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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-03 · 180 added, 161 removed, 493 unchanged (41% 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 June 30, 2022 (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 September 30, 2022 (see Note 7—Equity Investments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).

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

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• the outcome of pending and future regulatory, legislative, or other proceedings or investigations, and continued or additional disruptions in operations that may occur as we and our customers comply with any regulatory orders or other state or local changes in laws or regulations;

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

• cyber attacks or security breaches;

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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 June 30, 2022, our assets and investments consisted of the following:

As of September 30, 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 six months ended June 30, 2022, included the following:

Significant financial and operational events during the nine months ended September 30, 2022, included the following:

• WES Operating redeemed the $502.2 million total principal amount outstanding of the 4.000% Senior Notes due 2022 at par value.

• We repurchased 3,314,562 common units on the open market for an aggregate purchase price of $79.2 million.

• Our second - quarter 2022 per - unit distribution is unchanged from the first-quarter 2022 per-unit distribution of $0.50000.

• Natural - gas throughput attributable to WES totaled 4,270 MMcf/d and 4,165 MMcf/d for the three and six months ended June 30, 2022, respectively, representing a 5% increase compared to the three months ended March 31, 2022, and no change compared to the six months ended June 30, 2021, respectively.

• Crude - oil and NGLs throughput attributable to WES totaled 666 MBbls/d and 670 MBbls/d for the three and six months ended June 30, 2022, respectively, representing a 1% decrease and a 4% increase compared to the three months ended March 31, 2022, and six months ended June 30, 2021, respectively.

• Produced - water throughput attributable to WES totaled 864 MBbls/d and 808 MBbls/d for the three and six months ended June 30, 2022, respectively, representing a 15% increase and a 26% increase compared to the three months ended March 31, 2022, and six months ended June 30, 2021, respectively.

• Gross margin was $588.8 million and $1,139.7 million for the three and six months ended June 30, 2022, respectively, representing a 7% increase and a 19% increase compared to the three months ended March 31, 2022, and six months ended June 30, 2021, respectively.

• We repurchased 17,982,357 common units, which includes 10,000,000 common units repurchased from Occidental, for an aggregate purchase price of $447.1 million.

• Our third - quarter 2022 per - unit distribution is unchanged from the second-quarter 2022 per-unit distribution of $0.50000.

• In September 2022, we acquired the remaining 50% interest in Ranch Westex from a third party for $41.0 million (see Acquisitions and Divestitures within this Item 2).

• Natural - gas throughput attributable to WES totaled 4,274 MMcf/d and 4,201 MMcf/d for the three and nine months ended September 30, 2022, respectively, representing no change compared to the three months ended June 30, 2022, and a 2% increase compared to the nine months ended September 30, 2021, respectively.

• Crude - oil and NGLs throughput attributable to WES totaled 715 MBbls/d and 686 MBbls/d for the three and nine months ended September 30, 2022, respectively, representing a 7% increase and a 6% increase compared to the three months ended June 30, 2022, and nine months ended September 30, 2021, respectively.

• Produced - water throughput attributable to WES totaled 877 MBbls/d and 831 MBbls/d for the three and nine months ended September 30, 2022, respectively, representing a 2% increase and a 23% increase compared to the three months ended June 30, 2022, and nine months ended September 30, 2021, respectively.

• Gross margin was $573.9 million and $1,713.6 million for the three and nine months ended September 30, 2022, respectively, representing a 3% decrease and a 14% increase compared to the three months ended June 30, 2022, and nine months ended September 30, 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 $1.36 per Mcf and $1.35 per Mcf for the three and six months ended June 30, 2022, respectively, representing a 1% increase and a 13% increase compared to the three months ended March 31, 2022, and six months ended June 30, 2021, respectively.

• Adjusted gross margin for crude - oil and NGLs assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $2.57 per Bbl and $2.50 per Bbl for the three and six months ended June 30, 2022, respectively, representing a 5% increase and a 3% increase compared to the three months ended March 31, 2022, and six months ended June 30, 2021, respectively.

• Adjusted gross margin for produced - water assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $0.90 per Bbl and $0.95 per Bbl for the three and six months ended June 30, 2022, respectively, representing a 10% decrease and a 3% increase compared to the three months ended March 31, 2022, and six months ended June 30, 2021, respectively.

• Adjusted gross margin for natural - gas assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $1.33 per Mcf and $1.34 per Mcf for the three and nine months ended September 30, 2022, respectively, representing a 2% decrease and an 8% increase compared to the three months ended June 30, 2022, and nine months ended September 30, 2021, respectively.

• Adjusted gross margin for crude - oil and NGLs assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $2.33 per Bbl and $2.44 per Bbl for the three and nine months ended September 30, 2022, respectively, representing a 9% decrease and a 1% decrease compared to the three months ended June 30, 2022, and nine months ended September 30, 2021, 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 for the three and nine months ended September 30, 2022, representing a 4% increase and a 1% increase compared to the three months ended June 30, 2022, and nine months ended September 30, 2021, respectively.

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

Three Months Ended Six Months Ended

June 30, 2022 March 31,

(Dec) June 30, 2022 June 30, 2021 Inc/

Three Months Ended Nine Months Ended

September 30, 2022 June 30, 2022 Inc/

(Dec) September 30, 2022 September 30, 2021 Inc/

Throughput for natural-gas assets (MMcf/d)

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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 six months ended June 30, 2022, ranged from a low of $76.08 per barrel in January 2022 to a high of $123.70 per barrel in March 2022.

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 nine months ended September 30, 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.

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

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

Continued inflation has raised our costs for labor, materials, fuel, and services, which has increased our operating costs and capital expenditures.

Increases in inflationary pressure could 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 have continued to increase during 2022.

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

Overall, short- and long-term interest rates increased during 2021 and have continued to increase during 2022, resulting in increased interest expense on RCF borrowings and the Floating - Rate Senior Notes.

Any future increases in interest rates likely will result in additional increases 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.

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ACQUISITIONS AND DIVESTITURES

Ranch Westex.

In September 2022, we acquired the remaining 50% interest in Ranch Westex from a third party for $41.0 million.

Subsequent to the acquisition, (i) we are the sole owner and operator of the asset, (ii) Ranch Westex is no longer accounted for under the equity method of accounting, and (iii) it will be included as part of the operations of the West Texas complex.

In November 2022, we sold our 15.00% interest in Cactus II to two third parties for $264.8 million, which includes a $1.8 million pro-rata distribution through closing.

Total proceeds are expected to be received during the fourth quarter of 2022.

Bison facility.

