Western Midstream Partners, LP - FORM 8-K/A - EX-99.3 - EXHIBIT 99.3 - December 17, 2014

Attached files

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8-K/A - 8-K/A - Western Midstream Partners, LPwgpnuevoform8-ka.htm
EX-99.1 - EXHIBIT 99.1 - Western Midstream Partners, LPexh991-wgpnuevo.htm
EX-99.2 - EXHIBIT 99.2 - Western Midstream Partners, LPexh992-wgpnuevo.htm
EX-23.1 - EXHIBIT 23.1 - Western Midstream Partners, LPexh231-wgpnuevo.htm
EXHIBIT 99.3

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

 
Page
 
 
Introduction
 
 
Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended December 31, 2013
 
 
Unaudited Pro Forma Condensed Consolidated Statement of Income for the nine months ended September 30, 2014
 
 
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2014
 
 
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements



INTRODUCTION

These unaudited pro forma condensed consolidated financial statements present the impact to the results of operations and financial position of Western Gas Equity Partners, LP attributable to the acquisition on November 25, 2014, of Nuevo Midstream, LLC (“Nuevo”) by Western Gas Partners, LP (“WES”). The assets acquired are referred to as the “Nuevo assets” and the acquisition as the “Nuevo acquisition.”
“WGP” refers to Western Gas Equity Partners, LP in its individual capacity or to Western Gas Equity Partners, LP and its subsidiaries, including Western Gas Holdings, LLC and WES, as the context requires. “WES GP” refers to Western Gas Holdings, LLC, individually as the general partner of WES, and excludes WES. WGP’s general partner, Western Gas Equity Holdings, LLC (“WGP GP”), is a wholly owned subsidiary of Anadarko Petroleum Corporation. “Anadarko” refers to Anadarko Petroleum Corporation and its subsidiaries, excluding WGP and WGP GP, and “affiliates” refers to subsidiaries of Anadarko, excluding WGP and its subsidiaries, and includes equity interests in Fort Union Gas Gathering, LLC, White Cliffs Pipeline, LLC, Rendezvous Gas Services, LLC, Enterprise EF78, LLC, Texas Express Pipeline LLC, Texas Express Gathering LLC and Front Range Pipeline LLC.
WGP has no independent operations or material assets other than its partnership interests in WES; the consolidated financial results of WES are included in WGP’s consolidated financial statements due to WGP’s 100% ownership interest in and control of WES GP.
The unaudited pro forma condensed consolidated statement of income for the year ended December 31, 2013, is based upon the historical consolidated financial statements of WGP, as presented in Exhibit 99.3 to WGP’s Current Report on Form 8-K for the year ended December 31, 2013, as filed with the U.S. Securities and Exchange Commission (“SEC”) on August 27, 2014, and the historical financial statements of Nuevo, as presented in Exhibit 99.1 of this Current Report on Form 8-K/A. The unaudited pro forma condensed consolidated statement of income for the year ended December 31, 2013, has been prepared as if the Nuevo acquisition occurred on January 1, 2013.
The unaudited pro forma condensed consolidated statement of income for the nine months ended September 30, 2014, and the unaudited pro forma condensed consolidated balance sheet as of September 30, 2014, are based upon the historical consolidated financial statements of WGP, as presented in WGP’s Form 10-Q for the quarterly period ended September 30, 2014, and the historical financial statements of Nuevo, as presented in Exhibit 99.2 of this Current Report on Form 8-K/A. The unaudited pro forma condensed consolidated statement of income for the nine months ended September 30, 2014, has been prepared as if the Nuevo acquisition occurred on January 1, 2013. The unaudited pro forma condensed consolidated balance sheet has been prepared as if the Nuevo acquisition occurred on September 30, 2014.
The unaudited pro forma condensed consolidated financial statements have been prepared based on the assumption that WGP will continue to be treated as a partnership for U.S. federal and state income tax purposes and therefore will not be subject to U.S. federal income taxes and state income taxes, except for the Texas margin tax. The unaudited pro forma condensed consolidated financial statements have also been prepared based on certain pro forma adjustments as described in Note 2—Pro Forma Adjustments.
The audited historical financial information of Nuevo and WGP included in these unaudited pro forma condensed consolidated financial statements (and the notes thereto) is qualified in its entirety by reference to the audited historical financial statements of Nuevo as set forth in Exhibit 99.1 of this Current Report on Form 8-K/A and WGP’s audited historical consolidated financial statements as set forth in Exhibit 99.3 to its Current Report on Form 8-K as filed with the SEC on August 27, 2014, respectively, in each case including the related notes thereto. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with those historical financial statements and the related notes thereto.
The unaudited historical financial information of Nuevo and WGP included in these unaudited pro forma condensed consolidated financial statements (and the notes thereto) is qualified in its entirety by reference to the unaudited historical financial statements of Nuevo as set forth in Exhibit 99.2 of this Current Report on Form 8-K/A and WGP’s unaudited historical consolidated financial statements as set forth in its Form 10-Q as filed with the SEC on October 29, 2014, respectively, in each case including the related notes thereto. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with those historical financial statements and the related notes thereto.


