Financial Statements and Supplementary Data

EX-99.3 6 d355678dex993.htm FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements and Supplementary Data

EXHIBIT 99.3

Item 8. Financial Statements and Supplementary Data

WESTERN GAS PARTNERS, LP

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm			2

Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009			3

Consolidated Balance Sheets as of December 31, 2011 and 2010			4

Consolidated Statements of Equity and Partners’ Capital for the years ended December 31, 2011, 2010 and 2009			5

Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009			6

Notes to Consolidated Financial Statements			7

Supplemental Quarterly Information			39

WESTERN GAS PARTNERS, LP

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Unitholders

Western Gas Holdings, LLC (as general partner of Western Gas Partners, LP):

We have audited the accompanying consolidated balance sheets of Western Gas Partners, LP (the Partnership) and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of income, equity and partners’ capital, and cash flows for each of the years in the three-year period ended December 31, 2011. These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Western Gas Partners, LP and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Houston, Texas

May 22, 2012

WESTERN GAS PARTNERS, LP

CONSOLIDATED STATEMENTS OF INCOME


	Year Ended December 31,
thousands except per-unit amounts	2011 ⁽¹⁾			2010 ⁽¹⁾			2009 ⁽¹⁾
Revenues – affiliates
Gathering, processing and transportation of natural gas and natural gas liquids	$	217,852		$	192,286		$	181,477
Natural gas, natural gas liquids and condensate sales		417,547			369,903			330,855
Equity income and other, net		13,598			9,439			9,518

Total revenues – affiliates		648,997			571,628			521,850
Revenues – third parties
Gathering, processing and transportation of natural gas and natural gas liquids		83,477			60,987			64,989
Natural gas, natural gas liquids and condensate sales		84,836			26,134			30,790
Other, net		5,955			4,525			2,135

Total revenues – third parties		174,268			91,646			97,914

Total revenues		823,265			663,274			619,764

Operating expenses
Cost of product ⁽²⁾		327,371			246,476			238,874
Operation and maintenance ⁽²⁾		119,104			103,887			106,590
General and administrative ⁽²⁾		39,114			29,640			33,171
Property and other taxes		16,579			14,273			14,173
Depreciation, amortization and impairments		111,904			91,010			90,692

Total operating expenses		614,072			485,286			483,500

Operating income		209,193			177,988			136,264
Interest income, net – affiliates		28,560			20,243			20,717
Interest expense ⁽³⁾		(30,345	)		(18,794	)		(9,955	)
Other income (expense), net		(44	)		(538	)		1,628

Income before income taxes		207,364			178,899			148,654
Income tax expense		19,018			21,702			22,159

Net income		188,346			157,197			126,495
Net income attributable to noncontrolling interests		14,103			11,005			10,260

Net income attributable to Western Gas Partners, LP	$	174,243		$	146,192		$	116,235

Limited partners’ interest in net income:
Net income attributable to Western Gas Partners, LP	$	174,243		$	146,192		$	116,235
Pre-acquisition net (income) loss allocated to Parent		(34,084	)		(32,061	)		(44,827	)
General partner interest in net (income) loss ⁽⁴⁾		(8,599	)		(3,067	)		(1,428	)

Limited partners’ interest in net income ⁽⁴⁾	$	131,560		$	111,064		$	69,980
Net income per common unit – basic and diluted	$	1.64		$	1.66		$	1.25
Net income per subordinated unit – basic and diluted ⁽⁵⁾	$	1.28		$	1.61		$	1.24

⁽¹⁾

Financial information for the year ended December 31, 2011, has been recast to include the financial position and results attributable to the MGR assets, and the financial information for the years ended December 31, 2010 and 2009, has been recast to include the financial position and results attributable to the Bison and MGR assets. See Note 2.

⁽²⁾

Cost of product includes product purchases from Anadarko (as defined in Note 1) of $83.7 million, $95.7 million and $95.0 million for the years ended December 31, 2011, 2010 and 2009, respectively. Operation and maintenance includes charges from Anadarko of $51.3 million, $46.4 million and $41.4 million for the years ended December 31, 2011, 2010 and 2009, respectively. General and administrative includes charges from Anadarko of $31.9 million, $23.8 million and $27.4 million for the years ended December 31, 2011, 2010 and 2009, respectively. See Note 5.

⁽³⁾	Includes affiliate (as defined in Note 1) interest expense of $4.9 million, $6.9 million and $9.1 million for years ended December 31, 2011, 2010 and 2009, respectively. See Note 10.

⁽⁴⁾	Represents net income for periods including and subsequent to the acquisition of the Partnership assets (as defined in Note 1). See also Note 4.

⁽⁵⁾	All subordinated units were converted to common units on a one-for-one basis on August 15, 2011. For purposes of calculating net income per common and subordinated unit, the conversion of the subordinated units is deemed to have occurred on July 1, 2011. See Note 4.

See accompanying Notes to Consolidated Financial Statements.

WESTERN GAS PARTNERS, LP

CONSOLIDATED BALANCE SHEETS


	December 31,
thousands except number of units	2011 ⁽¹⁾		2010 ⁽¹⁾
ASSETS
Current assets
Cash and cash equivalents	$	226,559	$	27,074
Accounts receivable, net ⁽²⁾		22,703		11,607
Other current assets ⁽³⁾		7,186		5,944

Total current assets		256,448		44,625
Note receivable – Anadarko		260,000		260,000
Plant, property and equipment
Cost		2,638,013		2,239,808
Less accumulated depreciation		585,789		486,046

Net property, plant and equipment		2,052,224		1,753,762
Goodwill and other intangible assets		134,994		82,136
Equity investments		109,817		114,462
Other assets		24,143		8,109

Total assets	$	2,837,626	$	2,263,094

LIABILITIES, EQUITY AND PARTNERS’ CAPITAL
Current liabilities
Accounts and natural gas imbalance payables ⁽⁴⁾	$	26,600	$	17,058
Accrued ad valorem taxes		8,186		6,262
Income taxes payable		495		160
Accrued liabilities ⁽⁵⁾		41,315		28,240

Total current liabilities		76,596		51,720
Long-term debt – third parties		494,178		299,000
Note payable – Anadarko		175,000		175,000
Deferred income taxes		107,377		126,846
Asset retirement obligations and other		67,169		48,499

Total long-term liabilities		843,724		649,345

Total liabilities		920,320		701,065
Equity and partners’ capital
Common units (90,140,999 and 51,036,968 units issued and outstanding at December 31, 2011 and 2010, respectively)		1,495,253		810,717
Subordinated units (zero and 26,536,306 units issued and outstanding at December 31, 2011 and 2010, respectively)⁽⁶⁾		—		282,384
General partner units (1,839,613 and 1,583,128 units issued and outstanding at December 31, 2011 and 2010, respectively)		31,729		21,505
Parent net investment		269,600		356,961

Total partners’ capital		1,796,582		1,471,567
Noncontrolling interests		120,724		90,462

Total equity and partners’ capital		1,917,306		1,562,029

Total liabilities, equity and partners’ capital	$	2,837,626	$	2,263,094

⁽¹⁾

Financial information as of December 31, 2011, has been recast to include the financial position and results attributable to the MGR assets, and the financial information as of December 31, 2010, has been recast to include the financial position and results attributable to the Bison and MGR assets. See Note 2.

⁽²⁾	Accounts receivable, net includes amounts receivable from affiliates (as defined in Note 1) of zero and $1.8 million as of December 31, 2011 and 2010, respectively.

⁽³⁾	Other current assets includes natural gas imbalance receivables from affiliates of $0.5 million and zero as of December 31, 2011 and 2010, respectively.

⁽⁴⁾	Accounts and natural gas imbalance payables includes amounts payable to affiliates of $5.9 million and $1.5 million as of December 31, 2011 and 2010, respectively.

⁽⁵⁾	Accrued liabilities include amounts payable to affiliates of $0.3 million and $0.6 million as of December 31, 2011 and 2010, respectively.

⁽⁶⁾	All subordinated units were converted to common units on a one-for-one basis on August 15, 2011. See Note 4.

See accompanying Notes to Consolidated Financial Statements.

WESTERN GAS PARTNERS, LP

CONSOLIDATED STATEMENTS OF EQUITY AND PARTNERS’ CAPITAL


	Partners’ Capital
thousands	Parent Net Investment			Common Units			Subordinated Units			General Partner Units			Noncontrolling Interests			Total
Balance at December 31, 2008⁽¹⁾	$	833,819		$	368,050		$	275,917		$	10,988		$	66,016		$	1,554,790
Net income		44,827			37,035			32,945			1,428			10,260			126,495
Issuance of common and general partner units, net of offering expenses		—			120,080			—			2,459			—			122,539
Contributions from noncontrolling interest owners		20,544			—			—			—			19,718			40,262
Distributions to noncontrolling interest owners		(2,926	)		—			—			—			(5,072	)		(7,998	)
Distributions to unitholders		—			(36,025	)		(32,640	)		(1,401	)		—			(70,066	)
Acquisition from affiliates		(112,744	)		11,068			—			225			—			(101,451	)
Net pre-acquisition contributions from (distributions to) Parent		(36,505	)		—			—			—			—			(36,505	)
Non-cash equity-based compensation and other		2,354			(2,978	)		349			27			—			(248	)

Balance at December 31, 2009⁽¹⁾	$	749,369		$	497,230		$	276,571		$	13,726		$	90,922		$	1,627,818
Net income		32,061			68,410			42,654			3,067			11,005			157,197
Issuance of common and general partner units, net of offering expenses		—			338,483			—			7,320			—			345,803
Contributions from noncontrolling interest owners		—			—			—			—			2,053			2,053
Distributions to noncontrolling interest owners		—			—			—			—			(13,222	)		(13,222	)
Distributions to unitholders		—			(55,108	)		(36,885	)		(2,201	)		—			(94,194	)
Acquisitions from affiliates		(684,487	)		(49,662	)		—			(631	)		—			(734,780	)
Net pre-acquisition contributions from (distributions to) Parent		44,335			—			—			—			—			44,335
Contribution of other assets from Parent		—			10,500			—			215			—			10,715
Elimination of net deferred tax liabilities		214,464			—			—			—			—			214,464
Non-cash equity-based compensation and other		1,219			864			44			9			(296	)		1,840

Balance at December 31, 2010⁽¹⁾	$	356,961		$	810,717		$	282,384		$	21,505		$	90,462		$	1,562,029
Net income		34,084			110,542			21,018			8,599			14,103			188,346
Conversion of subordinated units to common units⁽²⁾		—			272,222			(272,222	)		—			—			—
Issuance of common and general partner units, net of offering expenses		—			328,345			—			6,972			—			335,317
Contributions from noncontrolling interest owners		—			—			—			—			33,637			33,637
Distributions to noncontrolling interest owners		—			—			—			—			(17,478	)		(17,478	)
Distributions to unitholders		—			(102,091	)		(31,180	)		(6,847	)		—			(140,118	)
Acquisition from affiliates		(92,666	)		66,313			—			1,353			—			(25,000	)
Contributions of equity-based compensation from Parent		—			9,472			—			194			—			9,666
Net pre-acquisition contributions from (distributions to) Parent		(50,851	)		—			—			—			—			(50,851	)
Elimination of net deferred tax liabilities		22,072			—			—			—			—			22,072
Non-cash equity-based compensation and other		—			(267	)		—			(47	)		—			(314	)

Balance at December 31, 2011 ⁽¹⁾	$	269,600		$	1,495,253		$	—		$	31,729		$	120,724		$	1,917,306

⁽¹⁾

Financial information as of December 31, 2011, has been recast to include the financial position and results attributable to the MGR assets, and the financial information as of December 31, 2010, 2009, and 2008, has been recast to include the financial position and results attributable to the Bison and MGR assets. See Note 2.

⁽²⁾	All subordinated units were converted to common units on a one-for-one basis on August 15, 2011. See Note 4.

See accompanying Notes to Consolidated Financial Statements.

