UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20202021
Or
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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| WESTERN MIDSTREAM PARTNERS, LP |
| WESTERN MIDSTREAM OPERATING, LP |
| (Exact name of registrant as specified in its charter) |
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| Commission file number: | State or other jurisdiction of incorporation or organization: | I.R.S. Employer Identification No.: |
| Western Midstream Partners, LP | 001-35753 | Delaware | 46-0967367 |
| Western Midstream Operating, LP | 001-34046 | Delaware | 26-1075808 |
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| Address of principal executive offices: | Zip Code: | Registrant’s telephone number, including area code: |
| Western Midstream Partners, LP | 9950 Woodloch Forest Drive | The Woodlands, | Texas | 77380 | (832) | 636-1009 |
| Western Midstream Operating, LP | 9950 Woodloch Forest Drive | The Woodlands, | Texas | 77380 | (832) | 636-1009 |
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| Former address: |
Western Midstream Partners, LP | 1201 Lake Robbins Drive | The Woodlands, | Texas | 77380 |
Western Midstream Operating, LP | 1201 Lake Robbins Drive | The Woodlands, | Texas | 77380 |
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| Address of principal executive offices: | Zip Code: | Registrant’s telephone number, including area code: |
| Western Midstream Partners, LP | 9950 Woodloch Forest Drive, Suite 2800 | The Woodlands, | Texas | 77380 | (346) | 786-5000 |
| Western Midstream Operating, LP | 9950 Woodloch Forest Drive, Suite 2800 | The Woodlands, | Texas | 77380 | (346) | 786-5000 |
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading symbol | Name of exchange
on which registered | Common units outstanding as of November 5, 2020:4, 2021: |
| Western Midstream Partners, LP | Common units | WES | New York Stock Exchange | 416,196,339408,390,278 |
| Western Midstream Operating, LP | None | None | None | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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| Western Midstream Partners, LP | Yes | þ | No | ¨ | |
| Western Midstream Operating, LP | Yes | þ | No | ¨ | |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-TS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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| Western Midstream Partners, LP | Yes | þ | No | ¨ | |
| Western Midstream Operating, LP | Yes | þ | No | ¨ | |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-acceleratednon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-212b-2 of the Exchange Act.
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| Western Midstream Partners, LP | Large Accelerated Filer | Accelerated Filer | Non-accelerated Filer | Smaller Reporting Company | Emerging Growth Company |
| þ | ☐ | ☐ | ☐ | ☐ |
| Western Midstream Operating, LP | Large Accelerated Filer | Accelerated Filer | Non-accelerated Filer | Smaller Reporting Company | Emerging Growth Company |
| ☐ | ☐ | þ | ☐ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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| Western Midstream Partners, LP | ¨ |
| Western Midstream Operating, LP | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-212b-2 of the Exchange Act).
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| Western Midstream Partners, LP | Yes | ☐ | No | þ | |
| Western Midstream Operating, LP | Yes | ☐ | No | þ | |
FILING FORMAT
This quarterly report on Form 10-Q is a combined report being filed by two separate registrants: Western Midstream Partners, LP and Western Midstream Operating, LP. Western Midstream Operating, LP is a consolidated subsidiary of Western Midstream Partners, LP that has publicly traded debt, but does not have any publicly traded equity securities. Information contained herein related to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrant.
Part I, Item 1 of this quarterly report includes separate financial statements (i.e., consolidated statements of operations, consolidated balance sheets, consolidated statements of equity and partners’ capital, and consolidated statements of cash flows) for Western Midstream Partners, LP and Western Midstream Operating, LP. The accompanying Notes to Consolidated Financial Statements, which are included under Part I, Item 1 of this quarterly report, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is included under Part I, Item 2 of this quarterly report, are presented on a combined basis for each registrant, with any material differences between the registrants disclosed separately.
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| TABLE OF CONTENTS |
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| PART I | | |
| Item 1. | | |
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| Item 2. | | |
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| Item 3. | | |
| Item 4. | | |
| PART II | | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
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| Item 6. | | |
COMMONLY USED TERMS AND DEFINITIONS
Unless the context otherwise requires, references to “we,” “us,” “our,” “WES,” “the Partnership,” or “Western Midstream Partners, LP” refer to Western Midstream Partners, LP (formerly Western Gas Equity Partners, LP) and its subsidiaries. As used in this Form 10-Q, the terms and definitions below have the following meanings:
AESC: Anadarko Energy Services Company, a subsidiary of Occidental.
AMA: The Anadarko Midstream Assets, which are comprised of the Wattenberg processing plant, Wamsutter pipeline, DJ Basin oil system, DBM oil system, APC water systems, the 20% interest in Saddlehorn, the 15% interest in Panola, the 50% interest in Mi Vida, and the 50% interest in Ranch Westex.
Anadarko or APC:Anadarko: Anadarko Petroleum Corporation and its subsidiaries, excluding our general partner, which became a wholly owned subsidiary of Occidental upon closing of the Occidental Merger on August 8, 2019.
Anadarko note receivable: The 30-year30-year $260.0 million note established in May 2008 between WES Operating as the lender and Anadarko as the borrower. The note bearsbore interest at a fixed annual rate of 6.50%, payable quarterly. Following the Occidental Merger, Occidental became the ultimate counterparty. On September 11, 2020, the Partnership and Occidental entered into a Unit Redemption Agreement, pursuant to which (i) WES Operating transferred and assigned its interest in the Anadarko note receivable to its limited partners on a pro-ratapro-rata basis, transferring 98% of its interest in (and accrued interest owed under) the Anadarko note receivable to the Partnership and the remaining 2% to WGRAH, a subsidiary of Occidental, (ii) the Partnership subsequently assigned itsthe 98% interest in (and accrued interest owed under) the Anadarko note receivable to Anadarko, which Anadarko canceled and retired immediately upon receipt, in exchange for which Occidental caused certain of its subsidiaries to transfer an aggregate of 27,855,398 common units of the Partnership to the Partnership, and (iii) the Partnership canceled thesuch common units immediately upon receipt.
Barrel or Bbl: 42 U.S. gallons measured at 60 degrees Fahrenheit.
Bbls/d: Barrels per day.
Board of Directors: The board of directors of WES’s general partner.
Btu: British thermal unit; the approximate amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
Cactus II: Cactus II Pipeline LLC.
Chipeta: Chipeta Processing, LLC.
Condensate: A natural-gasnatural-gas liquid with a low vapor pressure compared to drip condensate, mainly composed of propane, butane, pentane, and heavier hydrocarbon fractions.
Cryogenic: The process by which liquefied gases are used to bring natural-gasnatural-gas volumes to very low temperatures (below approximately -238 degrees Fahrenheit) to separate natural-gasnatural-gas liquids from natural gas. Through cryogenic processing, more natural-gasnatural-gas liquids are extracted as compared to traditional refrigeration methods.
DBM: Delaware Basin Midstream, LLC.
DBM water systems: The produced-waterproduced-water gathering and disposal systems in West Texas, including the APC water systems acquired as part of the acquisition of AMA.Texas.
December 2019 Agreements: Certain agreements entered into on December 31, 2019, including (i) agreements between the Partnership and certain of its subsidiaries, including WES Operating and WES Operating GP, and Occidental and/or certain of its subsidiaries, including Anadarko, and (ii) amendments to WES Operating’s debt agreements. For a description of the December 2019 Agreements, see Executive Summary under Part I, Item 2 of this Form 10-Q.
DJ Basin complex: The Platte Valley system, Wattenberg system, Lancaster plant, Latham plant, and Wattenberg processing plant (acquired as part of the acquisition of AMA).plant.
EBITDA: Earnings before interest, taxes, depreciation, and amortization. For a definition of “Adjusted EBITDA,” see Key Performance Metrics under Part I, Item 2 of this Form 10-Q.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Agreement: That certain Exchange Agreement, dated December 31, 2019, by and among WGRI, the general partner, and WES, pursuant to which (i) WGRI exchanged WES common units for the issuance of a 2.0% general partner interest in WES to the general partner and (ii) WES canceled the non-economic general partner interest in WES.
Fixed-Rate Senior Notes: WES Operating’s fixed-ratefixed-rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050.2050, issued in January 2020.
Floating-Rate Senior Notes: WES Operating’s floating-ratefloating-rate Senior Notes due 2023.
Fort Union: Fort Union Gas Gathering, LLC.
Fractionation: The process of applying various levels of high pressure and low temperature to separate a stream of natural-gasnatural-gas liquids into ethane, propane, normal butane, isobutane, and natural gasoline for end-useend-use sale.
FRP: Front Range Pipeline LLC.
GAAP: Generally accepted accounting principles in the United States.
General partner: Western Midstream Holdings, LLC, the general partner of the Partnership.
Hydraulic fracturing: The high-pressurehigh-pressure injection of fluids into the wellbore to create fractures in rock formations, stimulating the production of oil or gas.
IDRs: Incentive distribution rights.
Imbalance: Imbalances result from (i) differences between gas and NGLs volumes nominated by customers and gas and NGLs volumes received from those customers and (ii) differences between gas and NGLs volumes received from customers and gas and NGLs volumes delivered to those customers.
IPO: Initial public offering.
LIBOR: London Interbank Offered Rate.
Marcellus Interest: The 33.75% interest in the Larry’s Creek, Seely, and Warrensville gas-gatheringgas-gathering systems and related facilities located in northern Pennsylvania.
MBbls/d: Thousand barrels per day.
Mcf: Thousand cubic feet.
Merger: The merger of Clarity Merger Sub, LLC, a wholly owned subsidiary of the Partnership, with and into WES Operating, with WES Operating continuing as the surviving entity and a subsidiary of the Partnership, which closed on February 28, 2019.
Merger Agreement: The Contribution Agreement and Agreement and Plan of Merger, dated November 7, 2018, by and among the Partnership, WES Operating, Anadarko, and certain of their affiliates, pursuant to which the parties thereto agreed to effect the Merger and certain other transactions.
MGR: Mountain Gas Resources, LLC.
MGR assets: The Red Desert complex and the Granger straddle plant.
Mi Vida: Mi Vida JV LLC.
MMBtu: MLP:Million British thermal units. Master limited partnership.
MMcf: Million cubic feet.
MMcf/d: Million cubic feet per day.
Mont Belvieu JV: Enterprise EF78 LLC.
Natural-gas liquid(s) or NGL(s): The combination of ethane, propane, normal butane, isobutane, and natural gasolines that, when removed from natural gas, become liquid under various levels of pressure and temperature.
Occidental: Occidental Petroleum Corporation and, as the context requires, its subsidiaries, excluding our general partner.
Occidental Merger: Occidental’s acquisition by merger of Anadarko pursuant to the Occidental Merger Agreement, which closed on August 8, 2019.
Occidental Merger Agreement: Agreement and Plan of Merger, dated as of May 9, 2019, by and among Occidental, Baseball Merger Sub 1, Inc., and Anadarko.Anadarko, which closed on August 8, 2019.
Panola: Panola Pipeline Company, LLC.
Produced water: Byproduct associated with the production of crude oil and natural gas that often contains a number of dissolved solids and other materials found in oil and gas reservoirs.
Purchase Program: The buyback program announced in November 2020, pursuant to which we may purchase up to $250.0 million in aggregate value of our common units through December 31, 2021. The common units may be purchased from time to time in the open market at prevailing market prices or in privately negotiated transactions.
Ranch Westex: Ranch Westex JV LLC.
RCF: WES Operating’s $2.0 billion senior unsecured revolving credit facility that matures in February 2025.
Red Bluff Express: Red Bluff Express Pipeline, LLC.
Red Desert complex: The Patrick Draw processing plant, the Red Desert processing plant, associated gathering lines, and related facilities.
Related parties: Occidental and the Partnership’s equity interests in Fort Union (until divested in October 2020), White Cliffs, Rendezvous, the Mont Belvieu JV, TEP, TEG, FRP, Whitethorn LLC, Cactus II, Saddlehorn, Panola, Mi Vida, Ranch Westex, and Red Bluff Express.
Rendezvous: Rendezvous Gas Services, LLC.
Residue: The natural gas remaining after the unprocessed natural-gasnatural-gas stream has been processed or treated.
ROTF: Regional oil treating facility.
Saddlehorn: Saddlehorn Pipeline Company, LLC.
SEC: U.S. Securities and Exchange Commission.
Services Agreement: That certain amended and restated Services, Secondment, and Employee Transfer Agreement, dated as of December 31, 2019, by and among Occidental, Anadarko, and WES Operating GP.
Springfield system: The Springfield gas-gatheringgas-gathering system and Springfield oil-gatheringoil-gathering system.
TEFR Interests: The interests in TEP, TEG, and FRP.
TEG: Texas Express Gathering LLC.
TEP: Texas Express Pipeline LLC.
Term loan facility: WES Operating’s senior unsecured credit facility entered into in connection with the Merger,December 2018, which was repaid and terminated in January 2020.
WES Operating: Western Midstream Operating, LP, formerly known as Western Gas Partners, LP, and its subsidiaries.
WES Operating GP: Western Midstream Operating GP, LLC, the general partner of WES Operating.
West Texas complex: The DBM complex and DBJV and Haley systems, all of which were combined into a single complex effective January 1, 2018.systems.
WGP RCF:WGRAH: The senior secured revolving credit facility of Western Midstream Partners, LP (formerly Western Gas Equity Partners, LP) that matured in March 2019.WGR Asset Holding Company LLC.
WGRI: Western Gas Resources, Inc., a subsidiary of Occidental.
White Cliffs: White Cliffs Pipeline, LLC.
Whitethorn LLC: Whitethorn Pipeline Company LLC.
Whitethorn: A crude-oil and condensate pipeline, and related storage facilities, owned by Whitethorn LLC.
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
WESTERN MIDSTREAM PARTNERS, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | |
| thousands except per-unit amounts | thousands except per-unit amounts | | 2020 | | 2019 | | 2020 | | 2019 | | thousands except per-unit amounts | | 2021 | | 2020 | | 2021 | | 2020 | |
| | Revenues and other | Revenues and other | | | | | | | | | | Revenues and other | | | | | | | | | |
| Service revenues – fee based | Service revenues – fee based | | $ | 636,522 | | | $ | 587,965 | | | $ | 1,980,546 | | | $ | 1,761,483 | | | Service revenues – fee based | | $ | 650,482 | | | $ | 636,522 | | | $ | 1,841,742 | | | $ | 1,980,546 | | |
| Service revenues – product based | Service revenues – product based | | 12,316 | | | 9,476 | | | 35,237 | | | 45,530 | | | Service revenues – product based | | 28,812 | | | 12,316 | | | 88,267 | | | 35,237 | | |
| Product sales | Product sales | | 30,106 | | | 68,248 | | | 108,491 | | | 214,850 | | | Product sales | | 84,298 | | | 30,106 | | | 227,359 | | | 108,491 | | |
| Other | Other | | 100 | | | 338 | | | 838 | | | 1,101 | | | Other | | 248 | | | 100 | | | 577 | | | 838 | | |
| Total revenues and other (1) | Total revenues and other (1) | | 679,044 | | | 666,027 | | | 2,125,112 | | | 2,022,964 | | | Total revenues and other (1) | | 763,840 | | | 679,044 | | | 2,157,945 | | | 2,125,112 | | |
| Equity income, net – related parties | Equity income, net – related parties | | 61,026 | | | 53,893 | | | 176,788 | | | 175,483 | | | Equity income, net – related parties | | 48,506 | | | 61,026 | | | 159,337 | | | 176,788 | | |
| Operating expenses | Operating expenses | | | Operating expenses | | |
| Cost of product | Cost of product | | 31,739 | | | 97,800 | | | 153,611 | | | 334,740 | | | Cost of product | | 83,232 | | | 31,739 | | | 250,245 | | | 153,611 | | |
| Operation and maintenance | Operation and maintenance | | 132,293 | | | 176,572 | | | 436,670 | | | 467,832 | | | Operation and maintenance | | 140,838 | | | 132,293 | | | 434,198 | | | 436,670 | | |
| General and administrative | General and administrative | | 41,578 | | | 30,769 | | | 118,466 | | | 83,640 | | | General and administrative | | 50,409 | | | 41,578 | | | 139,973 | | | 118,466 | | |
| Property and other taxes | Property and other taxes | | 19,392 | | | 15,281 | | | 57,263 | | | 45,848 | | | Property and other taxes | | 13,641 | | | 19,392 | | | 45,992 | | | 57,263 | | |
| Depreciation and amortization | Depreciation and amortization | | 132,564 | | | 127,914 | | | 384,688 | | | 362,977 | | | Depreciation and amortization | | 139,002 | | | 132,564 | | | 407,404 | | | 384,688 | | |
| Long-lived asset and other impairments | | 34,640 | | | 3,107 | | | 200,575 | | | 4,294 | | | |
Long-lived asset and other impairments | | Long-lived asset and other impairments | | 1,594 | | | 34,640 | | | 29,198 | | | 200,575 | | |
| Goodwill impairment | Goodwill impairment | | 0 | | | 0 | | | 441,017 | | | 0 | | | Goodwill impairment | | — | | | — | | | — | | | 441,017 | | |
Total operating expenses (2) | Total operating expenses (2) | | 392,206 | | | 451,443 | | | 1,792,290 | | | 1,299,331 | | | Total operating expenses (2) | | 428,716 | | | 392,206 | | | 1,307,010 | | | 1,792,290 | | |
| Gain (loss) on divestiture and other, net | Gain (loss) on divestiture and other, net | | (768) | | | 248 | | | (3,651) | | | (1,403) | | | Gain (loss) on divestiture and other, net | | (364) | | | (768) | | | 278 | | | (3,651) | | |
| Operating income (loss) | Operating income (loss) | | 347,096 | | | 268,725 | | | 505,959 | | | 897,713 | | | Operating income (loss) | | 383,266 | | | 347,096 | | | 1,010,550 | | | 505,959 | | |
| Interest income – Anadarko note receivable | Interest income – Anadarko note receivable | | 3,286 | | | 4,225 | | | 11,736 | | | 12,675 | | | Interest income – Anadarko note receivable | | — | | | 3,286 | | | — | | | 11,736 | | |
| Interest expense | Interest expense | | (95,571) | | | (78,524) | | | (278,811) | | | (223,872) | | | Interest expense | | (93,257) | | | (95,571) | | | (287,040) | | | (278,811) | | |
| Gain (loss) on early extinguishment of debt | Gain (loss) on early extinguishment of debt | | 1,632 | | | 0 | | | 10,372 | | | 0 | | | Gain (loss) on early extinguishment of debt | | (24,655) | | | 1,632 | | | (24,944) | | | 10,372 | | |
Other income (expense), net (3) | | 720 | | | (67,894) | | | 612 | | | (161,577) | | | |
| Other income (expense), net | | Other income (expense), net | | 110 | | | 720 | | | (1,013) | | | 612 | | |
| Income (loss) before income taxes | Income (loss) before income taxes | | 257,163 | | | 126,532 | | | 249,868 | | | 524,939 | | | Income (loss) before income taxes | | 265,464 | | | 257,163 | | | 697,553 | | | 249,868 | | |
| Income tax expense (benefit) | Income tax expense (benefit) | | 3,028 | | | 1,309 | | | 3,792 | | | 12,679 | | | Income tax expense (benefit) | | 1,826 | | | 3,028 | | | 4,403 | | | 3,792 | | |
| Net income (loss) | Net income (loss) | | 254,135 | | | 125,223 | | | 246,076 | | | 512,260 | | | Net income (loss) | | 263,638 | | | 254,135 | | | 693,150 | | | 246,076 | | |
| Net income (loss) attributable to noncontrolling interests | Net income (loss) attributable to noncontrolling interests | | 7,524 | | | 4,006 | | | (17,045) | | | 102,789 | | | Net income (loss) attributable to noncontrolling interests | | 7,913 | | | 7,524 | | | 20,375 | | | (17,045) | | |
| Net income (loss) attributable to Western Midstream Partners, LP | Net income (loss) attributable to Western Midstream Partners, LP | | $ | 246,611 | | | $ | 121,217 | | | $ | 263,121 | | | $ | 409,471 | | | Net income (loss) attributable to Western Midstream Partners, LP | | $ | 255,725 | | | $ | 246,611 | | | $ | 672,775 | | | $ | 263,121 | | |
| Limited partners’ interest in net income (loss): | Limited partners’ interest in net income (loss): | | | | | | | | | | Limited partners’ interest in net income (loss): | | | | | | | | | |
| Net income (loss) attributable to Western Midstream Partners, LP | Net income (loss) attributable to Western Midstream Partners, LP | | $ | 246,611 | | | $ | 121,217 | | | $ | 263,121 | | | $ | 409,471 | | | Net income (loss) attributable to Western Midstream Partners, LP | | $ | 255,725 | | | $ | 246,611 | | | $ | 672,775 | | | $ | 263,121 | | |
| Pre-acquisition net (income) loss allocated to Anadarko | | 0 | | | 0 | | | 0 | | | (29,279) | | | |
| | General partner interest in net (income) loss | General partner interest in net (income) loss | | (5,132) | | | 0 | | | (5,462) | | | 0 | | | General partner interest in net (income) loss | | (5,527) | | | (5,132) | | | (14,484) | | | (5,462) | | |
Limited partners’ interest in net income (loss) (4) | | 241,479 | | | 121,217 | | | 257,659 | | | 380,192 | | | |
Net income (loss) per common unit – basic and diluted (4) | | $ | 0.55 | | | $ | 0.27 | | | $ | 0.58 | | | $ | 0.94 | | | |
| Weighted-average common units outstanding – basic and diluted | | 438,857 | | | 453,021 | | | 442,255 | | | 402,421 | | | |
Limited partners’ interest in net income (loss) (3) | | Limited partners’ interest in net income (loss) (3) | | 250,198 | | | 241,479 | | | 658,291 | | | 257,659 | | |
Net income (loss) per common unit – basic (3) | | Net income (loss) per common unit – basic (3) | | $ | 0.61 | | | $ | 0.55 | | | $ | 1.60 | | | $ | 0.58 | | |
Net income (loss) per common unit – diluted (3) | | Net income (loss) per common unit – diluted (3) | | $ | 0.61 | | | $ | 0.55 | | | $ | 1.59 | | | $ | 0.58 | | |
Weighted-average common units outstanding – basic (3) | | Weighted-average common units outstanding – basic (3) | | 411,909 | | | 438,857 | | | 412,690 | | | 442,255 | | |
Weighted-average common units outstanding – diluted (3) | | Weighted-average common units outstanding – diluted (3) | | 412,714 | | | 438,926 | | | 413,150 | | | 442,275 | | |
(1)Total revenues and other includes related-partyrelated-party amounts of $431.7 million and $1.2 billion for the three and nine months ended September 30, 2021, respectively, and $455.6 million and $1.4 billion for the three and nine months ended September 30, 2020, respectively, and $398.8 million and $1.2 billion for the three and nine months ended September 30, 2019, respectively. See Note 6.
(2)Total operating expenses includes related-partyrelated-party amounts of $22.7 million and $91.5 million for the three and nine months ended September 30, 2021, respectively, and $10.4 million and $161.5 million for the three and nine months ended September 30, 2020, respectively, and $128.2 million and $369.9 million for the three and nine months ended September 30, 2019, respectively. See Note 6.
(3)Other income (expense), net includes losses associated with the interest-rate swap agreements for the three and nine months ended September 30, 2019. See Note 11.
(4)See Note 5.
See accompanying Notes to Consolidated Financial Statements.
87
WESTERN MIDSTREAM PARTNERS, LP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | | thousands except number of units | thousands except number of units | | September 30,
2020 | | December 31,
2019 | thousands except number of units | | September 30,
2021 | | December 31,
2020 |
| ASSETS | ASSETS | | | | | ASSETS | | | | |
| Current assets | Current assets | | Current assets | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 138,045 | | | $ | 99,962 | | Cash and cash equivalents | | $ | 99,862 | | | $ | 444,922 | |
| Accounts receivable, net | Accounts receivable, net | | 451,784 | | | 260,512 | | Accounts receivable, net | | 583,652 | | | 452,880 | |
| Other current assets | Other current assets | | 54,104 | | | 41,938 | | Other current assets | | 73,196 | | | 45,262 | |
| Total current assets | Total current assets | | 643,933 | | | 402,412 | | Total current assets | | 756,710 | | | 943,064 | |
| Anadarko note receivable | | 0 | | | 260,000 | | |
| Property, plant, and equipment | Property, plant, and equipment | | Property, plant, and equipment | |
| Cost | Cost | | 12,633,144 | | | 12,355,671 | | Cost | | 12,732,926 | | | 12,641,745 | |
| Less accumulated depreciation | Less accumulated depreciation | | 3,808,005 | | | 3,290,740 | | Less accumulated depreciation | | 4,208,845 | | | 3,931,800 | |
| Net property, plant, and equipment | Net property, plant, and equipment | | 8,825,139 | | | 9,064,931 | | Net property, plant, and equipment | | 8,524,081 | | | 8,709,945 | |
| Goodwill | Goodwill | | 4,783 | | | 445,800 | | Goodwill | | 4,783 | | | 4,783 | |
| Other intangible assets | Other intangible assets | | 784,326 | | | 809,391 | | Other intangible assets | | 752,659 | | | 776,409 | |
| Equity investments | Equity investments | | 1,242,557 | | | 1,285,717 | | Equity investments | | 1,181,181 | | | 1,224,813 | |
Other assets (1) | Other assets (1) | | 188,937 | | | 78,202 | | Other assets (1) | | 199,964 | | | 171,013 | |
Total assets (2) | Total assets (2) | | $ | 11,689,675 | | | $ | 12,346,453 | | Total assets (2) | | $ | 11,419,378 | | | $ | 11,830,027 | |
| LIABILITIES, EQUITY, AND PARTNERS’ CAPITAL | LIABILITIES, EQUITY, AND PARTNERS’ CAPITAL | | | | | LIABILITIES, EQUITY, AND PARTNERS’ CAPITAL | | | | |
| Current liabilities | Current liabilities | | Current liabilities | |
| Accounts and imbalance payables | Accounts and imbalance payables | | $ | 164,417 | | | $ | 293,128 | | Accounts and imbalance payables | | $ | 341,220 | | | $ | 210,691 | |
| Short-term debt | | 438,762 | | | 7,873 | | |
Short-term debt | | Short-term debt | | 726,429 | | | 438,870 | |
| Accrued ad valorem taxes | Accrued ad valorem taxes | | 58,335 | | | 35,160 | | Accrued ad valorem taxes | | 49,065 | | | 41,427 | |
| Accrued liabilities | Accrued liabilities | | 175,915 | | | 149,793 | | Accrued liabilities | | 190,628 | | | 269,947 | |
| | Total current liabilities | Total current liabilities | | 837,429 | | | 485,954 | | Total current liabilities | | 1,307,342 | | | 960,935 | |
| Long-term liabilities | Long-term liabilities | | Long-term liabilities | |
| Long-term debt | | 7,440,394 | | | 7,951,565 | | |
Long-term debt | | Long-term debt | | 6,399,874 | | | 7,415,832 | |
| | Deferred income taxes | Deferred income taxes | | 21,292 | | | 18,899 | | Deferred income taxes | | 24,470 | | | 22,195 | |
| Asset retirement obligations | Asset retirement obligations | | 327,285 | | | 336,396 | | Asset retirement obligations | | 271,022 | | | 260,283 | |
| Other liabilities | Other liabilities | | 272,819 | | | 208,346 | | Other liabilities | | 320,224 | | | 275,570 | |
| Total long-term liabilities | | 8,061,790 | | | 8,515,206 | | |
Total long-term liabilities | | Total long-term liabilities | | 7,015,590 | | | 7,973,880 | |
Total liabilities (3) | Total liabilities (3) | | 8,899,219 | | | 9,001,160 | | Total liabilities (3) | | 8,322,932 | | | 8,934,815 | |
| Equity and partners’ capital | Equity and partners’ capital | | Equity and partners’ capital | |
| Common units (416,196,092 and 443,971,409 units issued and outstanding at September 30, 2020, and December 31, 2019, respectively) | | 2,674,682 | | | 3,209,947 | | |
General partner units (9,060,641 units issued and outstanding at September 30, 2020, and December 31, 2019) (4) | | (20,032) | | | (14,224) | | |
| Common units (408,610,916 and 413,839,863 units issued and outstanding at September 30, 2021, and December 31, 2020, respectively) | | Common units (408,610,916 and 413,839,863 units issued and outstanding at September 30, 2021, and December 31, 2020, respectively) | | 2,965,944 | | | 2,778,339 | |
| General partner units (9,060,641 units issued and outstanding at September 30, 2021, and December 31, 2020) | | General partner units (9,060,641 units issued and outstanding at September 30, 2021, and December 31, 2020) | | (11,286) | | | (17,208) | |
| | Total partners’ capital | Total partners’ capital | | 2,654,650 | | | 3,195,723 | | Total partners’ capital | | 2,954,658 | | | 2,761,131 | |
| Noncontrolling interests | Noncontrolling interests | | 135,806 | | | 149,570 | | Noncontrolling interests | | 141,788 | | | 134,081 | |
| Total equity and partners’ capital | Total equity and partners’ capital | | 2,790,456 | | | 3,345,293 | | Total equity and partners’ capital | | 3,096,446 | | | 2,895,212 | |
| Total liabilities, equity, and partners’ capital | Total liabilities, equity, and partners’ capital | | $ | 11,689,675 | | | $ | 12,346,453 | | Total liabilities, equity, and partners’ capital | | $ | 11,419,378 | | | $ | 11,830,027 | |
(1)Other assets includes $3.9$11.2 million and $4.5$4.2 million of NGLs line-fillline-fill inventory as of September 30, 2020,2021, and December 31, 2019,2020, respectively. Other assets also includes $80.9$63.1 million and $71.9 million of materials and supplies inventory as of September 30, 2020. See Note 1.2021, and December 31, 2020, respectively.
(2)Total assets includes related-partyrelated-party amounts of $1.6 billion and $1.7 billion as of September 30, 2020,2021, and December 31, 2019, respectively,2020, which includes related-partyrelated-party Accounts receivable, net of $292.9$289.4 million and $113.3$291.3 million as of September 30, 2020,2021, and December 31, 2019,2020, respectively. See Note 6.
(3)Total liabilities includes related-partyrelated-party amounts of $136.8$250.7 million and $108.8$164.7 million as of September 30, 2020,2021, and December 31, 2019,2020, respectively. See Note 6.
(4)See Note 1.
See accompanying Notes to Consolidated Financial Statements.
98
WESTERN MIDSTREAM PARTNERS, LP
CONSOLIDATED STATEMENTS OF EQUITY AND PARTNERS’ CAPITAL
(UNAUDITED)
| | | | | | Partners’ Capital | | | | | | Partners’ Capital | |
| thousands | thousands | | | Common
Units | | General
Partner
Units | | Noncontrolling
Interests | | Total | thousands | | Common
Units | | General Partner
Units | | Noncontrolling
Interests | | Total |
| | Balance at December 31, 2019 | | | $ | 3,209,947 | | | $ | (14,224) | | | $ | 149,570 | | | $ | 3,345,293 | | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | | $ | 2,778,339 | | | $ | (17,208) | | | $ | 134,081 | | | $ | 2,895,212 | |
| Net income (loss) | Net income (loss) | | | (251,396) | | | (5,131) | | | (32,873) | | | (289,400) | | Net income (loss) | | 181,798 | | | 3,993 | | | 5,444 | | | 191,235 | |
| | Distributions to Chipeta noncontrolling interest owner | Distributions to Chipeta noncontrolling interest owner | | | — | | | — | | | (1,738) | | | (1,738) | | Distributions to Chipeta noncontrolling interest owner | | — | | | — | | | (276) | | | (276) | |
| Distributions to noncontrolling interest owner of WES Operating | Distributions to noncontrolling interest owner of WES Operating | | | — | | | — | | | (5,807) | | | (5,807) | | Distributions to noncontrolling interest owner of WES Operating | | — | | | — | | | (2,551) | | | (2,551) | |
| Distributions to Partnership unitholders | Distributions to Partnership unitholders | | | (276,151) | | | (5,635) | | | — | | | (281,786) | | Distributions to Partnership unitholders | | (128,447) | | | (2,818) | | | — | | | (131,265) | |
| Acquisitions from related parties | | | (3,987) | | | — | | | 3,987 | | | 0 | | |
| Contributions of equity-based compensation from Occidental | | | 4,105 | | | — | | | — | | | 4,105 | | |
| Equity-based compensation expense | | | 1,129 | | | — | | | — | | | 1,129 | | |
Net contributions from (distributions to) related parties (1) | | | 489 | | | — | | | 20,000 | | | 20,489 | | |
| | Balance at March 31, 2020 | | | $ | 2,684,136 | | | $ | (24,990) | | | $ | 133,139 | | | $ | 2,792,285 | | |
Unit repurchases (1) | | Unit repurchases (1) | | (16,241) | | | — | | | — | | | (16,241) | |
Contributions of equity-based compensation from Occidental | | Contributions of equity-based compensation from Occidental | | 3,210 | | | — | | | — | | | 3,210 | |
Equity-based compensation expense | | Equity-based compensation expense | | 3,524 | | | — | | | — | | | 3,524 | |
| Net contributions from (distributions to) related parties | | Net contributions from (distributions to) related parties | | 1,627 | | | — | | | — | | | 1,627 | |
| Other | | Other | | (2,355) | | | — | | | — | | | (2,355) | |
| Balance at March 31, 2021 | | Balance at March 31, 2021 | | $ | 2,821,455 | | | $ | (16,033) | | | $ | 136,698 | | | $ | 2,942,120 | |
| Net income (loss) | Net income (loss) | | | 267,576 | | | 5,461 | | | 8,304 | | | 281,341 | | Net income (loss) | | 226,295 | | | 4,964 | | | 7,018 | | | 238,277 | |
| | Distributions to Chipeta noncontrolling interest owner | Distributions to Chipeta noncontrolling interest owner | | | — | | | — | | | (1,037) | | | (1,037) | | Distributions to Chipeta noncontrolling interest owner | | — | | | — | | | (1,245) | | | (1,245) | |
| Distributions to noncontrolling interest owner of WES Operating | Distributions to noncontrolling interest owner of WES Operating | | | — | | | — | | | (2,869) | | | (2,869) | | Distributions to noncontrolling interest owner of WES Operating | | — | | | — | | | (2,741) | | | (2,741) | |
| Distributions to Partnership unitholders | Distributions to Partnership unitholders | | | (138,075) | | | (2,818) | | | — | | | (140,893) | | Distributions to Partnership unitholders | | (130,115) | | | (2,854) | | | — | | | (132,969) | |
| | Contributions of equity-based compensation from Occidental | | | 3,562 | | | — | | | — | | | 3,562 | | |
| Equity-based compensation expense | | | 2,115 | | | — | | | — | | | 2,115 | | |
Contributions of equity-based compensation from Occidental | | Contributions of equity-based compensation from Occidental | | 2,375 | | | — | | | — | | | 2,375 | |
Equity-based compensation expense | | Equity-based compensation expense | | 4,746 | | | — | | | — | | | 4,746 | |
| Net contributions from (distributions to) related parties | Net contributions from (distributions to) related parties | | | 1,343 | | | — | | | — | | | 1,343 | | Net contributions from (distributions to) related parties | | 2,881 | | | — | | | — | | | 2,881 | |
| Other | Other | | | (330) | | | — | | | — | | | (330) | | Other | | (571) | | | — | | | — | | | (571) | |
| Balance at June 30, 2020 | | | $ | 2,820,327 | | | $ | (22,347) | | | $ | 137,537 | | | $ | 2,935,517 | | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | | $ | 2,927,066 | | | $ | (13,923) | | | $ | 139,730 | | | $ | 3,052,873 | |
| Net income (loss) | Net income (loss) | | | 241,479 | | | 5,132 | | | 7,524 | | | 254,135 | | Net income (loss) | | 250,198 | | | 5,527 | | | 7,913 | | | 263,638 | |
| | Distributions to Chipeta noncontrolling interest owner | Distributions to Chipeta noncontrolling interest owner | | | — | | | — | | | (1,148) | | | (1,148) | | Distributions to Chipeta noncontrolling interest owner | | — | | | — | | | (1,213) | | | (1,213) | |
| Distributions to noncontrolling interest owner of WES Operating | Distributions to noncontrolling interest owner of WES Operating | | | — | | | — | | | (2,869) | | | (2,869) | | Distributions to noncontrolling interest owner of WES Operating | | — | | | — | | | (4,642) | | | (4,642) | |
| Distributions to Partnership unitholders | Distributions to Partnership unitholders | | | (138,083) | | | (2,817) | | | — | | | (140,900) | | Distributions to Partnership unitholders | | (131,772) | | | (2,890) | | | — | | | (134,662) | |
| Unit exchange with Occidental (2) | | | (256,640) | | | — | | | (5,238) | | | (261,878) | | |
| Contributions of equity-based compensation from Occidental | | | 3,488 | | | — | | | — | | | 3,488 | | |
| Equity-based compensation expense | | | 2,128 | | | — | | | — | | | 2,128 | | |
Unit repurchases (1) | | Unit repurchases (1) | | (88,125) | | | — | | | — | | | (88,125) | |
Contributions of equity-based compensation from Occidental | | Contributions of equity-based compensation from Occidental | | 2,311 | | | — | | | — | | | 2,311 | |
Equity-based compensation expense | | Equity-based compensation expense | | 4,668 | | | — | | | — | | | 4,668 | |
| Net contributions from (distributions to) related parties | Net contributions from (distributions to) related parties | | | 842 | | | — | | | — | | | 842 | | Net contributions from (distributions to) related parties | | 2,165 | | | — | | | — | | | 2,165 | |
| Other | Other | | | 1,141 | | | — | | | — | | | 1,141 | | Other | | (567) | | | — | | | — | | | (567) | |
| Balance at September 30, 2020 | | | $ | 2,674,682 | | | $ | (20,032) | | | $ | 135,806 | | | $ | 2,790,456 | | |
| Balance at September 30, 2021 | | Balance at September 30, 2021 | | $ | 2,965,944 | | | $ | (11,286) | | | $ | 141,788 | | | $ | 3,096,446 | |
(1)See December 2019 Agreements—Services, Secondment, and Employee Transfer Agreement within Note 1.
(2)See Note 65.
See accompanying Notes to Consolidated Financial Statements.
109
WESTERN MIDSTREAM PARTNERS, LP
CONSOLIDATED STATEMENTS OF EQUITY AND PARTNERS’ CAPITAL
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Partners’ Capital | | | | |
| thousands | | Net
Investment
by Anadarko | | Common
Units | | Noncontrolling
Interests | | Total |
| Balance at December 31, 2018 | | $ | 1,388,018 | | | $ | 951,888 | | | $ | 2,552,777 | | | $ | 4,892,683 | |
| Net income (loss) | | 29,116 | | | 89,544 | | | 93,319 | | | 211,979 | |
Cumulative impact of the Merger transactions (1) | | — | | | 3,169,800 | | | (3,169,800) | | | 0 | |
Above-market component of swap agreements with Anadarko (2) | | — | | | 7,407 | | | — | | | 7,407 | |
WES Operating equity transactions, net (3) | | — | | | (752,796) | | | 752,796 | | | 0 | |
| Distributions to Chipeta noncontrolling interest owner | | — | | | — | | | (1,935) | | | (1,935) | |
| Distributions to noncontrolling interest owners of WES Operating | | — | | | — | | | (100,999) | | | (100,999) | |
| Distributions to Partnership unitholders | | — | | | (131,910) | | | — | | | (131,910) | |
Acquisitions from related parties (4) | | (2,141,827) | | | 106,856 | | | 27,470 | | | (2,007,501) | |
| Contributions of equity-based compensation from Anadarko | | — | | | 1,840 | | | — | | | 1,840 | |
| Net pre-acquisition contributions from (distributions to) related parties | | 451,591 | | | — | | | — | | | 451,591 | |
| Adjustments of net deferred tax liabilities | | 273,102 | | | (4,375) | | | — | | | 268,727 | |
| Other | | — | | | (332) | | | (9) | | | (341) | |
| Balance at March 31, 2019 | | $ | 0 | | | $ | 3,437,922 | | | $ | 153,619 | | | $ | 3,591,541 | |
| Net income (loss) | | 163 | | | 169,431 | | | 5,464 | | | 175,058 | |
| Distributions to Chipeta noncontrolling interest owner | | — | | | — | | | (1,858) | | | (1,858) | |
| Distributions to noncontrolling interest owner of WES Operating | | — | | | — | | | (5,667) | | | (5,667) | |
| Distributions to Partnership unitholders | | — | | | (276,324) | | | — | | | (276,324) | |
Acquisitions from related parties (4) | | (5,510) | | | 4,493 | | | 1,017 | | | 0 | |
| Contributions of equity-based compensation from Anadarko | | — | | | 2,768 | | | — | | | 2,768 | |
| Net pre-acquisition contributions from (distributions to) related parties | | 5,347 | | | — | | | — | | | 5,347 | |
| Other | | — | | | 356 | | | (11) | | | 345 | |
| Balance at June 30, 2019 | | $ | 0 | | | $ | 3,338,646 | | | $ | 152,564 | | | $ | 3,491,210 | |
| Net income (loss) | | — | | | 121,217 | | | 4,006 | | | 125,223 | |
WES Operating equity transactions, net (3) | | — | | | (2,401) | | | 2,401 | | | 0 | |
| Distributions to Chipeta noncontrolling interest owner | | — | | | — | | | (1,407) | | | (1,407) | |
| Distributions to noncontrolling interest owner of WES Operating | | — | | | — | | | (5,764) | | | (5,764) | |
| Distributions to Partnership unitholders | | — | | | (279,959) | | | — | | | (279,959) | |
Acquisitions from related parties (4) | | (1,881) | | | 1,523 | | | 358 | | | 0 | |
| Contributions of equity-based compensation from Occidental | | — | | | 3,355 | | | — | | | 3,355 | |
| Net pre-acquisition contributions from (distributions to) related parties | | 1,881 | | | — | | | — | | | 1,881 | |
| Other | | — | | | 536 | | | — | | | 536 | |
| Balance at September 30, 2019 | | $ | 0 | | | $ | 3,182,917 | | | $ | 152,158 | | | $ | 3,335,075 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Partners’ Capital | | | | |
| thousands | | | | Common
Units | | General Partner
Units | | Noncontrolling
Interests | | Total |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Balance at December 31, 2019 | | | | $ | 3,209,947 | | | $ | (14,224) | | | $ | 149,570 | | | $ | 3,345,293 | |
| Net income (loss) | | | | (251,396) | | | (5,131) | | | (32,873) | | | (289,400) | |
| | | | | | | | | | |
| Distributions to Chipeta noncontrolling interest owner | | | | — | | | — | | | (1,738) | | | (1,738) | |
| Distributions to noncontrolling interest owner of WES Operating | | | | — | | | — | | | (5,807) | | | (5,807) | |
| Distributions to Partnership unitholders | | | | (276,151) | | | (5,635) | | | — | | | (281,786) | |
| Acquisitions from related parties | | | | (3,987) | | | — | | | 3,987 | | | — | |
Contributions of equity-based compensation from Occidental | | | | 4,105 | | | — | | | — | | | 4,105 | |
Equity-based compensation expense | | | | 1,129 | | | — | | | — | | | 1,129 | |
Net contributions from (distributions to) related parties (1) | | | | 489 | | | — | | | 20,000 | | | 20,489 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Balance at March 31, 2020 | | | | $ | 2,684,136 | | | $ | (24,990) | | | $ | 133,139 | | | $ | 2,792,285 | |
| Net income (loss) | | | | 267,576 | | | 5,461 | | | 8,304 | | | 281,341 | |
| | | | | | | | | | |
| Distributions to Chipeta noncontrolling interest owner | | | | — | | | — | | | (1,037) | | | (1,037) | |
| Distributions to noncontrolling interest owner of WES Operating | | | | — | | | — | | | (2,869) | | | (2,869) | |
| Distributions to Partnership unitholders | | | | (138,075) | | | (2,818) | | | — | | | (140,893) | |
| | | | | | | | | | |
| Contributions of equity-based compensation from Occidental | | | | 3,562 | | | — | | | — | | | 3,562 | |
| Equity-based compensation expense | | | | 2,115 | | | — | | | — | | | 2,115 | |
| Net contributions from (distributions to) related parties | | | | 1,343 | | | — | | | — | | | 1,343 | |
| Other | | | | (330) | | | — | | | — | | | (330) | |
| Balance at June 30, 2020 | | | | $ | 2,820,327 | | | $ | (22,347) | | | $ | 137,537 | | | $ | 2,935,517 | |
| Net income (loss) | | | | 241,479 | | | 5,132 | | | 7,524 | | | 254,135 | |
| Distributions to Chipeta noncontrolling interest owner | | | | — | | | — | | | (1,148) | | | (1,148) | |
| Distributions to noncontrolling interest owner of WES Operating | | | | — | | | — | | | (2,869) | | | (2,869) | |
| Distributions to Partnership unitholders | | | | (138,083) | | | (2,817) | | | — | | | (140,900) | |
| | | | | | | | | | |
Unit exchange with Occidental (2) | | | | (256,640) | | | — | | | (5,238) | | | (261,878) | |
| Contributions of equity-based compensation from Occidental | | | | 3,488 | | | — | | | — | | | 3,488 | |
| Equity-based compensation expense | | | | 2,128 | | | — | | | — | | | 2,128 | |
| Net contributions from (distributions to) related parties | | | | 842 | | | — | | | — | | | 842 | |
| Other | | | | 1,141 | | | — | | | — | | | 1,141 | |
| Balance at September 30, 2020 | | | | $ | 2,674,682 | | | $ | (20,032) | | | $ | 135,806 | | | $ | 2,790,456 | |
(1)See Services Agreement within Note 16.
(2)See Note 6.
(3)The $752.8 million and $2.4 million decrease to partners’ capital for the three months ended March 31,2019, and September 30, 2019, respectively, together with net income (loss) attributable to Western Midstream Partners, LP, totaled $(634.1) million and $118.8 million, respectively.
(4)The amounts allocated to common unitholders and noncontrolling interests represent a non-cash investing activity related to the assets and liabilities assumed in the AMA acquisition. See Note 3.
