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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-09 · 205 added, 288 removed, 443 unchanged (53% 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 2021 Form 10-K as filed with the SEC on February 23, 2022.

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 September 30, 2021 (see Note 7—Equity Investments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).

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, 2022 (see Note 6—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.

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• our ability to repay debt;

• the impact from disruptions caused by winter storm Uri or the 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;

• the resolution of litigation or other disputes;

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

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

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• the economic uncertainty from the worldwide outbreak of the coronavirus (“COVID - 19”);

• cyber attacks or security breaches;

• other factors discussed below, in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” included in the 2021 Form 10 - K, in our quarterly reports on Form 10 - Q, and in our other public filings and press releases.

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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 September 30, 2021, our assets and investments consisted of the following:

As of March 31, 2022, 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, 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.

• WES Operating purchased and retired $500.0 million of certain of its senior notes via a tender offer.

• We repurchased 5,586,419 common units for an aggregate purchase price of $104.4 million.

• Our third - quarter 2021 per - unit distribution of $0.32300 increased $0.004 from the second - quarter 2021 per - unit distribution of $0.31900.

• Natural - gas throughput attributable to WES totaled 4,081 MMcf/d and 4,132 MMcf/d for the three and nine months ended September 30, 2021, respectively, representing a 4% decrease and 6% decrease compared to the three months ended June 30, 2021, and nine months ended September 30, 2020, respectively.

• Crude - oil and NGLs throughput attributable to WES totaled 641 MBbls/d and 645 MBbls/d for the three and nine months ended September 30, 2021, respectively, representing a 7% decrease and 11% decrease compared to the three months ended June 30, 2021, and nine months ended September 30, 2020, respectively.

• Produced - water throughput attributable to WES totaled 735 MBbls/d and 673 MBbls/d for the three and nine months ended September 30, 2021, respectively, representing a 7% increase and 5% decrease compared to the three months ended June 30, 2021, and nine months ended September 30, 2020, respectively.

• Gross margin was $541.6 million and $1.5 billion for the three and nine months ended September 30, 2021, respectively, representing an 8% increase and 5% decrease compared to the three months ended June 30, 2021, and nine months ended September 30, 2020, respectively.

Significant financial and operational events during the three months ended March 31, 2022, included the following:

• We repurchased 225,355 common units on the open market for an aggregate purchase price of $5.1 million.

• Our first - quarter 2022 per - unit distribution of $0.50000 increased $0.17300 from the fourth - quarter 2021 per - unit distribution of $0.32700.

• Natural - gas throughput attributable to WES totaled 4,058 MMcf/d for the three months ended March 31, 2022, representing a 3% decrease compared to the three months ended December 31, 2021, and no change compared to the three months ended March 31, 2021.

• Crude - oil and NGLs throughput attributable to WES totaled 675 MBbls/d for the three months ended March 31, 2022, representing a 4% decrease and a 12% increase compared to the three months ended December 31, 2021, and March 31, 2021, respectively.

• Produced - water throughput attributable to WES totaled 751 MBbls/d for the three months ended March 31, 2022, representing a 5% decrease and a 26% increase compared to the three months ended December 31, 2021, and March 31, 2021, respectively.

• Gross margin was $550.9 million for the three months ended March 31, 2022, representing a 10% increase and a 21% increase compared to the three months ended December 31, 2021, and March 31, 2021, respectively.

See Key Performance Metrics within this Item 2.

• Adjusted gross margin for natural - gas assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $1.31 per Mcf and $1.24 per Mcf for the three and nine months ended September 30, 2021, respectively, representing an 8% increase compared to the three months ended June 30, 2021, and nine months ended September 30, 2020.

• Adjusted gross margin for crude - oil and NGLs assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $2.52 per Bbl and $2.46 per Bbl for the three and nine months ended September 30, 2021, respectively, representing a 5% increase and 2% decrease compared to the three months ended June 30, 2021, and nine months ended September 30, 2020, respectively.

• Adjusted gross margin for produced - water assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $0.94 per Bbl and $0.93 per Bbl for the three and nine months ended September 30, 2021, respectively, representing a 2% increase and 5% decrease compared to the three months ended June 30, 2021, and nine months ended September 30, 2020, respectively.

• Adjusted gross margin for natural - gas assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $1.34 per Mcf for the three months ended March 31, 2022, representing a 6% increase and a 13% increase compared to the three months ended December 31, 2021, and March 31, 2021, respectively.

• Adjusted gross margin for crude - oil and NGLs assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $2.44 per Bbl for the three months ended March 31, 2022, representing a 37% increase compared to the three months ended December 31, 2021, and no change compared to the three months ended March 31, 2021.

• Adjusted gross margin for produced - water assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $1.00 per Bbl for the three months ended March 31, 2022, representing a 9% increase compared to the three months ended December 31, 2021, and March 31, 2021.

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

Three Months Ended Nine Months Ended

September 30, 2021 June 30,

(Dec) September 30, 2021 September 30, 2020 Inc/

Three Months Ended

March 31, 2022 December 31,

(Dec) March 31, 2021 Inc/

Throughput for natural-gas assets (MMcf/d)

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766 808 (5) % 607 26 %

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 nine months ended September 30, 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.

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.

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, 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 nine months ended September 30, 2021, include the following impacts related to this change (i) decrease of $45.9 million in Service revenues – fee based, (ii) decrease of $21.2 million in Product sales, and (iii) decrease of $67.1 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.

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

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Commodity - price fluctuations affect the level of our customers’ activities and our customers’ allocations of capital within their own asset portfolios.

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

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

Although commodity prices have rebounded to pre-pandemic levels, the extent and duration of the recent commodity - price volatility cannot be predicted, and 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.

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

• An extended period of diminished earnings may restrict our ability to fully access our RCF, which contains various customary covenants, certain events of default, and a maximum consolidated leverage ratio based on Adjusted EBITDA (as defined in the covenant) related to the trailing twelve - month period.

Further, any future waivers or amendments to the RCF also may trigger pricing increases for available credit.

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

• As of September 30, 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.

However, our success in connecting additional wells or production facilities is dependent on the activity levels of our customers.

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

During 2020, oil and natural - gas prices were negatively impacted by the worldwide macroeconomic downturn that followed the global outbreak of COVID - 19.

In 2021, prices began to increase and in the first quarter of 2022, commodity prices increased significantly in connection with the war in Ukraine.

For example, NYMEX West Texas Intermediate crude - oil daily settlement prices during 2021 ranged from a low of $47.62 per barrel in January 2021 to a high of $84.65 per barrel in October 2021, and prices during the first quarter of 2022 ranged from a low of $76.08 per barrel in January 2022 to a high of $123.70 per barrel in March 2022.

The extent and duration of the recent commodity - price volatility cannot be predicted.

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

However, our success in connecting additional wells or production facilities is dependent on the activity levels of our customers, any capacity constraints, and the availability of downstream-takeaway alternatives.

In some cases, we take ownership of volumes at the tailgate of our plants based on certain contractual arrangements with our producer customers, which introduces additional commodity-price exposure.

Additionally, we intend to 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.

Impact of inflation and supply-chain disruptions.

Although inflation in the United States has been relatively low in recent years, the U.S.

economy currently is experiencing significant inflation relative to historical precedent, from, among other things, supply-chain disruptions caused by, or governmental stimulus or fiscal policies adopted in response to, the COVID-19 crisis and in connection with the war in Ukraine.

More specifically, the bottlenecks and disruptions from the lingering effects of the COVID-19 crisis have caused difficulties within the U.S.

and global supply chains, creating logistical delays along with labor shortages.

Continued increases in inflation will raise our costs for labor, materials, and services, which will increase our operating costs and capital expenditures materially and negatively impact our financial results.

To the extent permitted by regulations and escalation provisions in certain of our existing agreements, we have the ability to recover a portion of increased costs in the form of higher fees.

Impact of interest rates.

Overall, short- and long-term interest rates increased during 2021 and continued to increase during the first quarter of 2022.

Any future increases in interest rates likely will result in an increase in financing costs.

