Edgar Filing: Western Gas Partners LP

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

WES 06.30.14 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-34046

WESTERN GAS PARTNERS, LP

(Exact name of registrant as specified in its charter)



Delaware		26-1075808
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1201 Lake Robbins Drive The Woodlands, Texas		77380
(Address of principal executive offices)		(Zip Code)

(832) 636-6000

(Registrant’s telephone number, including area code)

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. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

There were 119,070,104 common units outstanding as of August 4, 2014.

Table of Contents

TABLE OF CONTENTS



PART I		FINANCIAL INFORMATION (UNAUDITED)	PAGE

	Item 1.	Financial Statements

		Consolidated Statements of Income for the three and six months ended June 30, 2014 and 2013	4

		Consolidated Balance Sheets as of June 30, 2014, and December 31, 2013	5

		Consolidated Statement of Equity and Partners’ Capital for the six months ended June 30, 2014	6

		Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013	7

		Notes to Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

		Cautionary Note Regarding Forward-Looking Statements	21

		Executive Summary	23

		Acquisitions	24

		Equity Offerings	25

		Results of Operations	26

		Operating Results	26

		Key Performance Metrics	33

		Liquidity and Capital Resources	37

		Contractual Obligations	43

		Off-Balance Sheet Arrangements	43

		Recent Accounting Developments	44

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

	Item 4.	Controls and Procedures	45

PART II		OTHER INFORMATION

	Item 1.	Legal Proceedings	45

	Item 1A.	Risk Factors	46

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

	Item 6.	Exhibits	47

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DEFINITIONS

As generally used within the energy industry and in this quarterly report on Form 10-Q, the identified terms have the following meanings:

Barrel or Bbl: 42 U.S. gallons measured at 60 degrees Fahrenheit.

Btu: British thermal unit; the approximate amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit.

Condensate: A natural gas liquid with a low vapor pressure mainly composed of propane, butane, pentane and heavier hydrocarbon fractions.

Cryogenic: The process in which liquefied gases, such as liquid nitrogen or liquid helium, are used to bring volumes to very low temperatures (below approximately -238 degrees Fahrenheit) to separate natural gas liquids from natural gas. Through cryogenic processing, more natural gas liquids are extracted than when traditional refrigeration methods are used.

Drip condensate: Heavier hydrocarbon liquids that fall out of the natural gas stream and are recovered in the gathering system without processing.

Fractionation: The process of applying various levels of higher pressure and lower temperature to separate a stream of natural gas liquids into ethane, propane, normal butane, isobutane and natural gasoline for end-use sale.

Imbalance: Imbalances result from (i) differences between gas volumes nominated by customers and gas volumes received from those customers and (ii) differences between gas volumes received from customers and gas volumes delivered to those customers.

MBbls/d: One thousand barrels per day.

MMBtu: One million British thermal units.

MMcf/d: One million cubic feet per day.

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 higher pressure and lower temperature.

Residue: The natural gas remaining after being processed or treated.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WESTERN GAS PARTNERS, LP

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)



	Three Months Ended June 30,						Six Months Ended June 30,
thousands except per-unit amounts	2014			2013 ⁽¹⁾			2014			2013 ⁽¹⁾
Revenues – affiliates
Gathering, processing and transportation of natural gas and natural gas liquids	$	98,973		$	69,175		$	184,134		$	135,074
Natural gas, natural gas liquids and condensate sales	156,851			129,996			277,251			241,666
Other, net	842			1,145			1,571			1,145
Total revenues – affiliates	256,666			200,316			462,956			377,885
Revenues – third parties
Gathering, processing and transportation of natural gas and natural gas liquids	62,277			40,625			118,565			77,616
Natural gas, natural gas liquids and condensate sales	9,803			9,565			25,841			19,624
Other, net	1,198			896			2,039			2,043
Total revenues – third parties	73,278			51,086			146,445			99,283
Total revenues	329,944			251,402			609,401			477,168
Equity income, net ⁽²⁾	13,008			3,456			22,259			7,424
Operating expenses
Cost of product ⁽³⁾	118,085			93,460			210,035			176,543
Operation and maintenance ⁽³⁾	50,875			41,669			91,407			78,408
General and administrative ⁽³⁾	8,000			7,288			16,415			14,952
Property and other taxes	7,113			6,086			14,154			11,871
Depreciation, amortization and impairments	43,746			36,496			84,358			68,936
Total operating expenses	227,819			184,999			416,369			350,710
Operating income	115,133			69,859			215,291			133,882
Interest income, net – affiliates	4,225			4,225			8,450			8,450
Interest expense	(20,864		)	(12,654		)	(34,825		)	(24,465		)
Other income, net	214			499			691			1,173
Income before income taxes	98,708			61,929			189,607			119,040
Income tax (benefit) expense	226			53			(2		)	4,219
Net income	98,482			61,876			189,609			114,821
Net income attributable to noncontrolling interest	3,450			1,860			7,142			4,091
Net income attributable to Western Gas Partners, LP	$	95,032		$	60,016		$	182,467		$	110,730
Limited partners’ interest in net income:
Net income attributable to Western Gas Partners, LP	$	95,032		$	60,016		$	182,467		$	110,730
Pre-acquisition net (income) loss allocated to Anadarko	—			948			956			(4,510		)
General partner interest in net (income) loss ⁽⁴⁾	(28,047		)	(16,154		)	(52,881		)	(29,040		)
Limited partners’ interest in net income ⁽⁴⁾	$	66,985		$	44,810		$	130,542		$	77,180
Net income per common unit – basic and diluted	$	0.57		$	0.41		$	1.11		$	0.72
Weighted average common units outstanding – basic and diluted	118,177			108,736			117,948			106,784


⁽¹⁾	Financial information has been recast to include the financial position and results attributable to the TEFR Interests. See Note 1 and Note 2.


⁽²⁾	Income earned from equity investments is classified as affiliate. See Note 1.

⁽³⁾

Cost of product includes product purchases from Anadarko (as defined in Note 1) of $35.2 million and $51.9 million for the three and six months ended June 30, 2014, respectively, and $32.1 million and $64.0 million for the three and six months ended June 30, 2013, respectively. Operation and maintenance includes charges from Anadarko of $16.8 million and $27.9 million for the three and six months ended June 30, 2014, respectively, and $14.2 million and $27.6 million for the three and six months ended June 30, 2013, respectively. General and administrative includes charges from Anadarko of $6.5 million and $13.3 million for the three and six months ended June 30, 2014, respectively, and $5.6 million and $11.5 million for the three and six months ended June 30, 2013, respectively. See Note 5.


⁽⁴⁾	Represents net income earned on and subsequent to the date of acquisition of the Partnership assets (as defined in Note 1). See Note 4.

See accompanying Notes to Consolidated Financial Statements.

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WESTERN GAS PARTNERS, LP

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



thousands except number of units	June 30, 2014		December 31, 2013 ⁽¹⁾
ASSETS
Current assets
Cash and cash equivalents	$	110,629	$	100,728
Accounts receivable, net ⁽²⁾	109,014		84,060
Other current assets ⁽³⁾	4,560		10,022
Total current assets	224,203		194,810
Note receivable – Anadarko	260,000		260,000
Property, plant and equipment
Cost	4,591,935		4,239,100
Less accumulated depreciation	936,568		855,845
Net property, plant and equipment	3,655,367		3,383,255
Goodwill	105,336		105,336
Other intangible assets	52,909		53,606
Equity investments	637,478		593,400
Other assets	29,519		27,401
Total assets	$	4,964,812	$	4,617,808
LIABILITIES, EQUITY AND PARTNERS’ CAPITAL
Current liabilities
Accounts and natural gas imbalance payables ⁽⁴⁾	$	28,640	$	39,589
Accrued ad valorem taxes	14,539		13,860
Income taxes payable	410		—
Accrued liabilities ⁽⁵⁾	133,069		137,011
Total current liabilities	176,658		190,460
Long-term debt	2,022,876		1,418,169
Deferred income taxes	601		37,998
Asset retirement obligations and other	81,927		79,145
Total long-term liabilities	2,105,404		1,535,312
Total liabilities	2,282,062		1,725,772
Equity and partners’ capital
Common units (118,971,307 and 117,322,812 units issued and outstanding at June 30, 2014, and December 31, 2013, respectively)	2,528,069		2,431,193
General partner units (2,408,699 and 2,394,345 units issued and outstanding at June 30, 2014, and December 31, 2013, respectively)	84,894		78,157
Net investment by Anadarko	—		312,092
Total partners’ capital	2,612,963		2,821,442
Noncontrolling interest	69,787		70,594
Total equity and partners’ capital	2,682,750		2,892,036
Total liabilities, equity and partners’ capital	$	4,964,812	$	4,617,808


⁽¹⁾	Financial information has been recast to include the financial position and results attributable to the TEFR Interests. See Note 1 and Note 2.


