What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-09 · 253 added, 409 removed, 457 unchanged (59% of the section changed)

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The following discussion analyzes our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, wherein WES Operating is fully consolidated, and which are included under Part I, Item 1 of this quarterly report, and the historical consolidated financial statements, and the notes thereto, which are included under Part II, Item 8 of the 2020 Form 10-K as filed with the SEC on February 26, 2021.

The Partnership’s assets include assets owned and ownership interests accounted for by us under the equity method of accounting, through our 98.0% partnership interest in WES Operating, as of March 31, 2021 (see Note 7—Equity Investments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).

We also own and control the entire non-economic general partner interest in WES Operating GP, and our general partner is owned by Occidental.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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• our ability to repay debt;

• the impact from disruptions caused by winter storm Uri or the recent blizzard in the state of Colorado or resolution of litigation or other disputes;

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

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EXECUTIVE SUMMARY

During the nine months ended September 30, 2020, the global outbreak of COVID-19 caused a sharp decline in the worldwide demand for oil, natural gas, and NGLs, which contributed significantly to recent commodity-price declines and oversupplied commodities markets.

These market dynamics have an adverse impact on producers that provide throughput into our systems and we have experienced decreased throughput at many of our locations, which may adversely affect our results of operations and cash flows.

Additionally, many of our employees have been and may continue to be subject to pandemic-related work-from-home requirements, which requires us to take additional actions to ensure that the number of personnel accessing our network remotely does not lead to excessive cyber-security risk levels during the ongoing work-from-home precautionary phase of the pandemic.

Similarly, we are working continually to ensure operational changes that we have made to promote the health and safety of our personnel during this pandemic do not unduly disrupt intracompany communications and key business processes.

We consider our risk-mitigation efforts adequate;

however, the ultimate impact of the ongoing pandemic is unpredictable, with direct and indirect impacts to our business.

See Risk Factors under Part II, Item 1A of this Form 10-Q for additional information on these and other risks.

WES continues to monitor the COVID-19 situation closely and as state and federal governments issue additional guidance, we will update our own policy responses to ensure the safety and health of our workforce and communities.

The federal government has provided guidance to states on how to safely return personnel to the workplace, which we are following as our workforce returns to WES locations.

All WES facilities, including field locations, have been conducting enhanced routine cleaning and disinfecting of common areas and frequently touched surfaces using CDC- and EPA-approved products.

Our return-to-work protocols include daily required application-based health self-assessments that must be completed prior to accessing WES work locations.

We currently own or have investments in assets located in the Rocky Mountains (Colorado, Utah, and Wyoming), North-central Pennsylvania, Texas, and New Mexico.

We are engaged in the business of gathering, compressing, treating, processing, and transporting natural gas;

We are a midstream energy company organized as a publicly traded partnership, engaged in the business of gathering, compressing, treating, processing, and transporting natural gas;

gathering, stabilizing, and transporting condensate, NGLs, and crude oil;

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In our capacity as a natural - gas processor, we also buy and sell natural gas, NGLs, and condensate on behalf of ourselves and as an agent for our customers under certain contracts.

As of September 30, 2020, our assets and investments consisted of the following:

We own or have investments in assets located in Texas, New Mexico, the Rocky Mountains (Colorado, Utah, and Wyoming), and North - central Pennsylvania.

As of March 31, 2021, our assets and investments consisted of the following:

Operated Operated

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(1) Includes the DBM water systems.

Significant financial and operational events during the nine months ended September 30, 2020, included the following:

• On September 11, 2020, WES and Occidental entered into a Unit Redemption Agreement, pursuant to which (i) WES Operating transferred and assigned its interest in the Anadarko note receivable to its limited partners on a pro-rata basis, transferring 98% to WES and 2% to WGRAH, a subsidiary of Occidental, (ii) WES subsequently assigned its 98% interest in (and accrued interest owed under) the Anadarko note receivable to Anadarko, which Anadarko canceled and retired immediately upon receipt, in exchange for which Occidental caused certain of its subsidiaries to transfer an aggregate of 27,855,398 common units of WES to WES, and (iii) WES canceled the units immediately upon receipt.

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

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

• In January 2020, WES Operating completed an offering of $3.2 billion in aggregate principal amount of Fixed-Rate Senior Notes and $300.0 million in aggregate principal amount of Floating-Rate Senior Notes.

Net proceeds from these offerings were used to repay and terminate the Term loan facility, repay outstanding amounts under the RCF, and for general partnership purposes.

See Liquidity and Capital Resources within this Item 2 for additional information.

• During the nine months ended September 30, 2020, WES Operating purchased and retired $193.5 million of certain of its senior notes and Floating-Rate Senior Notes.

See Liquidity and Capital Resources within this Item 2 for additional information.

• Natural-gas throughput attributable to WES totaled 4,253 MMcf/d and 4,377 MMcf/d for the three and nine months ended September 30, 2020, respectively, representing a 1% and 4% increase, respectively, compared to the same periods in 2019.

• Crude-oil and NGLs throughput attributable to WES totaled 689 MBbls/d and 723 MBbls/d for the three and nine months ended September 30, 2020, respectively, representing an 11% and 19% increase, respectively, compared to the same periods in 2019.

• Produced-water throughput attributable to WES totaled 673 MBbls/d and 711 MBbls/d for the three and nine months ended September 30, 2020, respectively, representing an 18% and 35% increase, respectively, compared to the same periods in 2019.

• Operating income (loss) was $347.1 million for the three months ended September 30, 2020, representing a 29% increase compared to the same period in 2019.

Operating income (loss) was $506.0 million for the nine months ended September 30, 2020, which includes goodwill and long-lived asset impairments of $596.8 million during the first quarter, representing a 44% decrease compared to the same period in 2019.

• Adjusted gross margin for natural-gas assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $1.17 per Mcf and $1.15 per Mcf for the three and nine months ended September 30, 2020, respectively, representing a 13% and 8% increase, respectively, compared to the same periods in 2019.

• Adjusted gross margin for crude-oil and NGLs assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $2.54 per Bbl and $2.50 per Bbl for the three and nine months ended September 30, 2020, respectively, representing a 2% and 1% decrease, respectively, compared to the same periods in 2019.

• Adjusted gross margin for produced-water assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $1.00 per Bbl and $0.98 per Bbl for the three and nine months ended September 30, 2020, respectively, representing a 3% increase and no change, respectively, compared to the same periods in 2019.

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

Three Months Ended September 30,

2020 2019 Inc/

(Dec) 2020 2019 Inc/

Crude oil & NGLs

Produced water

Significant financial and operational events during the three months ended March 31, 2021, included the following:

• WES Operating redeemed the total principal amount outstanding of the 5.375% Senior Notes due 2021 at par value, pursuant to the optional redemption terms in WES Operating’s indenture.

• We repurchased 1,115,808 common units for an aggregate purchase price of $16.2 million during the three months ended March 31, 2021.

• Our first - quarter 2021 per - unit distribution of $0.31500 increased $0.004 from the fourth - quarter 2020 per - unit distribution of $0.31100.

• Natural - gas throughput attributable to WES totaled 4,045 MMcf/d for the three months ended March 31, 2021, representing a 2% increase and 9% decrease compared to the three months ended December 31, 2020, and March 31, 2020, respectively.

• Crude - oil and NGLs throughput attributable to WES totaled 604 MBbls/d for the three months ended March 31, 2021, representing a 2% decrease and 21% decrease compared to the three months ended December 31, 2020, and March 31, 2020, respectively.

• Produced - water throughput attributable to WES totaled 595 MBbls/d for the three months ended March 31, 2021, representing a 9% decrease and 15% decrease compared to the three months ended December 31, 2020, and March 31, 2020, respectively.

• Operating income (loss) was $292.3 million for the three months ended March 31, 2021, compared to $373.0 million and $(214.9) million for the three months ended December 31, 2020, and March 31, 2020, respectively.

The three months ended March 31, 2020, included goodwill and long - lived asset impairments of $596.8 million.

• Adjusted gross margin for natural - gas assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $1.19 per Mcf for the three months ended March 31, 2021, representing no change and a 3% increase compared to the three months ended December 31, 2020, and March 31, 2020, respectively.

• Adjusted gross margin for crude - oil and NGLs assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $2.45 per Bbl for the three months ended March 31, 2021, representing a 9% decrease and 1% increase compared to the three months ended December 31, 2020, and March 31, 2020, respectively.

• Adjusted gross margin for produced - water assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $0.92 per Bbl for the three months ended March 31, 2021, representing a 6% decrease and 5% decrease compared to the three months ended December 31, 2020, and March 31, 2020, respectively.

The following table provides additional information on throughput for the periods presented below:

Three Months Ended

March 31, 2021 December 31, 2020 Inc/

(Dec) March 31, 2020 Inc/

Throughput for natural-gas assets (MMcf/d)

Delaware Basin 1,133 1,196 (5) % 1,389 (18) %

1,294 1,272 2 % 183 147 24 % 687 580 18 %

DJ Basin 1,344 1,197 12 % 1,407 (4) %

Equity investments 439 429 2 % 444 (1) %

1,378 1,585 (13) % 41 53 (23) % — — — %

Total throughput

Other 1,279 1,298 (1) % 1,392 (8) %

Total throughput for natural - gas assets

4,195 4,120 2 % 4,632 (9) %

Nine Months Ended September 30,

2020 2019 Inc/

(Dec) 2020 2019 Inc/

Crude oil & NGLs

Produced water

Throughput for crude-oil and NGLs assets (MBbls/d)

Delaware Basin 162 178 (9) % 192 (16) %

1,330 1,210 10 % 192 144 33 % 726 538 35 %

DJ Basin 82 78 5 % 128 (36) %

Equity investments 337 339 (1) % 418 (19) %

Other 35 36 (3) % 41 (15) %

Total throughput for crude - oil and NGLs assets

616 631 (2) % 779 (21) %

Total throughput

Throughput for produced-water assets (MBbls/d)

Delaware Basin 607 670 (9) % 717 (15) %

Total throughput for produced - water assets

607 670 (9) % 717 (15) %

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(1) Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.

Weather-related impacts.

In February 2021, the U.S.

experienced winter storm Uri, bringing extreme cold temperatures, ice, and snow to the central U.S., including Texas, and in March 2021, Colorado experienced a historic blizzard.

Winter storm Uri adversely affected our volumes for approximately ten days and the blizzard in Colorado likewise disrupted our assets in that state.

We estimate the impact of these weather events to have reduced net income and Adjusted EBITDA (as defined under the caption Key Performance Metrics within this Item 2) for the quarter ended March 31, 2021, by approximately $30 million due to lower volumes, the impact of commodity-prices, and higher operating expenses related to utilities.

The estimated impact of the adverse winter weather on our operations and financial results may change and those changes may be material.

Any additional inclement weather in the future, or other adverse conditions, including resolution of litigation and other legal disputes and the COVID - 19 pandemic and resulting mitigation factors, may have an adverse impact on our operations and financial results.

During 2020, the global outbreak of COVID - 19 caused a sharp decline in the worldwide demand for oil, natural gas, and NGLs, which contributed significantly to commodity - price declines and oversupplied commodities markets.

These market dynamics have had an adverse impact on producers that provide throughput into our systems, and we have experienced decreased throughput at many of our locations.

Additionally, many of our employees have been and may continue to be subject to pandemic - related work - from - home requirements, which require us to take additional actions to ensure that the number of personnel accessing our network remotely does not lead to excessive cyber - security risk levels.

We consider our risk - mitigation efforts adequate;

however, the ultimate impact of the ongoing pandemic is unpredictable, with direct and indirect impacts to our business.

WES continues to monitor the COVID - 19 situation closely, and as state and federal governments issue additional guidance, we will update our own policies in response to ensure the safety and health of our workforce and communities.

The federal government has provided guidance to states on how to safely return personnel to the workplace, which we are following as our workforce returns to WES locations.

All WES facilities, including field locations, have been conducting enhanced routine cleaning and disinfecting of common areas and frequently touched surfaces using CDC - and EPA - approved products.

Our return - to - work protocols include daily required application - based health self - assessments that must be completed prior to accessing WES work locations.

Commodity purchase and sale agreements.

Effective April 1, 2020, changes to marketing - contract terms with AESC terminated AESC’s prior status as an agent of the Partnership for third - party sales and established AESC as a customer of the Partnership.

Accordingly, the Partnership no longer recognizes service revenues and/or product sales revenues and the equivalent cost of product expense for the marketing services performed by AESC.

