectively, due to decreased throughput at the DBM water systems resulting from lower production and the impact of winter storm Uri.
Service Revenues
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | | | | | | |
| | | | | | | | | | | |
| thousands except percentages | | March 31, 2021 | | December 31, 2020 | | Inc/
(Dec) | | | | | | | | | | | March 31, 2020 | | Inc/ (Dec)(1) |
| Service revenues – fee based | | $ | 572,275 | | | $ | 603,777 | | | (5) | % | | | | | | | | | | | $ | 701,396 | | | (18) | % |
| Service revenues – product based | | 31,652 | | | 13,132 | | | 141 | % | | | | | | | | | | | 15,921 | | | 99 | % |
| Total service revenues | | $ | 603,927 | | | $ | 616,909 | | | (2) | % | | | | | | | | | | | $ | 717,317 | | | (16) | % |
(1)Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.
Service revenues – fee based
Service revenues – fee based decreased by $31.5 million compared to the three months ended December 31, 2020, primarily due to (i) $10.2 million at the DBM water systems from decreased throughput, including the impact of winter storm Uri, and a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2021, (ii) $8.9 million at the Springfield system due to annual cost-of-service rate adjustments that increased revenue in the fourth quarter of 2020, (iii) $6.7 million at the DBM oil system and $4.9 million at the West Texas complex from decreased throughput, including the impact of winter storm Uri, and (iv) $5.5 million at the DJ Basin complex from a lower average gathering fee, partially offset by increased throughput. These decreases were offset partially by an increase of $8.2 million at the DJ Basin oil system due to an annual cost-of-service rate adjustment made during the fourth quarter of 2020 and increased throughput.
Service revenues – fee based decreased by $129.1 million compared to the three months ended March 31, 2020, primarily due to (i) $45.9 million, resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2), (ii) $22.7 million at the DJ Basin complex from a lower average gathering fee and decreased throughput, (iii) $20.9 million at the West Texas complex from decreased throughput, including the impact of winter storm Uri, (iv) $16.8 million at the DBM oil system from decreased throughput, including the impact of winter storm Uri, and the effect of the straight-line treatment of lease revenue under the operating and maintenance agreement with Occidental, and (v) $13.1 million at the DBM water systems from decreased throughput, including the impact of winter storm Uri, and a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2021.
Service revenues – product based
Service revenues – product based increased by $18.5 million and $15.7 million compared to the three months ended December 31, 2020, and March 31, 2020, respectively, primarily due to (i) $8.6 million and $4.2 million, respectively, at the West Texas complex due to an increase in electricity-related rates billed to customers during winter storm Uri, (ii) $3.6 million and $3.6 million, respectively, at the Hilight system due to increased prices, (iii) $3.3 million and $4.0 million, respectively, at the DJ Basin complex due to increased third-party volumes, and (iv) increased pricing across several systems.
Product Sales
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | | | | | | |
| | | | | | | | | | | |
| thousands except percentages and per-unit amounts | | March 31, 2021 | | December 31, 2020 | | Inc/
(Dec) | | | | | | | | | | | March 31, 2020 | | Inc/ (Dec)(1) |
Natural-gas sales | | $ | 21,419 | | | $ | 6,593 | | | NM | | | | | | | | | | | $ | 10,539 | | | 103 | % |
| NGLs sales | | 49,386 | | | 23,475 | | | 110 | % | | | | | | | | | | | 46,110 | | | 7 | % |
| Total Product sales | | $ | 70,805 | | | $ | 30,068 | | | 135 | % | | | | | | | | | | | $ | 56,649 | | | 25 | % |
Per-unit gross average sales price: | | | | | | | | | | | | | | | | | | | |
| Natural gas (per Mcf) | | $ | 5.98 | | | $ | 1.86 | | | NM | | | | | | | | | | | $ | 1.30 | | | NM |
| NGLs (per Bbl) | | 55.25 | | | 16.29 | | | NM | | | | | | | | | | | 15.45 | | | NM |
NM—Not meaningful
(1)Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.
Natural-gas sales
Natural-gas sales increased by $14.8 million compared to the three months ended December 31, 2020, primarily due to increases of $15.4 million at the West Texas complex and $3.7 million at the MGR assets attributable to increases in average prices. These increases were offset partially by a decrease of $4.9 million at the DJ Basin complex attributable to a decrease in volumes, partially offset by increased average prices.
Natural-gas sales increased by $10.9 million compared to the three months ended March 31, 2020, primarily due to increases of (i) $16.3 million at the West Texas complex attributable to an increase in average prices, partially offset by decreased volumes sold, (ii) $4.4 million at the MGR assets attributable to an increase in average prices, and (iii) $1.4 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2). These increases were offset partially by a decrease of $10.5 million at the DJ Basin complex attributable to a decrease in volumes, partially offset by increased average prices.
NGLs sales
NGLs sales increased by $25.9 million compared to the three months ended December 31, 2020, primarily due to increases of (i) $17.6 million at the West Texas Complex attributable to an increase in average prices, partially offset by decreased volumes sold, (ii) $2.5 million at the Chipeta complex attributable to an increase in average prices, and (iii) $2.4 million at the DJ Basin complex attributable to an increase in average prices and volumes sold.
NGLs sales increased by $3.3 million compared to the three months ended March 31, 2020, primarily due to increases of (i) $19.1 million at the West Texas complex attributable to an increase in average prices, partially offset by decreased volumes sold and (ii) $3.6 million at the Chipeta complex and $2.6 million at the Granger complex attributable to increases in average prices. These increases were offset partially by a decrease of $21.8 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2).
Equity Income, Net – Related Parties
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | | | | | | |
| | | | | | | | | | | |
| thousands except percentages | | March 31, 2021 | | December 31, 2020 | | Inc/
(Dec) | | | | | | | | | | | March 31, 2020 | | Inc/ (Dec)(1) |
| Equity income, net – related parties | | $ | 52,165 | | | $ | 49,962 | | | 4 | % | | | | | | | | | | | $ | 61,347 | | | (15) | % |
(1)Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.
Equity income, net – related parties decreased by $9.2 million compared to the three months ended March 31, 2020, primarily due to a decrease in equity income from Whitethorn LLC related to commercial activities and lower volumes. In addition, decreased equity income from lower volumes at White Cliffs, Cactus II, and FRP were mostly offset by increased equity income from higher volumes at Red Bluff Express and Saddlehorn.
Cost of Product and Operation and Maintenance Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | | | | | | |
| | | | | | | | | | | |
| thousands except percentages | | March 31, 2021 | | December 31, 2020 | | Inc/
(Dec) | | | | | | | | | | | March 31, 2020 | | Inc/ (Dec)(1) |
| NGLs purchases | | $ | 30,919 | | | $ | 20,155 | | | 53 | % | | | | | | | | | | | $ | 83,789 | | | (63) | % |
| Residue purchases | | 57,904 | | | 21,195 | | | 173 | % | | | | | | | | | | | 21,219 | | | 173 | % |
| Other | | 146 | | | (6,873) | | | 102 | % | | | | | | | | | | | (1,738) | | | 108 | % |
| Cost of product | | 88,969 | | | 34,477 | | | 158 | % | | | | | | | | | | | 103,270 | | | (14) | % |
| Operation and maintenance | | 140,332 | | | 144,204 | | | (3) | % | | | | | | | | | | | 159,191 | | | (12) | % |
| Total Cost of product and Operation and maintenance expenses | | $ | 229,301 | | | $ | 178,681 | | | 28 | % | | | | | | | | | | | $ | 262,461 | | | (13) | % |
| | | | | | | | | | | | | | | | | | | |
_________________________________________________________________________________________
(1)Increases or decreases refer to the carrying amountcomparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.
NGLs purchases
NGLs purchases increased by $10.8 million compared to the three months ended December 31, 2020, primarily due to increases of (i) $3.3 million at the DJ Basin complex attributable to average-price and purchased-volume increases, (ii) $2.4 million at the West Texas complex attributable to average-price increases, and (iii) average-price increases across several other systems.
NGLs purchases decreased by $52.9 million compared to the three months ended March 31, 2020, primarily due to a decrease of $60.0 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2), partially offset by an increase of $5.2 million at the DJ Basin complex attributable to average-price increases, partially offset by purchased-volume decreases.
Residue purchases
Residue purchases increased by $36.7 million compared to the three months ended December 31, 2020, primarily due to increases of (i) $24.5 million at the West Texas complex attributable to purchased-volume increases and an average-price increase due to the impact of winter storm Uri, (ii) $3.8 million at the Hilight system attributable to average-price increases due to weather-related impacts, and (iii) $3.3 million at the DJ Basin complex attributable to average-price increases, partially offset by purchased-volume decreases.
Residue purchases increased by $36.7 million compared to the three months ended March 31, 2020, primarily due to increases of (i) $26.8 million at the West Texas complex attributable to average-price increases due to the impact of winter storm Uri, partially offset by purchased-volume decreases, (ii) $4.1 million at the Hilight system attributable to average-price increases due to weather-related impacts, (iii) $3.2 million at the MGR assets attributable to average-price increases, and (iv) $3.1 million at the Chipeta complex due to average-price increases. These increases were partially offset by a decrease of $5.6 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2).
Other items
Other items increased by $7.0 million and $1.9 million compared to the three months ended December 31, 2020, and March 31, 2020, respectively, primarily due to increases of $12.3 million and $12.7 million, respectively, at the West Texas complex primarily attributable to changes in imbalance positions, partially offset by decreases of $6.1 million and $11.2 million, respectively, at the DJ Basin complex due to changes in imbalance positions.
Operation and maintenance expense
Operation and maintenance expense decreased by $3.9 million compared to the three months ended December 31, 2020, due to combined decreases of $8.2 million primarily related to $2.9 million and $2.7 million at the Springfield system and DJ Basin complex, respectively, due to reduced field-related expenses, partially offset by increased salaries and wages and surface maintenance and plant repairs expense. These decreases were offset partially by an increase of $5.4 million at the West Texas complex as a result of increased utilities expense due to the impact of winter storm Uri, partially offset by a decrease in other field-related expenses.
Operation and maintenance expense decreased by $18.9 million compared to the three months ended March 31, 2020, primarily as a result of focused cost-savings initiatives related to the stand-up of WES as an independent organization, resulting in decreases of (i) $11.4 million at the West Texas complex primarily attributable to reduced field-related expenses, partially offset by increased utilities due to the impact of winter storm Uri, and (ii) $9.5 million at the DJ Basin complex primarily due to reduced field-related expenses, partially offset by increased utilities.
Other Operating Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | | | | | | |
| | | | | | | | | | | |
| thousands except percentages | | March 31, 2021 | | December 31, 2020 | | Inc/
(Dec) | | | | | | | | | | | March 31, 2020 | | Inc/ (Dec)(1) |
| General and administrative | | $ | 45,116 | | | $ | 37,303 | | | 21 | % | | | | | | | | | | | $ | 40,465 | | | 11 | % |
| Property and other taxes | | 14,384 | | | 11,077 | | | 30 | % | | | | | | | | | | | 18,476 | | | (22) | % |
| Depreciation and amortization | | 130,553 | | | 106,398 | | | 23 | % | | | | | | | | | | | 132,319 | | | (1) | % |
Long-lived asset and other impairments | | 14,866 | | | 3,314 | | | NM | | | | | | | | | | | 155,785 | | | (90) | % |
| Goodwill impairment | | — | | | — | | | NM | | | | | | | | | | | 441,017 | | | (100) | % |
| Total other operating expenses | | $ | 204,919 | | | $ | 158,092 | | | 30 | % | | | | | | | | | | | $ | 788,062 | | | (74) | % |
(1)Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.
General and administrative expenses
General and administrative expenses increased by $7.8 million compared to the three months ended December 31, 2020, primarily due to an increase of $6.9 million in personnel costs primarily related to customary fluctuations in employee vacation accruals and increased bonus-related contributions under our employee savings plan.
General and administrative expenses increased by $4.7 million compared to the three months ended March 31, 2020, primarily due to (i) a $4.5 million increase in corporate expenses and professional fees and (ii) a $1.9 million increase related to information technology services and fees. These increases were offset partially by a decrease of $2.3 million in personnel costs primarily due to WES securing its own dedicated workforce as of December 2019 and the related transition activities.
Property and other taxes
Property and other taxes increased by $3.3 million compared to the three months ended December 31, 2020, due to ad valorem tax increases of $4.6 million at the West Texas complex primarily due to capital projects being placed into service. This increase was offset partially by ad valorem tax decreases of $2.5 million at the DJ Basin complex primarily attributable to favorable differences between actual and estimated tax payments related to the 2020 fiscal year.
Property and other taxes decreased by $4.1 million compared to the three months ended March 31, 2020, primarily due to ad valorem tax decreases at the DJ Basin complex, DJ Basin oil system, and West Texas complex due to favorable differences between actual and estimated tax payments related to the 2020 fiscal year.
Depreciation and amortization expense
Depreciation and amortization expense increased by $24.2 million compared to the three months ended December 31, 2020, primarily due to increases of $16.3 million and $9.3 million at the DJ Basin complex and Hilight system, respectively, primarily as a result of downward asset retirement obligation revisions made at year-end 2020.
Long-lived asset and other impairment expense
Long-lived asset and other impairment expense for the three months ended March 31, 2021, was primarily due to $13.5 million of impairments at the DJ Basin complex due to cancellation of projects.
Long-lived asset and other impairment expense for the three months ended December 31, 2020, was primarily due to an impairment at the DBM oil system primarily due to cancellation of projects.
Long-lived asset and other impairment expense for the three months ended March 31, 2020, was primarily due to (i) $145.1 million of impairments for assets located in Wyoming and Utah and (ii) impairments at the DJ Basin complex.
For further information on Long-lived asset and other impairment expense, see Note 8—Property, Plant, and Equipment in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Goodwill impairment expense
During the three months ended March 31, 2020, an interim goodwill impairment test was performed due to significant unit-price declines triggered by the combined impacts from the global outbreak of COVID-19 and the oil-market disruption. As a result of the interim impairment test, a goodwill impairment of $441.0 million was recognized for the gathering and processing reporting unit. For additional information, see Note 9—Goodwill in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Interest Income – Anadarko Note Receivable and Interest Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | | | | | | |
| | | | | | | | | | | |
| thousands except percentages | | March 31, 2021 | | December 31, 2020 | | Inc/
(Dec) | | | | | | | | | | | March 31, 2020 | | Inc/ (Dec)(1) |
| | | | | | | | | | | | | | | | | | | |
| Interest income – Anadarko note receivable | | $ | — | | | $ | — | | | — | % | | | | | | | | | | | $ | 4,225 | | | (100) | % |
| | | | | | | | | | | | | | | | | | | |
| Third parties | | | | | | | | | | | | | | | | | | | |
Long-term and short-term debt | | $ | (95,722) | | | $ | (96,195) | | | — | % | | | | | | | | | | | $ | (89,769) | | | 7 | % |
| Finance lease liabilities | | (298) | | | (348) | | | (14) | % | | | | | | | | | | | (405) | | | (26) | % |
| Amortization of debt issuance costs and commitment fees | | (3,338) | | | (3,449) | | | (3) | % | | | | | | | | | | | (3,127) | | | 7 | % |
| Capitalized interest | | 865 | | | (1,292) | | | 167 | % | | | | | | | | | | | 4,758 | | | (82) | % |
| Related parties | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Finance lease liabilities | | — | | | 37 | | | 100 | % | | | | | | | | | | | (43) | | | (100) | % |
| Interest expense | | $ | (98,493) | | | $ | (101,247) | | | (3) | % | | | | | | | | | | | $ | (88,586) | | | 11 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
(1)Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.
Interest income
Interest income - Anadarko note receivable decreased by $4.2 million compared to the three months ended March 31, 2020, due to the exchange of the Anadarko note receivable under the Unit Redemption Agreement in September 2020. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Interest expense
Interest expense decreased by $2.8 million compared to the three months ended December 31, 2020, primarily due to (i) $2.0 million of lower interest incurred on the 5.375% Senior Notes due 2021 that were called on March 1, 2021 and (ii) an increase of $2.2 million in capitalized interest due to a change in the mix of active projects. These decreases to interest expense were offset partially by increases of $1.4 million due to higher effective interest rates resulting from credit-rating downgrades on the 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, 5.250% Senior Notes due 2050, and Floating-Rate Senior Notes due 2023.
Interest expense increased by $9.9 million compared to the three months ended March 31, 2020, primarily due to (i) $13.8 million of additional interest incurred from higher effective interest rates resulting from credit-rating downgrades and a full quarter of expense on the 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050 and (ii) a decrease of $3.9 million in capitalized interest due to decreased capital expenditures. These increases were offset partially by decreases of (i) $4.2 million due to lower outstanding balances on the 5.375% Senior Notes due 2021 that were called on March 1, 2021, 4.000% Senior Notes due 2022, and Floating-Rate Senior Notes due 2023 and (ii) $3.6 million due to lower outstanding borrowings under the RCF in 2021. See Liquidity and Capital Resources—Debt and credit facilities within this Item 2.
Income Tax Expense (Benefit)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | | | | | | |
| | | | | | | | | | | |
| thousands except percentages | | March 31, 2021 | | December 31, 2020 | | Inc/
(Dec) | | | | | | | | | | | March 31, 2020 | | Inc/ (Dec)(1) |
| Income (loss) before income taxes | | $ | 192,347 | | $ | 272,982 | | (30) | % | | | | | | | | | | | $ | (293,680) | | 165 | % |
| Income tax expense (benefit) | | 1,112 | | 2,206 | | (50) | % | | | | | | | | | | | (4,280) | | 126 | % |
| Effective tax rate | | 1 | % | | 1 | % | | | | | | | | | | | | | 1 | % | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
(1)Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.
We are not a taxable entity for U.S. federal income tax purposes; therefore, our federal statutory rate is zero percent. However, income apportionable to Texas is subject to Texas margin tax.
For all periods presented, the variance from the federal statutory rate primarily was due to our Texas margin tax liability.
