UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-34046

WESTERN GAS PARTNERS, LP

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		26-1075808 (I.R.S. Employer Identification No.)
1201 Lake Robbins Drive The Woodlands, Texas (Address of principal executive offices)		77380 (Zip Code)

(832) 636-6000
(Registrant’s telephone number, including area code)

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. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

There were 36,995,614 common units outstanding as of April 30, 2010.

 

 

TABLE OF CONTENTS

		Page
PART I  FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three months ended March 31, 2010 and 2009			4
Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009			5
Consolidated Statement of Equity and Partners’ Capital for the three months ended March 31, 2010			6
Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009			7
Notes to Unaudited Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Executive Summary			23
Acquisitions			24
Items Affecting the Comparability of Our Financial Results			25
Results of Operations			26
Operating Results			26
Liquidity and Capital Resources			36
Contractual Obligations			40
Off-Balance Sheet Arrangements			40
Item 3. Quantitative and Qualitative Disclosures About Market Risk			40
Item 4. Controls and Procedures			41
PART II  OTHER INFORMATION
Item 1. Legal Proceedings			41
Item 1A. Risk Factors			41
Item 6. Exhibits			41
EX-10.3
EX-31.1
EX-31.2
EX-32.1

Definitions

As generally used within the energy industry and in this quarterly report on Form 10-Q, the identified terms have the following meanings:

Barrel or Bbl: 42 U.S. gallons measured at 60 degrees Fahrenheit.

Bcf/d: One billion cubic feet per day.

Btu: British thermal unit; the approximate amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit.

Condensate: A natural gas liquid with a low vapor pressure mainly composed of propane, butane, pentane and heavier hydrocarbon fractions.

Drip condensate: Heavier hydrocarbon liquids that fall out of the natural gas stream and are recovered in the gathering system without processing.

Imbalance: Imbalances result from (i) differences between gas volumes nominated by customers and gas volumes received from those customers and (ii) differences between gas volumes received from customers and gas volumes delivered to those customers.

MMBtu: One million British thermal units.

MMBtu/d: One million British thermal units per day.

MMcf/d: One million cubic feet per day. All volumes presented herein are based on a standard pressure base of 14.73 pounds per square inch, absolute.

Natural gas: Hydrocarbon gas found in the earth composed of methane, ethane, butane, propane and other gases.

Natural gas liquids or NGLs: The combination of ethane, propane, butane and natural gasoline that when removed from natural gas become liquid under various levels of higher pressure and lower temperature.

Pounds per square inch, absolute: The pressure resulting from a one pound-force applied to an area of one square inch, including local atmospheric pressure.

Residue gas: The natural gas remaining after being processed or treated.

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per-unit amounts)

		Three Months Ended
		March 31,
		2010				2009(1)
Revenues – affiliates
Gathering, processing and transportation of natural gas		$	37,114			$	36,074
Natural gas, natural gas liquids and condensate sales			45,159				42,160
Equity income and other			1,557				1,730
Total revenues – affiliates			83,830				79,964
Revenues – third parties
Gathering, processing and transportation of natural gas			6,245				7,260
Natural gas, natural gas liquids and condensate sales			3,693				1,472
Other, net			551				464
Total revenues – third parties			10,489				9,196
Total revenues			94,319				89,160
Operating expenses (2)
Cost of product			32,578				33,645
Operation and maintenance			15,167				14,086
General and administrative			5,074				6,285
Property and other taxes			2,769				2,821
Depreciation and amortization			13,683				12,016
Total operating expenses			69,271				68,853
Operating income			25,048				20,307
Interest income, net (3)			697				2,677
Other income, net			20				7
Income before income taxes			25,765				22,991
Income tax expense			957				266
Net income			24,808				22,725
Net income attributable to noncontrolling interests			1,894				2,139
Net income attributable to Western Gas Partners, LP		$	22,914			$	20,586
Limited partner interest in net income:
Net income attributable to Western Gas Partners, LP (4)		$	22,914			$	20,586
Pre-acquisition (income) loss allocated to Parent			1,218				(3,628	)
General partner interest in net income			(483	)			(339	)
Limited partner interest in net income		$	23,649			$	16,619
Net income per common unit – basic and diluted		$	0.37			$	0.30
Net income per subordinated unit – basic and diluted		$	0.37			$	0.30

See accompanying notes to unaudited consolidated financial statements.

Western Gas Partners, LP

(Unaudited, in thousands, except number of units)

		March 31,				December 31,
		2010				2009
ASSETS
Current assets
Cash and cash equivalents		$	55,223			$	69,984
Accounts receivable, net — third parties			4,304				4,076
Accounts receivable — affiliates			6,165				2,203
Natural gas imbalance receivables — third parties			688				266
Natural gas imbalance receivables — affiliates			41				448
Other current assets			3,392				3,287
Total current assets			69,813				80,264
Note receivable — Anadarko			260,000				260,000
Property, plant and equipment
Cost			1,250,664				1,246,155
Less accumulated depreciation			265,939				252,778
Net property, plant and equipment			984,725				993,377
Goodwill			31,248				31,248
Equity investment			20,289				20,060
Other assets			2,586				2,974
Total assets		$	1,368,661			$	1,387,923
LIABILITIES, EQUITY AND PARTNERS’ CAPITAL
Current liabilities
Accounts payable — third parties		$	9,203			$	12,003
Natural gas imbalance payable — third parties			193				289
Natural gas imbalance payable — affiliates			1,512				1,319
Accrued ad valorem taxes			4,239				3,046
Income taxes payable			545				412
Accrued liabilities — third parties			10,896				8,717
Accrued liabilities — affiliates			291				470
Total current liabilities			26,879				26,256
Long-term liabilities
Long-term debt — third party			210,000				—
Note payable — Anadarko			175,000				175,000
Deferred income taxes			380				92,891
Asset retirement obligations and other			15,392				15,077
Total long-term liabilities			400,772				282,968
Total liabilities			427,651				309,224
Commitments and contingencies (Note 8)
Equity and partners’ capital
Common units (36,995,614 and 36,374,925 units issued and outstanding at March 31, 2010 and December 31, 2009, respectively)			556,627				497,230
Subordinated units (26,536,306 units issued and outstanding at March 31, 2010 and December 31, 2009)			277,723				276,571
General partner units (1,296,570 and 1,283,903 units issued and outstanding at March 31, 2010 and December 31, 2009, respectively)			14,960				13,726
Parent net investment			—				200,250
Total partners’ capital			849,310				987,777
Noncontrolling interests			91,700				90,922
Total equity and partners’ capital			941,010				1,078,699
Total liabilities, equity and partners’ capital		$	1,368,661			$	1,387,923

See accompanying notes to unaudited consolidated financial statements.