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

Three Months Ended Six Months Ended

thousands June 30, 2022 March 31,

2022 June 30, 2022 June 30, 2021

Three Months Ended Nine Months Ended

thousands September 30, 2022 June 30, 2022 September 30, 2022 September 30, 2021

Total revenues and other (1)

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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.

For purposes of the following discussion, any increases or decreases “for the three months ended June 30, 2022” refer to the comparison of the three months ended June 30, 2022, to the three months ended March 31, 2022;

and any increases or decreases “for the six months ended June 30, 2022” refer to the comparison of the six months ended June 30, 2022, to the six months ended June 30, 2021.

Three Months Ended Six Months Ended

June 30, 2022 March 31,

(Dec) June 30, 2022 June 30, 2021 Inc/

For purposes of the following discussion, any increases or decreases “for the three months ended September 30, 2022” refer to the comparison of the three months ended September 30, 2022, to the three months ended June 30, 2022;

and any increases or decreases “for the nine months ended September 30, 2022” refer to the comparison of the nine months ended September 30, 2022, to the nine months ended September 30, 2021.

Three Months Ended Nine Months Ended

September 30, 2022 June 30, 2022 Inc/

(Dec) September 30, 2022 September 30, 2021 Inc/

Throughput for natural-gas assets (MMcf/d)

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_________________________________________________________________________________________

(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.

(1) Represents the 22% share of average Rendezvous throughput, 50% share of average Mi Vida throughput, 50% share of average Ranch Westex throughput through August 2022 (see Acquisitions and Divestitures within this Item 2), 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 119 MMcf/d for the six months ended June 30, 2022, 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.

Processing throughput increased by 176 MMcf/d for the three months ended June 30, 2022, primarily due to (i) higher volumes at the West Texas complex due to increased production in the area and the impacts of inclement weather in the first quarter of 2022 and (ii) higher volumes at the DJ Basin complex due to a third-party contract amendment effective in March 2022.

Processing throughput increased by 76 MMcf/d for the six months ended June 30, 2022, primarily due to higher volumes at the West Texas complex due to increased production in the area and the impact of winter storm Uri during the first quarter of 2021.

This increase was offset partially by lower volumes at the DJ Basin, Granger, and Brasada complexes due to production declines in the areas.

Equity - investment throughput increased by 37 MMcf/d for the three months ended June 30, 2022, primarily due to increased volumes on Red Bluff Express, partially offset by decreased volumes at the Ranch Westex plant.

Equity - investment throughput increased by 50 MMcf/d for the six months ended June 30, 2022, 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 Ranch Westex plant and (ii) decreased volumes at the Rendezvous system due to production declines in the area.

Gathering, treating, and transportation throughput increased by 8 MMcf/d for the three months ended September 30, 2022, primarily due to higher volumes at the MIGC system, partially offset by production declines in areas around the Marcellus Interest and Springfield gas-gathering systems.

Gathering, treating, and transportation throughput decreased by 66 MMcf/d for the nine months ended September 30, 2022, 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 systems.

Processing throughput increased by 43 MMcf/d for the three months ended September 30, 2022, primarily due to higher volumes at the West Texas and Chipeta complexes due to increased production in the area.

These increases were offset partially by lower volumes at the Brasada complex due to downstream issues causing volumes to be diverted away from the plant in the third quarter of 2022.

Processing throughput increased by 94 MMcf/d for the nine months ended September 30, 2022, primarily due to higher volumes at the West Texas complex due to increased production in the area and the impact of winter storm Uri during the first quarter of 2021.

This increase was offset partially by (i) lower volumes due to production declines in areas around the DJ Basin and Granger complexes and (ii) lower volumes at the Brasada complex due to downstream issues causing volumes to be diverted away from the plant in the third quarter of 2022.

Equity - investment throughput decreased by 43 MMcf/d for the three months ended September 30, 2022, primarily due to (i) decreased volumes at the Ranch Westex plant, which we acquired in the third quarter of 2022 and is included as part of the West Texas complex subsequent to the acquisition (see Acquisitions and Divestitures within this Item 2), and (ii) decreased volumes on Red Bluff Express.

Equity - investment throughput increased by 43 MMcf/d for the nine months ended September 30, 2022, primarily due to increased volumes on Red Bluff Express and at the Mi Vida plant due to increased production in the area and the impact of winter storm Uri during the first quarter of 2021.

These increases were offset partially by (i) decreased volumes at the Ranch Westex plant, which we acquired in the third quarter of 2022 and is included as part of the West Texas complex subsequent to the acquisition (see Acquisitions and Divestitures within this Item 2), and (ii) decreased volumes at the Rendezvous system due to production declines in the area.

Crude-oil and NGLs assets

Gathering, treating, and transportation throughput increased by 20 MBbls/d for the six months ended June 30, 2022, primarily due to higher volumes at the DBM oil system resulting from increased production in the area and the impact of winter storm Uri during the first quarter of 2021.

Equity - investment throughput decreased by 14 MBbls/d for the three months ended June 30, 2022, primarily due to decreased volumes on the Whitethorn and Cactus II pipelines, partially offset by increased volumes on FRP.

Equity - investment throughput increased by 6 MBbls/d for the six months ended June 30, 2022, primarily due to increased volumes on FRP resulting from increased pipeline commitments, partially offset by decreased volumes on the Whitethorn pipeline.

Gathering, treating, and transportation throughput increased by 18 MBbls/d for the nine months ended September 30, 2022, primarily due to higher volumes at the DBM oil system resulting from increased production in the area and the impact of winter storm Uri during the first quarter of 2021.

Equity - investment throughput increased by 51 MBbls/d for the three months ended September 30, 2022, primarily due to increased volumes on the Whitethorn and Cactus II pipelines.

Equity - investment throughput increased by 24 MBbls/d for the nine months ended September 30, 2022, primarily due to increased volumes on FRP resulting from increased pipeline commitments, partially offset by decreased volumes on the Whitethorn pipeline.

Produced-water assets

Gathering and disposal throughput increased by 116 MBbls/d for the three months ended June 30, 2022, due to (i) new third-party connections brought online at the end of the first quarter and during the second quarter of 2022, (ii) higher production, and (iii) the impacts of inclement weather in the first quarter of 2022.

Gathering and disposal throughput increased by 169 MBbls/d for the six months ended June 30, 2022, due to (i) higher production, (ii) new third-party connections brought online during the fourth quarter of 2021 and in 2022, and (iii) the impact of winter storm Uri during the first quarter of 2021.

Gathering and disposal throughput increased by 13 MBbls/d for the three months ended September 30, 2022, due to new third-party connections brought online at the end of the second quarter of 2022.

Gathering and disposal throughput increased by 161 MBbls/d for the nine months ended September 30, 2022, due to (i) higher production, (ii) new third-party connections brought online during the fourth quarter of 2021 and in 2022, and (iii) the impact of winter storm Uri during the first quarter of 2021.

