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Western Midstream Partners, LP - Quarter Report: 2021 June (Form 10-Q)


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021

Or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to      
WESTERN MIDSTREAM PARTNERS, LP
WESTERN MIDSTREAM OPERATING, LP
(Exact name of registrant as specified in its charter)
Commission file number:State or other jurisdiction of incorporation or organization:I.R.S. Employer Identification No.:
Western Midstream Partners, LP001-35753Delaware46-0967367
Western Midstream Operating, LP001-34046Delaware26-1075808
Address of principal executive offices:Zip Code:Registrant’s telephone number, including area code:
Western Midstream Partners, LP9950 Woodloch Forest Drive, Suite 2800The Woodlands,Texas77380(832)636-1009
Western Midstream Operating, LP9950 Woodloch Forest Drive, Suite 2800The Woodlands,Texas77380(832)636-1009
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of exchange
on which registered
Common units outstanding as of August 5, 2021:
Western Midstream Partners, LPCommon unitsWESNew York Stock Exchange413,076,510
Western Midstream Operating, LPNoneNoneNoneNone
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Western Midstream Partners, LPYes
þ
No
¨
Western Midstream Operating, LPYes
þ
No
¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Western Midstream Partners, LPYes
þ
No
¨
Western Midstream Operating, LPYes
þ
No
¨



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Western Midstream Partners, LPLarge Accelerated FilerAccelerated FilerNon-accelerated FilerSmaller Reporting CompanyEmerging Growth Company
þ☐☐☐☐
Western Midstream Operating, LPLarge Accelerated FilerAccelerated FilerNon-accelerated FilerSmaller Reporting CompanyEmerging Growth Company
☐☐þ☐☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Western Midstream Partners, LP¨
Western Midstream Operating, LP¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Western Midstream Partners, LPYes☐No
þ
Western Midstream Operating, LPYes☐
No
þ

FILING FORMAT

This quarterly report on Form 10-Q is a combined report being filed by two separate registrants: Western Midstream Partners, LP and Western Midstream Operating, LP. Western Midstream Operating, LP is a consolidated subsidiary of Western Midstream Partners, LP that has publicly traded debt, but does not have any publicly traded equity securities. Information contained herein related to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrant.

Part I, Item 1 of this quarterly report includes separate financial statements (i.e., consolidated statements of operations, consolidated balance sheets, consolidated statements of equity and partners’ capital, and consolidated statements of cash flows) for Western Midstream Partners, LP and Western Midstream Operating, LP. The accompanying Notes to Consolidated Financial Statements, which are included under Part I, Item 1 of this quarterly report, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is included under Part I, Item 2 of this quarterly report, are presented on a combined basis for each registrant, with any material differences between the registrants disclosed separately.



TABLE OF CONTENTS
PAGE
PART I
Item 1.
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.
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COMMONLY USED TERMS AND DEFINITIONS

Unless the context otherwise requires, references to “we,” “us,” “our,” “WES,” “the Partnership,” or “Western Midstream Partners, LP” refer to Western Midstream Partners, LP (formerly Western Gas Equity Partners, LP) and its subsidiaries. As used in this Form 10-Q, the terms and definitions below have the following meanings:
AESC: Anadarko Energy Services Company, a subsidiary of Occidental.
Anadarko: Anadarko Petroleum Corporation and its subsidiaries, excluding our general partner, which became a wholly owned subsidiary of Occidental upon closing of the Occidental Merger on August 8, 2019.
Anadarko note receivable: The 30-year $260.0 million note established in May 2008 between WES Operating as the lender and Anadarko as the borrower. The note bore interest at a fixed annual rate of 6.50%, payable quarterly. Following the Occidental Merger, Occidental became the ultimate counterparty. On September 11, 2020, the Partnership and Occidental entered into a Unit Redemption Agreement, pursuant to which (i) WES Operating transferred and assigned its interest in the Anadarko note receivable to its limited partners on a pro-rata basis, transferring 98% of its interest in (and accrued interest owed under) the Anadarko note receivable to the Partnership and the remaining 2% to WGRAH, a subsidiary of Occidental, (ii) the Partnership subsequently assigned the 98% interest in (and accrued interest owed under) the Anadarko note receivable to Anadarko, which Anadarko canceled and retired immediately upon receipt, in exchange for which Occidental caused certain of its subsidiaries to transfer an aggregate of 27,855,398 common units of the Partnership to the Partnership, and (iii) the Partnership canceled such common units immediately upon receipt.
Barrel or Bbl: 42 U.S. gallons measured at 60 degrees Fahrenheit.
Bbls/d: Barrels per day.
Board of Directors: The board of directors of WES’s general partner.
Cactus II: Cactus II Pipeline LLC.
Chipeta: Chipeta Processing, LLC.
Condensate: A natural-gas liquid with a low vapor pressure compared to drip condensate, mainly composed of propane, butane, pentane, and heavier hydrocarbon fractions.
Cryogenic: The process by which liquefied gases are used to bring natural-gas volumes to very low temperatures (below approximately -238 degrees Fahrenheit) to separate natural-gas liquids from natural gas. Through cryogenic processing, more natural-gas liquids are extracted as compared to traditional refrigeration methods.
DBM: Delaware Basin Midstream, LLC.
DBM water systems: The produced-water gathering and disposal systems in West Texas.
DJ Basin complex: The Platte Valley system, Wattenberg system, Lancaster plant, Latham plant, and Wattenberg processing plant.
EBITDA: Earnings before interest, taxes, depreciation, and amortization. For a definition of “Adjusted EBITDA,” see Key Performance Metrics under Part I, Item 2 of this Form 10-Q.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Fixed-Rate Senior Notes: WES Operating’s fixed-rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050, issued in January 2020.

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Floating-Rate Senior Notes: WES Operating’s floating-rate Senior Notes due 2023.
Fort Union: Fort Union Gas Gathering, LLC.
Fractionation: The process of applying various levels of high pressure and low temperature to separate a stream of natural-gas liquids into ethane, propane, normal butane, isobutane, and natural gasoline for end-use sale.
FRP: Front Range Pipeline LLC.
GAAP: Generally accepted accounting principles in the United States.
General partner: Western Midstream Holdings, LLC, the general partner of the Partnership.
Hydraulic fracturing: The high-pressure injection of fluids into the wellbore to create fractures in rock formations, stimulating the production of oil or gas.
Imbalance: Imbalances result from (i) differences between gas and NGLs volumes nominated by customers and gas and NGLs volumes received from those customers and (ii) differences between gas and NGLs volumes received from customers and gas and NGLs volumes delivered to those customers.
LIBOR: London Interbank Offered Rate.
Marcellus Interest: The 33.75% interest in the Larry’s Creek, Seely, and Warrensville gas-gathering systems and related facilities located in northern Pennsylvania.
MBbls/d: Thousand barrels per day.
Mcf: Thousand cubic feet.

MGR: Mountain Gas Resources, LLC.
MGR assets: The Red Desert complex and the Granger straddle plant.
Mi Vida: Mi Vida JV LLC.
MLP: Master limited partnership.
MMcf: Million cubic feet.
MMcf/d: Million cubic feet per day.
Mont Belvieu JV: Enterprise EF78 LLC.
Natural-gas liquid(s) or NGL(s): The combination of ethane, propane, normal butane, isobutane, and natural gasolines that, when removed from natural gas, become liquid under various levels of pressure and temperature.
Occidental: Occidental Petroleum Corporation and, as the context requires, its subsidiaries, excluding our general partner.
Occidental Merger: Occidental’s acquisition by merger of Anadarko pursuant to the Agreement and Plan of Merger, dated as of May 9, 2019, by and among Occidental, Baseball Merger Sub 1, Inc., and Anadarko, which closed on August 8, 2019.
Panola: Panola Pipeline Company, LLC.
Produced water: Byproduct associated with the production of crude oil and natural gas that often contains a number of dissolved solids and other materials found in oil and gas reservoirs.
Purchase Program: The buyback program announced in November 2020, pursuant to which we may purchase up to $250.0 million in aggregate value of our common units through December 31, 2021. The common units may be purchased from time to time in the open market at prevailing market prices or in privately negotiated transactions.
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Ranch Westex: Ranch Westex JV LLC.
RCF: WES Operating’s $2.0 billion senior unsecured revolving credit facility that matures in February 2025.
Red Bluff Express: Red Bluff Express Pipeline, LLC.
Red Desert complex: The Patrick Draw processing plant, the Red Desert processing plant, associated gathering lines, and related facilities.
Related parties: Occidental and the Partnership’s equity interests in Fort Union (until divested in October 2020), White Cliffs, Rendezvous, the Mont Belvieu JV, TEP, TEG, FRP, Whitethorn LLC, Cactus II, Saddlehorn, Panola, Mi Vida, Ranch Westex, and Red Bluff Express.
Rendezvous: Rendezvous Gas Services, LLC.
Residue: The natural gas remaining after the unprocessed natural-gas stream has been processed or treated.
Saddlehorn: Saddlehorn Pipeline Company, LLC.
SEC: U.S. Securities and Exchange Commission.
Services Agreement: That certain amended and restated Services, Secondment, and Employee Transfer Agreement, dated as of December 31, 2019, by and among Occidental, Anadarko, and WES Operating GP.
Springfield system: The Springfield gas-gathering system and Springfield oil-gathering system.
TEFR Interests: The interests in TEP, TEG, and FRP.
TEG: Texas Express Gathering LLC.
TEP: Texas Express Pipeline LLC.
Term loan facility: WES Operating’s senior unsecured credit facility entered into in December 2018, which was repaid and terminated in January 2020.
WES Operating: Western Midstream Operating, LP, formerly known as Western Gas Partners, LP, and its subsidiaries.
WES Operating GP: Western Midstream Operating GP, LLC, the general partner of WES Operating.
West Texas complex: The DBM complex and DBJV and Haley systems.
WGRAH: WGR Asset Holding Company LLC.
WGRI: Western Gas Resources, Inc., a subsidiary of Occidental.
White Cliffs: White Cliffs Pipeline, LLC.
Whitethorn LLC: Whitethorn Pipeline Company LLC.
Whitethorn: A crude-oil and condensate pipeline, and related storage facilities, owned by Whitethorn LLC.
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PART I. FINANCIAL INFORMATION (UNAUDITED)

Item 1.  Financial Statements
WESTERN MIDSTREAM PARTNERS, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended 
June 30,		Six Months Ended 
June 30,
thousands except per-unit amounts2021202020212020
Revenues and other
Service revenues – fee based$618,985 $642,628 $1,191,260 $1,344,024 
Service revenues – product based27,803 7,000 59,455 22,921 
Product sales72,256 21,736 143,061 78,385 
Other87 391 329 738 
Total revenues and other (1)
719,131 671,755 1,394,105 1,446,068 
Equity income, net – related parties58,666 54,415 110,831 115,762 
Operating expenses
Cost of product78,044 18,602 167,013 121,872 
Operation and maintenance153,028 145,186 293,360 304,377 
General and administrative44,448 36,423 89,564 76,888 
Property and other taxes17,967 19,395 32,351 37,871 
Depreciation and amortization137,849 119,805 268,402 252,124 
Long-lived asset and other impairments
12,738 10,150 27,604 165,935 
Goodwill impairment— — — 441,017 
Total operating expenses (2)
444,074 349,561 878,294 1,400,084 
Gain (loss) on divestiture and other, net1,225 (2,843)642 (2,883)
Operating income (loss)334,948 373,766 627,284 158,863 
Interest income – Anadarko note receivable— 4,225 — 8,450 
Interest expense(95,290)(94,654)(193,783)(183,240)
Gain (loss) on early extinguishment of debt— 1,395 (289)8,740 
Other income (expense), net84 1,653 (1,123)(108)
Income (loss) before income taxes239,742 286,385 432,089 (7,295)
Income tax expense (benefit)1,465 5,044 2,577 764 
Net income (loss)238,277 281,341 429,512 (8,059)
Net income (loss) attributable to noncontrolling interests7,018 8,304 12,462 (24,569)
Net income (loss) attributable to Western Midstream Partners, LP$231,259 $273,037 $417,050 $16,510 
Limited partners’ interest in net income (loss):
Net income (loss) attributable to Western Midstream Partners, LP$231,259 $273,037 $417,050 $16,510 
General partner interest in net (income) loss(4,964)(5,461)(8,957)(330)
Limited partners’ interest in net income (loss) (3)
226,295 267,576 408,093 16,180 
Net income (loss) per common unit – basic and diluted (3)
$0.55 $0.60 $0.99 $0.04 
Weighted-average common units outstanding – basic and diluted
413,070 443,973 413,087 443,972 
_________________________________________________________________________________________
(1)Total revenues and other includes related-party amounts of $415.4 million and $793.7 million for the three and six months ended June 30, 2021, respectively, and $473.4 million and $955.8 million for the three and six months ended June 30, 2020, respectively. See Note 6.
(2)Total operating expenses includes related-party amounts of $29.0 million and $68.8 million for the three and six months ended June 30, 2021, respectively, and $18.5 million and $151.1 million for the three and six months ended June 30, 2020, respectively. See Note 6.
(3)See Note 5.
See accompanying Notes to Consolidated Financial Statements.
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WESTERN MIDSTREAM PARTNERS, LP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
thousands except number of unitsJune 30,
2021		December 31,
2020
ASSETS
Current assets
Cash and cash equivalents$305,573 $444,922 
Accounts receivable, net519,116 452,880 
Other current assets61,562 45,262 
Total current assets886,251 943,064 
Property, plant, and equipment
Cost12,677,327 12,641,745 
Less accumulated depreciation4,087,362 3,931,800 
Net property, plant, and equipment8,589,965 8,709,945 
Goodwill4,783 4,783 
Other intangible assets760,576 776,409 
Equity investments1,195,456 1,224,813 
Other assets (1)
189,268 171,013 
Total assets (2)
$11,626,299 $11,830,027 
LIABILITIES, EQUITY, AND PARTNERS’ CAPITAL
Current liabilities
Accounts and imbalance payables$246,790 $210,691 
Short-term debt
588,373 438,870 
Accrued ad valorem taxes35,570 41,427 
Accrued liabilities255,938 269,947 
Total current liabilities1,126,671 960,935 
Long-term liabilities
Long-term debt
6,835,838 7,415,832 
Deferred income taxes23,468 22,195 
Asset retirement obligations267,624 260,283 
Other liabilities319,825 275,570 
Total long-term liabilities
7,446,755 7,973,880 
Total liabilities (3)
8,573,426 8,934,815 
Equity and partners’ capital
Common units (413,076,351 and 413,839,863 units issued and outstanding at June 30, 2021, and December 31, 2020, respectively)
2,927,066 2,778,339 
General partner units (9,060,641 units issued and outstanding at June 30, 2021, and December 31, 2020)
(13,923)(17,208)
Total partners’ capital2,913,143 2,761,131 
Noncontrolling interests139,730 134,081 
Total equity and partners’ capital3,052,873 2,895,212 
Total liabilities, equity, and partners’ capital$11,626,299 $11,830,027 
________________________________________________________________________________________
(1)Other assets includes $7.7 million and $4.2 million of NGLs line-fill inventory as of June 30, 2021, and December 31, 2020, respectively. Other assets also includes $60.3 million and $71.9 million of materials and supplies inventory as of June 30, 2021, and December 31, 2020, respectively.
(2)Total assets includes related-party amounts of $1.6 billion as of June 30, 2021, and December 31, 2020, which includes related-party Accounts receivable, net of $278.9 million and $291.3 million as of June 30, 2021, and December 31, 2020, respectively. See Note 6.
(3)Total liabilities includes related-party amounts of $222.8 million and $164.7 million as of June 30, 2021, and December 31, 2020, respectively. See Note 6.

See accompanying Notes to Consolidated Financial Statements.
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WESTERN MIDSTREAM PARTNERS, LP
CONSOLIDATED STATEMENTS OF EQUITY AND PARTNERS’ CAPITAL
(UNAUDITED)
Partners’ Capital
thousandsCommon
Units		General Partner
Units		Noncontrolling
Interests		Total
Balance at December 31, 2020$2,778,339 $(17,208)$134,081 $2,895,212 
Net income (loss)181,798 3,993 5,444 191,235 
Distributions to Chipeta noncontrolling interest owner— — (276)(276)
Distributions to noncontrolling interest owner of WES Operating— — (2,551)(2,551)
Distributions to Partnership unitholders(128,447)(2,818)— (131,265)
Unit repurchases (1)
(16,241)— — (16,241)
Contributions of equity-based compensation from Occidental
3,210 — — 3,210 
Equity-based compensation expense
3,524 — — 3,524 
Net contributions from (distributions to) related parties1,627 — — 1,627 
Other(2,355)— — (2,355)
Balance at March 31, 2021$2,821,455 $(16,033)$136,698 $2,942,120 
Net income (loss)226,295 4,964 7,018 238,277 
Distributions to Chipeta noncontrolling interest owner— — (1,245)(1,245)
Distributions to noncontrolling interest owner of WES Operating— — (2,741)(2,741)
Distributions to Partnership unitholders(130,115)(2,854)— (132,969)
Contributions of equity-based compensation from Occidental
2,375 — — 2,375 
Equity-based compensation expense
4,746 — — 4,746 
Net contributions from (distributions to) related parties2,881 — — 2,881 
Other(571)— — (571)
Balance at June 30, 2021$2,927,066 $(13,923)$139,730 $3,052,873 
_________________________________________________________________________________________
(1)See Note 5.
Partners’ Capital
thousandsCommon
Units		General Partner
Units		Noncontrolling
Interests		Total
Balance at December 31, 2019$3,209,947 $(14,224)$149,570 $3,345,293 
Net income (loss)(251,396)(5,131)(32,873)(289,400)
Distributions to Chipeta noncontrolling interest owner— — (1,738)(1,738)
Distributions to noncontrolling interest owner of WES Operating— — (5,807)(5,807)
Distributions to Partnership unitholders(276,151)(5,635)— (281,786)
Acquisitions from related parties(3,987)— 3,987 — 
Contributions of equity-based compensation from Occidental
4,105 — — 4,105 
Equity-based compensation expense
1,129 — — 1,129 
Net contributions from (distributions to) related parties (1)
489 — 20,000 20,489 
Balance at March 31, 2020$2,684,136 $(24,990)$133,139 $2,792,285 
Net income (loss)267,576 5,461 8,304 281,341 
Distributions to Chipeta noncontrolling interest owner— — (1,037)(1,037)
Distributions to noncontrolling interest owner of WES Operating— — (2,869)(2,869)
Distributions to Partnership unitholders(138,075)(2,818)— (140,893)
Contributions of equity-based compensation from Occidental3,562 — — 3,562 
Equity-based compensation expense2,115 — — 2,115 
Net contributions from (distributions to) related parties1,343 — — 1,343 
Other(330)— — (330)
Balance at June 30, 2020$2,820,327 $(22,347)$137,537 $2,935,517 
_________________________________________________________________________________________
(1)See Services Agreement within Note 6.

See accompanying Notes to Consolidated Financial Statements.
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WESTERN MIDSTREAM PARTNERS, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Six Months Ended 
June 30,
thousands20212020
Cash flows from operating activities
Net income (loss)$429,512 $(8,059)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization268,402 252,124 
Long-lived asset and other impairments
27,604 165,935 
Goodwill impairment— 441,017 
Non-cash equity-based compensation expense
13,855 10,911 
Deferred income taxes1,273 799 
Accretion and amortization of long-term obligations, net
4,002 4,297 
Equity income, net – related parties(110,831)(115,762)
Distributions from equity-investment earnings – related parties
110,763 124,156 
(Gain) loss on divestiture and other, net(642)2,883 
(Gain) loss on early extinguishment of debt289 (8,740)
Cash paid to settle interest-rate swaps— (12,763)
Other41 710 
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net(69,164)(200,136)
Increase (decrease) in accounts and imbalance payables and accrued liabilities, net39,291 72,323 
Change in other items, net(734)9,304 
Net cash provided by operating activities713,661 738,999 
Cash flows from investing activities
Capital expenditures(137,928)(313,065)
Acquisitions from related parties(2,000)— 
Contributions to equity investments – related parties(3,508)(16,064)
Distributions from equity investments in excess of cumulative earnings – related parties21,373 13,340 
Proceeds from the sale of assets to third parties8,003 — 
(Increase) decrease in materials and supplies inventory and other7,656 (39,212)
Net cash used in investing activities(106,404)(355,001)
Cash flows from financing activities
Borrowings, net of debt issuance costs 100,000 3,586,173 
Repayments of debt (531,085)(3,583,149)
Increase (decrease) in outstanding checks(29,102)(4,686)
Distributions to Partnership unitholders (1)
(264,234)(422,679)
Distributions to Chipeta noncontrolling interest owner(1,521)(2,775)
Distributions to noncontrolling interest owner of WES Operating(5,292)(8,676)
Net contributions from (distributions to) related parties4,508 21,832 
Finance lease payments (2)
(3,639)(10,262)
Unit repurchases(16,241)— 
Net cash provided by (used in) financing activities(746,606)(424,222)
Net increase (decrease) in cash and cash equivalents(139,349)(40,224)
Cash and cash equivalents at beginning of period444,922 99,962 
Cash and cash equivalents at end of period$305,573 $59,738 
Supplemental disclosures
Interest paid, net of capitalized interest$188,280 $163,362 
Taxes paid (reimbursements received)932 (384)
Accrued capital expenditures27,592 43,191 
_________________________________________________________________________________________
(1)See Note 6.
(2)For the six months ended June 30, 2020, includes related-party payments of $6.4 million.
See accompanying Notes to Consolidated Financial Statements.
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WESTERN MIDSTREAM OPERATING, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months Ended 
June 30,		Six Months Ended 
June 30,
thousands 2021202020212020
Revenues and other
Service revenues – fee based$618,985 $642,628 $1,191,260 $1,344,024 
Service revenues – product based27,803 7,000 59,455 22,921 
Product sales72,256 21,736 143,061 78,385 
Other87 391 329 738 
Total revenues and other (1)
719,131 671,755 1,394,105 1,446,068 
Equity income, net – related parties58,666 54,415 110,831 115,762 
Operating expenses
Cost of product78,044 18,602 167,013 121,872 
Operation and maintenance153,028 145,186 293,360 304,377 
General and administrative42,848 35,242 87,078 74,300 
Property and other taxes17,967 19,395 32,351 37,871 
Depreciation and amortization137,849 119,805 268,402 252,124 
Long-lived asset and other impairments
12,738 10,150 27,604 165,935 
Goodwill impairment— — — 441,017 
Total operating expenses (2)
442,474 348,380 875,808 1,397,496 
Gain (loss) on divestiture and other, net1,225 (2,843)642 (2,883)
Operating income (loss)336,548 374,947 629,770 161,451 
Interest income – Anadarko note receivable— 4,225 — 8,450 
Interest expense(95,290)(94,654)(193,783)(183,240)
Gain (loss) on early extinguishment of debt— 1,395 (289)8,740 
Other income (expense), net82 1,651 (1,128)(112)
Income (loss) before income taxes241,340 287,564 434,570 (4,711)
Income tax expense (benefit)1,465 5,044 2,577 764 
Net income (loss)239,875 282,520 431,993 (5,475)
Net income (loss) attributable to noncontrolling interest2,264 2,706 3,897 (24,959)
Net income (loss) attributable to Western Midstream Operating, LP$237,611 $279,814 $428,096 $19,484 
________________________________________________________________________________________
(1)Total revenues and other includes related-party amounts of $415.4 million and $793.7 million for the three and six months ended June 30, 2021, respectively, and $473.4 million and $955.8 million for the three and six months ended June 30, 2020, respectively. See Note 6.
(2)Total operating expenses includes related-party amounts of $29.6 million and $69.9 million for the three and six months ended June 30, 2021, respectively, and $18.7 million and $151.1 million for the three and six months ended June 30, 2020, respectively. See Note 6.

See accompanying Notes to Consolidated Financial Statements.
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WESTERN MIDSTREAM OPERATING, LP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
thousands except number of unitsJune 30,
2021		December 31,
2020
ASSETS
Current assets
Cash and cash equivalents$300,761 $418,537 
Accounts receivable, net519,116 407,549 
Other current assets60,400 43,244 
Total current assets880,277 869,330 
Property, plant, and equipment
Cost12,677,327 12,641,745 
Less accumulated depreciation4,087,362 3,931,800 
Net property, plant, and equipment8,589,965 8,709,945 
Goodwill4,783 4,783 
Other intangible assets760,576 776,409 
Equity investments1,195,456 1,224,813 
Other assets (1)
189,268 171,013 
Total assets (2)
$11,620,325 $11,756,293 
LIABILITIES, EQUITY, AND PARTNERS’ CAPITAL
Current liabilities
Accounts and imbalance payables$275,191 $210,532 
Short-term debt
588,373 438,870 
Accrued ad valorem taxes35,570 41,427 
Accrued liabilities222,181 230,833 
Total current liabilities1,121,315 921,662 
Long-term liabilities
Long-term debt
6,835,838 7,415,832 
Deferred income taxes23,468 22,195 
Asset retirement obligations267,624 260,283 
Other liabilities319,825 275,570 
Total long-term liabilities
7,446,755 7,973,880 
Total liabilities (3)
8,568,070 8,895,542 
Equity and partners’ capital
Common units (318,675,578 units issued and outstanding at June 30, 2021, and December 31, 2020)
3,020,327 2,831,199 
Total partners’ capital3,020,327 2,831,199 
Noncontrolling interest31,928 29,552 
Total equity and partners’ capital3,052,255 2,860,751 
Total liabilities, equity, and partners’ capital$11,620,325 $11,756,293 
_________________________________________________________________________________________
(1)Other assets includes $7.7 million and $4.2 million of NGLs line-fill inventory as of June 30, 2021, and December 31, 2020, respectively. Other assets also includes $60.3 million and $71.9 million of materials and supplies inventory as of June 30, 2021, and December 31, 2020, respectively.
(2)Total assets includes related-party amounts of $1.6 billion and $1.5 billion as of June 30, 2021, and December 31, 2020, respectively, which includes related-party Accounts receivable, net of $278.9 million and $246.1 million as of June 30, 2021, and December 31, 2020, respectively. See Note 6.
(3)Total liabilities includes related-party amounts of $251.0 million and $164.3 million as of June 30, 2021, and December 31, 2020, respectively. See Note 6.
See accompanying Notes to Consolidated Financial Statements.
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WESTERN MIDSTREAM OPERATING, LP
CONSOLIDATED STATEMENTS OF EQUITY AND PARTNERS’ CAPITAL
(UNAUDITED)
thousandsCommon
Units		Noncontrolling
Interest		Total
Balance at December 31, 2020$2,831,199 $29,552 $2,860,751 
Net income (loss)190,485 1,633 192,118 
Distributions to Chipeta noncontrolling interest owner— (276)(276)
Distributions to WES Operating unitholders(127,470)— (127,470)
Contributions of equity-based compensation from Occidental
3,210 — 3,210 
Contributions of equity-based compensation from WES
10,826 — 10,826 
Net contributions from (distributions to) related parties1,627 — 1,627 
Balance at March 31, 2021$2,909,877 $30,909 $2,940,786 
Net income (loss)237,611 2,264 239,875 
Distributions to Chipeta noncontrolling interest owner— (1,245)(1,245)
Distributions to WES Operating unitholders(137,030)— (137,030)
Contributions of equity-based compensation from Occidental
2,375 — 2,375 
Contributions of equity-based compensation from WES
4,613 — 4,613 
Net contributions from (distributions to) related parties2,881 — 2,881 
Balance at June 30, 2021$3,020,327 $31,928 $3,052,255 

thousandsCommon
Units		Noncontrolling
Interest		Total
Balance at December 31, 2019$3,286,620 $55,199 $3,341,819 
Net income (loss)(260,330)(27,665)(287,995)
Distributions to Chipeta noncontrolling interest owner— (1,738)(1,738)
Distributions to WES Operating unitholders(290,314)— (290,314)
Acquisitions from related parties(3,987)3,987 — 
Contributions of equity-based compensation from Occidental
4,105 — 4,105 
Net contributions from (distributions to) related parties (1)
20,489 — 20,489 
Balance at March 31, 2020$2,756,583 $29,783 $2,786,366 
Net income (loss)279,814 2,706 282,520 
Distributions to Chipeta noncontrolling interest owner— (1,037)(1,037)
Distributions to WES Operating unitholders(143,404)— (143,404)
Contributions of equity-based compensation from Occidental3,562 — 3,562 
Net contributions from (distributions to) related parties1,343 — 1,343 
Balance at June 30, 2020$2,897,898 $31,452 $2,929,350 
_______________________________________________________________________________________
(1)See Services Agreement within Note 6.
See accompanying Notes to Consolidated Financial Statements.
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WESTERN MIDSTREAM OPERATING, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Six Months Ended 
June 30,
thousands20212020
Cash flows from operating activities
Net income (loss)$431,993 $(5,475)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization268,402 252,124 
Long-lived asset and other impairments
27,604 165,935 
Goodwill impairment— 441,017 
Non-cash equity-based compensation expense
21,024 7,667 
Deferred income taxes1,273 799 
Accretion and amortization of long-term obligations, net
4,002 4,297 
Equity income, net – related parties(110,831)(115,762)
Distributions from equity-investment earnings – related parties
110,763 124,156 
(Gain) loss on divestiture and other, net(642)2,883 
(Gain) loss on early extinguishment of debt289 (8,740)
Cash paid to settle interest-rate swaps— (12,763)
Other41 710 
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net(111,567)(173,522)
Increase (decrease) in accounts and imbalance payables and accrued liabilities, net73,215 48,923 
Change in other items, net(1,591)8,664 
Net cash provided by operating activities713,975 740,913 
Cash flows from investing activities
Capital expenditures(137,928)(313,065)
Acquisitions from related parties(2,000)— 
Contributions to equity investments – related parties(3,508)(16,064)
Distributions from equity investments in excess of cumulative earnings – related parties21,373 13,340 
Proceeds from the sale of assets to third parties8,003 — 
(Increase) decrease in materials and supplies inventory and other7,656 (39,212)
Net cash used in investing activities(106,404)(355,001)
Cash flows from financing activities
Borrowings, net of debt issuance costs100,000 3,586,173 
Repayments of debt (531,085)(3,583,149)
Increase (decrease) in outstanding checks(29,110)(4,690)
Distributions to WES Operating unitholders (1)
(264,500)(433,718)
Distributions to Chipeta noncontrolling interest owner(1,521)(2,775)
Net contributions from (distributions to) related parties4,508 21,832 
Finance lease payments (2)
(3,639)(10,262)
Net cash provided by (used in) financing activities(725,347)(426,589)
Net increase (decrease) in cash and cash equivalents(117,776)(40,677)
Cash and cash equivalents at beginning of period418,537 98,122 
Cash and cash equivalents at end of period$300,761 $57,445 
Supplemental disclosures
Interest paid, net of capitalized interest$188,280 $163,362 
Taxes paid (reimbursements received)932 (384)
Accrued capital expenditures27,592 43,191 
________________________________________________________________________________________
(1)See Note 6.
(2)For the six months ended June 30, 2020, includes related-party payments of $6.4 million.
See accompanying Notes to Consolidated Financial Statements.
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WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

General. Western Midstream Partners, LP is a Delaware master limited partnership formed in September 2012. Western Midstream Operating, LP (together with its subsidiaries, “WES Operating”) is a Delaware limited partnership formed in 2007 to acquire, own, develop, and operate midstream assets. Western Midstream Partners, LP owns, directly and indirectly, a 98.0% limited partner interest in WES Operating, and directly owns all of the outstanding equity interests of Western Midstream Operating GP, LLC, which holds the entire non-economic general partner interest in WES Operating.
For purposes of these consolidated financial statements, the “Partnership” refers to Western Midstream Partners, LP in its individual capacity or to Western Midstream Partners, LP and its subsidiaries, including Western Midstream Operating GP, LLC and WES Operating, as the context requires. “WES Operating GP” refers to Western Midstream Operating GP, LLC, individually as the general partner of WES Operating. The Partnership’s general partner, Western Midstream Holdings, LLC (the “general partner”), is a wholly owned subsidiary of Occidental Petroleum Corporation. “Occidental” refers to Occidental Petroleum Corporation, as the context requires, and its subsidiaries, excluding the general partner. “Anadarko” refers to Anadarko Petroleum Corporation and its subsidiaries, excluding Western Midstream Holdings, LLC. Anadarko became a wholly owned subsidiary of Occidental as a result of Occidental’s acquisition by merger of Anadarko on August 8, 2019. “Related parties” refers to Occidental (see Note 6), the Partnership’s investments accounted for under the equity method of accounting (see Note 7), and the Partnership and WES Operating for transactions that eliminate upon consolidation (see Note 6).
The Partnership is engaged in the business of gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, natural-gas liquids (“NGLs”), and crude oil; and gathering and disposing of produced water. In its capacity as a natural-gas processor, the Partnership also buys and sells natural gas, NGLs, and condensate on behalf of itself and as an agent for its customers under certain contracts. As of June 30, 2021, the Partnership’s assets and investments consisted of the following:
Wholly
Owned and
Operated		Operated
Interests		Non-Operated
Interests		Equity
Interests
Gathering systems (1)
17 2 3 1 
Treating facilities36 3 — — 
Natural-gas processing plants/trains
24 3 — 5 
NGLs pipelines2 — — 5 
Natural-gas pipelines
5 — — 1 
Crude-oil pipelines
3 1 — 4 
_________________________________________________________________________________________
(1)Includes the DBM water systems.

These assets and investments are located in Texas, New Mexico, the Rocky Mountains (Colorado, Utah, and Wyoming), and North-central Pennsylvania.

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WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Basis of presentation. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of the Partnership and entities in which it holds a controlling financial interest, including WES Operating, WES Operating GP, proportionately consolidated interests, and equity investments (see table below). All significant intercompany transactions have been eliminated.
The following table outlines the ownership interests and the accounting method of consolidation used in the consolidated financial statements for entities not wholly owned:
Percentage Interest
Full consolidation
Chipeta (1)
75.00 %
Proportionate consolidation (2)
Springfield system50.10 %
Marcellus Interest systems33.75 %
Equity investments (3)
Mi Vida JV LLC (“Mi Vida”)50.00 %
Ranch Westex JV LLC (“Ranch Westex”)50.00 %
Front Range Pipeline LLC (“FRP”)33.33 %
Red Bluff Express Pipeline, LLC (“Red Bluff Express”)30.00 %
Enterprise EF78 LLC (“Mont Belvieu JV”)25.00 %
Rendezvous Gas Services, LLC (“Rendezvous”)22.00 %
Texas Express Pipeline LLC (“TEP”)20.00 %
Texas Express Gathering LLC (“TEG”)20.00 %
Whitethorn Pipeline Company LLC (“Whitethorn LLC”)20.00 %
Saddlehorn Pipeline Company, LLC (“Saddlehorn”)20.00 %
Cactus II Pipeline LLC (“Cactus II”)15.00 %
Panola Pipeline Company, LLC (“Panola”)15.00 %
White Cliffs Pipeline, LLC (“White Cliffs”)10.00 %
_________________________________________________________________________________________
(1)The 25% third-party interest in Chipeta Processing LLC (“Chipeta”) is reflected within noncontrolling interests in the consolidated financial statements. See Noncontrolling interests below.
(2)The Partnership proportionately consolidates its associated share of the assets, liabilities, revenues, and expenses attributable to these assets.
(3)Investments in non-controlled entities over which the Partnership exercises significant influence are accounted for under the equity method of accounting. “Equity-investment throughput” refers to the Partnership’s share of average throughput for these investments.

Certain information and note disclosures commonly included in annual financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, the accompanying consolidated financial statements and notes should be read in conjunction with the Partnership’s 2020 Form 10-K, as filed with the SEC on February 26, 2021. Management believes that the disclosures made are adequate to make the information not misleading.

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WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

The consolidated financial results of WES Operating are included in the Partnership’s consolidated financial statements. Throughout these notes to consolidated financial statements, and to the extent material, any differences between the consolidated financial results of the Partnership and WES Operating are discussed separately. The Partnership’s consolidated financial statements differ from those of WES Operating primarily as a result of (i) the presentation of noncontrolling interest ownership (see Noncontrolling interests below), (ii) the elimination of WES Operating GP’s investment in WES Operating with WES Operating GP’s underlying capital account, (iii) the general and administrative expenses incurred by the Partnership, which are separate from, and in addition to, those incurred by WES Operating, (iv) the inclusion of the impact of Partnership equity balances and Partnership distributions, and (v) transactions between the Partnership and WES Operating that eliminate upon consolidation.

Presentation of the Partnership’s assets. The Partnership’s assets include assets owned and ownership interests accounted for by the Partnership under the equity method of accounting, through its 98.0% partnership interest in WES Operating, as of June 30, 2021 (see Note 7). The Partnership also owns and controls the entire non-economic general partner interest in WES Operating GP, and the Partnership’s general partner is owned by Occidental.

Use of estimates. In preparing financial statements in accordance with GAAP, management makes informed judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. Management evaluates its estimates and related assumptions regularly, using historical experience and other reasonable methods. 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 condition, and results of operations resulting from revisions to estimates are recognized when the facts that give rise to the revisions become known. The information included herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated financial statements.

Noncontrolling interests. The Partnership’s noncontrolling interests in the consolidated financial statements consist of (i) the 25% third-party interest in Chipeta and (ii) the 2.0% Occidental subsidiary-owned limited partner interest in WES Operating. WES Operating’s noncontrolling interest in the consolidated financial statements consists of the 25% third-party interest in Chipeta. See Note 5.

Segments. The Partnership’s operations continue to be organized into a single operating segment, the assets of which gather, compress, treat, process, and transport natural gas; gather, stabilize, and transport condensate, NGLs, and crude oil; and gather and dispose of produced water in the United States.

Equity-based compensation. During the six months ended June 30, 2021, the Partnership issued 352,296 common units under the Western Gas Equity Partners, LP 2012 Long-Term Incentive Plan (“WES LTIP”). Compensation expense for the WES LTIP was $4.7 million and $8.3 million for the three and six months ended June 30, 2021, respectively, and $2.1 million and $3.2 million for the three and six months ended June 30, 2020, respectively.
On March 22, 2021, the Board of Directors approved the Western Midstream Partners, LP 2021 Long-Term Incentive Plan, which authorized the issuance of up to 9.5 million of the Partnership’s common units. This plan provides for the grant of unit options, unit appreciation rights, restricted units, phantom units, other unit-based awards, cash awards, and a unit award or a substitute award to employees and directors of the Partnership and its general partner. Affiliates of Occidental who held a majority of the Partnership’s outstanding common units as of March 22, 2021, approved the 2021 Long-Term Incentive Plan via written consent. On April 7, 2021, the Partnership mailed an information statement on Schedule 14C to its unitholders of record as of March 22, 2021. The 2021 Long-Term Incentive Plan became effective on April 27, 2021, which is 20 calendar days after the Partnership mailed out the information statement.

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WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Defined-contribution plan. Beginning in the first quarter of 2020, employees of the Partnership are eligible to participate in the Western Midstream Savings Plan, a defined-contribution benefit plan maintained by the Partnership. All regular employees may participate in the plan by making elective contributions that are matched by the Partnership, subject to certain limitations. The Partnership also makes other contributions based on plan guidelines. The Partnership recognized expense related to the plan of $6.1 million and $13.0 million for the three and six months ended June 30, 2021, respectively, and $4.0 million and $4.4 million for the three and six months ended June 30, 2020, respectively.

2. REVENUE FROM CONTRACTS WITH CUSTOMERS

The following table summarizes revenue from contracts with customers:
 Three Months Ended 
June 30,		Six Months Ended 
June 30,
thousands2021202020212020
Revenue from customers
Service revenues – fee based$572,607 $581,452 $1,102,020 $1,223,373 
Service revenues – product based27,803 7,000 59,455 22,921 
Product sales72,256 21,736 143,061 78,385 
Total revenue from customers672,666 610,188 1,304,536 1,324,679
Revenue from other than customers
Lease revenue (1)
46,378 61,176 89,240 120,651 
Other87 391 329 738 
Total revenues and other$719,131 $671,755 $1,394,105 $1,446,068 
_________________________________________________________________________________________
(1)Includes fixed- and variable-lease revenue from an operating and maintenance agreement entered into with Occidental. See Operating lease within Note 6.

Certain of the Partnership’s midstream services contracts have minimum-volume commitment demand fees and fees that require periodic rate redeterminations based on the related facility cost-of-service rate provisions. During the year ended December 31, 2020, and the six months ended June 30, 2021, the Partnership constrained revenue on certain cost-of-service agreements based on the status of commercial negotiations relating to a legal dispute with one of our contract counterparties. Future revenue reversals could occur to the extent the outcome of the legal proceedings and commercial negotiations differ from our current assumptions.

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WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. REVENUE FROM CONTRACTS WITH CUSTOMERS

Contract balances. Receivables from customers, which are included in Accounts receivable, net on the consolidated balance sheets were $509.8 million and $428.2 million as of June 30, 2021, and December 31, 2020, respectively.
Contract assets primarily relate to (i) revenue accrued but not yet billed under cost-of-service contracts with fixed and variable fees and (ii) accrued deficiency fees the Partnership expects to charge customers once the related performance periods are completed. The following table summarizes activity related to contract assets from contracts with customers:
thousands
Contract assets balance at December 31, 2020$56,344 
Additional estimated revenues recognized (1)
8,536 
Contract assets balance at June 30, 2021$64,880 
Contract assets at June 30, 2021
Other current assets$18,700 
Other assets46,180 
Total contract assets from contracts with customers$64,880 
_________________________________________________________________________________________
(1)Includes $4.0 million for the three months ended June 30, 2021.

Contract liabilities primarily relate to (i) aid-in-construction payments received from customers that must be recognized over the expected period of customer benefit, (ii) fixed and variable fees under cost-of-service contracts that are received from customers for which revenue recognition is deferred, and (iii) fees that are charged to customers for only a portion of the contract term and must be recognized as revenues over the expected period of customer benefit. The following table summarizes activity related to contract liabilities from contracts with customers:
thousands
Contract liabilities balance at December 31, 2020$266,937 
Cash received or receivable, excluding revenues recognized during the period (1)
34,059 
Revenues recognized that were included in the contract liability balance at the beginning of the period (2)
(8,068)
Contract liabilities balance at June 30, 2021$292,928 
Contract liabilities at June 30, 2021
Accrued liabilities$16,261 
Other liabilities276,667 
Total contract liabilities from contracts with customers$292,928 
_________________________________________________________________________________________
(1)Includes $18.8 million for the three months ended June 30, 2021.
(2)Includes $(6.0) million for the three months ended June 30, 2021.

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WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. REVENUE FROM CONTRACTS WITH CUSTOMERS

Transaction price allocated to remaining performance obligations. Revenues expected to be recognized from certain performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2021, are presented in the following table. The Partnership applies the optional exemptions in Revenue from Contracts with Customers (Topic 606) and does not disclose consideration for remaining performance obligations with an original expected duration of one year or less or for variable consideration related to unsatisfied (or partially unsatisfied) performance obligations. Therefore, the following table represents only a portion of expected future revenues from existing contracts as most future revenues from customers are dependent on future variable customer volumes and, in some cases, variable commodity prices for those volumes.
thousands
Remainder of 2021$419,158 
20221,058,996 
20231,003,906 
2024975,004 
2025892,135 
Thereafter2,721,232 
Total$7,070,431 

3. ACQUISITIONS AND DIVESTITURES

Fort Union and Bison facilities. In October 2020, the Partnership (i) sold its 14.81% interest in Fort Union Gas Gathering, LLC (“Fort Union”), which was accounted for under the equity method of accounting, and (ii) entered into an option agreement to sell the Bison treating facility, located in Northeast Wyoming, to a third party. The Partnership received combined proceeds of $27.0 million, resulting in a net gain on sale of $21.0 million related to the Fort Union interest that was recorded in the fourth quarter of 2020 as Gain (loss) on divestiture and other, net in the consolidated statements of operations.
During the second quarter of 2021, the third party exercised its option to purchase the Bison treating facility and the sale closed. The Partnership received total proceeds of $8.0 million, $7.0 million in the fourth quarter of 2020 and $1.0 million when the sale closed in the second quarter of 2021, resulting in a net gain on sale of $5.4 million that was recorded as Gain (loss) on divestiture and other, net in the consolidated statements of operations.

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WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. PARTNERSHIP DISTRIBUTIONS

Partnership distributions. Under its partnership agreement, the Partnership distributes all of its available cash (beyond proper reserves as defined in its partnership agreement) to unitholders of record on the applicable record date within 55 days following each quarter’s end. The Board of Directors of the general partner (the “Board of Directors”) declared the following cash distributions to the Partnership’s unitholders for the periods presented:
thousands except per-unit amounts
Quarters Ended
Total Quarterly
Per-unit
Distribution		Total Quarterly
Cash Distribution		Distribution
Date
2020
March 31$0.31100 $140,893 May 2020
June 300.31100 140,900 August 2020
September 300.31100 132,255 November 2020
December 310.31100 131,265 February 2021
2021
March 31$0.31500 $132,969 May 2021
June 30 (1)
0.31900 134,662 August 2021
_________________________________________________________________________________________
(1)The Board of Directors declared a cash distribution to the Partnership’s unitholders for the second quarter of 2021 of $0.31900 per unit, or $134.7 million in aggregate. The cash distribution is payable on August 13, 2021, to unitholders of record at the close of business on July 30, 2021, including the general partner units.

Available cash. The amount of available cash (beyond proper reserves as defined in our 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 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; or to provide funds for unitholder distributions 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 and are intended to be repaid or refinanced within 12 months. In all cases, working capital borrowings are used solely for working capital purposes or to fund unitholder distributions.

WES Operating partnership distributions. WES Operating makes quarterly cash distributions to the Partnership and WGR Asset Holding Company LLC (“WGRAH”), a subsidiary of Occidental, in proportion to their share of limited partner interests in WES Operating. See Note 5. WES Operating made the following cash distributions to its limited partners for the periods presented:
thousands
Quarters Ended
Total Quarterly
Cash Distribution
2020
March 31$143,404 
June 30143,404 
September 30143,404 
December 31127,470 
2021
March 31$137,030 
June 30140,217 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. EQUITY AND PARTNERS’ CAPITAL

Holdings of Partnership equity. The Partnership’s common units are listed on the New York Stock Exchange under the ticker symbol “WES.” As of June 30, 2021, Occidental held 202,781,578 common units, representing a 48.0% limited partner interest in the Partnership, and through its ownership of the general partner, Occidental indirectly held 9,060,641 general partner units, representing a 2.1% general partner interest in the Partnership. The public held 210,294,773 common units, representing a 49.9% limited partner interest in the Partnership.
In March 2021, an affiliate of Occidental sold 11,500,000 of the Partnership’s common units it held to the public through an underwritten offering, including 1,500,000 common units pursuant to the full exercise of the underwriters’ over-allotment option. The Partnership did not receive any proceeds from the public offering.
On September 11, 2020, the Partnership assigned its 98% interest in the 30-year $260.0 million note established in May 2008 between WES Operating and Anadarko (the “Anadarko note receivable”) to Anadarko, which Anadarko canceled and retired immediately upon receipt, in exchange for which Occidental caused certain of its subsidiaries to transfer an aggregate of 27,855,398 common units representing limited partner interests in the Partnership to the Partnership. The units were canceled by the Partnership immediately upon receipt. See Note 6.

Partnership equity repurchases. In November 2020, the Board of Directors authorized the Partnership to buy back up to $250.0 million of the Partnership’s common units through December 31, 2021 (the “Purchase Program”). The common units may be purchased from time to time in the open market at prevailing market prices or in privately negotiated transactions. During the six months ended June 30, 2021, the Partnership repurchased 1,115,808 common units on the open market for an aggregate purchase price of $16.2 million. The units were canceled by the Partnership immediately upon receipt. As of June 30, 2021, the Partnership had an authorized amount of $201.2 million remaining under the Purchase Program.

Holdings of WES Operating equity. As of June 30, 2021, (i) the Partnership, directly and indirectly through its ownership of WES Operating GP, owned a 98.0% limited partner interest and the entire non-economic general partner interest in WES Operating and (ii) Occidental, through its ownership of WGRAH, owned a 2.0% limited partner interest in WES Operating, which is reflected as a noncontrolling interest within the consolidated financial statements of the Partnership (see Note 1).

Partnership’s net income (loss) per common unit. The common and general partner unitholders’ allocation of net income (loss) attributable to the Partnership was equal to their cash distributions plus their respective allocations of undistributed earnings or losses in accordance with their weighted-average ownership percentage during each period using the two-class method.
The Partnership’s basic net income (loss) per common unit is calculated by dividing the limited partners’ interest in net income (loss) by the weighted-average number of common units outstanding during the period.

WES Operating’s net income (loss) per common unit. Net income (loss) per common unit for WES Operating is not calculated because it has no publicly traded units.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS

Summary of related-party transactions. The following tables summarize material related-party transactions included in the Partnership’s consolidated financial statements:
Consolidated statements of operations
 Three Months Ended 
June 30,		Six Months Ended 
June 30,
thousands2021202020212020
Revenues and other
Service revenues – fee based$402,684 $460,138 $770,159 $907,921 
Service revenues – product based3,658 1,168 8,163 4,146 
Product sales9,101 12,136 15,372 43,760 
Total revenues and other415,443 473,442 793,694 955,827 
Equity income, net – related parties (1)
58,666 54,415 110,831 115,762 
Operating expenses
Cost of product18,937 5,967 36,584 83,870 
Operation and maintenance2,915 1,516 21,037 34,357 
General and administrative (2)
7,102 10,994 11,195 32,849 
Total operating expenses28,954 18,477 68,816 151,076 
Interest income – Anadarko note receivable— 4,225 — 8,450 
_________________________________________________________________________________________
(1)See Note 7.
(2)Includes (i) amounts charged by Occidental pursuant to the shared services agreement (see Services Agreement within this Note 6) and (ii) equity-based compensation expense allocated to the Partnership by Occidental, which is not reimbursed to Occidental and is reflected as a contribution to partners’ capital in the consolidated statements of equity and partners’ capital (see Incentive Plans within this Note 6).

Consolidated balance sheets
thousandsJune 30,
2021		December 31,
2020
Assets
Accounts receivable, net$278,913 $291,253 
Other current assets32,805 5,493 
Equity investments (1)
1,195,456 1,224,813 
Other assets77,130 50,967 
Total assets1,584,304 1,572,526 
Liabilities
Accounts and imbalance payables8,538 6,664 
Accrued liabilities43,571 19,195 
Other liabilities170,721 138,796 
Total liabilities222,830 164,655 
_________________________________________________________________________________________
(1)See Note 7.

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WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS

Consolidated statements of cash flows
Six Months Ended 
June 30,
thousands20212020
Distributions from equity-investment earnings – related parties
$110,763 $124,156 
Acquisitions from related parties(2,000)— 
Contributions to equity investments – related parties(3,508)(16,064)
Distributions from equity investments in excess of cumulative earnings – related parties21,373 13,340 
Distributions to Partnership unitholders (1)
(130,518)(225,914)
Distributions to WES Operating unitholders (2)
(5,292)(8,676)
Net contributions from (distributions to) related parties4,508 21,832 
Finance lease payments— (6,382)
_________________________________________________________________________________________
(1)Represents distributions paid to Occidental pursuant to the partnership agreement of the Partnership (see Note 4 and Note 5).
(2)Represents distributions paid to a certain subsidiary of Occidental pursuant to WES Operating’s partnership agreement (see Note 4 and Note 5).

The following tables summarize material related-party transactions for WES Operating (which are included in the Partnership’s consolidated financial statements) to the extent the amounts differ from the Partnership’s consolidated financial statements:
Consolidated statements of operations
 Three Months Ended 
June 30,		Six Months Ended 
June 30,
thousands2021202020212020
General and administrative (1)
$7,699 $11,168 $12,286 $32,906 
_________________________________________________________________________________________
(1)Includes (i) amounts charged by Occidental pursuant to the shared services agreement (see Services Agreement within this Note 6), (ii) equity-based compensation expense allocated to WES Operating by Occidental, which is not reimbursed to Occidental and is reflected as a contribution to partners’ capital in the consolidated statements of equity and partners’ capital (see Incentive Plans within this Note 6), and (iii) an intercompany service fee between the Partnership and WES Operating.

Consolidated balance sheets
thousandsJune 30,
2021		December 31,
2020
Accounts receivable, net$278,913 $246,083 
Accounts and imbalance payables (1)
37,006 6,664 
_________________________________________________________________________________________
(1)As of June 30, 2021, includes balances related to transactions between the Partnership and WES Operating.

Consolidated statements of cash flows
Six Months Ended 
June 30,
thousands20212020
Distributions to WES Operating unitholders (1)
$(264,500)$(433,718)
_________________________________________________________________________________________
(1)Represents distributions paid to the Partnership and a certain subsidiary of Occidental pursuant to WES Operating’s partnership agreement (see Note 4 and Note 5).


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WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS

Related-party revenues. Related-party revenues include (i) amounts earned by the Partnership from services provided to Occidental and from the sale of natural gas, condensate, and NGLs to Occidental and (ii) income from the Partnership’s investments accounted for under the equity method of accounting (see Note 7).

Gathering and processing agreements. The Partnership has significant gathering and processing arrangements with affiliates of Occidental on most of its systems. While Occidental is the contracting counterparty of the Partnership, these arrangements with Occidental include not just Occidental-produced volumes, but also, in some instances, the volumes of other working-interest owners of Occidental who rely on the Partnership’s facilities and infrastructure to bring their volumes to market. Natural-gas throughput (excluding equity-investment throughput) attributable to production owned or controlled by Occidental was 36% and 35% for the three and six months ended June 30, 2021, respectively, and 43% and 42% for the three and six months ended June 30, 2020, respectively. Crude-oil and NGLs throughput (excluding equity-investment throughput) attributable to production owned or controlled by Occidental was 90% and 89% for the three and six months ended June 30, 2021, respectively, and 88% for the three and six months ended June 30, 2020. Produced-water throughput attributable to production owned or controlled by Occidental was 86% for the three and six months ended June 30, 2021, and 87% and 88% for the three and six months ended June 30, 2020, respectively.
The Partnership is currently involved in a dispute with Occidental regarding the calculation of the cost-of-service rates under an oil-gathering contract related to the Partnership’s DJ Basin oil-gathering system. If such dispute is resolved in a manner adverse to the Partnership, such resolution could have a negative impact on our financial condition and results of operations, including a reduction in rates and a non-cash charge to earnings.
In connection with the sale of its Eagle Ford assets in 2017, Anadarko remained the primary counterparty to the Partnership’s Brasada gas processing agreement and entered into an agency relationship with Sanchez Energy Corporation (“Sanchez”), now Mesquite Energy, Inc. (“Mesquite”) that allows Mesquite to process gas under such agreement. For this reason, Anadarko continues to be liable under the Brasada gas processing agreement through 2034 to the extent Mesquite does not perform. For all periods presented, Mesquite has performed Anadarko’s obligations under the Brasada gas processing agreement pursuant to its agency arrangement with Anadarko.
Further, in connection with the sale of its Uinta Basin assets in 2020, Kerr McGee Oil & Gas Onshore LP, a subsidiary of Occidental, retained the deficiency payment obligations under a gas processing agreement at the Chipeta plant. This contingent payment obligation extends through the earlier of October 1, 2022, or the termination of the processing agreement.

Commodity purchase and sale agreements. Through December 31, 2020, the Partnership purchased and sold a significant amount of natural gas and NGLs from and to Anadarko Energy Services Company (“AESC”), a marketing affiliate of Occidental. Prior to April 1, 2020, AESC acted as an agent on behalf of either the Partnership or the Partnership’s customers for third-party sales. Where AESC sold natural gas and NGLs on the Partnership’s customers’ behalf, the Partnership recognized associated service revenues and cost of product expense for the marketing services performed by AESC. When product sales were on the Partnership’s behalf, the Partnership recognized product sales revenues based on Occidental’s sales price to the third party and recorded the associated cost of product expense associated with the marketing activities provided by AESC. Effective April 1, 2020, changes to marketing-contract terms with AESC terminated AESC’s prior status as an agent of the Partnership for third-party sales and established AESC as a customer of the Partnership. Accordingly, the Partnership no longer recognizes service revenues and/or product sales revenues and the equivalent cost of product expense for the marketing services performed by AESC. This change has no impact to Operating income (loss), Net income (loss), the balance sheets, cash flows, or any non-GAAP metric used to evaluate the Partnership’s operations (see Key Performance Metrics under Part I, Item 2 of this Form 10-Q).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS

Marketing Transition Services Agreement. Effective December 31, 2019, certain subsidiaries of Anadarko entered into a transition services agreement (the “Marketing Transition Services Agreement”) to provide marketing-related services to certain of the Partnership’s subsidiaries through December 31, 2020, subject to the option to extend such services for an additional six-month period. The Marketing Transition Services Agreement was terminated on December 31, 2020. While the Partnership still has some marketing agreements with affiliates of Occidental, the Partnership began marketing and selling substantially all of its natural gas and NGLs directly to third parties beginning on January 1, 2021.

Operating lease. As a result of the surface-use and salt-water disposal agreements being amended under the CUA (see Related-party Commercial Agreement below), these agreements are now classified as operating leases and a $30.0 million right-of-use (“ROU”) asset, included in Other assets on the consolidated balance sheets, was recognized during the first quarter of 2021. The ROU asset will be amortized to Operation and maintenance expense over the remaining term of the agreements.
Effective December 31, 2019, an affiliate of Occidental and a wholly owned subsidiary of the Partnership, the lessor, entered into an operating and maintenance agreement pursuant to which Occidental provides operational and maintenance services with respect to a crude-oil gathering system and associated treating facilities owned by the Partnership through December 31, 2021. The agreement and underlying contracts include (i) fixed consideration, which is measured as the minimum-volume commitment for both gathering and treating, and (ii) variable consideration, which consists of all volumes above the minimum-volume commitment. Subsequent to the initial two-year term, the agreement provides for automatic one-year extensions, unless either party exercises its option to terminate the lease with advance notice. In April 2021, the Partnership exercised its option to terminate the operating and maintenance agreement with Occidental effective December 31, 2021. For the three and six months ended June 30, 2021, the Partnership recognized fixed-lease revenue of $44.0 million and $87.9 million, respectively, and variable-lease revenue of $2.4 million and $1.3 million, respectively, related to these agreements. For the three and six months ended June 30, 2020, the Partnership recognized fixed-lease revenue of $44.0 million and $87.9 million, respectively, and variable-lease revenue of $17.2 million and $32.8 million, respectively, related to these agreements, with such amounts included in Service revenues – fee based in the consolidated statements of operations.

Related-party expenses. Operation and maintenance expense includes amounts accrued for or paid to related parties for field-related costs provided by related parties at certain of the Partnership’s assets. A portion of general and administrative expense is paid by Occidental, which results in related-party transactions pursuant to the reimbursement provisions of the Partnership’s and WES Operating’s agreements with Occidental. Cost of product expense includes amounts related to certain continuing marketing arrangements with affiliates of Occidental, related-party imbalances, and transactions with affiliates accounted for under the equity method of accounting. See Commodity purchase and sale agreements and Marketing Transition Services Agreement in the sections above. Related-party expenses do not bear a direct relationship to related-party revenues, and third-party expenses do not bear a direct relationship to third-party revenues.

Services Agreement. General and administrative expense includes costs incurred pursuant to the agreement dated as of December 31, 2019, by and among Occidental, Anadarko, and WES Operating GP, under which Occidental has performed certain centralized corporate functions for the Partnership and WES Operating (“Services Agreement”).
Pursuant to the Services Agreement, which was amended and restated on December 31, 2019, specified employees of Occidental were seconded to WES Operating GP to provide, under the direction, supervision, and control of the general partner, (i) operating and routine maintenance service and (ii) corporate, administrative, and other services, with respect to the assets owned and operated by the Partnership. Occidental was reimbursed for the services provided by the seconded employees. In January 2020, pursuant to the Services Agreement, Occidental made a one-time cash contribution of $20.0 million to WES Operating for anticipated transition costs required to establish stand-alone human resources and information technology functions. In late March 2020, seconded employees’ employment was transferred to the Partnership. Occidental continues to provide certain limited administrative and operational services to the Partnership, with most services expected to be fully transitioned to the Partnership by December 31, 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS

Incentive Plans. General and administrative expense includes non-cash equity-based compensation expense allocated to the Partnership by Occidental for awards granted to the executive officers of the general partner and to other employees prior to their employment with the Partnership under (i) the Anadarko Petroleum Corporation 2012 Omnibus Incentive Compensation Plan, as amended and restated, (ii) Occidental’s 2015 Long-Term Incentive Plan, and (iii) Occidental’s Phantom Share Unit Award Plan (collectively referred to as the “Incentive Plans”). General and administrative expense includes allocated expense related to the Incentive Plans of $2.4 million and $5.6 million for the three and six months ended June 30, 2021, respectively, and $3.6 million and $7.7 million for the three and six months ended June 30, 2020, respectively. These amounts are reflected as contributions to partners’ capital in the consolidated statements of equity and partners’ capital.

Construction Reimbursement Agreements. From time to time, the Partnership enters into construction reimbursement agreements with Occidental providing that the Partnership will manage the construction of certain midstream infrastructure for Occidental in the Partnership’s areas of operation. Such arrangements generally provide for a reimbursement of costs incurred by the Partnership on a cost or cost-plus basis.

Related-party Commercial Agreement. During the first quarter of 2021, an affiliate of Occidental and certain wholly owned subsidiaries of the Partnership entered into a Commercial Understanding Agreement (“CUA”). Under the CUA, certain West Texas surface-use and salt-water disposal agreements were amended to reduce usage fees owed by the Partnership in exchange for the forgiveness of certain deficiency fees owed by Occidental and other unrelated contractual amendments. The present value of the reduced usage fees under the CUA was $30.0 million.

Anadarko note receivable. In May 2008, WES Operating loaned $260.0 million to Anadarko in exchange for a 30-year note that bore interest at a fixed annual rate and was classified as interest income in the consolidated statements of operations. On September 11, 2020, the Partnership and Occidental entered into a Unit Redemption Agreement, pursuant to which WES Operating transferred the note receivable to Anadarko, which Anadarko immediately canceled and retired upon receipt.

Purchases from related parties. During the fourth quarter of 2020, a subsidiary of the Partnership entered into an agreement to purchase three electrical substations located in the DJ Basin from a subsidiary of Occidental for $2.0 million. This purchase was recorded as an Accrued capital expenditure as of December 31, 2020, and cash was paid in January of 2021.

Concentration of credit risk. Occidental was the only customer from which revenues exceeded 10% of consolidated revenues for all periods presented in the consolidated statements of operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. EQUITY INVESTMENTS

The following table presents the financial statement impact of the Partnership’s equity investments for the six months ended June 30, 2021:

thousandsBalance at December 31, 2020
Other-than-temporary
impairment
expense (1)
Equity
income, net		ContributionsDistributions
Distributions
in excess of
cumulative
earnings (2)
Balance at June 30, 2021
White Cliffs$45,623 $— $626 $— $(336)$(3,551)$42,362 
Rendezvous28,198 — (986)— (643)(1,407)25,162 
Mont Belvieu JV98,874 — 17,953 — (17,972)(1,403)97,452 
TEG16,661 — 2,222 — (2,235)(210)16,438 
TEP195,189 — 19,001 — (17,198)(4,491)192,501 
FRP199,881 — 18,343 — (18,430)(3,973)195,821 
Whitethorn LLC156,729 — 4,529 172 (4,281)(2,640)154,509 
Cactus II173,921 — 13,242 3,336 (10,669)— 179,830 
Saddlehorn111,717 — 17,518 — (16,605)— 112,630 
Panola20,867 — 994 — (993)(463)20,405 
Mi Vida55,031 — 3,996 — (4,048)(2,245)52,734 
Ranch Westex18,898 (11,560)6,152 — (9,647)(969)2,874 
Red Bluff Express103,224 — 7,241 — (7,706)(21)102,738 
Total$1,224,813 $(11,560)$110,831 $3,508 $(110,763)$(21,373)$1,195,456 
_________________________________________________________________________________________
(1)Recorded in Long-lived asset and other impairments in the consolidated statements of operations.
(2)Distributions in excess of cumulative earnings, classified as investing cash flows in the consolidated statements of cash flows, are calculated on an individual-investment basis.

The investment balance in Ranch Westex at June 30, 2021, was $37.1 million less than the Partnership’s underlying equity in Ranch Westex’s net assets. During the second quarter of 2021, the Partnership recognized an impairment loss of $11.6 million that resulted from a decline in value below the carrying value, which was determined to be other than temporary in nature. This investment was impaired to its estimated fair value of $2.9 million, using the income approach and Level-3 fair value inputs, due to a reduction in estimated future cash flows resulting from lower forecasted producer throughput.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. PROPERTY, PLANT, AND EQUIPMENT

A summary of the historical cost of property, plant, and equipment is as follows:
thousandsEstimated Useful LifeJune 30,
2021		December 31,
2020
LandN/A$10,955 $9,696 
Gathering systems – pipelines30 years5,318,588 5,231,212 
Gathering systems – compressors15 years2,141,652 2,096,905 
Processing complexes and treating facilities25 years3,362,779 3,424,368 
Transportation pipeline and equipment
6 to 45 years
168,205 168,205 
Produced-water disposal systems
20 years863,583 831,719 
Assets under constructionN/A88,280 176,834 
Other
3 to 40 years
723,285 702,806 
Total property, plant, and equipment12,677,327 12,641,745 
Less accumulated depreciation4,087,362 3,931,800 
Net property, plant, and equipment$8,589,965 $8,709,945 

The cost of property classified as “Assets under construction” is excluded from capitalized costs being depreciated. These amounts represent property that is not yet placed into productive service as of the respective balance sheet date.

Long-lived asset and other impairments. During the six months ended June 30, 2021, the Partnership recognized impairments of $27.6 million, primarily attributable to (i) $14.0 million of impairments at the DJ Basin complex due to cancellation of projects and (ii) an $11.6 million other-than-temporary impairment of the Partnership’s investment in Ranch Westex (see Note 7).
During the six months ended June 30, 2020, the Partnership recognized impairments of $165.9 million, primarily due to $149.4 million of impairments for assets located in Wyoming and Utah. These assets were impaired to estimated fair values of $112.2 million. The Partnership assesses whether events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of assets with impairment triggers were measured using the income approach and Level-3 fair value inputs. The income approach was based on the Partnership’s projected future earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and free cash flows, which requires significant assumptions including, among others, future throughput volumes based on current expectations of producer activity and operating costs. These impairments were primarily triggered by reductions in estimated future cash flows resulting from lower forecasted producer throughput and lower commodity prices. The remaining impairments of $16.5 million were primarily at the DJ Basin complex due to cancellation of projects and impairments of rights-of-way.

Potential future long-lived asset impairments. As of June 30, 2021, it is reasonably possible that future commodity-price declines, prolonged depression of commodity prices, changes to producers’ drilling plans in response to lower prices, and potential producer bankruptcies could result in future long-lived asset impairments. For example, on April 29, 2020, the Partnership received notice that Sanchez, in its bankruptcy, is attempting to reject a number of midstream and downstream agreements with commercial counterparties, including Sanchez’s Springfield gathering agreements and agreements obligating Sanchez to deliver the gas volumes gathered by the Springfield system to our Brasada processing plant. On May 6, 2021, the Bankruptcy Court issued an opinion determining, among other things, that Sanchez’s Springfield gathering agreements were rejected, but that such agreements contain covenants running with the land that survive rejection, thus preserving the acreage dedication to the Partnership’s Springfield system. Depending on the ultimate outcome of the Partnership’s continuing efforts to defend its contractual rights in the bankruptcy proceeding, as well as the Partnership’s ongoing commercial discussions, the Partnership’s South Texas assets could be impaired.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. GOODWILL

Goodwill is recorded when the purchase price of a business acquired exceeds the fair market value of the tangible and separately measurable intangible net assets. Goodwill also includes the allocated historic carrying value of midstream goodwill attributed to the Partnership’s assets previously acquired from Anadarko. The Partnership’s goodwill has been allocated to two reporting units: (i) gathering and processing and (ii) transportation.
The Partnership evaluates goodwill for impairment at the reporting-unit level on an annual basis, as of October 1, or more often as facts and circumstances warrant. An initial qualitative assessment is performed to determine the likelihood of whether goodwill is impaired and if deemed necessary based on this assessment, a quantitative assessment is then performed. If the quantitative assessment indicates that the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment is recorded for the amount by which the reporting unit’s carrying value exceeds its fair value.
During the three months ended March 31, 2020, the Partnership performed an interim goodwill impairment test due to a significant decline in the trading price of the Partnership’s common units, triggered by the combined impacts from the global outbreak of COVID-19 and the oil-market disruption resulting from significantly lower global demand and corresponding oversupply of crude oil. The Partnership primarily used the market approach and Level-3 inputs to estimate the fair value of its two reporting units. The market approach was based on multiples of EBITDA and the Partnership’s projected future EBITDA. The EBITDA multiples were based on current and historic multiples for comparable midstream companies of similar size and business profit to the Partnership. The EBITDA projections require significant assumptions including, among others, future throughput volumes based on current expectations of producer activity and operating costs. The reasonableness of the market approach was tested against an income approach that was based on a discounted cash-flow analysis. Key assumptions in this analysis include the use of an appropriate discount rate, terminal-year multiples, and estimated future cash flows, including estimates of throughput, capital expenditures, operating, and general and administrative costs. The Partnership also reviewed the reasonableness of the total fair value of both reporting units to the market capitalization as of March 31, 2020, and the reasonableness of an implied acquisition premium. Impairment determinations involve significant assumptions and judgments, and differing assumptions regarding any of these inputs could have a significant effect on the valuations. As a result of the interim impairment test, the Partnership recognized a goodwill impairment of $441.0 million during the first quarter of 2020, which reduced the carrying value of goodwill for the gathering and processing reporting unit to zero. Goodwill allocated to the transportation reporting unit of $4.8 million as of March 31, 2020, was not impaired. Recurring goodwill impairment assessments have indicated no further impairment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. SELECTED COMPONENTS OF WORKING CAPITAL

A summary of accounts receivable, net is as follows:
The PartnershipWES Operating
thousandsJune 30,
2021		December 31,
2020		June 30,
2021		December 31,
2020
Trade receivables, net$519,109 $452,718 $519,109 $407,547 
Other receivables, net7 162 7 2 
Total accounts receivable, net$519,116 $452,880 $519,116 $407,549 

A summary of other current assets is as follows:
The PartnershipWES Operating
thousandsJune 30,
2021		December 31,
2020		June 30,
2021		December 31,
2020
NGLs inventory$3,088 $882 $3,088 $882 
Imbalance receivables21,532 12,976 21,532 12,976 
Prepaid insurance2,436 8,131 1,274 6,113 
Contract assets18,700 5,338 18,700 5,338 
Other15,806 17,935 15,806 17,935 
Total other current assets$61,562 $45,262 $60,400 $43,244 

A summary of accrued liabilities is as follows:
The PartnershipWES Operating
thousandsJune 30,
2021		December 31,
2020		June 30,
2021		December 31,
2020
Accrued interest expense$138,808 $137,307 $138,808 $137,307 
Short-term asset retirement obligations
15,719 20,215 15,719 20,215 
Short-term remediation and reclamation obligations
6,101 2,950 6,101 2,950 
Income taxes payable3,771 3,399 3,771 3,399 
Contract liabilities16,261 31,477 16,261 31,477 
Other75,278 74,599 41,521 35,485 
Total accrued liabilities$255,938 $269,947 $222,181 $230,833 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. DEBT AND INTEREST EXPENSE

WES Operating is the borrower for all outstanding debt and is expected to be the borrower for all future debt issuances. The following table presents the outstanding debt:
 June 30, 2021December 31, 2020
thousandsPrincipalCarrying
Value
Fair
Value (1)
PrincipalCarrying
Value
Fair
Value (1)
Short-term debt
4.000% Senior Notes due 2022
$580,917 $580,671 $590,880 $— $— $— 
5.375% Senior Notes due 2021
— — — 431,081 430,606 436,241 
Finance lease liabilities7,702 7,702 7,702 8,264 8,264 8,264 
Total short-term debt
$588,619 $588,373 $598,582 $439,345 $438,870 $444,505 
Long-term debt
4.000% Senior Notes due 2022
$— $— $— $580,917 $580,555 $597,568 
Floating-Rate Senior Notes due 2023
239,978 239,147 240,340 239,978 238,879 235,066 
3.100% Senior Notes due 2025
1,000,000 993,702 1,058,006 1,000,000 992,900 1,028,614 
3.950% Senior Notes due 2025
500,000 495,400 520,301 500,000 494,866 512,807 
4.650% Senior Notes due 2026
500,000 496,973 536,802 500,000 496,708 524,880 
4.500% Senior Notes due 2028
400,000 395,878 429,015 400,000 395,617 415,454 
4.750% Senior Notes due 2028
400,000 396,744 435,221 400,000 396,555 418,786 
4.050% Senior Notes due 2030
1,200,000 1,189,867 1,349,104 1,200,000 1,189,407 1,342,996 
5.450% Senior Notes due 2044
600,000 593,666 646,910 600,000 593,598 607,234 
5.300% Senior Notes due 2048
700,000 687,155 746,038 700,000 687,048 694,172 
5.500% Senior Notes due 2048
350,000 342,600 382,457 350,000 342,543 343,928 
5.250% Senior Notes due 2050
1,000,000 983,609 1,161,033 1,000,000 983,512 1,100,375 
Finance lease liabilities21,097 21,097 21,097 23,644 23,644 23,644 
Total long-term debt
$6,911,075 $6,835,838 $7,526,324 $7,494,539 $7,415,832 $7,845,524 
_________________________________________________________________________________________
(1)Fair value is measured using the market approach and Level-2 fair value inputs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. DEBT AND INTEREST EXPENSE

Debt activity. The following table presents the debt activity for the six months ended June 30, 2021:
thousandsCarrying Value
Balance at December 31, 2020$7,854,702 
RCF borrowings100,000 
Repayments of RCF borrowings(100,000)
Repayment of 5.375% Senior Notes due 2021
(431,081)
Finance lease liabilities(3,109)
Other3,699 
Balance at June 30, 2021$7,424,211 

WES Operating Senior Notes. In mid-January 2020, WES Operating issued the Fixed-Rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050 (collectively referred to as the “Fixed-Rate Senior Notes”) and the Floating-Rate Senior Notes due 2023 (the “Floating-Rate Senior Notes”). Including the effects of the issuance prices, underwriting discounts, and interest-rate adjustments, the effective interest rates of the Senior Notes due 2025, 2030, and 2050, were 4.542%, 5.424%, and 6.629%, respectively, at June 30, 2021, and were 3.287%, 4.168%, and 5.362%, respectively, at June 30, 2020. The interest rate on the Floating-Rate Senior Notes was 2.29% and 2.66% at June 30, 2021 and 2020, respectively. The effective interest rate of these notes is subject to adjustment from time to time due to a change in credit rating.
During the first quarter of 2021, WES Operating redeemed the total principal amount outstanding of the 5.375% Senior Notes due 2021 at par value, pursuant to the optional redemption terms in WES Operating’s indenture. As of June 30, 2021, the 4.000% Senior Notes due 2022 were classified as short-term debt on the consolidated balance sheet due to management’s intent to retire the notes within the next twelve months. At June 30, 2021, WES Operating was in compliance with all covenants under the relevant governing indentures.

Revolving credit facility. WES Operating’s $2.0 billion senior unsecured revolving credit facility (“RCF”) is expandable to a maximum of $2.5 billion, and matures in February 2025 for each extending lender. The non-extending lender’s commitments mature in February 2024 and represent $100.0 million out of $2.0 billion of total commitments from all lenders.
As of June 30, 2021, there were no outstanding borrowings and $5.1 million of outstanding letters of credit, resulting in $2.0 billion of available borrowing capacity under the RCF. As of June 30, 2021 and 2020, the interest rate on any outstanding RCF borrowings was 1.60% and 1.66%, respectively. The facility-fee rate was 0.25% at June 30, 2021 and 2020. At June 30, 2021, WES Operating was in compliance with all covenants under the RCF.

Term loan facility. In January 2020, WES Operating repaid the outstanding borrowings with proceeds from the issuance of the Fixed-Rate Senior Notes and Floating-Rate Senior Notes and terminated its $3.0 billion senior unsecured credit facility (“Term loan facility”), see WES Operating Senior Notes above. During the first quarter of 2020, a loss of $2.3 million was recognized for the early termination of the Term loan facility.

Finance lease liabilities. The Partnership subleased equipment from Occidental via finance leases through April 2020. During the first quarter of 2020, the Partnership entered into finance leases with third parties for equipment and vehicles extending through 2029, with future lease payments of $33.1 million as of June 30, 2021.

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WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. DEBT AND INTEREST EXPENSE

Interest expense. The following table summarizes the amounts included in interest expense:
 Three Months Ended 
June 30,		Six Months Ended 
June 30,
thousands2021202020212020
Third parties
Long-term and short-term debt
$(92,487)$(89,650)$(188,209)$(179,419)
Finance lease liabilities(292)(388)(590)(793)
Amortization of debt issuance costs and commitment fees(3,179)(3,462)(6,517)(6,589)
Capitalized interest 668 (1,154)1,533 3,604 
Total interest expense – third parties(95,290)(94,654)(193,783)(183,197)
Related parties
Finance lease liabilities— — — (43)
Total interest expense – related parties— — — (43)
Interest expense$(95,290)$(94,654)$(193,783)$(183,240)

12. 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 June 30, 2021, and December 31, 2020, the consolidated balance sheets included $11.3 million and $8.2 million, respectively, of liabilities for remediation and reclamation obligations. The current portion of these amounts is included in Accrued liabilities, and the long-term portion of these amounts is included in Other liabilities. The recorded obligations do not include any anticipated insurance recoveries. The majority of payments related to these obligations are expected to be made over the next five years.

Litigation and legal proceedings. 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 the 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 payment obligations, or commitments, that include, among other things, a revolving credit facility, other third-party long-term debt, obligations related to the Partnership’s capital spending programs, pipeline commitments, and various operating and finance leases. The payment obligations related to the Partnership’s capital spending programs, the majority of which is expected to be paid in the next twelve months, primarily relate to construction, expansion, and asset-integrity projects at the West Texas complex, DBM water systems, DJ Basin complex, and DBM oil system.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion analyzes our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, wherein WES Operating is fully consolidated, and which are included under Part I, Item 1 of this quarterly report, and the historical consolidated financial statements, and the notes thereto, which are included under Part II, Item 8 of the 2020 Form 10-K as filed with the SEC on February 26, 2021.
The Partnership’s assets include assets owned and ownership interests accounted for by us under the equity method of accounting, through our 98.0% partnership interest in WES Operating, as of June 30, 2021 (see Note 7—Equity Investments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q). We also own and control the entire non-economic general partner interest in WES Operating GP, and our general partner is owned by Occidental.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made in this Form 10-Q, and may make in other public filings, press releases, and statements by management, forward-looking statements concerning our operations, economic performance, and financial condition. These forward-looking statements include statements preceded by, followed by, or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “target,” “goal,” “plans,” “objective,” “should,” or similar expressions or variations on such expressions. These statements discuss future expectations, contain projections of results of operations or financial condition, or include other “forward-looking” information.
Although we and our general partner believe that the expectations reflected in our forward-looking statements are reasonable, neither we nor our general partner can provide any assurance that such expectations will prove correct. These forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from expectations include, but are not limited to, the following:

•our ability to pay distributions to our unitholders;

•our assumptions about the energy market;

•future throughput (including Occidental production) that is gathered or processed by, or transported through our assets;

•our operating results;

•competitive conditions;

•technology;

•the availability of capital resources to fund acquisitions, capital expenditures, and other contractual obligations, and our ability to access financing through the debt or equity capital markets;

•the supply of, demand for, and price of, oil, natural gas, NGLs, and related products or services;

•commodity-price risks inherent in percent-of-proceeds, percent-of-product, and keep-whole contracts;

•weather and natural disasters;

•inflation;

•the availability of goods and services;

•general economic conditions, internationally, domestically, or in the jurisdictions in which we are doing business;

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•federal, state, and local laws and state-approved voter ballot initiatives, including those laws or ballot initiatives that limit producers’ hydraulic-fracturing activities or other oil and natural-gas development or operations;

•environmental liabilities;

•legislative or regulatory changes, including changes affecting our status as a partnership for federal income tax purposes;

•changes in the financial or operational condition of Occidental;

•the creditworthiness of Occidental or our other counterparties, including financial institutions, operating partners, and other parties;

•changes in Occidental’s capital program, corporate strategy, or other desired areas of focus;

•our commitments to capital projects;

•our ability to access liquidity under the RCF;

•our ability to repay debt;

•the impact from disruptions caused by winter storm Uri or the recent blizzard in the state of Colorado or resolution of litigation or other disputes;

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

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

•our ability to acquire assets on acceptable terms from third parties;

•non-payment or non-performance of significant customers, including under gathering, processing, transportation, and disposal agreements;

•the timing, amount, and terms of future issuances of equity and debt securities;

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

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

•other factors discussed below, in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” included in the 2020 Form 10-K, in our quarterly reports on Form 10-Q, and in our other public filings and press releases.

Risk factors and other factors noted throughout or incorporated by reference in this Form 10-Q could cause actual results to differ materially from those contained in any forward-looking statement. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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EXECUTIVE SUMMARY

We are a midstream energy company organized as a publicly traded partnership, engaged in the business of gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, NGLs, and crude oil; and gathering and disposing of produced water. In our capacity as a natural-gas processor, we also buy and sell natural gas, NGLs, and condensate on behalf of ourselves and as an agent for our customers under certain contracts. To provide superior midstream service, we focus on ensuring the reliability and performance of our systems, creating sustainable cost efficiencies, enhancing our safety culture, and protecting the environment. We own or have investments in assets located in Texas, New Mexico, the Rocky Mountains (Colorado, Utah, and Wyoming), and North-central Pennsylvania. As of June 30, 2021, our assets and investments consisted of the following:
Wholly
Owned and
Operated		Operated
Interests		Non-Operated
Interests		Equity
Interests
Gathering systems (1)
17 2 3 1 
Treating facilities36 3 — — 
Natural-gas processing plants/trains
24 3 — 5 
NGLs pipelines2 — — 5 
Natural-gas pipelines
5 — — 1 
Crude-oil pipelines
3 1 — 4 
_________________________________________________________________________________________
(1)Includes the DBM water systems.

Significant financial and operational events during the six months ended June 30, 2021, included the following:

•WES Operating redeemed the total principal amount outstanding of the 5.375% Senior Notes due 2021 at par value, pursuant to the optional redemption terms in WES Operating’s indenture.

•We repurchased 1,115,808 common units for an aggregate purchase price of $16.2 million during the six months ended June 30, 2021.

•Our second-quarter 2021 per-unit distribution of $0.31900 increased $0.004 from the first-quarter 2021 per-unit distribution of $0.31500.

•Natural-gas throughput attributable to WES totaled 4,265 MMcf/d and 4,157 MMcf/d for the three and six months ended June 30, 2021, respectively, representing a 5% increase and 6% decrease compared to the three months ended March 31, 2021, and six months ended June 30, 2020, respectively.

•Crude-oil and NGLs throughput attributable to WES totaled 687 MBbls/d and 645 MBbls/d for the three and six months ended June 30, 2021, respectively, representing a 14% increase and 13% decrease compared to the three months ended March 31, 2021, and six months ended June 30, 2020, respectively.

•Produced-water throughput attributable to WES totaled 688 MBbls/d and 642 MBbls/d for the three and six months ended June 30, 2021, respectively, representing a 16% increase and 12% decrease compared to the three months ended March 31, 2021, and six months ended June 30, 2020, respectively.

•Gross margin was $503.2 million and $958.7 million for the three and six months ended June 30, 2021, respectively, representing a 10% increase and 11% decrease compared to the three months ended March 31, 2021, and six months ended June 30, 2020, respectively. See Key Performance Metrics within this Item 2.

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•Adjusted gross margin for natural-gas assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $1.21 per Mcf and $1.20 per Mcf for the three and six months ended June 30, 2021, respectively, representing a 2% increase and 4% increase compared to the three months ended March 31, 2021, and six months ended June 30, 2020, respectively.

•Adjusted gross margin for crude-oil and NGLs assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $2.40 per Bbl and $2.43 per Bbl for the three and six months ended June 30, 2021, respectively, representing a 2% decrease compared to the three months ended March 31, 2021, and six months ended June 30, 2020.

•Adjusted gross margin for produced-water assets (as defined under the caption Key Performance Metrics within this Item 2) averaged $0.92 per Bbl for the three and six months ended June 30, 2021, representing no change and a 5% decrease compared to the three months ended March 31, 2021, and six months ended June 30, 2020, respectively.

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

Three Months EndedSix Months Ended
June 30, 2021March 31, 2021Inc/
(Dec)		June 30, 2021June 30, 2020Inc/
(Dec)
Throughput for natural-gas assets (MMcf/d)
Delaware Basin1,244 1,133 10 %1,189 1,349 (12)%
DJ Basin1,413 1,344 5 %1,379 1,368 1 %
Equity investments457 439 4 %448 451 (1)%
Other1,310 1,279 2 %1,296 1,435 (10)%
Total throughput for natural-gas assets
4,424 4,195 5 %4,312 4,603 (6)%
Throughput for crude-oil and NGLs assets (MBbls/d)
Delaware Basin184 162 14 %173 197 (12)%
DJ Basin98 82 20 %90 120 (25)%
Equity investments386 337 15 %361 395 (9)%
Other33 35 (6)%34 43 (21)%
Total throughput for crude-oil and NGLs assets
701 616 14 %658 755 (13)%
Throughput for produced-water assets (MBbls/d)
Delaware Basin702 607 16 %655 745 (12)%
Total throughput for produced-water assets
702 607 16 %655 745 (12)%

Weather-related impacts. In February 2021, the U.S. experienced winter storm Uri, bringing extreme cold temperatures, ice, and snow to the central U.S., including Texas, and in March 2021, Colorado experienced a historic blizzard. Winter storm Uri adversely affected our volumes for approximately ten days and the blizzard in Colorado likewise disrupted our assets in that state. We estimate the impact of these weather events to have reduced net income and Adjusted EBITDA (as defined under the caption Key Performance Metrics within this Item 2) for the six months ended June 30, 2021, by approximately $30 million due to lower volumes, the impact of commodity-prices, and higher operating expenses related to utilities. The estimated impact of the adverse winter weather on our operations and financial results may change and those changes may be material. Any additional inclement weather in the future, or other adverse conditions, including resolution of litigation and other legal disputes and the COVID-19 pandemic and resulting mitigation factors, may have an adverse impact on our operations and financial results.

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COVID-19. During 2020, the global outbreak of COVID-19 caused a sharp decline in the worldwide demand for oil, natural gas, and NGLs, which contributed significantly to commodity-price declines and oversupplied commodities markets. These market dynamics have had an adverse impact on producers that provide throughput into our systems, and we have experienced decreased throughput at many of our locations.
Additionally, many of our employees have been and may continue to be subject to pandemic-related work-from-home requirements, which require us to take additional actions to ensure that the number of personnel accessing our network remotely does not lead to excessive cyber-security risk levels. Similarly, we are working continually to ensure operational changes that we have made to promote the health and safety of our personnel during this pandemic do not unduly disrupt intracompany communications and key business processes. We consider our risk-mitigation efforts adequate; however, the ultimate impact of the ongoing pandemic is unpredictable, with direct and indirect impacts to our business.
WES continues to monitor the COVID-19 situation closely, and as state and federal governments issue additional guidance, we will update our own policies in response to ensure the safety and health of our workforce and communities. The federal government has provided guidance to states on how to safely return personnel to the workplace, which we are following as our workforce returns to WES locations. All WES facilities, including field locations, have been conducting enhanced routine cleaning and disinfecting of common areas and frequently touched surfaces using CDC- and EPA-approved products. Our return-to-work protocols include daily required application-based health self-assessments that must be completed prior to accessing WES work locations.

Commodity purchase and sale agreements. Effective April 1, 2020, changes to marketing-contract terms with AESC terminated AESC’s prior status as an agent of the Partnership for third-party sales and established AESC as a customer of the Partnership. Accordingly, we no longer recognize service revenues and/or product sales revenues and the equivalent cost of product expense for the marketing services performed by AESC. Year-over-year variances for the six months ended June 30, 2021, include the following impacts related to this change (i) decrease of $45.9 million in Service revenues – fee based, (ii) decrease of $21.2 million in Product sales, and (iii) decrease of $67.1 million in Cost of product expense. These changes had no impact to Operating income (loss), Net income (loss), the balance sheets, cash flows, or any non-GAAP metric used to evaluate our operations (see Key Performance Metrics within this Item 2). See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

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OUTLOOK

We expect our business to continue to be affected by the below-described key trends and uncertainties. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove incorrect, our actual results may vary materially from expected results.

Impact of crude-oil, natural-gas, and NGLs prices. Crude-oil, natural-gas, and NGLs prices can fluctuate significantly, and have done so over time. Commodity-price fluctuations affect the level of our customers’ activities and our customers’ allocations of capital within their own asset portfolios. During the first quarter of 2020, oil and natural-gas prices decreased significantly, driven by the expectation of increased supply and sharp declines in demand resulting from the worldwide macroeconomic downturn that followed the global outbreak of COVID-19. For example, NYMEX West Texas Intermediate crude-oil daily settlement prices ranged from a high of $63.27 per barrel in January 2020 to a low below $20.00 per barrel in April 2020. Although commodity prices have rebounded to pre-pandemic levels, the extent and duration of the recent commodity-price volatility cannot be predicted, and potential impacts to our business include the following:

•We have exposure to increased credit risk to the extent any of our customers, including Occidental, is in financial distress. See Liquidity and Capital Resources—Credit risk within this Item 2 for additional information.

•An extended period of diminished earnings may restrict our ability to fully access our RCF, which contains various customary covenants, certain events of default, and a maximum consolidated leverage ratio based on Adjusted EBITDA (as defined in the covenant) related to the trailing twelve-month period. Further, any future waivers or amendments to the RCF also may trigger pricing increases for available credit. See Liquidity and Capital Resources—Debt and credit facilities within this Item 2 for additional information.

•As of June 30, 2021, it is reasonably possible that future commodity-price declines, prolonged depression of commodity prices, changes to producers’ drilling plans in response to lower prices, and potential producer bankruptcies could result in future long-lived asset impairments.

To the extent producers continue with development plans in our areas of operation, we will continue to connect new wells or production facilities to our systems to maintain throughput on our systems and mitigate the impact of production declines. However, our success in connecting additional wells or production facilities is dependent on the activity levels of our customers. Additionally, we will continue to evaluate the crude-oil, NGLs, and natural-gas price environments and adjust our capital spending plans to reflect our customers’ anticipated activity levels, while maintaining appropriate liquidity and financial flexibility.

ACQUISITIONS AND DIVESTITURES

Fort Union and Bison facilities. In October 2020, we (i) sold our 14.81% interest in Fort Union, which was accounted for under the equity method of accounting, and (ii) entered into an option agreement to sell the Bison treating facility, located in Northeast Wyoming, to a third party.
During the second quarter of 2021, the third party exercised its option to purchase the Bison treating facility and the sale closed. We received total proceeds of $8.0 million, $7.0 million in the fourth quarter of 2020 and $1.0 million when the sale closed in the second quarter of 2021, resulting in a net gain on sale of $5.4 million that was recorded as Gain (loss) on divestiture and other, net in the consolidated statements of operations. See Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for further information.

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RESULTS OF OPERATIONS

OPERATING RESULTS

In November 2020, the SEC issued a final rule to modernize and simplify Management’s Discussion and Analysis and certain financial disclosure requirements in SEC Regulation S-K. As permitted by this final rule, the analysis herein reflects the optional approach to discuss results of operations on a sequential-quarter basis, which we believe will provide information that is most useful to investors in assessing our quarterly results of operations going forward. In addition, as required by the final rule, we have continued to include a comparison of the current year-to-date period to the prior year-to-date period.
For purposes of the following discussion, any increases or decreases “for the three months ended June 30, 2021” refer to the comparison of the three months ended June 30, 2021, to the three months ended March 31, 2021; and any increases or decreases “for the six months ended June 30, 2021” refer to the comparison of the six months ended June 30, 2021, to the six months ended June 30, 2020.
The following tables and discussion present a summary of our results of operations:
Three Months Ended Six Months Ended
thousandsJune 30, 2021March 31, 2021June 30, 2021June 30, 2020
Total revenues and other (1)
$719,131 $674,974 $1,394,105 $1,446,068 
Equity income, net – related parties58,666 52,165 110,831 115,762 
Total operating expenses (1)
444,074 434,220 878,294 1,400,084 
Gain (loss) on divestiture and other, net1,225 (583)642 (2,883)
Operating income (loss)334,948 292,336 627,284 158,863 
Interest income – Anadarko note receivable— — — 8,450 
Interest expense(95,290)(98,493)(193,783)(183,240)
Gain (loss) on early extinguishment of debt— (289)(289)8,740 
Other income (expense), net84 (1,207)(1,123)(108)
Income (loss) before income taxes239,742 192,347 432,089 (7,295)
Income tax expense (benefit)1,465 1,112 2,577 764 
Net income (loss)238,277 191,235 429,512 (8,059)
Net income (loss) attributable to noncontrolling interests7,018 5,444 12,462 (24,569)
Net income (loss) attributable to Western Midstream Partners, LP (2)
$231,259 $185,791 $417,050 $16,510 
Key performance metrics (3)
Adjusted gross margin$677,236 $614,624 $1,291,860 $1,388,272 
Adjusted EBITDA491,126 443,110 934,236 1,028,028 
Free cash flow379,776 213,822 593,598 423,210 
_________________________________________________________________________________________
(1)Total revenues and other includes amounts earned from services provided to related parties and from the sale of residue gas and NGLs to related parties. Total operating expenses includes amounts charged by related parties for services and reimbursements of amounts paid by related parties to third parties on our behalf. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(2)For reconciliations to comparable consolidated results of WES Operating, see Items Affecting the Comparability of Financial Results with WES Operating within this Item 2.
(3)Adjusted gross margin, Adjusted EBITDA, and Free cash flow are defined under the caption Key Performance Metrics within this Item 2. For reconciliations of these non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP, see Key Performance Metrics—Reconciliation of non-GAAP financial measures within this Item 2.


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Throughput
 Three Months EndedSix Months Ended
June 30, 2021March 31, 2021Inc/
(Dec)		June 30, 2021June 30, 2020Inc/
(Dec)
Throughput for natural-gas assets (MMcf/d)
Gathering, treating, and transportation534 519 3 %527 547 (4)%
Processing3,433 3,237 6 %3,337 3,605 (7)%
Equity investments (1)
457 439 4 %448 451 (1)%
Total throughput4,424 4,195 5 %4,312 4,603 (6)%
Throughput attributable to noncontrolling interests (2)
159 150 6 %155 164 (5)%
Total throughput attributable to WES for natural-gas assets
4,265 4,045 5 %4,157 4,439 (6)%
Throughput for crude-oil and NGLs assets (MBbls/d)
Gathering, treating, and transportation315 279 13 %297 360 (18)%
Equity investments (3)
386 337 15 %361 395 (9)%
Total throughput701 616 14 %658 755 (13)%
Throughput attributable to noncontrolling interests (2)
14 12 17 %13 15 (13)%
Total throughput attributable to WES for crude-oil and NGLs assets
687 604 14 %645 740 (13)%
Throughput for produced-water assets (MBbls/d)
Gathering and disposal702 607 16 %655 745 (12)%
Throughput attributable to noncontrolling interests (2)
14 12 17 %13 15 (13)%
Total throughput attributable to WES for produced-water assets
688 595 16 %642 730 (12)%
_________________________________________________________________________________________
(1)Represents the 14.81% share of average Fort Union throughput (until divested in October 2020), 22% share of average Rendezvous throughput, 50% share of average Mi Vida and Ranch Westex throughput, and 30% share of average Red Bluff Express throughput.
(2)For all periods presented, includes (i) the 2.0% Occidental subsidiary-owned limited partner interest in WES Operating and (ii) for natural-gas assets, the 25% third-party interest in Chipeta, which collectively represent WES’s noncontrolling interests.
(3)Represents the 10% share of average White Cliffs throughput; 25% share of average Mont Belvieu JV throughput; 20% share of average TEG, TEP, Whitethorn, and Saddlehorn throughput; 33.33% share of average FRP throughput; and 15% share of average Panola and Cactus II throughput.

Natural-gas assets

Gathering, treating, and transportation throughput increased by 15 MMcf/d for the three months ended June 30, 2021, primarily due to increased production in areas around the Marcellus Interest systems.
Gathering, treating, and transportation throughput decreased by 20 MMcf/d for the six months ended June 30, 2021, primarily due to (i) production declines and the impact of winter storm Uri at the Springfield gas-gathering system and (ii) lower throughput at the Bison treating facility due to production declines in the area. These decreases were offset partially by increased production in areas around the Marcellus Interest systems.
Processing throughput increased by 196 MMcf/d for the three months ended June 30, 2021, primarily due to (i) increased production and recovery from the impact of winter storm Uri during the first quarter of 2021 at the West Texas complex, (ii) increased production in areas around the DJ Basin complex, and (iii) higher throughput at the Chipeta complex.
Processing throughput decreased by 268 MMcf/d for the six months ended June 30, 2021, primarily due to (i) lower production and the impact of winter storm Uri at the West Texas complex, (ii) the Granger straddle plant being held idle beginning in the third quarter of 2020, and (iii) lower throughput at the Chipeta and Granger complexes due to production declines in the area.

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Equity-investment throughput increased by 18 MMcf/d for the three months ended June 30, 2021, primarily due to increased volumes at the Mi Vida plant and on Red Bluff Express.
Equity-investment throughput decreased by 3 MMcf/d for the six months ended June 30, 2021, primarily due to (i) decreased volumes at the Rendezvous system due to production declines in the area and (ii) decreased volumes at the Fort Union system, which was sold to a third party during the fourth quarter of 2020. These decreases were offset partially by increased volumes on Red Bluff Express resulting from increased pipeline commitments.

Crude-oil and NGLs assets

Gathering, treating, and transportation throughput increased by 36 MBbls/d for the three months ended June 30, 2021, primarily due to (i) increased production and recovery from the impact of winter storm Uri during the first quarter of 2021 at the DBM oil system and (ii) increased production in areas around the DJ Basin oil system.
Gathering, treating, and transportation throughput decreased by 63 MBbls/d for the six months ended June 30, 2021, primarily due to (i) lower throughput at the DJ Basin oil system due to production declines in the area and (ii) lower throughput at the DBM oil system resulting from lower production and the impact of winter storm Uri.
Equity-investment throughput increased by 49 MBbls/d for the three months ended June 30, 2021, primarily due to increased volumes on the Whitethorn and Saddlehorn pipelines, TEP, FRP, and Mont Belvieu JV.
Equity-investment throughput decreased by 34 MBbls/d for the six months ended June 30, 2021, primarily due to decreased volumes on the Whitethorn pipeline, partially offset by increased volumes on the Saddlehorn pipeline.

Produced-water assets

Gathering and disposal throughput increased by 95 MBbls/d for the three months ended June 30, 2021, due to increased throughput at the DBM water systems resulting from higher production and recovery from the impact of winter storm Uri during the first quarter of 2021.
Gathering and disposal throughput decreased by 90 MBbls/d for the six months ended June 30, 2021, due to decreased throughput at the DBM water systems resulting from lower production and the impact of winter storm Uri.


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Service Revenues
 Three Months EndedSix Months Ended
thousands except percentagesJune 30, 2021March 31, 2021Inc/
(Dec)		June 30, 2021June 30, 2020Inc/
(Dec)
Service revenues – fee based$618,985 $572,275 8 %$1,191,260 $1,344,024 (11)%
Service revenues – product based27,803 31,652 (12)%59,455 22,921 159 %
 Total service revenues$646,788 $603,927 7 %$1,250,715 $1,366,945 (9)%

Service revenues – fee based

Service revenues – fee based increased by $46.7 million for the three months ended June 30, 2021, primarily due to increases of (i) $16.8 million at the West Texas complex, $8.4 million at the DBM water systems, and $4.3 million at the DBM oil system resulting from increased throughput, including recovery from the impact of winter storm Uri in the first quarter of 2021, and (ii) $14.1 million at the DJ Basin complex from increased throughput.
Service revenues – fee based decreased by $152.8 million for the six months ended June 30, 2021, primarily due to decreases of (i) $45.9 million, resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2), (ii) $28.7 million at the DBM oil system due to decreased throughput, including the impact of winter storm Uri, and lower lease revenue under the operating and maintenance agreement with Occidental, (iii) $24.5 million at the DBM water systems resulting from decreased throughput, including the impact of winter storm Uri, and a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2021, (iv) $20.8 million at the West Texas complex from decreased throughput, including the impact of winter storm Uri, (v) $20.7 million at the DJ Basin complex due to decreased throughput on certain fee-based contracts, and (vi) $7.1 million at the Bison treating facility due to decreased throughput and the expiration of a minimum-volume commitment contract in the fourth quarter of 2020.

Service revenues – product based

Service revenues – product based decreased by $3.8 million for the three months ended June 30, 2021, primarily due to a decrease of $3.2 million at the Hilight system attributable to increased prices in the first quarter of 2021 due to the impact of winter storms in the area.
Service revenues – product based increased by $36.5 million for the six months ended June 30, 2021, primarily due to increases of (i) $13.3 million at the West Texas complex due to an increase in electricity-related rates billed to customers during winter storm Uri, (ii) $9.2 million at the DJ Basin complex due to increased third-party volumes, and (iii) $4.8 million at the Hilight system and $3.9 million at the Granger complex due to increased prices.
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Product Sales
Three Months EndedSix Months Ended
thousands except percentages and per-unit amountsJune 30, 2021March 31, 2021Inc/
(Dec)		June 30, 2021June 30, 2020Inc/
(Dec)
Natural-gas sales
$14,195 $21,419 (34)%$35,614 $16,723 113 %
NGLs sales58,061 49,386 18 %107,447 61,662 74 %
Total Product sales$72,256 $70,805 2 %$143,061 $78,385 83 %
Per-unit gross average sales price:
Natural gas (per Mcf)$2.65 $5.98 (56)%$4.26 $1.22 NM
NGLs (per Bbl)27.16 28.42 (4)%27.73 11.76 136 %
_________________________________________________________________________________________
NM—Not meaningful

Natural-gas sales

Natural-gas sales decreased by $7.2 million for the three months ended June 30, 2021, primarily due to decreases of (i) $13.4 million at the West Texas complex attributable to a decrease in average prices and (ii) $3.8 million at the MGR assets attributable to a decrease in average prices and volumes sold. These decreases were offset partially by an increase of $9.0 million at the DJ Basin complex attributable to an increase in volumes, partially offset by decreased average prices.
Natural-gas sales increased by $18.9 million for the six months ended June 30, 2021, primarily due to increases of (i) $22.4 million at the West Texas complex and $5.1 million at the MGR assets attributable to increases in average prices and (ii) $1.8 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2). These increases were offset partially by a decrease of $11.1 million at the DJ Basin complex attributable to a decrease in volumes sold, partially offset by increased average prices.

NGLs sales

NGLs sales increased by $8.7 million for the three months ended June 30, 2021, primarily due to an increase of $8.0 million at the West Texas complex attributable to an increase in volumes sold, partially offset by a decrease in average prices.
NGLs sales increased by $45.8 million for the six months ended June 30, 2021, primarily due to increases of (i) $47.8 million at the West Texas complex attributable to an increase in average prices, partially offset by decreased volumes sold, (ii) $9.4 million at the Chipeta complex and $5.7 million at the Granger complex attributable to increases in average prices, and (iii) $4.9 million at the DJ Basin complex attributable to an increase in average prices and volumes sold. These increases were offset partially by a decrease of $23.0 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2).

Equity Income, Net – Related Parties
Three Months EndedSix Months Ended
thousands except percentagesJune 30, 2021March 31, 2021Inc/
(Dec)		June 30, 2021June 30, 2020Inc/
(Dec)
Equity income, net – related parties$58,666 $52,165 12 %$110,831 $115,762 (4)%

Equity income, net – related parties increased by $6.5 million for the three months ended June 30, 2021, primarily due to (i) an increase in equity income at Mont Belvieu JV from higher volumes and a load-reduction electricity credit received related to winter storm Uri and (ii) higher volumes at FRP.
Equity income, net – related parties decreased by $4.9 million for the six months ended June 30, 2021, primarily due to (i) a decrease in equity income from Whitethorn LLC related to commercial activities and lower volumes and (ii) lower volumes at White Cliffs. These decreases were offset partially by an increase in equity income from higher volumes at Saddlehorn and Red Bluff Express.
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Cost of Product and Operation and Maintenance Expenses
Three Months EndedSix Months Ended
thousands except percentagesJune 30, 2021March 31, 2021Inc/
(Dec)		June 30, 2021June 30, 2020Inc/
(Dec)
NGLs purchases$42,305 $30,919 37 %$73,224 $92,781 (21)%
Residue purchases23,019 57,904 (60)%80,923 33,160 144 %
Other12,720 146 NM12,866 (4,069)NM
Cost of product78,044 88,969 (12)%167,013 121,872 37 %
Operation and maintenance153,028 140,332 9 %293,360 304,377 (4)%
Total Cost of product and Operation and maintenance expenses$231,072 $229,301 1 %$460,373 $426,249 8 %

NGLs purchases

NGLs purchases increased by $11.4 million for the three months ended June 30, 2021, primarily due to an increase of $8.2 million at the West Texas complex attributable to purchased-volume increases, partially offset by an average-price decrease.
NGLs purchases decreased by $19.6 million for the six months ended June 30, 2021, primarily due to a decrease of $61.1 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2), partially offset by increases of $18.4 million at the West Texas complex, $12.9 million at the DJ Basin complex, $4.8 million at the Chipeta complex, and $3.5 million at the Granger complex attributable to average-price increases.

Residue purchases

Residue purchases decreased by $34.9 million for the three months ended June 30, 2021, primarily due to decreases of $19.3 million at the West Texas complex, $4.1 million at the DJ Basin complex, $3.7 million at the Hilight system, $2.4 million at the MGR assets, and $2.3 million at the Granger complex attributable to average-price decreases.
Residue purchases increased by $47.8 million for the six months ended June 30, 2021, primarily due to increases of $35.4 million at the West Texas complex, $4.9 million at the Chipeta complex, $4.6 million at the Hilight system, and $4.0 million at the MGR assets attributable to average-price increases. These increases were offset partially by a decrease of $5.2 million resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020 (see Executive Summary—Commodity purchase and sale agreements within this Item 2).

Other items

Other items increased by $12.6 million for the three months ended June 30, 2021, primarily due to increases of (i) $9.8 million at the DJ Basin complex and (ii) $3.6 million at the West Texas complex, primarily attributable to changes in imbalance positions.
Other items increased by $16.9 million for the six months ended June 30, 2021, primarily due to an increase of $28.8 million at the West Texas complex, primarily attributable to changes in imbalance positions, partially offset by a decrease of $11.9 million at the DJ Basin complex due to changes in imbalance positions.

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Operation and maintenance expense

Operation and maintenance expense increased by $12.7 million for the three months ended June 30, 2021, primarily due to an increase of $9.1 million at the DJ Basin complex due to an environmental liability of $4.1 million recorded in the second quarter of 2021, as well as increased surface maintenance and plant repairs, and field-related expenses.
Operation and maintenance expense decreased by $11.0 million for the six months ended June 30, 2021, primarily due to decreases of (i) $10.7 million at the West Texas complex, primarily attributable to reduced salaries and wages, surface maintenance and plant repairs, and safety expense, partially offset by increased utilities expense primarily resulting from the impact of winter storm Uri and (ii) $6.7 million at the DBM water systems attributable to lower disposal fees resulting from reduced volumes and lower surface-use fees, partially offset by increased utilities expense and surface maintenance and plant repairs, including the impact of winter storm Uri. These decreases were offset partially by an increase of $5.3 million at the DBM oil system, primarily attributable to increases in field-related expenses and utilities expense primarily resulting from the impact of winter storm Uri.

Other Operating Expenses
Three Months EndedSix Months Ended
thousands except percentagesJune 30, 2021March 31, 2021Inc/
(Dec)		June 30, 2021June 30, 2020Inc/
(Dec)
General and administrative$44,448 $45,116 (1)%$89,564 $76,888 16 %
Property and other taxes17,967 14,384 25 %32,351 37,871 (15)%
Depreciation and amortization137,849 130,553 6 %268,402 252,124 6 %
Long-lived asset and other impairments
12,738 14,866 (14)%27,604 165,935 (83)%
Goodwill impairment— — NM— 441,017 NM
Total other operating expenses$213,002 $204,919 4 %$417,921 $973,835 (57)%

General and administrative expenses

General and administrative expenses increased by $12.7 million for the six months ended June 30, 2021, primarily due to (i) a $6.3 million increase in personnel costs primarily related to increased bonus-related contributions under our employee savings plan, (ii) a $5.3 million increase in contract and consulting costs primarily related to information technology services and fees, and (iii) a $3.7 million increase in corporate expenses and professional fees.

Property and other taxes

Property and other taxes increased by $3.6 million for the three months ended June 30, 2021, due to ad valorem tax increases at the DJ Basin complex and DJ Basin oil system, primarily due to favorable differences between actual and estimated tax payments related to the 2020 fiscal year recognized in the first quarter of 2021.
Property and other taxes decreased by $5.5 million for the six months ended June 30, 2021, primarily due to ad valorem tax decreases at the West Texas and DJ Basin complexes, and DJ Basin oil system due to favorable differences between actual and estimated tax payments related to the 2020 fiscal year.

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Depreciation and amortization expense

Depreciation and amortization expense increased by $7.3 million for the three months ended June 30, 2021, primarily due to increases of (i) $3.2 million at a transportation asset in Southwest Wyoming, primarily as a result of downward asset retirement obligation revisions made in the first quarter of 2021 and (ii) $2.3 million at the MGR assets and Hilight system due to an acceleration of depreciation expense.
Depreciation and amortization expense increased by $16.3 million for the six months ended June 30, 2021, primarily due to increases of (i) $13.1 million at the DJ Basin complex, primarily as a result of a change in estimate for asset retirement obligations for the Third Creek gathering system in the comparative prior period, (ii) $5.6 million at the West Texas complex resulting from capital projects being placed into service, and (iii) $4.5 million related to depreciation for capitalized information technology implementation costs related to the stand-up of WES as an independent organization. These increases were offset partially by decreases of (i) $8.4 million due to the sale of the Bison treating facility and (ii) $3.3 million at a transportation asset in Southwest Wyoming, primarily as a result of downward asset retirement obligation revisions made in the first quarter of 2021.

Long-lived asset and other impairment expense

Long-lived asset and other impairment expense for the three months ended June 30, 2021, was primarily due to an $11.6 million other-than-temporary impairment of our investment in Ranch Westex.
Long-lived asset and other impairment expense for the three months ended March 31, 2021, was primarily due to $13.5 million of impairments at the DJ Basin complex due to cancellation of projects.
Long-lived asset and other impairment expense for the six months ended June 30, 2020, was primarily due to (i) $149.4 million of impairments for assets located in Wyoming and Utah and (ii) impairments at the DJ Basin complex due to cancellation of projects and impairments of rights-of-way.
For further information on Long-lived asset and other impairment expense, see Note 8—Property, Plant, and Equipment in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Goodwill impairment expense

During the three months ended March 31, 2020, an interim goodwill impairment test was performed due to significant unit-price declines triggered by the combined impacts from the global outbreak of COVID-19 and the oil-market disruption. As a result of the interim impairment test, a goodwill impairment of $441.0 million was recognized for the gathering and processing reporting unit. For additional information, see Note 9—Goodwill in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

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Interest Income – Anadarko Note Receivable and Interest Expense

Three Months EndedSix Months Ended
thousands except percentagesJune 30, 2021March 31, 2021Inc/
(Dec)		June 30, 2021June 30, 2020Inc/
(Dec)
Interest income – Anadarko note receivable$— $— — %$— $8,450 (100)%
Third parties
Long-term and short-term debt
$(92,487)$(95,722)(3)%$(188,209)$(179,419)5 %
Finance lease liabilities(292)(298)(2)%(590)(793)(26)%
Amortization of debt issuance costs and commitment fees(3,179)(3,338)(5)%(6,517)(6,589)(1)%
Capitalized interest668 865 23 %1,533 3,604 (57)%
Related parties
Finance lease liabilities— — — %— (43)(100)%
Interest expense$(95,290)$(98,493)(3)%$(193,783)$(183,240)6 %

Interest income

Interest income - Anadarko note receivable decreased by $8.5 million for the six months ended June 30, 2021, due to the exchange of the Anadarko note receivable under the Unit Redemption Agreement in September 2020. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Interest expense

Interest expense decreased by $3.2 million for the three months ended June 30, 2021, primarily due to lower interest incurred on the 5.375% Senior Notes due 2021 that were called on March 1, 2021.
Interest expense increased by $10.5 million for the six months ended June 30, 2021, primarily due to (i) $23.8 million of additional interest incurred from higher effective interest rates resulting from credit-rating downgrades on the 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050 and (ii) a decrease of $2.1 million in capitalized interest due to decreased capital expenditures. These increases were offset partially by decreases of (i) $11.0 million due to lower outstanding balances on the 5.375% Senior Notes due 2021 that were called on March 1, 2021, 4.000% Senior Notes due 2022, and Floating-Rate Senior Notes due 2023 and (ii) $4.1 million due to lower outstanding borrowings under the RCF in 2021. See Liquidity and Capital Resources—Debt and credit facilities within this Item 2.


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Income Tax Expense (Benefit)
Three Months EndedSix Months Ended
thousands except percentagesJune 30, 2021March 31, 2021Inc/
(Dec)		June 30, 2021June 30, 2020Inc/
(Dec)
Income (loss) before income taxes$239,742$192,34725 %$432,089$(7,295)NM
Income tax expense (benefit)1,4651,11232 %2,577764NM
Effective tax rate1 %1 %1 %NM

We are not a taxable entity for U.S. federal income tax purposes; therefore, our federal statutory rate is zero percent. However, income apportionable to Texas is subject to Texas margin tax.
For all periods presented, the variance from the federal statutory rate primarily was due to our Texas margin tax liability.

KEY PERFORMANCE METRICS
Three Months EndedSix Months Ended
thousands except percentages and per-unit amountsJune 30, 2021March 31, 2021Inc/
(Dec)		June 30, 2021June 30, 2020Inc/
(Dec)
Adjusted gross margin for natural-gas assets
$469,409 $432,389 9 %$901,798 $925,842 (3)%
Adjusted gross margin for crude-oil and NGLs assets
150,317 133,145 13 %283,462 333,595 (15)%
Adjusted gross margin for produced-water assets
57,510 49,090 17 %106,600 128,835 (17)%
Adjusted gross margin677,236 614,624 10 %1,291,860 1,388,272 (7)%
Per-Mcf Adjusted gross margin for natural-gas assets (1)
1.21 1.19 2 %1.20 1.15 4 %
Per-Bbl Adjusted gross margin for crude-oil and NGLs assets (2)
2.40 2.45 (2)%2.43 2.48 (2)%
Per-Bbl Adjusted gross margin for produced-water assets (3)
0.92 0.92 — %0.92 0.97 (5)%
Adjusted EBITDA491,126 443,110 11 %934,236 1,028,028 (9)%
Free cash flow379,776 213,822 78 %593,598 423,210 40 %
_________________________________________________________________________________________
(1)Average for period. Calculated as Adjusted gross margin for natural-gas assets, divided by total throughput (MMcf/d) attributable to WES for natural-gas assets.
(2)Average for period. Calculated as Adjusted gross margin for crude-oil and NGLs assets, divided by total throughput (MBbls/d) attributable to WES for crude-oil and NGLs assets.
(3)Average for period. Calculated as Adjusted gross margin for produced-water assets, divided by total throughput (MBbls/d) attributable to WES for produced-water assets.

Adjusted gross margin. We define Adjusted gross margin attributable to Western Midstream Partners, LP (“Adjusted gross margin”) as total revenues and other (less reimbursements for electricity-related expenses recorded as revenue), less cost of product, plus distributions from equity investments, and excluding the noncontrolling interest owners’ proportionate share of revenues and cost of product. We believe Adjusted gross margin is an important performance measure of our operations’ profitability and performance as compared to other companies in the midstream industry. Cost of product expenses include (i) costs associated with the purchase of natural gas and NGLs pursuant to our percent-of-proceeds, percent-of-product, and keep-whole contracts, (ii) costs associated with the valuation of gas and NGLs imbalances, and (iii) costs associated with our obligations under certain contracts to redeliver a volume of natural gas to shippers, which is thermally equivalent to condensate retained by us and sold to third parties.
To facilitate investor and industry analyst comparisons between us and our peers, we also disclose per-Mcf Adjusted gross margin for natural-gas assets, per-Bbl Adjusted gross margin for crude-oil and NGLs assets, and per-Bbl Adjusted gross margin for produced-water assets.

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Adjusted gross margin increased by $62.6 million for the three months ended June 30, 2021, primarily due to (i) increased throughput at the West Texas and DJ Basin complexes and the DBM water, DBM oil, and DJ Basin oil systems and (ii) an increase in distributions from Mont Belvieu JV.
Adjusted gross margin decreased by $96.4 million for the six months ended June 30, 2021, primarily due to (i) decreased throughput and lower lease revenue under the operating and maintenance agreement with Occidental at the DBM oil system, (ii) decreased throughput and a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2021, at the DBM water systems, (iii) decreased throughput at the West Texas complex, (iv) decreased throughput on certain fee-based contracts at the DJ Basin complex, and (v) a decrease in distributions from Whitethorn LLC.
Per-Mcf Adjusted gross margin for natural-gas assets increased by $0.02 for the three months ended June 30, 2021, primarily due to increased throughput at the DJ Basin complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets.
Per-Mcf Adjusted gross margin for natural-gas assets increased by $0.05 for the six months ended June 30, 2021, primarily due to a higher cost-of-service rate effective January 1, 2021, at the West Texas complex, partially offset by decreased throughput on certain fee-based contracts at the DJ Basin complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets.
Per-Bbl Adjusted gross margin for crude-oil and NGLs assets decreased by $0.05 for the three months ended June 30, 2021, primarily due to (i) increased volumes on the Whitethorn pipeline, which has a lower-than-average per-Bbl margin as compared to our other crude-oil and NGLs assets and (ii) a decrease in distributions from White Cliffs and FRP. These decreases were offset partially by an increase in distributions from Mont Belvieu JV.
Per-Bbl Adjusted gross margin for crude-oil and NGLs assets decreased by $0.05 for the six months ended June 30, 2021, primarily due to decreased throughput and lower lease revenue under the operating and maintenance agreement with Occidental at the DBM oil system, which has a higher-than-average per-Bbl margin as compared to our other crude-oil and NGLs assets, partially offset by a higher cost-of-service rate effective January 1, 2021, at the DJ Basin oil system.
Per-Bbl Adjusted gross margin for produced-water assets decreased by $0.05 for the six months ended June 30, 2021, primarily due to a lower average fee resulting from a cost-of-service rate redetermination effective January 1, 2021.

Adjusted EBITDA. We define Adjusted EBITDA attributable to Western Midstream Partners, LP (“Adjusted EBITDA”) as net income (loss), plus (i) distributions from equity investments, (ii) non-cash equity-based compensation expense, (iii) interest expense, (iv) income tax expense, (v) depreciation and amortization, (vi) impairments, and (vii) other expense (including lower of cost or market inventory adjustments recorded in cost of product), less (i) gain (loss) on divestiture and other, net, (ii) gain (loss) on early extinguishment of debt, (iii) income from equity investments, (iv) interest income, (v) income tax benefit, (vi) other income, and (vii) the noncontrolling interest owners’ proportionate share of revenues and expenses. We believe the presentation of Adjusted EBITDA provides information useful to investors in assessing our financial condition and results of operations and that Adjusted EBITDA is a widely accepted financial indicator of a company’s ability to incur and service debt, fund capital expenditures, and make distributions. Adjusted EBITDA is a supplemental financial measure that management and external users of our consolidated financial statements, such as industry analysts, investors, commercial banks, and rating agencies, use, among other measures, to assess the following:

•our operating performance as compared to other publicly traded partnerships in the midstream industry, without regard to financing methods, capital structure, or historical cost basis;

•the ability of our assets to generate cash flow to make distributions; and

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

Adjusted EBITDA increased by $48.0 million for the three months ended June 30, 2021, primarily due to (i) a $44.2 million increase in total revenues and other, (ii) a $10.9 million decrease in cost of product (net of lower of cost or market inventory adjustments), and (iii) a $9.8 million increase in distributions from equity investments. These amounts were offset partially by (i) a $12.7 million increase in operation and maintenance expenses and (ii) a $3.6 million increase in property taxes.
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Adjusted EBITDA decreased by $93.8 million for the six months ended June 30, 2021, primarily due to (i) a $52.0 million decrease in total revenues and other, (ii) a $45.3 million increase in cost of product (net of lower of cost or market inventory adjustments), (iii) a $9.7 million increase in general and administrative expenses excluding non-cash equity-based compensation expense, and (iv) a $5.4 million decrease in distributions from equity investments. These amounts were offset partially by (i) an $11.0 million decrease in operation and maintenance expenses and (ii) a $5.5 million decrease in property taxes. The above-described variances in cost of product and total revenues and other include the impacts resulting from a change in accounting for the marketing contracts with AESC effective April 1, 2020, which had no net impact on Adjusted EBITDA (see Executive Summary—Commodity purchase and sale agreements within this Item 2).

Free cash flow. We define “Free cash flow” as net cash provided by operating activities less total capital expenditures and contributions to equity investments, plus distributions from equity investments in excess of cumulative earnings. Management considers Free cash flow an appropriate metric for assessing capital discipline, cost efficiency, and balance-sheet strength. Although Free cash flow is the metric used to assess WES’s ability to make distributions to unitholders, this measure should not be viewed as indicative of the actual amount of cash that is available for distributions or planned for distributions for a given period. Instead, Free cash flow should be considered indicative of the amount of cash that is available for distributions, debt repayments, and other general partnership purposes.
Free cash flow increased by $166.0 million for the three months ended June 30, 2021, primarily due to an increase of $190.6 million in net cash provided by operating activities, partially offset by (i) an increase of $18.4 million in capital expenditures and (ii) an increase of $3.3 million in contributions to equity investments.
Free cash flow increased by $170.4 million for the six months ended June 30, 2021, primarily due to (i) a decrease of $175.1 million in capital expenditures, (ii) a decrease of $12.6 million in contributions to equity investments, and (iii) an $8.0 million increase in distributions from equity investments in excess of cumulative earnings. These amounts were offset partially by a decrease of $25.3 million in net cash provided by operating activities.
See Capital Expenditures and Historical Cash Flow within this Item 2 for further information.

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Reconciliation of non-GAAP financial measures. Adjusted gross margin, Adjusted EBITDA, and Free cash flow are not defined in GAAP. The GAAP measure used by us that is most directly comparable to Adjusted gross margin is gross margin. Net income (loss) and net cash provided by operating activities are the GAAP measures used by us that are most directly comparable to Adjusted EBITDA. The GAAP measure used by us that is most directly comparable to Free cash flow is net cash provided by operating activities. Our non-GAAP financial measures of Adjusted gross margin, Adjusted EBITDA, and Free cash flow should not be considered as alternatives to the GAAP measures of gross margin, net income (loss), net cash provided by operating activities, or any other measure of financial performance presented in accordance with GAAP. Adjusted gross margin, Adjusted EBITDA, and Free cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect gross margin, net income (loss), and net cash provided by operating activities. Adjusted gross margin, Adjusted EBITDA, and Free cash flow should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Our definitions of Adjusted gross margin, Adjusted EBITDA, and Free cash flow may not be comparable to similarly titled measures of other companies in our industry, thereby diminishing their utility as comparative measures.
Management compensates for the limitations of Adjusted gross margin, Adjusted EBITDA, and Free cash flow as analytical tools by reviewing the comparable GAAP measures, understanding the differences between Adjusted gross margin, Adjusted EBITDA, and Free cash flow compared to (as applicable) gross margin, net income (loss), and net cash provided by operating activities, and incorporating this knowledge into its decision-making processes. We believe that investors benefit from having access to the same financial measures that our management considers in evaluating our operating results.
The following tables present (i) a reconciliation of the GAAP financial measure of gross margin to the non-GAAP financial measure of Adjusted gross margin, (ii) a reconciliation of the GAAP financial measures of net income (loss) and net cash provided by operating activities to the non-GAAP financial measure of Adjusted EBITDA, and (iii) a reconciliation of the GAAP financial measure of net cash provided by operating activities to the non-GAAP financial measure of Free cash flow:
Three Months EndedSix Months Ended
thousandsJune 30, 2021March 31, 2021June 30, 2021June 30, 2020
Reconciliation of Gross margin to Adjusted gross margin
Total revenues and other$719,131 $674,974 $1,394,105 $1,446,068 
Less:
Cost of product78,044 88,969 167,013 121,872 
Depreciation and amortization137,849 130,553 268,402 252,124 
Gross margin503,238 455,452 958,690 1,072,072 
Add:
Distributions from equity investments70,947 61,189 132,136 137,496 
Depreciation and amortization137,849 130,553 268,402 252,124 
Less:
Reimbursed electricity-related charges recorded as revenues17,585 17,312 34,897 40,828 
Adjusted gross margin attributable to noncontrolling interests (1)
17,213 15,258 32,471 32,592 
Adjusted gross margin$677,236 $614,624 $1,291,860 $1,388,272 
Adjusted gross margin for natural-gas assets
$469,409 $432,389 $901,798 $925,842 
Adjusted gross margin for crude-oil and NGLs assets
150,317 133,145 283,462 333,595 
Adjusted gross margin for produced-water assets
57,510 49,090 106,600 128,835 
_________________________________________________________________________________________
(1)For all periods presented, includes (i) the 25% third-party interest in Chipeta and (ii) the 2.0% Occidental subsidiary-owned limited partner interest in WES Operating, which collectively represent WES’s noncontrolling interests.

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Three Months EndedSix Months Ended
thousandsJune 30, 2021March 31, 2021June 30, 2021June 30, 2020
Reconciliation of Net income (loss) to Adjusted EBITDA
Net income (loss)$238,277 $191,235 $429,512 $(8,059)
Add:
Distributions from equity investments70,947 61,189 132,136 137,496 
Non-cash equity-based compensation expense
7,121 6,734 13,855 10,911 
Interest expense95,290 98,493 193,783 183,240 
Income tax expense1,465 1,112 2,577 5,044 
Depreciation and amortization137,849 130,553 268,402 252,124 
Impairments (1)
12,738 14,866 27,604 606,952 
Other expense30 1,218 1,248 1,950 
Less:
Gain (loss) on divestiture and other, net1,225 (583)642 (2,883)
Gain (loss) on early extinguishment of debt— (289)(289)8,740 
Equity income, net – related parties58,666 52,165 110,831 115,762 
Interest income – Anadarko note receivable— — — 8,450 
Other income84 — 84 1,652 
Income tax benefit— — — 4,280 
Adjusted EBITDA attributable to noncontrolling interests (2)
12,616 10,997 23,613 25,629 
Adjusted EBITDA$491,126 $443,110 $934,236 $1,028,028 
Reconciliation of Net cash provided by operating activities to Adjusted EBITDA
Net cash provided by operating activities$452,111 $261,550 $713,661 $738,999 
Interest (income) expense, net95,290 98,493 193,783 174,790 
Accretion and amortization of long-term obligations, net
(1,914)(2,088)(4,002)(4,297)
Current income tax expense (benefit)749 555 1,304 (35)
Other (income) expense, net(84)1,207 1,123 (412)
Cash paid to settle interest-rate swaps
— — — 12,763 
Distributions from equity investments in excess of cumulative earnings – related parties9,232 12,141 21,373 13,340 
Changes in assets and liabilities:
Accounts receivable, net38,982 30,182 69,164 200,136 
Accounts and imbalance payables and accrued liabilities, net(55,758)16,467 (39,291)(72,323)
Other items, net(34,866)35,600 734 (9,304)
Adjusted EBITDA attributable to noncontrolling interests (2)
(12,616)(10,997)(23,613)(25,629)
Adjusted EBITDA$491,126 $443,110 $934,236 $1,028,028 
Cash flow information
Net cash provided by operating activities$452,111 $261,550 $713,661 $738,999 
Net cash used in investing activities(59,932)(46,472)(106,404)(355,001)
Net cash provided by (used in) financing activities(142,982)(603,624)(746,606)(424,222)
_________________________________________________________________________________________
(1)Includes goodwill impairment for the six months ended June 30, 2020. See Note 9—Goodwill in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(2)For all periods presented, includes (i) the 25% third-party interest in Chipeta and (ii) the 2.0% Occidental subsidiary-owned limited partner interest in WES Operating, which collectively represent WES’s noncontrolling interests.
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Three Months EndedSix Months Ended
thousandsJune 30, 2021March 31, 2021June 30, 2021June 30, 2020
Reconciliation of Net cash provided by operating activities to Free cash flow
Net cash provided by operating activities$452,111 $261,550 $713,661 $738,999 
Less:
Capital expenditures78,145 59,783 137,928 313,065 
Contributions to equity investments – related parties3,422 86 3,508 16,064 
Add:
Distributions from equity investments in excess of cumulative earnings – related parties9,232 12,141 21,373 13,340 
Free cash flow$379,776 $213,822 $593,598 $423,210 
Cash flow information
Net cash provided by operating activities$452,111 $261,550 $713,661 $738,999 
Net cash used in investing activities(59,932)(46,472)(106,404)(355,001)
Net cash provided by (used in) financing activities(142,982)(603,624)(746,606)(424,222)

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LIQUIDITY AND CAPITAL RESOURCES

Our primary cash uses include quarterly distributions, debt service, capital expenditures, and customary operating expenses. Our sources of liquidity as of June 30, 2021, included cash and cash equivalents, cash flows generated from operations, available borrowing capacity under the RCF, and potential issuances of additional equity or debt securities. We believe that cash flows generated from these sources will be sufficient to satisfy our short-term working capital requirements and long-term capital-expenditure and debt service requirements. The amount of future distributions to unitholders will depend on our results of operations, financial condition, capital requirements, and other factors, and will be determined by the Board of Directors on a quarterly basis. We may rely on external financing sources, including equity and debt issuances, to fund capital expenditures and future acquisitions. However, we also may use operating cash flows to fund capital expenditures or acquisitions, which could result in borrowings under the RCF to pay distributions or to fund other short-term working capital requirements.
Under our partnership agreement, we distribute all of our available cash (beyond proper reserves as defined in our partnership agreement) within 55 days following each quarter’s end. Our cash flow and resulting ability to make cash distributions are dependent on our ability to generate cash flow from operations. Generally, our available cash is our cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves and cash on hand resulting from working capital borrowings made after the end of the quarter. The general partner establishes cash reserves to provide for the proper conduct of our business, including (i) reserves to fund future capital expenditures, (ii) to comply with applicable laws, debt instruments, or other agreements, or (iii) to provide funds for unitholder distributions for any one or more of the next four quarters. We have made cash distributions to our unitholders each quarter since our initial public offering in 2012. The Board of Directors declared a cash distribution to unitholders for the second quarter of 2021 of $0.31900 per unit, or $134.7 million in the aggregate. The cash distribution is payable on August 13, 2021, to our unitholders of record at the close of business on July 30, 2021.
In November 2020, we announced a buyback program of up to $250.0 million of our common units through December 31, 2021. The common units may be purchased from time to time in the open market at prevailing market prices or in privately negotiated transactions. The timing and amount of purchases under the program will be determined based on ongoing assessments of capital needs, our financial performance, the market price of the common units, and other factors, including organic growth and acquisition opportunities and general market conditions. The program does not obligate us to purchase any specific dollar amount or number of units and may be suspended or discontinued at any time. During the six months ended June 30, 2021, we repurchased 1,115,808 common units on the open market for an aggregate purchase price of $16.2 million. We canceled the units immediately upon receipt. As of June 30, 2021, we had an authorized amount of $201.2 million remaining under the Purchase Program.
Management continuously monitors our leverage position and coordinates our capital expenditures and quarterly distributions with expected cash inflows and projected debt service requirements. We will continue to evaluate funding alternatives, including additional borrowings and the issuance of debt or equity securities, to secure funds as needed or to refinance maturing debt balances with longer-term debt issuances. Our ability to generate cash flows is subject to a number of factors, some of which are beyond our control. Read Risk Factors under Part II, Item 1A of this Form 10-Q.

Working capital. Working capital is an indication of liquidity and potential needs for short-term funding. Working capital requirements are driven by changes in accounts receivable and accounts payable and other factors such as credit extended to, and the timing of collections from, our customers, and the level and timing of our spending for acquisitions, maintenance, and other capital activities. As of June 30, 2021, we had a $240.4 million working capital deficit, which we define as the amount by which current liabilities exceed current assets. Our working capital deficit was primarily due to the 4.000% Senior Notes due 2022 of $580.7 million being classified as short-term debt on the consolidated balance sheet as of June 30, 2021. As of June 30, 2021, there was $2.0 billion available for borrowing under the RCF. See Note 10—Selected Components of Working Capital and Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

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Capital expenditures. Our business is capital intensive, requiring significant investment to maintain and improve existing facilities or to develop new midstream infrastructure. Capital expenditures includes maintenance capital expenditures, which include those expenditures required to maintain existing operating capacity and service capability of our assets, such as to replace system components and equipment that have been subject to significant use over time, become obsolete, or reached the end of their useful lives, to remain in compliance with regulatory or legal requirements, or to complete additional well connections to maintain existing system throughput and related cash flows; and expansion capital expenditures, which include expenditures to construct new midstream infrastructure and expenditures incurred to extend the useful lives of our assets, reduce costs, increase revenues, or increase system throughput or capacity from current levels, including well connections that increase existing system throughput.
Capital expenditures in the consolidated statements of cash flows reflect capital expenditures on a cash basis, when payments are made. Capital incurred is presented on an accrual basis. Acquisitions and capital expenditures as presented in the consolidated statements of cash flows and capital incurred were as follows:
Six Months Ended 
June 30,
thousands20212020
Acquisitions (1)
$2,000 $— 
Capital expenditures (2)
137,928 313,065 
Capital incurred (2)
142,758 215,172 
_________________________________________________________________________________________
(1)For information regarding equipment purchases from related parties, see Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(2)For the six months ended June 30, 2021 and 2020, included $1.5 million and $3.6 million, respectively, of capitalized interest.

Capital expenditures decreased by $175.1 million for the six months ended June 30, 2021, primarily due to decreases of (i) $79.7 million at the West Texas complex primarily attributable to decreases in facility expansion and pipeline projects, (ii) $48.4 million at the DJ Basin complex primarily related to the completion of Latham Train II that commenced operations in the first quarter of 2020 and decreases in pipeline, well connection, and compression projects, (iii) $26.0 million at the DBM oil system primarily related to the completion of the Loving ROTF Trains III and IV that commenced operations during the first and third quarters of 2020, respectively, and decreases in pipeline and well connection projects, and (iv) $15.9 million at the DBM water systems primarily due to reduced construction of additional water-disposal facilities and gathering projects.
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Historical cash flow. The following table and discussion present a summary of our net cash flows provided by (used in) operating, investing, and financing activities:
Six Months Ended 
June 30,
thousands20212020
Net cash provided by (used in):
Operating activities$713,661 $738,999 
Investing activities(106,404)(355,001)
Financing activities(746,606)(424,222)
Net increase (decrease) in cash and cash equivalents$(139,349)$(40,224)

Operating activities. Net cash provided by operating activities decreased for the six months ended June 30, 2021, primarily due to (i) lower cash operating income, (ii) lower distributions from equity investments, (iii) higher interest expense, and (iv) lower interest income. These decreases were offset partially by (i) the impact of changes in assets and liabilities and (ii) cash paid during the six months ended June 30, 2020, to settle interest-rate swaps. Refer to Operating Results within this Item 2 for a discussion of our results of operations as compared to the prior period.

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

•$137.9 million of capital expenditures, primarily related to construction, expansion, and asset-integrity projects at the West Texas complex, DBM water systems, DJ Basin complex, and DBM oil system;

•$3.5 million of capital contributions primarily paid to Cactus II;

•$2.0 million of acquisitions from related parties;

•$21.4 million of distributions received from equity investments in excess of cumulative earnings;

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

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

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

•$313.1 million of capital expenditures, primarily related to construction and expansion at the West Texas and DJ Basin complexes, DBM water systems, and DBM oil system;

•$39.2 million of increases to materials and supplies inventory;

•$16.1 million of capital contributions primarily paid to Cactus II and FRP for construction activities; and

•$13.3 million of distributions received from equity investments in excess of cumulative earnings.

Financing activities. Net cash used in financing activities for the six months ended June 30, 2021, included the following:

•$531.1 million to redeem the total principal amount outstanding of WES Operating’s 5.375% Senior Notes due 2021 and repay borrowings under the RCF;

•$264.2 million of distributions paid to WES unitholders;



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

•$16.2 million of unit repurchases;

•$5.3 million of distributions paid to the noncontrolling interest owner of WES Operating;

•$3.6 million of finance lease payments;

•$1.5 million of distributions paid to the noncontrolling interest owner of Chipeta;

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

•$4.5 million of contributions from related parties.

Net cash provided by financing activities for the six months ended June 30, 2020, included the following:

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

•$430.0 million of repayments of outstanding borrowings under the RCF;

•$422.7 million of distributions paid to WES unitholders;

•$153.1 million to purchase and retire portions of WES Operating’s 5.375% Senior Notes due 2021, 4.000% Senior Notes due 2022, and Floating-Rate Senior Notes via open-market repurchases;

•$10.3 million of finance lease payments;

•$8.7 million of distributions paid to the noncontrolling interest owner of WES Operating;

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

•$3.5 billion of net proceeds from the Fixed-Rate Senior Notes and Floating-Rate Senior Notes issued in January 2020, which were used to repay the $3.0 billion outstanding borrowings under the Term loan facility, repay outstanding amounts under the RCF, and for general partnership purposes;

•$125.0 million of borrowings under the RCF, which were used for general partnership purposes; and

•$20.0 million of a one-time cash contribution from Occidental received in January 2020, pursuant to the Services Agreement, for anticipated transition costs required to establish stand-alone human resources and information technology functions.

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Debt and credit facilities. As of June 30, 2021, the carrying value of outstanding debt was $7.4 billion. See Note 11—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

WES Operating Senior Notes. In mid-January 2020, WES Operating issued the Fixed-Rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, and 5.250% Senior Notes due 2050 and the Floating-Rate Senior Notes due 2023. Including the effects of the issuance prices, underwriting discounts, and interest-rate adjustments, the effective interest rates of the Senior Notes due 2025, 2030, and 2050, were 4.542%, 5.424%, and 6.629%, respectively, at June 30, 2021. The interest rate on the Floating-Rate Senior Notes was 2.29% at June 30, 2021. The effective interest rate of these notes is subject to adjustment from time to time due to a change in credit rating.
During the first quarter of 2021, WES Operating redeemed the total principal amount outstanding of the 5.375% Senior Notes due 2021 at par value, pursuant to the optional redemption terms in WES Operating’s indenture. As of June 30, 2021, the 4.000% Senior Notes due 2022 were classified as short-term debt on the consolidated balance sheet due to management’s intent to retire the notes within the next twelve months. At June 30, 2021, WES Operating was in compliance with all covenants under the relevant governing indentures.
We may, from time to time, seek to retire, rearrange, or amend some or all of our outstanding debt or debt agreements through cash purchases, exchanges, open-market repurchases, privately negotiated transactions, tender offers, or otherwise. Such transactions, if any, will depend on prevailing market conditions, our liquidity position and requirements, contractual restrictions, and other factors. The amounts involved may be material.

Revolving credit facility. WES Operating’s $2.0 billion senior unsecured revolving credit facility is expandable to a maximum of $2.5 billion, and matures in February 2025 for each extending lender. The non-extending lender’s commitments mature in February 2024 and represent $100.0 million out of $2.0 billion of total commitments from all lenders.
As of June 30, 2021, there were no outstanding borrowings and $5.1 million of outstanding letters of credit, resulting in $2.0 billion of available borrowing capacity under the RCF. At June 30, 2021, the interest rate on any outstanding RCF borrowings was 1.60% and the facility-fee rate was 0.25%. At June 30, 2021, WES Operating was in compliance with all covenants under the RCF.
The RCF contains certain covenants that limit, among other things, WES Operating’s ability, and that of certain of its subsidiaries, to incur additional indebtedness, grant certain liens, merge, consolidate, or allow any material change in the character of its business, enter into certain related-party transactions and use proceeds other than for partnership purposes. The RCF also contains various customary covenants, certain events of default, and a maximum consolidated leverage ratio as of the end of each fiscal quarter (which is defined as the ratio of consolidated indebtedness as of the last day of a fiscal quarter to 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. As a result of certain covenants contained in the RCF, our capacity to borrow under the RCF may be limited.

Finance lease liabilities. During the first quarter of 2020, WES entered into finance leases with third parties for equipment and vehicles extending through 2029. As of June 30, 2021, we have future lease payments of $4.4 million for the remainder of 2021 and a total of $28.7 million in years thereafter.

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Credit risk. We bear credit risk through exposure to non-payment or non-performance by our counterparties, including Occidental, financial institutions, customers, and other parties. Generally, non-payment or non-performance results from a customer’s inability to satisfy payables to us for services rendered, minimum-volume-commitment deficiency payments owed, or volumes owed pursuant to gas-imbalance agreements. We examine and monitor the creditworthiness of customers and may establish credit limits for customers. A substantial portion of our throughput is sourced from producers, including Occidental, that recently received credit-rating downgrades. We are subject to the risk of non-payment or late payment by producers for gathering, processing, transportation, and disposal fees. Additionally, we continue to evaluate counterparty credit risk and, in certain circumstances, are exercising our rights to request adequate assurance.
We expect our exposure to the concentrated risk of non-payment or non-performance to continue for as long as our commercial relationships with Occidental generate a significant portion of our revenues. While Occidental is our contracting counterparty, gathering and processing arrangements with affiliates of Occidental on most of our systems include not just Occidental-produced volumes, but also, in some instances, the volumes of other working-interest owners of Occidental who rely on our facilities and infrastructure to bring their volumes to market. We also are party to agreements with Occidental under which Occidental is required to indemnify us for certain environmental claims, losses arising from rights-of-way claims, failures to obtain required consents or governmental permits, and income taxes with respect to the assets previously acquired from Anadarko. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Our ability to make cash distributions to our unitholders may be adversely impacted if Occidental becomes unable to perform under the terms of gathering, processing, transportation, and disposal agreements; the contribution agreements; or the Services Agreement.

ITEMS AFFECTING THE COMPARABILITY OF FINANCIAL RESULTS WITH WES OPERATING

Our consolidated financial statements include the consolidated financial results of WES Operating. Our results of operations do not differ materially from the results of operations and cash flows of WES Operating, which are reconciled below.

Reconciliation of net income (loss). The differences between net income (loss) attributable to WES and WES Operating are reconciled as follows:
Three Months EndedSix Months Ended
thousandsJune 30, 2021March 31, 2021June 30, 2021June 30, 2020
Net income (loss) attributable to WES$231,259 $185,791 $417,050 $16,510 
Limited partner interests in WES Operating not held by WES (1)
4,754 3,811 8,565 390 
General and administrative expenses (2)
1,600 886 2,486 2,588 
Other income (expense), net(2)(3)(5)(4)
Net income (loss) attributable to WES Operating$237,611 $190,485 $428,096 $19,484 
_________________________________________________________________________________________
(1)Represents the portion of net income (loss) allocated to the limited partner interests in WES Operating not held by WES. A subsidiary of Occidental held a 2.0% limited partner interest in WES Operating for all periods presented.
(2)Represents general and administrative expenses incurred by WES separate from, and in addition to, those incurred by WES Operating.

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Reconciliation of net cash provided by (used in) operating and financing activities. The differences between net cash provided by (used in) operating and financing activities for WES and WES Operating are reconciled as follows:
Six Months Ended 
June 30,
thousands20212020
WES net cash provided by operating activities$713,661 $738,999 
General and administrative expenses (1)
2,486 2,588 
Non-cash equity-based compensation expense
7,169 (3,244)
Changes in working capital(9,336)2,574 
Other income (expense), net(5)(4)
WES Operating net cash provided by operating activities$713,975 $740,913 
WES net cash provided by (used in) financing activities$(746,606)$(424,222)
Distributions to WES unitholders (2)
264,234 422,679 
Distributions to WES from WES Operating (3)
(259,208)(425,042)
Increase (decrease) in outstanding checks(8)(4)
Unit repurchases16,241 — 
WES Operating net cash provided by (used in) financing activities$(725,347)$(426,589)
_________________________________________________________________________________________
(1)Represents general and administrative expenses incurred by WES separate from, and in addition to, those incurred by WES Operating.
(2)Represents distributions to WES common unitholders paid under WES’s partnership agreement. See Note 4—Partnership Distributions and Note 5—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(3)Difference attributable to elimination in consolidation of WES Operating’s distributions on partnership interests owned by WES. See Note 4—Partnership Distributions and Note 5—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Noncontrolling interest. WES Operating’s noncontrolling interest consists of the 25% third-party interest in Chipeta. See Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

WES Operating distributions. WES Operating distributes all of its available cash on a quarterly basis to WES Operating unitholders in proportion to their share of limited partner interests in WES Operating. See Note 4—Partnership Distributions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

CRITICAL ACCOUNTING ESTIMATES

The preparation of consolidated financial statements in accordance with GAAP requires management to make informed judgments and estimates that affect the amounts of assets and liabilities as of the date of the financial statements and the amounts of revenues and expenses recognized during the periods reported. There have been no significant changes to our critical accounting estimates from those disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2020.


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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Commodity-price risk. Certain of our processing services are provided under percent-of-proceeds and keep-whole agreements. Under percent-of-proceeds agreements, we receive a specified percentage of the net proceeds from the sale of residue and/or NGLs. Under keep-whole agreements, we keep 100% of the NGLs produced, and the processed natural gas, or value of the natural gas, is returned to the producer, and because some of the gas is used and removed during processing, we compensate the producer for the amount of gas used and removed in processing by supplying additional gas or by paying an agreed-upon value for the gas used.
For the six months ended June 30, 2021, 93% of our wellhead natural-gas volume (excluding equity investments) and 100% of our crude-oil and produced-water throughput (excluding equity investments) were serviced under fee-based contracts. A 10% increase or decrease in commodity prices would not have a material impact on our operating income (loss), financial condition, or cash flows for the next twelve months, excluding the effect of the below-described imbalances.
We bear a limited degree of commodity-price risk with respect to settlement of natural-gas imbalances that arise from differences in gas volumes received into our systems and gas volumes delivered by us to customers, and for instances where actual liquids recovery or fuel usage varies from contractually stipulated amounts. Natural-gas volumes owed to or by us that are subject to monthly cash settlement are valued according to the terms of the contract as of the balance sheet dates and generally reflect market-index prices. Other natural-gas volumes owed to or by us are valued at our weighted-average cost of natural gas as of the balance sheet dates and are settled in-kind. Our exposure to the impact of changes in commodity prices on outstanding imbalances depends on the settlement timing of the imbalances. See Outlook under Part I, Item 2 and Risk Factors under Part II, Item 1A of this Form 10-Q.

Interest-rate risk. The Federal Open Market Committee decreased its target range for the federal funds rate twice in 2020 and as of June 30, 2021, there have been no changes to the target range in 2021. Any future increases in the federal funds rate likely will result in an increase in short-term financing costs. As of June 30, 2021, we had (i) no outstanding borrowings under the RCF that bear interest at a rate based on LIBOR or an alternative base rate at WES Operating’s option, and (ii) the Floating-Rate Senior Notes that bear interest at a rate based on LIBOR. While a 10% change in the applicable benchmark interest rate would not materially impact interest expense on our outstanding borrowings, it would impact the fair value of the senior notes at June 30, 2021.
Additional variable-rate debt may be issued in the future, either under the RCF or other financing sources, including commercial bank borrowings or debt issuances.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief Financial Officer of WES’s general partner and WES Operating GP (for purposes of this Item 4, “Management”) performed an evaluation of WES’s and WES Operating’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. WES’s and WES Operating’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed in the reports that are filed or submitted under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, Management concluded that WES’s and WES Operating’s disclosure controls and procedures were effective as of June 30, 2021.

Changes in Internal Control Over Financial Reporting. There were no changes in WES’s or WES Operating’s internal control over financial reporting during the quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, WES’s or WES Operating’s internal control over financial reporting.


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PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

On July 1, 2020, the U.S. Department of Justice, on behalf of the U.S. Environmental Protection Agency (the “EPA”), and the State of Colorado commenced an enforcement action in the United States District Court for the District of Colorado against Kerr-McGee Gathering LLC (“KMG”), a wholly owned subsidiary of WES, for alleged non-compliance with the leak detection and repair requirements of the federal Clean Air Act (“LDAR requirements”) at its Fort Lupton facility in the DJ Basin complex. KMG previously had been in negotiations with the EPA and the State of Colorado to resolve the alleged non-compliance at the Fort Lupton facility. Per the complaint, plaintiffs pray for injunctive relief, remedial action, and civil penalties. Management cannot reasonably estimate the outcome of this action at this time.
On August 12, 2019, Sanchez Energy Corporation and certain of its affiliated companies (collectively, “Sanchez”) filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas. While Sanchez holds a working interest in the acreage dedicated to our Springfield system, Sanchez also was the upstream operator for substantially all of the natural gas, crude oil, and NGLs that the Springfield system gathers and that WES processes in the Eagle Ford Shale Play. On April 29, 2020, we received notice that Sanchez filed a motion to reject a number of midstream and downstream agreements with commercial counterparties, including Sanchez’s Springfield gathering agreements and agreements obligating Sanchez to deliver the gas volumes gathered by the Springfield system to our Brasada processing plant. We objected to Sanchez’s rejection and instituted an adversary proceeding regarding such rejection. On May 6, 2021, the Bankruptcy Court issued an opinion determining, among other things, that Sanchez’s Springfield gathering agreements were rejected, but that such agreements contain covenants running with the land that survive rejection, thus preserving the acreage dedication to our Springfield system. We intend to continue defending our contractual rights in the bankruptcy proceeding and any other appropriate venue.
On May 15, 2020, Gavilan Resources LLC (“Gavilan”), an entity that owns a 25% working interest in the acreage where the Springfield gathering system and Brasada processing plant are located, also filed for Chapter 11 bankruptcy protection. As a part of this bankruptcy, Mesquite Energy, Inc. (the successor to Sanchez) (“Mesquite”) purchased Gavilan’s assets at auction. Gavilan did not assume and assign its agreements with Springfield as part of its asset sale. Instead, the assets sold to Mesquite remain subject to any covenants, servitudes, or similar agreements that could be equitable servitudes or covenants running with the land, pending a further order of the bankruptcy court.
We cannot make any assurances regarding the ultimate outcome of these Sanchez and Gavilan proceedings and their resulting impact on WES due to the uncertainties associated with the ongoing bankruptcy process.
On October 29, 2020, WGR Operating, LP (“WGR”), on behalf of itself and derivatively on behalf of Mont Belvieu JV, filed suit against Enterprise Products Operating, LLC (“Enterprise”) and Mont Belvieu JV (as a nominal defendant) in the District Court of Harris County, Texas. Our lawsuit seeks a declaratory judgment regarding proper revenue allocation as set forth in the Operating Agreement between Mont Belvieu JV (of which WGR is a 25% owner) and Enterprise (the “Operating Agreement”) related to fractionation trains at the Mont Belvieu complex in Chambers County, Texas. Specifically, the Operating Agreement sets forth a revenue allocation structure, whereby revenue would be allocated to the various fracs at the Mont Belvieu complex in sequential order, with Fracs VII and VIII (which are owned by Mont Belvieu JV) following Fracs I through VI, but preceding any “Later Frac Facilities.” Subsequent to the construction of Fracs VII and VIII, Enterprise built Fracs IX, X, and XI, which it wholly owns, and has signaled its intention to treat such subsequent fracs as outside the Mont Belvieu revenue allocation. We do not believe Enterprise’s attempt to bypass the agreed-to revenue allocation is proper under the parties’ agreements and now seek judicial determination. We currently sue only for declaratory judgment to avoid potential future damages. We cannot make any assurances regarding the ultimate outcome of this proceeding and its resulting impact on WGR or WES.
Except as discussed above, we are not a party to any legal, regulatory, or administrative proceedings other than proceedings arising in the ordinary course of business. Management believes that there are no such proceedings for which a final disposition could have a material adverse effect on results of operations, cash flows, or financial condition, or for which disclosure is otherwise required by Item 103 of Regulation S-K.
    

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Item 1A.  Risk Factors

Security holders and potential investors in our securities should carefully consider the risk factors included below and those set forth under Part I, Item 1A in our Form 10-K for the year ended December 31, 2020, together with all of the other information included in this document, and in our other public filings, press releases, and public discussions with management. Additionally, for a full discussion of the risks associated with Occidental’s business, see Item 1A under Part I in Occidental’s Form 10-K for the year ended December 31, 2020, Occidental’s quarterly reports on Form 10-Q and Occidental’s other public filings, press releases, and public discussions with Occidental management. We have identified the below risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by us or on our behalf.

Because we are dependent on Occidental as our largest customer and the owner of our general partner, any development that materially and adversely affects Occidental’s operations, financial condition, or market reputation could have a material and adverse impact on us. Material adverse changes at Occidental could restrict our access to capital, make it more expensive to access the capital markets, or increase the costs of our borrowings.
We are dependent on Occidental as our largest customer and the owner of our general partner, and we expect to derive significant revenue from Occidental for the foreseeable future. As a result, any event, whether in our area of operations or otherwise, that adversely affects Occidental’s production, financial condition, leverage, market reputation, liquidity, results of operations, or cash flows may adversely affect our revenues and cash available for distribution. Accordingly, we are indirectly subject to the business risks of Occidental, including, but not limited to, the volatility of oil and natural-gas prices, the availability of capital on favorable terms to fund Occidental’s exploration and development activities, the political and economic uncertainties associated with Occidental’s foreign operations, transportation-capacity constraints, and shareholder activism.
Further, we are subject to the risk of non-payment or non-performance by Occidental, including with respect to our gathering and transportation agreements. For example, we are currently involved in a dispute with Occidental regarding the calculation of the cost-of-service rate under a gathering contract related to our DJ Basin oil system. If such dispute is resolved in a manner adverse to us, such resolution could have a negative impact on our financial condition and results of operations, including a reduction in rates and a non-cash charge to earnings. In addition, we cannot predict the extent to which Occidental’s business would be impacted if conditions in the energy industry were to deteriorate further, nor can we estimate the impact such conditions would have on Occidental’s ability to perform under our gathering and transportation agreements with Occidental. Accordingly, any material non-payment or non-performance by Occidental could reduce our ability to make distributions to our unitholders.
Any material limitations to our ability to access capital as a result of adverse changes at Occidental could limit our ability to obtain future financing on favorable terms, or at all, or could result in increased financing costs in the future. Similarly, material adverse changes at Occidental could adversely impact our unit price, thereby limiting our ability to raise capital through equity issuances or debt financing, or adversely affect our ability to engage in or expand or pursue our business activities, and also prevent us from engaging in certain transactions that might otherwise be considered beneficial to us.
See Occidental’s reports filed under the Securities and Exchange Act of 1934, as amended, with the SEC (which are not, and shall not be deemed to be, incorporated by reference herein), for a full discussion of the risks associated with Occidental’s business.

The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial, or administrative changes and differing interpretations, possibly on a retroactive basis.
The current U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative, or judicial interpretation at any time. From time to time, members of Congress propose and consider substantive changes to the existing U.S. federal income tax laws that would affect publicly traded partnerships. On April 21, 2021, Senator Wyden introduced the Clean Energy for America Act, which would eliminate the exception upon which we rely for our treatment as a publicly traded partnership for U.S. federal income tax purposes.

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Any modification to the U.S. federal income tax laws and interpretations thereof may or may not be retroactively applied and could make it more difficult or impossible to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes or increase the amount of taxes payable by unitholders in publicly traded partnerships. You are urged to consult with your own tax advisor with respect to the status of regulatory or administrative developments and proposals and their potential effect on your investment in our common units.

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

Although inflation in the United States has been relatively low in recent years, the U.S. economy could experience a significant inflationary effect from, among other things, supply chain disruptions caused by, or governmental stimulus or fiscal policies adopted in response to, the COVID-19 crisis. While we cannot predict any future trends in the rate of inflation, the global COVID-19 pandemic has brought unprecedented uncertainty to the near-term economic outlook. A significant increase in inflation would raise our costs for labor, materials and services, and to the extent we are unable to recover higher costs through our commercial agreements, would negatively impact our profitability and cash flows available for distribution to unitholders.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information with respect to repurchases made by WES of its common units in the open market under the Purchase Program during the second quarter of 2021:
PeriodTotal number of units purchasedAverage price paid per unit
Total number of units purchased as part of publicly announced plans or programs (1)
Approximate dollar value of units that may yet be purchased under the plans or programs (1)
April 1-30, 2021
— $— — 201,225,000 
May 1-31, 2021
— — — 201,225,000 
June 1-30, 2021
— — — 201,225,000 
Total— — — 
______________________________________________________________________________________
(1)In November 2020, WES announced the Purchase Program, pursuant to which we may purchase up to $250.0 million in aggregate value of our common units through December 31, 2021. See Note 5—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for additional details.

Item 5.  Other Information

On August 5, 2021, the Board of Directors approved the Western Midstream Partners, LP Executive Severance Plan (the “Executive Severance Plan”) and the Western Midstream Partners, LP Executive Change in Control Severance Plan (the “CIC Severance Plan”). Both the Executive Severance Plan and the CIC Severance Plan became effective on August 5, 2021 (the “Effective Date”).

Executive Severance Plan

The Executive Severance Plan provides severance benefits to employees in the position of Vice President and above, which includes the Partnership’s named executive officers (the “ESP Participants”). The ESP Participants will be eligible for severance benefits under the Executive Severance Plan if their employment is terminated by the Partnership and its affiliates other than for “Cause” or if the ESP Participant resigns for “Good Reason” (as each of those terms is defined in the Executive Severance Plan).

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If an ESP Participant’s employment terminates without Cause or for Good Reason, subject to his or her timely execution and non-revocation of a release of claims, he or she will be eligible to receive the following severance benefits:

•An amount equal to a multiple of the ESP Participant’s highest annual base salary in effect at any time during the three-year period preceding the date of termination, to be paid within 60 days of such termination, with such multiple being 1.0 times for Vice Presidents, 1.5 times for Senior Vice Presidents, and 2.0 times for the Chief Executive Officer;

•An amount equal to a multiple of the ESP Participant’s annual target bonus for the year in which the termination occurs, to be paid within 60 days of such termination, with such multiple being 1.0 times for Vice Presidents, 1.5 times for Senior Vice Presidents, and 2.0 times for the Chief Executive Officer;

•An amount equal to the ESP Participant’s annual target bonus for the year in which the termination occurs, prorated based on the number of days the ESP Participant was an employee of the Partnership, to be paid within 60 days of such termination;

•Any accrued, but unused as of the date of the termination, vacation pay, to be paid within 60 days of such termination;

•Continued participation in the Partnership’s basic life, medical, and dental plans for up to 24 months following such termination;

•Outplacement services for up to nine months; and

•If the ESP Participant holds any long-term incentive awards granted on or after the Effective Date, such long-term incentive awards will vest as follows: for time-based awards, on a pro rata basis; for performance-based awards, on a pro-rata basis with the achievement of performance-based vesting conditions to be determined as set forth in the applicable award agreement.

CIC Severance Plan

The ESP Participants are also eligible for severance benefits under the CIC Severance Plan if their employment is terminated by the Partnership and its affiliates other than for “Cause” or if the ESP Participant resigns for “Good Reason” (as each of those terms is defined in the CIC Severance Plan), in each case, on or after the date 180 days prior to the consummation of a Change in Control and within two years after the consummation of the Change in Control (such period, the “Protection Period”).
If an ESP Participant’s employment terminates without Cause or for Good Reason during the Protection Period, subject to his or her timely execution and non-revocation of a release of claims, he or she will be eligible to receive the following severance benefits:

•An amount equal to a multiple of the ESP Participant’s highest annual base salary in effect at any time during the three-year period preceding the date of termination, to be paid within 60 days of such termination, with such multiple being 1.5 times for Vice Presidents, 2.0 times for Senior Vice Presidents, and 2.99 times for the Chief Executive Officer;

•An amount equal to a multiple of the ESP Participant’s annual target bonus for the year in which the termination occurs, to be paid within 60 days of such termination, with such multiple being 1.5 times for Vice Presidents, 2.0 times for Senior Vice Presidents, and 2.99 times for the Chief Executive Officer;

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•An amount with respect to the annual bonus for the year of termination, determined based on the greater of target performance and actual performance and prorated based on the number of days the ESP Participant was an employee of the Partnership, to be paid at the same time bonuses are paid to senior executives of the Partnership;

•Any accrued, but unused as of the date of the termination, vacation pay, to be paid within 60 days of such termination;

•Continued participation in the Partnership’s basic life, medical, and dental plans for up to 24 months following such termination;

•Outplacement services for up to nine months; and

•If the ESP Participant holds any long-term incentive awards granted on or after the Effective Date, such equity awards will vest in full, with performance-based awards vesting at the greater of target performance and actual performance, except that any individual performance goals that are not based on objective financial performance criteria will be deemed earned at target performance.

To the extent an ESP Participant is terminated during the portion of the Protection Period preceding a Change in Control and a Change in Control is not ultimately consummated, the ESP Participant will be entitled to only the severance benefits under the Executive Severance Plan described above.
Eligibility for benefits under both the Executive Severance Plan and the Executive CIC Severance Plan is conditioned upon the ESP Participant’s execution of a separation agreement containing certain waivers and releases and, at the discretion of the administrators of the plans, restrictive covenants. The foregoing summary is qualified in its entirety by reference to the Western Midstream Partners, LP Executive Severance Plan attached hereto as Exhibit 10.2 and incorporated herein by reference and the Western Midstream Partners, LP Executive Change in Control Severance Plan attached hereto as Exhibit 10.3 and incorporated herein by reference.
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Item 6.  Exhibits

Exhibits designated by an asterisk (*) are filed herewith and those designated with asterisks (**) are furnished herewith; all exhibits not so designated are incorporated herein by reference to a prior filing as indicated.

Exhibit Index
Exhibit
Number		Description
#2.1
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
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Exhibit
Number		Description
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
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Exhibit
Number		Description
4.19
4.20
4.21
4.22
4.23
*10.1
*10.2
*10.3
*31.1
*31.2
**32.1
**32.2
*101.INSXBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
*101.SCHInline XBRL Schema Document
*101.CALInline XBRL Calculation Linkbase Document
*101.DEFInline XBRL Definition Linkbase Document
*101.LABInline XBRL Label Linkbase Document
*101.PREInline XBRL Presentation Linkbase Document
*104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
______________________________________________________________________________________
#Pursuant to Item 601(b)(2) of Regulation S-K, the registrant agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request.
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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, hereunto duly authorized.

WESTERN MIDSTREAM PARTNERS, LP
August 9, 2021
/s/ Michael P. Ure
Michael P. Ure
President, Chief Executive Officer and Chief Financial Officer
Western Midstream Holdings, LLC
(as general partner of Western Midstream Partners, LP)
WESTERN MIDSTREAM OPERATING, LP
August 9, 2021
/s/ Michael P. Ure
Michael P. Ure
President, Chief Executive Officer and Chief Financial Officer
Western Midstream Operating GP, LLC
(as general partner of Western Midstream Operating, LP)
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