0001414475-16-000075.txt : 20160526 0001414475-16-000075.hdr.sgml : 20160526 20160526140802 ACCESSION NUMBER: 0001414475-16-000075 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20160314 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20160526 DATE AS OF CHANGE: 20160526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Western Gas Partners LP CENTRAL INDEX KEY: 0001414475 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 261075808 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-34046 FILM NUMBER: 161677418 BUSINESS ADDRESS: STREET 1: 1201 LAKE ROBBINS DRIVE CITY: THE WOODLANDS STATE: TX ZIP: 77380 BUSINESS PHONE: 832-636-1000 MAIL ADDRESS: STREET 1: 1201 LAKE ROBBINS DRIVE CITY: THE WOODLANDS STATE: TX ZIP: 77380 FORMER COMPANY: FORMER CONFORMED NAME: Western Gas Partners DATE OF NAME CHANGE: 20071009 8-K/A 1 wesform8ka-springfield.htm 8-K/A Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K/A
(Amendment No. 1)

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 26, 2016 (March 14, 2016)
 
WESTERN GAS PARTNERS, LP
(Exact name of registrant as specified in its charter)


Delaware
001-34046
26-1075808
(State or other jurisdiction of
incorporation or organization)
(Commission
File Number)
(IRS Employer
Identification No.)
1201 Lake Robbins Drive
The Woodlands, Texas 77380-1046
(Address of principal executive offices) (Zip Code)
(832) 636-6000
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




EXPLANATORY NOTE

On March 16, 2016, Western Gas Partners, LP (the “Partnership”) filed a Current Report on Form 8-K (the “Initial Report”) to report, among other things, the closing of its acquisition on March 14, 2016, of a 100% interest in Springfield Pipeline LLC (“Springfield”) from Anadarko Petroleum Corporation for $750.0 million, consisting of $712.5 million in cash and 1,253,761 common units. The Partnership financed the cash portion of the acquisition through: (i) the issuance of 14,030,611 Series A Preferred units to private investors for net proceeds of $440.0 million, (ii) the issuance of 835,841 of the Partnership’s common units to Western Gas Equity Partners, LP for proceeds of $25.0 million and (iii) $247.5 million in borrowings on the Partnership’s revolving credit facility. Springfield owns a 50.1% interest in a gathering system consisting of 548 miles of gas gathering lines (with a capacity of 795 MMcf/d) and 241 miles of oil gathering lines (with a capacity of 130 MBbls/d) which gathers Eagleford shale production in Dimmit, La Salle, Maverick and Webb counties in South Texas.
This Current Report on Form 8-K/A (the “Amendment”) amends and supplements the Initial Report to include the financial statements of Springfield and the unaudited pro forma financial statements of the Partnership required by Items 9.01(a) and 9.01(b) of Form 8-K, and to include exhibits under Item 9.01(d) of Form 8-K. No other modifications to the Initial Report are being made by this Amendment.

Item 9.01 Financial Statements and Exhibits.

(a)
Financial Statements of Businesses Acquired
 
 
 
 
Financial Statements of Springfield Pipeline LLC as of December 31, 2015 and 2014, and for the years ended December 31, 2015, 2014 and 2013, a copy of which is included as Exhibit 99.1 to this Current Report on Form 8-K/A, incorporated herein by reference.
 
 
 
(b)
Pro Forma Financial Information
 
 
 
 
Unaudited Pro Forma Condensed Consolidated Financial Statements of the Partnership as of December 31, 2015, and for the years ended December 31, 2015, 2014 and 2013, a copy of which is included as Exhibit 99.2 to this Current Report on Form 8-K/A, incorporated herein by reference.
 
 
 
(d)
Exhibits
 
 
 
 
 
23.1
Consent of KPMG LLP.
 
 
 
 
99.1
Financial Statements of Springfield Pipeline LLC as of December 31, 2015 and 2014, and for the years ended December 31, 2015, 2014 and 2013.
 
 
 
 
99.2
Unaudited Pro Forma Condensed Consolidated Financial Statements of the Partnership as of December 31, 2015, and for the years ended December 31, 2015, 2014 and 2013.


2


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
WESTERN GAS PARTNERS, LP
 
 
 
 
 
By:
Western Gas Holdings, LLC, its general partner
 
 
 
 
 
 
Dated:
May 26, 2016
By:
/s/ Benjamin M. Fink
 
 
 
Benjamin M. Fink
Senior Vice President, Chief Financial Officer and Treasurer


3


EXHIBIT INDEX

Exhibit
Number
Exhibit Title
 
 
23.1
Consent of KPMG LLP.
 
 
99.1
Financial Statements of Springfield Pipeline LLC as of December 31, 2015 and 2014, and for the years ended December 31, 2015, 2014 and 2013.
 
 
99.2
Unaudited Pro Forma Condensed Consolidated Financial Statements of the Partnership as of December 31, 2015, and for the years ended December 31, 2015, 2014 and 2013.


4
 EX-23.1 2 wes8ka-exh231xspringfield.htm EXHIBIT 23.1 Exhibit


EXHIBIT 23.1

Consent 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 consent to the incorporation by reference in the registration statements (No. 333‑193828) on Form S-3, (No. 333‑198436) on Form S-3, and (No. 333‑151317) on Form S-8 of Western Gas Partners, LP of our report dated May 26, 2016, with respect to the balance sheets of Springfield Pipeline LLC as of December 31, 2015 and 2014, and the related statements of operations, net investment by Anadarko, and cash flows for each of the years in the three-year period ended December 31, 2015, which report appears in the current report on Form 8-K/A of Western Gas Partners, LP dated May 26, 2016.


/s/ KPMG LLP

Houston, Texas
May 26, 2016



 EX-99.1 3 wes8ka-exh991xspringfield.htm EXHIBIT 99.1 Exhibit

EXHIBIT 99.1





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 balance sheets of Springfield Pipeline LLC (the Company) as of December 31, 2015 and 2014, and the related statements of operations, net investment by Anadarko, and cash flows for each of the years in the three-year period ended December 31, 2015. These financial statements are the responsibility of Western Gas Partners, LP’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 financial statements referred to above present fairly, in all material respects, the financial position of Springfield Pipeline LLC as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2015 in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Houston, Texas
May 26, 2016


2
SPRINGFIELD PIPELINE LLC
STATEMENTS OF OPERATIONS


 
 
 
Year Ended December 31,
thousands
 
2015 (1)
 
2014 (1)
 
2013 (1)
Revenues and other
 
 
 
 
 
 
Gathering, processing and transportation (2)
 
$
190,717

 
$
148,889

 
$
110,092

Natural gas and natural gas liquids sales (2)
 
—

 
1,672

 
—

Other (2)
 
49

 
15

 
4,555

Total revenues and other
 
190,766

 
150,576

 
114,647

Operating expenses
 
 
 
 
 
 
Cost of product (3)
 
—

 
4,001

 
4,524

Operation and maintenance (3)
 
35,198

 
37,866

 
34,212

General and administrative – affiliate
 
3,211

 
2,338

 
3,413

Property and other taxes
 
2,755

 
2,823

 
2,437

Depreciation and amortization
 
28,448

 
25,295

 
23,048

Impairments
 
1,362

 
2,041

 
48,653

Total operating expenses
 
70,974

 
74,364

 
116,287

Gain (loss) on divestiture and other, net
 
4

 
(9
)
 
—

Operating income (loss)
 
119,796

 
76,203

 
(1,640
)
Income tax (benefit) expense
 
42,152

 
27,402

 
(345
)
Net income (loss)
 
$
77,644

 
$
48,801

 
$
(1,295
)
                                                                                                                                                                                                  

(1) 
These financial statements reflect Springfield Pipeline LLC’s 50.1% interest in the Springfield system (as defined in Note 1).
(2) 
Gathering, processing and transportation includes revenues from affiliates (as defined in Note 1) of $190.7 million, $148.4 million and $109.2 million for the years ended December 31, 2015, 2014 and 2013, respectively. Natural gas and natural gas liquids sales includes revenues from affiliates (as defined in Note 1) of zero for each of the years ended December 31, 2015 and 2013, and $1.7 million for the year ended December 31, 2014. Other includes revenues from affiliates (as defined in Note 1) of $0.1 million for each of the years ended December 31, 2015 and 2014 and $4.6 million for the year ended December 31, 2013.
(3) 
Cost of product includes product purchases from affiliates (as defined in Note 1) of zero, $0.1 million and $0.2 million for the years ended December 31, 2015, 2014 and 2013, respectively. Operation and maintenance includes charges from affiliates (as defined in Note 1) of $9.9 million, $9.1 million and $7.6 million for the years ended December 31, 2015, 2014 and 2013, respectively.