KEY PERFORMANCE METRICS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | | | | | | |
| | | | | | | | | | | |
| thousands except percentages and per-unit amounts | | March 31, 2021 | | December 31, 2020 | | Inc/
(Dec) | | | | | | | | | | | March 31, 2020 | | Inc/ (Dec)(1) |
Adjusted gross margin for natural-gas assets | | $ | 432,389 | | | $ | 436,294 | | | (1) | % | | | | | | | | | | | $ | 471,366 | | | (8) | % |
Adjusted gross margin for crude-oil and NGLs assets | | 133,145 | | | 152,909 | | | (13) | % | | | | | | | | | | | 167,828 | | | (21) | % |
Adjusted gross margin for produced-water assets | | 49,090 | | | 59,201 | | | (17) | % | | | | | | | | | | | 62,121 | | | (21) | % |
| Adjusted gross margin | | 614,624 | | | 648,404 | | | (5) | % | | | | | | | | | | | 701,315 | | | (12) | % |
Per-Mcf Adjusted gross margin for natural-gas assets (2) | | 1.19 | | | 1.19 | | | — | % | | | | | | | | | | | 1.16 | | | 3 | % |
Per-Bbl Adjusted gross margin for crude-oil and NGLs assets (3) | | 2.45 | | | 2.69 | | | (9) | % | | | | | | | | | | | 2.42 | | | 1 | % |
Per-Bbl Adjusted gross margin for produced-water assets (4) | | 0.92 | | | 0.98 | | | (6) | % | | | | | | | | | | | 0.97 | | | (5) | % |
| Adjusted EBITDA | | 443,110 | | | 483,980 | | | (8) | % | | | | | | | | | | | 513,587 | | | (14) | % |
| Free cash flow | | 213,822 | | | 464,735 | | | (54) | % | | | | | | | | | | | 214,587 | | | — | % |
(1)Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.
(2)Average for period. Calculated as Adjusted gross margin for natural-gas assets, divided by total throughput (MMcf/d) attributable to WES for natural-gas assets.
(3)Average for period. Calculated as Adjusted gross margin for crude-oil and NGLs assets, divided by total throughput (MBbls/d) attributable to WES for crude-oil and NGLs assets.
(4)Average for period. Calculated as Adjusted gross margin for produced-water assets, divided by total throughput (MBbls/d) attributable to WES for produced-water assets.
Adjusted gross margin. We define Adjusted gross margin attributable to Western Midstream Partners, LP (“Adjusted gross margin”) as total revenues and other (less reimbursements for electricity-related expenses recorded as revenue), less cost of product, plus distributions from equity investments, and excluding the noncontrolling interest reportedowners’ proportionate share of revenues and cost of product. We believe Adjusted gross margin is an important performance measure of our operations’ profitability and performance as compared to other companies in the midstream industry. Cost of product expenses include (i) costs associated with the purchase of natural gas and NGLs pursuant to our percent-of-proceeds, percent-of-product, and keep-whole contracts, (ii) costs associated with the valuation of gas imbalances, and (iii) costs associated with our obligations under certain contracts to redeliver a volume of natural gas to shippers, which is thermally equivalent to condensate retained by WGP is adjustedus and sold to reflectthird parties.
To facilitate investor and industry analyst comparisons between us and our peers, we also disclose per-Mcf Adjusted gross margin for natural-gas assets, per-Bbl Adjusted gross margin for crude-oil and NGLs assets, and per-Bbl Adjusted gross margin for produced-water assets.
Adjusted gross margin decreased by $33.8 million compared to the three months ended December 31, 2020, primarily due to (i) decreased throughput and a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2021, at the DBM water systems, (ii) a decrease in distributions from Whitethorn LLC and Cactus II, (iii) an annual cost-of-service rate adjustment at the Springfield system that increased revenues in the fourth quarter of 2020, and (iv) decreased throughput at the DBM oil system. These decreases were partially offset by an increase at the DJ Basin oil system due to an annual cost-of-service rate adjustment made during the fourth quarter of 2020.
Adjusted gross margin decreased by $86.7 million compared to the three months ended March 31, 2020, primarily due to (i) decreased throughput at the West Texas complex and DJ Basin oil system, (ii) a lower average gathering fee and decreased throughput at the DJ Basin complex, (iii) decreased throughput and the effect of the straight-line treatment of lease revenue under the operating and maintenance agreement with Occidental at the DBM oil system, and (iv) decreased throughput and a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2021 at the DBM water systems.
Per-Mcf Adjusted gross margin for natural-gas assets increased by $0.03 compared to the three months ended March 31, 2020, primarily due to a higher cost-of-service rate effective January 1, 2021, at the West Texas complex, partially offset by decreased throughput at the DJ Basin complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets.
Per-Bbl Adjusted gross margin for crude-oil and NGLs assets decreased by $0.24 compared to the three months ended December 31, 2020, primarily due to (i) an annual cost-of-service rate adjustment at the Springfield system that increased revenues in the fourth quarter of 2020 and (ii) a decrease in distributions from Cactus II. These decreases were partially offset by an annual cost-of-service rate adjustment made during the fourth quarter of 2020 and increased throughput at the DJ Basin oil system.
Per-Bbl Adjusted gross margin for crude-oil and NGLs assets increased by $0.03 compared to the three months ended March 31, 2020, primarily due to a higher cost-of-service rate effective January 1, 2021, at the DJ Basin oil system, partially offset by (i) decreased throughput and the effect of the straight-line treatment of lease revenue under the operating and maintenance agreement with Occidental at the DBM oil system, which has a higher-than-average per-Bbl margin as compared to our other crude-oil and NGLs assets and (ii) a decrease in distributions from Cactus II.
Per-Bbl Adjusted gross margin for produced-water assets decreased by $0.06 and $0.05 compared to the three months ended December 31, 2020, and March 31, 2020, respectively, primarily due to a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2021.
Adjusted EBITDA. We define Adjusted EBITDA attributable to Western Midstream Partners, LP (“Adjusted EBITDA”) as net income (loss), plus (i) distributions from equity investments, (ii) non-cash equity-based compensation expense, (iii) interest expense, (iv) income tax expense, (v) depreciation and amortization, (vi) impairments, and (vii) other expense (including lower of cost or market inventory adjustments recorded in cost of product), less (i) gain (loss) on divestiture and other, net, (ii) gain (loss) on early extinguishment of debt, (iii) income from equity investments, (iv) interest income, (v) income tax benefit, (vi) other income, and (vii) the noncontrolling ownershipinterest owners’ proportionate share of revenues and expenses. We believe the presentation of Adjusted EBITDA provides information useful to investors in assessing our financial condition and results of operations and that Adjusted EBITDA is a widely accepted financial indicator of a company’s ability to incur and service debt, fund capital expenditures, and make distributions. Adjusted EBITDA is a supplemental financial measure that management and external users of our consolidated financial statements, such as industry analysts, investors, commercial banks, and rating agencies, use, among other measures, to assess the following:
•our operating performance as compared to other publicly traded partnerships in the midstream industry, without regard to financing methods, capital structure, or historical cost basis;
•the ability of our assets to generate cash flow to make distributions; and
•the viability of acquisitions and capital expenditures and the returns on investment of various investment opportunities.
Adjusted EBITDA decreased by $40.9 million compared to the three months ended December 31, 2020, primarily due to (i) a $54.5 million increase in cost of product (net of lower of cost or market inventory adjustments), (ii) an $8.0 million decrease in distributions from equity investments, (iii) $7.0 million increase in general and administrative expenses excluding non-cash equity-based compensation expense, and (iv) $3.3 million increase in property taxes. These amounts were offset partially by (i) a $27.5 million increase in total revenues and other and (ii) a $3.9 million decrease in operation and maintenance expenses.
Adjusted EBITDA decreased by $70.5 million compared to the three months ended March 31, 2020, primarily due to (i) a $99.3 million decrease in total revenues and other, (ii) a $4.7 million decrease in distributions from equity investments, and (iii) a $3.2 million increase in general and administrative expenses excluding non-cash equity-based compensation expense. These amounts were offset partially by (i) an $18.9 million decrease in operation and maintenance expenses, (ii) a $14.1 million decrease in cost of product (net of lower of cost or market inventory adjustments), and (iii) a $4.1 million decrease in property taxes. The above-described variances in cost of product and total revenues and other include the impacts resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020, which had no net impact on Adjusted EBITDA (see Executive Summary—Commodity purchase and sale agreements within this Item 2).
Free cash flow. We define “Free cash flow” as net cash provided by operating activities less total capital expenditures and contributions to equity investments, plus distributions from equity investments in excess of cumulative earnings. Management considers Free cash flow an appropriate metric for assessing capital discipline, cost efficiency, and balance-sheet strength. Although Free cash flow is the metric used to assess WES’s ability to make distributions to unitholders, this measure should not be viewed as indicative of the actual amount of cash that is available for distributions or planned for distributions for a given period. Instead, Free cash flow should be considered indicative of the amount of cash that is available for distributions, debt repayments, and other general partnership purposes.
Free cash flow decreased by $250.9 million compared to the three months ended December 31, 2020, primarily due to (i) a decrease of $244.0 million in net cash provided by operating activities and (ii) an increase of $9.0 million in capital expenditures.
Free cash flow decreased by $0.8 million compared to the three months ended March 31, 2020, primarily due to a decrease of $131.8 million in net cash provided by operating activities, partially offset by (i) a decrease of $113.0 million in capital expenditures, (ii) a decrease of $10.9 million in contributions to equity investments, and (iii) a $7.1 million increase in distributions from equity investments in excess of cumulative earnings.
See Capital Expenditures and Historical Cash Flow within this Item 2 for further information.
Reconciliation of non-GAAP financial measures.Adjusted gross margin, Adjusted EBITDA, and Free cash flow are not defined in GAAP. The GAAP measure used by us that is most directly comparable to Adjusted gross margin is operating income (loss). Net income (loss) and net cash provided by operating activities are the GAAP measures used by us that are most directly comparable to Adjusted EBITDA. The GAAP measure used by us that is most directly comparable to Free cash flow is net cash provided by operating activities. Our non-GAAP financial measures of Adjusted gross margin, Adjusted EBITDA, and Free cash flow should not be considered as alternatives to the GAAP measures of operating income (loss), net income (loss), net cash provided by operating activities, or any other measure of financial performance presented in accordance with GAAP. Adjusted gross margin, Adjusted EBITDA, and Free cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect operating income (loss), net income (loss), and net cash provided by operating activities. Adjusted gross margin, Adjusted EBITDA, and Free cash flow should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Our definitions of Adjusted gross margin, Adjusted EBITDA, and Free cash flow may not be comparable to similarly titled measures of other companies in our industry, thereby diminishing their utility as comparative measures.
Management compensates for the limitations of Adjusted gross margin, Adjusted EBITDA, and Free cash flow as analytical tools by reviewing the comparable GAAP measures, understanding the differences between Adjusted gross margin, Adjusted EBITDA, and Free cash flow compared to (as applicable) operating income (loss), net income (loss), and net cash provided by operating activities, and incorporating this knowledge into its decision-making processes. We believe that investors benefit from having access to the same financial measures that our management considers in evaluating our operating results.
The following tables present (i) a reconciliation of the GAAP financial measure of operating income (loss) to the non-GAAP financial measure of Adjusted gross margin, (ii) a reconciliation of the GAAP financial measures of net income (loss) and net cash provided by operating activities to the non-GAAP financial measure of Adjusted EBITDA, and (iii) a reconciliation of the GAAP financial measure of net cash provided by operating activities to the non-GAAP financial measure of Free cash flow:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | |
| | | | | | | | |
| thousands | | March 31, 2021 | | December 31, 2020 | | | | | | | | March 31, 2020 |
| Reconciliation of Operating income (loss) to Adjusted gross margin | | | | | | | | | | | | |
| Operating income (loss) | | $ | 292,336 | | | $ | 372,954 | | | | | | | | | $ | (214,903) | |
| Add: | | | | | | | | | | | | |
| Distributions from equity investments | | 61,189 | | | 69,231 | | | | | | | | | 65,920 | |
| Operation and maintenance | | 140,332 | | | 144,204 | | | | | | | | | 159,191 | |
| General and administrative | | 45,116 | | | 37,303 | | | | | | | | | 40,465 | |
| Property and other taxes | | 14,384 | | | 11,077 | | | | | | | | | 18,476 | |
| Depreciation and amortization | | 130,553 | | | 106,398 | | | | | | | | | 132,319 | |
Impairments (1) | | 14,866 | | | 3,314 | | | | | | | | | 596,802 | |
| Less: | | | | | | | | | | | | |
| Gain (loss) on divestiture and other, net | | (583) | | | 12,285 | | | | | | | | | (40) | |
| Equity income, net – related parties | | 52,165 | | | 49,962 | | | | | | | | | 61,347 | |
Reimbursed electricity-related charges recorded as revenues | | 17,312 | | | 18,161 | | | | | | | | | 19,223 | |
Adjusted gross margin attributable to noncontrolling interests (2) | | 15,258 | | | 15,669 | | | | | | | | | 16,425 | |
| Adjusted gross margin | | $ | 614,624 | | | $ | 648,404 | | | | | | | | | $ | 701,315 | |
Adjusted gross margin for natural-gas assets | | $ | 432,389 | | | $ | 436,294 | | | | | | | | | $ | 471,366 | |
Adjusted gross margin for crude-oil and NGLs assets | | 133,145 | | | 152,909 | | | | | | | | | 167,828 | |
Adjusted gross margin for produced-water assets | | 49,090 | | | 59,201 | | | | | | | | | 62,121 | |
(1)Includes goodwill impairment for the three months ended March 31, 2020. See Note 9—Goodwill in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(2)For all periods presented, includes (i) the 25% third-party interest in WES. The resulting impact of such noncontrolling interest adjustment on WGP’sChipeta and (ii) the 2.0% Occidental subsidiary-owned limited partner interest in WES is reflectedOperating, which collectively represent WES’s noncontrolling interests.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | |
| | | | | | | | |
| thousands | | March 31, 2021 | | December 31, 2020 | | | | | | | | March 31, 2020 |
| Reconciliation of Net income (loss) to Adjusted EBITDA |
| Net income (loss) | | $ | 191,235 | | | $ | 270,776 | | | | | | | | | $ | (289,400) | |
| Add: | | | | | | | | | | | | |
| Distributions from equity investments | | 61,189 | | | 69,231 | | | | | | | | | 65,920 | |
Non-cash equity-based compensation expense | | 6,734 | | | 5,935 | | | | | | | | | 5,234 | |
| Interest expense | | 98,493 | | | 101,247 | | | | | | | | | 88,586 | |
| Income tax expense | | 1,112 | | | 2,206 | | | | | | | | | — | |
| Depreciation and amortization | | 130,553 | | | 106,398 | | | | | | | | | 132,319 | |
Impairments (1) | | 14,866 | | | 3,314 | | | | | | | | | 596,802 | |
| Other expense | | 1,218 | | | — | | | | | | | | | 4,048 | |
| Less: | | | | | | | | | | | | |
| Gain (loss) on divestiture and other, net | | (583) | | | 12,285 | | | | | | | | | (40) | |
| Gain (loss) on early extinguishment of debt | | (289) | | | 862 | | | | | | | | | 7,345 | |
| Equity income, net – related parties | | 52,165 | | | 49,962 | | | | | | | | | 61,347 | |
| Interest income – Anadarko note receivable | | — | | | — | | | | | | | | | 4,225 | |
| Other income | | — | | | 412 | | | | | | | | | — | |
| Income tax benefit | | — | | | — | | | | | | | | | 4,280 | |
Adjusted EBITDA attributable to noncontrolling interests (2) | | 10,997 | | | 11,606 | | | | | | | | | 12,765 | |
| Adjusted EBITDA | | $ | 443,110 | | | $ | 483,980 | | | | | | | | | $ | 513,587 | |
| Reconciliation of Net cash provided by operating activities to Adjusted EBITDA |
| Net cash provided by operating activities | | $ | 261,550 | | | $ | 505,525 | | | | | | | | | $ | 393,311 | |
| Interest (income) expense, net | | 98,493 | | | 101,247 | | | | | | | | | 84,361 | |
| | | | | | | | | | | | |
Accretion and amortization of long-term obligations, net | | (2,088) | | | (2,172) | | | | | | | | | (2,100) | |
| Current income tax expense (benefit) | | 555 | | | 1,303 | | | | | | | | | (2,112) | |
| Other (income) expense, net | | 1,207 | | | (413) | | | | | | | | | 1,761 | |
Cash paid to settle interest-rate swaps | | — | | | 6,440 | | | | | | | | | — | |
| Distributions from equity investments in excess of cumulative earnings – related parties | | 12,141 | | | 10,410 | | | | | | | | | 5,052 | |
| Changes in assets and liabilities: | | | | | | | | | | | | |
| Accounts receivable, net | | 30,182 | | | 1,350 | | | | | | | | | (7,702) | |
| Accounts and imbalance payables and accrued liabilities, net | | 16,467 | | | (106,623) | | | | | | | | | 28,924 | |
| Other items, net | | 35,600 | | | (21,481) | | | | | | | | | 24,857 | |
Adjusted EBITDA attributable to noncontrolling interests (2) | | (10,997) | | | (11,606) | | | | | | | | | (12,765) | |
| Adjusted EBITDA | | $ | 443,110 | | | $ | 483,980 | | | | | | | | | $ | 513,587 | |
| Cash flow information |
| Net cash provided by operating activities | | $ | 261,550 | | | | | | | | | | | $ | 393,311 | |
| Net cash used in investing activities | | (46,472) | | | | | | | | | | | (178,724) | |
| Net cash provided by (used in) financing activities | | (603,624) | | | | | | | | | | | (162,267) | |
(1)Includes goodwill impairment for the three months ended March 31, 2020. See Note 9—Goodwill in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(2)For all periods presented, includes (i) the 25% third-party interest in Chipeta and (ii) the 2.0% Occidental subsidiary-owned limited partner interest in WES Operating, which collectively represent WES’s noncontrolling interests.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | |
| | | | | | | | |
| thousands | | March 31, 2021 | | December 31, 2020 | | | | | | | | March 31, 2020 |
| Reconciliation of Net cash provided by operating activities to Free cash flow |
| Net cash provided by operating activities | | $ | 261,550 | | | $ | 505,525 | | | | | | | | | $ | 393,311 | |
| Less: | | | | | | | | | | | | |
| Capital expenditures | | 59,783 | | | 50,829 | | | | | | | | | 172,816 | |
| Contributions to equity investments – related parties | | 86 | | | 371 | | | | | | | | | 10,960 | |
| Add: | | | | | | | | | | | | |
| Distributions from equity investments in excess of cumulative earnings – related parties | | 12,141 | | | 10,410 | | | | | | | | | 5,052 | |
| Free cash flow | | $ | 213,822 | | | $ | 464,735 | | | | | | | | | $ | 214,587 | |
| Cash flow information | | | | | | | | | | | | |
| Net cash provided by operating activities | | $ | 261,550 | | | | | | | | | | | $ | 393,311 | |
| Net cash used in investing activities | | (46,472) | | | | | | | | | | | (178,724) | |
| Net cash provided by (used in) financing activities | | (603,624) | | | | | | | | | | | (162,267) | |
| | | | | | | | | | | | |
LIQUIDITY AND CAPITAL RESOURCES
Our primary cash uses include quarterly distributions, debt service, capital expenditures, customary operating expenses, and distributions to our noncontrolling interest owners. Our sources of liquidity as an adjustmentof March 31, 2021, included cash and cash equivalents, cash flows generated from operations, available borrowing capacity under the RCF, and potential issuances of additional equity or debt securities. We believe that cash flows generated from these sources will be sufficient to WGP’s partners’ capital.satisfy our short-term working capital requirements and long-term capital-expenditure requirements. The amount of future distributions to unitholders will depend on our results of operations, financial condition, capital requirements, and other factors, and will be determined by the Board of Directors on a quarterly basis. We may rely on external financing sources, including equity and debt issuances, to fund capital expenditures and future acquisitions. However, we also may use operating cash flows to fund capital expenditures or acquisitions, which could result in borrowings under the RCF to pay distributions or to fund other short-term working capital requirements.