WESTERN GAS PARTNERS, LP

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
thousands	2011 ⁽¹⁾			2010 ⁽¹⁾			2009 ⁽¹⁾
Cash flows from operating activities
Net income	$	188,346		$	157,197		$	126,495
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and impairments		111,904			91,010			90,692
Deferred income taxes		2,604			9,588			50
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net		(881	)		424			2,669
Increase (decrease) in accounts and natural gas imbalance payables and accrued liabilities, net		23,092			2,734			(14,267	)
Change in other items, net		2,106			2,796			7,126

Net cash provided by operating activities		327,171			263,749			212,765
Cash flows from investing activities
Capital expenditures		(142,946	)		(138,000	)		(121,295	)
Acquisitions from affiliates		(28,837	)		(734,780	)		(101,451	)
Acquisitions from third parties		(301,957	)		(18,047	)		—
Investments in equity affiliates		(93	)		(310	)		(382	)
Proceeds from sale of assets to affiliates		382			2,805			—
Proceeds from sale of assets to third parties		500			2,825			—

Net cash used in investing activities		(472,951	)		(885,507	)		(223,128	)
Cash flows from financing activities
Borrowings, net of debt issuance costs		1,055,939			660,000			101,451
Repayments of debt		(869,000	)		(361,000	)		(101,451	)
Revolving credit facility issuance costs		—			(12	)		(4,263	)
Proceeds from issuance of common and general partner units, net of offering expenses		335,317			345,803			122,539
Distributions to unitholders		(140,118	)		(94,194	)		(70,066	)
Contributions from noncontrolling interest owners		33,637			2,053			40,262
Distributions to noncontrolling interest owners		(17,478	)		(13,222	)		(7,998	)
Net contributions from (distributions to) Parent		(53,032	)		39,420			(36,201	)

Net cash provided by financing activities		345,265			578,848			44,273

Net increase (decrease) in cash and cash equivalents		199,485			(42,910	)		33,910
Cash and cash equivalents at beginning of period		27,074			69,984			36,074

Cash and cash equivalents at end of period	$	226,559		$	27,074		$	69,984


Supplemental disclosures
Elimination of net deferred tax liabilities	$	22,072		$	214,464		$	—
Contribution of assets (to) from Parent	$	(29	)	$	7,827		$	—
Increase (decrease) in accrued capital expenditures	$	5,402		$	5,218		$	13,390
Interest paid	$	25,828		$	16,497		$	9,372
Interest received	$	16,900		$	16,900		$	16,900
Taxes paid	$	190		$	507		$	—

⁽¹⁾

See accompanying Notes to Consolidated Financial Statements.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General. Western Gas Partners, LP (the “Partnership”), a growth-oriented Delaware master limited partnership formed by Anadarko Petroleum Corporation in 2007 to own, operate, acquire and develop midstream energy assets, closed its initial public offering to become publicly traded in 2008. Including the effect of the acquisition of Mountain Gas Resources, LLC (“MGR”), the Partnership’s assets include thirteen gathering systems, seven natural gas treating facilities, ten natural gas processing facilities, two NGL pipelines, one interstate gas pipeline, one intrastate gas pipeline, and interests in Fort Union Gas Gathering, LLC (“Fort Union”), White Cliffs Pipeline, LLC (“White Cliffs”) and Rendezvous Gas Services, LLC (“Rendezvous”), which are accounted for under the equity method. The Partnership’s assets are located in East and West Texas, the Rocky Mountains (Colorado, Utah and Wyoming), and the Mid-Continent (Kansas and Oklahoma). The Partnership is engaged in the business of gathering, processing, compressing, treating and transporting natural gas, condensate, NGLs and crude oil for Anadarko Petroleum Corporation and its consolidated subsidiaries, as well as third-party producers and customers.

For purposes of these consolidated financial statements, the “Partnership” refers to Western Gas Partners, LP and its subsidiaries. The Partnership’s general partner is Western Gas Holdings, LLC (the “general partner” or “GP”), a wholly owned subsidiary of Anadarko Petroleum Corporation. “Anadarko” or “Parent” refers to Anadarko Petroleum Corporation and its consolidated subsidiaries, excluding the Partnership and the general partner. “Affiliates” refers to wholly owned and partially owned subsidiaries of Anadarko, excluding the Partnership, and also refers to Fort Union, White Cliffs and Rendezvous.

Basis of presentation. The accompanying consolidated financial statements of the Partnership have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), and certain amounts in prior periods have been reclassified to conform to the current presentation. The consolidated financial statements include the accounts of the Partnership and entities in which it holds a controlling financial interest, and all significant intercompany transactions have been eliminated. Investments in non-controlled entities over which the Partnership exercises significant influence are accounted for under the equity method. The Partnership proportionately consolidates its 50% share of the assets, liabilities, revenues and expenses attributable to the Newcastle system in the accompanying consolidated financial statements.

In July 2009, the Partnership acquired a 51% interest in Chipeta Processing LLC (“Chipeta”) and became party to Chipeta’s limited liability company agreement, as amended and restated (the “Chipeta LLC agreement”) (see Notes 2 and 3). As of December 31, 2011, Chipeta is owned 51% by the Partnership, 24% by Anadarko and 25% by a third-party member. The interests in Chipeta, held by Anadarko and the third-party member, are reflected as noncontrolling interests in the Partnership’s consolidated financial statements for all periods presented.

Presentation of Partnership assets. References to the “Partnership assets” refer collectively to the assets owned by the Partnership as of December 31, 2011. Because of Anadarko’s control of the Partnership through its ownership of the general partner, each acquisition of Partnership assets, except for the acquisitions of the Platte Valley assets and the 9.6% interest in White Cliffs from third parties, was considered a transfer of net assets between entities under common control (see Note 2). As a result, after each acquisition of assets from Anadarko, the Partnership is required to recast its financial statements to include the activities of the Partnership assets as of the date of common control.

The consolidated financial statements for periods prior to the Partnership’s acquisition of the Partnership assets have been prepared from Anadarko’s historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if the Partnership had owned the assets during the periods reported. Net income attributable to the Partnership assets for periods prior to the Partnership’s acquisition of such assets is not allocated to the limited partners for purposes of calculating net income per common or subordinated unit.

Use of estimates. In preparing financial statements in accordance with GAAP, management makes informed judgments and estimates that affect the amounts reported in the consolidated financial statements and the notes thereto. Management evaluates its estimates and related assumptions regularly, utilizing historical experience and other methods considered reasonable under the circumstances. Changes in facts and circumstances or additional information, may result in revised estimates and actual results may differ from these estimates. Effects on the Partnership’s business, financial condition and results of operations resulting from revisions to estimates are recognized when the facts that give rise to the revision become known.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair value. The fair-value-measurement standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard characterizes inputs used in determining fair value according to a hierarchy that prioritizes those inputs based upon the degree to which they are observable. The three levels of the fair value hierarchy are as follows:

Level 1 – Inputs represent quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (for example, quoted market prices for similar assets or liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated inputs).

Level 3 – Inputs that are not observable from objective sources, such as management’s internally developed assumptions used in pricing an asset or liability (for example, an estimate of future cash flows used in management’s internally developed present value of future cash flows model that underlies the fair value measurement).

Nonfinancial assets and liabilities initially measured at fair value include certain assets and liabilities acquired in a third-party business combination, assets and liabilities exchanged in non-monetary transactions, long-lived assets (asset groups), goodwill and other intangibles, initial recognition of asset retirement obligations, and initial recognition of environmental obligations assumed in a third-party acquisition. Impairment analyses for long-lived assets, goodwill and other intangibles, and the initial recognition of asset retirement obligations and environmental obligations use Level 3 inputs. When the Partnership is required to measure fair value, and there is not a market-observable price for the asset or liability or a market-observable price for a similar asset or liability, the Partnership utilizes the cost, income, or market valuation approach depending on the quality of information available to support management’s assumptions.

The fair value of debt is the estimated amount the Partnership would have to pay to repurchase its debt, including any premium or discount attributable to the difference between the stated interest rate and market rate of interest at the balance sheet date. Fair values are based on quoted market prices for identical instruments, if available, or average valuations of similar debt instruments at the balance sheet date. See Note 10.

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable reported on the consolidated balance sheets approximate fair value due to the short-term nature of these items.

Cash equivalents. The Partnership considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Bad-debt reserve. The Partnership’s revenues are primarily from Anadarko, for which no credit limit is maintained. The Partnership analyzes its exposure to bad debt on a customer-by-customer basis for its third-party accounts receivable and may establish credit limits for significant third-party customers. At December 31, 2011 and 2010, third-party accounts receivable are shown net of the associated bad-debt reserve of $17,000.

Natural gas imbalances. The consolidated balance sheets include natural gas imbalance receivables and payables resulting from differences in gas volumes received into the Partnership’s systems and gas volumes delivered by the Partnership to customers. Natural gas volumes owed to or by the Partnership that are subject to monthly cash settlement are valued according to the terms of the contract as of the balance sheet dates, and reflect market index prices. Other natural gas volumes owed to or by the Partnership are valued at the Partnership’s weighted average cost of natural gas as of the balance sheet dates and are settled in-kind. As of December 31, 2011, natural gas imbalance receivables and payables were approximately $2.3 million and $3.1 million, respectively. As of December 31, 2010, natural gas imbalance receivables and payables were approximately $0.4 million and $2.6 million, respectively. Changes in natural gas imbalances are reported in equity income and other, net or cost of product in the consolidated statements of income.

Inventory. The cost of NGLs inventories is determined by the weighted average cost method on a location-by-location basis. Inventory is stated at the lower of weighted-average cost or market value and is reported in other current assets in the consolidated balance sheets.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property, plant and equipment. Property, plant and equipment are generally stated at the lower of historical cost less accumulated depreciation or fair value, if impaired. Because acquisitions of assets from Anadarko are transfers of net assets between entities under common control, the Partnership assets acquired by the Partnership from Anadarko are initially recorded at Anadarko’s historic carrying value. The difference between the carrying value of net assets acquired from Anadarko and the consideration paid is recorded as an adjustment to Partners’ capital.

Assets acquired in a business combination or non-monetary exchange with a third party are initially recorded at fair value. The Partnership capitalizes all construction-related direct labor and material costs. The cost of renewals and betterments that extend the useful life of property, plant and equipment is also capitalized. The cost of repairs, replacements and major maintenance projects that do not extend the useful life or increase the expected output of property, plant and equipment is expensed as incurred.

Depreciation is computed over the asset’s estimated useful life using the straight-line method or half-year convention method, based on estimated useful lives and salvage values of assets. Uncertainties that may impact these estimates include, but are not limited to, changes in laws and regulations relating to environmental matters, including air and water quality, restoration and abandonment requirements, economic conditions and supply and demand in the area. When assets are placed into service, the Partnership makes estimates with respect to useful lives and salvage values that the Partnership believes are reasonable. However, subsequent events could cause a change in estimates, thereby impacting future depreciation amounts.

The Partnership evaluates the ability to recover the carrying amount of its long-lived assets to determine whether its long-lived assets have been impaired. Impairments exist when the carrying amount of an asset exceeds estimates of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. When alternative courses of action to recover the carrying amount of a long-lived asset are under consideration, estimates of future undiscounted cash flows take into account possible outcomes and probabilities of their occurrence. If the carrying amount of the long-lived asset is not recoverable based on the estimated future undiscounted cash flows, the impairment loss is measured as the excess of the asset’s carrying amount over its estimated fair value, such that the asset’s carrying amount is adjusted to its estimated fair value with an offsetting charge to impairment expense.

During the year ended December 31, 2011, an impairment of $7.3 million was recognized for certain equipment and materials. The costs of the equipment and materials, previously capitalized as assets under construction and related to a Red Desert complex (see Note 2) expansion project, were deemed no longer recoverable as the expansion project was indefinitely postponed by Anadarko management. Subsequent to the project evaluation and impairment, the remaining fair value of the equipment and materials, approximately $10.6 million, was reclassified from within property, plant and equipment to other assets on the consolidated balance sheet as of December 31, 2011. Also during 2011, following an evaluation of future cash flows, an impairment of $3.0 million was recognized for a transportation pipeline. This asset was impaired to fair value, estimated using Level 3 fair-value inputs.

During the year ended December 31, 2010, the Partnership recognized $0.6 million of impairment related to a compressor sold during the year to a third party, and $0.3 million of impairment due to cancelled capital projects and additional costs recorded on a project previously impaired to salvage value. During the year ended December 31, 2009, an impairment of $6.1 million was recognized for an idle pipeline for which no future cash flows were expected.

Capitalized interest. Interest is capitalized as part of the historical cost of constructing assets for significant projects that are in progress. Capitalized interest is determined by multiplying the Partnership’s weighted-average borrowing cost on debt by the average amount of qualifying costs incurred. Once the construction of an asset subject to interest capitalization is completed and the asset is placed in service, the associated capitalized interest is expensed through depreciation or impairment, together with other capitalized costs related to that asset.

Goodwill and other intangible assets. Goodwill represents the allocated portion of Anadarko’s midstream goodwill attributed to the assets the Partnership has acquired from Anadarko. The carrying value of Anadarko’s midstream goodwill represents the excess of the purchase price of an entity over the estimated fair value of the identifiable assets acquired and liabilities assumed by Anadarko. Accordingly, the Partnership’s goodwill balance does not reflect, and in some cases is significantly different than, the difference between the consideration the Partnership paid for its acquisitions from Anadarko and the fair value of the net assets on the acquisition date. The Partnership’s consolidated balance sheets as of December 31, 2011 and 2010, include goodwill of $82.1 million, none of which is deductible for tax purposes.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Partnership evaluates goodwill for impairment annually, as of October 1, or more often as facts and circumstances warrant. The first step in the goodwill impairment test is to compare the fair value of each reporting unit to which goodwill has been assigned to the carrying amount of net assets, including goodwill, of the respective reporting unit. The Partnership has allocated goodwill on its two reporting units: (i) gathering and processing and (ii) transportation. If the carrying amount of the reporting unit exceeds its fair value, step two in the goodwill impairment test requires goodwill to be written down to its implied fair value through a charge to operating expense based on a hypothetical purchase price allocation. No goodwill impairment has been recognized in these consolidated financial statements. The carrying value of goodwill after such an impairment would represent a Level 3 fair value measurement.

