Transactions with Affiliates | 5. TRANSACTIONS WITH AFFILIATES 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. 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. 5. TRANSACTIONS WITH AFFILIATES (CONTINUED) 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 $288.9 million and $317.8 million at September 30, 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 . 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 all of the Partnership’s outstanding commodity price swap agreements as of September 30, 2015 : per barrel except natural gas 2015 2016 Ethane $ 18.41 − 23.41 $ 23.11 Propane 47.08 − 52.99 52.90 Isobutane 62.09 − 74.02 73.89 Normal butane 54.62 − 65.04 64.93 Natural gasoline 72.88 − 81.82 81.68 Condensate 76.47 − 81.82 81.68 Natural gas (per MMBtu) 4.66 − 5.96 4.87 The following table summarizes gains and losses upon settlement of commodity price swap agreements recognized in the consolidated statements of income: Three Months Ended Nine Months Ended thousands 2015 2014 2015 2014 Gains (losses) on commodity price swap agreements related to sales: (1) Natural gas sales $ 5,774 $ 3,179 $ 39,100 $ 1,525 Natural gas liquids sales 33,746 22,737 116,475 66,746 Total 39,520 25,916 155,575 68,271 Losses on commodity price swap agreements related to purchases (2) (23,998 ) (19,533 ) (99,897 ) (38,081 ) Net gains (losses) on commodity price swap agreements $ 15,522 $ 6,383 $ 55,678 $ 30,190 (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. (2) Reported in cost of product in the consolidated statements of income in the period in which the related purchase is recorded. 5. TRANSACTIONS WITH AFFILIATES (CONTINUED) DJ Basin complex and Hugoton system swap extensions. On June 25, 2015, the Partnership extended its commodity price swap agreements with Anadarko for the DJ Basin complex from July 1, 2015, through December 31, 2015, and for the Hugoton system from October 1, 2015, through December 31, 2015. The table below summarizes the swap prices compared to the forward market prices on the date the commodity price swap extensions were executed. DJ Basin Complex Hugoton System per barrel except natural gas 2015 Swap Prices Market Prices (1) 2015 Swap Prices Market Prices (1) Ethane $ 18.41 $ 1.96 — — Propane 47.08 13.10 — — Isobutane 62.09 19.75 — — Normal butane 54.62 18.99 — — Natural gasoline 72.88 52.59 — — Condensate 76.47 52.59 $ 78.61 $ 32.56 Natural gas (per MMBtu) 5.96 2.75 5.50 2.74 (1) Represents the New York Mercantile Exchange forward strip price as of June 25, 2015, adjusted for location, basis and, in the case of NGLs, transportation and fractionation costs. Revenues or costs attributable to volumes settled during the respective extension period, at the applicable market price in the above table, will be recognized in the consolidated statements of income. The Partnership will also record a capital contribution from Anadarko in the Partnership’s consolidated statement of equity and partners’ capital for the amount by which the swap price exceeds the applicable market price in the above table. For each of the three and nine months ended September 30, 2015 , the capital contribution from Anadarko was $7.9 million . 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, treating and transportation throughput (excluding equity investment throughput and throughput measured in barrels) attributable to natural gas production owned or controlled by Anadarko was 42% and 46% for the three and nine months ended September 30, 2015 , respectively, and 48% and 49% for the three and nine months ended September 30, 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 47% and 51% for the three and nine months ended September 30, 2015 , respectively, and 58% for each of the three and nine months ended September 30, 2014 . 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. 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 and $0.4 million for the three and nine months ended September 30, 2015 , respectively, and $0.2 million and $0.5 million for the three and nine months ended September 30, 2014 , respectively. 5. TRANSACTIONS WITH AFFILIATES (CONTINUED) WGP LTIP and Anadarko Incentive Plans. General and administrative expenses included $1.0 million and $3.1 million for the three and nine months ended September 30, 2015 , respectively, and $0.9 million and $2.7 million for the three and nine months ended September 30, 2014 , 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 2008 and 2012 Omnibus Incentive Compensation Plans (collectively referred to as the “Anadarko Incentive Plans”). Of this amount, $2.7 million is reflected as a contribution to partners’ capital in the Partnership’s consolidated statement of equity and partners’ capital for the nine months ended September 30, 2015 . Equipment purchases and sales. The following table summarizes the Partnership’s purchases from and sales to Anadarko of pipe and equipment: Nine Months Ended September 30, 2015 2014 2015 2014 thousands Purchases Sales Cash consideration $ 12,131 $ 16,143 $ 700 $ — Net carrying value 7,411 9,745 366 — Partners’ capital adjustment $ 4,720 $ 6,398 $ 334 $ — Summary of affiliate transactions. The following table summarizes affiliate transactions, which include revenue from affiliates, reimbursement of operating expenses and purchases of natural gas: Three Months Ended Nine Months Ended thousands 2015 2014 2015 2014 Revenues and other (1) $ 247,458 $ 269,632 $ 777,739 $ 769,331 Equity income, net (1) 21,976 19,063 59,137 41,322 Cost of product (1) 35,673 27,034 132,663 85,071 Operation and maintenance (2) 17,662 15,583 50,534 44,961 General and administrative (3) 7,671 7,016 22,556 21,243 Operating expenses 61,006 49,633 205,753 151,275 Interest income (4) 4,225 4,225 12,675 12,675 Interest expense (5) 4,310 — 9,920 — Distributions to unitholders (6) 80,845 60,794 228,893 169,001 (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. (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. (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 ). (4) Represents interest income recognized on the note receivable from Anadarko. (5) For the three and nine months ended September 30, 2015 , includes accretion expense recognized on the Deferred purchase price obligation - Anadarko for the acquisition of DBJV (see Note 2 and Note 9 ). (6) Represents distributions paid under the partnership agreement (see Note 3 and Note 4 ). 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. |