2

INTRODUCTION (CONTINUED)

The pro forma adjustments reflected in the unaudited pro forma condensed consolidated financial statements are based upon currently available information and certain assumptions and estimates. The actual effects of these transactions will differ from the pro forma adjustments. The estimated fair values of assets acquired and liabilities assumed are based on preliminary management estimates and are subject to final valuation adjustments which may cause the amounts ultimately recorded to be different from those shown. However, WGP’s management believes that the applied estimates and assumptions provide a reasonable basis for the presentation of the significant effects of certain transactions that are expected to have a continuing impact on WGP. In addition, WES’s management believes that the pro forma adjustments are factually supportable and appropriately represent the expected impact of items that are directly attributable to the acquisition of Nuevo by WES.
The pro forma adjustments included in the unaudited pro forma condensed consolidated financial statements reflect the acquisition of Nuevo on November 25, 2014, including the following significant transactions:

•
WES’s use of $275.0 million of cash on hand, including the net proceeds from WES’s November 2014 equity offering, to fund a portion of the cash consideration paid for the acquisition of Nuevo;

•
WES’s borrowing of $475.0 million under the WES revolving credit facility to fund a portion of the cash consideration paid for the acquisition of Nuevo; and

•
WES’s issuance of 10,913,853 Class C units to APC Midstream Holdings LLC (“AMH”), an indirect wholly owned subsidiary of Anadarko, at a price of $68.72 per unit, pursuant to a Unit Purchase Agreement (“UPA”) with Anadarko and AMH, for a total of $750.0 million.

From and after the closing of the Nuevo acquisition and related transactions, WES will be subject to the terms and conditions of various agreements, including the following:

•
the UPA with Anadarko and AMH, pursuant to which WES issued 10,913,853 Class C units to AMH;

•
the Agreement and Plan of Merger by and among WES, Maguire Midstream, LLC, an indirect wholly owned subsidiary of WES, Nuevo and the other parties thereto; and

•
Amendment No. 12 to the First Amended and Restated Agreement of Limited Partnership of Western Gas Partners, LP establishing the terms of the WES Class C units.

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



3

WESTERN GAS EQUITY PARTNERS, LP
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2013
(UNAUDITED)
thousands except per-unit amounts
 
WGP Historical
 
Nuevo Midstream Historical
 
Pro Forma Adjustments
 
WGP Pro Forma
Revenues – affiliates
 
 
 
 
 
 
 
 
Gathering, processing and transportation of natural gas and natural gas liquids
 
$
306,810

 
$
—

 
$
—

 
$
306,810

Natural gas, natural gas liquids and condensate sales
 
496,848

 
—

 
—

 
496,848

Other, net
 
1,868

 
—

 
—

 
1,868

Total revenues – affiliates
 
805,526

 
—

 
—

 
805,526

Revenues – third parties
 
 
 
 
 
 
 

Gathering, processing and transportation of natural gas and natural gas liquids
 
175,732

 
14,439

 
—

 
190,171

Natural gas, natural gas liquids and condensate sales
 
44,396

 
62,720

 
—

 
107,116

Other, net
 
4,109

 
108

 
—

 
4,217

Total revenues – third parties
 
224,237

 
77,267

 
—

 
301,504

Total revenues
 
1,029,763

 
77,267

 
—

 
1,107,030

Equity income, net (1)
 