The Partnership assesses intangible assets, as described in Note 8, for impairment together with related underlying long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairments exist when the carrying amount of an asset exceeds estimates of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. When alternative courses of action to recover the carrying amount of a long-lived asset are under consideration, estimates of future undiscounted cash flows take into account possible outcomes and probabilities of their occurrence. If the carrying amount of the long-lived asset is not recoverable based on the estimated future undiscounted cash flows, the impairment loss is measured as the excess of the asset’s carrying amount over its estimated fair value such that the asset’s carrying amount is adjusted to its estimated fair value with an offsetting charge to operating expense. No intangible asset impairment has been recognized in connection with these assets.

Equity-method investments. The following table presents the activity in the Partnership’s investments in equity of Fort Union, White Cliffs and Rendezvous:


	Equity Investments
thousands	Fort Union⁽¹⁾			White Cliffs⁽²⁾			Rendezvous⁽³⁾

Balance at December 31, 2009	$	20,060		$	1,284		$	78,216
Investment earnings, net of amortization		5,723			917			988
Contributions		310			—			—
Distributions		(4,665	)		(1,270	)		(5,038	)
Acquisition of additional 9.6% interest from third party		—			18,047			—
Other		—			—			(110	)

Balance at December 31, 2010	$	21,428		$	18,978		$	74,056
Investment earnings, net of amortization		6,067			4,023			1,171
Contributions		—			93			—
Distributions		(5,227	)		(5,384	)		(5,388	)

Balance at December 31, 2011	$	22,268		$	17,710		$	69,839

⁽¹⁾

The Partnership has a 14.81% interest in Fort Union, a joint venture which owns a gathering pipeline and treating facilities in the Powder River Basin. Anadarko is the construction manager and physical operator of the Fort Union facilities. Certain business decisions, including, but not limited to, decisions with respect to significant expenditures or contractual commitments, annual budgets, material financings, dispositions of assets or amending the owners’ firm gathering agreements, require 65% or unanimous approval of the owners. Each of the joint venture members has pledged its respective equity interest to the administrative agent of Fort Union’s credit agreement.

⁽²⁾

The Partnership has a 10% interest in White Cliffs, a limited liability company which owns a crude oil pipeline that originates in Platteville, Colorado and terminates in Cushing, Oklahoma and became operational in June 2009. The third-party majority owner is the manager of the White Cliffs operations. Certain business decisions, including, but not limited to, approval of annual budgets and decisions with respect to significant expenditures, contractual commitments, acquisitions, material financings, dispositions of assets or admitting new members, require more than 75% approval of the members.

⁽³⁾

The Partnership has a 22% interest in Rendezvous, a limited liability company that operates gas gathering facilities in southwestern Wyoming. Certain business decisions, including, but not limited to, decisions with respect to significant expenditures or contractual commitments, annual budgets, material financings, dispositions of assets or amending the members’ gas servicing agreements, require unanimous approval of the members.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The investment balance at December 31, 2011, includes $2.7 million and $47.9 million for the purchase price allocated to the investment in Fort Union and Rendezvous, respectively, in excess of the historic cost basis of Western Gas Resources, Inc. (entity that owned the interests in Fort Union and Rendezvous, which Anadarko acquired in August 2006). This excess balance is attributable to the difference between the fair value and book value of their gathering and treating facilities (at the time Western Gas Resources, Inc. was acquired by Anadarko) and is being amortized over the remaining estimated useful life of those facilities.

The White Cliffs investment balance at December 31, 2011, is $10.4 million less than the Partnership’s underlying equity in White Cliffs’ net assets as of December 31, 2011, primarily due to the Partnership recording the acquisition of its initial 0.4% interest in White Cliffs at Anadarko’s historic carrying value. This difference is being amortized to equity income over the remaining estimated useful life of the White Cliffs pipeline.

Management evaluates its equity-method investments for impairment whenever events or changes in circumstances indicate that the carrying value of such investments may have experienced a decline in value that is other than temporary. When evidence of loss in value has occurred, management compares the estimated fair value of the investment to the carrying value of the investment to determine whether the investment has been impaired. Management assesses the fair value of equity-method investments using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third-party comparable sales and discounted cash flow models. If the estimated fair value is less than the carrying value, the excess of the carrying value over the estimated fair value is recognized as an impairment loss.

Asset retirement obligations. Management recognizes a liability based on the estimated costs of retiring tangible long-lived assets. The liability is recognized at fair value, measured using discounted expected future cash outflows for the asset retirement obligation when the obligation originates, which generally is when an asset is acquired or constructed. The carrying amount of the associated asset is increased commensurate with the liability recognized. Over time, the discounted liability is accreted through accretion expense to its expected settlement value. Subsequent to the initial recognition, the liability is also adjusted for any changes in the expected value of the retirement obligation (with a corresponding adjustment to property, plant and equipment) until the obligation is settled. Revisions in estimated asset retirement obligations may result from changes in estimated inflation rates, discount rates, asset retirement costs and the estimated timing of settling asset retirement obligations. See Note 9.

Environmental expenditures. The Partnership expenses environmental expenditures related to conditions caused by past operations that do not generate current or future revenues. Environmental expenditures related to operations that generate current or future revenues are expensed or capitalized, as appropriate. Liabilities are recorded when the necessity for environmental remediation or other potential environmental liabilities becomes probable and the costs can be reasonably estimated. Accruals for estimated losses from environmental remediation obligations are recognized no later than at the time of the completion of the remediation feasibility study. These accruals are adjusted as additional information becomes available or as circumstances change. Costs of future expenditures for environmental-remediation obligations are not discounted to their present value. See Note 11.

Segments. The Partnership’s operations are organized into a single operating segment, the assets of which consist of natural gas, NGLs and crude oil gathering and processing systems, treating facilities, pipelines and related plants and equipment.

Revenues and cost of product. Under its fee-based gathering, treating and processing arrangements, the Partnership is paid a fixed fee based on the volume and thermal content of natural gas and recognizes revenues for its services in the month such services are performed. Producers’ wells are connected to the Partnership’s gathering systems for delivery of natural gas to the Partnership’s processing or treating plants, where the natural gas is processed to extract NGLs and condensate or treated in order to satisfy pipeline specifications. In some areas, where no processing is required, the producers’ gas is gathered and delivered to pipelines for market delivery. Under percent-of-proceeds contracts, revenue is recognized when the natural gas, NGLs or condensate are sold and the related purchases are recorded as a percentage of the product sale.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Partnership purchases natural gas volumes at the wellhead for gathering and processing. As a result, the Partnership has volumes of NGLs and condensate to sell and volumes of residue gas to either sell, to use for system fuel or to satisfy keep-whole obligations. In addition, depending upon specific contract terms, condensate and NGLs recovered during gathering and processing are either returned to the producer or retained and sold. Under keep-whole contracts, when condensate or NGLs are retained and sold, producers are kept whole for the condensate or NGL volumes through the receipt of a thermally equivalent volume of residue gas. The keep-whole contract conveys an economic benefit to the Partnership when the combined value of the individual NGLs is greater in the form of liquids than as a component of the natural gas stream; however, the Partnership is adversely impacted when the value of the NGLs is lower as liquids than as a component of the natural gas stream. Revenue is recognized from the sale of condensate and NGLs upon transfer of title and related purchases are recorded as cost of product.

The Partnership earns transportation revenues through firm contracts that obligate each of its customers to pay a monthly reservation or demand charge regardless of the pipeline capacity used by that customer. An additional commodity usage fee is charged to the customer based on the actual volume of natural gas transported. Transportation revenues are also generated from interruptible contracts pursuant to which a fee is charged to the customer based on volumes transported through the pipeline. Revenues for transportation of natural gas and NGLs are recognized over the period of firm transportation contracts or, in the case of usage fees and interruptible contracts, when the volumes are received into the pipeline. From time to time, certain revenues may be subject to refund pending the outcome of rate matters before the Federal Energy Regulatory Commission (the “FERC”) and reserves are established where appropriate. See Note 11 for discussion of the Partnership’s pending rate case with the FERC.

Proceeds from the sale of residue gas, NGLs and condensate are reported as revenues from natural gas, natural gas liquids and condensate in the consolidated statements of income. Revenues attributable to the fixed-fee component of gathering and processing contracts as well as demand charges and commodity usage fees on transportation contracts are reported as revenues from gathering, processing and transportation of natural gas and natural gas liquids in the consolidated statements of income.

Equity-based compensation. Phantom unit awards are granted under the Western Gas Partners, LP 2008 Long-Term Incentive Plan (the “LTIP”). The LTIP was adopted by the general partner of the Partnership and permits the issuance of up to 2,250,000 units, of which 2,160,848 units remain available for future issuance as of December 31, 2011. Upon vesting of each phantom unit, the holder will receive common units of the Partnership or, at the discretion of the general partner’s board of directors, cash in an amount equal to the market value of common units of the Partnership on the vesting date. Equity-based compensation expense attributable to grants made under the LTIP impact the Partnership’s cash flows from operating activities only to the extent cash payments are made to a participant in lieu of issuance of common units to the participant. The Partnership amortizes stock-based compensation expense attributable to awards granted under the LTIP over the vesting periods applicable to the awards.

Additionally, the Partnership’s general and administrative expenses include equity-based compensation costs allocated by Anadarko to the Partnership for grants made pursuant to: (i) Western Gas Holdings, LLC Equity Incentive Plan, as amended and restated (the “Incentive Plan”) and (ii) the Anadarko Petroleum Corporation 1999 Stock Incentive Plan and the Anadarko Petroleum Corporation 2008 Omnibus Incentive Compensation Plan (Anadarko’s plans are referred to collectively as the “Anadarko Incentive Plans”).

Under the Incentive Plan, participants are granted Unit Value Rights (“UVRs”), Unit Appreciation Rights (“UARs”) and Dividend Equivalent Rights (“DERs”). UVRs and UARs granted under the Incentive Plan in 2011 and 2010 were collectively valued at $634.00 per unit and $215.00 per unit as of December 31, 2011 and 2010, respectively. The UVRs and UARs either vest ratably over three years or vest in two equal installments on the second and fourth anniversaries of the grant date, or earlier in connection with certain other events. Upon the occurrence of a UVR vesting event, each participant will receive a lump-sum cash payment (net of any applicable withholding taxes) for each UVR. The UVRs may not be sold or transferred except to the general partner, Anadarko or any of its affiliates. Upon the occurrence of a UAR vesting event, each participant will receive a lump-sum cash payment (net of any applicable withholding taxes) for each UAR that is exercised prior to (i) the 90^th day after a participant’s voluntary termination, or (ii) the 10^th anniversary of the grant date, whichever occurs first. DERs granted under the Incentive Plan vest upon the occurrence of certain events, become payable no later than 30 days subsequent to vesting and expire 10 years from the date of grant.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Grants made under equity-based compensation plans result in equity-based compensation expense, which is determined by reference to the fair value of equity compensation. For equity-based awards ultimately settled through the issuance of units or stock, the fair value is measured as of the date of the relevant equity grant. For equity-based awards issued under the Incentive Plan and ultimately settled in cash, the fair value of the relevant equity grant is revised periodically based on the estimated fair value of the Partnership’s general partner using a discounted cash flow estimate and multiples-valuation terminal value. Equity-based compensation expense attributable to grants made under the Incentive Plan will impact the Partnership’s cash flows from operating activities only to the extent cash payments are made to Incentive Plan participants who provided services to us pursuant to the omnibus agreement. Equity-based compensation granted under the Anadarko Incentive Plans does not impact the Partnership’s cash flows from operating activities. See Note 5.

Income taxes. The Partnership generally is not subject to federal income tax or state income tax other than Texas margin tax on the portion of its income that is apportionable to Texas. Federal and state income tax expense was recorded prior to the Partnership’s acquisition of the Partnership assets. In addition, deferred federal and state income taxes are recorded on temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases with respect to the Partnership assets prior to the Partnership’s acquisition; and deferred state income taxes are recorded with respect to the Partnership assets including and subsequent to acquisition. The recognition of deferred federal and state tax assets prior to the Partnership’s acquisition of the Partnership assets was based on management’s belief that it was more likely than not that the results of future operations would generate sufficient taxable income to realize the deferred tax assets. For periods including or subsequent to the Partnership’s acquisition of the Partnership assets, the Partnership is only subject to Texas margin tax; therefore, deferred federal income tax assets and liabilities with respect to the Partnership assets for periods including and subsequent to the Partnership’s acquisitions are no longer recognized by the Partnership.

For periods including and subsequent to the Partnership’s acquisition of the Partnership assets, the Partnership makes payments to Anadarko pursuant to the tax sharing agreement entered into between Anadarko and the Partnership for its estimated share of taxes from all forms of taxation, excluding taxes imposed by the United States, that are included in any combined or consolidated returns filed by Anadarko. The aggregate difference in the basis of the Partnership’s Assets for financial and tax reporting purposes cannot be readily determined as the Partnership does not have access to information about each partner’s tax attributes in the Partnership.

