sv1za
As filed with the Securities and Exchange Commission on
April 15, 2008
Registration No. 333-146700
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 4
to
Form S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
WESTERN GAS PARTNERS,
LP
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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4922
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26-1075808
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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1201 Lake Robbins
Drive
The Woodlands, Texas
77380-1046
(832) 636-6000
(Address, Including Zip Code,
and Telephone Number, Including Area Code, of
Registrants Principal
Executive Offices)
Robert G. Gwin
1201 Lake Robbins
Drive
The Woodlands, Texas
77380-1046
(832) 636-6000
(Name, Address, Including Zip
Code, and Telephone Number, Including Area
Code, of Agent for
Service)
Copies to:
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David P. Oelman
Vinson & Elkins L.L.P.
1001 Fannin Street, Suite 2500
Houston, Texas 77002
(713) 758-2222
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G. Michael OLeary
Andrews Kurth LLP
600 Travis Street, Suite 4200
Houston, Texas 77002
(713) 220-4200
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Approximate
date of commencement of proposed sale to the
public: As
soon as practicable after this Registration Statement becomes
effective.
If
any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If
this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If
this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If
this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. 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. (Check one):
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Large accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer þ (Do not check if a smaller reporting company)
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Smaller reporting
company o
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The
Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The information in this preliminary prospectus is not complete
and may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell these securities and we are not soliciting offers
to buy these securities in any jurisdiction where the offer or
sale is not permitted.
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PRELIMINARY PROSPECTUS
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Subject to Completion
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April
15, 2008
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18,750,000
Common Units
Representing
Limited Partner Interests
This is the initial public offering of our common units. We
currently estimate that the initial public offering price will
be between $17.00 and $19.00 per common unit. Prior to this
offering, there has been no public market for the common units.
Our common units have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, under
the symbol WES.
Investing in our common units involves
risks. Please read Risk factors beginning
on page 17.
These risks include the following:
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Ø
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We are dependent on a single
natural gas producer, Anadarko Petroleum Corporation, for almost
all of the natural gas that we gather and transport. A material
reduction in Anadarkos production gathered or transported
by our assets would result in a material decline in our revenues
and cash available for distribution.
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Ø
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We may not have sufficient cash
from operations following the establishment of cash reserves and
payment of fees and expenses, including cost reimbursements to
our general partner, to enable us to pay the minimum quarterly
distribution to holders of our common and subordinated units.
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Ø
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Because of the natural decline in
production from existing wells, our success depends on our
ability to obtain new sources of natural gas, which is dependent
on certain factors beyond our control. Any decrease in the
volumes of natural gas that we gather and transport could
adversely affect our business and operating results.
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Ø
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Anadarko owns and controls our
general partner, which has sole responsibility for conducting
our business and managing our operations. Anadarko and our
general partner have conflicts of interest and may favor
Anadarkos interests to your detriment.
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Ø
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Cost reimbursements due to Anadarko
and our general partner for services provided to us or on our
behalf will be substantial and will reduce our cash available
for distribution to you. The amount and timing of such
reimbursements will be determined by our general partner.
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Ø
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You will have limited voting rights
and are not entitled to elect our general partner or its
directors.
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Ø
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Even if you are dissatisfied, you
cannot initially remove our general partner without its consent.
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Ø |
If you are not an Eligible Holder,
you may not receive distributions or allocations of income or
loss on your common units and your common units will be subject
to redemption.
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Ø |
Our general partner interest or the
control of our general partner may be transferred to a third
party without your consent.
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You will experience immediate and
substantial dilution in pro forma net tangible book value of
$6.55 per common unit.
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Ø |
You will be required to pay taxes
on your share of our income even if you do not receive any cash
distributions from us.
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Per common
unit
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Total
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Public offering price
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$
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$
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Underwriting discounts and
commissions(1)
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$
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$
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Proceeds, before expenses, to Western Gas Partners, LP
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$
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$
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(1) |
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Excludes a structuring fee
payable to UBS Securities LLC that is equal
to % of the gross proceeds of this
offering, or approximately
$ . |
We have granted the underwriters a
30-day
option to purchase up to an additional 2,812,500 common units
from us on the same terms and conditions as set forth above if
the underwriters sell more than 18,750,000 common units in this
offering.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the common units on or
about ,
2008.
Joint Book-Running Managers
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UBS
Investment Bank |
Citi |
Credit Suisse |
Morgan Stanley |
Banc
of America Securities LLC
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Scotia Capital
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Bear, Stearns & Co. Inc.
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Friedman Billings Ramsey
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Stifel Nicolaus
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You should rely only on the information contained in this
prospectus and any free writing prospectus prepared by us or on
our behalf. We have not, and the underwriters have not,
authorized anyone to provide you with different information. If
anyone provides you with different or inconsistent information,
you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any
jurisdiction where an offer or sale is not permitted. You should
assume that the information appearing in this prospectus is
accurate as of the date on the front cover of this prospectus.
Our business, financial condition, results of operations and
prospects may have changed since that date.
TABLE OF
CONTENTS
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146
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148
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149
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ii
Through and
including ,
2008 (the
25th
day after the date of this prospectus), federal securities law
may require all dealers that effect transactions in these
securities, whether or not participating in this offering, to
deliver a prospectus. This requirement is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
iii
Prospectus summary
This summary provides a brief overview of information
contained elsewhere in this prospectus. Because it is
abbreviated, this summary does not contain all of the
information that you should consider before investing in our
common units. You should read the entire prospectus carefully,
including the historical and pro forma combined financial
statements and the notes to those financial statements. The
information presented in this prospectus assumes (1) an
initial public offering price of $18.00 per common unit and
(2) unless otherwise indicated, that the underwriters
option to purchase additional common units is not exercised. You
should read Risk factors beginning on page 17
for more information about important risks that you should
consider carefully before investing in our common units. We
include a glossary of some of the terms used in this prospectus
as Appendix B.
Unless the context otherwise requires, references in this
prospectus to (i) Western Gas Partners, LP,
we, our, us or like terms,
when used in a historical context, refer to our Predecessor, as
defined in Summary historical and pro forma
financial data, and when used in the present tense or
prospectively, refer to Western Gas Partners, LP and its
subsidiaries; (ii) Anadarko refers to Anadarko
Petroleum Corporation and its subsidiaries and affiliates, other
than Western Gas Partners, LP and Western Gas Holdings, LLC, our
general partner, as of the closing date of this offering;
(iii) Anadarko Petroleum Corporation refers to
Anadarko Petroleum Corporation excluding its subsidiaries and
affiliates; and (iv) MIGC refers to MIGC
LLC.
OVERVIEW
We are a growth-oriented Delaware limited partnership recently
formed by Anadarko (NYSE: APC) to own, operate, acquire and
develop midstream energy assets. We currently operate in East
Texas, the Rocky Mountains, the Mid-Continent and West Texas and
are engaged in the business of gathering, compressing, treating
and transporting natural gas for our ultimate parent, Anadarko,
and third-party producers and customers. We principally provide
our midstream services under long-term contracts with fee-based
rates extending for primary terms of up to 20 years. We
generally do not take title to the natural gas that we gather
and, therefore, are able to avoid significant direct commodity
price exposure.
We believe that one of our principal strengths is our
relationship with Anadarko. During the year ended
December 31, 2007, approximately 91% of our total natural
gas gathering and transportation volumes were comprised of
natural gas production owned or controlled by Anadarko. Anadarko
Petroleum Corporation has dedicated to us all of the natural gas
production it owns or controls from (i) wells that are
currently connected to our gathering systems, and
(ii) additional wells that are drilled within one mile of
connected wells or our gathering systems, as the systems
currently exist and as they are expanded to connect additional
wells in the future. As a result, this dedication will continue
to expand as additional wells are connected to our gathering
systems. Volumes associated with this dedication averaged
approximately 725 MMBtu/d for the year ended
December 31, 2007.
We expect to utilize the significant experience of
Anadarkos management team to execute our growth strategy,
which includes acquiring and constructing additional midstream
assets. For the year ended December 31, 2007, as adjusted
for divestitures prior to this offering and including the assets
being contributed to us, Anadarkos total domestic
midstream asset portfolio consisted of 25 gathering systems and
one transportation system with an aggregate throughput of
approximately 2.6 Bcf/d, approximately 11,300 miles of
pipeline and 25 processing
and/or
treating facilities.
1
OUR ASSETS AND
AREAS OF OPERATION
Our assets consist of six gathering systems, five natural gas
treating facilities and one interstate pipeline. Our assets are
located in East Texas, the Rocky Mountains (Utah and Wyoming),
the Mid-Continent (Kansas and Oklahoma) and West Texas. The
following table provides information regarding our assets by
operating area as of or for the year ended December 31,
2007:
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Approximate
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Treating
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Average
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Asset
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Length
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# of receipt
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Gas
compression
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capacity
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throughput
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Area
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Type
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(miles)
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points
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(horsepower)
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(MMcf/d)
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(MMcf/d)
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East Texas
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Gathering and
Treating
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584
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798
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45,838
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510
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296
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(1)
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Rocky Mountains
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Gathering and
Treating
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114
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162
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20,385
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92
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53
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Transportation
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264
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19
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29,696
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146
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Mid-Continent
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Gathering
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1,753
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1,512
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130,720
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126
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West Texas
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Gathering
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97
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58
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175
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Total
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2,812
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2,549
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226,639
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602
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796
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(1) |
To avoid duplicating volumes, 211 MMcf/d that is
gathered on our Dew gathering system and delivered into our
Pinnacle gas treating system is included only once in the
calculation of average throughput.
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STRATEGY
Our primary business objective is to increase our cash
distribution per unit over time. We intend to accomplish this
objective by executing the following strategy:
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Pursuing accretive acquisitions. We expect to
pursue accretive acquisition opportunities within the midstream
energy industry from Anadarko and third parties.
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Capitalizing on organic growth
opportunities. We expect to grow organically by
meeting Anadarkos gathering needs, which we expect to
increase as a result of its anticipated drilling activity in our
areas of operation.
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Attracting additional third-party volumes to our
systems. We intend to actively market our
midstream services to and pursue strategic relationships with
third-party producers to attract additional volumes and/or
expansion opportunities.
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Minimizing commodity price exposure. Our
midstream services are provided under fee-based arrangements
which minimize our direct commodity price exposure. We expect to
utilize hedging to manage any significant future commodity price
risk that could result from contracts we may acquire or enter
into in the future.
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COMPETITIVE
STRENGTHS
We believe that we are well positioned to successfully execute
our strategy and achieve our primary business objective because
of the following competitive strengths:
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Affiliation with Anadarko. We believe
Anadarko, as the owner of our general partner interest, all of
our incentive distribution rights and a 63.4% limited partner
interest in us, is motivated to promote and support the
successful execution of our business plan and to pursue projects
that enhance the value of our business.
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Relatively stable and predictable cash
flow. Our cash flow is largely protected from
fluctuations caused by commodity price volatility due to the
fee-based, long-term nature of our midstream service agreements.
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Well-positioned, well-maintained and efficient assets. We
believe that our established positions in our areas of operation
provide us with opportunities to expand and attract additional
volumes to our systems. Moreover, our systems consist of
high-quality, well-maintained assets for which we have
implemented modern treating, measuring and operating
technologies.
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Financial flexibility to pursue expansion and acquisition
opportunities. We have up to $100 million of borrowing
capacity available to us under Anadarkos $1.3 billion
credit facility and, concurrently with the closing of this
offering, we expect to obtain a $30 million working capital
facility from Anadarko. In addition, we will have no
indebtedness outstanding at the closing of this offering. We
believe that our borrowing capacity and our ability to
effectively access debt and equity capital markets provide us
with the financial flexibility necessary to achieve our organic
expansion and acquisition strategy.
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Experienced management team. Members of our
general partners management team have extensive experience
in building, acquiring, integrating, financing and managing
midstream assets. In addition, our relationship with Anadarko
provides us with the services of experienced personnel who
successfully managed our assets and operations while they were
owned by Anadarko.
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We believe that we will effectively leverage our competitive
strengths to successfully implement our strategy; however, our
business involves numerous risks and uncertainties which may
prevent us from achieving our primary business objective. For a
more complete description of the risks associated with an
investment in us, please read Risk factors.
OUR RELATIONSHIP
WITH ANADARKO PETROLEUM CORPORATION
One of our principal attributes is our relationship with
Anadarko. It will own our general partner and a significant
interest in us following this offering. Anadarko is one of the
largest independent oil and gas exploration and production
companies in the world. Anadarkos upstream oil and gas
business finds and produces natural gas, crude oil, condensate
and natural gas liquids, or NGLs, and Anadarko annually pursues
one of the most active drilling programs in the industry. At
December 31, 2007, including the assets being contributed
to us but adjusted for divestitures prior to this offering,
Anadarkos total domestic midstream asset portfolio
consisted of 25 gathering systems and one transportation system
with an aggregate throughput of approximately 2.6 Bcf/d,
approximately 11,300 miles of pipeline and 25 processing
and/or treating facilities.
Following this offering, Anadarkos remaining midstream
business will consist of 19 gathering systems with an aggregate
throughput of approximately 2.0 Bcf/d, 8,500 miles of
pipeline and 20 processing and/or treating facilities. Anadarko
has invested significant capital into its domestic midstream
business, including the assets being contributed to us, with
investments of approximately $608 million in 2007 and
planned investments of more than $500 million in 2008. On
December 27, 2007, Anadarko announced a $2.2 billion
financing of its midstream assets which may require partial
repayment based on a debt to EBITDA leverage ratio that declines
incrementally over time. The debt repayments that may be
necessary to satisfy the terms of this financing may be made
with internally generated cash flow, cash on hand, or cash
received from midstream asset sales. Should Anadarko choose to
pursue midstream asset sales, it is under no contractual
obligation to offer assets or business opportunities to us. We
are neither a guarantor nor an obligor for such financing.
Upon completion of this offering, Anadarko will own a 2.0%
general partner interest in us, all of our incentive
distribution rights and a 63.4% limited partner interest in us.
We will enter into an omnibus agreement with Anadarko and our
general partner that will govern our relationship with them
regarding certain reimbursement and indemnification matters.
Please read Certain relationships and related party
transactionsAgreements governing the
transactionsOmnibus agreement. Although our
relationship with Anadarko provides us with a significant
advantage in the midstream natural gas market, it is also a
source of potential conflicts. For example, Anadarko is not
restricted from competing with us. Please read Conflicts
of interest and fiduciary duties. Given Anadarkos
significant ownership of limited and general partner interests
in us following this offering, we believe it will be in
Anadarkos best interest for it to sell additional assets
to us over time; however, Anadarko continually evaluates
acquisitions and divestitures and may elect to acquire,
construct or dispose of midstream assets in the future without
offering us the opportunity to acquire or construct those
assets. Anadarko is under no contractual obligation to offer
any such opportunities to us, nor are we obligated to
participate in any such
3
opportunities. We cannot state with any certainty which, if any,
opportunities to acquire assets from Anadarko may be made
available to us or if we will elect to pursue any such
opportunities.
RISK
FACTORS
An investment in our common units involves risks associated with
our business, regulatory and legal matters, our limited
partnership structure and the tax characteristics of our common
units. Please read Risk factors for a more thorough
description of these and other risks.
FORMATION
TRANSACTIONS AND PARTNERSHIP STRUCTURE
General
We are a growth-oriented Delaware limited partnership recently
formed by Anadarko to own, operate, acquire and develop
midstream energy assets. At the closing of this offering,
assuming that the underwriters do not exercise their option to
purchase additional common units, the following transactions,
which we refer to as the formation transactions, will occur:
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Ø |
Anadarko will contribute certain midstream assets to us;
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|
Ø |
we will issue to Western Gas Holdings, LLC, our general partner
and a subsidiary of Anadarko, 1,083,115 general partner units
representing a 2.0% general partner interest in us as well as
all of our incentive distribution rights;
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|
Ø |
we will issue to Anadarko 7,786,306 common units and 26,536,306
subordinated units, representing an aggregate 63.4% limited
partner interest
in us;(1)
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|
Ø |
we will issue 18,750,000 common units to the public,
representing a 34.6% limited partner interest
in us;(1)
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Ø |
we will receive gross proceeds of $337.5 million from the
issuance and sale of 18,750,000 common units at an assumed
initial offering price of $18.00 per unit;
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Ø |
we will use the proceeds from this offering to pay underwriting
discounts and a structuring fee totaling approximately
$21.9 million and other estimated offering expenses of
$5.0 million;
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|
Ø |
we will use the remaining $310.6 million of aggregate net
proceeds of this offering to (i) make a loan of
$260.0 million to Anadarko in exchange for a
30-year note
bearing interest at a fixed annual rate of 6.5%,
(ii) reimburse Anadarko for $40.6 million of capital
expenditures it incurred with respect to assets contributed to
us and (iii) provide $10.0 million for general
partnership purposes;
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Ø |
we will have up to $100 million of long-term borrowing
capacity available to us under Anadarkos $1.3 billion
credit facility;
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Ø
|
we will enter into a $30 million working capital facility
with Anadarko as the lender;
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Ø
|
we will enter into an omnibus agreement with Anadarko and our
general partner pursuant to which, among other things,
(i) we will reimburse Anadarko and our general partner for
certain expenses incurred on our behalf, including expenses for
various general and administrative services rendered by Anadarko
and our general partner to us, and (ii) the parties will
agree to certain indemnification obligations;
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Ø
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our general partner will enter into a services and secondment
agreement with Anadarko, pursuant to which certain employees of
Anadarko will be under our control and render services to us or
on our behalf; and
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Ø
|
our general partner will enter into a tax sharing agreement with
Anadarko, pursuant to which we will pay Anadarko for our share
of state and local income and other taxes that are included in
combined or consolidated tax returns filed by Anadarko.
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(1) |
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If the underwriters exercise
their option to purchase up to 2,812,500 additional common units
within 30 days of this offering, the number of units
purchased by the underwriters pursuant to such exercise will be
issued to the public instead of Anadarko. |
4
Ownership of
Western Gas Partners, LP
The diagram below illustrates our organization and ownership
after giving effect to the offering and the related formation
transactions and assumes that the underwriters option to
purchase additional common units is not exercised.
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Public Common Units
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34.6
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%
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Anadarko Common and Subordinated Units
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63.4
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%
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General Partner Units
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2.0
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%
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Total
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100.0
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%
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5
OUR
MANAGEMENT
Our general partner has sole responsibility for conducting our
business and for managing our operations and will be controlled
by our ultimate parent, Anadarko. Pursuant to the omnibus
agreement and the services and secondment agreement that we will
enter into concurrently with the closing of this offering,
Anadarko and our general partner will be entitled to
reimbursement for all direct and indirect expenses that they
incur on our behalf. Under the omnibus agreement, our
reimbursement to Anadarko for certain general and administrative
expenses it allocates to us will be capped at $6.0 million
annually through December 31, 2009, subject to adjustments
to reflect changes in the Consumer Price Index and, with the
concurrence of the special committee of our general
partners board of directors, to reflect expansions of our
operations through the acquisition or construction of new assets
or businesses. Thereafter, our general partner will determine
the general and administrative expenses to be reimbursed by us
in accordance with our partnership agreement. The cap contained
in the omnibus agreement does not apply to incremental general
and administrative expenses we expect to incur or to be
allocated to us as a result of becoming a publicly traded
partnership. We currently expect those expenses to be
approximately $2.5 million per year. Please read
Certain relationships and related party
transactionsAgreements governing the
transactionsOmnibus agreement and
Services and secondment agreement.
Neither our general partner nor its board of directors will be
elected by our unitholders. Anadarko is the sole member of our
general partner and will have the right to appoint our general
partners entire board of directors. Certain of our
officers and directors are also officers of Anadarko.
As is common with publicly traded partnerships and in order to
maximize operational flexibility, we will conduct our operations
through subsidiaries. We will initially have one direct
subsidiary, WGR Operating, LP, a Delaware limited partnership
that will conduct business itself and through its subsidiaries.
PRINCIPAL
EXECUTIVE OFFICES AND INTERNET ADDRESS
Our principal executive offices are located at 1201 Lake Robbins
Drive, The Woodlands, Texas 77380, and our telephone number is
(832) 636-6000.
We expect our website to be located at www.westerngas.com. We
expect to make available our periodic reports and other
information filed with or furnished to the Securities and
Exchange Commission, which we refer to as the SEC, free of
charge through our website, as soon as reasonably practicable
after those reports and other information are electronically
filed with or furnished to the SEC. Information on our website
or any other website is not incorporated by reference herein and
does not constitute a part of this prospectus.
OUR GENERAL
PARTNERS RIGHT TO RECEIVE DISTRIBUTIONS
2.0% general
partner interest
Our general partner initially will be entitled to receive 2.0%
of our quarterly cash distributions. This 2.0% interest will
initially be represented by 1,083,115 general partner units.
General partner units are not deemed outstanding units for
purposes of voting rights and such units represent a non-voting
general partner interest. Our general partners initial
2.0% interest in these distributions will be reduced if we issue
additional units in the future and our general partner does not
elect to contribute a proportionate amount of capital to us to
maintain its initial 2.0% general partner interest. If and to
the extent our general partner elects to contribute sufficient
capital to maintain its 2.0% general partner interest, it will
be issued the number of general partner units necessary to
maintain its 2.0% interest. All references in this prospectus to
our general partners 2.0% general partner interest assume
that our general partner will elect to make these additional
capital contributions in order to maintain its right to receive
2.0% of our cash distributions.
Incentive
distributions
In addition to its 2.0% general partner interest, our general
partner holds the incentive distribution rights, which are
non-voting limited partner interests that represent the right to
receive an increasing
6
percentage of quarterly distributions of available cash as
higher target distribution levels of cash are achieved. The
following table shows how our available cash will be distributed
among our unitholders and our general partner as higher target
distribution levels are met:
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Marginal
percentage interest
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Total quarterly
distribution
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in
distributions(1)
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per
unit
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Unitholders
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|
General
partner
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|
Minimum Quarterly Distribution
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$0.300
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98.0%
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2.0%
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First Target Distribution
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up to $0.345
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98.0%
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2.0%
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Second Target Distribution
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|
above $0.345 up to $0.375
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85.0%
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15.0%
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Third Target Distribution
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above $0.375 up to $0.450
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75.0%
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25.0%
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Thereafter
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above $0.450
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50.0%
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50.0%
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(1) |
|
Assumes that there are no
arrearages on common units and that our general partner
maintains its 2.0% general partner interest and continues to own
the incentive distribution rights. |
For a more detailed description of the incentive distribution
rights, please read Provisions of our partnership
agreement relating to cash distributionsGeneral partner
interest and incentive distribution rights.
Our general
partners right to reset the target distribution
levels
Our general partner has the right, at any time when there are no
subordinated units outstanding and it has received incentive
distributions at the highest level to which it is entitled (48%)
for each of the prior four consecutive fiscal quarters, to reset
the initial target distribution levels to higher levels based on
our cash distributions at the time of the exercise of the reset
election. Following a reset election by our general partner, the
minimum quarterly distribution will be reset to an amount equal
to the average cash distribution per common unit for the two
fiscal quarters immediately preceding the reset election (we
refer to such amount as the reset minimum quarterly
distribution), and the target distribution levels will be
reset to correspondingly higher levels based on percentage
increases above the reset minimum quarterly distribution. As a
result, following a reset, we would distribute all of our
available cash for each quarter thereafter as follows (assuming
our general partner maintains its 2.0% general partner interest
and the ownership of the incentive distribution rights):
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Ø
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first, 98.0% to all unitholders, pro rata, and 2.0% to
our general partner, until each unitholder receives a total
amount equal to 115% of the reset minimum quarterly distribution
for that quarter;
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Ø
|
second, 85.0% to all unitholders, pro rata, and 15.0% to
our general partner, until each unitholder receives a total
amount per unit equal to 125% of the reset minimum quarterly
distribution for the quarter;
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Ø
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third, 75.0% to all unitholders, pro rata, and 25.0% to
our general partner, until each unitholder receives a total
amount per unit equal to 150% of the reset minimum quarterly
distribution for the quarter; and
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Ø
|
thereafter, 50.0% to all unitholders, pro rata, and 50.0%
to our general partner.
|
If our general partner elects to reset the target distribution
levels, it will be entitled to receive a number of Class B
units and general partner units. The Class B units will be
entitled to the same cash distributions per unit as our common
units and will be convertible into an equal number of common
units. The number of Class B units to be issued to our
general partner will be equal to that number of common units
which would have entitled their holder to an average aggregate
quarterly cash distribution in the prior two quarters equal to
the average of the distributions to our general partner on the
incentive distribution rights in the prior two quarters. Our
general partner will be issued the number of general partner
units necessary to maintain our general partners interest
in us immediately prior to the reset election.
7
SUMMARY OF
CONFLICTS OF INTEREST AND FIDUCIARY DUTIES
General
Our general partner has a legal duty to manage us in a manner
beneficial to holders of our common and subordinated units. This
legal duty originates in statutes and judicial decisions and is
commonly referred to as a fiduciary duty. However,
the officers and directors of our general partner also have
fiduciary duties to manage our general partner in a manner
beneficial to its owner, Anadarko. Certain of the officers and
directors of our general partner are also officers of Anadarko.
As a result, conflicts of interest will arise in the future
between us and holders of our common and subordinated units, on
the one hand, and Anadarko and our general partner, on the other
hand. For example, our general partner will be entitled to make
determinations that affect the amount of cash distributions we
make to the holders of common units, which in turn has an effect
on whether our general partner receives incentive cash
distributions as discussed above.
Partnership
agreement modifications to fiduciary duties
Our partnership agreement limits the liability of, and reduces
the fiduciary duties owed by, our general partner to holders of
our common and subordinated units. Our partnership agreement
also restricts the remedies available to holders of our common
and subordinated units for actions that might otherwise
constitute a breach of our general partners fiduciary
duties. By purchasing a common unit, the purchaser agrees to be
bound by the terms of our partnership agreement, and pursuant to
the terms of our partnership agreement, each holder of common
units consents to various actions and potential conflicts of
interest contemplated in the partnership agreement that might
otherwise be considered a breach of fiduciary or other duties
under applicable state law.
Anadarko may
engage in competition with us
Neither our partnership agreement nor the omnibus agreement
between us and Anadarko will prohibit Anadarko from owning
assets or engaging in businesses that compete directly or
indirectly with us. In addition, Anadarko may acquire, construct
or dispose of additional midstream or other assets in the
future, without any obligation to offer us the opportunity to
acquire or construct any of those assets.
For a more detailed description of the conflicts of interest and
the fiduciary duties of our general partner, please read
Conflicts of interest and fiduciary duties.
8
The offering
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Common units offered to the public |
|
18,750,000 common units |
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|
21,562,500 common units, if the underwriters exercise in full
their option to purchase additional common units |
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|
Units outstanding after this offering |
|
26,536,306 common
units(1)
and 26,536,306 subordinated units, each representing a
49.0% limited partner interest in us. Our general partner will
own 1,083,115 general partner units, representing a 2.0%
general partner interest in us. |
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Use of proceeds |
|
We expect to receive gross proceeds of $337.5 million from
this offering. We expect to use the proceeds to (i) make a
loan of $260.0 million to Anadarko in exchange for a
30-year note
bearing interest at a fixed annual rate of 6.5%,
(ii) reimburse Anadarko for $40.6 million of capital
expenditures it incurred with respect to assets contributed to
us, (iii) provide $10.0 million for general
partnership purposes and (iv) pay underwriting discounts
and a structuring fee totaling approximately $21.9 million
and other estimated offering expenses of $5.0 million. |
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The net proceeds from any exercise of the underwriters
option to purchase additional common units will be used to
reimburse Anadarko for capital expenditures it incurred with
respect to the assets contributed to us. |
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Cash distributions |
|
Our general partner will adopt a cash distribution policy that
will require us to pay a minimum quarterly distribution of $0.30
per unit ($1.20 per unit on an annualized basis) to the extent
we have sufficient cash from operations after establishment of
cash reserves and payment of fees and expenses, including
payments to our general partner and its affiliates. We refer to
this cash as available cash, and it is defined in
our partnership agreement included in this prospectus as
Appendix A and in the glossary included in this prospectus
as Appendix B. Our ability to pay the minimum quarterly
distribution is subject to various restrictions and other
factors described in more detail under the caption Our
cash distribution policy and restrictions on
distributions. We will adjust the minimum quarterly
distribution payable for the period from the completion of this
offering through June 30, 2008, based on the actual length
of that period. |
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Our partnership agreement requires that we distribute all of our
available cash each quarter in the following manner: |
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Ø first,
98.0% to the holders of common units and 2.0% to our general
partner, until each common unit has received the minimum
quarterly distribution of $0.30 plus any arrearages from prior
quarters;
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|
Ø second,
98.0% to the holders of subordinated units and 2.0% to our
general partner, until each subordinated unit
|
(1) Excludes common units subject to
issuance under our Long-Term Incentive Plan. Please read
Management Long-term incentive plan.
9
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|
has received the minimum quarterly distribution of $0.30; and |
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Ø third,
98.0% to all unitholders, pro rata, and 2.0% to our general
partner, until each unit has received a distribution of $0.345.
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If cash distributions to our unitholders exceed $0.345 per unit
in any quarter, our general partner will receive, in addition to
distributions on its 2.0% general partner interest, increasing
percentages, up to 48.0%, of the cash we distribute in excess of
that amount. We refer to these distributions as incentive
distributions. Please read Provisions of our
partnership agreement relating to cash distributions. |
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The amount of pro forma available cash generated during the year
ended December 31, 2007 would have been sufficient to allow
us to pay the full minimum quarterly distribution ($0.30 per
unit per quarter, or $1.20 on an annualized basis) on all of our
common and subordinated units for such period. Please read
Our cash distribution policy and restrictions on
distributions. |
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We believe that, based on the Statement of Estimated Adjusted
EBITDA included under the caption Our cash distribution
policy and restrictions on distributions, we will have
sufficient cash available for distribution to pay the minimum
quarterly distribution of $0.30 per unit on all common and
subordinated units and the corresponding distributions on our
general partners 2.0% interest for the four quarters
ending March 31, 2009. |
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Subordinated units |
|
Anadarko will initially indirectly own all of our subordinated
units. The principal difference between our common and
subordinated units is that in any quarter during the
subordination period, holders of the subordinated units are not
entitled to receive any distribution until the common units have
received the minimum quarterly distribution plus any arrearages
in the payment of the minimum quarterly distribution from prior
quarters. Subordinated units will not accrue arrearages. |
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Conversion of subordinated units |
|
The subordination period will end on the first business day
after we have earned and paid at least (i) $1.20 (the
minimum quarterly distribution on an annualized basis) on each
outstanding common and subordinated unit and the corresponding
distribution on our general partners 2.0% interest for
each of three consecutive, non-overlapping four quarter periods
ending on or after June 30, 2011 or (ii) $0.45 per
quarter (150% of the minimum quarterly distribution, which is
$1.80 on an annualized basis) on each outstanding common and
subordinated unit and the corresponding distributions on our
general partners 2.0% interest for each of four
consecutive quarters. |
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In addition, the subordination period will end upon the removal
of our general partner other than for cause if the units |
10
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|
held by our general partner and its affiliates are not voted in
favor of such removal. |
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When the subordination period ends, all subordinated units will
convert into common units on a one-for-one basis, and all common
units thereafter will no longer be entitled to arrearages. |
|
General partners right to reset the target distribution
levels |
|
Our general partner has the right, at any time when there are no
subordinated units outstanding and it has received incentive
distributions at the highest level to which it is entitled (48%)
for each of the prior four consecutive fiscal quarters, to reset
the initial target distribution levels at higher levels based on
our cash distributions at the time of the exercise of the reset
election. Following a reset election by our general partner, the
minimum quarterly distribution will be adjusted to equal the
reset minimum quarterly distribution, and the target
distribution levels will be reset to correspondingly higher
levels based on the same percentage increases above the reset
minimum quarterly distribution. |
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|
If our general partner elects to reset the target distribution
levels, it will be entitled to receive Class B units and
additional general partner units. The Class B units will be
entitled to the same cash distributions per unit as our common
units and will be convertible into an equal number of common
units. The number of Class B units to be issued to our
general partner will be equal to that number of common units
which would have entitled their holder to an average aggregate
quarterly cash distribution in the prior two quarters equal to
the average of the distributions to our general partner on the
incentive distribution rights in the prior two quarters. Our
general partner will be issued the number of general partner
units necessary to maintain our general partners interest
in us immediately prior to the reset election. Please read
Provisions of our partnership agreement relating to cash
distributionsGeneral partners right to reset
incentive distribution levels. |
|
Issuance of additional units |
|
We can issue an unlimited number of units without the consent of
our unitholders. Please read Units eligible for future
sale and The partnership agreementIssuance of
additional securities. |
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Limited voting rights |
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Our general partner will manage and operate us. Unlike the
holders of common stock in a corporation, you will have only
limited voting rights on matters affecting our business. You
will have no right to elect our general partner or its directors
on an annual or continuing basis. Our general partner may not be
removed except by a vote of the holders of at least
662/3%
of the outstanding limited partner units voting together as a
single class, including any limited partner units owned by our
general partner and its affiliates, including Anadarko. Upon
consummation of this offering, Anadarko will own an aggregate of
64.7% of our common and subordinated units. This will give
Anadarko the ability to prevent the involuntary |
11
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removal of our general partner. Please read The
partnership agreementVoting rights. |
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Limited call right |
|
If at any time our general partner and its affiliates own more
than 80% of the outstanding common units, our general partner
has the right, but not the obligation, to purchase all of the
remaining common units at a price that is not less than the
then-current market price of the common units. |
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Eligible Holders and redemption |
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If our general partner determines that a holder of our common
units is not an Eligible Holder, it may elect not to make
distributions or allocate income or loss to such holder.
Eligible Holders are: |
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Ø U.S. individuals
or entities subject to U.S. federal income taxation on the
income generated by us; or
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Ø U.S. entities
not subject to U.S. federal income taxation on the income
generated by us, so long as all of the entitys owners are
domestic individuals or entities subject to such taxation.
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We have the right, which we may assign to any of our affiliates,
but not the obligation, to redeem all of the common units of any
holder that is not an Eligible Holder or that has failed to
certify or has falsely certified that such holder is an Eligible
Holder. The purchase price for such redemption would be equal to
the lesser of the holders purchase price and the
then-current market price of the units. The redemption price
will be paid in cash or by delivery of a promissory note, as
determined by our general partner. |
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Please read The partnership
agreementNon-U.S. and
non-taxpaying assignees; Redemption. |
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Estimated ratio of taxable income to distributions |
|
We estimate that if you own the common units you purchase in
this offering through the record date for distributions for the
period ending December 31, 2010, you will be allocated, on
a cumulative basis, an amount of federal taxable income for that
period that will be 30% or less of the cash distributed to you
with respect to that period. For example, if you receive an
annual distribution of $1.20 per unit, we estimate that your
average allocable federal taxable income per year will be no
more than $0.36 per unit. Please read Material tax
consequencesTax consequences of unit ownershipRatio
of taxable income to distributions and Material tax
consequencesTax consequences of unit
ownershipLimitations on deductibility of losses. |
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Material tax consequences |
|
For a discussion of other material federal income tax
consequences that may be relevant to prospective unitholders who
are individual citizens or residents of the United States, or
the U.S., please read Material tax consequences. |
|
Exchange listing |
|
Our common units have been approved for listing on the New York
Stock Exchange, subject to notice of issuance, under the symbol
WES. |
12
Summary historical
and pro forma financial and operating data
The following table shows (i) the summary combined
historical financial and operating data of our Predecessor,
which is comprised of Anadarko Gathering Company LLC and
Pinnacle Gas Treating LLC, with MIGC reported as an acquired
business of our Predecessor, and (ii) the summary combined
pro forma as adjusted financial and operating data of Western
Gas Partners, LP (the Partnership), for the periods
and as of the dates indicated. The information in the following
table should be read together with Managements
discussion and analysis of financial condition and results of
operations.
Our Predecessors summary combined historical balance sheet
data as of December 31, 2007 and 2006 and summary combined
historical statement of income and cash flow data for the years
ended December 31, 2007, 2006 and 2005 are derived from the
audited historical combined financial statements of our
Predecessor included elsewhere in this prospectus. Our
Predecessors summary combined historical balance sheet
data as of December 31, 2005 are derived from the audited
historical combined financial statements of our Predecessor not
included in this prospectus.
The Partnerships summary combined pro forma as adjusted
statement of income data for the year ended December 31,
2007 and summary combined pro forma as adjusted balance sheet
data as of December 31, 2007 are derived from the unaudited
pro forma combined financial statements of the Partnership
included elsewhere in this prospectus.
The pro forma adjustments have been prepared as if certain
transactions to be effected at the closing of this offering had
taken place on December 31, 2007, in the case of the pro
forma balance sheet, and on January 1, 2007, in the case of
the pro forma statement of operations for the year ended
December 31, 2007. These transactions include:
|
|
Ø |
the receipt by the Partnership of gross proceeds of
$337.5 million from the issuance and sale of 18,750,000
common units at an assumed initial offering price of $18.00 per
unit;
|
|
|
Ø |
the use of the proceeds from this offering to pay underwriting
discounts and a structuring fee totaling approximately
$21.9 million and other estimated offering expenses of
$5.0 million; and
|
|
|
Ø |
the use of the remaining $310.6 million of aggregate net
proceeds of this offering to (i) make a loan of
$260.0 million to Anadarko in exchange for a
30-year note
bearing interest at a fixed annual rate of 6.5%,
(ii) reimburse Anadarko for $40.6 million of capital
expenditures it incurred with respect to assets contributed to
us and (iii) provide $10.0 million for general
partnership purposes.
|
The following table includes our Predecessors historical
and our pro forma Adjusted EBITDA, which have not been prepared
in accordance with generally accepted accounting principles
(GAAP). Adjusted EBITDA is presented because it is
helpful to management, industry analysts, investors, lenders and
rating agencies and may be used to assess the financial
performance and operating results of our fundamental business
activities. For a reconciliation of Adjusted EBITDA to its most
directly comparable financial measures calculated and presented
in accordance with GAAP, please read
Non-GAAP financial
measure below.
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pro forma
|
|
|
|
|
|
|
Predecessor
combined
|
|
|
as adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
|
|
|
|
|
|
(in thousands,
except per-unit data)
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
116,122
|
|
|
$
|
81,152
|
|
|
$
|
71,650
|
|
|
$
|
116,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
47,497
|
|
|
|
39,960
|
|
|
|
35,720
|
|
|
|
47,497
|
|
|
|
|
|
Depreciation
|
|
|
23,380
|
|
|
|
18,009
|
|
|
|
15,447
|
|
|
|
23,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
70,877
|
|
|
|
57,969
|
|
|
|
51,167
|
|
|
|
70,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
45,245
|
|
|
|
23,183
|
|
|
|
20,483
|
|
|
|
45,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income), net
|
|
|
|
|
|
|
26
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
Interest expense (income), net
|
|
|
8,521
|
|
|
|
9,631
|
|
|
|
8,650
|
|
|
|
(16,757
|
)
|
|
|
|
|
Income tax expense (benefit)
|
|
|
12,724
|
|
|
|
3,814
|
|
|
|
4,789
|
|
|
|
(521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,000
|
|
|
$
|
9,712
|
|
|
$
|
7,110
|
|
|
$
|
62,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,251
|
|
|
|
|
|
Common unitholders interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,636
|
|
|
|
|
|
Subordinated unitholders interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,636
|
|
|
|
|
|
Net income per common unit (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.15
|
|
|
|
|
|
Net income per subordinated unit (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.15
|
|
|
|
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net, property, plant and equipment
|
|
$
|
363,619
|
|
|
$
|
310,871
|
|
|
$
|
200,451
|
|
|
$
|
363,619
|
|
|
|
|
|
Total assets
|
|
|
376,641
|
|
|
|
332,228
|
|
|
|
206,373
|
|
|
|
644,353
|
|
|
|
|
|
Total partners capital/parent net equity
|
|
|
281,316
|
|
|
|
238,531
|
|
|
|
160,585
|
|
|
|
624,638
|
|
|
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
55,872
|
|
|
|
27,323
|
|
|
|
30,131
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
(53,174
|
)
|
|
|
(42,713
|
)
|
|
|
(21,076
|
)
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
(3,156
|
)
|
|
|
15,844
|
|
|
|
(9,067
|
)
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA(1)
|
|
|
68,625
|
|
|
|
41,192
|
|
|
|
35,930
|
|
|
|
68,625
|
|
|
|
|
|
Capital expenditures, net
|
|
|
52,664
|
|
|
|
42,299
|
|
|
|
20,841
|
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Throughput, MMBtu/d
|
|
|
892
|
|
|
|
820
|
|
|
|
757
|
|
|
|
892
|
|
|
|
|
|
Average rate per MMBtu
|
|
$
|
0.28
|
|
|
$
|
0.22
|
|
|
$
|
0.21
|
|
|
$
|
0.28
|
|
|
|
|
|
Third Party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Throughput, MMBtu/d
|
|
|
95
|
|
|
|
72
|
|
|
|
41
|
|
|
|
95
|
|
|
|
|
|
Average rate per MMBtu
|
|
$
|
0.30
|
|
|
$
|
0.19
|
|
|
$
|
0.16
|
|
|
$
|
0.30
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Throughput, MMBtu/d
|
|
|
987
|
|
|
|
892
|
|
|
|
798
|
|
|
|
987
|
|
|
|
|
|
Average rate per MMBtu
|
|
$
|
0.29
|
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted EBITDA is defined in
Non-GAAP financial measure
below. |
14
NON-GAAP FINANCIAL
MEASURE
We define Adjusted EBITDA as net income (loss), plus interest
expense, income tax expense and depreciation, less interest
income, income tax benefit and other income (expense). We
believe that the presentation of Adjusted EBITDA provides
information useful to investors in assessing our financial
condition and results of operations and that Adjusted EBITDA is
a widely accepted financial indicator of a companys
ability to incur and service debt, fund capital expenditures and
make distributions. Adjusted EBITDA is a supplemental financial
measure that management and external users of our combined
financial statements, such as industry analysts, investors,
lenders and rating agencies, may use to assess:
|
|
Ø
|
our operating performance as compared to other publicly traded
partnerships in the midstream energy industry, without regard to
financing methods, capital structure or historical cost basis;
|
|
Ø
|
the ability of our assets to generate sufficient cash flow to
make distributions to our unitholders; and
|
|
Ø
|
the viability of acquisitions and capital expenditure projects
and the returns on investment of various investment
opportunities.
|
The GAAP measures most directly comparable to Adjusted EBITDA
are net income and net cash provided by operating activities.