⁽²⁾	Accounts receivable, net includes amounts receivable from affiliates (as defined in Note 1) of $69.8 million and $47.9 million as of June 30, 2014, and December 31, 2013, respectively.


⁽³⁾	Other current assets includes natural gas imbalance receivables from affiliates of $0.2 million and $0.1 million as of June 30, 2014, and December 31, 2013, respectively.


⁽⁴⁾	Accounts and natural gas imbalance payables includes amounts payable to affiliates of $0.1 million and $2.3 million as of June 30, 2014, and December 31, 2013, respectively.


⁽⁵⁾	Accrued liabilities includes amounts payable to affiliates of zero and $0.1 million as of June 30, 2014, and December 31, 2013, respectively.

See accompanying Notes to Consolidated Financial Statements.

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WESTERN GAS PARTNERS, LP

CONSOLIDATED STATEMENT OF EQUITY AND PARTNERS’ CAPITAL

(UNAUDITED)



	Partners’ Capital
thousands	Net Investment by Anadarko			Common Units			General Partner Units			Noncontrolling Interest			Total
Balance at December 31, 2013 ⁽¹⁾	$	312,092		$	2,431,193		$	78,157		$	70,594		$	2,892,036
Net income (loss)	(956		)	130,542			52,881			7,142			189,609
Issuance of common and general partner units, net of offering expenses	—			91,929			898			—			92,827
Distributions to noncontrolling interest owner	—			—			—			(7,949		)	(7,949		)
Distributions to unitholders	—			(144,281		)	(47,078		)	—			(191,359		)
Acquisitions from affiliates	(372,784		)	16,534			—			—			(356,250		)
Contributions of equity-based compensation from Anadarko	—			1,698			35			—			1,733
Net pre-acquisition contributions from Anadarko	23,788			—			—			—			23,788
Net contributions from Anadarko of other assets	—			42			1			—			43
Elimination of net deferred tax liabilities	38,160			—			—			—			38,160
Other	(300		)	412			—			—			112
Balance at June 30, 2014	$	—		$	2,528,069		$	84,894		$	69,787		$	2,682,750


⁽¹⁾	Financial information has been recast to include the financial position and results attributable to the TEFR Interests. See Note 1 and Note 2.

See accompanying Notes to Consolidated Financial Statements.

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WESTERN GAS PARTNERS, LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Six Months Ended June 30,
thousands	2014			2013 ⁽¹⁾
Cash flows from operating activities
Net income	$	189,609		$	114,821
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and impairments	84,358			68,936
Non-cash equity-based compensation expense	2,187			1,682
Deferred income taxes	463			19,355
Debt-related amortization and other items, net	1,358			1,126
Equity income, net ⁽²⁾	(22,259		)	(7,424		)
Distributions from equity investment earnings ⁽²⁾	26,793			11,032
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net	(23,353		)	(26,807		)
Increase (decrease) in accounts and natural gas imbalance payables and accrued liabilities, net	794			336
Change in other items, net	4,247			235
Net cash provided by operating activities	264,197			183,292
Cash flows from investing activities
Capital expenditures	(359,752		)	(339,756		)
Contributions in aid of construction costs from affiliates	182			—
Acquisitions from affiliates	(360,952		)	(466,936		)
Acquisitions from third parties	—			(212,674		)
Investments in equity affiliates	(59,245		)	(156,217		)
Distributions from equity investments in excess of cumulative earnings ⁽²⁾	9,848			—
Proceeds from the sale of assets to affiliates	—			82
Proceeds from the sale of assets to third parties	—			14
Capitalized interest on equity investments	(857		)	(7,195		)
Net cash used in investing activities	(770,776		)	(1,182,682		)
Cash flows from financing activities
Borrowings, net of debt issuance costs	1,076,895			494,948
Repayments of debt	(480,000		)	(245,000		)
Increase (decrease) in outstanding checks	2,517			(1,809		)
Proceeds from the issuance of common and general partner units, net of offering expenses	92,588			425,386
Distributions to unitholders	(191,359		)	(135,801		)
Contributions from noncontrolling interest owner	—			1,097
Distributions to noncontrolling interest owner	(7,949		)	(4,660		)
Net contributions from Anadarko	23,788			119,428
Net cash provided by financing activities	516,480			653,589
Net increase (decrease) in cash and cash equivalents	9,901			(345,801		)
Cash and cash equivalents at beginning of period	100,728			419,981
Cash and cash equivalents at end of period	$	110,629		$	74,180
Supplemental disclosures
Net distributions to (contributions from) Anadarko of other assets	$	(43	)	$	615
Interest paid, net of capitalized interest	$	26,346		$	23,516
Taxes paid (reimbursements received)	$	(340	)	$	—
Capital lease asset transfer ⁽³⁾	$	4,833		$	—


⁽¹⁾	Financial information has been recast to include the financial position and results attributable to the TEFR Interests. See Note 1 and Note 2.


⁽²⁾	Income earned on, distributions from and contributions to equity investments are classified as affiliate. See Note 1.


⁽³⁾	For the six months ended June 30, 2014, represents transfers of $0.2 million and $4.6 million from other current assets and other long-term assets, respectively, associated with the capital lease components of a processing agreement. See Note 6.

See accompanying Notes to Consolidated Financial Statements.

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WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

General. Western Gas Partners, LP is a growth-oriented Delaware master limited partnership formed by Anadarko Petroleum Corporation in 2007 to own, operate, acquire and develop midstream energy assets.

For purposes of these consolidated financial statements, the “Partnership” refers to Western Gas Partners, LP and its subsidiaries. The Partnership’s general partner, Western Gas Holdings, LLC (the “general partner” or “GP”), is owned by Western Gas Equity Partners, LP (“WGP”), a Delaware master limited partnership formed by Anadarko Petroleum Corporation in September 2012 to own the Partnership’s general partner, as well as a significant limited partner interest in the Partnership (see Western Gas Equity Partners, LP below). Western Gas Equity Holdings, LLC is WGP’s general partner and is a wholly owned subsidiary of Anadarko Petroleum Corporation. “Anadarko” refers to Anadarko Petroleum Corporation and its subsidiaries, excluding the Partnership and the general partner, and “affiliates” refers to subsidiaries of Anadarko, excluding the Partnership, and includes equity interests in Fort Union Gas Gathering, LLC (“Fort Union”), White Cliffs Pipeline, LLC (“White Cliffs”), Rendezvous Gas Services, LLC (“Rendezvous”), Enterprise EF78, LLC (the “Mont Belvieu JV”), Texas Express Pipeline LLC (“TEP”), Texas Express Gathering LLC (“TEG”) and Front Range Pipeline LLC (“FRP”) (see Note 2). The interests in TEP, TEG and FRP are referred to collectively as the “TEFR Interests.” All income earned on, distributions from and contributions to the Partnership’s equity investments are considered to be affiliate transactions. “Equity investment throughput” refers to the Partnership’s 14.81% share of average Fort Union throughput and 22% share of average Rendezvous throughput, but excludes throughput measured in barrels, consisting of the 10% share of average White Cliffs throughput, 25% share of average Mont Belvieu JV throughput, 20% share of average TEP and TEG throughput and 33.33% share of average FRP throughput. The “DJ Basin complex” refers to the Platte Valley system, Wattenberg system, and Lancaster plant, all of which were combined into a single complex in the first quarter of 2014.

The Partnership is engaged in the business of gathering, processing, compressing, treating and transporting natural gas, condensate, NGLs and crude oil for Anadarko, as well as for third-party producers and customers. As of June 30, 2014, the Partnership’s assets and investments accounted for under the equity method consisted of the following:



	Owned and Operated	Operated Interests	Non-Operated Interests	Equity Interests
Natural gas gathering systems	13	1	5	2
NGL gathering systems	—	—	—	2
Natural gas treating facilities	8	—	—	1
Natural gas processing facilities	9	3	—	2
NGL pipelines	3	—	—	2
Natural gas pipelines	3	—	—	—
Oil pipeline	—	—	—	1

These assets and investments are located in the Rocky Mountains (Colorado, Utah and Wyoming), the Mid-Continent (Kansas and Oklahoma), north-central Pennsylvania and Texas. The Partnership completed construction of Train I at the Lancaster processing plant (located in the DJ Basin complex) in Northeast Colorado in April 2014, and is constructing Train II at the same plant with operations expected to commence in the second quarter of 2015.

