Transactions with Affiliates | 5. TRANSACTIONS WITH AFFILIATES Affiliate transactions. Revenues from affiliates include amounts earned by WES from services provided to Anadarko as well as from the sale of residue and NGLs to Anadarko. In addition, WES 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 WES assets, whether in providing services to affiliates or to third parties, including field labor, measurement and analysis, and other disbursements. A portion of general and administrative expenses is paid by Anadarko, which results in affiliate transactions pursuant to the reimbursement provisions of the omnibus agreements of WES and WGP. 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 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 and Deferred purchase price obligation - 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 $308.1 million and $252.3 million at September 30, 2016 , and December 31, 2015 , 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 WES to Anadarko for the March 2015 acquisition of DBJV consists of a cash payment due on March 31, 2020. See Note 2 and Note 9 . 5. TRANSACTIONS WITH AFFILIATES (CONTINUED) 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. Borrowings under the WGP WCF will mature on November 1, 2017 , and bear interest at London Interbank Offered Rate (“LIBOR”) plus 1.50% . 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 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. The outstanding commodity price swap agreements for the Hugoton system, MGR assets and DJ Basin complex expire in December 2016. 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 WES’s outstanding commodity price swap agreements as of September 30, 2016 : per barrel except natural gas 2016 Ethane $ 18.41 − 23.11 Propane 47.08 − 52.90 Isobutane 62.09 − 73.89 Normal butane 54.62 − 64.93 Natural gasoline 72.88 − 81.68 Condensate 76.47 − 81.68 Natural gas (per MMBtu) 4.87 − 5.96 The following table summarizes gains and losses upon settlement of commodity price swap agreements recognized in the consolidated statements of operations: Three Months Ended Nine Months Ended thousands 2016 2015 2016 2015 Gains (losses) on commodity price swap agreements related to sales: (1) Natural gas sales $ 719 $ 5,774 $ 12,962 $ 39,100 Natural gas liquids sales 15,939 33,746 56,489 116,475 Total 16,658 39,520 69,451 155,575 Losses on commodity price swap agreements related to purchases (2) (9,248 ) (23,998 ) (45,032 ) (99,897 ) Net gains (losses) on commodity price swap agreements $ 7,410 $ 15,522 $ 24,419 $ 55,678 (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. 5. TRANSACTIONS WITH AFFILIATES (CONTINUED) DJ Basin complex and Hugoton system swap extensions. On June 25, 2015, WES 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 for the extension period compared to the forward market prices as of the agreement date, June 25, 2015. 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 (“NYMEX”) forward strip price as of June 25, 2015, adjusted for product specification, location, basis and, in the case of NGLs, transportation and fractionation costs. On December 8, 2015, the commodity price swap agreements with Anadarko for the DJ Basin complex and Hugoton system were further extended from January 1, 2016, through December 31, 2016. The table below summarizes the swap prices for the extension period compared to the forward market prices as of the agreement date, December 8, 2015. DJ Basin Complex Hugoton System per barrel except natural gas 2016 Swap Prices Market Prices (1) 2016 Swap Prices Market Prices (1) Ethane $ 18.41 $ 0.60 — — Propane 47.08 10.98 — — Isobutane 62.09 17.23 — — Normal butane 54.62 16.86 — — Natural gasoline 72.88 26.15 — — Condensate 76.47 34.65 $ 78.61 $ 18.81 Natural gas (per MMBtu) 5.96 2.11 5.50 2.12 (1) Represents the NYMEX forward strip price as of December 8, 2015, adjusted for product specification, 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 tables, will be recognized in the consolidated statements of operations. WES will also record 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 above tables. For the nine months ended September 30, 2016 , the capital contribution from Anadarko was $34.8 million . 