Service Revenues

Three Months Ended Six Months Ended

thousands except percentages June 30, 2022 March 31,

(Dec) June 30, 2022 June 30, 2021 Inc/

Three Months Ended Nine Months Ended

thousands except percentages September 30, 2022 June 30, 2022 Inc/

(Dec) September 30, 2022 September 30, 2021 Inc/

Service revenues – fee based $ 666,555 $ 655,952 2 % $ 1,954,105 $ 1,841,742 6 %

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Service revenues – fee based

Service revenues – fee based increased by $24.4 million for the three months ended June 30, 2022, primarily due to increases of (i) $19.7 million and $3.2 million at the West Texas complex and DBM oil system, respectively, attributable to increased throughput and (ii) $3.0 million at the DBM water systems due to increased throughput, partially offset by a decrease in deficiency fees.

Service revenues – fee based increased by $96.3 million for the six months ended June 30, 2022, primarily due to increases of (i) $46.9 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 average fee resulting from a cost-of-service rate redetermination effective January 1, 2022, and (ii) $30.4 million and $29.8 million at the DBM oil and DBM water systems, respectively, due to increased throughput, including the impact of winter storm Uri during the first quarter of 2021, and increased deficiency fees.

These increases were offset partially by a decrease of $11.1 million at the DJ Basin complex due to decreased throughput, partially offset by increased deficiency fees.

Service revenues – fee based increased by $10.6 million for the three months ended September 30, 2022, primarily due to increases of (i) $5.7 million at the West Texas complex attributable to increased throughput and (ii) $4.8 million at the DBM water systems due to increased deficiency fees and contract mix.

Service revenues – fee based increased by $112.4 million for the nine months ended September 30, 2022, primarily due to increases of (i) $63.3 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 average fee resulting from a cost-of-service rate redetermination effective January 1, 2022, and (ii) $47.4 million and $40.6 million at the DBM oil and DBM water systems, respectively, due to increased throughput, including the impact of winter storm Uri during the first quarter of 2021, and increased deficiency fees.

These increases were offset partially by decreases of (i) $22.9 million at the DJ Basin complex due to decreased throughput, partially offset by increased deficiency fees, and (ii) $18.9 million due to revenue recorded in the third quarter of 2021 that was previously constrained.

Service revenues – product based

Service revenues – product based increased by $29.6 million for the three months ended June 30, 2022, primarily due to increases of (i) $19.1 million at the West Texas complex due to increased prices, change in contract mix, and increased electricity-related rates billed to customers, and (ii) $10.2 million at the DJ Basin complex due to change in contract mix.

Service revenues – product based increased by $51.9 million for the six months ended June 30, 2022, primarily due to increases of (i) $21.2 million and $19.4 million at the West Texas and DJ Basin complexes, respectively, attributable to increased prices and changes in contract mix during the second quarter of 2022, and (ii) $3.4 million at the Chipeta complex, $2.8 million at the DBM water systems, $2.6 million at the MGR assets, and $2.3 million at the Granger complex due to increased prices.

Service revenues – product based increased by $20.9 million for the three months ended September 30, 2022, primarily due to an increase of $22.9 million at the West Texas complex due to increased electricity-related rates billed to customers and contract mix, partially offset by a decrease of $1.5 million at the Chipeta complex due to pricing fluctuations.

Service revenues – product based increased by $114.5 million for the nine months ended September 30, 2022, primarily due to increases of (i) $68.7 million and $33.2 million at the West Texas and DJ Basin complexes, respectively, attributable to increased prices and changes in contract mix during the second quarter of 2022, and (ii) $4.2 million and $3.5 million at the DBM water systems and MGR assets, respectively, due to increases in pricing and volumes.

Product Sales

Three Months Ended Six Months Ended

thousands except percentages and per-unit amounts June 30, 2022 March 31,

(Dec) June 30, 2022 June 30, 2021 Inc/

Three Months Ended Nine Months Ended

thousands except percentages and per-unit amounts September 30, 2022 June 30,

(Dec) September 30, 2022 September 30, 2021 Inc/

Natural - gas sales

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Natural-gas sales

Natural - gas sales increased by $28.2 million for the three months ended June 30, 2022, primarily due to increases of $25.8 million and $4.1 million at the West Texas complex and MGR assets, respectively, attributable to increased average prices and volumes sold.

Natural - gas sales increased by $30.7 million for the six months ended June 30, 2022, primarily due to an increase of $36.6 million at the West Texas complex attributable to increased average prices and volumes sold.

This increase was partially offset by a decrease of $6.5 million at the DJ Basin complex due to decreased volumes sold, partially offset by an increase in average prices.

NGLs sales increased by $35.9 million for the three months ended June 30, 2022, primarily due to an increase of $40.7 million at the West Texas complex due to increased average prices and volumes sold.

NGLs sales increased by $61.5 million for the six months ended June 30, 2022, primarily due to increases of (i) $31.7 million at the West Texas complex, $13.3 million at the Chipeta complex, $2.8 million at the DBM water systems, and $2.8 million at the MGR assets attributable to increased average prices and volumes sold, and (ii) $4.4 million and $3.2 million at the Granger and DJ Basin complexes, respectively, due to an increase in average prices, partially offset by a decrease in volumes sold.

Natural - gas sales decreased by $12.2 million for the three months ended September 30, 2022, primarily due to a decrease of $12.6 million at the West Texas complex attributable to a third-quarter 2022 contract modification where we are no longer the principal in the transaction (with an offsetting decrease in cost of product), partially offset by increased volumes sold.

Natural - gas sales increased by $33.7 million for the nine months ended September 30, 2022, primarily due to increases of (i) $48.8 million at the West Texas complex attributable to increased average prices and volumes sold, partially offset by a third-quarter 2022 contract modification as noted above, and (ii) $6.4 million at the MGR assets due to increased average prices.

These increases were offset partially by a decrease of $18.5 million at the DJ Basin complex due to decreased volumes sold, partially offset by an increase in average prices.

NGLs sales decreased by $58.1 million for the three months ended September 30, 2022, primarily due to a decrease of $56.7 million at the West Texas complex due to decreased average prices and volumes sold.

NGLs sales increased by $53.7 million for the nine months ended September 30, 2022, primarily due to increases of (i) $15.9 million at the Chipeta complex, $15.8 million at the West Texas complex, and $4.3 million at the DBM water systems attributable to increased average prices and volumes sold, and (ii) $9.3 million and $4.4 million at the DJ Basin and Granger complexes, respectively, due to an increase in average prices, partially offset by a decrease in volumes sold.