Western Gas Equity Partners, LP. WGP owns the following types of interests in the Partnership: (i) the 2.0% general partner interest and all of the incentive distribution rights (“IDRs”) in the Partnership, both owned through WGP’s 100% ownership of the Partnership’s general partner and (ii) a significant limited partner interest (see Holdings of Partnership equity in Note 4). WGP has no independent operations or material assets other than its partnership interests in the Partnership.

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WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)

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 include the accounts of the Partnership and entities in which it holds a controlling financial interest. All significant intercompany transactions have been eliminated. Investments in non-controlled entities over which the Partnership exercises significant influence are accounted for under the equity method. The Partnership proportionately consolidates its 33.75% share of the assets, liabilities, revenues and expenses attributable to the Non-Operated Marcellus Interest and Anadarko-Operated Marcellus Interest (see Note 2) and its 50% share of the assets, liabilities, revenues and expenses attributable to the Newcastle system in the accompanying consolidated financial statements.

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 methods considered reasonable under the particular circumstances. 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 furnished 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.

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 2013 Form 10-K, as filed with the SEC on February 28, 2014. Management believes that the disclosures made are adequate to make the information not misleading.

Presentation of Partnership assets. The “Partnership assets” refer collectively to the assets owned and interests accounted for under the equity method by the Partnership as of June 30, 2014. Because Anadarko controls the Partnership through its ownership and control of WGP, which owns the Partnership’s general partner, each acquisition of the Partnership assets from Anadarko has been considered a transfer of net assets between entities under common control. As such, the Partnership assets acquired from Anadarko were initially recorded at Anadarko’s historic carrying value, which did not correlate to the total acquisition price paid by the Partnership. Further, after an acquisition of Partnership assets from Anadarko, the Partnership may be required to recast its financial statements to include the activities of the Partnership assets as of the date of common control. See Note 2.

For those periods requiring recast, the consolidated financial statements for periods prior to the Partnership’s acquisition of the Partnership assets from Anadarko have been prepared from Anadarko’s historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if the Partnership had owned the Partnership assets during the periods reported. Net income attributable to the Partnership assets acquired from Anadarko for periods prior to the Partnership’s acquisition of the Partnership assets is not allocated to the limited partners for purposes of calculating net income per common unit.

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WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)

Equity investments. The following table presents the activity in the Partnership’s equity investments in Fort Union, White Cliffs, Rendezvous, the Mont Belvieu JV, TEG, TEP and FRP for the six months ended June 30, 2014:



	Equity Investments
thousands	Fort Union			White Cliffs			Rendezvous			Mont Belvieu JV			TEG			TEP			FRP			Total
Balance at December 31, 2013	$	25,172		$	35,039		$	60,928		$	122,480		$	16,649		$	197,731		$	135,401		$	593,400
Investment earnings (loss), net of amortization	3,199			4,906			687			14,713			317			(53		)	(1,510		)	22,259
Contributions	—			10,000			—			3,956			352			5,773			37,522			57,603
Capitalized interest	—			—			—			—			—			—			857			857
Distributions	(3,637		)	(4,616		)	(1,658		)	(16,510		)	(372		)	—			—			(26,793		)
Distributions in excess of cumulative earnings⁽¹⁾	—			(885		)	(1,395		)	—			(338		)	(3,710		)	(3,520		)	(9,848		)
Balance at June 30, 2014	$	24,734		$	44,444		$	58,562		$	124,639		$	16,608		$	199,741		$	168,750		$	637,478


⁽¹⁾	Distributions in excess of cumulative earnings, classified as investing cash flows in the consolidated statements of cash flows, is calculated on an individual investment basis.

Recently issued accounting standards. Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and industry-specific guidance in Subtopic 932-605, Extractive Activities—Oil and Gas—Revenue Recognition, and requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is effective for annual and interim periods beginning in 2017 and is required to be adopted using one of two retrospective application methods, with no early adoption permitted. The Partnership is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, changes the criteria for reporting discontinued operations and requires additional disclosures, both for discontinued operations and for individually significant dispositions and assets classified as held for sale not qualifying as discontinued operations. This ASU is effective for annual and interim periods beginning in 2015, with early adoption permitted for disposals or for assets classified as held for sale that have not been reported in previously issued financial statements. The Partnership early adopted this ASU on a prospective basis beginning with the first quarter of 2014. The adoption did not have a material impact on the Partnership’s consolidated financial statements.

ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset, except in certain circumstances. This ASU is effective for annual and interim periods beginning in 2014. The Partnership adopted this ASU on a prospective basis beginning with the first quarter of 2014. The adoption did not have a material impact on the Partnership’s consolidated financial statements.

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WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

2. ACQUISITIONS

The following table presents the acquisitions completed by the Partnership during 2014 and 2013, and identifies the funding sources for such acquisitions:



thousands except unit and percent amounts	Acquisition Date	Percentage Acquired		Borrowings		Cash On Hand		Common Units Issued
Non-Operated Marcellus Interest ⁽¹⁾	03/01/2013	33.75	%	$	250,000	$	215,500	449,129
Anadarko-Operated Marcellus Interest ⁽²⁾	03/08/2013	33.75	%	133,500		—		—
Mont Belvieu JV ⁽³⁾	06/05/2013	25	%	—		78,129		—
OTTCO ⁽⁴⁾	09/03/2013	100	%	27,500		—		—
TEFR Interests ⁽⁵⁾	03/03/2014	Various ⁽⁵⁾		350,000		6,250		308,490

⁽¹⁾

The Partnership acquired Anadarko’s 33.75% interest (non-operated) in the Liberty and Rome gas gathering systems, serving production from the Marcellus shale in north-central Pennsylvania. The interest acquired is referred to as the “Non-Operated Marcellus Interest.” In connection with the issuance of the common units, the Partnership’s general partner purchased 9,166 general partner units for consideration of $0.5 million to maintain its 2.0% general partner interest in the Partnership.

⁽²⁾

The Partnership acquired a 33.75% interest in each of the Larry’s Creek, Seely and Warrensville gas gathering systems, which are operated by Anadarko and serve production from the Marcellus shale in north-central Pennsylvania, from a third party. The interest acquired is referred to as the “Anadarko-Operated Marcellus Interest.” During the third quarter of 2013, the Partnership recorded a $1.1 million decrease in the assets acquired and liabilities assumed in the acquisition, representing the final purchase price allocation.


⁽³⁾	The Partnership acquired a 25% interest in the Mont Belvieu JV, an entity formed to design, construct, and own two fractionation trains located in Mont Belvieu, Texas, from a third party. The interest acquired is accounted for under the equity method of accounting.


⁽⁴⁾	The Partnership acquired Overland Trail Transmission, LLC (“OTTCO”), a Delaware limited liability company, from a third party. OTTCO owns and operates an intrastate pipeline that connects the Partnership’s Red Desert and Granger complexes in southwestern Wyoming.

⁽⁵⁾

The Partnership acquired a 20% interest in each of TEG and TEP and a 33.33% interest in FRP from Anadarko. These assets gather and transport NGLs primarily from the Anadarko and Denver-Julesburg Basins. The interests in these entities are accounted for under the equity method of accounting. In connection with the issuance of the common units, the Partnership’s general partner purchased 6,296 general partner units for consideration of $0.4 million to maintain its 2.0% general partner interest in the Partnership.

TEFR Interests acquisition. Because the acquisition of the TEFR Interests was a transfer of net assets between entities under common control, the Partnership’s historical financial statements previously filed with the SEC have been recast in this Form 10-Q to include the results attributable to the TEFR Interests as if the Partnership owned the TEFR Interests for all periods presented. The consolidated financial statements for periods prior to the Partnership’s acquisition of the TEFR Interests have been prepared from Anadarko’s historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if the Partnership had owned the TEFR Interests during the periods reported.

