Edgar Filing: Western Gas Partners LP

Document

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, 2018


¨	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 ¨

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-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). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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-2 of the Exchange Act.



Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨	Emerging growth company ¨
		(Do not check if a smaller reporting company)

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. ¨

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

There were 152,609,285 common units outstanding as of July 30, 2018.

TABLE OF CONTENTS



			PAGE
PART I		FINANCIAL INFORMATION (UNAUDITED)
	Item 1.	Financial Statements
		Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017	6
		Consolidated Balance Sheets as of June 30, 2018, and December 31, 2017	7
		Consolidated Statement of Equity and Partners’ Capital for the six months ended June 30, 2018	8
		Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017	9
		Notes to Consolidated Financial Statements	10
		Note 1. Description of Business and Basis of Presentation	10
		Note 2. Revenue from Contracts with Customers	17
		Note 3. Acquisitions and Divestitures	19
		Note 4. Partnership Distributions	20
		Note 5. Equity and Partners’ Capital	21
		Note 6. Transactions with Affiliates	24
		Note 7. Property, Plant and Equipment	28
		Note 8. Equity Investments	29
		Note 9. Components of Working Capital	29
		Note 10. Debt and Interest Expense	30
		Note 11. Commitments and Contingencies	32
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
		Cautionary Note Regarding Forward-Looking Statements	33
		Executive Summary	35
		Acquisitions and Divestitures	37
		Equity Offerings	37
		Results of Operations	38
		Operating Results	38
		Key Performance Metrics	45
		Liquidity and Capital Resources	51
		Contractual Obligations	55
		Off-Balance Sheet Arrangements	55
		Recent Accounting Developments	55
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56
	Item 4.	Controls and Procedures	56
PART II		OTHER INFORMATION
	Item 1.	Legal Proceedings	57
	Item 1A.	Risk Factors	57
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
	Item 6.	Exhibits	58

Table of Contents

COMMONLY USED TERMS AND DEFINITIONS

Unless the context otherwise requires, references to “we,” “us,” “our,” the “Partnership” or “Western Gas Partners, LP” refer to Western Gas Partners, LP and its subsidiaries. As used in this Form 10-Q, the terms and definitions below have the following meanings:

Additional DBJV System Interest: Our additional 50% interest in the DBJV system acquired from a third party in March 2017.

Affiliates: Subsidiaries of Anadarko, excluding us, but including equity interests in Fort Union, White Cliffs, Rendezvous, the Mont Belvieu JV, TEP, TEG, FRP, Whitethorn and Cactus II.

Anadarko: Anadarko Petroleum Corporation and its subsidiaries, excluding us and our general partner.

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 our 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 gas liquid with a low vapor pressure mainly composed of propane, butane, pentane and heavier hydrocarbon fractions.

Cryogenic: The process in which liquefied gases are used to bring natural gas 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.

DBJV: Delaware Basin JV Gathering LLC.

DBJV system: A gathering system and related facilities located in the Delaware Basin in Loving, Ward, Winkler and Reeves Counties in West Texas.

DBM: Delaware Basin Midstream, LLC.

DBM complex: The cryogenic processing plants, gas gathering system, and related facilities and equipment in West Texas that serve production from Reeves, Loving and Culberson Counties, Texas and Eddy and Lea Counties, New Mexico.

DBM water systems: Two produced water gathering and disposal systems in West Texas.

DJ Basin complex: The Platte Valley system, Wattenberg system and Lancaster plant, all of which were combined into a single complex in the first quarter of 2014.

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.

Fort Union: Fort Union Gas Gathering, LLC.

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.

FRP: Front Range Pipeline LLC.

Table of Contents

GAAP: Generally accepted accounting principles in the United States.

General partner: Western Gas Holdings, LLC.

Hydraulic fracturing: The injection of fluids into the wellbore to create fractures in rock formations, stimulating the production of oil or gas.

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

IPO: Initial public offering.

LIBOR: London Interbank Offered Rate.

Marcellus Interest: Our 33.75% interest in the Larry’s Creek, Seely and Warrensville gas gathering systems and related facilities located in northern Pennsylvania.

MBbls/d: One thousand barrels per day.

MGR: Mountain Gas Resources, LLC.

MGR assets: The Red Desert complex and the Granger straddle plant.

MLP: Master limited partnership.

MMBtu: One million British thermal units.

MMcf: One million cubic feet.

MMcf/d: One 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 higher pressure and lower temperature.

Non-Operated Marcellus Interest: The 33.75% interest in the Liberty and Rome gas gathering systems and related facilities located in northern Pennsylvania that was transferred to a third party in March 2017 pursuant to the Property Exchange.

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.

Property Exchange: Our acquisition of the Additional DBJV System Interest from a third party in exchange for the Non-Operated Marcellus Interest and $155.0 million of cash consideration, as further described in our Forms 8-K filed with the SEC on February 9, 2017, and March 23, 2017.

RCF: Our $1.5 billion senior unsecured revolving credit facility.

Red Desert complex: The Patrick Draw processing plant, the Red Desert processing plant, associated gathering lines, and related facilities.

Rendezvous: Rendezvous Gas Services, LLC.

Residue: The natural gas remaining after the unprocessed natural gas stream has been processed or treated.

SEC: U.S. Securities and Exchange Commission.

Springfield gas gathering system: A gas gathering system and related facilities located in Dimmit, La Salle, Maverick and Webb Counties in South Texas.

Table of Contents

Springfield oil gathering system: An oil gathering system and related facilities located in Dimmit, La Salle, Maverick and Webb Counties in South Texas.

Springfield system: The Springfield gas gathering system and Springfield oil gathering system.

TEFR Interests: The interests in TEP, TEG and FRP.

TEG: Texas Express Gathering LLC.

TEP: Texas Express Pipeline LLC.

WGP: Western Gas Equity Partners, LP.

White Cliffs: White Cliffs Pipeline, LLC.

Whitethorn LLC: Whitethorn Pipeline Company LLC.

2018 Notes: Our 2.600% Senior Notes due 2018.

2021 Notes: Our 5.375% Senior Notes due 2021.

2022 Notes: Our 4.000% Senior Notes due 2022.

2025 Notes: Our 3.950% Senior Notes due 2025.

2026 Notes: Our 4.650% Senior Notes due 2026.

2028 Notes: Our 4.500% Senior Notes due 2028.

2044 Notes: Our 5.450% Senior Notes due 2044.

2048 Notes: Our 5.300% Senior Notes due 2048.

$500.0 million COP: The continuous offering program that may be undertaken pursuant to the registration statement filed with the SEC in July 2017 for the issuance of up to an aggregate of $500.0 million of our common units.

Table of Contents

PART I. FINANCIAL INFORMATION (UNAUDITED)