See accompanying Notes to Consolidated Financial Statements.
1110
WESTERN MIDSTREAM PARTNERS, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | Nine Months Ended
September 30, | | | | Nine Months Ended
September 30, | |
| thousands | thousands | | 2020 | | 2019 | | thousands | | 2021 | | 2020 | |
| Cash flows from operating activities | Cash flows from operating activities | | | | | | Cash flows from operating activities | | | | | |
| Net income (loss) | Net income (loss) | | $ | 246,076 | | | $ | 512,260 | | | Net income (loss) | | $ | 693,150 | | | $ | 246,076 | | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | |
| Depreciation and amortization | Depreciation and amortization | | 384,688 | | | 362,977 | | | Depreciation and amortization | | 407,404 | | | 384,688 | | |
| Long-lived asset and other impairments | | 200,575 | | | 4,294 | | | |
Long-lived asset and other impairments | | Long-lived asset and other impairments | | 29,198 | | | 200,575 | | |
| Goodwill impairment | Goodwill impairment | | 441,017 | | | 0 | | | Goodwill impairment | | — | | | 441,017 | | |
| Non-cash equity-based compensation expense | | 16,527 | | | 9,489 | | | |
Non-cash equity-based compensation expense | | Non-cash equity-based compensation expense | | 20,834 | | | 16,527 | | |
| Deferred income taxes | Deferred income taxes | | 2,393 | | | 6,601 | | | Deferred income taxes | | 2,275 | | | 2,393 | | |
| Accretion and amortization of long-term obligations, net | | 6,482 | | | 6,499 | | | |
Accretion and amortization of long-term obligations, net | | Accretion and amortization of long-term obligations, net | | 5,873 | | | 6,482 | | |
| Equity income, net – related parties | Equity income, net – related parties | | (176,788) | | | (175,483) | | | Equity income, net – related parties | | (159,337) | | | (176,788) | | |
| Distributions from equity-investment earnings – related parties | | 187,816 | | | 182,337 | | | |
Distributions from equity-investment earnings – related parties | | Distributions from equity-investment earnings – related parties | | 164,772 | | | 187,816 | | |
| (Gain) loss on divestiture and other, net | (Gain) loss on divestiture and other, net | | 3,651 | | | 1,403 | | | (Gain) loss on divestiture and other, net | | (278) | | | 3,651 | | |
| (Gain) loss on early extinguishment of debt | (Gain) loss on early extinguishment of debt | | (10,372) | | | 0 | | | (Gain) loss on early extinguishment of debt | | 24,944 | | | (10,372) | | |
| (Gain) loss on interest-rate swaps | | 0 | | | 162,974 | | | |
| | Cash paid to settle interest-rate swaps | Cash paid to settle interest-rate swaps | | (19,181) | | | 0 | | | Cash paid to settle interest-rate swaps | | — | | | (19,181) | | |
| Other | Other | | 192 | | | 236 | | | Other | | 46 | | | 192 | | |
| Changes in assets and liabilities: | Changes in assets and liabilities: | | | Changes in assets and liabilities: | | |
| (Increase) decrease in accounts receivable, net | (Increase) decrease in accounts receivable, net | | (192,338) | | | (9,750) | | | (Increase) decrease in accounts receivable, net | | (130,773) | | | (192,338) | | |
| Increase (decrease) in accounts and imbalance payables and accrued liabilities, net | Increase (decrease) in accounts and imbalance payables and accrued liabilities, net | | 37,814 | | | (69,390) | | | Increase (decrease) in accounts and imbalance payables and accrued liabilities, net | | 56,495 | | | 37,814 | | |
| Change in other items, net | Change in other items, net | | 3,341 | | | 32,238 | | | Change in other items, net | | (9,609) | | | 3,341 | | |
| Net cash provided by operating activities | Net cash provided by operating activities | | 1,131,893 | | | 1,026,685 | | | Net cash provided by operating activities | | 1,104,994 | | | 1,131,893 | | |
| Cash flows from investing activities | Cash flows from investing activities | | | Cash flows from investing activities | | |
| Capital expenditures | Capital expenditures | | (372,262) | | | (947,266) | | | Capital expenditures | | (217,757) | | | (372,262) | | |
| Acquisitions from related parties | | 0 | | | (2,007,501) | | | |
| Acquisitions from third parties | | 0 | | | (93,303) | | | |
| Contributions to equity investments - related parties | | (19,017) | | | (108,118) | | | |
| Purchases from related parties | | Purchases from related parties | | (2,000) | | | — | | |
| | Contributions to equity investments – related parties | | Contributions to equity investments – related parties | | (3,683) | | | (19,017) | | |
| Distributions from equity investments in excess of cumulative earnings – related parties | Distributions from equity investments in excess of cumulative earnings – related parties | | 21,750 | | | 21,203 | | | Distributions from equity investments in excess of cumulative earnings – related parties | | 30,075 | | | 21,750 | | |
| | Proceeds from the sale of assets to third parties | Proceeds from the sale of assets to third parties | | 0 | | | 342 | | | Proceeds from the sale of assets to third parties | | 8,002 | | | — | | |
| Additions to materials and supplies inventory and other | | (57,141) | | | 0 | | | |
| (Increase) decrease in materials and supplies inventory and other | | (Increase) decrease in materials and supplies inventory and other | | (1,924) | | | (57,141) | | |
| Net cash used in investing activities | Net cash used in investing activities | | (426,670) | | | (3,134,643) | | | Net cash used in investing activities | | (187,287) | | | (426,670) | | |
| Cash flows from financing activities | Cash flows from financing activities | | | Cash flows from financing activities | | |
Borrowings, net of debt issuance costs (1) | Borrowings, net of debt issuance costs (1) | | 3,681,173 | | | 3,950,750 | | | Borrowings, net of debt issuance costs (1) | | 400,000 | | | 3,681,173 | | |
Repayments of debt (2) | Repayments of debt (2) | | (3,780,390) | | | (1,467,595) | | | Repayments of debt (2) | | (1,132,966) | | | (3,780,390) | | |
| Increase (decrease) in outstanding checks | Increase (decrease) in outstanding checks | | 691 | | | (9,204) | | | Increase (decrease) in outstanding checks | | (11,757) | | | 691 | | |
| | Registration expenses related to the issuance of Partnership common units | | 0 | | | (855) | | | |
| Distributions to Partnership unitholders (3)(1) | Distributions to Partnership unitholders (3)(1) | | (563,579) | | | (688,193) | | | Distributions to Partnership unitholders (3)(1) | | (398,896) | | | (563,579) | | |
| Distributions to Chipeta noncontrolling interest owner | Distributions to Chipeta noncontrolling interest owner | | (3,923) | | | (5,200) | | | Distributions to Chipeta noncontrolling interest owner | | (2,734) | | | (3,923) | | |
| Distributions to noncontrolling interest owners of WES Operating | | (11,545) | | | (112,430) | | | |
| Distributions to noncontrolling interest owner of WES Operating | | Distributions to noncontrolling interest owner of WES Operating | | (9,934) | | | (11,545) | | |
| Net contributions from (distributions to) related parties | Net contributions from (distributions to) related parties | | 22,674 | | | 458,819 | | | Net contributions from (distributions to) related parties | | 6,673 | | | 22,674 | | |
Above-market component of swap agreements with Anadarko (3) | | 0 | | | 7,407 | | | |
| Finance lease payments (4)(2) | Finance lease payments (4)(2) | | (12,241) | | | (253) | | | Finance lease payments (4)(2) | | (5,295) | | | (12,241) | | |
| Unit repurchases | | Unit repurchases | | (104,366) | | | — | | |
| Other | | Other | | (3,492) | | | — | | |
| Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | | (667,140) | | | 2,133,246 | | | Net cash provided by (used in) financing activities | | (1,262,767) | | | (667,140) | | |
| Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | | 38,083 | | | 25,288 | | | Net increase (decrease) in cash and cash equivalents | | (345,060) | | | 38,083 | | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | | 99,962 | | | 92,142 | | | Cash and cash equivalents at beginning of period | | 444,922 | | | 99,962 | | |
| Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 138,045 | | | $ | 117,430 | | | Cash and cash equivalents at end of period | | $ | 99,862 | | | $ | 138,045 | | |
| Supplemental disclosures | Supplemental disclosures | | | | | | Supplemental disclosures | | | | | |
Non-cash unit exchange with Occidental (3) | | $ | (261,878) | | | $ | 0 | | | |
Non-cash unit exchange with Occidental (1) | | Non-cash unit exchange with Occidental (1) | | $ | — | | | $ | (261,878) | | |
| | Interest paid, net of capitalized interest | Interest paid, net of capitalized interest | | 307,713 | | | 232,147 | | | Interest paid, net of capitalized interest | | 348,904 | | | 307,713 | | |
| Taxes paid (reimbursements received) | | (384) | | | 96 | | | |
| Income taxes paid (reimbursements received) | | Income taxes paid (reimbursements received) | | 932 | | | (384) | | |
| Accrued capital expenditures | Accrued capital expenditures | | 20,275 | | | 154,080 | | | Accrued capital expenditures | | 29,085 | | | 20,275 | | |
(1)For the nine months ended September 30, 2019, includes an $11.0 million borrowing under the APCWH Note Payable.
(2)For the nine months ended September 30, 2019, includes a $439.6 million repayment to settle the APCWH Note Payable. See Note 6.
(3)See Note 6.
(4)(2)For the nine months ended September 30, 2020, includes related-party payments of $6.4 million.
See accompanying Notes to Consolidated Financial Statements.
1211
WESTERN MIDSTREAM OPERATING, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | |
| thousands | thousands | | 2020 | | 2019 | | 2020 | | 2019 | | thousands | | 2021 | | 2020 | | 2021 | | 2020 | |
| | Revenues and other | Revenues and other | | | | | | | | | | Revenues and other | | | | | | | | | |
| Service revenues – fee based | Service revenues – fee based | | $ | 636,522 | | | $ | 587,965 | | | $ | 1,980,546 | | | $ | 1,761,483 | | | Service revenues – fee based | | $ | 650,482 | | | $ | 636,522 | | | $ | 1,841,742 | | | $ | 1,980,546 | | |
| Service revenues – product based | Service revenues – product based | | 12,316 | | | 9,476 | | | 35,237 | | | 45,530 | | | Service revenues – product based | | 28,812 | | | 12,316 | | | 88,267 | | | 35,237 | | |
| Product sales | Product sales | | 30,106 | | | 68,248 | | | 108,491 | | | 214,850 | | | Product sales | | 84,298 | | | 30,106 | | | 227,359 | | | 108,491 | | |
| Other | Other | | 100 | | | 338 | | | 838 | | | 1,101 | | | Other | | 248 | | | 100 | | | 577 | | | 838 | | |
| Total revenues and other (1) | Total revenues and other (1) | | 679,044 | | | 666,027 | | | 2,125,112 | | | 2,022,964 | | | Total revenues and other (1) | | 763,840 | | | 679,044 | | | 2,157,945 | | | 2,125,112 | | |
| Equity income, net – related parties | Equity income, net – related parties | | 61,026 | | | 53,893 | | | 176,788 | | | 175,483 | | | Equity income, net – related parties | | 48,506 | | | 61,026 | | | 159,337 | | | 176,788 | | |
| Operating expenses | Operating expenses | | | Operating expenses | | |
| Cost of product | Cost of product | | 31,739 | | | 97,800 | | | 153,611 | | | 334,740 | | | Cost of product | | 83,232 | | | 31,739 | | | 250,245 | | | 153,611 | | |
| Operation and maintenance | Operation and maintenance | | 132,293 | | | 176,572 | | | 436,670 | | | 467,832 | | | Operation and maintenance | | 140,838 | | | 132,293 | | | 434,198 | | | 436,670 | | |
| General and administrative | General and administrative | | 41,483 | | | 29,072 | | | 115,783 | | | 77,733 | | | General and administrative | | 50,689 | | | 41,483 | | | 137,767 | | | 115,783 | | |
| Property and other taxes | Property and other taxes | | 19,392 | | | 15,281 | | | 57,263 | | | 45,848 | | | Property and other taxes | | 13,641 | | | 19,392 | | | 45,992 | | | 57,263 | | |
| Depreciation and amortization | Depreciation and amortization | | 132,564 | | | 127,914 | | | 384,688 | | | 362,977 | | | Depreciation and amortization | | 139,002 | | | 132,564 | | | 407,404 | | | 384,688 | | |
| Long-lived asset and other impairments | | 34,640 | | | 3,107 | | | 200,575 | | | 4,294 | | | |
Long-lived asset and other impairments | | Long-lived asset and other impairments | | 1,594 | | | 34,640 | | | 29,198 | | | 200,575 | | |
| Goodwill impairment | Goodwill impairment | | 0 | | | 0 | | | 441,017 | | | 0 | | | Goodwill impairment | | — | | | — | | | — | | | 441,017 | | |
Total operating expenses (2) | Total operating expenses (2) | | 392,111 | | | 449,746 | | | 1,789,607 | | | 1,293,424 | | | Total operating expenses (2) | | 428,996 | | | 392,111 | | | 1,304,804 | | | 1,789,607 | | |
| Gain (loss) on divestiture and other, net | Gain (loss) on divestiture and other, net | | (768) | | | 248 | | | (3,651) | | | (1,403) | | | Gain (loss) on divestiture and other, net | | (364) | | | (768) | | | 278 | | | (3,651) | | |
| Operating income (loss) | Operating income (loss) | | 347,191 | | | 270,422 | | | 508,642 | | | 903,620 | | | Operating income (loss) | | 382,986 | | | 347,191 | | | 1,012,756 | | | 508,642 | | |
| Interest income – Anadarko note receivable | Interest income – Anadarko note receivable | | 3,286 | | | 4,225 | | | 11,736 | | | 12,675 | | | Interest income – Anadarko note receivable | | — | | | 3,286 | | | — | | | 11,736 | | |
| Interest expense | Interest expense | | (95,571) | | | (78,524) | | | (278,811) | | | (223,627) | | | Interest expense | | (93,257) | | | (95,571) | | | (287,040) | | | (278,811) | | |
| Gain (loss) on early extinguishment of debt | Gain (loss) on early extinguishment of debt | | 1,632 | | | 0 | | | 10,372 | | | 0 | | | Gain (loss) on early extinguishment of debt | | (24,655) | | | 1,632 | | | (24,944) | | | 10,372 | | |
Other income (expense), net (3) | | 718 | | | (67,902) | | | 606 | | | (161,648) | | | |
| Other income (expense), net | | Other income (expense), net | | 106 | | | 718 | | | (1,022) | | | 606 | | |
| Income (loss) before income taxes | Income (loss) before income taxes | | 257,256 | | | 128,221 | | | 252,545 | | | 531,020 | | | Income (loss) before income taxes | | 265,180 | | | 257,256 | | | 699,750 | | | 252,545 | | |
| Income tax expense (benefit) | Income tax expense (benefit) | | 3,028 | | | 1,309 | | | 3,792 | | | 12,679 | | | Income tax expense (benefit) | | 1,823 | | | 3,028 | | | 4,400 | | | 3,792 | | |
| Net income (loss) | Net income (loss) | | 254,228 | | | 126,912 | | | 248,753 | | | 518,341 | | | Net income (loss) | | 263,357 | | | 254,228 | | | 695,350 | | | 248,753 | | |
| Net income attributable to noncontrolling interest | | 2,488 | | | 1,497 | | | (22,471) | | | 5,318 | | | |
| Net income (loss) attributable to noncontrolling interest | | Net income (loss) attributable to noncontrolling interest | | 2,699 | | | 2,488 | | | 6,596 | | | (22,471) | | |
| Net income (loss) attributable to Western Midstream Operating, LP | Net income (loss) attributable to Western Midstream Operating, LP | | $ | 251,740 | | | $ | 125,415 | | | $ | 271,224 | | | $ | 513,023 | | | Net income (loss) attributable to Western Midstream Operating, LP | | $ | 260,658 | | | $ | 251,740 | | | $ | 688,754 | | | $ | 271,224 | | |
| Limited partners’ interest in net income (loss): | | | | | | | | | | |
| Net income (loss) attributable to Western Midstream Operating, LP | | $ | 251,740 | | | $ | 125,415 | | | $ | 271,224 | | | $ | 513,023 | | | |
| Pre-acquisition net (income) loss allocated to Anadarko | | 0 | | | 0 | | | 0 | | | (29,279) | | | |
| Common and Class C limited partners’ interest in net income (loss) (4) | | 251,740 | | | 125,415 | | | 271,224 | | | 483,744 | | | |
| |
(1)Total revenues and other includes related-partyrelated-party amounts of $431.7 million and $1.2 billion for the three and nine months ended September 30, 2021, respectively, and $455.6 million and $1.4 billion for the three and nine months ended September 30, 2020, respectively, and $398.8 million and $1.2 billion for the three and nine months ended September 30, 2019, respectively. See Note 6.
(2)Total operating expenses includes related-partyrelated-party amounts of $23.7 million and $93.6 million for the three and nine months ended September 30, 2021, respectively, and $11.1 million and $162.2 million for the three and nine months ended September 30, 2020, respectively, and $127.4 million and $368.2 million for the three and nine months ended September 30, 2019, respectively. See Note 6.
(3)Other income (expense), net includes losses associated with the interest-rate swap agreements for the three and nine months ended September 30, 2019. See Note 11.
(4)See Note 5.
See accompanying Notes to Consolidated Financial Statements.
1312
WESTERN MIDSTREAM OPERATING, LP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | | thousands except number of units | thousands except number of units | | September 30,
2020 | | December 31,
2019 | thousands except number of units | | September 30,
2021 | | December 31,
2020 |
| ASSETS | ASSETS | | | | | ASSETS | | | | |
| Current assets | Current assets | | Current assets | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 136,602 | | | $ | 98,122 | | Cash and cash equivalents | | $ | 92,863 | | | $ | 418,537 | |
| Accounts receivable, net | Accounts receivable, net | | 415,423 | | | 260,748 | | Accounts receivable, net | | 583,652 | | | 407,549 | |
| Other current assets | Other current assets | | 51,659 | | | 39,914 | | Other current assets | | 70,907 | | | 43,244 | |
| Total current assets | Total current assets | | 603,684 | | | 398,784 | | Total current assets | | 747,422 | | | 869,330 | |
| Anadarko note receivable | | 0 | | | 260,000 | | |
| Property, plant, and equipment | Property, plant, and equipment | | Property, plant, and equipment | |
| Cost | Cost | | 12,633,144 | | | 12,355,671 | | Cost | | 12,732,926 | | | 12,641,745 | |
| Less accumulated depreciation | Less accumulated depreciation | | 3,808,005 | | | 3,290,740 | | Less accumulated depreciation | | 4,208,845 | | | 3,931,800 | |
| Net property, plant, and equipment | Net property, plant, and equipment | | 8,825,139 | | | 9,064,931 | | Net property, plant, and equipment | | 8,524,081 | | | 8,709,945 | |
| Goodwill | Goodwill | | 4,783 | | | 445,800 | | Goodwill | | 4,783 | | | 4,783 | |
| Other intangible assets | Other intangible assets | | 784,326 | | | 809,391 | | Other intangible assets | | 752,659 | | | 776,409 | |
| Equity investments | Equity investments | | 1,242,557 | | | 1,285,717 | | Equity investments | | 1,181,181 | | | 1,224,813 | |
Other assets (1) | Other assets (1) | | 188,937 | | | 78,202 | | Other assets (1) | | 199,964 | | | 171,013 | |
Total assets (2) | Total assets (2) | | $ | 11,649,426 | | | $ | 12,342,825 | | Total assets (2) | | $ | 11,410,090 | | | $ | 11,756,293 | |
| LIABILITIES, EQUITY, AND PARTNERS’ CAPITAL | LIABILITIES, EQUITY, AND PARTNERS’ CAPITAL | | | | | LIABILITIES, EQUITY, AND PARTNERS’ CAPITAL | | | | |
| Current liabilities | Current liabilities | | Current liabilities | |
| Accounts and imbalance payables | Accounts and imbalance payables | | $ | 164,672 | | | $ | 293,128 | | Accounts and imbalance payables | | $ | 382,406 | | | $ | 210,532 | |
| Short-term debt | | 438,762 | | | 7,873 | | |
Short-term debt | | Short-term debt | | 726,429 | | | 438,870 | |
| Accrued ad valorem taxes | Accrued ad valorem taxes | | 58,335 | | | 35,160 | | Accrued ad valorem taxes | | 49,065 | | | 41,427 | |
| Accrued liabilities | Accrued liabilities | | 142,844 | | | 149,639 | | Accrued liabilities | | 145,241 | | | 230,833 | |
| | Total current liabilities | Total current liabilities | | 804,613 | | | 485,800 | | Total current liabilities | | 1,303,141 | | | 921,662 | |
| Long-term liabilities | Long-term liabilities | | Long-term liabilities | |
| Long-term debt | | 7,440,394 | | | 7,951,565 | | |
Long-term debt | | Long-term debt | | 6,399,874 | | | 7,415,832 | |
| Deferred income taxes | Deferred income taxes | | 21,292 | | | 18,899 | | Deferred income taxes | | 24,470 | | | 22,195 | |
| Asset retirement obligations | Asset retirement obligations | | 327,285 | | | 336,396 | | Asset retirement obligations | | 271,022 | | | 260,283 | |
| Other liabilities | Other liabilities | | 272,819 | | | 208,346 | | Other liabilities | | 320,224 | | | 275,570 | |
| Total long-term liabilities | | 8,061,790 | | | 8,515,206 | | |
Total long-term liabilities | | Total long-term liabilities | | 7,015,590 | | | 7,973,880 | |
Total liabilities (3) | Total liabilities (3) | | 8,866,403 | | | 9,001,006 | | Total liabilities (3) | | 8,318,731 | | | 8,895,542 | |
| Equity and partners’ capital | Equity and partners’ capital | | Equity and partners’ capital | |
| Common units (318,675,578 units issued and outstanding at September 30, 2020, and December 31, 2019) | | 2,750,231 | | | 3,286,620 | | |
| Common units (318,675,578 units issued and outstanding at September 30, 2021, and December 31, 2020) | | Common units (318,675,578 units issued and outstanding at September 30, 2021, and December 31, 2020) | | 3,057,945 | | | 2,831,199 | |
| | Total partners’ capital | Total partners’ capital | | 2,750,231 | | | 3,286,620 | | Total partners’ capital | | 3,057,945 | | | 2,831,199 | |
| Noncontrolling interest | Noncontrolling interest | | 32,792 | | | 55,199 | | Noncontrolling interest | | 33,414 | | | 29,552 | |
| Total equity and partners’ capital | Total equity and partners’ capital | | 2,783,023 | | | 3,341,819 | | Total equity and partners’ capital | | 3,091,359 | | | 2,860,751 | |
| Total liabilities, equity, and partners’ capital | Total liabilities, equity, and partners’ capital | | $ | 11,649,426 | | | $ | 12,342,825 | | Total liabilities, equity, and partners’ capital | | $ | 11,410,090 | | | $ | 11,756,293 | |
(1)Other assets includes $3.9$11.2 million and $4.5$4.2 million of NGLs line-fillline-fill inventory as of September 30, 2020,2021, and December 31, 2019,2020, respectively. Other assets also includes $80.9$63.1 million and $71.9 million of materials and supplies inventory as of September 30, 2020. See Note 1.2021, and December 31, 2020, respectively.
(2)Total assets includes related-partyrelated-party amounts of $1.6 billion and $1.7$1.5 billion as of September 30, 2020,2021, and December 31, 2019,2020, respectively, which includes related-partyrelated-party Accounts receivable, net of $256.5$289.4 million and $113.6$246.1 million as of September 30, 2020,2021, and December 31, 2019,2020, respectively. See Note 6.
(3)Total liabilities includes related-partyrelated-party amounts of $136.8$291.6 million and $108.8$164.3 million as of September 30, 2020,2021, and December 31, 2019,2020, respectively. See Note 6.
See accompanying Notes to Consolidated Financial Statements.
1413
WESTERN MIDSTREAM OPERATING, LP
CONSOLIDATED STATEMENTS OF EQUITY AND PARTNERS’ CAPITAL
(UNAUDITED)
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| Balance at December 31, 2019 | | | | $ | 3,286,620 | | | | | | | $ | 55,199 | | | $ | 3,341,819 | |
| Net income (loss) | | | | (260,330) | | | | | | | (27,665) | | | (287,995) | |
| Distributions to Chipeta noncontrolling interest owner | | | | — | | | | | | | (1,738) | | | (1,738) | |
| Distributions to WES Operating unitholders | | | | (290,314) | | | | | | | — | | | (290,314) | |
| Acquisitions from related parties | | | | (3,987) | | | | | | | 3,987 | | | 0 | |
| Contributions of equity-based compensation from Occidental | | | | 4,105 | | | | | | | — | | | 4,105 | |
Net contributions from (distributions to) related parties (1) | | | | 20,489 | | | | | | | — | | | 20,489 | |
| | | | | | | | | | | | |
| Balance at March 31, 2020 | | | | $ | 2,756,583 | | | | | | | $ | 29,783 | | | $ | 2,786,366 | |
| Net income (loss) | | | | 279,814 | | | | | | | 2,706 | | | 282,520 | |
| Distributions to Chipeta noncontrolling interest owner | | | | — | | | | | | | (1,037) | | | (1,037) | |
| Distributions to WES Operating unitholders | | | | (143,404) | | | | | | | — | | | (143,404) | |
| | | | | | | | | | | | |
| Contributions of equity-based compensation from Occidental | | | | 3,562 | | | | | | | — | | | 3,562 | |
| Net contributions from (distributions to) related parties | | | | 1,343 | | | | | | | — | | | 1,343 | |
| Balance at June 30, 2020 | | | | $ | 2,897,898 | | | | | | | $ | 31,452 | | | $ | 2,929,350 | |
| Net income (loss) | | | | 251,740 | | | | | | | 2,488 | | | 254,228 | |
| Distributions to Chipeta noncontrolling interest owner | | | | — | | | | | | | (1,148) | | | (1,148) | |
| Distributions to WES Operating unitholders | | | | (143,404) | | | | | | | — | | | (143,404) | |
| | | | | | | | | | | | |
| Contributions of equity-based compensation from Occidental | | | | 3,488 | | | | | | | — | | | 3,488 | |
Unit exchange with Occidental (2) | | | | (261,878) | | | | | | | — | | | (261,878) | |
| Net contributions from (distributions to) related parties | | | | 842 | | | | | | | — | | | 842 | |
| Other | | | | 1,545 | | | | | | | — | | | 1,545 | |
| Balance at September 30, 2020 | | | | $ | 2,750,231 | | | | | | | $ | 32,792 | | | $ | 2,783,023 | |
(1)See December 2019 Agreements—Services, Secondment, and Employee Transfer Agreement within Note 1. | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| thousands | | Common
Units | | Noncontrolling
Interest | | Total |
| Balance at December 31, 2020 | | $ | 2,831,199 | | | $ | 29,552 | | | $ | 2,860,751 | |
| Net income (loss) | | 190,485 | | | 1,633 | | | 192,118 | |
| Distributions to Chipeta noncontrolling interest owner | | — | | | (276) | | | (276) | |
| Distributions to WES Operating unitholders | | (127,470) | | | — | | | (127,470) | |
Contributions of equity-based compensation from Occidental | | 3,210 | | | — | | | 3,210 | |
Contributions of equity-based compensation from WES | | 10,826 | | | — | | | 10,826 | |
| Net contributions from (distributions to) related parties | | 1,627 | | | — | | | 1,627 | |
| | | | | | |
| Balance at March 31, 2021 | | $ | 2,909,877 | | | $ | 30,909 | | | $ | 2,940,786 | |
| Net income (loss) | | 237,611 | | | 2,264 | | | 239,875 | |
| Distributions to Chipeta noncontrolling interest owner | | — | | | (1,245) | | | (1,245) | |
| Distributions to WES Operating unitholders | | (137,030) | | | — | | | (137,030) | |
Contributions of equity-based compensation from Occidental | | 2,375 | | | — | | | 2,375 | |
Contributions of equity-based compensation from WES | | 4,613 | | | — | | | 4,613 | |
| Net contributions from (distributions to) related parties | | 2,881 | | | — | | | 2,881 | |
| | | | | | |
| Balance at June 30, 2021 | | $ | 3,020,327 | | | $ | 31,928 | | | $ | 3,052,255 | |
| Net income (loss) | | 260,658 | | | 2,699 | | | 263,357 | |
| Distributions to Chipeta noncontrolling interest owner | | — | | | (1,213) | | | (1,213) | |
| Distributions to WES Operating unitholders | | (232,055) | | | — | | | (232,055) | |
Contributions of equity-based compensation from Occidental | | 2,311 | | | — | | | 2,311 | |
Contributions of equity-based compensation from WES | | 4,539 | | | — | | | 4,539 | |
| Net contributions from (distributions to) related parties | | 2,165 | | | — | | | 2,165 | |
| Balance at September 30, 2021 | | $ | 3,057,945 | | | $ | 33,414 | | | $ | 3,091,359 | |
(2)See Note 6.
See accompanying Notes to Consolidated Financial Statements.
1514
WESTERN MIDSTREAM OPERATING, LP
CONSOLIDATED STATEMENTS OF EQUITY AND PARTNERS’ CAPITAL
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Partners’ Capital | | | | |
| thousands | | Net
Investment
by Anadarko | | Common
Units | | Class C
Units | | General
Partner
Units | | Noncontrolling
Interest | | Total |
| Balance at December 31, 2018 | | $ | 1,388,018 | | | $ | 2,475,540 | | | $ | 791,410 | | | $ | 206,862 | | | $ | 57,767 | | | $ | 4,919,597 | |
| Net income (loss) | | 29,116 | | | 170,847 | | | 10,636 | | | 1,997 | | | 1,854 | | | 214,450 | |
Cumulative impact of the Merger transactions (1) | | — | | | 926,236 | | | (802,588) | | | (123,648) | | | — | | | — | |
Above-market component of swap agreements with Anadarko (2) | | — | | | 7,407 | | | — | | | — | | | — | | | 7,407 | |
| Amortization of beneficial conversion feature of Class C units | | — | | | (542) | | | 542 | | | — | | | — | | | 0 | |
| Distributions to Chipeta noncontrolling interest owner | | — | | | — | | | — | | | — | | | (1,935) | | | (1,935) | |
| Distributions to WES Operating unitholders | | — | | | (178,128) | | | — | | | (85,230) | | | — | | | (263,358) | |
Acquisitions from related parties (3) | | (2,141,827) | | | 134,326 | | | — | | | — | | | — | | | (2,007,501) | |
| Contributions of equity-based compensation from Anadarko | | — | | | 1,819 | | | — | | | 19 | | | — | | | 1,838 | |
| Net pre-acquisition contributions from (distributions to) related parties | | 451,591 | | | — | | | — | | | — | | | — | | | 451,591 | |
| Adjustments of net deferred tax liabilities | | 273,102 | | | (4,375) | | | — | | | — | | | — | | | 268,727 | |
| Other | | — | | | 268 | | | — | | | — | | | — | | | 268 | |
| Balance at March 31, 2019 | | $ | 0 | | | $ | 3,533,398 | | | $ | 0 | | | $ | 0 | | | $ | 57,686 | | | $ | 3,591,084 | |
| Net income (loss) | | 163 | | | 174,849 | | | — | | | — | | | 1,967 | | | 176,979 | |
| Distributions to Chipeta noncontrolling interest owner | | — | | | — | | | — | | | — | | | (1,858) | | | (1,858) | |
| Distributions to WES Operating unitholders | | — | | | (283,271) | | | — | | | — | | | — | | | (283,271) | |
Acquisitions from related parties (3) | | (5,510) | | | 5,510 | | | — | | | — | | | — | | | 0 | |
| Contributions of equity-based compensation from Anadarko | | — | | | 2,765 | | | — | | | — | | | — | | | 2,765 | |
| Net pre-acquisition contributions from (distributions to) related parties | | 5,347 | | | — | | | — | | | — | | | — | | | 5,347 | |
| Balance at June 30, 2019 | | $ | 0 | | | $ | 3,433,251 | | | $ | 0 | | | $ | 0 | | | $ | 57,795 | | | $ | 3,491,046 | |
| Net income (loss) | | — | | | 125,415 | | | — | | | — | | | 1,497 | | | 126,912 | |
| Distributions to Chipeta noncontrolling interest owner | | — | | | — | | | — | | | — | | | (1,407) | | | (1,407) | |
| Distributions to WES Operating unitholders | | — | | | (288,083) | | | — | | | — | | | — | | | (288,083) | |
Acquisitions from related parties (3) | | (1,881) | | | 1,881 | | | — | | | — | | | — | | | 0 | |
| Contributions of equity-based compensation from Occidental | | — | | | 3,352 | | | — | | | — | | | — | | | 3,352 | |
| Net pre-acquisition contributions from (distributions to) related parties | | 1,881 | | | — | | | — | | | — | | | — | | | 1,881 | |
| Balance at September 30, 2019 | | $ | 0 | | | $ | 3,275,816 | | | $ | 0 | | | $ | 0 | | | $ | 57,885 | | | $ | 3,333,701 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| thousands | | | | Common
Units | | | | | | Noncontrolling
Interest | | Total |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance at December 31, 2019 | | | | $ | 3,286,620 | | | | | | | $ | 55,199 | | | $ | 3,341,819 | |
| Net income (loss) | | | | (260,330) | | | | | | | (27,665) | | | (287,995) | |
| Distributions to Chipeta noncontrolling interest owner | | | | — | | | | | | | (1,738) | | | (1,738) | |
| Distributions to WES Operating unitholders | | | | (290,314) | | | | | | | — | | | (290,314) | |
| Acquisitions from related parties | | | | (3,987) | | | | | | | 3,987 | | | — | |
Contributions of equity-based compensation from Occidental | | | | 4,105 | | | | | | | — | | | 4,105 | |
Net contributions from (distributions to) related parties (1) | | | | 20,489 | | | | | | | — | | | 20,489 | |
| | | | | | | | | | | | |
| Balance at March 31, 2020 | | | | $ | 2,756,583 | | | | | | | $ | 29,783 | | | $ | 2,786,366 | |
| Net income (loss) | | | | 279,814 | | | | | | | 2,706 | | | 282,520 | |
| Distributions to Chipeta noncontrolling interest owner | | | | — | | | | | | | (1,037) | | | (1,037) | |
| Distributions to WES Operating unitholders | | | | (143,404) | | | | | | | — | | | (143,404) | |
| | | | | | | | | | | | |
| Contributions of equity-based compensation from Occidental | | | | 3,562 | | | | | | | — | | | 3,562 | |
| Net contributions from (distributions to) related parties | | | | 1,343 | | | | | | | — | | | 1,343 | |
| Balance at June 30, 2020 | | | | $ | 2,897,898 | | | | | | | $ | 31,452 | | | $ | 2,929,350 | |
| Net income (loss) | | | | 251,740 | | | | | | | 2,488 | | | 254,228 | |
| Distributions to Chipeta noncontrolling interest owner | | | | — | | | | | | | (1,148) | | | (1,148) | |
| Distributions to WES Operating unitholders | | | | (143,404) | | | | | | | — | | | (143,404) | |
| | | | | | | | | | | | |
| Contributions of equity-based compensation from Occidental | | | | 3,488 | | | | | | | — | | | 3,488 | |
Unit exchange with Occidental (2) | | | | (261,878) | | | | | | | — | | | (261,878) | |
| Net contributions from (distributions to) related parties | | | | 842 | | | | | | | — | | | 842 | |
| Other | | | | 1,545 | | | | | | | — | | | 1,545 | |
| Balance at September 30, 2020 | | | | $ | 2,750,231 | | | | | | | $ | 32,792 | | | $ | 2,783,023 | |
(1)See Services Agreement within Note 16.
(2)See Note 6.
(3)The amount allocated to common unitholders represents a non-cash investing activity related to the assets and liabilities assumed in the AMA acquisition. See Note 3.
See accompanying Notes to Consolidated Financial Statements.
1615
WESTERN MIDSTREAM OPERATING, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | Nine Months Ended
September 30, | | | | Nine Months Ended
September 30, | |
| thousands | thousands | | 2020 | | 2019 | | thousands | | 2021 | | 2020 | |
| Cash flows from operating activities | Cash flows from operating activities | | | | | | Cash flows from operating activities | | | | | |
| Net income (loss) | Net income (loss) | | $ | 248,753 | | | $ | 518,341 | | | Net income (loss) | | $ | 695,350 | | | $ | 248,753 | | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | |
| Depreciation and amortization | Depreciation and amortization | | 384,688 | | | 362,977 | | | Depreciation and amortization | | 407,404 | | | 384,688 | | |
| Long-lived asset and other impairments | | 200,575 | | | 4,294 | | | |
Long-lived asset and other impairments | | Long-lived asset and other impairments | | 29,198 | | | 200,575 | | |
| Goodwill impairment | Goodwill impairment | | 441,017 | | | 0 | | | Goodwill impairment | | — | | | 441,017 | | |
| Non-cash equity-based compensation expense | | 11,155 | | | 8,234 | | | |
Non-cash equity-based compensation expense | | Non-cash equity-based compensation expense | | 27,874 | | | 11,155 | | |
| Deferred income taxes | Deferred income taxes | | 2,393 | | | 6,601 | | | Deferred income taxes | | 2,275 | | | 2,393 | | |
| Accretion and amortization of long-term obligations, net | | 6,482 | | | 6,479 | | | |
Accretion and amortization of long-term obligations, net | | Accretion and amortization of long-term obligations, net | | 5,873 | | | 6,482 | | |
| Equity income, net – related parties | Equity income, net – related parties | | (176,788) | | | (175,483) | | | Equity income, net – related parties | | (159,337) | | | (176,788) | | |
| Distributions from equity-investment earnings – related parties | | 187,816 | | | 182,337 | | | |
Distributions from equity-investment earnings – related parties | | Distributions from equity-investment earnings – related parties | | 164,772 | | | 187,816 | | |
| (Gain) loss on divestiture and other, net | (Gain) loss on divestiture and other, net | | 3,651 | | | 1,403 | | | (Gain) loss on divestiture and other, net | | (278) | | | 3,651 | | |
| (Gain) loss on early extinguishment of debt | (Gain) loss on early extinguishment of debt | | (10,372) | | | 0 | | | (Gain) loss on early extinguishment of debt | | 24,944 | | | (10,372) | | |
| (Gain) loss on interest-rate swaps | | 0 | | | 162,974 | | | |
| | Cash paid to settle interest-rate swaps | Cash paid to settle interest-rate swaps | | (19,181) | | | 0 | | | Cash paid to settle interest-rate swaps | | — | | | (19,181) | | |
| Other | Other | | 192 | | | 236 | | | Other | | 46 | | | 192 | | |
| Changes in assets and liabilities: | Changes in assets and liabilities: | | | Changes in assets and liabilities: | | |
| (Increase) decrease in accounts receivable, net | (Increase) decrease in accounts receivable, net | | (155,008) | | | (12,219) | | | (Increase) decrease in accounts receivable, net | | (176,104) | | | (155,008) | | |
| Increase (decrease) in accounts and imbalance payables and accrued liabilities, net | Increase (decrease) in accounts and imbalance payables and accrued liabilities, net | | 4,836 | | | (68,277) | | | Increase (decrease) in accounts and imbalance payables and accrued liabilities, net | | 91,508 | | | 4,836 | | |
| Change in other items, net | Change in other items, net | | 3,763 | | | 34,232 | | | Change in other items, net | | (9,336) | | | 3,763 | | |
| Net cash provided by operating activities | Net cash provided by operating activities | | 1,133,972 | | | 1,032,129 | | | Net cash provided by operating activities | | 1,104,189 | | | 1,133,972 | | |
| Cash flows from investing activities | Cash flows from investing activities | | | Cash flows from investing activities | | |
| Capital expenditures | Capital expenditures | | (372,262) | | | (947,266) | | | Capital expenditures | | (217,757) | | | (372,262) | | |
| Acquisitions from related parties | | 0 | | | (2,007,501) | | | |
| Acquisitions from third parties | | 0 | | | (93,303) | | | |
| Purchases from related parties | | Purchases from related parties | | (2,000) | | | — | | |
| | Contributions to equity investments – related parties | Contributions to equity investments – related parties | | (19,017) | | | (108,118) | | | Contributions to equity investments – related parties | | (3,683) | | | (19,017) | | |
| Distributions from equity investments in excess of cumulative earnings – related parties | Distributions from equity investments in excess of cumulative earnings – related parties | | 21,750 | | | 21,203 | | | Distributions from equity investments in excess of cumulative earnings – related parties | | 30,075 | | | 21,750 | | |
| | Proceeds from the sale of assets to third parties | Proceeds from the sale of assets to third parties | | 0 | | | 342 | | | Proceeds from the sale of assets to third parties | | 8,002 | | | — | | |
| Additions to materials and supplies inventory and other | | (57,141) | | | 0 | | | |
| (Increase) decrease in materials and supplies inventory and other | | (Increase) decrease in materials and supplies inventory and other | | (1,924) | | | (57,141) | | |
| Net cash used in investing activities | Net cash used in investing activities | | (426,670) | | | (3,134,643) | | | Net cash used in investing activities | | (187,287) | | | (426,670) | | |
| Cash flows from financing activities | Cash flows from financing activities | | | Cash flows from financing activities | | |
Borrowings, net of debt issuance costs (1) | Borrowings, net of debt issuance costs (1) | | 3,681,173 | | | 3,950,750 | | | Borrowings, net of debt issuance costs (1) | | 400,000 | | | 3,681,173 | | |
Repayments of debt (2) | Repayments of debt (2) | | (3,780,390) | | | (1,439,595) | | | Repayments of debt (2) | | (1,132,966) | | | (3,780,390) | | |
| Increase (decrease) in outstanding checks | Increase (decrease) in outstanding checks | | 1,007 | | | (9,204) | | | Increase (decrease) in outstanding checks | | (11,699) | | | 1,007 | | |
| Distributions to WES Operating unitholders (3)(1) | Distributions to WES Operating unitholders (3)(1) | | (577,122) | | | (834,712) | | | Distributions to WES Operating unitholders (3)(1) | | (496,555) | | | (577,122) | | |
| Distributions to Chipeta noncontrolling interest owner | Distributions to Chipeta noncontrolling interest owner | | (3,923) | | | (5,200) | | | Distributions to Chipeta noncontrolling interest owner | | (2,734) | | | (3,923) | | |
| Net contributions from (distributions to) related parties | Net contributions from (distributions to) related parties | | 22,674 | | | 458,819 | | | Net contributions from (distributions to) related parties | | 6,673 | | | 22,674 | | |
Above-market component of swap agreements with Anadarko (3) | | 0 | | | 7,407 | | | |
| Finance lease payments (4)(2) | Finance lease payments (4)(2) | | (12,241) | | | (253) | | | Finance lease payments (4)(2) | | (5,295) | | | (12,241) | | |
| Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | | (668,822) | | | 2,128,012 | | | Net cash provided by (used in) financing activities | | (1,242,576) | | | (668,822) | | |
| Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | | 38,480 | | | 25,498 | | | Net increase (decrease) in cash and cash equivalents | | (325,674) | | | 38,480 | | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | | 98,122 | | | 90,448 | | | Cash and cash equivalents at beginning of period | | 418,537 | | | 98,122 | | |
| Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 136,602 | | | $ | 115,946 | | | Cash and cash equivalents at end of period | | $ | 92,863 | | | $ | 136,602 | | |
| Supplemental disclosures | Supplemental disclosures | | | | | | Supplemental disclosures | | | | | |
Non-cash unit exchange with Occidental (3)(1) | Non-cash unit exchange with Occidental (3)(1) | | $ | (261,878) | | | $ | 0 | | | Non-cash unit exchange with Occidental (3)(1) | | $ | — | | | $ | (261,878) | | |
| | Interest paid, net of capitalized interest | Interest paid, net of capitalized interest | | 307,713 | | | 231,913 | | | Interest paid, net of capitalized interest | | 348,904 | | | 307,713 | | |
| Taxes paid (reimbursements received) | | (384) | | | 96 | | | |
| Income taxes paid (reimbursements received) | | Income taxes paid (reimbursements received) | | 932 | | | (384) | | |
| Accrued capital expenditures | Accrued capital expenditures | | 20,275 | | | 154,080 | | | Accrued capital expenditures | | 29,085 | | | 20,275 | | |
(1)For the nine months ended September 30, 2019, includes an $11.0 million borrowing under the APCWH Note Payable.
(2)For the nine months ended September 30, 2019, includes a $439.6 million repayment to settle the APCWH Note Payable. See Note 6.
(3)See Note 6.
(4)(2)For the nine months ended September 30, 2020, includes related-party payments of $6.4 million.
See accompanying Notes to Consolidated Financial Statements.
1716
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
General. Western Midstream Partners, LP is a Delaware master limited partnership formed in September 2012. Western Midstream Operating, LP (together with its subsidiaries, “WES Operating”) is a Delaware limited partnership formed by Anadarko Petroleum Corporation in 2007 to acquire, own, develop, and operate midstream assets. Western Midstream Partners, LP owns, directly and indirectly, a 98.0% limited partner interest in WES Operating, and directly owns all of the outstanding equity interests of Western Midstream Operating GP, LLC, which holds the entire non-economicnon-economic general partner interest in WES Operating. “Anadarko” refers to Anadarko Petroleum Corporation and its subsidiaries, excluding Western Midstream Holdings, LLC. Anadarko became a wholly owned subsidiary of Occidental Petroleum Corporation as a result of Occidental Petroleum Corporation’s acquisition by merger of Anadarko on August 8, 2019.
