10-K 1 wgp201810-k.htm FORM 10-K Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

Or

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to       

Commission file number: 001-35753
WESTERN GAS EQUITY PARTNERS, LP
(Exact name of registrant as specified in its charter)
Delaware
 
46-0967367
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
1201 Lake Robbins Drive
The Woodlands, Texas
 
77380
(Address of principal executive offices)
 
(Zip Code)

(832) 636-6000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Units Representing Limited Partner Interests
 
Name of Each Exchange on Which Registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  þ    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨

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

The aggregate market value of the registrant’s common units representing limited partner interests held by non-affiliates of the registrant was $1.7 billion on June 29, 2018, based on the closing price as reported on the New York Stock Exchange.

At February 18, 2019, there were 218,937,797 common units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
None




TABLE OF CONTENTS
Item
 
Page
 
 
 
 
 
1 and 2.
 
 
 
 
 
 
 
 
 
 
 
 
 
1A.
1B.
3.
4.
 
 
 
 
 
 
 
 
5.
 
 
 
6.
7.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7A.
8.
9.
9A.
9B.


2




3


COMMONLY USED TERMS AND DEFINITIONS

Western Gas Equity Partners, LP (“WGP”) is a Delaware master limited partnership formed by Anadarko Petroleum Corporation to own three types of partnership interests in Western Gas Partners, LP and its subsidiaries (“WES”). For purposes of this Form 10-K, “WGP,” “we,” “us,” “our,” “Western Gas Equity Partners, LP” or like terms refers to Western Gas Equity Partners, LP in its individual capacity or to Western Gas Equity Partners, LP and its subsidiaries, including the general partner of WES, Western Gas Holdings, LLC, and WES, as the context requires. As used in this Form 10-K, the terms and definitions below have the following meanings:
Additional DBJV System Interest: WES’s additional 50% interest in the DBJV system acquired from a third party in March 2017.
AESC: Anadarko Energy Services Company.
Affiliates: Subsidiaries of Anadarko, excluding us, but including equity interests in Fort Union, White Cliffs, Rendezvous, the Mont Belvieu JV, TEP, TEG, FRP, Whitethorn and Cactus II.
AMH: APC Midstream Holdings, LLC.
AMM: Anadarko Marcellus Midstream, L.L.C.
Anadarko: Anadarko Petroleum Corporation and its subsidiaries, excluding us and WGP GP.
Barrel or Bbl: 42 U.S. gallons measured at 60 degrees Fahrenheit.
Bbls/d: Barrels per day.
Board of Directors or Board: The board of directors of WGP GP.
Btu: British thermal unit; the approximate amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
Cactus II: Cactus II Pipeline LLC.
Chipeta: Chipeta Processing, LLC.
Chipeta LLC agreement: Chipeta’s limited liability company agreement, as amended and restated as of July 23, 2009.
Condensate: A natural gas liquid with a low vapor pressure mainly composed of propane, butane, pentane and heavier hydrocarbon fractions.
Cryogenic: The process in which liquefied gases are used to bring natural gas volumes to very low temperatures (below approximately -238 degrees Fahrenheit) to separate natural gas liquids from natural gas. Through cryogenic processing, more natural gas liquids are extracted than when traditional refrigeration methods are used.
DBJV: Delaware Basin JV Gathering LLC.
DBJV system: A gathering system and related facilities located in the Delaware Basin in Loving, Ward, Winkler and Reeves Counties in West Texas, part of the West Texas complex effective January 1, 2018.
DBM: Delaware Basin Midstream, LLC.
DBM complex: The cryogenic processing plants, gas gathering system, and related facilities and equipment in West Texas that serve production from Reeves, Loving and Culberson Counties, Texas and Eddy and Lea Counties, New Mexico, part of the West Texas complex effective January 1, 2018.
DBM water systems: Two produced water gathering and disposal systems in West Texas.

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Delivery point: The point where hydrocarbons are delivered by a processor or transporter to a producer, shipper or purchaser, typically the inlet at the interconnection between the gathering or processing system and the facilities of a third-party processor or transporter.
DJ Basin complex: The Platte Valley system, Wattenberg system and Lancaster plant, all of which were combined into a single complex in the first quarter of 2014.
Drip condensate: Heavier hydrocarbon liquids that fall out of the natural gas stream and are recovered in the gathering system without processing.
Dry gas: A gas primarily composed of methane and ethane where heavy hydrocarbons and water either do not exist or have been removed through processing.
EBITDA: Earnings before interest, taxes, depreciation, and amortization. For a definition of “Adjusted EBITDA,” see How WES Evaluates Its Operations under Part II, Item 7 of this Form 10-K.
End-use markets: The ultimate users/consumers of transported energy products.
Equity investment throughput: WES’s 14.81% share of average Fort Union throughput, 22% share of average Rendezvous throughput, 10% share of average White Cliffs throughput, 25% share of average Mont Belvieu JV throughput, 20% share of average TEP and TEG throughput, 33.33% share of average FRP throughput and 20% share of average Whitethorn throughput.
Exchange Act: The Securities Exchange Act of 1934, as amended.
FERC: The Federal Energy Regulatory Commission.
Fort Union: Fort Union Gas Gathering, LLC.
Fractionation: The process of applying various levels of higher pressure and lower temperature to separate a stream of natural gas liquids into ethane, propane, normal butane, isobutane and natural gasoline for end-use sale.
FRP: Front Range Pipeline LLC.
GAAP: Generally accepted accounting principles in the United States.
Gpm: Gallons per minute, when used in the context of amine treating capacity.
Hydraulic fracturing: The injection of fluids into the wellbore to create fractures in rock formations, stimulating the production of oil or gas.
IDRs: Incentive distribution rights.
Imbalance: Imbalances result from (i) differences between gas and NGLs volumes nominated by customers and gas and NGLs volumes received from those customers and (ii) differences between gas and NGLs volumes received from customers and gas and NGLs volumes delivered to those customers.
IPO: Initial public offering.
Joule-Thompson (JT): A type of processing plant that uses the Joule-Thompson effect to cool natural gas by expanding the gas from a higher pressure to a lower pressure, which reduces the temperature.
LIBOR: London Interbank Offered Rate.
Marcellus Interest: WES’s 33.75% interest in the Larry’s Creek, Seely and Warrensville gas gathering systems and related facilities located in northern Pennsylvania.
MBbls/d: Thousand barrels per day.
Merger: The merger of Clarity Merger Sub, LLC, a wholly owned subsidiary of WGP, with and into WES, with WES continuing as the surviving entity and a subsidiary of WGP, which is expected to close in the first quarter of 2019.

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Merger Agreement: The Contribution Agreement and Agreement and Plan of Merger, dated November 7, 2018, by and among WGP, WES, Anadarko and certain of their affiliates, pursuant to which the parties thereto agreed to effect the Merger and certain other transactions.
MGR: Mountain Gas Resources, LLC.
MGR assets: The Red Desert complex and the Granger straddle plant.
MIGC: MIGC, LLC.
MLP: Master limited partnership.
MMBtu: Million British thermal units.
MMcf: Million cubic feet.
MMcf/d: Million cubic feet per day.
Mont Belvieu JV: Enterprise EF78 LLC.
Natural gas liquid(s) or NGL(s): The combination of ethane, propane, normal butane, isobutane and natural gasolines that, when removed from natural gas, become liquid under various levels of higher pressure and lower temperature.
Non-Operated Marcellus Interest: WES’s 33.75% interest in the Liberty and Rome gas gathering systems and related facilities located in northern Pennsylvania that was transferred to a third party in March 2017 pursuant to the Property Exchange.
NYSE: New York Stock Exchange.
NYMEX: New York Mercantile Exchange.
OTTCO: Overland Trail Transmission, LLC.
Play: A group of gas or oil fields that contain known or potential commercial amounts of petroleum and/or natural gas.
Produced water: Byproduct associated with the production of crude oil and natural gas that often contains a number of dissolved solids and other materials found in oil and gas reservoirs.
Property Exchange: WES’s acquisition of the Additional DBJV System Interest from a third party in exchange for the Non-Operated Marcellus Interest and $155.0 million of cash consideration, as further described in our Forms 8-K filed with the SEC on February 9, 2017, and March 23, 2017.
Receipt point: The point where hydrocarbons are received by or into a gathering system, processing facility or transportation pipeline.
Red Desert complex: The Patrick Draw processing plant, the Red Desert processing plant, associated gathering lines, and related facilities.
Refrigeration: A method of processing natural gas by reducing the gas temperature with the use of an external refrigeration system.
Rendezvous: Rendezvous Gas Services, LLC.
Residue: The natural gas remaining after the unprocessed natural gas stream has been processed or treated.
SEC: U.S. Securities and Exchange Commission.
Springfield: Springfield Pipeline LLC.

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Springfield gas gathering system: A gas gathering system and related facilities located in Dimmit, La Salle, Maverick and Webb Counties in South Texas.
Springfield oil gathering system: An oil gathering system and related facilities located in Dimmit, La Salle, Maverick and Webb Counties in South Texas.
Springfield system: The Springfield gas gathering system and Springfield oil gathering system.
Stabilization: The process of separating very light hydrocarbon gases, methane and ethane in particular, from heavier hydrocarbon components. This process reduces the volatility of the liquids during transportation and storage.
Tailgate: The point at which processed natural gas and/or natural gas liquids leave a processing facility for end-use markets.
TEFR Interests: The interests in TEP, TEG and FRP.
TEG: Texas Express Gathering LLC.
TEP: Texas Express Pipeline LLC.
TEUs: 7.50% Tangible equity units.
Wellhead: The point at which the hydrocarbons and water exit the ground.
WES: Western Gas Partners, LP.
WES GP: Western Gas Holdings, LLC, the general partner of WES.
WES LTIP: With respect to awards granted prior to October 17, 2017, the Western Gas Partners, LP 2008 Long-Term Incentive Plan, which was adopted by WES’s general partner in connection with its IPO in 2008, and, with respect to awards granted after October 17, 2017, the Western Gas Partners, LP 2017 Long-Term Incentive Plan, which was approved by WES’s common and Class C unitholders on October 17, 2017.
WES RCF: WES’s senior unsecured revolving credit facility.
WES 364-day Facility: WES’s 364-day senior unsecured credit agreement.
West Texas complex: The DBM complex and DBJV and Haley systems, all of which were combined into a single complex effective January 1, 2018.
WGP: Western Gas Equity Partners, LP.
WGP GP or general partner: Western Gas Equity Holdings, LLC, the general partner of WGP.
WGP RCF: The WGP senior secured revolving credit facility.
WGP LTIP: Western Gas Equity Partners, LP 2012 Long-Term Incentive Plan.
WGRI: Western Gas Resources, Inc.
White Cliffs: White Cliffs Pipeline, LLC.
Whitethorn LLC: Whitethorn Pipeline Company LLC.
$500.0 million COP: WES’s continuous offering program that may be undertaken pursuant to the registration statement filed with the SEC in July 2017 for the issuance of up to an aggregate of $500.0 million of WES common units.


7


PART I

Items 1 and 2.  Business and Properties

GENERAL OVERVIEW

Western Gas Equity Partners, LP. WGP is a Delaware MLP formed by Anadarko to own three types of partnership interests in WES. Our common units are publicly traded on the NYSE under the symbol “WGP.” WGP GP is a wholly owned subsidiary of Anadarko.
We were formed by Anadarko in September 2012 upon the conversion of WGR Holdings, LLC, a Delaware limited liability company, into a Delaware MLP, and closed our IPO in December 2012. Our only cash-generating assets consist of our partnership interests in WES, which consist of the following: (i) the 1.5% general partner interest through our 100% ownership of WES GP, (ii) 100% of the IDRs in WES and (iii) a significant limited partner interest in WES. As of December 31, 2018, we held 50,132,046 WES common units, representing a 29.6% limited partner interest in WES, and, through our ownership of WES GP, we indirectly held 2,583,068 general partner units, representing a 1.5% general partner interest in WES, and 100% of WES’s IDRs.

Western Gas Partners, LP. WES is an MLP 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 addition, in its capacity as a processor of natural gas, WES also buys and sells natural gas, NGLs and condensate on behalf of itself and as agent for its customers under certain of its contracts. WES provides these midstream services for Anadarko, as well as for third-party customers. WES’s common units are publicly traded on the NYSE under the symbol “WES.”

Merger transactions. On November 7, 2018, WGP, WES, Anadarko and certain of their affiliates entered into a Contribution Agreement and Agreement and Plan of Merger (as may be amended from time to time, the “Merger Agreement”), pursuant to which, among other things, Clarity Merger Sub, LLC, a wholly owned subsidiary of WGP, will merge with and into WES, with WES continuing as the surviving entity and a subsidiary of WGP (the “Merger”). Upon closing of the Merger, which is expected to occur in the first quarter of 2019, the common units of WES will no longer be publicly traded and will cease to trade on the NYSE under the symbol “WES.” The common units of WGP will begin trading on the NYSE under the symbol “WES” and WGP will change its name to Western Midstream Partners, LP.
The Merger Agreement also provides that WGP, WES and Anadarko will, and will cause their respective affiliates to, cause the following transactions, among others, to occur immediately prior to the Merger becoming effective in the order as follows: (1) Anadarko E&P Onshore LLC and WGR Asset Holding Company LLC (“WGRAH”) (the “Contributing Parties”) will contribute to WES all of their interests in each of Anadarko Wattenberg Oil Complex LLC, Anadarko DJ Oil Pipeline LLC, Anadarko DJ Gas Processing LLC, Wamsutter Pipeline LLC, DBM Oil Services, LLC, Anadarko Pecos Midstream LLC, Anadarko Mi Vida LLC and APC Water Holdings 1, LLC (“APCWH”) to WGR Operating, LP, Kerr-McGee Gathering LLC and Delaware Basin Midstream, LLC (each wholly owned by WES) in exchange for aggregate consideration of $1.814 billion in cash from WES, minus the outstanding amount payable pursuant to an intercompany note (“APCWH Note Payable”) to be assumed by WES in connection with the transaction, and 45,760,201 WES common units; (2) AMH will sell to WES its interests in Saddlehorn Pipeline Company, LLC and Panola Pipeline Company, LLC in exchange for aggregate consideration of $193.9 million in cash; (3) WES will contribute cash in an amount equal to the outstanding balance of the APCWH Note Payable immediately prior to the effective time to APCWH, and APCWH will pay such cash to Anadarko in satisfaction of the APCWH Note Payable; (4) WES Class C units will convert into WES common units on a one-for-one basis; and (5) WES and WES GP will cause the conversion of the IDRs and the 2,583,068 general partner units in WES held by WES GP into a non-economic general partner interest in WES and 105,624,704 WES common units. The 45,760,201 WES common units to be issued to the Contributing Parties, less 6,375,284 WES common units to be retained by WGRAH, will be converted into the right to receive an aggregate of 55,360,984 WGP common units upon the consummation of the Merger. See Note 13—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K for additional information.


8


Available information. We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other documents with the SEC under the Exchange Act. From time to time, we may also file registration and related statements pertaining to equity or debt offerings.
We provide access free of charge to all of these SEC filings, as soon as reasonably practicable after filing or furnishing such materials with the SEC, on our website located at www.westerngas.com. The public may also obtain such reports from the SEC’s website at www.sec.gov.
Our Corporate Governance Guidelines, Code of Ethics for our Chief Executive Officer and Senior Financial Officers, Code of Business Conduct and Ethics and the charters of the Audit Committee and the Special Committee of our Board of Directors are also available on our website. We will also provide, free of charge, a copy of any of our governance documents listed above upon written request to our general partner’s corporate secretary at our principal executive office. Our principal executive offices are located at 1201 Lake Robbins Drive, The Woodlands, TX 77380-1046. Our telephone number is 832-636-6000.

ASSETS AND AREAS OF OPERATION

As of December 31, 2018, WES’s assets and its investments consisted of the following:
 
 
Owned and
Operated
 
Operated
Interests
 
Non-Operated
Interests
 
Equity Interests
Gathering systems (1)
 
12

 
2

 
3

 
2

Treating facilities
 
14

 
3

 

 
3

Natural gas processing plants/trains
 
21

 
3

 

 
2

NGLs pipelines
 
2

 

 

 
3

Natural gas pipelines
 
5

 

 

 

Oil pipelines
 

 
1

 

 
2

                                                                                                                                                                                    
(1) 
Includes the DBM water systems.

These assets and investments are located in the Rocky Mountains (Colorado, Utah and Wyoming), North-central Pennsylvania, Texas and New Mexico. The following table provides information regarding WES’s assets by geographic region, as of and for the year ended December 31, 2018, excluding Mentone Train II at the West Texas complex and the Latham processing plant at the DJ Basin complex, which are currently under construction in West Texas and Colorado, respectively, (see Assets Under Development within these Items 1 and 2):
Area
 
Asset Type
 
Miles of Pipeline (1)
 
Approximate Number of Active Receipt Points (1)
 
Compression (HP) (1) (2)
 
Processing or Treating Capacity (MMcf/d) (1)
 
Processing, Treating or Disposal Capacity (MBbls/d) (1)
 
Average Gathering, Processing, Treating and Transportation Throughput (MMcf/d) (3)
 
Average Gathering, Treating, Transportation and Disposal Throughput (MBbls/d) (4)
Rocky Mountains
 
Gathering, Processing and Treating
 
6,894

 
3,584

 
536,470

 
3,250

 
14

 
2,228

 

 
 
Transportation
 
1,500

 
57

 

 

 

 
79

 
26

Texas / New Mexico
 
Gathering, Processing, Treating and Disposal
 
2,544

 
1,114

 
615,361

 
1,370

 
414

 
1,485

 
183

 
 
Transportation
 
1,647

 
19

 

 

 

 

 
156

North-central Pennsylvania
 
Gathering
 
146

 
59

 
9,660

 

 

 
100

 

Total
 
 
 
12,731

 
4,833

 
1,161,491

 
4,620

 
428

 
3,892

 
365

                                                                                                                                                                                    
(1) 
All system metrics are presented on a gross basis and include owned, rented and leased compressors at certain facilities. Includes horsepower associated with liquid pump stations. Includes bypass capacity at the DJ Basin and West Texas complexes.
(2) 
Excludes compression horsepower for transportation.
(3) 
Includes 100% of Chipeta throughput, a 50.1% share of Springfield gas gathering throughput, a 22% share of Rendezvous throughput and a 14.81% share of Fort Union throughput.
(4) 
Consists of throughput on the Chipeta NGL pipeline, an NGLs line at the Brasada complex and at the DBM water systems, a 50.1% share of Springfield oil gathering throughput, a 10% share of White Cliffs throughput, a 25% share of Mont Belvieu JV throughput, a 20% share of TEG and TEP throughput, a 33.33% share of FRP throughput and a 20% share of Whitethorn throughput. See Properties below for further descriptions of these systems.

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Because we reflect our ownership interest in WES on a consolidated basis and have no independent operations or material assets outside those of WES, our segment analysis and presentation is the same as that of WES. WES’s operations are organized into a single operating segment that engages in gathering, compressing, treating, processing and transporting natural gas; gathering, stabilizing and transporting condensate, NGLs and crude oil; and gathering and disposing of produced water. WES provides these midstream services for Anadarko, as well as for third-party customers in the United States. See Part II, Item 8 of this Form 10-K for disclosure of revenues, profits and total assets for the years ended December 31, 2018, 2017 and 2016.

ACQUISITIONS AND DIVESTITURES

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

Cactus II acquisition. In June 2018, WES acquired a 15% interest in Cactus II, which will own a crude oil pipeline operated by a third party (the “Cactus II pipeline”) connecting West Texas to the Corpus Christi area. The Cactus II pipeline is under construction and is expected to become operational in late 2019. WES acquired its 15% interest from a third party via an initial net investment of $12.1 million, which represented its share of costs incurred up to the date of acquisition. The initial investment was funded with cash on hand and the interest in Cactus II is accounted for under the equity method.

Newcastle system divestiture. In December 2018, the Newcastle system, located in Northeast Wyoming, was sold to a third party for $3.2 million, resulting in a net gain on sale of $0.6 million recorded as Gain (loss) on divestiture and other, net in the consolidated statements of operations. WES previously held a 50% interest in, and operated, the Newcastle system.

Presentation of WES assets. The term “WES assets” includes both the assets indirectly owned and the interests accounted for under the equity method by us through our partnership interests in WES as of December 31, 2018 (see Note 10—Equity Investments in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K). Because Anadarko controls WES through its control of us, and because we own the entire interest in WES GP, each of WES’s acquisitions of WES assets from Anadarko has been considered a transfer of net assets between entities under common control. As such, WES assets acquired from Anadarko were initially recorded at Anadarko’s historic carrying value, which did not correlate to the total acquisition price paid by WES. Further, after an acquisition of assets from Anadarko, we (by virtue of our consolidation of WES) and WES are required to recast our financial statements to include the activities of such WES assets from the date of common control.
For those periods requiring recast, the consolidated financial statements for periods prior to the acquisition of WES assets from Anadarko have been prepared from Anadarko’s historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if WES had owned the WES assets during the periods reported. For ease of reference, we refer to the historical financial results of the WES assets prior to the acquisitions from Anadarko as being “our” historical financial results.


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STRATEGY

Our primary business objective is to continue to increase our cash distributions per unit over time, which can only be achieved if WES meets its primary business objective of increasing its cash distributions per unit over time. To accomplish this objective, WES intends to execute the following strategy:

Capitalizing on organic growth opportunities. WES expects to grow certain of its systems organically over time by meeting Anadarko’s and its other customers’ midstream service needs that result from their drilling activity in its areas of operation. WES continually evaluates economically attractive organic expansion opportunities in existing or new areas of operation that allow it to leverage its infrastructure, operating expertise and customer relationships to meet new or increased demand of its services.

Increasing third-party volumes to WES’s systems. WES continues to actively market its midstream services to, and pursue strategic relationships with, third-party customers with the intention of attracting additional volumes and/or expansion opportunities.

Pursuing accretive acquisitions. WES expects to continue to pursue accretive acquisitions of midstream assets.

Managing commodity price exposure. WES intends to continue limiting its direct exposure to commodity price changes and promote cash flow stability by pursuing a contract structure designed to mitigate exposure to a substantial majority of the commodity price uncertainty through the use of fee-based contracts.

Maintaining investment grade metrics. WES intends to operate at appropriate leverage and distribution coverage levels in line with other partnerships in its sector that maintain investment grade credit ratings. By maintaining investment grade credit metrics, in part through staying within leverage ratios appropriate for investment-grade partnerships, we believe that WES will be able to pursue strategic acquisitions and large growth projects at a lower cost of fixed-income capital, which would enhance its accretion and overall return.


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COMPETITIVE STRENGTHS

We believe that WES is well positioned to successfully execute its strategy and achieve its primary business objective because of the following competitive strengths:

Affiliation with Anadarko. We believe Anadarko is motivated to promote and support the successful execution of WES’s business plan and utilize its relationships within the energy industry and the strength of its asset portfolio to pursue projects that help to enhance the value of WES’s business. This includes the ability of Anadarko to secure equity investment opportunities for WES in connection with the commitments it makes to other midstream companies. See WES’s Relationship with Anadarko Petroleum Corporation below.

Substantial presence in basins with historically strong producer economics. Certain of WES’s systems are in areas, such as the Delaware and DJ Basins, which have historically seen robust producer activity and are considered to have some of the most favorable producer returns for onshore North America. WES’s assets in these areas serve production where the hydrocarbons contain not only natural gas, but also crude oil, condensate and NGLs.

Well-positioned and well-maintained assets. We believe that WES’s asset portfolio, which is located in geographically diverse areas of operation, provides it with opportunities to expand and attract additional volumes to its systems from multiple productive reservoirs. Moreover, WES’s portfolio consists of high-quality, well-maintained assets for which it has implemented modern processing, treating, measurement and operating technologies.

Commodity price and volumetric risk mitigation. We believe a substantial majority of WES’s cash flows are protected from direct fluctuations caused by commodity price volatility, as 89% of WES’s wellhead natural gas volumes (excluding equity investments) and 100% of WES’s crude oil and produced water throughput (excluding equity investments) were attributable to fee-based contracts for the year ended December 31, 2018. In addition, WES mitigates volumetric risk by entering into contracts with cost of service structures and/or minimum volume commitments. For the year ended December 31, 2018, 64% of WES’s natural gas throughput and 71% of WES’s crude oil, NGLs and produced water throughput were supported by either minimum volume commitments with associated deficiency payments or cost of service commitments.

Liquidity to pursue expansion and acquisition opportunities. We believe WES’s operating cash flows, borrowing capacity, long-term relationships and reasonable access to debt and equity capital markets provide it with the liquidity to competitively pursue acquisition and expansion opportunities and to execute its strategy across capital market cycles. As of December 31, 2018, WES had $1.3 billion in available borrowing capacity under the WES RCF.