See accompanying Notes to Financial Statements.

3
SPRINGFIELD PIPELINE LLC
BALANCE SHEETS


 
 
 
 
December 31,
thousands
 
2015 (1)
 
2014 (1)
ASSETS
 
 
 
 
Current assets
 
 
 
 
Accounts receivable
 
$
12,336

 
$
13,524

 
Total current assets
 
12,336

 
13,524

Property, plant and equipment
 
 
 
 
 
Cost
 
652,141

 
621,927

 
Less accumulated depreciation
 
83,336

 
55,515

 
 
Net property, plant and equipment
 
568,805

 
566,412

Goodwill
 
29,500

 
29,500

Total assets
 
$
610,641

 
$
609,436

LIABILITIES AND NET INVESTMENT BY ANADARKO
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
34,055

 
$
35,684

Accrued liabilities
 
2,201

 
6,562

 
Total current liabilities
 
36,256

 
42,246

Deferred income taxes
 
133,741

 
124,273

Asset retirement obligations and other
 
10,046

 
8,830

Total liabilities
 
180,043

 
175,349

Net investment by Anadarko
 
430,598

 
434,087

Total liabilities and net investment by Anadarko
 
$
610,641

 
$
609,436

                                                                                                                                                                                                   
(1) 
These financial statements reflect Springfield Pipeline LLC’s 50.1% interest in the Springfield system (as defined in Note 1).



See accompanying Notes to Financial Statements.

4
SPRINGFIELD PIPELINE LLC
STATEMENTS OF NET INVESTMENT BY ANADARKO


thousands
 
 
Balance at December 31, 2012 (1)
 
$
365,332

Net income (loss)
 
(1,295
)
Net contributions from Anadarko
 
65,439

Balance at December 31, 2013 (1)
 
$
429,476

Net income (loss)
 
48,801

Net distributions to Anadarko
 
(44,217
)
Net contributions from Anadarko of other assets
 
27

Balance at December 31, 2014 (1)
 
$
434,087

Net income (loss)
 
77,644

Net distributions to Anadarko
 
(81,268
)
Net contributions from Anadarko of other assets
 
135

Balance at December 31, 2015 (1)
 
$
430,598

                                                                                                                                                                                                    
(1) 
These financial statements reflect Springfield Pipeline LLC’s 50.1% interest in the Springfield system (as defined in Note 1).


See accompanying Notes to Financial Statements.

5
SPRINGFIELD PIPELINE LLC
STATEMENTS OF CASH FLOWS


 
 
Year Ended December 31,
thousands
 
2015 (1)
 
2014 (1)
 
2013 (1)
Cash flows from operating activities
 
 
 
 
 
 
Net income (loss)
 
$
77,644

 
$
48,801

 
$
(1,295
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
Depreciation and amortization
 
28,448

 
25,295

 
23,048

Impairments
 
1,362

 
2,041

 
48,653

(Gain) loss on divestiture and other, net
 
(4
)
 
9

 
—

Deferred income taxes
 
9,414

 
25,357

 
26,211

Changes in assets and liabilities:
 
 
 
 
 
 
(Increase) decrease in accounts receivable
 
1,243

 
8,090

 
5,007

Increase (decrease) in accounts payable and accrued liabilities
 
(2,148
)
 
4,182

 
5,452

Change in other items, net
 
77

 
511

 
1,654

Net cash provided by operating activities
 
116,036

 
114,286

 
108,730

Cash flows from investing activities
 
 
 
 
 
 
Capital expenditures
 
(35,675
)
 
(82,562
)
 
(170,389
)
Proceeds from the sale of assets to affiliates
 
1,761

 
402

 
—

Proceeds from the sale of assets to third parties
 
61

 
12,983

 
—

Net cash used in investing activities
 
(33,853
)
 
(69,177
)
 
(170,389
)
Cash flows from financing activities
 
 
 
 
 
 
Increase (decrease) in outstanding checks
 
(915
)
 
(928
)
 
(3,780
)
Net contributions from (distributions to) Anadarko
 
(81,268
)
 
(44,217
)
 
65,439

Net cash provided by (used in) financing activities
 
(82,183
)
 
(45,145
)
 
61,659

Net increase (decrease) in cash and cash equivalents
 
—

 
(36
)
 
—

Cash and cash equivalents at beginning of period
 
—

 
36

 
36

Cash and cash equivalents at end of period
 
$
—

 
$
—

 
$
36

Supplemental disclosures
 
 
 
 
 
 
Net distributions to (contributions from) Anadarko of other assets
 
$
(135
)
 
$
(27
)
 
$
—

                                                                                                                                                                                                 
(1) 
These financial statements reflect Springfield Pipeline LLC’s 50.1% interest in the Springfield system (as defined in Note 1).


See accompanying Notes to Financial Statements.

6
SPRINGFIELD PIPELINE LLC
NOTES TO FINANCIAL STATEMENTS
   

1.  DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

On March 14, 2016, Western Gas Partners, LP acquired a 100% interest in Springfield Pipeline LLC (“Springfield”) from Anadarko (as defined below). The “Springfield system” consists of a 241-mile oil gathering system, a 548-mile gas gathering system, 24 compressor stations with centralized delivery points, 260,000 barrels of oil storage capacity and 75,000 barrels per day of stabilization capacity, located in the Eagleford shale area in Dimmit, La Salle, Maverick and Webb counties in South Texas. By virtue of a Construction Ownership and Operation Agreement (the “COO agreement”) entered into in 2011 among Springfield and certain third parties (the “non-operating owners”) in the Eagleford shale, Springfield holds a 50.1% interest in the Springfield system, and the remaining 49.9% interest held by the non-operating owners. These financial statements and related notes present Springfield’s 50.1% share of the Springfield system’s assets, liabilities, revenues and expenses.
For purposes of these financial statements, the “Partnership” refers to Western Gas Partners, LP and its subsidiaries. “Anadarko” refers to Anadarko Petroleum Corporation and its subsidiaries, excluding the Partnership and the Partnership’s general partner; and “affiliates” refers to wholly owned and partially owned subsidiaries of Anadarko, excluding the Partnership.
Revenues recognized under the oil and gas gathering agreements with a subsidiary of Anadarko are 100% fee-based. The oil and gas gathering fees are based on a cost-of-service model, and are reviewed on an annual basis and adjusted accordingly. Effective January 1, 2016, these agreements governing the Springfield system were renegotiated. See Note 8.
These financial statements and related notes were prepared in connection with the Partnership’s acquisition of Springfield from Anadarko and for the purpose of complying with the U.S. Securities and Exchange Commission rules and regulations, including but not limited to Regulation S-X, Article 3, General Instructions as to Financial Statements, and Staff Accounting Bulletin Topic 1-B, Allocation of Expenses and Related Disclosure in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity. These financial statements and related notes incorporate the activities and account balances of Springfield from the historical cost-basis accounts of Anadarko with certain adjustments made to reasonably reflect the stand-alone costs of doing business and may not necessarily be indicative of the actual results of operations that would have occurred if Springfield had been owned separately during the periods reported and are also not indicative of future results of operations. For example, in connection with the closing of the acquisition of Springfield on March 14, 2016, existing agreements between Anadarko and the Partnership also became effective for Springfield. See Note 8. These agreements materially affected how general and administrative expense is charged to Springfield and how those expenses are reflected in these financial statements. In addition, the current federal and state income taxes included in these financial statements represent Springfield’s allocable share of Anadarko’s current federal and state income tax, whereas the Partnership, and Springfield upon the Partnership’s proportionate consolidation effective March 1, 2016, is generally not subject to federal or state income tax, other than Texas margin tax. Transactions between Springfield and Anadarko have been identified in the financial statements as transactions between affiliates. Management’s adjustments, allocations and related estimates and assumptions are further described in this Note 1, Note 2 and Note 3.
The information furnished herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of financial position as of December 31, 2015 and 2014, and for the results of operations, changes in net investment by Anadarko and cash flows for the years ended December 31, 2015, 2014 and 2013.

