What changed in this filing

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Item 1A. Risk Factors

2023-02-22 compared with 2022-02-23 · 54 added, 59 removed, 389 unchanged (23% of the section changed)

34 unchanged sentences

• 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 COVID-19;

• cyber attacks or security breaches;

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Further, we are subject to the risk of non-payment or non-performance by Occidental, including with respect to our gathering and transportation agreements.

We cannot predict the extent to which Occidental’s business would be impacted if conditions in the energy industry were to deteriorate, nor can we estimate the impact such conditions would have on Occidental’s ability to perform under our gathering and transportation agreements with Occidental.

Accordingly, any material non-payment or non-performance by Occidental could reduce our ability to make distributions to our unitholders.

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Our future prospects depend on Occidental’s growth strategy, midstream operational philosophy, and drilling program, including the level of drilling and completion activity by Occidental on acreage dedicated to us.

conflicts also may arise in the future associated with future business opportunities that are pursued by Occidental and us.

Additional conflicts also may arise in the future associated with future business opportunities that are pursued by Occidental and

For example, Occidental is not prohibited from owning assets or engaging in businesses that directly or indirectly compete with us.

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

As of February 15, 2022, WES Operating’s long-term debt was rated “BBB-” by Standard and Poor’s (“S&P”), BB+ by Fitch Ratings, and “Ba2” by Moody’s Investors Service (“Moody’s”).

In 2020, WES Operating’s credit ratings were downgraded below investment grade by Fitch, S&P, and Moody’s.

Because of these downgrades, financing costs under the RCF increased.

Additionally, WES Operating currently has $3.1 billion of outstanding senior notes that provide for changes to the coupon rates following changes to WES Operating’s credit rating.

Any future downgrades in WES Operating’s credit ratings could adversely affect WES Operating’s ability to issue debt in the public debt markets and negatively impact our cost of capital, future interest costs, and ability to effectively execute aspects of our business strategy.

For example, WES Operating currently has $3.1 billion of outstanding senior notes that provide for changes to the coupon rates following changes in WES Operating’s credit ratings.

Future credit-rating downgrades also could trigger obligations to provide financial assurance of our performance under certain contractual arrangements.

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At December 31, 2022, there were $5.1 million in letters of credit or cash-provided assurance of our performance under contractual arrangements with credit-risk-related contingent features.

Sustained low natural-gas, NGLs, or oil prices could adversely affect our business.

Sustained low natural-gas, NGLs, or oil prices and volatility of such prices could adversely affect our business.

Sustained low natural-gas, NGLs, or oil prices impact natural-gas and oil exploration and production activity levels and can result in a decline in the production of hydrocarbons over the medium to long term, resulting in reduced throughput on our systems.

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In general terms, the prices of natural gas, oil, condensate, NGLs, and other hydrocarbon products fluctuate in response to changes in supply and demand, market uncertainty, and a variety of additional factors that are beyond our control.

For example, market prices for natural gas have declined substantially from the highs achieved in 2008 and have generally remained depressed for several years.

More recently, the COVID-19 pandemic and resulting mitigation measures have had an adverse impact on global economic conditions, and have contributed to significant volatility in demand for oil, NGLs, and natural gas, resulting in extended periods of lower commodity prices that negatively impacted our and our customers’ financial outlooks and activity levels.

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

Although commodity prices have recovered from those lows, they remain subject to volatility that could negatively impact our and our customers’ financial outlooks and activity levels.

Because of the natural decline in production from existing wells, our success depends on our ability to compete for new sources of oil and natural-gas throughput, which is dependent on certain factors beyond our control.

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We also have no control over producers or their drilling or production decisions, which are affected by, among other things, the availability and cost of capital, prevailing and projected commodity prices, demand for hydrocarbons, levels of reserves, geological considerations, governmental regulations, the availability of drilling rigs, and other production and development costs.

reductions in exploration or production activity in our areas of operation would lead to reduced utilization of our gathering, processing, and treating assets.

Sustained reductions in exploration or production activity in our areas of operation would lead to reduced utilization of our gathering, processing, and treating assets.

Because of these factors, producers (including Occidental) may be deterred from developing known oil and natural-gas reserves existing in areas served by our assets.

Moreover, Occidental and other third-party producers may not develop the acreage it has dedicated to us.

If competition or reductions in drilling activity result in our inability to maintain the current levels of throughput on our systems, it could reduce our revenue and impair our ability to make cash distributions to our unitholders.

The global outbreak of COVID-19 may have an adverse impact on our operations and financial results.

The global outbreak of COVID-19 poses significant risks to our business and to the markets in which we operate.