Additionally, as with other yield-oriented securities, our unit price could be impacted by our implied distribution yield relative to market interest rates.

Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our units, and a rising interest-rate environment could have an adverse impact on our unit price and our ability to issue additional equity, or increase the cost of issuing equity, to make acquisitions, to reduce debt, or for other purposes.

However, we expect our cost of capital to remain competitive, as our competitors face similar interest-rate dynamics.

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, located in Northeast Wyoming, to a third party.

Bison facilities.

In October 2020, we entered into an option agreement to sell the Bison treating facility, located in Northeast Wyoming, to a third party.

During the second quarter of 2021, the third party exercised its option to purchase the Bison treating facility and the sale closed.

We received total proceeds of $8.0 million, $7.0 million in the fourth quarter of 2020 and $1.0 million when the sale closed in the second quarter of 2021, resulting in a net gain on sale of $5.4 million that was recorded as Gain (loss) on divestiture and other, net in the consolidated statements of operations.

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.

In addition, as required by the final rule, we have continued to include a comparison of the current year-to-date period to the prior year-to-date period.

For purposes of the following discussion, any increases or decreases “for the three months ended September 30, 2021” refer to the comparison of the three months ended September 30, 2021, to the three months ended June 30, 2021;

and any increases or decreases “for the nine months ended September 30, 2021” refer to the comparison of the nine months ended September 30, 2021, to the nine months ended September 30, 2020.

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

Three Months Ended Nine Months Ended

thousands September 30, 2021 June 30,

2021 September 30, 2021 September 30, 2020

Three Months Ended

thousands March 31, 2022 December 31,

2021 March 31, 2021

Total revenues and other (1)

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Operating income (loss) 404,824 325,721 292,336

Interest income – Anadarko note receivable — — — 11,736

Interest expense (85,455) (89,472) (98,493)

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$ 308,717 $ 243,517 $ 185,791

Key performance metrics (3)

Adjusted gross margin $ 705,407 $ 677,236 $ 1,997,267 $ 2,069,801

Adjusted EBITDA 531,580 491,126 1,465,816 1,546,386

Free cash flow 320,031 379,776 913,629 762,364

_________________________________________________________________________________________

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(2) For reconciliations to comparable consolidated results of WES Operating, see Items Affecting the Comparability of Financial Results with WES Operating within this Item 2.

(3) Adjusted gross margin, Adjusted EBITDA, and Free cash flow are defined under the caption Key Performance Metrics within this Item 2.

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

Three Months Ended Nine Months Ended

September 30, 2021 June 30,

(Dec) September 30, 2021 September 30, 2020 Inc/

For purposes of the following discussion, any increases or decreases refer to the comparison of the three months ended March 31, 2022, to the three months ended December 31, 2021, or to the three months ended March 31, 2021, as applicable.

Three Months Ended

March 31, 2022 December 31,

(Dec) March 31, 2021 Inc/

Throughput for natural-gas assets (MMcf/d)

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_________________________________________________________________________________________

(1) 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.

(1) Represents the 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 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.

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Natural-gas assets

Gathering, treating, and transportation throughput decreased by 156 MMcf/d for the three months ended September 30, 2021, primarily due to (i) decreased volumes at the Bison treating facility, which was sold to a third party during the second quarter of 2021 and (ii) production declines in areas around the Marcellus Interest and Springfield gas - gathering systems.

Gathering, treating, and transportation throughput decreased by 74 MMcf/d for the nine months ended September 30, 2021, primarily due to (i) decreased volumes at the Bison treating facility, which was sold to a third party during the second quarter of 2021 and (ii) production declines and the impact of winter storm Uri at the Springfield gas - gathering system.

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

Processing throughput decreased by 17 MMcf/d for the three months ended September 30, 2021, primarily due to decreased production in areas around the DJ Basin complex, partially offset by increased production in areas around the West Texas complex.

Processing throughput decreased by 174 MMcf/d for the nine months ended September 30, 2021, primarily due to (i) lower production and the impact of winter storm Uri at the West Texas complex, (ii) the Granger straddle plant being held idle beginning in the third quarter of 2020, and (iii) lower volumes at the Granger complex due to production declines in the area.

These decreases were offset partially by higher volumes at the DJ Basin complex primarily due to an additional third-party connection to Latham Train II beginning January 1, 2021.

Equity - investment throughput decreased by 14 MMcf/d for the three months ended September 30, 2021, primarily due to decreased volumes at the Mi Vida and Ranch Westex plants and the Rendezvous system.

Equity - investment throughput decreased by 4 MMcf/d for the nine months ended September 30, 2021, primarily due to (i) decreased volumes at the Rendezvous system due to production declines in the area and (ii) decreased volumes at the Fort Union system, which was sold to a third party during the fourth quarter of 2020.

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

Gathering, treating, and transportation throughput decreased by 31 MMcf/d compared to the three months ended December 31, 2021, primarily due to decreased production in areas around the Marcellus Interest systems.

Gathering, treating, and transportation throughput decreased by 113 MMcf/d compared to the three months ended March 31, 2021, primarily due (i) decreased volumes at the Bison treating facility, which was sold to a third party during the second quarter of 2021 and (ii) production declines in areas around the Marcellus Interest systems.

Processing throughput decreased by 84 MMcf/d compared to the three months ended December 31, 2021, primarily due to (i) lower volumes at the West Texas complex due to production declines in the area and the impacts of inclement weather in the first quarter of 2022 and (ii) lower volumes at the DJ Basin and Granger complexes due to production declines in the areas.

Processing throughput increased by 88 MMcf/d compared to the three months ended March 31, 2021, primarily due to higher volumes at the West Texas complex resulting from the impact of winter storm Uri during the first quarter of 2021, partially offset by lower volumes at the DJ Basin, Granger, and Brasada complexes due to production declines in the areas.

Equity - investment throughput decreased by 34 MMcf/d compared to the three months ended December 31, 2021, primarily due to decreased volumes at the Mi Vida and Ranch Westex plants and on Red Bluff Express.

Equity - investment throughput increased by 40 MMcf/d compared to the three months ended March 31, 2021, primarily due to increased volumes on Red Bluff Express and at the Mi Vida plant resulting from the impact of winter storm Uri during the first quarter of 2021.

These increases were offset partially by (i) decreased volumes at the Rendezvous system due to production declines in the area and (ii) decreased volumes at Ranch Westex plant.

Crude-oil and NGLs assets

Gathering, treating, and transportation throughput decreased by 11 MBbls/d for the three months ended September 30, 2021, primarily due to decreased production in areas around the DJ Basin oil system.

Gathering, treating, and transportation throughput decreased by 43 MBbls/d for the nine months ended September 30, 2021, primarily due to (i) lower volumes at the DJ Basin oil system resulting from production declines in the area and (ii) lower volumes at the DBM oil system due to lower production and the impact of winter storm Uri.

Equity - investment throughput decreased by 36 MBbls/d for the three months ended September 30, 2021, primarily due to decreased volumes on the Whitethorn pipeline and TEP, partially offset by increased volumes on the Cactus II pipeline resulting from an incentive rate implemented in the second quarter of 2021.

Equity - investment throughput decreased by 37 MBbls/d for the nine months ended September 30, 2021, primarily due to decreased volumes on the Whitethorn pipeline, partially offset by increased volumes on the Saddlehorn pipeline.

Gathering, treating, and transportation throughput decreased by 8 MBbls/d compared to the three months ended December 31, 2021, primarily due to lower volumes at the DBM oil system resulting from the impacts of inclement weather in the first quarter of 2022.

Gathering, treating, and transportation throughput increased by 36 MBbls/d compared to the three months ended March 31, 2021, primarily due (i) higher volumes at the DBM oil system resulting from the impact of winter storm Uri during the first quarter of 2021 and (ii) increased production in areas around the DJ Basin oil system.

Equity - investment throughput decreased by 19 MBbls/d compared to the three months ended December 31, 2021, primarily due to decreased volumes on the Whitethorn pipeline.

