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 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. Note receivable - 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 $311.3 million and $313.3 million at June 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. Commodity price swap agreements. The Partnership 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. 5. TRANSACTIONS WITH AFFILIATES (CONTINUED) The following table summarizes gains and losses upon settlement of commodity price swap agreements recognized in the consolidated statements of operations: Three Months Ended Six Months Ended thousands 2017 2016 2017 2016 Gains (losses) on commodity price swap agreements related to sales: (1) Natural gas sales $ 4,656 $ 5,202 $ 5,738 $ 12,243 Natural gas liquids sales 1,837 20,480 (2,470 ) 40,550 Total 6,493 25,682 3,268 52,793 Gains (losses) on commodity price swap agreements related to purchases (2) (5,507 ) (16,913 ) (2,811 ) (35,784 ) Net gains (losses) on commodity price swap agreements $ 986 $ 8,769 $ 457 $ 17,009 (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. The Partnership also records 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 tables below. The commodity price swap agreement for the Hugoton system was in place until its divestiture in October 2016. For the six months ended June 30, 2017 , the capital contribution from Anadarko was $28.7 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. 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. The Partnership has significant gathering and processing arrangements with affiliates of Anadarko on a majority of its systems. The Partnership’s natural gas gathering, treating and transportation throughput (excluding equity investment throughput) attributable to production owned or controlled by Anadarko was 38% and 34% for the three and six months ended June 30, 2017 , respectively, and 39% and 38% for the three and six months ended June 30, 2016 , respectively. The Partnership’s natural gas processing throughput (excluding equity investment throughput) attributable to production owned or controlled by Anadarko was 39% and 44% for the three and six months ended June 30, 2017 , respectively, and 55% and 58% for the three and six months ended June 30, 2016 , respectively. The Partnership’s crude, NGL and produced water gathering, treating and transportation throughput (excluding equity investment throughput) attributable to production owned or controlled by Anadarko was 41% and 47% for the three and six months ended June 30, 2017 , respectively, and 64% for the three and six months ended June 30, 2016 . Commodity 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. Acquisitions from Anadarko. On March 14, 2016, the Partnership acquired Springfield from Anadarko (see Note 2 ). 5. TRANSACTIONS WITH AFFILIATES (CONTINUED) 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 June 30, 2017 and 2016 , and $0.2 million for each of the six months ended June 30, 2017 and 2016 . WGP LTIP and Anadarko Incentive Plan. General and administrative expenses included $0.9 million and $2.1 million for the three and six months ended June 30, 2017 , respectively, and $1.1 million and $2.4 million for the three and six months ended June 30, 2016 , 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 2012 Omnibus Incentive Compensation Plan (“Anadarko Incentive Plan”). Of this amount, $2.2 million is reflected as contributions to partners’ capital in the Partnership’s consolidated statement of equity and partners’ capital for the six months ended June 30, 2017 . Equipment purchases and sales. The following table summarizes the Partnership’s purchases from and sales to Anadarko of pipe and equipment: Six Months Ended June 30, 2017 2016 2017 2016 thousands Purchases Sales Cash consideration $ 3,910 $ 2,699 $ — $ 613 Net carrying value (4,286 ) (2,328 ) — (596 ) Partners’ capital adjustment $ (376 ) $ 371 $ — $ 17 Contributions in aid of construction costs from affiliates. On certain of the Partnership’s capital projects, Anadarko is obligated to reimburse the Partnership 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 Partnership’s consolidated statements of cash flows. 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 Six Months Ended thousands 2017 2016 2017 2016 Revenues and other (1) $ 316,313 $ 302,405 $ 631,468 $ 574,989 Equity income, net – affiliates (1) 21,728 19,693 41,189 36,507 Cost of product (1) 21,607 22,145 37,595 46,725 Operation and maintenance (2) 18,462 17,661 35,551 35,636 General and administrative (3) 9,365 9,169 18,900 18,121 Operating expenses 49,434 48,975 92,046 100,482 Interest income (4) 4,225 4,225 8,450 8,450 Interest expense (5) — (15,461 ) 71 (10,924 ) Settlement of the Deferred purchase price obligation – Anadarko (6) (37,346 ) — (37,346 ) — Proceeds from the issuance of common units, net of offering expenses (7) — — — 25,000 Distributions to unitholders (8) 110,449 94,909 213,572 184,678 Above-market component of swap agreements with Anadarko 16,373 9,552 28,670 16,365 (1) Represents amounts earned or incurred on and subsequent to the date of the acquisition of 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 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 Plan within this Note 5 ). (4) Represents interest income recognized on the note receivable from Anadarko. (5) Includes amounts related to the 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 proceeds from the issuance of 835,841 common units to WGP as partial funding for the acquisition of Springfield (see Note 2 ). (8) 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 operations. |