Many of our facilities require our field personnel to be on location to ensure safe and efficient operations.

If a significant percentage of our workforce is unable to work, due to illness or travel or other COVID-19-related restrictions, we may experience significant operational disruptions or inefficiencies and a heightened risk of safety and environmental incidents.

Similarly, we may be impacted by workforce attrition to the extent our employees are resistant to any vaccine or testing mandates that may be imposed upon us.

Any such developments could materially and adversely affect our earnings, cash flows, and ability to make cash distributions to our unitholders.

Additionally, many of our employees have been and may in the future be subject to pandemic-related work-from-home requirements, which stress the capabilities of our information technology systems, including those relating to system security;

disrupt normal channels of intracompany communications and key business processes;

and heighten the risk of cyber-security threats and operational, health, or safety-related incidents at our facilities.

For these reasons, limited working arrangements and other related restrictions may impact our operations and management effectiveness and may introduce, or increase the likelihood of, material risks to our business, operations, productivity, and results of operations.

If competition or reductions in drilling activity result in our inability to

maintain the current levels of throughput on our systems, it could reduce our revenue and impair our ability to make cash distributions to our unitholders.

Our profitability may be negatively impacted by inflation in the cost of labor, materials, and services.

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

economy could experience a significant inflationary effect from, among other things, supply chain disruptions caused by, or governmental stimulus or fiscal policies adopted in response to, the COVID-19 crisis.

While we cannot predict any future trends in the rate of inflation, the global COVID-19 pandemic has brought unprecedented uncertainty to the near-term economic outlook.

A significant increase in inflation would raise our costs for labor, materials, and services, and to the extent we are unable to recover higher costs through our commercial agreements, would negatively impact our profitability and cash flows available for distribution to unitholders.

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 inflation has raised our costs for labor, materials, fuel, and services, thereby increasing our operating costs and capital expenditures, and these costs may continue to increase.

While we cannot predict any future trends in the rate of inflation, the aforementioned factors have brought significant uncertainty to the near-term economic outlook.

Further increases in inflation would raise our costs for labor, materials, fuel, and services, and to the extent we are unable to recover higher costs through our commercial agreements, would negatively impact our profitability and cash flows available for distribution to unitholders.

The amount of cash we have available for distribution to holders of our common units depends primarily on our cash flows rather than on our profitability, and we may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses to enable us to pay distributions at previously announced levels to holders of our common units, or at all, even during periods in which we record net income.

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As a result, we may make cash distributions for periods in which we record losses for financial accounting purposes and may not make cash distributions for periods in which we record net earnings for financial accounting purposes.

To pay the announced fourth-quarter 2021 distribution of $0.32700 per unit per quarter, or $1.30800 per unit per year, we require per-quarter available cash of $134.7 million, or $538.8 million per year, based on the number of common units outstanding at January 31, 2022.

To pay the announced fourth-quarter 2022 distribution of $0.50000 per unit per quarter, or $2.00000 per unit per year, we require per-quarter available cash of $196.6 million, or $786.4 million per year, based on the number of common units outstanding at February 1, 2023.

We may not have sufficient available cash from operating surplus each quarter to enable us to pay distributions at currently announced levels.

The amount of cash we can distribute on our units principally depends on the amount of cash we generate from our operations, which will fluctuate from quarter to quarter.

Certain of our natural-gas processing agreements provide our producer customers with contractually specified NGL recoveries that, under expected operating conditions, may generate commodity price exposure and could, under certain circumstances, generate financial or physical-delivery obligations for us.

Under certain of our natural-gas processing agreements, we provide our producer customers with contractually specified NGL recoveries.

To the extent actual recoveries exceed the contractually specified recoveries, we retain the excess NGL volumes and sell such volumes for our own account along with NGL and natural-gas volumes retained by us under our percent-of-proceeds and keep-whole processing agreements, bearing commodity-price risk on these volumes.

Conversely, if actual plant recoveries are below the contractually specified recoveries, we would still be obligated to deliver the contractually fixed amount of NGLs (or in some cases, the financial equivalent thereof) to such customers.

For this reason, our inability to efficiently operate our natural-gas processing facilities could result in diminished NGL sale proceeds for our account, or could result in losses when we settle shortfalls between actual and contractually specified recoveries with our customers.

Accordingly, the failure to achieve operational plant efficiency to support the contractually specified recoveries could negatively impact our profitability and cash flows available for distribution to unitholders.

We are exposed to the credit risk of third-party customers, and any material non-payment or non-performance by these parties, including with respect to our gathering, processing, transportation, and disposal agreements, could reduce our ability to make distributions to our unitholders.