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2. ACQUISITIONS (CONTINUED)

The following table presents the impact of the TEFR Interests on revenue, equity income (loss), net and net income as presented in the Partnership’s historical consolidated statements of income:



	Three Months Ended June 30, 2013
thousands	Partnership Historical		TEFR Interests			Combined
Revenues	$	251,402	$	—		$	251,402
Equity income (loss), net	3,724		(268		)	3,456
Net income (loss)	$	62,060	$	(184	)	$	61,876



	Six Months Ended June 30, 2013
thousands	Partnership Historical		TEFR Interests			Combined
Revenues	$	477,168	$	—		$	477,168
Equity income (loss), net	7,705		(281		)	7,424
Net income (loss)	$	114,948	$	(127	)	$	114,821

3. PARTNERSHIP DISTRIBUTIONS

The partnership agreement of Western Gas Partners, LP requires the Partnership to distribute all of its available cash (as defined in the partnership agreement) to unitholders of record on the applicable record date within 45 days of the end of each quarter. The board of directors of the general partner declared the following cash distributions to the Partnership’s unitholders for the periods presented:



thousands except per-unit amounts Quarters Ended	Total Quarterly Distribution per Unit		Total Quarterly Cash Distribution		Date of Distribution
2013
March 31, 2013	$	0.540	$	70,143	May 2013
June 30, 2013	$	0.560	$	79,315	August 2013
2014
March 31, 2014	$	0.625	$	98,749	May 2014
June 30, 2014 ⁽¹⁾	$	0.650	$	105,655	August 2014


⁽¹⁾	On July 18, 2014, the board of directors of the Partnership’s general partner declared a cash distribution to the Partnership’s unitholders of $0.650 per unit, or $105.7 million in aggregate, including incentive distributions. The cash distribution is payable on August 13, 2014, to unitholders of record at the close of business on July 31, 2014.

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4. EQUITY AND PARTNERS’ CAPITAL

Equity offerings. The Partnership completed the following public offerings of its common units during 2014 and 2013:



thousands except unit and per-unit amounts	Common Units Issued	GP Units Issued ⁽¹⁾	Price Per Unit		Underwriting Discount and Other Offering Expenses		Net Proceeds
May 2013 equity offering ⁽²⁾	7,015,000	143,163	$	61.18	$	13,203	$	424,733
December 2013 equity offering ⁽³⁾	4,800,000	97,959	61.51		9,447		291,827
Continuous Offering Program - 2013 ⁽⁴⁾	685,735	13,996	60.84		965		41,603
Continuous Offering Program - 2014 ⁽⁵⁾	1,034,587	1,824	73.24		1,565		74,343


⁽¹⁾	Represents general partner units issued to the general partner in exchange for the general partner’s proportionate capital contribution to maintain its 2.0% general partner interest in the Partnership.


⁽²⁾	Includes the issuance of 915,000 common units pursuant to the full exercise of the underwriters’ over-allotment option granted in connection with the May 2013 equity offering.


⁽³⁾	Includes the issuance of 300,000 common units on January 3, 2014, pursuant to the partial exercise of the underwriters’ over-allotment option granted in connection with the December 2013 equity offering. Net proceeds from this partial exercise (including the general partner’s proportionate capital contribution) were $18.1 million.

⁽⁴⁾

Represents common and general partner units issued during the year ended December 31, 2013, pursuant to the Partnership’s registration statement filed with the SEC in August 2012 authorizing the issuance of up to an aggregate of $125.0 million of common units (the “Continuous Offering Program”). Gross proceeds generated (including the general partner’s proportionate capital contributions) were $42.6 million. The price per unit in the table above represents an average price for all issuances under the Continuous Offering Program during 2013.

⁽⁵⁾

Represents common and general partner units issued during the three and six months ended June 30, 2014, under the Continuous Offering Program. Gross proceeds generated (including the general partner’s proportionate capital contributions) were $75.9 million. The price per unit in the table above represents an average price for all issuances under the Continuous Offering Program during the six months ended June 30, 2014. Does not include the issuance of 98,797 common units that were sold in June 2014, but settled in July 2014, or the issuance of 21,308 general partner units to the general partner in exchange for the general partner’s proportionate capital contribution to maintain its 2.0% general partner interest in the Partnership. As of June 30, 2014, the Partnership had used substantially all the capacity to issue units under this registration statement.

Common and general partner units. The Partnership’s common units are listed on the New York Stock Exchange under the symbol “WES.”

The following table summarizes common and general partner units issued during the six months ended June 30, 2014:



	Common Units	General Partner Units	Total
Balance at December 31, 2013	117,322,812	2,394,345	119,717,157
December 2013 equity offering	300,000	6,122	306,122
Long-Term Incentive Plan awards	5,418	112	5,530
TEFR Interests acquisition	308,490	6,296	314,786
Continuous Offering Program	1,034,587	1,824	1,036,411
Balance at June 30, 2014	118,971,307	2,408,699	121,380,006

Holdings of Partnership equity. As of June 30, 2014, WGP held 49,296,205 common units, representing a 40.6% limited partner interest in the Partnership, and, through its ownership of the general partner, WGP indirectly held 2,408,699 general partner units, representing a 2.0% general partner interest in the Partnership, and 100% of the Partnership’s IDRs. As of June 30, 2014, other subsidiaries of Anadarko held 757,619 common units, representing a 0.6% limited partner interest in the Partnership. As of June 30, 2014, the public held 68,917,483 common units, representing a 56.8% limited partner interest in the Partnership.

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(UNAUDITED)

4. EQUITY AND PARTNERS’ CAPITAL (CONTINUED)

The Partnership’s net income earned on and subsequent to the date of the acquisition of the Partnership assets (as defined in Note 1) is allocated to the general partner and the limited partners consistent with actual cash distributions, including incentive distributions allocable to the general partner. Undistributed earnings (net income in excess of distributions) or undistributed losses (available cash in excess of net income) are then allocated to the general partner and the limited partners in accordance with their respective ownership percentages.

Basic and diluted net income per common unit are calculated by dividing the limited partners’ interest in net income by the weighted average number of common units outstanding during the period. The common units issued in connection with acquisitions and equity offerings are included on a weighted-average basis for periods during which they were outstanding.

5. TRANSACTIONS WITH AFFILIATES

Affiliate transactions. Revenues from affiliates include amounts earned by the Partnership from services provided to Anadarko as well as from the sale of residue, condensate and NGLs to Anadarko. In addition, the Partnership purchases natural gas from an affiliate of Anadarko pursuant to gas purchase agreements. Operating and maintenance expense includes amounts accrued for or paid to affiliates for the operation of the Partnership assets, whether in providing services to affiliates or to third parties, including field labor, measurement and analysis, and other disbursements. A portion of the Partnership’s general and administrative expenses is paid by Anadarko, which results in affiliate transactions pursuant to the reimbursement provisions of the Partnership’s omnibus agreement. Affiliate expenses do not bear a direct relationship to affiliate revenues, and third-party expenses do not bear a direct relationship to third-party revenues. See Note 2 for further information related to contributions of assets to the Partnership by Anadarko.

Cash management. Anadarko operates a cash management system whereby excess cash from most of its subsidiaries’ separate bank accounts is generally swept to centralized accounts. Prior to the Partnership’s acquisition of the Partnership assets, third-party sales and purchases related to such assets were received or paid in cash by Anadarko within its centralized cash management system. Anadarko charged or credited the Partnership interest at a variable rate on outstanding affiliate balances for the periods these balances remained outstanding. The outstanding affiliate balances were entirely settled through an adjustment to net investment by Anadarko in connection with the acquisition of the Partnership assets. Subsequent to the acquisition of Partnership assets from Anadarko, transactions related to such assets are cash-settled directly with third parties and with Anadarko affiliates, and affiliate-based interest expense on current intercompany balances is not charged. Chipeta Processing LLC cash settles its transactions directly with third parties and Anadarko, as well as with the other subsidiaries of the Partnership.

Note receivable from Anadarko. Concurrently with the closing of the Partnership’s May 2008 initial public offering, the Partnership loaned $260.0 million to Anadarko in exchange for a 30-year note bearing interest at a fixed annual rate of 6.50%, payable quarterly. The fair value of the note receivable from Anadarko was $336.9 million and $296.7 million at June 30, 2014, and December 31, 2013, respectively. The fair value of the note reflects consideration of credit risk and any premium or discount for the differential between the stated interest rate and quarter-end market interest rate, based on quoted market prices of similar debt instruments. Accordingly, the fair value of the note receivable from Anadarko is measured using Level 2 inputs.