The accounting standard for uncertain tax positions defines the criteria an individual tax position must meet for any part of the benefit of that position to be recognized in the financial statements. The Partnership has no material uncertain tax positions at December 31, 2011 or 2010.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Net income per common unit. The Partnership applies the two-class method in determining net income per unit applicable to master limited partnerships having multiple classes of securities including common units, general partnership units and incentive distribution rights (“IDRs”) of the general partner. Under the two-class method, net income per unit is calculated as if all of the earnings for the period were distributed pursuant to the terms of the relevant contractual arrangement. The accounting guidance provides the methodology for and circumstances under which undistributed earnings are allocated to the general partner, limited partners and IDR holders. For the Partnership, earnings per unit is calculated based on the assumption that the Partnership distributes to its unitholders an amount of cash equal to the net income of the Partnership, notwithstanding the general partner’s ultimate discretion over the amount of cash to be distributed for the period, the existence of other legal or contractual limitations that would prevent distributions of all of the net income for the period or any other economic or practical limitation on the ability to make a full distribution of all of the net income for the period.

The Partnership’s net income for periods including and subsequent to the Partnership’s acquisitions of the Partnership assets is allocated to the general partner and the limited partners, including any subordinated unitholders, in accordance with their respective ownership percentages, and when applicable, giving effect to incentive distributions allocable to the general partner. The Partnership’s net income allocable to the limited partners is allocated between the common and subordinated unitholders by applying the provisions of the partnership agreement that govern actual cash distributions as if all earnings for the period had been distributed. Specifically, net income equal to the amount of available cash (as defined by the partnership agreement) is allocated to the general partner, common unitholders and subordinated unitholders consistent with actual cash distributions, including incentive distributions allocable to the general partner. Undistributed earnings (net income in excess of distributions) or undistributed losses (available cash in excess of net income) are then allocated to the general partner, common unitholders and subordinated unitholders in accordance with their respective ownership percentages during each period. See Note 4.

Other assets. For all periods presented, other assets on the Partnership’s consolidated balance sheets include a $0.7 million receivable recognized in conjunction with the capital lease component of a processing agreement assumed in connection with the MGR acquisition. The agreement, in which the Partnership is the lessor, extends through November 2014. Other assets also includes $4.6 million related to the unguaranteed residual value of the processing plant included in the processing agreement, based on a measurement of fair value estimated when the plant was acquired by Anadarko in 2006. Interest income related to the capital lease is recorded to other income (expense), net on the accompanying consolidated statements of income.

Recently issued accounting standard not yet adopted. In September 2011, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) that permits an initial assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount for goodwill impairment testing purposes. Thus, determining a reporting unit’s fair value is not required unless, as a result of the qualitative assessment, it is more likely than not that the fair value of the reporting unit is less than its carrying amount. This ASU is effective prospectively beginning January 1, 2012. Adoption of this ASU will have no impact on the Partnership’s consolidated financial statements.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. ACQUISITIONS

The following table presents the acquisitions completed by the Partnership during the years ended December 31, 2011, 2010 and 2009, and details the funding for those acquisitions through borrowings, cash on hand and/or the issuance of Partnership equity:


thousands except unit and percent amounts	Acquisition Date		Percentage Acquired		Borrowings		Cash On Hand		Common Units Issued		GP Units Issued

Chipeta ⁽¹⁾		07/01/09		51%	$	101,451	$	4,638		351,424		7,172
Granger ⁽²⁾		01/29/10		100%		210,000		31,680		620,689		12,667
Wattenberg ⁽³⁾		08/02/10		100%		450,000		23,100		1,048,196		21,392
White Cliffs ⁽⁴⁾		09/28/10		10%		—		38,047		—		—
Platte Valley ⁽⁵⁾		02/28/11		100%		303,000		602		—		—
Bison ⁽⁶⁾		07/08/11		100%		—		25,000		2,950,284		60,210

⁽¹⁾

The assets acquired from Anadarko include a 51% membership interest in Chipeta, together with an associated NGL pipeline. These assets provide processing and transportation services in the Greater Natural Buttes area in Uintah County, Utah. Chipeta owns a natural gas processing plant with two processing trains: a refrigeration unit and a cryogenic unit. In addition, in November 2009, Chipeta acquired the Natural Buttes plant including a compressor station and processing plant from a third party for $9.1 million, of which $4.5 million was contributed by the noncontrolling interest owners to fund their proportionate share. The 51% membership interest in Chipeta and associated NGL pipeline are referred to collectively as the “Chipeta assets” and the acquisition is referred to as the “Chipeta acquisition.”

⁽²⁾

The assets acquired from Anadarko include (i) the Granger gathering system with related compressors and other facilities, and (ii) the Granger complex, consisting of cryogenic trains, a refrigeration train, an NGLs fractionation facility and ancillary equipment. These assets, located in southwestern Wyoming, are referred to collectively as the “Granger assets” and the acquisition as the “Granger acquisition.”

⁽³⁾

The assets acquired from Anadarko include the Wattenberg gathering system and related facilities, including the Fort Lupton processing plant. These assets, located in the Denver-Julesburg Basin, north and east of Denver, Colorado, are referred to collectively as the “Wattenberg assets” and the acquisition as the “Wattenberg acquisition.”

⁽⁴⁾

White Cliffs owns a crude oil pipeline that originates in Platteville, Colorado and terminates in Cushing, Oklahoma, which became operational in June 2009. The Partnership’s acquisition of the 0.4% interest in White Cliffs and related purchase option from Anadarko combined with the acquisition of an additional 9.6% interest in White Cliffs from a third party, are referred to collectively as the “White Cliffs acquisition.” The Partnership’s interest in White Cliffs is referred to as the “White Cliffs investment.”

⁽⁵⁾

The assets acquired from a third party include (i) a natural gas gathering system and related compression and other ancillary equipment, and (ii) cryogenic gas processing facilities. These assets, located in the Denver-Julesburg Basin, are referred to collectively as the “Platte Valley assets” and the acquisition as the “Platte Valley acquisition.” See further information below, including the final allocation of the purchase price in August 2011.

⁽⁶⁾

The Bison gas treating facility acquired from Anadarko is located in the Powder River Basin in northeastern Wyoming, and includes (i) three amine treating units, (ii) compressor units, and (iii) generators. These assets are referred to collectively as the “Bison assets” and the acquisition as the “Bison acquisition.” The Bison assets are the only treating and delivery point into the third-party-owned Bison pipeline. Anadarko began construction of the Bison assets in 2009 and placed them in service in June 2010. See further information below.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. ACQUISITIONS (CONTINUED)

Platte Valley acquisition. The Platte Valley acquisition has been accounted for under the acquisition method of accounting. The Platte Valley assets and liabilities were recorded in the consolidated balance sheet at their estimated fair values as of the acquisition date. Results of operations attributable to the Platte Valley assets were included in the Partnership’s consolidated statements of income beginning on the acquisition date in the first quarter of 2011.

The table below reflects the final allocation of the purchase price, including a $1.6 million adjustment to intangible assets recorded in August 2011, to the assets acquired and liabilities assumed in the Platte Valley acquisition:


thousands
Property, plant and equipment	$	264,521
Intangible assets		53,754
Asset retirement obligations and other liabilities		(16,318	)

Total purchase price	$	301,957

The purchase price allocation is based on an assessment of the fair value of the assets acquired and liabilities assumed in the Platte Valley acquisition, after consideration of post-closing purchase price adjustments. The fair values of the plant and processing facilities, related equipment, and intangible assets acquired were based on the market, cost and income approaches. The liabilities assumed include certain amounts associated with environmental contingencies estimated by management. All fair-value measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and thus represent Level 3 inputs. For more information regarding the intangible assets presented in the table above, see Note 8.

The following table presents the pro forma condensed financial information of the Partnership as if the Platte Valley acquisition had occurred on January 1, 2011:


thousands except per-unit amount	Year Ended December 31, 2011
Revenues	$	839,304
Net income		191,072
Net income attributable to Western Gas Partners, LP		176,969
Net income per common unit – basic and diluted	$	1.67

The pro forma information is presented for illustration purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisition been completed at the assumed date, nor is it necessarily indicative of future operating results of the combined entity. The Partnership’s pro forma information in the table above includes $83.4 million of revenues and $59.1 million of operating expenses, excluding depreciation, amortization and impairments, attributable to the Platte Valley assets that are included in the Partnership’s consolidated statement of income for the year ended December 31, 2011. The pro forma adjustments reflect pre-acquisition results of the Platte Valley assets for January and February 2011, including (a) estimated revenues and expenses; (b) estimated depreciation and amortization based on the purchase price allocated to property, plant and equipment and other intangible assets and estimated useful lives; (c) elimination of $0.7 million of acquisition-related costs; and (d) interest on the Partnership’s borrowings under its revolving credit facility to finance the Platte Valley acquisition. The pro forma adjustments include estimates and assumptions based on currently available information. Management believes the estimates and assumptions are reasonable, and the relative effects of the transactions are properly reflected. The pro forma information does not reflect any cost savings or other synergies anticipated as a result of the acquisition, nor any future acquisition related expenses. Pro forma information is not presented for periods ended on or before December 31, 2010, as it is not practical to determine revenues and cost of product for periods prior to January 1, 2011, the effective date of the gathering and processing agreement with the seller.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. ACQUISITIONS (CONTINUED)

Bison and MGR acquisitions. On January 13, 2012, the Partnership completed the acquisition of Anadarko’s 100% ownership interest in MGR which owns the Red Desert complex, a 22% interest in Rendezvous and related facilities, effective January 1, 2012. The Red Desert complex includes the Patrick Draw processing plant, the Red Desert processing plant, 1,295 miles of gathering lines and related facilities. Rendezvous owns a 338-mile mainline gathering system serving the Jonah and Pinedale Anticline fields in southwestern Wyoming, which delivers gas to the Granger complex and other locations. These assets are referred to collectively as the “MGR assets” and the acquisition as the “MGR acquisition.” Consideration paid includes: (i) $159.6 million of cash on hand, (ii) $299.0 million borrowings on the Partnership’s senior unsecured revolving credit facility, and (iii) the issuance of 632,783 common units and 12,914 general partner units.

As transfers of net assets between entities under common control, the Partnership’s historical financial statements previously filed with the U.S. Securities and Exchange Commission (“SEC”) have been recast in this Current Report on Form 8-K to include the results attributable to the Bison and MGR assets as if the Partnership owned such assets for all periods presented. The consolidated financial statements for periods prior to the Partnership’s acquisition of the Partnership assets have been prepared from Anadarko’s historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if the Partnership had owned the assets during the periods reported.

The following tables present the impact to the historical consolidated statements of income attributable to the Bison and MGR assets, including the elimination of intercompany activity between such assets:


	Year Ended December 31, 2010
thousands	Partnership Historical		Bison Assets			MGR Assets		Eliminations			Combined
Revenues	$	503,322	$	1,879		$	158,135	$	(62	)	$	663,274
Net income (loss)		137,073		(3,194	)		23,318		—			157,197

	Year Ended December 31, 2009
thousands	Partnership Historical		Bison Assets			MGR Assets		Eliminations			Combined
Revenues	$	490,546	$	—		$	129,218	$	—		$	619,764
Net income (loss)		118,166		(657	)		8,986		—			126,495

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. PARTNERSHIP DISTRIBUTIONS

The partnership agreement requires the Partnership to distribute all of its available cash (as defined in the partnership agreement) to unitholders of record on the applicable record date within 45 days of the end of each quarter. The Partnership declared the following cash distributions to its unitholders for the periods presented:

Total Quarterly

thousands except per-unit amounts

Distribution

Total Cash

Date of

Quarters Ended

per Unit

Distribution

2009

March 31

$ 0.300

$ 17,030

May 2009

June 30

$ 0.310

$ 17,718

August 2009

September 30

$ 0.320

$ 18,289

November 2009

December 31

$ 0.330

$ 21,393

February 2010

2010

March 31

$ 0.340

$ 22,042

May 2010

June 30

$ 0.350

$ 24,378

August 2010

September 30

$ 0.370

$ 26,381

November 2010

December 31

$ 0.380

$ 30,564

February 2011

2011

March 31

$ 0.390

$ 33,168

May 2011

June 30

$ 0.405

$ 36,063

August 2011

September 30

$ 0.420

$ 40,323

November 2011

December 31⁽¹⁾

$ 0.440

$ 43,027

February 2012

⁽¹⁾

On January 18, 2012, the board of directors of the Partnership’s general partner declared a cash distribution to the Partnership’s unitholders of $0.44 per unit, or $43.0 million in aggregate, including incentive distributions. The cash distribution is payable on February 13, 2012, to unitholders of record at the close of business on February 1, 2012.

Available cash. The amount of available cash (as defined in the partnership agreement) generally is all cash on hand at the end of the quarter, plus, at the discretion of the general partner, working capital borrowings made subsequent to the end of such quarter, less the amount of cash reserves established by the Partnership’s general partner to provide for the proper conduct of the Partnership’s business, including reserves to fund future capital expenditures, to comply with applicable laws, debt instruments or other agreements (such as the Chipeta LLC agreement), or to provide funds for distributions to its unitholders and to its general partner for any one or more of the next four quarters. Working capital borrowings generally include borrowings made under a credit facility or similar financing arrangement. It is intended that working capital borrowings be repaid within 12 months. In all cases, working capital borrowings are used solely for working capital purposes or to fund distributions to partners.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. PARTNERSHIP DISTRIBUTIONS (CONTINUED)

General partner interest and incentive distribution rights. The general partner is currently entitled to 2.0% of all quarterly distributions that the Partnership makes prior to its liquidation. The Partnership’s general partner is entitled to incentive distributions if the amount the Partnership distributes with respect to any quarter exceeds specified target levels shown below:


	Total Quarterly Distribution Target Amount		Marginal Percentage Interest in Distributions
	Total Quarterly Distribution Target Amount		Unitholders	General Partner
Minimum quarterly distribution		$ 0.300	98.0%	2.0%
First target distribution		up to $ 0.345	98.0%	2.0%
Second target distribution		above $ 0.345 up to $ 0.375	85.0%	15.0%
Third target distribution		above $ 0.375 up to $ 0.450	75.0%	25.0%
Thereafter		above $ 0.450	50.0%	50.0%

The table above assumes that the Partnership’s general partner maintains its 2.0% general partner interest, that there are no arrearages on common units and the general partner continues to own the IDRs. The maximum distribution sharing percentage of 50.0% includes distributions paid to the general partner on its 2.0% general partner interest and does not include any distributions that the general partner may receive on common units that it owns or may acquire.