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Further, to the extent any of our third-party customers is in financial distress or enters bankruptcy proceedings, the related customer contracts may be renegotiated at lower rates or altogether rejected.

Since the beginning of 2020, we have been engaged in initiatives that will facilitate our ability to operate more independently from Occidental.

Our separation from Occidental entails risks and uncertainties that may have a material adverse effect on our business, financial condition, results of operations, or cash available for distribution to our unitholders.

The difficulties of creating a stand-alone structure include, among other things, implementing operational and administrative technology systems, maintaining effective internal controls, replicating a regulatory compliance infrastructure, and hiring, training and retaining qualified personnel, the loss of which could reduce our competitiveness and prospects for future success.

While we have achieved significant milestones in our separation from Occidental, attention to such organizational activities is continuing and could divert management’s attention from our existing business.

Additionally, newly adopted systems, controls, and compliance infrastructure may face post-implementation challenges in the near term.

If any of these risks, or other unanticipated liabilities or costs were to arise, then desired benefits from our efforts to become independent from Occidental may not materialize.

Such difficulties may have a material adverse effect on our business, financial condition, results of operations, or cash available for distribution to our unitholders.

Implementation of Colorado Senate Bill 19-181 may increase costs and limit oil and natural-gas exploration and production operations in the state, which could have a material adverse effect on our customers in Colorado and significantly reduce demand for our services in the state.

On April 16, 2019, Senate Bill 19-181 was signed into law in Colorado.

The new legislation reforms oversight of oil and natural-gas exploration and production activities in the state.

This legislation reforms oversight of oil and natural-gas exploration and production activities in the state.

The mission of the Colorado Oil and Gas Conservation Commission (“COGCC”) has changed from fostering energy development in the state to regulating the industry in a manner that is protective of public health and safety and the environment.

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Effective January 15, 2021, COGCC began implementing the new Senate Bill 19-181 rules that include a unified permitting process, increased setbacks from schools, limitations on venting and flaring, enhanced wildlife protections, and, in conjunction with the Colorado Department of Public Health and Environment, requirements to evaluate the cumulative impacts of oil and gas operations.

COGCC will finalize a rule proposing increased financial assurance later this year and additional rulemakings may be expected.

Additional Senate Bill 19-181 rulemakings may be expected.

Operators are adjusting to the new requirements, but are experiencing delayed drilling permit issuance and potentially will face increased operating costs, which could have a material adverse effect on our customers in Colorado, which in turn could reduce statewide demand for our midstream services significantly.

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We dispose of produced water generated from oil and natural-gas production operations.

The legal requirements related to the disposal of produced water into a non-producing geologic formation by means of underground injection wells are subject to change based on concerns of the public or governmental authorities, including concerns relating to recent seismic events near injection wells used for the disposal of produced water.

The legal requirements related to the disposal of produced water into producing or non-producing geologic formation by means of underground injection wells are subject to change based on concerns of the public or governmental authorities, including concerns relating to recent seismic events near injection wells used for the disposal of produced water.

In response to such concerns, regulators in some states have imposed, or are considering imposing, additional requirements in the permitting of produced-water disposal wells or are otherwise investigating the existence of a relationship between seismicity and the use of such wells.

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Global financial markets and economic conditions have been, and continue to be, volatile, especially for companies involved in the oil and gas industry.

The repricing of credit risk and the recent relatively weak industry conditions have made, and will likely continue to make, it difficult for some entities to obtain funding.

In addition, as a result of concerns about the stability and solvency of some of our counterparties, the cost of obtaining financing from the credit markets generally has increased as many lenders and institutional investors have increased required rates of return, enacted tighter lending standards, refused to provide funding on terms similar to the borrower’s current debt, and reduced, or in some cases, ceased to provide funding to borrowers.

While the oil and gas industry has rebounded from the lows seen in 2020, the repricing of credit risk and the relatively weak industry conditions in recent years have made, and will likely continue to make, it difficult for some entities to obtain funding.

Future downturns in our industry could increase our cost of obtaining financing from the credit markets as a result of increased rates of return required by many lenders and institutional investors.

In such a situation, our lenders could tighten lending standards, refuse to provide funding on terms similar to our current debt, or reduce, or in some cases, refuse to provide funding.

Further, we may be unable to obtain adequate funding under the RCF if our lending counterparties become unable to meet their funding obligations.

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If any of these pipelines or facilities becomes unable to transport, treat, store, or process crude oil, natural gas, or NGLs, or if the volumes we gather or transport do not meet the quality requirements of such pipelines or facilities, our revenues and cash available for distribution could be adversely affected.