Period-over-period variances for the three and nine months ended September 30, 2020, include the following impacts related to this change (i) decreases of $37.7 million and $93.9 million, respectively, in Service revenues – fee based, (ii) decreases of $18.4 million and $13.7 million, respectively, in Product sales, and (iii) decreases of $56.1 million and $107.6 million, respectively, in Cost of product expense.

Accordingly, we no longer recognize service revenues and/or product sales revenues and the equivalent cost of product expense for the marketing services performed by AESC.

Year - over - year variances for the three months ended March 31, 2021, include the following impacts related to this change (i) decrease of $45.9 million in Service revenues – fee based, (ii) decrease of $20.4 million in Product sales, and (iii) decrease of $66.3 million in Cost of product expense.

These changes had no impact to Operating income (loss), Net income (loss), the balance sheets, cash flows, or any non - GAAP metric used to evaluate our operations (see Key Performance Metrics within this Item 2).

See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

December 2019 Agreements.

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

• Exchange Agreement.

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

• Services, Secondment, and Employee Transfer Agreement.

Occidental, Anadarko, and WES Operating GP entered into an amended and restated Services, Secondment, and Employee Transfer Agreement (the “Services Agreement”), pursuant to which Occidental, Anadarko, and their subsidiaries (i) seconded certain personnel employed by Occidental to WES Operating GP, in exchange for which WES Operating GP pays a monthly secondment and shared services fee to Occidental equivalent to the direct cost of the seconded employees until their transfer to WES and (ii) agreed to continue to provide certain administrative and operational services to WES for up to a two-year transition period.

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

The Services Agreement also includes provisions governing the transfer of certain employees to WES and the assumption by WES of liabilities relating to those employees at the time of their transfer.

In late March 2020, seconded employees’ employment was transferred to WES.

• RCF amendment.

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

• Term loan facility amendment.

WES Operating entered into an amendment to its Term loan facility to, among other things, modify the change of control definition to provide, among other things, that, subject to certain conditions, if the limited partners of WES elect to remove the general partner as the general partner of WES in accordance with the terms of the partnership agreement, then such removal will not constitute a change of control under the Term loan facility.

See Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further information.

• Termination of debt-indemnification agreements.

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

• Termination of omnibus agreements.

WES and WES Operating entered into agreements with Occidental to terminate the WES and WES Operating omnibus agreements.

See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further information.

We expect our business to continue to be affected by the below - described key trends and uncertainties.

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To the extent our underlying assumptions about, or interpretations of, available information prove incorrect, our actual results may vary materially from expected results.

Read Risk Factors under Part II, Item 1A of this Form 10-Q for additional information.

Impact of crude-oil, natural-gas, and NGLs prices.

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During the first quarter of 2020, oil and natural - gas prices decreased significantly, driven by the expectation of increased supply and sharp declines in demand resulting from the worldwide macroeconomic downturn that followed the global outbreak of COVID - 19.

For example, NYMEX West Texas Intermediate crude-oil daily settlement prices recently ranged from a high of $63.27 per barrel in January 2020 to a low below $20.00 per barrel in April 2020, with prices rebounding to $40.22 per barrel at September 30, 2020.

While the extent and duration of the recent commodity-price declines cannot be predicted, potential impacts to our business include the following:

For example, NYMEX West Texas Intermediate crude - oil daily settlement prices ranged from a high of $63.27 per barrel in January 2020 to a low below $20.00 per barrel in April 2020, with prices rebounding to $59.16 per barrel at March 31, 2021.

While the extent and duration of the recent commodity - price volatility cannot be predicted, potential impacts to our business include the following:

• We have exposure to increased credit risk to the extent any of our customers, including Occidental, is in financial distress.

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See Liquidity and Capital Resources—Debt and credit facilities within this Item 2 for additional information.

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

• As of March 31, 2021, it is reasonably possible that future commodity - price declines, prolonged depression of commodity prices, changes to producers’ drilling plans in response to lower prices, and potential producer bankruptcies could result in future long - lived asset impairments.

To the extent producers continue with development plans in our areas of operation, we will continue to connect new wells or production facilities to our systems to maintain throughput on our systems and mitigate the impact of production declines.

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Additionally, we will continue to evaluate the crude - oil, NGLs, and natural - gas price environments and adjust our capital spending plans to reflect our customers’ anticipated activity levels, while maintaining appropriate liquidity and financial flexibility.

See Risk Factor , “The global outbreak of COVID-19 is likely to have an adverse impact on our operations and financial results.” under Part II, Item 1A of this Form 10-Q for additional information.

Effects of credit-rating downgrade.

Our costs of borrowing and ability to access the capital markets are affected by market conditions and the credit ratings assigned to WES Operating’s debt by the major credit rating agencies.

In March 2020, Fitch Ratings (“Fitch”) and Standard and Poor’s (“S&P”) downgraded WES Operating’s long-term debt from “BBB-” to “BB+,” with negative watches assigned to each of these revised ratings.

In May 2020, Fitch downgraded WES Operating’s long-term debt to “BB” and in June 2020, Moody’s Investors Service (“Moody’s”) downgraded WES Operating’s long-term debt from “Ba1” to “Ba2.” As a result of these downgrades, WES Operating’s credit rating is below investment grade for all three major credit rating agencies, which results in the following:

• WES Operating’s annualized borrowing costs will increase by $34.6 million for the Fixed-Rate Senior Notes and Floating-Rate Senior Notes issued in January 2020 that provide for increased interest rates following downgrade events.

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

• We may be obligated to provide financial assurance of our performance under certain contractual arrangements requiring us to post collateral in the form of letters of credit or cash.

At September 30, 2020, we had $5.0 million in letters of credit or cash-provided assurance of our performance outstanding under contractual arrangements with credit-risk-related contingent features.

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

Per-unit distribution reduction and revised capital guidance.

During 2020, we announced the below-described per-unit distribution and cost reductions.

These cash-preservation measures are intended to enhance our liquidity for the duration of the COVID-19 macroeconomic disruption and the weakened commodity-price environment;

however, the duration and severity of this pandemic and concomitant economic downturn remains uncertain.

There can be no assurance that these announced actions will provide sufficient liquidity for the required duration, and additional actions, including additional per-unit distribution reductions, may be necessary to manage through the current environment.

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

On October 20, 2020, we announced that our per-unit distribution for the third quarter of 2020 was unchanged from the first- and second-quarter 2020 $0.31100 per-unit distributions.

• On April 20, 2020, we announced capital expenditures for the year ended December 31, 2020, were expected to be $450.0 million to $550.0 million, representing a 45% reduction to prior guidance.

This reduction resulted from deferred producer activity in all basins and the elimination of associated capital expenditures, other than those expenditures that are necessary to support proper maintenance and long-term asset integrity.

On August 10, 2020, we announced a further downward revision to our estimated full-year 2020 capital expenditures, which were expected to be $400.0 million to $450.0 million, representing a $75.0 million reduction to the April 2020 guidance midpoint of $500.0 million.

On November 9, 2020, we announced that we expect our full-year capital expenditures to be meaningfully below the low-end of our previously updated 2020 guidance range of $400.0 million to $450.0 million.

• On April 20, 2020, we announced expected other cost reductions of approximately $75.0 million through operating and maintenance and general and administrative expense cost-saving initiatives.

On November 9, 2020, we announced that we expect to realize approximately $175.0 million in operating and maintenance and general and administrative expense cost savings.

BASIS OF PRESENTATION FOR ACQUIRED ASSETS AND RESULTS OF OPERATIONS

AMA acquisition.

In February 2019, WES Operating acquired AMA from Anadarko.

See Note 1—Description of Business and Basis of Presentation and Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further information.

Red Bluff Express acquisition.

In January 2019, we acquired a 30% interest in Red Bluff Express, which owns a third-party-operated natural-gas pipeline connecting processing plants in Reeves and Loving Counties, Texas, to the WAHA hub in Pecos County, Texas.

We acquired our 30% interest from a third party via an initial net investment of $92.5 million, which represented a 30% share of costs incurred up to the date of acquisition.

The initial investment was funded with cash on hand and the interest in Red Bluff Express is accounted for under the equity method of accounting.

ACQUISITIONS AND DIVESTITURES

Fort Union and Bison facilities.

In October 2020, we (i) sold our 14.81% interest in Fort Union, which was accounted for under the equity method of accounting, and (ii) entered into an option agreement to sell the Bison treating facility during the first quarter of 2021, located in Northeast Wyoming, to a third party.

We received combined proceeds of $27.0 million, resulting in a net gain on sale of $21.0 million related to the Fort Union interest that will be recorded in the fourth quarter of 2020.

A gain related to the option agreement and potential sale of the Bison treating facility will be recognized in the first quarter of 2021 if the option is exercised or expires.

Presentation of the Partnership’s assets.

Our assets include assets owned and ownership interests accounted for by us under the equity method of accounting, through our 98% partnership interest in WES Operating as of September 30, 2020 (see Note 7—Equity Investments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).

We also own and control the entire non-economic general partner interest in WES Operating GP, and our general partner is owned by Occidental.

In October 2020, we (i) sold our 14.81% interest in Fort Union, which was accounted for under the equity method of accounting, and (ii) entered into an option agreement to sell the Bison treating facility, located in Northeast Wyoming, to a third party, initially exercisable during the first quarter of 2021 and subsequently extended to May 9, 2021.

During the second quarter of 2021, the third party exercised its option to purchase the Bison treating facility and it satisfied the held - for - sale criteria.

The sale is expected to close in the second quarter of 2021.

See Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further information.

RESULTS OF OPERATIONS

OPERATING RESULTS

In November 2020, the SEC issued a final rule to modernize and simplify Management’s Discussion and Analysis and certain financial disclosure requirements in SEC Regulation S - K.

As permitted by this final rule, the analysis herein reflects the optional approach to discuss results of operations on a sequential - quarter basis, which we believe will provide information that is most useful to investors in assessing our quarterly results of operations going forward.

Also as required by the final rule, we have included the comparison of the current quarter to the prior-year quarter for this filing only, and will cease to provide this comparison in future filings.

For purposes of the following discussion, any increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended December 31, 2020, or to the three months ended March 31, 2020, as applicable.

The following tables and discussion present a summary of our results of operations:

Three Months Ended

September 30, Nine Months Ended

September 30,

thousands 2020 2019 2020 2019

thousands March 31, 2021 December 31, 2020 March 31, 2020

Total revenues and other (1)

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For reconciliations of these non - GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP, see Key Performance Metrics—Reconciliation of non-GAAP financial measures within this Item 2.

For purposes of the following discussion, any increases or decreases “for the three months ended September 30, 2020” refer to the comparison of the three months ended September 30, 2020, to the three months ended September 30, 2019;

any increases or decreases “for the nine months ended September 30, 2020” refer to the comparison of the nine months ended September 30, 2020, to the nine months ended September 30, 2019;

and any increases or decreases “for the three and nine months ended September 30, 2020” refer to the comparison of these 2020 periods to the corresponding three- and nine-month periods ended September 30, 2019.

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 Inc/

(Dec) 2020 2019 Inc/

March 31, 2021 December 31, 2020 Inc/

(Dec) March 31, 2020 Inc/

Throughput for natural-gas assets (MMcf/d)

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Gathering, treating, and transportation 279 292 (4) % 361 (23) %

310 328 (5) % 343 311 10 %

Equity investments (4)

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Total throughput 616 631 (2) % 779 (21) %

703 635 11 % 738 619 19 %

Throughput attributable to noncontrolling interests (3)

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Gathering and disposal 607 670 (9) % 717 (15) %

687 580 18 % 726 538 35 %

Throughput attributable to noncontrolling interests (3)

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_________________________________________________________________________________________

(1) Represents the 14.81% share of average Fort Union throughput, 22% share of average Rendezvous throughput, 50% share of average Mi Vida and Ranch Westex throughput, and 30% share of average Red Bluff Express throughput.

(2) For all periods presented, includes (i) the 25% third-party interest in Chipeta and (ii) the 2.0% Occidental subsidiary-owned limited partner interest in WES Operating, which collectively represent WES’s noncontrolling interests.

(1) Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.

(2) Represents the 14.81% share of average Fort Union throughput (until divested in October 2020), 22% share of average Rendezvous throughput, 50% share of average Mi Vida and Ranch Westex throughput, and 30% share of average Red Bluff Express throughput.