Our non-GAAP financial measure of Adjusted EBITDA should not be
considered as an alternative to GAAP net income or net cash
provided by operating activities. Adjusted EBITDA has important
limitations as an analytical tool because it excludes some but
not all items that affect net income and net cash provided by
operating activities. You should not consider Adjusted EBITDA in
isolation or as a substitute for analysis of our results as
reported under GAAP. Because Adjusted EBITDA may be defined
differently by other companies in our industry, our definition
of Adjusted EBITDA may not be comparable to similarly titled
measures of other companies, thereby diminishing its utility.
Management compensates for the limitations of Adjusted EBITDA as
an analytical tool by reviewing the comparable GAAP measures,
understanding the differences between Adjusted EBITDA and net
income and net cash provided by operating activities, and
incorporating this knowledge into its decision-making processes.
We believe that investors benefit from having access to the same
financial measures that our management uses in evaluating our
operating results.
15
The following table presents a reconciliation of the non-GAAP
financial measure of Adjusted EBITDA to the GAAP financial
measures of net income and net cash provided by operating
activities on an historical and pro forma as adjusted basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
|
|
|
|
|
|
|
|
|
|
|
pro forma
|
|
|
|
Predecessor
combined
|
|
|
as
adjusted
|
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
|
|
|
(in
thousands)
|
|
|
Reconciliation of Adjusted EBITDA to Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,000
|
|
|
$
|
9,712
|
|
|
$
|
7,110
|
|
|
$
|
62,523
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net
|
|
|
8,521
|
|
|
|
9,631
|
|
|
|
8,650
|
|
|
|
(16,757
|
)
|
Income tax expense (benefit)
|
|
|
12,724
|
|
|
|
3,814
|
|
|
|
4,789
|
|
|
|
(521
|
)
|
Depreciation
|
|
|
23,380
|
|
|
|
18,009
|
|
|
|
15,447
|
|
|
|
23,380
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
(26
|
)
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
68,625
|
|
|
$
|
41,192
|
|
|
$
|
35,930
|
|
|
$
|
68,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted EBITDA to Net Cash Provided by
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities(1)
|
|
|
55,872
|
|
|
$
|
27,323
|
|
|
$
|
30,131
|
|
|
$
|
81,274
|
|
Interest expense (income)
|
|
|
8,521
|
|
|
|
9,631
|
|
|
|
8,650
|
|
|
|
(16,757
|
)
|
Current income tax expense
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
189
|
|
Other income (expense)
|
|
|
|
|
|
|
(26
|
)
|
|
|
66
|
|
|
|
|
|
Changes in operating working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and natural gas imbalances
|
|
|
3,805
|
|
|
|
(374
|
)
|
|
|
662
|
|
|
|
3,805
|
|
Accounts payable and accrued expenses
|
|
|
144
|
|
|
|
4,556
|
|
|
|
(3,373
|
)
|
|
|
144
|
|
Other, including changes in non-current assets and liabilities
|
|
|
(30
|
)
|
|
|
30
|
|
|
|
(74
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
68,625
|
|
|
$
|
41,192
|
|
|
$
|
35,930
|
|
|
$
|
68,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Reconciliation of reported amounts of net cash provided by
operating activities to pro forma amounts for the year ended
December 31, 2007:
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
December 31,
2007
|
|
|
|
|
Net cash provided by operating activitiesreported
|
|
$
|
55,872
|
|
Adjustments:
|
|
|
|
|
Reported interest expense
|
|
|
8,521
|
|
Pro forma interest income
|
|
|
16,900
|
|
Pro forma interest expense
|
|
|
(143
|
)
|
Reported current income tax expense
|
|
|
313
|
(a)
|
Pro forma current income tax
|
|
|
(189
|
)
|
|
|
|
|
|
Net cash provided by operating activitiespro forma
|
|
$
|
81,274
|
|
|
|
|
|
|
|
|
|
|
|
(a) Reported income tax expense
|
|
$
|
12,724
|
|
Reported deferred tax expense
|
|
|
12,411
|
|
|
|
|
|
|
Reported current tax expense
|
|
$
|
313
|
|
|
|
|
|
|
16
Risk factors
Limited partner units are inherently different from capital
stock of a corporation, although many of the business risks to
which we are subject are similar to those that would be faced by
a corporation engaged in similar businesses. We urge you to
carefully consider the following risk factors together with all
of the other information included in this prospectus in
evaluating an investment in our common units.
If any of the following risks were to occur, our business,
financial condition or results of operations could be materially
adversely affected. In that case, we might not be able to pay
the minimum quarterly distribution on our common units, the
trading price of our common units could decline and you could
lose all or part of your investment in us.
RISKS RELATED TO
OUR BUSINESS
We are dependent
on a single natural gas producer, Anadarko, for almost all of
the natural gas that we gather and transport. A material
reduction in Anadarkos production gathered or transported
by our assets would result in a material decline in our revenues
and cash available for distribution.
We rely on Anadarko for virtually all of the natural gas that we
gather and transport. For the year ended December 31, 2007,
Anadarko accounted for approximately 91% of our natural gas
gathering and transportation volumes. We may be unable to
negotiate on favorable terms, if at all, extensions or
replacements of our contracts to gather, compress, treat and
transport Anadarkos production. Furthermore, Anadarko may
suffer a decrease in production volumes in the areas serviced by
us and is under no contractual obligation to maintain its
production dedicated to us. The loss of a significant portion of
the natural gas volumes supplied by Anadarko would result in a
material decline in our revenues and our cash available for
distribution. In addition, Anadarko may determine in the future
that drilling activity in other areas of operation is
strategically more attractive. A shift in Anadarkos focus
away from our areas of operation could result in reduced
throughput on our system and a material decline in our revenues.
We may not have
sufficient cash from operations following the establishment of
cash reserves and payment of fees and expenses, including cost
reimbursements to our general partner, to enable us to pay the
minimum quarterly distribution to holders of our common and
subordinated units.
In order to pay the minimum quarterly distribution of $0.30 per
unit per quarter, or $1.20 per unit per year, we will require
available cash of approximately $16.2 million per quarter,
or $65.0 million per year, based on the number of common
and subordinated units to be outstanding immediately after
completion of this offering. We may not have sufficient
available cash from operating surplus each quarter to enable us
to pay the minimum quarterly distribution. The amount of cash we
can distribute on our units principally depends upon the amount
of cash we generate from our operations, which will fluctuate
from quarter to quarter based on, among other things:
|
|
Ø
|
the prices of, level of production of and demand for natural gas;
|
|
Ø
|
the volume of natural gas we gather, compress, treat and
transport;
|
|
Ø
|
the volumes and prices of condensate that we retain and sell;
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demand charges and volumetric fees associated with our
transportation services;
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the level of competition from other midstream energy companies;
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the level of our operating and maintenance and general and
administrative costs;
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17
Risk
factors
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regulatory action affecting the supply of or demand for natural
gas, the rates we can charge, how we contract for services, our
existing contracts, our operating costs or our operating
flexibility; and
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prevailing economic conditions.
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In addition, the actual amount of cash we will have available
for distribution will depend on other factors, some of which are
beyond our control, including:
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the level of capital expenditures we make;
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the cost of acquisitions;
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our debt service requirements and other liabilities;
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fluctuations in our working capital needs;
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our ability to borrow funds and access capital markets;
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restrictions contained in debt agreements to which we are a
party; and
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the amount of cash reserves established by our general partner.
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For a description of additional restrictions and factors that
may affect our ability to make cash distributions, please read
Our cash distribution policy and restrictions on
distributions.
The amount of
cash we have available for distribution to holders of our common
and subordinated units depends primarily on our cash flow rather
than on our profitability, which may prevent us from making
distributions, even during periods in which we record net
income.
The amount of cash we have available for distribution depends
primarily upon our cash flow and not solely on profitability,
which will be affected by non-cash items. As a result, we may
make cash distributions during periods when we record losses for
financial accounting purposes and may not make cash
distributions during periods when we record net earnings for
financial accounting purposes.
The amount of available cash we need to pay the minimum
quarterly distribution on all of our units to be outstanding
immediately after this offering and the corresponding
distribution on our general partners 2.0% interest for
four quarters is approximately $65.0 million. The amounts
of pro forma available cash generated during the year ended
December 31, 2007 would have been sufficient to allow us to
pay the full minimum quarterly distribution on all of our common
and subordinated units for such periods. For a calculation of
our ability to make distributions to unitholders based on our
pro forma results for 2007, please read Our cash
distribution policy and restrictions on distributions.
The assumptions
underlying the forecast of cash available for distribution that
we include in Our cash distribution policy and
restrictions on distributions are inherently uncertain and
are subject to significant business, economic, financial,
regulatory and competitive risks and uncertainties that could
cause actual results to differ materially from those
forecasted.
The forecast of cash available for distribution set forth in
Our cash distribution policy and restrictions on
distributions includes our forecasted results of
operations, Adjusted EBITDA and cash available for distribution
for the twelve months ending March 31, 2009. The financial
forecast has been prepared by management, and we have not
received an opinion or report on it from our or any other
independent auditor. The assumptions underlying the forecast are
inherently uncertain and are subject to significant business,
economic, financial, regulatory and competitive risks and
uncertainties that could cause actual results to differ
materially from those forecasted. If we do not achieve the
forecasted results, we may not be able to pay the full minimum
quarterly distribution or any amount on our common or
subordinated units, in which event the market price of our
common units may decline materially.
18
Risk
factors
Because of the
natural decline in production from existing wells, our success
depends on our ability to obtain new sources of natural gas,
which is dependent on certain factors beyond our control. Any
decrease in the volumes of natural gas that we gather and
transport could adversely affect our business and operating
results.
The volumes that support our business are dependent on the level
of production from natural gas wells connected to our gathering
systems, the production of which will naturally decline over
time. As a result, our cash flows associated with these wells
will also decline over time. In order to maintain or increase
throughput levels on our gathering systems, we must obtain new
sources of natural gas. The primary factors affecting our
ability to obtain non-dedicated sources of natural gas include
(i) the level of successful drilling activity near our
systems and (ii) our ability to compete for volumes from
successful new wells.
While Anadarko has dedicated production from certain of its
properties to us, we have no control over the level of drilling
activity in our areas of operation, the amount of reserves
associated with wells connected to our gathering systems or the
rate at which production from a well declines. In addition, we
have no control over Anadarko or other producers or their
drilling or production decisions, which are affected by, among
other things, the availability and cost of capital, prevailing
and projected energy prices, demand for hydrocarbons, levels of
reserves, geological considerations, governmental regulations,
the availability of drilling rigs and other production and
development costs. Fluctuations in energy prices can also
greatly affect investments by Anadarko and third parties in the
development of new natural gas reserves. Declines in natural gas
prices could have a negative impact on exploration, development
and production activity, and if sustained, could lead to a
material decrease in such activity. Sustained reductions in
exploration or production activity in our areas of operation
would lead to reduced utilization of our gathering and treating
assets.
Because of these factors, even if new natural gas reserves are
known to exist in areas served by our assets, producers may
choose not to develop those reserves. Moreover, Anadarko may not
develop the acreage it has dedicated to us. If competition or
reductions in drilling activity result in our inability to
maintain the current levels of throughput on our systems, it
could reduce our revenue and impair our ability to make cash
distributions to our unitholders.
We typically do
not obtain independent evaluations of natural gas reserves
connected to our gathering and transportation systems;
therefore, in the future, volumes of natural gas on our systems
could be less than we anticipate.
We typically do not obtain independent evaluations of natural
gas reserves connected to our systems. Accordingly, we do not
have independent estimates of total reserves dedicated to our
systems or the anticipated life of such reserves. If the total
reserves or estimated life of the reserves connected to our
gathering systems are less than we anticipate and we are unable
to secure additional sources of natural gas, it could have a
material adverse effect on our business, results of operations,
financial condition and our ability to make cash distributions
to you.
Lower natural gas
and oil prices could adversely affect our business.
Lower natural gas and oil prices could impact natural gas and
oil exploration and production activity levels and result in a
decline in the production of natural gas and condensate,
resulting in reduced throughput on our systems. Any such decline
may cause our current or potential customers to delay drilling
or shut in production. In addition, such a decline would reduce
the amount of condensate we retain and sell. As a result, lower
natural gas prices could have an adverse effect on our business,
results of operations, financial condition and our ability to
make cash distributions to you.
19
Risk
factors
In general terms, the prices of natural gas, oil, condensate,
NGLs and other hydrocarbon products fluctuate in response to
changes in supply and demand, market uncertainty and a variety
of additional factors that are beyond our control. These factors
include:
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worldwide economic conditions;
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weather conditions and seasonal trends;
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the levels of domestic production and consumer demand;
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the availability of imported liquified natural gas, or LNG;
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the availability of transportation systems with adequate
capacity;
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the volatility and uncertainty of regional pricing differentials
such as in the Mid-Continent;
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the price and availability of alternative fuels;
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the effect of energy conservation measures;
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the nature and extent of governmental regulation and taxation;
and
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the anticipated future prices of natural gas, LNG and other
commodities.
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Our industry is
highly competitive, and increased competitive pressure could
adversely affect our business and operating results.
We compete with similar enterprises in our areas of operation.
Our competitors may expand or construct gathering, compression,
treating or transportation systems that would create additional
competition for the services we provide to our customers. In
addition, our customers, including Anadarko, may develop their
own gathering, compression, treating or transportation systems
in lieu of using ours. Our ability to renew or replace existing
contracts with our customers at rates sufficient to maintain
current revenues and cash flow could be adversely affected by
the activities of our competitors and our customers. All of
these competitive pressures could have a material adverse effect
on our business, results of operations, financial condition and
ability to make cash distributions to you.
Our operating
income could be affected by a change in oil prices relative to
the price of natural gas.
Under our gathering agreements, we retain and sell condensate,
which falls out of the natural gas stream during the gathering
process, and compensate shippers with a thermally equivalent
volume of natural gas. Condensate sales comprised approximately
9% of our gathering system revenues for the year ended
December 31, 2007. The price we receive for our condensate
is generally tied to the market price of oil. The relationship
between natural gas prices and oil prices therefore affects the
margin on our condensate sales. When natural gas prices are high
relative to oil prices, the profit margin we realize on our
condensate sales is low due to the higher value of natural gas.
Correspondingly, when natural gas prices are low relative to oil
prices, the profit margin is high.
If third-party
pipelines or other facilities interconnected to our gathering or
transportation systems become partially or fully unavailable, or
if the volumes we gather or transport do not meet the natural
gas quality requirements of such pipelines or facilities, our
revenues and cash available for distribution could be adversely
affected.
Our natural gas gathering and transportation systems connect to
other pipelines or facilities, the majority of which are owned
by third parties. The continuing operation of such
third-party
pipelines or facilities is not within our control. If any of
these pipelines or facilities becomes unable to transport
natural gas, or if the volumes we gather or transport do not
meet the natural gas quality requirements of such pipelines or
facilities, our revenues and cash available for distribution
could be adversely affected.
20
Risk
factors
Our interstate
natural gas transportation operations are subject to regulation
by FERC, which could have an adverse impact on our ability to
establish transportation rates that would allow us to earn a
reasonable return on our investment, or even recover the full
cost of operating our pipeline, thereby adversely impacting our
ability to make distributions to you.
MIGC, our interstate natural gas transportation system, is
subject to regulation by the Federal Energy Regulatory
Commission, or FERC, under the Natural Gas Act of 1938, or the
NGA, and the Energy Policy Act of 2005, or the EPAct 2005.
Under the NGA, FERC has the authority to regulate natural gas
companies that provide natural gas pipeline transportation
services in interstate commerce. Federal regulation extends to
such matters as:
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rates, services and terms and conditions of service;
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the types of services MIGC may offer to its customers;
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the certification and construction of new facilities;
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the acquisition, extension, disposition or abandonment of
facilities;
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the maintenance of accounts and records;
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relationships between affiliated companies involved in certain
aspects of the natural gas business;
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the initiation and discontinuation of services;
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market manipulation in connection with interstate sales,
purchases or transportation of natural gas; and
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participation by interstate pipelines in cash management
arrangements.
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Natural gas companies are prohibited from charging rates that
have been determined to be not just and reasonable by FERC. In
addition, FERC prohibits natural gas companies from unduly
preferring or unreasonably discriminating against any person
with respect to pipeline rates or terms and conditions of
service.
The rates and terms and conditions for our interstate pipeline
services are set forth in a FERC-approved tariff. Pursuant to
FERCs jurisdiction over rates, existing rates may be
challenged by complaint and proposed rate increases may be
challenged by protest. Any successful complaint or protest
against our rates could have an adverse impact on our revenues
associated with providing transportation service.
Should we fail to comply with all applicable FERC-administered
statutes, rules, regulations and orders, we could be subject to
substantial penalties and fines. Under the EPAct 2005, FERC has
civil penalty authority under the NGA to impose penalties for
current violations of up to $1,000,000 per day for each
violation. FERC also has the power to order disgorgement of
profits from transactions deemed to violate the NGA and EPAct
2005.
A change in the
jurisdictional characterization of some of our assets by
federal, state or local regulatory agencies or a change in
policy by those agencies could result in increased regulation of
our assets, which could cause our revenues to decline and
operating expenses to increase.
Section 1(b) of the NGA exempts natural gas gathering
facilities from the jurisdiction of FERC. We believe that our
natural gas pipelines, other than MIGC, meet the traditional
tests FERC has used to determine if a pipeline is a gathering
pipeline and is, therefore, not subject to FERC jurisdiction.
The distinction between FERC-regulated transmission services and
federally unregulated gathering services is the subject of
substantial ongoing litigation and, over time, FERC policy
concerning where to draw the line between activities it
regulates and activities excluded from its regulation has
changed. The classification and regulation of our gathering
facilities are subject to change based on future determinations
by FERC, the courts or Congress. State regulation of gathering
facilities generally includes various safety, environmental and,
in some circumstances, nondiscriminatory take requirements
21
Risk
factors
and complaint-based rate regulation. In recent years, FERC has
taken a more light-handed approach to regulation of the
gathering activities of interstate pipeline transmission
companies, which has resulted in a number of such companies
transferring gathering facilities to unregulated affiliates. As
a result of these activities, natural gas gathering may begin to
receive greater regulatory scrutiny at both the state and
federal levels.
FERC regulation
of MIGC, including the outcome of certain FERC proceedings on
the appropriate treatment of tax allowances included in
regulated rates and the appropriate return on equity, may reduce
our transportation revenues, affect our ability to include
certain costs in regulated rates and increase our costs of
operations, and thus adversely affect our cash available for
distribution.
FERC has pending certain proceedings concerning the appropriate
allowance for income taxes that may be included in cost-based
rates for FERC regulated pipelines owned by publicly traded
partnerships that do not directly pay federal income tax. FERC
issued a policy permitting such tax allowances in 2005.
FERCs policy and its initial application in a specific
case were upheld on appeal by the D.C. Circuit in May of 2007
and the D.C. Circuits decision is final. In December 2006,
FERC issued another order addressing the income tax allowance in
rates, in which it reaffirmed prior statements regarding its
income tax allowance policy, but raised a new issue regarding
the implication of the policy statement for publicly traded
partnerships. FERC noted that the tax deferral features of a
publicly traded partnership may cause some investors to receive,
for some indeterminate duration, cash distributions in excess of
their taxable income, creating an opportunity for those
investors to earn an additional return, funded by ratepayers.
Responding to this concern, FERC adjusted the equity rate of
return of the pipeline at issue downward based on the percentage
by which the publicly traded partnerships cash flow
exceeded taxable income. Rehearing is currently pending before
FERC.
FERC also has pending a proceeding on the appropriate
composition of proxy groups for purposes of determining natural
gas and oil pipeline equity returns to be included in
cost-of-service based rates. In a policy statement issued
July 19, 2007, FERC proposed to permit inclusion of
publicly traded partnerships in the proxy group analysis
relating to return on equity determinations in rate proceedings,
provided that the analysis be limited to actual publicly traded
partnership distributions capped at the level of the
pipelines earnings and that evidence be provided in the
form of a multiyear analysis of past earnings demonstrating a
publicly traded partnerships ability to provide stable
earnings over time. In November 2007, the FERC requested
additional comments and announced a technical conference
regarding the method to be used for creating growth forecasts
for publicly traded partnerships.
The ultimate outcome of these proceedings is not certain and may
result in new policies being established at FERC that would
limit the amount of income tax allowance permitted to be
recovered in regulated rates or disallow the full use of
distributions to unitholders by pipeline publicly traded
partnerships in any proxy group comparisons used to determine
return on equity in future rate proceedings. Any such policy
developments may adversely affect the ability of MIGC to achieve
a reasonable level of return or impose limits on its ability to
include a full income tax allowance in cost of service, and
therefore could adversely affect our cash available for
distribution.
We are subject to
stringent environmental laws and regulations that may expose us
to significant costs and liabilities.
Our natural gas gathering, compression, treating and
transportation operations are subject to stringent and complex
federal, state and local environmental laws and regulations that
govern the discharge of materials into the environment or
otherwise relate to environmental protection. Examples of these
laws include:
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the federal Clean Air Act and analogous state laws that impose
obligations related to air emissions;
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22
Risk
factors
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the federal Comprehensive Environmental Response, Compensation
and Liability Act, also known as CERCLA or the Superfund law,
and analogous state laws that regulate the cleanup of hazardous
substances that may be or have been released at properties
currently or previously owned or operated by us or at locations
to which our wastes are or have been transported for disposal;
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the federal Water Pollution Control Act, also known as the Clean
Water Act, and analogous state laws that regulate discharges
from our facilities into state and federal waters, including
wetlands;
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the federal Resource Conservation and Recovery Act, also known
as RCRA, and analogous state laws that impose requirements for
the storage, treatment and disposal of solid and hazardous waste
from our facilities; and
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the Toxic Substances Control Act, also known as TSCA, and
analogous state laws that impose requirements on the use,
storage and disposal of various chemicals and chemical
substances at our facilities.
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These laws and regulations may impose numerous obligations that
are applicable to our operations, including the acquisition of
permits to conduct regulated activities, the incurrence of
capital expenditures to limit or prevent releases of materials
from our pipelines and facilities, and the imposition of
substantial liabilities for pollution resulting from our
operations. Numerous governmental authorities, such as the
U.S. Environmental Protection Agency, or the EPA, and
analogous state agencies, have the power to enforce compliance
with these laws and regulations and the permits issued under
them, oftentimes requiring difficult and costly corrective
actions. Failure to comply with these laws, regulations and
permits may result in the assessment of administrative, civil
and criminal penalties, the imposition of remedial obligations
and the issuance of injunctions limiting or preventing some or
all of our operations.
There is an inherent risk of incurring significant environmental
costs and liabilities in connection with our operations due to
historical industry operations and waste disposal practices, our
handling of hydrocarbon wastes and potential emissions and
discharges related to our operations. Joint and several, strict
liability may be incurred, without regard to fault, under
certain of these environmental laws and regulations in
connection with discharges or releases of hydrocarbon wastes on,
under or from our properties and facilities, many of which have
been used for midstream activities for a number of years,
oftentimes by third parties not under our control. Private
parties, including the owners of the properties through which
our gathering or transportation systems pass and facilities
where our wastes are taken for reclamation or disposal, may also
have the right to pursue legal actions to enforce compliance as
well as to seek damages for non-compliance with environmental
laws and regulations or for personal injury or property damage.
In addition, changes in environmental laws and regulations occur
frequently, and any such changes that result in more stringent
and costly waste handling, storage, transport, disposal or
remediation requirements could have a material adverse effect on
our operations or financial position. We may not be able to
recover all or any of these costs from insurance. Please read
BusinessEnvironmental matters for more
information.
Our construction
of new assets may not result in revenue increases and will be
subject to regulatory, environmental, political, legal and
economic risks, which could adversely affect our results of
operations and financial condition.
One of the ways we intend to grow our business is through the
construction of new midstream assets. The construction of
additions or modifications to our existing systems and the
construction of new midstream assets involve numerous
regulatory, environmental, political and legal uncertainties
that are beyond our control. Such expansion projects may also
require the expenditure of significant amounts of capital, and
financing may not be available on economically acceptable terms
or at all. If we undertake these projects, they may not be
completed on schedule, at the budgeted cost, or at all.
Moreover, our revenues may not increase immediately upon the
expenditure of funds on a particular project. For
23
Risk
factors
instance, if we expand a pipeline, the construction may occur
over an extended period of time, yet we will not receive any
material increases in revenues until the project is completed.
Moreover, we could construct facilities to capture anticipated
future growth in production in a region in which such growth
does not materialize. Since we are not engaged in the
exploration for and development of natural gas and oil reserves,
we often do not have access to third-party estimates of
potential reserves in an area prior to constructing facilities
in that area. To the extent we rely on estimates of future
production in our decision to construct additions to our
systems, such estimates may prove to be inaccurate as a result
of the numerous uncertainties inherent in estimating quantities
of future production. As a result, new facilities may not be
able to attract enough throughput to achieve our expected
investment return, which could adversely affect our results of
operations and financial condition. In addition, the
construction of additions to our existing gathering and
transportation assets may require us to obtain new
rights-of-way. We may be unable to obtain such rights-of-way and
may, therefore, be unable to connect new natural gas volumes to
our systems or capitalize on other attractive expansion
opportunities. Additionally, it may become more expensive for us
to obtain new rights-of-way or to renew existing rights-of-way.
If the cost of renewing or obtaining new rights-of-way
increases, our cash flows could be adversely affected.
If Anadarko were
to limit divestitures of midstream assets to us or if we were to
be unable to make acquisitions on economically acceptable terms
from Anadarko or third parties, our future growth would be
limited, and the acquisitions we do make may reduce, rather than
increase, our cash generated from operations on a per unit
basis.
Our ability to grow depends, in part, on our ability to make
acquisitions that increase our cash generated from operations on
a per unit basis. The acquisition component of our strategy is
based, in large part, on our expectation of ongoing divestitures
of midstream energy assets by industry participants, including,
most notably, Anadarko. A material decrease in such divestitures
would limit our opportunities for future acquisitions and could
adversely affect our ability to grow our operations and increase
our distributions to our unitholders.
On December 27, 2007, Anadarko announced a
$2.2 billion financing of its midstream assets, the
proceeds of which were used to further reduce Anadarkos
acquisition indebtedness. To facilitate the transaction,
Anadarko formed a subsidiary, WGR Asset Holding Company LLC, or
WGRAH, that owns or has rights to substantially all of
Anadarkos midstream assets (including the assets to be
contributed to us in connection with this offering). WGRAH
received a $2.2 billion loan from an entity owned by
Anadarko and a group of third-party investors pursuant to a loan
agreement that has an initial term of five years and contains
various affirmative and negative covenants. One of the covenants
requires WGRAH to reduce its debt to EBITDA ratio incrementally
over the life of the loan. Although WGRAH may elect to satisfy
its obligations under the financing by divesting its midstream
assets over time, these divestitures may be made to third
parties rather than to us. This financing could reduce the
willingness of Anadarko to contribute assets to us for non-cash
consideration.
If we are unable to make accretive acquisitions from Anadarko or
third parties, either because we are (i) unable to identify
attractive acquisition candidates or negotiate acceptable
purchase contracts, (ii) unable to obtain financing for
these acquisitions on economically acceptable terms or
(iii) outbid by competitors, then our future growth and
ability to increase distributions will be limited. Furthermore,
even if we do make acquisitions that we believe will be
accretive, these acquisitions may nevertheless result in a
decrease in the cash generated from operations on a per unit
basis.
Any acquisition involves potential risks, including, among other
things:
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mistaken assumptions about volumes, revenues and costs,
including synergies;
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an inability to successfully integrate the assets or businesses
we acquire;
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the assumption of unknown liabilities;
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24
Risk
factors
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limitations on rights to indemnity from the seller;
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mistaken assumptions about the overall costs of equity or debt;
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the diversion of managements and employees attention
from other business concerns;
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unforeseen difficulties operating in new geographic areas; and
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customer or key employee losses at the acquired businesses.
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If we consummate any future acquisitions, our capitalization and
results of operations may change significantly, and you will not
have the opportunity to evaluate the economic, financial and
other relevant information that we will consider in determining
the application of these funds and other resources.
We do not own all
of the land on which our pipelines and facilities are located,
which could result in disruptions to our operations.
We do not own all of the land on which our pipelines and
facilities have been constructed, and we are, therefore, subject
to the possibility of more onerous terms
and/or
increased costs to retain necessary land use if we do not have
valid rights-of-way or if such rights-of-way lapse or terminate.
We obtain the rights to construct and operate our pipelines on
land owned by third parties and governmental agencies for a
specific period of time. Our loss of these rights, through our
inability to renew right-of-way contracts or otherwise, could
have a material adverse effect on our business, results of
operations, financial condition and ability to make cash
distributions to you.
Our business
involves many hazards and operational risks, some of which may
not be fully covered by insurance. If a significant accident or
event occurs for which we are not fully insured, our operations
and financial results could be adversely affected.
Our operations are subject to all of the risks and hazards
inherent in the gathering, compressing, treating and
transportation of natural gas, including:
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damage to pipelines and plants, related equipment and
surrounding properties caused by hurricanes, tornadoes, floods,
fires and other natural disasters and acts of terrorism;
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inadvertent damage from construction, farm and utility equipment;
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leaks of natural gas and other hydrocarbons or losses of natural
gas as a result of the malfunction of equipment or facilities;
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leaks of natural gas containing hazardous quantities of hydrogen
sulfide from our Pinnacle gathering system or Bethel treating
facility;
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fires and explosions; and
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other hazards that could also result in personal injury and loss
of life, pollution and suspension of operations.
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These risks could result in substantial losses due to personal
injury
and/or loss
of life, severe damage to and destruction of property and
equipment and pollution or other environmental damage. These
risks may also result in curtailment or suspension of our
operations. A natural disaster or other hazard affecting the
areas in which we operate could have a material adverse effect
on our operations. We are not fully insured against all risks
inherent in our business. For example, we do not have any
property insurance on any of our underground pipeline systems
that would cover damage to the pipelines. In addition, although
we are insured for environmental pollution resulting from
environmental accidents that occur on a sudden and accidental
basis, we may not be insured against all environmental accidents
that might incur, some of which may result in toxic tort claims.
If a significant accident or event occurs for which we are not
fully insured, it could adversely affect our operations and
financial condition. Furthermore, we may not be able to maintain
or obtain insurance of the type and amount we desire at
25
Risk
factors
reasonable rates. As a result of market conditions, premiums and
deductibles for certain of our insurance policies may
substantially increase. In some instances, certain insurance
could become unavailable or available only for reduced amounts
of coverage. Additionally, we may be unable to recover from
prior owners of our assets, pursuant to our indemnification
rights, for potential environmental liabilities.
We are exposed to
the credit risk of Anadarko, and any material non-payment or
non-performance by Anadarko, including with respect to our
gathering and transportation agreements and our
$260.0 million note receivable, could reduce our ability to
make distributions to our unitholders.
We are dependent on Anadarko for the majority of our revenues.
In addition, we anticipate using the proceeds of this offering
to make a loan to Anadarko. Consequently, we are subject to the
risk of non-payment or non-performance by Anadarko, including
with respect to our gathering and transportation agreements and
our $260.0 million note receivable. Any such non-payment or
non-performance could reduce our ability to make distributions
to our unitholders. Furthermore, Anadarko is subject to its own
financial, operating and regulatory risks, which could increase
the risk of default on its obligations to us. We cannot predict
the extent to which Anadarkos business would be impacted
if conditions in the energy industry were to deteriorate nor can
we estimate the impact such conditions would have on
Anadarkos ability to perform under our gathering and
transportation agreements or note receivable. Further, unless
and until we receive full repayment of the $260.0 million
note from Anadarko, we will be subject to the risk of
non-payment or late payment of the interest payments and
principal of the note. Interest income on the note receivable
from Anadarko will be allocated in accordance with the general
profit and loss allocation provisions included in our
partnership agreement. Accordingly, any material non-payment or
non-performance by Anadarko could reduce our ability to make
distributions to our unitholders.
Anadarkos
credit facility and other debt instruments contain financial and
operating restrictions that may limit our access to credit. In
addition, our ability to obtain credit in the future may be
affected by Anadarkos credit rating.
We have the ability to incur up to $100 million of
indebtedness under Anadarkos $1.3 billion credit
facility. However, this $100 million of borrowing capacity
will be available to us only to the extent that sufficient
amounts remain unborrowed by Anadarko. As a result, borrowings
by Anadarko could restrict our access to credit. In addition, if
we or Anadarko were to fail to comply with the terms of this
credit facility, we could be unable to make any borrowings under
Anadarkos credit facility, even if capacity were otherwise
available. As a result, the restrictions in Anadarkos
credit facility could adversely affect our ability to finance
our future operations or capital needs or to engage in, expand
or pursue our business activities, and could also prevent us
from engaging in certain transactions that might otherwise be
considered beneficial to us.
Anadarkos and our ability to comply with the terms of its
and our respective debt instruments may be affected by events
beyond its and our control, including prevailing economic,
financial and industry conditions. If market or other economic
conditions deteriorate, Anadarkos and our ability to
comply with the terms of its and our respective debt instruments
may be impaired. We and Anadarko are subject to covenants, and
Anadarko is subject to a debt-to-capitalization ratio, under
Anadarkos credit facility. Should we or Anadarko fail to
comply with any covenants under Anadarkos credit facility,
we could be unable to make any borrowings under Anadarkos
credit facility. Additionally, a default by Anadarko under one
of its debt instruments may cause a cross-default under
Anadarkos other debt instruments, including the credit
facility under which we are a co-borrower. Accordingly, a breach
by Anadarko of certain of the covenants or ratios in another
debt instrument could cause the acceleration of any indebtedness
we have outstanding under the credit facility. In the event of
an acceleration, we
26
Risk
factors
might not have, or be able to obtain, sufficient funds to make
the required repayments of debt, finance our operations and pay
distributions to unitholders. For more information regarding our
debt agreements, please read Managements discussion
and analysis of financial condition and results of
operationsLiquidity and capital resources.
Due to our relationship with Anadarko, our ability to obtain
credit will be affected by Anadarkos credit rating. Even
if we obtain our own credit rating or separate financing
arrangement, any future change in Anadarkos credit rating
would likely also result in a change in our credit rating.
Regardless of whether we have our own credit rating, a
downgrading of Anadarkos credit rating could limit our
ability to obtain financing in the future upon favorable terms
or at all.
Debt we incur in
the future may limit our flexibility to obtain financing and to
pursue other business opportunities.
Our future level of debt could have important consequences to
us, including the following:
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our ability to obtain additional financing, if necessary, for
working capital, capital expenditures, acquisitions or other
purposes may be impaired or such financing may not be available
on favorable terms;
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our funds available for operations, future business
opportunities and distributions to unitholders will be reduced
by that portion of our cash flow required to make interest
payments on our debt;
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we may be more vulnerable to competitive pressures or a downturn
in our business or the economy generally; and
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our flexibility in responding to changing business and economic
conditions may be limited.
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Our ability to service our debt will depend upon, among other
things, our future financial and operating performance, which
will be affected by prevailing economic conditions and
financial, business, regulatory and other factors, some of which
are beyond our control. If our operating results are not
sufficient to service any future indebtedness, we will be forced
to take actions such as reducing distributions, reducing or
delaying our business activities, acquisitions, investments or
capital expenditures, selling assets or seeking additional
equity capital. We may not be able to effect any of these
actions on satisfactory terms or at all.
Increases in
interest rates could adversely impact our unit price, our
ability to issue equity or incur debt for acquisitions or other
purposes and our ability to make cash distributions at our
intended levels.
Interest rates may increase in the future to counter possible
inflation. As a result, interest rates on future credit
facilities and debt offerings could be higher than current
levels, causing our financing costs to increase accordingly. As
with other yield-oriented securities, our unit price is impacted
by our level of our cash distributions and implied distribution
yield. The distribution yield is often used by investors to
compare and rank yield-oriented securities for investment
decision-making purposes. Therefore, changes in interest rates,
either positive or negative, may affect the yield requirements
of investors who invest in our units, and a rising interest rate
environment could have an adverse impact on our unit price, our
ability to issue equity or incur debt for acquisitions or other
purposes and our ability to make cash distributions at our
intended levels.
27
Risk
factors
RISKS INHERENT IN
AN INVESTMENT IN US
Anadarko owns and
controls our general partner, which has sole responsibility for
conducting our business and managing our operations. Anadarko
and our general partner have conflicts of interest and may favor
Anadarkos interests to your detriment.
Following this offering, Anadarko will own and control our
general partner, as well as appoint all of the officers and
directors of our general partner, some of whom will also be
officers of Anadarko. Although our general partner has a
fiduciary duty to manage us in a manner that is beneficial to us
and our unitholders, the directors and officers of our general
partner have a fiduciary duty to manage our general partner in a
manner that is beneficial to its owner, Anadarko. Conflicts of
interest may arise between Anadarko and our general partner, on
the one hand, and us and our unitholders, on the other hand. In
resolving these conflicts of interest, our general partner may
favor its own interests and the interests of Anadarko over our
interests and the interests of our unitholders. These conflicts
include the following situations, among others:
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Neither our partnership agreement nor any other agreement
requires Anadarko to pursue a business strategy that favors us.
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Anadarko is not limited in its ability to compete with us and
may offer business opportunities or sell midstream assets to
parties other than us.
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Our general partner is allowed to take into account the
interests of parties other than us, such as Anadarko, in
resolving conflicts of interest.
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The officers of our general partner will also devote significant
time to the business of Anadarko and will be compensated by
Anadarko accordingly.
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Our partnership agreement limits the liability of and reduces
the fiduciary duties owed by our general partner, and also
restricts the remedies available to our unitholders for actions
that, without the limitations, might constitute breaches of
fiduciary duty.
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Except in limited circumstances, our general partner has the
power and authority to conduct our business without unitholder
approval.
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Our general partner determines the amount and timing of asset
purchases and sales, borrowings, issuance of additional
partnership securities and the creation, reduction or increase
of reserves, each of which can affect the amount of cash that is
distributed to our unitholders.
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Our general partner determines the amount and timing of any
capital expenditures and whether a capital expenditure is
classified as a maintenance capital expenditure, which reduces
operating surplus, or an expansion capital expenditure, which
does not reduce operating surplus. This determination can affect
the amount of cash that is distributed to our unitholders and to
our general partner and the ability of the subordinated units to
convert to common units.
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Our general partner determines which costs incurred by it are
reimbursable by us.
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Our general partner may cause us to borrow funds in order to
permit the payment of cash distributions, even if the purpose or
effect of the borrowing is to make a distribution on the
subordinated units, to make incentive distributions or to
accelerate the expiration of the subordination period.