Consistent track record of accretive acquisitions. Since WES’s IPO in 2008, WES’s management team has successfully executed eleven related-party acquisitions and nine third-party acquisitions, with an aggregate acquisition value of $6.5 billion. WES’s management team has demonstrated its ability to identify, evaluate, negotiate, consummate and integrate strategic acquisitions and expansion projects, and it intends to use its experience and reputation to continue to grow WES’s operations through accretive acquisitions, focusing on opportunities to improve throughput volumes and cash flows.

We believe that WES will effectively leverage its competitive strengths to successfully implement its strategy. However, WES’s business involves numerous risks and uncertainties that may prevent it from achieving its primary business objective. For a more complete description of the risks associated with our and WES’s business, read Risk Factors under Part I, Item 1A of this Form 10-K.


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WES’S RELATIONSHIP WITH ANADARKO PETROLEUM CORPORATION

WES’s operations and activities are managed by its general partner, WES GP, which is our wholly owned subsidiary. Anadarko, which owns our general partner, WGP GP, and a 77.8% limited partner interest in us, is among the largest independent oil and gas exploration and production companies in the world. Anadarko’s upstream oil and gas business explores for and produces natural gas, crude oil, condensate and NGLs.
We believe that one of WES’s principal strengths is its relationship with Anadarko, and that Anadarko, through its direct economic interest in us and significant indirect economic interest in WES, will continue to be motivated to promote and support the successful execution of WES’s business plan and to pursue projects that help to enhance the value of our and WES’s business.
As of December 31, 2018, Anadarko held 170,380,161 of our common units, representing a 77.8% limited partner interest in us. In addition, as of December 31, 2018, we held 50,132,046 WES common units, representing a 29.6% limited partner interest in WES, and through our ownership of WES GP, we indirectly held 2,583,068 general partner units, representing a 1.5% general partner interest in WES, and 100% of the WES IDRs. As of December 31, 2018, other subsidiaries of Anadarko collectively held 2,011,380 WES common units and 14,372,665 Class C units, representing an aggregate 9.7% limited partner interest in WES.
For the year ended December 31, 2018, production owned or controlled by Anadarko represented (i) 7% of WES’s natural gas gathering, treating and transportation throughput (excluding equity investment throughput), (ii) 41% of WES’s natural gas processing throughput (excluding equity investment throughput), and (iii) 73% of WES’s crude oil, NGLs and produced water gathering, treating, transportation and disposal throughput (excluding equity investment throughput). In addition, Anadarko supports WES’s operations by providing dedications and/or minimum volume commitments with respect to a substantial portion of its throughput. In executing its growth strategy, which includes acquiring and constructing additional midstream assets, WES is able to leverage Anadarko’s significant industry expertise.
During 2018, WES had commodity price swap agreements with Anadarko to mitigate exposure to the commodity price risk inherent in its percent-of-proceeds, percent-of-product and keep-whole contracts at the DJ Basin complex and the MGR assets. These commodity price swap agreements expired without renewal on December 31, 2018. See Note 6—Transactions with Affiliates in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K.
In connection with our IPO in December 2012, we entered into an omnibus agreement with Anadarko and our general partner that governs (i) our obligation to reimburse Anadarko for expenses incurred or payments made on our behalf in conjunction with Anadarko’s provision of general and administrative services to us, including our public company expenses and general and administrative expenses; (ii) our obligation to pay Anadarko in quarterly installments an administrative services fee of $250,000 per year (subject to an annual increase as described in the omnibus agreement); and (iii) our obligation to reimburse Anadarko for all insurance coverage expenses it incurs or payments it makes with respect to our assets. In connection with WES’s IPO in 2008, WES entered into an omnibus agreement with Anadarko and WES GP that governs its relationship with Anadarko regarding certain reimbursement and indemnification matters.
Although we believe WES’s relationship with Anadarko provides it with a significant advantage in the midstream sector, it is also a source of potential conflicts. For example, neither we nor Anadarko is restricted from competing with WES. Given Anadarko’s significant indirect economic interest in WES and in us, we believe it will be in Anadarko’s best economic interest for it to transfer additional assets to WES over time. However, Anadarko continually evaluates acquisitions and divestitures and may elect to acquire, construct or dispose of midstream assets in the future without offering WES the opportunity to participate in such transactions. Should Anadarko choose to pursue midstream asset sales, it is under no contractual obligation to offer assets or business opportunities to WES, nor is WES obligated to participate in any such opportunities. We cannot state with any certainty which, if any, opportunities to acquire additional assets from Anadarko may be made available to WES or if WES will elect, or will have the ability, to pursue any such opportunities. See Risk Factors under Part I, Item 1A and Certain Relationships and Related Transactions, and Director Independence under Part III, Item 13 of this Form 10-K for more information.


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INDUSTRY OVERVIEW

The midstream industry is the link between the exploration for and production of natural gas, NGLs, and crude oil and the delivery of the resulting hydrocarbon components to end-use markets. Operators within this industry create value at various stages along the midstream value chain by gathering production from producers at the wellhead or production facility, separating the produced hydrocarbons into various components and delivering these components to end-use markets, and where applicable, gathering and disposing of produced water.
The following diagram illustrates the primary groups of assets found along the midstream value chain:

industryoverview2018.jpg

Natural Gas Midstream Services

Midstream companies provide services with respect to natural gas that are generally classified into the categories described below.

Gathering. At the initial stages of the midstream value chain, a network of typically smaller diameter pipelines known as gathering systems directly connect to wellheads or production facilities in the area. These gathering systems transport raw, or untreated, natural gas to a central location for treating and processing, if necessary. A large gathering system may involve thousands of miles of gathering lines connected to thousands of wells. Gathering systems are typically designed to be highly flexible to allow gathering of natural gas at different pressures and scalable to allow gathering of additional production without significant incremental capital expenditures.

Stabilization. Stabilization is a process that separates the heavier hydrocarbons (which are also valuable commodities) that are sometimes found in natural gas, typically referred to as “liquids-rich” natural gas, from the lighter components by using a distillation process or by reducing the pressure and letting the more volatile components flash.

Compression. Natural gas compression is a mechanical process in which a volume of natural gas at a given pressure is compressed to a desired higher pressure, which allows the natural gas to be gathered more efficiently and delivered into a higher pressure system, processing plant or pipeline. Field compression is typically used to allow a gathering system to operate at a lower pressure or provide sufficient discharge pressure to deliver natural gas into a higher pressure system. Since wells produce at progressively lower field pressures as they deplete, field compression is needed to maintain throughput across the gathering system.


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Treating and dehydration. To the extent that gathered natural gas contains water vapor or contaminants, such as carbon dioxide and hydrogen sulfide, it is dehydrated to remove the saturated water and treated to separate the carbon dioxide and hydrogen sulfide from the gas stream.

Processing. The principal components of natural gas are methane and ethane, but most natural gas also contains varying amounts of heavier NGLs and contaminants, such as water and carbon dioxide, sulfur compounds, nitrogen or helium. Natural gas is processed to remove unwanted contaminants that would interfere with pipeline transportation or use of the natural gas and to separate those hydrocarbon liquids from the gas that have higher value as NGLs. The removal and separation of individual hydrocarbons through processing is possible due to differences in molecular weight, boiling point, vapor pressure and other physical characteristics.

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

Storage, transportation and marketing. Once the raw natural gas has been treated or processed and the raw NGL mix has been fractionated into individual NGL components, the natural gas and NGL components are stored, transported and marketed to end-use markets. Each pipeline system typically has storage capacity located throughout the pipeline network or at major market centers to better accommodate seasonal demand and daily supply-demand shifts. WES does not currently offer storage services.

Crude Oil Midstream Services

Midstream companies provide services with respect to crude oil that are generally classified into the categories described below.

Gathering. Crude oil gathering assets provide the link between crude oil production gathered at the well site or nearby collection points and crude oil terminals, storage facilities, long-haul crude oil pipelines and refineries. Crude oil gathering assets generally consist of a network of small-diameter pipelines that are connected directly to the well site or central receipt points and deliver into large-diameter trunk lines. To the extent there are not enough volumes to justify construction of or connection to a pipeline system, crude oil can also be trucked from a well site to a central collection point.

Stabilization. Crude oil stabilization assets process crude oil to meet vapor pressure specifications. Crude oil delivery points, including crude oil terminals, storage facilities, long-haul crude oil pipelines and refineries, often have specific requirements for vapor pressure and temperature, and for the amount of sediment and water that can be contained in any crude oil delivered to them.

Produced Water Midstream Services

The services provided by WES and other midstream companies with respect to produced water are generally classified into the categories described below.

Gathering. Produced water often accounts for the largest byproduct stream associated with production of crude oil and natural gas. Produced water gathering assets provide the link between well sites or nearby collection points and disposal facilities.

Disposal. As a natural byproduct of crude oil and natural gas production, produced water must be recycled or disposed of in order to maintain production. Produced water disposal systems remove hydrocarbon products and other sediments from the produced water in compliance with applicable regulations and re-inject the produced water utilizing permitted disposal wells.


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Typical Contractual Arrangements

Midstream services, other than transportation, are usually provided under contractual arrangements that vary in the amount of commodity price risk they carry. Three typical contract types, or combinations thereof, are described below:

Fee-based. Under fee-based arrangements, the service provider typically receives a fee for each unit of (i) natural gas, NGLs, or crude oil gathered, treated, processed and/or transported, or (ii) produced water gathered and disposed of, at its facilities. As a result, the price per unit received by the service provider does not vary with commodity price changes, minimizing the service provider’s direct commodity price risk exposure.

Percent-of-proceeds, percent-of-value or percent-of-liquids. Percent-of-proceeds, percent-of-value or percent-of-liquids arrangements may be used for gathering and processing services. Under these arrangements, the service provider typically remits to the producers either a percentage of the proceeds from the sale of residue gas and/or NGLs or a percentage of the actual residue gas and/or NGLs at the tailgate. These types of arrangements expose the service provider to commodity price risk, as the revenues from the contracts directly correlate with the fluctuating price of natural gas and/or NGLs.

Keep-whole. Keep-whole arrangements may be used for processing services. Under these arrangements, a customer provides liquids rich gas volumes to the service provider for processing. The service provider is obligated to return the equivalent gas volumes to the customer subsequent to processing. Due to the use and loss of volumes in processing, the service provider must purchase additional volumes to compensate the customer. In these arrangements, the service provider receives all or a portion of the NGLs produced in consideration for the service provided. These type of arrangements can expose the service provider to high levels of commodity price exposure associated with the volumes purchased to keep the customer whole, as well as for the consideration received.

See Note 1—Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K for information regarding WES’s recognition of revenue under its contracts.


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PROPERTIES

Our only cash-generating assets consist of our partnership interests in WES. We currently have no independent operations. The following sections describe in more detail the services provided by WES’s assets in its areas of operation as of December 31, 2018.

GATHERING, PROCESSING AND TREATING

Overview - Rocky Mountains - Colorado and Utah
Location
 
Asset
 
Type
 
Processing / Treating Plants
 
Processing / Treating Capacity (MMcf/d) (1)
 
Processing / Treating Capacity (MBbls/d)
 
Compressors
 
Compression Horsepower
 
Gathering Systems
 
Pipeline Miles
Colorado
 
DJ Basin complex (2)
 
Gathering, Processing & Treating
 
10

 
1,010

 
14

 
120

 
302,187

 
2

 
3,215

Utah
 
Chipeta (3)
 
Processing
 
3

 
790

 

 
12

 
74,875

 

 
2

Total
 
 
 
 
 
13

 
1,800

 
14

 
132

 
377,062

 
2

 
3,217

                                                                                                                                                                                    
(1) 
Includes 160 MMcf/d of bypass capacity at the DJ Basin complex.
(2) 
The DJ Basin complex includes the Platte Valley, Fort Lupton, Fort Lupton JT, Hambert JT, which is currently inactive, and Lancaster Trains I and II processing plants and the Wattenberg gathering system.
(3) 
WES is the managing member of and owns a 75% interest in Chipeta, which owns the Chipeta processing complex.

colorado2018.jpg

DJ Basin gathering, treating and processing complex

Customers. As of December 31, 2018, throughput at the DJ Basin complex was from Anadarko and numerous third-party customers. For the year ended December 31, 2018, Anadarko’s production represented 65% of the DJ Basin complex throughput and the largest third-party customer provided 14% of the throughput.


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Supply. The DJ Basin complex is primarily supplied by the Wattenberg field. There were 2,122 active receipt points connected to the DJ Basin complex as of December 31, 2018. Anadarko holds interests in approximately 645,000 gross (460,000 net) acres within the DJ Basin and during the year ended December 31, 2018, turned 278 operated wells to sales in the DJ Basin.

Delivery points. As of December 31, 2018, the DJ Basin complex had the following delivery points for gas not processed within the DJ Basin complex:

Anadarko’s Wattenberg plant inlet; and
Various interconnections with DCP Midstream LP’s (“DCP”) gathering and processing system.

The DJ Basin complex is connected to the Colorado Interstate Gas Company LLC’s pipeline (“CIG pipeline”) and Xcel Energy’s residue pipelines for natural gas residue takeaway and to Overland Pass Pipeline Company LLC’s pipeline and FRP’s pipeline for NGLs takeaway. In addition, the NGLs fractionator at the Platte Valley plant and associated truck-loading facility provides access to local NGLs markets.

utah2018.jpg

Chipeta processing complex

Customers. As of December 31, 2018, throughput at the Chipeta complex was from Anadarko and numerous third-party customers. For the year ended December 31, 2018, Anadarko’s production represented 74% of the Chipeta complex throughput and the largest third-party customer provided 15% of the throughput.


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Supply. The Chipeta complex is well positioned to access Anadarko and third-party production in the Uinta Basin where Anadarko holds interests in 244,000 gross acres. Chipeta’s inlet is connected to Anadarko’s Natural Buttes gathering system, the Dominion Energy Questar Pipeline, LLC system (“Questar pipeline”) and Three Rivers Gathering, LLC’s system, which is owned by Andeavor Logistics LP (“Andeavor”).

Delivery points. The Chipeta plant delivers NGLs to Enterprise Products Partners LP’s (“Enterprise”) Mid-America Pipeline Company pipeline (“MAPL pipeline”), which provides transportation through Enterprise’s Seminole pipeline (“Seminole pipeline”) and TEP’s pipeline in West Texas and ultimately to the NGLs fractionation and storage facilities in Mont Belvieu, Texas. The Chipeta plant has residue gas delivery points through the following pipelines delivering to markets throughout the Rockies and Western United States:

CIG pipeline;
Questar pipeline; and
Wyoming Interstate Company’s pipeline (“WIC pipeline”).

Overview - Rocky Mountains - Wyoming
Location
 
Asset
 
Type
 
Processing / Treating Plants
 
Processing / Treating Capacity (MMcf/d)
 
Compressors
 
Compression Horsepower
 
Gathering Systems
 
Pipeline Miles
Northeast Wyoming
 
Bison
 
Treating
 
3

 
450

 
9

 
14,645

 

 

Northeast Wyoming
 
Fort Union (1)
 
Gathering & Treating
 
3

 
295

 
3

 
5,454

 
1

 
315

Northeast Wyoming
 
Hilight
 
Gathering & Processing
 
2

 
60

 
34

 
36,554

 
1

 
1,232

Southwest Wyoming
 
Granger complex (2)
 
Gathering & Processing
 
4

 
520

 
41

 
44,967

 
1

 
738

Southwest Wyoming
 
Red Desert complex (3)
 
Gathering & Processing
 
1

 
125

 
25

 
50,303

 
1

 
1,054

Southwest Wyoming
 
Rendezvous (4)
 
Gathering
 

 

 
5

 
7,485

 
1

 
338

Total
 
 
 
 
 
13

 
1,450

 
117

 
159,408

 
5

 
3,677

                                                                                                                                                                                    
(1) 
WES has a 14.81% interest in Fort Union.
(2) 
The Granger complex includes the “Granger straddle plant,” a refrigeration processing plant.
(3) 
The Red Desert complex includes the Red Desert cryogenic processing plant, which is currently inactive, and the Patrick Draw cryogenic processing plant.
(4) 
WES has a 22% interest in the Rendezvous gathering system, which is operated by a third party.

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wyoming2018.jpg

Northeast Wyoming

Bison treating facility

Customers. Throughput at the Bison treating facility was from two third-party customers as of December 31, 2018. The largest customer provided 75% of the throughput for the year ended December 31, 2018. In connection with Anadarko’s sale of its Powder River Basin coal-bed methane assets in 2015, Anadarko retained its throughput commitment to Bison through 2020.

Supply and delivery points. The Bison treating facility treats and compresses gas from coal-bed methane wells in the Powder River Basin of Wyoming. The Bison treating facility is directly connected to Fort Union’s pipeline and the Bison pipeline operated by TransCanada Corporation.


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Fort Union gathering system and treating facility

Customers. Moriah Powder River, LLC holds a majority of the firm capacity on the Fort Union system. To the extent capacity on the system is not used by this customer, it is available to third parties under interruptible agreements.

Supply. Substantially all of Fort Union’s gas supply is comprised of coal-bed methane volumes from the Powder River Basin near Gillette, Wyoming that are either produced or gathered by the customer noted above and their affiliates. These volumes are gathered and treated under contracts with minimum volume commitments.

Delivery points. The Fort Union system delivers coal-bed methane gas to the hub in Glenrock, Wyoming, which has access to the following interstate pipelines:
CIG pipeline;
Tallgrass Interstate Gas Transmission system’s pipeline (“TIGT pipeline”); and
WIC pipeline.

These pipelines serve gas markets in the Rocky Mountains and Midwest regions of the United States.

Hilight gathering system and processing plant

Customers. As of December 31, 2018, gas gathered and processed through the Hilight system was from numerous third-party customers. The four largest producers provided 72% of the system throughput for the year ended December 31, 2018.

Supply. The Hilight gathering system serves the gas gathering needs of several conventional producing fields in Johnson, Campbell, Natrona and Converse Counties, Wyoming.

Delivery points. The Hilight plant delivers residue into WES’s MIGC transmission line (see Transportation within these Items 1 and 2). Hilight is not connected to an active NGLs pipeline, resulting in all fractionated NGLs being sold locally through truck and rail loading facilities.

Southwest Wyoming

Granger gathering and processing complex

Customers. As of December 31, 2018, throughput at the Granger complex was from numerous third-party customers. The two largest third-party customers provided 78% of the Granger complex throughput for the year ended December 31, 2018.

Supply. The Granger complex is supplied by the Moxa Arch and the Jonah and Pinedale Anticline fields. The Granger gas gathering system had 577 active receipt points as of December 31, 2018.

Delivery points. The residue from the Granger complex can be delivered to the following major pipelines:
CIG pipeline;
Berkshire Hathaway Energy’s Kern River pipeline (“Kern River pipeline”) via a connect with Andeavor’s Rendezvous pipeline (“Rendezvous pipeline”);
Questar pipeline;
Dominion Energy Overthrust Pipeline;
The Williams Companies, Inc.’s Northwest Pipeline (“NWPL”);
WES’s OTTCO pipeline; and
WES’s Mountain Gas Transportation LLC pipeline.

The NGLs have market access to the MAPL pipeline, which terminates at Mont Belvieu, Texas, as well as to local markets.

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Red Desert gathering and processing complex

Customers. As of December 31, 2018, throughput at the Red Desert complex was from Anadarko and numerous third-party customers. For the year ended December 31, 2018, 40% of the Red Desert complex throughput was from the two largest third-party customers and 2% was from Anadarko.

Supply. The Red Desert complex gathers, compresses, treats and processes natural gas and fractionates NGLs produced from the eastern portion of the Greater Green River Basin, providing service primarily to the Red Desert and Washakie Basins.

Delivery points. Residue from the Red Desert complex is delivered to the CIG and WIC pipelines, while NGLs are delivered to the MAPL pipeline, as well as to truck and rail loading facilities.

Rendezvous gathering system

Customers. As of December 31, 2018, throughput on the Rendezvous gathering system was primarily from two shippers that have dedicated acreage to the system.

Supply and delivery points. The Rendezvous gathering system provides high pressure gathering service for gas from the Jonah and Pinedale Anticline fields and delivers to WES’s Granger plant, as well as Andeavor’s Blacks Fork gas processing plant, which connects to the Questar pipeline, NWPL and the Kern River pipeline via the Rendezvous pipeline.

Overview - Texas and New Mexico
Location
 
Asset
 
Type
 
Processing / Treating Plants
 
Processing / Treating Capacity (MMcf/d) (1)
 
Processing / Treating / Disposal Capacity (MBbls/d)
 
Compressors / Pumps (2)
 
Compression Horsepower (2)
 
Gathering Systems
 
Pipeline Miles (3)
West Texas / New Mexico
 
West Texas complex (4)
 
Gathering, Processing & Treating
 
12

 
1,170

 
34

 
246

 
405,445

 
3

 
1,620

West Texas
 
DBM water systems
 
Gathering & Disposal
 

 

 
120

 
19

 
7,250

 
2

 
46

East Texas
 
Mont Belvieu JV (5)
 
Processing
 
2

 

 
170

 

 

 

 

South Texas
 
Brasada complex
 
Gathering, Processing & Treating
 
3

 
200

 
15

 
14

 
30,450

 
1

 
57

South Texas
 
Springfield system (6)
 
Gathering and Treating
 
3

 

 
75

 
107

 
172,216

 
2

 
821

Total
 
 
 
 
 
20

 
1,370

 
414

 
386

 
615,361

 
8

 
2,544

                                                                                                                                                                                    
(1) 
Includes 70 MMcf/d of bypass capacity at the West Texas complex.
(2) 
Includes owned, rented and leased compressors and compression horsepower.
(3) 
Includes 18 miles of transportation related to the Ramsey Residue Lines at the West Texas complex.
(4) 
The West Texas complex includes the DBM complex and DBJV and Haley systems. Excludes 2,000 gpm of amine treating capacity.
(5) 
WES owns a 25% interest in the Mont Belvieu JV, which owns two NGLs fractionation trains. A third party serves as the operator.
(6) 
WES owns a 50.1% interest in the Springfield system and serves as the operator.


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westtexas2018.jpg

West Texas gathering, treating and processing complex

Customers. As of December 31, 2018, throughput at the West Texas complex was from Anadarko and numerous third-party customers. For the year ended December 31, 2018, Anadarko’s production represented 30% of the West Texas complex throughput and the largest third-party customer provided 11% of the throughput.

Supply. Supply of gas and NGLs for the complex comes from production from the Delaware Sands, Avalon Shale, Bone Spring, Wolfcamp and Penn formations in the Delaware Basin portion of the Permian Basin. Anadarko holds interests in approximately 590,000 gross (240,000 net) acres within the Delaware Basin.


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Delivery points. Avalon, Bone Spring and Wolfcamp gas is dehydrated, compressed and delivered to the Bone Spring Gas Processing plant (the “Bone Spring plant”), the Mi Vida Gas Processing plant (the “Mi Vida plant”) and within the West Texas complex for processing, while lean gas is delivered into Enterprise GC, L.P.’s pipeline for ultimate delivery into Energy Transfer LP’s (“ET”) Oasis pipeline (the “Oasis pipeline”). Residue gas from the Bone Spring and Mi Vida plants is delivered into the Oasis pipeline or Transwestern Pipeline Company LLC’s pipeline. Residue gas produced at the West Texas complex is delivered to ET’s Red Bluff Express pipeline and the Ramsey Residue Lines, which extend from the complex to the south and to the north, with both lines connecting with Kinder Morgan, Inc.’s interstate pipeline system. NGLs production is delivered into the Sand Hills pipeline, Lone Star NGL LLC’s pipeline and EPIC Y-Grade Pipeline, LP’s NGL pipeline. See Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K.

DBM produced water disposal systems. The DBM water systems consist of the River Reeves and Silvertip systems.

Customers. As of December 31, 2018, throughput at the DBM water systems was from Anadarko and four third-party producers. Anadarko’s production represented 98% of the throughput for the year ended December 31, 2018.

Supply. The systems gather and dispose produced water for Anadarko and third-party producers.

easttexas2018.jpg

Mont Belvieu JV fractionation trains

Customers. The Mont Belvieu JV does not directly contract with customers, but rather is allocated volumes from Enterprise based on the available capacity of the other trains at Enterprise’s NGLs fractionation complex in Mont Belvieu, Texas.


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Supply and delivery points. Enterprise receives volumes at its fractionation complex in Mont Belvieu, Texas via a large number of pipelines that terminate there, including the Seminole pipeline, Skelly-Belvieu Pipeline Company, LLC’s pipeline, TEP and Enterprise’s Panola Pipeline, in which Anadarko has a 15% equity interest. Individual NGLs are delivered to end users either through customer-owned pipelines that are connected to nearby petrochemical plants or via export terminal.

southtexas2018.jpg

Brasada gathering, stabilization, treating and processing complex

Customers. Throughput at the Brasada complex was from one third-party customer as of December 31, 2018.

