Transactions With Affiliates | 3 Months Ended |
Mar. 31, 2015 |
Related Party Fees and Other Arrangements, Limited Liability Company (LLC) or Limited Partnership (LP) [Abstract] | |
Transactions with Affiliates | 5. TRANSACTIONS WITH AFFILIATES |
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Affiliate transactions. Revenues from affiliates include amounts earned by the Partnership from services provided to Anadarko as well as from the sale of residue, drip condensate and NGLs to Anadarko. In addition, the Partnership purchases natural gas from an affiliate of Anadarko pursuant to gas purchase agreements. Operation and maintenance expense includes amounts accrued for or paid to affiliates for the operation of the Partnership assets, whether in providing services to affiliates or to third parties, including field labor, measurement and analysis, and other disbursements. A portion of the Partnership’s general and administrative expenses is paid by Anadarko, which results in affiliate transactions pursuant to the reimbursement provisions of the Partnership’s omnibus agreement. Affiliate expenses do not bear a direct relationship to affiliate revenues, and third-party expenses do not bear a direct relationship to third-party revenues. See Note 2 for further information related to contributions of assets to the Partnership by Anadarko. |
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5. TRANSACTIONS WITH AFFILIATES (CONTINUED) |
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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 Partnership’s acquisition of the Partnership 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 the Partnership assets. Subsequent to the acquisition of Partnership 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 the Partnership. |
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Note receivable from and Deferred purchase price obligation - Anadarko. Concurrently with the closing of the Partnership’s May 2008 initial public offering, the Partnership 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 $327.0 million and $317.8 million at March 31, 2015, and December 31, 2014, 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. |
The consideration to be paid by the Partnership for the March 2015 acquisition of DBJV consists of a cash payment to Anadarko due on March 31, 2020. See Note 2 and Note 9. |
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Commodity price swap agreements. The Partnership has commodity price swap agreements with Anadarko to mitigate exposure to a substantial majority of the commodity price volatility that would otherwise be present as a result of the purchase and sale of natural gas, condensate or NGLs. 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 at the Hugoton system, the MGR assets and the DJ Basin complex, with various expiration dates through December 2016. On December 31, 2014, the Partnership’s commodity price swap agreements for the Hilight and Newcastle systems and the Granger complex (excluding the Granger straddle plant) expired without renewal. 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. |
Below is a summary of the fixed price ranges on the Partnership’s outstanding commodity price swap agreements as of March 31, 2015: |
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per barrel except natural gas | | 2015 | | 2016 |
Ethane | | $ | 18.41 | | − | 23.41 | | | $ | 23.11 | |
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Propane | | 47.08 | | − | 52.99 | | | 52.9 | |
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Isobutane | | 62.09 | | − | 74.02 | | | 73.89 | |
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Normal butane | | 54.62 | | − | 65.04 | | | 64.93 | |
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Natural gasoline | | 72.88 | | − | 81.82 | | | 81.68 | |
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Condensate | | 76.47 | | − | 81.82 | | | 81.68 | |
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Natural gas (per MMBtu) | | 4.66 | | − | 5.96 | | | 4.87 | |
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5. TRANSACTIONS WITH AFFILIATES (CONTINUED) |
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The following table summarizes realized gains and losses on commodity price swap agreements: |
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| | Three Months Ended | | | |
March 31, | | | |
thousands | | 2015 | | 2014 | | | |
Gains (losses) on commodity price swap agreements related to sales: (1) | | | | | | | |
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Natural gas sales | | $ | 10,982 | | | $ | (3,667 | ) | | | |
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Natural gas liquids sales | | 44,432 | | | 9,455 | | | | |
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Total | | 55,414 | | | 5,788 | | | | |
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Losses on commodity price swap agreements related to purchases (2) | | (34,179 | ) | | (19 | ) | | | |
Net gains (losses) on commodity price swap agreements | | $ | 21,235 | | | $ | 5,769 | | | | |
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(1) | Reported in affiliate natural gas, natural gas liquids and drip condensate sales in the consolidated statements of income in the period in which the related sale is recorded. | | | | | | | | | | |
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(2) | Reported in cost of product in the consolidated statements of income in the period in which the related purchase is recorded. | | | | | | | | | | |
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Gas gathering and processing agreements. The Partnership has significant gas gathering and processing arrangements with affiliates of Anadarko on a majority of its systems. The Partnership’s gathering, transportation and treating throughput (excluding equity investment throughput and throughput measured in barrels) attributable to natural gas production owned or controlled by Anadarko was 48% and 49% for the three months ended March 31, 2015 and 2014, respectively. The Partnership’s processing throughput (excluding equity investment throughput and throughput measured in barrels) attributable to natural gas production owned or controlled by Anadarko was 52% and 59% for the three months ended March 31, 2015 and 2014, respectively. |