Distributions. OurUnder our partnership agreement, requires that we distribute all of our available cash (as(beyond proper reserves as defined in our partnership agreement) within 55 days after the end offollowing each quarter. Our only cash-generating assets are our partnership interests in WES, consisting of general partner units, common units and incentive distribution rights, on which we expect to receive quarterly distributions from WES.quarter’s end. Our cash flow and resulting ability to make cash distributions are therefore completely dependent upon WES’son our ability to makegenerate cash distributions with respect to our partnership interests in WES.flow from operations. Generally, our available cash is our cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves and cash on hand resulting from working capital borrowings made after the end of the quarter.
Western Gas Equity Partners, LP 2012 Long-Term Incentive Plan. Concurrently with The general partner establishes cash reserves to provide for the WGP IPO, WGP GP adopted the WGP LTIP. Equity-based compensation expense attributable to grants made under the WGP LTIP impacts cash flows from operating activities only to the extent cash payments are made to a participant in lieuproper conduct of issuance of WGP common units to the participant. See Note 5—Transactions with Affiliates in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further information.
WGP RCF. In March 2016, we entered into a $250.0 million WGP RCF which matures in March 2019. The WGP RCF may be used to buy WES common units and for general partnership purposes.
As of September 30, 2017, we had $28.0 million of outstanding borrowings and $222.0 million available for borrowing under the WGP RCF. At September 30, 2017, the interest rate on WGP RCF was 3.24%, the commitment fee rate was 0.30% and we were in compliance with all covenants under the WGP RCF. See Note 9—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further information.
WGP WCF. On November 1, 2012, we entered into the WGP WCF, a $30.0 million working capital facility with Anadarko as the lender. The facility is available exclusivelyour business, including (i) reserves to fund our workingfuture capital borrowings. As of September 30, 2017, we had no outstanding borrowings and $30.0 million availableexpenditures, (ii) to comply with applicable laws, debt instruments, or other agreements, or (iii) to provide funds for borrowing under the WGP WCF. WGP WCF bears interest at LIBOR plus 1.50%, and the interest rate was 2.74% at September 30, 2017. At September 30, 2017, we were in compliance with all covenants under the WGP WCF. The WGP WCF will mature on November 1, 2017, and we do not intend to renew this facility.
Reconciliation of net income (loss) attributable to Western Gas Partners, LP to net income (loss) attributable to Western Gas Equity Partners, LP. The differences between net income (loss) attributable to WES and net income (loss) attributable to WGP are reconciled as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands | | 2017 | | 2016 | | 2017 | | 2016 |
| Net income (loss) attributable to WES | | $ | 143,506 |
| | $ | 167,746 |
| | $ | 418,846 |
| | $ | 448,327 |
|
Limited partner interests in WES not held by WGP (1) | | (45,992 | ) | | (75,098 | ) | | (137,974 | ) | | (182,128 | ) |
General and administrative expenses (2) | | (764 | ) | | (730 | ) | | (2,193 | ) | | (2,972 | ) |
| Other income (expense), net | | 25 |
| | 12 |
| | 60 |
| | 46 |
|
| Property and other taxes | | — |
| | — |
| | — |
| | (15 | ) |
| Interest expense | | (573 | ) | | (533 | ) | | (1,653 | ) | | (1,182 | ) |
| Net income (loss) attributable to WGP | | $ | 96,202 |
| | $ | 91,397 |
| | $ | 277,086 |
| | $ | 262,076 |
|
| |
(1)
| Represents the portion of net income (loss) allocated to the limited partner interests in WES not held by WGP. As of September 30, 2017 and 2016, the public held a 59.7% and 60.0% limited partner interest in WES, respectively. Other subsidiaries of Anadarko separately held a 9.0% and 8.5% limited partner interest in WES as of September 30, 2017 and 2016, respectively. See Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
|
| |
(2)
| Represents general and administrative expenses incurred by WGP separate from, and in addition to, those incurred by WES. |
Reconciliation of net cash provided by (used in) operating and financing activities. The differences between net cash provided by (used in) operating and financing activitiesunitholder distributions for WGP and WES are reconciled as follows:
|
| | | | | | | | |
| | | Nine Months Ended
September 30, |
| thousands | | 2017 | | 2016 |
| WES net cash provided by operating activities | | $ | 645,099 |
| | $ | 657,738 |
|
General and administrative expenses (1) | | (2,193 | ) | | (2,972 | ) |
| Non-cash equity-based compensation expense | | 178 |
| | 189 |
|
| Changes in working capital | | 471 |
| | 540 |
|
| Other income (expense), net | | 60 |
| | 46 |
|
| Property and other taxes | | — |
| | (15 | ) |
| Interest expense | | (1,653 | ) | | (1,182 | ) |
| Debt related amortization and other items, net | | 507 |
| | 356 |
|
| WGP net cash provided by operating activities | | $ | 642,469 |
| | $ | 654,700 |
|
| | | | | |
| WES net cash provided by (used in) financing activities | | $ | (335,792 | ) | | $ | 429,368 |
|
Proceeds from the issuance of WES common units, net of offering expenses (2) | | — |
| | (25,000 | ) |
Distributions to WGP unitholders (3) | | (324,290 | ) | | (276,114 | ) |
Distributions to WGP from WES (4) | | 326,374 |
| | 278,412 |
|
| WGP RCF borrowings, net of issuance costs | | — |
| | 25,980 |
|
| WGP net cash provided by (used in) financing activities | | $ | (333,708 | ) | | $ | 432,646 |
|
| |
(1)
| Represents general and administrative expenses incurred by WGP separate from, and in addition to, those incurred by WES. |
| |
(2)
| Represents the difference attributable to elimination upon consolidation of proceeds to WES from the issuance of WES common units to WGP as part of funding the Springfield acquisition. See Note 2—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
|
| |
(3)
| Represents distributions to WGP common unitholders paid under WGP’s partnership agreement. See Note 3—Partnership Distributions and Note 4—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
|
| |
(4)
| Difference attributable to elimination upon consolidation of WES’s distributions on partnership interests owned by WGP. See Note 3—Partnership Distributions and Note 4—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
|
RESULTS OF OPERATIONS
OPERATING RESULTS
The following tables and discussion present a summary of WES’s results of operations:
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands | | 2017 | | 2016 | | 2017 | | 2016 |
Total revenues and other (1) | | $ | 574,695 |
| | $ | 481,645 |
| | $ | 1,616,338 |
| | $ | 1,293,450 |
|
| Equity income, net – affiliates | | 21,519 |
| | 20,294 |
| | 62,708 |
| | 56,801 |
|
Total operating expenses (1) | | 416,830 |
| | 312,088 |
| | 1,318,489 |
| | 830,699 |
|
| Gain (loss) on divestiture and other, net | | 72 |
| | (6,230 | ) | | 135,017 |
| | (8,769 | ) |
Proceeds from business interruption insurance claims (2) | | — |
| | 13,667 |
| | 29,882 |
| | 16,270 |
|
| Operating income (loss) | | 179,456 |
| | 197,288 |
| | 525,456 |
| | 527,053 |
|
| Interest income – affiliates | | 4,225 |
| | 4,225 |
| | 12,675 |
| | 12,675 |
|
| Interest expense | | (35,544 | ) | | (30,768 | ) | | (106,794 | ) | | (75,687 | ) |
| Other income (expense), net | | 286 |
| | 153 |
| | 969 |
| | 224 |
|
| Income (loss) before income taxes | | 148,423 |
| | 170,898 |
| | 432,306 |
| | 464,265 |
|
| Income tax (benefit) expense | | 510 |
| | 472 |
| | 4,905 |
| | 7,431 |
|
| Net income (loss) | | 147,913 |
| | 170,426 |
| | 427,401 |
| | 456,834 |
|
| Net income attributable to noncontrolling interest | | 4,407 |
| | 2,680 |
| | 8,555 |
| | 8,507 |
|
Net income (loss) attributable to Western Gas Partners, LP (3) | | $ | 143,506 |
| | $ | 167,746 |
| | $ | 418,846 |
| | $ | 448,327 |
|
Key performance metrics (4) | | | | | | | | |
| Adjusted gross margin attributable to Western Gas Partners, LP | | $ | 344,416 |
| | $ | 343,981 |
| | $ | 1,009,520 |
| | $ | 984,459 |
|
| Adjusted EBITDA attributable to Western Gas Partners, LP | | 257,835 |
| | 278,170 |
| | 787,664 |
| | 759,834 |
|
| Distributable cash flow | | 231,859 |
| | 237,315 |
| | 695,587 |
| | 628,602 |
|
| |
(1)
| Revenues and other include amounts earned by WES from services provided to its affiliates, as well as from the sale of residue and NGLs to its affiliates. Operating expenses include amounts charged by WES affiliates for services as well as reimbursement of amounts paid by affiliates to third parties on WES’s behalf. See Note 5—Transactions with Affiliates in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
|
| |
(2)
| See Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
|
| |
(3)
| For reconciliations to comparable consolidated results of WGP, see Items Affecting the Comparability of Financial Results within this Item 2.
|
| |
(4)
| Adjusted gross margin attributable to Western Gas Partners, LP, Adjusted EBITDA attributable to Western Gas Partners, LP and Distributable cash flow are defined under the caption Key Performance Metrics within this Item 2. For reconciliations of these non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP, see Key Performance Metrics–Reconciliation of non-GAAP measures within this Item 2.
|
For purposesany one or more of the following discussion, any increases or decreases “for the three months ended September 30, 2017” refer to the comparison of the three months ended September 30, 2017, to the three months ended September 30, 2016; any increases or decreases “for the nine months ended September 30, 2017” refer to the comparison of the nine months ended September 30, 2017, to the nine months ended September 30, 2016; and any increases or decreases “for the three and nine months ended September 30, 2017” refer to the comparison of these 2017 periods to the corresponding three and nine month periods ended September 30, 2016.
|
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | Inc/ (Dec) | | 2017 | | 2016 | | Inc/ (Dec) |
| Throughput for natural gas assets (MMcf/d) | | | | | | | | | | | | |
| Gathering, treating and transportation | | 784 |
| | 1,562 |
| | (50 | )% | | 1,029 |
| | 1,556 |
| | (34 | )% |
| Processing | | 2,588 |
| | 2,448 |
| | 6 | % | | 2,528 |
| | 2,301 |
| | 10 | % |
Equity investment (1) | | 159 |
| | 179 |
| | (11 | )% | | 160 |
| | 178 |
| | (10 | )% |
| Total throughput for natural gas assets | | 3,531 |
| | 4,189 |
| | (16 | )% | | 3,717 |
| | 4,035 |
| | (8 | )% |
| Throughput attributable to noncontrolling interest for natural gas assets | | 104 |
| | 119 |
| | (13 | )% | | 107 |
| | 127 |
| | (16 | )% |
| Total throughput attributable to Western Gas Partners, LP for natural gas assets | | 3,427 |
| | 4,070 |
| | (16 | )% | | 3,610 |
| | 3,908 |
| | (8 | )% |
| Throughput for crude, NGL and produced water assets (MBbls/d) | | | | | | | | | | | | |
| Gathering, treating and transportation | | 77 |
| | 58 |
| | 33 | % | | 57 |
| | 59 |
| | (3 | )% |
Equity investment (2) | | 132 |
| | 127 |
| | 4 | % | | 130 |
| | 126 |
| | 3 | % |
| Total throughput for crude, NGL and produced water assets | | 209 |
| | 185 |
| | 13 | % | | 187 |
| | 185 |
| | 1 | % |
| |
(1)
| Represents WES’s 14.81% share of average Fort Union throughput and 22% share of average Rendezvous throughput. |
| |
(2)
| Represents WES’s 10% share of average White Cliffs throughput, 25% share of average Mont Belvieu JV throughput, 20% share of average TEG and TEP throughput, and 33.33% share of average FRP throughput. |
Natural gas assets
Gathering, treating and transportation throughput decreased by 778 MMcf/d and 527 MMcf/d for the three and nine months ended September 30, 2017, respectively, primarily due to the Property Exchange in March 2017 (decreases of 594 MMcf/d and 341 MMcf/d, respectively), production declines in the areas around the Marcellus Interest (decreases of 38 MMcf/d and 52 MMcf/d, respectively) and Springfield gas gathering systems (decreases of 40 MMcf/d and 47 MMcf/d, respectively), and the sale of the Hugoton system in October 2016 (decreases of 52 MMcf/d and 54 MMcf/d, respectively).
Processing throughput increased by 140 MMcf/d and 227 MMcf/d for the three and nine months ended September 30, 2017, respectively, primarily due to the DBM outage in 2016 and the start-up of Train IV and Train V at the DBM complex in May 2016 and October 2016, respectively. These increases were partially offset by production declines in the areas around the Chipeta complex and MGR assets.
Equity investment throughput decreased by 20 MMcf/d and 18 MMcf/d for the three and nine months ended September 30, 2017, respectively, due to decreased throughput at the Rendezvous and Fort Union systems due to production declines in the area.
Crude, NGL and produced water assets
Gathering, treating and transportation throughput increased by 19 MBbls/d for the three months ended September 30, 2017, primarily due to the start-up of operations at the DBM water systems during the second quarter of 2017, partially offset by decreased throughput at the Springfield oil gathering system due to production declines in the area.
Gathering, treating and transportation throughput decreased by 2 MBbls/d for the nine months ended September 30, 2017, primarily due to decreased throughput at the Springfield oil gathering system due to production declines in the area, partially offset by throughput from the DBM water systems that commenced operation during the second quarter of 2017.
Equity investment throughput increased by 5 MBbls/d and 4 MBbls/d for the three and nine months ended September 30, 2017, respectively, primarily due to increased volumes on FRP and TEG as a result of increased NGL production and an increase at the Mont Belvieu JV due to higher inlet throughput. These increases were partially offset by decreased throughput at White Cliffs as a result of a competitive pipeline commencing service in September 2016.
Gathering, Processing and Transportation Revenues
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands except percentages | | 2017 | | 2016 | | Inc/ (Dec) | | 2017 | | 2016 | | Inc/ (Dec) |
| Gathering, processing and transportation revenues | | $ | 306,187 |
| | $ | 315,192 |
| | (3 | )% | | $ | 913,436 |
| | $ | 910,332 |
| | — | % |
Revenues from gathering, processing and transportation decreased by $9.0 million for the three months ended September 30, 2017, primarily due to decreases of (i) $15.4 million due to the Property Exchange in March 2017, (ii) $7.4 million at the Springfield system, $2.6 million at the Chipeta complex and $1.6 million at the Marcellus Interest systems in each case due to throughput decreases, (iii) $4.7 million due to the sale of the Hugoton system in October 2016 and (iv) $2.8 million at the Granger complex due to a lower processing fee. These decreases were partially offset by increases of (i) $16.2 million at the DBM complex due to increased throughput (see Operating Results–Throughput within this Item 2), (ii) $8.5 million at the DJ Basin complex due to increased throughput and a higher throughput fee and (iii) $3.0 million at the DBM water systems that commenced operation during the second quarter of 2017.
Revenues from gathering, processing and transportation increased by $3.1 million for the nine months ended September 30, 2017, primarily due to increases of (i) $72.6 million at the DBM complex due to increased throughput (see Operating Results–Throughput within this Item 2), (ii) $23.1 million at the DJ Basin complex due to increased throughput and a higher throughput fee and (iii) $4.1 million at the DBM water systems that commenced operation during the second quarter of 2017. These increases were partially offset by decreases of (i) $25.7 million at the Springfield system, $10.8 million at the Chipeta complex and $7.6 million at the Marcellus Interest systems in each case due to throughput decreases, (ii) $28.5 million due to the Property Exchange in March 2017, (iii) $14.4 million due to the sale of the Hugoton system in October 2016 and (iv) $7.0 million at the Granger complex due to a lower processing fee.