Western Gas Partners, LP

(Unaudited, in thousands)

						Partners’ Capital
		Parent Net				Limited Partners								General				Noncontrolling
		Investment				Common				Subordinated				Partner				Interests				Total
Balance at December 31, 2009		$	200,250			$	497,230			$	276,571			$	13,726			$	90,922			$	1,078,699
Net pre-acquisition contributions from Parent			7,914				—				—				—				—				7,914
Elimination of net deferred tax liabilities			92,203				—				—				—				—				92,203
Contribution of Granger assets			(300,367	)			57,513				—				1,174				—				(241,680	)
Contributions from noncontrolling interest owners and Parent			—				—				—				—				1,985				1,985
Non-cash equity-based compensation			—				73				—				—				—				73
Net income			(1,218	)			13,741				9,908				483				1,894				24,808
Distributions to unitholders			—				(12,210	)			(8,756	)			(427	)			—				(21,393	)
Distributions to noncontrolling interest owners			—				—				—				—				(2,806	)			(2,806	)
Other			1,218				280				—				4				(295	)			1,207
Balance at March 31, 2010		$	—			$	556,627			$	277,723			$	14,960			$	91,700			$	941,010

See accompanying notes to unaudited consolidated financial statements.

Western Gas Partners, LP

(Unaudited, in thousands)

		Three Months Ended March 31,
		2010				2009(1)
Cash flows from operating activities
Net income		$	24,808			$	22,725
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			13,683				12,016
Deferred income taxes			(621	)			(689	)
Changes in assets and liabilities:
Increase in accounts receivable			(4,381	)			(8,829	)
(Increase) decrease in natural gas imbalance receivable			(15	)			1,354
Decrease (increase) in accounts payable, accrued liabilities and natural gas imbalance payable			9,124				(6,749	)
Change in other items, net			313				(251	)
Net cash provided by operating activities			42,911				19,577
Cash flows from investing activities
Granger acquisition			(241,680	)			—
Capital expenditures			(5,297	)			(24,110	)
Net cash used in investing activities			(246,977	)			(24,110	)
Cash flows from financing activities
Borrowings under revolving credit facility, net of issuance costs			209,987				—
Contributions from noncontrolling interest owners and Parent			1,985				22,327
Distributions to unitholders			(21,393	)			(17,029	)
Distributions to noncontrolling interest owners			(2,806	)			—
Net pre-acquisition contributions from (distributions to) Parent			1,532				(2,729	)
Net cash provided by financing activities			189,305				2,569
Net decrease in cash and cash equivalents			(14,761	)			(1,964	)
Cash and cash equivalents at beginning of period			69,984				36,074
Cash and cash equivalents at end of period		$	55,223			$	34,110
Supplemental disclosures
Decrease in accrued capital expenditures		$	358			$	405
Interest paid		$	2,671			$	1,455
Interest received		$	4,225			$	4,225

See accompanying notes to unaudited consolidated financial statements.

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Basis of presentation. Western Gas Partners, LP (the “Partnership”) is a Delaware limited partnership formed in August 2007. The Partnership is engaged in the business of gathering, compressing, processing, treating and transporting natural gas and natural gas liquids (“NGLs”) for Anadarko Petroleum Corporation and its consolidated subsidiaries as well as for third-party producers and customers. The Partnership’s assets consist of ten gathering systems, six natural gas treating facilities, six gas processing facilities, one interstate pipeline and one NGL pipeline. The Partnership’s assets are located in East and West Texas, the Rocky Mountains and the Mid-Continent. For purposes of these financial statements, the “Partnership” refers to Western Gas Partners, LP and its subsidiaries; “Anadarko” refers to Anadarko Petroleum Corporation and its consolidated subsidiaries, excluding the Partnership; “Parent” refers to Anadarko prior to our acquisition of assets from Anadarko; and “affiliates” refers to wholly owned and partially owned subsidiaries of Anadarko, excluding the Partnership. The “initial assets” collectively refer to Anadarko Gathering Company LLC, or “AGC,” Pinnacle Gas Treating LLC, or “PGT,” and MIGC LLC, or “MIGC,” all of which the Partnership acquired in connection with its May 2008 initial public offering. The “Powder River assets” collectively refer to the Partnership’s 100% ownership interest in the Hilight system, 50% interest in the Newcastle system and 14.81% limited liability company membership interest in Fort Union Gas Gathering, L.L.C., or “Fort Union,” all of which the Partnership acquired from Anadarko in December 2008, and the “Powder River acquisition” refers to the acquisition of the Powder River assets. The “Chipeta assets” collectively refer to the 51% membership interest in Chipeta Processing LLC, or “Chipeta,” and associated natural gas liquids, or “NGL,” pipeline, which the Partnership acquired from Anadarko in July 2009, and the “Chipeta acquisition” refers to the acquisition of the Chipeta assets. The “Granger assets” collectively refer to the Granger gathering system and Granger complex, which the Partnership acquired from Anadarko in January 2010, and the “Granger acquisition” refers to the acquisition of the Granger assets. The Partnership’s general partner is Western Gas Holdings, LLC, a wholly owned subsidiary of Anadarko.

The consolidated financial statements include the accounts of the Partnership and entities in which it holds a controlling financial interest. All significant intercompany transactions have been eliminated. Investments in non-controlled entities over which the Partnership exercises significant influence are accounted for under the equity method. The information furnished herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of financial position as of March 31, 2010 and December 31, 2009, results of operations for the three months ended March 31, 2010 and 2009, statement of equity and partners’ capital for the three months ended March 31, 2010 and statements of cash flows for the three months ended March 31, 2010 and 2009. The Partnership’s financial results for the three months ended March 31, 2010 are not necessarily indicative of the results for the full year ending December 31, 2010.

The accompanying consolidated financial statements of the Partnership have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). To conform to these accounting principles, management makes estimates and assumptions that affect the amounts reported in the consolidated financial statements and the notes thereto. These estimates are evaluated on an ongoing basis, utilizing historical experience and other methods considered reasonable under the particular circumstances. Although these estimates are based on management’s knowledge and the best available information at the time, changes may result in revised estimates and actual results may differ from these estimates. Effects on the Partnership’s business, financial position and results of operations resulting from revisions to estimates are recognized when the facts that give rise to the revision become known.

The accompanying consolidated financial statements and notes should be read in conjunction with the Partnership’s annual report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2010, as revised by the Partnership’s current report on Form 8-K, filed with the SEC on May 4, 2010 (the “annual report on Form 10-K”) to, as discussed below, recast the Partnership’s financial statements to reflect the results generated by the Granger assets from the date in which those assets were acquired by Anadarko.