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Purchase and sale agreements. The Partnership sells a significant amount of its natural gas, condensate and NGLs to Anadarko Energy Services Company (“AESC”), Anadarko’s marketing affiliate. In addition, the Partnership purchases natural gas, condensate and NGLs from AESC pursuant to purchase agreements. The Partnership’s purchase and sale agreements with AESC are generally one-year contracts, subject to annual renewal. |
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WES LTIP. The general partner awards phantom units under the Western Gas Partners, LP 2008 Long-Term Incentive Plan (“WES LTIP”) primarily to its independent directors, but also from time to time to its executive officers and Anadarko employees performing services for the Partnership. The phantom units awarded to the independent directors vest one year from the grant date, while all other awards are subject to graded vesting over a three-year service period. Compensation expense is recognized over the vesting period and was $0.1 million for each of the three months ended March 31, 2015 and 2014. |
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WGP LTIP and Anadarko Incentive Plans. For the three months ended March 31, 2015 and 2014, general and administrative expenses included $1.0 million and $0.9 million, respectively, of equity-based compensation expense, allocated to the Partnership by Anadarko, for awards granted to the executive officers of the general partner and other employees under the Western Gas Equity Partners, LP 2012 Long-Term Incentive Plan (“WGP LTIP”), and the Anadarko Petroleum Corporation 1999 Stock Incentive Plan and the Anadarko Petroleum Corporation 2008 and 2012 Omnibus Incentive Compensation Plans (collectively referred to as the “Anadarko Incentive Plans”). Of this amount, $0.8 million is reflected as a contribution to partners’ capital in the Partnership’s consolidated statement of equity and partners’ capital for the three months ended March 31, 2015. |
5. TRANSACTIONS WITH AFFILIATES (CONTINUED) |
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Equipment purchases. The following table summarizes the Partnership’s purchases from Anadarko of pipe and equipment: |
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| | Three Months Ended March 31, | | | |
| | 2015 | | 2014 | | | |
thousands | | Purchases | | | |
Cash consideration | | $ | 1,128 | | | $ | 4,702 | | | | |
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Net carrying value | | 780 | | | 4,745 | | | | |
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Partners’ capital adjustment | | $ | 348 | | | $ | (43 | ) | | | |
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Summary of affiliate transactions. The following table summarizes affiliate transactions, which include revenue from affiliates, reimbursement of operating expenses and purchases of natural gas: |
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| | Three Months Ended | | | |
March 31, | | | |
thousands | | 2015 | | 2014 | | | |
Revenues (1) | | $ | 245,715 | | | $ | 214,996 | | | | |
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Equity income, net (1) | | 18,220 | | | 9,251 | | | | |
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Cost of product (1) | | 42,407 | | | 18,356 | | | | |
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Operation and maintenance (2) | | 15,376 | | | 12,551 | | | | |
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General and administrative (3) | | 7,566 | | | 7,303 | | | | |
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Operating expenses | | 65,349 | | | 38,210 | | | | |
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Interest income (4) | | 4,225 | | | 4,225 | | | | |
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Interest expense (5) | | 1,420 | | | — | | | | |
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Distributions to unitholders (6) | | 71,695 | | | 51,882 | | | | |
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(1) | Represents amounts earned or incurred on and subsequent to the date of acquisition of the Partnership assets, as well as amounts earned or incurred by Anadarko on a historical basis related to the Partnership assets prior to the acquisition of such assets, recognized under gathering, treating or processing agreements, and purchase and sale agreements. | | | | | | | | | | |
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(2) | Represents expenses incurred on and subsequent to the date of the acquisition of the Partnership assets, as well as expenses incurred by Anadarko on a historical basis related to the Partnership assets prior to the acquisition of such assets. | | | | | | | | | | |
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(3) | Represents general and administrative expense incurred on and subsequent to the date of the Partnership’s acquisition of the Partnership assets, as well as a management services fee for reimbursement of expenses incurred by Anadarko for periods prior to the acquisition of the Partnership assets by the Partnership. These amounts include equity-based compensation expense allocated to the Partnership by Anadarko (see WES LTIP and WGP LTIP and Anadarko Incentive Plans within this Note 5). | | | | | | | | | | |
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(4) | Represents interest income recognized on the note receivable from Anadarko. | | | | | | | | | | |
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(5) | For the three months ended March 31, 2015, includes accretion expense recognized on the Deferred purchase price obligation - Anadarko for the acquisition of DBJV (see Note 2 and Note 9). | | | | | | | | | | |
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(6) | Represents distributions paid under the partnership agreement (see Note 3 and Note 4). | | | | | | | | | | |
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Concentration of credit risk. Anadarko was the only customer from whom revenues exceeded 10% of the Partnership’s consolidated revenues for all periods presented in the consolidated statements of income. |