(3) For all periods presented, includes (i) the 2.0% Occidental subsidiary - owned limited partner interest in WES Operating and (ii) for natural - gas assets, the 25% third - party interest in Chipeta, which collectively represent WES’s noncontrolling interests.

(4) Represents the 10% share of average White Cliffs throughput;

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Natural-gas assets

Gathering, treating, and transportation throughput increased by 35 MMcf/d and 25 MMcf/d for the three and nine months ended September 30, 2020, respectively, primarily due to increased production in areas around the Marcellus Interest systems, partially offset by production declines in areas around the Bison facility and Springfield gas-gathering system.

Processing throughput decreased by 54 MMcf/d for the three months ended September 30, 2020, primarily due to (i) the Granger straddle plant being held idle during the third quarter of 2020, (ii) lower throughput at the Chipeta complex due to production declines in the area and a third-party contract that terminated during the fourth quarter of 2019, and (iii) lower throughput at the Red Desert complex and Granger system due to production declines in the area.

These decreases were offset partially by (i) increased production in areas around the West Texas and DJ Basin complexes and (ii) the start-up of Latham Train II at the DJ Basin complex during the first quarter of 2020.

Processing throughput increased by 53 MMcf/d for the nine months ended September 30, 2020, primarily due to (i) increased production in areas around the West Texas and DJ Basin complexes, (ii) the start-up of Latham Train II at the DJ Basin complex during the first quarter of 2020, and (iii) the start-up of Mentone Train II at the West Texas complex in March 2019.

These increases were offset partially by (i) third-party volumes being diverted away from the Granger straddle plant beginning in the fourth quarter of 2019 and the plant being held idle during the third quarter of 2020, (ii) lower throughput at the Chipeta complex due to production declines in the area and a third-party contract that terminated during the fourth quarter of 2019, and (iii) lower throughput at the Red Desert complex due to production declines in the area.

Equity-investment throughput increased by 60 MMcf/d and 61 MMcf/d for the three and nine months ended September 30, 2020, respectively, primarily due to increased volumes on Red Bluff Express resulting from increased production in the area.

This increase was offset partially by (i) decreased third-party volumes at the Fort Union system and (ii) decreased volumes at the Rendezvous system due to production declines in the area.

Gathering, treating, and transportation throughput decreased by 2 MMcf/d and 20 MMcf/d compared to the three months ended December 31, 2020, and March 31, 2020, respectively, primarily due to (i) production declines and the impact of winter storm Uri at the Springfield gas - gathering system and (ii) lower throughput at the Bison facility due to production declines in the area.

These decreases were offset partially by increased production in areas around the Marcellus Interest systems.

Processing throughput increased by 67 MMcf/d compared to the three months ended December 31, 2020, primarily due to an additional third - party connection to Latham Train II at the DJ Basin complex beginning January 1, 2021, partially offset by lower production and the impact of winter storm Uri at the West Texas complex.

Processing throughput decreased by 412 MMcf/d compared to the three months ended March 31, 2020, primarily due to (i) lower production and the impact of winter storm Uri at the West Texas complex, (ii) lower throughput at the DJ Basin complex due to production declines in the area, partially offset by an additional third - party connection to Latham Train II beginning January 1, 2021, and (iii) lower throughput at the Chipeta and Granger complexes due to production declines in the area.

Equity - investment throughput increased by 10 MMcf/d compared to the three months ended December 31, 2020, primarily due to increased volumes on Red Bluff Express resulting from increased pipeline commitments, partially offset by decreased volumes at the Fort Union system, which was sold to a third party during the fourth quarter of 2020.

Equity - investment throughput decreased by 5 MMcf/d compared to the three months ended March 31, 2020, primarily due to (i) decreased volumes at the Fort Union system, which was sold to a third party during the fourth quarter of 2020 and (ii) decreased volumes at the Rendezvous system due to production declines in the area.

These decreases were offset partially by increased volumes on Red Bluff Express resulting from increased pipeline commitments.

Crude-oil and NGLs assets

Gathering, treating, and transportation throughput decreased by 18 MBbls/d for the three months ended September 30, 2020, primarily due to decreased throughput into the DJ Basin oil system, partially offset by increased throughput at the DBM oil system with the commencement of Loving ROTF Train III operations during the first quarter of 2020 and increased production.

Gathering, treating, and transportation throughput increased by 32 MBbls/d for the nine months ended September 30, 2020, primarily due to increased throughput at the DBM oil system with the commencement of Loving ROTF Train III operations during the first quarter of 2020 and increased production.

Equity-investment throughput increased by 86 MBbls/d and 87 MBbls/d for the three and nine months ended September 30, 2020, respectively, primarily due to (i) the acquisition of our interest in Cactus II in June 2018, which began delivering crude oil during the third quarter of 2019, and (ii) increased volumes on FRP resulting from a pipeline expansion project completed during the second quarter of 2020.

These increases were offset partially by decreased volumes on the Whitethorn pipeline.

Gathering, treating, and transportation throughput decreased by 13 MBbls/d compared to the three months ended December 31, 2020, primarily due to decreased throughput at the DBM oil system resulting from lower production and the impact of winter storm Uri.

Gathering, treating, and transportation throughput decreased by 82 MBbls/d compared to the three months ended March 31, 2020, primarily due to (i) lower throughput at the DJ Basin oil system due to production declines in the area and (ii) lower throughput at the DBM oil system resulting from lower production and the impact of winter storm Uri.

Equity - investment throughput decreased by 2 MBbls/d compared to the three months ended December 31, 2020, primarily due to decreased volumes on the Whitethorn pipeline, partially offset by increased volumes on Cactus II and the Saddlehorn pipeline.

Equity - investment throughput decreased by 81 MBbls/d compared to the three months ended March 31, 2020, primarily due to decreased volumes on the Whitethorn pipeline and Cactus II.

Produced-water assets

Gathering and disposal throughput increased by 107 MBbls/d and 188 MBbls/d for the three and nine months ended September 30, 2020, respectively, due to increased throughput at the DBM water systems resulting from additional (i) producer activity, (ii) water-disposal facilities, and (iii) offload connections that increased capacity of the systems.

Gathering and disposal throughput decreased by 63 MBbls/d and 110 MBbls/d compared to the three months ended December 31, 2020, and March 31, 2020, respectively, due to decreased throughput at the DBM water systems resulting from lower production and the impact of winter storm Uri.

Service Revenues

Three Months Ended

September 30, Nine Months Ended

September 30,

thousands except percentages 2020 2019 Inc/

(Dec) 2020 2019 Inc/

thousands except percentages March 31, 2021 December 31, 2020 Inc/

(Dec) March 31, 2020 Inc/

Service revenues – fee based $ 572,275 $ 603,777 (5) % $ 701,396 (18) %

$ 636,522 $ 587,965 8 % $ 1,980,546 $ 1,761,483 12 %

Service revenues – product based 31,652 13,132 141 % 15,921 99 %

12,316 9,476 30 % 35,237 45,530 (23) %

Total service revenues $ 603,927 $ 616,909 (2) % $ 717,317 (16) %

_________________________________________________________________________________________

(1) Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.

Service revenues – fee based

Service revenues – fee based increased by $48.6 million and $219.1 million for the three and nine months ended September 30, 2020, respectively, primarily due to increases of (i) $40.2 million and $96.0 million, respectively, at the DJ Basin complex and $20.7 million and $91.0 million, respectively, at the West Texas complex from increased throughput, (ii) $14.2 million and $59.8 million, respectively, at the DBM oil system from increased throughput and the effect of the straight-line treatment of lease revenue under the new operating and maintenance agreement with Occidental effective December 31, 2019, and (iii) $12.5 million and $53.7 million, respectively, at the DBM water systems from increased throughput and a higher average fee resulting from a cost-of-service rate redetermination that occurred during the first quarter of 2020.

These increases were offset partially by decreases of $37.7 million and $93.9 million, respectively, resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summar y —Commodity purchase and sale agreements within this Item 2).

Service revenues – fee based decreased by $31.5 million compared to the three months ended December 31, 2020, primarily due to (i) $10.2 million at the DBM water systems from decreased throughput, including the impact of winter storm Uri, and a lower average fee resulting from a cost - of - service rate redetermination effective January 1, 2021, (ii) $8.9 million at the Springfield system due to annual cost - of - service rate adjustments that increased revenue in the fourth quarter of 2020, (iii) $6.7 million at the DBM oil system and $4.9 million at the West Texas complex from decreased throughput, including the impact of winter storm Uri, and (iv) $5.5 million at the DJ Basin complex from a lower average gathering fee, partially offset by increased throughput.

These decreases were offset partially by an increase of $8.2 million at the DJ Basin oil system due to an annual cost - of - service rate adjustment made during the fourth quarter of 2020 and increased throughput.

Service revenues – fee based decreased by $129.1 million compared to the three months ended March 31, 2020, primarily due to (i) $45.9 million, resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2), (ii) $22.7 million at the DJ Basin complex from a lower average gathering fee and decreased throughput, (iii) $20.9 million at the West Texas complex from decreased throughput, including the impact of winter storm Uri, (iv) $16.8 million at the DBM oil system from decreased throughput, including the impact of winter storm Uri, and the effect of the straight - line treatment of lease revenue under the operating and maintenance agreement with Occidental, and (v) $13.1 million at the DBM water systems from decreased throughput, including the impact of winter storm Uri, and a lower average fee resulting from a cost - of - service rate redetermination effective January 1, 2021.

Service revenues – product based

Service revenues – product based decreased by $10.3 million for the nine months ended September 30, 2020, primarily due to decreased volumes and pricing across several systems, offset partially by increased volumes at the West Texas complex.

Service revenues – product based increased by $18.5 million and $15.7 million compared to the three months ended December 31, 2020, and March 31, 2020, respectively, primarily due to (i) $8.6 million and $4.2 million, respectively, at the West Texas complex due to an increase in electricity - related rates billed to customers during winter storm Uri, (ii) $3.6 million and $3.6 million, respectively, at the Hilight system due to increased prices, (iii) $3.3 million and $4.0 million, respectively, at the DJ Basin complex due to increased third - party volumes, and (iv) increased pricing across several systems.

Product Sales

Three Months Ended

September 30, Nine Months Ended

September 30,

thousands except percentages and

per-unit amounts

2020 2019 Inc/

(Dec) 2020 2019 Inc/

thousands except percentages and per-unit amounts March 31, 2021 December 31, 2020 Inc/

(Dec) March 31, 2020 Inc/

Natural - gas sales

$ 21,419 $ 6,593 NM $ 10,539 103 %

NGLs sales 49,386 23,475 110 % 46,110 7 %

1 unchanged sentence

Per - unit gross average sales price:

Natural gas (per Mcf) $ 1.51 $ 1.29 17 % $ 1.32 $ 1.61 (18) %

NGLs (per Bbl) 13.31 16.76 (21) % 12.25 20.91 (41) %

Natural gas (per Mcf) $ 5.98 $ 1.86 NM $ 1.30 NM

NGLs (per Bbl) 55.25 16.29 NM 15.45 NM

_________________________________________________________________________________________

NM — Not meaningful

(1) Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.

Natural-gas sales

Natural-gas sales decreased by $6.1 million for the three months ended September 30, 2020, primarily due to a decrease in average prices at the DJ Basin complex.

Natural-gas sales decreased by $25.0 million for the nine months ended September 30, 2020, primarily due to decreases of (i) $10.7 million at the DJ Basin complex attributable to a decrease in average prices, (ii) $6.0 million at the Hilight system resulting from an accrual reversal in the first quarter of 2019 related to the Kitty Draw gathering-system shutdown (see Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q), (iii) $3.2 million at the MGR assets attributable to decreases in average prices and volumes sold, and (iv) $2.6 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summar y —Commodity purchase and sale agreements within this Item 2).

NGLs sales decreased by $32.0 million and $81.4 million for the three and nine months ended September 30, 2020, respectively, primarily due to decreases of (i) $7.6 million and $32.2 million, respectively, at the West Texas complex attributable to a decrease in average prices, partially offset by increased volumes sold, (ii) $4.4 million and $9.4 million, respectively, at the Brasada complex resulting from decreases in average prices and volumes sold, and (iii) $18.4 million and $11.1 million, respectively, resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summar y —Commodity purchase and sale agreements within this Item 2).

In addition, for the nine months ended September 30, 2020, NGLs sales decreased due to (i) $12.4 million at the DJ Basin complex attributable to a decrease in average prices and (ii) $6.0 million at the MGR assets and $5.4 million at the Chipeta complex resulting from decreases in average prices and volumes sold.