Natural Gas and Natural Gas Liquids Sales
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands except percentages and per-unit amounts | | 2017 | | 2016 | | Inc/ (Dec) | | 2017 | | 2016 | | Inc/ (Dec) |
Natural gas sales (1) | | $ | 100,395 |
| | $ | 72,658 |
| | 38 | % | | $ | 273,256 |
| | $ | 155,251 |
| | 76 | % |
Natural gas liquids sales (1) | | 158,746 |
| | 91,378 |
| | 74 | % | | 417,234 |
| | 224,334 |
| | 86 | % |
| Total | | $ | 259,141 |
| | $ | 164,036 |
| | 58 | % | | $ | 690,490 |
| | $ | 379,585 |
| | 82 | % |
Average price per unit (1): | | | | | | | | | | | | |
| Natural gas (per Mcf) | | $ | 2.89 |
| | $ | 2.70 |
| | 7 | % | | $ | 2.96 |
| | $ | 2.41 |
| | 23 | % |
| Natural gas liquids (per Bbl) | | 22.99 |
| | 19.10 |
| | 20 | % | | 21.63 |
| | 19.45 |
| | 11 | % |
| |
(1)
| Excludes amounts considered above market with respect to WES’s swap agreements for the MGR assets, DJ Basin complex and Hugoton system (until its divestiture in October 2016) that were recorded as capital contributions in the consolidated statement of equity and partners’ capital. See Note 5—Transactions with Affiliates in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
|
For the three and nine months ended September 30, 2017, average natural gas and NGL prices included the effects of commodity price swap agreements attributable to sales for the MGR assets and DJ Basin complex. For the three and nine months ended September 30, 2016, average natural gas and NGL prices included the effects of commodity price swap agreements attributable to sales for the Hugoton system, MGR assets and DJ Basin complex. See Note 5—Transactions with Affiliates in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
The increase in natural gas sales of $27.7 million for the three months ended September 30, 2017, was primarily due to increases of (i) $15.6 million at the DJ Basin complex due to an increase in the swap market price and volumes sold and (ii) $14.8 million at the DBM complex due to an increase in volumes sold (see Operating Results–Throughput within this Item 2). These increases were partially offset by a decrease of $3.0 million at the MGR assets due to the partial equity treatment of the above-market swap agreement beginning January 1, 2017.
The increase in natural gas sales of $118.0 million for the nine months ended September 30, 2017, was primarily due to increases of (i) $75.2 million at the DBM complex due to an increase in average price and volumes sold (see Operating Results–Throughput within this Item 2), (ii) $44.3 million at the DJ Basin complex due to an increase in the swap market price and volumes sold and (iii) $4.8 million at the Hilight system due to an increase in average price. These increases were partially offset by a decrease of $9.2 million at the MGR assets due to the partial equity treatment of the above-market swap agreement beginning January 1, 2017.
The increase in NGLs sales of $67.4 million and $192.9 million for the three and nine months ended September 30, 2017, respectively, was primarily due to increases of (i) $62.7 million and $184.5 million, respectively, at the DBM complex due to an increase in average price and volumes sold (see Operating Results–Throughput within this Item 2), (ii) $15.9 million and $38.1 million, respectively, at the DJ Basin complex due to an increase in the swap market price and volumes sold and (iii) $3.3 million and $11.3 million, respectively, at the Hilight system due to an increase in average price. These increases were partially offset by decreases during the three and nine months ended September 30, 2017, of $17.7 million and $49.9 million, respectively, at the MGR assets due to the partial equity treatment of the above-market swap agreement beginning January 1, 2017.
Other Revenues
|
| | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands except percentages | | 2017 | | 2016 | | Inc/ (Dec) | | 2017 | | 2016 | | Inc/ (Dec) |
| Other revenues | | $ | 9,367 |
| | $ | 2,417 |
| | NM | | $ | 12,412 |
| | $ | 3,533 |
| | NM |
NM-Not Meaningful
For the three and nine months ended September 30, 2017, other revenues increased by $7.0 million and $8.9 million, respectively, primarily due to deficiency fees at the Chipeta complex.
Equity Income, Net – Affiliates |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands except percentages | | 2017 | | 2016 | | Inc/ (Dec) | | 2017 | | 2016 | | Inc/ (Dec) |
| Equity income, net – affiliates | | $ | 21,519 |
| | $ | 20,294 |
| | 6 | % | | $ | 62,708 |
| | $ | 56,801 |
| | 10 | % |
For the three and nine months ended September 30, 2017, equity income, net – affiliates increased by $1.2 million and $5.9 million, respectively, primarily due to an increase in equity income from the Mont Belvieu JV due to increased volumes processed. In addition, for the nine months ended September 30, 2017, equity income, net – affiliates increased due to WES’s 14.81% share of an impairment loss determined by the managing partner of Fort Union in the first quarter of 2016.
Cost of Product and Operation and Maintenance Expenses
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands except percentages | | 2017 | | 2016 | | Inc/ (Dec) | | 2017 | | 2016 | | Inc/ (Dec) |
NGL purchases (1) | | $ | 136,636 |
| | $ | 66,822 |
| | 104 | % | | $ | 359,616 |
| | $ | 149,547 |
| | 140 | % |
Residue purchases (1) | | 90,264 |
| | 70,376 |
| | 28 | % | | 256,387 |
| | 156,774 |
| | 64 | % |
| Other | | 12,323 |
| | 8,445 |
| | 46 | % | | 15,856 |
| | 20,638 |
| | (23 | )% |
| Cost of product | | 239,223 |
| | 145,643 |
| | 64 | % | | 631,859 |
| | 326,959 |
| | 93 | % |
| Operation and maintenance | | 79,536 |
| | 74,755 |
| | 6 | % | | 229,444 |
| | 226,141 |
| | 1 | % |
| Total cost of product and operation and maintenance expenses | | $ | 318,759 |
| | $ | 220,398 |
| | 45 | % | | $ | 861,303 |
| | $ | 553,100 |
| | 56 | % |
| |
(1)
| Excludes amounts considered above market with respect to WES’s swap agreements for the MGR assets, DJ Basin complex and Hugoton system (until its divestiture in October 2016) that were recorded as capital contributions in the consolidated statement of equity and partners’ capital. See Note 5—Transactions with Affiliates in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
|
Cost of product expense for the three and nine months ended September 30, 2017, included the effects of commodity price swap agreements attributable to purchases for the MGR assets and DJ Basin complex. Cost of product expense for the three and nine months ended September 30, 2016, included the effects of commodity price swap agreements attributable to purchases for the Hugoton system, MGR assets and DJ Basin complex. See Note 5—Transactions with Affiliates in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
NGL purchases increased by $69.8 million and $210.1 million for the three and nine months ended September 30, 2017, respectively, primarily due to increases of (i) $61.4 million and $177.1 million, respectively, at the DBM complex due to an increase in average price and volumes purchased (see Operating Results–Throughput within this Item 2), (ii) $13.2 million and $43.2 million, respectively, at the DJ Basin complex due to an increase in the swap market price and volumes purchased and (iii) $2.7 million and $9.2 million, respectively, at the Hilight system due to an increase in average price, partially offset by a decrease in volumes purchased. These increases were partially offset by decreases during the three and nine months ended September 30, 2017, of $9.5 million and $26.6 million, respectively, at the MGR assets due to the partial equity treatment of the above-market swap agreement beginning January 1, 2017.
Residue purchases increased by $19.9 million and $99.6 million for the three and nine months ended September 30, 2017, respectively, primarily due to increases of (i) $12.6 million and $68.7 million, respectively, at the DBM complex due to an increase in average price and volumes purchased (see Operating Results–Throughput within this Item 2) and (ii) $12.3 million and $36.5 million, respectively, at the DJ Basin complex due to an increase in the swap market price and volumes purchased. In addition, for the nine months ended September 30, 2017, there was an increase of $4.6 million at the Hilight system due to an increase in average price. These increases were partially offset by decreases during the three and nine months ended September 30, 2017, of $3.9 million and $12.0 million, respectively, at the MGR assets due to the partial equity treatment of the above-market swap agreement beginning January 1, 2017.
Other items increased by $3.9 million for the three months ended September 30, 2017, primarily due to changes in affiliate contract terms at the DJ Basin complex. Other items decreased by $4.8 million for the nine months ended September 30, 2017, primarily due to fees paid in 2016 for rerouting volumes due to the DBM outage, partially offset by changes in affiliate contract terms at the DJ Basin complex in 2017.
Operation and maintenance expense increased by $4.8 million for the three months ended September 30, 2017, primarily due to increases of (i) $2.6 million due to the Property Exchange in March 2017, (ii) $1.4 million in utilities expense primarily at the DJ Basin and DBM complexes and (iii) $1.4 million in salaries and wages primarily at the Springfield system. Operation and maintenance expense increased by $3.3 million for the nine months ended September 30, 2017, primarily due to an increase of $3.0 million due to the Property Exchange in March 2017.
Other Operating Expenses
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands except percentages | | 2017 | | 2016 | | Inc/ (Dec) | | 2017 | | 2016 | | Inc/ (Dec) |
| General and administrative | | $ | 12,158 |
| | $ | 11,382 |
| | 7 | % | | $ | 35,402 |
| | $ | 33,542 |
| | 6 | % |
| Property and other taxes | | 11,215 |
| | 10,670 |
| | 5 | % | | 35,433 |
| | 33,098 |
| | 7 | % |
| Depreciation and amortization | | 72,539 |
| | 67,246 |
| | 8 | % | | 216,272 |
| | 199,646 |
| | 8 | % |
| Impairments | | 2,159 |
| | 2,392 |
| | (10 | )% | | 170,079 |
| | 11,313 |
| | NM |
|
| Total other operating expenses | | $ | 98,071 |
| | $ | 91,690 |
| | 7 | % | | $ | 457,186 |
| | $ | 277,599 |
| | 65 | % |
NM-Not Meaningful
General and administrative expenses increased by $0.8 million and $1.9 million for the three and nine months ended September 30, 2017, respectively, primarily due to increases in personnel costs for which WES reimbursed Anadarko pursuant to the WES omnibus agreement and bad debt expense, partially offset by decreases in legal and consulting fees.
Property and other taxes increased by $0.5 million for the three months ended September 30, 2017, primarily due to an ad valorem tax increase at the DJ Basin complex, partially offset by a decrease at the DBM complex. Property and other taxes increased by $2.3 million for the nine months ended September 30, 2017, primarily due to ad valorem tax increases at the DBM complex and DBJV system.
Depreciation and amortization expense increased by $5.3 million and $16.6 million for the three and nine months ended September 30, 2017, respectively, primarily due to depreciation expense increases of (i) $5.2 million and $10.3 million, respectively, due to the Property Exchange in March 2017, (ii) $2.4 million and $9.1 million, respectively, related to capital projects at the DBM complex and (iii) $2.8 million and $8.4 million, respectively, at the Bison facility due to a change in the estimated property life. These increases were partially offset by decreases during the three and nine months ended September 30, 2017, of (i) $1.4 million and $5.4 million, respectively, due to the sale of the Hugoton system in October 2016, (ii) $2.4 million and $4.9 million, respectively, at the Granger complex due to an impairment recorded in the first quarter of 2017 (see impairment expense below) and (iii) $1.6 million and $2.4 million, respectively, at the DJ Basin complex due to a change in estimated salvage values.
Impairment expense decreased by $0.2 million for the three months ended September 30, 2017, primarily due to a $2.0 million impairment of an idle facility in northeast Wyoming (see Note 6—Property, Plant and Equipment in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q), as compared to impairments in 2016 primarily related to the cancellation of projects at the DBJV and Marcellus Interest systems.
Impairment expense increased by $158.8 million for the nine months ended September 30, 2017, primarily due to the following items occurring in 2017 (i) a $158.8 million impairment at the Granger complex, (ii) a $3.7 million impairment at the Granger straddle plant, (iii) a $3.1 million impairment at the Fort Union system, (iv) a $2.0 million impairment of an idle facility in northeast Wyoming and (v) the cancellation of a pipeline project in West Texas. Impairment expense for the nine months ended September 30, 2016, was primarily due to (i) a $6.1 million impairment at the Newcastle system, (ii) the cancellation of projects at the DJ Basin complex and DBJV system and (iii) the abandonment of compressors at the MIGC system. See Note 6—Property, Plant and Equipment in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Interest Income – Affiliates and Interest Expense |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands except percentages | | 2017 | | 2016 | | Inc/ (Dec) | | 2017 | | 2016 | | Inc/ (Dec) |
| Note receivable – Anadarko | | $ | 4,225 |
| | $ | 4,225 |
| | — | % | | $ | 12,675 |
| | $ | 12,675 |
| | — | % |
| Interest income – affiliates | | $ | 4,225 |
| | $ | 4,225 |
| | — | % | | $ | 12,675 |
| | $ | 12,675 |
| | — | % |
| Third parties | | | | | | | | | | | | |
| Long-term debt | | $ | (35,992 | ) | | $ | (31,612 | ) | | 14 | % | | $ | (105,772 | ) | | $ | (87,711 | ) | | 21 | % |
| Amortization of debt issuance costs and commitment fees | | (1,667 | ) | | (1,672 | ) | | — | % | | (4,942 | ) | | (4,747 | ) | | 4 | % |
| Capitalized interest | | 2,115 |
| | 1,343 |
| | 57 | % | | 3,991 |
| | 4,674 |
| | (15 | )% |
| Affiliates | | | | | | | | | | | | |
Deferred purchase price obligation – Anadarko (1) | | — |
| | 1,173 |
| | (100 | )% | | (71 | ) | | 12,097 |
| | (101 | )% |
| Interest expense | | $ | (35,544 | ) | | $ | (30,768 | ) | | 16 | % | | $ | (106,794 | ) | | $ | (75,687 | ) | | 41 | % |
| |
(1)
| See Note 2—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for a discussion of the Deferred purchase price obligation - Anadarko.
|
Interest expense increased by $4.8 million and $31.1 million for the three and nine months ended September 30, 2017, respectively, primarily due to (i) accretion revisions in 2016 recorded as reductions to interest expense for the Deferred purchase price obligation - Anadarko (see Note 2—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q), (ii) interest incurred on the 2026 Notes issued in July 2016 and (iii) interest incurred on the additional 2044 Notes issued in October 2016. These increases were partially offset during the nine months ended September 30, 2017, by additional interest incurred on the RCF in 2016 as a result of higher outstanding borrowings. Capitalized interest increased by $0.8 million for the three months ended September 30, 2017, primarily due to the construction of Train VI beginning in the fourth quarter of 2016 and the purchase of long-lead items associated with the Mentone plant, partially offset by a decrease primarily due to the completion of Train V in October 2016, all located at the DBM complex. Capitalized interest decreased by $0.7 million for the nine months ended September 30, 2017, primarily due to the completion of Trains IV and V in May 2016 and October 2016, respectively, partially offset by an increase due to the construction of Train VI beginning in the fourth quarter of 2016 and the purchase of long-lead items associated with the Mentone plant, all located at the DBM complex. See Note 9—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Income Tax (Benefit) Expense |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands except percentages | | 2017 | | 2016 | | Inc/ (Dec) | | 2017 | | 2016 | | Inc/ (Dec) |
| Income (loss) before income taxes | | $ | 148,423 |
| | $ | 170,898 |
| | (13 | )% | | $ | 432,306 |
| | $ | 464,265 |
| | (7 | )% |
| Income tax (benefit) expense | | 510 |
| | 472 |
| | 8 | % | | 4,905 |
| | 7,431 |
| | (34 | )% |
| Effective tax rate | | — | % | | — | % | | | | 1 | % | | 2 | % | | |
WES is not a taxable entity for U.S. federal income tax purposes. However, WES’s income apportionable to Texas is subject to Texas margin tax. For the nine months ended September 30, 2016, the variance from the federal statutory rate was primarily due to federal and state taxes on pre-acquisition income attributable to the WES assets acquired from Anadarko, and WES’s share of Texas margin tax. For all other periods presented, the variance from the federal statutory rate, which is zero percent as a non-taxable entity, was primarily due to WES’s share of Texas margin tax.
Income attributable to the Springfield system prior to and including February 2016 was subject to federal and state income tax. Income earned on the Springfield system for periods subsequent to February 2016 was only subject to Texas margin tax on income apportionable to Texas.
KEY PERFORMANCE METRICS
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands except percentages and per-unit amounts | | 2017 | | 2016 | | Inc/ (Dec) | | 2017 | | 2016 | | Inc/ (Dec) |
Adjusted gross margin attributable to Western Gas Partners, LP for natural gas assets (1) | | $ | 305,337 |
| | $ | 306,393 |
| | — | % | | $ | 904,620 |
| | $ | 877,583 |
| | 3 | % |
Adjusted gross margin for crude, NGL and produced water assets (2) | | 39,079 |
| | 37,588 |
| | 4 | % | | 104,900 |
| | 106,876 |
| | (2 | )% |
Adjusted gross margin attributable to Western Gas Partners, LP (3) | | 344,416 |
| | 343,981 |
| | — | % | | 1,009,520 |
| | 984,459 |
| | 3 | % |
Adjusted gross margin per Mcf attributable to Western Gas Partners, LP for natural gas assets (4) | | 0.97 |
| | 0.82 |
| | 18 | % | | 0.92 |
| | 0.82 |
| | 12 | % |
Adjusted gross margin per Bbl for crude, NGL and produced water assets (5) | | 2.03 |
| | 2.20 |
| | (8 | )% | | 2.05 |
| | 2.10 |
| | (2 | )% |
Adjusted EBITDA attributable to Western Gas Partners, LP (3) | | 257,835 |
| | 278,170 |
| | (7 | )% | | 787,664 |
| | 759,834 |
| | 4 | % |
Distributable cash flow (3) | | 231,859 |
| | 237,315 |
| | (2 | )% | | 695,587 |
| | 628,602 |
| | 11 | % |
| |
(1)
| Adjusted gross margin attributable to Western Gas Partners, LP for natural gas assets is calculated as total revenues and other for natural gas assets, less reimbursements for electricity-related expenses recorded as revenue and cost of product for natural gas assets, plus distributions from WES’s equity investments in Fort Union and Rendezvous, and excluding the noncontrolling interest owner’s proportionate share of revenue and cost of product. See the reconciliation of Adjusted gross margin attributable to Western Gas Partners, LP for natural gas assets to its most comparable GAAP measure below. |
| |
(2)
| Adjusted gross margin for crude, NGL and produced water assets is calculated as total revenues and other for crude, NGL and produced water assets, less reimbursements for electricity-related expenses recorded as revenue and cost of product for crude, NGL and produced water assets, plus distributions from WES’s equity investments in White Cliffs, the Mont Belvieu JV, and the TEFR Interests. See the reconciliation of Adjusted gross margin for crude, NGL and produced water assets to its most comparable GAAP measure below. |
| |
(3)
| For a reconciliation of Adjusted gross margin attributable to Western Gas Partners, LP, Adjusted EBITDA attributable to Western Gas Partners, LP and Distributable cash flow to the most directly comparable financial measure calculated and presented in accordance with GAAP, see the descriptions below. |
| |
(4)
| Average for period. Calculated as Adjusted gross margin attributable to Western Gas Partners, LP for natural gas assets, divided by total throughput (MMcf/d) attributable to Western Gas Partners, LP for natural gas assets. |
| |
(5)
| Average for period. Calculated as Adjusted gross margin for crude, NGL and produced water assets, divided by total throughput (MBbls/d) for crude, NGL and produced water assets. |
Adjusted gross margin attributable to Western Gas Partners, LP. WES defines Adjusted gross margin attributable to Western Gas Partners, LP (“Adjusted gross margin”) as total revenues and other, less cost of product and reimbursements for electricity-related expenses recorded as revenue, plus distributions from equity investments and excluding the noncontrolling interest owner’s proportionate share of revenue and cost of product. WES believes Adjusted gross margin is an important performance measure of the core profitability of its operations, as well as its operating performance as compared to that of other companies in the industry.