For purposes of these consolidated financial statements, the “Partnership” refers to Western Midstream Partners, LP in its individual capacity or to Western Midstream Partners, LP and its subsidiaries, including Western Midstream Operating GP, LLC and WES Operating, as the context requires. “WES Operating GP” refers to Western Midstream Operating GP, LLC, individually as the general partner of WES Operating. The Partnership’s general partner, Western Midstream Holdings, LLC (the “general partner”), is a wholly owned subsidiary of Occidental Petroleum Corporation. “Occidental” refers to Occidental Petroleum Corporation, as the context requires, and its subsidiaries, excluding the general partner. “Anadarko” refers to Anadarko Petroleum Corporation and its subsidiaries, excluding Western Midstream Holdings, LLC. Anadarko became a wholly owned subsidiary of Occidental as a result of Occidental’s acquisition by merger of Anadarko on August 8, 2019. “Related parties” refers to Occidental and(see Note 6), the Partnership’s investments accounted for under the equity interests in Fort Union Gas Gathering, LLC (“Fort Union”), White Cliffs Pipeline, LLC (“White Cliffs”), Rendezvous Gas Services, LLC (“Rendezvous”), Enterprise EF78 LLC (“Mont Belvieu JV”), Texas Express Pipeline LLC (“TEP”), Texas Express Gathering LLC (“TEG”), Front Range Pipeline LLC (“FRP”), Whitethorn Pipeline Company LLC (“Whitethorn LLC”), Cactus II Pipeline LLC (“Cactus II”), Saddlehorn Pipeline Company, LLC (“Saddlehorn”), Panola Pipeline Company, LLC (“Panola”), Mi Vida JV LLC (“Mi Vida”), Ranch Westex JV LLC (“Ranch Westex”method of accounting (see Note 7), and Red Bluff Express Pipeline, LLC (“Red Bluff Express”the Partnership and WES Operating for transactions that eliminate upon consolidation (see Note 6). The interests in TEP, TEG, and FRP are referred to collectively as the “TEFR Interests.” “MGR assets” refers to the Red Desert complex and the Granger straddle plant. The “West Texas complex” refers to the Delaware Basin Midstream, LLC (“DBM”) complex and DBJV and Haley systems.
The Partnership is engaged in the business of gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, natural-gasnatural-gas liquids (“NGLs”), and crude oil; and gathering and disposing of produced water. In its capacity as a natural-gasnatural-gas processor, the Partnership also buys and sells natural gas, NGLs, and condensate on behalf of itself and as an agent for its customers under certain contracts. As of September 30, 2020,2021, the Partnership’s assets and investments consisted of the following:
| | | Wholly
Owned and
Operated | | Operated
Interests | | Non-Operated
Interests | | Equity
Interests | | Wholly
Owned and
Operated | | Operated
Interests | | Non-Operated
Interests | | Equity
Interests |
Gathering systems (1) | Gathering systems (1) | | 17 | | | 2 | | | 3 | | | 2 | | Gathering systems (1) | | 17 | | | 2 | | | 3 | | | 1 | |
| Treating facilities | Treating facilities | | 39 | | | 3 | | | — | | | 3 | | Treating facilities | | 36 | | | 3 | | | — | | | — | |
| Natural-gas processing plants/trains | | 25 | | | 3 | | | — | | | 5 | | |
Natural-gas processing plants/trains | | Natural-gas processing plants/trains | | 24 | | | 3 | | | — | | | 5 | |
| NGLs pipelines | NGLs pipelines | | 2 | | | — | | | — | | | 4 | | NGLs pipelines | | 2 | | | — | | | — | | | 5 | |
| Natural-gas pipelines | | 5 | | | — | | | — | | | 1 | | |
| Crude-oil pipelines | | 3 | | | 1 | | | — | | | 3 | | |
Natural-gas pipelines | | Natural-gas pipelines | | 5 | | | — | | | — | | | 1 | |
Crude-oil pipelines | | Crude-oil pipelines | | 3 | | | 1 | | | — | | | 4 | |
(1)Includes the DBM water systems.
These assets and investments are located in Texas, New Mexico, the Rocky Mountains (Colorado, Utah, and Wyoming), North-central Pennsylvania, Texas, and New Mexico. Latham Train II, a cryogenic train at the DJ Basin complex, commenced operations during the first quarter of 2020. Loving ROTF Trains III and IV, oil-stabilization trains at the DBM oil system, commenced operations during the first and third quarters of 2020, respectively.North-central Pennsylvania.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
December 2019 Agreements. On December 31, 2019, (i) the Partnership and certain of its subsidiaries, including WES Operating and WES Operating GP, entered into the below-described agreements with Occidental and/or certain of its subsidiaries, including Anadarko, and (ii) WES Operating entered into the below-described amendments to its debt agreements (collectively, the “December 2019 Agreements”).
•Exchange Agreement. Western Gas Resources, Inc. (“WGRI”), the general partner, and the Partnership entered into a partnership interests exchange agreement (the “Exchange Agreement”), pursuant to which the Partnership canceled the non-economic general partner interest in the Partnership and simultaneously issued a 2.0% general partner interest to the general partner in exchange for which WGRI transferred 9,060,641 common units to the Partnership, which immediately canceled such units on receipt.
•Services, Secondment, and Employee Transfer Agreement. Occidental, Anadarko, and WES Operating GP entered into an amended and restated Services, Secondment, and Employee Transfer Agreement (the “Services Agreement”), pursuant to which Occidental, Anadarko, and their subsidiaries (i) seconded certain personnel employed by Occidental to WES Operating GP, in exchange for which WES Operating GP pays a monthly secondment and shared services fee to Occidental equivalent to the direct cost of the seconded employees until their transfer to the Partnership and (ii) agreed to continue to provide certain administrative and operational services to the Partnership for up to a two-year transition period. 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. The Services Agreement also includes provisions governing the transfer of certain employees to the Partnership and the assumption by the Partnership of liabilities relating to those employees at the time of their transfer. In late March 2020, seconded employees’ employment was transferred to the Partnership.
•RCF amendment. WES Operating entered into an amendment to its $2.0 billion senior unsecured revolving credit facility (“RCF”) to, among other things, (i) effective on February 14, 2020, exercise the final one-year extension option to extend the maturity date of the RCF to February 14, 2025, for the extending lenders, and (ii) modify the change of control definition to provide, among other things, that, subject to certain conditions, if the limited partners of the Partnership elect to remove the general partner as the general partner of the Partnership in accordance with the terms of the partnership agreement, then such removal will not constitute a change of control under the RCF.
•Term loan facility amendment. WES Operating entered into an amendment to its $3.0 billion senior unsecured credit facility (“Term loan facility”) to, among other things, modify the change of control definition to provide, among other things, that, subject to certain conditions, if the limited partners of the Partnership elect to remove the general partner as the general partner of the Partnership in accordance with the terms of the partnership agreement, then such removal will not constitute a change of control under the Term loan facility. See Note 11.
•Termination of debt-indemnification agreements. WES Operating GP and certain wholly owned subsidiaries of Occidental mutually terminated the debt-indemnification agreements related to certain indebtedness incurred by WES Operating.
•Termination of omnibus agreements. The Partnership and WES Operating entered into agreements with Occidental to terminate the WES and WES Operating omnibus agreements. See Note 6.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
Merger transactions. On February 28, 2019, the Partnership, WES Operating, Anadarko, and certain of their affiliates completed the transactions contemplated by the Contribution Agreement and Agreement and Plan of Merger (the “Merger Agreement”), dated November 7, 2018, pursuant to which, among other things, (i) Clarity Merger Sub, LLC, a wholly owned subsidiary of the Partnership, merged with and into WES Operating, with WES Operating continuing as the surviving entity and as a subsidiary of the Partnership (the “Merger”), and (ii) WES Operating acquired the Anadarko Midstream Assets (“AMA”). See Note 3.
Basis of presentation. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The consolidated financial statements and include the accounts of the Partnership and entities in which it holds a controlling financial interest, including WES Operating, and WES Operating GP.GP, proportionately consolidated interests, and equity investments (see table below). All significant intercompany transactions have been eliminated.
The following table outlines the ownership interests and the accounting method of consolidation used in the consolidated financial statements for entities not wholly owned:
| | | | | | | | |
| | Percentage Interest |
| Full consolidation | | |
Chipeta (1) | | 75.00 | % |
Proportionate consolidation (2) | | |
| Springfield system | | 50.10 | % |
| Marcellus Interest systems | | 33.75 | % |
Equity investments (3) | | |
| Mi Vida JV LLC (“Mi Vida”) | | 50.00 | % |
| Ranch Westex JV LLC (“Ranch Westex”) | | 50.00 | % |
FRPFront Range Pipeline LLC (“FRP”) | | 33.33 | % |
| Red Bluff Express Pipeline, LLC (“Red Bluff Express”) | | 30.00 | % |
Enterprise EF78 LLC (“Mont Belvieu JVJV”) | | 25.00 | % |
| Rendezvous Gas Services, LLC (“Rendezvous”) | | 22.00 | % |
TEPTexas Express Pipeline LLC (“TEP”) | | 20.00 | % |
TEGTexas Express Gathering LLC (“TEG”) | | 20.00 | % |
| Whitethorn Pipeline Company LLC (“Whitethorn LLC”) | | 20.00 | % |
| Saddlehorn Pipeline Company, LLC (“Saddlehorn”) | | 20.00 | % |
| Cactus II Pipeline LLC (“Cactus II”) | | 15.00 | % |
| Panola Pipeline Company, LLC (“Panola”) | | 15.00 | % |
Fort Union (4)
| | 14.81 | % |
| White Cliffs Pipeline, LLC (“White Cliffs”) | | 10.00 | % |
(1)The 25% third-partythird-party interest in Chipeta Processing LLC (“Chipeta”) is reflected within noncontrolling interests in the consolidated financial statements. See Noncontrolling interests below.
(2)The Partnership proportionately consolidates its associated share of the assets, liabilities, revenues, and expenses attributable to these assets.
(3)Investments in non-controllednon-controlled entities over which the Partnership exercises significant influence are accounted for under the equity method of accounting. “Equity-investment“Equity-investment throughput” refers to the Partnership’s share of average throughput for these investments.
(4)
Certain information and note disclosures commonly included in annual financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, the accompanying consolidated financial statements and notes should be read in conjunction with the Partnership’s 2020 Form 10See -Note 3.K, as filed with the SEC on February 26, 2021. Management believes that the disclosures made are adequate to make the information not misleading.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
The consolidated financial results of WES Operating are included in the Partnership’s consolidated financial statements. Throughout these notes to consolidated financial statements, and to the extent material, any differences between the consolidated financial results of the Partnership and WES Operating are discussed separately. The Partnership’s consolidated financial statements differ from those of WES Operating primarily as a result of (i) the presentation of noncontrolling interest ownership (see Noncontrolling interests below and Note 5)below), (ii) the elimination of WES Operating GP’s investment in WES Operating with WES Operating GP’s underlying capital account, (iii) the general and administrative expenses incurred by the Partnership, which are separate from, and in addition to, those incurred by WES Operating, (iv) the inclusion of the impact of Partnership equity balances and Partnership distributions, and (v) transactions between the senior secured revolving credit facility (“WGP RCF”) until its repayment in March 2019. See Note 11.Partnership and WES Operating that eliminate upon consolidation.
Presentation of the Partnership’s assets. The Partnership’s assets include assets owned and ownership interests accounted for by the Partnership under the equity method of accounting, through its 98.0% partnership interest in WES Operating, as of September 30, 20202021 (see Note 7). The Partnership also owns and controls the entire non-economicnon-economic general partner interest in WES Operating GP, and the Partnership’s general partner is owned by Occidental.
Use of estimates. In preparing financial statements in accordance with GAAP, management makes informed judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. Management evaluates its estimates and related assumptions regularly, using historical experience and other reasonable methods. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ from these estimates. Effects on the business, financial condition, and results of operations resulting from revisions to estimates are recognized when the facts that give rise to the revisions become known. The information included herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated financial statements, and certain prior-period amounts have been reclassified to conform to the current-year presentation.statements.
Noncontrolling interests. For periods subsequent to Merger completion, theThe Partnership’s noncontrolling interests in the consolidated financial statements consist of (i) the 25% third-partythird-party interest in Chipeta and (ii) the 2.0% Occidental subsidiary-ownedsubsidiary-owned limited partner interest in WES Operating. For periods prior to Merger completion, the Partnership’s noncontrolling interests in the consolidated financial statements consisted of (i) the 25% third-party interest in Chipeta, (ii) the publicly held limited partner interests in WES Operating, (iii) the common units issued by WES Operating to subsidiaries of Anadarko as part of the consideration paid for prior-period acquisitions from Anadarko, and (iv) the Class C units issued by WES Operating to a subsidiary of Anadarko as part of the funding for the acquisition of DBM. For all periods presented, WES Operating’s noncontrolling interest in the consolidated financial statements consists of the 25% third-partythird-party interest in Chipeta. See Note 5.
When WES Operating issues equity, the carrying amount of the noncontrolling interest reported by the Partnership is adjusted to reflect the noncontrolling ownership interest in WES Operating. The resulting impact of such noncontrolling interest adjustment on the Partnership’s interest in WES Operating is reflected as an adjustment to the Partnership’s partners’ capital.
Inventory. The cost of NGLs inventory is determined by the weighted-average cost method on a location-by-location basis. Inventory is stated at the lower of weighted-average cost or net realizable value. NGLs inventory is reported in Other current assets and NGLs line-fill inventory is reported in Other assets on the consolidated balance sheets. Materials and supplies inventory is valued at weighted-average cost and is reviewed periodically for obsolescence. Beginning with the second quarter of 2020, materials and supplies inventory, previously reported in Other current assets, is prospectively reported in Other assets on the consolidated balance sheets. See Note 10.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
Shutdown of gathering systems. In May 2018, after assessing a number of factors, and with the safety of the community and the protection of the environment as primary factors, the Partnership permanently ceased operations at the Kitty Draw gathering system in Wyoming (part of the Hilight system) and the Third Creek gathering system in Colorado (part of the DJ Basin complex). An accrual of $10.9 million for anticipated costs associated with system shutdowns was recorded in 2018 as a reduction in related-party Product sales in the consolidated statements of operations. During the nine months ended September 30, 2019, $6.1 million of the accrual related to the Kitty Draw gathering system was reversed due to producer settlements being less than their initial estimates.
Segments. The Partnership’s operations continue to be organized into a single operating segment, the assets of which gather, compress, treat, process, and transport natural gas; gather, stabilize, and transport condensate, NGLs, and crude oil; and gather and dispose of produced water in the United States.
Equity-based compensation. On February 10, 2020, the Board of Directors approved awards of phantom units (the “Awards”) to the Partnership’s executive officers under the Western Gas Equity Partners, LP 2012 Long-Term Incentive Plan (“WES LTIP”). The Awards include (i) an award of time-vested phantom units that vest ratably over a three-year period (“Time-Based Awards”), (ii) a market award that vests after a three-year performance period based on the Partnership’s relative total unitholder return as compared to a group of peer companies (“TUR Awards”), and (iii) a performance award that vests based on the Partnership’s average return on assets over a three-year performance period (“ROA Awards”). At vesting, the value of the TUR Awards and the ROA Awards will be determined in accordance with the terms of the respective Award Agreements that provide for payout percentages ranging from 0% to 200% based on results achieved over the applicable performance period. At vesting, the Awards generally will be settled in Partnership common units. Prior to vesting, the Awards pay in-kind distributions in the form of Partnership common units. During the nine months ended September 30, 2020,2021, the Partnership issued 80,081357,472 common units as in-kind distributions under such Awards.
In addition, phantom units are awarded under the WES LTIP to non-executive employees and independent directors of the Partnership from time to time, which vest ratably over a three-year period and one year from the grant date, respectively. Prior to vesting, the awards to non-executive employees and independent directors pay distribution equivalents in cash.
The equity-based compensation expense attributable to these awards is amortized over the vesting periods applicable to the awards using the straight-line method. Expense is recognized based on the grant-date fair value and recorded, net of any forfeitures, as General and administrative expense in the consolidated statements of operations. The fair value of the Time-based Awards, ROA Awards, and non-executive awards is based on the observable market price of the Partnership’s units on the grant date of the award. The fair value of the TUR Awards is determined using a Monte Carlo simulation at the grant date of the award. For ROA Awards, all performance-related fair-value changes are recognized in compensation expense during the performance period.its long-term incentive plans. Compensation expense was $4.7 million and $12.9 million for the WES LTIP wasthree and nine months ended September 30, 2021, respectively, and $2.1 million and $5.4 million for the three and nine months ended September 30, 2020, respectively, and $0.6 million and $1.0 millionrespectively.
On March 22, 2021, the Board of Directors approved the Western Midstream Partners, LP 2021 Long-Term Incentive Plan (the “2021 LTIP”). Subject to the capitalization adjustment provisions included in the 2021 LTIP, the total aggregate number of common units that may be delivered with respect to awards under the 2021 LTIP is 9,500,000 (the “2021 LTIP Limit”). Common units withheld from an award or surrendered by a participant to satisfy tax withholding obligations or to satisfy the payment of any exercise price with respect to an award will not be considered to be common units delivered under the 2021 LTIP for purposes of the 2021 LTIP Limit. If any award is forfeited, cancelled, exercised, settled in cash, or otherwise terminates or expires without the actual delivery of common units, the common units subject to such award will again be available for awards under the 2021 LTIP. The 2021 LTIP provides for the threegrant of unit options, unit appreciation rights, restricted units, phantom units, other unit-based awards, cash awards, and nine months ended September 30, 2019, respectively.a unit award or a substitute award to employees and directors of the Partnership and its general partner. Affiliates of Occidental who held a majority of the Partnership’s outstanding common units as of March 22, 2021, approved the 2021 LTIP via written consent. On April 7, 2021, the Partnership mailed an information statement on Schedule 14C to its unitholders of record as of March 22, 2021. The 2021 LTIP became effective on April 27, 2021.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Defined-contribution plan. Beginning in the first quarter of 2020, employees of the Partnership are eligible to participate in the Western Midstream Savings Plan, a defined-contributiondefined-contribution benefit plan maintained by the Partnership. All regular employees may participate in the plan by making elective contributions that are matched by the Partnership, subject to certain limitations. The Partnership also makes other contributions based on plan guidelines. The Partnership recognized expense related to the plan of $5.3 million and $18.3 million for the three and nine months ended September 30, 2021, respectively, and $3.8 million and $8.2 million for the three and nine months ended September 30, 2020, respectively, recorded as General and administrative expense in the consolidated statements of operations.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
Recently adopted accounting standards. Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326) significantly changes the accounting and disclosure requirements related to credit losses on financial assets. Under the new standard, entities are now required to estimate lifetime expected credit losses for trade receivables, loans, and other financial instruments as of the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts, resulting in earlier recognition of credit losses. There was no impact to the consolidated financial statements with the Partnership’s adoption of the standard on January 1, 2020. The Partnership has implemented the necessary changes to its processes and controls to support accounting and disclosure requirements under this ASU.
Accounts receivable and contract assets. Accounts receivable represent contractual rights for services performed, with, on average, 30-day payment terms from the date of invoice. Contract assets primarily relate to revenue accrued but not yet billed under cost-of-service contracts and accrued deficiency fees. As of September 30, 2020, there have been no negative indications regarding the collectability of significant receivables as it relates to impacts from the global outbreak of the coronavirus (“COVID-19”) and the oil-market disruption resulting from significantly lower global demand and corresponding oversupply of crude oil. The Partnership will continue to monitor the credit quality of its customer base and assess collectability of these assets as appropriate.respectively.
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
The following table summarizes revenue from contracts with customers:
| | | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | |
| thousands | thousands | | 2020 | | 2019 | | 2020 | | 2019 | | thousands | | 2021 | | 2020 | | 2021 | | 2020 | |
| Revenue from customers | Revenue from customers | | | | | | | | | | Revenue from customers | | | | | | | | | |
| Service revenues – fee based | Service revenues – fee based | | $ | 582,725 | | | $ | 587,965 | | | $ | 1,806,097 | | | $ | 1,761,483 | | | Service revenues – fee based | | $ | 605,967 | | | $ | 582,725 | | | $ | 1,707,987 | | | $ | 1,806,097 | | |
| Service revenues – product based | Service revenues – product based | | 12,316 | | | 9,476 | | | 35,237 | | | 45,530 | | | Service revenues – product based | | 28,812 | | | 12,316 | | | 88,267 | | | 35,237 | | |
| Product sales | Product sales | | 30,106 | | | 68,248 | | | 108,491 | | | 215,517 | | | Product sales | | 84,298 | | | 30,106 | | | 227,359 | | | 108,491 | | |
| Total revenue from customers | Total revenue from customers | | 625,147 | | | 665,689 | | | 1,949,825 | | | 2,022,530 | | Total revenue from customers | | 719,077 | | | 625,147 | | | 2,023,613 | | | 1,949,825 | |
| Revenue from other than customers | Revenue from other than customers | | | Revenue from other than customers | | |
Lease revenue (1) | Lease revenue (1) | | 53,797 | | | 0 | | | 174,449 | | | 0 | | | Lease revenue (1) | | 44,515 | | | 53,797 | | | 133,755 | | | 174,449 | | |
| Net gains (losses) on commodity-price swap agreements | | 0 | | | 0 | | | 0 | | | (667) | | | |
| | Other | Other | | 100 | | | 338 | | | 838 | | | 1,101 | | | Other | | 248 | | | 100 | | | 577 | | | 838 | | |
| Total revenues and other | Total revenues and other | | $ | 679,044 | | | $ | 666,027 | | | $ | 2,125,112 | | | $ | 2,022,964 | | | Total revenues and other | | $ | 763,840 | | | $ | 679,044 | | | $ | 2,157,945 | | | $ | 2,125,112 | | |
(1)For the threeIncludes fixed- and nine months ended September 30, 2020, includes fixed- and variable-leasevariable-lease revenue from an operating and maintenance agreement entered into with Occidental. See Operating leaseleases within Note 6.
Certain of the Partnership’s midstream services contracts have minimum-volume commitment demand fees and fees that require periodic rate redeterminations based on the related facility cost-of-service rate provisions. During the year ended December 31, 2020, and the six months ended June 30, 2021, the Partnership constrained revenue on certain cost-of-service agreements based on the status of commercial negotiations relating to a legal dispute with one of the contract counterparties. During the three months ended September 30, 2021, the Partnership determined it was no longer necessary to constrain revenue under these cost-of-service agreements. The Partnership updated its estimate of variable consideration and a cumulative catch-up revenue adjustment of $18.9 million was recorded to Service revenues – fee based. Future revenue reversals could occur to the extent the outcome of the legal proceedings and commercial negotiations differ from our current assumptions.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. REVENUE FROM CONTRACTS WITH CUSTOMERS (CONTINUED)
Contract balances. Receivables from customers, which are included in Accounts receivable, net on the consolidated balance sheets were $459.1$572.8 million and $362.6$428.2 million as of September 30, 2020,2021, and December 31, 2019,2020, respectively.
Contract assets primarily relate to (i) revenue accrued but not yet billed under cost-of-servicecost-of-service contracts with fixed and variable fees and (ii) accrued deficiency fees the Partnership expects to charge customers once the related performance periods are completed.
The following table summarizes current-period activity related to contract assets from contracts with customers:
| | | | | | | | | | |
| | |
| | | | |
| thousands | | | | |
BalanceContract assets balance at December 31, 20192020 | | $ | 67,35756,344 | | | |
Amounts transferred to Accounts receivable, net that were included in the contract assets balance at the beginning of the period (1) | | (2,743)(3,858) | | | |
Additional estimated revenues recognized (2) | | 14,536 17,472 | | | |
| | | | |
| Contract assets balance at September 30, 2021 | | $ | 69,958 | | | |
| | | | |
| | |
Balance at September 30, 2020 | | $ | 79,150 | |
| | |
Contract assets at September 30, 20202021 | | | | |
| Other current assets | | $ | 20,152 23,766 | | | |
| Other assets | | 58,998 46,192 | | | |
| Total contract assets from contracts with customers | | $ | 79,150 69,958 | | | |
(1)Includes $(0.2)$(3.9) million for the three months ended September 30, 2020.2021.
(2)Includes $4.9$8.9 million for the three months ended September 30, 2020.2021.
Contract liabilities primarily relate to (i) aid-in-construction payments received from customers that must be recognized over the expected period of customer benefit, (ii) fixed and variable fees under cost-of-service contracts that are received from customers for which revenue recognition is deferred, and (iii) fees that are charged to customers for only a portion of the contract term and must be recognized as revenues over the expected period of customer benefit, (ii) fixed and variable fees under cost-of-service contracts that are received from customers for which revenue recognition is deferred, and (iii) aid-in-construction payments received from customers that must be recognized over the expected period of customer benefit. The following table summarizes current-period activity related to contract liabilities from contracts with customers:
| | | | | | | | | | |
| | |
| | | | |
| thousands | | | | |
BalanceContract liabilities balance at December 31, 20192020 | | $ | 222,274266,937 | | | |
Cash received or receivable, excluding revenues recognized during the period (1) | | 34,92260,786 | | | |
| | | | |
Revenues recognized that were included in the contract liability balance at the beginning of the period (2) | | (12,186)(13,553) | | | |
Cumulative catch-up adjustment for change in estimated consideration (3) | | (17,209) | | | |
| Contract liabilities balance at September 30, 2021 | | $ | 296,961 | | | |
| | | | |
| | |
Balance at September 30, 2020 | | $ | 245,010 | |
| | |
Contract liabilities at September 30, 20202021 | | | | |
| Accrued liabilities | | $ | 9,312 22,854 | | | |
| Other liabilities | | 235,698 274,107 | | | |
| Total contract liabilities from contracts with customers | | $ | 245,010 296,961 | | | |
(1)Includes $11.0$26.7 million for the three months ended September 30, 2020.2021.
(2)Includes $(1.7)$(5.5) million for the three months ended September 30, 2020.2021, $(1.7) million of which is related to the cumulative catch-up revenue adjustment recognized for the nine months ended September 30, 2021.
(3)Includes $(17.2) million for the three months ended September 30, 2021.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. REVENUE FROM CONTRACTS WITH CUSTOMERS (CONTINUED)
Transaction price allocated to remaining performance obligations. Revenues expected to be recognized from certain performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2020,2021, are presented in the following table. The Partnership applies the optional exemptions in Topic 606Revenue from Contracts with Customers (Topic 606) and does not disclose consideration for remaining performance obligations with an original expected duration of one year or less or for variable consideration related to unsatisfied (or partially unsatisfied) performance obligations. Therefore, the following table represents only a portion of expected future revenues from existing contracts as most future revenues from customers are dependent on future variable customer volumes and, in some cases, variable commodity prices for those volumes.
| | thousands | thousands | | thousands | |
| Remainder of 2020 | | $ | 201,409 | | |
| 2021 | | 788,814 | | |
| Remainder of 2021 | | Remainder of 2021 | | $ | 211,353 | |
| 2022 | 2022 | | 1,044,194 | | 2022 | | 1,057,409 | |
| 2023 | 2023 | | 988,776 | | 2023 | | 1,002,351 | |
| 2024 | 2024 | | 959,799 | | 2024 | | 973,300 | |
| 2025 | | 2025 | | 890,903 | |
| Thereafter | Thereafter | | 3,569,832 | | Thereafter | | 2,719,380 | |
| Total | Total | | $ | 7,552,824 | | Total | | $ | 6,854,696 | |
3. ACQUISITIONS AND DIVESTITURES
AMA acquisition. In February 2019, WES Operating acquired AMA from Anadarko, which is comprised of (i) the DJ Basin oil system and Wattenberg processing plant located in the DJ basin; (ii) the DBM oil system, APC water systems, a 50% interest in Mi Vida, and a 50% interest in Ranch Westex, located in West Texas; (iii) the Wamsutter pipeline located in Wyoming; (iv) a 20% interest in Saddlehorn, a crude-oil and condensate pipeline that originates in Laramie County, Wyoming and terminates in Cushing, Oklahoma; and (v) a 15% interest in Panola, an NGLs pipeline that originates in Panola County, Texas, and terminates in Mont Belvieu, Texas. AMA was acquired in exchange for aggregate consideration of $2.0 billion of cash, less the outstanding amount payable pursuant to an intercompany note (the “APCWH Note Payable”) assumed by WES Operating in connection with the transfer, and 45,760,201 WES Operating common units. These WES Operating common units, less 6,375,284 WES Operating common units retained by WGR Asset Holding Company LLC (“WGRAH”), converted into the right to receive common units of the Partnership at Merger completion.
Red Bluff Express acquisition. In January 2019, the Partnership acquired a 30% interest in Red Bluff Express, which owns a third-party-operated natural-gas pipeline connecting processing plants in Reeves and Loving Counties, Texas, to the WAHA hub in Pecos County, Texas. The Partnership acquired its 30% interest from a third party via an initial net investment of $92.5 million, which represented a 30% share of costs incurred up to the date of acquisition. The initial investment was funded with cash on hand and the interest in Red Bluff Express is accounted for under the equity method of accounting.
Fort Union and Bison facilities. In October 2020, the Partnership (i) sold its 14.81% interest in Fort Union Gas Gathering, LLC (“Fort Union”), which was accounted for under the equity method of accounting, and (ii) entered into an option agreement to sell the Bison treating facility, during the first quarter of 2021, located in Northeast Wyoming, to a third party. The Partnership received combined proceeds of $27.0 million, resulting in a net gain on sale of $21.0 million related to the Fort Union interest that will bewas recorded in the fourth quarter of 2020. A gain related2020 as Gain (loss) on divestiture and other, net in the consolidated statements of operations.
During the second quarter of 2021, the third party exercised its option to the option agreement and potential sale ofpurchase the Bison treating facility will be recognizedand the sale closed. The Partnership received total proceeds of $8.0 million, $7.0 million in the firstfourth quarter of 2020 and $1.0 million when the sale closed in the second quarter of 2021, ifresulting in a net gain on sale of $5.4 million that was recorded as Gain (loss) on divestiture and other, net in the option is exercised or expires.
consolidated statements of operations.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. PARTNERSHIP DISTRIBUTIONS
Partnership distributions. TheUnder its partnership agreement, requires the Partnership to distributedistributes all of its available cash (as(beyond proper reserves as defined in its partnership agreement) to unitholders of record on the applicable record date within 55 days following each quarter’s end. The Board of Directors of the general partner (the “Board of Directors”) declared the following cash distributions to the Partnership’s unitholders for the periods presented:
| thousands except per-unit amounts Quarters Ended | thousands except per-unit amounts Quarters Ended | | Total Quarterly
Per-unit
Distribution | | Total Quarterly
Cash Distribution | | Distribution
Date | thousands except per-unit amounts Quarters Ended | | Total Quarterly
Per-unit
Distribution | | Total Quarterly
Cash Distribution | | Distribution
Date |
| | | 2019 | | | | | | | |
| 2020 | | 2020 | | | | | | |
| March 31 | March 31 | | $ | 0.61000 | | | $ | 276,324 | | | May 2019 | March 31 | | $ | 0.31100 | | | $ | 140,893 | | | May 2020 |
| June 30 | June 30 | | 0.61800 | | | 279,959 | | | August 2019 | June 30 | | 0.31100 | | | 140,900 | | | August 2020 |
| September 30 | September 30 | | 0.62000 | | | 280,880 | | | November 2019 | September 30 | | 0.31100 | | | 132,255 | | | November 2020 |
| December 31 | December 31 | | 0.62200 | | | 281,786 | | | February 2020 | December 31 | | 0.31100 | | | 131,265 | | | February 2021 |
| 2020 | | |
| 2021 | | 2021 | |
| March 31 | March 31 | | $ | 0.31100 | | | $ | 140,893 | | | May 2020 | March 31 | | $ | 0.31500 | | | $ | 132,969 | | | May 2021 |
| June 30 | June 30 | | 0.31100 | | | 140,900 | | | August 2020 | June 30 | | 0.31900 | | | 134,662 | | | August 2021 |
September 30 (1) | September 30 (1) | | 0.31100 | | | 132,255 | | | November 2020 | September 30 (1) | | 0.32300 | | | 134,862 | | | November 2021 |
| |
(1)The Board of Directors declared a cash distribution to the Partnership’s unitholders for the third quarter of 20202021 of $0.31100$0.32300 per unit, or$132.3 $134.9 million in aggregate. The cash distribution is payable on November 13, 202012, 2021, to unitholders of record at the close of business on October 30, 2020,November 1, 2021, including the general partner units that were issued on December 31, 2019 (see units.Note 1).
Following the transactions contemplated by the Exchange Agreement, the general partner units are entitled to all quarterly distributions beginning with the cash distribution declared for the fourth quarter of 2019.
Available cash. The amount of available cash (as(beyond proper reserves as defined in theour partnership agreement) generally is all cash on hand at the end of the quarter, plus, at the discretion of the general partner, working capital borrowings made subsequent to the end of such quarter, less the amount of cash reserves established by the general partner to provide for the proper conduct of the Partnership’s business, including reserves to fund future capital expenditures; to comply with applicable laws, debt instruments, or other agreements; or to provide funds for unitholder distributions for any one or more of the next four quarters. Working capital borrowings generally include borrowings made under a credit facility or similar financing arrangement. Working capital borrowings generallyarrangement and are intended to be repaid or refinanced within 12 months. In all cases, working capital borrowings are used solely for working capital purposes or to fund unitholder distributions.
WES Operating partnership distributions. Immediately prior to the closing of the Merger, the WES Operating incentive distribution rights (“IDRs”) and general partner units were converted into WES Operating common units and a non-economic general partner interest in WES Operating, and at Merger completion, all WES Operating common units held by the public and subsidiaries of Anadarko (other than common units held by the Partnership, WES Operating GP, and 6.4 million common units held by a subsidiary of Anadarko) were converted into common units of the Partnership. Beginning with the first quarter of 2019, WES Operating has mademakes quarterly cash distributions to the Partnership and WGRAH,WGR Asset Holding Company LLC (“WGRAH”), a subsidiary of Occidental, in respect ofproportion to their proportionate share of limited partner interests in WES Operating. See Note 5.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. PARTNERSHIP DISTRIBUTIONS (CONTINUED)
WES Operating made the following cash distributions to its limited partners for the periods presented:
| | | | | | | | | | | | | |
thousands Quarters Ended | | Total Quarterly
Cash Distribution | | |
2019 | | | | |
March 31 | | $ | 283,271 | | | |
June 30 | | 288,083 | | | |
September 30 | | 289,676 | | | |
December 31 | | 290,314 | | | |
| 2020 | | | | |
| March 31 | | $ | 143,404 | | | |
| June 30 | | 143,404 | | | |
| September 30 | | 143,404 | | | |
| December 31 | | 127,470 | | | |
| 2021 | | | | |
| March 31 | | $ | 137,030 | | | |
| June 30 | | 143,404140,217 | | | |
| September 30 | | 143,404140,217 | | | |
| | | | |
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. PARTNERSHIP DISTRIBUTIONS
In addition to the distributions above, during the quarter ended September 30, 2021, WES Operating made a distribution of $91.8 million to the Partnership and WGRAH. The Partnership used its portion of the distribution to repurchase common units on the open market. See Note 5.
5. EQUITY AND PARTNERS’ CAPITAL
Holdings of Partnership equity. The Partnership’s common units are listed on the New York Stock Exchange under the ticker symbol “WES.” As of September 30, 2021, Occidental held 202,781,578 common units, representing a 48.5% limited partner interest in the Partnership, and through its ownership of the general partner, Occidental indirectly held 9,060,641 general partner units, representing a 2.2% general partner interest in the Partnership. The public held 205,829,338 common units, representing a 49.3% limited partner interest in the Partnership.
In March 2021, an affiliate of Occidental sold 11,500,000 of the Partnership’s common units it held to the public through an underwritten offering, including 1,500,000 common units pursuant to the full exercise of the underwriters’ over-allotment option. The Partnership did not receive any proceeds from the public offering.
On September 11, 2020, the Partnership assigned its 98% interest in the 30-year30-year $260.0 million note established in May 2008 between WES Operating and Anadarko (the “Anadarko note receivable”) to Anadarko, which Anadarko canceled and retired immediately upon receipt, in exchange for which Occidental caused certain of its subsidiaries to transfer an aggregate of 27,855,398 common units representing limited partner interests in the Partnership to the Partnership. The units were canceled by the Partnership immediately upon receipt. See Note 6.
Partnership equity repurchases. In November 2020, the Board of Directors authorized the Partnership to buy back up to $250.0 million of the Partnership’s common units through December 31, 2021 (the “Purchase Program”). The common units may be purchased from time to time in the open market at prevailing market prices or in privately negotiated transactions. During the nine months ended September 30, 2021, the Partnership repurchased 5,586,419 common units on the open market for an aggregate purchase price of $104.4 million. The units were canceled by the Partnership immediately upon receipt. As of September 30, 2020, Occidental held 214,281,578 common units, representing a 50.4% limited partner interest in2021, the Partnership and through its ownershiphad an authorized amount of $113.1 million remaining under the general partner, Occidental indirectly held 9,060,641 general partner units, representing a 2.1% general partner interest in the Partnership (see Note 1). The public held 201,914,514 common units, representing a 47.5% limited partner interest in the Partnership.Purchase Program.
Holdings of WES Operating equity. As of September 30, 2020,2021, (i) the Partnership, directly and indirectly through its ownership of WES Operating GP, owned a 98.0% limited partner interest and the entire non-economicnon-economic general partner interest in WES Operating and (ii) Occidental, through its ownership of WGRAH, owned a 2.0% limited partner interest in WES Operating, which is reflected as a noncontrolling interest within the consolidated financial statements of the Partnership (see Note 1).
WES Operating Class C units. Partnership’s net income (loss) per common unit.In November 2014, WES Operating issued 10,913,853 Class C units The common and general partner unitholders’ allocation of net income (loss) attributable to APC Midstream Holdings, LLC (“AMH”), pursuantthe Partnership was equal to a Unit Purchase Agreementtheir cash distributions plus their respective allocations of undistributed earnings or losses in accordance with Anadarko and AMH. their weighted-average ownership percentage during each period using the two-class method.
The Class C units were issued to partially fundPartnership’s basic net income (loss) per common unit is calculated by dividing the acquisitionlimited partners’ interest in net income (loss) by the weighted-average number of DBM. All outstanding Class C units converted into WES Operating common units on a 1-for-one basis immediately prior tooutstanding during the closingperiod. Diluted net income (loss) per common unit includes the effect of outstanding units issued under the Merger (see Note 1).Partnership’s long-term incentive plans.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. EQUITY AND PARTNERS’ CAPITAL (CONTINUED)
Partnership’sThe following table provides a reconciliation between basic and diluted net income (loss) per common unit. Following the transactions contemplated by the Exchange Agreement, the common and general partner unitholders’ allocation of net income (loss) attributable to the Partnership was equal to their cash distributions plus their respective allocations of undistributed earnings or losses using the two-class method. Specifically, net income equal to the amount of available cash (as defined by the partnership agreement) was allocated to the common and general partner unitholders consistent with actual cash distributions and capital account allocations. Undistributed earnings (net income in excess of distributions) or undistributed losses (available cash in excess of net income (loss)) were then allocated to the common and general partner unitholders in accordance with their weighted-average ownership percentage during each period.unit:
The Partnership’s basic net income (loss) per common unit is calculated by dividing the limited partners’ interest in net income (loss) by the weighted-average number of common units outstanding during the period. Net income (loss) attributable to assets acquired from Anadarko for periods prior to the acquisition of such assets was not allocated to the limited partners when calculating net income (loss) per common unit. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | |
| thousands except per-unit amounts | | 2021 | | 2020 | | 2021 | | 2020 | | |
| Net income (loss) | | | | | | | | | | |
| Limited partners’ interest in net income (loss) | | $ | 250,198 | | | $ | 241,479 | | | $ | 658,291 | | | $ | 257,659 | | | |
| Weighted-average common units outstanding | | | | | | | | | | |
| Basic | | 411,909 | | | 438,857 | | | 412,690 | | | 442,255 | | | |
| Dilutive effect of non-vested phantom units | | 805 | | | 69 | | | 460 | | | 20 | | | |
| Diluted | | 412,714 | | | 438,926 | | | 413,150 | | | 442,275 | | | |
| Excluded due to anti-dilutive effect | | 4 | | | 1,084 | | | 700 | | | 1,271 | | | |
| Net income (loss) per common unit | | | | | | | | | | |
| Basic | | $ | 0.61 | | | $ | 0.55 | | | $ | 1.60 | | | $ | 0.58 | | | |
| Diluted | | $ | 0.61 | | | $ | 0.55 | | | $ | 1.59 | | | $ | 0.58 | | | |
WES Operating’s net income (loss) per common unit. For periods subsequent to the closing of the Merger, netNet income (loss) per common unit for WES Operating is not calculated because it has no publicly traded units remained outstanding subsequent to the closingunits.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS
Summary of related-party transactions. The following tables summarize material related-partyrelated-party transactions included in the Partnership’s consolidated financial statements:
| | | Consolidated statements of operations | Consolidated statements of operations | | | Consolidated statements of operations | | |
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | |
| thousands | thousands | | 2020 | | 2019 | | 2020 | | 2019 | | thousands | | 2021 | | 2020 | | 2021 | | 2020 | |
| Revenues and other | Revenues and other | | | | | | | | | | Revenues and other | | | | | | | | | |
| Service revenues – fee based | Service revenues – fee based | | $ | 436,405 | | | $ | 360,011 | | | $ | 1,344,326 | | | $ | 1,030,137 | | | Service revenues – fee based | | $ | 418,520 | | | $ | 436,405 | | | $ | 1,188,679 | | | $ | 1,344,326 | | |
| Service revenues – product based | Service revenues – product based | | 2,544 | | | 84 | | | 6,690 | | | 2,070 | | | Service revenues – product based | | 1,499 | | | 2,544 | | | 9,662 | | | 6,690 | | |
| Product sales | Product sales | | 16,692 | | | 38,658 | | | 60,452 | | | 130,167 | | | Product sales | | 11,662 | | | 16,692 | | | 27,034 | | | 60,452 | | |
| Total revenues and other | Total revenues and other | | 455,641 | | | 398,753 | | | 1,411,468 | | | 1,162,374 | | | Total revenues and other | | 431,681 | | | 455,641 | | | 1,225,375 | | | 1,411,468 | | |
Equity income, net – related parties (1) | | 61,026 | | | 53,893 | | | 176,788 | | | 175,483 | | | |
Equity income, net ��� related parties (1) | | Equity income, net ��� related parties (1) | | 48,506 | | | 61,026 | | | 159,337 | | | 176,788 | | |
| Operating expenses | Operating expenses | | | Operating expenses | | |
| Cost of product | Cost of product | | 1,483 | | | 61,066 | | | 85,353 | | | 185,463 | | | Cost of product | | 17,384 | | | 1,483 | | | 53,968 | | | 85,353 | | |
| Operation and maintenance | Operation and maintenance | | 1,303 | | | 39,459 | | | 35,660 | | | 110,918 | | | Operation and maintenance | | 3,497 | | | 1,303 | | | 24,534 | | | 35,660 | | |
General and administrative (2) | General and administrative (2) | | 7,607 | | | 27,724 | | | 40,456 | | | 73,510 | | | General and administrative (2) | | 1,808 | | | 7,607 | | | 13,003 | | | 40,456 | | |
| Total operating expenses | Total operating expenses | | 10,393 | | | 128,249 | | | 161,469 | | | 369,891 | | | Total operating expenses | | 22,689 | | | 10,393 | | | 91,505 | | | 161,469 | | |
| | Interest income – Anadarko note receivable | Interest income – Anadarko note receivable | | 3,286 | | | 4,225 | | | 11,736 | | | 12,675 | | | Interest income – Anadarko note receivable | | — | | | 3,286 | | | — | | | 11,736 | | |
| Interest expense | | 0 | | | (59) | | | (43) | | | (1,912) | | | |
|
(1)See Note 7.
(2)Includes (i) amounts charged by Occidental pursuant to the shared services agreementsagreement (see Shared services agreementsServices Agreement within this Note 6). and (ii) equity-Also seebased 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 6.6).
| | | | | | | | | | | | | | |
| | | | |
| | |
| | | | |
| Consolidated balance sheets | | | | |
| | | | |
| thousands | | September 30,
2021 | | December 31,
2020 |
| Assets | | | | |
| Accounts receivable, net | | $ | 289,402 | | | $ | 291,253 | |
| Other current assets | | 29,021 | | | 5,493 | |
| | | | |
Equity investments (1) | | 1,181,181 | | | 1,224,813 | |
| Other assets | | 76,560 | | | 50,967 | |
| Total assets | | 1,576,164 | | | 1,572,526 | |
| Liabilities | | | | |
| Accounts and imbalance payables | | 42,384 | | | 6,664 | |
| | | | |
| Accrued liabilities | | 19,232 | | | 19,195 | |
| Other liabilities | | 189,119 | | | 138,796 | |
| Total liabilities | | 250,735 | | | 164,655 | |
(1)See Note 7.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS (CONTINUED)
| | | | | | | | | | | | | | |
| | |
| | | | |
| Consolidated balance sheets | | | | |
| thousands | | September 30,
2020 | | December 31,
2019 |
| Assets | | | | |
Accounts receivable, net (1) | | $ | 292,895 | | | $ | 113,345 | |
| Other current assets | | 17,196 | | | 4,982 | |
| Anadarko note receivable | | 0 | | | 260,000 | |
Equity investments (2) | | 1,242,557 | | | 1,285,717 | |
| Other assets | | 58,967 | | | 60,221 | |
| Total assets | | 1,611,615 | | | 1,724,265 | |
| Liabilities | | | | |
| Accounts and imbalance payables | | 2,050 | | | 0 | |
Short-term debt (3) | | 0 | | | 7,873 | |
| Accrued liabilities | | 5,410 | | | 3,087 | |
| Other liabilities | | 129,312 | | | 97,800 | |
| Total liabilities | | 136,772 | | | 108,760 | |
(1)Increase attributable to the timing of certain related-party cash receipts. The Partnership received $74.8 million of the September 30, 2020, Accounts receivable, net balance by October 7, 2020.
(2)See Note 7.