Equity Income, Net – Related Parties

Three Months Ended Six Months Ended

thousands except percentages June 30, 2022 March 31,

(Dec) June 30, 2022 June 30, 2021 Inc/

Three Months Ended Nine Months Ended

thousands except percentages September 30, 2022 June 30, 2022 Inc/

(Dec) September 30, 2022 September 30, 2021 Inc/

Equity income, net – related parties $ 41,317 $ 48,464 (15) % $ 139,388 $ 159,337 (13) %

Equity income, net – related parties decreased by $12.8 million for the six months ended June 30, 2022, primarily due to (i) decreases of $6.7 million and $6.0 million at Saddlehorn and Cactus II, respectively, and (ii) $4.5 million at Whitethorn LLC due to decreases in revenues and volumes.

These decreases were offset partially by an increase of $8.7 million at Mi Vida, FRP, and TEP due to higher volumes.

Equity income, net – related parties decreased by $7.1 million for the three months ended September 30, 2022, primarily due to decreases of (i) $2.6 million at Whitethorn LLC related to commercial activities, (ii) $2.1 million at Ranch Westex, which we acquired in the third quarter of 2022 and is included as part of the West Texas complex subsequent to the acquisition (see Acquisitions and Divestitures within this Item 2), and (iii) $1.8 million at Mi Vida related to increased operating expenses.

Equity income, net – related parties decreased by $19.9 million for the nine months ended September 30, 2022, primarily due to decreases of (i) $10.7 million at Saddlehorn due to decreases in revenues along with increases in operating expenses, (ii) $9.1 million at Whitethorn LLC due to decreases in volumes resulting in lower revenues, (iii) $5.9 million at Ranch Westex, which we acquired in the third quarter of 2022 and is included as part of the West Texas complex subsequent to the acquisition (see Acquisitions and Divestitures within this Item 2), and (iv) $3.4 million each at Cactus II and Mont Belvieu JV due to increases in operating expenses.

These decreases were offset partially by an increase of $10.6 million at FRP and TEP due to increased volumes resulting in higher revenues.

Cost of Product and Operation and Maintenance Expenses

Three Months Ended Six Months Ended

thousands except percentages June 30, 2022 March 31,

(Dec) June 30, 2022 June 30, 2021 Inc/

Three Months Ended Nine Months Ended

thousands except percentages September 30, 2022 June 30, 2022 Inc/

(Dec) September 30, 2022 September 30, 2021 Inc/

Residue purchases $ 42,799 $ 65,168 (34) % $ 142,959 $ 108,238 32 %

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Residue purchases

Residue purchases increased by $30.2 million for the three months ended June 30, 2022, primarily due to increases of (i) $25.6 million at the West Texas complex attributable to increased volumes purchased and average prices, as well as a change in contract mix, and (ii) $2.6 million at the MGR assets attributable to increased volumes purchased and average prices.

Residue purchases increased by $22.5 million for the six months ended June 30, 2022, primarily due to increases of (i) $17.1 million at the West Texas complex attributable to increased volumes purchased and average prices, as well as a change in contract mix during the second quarter of 2022, and (ii) $5.8 million at the DJ Basin complex attributable to increased volumes purchased and average prices.

Residue purchases decreased by $22.4 million for the three months ended September 30, 2022, primarily due to a decrease of $27.9 million at the West Texas complex attributable to a third-quarter 2022 contract modification where we are no longer the principal in the transaction (with an offsetting decrease in product sales).

This decrease was offset partially by increases of (i) $2.6 million at the DJ Basin complex attributable to a change in contract mix, as well as increased average prices, and (ii) $1.7 million at the Chipeta complex due to increased volumes purchased and average prices.

Residue purchases increased by $34.7 million for the nine months ended September 30, 2022, primarily due to increases of (i) $21.9 million at the West Texas complex attributable to increased volumes purchased and average prices, as well as changes in contract mix during 2022, (ii) $9.0 million at the Chipeta complex due to increased volumes purchased and average prices, (iii) $6.2 million at the MGR assets primarily due to increased average prices, and (iv) $3.3 million at the Granger complex attributable to increased average prices.

These increases were offset partially by a decrease of $4.9 million at the DJ Basin complex primarily due to a change in contract mix during the second quarter of 2022.

NGLs purchases

NGLs purchases increased by $32.2 million for the three months ended June 30, 2022, primarily due to increases of (i) $23.1 million at the West Texas complex attributable to increased volumes purchased and average prices, as well as a change in contract mix, and (ii) $10.1 million at the DJ Basin complex due to a change in contract mix.

NGLs purchases increased by $99.8 million for the six months ended June 30, 2022, primarily due to increases of (i) $52.9 million at the West Texas complex attributable to increased volumes purchased and average prices, as well as a change in contract mix during the second quarter of 2022, and (ii) $34.3 million at the DJ Basin complex attributable to increased average prices and a change in contract mix during the second quarter of 2022, and (iii) $5.7 million at the Chipeta complex attributable to increased average prices.

Other items increased by $13.3 million for the three months ended June 30, 2022, primarily due to an increase of $20.8 million at the West Texas complex attributable to changes in imbalance positions, partially offset by a decrease of $7.9 million at the DJ Basin complex attributable to changes in imbalance positions.

Other items decreased by $67.9 million for the six months ended June 30, 2022, primarily due to decreases of $40.8 million and $31.6 million at the West Texas and DJ Basin complexes, respectively, attributable to changes in imbalance positions.

The decreases were offset partially by an increase of $3.8 million at the MGR assets attributable to changes in imbalance positions.

NGLs purchases decreased by $12.7 million for the three months ended September 30, 2022, primarily due to decreases of (i) $5.8 million at the West Texas complex attributable to lower volumes purchased and average prices, (ii) $2.4 million at the Brasada complex due to decreased volumes purchased, and (iii) $2.0 million at the Chipeta complex due to decreased average prices.

NGLs purchases increased by $138.4 million for the nine months ended September 30, 2022, primarily due to increases of (i) $80.1 million at the West Texas complex due to increased volumes purchased and average prices, as well as a change in contract mix during the second quarter of 2022, (ii) $49.5 million at the DJ Basin complex attributable to increased average prices and a change in contract mix during the second quarter of 2022, (iii) $4.2 million at the DBM water systems due to increased average prices, and (iv) $3.6 million at the Chipeta complex due to increased volumes purchased and average prices.

Other items decreased by $6.7 million for the three months ended September 30, 2022, primarily due to a decrease of $11.3 million at the West Texas complex attributable to changes in imbalance positions, partially offset by an increase of $6.2 million at the DJ Basin complex due to changes in imbalance positions.

Other items decreased by $95.1 million for the nine months ended September 30, 2022, primarily due to decreases of $53.1 million and $47.0 million at the West Texas and DJ Basin complexes, respectively, attributable to changes in imbalance positions.