Adjusted gross margin increased by $0.4 million and $25.1 million for the three and nine months ended September 30, 2017, respectively, primarily due to (i) an increase in throughput at the DBM complex, (ii) an increase in processed volumes at the DJ Basin complex and (iii) the start-up of operations at the DBM water systems during the second quarter of 2017. These increases were partially offset by decreases from (i) the Property Exchange in March 2017, (ii) lower throughput at the Springfield and Marcellus Interest systems, (iii) the partial equity treatment of the above-market swap agreement at the MGR assets beginning January 1, 2017, and (iv) the sale of the Hugoton system in October 2016.
To facilitate investor and industry analyst comparisons between WES and its peers, WES also discloses Adjusted gross margin per Mcf attributable to Western Gas Partners, LP for natural gas assets and Adjusted gross margin per Bbl for crude, NGL and produced water assets. Adjusted gross margin per Mcf attributable to Western Gas Partners, LP for natural gas assets increased by $0.15 and $0.10 for the three and nine months ended September 30, 2017, respectively, primarily due to the Property Exchange in March 2017 and increased throughput at the DBM complex. Adjusted gross margin per Bbl for crude, NGL and produced water assets decreased by $0.17 for the three months ended September 30, 2017, primarily due to (i) lower throughput at the Springfield oil gathering system, (ii) lower distributions received from the Mont Belvieu JV and (iii) the start-up of operations at the DBM water systems during the second quarter of 2017. Adjusted gross margin per Bbl for crude, NGL and produced water assets decreased by $0.05 for the nine months ended September 30, 2017, primarily due to (i) lower throughput at the Springfield oil gathering system and (ii) the start-up of operations at the DBM water systems during the second quarter of 2017. These decreases were partially offset during the three and nine months ended September 30, 2017, by higher distributions received from TEP.
Adjusted EBITDA attributable to Western Gas Partners, LP. WES defines Adjusted EBITDA attributable to Western Gas Partners, LP (“Adjusted EBITDA”) as net income (loss) attributable to Western Gas Partners, LP, plus distributions from equity investments, non-cash equity-based compensation expense, interest expense, income tax expense, depreciation and amortization, impairments, and other expense (including lower of cost or market inventory adjustments recorded in cost of product), less gain (loss) on divestiture and other, net, income from equity investments, interest income, income tax benefit, and other income. WES believes that the presentation of Adjusted EBITDA provides information useful to investors in assessing its financial condition and results of operations and that Adjusted EBITDA is a widely accepted financial indicator of a company’s ability to incur and service debt, fund capital expenditures and make distributions. Adjusted EBITDA is a supplemental financial measure that WES’s management and external users of WES’s consolidated financial statements, such as industry analysts, investors, commercial banks and rating agencies, use to assess the following, among other measures:
WES’s operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to financing methods, capital structure or historical cost basis;
the ability of WES’s assets to generate cash flow to make distributions; and
the viability of acquisitions and capital expenditure projects and the returns on investment of various investment opportunities.
Adjusted EBITDA decreased by $20.3 million for the three months ended September 30, 2017, primarily due to a $93.6 million increase in cost of product (net of lower of cost or market inventory adjustments), a $13.7 million decrease in business interruption proceeds, a $4.8 million increase in operation and maintenance expenses, and a $1.7 million increase in net income attributable to noncontrolling interest. These amounts were partially offset by a $93.1 million increase in total revenues and other and a $2.0 million increase in distributions from equity investments.
Adjusted EBITDA increased by $27.8 million for the nine months ended September 30, 2017, primarily due to a $322.9 million increase in total revenues and other, a $13.6 million increase in business interruption proceeds and a $4.3 million increase in distributions from equity investments. These amounts were partially offset by a $304.8 million increase in cost of product (net of lower of cost or market inventory adjustments), a $3.3 million increase in operation and maintenance expenses, a $2.4 million increase in general and administrative expenses excluding non-cash equity-based compensation expense, and a $2.3 million increase in property and other tax expense.
Distributable cash flow. WES defines “Distributable cash flow” as Adjusted EBITDA, plus interest income and the net settlement amounts from the sale and/or purchase of natural gas, condensate and NGLs under WES’s commodity price swap agreements to the extent such amounts are not recognized as Adjusted EBITDA, less net cash paid (or to be paid) for interest expense (including amortization of deferred debt issuance costs originally paid in cash, offset by non-cash capitalized interest), maintenance capital expenditures, Series A Preferred unit distributions and income taxes. WES compares Distributable cash flow to the cash distributions WES expects to pay its unitholders. Using this measure, WES’s management can quickly compute the Coverage ratio of distributable cash flow to planned cash distributions. WES believes Distributable cash flow is useful to investors because this measurement is used by many companies, analysts and others in the industry as a performance measurement tool to evaluate WES’s operating and financial performance and compare it with the performance of other publicly traded partnerships.
While Distributable cash flow is a measure WES uses to assess its ability to make distributions to its unitholders, it should not be viewed as indicative of the actual amount of cash that WES has available for distributions or that it plans to distribute for a given period. Furthermore, to the extent Distributable cash flow includes realized amounts recorded as capital contributions from Anadarko attributable to activity under WES’s commodity price swap agreements, it is not a reflection of WES’s ability to generate cash from operations.
Distributable cash flow decreased by $5.5 million for the three months ended September 30, 2017, primarily due to a $20.3 million decrease in Adjusted EBITDA and a $4.4 million increase in net cash paid for interest expense. These amounts were partially offset by a $14.9 million decrease in WES Series A Preferred unit distributions and a $4.7 million decrease in cash paid for maintenance capital expenditures.
Distributable cash flow increased by $67.0 million for the nine months ended September 30, 2017, primarily due to a $27.8 million increase in Adjusted EBITDA, a $23.4 million decrease in WES Series A Preferred unit distributions, a $22.2 million decrease in cash paid for maintenance capital expenditures and an $11.9 million increase in the above-market component of the swap agreements with Anadarko. These amounts were partially offset by an $18.3 million increase in net cash paid for interest expense.
Reconciliation of non-GAAP measures.Adjusted gross margin, Adjusted EBITDA and Distributable cash flow are not defined in GAAP. The GAAP measure used by WES that is most directly comparable to Adjusted gross margin is operating income (loss), while net income (loss) attributable to Western Gas Partners, LP and net cash provided by operating activities are the GAAP measures used by WES that are most directly comparable to Adjusted EBITDA. The GAAP measure used by WES that is most directly comparable to Distributable cash flow is net income (loss) attributable to Western Gas Partners, LP. WES’s non-GAAP financial measures of Adjusted gross margin, Adjusted EBITDA and Distributable cash flow should not be considered as alternatives to the GAAP measures of operating income (loss), net income (loss) attributable to Western Gas Partners, LP, net cash provided by operating activities or any other measure of financial performance presented in accordance with GAAP. Adjusted gross margin, Adjusted EBITDA and Distributable cash flownext four quarters. We have important limitations as analytical tools because they exclude some, but not all, items that affect operating income (loss), net income (loss) attributable to Western Gas Partners, LP and net cash provided by operating activities. Adjusted gross margin, Adjusted EBITDA and Distributable cash flow should not be considered in isolation or as a substitute for analysis of WES’s results as reported under GAAP. WES’s definitions of Adjusted gross margin, Adjusted EBITDA and Distributable cash flow may not be comparable to similarly titled measures of other companies in WES’s industry, thereby diminishing their utility.
WES’s management compensates for the limitations of Adjusted gross margin, Adjusted EBITDA and Distributable cash flow as analytical tools by reviewing the comparable GAAP measures, understanding the differences between Adjusted gross margin, Adjusted EBITDA and Distributable cash flow compared to (as applicable) operating income (loss), net income (loss) attributable to Western Gas Partners, LP and net cash provided by operating activities, and incorporating this knowledge into its decision-making processes. WES believes that investors benefit from having access to the same financial measures that its management uses in evaluating its operating results.
The following tables present (a) a reconciliation of the GAAP financial measure of operating income (loss) to the non-GAAP financial measure of Adjusted gross margin, (b) a reconciliation of the GAAP financial measures of net income (loss) attributable to Western Gas Partners, LP and net cash provided by operating activities to the non-GAAP financial measure of Adjusted EBITDA and (c) a reconciliation of the GAAP financial measure of net income (loss) attributable to Western Gas Partners, LP to the non-GAAP financial measure of Distributable cash flow:
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| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands | | 2017 | | 2016 | | 2017 | | 2016 |
| Reconciliation of Operating income (loss) to Adjusted gross margin attributable to Western Gas Partners, LP | | | | | | | | |
| Operating income (loss) | | $ | 179,456 |
| | $ | 197,288 |
| | $ | 525,456 |
| | $ | 527,053 |
|
| Add: | | | | | | | | |
| Distributions from equity investments | | 29,145 |
| | 27,133 |
| | 80,568 |
| | 76,263 |
|
| Operation and maintenance | | 79,536 |
| | 74,755 |
| | 229,444 |
| | 226,141 |
|
| General and administrative | | 12,158 |
| | 11,382 |
| | 35,402 |
| | 33,542 |
|
| Property and other taxes | | 11,215 |
| | 10,670 |
| | 35,433 |
| | 33,098 |
|
| Depreciation and amortization | | 72,539 |
| | 67,246 |
| | 216,272 |
| | 199,646 |
|
| Impairments | | 2,159 |
| | 2,392 |
| | 170,079 |
| | 11,313 |
|
| Less: | | | | | | | | |
| Gain (loss) on divestiture and other, net | | 72 |
| | (6,230 | ) | | 135,017 |
| | (8,769 | ) |
| Proceeds from business interruption insurance claims | | — |
| | 13,667 |
| | 29,882 |
| | 16,270 |
|
| Equity income, net – affiliates | | 21,519 |
| | 20,294 |
| | 62,708 |
| | 56,801 |
|
| Reimbursed electricity-related charges recorded as revenues | | 14,323 |
| | 15,170 |
| | 42,338 |
| | 45,707 |
|
| Adjusted gross margin attributable to noncontrolling interest | | 5,878 |
| | 3,984 |
| | 13,189 |
| | 12,588 |
|
| Adjusted gross margin attributable to Western Gas Partners, LP | | $ | 344,416 |
| | $ | 343,981 |
| | $ | 1,009,520 |
| | $ | 984,459 |
|
| Adjusted gross margin attributable to Western Gas Partners, LP for natural gas assets | | $ | 305,337 |
| | $ | 306,393 |
| | $ | 904,620 |
| | $ | 877,583 |
|
| Adjusted gross margin for crude, NGL and produced water assets | | 39,079 |
| | 37,588 |
| | 104,900 |
| | 106,876 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands | | 2017 | | 2016 | | 2017 | | 2016 |
| Reconciliation of Net income (loss) attributable to Western Gas Partners, LP to Adjusted EBITDA attributable to Western Gas Partners, LP | | | | | | | | |
| Net income (loss) attributable to Western Gas Partners, LP | | $ | 143,506 |
| | $ | 167,746 |
| | $ | 418,846 |
| | $ | 448,327 |
|
| Add: | | | | | | | | |
| Distributions from equity investments | | 29,145 |
| | 27,133 |
| | 80,568 |
| | 76,263 |
|
| Non-cash equity-based compensation expense | | 1,258 |
| | 1,469 |
| | 3,479 |
| | 4,018 |
|
| Interest expense | | 35,544 |
| | 30,768 |
| | 106,794 |
| | 75,687 |
|
| Income tax expense | | 510 |
| | 472 |
| | 4,905 |
| | 7,431 |
|
Depreciation and amortization (1) | | 71,812 |
| | 66,589 |
| | 214,213 |
| | 197,678 |
|
| Impairments | | 2,159 |
| | 2,392 |
| | 170,079 |
| | 11,313 |
|
Other expense (1) | | — |
| | 40 |
| | 140 |
| | 96 |
|
| Less: | | | | | | | | |
| Gain (loss) on divestiture and other, net | | 72 |
| | (6,230 | ) | | 135,017 |
| | (8,769 | ) |
| Equity income, net – affiliates | | 21,519 |
| | 20,294 |
| | 62,708 |
| | 56,801 |
|
| Interest income – affiliates | | 4,225 |
| | 4,225 |
| | 12,675 |
| | 12,675 |
|
Other income (1) | | 283 |
| | 150 |
| | 960 |
| | 272 |
|
| Adjusted EBITDA attributable to Western Gas Partners, LP | | $ | 257,835 |
| | $ | 278,170 |
| | $ | 787,664 |
| | $ | 759,834 |
|
| Reconciliation of Net cash provided by operating activities to Adjusted EBITDA attributable to Western Gas Partners, LP | | | | | | | | |
| Net cash provided by operating activities | | $ | 211,947 |
| | $ | 263,872 |
| | $ | 645,099 |
| | $ | 657,738 |
|
| Interest (income) expense, net | | 31,319 |
| | 26,543 |
| | 94,119 |
| | 63,012 |
|
| Uncontributed cash-based compensation awards | | 78 |
| | 290 |
| | (94 | ) | | 448 |
|
| Accretion and amortization of long-term obligations, net | | (1,055 | ) | | 121 |
| | (3,194 | ) | | 9,176 |
|
| Current income tax (benefit) expense | | 395 |
| | 131 |
| | 1,023 |
| | 5,110 |
|
| Other (income) expense, net | | (286 | ) | | (153 | ) | | (969 | ) | | (224 | ) |
| Distributions from equity investments in excess of cumulative earnings – affiliates | | 7,034 |
| | 5,981 |
| | 16,255 |
| | 16,592 |
|
| Changes in operating working capital of Western Gas Partners, LP: | | | | | | | | |
| Accounts receivable, net | | 56,335 |
| | 7,866 |
| | 46,972 |
| | 41,108 |
|
| Accounts and imbalance payables and accrued liabilities, net | | (45,982 | ) | | (26,330 | ) | | (4,007 | ) | | (24,103 | ) |
| Other | | 3,181 |
| | 3,184 |
| | 3,065 |
| | 1,445 |
|
| Adjusted EBITDA attributable to noncontrolling interest of Western Gas Partners, LP | | (5,131 | ) | | (3,335 | ) | | (10,605 | ) | | (10,468 | ) |
| Adjusted EBITDA attributable to Western Gas Partners, LP | | $ | 257,835 |
| | $ | 278,170 |
| | $ | 787,664 |
| | $ | 759,834 |
|
| Cash flow information of Western Gas Partners, LP | | | | | | | | |
| Net cash provided by operating activities | | | | | | $ | 645,099 |
| | $ | 657,738 |
|
| Net cash used in investing activities | | | | | | (514,797 | ) | | (1,040,692 | ) |
| Net cash provided by (used in) financing activities | | | | | | (335,792 | ) | | 429,368 |
|
| |
(1)
| Includes WES’s 75% share of depreciation and amortization; other expense; and other income attributable to the Chipeta complex. |
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| thousands except Coverage ratio | | 2017 | | 2016 | | 2017 | | 2016 |
| Reconciliation of Net income (loss) attributable to Western Gas Partners, LP to Distributable cash flow and calculation of the Coverage ratio | | | | | | | | |
| Net income (loss) attributable to Western Gas Partners, LP | | $ | 143,506 |
| | $ | 167,746 |
| | $ | 418,846 |
| | $ | 448,327 |
|
| Add: | | | | | | | | |
| Distributions from equity investments | | 29,145 |
| | 27,133 |
| | 80,568 |
| | 76,263 |
|
| Non-cash equity-based compensation expense | | 1,258 |
| | 1,469 |
| | 3,479 |
| | 4,018 |
|
Non-cash settled - interest expense, net (1) | | — |
| | (1,173 | ) | | 71 |
| | (12,097 | ) |
| Income tax (benefit) expense | | 510 |
| | 472 |
| | 4,905 |
| | 7,431 |
|
Depreciation and amortization (2) | | 71,812 |
| | 66,589 |
| | 214,213 |
| | 197,678 |
|
| Impairments | | 2,159 |
| | 2,392 |
| | 170,079 |
| | 11,313 |
|
Above-market component of swap agreements with Anadarko (3) | | 18,049 |
| | 18,417 |
| | 46,719 |
| | 34,782 |
|
Other expense (2) | | — |
| | 40 |
| | 140 |
| | 96 |
|
| Less: | | | | | | | | |
| Gain (loss) on divestiture and other, net | | 72 |
| | (6,230 | ) | | 135,017 |
| | (8,769 | ) |
| Equity income, net – affiliates | | 21,519 |
| | 20,294 |
| | 62,708 |
| | 56,801 |
|
Cash paid for maintenance capital expenditures (2) | | 10,591 |
| | 15,306 |
| | 33,115 |
| | 55,288 |
|
| Capitalized interest | | 2,115 |
| | 1,343 |
| | 3,991 |
| | 4,674 |
|
| Cash paid for (reimbursement of) income taxes | | — |
| | — |
| | 189 |
| | 67 |
|
| Series A Preferred unit distributions | | — |
| | 14,907 |
| | 7,453 |
| | 30,876 |
|
Other income (2) | | 283 |
| | 150 |
| | 960 |
| | 272 |
|
| Distributable cash flow | | $ | 231,859 |
| | $ | 237,315 |
| | $ | 695,587 |
| | $ | 628,602 |
|
Distributions declared (4) | | | | | | | | |
| Limited partners of WES – common units | | $ | 138,105 |
| | | | $ | 397,850 |
| | |
| General partner of WES | | 73,933 |
| | | | 210,432 |
| | |
| Total | | $ | 212,038 |
| | | | $ | 608,282 |
| | |
| Coverage ratio | | 1.09 |
| x | | | 1.14 |
| x | |
| |
(1)
| Includes amounts related to the Deferred purchase price obligation - Anadarko. See Note 2—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
|
| |
(2)
| Includes WES’s 75% share of depreciation and amortization; other expense; cash paid for maintenance capital expenditures; and other income attributable to the Chipeta complex. |
| |
(3)
| See Note 5—Transactions with Affiliates in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
|
| |
(4)
| Reflects WES cash distributions of $0.905 and $2.670 per unit declared for the three and nine months ended September 30, 2017, respectively. |
LIQUIDITY AND CAPITAL RESOURCES
WES’s primary cash requirements are for acquisitions and capital expenditures, debt service, customary operating expenses, quarterly distributions to its limited partners and to WES GP, and distributions to its noncontrolling interest owner. WES’s sources of liquidity as of September 30, 2017, included cash and cash equivalents, cash flows generated from operations, interest income on WES’s $260.0 million note receivable from Anadarko, available borrowing capacity under the WES RCF, and issuances of additional equity or debt securities. WES believes that cash flows generated from these sources will be sufficient to satisfy its short-term working capital requirements and long-term maintenance and expansion capital expenditure requirements. The amount of future distributions to unitholders will depend on its results of operations, financial condition, capital requirements and other factors, including the extension of WES’s commodity price swap agreements, and will be determined by WES GP’s Board of Directors on a quarterly basis. Due to WES’s cash distribution policy, WES expects to rely on external financing sources, including equity and debt issuances, to fund expansion capital expenditures and future acquisitions. However, to limit interest expense, WES may use operating cash flows to fund expansion capital expenditures or acquisitions, which could result in subsequent borrowings under the WES RCF to pay distributions or fund other short-term working capital requirements.
