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Dynamic quotes 
OFFON

WESTERN GAS PARTNERS, LP

(WES)
SummaryNewsCompany 
SummaryMost relevantAll NewsOther languagesPress ReleasesOfficial PublicationsSector news

Western Gas Partners LP : MIDSTREAM OPERATING, LP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/10/2020 | 04:21pm EST
The following discussion analyzes our financial condition and results of
operations and should be read in conjunction with the Consolidated Financial
Statements and Notes to Consolidated Financial Statements, wherein WES Operating
is fully consolidated, and which are included under Part I, Item 1 of this
quarterly report, and the historical consolidated financial statements, and the
notes thereto, which are included under Part II, Item 8 of the 2019 Form 10-K as
filed with the SEC on February 27, 2020.

              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made in this Form 10-Q, and may make in other public filings, press
releases, and statements by management, forward-looking statements concerning
our operations, economic performance, and financial condition. These
forward-looking statements include statements preceded by, followed by, or that
otherwise include the words "believes," "expects," "anticipates," "intends,"
"estimates," "projects," "target," "goal," "plans," "objective," "should," or
similar expressions or variations on such expressions. These statements discuss
future expectations, contain projections of results of operations or financial
condition, or include other "forward-looking" information.
Although we and our general partner believe that the expectations reflected in
our forward-looking statements are reasonable, neither we nor our general
partner can provide any assurance that such expectations will prove correct.
These forward-looking statements involve risks and uncertainties. Important
factors that could cause actual results to differ materially from expectations
include, but are not limited to, the following:

•our ability to pay distributions to our unitholders;

•our assumptions about the energy market;

•future throughput (including Occidental production) that is gathered or processed by, or transported through our assets;

•our operating results;

•competitive conditions;

•technology;

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

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

•commodity-price risks inherent in percent-of-proceeds, percent-of-product, and keep-whole contracts;

•weather and natural disasters;

•inflation;

•the availability of goods and services;

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

•federal, state, and local laws and state-approved voter ballot initiatives, including those laws or ballot initiatives that limit producers' hydraulic-fracturing activities or other oil and natural-gas development or operations;

•environmental liabilities;

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•legislative or regulatory changes, including changes affecting our status as a
partnership for federal income tax purposes;

•changes in the financial or operational condition of Occidental;

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

•changes in Occidental's capital program, corporate strategy, or other desired areas of focus;

•our commitments to capital projects;

•our ability to access liquidity under the RCF;

•our ability to repay debt;


•conflicts of interest among us, our general partner and its related parties,
including Occidental, with respect to, among other things, the allocation of
capital and operational and administrative costs, and our future business
opportunities;

•our ability to maintain and/or obtain rights to operate our assets on land owned by third parties;

•our ability to acquire assets on acceptable terms from third parties;

•non-payment or non-performance of significant customers, including under gathering, processing, transportation, and disposal agreements and the Anadarko note receivable;

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


•the outcome of pending and future regulatory, legislative, or other proceedings
or investigations, and continued or additional disruptions in operations that
may occur as we and our customers comply with any regulatory orders or other
state or local changes in laws or regulations;

•the economic uncertainty from the worldwide outbreak of the coronavirus ("COVID-19"); and


•other factors discussed below, in "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Critical
Accounting Estimates" included in the 2019 Form 10-K, in our quarterly reports
on Form 10-Q, and in our other public filings and press releases.

Risk factors and other factors noted throughout or incorporated by reference in this Form 10-Q could cause actual results to differ materially from those contained in any forward-looking statement. Except as required by law, 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

During the first and second quarters of 2020, the global outbreak of COVID-19
caused a sharp decline in the worldwide demand for oil, natural gas, and NGLs,
which contributed significantly to recent commodity-price declines and
oversupplied commodities markets. These market dynamics have an adverse impact
on producers that provide throughput into our systems and we have experienced
decreased throughput at many of our locations, which may adversely affect our
results of operations and cash flows.
Additionally, many of our employees have been and may continue to be subject to
pandemic-related work-from-home requirements, which requires us to take
additional actions to ensure that the number of personnel accessing our network
remotely does not lead to excessive cyber-security risk levels during the
ongoing work-from-home precautionary phase of the pandemic. Similarly, we are
working continually to ensure operational changes that we have made to promote
the health and safety of our personnel during this pandemic do not unduly
disrupt intracompany communications and key business processes. We consider our
risk-mitigation efforts adequate; however, the ultimate impact of the ongoing
pandemic is unpredictable, with direct and indirect impacts to our business. See
Risk Factors under Part II, Item 1A of this Form 10-Q for additional information
on these and other risks.
WES continues to monitor the COVID-19 situation closely and as state and federal
governments issue additional guidance, we will update our own policy responses
to ensure the safety and health of our workforce and communities. The federal
government has provided guidance to states on how to safely return personnel to
the workplace, which we are following as our workforce returns to WES locations.
All WES facilities, including field locations, have been conducting enhanced
routine cleaning and disinfecting of common areas and frequently touched
surfaces using CDC- and EPA-approved products. Our return-to-work protocols
include daily required application-based health self-assessments that must be
completed prior to accessing WES work locations.

We currently own or have investments in assets located in the Rocky Mountains
(Colorado, Utah, and Wyoming), North-central Pennsylvania, Texas, and New
Mexico. We are engaged in the business of gathering, compressing, treating,
processing, and transporting natural gas; gathering, stabilizing, and
transporting condensate, NGLs, and crude oil; and gathering and disposing of
produced water. In our capacity as a natural-gas processor, we also buy and sell
natural gas, NGLs, and condensate on behalf of ourselves and as an agent for our
customers under certain contracts. As of June 30, 2020, our assets and
investments consisted of the following:
                                            Wholly
                                           Owned and      Operated       Non-Operated       Equity
                                           Operated       Interests       Interests        Interests
Gathering systems (1)                           17              2                 3              2
Treating facilities                             38              3                 -              3
Natural-gas processing plants/trains            26              3                 -              5
NGLs pipelines                                   2              -                 -              4
Natural-gas pipelines                            5              -                 -              1
Crude-oil pipelines                              3              1                 -              3

(1)Includes the DBM water systems.

Significant financial and operational events during the six months ended June 30, 2020, included the following:

•Our second-quarter 2020 distribution is unchanged from the first-quarter 2020 per-unit distribution of $0.31100.

•We commenced operations of Latham Train II at the DJ Basin complex (with capacity of 250 MMcf/d) and Loving ROTF Train III at the DBM oil system (with capacity of 30 MBbls/d) during the first quarter of 2020.

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•In January 2020, WES Operating completed an offering of $3.2 billion in
aggregate principal amount of Fixed-Rate Senior Notes and $300.0 million in
aggregate principal amount of Floating-Rate Senior Notes. Net proceeds from
these offerings were used to repay and terminate the Term loan facility, repay
outstanding amounts under the RCF, and for general partnership purposes. See
Liquidity and Capital Resources within this Item 2 for additional information.

•During the first six months of 2020, WES Operating purchased and retired $164.5 million of certain of its senior notes and Floating-Rate Senior Notes. See Liquidity and Capital Resources within this Item 2 for additional information.


•Natural-gas throughput attributable to WES totaled 4,413 MMcf/d and 4,439
MMcf/d for the three and six months ended June 30, 2020, respectively,
representing a 3% and 5% increase, respectively, compared to the same periods in
2019.

•Crude-oil and NGLs throughput attributable to WES totaled 711 MBbls/d and 736
MBbls/d for the three and six months ended June 30, 2020, respectively,
representing a 19% and 23% increase, respectively, compared to the same periods
in 2019.

•Produced-water throughput attributable to WES totaled 758 MBbls/d and 730
MBbls/d for the three and six months ended June 30, 2020, respectively,
representing a 50% and 44% increase, respectively, compared to the same periods
in 2019.

•Operating income (loss) was $373.8 million for the three months ended June 30,
2020, representing a 21% increase compared to the same period in 2019. Operating
income (loss) was $158.9 million for the six months ended June 30, 2020, which
includes goodwill and long-lived asset impairments of $596.8 million during the
first quarter, representing a 75% decrease compared to the same period in 2019.

•Adjusted gross margin for natural-gas assets (as defined under the caption Key
Performance Metrics within this Item 2) averaged $1.13 per Mcf and $1.15 per Mcf
for the three and six months ended June 30, 2020, respectively, representing a
7% and 6% increase, respectively, compared to the same periods in 2019.

•Adjusted gross margin for crude-oil and NGLs assets (as defined under the
caption Key Performance Metrics within this Item 2) averaged $2.56 per Bbl for
the three months ended June 30, 2020, representing a 2% increase compared to the
same period in 2019. Adjusted gross margin for crude-oil and NGLs assets
averaged $2.49 per Bbl for the six months ended June 30, 2020, remaining flat
compared to the same period in 2019.

•Adjusted gross margin for produced-water assets (as defined under the caption
Key Performance Metrics within this Item 2) averaged $0.97 per Bbl for the three
and six months ended June 30, 2020, representing a 4% and 1% decrease,
respectively, compared to the same periods in 2019.

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Table of Contents The following tables provide additional information on throughput for the periods presented below:

                                                                                                 Three Months Ended June 30,
                                                                           Inc/                                                 Inc/                                                 Inc/
                                     2020                2019              (Dec)            2020              2019              (Dec)             2020              2019             (Dec)
                                                    Natural gas                                                                             Crude oil & NGLs                                                 Produced water
                                                     (MMcf/d)                                                                                   (MBbls/d)                                                      (MBbls/d)
Delaware Basin                        1,309               1,179              11  %            202               141                43  %            773               515              50  %
DJ Basin                              1,329               1,266               5  %            113               112                 1  %              -                 -               -  %
Equity investments                      458                 402              14  %            367               311                18  %              -                 -               -  %
Other                                 1,479               1,607              (8) %             44                49               (10) %              -                 -               -  %
Total throughput                      4,575               4,454               3  %            726               613                18  %            773               515              50  %



                                                                                                  Six Months Ended June 30,
                                                                           Inc/                                                 Inc/                                                 Inc/
                                     2020                2019              (Dec)            2020              2019              (Dec)             2020              2019             (Dec)
                                                    Natural gas                                                                             Crude oil & NGLs                                                 Produced water
                                                     (MMcf/d)                                                                                   (MBbls/d)                                                      (MBbls/d)
Delaware Basin                        1,349               1,178              15  %            197               143                38  %            745               516              44  %
DJ Basin                              1,368               1,262               8  %            120               107                12  %              -                 -               -  %
Equity investments                      451                 390              16  %            391               308                27  %              -                 -               -  %
Other                                 1,435               1,585              (9) %             43                53               (19) %              -                 -               -  %
Total throughput                      4,603               4,415               4  %            751               611                23  %            745               516              44  %



Commodity purchase and sale agreements. Effective April 1, 2020, changes to
marketing-contract terms with AESC terminated AESC's prior status as an agent of
the Partnership for third-party sales and established AESC as a customer of the
Partnership. Accordingly, the Partnership no longer recognizes service revenues
and/or product sales revenues and the equivalent cost of product expense for the
marketing services performed by AESC. Period-over-period variances for the three
and six months ended June 30, 2020, include the following impacts related to
this change (i) decreases of $47.1 million and $56.2 million, respectively, in
Service revenues - fee based, (ii) a decrease of $17.5 million and an increase
of $4.7 million, respectively, in Product sales, and (iii) decreases of $64.6
million and $51.5 million, respectively, in Cost of product expense. These
changes had no impact to Operating income (loss), Net income (loss), the balance
sheets, cash flows, or any non-GAAP metric used to evaluate our operations (see
Key Performance Metrics within this Item 2). See Note 6-Related-Party
Transactions in the Notes to Consolidated Financial Statements under Part I,
Item 1 of this Form 10-Q.