22,948

 
—

 
—

 
22,948

Operating expenses
 
 
 
 
 
 
 

Cost of product (2)
 
364,285

 
54,843

 
—

 
419,128

Operation and maintenance (2)
 
168,657

 
12,022

 
—

 
180,679

General and administrative (2)
 
33,464

 
3,045

 
—

 
36,509

Property and other taxes
 
23,244

 
171

 
—

 
23,415

Depreciation, amortization and impairments
 
145,916

 
10,106

 
29,314

(f)
185,336

Total operating expenses
 
735,566

 
80,187

 
29,314

 
845,067

Operating income (loss)
 
317,145

 
(2,920
)
 
(29,314
)
 
284,911

Interest income, net – affiliates
 
16,900

 
—

 
—

 
16,900

Interest expense
 
(51,797
)
 
(598
)
 
(6,935
)
(a)
(58,732
)
 
 
 
 
 
 
598

(g)
 
Other income (expense), net
 
1,935

 
—

 
—

 
1,935

Income (loss) before income taxes
 
284,183

 
(3,518
)
 
(35,651
)
 
245,014

Income tax expense
 
2,305

 
—

 
370

(b)
2,675

Net income (loss)
 
281,878

 
(3,518
)
 
(36,021
)
 
242,339

Net income (loss) attributable to noncontrolling interests
 
122,173

 
—

 
(16,339
)
(h)
105,834

Net income (loss) attributable to Western Gas Equity Partners, LP
 
$
159,705

 
$
(3,518
)
 
$
(19,682
)
 
$
136,505

Limited partners’ interest in net income (loss):
 
 
 
 
 
 
 
 
Net income (loss) attributable to Western Gas Equity Partners, LP
 
$
159,705

 
$
(3,518
)
 
$
(19,682
)
 
$
136,505

Results attributable to the pre-IPO period
 
(49
)
 
 
 
 
 
(49
)
Pre-acquisition net (income) loss allocated to Anadarko
 
(4,128
)
 
 
 
 
 
(4,128
)
Limited partners’ interest in net income (3)
 
$
155,528

 
 
 
 
 
$
132,328

Net income per common unit – basic and diluted
 
$
0.71

 
 
 
 
 
$
0.60

Weighted average common units outstanding – basic and diluted
 
218,896

 
 
 
 
 
218,896

                                                                                                                                                                                         
(1) 
Income earned from equity investments is classified as affiliate.
(2) 
As it relates to the “WGP Historical” column, cost of product includes product purchases from Anadarko (as defined in the Introduction) of $129.0 million, operation and maintenance includes charges from Anadarko of $56.4 million, general and administrative includes charges from Anadarko of $24.2 million.
(3) 
Represents net income earned on and subsequent to the date of acquisition of the WES assets (as defined in Note 3).

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

4

WESTERN GAS EQUITY PARTNERS, LP
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2014
(UNAUDITED)
thousands except per-unit amounts
 
WGP Historical
 
Nuevo Midstream Historical
 
Pro Forma Adjustments
 
WGP Pro Forma
Revenues – affiliates
 
 
 
 
 
 
 
 
Gathering, processing and transportation of natural gas and natural gas liquids
 
$
288,392

 
$
—

 
$
—

 
$
288,392

Natural gas, natural gas liquids and condensate sales
 
415,715

 
—

 
—

 
415,715

Other, net
 
4,349

 
—

 
—

 
4,349

Total revenues – affiliates
 
708,456

 
—

 
—

 
708,456

Revenues – third parties
 
 
 
 
 
 
 


Gathering, processing and transportation of natural gas and natural gas liquids
 
182,663

 
19,437

 
—

 
202,100

Natural gas, natural gas liquids and condensate sales
 
37,471

 
80,080

 
—

 
117,551

Other, net
 
7,276

 
117

 
—

 
7,393

Total revenues – third parties
 
227,410

 
99,634

 
—

 
327,044

Total revenues
 
935,866

 
99,634

 
—

 
1,035,500

Equity income, net (1)
 
41,322

 
—

 
—

 
41,322

Operating expenses
 
 
 
 
 
 
 


Cost of product (2)
 
318,428

 
68,794

 
—

 
387,222

Operation and maintenance (2)
 