Recently issued accounting standards. The Financial Accounting Standards Board recently issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Springfield is required to adopt the new standard in the first quarter of 2018 using one of two retrospective application methods. Springfield is continuing to evaluate the provisions of this ASU, and has not determined the impact this standard may have on its financial statements and related disclosures or decided upon the method of adoption.


7
SPRINGFIELD PIPELINE LLC
NOTES TO FINANCIAL STATEMENTS
   

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of estimates. In preparing these financial statements in accordance with generally accepted accounting principles in the United States, management makes informed judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements and the notes thereto. Management evaluates its estimates and related assumptions regularly, using historical experience and other methods considered reasonable under the particular 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 business, financial position and results of operations resulting from revisions to estimates are recognized when the facts that give rise to the revision become known.

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 unadjusted 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 fair value measurements are required 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 cost, income, or market valuation approach is used depending on the quality of information available to support management’s assumptions.
The carrying amounts of accounts receivable and accounts payable reported on the balance sheets approximate fair value due to the short-term nature of these items.

Bad-debt reserve. Accounts receivable on the balance sheets are primarily comprised of receivables from third-parties associated with joint-interest-billings. Affiliate accounts receivable were entirely settled through an adjustment to net investment by Anadarko in connection with the Partnership’s acquisition of Springfield. Management analyzes its exposure to bad debts on a customer-by-customer basis for its third-party accounts receivable and may establish credit limits for significant third-party customers. As of December 31, 2015 and 2014, there were no amounts recorded for bad-debt reserves.

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. All construction-related direct labor and material costs are capitalized. 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 using the straight-line method based on estimated useful lives and salvage values of assets. However, subsequent events could cause a change in estimates, thereby impacting future depreciation amounts. 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.

8
SPRINGFIELD PIPELINE LLC
NOTES TO FINANCIAL STATEMENTS
   

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Management 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.
Impairment expense of $1.4 million and $2.0 million was recognized during the years ended December 31, 2015 and 2014, respectively, and was primarily related to the write-off of various assets under construction. Impairment expense of $48.7 million was recognized during the year ended December 31, 2013, primarily related to a wholly owned gathering system, the “Springfield Tyler gathering system”. This asset was impaired to its estimated fair value of $14.4 million, using the income approach and Level 3 fair value inputs. This impairment was triggered by a reduction in estimated future cash flows caused by downward reserve revisions by producers based on lease expirations and the decision to suspend a drilling program in the area. The Springfield Tyler gathering system was sold to a third party in September of 2014, for net proceeds of $13.0 million, after closing adjustments, resulting in an immaterial net loss, recorded in Gain (loss) on divestiture and other, net in the statements of operations.

Goodwill. Goodwill included in the financial statements represents the allocated portion of Anadarko’s other gathering and processing goodwill attributed to Springfield upon the Partnership’s acquisition. The carrying value of Anadarko’s other gathering and processing goodwill represents the excess of the purchase price of a third-party entity over the estimated fair value of the identifiable assets acquired and liabilities assumed by Anadarko. The goodwill balance in the financial statements does not represent, and in some cases is significantly different than, the difference between the consideration the Partnership paid for its acquisition from Anadarko and the fair value of the net assets on the acquisition date. The balance sheets as of December 31, 2015 and 2014, include goodwill of $29.5 million for each period presented, none of which is deductible for tax purposes.
Goodwill is evaluated for impairment annually, as of October 1, or more often as facts and circumstances warrant. The first step in assessing whether an impairment of goodwill is necessary is a qualitative assessment to determine the likelihood of whether the fair value of the reporting unit to which goodwill has been assigned is less than its carrying amount, including goodwill. If, upon conclusion, it is more likely than not that the fair value of the reporting unit exceeds the related carrying amount, then goodwill is not impaired and further testing is not necessary. If the qualitative assessment indicates the fair value of the reporting unit may be less than its carrying amount, the estimated fair value of the reporting unit to which goodwill is assigned is compared to the carrying amount of the associated net assets, including goodwill, to determine whether an impairment is necessary. Estimating the fair value was not necessary based on the qualitative evaluation performed in 2015 or 2014 and no goodwill impairment has been recognized in these financial statements.

Asset retirement obligations. Liabilities are recognized 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 adjusted to its expected settlement value through accretion expense, which is reported within depreciation in the statements of operations. 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 6.


9
SPRINGFIELD PIPELINE LLC
NOTES TO FINANCIAL STATEMENTS
   

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenues. Under its fee-based cost-of-service gathering agreements, Springfield earned fees for gathering services based on rates calculated in a cost-of-service model and reviewed periodically over the life of the underlying gathering agreements and adjusted accordingly. Producers’ gas is gathered and delivered to pipelines for market delivery. Revenues attributable to these gathering agreements are reported as revenues from gathering in the statements of operations.

Operating expenses. Springfield allocates to each system owner its share of the expenses incurred to run and maintain the Springfield system. These direct operation and maintenance expenses are estimated monthly and are recorded to operation and maintenance expenses on the statements of operations. Refer to Note 3 for a description of general and administrative expense for the years ended December 31, 2015, 2014 and 2013.

Cash. Anadarko provided cash as needed to support Springfield and collected cash from the services provided by Springfield. Consequently, the balance sheets do not include any cash balances. See Note 3 for information on Anadarko’s centralized cash management process. Net cash received from Anadarko is reflected as a contribution from Anadarko on the statements of net investment by Anadarko and cash flows.

Income taxes. Springfield is not subject to income tax as a stand-alone entity. The current federal and state income taxes included in these financial statements represent Springfield’s allocable share of Anadarko’s current federal and state income taxes. Deferred federal and state income taxes are provided on temporary differences between the financial statement carrying amounts of recognized assets and liabilities and their respective tax bases as if tax returns were filed for Springfield as a stand-alone entity. See Note 4.

Subsequent events. For purposes of these financial statements, subsequent events have been evaluated through May 26, 2016, the date the financial statements were available to be issued. See Note 8.

3.  TRANSACTIONS WITH AFFILIATES

Affiliate transactions. Revenues from affiliates include amounts earned through the Springfield system contracts, which, prior to January 1, 2016, were with a subsidiary of Anadarko who contracted with third parties (see Note 8). Additionally, as a result of this contracting structure, for the years ended December 31, 2015, 2014 and 2013, a substantial majority of throughput on the Springfield system is considered affiliate throughput. Operating expense includes affiliate general and administrative expense allocated by Anadarko in the form of a management services fee for services and amounts paid to third parties on behalf of Springfield. Affiliate expenses do not bear a direct relationship to affiliate revenues, and third-party expenses do not bear a direct relationship to third-party revenues.

Cash management. Anadarko operates a cash management system whereby excess cash from most of its subsidiaries’ separate bank accounts is generally swept to centralized accounts. Sales and purchases related to third-party transactions of Springfield were received or paid in cash by Anadarko within its centralized cash management system and were ultimately settled through an adjustment to net investment by Anadarko. Anadarko did not charge interest on intercompany balances for all periods presented, because cash settlement of the intercompany balances was never the intent. The outstanding affiliate balances were entirely settled through an adjustment to net investment by Anadarko in connection with the Partnership’s acquisition of Springfield.