Item 1. Financial Statements

WESTERN GAS PARTNERS, LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



	Three Months Ended June 30,						Six Months Ended June 30,
thousands except per-unit amounts	2018			2017			2018			2017
Revenues and other – affiliates
Service revenues – fee based	$	192,488		$	154,984		$	378,489		$	327,298
Service revenues – product based	285			—			527			—
Product sales	45,256			161,329			100,075			304,170
Total revenues and other – affiliates	238,029			316,313			479,091			631,468
Revenues and other – third parties
Service revenues – fee based	167,056			144,451			319,474			279,951
Service revenues – product based	21,820			—			44,171			—
Product sales	8,821			63,495			29,939			127,179
Other	223			1,191			442			3,045
Total revenues and other – third parties	197,920			209,137			394,026			410,175
Total revenues and other	435,949			525,450			873,117			1,041,643
Equity income, net – affiliates	39,218			21,728			59,642			41,189
Operating expenses
Cost of product ⁽¹⁾	68,149			203,277			145,948			392,636
Operation and maintenance ⁽¹⁾	100,628			76,148			188,907			149,908
General and administrative ⁽¹⁾	14,035			10,585			28,167			23,244
Property and other taxes	11,754			11,924			24,136			24,218
Depreciation and amortization	78,792			74,031			155,634			143,733
Impairments	127,243			3,178			127,391			167,920
Total operating expenses	400,601			379,143			670,183			901,659
Gain (loss) on divestiture and other, net ⁽²⁾	170			15,458			286			134,945
Proceeds from business interruption insurance claims	—			24,115			—			29,882
Operating income (loss)	74,736			207,608			262,862			346,000
Interest income – affiliates	4,225			4,225			8,450			8,450
Interest expense ⁽³⁾	(44,389		)	(35,746		)	(83,672		)	(71,250		)
Other income (expense), net	1,229			253			2,011			683
Income (loss) before income taxes	35,801			176,340			189,651			283,883
Income tax (benefit) expense	282			843			1,784			4,395
Net income (loss)	35,519			175,497			187,867			279,488
Net income attributable to noncontrolling interest	2,811			2,046			5,796			4,148
Net income (loss) attributable to Western Gas Partners, LP	$	32,708		$	173,451		$	182,071		$	275,340
Limited partners’ interest in net income (loss):
Net income (loss) attributable to Western Gas Partners, LP	$	32,708		$	173,451		$	182,071		$	275,340
Series A Preferred units interest in net (income) loss	—			(14,199		)	—			(42,373		)
General partner interest in net (income) loss ⁽⁴⁾	(84,176		)	(76,365		)	(167,615		)	(144,527		)
Common and Class C limited partners’ interest in net income (loss) ⁽⁴⁾	(51,468		)	82,887			14,456			88,440
Net income (loss) per common unit – basic and diluted ⁽⁵⁾	$	(0.32	)	$	0.49		$	0.06		$	0.53

⁽¹⁾

Cost of product includes product purchases from Anadarko (as defined in Note 1) of $12.6 million and $32.9 million for the three and six months ended June 30, 2018, respectively, and $21.6 million and $37.6 million for the three and six months ended June 30, 2017, respectively. Operation and maintenance includes charges from Anadarko of $23.4 million and $43.7 million for the three and six months ended June 30, 2018, respectively, and $18.5 million and $35.6 million for the three and six months ended June 30, 2017, respectively. General and administrative includes charges from Anadarko of $11.2 million and $22.8 million for the three and six months ended June 30, 2018, respectively, and $9.4 million and $18.9 million for the three and six months ended June 30, 2017, respectively. See Note 6.


⁽²⁾	Includes losses related to an incident at the DBM complex for the six months ended June 30, 2017. See Note 1.


⁽³⁾	Includes affiliate (as defined in Note 1) amounts of zero and $(0.1) million for the three and six months ended June 30, 2017, respectively. See Note 10.


⁽⁴⁾	Represents net income (loss) earned on and subsequent to the date of acquisition of the Partnership assets (as defined in Note 1). See Note 5.


⁽⁵⁾	See Note 5 for the calculation of net income (loss) per common unit.

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

WESTERN GAS PARTNERS, LP

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



thousands except number of units	June 30, 2018		December 31, 2017
ASSETS
Current assets
Cash and cash equivalents	$	53,235	$	78,814
Accounts receivable, net ⁽¹⁾	167,175		160,432
Other current assets ⁽²⁾	26,728		14,816
Total current assets	247,138		254,062
Note receivable – Anadarko	260,000		260,000
Property, plant and equipment
Cost	8,618,993		7,864,535
Less accumulated depreciation	2,405,419		2,133,644
Net property, plant and equipment	6,213,574		5,730,891
Goodwill	416,160		416,160
Other intangible assets	761,054		775,269
Equity investments	754,300		566,211
Other assets ⁽³⁾	14,384		11,757
Total assets	$	8,666,610	$	8,014,350
LIABILITIES, EQUITY AND PARTNERS’ CAPITAL
Current liabilities
Accounts and imbalance payables ⁽⁴⁾	$	331,447	$	349,801
Accrued ad valorem taxes	26,318		26,633
Accrued liabilities ⁽⁵⁾	131,352		47,899
Total current liabilities	489,117		424,333
Long-term liabilities
Long-term debt	4,177,353		3,464,712
Deferred income taxes	8,753		7,409
Asset retirement obligations	151,412		143,394
Other liabilities ⁽⁶⁾	138,493		3,491
Total long-term liabilities	4,476,011		3,619,006
Total liabilities	4,965,128		4,043,339
Equity and partners’ capital
Common units (152,609,285 and 152,602,105 units issued and outstanding at June 30, 2018, and December 31, 2017, respectively)	2,666,799		2,950,010
Class C units (13,778,265 and 13,243,883 units issued and outstanding at June 30, 2018, and December 31, 2017, respectively) ⁽⁷⁾	781,057		780,040
General partner units (2,583,068 units issued and outstanding at June 30, 2018, and December 31, 2017)	191,564		179,232
Total partners’ capital	3,639,420		3,909,282
Noncontrolling interest	62,062		61,729
Total equity and partners’ capital	3,701,482		3,971,011
Total liabilities, equity and partners’ capital	$	8,666,610	$	8,014,350


⁽¹⁾	Accounts receivable, net includes amounts receivable from affiliates (as defined in Note 1) of $16.1 million and $36.3 million as of June 30, 2018, and December 31, 2017, respectively.


⁽²⁾	Other current assets includes affiliate amounts of $9.3 million and zero as of June 30, 2018, and December 31, 2017, respectively.


⁽³⁾	Other assets includes affiliate amounts of $0.2 million and zero as of June 30, 2018, and December 31, 2017, respectively.


⁽⁴⁾	Accounts and imbalance payables includes affiliate amounts of zero and $0.3 million as of June 30, 2018, and December 31, 2017, respectively.


⁽⁵⁾	Accrued liabilities includes affiliate amounts of $2.3 million and $0.2 million as of June 30, 2018, and December 31, 2017, respectively.


⁽⁶⁾	Other liabilities includes affiliate amounts of $48.4 million and $0.7 million as of June 30, 2018, and December 31, 2017, respectively.


⁽⁷⁾	The Class C units will convert into common units on a one-for-one basis on March 1, 2020, unless the Partnership elects to convert such units earlier or Anadarko extends the conversion date. See Note 5.

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

WESTERN GAS PARTNERS, LP

CONSOLIDATED STATEMENT OF EQUITY AND PARTNERS’ CAPITAL

(UNAUDITED)



	Partners’ Capital
thousands	Common Units			Class C Units			General Partner Units			Noncontrolling Interest			Total
Balance at December 31, 2017	$	2,950,010		$	780,040		$	179,232		$	61,729		$	3,971,011
Cumulative effect of accounting change ⁽¹⁾	(41,108		)	(3,533		)	(696		)	958			(44,379		)
Net income (loss)	11,528			2,928			167,615			5,796			187,867
Above-market component of swap agreements with Anadarko ⁽²⁾	28,121			—			—			—			28,121
Amortization of beneficial conversion feature of Class C units	(1,622		)	1,622			—			—			—
Distributions to noncontrolling interest owner	—			—			—			(6,421		)	(6,421		)
Distributions to unitholders	(283,077		)	—			(154,642		)	—			(437,719		)
Contributions of equity-based compensation from Anadarko	2,737			—			55			—			2,792
Other	210			—			—			—			210
Balance at June 30, 2018	$	2,666,799		$	781,057		$	191,564		$	62,062		$	3,701,482


⁽¹⁾	See Note 1.


⁽²⁾	See Note 6.