4. EQUITY AND PARTNERS’ CAPITAL

Equity offerings. The Partnership completed the following public equity offerings during 2009, 2010 and 2011:


thousands except unit and per-unit amounts	Common Units Issued ⁽²⁾		GP Units Issued ⁽³⁾		Price Per Unit		Underwriting Discount and Other Offering Expenses		Net Proceeds
December 2009 equity offering		6,900,000		140,817	$	18.20	$	5,500	$	122,539
May 2010 equity offering ⁽¹⁾		4,558,700		93,035		22.25		4,427		99,074
November 2010 equity offering		8,415,000		171,734		29.92		10,325		246,729
March 2011 equity offering		3,852,813		78,629		35.15		5,621		132,569
September 2011 equity offering		5,750,000		117,347		35.86		7,655		202,748

⁽¹⁾	Refers collectively to the May 2010 equity offering issuance, and the June 2010 exercise of the underwriters’ over-allotment option.

⁽²⁾

Includes the issuance of 900,000 common units, 558,700 common units, 915,000 common units, 302,813 common units and 750,000 common units pursuant to the exercise, in full or in part, of the underwriters’ over-allotment options granted in connection with the December 2009, May 2010, November 2010, March 2011 and September 2011 equity offerings, respectively.

⁽³⁾	Represents general partner units issued to the general partner in exchange for the general partner’s proportionate capital contribution to maintain its 2.0% interest.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. EQUITY AND PARTNERS’ CAPITAL (CONTINUED)

Common and general partner units. The Partnership’s common units are listed on the New York Stock Exchange under the symbol “WES.”

Conversion of subordinated units. From its inception through June 30, 2011, the Partnership paid equal distributions per unit on common, subordinated and general partner units. Upon payment of the cash distribution for the second quarter of 2011, the financial requirements for the conversion of all subordinated units were satisfied. As a result, the 26,536,306 subordinated units were converted on August 15, 2011, on a one-for-one basis, into common units. For purposes of calculating net income per common and subordinated unit, the conversion of the subordinated units is deemed to have occurred on July 1, 2011. The Partnership’s net income was allocated to the general partner and the limited partners, including the holders of the subordinated units, through June 30, 2011, in accordance with their respective ownership percentages. The conversion does not impact the amount of the cash distribution paid or the total number of the Partnership’s outstanding units representing limited partner interests.

Anadarko holdings of Partnership equity. As of December 31, 2011, Anadarko held 1,839,613 general partner units representing a 2.0% general partner interest in the Partnership, 39,789,221 common units representing a 43.3% limited partner interest, and 100% of the Partnership’s IDRs. The public held 50,351,778 common units, representing a 54.7% interest in the Partnership. Refer to Note 2 for information related to the common and general partner units issued in conjunction with the MGR acquisition.

The Partnership’s net income for periods including and subsequent to the acquisition of the Partnership assets (as defined in Note 2), is allocated to the general partner and the limited partners in accordance with their respective ownership percentages (see Note 1).

Basic and diluted net income per common unit is calculated by dividing the limited partners’ interest in net income by the weighted average number of common units outstanding during the period. The common units issued in connection with acquisitions and equity offerings are included on a weighted-average basis for periods they were outstanding.

The following table illustrates the Partnership’s calculation of net income per unit for common and subordinated units:


	Year Ended December 31,
thousands except per-unit amounts	2011			2010			2009
Net income attributable to Western Gas Partners, LP	$	174,243		$	146,192		$	116,235
Pre-acquisition net (income) loss allocated to Parent		(34,084	)		(32,061	)		(44,827	)
General partner interest in net (income) loss		(8,599	)		(3,067	)		(1,428	)

Limited partners’ interest in net income	$	131,560		$	111,064		$	69,980


Net income allocable to common units	$	110,542		$	68,410		$	37,035
Net income allocable to subordinated units		21,018			42,654			32,945

Limited partners’ interest in net income	$	131,560		$	111,064		$	69,980


Net income per unit – basic and diluted
Common units	$	1.64		$	1.66		$	1.25
Subordinated units	$	1.28		$	1.61		$	1.24

Weighted average units outstanding – basic and diluted
Common units		67,333			41,287			29,684
Subordinated units		16,431			26,536			26,536

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. TRANSACTIONS WITH AFFILIATES

Affiliate transactions. Revenues from affiliates include amounts earned by the Partnership from services provided to Anadarko as well as from the sale of residue gas, condensate and NGLs to Anadarko. In addition, the Partnership purchases natural gas from an affiliate of Anadarko pursuant to gas purchase agreements. Operating and maintenance expense includes amounts accrued for or paid to affiliates for the operation of the Partnership assets, whether in providing services to affiliates or to third parties, including field labor, measurement and analysis, and other disbursements. A portion of the Partnership’s general and administrative expenses is paid by Anadarko, which results in affiliate transactions pursuant to the reimbursement provisions of the omnibus agreement. Affiliate expenses do not inherently bear a direct relationship to affiliate revenues, and third-party expenses do not necessarily bear a direct relationship to third-party revenues. See Note 2 for further information related to contributions of assets to the Partnership by Anadarko.

Cash management. Anadarko operates a cash management system whereby excess cash from most of its subsidiaries, held in separate bank accounts, is generally swept to centralized accounts. Prior to the Partnership’s acquisitions of the Partnership assets, third-party sales and purchases related to such assets were received or paid in cash by Anadarko within its centralized cash management system. Anadarko charged or credited the Partnership interest at a variable rate on outstanding affiliate balances for the periods these balances remained outstanding. The outstanding affiliate balances were entirely settled through an adjustment to parent net investment in connection with the acquisition of the Partnership assets. Subsequent to the acquisition of the Partnership assets, transactions related to such assets are cash settled directly with third parties and with Anadarko affiliates, and affiliate-based interest expense on current intercompany balances is not charged, except for Chipeta, which cash settles transactions directly with third parties and with Anadarko.

Note receivable from and note payable to Anadarko. Concurrent with the closing of the Partnership’s May 2008 initial public offering, the Partnership loaned $260.0 million to Anadarko in exchange for a 30-year note bearing interest at a fixed annual rate of 6.50%, payable quarterly. The fair value of the note receivable from Anadarko was approximately $303.7 million and $258.9 million at December 31, 2011 and 2010, respectively. The fair value of the note reflects consideration of credit risk and any premium or discount for the differential between the stated interest rate and quarter-end market interest rate, based on quoted market prices of similar debt instruments.

In December 2008, the Partnership entered into a term loan agreement with Anadarko, discussed further in Note 10.

Commodity price swap agreements. The Partnership has commodity price swap agreements with Anadarko to mitigate exposure to commodity price volatility that would otherwise be present as a result of the purchase and sale of natural gas, condensate or NGLs. Notional volumes for each of the swap agreements are not specifically defined; instead, the commodity price swap agreements apply to the actual volume of natural gas, condensate and NGLs purchased and sold at the Hilight, Hugoton, Newcastle, Granger and Wattenberg assets, with various expiration dates through September 2015. In December 2011, the Partnership extended the commodity price swap agreements for the Hilight and Newcastle assets through December 2013. The commodity price swap agreements do not satisfy the definition of a derivative financial instrument and, therefore, are not required to be measured at fair value. See Note 12 for commodity price swap agreements entered into in December 2011, related to the MGR acquisition, with forward-starting effective dates beginning January 2012.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Below is a summary of the fixed price ranges on the Partnership’s commodity price swap agreements outstanding as of December 31, 2011:


	Year Ended December 31,
per barrel except natural gas	2012		2013		2014		2015
Ethane	$	18.21 – 29.78	$	18.32 – 30.10	$	18.36 – 30.53	$	18.41
Propane	$	45.23 – 53.28	$	45.90 – 55.84	$	46.47 – 52.37	$	47.08
Isobutane	$	57.50 – 67.22	$	60.44 – 68.11	$	61.24 – 69.23	$	62.09
Normal butane	$	52.40 – 62.92	$	53.20 – 66.37	$	53.89 – 64.78	$	54.62
Natural gasoline	$	69.77 – 85.15	$	70.89 – 92.23	$	71.85 – 79.74	$	72.88
Condensate	$	72.73 – 78.52	$	74.04 – 83.93	$	75.22 – 79.56	$	76.47 – 78.61
Natural gas (per MMbtu)	$	4.15 – 5.97	$	3.75 – 6.09	$	5.32 – 6.20	$	5.50 – 5.96

The following table summarizes realized gains and losses on commodity price swap agreements:


	Year Ended December 31,
thousands	2011			2010			2009
Gains (losses) on commodity price swap agreements related to sales: ⁽¹⁾
Natural gas sales	$	33,845		$	20,200		$	18,446
Natural gas liquids sales		(36,802	)		2,953			2,196

Total		(2,957	)		23,153			20,642
Losses on commodity price swap agreements related to purchases ⁽²⁾		(27,234	)		(23,344	)		(16,538	)

Net gains (losses) on commodity price swap agreements	$	(30,191	)	$	(191	)	$	4,104

⁽¹⁾	Reported in natural gas, NGLs and condensate sales in the Partnership’s consolidated statements of income in the period in which the related sale is recorded.

⁽²⁾	Reported in cost of product in the Partnership’s consolidated statements of income in the period in which the related purchase is recorded.

Gas gathering and processing agreements. The Partnership has significant gas gathering and processing arrangements with affiliates of Anadarko on a majority of its systems. Approximately 75%, 73% and 76% of the Partnership’s gathering, transportation and treating throughput for the years ended December 31, 2011, 2010 and 2009, respectively, was attributable to natural gas production owned or controlled by Anadarko. Approximately 64%, 66% and 58% of the Partnership’s processing throughput for the years ended December 31, 2011, 2010 and 2009, respectively, was attributable to natural gas production owned or controlled by Anadarko.

In connection with the MGR acquisition, the Partnership entered into 10-year, fee-based gathering and processing agreements with Anadarko effective December 1, 2011, for all affiliate throughput on the MGR assets.

Gas purchase and sale agreements. The Partnership sells substantially all of its natural gas, NGLs, and condensate to Anadarko Energy Services Company (“AESC”), Anadarko’s marketing affiliate. In addition, the Partnership purchases natural gas from AESC pursuant to gas purchase agreements. The Partnership’s gas purchase and sale agreements with AESC are generally one-year contracts, subject to annual renewal.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Omnibus agreement. Pursuant to the omnibus agreement, Anadarko and the general partner perform centralized corporate functions for the Partnership, such as legal; accounting; treasury; cash management; investor relations; insurance administration and claims processing; risk management; health, safety and environmental; information technology; human resources; credit; payroll; internal audit; tax; marketing; and midstream administration. The Partnership’s reimbursement to Anadarko for certain general and administrative expenses allocated to the Partnership was capped at $9.0 million and $6.9 million for the years ended December 31, 2010 and 2009, respectively. The cap under the omnibus agreement expired on December 31, 2010. Expenses in excess of the cap for the years ended December 31, 2010 and 2009, were recorded as capital contributions from Anadarko and did not impact the Partnership’s cash flows. For the year ended December 31, 2011, and thereafter, Anadarko, in accordance with the partnership and omnibus agreements, determined, in its reasonable discretion, amounts to be allocated to the Partnership in exchange for services provided under the omnibus agreement. Such amount was $19.5 million for the year ended December 31, 2011, comprised of $11.8 million of allocated general and administrative expenses and $7.7 million of public company expenses. The Partnership also incurred $8.0 million and $7.5 million in public company expenses not subject to the cap previously contained in the omnibus agreement, excluding equity-based compensation, during the years ended December 31, 2010 and 2009, respectively. See Summary of affiliate transactions below.

Services and secondment agreement. Pursuant to the services and secondment agreement, specified employees of Anadarko are seconded to the general partner to provide operating, routine maintenance and other services with respect to the assets owned and operated by the Partnership under the direction, supervision and control of the general partner. Pursuant to the services and secondment agreement, the Partnership reimburses Anadarko for services provided by the seconded employees. The initial term of the services and secondment agreement extends through May 2018 and the term will automatically extend for additional twelve-month periods unless either party provides 180 days written notice of termination before the applicable twelve-month period expires. The consolidated financial statements of the Partnership include costs allocated by Anadarko pursuant to the services and secondment agreement for periods including and subsequent to the Partnership’s acquisition of the Partnership assets.