Allocation of costs. For the purpose of these financial statements, a portion of Anadarko’s general and administrative expenses has been allocated and included in general and administrative expenses in the statements of operations in the form of a management services fee. General, administrative and management costs were allocated based on Springfield’s proportionate share of Anadarko’s assets and revenues or other contractual arrangements. Management believes these allocation methodologies are reasonable. The management services fee represents allocable costs, including compensation, benefits, pension and postretirement costs, associated with the provision of services for or on behalf of Springfield by Anadarko related to the following: (i) various business services, including but not limited to, payroll, accounts payable and facilities management; and (ii) various corporate services, including, but not limited to, legal, accounting, treasury, information technology and human resources.


10
SPRINGFIELD PIPELINE LLC
NOTES TO FINANCIAL STATEMENTS
   

4.  INCOME TAXES

The components of income tax expense (benefit) for Springfield are as follows:
 
 
Year Ended December 31,
thousands
 
2015
 
2014
 
2013
Current income tax expense (benefit)
 
 
 
 
 
 
Federal income tax expense (benefit)
 
$
31,832

 
$
1,615

 
$
(26,232
)
State income tax expense (benefit)
 
906

 
430

 
(324
)
Total current income taxes
 
32,738

 
2,045

 
(26,556
)
Deferred income tax expense (benefit)
 
 
 
 
 
 
Federal income tax expense (benefit)
 
9,903

 
24,749

 
25,544

State income tax expense (benefit)
 
(489
)
 
608

 
667

Total deferred income tax expenses (benefit)
 
9,414

 
25,357

 
26,211

Total income tax expense (benefit)
 
$
42,152

 
$
27,402

 
$
(345
)

The following table summarizes the reconciliation of the federal statutory tax rate to the effective tax rate for Springfield:
 
 
Year Ended December 31,
thousands except percentages
 
2015
 
2014
 
2013
Income (loss) before income taxes
 
$
119,796

 
$
76,203

 
$
(1,640
)
Statutory tax rate
 
—
%
 
—
%
 
—
%
Tax computed at statutory rate
 
$
—

 
$
—

 
$
—

Adjustments resulting from:
 
 
 
 
 
 
Federal taxes on income attributable to Springfield
 
41,881

 
26,728

 
(568
)
State taxes on income attributable to Springfield (net of federal benefit)
 
271

 
674

 
223

Income tax expense (benefit)
 
$
42,152

 
$
27,402

 
$
(345
)
Effective tax rate
 
35
%
 
36
%
 
21
%

Springfield reported a loss before income taxes for the year ended December 31, 2013. As a result, items that ordinarily increase or decrease the tax rate will have the opposite effect. The decrease from the 35% federal statutory rate and the applicable state rate was primarily due to limitation of certain deductions under Texas Margin Tax rules that no longer applied after 2013.

The tax effects of temporary differences that give rise to deferred tax liabilities for Springfield are as follows:
 
 
December 31,
thousands
 
2015
 
2014
Depreciable property
 
$
(133,741
)
 
$
(124,273
)
Total deferred income tax liabilities
 
$
(133,741
)
 
$
(124,273
)


11
SPRINGFIELD PIPELINE LLC
NOTES TO FINANCIAL STATEMENTS
   

5.  PROPERTY, PLANT AND EQUIPMENT

A summary of the historical cost of property, plant and equipment is as follows:
 
 
 
 
December 31,
thousands
 
Estimated Useful Life
 
2015
 
2014
Land
 
n/a
 
$
553

 
$
553

Gathering systems
 
3 to 47 years
 
640,242

 
586,477

Assets under construction
 
n/a
 
5,167

 
28,922

Other
 
3 to 40 years
 
6,179

 
5,975

Total property, plant and equipment
 
 
 
652,141

 
621,927

Accumulated depreciation
 
 
 
83,336

 
55,515

Net property, plant and equipment
 
 
 
$
568,805

 
$
566,412


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. Property, plant and equipment cost, as well as the accrued liabilities balance in the balance sheets, includes $0.8 million and $4.1 million of accrued capital as of December 31, 2015 and 2014, respectively, representing estimated capital expenditures for which invoices had not yet been processed.

6.  ASSET RETIREMENT OBLIGATIONS

The following table provides a summary of changes in asset retirement obligations:
 
 
Year Ended December 31,
thousands
 
2015
 
2014
Carrying amount of asset retirement obligations at beginning of year
 
$
9,120

 
$
4,028

Liabilities incurred
 
369

 
487

Liabilities settled
 
(528
)
 
(746
)
Accretion expense
 
438

 
243

Revisions in estimated liabilities
 
705

 
5,108

Carrying amount of asset retirement obligations at end of year
 
$
10,104

 
$
9,120


Revisions in estimated liabilities for the year ended December 31, 2014, are primarily related to changes in the estimated costs associated with the abandonment of pipe and equipment skids, and compressors.

7.  COMMITMENTS AND CONTINGENCIES

Litigation and legal proceedings. From time to time, Springfield 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 proceedings for which a final disposition could have a material adverse effect on the results of operations, cash flows or financial position of Springfield as of December 31, 2015 and 2014, and for the years ended December 31, 2015, 2014 and 2013.

Lease commitments. Rent expense associated with the shared field offices and equipment leases was $15.3 million, $16.5 million and $14.8 million, for the years ended December 31, 2015, 2014 and 2013, respectively.


12
SPRINGFIELD PIPELINE LLC
NOTES TO FINANCIAL STATEMENTS
   

8.  SUBSEQUENT EVENT

Oil and gas gathering agreements. In connection with the Partnership’s acquisition, Springfield entered into new oil and gas gathering agreements with affiliates of each of the owners of the Springfield system, including Anadarko, with primary terms extending through 2034. The agreements provide for a commodity fee applied to total volumes gathered that is adjusted annually and is based on a cost-of-service model with a specified rate of return. The agreements also provide for a demand fee that is applied to a monthly minimum volume commitment.

Agreements with Anadarko. Beginning on the closing date of the Springfield acquisition and related transactions, Springfield is subject to the terms and conditions of various new and existing agreements between the Partnership and Anadarko, including the following:

•
the contribution agreement by which the Partnership acquired Springfield, pursuant to which Anadarko agreed to indemnify the Partnership against certain losses resulting from any breach of Anadarko’s representations, warranties, covenants or agreements and for certain other matters;

•
an omnibus agreement that provides for certain indemnities, reimbursement for expenses paid by Anadarko on behalf of the Partnership and compensation to Anadarko for providing the Partnership with certain general and administrative services and insurance coverage;

•
a tax sharing agreement pursuant to which the Partnership will reimburse Anadarko for the Partnership’s share of Texas margin tax borne by Anadarko as a result of the financial results of Springfield being included in a combined or consolidated tax return filed by Anadarko with respect to activity subsequent to March 1, 2016; and

•
other routine agreements with Anadarko, its subsidiaries or affiliates that arise in the ordinary course of business for gathering services and other operational matters.

Change in tax status. The Partnership is generally not subject to federal or state income tax, other than Texas margin tax. As such, the income attributable to the interest in the Springfield system upon the Partnership’s proportionate consolidation effective March 1, 2016, is not subject to federal income tax, thereby eliminating the applicability of entity-level federal income taxation.

Affiliated balances subsequent to acquisition. Prior to March 1, 2016, cash transactions attributable to Springfield were received or paid in cash by Anadarko within its centralized cash management system. In connection with the closing of the contribution agreement associated with the Springfield acquisition, net affiliate receivable and payable balances with Anadarko were settled through an adjustment to net investment by Anadarko. Subsequent to March 1, 2016, the Partnership cash-settles transactions directly with third parties and Anadarko, including transactions attributable to Springfield, and no interest is charged or earned on affiliate balances other than balances associated with loan agreements.


