

	Three Months Ended March 31,
thousands	2020		2019
Revenues and other	$	482,385	$	378,437
Equity income, net – related parties	61,347		57,992
Operating expenses
Cost of product	77,903		56,172
Operation and maintenance	32,841		39,141
General and administrative ⁽¹⁾	21,855		18,894
Total operating expenses	132,599		114,207
Interest income ⁽²⁾	4,225		4,225
Interest expense ⁽³⁾	43		1,833
APCWH Note Payable borrowings	—		11,000
Repayment of APCWH Note Payable	—		439,595
Distributions to Partnership unitholders ⁽⁴⁾	150,609		102,654
Distributions to WES Operating unitholders ⁽⁵⁾	5,807		2,543
Above-market component of swap agreements with Anadarko	—		7,407

The following table summarizes material related-party 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:

Related-party transactions. Related-party revenues include (i) income from the Partnership’s investments accounted for under the equity method of accounting (see Note 7) 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 related parties for the operation of the Partnership’s assets and for services provided to related parties, including field labor, measurement and analysis, and other disbursements. A portion of general and administrative expense is paid by Occidental, which results in related-party transactions pursuant to the reimbursement provisions of the Partnership’s and WES Operating’s agreements with Occidental. Related-party expenses do not bear a direct relationship to related-party revenues, and third-party expenses do not bear a direct relationship to third-party revenues.

Operating lease. Effective December 31, 2019, an affiliate of Occidental and a wholly owned subsidiary of the Partnership, entered into an operating and maintenance agreement, pursuant to which Occidental provides operational and maintenance services with respect to a crude-oil gathering system and associated treating facilities owned by the Partnership through December 31, 2021. The agreement and underlying contracts include (i) fixed consideration, which is measured as the minimum-volume commitment for both gathering and treating, and (ii) variable consideration, which consists of all volumes above the minimum-volume commitment. Subsequent to the initial two-year term, the agreement provides for automatic one-year extensions, unless either party exercises its option to terminate the lease with advance notice. For the three months ended March 31, 2020, the Partnership recognized fixed-lease revenue of $43.9 million and variable-lease revenue of $15.6 million related to these agreements, with such amounts included in Service revenues – fee based in the consolidated statement of operations.

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.

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 – related parties in the consolidated statements of operations. As of March 31, 2020, the accrued interest receivable balance of $2.8 million is classified as Accounts receivable, net on the consolidated balance sheets. The fair value of the Anadarko note receivable was $153.6 million and $337.7 million at March 31, 2020, and December 31, 2019, respectively. Following Occidental’s acquisition by merger of Anadarko, the fair value of the Anadarko note receivable reflects an analysis of Occidental’s yield based on quoted market yields of similar Occidental debt instruments. Accordingly, the fair value of the Anadarko note receivable is measured using Level-2 fair value inputs. As of March 31, 2020, the Partnership recognized an allowance for expected credit losses of $2.1 million related to the Anadarko note receivable. See Note 1.

APCWH Note Payable. In June 2017, APC Water Holdings 1, LLC (“APCWH”) entered into an eight-year note payable agreement with Anadarko, which was repaid in the first quarter of 2019 at the Merger completion date. See Note 11.

Commodity-price swap agreements. WES Operating previously 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. These commodity-price swap agreements expired without renewal on December 31, 2018.

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) for the three months ended March 31, 2019, reported in the consolidated statements of operations as related-party Product sales. A capital contribution from Anadarko related to the commodity-price swap agreements of $7.4 million was recorded in the consolidated statements of equity and partners’ capital for the three months ended March 31, 2019.

Gathering and processing agreements. The Partnership has significant gathering and processing arrangements with affiliates of Occidental on most of its systems. These arrangements with Occidental include Occidental-produced volumes and in some instances, the volumes of other working-interest owners of Occidental where the joint partnership collectively markets volumes. These volumes are considered owned and controlled by Occidental, who is the contracting counterparty of the Partnership. Natural-gas throughput (excluding equity-investment throughput) attributable to production owned or controlled by Occidental was 42% and 36% for the three months ended March 31, 2020 and 2019, respectively. Crude-oil and NGLs throughput (excluding equity-investment throughput) attributable to production owned or controlled by Occidental was 89% and 81% for the three months ended March 31, 2020 and 2019, respectively. Produced-water throughput attributable to production owned or controlled by Occidental was 89% and 84% for the three months ended March 31, 2020 and 2019, 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. Additionally, under the terms of the Marketing Transition Services Agreement, the Partnership is liable for certain downstream transportation commitments through December 31, 2020.

Services Agreement. Pursuant to the Services Agreement, which was amended and restated on December 31, 2019, specified employees of Occidental were seconded to WES Operating GP to provide, under the direction, supervision, and control of the general partner, (i) operating and routine maintenance service and (ii) corporate, administrative, 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. In late March 2020, seconded employees’ employment was transferred to the Partnership. Further, Occidental continues to provide certain administrative and operational services to the Partnership. In January 2020, pursuant to the Services Agreement, Occidental made a one-time cash contribution of $20.0 million to WES Operating for anticipated transition costs required to establish stand-alone human resources and information technology functions. For additional information on the Services Agreement, see Note 1.

WES and WES Operating omnibus agreements. Prior to December 31, 2019, the Partnership had an omnibus agreement with Occidental and the general partner and WES Operating had a separate omnibus agreement with Occidental and WES Operating GP. These agreements governed, among other things, the obligation to reimburse Occidental for expenses incurred or payments made on the Partnership’s and WES Operating’s behalf in conjunction with general and administrative services provided by Occidental. The omnibus agreements were terminated as part of the December 2019 Agreements (see Note 1).

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 prior to their employment with the Partnership 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 $4.1 million and $1.8 million for the three months ended March 31, 2020 and 2019, respectively. Portions of these amounts are reflected as contributions to partners’ capital in the consolidated statements of equity and partners’ capital.