Natural - gas sales increased by $14.8 million compared to the three months ended December 31, 2020, primarily due to increases of $15.4 million at the West Texas complex and $3.7 million at the MGR assets attributable to increases in average prices.

These increases were offset partially by a decrease of $4.9 million at the DJ Basin complex attributable to a decrease in volumes, partially offset by increased average prices.

Natural - gas sales increased by $10.9 million compared to the three months ended March 31, 2020, primarily due to increases of (i) $16.3 million at the West Texas complex attributable to an increase in average prices, partially offset by decreased volumes sold, (ii) $4.4 million at the MGR assets attributable to an increase in average prices, and (iii) $1.4 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2).

These increases were offset partially by a decrease of $10.5 million at the DJ Basin complex attributable to a decrease in volumes, partially offset by increased average prices.

NGLs sales increased by $25.9 million compared to the three months ended December 31, 2020, primarily due to increases of (i) $17.6 million at the West Texas Complex attributable to an increase in average prices, partially offset by decreased volumes sold, (ii) $2.5 million at the Chipeta complex attributable to an increase in average prices, and (iii) $2.4 million at the DJ Basin complex attributable to an increase in average prices and volumes sold.

NGLs sales increased by $3.3 million compared to the three months ended March 31, 2020, primarily due to increases of (i) $19.1 million at the West Texas complex attributable to an increase in average prices, partially offset by decreased volumes sold and (ii) $3.6 million at the Chipeta complex and $2.6 million at the Granger complex attributable to increases in average prices.

These increases were offset partially by a decrease of $21.8 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2).

Equity Income, Net – Related Parties

Three Months Ended

September 30, Nine Months Ended

September 30,

thousands except percentages 2020 2019 Inc/

(Dec) 2020 2019 Inc/

thousands except percentages March 31, 2021 December 31, 2020 Inc/

(Dec) March 31, 2020 Inc/

Equity income, net – related parties $ 52,165 $ 49,962 4 % $ 61,347 (15) %

Equity income, net – related parties increased by $7.1 million and $1.3 million for the three and nine months ended September 30, 2020, respectively, primarily due to increases related to the acquisition of our interest in Cactus II in June 2018, which began delivering crude oil during the third quarter of 2019, and increased volumes on TEP, FRP, and Red Bluff Express.

These increases were offset partially by a decrease in equity income from Whitethorn LLC related to commercial activities.

_________________________________________________________________________________________

(1) Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.

Equity income, net – related parties decreased by $9.2 million compared to the three months ended March 31, 2020, primarily due to a decrease in equity income from Whitethorn LLC related to commercial activities and lower volumes.

In addition, decreased equity income from lower volumes at White Cliffs, Cactus II, and FRP were mostly offset by increased equity income from higher volumes at Red Bluff Express and Saddlehorn.

Cost of Product and Operation and Maintenance Expenses

Three Months Ended

September 30, Nine Months Ended

September 30,

thousands except percentages 2020 2019 Inc/

(Dec) 2020 2019 Inc/

thousands except percentages March 31, 2021 December 31, 2020 Inc/

(Dec) March 31, 2020 Inc/

NGLs purchases $ 30,919 $ 20,155 53 % $ 83,789 (63) %

5 unchanged sentences

_________________________________________________________________________________________

(1) Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.

NGLs purchases

NGLs purchases decreased by $57.8 million for the three months ended September 30, 2020, primarily due to decreases of (i) $50.1 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summar y —Commodity purchase and sale agreements within this Item 2) and (ii) $4.1 million at the Brasada complex attributable to average-price and purchased-volume decreases.

NGLs purchases decreased by $140.7 million for the nine months ended September 30, 2020, primarily due to decreases of (i) $93.5 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summar y —Commodity purchase and sale agreements within this Item 2), (ii) $23.9 million at the West Texas complex due to an average-price decrease, partially offset by a purchased-volume increase, and (iii) $8.8 million and $5.3 million at the Brasada and Chipeta complexes, respectively, attributable to average-price and purchased-volume decreases.

NGLs purchases increased by $10.8 million compared to the three months ended December 31, 2020, primarily due to increases of (i) $3.3 million at the DJ Basin complex attributable to average - price and purchased - volume increases, (ii) $2.4 million at the West Texas complex attributable to average - price increases, and (iii) average - price increases across several other systems.

NGLs purchases decreased by $52.9 million compared to the three months ended March 31, 2020, primarily due to a decrease of $60.0 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2), partially offset by an increase of $5.2 million at the DJ Basin complex attributable to average - price increases, partially offset by purchased - volume decreases.

Residue purchases

Residue purchases decreased by $7.5 million for the three months ended September 30, 2020, primarily due to decreases of (i) $6.0 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summar y —Commodity purchase and sale agreements within this Item 2) and (ii) $3.9 million at the DJ Basin complex attributable to an average-price decrease.

These amounts were offset partially by an increase of $3.6 million at the West Texas complex due to an average-price increase.

Residue purchases decreased by $25.9 million for the nine months ended September 30, 2020, primarily due to decreases of (i) $14.1 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summar y —Commodity purchase and sale agreements within this Item 2) and (ii) $9.2 million and $4.5 million at the DJ Basin complex and MGR assets, respectively, attributable to an average-price decrease.

These amounts were offset partially by a $5.0 million increase at the West Texas complex attributable to an average-price increase.

Other items decreased by $14.6 million for the nine months ended September 30, 2020, primarily due to decreases of (i) $11.7 million at the West Texas complex due to changes in imbalance positions and (ii) $4.1 million at the DJ Basin complex due to a decrease in transportation costs.

Residue purchases increased by $36.7 million compared to the three months ended December 31, 2020, primarily due to increases of (i) $24.5 million at the West Texas complex attributable to purchased - volume increases and an average - price increase due to the impact of winter storm Uri, (ii) $3.8 million at the Hilight system attributable to average - price increases due to weather-related impacts, and (iii) $3.3 million at the DJ Basin complex attributable to average - price increases, partially offset by purchased - volume decreases.

Residue purchases increased by $36.7 million compared to the three months ended March 31, 2020, primarily due to increases of (i) $26.8 million at the West Texas complex attributable to average - price increases due to the impact of winter storm Uri, partially offset by purchased - volume decreases, (ii) $4.1 million at the Hilight system attributable to average - price increases due to weather-related impacts, (iii) $3.2 million at the MGR assets attributable to average - price increases, and (iv) $3.1 million at the Chipeta complex due to average - price increases.

These increases were partially offset by a decrease of $5.6 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2).

Other items increased by $7.0 million and $1.9 million compared to the three months ended December 31, 2020, and March 31, 2020, respectively, primarily due to increases of $12.3 million and $12.7 million, respectively, at the West Texas complex primarily attributable to changes in imbalance positions, partially offset by decreases of $6.1 million and $11.2 million, respectively, at the DJ Basin complex due to changes in imbalance positions.

Operation and maintenance expense

Operation and maintenance expense decreased by $44.3 million for the three months ended September 30, 2020, primarily due to decreases of (i) $21.5 million at the West Texas complex primarily resulting from decreased utilities and maintenance expense, and salaries and wages, (ii) $6.8 million at the DBM water systems primarily attributable to lower surface-use fees and utilities expense, (iii) $4.4 million at the DJ Basin complex primarily attributable to decreased surface maintenance and plant repairs, and chemicals and treating services, and (iv) $4.0 million at the DBM oil system primarily attributable to decreased salaries and wages, surface maintenance and plant repairs, and utilities expense.

Operation and maintenance expense decreased by $31.2 million for the nine months ended September 30, 2020, primarily due to decreases of (i) $17.8 million and $5.4 million at the West Texas complex and Springfield system, respectively, primarily resulting from decreased utilities and maintenance expense, salaries and wages, and contract labor and consulting services, (ii) $7.7 million in overhead expense primarily related to fleet management and other miscellaneous field expenses, and (iii) $3.4 million at the DBM oil system primarily attributable to decreased surface maintenance and plant repairs, and salaries and wages expense.

These amounts were offset partially by an increase of $7.1 million at the DJ Basin complex primarily due to an increase in utilities and safety expense.

Operation and maintenance expense decreased by $3.9 million compared to the three months ended December 31, 2020, due to combined decreases of $8.2 million primarily related to $2.9 million and $2.7 million at the Springfield system and DJ Basin complex, respectively, due to reduced field - related expenses, partially offset by increased salaries and wages and surface maintenance and plant repairs expense.

These decreases were offset partially by an increase of $5.4 million at the West Texas complex as a result of increased utilities expense due to the impact of winter storm Uri, partially offset by a decrease in other field-related expenses.

Operation and maintenance expense decreased by $18.9 million compared to the three months ended March 31, 2020, primarily as a result of focused cost - savings initiatives related to the stand - up of WES as an independent organization, resulting in decreases of (i) $11.4 million at the West Texas complex primarily attributable to reduced field - related expenses, partially offset by increased utilities due to the impact of winter storm Uri, and (ii) $9.5 million at the DJ Basin complex primarily due to reduced field - related expenses, partially offset by increased utilities.

Other Operating Expenses

Three Months Ended

September 30, Nine Months Ended

September 30,

thousands except percentages 2020 2019 Inc/

(Dec) 2020 2019 Inc/

thousands except percentages March 31, 2021 December 31, 2020 Inc/

(Dec) March 31, 2020 Inc/

General and administrative $ 45,116 $ 37,303 21 % $ 40,465 11 %

1 unchanged sentence

Depreciation and amortization 130,553 106,398 23 % 132,319 (1) %

Long-lived asset and other impairments 34,640 3,107 NM 200,575 4,294 NM

Goodwill impairment

Long - lived asset and other impairments

14,866 3,314 NM 155,785 (90) %

Goodwill impairment — — NM 441,017 (100) %

Total other operating expenses $ 204,919 $ 158,092 30 % $ 788,062 (74) %

_________________________________________________________________________________________

NM — Not meaningful

(1) Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.

General and administrative expenses

General and administrative expenses increased by $10.8 million for the three months ended September 30, 2020, primarily due to certain increases relating to the Services Agreement, including $6.5 million of additional expense primarily related to services provided by Occidental to WES for information technology services.

General and administrative expenses also increased by $6.3 million for the three months ended September 30, 2020 due to increases in other corporate expenses.

General and administrative expenses increased by $34.8 million for the nine months ended September 30, 2020, primarily due to certain increases relating to the Services Agreement, including (i) $15.2 million in personnel costs primarily resulting from WES securing its own dedicated workforce as of December 31, 2019, and (ii) $14.9 million of additional expense primarily related to services provided by Occidental to WES for information technology services.

General and administrative expenses also increased by $6.2 million for the nine months ended September 30, 2020 due to increases in other corporate expenses.

See Executive Summary—December 2019 Agreements within this Item 2.

General and administrative expenses increased by $7.8 million compared to the three months ended December 31, 2020, primarily due to an increase of $6.9 million in personnel costs primarily related to customary fluctuations in employee vacation accruals and increased bonus-related contributions under our employee savings plan.

General and administrative expenses increased by $4.7 million compared to the three months ended March 31, 2020, primarily due to (i) a $4.5 million increase in corporate expenses and professional fees and (ii) a $1.9 million increase related to information technology services and fees.

These increases were offset partially by a decrease of $2.3 million in personnel costs primarily due to WES securing its own dedicated workforce as of December 2019 and the related transition activities.

Property and other taxes

Property and other taxes increased by $4.1 million and $11.4 million for the three and nine months ended September 30, 2020, respectively, primarily due to ad valorem tax increases at (i) the West Texas complex due to general expansion, including the completion of Mentone Train II in March 2019 and (ii) at the DJ Basin complex due to general expansion, including the completion of Latham Train I in November 2019.

Property and other taxes increased by $3.3 million compared to the three months ended December 31, 2020, due to ad valorem tax increases of $4.6 million at the West Texas complex primarily due to capital projects being placed into service.

This increase was offset partially by ad valorem tax decreases of $2.5 million at the DJ Basin complex primarily attributable to favorable differences between actual and estimated tax payments related to the 2020 fiscal year.

Property and other taxes decreased by $4.1 million compared to the three months ended March 31, 2020, primarily due to ad valorem tax decreases at the DJ Basin complex, DJ Basin oil system, and West Texas complex due to favorable differences between actual and estimated tax payments related to the 2020 fiscal year.