13
 EX-99.2 4 wes8ka-exh992xspringfield.htm EXHIBIT 99.2 Exhibit


EXHIBIT 99.2

WESTERN GAS PARTNERS, LP
INDEX TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS





INTRODUCTION

The unaudited pro forma condensed consolidated financial statements present the impact to the results of operations and financial position of Western Gas Partners, LP attributable to the acquisition on March 14, 2016, of Anadarko Petroleum Corporation’s interest in Springfield Pipeline LLC (“Springfield”). Springfield owns a 50.1% interest in the “Springfield system,” which consists of oil and gas gathering systems and related facilities. Springfield’s financial statements present Springfield’s 50.1% share of the Springfield system’s assets, liabilities, revenues and expenses.
The “Partnership” refers to Western Gas Partners, LP and its subsidiaries. The Partnership’s general partner, Western Gas Holdings, LLC (the “general partner”), is owned by Western Gas Equity Partners, LP (“WGP”). Western Gas Equity Holdings, LLC is WGP’s general partner and is a wholly owned subsidiary of Anadarko Petroleum Corporation. “Anadarko” refers to Anadarko Petroleum Corporation and its subsidiaries, excluding the Partnership and the general partner, and “affiliates” refers to subsidiaries of Anadarko, excluding the Partnership, but including equity interests in Fort Union Gas Gathering, LLC, White Cliffs Pipeline, LLC, Rendezvous Gas Services, LLC, Enterprise EF78 LLC, Texas Express Pipeline LLC, Texas Express Gathering LLC and Front Range Pipeline LLC.
References to “Partnership assets” refer to the assets owned and interests accounted for under the equity method by the Partnership as of December 31, 2015. The Partnership’s acquisition of Springfield from Anadarko is considered a transfer of net assets between entities under common control and recorded at Anadarko’s historic carrying value. After an acquisition of assets from Anadarko, the Partnership may be required to recast its financial statements to include the activities of such assets from the date of common control.
The unaudited pro forma condensed consolidated statements of operations for the years ended December 31, 2015, 2014 and 2013, and the unaudited pro forma condensed consolidated balance sheet as of December 31, 2015, are based upon the historical consolidated financial statements of the Partnership, as presented in the Partnership’s 2015 Form 10-K, and the historical financial statements of Springfield, as presented in Exhibit 99.1 of this Current Report on Form 8-K/A. The unaudited pro forma condensed consolidated statements of operations for the years ended December 31, 2015, 2014 and 2013, have been prepared as if the acquisition of Springfield occurred on January 1, 2013. The unaudited pro forma condensed consolidated balance sheet has been prepared as if the acquisition of Springfield occurred on December 31, 2015. The unaudited pro forma condensed consolidated financial statements have been prepared based on the assumption that the Partnership will continue to be treated as a partnership for U.S. federal and state income tax purposes and therefore will not be subject to U.S. federal income taxes and state income taxes, except for the Texas margin tax. The unaudited pro forma condensed consolidated financial statements have also been prepared based on certain pro forma adjustments as described in Note 2—Pro Forma Adjustments.
The audited historical financial information of Springfield and the Partnership included in these unaudited pro forma condensed consolidated financial statements (and the notes thereto) is qualified in its entirety by reference to the audited historical financial statements of Springfield as set forth in Exhibit 99.1 of this Current Report on Form 8-K/A, the Partnership’s audited historical consolidated financial statements as set forth in its 2015 Form 10-K, as filed with the U.S. Securities and Exchange Commission on February 25, 2016, and the related notes contained in those reports. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with those historical financial statements and the related notes thereto.

2


INTRODUCTION (CONTINUED)

The pro forma adjustments reflected in the unaudited pro forma condensed consolidated financial statements are based upon currently available information and certain assumptions and estimates. The actual effects of these transactions will differ from the pro forma adjustments. However, the Partnership’s management believes that the applied estimates and assumptions provide a reasonable basis for the presentation of the significant effects of certain transactions that are expected to have a continuing impact on the Partnership. In addition, the Partnership’s management believes that the pro forma adjustments are factually supportable and appropriately represent the expected impact of items that are directly attributable to the transfer of Springfield to the Partnership.
The pro forma adjustments included in the unaudited pro forma condensed consolidated financial statements reflect the acquisition of Springfield on March 14, 2016, including the following significant transactions:

•
the Partnership’s $247.5 million of borrowings under its revolving credit facility (“RCF”) to fund a portion of the cash consideration paid for the acquisition of Springfield;

•
the Partnership’s issuance of 14,030,611 Series A Preferred units to private investors and receipt of related proceeds to fund a portion of the cash consideration paid for the acquisition of Springfield;

•
the Partnership’s issuance of 835,841 common units to WGP and receipt of related proceeds to fund a portion of the cash consideration paid for the acquisition of Springfield;

•
the Partnership’s issuance of 1,253,761 common units to Anadarko in connection with the acquisition of Springfield; and

•
Anadarko’s contribution of Springfield to the Partnership.

In April 2016, the Partnership issued additional Series A Preferred units pursuant to the full exercise of an option granted in connection with the initial issuance, the proceeds from which were used to repay a portion of the outstanding borrowings under the RCF. This additional issuance is not reflected as a pro forma adjustment as it is not directly attributable to the Partnership’s acquisition of Springfield.

From and after the closing of the acquisition of Springfield and related transactions, Springfield and the Partnership, as applicable, will be subject to the terms and conditions of various new and existing agreements, including the following:

•
the contribution agreement by which the Partnership acquired Springfield, pursuant to which Anadarko agreed to indemnify the Partnership against certain losses resulting from any breach of Anadarko’s representations, warranties, covenants or agreements, and for certain other matters;

•
the Convertible Preferred Unit Purchase Agreement, pursuant to which the Partnership issued and sold in a private placement an aggregate of 14,030,611 Series A Preferred units representing limited partner interests in the Partnership, with an option to sell up to an additional 7,892,220 Series A Preferred units;

•
the Registration Rights Agreement with the Series A Preferred unit purchasers relating to the registered resale of the common units representing limited partner interests in the Partnership issuable upon conversion of the Series A Preferred units;

•
the Common Unit Purchase Agreement, pursuant to which the Partnership issued and sold WES common units to WGP;

•
the Board Observation Agreement with the Series A Preferred unit purchasers relating to the purchasers’ right to appoint a person to act as an observer with respect to the Board of Directors of the general partner under certain, limited circumstances;

3


INTRODUCTION (CONTINUED)

•
the Second Amended and Restated Agreement of Limited Partnership of Western Gas Partners, LP, establishing the terms of the Series A Preferred units;

•
a tax sharing agreement pursuant to which the Partnership will reimburse Anadarko for the Partnership’s estimated share of Texas margin tax borne by Anadarko as a result of the financial results of Springfield being included in a combined or consolidated tax return filed by Anadarko with respect to activity subsequent to March 1, 2016; and

•
other routine agreements with Anadarko or its subsidiaries that arise in the ordinary course of business for gathering services and other operational matters.

The unaudited pro forma condensed consolidated financial statements are not necessarily indicative of the results that would have occurred if the Partnership had acquired Springfield on the dates indicated nor are they indicative of the future operating results of the Partnership.