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Our partnership agreement permits us to classify up to
$31.8 million as operating surplus, even if it is generated
from asset sales, non-working capital borrowings or other
sources that would otherwise constitute capital surplus. This
cash may be used to fund distributions on our subordinated units
or to our general partner in respect of the general partner
interest or the incentive distribution rights.
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Our partnership agreement does not restrict our general partner
from causing us to pay it or its affiliates for any services
rendered to us or entering into additional contractual
arrangements with any of these entities on our behalf.
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28
Risk
factors
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Our general partner intends to limit its liability regarding our
contractual and other obligations.
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Our general partner may exercise its right to call and purchase
all of the common units not owned by it and its affiliates if
they own more than 80% of the common units.
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Our general partner controls the enforcement of the obligations
that it and its affiliates owe to us.
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Our general partner decides whether to retain separate counsel,
accountants or others to perform services for us.
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Our general partner may elect to cause us to issue Class B
units to it in connection with a resetting of the target
distribution levels related to our general partners
incentive distribution rights without the approval of the
special committee of the board of directors of our general
partner or our unitholders. This election may result in lower
distributions to our common unitholders in certain situations.
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Please read Conflicts of interest and fiduciary
duties.
Anadarko is not
limited in its ability to compete with us and is not obligated
to offer us the opportunity to acquire additional assets or
businesses, which could limit our ability to grow and could
adversely affect our results of operations and cash available
for distribution to our unitholders.
Anadarko is not prohibited from owning assets or engaging in
businesses that compete directly or indirectly with us. In
addition, in the future, Anadarko may acquire, construct or
dispose of additional midstream or other assets and may be
presented with new business opportunities, without any
obligation to offer us the opportunity to purchase or construct
such assets or to engage in such business opportunities.
Moreover, while Anadarko may offer us the opportunity to buy
additional assets from it, it is under no contractual obligation
to do so and we are unable to predict whether or when such
acquisitions might be completed.
Cost
reimbursements due to Anadarko and our general partner for
services provided to us or on our behalf will be substantial and
will reduce our cash available for distribution to you. The
amount and timing of such reimbursements will be determined by
our general partner.
Prior to making distributions on our common units, we will
reimburse our general partner and its affiliates for all
expenses they incur on our behalf. These expenses will include
all costs incurred by Anadarko and our general partner in
managing and operating us. While our reimbursement of allocated
general and administrative expenses is capped under the omnibus
agreement, we are required to reimburse Anadarko and our general
partner for all direct operating expenses incurred on our
behalf. These direct operating expense reimbursements and the
reimbursement of incremental general and administrative expenses
we will incur as a result of becoming a publicly traded
partnership are not capped. Our partnership agreement provides
that our general partner will determine in good faith the
expenses that are allocable to us. The reimbursements to
Anadarko and our general partner will reduce the amount of cash
otherwise available for distribution to our unitholders.
If you are not an
Eligible Holder, you may not receive distributions or
allocations of income or loss on your common units and your
common units will be subject to redemption.
We have adopted certain requirements regarding those investors
who may own our common and subordinated units. Eligible Holders
are U.S. individuals or entities subject to U.S. federal
income taxation on the income generated by us or entities not
subject to U.S. federal income taxation on the income generated
by us, so long as all of the entitys owners are
U.S. individuals or entities subject to such taxation. If
you are not an Eligible Holder, our general partner may elect
not to make distributions or allocate income or loss on your
units and you run the risk of having your units redeemed by us
at the lower of your purchase price cost and the then-current
market price. The redemption price will be
29
Risk
factors
paid in cash or by delivery of a promissory note, as determined
by our general partner. Please read The partnership
agreement Non-U.S. and non-taxpaying assignees;
Redemption.
Our general
partner intends to limit its liability regarding our
obligations.
Our general partner intends to limit its liability under
contractual arrangements so that the counterparties to such
arrangements have recourse only against our assets, and not
against our general partner or its assets. Our general partner
may therefore cause us to incur indebtedness or other
obligations that are nonrecourse to our general partner. Our
partnership agreement provides that any action taken by our
general partner to limit its liability is not a breach of our
general partners fiduciary duties, even if we could have
obtained more favorable terms without the limitation on
liability. In addition, we are obligated to reimburse or
indemnify our general partner to the extent that it incurs
obligations on our behalf. Any such reimbursement or
indemnification payments would reduce the amount of cash
otherwise available for distribution to our unitholders.
Our partnership
agreement requires that we distribute all of our available cash,
which could limit our ability to grow and make
acquisitions.
We expect that we will distribute all of our available cash to
our unitholders and will rely primarily upon external financing
sources, including commercial bank borrowings and the issuance
of debt and equity securities, to fund our acquisitions and
expansion capital expenditures. As a result, to the extent we
are unable to finance growth externally, our cash distribution
policy will significantly impair our ability to grow.
Furthermore, we anticipate using substantially all of the net
proceeds of this offering to make a loan to Anadarko, and
therefore, the net proceeds of this offering will not be
directly used to grow our business.
In addition, because we distribute all of our available cash,
our growth may not be as fast as that of businesses that
reinvest their available cash to expand ongoing operations. To
the extent we issue additional units in connection with any
acquisitions or expansion capital expenditures, the payment of
distributions on those additional units may increase the risk
that we will be unable to maintain or increase our per unit
distribution level. There are no limitations in our partnership
agreement or in Anadarkos credit facility, under which we
are a co-borrower, on our ability to issue additional units,
including units ranking senior to the common units. The
incurrence of additional commercial borrowings or other debt to
finance our growth strategy would result in increased interest
expense, which, in turn, may impact the available cash that we
have to distribute to our unitholders.
Our partnership
agreement limits our general partners fiduciary duties to
holders of our common and subordinated units.
Our partnership agreement contains provisions that modify and
reduce the fiduciary standards to which our general partner
would otherwise be held by state fiduciary duty law. For
example, our partnership agreement permits our general partner
to make a number of decisions in its individual capacity, as
opposed to in its capacity as our general partner, or otherwise
free of fiduciary duties to us and our unitholders. This
entitles our general partner to consider only the interests and
factors that it desires and relieves it of any duty or
obligation to give any consideration to any interest of, or
factors affecting, us, our affiliates or our limited partners.
Examples of decisions that our general partner may make in its
individual capacity include:
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how to allocate corporate opportunities among us and its
affiliates;
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whether to exercise its limited call right;
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how to exercise its voting rights with respect to the units it
owns;
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whether to exercise its registration rights;
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30
Risk
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whether to elect to reset target distribution levels; and
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whether or not to consent to any merger or consolidation of the
partnership or amendment to the partnership agreement.
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By purchasing a common unit, a common unitholder agrees to
become bound by the provisions in the partnership agreement,
including the provisions discussed above. Please read
Conflicts of interest and fiduciary dutiesFiduciary
duties.
Our partnership
agreement restricts the remedies available to holders of our
common and subordinated units for actions taken by our general
partner that might otherwise constitute breaches of fiduciary
duty.
Our partnership agreement contains provisions that restrict the
remedies available to unitholders for actions taken by our
general partner that might otherwise constitute breaches of
fiduciary duty under state fiduciary duty law. For example, our
partnership agreement:
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provides that whenever our general partner makes a determination
or takes, or declines to take, any other action in its capacity
as our general partner, our general partner is required to make
such determination, or take or decline to take such other
action, in good faith, and will not be subject to any other or
different standard imposed by our partnership agreement,
Delaware law, or any other law, rule or regulation, or at equity;
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provides that our general partner will not have any liability to
us or our unitholders for decisions made in its capacity as a
general partner so long as such decisions are made in good
faith, meaning that it believed that the decision was in the
best interest of our partnership;
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provides that our general partner and its officers and directors
will not be liable for monetary damages to us, our limited
partners or their assignees resulting from any act or omission
unless there has been a final and non-appealable judgment
entered by a court of competent jurisdiction determining that
our general partner or its officers and directors, as the case
may be, acted in bad faith or engaged in fraud or willful
misconduct or, in the case of a criminal matter, acted with
knowledge that the conduct was criminal; and
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provides that our general partner will not be in breach of its
obligations under the partnership agreement or its fiduciary
duties to us or our unitholders if a transaction with an
affiliate or the resolution of a conflict of interest is:
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(a)
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approved by the special committee of the board of directors of
our general partner, although our general partner is not
obligated to seek such approval;
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(b)
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approved by the vote of a majority of the outstanding common
units, excluding any common units owned by our general partner
and its affiliates;
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(c)
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on terms no less favorable to us than those generally being
provided to or available from unrelated third parties; or
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(d)
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fair and reasonable to us, taking into account the totality of
the relationships among the parties involved, including other
transactions that may be particularly favorable or advantageous
to us.
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In connection with a situation involving a transaction with an
affiliate or a conflict of interest, any determination by our
general partner must be made in good faith. If an affiliate
transaction or the resolution of a conflict of interest is not
approved by our common unitholders or the special committee and
the board of directors of our general partner determines that
the resolution or course of action taken with respect to the
affiliate transaction or conflict of interest satisfies either
of the standards set forth in subclauses (c) and (d) above, then
it will be presumed that, in making its decision, the board of
directors acted in good faith, and in any proceeding brought by
or on behalf of any limited partner or
31
Risk
factors
the partnership, the person bringing or prosecuting such
proceeding will have the burden of overcoming such presumption.
Our general
partner may elect to cause us to issue Class B and general
partner units to it in connection with a resetting of the target
distribution levels related to its incentive distribution
rights, without the approval of the special committee of its
board of directors or the holders of our common units. This
could result in lower distributions to holders of our common
units.
Our general partner has the right, at any time when there are no
subordinated units outstanding and it has received incentive
distributions at the highest level to which it is entitled (48%)
for each of the prior four consecutive fiscal quarters, to reset
the initial target distribution levels at higher levels based on
our distributions at the time of the exercise of the reset
election. Following a reset election by our general partner, the
minimum quarterly distribution will be adjusted to equal the
reset minimum quarterly distribution and the target distribution
levels will be reset to correspondingly higher levels based on
percentage increases above the reset minimum quarterly
distribution.
If our general partner elects to reset the target distribution
levels, it will be entitled to receive a number of Class B
units and general partner units. The Class B units will be
entitled to the same cash distributions per unit as our common
units and will be convertible into an equal number of common
units. The number of Class B units to be issued to our
general partner will be equal to that number of common units
which would have entitled their holder to an average aggregate
quarterly cash distribution in the prior two quarters equal to
the average of the distributions to our general partner on the
incentive distribution rights in the prior two quarters. Our
general partner will be issued the number of general partner
units necessary to maintain our general partners interest
in us that existed immediately prior to the reset election. We
anticipate that our general partner would exercise this reset
right in order to facilitate acquisitions or internal growth
projects that would not be sufficiently accretive to cash
distributions per common unit without such conversion. It is
possible, however, that our general partner could exercise this
reset election at a time when it is experiencing, or expects to
experience, declines in the cash distributions it receives
related to its incentive distribution rights and may, therefore,
desire to be issued Class B units, which are entitled to
distributions on the same priority as our common units, rather
than retain the right to receive incentive distributions based
on the initial target distribution levels. As a result, a reset
election may cause our common unitholders to experience a
reduction in the amount of cash distributions that our common
unitholders would have otherwise received had we not issued new
Class B units and general partner units to our general
partner in connection with resetting the target distribution
levels. Please read Provisions of our partnership
agreement relating to cash distributionsGeneral
partners right to reset target distribution levels.
Holders of our
common units have limited voting rights and are not entitled to
elect our general partner or its directors.
Unlike the holders of common stock in a corporation, unitholders
have only limited voting rights on matters affecting our
business and, therefore, limited ability to influence
managements decisions regarding our business. Unitholders
will have no right on an annual or ongoing basis to elect our
general partner or its board of directors. The board of
directors of our general partner will be chosen by Anadarko.
Furthermore, if the unitholders are dissatisfied with the
performance of our general partner, they will have little
ability to remove our general partner. As a result of these
limitations, the price at which the common units will trade
could be diminished because of the absence or reduction of a
takeover premium in the trading price. Our partnership agreement
also contains provisions limiting the ability of unitholders to
call meetings or to acquire information about our operations, as
well as other provisions limiting the unitholders ability
to influence the manner or direction of management.
32
Risk
factors
Even if holders
of our common units are dissatisfied, they cannot initially
remove our general partner without its consent.
The unitholders initially will be unable to remove our general
partner without its consent because our general partner and its
affiliates will own sufficient units upon completion of this
offering to be able to prevent its removal. The vote of the
holders of at least
662/3%
of all outstanding limited partner units voting together as a
single class is required to remove our general partner.
Following the closing of this offering, Anadarko will own 64.7%
of our outstanding common and subordinated units. Also, if our
general partner is removed without cause during the
subordination period and units held by our general partner and
its affiliates are not voted in favor of that removal, all
remaining subordinated units will automatically convert into
common units and any existing arrearages on our common units
will be extinguished. A removal of our general partner under
these circumstances would adversely affect our common units by
prematurely eliminating their distribution and liquidation
preference over our subordinated units, which would otherwise
have continued until we had met certain distribution and
performance tests. Cause is narrowly defined to mean that a
court of competent jurisdiction has entered a final,
non-appealable judgment finding our general partner liable for
actual fraud, gross negligence or willful or wanton misconduct
in its capacity as our general partner. Cause does not include
most cases of charges of poor management of the business, so the
removal of our general partner because of the unitholders
dissatisfaction with our general partners performance in
managing our partnership will most likely result in the
termination of the subordination period and conversion of all
subordinated units to common units.
Our partnership
agreement restricts the voting rights of unitholders owning 20%
or more of our common units.
Unitholders voting rights are further restricted by a
provision of our partnership agreement providing that any units
held by a person that owns 20% or more of any class of units
then outstanding, other than our general partner, its
affiliates, their transferees and persons who acquired such
units with the prior approval of the board of directors of our
general partner, cannot vote on any matter.
Our general
partner interest or the control of our general partner may be
transferred to a third party without unitholder
consent.
Our general partner may transfer its general partner interest to
a third party in a merger or in a sale of all or substantially
all of its assets without the consent of the unitholders.
Furthermore, our partnership agreement does not restrict the
ability of Anadarko to transfer all or a portion of its
ownership interest in our general partner to a third party. The
new owner of our general partner would then be in a position to
replace the board of directors and officers of our general
partner with its own designees and thereby exert significant
control over the decisions made by the board of directors and
officers.
You will
experience immediate and substantial dilution in pro forma net
tangible book value of $6.55 per common unit.
The estimated initial public offering price of $18.00 per common
unit exceeds our pro forma net tangible book value of $11.45 per
unit. Based on the estimated initial public offering price of
$18.00 per common unit, you will incur immediate and substantial
dilution of $6.55 per common unit. This dilution results
primarily because the assets contributed by our general partner
and its affiliates are recorded in accordance with GAAP at their
historical cost, and not their fair value. Please read
Dilution.
33
Risk
factors
We may issue
additional units without your approval, which would dilute your
existing ownership interests.
Our partnership agreement does not limit the number of
additional limited partner interests that we may issue at any
time without the approval of our unitholders. The issuance by us
of additional common units or other equity securities of equal
or senior rank will have the following effects:
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our existing unitholders proportionate ownership interest
in us will decrease;
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the amount of cash available for distribution on each unit may
decrease;
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because a lower percentage of total outstanding units will be
subordinated units, the risk that a shortfall in the payment of
the minimum quarterly distribution will be borne by our common
unitholders will increase;
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the ratio of taxable income to distributions may increase;
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the relative voting strength of each previously outstanding unit
may be diminished; and
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the market price of the common units may decline.
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Anadarko may sell
units in the public or private markets, and such sales could
have an adverse impact on the trading price of the common
units.
After the sale of the common units offered by this prospectus,
assuming that the underwriters do not exercise their option to
purchase additional common units, Anadarko will hold an
aggregate of 7,786,306 common units and 26,536,306
subordinated units. All of the subordinated units will convert
into common units at the end of the subordination period and may
convert earlier under certain circumstances. The sale of these
units in the public or private markets could have an adverse
impact on the price of the common units or on any trading market
that may develop.
Our general
partner has a limited call right that may require you to sell
your units at an undesirable time or price.
If at any time our general partner and its affiliates own more
than 80% of the common units, our general partner will have the
right, which it may assign to any of its affiliates or to us,
but not the obligation, to acquire all, but not less than all,
of the common units held by unaffiliated persons at a price that
is not less than their then-current market price. As a result,
you may be required to sell your common units at an undesirable
time or price and may not receive any return on your investment.
You may also incur a tax liability upon a sale of your units. At
the completion of this offering, and assuming no exercise of the
underwriters option to purchase additional common units,
Anadarko will own approximately 29.3% of our outstanding common
units. At the end of the subordination period, assuming no
additional issuances of common units (other than upon the
conversion of the subordinated units), Anadarko will own
approximately 64.7% of our outstanding common units. For
additional information about this right, please read The
partnership agreementLimited call right.
Your liability
may not be limited if a court finds that unitholder action
constitutes control of our business.
A general partner of a partnership generally has unlimited
liability for the obligations of the partnership, except for
those contractual obligations of the partnership that are
expressly made without recourse to the general partner. Our
partnership is organized under Delaware law, and we conduct
business in a number of other states. The limitations on the
liability of holders of limited partner interests for the
obligations of a limited partnership have not been clearly
established in some of the
34
Risk
factors
other states in which we do business. You could be liable for
any and all of our obligations as if you were a general partner
if a court or government agency were to determine that:
|
|
Ø
|
we were conducting business in a state but had not complied with
that particular states partnership statute; or
|
|
Ø
|
your right to act with other unitholders to remove or replace
our general partner, to approve some amendments to our
partnership agreement or to take other actions under our
partnership agreement constitute control of our
business.
|
For a discussion of the implications of the limitations of
liability on a unitholder, please read The partnership
agreementLimited liability.
Unitholders may
have liability to repay distributions that were wrongfully
distributed to them.
Under certain circumstances, unitholders may have to repay
amounts wrongfully returned or distributed to them. Under
Section 17-607
of the Delaware Revised Uniform Limited Partnership Act, we may
not make a distribution to you if the distribution would cause
our liabilities to exceed the fair value of our assets. Delaware
law provides that for a period of three years from the date of
an impermissible distribution, limited partners who received the
distribution and who knew at the time of the distribution that
it violated Delaware law will be liable to the limited
partnership for the distribution amount. Substituted limited
partners are liable both for the obligations of the assignor to
make contributions to the partnership that were known to the
substituted limited partner at the time it became a limited
partner and for those obligations that were unknown if the
liabilities could have been determined from the partnership
agreement. Neither liabilities to partners on account of their
partnership interest nor liabilities that are non-recourse to
the partnership are counted for purposes of determining whether
a distribution is permitted.
There is no
existing market for our common units, and a trading market that
will provide you with adequate liquidity may not develop. The
price of our common units may fluctuate significantly, and you
could lose all or part of your investment.
Prior to this offering, there has been no public market for our
common units. After this offering, there will be only 18,750,000
publicly traded common units, assuming no exercise of the
underwriters option to purchase additional common units.
In addition, Anadarko will own 7,786,306 common and
26,536,306 subordinated units, representing an aggregate
63.4% limited partner interest in us. We do not know the extent
to which investor interest will lead to the development of a
trading market or how liquid that market might be. You may not
be able to resell your common units at or above the initial
public offering price. Additionally, the lack of liquidity may
result in wide bid-ask spreads, contribute to significant
fluctuations in the market price of the common units and limit
the number of investors who are able to buy the common units.
The initial public offering price for the common units will be
determined by negotiations between us and the representatives of
the underwriters and may not be indicative of the market price
of the common units that will prevail in the trading market. The
market price of our common units may decline below the initial
public offering price. The market price of our common units may
also be influenced by many factors, some of which are beyond our
control, including:
|
|
Ø
|
our quarterly distributions;
|
|
Ø
|
our quarterly or annual earnings or those of other companies in
our industry;
|
|
Ø
|
the loss of a large customer;
|
|
Ø
|
announcements by us or our competitors of significant contracts
or acquisitions;
|
|
Ø
|
changes in accounting standards, policies, guidance,
interpretations or principles;
|
35
Risk
factors
|
|
Ø
|
general economic conditions;
|
|
Ø
|
the failure of securities analysts to cover our common units
after this offering or changes in financial estimates by
analysts;
|
|
Ø
|
future sales of our common units; and
|
|
Ø
|
other factors described in these Risk factors.
|
We will incur
increased costs as a result of being a publicly traded
partnership.
We have no history operating as a publicly traded partnership.
As a publicly traded partnership, we will incur significant
legal, accounting and other expenses. In addition, the
Sarbanes-Oxley Act of 2002 and related rules subsequently
implemented by the SEC and the New York Stock Exchange, or the
NYSE, have required changes in the corporate governance
practices of publicly traded companies. We expect these rules
and regulations to increase our legal and financial compliance
costs and to make activities more time-consuming and costly. For
example, as a result of becoming a publicly traded partnership,
we are required to have at least three independent directors,
create an audit committee and adopt policies regarding internal
controls and disclosure controls and procedures, including the
preparation of reports on internal controls over financial
reporting. In addition, we will incur additional costs
associated with our publicly traded partnership reporting
requirements. We also expect these new rules and regulations to
make it more difficult and more expensive for our general
partner to obtain director and officer liability insurance and
to possibly result in our general partner having to accept
reduced policy limits and coverage. As a result, it may be more
difficult for our general partner to attract and retain
qualified persons to serve on its board of directors or as
executive officers. We have included $2.5 million of
estimated incremental costs per year associated with being a
publicly traded partnership in our financial forecast included
elsewhere in this prospectus. However, it is possible that our
actual incremental costs of being a publicly traded partnership
will be higher than we currently estimate. These costs are not
subject to the $6.0 million cap in the omnibus agreement
applicable to general and administrative expenses allocable to
us by Anadarko.
If we are deemed
to be an investment company under the Investment
Company Act of 1940, it would adversely affect the price of our
common units and could have a material adverse effect on our
business.
Our initial assets will consist of our ownership interests in
our operating subsidiaries as well as a $260.0 million note
receivable from Anadarko. If this note receivable together with
a sufficient amount of our other assets are deemed to be
investment securities, within the meaning of the
Investment Company Act of 1940, or the Investment Company Act,
we would either have to register as an investment company under
the Investment Company Act, obtain exemptive relief from the SEC
or modify our organizational structure or contract rights so as
to fall outside of the definition of investment company.
Registering as an investment company could, among other things,
materially limit our ability to engage in transactions with
affiliates, including the purchase and sale of certain
securities or other property from or to our affiliates, restrict
our ability to borrow funds or engage in other transactions
involving leverage and require us to add additional directors
who are independent of us or our affiliates. The occurrence of
some or all of these events would adversely affect the price of
our common units and could have a material adverse effect on our
business.
Moreover, treatment of us as an investment company would prevent
our qualification as a partnership for federal income tax
purposes, in which case we would be treated as a corporation for
federal income tax purposes. As a result, we would pay federal
income tax on our taxable income at the corporate tax rate,
distributions to you would generally be taxed again as corporate
distributions and none of our income, gains, losses or
deductions would flow through to you. If we were taxed as a
corporation, our cash available for distribution to you would be
substantially reduced. Therefore, treatment of us as an
36
Risk
factors
investment company would result in a material reduction in the
anticipated cash flow and after-tax return to the unitholders,
likely causing a substantial reduction in the value of our
common units. For a discussion of the federal income tax
implications that would result from our treatment as a
corporation in any taxable year, please read Material tax
consequencesPartnership status.
TAX RISKS TO
COMMON UNITHOLDERS
In addition to reading the following risk factors, you should
read Material tax consequences for a more complete
discussion of the expected material federal income tax
consequences of owning and disposing of common units.
Our tax treatment
depends on our status as a partnership for federal income tax
purposes, as well as our not being subject to a material amount
of entity-level taxation by individual states. If the IRS were
to treat us as a corporation for federal income tax purposes or
we were to become subject to additional amounts of entity-level
taxation for state tax purposes, then our cash available for
distribution to you could be substantially reduced.
The anticipated after-tax economic benefit of an investment in
our common units depends largely on our being treated as a
partnership for federal income tax purposes. We have not
requested, and do not plan to request, a ruling from the
Internal Revenue Service, or the IRS, on this or any other tax
matter affecting us.
Despite the fact that we are classified as a limited partnership
under Delaware law, it is possible in certain circumstances for
a partnership such as ours to be treated as a corporation for
federal income tax purposes. Although we do not believe, based
upon our current operations, that we will be so treated, a
change in our business (or a change in current law) could cause
us to be treated as a corporation for federal income tax
purposes or otherwise subject us to taxation as an entity.
If we were treated as a corporation for federal income tax
purposes, we would pay federal income tax on our taxable income
at the corporate tax rate, which is currently a maximum of 35%
and would likely pay state income tax at varying rates.
Distributions to you would generally be taxed again as corporate
distributions, and no income, gains, losses, deductions or
credits would flow through to you. Because a tax would be
imposed upon us as a corporation, our cash available for
distribution to you would be substantially reduced. Therefore,
treatment of us as a corporation would result in a material
reduction in the anticipated cash flow and after-tax return to
the unitholders, likely causing a substantial reduction in the
value of our common units.
Current law may change so as to cause us to be treated as a
corporation for federal income tax purposes or otherwise subject
us to entity-level taxation. In addition, if we are deemed to be
an investment company, as described above, we would be subject
to such taxation. Moreover, at the federal level, legislation
has been proposed that would eliminate partnership tax treatment
for certain publicly traded partnerships. Although such
legislation would not apply to us as currently proposed, it
could be amended prior to enactment such that it would apply to
us. We are unable to predict whether any of these changes, or
other proposals, will ultimately be enacted. Any such changes
could negatively impact the value of an investment in our common
units.
At the state level, were we to be subject to federal income tax,
we would also be subject to the income tax provisions of many
states. Moreover, because of widespread state budget deficits
and other reasons, several states are evaluating ways to
independently subject partnerships to entity-level taxation
through the imposition of state income, franchise and other
forms of taxation. For example, we are required to pay Texas
margin tax at a maximum effective rate of 0.7% of our gross
income apportioned to Texas. Imposition of such a tax on us by
Texas and, if applicable, by any other state will reduce the
cash available for distribution to you.
37
Risk
factors
Our partnership agreement provides that if a law is enacted or
existing law is modified or interpreted in a manner that
subjects us to taxation as a corporation or otherwise subjects
us to entity-level taxation for federal, state or local income
tax purposes, the minimum quarterly distribution amount and the
target distribution amounts may be adjusted to reflect the
impact of that law on us.
We prorate our
items of income, gain, loss and deduction between transferors
and transferees of our units each month based upon the ownership
of our units on the first day of each month, instead of on the
basis of the date a particular unit is transferred. The IRS may
challenge this treatment, which could change the allocation of
items of income, gain, loss and deduction among our
unitholders.
We prorate our items of income, gain, loss and deduction between
transferors and transferees of our units each month based upon
the ownership of our units on the first day of each month,
instead of on the basis of the date a particular unit is
transferred. The use of this proration method may not be
permitted under existing Treasury regulations, and, accordingly,
our counsel is unable to opine as to the validity of this
method. If the IRS were to challenge this method or new Treasury
regulations were issued, we may be required to change the
allocation of items of income, gain, loss and deduction among
our unitholders. Please read Material tax
consequencesDisposition of common unitsAllocations
between transferors and transferees.
If the IRS
contests the federal income tax positions we take or the pricing
of our related party agreements with Anadarko, the market for
our common units may be adversely impacted and the cost of any
IRS contest will reduce our cash available for distribution to
you.
We have not requested a ruling from the IRS with respect to our
treatment as a partnership for federal income tax purposes or
any other matter affecting us, including the pricing of our
related party agreements with Anadarko. The IRS may adopt
positions that differ from the conclusions of our counsel
expressed in this prospectus or from the positions we take. It
may be necessary to resort to administrative or court
proceedings to sustain some or all of our counsels
conclusions or the positions we take. A court may not agree with
some or all of our counsels conclusions or positions we
take. For example, the IRS may reallocate items of income,
deductions, credits or allowances between related parties if the
IRS determines that such reallocation is necessary to prevent
evasion of taxes or clearly to reflect the income of any such
related parties. Any contest with the IRS may materially and
adversely impact the market for our common units and the price
at which they trade. If the IRS were successful in any such
challenge, we may be required to change the allocation of items
of income, gain, loss and deduction among our unitholders and
our general partner. Such a reallocation may require us and our
unitholders to file amended tax returns. In addition, our costs
of any contest with the IRS will be borne indirectly by our
unitholders and our general partner because the costs will
reduce our cash available for distribution.
You will be
required to pay taxes on your share of our income even if you do
not receive any cash distributions from us.
Because our unitholders will be treated as partners to whom we
will allocate taxable income which could be different in amount
than the cash we distribute, you will be required to pay any
federal income taxes and, in some cases, state and local income
taxes on your share of our taxable income whether or not you
receive cash distributions from us. You may not receive cash
distributions from us equal to your share of our taxable income
or even equal to the actual tax liability that results from that
income.
38
Risk
factors
Tax gain or loss
on the disposition of our common units could be more or less
than expected.
If you sell your common units, you will recognize a gain or loss
equal to the difference between the amount realized and your tax
basis in those common units. Because distributions in excess of
your allocable share of our net taxable income decrease your tax
basis in your common units, the amount, if any, of such prior
excess distributions with respect to the units you sell will, in
effect, become taxable income to you, if you sell such units at
a price greater than your tax basis in those units, even if the
price you receive is less than your original cost. Furthermore,
a substantial portion of the amount realized, whether or not
representing gain, may be taxed as ordinary income due to
potential recapture items, including depreciation recapture. In
addition, because the amount realized includes a
unitholders share of our nonrecourse liabilities, if you
sell your units, you may incur a tax liability in excess of the
amount of cash you receive from the sale. Please read
Material tax consequencesDisposition of common
unitsRecognition of gain or loss for a further
discussion of the foregoing.
Tax-exempt
entities and
non-U.S.
persons face unique tax issues from owning common units that may
result in adverse tax consequences to them.
Investment in common units by tax-exempt entities, such as
employee benefit plans and individual retirement accounts (known
as IRAs), and
non-U.S. persons
raises issues unique to them. For example, virtually all of our
income allocated to organizations that are exempt from federal
income tax, including IRAs and other retirement plans, will be
unrelated business taxable income and will be taxable to them.
Distributions to
non-U.S. persons
will be reduced by withholding taxes at the highest applicable
effective tax rate, and
non-U.S. persons
will be required to file U.S. federal tax returns and pay tax on
their share of our taxable income. If you are a tax-exempt
entity or a
non-U.S. person,
you should consult your tax advisor before investing in our
common units.
We will treat
each purchaser of our common units as having the same tax
benefits without regard to the actual common units purchased.
The IRS may challenge this treatment, which could adversely
affect the value of the common units.
Because we cannot match transferors and transferees of common
units, we will adopt depreciation and amortization positions
that may not conform to all aspects of existing Treasury
Regulations. Our counsel is unable to opine on the validity of
such filing positions. A successful IRS challenge to those
positions could adversely affect the amount of tax benefits
available to you. It also could affect the timing of these tax
benefits or the amount of gain from your sale of common units
and could have a negative impact on the value of our common
units or result in audit adjustments to your tax returns. Please
read Material tax consequencesTax consequences of
unit ownershipSection 754 election for a
further discussion of the effect of the depreciation and
amortization positions we adopt.
We will adopt
certain valuation methodologies that may result in a shift of
income, gain, loss and deduction between our general partner and
the unitholders. The IRS may challenge this treatment, which
could adversely affect the value of the common units.
When we issue additional units or engage in certain other
transactions, we will determine the fair market value of our
assets and allocate any unrealized gain or loss attributable to
our assets to the capital accounts of our unitholders and our
general partner. Our methodology may be viewed as understating
the value of our assets. In that case, there may be a shift of
income, gain, loss and deduction between certain unitholders and
our general partner, which may be unfavorable to such
unitholders. Moreover, under our valuation methods, subsequent
purchasers of common units may have a greater portion of their
Internal Revenue Code Section 743(b) adjustment allocated
to our tangible assets and a lesser portion allocated to our
intangible assets. The IRS may challenge our valuation methods,
or our allocation of the Section 743(b) adjustment
attributable to our tangible and intangible assets, and
allocations of income, gain, loss and deduction between our
general partner and certain of our unitholders.
39
Risk
factors
A successful IRS challenge to these methods or allocations could
adversely affect the amount of taxable income or loss being
allocated to our unitholders. It also could affect the amount of
gain from our unitholders sale of common units and could
have a negative impact on the value of the common units or
result in audit adjustments to our unitholders tax returns
without the benefit of additional deductions.
The sale or
exchange of 50% or more of our capital and profits interests
during any twelve-month period will result in the termination of
our partnership for federal income tax purposes.
We will be considered to have terminated our partnership for
federal income tax purposes if there is a sale or exchange of
50% or more of the total interests in our capital and profits
within a twelve-month period. Our termination would, among other
things, result in the closing of our taxable year for all
unitholders and could result in a deferral of depreciation
deductions allowable in computing our taxable income. In the
case of a unitholder reporting on a taxable year other than a
fiscal year ending December 31, the closing of our taxable
year may also result in more than twelve months of our taxable
income or loss being includable in his taxable income for the
year of termination. Our termination currently would not affect
our classification as a partnership for federal income tax
purposes, but instead, we would be treated as a new partnership
for tax purposes. If treated as a new partnership, we must make
new tax elections and could be subject to penalties, if we are
unable to determine that a termination occurred. Please read
Material tax consequencesDisposition of common
unitsConstructive termination for a discussion of
the consequences of our termination for federal income tax
purposes.
You will likely
be subject to state and local taxes and return filing
requirements in states where you do not live as a result of
investing in our common units.
In addition to federal income taxes, you will likely be subject
to other taxes, including foreign, state and local taxes,
unincorporated business taxes and estate, inheritance or
intangible taxes that are imposed by the various jurisdictions
in which we conduct business or own property, even if you do not
live in any of those jurisdictions. You will likely be required
to file foreign, state and local income tax returns and pay
state and local income taxes in some or all of these various
jurisdictions. Further, you may be subject to penalties for
failure to comply with those requirements. We will initially own
assets and conduct business in the states of Kansas, Oklahoma,
Texas, Utah and Wyoming. Each of these states, other than Texas
and Wyoming, currently imposes a personal income tax, and all of
theses states also impose income taxes on corporations and other
entities. As we make acquisitions or expand our business, we may
own assets or conduct business in additional states that impose
a personal income tax. It is your responsibility to file all
U.S. federal, foreign, state and local tax returns. Our counsel
has not rendered an opinion on the foreign, state or local tax
consequences of an investment in our common units.
40
Use of proceeds
We expect to receive gross proceeds of approximately
$337.5 million from the issuance and sale of 18,750,000
common units offered by this prospectus. We expect to use these
proceeds to (i) make a loan of $260.0 million to
Anadarko in exchange for a
30-year note
bearing interest at a fixed annual rate of 6.5%,
(ii) reimburse Anadarko for $40.6 million of capital
expenditures it incurred with respect to assets contributed to
us, (iii) provide $10.0 million for general
partnership purposes and (iv) pay underwriting discounts
and a structuring fee totaling approximately $21.9 million
and other estimated offering expenses of $5.0 million.
Our estimates assume an initial public offering price of $18.00
per common unit and no exercise of the underwriters option
to purchase additional common units. An increase or decrease in
the initial public offering price of $1.00 per common unit would
cause the net proceeds from the offering, after deducting
underwriting discounts and the structuring fee, to increase or
decrease by $17.5 million. If the proceeds increase due to
a higher initial public offering price, we will use the
additional proceeds to reimburse Anadarko for capital
expenditures it incurred with respect to the assets contributed
to us. If the proceeds decrease due to a lower initial public
offering price, we will, to the extent necessary,
(i) decrease our reimbursement to Anadarko for capital
expenditures it incurred with respect to assets contributed to
us by up to $40.6 million, (ii) decrease the amount of
cash retained for general partnership purposes by up to
$10.0 million and then (iii) reduce the amount of our
loan to Anadarko by the balance of such amount.
The proceeds from any exercise of the underwriters option
to purchase additional common units will be used to reimburse
Anadarko for capital expenditures it incurred with respect to
the assets contributed to us.
Anadarko has informed us that the $260.0 million of
proceeds that we loan to it, and other proceeds that it receives
from this offering, will be used to repay a portion of the
amount outstanding under the recently completed
$2.2 billion financing entered into by WGRAH, and a portion
of such proceeds will ultimately be paid to affiliates of UBS
Securities LLC, Citigroup Global Markets Inc., Credit Suisse
Securities (USA) LLC, Morgan Stanley & Co.
Incorporated, J.P. Morgan Securities Inc., Lehman Brothers Inc.,
Banc of America Securities LLC, Goldman, Sachs & Co.,
Scotia Capital (USA) Inc. and Wachovia Capital Markets, LLC.
Please read UnderwritingAffiliations.
41
Capitalization
The following table shows:
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|
Ø |
the historical capitalization of our Predecessor as of
December 31, 2007; and
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|
|
Ø |
our pro forma as adjusted capitalization as of December 31,
2007, reflecting this offering of 18,750,000 common units at an
assumed initial public offering price of $18.00, the other
formation transactions described under Prospectus
summaryFormation transactions and partnership
structureGeneral and the application of the net
proceeds from this offering as described under Use of
proceeds.
|
We derived this table from, and it should be read in conjunction
with and is qualified in its entirety by reference to, the
historical and pro forma combined financial statements and the
accompanying notes included elsewhere in this prospectus. You
should also read this table in conjunction with
Managements discussion and analysis of financial
condition and results of operations.
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
December 31,
2007
|
|
|
|
|
|
Pro forma as
|
|
|
Historical
|
|
|
adjusted(1)
|
|
|
|
(in
millions)
|
|
Debt
|
|
$
|
|
|
|
$
|
|
Total partners equity/parent net equity:
|
|
|
|
|
|
|
|
Parent net equity
|
|
|
281.3
|
|
|
|
|
Common
unitspublic(2)(3)
|
|
|
|
|
|
|
310.6
|
Common
unitsAnadarko(2)(3)
|
|
|
|
|
|
|
69.0
|
Subordinated
unitsAnadarko(2)(3)
|
|
|
|
|
|
|
235.4
|
General partner
units(2)(3)
|
|
|
|
|
|
|
9.6
|
|
|
|
|
|
|
|
|
Total partners equity/parent net equity
|
|
|
281.3
|
|
|
|
624.6
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
281.3
|
|
|
$
|
624.6
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On a pro forma as adjusted
basis, as of December 31, 2007, the public and Anadarko
would have held 18,750,000 and 7,786,306 common units,
respectively, Anadarko would have held 26,536,306 subordinated
units and our general partner would have held 1,083,115 general
partner units representing a 2.0% general partner interest in
us. |
|
|
|
(2) |
|
An increase or decrease in the
initial public offering price of $1.00 per common unit
would cause the public common unitholders capital to
increase or decrease by $17.5 million. In the case of a
$1.00 per common unit increase or decrease, Anadarkos
partners capital would decrease or increase by
$17.5 million, respectively. |
|
|
|
(3) |
|
A 1,000,000 unit increase in the
number of common units issued to the public would result in a
$16.8 million increase in the public common
unitholders capital and a $16.8 million decrease in
the partners capital of Anadarko. |
42
Dilution
Dilution is the amount by which the offering price paid by the
purchasers of common units sold in this offering will exceed the
pro forma net tangible book value per unit after the offering.
On a pro forma basis as of December 31, 2007, after giving
effect to the offering of common units and the application of
the related net proceeds, and assuming the underwriters
option to purchase additional common units is not exercised, our
net tangible book value was $619.9 million, or
$11.45 per unit. Net tangible book value excludes
$4.8 million of net intangible assets. Purchasers of common
units in this offering will experience substantial and immediate
dilution in net tangible book value per common unit for
financial accounting purposes, as illustrated in the following
table:
|
|
|
|
|
|
|
|
|
Initial public offering price per common unit
|
|
|
|
|
|
$
|
18.00
|
|
Net tangible book value per unit before the
offering(1)
|
|
|
7.81
|
|
|
|
|
|
Increase in net tangible book value per unit attributable to
purchasers in the offering
|
|
|
3.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Pro forma net tangible book value per unit after the
offering(2)
|
|
|
|
|
|
|
11.45
|
|
|
|
|
|
|
|
|
|
|
Immediate dilution in tangible net book value per common unit to
purchasers in the
offering(3)
|
|
|
|
|
|
$
|
6.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Determined by dividing the
number of units (7,786,306 common units,
26,536,306 subordinated units and 1,083,115 general partner
units) to be issued to our general partner and its affiliates,
including Anadarko, for the contribution of assets and
liabilities to Western Gas Partners, LP into the net tangible
book value of the contributed assets and liabilities. |
|
|
|
(2) |
|
Determined by dividing the total
number of units to be outstanding after the offering
(26,536,306 common units, 26,536,306 subordinated
units and 1,083,115 general partner units) into our pro forma
net tangible book value, after giving effect to the application
of the expected net proceeds of the offering. |
|
|
|
(3) |
|
If the initial public offering
price were to increase or decrease by $1.00 per common unit,
then dilution in net tangible book value per common unit would
equal $7.55 and $5.55, respectively. |
The following table sets forth the number of units that we will
issue and the total consideration contributed to us by our
general partner and its affiliates and by the purchasers of
common units in this offering upon consummation of the
transactions contemplated by this prospectus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
acquired
|
|
|
Total
consideration
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
General partner and
affiliates(1)(2)(3)
|
|
|
35,405,727
|
|
|
|
65.4
|
%
|
|
$
|
240,754
|
|
|
|
41.6
|
%
|
Purchasers in the offering
|
|
|
18,750,000
|
|
|
|
34.6
|
%
|
|
|
337,500
|
|
|
|
58.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
54,155,727
|
|
|
|
100.0
|
%
|
|
$
|
578,254
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The units acquired by our
general partner and its affiliates, including Anadarko, consist
of 7,786,306 common units, 26,536,306 subordinated
units and 1,083,115 general partner units. |
|
|
|
(2) |
|
The assets contributed by our
general partner and its affiliates were recorded at historical
cost in accordance with GAAP. Book value of the consideration
provided by our general partner and its affiliates, as of
December 31, 2007, equals parent net investment, which was
$281.3 million, reduced by $40.6 million for
reimbursement to Anadarko of capital expenditures it incurred
with respect to assets contributed to us. |
|
|
|
(3) |
|
Assumes the underwriters
option to purchase additional common units is not
exercised. |
43
Our cash
distribution policy and restrictions on distributions
You should read the following discussion of our cash
distribution policy in conjunction with the factors and
assumptions upon which our cash distribution policy is based,
which are included under the heading Assumptions and
considerations. In addition, please read
Forward-looking statements and Risk
factors for information regarding statements that do not
relate strictly to historical or current facts and certain risks
inherent in our business. For additional information regarding
our historical and pro forma operating results, you should refer
to our historical and pro forma combined financial statements,
and the notes thereto, included elsewhere in this prospectus.
GENERAL
Rationale for our
cash distribution policy
Our partnership agreement requires us to distribute all of our
available cash quarterly. Our cash distribution policy reflects
a basic judgment that our unitholders will be better served by
our distributing rather than retaining our available cash.
Generally, our available cash is our cash on hand at the end of
a quarter after the payment of our expenses and the
establishment of cash reserves and cash on hand resulting from
working capital borrowings made after the end of the quarter.
Limitations on
cash distributions and our ability to change our cash
distribution policy
There is no guarantee that our unitholders will receive
quarterly distributions from us. We do not have a legal
obligation to pay the minimum quarterly distribution or any
other distribution except as provided in our partnership
agreement. Our cash distribution policy may be changed at any
time and is subject to certain restrictions, including the
following:
|
|
Ø |
Our general partner will have the authority to establish
reserves for the prudent conduct of our business and for future
cash distributions to our unitholders, and the establishment or
increase of those reserves could result in a reduction in cash
distributions to you from the levels we currently anticipate
pursuant to our stated distribution policy. Any determination to
establish cash reserves made by our general partner in good
faith will be binding on our unitholders. Our partnership
agreement provides that in order for a determination by our
general partner to be made in good faith, our general partner
must believe that the determination is in our best interests.
|
|
|
Ø |
While our partnership agreement requires us to distribute all of
our available cash, our partnership agreement, including the
provisions requiring us to make cash distributions contained
therein, may be amended. Our partnership agreement generally may
not be amended during the subordination period without the
approval of our public common unitholders. However, our
partnership agreement can be amended with the consent of our
general partner and the approval of a majority of the
outstanding common units (including common units held by
Anadarko) and the Class B units issued upon the reset of
incentive distribution rights, if any, voting as a single class
after the subordination period has ended. At the closing of this
offering, Anadarko will own our general partner and
approximately 64.7% of our outstanding common and subordinated
units.
|
|
|
Ø
|
Even if our cash distribution policy is not modified or revoked,
the amount of distributions we pay under our cash distribution
policy and the decision to make any distribution is determined
by our general partner, taking into consideration the terms of
our partnership agreement.
|
|
Ø
|
Under
Section 17-607
of the Delaware Revised Uniform Limited Partnership Act, we may
not make a distribution to you if the distribution would cause
our liabilities to exceed the fair value of our assets.
|
44
Our cash
distribution policy and restrictions on distributions
|
|
Ø |
We may lack sufficient cash to pay distributions to our
unitholders due to increases in our operating or general and
administrative expense, principal and interest payments on our
debt, tax expenses, working capital requirements and anticipated
cash needs.
|
Our ability to
grow is dependent on our ability to access external expansion
capital
We will distribute all of our available cash to our unitholders.
As a result, we expect that we will rely primarily upon external
financing sources, including commercial bank borrowings and the
issuance of debt and equity securities, to fund our acquisitions
and expansion capital expenditures. As a result, to the extent
we are unable to finance growth externally, our cash
distribution policy will significantly impair our ability to
grow. In addition, because we distribute all of our available
cash, our growth may not be as fast as that of businesses that
reinvest their available cash to expand ongoing operations. To
the extent we issue additional units in connection with any
acquisitions or expansion capital expenditures, the payment of
distributions on those additional units may increase the risk
that we will be unable to maintain or increase our per unit
distribution level. There are no limitations in our partnership
agreement, Anadarkos credit facility, under which we are a
co-borrower, or our working capital facility on our ability to
issue additional units, including units ranking senior to the
common units. The incurrence of additional commercial borrowings
or other debt to finance our growth strategy would result in
increased interest expense, which in turn may impact the
available cash that we have to distribute to our unitholders.
OUR MINIMUM
QUARTERLY DISTRIBUTION
Upon completion of this offering, the board of directors of our
general partner will adopt a policy pursuant to which we will
declare a minimum quarterly distribution of $0.30 per unit per
complete quarter, or $1.20 per unit per year, to be paid no
later than 45 days after the end of each fiscal quarter
through the quarter ending March 31, 2009. This equates to
an aggregate cash distribution of $16.2 million per
quarter, or $65.0 million per year, based on the number of
common, subordinated and general partner units to be outstanding
immediately after the completion of this offering.
If the underwriters do not exercise their option to purchase
additional common units within the 30-day option period, we will
issue 2,812,500 common units to Anadarko at the expiration of
this period. If and to the extent the underwriters exercise
their option to purchase additional common units, the number of
units purchased by the underwriters pursuant to such exercise
will be issued to the public and the remainder, if any, will be
issued to Anadarko. Accordingly, the exercise of the
underwriters option will not affect the total number of
units outstanding or the amount of cash needed to pay the
minimum quarterly distribution on all units. Please read
Underwriting.
Initially, our general partner will be entitled to 2.0% of all
distributions that we make prior to our liquidation. In the
future, our general partners initial 2.0% interest in
these distributions may be reduced if we issue additional units
and our general partner does not contribute a proportionate
amount of capital to us to maintain its initial 2.0% general
partner interest. The table below sets forth the assumed number
of outstanding common, subordinated and general partner units
upon the closing of this offering, assuming the underwriters do
not exercise their option to purchase additional common units,
and the aggregate distribution amounts payable on such units
during the year following the closing of this offering at our
minimum quarterly distribution rate of $0.30 per unit per
quarter ($1.20 per unit on an annualized basis).
45
Our cash
distribution policy and restrictions on distributions
|
|
|
|
|
|
|
|
|
|
|
|
Minimum quarterly
distributions
|
|
|
Number of
units
|
|
One
quarter
|
|
Annualized
|
|
|
Publicly held common units
|
|
|
18,750,000
|
|
$
|
5,625,000
|
|
$
|
22,500,000
|
Common units held by
Anadarko(1)
|
|
|
7,786,306
|
|
|
2,335,892
|
|
|
9,343,568
|
Subordinated units held by Anadarko
|
|
|
26,536,306
|
|
|
7,960,892
|
|
|
31,843,568
|
General partner units held by our general partner
|
|
|
1,083,115
|
|
|
324,935
|
|
|
1,299,740
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
54,155,727
|
|
$
|
16,246,719
|
|
$
|
64,986,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Assumes the underwriters do not
exercise their option to purchase 2,812,500 common units and
that the 2,812,500 common units will be issued to Anadarko upon
the expiration of the underwriters 30-day option period.
Accordingly, irrespective of whether the underwriters exercise
their option to purchase additional common units, the total
number of common units we have outstanding upon the completion
of this offering and the expiration of the option period will
not be impacted. |
The subordination period generally will end if we have earned
and paid at least $1.20 on each outstanding common and
subordinated unit and the corresponding distribution on our
general partners 2.0% interest for each of three
consecutive, non-overlapping four-quarter periods ending on or
after June 30, 2011. If we have earned and paid at least
$0.45 (150% of the minimum quarterly distribution, which is
$1.80 on an annualized basis) on each outstanding common and
subordinated unit and the corresponding distribution on our
general partners 2.0% interest for each quarter in any
four-quarter period, the subordination period will terminate
automatically and all of the subordinated units will convert
into an equal number of common units. Please read the
Provisions of our partnership agreement relating to cash
distributionsSubordination period.
If we do not pay the minimum quarterly distribution on our
common units, our common unitholders will not be entitled to
receive such payments in the future except during the
subordination period. To the extent we have available cash in
any future quarter during the subordination period in excess of
the amount necessary to pay the minimum quarterly distribution
to holders of our common units, we will use this excess
available cash to pay any distribution arrearages related to
prior quarters before any cash distribution is made to holders
of subordinated units. Please read Provisions of our
partnership agreement relating to cash
distributionsSubordination period.
Our cash distribution policy, as expressed in our partnership
agreement, may not be modified or repealed without amending our
partnership agreement. The actual amount of our cash
distributions for any quarter is subject to fluctuations based
on the amount of cash we generate from our business and the
amount of reserves our general partner establishes in accordance
with our partnership agreement as described above. We will pay
our distributions on or about the 15th of each of February,
May, August and November to holders of record on or about the
1st of each such month. If the distribution date does not
fall on a business day, we will make the distribution on the
business day immediately preceding the indicated distribution
date. We will adjust the quarterly distribution for the period
from the closing of this offering through June 30, 2008
based on the actual length of the period.
In the sections that follow, we present in detail the basis for
our belief that we will be able to fully fund our minimum
quarterly distribution of $0.30 per unit each quarter through
the quarter ending March 31, 2009. In those sections, we
present two tables, consisting of:
|
|
Ø |
Unaudited Pro Forma Available Cash, in which we
present the amount of cash we would have had available for
distribution on a pro forma basis for our fiscal year ended
December 31, 2007, derived from our unaudited pro forma
combined financial statements that are included in this
prospectus, as adjusted to give pro forma effect to the offering
and the formation transactions; and
|
46
Our cash
distribution policy and restrictions on distributions
|
|
Ø |
Statement of Estimated Adjusted EBITDA, in which we
demonstrate our ability to generate the minimum estimated
Adjusted EBITDA necessary for us to pay the minimum quarterly
distribution on all units for each quarter in the twelve months
ending March 31, 2009.
|
UNAUDITED PRO
FORMA AVAILABLE CASH FOR THE YEAR ENDED DECEMBER 31,
2007
If we had completed the transactions contemplated in this
prospectus on January 1, 2007, our pro forma available cash
generated for the year ended December 31, 2007 would have
been approximately $70.8 million. This amount would have
been sufficient to pay the minimum quarterly distribution on all
of our common and subordinated units for such period.
Unaudited pro forma available cash includes incremental revenue
we expect to receive pursuant to the new gas gathering
agreements we have entered into with Anadarko. These new
gathering agreements include fees for gathering and treating
that are higher than those reflected in our historical financial
results.
Unaudited pro forma available cash also includes general and
administrative expenses, which were calculated on a different
basis as compared to historical periods. These general and
administrative expenses are expected to total $8.5 million
annually and consist of $6.0 million of general and
administrative expenses allocated to us by Anadarko as well as
$2.5 million of general and administrative expenses we
expect to incur as a result of becoming a publicly traded
partnership. Under the omnibus agreement, our reimbursement to
Anadarko for certain general and administrative expenses it
allocates to us will be capped at $6.0 million annually
through December 31, 2009, subject to adjustments to
reflect changes in the Consumer Price Index and, with the
concurrence of the special committee of our general
partners board of directors, to reflect expansions of our
operations through the acquisition or construction of new assets
or businesses. Thereafter, our general partner will determine
the general and administrative expenses to be reimbursed by us
in accordance with our partnership agreement. The cap contained
in the omnibus agreement does not apply to incremental general
and administrative expenses we expect to incur or to be
allocated to us as a result of becoming a publicly traded
partnership. We currently expect those expenses to be
approximately $2.5 million per year. Please read
Certain relationships and related party
transactionsAgreements governing the
transactionsOmnibus agreement. General and
administrative expenses related to being a publicly traded
partnership include expenses associated with annual and
quarterly reporting; tax return and
Schedule K-1
preparation and distribution expenses; Sarbanes-Oxley compliance
expenses; expenses associated with listing on the New York Stock
Exchange; independent auditor fees; legal fees; investor
relations expenses; and registrar and transfer agent fees. These
expenses are not reflected in the historical combined financial
statements of our Predecessor or our pro forma combined
financial statements.
We based the pro forma adjustments upon currently available
information and specific estimates and assumptions. The pro
forma amounts below do not purport to present our results of
operations had the transactions contemplated in this prospectus
actually been completed as of the dates indicated. In addition,
cash available to pay distributions is primarily a cash
accounting concept, while our pro forma combined financial
statements have been prepared on an accrual basis. As a result,
you should view the amount of pro forma available cash only as a
general indication of the amount of cash available to pay
distributions that we might have generated had we been formed in
earlier periods.
47
Our cash
distribution policy and restrictions on distributions
The following table illustrates, on a pro forma basis, for the
year ended December 31, 2007, the amount of cash that would
have been available for distribution to our unitholders,
assuming that this offering had been consummated at the
beginning of such period. Each of the pro forma adjustments
presented below is explained in the footnotes to such
adjustments.
PARTNERSHIP
UNAUDITED PRO FORMA AVAILABLE CASH
|
|
|
|
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
|
|
(in
millions, except
|
|
|
|
per-unit
data)
|
|
|
Net income:
|
|
$
|
24.0
|
|
Add:
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
Depreciation(1)
|
|
|
23.4
|
|
Income
taxes(1)
|
|
|
12.7
|
|
Interest
expense(1)
|
|
|
8.5
|
|
|
|
|
|
|
Adjusted
EBITDA(2):
|
|
|
68.6
|
|
|
|
|
|
|
Less:
|
|
|
|
|
General and administrative expenses of being a publicly traded
partnership(3)
|
|
|
2.5
|
|
Current Texas margin tax
|
|
|
0.2
|
|
Pro forma net cash interest
expense(4)
|
|
|
0.1
|
|
Estimated maintenance capital
expenditures(5)
|
|
|
10.5
|
|
Estimated expansion capital
expenditures(5)
|
|
|
42.1
|
|
Interest on borrowings to fund expansion capital
expenditures(5)
|
|
|
1.4
|
|
|
|
|
|
|
Add:
|
|
|
|
|
Pro forma net cash interest
income(6)
|
|
|
16.9
|
|
Borrowings to fund expansion capital
expenditures(5)
|
|
|
42.1
|
|
|
|
|
|
|
Pro forma available cash
|
|
$
|
70.8
|
|
|
|
|
|
|
Pro forma cash distributions
|
|
|
|
|
Distributions per
unit(7)
|
|
$
|
1.20
|
|
|
|
|
|
|
Distributions to public common
unitholders(7)
|
|
$
|
22.5
|
|
Distributions to Anadarko and our general
partner(7)
|
|
|
42.5
|
|
|
|
|
|
|
Total distributions
|
|
$
|
65.0
|
|
|
|
|
|
|
Excess
|
|
$
|
5.8
|
|
|
|
|
|
|
Percent of minimum quarterly distributions payable to common
unitholders
|
|
|
100
|
%
|
Percent of minimum quarterly distributions payable to
subordinated unitholders
|
|
|
100
|
%
|
|
|
|
(1) |
|
Reflects an adjustment to
reconcile net income to Adjusted EBITDA. |
|
|
|
(2) |
|
We define Adjusted EBITDA as net
income (loss), plus interest expense, income tax expense and
depreciation, less interest income, income tax benefit and other
income (expense). For a reconciliation of Adjusted EBITDA to its
most directly comparable financial measures calculated and
presented in accordance with GAAP, please read Summary
historical and pro forma financial and operating
data Non-GAAP financial measure. |
|
|
|
(3) |
|
Reflects an adjustment to our
Adjusted EBITDA for estimated cash expenses associated with
being a publicly traded partnership, such as expenses associated
with annual and quarterly reporting; tax return and Schedule K-1
preparation and distribution expenses; Sarbanes-Oxley compliance
expenses; expenses associated with listing on the New York Stock
|
48
Our cash
distribution policy and restrictions on distributions
|
|
|
|
|
Exchange; independent auditor
fees; legal fees; investor relations expenses; and registrar and
transfer agent fees. We expect these expenses to total
approximately $2.5 million per year. |
|
|
|
(4) |
|
Represents estimated cash
interest expense related to an annual commitment fee of 0.11% on
our working capital facility and the reimbursement by us to
Anadarko of our allocable portion of commitment fees (0.11% of
our committed and available borrowing capacity) that Anadarko
incurs on its credit facility pursuant to the Omnibus Agreement.
Please read Certain relationships and related party
transactions Agreements governing the
transactions Omnibus agreement. |
|
|
|
(5) |
|
For the year ended
December 31, 2007, our capital expenditures were
$52.7 million. The capital expenditures are assumed to have
occurred ratably throughout the year. For this period, capital
expenditures included maintenance capital expenditures and
expansion capital expenditures because we did not segregate
these costs in historic periods. We estimate that 20% of our
reported capital expenditures, or $10.5 million, were
maintenance capital expenditures and that 80% of our reported
capital expenditures, or $42.1 million, were expansion
capital expenditures. Because we expect that in the future,
expansion capital expenditures will primarily be funded through
borrowings or the sale of debt or equity securities, we have
included borrowings to offset our estimated expansion capital
expenditures as well as incremental interest expense on these
borrowings at an assumed interest rate of 6.56%. |
|
|
|
(6) |
|
Represents interest income we
expect to receive annually with respect to the
$260.0 million
30-year note
bearing interest at a fixed annual rate of 6.50% that we will
receive from Anadarko concurrently with the closing of this
offering. |
|
|
|
(7) |
|
The table above is based on the
assumption that the underwriters option has not been
exercised and the 30-day option period for such exercise has
expired. Set forth below is the assumed number of outstanding
common, subordinated and general partner units upon the closing
of this offering and expiration of the underwriters option
period, and the aggregate distribution amounts payable on such
units during the year following the closing of this offering at
our minimum quarterly distribution rate of $0.30 per unit per
quarter ($1.20 per unit on an annualized basis). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum quarterly
distributions
|
|
|
|
Number of
units
|
|
One
quarter
|
|
|
Annualized
|
|
|
|
|
Publicly held common units
|
|
|
18,750,000
|
|
$
|
5,625,000
|
|
|
$
|
22,500,000
|
|
Common units held by
Anadarko(a)
|
|
|
7,786,306
|
|
|
2,335,892
|
|
|
|
9,343,568
|
|
Subordinated units held by Anadarko
|
|
|
26,536,306
|
|
|
7,960,892
|
|
|
|
31,843,568
|
|
General partner units held by our general partner
|
|
|
1,083,115
|
|
|
324,935
|
|
|
|
1,299,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
54,155,727
|
|
$
|
16,246,719
|
|
|
$
|
64,986,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The number of common units held
by Anadarko includes 2,812,500 common units subject to the
underwriters option to purchase additional common units.
If and to the extent this option is exercised, the remainder of
these common units, if any, will be issued to Anadarko at the
expiration of the underwriters option period. |
ESTIMATED
ADJUSTED EBITDA FOR THE TWELVE MONTHS ENDING MARCH 31,
2009
Set forth below is a Statement of Estimated Adjusted EBITDA that
reflects our ability to generate sufficient cash flow to pay the
minimum quarterly distribution on all of our outstanding units
for each quarter in the twelve months ending March 31,
2009. The financial forecast presents, to the best of our
knowledge and belief, the expected results of operations,
Adjusted EBITDA and cash available for distribution for the
forecast period. We define Adjusted EBITDA as net income (loss),
plus interest expense, income tax expense, and depreciation,
less interest income, income tax benefit and other income
(expense).
For a reconciliation of Adjusted EBITDA to its most directly
comparable financial measures calculated and presented in
accordance with GAAP, please read Summary historical and
pro forma financial and operating dataNon-GAAP financial
measure.
Our minimum estimated Adjusted EBITDA reflects our judgment, as
of the date of this prospectus, of conditions we expect to exist
and the course of action we expect to take in order to pay the
minimum quarterly distribution on all of our outstanding units
and the corresponding distributions on our general
partners 2.0% interest for each quarter in the twelve
months ending March 31, 2009. The assumptions
49
Our cash
distribution policy and restrictions on distributions
discussed below under Assumptions and
considerations are those that we believe are significant
to our ability to generate our minimum estimated Adjusted
EBITDA. We believe our actual results of operations and cash
flows will be sufficient to generate the minimum estimated
Adjusted EBITDA; however, we can give you no assurance that we
will generate the minimum estimated Adjusted EBITDA. There will
likely be differences between our minimum estimated Adjusted
EBITDA and our actual results and those differences could be
material. If we fail to generate the minimum estimated Adjusted
EBITDA, we may not be able to pay the minimum quarterly
distribution on our common units. In order to fund distributions
to our unitholders at our initial rate of $1.20 per unit for the
twelve months ending March 31, 2009, our minimum estimated
Adjusted EBITDA for the twelve months ending March 31, 2009
must be at least $72.1 million.
We do not as a matter of course make public projections as to
future operations, earnings or other results. However,
management has prepared the minimum estimated Adjusted EBITDA
and related assumptions set forth below to substantiate our
belief that we will have sufficient available cash to pay the
minimum quarterly distribution to all our unitholders for each
quarter in the twelve months ending March 31, 2009. This
forecast is a forward-looking statement and should be read
together with the historical and pro forma combined financial
statements and the accompanying notes included elsewhere in this
prospectus and Managements discussion and analysis
of financial condition and results of operations. The
accompanying prospective financial information was not prepared
with a view toward complying with the guidelines established by
the American Institute of Certified Public Accountants with
respect to prospective financial information, but, in the view
of our management, was prepared on a reasonable basis, reflects
the best currently available estimates and judgments, and
presents, to the best of managements knowledge and belief,
the assumptions on which we base our belief that we can generate
the minimum estimated Adjusted EBITDA necessary for us to have
sufficient cash available for distribution to pay the minimum
quarterly distribution to all unitholders for each quarter in
the twelve months ending March 31, 2009. However, this
information is not fact and should not be relied upon as being
necessarily indicative of future results, and readers of this
prospectus are cautioned not to place undue reliance on the
prospective financial information.
Neither our independent auditors nor any other independent
accountants have compiled, examined or performed any procedures
with respect to the prospective financial information contained
herein, nor have they expressed any opinion or any other form of
assurance on such information or its achievability, and they
assume no responsibility for, and disclaim any association with,
the prospective financial information.
When considering our financial forecast, you should keep in mind
the risk factors and other cautionary statements under
Risk factors. Any of the risks discussed in this
prospectus, to the extent they are realized, could cause our
actual results of operations to vary significantly from those
which would enable us to generate the minimum estimated Adjusted
EBITDA.
We are providing the minimum estimated Adjusted EBITDA
calculation to supplement our pro forma and historical combined
financial statements in support of our belief that we will have
sufficient available cash to pay the minimum quarterly
distribution on all of our outstanding common and subordinated
units for each quarter in the twelve months ending
March 31, 2009. Please read below under
Assumptions and considerations for further
information as to the assumptions we have made for the financial
forecast.
We do not undertake any obligation to release publicly the
results of any future revisions we may make to the financial
forecast or to update this financial forecast to reflect events
or circumstances after the date of this prospectus. Therefore,
you are cautioned not to place undue reliance on this
information.
50
Our cash
distribution policy and restrictions on distributions
PARTNERSHIP
STATEMENT OF ESTIMATED ADJUSTED EBITDA
|
|
|
|
|
|
|
Twelve months
ending
|
|
|
|
March 31,
2009
|
|
|
|
|
|
(in
millions)
|
|
|
Revenues
|
|
|
|
|
Gathering, treating and transportation of natural gas
|
|
$
|
130.5
|
|
Condensate
|
|
|
10.8
|
|
Natural gas and other
|
|
|
0.0
|
|
|
|
|
|
|
Total revenues
|
|
$
|
141.3
|
|
Costs and expenses
|
|
|
|
|
Cost of product
|
|
|
4.8
|
|
Operating and maintenance expense
|
|
|
49.2
|
|
General and administrative expense
|
|
|
8.5
|
|
Depreciation and amortization expense
|
|
|
24.0
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
86.5
|
|
|
|
|
|
|
Operating income
|
|
|
54.8
|
|
Interest expense
|
|
|
(0.3
|
)
|
Interest income Anadarko note
|
|
|
16.9
|
|
Texas margin tax expense
|
|
|
(0.3
|
)
|
|
|
|
|
|
Net income
|
|
$
|
71.1
|
|
Adjustments to reconcile net income to estimated Adjusted EBITDA:
|
|
|
|
|
Add:
|
|
|
|
|
Depreciation and amortization expense
|
|
|
24.0
|
|
Interest expense
|
|
|
0.3
|
|
Texas margin tax expense
|
|
|
0.3
|
|
Less:
|
|
|
|
|
Interest income Anadarko note
|
|
|
(16.9
|
)
|
|
|
|
|
|
Estimated Adjusted
EBITDA(1)
|
|
$
|
78.8
|
|
Adjustments to reconcile estimated Adjusted EBITDA to estimated
cash available for distribution:
|
|
|
|
|
Less:
|
|
|
|
|
Cash interest expense
|
|
|
0.3
|
|
Estimated expansion capital expenditures
|
|
|
20.6
|
|
Estimated maintenance capital expenditures
|
|
|
23.5
|
|
Texas margin tax
|
|
|
0.2
|
|
Add:
|
|
|
|
|
Interest income Anadarko note
|
|
|
16.9
|
|
Cash on hand and borrowings to fund expansion capital
expenditures
|
|
|
20.6
|
|
|
|
|
|
|
Estimated cash available for distribution
|
|
$
|
71.7
|
|
|
|
|
|
|
Aggregate annualized minimum quarterly distributions
|
|
|
65.0
|
|
Excess of cash available for distribution over aggregate
annualized minimum annual cash distributions
|
|
|
6.7
|
|
|
|
|
|
|
Calculation of minimum estimated Adjusted EBITDA necessary to
pay aggregate annualized minimum annual cash distributions:
|
|
|
|
|
Estimated Adjusted EBITDA
|
|
|
78.8
|
|
Excess of cash available for distribution over minimum annual
cash distributions
|
|
|
(6.7
|
)
|
|
|
|
|
|
Minimum estimated Adjusted EBITDA necessary to pay aggregate
annualized minimum quarterly distributions
|
|
$
|
72.1
|
|
|
|
|
|
|
|
|
|
(1) |
|
We define Adjusted EBITDA as net
income (loss), plus interest expense, income tax expense and
depreciation, less interest income, income tax benefit and other
income (expenses). For a reconciliation of Adjusted EBITDA to
its most directly comparable financial measures calculated and
presented in accordance with GAAP, please read Summary
historical and pro forma financial and operating
dataNon-GAAP financial measure. |
51
Our cash
distribution policy and restrictions on distributions
ASSUMPTIONS AND
CONSIDERATIONS
We believe the assumptions and estimates we have made to
demonstrate our ability to generate the minimum estimated
Adjusted EBITDA, which are set forth below, are reasonable. We
define Adjusted EBITDA as net income (loss), plus interest
expense, income tax expense and depreciation, less interest
income, income tax benefit and other income (expenses). For a
reconciliation of Adjusted EBITDA to its most directly
comparable financial measures calculated and presented in
accordance with GAAP, please read Summary historical and
pro forma financial and operating dataNon-GAAP financial
measure.
General
considerations
|
|
Ø |
Revenues and operating expenses are net of intercompany
transactions.
|
|
|
Ø |
Realized gathering throughput volume is the primary factor that
will influence whether the amount of cash available for
distribution for the twelve months ending March 31, 2009 is
above or below our forecast. For example, if all other
assumptions are held constant, a 5.0% decline in volumes below
forecasted levels would result in a $6.5 million decline in
revenues. Additionally, a 5.0% decline in the trading margin
between condensate and natural gas would result in a
$0.3 million decline in cash available for distribution. A
decline in forecasted cash flow of greater than
$7.1 million would result in our generating less than the
minimum cash required to pay distributions.
|
|
|
Ø |
Transportation volumes are provided pursuant to firm and
interruptible transportation arrangements.
|
Total operating
revenue
We estimated total operating revenue for the twelve months
ending March 31, 2009 based on the following significant
assumptions:
|
|
Ø |
Gathering and treating volumes. We estimate
that we will gather and/or treat an average of
870 MMcf/d
of natural gas for the twelve months ending March 31, 2009
as compared to 833 MMcf/d for the year ended
December 31, 2007. The increased volumes estimated for the
twelve months ending March 31, 2009 are primarily due to
increased volumes at Dew from new well connections and increased
third-party volumes at Pinnacle, partially offset by the natural
production declines from the wells connected to our systems.
|
|
|
Ø |
Gathering and treating fees. We estimate that
we will receive an average gathering and treating fee of
$0.35/Mcf for the twelve months ending March 31, 2009 as
compared to $0.27/Mcf for the year ended December 31, 2007.
The expected increase in our gathering and treating fees is due
to the new gathering and treating agreements that we recently
negotiated with Anadarko.
|
|
|
Ø |
Gathering and treating revenues. We estimate
that gathering and treating revenues for the twelve months
ending March 31, 2009 will be $111.6 million as
compared to $83.7 million for the year ended
December 31, 2007.
|
The expected increase in gathering and treating revenues for the
twelve months ending March 31, 2009 as compared to the year
ended December 31, 2007 is approximately
$27.9 million. The $27.9 million increase is due
primarily to an increase of $.08/Mcf in average gathering and
treating fees, generating higher revenues of $22.7 million,
with the remaining $5.2 million increase due to higher
average volumes.
Our higher gathering and treating revenues reflect the employee
benefit costs specifically identified and associated with
operational personnel working on our assets. All of these costs
will be recovered by us following this offering through the
gathering rates we will charge Anadarko under the new gas
gathering agreements. For the year ended December 31, 2007,
only those employee benefit costs
52
Our cash
distribution policy and restrictions on distributions
reasonably allocated by Anadarko to us were included in and
recovered through the gathering and treating fees we charged
Anadarko.
|
|
Ø |
Transportation volumes. We estimate that we
will transport an average of
178 MMcf/d
of natural gas for the twelve months ending March 31, 2009
as compared to
146 MMcf/d
for the year ended December 31, 2007. The increase in
forecasted volumes is primarily attributable to an additional
45 MMcf/d of firm capacity that was contracted for by
Anadarko in connection with the recent expansion of the MIGC
system.
|
|
|
Ø |
Transportation fees. We estimate that we will
receive an average of $0.29/Mcf for the twelve months ending
March 31, 2009 as compared to $0.35/Mcf for the year ended
December 31, 2007. Our anticipated transportation fees are
consistent with fees realized on a historical basis and
contained in the FERC-approved rates for MIGC.
|
|
|
Ø |
Transportation revenues. We estimate that
transportation revenues for the twelve months ending
March 31, 2009 will be $18.9 million as compared to
$19.1 million for the twelve months ended December 31,
2007.
|
The expected decrease in transportation revenues for the twelve
months ending March 31, 2009 as compared to the year ended
December 31, 2007 of approximately $0.2 million is
primarily due to lower rates, partially offset by increased
volumes.
|
|
Ø |
Condensate margin. We estimate that we will
receive an aggregate condensate margin of $6.0 million,
based on revenues of $10.8 million and associated product
costs of $4.8 million, for the twelve months ending
March 31, 2009 as compared to $5.3 million for the
year ended December 31, 2007. The expected margin increase
is due primarily to a higher forecasted spread between crude oil
and natural gas prices in 2008 ($80.00/Bbl and $8.00/Mcf,
respectively) than existed in the year ended December 31,
2007 ($72.34/Bbl and $6.86/Mcf, respectively). Condensate margin
is the difference between the revenue from sale of condensate
recovered during the gathering of natural gas and the cost of
the natural gas required to deliver the same thermal content to
the shipper.
|
Operating and
maintenance expense
We estimate that total operating and maintenance expense for the
twelve months ending March 31, 2009 will be
$49.2 million as compared to $37.7 million for the
year ended December 31, 2007. The expected increase in
operating and maintenance expense for the twelve months ending
March 31, 2009 as compared to the year ended
December 31, 2007 of $11.5 million is primarily due to
higher expected labor, maintenance and contract services costs.
Operating and maintenance expense is comprised primarily of
direct labor, insurance, property taxes, repair and maintenance,
contract services, utility costs and services provided to us or
on our behalf under our services and secondment agreement.
Our higher expected labor expense is attributable to us bearing
all of the employee benefit costs specifically identified and
associated with the operational personnel working on our assets.
For the year ended December 31, 2007, only those employee
benefit costs reasonably allocated by Anadarko to us were
included in and recovered through the gathering and treating
fees we charged Anadarko. Under our new gas gathering agreements
entered into with Anadarko, all of these costs will be recovered
by us following the offering through the gathering rates we will
charge Anadarko. As a result, our gathering and treating
revenues will increase by an amount equal to the increase in
operating and maintenance expense.
General and
administrative expense
We estimate that general and administrative expense for the
twelve months ending March 31, 2009 will be
$8.5 million and will consist of $6.0 million of costs
reimbursable to Anadarko for services
53
Our cash
distribution policy and restrictions on distributions
performed on our behalf pursuant to the omnibus agreement and
the services and secondment agreement and $2.5 million of
general and administrative expense related to operating as a
publicly traded partnership. General and administrative expense
was $4.8 million for the year ended December 31, 2007.
The expected increase in general and administrative expense is
driven by $2.5 million in estimated costs associated with
being a publicly traded partnership, with the balance of the
increase attributable to increased corporate and management
services associated with operating our business on a stand-alone
basis.
We intend to grant approximately 28,000 phantom common units
effective at the closing of this offering to the independent
directors of our general partner pursuant to the Western Gas
Partners, LP 2008 Long-Term Incentive Plan. These phantom units
will vest 100% on the first anniversary of the date of the
grant. Upon vesting, each phantom unit will entitle the holder
to receive a common unit or, in the discretion of our general
partners board of directors, cash equal to the fair market
value of a common unit. Holders of phantom units are entitled to
distribution equivalents on a current basis. Holders of phantom
units have no voting rights until such time as the phantom units
become vested and common units are issued to such holders. We
have not included a cash expense for these phantom units in the
estimate of general and administrative expense for the
twelve-month period ending March 31, 2009, nor have we
included in our distribution coverage calculation distributions
to be made in respect of such phantom units for the forecast
period.
Depreciation and
amortization expense
We estimate depreciation and amortization expense for the twelve
months ending March 31, 2009 of $24.0 million as
compared to $23.4 million for the year ended
December 31, 2007. Estimated depreciation and amortization
expense reflects managements estimates, which are based on
consistent average depreciable asset lives and depreciation
methodologies. The increase in depreciation and amortization is
attributable to an expected increase in capital investments in
our assets.
Interest income
and Texas margin tax
Interest income. We will loan
$260.0 million of the net proceeds from this offering to
Anadarko in exchange for an interest-only,
30-year note
bearing interest at a fixed annual rate of 6.5%, resulting in
interest income of $16.9 million during the twelve months
ending March 31, 2009.
Texas margin tax. We estimate Texas margin tax
payments for the twelve months ending March 31, 2009 will
be $0.3 million based on a 1.0% tax rate on a maximum of
70% of our projected revenues attributable to operations in
Texas for the year ending March 31, 2009.
Capital
expenditures
We estimate total capital expenditures of $44.1 million for
the twelve months ending March 31, 2009 as compared to
$52.7 million for the year ended December 31, 2007.
Historically, we did not make a distinction between maintenance
and expansion capital expenditures. Our estimate is based on the
following assumptions:
|
|
Ø |
We estimate that maintenance capital expenditures for the twelve
months ending March 31, 2009 will be $23.5 million.
These expenditures are expected to include $11.2 million of
well connection costs associated with maintaining throughput on
our systems as well as approximately $5.0 million of
one-time expenses at the Dew gathering facility and the Pinnacle
gas treating facility. The remainder of the expenditures are
primarily expected to be incurred to replace partially or fully
depreciated assets and to overhaul existing assets.
|
54
Our cash
distribution policy and restrictions on distributions
|
|
Ø |
We estimate that expansion capital expenditures for the twelve
months ending March 31, 2009 will be $20.6 million.
These expenditures are expected to include $11.5 million
associated with the expansion of the sulfur treating capacity at
our Bethel plant in East Texas that we expect to complete in
2008. We also expect to spend $3.4 million to add
additional compression on our Dew gathering system in East Texas
and $2.8 million to connect additional wells in order to
increase throughput on our systems.
|
Financing
Our forecast for the twelve months ending March 31, 2009 is
based on the following financing assumptions:
|
|
Ø |
We expect to use $10 million of the net proceeds of this
offering to finance a portion of our expansion capital
expenditures during the forecast period.
|
|
|
Ø |
We expect to finance the balance of our expansion capital
expenditures of $10.6 million through borrowings under
Anadarkos credit facility, under which we are a
co-borrower, or our working capital facility.
|
|
|
Ø |
Our average debt level will be $4.4 million, comprised of
funds drawn either on Anadarkos credit facility, under
which we are a co-borrower, or our working capital facility.
|
|
|
Ø |
We estimate interest expense of $0.3 million for the twelve
months ending March 31, 2009, which includes a commitment
fee of 0.11% on our working capital facility, interest
associated with funds expected to be drawn and amounts which we
expect to reimburse to Anadarko pursuant to the Omnibus
Agreement for our allocable portion of commitment fees (0.11% of
our committed and available borrowing capacity) that Anadarko
incurs under its credit facility. Please read Certain
relationships and related party transactions
Agreements governing the transaction Omnibus
agreement. We estimate our borrowings under
Anadarkos credit facility and our working capital facility
to bear an average annualized variable interest rate of 4.00%
through March 31, 2009. An increase or decrease of 1.0% in
the annual interest rate would not result in a material change
to our annual interest expense.
|
|
|
Ø |
Anadarko and we will remain in compliance with the covenants in
the Anadarko credit facility and other debt instruments.
|
Regulatory,
industry and economic factors
Our forecast for the twelve months ending March 31, 2009 is
based on the following significant assumptions related to
regulatory, industry and economic factors:
|
|
Ø
|
There will not be any new federal, state or local regulation of
the midstream energy sector, or any new interpretation of
existing regulations, that will be materially adverse to our
business.
|
|
Ø
|
There will not be any major adverse change in the midstream
energy sector or in market, insurance or general economic
conditions.
|
55
Provisions of our
partnership agreement relating to cash distributions
Set forth below is a summary of the significant provisions of
our partnership agreement that relate to cash distributions.
DISTRIBUTIONS OF
AVAILABLE CASH
General
Our partnership agreement requires that, within 45 days
after the end of each quarter, beginning with the quarter ending
June 30, 2008, we distribute all of our available cash to
unitholders of record on the applicable record date. We will
adjust the minimum quarterly distribution for the period from
the closing of the offering through June 30, 2008.
Definition of
available cash
Available cash, for any quarter, consists of all cash on hand at
the end of that quarter:
|
|
Ø |
less, the amount of cash reserves established by our
general partner to:
|
|
|
|
|
-
|
provide for the proper conduct of our business;
|
|
|
-
|
comply with applicable law, any of our debt instruments or other
agreements; or
|
|
|
-
|
provide funds for distributions to our unitholders for any one
or more of the next four quarters;
|
|
|
Ø |
plus, if our general partner so determines, all or a
portion of cash on hand on the date of determination of
available cash for the quarter resulting from working capital
borrowings made after the end of the quarter.
|
Working capital borrowings are generally borrowings that are
made under a credit facility, commercial paper facility or
similar financing arrangement, and in all cases are used solely
for working capital purposes or to pay distributions to partners
and with the intent of the borrower to repay such borrowings
within 12 months.
Intent to
distribute the minimum quarterly distribution
We will distribute to the holders of common and subordinated
units on a quarterly basis at least the minimum quarterly
distribution of $0.30 per unit, or $1.20 per year, to the extent
we have sufficient cash from our operations after establishment
of cash reserves and payment of fees and expenses, including
payments to our general partner. However, there is no guarantee
that we will pay the minimum quarterly distribution on the units
in any quarter. Even if our cash distribution policy is not
modified or revoked, the amount of distributions paid under our
policy and the decision to make any distribution is determined
by our general partner, taking into consideration the terms of
our partnership agreement.
General partner
interest and incentive distribution rights
Initially, our general partner will be entitled to 2.0% of all
quarterly distributions since inception that we make prior to
our liquidation. This general partner interest will be
represented by 1,083,115 general partner units. General
partner units are not deemed outstanding units for purposes of
voting rights and such units represent a non-voting general
partner interest. Our general partner has the right, but not the
obligation, to contribute a proportionate amount of capital to
us to maintain its current general partner interest. Our general
partners initial 2.0% interest in our distributions may be
reduced if we issue
56
Provisions of our
partnership agreement relating to cash distributions
additional limited partner units in the future and our general
partner does not contribute a proportionate amount of capital to
us to maintain its 2.0% general partner interest.
Our general partner also currently holds incentive distribution
rights that entitle it to receive increasing percentages, up to
a maximum of 50.0%, of the cash we distribute from operating
surplus (as defined below) in excess of $0.45 per unit per
quarter. The maximum distribution of 50.0% includes
distributions paid to our general partner on its 2.0% general
partner interest and assumes that our general partner maintains
its general partner interest at 2.0%. The maximum distribution
of 50.0% does not include any distributions that our general
partner may receive on limited partner units that it owns.
OPERATING SURPLUS
AND CAPITAL SURPLUS
General
All cash distributed to unitholders will be characterized as
either operating surplus or capital
surplus. Our partnership agreement requires that we
distribute available cash from operating surplus differently
than available cash from capital surplus.
Operating
surplus
Operating surplus consists of:
|
|
Ø |
$31.8 million (as described below);
|
|
|
Ø |
all of our cash receipts after the closing of this offering,
excluding cash from the following:
|
|
|
|
|
-
|
borrowings that are not working capital borrowings;
|
|
|
-
|
sales of equity and debt securities;
|
|
|
-
|
sales or other dispositions of assets outside the ordinary
course of business;
|
|
|
-
|
the termination of interest rate swap agreements or commodity
hedge contracts prior to the termination date specified herein;
|
|
|
-
|
capital contributions received; and
|
|
|
-
|
corporate reorganizations or restructurings; plus
|
|
|
Ø |
working capital borrowings made after the end of a quarter but
on or before the date of determination of operating surplus for
the quarter; plus
|
|
|
Ø |
the amount by which expenses allocated to us in any period in
accordance with GAAP for general and administrative services
provided to us pursuant to the Omnibus Agreement exceed the
G&A Expense Limit (as such term is defined in the Omnibus
Agreement); plus
|
|
|
Ø |
any Excess Bonus Expenses (as such term is defined in the
Services and Secondment Agreement) to the extent such Excess
Bonus Expenses are allocated to us in accordance with GAAP for
any period; plus
|
|
|
Ø |
cash distributions paid on equity issued to finance all or a
portion of the construction, acquisition, improvement or
replacement of a capital asset (such as equipment or facilities)
during the period beginning on the date that we enter into a
binding obligation to commence the construction, acquisition or
improvement of a capital improvement or replacement of a capital
asset and ending on the earlier to occur of the date the capital
improvement or capital asset commences commercial service or the
date that it is abandoned or disposed of; less
|
|
|
Ø
|
all of our operating expenditures (as defined below) after the
closing of this offering; less
|
|
Ø
|
the amount of cash reserves established by our general partner
to provide funds for future operating expenditures; less
|
|
Ø
|
all working capital borrowings not repaid within twelve months
after having been incurred or repaid within such twelve-month
period with the proceeds of additional working capital
borrowings.
|
57
Provisions of our
partnership agreement relating to cash distributions
As described above, operating surplus does not reflect actual
cash on hand that is available for distribution to our
unitholders. For example, it includes a provision that will
enable us, if we choose, to distribute as operating surplus up
to $31.8 million of cash we receive in the future from
non-operating sources such as asset sales, issuances of
securities and long-term borrowings that would otherwise be
distributed as capital surplus. In addition, the effect of
including, as described above, certain cash distributions on
equity securities in operating surplus will be to increase
operating surplus by the amount of any such cash distributions.
As a result, we may also distribute as operating surplus up to
the amount of any such cash distributions we receive from
non-operating sources.
If a working capital borrowing, which increases operating
surplus, is not repaid during the twelve-month period following
the borrowing, it will be deemed repaid at the end of such
period, thus decreasing operating surplus at such time. When
such working capital borrowing is in fact repaid, it will not be
treated as a further reduction in operating surplus because
operating surplus will have been previously reduced by the
deemed repayment.
We define operating expenditures in the glossary, and it
generally means all of our cash expenditures, including, but not
limited to, taxes, reimbursement of expenses to our general
partner, reimbursement of expenses to Anadarko for services
pursuant to the omnibus agreement or personnel provided to us
under the services and secondment agreement, payments made in
the ordinary course of business under interest rate swap
agreements or commodity hedge contracts, manager and officer
compensation, repayment of working capital borrowings, debt
service payments and estimated maintenance capital expenditures
(as discussed in further detail below), provided that operating
expenditures will not include:
|
|
Ø
|
repayment of working capital borrowings deducted from operating
surplus pursuant to the last bullet point of the definition of
operating surplus above when such repayment actually occurs;
|
|
Ø
|
payments (including prepayments and prepayment penalties) of
principal of and premium on indebtedness, other than working
capital borrowings;
|
|
Ø
|
expansion capital expenditures;
|
|
Ø
|
actual maintenance capital expenditures (as discussed in further
detail below);
|
|
Ø
|
investment capital expenditures;
|
|
Ø
|
payment of transaction expenses relating to interim capital
transactions;
|
|
Ø
|
distributions to our partners (including distributions in
respect of our Class B units and incentive distribution
rights); or
|
|
Ø
|
non-pro rata purchases of units of any class made with the
proceeds of a substantially concurrent equity issuance.
|
Capital
surplus
Capital surplus consists of:
|
|
Ø
|
borrowings other than working capital borrowings;
|
|
Ø
|
sales of our equity and debt securities; and
|
|
Ø
|
sales or other dispositions of assets for cash, other than
inventory, accounts receivable and other current assets sold in
the ordinary course of business or as part of normal retirement
or replacement of assets.
|
Characterization
of cash distributions
Our partnership agreement requires that we treat all available
cash distributed as coming from operating surplus until the sum
of all available cash distributed since the closing of this
offering equals
58
Provisions of our
partnership agreement relating to cash distributions
the operating surplus as of the most recent date of
determination of available cash. Our partnership agreement
requires that we treat any amount distributed in excess of
operating surplus, regardless of its source, as capital surplus.
We do not anticipate that we will make any distributions from
capital surplus.
CAPITAL
EXPENDITURES
For purposes of determining operating surplus, maintenance
capital expenditures are those capital expenditures required to
maintain our long-term operating capacity or operating income,
and expansion capital expenditures are those capital
expenditures that we expect will expand our operating capacity
or operating income over the long term. Examples of maintenance
capital expenditures include capital expenditures associated
with the replacement of equipment and well connections, or the
construction, development or acquisition of other facilities, to
replace expected reductions in hydrocarbons available for
gathering, compressing, treating, transporting or otherwise
handled by our facilities (which we refer to as operating
capacity). Maintenance capital expenditures will also include
interest (and related fees) on debt incurred and distributions
on equity issued to finance all or any portion of the
construction, improvement or replacement of an asset that is
paid in respect of the period that begins when we enter into a
binding obligation to commence constructing or developing a
replacement asset and ending on the earlier to occur of the date
of any such replacement asset commences commercial service or
the date that it is abandoned or disposed of. Capital
expenditures made solely for investment purposes will not be
considered maintenance capital expenditures.
Because our maintenance capital expenditures can be irregular,
the amount of our actual maintenance capital expenditures may
differ substantially from period to period, which could cause
similar fluctuations in the amounts of operating surplus,
adjusted operating surplus and cash available for distribution
to our unitholders if we subtracted actual maintenance capital
expenditures from operating surplus.
Our partnership agreement will require that an estimate of the
average quarterly maintenance capital expenditures necessary to
maintain our operating capacity or operating income over the
long term be subtracted from operating surplus each quarter as
opposed to the actual amounts spent. The amount of estimated
maintenance capital expenditures deducted from operating surplus
for those periods will be subject to review and change by our
general partner at least once a year, provided that any change
is approved by our special committee. The estimate will be made
at least annually and whenever an event occurs that is likely to
result in a material adjustment to the amount of our maintenance
capital expenditures, such as a major acquisition or the
introduction of new governmental regulations that will impact
our business. For purposes of calculating operating surplus, any
adjustment to this estimate will be prospective only. For a
discussion of the amounts we have allocated toward estimated
maintenance capital expenditures, please read Our cash
distribution policy and restrictions on distributions.
The use of estimated maintenance capital expenditures in
calculating operating surplus will have the following effects:
|
|
Ø
|
it will reduce the risk that maintenance capital expenditures in
any one quarter will be large enough to render operating surplus
less than the initial quarterly distribution to be paid on all
the units for the quarter and subsequent quarters;
|
|
Ø
|
it will increase our ability to distribute as operating surplus
cash we receive from non-operating sources; and
|
|
Ø
|
it will be more difficult for us to raise our distribution above
the minimum quarterly distribution and pay incentive
distributions on the incentive distribution rights held by our
general partner.
|
Expansion capital expenditures are those capital expenditures
that we expect will increase our operating capacity or operating
income. Examples of expansion capital expenditures include the
acquisition of
59
Provisions of our
partnership agreement relating to cash distributions
equipment, or the construction, development or acquisition of
additional pipeline or treating capacity or new processing
capacity, to the extent such capital expenditures are expected
to expand our long-term operating capacity or operating income.
Expansion capital expenditures will also include interest (and
related fees) on debt incurred and distributions on equity
issued to finance all or any portion of the construction of such
capital improvement during the period that commences when we
enter into a binding obligation to commence construction of a
capital improvement and ending on the date any such capital
improvement commences commercial service or the date that it is
abandoned or disposed of. Capital expenditures made solely for
investment purposes will not be considered expansion capital
expenditures.
As described below, neither investment capital expenditures nor
expansion capital expenditures are subtracted from operating
surplus. Because expansion capital expenditures include interest
payments (and related fees) on debt incurred and distributions
on equity issued to finance all of the portion of the
construction, replacement or improvement of a capital asset
(such as gathering pipelines or treating facilities) during the
period that begins when we enter into a binding obligation to
commence construction of a capital improvement and ending on the
earlier to occur of the date any such capital asset commences
commercial service or the date that it is abandoned or disposed
of, such interest payments and equity distributions are also not
subtracted from operating surplus (except, in the case of
maintenance capital expenditures, to the extent such interest
payments and distributions are included in estimated maintenance
capital expenditures).
Investment capital expenditures are those capital expenditures
that are neither maintenance capital expenditures nor expansion
capital expenditures. Investment capital expenditures largely
will consist of capital expenditures made for investment
purposes. Examples of investment capital expenditures include
traditional capital expenditures for investment purposes, such
as purchases of securities, as well as other capital
expenditures that might be made in lieu of such traditional
investment capital expenditures, such as the acquisition of a
capital asset for investment purposes or development of
facilities that are in excess of the maintenance of our existing
operating capacity or operating income, but which are not
expected to expand for more than the short term of our operating
capacity or operating income.
Capital expenditures that are made in part for maintenance
capital purposes and in part for investment capital or expansion
capital purposes will be allocated as maintenance capital
expenditures, investment capital expenditures or expansion
capital expenditure by our general partner, with the concurrence
of our special committee.
SUBORDINATION
PERIOD
General
Our partnership agreement provides that, during the
subordination period (which we define below), the common units
will have the right to receive distributions of available cash
from operating surplus each quarter in an amount equal to $0.30
per common unit, which amount is defined in our partnership
agreement as the minimum quarterly distribution, plus any
arrearages in the payment of the minimum quarterly distribution
on the common units from prior quarters, before any
distributions of available cash from operating surplus may be
made on the subordinated units. These units are deemed
subordinated because for a period of time, referred
to as the subordination period, the subordinated units will not
be entitled to receive any distributions until the common units
have received the minimum quarterly distribution plus any
arrearages from prior quarters. Furthermore, no arrearages will
be paid on the subordinated units. The practical effect of the
subordinated units is to increase the likelihood that during the
subordination period there will be available cash to be
distributed on the common units.
60
Provisions of our
partnership agreement relating to cash distributions
Subordination
period
The subordination period will extend until the first business
day of any quarter beginning after June 30, 2011, that each
of the following tests are met:
|
|
Ø
|
distributions of available cash from operating surplus on each
of the outstanding common units, subordinated units and general
partner units equaled or exceeded the minimum quarterly
distribution for each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date;
|
|
Ø
|
the adjusted operating surplus (as defined below)
generated during each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date equaled or
exceeded the sum of the minimum quarterly distributions on all
of the outstanding common, subordinated units and general
partner units during those periods on a fully diluted basis
during those periods; and
|
|
Ø
|
there are no arrearages in payment of the minimum quarterly
distribution on the common units.
|
Early termination
of subordination period
Notwithstanding the foregoing, the subordination period will
automatically terminate and all of the subordinated units will
convert into common units on a one-for-one basis if each of the
following occurs:
|
|
Ø
|
distributions of available cash from operating surplus on each
of the outstanding common units, subordinated units and general
partner units equaled or exceeded $0.45 per quarter (150.0% of
the minimum quarterly distribution) for each calendar quarter in
the immediately preceding four-quarter period;
|
|
Ø
|
the adjusted operating surplus (as defined below)
generated during each calendar quarter in the immediately
preceding four-quarter period equaled or exceeded the sum of
$0.45 (150.0% of the minimum quarterly distribution) on each of
the outstanding common, subordinated and general partner units
during that period on a fully diluted basis; and
|
|
Ø
|
there are no arrearages in payment of the minimum quarterly
distributions on the common units.
|
Expiration of the
subordination period
When the subordination period ends, each outstanding
subordinated unit will convert into one common unit and will
then participate pro-rata with the other common units in
distributions of available cash. In addition, if the unitholders
remove our general partner other than for cause and no units
held by our general partner and its affiliates are voted in
favor of such removal:
|
|
Ø
|
the subordination period will end and each subordinated unit
will immediately convert into one common unit;
|
|
Ø
|
any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
|
|
Ø
|
our general partner will have the right to convert its general
partner units and its incentive distribution rights into common
units or to receive cash in exchange for those interests.
|
Adjusted
operating surplus
Adjusted operating surplus is intended to reflect the cash
generated from operations during a particular period and
therefore excludes net increases in working capital borrowings
and net drawdowns of reserves of cash generated in prior
periods. Adjusted operating surplus consists of:
|
|
Ø
|
operating surplus generated with respect to that period;
less
|
|
Ø
|
any net increase in working capital borrowings with respect to
that period; less
|
|
Ø
|
any net decrease in cash reserves for operating expenditures
with respect to that period not relating to an operating
expenditure made with respect to that period; plus
|
61
Provisions of our
partnership agreement relating to cash distributions
|
|
Ø
|
any net decrease in working capital borrowings with respect to
that period; plus
|
|
Ø
|
any net increase in cash reserves for operating expenditures
with respect to that period required by any debt instrument for
the repayment of principal, interest or premium.
|
DISTRIBUTIONS OF
AVAILABLE CASH FROM OPERATING SURPLUS DURING THE SUBORDINATION
PERIOD
Our partnership agreement requires that we make distributions of
available cash from operating surplus for any quarter during the
subordination period in the following manner:
|
|
Ø
|
first, 98.0% to the common unitholders, pro rata, and
2.0% to our general partner, until we distribute for each
outstanding common unit an amount equal to the minimum quarterly
distribution for that quarter;
|
|
Ø
|
second, 98.0% to the common unitholders, pro rata, and
2.0% to our general partner, until we distribute for each
outstanding common unit an amount equal to any arrearages in
payment of the minimum quarterly distribution on the common
units for any prior quarters during the subordination period;
|
|
Ø
|
third, 98.0% to the subordinated unitholders, pro rata,
and 2.0% to our general partner, until we distribute for each
subordinated unit an amount equal to the minimum quarterly
distribution for that quarter; and
|
|
Ø
|
thereafter, in the manner described in General
partner interest and incentive distribution rights below.
|
The preceding discussion is based on the assumptions that our
general partner maintains its 2.0% general partner interest and
that we do not issue additional classes of equity securities.
PERCENTAGE
ALLOCATIONS OF AVAILABLE CASH FROM OPERATING SURPLUS
The following table illustrates the percentage allocations of
available cash from operating surplus between the unitholders
and our general partner based on the specified target
distribution levels. The amounts set forth under Marginal
percentage interest in distributions are the percentage
interests of our general partner and the unitholders in any
available cash from operating surplus we distribute up to and
including the corresponding amount in the column Total
quarterly distribution per unit. The percentage interests
shown for our unitholders and our general partner for the
minimum quarterly distribution are also applicable to quarterly
distribution amounts that are less than the minimum quarterly
distribution. The percentage interests set forth below for our
general partner include its 2.0% general partner interest and
assume our general partner has contributed any additional
capital to maintain its 2.0% general partner interest and has
not transferred its incentive distribution rights.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marginal
percentage
|
|
|
|
|
interest in
|
|
|
|
|
distributions(1)
|
|
|
Total quarterly
distribution
|
|
|
|
|
General
|
|
|
per
unit
|
|
Unitholders
|
|
|
partner
|
|
|
Minimum Quarterly Distribution
|
|
$0.300
|
|
|
98.0%
|
|
|
|
2.0%
|
First Target Distribution
|
|
up to $0.345
|
|
|
98.0%
|
|
|
|
2.0%
|
Second Target Distribution
|
|
above $0.345 up to $0.375
|
|
|
85.0%
|
|
|
|
15.0%
|
Third Target Distribution
|
|
above $0.375 up to $0.450
|
|
|
75.0%
|
|
|
|
25.0%
|
Thereafter
|
|
above $0.450
|
|
|
50.0%
|
|
|
|
50.0%
|
|
|
|
(1) |
|
Assumes that there are no
arrearages on common units and that our general partner
maintains its 2.0% general partner interest and continues to own
the incentive distribution rights. |
62
Provisions of our
partnership agreement relating to cash distributions
DISTRIBUTIONS OF
AVAILABLE CASH FROM OPERATING SURPLUS AFTER THE SUBORDINATION
PERIOD
Our partnership agreement requires that we make distributions of
available cash from operating surplus for any quarter after the
subordination period in the following manner:
|
|
Ø
|
first, 98.0% to all unitholders, pro rata, and 2.0% to
our general partner, until we distribute for each outstanding
unit an amount equal to the minimum quarterly distribution for
that quarter; and
|
|
Ø
|
thereafter, in the manner described in
General partner interest and incentive distribution
rights below.
|
The preceding discussion is based on the assumptions that our
general partner maintains its 2.0% general partner interest and
that we do not issue additional classes of equity securities.
GENERAL PARTNER
INTEREST AND INCENTIVE DISTRIBUTION RIGHTS
Our partnership agreement provides that our general partner
initially will be entitled to 2.0% of all distributions that we
make prior to our liquidation. Our general partner has the
right, but not the obligation, to contribute a proportionate
amount of capital to us to maintain its 2.0% general partner
interest if we issue additional units. Our general
partners 2.0% interest, and the percentage of our cash
distributions to which it is entitled, will be proportionately
reduced if we issue additional units in the future and our
general partner does not contribute a proportionate amount of
capital to us in order to maintain its 2.0% general partner
interest. Our general partner will be entitled to make a capital
contribution in order to maintain its 2.0% general partner
interest in the form of the contribution to us of common units
based on the current market value of the contributed common
units.
Incentive distribution rights represent the right to receive an
increasing percentage (13.0%, 23.0% and 48.0%) of quarterly
distributions of available cash from operating surplus after the
minimum quarterly distribution and the target distribution
levels have been achieved. Our general partner currently holds
the incentive distribution rights, but may transfer these rights
separately from its general partner interest, subject to
restrictions in the partnership agreement.
The following discussion assumes that our general partner
maintains its 2.0% general partner interest, that there are no
arrearages on common units and that our general partner
continues to own the incentive distribution rights.
If for any quarter:
|
|
Ø
|
we have distributed available cash from operating surplus to the
common and subordinated unitholders in an amount equal to the
minimum quarterly distribution; and
|
|
Ø
|
we have distributed available cash from operating surplus on
outstanding common units in an amount necessary to eliminate any
cumulative arrearages in payment of the minimum quarterly
distribution;
|
then, our partnership agreement requires that we distribute any
additional available cash from operating surplus for that
quarter among the unitholders and the general partner in the
following manner:
|
|
Ø
|
first, 98.0% to all unitholders, pro rata, and 2.0% to
our general partner, until each unitholder receives a total of
$0.345 per unit for that quarter (the first target
distribution);
|
|
Ø
|
second, 85.0% to all unitholders, pro rata, and 15.0% to
our general partner, until each unitholder receives a total of
$0.375 per unit for that quarter (the second target
distribution);
|
|
Ø
|
third, 75.0% to all unitholders, pro rata, and 25.0% to
our general partner, until each unitholder receives a total of
$0.45 per unit for that quarter (the third target
distribution); and
|
|
Ø
|
thereafter, 50.0% to all unitholders, pro rata, and 50.0%
to our general partner.
|
63
Provisions of our
partnership agreement relating to cash distributions
GENERAL
PARTNERS RIGHT TO RESET INCENTIVE DISTRIBUTION
LEVELS
Our general partner, as the holder of our incentive distribution
rights, has the right under our partnership agreement to elect
to relinquish the right to receive incentive distribution
payments based on the initial cash target distribution levels
and to reset, at higher levels, the minimum quarterly
distribution amount and cash target distribution levels upon
which the incentive distribution payments to our general partner
would be set. Our general partners right to reset the
minimum quarterly distribution amount and the target
distribution levels upon which the incentive distributions
payable to our general partner are based may be exercised,
without approval of our unitholders or the special committee of
our general partner, at any time when there are no subordinated
units outstanding and we have made cash distributions to the
holders of the incentive distribution rights at the highest
level of incentive distribution for each of the prior four
consecutive fiscal quarters. The reset minimum quarterly
distribution amount and target distribution levels will be
higher than the minimum quarterly distribution amount and the
target distribution levels prior to the reset such that our
general partner will not receive any incentive distributions
under the reset target distribution levels until cash
distributions per unit following this event increase as
described below. We anticipate that our general partner would
exercise this reset right in order to facilitate acquisitions or
internal growth projects that would otherwise not be
sufficiently accretive to cash distributions per common unit,
taking into account the existing levels of incentive
distribution payments being made to our general partner.
In connection with the resetting of the minimum quarterly
distribution amount and the target distribution levels and the
corresponding relinquishment by our general partner of incentive
distribution payments based on the target cash distributions
prior to the reset, our general partner will be entitled to
receive a number of newly issued Class B units and general
partner units based on a predetermined formula described below
that takes into account the cash parity value of the
average cash distributions related to the incentive distribution
rights received by our general partner for the two quarters
prior to the reset event as compared to the average cash
distributions per common unit during this period. Our general
partner will be issued the number of general partner units
necessary to maintain our general partners interest in us
immediately prior to the reset election.
The number of Class B units that our general partner would
be entitled to receive from us in connection with a resetting of
the minimum quarterly distribution amount and the target
distribution levels then in effect would be equal to the
quotient determined by dividing (x) the average amount of
cash distributions received by our general partner in respect of
its incentive distribution rights during the two consecutive
fiscal quarters ended immediately prior to the date of such
reset election by (y) the average of the amount of cash
distributed per common unit during each of these two quarters.
Each Class B unit will be convertible into one common unit
at the election of the holder of the Class B unit at any
time following the first anniversary of the issuance of these
Class B units.
Following a reset election by our general partner, the minimum
quarterly distribution amount will be reset to an amount equal
to the average cash distribution amount per unit for the two
fiscal quarters immediately preceding the reset election (which
amount we refer to as the reset minimum quarterly
distribution) and the target distribution levels will be
reset to be correspondingly higher such that we would distribute
all of our available cash from operating surplus for each
quarter thereafter as follows:
|
|
Ø
|
first, 98.0% to all unitholders, pro rata, and 2.0% to
our general partner, until each unitholder receives an amount
equal to 115.0% of the reset minimum quarterly distribution for
that quarter;
|
|
Ø
|
second, 85.0% to all unitholders, pro rata, and 15.0% to
our general partner, until each unitholder receives an amount
per unit equal to 125.0% of the reset minimum quarterly
distribution for the quarter;
|
|
Ø
|
third, 75.0% to all unitholders, pro rata, and 25.0% to
our general partner, until each unitholder receives an amount
per unit equal to 150.0% of the reset minimum quarterly
distribution for the quarter; and
|
64
Provisions of our
partnership agreement relating to cash distributions
|
|
Ø |
thereafter, 50.0% to all unitholders, pro rata, and 50.0%
to our general partner.
|
The following table illustrates the percentage allocation of
available cash from operating surplus between the unitholders
and our general partner at various cash distribution levels
(i) pursuant to the cash distribution provisions of our
partnership agreement in effect at the closing of this offering,
as well as (ii) following a hypothetical reset of the
minimum quarterly distribution and target distribution levels
based on the assumption that the average quarterly cash
distribution amount per common unit during the two fiscal
quarters immediately preceding the reset election was $0.60.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marginal
percentage
|
|
|
|
|
|
|
|
interest in
distribution
|
|
|
|
|
|
Quarterly
distribution
|
|
|
|
General
|
|
Quarterly
distribution per unit
|
|
|
|
per unit prior to
reset
|
|
Unitholders
|
|
partner
|
|
following
hypothetical reset
|
|
|
|
|
Minimum Quarterly Distribution
|
|
$0.300
|
|
98.0%
|
|
2.0%
|
|
|
$0.600
|
|
First Target Distribution
|
|
up to $0.345
|
|
98.0%
|
|
2.0%
|
|
|
up to $0.690
|
(1)
|
Second Target Distribution
|
|
above $0.345 up to $0.375
|
|
85.0%
|
|
15.0%
|
|
|
above
$0.690(1)
up to $0.750
|
(2)
|
Third Target Distribution
|
|
above $0.375 up to $0.450
|
|
75.0%
|
|
25.0%
|
|
|
above
$0.750(2)
up to $0.900
|
(3)
|
Thereafter
|
|
above $0.450
|
|
50.0%
|
|
50.0%
|
|
|
above $0.900
|
(3)
|
|
|
|
(1) |
|
This amount is 115.0% of the
hypothetical reset minimum quarterly distribution. |
|
(2) |
|
This amount is 125.0% of the
hypothetical reset minimum quarterly distribution. |
|
(3) |
|
This amount is 150.0% of the
hypothetical reset minimum quarterly distribution. |
The following table illustrates the total amount of available
cash from operating surplus that would be distributed to the
unitholders and our general partner, including in respect of
incentive distribution rights, or IDRs, based on an average of
the amounts distributed for a quarter for the two quarters
immediately prior to the reset. The table assumes that
immediately prior to the reset there would be
53,072,612 common units outstanding, our general partner
has maintained its 2.0% general partner interest, and the
average distribution to each common unit would be $0.60 for the
two quarters prior to the reset.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
Cash
distributions to general
|
|
|
|
|
Quarterly
|
|
distributions
|
|
partner prior to
reset
|
|
|
|
|
distribution
|
|
to common
|
|
|
|
2.0% General
|
|
Incentive
|
|
|
|
|
|
|
per unit
|
|
unitholders
|
|
Class B
|
|
partner
|
|
distribution
|
|
|
|
Total
|
|
|
prior to
reset
|
|
prior to
reset
|
|
units
|
|
interest
|
|
rights
|
|
Total
|
|
distributions
|
|
|
Minimum Quarterly Distribution
|
|
$0.300
|
|
$
|
15,921,783
|
|
|
|
|
$
|
324,934
|
|
|
|
|
$
|
324,934
|
|
$
|
16,246,717
|
First Target Distribution
|
|
up to $0.345
|
|
|
2,388,268
|
|
|
|
|
|
48,740
|
|
|
|
|
|
48,740
|
|
|
2,437,008
|
Second Target Distribution
|
|
above $0.345
up to $0.375
|
|
|
1,592,178
|
|
|
|
|
|
37,463
|
|
|
243,510
|
|
|
280,973
|
|
|
1,873,151
|
Third Target Distribution
|
|
above $0.375
up to $0.450
|
|
|
3,980,446
|
|
|
|
|
|
106,145
|
|
|
1,220,670
|
|
|
1,326,815
|
|
|
5,307,261
|
Thereafter
|
|
above $0.450
|
|
|
7,960,892
|
|
|
|
|
|
318,436
|
|
|
7,642,456
|
|
|
7,960,892
|
|
|
15,921,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,843,567
|
|
|
|
|
$
|
835,718
|
|
$
|
9,106,636
|
|
$
|
9,942,354
|
|
$
|
41,785,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
Provisions of our
partnership agreement relating to cash distributions
The following table illustrates the total amount of available
cash from operating surplus that would be distributed to the
unitholders and our general partner, including in respect of
IDRs, with respect to the quarter in which the reset occurs. The
table reflects that as a result of the reset there would be
53,072,612 common units and 15,177,726 Class B
units outstanding, our general partners 2.0% interest has
been maintained, and the average distribution to each common
unit would be $0.60. The number of Class B units to be
issued to our general partner upon the reset was calculated by
dividing (i) the average of the amounts received by our
general partner in respect of its IDRs for the two quarters
prior to the reset as shown in the table above, or $9,106,636,
by (ii) the average available cash distributed on each
common unit for the two quarters prior to the reset as shown in
the table above, or $0.60.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
Cash
distributions to general
|
|
|
|
|
Quarterly
|
|
distributions
|
|
partner after
reset
|
|
|
|
|
distribution
|
|
to common
|
|
|
|
2.0% General
|
|
Incentive
|
|
|
|
|
|
|
per unit
|
|
unitholders
|
|
Class B
|
|
partner
|
|
distribution
|
|
|
|
Total
|
|
|
after
reset
|
|
after
reset
|
|
units
|
|
interest
|
|
rights
|
|
Total
|
|
distributions
|
|
|
Minimum Quarterly Distribution
|
|
$0.600
|
|
$
|
31,843,567
|
|
$
|
9,106,636
|
|
$
|
835,718
|
|
|
|
|
$
|
9,942,354
|
|
$
|
41,785,921
|
First Target Distribution
|
|
up to $0.690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Target Distribution
|
|
above $0.690
up to $0.750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Target Distribution
|
|
above $0.750
up to $0.900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
above $0.900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,843,567
|
|
$
|
9,106,636
|
|
$
|
835,718
|
|
|
|
|
$
|
9,942,354
|
|
$
|
41,785,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our general partner will be entitled to cause the minimum
quarterly distribution amount and the target distribution levels
to be reset on more than one occasion, provided that it may not
make a reset election except at a time when it has received
incentive distributions for the prior four consecutive fiscal
quarters based on the highest level of incentive distributions
that it is entitled to receive under our partnership agreement.
DISTRIBUTIONS
FROM CAPITAL SURPLUS
How distributions
from capital surplus will be made
Our partnership agreement requires that we make distributions of
available cash from capital surplus, if any, in the following
manner:
|
|
Ø
|
first, 98.0% to all unitholders, pro rata, and 2.0% to
our general partner, until we distribute for each common unit
that was issued in this offering, an amount of available cash
from capital surplus equal to the initial public offering price;
|
|
Ø
|
second, 98.0% to the common unitholders, pro rata, and
2.0% to our general partner, until we distribute for each common
unit, an amount of available cash from capital surplus equal to
any unpaid arrearages in payment of the minimum quarterly
distribution on the common units; and
|
|
Ø
|
thereafter, we will make all distributions of available
cash from capital surplus as if they were from operating surplus.
|
Effect of a
distribution from capital surplus
Our partnership agreement treats a distribution of capital
surplus as the repayment of the initial unit price from this
initial public offering, which is a return of capital. The
initial public offering price less any distributions of capital
surplus per unit is referred to as the unrecovered initial
unit price. Each time a distribution of capital surplus is
made, the minimum quarterly distribution and the target
66
Provisions of our
partnership agreement relating to cash distributions
distribution levels will be reduced in the same proportion as
the corresponding reduction in the unrecovered initial unit
price. Because distributions of capital surplus will reduce the
minimum quarterly distribution after any of these distributions
are made, it may be easier for our general partner to receive
incentive distributions and for the subordinated units to
convert into common units. However, any distribution of capital
surplus before the unrecovered initial unit price is reduced to
zero cannot be applied to the payment of the minimum quarterly
distribution or any arrearages.
Once we distribute capital surplus on a unit issued in this
offering in an amount equal to the initial unit price, our
partnership agreement specifies that the minimum quarterly
distribution and the target distribution levels will be reduced
to zero. Our partnership agreement specifies that we then make
all future distributions from operating surplus, with 50.0%
being paid to the holders of units and 50.0% to our general
partner. The percentage interests shown for our general partner
include its 2.0% general partner interest and assume our general
partner has not transferred the incentive distribution rights.
ADJUSTMENT TO THE
MINIMUM QUARTERLY DISTRIBUTION AND TARGET DISTRIBUTION
LEVELS
In addition to adjusting the minimum quarterly distribution and
target distribution levels to reflect a distribution of capital
surplus, if we combine our units into fewer units or subdivide
our units into a greater number of units, our partnership
agreement specifies that the following items will be
proportionately adjusted:
|
|
Ø
|
the minimum quarterly distribution;
|
|
Ø
|
target distribution levels;
|
|
Ø
|
the unrecovered initial unit price; and
|
|
Ø
|
the number of common units into which a subordinated unit is
convertible.
|
For example, if a two-for-one split of the common units should
occur, the minimum quarterly distribution, the target
distribution levels and the unrecovered initial unit price would
each be reduced to 50% of its initial level, and each
subordinated unit would be convertible into two common units.
Our partnership agreement provides that we do not make any
adjustment by reason of the issuance of additional units for
cash or property.
In addition, if legislation is enacted or if existing law is
modified or interpreted by a governmental taxing authority, so
that we become taxable as a corporation or otherwise subject to
taxation as an entity for federal, state or local income tax
purposes, our partnership agreement specifies that the minimum
quarterly distribution and the target distribution levels for
each quarter may be reduced by multiplying each distribution
level by a fraction, the numerator of which is available cash
for that quarter and the denominator of which is the sum of
available cash for that quarter plus our general partners
estimate of our aggregate liability for the quarter for such
income taxes payable by reason of such legislation or
interpretation. To the extent that the actual tax liability
differs from the estimated tax liability for any quarter, the
difference will be accounted for in subsequent quarters.
DISTRIBUTIONS OF
CASH UPON LIQUIDATION
General
If we dissolve in accordance with the partnership agreement, we
will sell or otherwise dispose of our assets in a process called
liquidation. We will first apply the proceeds of liquidation to
the payment of our creditors. We will distribute any remaining
proceeds to the unitholders and the general partner, in
accordance with their capital account balances, as adjusted to
reflect any gain or loss upon the sale or other disposition of
our assets in liquidation.
The allocations of gain and loss upon liquidation are intended,
to the extent possible, to entitle the holders of outstanding
common units to a preference over the holders of outstanding
subordinated units
67
Provisions of our
partnership agreement relating to cash distributions
upon our liquidation, to the extent required to permit common
unitholders to receive their unrecovered initial unit price plus
the minimum quarterly distribution for the quarter during which
liquidation occurs plus any unpaid arrearages in payment of the
minimum quarterly distribution on the common units. However,
there may not be sufficient gain upon our liquidation to enable
the holders of common units to fully recover all of these
amounts, even though there may be cash available for
distribution to the holders of subordinated units. Any further
net gain recognized upon liquidation will be allocated in a
manner that takes into account the incentive distribution rights
of our general partner.
Manner of
adjustments for gain
The manner of the adjustment for gain is set forth in the
partnership agreement. If our liquidation occurs before the end
of the subordination period, we will allocate any gain to the
partners in the following manner:
|
|
Ø
|
first, to our general partner and the holders of units
who have negative balances in their capital accounts to the
extent of and in proportion to those negative balances;
|
|
Ø
|
second, 98.0% to the common unitholders, pro rata, and
2.0% to our general partner, until the capital account for each
common unit is equal to the sum of: (1) the unrecovered
initial unit price; (2) the amount of the minimum quarterly
distribution for the quarter during which our liquidation
occurs; and (3) any unpaid arrearages in payment of the
minimum quarterly distribution;
|
|
Ø
|
third, 98.0% to the subordinated unitholders, pro rata,
and 2.0% to our general partner, until the capital account for
each subordinated unit is equal to the sum of: (1) the
unrecovered initial unit price; and (2) the amount of the
minimum quarterly distribution for the quarter during which our
liquidation occurs;
|
|
Ø
|
fourth, 98.0% to all unitholders, pro rata, and 2.0% to
our general partner, until we allocate under this paragraph an
amount per unit equal to: (1) the sum of the excess of the
first target distribution per unit over the minimum quarterly
distribution per unit for each quarter of our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the minimum
quarterly distribution per unit that we distributed 98.0% to the
unitholders, pro rata, and 2.0% to our general partner, for each
quarter of our existence;
|
|
Ø
|
fifth, 85.0% to all unitholders, pro rata, and 15.0% to
our general partner, until we allocate under this paragraph an
amount per unit equal to: (1) the sum of the excess of the
second target distribution per unit over the first target
distribution per unit for each quarter of our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the first
target distribution per unit that we distributed 85.0% to the
unitholders, pro rata, and 15.0% to our general partner for each
quarter of our existence;
|
|
Ø
|
sixth, 75.0% to all unitholders, pro rata, and 25.0% to
our general partner, until we allocate under this paragraph an
amount per unit equal to: (1) the sum of the excess of the
third target distribution per unit over the second target
distribution per unit for each quarter of our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the second
target distribution per unit that we distributed 75.0% to the
unitholders, pro rata, and 25.0% to our general partner for each
quarter of our existence; and
|
|
Ø
|
thereafter, 50.0% to all unitholders, pro rata, and 50.0%
to our general partner.
|
The percentage interests set forth above for our general partner
include its 2.0% general partner interest and assume our general
partner has not transferred the incentive distribution rights.
If the liquidation occurs after the end of the subordination
period, the distinction between common and subordinated units
will disappear, so that clause (3) of the second bullet
point above and all of the third bullet point above will no
longer be applicable.
68
Provisions of our
partnership agreement relating to cash distributions
Manner of
adjustments for losses
If our liquidation occurs before the end of the subordination
period, we will generally allocate any loss to our general
partner and the unitholders in the following manner:
|
|
Ø
|
first, 98.0% to holders of subordinated units in
proportion to the positive balances in their capital accounts
and 2.0% to our general partner, until the capital accounts of
the subordinated unitholders have been reduced to zero;
|
|
Ø
|
second, 98.0% to the holders of common units in
proportion to the positive balances in their capital accounts
and 2.0% to our general partner, until the capital accounts of
the common unitholders have been reduced to zero; and
|
|
Ø
|
thereafter, 100.0% to our general partner.
|
If the liquidation occurs after the end of the subordination
period, the distinction between common and subordinated units
will disappear, so that all of the first bullet point above will
no longer be applicable.
Adjustments to
capital accounts
Our partnership agreement requires that we make adjustments to
capital accounts upon the issuance of additional units. In this
regard, our partnership agreement specifies that we allocate any
unrealized and, for tax purposes, unrecognized gain or loss
resulting from the adjustments to the unitholders and the
general partner in the same manner as we allocate gain or loss
upon liquidation. In the event that we make positive adjustments
to the capital accounts upon the issuance of additional units,
our partnership agreement requires that we allocate any later
negative adjustments to the capital accounts resulting from the
issuance of additional units or upon our liquidation in a manner
which results, to the extent possible, in the general
partners capital account balances equaling the amount
which they would have been if no earlier positive adjustments to
the capital accounts had been made.