(3)Includes amounts related to finance leases(see Note 11).
| | | Consolidated statements of cash flows | Consolidated statements of cash flows | | | Consolidated statements of cash flows | | |
| | | | Nine Months Ended
September 30, | | Nine Months Ended
September 30, | |
| thousands | thousands | | 2020 | | 2019 | | thousands | | 2021 | | 2020 | |
| Distributions from equity-investment earnings – related parties | | $ | 187,816 | | | $ | 182,337 | | | |
| Acquisitions from related parties | | 0 | | | (2,007,501) | | | |
| Contributions to equity investments - related parties | | (19,017) | | | (108,118) | | | |
Distributions from equity-investment earnings – related parties | | Distributions from equity-investment earnings – related parties | | $ | 164,772 | | | $ | 187,816 | | |
| Purchases from related parties | | Purchases from related parties | | (2,000) | | | — | | |
| Contributions to equity investments – related parties | | Contributions to equity investments – related parties | | (3,683) | | | (19,017) | | |
| Distributions from equity investments in excess of cumulative earnings – related parties | Distributions from equity investments in excess of cumulative earnings – related parties | | 21,750 | | | 21,203 | | | Distributions from equity investments in excess of cumulative earnings – related parties | | 30,075 | | | 21,750 | | |
| APCWH Note Payable borrowings | | 0 | | | 11,000 | | | |
| Repayment of APCWH Note Payable | | 0 | | | (439,595) | | | |
| Distributions to Partnership unitholders (1) | Distributions to Partnership unitholders (1) | | (301,219) | | | (411,125) | | | Distributions to Partnership unitholders (1) | | (195,205) | | | (301,219) | | |
Distributions to WES Operating unitholders (2) | Distributions to WES Operating unitholders (2) | | (11,545) | | | (13,973) | | | Distributions to WES Operating unitholders (2) | | (9,934) | | | (11,545) | | |
| Net contributions from (distributions to) related parties | Net contributions from (distributions to) related parties | | 22,674 | | | 458,819 | | | Net contributions from (distributions to) related parties | | 6,673 | | | 22,674 | | |
| Above-market component of swap agreements with Anadarko | | 0 | | | 7,407 | | | |
| | Finance lease payments | Finance lease payments | | (6,382) | | | (253) | | | 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 subsidiariessubsidiary 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
September 30, | | Nine Months Ended
September 30, | | |
| thousands | | 2021 | | 2020 | | 2021 | | 2020 | | |
General and administrative (1) | | $ | 2,775 | | | $ | 8,314 | | | $ | 15,061 | | | $ | 41,220 | | | |
| | | | | | | | | | |
(1)Includes (i) amounts charged by Occidental pursuant to the shared services agreement (see Services Agreementwithin 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 | | September 30,
2021 | | December 31,
2020 |
| Accounts receivable, net | | $ | 289,402 | | | $ | 246,083 | |
Accounts and imbalance payables (1) | | 83,576 | | | 6,664 | |
(1)As of September 30, 2021, includes balances related to transactions between the Partnership and WES Operating.
| | | | | | | | | | | | | | | | | | | | |
| Consolidated statements of cash flows | | | | | | | | | | |
| | | | | | |
| | | | Nine Months Ended
September 30, | | |
| thousands | | | | | | 2021 | | 2020 | | |
| | | | | | | | | | |
Distributions to WES Operating unitholders (1) | | | | | | $ | (496,555) | | | $ | (577,122) | | | |
(1)Represents distributions paid to the Partnership and a certain subsidiary of Occidental pursuant to WES Operating’s partnership agreement. Includes a distribution made from WES Operating to the Partnership during the quarter ended September 30, 2021, that was used by the Partnership to repurchase common units on the open market. See Note 4 and Note 5.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS (CONTINUED)
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
September 30, | | Nine Months Ended
September 30, |
| thousands | | 2020 | | 2019 | | 2020 | | 2019 | | |
General and administrative (1) | | $ | 8,314 | | | $ | 26,915 | | | $ | 41,220 | | | $ | 71,793 | | | |
| | | | | | | | | | |
(1)Includes amounts charged by Occidental pursuant to the shared services agreements (see Shared services agreementswithin this Note 6). Also see Incentive Plans within this Note 6.
| | | | | | | | | | | | | | |
| | |
| | | | |
| Consolidated balance sheets | | | | |
| thousands | | September 30,
2020 | | December 31,
2019 |
| Accounts receivable, net | | $ | 256,518 | | | $ | 113,581 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Consolidated statements of cash flows | | | | | | | | | | |
| | | | Nine Months Ended
September 30, |
| thousands | | | | | | 2020 | | 2019 | | |
| | | | | | | | | | |
Distributions to WES Operating unitholders (1) | | | | | | $ | (577,122) | | | $ | (736,256) | | | |
(1)Represents distributions paid to the Partnership and certain subsidiaries of Occidental pursuant to WES Operating’s partnership agreement (see Note 4 and Note 5). For the nine months ended September 30, 2019, includes distributions to the Partnership and a subsidiary of Occidental related to the repayment of the WGP RCF (see Note 11).
Related-party revenues. Related-partyRelated-party revenues include (i) income from the Partnership’s investments accounted for under the equity method of accounting (see Note 7) and (ii) amounts earned by the Partnership from services provided to Occidental and from the sale of natural gas, condensate, and NGLs to Occidental.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. TheseWhile Occidental is the contracting counterparty of the Partnership, these arrangements with Occidental include Occidental-producednot just Occidental-produced volumes, andbut also, in some instances, the volumes of other working-interestworking-interest owners of Occidental wherewho rely on the joint partnership collectively gathers, processes, and/or markets volumes. ThesePartnership’s facilities and infrastructure to bring their volumes are considered owned and controlled by Occidental, which is the contracting counterparty of the Partnership. Natural-gasto market. Natural-gas throughput (excluding equity-investmentequity-investment throughput) attributable to production owned or controlled by Occidental was 38% and 36% for the three and nine months ended September 30, 2021, respectively, and 41% and 42% for the three and nine months ended September 30, 2020, respectively,respectively. Crude-oil and 38%NGLs throughput (excluding equity-investment throughput) attributable to production owned or controlled by Occidental was 88% and 37%89% for the three and nine months ended September 30, 2019, respectively. Crude-oil2021, respectively, and NGLs throughput (excluding equity-investment throughput) attributable to production owned or controlled by Occidental was 87% and 88% for the three and nine months ended September 30, 2020, respectively,respectively. Produced-water throughput attributable to production owned or controlled by Occidental was 89% and 85% and 84%87% for the three and nine months ended September 30, 2019, respectively. Produced-water throughput attributable to production owned or controlled by Occidental was2021, respectively, and 87% and 88% for the three and nine months ended September 30, 2020, respectively, and 80% and 81% for the three and nine months ended September 30, 2019, respectively.
TableIn connection with the sale of Contentsits 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.WESTERN MIDSTREAM PARTNERS,Further, in connection with the sale of its Uinta Basin assets in 2020, Kerr McGee Oil & Gas Onshore LP, AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS (CONTINUED)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. TheThrough December 31, 2020, the Partnership sellspurchased and sold a significant amount of its natural gas and NGLs from and to Anadarko Energy Services Company (“AESC”), Occidental’sa marketing affiliate.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-partythird-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-contractmarketing-contract terms with AESC terminated AESC’s prior status as an agent of the Partnership for third-partythird-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-GAAPnon-GAAP metric used to evaluate the Partnership’s operations (see Key Performance Metrics under Part I, Item 2 of this Form 10-Q). In addition, the Partnership purchases natural gas from AESC pursuant to purchase agreements.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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-relatedmarketing-related services to certain of the Partnership’s subsidiaries through December 31, 2020. Additionally, under2020, subject to the terms of theoption to extend such services for an additional six-month period. The Marketing Transition Services Agreement the Partnership is liable for certain downstream transportation commitments throughwas terminated on December 31, 2020. In October 2020,While the Partnership entered into a three-yearstill has some marketing agreements with affiliates of Occidental, the Partnership began marketing and selling substantially all of its natural gas and NGLs marketing agreement with AESC for the sale of certain of the Partnership’s NGLs volumes processed at the DJ Basin complex. The agreement is effectivedirectly to third parties beginning on January 1, 2021.
Operating lease.leases. 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-oilcrude-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-volumeminimum-volume commitment for both gathering and treating, and (ii) variable consideration, which consists of all volumes above the minimum-volumeminimum-volume commitment. Subsequent to the initial two-yeartwo-year term, the agreement provides for automatic one-yearone-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 nine months ended September 30, 2021, the Partnership recognized fixed-lease revenue of $43.9 million and $131.9 million, respectively, and variable-lease revenue of $0.6 million and $1.9 million, respectively, related to these agreements. For the three and nine months ended September 30, 2020, the Partnership recognized fixed-lease revenue of $44.0 million and $131.8 million, respectively, and variable-lease revenue of $9.8 million and $42.6 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 the operationfield-related costs provided by related parties at certain of the Partnership’s assets and for services provided to related parties, including field labor, measurement and analysis, and other disbursements.assets. A portion of general and administrative expense is paid by Occidental, which results in related-partyrelated-party transactions pursuant to the reimbursement provisions of the Partnership’s and WES Operating’s agreements with Occidental. Related-partyCost 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-partyrelated-party revenues, and third-partythird-party expenses do not bear a direct relationship to third-partythird-party revenues.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS (CONTINUED)
Shared services agreements.Services Agreement. PursuantGeneral and administrative expense includes costs incurred pursuant to the agreements discussed below,agreement dated as of December 31, 2019, by and among Occidental, performsAnadarko, and WES Operating GP, under which Occidental has performed certain centralized corporate functions for the Partnership and WES Operating.Operating (“Services Agreement”).
•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 iswas reimbursed for the services provided by the seconded employees. In late March 2020, seconded employees’ employment was transferred to the Partnership. Further, Occidental continues to provide certain administrative and operational services to the Partnership. In January 2020, pursuant to the Services Agreement, Occidental made a one-timeone-time cash contribution of $20.0 million to WES Operating for anticipated transition costs required to establish stand-alonestand-alone human resources and information technology functions. For additional information onIn late March 2020, seconded employees’ employment was transferred to the Services Agreement, see Note 1.
•WESPartnership. Occidental continues to provide certain limited administrative and WES Operating omnibus agreements. Prioroperational services to the Partnership, with most services expected to be fully transitioned to the Partnership by December 31, 2019, the Partnership had an omnibus agreement with Occidental and the general partner and WES Operating had a separate omnibus agreement with Occidental and WES Operating GP. These agreements governed, among other things, the obligation to reimburse Occidental for expenses incurred or payments made on the Partnership’s and WES Operating’s behalf in conjunction with general and administrative services provided by Occidental. The omnibus agreements were terminated as part2021.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS
Incentive Plans. General and administrative expense includes equity-basednon-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-TermLong-Term Incentive Plan, and (iii) Occidental’s Phantom Share Unit Award Plan (collectively referred to as the “Incentive Plans”). General and administrative expense includes costsallocated expense related to the Incentive Plans of $2.3 million and $7.9 million for the three and nine months ended September 30, 2021, respectively, and $3.5 million and $11.2 million for the three and nine months ended September 30, 2020, respectively, and $3.5 million and $9.3 million for the three and nine months ended September 30, 2019, respectively. Portions of theseThese amounts are reflected as contributions to partners’ capital in the consolidated statements of equity and partners’ capital.
December 2019 Agreements.Construction reimbursement agreements and Purchases from related parties. As discussed in more detail in Note 1, on December 31, 2019,From time to time, the Partnership and certain of its subsidiaries, including WES Operating and WES Operating GP, enteredenters into construction reimbursement agreements with Occidental and/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 certaincost-plus basis.
Additionally, from time to time, in support of the Partnership’s business, the Partnership purchases equipment, inventory, and other miscellaneous assets, from Occidental or its subsidiaries, including Anadarko.affiliates. These amounts are included in Purchases from related parties in the consolidated statements of cash flows.
Merger transactions.Related-party commercial agreement. As discussed in more detail in Note 1, on February 28, 2019,During the first quarter of 2021, an affiliate of Occidental and certain wholly owned subsidiaries of the Partnership WES Operating, Anadarko,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 their affiliates completed the Merger andreduced usage fees under the other transactions contemplated inCUA was $30.0 million at the Merger Agreement, which includedtime the acquisition of AMA from Anadarko. See Note 3.agreement was executed.
Anadarko note receivable. In May 2008, WES Operating loaned $260.0 million to Anadarko in exchange for a 30-year30-year note bearingthat bore interest at a fixed annual rate of 6.50%, payable quarterly 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 (i) WES Operating transferred and assigned its interest in the Anadarko note receivable to its limited partners on a pro-rata basis, transferring 98% to the Partnership and 2% to WGRAH, a subsidiary of Occidental, (ii) the Partnership subsequently assigned its 98% interest in (and accrued interest owed under) the Anadarko note receivable to Anadarko, which Anadarko immediately canceled and retired immediately upon receipt, in exchange for which Occidental caused certain of its subsidiaries to transfer an aggregate of 27,855,398 common units of the Partnership to the Partnership, and (iii) the Partnership canceled the units immediately upon receipt.
Purchases from related parties. During the third quarter of 2019, the Partnership purchased $18.4 million of materials and supplies inventory from Occidental. See Note 1.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS (CONTINUED)
APCWH Note Payable. In June 2017, APC Water Holdings 1, LLC (“APCWH”) entered into an eight-year note payable agreement with Anadarko, which was repaid in the first quarter of 2019 at the Merger completion date. See Note 11.
Commodity-price swap agreements. WES Operating previously entered into commodity-price swap agreements with Anadarko to mitigate exposure to the commodity-price risk inherent in WES Operating’s percent-of-proceeds, percent-of-product, and keep-whole natural-gas processing contracts. These commodity-price swap agreements expired without renewal on December 31, 2018.
Notional volumes for each product-based commodity-price swap agreement were not specifically defined. Instead, the commodity-price swap agreements applied to the actual volumes of natural gas, condensate, and NGLs purchased and sold. The commodity-price swap agreements did not satisfy the definition of a derivative financial instrument and, therefore did not require fair-value measurement. Net gains (losses) on commodity-price swap agreements were 0 and $(0.7) million (due to settlement of 2018 activity in 2019) for the three and nine months ended September 30, 2019, respectively, reported in the consolidated statements of operations as related-party Product sales. A capital contribution from Anadarko related to the commodity-price swap agreements of $7.4 million was recorded in the consolidated statements of equity and partners’ capital for the three months ended March 31, 2019.
Concentration of credit risk.Customer concentration. Occidental was the only customer from which revenues exceeded 10% of consolidated revenues for all periods presented in the consolidated statements of operations.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. EQUITY INVESTMENTS
The following table presents the financial statement impact of the Partnership’s equity-investmentsequity investments for the nine months ended September 30, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| thousands | | Balance at December 31, 2019 | | | | Other-than-temporary impairment expense (1) | | Equity
income, net | | Contributions | | Distributions | | Distributions in excess of cumulative earnings (2) | | Balance at September 30, 2020 |
| Fort Union | | $ | (610) | | | | | $ | 0 | | | $ | (554) | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (1,164) | |
| White Cliffs | | 45,877 | | | | | 0 | | | 4,852 | | | 993 | | | (4,791) | | | (1,199) | | | 45,732 | |
| Rendezvous | | 32,964 | | | | | 0 | | | 188 | | | 0 | | | (1,644) | | | (1,353) | | | 30,155 | |
| Mont Belvieu JV | | 103,036 | | | | | 0 | | | 20,711 | | | 0 | | | (20,740) | | | (3,435) | | | 99,572 | |
| TEG | | 18,199 | | | | | 0 | | | 3,382 | | | 0 | | | (3,398) | | | (1,414) | | | 16,769 | |
| TEP | | 203,556 | | | | | 0 | | | 26,828 | | | 0 | | | (30,069) | | | (3,391) | | | 196,924 | |
| FRP | | 207,782 | | | | | 0 | | | 28,660 | | | 3,670 | | | (30,135) | | | (7,399) | | | 202,578 | |
| Whitethorn LLC | | 161,665 | | | | | 0 | | | 30,485 | | | 370 | | | (31,218) | | | 0 | | | 161,302 | |
| Cactus II | | 172,165 | | | | | 0 | | | 19,137 | | | 13,332 | | | (22,138) | | | 0 | | | 182,496 | |
| Saddlehorn | | 112,855 | | | | | 0 | | | 19,669 | | | 0 | | | (20,804) | | | 0 | | | 111,720 | |
| Panola | | 21,783 | | | | | 0 | | | 1,535 | | | 0 | | | (1,535) | | | (679) | | | 21,104 | |
| Mi Vida | | 57,807 | | | | | 0 | | | 8,036 | | | 0 | | | (8,810) | | | (1,143) | | | 55,890 | |
| Ranch Westex | | 46,678 | | | | | (29,399) | | | 8,240 | | | 0 | | | (8,094) | | | (705) | | | 16,720 | |
| Red Bluff Express | | 101,960 | | | | | 0 | | | 5,619 | | | 652 | | | (4,440) | | | (1,032) | | | 102,759 | |
| Total | | $ | 1,285,717 | | | | | $ | (29,399) | | | $ | 176,788 | | | $ | 19,017 | | | $ | (187,816) | | | $ | (21,750) | | | $ | 1,242,557 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| thousands | | Balance at December 31, 2020 | | | | Other-than-temporary impairment expense (1) | | Equity
income, net | | Contributions | | Distributions | | Distributions in excess of cumulative earnings (2) | | | | Balance at September 30, 2021 |
| White Cliffs | | $ | 45,623 | | | | | $ | — | | | $ | 701 | | | $ | — | | | $ | (266) | | | $ | (4,583) | | | | | $ | 41,475 | |
| Rendezvous | | 28,198 | | | | | — | | | (1,560) | | | — | | | (884) | | | (2,058) | | | | | 23,696 | |
| Mont Belvieu JV | | 98,874 | | | | | — | | | 25,066 | | | — | | | (25,095) | | | (2,193) | | | | | 96,652 | |
| TEG | | 16,661 | | | | | — | | | 3,390 | | | — | | | (3,409) | | | (299) | | | | | 16,343 | |
| TEP | | 195,189 | | | | | — | | | 27,572 | | | — | | | (27,623) | | | (4,491) | | | | | 190,647 | |
| FRP | | 199,881 | | | | | — | | | 28,351 | | | — | | | (28,482) | | | (4,004) | | | | | 195,746 | |
| Whitethorn LLC | | 156,729 | | | | | — | | | 6,380 | | | 347 | | | (5,736) | | | (4,018) | | | | | 153,702 | |
| Cactus II | | 173,921 | | | | | — | | | 14,290 | | | 3,336 | | | (14,415) | | | (3,926) | | | | | 173,206 | |
| Saddlehorn | | 111,717 | | | | | — | | | 26,045 | | | — | | | (26,157) | | | — | | | | | 111,605 | |
| Panola | | 20,867 | | | | | — | | | 1,629 | | | — | | | (1,628) | | | (555) | | | | | 20,313 | |
| Mi Vida | | 55,031 | | | | | — | | | 7,445 | | | — | | | (7,334) | | | (2,245) | | | | | 52,897 | |
| Ranch Westex | | 18,898 | | | | | (11,805) | | | 9,267 | | | — | | | (12,517) | | | (1,624) | | | | | 2,219 | |
| Red Bluff Express | | 103,224 | | | | | — | | | 10,761 | | | — | | | (11,226) | | | (79) | | | | | 102,680 | |
| Total | | $ | 1,224,813 | | | | | $ | (11,805) | | | $ | 159,337 | | | $ | 3,683 | | | $ | (164,772) | | | $ | (30,075) | | | | | $ | 1,181,181 | |
(1)Recorded in Long-lived asset and other impairments in the consolidated statements of operations.
(2)Distributions in excess of cumulative earnings, classified as investing cash flows in the consolidated statements of cash flows, are calculated on an individual-investmentindividual-investment basis.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. EQUITY INVESTMENTS (CONTINUED)
The investment balance in Ranch Westex at September 30, 2020,2021, was $25.3$37.1 million less than the Partnership’s underlying equity in Ranch Westex’s net assets primarily due toassets. During the nine months ended September 30, 2021, the Partnership recognized an impairment loss recognized by the Partnership in the third quarter of 2020. The impairment loss of $29.4$11.8 million that resulted from a decline in value below the carrying value, which was determined to be other than temporary in nature. This investment was impaired to its estimated fair value of $16.7$2.9 million, using the income approach and Level-3 fair value inputs, due to a reduction in estimated future cash flows resulting from lower forecasted producer throughput.
The investment balance in Saddlehorn at September 30, 2020, was $14.1 million less than the Partnership’s underlying equity in Saddlehorn’s net assets, primarily due to income from an expansion project that was funded by Saddlehorn’s other owners being disproportionately allocated to the Partnership beginning in the second quarter of 2020. This difference will be amortized to Equity income, net – related parties in the consolidated statements of operations over the remaining estimated useful life of the Saddlehorn pipeline.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. PROPERTY, PLANT, AND EQUIPMENT
A summary of the historical cost of property, plant, and equipment is as follows:
| | | | thousands | thousands | | Estimated Useful Life | | September 30,
2020 | | December 31,
2019 | thousands | | Estimated Useful Life | | September 30,
2021 | | December 31,
2020 |
| Land | Land | | N/A | | $ | 9,696 | | | $ | 9,495 | | Land | | N/A | | $ | 10,955 | | | $ | 9,696 | |
| Gathering systems – pipelines | Gathering systems – pipelines | | 30 years | | 5,209,559 | | | 5,092,004 | | Gathering systems – pipelines | | 30 years | | 5,343,971 | | | 5,231,212 | |
| Gathering systems – compressors | Gathering systems – compressors | | 15 years | | 2,094,961 | | | 1,929,377 | | Gathering systems – compressors | | 15 years | | 2,111,639 | | | 2,096,905 | |
| Processing complexes and treating facilities | Processing complexes and treating facilities | | 25 years | | 3,420,494 | | | 3,237,801 | | Processing complexes and treating facilities | | 25 years | | 3,367,933 | | | 3,424,368 | |
| Transportation pipeline and equipment | Transportation pipeline and equipment | | 6 to 45 years | | 171,069 | | | 173,572 | | Transportation pipeline and equipment | | 6 to 45 years | | 168,384 | | | 168,205 | |
| Produced-water disposal systems | | 20 years | | 824,491 | | | 754,774 | | |
Produced-water disposal systems | | Produced-water disposal systems | | 20 years | | 879,916 | | | 831,719 | |
| Assets under construction | Assets under construction | | N/A | | 197,293 | | | 486,584 | | Assets under construction | | N/A | | 123,115 | | | 176,834 | |
| Other | Other | | 3 to 40 years | | 705,581 | | | 672,064 | | Other | | 3 to 40 years | | 727,013 | | | 702,806 | |
| Total property, plant, and equipment | Total property, plant, and equipment | | 12,633,144 | | | 12,355,671 | | Total property, plant, and equipment | | 12,732,926 | | | 12,641,745 | |
| Less accumulated depreciation | Less accumulated depreciation | | 3,808,005 | | | 3,290,740 | | Less accumulated depreciation | | 4,208,845 | | | 3,931,800 | |
| Net property, plant, and equipment | Net property, plant, and equipment | | $ | 8,825,139 | | | $ | 9,064,931 | | Net property, plant, and equipment | | $ | 8,524,081 | | | $ | 8,709,945 | |
The cost of property classified as “Assets under construction” is excluded from capitalized costs being depreciated. These amounts represent property that is not yet placed into productive service as of the respective balance sheet date.
Long-lived asset and other impairments. During the nine months ended September 30, 2021, the Partnership recognized impairments of $29.2 million, primarily attributable to (i) $14.1 million of impairments at the DJ Basin complex due to cancellation of projects and (ii) an $11.8 million other-than-temporary impairment of the Partnership’s investment in Ranch Westex (see Note 7).
During the nine months ended September 30, 2020, the Partnership recognized impairments of $200.6 million, primarily due to $150.2 million of impairments for assets located in Wyoming and Utah. These assets were impaired to estimated fair values of $112.2 million. The Partnership assesses whether events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of assets with impairment triggers were measured using the income approach and Level-3Level-3 fair value inputs. The income approach was based on the Partnership’s projected future earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and free cash flows, which requires significant assumptions including, among others, future throughput volumes based on current expectations of producer activity and operating costs. These impairments were primarily triggered by reductions in estimated future cash flows resulting from lower forecasted producer throughput and lower commodity prices. The remaining impairments of $21.0 million were primarily at the DJ Basin complex and DBM water systems due to the cancellation of projects and impairments of rights-of-way.rights
-of-way. Long-lived asset and other impairments on the consolidated statements of operations also includes a $29.4 million other-than-temporary impairment for the nine months ended September 30, 2020, of the Partnership’s investment in Ranch Westex (see Note 7).Westex.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. PROPERTY, PLANT, AND EQUIPMENT (CONTINUED)
During the year ended December 31, 2019, the Partnership recognized impairments of $6.3 million, primarily at the DJ Basin complex due to impairments of rights-of-way and cancellation of projects.
Potential future long-lived asset impairments. As of September 30, 2020,2021, it is reasonably possible that future commodity-price declines, prolonged lowdepression of commodity prices, further commodity-price declines, changes to producers’ drilling plans in response to lower prices, and potential producer bankruptcies could result in future long-livedlong-lived asset impairments. For example, on April 29, 2020, the Partnership received notice that Sanchez, in its bankruptcy, was seeking to reject a number of midstream and downstream agreements with commercial counterparties, including Sanchez’s Springfield gathering agreements and agreements obligating Sanchez to deliver the gas volumes gathered by the Springfield system to our Brasada processing plant. On May 6, 2021, the Bankruptcy Court issued an opinion determining, among other things, that Sanchez’s Springfield gathering agreements were rejected, but that such agreements contain covenants running with the land that survive rejection, thus preserving the acreage dedication to the Partnership’s Springfield system. Depending on the ultimate outcome of the Partnership’s continuing efforts to defend its contractual rights in the bankruptcy proceeding, as well as the Partnership’s ongoing commercial discussions, the Partnership’s South Texas assets could be impaired.
9. GOODWILL
Goodwill is recorded when the purchase price of a business acquired exceeds the fair market value of the tangible and separately measurable intangible net assets. Goodwill also includes the allocated historic carrying value of midstream goodwill attributed to the Partnership’s assets previously acquired from Anadarko. The Partnership’s goodwill has been allocated to 2 reporting units: (i) gathering and processing and (ii) transportation.
The Partnership evaluates goodwill for impairment annually,at the reporting-unit level on an annual basis, as of October 1, or more often as facts and circumstances warrant. An initial qualitative assessment is performed to determine the likelihood of whether goodwill is impaired and if deemed necessary based on this assessment, a quantitative assessment is then performed. If the quantitative assessment indicates that the carrying amountvalue of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment is recorded for the amount by which the reporting unit’s carrying value exceeds its fair value.
During the three months ended March 31, 2020, the Partnership performed an interim goodwill impairment test due to a significant decline in the trading price of the Partnership’s common units, triggered by the combined impacts from the global outbreak of COVID-19COVID-19 and the oil-marketoil-market disruption resulting from significantly lower global demand and corresponding oversupply of crude oil. The Partnership primarily used the market approach and Level-3Level-3 inputs to estimate the fair value of its two reporting units. The market approach was based on multiples of EBITDA and the Partnership’s projected future EBITDA. The EBITDA multiples were based on current and historic multiples for comparable midstream companies of similar size and business profit to the Partnership. The EBITDA projections require significant assumptions including, among others, future throughput volumes based on current expectations of producer activity and operating costs. The reasonableness of the market approach was tested against an income approach that was based on a discounted cash-flowcash-flow analysis. Key assumptions in this analysis include the use of an appropriate discount rate, terminal-yearterminal-year multiples, and estimated future cash flows, including estimates of throughput, capital expenditures, operating, and general and administrative costs. The Partnership also reviewed the reasonableness of the total fair value of both reporting units to the market capitalization as of March 31, 2020, and the reasonableness of an implied acquisition premium. Impairment determinations involve significant assumptions and judgments, and differing assumptions regarding any of these inputs could have a significant effect on the valuations. As a result of the interim impairment test, the Partnership recognized a goodwill impairment of $441.0 million during the first quarter of 2020, which reduced the carrying amountvalue of goodwill to 0 for the gathering and processing reporting unit.unit to zero. Goodwill allocated to the transportation reporting unit of $4.8 million as of March 31, 2020, was not impaired. Recurring goodwill impairment assessments have indicated no further impairment.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. SELECTED COMPONENTS OF WORKING CAPITAL
A summary of accounts receivable, net is as follows:
| | | The Partnership | | WES Operating | | The Partnership | | WES Operating |
| | | thousands | thousands | | September 30,
2020 | | December 31,
2019 | | September 30,
2020 | | December 31,
2019 | thousands | | September 30,
2021 | | December 31,
2020 | | September 30,
2021 | | December 31,
2020 |
| Trade receivables, net | Trade receivables, net | | $ | 451,731 | | | $ | 260,458 | | | $ | 415,354 | | | $ | 260,694 | | Trade receivables, net | | $ | 583,646 | | | $ | 452,718 | | | $ | 583,646 | | | $ | 407,547 | |
| Other receivables, net | Other receivables, net | | 53 | | | 54 | | | 69 | | | 54 | | Other receivables, net | | 6 | | | 162 | | | 6 | | | 2 | |
| Total accounts receivable, net | Total accounts receivable, net | | $ | 451,784 | | | $ | 260,512 | | | $ | 415,423 | | | $ | 260,748 | | Total accounts receivable, net | | $ | 583,652 | | | $ | 452,880 | | | $ | 583,652 | | | $ | 407,549 | |
A summary of other current assets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | The Partnership | | WES Operating |
| | | | |
| | | | | | | | |
| thousands | | September 30,
2020 | | December 31,
2019 | | September 30,
2020 | | December 31,
2019 |
| NGLs inventory | | $ | 506 | | | $ | 906 | | | $ | 506 | | | $ | 906 | |
Materials and supplies inventory (1) | | 0 | | | 23,444 | | | 0 | | | 23,444 | |
| Imbalance receivables | | 5,724 | | | 4,690 | | | 5,724 | | | 4,690 | |
| Prepaid insurance | | 11,303 | | | 5,676 | | | 8,858 | | | 3,652 | |
| Contract assets | | 20,152 | | | 7,129 | | | 20,152 | | | 7,129 | |
| Other | | 16,419 | | | 93 | | | 16,419 | | | 93 | |
| Total other current assets | | $ | 54,104 | | | $ | 41,938 | | | $ | 51,659 | | | $ | 39,914 | |
(1)See Note 1. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | The Partnership | | WES Operating |
| | | | |
| | | | | | | | |
| thousands | | September 30,
2021 | | December 31,
2020 | | September 30,
2021 | | December 31,
2020 |
| NGLs inventory | | $ | 4,002 | | | $ | 882 | | | $ | 4,002 | | | $ | 882 | |
| Imbalance receivables | | 14,958 | | | 12,976 | | | 14,958 | | | 12,976 | |
| Prepaid insurance | | 14,425 | | | 8,131 | | | 12,136 | | | 6,113 | |
| Contract assets | | 23,766 | | | 5,338 | | | 23,766 | | | 5,338 | |
| Other | | 16,045 | | | 17,935 | | | 16,045 | | | 17,935 | |
| Total other current assets | | $ | 73,196 | | | $ | 45,262 | | | $ | 70,907 | | | $ | 43,244 | |
A summary of accrued liabilities is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | The Partnership | | WES Operating |
| | | | |
| | | | | | | | |
| thousands | | September 30,
2020 | | December 31,
2019 | | September 30,
2020 | | December 31,
2019 |
| Accrued interest expense | | $ | 80,365 | | | $ | 72,064 | | | $ | 80,365 | | | $ | 72,064 | |
| Short-term asset retirement obligations | | 27,554 | | | 22,472 | | | 27,554 | | | 22,472 | |
| Short-term remediation and reclamation obligations | | 5,228 | | | 3,528 | | | 5,228 | | | 3,528 | |
| Income taxes payable | | 2,095 | | | 697 | | | 2,095 | | | 697 | |
| Contract liabilities | | 9,312 | | | 19,659 | | | 9,312 | | | 19,659 | |
Other (1) | | 51,361 | | | 31,373 | | | 18,290 | | | 31,219 | |
| Total accrued liabilities | | $ | 175,915 | | | $ | 149,793 | | | $ | 142,844 | | | $ | 149,639 | |
(1)Includes amounts related to WES Operating’s interest-rate swap agreements as of September 30, 2020, and December 31, 2019 (see Note 11). | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | The Partnership | | WES Operating |
| | | | |
| | | | | | | | |
| thousands | | September 30,
2021 | | December 31,
2020 | | September 30,
2021 | | December 31,
2020 |
| Accrued interest expense | | $ | 69,570 | | | $ | 137,307 | | | $ | 69,570 | | | $ | 137,307 | |
Short-term asset retirement obligations | | 14,365 | | | 20,215 | | | 14,365 | | | 20,215 | |
Short-term remediation and reclamation obligations | | 6,101 | | | 2,950 | | | 6,101 | | | 2,950 | |
| Income taxes payable | | 4,593 | | | 3,399 | | | 4,593 | | | 3,399 | |
| Contract liabilities | | 22,854 | | | 31,477 | | | 22,854 | | | 31,477 | |
| Other | | 73,145 | | | 74,599 | | | 27,758 | | | 35,485 | |
| Total accrued liabilities | | $ | 190,628 | | | $ | 269,947 | | | $ | 145,241 | | | $ | 230,833 | |
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. DEBT AND INTEREST EXPENSE
WES Operating is the borrower for all outstanding debt and is expected to be the borrower for all future debt issuances. The following table presents the outstanding debt:
| | | | | September 30, 2020 | | December 31, 2019 | | | September 30, 2021 | | December 31, 2020 |
| thousands | thousands | | Principal | | Carrying
Value | | Fair Value (1) | | Principal | | Carrying
Value | | Fair Value (1) | thousands | | Principal | | Carrying
Value | | Fair Value (1) | | Principal | | Carrying
Value | | Fair Value (1) |
| Short-term debt | | | | | | | | | | | | | |
Short-term debt | | Short-term debt | | | | | | | | | | | | |
| 4.000% Senior Notes due 2022 | | 4.000% Senior Notes due 2022 | | $ | 502,246 | | | $ | 502,086 | | | $ | 510,243 | | | $ | — | | | $ | — | | | $ | — | |
| 5.375% Senior Notes due 2021 | 5.375% Senior Notes due 2021 | | $ | 431,081 | | | $ | 430,326 | | | $ | 435,023 | | | $ | — | | | $ | — | | | $ | — | | 5.375% Senior Notes due 2021 | | — | | | — | | | — | | | 431,081 | | | 430,606 | | | 436,241 | |
Finance lease liabilities (2) | | 8,436 | | | 8,436 | | | 8,436 | | | 7,873 | | | 7,873 | | | 7,873 | | |
| Total short-term debt | | $ | 439,517 | | | $ | 438,762 | | | $ | 443,459 | | | $ | 7,873 | | | $ | 7,873 | | | $ | 7,873 | | |
| RCF | | RCF | | 220,000 | | | 220,000 | | | 220,000 | | | — | | | — | | | — | |
| Finance lease liabilities | | Finance lease liabilities | | 4,343 | | | 4,343 | | | 4,343 | | | 8,264 | | | 8,264 | | | 8,264 | |
Total short-term debt | | Total short-term debt | | $ | 726,589 | | | $ | 726,429 | | | $ | 734,586 | | | $ | 439,345 | | | $ | 438,870 | | | $ | 444,505 | |
| | Long-term debt | | |
| 5.375% Senior Notes due 2021 | | $ | — | | | $ | — | | | $ | — | | | $ | 500,000 | | | $ | 498,168 | | | $ | 515,042 | | |
Long-term debt | | Long-term debt | |
| 4.000% Senior Notes due 2022 | 4.000% Senior Notes due 2022 | | 580,917 | | | 580,498 | | | 585,519 | | | 670,000 | | | 669,322 | | | 689,784 | | 4.000% Senior Notes due 2022 | | $ | — | | | $ | — | | | $ | — | | | $ | 580,917 | | | $ | 580,555 | | | $ | 597,568 | |
| Floating-Rate Senior Notes due 2023 | | 264,463 | | | 263,103 | | | 246,605 | | | 0 | | | 0 | | | 0 | | |
Floating-Rate Senior Notes due 2023 | | Floating-Rate Senior Notes due 2023 | | 213,138 | | | 212,521 | | | 212,773 | | | 239,978 | | | 238,879 | | | 235,066 | |
| 3.100% Senior Notes due 2025 | 3.100% Senior Notes due 2025 | | 1,000,000 | | | 992,505 | | | 953,152 | | | 0 | | | 0 | | | 0 | | 3.100% Senior Notes due 2025 | | 732,106 | | | 727,794 | | | 774,328 | | | 1,000,000 | | | 992,900 | | | 1,028,614 | |
| 3.950% Senior Notes due 2025 | 3.950% Senior Notes due 2025 | | 500,000 | | | 494,603 | | | 472,459 | | | 500,000 | | | 493,830 | | | 504,968 | | 3.950% Senior Notes due 2025 | | 399,163 | | | 395,708 | | | 421,970 | | | 500,000 | | | 494,866 | | | 512,807 | |
| 4.650% Senior Notes due 2026 | 4.650% Senior Notes due 2026 | | 500,000 | | | 496,579 | | | 486,814 | | | 500,000 | | | 496,197 | | | 513,393 | | 4.650% Senior Notes due 2026 | | 474,242 | | | 471,500 | | | 513,758 | | | 500,000 | | | 496,708 | | | 524,880 | |
| 4.500% Senior Notes due 2028 | 4.500% Senior Notes due 2028 | | 400,000 | | | 395,488 | | | 380,550 | | | 400,000 | | | 395,113 | | | 390,920 | | 4.500% Senior Notes due 2028 | | 400,000 | | | 396,010 | | | 433,214 | | | 400,000 | | | 395,617 | | | 415,454 | |
| 4.750% Senior Notes due 2028 | 4.750% Senior Notes due 2028 | | 400,000 | | | 396,462 | | | 386,193 | | | 400,000 | | | 396,190 | | | 400,962 | | 4.750% Senior Notes due 2028 | | 400,000 | | | 396,840 | | | 437,005 | | | 400,000 | | | 396,555 | | | 418,786 | |
| 4.050% Senior Notes due 2030 | 4.050% Senior Notes due 2030 | | 1,200,000 | | | 1,189,180 | | | 1,171,500 | | | 0 | | | 0 | | | 0 | | 4.050% Senior Notes due 2030 | | 1,200,000 | | | 1,190,102 | | | 1,324,159 | | | 1,200,000 | | | 1,189,407 | | | 1,342,996 | |
| 5.450% Senior Notes due 2044 | 5.450% Senior Notes due 2044 | | 600,000 | | | 593,565 | | | 516,911 | | | 600,000 | | | 593,470 | | | 533,710 | | 5.450% Senior Notes due 2044 | | 600,000 | | | 593,699 | | | 691,067 | | | 600,000 | | | 593,598 | | | 607,234 | |
| 5.300% Senior Notes due 2048 | 5.300% Senior Notes due 2048 | | 700,000 | | | 686,996 | | | 569,571 | | | 700,000 | | | 686,843 | | | 610,841 | | 5.300% Senior Notes due 2048 | | 700,000 | | | 687,210 | | | 807,613 | | | 700,000 | | | 687,048 | | | 694,172 | |
| 5.500% Senior Notes due 2048 | 5.500% Senior Notes due 2048 | | 350,000 | | | 342,514 | | | 289,119 | | | 350,000 | | | 342,432 | | | 310,198 | | 5.500% Senior Notes due 2048 | | 350,000 | | | 342,629 | | | 409,945 | | | 350,000 | | | 342,543 | | | 343,928 | |
| 5.250% Senior Notes due 2050 | 5.250% Senior Notes due 2050 | | 1,000,000 | | | 983,463 | | | 929,901 | | | 0 | | | 0 | | | 0 | | 5.250% Senior Notes due 2050 | | 1,000,000 | | | 983,659 | | | 1,176,283 | | | 1,000,000 | | | 983,512 | | | 1,100,375 | |
| RCF | | 0 | | | 0 | | | 0 | | | 380,000 | | | 380,000 | | | 380,000 | | |
| Term loan facility | | 0 | | | 0 | | | 0 | | | 3,000,000 | | | 3,000,000 | | | 3,000,000 | | |
| Finance lease liabilities | Finance lease liabilities | | 25,438 | | | 25,438 | | | 25,438 | | | 0 | | | 0 | | | 0 | | Finance lease liabilities | | 2,202 | | | 2,202 | | | 2,202 | | | 23,644 | | | 23,644 | | | 23,644 | |
| Total long-term debt | | $ | 7,520,818 | | | $ | 7,440,394 | | | $ | 7,013,732 | | | $ | 8,000,000 | | | $ | 7,951,565 | | | $ | 7,849,818 | | |
Total long-term debt | | Total long-term debt | | $ | 6,470,851 | | | $ | 6,399,874 | | | $ | 7,204,317 | | | $ | 7,494,539 | | | $ | 7,415,832 | | | $ | 7,845,524 | |
|
(1)Fair value is measured using the market approach and Level-2Level-2 fair value inputs.
(2)Includes related-party amounts as of December 31, 2019.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. DEBT AND INTEREST EXPENSE (CONTINUED)
Debt activity. The following table presents the debt activity for the nine months ended September 30, 2020:2021:
| | | | | | | | |
| thousands | | Carrying Value |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Balance at December 31, 20192020 | | $ | 7,959,4387,854,702 | |
| RCF borrowings | | 220,000 | |
Issuance of Floating-Rate Senior Notes due 2023 | | 300,000 | |
Issuance of 3.100% Senior Notes due 2025 | | 1,000,000 | |
Issuance of 4.050% Senior Notes due 2030 | | 1,200,000 | |
Issuance of 5.250% Senior Notes due 2050 | | 1,000,000 | |
Finance lease liabilities | | 26,001400,000 | |
| Repayments of RCF borrowings | | (600,000) | |
Repayment of Term loan facility borrowings | | (3,000,000)(180,000) | |
| Repayment of 5.375% Senior Notes due 2021 | | (68,919)(431,081) | |
| Repayment of 4.000% Senior Notes due 2022 | | (89,083)(78,671) | |
| Repayment of Floating-Rate Senior Notes due 2023 | | (35,537)(26,840) | |
| Repayment of 3.100% Senior Notes due 2025 | | (267,894) | |
| Repayment of 3.950% Senior Notes due 2025 | | (100,837) | |
| Repayment of 4.650% Senior Notes due 2026 | | (25,758) | |
| Finance lease liabilities | | (25,364) | |
| Other | | (32,744)8,046 | |
Balance at September 30, 20202021 | | $ | 7,879,1567,126,303 | |
WES Operating Senior Notes.In mid-January 2020, WES Operating issued the following notes:
•FixedFixed-Rate-Rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050 offered to the public at prices of 99.962%, 99.900%, and 99.442%, respectively, of the face amount (collectively referred to as the “Fixed-Rate“Fixed-Rate Senior Notes”) and the Floating-Rate Senior Notes due 2023 (the “Floating-Rate Senior Notes”). Including the effects of the issuance prices, underwriting discounts, and interest-rateinterest-rate adjustments, (described below), the effective interest rates of the Senior Notes due 2025, 2030, and 2050, were 4.542%, 5.424%, and 6.629%, respectively, at September 30, 2021, and were 4.291%, 5.173%, and 6.375%, respectively, at September 30, 2020, and 3.287%, 4.168%, and 5.362%, respectively, at June 30, 2020. Interest is paid on each such series semi-annually on February 1 and August 1 of each year, beginning August 1, 2020; and
•Floating-Rate Senior Notes due 2023 (the “Floating-Rate Senior Notes”). As of September 30, 2020, theThe interest rate on the Floating-RateFloating-Rate Senior Notes was 2.12%. Interest is paid quarterly in arrears on January 13, April 13, July 13,2.23% and October 132.12% at September 30, 2021 and 2020, respectively. The effective interest rate of each year. Interest is determined at a benchmark rate (which is initially a three-month London Interbank Offered Rate) on the interest determination date plus 0.85%.
Net proceeds from the Fixed-Rate Senior Notes and Floating-Rate Senior Notes were used to repay the $3.0 billion in outstanding borrowings under the Term loan facility and outstanding amounts under the RCF, and for general partnership purposes. The interest payable on each of the Fixed-Rate Senior Notes and Floating-Rate Senior Notesthese notes is subject to adjustment from time to time ifdue to a change in credit rating.
During the credit rating assignedthird quarter of 2021, WES Operating purchased and retired $500.0 million of certain of its senior notes via a tender offer (see Debt activity above). For the three months ended September 30, 2021, losses of $24.7 million were recognized for the early retirement of these notes. During the first quarter of 2021, WES Operating redeemed the total principal amount outstanding of the 5.375% Senior Notes due 2021 at par value, pursuant to such notes declines below certain specified levels or if credit-rating downgrades are subsequently followed by credit-rating upgrades. In March 2020, Fitch Ratings (“Fitch”) and Standard and Poor’s (“S&P”) downgradedthe optional redemption terms in WES Operating’s long-termindenture.
As of September 30, 2021, the 4.000% Senior Notes due 2022 were classified as short-term debt from “BBB-” to “BB+.” In May 2020, Fitch downgradedon the consolidated balance sheet. At September 30, 2021, WES Operating was in compliance with all covenants under the relevant governing indentures.
Revolving credit facility. WES Operating’s long-term$2.0 billion senior unsecured revolving credit facility (“RCF”) is expandable to a maximum of $2.5 billion, and matures in February 2025 for each extending lender. The non-extending lender’s commitments mature in February 2024 and represent $100.0 million out of $2.0 billion of total commitments from all lenders.
As of September 30, 2021, there were $220.0 million of outstanding borrowings and $5.1 million of outstanding letters of credit, resulting in $1.8 billion of available borrowing capacity under the RCF. As of September 30, 2021 and 2020, the interest rate on any outstanding RCF borrowings was 1.58% and 1.65%, respectively. The facility-fee rate was 0.25% at September 30, 2021 and 2020. At September 30, 2021, WES Operating was in compliance with all covenants under the RCF. Any outstanding RCF borrowings are classified as short-term debt on the consolidated balance sheet due to “BB”management’s intent to repay within the next twelve months.