During the second quarter of 2017, WES reached a settlement with insurers related to the insurance claim filed for the incident at the DBM complex and final proceeds were received. Recoveries from the business interruption claim related to the DBM outage were recognized as income when cash proceeds were received from insurers. During the nine months ended September 30, 2017, WES received $52.9 million in cash proceeds from insurers in final settlement of its claims related to the incident at the DBM complex, including $29.9 million for business interruption insurance claims and $23.0 million for property insurance claims (see Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).
WES has made cash distributions to itsour unitholders each quarter since its IPO and has increased its quarterly distribution each quarter since the second quarter of 2009.our initial public offering in 2012. The Board of Directors of WES GP declared a cash distribution to WES unitholders for the thirdfirst quarter of 20172021 of $0.905$0.31500 per unit, or $212.0$133.0 million in aggregate, including incentive distributions, but excluding distributions on WES’s Class C units.the aggregate. The cash distribution is payable on November 13, 2017,May 14, 2021, to WESour unitholders of record at the close of business on April 30, 2021.
In November 2, 2017. In connection with2020, we announced a buyback program of up to $250.0 million of our common units through December 31, 2021. The common units may be purchased from time to time in the closingopen market at prevailing market prices or in privately negotiated transactions. The timing and amount of purchases under the program will be determined based on ongoing assessments of capital needs, our financial performance, the market price of the DBMcommon units, and other factors, including organic growth and acquisition in November 2014, WES issued Class Copportunities and general market conditions. The program does not obligate us to purchase any specific dollar amount or number of units that will receive distributions inand may be suspended or discontinued at any time. During the formquarter ended March 31, 2021, we repurchased 1,115,808 common units on the open market for an aggregate purchase price of additional Class C$16.2 million. We canceled the units untilimmediately upon receipt. As of March 1, 2020, unless earlier converted (see Note 3—Partnership Distributions in31, 2021, we had an authorized amount of $201.2 million remaining under the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q). The Class C unit distribution, if paid in cash, would have been $11.7 million for the third quarter of 2017.Purchase Program.
WES’s managementManagement continuously monitors itsour leverage position and coordinates itsour capital expenditure program,expenditures and quarterly distributions and acquisition strategy with its expected cash flowsinflows and projected debt-repayment schedule. WES’s managementdebt service requirements. We will continue to evaluate funding alternatives, including additional borrowings and the issuance of debt or equity securities, to secure funds as needed or to refinance outstandingmaturing debt balances with longer-term notes. To facilitate a potential debt or equity securities issuance, WES has the ability to sell securities under its shelf registration statements. WES’sissuances. Our ability to generate cash flows is subject to a number of factors, some of which are beyond itsour control. Read Risk Factors under Part II, Item 1A of this Form 10-Q.
Working capital. As of September 30, 2017, WESMarch 31, 2021, we had a $35.0$120.9 million working capital deficit,surplus, which it defineswe define as the amount by which current liabilitiesassets exceed current assets.liabilities. Working capital is an indication of liquidity and potential needneeds for short-termshort-term funding. Working capital requirements are driven by changes in accounts receivable and accounts payable and other factors such as credit extended to, and the timing of collections from, WES’sour customers, and the level and timing of itsour spending for acquisitions, maintenance, and expansion activity. WES’s workingother capital deficit as of September 30, 2017, was primarily due to the costs incurred related to continued construction and expansion at the DBM and DJ Basin complexes and the DBJV system.activities. As of September 30, 2017, WES had $945.4 millionMarch 31, 2021, there was $2.0 billion available for borrowing under the WES RCF. See Note 9—10—Selected Components of Working Capital and Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Capital expenditures. WES’s Our business is capital intensive, requiring significant investment to maintain and improve existing facilities or to develop new midstream infrastructure. WES categorizes capitalCapital expenditures as either of the following:
includes maintenance capital expenditures, which include those expenditures required to maintain the existing operating capacity and service capability of WES’sour assets, such as to replace system components and equipment that have been subject to significant use over time, become obsolete, or reached the end of their useful lives, to remain in compliance with regulatory or legal requirements, or to complete additional well connections to maintain existing system throughput and related cash flows (for fiscal year 2017, WES GP’s Board of Directors has approved Estimated Maintenance Capital Expenditures (as defined in WES’s partnership agreement) of $18.0 million per quarter); or
flows; and expansion capital expenditures, which include expenditures to construct new midstream infrastructure and those expenditures incurred to extend the useful lives of WES’sour assets, reduce costs, increase revenues, or increase system throughput or capacity from current levels, including well connections that increase existing system throughput.
Capital expenditures in the consolidated statements of cash flows reflect capital expenditures on a cash basis, when payments are made. Capital incurred is presented on an accrual basis. WES’sAcquisitions and capital expenditures as presented in the consolidated statements of cash flows and capital incurred were as follows:
| | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, |
| | |
| thousands | | 2021 | | 2020 | | |
Acquisitions (1) | | $ | 2,000 | | | $ | — | | | |
Capital expenditures (2) | | 59,783 | | | 172,816 | | | |
Capital incurred (2) | | 59,565 | | | 151,714 | | | |
|
| | | | | | | | |
| | | Nine Months Ended
September 30, |
| thousands | | 2017 | | 2016 |
| Acquisitions | | $ | 159,208 |
| | $ | 716,465 |
|
| | | | | |
| Expansion capital expenditures | | $ | 384,416 |
| | $ | 312,505 |
|
| Maintenance capital expenditures | | 33,391 |
| | 55,293 |
|
Total capital expenditures (1) (2) | | $ | 417,807 |
| | $ | 367,798 |
|
| | | | | |
Capital incurred (2) | | $ | 504,286 |
| | $ | 355,674 |
|
| |
(1)
| Capital expenditures for the nine months ended September 30, 2017 and 2016, are presented net of $1.4 million and $4.9 million, respectively, of contributions in aid of construction costs from affiliates. |
| |
(2)
| For the nine months ended September 30, 2017 and 2016, included $4.0 million and $4.7 million, respectively, of capitalized interest. |
Acquisitions during 2017 included the Additional DBJV System Interest and(1)See Note 6—Related-Party Transactions for information regarding equipment purchases from Anadarko. Acquisitions during 2016related parties.
(2)For the three months ended March 31, 2021 and 2020, included Springfield$0.9 million and equipment purchases from Anadarko. See Note 2—Acquisitions and Divestitures and Note 5—Transactions with Affiliates in the Notes to Consolidated Financial Statements under Part I, Item 1$4.8 million, respectively, of this Form 10-Q.capitalized interest.
Capital expenditures excluding acquisitions, increaseddecreased by $50.0$113.0 million for the ninethree months ended September 30, 2017. Expansion capital expenditures increased by $71.9 million (including a $0.7 million decrease in capitalized interest) for the nine months ended September 30, 2017,March 31, 2021, primarily due to an increasedecreases of (i) $70.4$56.2 million at the DBJV systemWest Texas complex primarily attributable to decreases in pipeline and $23.7well connection projects, (ii) $21.4 million at the DJ Basin complex both dueprimarily related to pipethe completion of Latham Train II that commenced operations in the first quarter of 2020 and decreases in pipeline, well connection, and compression projects, and (ii) an increase of $50.9 million due to the construction of the DBM water system. These increases were partially offset by decreases of $60.3(iii) $18.2 million at the DBM complexwater systems primarily due to reduced construction of additional water-disposal facilities and $9.9gathering projects, and (iv) $16.5 million at the Haley system. Maintenance capital expenditures decreased by $21.9 million forDBM oil system primarily related to the nine months ended September 30, 2017, primarily at the DBM complex due to repairs made in 2016 as a resultcompletion of the DBM outageLoving ROTF Trains III and atIV that commenced operations during the Non-Operated Marcellus Interest systems due to the Property Exchangefirst and third quarters of 2020, respectively, and decreases in March 2017.pipeline and well connection projects.
WES has updated its estimated total capital expenditures for the year ending December 31, 2017, (including its 75% share
WES’s historicalHistorical cash flow. The following table and discussion present a summary of WES’sour net cash flows provided by (used in) operating, activities, investing, activities and financing activities:
| | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| | |
| thousands | | 2021 | | 2020 | | |
| Net cash provided by (used in): | | | | | | |
| Operating activities | | $ | 261,550 | | | $ | 393,311 | | | |
| Investing activities | | (46,472) | | | (178,724) | | | |
| Financing activities | | (603,624) | | | (162,267) | | | |
| Net increase (decrease) in cash and cash equivalents | | $ | (388,546) | | | $ | 52,320 | | | |
|
| | | | | | | | |
| | | Nine Months Ended
September 30, |
| thousands | | 2017 | | 2016 |
| Net cash provided by (used in): | | | | |
| Operating activities | | $ | 645,099 |
| | $ | 657,738 |
|
| Investing activities | | (514,797 | ) | | (1,040,692 | ) |
| Financing activities | | (335,792 | ) | | 429,368 |
|
| Net increase (decrease) in cash and cash equivalents | | $ | (205,490 | ) | | $ | 46,414 |
|
Operating Activitiesactivities. Net cash provided by operating activities decreased for the ninethree months ended September 30, 2017, decreasedMarch 31, 2021, primarily due to (i) lower cash operating income, (ii) the impact of changes in working capital items. Also,assets and liabilities, (iii) lower distributions from equity investments, (iv) higher interest expense, and (v) lower interest income. Refer to Operating Results within this Item 2 for a discussion of WES’sour results of operations as compared to the prior period, refer to Operating Results within this Item 2.period.
Investing Activitiesactivities. Net cash used in investing activities for the ninethree months ended September 30, 2017,March 31, 2021, included the following:
•$417.859.8 million of capital expenditures, net of $1.4 million of contributions in aid of construction costs from affiliates, primarily related to construction, expansion, and expansionasset-integrity projects at the West Texas complex, DBM andwater systems, DJ Basin complexescomplex, and the DBJVDBM oil system;
•$155.32.0 million of cash consideration paid as part of the Property Exchange;acquisitions from related parties;
•$3.912.1 million of cash paid for equipment purchases from Anadarko;
$23.3 million of net proceeds from the sale of the Helper and Clawson systems in Utah;
$23.0 million of proceeds from property insurance claims attributable to the DBM outage; and
$16.3 million of distributions received from equity investments in excess of cumulative earnings.earnings; and
•$3.3 million of decreases to materials and supplies inventory.
Net cash used in investing activities for the ninethree months ended September 30, 2016,March 31, 2020, included the following:
•$712.5 million of cash paid for the acquisition of Springfield;
$367.8172.8 million of capital expenditures, net of $4.9 million of contributions in aid of construction costs from affiliates, primarily related to plant construction and expansion at the DBMWest Texas and DJ Basin complexes, DBM water systems, and the DBJVDBM oil system;
•$4.011.0 million of cashcapital contributions primarily paid to Cactus II and FRP for equipment purchases from Anadarko;construction activities; and
•$16.65.1 million of distributions received from equity investments in excess of cumulative earnings; andearnings.
$18.4 million of proceeds from property insurance claims attributable to the DBM outage.
Financing Activitiesactivities. Net cash used in financing activities for the ninethree months ended September 30, 2017,March 31, 2021, included the following:
•$589.3531.1 million to redeem the total principal amount outstanding of WES Operating’s 5.375% Senior Notes due 2021 and repay borrowings under the RCF;
•$131.3 million of distributions paid to WES unitholders;
•$37.322.0 million of cashdecreases in outstanding checks due mostly to ad valorem tax payments made at the end of 2020;
•$16.2 million of unit repurchases;
•$2.6 million of distributions paid to Anadarko for the settlementnoncontrolling interest owners of WES’s Deferred purchase price obligation - Anadarko;WES Operating;
•$9.01.8 million of finance lease payments;
•$0.3 million of distributions paid to the noncontrolling interest owner of Chipeta;
•$250.0100.0 million of borrowings under the WES RCF, which were used for WES’s general partnership purposes; and
•$46.71.6 million of capital contributioncontributions from Anadarko related to the above-market component of swap agreements.parties.
Net cash provided by financing activities for the ninethree months ended September 30, 2016,March 31, 2020, included the following:
•$880.0 million3.0 billion of repayments of outstanding borrowings under the WESTerm loan facility;
•$380.0 million of repayments of outstanding borrowings under the RCF;
•$490.3281.8 million of distributions paid to WES unitholders;
•$29.390.1 million to purchase and retire portions of net distributions paid to Anadarko representing pre-acquisition intercompany transactions attributable to Springfield;WES Operating’s 5.375% Senior Notes due 2021 and 4.000% Senior Notes due 2022 via open-market repurchases;
•$11.35.8 million of distributions paid to the noncontrolling interest ownerowners of Chipeta;WES Operating;
•$600.03.5 billion of net proceeds from the Fixed-Rate Senior Notes and Floating-Rate Senior Notes issued in January 2020, which were used to repay the $3.0 billion outstanding borrowings under the Term loan facility, repay outstanding amounts under the RCF, and for general partnership purposes;
•$125.0 million of borrowings under the WES RCF, which were used to fund a portion of the Springfield acquisition and for WES’s general partnership purposes, including funding capital expenditures;purposes; and
•$494.620.0 million of net proceeds from the WES 2026 Notes offering in July 2016, after underwriting and original issue discounts and offering costs, all of which was used to repay a portion of the outstanding borrowings under the WES RCF;
$440.0 million of net proceeds from the issuance of 14,030,611 WES Series A Preferred units in March 2016, all of which was used to fund a portion of the acquisition of Springfield;
$246.9 million of net proceeds from the issuance of 7,892,220 WES Series A Preferred units in April 2016, all of which was used to pay down amounts borrowed under the WES RCF in connection with the acquisition of Springfield;
$25.0 million of net proceeds from the sale of WES common units to WGP, all of which was used to fund a portion of the acquisition of Springfield; and
$34.8 million of capitalone-time cash contribution from Anadarko relatedOccidental received in January 2020, pursuant to the above-market componentServices Agreement, for anticipated transition costs required to establish stand-alone human resources and information technology functions.
Debt and credit facility. At September 30, 2017, WES’s debt consisted of $500.0 million aggregate principal amount of the 2021 Notes, $670.0 million aggregate principal amount of the 2022 Notes, $350.0 million aggregate principal amount of the 2018 Notes, $600.0 million aggregate principal amount of the 2044 Notes, $500.0 million aggregate principal amount of the 2025 Notes, $500.0 million aggregate principal amount of the 2026 Notes and $250.0 million of borrowings outstanding under the WES RCF.facilities. As of September 30, 2017,March 31, 2021, the carrying value of WES’s outstanding debt was $3.3$7.4 billion. See Note 9—11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
WES Operating Senior Notes. In mid-January 2020, WES Operating issued the Fixed-Rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050 and the Floating-Rate Senior Notes due 2023. Including the effects of the issuance prices, underwriting discounts, and interest-rate adjustments, the effective interest rates of the Senior Notes due 2025, 2030, and 2050, were 4.542%, 5.424%, and 6.629%, respectively, at March 31, 2021. The 2018 Notes, which are due in August 2018, were classified as long-term debtinterest rate on the consolidated balance sheetFloating-Rate Senior Notes was 2.33% at September 30, 2017, asMarch 31, 2021. The effective interest rate of these notes is subject to adjustment from time to time due to a change in credit rating.
During the first quarter of 2021, WES hasOperating redeemed the ability and intenttotal principal amount outstanding of the 5.375% Senior Notes due 2021 at par value, pursuant to refinance these obligations using long-term debt.the optional redemption terms in WES Operating’s indenture. At September 30, 2017,March 31, 2021, WES Operating was in compliance with all covenants under the indenturesrelevant governing itsindentures.
We may, from time to time, seek to retire, rearrange, or amend some or all of our outstanding notes.debt or debt agreements through cash purchases, exchanges, open-market repurchases, privately negotiated transactions, tender offers, or otherwise. Such transactions, if any, will depend on prevailing market conditions, our liquidity position and requirements, contractual restrictions, and other factors. The amounts involved may be material.
Revolving credit facility.WES RCF. Operating’s $2.0 billion senior unsecured revolving credit facility is expandable to a maximum of $2.5 billion, and matures in February 2025 for each extending lender. The non-extending lender’s commitments mature in February 2024 and represent $100.0 million out of $2.0 billion of total commitments from all lenders.