These decreases were offset partially by an increase of $5.7 million at the MGR assets attributable to changes in imbalance positions.

Operation and maintenance expense

Operation and maintenance expense increased by $39.2 million for the three months ended June 30, 2022, primarily due to increases of (i) $13.4 million attributable to higher utility expense, (ii) $8.4 million due to higher maintenance and repair expense, (iii) $5.8 million in regulatory and environmental expense, and (iv) $3.8 million in contract labor and consulting expense.

Operation and maintenance expense increased by $3.8 million for the six months ended June 30, 2022, primarily due to increases of (i) $8.0 million due to an increase in chemicals and treating services, (ii) $6.1 million attributable to land related costs, and (iii) $4.1 million due to higher maintenance and repair expense.

These increases were offset partially by decreases of (i) $9.1 million attributable to lower contract labor and consulting expense, (ii) $7.6 million attributable to lower utilities expense, and (iii) $5.0 million attributable to lower field area costs.

Operation and maintenance expense increased by $22.4 million for the three months ended September 30, 2022, primarily due to increases of (i) $10.1 million attributable to higher utility expense, (ii) $8.0 million in mechanical-integrity costs, (iii) $2.2 million due to higher field-area costs, (iv) $2.0 million in higher chemicals and treating services, and (v) $1.7 million due to higher maintenance and repair expense.

These increases were offset partially by a decrease of $2.4 million due to lower regulatory and environmental expense.

Operation and maintenance expense increased by $53.4 million for the nine months ended September 30, 2022, primarily due to increases of (i) $13.0 million in higher chemicals and treating services, (ii) $11.5 million due to higher maintenance and repair expense, (iii) $8.2 million attributable to higher utility expense, (iv) $6.9 million in higher salaries and wages costs, (v) $6.7 million due to higher land-related costs, (vi) $6.5 million in mechanical-integrity costs, (vii) $5.4 million due to higher regulatory and environmental expense, (viii) $3.5 million in water-disposal costs, and (ix) $3.1 million in higher equipment rental costs.

These increases were offset partially by decreases of $9.2 million attributable to lower contract labor and consulting expense and $6.0 million due to lower field-area costs.

Other Operating Expenses

Three Months Ended Six Months Ended

thousands except percentages June 30, 2022 March 31,

(Dec) June 30, 2022 June 30, 2021 Inc/

Three Months Ended Nine Months Ended

thousands except percentages September 30, 2022 June 30, 2022 Inc/

(Dec) September 30, 2022 September 30, 2021 Inc/

General and administrative $ 48,185 $ 47,848 1 % $ 144,635 $ 139,973 3 %

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General and administrative expenses

General and administrative expenses increased by $6.9 million for the six months ended June 30, 2022, primarily due to an increase of $7.9 million in personnel costs, including increased bonus-related expenses and other miscellaneous employee expenses.

General and administrative expenses increased by $4.7 million for the nine months ended September 30, 2022, primarily due to an increase of $5.2 million in personnel costs, including increased bonus-related expenses and other miscellaneous employee expenses.

Property and other taxes

Property and other taxes increased by $4.2 million for the three months ended June 30, 2022, primarily due to expected valuation increases at the DJ Basin complex.

Property and other taxes increased by $8.8 million for the six months ended June 30, 2022, primarily due to ad valorem tax increases and expected valuation increases at the DJ Basin complex.

Property and other taxes decreased by $3.3 million for the three months ended September 30, 2022, primarily due to lower property values received across multiple tax jurisdictions, partially offset by an increase in the ad valorem property values for the DJ Basin complex.

Property and other taxes increased by $14.5 million for the nine months ended September 30, 2022, primarily due to increases in the state assessed portion of ad valorem property values resulting in increases for the DJ Basin complex.

Depreciation and amortization expense

Depreciation and amortization expense increased by $4.5 million for the three months ended June 30, 2022, primarily due to increases of $2.3 million and $1.9 million at the Hilight system and MGR assets.

Depreciation and amortization expense increased by $5.2 million for the six months ended June 30, 2022, primarily due to (i) an increase of $3.3 million at a transportation asset in Southwest Wyoming primarily as a result of a change in estimate for asset retirement obligations and (ii) an increase of $2.3 million resulting from capital projects being placed into service.

These increases were offset partially by a net decrease in depreciation of $2.2 million at the Hilight system and MGR assets.

Depreciation and amortization expense increased by $17.8 million for the three months ended September 30, 2022, primarily due to an acceleration of depreciation expense for revised service life assumptions of an asset in the DJ Basin complex.

Depreciation and amortization expense increased by $23.1 million for the nine months ended September 30, 2022, primarily due to (i) $15.2 million in the DJ Basin complex due to an acceleration of depreciation expense for revised service life assumptions, (ii) $4.9 million resulting from capital projects being placed into service, (iii) $4.1 million of increased expense at the Hilight system, and (iv) $3.3 million at a transportation asset in Southwest Wyoming primarily as a result of a change in estimate for asset retirement obligations.

These increases were offset partially by a decrease in depreciation of $6.3 million at the MGR assets.

Long-lived asset and other impairment expense

Long - lived asset and other impairment expense for the six months ended June 30, 2021, was primarily due to (i) an $11.6 million other-than-temporary impairment of our investment in Ranch Westex and (ii) $14.0 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, 2021, was primarily due to (i) an $11.8 million other-than-temporary impairment of our investment in Ranch Westex and (ii) $14.1 million of impairments at the DJ Basin complex due to cancellation of projects.

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

Interest Expense

Three Months Ended Six Months Ended

thousands except percentages June 30, 2022 March 31,

(Dec) June 30, 2022 June 30, 2021 Inc/

Three Months Ended Nine Months Ended

thousands except percentages September 30, 2022 June 30, 2022 Inc/

(Dec) September 30, 2022 September 30, 2021 Inc/

Long - term and short - term debt

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Interest expense

Interest expense decreased by $4.7 million for the three months ended June 30, 2022, primarily due to the redemption of the total principal amount outstanding of the 4.000% Senior Notes due 2022 during the second quarter of 2022.

Interest expense decreased by $27.6 million for the six months ended June 30, 2022, primarily due to decreases of (i) $10.7 million primarily due to the redemption of the total principal amount outstanding of the 4.000% Senior Notes due 2022 and 5.375% Senior Notes due 2021 during the second quarter of 2022 and first quarter of 2021, respectively, (ii) $8.1 million due to credit-rating related interest rate changes and a lower outstanding balance on the 3.100% Senior Notes due 2025, (iii) $6.4 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 a lower outstanding balance on the 3.950% Senior Notes due 2025, a portion of which was repaid during the third quarter of 2021.