Term loan facility. In January 2020, WES Operating repaid the outstanding borrowings with proceeds from the issuance of the Fixed-Rate Senior Notes and in JuneFloating-Rate Senior Notes and terminated its $3.0 billion senior unsecured credit facility (“Term loan facility”), see WES Operating Senior Notes above. During the first quarter of 2020, Moody’s Investors Service downgraded WES Operating’s long-term debt from “Ba1” to “Ba2.” As a resultloss of these downgrades, annualized borrowing costs will increase by $34.6 million.$2.3 million was recognized for the early termination of the Term loan facility.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. DEBT AND INTEREST EXPENSE (CONTINUED)
During the three and nine months ended September 30, 2020, WES Operating purchased and retired $29.0 million and $193.5 million, respectively, of certain of its senior notes and Floating-Rate Senior Notes via open-market repurchases. For the three and nine months ended September 30, 2020, gains of $1.7 million and $12.7 million, respectively, were recognized for the early retirement of these notes.
As of September 30, 2020, the 5.375% Senior Notes due 2021 were classified as short-term debt on the consolidated balance sheet. At September 30, 2020, WES Operating was in compliance with all covenants under the relevant governing indentures.
WGP RCF. The WGP RCF, which previously was available to purchase WES Operating common units and for general partnership purposes, matured in March 2019 and the $28.0 million of outstanding borrowings were repaid.
Revolving credit facility. In December 2019, WES Operating entered into an amendment to the RCF, which is expandable to a maximum of $2.5 billion, to, among other things, exercise the final one-year extension option to extend the maturity date of the RCF from February 2024 to February 2025, for each extending lender. The maturity date with respect to each non-extending lender, whose commitments represent $100.0 million out of $2.0 billion of total commitments from all lenders, remains February 2024. See Note 1.
As of September 30, 2020, there were 0 outstanding borrowings and $5.0 million of outstanding letters of credit, resulting in $2.0 billion of available borrowing capacity under the RCF. As of September 30, 2020 and 2019, the interest rate on any outstanding RCF borrowings was 1.65% and 3.34%, respectively. The facility-fee rate was 0.25% and 0.20% at September 30, 2020 and 2019, respectively. At September 30, 2020, WES Operating was in compliance with all covenants under the RCF.
As a result of credit-rating downgrades received from Fitch and S&P (see WES Operating Senior Notes above), beginning in the second quarter of 2020, the interest rate on outstanding RCF borrowings increased by 0.20% and the RCF facility-fee rate increased by 0.05%, from 0.20% to 0.25%.
Term loan facility. In December 2018, WES Operating entered into the Term loan facility, the proceeds from which were used to fund substantially all of the cash portion of the consideration under the Merger Agreement and the payment of related transaction costs (see Note 1). As of September 30, 2019, the interest rate on the outstanding borrowings was 3.42%. In January 2020, WES Operating repaid the outstanding borrowings with proceeds from the issuance of the Fixed-Rate Senior Notes and Floating-Rate Senior Notes and terminated the Term loan facility (see WES Operating Senior Notes above). During the first quarter of 2020, a loss of $2.3 million was recognized for the early termination of the Term loan facility.
Finance lease liabilities.The Partnership subleased equipment from Occidental via finance leases through April 2020. During the first quarter of 2020, the Partnership entered into finance leases with third parties for equipment and vehicles extending through 2029, with2029. Certain equipment leases were amended during the third quarter of 2021 requiring reassessment of lease classification. As a result, these leases are now classified as operating leases resulting in a reduction of $19.6 million in Net property, plant, and equipment and $20.3 million in Short-term and Long-term debt. The operating leases resulted in additions of $4.8 million in Other assets, $3.1 million in Accrued liabilities, and $2.4 million in Other liabilities, on the consolidated balance sheet. The Partnership has future lease payments for its finance leases of $39.0$6.7 million as of September 30, 2020.2021.
APCWH Note Payable. In June 2017, in connection with funding the construction of the APC water systems that were acquired as part of the AMA acquisition, APCWH entered into an eight-year note payable agreement with Anadarko. This note payable had a maximum borrowing limit of $500.0 million, including accrued interest. The APCWH Note Payable was repaid at Merger completion. See Note 1.
Interest-rate swaps. In December 2018 and March 2019, WES Operating entered into interest-rate swap agreements with an aggregate notional principal amount of $750.0 million and $375.0 million, respectively, to manage interest-rate risk associated with anticipated debt issuances. In November and December 2019, WES Operating entered into additional interest-rate swap agreements with an aggregate notional principal amount of $1,125.0 million, effectively offsetting the swap agreements entered into in December 2018 and March 2019.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. DEBT AND INTEREST EXPENSE (CONTINUED)
In December 2019, all outstanding interest-rate swap agreements were settled. As part of the settlement, WES Operating made cash payments of $107.7 million and recorded an accrued liability of $25.6 million to be paid quarterly in 2020. For the nine months ended September 30, 2020, WES Operating made cash payments of $19.2 million. These cash payments were classified as cash flows from operating activities in the consolidated statements of cash flows.
The Partnership did not apply hedge accounting and, therefore, gains and losses associated with the interest-rate swap agreements were recognized in earnings. For the three and nine months ended September 30, 2019, non-cash losses of $68.3 million and $162.9 million, respectively, were recognized, which are included in Other income (expense), net in the consolidated statements of operations.
Interest expense. The following table summarizes the amounts included in interest expense:
| | | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | |
| thousands | thousands | | 2020 | | 2019 | | 2020 | | 2019 | | thousands | | 2021 | | 2020 | | 2021 | | 2020 | |
| Third parties | Third parties | | | | | | | | | | Third parties | | | | | | | | | |
| Long-term and short-term debt | | $ | (94,201) | | | $ | (83,712) | | | $ | (273,620) | | | $ | (233,432) | | | |
Long-term and short-term debt | | Long-term and short-term debt | | $ | (90,913) | | | $ | (94,201) | | | $ | (279,122) | | | $ | (273,620) | | |
| Finance lease liabilities | Finance lease liabilities | | (369) | | | 0 | | | (1,162) | | | 0 | | | Finance lease liabilities | | (218) | | | (369) | | | (808) | | | (1,162) | | |
| Amortization of debt issuance costs and commitment fees | | (3,463) | | | (3,139) | | | (10,052) | | | (9,461) | | | |
| Commitment fees and amortization of debt-related costs | | Commitment fees and amortization of debt-related costs | | (3,147) | | | (3,463) | | | (9,664) | | | (10,052) | | |
| Capitalized interest | Capitalized interest | | 2,462 | | | 8,386 | | | 6,066 | | | 20,933 | | | Capitalized interest | | 1,021 | | | 2,462 | | | 2,554 | | | 6,066 | | |
| Total interest expense – third parties | Total interest expense – third parties | | (95,571) | | | (78,465) | | | (278,768) | | | (221,960) | | | Total interest expense – third parties | | (93,257) | | | (95,571) | | | (287,040) | | | (278,768) | | |
| Related parties | Related parties | | | | | | | | | | Related parties | | | | | | | | | |
| APCWH Note Payable | | 0 | | | 0 | | | 0 | | | (1,833) | | | |
| | Finance lease liabilities | Finance lease liabilities | | 0 | | | (59) | | | (43) | | | (79) | | | Finance lease liabilities | | — | | | — | | | — | | | (43) | | |
| Total interest expense – related parties | Total interest expense – related parties | | 0 | | | (59) | | | (43) | | | (1,912) | | | Total interest expense – related parties | | — | | | — | | | — | | | (43) | | |
| Interest expense | Interest expense | | $ | (95,571) | | | $ | (78,524) | | | $ | (278,811) | | | $ | (223,872) | | | Interest expense | | $ | (93,257) | | | $ | (95,571) | | | $ | (287,040) | | | $ | (278,811) | | |
12. COMMITMENTS AND CONTINGENCIES
Environmental obligations. The Partnership is subject to various environmental-remediation obligations arising from federal, state, and local regulations regarding air and water quality, hazardous and solid waste disposal, and other environmental matters. As of September 30, 2021, and December 31, 2020, the consolidated balance sheets included $12.0 million and $8.2 million, respectively, of liabilities for remediation and reclamation obligations. The current portion of these amounts is included in Accrued liabilities, and the long-term portion of these amounts is included in Other liabilities. The majority of payments related to these obligations are expected to be made over the next five years.
Litigation and legal proceedings. From time to time, the Partnership is involved in legal, tax, regulatory, and other proceedings in various forums regarding performance, contracts, and other matters that arise in the ordinary course of business. Management is not aware of any such proceeding for which the final disposition could have a material adverse effect on the Partnership’s financial condition, results of operations, or cash flows.
Other commitments. The Partnership has short-term payment obligations, or commitments, that include, among other things, a revolving credit facility, other third-party long-term debt, obligations related to itsthe Partnership’s capital spending programs, pipeline commitments, and those of its unconsolidatedvarious operating and finance leases. The payment obligations related parties,to the Partnership’s capital spending programs, the majority of which is expected to be paid in the next twelve months. These commitmentsmonths, primarily relate to construction, expansion, and expansionasset-integrity projects at the West Texas andcomplex, DBM water systems, DJ Basin complexes, DBM water systems,complex, and DBM oil system.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion analyzes our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, wherein WES Operating is fully consolidated, and which are included under Part I, Item 1 of this quarterly report, and the historical consolidated financial statements, and the notes thereto, which are included under Part II, Item 8 of the 20192020 Form 10-K as filed with the SEC on February 27, 2020.26, 2021.
The Partnership’s assets include assets owned and ownership interests accounted for by us under the equity method of accounting, through our 98.0% partnership interest in WES Operating, as of September 30, 2021 (see Note 7—Equity Investments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q). We also own and control the entire non-economic general partner interest in WES Operating GP, and our general partner is owned by Occidental.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made in this Form 10-Q, and may make in other public filings, press releases, and statements by management, forward-lookingforward-looking statements concerning our operations, economic performance, and financial condition. These forward-lookingforward-looking statements include statements preceded by, followed by, or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “target,” “goal,” “plans,” “objective,” “should,” or similar expressions or variations on such expressions. These statements discuss future expectations, contain projections of results of operations or financial condition, or include other “forward-looking”“forward-looking” information.
Although we and our general partner believe that the expectations reflected in our forward-lookingforward-looking statements are reasonable, neither we nor our general partner can provide any assurance that such expectations will prove correct. These forward-lookingforward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from expectations include, but are not limited to, the following:
•our ability to pay distributions to our unitholders;
•our assumptions about the energy market;
•future throughput (including Occidental production) that is gathered or processed by, or transported through our assets;
•our operating results;
•competitive conditions;
•technology;
•the availability of capital resources to fund acquisitions, capital expenditures, and other contractual obligations, and our ability to access financing through the debt or equity capital markets;
•the supply of, demand for, and price of, oil, natural gas, NGLs, and related products or services;
•commodity-pricecommodity-price risks inherent in percent-of-proceeds, percent-of-product,percent-of-proceeds, percent-of-product, and keep-wholekeep-whole contracts;
•weather and natural disasters;
•inflation;
•the availability of goods and services;
•general economic conditions, internationally, domestically, or in the jurisdictions in which we are doing business;
•federal, state, and local laws and state-approvedstate-approved voter ballot initiatives, including those laws or ballot initiatives that limit producers’ hydraulic-fracturinghydraulic-fracturing activities or other oil and natural-gasnatural-gas development or operations;
•environmental liabilities;
•legislative or regulatory changes, including changes affecting our status as a partnership for federal income tax purposes;
•changes in the financial or operational condition of Occidental;
•the creditworthiness of Occidental or our other counterparties, including financial institutions, operating partners, and other parties;
•changes in Occidental’s capital program, corporate strategy, or other desired areas of focus;
•our commitments to capital projects;
•our ability to access liquidity under the RCF;
•our ability to repay debt;
•the impact from disruptions caused by winter storm Uri or the blizzard in the state of Colorado or resolution of litigation or other disputes;
•conflicts of interest among us, our general partner and its related parties, including Occidental, with respect to, among other things, the allocation of capital and operational and administrative costs, and our future business opportunities;
•our ability to maintain and/or obtain rights to operate our assets on land owned by third parties;
•our ability to acquire assets on acceptable terms from third parties;
•non-paymentnon-payment or non-performancenon-performance of significant customers, including under gathering, processing, transportation, and disposal agreements;
•the timing, amount, and terms of future issuances of equity and debt securities;
•the outcome of pending and future regulatory, legislative, or other proceedings or investigations, and continued or additional disruptions in operations that may occur as we and our customers comply with any regulatory orders or other state or local changes in laws or regulations;
•the economic uncertainty from the worldwide outbreak of the coronavirus (“COVID-19”COVID-19”); and
•other factors discussed below, in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” included in the 20192020 Form 10-K,10-K, in our quarterly reports on Form 10-Q,10-Q, and in our other public filings and press releases.
Risk factors and other factors noted throughout or incorporated by reference in this Form 10-Q could cause actual results to differ materially from those contained in any forward-lookingforward-looking statement. Except as required by law, we undertake no obligation to publicly update or revise any forward-lookingforward-looking statements, whether as a result of new information, future events, or otherwise.
EXECUTIVE SUMMARY
DuringWe are a midstream energy company organized as a publicly traded partnership, engaged in the business of gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, NGLs, and crude oil; and gathering and disposing of produced water. In our capacity as a natural-gas processor, we also buy and sell natural gas, NGLs, and condensate on behalf of ourselves and as an agent for our customers under certain contracts. To provide superior midstream service, we focus on ensuring the reliability and performance of our systems, creating sustainable cost efficiencies, enhancing our safety culture, and protecting the environment. We own or have investments in assets located in Texas, New Mexico, the Rocky Mountains (Colorado, Utah, and Wyoming), and North-central Pennsylvania. As of September 30, 2021, our assets and investments consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Wholly
Owned and
Operated | | Operated
Interests | | Non-Operated
Interests | | Equity
Interests |
Gathering systems (1) | | 17 | | | 2 | | | 3 | | | 1 | |
| Treating facilities | | 36 | | | 3 | | | — | | | — | |
Natural-gas processing plants/trains | | 24 | | | 3 | | | — | | | 5 | |
| NGLs pipelines | | 2 | | | — | | | — | | | 5 | |
Natural-gas pipelines | | 5 | | | — | | | — | | | 1 | |
Crude-oil pipelines | | 3 | | | 1 | | | — | | | 4 | |
(1)Includes the DBM water systems.
Significant financial and operational events during the nine months ended September 30, 2021, included the following:
•WES Operating redeemed the total principal amount outstanding of the 5.375% Senior Notes due 2021 at par value, pursuant to the optional redemption terms in WES Operating’s indenture.
•WES Operating purchased and retired $500.0 million of certain of its senior notes via a tender offer.
•We repurchased 5,586,419 common units for an aggregate purchase price of $104.4 million.
•Our third-quarter 2021 per-unit distribution of $0.32300 increased $0.004 from the second-quarter 2021 per-unit distribution of $0.31900.
•Natural-gas throughput attributable to WES totaled 4,081 MMcf/d and 4,132 MMcf/d for the three and nine months ended September 30, 2021, respectively, representing a 4% decrease and 6% decreasecompared to the three months ended June 30, 2021, and nine months ended September 30, 2020, respectively.
•Crude-oil and NGLs throughput attributable to WES totaled 641 MBbls/d and 645 MBbls/d for the three and nine months ended September 30, 2021, respectively, representing a 7% decrease and 11% decreasecompared to the three months ended June 30, 2021, and nine months ended September 30, 2020, respectively.
•Produced-water throughput attributable to WES totaled 735 MBbls/d and 673 MBbls/d for the three and nine months ended September 30, 2021, respectively, representing a 7% increase and 5% decrease compared to the three months ended June 30, 2021, and nine months ended September 30, 2020, respectively.
•Gross margin was $541.6 million and $1.5 billion for the three and nine months ended September 30, 2021, respectively, representing an 8% increase and 5% decrease compared to the three months ended June 30, 2021, and nine months ended September 30, 2020, respectively. See Key Performance Metrics within this Item 2.
•Adjusted gross margin for natural-gas assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $1.31 per Mcf and $1.24 per Mcf for the three and nine months ended September 30, 2021, respectively, representing an 8% increase compared to the three months ended June 30, 2021, and nine months ended September 30, 2020.
•Adjusted gross margin for crude-oil and NGLs assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $2.52 per Bbl and $2.46 per Bbl for the three and nine months ended September 30, 2021, respectively, representing a 5% increase and 2% decrease compared to the three months ended June 30, 2021, and nine months ended September 30, 2020, respectively.
•Adjusted gross margin for produced-water assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $0.94 per Bbl and $0.93 per Bbl for the three and nine months ended September 30, 2021, respectively, representing a 2% increase and 5% decrease compared to the three months ended June 30, 2021, and nine months ended September 30, 2020, respectively.
The following table provides additional information on throughput for the periods presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Three Months Ended | | Nine Months Ended | | | | | | |
| | | | | | | | | | |
| | September 30, 2021 | | June 30,
2021 | | Inc/
(Dec) | | September 30, 2021 | | September 30, 2020 | | Inc/
(Dec) | | | | | | |
| Throughput for natural-gas assets (MMcf/d) |
| Delaware Basin | | 1,274 | | | 1,244 | | | 2 | % | | 1,217 | | | 1,330 | | | (8) | % | | | | | | |
| DJ Basin | | 1,368 | | | 1,413 | | | (3) | % | | 1,375 | | | 1,342 | | | 2 | % | | | | | | |
| Equity investments | | 443 | | | 457 | | | (3) | % | | 447 | | | 451 | | | (1) | % | | | | | | |
| Other | | 1,152 | | | 1,310 | | | (12) | % | | 1,248 | | | 1,416 | | | (12) | % | | | | | | |
Total throughput for natural-gas assets | | 4,237 | | | 4,424 | | | (4) | % | | 4,287 | | | 4,539 | | | (6) | % | | | | | | |
| Throughput for crude-oil and NGLs assets (MBbls/d) |
| Delaware Basin | | 185 | | | 184 | | | 1 | % | | 177 | | | 192 | | | (8) | % | | | | | | |
| DJ Basin | | 87 | | | 98 | | | (11) | % | | 89 | | | 109 | | | (18) | % | | | | | | |
| Equity investments | | 350 | | | 386 | | | (9) | % | | 358 | | | 395 | | | (9) | % | | | | | | |
| Other | | 32 | | | 33 | | | (3) | % | | 34 | | | 42 | | | (19) | % | | | | | | |
Total throughput for crude-oil and NGLs assets | | 654 | | | 701 | | | (7) | % | | 658 | | | 738 | | | (11) | % | | | | | | |
| Throughput for produced-water assets (MBbls/d) |
| Delaware Basin | | 750 | | | 702 | | | 7 | % | | 687 | | | 726 | | | (5) | % | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Total throughput for produced-water assets | | 750 | | | 702 | | | 7 | % | | 687 | | | 726 | | | (5) | % | | | | | | |
| | | | | | | | | | | | | | | | | | |
Weather-related impacts. In February 2021, the U.S. experienced winter storm Uri, bringing extreme cold temperatures, ice, and snow to the central U.S., including Texas, and in March 2021, Colorado experienced a historic blizzard. Winter storm Uri adversely affected our volumes for approximately ten days and the blizzard in Colorado likewise disrupted our assets in that state. We estimate the impact of these weather events to have reduced net income and Adjusted EBITDA (as defined under the caption Key Performance Metrics within this Item 2) for the nine months ended September 30, 2021, by approximately $30 million due to lower volumes, the impact of commodity-prices, and higher operating expenses related to utilities. The estimated impact of the adverse winter weather on our operations and financial results may change and those changes may be material. Any additional inclement weather in the future, or other adverse conditions, including resolution of litigation and other legal disputes and the COVID-19 pandemic and resulting mitigation factors, may have an adverse impact on our operations and financial results.
COVID-19. During 2020, the global outbreak of COVID-19COVID-19 caused a sharp decline in the worldwide demand for oil, natural gas, and NGLs, which contributed significantly to recent commodity-pricecommodity-price declines and oversupplied commodities markets. These market dynamics have had an adverse impact on producers that provide throughput into our systems, and we have experienced decreased throughput at many of our locations, which may adversely affect our results of operations and cash flows.locations.
Additionally, many of our employees have been and may continue to be subject to pandemic-related work-from-homepandemic-related work-from-home requirements, which requiresrequire us to take additional actions to ensure that the number of personnel accessing our network remotely does not lead to excessive cyber-securitycyber-security risk levels during the ongoing work-from-home precautionary phase of the pandemic.levels. Similarly, we are working continually to ensure operational changes that we have made to promote the health and safety of our personnel during this pandemic do not unduly disrupt intracompany communications and key business processes. We consider our risk-mitigationrisk-mitigation efforts adequate; however, the ultimate impact of the ongoing pandemic is unpredictable, with direct and indirect impacts to our business. See Risk Factors under Part II, Item 1A of this Form 10-Q for additional information on these and other risks.
WES continues to monitor the COVID-19COVID-19 situation closely, and as state and federal governments issue additional guidance, we will update our own policy responsespolicies in response to ensure the safety and health of our workforce and communities. The federal government has provided guidance to states on how to safely return personnel to the workplace, which we are following as our workforce returns to WES locations. All WES facilities, including field locations, have been conducting enhanced routine cleaning and disinfecting of common areas and frequently touched surfaces using CDC-CDC- and EPA-approvedEPA-approved products. Our return-to-workreturn-to-work protocols include daily required application-basedapplication-based health self-assessmentsself-assessments that must be completed prior to accessing WES work locations.
We currently own or have investments in assets located in the Rocky Mountains (Colorado, Utah, and Wyoming), North-central Pennsylvania, Texas, and New Mexico. We are engaged in the business of gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, NGLs, and crude oil; and gathering and disposing of produced water. In our capacity as a natural-gas processor, we also buy and sell natural gas, NGLs, and condensate on behalf of ourselves and as an agent for our customers under certain contracts. As of September 30, 2020, our assets and investments consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Wholly
Owned and
Operated | | Operated
Interests | | Non-Operated
Interests | | Equity
Interests |
Gathering systems (1) | | 17 | | | 2 | | | 3 | | | 2 | |
| Treating facilities | | 39 | | | 3 | | | — | | | 3 | |
| Natural-gas processing plants/trains | | 25 | | | 3 | | | — | | | 5 | |
| NGLs pipelines | | 2 | | | — | | | — | | | 4 | |
| Natural-gas pipelines | | 5 | | | — | | | — | | | 1 | |
| Crude-oil pipelines | | 3 | | | 1 | | | — | | | 3 | |
(1)Includes the DBM water systems.
Significant financial and operational events during the nine months ended September 30, 2020, included the following:
•On September 11, 2020, WES and Occidental entered into a Unit Redemption Agreement, pursuant to which (i) WES Operating transferred and assigned its interest in the Anadarko note receivable to its limited partners on a pro-rata basis, transferring 98% to WES and 2% to WGRAH, a subsidiary of Occidental, (ii) WES subsequently assigned its 98% interest in (and accrued interest owed under) the Anadarko note receivable to Anadarko, which Anadarko canceled and retired immediately upon receipt, in exchange for which Occidental caused certain of its subsidiaries to transfer an aggregate of 27,855,398 common units of WES to WES, and (iii) WES canceled the units immediately upon receipt.
•Our third-quarter 2020 distribution is unchanged from the first- and second-quarter 2020 per-unit distribution of $0.31100.
•We commenced operations of Latham Train II at the DJ Basin complex (with capacity of 250 MMcf/d) during the first quarter of 2020 and Loving ROTF Trains III and IV at the DBM oil system (with capacity of 30 MBbls/d each) during the first and third quarters of 2020, respectively.
•In January 2020, WES Operating completed an offering of $3.2 billion in aggregate principal amount of Fixed-Rate Senior Notes and $300.0 million in aggregate principal amount of Floating-Rate Senior Notes. Net proceeds from these offerings were used to repay and terminate the Term loan facility, repay outstanding amounts under the RCF, and for general partnership purposes. See Liquidity and Capital Resources within this Item 2 for additional information.
•During the nine months ended September 30, 2020, WES Operating purchased and retired $193.5 million of certain of its senior notes and Floating-Rate Senior Notes. See Liquidity and Capital Resources within this Item 2 for additional information.
•Natural-gas throughput attributable to WES totaled 4,253 MMcf/d and 4,377 MMcf/d for the three and nine months ended September 30, 2020, respectively, representing a 1% and 4% increase, respectively, compared to the same periods in 2019.
•Crude-oil and NGLs throughput attributable to WES totaled 689 MBbls/d and 723 MBbls/d for the three and nine months ended September 30, 2020, respectively, representing an 11% and 19% increase, respectively, compared to the same periods in 2019.
•Produced-water throughput attributable to WES totaled 673 MBbls/d and 711 MBbls/d for the three and nine months ended September 30, 2020, respectively, representing an 18% and 35% increase, respectively, compared to the same periods in 2019.
•Operating income (loss) was $347.1 million for the three months ended September 30, 2020, representing a 29% increase compared to the same period in 2019. Operating income (loss) was $506.0 million for the nine months ended September 30, 2020, which includes goodwill and long-lived asset impairments of $596.8 million during the first quarter, representing a 44% decrease compared to the same period in 2019.
•Adjusted gross margin for natural-gas assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $1.17 per Mcf and $1.15 per Mcf for the three and nine months ended September 30, 2020, respectively, representing a 13% and 8% increase, respectively, compared to the same periods in 2019.
•Adjusted gross margin for crude-oil and NGLs assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $2.54 per Bbl and $2.50 per Bbl for the three and nine months ended September 30, 2020, respectively, representing a 2% and 1% decrease, respectively, compared to the same periods in 2019.
•Adjusted gross margin for produced-water assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $1.00 per Bbl and $0.98 per Bbl for the three and nine months ended September 30, 2020, respectively, representing a 3% increase and no change, respectively, compared to the same periods in 2019.
The following tables provide additional information on throughput for the periods presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) |
| | Natural gas (MMcf/d) | | Crude oil & NGLs (MBbls/d) | | Produced water (MBbls/d) |
| Delaware Basin | | 1,294 | | | 1,272 | | | 2 | % | | 183 | | | 147 | | | 24 | % | | 687 | | | 580 | | | 18 | % |
| DJ Basin | | 1,290 | | | 1,124 | | | 15 | % | | 86 | | | 128 | | | (33) | % | | — | | | — | | | — | % |
| Equity investments | | 450 | | | 390 | | | 15 | % | | 393 | | | 307 | | | 28 | % | | — | | | — | | | — | % |
| Other | | 1,378 | | | 1,585 | | | (13) | % | | 41 | | | 53 | | | (23) | % | | — | | | — | | | — | % |
| Total throughput | | 4,412 | | | 4,371 | | | 1 | % | | 703 | | | 635 | | | 11 | % | | 687 | | | 580 | | | 18 | % |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) |
| | Natural gas (MMcf/d) | | Crude oil & NGLs (MBbls/d) | | Produced water (MBbls/d) |
| Delaware Basin | | 1,330 | | | 1,210 | | | 10 | % | | 192 | | | 144 | | | 33 | % | | 726 | | | 538 | | | 35 | % |
| DJ Basin | | 1,342 | | | 1,216 | | | 10 | % | | 109 | | | 114 | | | (4) | % | | — | | | — | | | — | % |
| Equity investments | | 451 | | | 390 | | | 16 | % | | 395 | | | 308 | | | 28 | % | | — | | | — | | | — | % |
| Other | | 1,416 | | | 1,584 | | | (11) | % | | 42 | | | 53 | | | (21) | % | | — | | | — | | | — | % |
| Total throughput | | 4,539 | | | 4,400 | | | 3 | % | | 738 | | | 619 | | | 19 | % | | 726 | | | 538 | | | 35 | % |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Commodity purchase and sale agreements. Effective April 1, 2020, changes to marketing-contractmarketing-contract terms with AESC terminated AESC’s prior status as an agent of the Partnership for third-partythird-party sales and established AESC as a customer of the Partnership. Accordingly, the Partnershipwe no longer recognizesrecognize service revenues and/or product sales revenues and the equivalent cost of product expense for the marketing services performed by AESC. Period-over-periodYear-over-year variances for the three and nine months ended September 30, 2020,2021, include the following impacts related to this change (i) decreasesdecrease of $37.7$45.9 million and $93.9 million, respectively, in Service revenues – fee based, (ii) decreasesdecrease of $18.4$21.2 million and $13.7 million, respectively, in Product sales, and (iii) decreasesdecrease of $56.1$67.1 million and $107.6 million, respectively, in Cost of product expense. These changes had no impact to Operating income (loss), Net income (loss), the balance sheets, cash flows, or any non-GAAPnon-GAAP metric used to evaluate our operations (see Key Performance Metrics within this Item 2). See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
December 2019 Agreements. On December 31, 2019, (i) WES and certain of its subsidiaries, including WES Operating and WES Operating GP, entered into the below-described agreements with Occidental and/or certain of its subsidiaries, including Anadarko, and (ii) WES Operating also entered into the below-described amendments to its debt agreements (collectively, the “December 2019 Agreements”).
•Exchange Agreement. WGRI, the general partner, and WES entered into a partnership interests exchange agreement (the “Exchange Agreement”), pursuant to which WES canceled the non-economic general partner interest in WES and simultaneously issued a 2.0% general partner interest to the general partner in exchange for which WGRI transferred 9,060,641 WES common units to WES, which immediately canceled such units on receipt.
•Services, Secondment, and Employee Transfer Agreement. Occidental, Anadarko, and WES Operating GP entered into an amended and restated Services, Secondment, and Employee Transfer Agreement (the “Services Agreement”), pursuant to which Occidental, Anadarko, and their subsidiaries (i) seconded certain personnel employed by Occidental to WES Operating GP, in exchange for which WES Operating GP pays a monthly secondment and shared services fee to Occidental equivalent to the direct cost of the seconded employees until their transfer to WES and (ii) agreed to continue to provide certain administrative and operational services to WES for up to a two-year transition period. 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. The Services Agreement also includes provisions governing the transfer of certain employees to WES and the assumption by WES of liabilities relating to those employees at the time of their transfer. In late March 2020, seconded employees’ employment was transferred to WES.
•RCF amendment. WES Operating entered into an amendment to its RCF to, among other things, (i) effective on February 14, 2020, exercise the final one-year extension option to extend the maturity date of the RCF to February 14, 2025, for the extending lenders, and (ii) modify the change of control definition to provide, among other things, that, subject to certain conditions, if the limited partners of WES elect to remove the general partner as the general partner of WES in accordance with the terms of the partnership agreement, then such removal will not constitute a change of control under the RCF.
•Term loan facility amendment. WES Operating entered into an amendment to its Term loan facility to, among other things, modify the change of control definition to provide, among other things, that, subject to certain conditions, if the limited partners of WES elect to remove the general partner as the general partner of WES in accordance with the terms of the partnership agreement, then such removal will not constitute a change of control under the Term loan facility. See Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further information.
•Termination of debt-indemnification agreements. WES Operating GP and certain wholly owned subsidiaries of Occidental mutually terminated the debt-indemnification agreements related to certain indebtedness incurred by WES Operating.
•Termination of omnibus agreements. WES and WES Operating entered into agreements with Occidental to terminate the WES and WES Operating omnibus agreements. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further information.
OUTLOOK
We expect our business to continue to be affected by the below-describedbelow-described key trends and uncertainties. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove incorrect, our actual results may vary materially from expected results. Read Risk Factors under Part II, Item 1A of this Form 10-Q for additional information.
Impact of crude-oil, natural-gas, and NGLs prices. Crude-oil, natural-gas,Crude-oil, natural-gas, and NGLs prices can fluctuate significantly, and have done so over time. Commodity-priceCommodity-price fluctuations affect the level of our customers’ activities and our customers’ allocations of capital within their own asset portfolios. During the first quarter of 2020, oil and natural-gasnatural-gas prices decreased significantly, driven by the expectation of increased supply and sharp declines in demand resulting from the worldwide macroeconomic downturn that followed the global outbreak of COVID-19.COVID-19. For example, NYMEX West Texas Intermediate crude-oilcrude-oil daily settlement prices recently ranged from a high of $63.27 per barrel in January 2020 to a low below $20.00 per barrel in April 2020, with2020. Although commodity prices reboundinghave rebounded to $40.22 per barrel at September 30, 2020. Whilepre-pandemic levels, the extent and duration of the recent commodity-price declinescommodity-price volatility cannot be predicted, and potential impacts to our business include the following:
•We have exposure to increased credit risk to the extent any of our customers, including Occidental, is in financial distress. See Liquidity and Capital Resources—Credit risk within this Item 2 for additional information.
•An extended period of diminished earnings may restrict our ability to fully access our RCF, which contains various customary covenants, certain events of default, and a maximum consolidated leverage ratio based on Adjusted EBITDA (as defined in the covenant) related to the trailing twelve-monthtwelve-month period. Further, any future waivers or amendments to the RCF also may trigger pricing increases for available credit. See Liquidity and Capital Resources—Debt and credit facilities within this Item 2 for additional information.
•As of September 30, 2020,2021, it is reasonably possible that future commodity-price declines, prolonged lowdepression of commodity prices, further commodity-price declines, changes to producers’ drilling plans in response to lower prices, and potential producer bankruptcies could result in future long-livedlong-lived asset impairments.
To the extent producers continue with development plans in our areas of operation, we will continue to connect new wells or production facilities to our systems to maintain throughput on our systems and mitigate the impact of production declines. However, our success in connecting additional wells or production facilities is dependent on the activity levels of our customers. Additionally, we will continue to evaluate the crude-oil,crude-oil, NGLs, and natural-gasnatural-gas price environments and adjust our capital spending plans to reflect our customers’ anticipated activity levels, while maintaining appropriate liquidity and financial flexibility. See Risk Factor, “The global outbreak of COVID-19 is likely to have an adverse impact on our operations and financial results.” under Part II, Item 1A of this Form 10-Q for additional information.
Effects of credit-rating downgrade.Our costs of borrowing and ability to access the capital markets are affected by market conditions and the credit ratings assigned to WES Operating’s debt by the major credit rating agencies. In March 2020, Fitch Ratings (“Fitch”) and Standard and Poor’s (“S&P”) downgraded WES Operating’s long-term debt from “BBB-” to “BB+,” with negative watches assigned to each of these revised ratings. In May 2020, Fitch downgraded WES Operating’s long-term debt to “BB” and in June 2020, Moody’s Investors Service (“Moody’s”) downgraded WES Operating’s long-term debt from “Ba1” to “Ba2.” As a result of these downgrades, WES Operating’s credit rating is below investment grade for all three major credit rating agencies, which results in the following:
•WES Operating’s annualized borrowing costs will increase by $34.6 million for the Fixed-Rate Senior Notes and Floating-Rate Senior Notes issued in January 2020 that provide for increased interest rates following downgrade events.
•Beginning in the second quarter of 2020, the interest rate on outstanding RCF borrowings increased by 0.20% and the RCF facility-fee rate increased by 0.05%, from 0.20% to 0.25%.
•We may be obligated to provide financial assurance of our performance under certain contractual arrangements requiring us to post collateral in the form of letters of credit or cash. At September 30, 2020, we had $5.0 million in letters of credit or cash-provided assurance of our performance outstanding under contractual arrangements with credit-risk-related contingent features.
Additional downgrades to WES Operating’s credit ratings will further impact its borrowing costs negatively, and may adversely affect WES Operating’s ability to issue public debt and effectively execute aspects of our business strategy.
Per-unit distribution reduction and revised capital guidance. During 2020, we announced the below-described per-unit distribution and cost reductions. These cash-preservation measures are intended to enhance our liquidity for the duration of the COVID-19 macroeconomic disruption and the weakened commodity-price environment; however, the duration and severity of this pandemic and concomitant economic downturn remains uncertain. There can be no assurance that these announced actions will provide sufficient liquidity for the required duration, and additional actions, including additional per-unit distribution reductions, may be necessary to manage through the current environment.
•A quarterly cash distribution of $0.31100 per unit for the first quarter of 2020, which represents a 50% reduction to the distribution paid for the previous quarter. On October 20, 2020, we announced that our per-unit distribution for the third quarter of 2020 was unchanged from the first- and second-quarter 2020 $0.31100 per-unit distributions.
•On April 20, 2020, we announced capital expenditures for the year ended December 31, 2020, were expected to be $450.0 million to $550.0 million, representing a 45% reduction to prior guidance. This reduction resulted from deferred producer activity in all basins and the elimination of associated capital expenditures, other than those expenditures that are necessary to support proper maintenance and long-term asset integrity. On August 10, 2020, we announced a further downward revision to our estimated full-year 2020 capital expenditures, which were expected to be $400.0 million to $450.0 million, representing a $75.0 million reduction to the April 2020 guidance midpoint of $500.0 million. On November 9, 2020, we announced that we expect our full-year capital expenditures to be meaningfully below the low-end of our previously updated 2020 guidance range of $400.0 million to $450.0 million.
•On April 20, 2020, we announced expected other cost reductions of approximately $75.0 million through operating and maintenance and general and administrative expense cost-saving initiatives. On November 9, 2020, we announced that we expect to realize approximately $175.0 million in operating and maintenance and general and administrative expense cost savings.
BASIS OF PRESENTATION FOR ACQUIRED ASSETSACQUISITIONS AND RESULTS OF OPERATIONS
AMA acquisition. In February 2019, WES Operating acquired AMA from Anadarko. See Note 1—Description of Business and Basis of Presentation and Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further information.
Red Bluff Express acquisition. In January 2019, we acquired a 30% interest in Red Bluff Express, which owns a third-party-operated natural-gas pipeline connecting processing plants in Reeves and Loving Counties, Texas, to the WAHA hub in Pecos County, Texas. We acquired our 30% interest from a third party via an initial net investment of $92.5 million, which represented a 30% share of costs incurred up to the date of acquisition. The initial investment was funded with cash on hand and the interest in Red Bluff Express is accounted for under the equity method of accounting.DIVESTITURES
Fort Union and Bison facilities. In October 2020, we (i) sold our 14.81% interest in Fort Union, which was accounted for under the equity method of accounting, and (ii) entered into an option agreement to sell the Bison treating facility, during the first quarter of 2021, located in Northeast Wyoming, to a third party.
During the second quarter of 2021, the third party exercised its option to purchase the Bison treating facility and the sale closed. We received combinedtotal proceeds of $27.0$8.0 million, $7.0 million in the fourth quarter of 2020 and $1.0 million when the sale closed in the second quarter of 2021, resulting in a net gain on sale of $21.0$5.4 million related to the Fort Union interest that will bewas recorded as Gain (loss) on divestiture and other, net in the fourth quarterconsolidated statements of 2020. A gain related to the option agreement and potential sale of the Bison treating facility will be recognized in the first quarter of 2021 if the option is exercised or expires.
Presentation of the Partnership’s assets.Our assets include assets owned and ownership interests accounted for by us under the equity method of accounting, through our 98% partnership interest in WES Operating as of September 30, 2020 (seeoperations. See Note 7—Equity Investments3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q). We also own and control the entire non-economic general partner interest in WES Operating GP, and our general partner is owned by Occidental.10-Q for further information.
RESULTS OF OPERATIONS
OPERATING RESULTS
In November 2020, the SEC issued a final rule to modernize and simplify Management’s Discussion and Analysis and certain financial disclosure requirements in SEC Regulation S-K. As permitted by this final rule, the analysis herein reflects the optional approach to discuss results of operations on a sequential-quarter basis, which we believe will provide information that is most useful to investors in assessing our quarterly results of operations going forward. In addition, as required by the final rule, we have continued to include a comparison of the current year-to-date period to the prior year-to-date period.
For purposes of the following discussion, any increases or decreases “for the three months ended September 30, 2021” refer to the comparison of the three months ended September 30, 2021, to the three months ended June 30, 2021; and any increases or decreases “for the nine months ended September 30, 2021” refer to the comparison of the nine months ended September 30, 2021, to the nine months ended September 30, 2020.
The following tables and discussion present a summary of our results of operations:
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | Three Months Ended | | Nine Months Ended |
| | thousands | thousands | | 2020 | | 2019 | | 2020 | | 2019 | | thousands | | September 30, 2021 | | June 30,
2021 | | September 30, 2021 | | September 30, 2020 | |
Total revenues and other (1) | Total revenues and other (1) | | $ | 679,044 | | | $ | 666,027 | | | $ | 2,125,112 | | | $ | 2,022,964 | | | Total revenues and other (1) | | $ | 763,840 | | | $ | 719,131 | | | $ | 2,157,945 | | | $ | 2,125,112 | | |
| Equity income, net – related parties | Equity income, net – related parties | | 61,026 | | | 53,893 | | | 176,788 | | | 175,483 | | | Equity income, net – related parties | | 48,506 | | | 58,666 | | | 159,337 | | | 176,788 | | |
Total operating expenses (1) | Total operating expenses (1) | | 392,206 | | | 451,443 | | | 1,792,290 | | | 1,299,331 | | | Total operating expenses (1) | | 428,716 | | | 444,074 | | | 1,307,010 | | | 1,792,290 | | |
| Gain (loss) on divestiture and other, net | Gain (loss) on divestiture and other, net | | (768) | | | 248 | | | (3,651) | | | (1,403) | | | Gain (loss) on divestiture and other, net | | (364) | | | 1,225 | | | 278 | | | (3,651) | | |
| Operating income (loss) | Operating income (loss) | | 347,096 | | | 268,725 | | | 505,959 | | | 897,713 | | | Operating income (loss) | | 383,266 | | | 334,948 | | | 1,010,550 | | | 505,959 | | |
| Interest income – Anadarko note receivable | Interest income – Anadarko note receivable | | 3,286 | | | 4,225 | | | 11,736 | | | 12,675 | | | Interest income – Anadarko note receivable | | — | | | — | | | — | | | 11,736 | | |
| Interest expense | Interest expense | | (95,571) | | | (78,524) | | | (278,811) | | | (223,872) | | | Interest expense | | (93,257) | | | (95,290) | | | (287,040) | | | (278,811) | | |
| Gain (loss) on early extinguishment of debt | Gain (loss) on early extinguishment of debt | | 1,632 | | | — | | | 10,372 | | | — | | | Gain (loss) on early extinguishment of debt | | (24,655) | | | — | | | (24,944) | | | 10,372 | | |
| Other income (expense), net | Other income (expense), net | | 720 | | | (67,894) | | | 612 | | | (161,577) | | | Other income (expense), net | | 110 | | | 84 | | | (1,013) | | | 612 | | |
| Income (loss) before income taxes | Income (loss) before income taxes | | 257,163 | | | 126,532 | | | 249,868 | | | 524,939 | | | Income (loss) before income taxes | | 265,464 | | | 239,742 | | | 697,553 | | | 249,868 | | |
| Income tax expense (benefit) | Income tax expense (benefit) | | 3,028 | | | 1,309 | | | 3,792 | | | 12,679 | | | Income tax expense (benefit) | | 1,826 | | | 1,465 | | | 4,403 | | | 3,792 | | |
| Net income (loss) | Net income (loss) | | 254,135 | | | 125,223 | | | 246,076 | | | 512,260 | | | Net income (loss) | | 263,638 | | | 238,277 | | | 693,150 | | | 246,076 | | |
| Net income (loss) attributable to noncontrolling interests | Net income (loss) attributable to noncontrolling interests | | 7,524 | | | 4,006 | | | (17,045) | | | 102,789 | | | Net income (loss) attributable to noncontrolling interests | | 7,913 | | | 7,018 | | | 20,375 | | | (17,045) | | |
Net income (loss) attributable to Western Midstream Partners, LP (2) | Net income (loss) attributable to Western Midstream Partners, LP (2) | | $ | 246,611 | | | $ | 121,217 | | | $ | 263,121 | | | $ | 409,471 | | | Net income (loss) attributable to Western Midstream Partners, LP (2) | | $ | 255,725 | | | $ | 231,259 | | | $ | 672,775 | | | $ | 263,121 | | |
Key performance metrics (3) | Key performance metrics (3) | | | | | | | | | | Key performance metrics (3) | | | | | | | | | |
| Adjusted gross margin | Adjusted gross margin | | $ | 681,529 | | | $ | 599,644 | | | $ | 2,069,801 | | | $ | 1,783,814 | | | Adjusted gross margin | | $ | 705,407 | | | $ | 677,236 | | | $ | 1,997,267 | | | $ | 2,069,801 | | |
| Adjusted EBITDA | Adjusted EBITDA | | 518,358 | | | 410,213 | | | 1,546,386 | | | 1,271,463 | | | Adjusted EBITDA | | 531,580 | | | 491,126 | | | 1,465,816 | | | 1,546,386 | | |
| Free cash flow | Free cash flow | | 339,154 | | | 70,679 | | | 762,364 | | | (7,496) | | | Free cash flow | | 320,031 | | | 379,776 | | | 913,629 | | | 762,364 | | |
(1)Total revenues and other includes amounts earned from services provided to related parties and from the sale of residuenatural gas, condensate, and NGLs to related parties. Total operating expenses includes amounts charged by related parties for services and reimbursements of amounts paid by related parties to third parties on our behalf.received. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(2)For reconciliations to comparable consolidated results of WES Operating, see Items Affecting the Comparability of Financial Results with WES Operating within this Item 2.
(3)Adjusted gross margin, Adjusted EBITDA, and Free cash flow are defined under the caption Key Performance Metrics within this Item 2. For reconciliations of these non-GAAPnon-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP, see Key Performance Metrics—Reconciliation of non-GAAP financial measures within this Item 2.
For purposes of the following discussion, any increases or decreases “for the three months ended September 30, 2020” refer to the comparison of the three months ended September 30, 2020, to the three months ended September 30, 2019; any increases or decreases “for the nine months ended September 30, 2020” refer to the comparison of the nine months ended September 30, 2020, to the nine months ended September 30, 2019; and any increases or decreases “for the three and nine months ended September 30, 2020” refer to the comparison of these 2020 periods to the corresponding three- and nine-month periods ended September 30, 2019.