Supply. Supply of gas and NGLs comes from throughput gathered by the Springfield system.

Delivery points. The facility delivers residue gas into the Eagle Ford Midstream system operated by NET Midstream, LLC. It delivers stabilized condensate into Plains All American Pipeline and NGLs into the South Texas NGL Pipeline System operated by Enterprise.

Springfield gathering system, stabilization facility and storage

Customers. Throughput at the Springfield system was from numerous third-party customers as of December 31, 2018.

Supply. Supply of gas and oil comes from third-party production in the Eagleford shale.


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Delivery points. The gas gathering system delivers rich gas to WES’s Brasada complex, the Raptor processing plant owned by Targa Resources Corp. and Sanchez Midstream Partners LP, and to processing plants operated by Enterprise, ET and Kinder Morgan, Inc. The oil gathering system has delivery points to Plains All American Pipeline, Kinder Morgan, Inc.’s Double Eagle Pipeline, Hilcorp Energy Company’s Harvest Pipeline and NuStar Energy L.P.’s Pipeline.

Overview - North-central Pennsylvania
Location
 
Asset
 
Type
 
Compressors
 
Compression Horsepower
 
Gathering Systems
 
Pipeline Miles
North-central Pennsylvania
 
Marcellus (1)
 
Gathering
 
7

 
9,660

 
3

 
146

                                                                                                                                                                                    
(1) 
WES owns a 33.75% interest in the Marcellus Interest gathering systems.

pennsylvania2018.jpg

Marcellus gathering systems

Customers. As of December 31, 2018, the Marcellus Interest gathering systems had multiple priority shippers. The largest producer provided 86% of the throughput for the year ended December 31, 2018. Capacity not used by priority shippers is available to third parties as determined by the operating partner, Alta Resources Development, LLC.

Supply and delivery points. The Marcellus Interest gathering systems are well positioned to serve dry gas production from the Marcellus shale. The Marcellus Interest gathering systems have access to Transcontinental Gas Pipe Line Company, LLC’s pipeline.


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Overview
transportation2018.jpg

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Location
 
Asset
 
Type
 
Pipeline Miles
Colorado, Kansas, Oklahoma
 
White Cliffs (1) (2)
 
Oil
 
1,054

Utah
 
GNB NGL (1)
 
NGLs
 
33

Northeast Wyoming
 
MIGC (1)
 
Gas
 
239

Southwest Wyoming
 
OTTCO
 
Gas
 
174

Colorado, Oklahoma, Texas
 
FRP (1) (3)
 
NGLs
 
447

Texas, Oklahoma
 
TEG (3)
 
NGLs
 
191

Texas
 
TEP (1) (3)
 
NGLs
 
593

Texas
 
Whitethorn (4)
 
Oil
 
416

Total
 
 
 
 
 
3,147

                                                                                                                                                                                    
(1) 
White Cliffs, GNB NGL, MIGC, FRP and TEP are regulated by FERC.
(2) 
WES owns a 10% interest in the White Cliffs pipeline, which is operated by a third party.
(3) 
WES owns a 20% interest in TEG and TEP and a 33.33% interest in FRP. All three systems are operated by third parties.
(4) 
WES owns a 20% interest in Whitethorn, which is operated by a third party.

Rocky Mountains - Colorado

White Cliffs pipeline

Customers. The White Cliffs pipeline had multiple committed shippers, including Anadarko, as of December 31, 2018. In addition, other parties may ship on the White Cliffs pipeline at FERC-based rates. The White Cliffs dual pipeline system provides crude oil takeaway capacity of approximately 190 MBbls/d from Platteville, Colorado to Cushing, Oklahoma. During 2019, one of the pipelines will be converted from crude service to NGL Y-grade service with an initial capacity of 90 MBbls/d. To achieve this, the pipeline will be taken out of service in early 2019 and is expected to come back online during the fourth quarter of 2019.

Supply. The White Cliffs pipeline is supplied by production from the DJ Basin. At the point of origin, there is a storage facility adjacent to a truck-unloading facility.

Delivery points. The White Cliffs pipeline delivery point is SemCrude’s storage facility in Cushing, Oklahoma, a major crude oil marketing center, which ultimately delivers to Gulf Coast and mid-continent refineries.

Rocky Mountains - Utah

GNB NGL pipeline

Customers. Anadarko was the only shipper on the GNB NGL pipeline as of December 31, 2018.

Supply. The GNB NGL pipeline receives NGLs from Chipeta’s gas processing facility and Andeavor’s Stagecoach/Iron Horse gas processing complex.

Delivery points. The GNB NGL pipeline delivers NGLs to the MAPL pipeline, which provides transportation through the Seminole pipeline and TEP in West Texas, and ultimately to NGLs fractionation and storage facilities in Mont Belvieu, Texas.

Rocky Mountains - Northeast Wyoming

MIGC transportation system

Customers. Anadarko was the largest firm shipper on the MIGC system, with 85% of the throughput for the year ended December 31, 2018. The remaining throughput on the MIGC system was from numerous third-party shippers. MIGC is certificated for 175 MMcf/d of firm transportation capacity.


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Supply. MIGC receives gas from various coal-bed methane gathering systems in the Powder River Basin and the Hilight system, as well as from WBI Energy Transmission, Inc. on the north end of the transportation system.

Delivery points. MIGC volumes can be redelivered to the hub in Glenrock, Wyoming, which has access to the following interstate pipelines:

CIG pipeline;
TIGT pipeline; and
WIC pipeline.

Volumes can also be delivered to Cheyenne Light Fuel & Power and several industrial users.

Rocky Mountains - Southwest Wyoming

OTTCO transportation system

Customers. For the year ended December 31, 2018, 10% of OTTCO’s throughput was from Anadarko. The remaining throughput on the OTTCO transportation system was from two third-party shippers. Revenues on the OTTCO transportation system are generated from contracts that contain minimum volume commitments and volumetric fees paid by shippers under firm and interruptible gas transportation agreements.

Supply and delivery points. Supply points to the OTTCO transportation system include approximately 30 wellheads, the Granger complex and ExxonMobil Corporation’s Shute Creek plant, which are supplied by the eastern portion of the Greater Green River Basin, the Moxa Arch and the Jonah and Pinedale Anticline fields. Primary delivery points include the Red Desert complex, two third-party industrial facilities and an inactive interconnection with the Kern River pipeline.

Texas

TEFR Interests

Front Range Pipeline. FRP provides takeaway capacity from the DJ Basin in Northeast Colorado. FRP has receipt points at gas plants in Weld and Adams Counties, Colorado (including the Lancaster plant, which is within the DJ Basin complex and Anadarko’s Wattenberg plant) (see Rocky Mountains—Colorado and Utah within these Items 1 and 2). FRP connects to TEP near Skellytown, Texas. As of December 31, 2018, FRP had multiple committed shippers, including Anadarko. FRP provides capacity to other shippers at the posted FERC tariff rate. In 2018, WES elected to participate in the expansion of FRP, which will increase capacity by 100 MBbls/d, to a targeted total capacity of 258 MBbls/d, with the expansion expected to be completed in 2019.

Texas Express Gathering. TEG consists of two NGLs gathering systems that provide plants in North Texas, the Texas panhandle and West Oklahoma with access to NGLs takeaway capacity on TEP. TEG had one committed shipper as of December 31, 2018. In 2018, WES participated in the expansion of the Texas/Oklahoma system of TEG, which has a total capacity of 100 MBbls/d and was completed in the second quarter of 2018.

Texas Express Pipeline. TEP delivers to NGLs fractionation and storage facilities in Mont Belvieu, Texas. TEP is supplied with NGLs from other pipelines including FRP, the MAPL pipeline and TEG. As of December 31, 2018, TEP had multiple committed shippers, including Anadarko. TEP provides capacity to other shippers at the posted FERC tariff rates. In 2018, WES elected to participate in the expansion of TEP, which will increase capacity by 90 MBbls/d, to a targeted total capacity of 348 MBbls/d, with the expansion expected to be completed in 2019.


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Whitethorn

Supply and delivery points. Whitethorn is supplied by production from the Permian Basin. Whitethorn transports crude oil and condensate from Enterprise’s Midland terminal to Enterprise’s Sealy terminal. From Sealy, shippers have access to Enterprise’s Rancho II pipeline, which extends to Enterprise’s ECHO terminal located in Houston, Texas. From ECHO, shippers have access to refineries in Houston, Texas City, Beaumont and Port Arthur, Texas, as well as Enterprise’s crude oil export facilities.

Assets Under Development

In addition to significant gathering expansion projects at the West Texas and DJ Basin complexes and the DBM water systems, WES currently has the following significant projects scheduled for completion in 2019 in West Texas and Colorado. See Capital expenditures, under Part II, Item 7 of this Form 10-K.

Mentone Train II. WES is currently constructing a second cryogenic processing train at the Mentone processing plant at the West Texas complex. Mentone Train II will have a capacity of 200 MMcf/d, and WES expects this train to be completed in the first quarter of 2019. Upon completion of Mentone Train II, the West Texas complex will have a total processing capacity of 1,370 MMcf/d.

Latham processing plant. WES is currently constructing two cryogenic processing trains at a new processing plant located in Weld County, Colorado. Latham Trains I and II will each have a capacity of 200 MMcf/d. Latham Train I is expected to be completed in mid-2019 and Latham Train II is expected to be completed around year-end 2019. The Latham processing plant will be part of the DJ Basin complex, and upon completion of Latham Trains I and II, the DJ Basin complex will have a total processing capacity of 1,410 MMcf/d.

Equity investments. WES is currently contributing to the construction of the Cactus II pipeline, a crude oil pipeline connecting West Texas to the Corpus Christi area. The Cactus II pipeline will have a total capacity of 670 MBbls/d upon completion and is expected to become operational in late 2019.

COMPETITION

The midstream services business is extremely competitive. WES’s competitors include other midstream companies, producers, and intrastate and interstate pipelines. Competition is primarily based on reputation, commercial terms, reliability, service levels, location, available capacity, capital expenditures and fuel efficiencies. However, Anadarko supports WES’s operations by providing dedications and/or minimum volume commitments with respect to a substantial portion of its throughput. We believe that WES’s assets located outside of the dedicated areas are geographically well positioned to retain and attract third-party volumes due to its competitive rates.
We believe the primary advantages of WES’s assets are their proximity to established and/or future production, and the service flexibility they provide to producers. We believe WES can efficiently, and at competitive and flexible contract terms, provide services that customers require to connect, gather and process their natural gas, and gather and dispose of their produced water.


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Gathering Systems and Processing Plants

The following table summarizes the primary competitors for WES’s gathering systems and processing plants as of December 31, 2018.
Asset
 
Competitor(s)
Bison facility
 
Thunder Creek Gas Services, LLC and Fort Union (treating only)
Brasada complex
 
Enterprise, ET, Targa Resources Partners LP, Kinder Morgan, Inc., Plains All American Pipeline and Howard Energy Partners
Chipeta complex
 
Andeavor and Kinder Morgan, Inc.
DBM water systems
 
NGL Water Solutions, LLC, Mesquite SWD, Inc., Oilfield Water Logistics, LLC and Hillstone Environmental Partners, LLC
DJ Basin complex
 
DCP, AKA Energy Group, LLC, Rocky Mountain Midstream LLC and Cureton Midstream, LLC
Fort Union system
 
Bison treating facility (carbon dioxide treating services only), MIGC, Thunder Creek Gas Services, LLC and TransCanada Corporation
Granger complex
 
Williams Field Services Company, LLC, Enterprise/Jonah Gas Gathering Company and Andeavor
Hilight system
 
ONEOK Gas Gathering Company, Thunder Creek Gas Services, LLC, Crestwood Midstream Partners LP, Tallgrass Energy Partners, LP and Evolution Midstream
Marcellus Interest gathering systems
 
ET and National Fuel Gas Midstream Corporation
Mont Belvieu JV
 
Targa Resources Partners LP, Phillips 66, Lone Star NGL LLC and ONEOK Partners, LP
Red Desert complex
 
Williams Field Services Company, LLC and Andeavor
Rendezvous system
 
No significant direct competition
Springfield system
 
Enterprise, ET, Targa Resources Partners LP, Kinder Morgan, Inc., Plains All American Pipeline, Southcross Energy Partners, L.P., Williams Field Services Company, LLC and Howard Energy Partners
West Texas complex
 
ET, Targa Resources Partners LP, Enterprise GC, L.P., EagleClaw Midstream Ventures, LLC, Enlink Midstream Partners, LP, Vaquero Midstream LLC, MPLX LP, Crestwood Midstream Partners LP and Noble Midstream Partners LP

Transportation

MIGC competes with other pipelines that service the regional market and transport gas volumes from the Powder River Basin to Glenrock, Wyoming. MIGC competitors seek to attract and connect new gas volumes throughout the Powder River Basin, including certain volumes currently being transported on the MIGC pipeline. Competitive factors include commercial terms, available capacity, fuel efficiencies, the interconnected pipelines and gas quality issues. MIGC’s major competitors are Thunder Creek Gas Services, LLC, TransCanada Corporation’s Bison pipeline and the Fort Union gathering system. The GNB NGL pipeline’s major competitor is Andeavor. The White Cliffs pipeline faces direct competition from the Saddlehorn pipeline, of which Anadarko is a 20% owner, and the Grand Mesa pipeline. The Saddlehorn pipeline transports crude oil from the DJ Basin and the broader Rocky Mountain area to Cushing, Oklahoma. White Cliffs pipeline shippers can also sell crude oil in local markets or ship crude oil via rail services rather than via pipeline to Cushing, Oklahoma. The TEFR Interests compete with the Sand Hills pipeline, West Texas LPG Pipeline LP’s pipeline, Lone Star NGL LLC’s West Texas System, Overland Pass Pipeline Company LLC’s pipeline and the Seminole pipeline. The OTTCO transportation system faces no direct competition. Whitethorn competes with Magellan Midstream Partners, L.P.’s Longhorn pipeline and BridgeTex Pipeline Company, LLC’s pipeline.


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REGULATION OF OPERATIONS

Safety and Maintenance

Many of the pipelines WES uses to gather and transport oil, natural gas and NGLs are subject to regulation by the Pipeline and Hazardous Materials Safety Administration (“PHMSA”), an agency under the U.S. Department of Transportation pursuant to the Natural Gas Pipeline Safety Act of 1968, as amended (the “NGPSA”), with respect to natural gas and the Hazardous Liquids Pipeline Safety Act of 1979, as amended (the “HLPSA”), with respect to NGLs and oil. The NGPSA and HLPSA govern the design, installation, testing, construction, operation, replacement and management of natural gas, crude oil, NGLs and condensate pipeline facilities. Pursuant to these acts, PHMSA has promulgated regulations governing, among other things, pipeline wall thicknesses, design pressures, maximum allowable operating pressures (“MAOP”), pipeline patrols and leak surveys, minimum depth requirements, and emergency procedures, as well as other matters intended to ensure adequate protection for the public and to prevent accidents and failures. Additionally, PHMSA has promulgated regulations requiring pipeline operators to develop and implement integrity management programs for certain gas and hazardous liquid pipelines that, in the event of a pipeline leak or rupture, could affect high consequence areas (“HCAs”), where a release could have the most significant adverse consequences, including high population areas, certain drinking water sources and unusually sensitive ecological areas. Past operation of WES’s pipelines with respect to these NGPSA and HLPSA requirements has not resulted in the incurrence of material costs; however, due to the possibility of new or amended laws and regulations or reinterpretation of PHMSA enforcement practices or other guidance with respect thereto, future compliance with the NGPSA and HLPSA could result in increased costs that could have a material adverse effect on our results of operations or financial position.
Legislation adopted in recent years has resulted in more stringent mandates for pipeline safety and has charged PHMSA with developing and adopting regulations that impose increased pipeline safety requirements on pipeline operators. The Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011 (the “2011 Pipeline Safety Act”), which became law in January 2012, amended the NGPSA and HLPSA by increasing the penalties for safety violations, establishing additional safety requirements for newly constructed pipelines and requiring studies of safety issues that could result in the adoption of new regulatory requirements for existing pipelines. In June 2016, President Obama signed the Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (the “2016 Pipeline Safety Act”), further amending the NGPSA and HLPSA, extending PHMSA’s statutory mandate through 2019 and, among other things, requires PHMSA to complete certain of the outstanding mandates under the 2011 Pipeline Safety Act and empowers the agency to address imminent hazards by imposing emergency restrictions, prohibitions and safety measures on owners and operators of gas or hazardous liquid pipeline facilities without prior notice or an opportunity for a hearing. PHMSA published an interim final rule in 2016 to implement the agency’s expanded authority over imminent pipeline hazards.
The adoption of new or amended regulations by PHMSA that result in more stringent or costly pipeline integrity management or safety standards could have a significant adverse effect on our results of operations. For example, in January 2017, PHMSA issued a final rule that significantly extends and expands the reach of certain PHMSA hazardous liquid pipeline integrity management requirements, such as, for example, periodic assessments, leak detection and repairs, regardless of the pipeline’s proximity to a high consequence area. The final rule also imposes new reporting requirements for certain unregulated pipelines, including all hazardous liquid gathering lines. However, implementation of this final rule by publication in the Federal Register has been delayed following the January 2017 change from the Obama to Trump presidential administrations. In a second example, in March 2016, PHMSA announced a proposed rulemaking that would impose new or more stringent requirements for certain gas transportation and gathering lines including, among other things, expanding certain of PHMSA’s current regulatory safety programs for gas pipelines in newly defined “moderate consequence areas” that contain as few as five dwellings within a potential impact area; requiring gas pipelines installed before 1970 and thus excluded from certain pressure testing obligations to be tested to determine their MAOP; and requiring certain onshore and offshore gathering lines in Class I areas to comply with damage prevention, corrosion control, public education, MAOP limits, line markers and emergency planning standards. Additional requirements proposed by this proposed rulemaking would increase PHMSA’s integrity management requirements for gas pipelines and also require consideration of seismicity in evaluating threats to pipelines. PHMSA has split this rule into three separate rulemaking proceedings and is expected to finalize these proceedings in 2019.

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New laws or regulations adopted by PHMSA may impose more stringent requirements applicable to integrity management programs and other pipeline safety aspects of WES’s operations, which could cause WES to incur increased capital and operating costs and operational delays. In addition, while states are largely preempted by federal law from regulating pipeline safety for interstate lines, most are certified by PHMSA to assume responsibility for enforcing federal intrastate pipeline regulations and inspection of intrastate pipelines. In practice, because states can adopt stricter standards for intrastate pipelines than those imposed by the federal government for interstate lines, states vary considerably in their authority and capacity to address pipeline safety. Historically, WES’s intrastate pipeline safety compliance costs have not had a material adverse effect on our operations; however, there can be no assurance that such costs will not be material in the future.
WES is also subject to a number of federal and state laws and regulations, including the federal Occupational Safety and Health Act, as amended, and comparable state statutes, the purposes of which are to protect the health and safety of workers, both generally and within the pipeline industry. Furthermore, WES and the entities in which it owns an interest are subject to regulations imposed by the U.S. Occupational Safety and Health Administration (“OSHA”) that (i) require information to be maintained concerning hazardous materials used or produced in WES’s operations and that such information be provided to employees, state and local government authorities and citizens and (ii) are designed to prevent or minimize the consequences of catastrophic releases of toxic, reactive, flammable or explosive chemicals.
See Risk Factor, “Federal and state legislative and regulatory initiatives relating to pipeline safety that require the use of new or more stringent safety controls or result in more stringent enforcement of applicable legal requirements could subject WES to increased capital costs, operational delays and costs of operation” under Part I, Item 1A of this Form 10-K for further discussion on pipeline safety standards.

Interstate Natural Gas Pipeline Regulation

Regulation of pipeline transportation services may affect certain aspects of WES’s business and the market for its products and services. The operations of WES’s MIGC pipeline and the Ramsey Residue Lines are subject to regulation by FERC under the Natural Gas Act of 1938 (the “NGA”). Under the NGA, FERC has authority to regulate natural gas companies that provide natural gas pipeline transportation services in interstate commerce. Federal regulation extends to such matters as the following:

rates, services, and terms and conditions of service;

types of services that may be offered to customers;

certification and construction of new facilities;

acquisition, extension, disposition or abandonment of facilities;

maintenance of accounts and records;

internet posting requirements for available capacity, discounts and other matters;

pipeline segmentation to allow multiple simultaneous shipments under the same contract;

capacity release to create a secondary market for transportation services;

relationships between affiliated companies involved in certain aspects of the natural gas business;

initiation and discontinuation of services;

market manipulation in connection with interstate sales, purchases or transportation of natural gas and NGLs; and

participation by interstate pipelines in cash management arrangements.


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Natural gas companies are prohibited from charging rates that have been determined not to be just and reasonable by FERC. In addition, FERC prohibits natural gas companies from unduly preferring or unreasonably discriminating against any person with respect to pipeline rates or terms and conditions of service.
The rates and terms and conditions for WES’s interstate pipeline services are set forth in FERC-approved tariffs. Pursuant to FERC’s jurisdiction over rates, existing rates may be challenged by complaint or by action of FERC under Section 5 of the NGA, and proposed rate increases may be challenged by protest. The outcome of any successful complaint or protest against WES’s rates could have an adverse impact on revenues associated with providing transportation service.
For example, one such matter relates to FERC’s policy regarding allowances for income taxes in determining a regulated entity’s cost of service. In July 2016, the United States Court of Appeals for the District of Columbia Circuit issued its opinion in United Airlines, Inc., et al. v. FERC, finding that FERC had acted arbitrarily and capriciously when it failed to demonstrate that permitting an interstate petroleum products pipeline organized as a limited partnership to include an income tax allowance in the cost of service underlying its rates in addition to the discounted cash flow return on equity would not result in the pipeline partnership owners double-recovering their income taxes. The court vacated FERC’s order and remanded to FERC to consider mechanisms for demonstrating that there is no double recovery as a result of the income tax allowance. On March 15, 2018, as clarified on July 18, 2018, in a set of related issuances, FERC addressed treatment of federal income tax allowances in regulated entity rates. To the extent a regulated entity is permitted to include an income tax allowance in its cost of service, FERC directed entities to calculate the income tax allowance at the reduced 21% maximum corporate tax rate established by the Tax Cuts and Jobs Act of 2017. FERC also issued the Revised Policy on Treatment of Income Taxes (“Revised Policy Statement”) stating that it will no longer permit MLPs to recover an income tax allowance in their cost of service rates. FERC has noted that to the extent an entity does not include an income tax allowance in their cost of service rates, such entity may elect to also exclude the accumulated deferred income tax balance from the rate calculation. FERC's Revised Policy Statement may result in an adverse impact on revenues associated with the cost of service rates of WES’s FERC-regulated interstate pipelines.
Interstate natural gas pipelines regulated by FERC are also required to comply with numerous regulations related to standards of conduct, market transparency, and market manipulation. FERC’s standards of conduct regulate the manner in which interstate natural gas pipelines may interact with their marketing affiliates (unless FERC has granted a waiver of such standards). FERC’s market oversight and transparency regulations require annual reports of purchases or sales of natural gas meeting certain thresholds and criteria and certain public postings of information on scheduled volumes. FERC’s market manipulation regulations make it unlawful for any entity, directly or indirectly in connection with the purchase or sale of natural gas subject to the jurisdiction of FERC, or the purchase or sale of transportation services subject to the jurisdiction of FERC, to engage in fraudulent conduct. The Commodity Futures Trading Commission (the “CFTC”) also holds authority to monitor certain segments of the physical and futures energy commodities market pursuant to the Commodity Exchange Act. FERC and CFTC have authority to impose civil penalties for violations of these statutes and regulations potentially in excess of $1.0 million per day per violation. Should we fail to comply with all applicable statutes, rules, regulations and orders administered by FERC and CFTC, we could be subject to substantial penalties and fines.

Interstate Liquids Pipeline Regulation

Regulation of interstate liquids pipeline services may affect certain aspects of WES’s business and the market for its products and services. WES’s GNB NGL pipeline provides interstate service as a FERC-regulated common carrier under the Interstate Commerce Act, the Energy Policy Act of 1992, and related rules and orders. WES also owns interests in FRP, TEP, and White Cliffs, each of which provides interstate services as a FERC-regulated common carrier. FERC regulation requires that interstate liquid pipeline rates, including rates for transportation of NGLs, be filed with FERC and that these rates be “just and reasonable” and not unduly discriminatory. Rates of interstate NGLs pipelines are currently regulated by FERC primarily through an annual indexing methodology, under which pipelines increase or decrease their rates in accordance with an index adjustment specified by FERC. For the five-year period beginning July 2, 2016, FERC established an annual index adjustment equal to the change in the producer price index for finished goods plus 1.23%. This adjustment is subject to review every five years. Under FERC’s regulations, an NGLs pipeline can request a rate increase that exceeds the rate obtained through application of the indexing methodology by using a cost-of-service approach, but only after the pipeline establishes that a substantial divergence exists between the actual costs experienced by the pipeline and the rates resulting from application of the indexing methodology. White Cliffs has a pending request before FERC for authorization to charge market-based rates. WES cannot predict the outcome of this matter or its potential effect on revenues.