For example, during the market disruptions caused by the outbreak of COVID-19, there were concerns that domestic oil-storage capacity could reach operational limits.

If such an event had occurred, our customers might have shut-in field production due to limited downstream-takeaway alternatives or resulting wellhead economics.

If production is shut-in for these or for other reasons, affected producers may become insolvent or seek to avoid their contractual obligations with us, in which case, our earnings, cash flows from operations, and ability to make cash distributions to our unitholders could be materially and adversely impacted.

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Some portions of our pipeline systems have been in service for several decades, and we have a limited ownership history with respect to certain of our assets.

There could be unknown events or conditions, or increased maintenance or repair expenses, and downtime associated with our pipelines that could have a material adverse effect on our business and results of operations.

There also could be unknown events or conditions, or increased maintenance or repair expenses, and downtime associated with our pipelines that could have a material adverse effect on our business and results of operations.

Some portions of the pipeline systems that we operate were in service for many decades, prior to our purchase of these systems.

Consequently, there may be historical occurrences or latent issues regarding our pipeline systems that our executive management may be unaware of and that may have a material adverse effect on our business and results of operations.

The age and condition of our pipeline systems also could result in increased maintenance or repair expenditures, and any downtime associated with increased maintenance and repair activities could materially reduce our revenue.

Any significant increase in maintenance and repair expenditures or loss of revenue due to the age or condition of our pipeline systems could adversely affect our business and results of operations.

The age or condition of our pipeline systems also could result in increased maintenance or repair expenditures, and any downtime associated with increased maintenance and repair activities could materially reduce our revenue.

In addition, we may be unable to complete maintenance or repairs due to the unavailability of necessary materials as a result of supply chain disruptions (including those caused by COVID-19 lockdowns or geopolitical events, such as the Russian invasion of Ukraine), which may result in the suspension of operations of the impacted assets until such activities can be completed.

Any significant increase in maintenance and repair expenditures, loss of revenue due to the age or condition of our pipeline systems, or delays in completing necessary maintenance or repairs could adversely affect our business and results of operations.

We are subject to stringent and comprehensive environmental laws and regulations that may expose us to significant costs and liabilities.

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(v) requiring capital expenditures to limit or prevent releases of materials from our pipelines and facilities;

imposition of substantial restoration and remedial liabilities and obligations with respect to abandonment of facilities and for pollution resulting from our operations or existing at our owned or operated facilities.

and (vi) imposition of substantial restoration and remedial liabilities and obligations with respect to abandonment of facilities and for pollution resulting from our operations or existing at our owned or operated facilities.

Numerous governmental authorities, such as the EPA and analogous state agencies, have the power to enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costly remedial or corrective actions.

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We may incur significant environmental costs and liabilities in connection with our operations due to our handling of natural gas, crude oil, NGLs, and other petroleum products, because of pollutants from our operations emitted into ambient air or discharged or released into surface water or groundwater, and as a result of historical industry operations and waste-disposal practices.

For example, an accidental release as a result of our operations could subject us to substantial liabilities arising from environmental cleanup and restoration costs, claims made by owners of the properties through which our gathering or transportation systems pass, neighboring landowners, and other third parties for personal injury, natural-resource and property damages, and fines or penalties for related violations of environmental laws or regulations.

environmental laws or regulations.

Joint and several strict liabilities may be incurred, without regard to fault, under certain of these environmental laws and regulations.

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Any material limitations on our ability to access capital as a result of such scrutiny could limit our ability to obtain future financing on favorable terms, or at all, or could result in increased financing costs in the future.

Similarly, such activism could negatively impact our unit price, limiting our ability to raise capital through equity issuances or debt financing, or could negatively affect our ability to engage in, expand or pursue our or its business activities, and could also prevent us from engaging in certain transactions that might otherwise be considered beneficial to us.

Similarly, such activism could negatively impact our unit price, limiting our ability to raise capital through equity issuances or debt financing, or could negatively affect our ability to engage in, expand or pursue our business activities, and could also prevent us from engaging in certain transactions that might otherwise be considered beneficial to us.

We have partial ownership interests in several joint-venture legal entities that we do not operate or control.

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To the extent Occidental’s net interest in us declines through the sale of its holdings or otherwise, Occidental may be less incentivized to support the continued growth of our business.

Accordingly, a decrease in

Occidental’s net holdings in us could have a material adverse effect on our business, results of operations, financial position, and ability to grow or make cash distributions to our unitholders.