Throughput
| | | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | | Three Months Ended | | Nine Months Ended | |
| | | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) | | | September 30, 2021 | | June 30,
2021 | | Inc/
(Dec) | | September 30, 2021 | | September 30, 2020 | | Inc/
(Dec) | |
| Throughput for natural-gas assets (MMcf/d) | Throughput for natural-gas assets (MMcf/d) | | | | | | | | | | | | | | Throughput for natural-gas assets (MMcf/d) |
| Gathering, treating, and transportation | Gathering, treating, and transportation | | 558 | | | 523 | | | 7 | % | | 551 | | | 526 | | | 5 | % | | Gathering, treating, and transportation | | 378 | | | 534 | | | (29) | % | | 477 | | | 551 | | | (13) | % | |
| Processing | Processing | | 3,404 | | | 3,458 | | | (2) | % | | 3,537 | | | 3,484 | | | 2 | % | | Processing | | 3,416 | | | 3,433 | | | — | % | | 3,363 | | | 3,537 | | | (5) | % | |
Equity investments (1) | Equity investments (1) | | 450 | | | 390 | | | 15 | % | | 451 | | | 390 | | | 16 | % | | Equity investments (1) | | 443 | | | 457 | | | (3) | % | | 447 | | | 451 | | | (1) | % | |
| Total throughput | Total throughput | | 4,412 | | | 4,371 | | | 1 | % | | 4,539 | | | 4,400 | | | 3 | % | | Total throughput | | 4,237 | | | 4,424 | | | (4) | % | | 4,287 | | | 4,539 | | | (6) | % | |
Throughput attributable to noncontrolling interests (2) | Throughput attributable to noncontrolling interests (2) | | 159 | | | 172 | | | (8) | % | | 162 | | | 175 | | | (7) | % | | Throughput attributable to noncontrolling interests (2) | | 156 | | | 159 | | | (2) | % | | 155 | | | 162 | | | (4) | % | |
| Total throughput attributable to WES for natural-gas assets | | 4,253 | | | 4,199 | | | 1 | % | | 4,377 | | | 4,225 | | | 4 | % | | |
Total throughput attributable to WES for natural-gas assets | | Total throughput attributable to WES for natural-gas assets | | 4,081 | | | 4,265 | | | (4) | % | | 4,132 | | | 4,377 | | | (6) | % | |
| Throughput for crude-oil and NGLs assets (MBbls/d) | Throughput for crude-oil and NGLs assets (MBbls/d) | | | | | | | | | | | Throughput for crude-oil and NGLs assets (MBbls/d) |
| Gathering, treating, and transportation | Gathering, treating, and transportation | | 310 | | | 328 | | | (5) | % | | 343 | | | 311 | | | 10 | % | | Gathering, treating, and transportation | | 304 | | | 315 | | | (3) | % | | 300 | | | 343 | | | (13) | % | |
Equity investments (3) | Equity investments (3) | | 393 | | | 307 | | | 28 | % | | 395 | | | 308 | | | 28 | % | | Equity investments (3) | | 350 | | | 386 | | | (9) | % | | 358 | | | 395 | | | (9) | % | |
| Total throughput | Total throughput | | 703 | | | 635 | | | 11 | % | | 738 | | | 619 | | | 19 | % | | Total throughput | | 654 | | | 701 | | | (7) | % | | 658 | | | 738 | | | (11) | % | |
Throughput attributable to noncontrolling interests (2) | Throughput attributable to noncontrolling interests (2) | | 14 | | | 12 | | | 17 | % | | 15 | | | 12 | | | 25 | % | | Throughput attributable to noncontrolling interests (2) | | 13 | | | 14 | | | (7) | % | | 13 | | | 15 | | | (13) | % | |
| Total throughput attributable to WES for crude-oil and NGLs assets | | 689 | | | 623 | | | 11 | % | | 723 | | | 607 | | | 19 | % | | |
Total throughput attributable to WES for crude-oil and NGLs assets | | Total throughput attributable to WES for crude-oil and NGLs assets | | 641 | | | 687 | | | (7) | % | | 645 | | | 723 | | | (11) | % | |
| Throughput for produced-water assets (MBbls/d) | Throughput for produced-water assets (MBbls/d) | | | | | | | | | | | Throughput for produced-water assets (MBbls/d) |
| Gathering and disposal | Gathering and disposal | | 687 | | | 580 | | | 18 | % | | 726 | | | 538 | | | 35 | % | | Gathering and disposal | | 750 | | | 702 | | | 7 | % | | 687 | | | 726 | | | (5) | % | |
Throughput attributable to noncontrolling interests (2) | Throughput attributable to noncontrolling interests (2) | | 14 | | | 12 | | | 17 | % | | 15 | | | 11 | | | 36 | % | | Throughput attributable to noncontrolling interests (2) | | 15 | | | 14 | | | 7 | % | | 14 | | | 15 | | | (7) | % | |
| Total throughput attributable to WES for produced-water assets | | 673 | | | 568 | | | 18 | % | | 711 | | | 527 | | | 35 | % | | |
Total throughput attributable to WES for produced-water assets | | Total throughput attributable to WES for produced-water assets | | 735 | | | 688 | | | 7 | % | | 673 | | | 711 | | | (5) | % | |
(1)Represents the 14.81% share of average Fort Union throughput (until divested in October 2020), 22% share of average Rendezvous throughput, 50% share of average Mi Vida and Ranch Westex throughput, and 30% share of average Red Bluff Express throughput.
(2)For all periods presented, includes (i) the 25% third-party interest in Chipeta and (ii) the 2.0% Occidental subsidiary-ownedsubsidiary-owned limited partner interest in WES Operating and (ii) for natural-gas assets, the 25% third-party interest in Chipeta, which collectively represent WES’s noncontrolling interests.
(3)Represents the 10% share of average White Cliffs throughput; 25% share of average Mont Belvieu JV throughput; 20% share of average TEG, TEP, Whitethorn, and Saddlehorn throughput; 33.33% share of average FRP throughput; and 15% share of average Panola and Cactus II throughput.
Natural-gas assets
Gathering, treating, and transportation throughput increaseddecreased by 35 MMcf/d and 25156 MMcf/d for the three months ended September 30, 2021, primarily due to (i) decreased volumes at the Bison treating facility, which was sold to a third party during the second quarter of 2021 and (ii) production declines in areas around the Marcellus Interest and Springfield gas-gathering systems.
Gathering, treating, and transportation throughput decreased by 74 MMcf/d for the nine months ended September 30, 2020, respectively,2021, primarily due to (i) decreased volumes at the Bison treating facility, which was sold to a third party during the second quarter of 2021 and (ii) production declines and the impact of winter storm Uri at the Springfield gas-gathering system. These decreases were offset partially by increased production in areas around the Marcellus Interest systems, partially offset by production declines in areas around the Bison facility and Springfield gas-gathering system.systems.
Processing throughput decreased by 5417 MMcf/d for the three months ended September 30, 2020,2021, primarily due to decreased production in areas around the DJ Basin complex, partially offset by increased production in areas around the West Texas complex.
Processing throughput decreased by 174 MMcf/d for the nine months ended September 30, 2021, primarily due to (i) lower production and the impact of winter storm Uri at the West Texas complex, (ii) the Granger straddle plant being held idle duringbeginning in the third quarter of 2020, (ii) lower throughput at the Chipeta complex due to production declines in the area and a third-party contract that terminated during the fourth quarter of 2019, and (iii) lower throughputvolumes at the Red DesertGranger complex and Granger system due to production declines in the area. These decreases were offset partially by (i) increased production in areas around the West Texas and DJ Basin complexes and (ii) the start-up of Latham Train IIhigher volumes at the DJ Basin complex duringprimarily due to an additional third-party connection to Latham Train II beginning January 1, 2021.
Equity-investment throughput decreased by 14 MMcf/d for the first quarter of 2020.three months ended September 30, 2021, primarily due to decreased volumes at the Mi Vida and Ranch Westex plants and the Rendezvous system.
Processinginvestment throughput increaseddecreased by 534 MMcf/d for the nine months ended September 30, 2020,2021, primarily due to (i) increased production in areas around the West Texas and DJ Basin complexes, (ii) the start-up of Latham Train II at the DJ Basin complex during the first quarter of 2020, and (iii) the start-up of Mentone Train II at the West Texas complex in March 2019. These increases were offset partially by (i) third-party volumes being diverted away from the Granger straddle plant beginning in the fourth quarter of 2019 and the plant being held idle during the third quarter of 2020, (ii) lower throughput at the Chipeta complex due to production declines in the area and a third-party contract that terminated during the fourth quarter of 2019, and (iii) lower throughput at the Red Desert complex due to production declines in the area.
Equity-investment throughput increased by 60 MMcf/d and 61 MMcf/d for the three and nine months ended September 30, 2020, respectively, primarily due to increased volumes on Red Bluff Express resulting from increased production in the area. This increase was offset partially by (i) decreased third-party volumes at the Fort Union system and (ii) decreased volumes at the Rendezvous system due to production declines in the area.area and (ii) decreased volumes at the Fort Union system, which was sold to a third party during the fourth quarter of 2020. These decreases were offset partially by increased volumes on Red Bluff Express resulting from increased pipeline commitments.
Crude-oil and NGLs assets
Gathering, treating, and transportation throughput decreased by 1811 MBbls/d for the three months ended September 30, 2020,2021, primarily due to decreased throughput intoproduction in areas around the DJ Basin oil system, partially offset by increased throughput at the DBM oil system with the commencement of Loving ROTF Train III operations during the first quarter of 2020 and increased production.system.
Gathering, treating, and transportation throughput increaseddecreased by 3243 MBbls/d for the nine months ended September 30, 2020,2021, primarily due to increased throughput(i) lower volumes at the DJ Basin oil system resulting from production declines in the area and (ii) lower volumes at the DBM oil system withdue to lower production and the commencementimpact of Loving ROTF Train III operations during the first quarter of 2020 and increased production.winter storm Uri.
Equity-investmentEquity-investment throughput increaseddecreased by 86 MBbls/d and 8736 MBbls/d for the three months ended September 30, 2021, primarily due to decreased volumes on the Whitethorn pipeline and TEP, partially offset by increased volumes on the Cactus II pipeline resulting from an incentive rate implemented in the second quarter of 2021.
Equity-investment throughput decreased by 37 MBbls/d for the nine months ended September 30, 2020, respectively,2021, primarily due to (i) the acquisition of our interest in Cactus II in June 2018, which began delivering crude oil during the third quarter of 2019, and (ii) increased volumes on FRP resulting from a pipeline expansion project completed during the second quarter of 2020. These increases were offset partially by decreased volumes on the Whitethorn pipeline, partially offset by increased volumes on the Saddlehorn pipeline.
Produced-water assets
Gathering and disposal throughput increased by 107 MBbls/d and 18848 MBbls/d for the three and nine months ended September 30, 2020, respectively,2021, due to increased throughputvolumes at the DBM water systems resulting from additional (i) producer activity, (ii) water-disposal facilities,higher production in the area.
Gathering and (iii) offload connections that increased capacitydisposal throughput decreased by 39 MBbls/d for the nine months ended September 30, 2021, due to decreased volumes at the DBM water systems resulting from lower production and the impact of the systems.winter storm Uri.
Service Revenues
| | | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | | Three Months Ended | | Nine Months Ended | |
| | thousands except percentages | thousands except percentages | | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) | | thousands except percentages | | September 30, 2021 | | June 30,
2021 | | Inc/
(Dec) | | September 30, 2021 | | September 30, 2020 | | Inc/
(Dec) | |
| Service revenues – fee based | Service revenues – fee based | | $ | 636,522 | | | $ | 587,965 | | | 8 | % | | $ | 1,980,546 | | | $ | 1,761,483 | | | 12 | % | | Service revenues – fee based | | $ | 650,482 | | | $ | 618,985 | | | 5 | % | | $ | 1,841,742 | | | $ | 1,980,546 | | | (7) | % | |
| Service revenues – product based | Service revenues – product based | | 12,316 | | | 9,476 | | | 30 | % | | 35,237 | | | 45,530 | | | (23) | % | | Service revenues – product based | | 28,812 | | | 27,803 | | | 4 | % | | 88,267 | | | 35,237 | | | 150 | % | |
| Total service revenues | Total service revenues | | $ | 648,838 | | | $ | 597,441 | | | 9 | % | | $ | 2,015,783 | | | $ | 1,807,013 | | | 12 | % | | Total service revenues | | $ | 679,294 | | | $ | 646,788 | | | 5 | % | | $ | 1,930,009 | | | $ | 2,015,783 | | | (4) | % | |
Service revenues – fee based
Service revenues – fee based increased by $48.6 million and $219.1 million for the three and nine months ended September 30, 2020, respectively, primarily due to increases of (i) $40.2 million and $96.0 million, respectively, at the DJ Basin complex and $20.7 million and $91.0 million, respectively, at the West Texas complex from increased throughput, (ii) $14.2 million and $59.8 million, respectively, at the DBM oil system from increased throughput and the effect of the straight-line treatment of lease revenue under the new operating and maintenance agreement with Occidental effective December 31, 2019, and (iii) $12.5 million and $53.7 million, respectively, at the DBM water systems from increased throughput and a higher average fee resulting from a cost-of-service rate redetermination that occurred during the first quarter of 2020. These increases were offset partially by decreases of $37.7 million and $93.9 million, respectively, resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2).
Service revenues – product based
Service revenues – product based decreased by $10.3 million for the nine months ended September 30, 2020, primarily due to decreased volumes and pricing across several systems, offset partially by increased volumes at the West Texas complex.
Product Sales
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | | |
| | | | | | | | |
thousands except percentages and per-unit amounts | | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) | | | | |
| Natural-gas sales | | $ | 7,211 | | | $ | 13,358 | | | (46) | % | | $ | 23,934 | | | $ | 48,909 | | | (51) | % | | | | |
| NGLs sales | | 22,895 | | | 54,890 | | | (58) | % | | 84,557 | | | 165,941 | | | (49) | % | | | | |
| Total Product sales | | $ | 30,106 | | | $ | 68,248 | | | (56) | % | | $ | 108,491 | | | $ | 214,850 | | | (50) | % | | | | |
| Per-unit gross average sales price: | | | | | | | | | | | | | | | | |
| Natural gas (per Mcf) | | $ | 1.51 | | | $ | 1.29 | | | 17 | % | | $ | 1.32 | | | $ | 1.61 | | | (18) | % | | | | |
| NGLs (per Bbl) | | 13.31 | | | 16.76 | | | (21) | % | | 12.25 | | | 20.91 | | | (41) | % | | | | |
Natural-gas sales
Natural-gas sales decreased by $6.1$31.5 million for the three months ended September 30, 2020,2021, primarily due to a decrease in average prices at the DJ Basin complex.
Natural-gas sales decreased by $25.0increases of (i) $18.9 million for the nine months ended September 30, 2020, primarily due to decreases of (i) $10.7 million at the DJ Basin complex attributable to a decrease in average prices, (ii) $6.0 million at the Hilight system resulting from an accrual reversalrevenue recorded in the firstthird quarter of 2019 related to the Kitty Draw gathering-system shutdown2021 that was previously constrained (see Note 1—Description of Business and Basis of Presentation2—Revenue from Contracts with Customers in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q), (iii) $3.2 and (ii) $14.2 million at the MGR assets attributableWest Texas complex resulting from increased throughput.
Service revenues – fee based decreased by $138.8 million for the nine months ended September 30, 2021, primarily due to decreases in average prices and volumes sold, and (iv) $2.6of (i) $45.9 million, resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Summary—Commodity purchase and sale agreements within this Item 2), (ii) $37.9 million at the DBM oil system due to decreased throughput, including the impact of winter storm Uri, and lower lease revenue under the operating and maintenance agreement with Occidental, (iii) $23.8 million at the DBM water systems resulting from decreased throughput, including the impact of winter storm Uri, and a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2021, (iv) $20.9 million at the DJ Basin complex due to decreased throughput on certain fee-based contracts, (v) $12.1 million at the Bison treating facility due to the expiration of a minimum-volume commitment contract in the fourth quarter of 2020, decreased throughput, and the sale of the facility to a third party during the second quarter of 2021, and (vi) $9.6 million at the West Texas complex from decreased throughput, including the impact of winter storm Uri. These decreases were offset partially by an increase of $18.9 million due to revenue recorded in the third quarter of 2021 that was previously constrained (see Note 2—Revenue from Contracts with Customers in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).
Service revenues – product based
Service revenues – product based increased by $1.0 million for the three months ended September 30, 2021, primarily due to increased pricing across several systems, partially offset by a decrease of $4.7 million at the West Texas complex primarily due to a decrease in electricity-related fees charged to customers.
Service revenues – product based increased by $53.0 million for the nine months ended September 30, 2021, primarily due to increases of (i) $15.6 million at the DJ Basin complex due to increased third-party volumes and average prices, (ii) $15.1 million at the West Texas complex due to an increase in electricity-related fees charged to customers during winter storm Uri, and (iii) $6.5 million at the Granger complex, $6.3 million at the Hilight system, and $4.7 million at the Chipeta complex due to increased prices.
NGLsProduct Sales
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Three Months Ended | | Nine Months Ended | | | | |
| | | | | | | | |
| thousands except percentages and per-unit amounts | | September 30, 2021 | | June 30,
2021 | | Inc/
(Dec) | | September 30, 2021 | | September 30, 2020 | | Inc/
(Dec) | | | | |
Natural-gas sales | | $ | 32,151 | | | $ | 14,195 | | | 126 | % | | $ | 67,765 | | | $ | 23,934 | | | 183 | % | | | | |
| NGLs sales | | 52,147 | | | 58,061 | | | (10) | % | | 159,594 | | | 84,557 | | | 89 | % | | | | |
| Total Product sales | | $ | 84,298 | | | $ | 72,256 | | | 17 | % | | $ | 227,359 | | | $ | 108,491 | | | 110 | % | | | | |
Per-unit gross average sales price: | | | | | | | | | | | | | | | | |
| Natural gas (per Mcf) | | $ | 4.10 | | | $ | 2.65 | | | 55 | % | | $ | 4.20 | | | $ | 1.32 | | | NM | | | | |
| NGLs (per Bbl) | | 36.96 | | | 27.16 | | | 36 | % | | 30.81 | | | 12.25 | | | 152 | % | | | | |
NM—Not meaningful
Natural-gas sales
NGLsNatural-gas sales decreasedincreased by $32.0 million and $81.4$18.0 million for the three and nine months ended September 30, 2020, respectively,2021, primarily due to decreasesincreases of (i) $7.6$13.1 million and $32.2 million, respectively, at the West Texas complex attributable to a decrease in average prices, partially offset by increased volumes sold, (ii) $4.4 million and $9.4 million, respectively, at the Brasada complex resulting from decreasesan increase in average prices and volumes sold and (iii) $18.4(ii) $2.3 million at the DJ Basin complex and $11.1$2.1 million respectively,at the MGR assets attributable to an increase in average prices.
Natural-gas sales increased by $43.8 million for the nine months ended September 30, 2021, primarily due to increases of (i) $37.2 million at the West Texas complex and $7.4 million at the MGR assets attributable to increases in average prices and (ii) $1.8 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Summary—Commodity purchase and sale agreements within this Item 2). In addition,These increases were offset partially by decreases of $4.9 million at the DJ Basin complex and $4.3 million at the Granger complex attributable to decreases in volumes sold, partially offset by increases in average prices.
NGLs sales
NGLs sales decreased by $5.9 million for the three months ended September 30, 2021, primarily due to a decrease of $8.7 million at the West Texas complex attributable to net changes in contract mix. This decrease was partially offset by an increase of $2.2 million at the Chipeta complex attributable to an increase in average prices and volumes sold.
NGLs sales increased by $75.0 million for the nine months ended September 30, 2020, NGLs sales decreased2021, primarily due to increases of (i) $12.4$65.4 million at the DJ BasinWest Texas complex attributable to a decreasean increase in average prices, partially offset by decreased volumes sold and (ii) $6.0 million at the MGR assets and $5.4$15.9 million at the Chipeta complex and $8.7 million at the Granger complex attributable to increases in average prices. These increases were offset partially by a decrease of $23.0 million resulting from decreasesa change in average pricesaccounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and volumes sold.sale agreements within this Item 2).
Equity Income, Net – Related Parties
| | | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended | | Nine Months Ended | |
| | thousands except percentages | thousands except percentages | | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) | | thousands except percentages | | September 30, 2021 | | June 30,
2021 | | Inc/
(Dec) | | September 30, 2021 | | September 30, 2020 | | Inc/
(Dec) | |
| Equity income, net – related parties | Equity income, net – related parties | | $ | 61,026 | | | $ | 53,893 | | | 13 | % | | $ | 176,788 | | | $ | 175,483 | | | 1 | % | | Equity income, net – related parties | | $ | 48,506 | | | $ | 58,666 | | | (17) | % | | $ | 159,337 | | | $ | 176,788 | | | (10) | % | |
Equity income, net – related parties increaseddecreased by $7.1 million and $1.3$10.2 million for the three months ended September 30, 2021, primarily due to decreases of $5.9 million at Cactus II and $4.1 million at Mont Belvieu JV resulting from electricity credits received in the second quarter of 2021 related to winter storm Uri.
Equity income, net – related parties decreased by $17.5 million for the nine months ended September 30, 2020, respectively,2021, primarily due to increases related to the acquisitiondecreases of our interest in Cactus II in June 2018, which began delivering crude oil during the third quarter of 2019, and increased volumes on TEP, FRP, and Red Bluff Express. These increases were offset partially by a decrease in equity income from(i) $24.1 million at Whitethorn LLC related to commercial activities.activities and lower volumes and (ii) $4.8 million and $4.2 million at Cactus II and White Cliffs, respectively, due to lower volumes. These decreases were offset partially by increases of (i) $6.4 million and $5.1 million at Saddlehorn and Red Bluff Express, respectively, due to higher volumes and (ii) $4.4 million at Mont Belvieu JV from a load-reduction electricity credit received in the second quarter of 2021 related to winter storm Uri.
Cost of Product and Operation and Maintenance Expenses
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | Three Months Ended | | Nine Months Ended | |
| | thousands except percentages | thousands except percentages | | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) | | thousands except percentages | | September 30, 2021 | | June 30,
2021 | | Inc/
(Dec) | | September 30, 2021 | | September 30, 2020 | | Inc/
(Dec) | |
| Residue purchases | | Residue purchases | | $ | 32,123 | | | $ | 23,019 | | | 40 | % | | $ | 113,046 | | | $ | 43,998 | | | 157 | % | |
| NGLs purchases | NGLs purchases | | $ | 19,028 | | | $ | 76,785 | | | (75) | % | | $ | 111,809 | | | $ | 252,460 | | | (56) | % | | NGLs purchases | | 51,440 | | | 42,305 | | | 22 | % | | 124,664 | | | 111,809 | | | 11 | % | |
| Residue purchases | | 10,838 | | | 18,300 | | | (41) | % | | 43,998 | | | 69,920 | | | (37) | % | | |
| Other | Other | | 1,873 | | | 2,715 | | | (31) | % | | (2,196) | | | 12,360 | | | (118) | % | | Other | | (331) | | | 12,720 | | | (103) | % | | 12,535 | | | (2,196) | | | NM | |
| Cost of product | Cost of product | | 31,739 | | | 97,800 | | | (68) | % | | 153,611 | | | 334,740 | | | (54) | % | | Cost of product | | 83,232 | | | 78,044 | | | 7 | % | | 250,245 | | | 153,611 | | | 63 | % | |
| Operation and maintenance | Operation and maintenance | | 132,293 | | | 176,572 | | | (25) | % | | 436,670 | | | 467,832 | | | (7) | % | | Operation and maintenance | | 140,838 | | | 153,028 | | | (8) | % | | 434,198 | | | 436,670 | | | (1) | % | |
| Total Cost of product and Operation and maintenance expenses | Total Cost of product and Operation and maintenance expenses | | $ | 164,032 | | | $ | 274,372 | | | (40) | % | | $ | 590,281 | | | $ | 802,572 | | | (26) | % | | Total Cost of product and Operation and maintenance expenses | | $ | 224,070 | | | $ | 231,072 | | | (3) | % | | $ | 684,443 | | | $ | 590,281 | | | 16 | % | |
NGLsResidue purchases
NGLsResidue purchases decreasedincreased by $57.8$9.1 million for the three months ended September 30, 2020,2021, primarily due to decreasesincreases of (i) $50.1$4.0 million at the West Texas complex attributable to an increase in average prices and volumes purchased and (ii) $2.2 million at the MGR assets attributable to an increase in average prices.
Residue purchases increased by $69.0 million for the nine months ended September 30, 2021, primarily due to increases of $45.4 million at the West Texas complex, $7.7 million at the Chipeta complex, $6.6 million at the MGR assets, $5.4 million at the Granger complex, and $5.3 million at the Hilight system attributable to increases in average prices. These increases were offset partially by a decrease of $5.2 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Summary—Commodity purchase and sale agreements within this Item 2) and (ii) $4.1.
NGLs purchases
NGLs purchases increased by $9.1 million for the three months ended September 30, 2021, primarily due to increases of (i) $5.5 million at the BrasadaDJ Basin complex attributable to average-pricean increase in average prices and purchased-volume decreases.(ii) $2.2 million at the Chipeta complex attributable to an increase in average prices and volumes purchased.
NGLs purchases decreasedincreased by $140.7$12.9 million for the nine months ended September 30, 2020,2021, primarily due to decreasesincreases of (i) $93.5$31.5 million at the West Texas complex, $24.7 million at the DJ Basin complex, $9.4 million at the Chipeta complex, and $5.8 million at the Granger complex attributable to increases in average prices. These increases were offset partially by a decrease of $61.1 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Summary—Commodity purchase and sale agreements within this Item 2), (ii) $23.9 million at the West Texas complex due to an average-price decrease, partially offset by a purchased-volume increase, and (iii) $8.8 million and $5.3 million at the Brasada and Chipeta complexes, respectively, attributable to average-price and purchased-volume decreases.
Residue purchases
Residue purchases decreased by $7.5 million for the three months ended September 30, 2020, primarily due to decreases of (i) $6.0 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2) and (ii) $3.9 million at the DJ Basin complex attributable to an average-price decrease. These amounts were offset partially by an increase of $3.6 million at the West Texas complex due to an average-price increase.
Residue purchases decreased by $25.9 million for the nine months ended September 30, 2020, primarily due to decreases of (i) $14.1 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2) and (ii) $9.2 million and $4.5 million at the DJ Basin complex and MGR assets, respectively, attributable to an average-price decrease. These amounts were offset partially by a $5.0 million increase at the West Texas complex attributable to an average-price increase..
Other items
Other items decreased by $14.6$13.1 million for the three months ended September 30, 2021, primarily due to decreases of $8.1 million at the West Texas complex and $3.1 million at the DJ Basin complex, primarily attributable to changes in imbalance positions.
Other items increased by $14.7 million for the nine months ended September 30, 2020,2021, primarily due to decreasesan increase of (i) $11.7$31.2 million at the West Texas complex, due to changes in imbalance positions and (ii) $4.1partially offset by a decrease of $16.7 million at the DJ Basin complex, dueboth primarily attributable to a decreasechanges in transportation costs.imbalance positions.
Operation and maintenance expense
Operation and maintenance expense decreased by $44.3$12.2 million for the three months ended September 30, 2020,2021, primarily due to decreases of (i) $21.5$5.9 million at the West Texas complex attributable to reduced utilities expense and surface maintenance and plant repairs and (ii) $4.8 million at the DJ Basin complex due to an environmental liability of $4.1 million recorded in the second quarter of 2021.
Operation and maintenance expense decreased by $2.5 million for the nine months ended September 30, 2021, primarily due to decreases of (i) $7.5 million at the West Texas complex, primarily resulting from decreased utilities and maintenance expense, andattributable to reduced salaries and wages, surface maintenance and plant repairs, and safety expense; partially offset by increased utilities expense primarily resulting from the impact of winter storm Uri, (ii) $6.8$5.8 million at the DJ Basin complex attributable to reduced surface maintenance and plant repairs, and (iii) $3.8 million at the DBM water systems primarily attributable to lower disposal fees resulting from reduced volumes and lower surface-use fees, andpartially offset by increased utilities expense (iii) $4.4 million at the DJ Basin complex primarily attributable to decreasedand surface maintenance and plant repairs, and chemicals and treating services, and (iv) $4.0including the impact of winter storm Uri. These decreases were offset partially by an increase of $10.2 million at the DBM oil system, primarily attributable to decreased salariesincreases in field-related expenses, chemicals and wages, surface maintenance and plant repairs,treating services, and utilities expense.
Operation and maintenance expense decreased by $31.2 million for the nine months ended September 30, 2020, primarily due to decreases of (i) $17.8 million and $5.4 million at the West Texas complex and Springfield system, respectively, primarily resulting from decreased utilities and maintenance expense, salaries and wages, and contract labor and consulting services, (ii) $7.7 million in overhead expense primarily related to fleet management and other miscellaneous field expenses, and (iii) $3.4 million at the DBM oil system primarily attributable to decreased surface maintenance and plant repairs, and salaries and wages expense. These amounts were offset partially by an increaseimpact of $7.1 million at the DJ Basin complex primarily due to an increase in utilities and safety expense.winter storm Uri.
Other Operating Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | | |
| | | | | | | | |
| thousands except percentages | | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) | | | | |
| General and administrative | | $ | 41,578 | | | $ | 30,769 | | | 35 | % | | $ | 118,466 | | | $ | 83,640 | | | 42 | % | | | | |
| Property and other taxes | | 19,392 | | | 15,281 | | | 27 | % | | 57,263 | | | 45,848 | | | 25 | % | | | | |
| Depreciation and amortization | | 132,564 | | | 127,914 | | | 4 | % | | 384,688 | | | 362,977 | | | 6 | % | | | | |
| Long-lived asset and other impairments | | 34,640 | | | 3,107 | | | NM | | 200,575 | | | 4,294 | | | NM | | | | |
| Goodwill impairment | | — | | | — | | | — | % | | 441,017 | | | — | | | NM | | | | |
| Total other operating expenses | | $ | 228,174 | | | $ | 177,071 | | | 29 | % | | $ | 1,202,009 | | | $ | 496,759 | | | 142 | % | | | | |
NM—Not meaningful | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Three Months Ended | | Nine Months Ended | | | | |
| | | | | | | | |
| thousands except percentages | | September 30, 2021 | | June 30,
2021 | | Inc/
(Dec) | | September 30, 2021 | | September 30, 2020 | | Inc/
(Dec) | | | | |
| General and administrative | | $ | 50,409 | | | $ | 44,448 | | | 13 | % | | $ | 139,973 | | | $ | 118,466 | | | 18 | % | | | | |
| Property and other taxes | | 13,641 | | | 17,967 | | | (24) | % | | 45,992 | | | 57,263 | | | (20) | % | | | | |
| Depreciation and amortization | | 139,002 | | | 137,849 | | | 1 | % | | 407,404 | | | 384,688 | | | 6 | % | | | | |
Long-lived asset and other impairments | | 1,594 | | | 12,738 | | | (87) | % | | 29,198 | | | 200,575 | | | (85) | % | | | | |
| Goodwill impairment | | — | | | — | | | — | % | | — | | | 441,017 | | | (100) | % | | | | |
| Total other operating expenses | | $ | 204,646 | | | $ | 213,002 | | | (4) | % | | $ | 622,567 | | | $ | 1,202,009 | | | (48) | % | | | | |
General and administrative expenses
General and administrative expenses increased by $10.8$6.0 million for the three months ended September 30, 2020,2021, primarily due to certain increases relating to the Services Agreement, including $6.5of (i) $4.4 million of additional expense primarily related to services provided by Occidental to WES for information technology services. Generalin personnel costs and administrative expenses also increased by $6.3(ii) $2.0 million for the three months ended September 30, 2020 due to increases in other corporate expenses.contract and consulting costs.
General and administrative expenses increased by $34.8$21.5 million for the nine months ended September 30, 2020,2021, primarily due to certain increases relating to the Services Agreement, includingof (i) $15.2$16.2 million in personnel costs primarily resulting from WES securing its own dedicated workforce as of December 31, 2019,related to increased bonus-related contributions under our employee savings plan and equity-based compensation expense, and (ii) $14.9$6.3 million of additional expensein contract and consulting costs primarily related to services provided by Occidental to WES for information technology services. Generalservices and administrative expenses also increased by $6.2 million for the nine months ended September 30, 2020 due to increases in other corporate expenses. See Executive Summary—December 2019 Agreements within this Item 2.fees.
Property and other taxes
Property and other taxes increaseddecreased by $4.1 million and $11.4$4.3 million for the three and nine months ended September 30, 2020, respectively,2021, primarily due to ad valorem tax increasesdecreases at (i)the West Texas complex and DBM oil system due to favorable differences between actual and estimated tax payments related to the 2021 fiscal year.
Property and other taxes decreased by $11.3 million for the nine months ended September 30, 2021, primarily due to ad valorem tax decreases at the West Texas complex due to general expansion, includingfavorable differences between actual and estimated tax payments related to the completion of Mentone Train II in March 2019 and (ii) at the DJ Basin complex due to general expansion, including the completion of Latham Train I in November 2019.2020 fiscal year.
Depreciation and amortization expense
Depreciation and amortization expense increased by $4.7$22.7 million for the threenine months ended September 30, 2020,2021, primarily due to increases of (i) $3.9$16.9 million at the DJ Basin complex, primarily as a result of capital projects being placed into service, offset by a change in estimate for asset retirement obligations for the Third Creek gathering system in the comparative prior period, (ii) $3.2$7.1 million related to depreciation for capitalized information technology implementation costs related to the stand-up of WES as an independent organization, (iii) $6.3 million at the West Texas complex resulting from capital projects being placed into service, and (iii) $1.8 million of amortization expense related to finance leases. These increases were offset partially by a decrease of $4.2(iv) $3.8 million at the HilightSpringfield system primarily due to an acceleration of depreciation expense in the comparative prior period.
Depreciation and amortization expense increased by $21.7 million for the nine months ended September 30, 2020, primarily due to increases of (i) $9.3 million, $4.7 million, and $3.1 million at the West Texas complex, DBM oil system, and DJ Basin complex, respectively, all primarily resulting from capital projects being placed intorevised service and (ii) $6.0 million of amortization expense related to finance leases.life assumptions. These increases were offset partially by a $3.4decreases of (i) $13.4 million decrease at the Chipeta complex primarily due to lower depreciationthe sale of the Bison treating facility and (ii) $3.3 million at a transportation asset in Southwest Wyoming, primarily as a result of the impairment incurred duringdownward asset retirement obligation revisions made in the first quarter of 2020. For further information regarding capital projects, see Liquidity and Capital Resources—Capital expenditures within this Item 2.2021.
Long-lived asset and other impairment expense
Long-livedLong-lived asset and other impairment expense for the three months ended SeptemberJune 30, 2020,2021, was primarily due to (i) a $29.4an $11.6 million other-than-temporary impairment of our investment in Ranch Westex, (ii)Westex.
Long-lived asset and other impairment expense for the three months ended March 31, 2021, was primarily due to $13.5 million of impairments of rights-of-way for $3.8 million at the DJ Basin complex and (iii) impairments of $2.0 million at the DBM water systems due to cancellation of projects. Long-lived
Long-lived asset and other impairment expense for the nine months ended September 30, 2020, was primarily due to (i) $150.2 million of impairments for assets located in Wyoming and Utah, (ii) impairments of $14.8 million primarily at the DJ Basin complex, DBM water systems, and West Texas complex due to cancellation of projects, and (iii) impairments of rights-of-wayrights-of-way for $6.2 million at the DJ Basin complex.
For further information on long-livedLong-lived asset and other impairment expense, for the nine months ended September 30, 2020, see Note 8—Property, Plant, and Equipment and Note 7—Equity Investmentsin the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Goodwill impairment expense
During the three months ended March 31, 2020, an interim goodwill impairment test was performed due to significant unit-priceunit-price declines triggered by the combined impacts from the global outbreak of COVID-19COVID-19 and the oil-marketoil-market disruption. As a result of the interim impairment test, a goodwill impairment of $441.0 million was recognized for the gathering and processing reporting unit. For additional information, on goodwill impairment expense, see Note 9—Goodwill in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Interest Income – Anadarko Note Receivable and Interest Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | | | | | | | |
| thousands except percentages | | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) | | | | |
| | | | | | | | | | | | | | | | |
| Interest income – Anadarko note receivable | | $ | 3,286 | | | $ | 4,225 | | | (22) | % | | $ | 11,736 | | | $ | 12,675 | | | (7) | % | | | | |
| | | | | | | | | | | | | | | | |
| Third parties | | | | | | | | | | | | | | | | |
| Long-term and short-term debt | | $ | (94,201) | | | $ | (83,712) | | | 13 | % | | $ | (273,620) | | | $ | (233,432) | | | 17 | % | | | | |
| Finance lease liabilities | | (369) | | | — | | | NM | | (1,162) | | | — | | | NM | | | | |
| Amortization of debt issuance costs and commitment fees | | (3,463) | | | (3,139) | | | 10 | % | | (10,052) | | | (9,461) | | | 6 | % | | | | |
| Capitalized interest | | 2,462 | | | 8,386 | | | (71) | % | | 6,066 | | | 20,933 | | | (71) | % | | | | |
| Related parties | | | | | | | | | | | | | | | | |
| APCWH Note Payable | | — | | | — | | | — | % | | — | | | (1,833) | | | (100) | % | | | | |
| Finance lease liabilities | | — | | | (59) | | | (100) | % | | (43) | | | (79) | | | (46) | % | | | | |
| Interest expense | | $ | (95,571) | | | $ | (78,524) | | | 22 | % | | $ | (278,811) | | | $ | (223,872) | | | 25 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Three Months Ended | | Nine Months Ended | | | | |
| | | | | | | | |
| thousands except percentages | | September 30, 2021 | | June 30,
2021 | | Inc/
(Dec) | | September 30, 2021 | | September 30, 2020 | | Inc/
(Dec) | | | | |
| | | | | | | | | | | | | | | | |
| Interest income – Anadarko note receivable | | $ | — | | | $ | — | | | — | % | | $ | — | | | $ | 11,736 | | | (100) | % | | | | |
| | | | | | | | | | | | | | | | |
| Third parties | | | | | | | | | | | | | | | | |
Long-term and short-term debt | | $ | (90,913) | | | $ | (92,487) | | | (2) | % | | $ | (279,122) | | | $ | (273,620) | | | 2 | % | | | | |
| Finance lease liabilities | | (218) | | | (292) | | | (25) | % | | (808) | | | (1,162) | | | (30) | % | | | | |
| Commitment fees and amortization of debt-related costs | | (3,147) | | | (3,179) | | | (1) | % | | (9,664) | | | (10,052) | | | (4) | % | | | | |
| Capitalized interest | | 1,021 | | | 668 | | | 53 | % | | 2,554 | | | 6,066 | | | (58) | % | | | | |
| Related parties | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Finance lease liabilities | | — | | | — | | | — | % | | — | | | (43) | | | (100) | % | | | | |
| Interest expense | | $ | (93,257) | | | $ | (95,290) | | | (2) | % | | $ | (287,040) | | | $ | (278,811) | | | 3 | % | | | | |
Interest income
Interest income - Anadarko note receivable decreased by $0.9$11.7 million for both the three and nine months ended September 30, 2020,2021, due to the exchange of the Anadarko note receivable under the Unit Redemption Agreement.Agreement in September 2020. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Interest expense
Interest expense decreased by $2.0 million for the three months ended September 30, 2021, primarily due to lower outstanding balances as a result of the purchase and retirement of portions of certain of the senior notes.
Interest expense increased by $17.0 million and $54.9$8.2 million for the three and nine months ended September 30, 2020, respectively,2021, primarily due to (i) $41.0$27.4 million and $107.7 million, respectively, of additional interest incurred from higher effective interest rates resulting from credit-rating downgrades on the 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050 and Floating-Rate Senior Notes due 2023 that were issued in January 2020 and (ii) decreasesa decrease of $5.9$3.5 million and $14.9 million, respectively, in capitalized interest.interest due to decreased capital expenditures. These increases were offset partially by decreases of (i) $21.0$18.4 million due to lower outstanding balances on the 5.375% Senior Notes due 2021 that were called on March 1, 2021 and $49.8 million, respectively, that occurred as a resultthe purchase and retirement of portions of certain of the repayment and terminationsenior notes during the third quarter of the Term loan facility in January 20202021 and (ii) $7.4$3.9 million and $13.7 million, respectively, due to lower outstanding borrowings under the RCF in 2020.2021. See Liquidity and Capital Resources—Debt and credit facilities within this Item 2.
Other Income (Expense), Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | | |
| | | | | | | | |
| thousands except percentages | | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) | | | | |
| Other income (expense), net | | $ | 720 | | | $ | (67,894) | | | 101 | % | | $ | 612 | | | $ | (161,577) | | | 100 | % | | | | |
Other income (expense), net increased by $68.6 million and $162.2 million for the three and nine months ended September 30, 2020, respectively, primarily due to non-cash losses of $68.3 million and $162.9 million on interest-rate swaps incurred during the three and nine months ended September 30, 2019, respectively. All outstanding interest-rate swap agreements were settled in December 2019 (see Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).
Income Tax Expense (Benefit)
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | Three Months Ended | | Nine Months Ended | |
| | thousands except percentages | thousands except percentages | | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) | | thousands except percentages | | September 30, 2021 | | June 30,
2021 | | Inc/
(Dec) | | September 30, 2021 | | September 30, 2020 | | Inc/
(Dec) | |
| Income (loss) before income taxes | Income (loss) before income taxes | | $ | 257,163 | | $ | 126,532 | | 103 | % | | $ | 249,868 | | $ | 524,939 | | (52) | % | | Income (loss) before income taxes | | $ | 265,464 | | $ | 239,742 | | 11 | % | | $ | 697,553 | | $ | 249,868 | | 179 | % | |
| Income tax expense (benefit) | Income tax expense (benefit) | | 3,028 | | 1,309 | | 131 | % | | 3,792 | | 12,679 | | (70) | % | | Income tax expense (benefit) | | 1,826 | | 1,465 | | 25 | % | | 4,403 | | 3,792 | | 16 | % | |
| Effective tax rate | Effective tax rate | | 1 | % | | 1 | % | | 2 | % | | 2 | % | | | Effective tax rate | | 1 | % | | 1 | % | | 1 | % | | 2 | % | | |
|
We are not a taxable entity for U.S. federal income tax purposes; therefore, our federal statutory rate is zero percent. However, income apportionable to Texas is subject to Texas margin tax.
For the nine months ended September 30, 2019,all periods presented, the variance from the federal statutory rate primarily was due to federal and state taxes on pre-acquisition income attributable to assets previously acquired from Anadarko, and our share of applicable Texas margin tax. For all other periods presented, the variance from the federal statutory rate was primarily due to our Texas margin tax liability.
Income attributable to the AMA assets prior to and including February 2019 was subject to federal and state income tax. Income earned on the AMA assets for periods subsequent to February 2019 was subject only to Texas margin tax on income apportionable to Texas.
KEY PERFORMANCE METRICS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | | |
| | | | | | | | |
| thousands except percentages and per-unit amounts | | 2020 | | 2019 | | Inc/
(Dec) | | 2020 | | 2019 | | Inc/
(Dec) | | | | |
| Adjusted gross margin for natural-gas assets | | $ | 458,790 | | | $ | 401,380 | | | 14 | % | | $ | 1,384,632 | | | $ | 1,226,302 | | | 13 | % | | | | |
| Adjusted gross margin for crude-oil and NGLs assets | | 160,886 | | | 147,818 | | | 9 | % | | 494,481 | | | 416,904 | | | 19 | % | | | | |
| Adjusted gross margin for produced-water assets | | 61,853 | | | 50,446 | | | 23 | % | | 190,688 | | | 140,608 | | | 36 | % | | | | |
Adjusted gross margin (1) | | 681,529 | | | 599,644 | | | 14 | % | | 2,069,801 | | | 1,783,814 | | | 16 | % | | | | |
Per-Mcf Adjusted gross margin for natural-gas assets (2) | | 1.17 | | | 1.04 | | | 13 | % | | 1.15 | | | 1.06 | | | 8 | % | | | | |
Per-Bbl Adjusted gross margin for crude-oil and NGLs assets (3) | | 2.54 | | | 2.58 | | | (2) | % | | 2.50 | | | 2.52 | | | (1) | % | | | | |
Per-Bbl Adjusted gross margin for produced-water assets (4) | | 1.00 | | | 0.97 | | | 3 | % | | 0.98 | | | 0.98 | | | — | % | | | | |
Adjusted EBITDA (1) | | 518,358 | | | 410,213 | | | 26 | % | | 1,546,386 | | | 1,271,463 | | | 22 | % | | | | |
Free cash flow (1) | | 339,154 | | | 70,679 | | | NM | | 762,364 | | | (7,496) | | | NM | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Three Months Ended | | Nine Months Ended | | | | |
| | | | | | | | |
| thousands except percentages and per-unit amounts | | September 30, 2021 | | June 30,
2021 | | Inc/
(Dec) | | September 30, 2021 | | September 30, 2020 | | Inc/
(Dec) | | | | |
Adjusted gross margin for natural-gas assets | | $ | 492,708 | | | $ | 469,409 | | | 5 | % | | $ | 1,394,506 | | | $ | 1,384,632 | | | 1 | % | | | | |
Adjusted gross margin for crude-oil and NGLs assets | | 148,939 | | | 150,317 | | | (1) | % | | 432,401 | | | 494,481 | | | (13) | % | | | | |
Adjusted gross margin for produced-water assets | | 63,760 | | | 57,510 | | | 11 | % | | 170,360 | | | 190,688 | | | (11) | % | | | | |
| Adjusted gross margin | | 705,407 | | | 677,236 | | | 4 | % | | 1,997,267 | | | 2,069,801 | | | (4) | % | | | | |
Per-Mcf Adjusted gross margin for natural-gas assets (1) | | 1.31 | | | 1.21 | | | 8 | % | | 1.24 | | | 1.15 | | | 8 | % | | | | |
Per-Bbl Adjusted gross margin for crude-oil and NGLs assets (2) | | 2.52 | | | 2.40 | | | 5 | % | | 2.46 | | | 2.50 | | | (2) | % | | | | |
Per-Bbl Adjusted gross margin for produced-water assets (3) | | 0.94 | | | 0.92 | | | 2 | % | | 0.93 | | | 0.98 | | | (5) | % | | | | |
| Adjusted EBITDA | | 531,580 | | | 491,126 | | | 8 | % | | 1,465,816 | | | 1,546,386 | | | (5) | % | | | | |
| Free cash flow | | 320,031 | | | 379,776 | | | (16) | % | | 913,629 | | | 762,364 | | | 20 | % | | | | |
(1)For a reconciliation ofAverage for period. Calculated as Adjusted gross margin Adjusted EBITDA, and Free cash flowfor natural-gas assets, divided by total throughput (MMcf/d) attributable to the most directly comparable financial measure calculated and presented in accordance with GAAP, see the below descriptions.WES for natural-gas assets.