Depreciation and amortization expense

Depreciation and amortization expense increased by $4.7 million for the three months ended September 30, 2020, primarily due to increases of (i) $3.9 million at the DJ Basin complex primarily as a result of capital projects being placed into service, offset by a change in estimate for asset retirement obligations, (ii) $3.2 million at the West Texas complex resulting from capital projects being placed into service, and (iii) $1.8 million of amortization expense related to finance leases.

These increases were offset partially by a decrease of $4.2 million at the Hilight system primarily due to an acceleration of depreciation expense in the comparative prior period.

Depreciation and amortization expense increased by $21.7 million for the nine months ended September 30, 2020, primarily due to increases of (i) $9.3 million, $4.7 million, and $3.1 million at the West Texas complex, DBM oil system, and DJ Basin complex, respectively, all primarily resulting from capital projects being placed into service, and (ii) $6.0 million of amortization expense related to finance leases.

These increases were offset partially by a $3.4 million decrease at the Chipeta complex primarily due to lower depreciation as a result of the impairment incurred during the first quarter of 2020.

For further information regarding capital projects, see Liquidity and Capital Resources—Capital expenditures within this Item 2.

Depreciation and amortization expense increased by $24.2 million compared to the three months ended December 31, 2020, primarily due to increases of $16.3 million and $9.3 million at the DJ Basin complex and Hilight system, respectively, primarily as a result of downward asset retirement obligation revisions made at year-end 2020.

Long-lived asset and other impairment expense

Long-lived asset and other impairment expense for the three months ended September 30, 2020, was primarily due to (i) a $29.4 million other-than-temporary impairment of our investment in Ranch Westex, (ii) impairments of rights-of-way for $3.8 million at the DJ Basin complex, and (iii) impairments of $2.0 million at the DBM water systems due to cancellation of projects.

Long-lived asset and other impairment expense for the nine months ended September 30, 2020, was primarily due to $150.2 million of impairments for assets located in Wyoming and Utah, (ii) impairments of $14.8 million primarily at the DJ Basin complex, DBM water systems, and West Texas complex due to cancellation of projects, and (iii) impairments of rights-of-way for $6.2 million at the DJ Basin complex.

For further information on long-lived asset and other impairment expense for the nine months ended September 30, 2020, see Note 8—Property, Plant, and Equipment and Note 7—Equity Investments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Long - lived asset and other impairment expense for the three months ended March 31, 2021, was primarily due to $13.5 million of impairments at the DJ Basin complex due to cancellation of projects.

Long - lived asset and other impairment expense for the three months ended December 31, 2020, was primarily due to an impairment at the DBM oil system primarily due to cancellation of projects.

Long - lived asset and other impairment expense for the three months ended March 31, 2020, was primarily due to (i) $145.1 million of impairments for assets located in Wyoming and Utah and (ii) impairments at the DJ Basin complex.

For further information on Long - lived asset and other impairment expense, see Note 8—Property, Plant, and Equipment in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Goodwill impairment expense

1 unchanged sentence

As a result of the interim impairment test, a goodwill impairment of $441.0 million was recognized for the gathering and processing reporting unit.

For additional information on goodwill impairment expense, see Note 9—Goodwill in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

For additional information, see Note 9—Goodwill in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Interest Income – Anadarko Note Receivable and Interest Expense

Three Months Ended

September 30, Nine Months Ended

September 30,

thousands except percentages 2020 2019 Inc/

(Dec) 2020 2019 Inc/

thousands except percentages March 31, 2021 December 31, 2020 Inc/

(Dec) March 31, 2020 Inc/

Interest income – Anadarko note receivable $ — $ — — % $ 4,225 (100) %

$ 3,286 $ 4,225 (22) % $ 11,736 $ 12,675 (7) %

Third parties

Long - term and short - term debt

Finance lease liabilities (369) — NM (1,162) — NM

Amortization of debt issuance costs and commitment fees

$ (95,722) $ (96,195) — % $ (89,769) 7 %

Finance lease liabilities (298) (348) (14) % (405) (26) %

Amortization of debt issuance costs and commitment fees (3,338) (3,449) (3) % (3,127) 7 %

Capitalized interest 865 (1,292) 167 % 4,758 (82) %

Related parties

APCWH Note Payable — — — % — (1,833) (100) %

Finance lease liabilities — 37 100 % (43) (100) %

Interest expense $ (98,493) $ (101,247) (3) % $ (88,586) 11 %

_________________________________________________________________________________________

(1) Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.

Interest income

Interest income - Anadarko note receivable decreased by $0.9 million for both the three and nine months ended September 30, 2020, due to the exchange of the Anadarko note receivable under the Unit Redemption Agreement.

Interest income - Anadarko note receivable decreased by $4.2 million compared to the three months ended March 31, 2020, due to the exchange of the Anadarko note receivable under the Unit Redemption Agreement in September 2020.

See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Interest expense

Interest expense increased by $17.0 million and $54.9 million for the three and nine months ended September 30, 2020, respectively, primarily due to (i) $41.0 million and $107.7 million, respectively, of interest incurred on the 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, 5.250% Senior Notes due 2050, and Floating-Rate Senior Notes due 2023 that were issued in January 2020 and (ii) decreases of $5.9 million and $14.9 million, respectively, in capitalized interest.

These increases were offset partially by decreases of (i) $21.0 million and $49.8 million, respectively, that occurred as a result of the repayment and termination of the Term loan facility in January 2020 and (ii) $7.4 million and $13.7 million, respectively, due to lower outstanding borrowings under the RCF in 2020.

Interest expense decreased by $2.8 million compared to the three months ended December 31, 2020, primarily due to (i) $2.0 million of lower interest incurred on the 5.375% Senior Notes due 2021 that were called on March 1, 2021 and (ii) an increase of $2.2 million in capitalized interest due to a change in the mix of active projects.

These decreases to interest expense were offset partially by increases of $1.4 million due to higher effective interest rates resulting from credit - rating downgrades on the 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, 5.250% Senior Notes due 2050, and Floating - Rate Senior Notes due 2023.

Interest expense increased by $9.9 million compared to the three months ended March 31, 2020, primarily due to (i) $13.8 million of additional interest incurred from higher effective interest rates resulting from credit - rating downgrades and a full quarter of expense on the 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050 and (ii) a decrease of $3.9 million in capitalized interest due to decreased capital expenditures.

These increases were offset partially by decreases of (i) $4.2 million due to lower outstanding balances on the 5.375% Senior Notes due 2021 that were called on March 1, 2021, 4.000% Senior Notes due 2022, and Floating - Rate Senior Notes due 2023 and (ii) $3.6 million due to lower outstanding borrowings under the RCF in 2021.

See Liquidity and Capital Resources—Debt and credit facilities within this Item 2.

Other Income (Expense), Net

Three Months Ended

September 30, Nine Months Ended

September 30,

thousands except percentages 2020 2019 Inc/

(Dec) 2020 2019 Inc/

Other income (expense), net $ 720 $ (67,894) 101 % $ 612 $ (161,577) 100 %

Other income (expense), net increased by $68.6 million and $162.2 million for the three and nine months ended September 30, 2020, respectively, primarily due to non-cash losses of $68.3 million and $162.9 million on interest-rate swaps incurred during the three and nine months ended September 30, 2019, respectively.

All outstanding interest-rate swap agreements were settled in December 2019 (see Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).

Income Tax Expense (Benefit)

Three Months Ended

September 30, Nine Months Ended

September 30,

thousands except percentages 2020 2019 Inc/

(Dec) 2020 2019 Inc/

thousands except percentages March 31, 2021 December 31, 2020 Inc/

(Dec) March 31, 2020 Inc/

Income (loss) before income taxes $ 192,347 $ 272,982 (30) % $ (293,680) 165 %

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Effective tax rate 1 % 1 % 1 %

_________________________________________________________________________________________

(1) Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.

We are not a taxable entity for U.S.

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However, income apportionable to Texas is subject to Texas margin tax.

For the nine months ended September 30, 2019, the variance from the federal statutory rate primarily was due to federal and state taxes on pre-acquisition income attributable to assets previously acquired from Anadarko, and our share of applicable Texas margin tax.

For all other periods presented, the variance from the federal statutory rate was primarily due to our Texas margin tax liability.

Income attributable to the AMA assets prior to and including February 2019 was subject to federal and state income tax.

Income earned on the AMA assets for periods subsequent to February 2019 was subject only to Texas margin tax on income apportionable to Texas.

For all periods presented, the variance from the federal statutory rate primarily was due to our Texas margin tax liability.

KEY PERFORMANCE METRICS

Three Months Ended

September 30, Nine Months Ended

September 30,

thousands except percentages and per-unit amounts

2020 2019 Inc/

(Dec) 2020 2019 Inc/

thousands except percentages and per-unit amounts March 31, 2021 December 31, 2020 Inc/

(Dec) March 31, 2020 Inc/

Adjusted gross margin for natural - gas assets

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Adjusted gross margin 614,624 648,404 (5) % 701,315 (12) %

681,529 599,644 14 % 2,069,801 1,783,814 16 %

Per - Mcf Adjusted gross margin for natural - gas assets (2)

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Adjusted EBITDA 443,110 483,980 (8) % 513,587 (14) %

518,358 410,213 26 % 1,546,386 1,271,463 22 %

Free cash flow 213,822 464,735 (54) % 214,587 — %

339,154 70,679 NM 762,364 (7,496) NM

_________________________________________________________________________________________

(1) For a reconciliation of Adjusted gross margin, Adjusted EBITDA, and Free cash flow to the most directly comparable financial measure calculated and presented in accordance with GAAP, see the below descriptions.

(1) Increases or decreases refer to the comparison of the three months ended March 31, 2021, to the three months ended March 31, 2020.

(2) Average for period.

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Adjusted gross margin.

We define Adjusted gross margin attributable to Western Midstream Partners, LP (“Adjusted gross margin”) as total revenues and other (less reimbursements for electricity-related expenses recorded as revenue), less cost of product, plus distributions from equity investments, and excluding the noncontrolling interests owners’ proportionate share of revenues and cost of product.

We define Adjusted gross margin attributable to Western Midstream Partners, LP (“Adjusted gross margin”) as total revenues and other (less reimbursements for electricity - related expenses recorded as revenue), less cost of product, plus distributions from equity investments, and excluding the noncontrolling interest owners’ proportionate share of revenues and cost of product.

We believe Adjusted gross margin is an important performance measure of our operations’ profitability and performance as compared to other companies in the midstream industry.

Cost of product expenses include (i) costs associated with the purchase of natural gas and NGLs pursuant to our percent - of - proceeds, percent - of - product, and keep - whole contracts, (ii) costs associated with the valuation of gas imbalances, and (iii) costs associated with our obligations under certain contracts to redeliver a volume of natural gas to shippers, which is thermally equivalent to condensate retained by us and sold to third parties.

To facilitate investor and industry analyst comparisons between us and our peers, we also disclose per-Mcf Adjusted gross margin for natural-gas assets, per-Bbl Adjusted gross margin for crude-oil and NGLs assets, and per-Bbl Adjusted gross margin for produced-water assets .

Adjusted gross margin increased by $81.9 million and $286.0 million for the three and nine months ended September 30, 2020, respectively, primarily due to (i) increased throughput at the West Texas and DJ Basin complexes, (ii) increased throughput and the effect of the straight-line treatment of lease revenue under the new operating and maintenance agreement with Occidental effective December 31, 2019, at the DBM oil system, (iii) increased throughput and higher average fees at the DBM water systems, (iv) the acquisition of our interest in Cactus II in June 2018, which began delivering crude oil during the third quarter of 2019, and (v) increased volumes on FRP resulting from a pipeline expansion project completed during the second quarter of 2020.

These increases were offset partially by (i) a decrease in distributions from Whitethorn LLC related to commercial activities and (ii) a decrease at the Hilight system resulting from lower throughput and an accrual reversal in the first quarter of 2019 related to the Kitty Draw gathering-system shutdown (see Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).

Per-Mcf Adjusted gross margin for natural-gas assets increased by $0.13 and $0.09 for the three and nine months ended September 30, 2020, respectively, primarily due to increased throughput at the West Texas and DJ Basin complexes, which have higher-than-average per-Mcf margins as compared to our other natural-gas assets.

Per-Bbl Adjusted gross margin for crude-oil and NGLs assets decreased by $0.04 and $0.02 for the three and nine months ended September 30, 2020, respectively, primarily due to (i) a decrease in distributions from Whitethorn LLC related to commercial activities and (ii) the acquisition of our interest in Cactus II in June 2018, which began delivering crude oil during the third quarter of 2019 at a lower-than-average per-Bbl margin.