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

WESTERN GAS PARTNERS, LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Six Months Ended June 30,
thousands	2018			2017
Cash flows from operating activities
Net income (loss)	$	187,867		$	279,488
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	155,634			143,733
Impairments	127,391			167,920
Non-cash equity-based compensation expense	3,017			2,393
Deferred income taxes	1,523			3,767
Accretion and amortization of long-term obligations, net	2,626			2,139
Equity income, net – affiliates	(59,642		)	(41,189		)
Distributions from equity investment earnings – affiliates	48,396			42,202
(Gain) loss on divestiture and other, net ⁽¹⁾	(286		)	(134,945		)
Lower of cost or market inventory adjustments	151			140
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net	(7,009		)	9,363
Increase (decrease) in accounts and imbalance payables and accrued liabilities, net	40,573			(41,975		)
Change in other items, net	14,670			116
Net cash provided by operating activities	514,911			433,152
Cash flows from investing activities
Capital expenditures	(650,096		)	(260,480		)
Contributions in aid of construction costs from affiliates	—			1,343
Acquisitions from affiliates	—			(3,910		)
Acquisitions from third parties	(161,858		)	(155,287		)
Investments in equity affiliates	(27,490		)	(287		)
Distributions from equity investments in excess of cumulative earnings – affiliates	12,505			9,221
Proceeds from the sale of assets to third parties	286			23,292
Proceeds from property insurance claims	—			22,977
Net cash used in investing activities	(826,653		)	(363,131		)
Cash flows from financing activities
Borrowings, net of debt issuance costs	1,337,539			159,989
Repayments of debt	(630,000		)	—
Settlement of the Deferred purchase price obligation – Anadarko ⁽²⁾	—			(37,346		)
Increase (decrease) in outstanding checks	(5,357		)	(2,763		)
Proceeds from the issuance of common units, net of offering expenses	—			(183		)
Distributions to unitholders⁽³⁾	(437,719		)	(381,771		)
Distributions to noncontrolling interest owner	(6,421		)	(6,375		)
Net contributions from (distributions to) Anadarko	—			30
Above-market component of swap agreements with Anadarko ⁽³⁾	28,121			28,670
Net cash provided by (used in) financing activities	286,163			(239,749		)
Net increase (decrease) in cash and cash equivalents	(25,579		)	(169,728		)
Cash and cash equivalents at beginning of period	78,814			357,925
Cash and cash equivalents at end of period	$	53,235		$	188,197
Supplemental disclosures
Accretion expense and revisions to the Deferred purchase price obligation – Anadarko	$	—		$	(4,094	)
Net distributions to (contributions from) Anadarko of other assets	—			(376		)
Interest paid, net of capitalized interest	62,924			68,396
Taxes paid (reimbursements received)	(87		)	189
Accrued capital expenditures	182,212			100,038
Fair value of properties and equipment from non-cash third party transactions ⁽²⁾	—			551,453


⁽¹⁾	Includes losses related to an incident at the DBM complex for the six months ended June 30, 2017. See Note 1.


⁽²⁾	See Note 3.


⁽³⁾	See Note 6.

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

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 (“MLP”) formed by Anadarko Petroleum Corporation in 2007 to acquire, own, develop and operate midstream 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”), is owned by Western Gas Equity Partners, LP (“WGP”), a Delaware MLP 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. WGP has no independent operations or material assets other than owning the partnership interests in the Partnership (see Holdings of Partnership equity in Note 5). 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, but including 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”), Front Range Pipeline LLC (“FRP”), Whitethorn Pipeline Company LLC (“Whitethorn LLC”) and Cactus II Pipeline LLC (“Cactus II”). See Note 3. 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 Partnership is engaged in the business of gathering, compressing, treating, processing and transporting natural gas; gathering, stabilizing and transporting condensate, natural gas liquids (“NGLs”) and crude oil; and gathering and disposing of produced water. In addition, in its capacity as a processor of natural gas, the Partnership also buys and sells natural gas, NGLs and condensate on behalf of itself and as agent for its customers under certain of its contracts. The Partnership provides these midstream services for Anadarko, as well as for third-party producers and customers. As of June 30, 2018, the Partnership’s assets and investments consisted of the following:



	Owned and Operated	Operated Interests	Non-Operated Interests	Equity Interests
Gathering systems ⁽¹⁾	12	3	3	2
Treating facilities	19	3	—	3
Natural gas processing plants/trains	20	4	—	2
NGL pipelines	2	—	—	3
Natural gas pipelines	5	—	—	—
Oil pipelines	—	1	—	2


⁽¹⁾	Includes the DBM water systems.

These assets and investments are located in the Rocky Mountains (Colorado, Utah and Wyoming), North-central Pennsylvania, Texas and New Mexico. Mentone Train I, a processing train at the DBM complex, is expected to commence operations at the end of the third quarter of 2018.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

Basis of presentation. The following table outlines the Partnership’s ownership interests and the accounting method of consolidation used in the Partnership’s consolidated financial statements for entities not wholly owned:



	Percentage Interest
Equity investments ⁽¹⁾
Fort Union	14.81	%
White Cliffs	10	%
Rendezvous	22	%
Mont Belvieu JV	25	%
TEP	20	%
TEG	20	%
FRP	33.33	%
Whitethorn	20	%
Cactus II	15	%
Proportionate consolidation ⁽²⁾
Marcellus Interest systems	33.75	%
Newcastle system	50	%
Springfield system	50.1	%
Full consolidation
Chipeta ⁽³⁾	75	%


⁽¹⁾	Investments in non-controlled entities over which the Partnership exercises significant influence are accounted for under the equity method. “Equity investment throughput” refers to the Partnership’s share of average throughput for these investments.


⁽²⁾	The Partnership proportionately consolidates its associated share of the assets, liabilities, revenues and expenses attributable to these assets.


⁽³⁾	The 25% interest in Chipeta Processing LLC (“Chipeta”) held by a third-party member is reflected within noncontrolling interest in the consolidated financial statements.

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.

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 2017 Form 10-K, as filed with the SEC on February 16, 2018. Management believes that the disclosures made are adequate to make the information not misleading.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

Presentation of Partnership assets. The term “Partnership assets” includes both the assets owned and the interests accounted for under the equity method by the Partnership as of June 30, 2018 (see Note 8). Because Anadarko controls the Partnership through its control of WGP, which owns the Partnership’s entire general partner interest, each acquisition of 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 such Partnership assets from the date of common control.

For those periods requiring recast, the consolidated financial statements for periods prior to the Partnership’s acquisition of the Partnership assets from Anadarko are 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 (loss) 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.

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 methods considered reasonable. 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.

Shutdown of gathering systems. In May 2018, after assessing a number of factors, with safety and protection of the environment as the primary focus, the Partnership decided to take 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) permanently out of service. Results for the three and six months ended June 30, 2018, reflect (i) an accrual of $10.9 million in anticipated costs associated with the shutdown of the systems, recorded as a reduction in affiliate Product sales in the consolidated statements of operations and (ii) impairment expense of $127.2 million associated with reducing the net book value of the gathering systems and additional asset retirement obligation.

Insurance recoveries. In December 2015, there was an initial fire and secondary explosion at the processing facility within the Delaware Basin Midstream, LLC (“DBM”) complex. The majority of the damage from the incident was to the liquid handling facilities and the amine treating units at the inlet of the complex. During the six months ended June 30, 2017, a $5.7 million loss was recorded in Gain (loss) on divestiture and other, net in the consolidated statements of operations, related to a change in the Partnership’s estimate of the amount that would be recovered under the property insurance claim based on further discussions with insurers. During the second quarter of 2017, the Partnership reached a settlement with insurers and final proceeds were received. During the six months ended June 30, 2017, the Partnership received $52.9 million in cash proceeds from insurers, including $29.9 million in proceeds from business interruption insurance claims and $23.0 million in proceeds from property insurance claims.

Recently adopted accounting standards. Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash requires an entity to explain the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents on the statement of cash flows and to provide a reconciliation of the totals in that statement to the related captions in the balance sheet when the cash, cash equivalents, restricted cash, and restricted cash equivalents are presented in more than one line item on the balance sheet. The Partnership adopted this ASU using a retrospective approach on January 1, 2018, and the adoption did not impact the consolidated financial statements.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

Revenue from contracts with customers (Topic 606). The Partnership adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”) on January 1, 2018, using the modified retrospective method applied to contracts that were not completed as of January 1, 2018. The cumulative effect adjustment that was recognized in the opening balance of equity and partners’ capital was a decrease of $44.4 million. The comparative historical financial information has not been adjusted and continues to be reported under Revenue Recognition (Topic 605) (“Topic 605”).