69
Selected historical
and pro forma financial and operating data
The following table shows (i) the selected combined
historical financial and operating data of our Predecessor,
which is comprised of Anadarko Gathering Company LLC and
Pinnacle Gas Treating LLC, with MIGC reported as an acquired
business of our Predecessor, and (ii) the selected combined
pro forma as adjusted financial and operating data of the
Partnership, for the periods and as of the dates indicated. The
information in the following table should also be read together
with Managements discussion and analysis of
financial condition and results of operations.
Our Predecessors selected combined historical balance
sheet data as of December 31, 2007 and 2006 and selected
combined historical statement of income and statement of cash
flow data for the years ended December 31, 2007, 2006 and
2005 are derived from the audited historical combined financial
statements of our Predecessor included elsewhere in this
prospectus. Our Predecessors selected combined historical
balance sheet data as of December 31, 2005 and selected
combined historical statement of income and statement of cash
flow data for the year ended December 31, 2004 are derived
from the audited historical combined financial statements of our
Predecessor not included in this prospectus. Our
Predecessors selected combined historical balance sheet
data as of December 31, 2004 and 2003 and selected combined
historical statement of income data for the year ended
December 31, 2003 are derived from the unaudited historical
combined financial statements of our Predecessor not included in
this prospectus.
The Partnerships selected combined pro forma as adjusted
statement of income data for the year ended December 31,
2007 and selected combined pro forma as adjusted balance sheet
data as of December 31, 2007 are derived from the unaudited
pro forma combined financial statements of the Partnership
included elsewhere in this prospectus.
The pro forma adjustments have been prepared as if certain
transactions to be effected at the closing of this offering had
taken place on December 31, 2007, in the case of the pro
forma balance sheet, and on January 1, 2007, in the case of
the pro forma statement of operations for the year ended
December 31, 2007. These transactions include:
|
|
Ø |
the receipt by the Partnership of gross proceeds of
$337.5 million from the issuance and sale of 18,750,000
common units at an assumed initial offering price of $18.00 per
unit;
|
|
|
Ø |
the use of the proceeds from this offering to pay underwriting
discounts and a structuring fee totaling approximately
$21.9 million and other estimated offering expenses of
$5.0 million;
|
|
|
Ø |
the use of the remaining $310.6 million of aggregate net
proceeds of this offering to (i) make a loan of
$260.0 million to Anadarko in exchange for a
30-year note
bearing interest at a fixed annual rate of 6.5%,
(ii) reimburse Anadarko for $40.6 million of capital
expenditures it incurred with respect to assets contributed to
us and (iii) provide $10.0 million for general
partnership purposes.
|
The following table includes our Predecessors historical
and our pro forma Adjusted EBITDA, which have not been prepared
in accordance with GAAP. Adjusted EBITDA is presented because it
is helpful to management, industry analysts, investors, lenders
and rating agencies and may be used to assess the financial
performance and operating results of our fundamental business
activities. For a reconciliation of Adjusted EBITDA to its most
directly comparable financial measures calculated and presented
in accordance with GAAP, please read Summary historical
and pro forma financial and operating
dataNon-GAAP financial measure.
70
Selected
historical and pro forma financial and operating data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
adjusted
|
|
|
|
Predecessor
combined
|
|
Year ended
|
|
|
|
Year ended
December 31,
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
2004
|
|
2003
|
|
2007
|
|
|
|
|
|
(in thousands,
except operating and per-unit data)
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
116,122
|
|
$
|
81,152
|
|
$
|
71,650
|
|
|
$
|
68,049
|
|
$
|
61,401
|
|
$
|
116,122
|
|
Costs and expenses
|
|
|
47,497
|
|
|
39,960
|
|
|
35,720
|
|
|
|
31,301
|
|
|
33,804
|
|
|
47,497
|
|
Depreciation
|
|
|
23,380
|
|
|
18,009
|
|
|
15,447
|
|
|
|
14,841
|
|
|
14,294
|
|
|
23,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
70,877
|
|
|
57,969
|
|
|
51,167
|
|
|
|
46,142
|
|
|
48,098
|
|
|
70,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
45,245
|
|
|
23,183
|
|
|
20,483
|
|
|
|
21,907
|
|
|
13,303
|
|
|
45,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income), net
|
|
|
|
|
|
26
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net
|
|
|
8,521
|
|
|
9,631
|
|
|
8,650
|
|
|
|
7,146
|
|
|
6,782
|
|
|
(16,757
|
)
|
Income tax expense (benefit)
|
|
|
12,724
|
|
|
3,814
|
|
|
4,789
|
|
|
|
5,504
|
|
|
2,529
|
|
|
(521
|
)
|
Change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,000
|
|
$
|
9,712
|
|
$
|
7,110
|
|
|
$
|
9,257
|
|
$
|
5,502
|
|
$
|
62,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,251
|
|
Common unitholders interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,636
|
|
Subordinated unitholders interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,636
|
|
Net income per common unit (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.15
|
|
Net income per subordinated unit (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.15
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net, property, plant and equipment
|
|
$
|
363,619
|
|
$
|
310,871
|
|
$
|
200,451
|
|
|
$
|
196,065
|
|
$
|
192,415
|
|
$
|
363,619
|
|
Total assets
|
|
|
376,641
|
|
|
332,228
|
|
|
206,373
|
|
|
|
199,110
|
|
|
195,747
|
|
|
644,353
|
|
Total partners capital/parent net equity
|
|
|
281,316
|
|
|
238,531
|
|
|
160,585
|
|
|
|
162,542
|
|
|
167,881
|
|
|
624,638
|
|
71
Selected
historical and pro forma financial and operating data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor pro
forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
adjusted
|
|
|
|
|
Predecessor
combined
|
|
Year ended
|
|
|
|
|
Year ended
December 31,
|
|
December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
2007
|
|
|
|
|
|
(in thousands,
except per-unit data)
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
55,872
|
|
|
|
27,323
|
|
|
|
30,131
|
|
|
|
31,160
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
(53,174
|
)
|
|
|
(42,713
|
)
|
|
|
(21,076
|
)
|
|
|
(16,548
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
(3,156
|
)
|
|
|
15,844
|
|
|
|
(9,067
|
)
|
|
|
(14,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA(1)
|
|
|
68,625
|
|
|
|
41,192
|
|
|
|
35,930
|
|
|
|
36,748
|
|
|
|
|
|
|
68,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net
|
|
|
52,664
|
|
|
|
42,299
|
|
|
|
20,841
|
|
|
|
16,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Throughput, MMBtu/d
|
|
|
892
|
|
|
|
820
|
|
|
|
757
|
|
|
|
715
|
|
|
|
667
|
|
|
892
|
|
|
|
Average rate per MMBtu
|
|
$
|
0.28
|
|
|
$
|
0.22
|
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
0.19
|
|
$
|
0.28
|
|
|
|
Third Party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Throughput, MMBtu/d
|
|
|
95
|
|
|
|
72
|
|
|
|
41
|
|
|
|
31
|
|
|
|
32
|
|
|
95
|
|
|
|
Average rate per MMBtu
|
|
$
|
0.30
|
|
|
$
|
0.19
|
|
|
$
|
0.16
|
|
|
$
|
0.13
|
|
|
$
|
0.09
|
|
$
|
0.30
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Throughput, MMBtu/d
|
|
|
987
|
|
|
|
892
|
|
|
|
798
|
|
|
|
746
|
|
|
|
699
|
|
|
987
|
|
|
|
Average rate per MMBtu
|
|
$
|
0.29
|
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
0.18
|
|
$
|
0.29
|
|
|
|
|
|
|
(1) |
|
Adjusted EBITDA is defined in
Summary historical and pro forma financial and operating
dataNon-GAAP financial
measure. For a reconciliation of Adjusted EBITDA to their
most directly comparable financial measures calculated and
presented in accordance with GAAP, please read Summary
historical and pro forma financial and operating
dataNon-GAAP
financial measure. |
72
Managements
discussion and analysis of financial condition and results of
operations
The historical combined financial statements included in this
prospectus reflect the assets, liabilities and operations of our
Predecessor, which is comprised of Anadarko Gathering Company,
LLC (AGC) and Pinnacle Gas Treating LLC
(PGT), with MIGC LLC (MIGC) reported as
an acquired business of our Predecessor. All of the assets,
liabilities and operations of our Predecessor will be
contributed to us by Anadarko upon the closing of this offering.
The following discussion analyzes the financial condition and
results of operations of our Predecessor. You should read the
following discussion and analysis of financial condition and
results of operations in conjunction with the historical and pro
forma combined financial statements, and the notes thereto,
included elsewhere in this prospectus. For ease of reference, we
refer to the historical financial results of our Predecessor as
being our historical financial results.
OVERVIEW
We are a growth-oriented Delaware limited partnership recently
formed by Anadarko to own, operate, acquire and develop
midstream energy assets. We currently operate in East Texas, the
Rocky Mountains, the Mid-Continent and West Texas and are
engaged in the business of gathering, compressing, treating and
transporting natural gas for our ultimate parent, Anadarko, and
third-party producers and customers.
OUR
OPERATIONS
Our results are driven primarily by the volumes of natural gas
we gather, compress, treat and transport through our systems.
For the year ended December 31, 2007, approximately 83% of
our revenues were derived from gathering, compression and
treating activities and 17% were derived from transportation
activities. Approximately 9% of our gathering, compression and
treating revenues were comprised of revenues from condensate
sales. For the year ended December 31, 2007, 88% of our
total revenues were generated by transactions with Anadarko.
In our gathering operations, we contract with producers to
gather natural gas from individual wells located near our
gathering systems. We connect wells to gathering lines through
which natural gas is compressed and may be delivered to a
processing plant, treating facility or downstream pipeline, and
ultimately to end-users. We also treat a significant portion of
the natural gas that we gather so that it will meet required
specifications for pipeline transportation.
We have secured a significant dedication from our largest
customer, Anadarko, in order to maintain or increase our
existing throughput levels and to offset the natural production
declines of the wells currently connected to our gathering
systems. Specifically, Anadarko has dedicated to us all of the
natural gas production it owns or controls from (i) wells
that are currently connected to our gathering systems, and
(ii) additional wells that are drilled within one mile of
connected wells or our gathering systems, as the systems
currently exist and as they are expanded to connect additional
wells in the future. As a result, this dedication will continue
to expand as additional wells are connected to our gathering
systems. Volumes associated with this dedication averaged
approximately 725 MMBtu/d for the year ended
December 31, 2007.
We generally do not take title to the natural gas that we
gather, compress, treat or transport. We currently provide all
of our gathering and treating services pursuant to fee-based
contracts. Under these arrangements, we are paid a fixed fee
based on the volume and thermal content of the natural gas we
gather or treat. This type of contract provides us with a
relatively steady revenue stream that is not subject to direct
commodity price risk, except to the extent that we retain and
sell condensate that is
73
Managements
discussion and analysis of financial condition and results of
operations
recovered during the gathering of natural gas from the wellhead.
We have entered into new gathering contracts with Anadarko
pursuant to which we will receive higher fees than we have
historically realized. We have some indirect exposure to
commodity price risk in that persistent low commodity prices may
cause our current or potential customers to delay drilling or
shut in production, which would reduce the volumes of natural
gas available for gathering, compressing, treating and
transporting by our systems. Please read
Quantitative and qualitative disclosures about
market risk below for a discussion of our exposure to
commodity price risk through our condensate recovery and sales.
We provide a significant portion of our transportation services
on our MIGC system through firm contracts that obligate our
customers to pay a monthly reservation or demand charge, which
is a fixed charge applied to firm contract capacity and owed by
a customer regardless of the actual pipeline capacity used by
that customer. When a customer uses the capacity it has reserved
under these contracts, we are entitled to collect an additional
commodity-usage charge based on the actual volume of natural gas
transported. These usage charges are typically a small
percentage of the total revenues received from our firm-capacity
contracts. We also provide transportation services through
interruptible contracts, pursuant to which a fee is charged to
our customers based upon actual volumes transported through the
pipeline.
HOW WE EVALUATE
OUR OPERATIONS
Our management relies on certain financial and operational
metrics to analyze our performance. These metrics are
significant factors in assessing our operating results and
profitability and include (1) throughput volumes,
(2) operating expenses, (3) Adjusted EBITDA and
(4) distributable cash flow.
Throughput
volumes
In order to maintain or increase throughput volumes on our
gathering systems, we must connect additional wells to our
systems. Our success in connecting additional wells is impacted
by successful drilling activity on the acreage dedicated to our
systems, our ability to secure volumes from new wells drilled on
non-dedicated acreage and our ability to attract natural gas
volumes currently gathered by our competitors.
To maintain and increase throughput volumes on our MIGC system,
we must continue to contract our capacity to shippers, including
producers and marketers, for transportation of their natural
gas. We monitor producer and marketing activities in the area
served by our transportation system to identify new
opportunities.
Operating
expenses
We analyze operating expenses to evaluate our performance. The
primary components of our operating expenses that we evaluate
include operation and maintenance expenses, cost of product
expenses, general and administrative expenses and direct
operating expenses. Certain of our operating expenses are
classified based on whether the expenses are accrued for or paid
to our affiliates or third-party vendors. Neither affiliate
expenses nor third-party expenses bear a direct relationship to
affiliate revenues or third-party revenues. For example, our
third-party expenses are not those expenses necessary for
generating our third-party revenues. Third-party expenses
include all amounts accrued for or paid to third parties for the
operation of our systems, whether in providing services to
Anadarko or third parties, including utilities, field labor,
measurement and analysis and other third-party disbursements.
Operation and maintenance expenses include, among other things,
direct labor, insurance, repair and maintenance, contract
services, utility costs and services provided to us or on our
behalf under our services and secondment agreement.
74
Managements
discussion and analysis of financial condition and results of
operations
Cost of product expenses include (i) costs associated with
the purchase of natural gas pursuant to the gas imbalance
provisions contained in our contracts, (ii) costs
associated with our obligation under certain contracts to
redeliver a volume of natural gas to shippers that is thermally
equivalent to the condensate retained by us and sold to third
parties and (iii) our fuel-tracking mechanism, which tracks
the difference between actual fuel usage and loss and amounts
recovered for estimated fuel usage and loss under our contracts.
These expenses are subject to variability. However, for the
years ended December 31, 2007, 2006 and 2005, cost of
product expenses comprised only 7.0%, 7.8%, and 11.7% of total
operating expenses, respectively. Thus, we do not expect the
variability in our cost of product expenses to have a material
impact on our overall results.
In our historical combined financial statements, general and
administrative expenses included reimbursements of costs
incurred by Anadarko on our behalf and allocations from Anadarko
in the form of a management service fee in lieu of direct
reimbursements for various corporate services. In the future,
Anadarko will not receive a management services fee and we
expect general and administrative expenses to be comprised
primarily of amounts reimbursed by us to Anadarko pursuant to
our omnibus agreement with Anadarko and expenses attributable to
our status as a publicly traded partnership, such as: expenses
associated with annual and quarterly reporting; tax return and
Schedule K-1
preparation and distribution expenses; Sarbanes-Oxley compliance
expenses; expenses associated with listing on the New York Stock
Exchange; independent auditor fees; legal fees; investor
relations expenses; and registrar and transfer agent fees.
Pursuant to the omnibus agreement with Anadarko, we will
reimburse Anadarko for allocated general and administrative
expenses. The amount required to be reimbursed by us to Anadarko
for certain allocated general and administrative expenses
pursuant to the omnibus agreement will be capped at
$6.0 million annually through December 31, 2009,
subject to adjustment to reflect changes in the Consumer Price
Index and, with the concurrence of the special committee of our
general partners board of directors, to reflect expansions
of our operations through the acquisition or construction of new
assets or businesses. Thereafter, our general partner will
determine the general and administrative expenses to be
reimbursed by us in accordance with our partnership agreement.
The cap contained in the omnibus agreement does not apply to
incremental general and administrative expenses we expect to
incur or to be allocated to us as a result of becoming a
publicly traded partnership. We currently expect those expenses
to be approximately $2.5 million per year.
Adjusted
EBITDA
We define Adjusted EBITDA as net income (loss), plus interest
expense, income tax expense and depreciation, less interest
income, income tax benefit and other income (expense). Adjusted
EBITDA is not a presentation made in accordance with GAAP. For a
reconciliation of Adjusted EBITDA to its most directly
comparable financial measures calculated and presented in
accordance with GAAP, please read Summary historical and
pro forma financial and operating dataNon-GAAP financial
measure.
Distributable
cash flow
We define distributable cash flow as Adjusted EBITDA, plus
interest income, less net cash paid for interest expense,
maintenance capital expenditures and income taxes. Distributable
cash flow does not reflect changes in working capital balances.
Distributable cash flow is not a presentation made in accordance
with GAAP.
Adjusted EBITDA and distributable cash flow are supplemental
financial measures that management and external users of our
combined financial statements, such as industry analysts,
investors, lenders and rating agencies, may use to assess:
|
|
Ø |
our operating performance as compared to other publicly traded
partnerships in the midstream energy industry, without regard to
financing methods, capital structure or historical cost basis;
|
75
Managements
discussion and analysis of financial condition and results of
operations
|
|
Ø
|
the ability of our assets to generate sufficient cash flow to
make distributions to our unitholders; and
|
|
Ø
|
the viability of acquisitions and capital expenditure projects
and the returns on investment of various investment
opportunities.
|
ITEMS AFFECTING
THE COMPARABILITY OF OUR FINANCIAL RESULTS
Our historical results of operations for the periods presented
below may not be comparable to our results of operations in the
future for the reasons described below:
|
|
Ø
|
We anticipate incurring approximately $2.5 million of
general and administrative expenses attributable to operating as
a publicly traded partnership, such as expenses associated with
annual and quarterly reporting; tax return and
Schedule K-1
preparation and distribution expenses; Sarbanes-Oxley compliance
expenses; expenses associated with listing on the New York Stock
Exchange; independent auditor fees; legal fees; investor
relations expenses; and registrar and transfer agent fees. These
incremental general and administrative expenses are not
reflected in our historical or our pro forma combined financial
statements.
|
|
Ø
|
We anticipate incurring $6.0 million in general and
administrative expenses to be allocated to us by Anadarko
pursuant to the omnibus agreement. This amount is expected to be
greater than the amount allocated to us by Anadarko for the
management services fee and reflected in our historical combined
financial statements.
|
|
Ø
|
The impact of all affiliated transactions historically has been
net settled within our combined financial statements because
these transactions related to Anadarko and were funded by
Anadarkos working capital. Third-party transactions were
funded by our working capital. In the future, all affiliate and
third-party transactions will be funded by our working capital.
This will impact the comparability of our cash flow statements,
working capital analysis and liquidity discussion.
|
|
Ø
|
Prior to this offering, we incurred interest expense on
intercompany notes payable to Anadarko. These balances were
extinguished through non-cash transactions prior to this
offering; therefore, interest expense attributable to these
balances and reflected in our historical combined financial
statements will not be incurred in future periods.
|
|
Ø
|
We have entered into new gas gathering agreements with Anadarko
which include fees for gathering and treating that are higher
than those fees reflected in our historical financial results.
|
|
|
Ø |
Our combined financial statements reflect the gathering fees we
historically charged Anadarko under our historic affiliate cost
of service based arrangements. Under these arrangements, we
recovered, on an annual basis, our operation and maintenance,
general and administrative and depreciation expenses in addition
to earning a return on our invested capital. Effective
January 1, 2008, we entered into new
10-year gas
gathering agreements with Anadarko. Under the terms of these new
agreements, we expect our operation and maintenance expense to
increase as a result of us bearing all of the cost of employee
benefits specifically identified and related to operational
personnel working on our assets as compared to bearing only
those employee benefit costs reasonably allocated by Anadarko to
us in historic periods. Since our new gas gathering agreements
are designed to fully recover these costs, our future revenues
are expected to increase by an amount equal to the increase in
operation and maintenance expense. Although we do not expect
this change in methodology for computing affiliate gathering
rates to impact our net cash flows or net income, we do expect
this methodology change to impact the components thereof as
compared to historic periods. If we applied the methodology
employed under our new gas gathering agreements with Anadarko to
historic periods, we estimate our gathering revenues and
operation and maintenance expense for the years ended
December 31, 2007, 2006, and 2005, would have increased by
$3.1 million, $2.8 million and $1.4 million,
respectively.
|
|
|
Ø |
Concurrent with the closing of this offering, we will loan
$260.0 million to Anadarko in exchange for an
interest-only,
30-year note
bearing interest at a fixed annual rate of 6.5%. Interest income
|
76
Managements
discussion and analysis of financial condition and results of
operations
attributable to the note is not reflected in our historical
combined financial statements, but will be included in our
combined financial statements in the future.
|
|
Ø |
Pursuant to the Omnibus Agreement, as a co-borrower under
Anadarkos credit facility, we are required to reimburse
Anadarko for our allocable portion of commitment fees (0.11% of
our committed and available borrowing capacity) that Anadarko
incurs under its credit facility, or up to $110,000. Please read
Certain relationships and related party
transactions Agreements governing the
transactions Omnibus agreement. In addition,
Anadarko will enter into a working capital facility with us,
under which we will incur an annual commitment fee of 0.11% of
the unused portion of our committed borrowing capacity of
$30 million, or up to $33,000.
|
|
|
Ø
|
Our historical combined financial statements include
U.S. federal and state income tax expense incurred by us.
Due to our status as a partnership, we will not be subject to
U.S. federal income tax and certain state income taxes in
the future. However, we will make payments to Anadarko pursuant
to a tax sharing agreement for our share of state and local
income and other taxes that are included in combined or
consolidated tax returns filed by Anadarko.
|
|
Ø
|
Following the closing of this offering, we intend to make cash
distributions to our unitholders and our general partner at an
initial distribution rate of $0.30 per unit per quarter ($1.20
per unit on an annualized basis). Based on the terms of our cash
distribution policy, we expect that we will distribute to our
unitholders and our general partner most of the cash generated
by our operations. As a result, we expect that we will rely upon
external financing sources, including commercial bank borrowings
and debt and equity issuances, to fund our acquisition and
expansion capital expenditures. Historically, we largely relied
on internally generated cash flows and capital contributions
from Anadarko to satisfy our capital expenditure requirements.
|
GENERAL TRENDS
AND OUTLOOK
We expect our business to continue to be affected by the
following key trends. Our expectations are based on assumptions
made by us and information currently available to us. To the
extent our underlying assumptions about, or interpretations of,
available information prove to be incorrect, our actual results
may vary materially from our expected results.
Natural gas
supply and demand
Natural gas continues to be a critical component of energy
supply in the U.S. According to the Energy Information
Administration, or EIA, total annual domestic consumption of
natural gas is expected to increase from approximately
21.7 trillion cubic feet, or Tcf, in 2006 to approximately
24.7 Tcf in 2010. During the last three years, the U.S.
has, on average, consumed approximately 22.0 Tcf per year,
while total domestic production averaged approximately 18.4 Tcf
per year during the same period. We believe that high natural
gas prices and increasing demand will continue to drive an
increase in natural gas drilling and production in the U.S.
Natural gas reserves in the U.S. have increased overall in
recent years, based on data obtained from the EIA.
There is a natural decline in production from existing wells,
but in the areas in which we operate there is a significant
level of drilling activity that can offset this decline.
Although we anticipate continued high levels of exploration and
production activities in all of the areas in which we operate,
we have no control over this activity. Fluctuations in energy
prices could affect production rates over time and levels of
investment by Anadarko and third parties in exploration for and
development of new natural gas reserves.
Rising operating
costs and inflation
The current high level of natural gas exploration, development
and production activities across the U.S. has resulted in
increased competition for personnel and equipment. This is
causing increases in the
77
Managements
discussion and analysis of financial condition and results of
operations
prices we pay for labor, supplies and property, plant and
equipment. An increase in the general level of prices in the
economy could have a similar effect. We attempt to recover
increased costs from our customers, but there may be a delay in
doing so or we may be unable to recover all these costs. To the
extent we are unable to procure necessary supplies or recover
higher costs, our operating results will be negatively impacted.
Impact of
interest rates
Interest rates have been volatile in recent periods. If interest
rates rise, our future financing costs will increase
accordingly. In addition, because our common units are
yield-based securities, rising market interest rates could
impact the relative attractiveness of our common units to
investors, which could limit our ability to raise funds, or
increase the price of raising funds, in the capital markets.
Though our competitors may face similar circumstances, such an
environment could render us less competitive in our efforts to
expand our operations or make future acquisitions.
Benefits from
system expansions
We expect that expansion projects, including the following, will
allow us to capitalize on increased drilling activity by
Anadarko and other third-party producers:
|
|
Ø
|
We installed additional compression on our Dew system, which
added an incremental 16,537 horsepower in 2007 and anticipate
adding an additional 2,680 of horsepower in 2008;
|
|
Ø
|
We are expanding our Bethel treating facility by installing an
additional 11 LTD of sulfur treating capacity in order to
provide additional sour gas treating capacity for drilling in
the area, which we expect to complete in 2008; and
|
|
Ø
|
We are expanding our Hugoton gathering system.
|
Acquisition
opportunities
We may acquire additional midstream energy assets from Anadarko.
On December 27, 2007, Anadarko announced a
$2.2 billion financing of its midstream assets which may
require partial repayment based on a debt-to-EBITDA leverage
ratio that declines incrementally over time. The repayments that
may be necessary to satisfy the terms of this financing may be
made with internally generated cash flow, cash on hand, or cash
received from midstream asset sales. Should Anadarko choose to
pursue midstream asset sales, it is under no contractual
obligation to offer assets or business opportunities to us. In
addition, we may also pursue selected asset acquisitions from
third parties to the extent such acquisitions complement our or
Anadarkos existing asset base or allow us to capture
operational efficiencies from Anadarkos production.
However, if we do not make acquisitions on economically
acceptable terms, our future growth will be limited, and the
acquisitions we do make may reduce, rather than increase, our
cash generated from operations on a per-unit basis.
78
Managements
discussion and analysis of financial condition and results of
operations
RESULTS OF
OPERATIONSCOMBINED OVERVIEW
The following table and discussion presents a summary of our
combined results of operations for the years ended
December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Revenues affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering and transportation of natural gas
|
|
$
|
92,612
|
|
|
$
|
65,946
|
|
|
$
|
58,363
|
|
Condensate
|
|
|
7,661
|
|
|
|
7,440
|
|
|
|
7,006
|
|
Natural gas and other
|
|
|
1,873
|
|
|
|
1,327
|
|
|
|
789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
102,146
|
|
|
|
74,713
|
|
|
|
66,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering and transportation of natural gas
|
|
|
10,205
|
|
|
|
5,022
|
|
|
|
2,420
|
|
Condensate, natural gas and other
|
|
|
3,771
|
|
|
|
1,417
|
|
|
|
3,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,976
|
|
|
|
6,439
|
|
|
|
5,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
116,122
|
|
|
|
81,152
|
|
|
|
71,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product
|
|
|
4,864
|
|
|
|
3,830
|
|
|
|
5,551
|
|
General and administrative
|
|
|
4,562
|
|
|
|
3,198
|
|
|
|
2,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,426
|
|
|
|
7,028
|
|
|
|
8,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product
|
|
|
111
|
|
|
|
714
|
|
|
|
456
|
|
Operation and
maintenance(1)
|
|
|
32,544
|
|
|
|
27,585
|
|
|
|
23,044
|
|
General and administrative
|
|
|
222
|
|
|
|
|
|
|
|
9
|
|
Property and other taxes
|
|
|
5,194
|
|
|
|
4,633
|
|
|
|
3,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
38,071
|
|
|
|
32,932
|
|
|
|
27,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
23,380
|
|
|
|
18,009
|
|
|
|
15,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
70,877
|
|
|
|
57,969
|
|
|
|
51,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
45,245
|
|
|
|
23,183
|
|
|
|
20,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
8,521
|
|
|
|
9,631
|
|
|
|
8,650
|
|
Other income (expense)
|
|
|
|
|
|
|
(26
|
)
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
36,724
|
|
|
|
13,526
|
|
|
|
11,899
|
|
Income tax expense
|
|
|
12,724
|
|
|
|
3,814
|
|
|
|
4,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,000
|
|
|
$
|
9,712
|
|
|
$
|
7,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA(2)
|
|
$
|
68,625
|
|
|
$
|
41,192
|
|
|
$
|
35,930
|
|
|
|
|
(1) |
|
Third-party operation and
maintenance expenses do not bear a direct relationship to
third-party revenues because all operating expenses ultimately
settled with third parties, including utilities, field labor,
measurement and analysis and other expenses, are included within
third-party operation and maintenance expenses. |
|
|
|
(2) |
|
We define Adjusted EBITDA as net
income (loss), plus interest expense, income tax expense and
depreciation, less interest income, income tax benefit and other
income (expense). For a reconciliation of this measure to its
directly comparable financial measures calculated and presented
in accordance with GAAP, please read Summary historical
and pro forma financial and operating
dataNon-GAAP financial
measure. |
OPERATING
RESULTS
Our discussion below compares the results for specific periods
to the previous comparable period. The discussion compares:
(i) the year ended December 31, 2007 to the year ended
December 31, 2006 and (ii) the year ended
December 31, 2006 to the year ended December 31, 2005.
79
Managements
discussion and analysis of financial condition and results of
operations
For purposes of the following discussion:
|
|
Ø |
any increases or decreases for the year ended
December 31, 2007 refer to the comparison of the
twelve-month period ended December 31, 2007 to the
twelve-month period ended December 31, 2006; and
|
|
|
Ø |
any increases or decreases for the year ended
December 31, 2006 refer to the comparison of the
twelve-month period ended December 31, 2006 to the
twelve-month period ended December 31, 2005.
|
We acquired MIGC on August 23, 2006. The following
discussion only includes MIGC operating results since the date
of its acquisition.
Summary
Total revenues increased by $35.0 million and
$9.5 million for the year ended December 31, 2007 and
for the year ended December 31, 2006, respectively. The
acquisition of MIGC in August 2006 increased revenues by
$13.4 million for the year ended December 31, 2007 and
by $6.4 million for the year ended December 31, 2006.
In addition to increases attributable to the acquisition of
MIGC, other revenue increases were driven primarily by rate
increases for gathering operations for the year ended
December 31, 2007 and by volume increases for gathering
operations for the year ended December 31, 2006.
Net income increased by $14.3 million and $2.6 million
for the year ended December 31, 2007 and for the year ended
December 31, 2006, respectively. For the year ended
December 31, 2007, in addition to the amounts attributable
to the acquisition of MIGC, the increase in net income was
driven by rate increases, partially offset by higher operating
expenses. For the year ended December 31, 2006, the
increase in net income was almost entirely attributable to the
acquisition of MIGC, as increases in operating costs and
interest expense offset higher gathering revenue and lower
income taxes.
Revenues and
operating statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in thousands,
except operating and
|
|
|
|
per-unit
data)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
|
|
$
|
102,146
|
|
|
$
|
74,713
|
|
|
$
|
66,158
|
|
Third-party
|
|
|
13,976
|
|
|
|
6,439
|
|
|
|
5,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
116,122
|
|
|
$
|
81,152
|
|
|
$
|
71,650
|
|
Throughput (MMbtu/d)
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
|
|
|
892
|
|
|
|
820
|
|
|
|
757
|
|
Third-party
|
|
|
95
|
|
|
|
72
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total throughput
|
|
|
987
|
|
|
|
892
|
|
|
|
798
|
|
Weighted average price per MMbtu
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
|
|
$
|
0.28
|
|
|
$
|
0.22
|
|
|
$
|
0.21
|
|
Third-party
|
|
$
|
0.30
|
|
|
$
|
0.19
|
|
|
$
|
0.16
|
|
Total
|
|
$
|
0.29
|
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
Total revenues. Total revenues increased by
$35.0 million and $9.5 million for the year ended
December 31, 2007 and for the year ended December 31,
2006, respectively. Additional discussion regarding increases in
affiliate and third-party revenues is provided below.
80
Managements
discussion and analysis of financial condition and results of
operations
Revenues affiliates. Affiliate
revenues increased by $27.4 million for the year ended
December 31, 2007. This increase included $9.5 million
attributable to the inclusion of MIGC operating results for the
full year ended December 31, 2007 as compared to only
130 days of the year ended December 31, 2006.
Excluding the operating revenue increases associated with MIGC,
revenues from affiliates increased by $17.9 million due to
a 25% and 29% increase in average rates realized at AGC and PGT,
respectively, coupled with an increase in affiliate throughput
volumes. The increase in affiliate throughput volumes at AGC was
attributable to the continued development of the Haley field and
the increase in affiliate throughput volumes at PGT was
primarily attributable to the connection of additional wells to
the Pinnacle system. In addition, there was an increase in
condensate revenues as average condensate prices increased from
$58.84/Bbl to $63.24/Bbl.
Affiliate revenues increased by $8.6 million for the year
ended December 31, 2006. Of this amount, $4.2 million
was associated with the acquisition of MIGC. Excluding the
operating revenue increase associated with the acquisition of
MIGC, revenues from affiliates increased by $4.4 million,
primarily due to increased throughput volumes at PGT. AGC
gathering revenues also increased by $0.6 million as a
result of increases in gathering volumes and condensate
revenues. The increase in throughput volume at AGC was primarily
attributable to increased production activity at the Haley field.
Revenues third-party. Third-party
revenues increased by $7.5 million for the year ended
December 31, 2007. Of this amount, $3.8 million
resulted from the inclusion of MIGC. Excluding the revenue
increase associated with MIGC, revenues from third parties
increased by $3.7 million due to the receipt of a
$1.1 million payment for a volume commitment and an
increase in third-party condensate revenues due to higher prices
and volumes.
Third-party revenues increased by $0.9 million for the year
ended December 31, 2006. Of this amount, $2.3 million
was associated with the acquisition of MIGC. Excluding the
revenue increase associated with the MIGC acquisition, revenues
from third parties decreased by $1.4 million due to a
one-time payment on a volume commitment received in 2005.
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
|
|
$
|
9,426
|
|
|
$
|
7,028
|
|
|
$
|
8,380
|
|
Third-party
|
|
|
38,071
|
|
|
|
32,932
|
|
|
|
27,340
|
|
Depreciation
|
|
|
23,380
|
|
|
|
18,009
|
|
|
|
15,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
70,877
|
|
|
$
|
57,969
|
|
|
$
|
51,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses. Total operating
expenses increased by $12.9 million and $6.8 million
for the year ended December 31, 2007 and for the year ended
December 31, 2006, respectively. Additional discussion
regarding changes in affiliate operating expenses, third-party
operating expenses and depreciation expense is provided below.
Operating expenses
affiliate. Affiliate operating expenses increased
by $2.4 million for the year ended December 31, 2007.
This increase was primarily attributable to an increase in the
cost of thermally equivalent gas that we were required to return
to shippers in connection with our sales of condensate to third
parties.
Affiliate operating expenses decreased by $1.4 million for
the year ended December 31, 2006. This decrease was largely
attributable to a $1.7 million decrease in cost of product
expenses related to our
81
Managements
discussion and analysis of financial condition and results of
operations
fuel-tracking mechanism. Specifically, for 2006, actual fuel
consumed and line loss was exceeded by fuel volumes recovered
pursuant to contractual arrangements.
Operating expenses
third-party. Third-party operating expenses
increased by $5.1 million for the year ended
December 31, 2007. Of this amount, $2.2 million was
due to higher operation and maintenance expenses, general and
administrative expenses and property taxes associated with the
inclusion of MIGC operating results for the full year ended
December 31, 2007 as compared to only 130 days of the
year ended December 31, 2006. Third-party operating
expenses not associated with MIGC increased by
$2.9 million, primarily attributable to $1.1 million
and $2.1 million increases in operation and maintenance
expenses for AGC and PGT, respectively, partially offset by a
decrease in property taxes.
Third-party operating expenses increased by $5.6 million
for the year ended December 31, 2006. The MIGC acquisition
resulted in $2.0 million of additional operation and
maintenance expenses. Third-party operating expenses, not
related to MIGC, increased by $3.6 million, primarily due
to increases in operation and maintenance expenses of
$1.6 million and $1.0 million for AGC and PGT,
respectively, coupled with a $0.8 million increase in
property taxes. The AGC increase in operation and maintenance
expenses was primarily comprised of surface maintenance and
repair and chemical service expense increases at the Helper,
Clawson Springs and Dew gathering systems during the period. The
increase in operation and maintenance expenses at PGT was
primarily comprised of an increase in salary and contract labor
expenses and an increase in equipment rental expense for a
rental amine unit and a rental compressor unit.
Operating expenses
depreciation. Depreciation expense increased by
$5.4 million for the year ended December 31, 2007. Of
this amount, $1.8 million was attributable to the inclusion
of MIGC operating results for the full year ended
December 31, 2007 as compared to only 130 days of the
year ended December 31, 2006. The $3.6 million
increase in depreciation expense not related to MIGC was due to
an increase in AGCs depreciation expense resulting from an
increase in capital expenditures related to adding compression
and connecting additional wells.
Depreciation expense increased by $2.6 million for the year
ended December 31, 2006. This increase included
$1.0 million in additional depreciation expense related to
the MIGC acquisition. Depreciation expense not related to MIGC
increased by $1.6 million due to $1.2 million and
$0.4 million increases in depreciation expense related to
AGC and PGT, respectively. These increases were primarily
attributable to additional capital expenditures related to
adding compression at the Dew system and additional well
connections at PGT.
Operating
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Operating income excluding MIGC
|
|
$
|
33,956
|
|
|
$
|
19,670
|
|
|
$
|
20,483
|
|
Operating income MIGC
|
|
|
11,289
|
|
|
|
3,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
45,245
|
|
|
$
|
23,183
|
|
|
$
|
20,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported operating income increased by $22.1 million for
the year ended December 31, 2007. This included a
$7.8 million increase in operating income related to the
inclusion of MIGC for the full year ended December 31, 2007
as compared to 130 days of the year ended December 31,
2006. Excluding the effect of MIGC operating results, operating
income increased by $14.3 million due to $13.1 million
and $1.2 million increases in operating income for AGC and
PGT, respectively. The increase in AGCs operating income
resulted from an $18.8 million increase in revenues, offset by a
$1.1 million increase in operation and maintenance
expenses, a $3.1 million increase in depreciation expense,
a $0.7 million
82
Managements
discussion and analysis of financial condition and results of
operations
increase in property taxes and a $0.8 million increase in
product costs. The $1.2 million increase in operating
income for PGT was primarily attributable to increased gathering
rates, which resulted in a $2.8 million increase in
revenues, a decrease of $0.6 million in cost of product
expenses and a decrease of $0.4 million in property taxes,
offset by a $2.1 million increase in operation and
maintenance expenses and a $0.5 million increase in
depreciation expense.
Reported operating income increased by $2.7 million for the
year ended December 31, 2006. This increase included a
$3.5 million increase related to the MIGC acquisition.
Operating income, excluding operating income related to MIGC,
decreased by $0.8 million, primarily due to $1.6 and
$1.0 million increases in AGC and PGT operation and
maintenance expenses, respectively, and a $1.2 million
increase in AGC depreciation expense, partially offset by $2.3
million and $0.7 million increases in PGT and AGC revenues,
respectively.
Income tax
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in thousands,
except tax rates)
|
|
|
Income before income taxes
|
|
$
|
36,724
|
|
|
$
|
13,526
|
|
|
$
|
11,899
|
|
Income tax expense
|
|
|
12,724
|
|
|
|
3,814
|
|
|
|
4,789
|
|
Effective tax rate
|
|
|
34.65
|
%
|
|
|
28.20
|
%
|
|
|
40.25
|
%
|
The increase in income taxes for the year ended
December 31, 2007 was primarily due to the tax impact of
the increase in income before income taxes, partially offset by
a decrease in state income taxes resulting from a change in
Texas tax law. The net decrease in income taxes for the year
ended December 31, 2006 was primarily due to a decrease in
state income taxes resulting from the change in Texas tax law,
partially offset by the tax impact of the increase in income
before income taxes.
The variance from the 35% statutory rate for 2007, 2006, and
2005 was primarily caused by state income taxes. The effective
tax rates for 2007 and 2006 included a reduction in state income
taxes resulting from the change in Texas tax law.
Texas House Bill 3, signed into law in May 2006, eliminated the
taxable capital and earned surplus components of the existing
franchise tax and replaced these components with a taxable
margin tax calculated on a combined group-reporting basis. Our
Predecessor was required to include the impact of the new law in
income for the period which included the date of the laws
enactment. The adjustment, a reduction in deferred state income
taxes in the amount of approximately $0.4 million and
$1.1 million (net of federal tax benefit), was included in
2007 and 2006 income tax expense, respectively.