These decreases were offset partially by (i) increased throughput and the effect of the straight-line treatment of lease revenue under the new operating and maintenance agreement with Occidental effective December 31, 2019, at the DBM oil system and (ii) increased volumes on FRP resulting from a pipeline expansion project completed during the second quarter of 2020.

Per-Bbl Adjusted gross margin for produced-water assets increased by $0.03 for the three months ended September 30, 2020, primarily due to increased throughput on volumes with higher-than-average per-Bbl margin.

Adjusted gross margin decreased by $33.8 million compared to the three months ended December 31, 2020, primarily due to (i) decreased throughput and a lower average fee resulting from a cost - of - service rate redetermination effective January 1, 2021, at the DBM water systems, (ii) a decrease in distributions from Whitethorn LLC and Cactus II, (iii) an annual cost - of - service rate adjustment at the Springfield system that increased revenues in the fourth quarter of 2020, and (iv) decreased throughput at the DBM oil system.

These decreases were partially offset by an increase at the DJ Basin oil system due to an annual cost - of - service rate adjustment made during the fourth quarter of 2020.

Adjusted gross margin decreased by $86.7 million compared to the three months ended March 31, 2020, primarily due to (i) decreased throughput at the West Texas complex and DJ Basin oil system, (ii) a lower average gathering fee and decreased throughput at the DJ Basin complex, (iii) decreased throughput and the effect of the straight - line treatment of lease revenue under the operating and maintenance agreement with Occidental at the DBM oil system, and (iv) decreased throughput and a lower average fee resulting from a cost - of - service rate redetermination effective January 1, 2021 at the DBM water systems.

Per - Mcf Adjusted gross margin for natural - gas assets increased by $0.03 compared to the three months ended March 31, 2020, primarily due to a higher cost - of - service rate effective January 1, 2021, at the West Texas complex, partially offset by decreased throughput at the DJ Basin complex, which has a higher - than - average per - Mcf margin as compared to our other natural - gas assets.

Per - Bbl Adjusted gross margin for crude - oil and NGLs assets decreased by $0.24 compared to the three months ended December 31, 2020, primarily due to (i) an annual cost - of - service rate adjustment at the Springfield system that increased revenues in the fourth quarter of 2020 and (ii) a decrease in distributions from Cactus II.

These decreases were partially offset by an annual cost - of - service rate adjustment made during the fourth quarter of 2020 and increased throughput at the DJ Basin oil system.

Per - Bbl Adjusted gross margin for crude - oil and NGLs assets increased by $0.03 compared to the three months ended March 31, 2020, primarily due to a higher cost - of - service rate effective January 1, 2021, at the DJ Basin oil system, partially offset by (i) decreased throughput and the effect of the straight - line treatment of lease revenue under the operating and maintenance agreement with Occidental at the DBM oil system, which has a higher - than - average per - Bbl margin as compared to our other crude - oil and NGLs assets and (ii) a decrease in distributions from Cactus II.

Per - Bbl Adjusted gross margin for produced - water assets decreased by $0.06 and $0.05 compared to the three months ended December 31, 2020, and March 31, 2020, respectively, primarily due to a lower average fee resulting from a cost - of - service rate redetermination effective January 1, 2021.

Adjusted EBITDA.

We define Adjusted EBITDA attributable to Western Midstream Partners, LP (“Adjusted EBITDA”) as net income (loss), plus (i) distributions from equity investments, (ii) non-cash equity-based compensation expense, (iii) interest expense, (iv) income tax expense, (v) depreciation and amortization, (vi) impairments, and (vii) other expense (including lower of cost or market inventory adjustments recorded in cost of product), less (i) gain (loss) on divestiture and other, net, (ii) gain (loss) on early extinguishment of debt, (iii) income from equity investments, (iv) interest income, (v) other income, (vi) income tax benefit, and (vii) the noncontrolling interests owners’ proportionate share of revenues and expenses.

We define Adjusted EBITDA attributable to Western Midstream Partners, LP (“Adjusted EBITDA”) as net income (loss), plus (i) distributions from equity investments, (ii) non - cash equity - based compensation expense, (iii) interest expense, (iv) income tax expense, (v) depreciation and amortization, (vi) impairments, and (vii) other expense (including lower of cost or market inventory adjustments recorded in cost of product), less (i) gain (loss) on divestiture and other, net, (ii) gain (loss) on early extinguishment of debt, (iii) income from equity investments, (iv) interest income, (v) income tax benefit, (vi) other income, and (vii) the noncontrolling interest owners’ proportionate share of revenues and expenses.

We believe the presentation of Adjusted EBITDA provides information useful to investors in assessing our financial condition and results of operations and that Adjusted EBITDA is a widely accepted financial indicator of a company’s ability to incur and service debt, fund capital expenditures, and make distributions.

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

Adjusted EBITDA increased by $108.1 million for the three months ended September 30, 2020, primarily due to (i) a $66.0 million decrease in cost of product (net of lower of cost or market inventory adjustments), (ii) a $44.3 million decrease in operation and maintenance expenses, and (iii) a $13.0 million increase in total revenues and other.

These amounts were offset partially by (i) a $9.3 million increase in general and administrative expenses excluding non-cash equity-based compensation expense and (ii) a $4.1 million increase in property taxes.

Adjusted EBITDA increased by $274.9 million for the nine months ended September 30, 2020, primarily due to (i) a $181.1 million decrease in cost of product (net of lower of cost or market inventory adjustments), (ii) a $102.1 million increase in total revenues and other, (iii) a $31.2 million decrease in operation and maintenance expenses, and (iv) a $6.0 million increase in distributions from equity investments.

These amounts were offset partially by (i) a $28.6 million increase in general and administrative expenses excluding non-cash equity-based compensation expense and (ii) an $11.4 million increase in property taxes.

The above-described decreases in cost of product and total revenues and other include the impacts resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020, which had no net impact on Adjusted EBITDA (see Executive Summar y —Commodity purchase and sale agreements within this Item 2).

Adjusted EBITDA decreased by $40.9 million compared to the three months ended December 31, 2020, primarily due to (i) a $54.5 million increase in cost of product (net of lower of cost or market inventory adjustments), (ii) an $8.0 million decrease in distributions from equity investments, (iii) $7.0 million increase in general and administrative expenses excluding non - cash equity - based compensation expense, and (iv) $3.3 million increase in property taxes.

These amounts were offset partially by (i) a $27.5 million increase in total revenues and other and (ii) a $3.9 million decrease in operation and maintenance expenses.

Adjusted EBITDA decreased by $70.5 million compared to the three months ended March 31, 2020, primarily due to (i) a $99.3 million decrease in total revenues and other, (ii) a $4.7 million decrease in distributions from equity investments, and (iii) a $3.2 million increase in general and administrative expenses excluding non - cash equity - based compensation expense.

These amounts were offset partially by (i) an $18.9 million decrease in operation and maintenance expenses, (ii) a $14.1 million decrease in cost of product (net of lower of cost or market inventory adjustments), and (iii) a $4.1 million decrease in property taxes.

The above - described variances in cost of product and total revenues and other include the impacts resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020, which had no net impact on Adjusted EBITDA (see Executive Summary—Commodity purchase and sale agreements within this Item 2).

Free cash flow.

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Instead, Free cash flow should be considered indicative of the amount of cash that is available for distributions, debt repayments, and other general partnership purposes.

Free cash flow increased by $268.5 million and $769.9 million for the three and nine months ended September 30, 2020, respectively, primarily due to (i) decreases of $183.6 million and $575.0 million, respectively, in capital expenditures, (ii) increases of $52.7 million and $105.2 million, respectively, in net cash provided by operating activities, and (iii) decreases of $27.8 million and $89.1 million, respectively, in contributions to equity investments.

Free cash flow decreased by $250.9 million compared to the three months ended December 31, 2020, primarily due to (i) a decrease of $244.0 million in net cash provided by operating activities and (ii) an increase of $9.0 million in capital expenditures.

Free cash flow decreased by $0.8 million compared to the three months ended March 31, 2020, primarily due to a decrease of $131.8 million in net cash provided by operating activities, partially offset by (i) a decrease of $113.0 million in capital expenditures, (ii) a decrease of $10.9 million in contributions to equity investments, and (iii) a $7.1 million increase in distributions from equity investments in excess of cumulative earnings.

See Capital Expenditures and Historical Cash Flow within this Item 2 for further information.

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We believe that investors benefit from having access to the same financial measures that our management considers in evaluating our operating results.

The following tables present (a) a reconciliation of the GAAP financial measure of operating income (loss) to the non-GAAP financial measure of Adjusted gross margin, (b) a reconciliation of the GAAP financial measures of net income (loss) and net cash provided by operating activities to the non-GAAP financial measure of Adjusted EBITDA, and (c) a reconciliation of the GAAP financial measure of net cash provided by operating activities to the non-GAAP financial measure of Free cash flow:

The following tables present (i) a reconciliation of the GAAP financial measure of operating income (loss) to the non - GAAP financial measure of Adjusted gross margin, (ii) a reconciliation of the GAAP financial measures of net income (loss) and net cash provided by operating activities to the non - GAAP financial measure of Adjusted EBITDA, and (iii) a reconciliation of the GAAP financial measure of net cash provided by operating activities to the non - GAAP financial measure of Free cash flow:

Three Months Ended

September 30, Nine Months Ended

September 30,

thousands 2020 2019 2020 2019

thousands March 31, 2021 December 31, 2020 March 31, 2020

Reconciliation of Operating income (loss) to Adjusted gross margin

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Distributions from equity investments 61,189 69,231 65,920

72,070 71,005 209,566 203,540

Operation and maintenance 140,332 144,204 159,191

132,293 176,572 436,670 467,832

General and administrative 45,116 37,303 40,465

41,578 30,769 118,466 83,640

Property and other taxes 14,384 11,077 18,476

19,392 15,281 57,263 45,848

Depreciation and amortization 130,553 106,398 132,319

132,564 127,914 384,688 362,977

Impairments (1)

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Reimbursed electricity - related charges recorded as revenues

17,312 18,161 19,223

Adjusted gross margin attributable to noncontrolling interests (2)

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Adjusted gross margin $ 614,624 $ 648,404 $ 701,315

$ 681,529 $ 599,644 $ 2,069,801 $ 1,783,814

Adjusted gross margin for natural - gas assets

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_________________________________________________________________________________________

(1) Includes goodwill impairment for the nine months ended September 30, 2020.

(1) Includes goodwill impairment for the three months ended March 31, 2020.

See Note 9—Goodwill in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

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Three Months Ended

September 30, Nine Months Ended

September 30,

thousands 2020 2019 2020 2019

thousands March 31, 2021 December 31, 2020 March 31, 2020

Reconciliation of Net income (loss) to Adjusted EBITDA

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Non - cash equity - based compensation expense

6,734 5,935 5,234

Interest expense 98,493 101,247 88,586

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Interest (income) expense, net 98,493 101,247 84,361

Uncontributed cash-based compensation awards — 141 — 789

Accretion and amortization of long - term obligations, net

(2,088) (2,172) (2,100)

Current income tax expense (benefit) 555 1,303 (2,112)

Other (income) expense, net 1,207 (413) 1,761

(200) (495) (612) (1,397)

Cash paid to settle interest - rate swaps

Distributions from equity investments in excess of cumulative earnings – related parties 12,141 10,410 5,052

8,410 4,151 21,750 21,203

Changes in assets and liabilities:

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Accounts and imbalance payables and accrued liabilities, net 16,467 (106,623) 28,924

34,509 (11,808) (37,814) 69,390

Other items, net 35,600 (21,481) 24,857

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_________________________________________________________________________________________

(1) Includes goodwill impairment for the nine months ended September 30, 2020.

(1) Includes goodwill impairment for the three months ended March 31, 2020.

See Note 9—Goodwill in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

(2) For all periods presented, includes (i) the 25% third - party interest in Chipeta and (ii) the 2.0% Occidental subsidiary - owned limited partner interest in WES Operating, which collectively represent WES’s noncontrolling interests.

(3) Excludes non-cash losses on interest-rate swaps of $68.3 million and $162.9 million for the three and nine months ended September 30, 2019, respectively.

See Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Three Months Ended

September 30, Nine Months Ended

September 30,

thousands 2020 2019 2020 2019

thousands March 31, 2021 December 31, 2020 March 31, 2020

Reconciliation of Net cash provided by operating activities to Free cash flow

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Capital expenditures 59,783 50,829 172,816

Contributions to equity investments 2,953 30,785 19,017 108,118

Contributions to equity investments – related parties 86 371 10,960

Distributions from equity investments in excess of cumulative earnings – related parties 12,141 10,410 5,052

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LIQUIDITY AND CAPITAL RESOURCES

Our primary cash uses include capital expenditures, debt service, customary operating expenses, quarterly distributions, and distributions to our noncontrolling interest owners.

Our sources of liquidity as of September 30, 2020, included cash and cash equivalents, cash flows generated from operations, available borrowing capacity under the RCF, and potential issuances of additional equity or debt securities.

Our primary cash uses include quarterly distributions, debt service, capital expenditures, customary operating expenses, and distributions to our noncontrolling interest owners.

Our sources of liquidity as of March 31, 2021, included cash and cash equivalents, cash flows generated from operations, available borrowing capacity under the RCF, and potential issuances of additional equity or debt securities.

We believe that cash flows generated from these sources will be sufficient to satisfy our short - term working capital requirements and long - term capital - expenditure requirements.

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However, we also may use operating cash flows to fund capital expenditures or acquisitions, which could result in borrowings under the RCF to pay distributions or to fund other short - term working capital requirements.

Our partnership agreement requires that we distribute all of our available cash (as defined in our partnership agreement) within 55 days following each quarter’s end.

Our cash flow and resulting ability to make cash distributions are completely dependent on our ability to generate cash flow from operations.

Under our partnership agreement, we distribute all of our available cash (beyond proper reserves as defined in our partnership agreement) within 55 days following each quarter’s end.

Our cash flow and resulting ability to make cash distributions are dependent on our ability to generate cash flow from operations.

Generally, our available cash is our cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves and cash on hand resulting from working capital borrowings made after the end of the quarter.

We have made cash distributions to our unitholders each quarter since our IPO in 2012.

The Board of Directors declared a cash distribution to unitholders for the third quarter of 2020 of $0.31100 per unit, or $132.3 million in the aggregate.

The cash distribution is payable on November 13, 2020, to our unitholders of record at the close of business on October 30, 2020.

See Outlook within this Item 2.

The general partner establishes cash reserves to provide for the proper conduct of our business, including (i) reserves to fund future capital expenditures, (ii) to comply with applicable laws, debt instruments, or other agreements, or (iii) to provide funds for unitholder distributions for any one or more of the next four quarters.

We have made cash distributions to our unitholders each quarter since our initial public offering in 2012.

The Board of Directors declared a cash distribution to unitholders for the first quarter of 2021 of $0.31500 per unit, or $133.0 million in the aggregate.

The cash distribution is payable on May 14, 2021, to our unitholders of record at the close of business on April 30, 2021.

In November 2020, we announced a buyback program of up to $250.0 million of our common units through December 31, 2021.

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The program does not obligate us to purchase any specific dollar amount or number of units and may be suspended or discontinued at any time.

Management continuously monitors our leverage po sition and coordinates our capital expenditures and quarterly distributions with expected cash inflows and projected debt service requirements.

We will continue to evaluate funding alternatives, including additiona l borrowings and the issuance of debt or equity securities, to secure funds as needed or to refinance maturing debt balances with longer-term debt issuances.

During the quarter ended March 31, 2021, we repurchased 1,115,808 common units on the open market for an aggregate purchase price of $16.2 million.

We canceled the units immediately upon receipt.

As of March 31, 2021, we had an authorized amount of $201.2 million remaining under the Purchase Program.

Management continuously monitors our leverage position and coordinates our capital expenditures and quarterly distributions with expected cash inflows and projected debt service requirements.

We will continue to evaluate funding alternatives, including additional borrowings and the issuance of debt or equity securities, to secure funds as needed or to refinance maturing debt balances with longer - term debt issuances.

Our ability to generate cash flows is subject to a number of factors, some of which are beyond our control.

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Working capital .

As of September 30, 2020, we had a $193.5 million working capital deficit, which we define as the amount by which current liabilities exceed current assets.

As of March 31, 2021, we had a $120.9 million working capital surplus, which we define as the amount by which current assets exceed current liabilities.

Working capital is an indication of liquidity and potential needs for short - term funding.

Working capital requirements are driven by changes in accounts receivable and accounts payable and other factors such as credit extended to, and the timing of collections from, our customers, and the level and timing of our spending for acquisitions, maintenance, and capital activities.

Our working capital deficit was primarily due to the 5.375% Senior Notes due 2021 being classified as short-term debt on the consolidated balance sheet as of September 30, 2020.

As of September 30, 2020, there was $2.0 billion available for borrowing under the RCF.

See Note 10—Components of Working Capital and Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

As of March 31, 2021, there was $2.0 billion available for borrowing under the RCF.

See Note 10—Selected Components of Working Capital and Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Capital expenditures .

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Acquisitions and capital expenditures as presented in the consolidated statements of cash flows and capital incurred were as follows:

Nine Months Ended

September 30,

Three Months Ended

thousands 2021 2020

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_________________________________________________________________________________________

(1) For the nine months ended September 30, 2020 and 2019, included $6.1 million and $16.1 million, respectively, of capitalized interest.

Acquisitions during 2019 included AMA and the 30% interest in Red Bluff Express.

See Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Capital expenditures decreased by $575.0 million for the nine months ended September 30, 2020, primarily due to decreases of (i) $267.0 million at the DJ Basin complex primarily related to the completion of Latham Trains I and II that commenced operations in November 2019 and February 2020, respectively, (ii) $135.5 million at the West Texas complex primarily related to the completion of Mentone Train II that commenced operations in March 2019, (iii) $82.4 million at the DBM oil system primarily related to the completion of the Loving ROTF Train III that commenced operations in January 2020, and (iv) $67.1 million at the DBM water systems primarily related to reduced construction of additional water-disposal facilities.

(1) See Note 6—Related-Party Transactions for information regarding equipment purchases from related parties.

(2) For the three months ended March 31, 2021 and 2020, included $0.9 million and $4.8 million, respectively, of capitalized interest.

Capital expenditures decreased by $113.0 million for the three months ended March 31, 2021, primarily due to decreases of (i) $56.2 million at the West Texas complex primarily attributable to decreases in pipeline and well connection projects, (ii) $21.4 million at the DJ Basin complex primarily related to the completion of Latham Train II that commenced operations in the first quarter of 2020 and decreases in pipeline, well connection, and compression projects, (iii) $18.2 million at the DBM water systems primarily due to reduced construction of additional water - disposal facilities and gathering projects, and (iv) $16.5 million at the DBM oil system primarily related to the completion of the Loving ROTF Trains III and IV that commenced operations during the first and third quarters of 2020, respectively, and decreases in pipeline and well connection projects.

Historical cash flow .

The following table and discussion present a summary of our net cash flows provided by (used in) operating, investing, and financing activities:

Nine Months Ended

September 30,

Three Months Ended

thousands 2021 2020

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Operating activities .

Net cash provided by operating activities increased for the nine months ended September 30, 2020, primarily due to higher cash operating income offset partially by (i) higher interest expense, (ii) cash paid to settle interest-rate swaps, and (iii) the impact of changes in assets and liabilities, including the timing of $74.8 million of related-party cash receipts included in the September 30, 2020, Accounts receivable, net balance we received by October 7, 2020.

Refer to Operating Results within this Item 2 for a discussion of our results of operations as compared to the prior periods.

Net cash provided by operating activities decreased for the three months ended March 31, 2021, primarily due to (i) lower cash operating income, (ii) the impact of changes in assets and liabilities, (iii) lower distributions from equity investments, (iv) higher interest expense, and (v) lower interest income.

Refer to Operating Results within this Item 2 for a discussion of our results of operations as compared to the prior period.

Investing activities .

Net cash used in investing activities for the nine months ended September 30, 2020, included the following:

Net cash used in investing activities for the three months ended March 31, 2021, included the following:

• $59.8 million of capital expenditures, primarily related to construction, expansion, and asset - integrity projects at the West Texas complex, DBM water systems, DJ Basin complex, and DBM oil system;

• $2.0 million of acquisitions from related parties;

• $12.1 million of distributions received from equity investments in excess of cumulative earnings;

• $3.3 million of decreases to materials and supplies inventory.

Net cash used in investing activities for the three months ended March 31, 2020, included the following:

• $172.8 million of capital expenditures, primarily related to construction and expansion at the West Texas and DJ Basin complexes, DBM water systems, and DBM oil system;

• $57.1 million of additions to materials and supplies inventory;

• $11.0 million of capital contributions primarily paid to Cactus II and FRP for construction activities;

• $5.1 million of distributions received from equity investments in excess of cumulative earnings.

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

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

• $947.3 million of capital expenditures, primarily related to construction and expansion at the DBM oil and DBM water systems and the West Texas and DJ Basin complexes;

• $108.1 million of capital contributions primarily paid to Cactus II, the TEFR Interests, Whitethorn LLC, Red Bluff Express, and White Cliffs for construction activities;

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

• $21.2 million of distributions received from equity investments in excess of cumulative earnings.

Financing activities .

Net cash used in financing activities for the nine months ended September 30, 2020, included the following:

Net cash used in financing activities for the three months ended March 31, 2021, included the following:

• $531.1 million to redeem the total principal amount outstanding of WES Operating’s 5.375% Senior Notes due 2021 and repay borrowings under the RCF;

• $131.3 million of distributions paid to WES unitholders;

• $22.0 million of decreases in outstanding checks due mostly to ad valorem tax payments made at the end of 2020;

• $16.2 million of unit repurchases;

• $2.6 million of distributions paid to the noncontrolling interest owners of WES Operating;

• $1.8 million of finance lease payments;

• $0.3 million of distributions paid to the noncontrolling interest owner of Chipeta;

• $100.0 million of borrowings under the RCF, which were used for general partnership purposes;

• $1.6 million of contributions from related parties.

Net cash provided by financing activities for the three months ended March 31, 2020, included the following:

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

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• $281.8 million of distributions paid to WES unitholders;

• $180.4 million to purchase and retire portions of WES Operating’s 5.375% Senior Notes due 2021, 4.000% Senior Notes due 2022, and Floating-Rate Senior Notes via open-market repurchases;

• $12.2 million of finance lease payments;

• $90.1 million to purchase and retire portions of WES Operating’s 5.375% Senior Notes due 2021 and 4.000% Senior Notes due 2022 via open - market repurchases;

• $5.8 million of distributions paid to the noncontrolling interest owners of WES Operating;

• $3.9 million of distributions paid to the noncontrolling interest owner of Chipeta;

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

• $220.0 million of borrowings under the RCF, which were used for general partnership purposes, including the funding of capital expenditures;

• $125.0 million of borrowings under the RCF, which were used for general partnership purposes;

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

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

• $3.0 billion of borrowings under the Term loan facility, net of issuance costs, which were used to fund the acquisition of AMA, to repay the APCWH Note Payable, and to repay amounts outstanding under the RCF;

• $940.0 million of borrowings under the RCF, which were used for general partnership purposes, including the funding of capital expenditures;

• $458.8 million of net contributions from Anadarko representing intercompany transactions attributable to the acquisition of AMA;

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

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

• $1.0 billion of repayments of outstanding borrowings under the RCF;

• $688.2 million of distributions paid to WES unitholders;

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

• $112.4 million of distributions paid to the noncontrolling interest owners of WES Operating;

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

• $5.2 million of distributions paid to the noncontrolling interest owner of Chipeta.

Debt and credit facilities.

As of September 30, 2020, the carrying value of outstanding debt was $7.9 billion.

As of March 31, 2021, the carrying value of outstanding debt was $7.4 billion.

See Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

WES Operating Senior Notes .

In January 2020, WES Operating issued the following notes:

• Fixed-Rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050, offered to the public at prices of 99.962%, 99.900%, and 99.442%, respectively, of the face amount.

Including the effects of the issuance prices, underwriting discounts, and interest-rate adjustments (described below), the effective interest rates of the Senior Notes due 2025, 2030, and 2050, were 4.291%, 5.173%, and 6.375%, respectively, at September 30, 2020, and 3.287%, 4.168%, and 5.362%, respectively, at June 30, 2020.

Interest is paid on each such series semi-annually on February 1 and August 1 of each year, beginning August 1, 2020;

• Floating-Rate Senior Notes due 2023.

As of September 30, 2020, the interest rate on the Floating-Rate Senior Notes was 2.12%.

Interest is paid quarterly in arrears on January 13, April 13, July 13, and October 13 of each year.