Acquisitions

Chipeta acquisition. In July 2009, the Partnership acquired certain midstream assets from Anadarko for (i) approximately $101.5 million in cash, which was financed by borrowing $101.5 million from Anadarko pursuant to the terms of a 7.0% fixed-rate, three-year term loan agreement, and (ii) the issuance of 351,424 common units and 7,172 general partner units. These assets provide processing and transportation services in the Greater Natural Buttes area in Uintah County, Utah. The acquisition consisted of a 51% membership interest in Chipeta, together with an associated NGL pipeline. Chipeta owns a natural gas processing plant complex, which includes two processing trains: a refrigeration unit completed in November 2007 and a cryogenic unit which was completed in April 2009.

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

In November 2009, Chipeta closed its acquisition of a compressor station and processing plant (the “Natural Buttes plant”) from a third party for $9.1 million. The noncontrolling interest owners contributed $4.5 million to Chipeta during the year ended December 31, 2009 to fund their proportionate share of the Natural Buttes plant acquisition. The Natural Buttes plant is located in Uintah County, Utah.

As of March 31, 2010, Chipeta is owned 51% by the Partnership, 24% by Anadarko and 25% by a third-party member. The interests in Chipeta held by Anadarko and the third-party member are reflected as noncontrolling interests in the consolidated financial statements.

Granger acquisition. In January 2010, the Partnership acquired Anadarko’s entire 100% ownership interest in the following assets located in Southwestern Wyoming: (i) the Granger gathering system with related compressors and other facilities, and (ii) the Granger complex, consisting of two cryogenic trains, two refrigeration trains, an NGLs fractionation facility and ancillary equipment. The Granger acquisition was financed primarily with $210.0 million in borrowings under the Partnership’s revolving credit facility plus $31.7 million of cash on hand, as well as through the issuance of 620,689 common units and 12,667 general partner units to Anadarko.

Presentation of Partnership acquisitions. The initial assets, Powder River assets, Chipeta assets and Granger assets are referred to collectively as the “Partnership Assets.” Unless otherwise noted, references to “periods prior to our acquisition of the Partnership Assets” and similar phrases refer to periods prior to May 2008, with respect to the initial assets, periods prior to December 2008, with respect to the Powder River assets, periods prior to July 2009, with respect to the Chipeta assets, and periods prior to January 2010, with respect to the Granger assets. Unless otherwise noted, references to “periods subsequent to our acquisition of the Partnership Assets” and similar phrases refer to periods including and subsequent to May 2008, with respect to the initial assets, periods including and subsequent to December 2008, with respect to the Powder River assets, periods including and subsequent to July 2009, with respect to the Chipeta assets, and periods including and subsequent to January 2010, with respect to the Granger assets.

Anadarko acquired the Granger assets in connection with its August 23, 2006 acquisition of Western Gas Resources, Inc. (“Western”) and Anadarko acquired the Chipeta assets in connection with its August 10, 2006 acquisition of Kerr-McGee Corporation (“Kerr-McGee”). The acquisitions by the Partnership of the Chipeta assets and Granger assets were considered transfers of net assets between entities under common control. Accordingly, the Partnership is required to revise its financial statements to include the activities of the Partnership Assets as of the date of common control. The Partnership’s historical financial statements for the three months ended March 31, 2009 as presented in the Partnership’s quarterly report on Form 10-Q for the quarter ended March 31, 2009, which included the results attributable to the initial assets and the Powder River assets, have been recast to include the results attributable to the Chipeta assets and the Granger assets as if the Partnership owned such assets for all periods presented. Net income attributable to the Partnership Assets for periods prior to each acquisition is not allocated to the limited partners for purposes of calculating net income per limited partner unit.

The consolidated financial statements for periods prior to the Partnership’s acquisition of the Partnership Assets have been prepared from Anadarko’s historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if the Partnership had owned the assets during the periods reported.

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

Limited partner and general partner units

The Partnership’s common units are listed on the New York Stock Exchange under the symbol “WES.” The following table summarizes common, subordinated and general partner units issued during the three months ended March 31, 2010 (in thousands):

		Limited Partner Units								General
		Common				Subordinated				Partner Units				Total
Balance at December 31, 2009			36,375				26,536				1,284				64,195
Granger acquisition			621				—				12				633
Balance at March 31, 2010			36,996				26,536				1,296				64,828

Anadarko holdings of Partnership Equity. As of March 31, 2010, Anadarko held 1,296,570 general partner units representing a 2.0% general partner interest in the Partnership, 100% of the Partnership’s incentive distribution rights (“IDRs”), 9,254,435 common units and 26,536,306 subordinated units. Anadarko owned an aggregate 55.2% limited partner interest in the Partnership based on its holdings of common and subordinated units. The public held 27,741,179 common units, representing a 42.8% limited partner interest in the Partnership.

2. PARTNERSHIP DISTRIBUTIONS

The partnership agreement requires that, within 45 days subsequent to the end of each quarter, beginning with the quarter ended June 30, 2008, the Partnership distribute all of its available cash (as defined in the partnership agreement) to unitholders of record on the applicable record date. During the three months ended March 31, 2010, the Partnership paid cash distributions to its unitholders of approximately $21.4 million, representing the $0.33 per-unit distribution for the quarter ended December 31, 2009. During the three months ended March 31, 2009, the Partnership paid cash distributions to its unitholders of approximately $17.0 million, representing the $0.30 per-unit distribution for the quarter ended December 31, 2008. See also Note 9—Subsequent Events concerning distributions approved in April 2010.

3. NET INCOME PER LIMITED PARTNER UNIT

The Partnership’s net income attributable to the Partnership Assets for periods including and subsequent to the Partnership’s acquisitions of the Partnership Assets is allocated to the general partner and the limited partners, including any subordinated unitholders, in accordance with their respective ownership percentages, and, when applicable, giving effect to unvested units granted under the Western Gas Partners, LP 2008 Long-Term Incentive Plan (the “LTIP”) and incentive distributions allocable to the general partner. The allocation of undistributed earnings, or net income in excess of distributions, to the incentive distribution rights is limited to available cash (as defined by the partnership agreement) for the period. The Partnership’s net income allocable to the limited partners is allocated between the common and subordinated unitholders by applying the provisions of the partnership agreement that govern actual cash distributions as if all earnings for the period had been distributed. Accordingly, if current net income allocable to the limited partners is less than the minimum quarterly distribution, or if cumulative net income allocable to the limited partners since May 14, 2008 is less than the cumulative minimum quarterly distributions, more income is allocated to the common units than the subordinated units for that quarterly period.