145,064

 
11,315

 
—

 
156,379

General and administrative (2)
 
26,809

 
2,551

 
—

 
29,360

Property and other taxes
 
20,718

 
2,090

 
—

 
22,808

Depreciation, amortization and impairments
 
130,009

 
12,504

 
17,089

(f)
159,602

Total operating expenses
 
641,028

 
97,254

 
17,089

 
755,371

Operating income (loss)
 
336,160

 
2,380

 
(17,089
)
 
321,451

Interest income, net – affiliates
 
12,675

 
—

 
—

 
12,675

Interest expense
 
(55,703
)
 
(1,444
)
 
(5,201
)
(a)
(60,904
)
 
 
 
 
 
 
1,444

(g)
 
Other income (expense), net
 
849

 
—

 
—

 
849

Income (loss) before income taxes
 
293,981

 
936

 
(20,846
)
 
274,071

Income tax (benefit) expense
 
276

 
—

 
280

(b)
556

Net income (loss)
 
293,705

 
936

 
(21,126
)
 
273,515

Net income (loss) attributable to noncontrolling interest
 
128,958

 
—

 
(8,712
)
(h)
120,246

Net income (loss) attributable to Western Gas Equity Partners, LP
 
$
164,747

 
$
936

 
$
(12,414
)
 
$
153,269

Limited partners’ interest in net income (loss):
 
 
 
 
 
 
 
 
Net income (loss) attributable to Western Gas Equity Partners, LP
 
$
164,747

 
$
936

 
$
(12,414
)
 
$
153,269

Pre-acquisition net (income) loss allocated to Anadarko
 
956

 
 
 
 
 
956

Limited partners’ interest in net income (3)
 
165,703

 
 
 
 
 
154,225

Net income per common unit – basic and diluted
 
$
0.76

 
 
 
 
 
$
0.70

Weighted average common units outstanding – basic and diluted
 
218,903

 
 
 
 
 
218,903

 
                                                                                                                                                                                         
(1) 
Income earned from equity investments is classified as affiliate.
(2) 
As it relates to the “WGP Historical” column, cost of product includes product purchases from Anadarko (as defined in the Introduction) of $74.6 million, operation and maintenance includes charges from Anadarko of $42.5 million, and general and administrative includes charges from Anadarko of $20.4 million.
(3) 
Represents net income earned on and subsequent to the date of acquisition of the WES assets (as defined in Note 3).



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

5

WESTERN GAS EQUITY PARTNERS, LP
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2014
(UNAUDITED)
thousands
 
WGP Historical
 
Nuevo Midstream Historical
 
Pro Forma Adjustments
 
WGP Pro Forma
ASSETS
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
78,219

 
$
9,021

 
$
475,000

(c)
$
382,813

 
 
 
 
 
 
1,352,921

(d)
 
 
 
 
 
 
 
(1,553,959
)
(e)
 
 
 
 
 
 
 
21,611

(e)
 
Accounts receivable, net (1)
 
126,250

 
18,960

 
(8,468
)
(e)
136,742

Other current assets (2)
 
6,915

 
4,251

 
683

(e)
11,849

Total current assets
 
211,384

 
32,232

 
287,788

 
531,404

Note receivable – Anadarko
 
260,000

 
—

 
—

 
260,000

Property, plant and equipment
 
 
 
 
 
 
 

Cost
 
4,754,279

 
299,694

 
104,764

(e)
5,158,737

Less accumulated depreciation
 
986,692

 
25,634

 
(25,634
)
(e)
986,692

Net property, plant and equipment
 
3,767,587

 
274,060

 
130,398

 
4,172,045

Goodwill
 
105,336

 
—

 
460,557

(b), (e)
565,893

Other intangible assets
 
52,561

 
—

 
700,000

(e)
752,561

Equity investments
 
639,191

 
—

 
—

 
639,191

Other assets
 
28,910

 
944

 
(944
)
(e)
28,910

Total assets
 
$
5,064,969

 
$
307,236

 
$
1,577,799

 
$
6,950,004

LIABILITIES, EQUITY AND PARTNERS’ CAPITAL
 
 
 
 
 
 
 

Current liabilities
 
 
 
 
 
 
 

Accounts and natural gas imbalance payables (3)
 