Commodity price swap agreements. The Partnership has commodity price swap agreements with Anadarko to mitigate exposure to commodity price volatility that would otherwise be present as a result of the purchase and sale of natural gas, condensate or NGLs. Notional volumes for each of the commodity price swap agreements are not specifically defined; instead, the commodity price swap agreements apply to the actual volume of natural gas, condensate and NGLs purchased and sold at the Granger, Hilight, Hugoton, Newcastle and MGR assets, as well as the DJ Basin complex, with various expiration dates through December 2016. In December 2013, the Partnership extended the commodity price swap agreements for the Hilight and Newcastle assets through December 2014. The commodity price swap agreements do not satisfy the definition of a derivative financial instrument and, therefore, are not required to be measured at fair value.

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5. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Below is a summary of the fixed price ranges on the Partnership’s outstanding commodity price swap agreements as of June 30, 2014:



per barrel except natural gas	2014					2015					2016
Ethane	$	18.36	−	$	30.53	$	18.41	−	$	23.41	$	23.11
Propane	$	40.38	−	$	53.78	$	47.08	−	$	52.99	$	52.90
Isobutane	$	61.24	−	$	75.13	$	62.09	−	$	74.02	$	73.89
Normal butane	$	53.89	−	$	66.83	$	54.62	−	$	65.04	$	64.93
Natural gasoline	$	71.85	−	$	90.89	$	72.88	−	$	81.82	$	81.68
Condensate	$	75.22	−	$	87.30	$	76.47	−	$	81.82	$	81.68
Natural gas (per MMBtu)	$	3.45	−	$	6.20	$	4.66	−	$	5.96	$	4.87

The following table summarizes realized gains and losses on commodity price swap agreements:



	Three Months Ended June 30,						Six Months Ended June 30,
thousands	2014			2013			2014			2013
Gains (losses) on commodity price swap agreements related to sales:⁽¹⁾
Natural gas sales	$	2,013		$	2,404		$	(1,654	)	$	7,784
Natural gas liquids sales	34,554			34,203			44,009			55,508
Total	36,567			36,607			42,355			63,292
Losses on commodity price swap agreements related to purchases ⁽²⁾	(18,529		)	(22,857		)	(18,548		)	(42,711		)
Net gains (losses) on commodity price swap agreements	$	18,038		$	13,750		$	23,807		$	20,581


⁽¹⁾	Reported in affiliate natural gas, natural gas liquids and condensate sales in the consolidated statements of income in the period in which the related sale is recorded.


⁽²⁾	Reported in cost of product in the consolidated statements of income in the period in which the related purchase is recorded.

Gas gathering and processing agreements. The Partnership has significant gas gathering and processing arrangements with affiliates of Anadarko on a majority of its systems. The Partnership’s gathering, transportation and treating throughput (excluding equity investment throughput and throughput measured in barrels) attributable to natural gas production owned or controlled by Anadarko was 49% and 56% for the three months ended June 30, 2014 and 2013, respectively, and 49% and 57% for the six months ended June 30, 2014 and 2013, respectively. The Partnership’s processing throughput (excluding equity investment throughput and throughput measured in barrels) attributable to natural gas production owned or controlled by Anadarko was 58% and 57% for the three months ended June 30, 2014 and 2013, respectively, and 58% for each of the six months ended June 30, 2014 and 2013.

Equipment purchases and sales. The following table summarizes the Partnership’s purchases from and sales to Anadarko of pipe and equipment:



	Six Months Ended June 30,
	2014			2013		2014		2013
thousands	Purchases					Sales
Cash consideration	$	4,702		$	1,436	$	—	$	82
Net carrying value	4,745			773		—		34
Partners’ capital adjustment	$	(43	)	$	663	$	—	$	48

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5. TRANSACTIONS WITH AFFILIATES (CONTINUED)

WES LTIP. The general partner awards phantom units under the Western Gas Partners, LP 2008 Long-Term Incentive Plan (“WES LTIP”) primarily to its independent directors and its Chief Executive Officer. The phantom units awarded to the independent directors vest one year from the grant date, while all other awards are subject to graded vesting over a three-year service period. Compensation expense is recognized over the vesting period and was $0.2 million for each of the three months ended June 30, 2014 and 2013 and $0.3 million for each of the six months ended June 30, 2014 and 2013.

WGP LTIP and Anadarko Incentive Plans. The Partnership’s general and administrative expenses included $0.9 million and $1.8 million for the three and six months ended June 30, 2014, respectively, and $0.7 million and $1.4 million for the three and six months ended June 30, 2013, respectively, of equity-based compensation expense, allocated to the Partnership by Anadarko, for awards granted to the executive officers of the general partner and other employees under the Western Gas Equity Partners, LP 2012 Long-Term Incentive Plan (“WGP LTIP”) and Anadarko Incentive Plans. Of this amount, $1.7 million is reflected as a contribution to partners’ capital in the Partnership’s consolidated statement of equity and partners’ capital for the six months ended June 30, 2014.

Summary of affiliate transactions. The following table summarizes affiliate transactions, which include revenue from affiliates, reimbursement of operating expenses and purchases of natural gas:



	Three Months Ended June 30,				Six Months Ended June 30,
thousands	2014		2013		2014		2013
Revenues ⁽¹⁾	$	256,666	$	200,316	$	462,956	$	377,885
Equity income, net	13,008		3,456		22,259		7,424
Cost of product ⁽¹⁾	35,230		32,119		51,864		64,048
Operation and maintenance ⁽²⁾	16,817		14,186		27,916		27,552
General and administrative ⁽³⁾	6,479		5,589		13,293		11,458
Operating expenses	58,526		51,894		93,073		103,058
Interest income, net ⁽⁴⁾	4,225		4,225		8,450		8,450
Distributions to unitholders ⁽⁵⁾	56,325		40,247		108,207		77,115


⁽¹⁾	Represents amounts earned on and subsequent to the date of acquisition of the Partnership assets, as well as amounts earned by Anadarko on a historical basis related to the Partnership assets prior to the acquisition of such assets, recognized under gathering, treating or processing agreements, and purchase and sale agreements.


⁽²⁾	Represents expenses incurred on and subsequent to the date of the acquisition of the Partnership assets, as well as expenses incurred by Anadarko on a historical basis related to the Partnership assets prior to the acquisition of the Partnership assets by the Partnership.

⁽³⁾

Represents general and administrative expense incurred on and subsequent to the date of the Partnership’s acquisition of the Partnership assets, as well as a management services fee for reimbursement of expenses incurred by Anadarko for periods prior to the acquisition of the Partnership assets by the Partnership. These amounts include equity-based compensation expense allocated to the Partnership by Anadarko (see WES LTIP and WGP LTIP and Anadarko Incentive Plans within this Note 5).


⁽⁴⁾	Represents interest income recognized on the note receivable from Anadarko.


⁽⁵⁾	Represents distributions paid under the partnership agreement (see Note 3 and Note 4).

Concentration of credit risk. Anadarko was the only customer from whom revenues exceeded 10% of the Partnership’s consolidated revenues for all periods presented in the consolidated statements of income.

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6. PROPERTY, PLANT AND EQUIPMENT

A summary of the historical cost of the Partnership’s property, plant and equipment is as follows:



thousands	Estimated Useful Life	June 30, 2014		December 31, 2013
Land	n/a	$	2,584	$	2,584
Gathering systems	3 to 47 years	4,123,786		3,673,008
Pipelines and equipment	15 to 45 years	145,799		146,008
Assets under construction	n/a	304,854		405,633
Other	3 to 40 years	14,912		11,867
Total property, plant and equipment		4,591,935		4,239,100
Accumulated depreciation		936,568		855,845
Net property, plant and equipment		$	3,655,367	$	3,383,255

The cost of property classified as “Assets under construction” is excluded from capitalized costs being depreciated. These amounts represent property that is not yet suitable to be placed into productive service as of the respective balance sheet date.

At December 31, 2013, other long-term assets includes $4.6 million of unguaranteed residual value related to the capital lease component of a processing agreement assumed in connection with the acquisition of the Granger straddle plant as a part of the Mountain Gas Resources, LLC acquisition in January 2012. This agreement, in which the Partnership was the lessor, was replaced effective April 1, 2014, with a gas conditioning agreement that does not satisfy criteria required for lease classification. As such, during the second quarter of 2014, the Partnership reclassified the $4.6 million capital lease asset from other long-term assets to property, plant and equipment and commenced depreciation.

During the second quarter of 2014, the Partnership recognized a $0.3 million impairment primarily related to the cancellation of various capital projects by the third-party operator of the Non-Operated Marcellus Interest. During the first quarter of 2014, the Partnership recognized a $1.2 million impairment primarily related to a non-operational plant in the Powder River Basin that was impaired to its estimated fair value of $2.4 million, using Level 3 fair-value inputs.

7. COMPONENTS OF WORKING CAPITAL

A summary of other current assets is as follows:



thousands	June 30, 2014		December 31, 2013
Natural gas liquids inventory	$	2,188	$	2,584
Natural gas imbalance receivables	974		3,605
Prepaid insurance	349		2,123
Other	1,049		1,710
Total other current assets	$	4,560	$	10,022

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(UNAUDITED)

7. COMPONENTS OF WORKING CAPITAL (CONTINUED)

A summary of accrued liabilities is as follows:



thousands	June 30, 2014		December 31, 2013
Accrued capital expenditures	$	77,996	$	94,750
Accrued plant purchases	28,333		21,396
Accrued interest expense	25,492		18,119
Short-term asset retirement obligations	605		1,966
Short-term remediation and reclamation obligations	562		562
Other	81		218
Total accrued liabilities	$	133,069	$	137,011

8. DEBT AND INTEREST EXPENSE

At June 30, 2014, the Partnership’s debt consisted of 5.375% Senior Notes due 2021 (the “2021 Notes”), 4.000% Senior Notes due 2022 (the “2022 Notes”), 2.600% Senior Notes due 2018 (the “2018 Notes”), 5.450% Senior Notes due 2044 (the “2044 Notes”), and the senior unsecured revolving credit facility (“RCF”). The two tranches of the 2022 Notes, issued in June and October 2012, were issued under the same indenture and are considered a single class of securities. The two tranches of the 2018 Notes, issued in August 2013 and March 2014, were issued under the same indenture and are considered a single class of securities.

The following table presents the Partnership’s outstanding debt as of June 30, 2014, and December 31, 2013:



	June 30, 2014						December 31, 2013
thousands	Principal		Carrying Value		Fair Value ⁽¹⁾		Principal		Carrying Value		Fair Value ⁽¹⁾
5.375% Senior Notes due 2021	$	500,000	$	495,439	$	566,283	$	500,000	$	495,173	$	533,615
4.000% Senior Notes due 2022	670,000		673,105		697,141		670,000		673,278		641,237
Revolving credit facility	110,000		110,000		110,000		—		—		—
2.600% Senior Notes due 2018	350,000		350,537		358,515		250,000		249,718		247,988
5.450% Senior Notes due 2044	400,000		393,795		441,083		—		—		—
Total debt outstanding	$	2,030,000	$	2,022,876	$	2,173,022	$	1,420,000	$	1,418,169	$	1,422,840


⁽¹⁾	Fair value is measured using Level 2 inputs.

Debt activity. The following table presents the debt activity of the Partnership for the six months ended June 30, 2014:



thousands	Carrying Value
Balance at December 31, 2013	$	1,418,169
Revolving credit facility borrowings	590,000
Issuance of 5.450% Senior Notes due 2044	400,000
Issuance of 2.600% Senior Notes due 2018	100,000
Repayments of revolving credit facility	(480,000		)
Other	(5,293		)
Balance at June 30, 2014	$	2,022,876

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8. DEBT AND INTEREST EXPENSE (CONTINUED)

Senior Notes. The 2044 Notes issued in March 2014 were offered at a price to the public of 98.443% of the face amount. Including the effects of the issuance and underwriting discounts, the effective interest rate of the 2044 Notes is 5.633%. Interest is paid semi-annually on April 1 and October 1 of each year. Proceeds (net of underwriting discount of $3.5 million, original issue discount and debt issuance costs) were used to repay amounts then outstanding under the Partnership’s RCF and for general partnership purposes.

The 2018 Notes issued in March 2014 were offered at a price to the public of 100.857% of the face amount. Including the effects of the issuance premium for the March 2014 offering, the issuance discount for the August 2013 offering of 2018 Notes, and underwriting discounts, the effective interest rate of the 2018 Notes is 2.743%. Interest is paid semi-annually on February 15 and August 15 of each year. Proceeds (net of underwriting discount of $0.6 million, original issue premium and debt issuance costs) were used to repay amounts then outstanding under the Partnership’s RCF and for general partnership purposes.

At June 30, 2014, the Partnership was in compliance with all covenants under the indentures governing the 2021 Notes, 2022 Notes, 2018 Notes, and 2044 Notes.

Revolving credit facility. In February 2014, the Partnership entered into an amended and restated $1.2 billion senior unsecured RCF, which is expandable to a maximum of $1.5 billion, replacing an $800.0 million credit facility, which was originally entered into in March 2011. Subsequent to February 2014, the Partnership borrowed $350.0 million under the RCF to fund the acquisition of the TEFR Interests (see Note 2). The RCF matures in February 2019 and bears interest at London Interbank Offered Rate (“LIBOR”), plus applicable margins ranging from 0.975% to 1.45%, or an alternate base rate equal to the greatest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.5%, or (c) LIBOR plus 1%, in each case plus applicable margins currently ranging from zero to 0.45%, based upon the Partnership’s senior unsecured debt rating. The interest rate on the RCF was 1.46% at June 30, 2014. At December 31, 2013, the interest rate on the previous credit facility was 1.67%. The Partnership is required to pay a quarterly facility fee currently ranging from 0.15% to 0.30% of the commitment amount (whether used or unused), based upon the Partnership’s senior unsecured debt rating. The facility fee rate was 0.20% and 0.25% at June 30, 2014, and December 31, 2013, respectively.

As of June 30, 2014, the Partnership had $110.0 million of outstanding borrowings, $12.8 million in outstanding letters of credit and $1.1 billion available for borrowing under the RCF. At June 30, 2014, the Partnership was in compliance with all covenants under the RCF.

The 2021 Notes, 2022 Notes, 2018 Notes, 2044 Notes and obligations under the RCF are recourse to the Partnership’s general partner. The Partnership’s general partner is indemnified by a wholly owned subsidiary of Anadarko, Western Gas Resources, Inc. (“WGRI”), against any claims made against the general partner under the 2022 Notes, 2021 Notes, and/or the RCF.

In connection with the acquisitions of the Non-Operated Marcellus Interest, the Anadarko-Operated Marcellus Interest, and the TEFR Interests, the Partnership’s general partner and other wholly owned subsidiaries of Anadarko entered into indemnification agreements, whereby such subsidiaries agreed to indemnify the Partnership’s general partner for any recourse liability it may have for RCF borrowings, or other debt financing, attributable to the acquisitions of the Non-Operated Marcellus Interest, the Anadarko-Operated Marcellus Interest, and the TEFR Interests. These indemnification agreements apply to the 2044 Notes, 2018 Notes, and/or RCF borrowings outstanding related to the aforementioned acquisitions.

The Partnership’s general partner, the other indemnifying subsidiaries of Anadarko and WGRI also amended and restated the indemnity agreements between them to (i) conform language among all the indemnification agreements and (ii) reduce the amount for which WGRI would indemnify the Partnership’s general partner by an amount equal to any amounts payable to the Partnership’s general partner under the indemnification agreements related to the acquisitions of the Non-Operated Marcellus Interest, the Anadarko-Operated Marcellus Interest, and the TEFR Interests.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

8. DEBT AND INTEREST EXPENSE (CONTINUED)

Interest expense. The following table summarizes the amounts included in interest expense:



	Three Months Ended June 30,						Six Months Ended June 30,
thousands	2014			2013			2014			2013
Interest expense on long-term debt	$	21,445		$	14,850		$	37,580		$	28,789
Amortization of debt issuance costs and commitment fees	1,426			1,064			2,692			2,117
Capitalized interest	(2,007		)	(3,260		)	(5,447		)	(6,441		)
Interest expense	$	20,864		$	12,654		$	34,825		$	24,465

9. COMMITMENTS AND CONTINGENCIES

Litigation and legal proceedings. In March 2011, DCP Midstream, LP (“DCP”) filed a lawsuit against Anadarko and others, including a Partnership subsidiary, Kerr-McGee Gathering, LLC, in Weld County District Court (the “Court”) in Colorado, alleging that Anadarko diverted gas from DCP’s gathering and processing facilities in breach of certain dedication agreements. In addition to various claims against Anadarko, DCP is claiming unjust enrichment and other damages against Kerr-McGee Gathering, LLC, the entity that holds the Wattenberg assets (located in the DJ Basin complex). Anadarko countersued DCP asserting that DCP has not properly allocated values and charges to Anadarko for the gas that DCP gathers and/or processes, and seeks a judgment that DCP has no valid gathering or processing rights to much of the gas production it is claiming, in addition to other claims.