(2)Average for period. Calculated as Adjusted gross margin for natural-gascrude-oil and NGLs assets, divided by total throughput (MMcf/(MBbls/d) attributable to WES for natural-gascrude-oil and NGLs assets.
(3)Average for period. Calculated as Adjusted gross margin for crude-oil and NGLsproduced-water assets, divided by total throughput (MBbls/d) attributable to WES for crude-oil and NGLs assets.
(4)producedAverage for period. Calculated as Adjusted gross margin for produced-water assets, divided by total throughput (MBbls/d) attributable to WES for produced-water-water assets.
Adjusted gross margin.We define Adjusted gross margin attributable to Western Midstream Partners, LP (“Adjusted gross margin”) as total revenues and other (less reimbursements for electricity-relatedelectricity-related expenses recorded as revenue), less cost of product, plus distributions from equity investments, and excluding the noncontrolling interestsinterest owners’ proportionate share of revenues and cost of product. We believe Adjusted gross margin is an important performance measure of our operations’ profitability and performance as compared to other companies in the midstream industry. Cost of product expenses include (i) costs associated with the purchase of natural gas and NGLs pursuant to our percent-of-proceeds, percent-of-product, and keep-whole contracts, (ii) costs associated with the valuation of gas and NGLs imbalances, and (iii) costs associated with our obligations under certain contracts to redeliver a volume of natural gas to shippers, which is thermally equivalent to condensate retained by us and sold to third parties.
To facilitate investor and industry analyst comparisons between us and our peers, we also disclose per-Mcf Adjusted gross margin for natural-gas assets, per-Bbl Adjusted gross margin for crude-oil and NGLs assets, and per-Bbl Adjusted gross margin for produced-water assets.
Adjusted gross margin increased by $81.9 million and $286.0$28.2 million for the three and nine months ended September 30, 2020, respectively,2021, primarily due to (i) increased throughput at the West Texas complex and DJ Basin complexes, (ii) increased throughput and the effect of the straight-line treatment of lease revenue under the new operating and maintenance agreement with Occidental effective December 31, 2019, at the DBM oil system, (iii) increased throughput and higher average fees at the DBM water systems (iv) the acquisition of our interestand (ii) revenue recorded in Cactus II in June 2018, which began delivering crude oil during the third quarter of 2019, and (v) increased volumes on FRP resulting from a pipeline expansion project completed during the second quarter of 2020. These increases were offset partially by (i) a decrease in distributions from Whitethorn LLC related to commercial activities and (ii) a decrease at the Hilight system resulting from lower throughput and an accrual reversal in the first quarter of 2019 related to the Kitty Draw gathering-system shutdown2021 that was previously constrained (see Note 1—Description of Business and Basis of Presentation2—Revenue from Contracts with Customers in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q). These increases were offset partially by (i) a decrease in distributions from Mont Belvieu JV and (ii) decreased throughput at the DJ Basin complex.
Per-Mcf Adjusted gross margin for natural-gas assets increaseddecreased by $0.13 and $0.09$72.5 million for the three and nine months ended September 30, 2020, respectively,2021, primarily due to increased(i) decreased throughput and lower lease revenue under the operating and maintenance agreement with Occidental at the West Texas and DJ Basin complexes, which have higher-than-average per-Mcf margins as compared to our other natural-gas assets.
Per-Bbl Adjusted gross margin for crude-oil and NGLs assets decreased by $0.04 and $0.02 for the three and nine months ended September 30, 2020, respectively, primarily due to (i)DBM oil system, (ii) a decrease in distributions from Whitethorn LLC, related(iii) decreased throughput and a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2021, at the DBM water systems, (iv) decreased throughput on certain fee-based contracts at the DJ Basin complex, and (v) the expiration of a minimum-volume commitment contract in the fourth quarter of 2020 and decreased throughput at the Bison treating facility, which was sold to commercial activities and (ii) the acquisition of our interest in Cactus II in June 2018, which began delivering crude oila third party during the thirdsecond quarter of 2019 at a lower-than-average per-Bbl margin.2021. These decreases were offset partially by (i) revenue recorded in the third quarter of 2021 that was previously constrained, (ii) higher average commodity prices at the MGR assets, and (iii) an increase in distributions from Red Bluff Express and Saddlehorn.
Per-Mcf Adjusted gross margin for natural-gas assets increased by $0.10 for the three months ended September 30, 2021, primarily due to (i) revenue recorded in the third quarter of 2021 that was previously constrained at the Springfield gas-gathering system and (ii) increased throughput at the West Texas complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets. These increases were offset partially by decreased throughput at the DJ Basin complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets.
Per-Mcf Adjusted gross margin for natural-gas assets increased by $0.09 for the nine months ended September 30, 2021, primarily due to (i) a higher cost-of-service rate effective January 1, 2021, at the West Texas complex and (ii) revenue recorded in the effectthird quarter of 2021 that was previously constrained at the straight-line treatmentSpringfield gas-gathering system. These increases were offset partially by decreased throughput on certain fee-based contracts at the DJ Basin complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets.
Per-Bbl Adjusted gross margin for crude-oil and NGLs assets increased by $0.12 for the three months ended September 30, 2021, primarily due to (i) revenue recorded in the third quarter of 2021 that was previously constrained and (ii) decreased volumes on the Whitethorn pipeline, which has a lower-than-average per-Bbl margin as compared to our other crude-oil and NGLs assets. These increases were offset partially by (i) lower lease revenue under the new operating and maintenance agreement with Occidental effective December 31, 2019, at the DBM oil system and (ii) increased volumes on FRP resultinga decrease in distributions from a pipeline expansion project completed during the second quarter of 2020.Mont Belvieu JV.
Per-BblPer-Bbl Adjusted gross margin for produced-watercrude-oil and NGLs assets decreased by $0.04 for the nine months ended September 30, 2021, primarily due to (i) decreased throughput and lower lease revenue under the operating and maintenance agreement with Occidental at the DBM oil system, which has a higher-than-average per-Bbl margin as compared to our other crude-oil and NGLs assets and (ii) a decrease in distributions from FRP and Cactus II. These decreases were offset partially by (i) a higher cost-of-service rate effective January 1, 2021, at the DJ Basin oil system and (ii) revenue recorded in the third quarter of 2021 that was previously constrained.
Per-Bbl Adjusted gross margin for produced-water assets increased by $0.03$0.02 for the three months ended September 30, 2020,2021, primarily due to increased throughput on volumes with higher-than-average per-Bbl margin.margins.
Per-Bbl Adjusted gross margin for produced-water assets decreased by $0.05 for the nine months ended September 30, 2021, primarily due to a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2021.
Adjusted EBITDA. We define Adjusted EBITDA attributable to Western Midstream Partners, LP (“Adjusted EBITDA”) as net income (loss), plus (i) distributions from equity investments, (ii) non-cash equity-basednon-cash equity-based compensation expense, (iii) interest expense, (iv) income tax expense, (v) depreciation and amortization, (vi) impairments, and (vii) other expense (including lower of cost or market inventory adjustments recorded in cost of product), less (i) gain (loss) on divestiture and other, net, (ii) gain (loss) on early extinguishment of debt, (iii) income from equity investments, (iv) interest income, (v) other income, (vi) income tax benefit, (vi) other income, and (vii) the noncontrolling interestsinterest owners’ proportionate share of revenues and expenses. We believe the presentation of Adjusted EBITDA provides information useful to investors in assessing our financial condition and results of operations and that Adjusted EBITDA is a widely accepted financial indicator of a company’s ability to incur and service debt, fund capital expenditures, and make distributions. Adjusted EBITDA is a supplemental financial measure that management and external users of our consolidated financial statements, such as industry analysts, investors, commercial banks, and rating agencies, use, among other measures, to assess the following:
•our operating performance as compared to other publicly traded partnerships in the midstream industry, without regard to financing methods, capital structure, or historical cost basis;
•the ability of our assets to generate cash flow to make distributions; and
•the viability of acquisitions and capital expenditures and the returns on investment of various investment opportunities.
Adjusted EBITDA increased by $108.1$40.5 million for the three months ended September 30, 2020,2021, primarily due to (i) a $66.0$44.7 million increase in total revenues and other, (ii) a $12.2 million decrease in operation and maintenance expenses, and (iii) a $4.3 million decrease in property taxes. These amounts were offset partially by (i) an $8.2 million decrease in distributions from equity investments, (ii) a $6.1 million increase in general and administrative expenses excluding non-cash equity-based compensation expense, and (iii) a $5.2 million increase in cost of product (net of lower of cost or market inventory adjustments).
Adjusted EBITDA decreased by $80.6 million for the nine months ended September 30, 2021, primarily due to (i) a $96.8 million increase in cost of product (net of lower of cost or market inventory adjustments), (ii) a $44.3 million decrease in operation and maintenance expenses, and (iii) a $13.0 million increase in total revenues and other. These amounts were offset partially by (i) a $9.3$17.2 million increase in general and administrative expenses excluding non-cash equity-basednon-cash equity-based compensation expense, and (ii) a $4.1 million increase in property taxes.
Adjusted EBITDA increased by $274.9 million for the nine months ended September 30, 2020, primarily due to (i) a $181.1 million decrease in cost of product (net of lower of cost or market inventory adjustments), (ii) a $102.1 million increase in total revenues and other, (iii) a $31.2$14.7 million decrease in operation and maintenance expenses, and (iv) a $6.0 million increase in distributions from equity investments. These amounts were offset partially by (i) a $28.6$32.8 million increase in generaltotal revenues and administrative expenses excluding non-cash equity-based compensation expenseother and (ii) an $11.4$11.3 million increasedecrease in property taxes.
The above-described decreasesabove-described variances in cost of product and total revenues and other include the impacts resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020, which had no net impact on Adjusted EBITDA (see Executive Summary—Summary—Commodity purchase and sale agreements within this Item 2).
Free cash flow.We define “Free cash flow” as net cash provided by operating activities less total capital expenditures and contributions to equity investments, plus distributions from equity investments in excess of cumulative earnings. Management considers Free cash flow an appropriate metric for assessing capital discipline, cost efficiency, and balance-sheetbalance-sheet strength. Although Free cash flow is the metric used to assess WES’s ability to make distributions to unitholders, this measure should not be viewed as indicative of the actual amount of cash that is available for distributions or planned for distributions for a given period. Instead, Free cash flow should be considered indicative of the amount of cash that is available for distributions, debt repayments, and other general partnership purposes.
Free cash flow increaseddecreased by $268.5 million and $769.9$59.7 million for the three and nine months ended September 30, 2020, respectively,2021, primarily due to (i) decreasesa decrease of $183.6$60.8 million and $575.0 million, respectively, in capital expenditures, (ii) increases of $52.7 million and $105.2 million, respectively, in net cash provided by operating activities, and (iii) decreasespartially offset by a decrease of $27.8$3.2 million and $89.1 million, respectively, in contributions to equity investments.
Free cash flow increased by $151.3 million for the nine months ended September 30, 2021, primarily due to (i) a decrease of $154.5 million in capital expenditures, (ii) a decrease of $15.3 million in contributions to equity investments, and (iii) an $8.3 million increase in distributions from equity investments in excess of cumulative earnings. These amounts were offset partially by a decrease of $26.9 million in net cash provided by operating activities.
See Capital Expenditures and Historical Cash Flow within this Item 2 for further information.
Reconciliation of non-GAAP financial measures. Adjusted gross margin, Adjusted EBITDA, and Free cash flow are not defined in GAAP. The GAAP measure used by us that is most directly comparable to Adjusted gross margin is operating income (loss).gross margin. Net income (loss) and net cash provided by operating activities are the GAAP measures used by us that are most directly comparable to Adjusted EBITDA. The GAAP measure used by us that is most directly comparable to Free cash flow is net cash provided by operating activities. Our non-GAAPnon-GAAP financial measures of Adjusted gross margin, Adjusted EBITDA, and Free cash flow should not be considered as alternatives to the GAAP measures of operating income (loss),gross margin, net income (loss), net cash provided by operating activities, or any other measure of financial performance presented in accordance with GAAP. Adjusted gross margin, Adjusted EBITDA, and Free cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect operating income (loss),gross margin, net income (loss), and net cash provided by operating activities. Adjusted gross margin, Adjusted EBITDA, and Free cash flow should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Our definitions of Adjusted gross margin, Adjusted EBITDA, and Free cash flow may not be comparable to similarly titled measures of other companies in our industry, thereby diminishing their utility as comparative measures.
Management compensates for the limitations of Adjusted gross margin, Adjusted EBITDA, and Free cash flow as analytical tools by reviewing the comparable GAAP measures, understanding the differences between Adjusted gross margin, Adjusted EBITDA, and Free cash flow compared to (as applicable) operating income (loss),gross margin, net income (loss), and net cash provided by operating activities, and incorporating this knowledge into its decision-makingdecision-making processes. We believe that investors benefit from having access to the same financial measures that our management considers in evaluating our operating results.
The following tables present (a)(i) a reconciliation of the GAAP financial measure of operating income (loss)gross margin to the non-GAAPnon-GAAP financial measure of Adjusted gross margin, (b)(ii) a reconciliation of the GAAP financial measures of net income (loss) and net cash provided by operating activities to the non-GAAPnon-GAAP financial measure of Adjusted EBITDA, and (c)(iii) a reconciliation of the GAAP financial measure of net cash provided by operating activities to the non-GAAPnon-GAAP financial measure of Free cash flow:
| | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | Three Months Ended | | Nine Months Ended |
| | thousands | thousands | | 2020 | | 2019 | | 2020 | | 2019 | | thousands | | September 30, 2021 | | June 30,
2021 | | September 30, 2021 | | September 30, 2020 | |
| Reconciliation of Operating income (loss) to Adjusted gross margin | | | | | | | | | | |
| Operating income (loss) | | $ | 347,096 | | | $ | 268,725 | | | $ | 505,959 | | | $ | 897,713 | | | |
| Reconciliation of Gross margin to Adjusted gross margin | | Reconciliation of Gross margin to Adjusted gross margin | |
| Total revenues and other | | Total revenues and other | | $ | 763,840 | | | $ | 719,131 | | | $ | 2,157,945 | | | $ | 2,125,112 | | |
| Less: | | Less: | | |
| Cost of product | | Cost of product | | 83,232 | | | 78,044 | | | 250,245 | | | 153,611 | | |
| Depreciation and amortization | | Depreciation and amortization | | 139,002 | | | 137,849 | | | 407,404 | | | 384,688 | | |
| Gross margin | | Gross margin | | 541,606 | | | 503,238 | | | 1,500,296 | | | 1,586,813 | | |
| Add: | Add: | | | Add: | | |
| Distributions from equity investments | Distributions from equity investments | | 72,070 | | | 71,005 | | | 209,566 | | | 203,540 | | | Distributions from equity investments | | 62,711 | | | 70,947 | | | 194,847 | | | 209,566 | | |
| Operation and maintenance | | 132,293 | | | 176,572 | | | 436,670 | | | 467,832 | | | |
| General and administrative | | 41,578 | | | 30,769 | | | 118,466 | | | 83,640 | | | |
| Property and other taxes | | 19,392 | | | 15,281 | | | 57,263 | | | 45,848 | | | |
| Depreciation and amortization | Depreciation and amortization | | 132,564 | | | 127,914 | | | 384,688 | | | 362,977 | | | Depreciation and amortization | | 139,002 | | | 137,849 | | | 407,404 | | | 384,688 | | |
Impairments (1) | | 34,640 | | | 3,107 | | | 641,592 | | | 4,294 | | | |
| Less: | Less: | | | Less: | | |
| Gain (loss) on divestiture and other, net | | (768) | | | 248 | | | (3,651) | | | (1,403) | | | |
| Equity income, net – related parties | | 61,026 | | | 53,893 | | | 176,788 | | | 175,483 | | | |
| Reimbursed electricity-related charges recorded as revenues | Reimbursed electricity-related charges recorded as revenues | | 20,272 | | | 23,969 | | | 61,100 | | | 60,747 | | | Reimbursed electricity-related charges recorded as revenues | | 19,725 | | | 17,585 | | | 54,622 | | | 61,100 | | |
Adjusted gross margin attributable to noncontrolling interests (2) | | 17,574 | | | 15,619 | | | 50,166 | | | 47,203 | | | |
Adjusted gross margin attributable to noncontrolling interests (1) | | Adjusted gross margin attributable to noncontrolling interests (1) | | 18,187 | | | 17,213 | | | 50,658 | | | 50,166 | | |
| Adjusted gross margin | Adjusted gross margin | | $ | 681,529 | | | $ | 599,644 | | | $ | 2,069,801 | | | $ | 1,783,814 | | | Adjusted gross margin | | $ | 705,407 | | | $ | 677,236 | | | $ | 1,997,267 | | | $ | 2,069,801 | | |
| Adjusted gross margin for natural-gas assets | | $ | 458,790 | | | $ | 401,380 | | | $ | 1,384,632 | | | $ | 1,226,302 | | | |
| Adjusted gross margin for crude-oil and NGLs assets | | 160,886 | | | 147,818 | | | 494,481 | | | 416,904 | | | |
| Adjusted gross margin for produced-water assets | | 61,853 | | | 50,446 | | | 190,688 | | | 140,608 | | | |
Adjusted gross margin for natural-gas assets | | Adjusted gross margin for natural-gas assets | | $ | 492,708 | | | $ | 469,409 | | | $ | 1,394,506 | | | $ | 1,384,632 | | |
Adjusted gross margin for crude-oil and NGLs assets | | Adjusted gross margin for crude-oil and NGLs assets | | 148,939 | | | 150,317 | | | 432,401 | | | 494,481 | | |
Adjusted gross margin for produced-water assets | | Adjusted gross margin for produced-water assets | | 63,760 | | | 57,510 | | | 170,360 | | | 190,688 | | |
(1)For all periods presented, includes (i) the 25% third-party interest in Chipeta and (ii) the 2.0% Occidental subsidiary-owned limited partner interest in WES Operating, which collectively represent WES’s noncontrolling interests.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Three Months Ended | | Nine Months Ended |
| | | | | | |
| thousands | | September 30, 2021 | | June 30,
2021 | | September 30, 2021 | | September 30, 2020 | | |
| Reconciliation of Net income (loss) to Adjusted EBITDA |
| Net income (loss) | | $ | 263,638 | | | $ | 238,277 | | | $ | 693,150 | | | $ | 246,076 | | | |
| Add: | | | | | | | | | | |
| Distributions from equity investments | | 62,711 | | | 70,947 | | | 194,847 | | | 209,566 | | | |
Non-cash equity-based compensation expense | | 6,979 | | | 7,121 | | | 20,834 | | | 16,527 | | | |
| Interest expense | | 93,257 | | | 95,290 | | | 287,040 | | | 278,811 | | | |
| Income tax expense | | 1,826 | | | 1,465 | | | 4,403 | | | 8,072 | | | |
| Depreciation and amortization | | 139,002 | | | 137,849 | | | 407,404 | | | 384,688 | | | |
Impairments (1) | | 1,594 | | | 12,738 | | | 29,198 | | | 641,592 | | | |
| Other expense | | 4 | | | 30 | | | 1,252 | | | 1,953 | | | |
| Less: | | | | | | | | | | |
| Gain (loss) on divestiture and other, net | | (364) | | | 1,225 | | | 278 | | | (3,651) | | | |
| Gain (loss) on early extinguishment of debt | | (24,655) | | | — | | | (24,944) | | | 10,372 | | | |
| Equity income, net – related parties | | 48,506 | | | 58,666 | | | 159,337 | | | 176,788 | | | |
| Interest income – Anadarko note receivable | | — | | | — | | | — | | | 11,736 | | | |
| Other income | | 109 | | | 84 | | | 193 | | | 2,373 | | | |
| Income tax benefit | | — | | | — | | | — | | | 4,280 | | | |
Adjusted EBITDA attributable to noncontrolling interests (2) | | 13,835 | | | 12,616 | | | 37,448 | | | 39,001 | | | |
| Adjusted EBITDA | | $ | 531,580 | | | $ | 491,126 | | | $ | 1,465,816 | | | $ | 1,546,386 | | | |
| Reconciliation of Net cash provided by operating activities to Adjusted EBITDA |
| Net cash provided by operating activities | | $ | 391,333 | | | $ | 452,111 | | | $ | 1,104,994 | | | $ | 1,131,893 | | | |
| Interest (income) expense, net | | 93,257 | | | 95,290 | | | 287,040 | | | 267,075 | | | |
| | | | | | | | | | |
Accretion and amortization of long-term obligations, net | | (1,871) | | | (1,914) | | | (5,873) | | | (6,482) | | | |
| Current income tax expense (benefit) | | 824 | | | 749 | | | 2,128 | | | 1,399 | | | |
| Other (income) expense, net | | (110) | | | (84) | | | 1,013 | | | (612) | | | |
Cash paid to settle interest-rate swaps | | — | | | — | | | — | | | 19,181 | | | |
| Distributions from equity investments in excess of cumulative earnings – related parties | | 8,702 | | | 9,232 | | | 30,075 | | | 21,750 | | | |
| Changes in assets and liabilities: | | | | | | | | | | |
| Accounts receivable, net | | 61,609 | | | 38,982 | | | 130,773 | | | 192,338 | | | |
| Accounts and imbalance payables and accrued liabilities, net | | (17,204) | | | (55,758) | | | (56,495) | | | (37,814) | | | |
| Other items, net | | 8,875 | | | (34,866) | | | 9,609 | | | (3,341) | | | |
Adjusted EBITDA attributable to noncontrolling interests (2) | | (13,835) | | | (12,616) | | | (37,448) | | | (39,001) | | | |
| Adjusted EBITDA | | $ | 531,580 | | | $ | 491,126 | | | $ | 1,465,816 | | | $ | 1,546,386 | | | |
| Cash flow information |
| Net cash provided by operating activities | | $ | 391,333 | | | $ | 452,111 | | | $ | 1,104,994 | | | $ | 1,131,893 | | | |
| Net cash used in investing activities | | (80,883) | | | (59,932) | | | (187,287) | | | (426,670) | | | |
| Net cash provided by (used in) financing activities | | (516,161) | | | (142,982) | | | (1,262,767) | | | (667,140) | | | |
(1)Includes goodwill impairment for the nine months ended September 30, 2020. See Note 9—Goodwill in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(2)For all periods presented, includes (i) the 25% third-partythird-party interest in Chipeta and (ii) the 2.0% Occidental subsidiary-ownedsubsidiary-owned limited partner interest in WES Operating, which collectively represent WES’s noncontrolling interests.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | |
| | | | | | |
| thousands | | 2020 | | 2019 | | 2020 | | 2019 | | |
| Reconciliation of Net income (loss) to Adjusted EBITDA | | | | | | | | | | |
| Net income (loss) | | $ | 254,135 | | | $ | 125,223 | | | $ | 246,076 | | | $ | 512,260 | | | |
| Add: | | | | | | | | | | |
| Distributions from equity investments | | 72,070 | | | 71,005 | | | 209,566 | | | 203,540 | | | |
| Non-cash equity-based compensation expense | | 5,616 | | | 4,137 | | | 16,527 | | | 10,278 | | | |
| Interest expense | | 95,571 | | | 78,524 | | | 278,811 | | | 223,872 | | | |
| Income tax expense | | 3,028 | | | 1,309 | | | 8,072 | | | 12,679 | | | |
| Depreciation and amortization | | 132,564 | | | 127,914 | | | 384,688 | | | 362,977 | | | |
Impairments (1) | | 34,640 | | | 3,107 | | | 641,592 | | | 4,294 | | | |
| Other expense | | 3 | | | 67,961 | | | 1,953 | | | 161,813 | | | |
| Less: | | | | | | | | | | |
| Gain (loss) on divestiture and other, net | | (768) | | | 248 | | | (3,651) | | | (1,403) | | | |
| Gain (loss) on early extinguishment of debt | | 1,632 | | | — | | | 10,372 | | | — | | | |
| Equity income, net – related parties | | 61,026 | | | 53,893 | | | 176,788 | | | 175,483 | | | |
| Interest income – Anadarko note receivable | | 3,286 | | | 4,225 | | | 11,736 | | | 12,675 | | | |
| Other income | | 721 | | | — | | | 2,373 | | | — | | | |
| Income tax benefit | | — | | | — | | | 4,280 | | | — | | | |
Adjusted EBITDA attributable to noncontrolling interests (2) | | 13,372 | | | 10,601 | | | 39,001 | | | 33,495 | | | |
| Adjusted EBITDA | | $ | 518,358 | | | $ | 410,213 | | | $ | 1,546,386 | | | $ | 1,271,463 | | | |
| Reconciliation of Net cash provided by operating activities to Adjusted EBITDA | | | | | | | | | | |
| Net cash provided by operating activities | | $ | 392,894 | | | $ | 340,154 | | | $ | 1,131,893 | | | $ | 1,026,685 | | | |
| Interest (income) expense, net | | 92,285 | | | 74,299 | | | 267,075 | | | 211,197 | | | |
| Uncontributed cash-based compensation awards | | — | | | 141 | | | — | | | 789 | | | |
| Accretion and amortization of long-term obligations, net | | (2,185) | | | (3,651) | | | (6,482) | | | (6,499) | | | |
| Current income tax expense (benefit) | | 1,434 | | | (407) | | | 1,399 | | | 6,078 | | | |
Other (income) expense, net (3) | | (200) | | | (495) | | | (612) | | | (1,397) | | | |
| Cash paid to settle interest-rate swaps | | 6,418 | | | — | | | 19,181 | | | — | | | |
| Distributions from equity investments in excess of cumulative earnings – related parties | | 8,410 | | | 4,151 | | | 21,750 | | | 21,203 | | | |
| Changes in assets and liabilities: | | | | | | | | | | |
| Accounts receivable, net | | (7,798) | | | 12,418 | | | 192,338 | | | 9,750 | | | |
| Accounts and imbalance payables and accrued liabilities, net | | 34,509 | | | (11,808) | | | (37,814) | | | 69,390 | | | |
| Other items, net | | 5,963 | | | 6,012 | | | (3,341) | | | (32,238) | | | |
Adjusted EBITDA attributable to noncontrolling interests (2) | | (13,372) | | | (10,601) | | | (39,001) | | | (33,495) | | | |
| Adjusted EBITDA | | $ | 518,358 | | | $ | 410,213 | | | $ | 1,546,386 | | | $ | 1,271,463 | | | |
| Cash flow information | | | | | | | | | | |
| Net cash provided by operating activities | | | | | | $ | 1,131,893 | | | $ | 1,026,685 | | | |
| Net cash used in investing activities | | | | | | (426,670) | | | (3,134,643) | | | |
| Net cash provided by (used in) financing activities | | | | | | (667,140) | | | 2,133,246 | | | |
(1)Includes goodwill impairment for the nine months ended September 30, 2020. See Note 9—Goodwill in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Three Months Ended | | Nine Months Ended | | |
| | | | | | |
| thousands | | September 30, 2021 | | June 30,
2021 | | September 30, 2021 | | September 30, 2020 | | |
| Reconciliation of Net cash provided by operating activities to Free cash flow |
| Net cash provided by operating activities | | $ | 391,333 | | | $ | 452,111 | | | $ | 1,104,994 | | | $ | 1,131,893 | | | |
| Less: | | | | | | | | | | |
| Capital expenditures | | 79,829 | | | 78,145 | | | 217,757 | | | 372,262 | | | |
| Contributions to equity investments – related parties | | 175 | | | 3,422 | | | 3,683 | | | 19,017 | | | |
| Add: | | | | | | | | | | |
| Distributions from equity investments in excess of cumulative earnings – related parties | | 8,702 | | | 9,232 | | | 30,075 | | | 21,750 | | | |
| Free cash flow | | $ | 320,031 | | | $ | 379,776 | | | $ | 913,629 | | | $ | 762,364 | | | |
| Cash flow information | | | | | | | | | | |
| Net cash provided by operating activities | | $ | 391,333 | | | $ | 452,111 | | | $ | 1,104,994 | | | $ | 1,131,893 | | | |
| Net cash used in investing activities | | (80,883) | | | (59,932) | | | (187,287) | | | (426,670) | | | |
| Net cash provided by (used in) financing activities | | (516,161) | | | (142,982) | | | (1,262,767) | | | (667,140) | | | |
| | | | | | | | | | |
(2)For all periods presented, includes (i) the 25% third-party interest in Chipeta and (ii) the 2.0% Occidental subsidiary-owned limited partner interest in WES Operating, which collectively represent WES’s noncontrolling interests.
(3)Excludes non-cash losses on interest-rate swaps of $68.3 million and $162.9 million for the three and nine months ended September 30, 2019, respectively. See Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | |
| | | | | | |
| thousands | | 2020 | | 2019 | | 2020 | | 2019 | | |
| Reconciliation of Net cash provided by operating activities to Free cash flow | | | | | | | | | | |
| Net cash provided by operating activities | | $ | 392,894 | | | $ | 340,154 | | | $ | 1,131,893 | | | $ | 1,026,685 | | | |
| Less: | | | | | | | | | | |
| Capital expenditures | | 59,197 | | | 242,841 | | | 372,262 | | | 947,266 | | | |
| Contributions to equity investments | | 2,953 | | | 30,785 | | | 19,017 | | | 108,118 | | | |
| Add: | | | | | | | | | | |
| Distributions from equity investments in excess of cumulative earnings – related parties | | 8,410 | | | 4,151 | | | 21,750 | | | 21,203 | | | |
| Free cash flow | | $ | 339,154 | | | $ | 70,679 | | | $ | 762,364 | | | $ | (7,496) | | | |
| Cash flow information | | | | | | | | | | |
| Net cash provided by operating activities | | | | | | $ | 1,131,893 | | | $ | 1,026,685 | | | |
| Net cash used in investing activities | | | | | | (426,670) | | | (3,134,643) | | | |
| Net cash provided by (used in) financing activities | | | | | | (667,140) | | | 2,133,246 | | | |
LIQUIDITY AND CAPITAL RESOURCES
Our primary cash uses include capital expenditures,quarterly distributions, debt service, customary operating expenses, quarterly distributions, and distributions to our noncontrolling interest owners.capital expenditures. Our sources of liquidity as of September 30, 2020,2021, included cash and cash equivalents, cash flows generated from operations, available borrowing capacity under the RCF, and potential issuances of additional equity or debt securities. We believe that cash flows generated from these sources will be sufficient to satisfy our short-termshort-term working capital requirements and long-term capital-expenditurelong-term capital-expenditure and debt service requirements. The amount of future distributions to unitholders will depend on our results of operations, financial condition, capital requirements, and other factors, and will be determined by the Board of Directors on a quarterly basis. We may rely on external financing sources, including equity and debt issuances, to fund capital expenditures and future acquisitions. However, we also may use operating cash flows to fund capital expenditures or acquisitions, which could result in borrowings under the RCF to pay distributions or to fund other short-termshort-term working capital requirements.
OurUnder our partnership agreement, requires that we distribute all of our available cash (as(beyond proper reserves as defined in our partnership agreement) within 55 days following each quarter’s end. Our cash flow and resulting ability to make cash distributions are completely dependent on our ability to generate cash flow from operations. Generally, our available cash is our cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves and cash on hand resulting from working capital borrowings made after the end of the quarter. The general partner establishes cash reserves to provide for the proper conduct of our business, including (i) reserves to fund future capital expenditures, (ii) to comply with applicable laws, debt instruments, or other agreements, or (iii) to provide funds for unitholder distributions for any one or more of the next four quarters. We have made cash distributions to our unitholders each quarter since our IPOinitial public offering in 2012. The Board of Directors declared a cash distribution to unitholders for the third quarter of 20202021 of $0.31100$0.32300 per unit, or $132.3$134.9 million in the aggregate. The cash distribution is payable on November 13, 2020,12, 2021, to our unitholders of record at the close of business on October 30, 2020. See Outlook within this Item 2.November 1, 2021.
In November 2020, we announced a buyback program of up to $250$250.0 million of our common units through December 31, 2021. The common units may be purchased from time to time in the open market at prevailing market prices or in privately negotiated transactions. The timing and amount of purchases under the program will be determined based on ongoing assessments of capital needs, our financial performance, the market price of the common units, and other factors, including organic growth and acquisition opportunities and general market conditions. The program does not obligate us to purchase any specific dollar amount or number of units and may be suspended or discontinued at any time. During the nine months ended September 30, 2021, we repurchased 5,586,419 common units on the open market for an aggregate purchase price of $104.4 million. We canceled the units immediately upon receipt. As of September 30, 2021, we had an authorized amount of $113.1 million remaining under the Purchase Program.
Management continuously monitors our leverage positionposition and coordinates our capital expenditures and quarterly distributions with expected cash inflows and projected debt service requirements. We will continue to evaluate funding alternatives, including additionaladditional borrowings and the issuance of debt or equity securities, to secure funds as needed or to refinance maturing debt balances with longer-termlonger-term debt issuances. Our ability to generate cash flows is subject to a number of factors, some of which are beyond our control. Read Risk Factors under Part II, Item 1A of this Form 10-Q.
Working capital. As of September 30, 2020, we had a $193.5 million working capital deficit, which we define as the amount by which current liabilities exceed current assets. Working capital is an indication of liquidity and potential needs for short-termshort-term funding. Working capital requirements are driven by changes in accounts receivable and accounts payable and other factors such as credit extended to, and the timing of collections from, our customers, and the level and timing of our spending for acquisitions, maintenance, and other capital activities. As of September 30, 2021, we had a $550.6 million working capital deficit, which we define as the amount by which current liabilities exceed current assets. Our working capital deficit was primarily due to (i) the 5.375%4.000% Senior Notes due 20212022 of $502.1 million and (ii) $220.0 million of outstanding borrowings under the RCF being classified as short-term debt on the consolidated balance sheet as of September 30, 2020.2021. As of September 30, 2020,2021, there was $2.0$1.8 billion available for borrowing under the RCF. See Note 10—Selected Components of Working Capital and Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Capital expenditures. Our business is capital intensive, requiring significant investment to maintain and improve existing facilities or to develop new midstream infrastructure. Capital expenditures includes maintenance capital expenditures, which include those expenditures required to maintain existing operating capacity and service capability of our assets, such as to replace system components and equipment that have been subject to significant use over time, become obsolete, or reached the end of their useful lives, to remain in compliance with regulatory or legal requirements, or to complete additional well connections to maintain existing system throughput and related cash flows; and expansion capital expenditures, which include expenditures to construct new midstream infrastructure and expenditures incurred to extend the useful lives of our assets, reduce costs, increase revenues, or increase system throughput or capacity from current levels, including well connections that increase existing system throughput.
Capital expenditures in the consolidated statements of cash flows reflect capital expenditures on a cash basis, when payments are made. Capital incurred is presented on an accrual basis. Acquisitions and capitalCapital expenditures as presented in the consolidated statements of cash flows and capital incurred were as follows:
| | | Nine Months Ended
September 30, | | Nine Months Ended
September 30, |
| | thousands | thousands | | 2020 | | 2019 | | thousands | | 2021 | | 2020 | |
| Acquisitions | | $ | — | | | $ | 2,100,804 | | | |
| Capital expenditures (1) | Capital expenditures (1) | | 372,262 | | | 947,266 | | | Capital expenditures (1) | | $ | 217,757 | | | $ | 372,262 | | |
Capital incurred (1) | Capital incurred (1) | | 251,315 | | | 826,713 | | | Capital incurred (1) | | 224,080 | | | 251,315 | | |
(1)For the nine months ended September 30, 2021 and 2020, and 2019, included $6.1$2.6 million and $16.1$6.1 million, respectively, of capitalized interest.
Acquisitions during 2019 included AMA and the 30% interest in Red Bluff Express. See Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Capital expenditures decreased by $575.0$154.5 million for the nine months ended September 30, 2020,2021, primarily due to decreases of (i) $267.0$66.8 million at the West Texas complex primarily attributable to decreases in facility expansion and pipeline projects, (ii) $41.0 million at the DJ Basin complex primarily related to the completion of Latham Trains I and II that commenced operations in November 2019 and February 2020, respectively, (ii) $135.5 million at the West Texas complex primarily related to the completion of Mentone Train II that commenced operations in March 2019,the first quarter of 2020, and decreases in pipeline, well connection, and compression projects, (iii) $82.4$19.5 million at the DBM oil system primarily related to the completion of the Loving ROTF TrainTrains III and IV that commenced operations during the first and third quarters of 2020, respectively, and decreases in January 2020,pipeline and well connection projects, and (iv) $67.1$11.0 million at the DBM water systems primarily relateddue to reduced construction of additional water-disposal facilities.
water
Historical cash flow. The following table and discussion present a summary of our net cash flows provided by (used in) operating, investing, and financing activities:
| | | Nine Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | thousands | thousands | | 2020 | | 2019 | | thousands | | 2021 | | 2020 | |
| Net cash provided by (used in): | Net cash provided by (used in): | | | | | | Net cash provided by (used in): | | | | | |
| Operating activities | Operating activities | | $ | 1,131,893 | | | $ | 1,026,685 | | | Operating activities | | $ | 1,104,994 | | | $ | 1,131,893 | | |
| Investing activities | Investing activities | | (426,670) | | | (3,134,643) | | | Investing activities | | (187,287) | | | (426,670) | | |
| Financing activities | Financing activities | | (667,140) | | | 2,133,246 | | | Financing activities | | (1,262,767) | | | (667,140) | | |
| Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | | $ | 38,083 | | | $ | 25,288 | | | Net increase (decrease) in cash and cash equivalents | | $ | (345,060) | | | $ | 38,083 | | |
Operating Activitiesactivities. Net cash provided by operating activities increaseddecreased for the nine months ended September 30, 2020,2021, primarily due to higher(i) lower cash operating income, (ii) lower distributions from equity investments, (iii) lower interest income, and (iv) higher interest expense. These decreases were offset partially by (i) higher interest expense, (ii) cash paid to settle interest-rate swaps, and (iii) the impact of changes in assets and liabilities includingand (ii) cash paid during the timing of $74.8 millionof related-party cash receipts included in thenine months ended September 30, 2020, Accounts receivable, net balance we received by October 7, 2020.to settle interest-rate swaps. Refer to Operating Results within this Item 2 for a discussion of our results of operations as compared to the prior periods.period.
Investing Activitiesactivities. Net cash used in investing activities for the nine months ended September 30, 2021, included the following:
•$217.8 million of capital expenditures, primarily related to construction, expansion, and asset-integrity projects at the West Texas complex, DBM water systems, DJ Basin complex, and DBM oil system;
•$3.7 million of capital contributions primarily paid to Cactus II;
•$2.0 million of purchases from related parties;
•$30.1 million of distributions received from equity investments in excess of cumulative earnings; and
•$8.0 million related to the sale of the Bison treating facility.
Net cash used in investing activities for the nine months ended September 30, 2020, included the following:
•$372.3 million of capital expenditures, primarily related to construction and expansion at the West Texas and DJ Basin complexes, DBM water systems, and DBM oil system;
•$57.1 million of additionsincreases to materials and supplies inventory;
•$19.0 million of capital contributions primarily paid to Cactus II and FRP for construction activities; and
•$21.8 million of distributions received from equity investments in excess of cumulative earnings.
Financing activities. Net cash used in investingfinancing activities for the nine months ended September 30, 2019,2021, included the following:
•$2.0 billion of cash paid for the acquisition of AMA;
•$947.3521.9 million to purchase and retire portions of capital expenditures, primarily related to construction and expansion at the DBM oil and DBM water systems and the West Texas and DJ Basin complexes;certain of WES Operating’s senior notes via a tender offer;
•$108.1431.1 million to redeem the total principal amount outstanding of capital contributions primarily paid to Cactus II, the TEFR Interests, Whitethorn LLC, Red Bluff Express, and White Cliffs for construction activities;WES Operating’s 5.375% Senior Notes due 2021;
•$92.5398.9 million of cashdistributions paid to WES unitholders;
•$180.0 million of repayments of outstanding borrowings under the RCF;
•$104.4 million of unit repurchases;
•$11.8 million of decreases in outstanding checks due mostly to ad valorem tax payments made at the end of 2020;
•$9.9 million of distributions paid to the noncontrolling interest owner of WES Operating;
•$5.3 million of finance lease payments;
•$2.7 million of distributions paid to the noncontrolling interest owner of Chipeta;
•$400.0 million of borrowings under the RCF, which were used for the acquisitiongeneral partnership purposes and to purchase and retire portions of our interest in Red Bluff Express;certain of WES Operating’s senior notes via a tender offer; and
•$21.26.7 million of distributions receivedcontributions from equity investments in excess of cumulative earnings.related parties.
Financing Activities. Net cash used in financing activities for the nine months ended September 30, 2020, included the following:
•$3.0 billion of repayments of outstanding borrowings under the Term loan facility;
•$600.0 million of repayments of outstanding borrowings under the RCF;
•$563.6 million of distributions paid to WES unitholders;
•$180.4 million to purchase and retire portions of WES Operating’s 5.375% Senior Notes due 2021, 4.000% Senior Notes due 2022, and Floating-Rate Senior Notes via open-marketopen-market repurchases;
•$12.2 million of finance lease payments;
•$11.5 million of distributions paid to the noncontrolling interest ownersowner of WES Operating;
•$3.9 million of distributions paid to the noncontrolling interest owner of Chipeta;
•$3.5 billion of net proceeds from the Fixed-RateFixed-Rate Senior Notes and Floating-RateFloating-Rate Senior Notes issued in January 2020, which were used to repay the $3.0 billion outstanding borrowings under the Term loan facility, repay outstanding amounts under the RCF, and for general partnership purposes;
•$220.0 million of borrowings under the RCF, which were used for general partnership purposes, including the funding of capital expenditures;purposes; and
•$20.0 million of a one-timeone-time cash contribution from Occidental received in January 2020, pursuant to the Services Agreement, for anticipated transition costs required to establish stand-alonestand-alone human resources and information technology functions.
Net cash provided by financing activities for the nine months ended September 30, 2019, included the following:
•$3.0 billion of borrowings under the Term loan facility, net of issuance costs, which were used to fund the acquisition of AMA, to repay the APCWH Note Payable, and to repay amounts outstanding under the RCF;
•$940.0 million of borrowings under the RCF, which were used for general partnership purposes, including the funding of capital expenditures;
•$458.8 million of net contributions from Anadarko representing intercompany transactions attributable to the acquisition of AMA;
•$11.0 million of borrowings under the APCWH Note Payable, which were used to fund the construction of the DBM water systems;
•$7.4 million of capital contributions from Anadarko related to the above-market component of swap agreements;
•$1.0 billion of repayments of outstanding borrowings under the RCF;
•$688.2 million of distributions paid to WES unitholders;
•$439.6 million of repayments of the total outstanding balance under the APCWH Note Payable;
•$112.4 million of distributions paid to the noncontrolling interest owners of WES Operating;
•$28.0 million of repayments of the total outstanding balance under the WGP RCF, which matured in March 2019; and
•$5.2 million of distributions paid to the noncontrolling interest owner of Chipeta.
Debt and credit facilities. As of September 30, 2020,2021, the carrying value of outstanding debt was $7.9$7.1 billion. See Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
WES Operating Senior Notes. In mid-January 2020, WES Operating issued the following notes:
•FixedFixed-Rate-Rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050 offered toand the public at prices of 99.962%, 99.900%, and 99.442%, respectively, of the face amount.Floating-Rate Senior Notes due 2023. Including the effects of the issuance prices, underwriting discounts, and interest-rateinterest-rate adjustments, (described below), the effective interest rates of the Senior Notes due 2025, 2030, and 2050, were 4.291%4.542%, 5.173%5.424%, and 6.375%6.629%, respectively, at September 30, 2020, and 3.287%, 4.168%, and 5.362%, respectively, at June 30, 2020. Interest is paid on each such series semi-annually on February 1 and August 1 of each year, beginning August 1, 2020; and
•Floating-Rate Senior Notes due 2023. As of September 30, 2020, the2021. The interest rate on the Floating-RateFloating-Rate Senior Notes was 2.12%. Interest is paid quarterly in arrears on January 13, April 13, July 13, and October 132.23% at September 30, 2021. The effective interest rate of each year. Interest is determined at a benchmark rate (which is initially a three-month LIBOR rate) on the interest determination date plus 0.85%.
Net proceeds from the Fixed-Rate Senior Notes and Floating-Rate Senior Notes were used to repay the $3.0 billion in outstanding borrowings under the Term loan facility and outstanding amounts under the RCF, and for general partnership purposes. The interest payable on each of the Fixed-Rate Senior Notes and Floating-Rate Senior Notesthese notes is subject to adjustment from time to time if thedue to a change in credit rating assignedrating. In August 2021, Standard and Poor’s (“S&P”) upgraded WES Operating’s long-term debt from “BB” to such notes declines below certain specified levels or if credit-rating downgrades are subsequently followed by credit-rating upgrades.“BB+.” As a result of credit-rating downgrades received from Fitch,the S&P and Moody’s,upgrade, annualized borrowing costs will increasedecrease by $34.6$7.9 million. See Outlook within this Item 2.
During the three and nine months ended September 30, 2020,third quarter of 2021, WES Operating purchased and retired $29.0$500.0 million and $193.5 million, respectively, of certain of its senior notes and Floating-Rate Senior Notes via open-market repurchases.a tender offer. For the three and nine months ended September 30, 2020, gains2021, losses of $1.7$24.7 million and $12.7 million, respectively, were recognized for the early retirement of these notes.