Interest expense increased by $2.3 million for the three months ended September 30, 2022, primarily due to higher outstanding borrowings under the RCF during the third quarter of 2022.

Interest expense decreased by $37.7 million for the nine months ended September 30, 2022, primarily due to decreases of (i) $16.2 million primarily due to the redemption of the total principal amount outstanding of the 4.000% Senior Notes due 2022 and 5.375% Senior Notes due 2021 during the second quarter of 2022 and first quarter of 2021, respectively, (ii) $11.6 million due to credit-rating related interest rate changes and a lower outstanding balance on the 3.100% Senior Notes due 2025, (iii) $11.4 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) $2.7 million due to a lower outstanding balance on the 3.950% Senior Notes due 2025, a portion of which was repaid during the third quarter of 2021.

These decreases were offset partially by an increase of $6.8 million due to higher outstanding borrowings under the RCF during 2022.

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

Income Tax Expense (Benefit)

Three Months Ended Six Months Ended

thousands except percentages June 30, 2022 March 31,

(Dec) June 30, 2022 June 30, 2021 Inc/

Three Months Ended Nine Months Ended

thousands except percentages September 30, 2022 June 30, 2022 Inc/

(Dec) September 30, 2022 September 30, 2021 Inc/

Income (loss) before income taxes $ 273,968 $ 316,662 (13) % $ 910,105 $ 697,553 30 %

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KEY PERFORMANCE METRICS

Three Months Ended Six Months Ended

thousands except percentages and per-unit amounts June 30, 2022 March 31,

(Dec) June 30, 2022 June 30, 2021 Inc/

Three Months Ended Nine Months Ended

thousands except percentages and per-unit amounts September 30, 2022 June 30, 2022 Inc/

(Dec) September 30, 2022 September 30, 2021 Inc/

Adjusted gross margin for natural - gas assets

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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 $50.9 million for the three months ended June 30, 2022, primarily due to (i) strong plant performance and contract mix leading to increased product recoveries, coupled with high commodity prices and increased throughput at the West Texas complex, (ii) increased throughput at the DJ Basin complex and DBM oil system, (iii) increased distributions from equity investments, and (iv) increased throughput, partially offset by a decrease in deficiency fees, at the DBM water systems.

Adjusted gross margin increased by $168.6 million for the six months ended June 30, 2022, primarily due to (i) strong plant performance and contract mix leading to increased product recoveries, coupled with higher commodity prices and increased throughput at the West Texas complex, partially offset by a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2022, and (ii) increased throughput and deficiency fees at the DBM water systems and DBM oil system.

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

Per - Mcf Adjusted gross margin for natural - gas assets increased by $0.02 for the three months ended June 30, 2022, primarily due to strong plant performance and contract mix leading to increased product recoveries, coupled with high commodity prices and 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 - Mcf Adjusted gross margin for natural - gas assets increased by $0.15 for the six months ended June 30, 2022, primarily due to strong plant performance and contract mix leading to increased product recoveries, coupled with higher commodity prices and 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 $0.13 for the three months ended June 30, 2022, primarily due to (i) decreased throughput and increased distributions from the Whitethorn and Cactus II pipelines and (ii) 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.

These increases were offset partially by (i) increased throughput on FRP, which has a lower - than - average per - Bbl margin as compared to our other crude - oil and NGLs assets and (ii) a decrease in distributions from Mont Belvieu JV.

Per - Bbl Adjusted gross margin for crude - oil and NGLs assets increased by $0.07 for the six months ended June 30, 2022, primarily due to increased throughput and increased deficiency fees at the DBM oil system, which has a higher - than - average per - Bbl margin as compared to our other crude - oil and NGLs assets.

This increase was offset partially by (i) increased throughput on FRP, which has a lower - than - average per - Bbl margin as compared to our other crude - oil and NGLs assets and (ii) a decrease in distributions from Saddlehorn.

Per - Bbl Adjusted gross margin for produced - water assets decreased by $0.10 for the three months ended June 30, 2022, primarily due to a decrease in deficiency fees and contract mix.

Per - Bbl Adjusted gross margin for produced - water assets increased by $0.03 for the six months ended June 30, 2022, primarily due to deficiency fees recorded in 2022.

Adjusted gross margin decreased by $5.6 million for the three months ended September 30, 2022, primarily due to (i) lower NGLs prices, partially offset by an increase in NGLs volumes at the DJ Basin complex and (ii) a decrease in distributions from Mi Vida and Cactus II.

These decreases were offset partially by (i) increased throughput and the impact of utilities costs, partially offset by lower NGLs volumes and prices at the West Texas complex, and (ii) increased throughput, contract mix, and increased deficiency fee revenues at the DBM water systems.

Adjusted gross margin increased by $213.2 million for the nine months ended September 30, 2022, primarily due to (i) strong plant performance and contract mix leading to increased product recoveries, coupled with higher commodity prices and increased throughput at the West Texas complex, partially offset by a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2022, and (ii) increased throughput and deficiency fee revenues at the DBM oil and DBM water systems.

These increases were offset partially by (i) revenue recorded in the third quarter of 2021 that was previously constrained and (ii) a decrease in distributions from Whitethorn LLC.

Per - Mcf Adjusted gross margin for natural - gas assets decreased by $0.03 for the three months ended September 30, 2022, primarily due to (i) a decrease in distributions from Mi Vida, (ii) lower NGLs prices, partially offset by an increase in NGLs volumes at the DJ Basin complex, and (iii) lower NGLs volumes and prices at the West Texas complex, partially offset by the impact of utilities costs.

Per - Mcf Adjusted gross margin for natural - gas assets increased by $0.10 for the nine months ended September 30, 2022, primarily due to strong plant performance and contract mix leading to increased product recoveries, coupled with higher commodity prices and 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 decreased by $0.24 for the three months ended September 30, 2022, primarily due to increased throughput and decreased distributions from the Whitethorn and Cactus II pipelines, which have a lower - than - average per - Bbl margin as compared to our other crude - oil and NGLs assets, partially offset by an increase in distributions from Saddlehorn.

Per - Bbl Adjusted gross margin for crude - oil and NGLs assets decreased by $0.02 for the nine months ended September 30, 2022, primarily due to (i) revenue recorded in the third quarter of 2021 that was previously constrained, (ii) a decrease in distributions from Saddlehorn and Whitethorn LLC, and (iii) increased throughput on FRP, which has a lower - than - average per - Bbl margin as compared to our other crude - oil and NGLs assets.

These decreases were offset partially by increased throughput and increased deficiency fee revenues 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 $0.04 for the three months ended September 30, 2022, primarily due to contract mix and an increase in deficiency fee revenues.