Basic and diluted net income per limited partner unit is calculated by dividing limited partners’ interest in net income by the weighted average number of limited partner units outstanding during the period. The common units and general partner units issued during the period are included on a weighted-average basis for the days in which they were outstanding.

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

The following table illustrates the Partnership’s calculation of net income per unit for common and subordinated limited partner units (in thousands, except per-unit information):

		Three Months Ended
		March 31,
		2010				2009(1)
Net income attributable to Western Gas Partners, LP		$	22,914			$	20,586
Pre-acquisition (income) loss allocated to Parent			1,218				(3,628	)
General partner interest in net income			(483	)			(339	)
Limited partner interest in net income		$	23,649			$	16,619
Net income allocable to common units		$	13,741			$	8,728
Net income allocable to subordinated units			9,908				7,891
Limited partner interest in net income		$	23,649			$	16,619
Net income per limited partner unit — basic and diluted
Common units		$	0.37			$	0.30
Subordinated units		$	0.37			$	0.30
Total		$	0.37			$	0.30
Weighted average limited partner units outstanding — basic and diluted
Common units			36,803				29,093
Subordinated units			26,536				26,536
Total			63,339				55,629

4. TRANSACTIONS WITH AFFILIATES

Affiliate transactions. The Partnership provides natural gas gathering, compression, processing, treating and transportation services to Anadarko and a portion of the Partnership’s expenditures are paid by or to Anadarko, which results in affiliate transactions. Except for volumes taken in-kind by certain producers, an affiliate of Anadarko sells the natural gas and extracted NGLs attributable to the Partnership’s processing activities, which also result in affiliate transactions. In addition, affiliate-based transactions also result from contributions to and distributions from Fort Union and Chipeta, which are paid or received by Anadarko.

Contribution of Partnership Assets to the Partnership. In January 2010, Anadarko contributed the Granger assets to the Partnership. In connection with the Granger acquisition, substantially all deferred tax liabilities attributable to the Granger assets were reversed and outstanding affiliate balances were entirely settled through an adjustment to parent net investment. See Note 1—Description of Business and Basis of Presentation.

Cash management. Anadarko operates a cash management system whereby excess cash from most of its subsidiaries, held in separate bank accounts, is generally swept to centralized accounts. Prior to January 1, 2010, with respect to the Granger assets, sales and purchases related to third-party transactions were received or paid in cash by Anadarko within its centralized cash management system. Anadarko charged the Partnership interest at a variable rate on outstanding affiliate balances attributable to such assets for the periods these balances remained outstanding. The outstanding affiliate balances were entirely settled through an adjustment to parent net investment in connection with the Granger acquisition. Subsequent to January 1, 2010, with respect to the Granger assets, the Partnership cash-settles transactions directly with third parties and with Anadarko affiliates and affiliate-based interest expense on current intercompany balances is not charged.

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

Note receivable from Anadarko. Concurrent with the closing of the Partnership’s May 2008 initial public offering, the Partnership loaned $260.0 million to Anadarko in exchange for a 30-year note bearing interest at a fixed annual rate of 6.50%. Interest on the note is payable quarterly. The fair value of the note receivable from Anadarko was approximately $267.8 million and $271.3 million at March 31, 2010 and December 31, 2009, respectively. The fair value of the note reflects any premium or discount for the differential between the stated interest rate and quarter-end market rate, based on quoted market prices of similar debt instruments.

Note payable to Anadarko. Concurrent with the closing of the Powder River acquisition in December 2008, the Partnership entered into a five-year, $175.0 million term loan agreement with Anadarko under which the Partnership pays Anadarko interest at a fixed rate of 4.00% for the first two years and a floating rate of interest at three-month LIBOR plus 150 basis points beginning on December 1, 2010.

Commodity price swap agreements. The Partnership entered into commodity price swap agreements with Anadarko to mitigate exposure to commodity price volatility that would otherwise be present as a result of the Partnership’s keep-whole and percentage-of-proceeds contracts applicable to natural gas processing activities at the Hilight, Newcastle and Granger systems. Beginning on January 1, 2009, commodity price swap agreements were put in place to fix the margin the Partnership will realize on its share of revenues under percent-of-proceeds contracts applicable to natural gas processing activities at the Hilight and Newcastle systems. The commodity price swap arrangements for the Hilight and Newcastle systems expire in December 2011 and the Partnership can extend the agreements, at its option, annually through December 2013. Beginning on January 1, 2010, commodity price swap agreements were put in place to fix the margin the Partnership will realize under both keep-whole and percentage-of-proceeds contracts applicable to natural gas processing activities at the Granger system. These commodity price swap arrangements for the Granger systems are in place through December 2014.

The Partnership’s notional volumes for each of the swap agreements are not specifically defined; instead, the commodity price swap agreements apply to volumes equal in amount to the Partnership’s share of actual volumes processed at the Hilight and Newcastle systems and the Granger system. Because the notional volumes are not fixed, the commodity price swap agreements do not satisfy the definition of a derivative financial instrument and are, therefore, not required to be measured at fair value. The Partnership reports its realized gains and losses on the commodity price swap agreements in natural gas, NGLs and condensate sales — affiliates in its consolidated statements of income in the period in which the associated revenues are recognized. During the three months ended March 31, 2010, the Partnership recorded realized losses of $1.5 million and, during the three months ended March 31, 2009, the Partnership recorded realized gains of $1.8 million attributable to the commodity price swap agreements.

Chipeta LLC Agreement. In connection with the Partnership’s acquisition of its 51% membership interest in Chipeta, the Partnership became party to Chipeta’s limited liability company agreement, as amended and restated as of July 23, 2009, together with Anadarko and the third-party member. Among other things, the Chipeta LLC Agreement provides that:

•

Chipeta’s members will be required from time to time to make capital contributions to Chipeta to the extent approved by the members in connection with Chipeta’s annual budget;

•

to the extent available, Chipeta will distribute available cash, as defined in the Chipeta LLC Agreement, to its members quarterly in accordance with those members’ membership interests; and

•

Chipeta’s membership interests are subject to significant restrictions on transfer.

Chipeta gas processing agreement. Chipeta is party to a gas processing agreement dated September 6, 2008 with a subsidiary of Anadarko, pursuant to which Chipeta processes natural gas delivered by that subsidiary and the subsidiary takes allocated residue gas and NGLs in-kind. That agreement, pursuant to which the Chipeta plant receives a large majority of its throughput, has a primary term that extends through 2023.