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December 2019 Agreements. On December 31, 2019, (i) WES and certain of its
subsidiaries, including WES Operating and WES Operating GP, entered into the
below-described agreements with Occidental and/or certain of its subsidiaries,
including Anadarko, and (ii) WES Operating also entered into the below-described
amendments to its debt agreements (collectively, the "December 2019
Agreements").

•Exchange Agreement. WGRI, the general partner, and WES entered into a
partnership interests exchange agreement (the "Exchange Agreement"), pursuant to
which WES canceled the non-economic general partner interest in WES and
simultaneously issued a 2.0% general partner interest to the general partner in
exchange for which WGRI transferred 9,060,641 WES common units to WES, which
immediately canceled such units on receipt.

•Services, Secondment, and Employee Transfer Agreement. Occidental, Anadarko,
and WES Operating GP entered into an amended and restated Services, Secondment,
and Employee Transfer Agreement (the "Services Agreement"), pursuant to which
Occidental, Anadarko, and their subsidiaries (i) seconded certain personnel
employed by Occidental to WES Operating GP, in exchange for which WES Operating
GP pays a monthly secondment and shared services fee to Occidental equivalent to
the direct cost of the seconded employees until their transfer to WES and (ii)
agreed to continue to provide certain administrative and operational services to
WES for up to a two-year transition period. In January 2020, pursuant to the
Services Agreement, Occidental made a one-time cash contribution of $20.0
million to WES Operating for anticipated transition costs required to establish
stand-alone human resources and information technology functions. The Services
Agreement also includes provisions governing the transfer of certain employees
to WES and the assumption by WES of liabilities relating to those employees at
the time of their transfer. In late March 2020, seconded employees' employment
was transferred to WES.

•RCF amendment. WES Operating entered into an amendment to its RCF to, among
other things, (i) effective on February 14, 2020, exercise the final one-year
extension option to extend the maturity date of the RCF to February 14, 2025,
for the extending lenders, and (ii) modify the change of control definition to
provide, among other things, that, subject to certain conditions, if the limited
partners of WES elect to remove the general partner as the general partner of
WES in accordance with the terms of the partnership agreement, then such removal
will not constitute a change of control under the RCF.

•Term loan facility amendment. WES Operating entered into an amendment to its
Term loan facility to, among other things, modify the change of control
definition to provide, among other things, that, subject to certain conditions,
if the limited partners of WES elect to remove the general partner as the
general partner of WES in accordance with the terms of the partnership
agreement, then such removal will not constitute a change of control under the
Term loan facility. See Note 11-Debt and Interest Expense in the Notes to
Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for
further information.

•Termination of debt-indemnification agreements. WES Operating GP and certain
wholly owned subsidiaries of Occidental mutually terminated the
debt-indemnification agreements related to certain indebtedness incurred by WES
Operating.

•Termination of omnibus agreements. WES and WES Operating entered into agreements with Occidental to terminate the WES and WES Operating omnibus agreements. See Note 6-Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further information.

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                                    OUTLOOK

We expect our business to continue to be affected by the below-described key
trends and uncertainties. Our expectations are based on assumptions made by us
and information currently available to us. To the extent our underlying
assumptions about, or interpretations of, available information prove incorrect,
our actual results may vary materially from expected results. Read Risk Factors
under Part II, Item 1A of this Form 10-Q for additional information.

Impact of crude-oil, natural-gas, and NGLs prices. Crude-oil, natural-gas, and
NGLs prices can fluctuate significantly, and have done so over time.
Commodity-price fluctuations affect the level of our customers' activities and
our customers' allocations of capital within their own asset portfolios. During
the first quarter of 2020, oil and natural-gas prices decreased significantly,
driven by the expectation of increased supply and sharp declines in demand
resulting from the worldwide macroeconomic downturn that followed the global
outbreak of COVID-19. For example, NYMEX West Texas Intermediate crude-oil daily
settlement prices recently ranged from a high of $63.27 per barrel in January
2020 to a low below $20.00 per barrel in April 2020. While the extent and
duration of the recent commodity-price declines cannot be predicted, potential
impacts to our business include the following:

•With continued excess supply, domestic oil-storage capacity may reach
operational limits, causing downstream-storage constraints and potential
production curtailments that could adversely impact revenues generated from our
midstream gathering and processing contracts. As available storage nears
capacity, our customers may shut-in field production due to their inability to
access downstream-takeaway alternatives or challenged wellhead economics.

•We have exposure to increased credit risk to the extent any of our customers, including Occidental, is in financial distress. See Liquidity and Capital Resources-Credit risk within this Item 2 for additional information.


•An extended period of diminished earnings may restrict our ability to fully
access our RCF, which contains various customary covenants, certain events of
default, and a maximum consolidated leverage ratio based on Adjusted EBITDA (as
defined in the covenant) related to the trailing twelve-month period. Further,
any future waivers or amendments to the RCF also may trigger pricing increases
for available credit. See Liquidity and Capital Resources-Debt and credit
facilities within this Item 2 for additional information.

•As of June 30, 2020, it is reasonably possible that prolonged low commodity
prices, further commodity-price declines, and changes to producers' drilling
plans in response to lower prices could result in future long-lived asset
impairments.

To the extent producers continue with development plans in our areas of
operation, we will continue to connect new wells or production facilities to our
systems to maintain throughput on our systems and mitigate the impact of
production declines. However, our success in connecting additional wells or
production facilities is dependent on the activity levels of our customers.
Additionally, we will continue to evaluate the crude-oil, NGLs, and natural-gas
price environments and adjust our capital spending plans to reflect our
customers' anticipated activity levels, while maintaining appropriate liquidity
and financial flexibility. See Risk Factor, "The global outbreak of COVID-19 is
likely to have an adverse impact on our operations and financial results." under
Part II, Item 1A of this Form 10-Q for additional information.

Effects of credit-rating downgrade. Our costs of borrowing and ability to access
the capital markets are affected by market conditions and the credit ratings
assigned to WES Operating's debt by the major credit rating agencies. In March
2020, Fitch Ratings ("Fitch") and Standard and Poor's ("S&P") downgraded WES
Operating's long-term debt from "BBB-" to "BB+," with negative watches assigned
to each of these revised ratings. In May 2020, Fitch downgraded WES Operating's
long-term debt to "BB" and in June 2020, Moody's Investors Service ("Moody's")
downgraded WES Operating's long-term debt from "Ba1" to "Ba2." As a result of
these downgrades, WES Operating's credit rating is below investment grade for
all three major credit rating agencies, which results in the following:

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•WES Operating's annualized borrowing costs will increase by $35.0 million for
the Fixed-Rate Senior Notes and Floating-Rate Senior Notes issued in January
2020 that provide for increased interest rates following downgrade events.

•Beginning in the second quarter of 2020, the interest rate on outstanding RCF
borrowings increased by 0.20% and the RCF facility-fee rate increased by 0.05%,
from 0.20% to 0.25%.

•We may be obligated to provide financial assurance of our performance under
certain contractual arrangements requiring us to post collateral in the form of
letters of credit or cash. At June 30, 2020, we had $5.0 million in letters of
credit or cash-provided assurance of our performance outstanding under
contractual arrangements with credit-risk-related contingent features.

Additional downgrades to WES Operating's credit ratings will further impact its
borrowing costs negatively, and may adversely affect WES Operating's ability to
issue public debt and effectively execute aspects of our business strategy.

Per-unit distribution reduction and revised capital guidance. On April 20, 2020,
we announced the below-described per-unit distribution and cost reductions.
These cash-preservation measures are intended to enhance our liquidity for the
duration of the COVID-19 macroeconomic disruption and the weakened
commodity-price environment; however, the duration and severity of this pandemic
and concomitant economic downturn remains uncertain. There can be no assurance
that these announced actions will provide sufficient liquidity for the required
duration, and additional actions, including additional per-unit distribution
reductions, may be necessary to manage through the current environment.

•A quarterly cash distribution of $0.31100 per unit for the first quarter of
2020, which represents a 50% reduction to the distribution paid for the previous
quarter.

•For the year ended December 31, 2020, capital expenditures are expected to be
$450.0 million to $550.0 million, representing a 45% reduction to prior
guidance. This reduction results from deferred producer activity in all basins
and the elimination of associated capital expenditures, other than those
expenditures that are necessary to support proper maintenance and long-term
asset integrity.

•We expect to achieve other cost reductions of approximately $75.0 million through operating and maintenance and general and administrative expense cost-saving initiatives.


On July 16, 2020, we announced that our per-unit distribution for the second
quarter of 2020 is unchanged from the first-quarter 2020 $0.31100 per-unit
distribution. On August 10, 2020, we announced a further downward revision to
our estimated full-year 2020 capital expenditures, which currently are expected
to be $400.0 million to $450.0 million, representing a $75.0 million reduction
to the April 2020 guidance midpoint of $500.0 million.

      BASIS OF PRESENTATION FOR ACQUIRED ASSETS AND RESULTS OF OPERATIONS

AMA acquisition. In February 2019, WES Operating acquired AMA from Anadarko. See
Note 1-Description of Business and Basis of Presentation and Note 3-Acquisitions
and Divestitures in the Notes to Consolidated Financial Statements under Part I,
Item 1 of this Form 10-Q for further information.

Red Bluff Express acquisition. In January 2019, we acquired a 30% interest in
Red Bluff Express, which owns a third-party-operated natural-gas pipeline
connecting processing plants in Reeves and Loving Counties, Texas, to the WAHA
hub in Pecos County, Texas. We acquired our 30% interest from a third party via
an initial net investment of $92.5 million, which represented a 30% share of
costs incurred up to the date of acquisition. The initial investment was funded
with cash on hand and the interest in Red Bluff Express is accounted for under
the equity method of accounting.


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Presentation of the Partnership's assets. Our assets include assets owned and
ownership interests accounted for by us under the equity method of accounting,
through our 98% partnership interest in WES Operating as of June 30, 2020 (see
Note 7-Equity Investments in the Notes to Consolidated Financial Statements
under Part I, Item 1 of this Form 10-Q). We also own and control the entire
non-economic general partner interest in WES Operating GP, and our general
partner is owned by Occidental.