As During the first quarter of September 30, 2020,2021, WES Operating redeemed the total principal amount outstanding of the 5.375% Senior Notes due 2021 at par value, pursuant to the optional redemption terms in WES Operating’s indenture.
As of September 30, 2021, the 4.000% Senior Notes due 2022 were classified as short-term debt on the consolidated balance sheet. At September 30, 2020,2021, WES Operating was in compliance with all covenants under the relevant governing indentures.
We may, from time to time, seek to retire, rearrange, or amend some or all of our outstanding debt or debt agreements through cash purchases, exchanges, open-marketopen-market repurchases, privately negotiated transactions, tender offers, or otherwise. Such transactions, if any, will depend on prevailing market conditions, our liquidity position and requirements, contractual restrictions, and other factors. The amounts involved may be material.
WGP RCF. The WGP RCF, which previously was available to purchase WES Operating common units and for general partnership purposes, matured in March 2019 and the $28.0 million of outstanding borrowings were repaid.
Revolving credit facility.In December 2019, WES Operating entered into an amendment to the RCF, whichOperating’s $2.0 billion senior unsecured revolving credit facility is expandable to a maximum of $2.5 billion, to, among other things, exercise the final one-year extension option to extend the maturity date of the RCF from February 2024 toand matures in February 2025 for each extending lender. The maturity date with respect to each non-extending lender, whosenon-extending lender’s commitments mature in February 2024 and represent $100.0 million out of $2.0 billion of total commitments from all lenders, remains February 2024. See Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.lenders.
As of September 30, 2020,2021, there were no$220.0 million of outstanding borrowings and $5.0$5.1 million of outstanding letters of credit, resulting in $2.0$1.8 billion of available borrowing capacity under the RCF. At September 30, 2020,2021, the interest rate on any outstanding RCF borrowings was 1.65%1.58% and the facility-feefacility-fee rate was 0.25%. At September 30, 2020, WES Operating was in compliance with all covenants under the RCF. As a result of credit-rating downgrades received from Fitch and S&P, beginning in the second quarter of 2020, the interest rate on our outstanding RCF borrowings increased by 0.20% and the RCF facility-fee rate increased by 0.05%, from 0.20% to 0.25%. See Outlook within this Item 2.
The RCF contains certain covenants that limit, among other things, WES Operating’s ability, and that of certain of its subsidiaries, to incur additional indebtedness, grant certain liens, merge, consolidate, or allow any material change in the character of its business, enter into certain related-partyrelated-party transactions and use proceeds other than for partnership purposes. The RCF also contains various customary covenants, certain events of default, and a maximum consolidated leverage ratio as of the end of each fiscal quarter (which is defined as the ratio of consolidated indebtedness as of the last day of a fiscal quarter to Consolidated Earnings Before Interest, Taxes, Depreciation, and AmortizationEBITDA for the most-recent four-consecutivemost-recent four-consecutive fiscal quarters ending on such day) of 5.0 to 1.0, or a consolidated leverage ratio of 5.5 to 1.0 with respect to quarters ending in the 270-day270-day period immediately following certain acquisitions. As a result of certain covenants contained in the RCF, our capacity to borrow under the RCF may be limited. See Outlook within this Item 2.
Term loan facility.In December 2018,At September 30, 2021, WES Operating entered into the Term loan facility, the proceeds from which were used to fund substantiallywas in compliance with all of the cash portion of the considerationcovenants under the Merger Agreement andRCF. Any outstanding RCF borrowings are classified as short-term debt on the payment of related transaction costs (see Note 1—Description of Business and Basis of Presentation inconsolidated balance sheet due to management’s intent to repay within the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q). In January 2020, WES Operating repaid the outstanding borrowings with proceeds from the issuance of the Fixed-Rate Senior Notes and Floating-Rate Senior Notes and terminated the Term loan facility. During the first quarter of 2020, a loss of $2.3 million was recognized for the early termination of the Term loan facility. See Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.next twelve months.
Finance lease liabilities. WES subleased equipment from Occidental via finance leases through April 2020. During the first quarter of 2020, WES entered into finance leases with third parties for equipment and vehicles extending through 2029, with2029. Certain equipment leases were amended during the third quarter of 2021 requiring reassessment of lease classification. As a result, these leases are now classified as operating leases resulting in a reduction of $19.6 million in Net property, plant, and equipment and $20.3 million in Short-term and Long-term debt. The operating leases resulted in additions of $4.8 million in Other assets, $3.1 million in Accrued liabilities, and $2.4 million in Other liabilities, on the consolidated balance sheet. As of September 30, 2021, we have future lease payments of $39.0$1.3 million asfor the remainder of September 30, 2020.
APCWH Note Payable. In June 2017,2021 and a total of $5.4 million in connection with funding the construction of the APC water systems that were acquired as part of the AMA acquisition, APCWH entered into an eight-year note payable agreement with Anadarko. This note payable had a maximum borrowing limit of $500.0 million, including accrued interest. The APCWH Note Payable was repaid at Merger completion. See years thereafter.Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Interest-rate swaps. In December 2018 and March 2019, WES Operating entered into interest-rate swap agreements with an aggregate notional principal amount of $750.0 million and $375.0 million, respectively, to manage interest-rate risk associated with anticipated debt issuances. In November and December 2019, WES Operating entered into additional interest-rate swap agreements with an aggregate notional principal amount of $1,125.0 million, effectively offsetting the swap agreements entered into in December 2018 and March 2019.
In December 2019, all outstanding interest-rate swap agreements were settled. As part of the settlement, WES Operating made cash payments of $107.7 million and recorded an accrued liability of $25.6 million to be paid quarterly in 2020. For the nine months ended September 30, 2020, WES Operating made cash payments of $19.2 million. These cash payments were classified as cash flows from operating activities in the consolidated statements of cash flows.
Credit risk. We bear credit risk through exposure to non-paymentnon-payment or non-performancenon-performance by our counterparties, including Occidental, financial institutions, customers, and other parties. Generally, non-paymentnon-payment or non-performancenon-performance results from a customer’s inability to satisfy payables to us for services rendered, minimum-volume-commitmentminimum-volume-commitment deficiency payments owed, or volumes owed pursuant to gas-imbalancegas-imbalance agreements. We examine and monitor the creditworthiness of customers and may establish credit limits for customers. A substantial portion of our throughput is sourced from producers, including Occidental, that recently received credit-ratingcredit-rating downgrades. We are subject to the risk of non-paymentnon-payment or late payment by producers for gathering, processing, transportation, and disposal fees. We also depend on Occidental to remit payments to us for the value of volumes of residue gas, NGLs, crude oil, and condensate that it markets on our behalf under our Marketing Transition Services Agreement. Additionally, we continue to evaluate counterparty credit risk and, in certain circumstances, are exercising our rights to request adequate assurance.
We expect our exposure to the concentrated risk of non-paymentnon-payment or non-performancenon-performance to continue for as long as our commercial relationships with Occidental generate a significant portion of our revenues. While Occidental is our contracting counterparty, gathering and processing arrangements with affiliates of Occidental on most of our systems include not just Occidental-produced volumes, but also, in some instances, the volumes of other working-interest owners of Occidental who rely on our facilities and infrastructure to bring their volumes to market. We also are party to agreements with Occidental under which Occidental is required to indemnify us for certain environmental claims, losses arising from rights-of-wayrights-of-way claims, failures to obtain required consents or governmental permits, and income taxes with respect to the assets previously acquired from Anadarko. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Our ability to make cash distributions to our unitholders may be adversely impacted if Occidental becomes unable to perform under the terms of gathering, processing, transportation, and disposal agreements; commodity purchase and sale agreements; the contribution agreements; or the December 2019 Agreements (see Executive Summary—December 2019 Agreements within this Item 2).Services Agreement.
ITEMS AFFECTING THE COMPARABILITY OF FINANCIAL RESULTS WITH WES OPERATING
Our consolidated financial statements include the consolidated financial results of WES Operating. Our results of operations do not differ materially from the results of operations and cash flows of WES Operating, which are reconciled below.
Reconciliation of net income (loss). The differences between net income (loss) attributable to WES and WES Operating are reconciled as follows:
| | | | | Three Months Ended | | Nine Months Ended |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | |
| thousands | thousands | | 2020 | | 2019 | | 2020 | | 2019 | | thousands | | September 30, 2021 | | June 30,
2021 | | September 30, 2021 | | September 30, 2020 | |
| Net income (loss) attributable to WES | Net income (loss) attributable to WES | | $ | 246,611 | | | $ | 121,217 | | | $ | 263,121 | | | $ | 409,471 | | | Net income (loss) attributable to WES | | $ | 255,725 | | | $ | 231,259 | | | $ | 672,775 | | | $ | 263,121 | | |
Limited partner interests in WES Operating not held by WES (1) | Limited partner interests in WES Operating not held by WES (1) | | 5,036 | | | 2,509 | | | 5,426 | | | 97,471 | | | Limited partner interests in WES Operating not held by WES (1) | | 5,214 | | | 4,754 | | | 13,779 | | | 5,426 | | |
General and administrative expenses (2) | General and administrative expenses (2) | | 95 | | | 1,697 | | | 2,683 | | | 5,907 | | | General and administrative expenses (2) | | (280) | | | 1,600 | | | 2,206 | | | 2,683 | | |
| Other income (expense), net | Other income (expense), net | | (2) | | | (8) | | | (6) | | | (71) | | | Other income (expense), net | | (4) | | | (2) | | | (9) | | | (6) | | |
| | Interest expense | | — | | | — | | | — | | | 245 | | | |
| Income taxes | | Income taxes | | 3 | | | — | | | 3 | | | — | | |
| Net income (loss) attributable to WES Operating | Net income (loss) attributable to WES Operating | | $ | 251,740 | | | $ | 125,415 | | | $ | 271,224 | | | $ | 513,023 | | | Net income (loss) attributable to WES Operating | | $ | 260,658 | | | $ | 237,611 | | | $ | 688,754 | | | $ | 271,224 | | |
(1)Represents the portion of net income (loss) allocated to the limited partner interests in WES Operating not held by WES. A subsidiary of Occidental held a 2.0% limited partner interest in WES Operating as of September 30, 2020 and 2019. Immediately prior to the Merger closing, the WES Operating IDRs and the general partner units were converted into a non-economic general partner interest in WES Operating and WES Operating common units, and at Merger completion,for all WES Operating common units held by the public and subsidiaries of Anadarko (other than common units held by WES, WES Operating GP, and 6.4 million common units held by a subsidiary of Anadarko) were converted into WES common units. See Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.periods presented.
(2)Represents general and administrative expenses incurred by WES separate from, and in addition to, those incurred by WES Operating.
Reconciliation of net cash provided by (used in) operating and financing activities. The differences between net cash provided by (used in) operating and financing activities for WES and WES Operating are reconciled as follows:
| | | | Nine Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| thousands | thousands | | 2020 | | 2019 | | thousands | | 2021 | | 2020 | |
| WES net cash provided by operating activities | WES net cash provided by operating activities | | $ | 1,131,893 | | | $ | 1,026,685 | | | WES net cash provided by operating activities | | $ | 1,104,994 | | | $ | 1,131,893 | | |
| General and administrative expenses (1) | General and administrative expenses (1) | | 2,683 | | | 5,907 | | | General and administrative expenses (1) | | 2,206 | | | 2,683 | | |
| Non-cash equity-based compensation expense | | (5,372) | | | (1,255) | | | |
Non-cash equity-based compensation expense | | Non-cash equity-based compensation expense | | 7,040 | | | (5,372) | | |
| Changes in working capital | Changes in working capital | | 4,774 | | | 638 | | | Changes in working capital | | (10,045) | | | 4,774 | | |
| Other income (expense), net | Other income (expense), net | | (6) | | | (71) | | | Other income (expense), net | | (9) | | | (6) | | |
| Income taxes | | Income taxes | | 3 | | | — | | |
| | Interest expense | | — | | | 245 | | | |
| Debt related amortization and other items, net | | — | | | (20) | | | |
| | WES Operating net cash provided by operating activities | WES Operating net cash provided by operating activities | | $ | 1,133,972 | | | $ | 1,032,129 | | | WES Operating net cash provided by operating activities | | $ | 1,104,189 | | | $ | 1,133,972 | | |
| | WES net cash provided by (used in) financing activities | WES net cash provided by (used in) financing activities | | $ | (667,140) | | | $ | 2,133,246 | | | WES net cash provided by (used in) financing activities | | $ | (1,262,767) | | | $ | (667,140) | | |
Distributions to WES unitholders (2) | Distributions to WES unitholders (2) | | 563,579 | | | 688,193 | | | Distributions to WES unitholders (2) | | 398,896 | | | 563,579 | | |
Distributions to WES from WES Operating (3) | Distributions to WES from WES Operating (3) | | (565,577) | | | (722,282) | | | Distributions to WES from WES Operating (3) | | (486,621) | | | (565,577) | | |
| Increase (decrease) in outstanding checks | Increase (decrease) in outstanding checks | | 316 | | | — | | | Increase (decrease) in outstanding checks | | 58 | | | 316 | | |
| Registration expenses related to the issuance of WES common units | | — | | | 855 | | | |
| Unit repurchases | | Unit repurchases | | 104,366 | | | — | | |
| Other | | Other | | 3,492 | | | — | | |
| | WGP RCF repayments | | — | | | 28,000 | | | |
| | WES Operating net cash provided by (used in) financing activities | WES Operating net cash provided by (used in) financing activities | | $ | (668,822) | | | $ | 2,128,012 | | | WES Operating net cash provided by (used in) financing activities | | $ | (1,242,576) | | | $ | (668,822) | | |
(1)Represents general and administrative expenses incurred by WES separate from, and in addition to, those incurred by WES Operating.
(2)Represents distributions to WES common unitholders paid under WES’s partnership agreement. See Note 4—Partnership Distributions and Note 5—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(3)Difference attributable to elimination in consolidation of WES Operating’s distributions on partnership interests owned by WES. See Note 4—Partnership Distributions and Note 5—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Noncontrolling interest. WES Operating’s noncontrolling interest consists of the 25% third-partythird-party interest in Chipeta (seeChipeta. See Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).10-Q.
WES Operating distributions. WES Operating distributes all of its available cash (as defined in its partnership agreement)on a quarterly basis to WES Operating unitholders in proportion to their share of record on the applicable record date within 45 days following each quarter’s end. For the quarters ended March 31, 2019, June 30, 2019, September 30, 2019, and December 31, 2019,limited partner interests in WES Operating distributed $283.3 million, $288.1 million, $289.7 million, and $290.3 million, respectively, to its limited partners. For each quarter ended March 31, 2020, and June 30, 2020, WES Operating distributed $143.4 million to its limited partners. For the quarter ended September 30, 2020, WES Operating will distribute $143.4 million to its limited partners.Operating. See Note 5—Equity and Partners’ Capital4—Partnership Distributions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial statements in accordance with GAAP requires management to make informed judgments and estimates that affect the amounts of assets and liabilities as of the date of the financial statements and the amounts of revenues and expenses recognized during the periods reported. There have been no significant changes to our critical accounting estimates from those disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2020.
CONTRACTUAL OBLIGATIONS
Our contractual obligations include, among other things, a revolving credit facility, other third-party long-term debt, capital obligations related to expansion projects, and various operating and finance leases. Refer to Note 11—Debt and Interest Expense and Note 12—Commitments and Contingencies in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for an update to contractual obligations as of September 30, 2020.
OFF-BALANCE-SHEET ARRANGEMENTS
We do not have any off-balance-sheet arrangements other than short-term operating leases and standby letters of credit. We have entered into short-term operating leases for vehicles and equipment with third parties as lessor. For information on standby letters of credit, see Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
RECENT ACCOUNTING DEVELOPMENTS
See Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Commodity-price risk. Certain of our processing services are provided under percent-of-proceedspercent-of-proceeds and keep-whole agreements for which Occidental is typically responsible for the marketing of the natural gas, condensate, and NGLs.keep-whole agreements. Under percent-of-proceedspercent-of-proceeds agreements, we receive a specified percentage of the net proceeds from the sale of residue and/or NGLs. Under keep-wholekeep-whole agreements, we keep 100% of the NGLs produced, and the processed natural gas, or value of the natural gas, is returned to the producer, and because some of the gas is used and removed during processing, we compensate the producer for the amount of gas used and removed in processing by supplying additional gas or by paying an agreed-uponagreed-upon value for the gas used.
For the nine months ended September 30, 2020, 93%2021, 92% of our wellhead natural-gasnatural-gas volume (excluding equity investments) and 100% of our crude-oilcrude-oil and produced-waterproduced-water throughput (excluding equity investments) were serviced under fee-basedfee-based contracts. A 10% increase or decrease in commodity prices would not have a material impact on our operating income (loss), financial condition, or cash flows for the next twelve months, excluding the effect of the below-describedbelow-described imbalances.
We bear a limited degree of commodity-pricecommodity-price risk with respect to settlement of natural-gasnatural-gas imbalances that arise from differences in gas volumes received into our systems and gas volumes delivered by us to customers, and for instances where actual liquids recovery or fuel usage varies from contractually stipulated amounts. Natural-gasNatural-gas volumes owed to or by us that are subject to monthly cash settlement are valued according to the terms of the contract as of the balance sheet dates and generally reflect market-indexmarket-index prices. Other natural-gasnatural-gas volumes owed to or by us are valued at our weighted-averageweighted-average cost of natural gas as of the balance sheet dates and are settled in-kind.in-kind. Our exposure to the impact of changes in commodity prices on outstanding imbalances depends on the settlement timing of the imbalances. See Outlook under Part I, Item 2 and Risk Factors under Part II, Item 1A of this Form 10-Q.
Interest-rate risk. The Federal Open Market Committee decreased its target range for the federal funds rate three times during 2019twice in 2020 and has decreased itsas of September 30, 2021, there have been no changes to the target range twice in 2020.2021. Any future increases in the federal funds rate likely will result in an increase in short-termshort-term financing costs. As of September 30, 2020,2021, we had (i) no$220.0 million outstanding borrowings under the RCF that bear interest at a rate based on LIBOR or an alternative base rate at WES Operating’s option, and (ii) the Floating-RateFloating-Rate Senior Notes that bear interest at a rate based on LIBOR. While a 10% change in the applicable benchmark interest rate would not materially impact interest expense on our outstanding borrowings, it would impact the fair value of the senior notes at September 30, 2020. See Outlook under Part I, Item 2 and Risk Factors under Part II, Item 1A of this Form 10-Q.2021.
Additional variable-ratevariable-rate debt may be issued in the future, either under the RCF or other financing sources, including commercial bank borrowings or debt issuances.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief Financial Officer of WES’s general partner and WES Operating GP (for purposes of this Item 4, “Management”) performed an evaluation of WES’s and WES Operating’s disclosure controls and procedures as defined in Rules 13a-15(e)13a-15(e) and 15d-15(e)15d-15(e) of the Exchange Act. WES’s and WES Operating’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed in the reports that are filed or submitted under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, Management concluded that WES’s and WES Operating’s disclosure controls and procedures were effective as of September 30, 2020.2021.
Changes in Internal Control Over Financial Reporting. Except as described below, thereThere were no changes in WES’s or WES Operating’s internal control over financial reporting during the quarter ended September 30, 2020,2021, that have materially affected, or are reasonably likely to materially affect, WES’s or WES Operating’s internal control over financial reporting.
In October 2020, WES and WES Operating transitioned from Occidental’s Enterprise Resource Planning (“ERP”) system to a stand-alone ERP system. As a result of this implementation, certain processes and internal controls over financial reporting that were provided by Occidental under the Services Agreement have transitioned to WES. Information technology general controls and associated business process controls have been implemented by WES to address the new environment associated with the implementation of this system. There are inherent risks in implementing any new system and Management will continue to evaluate these control changes as part of its assessment of internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 1, 2020, the U.S. Department of Justice, on behalf of the U.S. Environmental Protection Agency (the “EPA”), and the State of Colorado commenced an enforcement action in the United States District Court for the District of Colorado against Kerr-McGeeKerr-McGee Gathering LLC (“KMG”), a wholly owned subsidiary of WES, for alleged non-compliancenon-compliance with the leak detection and repair requirements of the federal Clean Air Act (“LDAR requirements”) at its Fort Lupton facility in the DJ Basin complex. KMG previously had been in negotiations with the EPA and the State of Colorado to resolve the alleged non-compliancenon-compliance at the Fort Lupton facility. Per the complaint, plaintiffs pray for injunctive relief, remedial action, and civil penalties. Management cannot reasonably estimate the outcome of this action at this time.
WGR Operating, LP (“WGR”), another wholly owned subsidiary of WES, finalized negotiations and agreed to a consent decree with the State of Wyoming with respect to alleged non-compliance with LDAR requirements at its Granger, Wyoming facility. The consent decree has been filed with the Wyoming court, and WGR has timely paid a $100,000 fine to the State of Wyoming.
On August 12, 2019, Sanchez Energy Corporation and certain of its affiliated companies (collectively, “Sanchez”) filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas. While Sanchez holds a working interest in the acreage dedicated to our Springfield system, Sanchez also was the upstream operator for substantially all of the natural gas, crude oil, and NGLs that the Springfield system gathers and that WES processes in the Eagle Ford Shale Play. On April 29, 2020, we received notice that Sanchez filed a motion to reject a number of midstream and downstream agreements with commercial counterparties, including Sanchez’s Springfield gathering agreements and agreements obligating Sanchez to deliver the gas volumes gathered by the Springfield system to our Brasada processing plant. We do not believe the Springfield gatheringobjected to Sanchez’s rejection and related agreements are eligible for rejection as a matter of law, and we have therefore filed both an objection to the proposed rejection, andinstituted an adversary proceeding for a declaratory judgmentregarding such rejection. On May 6, 2021, the Bankruptcy Court issued an opinion determining, among other things, that Sanchez’s Springfield gathering agreements were rejected, but that such agreements may not be rejected.
contain covenants running with the land that survive rejection, thus preserving the acreage dedication to our Springfield system. We intend to continue defending our contractual rights in the bankruptcy proceeding and any other appropriate venue. On May 15, 2020, Gavilan Resources LLC (“Gavilan”), an entity that owns a 25% working interest in the acreage where the Springfield gathering system and Brasada processing plant are located, also filed for Chapter 11 bankruptcy protection. As a part of this bankruptcy, Mesquite Energy, Inc. (the successor to Sanchez) (“Mesquite”) purchased Gavilan’s assets at auction. Gavilan did not assume and assign its agreements with Springfield as part of its asset sale. Instead, the assets sold to Mesquite remain subject to any covenants, servitudes, or similar agreements that could be equitable servitudes or covenants running with the land, pending a further order of the bankruptcy court. As with
The parties to the Sanchez agreements,and Gavilan proceedings discussed above are currently working toward a comprehensive legal and commercial settlement of the matters in dispute. Nevertheless, we do not believe Gavilan’s agreements may be rejected or left behind and believe they should remain attached to the Gavilan assets.
We cannot make any assurances regarding the ultimate outcome of these negotiations or the Sanchez and Gavilan proceedings themselves, and theirany resulting impact on WES due to the uncertainties associated with the bankruptcyongoing process.
On October 29, 2020, WGR Operating, LP (“WGR”), on behalf of itself and derivatively on behalf of Mont Belvieu JV, filed suit against Enterprise Products Operating, LLC (“Enterprise”) and Mont Belvieu JV (as a nominal defendant) in the District Court of Harris County, Texas. Our lawsuit seeks a declaratory judgment regarding proper revenue allocation as set forth in the Operating Agreement between Mont Belvieu JV (of which WGR is a 25% owner) and Enterprise (the “Operating Agreement”) related to fractionation trains at the Mont Belvieu complex in Chambers County, Texas. Specifically, the Operating Agreement sets forth a revenue allocation structure, whereby revenue would be allocated to the various fracs at the Mont Belvieu complex in sequential order, with Fracs VII and VIII (which are owned by Mont Belvieu JV) following Fracs I through VI, but preceding any “Later Frac Facilities.” Subsequent to the construction of Fracs VII and VIII, Enterprise built Fracs IX, X, and XI, which it wholly owns, and has signaled its intention to treat such subsequent fracs as outside the Mont Belvieu revenue allocation. We do not believe Enterprise’s attempt to bypass the agreed-toagreed-to revenue allocation is proper under the parties’ agreements and now seek judicial determination. We currently sue only for declaratory judgment to avoid potential future damages. We cannot make any assurances regarding the ultimate outcome of this proceeding and its resulting impact on WGR or WES.
Except as discussed above, we are not a party to any legal, regulatory, or administrative proceedings other than proceedings arising in the ordinary course of business. Management believes that there are no such proceedings for which a final disposition could have a material adverse effect on results of operations, cash flows, or financial condition, or for which disclosure is otherwise required by Item 103 of Regulation S-K.S-K.
Item 1A. Risk Factors
Security holders and potential investors in our securities should carefully consider the risk factors included below and those set forth under Part I, Item 1A in our Form 10-K10-K for the year ended December 31, 2019,2020, together with all of the other information included in this document, and in our other public filings, press releases, and public discussions with management. In addition to the risk factors described below, to the extent the COVID-19 pandemic adversely affects our business and financial results, it also may exacerbate many of the risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019, such as those relating to our need to generate sufficient cash flows to service our indebtedness.
Additionally, for a full discussion of the risks associated with Occidental’s business, see Item 1A under Part I in Occidental’s Form 10-K10-K for the year ended December 31, 2019,2020, Occidental’s quarterly reports on Form 10-Q10-Q and Occidental’s other public filings, press releases, and public discussions with Occidental management. We have identified the below risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-lookingforward-looking statements made by us or on our behalf.
Because we are dependent on Occidental as our largest customer and the owner of our general partner, any development that materially and adversely affects Occidental’s operations, financial condition, or market reputation could have a material and adverse impact on us. Material adverse changes at Occidental could restrict our access to capital, make it more expensive to access the capital markets, or increase the costs of our borrowings.
We are dependent on Occidental as our largest customer and the owner of our general partner, and we expect to derive significant revenue from Occidental for the foreseeable future. As a result, any event, whether in our area of operations or otherwise, that adversely affects Occidental’s production, financial condition, leverage, market reputation, liquidity, results of operations, or cash flows may adversely affect our revenues and cash available for distribution. Accordingly, we are indirectly subject to the business risks of Occidental, including, but not limited to, the volatility of oil and natural-gas prices, the availability of capital on favorable terms to fund Occidental’s exploration and development activities, the political and economic uncertainties associated with Occidental’s foreign operations, transportation-capacity constraints, and shareholder activism.
Further, we are subject to the risk of non-payment or non-performance by Occidental, including with respect to our gathering and transportation agreements. For example, we are currently involved in a dispute with Occidental regarding the calculation of the cost-of-service rate under a gathering contract related to our DJ Basin oil system. If such dispute is resolved in a manner adverse to us, 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 addition, we cannot predict the extent to which Occidental’s business would be impacted if conditions in the energy industry were to deteriorate further, nor can we estimate the impact such conditions would have on Occidental’s ability to perform under our gathering and transportation agreements with Occidental. Accordingly, any material non-payment or non-performance by Occidental could reduce our ability to make distributions to our unitholders.
Any material limitations to our ability to access capital as a result of adverse changes at Occidental could limit our ability to obtain future financing on favorable terms, or at all, or could result in increased financing costs in the future. Similarly, material adverse changes at Occidental could adversely impact our unit price, thereby limiting our ability to raise capital through equity issuances or debt financing, or adversely affect our ability to engage in or expand or pursue our business activities, and also prevent us from engaging in certain transactions that might otherwise be considered beneficial to us.
See Occidental’s reports filed under the Securities and Exchange Act of 1934, as amended, with the SEC (which are not, and shall not be deemed to be, incorporated by reference herein), for a full discussion of the risks associated with Occidental’s business.
The global outbreaktax treatment of COVID-19 is likelypublicly traded partnerships or an investment in our common units could be subject to have an adverse impactpotential legislative, judicial, or administrative changes and differing interpretations, possibly on our operations and financial results.
The global outbreakcurrent U.S. federal income tax treatment of COVID-19 poses significant riskspublicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative, or judicial interpretation at any time. From time to our businesstime, members of Congress propose and consider substantive changes to the markets inexisting U.S. federal income tax laws that would affect publicly traded partnerships. On April 21, 2021, Senator Wyden introduced the Clean Energy for America Act, which would eliminate the exception upon which we operate. Many ofrely for our facilities require our field personnel to be on location to ensure safe and efficient operations. Iftreatment as a significant percentage of our workforce is unable to work, due to illness or travel or other COVID-19-related restrictions, we may experience significant operational disruptions or inefficiencies and a heightened risk of safety and environmental incidents. Any such developments could materially and adversely affect our earnings, cash flows, and ability to make cash distributions to our unitholders.publicly traded partnership for U.S. federal income tax purposes.
Additionally, many of our employees have beenAny modification to the U.S. federal income tax laws and interpretations thereof may inor may not be retroactively applied and could make it more difficult or impossible to meet the futureexception for certain publicly traded partnerships to be subject to pandemic-related work-from-home requirements, which stress the capabilities of our information technology systems, including those relating to system security; disrupt normal channels of intracompany communications and key business processes; and heighten the risk of cyber-security threats and operational, health, or safety-related incidents at our facilities. Furthermore, the implementation of procedures and controls to monitor and mitigate heightened security threats to our facilities, infrastructure, and information during this time may result in increased costs, and there can be no assurance that such additional controls and procedures will be effective to prevent security breaches. For these reasons, limited working arrangements and other related restrictions may impact our operations and management effectiveness and may introduce,treated as partnerships for U.S. federal income tax purposes or increase the likelihoodamount of material riskstaxes payable by unitholders in publicly traded partnerships. You are urged to consult with your own tax advisor with respect to the status of regulatory or administrative developments and proposals and their potential effect on your investment in our business, operations, productivity, and results of operations.
The COVID-19 pandemic and resulting mitigation measures also are having an adverse impact on global economic conditions, and as discussed below, are contributing to a significant decline in demand for oil, NGLs, and natural gas, resulting in lower commodity prices that will negatively impact our and our customers’ financial outlooks and activity levels.common units.
The combined effectsOur profitability may be negatively impacted by inflation in the cost ofoutput decisions by the Organization of the Petroleum Exporting Countries (“OPEC”) labor, materials, and efforts to fight the global outbreak of COVID-19 have caused significant declines in oil prices, which will negatively impact our operations, earnings, cash flows, and ability to make cash distributions to our unitholders.services.
In March 2020, OPEC announced its intentionAlthough inflation in the United States has been relatively low in recent years, the U.S. economy could experience a significant inflationary effect from, among other things, supply chain disruptions caused by, or governmental stimulus or fiscal policies adopted in response to, increase the supplyCOVID-19 crisis. While we cannot predict any future trends in the rate of oil that its member countries make available for sale on the international market. The resulting expectation of increased supply caused commodity prices to fall significantly. At the same time, efforts to fightinflation, the global outbreak of COVID-19 have caused a pronounced reductionpandemic has brought unprecedented uncertainty to the domesticnear-term economic outlook. A significant increase in inflation would raise our costs for labor, materials and international demand for oil as business closures, manufacturing restrictions,services, and prolonged limitations on other commercial activity and travel persist. Even after this global pandemic abates and government-imposed restrictions on activities are relaxed, public-health concerns may give rise to significant long-term shifts in consumer behavior that may impede hydrocarbon-demand recovery. The combination of expected additional supply and significantly reduced demand has caused NYMEX West Texas Intermediate crude-oil daily settlement prices to fall to below $20.00 per barrel in April 2020. We are uncertain as to the extent and duration of the currently strained macroeconomic market conditions, and the oversupply and low demand for oil may continue for an extended period of time, potentially impacting our and our customers’ businesses as follows:
•The impact of downstream-storage constraints and potential production curtailments reducing revenues generated from our midstream gathering and processing contracts. With significant excess supply, domestic oil-storage capacity could reach operational limits. As available storage nears capacity, our customers may shut-in field production due to limited downstream-takeaway alternatives or resulting wellhead economics. If production is shut-in for these or for other reasons, affected producers may become insolvent or seek to avoid their contractual obligations with us, in which case, our earnings, cash flows from operations, and ability to make cash distributions to our unitholders could be materially and adversely impacted. Additionally, a significant decline in produced volumes on our systems may trigger liability under certain downstream transportation commitments we have through December 31, 2020.
•Exposure to the credit risk of our customers, including Occidental, and any material non-payment or non-performance by these parties.To the extent any of our customers, including Occidental, is in financial distress, we are exposed to risk of non-payment for our services or for other amounts owed to us. Also, if any of our customers enter bankruptcy proceedings, then those customers may seek to renegotiate contracts with us at lower rates or altogether reject contracts. For example, on April 29, 2020, we received notice that Sanchez has elected to reject a number of midstream and downstream agreements with commercial counterparties, including Sanchez’s Springfield gathering agreements and agreements obligating Sanchez to deliver the gas volumes gathered by the Springfield system to our Brasada processing plant. As a result of such contract breaches or bankruptcy events our Eagleford assets could be impaired and our earnings, cash flows from operations, and ability to make cash distributions to our unitholders could be materially and adversely impacted.
•Credit-rating downgrades negatively impact our cost of and ability to access capital.Our costs of borrowing and ability to access the capital markets are affected by, among other factors, market conditions and the credit ratings assigned to WES Operating’s debt by the major credit rating agencies. In March, May, and June 2020, WES Operating’s credit ratings were downgraded below investment grade by Fitch, S&P, and Moody’s. As a result of these downgrades, financing costs under WES Operating’s RCF increased. Additionally, WES Operating currently has $3.5 billion of outstanding senior notes that provide for increased interest rates following downgrade events. For example, the March, May, and June downgrades to WES Operating’s credit ratings resulted in a $34.6 million increase to WES Operating’s annualized borrowing costs attributable to the aforementioned senior notes. Additional downgrades to WES Operating’s credit ratings will further increase its borrowing costs, and could adversely affect WES Operating’s ability to issue public debt and effectively execute aspects of our business strategy.
Credit-rating downgrades also could trigger obligations to provide financial assurance of our performance under certain contractual arrangements. At September 30, 2020, there were $5.0 million in letters of credit or cash-provided assurance of our performance outstanding under contractual arrangements with credit-risk-related contingent features.
•Restrictions in the RCF may limit our ability to access capital.The financial restrictions in our RCF could restrict our ability to access capital. The RCF contains various customary covenants, certain events of default, and a maximum consolidated leverage ratio as of the end of each fiscal quarter (which is defined as the ratio of consolidated indebtedness as of the last day of a fiscal quarter to Consolidated EBITDA, as defined in the RCF, for the most-recent four-consecutive fiscal quarters ending on such day) of 5.0 to 1.0. If we experience an extended period of diminished earnings, we may be unable to draw on our RCF, be required to repay existing RCF borrowings, or be required to seek waivers or amendments to our RCF to comply with our leverage-ratio requirements. Any future waivers or amendments also may trigger additional pricing increases for available credit. If we are unable to access credit to fundrecover higher costs through our business requirements, or the cost of available credit increases,commercial agreements, would negatively impact our earnings,profitability and cash flows from operations, and abilityavailable for distribution to make cash distributions to our unitholders could be materially and adversely impacted.unitholders.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
•
The following table sets forth information with respect to repurchases made by WES of its common units in the open market under the Purchase Program during the third quarter of 2021:
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| Period | | Total number of units purchased | | Average price paid per unit | | Total number of units purchased as part of publicly announced plans or programs (1) | | Approximate dollar value of units that may yet be purchased under the plans or programs (1) |
July 1-31, 2021 | | — | | | $ | — | | | — | | | 201,224,786 | |
August 1-31, 2021 | | 1,608,154 | | | 19.21 | | | 1,608,154 | | | 170,339,655 | |
September 1-30, 2021 | | 2,862,457 | | | 20.00 | | | 2,862,457 | | | 113,099,523 | |
| Total | | 4,470,611 | | | 19.71 | | | 4,470,611 | | | |
(1)Our results of operations could be adversely affected by asset impairments. Commodity-price declinesIn November 2020, WES announced the Purchase Program, pursuant to which we may require uspurchase up to write down the$250.0 million in aggregate value of our midstream properties if the estimated future cash flows from these properties fall below their respective net book values. For example, during the nine months ended September 30, 2020, we recognized long-lived asset and other impairments of $200.6 million (seecommon units through December 31, 2021. See Note 8—Property, Plant,5—Equity and EquipmentPartners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q). Further, during the first quarter of 2020, we performed an interim goodwill impairment test that resulted in us recognizing a $441.0 million goodwill impairment for our gathering and processing reporting unit. Prolonged low commodity prices, further commodity-price declines, and changes to producers’ drilling plans in response to lower prices could result in additional long-lived asset impairments in the future. Future non-cash asset impairments could negatively affect our results of operations.
The reduction to our quarterly per-unit distribution and expenditure plans may not prove adequate to offset the potential impacts of COVID-19 and the recent decline in commodity prices to our operations, performance and liquidity, and may impede our long-term growth objectives.
On April 20, 2020, we announced a cash distribution of $0.31100 per unit for the first quarter of 2020, which represents a 50% reduction to the prior-quarter distribution, and reductions to estimated 2020 capital and operating expenditures. Our second-quarter and announced third-quarter distributions have remained at $0.31100 per unit. On August 10, 2020, we also announced a further downward revision to our estimated full-year 2020 capital expenditures. These cash-preservation measures are intended to enhance our financial strength for the duration of the COVID-19 macroeconomic disruption and the weakened commodity-price environment; however, the duration and severity of this pandemic and concomitant economic downturn remains uncertain. There can be no assurance that these announced actions will be adequate to preserve our financial health for the required duration and additional actions, including additional per-unit distribution reductions, may be necessary to manage through the current environment. Furthermore, any cash we preserve from delaying or abandoning capital projects will necessarily delay or eliminate future returns we hoped to generate from previously planned projects, which may meaningfully impact our ability to generate long-term revenue and cash-flow growth. Also, our decision to preserve cash by reducing our quarterly distribution to common unitholders may diminish the long-term value of our units and limit our ability, or increase the cost of, accessing future equity capital necessary to fund our business or to preserve our balance sheet.
Item 6. Exhibits
Exhibits designated by an asterisk (*) are filed herewith and those designated with asterisks (**) are furnished herewith; all exhibits not so designated are incorporated herein by reference to a prior filing as indicated.
Exhibit Index
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Exhibit
Number | | | Description |
| # | 2. | 1 | | | Contribution Agreement and Agreement and Plan of Merger, dated as of November 7, 2018, by and among Anadarko Petroleum Corporation, Anadarko E&P Onshore LLC, APC Midstream Holdings, LLC, Western Gas Equity Partners, LP, Western Gas Equity Holdings, LLC, Western Gas Partners, LP, Western Gas Holdings, LLC, Clarity Merger Sub, LLC, WGR Asset Holding Company LLC, WGR Operating, LP, Kerr-McGee Gathering LLC, Kerr-McGee Worldwide Corporation and Delaware Basin Midstream, LLC (incorporated by reference to Exhibit 2.1 to Western Gas Equity Partners, LP’s Current Report on Form 8-K filed on November 8, 2018, File No. 001-35753). |
| 3. | 1 | | | |
| 3. | 2 | | | |
| 3. | 3 | | | |
| 3. | 4 | | | |
| 3. | 5 | | | |
| 3. | 6 | | | |
| 3. | 7 | | | |
| 3. | 8 | | | |
| 3. | 9 | | | |
| 3. | 10 | | | |
| 3. | 11 | | | |
| 3. | 12 | | | |
| 3. | 13 | | | |
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Exhibit
Number | | | Description |
| | | | | |
| 4. | 1 | | | |
| 4. | 2 | | | Indenture, dated as of May 18, 2011, among Western Gas Partners, LP, as Issuer, the Subsidiary Guarantors named therein, as Guarantors, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on May 18, 2011, File No. 001-34046). |
| 4. | 3 | | | First Supplemental Indenture, dated as of May 18, 2011, among Western Gas Partners, LP, as Issuer, the Subsidiary Guarantors named therein, as Guarantors, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to Western Gas Partners, LP’s Current Report on Form 8-K filed on May 18, 2011, File No. 001-34046). |
| 4. | 4 | | | |
| 4. | 5 | | | Fourth Supplemental Indenture, dated as of June 28, 2012, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on June 28, 2012, File No. 001-34046). |
| 4. | 6 | | | |
| 4. | 7 | | | Sixth Supplemental Indenture, dated as of March 20, 2014, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to Western Gas Partners, LP’s Current Report on Form 8-K filed on March 20, 2014, File No. 001-34046). |
| 4. | 8 | | | |
| 4. | 9 | | | Seventh Supplemental Indenture, dated as of June 4, 2015, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on June 4, 2015, File No. 001-34046). |
| 4. | 10 | | | |
| 4. | 11 | | | Eighth Supplemental Indenture, dated as of July 12, 2016, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on July 12, 2016, File No. 001-34046). |
| 4. | 12 | | | |
| 4. | 13 | | | Ninth Supplemental Indenture, dated as of March 2, 2018, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on March 2, 2018, File No. 001-34046). |
| 4. | 14 | | | |
| 4. | 15 | | | |
| 4. | 16 | | | Tenth Supplemental Indenture, dated as of August 9, 2018, by and between Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on August 9, 2018, File No. 001-34046). |
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Exhibit
Number | | | Description |
| 4. | 1 | | | |
| 4. | 2 | | | Indenture, dated as of May 18, 2011, among Western Gas Partners, LP, as Issuer, the Subsidiary Guarantors named therein, as Guarantors, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on May 18, 2011, File No. 001-34046). |
| 4. | 3 | | | First Supplemental Indenture, dated as of May 18, 2011, among Western Gas Partners, LP, as Issuer, the Subsidiary Guarantors named therein, as Guarantors, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to Western Gas Partners, LP’s Current Report on Form 8-K filed on May 18, 2011, File No. 001-34046). |
| 4. | 4 | | | |
| 4. | 5 | | | Fourth Supplemental Indenture, dated as of June 28, 2012, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on June 28, 2012, File No. 001-34046). |
| 4. | 6 | | | |
| 4. | 7 | | | Sixth Supplemental Indenture, dated as of March 20, 2014, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to Western Gas Partners, LP’s Current Report on Form 8-K filed on March 20, 2014, File No. 001-34046). |
| 4. | 8 | | | |
| 4. | 9 | | | Seventh Supplemental Indenture, dated as of June 4, 2015, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on June 4, 2015, File No. 001-34046). |
| 4. | 10 | | | |
| 4. | 11 | | | Eighth Supplemental Indenture, dated as of July 12, 2016, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on July 12, 2016, File No. 001-34046). |
| 4. | 12 | | | |
| 4. | 13 | | | Ninth Supplemental Indenture, dated as of March 2, 2018, among Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on March 2, 2018, File No. 001-34046). |
| 4. | 14 | | | |
| 4. | 15 | | | |
| 4. | 16 | | | Tenth Supplemental Indenture, dated as of August 9, 2018, by and between Western Gas Partners, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Gas Partners, LP’s Current Report on Form 8-K filed on August 9, 2018, File No. 001-34046). |
| 4. | 17 | | | |
| 4. | 18 | | | |
| Exhibit
Number | Exhibit
Number | | | Description | Exhibit
Number | | | Description |
| 4. | 17 | | | | |
| 4. | 18 | | | | |
| 4. | 19 | | | Eleventh Supplemental Indenture, dated as of January 13, 2020, by and between Western Midstream Operating, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Midstream Operating, LP’s Current Report on Form 8-K filed on January 13, 2020, File No. 001-34046). | |
| 4. | 20 | | | | |
| 4. | 21 | | | | |
| 4. | 22 | | | | |
| 4. | 23 | | | | |
| | | | 4. | 19 | | | Eleventh Supplemental Indenture, dated as of January 13, 2020, by and between Western Midstream Operating, LP, as Issuer, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Western Midstream Operating, LP’s Current Report on Form 8-K filed on January 13, 2020, File No. 001-34046). |
| | | 4. | 20 | | | |
| | | 4. | 21 | | | |
| | | 4. | 22 | | | |
| | | 4. | 23 | | | |
| | | 10. | 1 | | | | |
| * | * | 31. | 1 | | | | * | 31. | 1 | | | |
| | * | * | 31. | 2 | | | | * | 31. | 2 | | | |
| | ** | ** | 32. | 1 | | | | ** | 32. | 1 | | | |
| ** | ** | 32. | 2 | | | | ** | 32. | 2 | | | |
| * | * | 101. | INS | | | XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | * | 101. | INS | | | XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
| * | * | 101. | SCH | | | Inline XBRL Schema Document | * | 101. | SCH | | | Inline XBRL Schema Document |
| * | * | 101. | CAL | | | Inline XBRL Calculation Linkbase Document | * | 101. | CAL | | | Inline XBRL Calculation Linkbase Document |
| * | * | 101. | DEF | | | Inline XBRL Definition Linkbase Document | * | 101. | DEF | | | Inline XBRL Definition Linkbase Document |
| * | * | 101. | LAB | | | Inline XBRL Label Linkbase Document | * | 101. | LAB | | | Inline XBRL Label Linkbase Document |
| * | * | 101. | PRE | | | Inline XBRL Presentation Linkbase Document | * | 101. | PRE | | | Inline XBRL Presentation Linkbase Document |
| * | * | 104 | | | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | * | 104 | | | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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| # | Pursuant to Item 601(b)(2) of Regulation S-K, the registrant agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
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| WESTERN MIDSTREAM PARTNERS, LP |
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November 9, 20202021 | |
| /s/ Michael P. Ure |
| Michael P. Ure President, Chief Executive Officer and Chief Financial Officer Western Midstream Holdings, LLC (as general partner of Western Midstream Partners, LP) |
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| WESTERN MIDSTREAM OPERATING, LP |
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November 9, 20202021 | |
| /s/ Michael P. Ure |
| Michael P. Ure President, Chief Executive Officer and Chief Financial Officer Western Midstream Operating GP, LLC (as general partner of Western Midstream Operating, LP) |
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