Equity - investment throughput increased by 37 MBbls/d compared to the three months ended March 31, 2021, primarily due to (i) increased volumes on FRP and the Saddlehorn pipeline resulting from increased pipeline commitments and (ii) increased volumes on the Whitethorn pipeline.

Produced-water assets

Gathering and disposal throughput increased by 48 MBbls/d for the three months ended September 30, 2021, due to increased volumes at the DBM water systems resulting from higher production in the area.

Gathering and disposal throughput decreased by 39 MBbls/d for the nine months ended September 30, 2021, due to decreased volumes at the DBM water systems resulting from lower production and the impact of winter storm Uri.

Gathering and disposal throughput decreased by 42 MBbls/d compared to the three months ended December 31, 2021, due to decreased volumes at the DBM water systems resulting from lower production and the impacts of inclement weather in the first quarter of 2022.

Gathering and disposal throughput increased by 159 MBbls/d compared to the three months ended March 31, 2021, due to (i) new third-party connections brought online during the fourth quarter of 2021 and (ii) the impact of winter storm Uri during the first quarter of 2021.

Service Revenues

Three Months Ended Nine Months Ended

thousands except percentages September 30, 2021 June 30,

(Dec) September 30, 2021 September 30, 2020 Inc/

Three Months Ended

thousands except percentages March 31, 2022 December 31,

(Dec) March 31, 2021 Inc/

Service revenues – fee based $ 631,598 $ 621,093 2 % $ 572,275 10 %

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Service revenues – fee based

Service revenues – fee based increased by $31.5 million for the three months ended September 30, 2021, primarily due to increases of (i) $18.9 million due to revenue recorded in the third quarter of 2021 that was previously constrained (see Note 2—Revenue from Contracts with Customers in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q) and (ii) $14.2 million at the West Texas complex resulting from increased throughput.

Service revenues – fee based decreased by $138.8 million for the nine months ended September 30, 2021, primarily due to decreases of (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) $37.9 million at the DBM oil system due to decreased throughput, including the impact of winter storm Uri, and lower lease revenue under the operating and maintenance agreement with Occidental, (iii) $23.8 million at the DBM water systems resulting 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, (iv) $20.9 million at the DJ Basin complex due to decreased throughput on certain fee-based contracts, (v) $12.1 million at the Bison treating facility due to the expiration of a minimum-volume commitment contract in the fourth quarter of 2020, decreased throughput, and the sale of the facility to a third party during the second quarter of 2021, and (vi) $9.6 million at the West Texas complex from decreased throughput, including the impact of winter storm Uri.

These decreases were offset partially by an increase of $18.9 million due to revenue recorded in the third quarter of 2021 that was previously constrained (see Note 2—Revenue from Contracts with Customers in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).

Service revenues – fee based increased by $10.5 million compared to the three months ended December 31, 2021, primarily due to increases of (i) $28.7 million at the DJ Basin oil system due to an annual cost-of-service rate adjustment that decreased revenue during the fourth quarter of 2021, partially offset by decreased throughput, (ii) $7.6 million at the DBM oil system due to the treatment of lease revenue under the operating and maintenance agreement with Occidental that was terminated effective December 31, 2021, partially offset by decreased throughput, and (iii) $3.1 million at the Marcellus Interest systems due to an increase in the average gathering fee effective January 1, 2022, partially offset by decreased throughput.

These increases were offset partially by decreases of (i) $18.8 million at the West Texas complex due to a lower cost-of-service rate effective January 1, 2022, and decreased throughput, (ii) $4.9 million at the DJ Basin complex due to decreased throughput, and (iii) $4.8 million at the Springfield system due to an annual cost-of-service rate adjustment that increased revenue during the fourth quarter of 2021, in addition to a lower cost - of - service rate effective January 1, 2022.

Service revenues – fee based increased by $59.3 million compared to the three months ended March 31, 2021, primarily due to increases of (i) $22.1 million at the West Texas complex due to increased throughput, including the impact of winter storm Uri during the first quarter of 2021, partially offset by a lower cost-of-service rate effective January 1, 2022, and (ii) $17.5 million at the DBM water systems and $15.7 million at the DBM oil system due to increased throughput, including the impact of winter storm Uri during the first quarter of 2021.

Service revenues – product based

Service revenues – product based increased by $1.0 million for the three months ended September 30, 2021, primarily due to increased pricing across several systems, partially offset by a decrease of $4.7 million at the West Texas complex primarily due to a decrease in electricity - related fees charged to customers.

Service revenues – product based increased by $53.0 million for the nine months ended September 30, 2021, primarily due to increases of (i) $15.6 million at the DJ Basin complex due to increased third - party volumes and average prices, (ii) $15.1 million at the West Texas complex due to an increase in electricity - related fees charged to customers during winter storm Uri, and (iii) $6.5 million at the Granger complex, $6.3 million at the Hilight system, and $4.7 million at the Chipeta complex due to increased prices.

Service revenues – product based increased by $6.6 million compared to the three months ended December 31, 2021, primarily due to increases of (i) $2.7 million at the West Texas complex due to increased volumes and prices for certain third-party contracts and (ii) $2.3 million at the DJ Basin complex and $0.7 million at the Chipeta complex due to increased prices.

Service revenues – product based increased by $9.2 million compared to the three months ended March 31, 2021, primarily due to increases of (i) $3.9 million at the DJ Basin complex, $2.3 million at the Chipeta complex, and $1.4 million at the Granger complex due to increased prices, and (ii) $1.4 million at the DBM water systems due to increased prices and volumes.

Product Sales

Three Months Ended Nine Months Ended

thousands except percentages and per-unit amounts September 30, 2021 June 30,

(Dec) September 30, 2021 September 30, 2020 Inc/

Three Months Ended

thousands except percentages and per-unit amounts March 31, 2022 December 31,

(Dec) March 31, 2021 Inc/

Natural - gas sales

3 unchanged sentences

Per - unit gross average sales price:

Natural gas (per Mcf) $ 4.10 $ 2.65 55 % $ 4.20 $ 1.32 NM

Natural gas (per Mcf) $ 4.38 $ 4.60 (5) % $ 5.98 (27) %

NGLs (per Bbl) 46.48 42.05 11 % 28.42 64 %

_________________________________________________________________________________________

NM — Not meaningful

Natural-gas sales

Natural - gas sales increased by $18.0 million for the three months ended September 30, 2021, primarily due to increases of (i) $13.1 million at the West Texas complex attributable to an increase in average prices and volumes sold and (ii) $2.3 million at the DJ Basin complex and $2.1 million at the MGR assets attributable to an increase in average prices.

Natural - gas sales increased by $43.8 million for the nine months ended September 30, 2021, primarily due to increases of (i) $37.2 million at the West Texas complex and $7.4 million at the MGR assets attributable to increases in average prices and (ii) $1.8 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).

These increases were offset partially by decreases of $4.9 million at the DJ Basin complex and $4.3 million at the Granger complex attributable to decreases in volumes sold, partially offset by increases in average prices.

NGLs sales decreased by $5.9 million for the three months ended September 30, 2021, primarily due to a decrease of $8.7 million at the West Texas complex attributable to net changes in contract mix.

This decrease was partially offset by an increase of $2.2 million at the Chipeta complex attributable to an increase in average prices and volumes sold.

NGLs sales increased by $75.0 million for the nine months ended September 30, 2021, primarily due to increases of (i) $65.4 million at the West Texas complex attributable to an increase in average prices, partially offset by decreased volumes sold and (ii) $15.9 million at the Chipeta complex and $8.7 million at the Granger complex attributable to increases in average prices.

These increases were offset partially by a decrease of $23.0 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).

Natural - gas sales increased by $3.7 million compared to the three months ended December 31, 2021, primarily due to an increase of $2.3 million at the West Texas complex due to increased volumes sold as a result of throughput increases on certain third-party contracts.

NGLs sales increased by $18.3 million compared to the three months ended December 31, 2021, primarily due to increases of (i) $8.6 million at the West Texas complex due to increases in average prices and volumes sold and (ii) $5.4 million at the DJ Basin complex and $4.2 million at the Chipeta complex due to an increase in average prices.