Interest is determined at a benchmark rate (which is initially a three-month LIBOR rate) on the interest determination date plus 0.85%.

Net proceeds from the Fixed-Rate Senior Notes and Floating-Rate Senior Notes were used to repay the $3.0 billion in outstanding borrowings under the Term loan facility and outstanding amounts under the RCF, and for general partnership purposes.

The interest payable on each of the Fixed-Rate Senior Notes and Floating-Rate Senior Notes is subject to adjustment from time to time if the credit rating assigned to such notes declines below certain specified levels or if credit-rating downgrades are subsequently followed by credit-rating upgrades.

As a result of credit-rating downgrades received from Fitch, S&P, and Moody’s, annualized borrowing costs will increase by $34.6 million.

See Outlook within this Item 2.

During the three and nine months ended September 30, 2020, WES Operating purchased and retired $29.0 million and $193.5 million, respectively, of certain of its senior notes and Floating-Rate Senior Notes via open-market repurchases.

For the three and nine months ended September 30, 2020, gains of $1.7 million and $12.7 million, respectively, were recognized for the early retirement of these notes.

As of September 30, 2020, the 5.375% Senior Notes due 2021 were classified as short-term debt on the consolidated balance sheet.

At September 30, 2020, WES Operating was in compliance with all covenants under the relevant governing indentures.

In mid - January 2020, WES Operating issued the Fixed - Rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050 and the Floating - Rate Senior Notes due 2023.

Including the effects of the issuance prices, underwriting discounts, and interest - rate adjustments, the effective interest rates of the Senior Notes due 2025, 2030, and 2050, were 4.542%, 5.424%, and 6.629%, respectively, at March 31, 2021.

The interest rate on the Floating - Rate Senior Notes was 2.33% at March 31, 2021.

The effective interest rate of these notes is subject to adjustment from time to time due to a change in credit rating.

During the first quarter of 2021, WES Operating redeemed the total principal amount outstanding of the 5.375% Senior Notes due 2021 at par value, pursuant to the optional redemption terms in WES Operating’s indenture.

At March 31, 2021, WES Operating was in compliance with all covenants under the relevant governing indentures.

We may, from time to time, seek to retire, rearrange, or amend some or all of our outstanding debt or debt agreements through cash purchases, exchanges, open - market repurchases, privately negotiated transactions, tender offers, or otherwise.

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The amounts involved may be material.

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

Revolving credit facility.

In December 2019, WES Operating entered into an amendment to the RCF, which is expandable to a maximum of $2.5 billion, to, among other things, exercise the final one-year extension option to extend the maturity date of the RCF from February 2024 to February 2025, for each extending lender.

The maturity date with respect to each non-extending lender, whose commitments represent $100.0 million out of $2.0 billion of total commitments from all lenders, remains February 2024.

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

As of September 30, 2020, there were no outstanding borrowings and $5.0 million of outstanding letters of credit, resulting in $2.0 billion of available borrowing capacity under the RCF.

At September 30, 2020, the interest rate on any outstanding RCF borrowings was 1.65% and the facility-fee rate was 0.25%.

At September 30, 2020, WES Operating was in compliance with all covenants under the RCF.

As a result of credit-rating downgrades received from Fitch and S&P, beginning in the second quarter of 2020, the interest rate on our outstanding RCF borrowings increased by 0.20% and the RCF facility-fee rate increased by 0.05%, from 0.20% to 0.25%.

See Outlook within this Item 2.

WES Operating’s $2.0 billion senior unsecured revolving credit facility is expandable to a maximum of $2.5 billion, and matures in February 2025 for each extending lender.

The non - extending lender’s commitments mature in February 2024 and represent $100.0 million out of $2.0 billion of total commitments from all lenders.

As of March 31, 2021, there were no outstanding borrowings and $5.1 million of outstanding letters of credit, resulting in $2.0 billion of available borrowing capacity under the RCF.

At March 31, 2021, the interest rate on any outstanding RCF borrowings was 1.61% and the facility - fee rate was 0.25%.

At March 31, 2021, WES Operating was in compliance with all covenants under the RCF.

The RCF contains certain covenants that limit, among other things, WES Operating’s ability, and that of certain of its subsidiaries, to incur additional indebtedness, grant certain liens, merge, consolidate, or allow any material change in the character of its business, enter into certain related - party transactions and use proceeds other than for partnership purposes.

The RCF also contains various customary covenants, certain events of default, and a maximum consolidated leverage ratio as of the end of each fiscal quarter (which is defined as the ratio of consolidated indebtedness as of the last day of a fiscal quarter to Consolidated Earnings Before Interest, Taxes, Depreciation, and Amortization for the most-recent four-consecutive fiscal quarters ending on such day) of 5.0 to 1.0, or a consolidated leverage ratio of 5.5 to 1.0 with respect to quarters ending in the 270-day period immediately following certain acquisitions.

The RCF also contains various customary covenants, certain events of default, and a maximum consolidated leverage ratio as of the end of each fiscal quarter (which is defined as the ratio of consolidated indebtedness as of the last day of a fiscal quarter to Consolidated EBITDA for the most - recent four - consecutive fiscal quarters ending on such day) of 5.0 to 1.0, or a consolidated leverage ratio of 5.5 to 1.0 with respect to quarters ending in the 270 - day period immediately following certain acquisitions.

As a result of certain covenants contained in the RCF, our capacity to borrow under the RCF may be limited.

See Outlook within this Item 2.

Term loan facility.

In December 2018, WES Operating entered into the Term loan facility, the proceeds from which were used to fund substantially all of the cash portion of the consideration under the Merger Agreement and the payment of related transaction costs (see Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).

In January 2020, WES Operating repaid the outstanding borrowings with proceeds from the issuance of the Fixed-Rate Senior Notes and Floating-Rate Senior Notes and terminated the Term loan facility.

During the first quarter of 2020, a loss of $2.3 million was recognized for the early termination of the Term loan facility.

See Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Finance lease liabilities.

WES subleased equipment from Occidental via finance leases through April 2020.

During the first quarter of 2020, WES entered into finance leases with third parties for equipment and vehicles extending through 2029, with future lease payments of $39.0 million as of September 30, 2020.

APCWH Note Payable.

In June 2017, in connection with funding the construction of the APC water systems that were acquired as part of the AMA acquisition, APCWH entered into an eight-year note payable agreement with Anadarko.

This note payable had a maximum borrowing limit of $500.0 million, including accrued interest.

The APCWH Note Payable was repaid at Merger completion.

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

Interest-rate swaps.

In December 2018 and March 2019, WES Operating entered into interest-rate swap agreements with an aggregate notional principal amount of $750.0 million and $375.0 million, respectively, to manage interest-rate risk associated with anticipated debt issuances.

In November and December 2019, WES Operating entered into additional interest-rate swap agreements with an aggregate notional principal amount of $1,125.0 million, effectively offsetting the swap agreements entered into in December 2018 and March 2019.

In December 2019, all outstanding interest-rate swap agreements were settled.

As part of the settlement, WES Operating made cash payments of $107.7 million and recorded an accrued liability of $25.6 million to be paid quarterly in 2020.

For the nine months ended September 30, 2020, WES Operating made cash payments of $19.2 million.

These cash payments were classified as cash flows from operating activities in the consolidated statements of cash flows.

During the first quarter of 2020, WES entered into finance leases with third parties for equipment and vehicles extending through 2029.

As of March 31, 2021, we have future finance - lease payments of $6.3 million for the remainder of 2021 and a total of $28.2 million in years thereafter.

Credit risk .

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We are subject to the risk of non - payment or late payment by producers for gathering, processing, transportation, and disposal fees.

We also depend on Occidental to remit payments to us for the value of volumes of residue gas, NGLs, crude oil, and condensate that it markets on our behalf under our Marketing Transition Services Agreement.

Additionally, we continue to evaluate counterparty credit risk and, in certain circumstances, are exercising our rights to request adequate assurance.

We expect our exposure to concentrated risk of non-payment or non-performance to continue for as long as our commercial relationships with Occidental generate a significant portion of our revenues.

We expect our exposure to the concentrated risk of non - payment or non - performance to continue for as long as our commercial relationships with Occidental generate a significant portion of our revenues.

While Occidental is our contracting counterparty, gathering and processing arrangements with affiliates of Occidental on most of our systems include not just Occidental - produced volumes, but also, in some instances, the volumes of other working - interest owners of Occidental who rely on our facilities and infrastructure to bring their volumes to market.

We also are party to agreements with Occidental under which Occidental is required to indemnify us for certain environmental claims, losses arising from rights - of - way claims, failures to obtain required consents or governmental permits, and income taxes with respect to the assets previously acquired from Anadarko.

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Our ability to make cash distributions to our unitholders may be adversely impacted if Occidental becomes unable to perform under the terms of gathering, processing, transportation, and disposal agreements;

commodity purchase and sale agreements;

the contribution agreements;

or the December 2019 Agreements (see Executive Summary—December 2019 Agreements within this Item 2).

or the Services Agreement.

ITEMS AFFECTING THE COMPARABILITY OF FINANCIAL RESULTS WITH WES OPERATING

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Three Months Ended

September 30, Nine Months Ended

September 30,

thousands 2020 2019 2020 2019

thousands March 31, 2021 December 31, 2020 March 31, 2020

Net income (loss) attributable to WES $ 185,791 $ 263,891 $ (256,527)

$ 246,611 $ 121,217 $ 263,121 $ 409,471

Limited partner interests in WES Operating not held by WES (1)

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Other income (expense), net (3) (11) (2)

(2) (8) (6) (71)

Interest expense

Net income (loss) attributable to WES Operating $ 190,485 $ 270,153 $ (260,330)

_________________________________________________________________________________________

(1) Represents the portion of net income (loss) allocated to the limited partner interests in WES Operating not held by WES.

A subsidiary of Occidental held a 2.0% limited partner interest in WES Operating as of September 30, 2020 and 2019.

Immediately prior to the Merger closing, the WES Operating IDRs and the general partner units were converted into a non-economic general partner interest in WES Operating and WES Operating common units, and at Merger completion, all WES Operating common units held by the public and subsidiaries of Anadarko (other than common units held by WES, WES Operating GP, and 6.4 million common units held by a subsidiary of Anadarko) were converted into WES common units.

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

A subsidiary of Occidental held a 2.0% limited partner interest in WES Operating for all periods presented.

(2) Represents general and administrative expenses incurred by WES separate from, and in addition to, those incurred by WES Operating.

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The differences between net cash provided by (used in) operating and financing activities for WES and WES Operating are reconciled as follows:

Nine Months Ended

September 30,

Three Months Ended

thousands 2021 2020

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Other income (expense), net (3) (2)

Interest expense

Debt related amortization and other items, net

WES Operating net cash provided by operating activities $ 261,668 $ 394,350

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Increase (decrease) in outstanding checks (192) —

Registration expenses related to the issuance of WES common units — 855

WGP RCF repayments

Unit repurchases 16,241 —

WES Operating net cash provided by (used in) financing activities $ (581,229) $ (164,988)

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WES Operating distributions.

WES Operating distributes all of its available cash (as defined in its partnership agreement) to WES Operating unitholders of record on the applicable record date within 45 days following each quarter’s end.

For the quarters ended March 31, 2019, June 30, 2019, September 30, 2019, and December 31, 2019, WES Operating distributed $283.3 million, $288.1 million, $289.7 million, and $290.3 million, respectively, to its limited partners.

For each quarter ended March 31, 2020, and June 30, 2020, WES Operating distributed $143.4 million to its limited partners.

For the quarter ended September 30, 2020, WES Operating will distribute $143.4 million to its limited partners.

See Note 5—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q .

CONTRACTUAL OBLIGATIONS

Our contractual obligations include, among other things, a revolving credit facility, other third-party long-term debt, capital obligations related to expansion projects, and various operating and finance leases.

Refer to Note 11—Debt and Interest Expense and Note 12—Commitments and Contingencies in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for an update to contractual obligations as of September 30, 2020.

OFF-BALANCE-SHEET ARRANGEMENTS

We do not have any off-balance-sheet arrangements other than short-term operating leases and standby letters of credit.

We have entered into short-term operating leases for vehicles and equipment with third parties as lessor.

For information on standby letters of credit, see Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

RECENT ACCOUNTING DEVELOPMENTS

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

WES Operating distributes all of its available cash (beyond proper reserves as defined in its partnership agreement) to WES Operating unitholders of record on the applicable record date within 45 days following each quarter’s end.

See Note 4—Partnership Distributions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis