Western Gas Partners Announces Third-Quarter 2012 Results

Provides Distribution Growth Outlook for 2013

HOUSTON--(BUSINESS WIRE)--Western Gas Partners, LP (NYSE: WES) today announced third-quarter 2012 financial and operating results. Net income available to limited partners for the third quarter totaled $31.5 million, or $0.33 per common unit (diluted). The Partnership’s third-quarter Adjusted EBITDA ⁽¹⁾ was $84.5 million and Distributable cash flow ⁽¹⁾ was $64.4 million, resulting in a Coverage ratio ⁽¹⁾ of 1.14 times for the period.

“With recent compression additions in the rapidly expanding DJ Basin, our business model is performing as expected while we continue to manage downstream issues related to natural gas liquids”

Total throughput attributable to Western Gas Partners, LP for the third quarter of 2012 averaged 2,461 MMcf/d, 3 percent higher than the prior quarter and 10 percent above the third quarter of 2011. These results include the net throughput attributable to the Mountain Gas Resources (“MGR”) and Bison assets acquired from Anadarko Petroleum Corporation for all periods of comparison, throughput attributable to the Platte Valley system beginning March 2011, and throughput attributable to the recently acquired 24-percent interest in Chipeta Processing LLC (“Chipeta”) beginning August 2012. Capital expenditures attributable to Western Gas Partners, LP, excluding acquisitions, totaled approximately $141.5 million during the third quarter of 2012. Of this amount, maintenance capital expenditures were approximately $10.8 million, or 13 percent of Adjusted EBITDA.

“With recent compression additions in the rapidly expanding DJ Basin, our business model is performing as expected while we continue to manage downstream issues related to natural gas liquids,” said Western Gas Partners’ President and Chief Executive Officer Don Sinclair. “The stable performance of our core portfolio combined with progress on our major capital projects enables us to announce the goal of raising our quarterly distribution by a minimum of 15 percent in 2013.”

The Partnership previously declared a quarterly distribution of $0.50 per unit for the third quarter of 2012, payable on November 13, 2012, to unitholders of record at the close of business on October 31, 2012, representing a 4-percent increase over the prior quarter and a 19-percent increase over the third-quarter 2011 distribution of $0.42 per unit.

CONFERENCE CALL TOMORROW AT 11 A.M. CDT

The Partnership will host a conference call on November 1, 2012, at 11 a.m. Central Daylight Time (12 p.m. Eastern Daylight Time) to discuss third-quarter results. To participate via telephone, please dial 877.621.4819 and enter participant code 37619281. Please call in 10 minutes prior to the scheduled start time. For complete instructions on how to participate in the conference call, or to access the live audio webcast and slide presentation, please visit www.westerngas.com. A replay of the call will also be available on the Web site for approximately two weeks following the conference call.

Western Gas Partners, LP is a growth-oriented Delaware master limited partnership formed by Anadarko Petroleum Corporation to own, operate, acquire and develop midstream energy assets. With midstream assets in East, West and South Texas, the Rocky Mountains and the Mid-Continent, the Partnership is engaged in the business of gathering, processing, compressing, treating and transporting natural gas, condensate, natural gas liquids and crude oil for Anadarko and other producers and customers. For more information about Western Gas Partners, please visit www.westerngas.com.

This news release contains forward-looking statements. Western Gas Partners believes that its expectations are based on reasonable assumptions. No assurance, however, can be given that such expectations will prove to have been correct. A number of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this news release. These factors include the ability to meet financial guidance or distribution growth expectations; the ability to safely and efficiently operate our assets; the ability to obtain new sources of natural gas supplies; the effect of fluctuations in commodity prices and the demand for natural gas and related products; the ability to meet projected in-service dates for capital growth projects; and construction costs or capital expenditures exceeding estimated or budgeted costs or expenditures, as well as other factors described in the “Risk Factors” section of the Partnership’s most recent Form 10-K filed with the Securities and Exchange Commission and other public filings and press releases by Western Gas Partners. Western Gas Partners undertakes no obligation to publicly update or revise any forward-looking statements.

⁽¹⁾ Please see the tables at the end of this release for a reconciliation of non-GAAP to GAAP measures and calculation of the Coverage ratio.

Reconciliation of GAAP to Non-GAAP Measures

Below are reconciliations of Distributable cash flow (non-GAAP) to net income attributable to Western Gas Partners, LP (GAAP) and Adjusted EBITDA (non-GAAP) to net income attributable to Western Gas Partners, LP (GAAP) and net cash provided by operating activities (GAAP), as required under Regulation G of the Securities Exchange Act of 1934. Management believes that the presentation of Distributable cash flow, Adjusted EBITDA and Coverage ratio are widely accepted financial indicators of a company’s financial performance compared to other publicly traded partnerships and are useful in assessing our ability to incur and service debt, fund capital expenditures and make distributions. Distributable cash flow, Adjusted EBITDA and Coverage ratio, as defined by the Partnership, may not be comparable to similarly titled measures used by other companies. Therefore, the Partnership’s consolidated Distributable cash flow, Adjusted EBITDA and Coverage ratio should be considered in conjunction with net income and other performance measures (as applicable), such as operating income or cash flows from operating activities.

Distributable Cash Flow

The Partnership defines Distributable cash flow as Adjusted EBITDA, plus interest income, less net cash paid for interest expense (including amortization of deferred debt issuance costs originally paid in cash, offset by non-cash capitalized interest), maintenance capital expenditures and income taxes.

		Three Months Ended					Nine Months Ended
		September 30,					September 30,
thousands except Coverage ratio		2012			2011 ^(1)		2012			2011 ^(1)
Reconciliation of Net income attributable to Western Gas Partners, LP
	to Distributable cash flow and calculation of the Coverage ratio
Net income attributable to
	Western Gas Partners, LP	$	39,517		$	45,306	$	123,957		$	134,229
Add:
	Distributions from equity investees		5,584			3,988		15,603			11,988
	Non-cash equity-based compensation expense		9,417			2,389		16,407			6,235
	Interest expense, net (non-cash settled)		81			—		244			—
	Income tax expense		72			4,668		699			15,564
	Depreciation, amortization and impairments ^(2)		27,084			28,215		79,514			76,282
	Other expense ^(2)		—			—		1,665			3,683
Less:
	Equity income, net		3,804			2,660		10,752			7,682
	Cash paid for maintenance capital expenditures ^(2) (3)		10,819			10,306		25,543			20,584
	Capitalized interest		2,224			121		3,827			134
	Cash paid for income taxes		423			190		495			190
	Other income^(2) (4)		125			7		187			1,761
	Interest income, net (non-cash settled)		—			4,348		—			6,317
Distributable cash flow		$	64,360		$	66,934	$	197,285		$	211,313
Distributions declared^(5)
	Limited partners	$	47,968				$	135,699
	General partner		8,378					19,125
	Total	$	56,346				$	154,824
Coverage ratio			1.14	x				1.27	x

^(1)	Financial information has been recast to include results attributable to the MGR assets.
^(2)	Includes the Partnership’s 51% share prior to August 1, 2012 and 75% share after August 1, 2012, of depreciation, amortization and impairments; other expense; cash paid for maintenance capital expenditures; and other income attributable to Chipeta.
^(3)	Net of a prior period adjustment reclassifying approximately $0.7 million from capital expenditures to operating expenses for the nine months ended September 30, 2012.
^(4)	Excludes income of $0.4 million and $1.2 million for the three and nine months ended September 30, 2012, respectively, and $0.2 million and $1.0 million for the three and nine months ended September 30, 2011, respectively, related to a component of a gas processing agreement accounted for as a capital lease.
^(5)	Reflects distributions of $0.50 and $1.44 per unit declared for the three and nine months ended September 30, 2012, respectively.

Reconciliation of GAAP to Non-GAAP Measures, continued

Adjusted EBITDA attributable to Western Gas Partners, LP (“Adjusted EBITDA”)

The Partnership defines Adjusted EBITDA as net income (loss) attributable to Western Gas Partners, LP, plus distributions from equity investees, non-cash equity-based compensation expense, expense in excess of the expense reimbursement cap provided in the omnibus agreement (which cap is no longer effective), interest expense, income tax expense, depreciation, amortization and impairments, and other expense, less income from equity investments, interest income, income tax benefit, and other income.

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
thousands		2012			2011 ^(1)			2012			2011 ^(1)
Reconciliation of Net income attributable to
	Western Gas Partners, LP to Adjusted EBITDA
Net income attributable to Western Gas Partners, LP		$	39,517		$	45,306		$	123,957		$	134,229
Add:
	Distributions from equity investees		5,584			3,988			15,603			11,988
	Non-cash equity-based compensation expense		9,417			2,389			16,407			6,235
	Interest expense		10,977			8,930			30,118			21,738
	Income tax expense		72			4,668			699			15,564
	Depreciation, amortization and impairments ^(2)		27,084			28,215			79,514			76,282
	Other expense ^(2)		—			—			1,665			3,683
Less:
	Equity income, net		3,804			2,660			10,752			7,682
	Interest income, net – affiliates		4,225			8,573			12,675			18,992
	Other income^(2) (3)		125			7			187			1,761
Adjusted EBITDA		$	84,497		$	82,256		$	244,349		$	241,284
Reconciliation of Adjusted EBITDA to
	Net cash provided by operating activities
Adjusted EBITDA attributable to Western Gas Partners, LP		$	84,497		$	82,256		$	244,349		$	241,284
Adjusted EBITDA attributable to noncontrolling interests			3,866			4,593			13,709			11,793
Interest income (expense), net			(6,752	)		(357	)		(17,443	)		(2,746	)
Non-cash equity-based compensation expense			(9,417	)		(2,389	)		(16,407	)		(6,235	)
Current income tax expense			(60	)		(5,477	)		(185	)		(10,882	)
Other income (expense), net ^(3)			126			7			(1,475	)		(1,919	)
Distributions from equity investees less than (in excess of) equity income, net			(1,780	)		(1,328	)		(4,851	)		(4,306	)
Changes in operating working capital:
	Accounts receivable and natural gas imbalance receivable		(604	)		1,891			5,062			(18,925	)
	Accounts payable, accrued liabilities and natural gas imbalance payable		62,600			16,301			71,420			30,359
	Other		(3,766	)		(334	)		621			4,978
Net cash provided by operating activities		$	128,710		$	95,163		$	294,800		$	243,401
Cash flow information of Western Gas Partners, LP
Net cash provided by operating activities								$	294,800		$	243,401
Net cash used in investing activities								$	(899,943	)	$	(405,241	)
Net cash provided by financing activities								$	426,078		$	386,223

^(1)	Financial information has been recast to include results attributable to the MGR assets.
^(2)	Includes the Partnership’s 51% share prior to August 1, 2012 and 75% share after August 1, 2012, of depreciation, amortization and impairments; other expense; and other income attributable to Chipeta.
^(3)	Excludes income of $0.4 million and $1.2 million for the three and nine months ended September 30, 2012, respectively, and $0.2 million and $1.0 million for the three and nine months ended September 30, 2011, respectively, related to a component of a gas processing agreement accounted for as a capital lease.

Western Gas Partners, LP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
		Three Months Ended						Nine Months Ended
		September 30,						September 30,
thousands except per-unit amounts		2012			2011 ^(1)			2012			2011 ^(1)
Revenues
Gathering, processing and transportation of natural gas and natural gas liquids		$	78,219		$	75,686		$	235,849		$	222,432
Natural gas, natural gas liquids and condensate sales			136,106			137,860			386,818			371,800
Equity income and other, net			4,695			4,000			13,936			13,836
Total revenues			219,020			217,546			636,603			608,068
Operating expenses
Cost of product			89,107			89,666			254,719			240,765
Operation and maintenance			33,261			31,773			97,041			87,859
General and administrative			14,554			8,597			34,233			24,630
Property and other taxes			5,328			4,629			14,998			13,302
Depreciation, amortization and impairments			27,528			28,935			81,270			78,413
Total operating expenses			169,778			163,600			482,261			444,969
Operating income			49,242			53,946			154,342			163,099
Interest income, net – affiliates			4,225			8,573			12,675			18,992
Interest expense			(10,977	)		(8,930	)		(30,118	)		(21,738	)
Other income (expense), net			522			258			(287	)		(895	)
Income before income taxes			43,012			53,847			136,612			159,458
Income tax expense			72			4,668			699			15,564
Net income			42,940			49,179			135,913			143,894
Net income attributable to noncontrolling interests			3,423			3,873			11,956			9,665
Net income attributable to Western Gas Partners, LP		$	39,517		$	45,306		$	123,957		$	134,229
Limited partners' interest in net income:
Net income attributable to Western Gas Partners, LP		$	39,517		$	45,306		$	123,957		$	134,229
Pre-acquisition net (income) loss allocated to Anadarko			—			(8,497	)		—			(28,497	)
General partner interest in net (income) loss			(8,042	)		(2,394	)		(18,508	)		(5,684	)
Limited partners' interest in net income		$	31,475		$	34,415		$	105,449		$	100,048
Net income per unit – basic and diluted
	Common units	$	0.33		$	0.41		$	1.14		$	1.32
	Subordinated units^(2)	$	—		$	—		$	—		$	0.96
Weighted average units outstanding – basic and diluted
	Common units		95,883			84,667			92,627			59,647
	Subordinated units^(2)		—			—			—			21,968

^(1)	Financial information has been recast to include results attributable to the MGR assets.
^(2)	All subordinated units were converted to common units on a one-for-one basis on August 15, 2011. For purposes of calculating net income per common and subordinated unit, the conversion of the subordinated units is deemed to have occurred on July 1, 2011.

Western Gas Partners, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
	September 30,		December 31,
thousands except number of units	2012		2011
Current assets	$	78,239	$	256,448
Note receivable – Anadarko		260,000		260,000
Net property, plant and equipment		2,342,923		2,052,224
Other assets		272,782		268,954
Total assets	$	2,953,944	$	2,837,626
Current liabilities	$	210,081	$	76,596
Long-term debt		1,010,435		669,178
Asset retirement obligations and other		71,109		174,546
Total liabilities	$	1,291,625	$	920,320
Equity and partners’ capital
Common units (95,934,351 and 90,140,999 units issued and outstanding at September 30, 2012, and December 31, 2011, respectively)	$	1,552,399	$	1,495,253
General partner units (1,957,845 and 1,839,613 units issued and outstanding at September 30, 2012, and December 31, 2011, respectively)		41,416		31,729
Net investment by Anadarko		—		269,600
Noncontrolling interests		68,504		120,724
Total liabilities, equity and partners' capital	$	2,953,944	$	2,837,626

Western Gas Partners, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
		Nine Months Ended
		September 30,
thousands		2012			2011 ^(1)
Cash flows from operating activities
Net income		$	135,913		$	143,894
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation, amortization and impairments		81,270			78,413
	Change in other items, net		77,617			21,094
Net cash provided by operating activities		$	294,800		$	243,401
Cash flows from investing activities
Capital expenditures		$	(294,596	)	$	(78,573	)
Acquisitions from affiliates			(605,960	)		(25,000	)
Acquisitions from third parties			—			(301,957	)
Investments in equity affiliates			(147	)		(93	)
Proceeds from sale of assets to affiliates			760			382
Net cash used in investing activities		$	(899,943	)	$	(405,241	)
Cash flows from financing activities
Borrowings, net of debt issuance costs		$	885,291		$	1,055,939
Repayments of debt			(549,000	)		(869,000	)
Proceeds from issuance of common and general partner units, net of offering expenses			216,462			335,348
Distributions to unitholders			(141,505	)		(99,795	)
Contributions from noncontrolling interest owners			26,888			16,876
Distributions to noncontrolling interest owners			(14,303	)		(10,219	)
Net contributions from (distributions to) Anadarko			2,245			(42,926	)
Net cash provided by financing activities		$	426,078		$	386,223
Net increase (decrease) in cash and cash equivalents		$	(179,065	)	$	224,383
Cash and cash equivalents at beginning of period			226,559			27,074
Cash and cash equivalents at end of period		$	47,494		$	251,457

^(1)	Financial information has been recast to include results attributable to the MGR assets.

Western Gas Partners, LP
OPERATING STATISTICS
(Unaudited)
			Three Months Ended				Nine Months Ended
			September 30,				September 30,
MMcf/d except per-unit amounts			2012		2011 ^(1)		2012		2011 ^(1)
Throughput
	Gathering, treating and transportation^(2)			1,201		1,274		1,255		1,327
	Processing ^(3)			1,228		1,012		1,182		940
	Equity investment^(4)			236		212		236		191
		Total throughput ^(5)		2,665		2,498		2,673		2,458
	Throughput attributable to noncontrolling interests			204		258		254		237
	Total throughput attributable to Western Gas Partners, LP			2,461		2,240		2,419		2,221
Gross margin per Mcf attributable to Western Gas Partners, LP ^(6)			$	0.55	$	0.59	$	0.55	$	0.58

^(1)	Throughput has been recast to include volumes attributable to the MGR assets.
^(2)	Excludes average NGL pipeline volumes from the Chipeta assets of 22 MBbls/d and 25 MBbls/d for the three months ended September 30, 2012 and 2011, respectively, and 25 MBbls/d and 23 MBbls/d for the nine months ended September 30, 2012 and 2011, respectively.
^(3)	Consists of 100% of Chipeta, Granger, Hilight and Red Desert complex volumes, and 50% of Newcastle system volumes for all periods presented, as well as throughput beginning March 2011 attributable to the Platte Valley system.
^(4)	Represents our 14.81% share of Fort Union and 22% share of Rendezvous gross volumes, and excludes our 10% share of average White Cliffs pipeline volumes consisting of 6 MBbls/d and 4 MBbls/d for the three months ended September 30, 2012 and 2011, respectively, and 6 MBbls/d and 3 MBbls/d for the nine months ended September 30, 2012 and 2011, respectively.
^(5)	Includes affiliate, third-party and equity-investment volumes.
^(6)	Average for period. Calculated as gross margin, excluding the noncontrolling interest owners’ proportionate share of revenues and cost of product, divided by total throughput attributable to the Partnership. Calculation includes income attributable to our investments in Fort Union, White Cliffs and Rendezvous and volumes attributable to our investments in Fort Union and Rendezvous.