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The Interstate Commerce Act permits interested persons to challenge proposed new or changed rates and authorizes FERC to suspend the effectiveness of such rates for up to seven months pending an investigation. If, upon completion of an investigation, FERC finds that the new or changed rate is unlawful, it is authorized to require the pipeline to refund revenues collected in excess of the just and reasonable rate during the term of the investigation. The just and reasonable rate used to calculate refunds cannot be lower than the last tariff rate approved as just and reasonable. FERC may also investigate, upon complaint or on its own motion, rates that are already in effect and may order a carrier to change its rates prospectively. Upon an appropriate showing, a shipper may obtain reparations for charges in excess of a just and reasonable rate for a period of up to two years prior to the filing of a complaint. FERC’s Revised Policy Statement, discussed above, that no longer permits MLPs to recover an income tax allowance in their cost of service rates, also applies to WES’s pipelines regulated under the Interstate Commerce Act. The Revised Policy Statement may result in an adverse impact on revenues associated with the cost of service rates of WES’s FERC-regulated interstate pipelines.
As discussed above, the CFTC holds authority to monitor certain segments of the physical and futures energy commodities market. The Federal Trade Commission (the “FTC”) has authority to monitor petroleum markets in order to prevent market manipulation. The CFTC and FTC have authority to impose civil penalties for violations of these statutes and regulations potentially in excess of $1.0 million per day per violation. Should WES fail to comply with all applicable statutes, rules, regulations and orders administered by the CFTC and FTC, WES could be subject to substantial penalties and fines.

Natural Gas Gathering Pipeline Regulation

Regulation of gas gathering pipeline services may affect certain aspects of WES’s business and the market for its products and services. Natural gas gathering facilities are exempt from the jurisdiction of FERC. We believe that WES’s gas gathering pipelines meet the traditional tests that FERC has used to determine that a pipeline is not subject to FERC jurisdiction, although FERC has not made any determinations with respect to the jurisdictional status of any of WES’s gas pipelines other than MIGC and the Ramsey Residue Lines. The distinction between FERC-regulated gas transmission services and federally unregulated gathering services, however, has been the subject of substantial litigation, so the classification and regulation of WES’s gathering facilities are subject to change based on future determinations by FERC, the courts or Congress. State regulation of gathering facilities generally includes various safety, environmental and, in some circumstances, nondiscriminatory take requirements and complaint-based rate regulation. FERC makes jurisdictional determinations on a case-by-case basis. WES’s natural gas gathering operations could be adversely affected should they be subject to more stringent application of state or federal regulation of rates and services. WES’s natural gas gathering operations also may be or become subject to additional safety and operational regulations relating to the design, installation, testing, construction, operation, replacement and management of gathering facilities. Additional rules and legislation pertaining to these matters are considered or adopted from time to time. We cannot predict what effect, if any, such changes might have on WES’s operations, but the industry could be required to incur additional capital expenditures and increased costs depending on future legislative and regulatory changes.
WES’s natural gas gathering operations are subject to ratable take and common purchaser statutes in most of the states in which it operates. These statutes generally require WES’s gathering pipelines to take natural gas without undue discrimination as to source of supply or producer. These statutes are designed to prohibit discrimination in favor of one producer over another producer or one source of supply over another source of supply. The regulations under these statutes can have the effect of imposing some restrictions on WES’s ability as an owner of gathering facilities to decide with whom it contracts to gather natural gas. The states in which WES operates have adopted a complaint-based regulation of natural gas gathering activities, which allows natural gas producers and shippers to file complaints with state regulators in an effort to resolve grievances relating to gathering access and rate discrimination. We cannot predict whether such a complaint will be filed against WES in the future. Failure to comply with state regulations can result in the imposition of administrative, civil and criminal remedies. To date, there has been no adverse effect to WES’s systems due to these regulations.

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FERC’s anti-manipulation rules apply to non-jurisdictional entities to the extent the activities are conducted “in connection with” gas sales, purchases or transportation subject to FERC jurisdiction. The anti-manipulation rules do not apply to activities that relate only to intrastate or other non-jurisdictional sales or gathering, but only to the extent such transactions do not have a “nexus” to jurisdictional transactions. In addition, FERC’s market oversight and transparency regulations may also apply to otherwise non-jurisdictional entities to the extent annual purchases and sales of natural gas reach a certain threshold. FERC’s civil penalty authority, described above, would apply to violations of these rules.

Intrastate Pipeline Regulation

Regulation of intrastate pipeline services may affect certain aspects of WES’s business and the market for its products and services. Intrastate natural gas and liquids transportation is subject to regulation by state regulatory agencies. The basis for intrastate regulation of natural gas transportation and the degree of regulatory oversight and scrutiny given to intrastate pipeline rates and services varies from state to state. Insofar as such regulation within a particular state will generally affect all intrastate pipeline operators within the state on a comparable basis, WES believes that the regulation of intrastate transportation in any states in which it operates will not disproportionately affect its operations.
In the event any of WES’s intrastate pipelines offer natural gas transportation services under Section 311 of the Natural Gas Policy Act of 1978, such pipelines will be required to meet certain quarterly reporting requirements providing detailed transaction information which could be made public. Such pipelines will also be subject to periodic rate review by FERC. In addition, FERC’s anti-manipulation, market oversight, and market transparency regulations may extend to intrastate natural gas pipelines although they may otherwise be non-jurisdictional, and FERC’s civil penalty authority, described above, would apply to violations of these rules.

Financial Reform Legislation

For a description of financial reform legislation that may affect WES’s business, financial condition and results of operations, read Risk Factors under Part I, Item 1A of this Form 10-K for more information.

ENVIRONMENTAL MATTERS AND OCCUPATIONAL HEALTH AND SAFETY REGULATIONS

WES’s business operations are subject to numerous federal, regional, state, tribal, and local environmental and occupational health and safety laws and regulations. The more significant of these existing environmental laws and regulations include the following legal standards that currently exist in the United States, as amended from time to time:

the Clean Air Act, which restricts the emission of air pollutants from many sources and imposes various pre-construction, operational, monitoring, and reporting requirements, and that the U.S. Environmental Protection Agency (the “EPA”) has relied upon as authority for adopting climate change regulatory initiatives relating to greenhouse gas (“GHG”) emissions;

the Federal Water Pollution Control Act, also known as the Clean Water Act, which regulates discharges of pollutants from facilities to state and federal waters and establishes the extent to which waterways are subject to federal jurisdiction and rulemaking as protected waters of the United States;

the Oil Pollution Act of 1990, which subjects, among others, owners and operators of onshore facilities and pipelines to liability for removal costs and damages arising from an oil spill in waters of the United States;

regulations imposed by the Bureau of Land Management (the “BLM”) and the Bureau of Indian Affairs, agencies under the authority of the U.S. Department of the Interior, which govern and restrict aspects of oil and natural gas operations on federal and Native American lands, including the imposition of liabilities for pollution damages and pollution clean-up costs resulting from such operations;

the Comprehensive Environmental Response, Compensation and Liability Act of 1980, which imposes liability on generators, transporters, and arrangers of hazardous substances at sites where hazardous substance releases have occurred or are threatening to occur;


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the Resource Conservation and Recovery Act, which governs the generation, treatment, storage, transport, and disposal of solid wastes, including hazardous wastes;

the Safe Drinking Water Act, which regulates the quality of the nation’s public drinking water through adoption of drinking water standards and control over the injection of waste fluids into non-producing geologic formations that may adversely affect drinking water sources;

the Emergency Planning and Community Right-to-Know Act, which requires facilities to implement a safety hazard communication program and disseminate information to employees, local emergency planning committees, and response departments on toxic chemical uses and inventories;

OSHA, which establishes workplace standards for the protection of the health and safety of employees, including the implementation of hazard communications programs designed to inform employees about hazardous substances in the workplace, potential harmful effects of these substances, and appropriate control measures;

the Endangered Species Act, which restricts activities that may affect federally identified endangered and threatened species or their habitats through the implementation of operating restrictions or a temporary, seasonal, or permanent ban in affected areas;

the National Environmental Policy Act, which requires federal agencies to evaluate major agency actions having the potential to impact the environment and that may require the preparation of environmental assessments and more detailed environmental impact statements that may be made available for public review and comment; and

U.S. Department of Transportation regulations, which relate to advancing the safe transportation of energy and hazardous materials and emergency response preparedness.

Additionally, there exist regional, state, tribal and local jurisdictions in the United States where WES operates that also have, or are developing or considering developing, similar environmental laws and regulations governing many of these same types of activities. While the legal requirements imposed under state law may be similar in form to federal laws and regulations, in some cases the actual implementation of these requirements may impose additional, or more stringent, conditions or controls that can significantly alter or delay the permitting, development or expansion of a project or substantially increase the cost of doing business. These federal and state environmental laws and regulations, including new or amended legal requirements that may arise in the future to address potential environmental concerns such as air and water impacts and oil and natural gas development in close proximity to specific occupied structures and/or certain environmentally-sensitive or recreational areas, are expected to continue to have a considerable impact on WES’s operations.
In connection with WES’s operations, WES has acquired certain properties supportive of oil and natural gas activities from third parties whose actions with respect to the management and disposal or release of hydrocarbons, hazardous substances or wastes were not under its control. Under environmental laws and regulations, WES could incur strict joint and several liability for remediating hydrocarbons, hazardous substances or wastes disposed of or released by prior owners or operators. WES also could incur costs related to the clean-up of third-party sites to which WES sent regulated substances for disposal or recycling, and for damages to natural resources or other claims related to releases of regulated substances at or from such third-party sites.


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These federal and state laws and their implementing regulations generally restrict the level of pollutants emitted to ambient air, discharges to surface water, and disposals or other releases to surface and below-ground soils and ground water. Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil, and criminal penalties; the imposition of investigatory, remedial, and corrective action obligations or the incurrence of capital expenditures; the occurrence of delays or cancellations in the permitting, development or expansion of projects; and the issuance of injunctions restricting or prohibiting some or all of WES’s activities in a particular area. Moreover, there exist environmental laws that provide for citizen suits, which allow environmental organizations to act in the place of the government and sue operators for alleged violations of environmental law. See the following risk factors under Part I, Item 1A of this Form 10-K for further discussion on environmental matters such as ozone standards, climate change, including methane or other GHG emissions, hydraulic fracturing and other regulatory initiatives related to environmental protection: “WES is subject to stringent and comprehensive environmental laws and regulations that may expose WES to significant costs and liabilities,” “Adoption of new or more stringent climate change or other air emissions legislation or regulations restricting emissions of GHGs or other air pollutants could result in increased operating costs and reduced demand for the gathering, processing, compressing, treating and transporting services WES provides,” “Changes in laws or regulations regarding hydraulic fracturing could result in increased costs, operating restrictions or delays in the completion of oil and natural gas wells, which could decrease the need for WES’s gathering and processing services” and “Adoption of new or more stringent legal standards relating to induced seismic activity associated with produced water disposal could affect our operations.” The ultimate financial impact arising from environmental laws and regulations is neither clearly known nor determinable as existing standards are subject to change and new standards continue to evolve.
WES has incurred and will continue to incur operating and capital expenditures, some of which may be material, to comply with environmental and occupational health and safety laws and regulations. Historically, WES’s environmental compliance costs have not had a material adverse effect on its results of operations; however, there can be no assurance that such costs will not have a material adverse effect on its business, financial condition, results of operations, or cash flows in the future, or that new or more stringently applied existing laws and regulations will not materially increase the cost of doing business. Although WES is not fully insured against all environmental risks, and WES’s insurance does not cover any penalties or fines that may be issued by a governmental authority, WES maintains insurance coverage that it believes is sufficient based on its assessment of insurable risks and consistent with insurance coverage held by other similarly situated industry participants. Nevertheless, it is possible that other developments, such as stricter and more comprehensive environmental laws and regulations, as well as claims for damages to property or persons or imposition of penalties resulting from WES’s operations, could have a material adverse effect on WES and WES’s results of operations.
In addition, WES disposes of produced water generated from oil and natural gas production operations. The legal standards related to the disposal of produced water into non-producing geologic formations by means of underground injection wells are subject to change based on concerns of the public or governmental authorities, including concerns relating to seismic events near injection wells used for the disposal of produced water. In response to such concerns, regulators in some states have imposed, or are considering imposing, additional requirements in the permitting of produced water disposal wells or are otherwise investigating the existence of a relationship between seismicity and the use of such wells. Another consequence of seismic events near produced water disposal wells is the introduction of class action lawsuits, which allege that disposal well operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal. One or more of these developments could result in additional regulation and restrictions on WES’s use of injection wells to dispose of produced water, which could have a material adverse effect on WES’s results of operations, capital expenditures and operating costs, and financial condition.


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TITLE TO PROPERTIES AND RIGHTS-OF-WAY

WES’s real property is classified into two categories: (1) parcels that it owns in fee title and (2) parcels in which its interest derives from leases, easements, rights-of-way, permits or licenses from landowners or governmental authorities, permitting the use of such land for WES’s operations. Portions of the land on which WES’s plants and other major facilities are located are owned by it in fee title, and WES believes that it has satisfactory title to these lands. The remainder of the land on which WES’s plant sites and major facilities are located is held by it pursuant to surface leases between WES, as lessee, and the fee owner of the lands, as lessor. WES or its affiliates have leased or owned these lands for many years without any material challenge known to it relating to the title to the land upon which the assets are located, and WES believes that it has satisfactory leasehold estates or fee ownership of such lands. WES has no knowledge of any challenge to the underlying fee title of any material lease, easement, right-of-way, permit or license held by WES or to its title to any material lease, easement, right-of-way, permit or lease, and WES believes that it has satisfactory title to all of its material leases, easements, rights-of-way, permits and licenses.
Some of the leases, easements, rights-of-way, permits and licenses transferred to WES by Anadarko required the consent of the grantor of such rights, which in certain instances was a governmental entity. WES believes it has obtained sufficient third-party consents, permits and authorizations for the transfer of the assets necessary to enable WES to operate its business in all material respects. With respect to any remaining consents, permits or authorizations that have not been obtained, WES has determined these will not have a material adverse effect on the operation of its business should WES fail to obtain such consents, permits or authorization in a reasonable time frame.
Anadarko may hold record title to portions of certain assets as WES makes the appropriate filings in the jurisdictions in which such assets are located and obtain any consents and approvals as needed. Such consents and approvals would include those required by federal and state agencies or other political subdivisions. In some cases, Anadarko temporarily holds record title to property as nominee for WES’s benefit and in other cases may, on the basis of the expense and difficulty associated with the conveyance of title, cause its affiliates to retain title, as nominee for WES’s benefit, until a future date. WES anticipates that there will be no material change in the tax treatment of its common units resulting from Anadarko holding the title to any part of such assets subject to future conveyance or as WES’s nominee.

EMPLOYEES

We and our general partner have no employees. The officers of our general partner manage our operations and activities under the direction and supervision of our general partner’s Board of Directors, and the officers of WES GP manage WES’s operations and activities under the direction and supervision of WES GP’s Board of Directors. As of December 31, 2018, Anadarko employed 602 people who provided direct support to WES’s field operations. All of these employees are deemed jointly employed by Anadarko and WES GP under the services and secondment agreement between WES GP and Anadarko. None of these employees are covered by collective bargaining agreements, and Anadarko considers its employee relations to be good. We and WES have separately contracted with Anadarko under omnibus agreements for general and administrative support.


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Item 1A.  Risk Factors

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made in this Form 10-K, and may from time to time make in other public filings, press releases and statements by management, forward-looking statements concerning WES’s 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 WGP GP believe that the expectations reflected in such forward-looking statements are reasonable, neither we nor WGP GP can give any assurance that such expectations will prove to have been 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 ability to consummate the Merger on the terms currently contemplated or at all;

our expected receipt of, and the amounts of, distributions from WES;

WES’s and Anadarko’s assumptions about the energy market;

WES’s future throughput (including Anadarko production) that is gathered or processed by or transported through WES’s assets;

operating results of WES;

competitive conditions;

technology;

the availability of capital resources to fund acquisitions, capital expenditures and other contractual obligations of WES, and WES’s ability to access those resources from Anadarko or 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 WES’s 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 WES is doing business;

federal, state and local laws, as well as state-approved voter ballot initiatives, including those laws or ballot initiatives that limit Anadarko’s and other producers’ hydraulic fracturing or other oil and natural gas development or operations;

environmental liabilities;


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

changes in the financial or operational condition of WES or Anadarko;

the creditworthiness of Anadarko or WES’s other counterparties, including financial institutions, operating partners, and other parties;

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

WES’s commitments to capital projects;

WES’s ability to use the WES RCF;

our and WES’s ability to repay debt;

conflicts of interest among WES, WES GP, WGP and WGP GP, and affiliates, including Anadarko;

WES’s ability to maintain and/or obtain rights to operate its assets on land owned by third parties;

our or WES’s ability to acquire assets on acceptable terms from Anadarko or third parties, and Anadarko’s ability to generate an inventory of assets suitable for acquisition;

non-payment or non-performance of Anadarko or WES’s other significant customers, including under WES’s gathering, processing, transportation and disposal agreements and its $260.0 million note receivable from Anadarko;

the timing, amount and terms of our or WES’s 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 Anadarko and WES comply with any regulatory orders or other state or local changes in laws or regulations; and

other factors discussed below and elsewhere in this Item 1A, under the caption Critical Accounting Estimates included under Part II, Item 7 of this Form 10-K, and in our other public filings and press releases.

The risk factors and other factors noted throughout this Form 10-K 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.
Common units are inherently different from capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in similar businesses. We urge you to carefully consider the following risk factors together with all of the other information included in this Form 10-K in evaluating an investment in the common units of WES or WGP.
If any of the following risks were to occur, the business, financial condition or results of operations of WES and/or WGP could be materially and adversely affected. In such case, the trading price of the common units could decline and you could lose all or part of your investment.


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RISKS INHERENT IN OUR BUSINESS

Our only cash-generating assets are our ownership interests in WES, and our cash flow is therefore completely dependent upon the ability of WES to make cash distributions to its partners.

The amount of cash that WES can distribute each quarter to its partners, including us, principally depends upon the amount of cash it generates from its operations, which will fluctuate from quarter to quarter based on, among other things:

the prices of, level of production of, and demand for oil and natural gas;

the volume of oil and natural gas that WES gathers, compresses, processes, treats and/or transports;

the volumes and prices of NGLs and condensate that WES retains and sells;

demand charges and volumetric fees associated with WES’s transportation services;

the level of competition from other midstream companies;

regulatory action affecting the supply of or demand for oil or natural gas, the rates WES can charge, how it contracts for services, its existing contracts, its operating costs or its operating flexibility;

prevailing economic conditions; and

our continued success in the guidance, supervision and support of the execution of WES’s business strategy.

In addition, the actual amount of cash WES will have available for distribution will depend on other factors, some of which are beyond its control, including:

the level of capital expenditures it makes;

the level of its operating and maintenance and general and administrative costs;

its debt service requirements and other payment obligations;

fluctuations in its working capital needs;

its ability to borrow funds and access capital markets;

its treatment as a flow-through entity for U.S. federal income tax purposes;

restrictions contained in debt agreements to which it is a party; and

the amount of cash reserves established by WES GP.

Because of these factors, WES may not have sufficient available cash each quarter to pay quarterly distributions at its most recently paid amount of $0.980 per unit. The amount of cash that WES has available for distribution depends primarily upon its cash flow, including cash flow from operations and working capital borrowings, and is not solely a function of profitability, which will be affected by non-cash items. As a result, WES may be able to make cash distributions when it records losses for financial accounting purposes and may not be able to make cash distributions during periods when it records net income for financial accounting purposes. Read “—Risks Inherent in WES’s Business” for a discussion of risks affecting WES’s ability to generate cash flow.


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WES GP, with our consent but without the consent of our unitholders, may limit or modify the incentive distributions we are entitled to receive from WES, which may reduce cash distributions to you.

We own WES GP, which owns the IDRs in WES that entitle us to receive increasing percentages, up to a maximum of 48.0%, of any cash distributed by WES as certain target distribution levels in excess of $0.345 per WES unit are reached in any quarter. A growing portion of the cash flow we receive from WES is expected to be provided by these IDRs.
WES, like other publicly traded partnerships, will generally only undertake an acquisition or expansion capital project if, after giving effect to related costs and expenses, the transaction would be expected to be accretive, meaning it would increase cash distributions per unit in future periods. Because WES GP currently participates in the IDRs at all levels, including the highest sharing level of 48.0%, it is more difficult for an acquisition or capital project to show accretion for the common unitholders of WES than if the IDRs received less incremental cash flow. As a result, WES GP may determine, in certain cases, to propose a reduction in the IDRs to facilitate a particular acquisition or expansion capital project. Such a reduction may relate to all of the cash flow on the IDRs or only to the expected cash flow from the transaction and may be either temporary or permanent in nature.
Our partnership agreement authorizes our general partner to approve any waiver, reduction, limitation or modification of or to WES’s IDRs without the consent of our unitholders. In determining whether to approve any such waiver or modification, our general partner’s Board of Directors or its Special Committee may consider whatever information it believes appropriate in making such determination. Our general partner’s Board of Directors or its Special Committee must also believe that any such modification is in the best interest of our partnership. Any determination with respect to such modification could include consideration of one or more financial cases based on a number of business, industry, economic, legal, regulatory and other assumptions applicable to the proposed transaction. Although we expect a reasonable basis will exist for those assumptions, the assumptions will generally involve current estimates of future conditions, which are difficult to predict. Realization of many of the assumptions will be beyond our general partner’s control. Moreover, the uncertainty and risk of inaccuracy associated with any financial projection will increase with the length of the forecasted period.
If distributions on the IDRs were reduced for the benefit of the WES common units, the total amount of cash distributions we would receive from WES, and therefore the amount of cash distributions we could pay to our unitholders, would be reduced.

The future growth of our limited partner distributions is primarily driven by our ownership of WES’s IDRs. Any change to the structure or timing of IDR payments would therefore affect our limited partner distribution growth rate.

In the fourth quarter of 2018, 34.4% of WES’s total distributions (excluding distributions on Class C units) were paid to us as a result of our ownership of WES’s IDRs. As this percentage grows over time, WES’s cost of equity capital will increase. WES therefore may be unable in the future to acquire or construct assets on an accretive basis and further grow its distributions. Any reduction in the rate of growth in WES distributions will disproportionately impact our ability to maintain or grow distributions to our limited partners.
If the Merger Agreement and the transactions contemplated thereby are not approved by WES’s unitholders, or such transactions are not otherwise consummated, WES may need to evaluate alternative transactions that would result in a simplification of our and WES’s capital structure, including the potential modification or elimination of WES’s IDRs. Future evaluation of any such alternative transaction will be based on a variety of factors, including general industry and market conditions. As a result, we can provide no assurance regarding the likelihood, timing or structure of any such alternative transaction. If consummated, an alternative simplification transaction could be dilutive to the holders of our common units and reduce the rate of our future distribution growth.


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In the future, we may not have sufficient cash to pay distributions at our current rate or to increase distributions.

Because our only source of operating cash flow consists of cash distributions from WES, the amount of distributions we are able to make to our unitholders may fluctuate based on the level of distributions WES makes to its partners, including us. We cannot assure you that WES will continue to make quarterly distributions at its most recently paid level of $0.980 per unit or any other level, or increase its quarterly distributions in the future. In addition, while we would expect to increase or decrease distributions to our unitholders if WES were to increase or decrease distributions to us, the timing and amount of such changes in distributions, if any, would not necessarily be comparable to the timing and amount of any changes in distributions made by WES to us. Various factors such as reserves established by the Board of Directors may affect the distributions we make to our unitholders. In addition, prior to making any distributions to our unitholders, we will reimburse our general partner and its affiliates for all direct and indirect expenses incurred by them on our behalf. Our general partner will determine the amount of these reimbursed expenses. The reimbursement of these expenses could adversely affect the amount of distributions we make to our unitholders. We cannot guarantee that in the future we will be able to pay distributions at the current rate or that any distributions WES does pay to us will allow us to pay distributions at or above the current rate. The actual amount of cash that is available for distribution to our unitholders will depend on numerous factors, many of which are beyond our control or the control of our general partner.

Our rate of growth may be reduced to the extent we purchase additional WES common units, which will reduce the percentage of our cash flow that we receive from the IDRs.