Omnibus agreement. Pursuant to the omnibus agreement, Anadarko performs centralized corporate functions for the Partnership, such as legal, accounting, treasury, cash management, investor relations, insurance administration and claims processing, risk management, health, safety and environmental, information technology, human resources, credit, payroll, internal audit, tax, marketing and midstream administration. The Partnership’s reimbursement to Anadarko for certain

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

general and administrative expenses allocated to the Partnership is capped at $8.3 million for the year ended December 31, 2010, subject to adjustment to reflect expansions of the Partnership’s operations through the acquisition or construction of new assets or businesses and with the concurrence of the special committee of the Partnership’s general partner’s board of directors. The cap contained in the omnibus agreement does not apply to incremental general and administrative expenses allocated to or incurred by the Partnership as a result of being a publicly traded partnership.

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

Tax sharing agreement. Pursuant to a tax sharing agreement, the Partnership reimburses Anadarko for the Partnership’s share of Texas margin tax borne by Anadarko as a result of the Partnership’s results being included in a combined or consolidated tax return filed by Anadarko with respect to periods subsequent to the Partnership’s acquisition of the Partnership Assets. Anadarko may use its tax attributes to cause its combined or consolidated group, of which the Partnership may be a member for this purpose, to owe no tax. However, the Partnership is nevertheless required to reimburse Anadarko for the tax the Partnership would have owed had the attributes not been available or used for the Partnership’s benefit, regardless of whether Anadarko pays taxes for the period.

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

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

Equity-based compensation. Grants made under equity-based compensation plans result in equity-based compensation expense which is determined by reference to the fair value of equity compensation as of the date of the relevant equity grant.

Long-term incentive plan. The general partner awarded phantom units primarily to the general partner’s independent directors under the LTIP in May 2008 and May 2009. The phantom units awarded to the independent directors vest one year from the grant date. Compensation expense attributable to the phantom units granted under the LTIP is recognized entirely by the Partnership over the vesting period and was approximately $73,000 and $123,000 for the three months ended March 31, 2010 and 2009, respectively.

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

Equity incentive plan and Anadarko incentive plans. The Partnership’s general and administrative expenses include equity-based compensation costs allocated by Anadarko to the Partnership for grants made pursuant to the Western Gas Holdings, LLC Equity Incentive Plan (the “Incentive Plan”), as well as the Anadarko Petroleum Corporation 1999 Stock Incentive Plan and the Anadarko Petroleum Corporation 2008 Omnibus Incentive Compensation Plan (Anadarko’s plans are referred to collectively as the “Anadarko Incentive Plans”). The Partnership’s general and administrative expense for the three months ended March 31, 2010 and 2009 included approximately $567,000 and $846,000, respectively, of allocated equity-based compensation expense for grants made pursuant to the Incentive Plan and Anadarko Incentive Plans. A portion of these expenses are allocated to the Partnership by Anadarko as a component of compensation expense for the executive officers of the Partnership’s general partner and other employees pursuant to the omnibus agreement and employees who provide services to the Partnership pursuant to the services and secondment agreement. These amounts exclude compensation expense associated with the LTIP.

Summary of affiliate transactions. Revenues from affiliates include amounts earned by the Partnership from the gathering, treating, processing and transportation of natural gas and NGLs for Anadarko, as well as from the sale of natural gas and NGLs to Anadarko. Operating expenses include all amounts accrued or paid to affiliates for the operation of the Partnership’s systems, whether in providing services to affiliates or to third parties, including field labor, measurement and analysis, and other disbursements. Affiliate expenses do not bear a direct relationship to affiliate revenues and third-party expenses do not bear a direct relationship to third-party revenues. For example, the Partnership’s affiliate expenses are not necessarily those expenses attributable to generating affiliate revenues. The following table summarizes affiliate transactions.

		Three Months Ended
		March 31,
		2010				2009
		(in thousands)
Revenues — affiliates		$	83,830			$	79,964
Operating expenses — affiliates			23,081				24,105
Interest income — affiliates			4,225				4,462
Interest expense, net — affiliates			1,785				1,785
Distributions to unitholders — affiliates			12,239				10,786
Contributions from noncontrolling interest owners — affiliate and Parent			1,985				18,905
Distributions to noncontrolling interest owners — affiliate and Parent			1,375				—

5. CONCENTRATION OF CREDIT RISK

Anadarko was the only customer from whom revenues exceeded 10% of the Partnership’s consolidated revenues for the three months ended March 31, 2010 and 2009. The percentage of revenues from Anadarko and the Partnership’s other customers are as follows:

		Three Months Ended
		March 31,
Customer		2010				2009
Anadarko			87	%			88	%
Other			13	%			12	%
Total			100	%			100	%

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

6. PROPERTY, PLANT AND EQUIPMENT

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

		Estimated
		useful life				March 31, 2010				December 31, 2009
						(dollars in thousands)
Land			n/a			$	354			$	354
Gathering systems			5 to 39 years				1,154,328				1,149,550
Pipeline and equipment			30 to 34.5 years				86,650				86,617
Assets under construction			n/a				7,250				7,552
Other			3 to 25 years				2,082				2,082
Total property, plant and equipment							1,250,664				1,246,155
Accumulated depreciation							265,939				252,778
Total net property, plant and equipment						$	984,725			$	993,377

The cost of property classified as “Assets under construction” is excluded from capitalized costs being depreciated. This amount represents property that is not yet suitable to be placed into productive service as of the balance sheet date.

7. DEBT

The Partnership’s outstanding debt as of March 31, 2010 consisted of the $210.0 million borrowed in January 2010 under the revolving credit facility in connection with the Granger acquisition and the $175.0 million note payable to Anadarko in 2013 issued in connection with the Powder River acquisition. The Partnership’s outstanding debt as of December 31, 2009 consisted solely of the $175.0 million note payable to Anadarko.

Anadarko’s credit facility. In March 2008, Anadarko entered into a five-year $1.3 billion credit facility under which the Partnership may utilize up to $100.0 million to the extent that such amounts remain available to Anadarko under the credit facility. As of March 31, 2010, the full $100.0 million was available for borrowing by the Partnership. Interest on borrowings under the credit facility is calculated based on, at the election by the borrower, either (i) a floating rate equal to the federal funds effective rate plus 0.50% or (ii) a periodic fixed rate equal to LIBOR plus an applicable margin. The applicable margin, which was 0.44% at March 31, 2010, and the commitment fees on the facility are based on Anadarko’s senior unsecured long-term debt rating. Pursuant to the omnibus agreement, as a co-borrower under Anadarko’s credit facility, the Partnership is required to reimburse Anadarko for its allocable portion of commitment fees (as of March 31, 2010, 0.11% of the Partnership’s committed and available borrowing capacity, including the Partnership’s outstanding balances, if any) that Anadarko incurs under its credit facility, or up to $0.1 million annually. Under Anadarko’s credit agreements, the Partnership and Anadarko are required to comply with certain covenants, including a financial covenant that requires Anadarko to maintain a debt-to-capitalization ratio of 65% or less. As of March 31, 2010, Anadarko and the Partnership were in compliance with all covenants. Should the Partnership or Anadarko fail to comply with any covenant in Anadarko’s credit agreements, the Partnership may not be permitted to borrow under the credit facility. Anadarko is a guarantor of the Partnership’s borrowings, if any, under the credit facility. The Partnership is not a guarantor of Anadarko’s borrowings under the credit facility. The $1.3 billion credit facility expires in March 2013.