                             RESULTS OF OPERATIONS

OPERATING RESULTS


The following tables and discussion present a summary of our results of
operations:
                                                            Three Months Ended                                       Six Months Ended
                                                                 June 30,                                                 June 30,

thousands                                                 2020               2019                2020                    2019
Total revenues and other (1)                          $ 671,755          $

685,054 $ 1,446,068 $ 1,356,937 Equity income, net - related parties

                     54,415             63,598              115,762                    121,590
Total operating expenses (1)                            349,561            437,531            1,400,084                    847,888
Gain (loss) on divestiture and other, net                (2,843)            (1,061)              (2,883)                    (1,651)
Operating income (loss)                                 373,766            310,060              158,863                    628,988
Interest income - Anadarko note receivable                4,225              4,225                8,450                      8,450
Interest expense                                        (94,654)           (79,472)            (183,240)                  (145,348)
Gain (loss) on early extinguishment of debt               1,395                  -                8,740                          -
Other income (expense), net                               1,653            (58,477)                (108)                   (93,683)
Income (loss) before income taxes                       286,385            176,336               (7,295)                   398,407
Income tax expense (benefit)                              5,044              1,278                  764                     11,370
Net income (loss)                                       281,341            175,058               (8,059)                   387,037
Net income (loss) attributable to
noncontrolling interests                                  8,304              5,464              (24,569)                    98,783
Net income (loss) attributable to Western
Midstream Partners, LP (2)                            $ 273,037          $ 169,594          $    16,510          $         288,254
Key performance metrics (3)
Adjusted gross margin                                 $ 686,957          $ 596,476          $ 1,388,272          $       1,184,170
Adjusted EBITDA                                         514,441            432,920            1,028,028                    861,250
Free cash flow                                          208,623             (6,353)             423,210                    (78,175)


(1)Total revenues and other includes amounts earned from services provided to
related parties and from the sale of residue gas and NGLs to related parties.
Total operating expenses includes amounts charged by related parties for
services and reimbursements of amounts paid by related parties to third parties
on our behalf. See Note 6-Related-Party Transactions in the Notes to
Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(2)For reconciliations to comparable consolidated results of WES Operating, see
Items Affecting the Comparability of Financial Results with WES Operating within
this Item 2.
(3)Adjusted gross margin, Adjusted EBITDA, and Free cash flow are defined under
the caption Key Performance Metrics within this Item 2. For reconciliations of
these non-GAAP financial measures to their most directly comparable financial
measures calculated and presented in accordance with GAAP, see Key Performance
Metrics-Reconciliation of non-GAAP financial measures within this Item 2.

For purposes of the following discussion, any increases or decreases "for
the three months ended June 30, 2020" refer to the comparison of the three
months ended June 30, 2020, to the three months ended June 30, 2019; any
increases or decreases "for the six months ended June 30, 2020" refer to the
comparison of the six months ended June 30, 2020, to the six months ended June
30, 2019; and any increases or decreases "for the three and six months ended
June 30, 2020" refer to the comparison of these 2020 periods to the
corresponding three- and six-month periods ended June 30, 2019.
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Throughput
                                                                   Three Months Ended                                                                      Six Months Ended
                                                                         June 30,                                                                              June 30,

                                                                                                Inc/                                                       Inc/
                                                        2020                 2019              (Dec)               2020                 2019               (Dec)
Throughput for natural-gas assets (MMcf/d)
Gathering, treating, and transportation                    554                  528                5  %               547                  527                 4  %
Processing                                               3,563                3,524                1  %             3,605                3,498                 3  %
Equity investments (1)                                     458                  402               14  %               451                  390                16  %
Total throughput                                         4,575                4,454                3  %             4,603                4,415                 4  %
Throughput attributable to noncontrolling
interests (2)                                              162                  178               (9) %               164                  177                (7) %
Total throughput attributable to WES for
natural-gas assets                                       4,413                4,276                3  %             4,439                4,238                 5  %
Throughput for crude-oil and NGLs assets
(MBbls/d)
Gathering, treating, and transportation                    359                  302               19  %               360                  303                19  %
Equity investments (3)                                     367                  311               18  %               391                  308                27  %
Total throughput                                           726                  613               18  %               751                  611                23  %
Throughput attributable to noncontrolling
interests (2)                                               15                   13               15  %                15                   13                15  %
Total throughput attributable to WES for
crude-oil and NGLs assets                                  711                  600               19  %               736                  598                23  %
Throughput for produced-water assets
(MBbls/d)
Gathering and disposal                                     773                  515               50  %               745                  516                44  %
Throughput attributable to noncontrolling
interests (2)                                               15                   10               50  %                15                   10                50  %
Total throughput attributable to WES for
produced-water assets                                      758                  505               50  %               730                  506                44  %


(1)Represents the 14.81% share of average Fort Union throughput, 22% share of
average Rendezvous throughput, 50% share of average Mi Vida and Ranch Westex
throughput, and 30% share of average Red Bluff Express throughput.
(2)For all periods presented, includes (i) the 25% third-party interest in
Chipeta and (ii) the 2.0% Occidental subsidiary-owned limited partner interest
in WES Operating, which collectively represent WES's noncontrolling interests.
(3)Represents the 10% share of average White Cliffs throughput; 25% share of
average Mont Belvieu JV throughput; 20% share of average TEG, TEP, Whitethorn,
and Saddlehorn throughput; 33.33% share of average FRP throughput; and 15% share
of average Panola and Cactus II throughput.

Natural-gas assets


Gathering, treating, and transportation throughput increased by 26 MMcf/d and 20
MMcf/d for the three and six months ended June 30, 2020, respectively, primarily
due to increased production in areas around the Marcellus Interest systems,
partially offset by production declines in areas around the Bison facility and
Springfield gas-gathering system.
Processing throughput increased by 39 MMcf/d and 107 MMcf/d for the three and
six months ended June 30, 2020, respectively, primarily due to (i) increased
production in areas around the West Texas and DJ Basin complexes, (ii) the
start-up of Latham Train II at the DJ Basin complex during the first quarter of
2020, and (iii) the start-up of Mentone Train II at the West Texas complex in
March 2019. These increases were offset partially by (i) lower throughput at the
Chipeta complex due to production declines in the area and a third-party
contract that terminated during the fourth quarter of 2019, (ii) third-party
volumes being diverted away from the Granger straddle plant beginning in the
fourth quarter of 2019, and (iii) lower throughput at the Red Desert complex due
to production declines in the area.

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Equity-investment throughput increased by 56 MMcf/d and 61 MMcf/d for the three
and six months ended June 30, 2020, respectively, primarily due to increased
volumes on Red Bluff Express resulting from increased production in the area,
partially offset by decreased volumes at the Mi Vida plant due to a decrease in
third-party processed volumes.

Crude-oil and NGLs assets


Gathering, treating, and transportation throughput increased by 57 MBbls/d for
the three and six months ended June 30, 2020, primarily due to (i) increased
throughput at the DBM oil system with the commencement of Loving ROTF Train III
operations during the first quarter of 2020 and increased production, and (ii)
increased throughput into the DJ Basin oil system.
Equity-investment throughput increased by 56 MBbls/d and 83 MBbls/d for the
three and six months ended June 30, 2020, respectively, primarily due to (i) the
acquisition of our interest in Cactus II in June 2018, which began delivering
crude oil during the third quarter of 2019, (ii) increased volumes on FRP
resulting from a pipeline expansion project completed during the second quarter
of 2020, and (iii) increased volumes on the Saddlehorn pipeline resulting from
incentive tariffs and additional committed volumes beginning in the third
quarter of 2019. These increases were offset partially by decreased volumes on
the Whitethorn pipeline.

Produced-water assets

Gathering and disposal throughput increased by 258 MBbls/d and 229 MBbls/d for
the three and six months ended June 30, 2020, respectively, due to increased
throughput at the DBM water systems resulting from additional (i) producer
activity, (ii) water-disposal facilities, and (iii) offload connections that
increased capacity of the systems.

Service Revenues
                                                         Three Months Ended                                                                    Six Months Ended
                                                               June 30,                                                                            June 30,

                                                                                    Inc/                                                       Inc/
thousands except percentages                   2020               2019     
       (Dec)               2020                 2019               (Dec)
Service revenues - fee based               $ 642,628          $ 593,544                8  %       $ 1,344,024          $ 1,173,518                15  %
Service revenues - product based               7,000             16,675              (58) %            22,921               36,054               (36) %
 Total service revenues                    $ 649,628          $ 610,219                6  %       $ 1,366,945          $ 1,209,572                13  %



Service revenues - fee based


Service revenues - fee based increased by $49.1 million and $170.5 million for
the three and six months ended June 30, 2020, respectively, primarily due to
increases of (i) $29.1 million and $70.2 million, respectively, at the West
Texas complex and $19.5 million and $55.9 million, respectively, at the DJ Basin
complex from increased throughput, (ii) $22.7 million and $45.6 million,
respectively, at the DBM oil system from increased throughput and the effect of
the straight-line treatment of lease revenue under the new operating and
maintenance agreement with Occidental effective December 31, 2019, (iii) $22.1
million and $41.2 million, respectively, at the DBM water systems from increased
throughput and a higher average fee resulting from a cost-of-service rate
redetermination that occurred during the first quarter of 2020, and (iv) $5.4
million and $15.9 million, respectively, at the DJ Basin oil system from
increased throughput and higher average fees resulting from an annual
cost-of-service rate adjustment that occurred during the fourth quarter of 2019.
These increases were offset partially by decreases of $47.1 million and $56.2
million, respectively, resulting from a change in accounting for the marketing
contracts with AESC effective April 1, 2020 (see Executive Summary-Commodity
purchase and sale agreements within this Item 2).

Service revenues - product based


Service revenues - product based decreased by $9.7 million and $13.1 million for
the three and six months ended June 30, 2020, respectively, primarily due to
decreased volumes and pricing across several systems.

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Product Sales
                                                    Three Months Ended                                                              Six Months Ended
                                                          June 30,                                                                      June 30,

thousands except percentages and                                              Inc/                                                  Inc/
per-unit amounts                          2020              2019             (Dec)             2020               2019              (Dec)
Natural-gas sales                      $  6,184          $  8,227              (25) %       $ 16,723          $  35,551               (53) %
NGLs sales                               15,552            66,242              (77) %         61,662            111,051               (44) %
Total Product sales                    $ 21,736          $ 74,469              (71) %       $ 78,385          $ 146,602               (47) %
Per-unit gross average sales
price:
Natural gas (per Mcf)                  $   1.12          $   1.13               (1) %       $   1.22          $    1.77               (31) %
NGLs (per Bbl)                             7.87             20.92              (62) %          11.76              23.09               (49) %



Natural-gas sales

Natural-gas sales decreased by $18.8 million for the six months ended June 30,
2020, primarily due to decreases of (i) $5.5 million and $2.8 million at the DJ
Basin complex and MGR assets, respectively, attributable to decreases in average
prices, (ii) $5.3 million at the Hilight system resulting from an accrual
reversal in the first quarter of 2019 related to the Kitty Draw gathering-system
shutdown (see Note 1-Description of Business and Basis of Presentation in the
Notes to Consolidated Financial Statements under Part I, Item 1 of this Form
10-Q), and (iii) $2.6 million resulting from a change in accounting for the
marketing contracts with AESC effective April 1, 2020 (see Executive
Summary-Commodity purchase and sale agreements within this Item 2).