NGLs sales increased by $17.1 million compared to the three months ended March 31, 2021, primarily due to increases of (i) $8.1 million at the Chipeta complex, $1.4 million at the DBM water systems, and $1.2 million at the Hilight complex attributable to increases in average prices and volumes sold, and (ii) $2.8 million at the Granger complex and $2.0 million at the DJ Basin complex due to an increase in average prices.

Equity Income, Net – Related Parties

Three Months Ended Nine Months Ended

thousands except percentages September 30, 2021 June 30,

(Dec) September 30, 2021 September 30, 2020 Inc/

Three Months Ended

thousands except percentages March 31, 2022 December 31,

(Dec) March 31, 2021 Inc/

Equity income, net – related parties $ 49,607 $ 45,308 9 % $ 52,165 (5) %

Equity income, net – related parties decreased by $10.2 million for the three months ended September 30, 2021, primarily due to decreases of $5.9 million at Cactus II and $4.1 million at Mont Belvieu JV resulting from electricity credits received in the second quarter of 2021 related to winter storm Uri.

Equity income, net – related parties decreased by $17.5 million for the nine months ended September 30, 2021, primarily due to decreases of (i) $24.1 million at Whitethorn LLC related to commercial activities and lower volumes and (ii) $4.8 million and $4.2 million at Cactus II and White Cliffs, respectively, due to lower volumes.

These decreases were offset partially by increases of (i) $6.4 million and $5.1 million at Saddlehorn and Red Bluff Express, respectively, due to higher volumes and (ii) $4.4 million at Mont Belvieu JV from a load-reduction electricity credit received in the second quarter of 2021 related to winter storm Uri.

Equity income, net – related parties increased by $4.3 million compared to the three months ended December 31, 2021, primarily due to increases of (i) $1.7 million at Whitethorn LLC related to commercial activities and (ii) $1.2 million at Mi Vida related to decreases in certain expenses during the current period.

Equity income, net – related parties decreased by $2.6 million compared to the three months ended March 31, 2021, primarily due to decreases of (i) $3.0 million at Saddlehorn Pipeline related to contracts with higher tariff rates expiring in August 2021 and (ii) $2.7 million at Cactus II related to a decrease in trunk revenues.

These decreases were offset partially by an increase of $2.2 million at Mi Vida due to higher volumes.

Cost of Product and Operation and Maintenance Expenses

Three Months Ended Nine Months Ended

thousands except percentages September 30, 2021 June 30,

(Dec) September 30, 2021 September 30, 2020 Inc/

Three Months Ended

thousands except percentages March 31, 2022 December 31,

(Dec) March 31, 2021 Inc/

Residue purchases $ 34,992 $ 38,471 (9) % $ 55,745 (37) %

4 unchanged sentences

Total Cost of product and Operation and maintenance expenses $ 201,824 $ 219,142 (8) % $ 229,301 (12) %

_________________________________________________________________________________________

NM — Not meaningful

Residue purchases

Residue purchases increased by $9.1 million for the three months ended September 30, 2021, primarily due to increases of (i) $4.0 million at the West Texas complex attributable to an increase in average prices and volumes purchased and (ii) $2.2 million at the MGR assets attributable to an increase in average prices.

Residue purchases increased by $69.0 million for the nine months ended September 30, 2021, primarily due to increases of $45.4 million at the West Texas complex, $7.7 million at the Chipeta complex, $6.6 million at the MGR assets, $5.4 million at the Granger complex, and $5.3 million at the Hilight system attributable to increases in average prices.

These increases were offset partially by a decrease of $5.2 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).

Residue purchases decreased by $3.5 million compared to the three months ended December 31, 2021, primarily due to a decrease of $2.0 million at the West Texas complex attributable to decreased volumes for certain third-party contracts.

Residue purchases decreased by $20.8 million compared to the three months ended March 31, 2021, primarily due to decreases of $13.2 million at the West Texas complex, $3.3 million at the DJ Basin complex, and $3.0 million at the Hilight system attributable to decreases in average prices.

NGLs purchases

NGLs purchases increased by $9.1 million for the three months ended September 30, 2021, primarily due to increases of (i) $5.5 million at the DJ Basin complex attributable to an increase in average prices and (ii) $2.2 million at the Chipeta complex attributable to an increase in average prices and volumes purchased.

NGLs purchases increased by $12.9 million for the nine months ended September 30, 2021, primarily due to increases of $31.5 million at the West Texas complex, $24.7 million at the DJ Basin complex, $9.4 million at the Chipeta complex, and $5.8 million at the Granger complex attributable to increases in average prices.

These increases were offset partially by a decrease of $61.1 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2).

Other items decreased by $13.1 million for the three months ended September 30, 2021, primarily due to decreases of $8.1 million at the West Texas complex and $3.1 million at the DJ Basin complex, primarily attributable to changes in imbalance positions.

Other items increased by $14.7 million for the nine months ended September 30, 2021, primarily due to an increase of $31.2 million at the West Texas complex, partially offset by a decrease of $16.7 million at the DJ Basin complex, both primarily attributable to changes in imbalance positions.

NGLs purchases increased by $7.8 million compared to the three months ended December 31, 2021, primarily due to an increase of $5.1 million at the West Texas complex attributable to an increase in average prices.

NGLs purchases increased by $39.5 million compared to the three months ended March 31, 2021, primarily due to increases of $19.0 million at the West Texas complex, $12.3 million at the DJ Basin complex, and $3.6 million at the Chipeta complex attributable to increases in average prices.

Other items decreased by $3.5 million compared to the three months ended December 31, 2021, primarily due to decreases of $3.7 million at the West Texas complex and $3.0 million at the DJ Basin complex, primarily due to changes in imbalance positions, partially offset by an increase of $3.2 million at the Chipeta complex due to a change in imbalance positions.

Other items decreased by $34.9 million compared to the three months ended March 31, 2021, primarily due to decreases of $29.3 million at the West Texas complex and $6.9 million at the DJ Basin complex, primarily due to changes in imbalance positions.

Operation and maintenance expense

Operation and maintenance expense decreased by $12.2 million for the three months ended September 30, 2021, primarily due to decreases of (i) $5.9 million at the West Texas complex attributable to reduced utilities expense and surface maintenance and plant repairs and (ii) $4.8 million at the DJ Basin complex due to an environmental liability of $4.1 million recorded in the second quarter of 2021.

Operation and maintenance expense decreased by $2.5 million for the nine months ended September 30, 2021, primarily due to decreases of (i) $7.5 million at the West Texas complex, primarily attributable to reduced salaries and wages, surface maintenance and plant repairs, and safety expense;

partially offset by increased utilities expense primarily resulting from the impact of winter storm Uri, (ii) $5.8 million at the DJ Basin complex attributable to reduced surface maintenance and plant repairs, and (iii) $3.8 million at the DBM water systems attributable to lower disposal fees resulting from reduced volumes and lower surface-use fees, partially offset by increased utilities expense and surface maintenance and plant repairs, including the impact of winter storm Uri.

These decreases were offset partially by an increase of $10.2 million at the DBM oil system, primarily attributable to increases in field-related expenses, chemicals and treating services, and utilities expense primarily resulting from the impact of winter storm Uri.

Operation and maintenance expense decreased by $18.1 million compared to the three months ended December 31, 2021, primarily due to decreases of (i) $14.1 million at the West Texas complex attributable to a sales tax accrual in the fourth quarter of 2021 on compressor rentals and reduced utilities and salaries and wages expense, (ii) $7.3 million at the DJ Basin complex due to lower utilities expense and surface maintenance and plant repairs, and (iii) $4.3 million at the DBM water systems attributable to lower surface-use fees and utilities expense.

These decreases were offset partially by an increase of $3.1 million at the DBM oil system, primarily due to an increase in salaries and wages.

Operation and maintenance expense decreased by $11.4 million compared to the three months ended March 31, 2021, primarily due to decreases of $5.0 million at the DBM oil system and $4.4 million at the West Texas complex attributable to reduced utilities expense and contract and consulting costs.