Our business strategy includes supporting the growth of WES through the use of our capital resources, including by purchasing WES common units or lending funds to WES to finance acquisitions or internal growth projects. To the extent we purchase common units, or securities not entitled to a current distribution from WES, the rate of our distribution growth may be reduced, at least in the short term, because a smaller percentage of our cash distributions will come from our ownership of the WES IDRs, the distributions on which increase at a faster rate than those of the other securities we hold.

Our ability to meet our financial needs may be adversely affected by our cash distribution policy and our lack of operational assets.

Our cash distribution policy, which is consistent with our partnership agreement, requires us to distribute all of our available cash quarterly. Our only cash-generating assets are partnership interests in WES, and we currently have no independent operations separate from those of WES. Moreover, as discussed below, a reduction in WES’s distributions will disproportionately affect the amount of cash distributions we receive. Given that our cash distribution policy is to distribute available cash and not retain it and that our only cash-generating assets are partnership interests in WES, we may not have enough cash to meet our needs if any of the following events occur:

an increase in our operating expenses;

an increase in our general and administrative expenses;

an increase in our working capital requirements; or

an increase in the cash needs of WES or its subsidiaries that reduces WES’s distributions.


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A reduction in WES’s distributions will disproportionately affect the amount of cash distributions to which we are currently entitled.

Our indirect ownership of all the IDRs in WES entitles us to receive specified percentages of total cash distributions made by WES with respect to any particular quarter only in the event that WES distributes more than $0.345 per unit for such quarter. As a result, the holders of WES’s common units have a priority over us to cash distributions by WES up to and including $0.345 per unit for any quarter.
Because we are currently participating at the 48.0% level on the IDRs, future growth in distributions paid by WES will not result in an increase in our share of incremental cash distributed by WES. Furthermore, a decrease in the amount of distributions by WES to less than $0.450 per unit per quarter would reduce our percentage of the incremental cash distributions above $0.375 per common unit per quarter from 48.0% to 23.0%, and a decrease in the amount of distributions by WES to levels below the other established target distribution levels would similarly reduce our percentage of the incremental cash distributions from WES. As a result, any reduction in quarterly cash distributions from WES would have the effect of disproportionately reducing the amount of all distributions that we receive from WES based on our indirect ownership of the IDRs in WES as compared to cash distributions we receive from WES with respect to our indirect general partner interest in WES and our WES common units.

If distributions on our common units are not paid with respect to any fiscal quarter, our unitholders will generally not be entitled to receive such payments in the future.

Our distributions to our unitholders will generally not be cumulative. Consequently, if distributions on our common units are not paid with respect to any fiscal quarter, our unitholders will generally not be entitled to receive such payments in the future.

Our and WES’s cash distribution policies limit our respective abilities to grow.

Because we distribute all of our available cash, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations. In fact, our growth will initially be completely dependent upon WES’s ability to increase its quarterly distribution per unit because currently our only cash-generating assets are partnership interests in WES. If we issue additional units or incur debt, including under our working capital facility, the payment of distributions on those additional units or interest on that debt could increase the risk that we will be unable to maintain or increase our per unit distribution level.
In addition, consistent with the terms of its partnership agreement, WES distributes to its partners all of its available cash each quarter. To the extent WES does not have sufficient cash reserves or is unable to finance growth externally, its cash distribution policy will significantly impair its ability to grow. Further, to the extent WES issues additional units in connection with any acquisitions or expansion capital projects, the payment of distributions on those additional units may increase the risk that WES will be unable to maintain or increase its per unit distribution level, which in turn may impact the available cash that we have to distribute to our unitholders. The incurrence of additional debt to finance its growth strategy would result in increased interest expense to WES, which in turn may reduce the available cash that we have to distribute to our unitholders.

The debt that we incur may limit the distributions that we can pay to our unitholders.

Our payment of principal and interest on any future indebtedness, including under our working capital facility, will reduce our cash available for distribution to our unitholders. We anticipate that any additional credit facility we enter into in the future would limit our ability to pay distributions to our unitholders during an event of default or if an event of default would result from the distributions.
In addition, any future indebtedness may adversely affect our ability to obtain additional financing for future operations or capital needs, limit our ability to pursue other business opportunities, or make our results of operations more susceptible to adverse economic or operating conditions.


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Our failure to maintain an adequate system of internal control over financial reporting could adversely affect our ability to accurately report our results.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide a reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. A material weakness is a deficiency, or a combination of deficiencies, in our internal control that results in a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Effective internal control is necessary for us to provide reliable financial reports and deter and detect any material fraud. If we cannot provide reliable financial reports or prevent material fraud, our reputation and operating results will be harmed. Our efforts to develop and maintain our internal control and to remediate material weaknesses in our control may not be successful, and we may be unable to maintain adequate control over our financial processes and reporting in the future, including future compliance with the obligations under Section 404 of the Sarbanes-Oxley Act of 2002. Any failure to develop or maintain effective control, or difficulties encountered in their implementation or other effective improvement of our internal control, could harm our operating results. Ineffective internal control could also cause investors to lose confidence in our reported financial information.

Our unitholders do not elect our general partner or vote on our general partner’s directors. In addition, Anadarko owns a sufficient number of our common units to allow it to prevent the removal of our general partner.

Unlike the holders of common stock in a corporation, our unitholders have only limited voting rights and, therefore, limited ability to influence management’s decisions regarding our business. Our unitholders do not have the ability to elect our general partner or the members of our general partner’s Board of Directors. The members of our general partner’s Board of Directors, including the independent directors, are chosen by Anadarko, the sole member of our general partner. Furthermore, if our public unitholders are dissatisfied with the performance of our general partner, they have little ability to remove our general partner. Our general partner may not be removed except upon the vote of the holders of at least 80% of the outstanding common units. Because Anadarko owns more than 20% of our outstanding common units, our public unitholders are unable to remove our general partner without Anadarko’s consent.
As a result of these provisions, the price at which our common units trade may be lower because of the absence or reduction of a takeover premium in the trading price.

Our general partner may cause us to issue additional common units or other equity securities without your approval, which would dilute your ownership interests.

Our general partner may cause us to issue an unlimited number of additional common units or other equity securities, including securities that rank senior to the common units, without unitholder approval. The issuance of additional common units or other equity securities will have the following effects:

your proportionate ownership interest in us will decrease;

the amount of cash available for distribution on each common unit may decrease;

the relative voting strength of each previously outstanding common unit may be diminished;

the ratio of taxable income to distributions may increase; and

the market price of the common units may decline.


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The general partner interest in us or the control of our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of our unitholders. Furthermore, Anadarko, the owner of our general partner, may transfer its ownership interest in our general partner to a third party, also without unitholder consent. Our new general partner or the new owner of our general partner would then be in a position to replace the Board of Directors and officers of our general partner and to control the decisions taken by the Board of Directors and officers.

If WES’s unitholders remove WES GP, we would lose our general partner interest and IDRS in WES and the ability to manage WES.

We currently manage WES through WES GP, our wholly owned subsidiary. WES’s partnership agreement, however, gives unitholders of WES the right to remove the general partner of WES upon the affirmative vote of holders of 66 2/3% of WES’s outstanding units. If WES GP were to be removed as general partner of WES, it would receive cash or WES common units in exchange for its 1.5% general partner interest and the IDRs and would lose its ability to manage WES. While the WES common units or cash WES GP would receive are intended under the terms of WES’s partnership agreement to fully compensate it in the event such an exchange is required, the value of these WES common units or of the investments WES GP makes with the cash over time may not be equivalent to the value of the general partner interest and the IDRs had it retained them. Furthermore, the conversion of the IDRs into WES common units would disproportionately impact the amount of cash distributions to which we are entitled with respect to increases in WES distributions.
In addition, if WES GP is removed as general partner of WES, we would face an increased risk of being deemed an investment company under the Investment Company Act of 1940 (the “Investment Company Act”).

Our ability to sell our partnership interests in WES may be limited by securities law restrictions and liquidity constraints.

WGP owns 50,132,046 WES common units, all of which are unregistered and restricted securities, within the meaning of Rule 144 under the Securities Act of 1933, as amended. Unless we exercise our registration rights with respect to these common units, we will be limited to selling into the market in any three-month period an amount of WES common units that does not exceed the greater of 1.0% of the total number of WES common units outstanding or the average weekly reported trading volume of the WES common units for the four calendar weeks prior to the sale. In addition, we face contractual limitations under WES’s partnership agreement on our ability to sell WES general partner units and the IDRs and the market for such interests is illiquid.

You may not have limited liability if a court finds that unitholder action constitutes control of our business.

Under Delaware law, you could be held liable for our obligations to the same extent as a general partner if a court were to determine that the right or the exercise of the right by our unitholders as a group to remove or replace our general partner, to approve some amendments to our partnership agreement or to take other action under our partnership agreement constituted participation in the “control” of our business. Additionally, the limitations on the liability of holders of limited partner interests for the liabilities of a limited partnership have not been clearly established in many jurisdictions.
Furthermore, Section 17-607 of the Delaware Revised Uniform Limited Partnership Act (the “Delaware Act”) provides that, under some circumstances, a unitholder may be liable to us for the amount of a distribution for a period of three years from the date of the distribution.


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If in the future we cease to manage and control WES, we may be deemed to be an investment company under the Investment Company Act.

If we cease to manage and control WES and are deemed to be an investment company under the Investment Company Act, we will either have to register as an investment company under the Investment Company Act, obtain exemptive relief from the SEC or modify our organizational structure or our contractual rights to fall outside the definition of an investment company. Registering as an investment company could, among other things, materially limit our ability to engage in transactions with affiliates, including the purchase and sale of certain securities or other property to or from our affiliates, restrict our ability to borrow funds or engage in other transactions involving leverage, require us to add additional directors who are independent of us and our affiliates, and adversely affect the price of our common units. In addition, if we were required to register under the Investment Company Act, we would be taxed as a corporation for U.S. federal income tax purposes.

Our partnership agreement restricts the rights of unitholders owning 20% or more of our units.

Our unitholders’ voting rights are restricted by a provision in our partnership agreement which provides that any units held by a person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the Board of Directors, cannot be voted on any matter. In addition, our partnership agreement contains provisions limiting the ability of our unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting our unitholders’ ability to influence the manner or direction of our management. As a result, the price at which our common units trade may be lower because of the absence or reduction of a takeover premium in the trading price.

WES may issue additional limited partner interests or other equity securities, which may increase the risk that WES will not have sufficient available cash to maintain or increase its cash distribution level.

WES has wide latitude to issue additional limited partner interests on the terms and conditions established by its general partner. We receive cash distributions from WES on the general partner interests, IDRs and limited partner interests that we hold. Because we expect a growing portion of the cash we receive from WES to be attributable to our ownership of the IDRs, payment of distributions on additional WES limited partner interests may increase the risk that WES will be unable to maintain or increase its quarterly cash distribution per unit, which in turn may reduce the amount of incentive distributions we receive and the available cash that we have to distribute to our unitholders.

If WES GP is not fully reimbursed or indemnified for obligations and liabilities it incurs in managing the business and affairs of WES, its value and, therefore, the value of our common units could decline.

WES GP, as the general partner of WES, may make expenditures on behalf of WES for which it will seek reimbursement from WES. Under Delaware partnership law, WES GP, in its capacity as the general partner of WES, has unlimited liability for the obligations of WES, such as its debts and environmental liabilities, except for those contractual obligations of WES that are expressly made without recourse to the general partner. WES GP has expressly made certain WES indebtedness recourse to it. To the extent WES GP incurs obligations on behalf of WES, it is entitled to be reimbursed or indemnified by WES. If WES is unable or unwilling to reimburse or indemnify WES GP, WES GP may not be able to satisfy those liabilities or obligations, which would reduce its cash flows to us.


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The amount of cash distributions that we are able to distribute to our unitholders is reduced by the incremental costs associated with our being a publicly traded partnership, other general and administrative expenses and any reserves that our general partner believes prudent to maintain for the proper conduct of our business and for future distributions.

Before we can pay distributions to our unitholders, we must first pay our expenses, including the costs of being a publicly traded partnership and other operating expenses, and may establish reserves for debt service requirements, if any, for future distributions during periods of limited cash flows or for other purposes. In addition, we may reserve funds to allow our wholly owned subsidiary, WES GP, to make capital contributions to WES when WES issues additional common units.

The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the public or private markets, including sales by Anadarko or other large holders.

We had 218,937,797 common units outstanding as of December 31, 2018. Anadarko currently holds 170,380,161 common units, representing 77.8% of our outstanding common units. Anadarko’s shelf registration statement allows for the offer and sale of up to 50 million, or 22.8% as of December 31, 2018, of our common units from time to time. Sales by Anadarko or other large holders of a substantial number of our common units in the public markets, or the perception that such sales might occur, could have a material adverse effect on the price of our common units or could impair our ability to obtain capital through an offering of equity securities. In addition, under our partnership agreement, our general partner and its affiliates, including Anadarko, have registration rights relating to the offer and sale of any units that they hold, subject to certain limitations.

Increases in interest rates may cause the market price of our common units, or WES’s common units, to decline.

Interest rates may increase in the future, whether because of inflation, increased yields on U.S. Treasury obligations or otherwise. As is true with other MLPs (the common units of which are often viewed by investors as yield-oriented securities), the price of our and WES’s common units are impacted by our and WES’s levels of cash distributions and implied distribution yields. The distribution yield is often used by investors to compare and rank yield-oriented securities for investment decision-making purposes. Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our common units or WES’s common units, and a rising interest rate environment could have an adverse impact on our unit price, WES’s unit price, and our and WES’s ability to make cash distributions at intended levels.

The NYSE does not require a publicly traded partnership like us to comply with certain of its corporate governance requirements.

Because we are a publicly traded partnership, the NYSE does not require our general partner to have a majority of independent directors on its Board of Directors or to establish a compensation committee or a nominating and corporate governance committee. Accordingly, unitholders do not have the same protections afforded to the stockholders of certain corporations that are subject to all of the NYSE corporate governance requirements.


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RISKS RELATED TO CONFLICTS OF INTEREST

WES GP owes duties to WES’s unitholders that may conflict with our interests, including in connection with the terms of contractual agreements, the determination of cash distributions to be made by WES, and the determination of whether WES should make acquisitions and on what terms.

Conflicts of interest exist and may arise in the future as a result of the relationships between us and our affiliates, including WES GP, on the one hand, and WES and its limited partners, on the other hand. The directors and officers of WES GP have duties to manage WES in a manner beneficial to us, as WES GP’s owner. At the same time, WES GP, as the general partner of WES, has a duty to manage WES in a manner beneficial to WES and its limited partners. The Board of Directors of WES GP or its Special Committee will resolve any such conflict and have broad latitude to consider the interests of all parties to the conflict. The resolution of these conflicts may not always be in our best interest or that of our unitholders.

For example, conflicts of interest may arise in connection with the following:

the terms and conditions of any contractual agreements between us and our affiliates, including Anadarko, on the one hand, and WES, on the other hand;

the determination of the amount of cash to be distributed to WES’s partners, including us, and the amount of cash to be reserved for the future conduct of WES’s business;

the determination of whether WES should make acquisitions and on what terms;

the determination of whether WES should use cash on hand, borrow or issue equity to raise cash to finance acquisitions or expansion capital projects, repay indebtedness, meet working capital needs, pay distributions or otherwise;

any decision we make in the future to engage in business activities independent of WES; and

the allocation of shared overhead expenses to WES and us.

Potential conflicts of interest may arise among our general partner, its affiliates and us. Our general partner has limited its state law fiduciary duties to us and our unitholders, which may permit it to favor its own interests to the detriment of us and our unitholders.

Anadarko, the owner of our general partner, owns a 77.8% limited partner interest in us. Conflicts of interest may arise among our general partner and its affiliates (including Anadarko), on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts, our general partner may favor its own interests and the interests of its affiliates over the interests of our unitholders. These conflicts include, among others, the following situations:

our general partner is allowed to take into account the interests of parties other than us in resolving conflicts of interest, which has the effect of limiting its state law fiduciary duty to our unitholders;

our general partner determines whether or not we incur debt and that decision may affect our or WES’s credit ratings;

our general partner will have limited liability and fiduciary duties under our partnership agreement, which will restrict the remedies available to our unitholders for actions that, without these limitations, might constitute breaches of fiduciary duty. As a result of purchasing common units, our unitholders consent to some actions and conflicts of interest that might otherwise constitute a breach of fiduciary or other duties under applicable state law;

our general partner controls the enforcement of obligations owed to us by it and its affiliates;


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our general partner decides whether to retain separate counsel, accountants or others to perform services for us;

our partnership agreement gives our general partner broad discretion in establishing financial reserves for the proper conduct of our business. These reserves will affect the amount of cash available for distribution to our unitholders;

our general partner determines the amount and timing of capital expenditures, borrowings, issuances of additional partnership securities and reserves, each of which can affect the amount of cash that is available for distribution to our unitholders;

our general partner determines which costs incurred by it and its affiliates are reimbursable by us; and

our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered on terms that are fair and reasonable to us or entering into additional contractual arrangements with any of these entities on our behalf.

Read Our Relationship with WES and WES GP and Conflicts of Interest under Part III, Item 13 of this Form 10-K.

A reduction in Anadarko’s ownership interest in us may reduce its incentive to support WES.

As discussed in WES’s Relationship with Anadarko Petroleum Corporation in Part I, Items 1 and 2 of this Form 10-K, we believe that one of our principal strengths is our and WES’s relationship with Anadarko, and that Anadarko, through its significant indirect economic interest in us and WES, will continue to be motivated to promote and support the successful execution of WES’s business plan and to pursue projects that help to enhance the value of WES’s business. In 2014, Anadarko began monetizing a portion of its investment in us, including the sale of an aggregate of 28.8 million WGP common units. To the extent Anadarko’s net interest in WES continues to decline through the sale of its WGP holdings or otherwise, Anadarko may be less incentivized to grow WES’s business by offering WES assets or commercial arrangements. Accordingly, a decrease in Anadarko’s net holdings in us or WES could have a material adverse effect on WES’s business, results of operations, financial position and ability to grow or make cash distributions to WES’s unitholders.

The duties of our general partner’s officers and directors may conflict with their duties as officers and directors of WES GP.

Our general partner’s officers and directors have duties to manage our business in a manner that is beneficial to us, our unitholders and the owner of our general partner, Anadarko. However, a majority of our general partner’s directors and all of its officers are also officers and/or directors of WES GP, which has duties to manage the business of WES in a manner beneficial to WES and WES’s unitholders. Consequently, these directors and officers may encounter situations in which their obligations to WES on the one hand, and us, on the other hand, are in conflict. The resolution of these conflicts may not always be in our best interest or that of our unitholders.
In addition, our general partner’s officers, who are also the officers of WES GP and certain of whom are officers of Anadarko, will have responsibility for overseeing the allocation of their own time and time spent by administrative personnel on our behalf and on behalf of WES and/or Anadarko. These officers face conflicts regarding these time allocations that may adversely affect our or WES’s results of operations, cash flows, and financial condition.


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Anadarko is not limited in its ability to compete with WES and is not obligated to offer WES the opportunity to acquire additional assets or businesses, which could limit WES’s ability to grow and could adversely affect our cash available for distribution to our unitholders.

Anadarko is not prohibited from owning assets or engaging in businesses that compete directly or indirectly with WES. In addition, in the future, we or Anadarko may acquire, construct or dispose of additional midstream or other assets and may be presented with new business opportunities, without any obligation to offer WES the opportunity to participate in such transactions. Moreover, while Anadarko may offer WES the opportunity to buy additional assets from it, it is under no contractual obligation to do so, and we are unable to predict whether or when such acquisitions might be completed.

Our partnership agreement replaces our general partner’s fiduciary duties to our unitholders.

Our partnership agreement contains provisions that eliminate and replace the fiduciary standards to which our general partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement:

permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. This entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any limited partner. Examples of decisions that our general partner may make in its individual capacity include whether to exercise its limited call right, how to exercise its voting rights with respect to any common units it owns, whether to exercise its registration rights and whether to consent to any merger or consolidation of our partnership or amendment to our partnership agreement;

provides that our general partner will not have any liability to us or our unitholders for decisions made in its capacity as a general partner so long as it acted in good faith, meaning it believed the decisions were in the best interests of our partnership;

generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the Special Committee of the Board of Directors and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be “fair and reasonable” to us and that, in determining whether a transaction or resolution is “fair and reasonable,” our general partner may consider the totality of the relationships among the parties involved, including other transactions that may be particularly advantageous or beneficial to us;

provides that in resolving conflicts of interest, it will be presumed that in making its decision the general partner acted in good faith, and in any proceeding brought by or on behalf of any limited partner or us, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption; and

provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or those other persons acted in bad faith or, in the case of a criminal matter, acted with knowledge that such person’s conduct was criminal.

In order to become a limited partner of our partnership, our unitholders are required to agree to be bound by the provisions in our partnership agreement, including the provisions discussed above.


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Our general partner has a call right that may require you to sell your common units at an undesirable time or price.

If at any time more than 95% of our outstanding common units are owned by our general partner and its affiliates, our general partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the remaining units held by unaffiliated persons at a price that is not less than the then-current market price of the common units. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your common units. Our general partner’s affiliates own 77.8% of our common units.

Our general partner may mortgage, pledge or grant a security interest in our assets without prior approval of our unitholders, and Anadarko may similarly mortgage, pledge or grant a security interest in its assets, including its ownership interests in us.

In March 2016, we entered into the WGP RCF, under which we granted the lenders party thereto a security interest in substantially all of our assets. If we are unable to satisfy our obligation to repay amounts outstanding under the WGP RCF, the lenders could seek to foreclose on our assets. Foreclosure upon, and any resulting sale of, such assets by the lenders would adversely affect our ability to pay distributions and could adversely affect the price of our common units and WES common units and result in our loss of control of WES. Further, Anadarko may mortgage, pledge or grant a security interest in any of its assets, including its general and limited partner interest in us. If Anadarko at any time were to decide to secure any of its obligations or indebtedness with some or all of its ownership interests in us, and if Anadarko were to be unable to satisfy such obligations or repay such indebtedness, the lenders could seek to foreclose on those assets. The lenders could also sell those assets under such foreclosure or other realization upon those encumbrances without prior approval of our unitholders, which would adversely affect the price of our common units and could result in Anadarko’s loss of control of us and WES.

RISKS INHERENT IN WES’S BUSINESS

WES is dependent on Anadarko for a substantial portion of the natural gas, crude oil, NGLs and produced water that it gathers, treats, processes, transports and/or disposes. A material reduction in Anadarko’s production that is gathered, treated, processed or transported by WES would result in a material decline in WES’s revenues and cash available for distribution.

WES relies on Anadarko for a substantial portion of the natural gas, crude oil, NGLs and produced water that it gathers, treats, processes, transports and/or disposes. For the year ended December 31, 2018, production owned or controlled by Anadarko represented (i) 7% of WES’s natural gas gathering, treating and transportation throughput (excluding equity investment throughput), (ii) 41% of WES’s natural gas processing throughput (excluding equity investment throughput), and (iii) 73% of WES’s crude oil, NGLs and produced water gathering, treating, transportation and disposal throughput (excluding equity investment throughput). Anadarko may decrease its production in the areas serviced by WES and is under no contractual obligation to maintain its production volumes dedicated to WES pursuant to the terms of its applicable gathering agreements. The loss of a significant portion of production volumes supplied by Anadarko would result in a material decline in WES’s revenues and its cash available for distribution. In addition, Anadarko may determine that drilling activity in areas other than WES’s areas of operation is strategically more attractive. A shift in Anadarko’s focus away from WES’s areas of operation could result in reduced throughput on its systems and a material decline in its revenues and cash available for distribution.


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Because WES is substantially dependent on Anadarko as its primary customer and the controlling party of its general partner, any development that materially and adversely affects Anadarko’s operations, financial condition or market reputation could have a material and adverse impact on WES and us. Material adverse changes at Anadarko could restrict WES’s or our access to capital, make it more expensive to access the capital markets or increase the costs of WES’s or our borrowings.