NGLs sales


NGLs sales decreased by $50.7 million and $49.4 million for the three and six
months ended June 30, 2020, respectively, primarily due to decreases of (i)
$15.1 million and $24.6 million, respectively, at the West Texas complex
attributable to a decrease in average prices, partially offset by increased
volumes, (ii) $6.2 million and $13.1 million, respectively, at the DJ Basin
complex attributable to a decrease in average prices, and (iii) $2.6 million and
$6.1 million, respectively, at the Chipeta complex, $3.9 million and $4.9
million, respectively, at the Brasada complex, and $2.2 million and $4.0
million, respectively, at the MGR assets resulting from decreases in average
prices and volumes sold. The above decreases also were impacted by a $17.8
million decrease and a $7.3 million increase, respectively, resulting from a
change in accounting for the marketing contracts with AESC effective April 1,
2020 (see Executive Summary-Commodity purchase and sale agreements within this
Item 2).

Equity Income, Net - Related Parties

                                                        Three Months Ended                                                               Six Months Ended
                                                              June 30,                                                                       June 30,

                                                                                  Inc/                                                   Inc/
thousands except percentages                  2020              2019             (Dec)              2020               2019              (Dec)

Equity income, net - related parties $ 54,415 $ 63,598

        (14) %       $ 115,762          $ 121,590                (5) %



Equity income, net - related parties decreased by $9.2 million and $5.8 million
for the three and six months ended June 30, 2020, respectively, primarily due to
a decrease in equity income from Whitethorn LLC related to commercial
activities, partially offset by increases related to the acquisition of our
interest in Cactus II in June 2018, which began delivering crude oil during the
third quarter of 2019. In addition, the decrease for the six months ended June
30, 2020, was offset partially by increased volumes on FRP resulting from a
pipeline expansion project completed during the second quarter of 2020.
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Cost of Product and Operation and Maintenance Expenses
                                                      Three Months Ended                                                                Six Months Ended
                                                           June 30,                                                                         June 30,

                                                                                Inc/                                                    Inc/
thousands except percentages               2020               2019              (Dec)              2020               2019              (Dec)
NGLs purchases                         $   8,992          $  95,856               (91) %       $  92,781          $ 175,675               (47) %
Residue purchases                         11,941             17,980               (34) %          33,160             51,620               (36) %
Other                                     (2,331)             9,041              (126) %          (4,069)             9,645              (142) %
Cost of product                           18,602            122,877               (85) %         121,872            236,940               (49) %
Operation and maintenance                145,186            148,431                (2) %         304,377            291,260                 5  %
Total Cost of product and
Operation and maintenance
expenses                               $ 163,788          $ 271,308               (40) %       $ 426,249          $ 528,200               (19) %



NGLs purchases

NGLs purchases decreased by $86.9 million for the three months ended June 30,
2020, primarily due to decreases of (i) $58.8 million resulting from a change in
accounting for the marketing contracts with AESC effective April 1, 2020 (see
Executive Summary-Commodity purchase and sale agreements within this Item 2),
(ii) $14.8 million at the West Texas complex attributable to an average-price
decrease partially offset by a purchased-volume increase, (iii) $3.6 million and
$2.6 million at the Brasada and Chipeta complexes, respectively, due to
average-price and purchased-volume decreases, and (iv) $2.4 million at the DJ
Basin complex attributable to an average-price decrease.
NGLs purchases decreased by $82.9 million for the six months ended June 30,
2020, primarily due to decreases of (i) $43.4 million resulting from a change in
accounting for the marketing contracts with AESC effective April 1, 2020 (see
Executive Summary-Commodity purchase and sale agreements within this Item 2),
(ii) $22.3 million at the West Texas complex due to an average-price decrease,
(iii) $4.7 million at both the Brasada and Chipeta complexes attributable to
average-price and purchased-volume decreases, and (iv) $2.9 million at the DJ
Basin complex attributable to an average-price decrease.

Residue purchases


Residue purchases decreased by $6.0 million for the three months ended June 30,
2020, primarily due to decreases of (i) $5.8 million resulting from a change in
accounting for the marketing contracts with AESC effective April 1, 2020 (see
Executive Summary-Commodity purchase and sale agreements within this Item 2),
(ii) $1.8 million at the DJ Basin complex attributable to average-price and
purchased-volume decreases, and (iii) $1.5 million at the MGR assets
attributable to an average-price decrease. These amounts were offset partially
by an increase of $3.7 million at the West Texas complex attributable to an
average-price increase.
Residue purchases decreased by $18.5 million for the six months ended June 30,
2020, primarily due to decreases of (i) $8.1 million resulting from a change in
accounting for the marketing contracts with AESC effective April 1, 2020 (see
Executive Summary-Commodity purchase and sale agreements within this Item 2) and
(ii) $5.4 million and $3.8 million at the DJ Basin complex and MGR assets,
respectively, attributable to an average-price decrease.

Other items


Other items decreased by $11.4 million and $13.7 million for the three and six
months ended June 30, 2020, respectively, primarily due to decreases of (i) $8.4
million and $10.6 million, respectively, at the West Texas complex due to
changes in imbalance positions and (ii) $3.0 million and $4.4 million,
respectively, at the DJ Basin complex due to decreases in transportation costs.

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Operation and maintenance expense

Operation and maintenance expense increased by $13.1 million for the six months
ended June 30, 2020, primarily due to increases of (i) $11.5 million and $3.7
million at the DJ Basin and West Texas complexes, respectively, primarily
resulting from increased utilities and maintenance expense and (ii) $9.5 million
at the DBM water systems primarily attributable to higher surface-use fees and
throughput, contract labor and consulting services, and maintenance and
utilities expense. These increases were offset partially by decreases of (i)
$7.1 million in overhead expense primarily related to fleet management,
equipment rentals, and other miscellaneous field expenses, and (ii) $4.6 million
at the Springfield system primarily due to decreases in maintenance and salary
expense.

Other Operating Expenses
                                                           Three Months Ended                                                                Six Months Ended
                                                                 June 30,                                                                        June 30,

                                                                                      Inc/                                                   Inc/
thousands except percentages                     2020               2019   
         (Dec)              2020               2019              (Dec)
General and administrative                   $  36,423          $  30,027               21  %       $  76,888          $  52,871                45  %
Property and other taxes                        19,395             14,282               36  %          37,871             30,567                24  %
Depreciation and amortization                  119,805            121,117               (1) %         252,124            235,063                 7  %
Long-lived asset impairments                    10,150                797                  NM         165,935              1,187                   NM
Goodwill impairment                                  -                  -                -  %         441,017                  -                   NM
Total other operating expenses               $ 185,773          $ 166,223               12  %       $ 973,835          $ 319,688                   NM


NM-Not meaningful

General and administrative expenses


General and administrative expenses increased by $6.4 million and $24.0 million
for the three and six months ended June 30, 2020, respectively, primarily due to
certain increases relating to the Services Agreement, including (i) $1.6 million
and $16.6 million, respectively, in personnel costs primarily resulting from WES
securing its own dedicated workforce as of December 31, 2019, and (ii) $3.6
million and $8.4 million, respectively, of additional expense primarily related
to services provided by Occidental to WES for information technology services.
See Executive Summary-December 2019 Agreements within this Item 2.

Property and other taxes


Property and other taxes increased by $5.1 million and $7.3 million for the
three and six months ended June 30, 2020, respectively, primarily due to ad
valorem tax increases at (i) the West Texas complex due to general expansion,
including the completion of Mentone Train II in March 2019 and (ii) at the DJ
Basin complex due to general expansion, including the completion of Latham Train
I in November 2019.

Depreciation and amortization expense


Depreciation and amortization expense decreased by $1.3 million for the three
months ended June 30, 2020, primarily due to a decrease of $7.5 million at the
DJ Basin complex as a result of a change in estimate for asset retirement
obligations. The decrease was offset partially by increases of (i) $4.4 million
at the West Texas complex and DBM oil system, resulting from capital projects
being placed into service, and (ii) $2.0 million of amortization expense related
to finance leases.
Depreciation and amortization expense increased by $17.1 million for the six
months ended June 30, 2020, primarily due to increases of (i) $6.1 million at
the West Texas complex and $4.8 million at the DBM oil system and DBM water
systems, all primarily resulting from capital projects being placed into
service, and (ii) $4.2 million of amortization expense related to finance
leases. For further information regarding capital projects, see Liquidity and
Capital Resources-Capital expenditures within this Item 2.

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Long-lived asset impairment expense

Long-lived asset impairment expense for the three months ended June 30, 2020,
was primarily due to (i) impairments of $5.1 million at the DJ Basin and West
Texas complexes due to cancellation of projects and (ii) a $5.1 million
impairment for an asset located in Wyoming, which was impaired to estimated fair
value. Long-lived asset impairment expense for the six months ended June 30,
2020, was primarily due to (i) $149.4 million of impairments for assets located
in Wyoming and Utah and (ii) impairments at the DJ Basin complex.
For further information on long-lived asset impairment expense for the six
months ended June 30, 2020, see Note 8-Property, Plant, and Equipment in the
Notes to Consolidated Financial Statements under Part I, Item 1 of this Form
10-Q.

Goodwill impairment expense

During the three months ended March 31, 2020, an interim goodwill impairment
test was performed due to significant unit-price declines triggered by the
combined impacts from the global outbreak of COVID-19 and the oil-market
disruption. As a result of the interim impairment test, a goodwill impairment of
$441.0 million was recognized for the gathering and processing reporting unit.
For additional information on goodwill impairment expense, see Note 9-Goodwill
in the Notes to Consolidated Financial Statements under Part I, Item 1 of this
Form 10-Q.

Interest Income - Anadarko Note Receivable and Interest Expense

                                                           Three Months Ended                                                                  Six Months Ended
                                                                June 30,                                                                           June 30,

                                                                                     Inc/                                                      Inc/
thousands except percentages                    2020               2019    
         (Dec)              2020                2019               (Dec)

Interest income - Anadarko note
receivable                                  $   4,225          $   4,225                 -  %       $    8,450          $    8,450                 -  %

Third parties
Long-term and short-term debt               $ (89,650)         $ (82,624)                9  %       $ (179,419)         $ (149,720)               20  %
Finance lease liabilities                        (388)                 -                   NM             (793)                  -                   NM
Amortization of debt issuance costs
and commitment fees                            (3,462)            (3,170)                9  %           (6,589)             (6,322)                4  %
Capitalized interest                           (1,154)             6,342              (118) %            3,604              12,547               (71) %
Related parties
APCWH Note Payable                                  -                  -                 -  %                -              (1,833)             (100) %
Finance lease liabilities                           -                (20)             (100) %              (43)                (20)              115  %
Interest expense                            $ (94,654)         $ (79,472)               19  %       $ (183,240)         $ (145,348)               26  %



Interest expense increased by $15.2 million and $37.9 million for the three and
six months ended June 30, 2020, respectively, primarily due to (i) $35.6 million
and $66.7 million, respectively, of interest incurred on the 3.100% Senior Notes
due 2025, 4.050% Senior Notes due 2030, 5.250% Senior Notes due 2050, and
Floating-Rate Senior Notes due 2023 that were issued in January 2020 and (ii)
decreases of $7.5 million and $8.9 million, respectively, in capitalized
interest. These increases were offset partially by decreases of (i) $20.3
million and $28.8 million, respectively, that occurred as a result of the
repayment and termination of the Term loan facility in January 2020 and (ii)
$6.6 million and $6.3 million, respectively, due to lower outstanding borrowings
under the RCF in 2020. See Liquidity and Capital Resources-Debt and credit
facilities within this Item 2.