$
27,011

 
$
3,610

 
$
9,454

(e)
$
40,075

Accrued ad valorem taxes
 
21,083

 
—

 
—

 
21,083

Income taxes payable
 
258

 
—

 
—

 
258

Accrued liabilities
 
153,061

 
17,463

 
7,361

(e)
177,885

Current maturities of long-term debt
 
—

 
3,938

 
(3,938
)
(e)
—

Total current liabilities
 
201,413

 
25,011

 
12,877

 
239,301

Long-term debt
 
2,082,914

 
71,533

 
475,000

(c)
2,558,179

 
 
 
 
 
 
(71,533
)
(e)
 
 
 
 
 
 
 
265

(e)
 
Deferred income taxes
 
780

 
—

 
1,321

(b)
2,101

Asset retirement obligations and other
 
85,903

 
—

 
17,640

(e)
103,543

Total long-term liabilities
 
2,169,597

 
71,533

 
422,693

 
2,663,823

Total liabilities
 
2,371,010

 
96,544

 
435,570

 
2,903,124

Equity and partners’ capital
 
 
 
 
 
 
 

Common units
 
938,225

 
—

 
—

 
938,225

Class A & B Members
 
—

 
210,692

 
(210,692
)
(e)
—

Total partners’ capital
 
938,225

 
210,692

 
(210,692
)
 
938,225

Noncontrolling interests
 
1,755,734

 
—

 
1,352,921

(d)
3,108,655

Total equity and partners’ capital
 
2,693,959

 
210,692

 
1,142,229

 
4,046,880

Total liabilities, equity and partners’ capital
 
$
5,064,969

 
$
307,236

 
$
1,577,799

 
$
6,950,004

                                                                                                                                                                                    
(1) 
As it relates to the “WGP Historical” column, accounts receivable, net includes amounts receivable from affiliates (as defined in the Introduction) of $87.2 million.
(2) 
As it relates to the “WGP Historical” column, other current assets includes natural gas imbalance receivables from affiliates of $0.1 million.
(3) 
As it relates to the “WGP Historical” column, accounts and natural gas imbalance payables includes amounts payable to affiliates of $0.1 million.

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

6

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


1.  BASIS OF PRESENTATION

The unaudited pro forma condensed consolidated statement of income for the year ended December 31, 2013, is based upon the audited historical consolidated financial statements of WGP and the audited historical financial statements of Nuevo as of December 31, 2013. The unaudited pro forma condensed consolidated statement of income for the nine months ended September 20, 2014, and balance sheet as of September 30, 2014, are based upon the unaudited historical consolidated financial statements of WGP and the unaudited historical financial statements of Nuevo as of and for the nine months ended September 30, 2014. As described in the Introduction, these unaudited pro forma condensed consolidated financial statements present the impact of the Nuevo acquisition on WGP’s results of operations and financial position.

2.  PRO FORMA ADJUSTMENTS

The following adjustments for WGP have been prepared as if the acquisition of Nuevo (i) occurred on January 1, 2013, in the case of the unaudited pro forma condensed consolidated statements of income for the year ended December 31, 2013, and for the nine months ended September 30, 2014, and (ii) on September 30, 2014, in the case of the unaudited pro forma condensed consolidated balance sheet as of September 30, 2014:

(a)
The inclusion of interest expense on WES’s $475.0 million of borrowings under WES’s revolving credit facility (the “WES RCF”) to partially finance the acquisition of Nuevo. The interest rate on the WES RCF at September 30, 2014, and used for purposes of calculating interest expense in these unaudited pro forma condensed consolidated statements of income, was 1.46%. A 1/8% variance in this rate would result in an adjustment to income (loss) before income taxes of $594,000 for the twelve months ended December 31, 2013, and $445,000 for the nine months ended September 30, 2014;

(b)
The adjustment of historical current and deferred income taxes as if WES, an entity which is generally not subject to federal and state income taxes, owned and operated Nuevo, and purchase accounting adjustments;

(c)
The receipt of $475.0 million of borrowings under WES’s revolving credit facility;

(d)
The acquisition of Nuevo by WES for $1.6 billion, consisting of (i) $201.0 million of cash on hand, (ii) the issuance of 8,620,153 WES public common units, (iii) the issuance of 153,061 WES general partner units to Anadarko and (iv) the issuance of 10,913,853 WES Class C units to AMH for $750.0 million;