4


WESTERN GAS PARTNERS, LP
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2015
(UNAUDITED)
thousands except per-unit amounts
 
Partnership
Historical
 
Springfield
Historical
 
Pro Forma
Adjustments
 
Partnership
Pro Forma
Revenues and other – affiliates
 
 
 
 
 
 
 
 
Gathering, processing and transportation
 
$
581,644

 
$
190,717

 
$
—

 
$
772,361

Natural gas, natural gas liquids and drip condensate sales
 
447,106

 
—

 
—

 
447,106

Other
 
1,172

 
66

 
(66
)
(a)
1,172

Total revenues and other – affiliates
 
1,029,922

 
190,783

 
(66
)
 
1,220,639

Revenues and other – third parties
 
 
 
 
 
 
 
 
Gathering, processing and transportation
 
356,477

 
—

 
—

 
356,477

Natural gas, natural gas liquids and drip condensate sales
 
170,843

 
—

 
—

 
170,843

Other
 
4,130

 
(17
)
 
—

 
4,113

Total revenues and other – third parties
 
531,450

 
(17
)
 
—

 
531,433

Total revenues and other
 
1,561,372

 
190,766

 
(66
)
 
1,752,072

Equity income, net (1)
 
71,251

 
—

 
—

 
71,251

Operating expenses
 
 
 
 
 
 
 
 
Cost of product (2)
 
528,435

 
—

 
(66
)
(a)
528,369

Operation and maintenance (2)
 
296,774

 
35,198

 
—

 
331,972

General and administrative (2)
 
38,108

 
3,211

 
—

 
41,319

Property and other taxes
 
30,533

 
2,755

 
—

 
33,288

Depreciation and amortization
 
244,163

 
28,448

 
—

 
272,611

Impairments
 
514,096

 
1,362

 
—

 
515,458

Total operating expenses
 
1,652,109

 
70,974

 
(66
)
 
1,723,017

Gain (loss) on divestiture and other, net
 
57,020

 
4

 
—

 
57,024

Operating income (loss)
 
37,534

 
119,796

 
—

 
157,330

Interest income – affiliates
 
16,900

 
—

 
—

 
16,900

Interest expense (3)
 
(113,872
)
 
—

 
(3,812
)
(c)
(117,684
)
Other income (expense), net
 
(619
)
 
—

 
—

 
(619
)
Income (loss) before income taxes
 
(60,057
)
 
119,796

 
(3,812
)
 
55,927

Income tax (benefit) expense
 
3,380

 
42,152

 
(42,673
)
(b)
2,859

Net income (loss)
 
(63,437
)
 
77,644

 
38,861

 
53,068

Net income attributable to noncontrolling interest
 
10,101

 
—

 
—

 
10,101

Net income (loss) attributable to Western Gas Partners, LP
 
$
(73,538
)
 
$
77,644

 
$
38,861

 
$
42,967

Limited partners’ interest in net income (loss):
 
 
 
 
 
 
 
 
Net income (loss) attributable to Western Gas Partners, LP
 
$
(73,538
)
 
 
 
 
 
$
42,967

Pre-acquisition net (income) loss allocated to Anadarko
 
(1,742
)
 
 
 
 
 
(1,742
)
Series A Preferred units interest in net (income) loss (4)
 
—

 
 
 
 
 
(38,164
)
General partner interest in net (income) loss (4)
 
(180,996
)
 
 
 
 
 
(185,057
)
Common and Class C limited partners’ interest in net income (loss) (4)
 
(256,276
)
 
 
 
 
 
(181,996
)
Net income (loss) per common unit – basic and diluted (5)
 
$
(1.95
)
 
 
 
 
 
$
(1.40
)
 
                                                                                                                                                                                    
(1) 
Income earned from equity investments is classified as affiliate.
(2) 
As it relates to the “Partnership Historical” column, cost of product includes product purchases from Anadarko of $167.4 million, operation and maintenance includes charges from Anadarko of $67.1 million, and general and administrative includes charges from Anadarko of $30.7 million for the year ended December 31, 2015. As it relates to the “Springfield Historical” column, operation and maintenance includes charges from Anadarko of $9.9 million and general and administrative expense includes charges from Anadarko of $3.2 million for the year ended December 31, 2015.
(3) 
As it relates to the “Partnership Historical” column, includes affiliate interest expense of $14.4 million for the year ended December 31, 2015.
(4) 
Represents net income (loss) earned on and subsequent to the date of acquisition of the Partnership assets.
(5) 
See Note 3 for the calculation of net income (loss) per common unit.

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
   
5



WESTERN GAS PARTNERS, LP
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2014
(UNAUDITED)
thousands except per-unit amounts
 
Partnership
Historical
 
Springfield
Historical
 
Pro Forma
Adjustments
 
Partnership
Pro Forma
Revenues and other – affiliates
 
 
 
 
 
 
 
 
Gathering, processing and transportation
 
$
467,540

 
$
148,367

 
$
—

 
$
615,907

Natural gas, natural gas liquids and drip condensate sales
 
581,317

 
1,672

 
—

 
582,989

Other
 
5,078

 
67

 
(67
)
(a)
5,078

Total revenues and other – affiliates
 
1,053,935

 
150,106

 
(67
)
 
1,203,974

Revenues and other – third parties
 
 
 
 
 
 
 
 
Gathering, processing and transportation
 
277,605

 
522

 
—

 
278,127

Natural gas, natural gas liquids and drip condensate sales
 
42,916

 
—

 
—

 
42,916

Other
 
8,412

 
(52
)
 
—

 
8,360

Total revenues and other – third parties
 
328,933

 
470

 
—

 
329,403

Total revenues and other
 
1,382,868

 
150,576

 
(67
)
 
1,533,377

Equity income, net (1)
 
57,836

 
—

 
—

 
57,836

Operating expenses
 
 
 
 
 
 
 
 
Cost of product (2)
 
454,445

 
4,001

 
(67
)
(a)
458,379

Operation and maintenance (2)
 
255,844

 
37,866

 
—

 
293,710

General and administrative (2)
 
36,223

 
2,338

 
—

 
38,561

Property and other taxes
 
26,066

 
2,823

 
—

 
28,889

Depreciation and amortization
 
186,514

 
25,295

 
—

 
211,809

Impairments
 
3,084

 
2,041

 
—

 
5,125

Total operating expenses
 
962,176

 
74,364

 
(67
)
 
1,036,473

Gain (loss) on divestiture and other, net
 
—

 
(9
)
 
—

 
(9
)
Operating income (loss)
 
478,528

 
76,203

 
—

 
554,731

Interest income – affiliates
 
16,900

 
—

 
—

 
16,900

Interest expense
 
(76,766
)
 
—

 
(3,614
)
(c)
(80,380
)
Other income (expense), net
 
864

 
—

 
—

 
864

Income (loss) before income taxes
 
419,526

 
76,203

 
(3,614
)
 
492,115

Income tax (benefit) expense
 
11,659

 
27,402

 
(35,247
)
(b)
3,814

Net income (loss)
 
407,867

 
48,801

 
31,633

 
488,301

Net income attributable to noncontrolling interest
 
14,025

 
—

 
—

 
14,025

Net income (loss) attributable to Western Gas Partners, LP
 
$
393,842

 
$
48,801

 
$
31,633

 
$
474,276

Limited partners’ interest in net income (loss):
 
 
 
 
 
 
 
 
Net income (loss) attributable to Western Gas Partners, LP
 
$
393,842

 
 
 
 
 
$
474,276

Pre-acquisition net (income) loss allocated to Anadarko
 
(16,353
)
 
 
 
 
 
(16,353
)
Series A Preferred units interest in net (income) loss (3)
 
—

 
 
 
 
 
(49,173
)
General partner interest in net (income) loss (3)
 
(120,980
)
 
 
 
 
 
(123,559
)
Common and Class C limited partners’ interest in net income (loss) (3)
 
256,509

 
 
 
 
 
285,191

Net income (loss) per common unit – basic (4)
 
$
2.13

 
 
 
 
 
$
2.32

Net income (loss) per common unit – diluted (4)
 
2.12

 
 
 
 
 
2.32

 
                                                                                                                                                                                    
(1) 
Income earned from equity investments is classified as affiliate.
(2) 
As it relates to the “Partnership Historical” column, cost of product includes product purchases from Anadarko of $127.9 million, operation and maintenance includes charges from Anadarko of $62.3 million, and general and administrative includes charges from Anadarko of $29.0 million for the year ended December 31, 2014. As it relates to the “Springfield Historical” column, cost of product includes product purchases from Anadarko of $0.1 million, operation and maintenance includes charges from Anadarko of $9.1 million and general and administrative expense includes charges from Anadarko of $2.3 million for the year ended December 31, 2014.
(3) 
Represents net income (loss) earned on and subsequent to the date of acquisition of the Partnership assets.
(4) 
See Note 3 for the calculation of net income (loss) per common unit.