Other Operating Expenses

Three Months Ended Nine Months Ended

thousands except percentages September 30, 2021 June 30,

(Dec) September 30, 2021 September 30, 2020 Inc/

Three Months Ended

thousands except percentages March 31, 2022 December 31,

(Dec) March 31, 2021 Inc/

General and administrative $ 48,602 $ 55,576 (13) % $ 45,116 8 %

3 unchanged sentences

— 1,345 (100) % 14,866 (100) %

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

Total other operating expenses $ 201,626 $ 219,421 (8) % $ 204,919 (2) %

General and administrative expenses

General and administrative expenses increased by $6.0 million for the three months ended September 30, 2021, primarily due to increases of (i) $4.4 million in personnel costs and (ii) $2.0 million in contract and consulting costs.

General and administrative expenses increased by $21.5 million for the nine months ended September 30, 2021, primarily due to increases of (i) $16.2 million in personnel costs primarily related to increased bonus-related contributions under our employee savings plan and equity-based compensation expense, and (ii) $6.3 million in contract and consulting costs primarily related to information technology services and fees.

General and administrative expenses decreased by $7.0 million compared to the three months ended December 31, 2021, primarily due to decreases in consulting costs and corporate expenses primarily related to information technology services and legal fees.

General and administrative expenses increased by $3.5 million compared to the three months ended March 31, 2021, primarily due to increases of $3.3 million in personnel costs, including increased bonus-related expenses and equity-based compensation expense.

Property and other taxes

Property and other taxes decreased by $4.3 million for the three months ended September 30, 2021, primarily due to ad valorem tax decreases at the West Texas complex and DBM oil system due to favorable differences between actual and estimated tax payments related to the 2021 fiscal year.

Property and other taxes decreased by $11.3 million for the nine months ended September 30, 2021, primarily due to ad valorem tax decreases at the West Texas complex due to favorable differences between actual and estimated tax payments related to the 2020 fiscal year.

Property and other taxes increased by $4.1 million compared to the three months ended March 31, 2021, primarily due to ad valorem tax increases at the DJ Basin complex due to higher rates, partially offset by favorable differences between actual and estimated tax payments related to the 2021 fiscal year.

Depreciation and amortization expense

Depreciation and amortization expense increased by $22.7 million for the nine months ended September 30, 2021, primarily due to increases of (i) $16.9 million at the DJ Basin complex, primarily as a result of a change in estimate for asset retirement obligations for the Third Creek gathering system in the comparative prior period, (ii) $7.1 million related to depreciation for capitalized information technology implementation costs related to the stand-up of WES as an independent organization, (iii) $6.3 million at the West Texas complex resulting from capital projects being placed into service, and (iv) $3.8 million at the Springfield system due to an acceleration of depreciation expense for revised service life assumptions.

These increases were offset partially by decreases of (i) $13.4 million due to the sale of the Bison treating facility and (ii) $3.3 million at a transportation asset in Southwest Wyoming, primarily as a result of downward asset retirement obligation revisions made in the first quarter of 2021.

Depreciation and amortization expense decreased by $9.6 million compared to the three months ended December 31, 2021, primarily due to decreases of $5.0 million and $4.8 million at the Hilight system and the MGR assets, respectively, due to revisions in cost estimates related to asset retirement obligations made in the fourth quarter of 2021.

Depreciation and amortization expense increased by $4.0 million compared to the three months ended March 31, 2021, primarily due to an increase of $3.2 million at a Wyoming asset primarily as a result of a change in estimate for asset retirement obligations in the comparative prior period.

Long-lived asset and other impairment expense

Long - lived asset and other impairment expense for the three months ended June 30, 2021, was primarily due to an $11.6 million other-than-temporary impairment of our investment in Ranch Westex.

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 nine months ended September 30, 2020, was primarily due to (i) $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, see Note 7—Property, Plant, and Equipment in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Goodwill impairment expense

During the three months ended March 31, 2020, an interim goodwill impairment test was performed due to significant unit - price declines triggered by the combined impacts from the global outbreak of COVID - 19 and the oil - market disruption.

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

For additional information, 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 Nine Months Ended

thousands except percentages September 30, 2021 June 30,

(Dec) September 30, 2021 September 30, 2020 Inc/

Interest income – Anadarko note receivable $ — $ — — % $ — $ 11,736 (100) %

Third parties

Interest Expense

Three Months Ended

thousands except percentages March 31, 2022 December 31,

(Dec) March 31, 2021 Inc/

Long - term and short - term debt

3 unchanged sentences

Capitalized interest 1,047 1,070 (2) % 865 21 %

Related parties

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

Interest expense $ (85,455) $ (89,472) (4) % $ (98,493) (13) %

Interest income

Interest income - Anadarko note receivable decreased by $11.7 million for the nine months ended September 30, 2021, 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 decreased by $2.0 million for the three months ended September 30, 2021, primarily due to lower outstanding balances as a result of the purchase and retirement of portions of certain of the senior notes.

Interest expense increased by $8.2 million for the nine months ended September 30, 2021, primarily due to (i) $27.4 million of additional interest incurred from higher effective interest rates resulting from credit - rating downgrades 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 $3.5 million in capitalized interest due to decreased capital expenditures.

These increases were offset partially by decreases of (i) $18.4 million due to lower outstanding balances on the 5.375% Senior Notes due 2021 that were called on March 1, 2021 and the purchase and retirement of portions of certain of the senior notes during the third quarter of 2021 and (ii) $3.9 million due to lower outstanding borrowings under the RCF in 2021.

Interest expense decreased by $4.0 million compared to the three months ended December 31, 2021, primarily due to decreases of $3.8 million for credit-rating related interest rate changes on the Fixed-Rate Senior Notes and Floating-Rate Senior Notes.

Interest expense decreased by $13.0 million compared to the three months ended March 31, 2021, primarily due to decreases of (i) $4.1 million due to the redemption of the total principal amount outstanding of the 5.375% Senior Notes due 2021 on March 1, 2021, (ii) $4.1 million due to credit-rating related interest rate changes and lower outstanding balances on the 3.100% Senior Notes due 2025 and Floating-Rate Senior Notes, (iii) $2.3 million due to credit-rating related interest rate changes on the 4.050% Senior Notes due 2030 and 5.250% Senior Notes due 2050, and (iv) $2.1 million due to lower outstanding balances on the 3.950% Senior Notes due 2025, 4.000% Senior Notes due 2022, and 4.650% Senior Notes due 2026, portions of which were repaid during the third quarter of 2021.

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

Income Tax Expense (Benefit)

Three Months Ended Nine Months Ended

thousands except percentages September 30, 2021 June 30,

(Dec) September 30, 2021 September 30, 2020 Inc/

Three Months Ended

thousands except percentages March 31, 2022 December 31,

(Dec) March 31, 2021 Inc/

Income (loss) before income taxes $ 319,475 $ 236,639 35 % $ 192,347 66 %

Income tax expense (benefit) 1,805 (14,210) (113) % 1,112 62 %

Effective tax rate 1 % 1 % 1 % 2 %

Effective tax rate 1 % NM 1 %

We are not a taxable entity for U.S.

2 unchanged sentences

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

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

For the three months ended March 31, 2022 and 2021, the variance from the federal statutory rate was primarily due to our Texas margin tax liability.

For the three months ended December 31, 2021, the variance from the federal statutory rate was primarily impacted by a state margin rate reduction associated with Occidental’s settlement of state audit matters and our Texas margin tax liability.

KEY PERFORMANCE METRICS

Three Months Ended Nine Months Ended

thousands except percentages and per-unit amounts September 30, 2021 June 30,

(Dec) September 30, 2021 September 30, 2020 Inc/

Three Months Ended

thousands except percentages and per-unit amounts March 31, 2022 December 31,

(Dec) March 31, 2021 Inc/

Adjusted gross margin for natural - gas assets

24 unchanged sentences

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 and NGLs 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.

The electricity-related expenses included in our Adjusted gross margin definition relate to pass-through expenses that are reimbursed by certain customers (recorded as revenue with an offset recorded as Operation and maintenance expense).