Effective January 1, 2018, the Partnership changed its accounting policy for revenue recognition as detailed below:

•

Fee-based gathering / processing. Under Topic 605, fee revenues were recognized based on the rate in effect for the month of service, even when certain fees were charged on an upfront or limited-term basis. In addition, deficiency fees were charged and recognized only when the customer did not meet the specified delivery minimums for the completed performance period. Under Topic 606, revenues continue to be recognized based on the rate in effect when the fee is either the same rate per unit over the contract term or when the fee escalates and the escalation factor approximates inflation. Under Topic 606, the Partnership recognizes revenue associated with upfront or limited-term fees over the expected period of customer benefit, which is generally the life of the related properties. In addition, deficiency fees are estimated and recognized during the performance period as the services are performed for the customer’s delivered volumes. Under Topic 606, differences between Service revenues – fee based recognized and amounts billed to customers are recognized as contract assets or contract liabilities, as appropriate. This results in a change in the timing of revenue and changes to net income as a result of the revenue contract’s consideration provisions.

•

Cost of service rate adjustments. Under Topic 605, revenue was recognized based on the amounts billed to customers each period. Under Topic 606, fixed minimum volume commitment demand fees and variable fees that are also billed on these minimum volumes are recognized as Service revenues – fee based on a consistent per-unit rate over the term of the contract. Annual adjustments are made to the cost of service rates charged to customers, and, as a result, a cumulative catch-up revenue adjustment related to the services already provided under the contract may be recorded in future periods, with revenues for the remaining term of the contract recognized on a consistent per-unit rate. Fees received on volumes in excess of the minimum volumes are recognized as Service revenues – fee based as service is provided to the customer based on the billing rate in effect for the performance period. This revenue recognition timing does not affect billings to customers, and differences between amounts billed and revenue recognized are recorded as contract assets or liabilities, as appropriate.

•

Aid in construction. Under Topic 605, aid in construction reimbursements were reflected as a reduction to property, plant and equipment upon receipt (and a reduction to capital expenditures). Under Topic 606, reimbursement of capital costs received from customers is reflected as a contract liability (deferred revenue) upon receipt. The contract liability is amortized to Service revenues – fee based over the expected period of customer benefit, which is generally the life of the related properties.

•

Percent-of-proceeds gathering / processing. Under Topic 605, the Partnership recognized cost of product expense when the product was purchased from a producer to whom it provides services, and the Partnership recognized revenue when the product was sold to Anadarko or a third party. Under Topic 606, in some instances, where all or a percentage of the proceeds from the sale must be returned to the producer, the net margin from the purchase and sale transactions is presented net within Service revenues – product based because the Partnership is acting as the producer’s agent in the product sale.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

•

Noncash consideration - keep-whole and percent-of-product agreements. Under Topic 605, the Partnership recognized revenues only upon the sale of the related products. Under Topic 606, the Partnership recognizes Service revenues – product based for the products received as noncash consideration in exchange for the services provided, with the keep-whole noncash consideration value based on the net value of the NGLs over the replacement residue gas cost. Under Topic 606, revenue from product sales is recognized, along with cost of product expense related to the sale, when the product is sold to Anadarko or a third party.

•

Wellhead purchase / sale incorporated into gathering / processing. Under Topic 605, the natural gas purchase cost was recognized as cost of product expense and any specified gathering or processing fees charged to the producer were recognized as revenues. Under Topic 606, the fees charged to the producer under this contract type are recognized as adjustments to the amount recognized in cost of product expense instead of revenues when such fees relate to services performed after control of the product transfers to the Partnership.

The following tables summarize the impact of adopting Topic 606 on the impacted line items within the consolidated statements of operations and the consolidated balance sheet. The differences between revenue as reported following Topic 606 and revenue as it would have been reported under Topic 605 are due to the changes described above.



	Three Months Ended June 30, 2018
thousands	As Reported		Without Adoption of Topic 606		Effect of Change Increase / (Decrease)
Revenues
Service revenues – fee based	$	359,544	$	358,209	$	1,335
Service revenues – product based	22,105		—		22,105
Product sales	54,077		319,233		(265,156		)
Expenses
Cost of product	68,149		312,329		(244,180		)
Operation and maintenance	100,628		100,632		(4		)
Depreciation and amortization	78,792		78,125		667
Impairments	127,243		127,198		45
Income tax (benefit) expense	282		272		10
Net income attributable to noncontrolling interest	2,811		2,054		757
Net income (loss) attributable to Western Gas Partners, LP	32,708		31,719		989

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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



	Six Months Ended June 30, 2018
thousands	As Reported		Without Adoption of Topic 606		Effect of Change Increase / (Decrease)
Revenues
Service revenues – fee based	$	697,963	$	700,547	$	(2,584	)
Service revenues – product based	44,698		—		44,698
Product sales	130,014		611,524		(481,510		)
Expenses
Cost of product	145,948		587,295		(441,347		)
Operation and maintenance	188,907		188,771		136
Depreciation and amortization	155,634		154,278		1,356
Impairments	127,391		127,346		45
Income tax (benefit) expense	1,784		1,781		3
Net income attributable to noncontrolling interest	5,796		4,552		1,244
Net income (loss) attributable to Western Gas Partners, LP	182,071		182,904		(833		)



	June 30, 2018
thousands	As Reported		Without Adoption of Topic 606		Effect of Change Increase / (Decrease)
Assets
Other current assets	$	26,728	$	17,388	$	9,340
Net property, plant and equipment	6,213,574		6,117,733		95,841
Other assets	14,384		14,138		246
Liabilities
Accrued liabilities	131,352		124,913		6,439
Deferred income taxes	8,753		8,930		(177		)
Other liabilities	138,493		2,810		135,683
Equity and partners’ capital
Total equity and partners’ capital	3,701,482		3,738,000		(36,518		)

New accounting standards issued but not yet adopted. ASU 2016-02, Leases (Topic 842) requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset for all leases, including operating leases, with a term greater than 12 months on the balance sheet. This ASU modifies the definition of a lease and outlines the recognition, measurement, presentation, and disclosure of leasing arrangements by both lessees and lessors. The Partnership plans to make certain elections allowing the Partnership not to reassess contracts that commenced prior to adoption, to continue applying its current accounting policy for land easements and not to recognize ROU assets or lease liabilities for short-term leases. The Partnership continues to review contracts in its portfolio of leased assets to assess the impact of adopting this ASU, which is expected to primarily impact other assets and other liabilities. To facilitate compliance with this ASU, the Partnership is implementing new accounting software and continuing to evaluate its systems, processes and internal controls during 2018. The Partnership will adopt this ASU on January 1, 2019. As permitted by ASU 2018-11, Leases (Topic 842): Targeted Improvements, the Partnership does not expect to adjust comparative period financial statements.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

Revenue and cost of product. Upon adoption of the new revenue recognition standard on January 1, 2018 (discussed in Recently adopted accounting standards), the Partnership changed its accounting policy for revenue recognition as described below.

The Partnership provides gathering, processing, treating, transportation and disposal services pursuant to a variety of contracts. Under these arrangements, the Partnership receives fees and/or retains a percentage of products or a percentage of the proceeds from the sale of the customer’s products. These revenues are included in Service revenues and Product sales in the consolidated statements of operations. Payment is generally received from the customer in the month following the service or delivery of the product. Contracts with customers generally have initial terms ranging from 5 to 10 years.

Service revenues – fee based is recognized for fee-based contracts in the month of service based on the volumes delivered by the customer. Producers’ wells or production facilities are connected to the Partnership’s gathering systems for gathering, processing, treating, transportation and disposal of natural gas, NGLs, condensate, crude oil and produced water, as applicable. Revenues are valued based on the rate in effect for the month of service when the fee is either the same rate per unit over the contract term or when the fee escalates and the escalation factor approximates inflation. Deficiency fees charged to customers that do not meet their minimum delivery requirements are recognized as services are performed based on an estimate of the fees that will be billed upon completion of the performance period. Because of its significant upfront capital investment, the Partnership may charge additional service fees to customers for only a portion of the contract term (i.e., for the first year of a contract or until reaching a volume threshold), and these fees are recognized as revenue over the expected period of customer benefit, which is generally the life of the related properties.

The Partnership also receives Service revenues – fee based from contracts that have minimum volume commitment demand fees and fees that require periodic rate redeterminations based upon the related facility cost of service. These fees include fixed and variable consideration that are recognized on a consistent per-unit rate over the term of the contract. Annual adjustments are made to the cost of service rates charged to customers, and a cumulative catch-up revenue adjustment related to services already provided to the minimum volumes under the contract may be recorded in future periods, with revenues for the remaining term of the contract recognized on a consistent per-unit rate.

Service revenues – product based includes service revenues from percent-of-proceeds gathering and processing contracts that are recognized net of the cost of product for purchases from the Partnership’s customers since it is acting as the agent in the product sale. Keep-whole and percent-of-product agreements result in Service revenues – product based being recognized when the natural gas and/or NGLs are received from the customer as noncash consideration for the services provided. Noncash consideration for these services is valued at the time the services are provided. Revenue from product sales is also recognized, along with the cost of product expense related to the sale, when the product received as noncash consideration is sold to either Anadarko or a third party.

The Partnership also purchases natural gas volumes from producers at the wellhead or from a production facility, typically at an index price, and charges the producer fees associated with the downstream gathering and processing services. When the fees relate to services performed after control of the product has transferred to the Partnership, the fees are treated as a reduction of the purchase cost. Revenue from product sales is recognized, along with cost of product expense related to the sale, when the purchased product is sold to either Anadarko or a third party.

The Partnership receives aid in construction reimbursements for certain capital costs necessary to provide services to customers (i.e., connection costs, etc.) under certain service contracts. Aid in construction reimbursements are reflected as a contract liability upon receipt and amortized to Service revenues – fee based over the expected period of customer benefit, which is generally the life of the related properties.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

2. REVENUE FROM CONTRACTS WITH CUSTOMERS

The following table summarizes the Partnership’s revenue from contracts with customers:



thousands	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
Revenue from customers
Service revenues – fee based	$	359,544		$	697,963
Service revenues – product based	22,105			44,698
Product sales	55,449			132,629
Total revenue from customers	437,098			875,290
Revenue from other than customers
Net gains (losses) on commodity price swap agreements	(1,372		)	(2,615		)
Other	223			442
Total revenues and other	$	435,949		$	873,117

Contract balances. Receivables from customers, which are included in Accounts receivable, net on the consolidated balance sheets were $267.1 million and $244.4 million as of June 30, 2018, and December 31, 2017, respectively.

Contract assets primarily relate to accrued deficiency fees the Partnership expects to charge customers once the related performance periods are completed. The following table summarizes the current period activity related to contract assets from contracts with customers:



thousands
Balance at December 31, 2017	$	—
Cumulative effect of adopting Topic 606	5,129
Amounts transferred to Accounts receivable, net from contract assets recognized in the adoption effect ⁽¹⁾	(2,677		)
Additional estimated revenues recognized ⁽²⁾	7,134
Balance at June 30, 2018	$	9,586

Contract assets at June 30, 2018
Other current assets	$	9,340
Other assets	246
Total contract assets from contracts with customers	$	9,586


⁽¹⁾	Includes $(0.2) million for the three months ended June 30, 2018.


⁽²⁾	Includes $3.7 million for the three months ended June 30, 2018.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

2. REVENUE FROM CONTRACTS WITH CUSTOMERS (CONTINUED)

Contract liabilities primarily relate to (i) 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 the current period activity related to contract liabilities from contracts with customers:



thousands
Balance at December 31, 2017	$	—
Cumulative effect of adopting Topic 606	120,717
Cash received or receivable, excluding revenues recognized during the period ⁽¹⁾	41,076
Revenues recognized during the period that were included in the adoption effect ⁽²⁾	(2,009		)
Balance at June 30, 2018	$	159,784

Contract liabilities at June 30, 2018
Accrued liabilities	$	24,101
Other liabilities	135,683
Total contract liabilities from contracts with customers	$	159,784


⁽¹⁾	Includes $12.5 million for the three months ended June 30, 2018.


⁽²⁾	Includes $(1.0) million for the three months ended June 30, 2018.

Transaction price allocated to remaining performance obligations. Revenues expected to be recognized from certain performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2018, are reflected in the following table. The Partnership applies the optional exemptions in 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 small portion of expected future consolidated 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
Remainder of 2018	$	220,037
2019	492,806
2020	542,214
2021	527,151
2022	527,103
Thereafter	2,168,028
Total	$	4,477,339

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

3. ACQUISITIONS AND DIVESTITURES

Whitethorn LLC acquisition. In June 2018, the Partnership acquired a 20% interest in Whitethorn LLC, which owns the crude oil and condensate pipeline that originates in Midland, Texas and terminates in Sealy, Texas (the “Midland-to-Sealy pipeline”) and related storage facilities (collectively referred to as “Whitethorn”). A third party operates Whitethorn and oversees the related commercial activities. In connection with its investment in Whitethorn, the Partnership will share proportionally in the commercial activities. The Partnership acquired its 20% interest via a $150.6 million net investment, which was funded with cash on hand and is accounted for under the equity method. See Note 8.

Cactus II acquisition. In June 2018, the Partnership acquired a 15% interest in Cactus II, which will own a crude oil pipeline operated by a third party (the “Cactus II pipeline”) connecting West Texas to the Corpus Christi area. The Cactus II pipeline is under construction and expected to become operational in the fourth quarter of 2019. The Partnership acquired its 15% interest from a third party via an $11.3 million net investment, which was funded with cash on hand and is accounted for under the equity method. See Note 8.

Property exchange. On March 17, 2017, the Partnership acquired an additional 50% interest in the Delaware Basin JV Gathering LLC (“DBJV”) system (the “Additional DBJV System Interest”) from a third party in exchange for (a) the Partnership’s 33.75% non-operated interest in two natural gas gathering systems located in northern Pennsylvania (the “Non-Operated Marcellus Interest”), commonly referred to as the Liberty and Rome systems, and (b) $155.0 million of cash consideration (collectively, the “Property Exchange”). The Partnership previously held a 50% interest in, and operated, the DBJV system.

The Property Exchange was reflected as a nonmonetary transaction whereby the acquired Additional DBJV System Interest was recorded at the fair value of the divested Non-Operated Marcellus Interest plus the $155.0 million of cash consideration. The Property Exchange resulted in a net gain of $125.7 million recorded as Gain (loss) on divestiture and other, net in the consolidated statements of operations. Results of operations attributable to the Property Exchange were included in the consolidated statements of operations beginning on the acquisition date in the first quarter of 2017.

DBJV acquisition - Deferred purchase price obligation - Anadarko. Prior to the Partnership’s agreement with Anadarko to settle its deferred purchase price obligation early, the consideration that would have been paid by the Partnership for the March 2015 acquisition of DBJV from Anadarko consisted of a cash payment to Anadarko due on March 31, 2020. In May 2017, the Partnership reached an agreement with Anadarko to settle this obligation with a cash payment to Anadarko of $37.3 million, which was equal to the estimated net present value of the obligation at March 31, 2017.

Helper and Clawson systems divestiture. During the second quarter of 2017, the Helper and Clawson systems, located in Utah, were sold to a third party, resulting in a net gain on sale of $16.3 million recorded as Gain (loss) on divestiture and other, net in the consolidated statements of operations.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

4. PARTNERSHIP DISTRIBUTIONS

The partnership agreement 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 Partnership’s general partner (the “Board of Directors”) declared the following cash distributions to the Partnership’s common and general partner unitholders for the periods presented:



thousands except per-unit amounts Quarters Ended	Total Quarterly Distribution per Unit		Total Quarterly Cash Distribution		Date of Distribution
2017
March 31	$	0.875	$	188,753	May 2017
June 30	0.890		207,491		August 2017
September 30	0.905		212,038		November 2017
December 31	0.920		216,586		February 2018
2018
March 31	$	0.935	$	221,133	May 2018
June 30 ⁽¹⁾	0.950		225,691		August 2018

⁽¹⁾

The Board of Directors declared a cash distribution to the Partnership’s unitholders for the second quarter of 2018 of $0.950 per unit, or $225.7 million in aggregate, including incentive distributions, but excluding distributions on Class C units (see Class C unit distributions below). The cash distribution is payable on August 13, 2018, to unitholders of record at the close of business on August 1, 2018.