Tax sharing agreement. Pursuant to a tax sharing agreement, the Partnership reimburses Anadarko for the Partnership’s estimated share of taxes from all forms of taxation, excluding taxes imposed by the United States, borne by Anadarko on behalf of the Partnership as a result of the Partnership’s results being included in a combined or consolidated tax return filed by Anadarko with respect to periods including and subsequent to the Partnership’s acquisition of the Partnership assets. Anadarko may use its tax attributes to cause its combined or consolidated group, of which the Partnership may be a member for this purpose, to owe no tax. Nevertheless, the Partnership is required to reimburse Anadarko for its estimated share of taxes the Partnership would have owed had the attributes not been available or used for the Partnership’s benefit, regardless of whether Anadarko pays taxes for the period.

Allocation of costs. Prior to the Partnership’s acquisition of the Partnership assets, the consolidated financial statements of the Partnership include costs allocated by Anadarko in the form of a management services fee, which approximated the general and administrative costs incurred by Anadarko attributable to the Partnership assets. This management services fee was allocated to the Partnership based on its proportionate share of Anadarko’s assets and revenues or other contractual arrangements. Management believes these allocation methodologies are reasonable.

The employees supporting the Partnership’s operations are employees of Anadarko. Anadarko charges the Partnership its allocated share of personnel costs, including costs associated with Anadarko’s equity-based compensation plans, non-contributory defined pension and postretirement plans and defined contribution savings plan, through the management services fee or pursuant to the omnibus agreement and services and secondment agreement described above. In general, the Partnership’s reimbursement to Anadarko under the omnibus agreement or services and secondment agreements is either (i) on an actual basis for direct expenses Anadarko and the general partner incur on behalf of the Partnership, or (ii) based on an allocation of salaries and related employee benefits between the Partnership, the general partner and Anadarko based on estimates of time spent on each entity’s business and affairs. The vast majority of direct general and administrative expenses charged to the Partnership by Anadarko are attributed to the Partnership on an actual basis, excluding any mark-up or subsidy charged or received by Anadarko. With respect to allocated costs, management believes the allocation method employed by Anadarko is reasonable. While it is not practicable to determine what these direct and allocated costs would be on a stand-alone basis if the Partnership were to directly obtain these services, management believes these costs would be substantially the same.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Long-term incentive plan. The general partner awarded phantom units under the LTIP primarily to (i) the general partner’s Chief Executive Officer and (ii) independent directors in 2011, and primarily to independent directors in 2010 and 2009. The phantom units awarded to the independent directors vest one year from the grant date, while all other awards are subject to graded vesting over a three-year service period. Compensation expense attributable to the phantom units granted under the LTIP is recognized entirely by the Partnership over the vesting period and was approximately $0.3 million, $0.3 million and $0.4 million for the years ended December 31, 2011, 2010 and 2009, respectively. As of December 31, 2011, there was $0.6 million of unrecognized compensation expense attributable to the LTIP, of which $0.5 million will be allocated to the Partnership, and is expected to be recognized over a weighted-average period of 2.3 years.

The following table summarizes LTIP award activity for the years ended December 31, 2011, 2010 and 2009:


	2011					2010					2009
	Weighted-					Weighted-					Weighted-
	Average					Average					Average
	Grant-Date					Grant-Date					Grant-Date
	Fair Value		Units			Fair Value		Units			Fair Value		Units
Phantom units outstanding at beginning of year	$	20.19		17,503		$	15.02		21,970		$	16.50		30,304
Vested	$	20.51		(15,119	)	$	15.02		(19,751	)	$	16.50		(30,304	)
Granted	$	35.66		21,594		$	20.94		15,284		$	15.02		21,970

Phantom units outstanding at end of year	$	33.92		23,978		$	20.19		17,503		$	15.02		21,970

Equity incentive plan and Anadarko incentive plans. The Partnership’s general and administrative expenses include equity-based compensation costs allocated by Anadarko to the Partnership for grants made pursuant to the Incentive Plan as well as the Anadarko Incentive Plans. The Partnership’s general and administrative expense for the years ended December 31, 2011, 2010 and 2009 included approximately $13.9 million, $5.4 million and $4.1 million, respectively, of allocated equity-based compensation expense for grants made pursuant to the Incentive Plan and Anadarko Incentive Plans. A portion of these expenses are allocated to the Partnership by Anadarko as a component of compensation expense for the executive officers of the Partnership’s general partner and other employees pursuant to the omnibus agreement and employees who provide services to the Partnership pursuant to the services and secondment agreement. These amounts exclude compensation expense associated with the LTIP.

As of December 31, 2011, the Partnership estimates that $5.5 million of unrecognized compensation expense attributable to the Incentive Plan will be allocated to the Partnership over a weighted-average period of 1.4 years. In addition, the Partnership estimates that $3.7 million of unrecognized compensation expense attributable to the Anadarko Incentive Plans, excluding performance-based awards, will be allocated to the Partnership over a weighted-average period of 2.0 years. As of December 31, 2011, the compensation cost related to performance-based awards under the Anadarko Incentive Plans that could be allocated to the Partnership during the next three years is approximately $0.1 million.

Equipment purchase and sale. In September 2010, the Partnership sold idle compressors with a net carrying value of $2.6 million to Anadarko for $2.8 million in cash. The gain on the sale was recorded as an adjustment to Partners’ capital. In November 2010, the Partnership purchased compressors with a net carrying value of $0.4 million from Anadarko for $0.4 million in cash.

In November 2011, the Partnership purchased equipment with a net carrying value of $2.0 million from Anadarko for $3.8 million in cash, with the difference recorded as an adjustment to Partners’ capital.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. TRANSACTIONS WITH AFFILIATES (CONTINUED)

Summary of affiliate transactions. Affiliate transactions include revenue from affiliates, reimbursement of operating expenses and purchases of natural gas. The following table summarizes affiliate transactions, including transactions with Anadarko, its affiliates and the general partner:


	Year Ended December 31,
thousands	2011		2010		2009
Revenues ⁽¹⁾	$	648,997	$	571,628	$	521,850
Cost of product ⁽¹⁾		83,722		95,667		94,999
Operation and maintenance ⁽²⁾		51,339		46,379		41,444
General and administrative ⁽³⁾		31,855		23,807		27,408

Operating expenses		166,916		165,853		163,851
Interest income, net ⁽⁴⁾		28,560		20,243		20,717
Interest expense ⁽⁵⁾		4,935		6,924		9,096
Distributions to unitholders ⁽⁶⁾		68,039		52,337		44,450
Contributions from noncontrolling interest owners		16,476		2,019		34,011
Distributions to noncontrolling interest owners		9,437		6,476		5,410

⁽¹⁾	Represents amounts recognized under gathering, treating or processing agreements, and purchase and sale agreements.

⁽²⁾	Represents expenses incurred under the services and secondment agreement, as applicable.

⁽³⁾	Represents general and administrative expense incurred under the omnibus agreement, as applicable.

⁽⁴⁾

Represents interest income recognized on the note receivable from Anadarko. This line item also includes interest income, net on affiliate balances related to the MGR assets, Bison assets, White Cliffs investment and Wattenberg assets for periods prior to the acquisition of such assets. Beginning December 7, 2011, Anadarko discontinued charging interest on intercompany balances. The outstanding affiliate balances on the Partnership assets prior to their acquisition were entirely settled through an adjustment to parent net equity.

⁽⁵⁾	Represents interest expense recognized on the note payable to Anadarko.

⁽⁶⁾	Represents distributions paid under the partnership agreement.

Concentration of credit risk. Anadarko was the only customer from whom revenues exceeded 10% of the Partnership’s consolidated revenues for all periods presented on the Partnership’s consolidated statements of income.

6. INCOME TAXES

The components of the Partnership’s income tax expense (benefit) are as follows:


	Year Ended December 31,
thousands	2011		2010			2009
Current income tax expense (benefit)
Federal income tax expense (benefit)	$	15,890	$	10,580		$	20,253
State income tax expense		524		1,534			1,856

Total current income tax expense (benefit)		16,414		12,114			22,109

Deferred income tax expense (benefit)
Federal income tax expense (benefit)		2,464		9,709			696
State income tax expense (benefit)		140		(121	)		(646	)

Total deferred income tax expense (benefit)		2,604		9,588			50

Total income tax expense	$	19,018	$	21,702		$	22,159

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. INCOME TAXES (CONTINUED)

Total income taxes differed from the amounts computed by applying the statutory income tax rate to income before income taxes. The sources of these differences are as follows:


	Year Ended December 31,
thousands except percentages	2011		2010		2009
Income before income taxes	$	207,364	$	178,899	$	148,654
Statutory tax rate		0%		0%		0%

Tax computed at statutory rate	$	—	$	—	$	—
Adjustments resulting from:
Federal taxes on income attributable to Partnership assets pre-acquisition		18,354		20,678		21,407
State taxes on income attributable to Partnership assets pre-acquisition
(net of federal benefit)		—		724		852
Texas margin tax expense (benefit)		664		300		(100	)

Income tax expense	$	19,018	$	21,702	$	22,159

Effective tax rate		9%		12%		15%

The tax effects of temporary differences that give rise to significant portions of deferred tax assets (liabilities) are as follows:


	December 31,
thousands	2011			2010
Credit carryforwards	$	14		$	14
Other		—			2

Net current deferred income tax assets		14			16

Depreciable property		(83,566	)		(100,889	)
Partnership basis		(24,481	)		(26,320	)
Credit carryforwards		556			570
Other		114			(207	)

Net long-term deferred income tax liabilities		(107,377	)		(126,846	)

Total net deferred income tax liabilities	$	(107,363	)	$	(126,830	)

Credit carryforwards, which are available for utilization on future income tax returns, consist of $0.6 million of state income tax credits that expire in 2026.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. PROPERTY, PLANT AND EQUIPMENT

A summary of the historical cost of the Partnership’s property, plant and equipment is as follows:

Estimated

December 31,

thousands

Useful Life

2011

2010

Land

n/a

364

364

Gathering systems

5 to 47 years

2,437,152

2,102,219

Pipelines and equipment

15 to 45 years

90,883

89,778

Assets under construction

n/a

104,687

44,388

Other

3 to 25 years

4,927

3,059

Total property, plant and equipment

2,638,013

2,239,808

Accumulated depreciation

585,789

486,046

Net property, plant and equipment

2,052,224

1,753,762

The cost of property classified as “Assets under construction” is excluded from capitalized costs being depreciated. These amounts represent property that is not yet suitable to be placed into productive service as of the respective balance sheet date. In addition, property, plant and equipment cost, as well as third-party accrued liability balances in the Partnership’s consolidated balance sheets include $15.0 million and $9.6 million of accrued capital as of December 31, 2011 and 2010, respectively, representing estimated capital expenditures for which invoices had not yet been processed.

8. OTHER INTANGIBLE ASSETS

The intangible asset balance in the Partnership’s consolidated balance sheets represents the fair value, net of amortization, related to the contracts assumed by the Partnership in connection with the Platte Valley acquisition in February 2011, which dedicate certain customers’ field production to the acquired gathering and processing system. These long-term contracts provide an extended commercial relationship with the existing customers whereby the Partnership will have the opportunity to gather and process future production from the customers’ acreage. These contracts are generally limited, however, by the quantity and production life of the underlying natural gas resource base.

At December 31, 2011, the carrying value of the Partnership’s customer relationship intangible assets was $52.9 million, net of $0.9 million of accumulated amortization, and was included in goodwill and other intangible assets in the Partnership’s consolidated balance sheets. Customer relationships are amortized on a straight-line basis over 50 years, which is the estimated productive life of the reserves covered by the underlying acreage ultimately expected to be produced and gathered or processed through the Partnership’s assets subject to current contractual arrangements. No intangible asset impairment has been recognized in connection with these assets (see Note 1).

Estimated future amortization for these intangible assets over the next five years is as follows:


thousands	Future Amortization
2012	$	1,075
2013		1,075
2014		1,075
2015		1,075
2016		1,075

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. ASSET RETIREMENT OBLIGATIONS

The following table provides a summary of changes in asset retirement obligations:


	Year Ended December 31,
thousands	2011			2010
Carrying amount of asset retirement obligations at beginning of year	$	44,777		$	55,862
Liabilities incurred		15,390			800
Liabilities settled		—			(104	)
Accretion expense		3,781			3,740
Revisions in estimated liabilities		(679	)		(15,521	)

Carrying amount of asset retirement obligations at end of year	$	63,269		$	44,777

The increase in asset retirement obligations for the year ended December 31, 2011, is primarily a result of the liabilities incurred in connection with the acquisition of the Platte Valley assets (see Note 2). Revisions in estimates for the year ended December 31, 2010, related primarily to a decrease in the inflation rate.