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 $28.2 million for the three months ended September 30, 2021, primarily due to (i) increased throughput at the West Texas complex and DBM water systems and (ii) revenue recorded in the third quarter of 2021 that was previously constrained (see Note 2—Revenue from Contracts with Customers in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).

These increases were offset partially by (i) a decrease in distributions from Mont Belvieu JV and (ii) decreased throughput at the DJ Basin complex.

Adjusted gross margin decreased by $72.5 million for the nine months ended September 30, 2021, primarily due to (i) decreased throughput and lower lease revenue under the operating and maintenance agreement with Occidental at the DBM oil system, (ii) a decrease in distributions from Whitethorn LLC, (iii) decreased throughput and a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2021, at the DBM water systems, (iv) decreased throughput on certain fee-based contracts at the DJ Basin complex, and (v) the expiration of a minimum-volume commitment contract in the fourth quarter of 2020 and decreased throughput at the Bison treating facility, which was sold to a third party during the second quarter of 2021.

These decreases were offset partially by (i) revenue recorded in the third quarter of 2021 that was previously constrained, (ii) higher average commodity prices at the MGR assets, and (iii) an increase in distributions from Red Bluff Express and Saddlehorn.

Per - Mcf Adjusted gross margin for natural - gas assets increased by $0.10 for the three months ended September 30, 2021, primarily due to (i) revenue recorded in the third quarter of 2021 that was previously constrained at the Springfield gas-gathering system and (ii) increased throughput at the West Texas complex, which has a higher - than - average per - Mcf margin as compared to our other natural-gas assets.

These increases were offset partially 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 - Mcf Adjusted gross margin for natural - gas assets increased by $0.09 for the nine months ended September 30, 2021, primarily due to (i) a higher cost - of - service rate effective January 1, 2021, at the West Texas complex and (ii) revenue recorded in the third quarter of 2021 that was previously constrained at the Springfield gas-gathering system.

These increases were offset partially by decreased throughput on certain fee-based contracts 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 increased by $0.12 for the three months ended September 30, 2021, primarily due to (i) revenue recorded in the third quarter of 2021 that was previously constrained and (ii) decreased volumes on the Whitethorn pipeline, which has a lower - than - average per - Bbl margin as compared to our other crude - oil and NGLs assets.

These increases were offset partially by (i) lower lease revenue under the operating and maintenance agreement with Occidental at the DBM oil system and (ii) a decrease in distributions from Mont Belvieu JV.

Per - Bbl Adjusted gross margin for crude - oil and NGLs assets decreased by $0.04 for the nine months ended September 30, 2021, primarily due to (i) decreased throughput and lower 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 FRP and Cactus II.

These decreases were offset partially by (i) a higher cost - of - service rate effective January 1, 2021, at the DJ Basin oil system and (ii) revenue recorded in the third quarter of 2021 that was previously constrained.

Per - Bbl Adjusted gross margin for produced - water assets increased by $0.02 for the three months ended September 30, 2021, primarily due to increased throughput on volumes with higher-than-average per-Bbl margins.

Per - Bbl Adjusted gross margin for produced - water assets decreased by $0.05 for the nine months ended September 30, 2021, primarily due to a lower average fee resulting from a cost - of - service rate redetermination effective January 1, 2021.

Adjusted gross margin increased by $34.5 million compared to the three months ended December 31, 2021, primarily due to (i) an annual cost-of-service rate adjustment that decreased revenue during the fourth quarter of 2021 at the DJ Basin oil system, partially offset by decreased throughput, (ii) the treatment of lease revenue under the operating and maintenance agreement with Occidental at the DBM oil system that was terminated effective December 31, 2021, partially offset by decreased throughput, and (iii) strong plant performance and contract mix at the West Texas and DJ Basin complexes leading to increased product recoveries and higher commodity prices, partially offset by lower throughput.

These increases were offset partially by (i) an annual cost-of-service rate adjustment that increased revenue during the fourth quarter of 2021 at the Springfield system and (ii) a decrease in distributions from Whitethorn LLC.

Adjusted gross margin increased by $90.1 million compared to the three months ended March 31, 2021, primarily due to (i) increased throughput, partially offset by a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2022, at the West Texas complex, (ii) increased throughput at the DBM water systems and DBM oil system, and (iii) a higher average gathering and processing fee and increased deficiency fees on certain contracts at the DJ Basin complex.

These increases were offset partially by a decrease in distributions from Whitethorn LLC.

Per - Mcf Adjusted gross margin for natural - gas assets increased by $0.08 compared to the three months ended December 31, 2021, primarily due to strong plant performance and contract mix at the West Texas and DJ Basin complexes leading to increased product recoveries, coupled with higher commodity prices and lower throughput.

Per - Mcf Adjusted gross margin for natural - gas assets increased by $0.15 compared to the three months ended March 31, 2021, primarily due to increased throughput at the West Texas complex, which has a higher - than - average per - Mcf margin as compared to our other natural-gas assets.

Per - Bbl Adjusted gross margin for crude - oil and NGLs assets increased by $0.66 compared to the three months ended December 31, 2021, primarily due to (i) an annual cost-of-service rate adjustment that decreased revenue during the fourth quarter of 2021 at the DJ Basin oil system and (ii) the treatment of lease revenue under the operating and maintenance agreement with Occidental at the DBM oil system that was terminated effective December 31, 2021.

These increases were offset partially by a decrease in distributions from Whitethorn LLC.

Per - Bbl Adjusted gross margin for crude - oil and NGLs assets decreased by $0.01 compared to the three months ended March 31, 2021, primarily due to a decrease in distributions from Whitethorn LLC and Saddlehorn.

These decreases were offset partially by increased throughput at the DBM oil system, which has a higher - than - average per - Bbl margin as compared to our other crude - oil and NGLs assets

Per - Bbl Adjusted gross margin for produced - water assets increased by $0.08 compared to the three months ended December 31, 2021 and March 31, 2021, primarily due to deficiency fees recorded in the first quarter of 2022.

Adjusted EBITDA.

5 unchanged sentences

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

Adjusted EBITDA increased by $40.5 million for the three months ended September 30, 2021, primarily due to (i) a $44.7 million increase in total revenues and other, (ii) a $12.2 million decrease in operation and maintenance expenses, and (iii) a $4.3 million decrease in property taxes.

These amounts were offset partially by (i) an $8.2 million decrease in distributions from equity investments, (ii) a $6.1 million increase in general and administrative expenses excluding non - cash equity - based compensation expense, and (iii) a $5.2 million increase in cost of product (net of lower of cost or market inventory adjustments).

Adjusted EBITDA decreased by $80.6 million for the nine months ended September 30, 2021, primarily due to (i) a $96.8 million increase in cost of product (net of lower of cost or market inventory adjustments), (ii) a $17.2 million increase in general and administrative expenses excluding non - cash equity - based compensation expense, and (iii) a $14.7 million decrease in distributions from equity investments.

These amounts were offset partially by (i) a $32.8 million increase in total revenues and other and (ii) an $11.3 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).

Adjusted EBITDA increased by $58.2 million compared to the three months ended December 31, 2021, primarily due to (i) a $39.1 million increase in total revenues and other, (ii) an $18.1 million decrease in operation and maintenance expenses, and (iii) a $7.9 million decrease in general and administrative expenses excluding non - cash equity - based compensation expense.

These amounts were offset partially by a $4.3 million decrease in distributions from equity investments.

Adjusted EBITDA increased by $95.9 million compared to the three months ended March 31, 2021, primarily due to (i) an $83.3 million increase in total revenues and other, (ii) a $16.1 million decrease in cost of product (net of lower of cost or market inventory adjustments), and (iii) an $11.4 million decrease in operation and maintenance expenses.

These amounts were offset partially by (i) a $5.4 million decrease in distributions from equity investments, (ii) a $4.1 million increase in property taxes, and (iii) a $2.5 million increase in general and administrative expenses excluding non - cash equity - based compensation expense.