As of September 30, 2017, WES had $250.0March 31, 2021, there were no outstanding borrowings and $5.1 million of outstanding WES RCF borrowings and $4.6 million in outstanding letters of credit, resulting in $945.4 million$2.0 billion of available for borrowing capacity under the WES RCF, which matures in February 2020.RCF. At September 30, 2017,March 31, 2021, the interest rate on the WESany outstanding RCF borrowings was 2.54%,1.61% and the facility-fee rate was 0.20% and0.25%. At March 31, 2021, WES Operating was in compliance with all covenants under the RCF.
The RCF contains certain covenants that limit, among other things, WES RCF.
Deferred purchase price obligation - Anadarko.PriorOperating’s ability, and that of certain of its subsidiaries, to WES’s agreement with Anadarkoincur additional indebtedness, grant certain liens, merge, consolidate, or allow any material change in the character of its business, enter into certain related-party transactions and use proceeds other than for partnership purposes. The RCF also contains various customary covenants, certain events of default, and a maximum consolidated leverage ratio as of the end of each fiscal quarter (which is defined as the ratio of consolidated indebtedness as of the last day of a fiscal quarter to settle its deferred purchase price obligation early, the consideration that would have been paid by WESConsolidated EBITDA for the March 2015 acquisitionmost-recent four-consecutive fiscal quarters ending on such day) of DBJV from Anadarko, consisted5.0 to 1.0, or a consolidated leverage ratio of 5.5 to 1.0 with respect to quarters ending in the 270-day period immediately following certain acquisitions. As a cash paymentresult of certain covenants contained in the RCF, our capacity to Anadarko due onborrow under the RCF may be limited.
Finance lease liabilities. During the first quarter of 2020, WES entered into finance leases with third parties for equipment and vehicles extending through 2029. As of March 31, 2020. The cash payment would2021, we have been equal to (a) eight multiplied by the averagefuture finance-lease payments of WES’s share in the Net Earnings (see definition below) of DBJV$6.3 million for the calendarremainder of 2021 and a total of $28.2 million in years 2018 and 2019, less (b) WES’s sharethereafter.
Securities. WES may issue an indeterminate amount of common units and various debt securities under its effective shelf registration statement on file with the SEC. WES may also issue common units under its $500.0 million COP, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of WES’s offerings.
WES has an effective registration statement with the SEC relating to the public resale of the WES common units issued upon conversion of the WES Series A Preferred units. See Note 4—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for a discussion of the WES Series A Preferred units.
Credit risk. As stated above, our assets consist solely of ownership interests in WES. Accordingly, we are dependent upon WES’s ability to pay cash distributions to us. WES bears We bear credit risk represented by itsthrough exposure to non-paymentnon-payment or non-performancenon-performance by itsour counterparties, including Anadarko,Occidental, financial institutions, customers, and other parties. Generally, non-paymentnon-payment or non-performancenon-performance results from a customer’s inability to satisfy payables to WESus for services rendered, minimum-volume-commitment deficiency payments owed, or volumes owed pursuant to gas-imbalance agreements. WES examinesWe examine and monitorsmonitor the creditworthiness of third-party customers and may establish credit limits for third-party customers.
WES is dependent upon a single producer, Anadarko, for a A substantial portion of its volumes (excluding equity investment throughput), and WES does not maintain aour throughput is sourced from producers, including Occidental, that recently received credit limit with respect to Anadarko. Consequently, WES is-rating downgrades. We are subject to the risk of non-paymentnon-payment or late payment by Anadarkoproducers for gathering, processing, transportation, and transportation feesdisposal fees. Additionally, we continue to evaluate counterparty credit risk and, for proceeds from the sale of residue, NGLs and condensatein certain circumstances, are exercising our rights to Anadarko.request adequate assurance.
WES expects itsWe expect our exposure to the concentrated risk of non-paymentnon-payment or non-performancenon-performance to continue for as long as it remains substantially dependentour commercial relationships with Occidental generate a significant portion of our revenues. While Occidental is our contracting counterparty, gathering and processing arrangements with affiliates of Occidental on Anadarko for its revenues. Additionally, WES is exposedmost of our systems include not just Occidental-produced volumes, but also, in some instances, the volumes of other working-interest owners of Occidental who rely on our facilities and infrastructure to credit risk on the note receivable from Anadarko. WES isbring their volumes to market. We also are party to agreements with AnadarkoOccidental under which AnadarkoOccidental is required to indemnify WESus for certain environmental claims, losses arising from rights-of-wayrights-of-way claims, failures to obtain required consents or governmental permits, and income taxes with respect to the assets previously acquired from Anadarko. Finally, WES has entered into various commodity price swap agreements with Anadarko in order to reduce its exposure to a majority of the commodity price risk inherent in its percent-of-proceeds and keep-whole contracts, and is subject to performance risk thereunder. See Note 5—6—Related-Party Transactions with Affiliates in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
WES’sOur ability to make cash distributions to itsour unitholders may be adversely impacted if AnadarkoOccidental becomes unable to perform under the terms of its gathering, processing, transportation, and transportation agreements, natural gasdisposal agreements; the contribution agreements; or the Services Agreement.
ITEMS AFFECTING THE COMPARABILITY OF FINANCIAL RESULTS WITH WES OPERATING
Our consolidated financial statements include the consolidated financial results of WES Operating. Our results of operations do not differ materially from the results of operations and NGL purchase agreements, Anadarko’s note payablecash flows of WES Operating, which are reconciled below.
Reconciliation of net income (loss). The differences between net income (loss) attributable to WES and WES Operating are reconciled as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | | | | | |
| | | | | | | | |
| thousands | | March 31, 2021 | | December 31, 2020 | | | | | | | | March 31, 2020 |
| Net income (loss) attributable to WES | | $ | 185,791 | | | $ | 263,891 | | | | | | | | | $ | (256,527) | |
Limited partner interests in WES Operating not held by WES (1) | | 3,811 | | | 5,404 | | | | | | | | | (5,208) | |
General and administrative expenses (2) | | 886 | | | 869 | | | | | | | | | 1,407 | |
| Other income (expense), net | | (3) | | | (11) | | | | | | | | | (2) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Net income (loss) attributable to WES Operating | | $ | 190,485 | | | $ | 270,153 | | | | | | | | | $ | (260,330) | |
(1)Represents the portion of net income (loss) allocated to the limited partner interests in WES omnibus agreement, the servicesOperating not held by WES. A subsidiary of Occidental held a 2.0% limited partner interest in WES Operating for all periods presented.
(2)Represents general and secondment agreement, contribution agreements or the commodity price swap agreements.administrative expenses incurred by WES separate from, and in addition to, those incurred by WES Operating.
CONTRACTUAL OBLIGATIONSReconciliation of net cash provided by (used in) operating and financing activities. The differences between net cash provided by (used in) operating and financing activities for WES and WES Operating are reconciled as follows:
| | | | | | | | | | | | | | | | |
| | |
| | Three Months Ended
March 31, | | |
| thousands | | 2021 | | 2020 | | |
| WES net cash provided by operating activities | | $ | 261,550 | | | $ | 393,311 | | | |
| | | | | | |
General and administrative expenses (1) | | 886 | | | 1,407 | | | |
Non-cash equity-based compensation expense | | 7,302 | | | (1,129) | | | |
| Changes in working capital | | (8,067) | | | 763 | | | |
| Other income (expense), net | | (3) | | | (2) | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| WES Operating net cash provided by operating activities | | $ | 261,668 | | | $ | 394,350 | | | |
| | | | | | |
| WES net cash provided by (used in) financing activities | | $ | (603,624) | | | $ | (162,267) | | | |
Distributions to WES unitholders (2) | | 131,265 | | | 281,786 | | | |
Distributions to WES from WES Operating (3) | | (124,919) | | | (284,507) | | | |
| Increase (decrease) in outstanding checks | | (192) | | | — | | | |
| | | | | | |
| Unit repurchases | | 16,241 | | | — | | | |
| | | | | | |
| | | | | | |
| WES Operating net cash provided by (used in) financing activities | | $ | (581,229) | | | $ | (164,988) | | | |
(1)Represents general and administrative expenses incurred by WES separate from, and in addition to, those incurred by WES Operating.
(2)Represents distributions to WES common unitholders paid under WES’s contractual obligations include, among other things, a revolving credit facility, other third-party long-term debt, capital obligations related to its expansion projectspartnership agreement. See Note 4—Partnership Distributions and various operating leases. Refer toNote 9—Debt5—Equity and Interest Expense and Note 10—Commitments and ContingenciesPartners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for an update10-Q.
(3)Difference attributable to WES’s contractual obligations aselimination in consolidation of September 30, 2017, including, but not limited to, increases in committed capital.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements. WES does not have any off-balance sheet arrangements other than operating leasesOperating’s distributions on partnership interests owned by WES. See Note 4—Partnership Distributions and standby letters of credit. The information pertaining to operating leasesNote 5—Equity and WES’s standby letters of credit required for this item is provided under Note 10—Commitments and Contingencies and Note 9—Debt and Interest Expense, respectively, includedPartners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.10-Q.
RECENT ACCOUNTING DEVELOPMENTS
See Noncontrolling interest. WES Operating’s noncontrolling interest consists of the 25% third-party interest in Chipeta (see Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statementsunder Part I, Item 1 of this Form 10-Q.10-Q).
WES Operating distributions. WES Operating distributes all of its available cash (beyond proper reserves as defined in its partnership agreement) to WES Operating unitholders of record on the applicable record date within 45 days following each quarter’s end. See Note 4—Partnership Distributions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Commodity priceCommodity-price risk. Certain of WES’sour processing services are provided under percent-of-proceedspercent-of-proceeds and keep-wholekeep-whole agreements. Under percent-of-proceeds agreements, in which Anadarko is typically responsible for the marketing of the natural gas, condensate and NGLs. Under percent-of-proceeds agreements, WES receiveswe receive a specified percentage of the net proceeds from the sale of residue and/or NGLs. Under keep-wholekeep-whole agreements, WES keepswe keep 100% of the NGLs produced, and the processed natural gas, or value of the natural gas, is returned to the producer, and sincebecause some of the gas is used and removed during processing, WES compensateswe compensate the producer for the amount of gas used and removed in processing by supplying additional gas or by paying an agreed-uponagreed-upon value for the gas used.
To mitigate WES’s exposure to a majorityFor the three months ended March 31, 2021, 93% of the commodity price risk inherent in its percent-of-proceedsour wellhead natural-gas volume (excluding equity investments) and keep-whole contracts, WES currently has in place commodity price swap agreements with Anadarko covering activity at the DJ Basin complex100% of our crude-oil and the MGR assets. On December 1, 2016, WES renewed these commodity price swap agreements through December 31, 2017, with an effective date of January 1, 2017. See Note 5—Transactions with Affiliates in the Notes to Consolidated Financial Statementsproduced-water throughput (excluding equity investments) were serviced under Part I, Item 1 of this Form 10-Q.
We consider WES’s exposure to commodity price risk associated with the above-described arrangements to be minimal given the existence of the commodity price swap agreements with Anadarko and the relatively small amount of WES’s operating income (loss) that is impacted by changes in market prices. Accordingly, WES does not expect that afee-based contracts. A 10% increase or decrease in commodity prices would not have a material impact on WES’sour operating income (loss), financial condition, or cash flows for the next twelve months, excluding the effect of imbalances the below-described below.imbalances.
We bear a limited degree of commodity-price risk through our investment in WES with respect to settlement of WES’s natural-gas imbalances that arise from differences in gas volumes received into WES’sour systems and gas volumes delivered by WESus to customers, as well asand for instances where WES’s actual liquids recovery or fuel usage varies from the contractually stipulated amounts. Natural-gas volumes owed to or by WESus that are subject to monthly cash settlement are valued according to the terms of the contract as of the balance sheet dates and generally reflect market-index prices. Other natural-gas volumes owed to or by WESus are valued at WES’s weighted-averageour weighted-average cost of natural gas as of the balance sheet dates and are settled in-kind. WES’sin-kind. Our exposure to the impact of changes in commodity prices on outstanding imbalances depends on the settlement timing of settlement of the imbalances. See Outlook under Part I, Item 2 and Risk Factors under Part II, Item 1A of this Form 10-Q.
Interest rateInterest-rate risk. In June 2017, the The Federal Open Market Committee raised thedecreased its target range for the federal funds rate from 3/4twice in 2020 and as of March 31, 2021, there have been no changes to one percent to one to 1 1/4 percent. This increase, and anythe target range in 2021. Any future increases in the federal funds rate likely will ultimately result in an increase in short-term financing costs. As of September 30, 2017, WGPMarch 31, 2021, we had $28.0 million of borrowings under the WGP RCF and WES had $250.0 million of(i) no outstanding borrowings under the WES RCF. The WGP RCF and WES RCF eachthat bear interest at a rate based on LIBOR or an alternative base rate at WGP’s or WES’sWES Operating’s option, respectively. Aand (ii) the Floating-Rate Senior Notes that bear interest at a rate based on LIBOR. While a 10% change in LIBORthe applicable benchmark interest rate would have resulted in a nominal change in net income (loss) andnot materially impact interest expense on our outstanding borrowings, it would impact the fair value of any borrowings the senior notes at March 31, 2021. See Outlook under the WES RCFPart I, Item 2 and WGP RCF at September 30, 2017.Risk Factors under Part II, Item 1A of this Form 10-Q.
Additional variable-ratevariable-rate debt may be incurredissued in the future, either under the WES RCF, WGP RCF or other financing sources, including commercial bank borrowings or debt issuances.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief Financial Officer of WGP’sWES’s general partner and WES Operating GP (for purposes of this Item 4, “Management”) performed an evaluation of WGP’sWES’s and WES Operating’s disclosure controls and procedures as defined in Rules 13a-15(e)13a-15(e) and 15d-15(e)15d-15(e) of the Exchange Act. OurWES’s and WES Operating’s disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we fileare filed or submitsubmitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed by us in the reports that we fileare filed or submitsubmitted under the Exchange Act is accumulated and communicated to our management, including ourthe principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, Management concluded that WGP’sWES’s and WES Operating’s disclosure controls and procedures were effective as of September 30, 2017.March 31, 2021.
Changes in Internal Control Over Financial Reporting. There has beenwere no changechanges in ourWES’s or WES Operating’s internal control over financial reporting during the quarter ended September 30, 2017,March 31, 2021, that hashave materially affected, or isare reasonably likely to materially affect, WGP’sWES’s or WES Operating’s internal control over financial reporting.
PART II.OTHER INFORMATION
Item 1. Legal Proceedings
Kerr-McGee Gathering LLC (“KMGG”), oneOn July 1, 2020, the U.S. Department of WES’s wholly owned subsidiaries, is currently in negotiations withJustice, on behalf of the U.S. Environmental Protection Agency (the “EPA”), and the DepartmentState of Justice with respect toColorado commenced an enforcement action in the United States District Court for the District of Colorado against Kerr-McGee Gathering LLC (“KMG”), a wholly owned subsidiary of WES, for alleged non-compliancenon-compliance with the leak detection and repair requirements of the federal Clean Air Act (“LDAR requirements”) at its Fort Lupton facility in the DJ Basin complex.
Also, WGR Operating, LP, another wholly owned subsidiary of WES, is currently KMG previously had been in negotiations with the EPA with respectand the State of Colorado to resolve the alleged non-compliance withnon-compliance at the leak detectionFort Lupton facility. Per the complaint, plaintiffs pray for injunctive relief, remedial action, and repair requirements of the federal Clean Air Act at its Granger, Wyoming facility. Although WES’s managementcivil penalties. Management cannot predictreasonably estimate the outcome of settlement discussionsthis action at this time.
On August 12, 2019, Sanchez Energy Corporation and certain of its affiliated companies (collectively, “Sanchez”) filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in these matters, WES’s management believesthe United States Bankruptcy Court for the Southern District of Texas. While Sanchez holds a working interest in the acreage dedicated to our Springfield system, Sanchez also was the upstream operator for substantially all of the natural gas, crude oil, and NGLs that it is reasonably likelythe Springfield system gathers and that WES processes in the Eagle Ford Shale Play. On April 29, 2020, we received notice that Sanchez filed a resolutionmotion to reject a number of midstream and downstream agreements with commercial counterparties, including Sanchez’s Springfield gathering agreements and agreements obligating Sanchez to deliver the gas volumes gathered by the Springfield system to our Brasada processing plant. We objected to Sanchez’s rejection and instituted an adversary proceeding regarding such rejection. On May 6, 2021, the Bankruptcy Court issued an opinion determining, among other things, that Sanchez’s Springfield gathering agreements were rejected, but that such agreements contain covenants running with the land that survive rejection, thus preserving the acreage dedication to our Springfield system. We intend to continue defending our contractual rights in the bankruptcy proceeding.
On May 15, 2020, Gavilan Resources LLC (“Gavilan”), an entity that owns a 25% working interest in the acreage where the Springfield gathering system and Brasada processing plant are located, also filed for Chapter 11 bankruptcy protection. As a part of this bankruptcy, Mesquite Energy, Inc. (the successor to Sanchez) (“Mesquite”) purchased Gavilan’s assets at auction. Gavilan did not assume and assign its agreements with Springfield as part of its asset sale. Instead, the assets sold to Mesquite remain subject to any covenants, servitudes, or similar agreements that could be equitable servitudes or covenants running with the land, pending a further order of the bankruptcy court.
We cannot make any assurances regarding the ultimate outcome of these matters will resultSanchez and Gavilan proceedings and their resulting impact on WES due to the uncertainties associated with the ongoing bankruptcy process.