Per - Bbl Adjusted gross margin for produced - water assets increased by $0.01 for the nine months ended September 30, 2022, primarily due to deficiency fee revenues recorded in 2022.

Adjusted EBITDA.

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

Adjusted EBITDA increased by $9.3 million for the three months ended June 30, 2022, primarily due to a $118.1 million increase in total revenues and other and a $10.2 million increase in distributions from equity investments.

These amounts were offset partially by (i) a $75.6 million increase in cost of product (net of lower of cost or market inventory adjustments), (ii) a $39.2 million increase in operation and maintenance expenses, and (iii) a $4.2 million increase in property taxes.

Adjusted EBITDA increased by $153.1 million for the six months ended June 30, 2022, primarily due to a $240.6 million increase in total revenues and other.

This amount was offset partially by (i) a $54.3 million increase in cost of product (net of lower of cost or market inventory adjustments), (ii) a $10.3 million decrease in distributions from equity investments, (iii) an $8.8 million increase in property taxes, and (iv) a $6.0 million increase in general and administrative expenses excluding non - cash equity - based compensation expense.

Adjusted EBITDA decreased by $23.5 million for the three months ended September 30, 2022, primarily due to (i) a $38.9 million decrease in total revenues and other, (ii) a $22.4 million increase in operation and maintenance expenses, and (iii) a $7.1 million decrease in distributions from equity investments.

These amounts were offset partially by (i) a $41.8 million decrease in cost of product (net of lower of cost or market inventory adjustments) and (ii) a $3.3 million decrease in property taxes.

Adjusted EBITDA increased by $146.4 million for the nine months ended September 30, 2022, primarily due to a $314.3 million increase in total revenues and other.

This amount was offset partially by (i) a $77.7 million increase in cost of product (net of lower of cost or market inventory adjustments), (ii) a $53.4 million increase in operation and maintenance expenses, (iii) a $14.5 million increase in property taxes, (iv) a $14.1 million decrease in distributions from equity investments, and (v) a $4.3 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 increased by $171.8 million for the three months ended June 30, 2022, primarily due to (i) an increase of $190.5 million in net cash provided by operating activities related to working capital fluctuations and timing, and (ii) a $5.6 million increase in distributions from equity investments in excess of cumulative earnings.

These amounts were offset partially by an increase of $23.4 million in capital expenditures.

Free cash flow decreased by $19.1 million for the six months ended June 30, 2022, primarily due to an increase of $51.4 million in capital expenditures, partially offset by (i) an increase of $29.8 million in net cash provided by operating activities and (ii) a $4.0 million increase in distributions from equity investments in excess of cumulative earnings.

Free cash flow decreased by $41.7 million for the three months ended September 30, 2022, primarily due to a $42.8 million increase in capital expenditures, partially offset by a $1.8 million increase in net cash provided by operating activities.

Free cash flow decreased by $8.8 million for the nine months ended September 30, 2022, primarily due to (i) a $121.7 million increase in capital expenditures and (ii) a $5.2 million increase in contributions to equity investments.

These amounts were offset partially by (i) a $107.2 million increase in net cash provided by operating activities and (ii) an $11.0 million increase in distributions from equity investments in excess of cumulative earnings.

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

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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 Six Months Ended

thousands June 30, 2022 March 31,

2022 June 30, 2022 June 30, 2021

Three Months Ended Nine Months Ended

thousands September 30, 2022 June 30, 2022 September 30, 2022 September 30, 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 Six Months Ended

thousands June 30, 2022 March 31,

2022 June 30, 2022 June 30, 2021

Three Months Ended Nine Months Ended

thousands September 30, 2022 June 30, 2022 September 30, 2022 September 30, 2021

Reconciliation of Net income (loss) to Adjusted EBITDA

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Three Months Ended Six Months Ended

thousands June 30, 2022 March 31,

2022 June 30, 2022 June 30, 2021

Three Months Ended Nine Months Ended

thousands September 30, 2022 June 30, 2022 September 30, 2022 September 30, 2021

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

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LIQUIDITY AND CAPITAL RESOURCES

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

Our sources of liquidity as of June 30, 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.

Our primary cash uses include equity and debt service, operating expenses, and capital expenditures.

Our sources of liquidity as of September 30, 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.

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

The Board declared a cash distribution to unitholders for the second quarter of 2022 of $0.50000 per unit, or $197.7 million in the aggregate.

The cash distribution is payable on August 12, 2022, to our unitholders of record at the close of business on August 1, 2022.

The Board declared a cash distribution to unitholders for the third quarter of 2022 of $0.50000 per unit, or $197.1 million in the aggregate.

The cash distribution is payable on November 14, 2022, to our unitholders of record at the close of business on October 31, 2022.

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

In November 2022, the Board authorized an increase in the $1.0 billion Purchase Price Program to $1.25 billion.

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

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

During the six months ended June 30, 2022, we repurchased 3,314,562 common units on the open market for an aggregate purchase price of $79.2 million.

From July 1, 2022, through July 29, 2022, we repurchased 13,800,805 common units, which includes 10,000,000 common units repurchased from Occidental, for an aggregate purchase price of $346.1 million.

During the nine months ended September 30, 2022, we repurchased 17,982,357 common units, which includes 10,000,000 common units repurchased from Occidental, for an aggregate purchase price of $447.1 million.

The units were canceled immediately upon receipt.

Inclusive of the unit repurchases through July 29, 2022, we had an authorized amount of $574.6 million remaining under the $1.0 billion Purchase Program.

As of September 30, 2022, we had an authorized amount of $552.9 million remaining under the program.

Management continuously monitors our leverage position and coordinates our capital expenditures and equity requirements 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 June 30, 2022, we had a $108.8 million working capital surplus, which we define as the amount by which current assets exceed current liabilities.

As of June 30, 2022, there was $1.7 billion available for borrowing under the RCF.

As of September 30, 2022, we had a $150.4 million working capital surplus, which we define as the amount by which current assets exceed current liabilities.

As of September 30, 2022, there was $1.4 billion available for borrowing under the RCF.

See Note 9—Selected Components of Working Capital and Note 10—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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Acquisitions and capital expenditures as presented in the consolidated statements of cash flows and capital incurred were as follows:

Six Months Ended

Nine Months Ended

September 30,

thousands 2022 2021

Acquisitions $ 41,018 $ —

Capital expenditures (1)

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_________________________________________________________________________________________

(1) For the six months ended June 30, 2022 and 2021, included $2.0 million and $1.5 million, respectively, of capitalized interest.

Capital expenditures increased by $51.4 million for the six months ended June 30, 2022, primarily due to increases of (i) $63.2 million at the West Texas complex primarily attributable to facility expansion and pipeline projects and (ii) $8.4 million at the DBM oil system primarily related to an increase in pipeline, well connection, oil treating, and oil pumping projects.