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
   
6



WESTERN GAS PARTNERS, LP
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2013
(UNAUDITED)
thousands except per-unit amounts
 
Partnership
Historical
 
Springfield
Historical
 
Pro Forma
Adjustments
 
Partnership
Pro Forma
Revenues and other – affiliates
 
 
 
 
 
 
 
 
Gathering, processing and transportation
 
$
340,116

 
$
109,156

 
$
—

 
$
449,272

Natural gas, natural gas liquids and drip condensate sales
 
502,219

 
—

 
—

 
502,219

Other
 
1,868

 
4,622

 
(69
)
(a)
6,421

Total revenues and other – affiliates
 
844,203

 
113,778

 
(69
)
 
957,912

Revenues and other – third parties
 
 
 
 
 
 
 
 
Gathering, processing and transportation
 
190,877

 
936

 
—

 
191,813

Natural gas, natural gas liquids and drip condensate sales
 
46,289

 
—

 
—

 
46,289

Other
 
4,113

 
(67
)
 
—

 
4,046

Total revenues and other – third parties
 
241,279

 
869

 
—

 
242,148

Total revenues and other
 
1,085,482

 
114,647

 
(69
)
 
1,200,060

Equity income, net (1)
 
22,948

 
—

 
—

 
22,948

Operating expenses
 
 
 
 
 
 
 
 
Cost of product (2)
 
373,171

 
4,524

 
(69
)
(a)
377,626

Operation and maintenance (2)
 
201,759

 
34,212

 
—

 
235,971

General and administrative (2)
 
31,353

 
3,413

 
—

 
34,766

Property and other taxes
 
23,806

 
2,437

 
—

 
26,243

Depreciation and amortization
 
149,815

 
23,048

 
—

 
172,863

Impairments
 
1,267

 
48,653

 
—

 
49,920

Total operating expenses
 
781,171

 
116,287

 
(69
)
 
897,389

Operating income (loss)
 
327,259

 
(1,640
)
 
—

 
325,619

Interest income – affiliates
 
16,900

 
—

 
—

 
16,900

Interest expense
 
(51,797
)
 
—

 
(4,118
)
(c)
(55,915
)
Other income (expense), net
 
1,837

 
—

 
—

 
1,837

Income (loss) before income taxes
 
294,199

 
(1,640
)
 
(4,118
)
 
288,441

Income tax (benefit) expense
 
4,660

 
(345
)
 
(4,285
)
(b)
30

Net income (loss)
 
289,539

 
(1,295
)
 
167

 
288,411

Net income attributable to noncontrolling interest
 
10,816

 
—

 
—

 
10,816

Net income (loss) attributable to Western Gas Partners, LP
 
$
278,723

 
$
(1,295
)
 
$
167

 
$
277,595

Limited partners’ interest in net income (loss):
 
 
 
 
 
 
 
 
Net income (loss) attributable to Western Gas Partners, LP
 
$
278,723

 
 
 
 
 
$
277,595

Pre-acquisition net (income) loss allocated to Anadarko
 
(8,224
)
 
 
 
 
 
(8,224
)
Series A Preferred units interest in net (income) loss (3)
 
—

 
 
 
 
 
(48,899
)
General partner interest in net (income) loss (3)
 
(69,633
)
 
 
 
 
 
(69,916
)
Common and Class C limited partners’ interest in net income (loss) (3)
 
200,866

 
 
 
 
 
150,556

Net income (loss) per common unit – basic and diluted (4)
 
$
1.83

 
 
 
 
 
$
1.34

 
                                                                                                                                                                                    
(1) 
Income earned from equity investments is classified as affiliate.
(2) 
As it relates to the “Partnership Historical” column, cost of product includes product purchases from Anadarko of $136.6 million, operation and maintenance includes charges from Anadarko of $59.7 million, and general and administrative includes charges from Anadarko of $25.0 million for the year ended December 31, 2013. As it relates to the “Springfield Historical” column, cost of product includes product purchases from Anadarko of $0.2 million, operation and maintenance includes charges from Anadarko of $7.6 million and general and administrative expense includes charges from Anadarko of $3.4 million for the year ended December 31, 2013.
(3) 
Represents net income (loss) earned on and subsequent to the date of acquisition of the Partnership assets.
(4) 
See Note 3 for the calculation of net income (loss) per common unit.

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
   
7



WESTERN GAS PARTNERS, LP
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2015
(UNAUDITED)
thousands except number of units
 
Partnership
Historical
 
Springfield
Historical
 
Pro Forma
Adjustments
 
Partnership
Pro Forma
ASSETS
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
98,033

 
$
—

 
$
247,500

(d)
$
98,033

 
 
 
 
 
 
465,000

(e)
 
 
 
 
 
 
 
(712,500
)
(e)
 
Accounts receivable, net (1)
 
180,993

 
12,336

 
—

 
193,329

Other current assets
 
7,855

 
—

 
—

 
7,855

Total current assets
 
286,881

 
12,336

 
—

 
299,217

Note receivable – Anadarko
 
260,000

 
—

 
—

 
260,000

Property, plant and equipment
 
 
 
 
 
 
 


Cost
 
5,904,637

 
652,141

 
—

 
6,556,778

Less accumulated depreciation
 
1,614,663

 
83,336

 
—

 
1,697,999

Net property, plant and equipment
 
4,289,974

 
568,805

 
—

 
4,858,779

Goodwill
 
389,686

 
29,500

 
—

 
419,186

Other intangible assets
 
832,127

 
—

 
—

 
832,127

Equity investments
 
618,887

 
—

 
—

 
618,887

Other assets
 
29,707

 
—

 
—

 
29,707

Total assets
 
$
6,707,262

 
$
610,641

 
$
—

 
$
7,317,903

LIABILITIES, EQUITY AND PARTNERS’ CAPITAL
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 

Accounts and imbalance payables
 
$
64,606

 
$
34,055

 
$
—

 
$
98,661

Accrued ad valorem taxes
 
17,808

 
—

 
—

 
17,808

Accrued liabilities
 
116,818

 
2,201

 
—

 
119,019

Total current liabilities
 
199,232

 
36,256

 
—

 
235,488

Long-term debt
 
2,707,357

 
—

 
247,500

(d)
2,954,857

Deferred income taxes
 
5,963

 
133,741

 
(130,965
)
(b)
8,739

Asset retirement obligations and other
 
118,606

 
10,046

 
—

 
128,652

Deferred purchase price obligation – Anadarko
 
188,674

 
—

 
—

 
188,674

Total long-term liabilities
 
3,020,600

 
143,787

 
116,535

 
3,280,922

Total liabilities
 
3,219,832

 
180,043

 
116,535

 
3,516,410

Equity and partners’ capital
 
 
 
 
 
 
 
 
Series A Preferred units
 
—

 
—

 
440,000

(e)
440,000

Common units
 
2,588,991

 
—

 
25,000

(e)
2,451,184

 
 
 
 
 
 
(162,807
)
(e)
 
Class C units
 
710,891

 
—

 
—

 
710,891

General partner units
 
120,164

 
—

 
—

 
120,164

Net investment by Anadarko
 
—

 
430,598

 
130,965

(b)
11,870

 
 
 
 
 
 
(549,693
)
(e)
 
Total partners’ capital
 
3,420,046

 
430,598

 
(116,535
)
 
3,734,109

Noncontrolling interest
 
67,384

 
—

 
—

 
67,384

Total equity and partners’ capital
 
3,487,430

 
430,598

 
(116,535
)
 
3,801,493

Total liabilities, equity and partners’ capital
 
$
6,707,262

 
$
610,641

 
$
—

 
$
7,317,903

                                                                                                                                                                                    
(1) 
As it relates to the “Partnership Historical” column, accounts receivable, net includes amounts receivable from affiliates of $42.7 million as of December 31, 2015.


