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Transactions with Affiliates

12 Months Ended

Dec. 31, 2019

6. TRANSACTIONS WITH AFFILIATES

Affiliate transactions. Affiliate revenues include (i) income from the Partnership’s investments accounted for under the equity method of accounting (see Note 10) and (ii) amounts earned by the Partnership from services provided to Occidental and from the sale of natural gas, condensate, and NGLs to Occidental. Occidental sells natural gas and NGLs as an agent on behalf of either the Partnership or the Partnership’s customers. When product sales are on the Partnership’s customers’ behalf, the Partnership recognizes associated service revenues and cost of product expense. When product sales are on the Partnership’s behalf, the Partnership recognizes product sales revenues based on Occidental’s sales price to the third party and records the associated cost of product expense. In addition, the Partnership purchases natural gas from an affiliate of Occidental pursuant to gas purchase agreements.

Operation and maintenance expense includes amounts accrued for or paid to affiliates for the operation of the Partnership’s assets and for services provided to affiliates, including field labor, measurement and analysis, and other disbursements. A portion of general and administrative expense is paid by Occidental, which results in affiliate transactions pursuant to the reimbursement provisions of the Partnership’s and WES Operating’s agreements with Occidental. Affiliate expenses do not bear a direct relationship to affiliate revenues, and third-party expenses do not bear a direct relationship to third-party revenues.

December 2019 Agreements. As discussed in more detail in Note 1, on December 31, 2019, the Partnership and certain of its subsidiaries, including WES Operating and WES Operating GP, entered into agreements with Occidental and/or certain of its subsidiaries, including Anadarko.

Merger transactions. As discussed in more detail in Note 1, on February 28, 2019, the Partnership, WES Operating, Anadarko, and certain of their affiliates completed the Merger and the other transactions contemplated in the Merger Agreement, which included the acquisition of AMA from Anadarko. See Note 3.

Cash management. Occidental operates a cash management system for its subsidiaries’ separate bank accounts, including accounts for the Partnership and WES Operating. Prior to the acquisition of assets from Anadarko, third-party sales and purchases related to such assets were received or paid in cash by Anadarko within its centralized cash management system. Outstanding affiliate balances as of the dates of acquisition were settled entirely through an adjustment to net investment by Anadarko in connection with the acquisitions. Subsequent to asset acquisitions from Anadarko, transactions related to the acquired assets were cash-settled directly by the Partnership with third parties and Anadarko affiliates. Chipeta cash-settles its transactions directly with third parties, Occidental, and other subsidiaries of the Partnership.

Note receivable - Anadarko. In May 2008, WES Operating loaned $260.0 million to Anadarko in exchange for a 30-year note bearing interest at a fixed annual rate of 6.50%, payable quarterly and classified as Interest income – affiliates in the consolidated statements of operations. The fair value of the Anadarko note receivable was $337.7 million and $279.6 million at December 31, 2019 and 2018, respectively. Following Occidental’s acquisition by merger of Anadarko, the fair value of the Anadarko note receivable reflects consideration of Occidental’s credit risk and any premium or discount for the differential between the stated interest rate and quarter-end market interest rate, based on quoted market prices of similar debt instruments. Accordingly, the fair value of the note receivable is measured using Level-2 fair value inputs.

APCWH Note Payable. In June 2017, APCWH entered into an eight-year note payable agreement with Anadarko, which was repaid at the Merger completion date. See Note 1 and Note 13.

6. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Commodity-price swap agreements. WES Operating entered into commodity-price swap agreements with Anadarko to mitigate exposure to the commodity-price risk inherent in WES Operating’s percent-of-proceeds, percent-of-product, and keep-whole natural-gas processing contracts. Notional volumes for each product-based commodity-price swap agreement were not specifically defined. Instead, the commodity-price swap agreements applied to the actual volumes of natural gas, condensate, and NGLs purchased and sold. The commodity-price swap agreements did not satisfy the definition of a derivative financial instrument and, therefore did not require fair-value measurement. Net gains (losses) on commodity-price swap agreements were $(0.7) million (due to settlement of 2018 activity in 2019), $(7.9) million, and $0.6 million for the years ended December 31, 2019, 2018, and 2017, respectively, and are reported in the consolidated statements of operations as affiliate Product sales in 2019 and 2018 and as affiliate Product sales and Cost of product in 2017. These commodity-price swap agreements expired without renewal on December 31, 2018.

Revenues or costs attributable to volumes sold and purchased under the commodity-price swap agreements for the DJ Basin complex and the MGR assets were recognized in the consolidated statements of operations at the applicable market price in the tables below. A capital contribution from Anadarko was recorded in the consolidated statements of equity and partners’ capital for an amount equal to (i) the amount by which the swap price for product sales exceeds the applicable market price in the tables below, minus (ii) the amount by which the swap price for product purchases exceeds the applicable market price in the tables below. For the years ended December 31, 2019, 2018, and 2017, the capital contributions from Anadarko were $7.4 million, $51.6 million, and $58.6 million, respectively. The tables below summarize the swap prices compared to the forward market prices:



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



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


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

6. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Gathering and processing agreements. The Partnership has significant gathering and processing arrangements with affiliates of Occidental on most of its systems. Natural-gas throughput (excluding equity-investment throughput) attributable to production owned or controlled by Occidental was 38%, 36%, and 39% for the years ended December 31, 2019, 2018, and 2017, respectively. Crude-oil, NGLs, and produced-water throughput (excluding equity-investment throughput) attributable to production owned or controlled by Occidental was 83%, 85%, and 81% for the years ended December 31, 2019, 2018, and 2017, respectively.

Commodity purchase and sale agreements. The Partnership sells a significant amount of its natural gas and NGLs to Anadarko Energy Services Company (“AESC”), Occidental’s marketing affiliate that acts as the Partnership’s agent for third-party sales. In addition, the Partnership purchases natural gas from AESC pursuant to purchase agreements.

Marketing Transition Services Agreement. Effective December 31, 2019, certain subsidiaries of Anadarko entered into a transition services agreement (the “Marketing Transition Services Agreement”) to provide certain marketing-related services to certain of the Partnership’s subsidiaries through December 31, 2020, subject to the Partnership’s subsidiaries’ option to extend such services for an additional six-month period.

Shared services agreements. Pursuant to the agreements discussed below, Occidental performs centralized corporate functions for the Partnership and WES Operating such as legal; accounting; treasury; cash management; investor relations; insurance administration and claims processing; risk management; health, safety, and environmental; information technology; human resources; credit; payroll; internal audit; tax; and marketing and midstream administration.

WES omnibus agreement. Prior to December 31, 2019, the Partnership had an omnibus agreement with Occidental and the general partner (the “WES omnibus agreement”) that governed (i) the Partnership’s obligation to reimburse Occidental for expenses incurred or payments made on its behalf in connection with Occidental’s provision of general and administrative services provided to the Partnership, including certain public company expenses and general and administrative expenses; (ii) the Partnership’s obligation to pay Occidental, in quarterly installments, an administrative services fee of $250,000 per year, which was subject to an annual increase pursuant to the omnibus agreement; and (iii) the Partnership’s obligation to reimburse Occidental for all insurance coverage expenses it incurred or payments it made on the Partnership’s behalf. The WES omnibus agreement was terminated as part of the December 2019 Agreements (see Note 1).

The following table summarizes the amounts the Partnership reimbursed to Occidental, separate from, and in addition to, those reimbursed by WES Operating:



	Year Ended December 31,
thousands	2019		2018		2017
General and administrative expenses	$	604	$	269	$	263
Public company expenses	4,089		2,895		1,821
Total reimbursement	$	4,693	$	3,164	$	2,084

6. TRANSACTIONS WITH AFFILIATES (CONTINUED)

WES Operating omnibus agreement. Prior to December 31, 2019, WES Operating had a separate omnibus agreement with Occidental and WES Operating GP (the “WES Operating omnibus agreement”) that governed (i) Occidental’s obligation to indemnify WES Operating for certain liabilities and WES Operating’s obligation to indemnify Occidental for certain liabilities, (ii) WES Operating’s obligation to reimburse Occidental for expenses incurred or payments made on its behalf in conjunction with Occidental’s provision of general and administrative services provided to WES Operating, including salary and benefits of Occidental personnel, public company expenses, general and administrative expenses, and salaries and benefits of WES Operating’s executive management who were employees of Occidental, and (iii) WES Operating’s obligation to reimburse Anadarko for all insurance coverage expenses it incurred or payments it made with respect to WES Operating’s assets. Occidental, in accordance with the partnership agreement and the WES Operating omnibus agreement, determined, in its reasonable discretion, amounts to be reimbursed by WES Operating in exchange for services provided under the WES Operating omnibus agreement. The WES Operating omnibus agreement was terminated as part of the December 2019 Agreements (see Note 1).

The following table summarizes the amounts WES Operating reimbursed to Occidental pursuant to the WES Operating omnibus agreement:



	Year Ended December 31,
thousands	2019		2018		2017
General and administrative expenses	$	84,039	$	35,077	$	31,733
Public company expenses	4,065		15,409		9,379
Total reimbursement	$	88,104	$	50,486	$	41,112

Services and secondment agreement. Pursuant to the services and secondment agreement, which was amended and restated on December 31, 2019, and is now referred to as the Services Agreement, specified employees of Occidental are seconded to WES Operating GP to provide, under the direction, supervision, and control of the general partner, operating, routine maintenance, and other services with respect to the assets owned and operated by the Partnership. Occidental is reimbursed for the services provided by the seconded employees. The consolidated financial statements include costs allocated by Occidental for expenses incurred under the services and secondment agreement for periods including and subsequent to the Partnership’s prior asset acquisitions from Anadarko.

Pursuant to the Services Agreement, Occidental (i) seconds certain personnel employed by Occidental to WES Operating GP, in exchange for which WES Operating GP pays a monthly secondment and shared services fee to Occidental equivalent to the direct cost of the seconded employees and (ii) continues to provide certain administrative and operational services to the Partnership. The initial term of the Services Agreement is two years and will automatically extend for additional six-month periods unless either party provides a 30-day written notice of termination prior to the initial two-year or additional six-month period expires. However, the Services Agreement provides for the transfer of certain employees to the Partnership, which is anticipated to occur prior to the end of 2020. For additional information on the Services Agreement, see Note 1.

Allocation of costs. For periods prior to the acquisition of assets from Anadarko, the consolidated financial statements include costs allocated by Anadarko in the form of a management services fee. This management services fee was allocated based on the proportionate share of Anadarko’s revenues and expenses or other contractual arrangements. Management believes these allocation methodologies were reasonable.

6. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Excluding the Partnership’s management team, who became employees of the Partnership on December 31, 2019, pursuant to the Services Agreement, the employees supporting the Partnership’s operations are employees of Occidental. Occidental allocates costs to the Partnership for its share of personnel costs, including costs associated with equity-based compensation plans, non-contributory defined benefit pension and postretirement plans, and defined contribution savings plans. In general, reimbursement to Occidental is either (i) on an actual basis for direct expenses Occidental and the general partner incur on the Partnership’s behalf, or (ii) based on an allocation of salaries and related employee benefits between WES Operating, WES Operating GP, and Occidental, based on estimates of time spent on each entity’s business and affairs. Most general and administrative expenses charged by Occidental are on an actual basis, and no general and administrative expenses, direct or allocable, include a mark-up or subsidy component. With respect to allocated costs, management believes the allocation method employed by Occidental is reasonable. Although it is not practicable to determine what the amount of these direct and allocated costs would be if the Partnership were to directly obtain these services, management believes that aggregate costs charged by Occidental are reasonable.

Tax sharing agreements. The Partnership and WES Operating have tax sharing agreements with Occidental, pursuant to which Occidental is reimbursed for the Partnership’s and WES Operating’s estimated share of taxes from all forms of taxation, excluding taxes imposed by the United States. Taxes for which Occidental is reimbursed include state taxes attributable to the Partnership’s and WES Operating’s income that are directly borne by Occidental through its filing of a combined or consolidated tax return. Taxes related to assets previously acquired from Anadarko were reimbursed in periods beginning on and subsequent to the acquisition of such assets. Occidental may use its own tax attributes to reduce or eliminate the tax liability of its combined or consolidated group, which may include the Partnership and WES Operating as members. However, under this circumstance, the Partnership and WES Operating nevertheless are required to reimburse Occidental for the allocable share of taxes that would have been owed had the tax attributes not been available to Occidental.

Indemnification agreements. Prior to December 31, 2019, WES Operating GP was indemnified by wholly owned subsidiaries of Occidental against any claims made against WES Operating GP for WES Operating’s long-term debt and/or borrowings under the RCF and Term loan facility. These indemnification agreements were terminated as part of the December 2019 Agreements (see Note 1).

LTIPs. The general partner has the authority to grant equity compensation awards under the Western Gas Partners, LP 2017 Long-Term Incentive Plan (assumed by the Partnership in connection with the Merger) and the Western Gas Equity Partners, LP 2012 Long-Term Incentive Plan (collectively referred to as the “LTIPs”) to its independent directors, executive officers, and Occidental employees performing services for the Partnership from time to time. Phantom units awarded to the independent directors vest one year from the grant date, while all other phantom unit awards are subject to ratable vesting over a three-year service period.

The following table summarizes award activity under the Western Gas Equity Partners, LP 2012 Long-Term Incentive Plan for the years ended December 31, 2019, 2018, and 2017:



	2019				2018				2017
	Weighted-Average Grant-Date Fair Value		Units		Weighted-Average Grant-Date Fair Value		Units		Weighted-Average Grant-Date Fair Value		Units
Phantom units outstanding at beginning of year	$	35.08	7,128		$	43.39	5,763		$	39.78	5,658
Granted	29.75		25,212		35.08		7,128		43.39		5,763
Vested	31.62		(44,572	)	43.39		(5,763	)	39.78		(5,658	)
Converted ⁽¹⁾	33.46		12,232		—		—		—		—
Phantom units outstanding at end of year	—		—		35.08		7,128		43.39		5,763


⁽¹⁾	At closing of the Merger, WES Operating phantom units awarded under the Western Gas Partners, LP 2017 Long-Term Incentive Plan converted into phantom units of the Partnership under the Western Gas Equity Partners, LP 2012 Long-Term Incentive Plan.

6. TRANSACTIONS WITH AFFILIATES (CONTINUED)

The following table summarizes award activity under the Western Gas Partners, LP 2017 Long-Term Incentive Plan, which was assumed by the Partnership in connection with the Merger, for the years ended December 31, 2019, 2018, and 2017:



	2019				2018				2017
	Weighted-Average Grant-Date Fair Value		Units		Weighted-Average Grant-Date Fair Value		Units		Weighted-Average Grant-Date Fair Value		Units
Phantom units outstanding at beginning of year	$	49.88	8,020		$	55.73	7,180		$	49.30	7,304
Granted	—		—		49.88		8,020		55.73		7,180
Vested	—		—		55.73		(7,180	)	49.30		(7,304	)
Converted ⁽¹⁾	49.88		(8,020	)	—		—		—		—
Phantom units outstanding at end of year	—		—		49.88		8,020		55.73		7,180


⁽¹⁾	At closing of the Merger, WES Operating phantom units awarded under the Western Gas Partners, LP 2017 Long-Term Incentive Plan converted into phantom units of the Partnership under the Western Gas Equity Partners, LP 2012 Long-Term Incentive Plan.

Compensation expense for the LTIPs is recognized over the vesting period and was $1.0 million, $0.7 million, and $0.6 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Incentive Plans. General and administrative expense includes equity-based compensation expense allocated to the Partnership by Occidental for awards granted to the executive officers of the general partner and to other employees under (i) the Anadarko Petroleum Corporation 2012 Omnibus Incentive Compensation Plan, as amended and restated, (ii) Occidental’s 2015 Long-Term Incentive Plan, and (iii) Occidental’s Phantom Share Unit Award Plan (collectively referred to as the “Incentive Plans”). General and administrative expense includes costs related to the Incentive Plans of $12.9 million, $6.6 million, and $4.6 million for the years ended December 31, 2019, 2018, and 2017, respectively. Portions of these amounts are reflected as contributions to partners’ capital in the consolidated statements of equity and partners’ capital. As of December 31, 2019, $7.9 million of estimated unrecognized compensation expense attributable to the Incentive Plans will be allocated to the Partnership over a weighted-average period of 1.8 years.

Affiliate purchases. During the third quarter of 2019, the Partnership purchased $18.4 million of materials and supplies inventory from Occidental, which is included in Other current assets on the consolidated balance sheets.

Affiliate asset contributions. The following table summarizes affiliate contributions of other assets to the Partnership:



	Year Ended December 31,
thousands	2019			2018			2017
Cash consideration paid	$	(425	)	$	(254	)	$	(3,910	)
Net carrying value	335			59,089			5,283
Partners’ capital adjustment	$	(90	)	$	58,835		$	1,373

6. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Summary of affiliate transactions. The following table summarizes material affiliate transactions included in the Partnership’s consolidated financial statements:



	Year ended December 31,
thousands	2019		2018		2017
Revenues and other ⁽¹⁾	$	1,607,396	$	1,353,711	$	1,539,105
Equity income, net – affiliates ⁽¹⁾	237,518		195,469		115,141
Operating expenses
Cost of product ⁽¹⁾	254,771		168,535		74,560
Operation and maintenance ⁽¹⁾	146,990		115,948		82,249
General and administrative ⁽²⁾	101,485		49,672		43,221
Total operating expenses	503,246		334,155		200,030
Interest income ⁽³⁾	16,900		16,900		16,900
Interest expense ⁽⁴⁾	1,970		6,746		224
APCWH Note Payable borrowings	11,000		321,780		98,813
Repayment of APCWH Note Payable	439,595		—		—
Settlement of the Deferred purchase price obligation – Anadarko ⁽⁵⁾	—		—		(37,346		)
Distributions to Partnership unitholders ⁽⁶⁾	566,868		400,194		360,523
Distributions to WES Operating unitholders ⁽⁷⁾	19,768		7,583		7,100
Above-market component of swap agreements with Anadarko	7,407		51,618		58,551


⁽¹⁾	Represents amounts earned or incurred on and subsequent to the date of the acquisition of assets from Anadarko, and amounts earned or incurred by Anadarko on a historical basis for periods prior to the acquisition of such assets.

⁽²⁾

Represents general and administrative expense incurred on and subsequent to the date of the acquisition of assets from Anadarko, and a management services fee for expenses incurred by Anadarko for periods prior to the acquisition of such assets. These amounts include equity-based compensation expense allocated to the Partnership by Occidental (see LTIPs and Incentive Plans within this Note 6) and amounts charged by Occidental under the WES and WES Operating omnibus agreements.


⁽³⁾	Represents interest income recognized on the Anadarko note receivable.


⁽⁴⁾	Includes amounts related to finance leases and the APCWH Note Payable (see Note 1 and Note 13).


⁽⁵⁾	Represents the cash payment to Anadarko for the settlement of the Deferred purchase price obligation – Anadarko (see Note 3).


⁽⁶⁾	Represents distributions paid to Occidental pursuant to the partnership agreement of the Partnership (see Note 4 and Note 5).


⁽⁷⁾	Represents distributions paid to certain subsidiaries of Occidental pursuant to WES Operating’s partnership agreement (see Note 4 and Note 5).

The following table summarizes material affiliate transactions for WES Operating (which are included in the Partnership’s consolidated financial statements) to the extent the amounts differ from the Partnership’s consolidated financial statements:



	Year ended December 31,
thousands	2019		2018		2017
General and administrative ⁽¹⁾	$	99,613	$	48,819	$	42,411
Distributions to WES Operating unitholders ⁽²⁾	1,025,931		514,906		452,777

⁽¹⁾

Represents general and administrative expense incurred on and subsequent to the date of the acquisition of assets from Anadarko, and a management services fee for expenses incurred by Anadarko for periods prior to the acquisition of such assets. These amounts include equity-based compensation expense allocated to WES Operating by Occidental (see LTIPs and Incentive Plans within this Note 6) and amounts charged by Occidental pursuant to the WES Operating omnibus agreement.


⁽²⁾	Represents distributions paid to the Partnership and certain subsidiaries of Occidental pursuant to WES Operating’s partnership agreement (see Note 4 and Note 5). For the year ended December 31, 2019, includes distributions to the Partnership and a subsidiary of Occidental related to the repayment of the WGP RCF (see Note 13).

6. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Concentration of credit risk. Occidental was the only customer from which revenues exceeded 10% of consolidated revenues for all periods presented in the consolidated statements of operations.