| Related-Party Transactions | 6. RELATED-PARTY TRANSACTIONS Summary of related-party transactions. The following tables summarize material related - party transactions included in the Partnership’s consolidated financial statements: Consolidated statements of operations Three Months Ended Six Months Ended thousands 2021 2020 2021 2020 Revenues and other Service revenues – fee based $ 402,684 $ 460,138 $ 770,159 $ 907,921 Service revenues – product based 3,658 1,168 8,163 4,146 Product sales 9,101 12,136 15,372 43,760 Total revenues and other 415,443 473,442 793,694 955,827 Equity income, net – related parties (1) 58,666 54,415 110,831 115,762 Operating expenses Cost of product 18,937 5,967 36,584 83,870 Operation and maintenance 2,915 1,516 21,037 34,357 General and administrative (2) 7,102 10,994 11,195 32,849 Total operating expenses 28,954 18,477 68,816 151,076 Interest income – Anadarko note receivable — 4,225 — 8,450 _________________________________________________________________________________________ (1) See Note 7 . (2) Includes (i) amounts charged by Occidental pursuant to the shared services agreement (see Services Agreement within this Note 6 ) and (ii) equity - based compensation expense allocated to the Partnership 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 June 30, December 31, Assets Accounts receivable, net $ 278,913 $ 291,253 Other current assets 32,805 5,493 Equity investments (1) 1,195,456 1,224,813 Other assets 77,130 50,967 Total assets 1,584,304 1,572,526 Liabilities Accounts and imbalance payables 8,538 6,664 Accrued liabilities 43,571 19,195 Other liabilities 170,721 138,796 Total liabilities 222,830 164,655 _________________________________________________________________________________________ (1) See Note 7 . 6. RELATED-PARTY TRANSACTIONS Consolidated statements of cash flows Six Months Ended thousands 2021 2020 Distributions from equity - investment earnings – related parties $ 110,763 $ 124,156 Acquisitions from related parties (2,000) — Contributions to equity investments – related parties (3,508) (16,064) Distributions from equity investments in excess of cumulative earnings – related parties 21,373 13,340 Distributions to Partnership unitholders (1) (130,518) (225,914) Distributions to WES Operating unitholders (2) (5,292) (8,676) Net contributions from (distributions to) related parties 4,508 21,832 Finance lease payments — (6,382) _________________________________________________________________________________________ (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 ). The 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 the Partnership’s consolidated financial statements: Consolidated statements of operations Three Months Ended Six Months Ended thousands 2021 2020 2021 2020 General and administrative (1) $ 7,699 $ 11,168 $ 12,286 $ 32,906 _________________________________________________________________________________________ (1) Includes (i) amounts charged by Occidental pursuant to the shared services agreement (see Services Agreement within this Note 6 ), (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 ), and (iii) an intercompany service fee between the Partnership and WES Operating. Consolidated balance sheets thousands June 30, December 31, Accounts receivable, net $ 278,913 $ 246,083 Accounts and imbalance payables (1) 37,006 6,664 _________________________________________________________________________________________ (1) As of June 30, 2021, includes balances related to transactions between the Partnership and WES Operating. Consolidated statements of cash flows Six Months Ended thousands 2021 2020 Distributions to WES Operating unitholders (1) $ (264,500) $ (433,718) _________________________________________________________________________________________ (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 ). 6. RELATED-PARTY TRANSACTIONS Related-party revenues. Related - party revenues include (i) amounts earned by the Partnership from services provided to Occidental and from the sale of natural gas, condensate, and NGLs to Occidental and (ii) income from the Partnership’s investments accounted for under the equity method of accounting (see Note 7 ). 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 36% and 35% for the three and six months ended June 30, 2021, respectively, and 43% and 42% for the three and six months ended June 30, 2020, respectively. Crude - oil and NGLs throughput (excluding equity - investment throughput) attributable to production owned or controlled by Occidental was 90% and 89% for the three and six months ended June 30, 2021, respectively, and 88% for the three and six months ended June 30, 2020. Produced - water throughput attributable to production owned or controlled by Occidental was 86% for the three and six months ended June 30, 2021, and 87% and 88% for the three and six months ended June 30, 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. In connection 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”), a marketing affiliate of Occidental. 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). 6. RELATED-PARTY TRANSACTIONS 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 right-of-use (“ROU”) asset, included in Other assets on the consolidated balance sheets, 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 Occidental and a wholly owned subsidiary of the Partnership, the lessor, entered into an operating and maintenance agreement pursuant to 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 the three and six months ended June 30, 2021, the Partnership recognized fixed - lease revenue of $44.0 million and $87.9 million, respectively, and variable - lease revenue of $2.4 million and $1.3 million, respectively, related to these agreements. For the three and six months ended June 30, 2020, the Partnership recognized fixed-lease revenue of $44.0 million and $87.9 million, respectively, and variable-lease revenue of $17.2 million and $32.8 million, respectively, related to these agreements, with such amounts included in Service revenues – fee based in the consolidated statements of operations. Related-party expenses. Operation and maintenance expense includes amounts accrued for or paid to related parties for field - related costs provided by related parties at certain of the Partnership’s assets. A portion of general and administrative expense is paid by Occidental, which results in related - party transactions pursuant to the reimbursement provisions of the Partnership’s and WES Operating’s agreements with Occidental. Cost of product expense includes amounts related to certain continuing marketing arrangements with affiliates of Occidental, related - party imbalances, and transactions 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 related - party revenues, and third - party expenses do not bear a direct relationship to third - party revenues. Services Agreement. General and administrative expense includes costs incurred pursuant to the agreement dated as of December 31, 2019, by and among Occidental, Anadarko, and WES Operating GP, under which Occidental has performed certain centralized corporate functions for the Partnership and WES Operating (“Services Agreement”). Pursuant to the Services Agreement, which was amended and restated on December 31, 2019, specified employees of Occidental were seconded to WES Operating GP to provide, under the direction, supervision, and control 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 services 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 information 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. 6. RELATED-PARTY TRANSACTIONS Incentive Plans. General and administrative expense includes non - cash equity - based compensation expense allocated to the Partnership by Occidental for awards granted to the executive officers of the general partner and to other employees prior to their employment with the Partnership under (i) the Anadarko Petroleum Corporation 2012 Omnibus Incentive Compensation Plan, as amended and restated, (ii) Occidental’s 2015 Long - Term Incentive Plan, and (iii) Occidental’s Phantom Share Unit Award Plan (collectively referred to as the “Incentive Plans”). General and administrative expense includes allocated expense related to the Incentive Plans of $2.4 million and $5.6 million for the three and six months ended June 30, 2021, respectively, and $3.6 million and $7.7 million for the three and six months ended June 30, 2020, respectively. These amounts are reflected as contributions to partners’ capital in the consolidated statements of equity and partners’ capital. Construction Reimbursement Agreements . From time to time, the Partnership enters into construction reimbursement agreements with Occidental providing that the Partnership will manage the construction of certain midstream infrastructure for Occidental in the Partnership’s areas of operation. Such arrangements generally provide for a reimbursement of costs incurred by the Partnership on a cost or cost-plus basis. 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 forgiveness of certain deficiency fees owed by Occidental and other unrelated contractual amendments. The present value of the reduced usage fees under the CUA was $30.0 million. Anadarko note receivable. In May 2008, WES Operating loaned $260.0 million to Anadarko in exchange for a 30 - year note that bore interest at a fixed annual rate and was classified as interest income in 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 was paid in January of 2021. Concentration of credit risk. Occidental was the only customer from which revenues exceeded 10% of consolidated revenues for all periods presented in the consolidated statements of operations. |