Accordingly, a decrease in Occidental’s net holdings in us could have a material adverse effect on our business, results of operations, financial position, and ability to grow or make cash distributions to our unitholders.

Our general partner’s liability regarding our obligations is limited.

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Our partnership agreement does not limit the number of additional limited partner interests that we may issue at any time without the approval of our unitholders.

The issuance by us of additional common units or other equity

securities of equal or senior rank will dilute our existing unitholders’ ownership interests and voting strength, and may reduce the market price for our common units and cash available for distribution or increase the ratio of taxable income to distributions.

The issuance by us of additional common units or other equity securities of equal or senior rank will dilute our existing unitholders’ ownership interests and voting strength, and may reduce the market price for our common units and cash available for distribution or increase the ratio of taxable income to distributions.

The market price of our common units could be affected adversely by sales of substantial amounts of our common units in the public or private markets, including sales by Occidental or other large holders.

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federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative, or judicial interpretation at any time.

From time to time, members of Congress have proposed and considered substantive changes to the existing U.S.

time, members of Congress have proposed and considered substantive changes to the existing U.S.

federal income tax laws that would affect publicly traded partnerships, including elimination of partnership tax treatment for publicly traded partnerships.

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federal income taxes on their share of our taxable income irrespective of whether they receive cash distributions from us.

Unitholders may not receive cash distributions from us

equal to their share of our taxable income or even equal to the actual tax liability attributable to their share of our taxable income.

Unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability attributable to their share of our taxable income.

Tax gain or loss on the disposition of our common units could be more or less than expected.

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Investment in common units by tax-exempt entities, such as employee benefit plans, and individual retirement accounts (or “IRAs”) raises issues unique to them.

For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them.

For example, virtually all of our income allocated to organizations

that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them.

Tax-exempt entities should consult a tax advisor before investing in our units.

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federal income tax.

As a result, distributions to non-U.S.

unitholders will be reduced by withholding taxes at the highest applicable effective tax rate and a non-U.S.

unitholder who sells or otherwise disposes of a unit will also be subject to U.S.

federal income tax on the gain realized from the sale or disposition of that unit.

Additionally, distributions to non-U.S.

unitholders will be reduced by withholding taxes at the highest applicable effective tax rate.

unitholders occurring on or after January 1, 2023, will be subject to an additional 10% withholding tax on the amount of any distribution in excess of our cumulative net income that has not been previously distributed.

The determination of cumulative net income is complex and unclear in certain respects, and we intend to treat all of our distributions as being in excess of our cumulative net income for such purposes and subject to the additional 10% withholding tax.

Accordingly, distributions to a non-U.S.

unitholder will be subject to a combined withholding tax rate equal to the sum of the highest applicable effective tax rate and 10%.

Moreover, the transferee of an interest in a partnership that is engaged in a U.S.

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Treasury regulations provide that the “amount realized” on a transfer of an interest in a publicly traded partnership will generally be the amount of gross proceeds paid to the broker effecting the applicable transfer on behalf of the transferor.

Treasury regulations and recent Treasury guidance further provide that withholding on a transfer of an interest in a publicly traded partnership will not be imposed on a transfer that occurs on or prior to December 31, 2022, and after that date, if effected through a broker, the obligation to withhold is imposed on the transferor’s broker.

Treasury regulations and recent Treasury guidance further provide that for transfers of interests in a publicly traded partnership occurring on or after January 1, 2023, the obligation to withhold is imposed on the transferor’s broker.

unitholders should consult their tax advisor before investing in our common units.

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In determining items of income, gain, loss, and deduction allocable to our unitholders, we must routinely determine the fair market value of our assets.

Although we may, from time to time, consult with professional appraisers

regarding valuation matters, we make many fair market value estimates using a methodology based on the market value of our common units as a means to measure the fair market value of our assets.

Although we may, from time to time, consult with professional appraisers regarding valuation matters, we make many fair market value estimates using a methodology based on the market value of our common units as a means to measure the fair market value of our assets.

The IRS may challenge these valuation methods and the resulting allocations of income, gain, loss, and deduction.

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unincorporated business taxes;

and estate, inheritance, or intangible taxes that are imposed by the various jurisdictions in which we conduct business or own property now or in the future, even if they do not live in any of those jurisdictions.

and estate, inheritance, or intangible taxes that are imposed by the various

jurisdictions in which we conduct business or own property now or in the future, even if they do not live in any of those jurisdictions.

Our unitholders likely will be required to file tax returns and pay taxes in some or all of these various jurisdictions, or be subject to penalties for failure to comply with those requirements.

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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-K

Item 1A. Risk Factors