On October 29, 2020, WGR, on behalf of itself and derivatively on behalf of Mont Belvieu JV, filed suit against Enterprise Products Operating, LLC (“Enterprise”) and Mont Belvieu JV (as a nominal defendant) in the District Court of Harris County, Texas. Our lawsuit seeks a finedeclaratory judgment regarding proper revenue allocation as set forth in the Operating Agreement between Mont Belvieu JV (of which WGR is a 25% owner) and Enterprise (the “Operating Agreement”) related to fractionation trains at the Mont Belvieu complex in Chambers County, Texas. Specifically, the Operating Agreement sets forth a revenue allocation structure, whereby revenue would be allocated to the various fracs at the Mont Belvieu complex in sequential order, with Fracs VII and VIII (which are owned by Mont Belvieu JV) following Fracs I through VI, but preceding any “Later Frac Facilities.” Subsequent to the construction of Fracs VII and VIII, Enterprise built Fracs IX, X, and XI, which it wholly owns, and has signaled its intention to treat such subsequent fracs as outside the Mont Belvieu revenue allocation. We do not believe Enterprise’s attempt to bypass the agreed-to revenue allocation is proper under the parties’ agreements and now seek judicial determination. We currently sue only for declaratory judgment to avoid potential future damages. We cannot make any assurances regarding the ultimate outcome of this proceeding and its resulting impact on WGR or penalty for each matter in excess of $100,000.WES.
We are not engaged in any material litigation. Except as discussed above, WES iswe are not a party to any legal, regulatory, or administrative proceedings other than proceedings arising in the ordinary course of its business. WES’s managementManagement believes that there are no such proceedings for which a final disposition could have a material adverse effect on its results of operations, cash flows, or financial condition, or for which disclosure is otherwise required by Item 103 of Regulation S-K.S-K.
Item 1A. Risk Factors
Security holders and potential investors in our securities should carefully consider the risk factors included below and those set forth under Part I, Item 1A in our Form 10-K10-K for the year ended December 31, 2016,2020, together with all of the other information included in this document, and in our other public filings, press releases, and public discussions with management. Additionally, for a full discussion of the risks associated with Anadarko’sOccidental’s business, see Item 1A under Part I in Anadarko’sOccidental’s Form 10-K10-K for the year ended December 31, 2016, Anadarko’s2020, Occidental’s quarterly reports on Form 10-Q10-Q and Anadarko’sOccidental’s other public filings, press releases, and public discussions with AnadarkoOccidental management. We have identified thesethe below risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-lookingforward-looking statements made by us or on our behalf.
Because we are dependent on Occidental as our largest customer and the owner of our general partner, any development that materially and adversely affects Occidental’s operations, financial condition, or market reputation could have a material and adverse impact on us. Material adverse changes at Occidental could restrict our access to capital, make it more expensive to access the capital markets, or increase the costs of our borrowings.
We are dependent on Occidental as our largest customer and the owner of our general partner, and we expect to derive significant revenue from Occidental for the foreseeable future. As a result, any event, whether in our area of operations or otherwise, that adversely affects Occidental’s production, financial condition, leverage, market reputation, liquidity, results of operations, or cash flows may adversely affect our revenues and cash available for distribution. Accordingly, we are indirectly subject to the business risks of Occidental, including, but not limited to, the volatility of oil and natural-gas prices, the availability of capital on favorable terms to fund Occidental’s exploration and development activities, the political and economic uncertainties associated with Occidental’s foreign operations, transportation-capacity constraints, and shareholder activism.
Further, we are subject to the risk of non-payment or non-performance by Occidental, including with respect to our gathering and transportation agreements. For example, we are currently involved in a dispute with Occidental regarding the calculation of the cost-of-service rate under a gathering contract related to our DJ Basin oil system. If such dispute is resolved in a manner adverse to us, such resolution could have a negative impact on our financial condition and results of operations, including a reduction in rates and a non-cash charge to earnings. In addition, we cannot predict the extent to which Occidental’s business would be impacted if conditions in the energy industry were to deteriorate further, nor can we estimate the impact such conditions would have on Occidental’s ability to perform under our gathering and transportation agreements with Occidental. Accordingly, any material non-payment or non-performance by Occidental could reduce our ability to make distributions to our unitholders.
Any material limitations to our ability to access capital as a result of adverse changes at Occidental could limit our ability to obtain future financing on favorable terms, or at all, or could result in increased financing costs in the future. Similarly, material adverse changes at Occidental could adversely impact our unit price, thereby limiting our ability to raise capital through equity issuances or debt financing, or adversely affect our ability to engage in or expand or pursue our business activities, and also prevent us from engaging in certain transactions that might otherwise be considered beneficial to us.
See Occidental’s reports filed under the Securities and Exchange Act of 1934, as amended, with the SEC (which are not, and shall not be deemed to be, incorporated by reference herein), for a full discussion of the risks associated with Occidental’s business.
The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial, or administrative changes and differing interpretations, possibly on a retroactive basis.
The current U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative, or judicial interpretation at any time. From time to time, members of Congress propose and consider substantive changes to the existing U.S. federal income tax laws that would affect publicly traded partnerships. On April 21, 2021, Senator Wyden introduced the Clean Energy for America Act, which would eliminate the exception upon which we rely for our treatment as a publicly traded partnership for U.S. federal income tax purposes.
Any modification to the U.S. federal income tax laws and interpretations thereof may or may not be retroactively applied and could make it more difficult or impossible to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes or increase the amount of taxes payable by unitholders in publicly traded partnerships. You are urged to consult with your own tax advisor with respect to the status of regulatory or administrative developments and proposals and their potential effect on your investment in our common units.
Our profitability may be negatively impacted by inflation in the cost of labor, materials, and services.
Although inflation in the United States has been relatively low in recent years, the U.S. economy could experience a significant inflationary effect from, among other things, supply chain disruptions caused by, or governmental stimulus or fiscal policies adopted in response to, the Covid-19 crisis. While we cannot predict any future trends in the rate of inflation, the global Covid-19 pandemic has brought unprecedented uncertainty to the near-term economic outlook. A significant increase in inflation would raise our costs for labor, materials and services, and to the extent we are unable to recover higher costs through our commercial agreements, would negatively impact our profitability and cash flows available for distribution to unitholders.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth information with respect to repurchases made by WES of its common units in the open market under the Purchase Program during the first quarter of 2021:
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| Period | | Total number of units purchased | | Average price paid per unit | | Total number of units purchased as part of publicly announced plans or programs (1) | | Approximate dollar value of units that may yet be purchased under the plans or programs (1) |
January 1-31, 2021 | | 763,339 | | | $ | 14.42 | | | 763,339 | | | $ | 206,458,000 | |
February 1-28, 2021 | | 352,469 | | | 14.85 | | | 352,469 | | | 201,225,000 | |
March 1-31, 2021 | | — | | | — | | | — | | | 201,225,000 | |
| Total | | 1,115,808 | | | 14.56 | | | 1,115,808 | | | |
(1)In November 2020, WES announced the Purchase Program, pursuant to which we may purchase up to $250.0 million in aggregate value of our common units through December 31, 2021. See Note 5—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for additional details.
Item 6. Exhibits
Exhibits designated by an asterisk (*) are filed herewith and those designated with asterisks (**) are furnished herewith; all exhibits not so designated are incorporated herein by reference to a prior filing as indicated.
Exhibit Index
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Exhibit
Number | | | Description |
| # | 2. | 1 | | | Contribution Agreement and Agreement and Plan of Merger, dated as of November 7, 2018, by and among Anadarko Petroleum Corporation, Anadarko E&P Onshore LLC, APC Midstream Holdings, LLC, Western Gas Equity Partners, LP, Western Gas Equity Holdings, LLC, Western Gas Partners, LP, Western Gas Holdings, LLC, Clarity Merger Sub, LLC, WGR Asset Holding Company LLC, WGR Operating, LP, Kerr-McGee Gathering LLC, Kerr-McGee Worldwide Corporation and Delaware Basin Midstream, LLC (incorporated by reference to Exhibit 2.1 to Western Gas Equity Partners, LP’s Current Report on Form 8-K filed on November 8, 2018, File No. 001-35753). |
| 3. | 1 | | | |
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| 3. | 9 | | | |
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| 3. | 11 | | | |
| 3. | 12 | | | |
| 3. | 13 | | | |
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Exhibit
Number | | | Description |
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| 4. | 1 | | | |
| 4. | 2 | | | Indenture, dated as of May 18, 2011, among Western Gas Partners, LP, as Issuer, the Subsidiary Guarantors named therein, as Guarantors, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on May 18, 2011, File No. 001-34046). |
| 4. | 3 | | | First Supplemental Indenture, dated as of May 18, 2011, among Western Gas Partners, LP, as Issuer, the Subsidiary Guarantors named therein, as Guarantors, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to Western Gas Partners, LP’s Current Report on Form 8-K filed on May 18, 2011, File No. 001-34046). |
| 4. | 4 | | | |
| 4. | 5 | | | Fourth Supplemental Indenture, dated as of June 28, 2012, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on June 28, 2012, File No. 001-34046). |
| 4. | 6 | | | |
| 4. | 7 | | | Sixth Supplemental Indenture, dated as of March 20, 2014, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to Western Gas Partners, LP’s Current Report on Form 8-K filed on March 20, 2014, File No. 001-34046). |
| 4. | 8 | | | |
| 4. | 9 | | | Seventh Supplemental Indenture, dated as of June 4, 2015, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on June 4, 2015, File No. 001-34046). |
| 4. | 10 | | | |
| 4. | 11 | | | Eighth Supplemental Indenture, dated as of July 12, 2016, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on July 12, 2016, File No. 001-34046). |
| 4. | 12 | | | |
| 4. | 13 | | | Ninth Supplemental Indenture, dated as of March 2, 2018, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on March 2, 2018, File No. 001-34046). |
| 4. | 14 | | | |
| 4. | 15 | | | |
| 4. | 16 | | | Tenth Supplemental Indenture, dated as of August 9, 2018, by and between Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on August 9, 2018, File No. 001-34046). |
| 4. | 17 | | | |
| 4. | 18 | | | |
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Exhibit
Number | | | Description |
| 4. | 19 | | | Eleventh Supplemental Indenture, dated as of January 13, 2020, by and between Western Midstream Operating, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Midstream Operating, LP’s Current Report on Form 8-K filed on January 13, 2020, File No. 001-34046). |
| 4. | 20 | | | |
| 4. | 21 | | | |
| 4. | 22 | | | |
| 4. | 23 | | | |
| * | 10. | 1 | | | |
| * | 10. | 2 | | | |
| * | 10. | 3 | | | |
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| * | 31. | 1 | | | |
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| * | 31. | 2 | | | |
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| ** | 32. | 1 | | | |
| ** | 32. | 2 | | | |
| * | 101. | INS | | | XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
| * | 101. | SCH | | | Inline XBRL Schema Document |
| * | 101. | CAL | | | Inline XBRL Calculation Linkbase Document |
| * | 101. | DEF | | | Inline XBRL Definition Linkbase Document |
| * | 101. | LAB | | | Inline XBRL Label Linkbase Document |
| * | 101. | PRE | | | Inline XBRL Presentation Linkbase Document |
| * | 104 | | | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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Exhibit
Number
| | Description |
2.1# | | Contribution, Conveyance and Assumption Agreement by and among Western Gas Partners, LP, Western Gas Holdings, LLC, Anadarko Petroleum Corporation, WGR Holdings, LLC, Western Gas Resources, Inc., WGR Asset Holding Company LLC, Western Gas Operating, LLC and WGR Operating, LP, dated as of May 14, 2008 (incorporated by reference to Exhibit 10.2 to Western Gas Partners, LP’s Current Report on Form 8-K filed on May 14, 2008, File No. 001-34046). |
2.2# | | Contribution Agreement, dated as of November 11, 2008, by and among Western Gas Resources, Inc., WGR Asset Holding Company LLC, WGR Holdings, LLC, Western Gas Holdings, LLC, Western Gas Partners, LP, Western Gas Operating, LLC and WGR Operating, LP. (incorporated by reference to Exhibit 10.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on November 13, 2008, File No. 001-34046). |
2.3# | | Contribution Agreement, dated as of July 10, 2009, by and among Western Gas Resources, Inc., WGR Asset Holding Company LLC, Anadarko Uintah Midstream, LLC, WGR Holdings, LLC, Western Gas Holdings, LLC, WES GP, Inc., Western Gas Partners, LP, Western Gas Operating, LLC and WGR Operating, LP. (incorporated by reference to Exhibit 2.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on July 23, 2009, File No. 001-34046). |
2.4# | | Contribution Agreement, dated as of January 29, 2010 by and among Western Gas Resources, Inc., WGR Asset Holding Company LLC, Mountain Gas Resources LLC, WGR Holdings, LLC, Western Gas Holdings, LLC, WES GP, Inc., Western Gas Partners, LP, Western Gas Operating, LLC and WGR Operating, LP. (incorporated by reference to Exhibit 2.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on February 3, 2010 File No. 001-34046). |
2.5# | | Contribution Agreement, dated as of July 30, 2010, by and among Western Gas Resources, Inc., WGR Asset Holding Company LLC, WGR Holdings, LLC, Western Gas Holdings, LLC, WES GP, Inc., Western Gas Partners, LP, Western Gas Operating, LLC and WGR Operating, LP. (incorporated by reference to Exhibit 2.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on August 5, 2010, File No. 001-34046). |
2.6# | | |
2.7# | | Contribution Agreement, dated as of December 15, 2011, by and among Western Gas Resources, Inc., WGR Asset Holding Company LLC, WGR Holdings, LLC, Western Gas Holdings, LLC, WES GP, Inc., Western Gas Partners, LP, Western Gas Operating, LLC and WGR Operating, LP. (incorporated by reference to Exhibit 2.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on December 15, 2011, File No. 001-34046). |
2.8# | | Contribution Agreement, dated as of February 27, 2013, by and among Anadarko Marcellus Midstream, L.L.C., Western Gas Partners, LP, Western Gas Operating, LLC, WGR Operating, LP, Anadarko Petroleum Corporation and Anadarko E&P Onshore LLC (incorporated by reference to Exhibit 2.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on March 5, 2013, File No. 001-34046). |
2.9# | | Contribution Agreement, dated as of February 27, 2014, by and among WGR Asset Holding Company LLC, APC Midstream Holdings, LLC, Western Gas Partners, LP, Western Gas Operating, LLC, WGR Operating, LP and Anadarko Petroleum Corporation (incorporated by reference to Exhibit 2.9 to Western Gas Partners, LP’s Annual Report on Form 10-K filed on February 28, 2014, File No. 001-34046). |
2.10# | | |
2.11# | | Purchase and Sale Agreement, dated as of March 2, 2015, by and among WGR Asset Holding Company LLC, Delaware Basin Midstream, LLC, Western Gas Partners, LP, and Anadarko Petroleum Corporation (incorporated by reference to Exhibit 2.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on March 3, 2015, File No. 001-34046). |
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Exhibit
Number
| | Description |
2.12# | | |
2.13# | | Contribution Agreement, dated as of February 24, 2016, by and among WGR Asset Holding Company, LLC, APC Midstream Holdings, LLC, Western Gas Partners, LP, Western Gas Operating, LLC, WGR Operating, LP and Anadarko Petroleum Corporation (incorporated by reference to Exhibit 2.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on March 1, 2016, File No.001-34046). |
2.14# | | Interest Swap and Purchase Agreement, dated February 9, 2017, among Western Gas Partners, LP, WGR Operating, LP, Delaware Basin JV Gathering, LLC, Williams Partners L.P., Williams Midstream Gas Services LLC and Appalachia Midstream Services, L.L.C. (incorporated by reference to Exhibit 2.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on February 9, 2017, File No. 001-34046). |
3.1 | | |
3.2 | | |
3.3 | | |
3.4 | | |
3.5 | | |
3.6 | | |
3.7 | | |
3.8 | | |
3.9 | | |
3.10 | | |
4.1 | | |
4.2 | | Indenture, dated as of May 18, 2011, among Western Gas Partners, LP, as Issuer, the Subsidiary Guarantors named therein, as Guarantors, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on May 18, 2011, File No. 001-34046). |
4.3 | | First Supplemental Indenture, dated as of May 18, 2011, among Western Gas Partners, LP, as Issuer, the Subsidiary Guarantors named therein, as Guarantors, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to Western Gas Partners, LP’s Current Report on Form 8-K filed on May 18, 2011, File No. 001-34046). |
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Exhibit
Number
| | Description |
4.4 | | |
4.5 | | Fourth Supplemental Indenture, dated as of June 28, 2012, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on June 28, 2012, File No. 001-34046). |
4.6 | | |
4.7 | | Fifth Supplemental Indenture, dated as of August 14, 2013, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on August 14, 2013, File No. 001-34046). |
4.8 | | |
4.9 | | Sixth Supplemental Indenture, dated as of March 20, 2014, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to Western Gas Partners, LP’s Current Report on Form 8-K filed on March 20, 2014, File No. 001-34046). |
4.10 | | |
4.11 | | Seventh Supplemental Indenture, dated as of June 4, 2015, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on June 4, 2015, File No. 001-34046). |
4.12 | | |
4.13 | | Eighth Supplemental Indenture, dated as of July 12, 2016, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on July 12, 2016, File No. 001-34046). |
4.14 | | |
31.1* | | |
31.2* | | |
32.1** | | |
101.INS* | | XBRL Instance Document |
101.SCH* | | XBRL Schema Document |
101.CAL* | | XBRL Calculation Linkbase Document |
101.DEF* | | XBRL Definition Linkbase Document |
101.LAB* | | XBRL Label Linkbase Document |
101.PRE* | | XBRL Presentation Linkbase Document |
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| # | Pursuant to Item 601(b)(2) of Regulation S-K, the registrant agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
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| WESTERN MIDSTREAM PARTNERS, LP |
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| May 10, 2021 | WESTERN GAS EQUITY PARTNERS, LP |
| /s/ Michael P. Ure |
November 1, 2017 | |
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| /s/ Benjamin M. Fink |
| Benjamin M. FinkMichael P. Ure
President, and Chief Executive Officer and Chief Financial Officer Western Gas EquityMidstream Holdings, LLC (as general partner of Western Gas EquityMidstream Partners, LP) |
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November 1, 2017 | |
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| /s/ Jaime R. Casas |
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| WESTERN MIDSTREAM OPERATING, LP |
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| May 10, 2021 | |
| /s/ Michael P. Ure |
| Jaime R. CasasMichael P. Ure
Senior Vice President, Chief Executive Officer and Chief Financial Officer and Treasurer
Western Gas Equity Holdings,Midstream Operating GP, LLC (as general partner of Western Gas Equity Partners,Midstream Operating, LP) |
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