7

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


2.  PRO FORMA ADJUSTMENTS (CONTINUED)

(e)
The acquisition of Nuevo was accounted for using the acquisition method of accounting, under which tangible and identifiable intangible assets acquired and liabilities assumed are recorded at their estimated fair values as of the acquisition date. The excess of the consideration transferred over the preliminary estimated fair value of net assets acquired is reflected as goodwill on the accompanying unaudited pro forma condensed combined balance sheet. The estimated fair values of assets acquired and liabilities assumed are based on preliminary management estimates and are subject to final valuation adjustments which may cause the amounts ultimately recorded to be different from those shown on the unaudited pro forma condensed combined balance sheet. The pro forma adjustments reflect the increase in depreciation and amortization expense due to the amortization of identifiable intangibles (customer contracts assumed in connection with the acquisition of Nuevo) with a definite life using the straight-line method over a weighted average life of 30 years, and the increase in depreciation resulting from step up of property, plant and equipment, depreciated on a straight-line basis over periods of 3 to 30 years. The pro forma adjustments also reflect the consolidation of Nuevo. The following table presents a preliminary allocation of the major classes of the assets acquired and liabilities assumed at November 25, 2014, including additional specific adjustments as further described above.
thousands
 
Nuevo Historical Net Book Value
 
Adjustment
 
Preliminary Fair Value
Current assets
 
$
32,232

 
13,826

 
$
46,058

Property, plant and equipment, net
 
274,060

 
130,398

 
404,458

Goodwill
 
—

 
460,557

 
460,557

Other intangible assets
 
—

 
700,000

 
700,000

Other assets
 
944

 
(944
)
 
—

Accounts payable and accrued liabilities
 
(21,073
)
 
(16,815
)
 
(37,888
)
Current maturities of long-term debt
 
(3,938
)
 
3,938

 
—

Asset retirement obligations
 
—

 
(17,640
)
 
(17,640
)
Long-term notes payable
 
(71,533
)
 
71,533

 
—

Capital lease obligations
 
—

 
(265
)
 
(265
)
Deferred income taxes
 
—

 
(1,321
)
 
(1,321
)
Members’ equity
 
(210,692
)
 
210,692

 
—

Total purchase price
 

 

 
$
1,553,959


(f)
The allocation of the purchase price to property, plant and equipment, with related changes in depreciation, amortization and accretion expense;

(g)
The impact of the reversal of the interest expense incurred by Nuevo since January 1, 2013; and

(h)
The allocation to WGP’s noncontrolling interests of the Nuevo net income and pro forma adjustments.



8

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


3.  PRO FORMA NET INCOME PER UNIT

References to the “WES assets” refer collectively to the assets owned by WES as of December 31, 2013, or September 30, 2014, as the case may be. Because WGP owns and controls WES GP, and WGP GP is owned and controlled by Anadarko, each of WES’s acquisitions of WES assets from Anadarko has been considered a transfer of net assets between entities under common control. Net income attributable to the WES assets acquired from Anadarko for periods prior to WES’s acquisition of the WES assets is not allocated to the limited partners for purposes of calculating net income per common unit. WGP’s net income earned on and subsequent to the date of the acquisition of the WES assets is allocated in accordance with ownership percentages.
For WGP, earnings per unit is calculated based on the assumption that WGP distributes to its unitholders an amount of cash equal to net income attributable to WGP, notwithstanding the general partner’s ultimate discretion over the amount of cash to be distributed for the period, the existence of other legal or contractual limitations that would prevent distributions of all of the net income for the period or any other economic or practical limitation on the ability to make a full distribution of all of the net income for the period. Net income equal to the amount of available cash (as defined by WGP’s partnership agreement) is allocated to WGP common unitholders consistent with actual cash distributions for the period.
For purposes of calculating pro forma net income per unit, management assumed that annual pro forma cash distributions were equal to annual pro forma earnings. Pro forma basic and diluted net income per unit is calculated by dividing the limited partners’ interest in net income by the pro forma weighted average number of units outstanding as of December 31, 2013, or September 30, 2014, as the case may be.



9

Western Midstream Partners, LP Reports