LIQUIDITY AND
CAPITAL RESOURCES
Our ability to finance operations and fund maintenance capital
expenditures will largely depend on our ability to generate
sufficient cash flow to cover these expenses. Our ability to
generate cash flow is subject to a number of factors, some of
which are beyond our control. Please read Risk
factors included elsewhere in this prospectus.
Historically, our sources of liquidity included cash generated
from operations and funding from Anadarko. We historically
participated in Anadarkos cash management program, whereby
Anadarko, on a periodic basis, swept cash balances residing in
our bank accounts. Thus, our historical combined financial
statements reflect little or no cash balances. Unlike our
transactions with third parties which ultimately settle in cash,
our affiliate transactions are settled on a net basis through an
adjustment to parent net equity.
Prospectively, we will maintain our own bank accounts and
sources of liquidity and will utilize Anadarkos cash
management system and expertise.
83
Managements
discussion and analysis of financial condition and results of
operations
Subsequent to this offering, we expect our sources of liquidity
to include:
|
|
Ø
|
$10 million of net offering proceeds to be retained for
general partnership purposes;
|
|
Ø
|
cash generated from operations;
|
|
Ø
|
borrowings under Anadarkos credit facility up to the
amount of our borrowing limit;
|
|
Ø
|
borrowings under our working capital facility with Anadarko;
|
|
|
Ø |
interest income from our $260.0 million note receivable
from Anadarko;
|
|
|
Ø
|
issuances of additional partnership units; and
|
|
Ø
|
debt offerings.
|
We believe that cash generated from these sources will be
sufficient to meet our short-term working capital requirements,
long-term capital expenditure requirements, and quarterly cash
distributions to unitholders.
Working
capital
Working capital, defined as the amount by which current assets
exceed current liabilities, is an indication of our liquidity
and potential need for short-term funding. Our working capital
requirements are driven by changes in accounts receivable and
accounts payable. These changes are primarily impacted by
factors such as credit extended to, and the timing of
collections from, our customers and our level of spending for
maintenance and expansion activity. Historically, all affiliated
transactions were not cash settled within our combined financial
statements, and did not require independent working capital
borrowings. Prospectively, to the extent transactions with
Anadarko and third parties require working capital, such amounts
will be independently obtained by us.
Historical
combined cash flow
The following table and discussion presents a summary of our
combined net cash provided by (used in) operating activities,
combined net cash provided by (used in) investing activities and
combined net cash provided by (used in) financing activities for
the years ended December 31, 2007, 2006 and 2005.
For all periods presented below, our net cash from operating
activities and capital contributions from our parent were used
to service our cash requirements, which included our operating
expenses and capital expenditures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
55,872
|
|
|
$
|
27,323
|
|
|
$
|
30,131
|
|
Investing activities
|
|
$
|
(53,174
|
)
|
|
$
|
(42,713
|
)
|
|
$
|
(21,076
|
)
|
Financing activities
|
|
$
|
(3,156
|
)
|
|
$
|
15,844
|
|
|
$
|
(9,067
|
)
|
Net increase (decrease) in cash
|
|
$
|
(458
|
)
|
|
$
|
454
|
|
|
$
|
(12
|
)
|
Operating Activities. Net cash provided by
operating activities increased by $28.5 million, or 104%,
for the year ended December 31, 2007. Net cash provided by
operating activities decreased by $2.8 million, or 9%, for
the year ended December 31, 2006.
The $28.5 million increase in net cash provided by
operating activities during the year ended December 31,
2007 was primarily due to net cash provided by operating
activities related to MIGC and to increases in accounts payable
and accrued expenses.
The $2.8 million decrease in net cash provided by operating
activities during the year ended December 31, 2006 was
primarily due to a $7.9 million decrease in net accounts
payable and accrued
84
Managements
discussion and analysis of financial condition and results of
operations
expenses, offset by $4.4 million of additional net cash
provided by operating activities related to MIGC, and a $1.0
million decrease in accounts receivable.
Investing Activities. Net cash used in
investing activities for the year ended December 31, 2007
increased by $10.5 million, or 24%. Net cash used in
investing activities for the year ended December 31, 2006
increased by $21.6 million, or 103%.
Our investing activities included a $10.4 million increase
in capital expenditures for the year ended December 31,
2007 and a $21.5 million increase in capital expenditures
for the year ended December 31, 2006. The increase in
capital expenditures for the year ended December 31, 2007
was related to additional compression and well connects on the
Dew, Haley, Pinnacle and Hugoton systems. The increase in
capital expenditures for the year ended December 31, 2006
was related to additional compression and well connections on
the Dew system and additional well connections on the Haley
system.
Financing Activities. Net cash provided by
financing activities for the year ended December 31, 2007
decreased by $19.0 million. Net cash provided by financing
activities for the year ended December 31, 2006 increased
by $24.9 million. All increases and decreases were
attributable to period-to-period variances in cash contributions
from or cash payments to Anadarko.
Off-balance sheet
arrangements
We do not have any off-balance sheet arrangements.
Capital
requirements
Our businesses can be capital-intensive, requiring significant
investment to maintain and improve existing facilities. We
categorize capital expenditures as either:
|
|
Ø
|
Maintenance capital expenditures, which include those
expenditures required to maintain the existing operating
capacity and service capability of our assets, including the
replacement of system components and equipment that have
suffered significant wear and tear, become obsolete or
approached the end of their useful lives, those expenditures
necessary to remain in compliance with regulatory or legal
requirements or those expenditures necessary to complete
additional well connections to maintain existing system volumes
and related cash flows; or
|
|
Ø
|
Expansion capital expenditures, which include those expenditures
incurred in order to extend the useful lives of our assets,
increase gathering, treating and transmission throughput from
current levels, reduce costs or increase revenues.
|
Our historical accounting records did not differentiate between
maintenance and expansion capital expenditures. We estimate that
expansion capital expenditures represented approximately 80%,
63% and 49% of total capital expenditures for the years ended
December 31, 2007, 2006 and 2005, respectively. Our total
historical capital expenditures were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Total capital expenditures, net
|
|
$
|
52,664
|
|
|
$
|
42,299
|
|
|
$
|
20,841
|
|
We expect our maintenance and expansion capital expenditures for
the twelve months ending March 31, 2009 to be
$23.5 million and $20.6 million, respectively. Our
future expansion capital expenditures may vary significantly
from period to period based on the investment opportunities
available to us. We expect to fund future capital expenditures
from cash flow generated from our operations, borrowings under
Anadarkos credit facility, the issuance of additional
partnership units or debt offerings.
85
Managements
discussion and analysis of financial condition and results of
operations
Distributions
We expect to pay a minimum quarterly distribution of $0.30 per
unit per complete quarter, which equates to $16.2 million
per quarter, or $65.0 million per year, based on the number
of common, subordinated and general partner units to be
outstanding immediately after completion of this offering. We do
not have a legal obligation to pay this distribution. Please
read Our cash distribution policy and restrictions on
distributions.
Our borrowing
capacity under Anadarkos credit facility
On March 4, 2008, Anadarko entered into a new
$1.3 billion credit facility under which we are a
co-borrower. This credit facility is available for borrowings
and letters of credit and permits us to borrow up to
$100 million under the facility. This new $1.3 billion
credit facility replaced the previously existing
$750.0 million credit facility of Anadarko, under which we
were a co-borrower. Our $100 million borrowing limit under
Anadarkos credit facility is available for general
partnership purposes, including acquisitions, but only to the
extent that sufficient amounts remain unborrowed by Anadarko and
its other subsidiaries. The new $1.3 billion credit
facility expires in March 2013. At December 31, 2007,
letters of credit totaling $1.3 million had been issued on
behalf of Anadarko by the participating institutions under the
previously existing $750.0 million credit facility and no
revolving credit loans were outstanding.
Interest on borrowings under the credit facility is calculated
based on the election by the borrower of either: (i) a
floating rate equal to the federal funds effective rate plus
0.5% or (ii) a periodic fixed rate equal to LIBOR plus an
applicable margin. The applicable margin, which is currently
0.44%, and the commitment fees are based on Anadarkos
senior unsecured long-term debt rating. Under the credit
facility, we 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. The
previously existing $750.0 million credit facility had
substantially similar covenants to the new $1.3 billion
credit facility and, as of December 31, 2007, Anadarko was
in compliance with this capitalization ratio under the
previously existing $750.0 million credit facility. Should
we or Anadarko fail to comply with any covenant in
Anadarkos new credit facility, we may not be allowed to
borrow thereunder. Pursuant to the credit facility, Anadarko is
a guarantor of all borrowings under the credit facility,
including our borrowings. We are not a guarantor of
Anadarkos borrowings under the credit facility.
Our working
capital facility
Concurrently with the closing of this offering, we will enter
into a $30 million,
two-year,
revolving credit facility with Anadarko as the lender. The
facility will be available exclusively to fund working capital
borrowings. Borrowings under the facility will bear interest at
the same rate as would apply to borrowings under the Anadarko
revolving credit facility described above. We will pay a
commitment fee to Anadarko on the unused portion of the working
capital facility of 0.11% annually.
We will be required to reduce all borrowings under our 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.
Credit
risk
We bear credit risk represented by our exposure to non-payment
or non-performance by our customers, including Anadarko.
Generally, non-payment or non-performance results from a
customers inability to satisfy receivables for services
rendered or volumes owed pursuant to gas imbalance agreements.
We examine the creditworthiness of third-party customers to whom
we grant credit and establish credit limits in accordance with
our credit policy. We are dependent upon a single producer,
Anadarko, for the majority of our natural gas volumes, and we do
not have a credit policy with respect to Anadarko. Consequently,
we are subject to the risk of non-payment or late payment by
Anadarko of gathering,
86
Managements
discussion and analysis of financial condition and results of
operations
treating and transmission fees, and this risk is greater than it
would be with a broader customer base with a similar credit
profile. We expect our exposure to concentrated risk of
non-payment or non-performance to continue for as long as we
remain substantially dependent on Anadarko for our revenues.
While Anadarko currently has investment grade credit ratings, if
Anadarko becomes unable to perform under the terms of our
gathering and transportation agreements, its note payable to us
or the omnibus agreement, it may significantly reduce our
ability to make distributions to our unitholders. We will be
exposed to credit risk on the note receivable from Anadarko that
will be issued by Anadarko to us concurrently with the closing
of this offering. In addition, we will enter into an omnibus
agreement with Anadarko under which Anadarko is required to
indemnify us for certain environmental claims, losses arising
from rights-of-way claims, failures to obtain required consents
or governmental permits, and income taxes.
Total contractual
cash obligations
We have an exclusive right to utilize certain compression
equipment leased by Anadarko from a third-party lessor. We
expect amounts due by Anadarko to the lessor under the lease to
be allocated or otherwise charged to us. A summary of
Anadarkos total contractual cash obligations under this
operating lease as of December 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 year
|
|
|
2-3
years
|
|
|
4-5
years
|
|
|
5 years
|
|
|
|
|
|
(In
thousands)
|
|
|
Lease commitments
|
|
$
|
7,317
|
|
|
$
|
1,568
|
|
|
$
|
3,136
|
|
|
$
|
2,613
|
|
|
$
|
0
|
|
Anadarko may at any time terminate this compression equipment
lease, purchase and take title to the compression equipment and
contribute the compression equipment to us. However, Anadarko is
under no legal obligation to do so.
In addition to the above obligations, we will enter into an
omnibus agreement with Anadarko whereby we will reimburse
Anadarko for certain operating and general and administrative
expenses it incurs for our benefit with respect to our assets
and operations. Under the omnibus agreement, our reimbursement
to Anadarko for certain general and administrative expenses it
allocates to us will be capped at $6.0 million annually
through December 31, 2009, subject to adjustment to reflect
changes in the Consumer Price Index and, with the concurrence of
the special committee of our general partners board of
directors, to reflect expansions of our operations through the
acquisition or construction of new assets or businesses.
Thereafter, our general partner will determine the general and
administrative expenses to be reimbursed by us in accordance
with our partnership agreement. The cap contained in the omnibus
agreement does not apply to incremental general and
administrative expenses we expect to incur or to be allocated to
us as a result of becoming a publicly traded partnership. We
currently expect those expenses to be approximately
$2.5 million per year.
QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity price
risk
We bear a limited degree of commodity price risk with respect to
our gathering contracts. Specifically, pursuant to our
contracts, we retain and sell condensate that is recovered
during the gathering of natural gas. As part of this
arrangement, we are required to provide a thermally equivalent
volume of natural gas or the cash equivalent thereof to the
shipper. Thus, our revenues for this portion of our contractual
arrangement are based on the price received for the condensate
and our costs for this portion of our contractual arrangement
are dependent upon the price of natural gas. Condensate
historically sells at a price representing a slight discount to
the price of crude oil. We consider our exposure to commodity
price risk associated with these arrangements to be minimal
based on the amount of operating income generated under these
arrangements compared to our overall operating income and the
fact that the balance of our
87
Managements
discussion and analysis of financial condition and results of
operations
operating income is fee-based. For the years ended
December 31, 2007, 2006 and 2005, a 10% change in the
trading margin between condensate and natural gas would have
resulted in a $529,000, or 1.2%, $375,000, or 1.6%, and
$250,000, or 1.2%, change in operating income for those periods,
respectively.
Interest rate
risk
Interest rates during the periods discussed above were low
compared to rates over the last 50 years. If interest rates were
to rise, our financing costs would increase accordingly.
Although increased borrowing costs could limit our ability to
raise funds in the capital markets, we expect our competitors
would be similarly affected. We expect to have immaterial
amounts of borrowings through December 31, 2008.
Accordingly, we do not expect to have any material interest rate
risk.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The preparation of combined financial statements in accordance
with accounting principles generally accepted in the U.S.
requires our management to make estimates and assumptions that
affect the amounts reported in the combined financial statements
and the accompanying notes. Although these estimates are based
on managements best available knowledge of current and
expected future events, actual results may vary significantly
from those estimates. Management considers an understanding of
our critical accounting policies and estimates to be essential
to gaining a full understanding of our combined financial
results. For additional information concerning our accounting
policies not discussed below, see the Notes to the Combined
Financial Statements included elsewhere in this prospectus.
Depreciation and
impairment policy
Depreciation expense is generally computed using the
straight-line method over the estimated useful life of the
assets. Determination of depreciation expense requires judgment
regarding the estimated useful lives and salvage values of
property, plant and equipment. As circumstances warrant,
depreciation estimates are reviewed to determine if any changes
in the underlying assumptions are necessary.
Each reporting period, management assesses whether facts and
circumstances indicate that the carrying amounts of property,
plant and equipment may not be recoverable from expected
undiscounted cash flows from the use and eventual disposition of
an asset. If the carrying amount of the asset is not expected to
be recoverable from future undiscounted cash flows, an
impairment may be recognized. Any impairment is measured as the
excess of the carrying amount of the asset over its estimated
fair value. The weighted average life of our long-lived assets
is approximately 21 years. If the depreciable lives of our
assets were reduced by 10%, we estimate that depreciation
expense would increase by $2.6 million, which would result
in a corresponding reduction in our operating income.
In assessing long-lived assets for impairment, management
evaluates changes in our business and economic conditions and
their implications for recoverability of the assets
carrying amounts. Since a significant portion of our revenues
arises from gathering and transporting natural gas production
from Anadarko-operated properties, significant downward
revisions in reserve estimates or changes in future development
plans by Anadarko, to the extent they affect our operations, may
necessitate assessment of the carrying amount of our affected
assets for recoverability. Such assessment requires application
of judgment regarding the use and ultimate disposition of the
asset, long-range revenue and expense estimates, global and
regional economic conditions, including commodity prices and
drilling activity by our customers, as well as other factors
affecting estimated future net cash flows. The measure of
impairment to be recognized, if any, depends upon
managements estimate of the assets fair value, which
may be determined based on the estimates of future net cash
flows or values at which similar assets were transferred in the
market in recent transactions, if such data is available. For
the periods presented, we believe that no facts were present
that would indicate the carrying amount of assets may not be
recoverable. However, given the degree of judgment about highly
uncertain matters involved in assessing our key assets for
impairment, it is reasonably possible that such assessments in
future periods would have material effects on our financial
conditions and results of operations. If an assessment of
impairment resulted in a reduction of 1% of our long-lived
assets, our operating income would decrease by $3.6 million.
88
Business
OVERVIEW
We are a growth-oriented Delaware limited partnership recently
formed by Anadarko (NYSE: APC) to own, operate, acquire and
develop midstream energy assets. We currently operate in East
Texas, the Rocky Mountains, the Mid-Continent and West Texas and
are engaged in the business of gathering, compressing, treating
and transporting natural gas for our ultimate parent, Anadarko,
and third-party producers and customers. We principally provide
our midstream services under long-term contracts with fee-based
rates extending for primary terms of up to 20 years. We
generally do not take title to the natural gas that we gather
and, therefore, are able to avoid significant direct commodity
price exposure.
We believe that one of our principal strengths is our
relationship with Anadarko. During the year ended
December 31, 2007, approximately 91% of our total natural
gas gathering and transportation volumes were comprised of
natural gas production owned or controlled by Anadarko. In
addition, Anadarko Petroleum Corporation has dedicated to us all
of the natural gas production it owns or controls from
(i) wells that are currently connected to our gathering
systems, and (ii) additional wells that are drilled within
one mile of connected wells or our gathering systems, as the
systems currently exist and as they are expanded to connect
additional wells in the future. As a result, this dedication
will continue to expand as additional wells are connected to our
gathering systems. Volumes associated with this dedication
averaged approximately 725 MMBtu/d for the year ended
December 31, 2007.
We expect to utilize the significant experience of
Anadarkos management team to execute our growth strategy,
which includes acquiring and constructing additional midstream
assets. For the year ended December 31, 2007, as adjusted
for divestitures prior to this offering and including the assets
being contributed to us, Anadarkos total domestic
midstream asset portfolio consisted of 25 gathering systems and
one transportation system with an aggregate throughput of
approximately 2.6 Bcf/d, approximately 11,300 miles of
pipeline and 25 processing
and/or
treating facilities.
OUR ASSETS AND
AREAS OF OPERATION
Our assets consist of six gathering systems, five natural gas
treating facilities and one interstate pipeline. Our assets are
located in East Texas, the Rocky Mountains (Utah and Wyoming),
the Mid-Continent (Kansas and Oklahoma) and West Texas. The
following table provides information regarding our assets by
operating area as of or for the year ended December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate #
|
|
Gas
|
|
Treating
|
|
Average
|
|
|
|
|
|
|
Length
|
|
of
|
|
compression
|
|
capacity
|
|
throughput
|
|
|
Area
|
|
Asset
type
|
|
(miles)
|
|
receipt
points
|
|
(horsepower)
|
|
(MMcf/d)
|
|
(MMcf/d)
|
|
|
|
|
|
|
East Texas
|
|
Gathering and Treating
|
|
|
584
|
|
|
798
|
|
|
45,838
|
|
|
510
|
|
|
296
|
(1
|
)
|
Rocky Mountains
|
|
Gathering and Treating
|
|
|
114
|
|
|
162
|
|
|
20,385
|
|
|
92
|
|
|
53
|
|
|
|
|
Transportation
|
|
|
264
|
|
|
19
|
|
|
29,696
|
|
|
|
|
|
146
|
|
|
Mid-Continent
|
|
Gathering
|
|
|
1,753
|
|
|
1,512
|
|
|
130,720
|
|
|
|
|
|
126
|
|
|
West Texas
|
|
Gathering
|
|
|
97
|
|
|
58
|
|
|
|
|
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,812
|
|
|
2,549
|
|
|
226,639
|
|
|
602
|
|
|
796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
To avoid duplicating volumes, 211 MMcf/d that is
gathered on our Dew gathering system and delivered into our
Pinnacle gas treating system is included only once in the
calculation of average throughput.
|
89
Business
STRATEGY
Our primary business objective is to increase our cash
distribution per unit over time. We intend to accomplish this
objective by executing the following strategy:
|
|
Ø
|
Pursuing accretive acquisitions. We expect to
pursue accretive acquisition opportunities within the midstream
energy industry from Anadarko and third parties. Given
Anadarkos large portfolio of midstream assets, we believe
that we will have access to an array of acquisition
opportunities, though Anadarko is under no legal obligation to
offer assets or business opportunities to us. In addition, we
may also pursue selected asset acquisitions from third parties
to the extent such acquisitions complement our or
Anadarkos existing asset base or allow us to capture
operational efficiencies from Anadarkos production.
|
|
Ø
|
Capitalizing on organic growth
opportunities. The significant dedication to us
by Anadarko provides us with a platform for organic growth. We
expect to achieve this growth by meeting Anadarkos
gathering needs, which we expect to increase as a result of its
anticipated drilling activity in our areas of operation. We also
intend to actively pursue new volumes associated with
Anadarkos development of undeveloped acreage that is
accessible by our gathering systems. Examples of organic growth
opportunities potentially arising from our relationship with
Anadarko include:
|
|
|
|
|
-
|
Anadarkos active drilling program in the East Texas
Bossier play, including the Cotton Valley Lime
formations; and
|
|
|
-
|
Anadarkos increased drilling and recompletion activity in
the Hugoton field as a result of recent rule changes by the
Kansas Corporation Commission.
|
|
|
Ø |
Attracting additional third-party volumes to our
systems. We intend to actively market our
midstream services to and pursue strategic relationships with
third-party producers to attract additional volumes and/or
expansion opportunities. Recent examples of such expansions
include:
|
|
|
|
|
-
|
the planned expansion of the sour gas treating capacity of our
Bethel plant to accommodate the recent drilling activity by
third parties in the Cotton Valley Lime formations; and
|
|
|
-
|
the expansion of the Hugoton gathering system to obtain volumes
previously gathered by a competitors system.
|
|
|
Ø |
Minimizing commodity price exposure. Our
midstream services are provided under fee-based arrangements
which minimize our direct commodity price exposure. We expect to
utilize hedging to manage any significant future commodity price
risk that could result from contracts we may acquire or enter
into in the future.
|
COMPETITIVE
STRENGTHS
We believe that we are well positioned to successfully execute
our strategy and achieve our primary business objective because
of the following competitive strengths:
|
|
Ø |
Affiliation with Anadarko. We believe that
Anadarko, as the owner of our general partner interest, all of
our incentive distribution rights and a 63.4% limited partner
interest in us, is motivated to promote and support the
successful execution of our business plan and to pursue projects
that enhance the value of our business. We believe that our
relationship with Anadarko will enhance our ability to achieve
our primary business objective through, for example, the
following:
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Anadarko Petroleum Corporation has dedicated to us all of the
natural gas production it owns or controls from (i) wells that
are currently connected to gathering systems, and (ii)
additional wells that are drilled within one mile of connected
wells or our gathering systems, as the systems currently exist
and as they are expanded to connect additional wells in the
future;
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as Anadarko develops the acreage in proximity to our gathering
systems or acquires additional acreage in our areas of
operation, we believe that it will deliver additional volumes to
our facilities, although it is not obligated to do so;
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Anadarko manages a large portfolio of midstream assets in highly
active oil and natural gas producing areas, such as the Rocky
Mountains, and we believe that Anadarko may offer us the
opportunity to purchase some or all of such assets in the
future, although it is not obligated to do so; and
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we have access to Anadarkos broad operational, commercial,
technical, risk management and administrative infrastructure,
its significant pool of management talent and its strong
commercial relationships throughout the energy industry.
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Relatively stable and predictable cash
flow. Given the fee-based, long-term nature of
our midstream service agreements, our cash flow is largely
protected from fluctuations caused by commodity price
volatility. In addition, our contracts have primary terms
ranging up to 20 years, and we generally do not take title
to the natural gas that we gather, compress, treat or transport.
Moreover, our systems are connected to wells in producing basins
that generally have long lives with predictable flow rates.
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Well-positioned, well-maintained and efficient
assets. We believe that our established positions
in our areas of operation provide us with opportunities to
expand and attract additional volumes to our systems. Moreover,
our systems consist of high-quality, well-maintained assets for
which we have implemented modern treating, measuring and
operating technologies. These applications have allowed us to
manage our operations efficiently with limited field personnel,
resulting in lower costs and minimal downtime.
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Financial flexibility to pursue expansion and acquisition
opportunities. We have up to $100 million of
borrowing capacity available to us under Anadarkos
$1.3 billion credit facility and, concurrently with the
closing of this offering, we expect to obtain a $30 million
working capital facility from Anadarko. In addition, we will
have no indebtedness outstanding at the closing of this
offering. We believe that our borrowing capacity and our ability
to effectively access debt and equity capital markets provide us
with the financial flexibility necessary to achieve our organic
expansion and acquisition strategy.
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Experienced management team. Our general
partners management team, which includes senior executives
of Anadarko, has on average over 15 years of industry
experience. Members of our general partners management
team have extensive experience in building, acquiring,
integrating, financing and managing midstream assets. In
addition, our relationship with Anadarko provides us with the
services of experienced personnel who successfully managed our
assets and operations while they were owned by Anadarko.
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We believe that we will effectively leverage our competitive
strengths to successfully implement our strategy; however, our
business involves numerous risks and uncertainties which may
prevent us from achieving our primary business objective. For a
more complete description of the risks associated with an
investment in us, please read Risk factors.
OUR RELATIONSHIP
WITH ANADARKO
One of our principal attributes is our relationship with
Anadarko. It will own our general partner and a significant
interest in us following this offering. Anadarko is one of the
largest independent oil and gas exploration and production
companies in the world. Anadarko, which trades on the NYSE under
the symbol APC, has major operations in established
onshore areas of the U.S., including the Rocky Mountains, as
well as in the deepwater Gulf of Mexico and Algeria. Anadarko
also has production and/or exploration in Brazil, China,
Indonesia, Mozambique and West Africa.
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Business
Anadarkos upstream oil and gas business finds and produces
natural gas, crude oil, condensate and NGLs. Anadarko is
growth-oriented and annually pursues one of the most active
drilling programs in the industry, with over
1,600 development wells drilled onshore in the U.S. in
2007. Anadarko has identified the Rocky Mountains and its
Southern region (which includes the Mid-Continent and Texas) as
core areas from which it expects to derive a significant portion
of its future production growth from development drilling
activity. We expect Anadarko to remain active in our areas of
operation, which we believe will provide us with both organic
and acquisition-related growth opportunities.
At December 31, 2007, including the assets being
contributed to us but adjusted for divestitures prior to this
offering, Anadarkos total domestic midstream asset
portfolio consisted of 25 gathering systems and one
transportation system with an aggregate throughput of
approximately 2.6 Bcf/d, approximately 11,300 miles of
pipeline and 25 processing
and/or
treating facilities. Following this offering, Anadarkos
remaining midstream business will consist of 19 gathering
systems with an aggregate throughput of approximately
2.0 Bcf/d, 8,500 miles of pipeline and 20 processing
and/or treating facilities. Anadarko has invested significant
capital in its domestic midstream business, including the assets
being contributed to us, with investments of approximately
$608 million in 2007 and planned investments of more than
$500 million in 2008. On December 27, 2007, Anadarko
announced a $2.2 billion financing of its midstream assets
which may require partial repayment based on a debt to EBITDA
leverage ratio that declines incrementally over time. The debt
repayments that may be necessary to satisfy the terms of this
financing may be made with internally generated cash flow, cash
on hand, or cash received from midstream asset sales. Should
Anadarko choose to pursue midstream asset sales, it is under no
contractual obligation to offer assets or business opportunities
to us. We are neither a guarantor nor an obligor for such
financing.
Although our relationship with Anadarko provides us with a
significant advantage in the midstream natural gas market, it is
also a source of potential conflicts. For example, Anadarko is
not restricted from competing with us. Please read
Conflicts of interest and fiduciary duties. Given
Anadarkos significant ownership of limited and general
partner interests in us following this offering, we believe it
will be in Anadarkos best interest for it to sell
additional assets to us over time; however, Anadarko continually
evaluates acquisitions and divestitures and may elect to
acquire, construct or dispose of midstream assets in the future
without offering us the opportunity to acquire or construct
those assets. Anadarko is under no contractual obligation to
offer any such opportunities to us, nor are we obligated to
participate in any such opportunities. We cannot state with any
certainty which, if any, opportunities to acquire assets from
Anadarko may be made available to us or, if given the
opportunity, that we will elect to pursue any such acquisitions.
At the close of this offering, we will enter into an omnibus
agreement with Anadarko and our general partner that will govern
our relationship regarding certain reimbursement and
indemnification matters. Please read Certain relationships
and related party transactionsAgreements governing the
transactionsOmnibus agreement.
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INDUSTRY
OVERVIEW
The midstream natural gas industry is the link between the
exploration and production of natural gas from the wellhead or
lease and the delivery of the gas and its other components to
end-use markets. Companies within this industry create value at
various stages along the natural gas value chain by gathering
natural gas from producers at the wellhead, separating the
hydrocarbons into dry gas (primarily methane) and NGLs, and then
routing the separated dry gas and NGL streams for delivery to
end-markets or to the next intermediate stage of the value
chain. The following diagram illustrates the groups of assets
commonly found along the natural gas value chain:
Service
types
The services provided by us and other midstream natural gas
companies are generally classified into the categories described
below. As indicated below, we do not currently provide all of
these services, although we may do so in the future.
Gathering. At the initial stages of the
midstream value chain, a network of typically small diameter
pipelines known as gathering systems directly connect to
wellheads in the production area. These gathering systems
transport raw, or untreated, natural gas to a central location
for treating and processing. A large gathering system may
involve thousands of miles of gathering lines connected to
thousands of wells. Gathering systems are typically designed to
be highly flexible to allow gathering of natural gas at
different pressures and scalable to allow gathering of
additional production without significant incremental capital
expenditures. In connection with our gathering services, we
retain and sell condensate, which falls out of the natural gas
stream during gathering.
Compression. Natural gas compression is a
mechanical process in which a volume of natural gas at a given
pressure is compressed to a desired higher pressure, which
allows the natural gas to be delivered into a higher pressure
system. Field compression is typically used to allow a gathering
system to operate at a lower pressure or provide sufficient
discharge pressure to deliver natural gas into a higher pressure
system. Since wells produce at progressively lower field
pressures as they deplete, field compression is needed to
maintain throughput across the gathering system.
Treating and Dehydration. To the extent that
gathered natural gas contains contaminants, such as water vapor,
carbon dioxide
and/or
hydrogen sulfide, such natural gas is dehydrated to remove the
saturated water and treated to separate the carbon dioxide and
hydrogen sulfide from the gas stream.
Processing. Most decontaminated rich natural
gas does not meet the quality standards for long-haul pipeline
transportation or commercial use and must be processed to remove
the heavier hydrocarbon components, which are extracted as NGLs.
Our assets do not currently include processing facilities.
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Fractionation. Fractionation is the separation
of the heterogeneous mixture of extracted NGLs into individual
components for end-use sale. It is accomplished by controlling
the temperature and pressure of the stream of mixed NGLs in
order to take advantage of the different boiling points of
separate products. Our assets do not currently include
fractionation operations.
Transportation and Storage. Once the raw
natural gas has been treated or processed and the raw NGL mix
fractionated into individual NGL components, the natural gas and
NGL components are stored, transported and marketed to end-use
markets. Each pipeline system typically has storage capacity
located both throughout the pipeline network and at major market
centers to help temper seasonal demand and daily supply-demand
shifts. Our assets do not currently include storage facilities.
Typical Contractual Arrangements. Midstream
natural gas services, other than transportation and storage, are
usually provided under contractual arrangements which vary in
the amount of commodity price risk they carry. Three typical
contract types are described below:
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Fee-based. Fee-based arrangements may be used
for gathering, compression, treating and processing services.
Under these arrangements, the service provider typically
receives a fee for each unit of natural gas gathered and
compressed at the wellhead and an additional fee per unit of
natural gas treated or processed at its facility. As a result,
the service provider bears no direct commodity price risk
exposure. We provide our gathering, compression and treating
services to Anadarko and third-party producers under fee-based
arrangements which minimize our direct commodity price exposure.
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Percent-of-proceeds, Percent-of-value or
Percent-of-liquids. Percent-of-proceeds,
percent-of-value or percent-of-liquids arrangements may be used
for gathering and processing services. Under these arrangements,
the service provider typically remits to the producers either a
percentage of the proceeds from the sale of residue gas
and/or NGLs
or a percentage of the actual residue gas
and/or NGLs
at the tailgate. These types of arrangements expose the
processor to commodity price risk, as the revenues from the
contracts directly correlate with the fluctuating price of
natural gas and NGLs. We do not currently have any
percent-of-proceeds, percent-of-value or percent-of-liquids
arrangements.
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Keep-whole. Keep-whole arrangements may be
used for processing services. Under these arrangements, the
service provider keeps 100% of the NGLs produced, and the
processed natural gas, or value of the gas, is returned to the
producer. Since some of the gas is used and removed during
processing, the processor compensates the producer for the
amount of gas used and removed in processing by supplying
additional gas or by paying an
agreed-upon
value for the gas utilized. These arrangements have the highest
commodity price exposure for the processor because the costs are
dependent on the price of natural gas and the revenues are based
on the price of NGLs. We do not currently have any keep-whole
arrangements.
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There are two forms of contracts utilized in the transportation
and storage of natural gas, as described below:
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Firm. Firm transportation service requires the
reservation of pipeline capacity by a customer between certain
receipt and delivery points. Firm customers generally pay a
demand or capacity reservation fee based
on the amount of capacity being reserved, regardless of whether
the capacity is used, plus a usage fee based on the amount of
natural gas transported. Firm storage contracts involve the
reservation of a specific amount of storage capacity, including
injection and withdrawal rights, and generally include a
capacity reservation charge based on the amount of capacity
being reserved plus an injection
and/or
withdrawal fee.
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Interruptible. Interruptible transportation
and storage service is typically short-term in nature and is
generally used by customers that either do not need firm service
or have been unable to contract for firm service. These
customers pay only for the volume of gas actually transported or
stored. The obligation to provide this service is limited to
available capacity not otherwise used by firm
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customers, and as such, customers receiving services under
interruptible contracts are not assured capacity on the pipeline
or at the storage facility.
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Natural gas
demand and production
Natural gas is a critical component of energy supply in the U.S.
According to the Energy Information Administration, or the EIA,
total annual domestic consumption of natural gas is expected to
increase from approximately 21.7 trillion cubic feet, or
Tcf, in 2006 to approximately 24.7 Tcf in 2010. The
industrial and electricity generation sectors are the largest
consumers of natural gas in the U.S. During the last three
years, these sectors accounted for approximately 57% of the
total natural gas consumed in the U.S. In 2006, natural gas
provided approximately 22% of all end-user commercial and
residential energy requirements. During the last three years,
the U.S. has, on average, consumed approximately 22.0 Tcf
per year, with average annual domestic production of
approximately 18.4 Tcf during the same period. Driven by
growth in natural gas demand and high natural gas prices,
domestic natural gas production is projected to increase from
18.6 Tcf per year to 19.6 Tcf per year between 2006
and 2016. The graph below represents projected U.S. natural
gas production versus U.S. natural gas consumption (in Tcf)
through the year 2030.
Source:
Energy Information Administration
OUR
ASSETS
We own and operate all of our assets, which consist of six
gathering systems, five natural gas treating facilities and one
interstate pipeline, in East Texas, the Rocky Mountains (Utah
and Wyoming), the Mid-Continent (Kansas and Oklahoma) and West
Texas. Other than the natural gas that is gathered by our
Hugoton gathering system, which is currently processed by third
parties, none of the natural gas serviced by our assets requires
processing. The following sections describe in more detail the
services provided by our assets in our areas of operation.
East
Texas
Dew gathering
system
General. The
324-mile Dew
gathering system is located in Anderson, Freestone, Leon and
Robertson Counties of East Texas. The Dew gathering system was
placed into service in November 1998 to provide gathering
services for Anadarkos active drilling program in the
Bossier play. The system provides gathering, dehydration and
compression services and ultimately delivers into the Pinnacle
gas treating system for any required treating.
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Average throughput on the Dew gathering system for the year
ended December 31, 2007 was
216 MMcf/d
from approximately 730 receipt points. The Dew gathering
system has pipeline diameters ranging from three to
12 inches and has 14 compressor stations with a combined
45,838 horsepower of compression.
Customers. Anadarko is the only significant
shipper on the Dew gathering system. Anadarkos equity gas
accounted for
212 MMcf/d
of throughput during the year ended December 31, 2007,
which represented approximately 98% of the total volume on the
system.
Delivery Points. The Dew gathering
systems primary delivery point is Pinnacle Gas Treating
LLC, which is described in more detail below, but it also has a
connection to Kinder Morgans Tejas pipeline.
Supply. Anadarko has drilled over
750 gross wells to date in the Bossier play and controls
approximately 230,000 gross acres in the area. For the last
three years, Anadarko has maintained an active drilling program
in the Bossier play utilizing four or five rigs to drill
approximately 30 gross wells per year. With this level of
activity, we believe Anadarko has a drilling location inventory
of over five years.
Pinnacle Gas
Treating LLC
General. Pinnacle Gas Treating LLC includes
our Pinnacle gathering system and our Bethel treating plant.
Pinnacle Gas Treating provides sour gas gathering and treating
service in Anderson, Freestone, Leon, Limestone and Robertson
Counties of East Texas. The gathering system consists of
260 miles of pipeline with diameters ranging from three to
24 inches and one compressor station with 1,265 horsepower.
The Bethel treating plant, located in Anderson County, has total
CO2
treating capacity of
500 MMcf/d
and nine long tons per day, or LTD, of sulfur treating capacity.
We are currently expanding the plant by installing an additional
11 LTD of sulfur treating capacity, which we expect to have
completed in 2008, in order to provide additional sour gas
treating capacity for drilling in the area.
Average throughput on the Pinnacle gathering system for the year
ended December 31, 2007 was
291 MMcf/d
from approximately 70 receipt points.
Customers. Anadarko is the largest shipper on
the Pinnacle gathering system with
266 MMcf/d
of throughput for the year ended December 31, 2007, which
represented approximately 91% of the total throughput on the
system during such period. Eighty-two percent of Anadarkos
throughput is equity production, which includes Bossier natural
gas delivered from the Dew gathering system and several wells
directly connected to the Pinnacle system that produce from the
Cotton Valley Lime formations. The remaining 18% of
Anadarkos throughput consists of natural gas purchased by
Anadarko from third parties.
Other shippers on the Pinnacle gathering system are
ConocoPhillips Company, Hunt Petroleum Corp., EnCana
Oil & Gas (USA) Inc., Paragon Energy Inc. and Newfield
Exploration Company. These shippers accounted for
25 MMcf/d
for the year ended December 31, 2007, which represented
approximately 9% of total throughput on the system during such
period.
Delivery Points. The Pinnacle gathering system
is connected to Enterprise Texas Pipeline, LPs pipeline,
the Energy Transfer Fuels pipeline, the ETC Texas pipeline,
Kinder Morgans Tejas pipeline, the ATMOS Texas pipeline
and the Enbridge Pipelines (East Texas) LP pipeline. These
pipelines provide transportation to the Carthage, Waha and
Houston Ship Channel market hubs in Texas.
Supply. The Pinnacle gathering system is well
positioned to provide gathering and treating services to the
five county area over which it extends. With an average of
400 wells drilled in each of the last five years, this area
has experienced significant recent growth and, as of
December 31, 2007, had a total well count exceeding
5,000 wells and production of over 1.5 Bcf/d.
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With the recent drilling activity in the Cotton Valley Lime
formations, which contain higher concentrations of
H2S
and
CO2,
we were able to obtain a commitment from a third-party producer
that allows us to expand the Bethel treating facilities. With
this expansion, we believe that we are well positioned to
benefit from future sour gas production in the area.
Rocky
Mountains
MIGC
system
General. The MIGC system is a
264-mile
interstate pipeline operating within the Powder River Basin of
Wyoming that is regulated by the Federal Energy Regulatory
Commission, or FERC. The MIGC system traverses the Powder River
Basin from north to south, extending approximately
150 miles to Glenrock, Wyoming. As a result, the MIGC
system is well positioned to provide transportation for the
extensive natural gas volumes received from various coal-bed
methane gathering systems and conventional gas processing plants
throughout the Powder River Basin. MIGC offers both forward-haul
and backhaul transportation services, and additional capacity is
available from time to time on an interruptible basis.
Average throughput on the MIGC system for the year ended
December 31, 2007 was
146 MMcf/d
from approximately 20 receipt points.
MIGC recently completed the installation of, and placed into
service, the Python compression station, which increased
capacity on the MIGC system by approximately
50 MMcf/d.
In April 2007, Anadarko entered into a firm transportation
contract for 45 MMcf/d of this additional capacity. MIGC is
currently certificated for 175
MMcf/d of
firm transportation capacity, all of which is fully subscribed.