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 decreased by $59.7 million for the three months ended September 30, 2021, primarily due to a decrease of $60.8 million in net cash provided by operating activities, partially offset by a decrease of $3.2 million in contributions to equity investments.

Free cash flow increased by $151.3 million for the nine months ended September 30, 2021, primarily due to (i) a decrease of $154.5 million in capital expenditures, (ii) a decrease of $15.3 million in contributions to equity investments, and (iii) an $8.3 million increase in distributions from equity investments in excess of cumulative earnings.

These amounts were offset partially by a decrease of $26.9 million in net cash provided by operating activities.

Free cash flow decreased by $376.2 million compared to the three months ended December 31, 2021, primarily due to a decrease of $385.4 million in net cash provided by operating activities related to working capital fluctuations and timing, partially offset by a decrease of $11.9 million in capital expenditures.

Free cash flow decreased by $11.5 million compared to the three months ended March 31, 2021, primarily due to (i) an increase of $22.2 million in capital expenditures, (ii) a $2.2 million decrease in distributions from equity investments in excess of cumulative earnings, and (iii) an increase of $2.0 million in contributions to equity investments.

These amounts were offset partially by an increase of $14.9 million in net cash provided by operating activities.

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

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Adjusted gross margin, Adjusted EBITDA, and Free cash flow are not defined in GAAP.

The GAAP measure used by us that is most directly comparable to Adjusted gross margin is gross margin.

Net income (loss) and net cash provided by operating activities are the GAAP measures used by us that are most directly comparable to Adjusted EBITDA.

The GAAP measure used by us that is most directly comparable to Free cash flow is net cash provided by operating activities.

The GAAP measure that is most directly comparable to Adjusted gross margin is gross margin.

Net income (loss) and net cash provided by operating activities are the GAAP measures that are most directly comparable to Adjusted EBITDA.

The GAAP measure that is most directly comparable to Free cash flow is net cash provided by operating activities.

Our non - GAAP financial measures of Adjusted gross margin, Adjusted EBITDA, and Free cash flow should not be considered as alternatives to the GAAP measures of gross margin, net income (loss), net cash provided by operating activities, or any other measure of financial performance presented in accordance with GAAP.

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The following tables present (i) a reconciliation of the GAAP financial measure of gross margin 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 Nine Months Ended

thousands September 30, 2021 June 30,

2021 September 30, 2021 September 30, 2020

Three Months Ended

thousands March 31, 2022 December 31,

2021 March 31, 2021

Reconciliation of Gross margin to Adjusted gross margin

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(1) 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.

Three Months Ended Nine Months Ended

thousands September 30, 2021 June 30,

2021 September 30, 2021 September 30, 2020

Three Months Ended

thousands March 31, 2022 December 31,

2021 March 31, 2021

Reconciliation of Net income (loss) to Adjusted EBITDA

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Impairments — 1,345 14,866

1,594 12,738 29,198 641,592

Other expense — 216 1,218

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Equity income, net – related parties 49,607 45,308 52,165

Interest income – Anadarko note receivable — — — 11,736

Other income 106 392 —

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Other (income) expense, net (106) (390) 1,207

Cash paid to settle interest - rate swaps

Distributions from equity investments in excess of cumulative earnings – related parties 9,925 11,310 12,141

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_________________________________________________________________________________________

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

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

Three Months Ended Nine Months Ended

thousands September 30, 2021 June 30,

2021 September 30, 2021 September 30, 2020

Three Months Ended

thousands March 31, 2022 December 31,

2021 March 31, 2021

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

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Our primary cash uses include quarterly distributions, debt service, customary operating expenses, and capital expenditures.

Our sources of liquidity as of September 30, 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.

Our sources of liquidity as of March 31, 2022, 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 and debt-service requirements.

The amount of future distributions to unitholders will depend on our results of operations, financial condition, capital requirements, and other factors, and will be determined by the Board of Directors on a quarterly basis.

We may rely on external financing sources, including equity and debt issuances, to fund capital expenditures and future acquisitions.

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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.

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.

The general partner establishes cash reserves to provide for the proper conduct of our business, including (i) 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 third quarter of 2021 of $0.32300 per unit, or $134.9 million in the aggregate.

The cash distribution is payable on November 12, 2021, to our unitholders of record at the close of business on November 1, 2021.

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

The Board declared a cash distribution to unitholders for the first quarter of 2022 of $0.50000 per unit, or $206.2 million in the aggregate.

The cash distribution is payable on May 13, 2022, to our unitholders of record at the close of business on May 2, 2022.

In February 2022, we announced a buyback program of up to $1.0 billion of our common units through December 31, 2024.

The common units may be purchased from time to time in the open market at prevailing market prices or in privately negotiated transactions.

The timing and amount of purchases under the program will be determined based on ongoing assessments of capital needs, our financial performance, the market price of the common units, and other factors, including organic growth and acquisition opportunities and general market conditions.

The timing and amount of purchases under the program will be determined based on ongoing assessments of capital needs, our financial performance, the market price of our common units, and other factors, including organic growth and acquisition opportunities and general market conditions.

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.

During the nine months ended September 30, 2021, we repurchased 5,586,419 common units on the open market for an aggregate purchase price of $104.4 million.

We canceled the units immediately upon receipt.

As of September 30, 2021, we had an authorized amount of $113.1 million remaining under the Purchase Program.

During the three months ended March 31, 2022, we repurchased 225,355 common units on the open market for an aggregate purchase price of $5.1 million.

The units were canceled immediately upon receipt.

As of March 31, 2022, we had an authorized amount of $994.9 million remaining under the program.

For the year ended December 31, 2022, capital expenditures are expected to range between $550.0 million to $600.0 million (accrual-based, includes equity investments, excludes capitalized interest, and excludes capital expenditures associated with the 25% third-party interest in Chipeta), representing a $150.0 million increase to the midpoint of our previously announced guidance.

This updated guidance range includes capital expenditures attributable to a portion of Mentone Train III, a new 300 MMcf/d cryogenic processing plant at our West Texas complex that was sanctioned in May 2022, and additional well connect and expansion capital to support accelerated producer activity in the Delaware Basin.

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

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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 other capital activities.

As of September 30, 2021, we had a $550.6 million working capital deficit, which we define as the amount by which current liabilities exceed current assets.

Our working capital deficit was primarily due to (i) the 4.000% Senior Notes due 2022 of $502.1 million and (ii) $220.0 million of outstanding borrowings under the RCF being classified as short-term debt on the consolidated balance sheet as of September 30, 2021.

As of September 30, 2021, there was $1.8 billion available for borrowing under the RCF.

As of March 31, 2022, we had a $430.8 million working capital deficit, which we define as the amount by which current liabilities exceed current assets.

Our working capital deficit was primarily due to the 4.000% Senior Notes due 2022 and the Floating-Rate Senior Notes being classified as short-term debt on the consolidated balance sheet as of March 31, 2022.

As of March 31, 2022, there was $2.0 billion available for borrowing under the RCF.

See Note 8—Selected Components of Working Capital and Note 9—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

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Our business is capital intensive, requiring significant investment to maintain and improve existing facilities or to develop new midstream infrastructure.

Capital expenditures includes maintenance capital expenditures, which include those expenditures required to maintain existing operating capacity and service capability of our assets, such as to replace system components and equipment that have been subject to significant use over time, become obsolete, or reached the end of their useful lives, to remain in compliance with regulatory or legal requirements, or to complete additional well connections to maintain existing system throughput and related cash flows;

and expansion capital expenditures, which include expenditures to construct new midstream infrastructure and expenditures incurred to extend the useful lives of our assets, reduce costs, increase revenues, or increase system throughput or capacity from current levels, including well connections that increase existing system throughput.

Capital expenditures include maintenance capital expenditures, which include those expenditures required to maintain existing operating capacity and service capability of our assets, and expansion capital expenditures, which include expenditures to construct new midstream infrastructure and expenditures incurred to reduce costs, increase revenues, or increase system throughput or capacity from current levels.

Capital expenditures in the consolidated statements of cash flows reflect capital expenditures on a cash basis, when payments are made.

Capital incurred is presented on an accrual basis.

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

Nine Months Ended

September 30,

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

Three Months Ended

thousands 2022 2021

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_________________________________________________________________________________________

(1) For the nine months ended September 30, 2021 and 2020, included $2.6 million and $6.1 million, respectively, of capitalized interest.

Capital expenditures decreased by $154.5 million for the nine months ended September 30, 2021, primarily due to decreases of (i) $66.8 million at the West Texas complex primarily attributable to decreases in facility expansion and pipeline projects, (ii) $41.0 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) $19.5 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, and (iv) $11.0 million at the DBM water systems primarily due to reduced construction of additional water - disposal facilities and gathering projects.

(1) For the three months ended March 31, 2022 and 2021, included $1.0 million and $0.9 million, respectively, of capitalized interest.

Capital expenditures increased by $22.2 million for the three months ended March 31, 2022, primarily due to increases of (i) $29.7 million at the West Texas complex primarily attributable to facility expansion and pipeline projects, and (ii) $4.5 million at the DBM oil system primarily related to an increase in pipeline and well connection projects.

These increases were offset partially by decreases of (i) $3.2 million at the DBM water systems primarily due to reduced construction of additional water - disposal facilities and gathering projects, and (ii) $2.8 million at the DJ Basin oil system primarily related to a decrease in pipeline 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 2022 2021

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Operating activities .

Net cash provided by operating activities decreased for the nine months ended September 30, 2021, primarily due to (i) lower cash operating income, (ii) lower distributions from equity investments, (iii) lower interest income, and (iv) higher interest expense.

These decreases were offset partially by (i) the impact of changes in assets and liabilities and (ii) cash paid during the nine months ended September 30, 2020, to settle interest-rate swaps.

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

Net cash provided by operating activities increased for the three months ended March 31, 2022, primarily due to (i) higher cash operating income and (ii) lower interest expense.

These increases were offset partially by (i) the impact of changes in assets and liabilities and (ii) lower distributions from equity investments.

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

Investing activities .

Net cash used in investing activities for the nine months ended September 30, 2021, included the following:

Net cash used in investing activities for the three months ended March 31, 2022, primarily included the following:

• $84.0 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;

• $3.7 million of capital contributions primarily paid to Cactus II;

• $2.0 million of purchases from related parties;

• $2.1 million of capital contributions primarily paid to Red Bluff Express;

• $9.9 million of distributions received from equity investments in excess of cumulative earnings;

• $8.0 million related to the sale of the Bison treating facility.

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

• $372.3 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 increases to materials and supplies inventory;

• $19.0 million of capital contributions primarily paid to Cactus II and FRP for construction activities;

• $4.1 million of decreases to materials and supplies inventory.

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

• $61.8 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;

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

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

Financing activities .

Net cash used in financing activities for the nine months ended September 30, 2021, included the following:

• $521.9 million to purchase and retire portions of certain of WES Operating’s senior notes via a tender offer;

• $431.1 million to redeem the total principal amount outstanding of WES Operating’s 5.375% Senior Notes due 2021;

Net cash used in financing activities for the three months ended March 31, 2022, primarily included the following:

• $134.7 million of distributions paid to WES unitholders;

• $180.0 million of repayments of outstanding borrowings under the RCF;

• $7.1 million of decreases in outstanding checks;

• $5.1 million of unit repurchases;

• $11.8 million of decreases in outstanding checks due mostly to ad valorem tax payments made at the end of 2020;

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

• $5.3 million of finance lease payments;

• $2.0 million of distributions paid to the noncontrolling interest owner of Chipeta.

• $400.0 million of borrowings under the RCF, which were used for general partnership purposes and to purchase and retire portions of certain of WES Operating’s senior notes via a tender offer;

• $6.7 million of contributions from related parties.

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

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

• $600.0 million of repayments of outstanding borrowings under the RCF;

Net cash used in financing activities for the three months ended March 31, 2021, primarily 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;

• $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;

• $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 owner 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;

• $100.0 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.

• $1.6 million of contributions from related parties.

Debt and credit facilities.

As of September 30, 2021, the carrying value of outstanding debt was $7.1 billion.

As of March 31, 2022, the carrying value of outstanding debt was $6.9 billion.

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

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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 September 30, 2021.

The interest rate on the Floating - Rate Senior Notes was 2.23% at September 30, 2021.

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 3.790%, 4.671%, and 5.869%, respectively, at March 31, 2022.

The interest rate on the Floating - Rate Senior Notes was 1.84% at March 31, 2022.

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

In August 2021, Standard and Poor’s (“S&P”) upgraded WES Operating’s long-term debt from “BB” to “BB+.” As a result of the S&P upgrade, annualized borrowing costs will decrease by $7.9 million.

During the third quarter of 2021, WES Operating purchased and retired $500.0 million of certain of its senior notes via a tender offer.

For the three months ended September 30, 2021, losses of $24.7 million were recognized for the early retirement of these notes.

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.

As of September 30, 2021, the 4.000% Senior Notes due 2022 were classified as short-term debt on the consolidated balance sheet.

At September 30, 2021, WES Operating was in compliance with all covenants under the relevant governing indentures.

In January 2022, S&P upgraded WES Operating’s long-term debt from “BB+” to “BBB-.” As a result of this upgrade, annualized borrowing costs will decrease by $7.9 million.

As of March 31, 2022, the 4.000% Senior Notes due 2022 and the Floating-Rate Senior Notes were classified as short-term debt on the consolidated balance sheet.

Subsequent to March 31, 2022, WES Operating redeemed the 4.000% Senior Notes due 2022 at par value on April 1, 2022, pursuant to the optional redemption terms in WES Operating’s indenture.

At March 31, 2022, 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 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 September 30, 2021, there were $220.0 million of outstanding borrowings and $5.1 million of outstanding letters of credit, resulting in $1.8 billion of available borrowing capacity under the RCF.

At September 30, 2021, the interest rate on any outstanding RCF borrowings was 1.58% and the facility - fee rate was 0.25%.

As of March 31, 2022, 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.

As of March 31, 2022, the interest rate on any outstanding RCF borrowings was 1.95% and the facility - fee rate was 0.25%.

At March 31, 2022, 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.

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

At September 30, 2021, WES Operating was in compliance with all covenants under the RCF.

Any outstanding RCF borrowings are classified as short-term debt on the consolidated balance sheet due to management’s intent to repay within the next twelve months.

Finance lease liabilities.

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

Certain equipment leases were amended during the third quarter of 2021 requiring reassessment of lease classification.

As a result, these leases are now classified as operating leases resulting in a reduction of $19.6 million in Net property, plant, and equipment and $20.3 million in Short-term and Long-term debt.

The operating leases resulted in additions of $4.8 million in Other assets, $3.1 million in Accrued liabilities, and $2.4 million in Other liabilities, on the consolidated balance sheet.

As of September 30, 2021, we have future lease payments of $1.3 million for the remainder of 2021 and a total of $5.4 million in years thereafter.

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

As of March 31, 2022, we have future finance-lease payments of $2.7 million for the remainder of 2022 and a total of $1.6 million in years thereafter.

Credit risk .

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We examine and monitor the creditworthiness of customers and may establish credit limits for customers.

A substantial portion of our throughput is sourced from producers, including Occidental, that recently received credit - rating downgrades.

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

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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.

See Note 5—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

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The differences between net income (loss) attributable to WES and WES Operating are reconciled as follows:

Three Months Ended Nine Months Ended

thousands September 30, 2021 June 30,

2021 September 30, 2021 September 30, 2020

Three Months Ended

thousands March 31, 2022 December 31,

2021 March 31, 2021

Net income (loss) attributable to WES $ 308,717 $ 243,517 $ 185,791

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General and administrative expenses (2)

(280) 1,600 2,206 2,683

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

7 unchanged sentences

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 2022 2021

2 unchanged sentences

Non - cash equity - based compensation expense

7,040 (5,372)

Changes in working capital (6,948) (8,067)

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

Income taxes 3 —

WES Operating net cash provided by operating activities $ 270,117 $ 261,668

24 unchanged sentences

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