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Other Income (Expense), Net
                                                    Three Months Ended                                                             Six Months Ended
                                                          June 30,                                                                     June 30,

                                                                              Inc/                                                 Inc/
thousands except percentages              2020              2019             (Dec)             2020              2019              (Dec)
Other income (expense), net            $ 1,653          $ (58,477)             103  %       $  (108)         $ (93,683)              100  %



Other income (expense), net increased by $60.1 million and $93.6 million for the
three and six months ended June 30, 2020, respectively, primarily due to
non-cash losses of $59.0 million and $94.6 million on interest-rate swaps
incurred during the three and six months ended June 30, 2019, respectively. All
outstanding interest-rate swap agreements were settled in December 2019 (see
Note 11-Debt and Interest Expense in the Notes to Consolidated Financial
Statements under Part I, Item 1 of this Form 10-Q).


Income Tax Expense (Benefit)

                                                     Three Months Ended                                                               Six Months Ended
                                                           June 30,                                                                       June 30,

                                                                                Inc/                                                  Inc/
thousands except percentages               2020               2019             (Dec)             2020               2019              (Dec)
Income (loss) before income
taxes                                  $ 286,385          $ 176,336               62  %       $ (7,295)         $ 398,407              (102) %
Income tax expense (benefit)               5,044              1,278                  NM            764             11,370               (93) %
Effective tax rate                             2  %               1  %                                 NM               3  %



We are not a taxable entity for U.S. federal income tax purposes; therefore, our
federal statutory rate is zero percent. However, income apportionable to Texas
is subject to Texas margin tax. For the six months ended June 30, 2019, the
variance from the federal statutory rate primarily was due to federal and state
taxes on pre-acquisition income attributable to assets previously acquired from
Anadarko, and our share of applicable Texas margin tax. For all other periods
presented, the variance from the federal statutory rate was primarily due to our
Texas margin tax liability.
Income attributable to the AMA assets prior to and including February 2019 was
subject to federal and state income tax. Income earned on the AMA assets for
periods subsequent to February 2019 was subject only to Texas margin tax on
income apportionable to Texas.

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KEY PERFORMANCE METRICS
                                                      Three Months Ended                                                                  Six Months Ended
                                                            June 30,                                                                          June 30,

thousands except percentages and                                                 Inc/                                                     Inc/
per-unit amounts                            2020               2019             (Dec)              2020                2019               (Dec)
Adjusted gross margin for
natural-gas assets                      $ 454,476          $ 412,494               10  %       $  925,842          $  824,922                12  %
Adjusted gross margin for
crude-oil and NGLs assets                 165,767            137,716               20  %          333,595             269,086                24  %
Adjusted gross margin for
produced-water assets                      66,714             46,266               44  %          128,835              90,162                43  %
Adjusted gross margin (1)                 686,957            596,476               15  %        1,388,272           1,184,170                17  %
Per-Mcf Adjusted gross margin for
natural-gas assets (2)                       1.13               1.06                7  %             1.15                1.08                 6  %
Per-Bbl Adjusted gross margin for
crude-oil and NGLs assets (3)                2.56               2.52                2  %             2.49                2.49                 -  %
Per-Bbl Adjusted gross margin for
produced-water assets (4)                    0.97               1.01               (4) %             0.97                0.98                (1) %
Adjusted EBITDA (1)                       514,441            432,920               19  %        1,028,028             861,250                19  %
Free cash flow (1)                        208,623             (6,353)                 NM          423,210             (78,175)                  NM


(1)For a reconciliation of Adjusted gross margin, Adjusted EBITDA, and Free cash
flow to the most directly comparable financial measure calculated and presented
in accordance with GAAP, see the below descriptions.
(2)Average for period. Calculated as Adjusted gross margin for natural-gas
assets, divided by total throughput (MMcf/d) attributable to WES for natural-gas
assets.
(3)Average for period. Calculated as Adjusted gross margin for crude-oil and
NGLs assets, divided by total throughput (MBbls/d) attributable to WES for
crude-oil and NGLs assets.
(4)Average for period. Calculated as Adjusted gross margin for produced-water
assets, divided by total throughput (MBbls/d) attributable to WES for
produced-water assets.

Adjusted gross margin. We define Adjusted gross margin attributable to Western
Midstream Partners, LP ("Adjusted gross margin") as total revenues and other
(less reimbursements for electricity-related expenses recorded as revenue), less
cost of product, plus distributions from equity investments, and excluding the
noncontrolling interests owners' proportionate share of revenues and cost of
product. We believe Adjusted gross margin is an important performance measure of
our operations' profitability and performance as compared to other companies in
the midstream industry. To facilitate investor and industry analyst comparisons
between us and our peers, we also disclose per-Mcf Adjusted gross margin for
natural-gas assets, per-Bbl Adjusted gross margin for crude-oil and NGLs assets,
and per-Bbl Adjusted gross margin for produced-water assets.
Adjusted gross margin increased by $90.5 million and $204.1 million for the
three and six months ended June 30, 2020, respectively, primarily due to (i)
increased throughput at the West Texas and DJ Basin complexes, (ii) increased
throughput and the effect of the straight-line treatment of lease revenue under
the new operating and maintenance agreement with Occidental effective December
31, 2019, at the DBM oil system, (iii) increased throughput and higher average
fees at the DBM water systems and DJ Basin oil system, and (iv) increased
volumes on FRP resulting from a pipeline expansion project completed during the
second quarter of 2020. These increases were offset partially by (i) a decrease
in distributions from Whitethorn LLC related to commercial activities and (ii) a
decrease at the Hilight system resulting from lower throughput and an accrual
reversal in the first quarter of 2019 related to the Kitty Draw gathering-system
shutdown (see Note 1-Description of Business and Basis of Presentation in the
Notes to Consolidated Financial Statements under Part I, Item 1 of this Form
10-Q).
Per-Mcf Adjusted gross margin for natural-gas assets increased by $0.07 for the
three and six months ended June 30, 2020, primarily due to increased throughput
at the West Texas complex, which has a higher-than-average per-Mcf margin as
compared to our other natural-gas assets.

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Per-Bbl Adjusted gross margin for crude-oil and NGLs assets increased by $0.04
and was flat for the three and six months ended June 30, 2020, respectively,
primarily due to (i) increased throughput and higher average gathering and
processing fees at the DJ Basin oil system, (ii) increased throughput and the
effect of the straight-line treatment of lease revenue under the new operating
and maintenance agreement with Occidental effective December 31, 2019, at the
DBM oil system, and (iii) increased volumes on FRP resulting from a pipeline
expansion project completed during the second quarter of 2020. These increases
were partially offset by a decrease in distributions from Whitethorn LLC related
to commercial activities.
Per-Bbl Adjusted gross margin for produced-water assets decreased by $0.04 and
$0.01 for the three and six months ended June 30, 2020, respectively, primarily
due to increased throughput on volumes with lower-than-average per-Bbl margin.

Adjusted EBITDA. We define Adjusted EBITDA attributable to Western Midstream
Partners, LP ("Adjusted EBITDA") as net income (loss), plus (i) distributions
from equity investments, (ii) non-cash equity-based compensation expense, (iii)
interest expense, (iv) income tax expense, (v) depreciation and amortization,
(vi) impairments, and (vii) other expense (including lower of cost or market
inventory adjustments recorded in cost of product), less (i) gain (loss) on
divestiture and other, net, (ii) gain (loss) on early extinguishment of debt,
(iii) income from equity investments, (iv) interest income, (v) income tax
benefit, (vi) other income, and (vii) the noncontrolling interests owners'
proportionate share of revenues and expenses. We believe the presentation of
Adjusted EBITDA provides information useful to investors in assessing our
financial condition and results of operations and that Adjusted EBITDA is a
widely accepted financial indicator of a company's ability to incur and service
debt, fund capital expenditures, and make distributions. Adjusted EBITDA is a
supplemental financial measure that management and external users of our
consolidated financial statements, such as industry analysts, investors,
commercial banks, and rating agencies, use, among other measures, to assess the
following:

•our operating performance as compared to other publicly traded partnerships in
the midstream industry, without regard to financing methods, capital structure,
or historical cost basis;

•the ability of our assets to generate cash flow to make distributions; and

•the viability of acquisitions and capital expenditures and the returns on investment of various investment opportunities.


Adjusted EBITDA increased by $81.5 million for the three months ended June 30,
2020, primarily due to (i) a $104.1 million decrease in cost of product (net of
lower of cost or market inventory adjustments) and (ii) a $3.2 million decrease
in operation and maintenance expenses. These amounts were offset partially by
(i) a $13.3 million decrease in total revenues and other, (ii) a $5.1 million
increase in property taxes, and (iii) a $5.1 million increase in general and
administrative expenses excluding non-cash equity-based compensation expense.
Adjusted EBITDA increased by $166.8 million for the six months ended June 30,
2020, primarily due to (i) a $115.1 million decrease in cost of product (net of
lower of cost or market inventory adjustments), (ii) an $89.1 million increase
in total revenues and other, and (iii) a $5.0 million increase in distributions
from equity investments. These amounts were offset partially by (i) a $19.2
million increase in general and administrative expenses excluding non-cash
equity-based compensation expense, (ii) a $13.1 million increase in operation
and maintenance expenses, and (iii) a $7.3 million increase in property taxes.
The above-described decreases in cost of product and total revenues and other
include the impacts resulting from a change in accounting for the marketing
contracts with AESC effective April 1, 2020 (see Executive Summary-Commodity
purchase and sale agreements within this Item 2).
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Free cash flow. We define "Free cash flow" as net cash provided by operating
activities less total capital expenditures and contributions to equity
investments, plus distributions from equity investments in excess of cumulative
earnings. Management considers Free cash flow an appropriate metric for
assessing capital discipline, cost efficiency, and balance-sheet strength.
Although Free cash flow is the metric used to assess WES's ability to make
distributions to unitholders, this measure should not be viewed as indicative of
the actual amount of cash that is available for distributions or planned for
distributions for a given period. Instead, Free cash flow should be considered
indicative of the amount of cash that is available for distributions, debt
repayments, and other general partnership purposes.
Free cash flow increased by $215.0 million and $501.4 million for the three and
six months ended June 30, 2020, respectively, primarily due to (i) decreases of
$178.0 million and $391.4 million, respectively, in capital expenditures, (ii)
decreases of $35.7 million and $61.3 million, respectively, in contributions to
equity investments, and (iii) increases of $2.2 million and $52.5 million,
respectively, in net cash provided by operating activities. These amounts were
offset by decreases of $1.0 million and $3.7 million, respectively, in
distributions from equity investments in excess of cumulative earnings. See
Capital Expenditures and Historical Cash Flow within this Item 2 for further
information.

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Reconciliation of non-GAAP financial measures. Adjusted gross margin, Adjusted
EBITDA, and Free cash flow are not defined in GAAP. The GAAP measure used by us
that is most directly comparable to Adjusted gross margin is operating income
(loss). Net income (loss) and net cash provided by operating activities are the
GAAP measures used by us that are most directly comparable to Adjusted EBITDA.
The GAAP measure used by us that is most directly comparable to Free cash flow
is net cash provided by operating activities. Our non-GAAP financial measures of
Adjusted gross margin, Adjusted EBITDA, and Free cash flow should not be
considered as alternatives to the GAAP measures of operating income (loss), net
income (loss), net cash provided by operating activities, or any other measure
of financial performance presented in accordance with GAAP. Adjusted gross
margin, Adjusted EBITDA, and Free cash flow have important limitations as
analytical tools because they exclude some, but not all, items that affect
operating income (loss), net income (loss), and net cash provided by operating
activities. Adjusted gross margin, Adjusted EBITDA, and Free cash flow should
not be considered in isolation or as a substitute for analysis of our results as
reported under GAAP. Our definitions of Adjusted gross margin, Adjusted EBITDA,
and Free cash flow may not be comparable to similarly titled measures of other
companies in our industry, thereby diminishing their utility as comparative
measures.
Management compensates for the limitations of Adjusted gross margin, Adjusted
EBITDA, and Free cash flow as analytical tools by reviewing the comparable GAAP
measures, understanding the differences between Adjusted gross margin, Adjusted
EBITDA, and Free cash flow compared to (as applicable) operating income (loss),
net income (loss), and net cash provided by operating activities, and
incorporating this knowledge into its decision-making processes. We believe that
investors benefit from having access to the same financial measures that our
management considers in evaluating our operating results.
The following tables present (a) a reconciliation of the GAAP financial measure
of operating income (loss) to the non-GAAP financial measure of Adjusted gross
margin, (b) a reconciliation of the GAAP financial measures of net income (loss)
and net cash provided by operating activities to the non-GAAP financial measure
of Adjusted EBITDA, and (c) a reconciliation of the GAAP financial measure of
net cash provided by operating activities to the non-GAAP financial measure of
Free cash flow:
                                                                 Three Months Ended                                       Six Months Ended
                                                                      June 30,                                                 June 30,

thousands                                                      2020               2019                2020                    2019
Reconciliation of Operating income (loss) to
Adjusted gross margin
Operating income (loss)                                    $ 373,766        

$ 310,060 $ 158,863 $ 628,988 Add: Distributions from equity investments

                         71,576             70,522              137,496                    132,535
Operation and maintenance                                    145,186            148,431              304,377                    291,260
General and administrative                                    36,423             30,027               76,888                     52,871
Property and other taxes                                      19,395             14,282               37,871                     30,567
Depreciation and amortization                                119,805            121,117              252,124                    235,063
Impairments (1)                                               10,150                797              606,952                      1,187

Less:

Gain (loss) on divestiture and other, net                     (2,843)            (1,061)              (2,883)                    (1,651)
Equity income, net - related parties                          54,415             63,598              115,762                    121,590

Reimbursed electricity-related charges recorded as revenues

                                                      21,605             20,189               40,828                     36,778

Adjusted gross margin attributable to noncontrolling interests (2)

                                                 16,167             16,034               32,592                     31,584
Adjusted gross margin                                      $ 686,957        

$ 596,476 $ 1,388,272 $ 1,184,170 Adjusted gross margin for natural-gas assets

               $ 454,476        

$ 412,494 $ 925,842 $ 824,922 Adjusted gross margin for crude-oil and NGLs assets 165,767

            137,716              333,595                    269,086
Adjusted gross margin for produced-water assets               66,714             46,266              128,835                     90,162


(1)Includes goodwill impairment for the six months ended June 30, 2020. See
Note 9-Goodwill in the Notes to Consolidated Financial Statements under Part I,
Item 1 of this Form 10-Q.
(2)For all periods presented, includes (i) the 25% third-party interest in
Chipeta and (ii) the 2.0% Occidental subsidiary-owned limited partner interest
in WES Operating, which collectively represent WES's noncontrolling interests.
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                                                               Three Months Ended                                       Six Months Ended
                                                                    June 30,                                                June 30,

thousands                                                    2020               2019                2020                   2019
Reconciliation of Net income (loss) to Adjusted
EBITDA
Net income (loss)                                        $ 281,341          

$ 175,058 $ (8,059) $ 387,037 Add: Distributions from equity investments

                       71,576             70,522              137,496                   132,535
Non-cash equity-based compensation expense                   5,677              4,343               10,911                     6,141
Interest expense                                            94,654             79,472              183,240                   145,348
Income tax expense                                           5,044              1,278                5,044                    11,370
Depreciation and amortization                              119,805            121,117              252,124                   235,063
Impairments (1)                                             10,150                797              606,952                     1,187
Other expense                                               (2,098)            58,639                1,950                    93,852
Less:
Gain (loss) on divestiture and other, net                   (2,843)            (1,061)              (2,883)                   (1,651)
Gain (loss) on early extinguishment of debt                  1,395                  -                8,740                         -
Equity income, net - related parties                        54,415             63,598              115,762                   121,590
Interest income - Anadarko note receivable                   4,225              4,225                8,450                     8,450
Other income                                                 1,652                  -                1,652                         -
Income tax benefit                                               -                  -                4,280                         -
Adjusted EBITDA attributable to noncontrolling
interests (2)                                               12,864             11,544               25,629                    22,894
Adjusted EBITDA                                          $ 514,441          $ 432,920          $ 1,028,028          $        861,250
Reconciliation of Net cash provided by operating
activities to Adjusted EBITDA
Net cash provided by operating activities                $ 345,688          

$ 343,458 $ 738,999 $ 686,531 Interest (income) expense, net

                              90,429             75,247              174,790                   136,898
Uncontributed cash-based compensation awards                     -              1,218                    -                       648
Accretion and amortization of long-term
obligations, net                                            (2,197)            (1,337)              (4,297)                   (2,848)
Current income tax expense (benefit)                         2,077                458                  (35)                    6,485
Other (income) expense, net (3)                             (2,173)              (470)                (412)                     (902)
Cash paid to settle interest-rate swaps                     12,763                  -               12,763                         -

Distributions from equity investments in excess of cumulative earnings - related parties

                        8,288              9,260               13,340                    17,052
Changes in assets and liabilities:
Accounts receivable, net                                   207,838              6,818              200,136                    (2,668)
Accounts and imbalance payables and accrued
liabilities, net                                          (101,247)            25,669              (72,323)                   81,198
Other items, net                                           (34,161)           (15,857)              (9,304)                  (38,250)
Adjusted EBITDA attributable to noncontrolling
interests (2)                                              (12,864)           (11,544)             (25,629)                  (22,894)
Adjusted EBITDA                                          $ 514,441          

$ 432,920 $ 1,028,028 $ 861,250 Cash flow information Net cash provided by operating activities

                                                      $   738,999          $        686,531
Net cash used in investing activities                                                             (355,001)               (2,865,168)
Net cash provided by (used in) financing
activities                                                                                        (424,222)                2,182,290


(1)Includes goodwill impairment for the six months ended June 30, 2020. See
Note 9-Goodwill in the Notes to Consolidated Financial Statements under Part I,
Item 1 of this Form 10-Q.
(2)For all periods presented, includes (i) the 25% third-party interest in
Chipeta and (ii) the 2.0% Occidental subsidiary-owned limited partner interest
in WES Operating, which collectively represent WES's noncontrolling interests.
(3)Excludes non-cash losses on interest-rate swaps of $59.0 million and
$94.6 million for the three and six months ended June 30, 2019, respectively.
See Note 11-Debt and Interest Expense in the Notes to Consolidated Financial
Statements under Part I, Item 1 of this Form 10-Q.
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                                                             Three Months Ended                                     Six Months Ended
                                                                  June 30,                                              June 30,

thousands                                                  2020               2019               2020                  2019
Reconciliation of Net cash provided by operating
activities to Free cash flow
Net cash provided by operating activities              $ 345,688          $ 

343,458 $ 738,999 $ 686,531 Less: Capital expenditures

                                     140,249            318,281            313,065                   704,425
Contributions to equity investments                        5,104             40,790             16,064                    77,333

Add:

Distributions from equity investments in excess
of cumulative earnings                                     8,288              9,260             13,340                    17,052
Free cash flow                                         $ 208,623          $

(6,353) $ 423,210 $ (78,175) Cash flow information Net cash provided by operating activities

                                                    $ 738,999          $        686,531
Net cash used in investing activities                                                         (355,001)               (2,865,168)
Net cash provided by (used in) financing
activities                                                                                    (424,222)                2,182,290



                        LIQUIDITY AND CAPITAL RESOURCES

Our primary cash uses include capital expenditures, debt service, customary
operating expenses, quarterly distributions, and distributions to our
noncontrolling interest owners. Our sources of liquidity as of June 30, 2020,
included cash and cash equivalents, cash flows generated from operations,
interest income on our Anadarko note receivable, available borrowing capacity
under the RCF, and potential issuances of additional equity or debt securities.
We believe that cash flows generated from these sources will be sufficient to
satisfy our short-term working capital requirements and long-term
capital-expenditure requirements. The amount of future distributions to
unitholders will depend on our results of operations, financial condition,
capital requirements, and other factors, and will be determined by the Board of
Directors on a quarterly basis. We may rely on external financing sources,
including equity and debt issuances, to fund capital expenditures and future
acquisitions. However, we also may use operating cash flows to fund capital
expenditures or acquisitions, which could result in borrowings under the RCF to
pay distributions or to fund other short-term working capital requirements.
Our partnership agreement requires that we distribute all of our available cash
(as defined in our partnership agreement) within 55 days following each
quarter's end. Our cash flow and resulting ability to make cash distributions
are completely dependent on our ability to generate cash flow from operations.
Generally, our available cash is our cash on hand at the end of a quarter after
the payment of our expenses and the establishment of cash reserves and cash on
hand resulting from working capital borrowings made after the end of the
quarter. We have made cash distributions to our unitholders each quarter since
our IPO in 2012. The Board of Directors declared a cash distribution to
unitholders for the second quarter of 2020 of $0.31100 per unit, or $140.9
million in the aggregate. The cash distribution is payable on August 13, 2020,
to our unitholders of record at the close of business on July 31, 2020. See
Outlook within this Item 2.
Management continuously monitors our leverage position and coordinates our
capital expenditures and quarterly distributions with expected cash inflows and
projected debt service requirements. We will continue to evaluate funding
alternatives, including additional borrowings and the issuance of debt or equity
securities, to secure funds as needed or to refinance maturing debt balances
with longer-term debt issuances. Our ability to generate cash flows is subject
to a number of factors, some of which are beyond our control. Read Risk Factors
under Part II, Item 1A of this Form 10-Q.


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Working capital. As of June 30, 2020, we had a $331.9 million working capital
deficit, which we define as the amount by which current liabilities exceed
current assets. Working capital is an indication of liquidity and potential
needs for short-term funding. Working capital requirements are driven by changes
in accounts receivable and accounts payable and other factors such as credit
extended to, and the timing of collections from, our customers, and the level
and timing of our spending for acquisitions, maintenance, and capital
activities. Our working capital deficit was primarily due to the 5.375% Senior
Notes due 2021 being classified as short-term debt on the consolidated balance
sheet as of June 30, 2020. As of June 30, 2020, there was $1.9 billion available
for borrowing under the RCF. See Note 10-Components of Working Capital and
Note 11-Debt and Interest Expense in the Notes to Consolidated Financial
Statements under Part I, Item 1 of this Form 10-Q.

Capital expenditures. Our business is capital intensive, requiring significant
investment to maintain and improve existing facilities or to develop new
midstream infrastructure. Capital expenditures includes maintenance capital
expenditures, which include those expenditures required to maintain existing
operating capacity and service capability of our assets, such as to replace
system components and equipment that have been subject to significant use over
time, become obsolete or reached the end of their useful lives, to remain in
compliance with regulatory or legal requirements, or to complete additional well
connections to maintain existing system throughput and related cash flows; and
expansion capital expenditures, which include expenditures to construct new
midstream infrastructure and expenditures incurred to extend the useful lives of
our assets, reduce costs, increase revenues, or increase system throughput or
capacity from current levels, including well connections that increase existing
system throughput.
Capital expenditures in the consolidated statements of cash flows reflect
capital expenditures on a cash basis, when payments are made. Capital incurred
is presented on an accrual basis. Acquisitions and capital expenditures as
presented in the consolidated statements of cash flows and capital incurred were
as follows:
                                    Six Months Ended
                                        June 30,

thousands                        2020             2019
Acquisitions                  $      -       $ 2,100,804
Capital expenditures (1)       313,065           704,425
Capital incurred (1)           215,172           570,886

(1)For the six months ended June 30, 2020 and 2019, included $3.6 million and $9.5 million, respectively, of capitalized interest.


Acquisitions during 2019 included AMA and the 30% interest in Red Bluff Express.
See Note 3-Acquisitions and Divestitures in the Notes to Consolidated Financial
Statements under Part I, Item 1 of this Form 10-Q.
Capital expenditures decreased by $391.4 million for the six months ended June
30, 2020, primarily due to decreases of (i) $182.1 million at the DJ Basin
complex primarily related to the completion of Latham Trains I and II that
commenced operations in November 2019 and February 2020, respectively, (ii)
$100.7 million at the West Texas complex primarily related to the completion of
Mentone Train II that commenced operations in March 2019, (iii) $51.8 million at
the DBM oil system primarily related to the completion of the Loving ROTF Train
III that commenced operations in January 2020, and (iv) $31.7 million at the DBM
water systems primarily related to reduced construction of additional
water-disposal facilities.

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Historical cash flow. The following table and discussion present a summary of
our net cash flows provided by (used in) operating activities, investing
activities, and financing activities:
                                                                   Six Months Ended
                                                                       June 30,

thousands                                                       2020             2019
Net cash provided by (used in):
Operating activities                                        $ 738,999       $    686,531
Investing activities                                         (355,001)        (2,865,168)
Financing activities                                         (424,222)         2,182,290

Net increase (decrease) in cash and cash equivalents $ (40,224) $ 3,653




Operating Activities. Net cash provided by operating activities increased for
the six months ended June 30, 2020, primarily due to higher cash operating
income and increased distributions from equity investments, offset partially by
(i) higher interest expense, (ii) cash paid to settle interest-rate swaps, and
(iii) the impact of changes in assets and liabilities, including the timing of
$141.8 million of related-party cash receipts included in the June 30, 2020,
Accounts receivable, net balance we received by July 3, 2020. Refer to Operating
Results within this Item 2 for a discussion of our results of operations as
compared to the prior periods.

Investing Activities. Net cash used in investing activities for the six months ended June 30, 2020, included the following:


•$313.1 million of capital expenditures, primarily related to construction and
expansion at the West Texas and DJ Basin complexes, DBM water systems, and DBM
oil system;

•$39.2 million of materials and supplies inventory purchases;

•$16.1 million of capital contributions primarily paid to Cactus II and FRP for construction activities; and

•$13.3 million of distributions received from equity investments in excess of cumulative earnings.

Net cash used in investing activities for the six months ended June 30, 2019, included the following:

•$2.0 billion of cash paid for the acquisition of AMA;


•$704.4 million of capital expenditures, primarily related to construction and
expansion at the DBM oil and DBM water systems and the West Texas and DJ Basin
complexes;

•$92.5 million of cash paid for the acquisition of our interest in Red Bluff Express;


•$77.3 million of capital contributions paid to Cactus II, the TEFR Interests,
Whitethorn LLC, Red Bluff Express, and White Cliffs for construction activities;
and

•$17.1 million of distributions received from equity investments in excess of cumulative earnings.

Financing Activities. Net cash used in financing activities for the six months ended June 30, 2020, included the following:

•$3.0 billion of repayments of outstanding borrowings under the Term loan facility;

•$430.0 million of repayments of outstanding borrowings under the RCF;

•$422.7 million of distributions paid to WES unitholders;

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•$153.1 million to purchase and retire portions of WES Operating's 5.375% Senior
Notes due 2021, 4.000% Senior Notes due 2022, and Floating-Rate Senior Notes via
open-market repurchases;

•$10.3 million of finance lease payments;

•$8.7 million of distributions paid to the noncontrolling interest owners of WES Operating;

•$2.8 million of distributions paid to the noncontrolling interest owner of Chipeta;


•$3.5 billion of net proceeds from the Fixed-Rate Senior Notes and Floating-Rate
Senior Notes issued in January 2020, which were used to repay the $3.0 billion
outstanding borrowings under the Term loan facility, repay outstanding amounts
under the RCF, and for general partnership purposes;

•$125.0 million of borrowings under the RCF, which were used for general partnership purposes, including the funding of capital expenditures; and


•$20.0 million of a one-time cash contribution from Occidental received in
January 2020, pursuant to the Services Agreement, for anticipated transition
costs required to establish stand-alone human resources and information
technology functions.

Net cash provided by financing activities for the six months ended June 30, 2019, included the following:

•$2.0 billion of borrowings under the Term loan facility, net of issuance costs, which were used to fund the acquisition of AMA and to repay the APCWH Note Payable;

•$700.0 million of borrowings under the RCF, which were used for general partnership purposes, including the funding of capital expenditures;

•$456.9 million of net contributions from Anadarko representing intercompany transactions attributable to the acquisition of AMA;

•$11.0 million of borrowings under the APCWH Note Payable, which were used to fund the construction of the DBM water systems;

•$7.4 million of capital contributions from Anadarko related to the above-market component of swap agreements;

•$439.6 million of repayments of the total outstanding balance under the APCWH Note Payable;

•$408.2 million of distributions paid to WES unitholders;

•$106.7 million of distributions paid to the noncontrolling interest owners of WES Operating;

•$28.0 million of repayments of the total outstanding balance under the WGP RCF, which matured in March 2019; and

•$3.8 million of distributions paid to the noncontrolling interest owner of Chipeta.

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Debt and credit facilities. As of June 30, 2020, the carrying value of
outstanding debt was $8.0 billion. See Note 11-Debt and Interest Expense in the
Notes to Consolidated Financial Statements under Part I, Item 1 of this Form
10-Q.

WES Operating Senior Notes. In January 2020, WES Operating issued the following notes:


•Fixed-Rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and
5.250% Senior Notes due 2050, offered to the public at prices of 99.962%,
99.900%, and 99.442%, respectively, of the face amount. Including the effects of
the issuance and underwriting discounts, the effective interest rates of the
Senior Notes due 2025, 2030, and 2050, are 3.287%, 4.168%, and 5.362%,
respectively. Interest is paid on each such series semi-annually on February 1
and August 1 of each year, beginning August 1, 2020; and

•Floating-Rate Senior Notes due 2023. As of June 30, 2020, the interest rate on
the Floating-Rate Senior Notes was 2.66%. Interest is paid quarterly in arrears
on January 13, April 13, July 13, and October 13 of each year. Interest is
determined at a benchmark rate (which is initially a three-month LIBOR rate) on
the interest determination date plus 0.85%.

Net proceeds from the Fixed-Rate Senior Notes and Floating-Rate Senior Notes
were used to repay the $3.0 billion in outstanding borrowings under the Term
loan facility and outstanding amounts under the RCF, and for general partnership
purposes. The interest payable on each of the Fixed-Rate Senior Notes and
Floating-Rate Senior Notes is subject to adjustment from time to time if the
credit rating assigned to such notes declines below certain specified levels or
if credit-rating downgrades are subsequently followed by credit-rating upgrades.
As a result of credit-rating downgrades received from Fitch, S&P, and Moody's,
annualized borrowing costs will increase by $35.0 million. See Outlook within
this Item 2.
During the first quarter of 2020, WES Operating purchased and retired $61.4
million of the 5.375% Senior Notes due 2021 and $38.6 million of the 4.000%
Senior Notes due 2022 via open-market repurchases. During the second quarter of
2020, WES Operating purchased and retired (i) an additional $7.5 million of the
5.375% Senior Notes due 2021 and $47.0 million of the 4.000% Senior Notes due
2022, and (ii) $10.0 million of the Floating-Rate Senior Notes, each via
open-market repurchases. For the three and six months ended June 30, 2020, gains
of $1.4 million and $11.0 million, respectively, were recognized for the early
retirement of these notes.
As of June 30, 2020, the 5.375% Senior Notes due 2021 was classified as
short-term debt on the consolidated balance sheet. At June 30, 2020, WES
Operating was in compliance with all covenants under the relevant governing
indentures.
We may, from time to time, seek to retire, rearrange, or amend some or all of
our outstanding debt or debt agreements through cash purchases, exchanges,
open-market repurchases, privately negotiated transactions, tender offers, or
otherwise. Such transactions, if any, will depend on prevailing market
conditions, our liquidity position and requirements, contractual restrictions,
and other factors. The amounts involved may be material.

WGP RCF. The WGP RCF, which previously was available to purchase WES Operating
common units and for general partnership purposes, matured in March 2019 and the
$28.0 million of outstanding borrowings were repaid.

Revolving credit facility. In December 2019, WES Operating entered into an
amendment to the RCF, which is expandable to a maximum of $2.5 billion, to,
among other things, exercise the final one-year extension option to extend the
maturity date of the RCF from February 2024 to February 2025, for each extending
lender. The maturity date with respect to each non-extending lender, whose
commitments represent $100.0 million out of $2.0 billion of total commitments
from all lenders, remains February 2024. See Note 1-Description of Business and
Basis of Presentation in the Notes to Consolidated Financial Statements under
Part I, Item 1 of this Form 10-Q for more information.
As of June 30, 2020, there were $75.0 million of outstanding borrowings and $5.0
million of outstanding letters of credit, resulting in $1.9 billion of available
borrowing capacity under the RCF. At June 30, 2020, the interest rate on any
outstanding RCF borrowings was 1.66% and the facility-fee rate was 0.25%. At
June 30, 2020, WES Operating was in compliance with all covenants under the RCF.
As a result of credit-rating downgrades received from Fitch and S&P, beginning
in the second quarter of 2020, the interest rate on our outstanding RCF
borrowings increased by 0.20% and the RCF facility-fee rate increased by 0.05%,
from 0.20% to 0.25%. See Outlook within this Item 2.
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The RCF contains certain covenants that limit, among other things, WES
Operating's ability, and that of certain of its subsidiaries, to incur
additional indebtedness, grant certain liens, merge, consolidate, or allow any
material change in the character of its business, enter into certain
related-party transactions and use proceeds other than for partnership purposes.
The RCF also contains various customary covenants, certain events of default,
and a maximum consolidated leverage ratio as of the end of each fiscal quarter
(which is defined as the ratio of consolidated indebtedness as of the last day
of a fiscal quarter to Consolidated Earnings Before Interest, Taxes,
Depreciation, and Amortization for the most-recent four-consecutive fiscal
quarters ending on such day) of 5.0 to 1.0, or a consolidated leverage ratio of
5.5 to 1.0 with respect to quarters ending in the 270-day period immediately
following certain acquisitions. As a result of certain covenants contained in
the RCF, our capacity to borrow under the RCF may be limited. See Outlook within
this Item 2.

Term loan facility. In December 2018, WES Operating entered into the Term loan
facility, the proceeds from which were used to fund substantially all of the
cash portion of the consideration under the Merger Agreement and the payment of
related transaction costs (see Note 1-Description of Business and Basis of
Presentation in the Notes to Consolidated Financial Statements under Part I,
Item 1 of this Form 10-Q). In January 2020, WES Operating repaid the outstanding
borrowings with proceeds from the issuance of the Fixed-Rate Senior Notes and
Floating-Rate Senior Notes and terminated the Term loan facility. During the
first quarter of 2020, a loss of $2.3 million was recognized for the early
termination of the Term loan facility. See Note 11-Debt and Interest Expense in
the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form
10-Q for additional information.

Finance lease liabilities. WES subleased equipment from Occidental via finance
leases through April 2020. During the first quarter of 2020, WES entered into
finance leases with third parties for equipment and vehicles extending through
2029, with future lease payments of $41.3 million as of June 30, 2020.

APCWH Note Payable. In June 2017, in connection with funding the construction of
the APC water systems that were acquired as part of the AMA acquisition, APCWH
entered into an eight-year note payable agreement with Anadarko. This note
payable had a maximum borrowing limit of $500.0 million, including accrued
interest. The APCWH Note Payable was repaid at Merger completion. See
Note 1-Description of Business and Basis of Presentation in the Notes to
Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for
additional information.

Interest-rate swaps. In December 2018 and March 2019, WES Operating entered into
interest-rate swap agreements with an aggregate notional principal amount of
$750.0 million and $375.0 million, respectively, to manage interest-rate risk
associated with anticipated debt issuances. In November and December 2019, WES
Operating entered into additional interest-rate swap agreements with an
aggregate notional principal amount of $1,125.0 million, effectively offsetting
the swap agreements entered into in December 2018 and March 2019.
In December 2019, all outstanding interest-rate swap agreements were settled. As
part of the settlement, WES Operating made cash payments of $107.7 million and
recorded an accrued liability of $25.6 million to be paid quarterly in 2020. For
the six months ended June 30, 2020, WES Operating made cash payments of
$12.8 million. These cash payments were classified as cash flows from operating
activities in the consolidated statements of cash flows.

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Credit risk. We bear credit risk through exposure to non-payment or
non-performance by our counterparties, including Occidental, financial
institutions, customers, and other parties. Generally, non-payment or
non-performance results from a customer's inability to satisfy payables to us
for services rendered, minimum-volume-commitment deficiency payments owed, or
volumes owed pursuant to gas-imbalance agreements. We examine and monitor the
creditworthiness of customers and may establish credit limits for customers. A
substantial portion of our throughput is sourced from producers, including
Occidental, that recently received credit-rating downgrades. We are subject to
the risk of non-payment or late payment by producers for gathering, processing,
transportation, and disposal fees. We also depend on Occidental to remit
payments to us for the value of volumes of residue gas, NGLs, crude oil, and
condensate that it markets on our behalf under our Marketing Transition Services
Agreement. Additionally, we continue to evaluate counterparty credit risk and,
in certain circumstances, are exercising our rights to request adequate
assurance.
We expect our exposure to concentrated risk of non-payment or non-performance to
continue for as long as our commercial relationships with Occidental generate a
significant portion of our revenues. Additionally, we are exposed to credit risk
on our Anadarko note receivable. We also are party to agreements with Occidental
under which Occidental is required to indemnify us for certain environmental
claims, losses arising from rights-of-way claims, failures to obtain required
consents or governmental permits, and income taxes with respect to the assets
previously acquired from Anadarko. See Note 6-Related-Party Transactions in the
Notes to Consolidated Financial Statements under Part I, Item 1 of this Form
10-Q.
Our ability to make cash distributions to our unitholders may be adversely
impacted if Occidental becomes unable to perform under the terms of gathering,
processing, transportation, and disposal agreements; commodity purchase and sale
agreements; Anadarko's note payable to WES Operating; the contribution
agreements; or the December 2019 Agreements (see Executive Summary-December 2019
Agreements within this Item 2).

ITEMS AFFECTING THE COMPARABILITY OF FINANCIAL RESULTS WITH WES OPERATING


Our consolidated financial statements include the consolidated financial results
of WES Operating. Our results of operations do not differ materially from the
results of operations and cash flows of WES Operating, which are reconciled
below.

Reconciliation of net income (loss) attributable to WES to net income (loss)
attributable to WES Operating. The differences between net income (loss)
attributable to WES and net income (loss) attributable to WES Operating are
reconciled as follows:
                                                            Three Months Ended                                 Six Months Ended
                                                                 June 30,                                          June 30,
thousands                                                 2020               2019              2020               2019
Net income (loss) attributable to WES                 $ 273,037          $ 169,594          $ 16,510          $  288,254
Limited partner interests in WES Operating not
held by WES (1)                                           5,598              3,497               390              94,962
General and administrative expenses (2)                   1,181              1,926             2,588               4,210
Other income (expense), net                                  (2)                (5)               (4)                (63)

Interest expense                                              -                  -                 -                 245

Net income (loss) attributable to WES Operating $ 279,814 $ 175,012 $ 19,484 $ 387,608



(1)Represents the portion of net income (loss) allocated to the limited partner
interests in WES Operating not held by WES. A subsidiary of Occidental held a
2.0% limited partner interest in WES Operating as of June 30, 2020 and 2019.
Immediately prior to the Merger closing, the WES Operating IDRs and the general
partner units were converted into a non-economic general partner interest in WES
Operating and WES Operating common units, and at Merger completion, all WES
Operating common units held by the public and subsidiaries of Anadarko (other
than common units held by WES, WES Operating GP, and 6.4 million common units
held by a subsidiary of Anadarko) were converted into WES common units. See
Note 1-Description of Business and Basis of Presentation in the Notes to
Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(2)Represents general and administrative expenses incurred by WES separate from,
and in addition to, those incurred by WES Operating.

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Reconciliation of net cash provided by (used in) operating and financing
activities. The differences between net cash provided by (used in) operating and
financing activities for WES and WES Operating are reconciled as follows:
                                                                                  Six Months Ended
                                                                                       June 30,
thousands                                                                     2020                 2019
WES net cash provided by operating activities                             $ 

738,999 $ 686,531


General and administrative expenses (1)                                        2,588                4,210
Non-cash equity-based compensation expense                                    (3,244)                (611)
Changes in working capital                                                     2,574                  355
Other income (expense), net                                                       (4)                 (63)

Interest expense                                                                   -                  245
Debt related amortization and other items, net                                     -                  (21)
WES Operating net cash provided by operating activities                   $ 

740,913 $ 690,646


WES net cash provided by (used in) financing activities                   $ (424,222)         $ 2,182,290
Distributions to WES unitholders (2)                                         422,679              408,234
Distributions to WES from WES Operating (3)                                 (425,042)            (439,963)
Increase (decrease) in outstanding checks                                         (4)                   -

Registration expenses related to the issuance of WES common units

        -                  855

WGP RCF repayments                                                                 -               28,000

WES Operating net cash provided by (used in) financing activities $ (426,589) $ 2,179,416



(1)Represents general and administrative expenses incurred by WES separate from,
and in addition to, those incurred by WES Operating.
(2)Represents distributions to WES common unitholders paid under WES's
partnership agreement. See Note 4-Partnership Distributions and Note 5-Equity
and Partners' Capital in the Notes to Consolidated Financial Statements under
Part I, Item 1 of this Form 10-Q.
(3)Difference attributable to elimination in consolidation of WES Operating's
distributions on partnership interests owned by WES. See Note 4-Partnership
Distributions and Note 5-Equity and Partners' Capital in the Notes to
Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Noncontrolling interest. WES Operating's noncontrolling interest consists of the
25% third-party interest in Chipeta (see Note 1-Description of Business and
Basis of Presentation in the Notes to Consolidated Financial Statements under
Part I, Item 1 of this Form 10-Q for further information).

WES Operating distributions. WES Operating distributes all of its available cash
(as defined in its partnership agreement) to WES Operating unitholders of record
on the applicable record date within 45 days following each quarter's end. For
the quarters ended March 31, 2019, June 30, 2019, September 30, 2019, and
December 31, 2019, WES Operating distributed $283.3 million, $288.1 million,
$289.7 million, and $290.3 million, respectively, to its limited partners. For
the quarter ended March 31, 2020, WES Operating distributed $143.4 million to
its limited partners. For the quarter ended June 30, 2020, WES Operating will
distribute $143.4 million to its limited partners. See Note 5-Equity and
Partners' Capital in the Notes to Consolidated Financial Statements under
Part I, Item 1 of this Form 10-Q.

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                            CONTRACTUAL OBLIGATIONS

Our contractual obligations include, among other things, a revolving credit
facility, other third-party long-term debt, capital obligations related to
expansion projects, and various operating and finance leases. Refer to
Note 11-Debt and Interest Expense and Note 12-Commitments and Contingencies in
the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form
10-Q for an update to contractual obligations as of June 30, 2020.

                         OFF-BALANCE-SHEET ARRANGEMENTS

We do not have any off-balance-sheet arrangements other than short-term
operating leases and standby letters of credit. We have entered into short-term
operating leases for vehicles and equipment with third parties as lessor. For
information on standby letters of credit, see Note 11-Debt and Interest Expense
in the Notes to Consolidated Financial Statements under Part I, Item 1 of this
Form 10-Q.

                         RECENT ACCOUNTING DEVELOPMENTS

See Note 1-Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

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