WES is substantially dependent on Anadarko as its primary customer and the controlling party of its general partner and expects to derive a majority of its revenues from Anadarko for the foreseeable future. As a result, any event, whether in WES’s area of operations or otherwise, that adversely affects Anadarko’s production, financial condition, leverage, market reputation, liquidity, results of operations or cash flows may adversely affect WES’s and our revenues and cash available for distribution. Accordingly, we and WES are indirectly subject to the business risks of Anadarko, some of which are the following:

the volatility of oil and natural gas prices, which could have a negative effect on the value of Anadarko’s oil and natural gas properties, its drilling programs and its ability to finance its operations;

the availability of capital on favorable terms to fund Anadarko’s exploration and development activities;

a reduction in or reallocation of Anadarko’s capital budget, which could reduce the gathering, transportation and treating volumes available to WES as a midstream operator, limit WES’s midstream opportunities for organic growth or limit the inventory of midstream assets WES may acquire from Anadarko;

Anadarko’s ability to replace its oil and natural gas reserves;

Anadarko’s operations in foreign countries, which are subject to political, economic and other uncertainties;

Anadarko’s drilling, flowline, pipeline, and operating risks, including potential environmental liabilities;

transportation capacity constraints and interruptions;

adverse effects of governmental and environmental regulation, including state-approved ballot initiatives that would change state constitutions or statutes in a manner that makes future oil and gas development in such states more difficult or expensive;

shareholder activism with respect to Anadarko’s stock or activities by non-governmental organizations to restrict the exploration, development and production of oil and natural gas by Anadarko; and

adverse effects from current or future litigation.

Further, WES is subject to the risk of non-payment or non-performance by Anadarko, including with respect to its gathering and transportation agreements, and its $260.0 million note receivable from Anadarko. We cannot predict the extent to which Anadarko’s business would be impacted if conditions in the energy industry were to deteriorate further, nor can we estimate the impact such conditions would have on Anadarko’s ability to perform under its gathering and transportation agreements and note receivable. Accordingly, any material non-payment or non-performance by Anadarko could reduce WES’s ability to make distributions to its partners, including us.
Also, due to WES’s relationship with Anadarko, WES’s ability to access the capital markets, or the pricing or other terms of any capital markets transactions, may be adversely affected by any impairments to Anadarko’s financial condition or adverse changes in its credit ratings.
Any material limitations on our or WES’s ability to access capital as a result of such adverse changes at Anadarko could limit our or WES’s ability to obtain future financing on favorable terms, or at all, or could result in increased financing costs in the future. Similarly, material adverse changes at Anadarko could negatively impact our or WES’s unit price, limiting our or WES’s ability to raise capital through equity issuances or debt financing, or could negatively affect our or WES’s ability to engage in, expand or pursue our or its business activities, and could also prevent us or WES from engaging in certain transactions that might otherwise be considered beneficial to us or WES.
See Part I, Item 1A in Anadarko’s Form 10-K for the year ended December 31, 2018 (which is not, and shall not be deemed to be, incorporated by reference herein), for a full discussion of the risks associated with Anadarko’s business.

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Sustained low natural gas, NGLs or oil prices could adversely affect WES’s business.

Sustained low natural gas, NGLs or oil prices impact natural gas and oil exploration and production activity levels and can result in a decline in the production of hydrocarbons over the medium to long term, resulting in reduced throughput on WES’s systems. Such a decline also potentially affects the ability of WES’s vendors, suppliers and customers to continue operations. As a result, sustained lower natural gas and crude oil prices could have a material adverse effect on WES’s business, results of operations, financial condition and its ability to pay cash distributions to its partners, including us.
In general terms, the prices of natural gas, oil, condensate, NGLs and other hydrocarbon products fluctuate in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond WES’s control. For example, market prices for natural gas have declined substantially from the highs achieved in 2008 and have remained depressed for several years. More recently, uncertain global demand for crude oil and the increased supply resulting from the rapid development of shale plays throughout North America have contributed significantly to a substantial drop in crude oil prices. Rapid development of the North American shale plays has also increased the supply of natural gas contributing to a substantial drop in natural gas prices. Additional factors impacting commodity prices include the following:

domestic and worldwide economic and geopolitical conditions;

weather conditions and seasonal trends;

the ability to develop recently discovered fields or deploy new technologies to existing fields;

the levels of domestic production and consumer demand, as affected by, among other things, concerns over inflation, geopolitical issues and the availability and cost of credit;

the availability of imported, or a market for exported, liquefied natural gas;

the availability of transportation systems with adequate capacity;

the volatility and uncertainty of regional pricing differentials, such as in the Rocky Mountains;

the price and availability of alternative fuels;

the effect of energy conservation measures;

the nature and extent of governmental regulation and taxation; and

the forecasted supply and demand for, and prices of, oil, natural gas, NGLs and other commodities.


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Because of the natural decline in production from existing wells, WES’s success depends on its ability to obtain new sources of oil and natural gas, which is dependent on certain factors beyond WES’s control. Any decrease in the volumes that WES gathers, processes, treats and transports could adversely affect its business and operating results.

The volumes that support WES’s business are dependent on, among other things, the level of production from natural gas and oil wells connected to its gathering systems and processing and treating facilities. This production will naturally decline over time. As a result, WES’s cash flows associated with these wells will also decline over time. In order to maintain or increase throughput levels on its systems, WES must obtain new sources of oil and natural gas. The primary factors affecting WES’s ability to obtain sources of oil and natural gas include (i) the level of successful drilling activity near its systems, (ii) its ability to compete for volumes from successful new wells, to the extent such wells are not dedicated to its systems, and (iii) its ability to capture volumes currently gathered or processed by Anadarko or third parties.
While Anadarko has dedicated production from certain of its properties to WES, WES has no control over the level of drilling activity in its areas of operation, the amount of reserves associated with wells connected to its systems or the rate at which production from a well declines. In addition, WES has no control over Anadarko or other producers or their drilling or production decisions, which are affected by, among other things, the availability and cost of capital, prevailing and projected commodity prices, demand for hydrocarbons, levels of reserves, geological considerations, governmental regulations, the availability of drilling rigs and other production and development costs. Fluctuations in commodity prices can also greatly affect investments by Anadarko and third parties in the development of new oil and natural gas reserves. Declines in oil and natural gas prices have materially reduced exploration, development and production activity in some regions and, if sustained, could lead to a further decrease in such activity. Sustained reductions in exploration or production activity in WES’s areas of operation would lead to reduced utilization of its gathering, processing and treating assets.
Because of these factors, even if new oil and natural gas reserves are known to exist in areas served by WES’s assets, producers (including Anadarko) may choose not to develop those reserves. Moreover, Anadarko may not develop the acreage it has dedicated to WES. If competition or reductions in drilling activity result in WES’s inability to maintain the current levels of throughput on its systems, it could reduce WES’s revenue and impair its ability to make cash distributions to its partners, including us.

WES is exposed to the credit risk of third-party customers, and any material non-payment or non-performance by these parties, including with respect to WES’s gathering, processing, transportation and disposal agreements, could reduce WES’s ability to make distributions to its partners, including us.

On some of its systems, WES relies on third-party customers for substantially all of its revenues related to those assets. The loss of all or even a portion of the contracted volumes of these customers, as a result of competition, creditworthiness, inability to negotiate extensions, replacements of contracts or otherwise, could reduce WES’s ability to make cash distributions to its partners, including us. Further, to the extent any of WES’s third-party customers is in financial distress or enters bankruptcy proceedings, the related customer contracts may be renegotiated at lower rates or rejected altogether.

WES’s strategies to reduce its exposure to changes in commodity prices may fail to protect WES and could negatively impact its financial condition, thereby reducing its cash flows and ability to make distributions to its partners, including us.

For the year ended December 31, 2018, 89% of WES’s wellhead natural gas volumes (excluding equity investments) and 100% of WES’s crude oil and produced water throughput (excluding equity investments) were attributable to fee-based contracts under which fixed and variable fees are received based on the volume or thermal content of the natural gas and on the volume of NGLs, crude oil and produced water WES gathers, processes, treats, transports or disposes. For the year ended December 31, 2018, 95% of WES’s wellhead natural gas volumes (excluding equity investments) was attributable to either long-term, fee-based contracts, or percent-of-proceeds or keep-whole contracts that were hedged with commodity price swap agreements. See Note 6—Transactions with Affiliates in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K.

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WES pursues various strategies to seek to reduce its exposure to adverse changes in the prices for natural gas, condensate and NGLs. These strategies will vary in scope based upon the level and volatility of natural gas, condensate and NGLs prices and other changing market conditions. To the extent that WES engages in price risk management activities such as the commodity price swap agreements, it may be prevented from realizing the full benefits of price increases above the levels set in those agreements. In addition, WES’s commodity price management may expose it to the risk of financial loss in certain circumstances, including if the counterparties to its hedging or other price risk management contracts fail to perform under those arrangements.
WES’s commodity price swap agreements with Anadarko for the DJ Basin complex and the MGR assets expired without renewal on December 31, 2018. In the future, WES may seek to enter into third-party commodity price swap agreements or similar hedging arrangements, and any such market-based hedging arrangement is likely to be significantly less favorable from a commodity pricing perspective and would likely expose WES to volumetric risk to which it was not previously exposed, because WES’s commodity price swap agreements with Anadarko were based on actual WES volumes.
Additionally, if WES is unable to effectively manage the risk associated with its contracts that have commodity price exposure, it could have a material adverse effect on WES’s business, results of operations, financial condition and ability to make cash distributions to its partners, including us.

Changes in laws or regulations regarding hydraulic fracturing could result in increased costs, operating restrictions or delays in the completion of oil and natural gas wells, which could decrease the need for WES’s gathering and processing services.

While WES does not conduct hydraulic fracturing, its oil and natural gas exploration and production customers do conduct such activities. Hydraulic fracturing is an essential and common practice used by many of WES’s customers to stimulate production of natural gas and oil from dense subsurface rock formations such as shales. Hydraulic fracturing is typically regulated by state oil and natural gas commissions, but several federal agencies have also asserted regulatory authority over, proposed or promulgated regulations governing, and conducted investigations relating to certain aspects of the process, including the EPA and the BLM. For example, in late 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources, concluding that “water cycle” activities associated with hydraulic fracturing may impact drinking water resources under certain circumstances. Additionally, in 2016, the EPA published an effluent limit guideline final rule prohibiting the discharge of wastewater from onshore unconventional oil and gas extraction facilities to publicly owned wastewater treatment plants. Moreover, Congress has from time to time considered the adoption of legislation to provide for federal regulation of hydraulic fracturing.
At the state level, some states have adopted, and others are considering adopting, legal requirements that could impose more stringent disclosure, permitting or well construction requirements on hydraulic fracturing operations, and states could elect to prohibit high-volume hydraulic fracturing altogether, following the approach taken by the State of New York. Local governments may also seek to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular. Moreover, non-governmental organizations may seek to restrict hydraulic fracturing, such as was the case in Colorado where certain interest groups therein have unsuccessfully pursued ballot initiatives in recent general election cycles that, had they been successful, would have revised the state constitution or state statutes in a manner that would have made exploration and production activities in the state more difficult or expensive in the future, including, for example, by increasing mandatory setback distances of oil and natural gas operations from specific occupied structures and/or certain environmentally-sensitive or recreational areas.
If new or more stringent federal, state or local legal restrictions, prohibitions or regulatory or ballot initiatives relating to the hydraulic fracturing process are adopted in areas where WES’s oil and natural gas exploration and production customers operate, those customers could incur potentially significant added costs to comply with such requirements and experience delays or curtailment in the pursuit of exploration, development or production activities, which could reduce demand for WES’s gathering and processing services. Moreover, increased regulation of the hydraulic fracturing process could also lead to greater opposition to, and litigation over, oil and natural gas production activities using hydraulic fracturing techniques. Any one or more of these developments could have a material adverse effect on WES’s business, financial condition and results of operations.


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Adoption of new or more stringent legal standards relating to induced seismic activity associated with produced water disposal could affect WES’s operations.

WES disposes of produced water generated from oil and natural gas production operations. The legal requirements related to the disposal of produced water into a non-producing geologic formation by means of underground injection wells are subject to change based on concerns of the public or governmental authorities, including concerns relating to recent seismic events near injection wells used for the disposal of produced water. In response to such concerns, regulators in some states have imposed, or are considering imposing, additional requirements in the permitting of produced water disposal wells or are otherwise investigating the existence of a relationship between seismicity and the use of such wells. For example, Colorado developed and follows guidance when issuing underground injection control permits to limit the maximum injection pressure, rate, and volume of water. Oklahoma has issued rules for wastewater disposal wells that imposed certain permitting and operating restrictions and reporting requirements on disposal wells in proximity to faults, and is also developing and implementing plans directing certain wells where seismic incidents have occurred to restrict or suspend disposal well operations. The Texas Railroad Commission has also adopted similar permitting, operating, and reporting rules for disposal wells. Another consequence of seismic events may be class action lawsuits, alleging that disposal well operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal. These developments could result in additional regulation and restrictions on WES’s use of injection wells to dispose of produced water, including a possible shut down of such wells, which could have a material adverse effect on WES’s business, financial condition and results of operations.

Adverse developments in WES’s geographic areas of operation could disproportionately impact WES’s business, results of operations, financial condition and ability to make cash distributions to its partners, including us.

WES’s business and operations are concentrated in a limited number of producing areas. Due to WES’s limited geographic diversification, adverse operational developments, regulatory or legislative changes, or other events in an area in which WES has significant operations could have a greater impact on WES’s business, results of operations, financial condition and ability to make cash distributions to its partners, including us, than they would if WES’s operations were more diversified.


WES may not be able to obtain funding on acceptable terms or at all. This may hinder or prevent WES from meeting its future capital needs.

Global financial markets and economic conditions have been, and continue to be, volatile, especially for companies involved in the oil and gas industry. The repricing of credit risk and the recent relatively weak economic conditions have made, and will likely continue to make, it difficult for some entities to obtain funding. In addition, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets generally has increased as many lenders and institutional investors have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at maturity at all or on terms similar to the borrower’s current debt, and reduced, or in some cases, ceased to provide funding to borrowers. Further, WES may be unable to obtain adequate funding under the WES RCF if its lending counterparties become unwilling or unable to meet their funding obligations. Due to these factors, WES cannot be certain that funding will be available if needed and to the extent required on acceptable terms. If funding is not available when needed, or is available only on unfavorable terms, WES may be unable to execute its business plans, complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on WES’s financial condition, results of operations, cash flows and ability to make cash distributions to its partners, including us.


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Restrictions in the indentures governing WES’s publicly traded notes (collectively, the “WES Notes”) or the WES RCF may limit WES’s ability to capitalize on acquisitions and other business opportunities.

The operating and financial restrictions and covenants in the agreements governing the WES Notes, the WES RCF and any future financing arrangements could restrict WES’s ability to finance future operations or capital needs or to expand or pursue business activities associated with WES’s subsidiaries and equity investments. The WES RCF contains, and with respect to the second, fourth and fifth bullets below, the indentures governing the WES Notes contain, covenants that restrict or limit WES’s ability to do the following:

incur additional indebtedness or guarantee other indebtedness;

grant liens to secure obligations other than its obligations under the WES Notes or the WES RCF or agree to restrictions on its ability to grant additional liens to secure its obligations under the WES Notes or the WES RCF;

engage in transactions with affiliates;

make any material change to the nature of its business from the midstream business; or

enter into a merger, consolidate, liquidate, wind up or dissolve.

The WES RCF also contains various customary covenants, customary events of default and a maximum consolidated leverage ratio as of the end of each quarter (which is defined as the ratio of consolidated indebtedness as of the last day of a fiscal quarter to Consolidated EBITDA, as defined in the WES RCF, 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. See Part II, Item 7 of this Form 10-K for a further discussion of the terms of the WES RCF and WES Notes.

Debt WES owes or incurs in the future may limit its flexibility to obtain financing and to pursue other business opportunities.

WES’s indebtedness could have important consequences to WES, including the following:

its ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;

its funds available for operations, future business opportunities and distributions to unitholders will be reduced by that portion of its cash flows required to make interest payments on its debt;

it may be more vulnerable to competitive pressures or a downturn in its business or the economy generally; and

its flexibility in responding to changing business and economic conditions may be limited.

WES’s ability to service its debt will depend upon, among other things, its future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond WES’s control. If WES’s operating results are not sufficient to service any future indebtedness, it will be forced to take actions such as reducing distributions, reducing or delaying its business activities, acquisitions, investments or capital expenditures, selling assets or seeking additional equity capital. WES may not be able to effect any of these actions on satisfactory terms or at all.


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WES’s business could be negatively affected by security threats, including cyber threats, and other disruptions.

WES faces various security threats, including cyber threats to the security of its facilities and infrastructure, attempts to gain unauthorized access to sensitive information or to render data or systems unusable and terrorist acts. Additionally, destructive forms of protests and opposition by activists and other disruptions, including acts of sabotage or eco-terrorism, against oil and natural gas development and production or midstream processing or transportation activities could potentially result in damage or injury to persons, property or the environment or lead to extended interruptions of WES or its clients’ operations. WES’s implementation of various procedures and controls to monitor and mitigate security threats and to increase security for its facilities, infrastructure and information may result in increased costs. There can be no assurance that such procedures and controls will be sufficient to prevent security breaches from occurring.
Cyber attacks in particular are becoming more sophisticated and include, but are not limited to, malicious software intended to gain unauthorized access to data and systems, electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and corruption of data. For example, the gathering, processing, treating and transportation of natural gas from WES’s gathering systems, processing facilities and pipelines are dependent on communications among WES’s facilities and with third-party systems that may be delivering natural gas into or receiving natural gas and other products from WES’s facilities. Disruption of those communications, whether caused by cyber attacks or otherwise, may disrupt WES’s ability to deliver natural gas and control these assets.
There is no assurance that WES will not suffer material losses from cyber attacks in the future, and as such threats continue to evolve, WES may be required to expend additional resources to continue to modify or enhance its protective measures or to investigate or remediate any cyber vulnerabilities. Any terrorist or cyber attack against, or other disruption of, WES assets or computer systems could have a material adverse effect on WES’s business, results of operations, financial condition and ability to make cash distributions to its partners, including us.

The amount of cash WES has available for distribution to its partners, including us, depends primarily on its cash flows rather than on its profitability. As a result, WES may be prevented from making distributions, even during periods in which it records net income.

The amount of cash WES has available for distribution depends primarily upon its cash flows and not solely on profitability, which will be affected by non-cash items. As a result, WES may make cash distributions for periods in which it records losses for financial accounting purposes and may not make cash distributions for periods in which it records net earnings for financial accounting purposes.

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WES typically does not obtain independent evaluations of hydrocarbon reserves connected to its systems. Therefore, in the future, throughput on WES’s systems could be less than WES anticipates.

WES typically does not obtain independent evaluations of hydrocarbon reserves connected to its systems. Accordingly, WES does not have independent estimates of total reserves connected to its systems or the anticipated life of such reserves. If the total reserves or estimated life of the reserves connected to WES’s systems are less than WES anticipates, or the timeline for the development of reserves is greater than WES anticipates, and WES is unable to secure additional sources of oil and natural gas, there could be a material adverse effect on its business, results of operations, financial condition and ability to make cash distributions to its partners, including us.

WES’s industry is highly competitive, and increased competitive pressure could adversely affect its business and operating results.

WES competes with similar enterprises in its areas of operation. WES’s competitors may expand or construct midstream systems that would create additional competition for the services it provides to its customers. In addition, WES’s customers, including Anadarko, may develop their own midstream systems in lieu of using WES’s. WES’s ability to renew or replace existing contracts with its customers at rates sufficient to maintain current revenues and cash flows could be adversely affected by the activities of its competitors and customers. All of these competitive pressures could have a material adverse effect on WES’s business, results of operations, financial condition and ability to make cash distributions to its partners, including us.

WES’s results of operations could be adversely affected by asset impairments.

If commodity prices decrease, WES may be required to write down the value of its midstream properties if the estimated future cash flows from these properties fall below their net book value. Because WES is an affiliate of Anadarko, the assets WES acquires from Anadarko are recorded at Anadarko’s carrying value prior to the transaction. Accordingly, WES may be at an increased risk for impairments because the initial book values of a substantial portion of its assets do not have a direct relationship with, and in some cases could be significantly higher than, the amounts WES paid to acquire such assets. For example, see the discussion of material impairments in Note 8—Property, Plant and Equipment in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K.
Further, at December 31, 2018, WES had $416.2 million of goodwill on its balance sheet. Goodwill is recorded when the purchase price of a business acquired exceeds the fair market value of the tangible and separately measurable intangible net assets. In addition, similar to the carrying value of the assets WES acquired from Anadarko, part of WES’s goodwill is an allocated portion of Anadarko’s goodwill, which WES recorded as a component of the carrying value of the assets it acquired from Anadarko. As a result, WES may be at increased risk for impairments relative to entities who acquire their assets from third parties or construct their own assets, as the carrying value of WES’s goodwill does not reflect, and in some cases is significantly higher than, the difference between the consideration WES paid for its acquisitions and the fair value of the net assets on the acquisition date.
Goodwill is not amortized, but instead must be tested at least annually for impairments, and more frequently when circumstances indicate likely impairments, by applying a fair-value-based test. Goodwill is deemed impaired to the extent that its carrying amount exceeds its implied fair value. Various factors could lead to goodwill impairments, such as WES’s inability to maintain throughput on its assets or sustained lower oil and natural gas prices, by reducing the fair value of the associated reporting unit. Prolonged low or further declines in commodity prices and changes to producers’ drilling plans in response to lower prices could result in additional impairments in future periods. Future non-cash asset impairments could negatively affect WES’s results of operations.


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If third-party pipelines or other facilities interconnected to WES’s gathering, transportation, treating or processing systems become partially or fully unavailable, or if the volumes WES gathers or transports do not meet the quality requirements of such pipelines or facilities, WES’s revenues and cash available for distribution could be adversely affected.

WES’s gathering, transportation, treating and processing systems are connected to other pipelines or facilities, the majority of which are owned by third parties. The continuing operation of such third-party pipelines or facilities is not within WES’s control. If any of these pipelines or facilities becomes unable to transport, treat or process crude oil, natural gas or NGLs, or if the volumes WES gathers or transports do not meet the quality requirements of such pipelines or facilities, WES’s revenues and cash available for distribution could be adversely affected.

WES’s interstate natural gas and liquids transportation assets and operations are subject to regulation by FERC, which could have an adverse effect on WES’s revenues and WES’s ability to make distributions.

The interstate natural gas pipelines owned by WES are subject to regulation by FERC. If WES fails to comply with all applicable FERC-administered statutes, rules, regulations and orders, WES could be subject to substantial penalties and fines. FERC has civil penalty authority to impose penalties for certain violations potentially in excess of $1.0 million per day for each violation. FERC also has the power to order disgorgement of profits from transactions deemed to violate applicable statutes. For additional information, read Regulation of Operations–Interstate Natural Gas Pipeline Regulation under Items 1 and 2 of this Form 10-K.
The interstate liquids pipelines owned by WES are common carriers and are also subject to regulation by FERC. For additional information, read Regulation of Operations—Interstate Liquids Pipeline Regulation under Items 1 and 2 of this Form 10-K.
FERC regulation requires that common carrier liquid pipeline rates and interstate natural gas pipeline rates be filed with FERC and that these rates be “just and reasonable” and not unduly discriminatory. Interested persons may challenge proposed new or changed rates, and FERC is authorized to suspend the effectiveness of such rates pending an investigation or hearing. FERC may also investigate, upon complaint or on its own motion, rates that are already in effect and may order a carrier to change its rates prospectively. Accordingly, action by FERC could adversely affect our ability to establish reasonable rates that cover operating costs and allow for a reasonable return. An adverse determination in any future rate proceeding brought by or against us could have a material adverse effect on our business, financial condition, results of operations, and cash available for distribution. For example, one such matter relates to FERC’s policy regarding allowances for income taxes in determining a regulated entity’s cost of service. FERC’s Revised Policy Statement established that FERC will no longer permit master limited partnerships to recover an income tax allowance in their cost of service rates and noted that to the extent an entity does not include an income tax allowance in their cost of service rates, such entity may elect to also exclude the accumulated deferred income tax balance from the rate calculation. This policy may result in an adverse impact on WES’s revenues associated with the cost of service rates of its FERC-regulated gas and liquids pipelines. For additional information, read Regulation of Operations—Interstate Natural Gas Pipeline Regulation and Regulation of Operations—Interstate Liquids Pipeline Regulation under Items 1 and 2 of this Form 10-K.

A change in the jurisdictional characterization of some of WES’s assets by federal, state or local regulatory agencies or a change in policy by those agencies could result in increased regulation of its assets, which could cause WES’s revenues to decline and operating expenses to increase.

WES believes that its gas gathering systems meet the traditional tests FERC has used to determine if a pipeline is a gas gathering pipeline and is, therefore, not subject to FERC jurisdiction. FERC, however, has not made any determinations with respect to the jurisdictional status of any of these gas gathering systems. The distinction between FERC-regulated transmission services and federally unregulated gathering services has been the subject of ongoing litigation and, over time, FERC policy concerning which activities it regulates and which activities are excluded from its regulation has changed. State regulation of gathering facilities generally includes various safety, environmental and, in some circumstances, nondiscriminatory take requirements and complaint-based rate regulation. In recent years, FERC has regulated the gas gathering activities of interstate pipeline transmission companies more lightly, which has resulted in a number of such companies transferring gathering facilities to unregulated affiliates. As a result of these activities, natural gas gathering may begin to receive greater regulatory scrutiny at both the state and federal levels.

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FERC makes jurisdictional determinations for both natural gas gathering and liquids lines on a case-by-case basis. The classification and regulation of WES’s pipelines are subject to change based on future determinations by FERC, the courts or Congress. A change in the jurisdictional characterization of some of WES’s assets by federal, state or local regulatory agencies or a change in policy by those agencies could result in increased regulation of its assets, which could cause its revenues to decline and operating expenses to increase. For additional information, read Regulation of Operations –Natural Gas Gathering Pipeline Regulation under Items 1 and 2 of this Form 10-K.

Adoption of new or more stringent climate change or other air emissions legislation or regulations restricting emissions of GHGs or other air pollutants could result in increased operating costs and reduced demand for the gathering, processing, compressing, treating and transporting services WES provides.

Changes in climate change or other air emissions laws and regulations, or reinterpretations of enforcement or other guidance with respect thereto, that govern areas where WES operates may negatively impact WES’s operations. Examples of such proposed and/or final regulations or other regulatory initiatives are included below.

Ground-Level Ozone Standards. In 2015, the EPA issued a rule under the Clean Air Act, lowering the National Ambient Air Quality Standard (“NAAQS”) for ground-level ozone from 75 parts per billion to 70 parts per billion under both the primary and secondary standards to provide requisite protection of public health and welfare, respectively. In 2017 and 2018, the EPA issued area designations with respect to ground-level ozone as either “attainment/unclassifiable,” “unclassifiable” or “non-attainment.” Additionally, in November 2018, the EPA issued final requirements that apply to state, local and tribal air agencies for implementing the 2015 NAAQS for ground-level ozone. State implementation of the revised NAAQS could, among other things, require installation of new emission controls on some of WES’s equipment, result in longer permitting timelines, and significantly increase WES’s capital expenditures and operating costs.

Reduction of Methane Emissions by the Oil and Gas Industry. In 2016, the EPA published a final rule establishing new emissions standards for methane and additional standards for volatile organic compounds from certain new, modified, and reconstructed oil and natural gas production and natural gas processing and transmission facilities. The EPA’s rule is comprised of New Source Performance Standards, known as Subpart OOOOa, which require certain new, modified, or reconstructed facilities in the oil and natural gas sector to reduce these methane gas and volatile organic compound emissions. These Subpart OOOOa standards expand previously issued New Source Performance Standards to, among other things, hydraulically fractured oil and natural gas well completions, fugitive emissions from well sites and compressors, and equipment leaks at natural gas processing plants and pneumatic pumps. In February 2018, the EPA finalized amendments to certain requirements of the 2016 final rule and, in September 2018, the agency proposed amendments that included rescission or revision of specified rule requirements, such as fugitive emission monitoring frequency. In a separate rulemaking, the BLM published a final rule in late 2016 that requires a reduction in methane emissions by regulating venting, flaring and leaking from oil and natural gas operations on public lands; however, in September 2018, the BLM published a final rule rescinding most of the new requirements of the 2016 final rule and codifying the BLM’s prior approach to venting and flaring, which rescission has been challenged in federal court and remains pending. Notwithstanding the uncertainty of the 2016 rule, WES has taken measures to enter into a voluntary regime, together with certain other oil and natural gas exploration and production operators, to reduce methane emissions. At the state level, some states where WES conducts operations, including Colorado, have issued requirements for the performance of leak detection programs that identify and repair methane leaks at certain oil and natural gas sources. Compliance with these rules or with any future federal or state methane regulations could, among other things, require installation of new emission controls on some of WES’s equipment and increase WES’s capital expenditures and operating costs.

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Reduction of GHG Emissions. The U.S. Congress and the EPA, in addition to some state and regional authorities, have in recent years considered legislation or regulations to reduce emissions of GHGs. These efforts have included consideration of cap-and-trade programs, carbon taxes, GHG reporting and tracking programs, and regulations that directly limit GHG emissions from certain sources. In the absence of federal GHG-limiting legislation, the EPA has determined that GHG emissions present a danger to public health and the environment and has adopted regulations that, among other things, restrict emissions of GHGs under existing provisions of the Clean Air Act and may require the installation of “best available control technology” to limit emissions of GHGs from any new or significantly modified facilities that we may seek to construct in the future if they would otherwise emit large volumes of GHGs together with other criteria pollutants. Also, certain of our operations are subject to EPA rules requiring the monitoring and annual reporting of GHG emissions from specified onshore and offshore production sources. Additionally, in April 2016, the United States joined other countries in entering into a United Nations-sponsored non-binding agreement negotiated in Paris, France (“Paris Agreement”) for nations to limit their GHG emissions through individually-determined reduction goals every five years beginning in 2020. However, in August 2017, the U.S. State Department informed the United Nations of the intent of the United States to withdraw from the Paris Agreement. The implementation of substantial limitations on GHG emissions in areas where WES conducts operations could result in increased compliance costs to acquire emissions allowances or comply with new regulatory or reporting requirements, which developments could adversely affect demand for oil and natural gas that WES’s customers produce, reduce demand for WES’s services and have a material adverse effect on WES’s business, financial condition and results of operation.

Derivatives legislation could have an adverse effect on WES’s ability to use derivative instruments to reduce the effect of commodity price, interest rate and other risks associated with its business.

The Dodd-Frank Act, among other things, establishes federal oversight and regulation of the over-the-counter derivatives market and entities, such as WES and Anadarko, that participate in that market. The CFTC has finalized certain of its regulations under the Dodd-Frank Act, but others remain to be finalized or implemented. It is not possible at this time to predict when this will be accomplished or what the terms of the final rules will be, so the impact of those rules is uncertain at this time.
The Dodd-Frank Act and any new regulations could significantly increase the cost of derivative contracts, materially alter the terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter and reduce WES’s ability to monetize or restructure existing commodity price contracts. If WES reduces the use of commodity price contracts as a result of the legislation and regulations, WES’s results of operations may become more volatile and cash flows may be less predictable, which could adversely affect WES’s ability to plan for and fund capital expenditures and make cash distributions to unitholders.

WES may incur significant costs and liabilities resulting from pipeline integrity programs and related repairs.

Pursuant to authority under federal law, PHMSA has promulgated regulations requiring pipeline operators to develop and implement integrity management programs for certain gas and hazardous liquid pipelines that, in the event of a pipeline leak or rupture, could affect HCAs, which are areas where a release could have the most significant adverse consequences, including high population areas, certain drinking water sources and unusually sensitive ecological areas. These regulations require the operators of covered pipelines to: (i) perform ongoing assessments of pipeline integrity; (ii) identify and characterize applicable threats to pipeline segments that could impact HCAs; (iii) improve data collection, integration and analysis; (iv) repair and remediate the pipeline as necessary; and (v) implement preventive and mitigating actions. In addition, states have adopted regulations similar to existing PHMSA regulations for certain intrastate gas and hazardous liquid pipelines. At this time, WES cannot predict the ultimate cost of compliance with these regulations, as the cost will vary significantly depending on the number and extent of any repairs or replacements of pipeline segments found to be necessary as a result of the pipeline integrity testing. The results of these tests could cause WES to incur significant and unanticipated capital and operating expenditures for repairs or replacements of pipeline segments deemed necessary to ensure the safe and reliable operation of its pipelines. Moreover, the adoption of any new legislation or regulations that impose more stringent or costly pipeline integrity management standards such as, for example, PHMSA’s January 2017 final rule for hazardous liquid pipelines that is yet to be published in the Federal Register and implemented and PHMSA’s March 2016 proposed rulemaking for gas pipelines, could result in a material adverse effect on WES’s results of operations or financial position.


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Federal and state legislative and regulatory initiatives relating to pipeline safety that require the use of new or more stringent safety controls or result in more stringent enforcement of applicable legal requirements could subject WES to increased capital costs, operational delays and costs of operation.

Legislation adopted in recent years has resulted in more stringent mandates for pipeline safety and has charged PHMSA with developing and adopting regulations that impose increased pipeline safety requirements on pipeline operators. In 2016, President Obama signed the 2016 Pipeline Safety Act that extends PHMSA’s statutory mandate regarding pipeline safety through 2019 expands PHMSA’s authority to address unsafe pipeline conditions or practices that pose an imminent hazard to life, property, or the environment, and requires the agency to complete certain of its outstanding mandates established under the 2011 Pipeline Safety Act. The imposition of new safety requirements pursuant to these enacted laws or any issuance or reinterpretation of guidance by PHMSA or any state agencies with respect thereto could require us to install new or modified safety controls, pursue additional capital projects or conduct maintenance programs on an accelerated basis, any or all of which could result in our incurring increased capital expenditures and operating costs that could have a material adverse effect on our results of operations or financial position. For example, in January 2017, PHMSA issued a final rule that significantly extends and expands the reach of certain PHMSA integrity management requirements for hazardous liquid pipelines, such as, for example, periodic assessments, leak detection and repairs, regardless of the pipeline’s proximity to a high consequence area. The final rule also imposes new reporting requirements for certain unregulated pipelines, including all hazardous liquid gathering lines. However, the date of implementation of this final rule by publication in the Federal Register has been delayed following the January 2017 change from the Obama to Trump presidential administrations. Additionally, in March 2016, PHMSA announced a proposed rulemaking that would impose new or more stringent requirements for certain gas transportation and gathering lines including, among other things, expanding certain of PHMSA’s current regulatory safety programs for natural gas pipelines in newly defined “moderate consequence areas” that contain as few as five dwellings within a potential impact area; requiring natural gas pipelines installed before 1970 and thus excluded from certain pressure testing obligations to be tested to determine their MAOP; and requiring certain onshore and offshore gathering lines in Class I areas to comply with damage prevention, corrosion control, public education, MAOP limits, line markers and emergency planning standards. Additional requirements proposed by this proposed rulemaking would increase PHMSA’s integrity management requirements and also require consideration of seismicity in evaluating threats to pipelines. PHMSA has split this rule into three separate rulemaking proceedings and is expected to finalize these proceedings in 2019.
Additionally, while states are largely preempted by federal law from regulating pipeline safety for interstate lines, most are certified by PHMSA to assume responsibility for enforcing federal intrastate pipeline regulations and inspection of intrastate pipelines. In practice, because states can adopt stricter standards for intrastate pipelines than those imposed by the federal government for interstate lines, states vary considerably in their authority and capacity to address pipeline safety. Moreover, PHMSA and one or more state regulators, including the RRC, have in recent years expanded the scope of their regulatory inspections to include certain in-plant equipment and pipelines found within NGLs fractionation facilities and associated storage facilities, to assess compliance with hazardous liquids pipeline safety requirements. To the extent that PHMSA and/or state regulatory agencies are successful in asserting their jurisdiction in this manner, midstream operators of NGLs fractionation facilities and associated storage facilities may be required to make operational changes or modifications at their facilities to meet standards beyond current OSHA and EPA requirements, which changes or modifications may result in additional capital costs, possible operational delays and increased costs of operation that, in some instances, may be significant.

Some portions of WES’s pipeline systems have been in service for several decades, and WES has a limited ownership history with respect to certain of its assets. There could be unknown events or conditions or increased maintenance or repair expenses and downtime associated with WES’s pipelines that could have a material adverse effect on its business and results of operations.

Some portions of the pipeline systems that WES operates were in service for many decades prior to purchase by WES. Consequently, there may be historical occurrences or latent issues regarding WES’s pipeline systems that WES’s executive management may be unaware of and that may have a material adverse effect on its business and results of operations. The age and condition of WES’s pipeline systems could also result in increased maintenance or repair expenditures, and any downtime associated with increased maintenance and repair activities could materially reduce WES’s revenue. Any significant increase in maintenance and repair expenditures or loss of revenue due to the age or condition of WES’s pipeline systems could adversely affect its business and results of operations.


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WES is subject to stringent and comprehensive environmental laws and regulations that may expose WES to significant costs and liabilities.

WES’s operations are subject to stringent and comprehensive federal, tribal, state and local environmental laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These environmental laws and regulations may impose numerous obligations that are applicable to WES’s operations, including: (i) the acquisition of permits to conduct regulated activities; (ii) restrictions on the types, quantities and concentrations of materials that can be released into the environment; (iii) limitations on the generation, management and disposal of wastes; (iv) limitations or prohibitions of construction and operating activities in environmentally sensitive areas such as wetlands, urban areas, wilderness regions and other protected areas; (v) requiring capital expenditures to limit or prevent releases of materials from its pipelines and facilities; and (vi) imposition of substantial restoration and remedial liabilities and obligations with respect to abandonment of facilities and for pollution resulting from our operations or existing at our owned or operated facilities. Numerous governmental authorities, such as the EPA and analogous state agencies, have the power to enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costly remedial or corrective actions. Failure to comply with these laws, regulations and permits or any newly adopted legal requirements may result in the assessment of sanctions, including administrative, civil and criminal penalties, the imposition of investigatory, remedial or corrective action obligations, the incurrence of capital expenditures, the occurrence of delays or cancellations in the permitting, development or expansion of projects, and the issuance of injunctions limiting or preventing some or all of WES’s operations in particular areas.
WES may incur significant environmental costs and liabilities in connection with WES’s operations due to WES’s handling of natural gas, crude oil, NGLs and other petroleum products, because of pollutants from WES’s operations emitted into ambient air or discharged or released into surface water or groundwater, and as a result of historical industry operations and waste disposal practices. For example, an accidental release as a result of WES’s operations could subject WES to substantial liabilities arising from environmental cleanup and restoration costs, claims made by owners of the properties through which WES’s gathering or transportation systems pass, neighboring landowners, and other third parties for personal injury, natural resource and property damages, and fines or penalties for related violations of environmental laws or regulations. Joint and several strict liabilities may be incurred, without regard to fault, under certain of these environmental laws and regulations. In addition, stricter laws, regulations or enforcement policies could significantly increase WES’s operational or compliance costs as well as the costs of any restoration or remedial actions that may become necessary, which could have a material adverse effect on WES’s results of operations or financial condition. Regulatory initiatives targeting the reduction of certain air pollutants, such as ground level ozone or GHGs such as methane, have been proposed and/or adopted by the EPA and, while subject to further implementation or various legal impediments, could result in increased compliance costs. The adoption of these or any other laws, regulations or other legally enforceable mandates could increase WES’s oil and natural gas exploration and production customers’ operating and compliance costs as well as reduce the rate of production of oil or natural gas by operators with whom WES has a business relationship, which could have a material adverse effect on WES’s results of operations and cash flows.
In addition, the legal requirements related to the disposal of produced water into non-producing geologic formations by means of underground injection wells are subject to change based on concerns of the public or governmental authorities regarding such disposal activities. One such concern relates to seismic events near injection wells used for the disposal of produced water resulting from oil and natural gas activities. In response to concerns regarding induced seismicity, regulators in some states have imposed, or are considering imposing, additional requirements in the permitting of produced water disposal wells or otherwise to assess any relationship between seismicity and the use of such wells. For example, Colorado developed and follows guidance when issuing underground injection control permits to limit the maximum injection pressure, rate, and volume of water. Oklahoma has issued rules for wastewater disposal wells that impose certain permitting and operating restrictions and reporting requirements on disposal wells in proximity to faults and also, from time to time, is developing and implementing plans directing operators of wells injecting at certain depths where seismic incidents have occurred to restrict or suspend disposal well operations. The Texas Railroad Commission has adopted similar permitting, operating, and reporting rules for disposal wells. Another consequence of seismic events may be class action lawsuits alleging that disposal well operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal. One or more of these developments could result in additional regulation and restrictions on the use of injection wells by WES, which could have a material adverse effect on WES’s capital expenditures and operating costs, financial condition, and results of operations.


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WES’s construction of new assets may not result in revenue increases and is subject to regulatory, environmental, political, legal and economic risks, which could adversely affect its results of operations and financial condition.

One of the ways WES intends to grow its business is through the construction of new midstream assets. The construction of additions or modifications to WES’s existing systems and the construction of new midstream assets involve numerous regulatory, environmental, political and legal uncertainties that are beyond WES’s control. These uncertainties could also affect downstream assets, which WES does not own or control, but which are critical to certain of WES’s growth projects. Delays in the completion of new downstream assets, or the unavailability of existing downstream assets, due to environmental, regulatory or political considerations, could have an adverse impact on the completion or utilization of WES’s growth projects. In addition, construction activities could be subject to state, county and local ordinances that restrict the time, place or manner in which those activities may be conducted. Construction projects may also require the expenditure of significant amounts of capital, and financing may not be available on economically acceptable terms or at all. If WES undertakes these projects, they may not be completed on schedule, at the budgeted cost, or at all. For example, construction activities may be delayed or require greater capital investment if the commodity prices of certain supplies such as steel pipe increase due to foreign tariffs. In addition, WES’s revenues may not increase immediately upon the expenditure of funds on a particular project. For instance, if WES expands a pipeline, the construction may occur over an extended period of time, yet WES will not receive any material increases in revenues until the project is completed. Moreover, WES could construct facilities to capture anticipated future growth in production in a region in which such growth does not materialize. Since WES is not engaged in the exploration for and development of natural gas and oil reserves, WES often does not have access to estimates of potential reserves in an area prior to constructing facilities in that area. To the extent WES relies on estimates of future production in its decision to construct additions to its systems, such estimates may prove to be inaccurate as a result of the numerous uncertainties inherent in estimating quantities of future production. As a result, new facilities may not be able to attract enough throughput to achieve WES’s expected investment return, which could adversely affect its results of operations and financial condition. In addition, the construction of additions to WES’s existing assets may require it to obtain new rights-of-way. WES may be unable to obtain such rights-of-way and may, therefore, be unable to connect new natural gas volumes to its systems or capitalize on other attractive expansion opportunities. Additionally, it may become more expensive for WES to obtain new rights-of-way or to renew existing rights-of-way. If the cost of renewing existing or obtaining new rights-of-way increases, WES’s cash flows could be adversely affected.

WES has partial ownership interests in several joint venture legal entities that WES does not operate or control. As a result, among other things, WES may be unable to control the amount of cash it receives or retains from the operation of these entities, and WES could be required to contribute significant cash to fund its share of their operations, which could adversely affect WES’s ability to distribute cash to its partners, including us.

WES’s inability, or limited ability, to control the operations and/or management of joint venture legal entities in which it has a partial ownership interest may result in WES receiving or retaining less cash than it expects. WES also may be unable, or limited in its ability, to cause any such entity to effect significant transactions such as large expenditures or contractual commitments, the construction or acquisition of assets, or the borrowing of money.
In addition, for the equity investments in which WES has a minority ownership interest, WES is unable to control ongoing operational decisions, including the incurrence of capital expenditures or additional indebtedness that WES may be required to fund. Further, the other owners of WES’s equity investments may establish reserves for working capital, capital projects, environmental matters and legal proceedings, that would similarly reduce the amount of cash available for distribution. Any of the above could significantly and adversely impact WES’s ability to make cash distributions to its partners, including us.
Further, in connection with the acquisition of its membership interest in Chipeta, WES became party to the Chipeta LLC agreement. Among other things, the Chipeta LLC agreement provides that to the extent available, Chipeta will distribute available cash, as defined in the Chipeta LLC agreement, to its members quarterly in accordance with those members’ membership interests. Accordingly, WES is required to distribute a portion of Chipeta’s cash balances, which are included in the cash balances in its consolidated balance sheets, to the other Chipeta member.


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WES does not own all of the land on which its pipelines and facilities are located, which could result in disruptions to WES’s operations.

WES does not own all of the land on which its pipelines and facilities have been constructed, and WES is, therefore, subject to the possibility of more onerous terms and/or increased costs to retain necessary land use if WES does not have valid rights-of-way or if such rights-of-way lapse or terminate. WES obtains the rights to construct and operate its pipelines on land owned by third parties and governmental agencies for a specific period of time. WES cannot guarantee that it will always be able to renew existing rights of way or obtain new rights of way without experiencing significant costs. Any loss of rights with respect to WES’s real property, through its inability to renew existing rights-of-way contracts or otherwise, could have a material adverse effect on WES’s business, results of operations, financial position and ability to make cash distributions to its partners, including us.

WES’s business involves many hazards and operational risks, some of which may not be fully covered by insurance. If a significant accident or event occurs for which WES is not fully insured, its operations and financial results could be adversely affected.

WES’s operations are subject to all of the risks and hazards inherent in gathering, processing, compressing, treating and transporting natural gas, crude oil, NGLs and produced water, including the following:

damage to pipelines and plants, related equipment and surrounding properties caused by hurricanes, tornadoes, floods, fires and other natural disasters and acts of terrorism;

inadvertent damage from construction, farm and utility equipment;

leaks or losses of hydrocarbons or produced water as a result of the malfunction of equipment or facilities;

fires and explosions (for example, see Items Affecting the Comparability of Financial Results, under Part II, Item 7 of this Form 10-K for a discussion of the incident at the DBM complex); and

other hazards that could also result in personal injury, loss of life, pollution, property or natural resource damages and/or curtailment or suspension of operations.

These risks could result in substantial losses due to personal injury and/or loss of life, severe damage to and destruction of property and equipment and pollution or other environmental or natural resource damage. These risks may also result in curtailment or suspension of WES’s operations. A natural disaster or other hazard affecting the areas in which WES operates could have a material adverse effect on its operations. WES is not fully insured against all risks that may occur in its business. In addition, although WES is insured for environmental pollution resulting from environmental accidents that occur on a sudden and accidental basis, WES may not be insured against all environmental accidents that might occur, some of which may result in toxic tort claims. If a significant accident or event occurs for which WES is not fully insured, it could adversely affect WES’s operations and financial condition. Furthermore, WES may not be able to maintain or obtain insurance of the type and amount it desires at reasonable rates. As a result of market conditions, premiums and deductibles for certain of WES’s insurance policies may substantially increase. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. Additionally, WES may be unable to recover from prior owners of its assets, pursuant to certain indemnification rights, for potential environmental liabilities.

If Anadarko were to limit transfers of midstream assets to WES or if WES were to be unable to make acquisitions on economically acceptable terms from Anadarko or third parties, WES’s future growth would be limited. In addition, any acquisitions WES makes may reduce, rather than increase, its cash generated from operations on a per-unit basis or otherwise fail to meet WES’s expectations.

WES’s ability to grow depends, in part, on its ability to make acquisitions that increase its cash generated from operations on a per-unit basis. The acquisition component of WES’s strategy is based, in large part, on its expectation of ongoing divestitures of midstream assets by industry participants, including, most notably, Anadarko. A material decrease in such divestitures would limit WES’s opportunities for future acquisitions and could adversely affect its ability to grow its operations and increase its distributions to its partners, including us.

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If WES is unable to make accretive acquisitions from Anadarko or third parties because, among other things, (i) it is unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts, (ii) it is unable to obtain financing for these acquisitions on economically acceptable terms, (iii) it is outbid by competitors, including as a result of increases in its overall cost of capital resulting from its capital structure, or (iv) Anadarko lacks assets suitable for it to acquire, then its future growth and ability to increase distributions will be limited. Furthermore, even if WES makes acquisitions that it believes will be accretive, these acquisitions may nevertheless result in a decrease in the cash generated from operations on a per-unit basis.
Any acquisition involves potential risks, including the following, among other things:

mistaken assumptions about volumes or the timing of those volumes, revenues or costs, including synergies;

an inability to successfully integrate the acquired assets or businesses;

the assumption of unknown liabilities, including environmental liabilities;

limitations on rights to indemnity from the seller;

mistaken assumptions about the overall costs of equity or debt;

the diversion of management’s and employees’ attention from other business concerns;

unforeseen difficulties operating in new geographic areas; and

customer or key employee losses at the acquired businesses.

If WES consummates any future acquisitions, its capitalization and results of operations may change significantly.

The loss of, or difficulty in attracting and retaining, experienced personnel could reduce WES’s competitiveness and prospects for future success.

The successful execution of WES’s growth strategy and other activities integral to its operations depends, in part, on WES’s ability to attract and retain experienced engineering, operating, commercial and other professionals. Competition for such professionals has historically been intense. If WES cannot retain its technical personnel or attract additional experienced technical personnel, WES’s ability to compete could be adversely impacted.

WES is required to deduct estimated future maintenance capital expenditures from operating surplus, which may result in less cash available for distribution to unitholders than if actual maintenance capital expenditures were deducted.

WES’s partnership agreement requires it to deduct estimated, rather than actual, maintenance capital expenditures from operating surplus. The amount of estimated maintenance capital expenditures deducted from operating surplus is subject to review and change by WES’s Special Committee of its Board of Directors at least once a year. In years when WES’s estimated maintenance capital expenditures are higher than actual maintenance capital expenditures, the amount of cash available for distribution to us will be lower than if actual maintenance capital expenditures were deducted from operating surplus. If WES underestimates the appropriate level of estimated maintenance capital expenditures, it may have less cash available for distribution in future periods when actual capital expenditures begin to exceed its previous estimates. Over time, if WES does not set aside sufficient cash reserves or have sufficient sources of financing available to make the expenditures required to maintain its asset base, WES may be unable to pay distributions at the anticipated level and could be required to reduce its distributions.


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TAX RISKS TO COMMON UNITHOLDERS

Our taxation as a flow-through entity depends on our status as a partnership for U.S. federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. Likewise, WES’s taxation as a flow-through entity depends on its status as a partnership for U.S. federal income tax purposes, as well as WES not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service (“IRS”) were to treat WES or us as a corporation for federal income tax purposes or if either WES or we were to become subject to material additional amounts of entity-level taxation for state tax purposes, then our cash available for distribution to our unitholders could be substantially reduced.

The anticipated after-tax economic benefit of an investment in our common units depends largely on each of us and WES being treated as a partnership for U.S. federal income tax purposes.
Despite the fact that we and WES are organized as limited partnerships under Delaware law, it is possible in certain circumstances for a partnership such as us or WES to be treated as a corporation for federal income tax purposes unless it satisfies a “qualifying income” requirement and is not treated as an investment company. Based upon WES’s current operations, we believe that we and WES satisfy the qualifying income requirement and we and WES are not treated as investment companies. Failing to meet the qualifying income requirement, being treated as an investment company, a change in our or WES’s business activities, or a change in current law could cause us or WES to be treated as a corporation for federal income tax purposes or otherwise subject us or WES to taxation as an entity.
If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our taxable income at the corporate tax rate, and would likely pay state income tax at varying rates. Distributions to our unitholders would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits would flow through to our unitholders. Because a tax would be imposed upon us as a corporation, our cash available for distribution to our unitholders would be substantially reduced. Therefore, treatment of us as a corporation would result in a material reduction in the anticipated cash flows and after-tax return to our unitholders, likely causing a substantial reduction in the value of our common units.
If WES were treated as a corporation for federal income tax purposes, it would pay federal, and possibly state, income taxes on its taxable income at the corporate tax rates. Distributions to us would generally be taxable again as corporate distributions, and, in general, no income, gains, losses, deductions, or credits would flow through to us. As a result, there would be a material reduction in our anticipated cash flow and the value of our investment in WES, likely causing a substantial reduction in the value of our common units. Additionally, if we or WES becomes subject to federal income tax, we or WES would also be subject to the income tax provisions of many states. At the state level, several states have been evaluating ways to subject partnerships to entity-level taxation through the imposition of state income or franchise taxes, or other forms of taxation. For example, WES is required to pay Texas margin tax on its gross income apportioned to Texas. Imposition of a similar tax on us or WES in other jurisdictions to which WES may expand its operations could substantially reduce the cash available for distribution to our unitholders.

The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly on a retroactive basis.

The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. From time to time, members of Congress propose and consider substantive changes to the existing U.S. federal income tax laws that affect publicly traded partnerships. Although there is no current legislative proposal, a prior legislative proposal would have eliminated the qualifying income exception to the treatment of all publicly traded partnerships as corporations, upon which we and WES rely for our treatment as partnerships for U.S. federal income tax purposes.
In addition, the Treasury Department has issued regulations interpreting the laws that affect publicly traded partnerships. We believe we and WES qualify as partnerships for U.S. federal income tax purposes under these regulations.

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However, any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any of these changes or other proposals will ultimately be enacted. Any similar or future legislative changes could negatively impact the value of an investment in our common units. You are urged to consult with your own tax advisor with respect to the status of regulatory and administrative developments and proposals and their potential effect on your investment in our or WES’s common units.

If the IRS were to contest the federal income tax positions we or WES take, it may adversely impact the market for our common units or WES’s common units, and the costs of any such contest would reduce the cash available for distribution to our unitholders.

We have not requested a ruling from the IRS with respect to our treatment as a partnership for U.S. federal income tax purposes. The IRS may adopt positions that differ from the positions we or WES take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we or WES take, and a court may not agree with some or all of those positions. Any contest with the IRS may materially and adversely impact the market for our common units and the price at which they trade. Moreover, the costs of any contest with the IRS will result in a reduction in cash available for distribution to our unitholders and thus will be borne indirectly by our unitholders.

If the IRS makes audit adjustments to our income tax returns or WES’s income tax returns for tax years beginning after December 31, 2017, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustments directly from us or WES, respectively, in which case our cash available for distribution to our unitholders might be substantially reduced. In addition, our or WES’s current and former unitholders may be required to indemnify us or WES for any taxes (including any applicable penalties and interest) resulting from such audit adjustments that were paid on such unitholders’ behalf.

Pursuant to the Bipartisan Budget Act of 2015, for tax years beginning after December 31, 2017, if the IRS makes audit adjustments to our or WES’s income tax returns, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustments directly from us or WES, respectively. To the extent possible under the new rules, our general partner or WES’s general partner may elect to either pay the taxes (including any applicable penalties and interest) directly to the IRS or, if we are eligible, issue a revised information statement to each unitholder and former unitholder with respect to an audited and adjusted return. Although our general partner or WES’s general partner may elect to have our current or former unitholders or WES’s current or former unitholders take such audit adjustment into account and pay any resulting taxes (including applicable penalties or interest) in accordance with their respective interests in us or WES, respectively, during the tax year under audit, there can be no assurance that such election will be practical, permissible or effective in all circumstances. As a result, our or WES’s current unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if such unitholders did not own units in us or WES during the tax year under audit. If, as a result of any such audit adjustment, we or WES are required to make payments of taxes, penalties and interest, our cash available for distribution to our unitholders might be substantially reduced and our current and former unitholders may be required to indemnify us for any taxes (including any applicable penalties and interest) resulting from such audit adjustments that were paid on such unitholders’ behalf. These rules are not applicable for tax years beginning on or prior to December 31, 2017.

Our unitholders are required to pay taxes on their share of our income even if they do not receive any cash distributions from us.

Our unitholders are required to pay any U.S. federal income taxes and, in some cases, state and local income taxes on their share of our taxable income whether or not they receive cash distributions from us. For example, if we sell assets and use the proceeds to repay existing debt or fund capital expenditures, unitholders may be allocated taxable income and gain resulting from the sale, and our cash available for distribution would not increase. Similarly, taking advantage of opportunities to reduce our existing debt, such as debt exchanges, debt repurchases, or modifications of our existing debt could result in “cancellation of indebtedness income” being allocated to our unitholders as taxable income without any increase in our cash available for distribution. Our unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from that income.


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Tax gain or loss on the disposition of our common units could be more or less than expected.

If a unitholder sells common units, the unitholder will recognize a gain or loss equal to the difference between the amount realized and that unitholder’s tax basis in those common units. Because distributions in excess of a unitholder’s allocable share of our net taxable income result in a decrease in that unitholder’s tax basis in its common units, the amount, if any, of such prior excess distributions with respect to the units sold will, in effect, become taxable income to that unitholder, if that unitholder sells such units at a price greater than that unitholder’s tax basis in those units, even if the price received is less than their original cost. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if they sell their units, unitholders may incur a tax liability in excess of the amount of cash they receive from the sale.
A substantial portion of the amount realized from a unitholder’s sale of units, whether or not representing gain, may be taxed as ordinary income to the unitholder due to potential recapture of items, including depreciation recapture. Thus, a unitholder may recognize both ordinary income and capital loss from the sale of units if the amount realized on the sale is less than the unitholder’s adjusted basis in the units. Net capital loss may only offset capital gains and, in the case of individuals, up to $3,000 of ordinary income per year. In the taxable period in which a unitholder sells units, the unitholder may recognize ordinary income from our allocations of income and gain prior to the sale and from recapture items, which generally cannot be offset by any capital loss recognized upon the sale of units.

Tax-exempt entities face unique tax issues from owning common units that may result in adverse tax consequences to them.

Investment in our or WES’s common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (or “IRAs”) raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Further, with respect to taxable years beginning after December 31, 2017, subject to the Treasury Department’s proposed aggregation rules regarding certain similarly situated businesses or activities, a tax-exempt entity with more than one unrelated trade or business (including by attribution from investment in a partnership such as ours or WES’s that is engaged in one or more unrelated trades or businesses) is required to compute the unrelated business taxable income of such tax-exempt entity separately with respect to each such trade or business (including for purposes of determining any net operating loss deduction). As a result, for years beginning after December 31, 2017, it may not be possible for tax-exempt entities to utilize losses from an investment in us or WES to offset unrelated business taxable income from another unrelated trade or business and vice versa. Tax-exempt entities should consult a tax advisor before investing in our or WES’s common units.

Non-U.S. unitholders will be subject to U.S. taxes and withholding with respect to their income and gain from owning our or WES’s units.

Non-U.S. unitholders are generally taxed and subject to income tax filing requirements by the United States on income effectively connected with a U.S. trade or business (“effectively connected income”). Income allocated to our or WES’s unitholders and any gain from the sale of our or WES’s units will generally be considered to be “effectively connected” with a U.S. trade or business. As a result, distributions to a non-U.S. unitholder are subject to withholding at the highest applicable effective tax rate and a non-U.S. unitholder who sells or otherwise disposes of a unit is also subject to U.S. federal income tax on the gain realized from the sale or disposition of that unit.
The Tax Cuts and Jobs Act imposes a withholding obligation of 10% of the amount realized upon a non-U.S. unitholder’s sale or exchange of an interest in a partnership that is engaged in a U.S. trade or business. However, due to challenges of administering a withholding obligation applicable to open market trading and other complications, the IRS has temporarily suspended the application of this withholding rule to open market transfers of interests in publicly traded partnerships pending promulgation of regulations or other guidance that resolves the challenges. It is not clear if or when such regulations or other guidance will be issued. Non-U.S. unitholders should consult a tax advisor before investing in our or WES’s common units.


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We treat each purchaser of our common units as having the same tax benefits without regard to the common units actually purchased. The IRS may challenge this treatment, which could adversely affect the value of our common units.

Because we cannot match transferors and transferees of common units, we have adopted certain methods of allocating depreciation and amortization deductions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to the use of these methods could adversely affect the amount of tax benefits available to our unitholders. It also could affect the timing of these tax benefits or the amount of gain from any sale of common units and could negatively impact the value of our common units or result in audit adjustments to unitholders’ tax returns.

We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our common units each month based upon the ownership of our common units on the first day of each month, instead of on the basis of the date a particular common unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.

We and WES generally prorate our items of income, gain, loss and deduction between transferors and transferees of our common units each month based upon the ownership of our common units on the first day of each month (the “Allocation Date”), instead of on the basis of the date a particular common unit is transferred. Similarly, we and WES generally allocate certain deductions for depreciation of capital additions, gain or loss realized on a sale or other disposition of our assets and, in the discretion of the general partner, any other extraordinary item of income, gain, loss or deduction based upon ownership on the Allocation Date. Treasury Regulations allow a similar monthly simplifying convention, but such regulations do not specifically authorize all aspects of our proration method. If the IRS were to challenge our proration method, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders.

A unitholder whose common units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of common units) may be considered to have disposed of those common units. If so, the unitholder would no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.

Because there are no specific rules governing the federal income tax consequences of loaning a partnership interest, a unitholder whose common units are the subject of a securities loan may be considered to have disposed of the loaned units. In that case, the unitholder may no longer be treated for tax purposes as a partner with respect to those common units during the period of the loan and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those common units could be fully taxable as ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a securities loan are urged to consult a tax advisor to determine whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their common units.

We and WES have adopted certain valuation methodologies in determining a unitholder’s allocations of income, gain, loss and deduction. The IRS may challenge these methodologies or the resulting allocations, which could adversely affect the value of WES’s common units and our common units.

In determining the items of income, gain, loss and deduction allocable to our and WES’s unitholders, we and WES must routinely determine the fair market value of our respective assets. Although we or WES may, from time to time, consult with professional appraisers regarding valuation matters, we and WES make many fair market value estimates using a methodology based on the market value of our respective common units as a means to measure the fair market value of our respective assets. The IRS may challenge these valuation methods and the resulting allocations of income, gain, loss and deduction.
A successful IRS challenge to these methods or allocations could adversely affect the timing or amount of taxable income or loss allocated to our or WES’s unitholders. It also could affect the amount of gain recognized on the sale of common units by our unitholders or WES’s unitholders and could negatively impact the value of our common units or WES’s common units, or result in audit adjustments to our respective unitholders’ tax returns without the benefit of additional deductions.


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Our unitholders are subject to state and local taxes and return filing requirements in jurisdictions where they do not live as a result of investing in our common units.

In addition to U.S. federal income taxes, our unitholders are subject to other taxes, including foreign, state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we or WES conduct business or own property now or in the future, even if they do not live in any of those jurisdictions. Our unitholders will likely be required to file foreign, state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with those requirements. As we or WES make acquisitions or expand our business, we or WES may own assets or conduct business in additional states or foreign jurisdictions that impose a personal income tax. It is the responsibility of each unitholder to file all U.S. federal, foreign, state and local tax returns.

Item 1B.  Unresolved Staff Comments

None.

Item 3.  Legal Proceedings

Kerr-McGee Gathering LLC, one of WES’s wholly owned subsidiaries, is currently in negotiations with the EPA and the Department of Justice with respect to alleged non-compliance with the leak detection and repair requirements of the federal Clean Air Act (“LDAR requirements”) at its Fort Lupton facility in the DJ Basin complex and WGR Operating, LP, another wholly owned subsidiary of WES, is in negotiations with the EPA with respect to alleged non-compliance with LDAR requirements at its Granger, Wyoming facility. Although WES’s management cannot predict the outcome of settlement discussions in these matters, WES’s management believes that it is reasonably likely a resolution of these matters will result in a fine or penalty for each matter in excess of $100,000.
We are not engaged in any material litigation. Except as discussed above, WES is not a party to any legal, regulatory or administrative proceedings other than proceedings arising in the ordinary course of its business. WES’s management believes that there are no such proceedings for which a final disposition could have a material adverse effect on its results of operations, cash flows or financial condition, or for which disclosure is otherwise required by Item 103 of Regulation S-K.

Item 4.  Mine Safety Disclosures

Not applicable.


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PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

MARKET INFORMATION

Our common units are listed on the NYSE under the symbol “WGP.” Upon closing of the Merger, our common units will begin trading on the NYSE under the symbol “WES,” and we will change our name to Western Midstream Partners, LP. See Note 1—Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K for additional information.
As of February 18, 2019, there were seven unitholders of record of our common units. This number does not include unitholders whose units are held in trust by other entities. The actual number of unitholders is greater than the number of holders of record.

OTHER SECURITIES MATTERS

Securities authorized for issuance under equity compensation plans. In connection with the closing of our IPO, our general partner adopted the WGP LTIP, which permits the issuance of up to 3,000,000 units, of which 2,937,197 units remained available for future issuance as of December 31, 2018. Phantom unit grants under the WGP LTIP have been made to each of the independent directors of WGP GP. Read the information under Part III, Item 12 of this Form 10-K, which is incorporated by reference into this Item 5.

SELECTED INFORMATION FROM OUR PARTNERSHIP AGREEMENT

Set forth below is a summary of the significant provisions of our partnership agreement that relate to cash distributions.

Available cash. Our partnership agreement requires us to distribute all of our available cash (as defined in our partnership agreement) to unitholders of record on the applicable record date within 55 days of the end of each quarter. Available cash consists of cash on hand at the end of the quarter plus (if our general partner so determines) all or a portion of cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter, less the amount of cash reserves established by our general partner to provide for the proper conduct of our business (including to satisfy general, administrative and other expenses and any debt service requirements); to permit WES GP, our wholly owned subsidiary, to make capital contributions to WES upon the issuance of additional partnership securities by WES; to comply with applicable laws, any of our future debt instruments or other agreements; or to provide funds for distributions to our unitholders for any one or more of the next four quarters. Working capital borrowings generally include borrowings made under a credit facility or similar financing arrangement. Working capital borrowings may only be those that, at the time of such borrowings, were intended to be repaid within 12 months. In all cases, working capital borrowings are used solely for working capital purposes or to fund distributions to unitholders.

General partner interest. Our general partner owns a non-economic general partner interest in us, which does not entitle it to receive cash distributions. Our general partner may own our common units or other equity securities and would be entitled to receive cash distributions on any such interests.


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Item 6.  Selected Financial and Operating Data

The following Summary Financial Information table shows our selected financial and operating data, which are derived from our consolidated financial statements for the periods and as of the dates indicated. Our consolidated financial statements include the consolidated financial results of WES due to our 100% ownership interest in WES GP and WES GP’s control of WES. Our only cash-generating assets consist of our partnership interests in WES, and we currently have no independent operations.
The term “WES assets” includes both the assets indirectly owned and the interests accounted for under the equity method by us through our partnership interests in WES as of December 31, 2018 (see Note 10—Equity Investments in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K). Because Anadarko controls WES through its control of us, and because we own the entire interest in WES GP, each of WES’s acquisitions of WES assets from Anadarko has been considered a transfer of net assets between entities under common control. As such, WES assets acquired from Anadarko were initially recorded at Anadarko’s historic carrying value, which did not correlate to the total acquisition price paid by WES. Further, after an acquisition of assets from Anadarko, we (by virtue of our consolidation of WES) and WES are required to recast our financial statements to include the activities of such WES assets from the date of common control.
For those periods requiring recast, the consolidated financial statements for periods prior to the acquisition of WES assets from Anadarko have been prepared from Anadarko’s historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if WES had owned the WES assets during the periods reported. For ease of reference, we refer to the historical financial results of the WES assets prior to the acquisitions from Anadarko as being “our” historical financial results.

Acquisitions. The following table presents the acquisitions completed by WES for the periods presented in the Summary Financial Information table below. Our consolidated financial statements include the combined financial results and operations for: (i) affiliate acquisitions for all periods presented and (ii) third-party acquisitions since the acquisition date.
 
 
Acquisition Date
 
Percentage Acquired
 
Affiliate or Third-party Acquisition
TEFR Interests (1)
 
03/03/2014
 
Various (1)

 
Affiliate
DBM
 
11/25/2014
 
100
%
 
Third party
DBJV system
 
03/02/2015
 
50
%
 
Affiliate
Springfield system
 
03/14/2016
 
50.1
%
 
Affiliate
DBJV system (2)
 
03/17/2017
 
50
%
 
Third party
Whitethorn LLC (3)
 
06/01/2018
 
20
%
 
Third party
Cactus II (3)
 
06/27/2018
 
15
%
 
Third party
                                                                                                                                                                                    
(1) 
WES acquired a 20% interest in each of TEG and TEP and a 33.33% interest in FRP.
(2) 
See Property exchange below.
(3) 
See Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K for additional details.

Property exchange. In March 2017, WES acquired the Additional DBJV System Interest from a third party in exchange for the Non-Operated Marcellus Interest and $155.0 million of cash consideration. WES previously held a 50% interest in, and operated, the DBJV system.

Divestitures. In December 2018, the Newcastle system in Northeast Wyoming was sold to a third party. In June 2017, the Helper and Clawson systems, located in Utah, were sold to a third party. In October 2016, the Hugoton system, located in Southwest Kansas and Oklahoma, was sold to a third party. In July 2015, the Dew and Pinnacle systems in East Texas were sold to a third party.


76


The information in the following table should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, which are included under Part II, Item 8 of this Form 10-K, and with the information under the captions Items Affecting the Comparability of Financial Results, How WES Evaluates Its Operations, and Results of Operations under Part II, Item 7 of this Form 10-K. See Note 1—Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K for a discussion of the impact the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) had on WES’s revenues and expenses.
 
 
Summary Financial Information
thousands except per-unit data and throughput
 
2018
 
2017
 
2016
 
2015
 
2014
Statement of Operations Data (for the year ended):
 
 
 
 
 
 
 
 
 
 
Total revenues and other
 
$
1,990,276

 
$
2,248,356

 
$
1,804,270

 
$
1,752,072

 
$
1,533,377

Cost of product
 
431,921

 
908,693

 
494,194

 
528,369

 
458,379

Operating income (loss)
 
625,364

 
704,399

 
704,535

 
154,182

 
551,481

Net income (loss)
 
448,512

 
573,202

 
596,980

 
11,098

 
453,489

Net income (loss) attributable to noncontrolling interests
 
79,083

 
196,595

 
251,208

 
(154,409
)
 
165,468

Net income (loss) attributable to Western Gas Equity Partners, LP
 
369,429

 
376,607

 
345,772

 
165,507

 
288,021

Net income (loss) per common unit – basic and diluted
 
1.69

 
1.72

 
1.53

 
0.39

 
1.02

Distributions per unit
 
2.34875

 
2.10500

 
1.76750

 
1.49125

 
1.12500

Balance Sheet Data (at year end):
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
9,238,643

 
$
8,016,311

 
$
7,736,097

 
$
7,303,344

 
$
7,550,494

Total long-term liabilities
 
5,197,121

 
3,647,006

 
3,309,944

 
3,147,681

 
2,699,244

Total equity and partners’ capital
 
3,504,665

 
3,944,879

 
4,110,766

 
3,920,098

 
4,567,946

Cash Flow Data (for the year ended):
 
 
 
 
 
 
 
 
 
 
Net cash flows provided by (used in):
 
 
 
 
 
 
 
 
 
 
Operating activities
 
$
1,016,695

 
$
897,412

 
$
913,076

 
$
782,809

 
$
690,662

Investing activities
 
(1,459,798
)
 
(763,604
)
 
(1,105,534
)
 
(500,277
)
 
(2,740,175
)
Financing activities
 
455,657

 
(413,292
)
 
451,836

 
(250,051
)
 
2,003,605

Capital expenditures
 
(1,193,896
)
 
(673,638
)
 
(473,858
)
 
(637,503
)
 
(804,822
)
Throughput (MMcf/d except throughput measured in barrels):
Total throughput for natural gas assets
 
3,892

 
3,680

 
4,064

 
4,300

 
3,984

Throughput attributable to noncontrolling interest for natural gas assets
 
90

 
105

 
124

 
142

 
165

Total throughput attributable to WES for natural gas assets
 
3,802

 
3,575

 
3,940

 
4,158

 
3,819

Throughput for crude oil, NGLs and produced water assets (MBbls/d)
 
365

 
201

 
184

 
186

 
154



77


Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion analyzes our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, in which WES is fully consolidated, which are included under Part II, Item 8 of this Form 10-K, and the information set forth in Risk Factors under Part I, Item 1A of this Form 10-K.
The term “WES assets” includes both the assets indirectly owned and the interests accounted for under the equity method by us through our partnership interests in WES as of December 31, 2018 (see Note 10—Equity Investments in the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K). Because Anadarko controls WES through its control of us, and because we own the entire interest in WES GP, each of WES’s acquisitions of WES assets from Anadarko has been considered a transfer of net assets between entities under common control. As such, WES assets acquired from Anadarko were initially recorded at Anadarko’s historic carrying value, which did not correlate to the total acquisition price paid by WES. Further, after an acquisition of assets from Anadarko, we (by virtue of our consolidation of WES) and WES are required to recast our financial statements to include the activities of such WES assets from the date of common control.
For those periods requiring recast, the consolidated financial statements for periods prior to the acquisition of WES assets from Anadarko have been prepared from Anadarko’s historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if WES had owned the WES assets during the periods reported. For ease of reference, we refer to the historical financial results of the WES assets prior to the acquisitions from Anadarko as being “our” historical financial results.

EXECUTIVE SUMMARY

We were formed by Anadarko in September 2012 by converting WGR Holdings, LLC into an MLP and changing its name to Western Gas Equity Partners, LP. We closed our IPO in December 2012 and own WES GP and a significant limited partner interest in WES, a growth-oriented Delaware MLP formed by Anadarko to acquire, own, develop and operate midstream assets. Our consolidated financial statements include the consolidated financial results of WES due to our 100% ownership interest in WES GP and WES GP’s control of WES. Our only cash-generating assets consist of our partnership interests in WES, and we currently have no independent operations.
WES currently owns or has investments in assets located in the Rocky Mountains (Colorado, Utah and Wyoming), North-central Pennsylvania, Texas and New Mexico. WES is 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 addition, in its capacity as a processor of natural gas, WES also buys and sells natural gas, NGLs and condensate on behalf of itself and as agent for its customers under certain of its contracts. WES provides these midstream services for Anadarko, as well as for third-party customers. As of December 31, 2018, WES’s assets and investments consisted of the following:
 
 
Owned and
Operated
 
Operated
Interests
 
Non-Operated
Interests
 
Equity
Interests
Gathering systems (1)
 
12

 
2

 
3

 
2

Treating facilities
 
14

 
3

 

 
3

Natural gas processing plants/trains
 
21

 
3

 

 
2

NGLs pipelines
 
2