These increases were offset partially by decreases of (i) $8.4 million at the DBM water systems primarily due to reduced construction of additional water - disposal facilities and well connection projects and (ii) $4.4 million at the DJ Basin oil system primarily related to a decrease in pipeline projects.

(1) For the nine months ended September 30, 2022 and 2021, included $3.5 million and $2.6 million, respectively, of capitalized interest.

Acquisitions for the nine months ended September 30, 2022, include the acquisition of the remaining 50% interest in Ranch Westex (see Acquisitions and Divestitures within this Item 2).

Capital expenditures increased by $121.7 million for the nine months ended September 30, 2022, primarily due to increases of (i) $107.7 million at the West Texas complex primarily attributable to facility expansion, including ongoing construction of Mentone Train III, and pipeline projects, and (ii) $13.1 million at the DBM oil system primarily related to an increase in pipeline, well connection, oil treating, and oil pumping projects.

These increases were offset partially by a decrease of $7.3 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:

Six Months Ended

Nine Months Ended

September 30,

thousands 2022 2021

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Operating activities .

Net cash provided by operating activities increased for the six months ended June 30, 2022, primarily due to (i) higher cash operating income and (ii) lower interest expense.

Net cash provided by operating activities increased for the nine months ended September 30, 2022, primarily due to (i) higher cash operating income and (ii) lower interest expense.

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

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Investing activities .

Net cash used in investing activities for the six months ended June 30, 2022, primarily included the following:

Net cash used in investing activities for the nine months ended September 30, 2022, primarily included the following:

• $341.5 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;

• $41.0 million of cash paid for the acquisition of the remaining 50% interest in Ranch Westex (see Acquisitions and Divestitures within this Item 2);

• $8.9 million of capital contributions primarily paid to Red Bluff Express;

• $7.0 million of increases to materials and supplies inventory;

• $41.1 million of distributions received from equity investments in excess of cumulative earnings.

Net cash used in investing activities for the six months ended June 30, 2021, primarily included the following:

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

• $219.8 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;

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

• $7.7 million of decreases to materials and supplies inventory.

Financing activities .

Net cash used in financing activities for the six months ended June 30, 2022, primarily included the following:

• $883.5 million to redeem the total principal amount outstanding of WES Operating’s 4.000% Senior Notes due 2022 and repay borrowings under the RCF;

Net cash used in financing activities for the nine months ended September 30, 2022, primarily included the following:

• $765.0 million of repayments of outstanding borrowings under the RCF;

• $538.7 million of distributions paid to WES unitholders;

• $502.2 million to redeem the total principal amount outstanding of WES Operating’s 4.000% Senior Notes due 2022;

• $447.1 million of unit repurchases;

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• $1.5 million of increases in outstanding checks.

Net cash used in financing activities for the six months ended June 30, 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;

Net cash used in financing activities for the nine months ended September 30, 2021, primarily 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;

• $398.9 million of distributions paid to WES unitholders;

• $29.1 million of decreases in outstanding checks due mostly to ad valorem tax payments made at the end of 2020;

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

• $104.4 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;

• $9.9 million of distributions paid to the noncontrolling interest owner of WES Operating;

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• $2.7 million of distributions paid to the noncontrolling interest owner of Chipeta;

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

• $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.

Debt and credit facilities.

As of June 30, 2022, the carrying value of outstanding debt was $6.7 billion.

As of September 30, 2022, the carrying value of outstanding debt was $7.0 billion.

See Note 10—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 3.790%, 4.671%, and 5.869%, respectively, at June 30, 2022.

The interest rate on the Floating - Rate Senior Notes was 2.12% at June 30, 2022.

The interest rate on the Floating - Rate Senior Notes was 3.56% at September 30, 2022.

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

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During the second quarter of 2022, WES Operating (i) redeemed the total principal amount outstanding of the 4.000% Senior Notes due 2022 at par value and (ii) purchased and retired $1.4 million of the 3.100% Senior Notes due 2025 via open-market repurchases.

As of June 30, 2022, the Floating-Rate Senior Notes were classified as long-term debt on the consolidated balance sheet as WES Operating has the ability and intent to refinance these obligations using long-term debt.

At June 30, 2022, WES Operating was in compliance with all covenants under the relevant governing indentures.

As of September 30, 2022, the Floating-Rate Senior Notes were classified as long-term debt on the consolidated balance sheet as WES Operating has the ability and intent to refinance these obligations using long-term debt.

As of September 30, 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 2025 and represent $400.0 million out of $2.0 billion of total commitments from all lenders.

As of June 30, 2022, there were $255.0 million of outstanding borrowings and $5.2 million of outstanding letters of credit, resulting in $1.7 billion of available borrowing capacity under the RCF.

As of June 30, 2022, the interest rate on any outstanding RCF borrowings was 3.12% and the facility - fee rate was 0.25%.

At June 30, 2022, WES Operating was in compliance with all covenants under the RCF.

As of September 30, 2022, there were $625.0 million of outstanding borrowings and $5.1 million of outstanding letters of credit, resulting in $1.4 billion of available borrowing capacity under the RCF.

As of September 30, 2022, the interest rate on any outstanding RCF borrowings was 4.65% and the facility - fee rate was 0.25%.

As of September 30, 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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Offload commitments.

During the six months ended June 30, 2022, we entered into offload agreements with third parties providing firm-processing capacity through 2025.

As of June 30, 2022, we have future minimum payments under offload agreements totaling $6.3 million for the remainder of 2022 and a total of $29.3 million in years thereafter.

During the nine months ended September 30, 2022, we entered into offload agreements with third parties providing firm-processing capacity through 2025.

As of September 30, 2022, we have future minimum payments under offload agreements totaling $4.2 million for the remainder of 2022 and a total of $27.4 million in years thereafter.

Credit risk .

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

Three Months Ended Six Months Ended

thousands June 30, 2022 March 31,

2022 June 30, 2022 June 30, 2021

Three Months Ended Nine Months Ended

thousands September 30, 2022 June 30, 2022 September 30, 2022 September 30, 2021

Net income (loss) attributable to WES $ 265,745 $ 306,317 $ 880,779 $ 672,775

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Other income (expense), net (11) (4) (18) (9)

Income taxes — — — 3

Net income (loss) attributable to WES Operating $ 271,568 $ 313,201 $ 900,541 $ 688,754

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

Six Months Ended

Nine Months Ended

September 30,

thousands 2022 2021

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Other income (expense), net (18) (9)

Income taxes — 3

WES Operating net cash provided by operating activities $ 1,204,429 $ 1,104,189

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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