Available cash. The amount of available cash (as defined in the 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 Partnership’s 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 distributions to its unitholders and to its general partner 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 may only be those that, at the time of such borrowings, were intended to be repaid within 12 months. In all cases, working capital borrowings are used solely for working capital purposes or to fund distributions to partners.

Class C unit distributions. The Class C units receive quarterly distributions at a rate equivalent to the Partnership’s common units. The distributions are paid in the form of additional Class C units (“PIK Class C units”) until the scheduled conversion date on March 1, 2020 (unless earlier converted), and the Class C units are disregarded with respect to distributions of the Partnership’s available cash until they are converted into common units. The number of additional PIK Class C units to be issued in connection with a distribution payable on the Class C units is determined by dividing the corresponding distribution attributable to the Class C units by the volume-weighted-average price of the Partnership’s common units for the ten days immediately preceding the payment date for the common unit distribution, less a 6% discount. The Partnership records the PIK Class C unit distributions at fair value at the time of issuance. This Level 2 fair value measurement uses the Partnership’s unit price as a significant input in the determination of the fair value. See Note 5 for further discussion of the Class C units.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

4. PARTNERSHIP DISTRIBUTIONS (CONTINUED)

Series A Preferred unit distributions. As further described in Note 5, the Partnership issued Series A Preferred units representing limited partner interests in the Partnership to private investors in 2016. The Series A Preferred unitholders received quarterly distributions in cash equal to $0.68 per Series A Preferred unit, subject to certain adjustments. On March 1, 2017, 50% of the outstanding Series A Preferred units converted into common units on a one-for-one basis, and on May 2, 2017, all remaining Series A Preferred units converted into common units on a one-for-one basis. Such converted common units were entitled to distributions made to common unitholders with respect to the quarter during which the applicable conversion occurred and did not include a prorated Series A Preferred unit distribution. For the quarter ended March 31, 2017, the Series A Preferred unitholders received an aggregate cash distribution of $7.5 million (paid in May 2017).

General partner interest and incentive distribution rights. As of June 30, 2018, the general partner was entitled to 1.5% of all quarterly distributions that the Partnership makes prior to its liquidation and, as the holder of the incentive distribution rights (“IDRs”), was entitled to incentive distributions at the maximum distribution sharing percentage of 48.0% for all periods presented, after the minimum quarterly distribution and the target distribution levels had been achieved. The maximum distribution sharing percentage of 49.5% does not include any distributions that the general partner may receive on common units that it may acquire.

5. EQUITY AND PARTNERS’ CAPITAL

Equity offerings. In July 2017, the Partnership filed a registration statement with the SEC for the issuance of up to an aggregate of $500.0 million of common units pursuant to a new continuous offering program that has not yet been initiated.

Class C units. In November 2014, the Partnership issued 10,913,853 Class C units to APC Midstream Holdings, LLC (“AMH”), pursuant to a Unit Purchase Agreement with Anadarko and AMH. The Class C units were issued to partially fund the acquisition of DBM.

When issued, the Class C units were scheduled to convert into common units on a one-for-one basis on December 31, 2017. In February 2017, Anadarko elected to extend the conversion date of the Class C units to March 1, 2020. The Partnership can elect to convert the Class C units earlier or Anadarko can extend the conversion date again.

The Class C units were issued at a discount to the then-current market price of the common units into which they are convertible. This discount, totaling $34.8 million, represents a beneficial conversion feature, and at issuance, was reflected as an increase in common unitholders’ capital and a decrease in Class C unitholder capital to reflect the fair value of the Class C units at issuance. The beneficial conversion feature is considered a non-cash distribution that is recognized from the date of issuance through the date of conversion, resulting in an increase in Class C unitholder capital and a decrease in common unitholders’ capital as amortized. The beneficial conversion feature is amortized assuming the extended conversion date of March 1, 2020, using the effective yield method. The impact of the beneficial conversion feature amortization is included in the calculation of earnings per unit.

Series A Preferred units. In 2016, the Partnership issued 21,922,831 Series A Preferred units to private investors. The Series A Preferred units were issued at a discount to the then-current market price of the common units into which they were convertible, representing a beneficial conversion feature at issuance. The impact of the beneficial conversion feature amortization was included in the calculation of earnings per unit. For the six months ended June 30, 2017, the amortization for the beneficial conversion feature of the Series A Preferred units was $62.3 million.

Pursuant to an agreement between the Partnership and the holders of the Series A Preferred units, 50% of the Series A Preferred units converted into common units on a one-for-one basis on March 1, 2017, and all remaining Series A Preferred units converted into common units on a one-for-one basis on May 2, 2017.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

5. EQUITY AND PARTNERS’ CAPITAL (CONTINUED)

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

The following table summarizes the Partnership’s units issued during the six months ended June 30, 2018:



	Common Units	Class C Units	General Partner Units	Total
Balance at December 31, 2017	152,602,105	13,243,883	2,583,068	168,429,056
PIK Class C units	—	534,382	—	534,382
Long-Term Incentive Plan award vestings	7,180	—	—	7,180
Balance at June 30, 2018	152,609,285	13,778,265	2,583,068	168,970,618

Holdings of Partnership equity. As of June 30, 2018, WGP held 50,132,046 common units, representing a 29.7% limited partner interest in the Partnership, and, through its ownership of the general partner, WGP indirectly held 2,583,068 general partner units, representing a 1.5% general partner interest in the Partnership, and 100% of the IDRs. As of June 30, 2018, other subsidiaries of Anadarko collectively held 2,011,380 common units and 13,778,265 Class C units, representing an aggregate 9.3% limited partner interest in the Partnership. As of June 30, 2018, the public held 100,465,859 common units, representing the remaining 59.5% limited partner interest in the Partnership.

Net income (loss) per common unit. Net income (loss) 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 unitholders for purposes of calculating net income (loss) per common unit. Net income (loss) attributable to Western Gas Partners, LP earned on and subsequent to the date of acquisition of the Partnership assets is allocated as follows:

General partner. The general partner’s allocation is equal to cash distributions plus its portion of undistributed earnings or losses. Specifically, net income equal to the amount of available cash (as defined by the partnership agreement) is allocated to the general partner consistent with actual cash distributions and capital account allocations, including incentive distributions. 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 in accordance with its weighted-average ownership percentage during each period.

Series A Preferred unitholders. The Series A Preferred units were not considered a participating security as they only had distribution rights up to the specified per-unit quarterly distribution and had no rights to the Partnership’s undistributed earnings and losses. As such, the Series A Preferred unitholders’ allocation was equal to their cash distribution plus the amortization of the Series A Preferred units beneficial conversion feature (see Series A Preferred units above).

Common and Class C unitholders. The Class C units are considered a participating security because they participate in distributions with common units according to a predetermined formula (see Note 4). The common and Class C unitholders’ allocation is equal to their cash distributions plus their respective portions of undistributed earnings or losses. Specifically, net income equal to the amount of available cash (as defined by the partnership agreement) is allocated to the common and Class C unitholders consistent with actual cash distributions and capital account allocations. Undistributed earnings or undistributed losses are then allocated to the common and Class C unitholders in accordance with their respective weighted-average ownership percentages during each period. The common unitholder allocation also includes the impact of the amortization of the Series A Preferred units and Class C units beneficial conversion features. The Class C unitholder allocation is similarly impacted by the amortization of the Class C units beneficial conversion feature (see Class C units above).

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

5. EQUITY AND PARTNERS’ CAPITAL (CONTINUED)

Calculation of net income (loss) per unit. Basic net income (loss) per common unit is calculated by dividing the net income (loss) attributable to common unitholders 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 they were outstanding. Diluted net income (loss) per common unit is calculated by dividing the sum of (i) the net income (loss) attributable to common units adjusted for distributions on the Series A Preferred units and a reallocation of the common and Class C limited partners’ interest in net income (loss) assuming, prior to the actual conversion, conversion of the Series A Preferred units into common units, and (ii) the net income (loss) attributable to the Class C units as a participating security, by the sum of the weighted-average number of common units outstanding plus the dilutive effect of (i) the weighted-average number of outstanding Class C units and (ii) the weighted-average number of common units outstanding assuming, prior to the actual conversion, conversion of the Series A Preferred units.

The following table illustrates the Partnership’s calculation of net income (loss) per common unit:



	Three Months Ended June 30,						Six Months Ended June 30,
thousands except per-unit amounts	2018			2017			2018			2017
Net income (loss) attributable to Western Gas Partners, LP	$	32,708		$	173,451		$	182,071		$	275,340
Series A Preferred units interest in net (income) loss ⁽¹⁾	—			(14,199		)	—			(42,373		)
General partner interest in net (income) loss	(84,176		)	(76,365		)	(167,615		)	(144,527		)
Common and Class C limited partners’ interest in net income (loss)	$	(51,468	)	$	82,887		$	14,456		$	88,440
Net income (loss) allocable to common units ⁽¹⁾	$	(48,417	)	$	73,383		$	9,906		$	75,097
Net income (loss) allocable to Class C units ⁽¹⁾	(3,051		)	9,504			4,550			13,343
Common and Class C limited partners’ interest in net income (loss)	$	(51,468	)	$	82,887		$	14,456		$	88,440
Net income (loss) per unit
Common units – basic and diluted ⁽²⁾	$	(0.32	)	$	0.49		$	0.06		$	0.53
Weighted-average units outstanding
Common units – basic and diluted	152,604			148,864			152,603			141,696
Excluded due to anti-dilutive effect:
Class C units⁽²⁾	13,649			12,650			13,516			12,552
Series A Preferred units assuming conversion to common units ⁽²⁾	—			3,734			—			10,901


⁽¹⁾	Adjusted to reflect amortization of the beneficial conversion features.

⁽²⁾

The impact of Class C units would be anti-dilutive for all periods presented and the conversion of Series A Preferred units would be anti-dilutive for the three and six months ended June 30, 2017. On March 1, 2017, 50% of the outstanding Series A Preferred units converted into common units on a one-for-one basis, and on May 2, 2017, all remaining Series A Preferred units converted into common units on a one-for-one basis.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6. TRANSACTIONS WITH AFFILIATES

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

Cash management. Anadarko operates a cash management system whereby excess cash from most of its subsidiaries’ separate bank accounts is generally swept to centralized accounts. Prior to the Partnership’s acquisition of the Partnership assets, third-party sales and purchases related to such assets were received or paid in cash by Anadarko within its centralized cash management system. The outstanding affiliate balances were entirely settled through an adjustment to net investment by Anadarko in connection with the acquisition of the Partnership assets. Subsequent to the acquisition of Partnership assets from Anadarko, transactions related to such assets are cash-settled directly with third parties and with Anadarko affiliates. Chipeta cash settles its transactions directly with third parties and Anadarko, as well as with the other subsidiaries of the Partnership.

Note receivable - Anadarko. Concurrently with the closing of the Partnership’s May 2008 initial public offering, the Partnership loaned $260.0 million to Anadarko in exchange for a 30-year note bearing interest at a fixed annual rate of 6.50%, payable quarterly. The fair value of the note receivable from Anadarko was $304.7 million and $325.2 million at June 30, 2018, and December 31, 2017, respectively. The fair value of the note reflects consideration of credit risk and any premium or discount for the differential between the stated interest rate and quarter-end market interest rate, based on quoted market prices of similar debt instruments. Accordingly, the fair value of the note receivable from Anadarko is measured using Level 2 inputs.

Commodity price swap agreements. The Partnership has commodity price swap agreements with Anadarko to mitigate exposure to a majority of the commodity price risk inherent in its percent-of-proceeds, percent-of-product and keep-whole contracts. Notional volumes for each of the commodity price swap agreements are not specifically defined. Instead, the commodity price swap agreements apply to the actual volume of natural gas, condensate and NGLs purchased and sold. The commodity price swap agreements do not satisfy the definition of a derivative financial instrument and, therefore, are not required to be measured at fair value. The Partnership’s net gains (losses) on commodity price swap agreements were $(1.4) million and $(2.6) million for the three and six months ended June 30, 2018, respectively, and $1.0 million and $0.5 million for the three and six months ended June 30, 2017, respectively, and are reported in the consolidated statements of operations as affiliate Product sales in 2018 and as affiliate Product sales and Cost of product expense in 2017 (see Note 1).

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Revenues or costs attributable to volumes sold and purchased during 2017 and 2018 for the DJ Basin complex and MGR assets are recognized in the consolidated statements of operations at the applicable market price in the tables below. The Partnership also records a capital contribution from Anadarko in the Partnership’s consolidated statement of equity and partners’ capital for an amount equal to (i) the amount by which the swap price for product sales exceeds the applicable market price in the tables below, minus (ii) the amount by which the swap price for product purchases exceeds the market price in the tables below. For the six months ended June 30, 2018, the capital contribution from Anadarko was $28.1 million. The tables below summarize the swap prices compared to the forward market prices:



	DJ Basin Complex
per barrel except natural gas	2017 - 2018 Swap Prices		2017 Market Prices ⁽¹⁾		2018 Market Prices ⁽¹⁾
Ethane	$	18.41	$	5.09	$	5.41
Propane	47.08		18.85		28.72
Isobutane	62.09		26.83		32.92
Normal butane	54.62		26.20		32.71
Natural gasoline	72.88		41.84		48.04
Condensate	76.47		45.40		49.36
Natural gas (per MMBtu)	5.96		3.05		2.21



	MGR Assets
per barrel except natural gas	2017 - 2018 Swap Prices		2017 Market Prices ⁽¹⁾		2018 Market Prices ⁽¹⁾
Ethane	$	23.11	$	4.08	$	2.52
Propane	52.90		19.24		25.83
Isobutane	73.89		25.79		30.03
Normal butane	64.93		25.16		29.82
Natural gasoline	81.68		45.01		47.25
Condensate	81.68		53.55		56.76
Natural gas (per MMBtu)	4.87		3.05		2.21


⁽¹⁾	Represents the New York Mercantile Exchange forward strip price as of December 1, 2016, and December 20, 2017, for the 2017 Market Prices and 2018 Market Prices, respectively, adjusted for product specification, location, basis and, in the case of NGLs, transportation and fractionation costs.

Gathering and processing agreements. The Partnership has significant gathering and processing arrangements with affiliates of Anadarko on a majority of its systems. The Partnership’s natural gas gathering, treating and transportation throughput (excluding equity investment throughput) attributable to production owned or controlled by Anadarko was 35% for both the three and six months ended June 30, 2018, and 38% and 34% for the three and six months ended June 30, 2017, respectively. The Partnership’s natural gas processing throughput (excluding equity investment throughput) attributable to production owned or controlled by Anadarko was 35% for both the three and six months ended June 30, 2018, and 39% and 44% for the three and six months ended June 30, 2017, respectively. The Partnership’s crude oil, NGL and produced water gathering, treating, transportation and disposal throughput (excluding equity investment throughput) attributable to production owned or controlled by Anadarko was 72% and 68% for the three and six months ended June 30, 2018, respectively, and 41% and 47% for the three and six months ended June 30, 2017, respectively.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Commodity purchase and sale agreements. The Partnership sells a significant amount of its natural gas, condensate and NGLs to Anadarko Energy Services Company (“AESC”), Anadarko’s marketing affiliate. In addition, the Partnership purchases natural gas, condensate and NGLs from AESC pursuant to purchase agreements. The Partnership’s purchase and sale agreements with AESC are generally one-year contracts, subject to annual renewal.

WES LTIP. The general partner awards phantom units under the Western Gas Partners, LP 2017 Long-Term Incentive Plan, effective October 17, 2017. Awards granted prior to October 17, 2017, were awarded under the Western Gas Partners, LP 2008 Long-Term Incentive Plan. These awards are primarily granted to its independent directors, but also from time to time to its executive officers and Anadarko employees performing services for the Partnership. The phantom units awarded to the independent directors vest one year from the grant date, while all other awards are subject to graded vesting over a three-year service period. Compensation expense is recognized over the vesting period and was $0.1 million for each of the three months ended June 30, 2018 and 2017, and $0.2 million for each of the six months ended June 30, 2018 and 2017.

Anadarko Incentive Plan. General and administrative expenses included $1.7 million and $3.8 million for the three and six months ended June 30, 2018, respectively, and $0.9 million and $2.1 million for the three and six months ended June 30, 2017, 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 Anadarko Petroleum Corporation 2012 Omnibus Incentive Compensation Plan (“Anadarko Incentive Plan”). Of this amount, $2.8 million is reflected as contributions to partners’ capital in the Partnership’s consolidated statement of equity and partners’ capital for the six months ended June 30, 2018.

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



	Six Months Ended June 30,
thousands	2018			2017
Cash consideration	$	—		$	3,910
Payable to affiliate	254			—
Net carrying value	(254		)	(4,286		)
Partners’ capital adjustment	$	—		$	(376	)

Contributions in aid of construction costs from affiliates. On certain of the Partnership’s capital projects, Anadarko is obligated to reimburse the Partnership for all or a portion of project capital expenditures. The majority of such arrangements are associated with projects related to pipeline construction activities and production well tie-ins. For periods prior to January 1, 2018, the cash receipts resulting from such reimbursements were presented as “Contributions in aid of construction costs from affiliates” within the investing section of the consolidated statements of cash flows. As discussed in Recently adopted accounting standards in Note 1, upon adoption of Topic 606, affiliate reimbursements of capital costs are reflected as contract liabilities upon receipt, amortized to Service revenues – fee based over the expected period of customer benefit, and presented within the operating section of the consolidated statements of cash flows.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Summary of affiliate transactions. The following table summarizes material affiliate transactions:



	Three Months Ended June 30,					Six Months Ended June 30,
thousands	2018		2017			2018		2017
Revenues and other ⁽¹⁾	$	238,029	$	316,313		$	479,091	$	631,468
Equity income, net – affiliates ⁽¹⁾	39,218		21,728			59,642		41,189
Cost of product ⁽¹⁾	12,609		21,607			32,853		37,595
Operation and maintenance ⁽²⁾	23,437		18,462			43,685		35,551
General and administrative ⁽³⁾	11,178		9,365			22,792		18,900
Operating expenses	47,224		49,434			99,330		92,046
Interest income ⁽⁴⁾	4,225		4,225			8,450		8,450
Interest expense ⁽⁵⁾	—		—			—		71
Settlement of the Deferred purchase price obligation – Anadarko ⁽⁶⁾	—		(37,346		)	—		(37,346		)
Distributions to unitholders ⁽⁷⁾	127,204		110,449			251,368		213,572
Above-market component of swap agreements with Anadarko	13,839		16,373			28,121		28,670


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


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

⁽³⁾

Represents general and administrative expense incurred on and subsequent to the date of the acquisition of 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 Anadarko Incentive Plan within this Note 6).


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


⁽⁵⁾	Includes amounts related to the Deferred purchase price obligation - Anadarko (see Note 3 and Note 10).


⁽⁶⁾	Represents the cash payment to Anadarko for the settlement of the Deferred purchase price obligation - Anadarko (see Note 3).


⁽⁷⁾	Represents distributions paid under the partnership agreement (see Note 4 and Note 5).

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

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

7. PROPERTY, PLANT AND EQUIPMENT

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



thousands	Estimated Useful Life	June 30, 2018		December 31, 2017
Land	n/a	$	4,653	$	4,450
Gathering systems and processing complexes	3 to 47 years	7,565,998		7,113,114
Pipelines and equipment	15 to 45 years	137,769		137,644
Assets under construction	n/a	879,095		579,501
Other	3 to 40 years	31,478		29,826
Total property, plant and equipment		8,618,993		7,864,535
Less accumulated depreciation		2,405,419		2,133,644
Net property, plant and equipment		$	6,213,574	$	5,730,891

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.

Impairments. During the six months ended June 30, 2018, the Partnership recognized impairments of $127.4 million, including impairments of $120.8 million at the Third Creek gathering system and $6.4 million at the Kitty Draw gathering system. These assets were impaired to their estimated salvage values of $1.0 million and zero, respectively, using the market approach and Level 3 fair value inputs, due to the shutdown of the systems. See Note 1 for further information.

During the year ended December 31, 2017, the Partnership recognized impairments of $178.4 million, including an impairment of $158.8 million at the Granger complex, which was impaired to its estimated fair value of $48.5 million using the income approach and Level 3 fair value inputs, due to a reduced throughput fee as a result of a producer’s bankruptcy. The remaining $19.6 million of impairments was primarily related to (i) an $8.2 million impairment due to the cancellation of a plant project at the Hilight system, (ii) a $3.7 million impairment at the Granger straddle plant, which was impaired to its estimated salvage value of $0.6 million using the income approach and Level 3 fair value inputs, (iii) a $3.1 million impairment of the Fort Union equity investment, (iv) a $2.0 million impairment of an idle facility in northeast Wyoming, which was impaired to its estimated salvage value of $0.4 million using the market approach and Level 3 fair value inputs, and (v) the cancellation of a pipeline project in West Texas.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

8. EQUITY INVESTMENTS

The following table presents the activity in the Partnership’s equity investments for the six months ended June 30, 2018:



thousands	Fort Union			White Cliffs			Rendezvous			Mont Belvieu JV			TEFR Interests			Whitethorn		Cactus II		Total
Balance at December 31, 2017	$	7,030		$	44,945		$	42,528		$	110,299		$	361,409		$	—	$	—	$	566,211
Acquisitions	—			—			—			—			—			150,563		11,295		161,858
Investment earnings (loss), net of amortization	(444		)	5,898			439			15,200			33,037			5,512		—		59,642
Contributions	—			1,278			—			—			—			7,069		19,127		27,474
Capitalized interest	—			—			—			—			—			—		16		16
Distributions	(194		)	(5,607		)	(1,410		)	(15,219		)	(25,966		)	—		—		(48,396		)
Distributions in excess of cumulative earnings ⁽¹⁾	(2,658		)	(1,958		)	(1,784		)	(2,131		)	(3,974		)	—		—		(12,505		)
Balance at June 30, 2018	$	3,734		$	44,556		$	39,773		$	108,149		$	364,506		$	163,144	$	30,438	$	754,300


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

9. COMPONENTS OF WORKING CAPITAL

A summary of accounts receivable, net is as follows:



thousands	June 30, 2018		December 31, 2017
Trade receivables, net	$	167,116	$	160,387
Other receivables, net	59		45
Total accounts receivable, net	$	167,175	$	160,432

A summary of other current assets is as follows:



thousands	June 30, 2018		December 31, 2017
Natural gas liquids inventory	$	9,421	$	10,788
Imbalance receivables	7,703		1,640
Prepaid insurance	264		2,388
Contract assets	9,340		—
Total other current assets	$	26,728	$	14,816

A summary of accrued liabilities is as follows:



thousands	June 30, 2018		December 31, 2017
Accrued interest expense	$	58,753	$	40,632
Short-term asset retirement obligations⁽¹⁾	42,312		2,304
Short-term remediation and reclamation obligations	833		833
Income taxes payable	2,756		2,495
Contract liabilities	24,101		—
Other	2,597		1,635
Total accrued liabilities	$	131,352	$	47,899


⁽¹⁾	As of June 30, 2018, includes $40.2 million of short-term liabilities incurred related to the shutdowns at the Third Creek and Kitty Draw gathering systems. See Note 1 for further information.

Table of Contents

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

10. DEBT AND INTEREST EXPENSE

At June 30, 2018, the Partnership’s debt consisted of 2.600% Senior Notes due 2018 (the “2018 Notes”), 5.375% Senior Notes due 2021 (the “2021 Notes”), 4.000% Senior Notes due 2022 (the “2022 Notes”), 3.950% Senior Notes due 2025 (the “2025 Notes”), 4.650% Senior Notes due 2026 (the “2026 Notes”), 4.500% Senior Notes due 2028 (the “2028 Notes”), 5.450% Senior Notes due 2044 (the “2044 Notes”) and 5.300% Senior Notes due 2048 (the “2048 Notes”).

The following table presents the Partnership’s outstanding debt:

June 30, 2018

December 31, 2017

thousands

Principal

Carrying

Value

Fair

Value ⁽¹⁾

Principal