In July 2011, the Court denied the defendants’ motion to dismiss without ruling on the merits and the case is in the discovery phase. Management does not believe the outcome of this proceeding will have a material effect on the Partnership’s financial condition, results of operations or cash flows. The Partnership intends to vigorously defend this litigation. Furthermore, without regard to the merit of DCP’s claims, management believes that the Partnership has adequate contractual indemnities covering the claims against it in this lawsuit.

In addition, 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 a 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, related to its capital spending programs, as well as those of its unconsolidated affiliates. As of June 30, 2014, the Partnership had unconditional payment obligations for services to be rendered or products to be delivered in connection with its capital projects of $58.3 million, the majority of which is expected to be paid in the next twelve months. These commitments relate primarily to the continued construction of Train II at the Lancaster processing plant and compressor expansion projects at the Wattenberg system, both located in the DJ Basin complex.

Lease commitments. Anadarko, on behalf of the Partnership, has entered into lease agreements for corporate offices, shared field offices and a warehouse supporting the Partnership’s operations. The leases for the corporate offices and shared field offices extend through 2017 and 2018, respectively, and the lease for the warehouse extends through February 2015 and includes an early termination clause.

Rent expense associated with the office, warehouse and equipment leases was $0.7 million and $1.5 million for the three and six months ended June 30, 2014, respectively, and $0.7 million and $1.4 million for the three and six months ended June 30, 2013, respectively.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

For purposes of this report, “we,” “us,” “our,” the “Partnership,” or “Western Gas Partners” refers to Western Gas Partners, LP and its subsidiaries. Our general partner, Western Gas Holdings, LLC (the “general partner” or “GP”), is owned by Western Gas Equity Partners, LP (“WGP”), a Delaware master limited partnership formed by Anadarko Petroleum Corporation. Western Gas Equity Holdings, LLC is WGP’s general partner and is a wholly owned subsidiary of Anadarko Petroleum Corporation. “Anadarko” refers to Anadarko Petroleum Corporation and its subsidiaries, excluding the Partnership and our general partner, and “affiliates” refers to subsidiaries of Anadarko, excluding the Partnership, and includes equity interests in Fort Union Gas Gathering, LLC (“Fort Union”), White Cliffs Pipeline, LLC (“White Cliffs”), Rendezvous Gas Services, LLC (“Rendezvous”), Enterprise EF78, LLC (the “Mont Belvieu JV”), Texas Express Pipeline LLC (“TEP”), Texas Express Gathering LLC (“TEG”) and Front Range Pipeline LLC (“FRP”). The interests in TEP, TEG and FRP are referred to collectively as the “TEFR Interests.” “Equity investment throughput” refers to our 14.81% share of average Fort Union throughput and our 22% share of average Rendezvous throughput, but excludes throughput measured in barrels consisting of our 10% share of average White Cliffs throughput, our 25% share of average Mont Belvieu JV throughput, our 20% share of average TEP and TEG throughput and our 33.33% share of average FRP throughput. The “DJ Basin complex” refers to the Platte Valley system, Wattenberg system, and Lancaster plant, all of which were combined into a single complex in the first quarter of 2014.

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, which are included under Part I, Item 1 of this quarterly report, as well as our historical consolidated financial statements, and the notes thereto, which are included in Part II, Item 8 of our 2013 Form 10-K as filed with the Securities and Exchange Commission, or “SEC,” on February 28, 2014, and our other public filings and press releases.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made in this report, and may from time to time otherwise make in other public filings, press releases and discussions by management, forward-looking statements concerning our operations, economic performance and financial condition. These statements can be identified by the use of forward-looking terminology including “may,” “will,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” or other similar words. These statements discuss future expectations, contain projections of results of operations or financial condition or include other “forward-looking” information. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will be realized.

These forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the following risks and uncertainties:


•	our ability to pay distributions to our unitholders;


•	our and Anadarko’s assumptions about the energy market;


•	future throughput, including Anadarko’s production, which is gathered or processed by or transported through our assets;


•	operating results;


•	competitive conditions;


•	technology;


•	availability of capital resources to fund acquisitions, capital expenditures and other contractual obligations, and our ability to access those resources from Anadarko or through the debt or equity capital markets;


•	supply of, demand for, and the price of, oil, natural gas, NGLs and related products or services;

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•	weather;


•	inflation;


•	availability of goods and services;


•	general economic conditions, either internationally or domestically or in the jurisdictions in which we are doing business;


•	changes in regulations at the federal, state and local level or the inability to timely obtain or maintain permits that could affect our and our customers’ activities; environmental risks; regulations by the Federal Energy Regulatory Commission (“FERC”); and liability under federal and state laws and regulations;


•	legislative or regulatory changes, including changes impacting Anadarko and other producers that would limit hydraulic fracturing or other oil and gas operations, and changes affecting our status as a partnership for federal income tax purposes;


•	changes in the financial or operational condition of Anadarko;


•	changes in Anadarko’s capital program, strategy or desired areas of focus;


•	our commitments to capital projects;


•	ability to use our revolving credit facility (“RCF”);


•	creditworthiness of Anadarko or our other counterparties, including financial institutions, operating partners, and other parties;


•	our ability to repay debt;


•	our ability to mitigate commodity price risks inherent in our percent-of-proceeds and keep-whole contracts;


•	conflicts of interest among us, our general partner, WGP and its general partner, and affiliates, including Anadarko;


•	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;


•	non-payment or non-performance of Anadarko or other significant customers, including under our gathering, processing and transportation agreements and our $260.0 million note receivable from Anadarko;


•	timing, amount and terms of future issuances of equity and debt securities; and


•	other factors discussed below, in “Risk Factors” included in our 2013 Form 10-K, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates,” in our quarterly reports on Form 10-Q and elsewhere in our other public filings and press releases.

The risk factors and other factors noted throughout or incorporated by reference in this report could cause our actual results to differ materially from those contained in any forward-looking statement. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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EXECUTIVE SUMMARY

We are a growth-oriented Delaware master limited partnership formed by Anadarko to own, operate, acquire and develop midstream energy assets. We currently own or have investments in assets located in the Rocky Mountains (Colorado, Utah and Wyoming), the Mid-Continent (Kansas and Oklahoma), north-central Pennsylvania and Texas, and are engaged in the business of gathering, processing, compressing, treating and transporting natural gas, condensate, NGLs and crude oil for Anadarko, as well as for third-party producers and customers. As of June 30, 2014, our assets and investments accounted for under the equity method consisted of the following:



	Owned and Operated	Operated Interests	Non-Operated Interests	Equity Interests
Natural gas gathering systems	13	1	5	2
NGL gathering systems	—	—	—	2
Natural gas treating facilities	8	—	—	1
Natural gas processing facilities	9	3	—	2
NGL pipelines	3	—	—	2
Natural gas pipelines	3	—	—	—
Oil pipeline	—	—	—	1

Significant financial and operational highlights during the first six months of 2014 included the following:


•	We issued 1,034,587 common units to the public under our Continuous Offering Program (as defined below), generating net proceeds of $74.3 million, including the general partner’s proportionate capital contribution to maintain its 2.0% general partner interest. Net proceeds were used for general partnership purposes, including funding capital expenditures. See Equity Offerings below.


•	We completed construction and commenced operations in April 2014 of the 300 MMcf/d Train I at the Lancaster processing plant (located in the DJ Basin complex) in Northeast Colorado, and are constructing the 300 MMcf/d Train II at the same plant with operations expected to commence in the second quarter of 2015.


•	We issued $400.0 million aggregate principal amount of 5.450% Senior Notes due 2044 and an additional $100.0 million aggregate principal amount of 2.600% Senior Notes due 2018. Net proceeds were used to repay amounts then outstanding under our RCF. See Liquidity and Capital Resources within this Item 2 for additional information.


•	We completed the acquisition of Anadarko’s 20% interests in TEG and TEP, and its 33.33% interest in FRP. See Acquisitions below.


•	We entered into an amended and restated $1.2 billion (expandable to $1.5 billion) senior unsecured RCF replacing our $800.0 million credit facility. See Liquidity and Capital Resources within this Item 2 for additional information.


•	We raised our distribution to $0.650 per unit for the second quarter of 2014, representing a 4% increase over the distribution for the first quarter of 2014 and a 16% increase over the distribution for the second quarter of 2013.

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•	Throughput attributable to Western Gas Partners, LP totaled 3,561 MMcf/d and 3,483 MMcf/d for the three and six months ended June 30, 2014, respectively, representing a 13% and 15% increase, respectively, compared to the same periods in 2013.


•	Adjusted gross margin attributable to Western Gas Partners, LP for natural gas assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $0.65 per Mcf and $0.62 per Mcf for the three and six months ended June 30, 2014, respectively, representing an 18% and 15% increase, respectively, compared to the same periods in 2013.


•	Adjusted gross margin for crude/NGL assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $2.06 per Bbl and $1.84 per Bbl for the three and six months ended June 30, 2014, respectively, representing increases of 44% and 27%, respectively, compared to the same periods in 2013.

ACQUISITIONS

Acquisitions. The following table presents our acquisitions during 2014 and 2013, and identifies the funding sources for such acquisitions.



thousands except unit and percent amounts	Acquisition Date	Percentage Acquired		Borrowings		Cash On Hand		Common Units Issued
Non-Operated Marcellus Interest ⁽¹⁾	03/01/2013	33.75	%	$	250,000	$	215,500	449,129
Anadarko-Operated Marcellus Interest ⁽²⁾	03/08/2013	33.75	%	133,500		—		—
Mont Belvieu JV ⁽³⁾	06/05/2013	25	%	—		78,129		—
OTTCO ⁽⁴⁾	09/03/2013	100	%	27,500		—		—
TEFR Interests ⁽⁵⁾	03/03/2014	Various ⁽⁵⁾		350,000		6,250		308,490

⁽¹⁾

We acquired Anadarko’s 33.75% interest (non-operated) in the Liberty and Rome gas gathering systems, serving production from the Marcellus shale in north-central Pennsylvania. The interest acquired is referred to as the “Non-Operated Marcellus Interest.” In connection with the issuance of the common units, our general partner purchased 9,166 general partner units for consideration of $0.5 million to maintain its 2.0% general partner interest in us.

⁽²⁾

We acquired a 33.75% interest in each of the Larry’s Creek, Seely and Warrensville gas gathering systems, which are operated by Anadarko and serve production from the Marcellus shale in north-central Pennsylvania, from a third party. The interest acquired is referred to as the “Anadarko-Operated Marcellus Interest.” During the third quarter of 2013, we recorded a $1.1 million decrease in the assets acquired and liabilities assumed in the acquisition, representing the final purchase price allocation.


⁽³⁾	We acquired a 25% interest in the Mont Belvieu JV, an entity formed to design, construct, and own two fractionation trains located in Mont Belvieu, Texas, from a third party. The interest acquired is accounted for under the equity method of accounting.


⁽⁴⁾	We acquired Overland Trail Transmission, LLC (“OTTCO”), a Delaware limited liability company, from a third party. OTTCO owns and operates an intrastate pipeline that connects our Red Desert and Granger complexes in southwestern Wyoming.

⁽⁵⁾

We acquired a 20% interest in each of TEG and TEP and a 33.33% interest in FRP from Anadarko. These assets gather and transport NGLs primarily from the Anadarko and Denver-Julesburg Basins. TEG consists of two NGL gathering systems that link natural gas processing plants to TEP. TEP is an NGL pipeline that originates in Skellytown, Texas and extends approximately 580 miles to Mont Belvieu, Texas. FRP is a 435 mile NGL pipeline that extends from Weld County, Colorado to Skellytown, Texas. The interests in these entities are accounted for under the equity method of accounting. In connection with the issuance of the common units, our general partner purchased 6,296 general partner units for consideration of $0.4 million to maintain its 2.0% general partner interest in us. See Note 2—Acquisitions in the Notes to Consolidated Financial Statements under Item 1 of this Form 10-Q.

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Presentation of Partnership assets. The “Partnership assets” refer collectively to the assets owned and interests accounted for under the equity method by us as of June 30, 2014. Because Anadarko controls us through its ownership and control of WGP, which owns our general partner, each of our acquisitions of Partnership assets from Anadarko has been considered a transfer of net assets between entities under common control. As such, the Partnership assets we acquired from Anadarko were initially recorded at Anadarko’s historic carrying value, which did not correlate to the total acquisition price paid by us (see Note 2—Acquisitions in the Notes to Consolidated Financial Statements under Item 1 of this Form 10-Q). Further, after an acquisition of the Partnership assets from Anadarko, we may be required to recast our financial statements to include the activities of the Partnership assets as of the date of common control.

The historical financial statements previously filed with the SEC have been recast in this Form 10-Q to include the results attributable to the TEFR Interests as if we owned such interests for all periods presented. The consolidated financial statements for periods prior to our acquisition of the Partnership assets from Anadarko, including the TEFR Interests, have been prepared from Anadarko’s historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if we had owned the Partnership assets during the periods reported.

EQUITY OFFERINGS

Equity offerings. We completed the following public equity offerings during 2014 and 2013:



thousands except unit and per-unit amounts	Common Units Issued	GP Units Issued ⁽¹⁾	Price Per Unit		Underwriting Discount and Other Offering Expenses		Net Proceeds
May 2013 equity offering ⁽²⁾	7,015,000	143,163	$	61.18	$	13,203	$	424,733
December 2013 equity offering ⁽³⁾	4,800,000	97,959	61.51		9,447		291,827
Continuous Offering Program - 2013 ⁽⁴⁾	685,735	13,996	60.84		965		41,603
Continuous Offering Program - 2014 ⁽⁵⁾	1,034,587	1,824	73.24		1,565		74,343


⁽¹⁾	Represents general partner units issued to the general partner in exchange for the general partner’s proportionate capital contribution to maintain its 2.0% general partner interest in us.


⁽²⁾	Includes the issuance of 915,000 common units pursuant to the full exercise of the underwriters’ over-allotment option granted in connection with the May 2013 equity offering.


⁽³⁾	Includes the issuance of 300,000 common units on January 3, 2014, pursuant to the partial exercise of the underwriters’ over-allotment option granted in connection with the December 2013 equity offering. Net proceeds from this partial exercise (including the general partner’s proportionate capital contribution) were $18.1 million.

⁽⁴⁾

Represents common and general partner units issued during the year ended December 31, 2013, pursuant to our registration statement filed with the SEC in August 2012 authorizing the issuance of up to an aggregate of $125.0 million of common units (the “Continuous Offering Program”). Gross proceeds generated (including our general partner’s proportionate capital contributions) were $42.6 million. The price per unit in the table above represents an average price for all issuances under the Continuous Offering Program during 2013.

⁽⁵⁾

Represents common and general partner units issued during the three and six months ended June 30, 2014, under the Continuous Offering Program. Gross proceeds generated (including the general partner’s proportionate capital contributions) were $75.9 million. The price per unit in the table above represents an average price for all issuances under the Continuous Offering Program during the six months ended June 30, 2014. Does not include the issuance of 98,797 common units that were sold in June 2014, but settled in July 2014, or the issuance of 21,308 general partner units to the general partner in exchange for the general partner’s proportionate capital contribution to maintain its 2.0% general partner interest in us. As of June 30, 2014, we had used substantially all the capacity to issue units under this registration statement.

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RESULTS OF OPERATIONS

OPERATING RESULTS

The following tables and discussion present a summary of our results of operations:



	Three Months Ended June 30,				Six Months Ended June 30,
thousands	2014		2013		2014		2013
Gathering, processing and transportation of natural gas and natural gas liquids	$	161,250	$	109,800	$	302,699	$	212,690
Natural gas, natural gas liquids and condensate sales	166,654		139,561		303,092		261,290
Other, net	2,040		2,041		3,610		3,188
Total revenues ⁽¹⁾	329,944		251,402		609,401