10. DEBT AND INTEREST EXPENSE

The following table presents the Partnership’s outstanding debt as of December 31, 2011 and 2010:


	December 31, 2011						December 31, 2010
thousands	Principal		Carrying Value		Fair Value		Principal		Carrying Value		Fair Value
Revolving credit facility	$	—	$	—	$	—	$	49,000	$	49,000	$	49,000
5.375% Senior Notes due 2021		500,000		494,178		499,950		—		—		—
Wattenberg term loan		—		—		—		250,000		250,000		250,000
Note payable to Anadarko		175,000		175,000		174,528		175,000		175,000		168,116

Total debt outstanding ⁽¹⁾	$	675,000	$	669,178	$	674,478	$	474,000	$	474,000	$	467,116

⁽¹⁾	The Partnership’s consolidated balance sheets include accrued interest expense of $2.7 million and $1.3 million as of December 31, 2011 and 2010, respectively, which is included in accrued liabilities.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. DEBT AND INTEREST EXPENSE (CONTINUED)

Debt activity. The following table presents the debt activity of the Partnership for the years ended December 31, 2011 and 2010:


thousands	Carrying Value
Balance as of December 31, 2009	$	175,000
Revolving credit facility borrowings		410,000
Repayment of revolving credit facility		(361,000	)
Revolving credit facility borrowings – Swingline		10,000
Repayment of revolving credit facility – Swingline		(10,000	)
Issuance of Wattenberg term loan		250,000

Balance as of December 31, 2010	$	474,000
Revolving credit facility borrowings		570,000
Repayment of revolving credit facility		(619,000	)
Repayment of Wattenberg term loan		(250,000	)
Revolving credit facility borrowings – Swingline		30,000
Repayment of revolving credit facility – Swingline		(30,000	)
Issuance of 5.375% Senior Notes due 2021		500,000
Other and changes in debt discount		(5,822	)

Balance as of December 31, 2011	$	669,178

5.375% Senior Notes due 2021. In May 2011, the Partnership completed the offering of $500.0 million aggregate principal amount of 5.375% Senior Notes due 2021 (the “Notes”) at a price to the public of 98.778% of the face amount of the Notes. Including the effects of the issuance and underwriting discounts, the effective interest rate is 5.648%. Interest on the Notes is paid semi-annually on June 1 and December 1 of each year, with payments commencing on December 1, 2011. Proceeds from the offering of the Notes (net of the underwriting discount of $3.3 million and debt issuance costs) were used to repay the then-outstanding balance on the Partnership’s revolving credit facility, with the remainder used for general partnership purposes.

The Notes mature on June 1, 2021, unless redeemed at a redemption price that includes a make-whole premium. The Partnership may redeem the Notes in whole or in part, at any time before March 1, 2021, at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest on such Notes (exclusive of interest accrued to the redemption date) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined in the indenture governing the Notes) plus 40 basis points, plus, in either case, accrued and unpaid interest, if any, on the principal amount being redeemed to such redemption date. On or after March 1, 2021, the Notes will be redeemable and repayable, at any time in whole, or from time to time in part, at a price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued interest on the Notes to be redeemed to the date of redemption.

The Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of the Partnership’s wholly owned subsidiaries (the “Subsidiary Guarantors”). The Subsidiary Guarantors’ guarantees will be released if the Subsidiary Guarantors are released from their obligations under the Partnership’s revolving credit facility. See Note 13 for the condensed financial statements of the Subsidiary Guarantors.

The Notes indenture contains customary events of default including, among others, (i) default in any payment of interest on any debt securities when due that continues for 30 days; (ii) default in payment, when due, of principal of or premium, if any, on the Notes at maturity; and (iii) certain events of bankruptcy or insolvency with respect to the Partnership. The indenture governing the Notes also contains covenants that limit, among other things, the ability of the Partnership and the Subsidiary Guarantors to (i) create liens on their principal properties; (ii) engage in sale and leaseback transactions; and (iii) merge or consolidate with another entity or sell, lease or transfer substantially all of their properties or assets to another entity. At December 31, 2011, the Partnership was in compliance with all covenants under the Notes.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. DEBT AND INTEREST EXPENSE (CONTINUED)

Note payable to Anadarko. In December 2008, the Partnership entered into a five-year $175.0 million term loan agreement with Anadarko. The interest rate was fixed at 4.00% until November 2010. The term loan agreement was amended in December 2010 to fix the interest rate at 2.82% through maturity in 2013. The Partnership has the option, at any time, to repay the outstanding principal amount in whole or in part.

The provisions of the five-year term loan agreement contain customary events of default, including (i) non-payment of principal when due or non-payment of interest or other amounts within three business days of when due, (ii) certain events of bankruptcy or insolvency with respect to the Partnership and (iii) a change of control. At December 31, 2011, the Partnership was in compliance with all covenants under this agreement.

Revolving credit facility. In March 2011, the Partnership entered into an amended and restated $800.0 million senior unsecured revolving credit facility (the “RCF”) and borrowed $250.0 million under the RCF to repay the Wattenberg term loan (described below). The RCF amended and restated the Partnership’s $450.0 million credit facility, which was originally entered into in October 2009. The RCF matures in March 2016 and bears interest at London Interbank Offered Rate (“LIBOR”) plus applicable margins currently ranging from 1.30% to 1.90%, or an alternate base rate equal to the greatest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.5%, or (c) LIBOR plus 1%, plus applicable margins currently ranging from 0.30% to 0.90%. The interest rate was 1.80% and 3.26% at December 31, 2011 and 2010, respectively. The Partnership is required to pay a quarterly facility fee currently ranging from 0.20% to 0.35% of the commitment amount (whether used or unused), based upon the Partnership’s senior unsecured debt rating. The facility fee rate was 0.25% and 0.50% at December 31, 2011 and 2010, respectively.

The RCF contains covenants that limit, among other things, the ability of the Partnership and certain of its subsidiaries to incur additional indebtedness, grant certain liens, merge, consolidate or allow any material change in the character of its business, sell all or substantially all of the Partnership’s assets, make certain transfers, enter into certain affiliate transactions, make distributions or other payments other than distributions of available cash under certain conditions and use proceeds other than for partnership purposes. The RCF also contains various customary covenants, customary events of default and certain financial tests as of the end of each quarter, including a maximum consolidated leverage ratio (which is defined as the ratio of consolidated indebtedness as of the last day of a fiscal quarter to Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (“Consolidated EBITDA”) for the most recent four consecutive fiscal quarters ending on such day) of 5.0 to 1.0, or a consolidated leverage ratio of 5.5 to 1.0 with respect to quarters ending in the 270-day period immediately following certain acquisitions, and a minimum consolidated interest coverage ratio (which is defined as the ratio of Consolidated EBITDA for the most recent four consecutive fiscal quarters to consolidated interest expense for such period) of 2.0 to 1.0.

All amounts due under the RCF are unconditionally guaranteed by the Partnership’s wholly owned subsidiaries. The Partnership will no longer be required to comply with the minimum consolidated interest coverage ratio, as well as the subsidiary guarantees and certain of the aforementioned covenants, if the Partnership obtains two of the following three ratings: BBB- or better by Standard & Poor’s, Baa3 or better by Moody’s Investors Service, or BBB- or better by Fitch Ratings. At December 31, 2011, the Partnership was in compliance with all covenants under the RCF. As of December 31, 2011, no amounts were outstanding under the RCF, and $800.0 million was available for borrowing. See Note 2 for borrowing activity under the RCF in January 2012, related to the MGR acquisition.

Wattenberg term loan. In connection with the Wattenberg acquisition, in August 2010 the Partnership borrowed $250.0 million under a three-year term loan from a group of banks (“Wattenberg term loan”). The Wattenberg term loan incurred interest at LIBOR plus a margin ranging from 2.50% to 3.50% depending on the Partnership’s consolidated leverage ratio as defined in the Wattenberg term loan agreement. The Partnership repaid the Wattenberg term loan in March 2011 using borrowings from its RCF and recognized $1.3 million of accelerated amortization expense related to its early repayment.

Interest-rate swap agreement. The Partnership entered into a forward-starting interest-rate swap agreement in March 2011 to mitigate the risk of rising interest rates prior to the issuance of the Notes. In May 2011, the Partnership issued the Notes and terminated the swap agreement, realizing a loss of $1.9 million, which is included in other expense, net in the Partnership’s consolidated statements of income.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. DEBT AND INTEREST EXPENSE (CONTINUED)

Interest expense. The following table summarizes the amounts included in interest expense:


	Year Ended December 31,
thousands	2011			2010		2009
Third Parties
Interest expense on long-term debt	$	20,533		$	8,530	$	304
Amortization of debt issuance costs and commitment fees ⁽¹⁾		5,297			3,340		555
Capitalized interest		(420	)		—		—

Total interest expense – third parties		25,410			11,870		859

Affiliates
Interest expense on notes payable to Anadarko		4,935			6,828		8,953
Credit facility commitment fees		—			96		143

Total interest expense – affiliates		4,935			6,924		9,096

Interest expense	$	30,345		$	18,794	$	9,955

⁽¹⁾	For the year ended December 31, 2011, includes $0.5 million of amortization of the original issue discount and underwriters’ fees related to the Notes.

11. COMMITMENTS AND CONTINGENCIES

Environmental obligations. The Partnership is subject to various environmental-remediation obligations arising from federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. As of December 31, 2011, the Partnership’s consolidated balance sheet included a $1.7 million current liability and a $1.6 million long-term liability for remediation and reclamation obligations, included in third-party accrued liabilities and asset retirement obligations and other, respectively. As of December 31, 2010, the Partnership’s consolidated balance sheet included a $0.6 million current liability and a $0.9 million long-term liability for remediation and reclamation obligations, included in third-party accrued liabilities and asset retirement obligations and other, respectively. The recorded obligations do not include any anticipated insurance recoveries. Substantially all of the payments related to these obligations are expected to be made over the next five years. Management regularly monitors the remediation and reclamation process and the liabilities recorded and believes the Partnership’s environmental obligations are adequate to fund remedial actions to comply with present laws and regulations, and that the ultimate liability for these matters, if any, will not differ materially from recorded amounts nor materially affect the Partnership’s overall results of operations, cash flows or financial condition. There can be no assurance, however, that current regulatory requirements will not change, or past non-compliance with environmental issues will not be discovered.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Litigation and legal proceedings. In March 2011, DCP Midstream LP (“DCP”) filed a lawsuit against Anadarko and others, including a Partnership subsidiary, Kerr-McGee Gathering LLC, in Weld County District Court (the “Court”) in Colorado, alleging that Anadarko and its affiliates diverted gas from DCP’s gathering and processing facilities in breach of certain dedication agreements. In addition to various claims against Anadarko, DCP is claiming unjust enrichment and other damages against Kerr-McGee Gathering LLC, the entity which holds the Wattenberg assets. Anadarko countersued DCP asserting that DCP has not properly allocated values and charges to Anadarko for the gas that DCP gathers and/or processes, and seeks a judgment that DCP has no valid gathering or processing rights to much of the gas production it is claiming, in addition to other claims. In July 2011, the Court denied the defendants’ motion to dismiss without ruling on the merits and the case is proceeding to the discovery phase. Management does not believe the outcome of this proceeding will have a material effect on the Partnership’s financial condition, results of operations or cash flows. The Partnership intends to vigorously defend this litigation. Furthermore, without regard to the merit of DCP’s claims, management believes that the Partnership has adequate contractual indemnities covering the claims against it in this lawsuit.

In addition, from time to time, the Partnership is involved in legal, tax, regulatory and other proceedings in various forums regarding performance, contracts and other matters that arise in the ordinary course of business. Management is not aware of any such proceeding for which a final disposition could have a material adverse effect on the Partnership’s financial condition, results of operations or cash flows.

Other commitments. The Partnership has short-term payment obligations, or commitments, related to capital spending programs of the Partnership, as well as its unconsolidated affiliates. As of December 31, 2011, the Partnership had unconditional payment obligations for services to be rendered, or products to be delivered in connection with its capital projects of approximately $30.2 million, primarily related to the construction of a second cryogenic train at the Chipeta plant, all of which will be spent in 2012.

Lease commitments. Anadarko, on behalf of the Partnership, has entered into lease agreements for corporate offices, shared field offices and a warehouse supporting the Partnership’s operations. The leases for the shared field offices extend through 2018, and the lease for the warehouse extends through March 2012 and includes an early termination clause. The lease for the Partnership’s corporate offices expires in January 2012, and during 2011, Anadarko entered into a new agreement for the Partnership’s corporate offices that extends through March 2017. Anadarko, on behalf of the Partnership, continues to lease certain other compression equipment under leases expiring through January 2015.

In addition, during 2010, Anadarko and Kerr-McGee Gathering LLC purchased an aggregate $44.5 million of previously leased compression equipment used at the Granger and Wattenberg assets, which terminated the leases and associated lease expense. The purchased compression equipment was contributed to the Partnership pursuant to provisions of the contribution agreements for the Granger and the Wattenberg acquisitions. Rent expense associated with the office, warehouse and equipment leases was approximately $4.1 million, $7.7 million and $10.2 million for the years ended December 31, 2011, 2010 and 2009, respectively.