See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
   
8



WESTERN GAS PARTNERS, LP
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

The unaudited pro forma condensed consolidated financial statements are based upon the audited historical consolidated financial statements of the Partnership and the audited historical financial statements of Springfield. As described in the Introduction, these unaudited pro forma condensed consolidated financial statements present the impact of the acquisition of Springfield on the Partnership’s results of operations and financial position. The contribution of Springfield to the Partnership was recorded at Anadarko’s historical cost as this transaction is considered a reorganization of entities under common control.

2.  PRO FORMA ADJUSTMENTS

The following adjustments for the Partnership have been prepared as if the acquisition of Springfield (i) occurred on January 1, 2013, in the case of the unaudited pro forma condensed consolidated statements of operations for the years ended December 31, 2015, 2014 and 2013, and (ii) on December 31, 2015, in the case of the unaudited pro forma condensed consolidated balance sheet as of December 31, 2015:

(a)
The elimination of historical revenue and cost of product between Springfield and other WES companies for consolidation purposes;

(b)
The elimination of historical current and deferred income taxes, as the Partnership is generally not subject to federal and state income taxes, other than Texas margin tax. Texas margin taxes that continue to be borne by the Partnership on the portion of the Partnership’s pro forma income that is allocable to Texas have not been eliminated;

(c)
The inclusion of interest expense on the Partnership’s $247.5 million of borrowings under the RCF used to fund a portion of the acquisition of Springfield. The interest rate on the RCF used for purposes of calculating interest expense in the unaudited pro forma condensed consolidated statements of operations was 1.54%, 1.46% and 1.66% at December 31, 2015, 2014 and 2013, respectively. A 1/8% variance in this rate would result in an adjustment to income (loss) before income taxes of $0.3 million for each of the years ended December 31, 2015, 2014 and 2013;

(d)
The receipt of $247.5 million of borrowings under the RCF; and

(e)
The acquisition of Springfield by the Partnership, consisting of the cash payment of $712.5 million (representing (i) $440.0 million in net proceeds from the issuance of 14,030,611 Series A Preferred units to private investors, (ii) $25.0 million in proceeds from the issuance of 835,841 common units to WGP and (iii) $247.5 million borrowed under the RCF) and the issuance of 1,253,761 common units to Anadarko. The excess of cash consideration paid over the historical net book value of assets acquired and liabilities assumed is recorded as a decrease to partners’ capital for the common unitholders and the general partner.

In April 2016, the Partnership issued additional Series A Preferred units pursuant to the full exercise of an option granted in connection with the initial issuance, the proceeds from which were used to repay a portion of the outstanding borrowings under the RCF. This additional issuance is not reflected as a pro forma adjustment as it is not directly attributable to the Partnership’s acquisition of Springfield.

9


WESTERN GAS PARTNERS, LP
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

3.  PRO FORMA NET INCOME (LOSS) PER UNIT

The Partnership applies the two-class method in determining net income (loss) per unit applicable to master limited partnerships having multiple classes of securities including common units, Class C units, general partner units and incentive distribution rights (“IDRs”). The two-class method is an earnings allocation formula that treats participating securities as having rights to earnings that otherwise would have been available to common unitholders. Under the two-class method, net income (loss) 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.
Net income (loss) attributable to Western Gas Partners, LP earned on and subsequent to the date of the acquisition of the Partnership assets, net of distributions on the Series A Preferred units and amortization of the Series A Preferred unit beneficial conversion feature, is allocated to the general partner, the common unitholders and the Class C unitholder, in accordance with their respective weighted-average ownership percentages (exclusive of the Series A Preferred unit limited partnership interest) and, when applicable, giving effect to incentive distributions allocable to the general partner. The allocable limited partners’ interest in net income (loss) is also net of amortization of the beneficial conversion feature related to the Class C units and is allocated between the common and Class C unitholders by applying the provisions of the partnership agreement that govern actual cash distributions and capital account allocations, as if all earnings for the period had been distributed. Net income (loss) attributable to the Partnership assets acquired from Anadarko for periods prior to the Partnership’s acquisition of the Partnership assets is not allocated to the limited partners for purposes of calculating net income (loss) per common unit.
For purposes of calculating pro forma net income (loss) per unit, management assumed that (i) annual pro forma cash distributions were equal to annual pro forma earnings, (ii) distributions would have been paid on all outstanding units based on the historically declared per-unit amount for each quarterly period in 2015, 2014 and 2013, (iii) the issuance of 1,253,761 common units to Anadarko and 835,841 common units to WGP, all occurred on January 1, 2013, and (iv) the issuance of 14,030,611 Series A Preferred units occurred on January 1, 2013.    
Pro forma basic net income (loss) per common unit is calculated by dividing the limited partners’ interest in pro forma net income (loss) attributable to common unitholders by the pro forma weighted-average number of common units outstanding during the period. The Series A Preferred units are not considered a participating security as they only have distribution rights up to the specified per-unit quarterly distribution and have no rights to the Partnership’s undistributed earnings. Because the Class C units participate in distributions with common units according to a predetermined formula, they are considered a participating security and are included in the computation of earnings per unit pursuant to the two-class method. The Class C unit participation right results in a non-contingent transfer of value each time the Partnership declares a distribution. Pro forma diluted net income (loss) per common unit is calculated by dividing the sum of (i) the limited partners’ interest in pro forma net income (loss) attributable to common units adjusted for distributions on the Series A Preferred units and a reallocation of the limited partners’ interest in pro forma net income (loss) assuming conversion of the Series A Preferred units into common units, and (ii) the limited partners’ interest in pro forma net income (loss) allocable to the Class C units as a participating security, by the sum of the pro forma weighted-average number of common units outstanding plus the dilutive effect of (i) the pro forma weighted-average number of outstanding Class C units and (ii) the pro forma weighted-average number of common units outstanding assuming conversion of the Series A Preferred units.
    

10


WESTERN GAS PARTNERS, LP
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

3.  PRO FORMA NET INCOME (LOSS) PER UNIT (CONTINUED)

Upon closing the acquisition of Springfield, WGP, through its ownership of the general partner, held 2,583,068 general partner units, representing a 1.6% general partner interest in the Partnership, 100% of the Partnership’s IDRs and 50,132,046 common units, representing a 31.5% limited partner interest in the Partnership. Other subsidiaries of Anadarko held 2,011,380 common units and 11,735,446 Class C units, representing an aggregate 8.7% limited partner interest in the Partnership. The public held 78,523,141 common units of the Partnership upon closing of the acquisition of Springfield, representing a 49.4% limited partner interest in the Partnership and private investors held 14,030,611 Series A Preferred units, representing an 8.8% limited partner interest in the Partnership.
The following table sets forth the adjustments as described above in arriving at pro forma common and Class C limited partners’ interest in net income (loss) for the periods presented:
 
 
Year Ended December 31,
thousands
 
2015
 
2014
 
2013
Numerator – basic and diluted:
 
 
 
 
 
 
Historical common and Class C limited partners’ interest in net income (loss)
 
$
(256,276
)
 
$
256,509

 
$
200,866

Pro forma distributions on common units issued in connection with the acquisition of Springfield
 
6,373

 
5,537

 
4,764

Pro forma Series A Preferred units interest in net income (loss)
 
38,164

 
49,173

 
48,899

Pro forma reallocation of limited partners’ interest in net income (loss)
 
29,743

 
(26,028
)
 
(103,973
)
Pro forma common and Class C limited partners’ interest in net income (loss)
 
$
(181,996
)
 
$
285,191

 
$
150,556

 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
Historical weighted average units outstanding – basic and diluted
 
128,345

 
119,822

 
109,872

Common units issued in connection with the acquisition of Springfield
 
2,090

 
2,090

 
2,090

Pro forma weighted average units outstanding – basic and diluted
 
130,435

 
121,912

 
111,962

Excluded due to anti-dilutive effect:
 
 
 
 
 
 
Class C units
 
11,114

 
1,106

 
—

Series A Preferred units assuming conversion to common units
 
14,031

 
14,031

 
14,031



11