Working capital facility. In May 2008, the Partnership entered into a two-year $30.0 million working capital facility with Anadarko as the lender. At March 31, 2010, no borrowings were outstanding under the working capital facility. The facility is available exclusively to fund working capital needs. Borrowings under the facility will bear interest at the same rate that would apply to borrowings under the Anadarko credit facility described above. Pursuant to the omnibus agreement, the Partnership pays a commitment fee of 0.11% annually to Anadarko on the unused portion of the working capital facility, or up to $33,000 annually. The Partnership is required to reduce all borrowings under the working capital facility to zero for a period of at least 15 consecutive days at least once during each of the twelve-month periods prior to the maturity date of the facility.

Revolving credit facility. In October 2009, the Partnership entered into a three-year senior unsecured revolving credit facility with a group of banks (the “revolving credit facility”). The aggregate initial commitments of the lenders under the revolving credit facility are $350.0 million and are expandable to a maximum of $450.0 million. The revolving credit facility matures

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

in October 2012 and bears interest at LIBOR, plus applicable margins ranging from 2.375% to 3.250%. The interest rate was 2.62% at March 31, 2010. The Partnership is required to pay a quarterly facility fee ranging from 0.375% to 0.750% of the commitment amount (whether used or unused), based upon the Partnership’s consolidated leverage ratio, as defined in the revolving credit facility. The facility fee rate was 0.375% at March 31, 2010. In January 2010, the Partnership borrowed $210.0 million under the revolving credit facility in connection with the Granger acquisition. As of March 31, 2010, $140.0 million was available for borrowing by the Partnership.

The revolving credit facility contains various customary covenants, customary events of default and certain financial tests, including a maximum consolidated leverage ratio, as defined in the revolving credit facility, of 4.5 to 1.0 as of the end of each quarter and a minimum consolidated interest coverage ratio, as defined in the revolving credit facility, of 3.0 to 1.0 as of the end of each quarter. If the Partnership obtains two of the following three ratings: BBB- or better by Standard and Poor’s, Baa3 or better by Moody’s Investors Service or BBB- or better by Fitch Ratings Ltd., the Partnership will no longer be required to comply with the minimum consolidated interest coverage ratio as well as certain of the aforementioned covenants. As of March 31, 2010, the Partnership was in compliance with all covenants under the revolving credit facility.

Term loan agreement. In December 2008, the Partnership entered into a five-year $175.0 million term loan agreement with Anadarko in order to finance the cash portion of the consideration paid for the Powder River acquisition. The interest rate is fixed at 4.00% for the first two years and is a floating rate equal to three-month LIBOR plus 150 basis points for the final three years. The Partnership has the option to repay the outstanding principal amount in whole or in part commencing in December 2010.

The provisions of the five-year term loan agreement are non-recourse to the Partnership’s general partner and limited partners and contain customary events of default, including (i) nonpayment of principal when due or nonpayment of interest or other amounts within three business days of when due; (ii) certain events of bankruptcy or insolvency with respect to the Partnership; or (iii) a change of control. At March 31, 2010, the Partnership was in compliance with all covenants under the five-year term loan agreement.

The fair value of the Partnership’s debt under the revolving credit facility and the five-year term loan agreement approximate the carrying value of those instruments at March 31, 2010 and December 31, 2009. The fair value of debt reflects any premium or discount for the difference between the stated interest rate and quarter-end market rate.

Interest income and expense. The following table summarizes the amounts included in interest income, net.

		Three Months Ended
		March 31,
		2010				2009
		(in thousands)
Interest expense on note payable to Anadarko		$	1,750			$	1,750
Interest expense on borrowings under revolving credit facility – third parties			977				—
Revolving credit facility fees and amortization – third parties			766				—
Credit facility commitment fees – affiliates			35				35
Interest expense		$	3,528			$	1,785
Interest income on note receivable from Anadarko		$	4,225			$	4,225
Interest income, net on affiliates balances			—				237
Interest income, net – affiliates		$	4,225			$	4,462
Interest income, net		$	697			$	2,677

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

8. COMMITMENTS AND CONTINGENCIES

Environmental. The Partnership is subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. Management believes there are no such matters that could have a material adverse effect on the Partnership’s results of operations, cash flows or financial position.

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 a final disposition could have a material adverse effect on the Partnership’s results of operations, cash flows or financial position.

Lease commitments. Anadarko, on behalf of the Partnership, has entered into lease agreements for corporate offices as well as compression equipment, a shared office and warehouse supporting the Granger assets. The lease for the corporate offices expires in January 2012, the leases for compression equipment include terms on a monthly basis and on a long-term basis expiring through January 2015 and the lease for the shared office expires in October 2011. The lease for the shared warehouse includes an early termination clause.

The amounts in the table below represent existing contractual lease obligations for the corporate offices, compression equipment and shared office leases as of March 31, 2010 that may be assigned or otherwise charged to the Partnership.

		Minimum rental payments
		(in thousands)
2010		$	727
2011			969
2012			799
2013			794
2014			311
Total		$	3,600

Rent expense associated with the above leases was approximately $314,000 and $209,000 for the three months ended March 31, 2010 and 2009, respectively.

9. SUBSEQUENT EVENT

On April 20, 2010, the board of directors of the Partnership’s general partner declared a cash distribution to the Partnership’s unitholders of $0.34 per unit, or $22.0 million in aggregate. The cash distribution is expected to be paid on May 12, 2010 to unitholders of record at the close of business on April 30, 2010.

10. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

As of May 6, 2010, the Partnership may issue up to $1.1 billion of limited partner common units and various debt securities under its effective shelf registration statement on file with the SEC. Debt securities issued under the shelf may be guaranteed by one or more existing or future subsidiaries of the Partnership (the “Guarantor Subsidiaries”), each of which is a wholly owned subsidiary of the Partnership. The guarantees, if issued, would be full, unconditional, joint and several. The following condensed consolidating financial information reflects the Partnership’s stand-alone accounts, the combined accounts of the Guarantor Subsidiaries, the accounts of the Non-Guarantor Subsidiary, consolidating adjustments and eliminations, and the Partnership’s consolidated statements of income and cash flows for the three months ended March 31, 2010 and 2009 and statements of financial position as of March 31, 2010 and December 31, 2009. The condensed consolidating financial information should be read in conjunction with the Partnership’s accompanying unaudited consolidated financial statements and related notes.

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

Western Gas Partners, LP’s and the Guarantor Subsidiaries’ investment in and equity income from their consolidated subsidiaries is presented in accordance with the equity method of accounting in which the equity income from consolidated subsidiaries includes the results of operations of the Partnership Assets for periods including and subsequent to the Partnership’s acquisition of the Partnership Assets.

Statement of Income		Three Months Ended March 31, 2010
		Western Gas
		Partners,				Guarantor				Non-Guarantor
		LP				Subsidiaries				Subsidiary				Eliminations				Consolidated
		(in thousands)
Revenues		$	(1,466	)		$	85,698			$	10,087			$	—			$	94,319
Operating expenses			4,502				58,546				6,223				—				69,271
Operating income (loss)			(5,968	)			27,152				3,864				—				25,048
Interest income, net			690				7				—				—				697
Other income, net			18				—				2				—				20
Equity income from consolidated subsidiaries			29,392				1,972				—				(31,364	)			—
Income before income taxes			24,132				29,131				3,866				(31,364	)			25,765
Income tax expense			—				957				—				—				957
Net income			24,132				28,174				3,866				(31,364	)			24,808
Net income attributable to noncontrolling interests			—				1,894				—				—				1,894
Net income attributable to Western Gas Partners, LP		$	24,132			$	26,280			$	3,866			$	(31,364	)		$	22,914

Statement of Income		Three Months Ended March 31, 2009
		Western Gas
		Partners,				Guarantor				Non-Guarantor
		LP				Subsidiaries				Subsidiary				Eliminations				Consolidated
		(in thousands)
Revenues		$	1,775			$	78,812			$	8,573			$	—			$	89,160
Operating expenses			4,401				60,242				4,210				—				68,853
Operating income (loss)			(2,626	)			18,570				4,363				—				20,307
Interest income, net			2,438				239				—				—				2,677
Other income, net			5				—				2				—				7
Equity income from consolidated subsidiaries			17,141				—				—				(17,141	)			—
Income before income taxes			16,958				18,809				4,365				(17,141	)			22,991
Income tax benefit			—				266				—				—				266
Net income			16,958				18,543				4,365				(17,141	)			22,725
Net income attributable to noncontrolling interests			—				2,139				—				—				2,139
Net income attributable to Western Gas Partners, LP		$	16,958			$	16,404			$	4,365			$	(17,141	)		$	20,586

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

Balance Sheet		As of March 31, 2010
		Western Gas
		Partners,				Guarantor				Non-Guarantor
		LP				Subsidiaries				Subsidiary				Eliminations				Consolidated
		(in thousands)
Current assets		$	46,964			$	103,811			$	11,102			$	(92,064	)		$	69,813
Note receivable – Anadarko			260,000				—				—				—				260,000
Investment in consolidated subsidiaries			827,777				98,306				—				(926,083	)			—
Net property, plant and equipment			205				800,374				184,146				—				984,725
Other long-term assets			2,586				51,537				—				—				54,123
Total assets		$	1,137,532			$	1,054,028			$	195,248			$	(1,018,147	)		$	1,368,661
Current liabilities		$	92,993			$	22,965			$	2,985			$	(92,064	)		$	26,879
Long-term debt			385,000				—				—				—				385,000
Other long-term liabilities			234				13,280				2,258				—				15,772
Total liabilities			478,227				36,245				5,243				(92,064	)			427,651
Partners’ capital			659,305				926,083				190,005				(926,083	)			849,310
Noncontrolling interests			—				91,700				—				—				91,700
Total liabilities, equity and partners’ capital		$	1,137,532			$	1,054,028			$	195,248			$	(1,018,147	)		$	1,368,661

Balance Sheet		As of December 31, 2009
		Western Gas				Guarantor				Non-Guarantor
		Partners, LP				Subsidiaries				Subsidiary				Eliminations				Consolidated
		(in thousands)
Current assets		$	64,001			$	58,772			$	9,425			$	(51,934	)		$	80,264
Note receivable – Anadarko			260,000				—				—				—				260,000
Investment in consolidated subsidiaries			497,997				98,959				—				(596,956	)			—
Net property, plant and equipment			219				808,952				184,206				—				993,377
Other long-term assets			2,974				51,308				—				—				54,282
Total assets		$	825,191			$	1,017,991			$	193,631			$	(648,890	)		$	1,387,923
Current liabilities		$	52,545			$	24,116			$	1,529			$	(51,934	)		$	26,256
Long-term debt			175,000				—				—				—				175,000
Other long-term liabilities			—				105,747				2,221				—				107,968
Total liabilities			227,545				129,863				3,750				(51,934	)			309,224
Partners’ capital and parent net investment			597,646				797,206				189,881				(596,956	)			987,777
Noncontrolling interests			—				90,922				—				—				90,922
Total liabilities, equity and partners’ capital		$	825,191			$	1,017,991			$	193,631			$	(648,890	)		$	1,387,923

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

Statement of Cash Flows

		Three Months Ended March 31, 2010
		Western Gas								Non-
		Partners,				Guarantor				Guarantor
		LP				Subsidiaries				Subsidiary				Eliminations				Consolidated
										(in thousands)
Cash flows from operating activities
Net income		$	24,132			$	28,174			$	3,866			$	(31,364	)		$	24,808
Adjustments to reconcile net income to net cash provided by operating activities:
Equity income from consolidated subsidiaries			(29,392	)			(1,972	)			—				31,364				—
Depreciation and amortization			14				12,240				1,429				—				13,683
Deferred income taxes			—				(621	)			—				—				(621	)
Change in other items, net			41,414				(37,893	)			1,520				—				5,041
Net cash provided by (used in) operating activities			36,168				(72	)			6,815				—				42,911
Cash flows from investing activities
Granger acquisition			(241,680	)			—				—				—				(241,680	)
Capital expenditures			—				(4,247	)			(1,050	)			—				(5,297	)
Net cash used in investing activities			(241,680	)			(4,247	)			(1,050	)			—				(246,977	)
Cash flows from financing activities
Borrowings under revolving credit facility, net of issuance costs			209,987				—				—				—				209,987
Contributions from noncontrolling interest owners and Parent			—				—				1,985				—				1,985
Distributions to unitholders			(21,393	)			—				—				—				(21,393	)
Distributions to noncontrolling interest owners and Parent			—				—				(5,727	)			2,921				(2,806	)
Net (distributions to) contributions from Parent			134				4,319				—				(2,921	)			1,532
Net cash provided by (used in) financing activities			188,728				4,319				(3,742	)			—				189,305
Net increase (decrease) in cash and cash equivalents			(16,784	)			—				2,023				—				(14,761	)
Cash and cash equivalents at beginning of period			61,632				—				8,352				—				69,984
Cash and cash equivalents at end of period		$	44,848			$	—			$	10,375			$	—			$	55,223