5. TRANSACTIONS WITH AFFILIATES (CONTINUED) Gathering and processing agreements. WES has significant gathering and processing arrangements with affiliates of Anadarko on a majority of its systems. WES’s gathering, treating and transportation throughput (excluding equity investment throughput) attributable to natural gas production owned or controlled by Anadarko was 37% and 38% for the three and nine months ended September 30, 2016 , respectively, and 53% and 55% for the three and nine months ended September 30, 2015 , respectively. WES’s processing throughput (excluding equity investment throughput) attributable to natural gas production owned or controlled by Anadarko was 51% and 55% for the three and nine months ended September 30, 2016 , respectively, and 47% and 51% for the three and nine months ended September 30, 2015 , respectively. WES’s gathering, treating and transportation throughput (excluding equity investment throughput) attributable to crude/NGL production owned or controlled by Anadarko was 67% and 64% for the three and nine months ended September 30, 2016 , respectively, and 100% for each of the three and nine months ended September 30, 2015 . Prior to January 1, 2016, Springfield’s contracts were with a subsidiary of Anadarko who contracted with third parties. Effective January 1, 2016, Springfield’s contracts are with both a subsidiary of Anadarko and third parties directly. 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, and on March 2, 2015, WES acquired DBJV from Anadarko. See Note 2 for further information on these acquisitions. 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 $57,000 and $0.2 million for the three and nine months ended September 30, 2016 , respectively, and $56,000 and $0.2 million for the three and nine months ended September 30, 2015 , respectively. WGP LTIP and Anadarko Incentive Plans. General and administrative expenses included $1.4 million and $3.7 million for the three and nine months ended September 30, 2016 , respectively, and $1.0 million and $3.1 million for the three and nine months ended September 30, 2015 , respectively, of equity-based compensation expense, allocated to WES by Anadarko, for awards granted to the executive officers of WES GP and other employees under the WGP LTIP and the Anadarko Petroleum Corporation 2008 and 2012 Omnibus Incentive Compensation Plans (referred to collectively as the “Anadarko Incentive Plans”). Of this amount, $3.1 million is reflected as a contribution to partners’ capital in the consolidated statement of equity and partners’ capital for the nine months ended September 30, 2016 . WES LTIP. WES GP 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 WES. 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 $0.3 million for the three and nine months ended September 30, 2016 , respectively, and $0.1 million and $0.4 million for the three and nine months ended September 30, 2015 , respectively. 5. TRANSACTIONS WITH AFFILIATES (CONTINUED) 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, 2016 2015 2016 2015 thousands Purchases Sales Cash consideration $ 3,965 $ 10,369 $ 623 $ 700 Net carrying value (3,366 ) (5,785 ) (605 ) (366 ) Partners’ capital adjustment $ 599 $ 4,584 $ 18 $ 334 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 Nine Months Ended thousands 2016 2015 2016 2015 Revenues and other (1) $ 325,312 $ 294,849 $ 900,301 $ 923,188 Equity income, net – affiliates (1) 20,294 21,976 56,801 59,137 Cost of product (1) 21,254 35,656 67,979 132,613 Operation and maintenance (2) 15,052 19,394 50,688 56,065 General and administrative (3) 9,655 8,700 28,179 25,289 Operating expenses 45,961 63,750 146,846 213,967 Interest income (4) 4,225 4,225 12,675 12,675 Interest expense (5) (1,173 ) 4,310 (12,097 ) 9,922 Distributions to WGP unitholders (6) 77,462 69,508 235,587 196,177 Distributions to WES unitholders (7) 1,670 568 3,915 1,648 Above-market component of swap extensions with Anadarko 18,417 7,916 34,782 7,916 (1) Represents amounts earned or incurred on and subsequent to the date of 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 Plans within this Note 5 ) and amounts charged by Anadarko under the WGP omnibus agreement. (4) Represents interest income recognized on the note receivable from Anadarko. (5) For the three and nine months ended September 30, 2016 , includes WES’s accretion revisions to the Deferred purchase price obligation - Anadarko (see Note 2 and Note 9 ) and for the nine months ended September 30, 2015 , includes interest expense recognized on the WGP WCF (see Note 9 ). (6) Represents distributions paid under WGP’s partnership agreement (see Note 3 and Note 4 ). (7) Represents distributions paid to other subsidiaries of Anadarko under WES’s partnership agreement (see Note 3 and Note 4 ). Concentration of credit risk. Anadarko was the only customer from whom revenues exceeded 10% of consolidated revenues for all periods presented in the consolidated statements of operations. |