The amounts in the table below represent existing contractual operating lease obligations as of December 31, 2011, that may be assigned or otherwise charged to the Partnership pursuant to the reimbursement provisions of the omnibus agreement:


thousands	Operating Leases
2012	$	261
2013		228
2014		168
2015		168
2016		168
Thereafter		103

Total	$	1,096

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. SUBSEQUENT EVENT

Refer to Note 2 for a description of the MGR acquisition in January 2012. In conjunction with the MGR acquisition, the Partnership entered into commodity price swap agreements with Anadarko that do not contain fixed notional volumes, each effective for one year beginning January 1, 2012, and extending through December 31, 2016. Below is a summary of the fixed prices on the Partnership’s commodity price swap agreements for the system:


	Year Ended December 31,
per barrel except natural gas	2012		2013		2014		2015		2016
Ethane	$	26.87	$	25.34	$	24.10	$	23.41	$	23.11
Propane	$	57.97	$	55.59	$	53.78	$	52.99	$	52.90
Isobutane	$	80.98	$	77.66	$	75.13	$	74.02	$	73.89
Normal butane	$	71.15	$	68.24	$	66.01	$	65.04	$	64.93
Natural gasoline	$	89.51	$	85.84	$	83.04	$	81.82	$	81.68
Condensate	$	89.51	$	85.84	$	83.04	$	81.82	$	81.68
Natural gas (per MMbtu)	$	3.62	$	4.17	$	4.45	$	4.66	$	4.87

13. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The Partnership may issue an indeterminate amount of common units and various debt securities under its effective shelf registration statement on file with the SEC. The Notes are, and any future debt securities issued under such registration statement may be, guaranteed by the Subsidiary Guarantors. The guarantees are full, unconditional, joint and several. The following condensed consolidating financial information reflects the Partnership’s stand-alone accounts, the combined accounts of the Subsidiary Guarantors, the accounts of the Non-Guarantor Subsidiary, consolidating adjustments, and eliminations and the Partnership’s consolidated financial information. The condensed consolidating financial information should be read in conjunction with the Partnership’s accompanying consolidated financial statements and related notes.

Western Gas Partners, LP’s and the Subsidiary Guarantors’ investment in and equity income from their subsidiaries are presented in accordance with the equity method of accounting in which the equity income from subsidiaries includes the results of operations of the Partnership assets for periods including and subsequent to the Partnership’s acquisition of the Partnership assets.

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)

Statement of Income
Year Ended December 31, 2011

thousands

Western
Gas
Partners, LP

Subsidiary
Guarantors

Non-
Guarantor
Subsidiary

Eliminations

Consolidated

Revenues

(2,957

)

756,764

69,458

—

823,265

Operating expenses

61,009

512,374

40,689

—

614,072

Operating income (loss)

(63,966

)

244,390

28,769

—

209,193

Interest income, net – affiliates

16,900

11,693

—

(33

)

28,560

Interest expense

(30,378

)

—

(30,345

)

Other income (expense), net

(1,745

)

1,689

—

(44

)

Equity income

219,349

14,678

—

(234,027

)

—

Income before income taxes

140,160

272,450

28,781

(234,027

)

207,364

Income tax expense

—

19,018

—

19,018

Net income

140,160

253,432

28,781

(234,027

)

188,346

Net income attributable to noncontrolling interests

—

14,103

—

14,103

Net income attributable to Western Gas Partners, LP

140,160

239,329

28,781

(234,027

)

174,243


	Statement of Income Year Ended December 31, 2010
thousands	Western Gas Partners, LP			Subsidiary Guarantors		Non- Guarantor Subsidiary		Eliminations			Consolidated
Revenues	$	23,153		$	596,033	$	44,088	$	—		$	663,274
Operating expenses		44,593			419,058		21,635		—			485,286

Operating income (loss)		(21,440	)		176,975		22,453		—			177,988
Interest income, net – affiliates		16,900			3,374		—		(31	)		20,243
Interest expense		(18,825	)		—		—		31			(18,794	)
Other income (expense), net		(2,331	)		1,787		6		—			(538	)
Equity income		139,613			11,454		—		(151,067	)		—

Income before income taxes		113,917			193,590		22,459		(151,067	)		178,899
Income tax expense		—			21,702		—		—			21,702

Net income		113,917			171,888		22,459		(151,067	)		157,197
Net income attributable to noncontrolling interests		—			11,005		—		—			11,005

Net income attributable to Western Gas Partners, LP	$	113,917		$	160,883	$	22,459	$	(151,067	)	$	146,192

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)


	Statement of Income Year Ended December 31, 2009
thousands	Western Gas Partners, LP			Subsidiary Guarantors		Non- Guarantor Subsidiary		Eliminations			Consolidated
Revenues	$	20,642		$	557,115	$	42,007	$	—		$	619,764
Operating expenses		34,602			427,820		21,078		—			483,500

Operating income (loss)		(13,960	)		129,295		20,929		—			136,264
Interest income, net – affiliates		16,900			3,834		—		(17	)		20,717
Interest expense		(9,972	)		—		—		17			(9,955	)
Other income (expense), net		32			1,586		10		—			1,628
Equity income		78,408			5,138		—		(83,546	)		—

Income before income taxes		71,408			139,853		20,939		(83,546	)		148,654
Income tax expense		—			22,159		—		—			22,159

Net income		71,408			117,694		20,939		(83,546	)		126,495
Net income attributable to noncontrolling interests		—			10,260		—		—			10,260

Net income attributable to Western Gas Partners, LP	$	71,408		$	107,434	$	20,939	$	(83,546	)	$	116,235

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)


	Balance Sheet December 31, 2011
thousands	Western Gas Partners, LP		Subsidiary Guarantors		Non- Guarantor Subsidiary		Eliminations			Consolidated
Current assets	$	207,913	$	110,619	$	25,977	$	(88,061	)	$	256,448
Note receivable – Anadarko		260,000		—		—		—			260,000
Investment in consolidated subsidiaries		1,232,245		130,396		—		(1,362,641	)		—
Net property, plant and equipment		735		1,812,275		239,214		—			2,052,224
Other long-term assets		8,164		260,790		—		—			268,954

Total assets	$	1,709,057	$	2,314,080	$	265,191	$	(1,450,702	)	$	2,837,626

Current liabilities	$	95,817	$	56,762	$	12,078	$	(88,061	)	$	76,596
Long-term debt		669,178		—		—		—			669,178
Deferred income taxes		—		107,377		—		—			107,377
Asset retirement obligations and other		104		64,980		2,085		—			67,169

Total liabilities		765,099		229,119		14,163		(88,061	)		920,320
Partners’ capital		943,958		1,964,237		251,028		(1,362,641	)		1,796,582
Noncontrolling interests		—		120,724		—		—			120,724

Total liabilities, equity and partners’ capital	$	1,709,057	$	2,314,080	$	265,191	$	(1,450,702	)	$	2,837,626


	Balance Sheet December 31, 2010
thousands	Western Gas Partners, LP		Subsidiary Guarantors		Non- Guarantor Subsidiary		Eliminations			Consolidated
Current assets	$	24,972	$	209,649	$	10,346	$	(200,342	)	$	44,625
Note receivable – Anadarko		260,000		—		—		—			260,000
Investment in consolidated subsidiaries		1,052,073		97,018		—		(1,149,091	)		—
Net property, plant and equipment		165		1,572,383		181,214		—			1,753,762
Other long-term assets		2,361		202,346		—		—			204,707

Total assets	$	1,339,571	$	2,081,396	$	191,560	$	(1,349,433	)	$	2,263,094

Current liabilities	$	201,989	$	47,946	$	2,127	$	(200,342	)	$	51,720
Long-term debt		474,000		—		—		—			474,000
Deferred income taxes		—		126,846		—		—			126,846
Asset retirement obligations and other		38		46,507		1,954		—			48,499

Total liabilities		676,027		221,299		4,081		(200,342	)		701,065
Partners’ capital		663,544		1,769,635		187,479		(1,149,091	)		1,471,567
Noncontrolling interests		—		90,462		—		—			90,462

Total liabilities, equity and partners’ capital	$	1,339,571	$	2,081,396	$	191,560	$	(1,349,433	)	$	2,263,094

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)


	Statement of Cash Flows Year Ended December 31, 2011
thousands	Western Gas Partners, LP			Subsidiary Guarantors			Non- Guarantor Subsidiary			Eliminations			Consolidated
Net income	$	140,160		$	253,432		$	28,781		$	(234,027	)	$	188,346
Adjustments to reconcile net income to net cash provided by operating activities:
Equity income		(219,349	)		(14,678	)		—			234,027			—
Depreciation, amortization and impairments		55			106,230			5,619			—			111,904
Change in other items, net		(93,715	)		118,719			1,917			—			26,921

Net cash provided by
(used in) operating activities		(172,849	)		463,703			36,317			—			327,171
Net cash used in investing activities		(25,416	)		(409,715	)		(55,384	)		17,564			(472,951	)
Net cash provided by
(used in) financing activities		382,049			(53,988	)		34,768			(17,564	)		345,265

Net increase (decrease) in cash and cash equivalents		183,784			—			15,701			—			199,485
Cash and cash equivalents at beginning of period		21,479			—			5,595			—			27,074

Cash and cash equivalents at end of period	$	205,263		$	—		$	21,296		$	—		$	226,559


	Statement of Cash Flows Year Ended December 31, 2010
thousands	Western Gas Partners, LP			Subsidiary Guarantors			Non- Guarantor Subsidiary			Eliminations			Consolidated
Net income	$	113,917		$	171,888		$	22,459		$	(151,067	)	$	157,197
Adjustments to reconcile net income to net cash provided by operating activities:
Equity income		(139,613	)		(11,454	)		—			151,067			—
Depreciation, amortization and impairments		54			85,199			5,757			—			91,010
Change in other items, net		149,408			(130,554	)		(3,312	)		—			15,542

Net cash provided by operating activities		123,766			115,079			24,904			—			263,749
Net cash used in investing activities		(734,780	)		(147,924	)		(2,803	)		—			(885,507	)
Net cash provided by
(used in) financing activities		570,863			32,845			(24,860	)		—			578,848

Net increase (decrease) in cash and cash equivalents		(40,151	)		—			(2,759	)		—			(42,910	)
Cash and cash equivalents at beginning of period		61,630			—			8,354			—			69,984

Cash and cash equivalents at end of period	$	21,479		$	—		$	5,595		$	—		$	27,074

WESTERN GAS PARTNERS, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)


	Statement of Cash Flows Year Ended December 31, 2009
thousands	Western Gas Partners, LP			Subsidiary Guarantors			Non- Guarantor Subsidiary			Eliminations			Consolidated
Net income	$	71,408		$	117,694		$	20,939		$	(83,546	)	$	126,495
Adjustments to reconcile net income to net cash provided by operating activities:
Equity income		(78,408	)		(5,138	)		—			83,546			—
Depreciation, amortization and impairments		54			86,134			4,504			—			90,692
Change in other items, net		2,112			(3,946	)		(15,081	)		12,493			(4,422	)

Net cash provided by
(used in) operating activities		(4,834	)		194,744			10,362			12,493			212,765
Net cash used in investing activities		—			(183,750	)		(39,378	)		—			(223,128	)
Net cash provided by
(used in) financing activities		33,157			(10,994	)		34,603			(12,493	)		44,273

Net increase (decrease) in cash and cash equivalents		28,323			—			5,587			—			33,910
Cash and cash equivalents at beginning of period		33,307			—			2,767			—			36,074

Cash and cash equivalents at end of period	$	61,630		$	—		$	8,354		$	—		$	69,984

WESTERN GAS PARTNERS, LP

SUPPLEMENTAL QUARTERLY INFORMATION

(UNAUDITED)

The following table presents a summary of the Partnership’s operating results by quarter for the years ended December 31, 2011 and 2010. The Partnership’s operating results reflect the operations of the Partnership assets from the dates of common control, unless otherwise noted, and have been recast to include results attributable to the Bison and MGR assets, as applicable. See Note 2. Acquisitions in the Notes to Consolidated Financial Statements under Item 8 of Exhibit 99.3 to this Current Report on Form 8-K.


thousands except per-unit amounts	First Quarter		Second Quarter		Third Quarter		Fourth Quarter

2011
Revenues	$	180,842	$	209,680	$	217,546	$	215,197
Operating income	$	50,972	$	58,181	$	53,946	$	46,094
Net income attributable to Western Gas Partners, LP	$	43,897	$	45,026	$	45,306	$	40,014
Net income per common unit – basic and diluted ⁽¹⁾	$	0.43	$	0.40	$	0.41	$	0.35
Net income per subordinated unit – basic and diluted ⁽¹⁾	$	0.41	$	0.38	$	—	$	—
2010
Revenues	$	171,195	$	165,915	$	163,139	$	163,025
Operating income	$	42,729	$	44,394	$	41,335	$	49,530
Net income attributable to Western Gas Partners, LP	$	34,447	$	33,890	$	36,189	$	41,666
Net income per common unit – basic and diluted ⁽¹⁾	$	0.37	$	0.35	$	0.44	$	0.48
Net income per subordinated unit – basic and diluted ⁽¹⁾	$	0.37	$	0.35	$	0.44	$	0.44

⁽¹⁾

Represents net income for periods including and subsequent to the acquisition of the Partnership assets (as defined in Note 1. Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements under Item 8 of Exhibit 99.3 to this Current Report on Form 8-K). In addition, all subordinated units were converted to common units on a one-for-one basis on August 15, 2011. For purposes of calculating net income per common and subordinated unit, the conversion of the subordinated units is deemed to have occurred on July 1, 2011. See Note 4. Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Item 8 of Exhibit 99.3 to this Current Report on Form 8-K.