Notes to unaudited consolidated financial statements of Western Gas Partners, LP

Statement of Cash Flows

		Three Months Ended March 31, 2009
		Western Gas								Non-
		Partners,				Guarantor				Guarantor
		LP				Subsidiaries				Subsidiary				Eliminations				Consolidated
										(in thousands)
Cash flows from operating activities
Net income		$	16,958			$	18,543			$	4,365			$	(17,141	)		$	22,725
Adjustments to reconcile net income to net cash provided by operating activities:
Equity income from consolidated subsidiaries			(17,141	)			—				—				17,141				—
Depreciation and amortization			14				11,379				623				—				12,016
Deferred income taxes			—				(689	)			—				—				(689	)
Change in other items, net			(76,683	)			60,468				(10,753	)			12,493				(14,475	)
Net cash provided by (used in) operating activities			(76,852	)			89,701				(5,765	)			12,493				19,577
Cash flows from investing activities
Capital expenditures			—				(11,594	)			(12,516	)			—				(24,110	)
Net cash used in investing activities			—				(11,594	)			(12,516	)			—				(24,110	)
Cash flows from financing activities
Contributions from noncontrolling interest owners and Parent			—				22,327				—				—				22,327
Distributions to unitholders			(17,029	)			—				—				—				(17,029	)
Net (distribution to) contribution from Parent			87,871				(100,434	)			22,327				(12,493	)			(2,729	)
Net cash provided by (used in) financing activities			70,842				(78,107	)			22,327				(12,493	)			2,569
Net increase (decrease) in cash and cash equivalents			(6,010	)			—				4,046				—				(1,964	)
Cash and cash equivalents at beginning of period			33,306				—				2,768				—				36,074
Cash and cash equivalents at end of period		$	27,296			$	—			$	6,814			$	—			$	34,110

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 unaudited consolidated financial statements, which are included under Part I, Item 1 of this quarterly report on Form 10-Q, as well as our historical consolidated financial statements, and the notes thereto, included in Item 8 of our annual report on Form 10-K as filed with the Securities and Exchange Commission, or “SEC,” on March 11, 2010, as revised by our current report on Form 8-K, as filed with the SEC on May 4, 2010 (the “annual report on Form 10-K”) to, as discussed below, recast our financial statements to reflect the activities of the Granger assets from the date those assets were acquired by Anadarko Petroleum Corporation. Unless the context clearly indicates otherwise, references in this report to the “Partnership,” “we,” “our,” “us” or like terms refer to Western Gas Partners, LP and its subsidiaries. “Anadarko” refers to Anadarko Petroleum Corporation (NYSE: APC) and its consolidated subsidiaries, excluding the Partnership and “Parent” refers to Anadarko prior to our acquisition of assets from Anadarko. “Affiliates” refers to wholly owned and partially owned subsidiaries of Anadarko, excluding the Partnership. We refer to Anadarko Gathering Company LLC, or “AGC,” Pinnacle Gas Treating LLC, or “PGT,” and MIGC LLC, or “MIGC,” all of which we acquired in connection with our May 2008 initial public offering, collectively as our “initial assets.” We refer to our 100% ownership interest in the Hilight system, 50% interest in the Newcastle system and 14.81% limited liability company membership interest in Fort Union Gas Gathering, L.L.C., or “Fort Union,” all of which we acquired from Anadarko in December 2008, collectively as the “Powder River assets” and to the acquisition as the “Powder River acquisition.” We refer to the 51% membership interest in Chipeta Processing LLC, or “Chipeta,” and associated natural gas liquids, or “NGL,” pipeline, which we acquired from Anadarko in July 2009, collectively as the “Chipeta assets” and to the acquisition as the “Chipeta acquisition.” We refer to the Granger gathering system and Granger complex, which we acquired from Anadarko in January 2010, collectively as the “Granger assets” and to the acquisition as the “Granger acquisition.” The Chipeta acquisition and Granger acquisition are described under the Acquisitions caption below.

We have made in this report, and may from time to time otherwise make in other public filings, press releases and discussions by Partnership management, forward-looking statements concerning our operations, economic performance and financial condition. These statements can be identified by the use of forward-looking terminology including “may,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” or other similar words. These statements discuss future expectations, contain projections of results of operations or financial condition or include other “forward-looking” information. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct.

These forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the following risks and uncertainties:

	•		our assumptions about the energy market;
	•		future gathering, treating and processing volumes and pipeline throughput, including Anadarko’s production, which is gathered or processed by or transported through our assets;
	•		operating results;
	•		competitive conditions;
	•		technology;
	•		the availability of capital resources to fund capital expenditures and other contractual obligations, and our ability to access those resources through the debt or equity capital markets;
	•		the supply of and demand for, and the price of oil, natural gas, NGLs and other products or services;
	•		the weather;
	•		inflation;
	•		the availability of goods and services;
	•		general economic conditions, either internationally or nationally or in the jurisdictions in which we are doing business;

	•		legislative or regulatory changes, including changes in environmental regulation, environmental risks, regulations by FERC and liability under federal and state environmental laws and regulations;
	•		changes in the financial health of our sponsor, Anadarko;
	•		changes in Anadarko’s capital program, strategy or desired areas of focus;
	•		our commitments to capital projects;
	•		the ability to utilize our existing credit arrangements, including up to $100.0 million under Anadarko’s $1.3 billion credit facility, the $140.0 million available as of March 31, 2010 under our $350.0 million revolving credit facility and our $30.0 million working capital facility;
	•		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;
	•		non-payment or non-performance of Anadarko or other significant customers, including under our gathering, processing and transportation agreements and our $260.0 million note receivable from Anadarko; and
	•		other factors discussed below and elsewhere in Item 1A—Risk Factors and in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates included in our annual report on Form 10-K, this quarterly report on Form 10-Q and in our other public filings and press releases.