Customers. Anadarko is the largest firm
shipper on the MIGC system, with approximately 72% of throughput
for the year ended December 31, 2007. For the year ended
December 31, 2007, Williams Production RMT Company and KFx
Plant, LLC together accounted for approximately 27% of
throughput on the system.
Revenues on the MIGC system are generated from contract demand
charges and volumetric fees paid by shippers under firm and
interruptible gas transportation agreements. Our current firm
transportation agreements range in term from approximately one
to 10 years. Of the current certificated capacity of
175 MMcf/d, 40 MMcf/d
is contracted through October 2018,
45 MMcf/d
is contracted through September 2012 and
85 MMcf/d
is contracted through January 2009. Most of our interruptible
gas transportation agreements are month-to-month with the
remainder generally having terms of less than one year.
Approximately 92% of our revenues for the year ended
December 31, 2007 were associated with firm transportation
demand charges.
Delivery Points. MIGC volumes can be
redelivered to five interstate market pipelines, including the
Williston Basin Interstate pipeline at the northern end of the
Powder River Basin, the MGTC pipeline, a pipeline that supplies
local markets in Wyoming, the Wyoming Interstate Companys
Medicine Bow lateral pipeline, the Colorado Interstate Gas
pipeline and the Kinder Morgan interstate pipeline at the
southern end of the Powder River Basin near Glenrock, Wyoming.
Supply. Anadarko has a working interest in
over one million gross acres within the prolific Powder River
Basin. It currently operates approximately 3,900 gross
coal-bed methane wells and has non-operating interests in more
than 4,000 additional gross coal-bed methane wells.
Anadarkos gross acreage is approximately 50% developed
with substantial undeveloped acreage positions in the expanding
Big George coal play and the multiple seam coal fairway to the
north of Big George play. The historical development pace on
Anadarko acreage has been 600 to 800 gross wells per year,
suggesting that a five- to seven-year development inventory
remains at current planned levels of activity.
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Helper gathering
system
General. The
67-mile
Helper gathering system, located in Carbon County, Utah, was
built to provide gathering services for Anadarkos coal-bed
methane development of the Ferron Coal. The Helper gathering
system provides gathering, dehydration, compression and treating
services for coal-bed methane gas. The Helper gathering system
has pipeline diameters ranging from four to 20 inches and
includes two compressor stations with a combined 11,575
horsepower and two
CO2
treating facilities.
Average throughput on the Helper gathering system for the year
ended December 31, 2007 was
35 MMcf/d
from approximately 120 receipt points.
Customers. Anadarko is the largest shipper on
the Helper gathering system. For the year ended
December 31, 2007, Anadarkos equity production
represented approximately 99% of the Helper gathering
systems volume.
Delivery Points. The Helper gathering system
delivers into the Questar Transportation Services Companys
pipeline. Questar provides transportation to regional markets in
Wyoming, Colorado and Utah and also delivers into the Kern River
Pipeline, which provides transportation to markets in the
western U.S., primarily California.
Supply. Helper Field is an Anadarko-operated
field on the southwestern edge of the Uinta Basin that produces
from the Cretaceous Ferron sands and coals. Helper Field
consists of approximately 19,000 gross acres and currently has
116 gross producing wells. Cardinal Draw, which lies immediately
to the east of Helper Field, currently has 24 gross
producing wells and covers another approximately 15,000 gross
acres.
In 2003, Anadarko entered into an agreement with Westport Oil
and Gas Company, LP, which was acquired by Kerr-McGee
Corporation in 2004, to gather volumes from its Cardinal Draw
development play. Since the acquisition of Kerr-McGee by
Anadarko in 2006, Anadarko has continued the development of the
Cardinal Draw area. During the year ended December 31,
2007, Anadarko drilled 12 gross wells in the Cardinal Draw area
and it has identified an additional 56 potential drilling
locations. Production in the Helper Field/Cardinal Draw area
began in 1994 and since then has produced over 99 Bcf.
Clawson gathering
system
General. The
47-mile
Clawson gathering system, located in Carbon and Emery Counties
of Utah, was built in 2001 to provide gathering services for
Anadarkos coal-bed methane development of the Ferron Coal.
The Clawson gathering system provides gathering, dehydration,
compression and treating services for coal-bed methane gas. The
Clawson gathering system has pipeline diameters ranging from
four to 18 inches and includes one compressor station, with
8,810 horsepower, and a
CO2-treating
facility.
Average throughput on the Clawson gathering system for the year
ended December 31, 2007 was
18 MMcf/d
from approximately 45 receipt points.
Customers. Anadarko is the largest shipper on
the Clawson gathering system with approximately 97% of the total
throughput delivered into the system during the year ended
December 31, 2007. The remaining throughput on the system
was comprised of production from third-party producers.
Delivery Points. The Clawson gathering system
delivers into the Questar Transportation Services Companys
pipeline.
Supply. Clawson Springs Field consists of 45
gross wells on approximately 7,200 gross acres. Production for
Clawson Springs is primarily from the Cretaceous Ferron sands
and coals. First gas sales in Clawson Springs occurred in 2001
and the field has produced over 59 Bcf.
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Mid-Continent
Hugoton gathering
system
General. The 1,753-mile Hugoton gathering
system provides gathering service to the Hugoton field and is
primarily located in Seward, Stevens, Grant and Morton Counties
of Southwest Kansas and Texas County in Oklahoma.
Average throughput on the Hugoton gathering system for the year
ended December 31, 2007 was
126 MMcf/d
from approximately 1,500 receipt points. The Hugoton gathering
system has pipeline diameters ranging from two to 26 inches
and 44 compressor stations with a combined 130,720
horsepower of compression.
Customers. Anadarko is the largest customer on
the Hugoton gathering system with
105 MMcf/d
of average throughput during the year ended December 31,
2007, representing 83% of the total volume on the system during
such period. Of these volumes, 65% represent Anadarkos
equity production and 35% represent volumes purchased by
Anadarko from third parties, including EOG Resources, Inc. and
Merit Energy Company, among others.
Other significant shippers on the Hugoton gathering system,
including DCP Midstream, LP, Oxy Oil and Gas, Pioneer Natural
Resources USA, Inc. and ExxonMobil Gas & Power
Marketing Company, LP, collectively comprised 17% of the system
throughput volume for the year ended December 31, 2007.
Delivery Points. The Hugoton gathering system
is connected to DCP Midstream, LPs National Helium Plant,
which extracts NGLs and helium and redelivers residue gas into
the Panhandle Eastern Pipeline. The system is also connected to
Pioneer Natural Resources Corporations Satanta Plant for
NGL processing and to the adjacent Mid-Continent Market Center,
which provides access to the Panhandle Eastern pipeline, the
Northern Natural Gas pipeline, the Natural Gas (NGPL) pipeline,
the Southern Star pipeline, and the ANR pipeline. These
pipelines provide transportation and market access to Midwestern
and Northeastern markets.
Supply. The Hugoton Field is one of the
largest natural gas fields in North America. Anadarko operates
approximately 1,250 gross wells in the area and has an
extensive acreage position with approximately 415,000 gross
acres in the Hugoton Field. We believe that recent changes to
the Hugoton and Panoma Council Grove Proration Orders will
provide opportunities for significant recompletion, redrilling
and density drilling activities.
By virtue of a farmout agreement between EOG Resources, Inc. and
Anadarko, EOG gained the right to explore below the primary
formations in the Hugoton Field. EOG plans to drill
approximately 50 gross wells in 2008 and 60 gross wells in
2009 in proximity to the Hugoton gathering system. We believe we
are well-positioned to gather volumes that may be produced from
these new wells.
West
Texas
Haley gathering
system
General. The
97-mile
Haley gathering system is located in Loving County, Texas and
gathers Anadarkos production from the Delaware Basin. The
Haley gathering system provides gathering and dehydration
services and has pipeline diameters ranging from four to
16 inches.
Average throughput on the Haley gathering system for the year
ended December 31, 2007 was
175 MMcf/d
from approximately 60 wells. The Haley gathering system has
experienced rapid growth as a result of Anadarkos
successful drilling activity in the area. Since 2004, volumes
gathered by the Haley system have increased from
13 MMcf/d
to a peak of
200 MMcf/d.
Anadarko has maintained an active drilling program in the area,
utilizing eight to nine rigs to explore and develop its Delaware
Basin acreage.
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Customers. Anadarkos and its
partners production represented 99% of the Haley gathering
systems throughput for the year ended December 31,
2007.
Delivery Points. The Haley gathering system
has multiple delivery points. The primary delivery points are to
the El Paso Natural Gas pipeline or the Enterprise GC, L.P.
pipeline for ultimate delivery into Energy Transfers Oasis
pipeline. We also have the ability to deliver into Southern
Union Energy Services pipeline for further delivery into
the Oasis Pipeline. The pipelines at these delivery points
provide transportation to both the Waha and Houston Ship Channel
Markets.
Supply. In the greater Delaware basin,
Anadarko has access to over 500,000 gross undeveloped acres,
currently operates six rigs and is a non-operating partner in
five additional rigs. Within the area serviced by the Haley
gathering system, over 60 gross wells have already been
drilled and completed and we anticipate that four to five rigs
will continuously operate on 100,000 Anadarko-controlled
acres. We believe that this activity and Anadarkos
controlled acreage indicate a 5 to 10-year drilling inventory on
the acreage serviced by the Haley gathering system.
COMPETITION
Given that approximately 91% of the volume on our systems is
owned or controlled by Anadarko and Anadarko has dedicated to us
future production from acreage surrounding our gathering
systems, we do not currently face significant competition for
our natural gas volumes. In the future, we may face competition
for Anadarkos production drilled outside the dedication
and in attracting third-party volumes to our systems.
Competition on
gathering systems
The natural gas gathering, compression, treating and
transportation business is very competitive. Our competitors
include other midstream companies, producers, intrastate and
interstate pipelines. Competition for natural gas volumes is
primarily based on reputation, commercial terms, reliability,
service levels, location, available capacity, capital
expenditures and fuel efficiencies. Our major competitors for
each area include:
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Dew gathering and Pinnacle gas treating: ETC Texas
Pipeline, Ltd., Enbridge Pipelines (East Texas) LP, XTO Energy
and Kinder Morgan Tejas Pipeline, LP.
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Helper and Clawson gathering systems: Questar
Transportation Services Company.
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Hugoton gathering system: ONEOK Gas Gathering
Company, DCP Midstream, LP and Pioneer Resources.
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Haley gathering system: Enterprise GC, LP and
Southern Union Energy Services Company.
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Competition on
MIGC
MIGC competes with other pipelines that service regional market
and transport gas volumes from the Powder River Basin to
Glenrock, Wyoming. MIGC competitors seek to attract and connect
new gas volumes throughout the Powder River Basin, including the
volumes currently being transported on MIGC. An increase in
competition could result from new pipeline installations or
expansions by existing pipelines. Competitive factors include
the commercial terms, available capacity, fuel efficiencies, the
interconnected pipelines and gas quality issues MIGC major
competitors are Fort Union Gas Gathering, L.L.C. and
ThunderCreek Gas Services.
SAFETY AND
MAINTENANCE
We are subject to regulation by the Pipeline and Hazardous
Materials Safety Administration, or PHMSA, of the Department of
Transportation, or the DOT, pursuant to the Natural Gas Pipeline
Safety
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Act of 1968, or the NGPSA, and the Pipeline Safety Improvement
Act of 2002, or the PSIA, which was recently reauthorized and
amended by the Pipeline Inspection, Protection, Enforcement and
Safety Act of 2006. The NGPSA regulates safety requirements in
the design, construction, operation and maintenance of gas
pipeline facilities, while the PSIA establishes mandatory
inspections for all U.S. oil and natural gas transportation
pipelines and some gathering lines in high-consequence areas.
The PHMSA has developed regulations implementing the PSIA that
require transportation pipeline operators to implement integrity
management programs, including more frequent inspections and
other measures to ensure pipeline safety in high
consequence areas, such as high population areas, areas
unusually sensitive to environmental damage and commercially
navigable waterways. Our transportation pipeline system, MIGC,
includes no high consequence areas and thus these particular
integrity management programs are not applicable.
We or the entities in which we own an interest inspect our
pipelines regularly using equipment rented from third-party
suppliers. Third parties also assist us in interpreting the
results of the inspections.
States are largely preempted by federal law from regulating
pipeline safety for interstate lines but most are certified by
the DOT to assume responsibility for enforcing federal
intrastate pipeline regulations and inspection of intrastate
pipelines. In practice, because states can adopt stricter
standards for intrastate pipelines that those imposed by the
federal government for interstate lines, states vary
considerably in their authority and capacity to address pipeline
safety. We do not anticipate any significant difficulty in
complying with applicable state laws and regulations. Our
natural gas pipelines have continuous inspection and compliance
programs designed to keep the facilities in compliance with
pipeline safety and pollution control requirements.
In addition, we are subject to a number of federal and state
laws and regulations, including the federal Occupational Safety
and Health Act, or OSHA, and comparable state statutes, the
purposes of which are to protect the health and safety of
workers, both generally and within the pipeline industry. In
addition, the OSHA hazard communication standard, the
Environmental Protection Agency, or EPA, community right-to-know
regulations under Title III of the federal Superfund
Amendment and Reauthorization Act and comparable state statutes
require that information be maintained concerning hazardous
materials used or produced in our operations and that such
information be provided to employees, state and local government
authorities and citizens. We and the entities in which we own an
interest are also subject to OSHA Process Safety Management
regulations, which are designed to prevent or minimize the
consequences of catastrophic releases of toxic, reactive,
flammable or explosive chemicals. These regulations apply to any
process which involves a chemical at or above the specified
thresholds or any process which involves flammable liquid or
gas, pressurized tanks, caverns and wells in excess of 10,000
pounds at various locations. Flammable liquids stored in
atmospheric tanks below their normal boiling points without the
benefit of chilling or refrigeration are exempt. We have an
internal program of inspection designed to monitor and enforce
compliance with worker safety requirements. We believe that we
are in material compliance with all applicable laws and
regulations relating to worker health and safety.
REGULATION OF
OPERATIONS
Regulation of pipeline gathering and transportation services,
natural gas sales and transportation of NGLs may affect certain
aspects of our business and the market for our products and
services.
Interstate
transportation pipeline regulation
MIGC, our interstate natural gas transportation system, is
subject to regulation by FERC under the Natural Gas Act of 1938,
or the NGA.
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Under the NGA, FERC has authority to regulate natural gas
companies that provide natural gas pipeline transportation
services in interstate commerce. Federal regulation extends to
such matters as:
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rates, services, and terms and conditions of service;
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the types of services MIGC may offer to its customers;
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the certification and construction of new facilities;
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the acquisition, extension, disposition or abandonment of
facilities;
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the maintenance of accounts and records;
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relationships between affiliated companies involved in certain
aspects of the natural gas business;
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the initiation and discontinuation of services;
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market manipulation in connection with interstate sales,
purchases or transportation of natural gas; and
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participation by interstate pipelines in cash management
arrangements.
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Natural gas companies are prohibited from charging rates that
have been determined not to be just and reasonable by FERC. In
addition, FERC prohibits natural gas companies from unduly
preferring or unreasonably discriminating against any person
with respect to pipeline rates or terms and conditions of
service.
The rates and terms and conditions for our interstate pipeline
services are set forth in FERC-approved tariffs. Pursuant to
FERCs jurisdiction over rates, existing rates may be
challenged by complaint and proposed rate increases may be
challenged by protest. Any successful complaint or protest
against our rates could have an adverse impact on our revenues
associated with providing transportation service.
Commencing in 2003, FERC issued a series of orders adopting
rules for new Standards of Conduct for Transmission Providers
(Order No. 2004), which apply to interstate natural gas
pipelines and certain natural gas storage companies that provide
storage services in interstate commerce. Order No. 2004
became effective in 2004. Among other matters, Order
No. 2004 required interstate pipeline and storage companies
to operate independently from their energy affiliates,
prohibited interstate pipeline and storage companies from
providing non-public transportation or shipper information to
their energy affiliates, prohibited interstate pipeline and
storage companies from favoring their energy affiliates in
providing service and obligated interstate pipeline and storage
companies to post on their websites a number of items of
information concerning the company, including its organizational
structure, facilities shared with energy affiliates, discounts
given for service and instances in which the company has agreed
to waive discretionary terms of its tariff.
Late in 2006, the D.C. Circuit vacated and remanded Order
No. 2004 as it relates to natural gas transportation
providers, including MIGC. The D.C. Circuit found that FERC had
not adequately justified its expansion of the prior standards of
conduct to include energy affiliates, and vacated the entire
rule as it relates to natural gas transportation providers. On
January 9, 2007, and as clarified on March 21, 2007,
FERC issued an interim rule re-promulgating on an interim basis
the standards of conduct that were not challenged before the
court, while FERC decides how to respond to the courts
decision on a permanent basis. The interim rule makes the
standards of conduct apply to the relationship between natural
gas transportation providers and their marketing affiliates, but
not to energy affiliates who are not also marketing affiliates.
Several companies requested rehearing and clarification of the
interim rule. The March 21, 2007 order on clarification
granted some of the requested clarifications and stated that
FERC would address the other requests in its proceeding
establishing a permanent rule. FERC has issued a notice of
proposed rulemaking, or NOPR, that proposes permanent standards
of conduct that FERC states will avoid the aspects of the
previous standards of conduct rejected by the court. With
respect to natural gas transportation providers, the NOPR
proposes (1) that the permanent standards of conduct apply
only to the relationship between
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natural gas transportation providers and their marketing
affiliates, and (2) to make permanent the changes adopted
in the interim rule permitting risk management employees to be
shared by natural gas transportation providers and their
marketing affiliates and requiring that tariff waivers be
maintained in a written waiver log and available upon request.
On July 7, 2004, FERC issued an order providing MIGC with a
partial waiver of the independent functioning and information
access provisions of the standards of conduct. FERC has stated
that waivers of the standards of conduct have not been impacted
by the D.C. Circuits decision to vacate the attempted
expansion of the standards of conduct as to natural gas
transmission providers, by the implementation of the interim
rule, or by the currently pending NOPR. Nonetheless, we have no
way to predict with certainty the scope of FERCs permanent
rules on the standards of conduct. However, we do not believe
that MIGC will be affected by any action taken previously or in
the future on these matters in a fashion which is materially
different than that affecting similarly situated natural gas
service providers.
In May 2005, FERC issued a policy statement permitting the
inclusion of an income tax allowance in the cost of
service-based rates of a pipeline organized as a tax
pass-through partnership entity, if the pipeline proves that the
ultimate owner of its equity interests has an actual or
potential income tax liability on public utility income. The
policy statement also provides that whether a pipelines
owners have such actual or potential income tax liability will
be reviewed by FERC on a
case-by-case
basis. In August 2005, FERC dismissed requests for rehearing of
its new policy statement. On December 16, 2005, FERC issued
its first significant case-specific review of the income tax
allowance issue in a pipeline partnerships rate case. FERC
reaffirmed its new income tax allowance policy and directed the
subject pipeline to provide certain evidence necessary for the
pipeline to determine its income tax allowance. The new tax
allowance policy and the December 16, 2005 order were
appealed to the D.C. Circuit. The D.C. Circuit issued an order
on May 29, 2007 in which it denied these appeals and upheld
FERCs new tax allowance policy and the application of that
policy in the December 16, 2005 order on all points subject
to appeal. The D.C. Circuit denied rehearing of the May 29,
2007 decision on August 20, 2007, and the D.C.
Circuits decision is final.
On December 8, 2006, FERC issued another order addressing
the income tax allowance in rates. In the December 8, 2006
order, FERC refined and reaffirmed prior statements regarding
its income tax allowance policy, and notably raised a new issue
regarding the implication of the policy statement for publicly
traded partnerships. It noted that the tax deferral features of
a publicly traded partnership may cause some investors to
receive, for some indeterminate duration, cash distributions in
excess of their taxable income, which FERC characterized as a
tax savings. FERC stated that it is concerned that
this created an opportunity for those investors to earn an
additional return, funded by ratepayers. Responding to this
concern, FERC chose to adjust the pipelines equity rate of
return downward based on the percentage by which the publicly
traded partnerships cash flow exceeded taxable income. On
February 7, 2007, the pipeline filed a request for
rehearing on this issue, which is currently pending before FERC.
The ultimate outcome of this proceeding is not certain and could
result in changes to FERCs treatment of income tax
allowances in cost of service and to potential adjustment in a
future rate case of our pipelines respective equity rate
of return that underlies its recourse rates to the extent that
cash distributions in excess of taxable income are allowed to
some unitholders. If FERC were to disallow a substantial portion
of MIGCs income tax allowance, it may cause its recourse
rates to be set at a level that is different, and in some
instances lower, than the level otherwise in effect.
On July 19, 2007, FERC issued a proposed policy statement
regarding the composition of proxy groups for determining the
appropriate return on equity for natural gas and oil pipelines.
The proposed policy statement would permit the inclusion of
distributions capped at a master limited partnerships
reported earnings in calculating the equity returns of a proxy
group of pipeline enterprises under the Discounted Cash Flow, or
DCF, analysis. The determination of which master limited
partnerships should be included will be made on a case by case
basis, after a review of whether a master limited
partnerships
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earnings have been stable over a multi-year period. In November
2007, the FERC requested additional comments and announced a
technical conference regarding the method to be used for
creating growth forecasts for publicly traded partnerships. FERC
proposes to apply the final policy statement to all natural gas
rate cases that have not completed the hearing phase as of the
date FERC issues the final policy statement. FERCs
proposed policy statement is subject to change based on comments
it has received, and therefore, we cannot predict the scope of
the final policy statement.
In December 2007, FERC issued a notice of proposed rulemaking
which proposes to require interstate natural gas pipelines and
certain non-interstate natural gas pipelines to post capacity,
daily scheduled flow information, and daily actual flow
information. Comments were filed on March 13, 2008, and a
technical conference was held regarding these issues on
April 3, 2008. Adoption of this proposal by FERC could
result in additional administrative burdens and could result in
increased costs.
Also in December 2007, FERC issued a rule that would require
certain natural gas market participants to file information
annually on their wholesale, physical natural gas transactions.
Specifically, the rule requires any buyer or seller of more than
2.2 million MMBtus of physical natural gas each year to
report annually aggregate volumes of relevant transactions for
the previous calendar year, including the total volume of sales
and purchases, the volumes of transactions that were priced at
fixed prices, and the volumes of transactions that were
reportable to price index publishers. A market participant must
also indicate whether it sells gas under a blanket sales
certificate and whether it reports transactions to a price index
publisher. Various parties have sought rehearing of this FERC
rule, and those requests for rehearing are currently pending
before FERC. FERC has announced a technical conference to be
held on April 22, 2008 regarding these new reporting
requirements.
On August 8, 2005, Congress enacted the Energy Policy Act
of 2005, or the EPAct 2005. Among other matters, EPAct 2005
amends the NGA to add an anti-manipulation provision which makes
it unlawful for any entity to engage in prohibited behavior in
contravention of rules and regulations to be prescribed by FERC
and, furthermore, provides FERC with additional civil penalty
authority. On January 19, 2006, FERC issued Order
No. 670, a rule implementing the anti-manipulation
provision of EPAct 2005, and subsequently denied rehearing. The
rules make it unlawful for any entity, directly or indirectly:
(1) in connection with the purchase or sale of natural gas
subject to the jurisdiction of FERC or the purchase or sale of
transportation services subject to the jurisdiction of FERC to
use or employ any device, scheme or artifice to defraud;
(2) to make any untrue statement of material fact or omit
to make any such statement necessary to make the statements made
not misleading; or (3) to engage in any act or practice
that operates as a fraud or deceit upon any person. The new
anti-manipulation rules apply to interstate gas pipelines and
storage companies and intrastate gas pipelines and storage
companies that provide interstate services, such as
Section 311 service, as well as otherwise
non-jurisdictional entities to the extent the activities are
conducted in connection with gas sales, purchases or
transportation subject to FERC jurisdiction. The new
anti-manipulation rules do not apply to activities that relate
only to intrastate or other non-jurisdictional sales or
gathering, but only to the extent such transactions do not have
a nexus to jurisdictional transactions. EPAct 2005
also amends the NGA and the NGPA to give FERC authority to
impose civil penalties for violations of these statutes, up to
$1,000,000 per day per violation for violations occurring after
August 8, 2005. In connection with this enhanced civil
penalty authority, FERC issued a policy statement on enforcement
to provide guidance regarding the enforcement of the statutes,
orders, rules and regulations it administers, including factors
to be considered in determining the appropriate enforcement
action to be taken. Should we fail to comply with all applicable
FERC-administered statutes, rule, regulations and orders, we
could be subject to substantial penalties and fines.
Gathering
pipeline regulation
Section 1(b) of the NGA exempts natural gas gathering
facilities from the jurisdiction of FERC. We believe that our
natural gas pipelines meet the traditional tests that FERC has
used to determine that a
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pipeline is a gathering pipeline and is, therefore, not subject
to FERC jurisdiction. The distinction between FERC-regulated
transmission services and federally unregulated gathering
services, however, is the subject of substantial, on-going
litigation, so the classification and regulation of our
gathering facilities are subject to change based on future
determinations by FERC, the courts or Congress. State regulation
of gathering facilities generally includes various safety,
environmental and, in some circumstances, nondiscriminatory take
requirements and complaint-based rate regulation. In recent
years, FERC has taken a more light-handed approach to regulation
of the gathering activities of interstate pipeline transmission
companies, which has resulted in a number of such companies
transferring gathering facilities to unregulated affiliates. As
a result of these activities, natural gas gathering may begin to
receive greater regulatory scrutiny at both the state and
federal levels. Our natural gas gathering operations could be
adversely affected should they be subject to more stringent
application of state or federal regulation of rates and
services. Our natural gas gathering operations also may be or
become subject to additional safety and operational regulations
relating to the design, installation, testing, construction,
operation, replacement and management of gathering facilities.
Additional rules and legislation pertaining to these matters are
considered or adopted from time to time. We cannot predict what
effect, if any, such changes might have on our operations, but
the industry could be required to incur additional capital
expenditures and increased costs depending on future legislative
and regulatory changes.
Our natural gas gathering operations are subject to ratable take
and common purchaser statutes in most of the states in which we
operate. These statutes generally require our gathering
pipelines to take natural gas without undue discrimination as to
source of supply or producer. These statutes are designed to
prohibit discrimination in favor of one producer over another
producer or one source of supply over another source of supply.
The regulations under these statutes can have the effect of
imposing some restrictions on our ability as an owner of
gathering facilities to decide with whom we contract to gather
natural gas. The states in which we operate have adopted a
complaint-based regulation of natural gas gathering activities,
which allows natural gas producers and shippers to file
complaints with state regulators in an effort to resolve
grievances relating to gathering access and rate discrimination.
We cannot predict whether such a complaint will be filed against
us in the future. Failure to comply with state regulations can
result in the imposition of administrative, civil and criminal
remedies. To date, there has been no adverse effect to our
system due to these regulations.
During the 2007 legislative session, the Texas State Legislature
passed H.B. 3273, or the Competition Bill, and
H.B. 1920, or the LUG Bill. The Texas Competition Bill and
LUG Bill contain provisions applicable to gathering facilities.
The Competition Bill allows the Railroad Commission of Texas, or
the TRRC, the ability to use either a cost-of-service method or
a market-based method for setting rates for natural gas
gathering in formal rate proceedings. It also gives the TRRC
specific authority to enforce its statutory duty to prevent
discrimination in natural gas gathering, to enforce the
requirement that parties participate in an informal complaint
process and to punish purchasers, transporters and gatherers for
taking discriminatory actions against shippers and sellers. The
LUG Bill modifies the informal complaint process at the TRRC
with procedures unique to lost and unaccounted for gas issues.
It extends the types of information that can be requested and
gives the TRRC the authority to make determinations and issue
orders in specific situations. Both the Competition Bill and the
LUG Bill became effective September 1, 2007. In
November 2007, the TRRC initiated rulemaking proceedings to
implement the TRRCs authority pursuant to the LUG Bill and
the Competition Bill. Comments were filed in December 2007,
but the TRRC has not yet adopted final rules. We cannot predict
what rules the TRRC will ultimately adopt or what effect, if
any, those rules might have on our natural gas gathering
operations.
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ENVIRONMENTAL
MATTERS
General
Our operation of pipelines, plants and other facilities for the
gathering, compressing, treating and transporting of natural gas
and other products is subject to stringent and complex federal,
state and local laws and regulations relating to the protection
of the environment. As an owner or operator of these facilities,
we must comply with these laws and regulations at the federal,
state and local levels. These laws and regulations can restrict
or impact our business activities in many ways, such as:
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requiring the installation of pollution-control equipment or
otherwise restricting the way we can handle or dispose of our
wastes;
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limiting or prohibiting construction activities in sensitive
areas, such as wetlands, coastal regions or areas inhabited by
endangered or threatened species;
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requiring investigatory and remedial actions to mitigate
pollution conditions caused by our operations or attributable to
former operations; and
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enjoining the operations of facilities deemed to be in
non-compliance with permits issued pursuant to such
environmental laws and regulations.
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Failure to comply with these laws and regulations may trigger a
variety of administrative, civil and criminal enforcement
measures, including the assessment of monetary penalties, the
imposition of remedial obligations and the issuance of orders
enjoining future operations or imposing additional compliance
requirements. Certain environmental statutes impose strict joint
and several liability for costs required to clean up and restore
sites where substances, hydrocarbons or wastes have been
disposed or otherwise released. Moreover, it is not uncommon for
neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by the
release of hazardous substances, hydrocarbons or other waste
products into the environment.
The trend in environmental regulation is to place more
restrictions and limitations on activities that may affect the
environment, and thus, there can be no assurance as to the
amount or timing of future expenditures for environmental
compliance or remediation and actual future expenditures may be
different from the amounts we currently anticipate. We try to
anticipate future regulatory requirements that might be imposed
and plan accordingly to remain in compliance with changing
environmental laws and regulations and to minimize the costs of
such compliance. We also actively participate in industry groups
that help formulate recommendations for addressing existing or
future regulations.
We do not believe that compliance with federal, state or local
environmental laws and regulations will have a material adverse
effect on our business, financial position or results of
operations or cash flows. In addition, we believe that the
various environmental activities in which we are presently
engaged are not expected to materially interrupt or diminish our
operational ability to gather, compress, treat and transport
natural gas. We cannot assure you, however, that future events,
such as changes in existing laws or enforcement policies, the
promulgation of new laws or regulations or the development or
discovery of new facts or conditions will not cause us to incur
significant costs. Below is a discussion of the material
environmental laws and regulations that relate to our business.
We believe that we are in substantial compliance with all of
these environmental laws and regulations.
Hazardous
substances and waste
Our operations are subject to environmental laws and regulations
relating to the management and release of hazardous substances,
solid and hazardous wastes and petroleum hydrocarbons. These
laws generally regulate the generation, storage, treatment,
transportation and disposal of solid and hazardous waste and may
impose strict joint and several liability for the investigation
and remediation of affected areas where hazardous substances may
have been released or disposed. For instance, the Comprehensive
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Environmental Response, Compensation, and Liability Act,
referred to as CERCLA or the Superfund law, and comparable state
laws impose liability, without regard to fault or the legality
of the original conduct, on certain classes of persons that
contributed to the release of a hazardous substance into the
environment. These persons include current and prior owners or
operators of the site where the release occurred and companies
that disposed or arranged for the disposal of the hazardous
substances found at the site. Under CERCLA, these persons may be
subject to joint and several strict liability for the costs of
cleaning up the hazardous substances that have been released
into the environment, for damages to natural resources and for
the costs of certain health studies. CERCLA also authorizes the
EPA and, in some instances, third parties to act in response to
threats to the public health or the environment and to seek to
recover the costs they incur from the responsible classes of
persons. It is not uncommon for neighboring landowners and other
third parties to file claims for personal injury and property
damage allegedly caused by hazardous substances or other
pollutants released into the environment. Despite the
petroleum exclusion of CERCLA Section 101(14),
which currently encompasses natural gas, we may nonetheless
handle hazardous substances within the meaning of CERCLA, or
similar state statutes, in the course of our ordinary operations
and, as a result, may be jointly and severally liable under
CERCLA for all or part of the costs required to clean up sites
at which these hazardous substances have been released into the
environment.
We also generate solid wastes, including hazardous wastes, that
are subject to the requirements of the Resource Conservation and
Recovery Act, referred to as RCRA, and comparable state
statutes. While RCRA regulates both solid and hazardous wastes,
it imposes strict requirements on the generation, storage,
treatment, transportation and disposal of hazardous wastes.
Certain petroleum production wastes are excluded from
RCRAs hazardous waste regulations. However, it is possible
that these wastes, which could include wastes currently
generated during our operations, will in the future be
designated as hazardous wastes and, therefore, be
subject to more rigorous and costly disposal requirements. Any
such changes in the laws and regulations could have a material
adverse effect on our maintenance capital expenditures and
operating expenses.
We currently own or lease, and our Predecessor has in the past
owned or leased, properties where hydrocarbons are being or have
been handled for many years. Although we have utilized operating
and disposal practices that were standard in the industry at the
time, hydrocarbons or other wastes may have been disposed of or
released on or under the properties owned or leased by us or on
or under the other locations where these hydrocarbons and wastes
have been transported for treatment or disposal. In addition,
certain of these properties have been operated by third parties
whose treatment and disposal or release of hydrocarbons and
other wastes was not under our control. These properties and the
wastes disposed thereon may be subject to CERCLA, RCRA and
analogous state laws. Under these laws, we could be required to
remove or remediate previously disposed wastes (including wastes
disposed of or released by prior owners or operators), to clean
up contaminated property (including contaminated groundwater) or
to perform remedial operations to prevent future contamination.
We are not currently aware of any facts, events or conditions
relating to such requirements that could materially impact our
operations or financial condition.
Air
emissions
Our operations are subject to the federal Clean Air Act and
comparable state laws and regulations. These laws and
regulations regulate emissions of air pollutants from various
industrial sources, including our compressor stations, and also
impose various monitoring and reporting requirements. Such laws
and regulations may require that we obtain pre-approval for the
construction or modification of certain projects or facilities
expected to produce or significantly increase air emissions,
obtain and strictly comply with air permits containing various
emissions and operational limitations and utilize specific
emission control technologies to limit emissions. Our failure to
comply with these requirements could subject us to monetary
penalties, injunctions, conditions or restrictions on operations
and,
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potentially, criminal enforcement actions. We believe that we
are in substantial compliance with these requirements. We may be
required to incur certain capital expenditures in the future for
air pollution control equipment in connection with obtaining and
maintaining operating permits and approvals for air emissions.
We believe, however, that our operations will not be materially
adversely affected by such requirements, and the requirements
are not expected to be any more burdensome to us than to any
other similarly situated companies.
Water
discharges
The Federal Water Pollution Control Act, or the Clean Water Act,
and analogous state laws impose restrictions and strict controls
regarding the discharge of pollutants into state waters as well
as waters of the U.S. The discharge of pollutants into regulated
waters is prohibited, except in accordance with the terms of a
permit issued by the EPA or an analogous state agency. Spill
prevention, control and countermeasure requirements of federal
laws require appropriate containment berms and similar
structures to help prevent the contamination of regulated waters
in the event of a hydrocarbon tank spill, rupture or leak. In
addition, the Clean Water Act and analogous state laws require
individual permits or coverage under general permits for
discharges of storm water runoff from certain types of
facilities. These permits may require us to monitor and sample
the storm water runoff from certain of our facilities. Some
states also maintain groundwater protection programs that
require permits for discharges or operations that may impact
groundwater conditions. Federal and state regulatory agencies
can impose administrative, civil and criminal penalties for
non-compliance with discharge permits or other requirements of
the Clean Water Act and analogous state laws and regulations. We
believe that compliance with existing permits and compliance
with foreseeable new permit requirements will not have a
material adverse effect on our financial condition, results of
operations or cash flow.
Endangered
species
The Endangered Species Act, or ESA, restricts activities that
may affect endangered or threatened species or their habitats.
While some of our pipelines may be located in areas that are
designated as habitats for endangered or threatened species, we
believe that we are in substantial compliance with the ESA.
However, the designation of previously unidentified endangered
or threatened species could cause us to incur additional costs
or become subject to operating restrictions or bans in the
affected states.
Global warming
and climate control
Recent scientific studies have suggested that emissions of
certain gases, commonly referred to as greenhouse
gases and including carbon dioxide and methane, may be
contributing to warming of the Earths atmosphere. In
response to such studies, the U.S. Congress is actively
considering legislation to reduce emissions of greenhouse gases.
One bill recently approved by the U.S. Senate Environment
and Public Works Committee, known as the Lieberman-Warner
Climate Security Act or S.2191, would require a 70% reduction in
emissions of greenhouse gases from sources within the United
States between 2012 and 2050. Debate and, possibly, a vote on
the bill by the full Senate is anticipated to occur in 2008. In
addition, at least 17 states have already taken legal
measures to reduce emissions of greenhouse gases, primarily
through the planned development of greenhouse gas emission
inventories
and/or
regional greenhouse gas cap and trade programs. Most of these
cap and trade programs work by requiring either major sources of
emissions, such as electric power plants, or major producers of
fuels, such as refineries and gas processing plants, to acquire
and surrender emission allowances. The number of allowances
available for purchase are reduced each year until the overall
greenhouse gas emission reduction goal is achieved. Depending on
the scope of a particular program, we could be required to
purchase and surrender allowances for greenhouse gas emissions
resulting from our operations (e.g., at compressor
stations) or from combustion of fuels we process. Although we
would not be impacted to a greater degree than other similarly
situated midstream transporters of natural gas, a stringent
108
Business
greenhouse gas control program could have an adverse effect on
our cost of doing business and could reduce demand for the
natural gas we process and transport.
Also, as a result of the U.S. Supreme Courts decision
on April 2, 2007 in Massachusetts, et al. v.
EPA and certain provisions of the Clean Air Act, the EPA may
regulate greenhouse gas emissions from mobile sources (e.g.,
cars and trucks) even if Congress does not adopt new legislation
specifically addressing emissions of greenhouse gases. The EPA
has publicly stated its goal of issuing a proposed rule to
address carbon dioxide and other greenhouse gas emissions from
vehicles and automobile fuels but the timing for issuance of
this proposed rule is unsettled as the agency reviews its
mandates under the Energy Independence and Security Act of 2007,
which includes expanding the use of renewable fuels and raising
the corporate average fuel economy standards. The Courts
holding in Massachusetts that greenhouse gases fall under
the federal Clean Air Acts definition of air
pollutant may also result in future regulation of of
carbon dioxide and other greenhouse gas emissions from
stationary sources under certain Clean Air Act programs.
Although the consequences of the Massachusetts decision
cannot be predicted with certainty, such regulation could take
the form of new federal standards that affect facilities with
greenhouse gas emissions, as well as possible consideration of
greenhouse gases during air permitting of facilities. New
federal or state restrictions on emissions of carbon dioxide and
other greenhouse gas emissions that may be imposed in areas of
the United States in which we conduct business could also have
an adverse effect on our cost of doing business and demand for
the natural gas we process and transport.
Anti-terrorism
measures
The Department of Homeland Security Appropriation Act of 2007
requires the Department of Homeland Security, or DHS, to issue
regulations establishing risk-based performance standards for
the security of chemical and industrial facilities, including
oil and gas facilities that are deemed to present high
levels of security risk. The DHS issued an interim final
rule in April 2007 regarding risk-based performance standards to
be attained pursuant to this act and, on November 20, 2007,
further issued an Appendix A to the interim rules that
establish chemicals of interest and their respective threshold
quantities that will trigger compliance with these interim
rules. Covered facilities that are determined by DHS to pose a
high level of security risk will be required to prepare and
submit Security Vulnerability Assessments and Site Security
Plans as well as comply with other regulatory requirements,
including those regarding inspections, audits, recordkeeping,
and protection of chemical-terrorism vulnerability information.
We have not yet determined the extent to which our facilities
are subject to coverage under the interim rules or the
associated costs to comply, but it is possible that such costs
could be substantial.
TITLE TO
PROPERTIES AND RIGHTS-OF-WAY
Our real property falls into two categories: (1) parcels
that we own in fee and (2) parcels in which our interest
derives from leases, easements, rights-of-way, permits or
licenses from landowners or governmental authorities, permitting
the use of such land for our operations. Portions of the land on
which our plants and other major facilities are located are
owned by us in fee title, and we believe that we have
satisfactory title to these lands. The remainder of the land on
which our plant sites and major facilities are located are held
by us pursuant to surface leases between us, as lessee, and the
fee owner of the lands, as lessors. We, or our predecessors,
have leased or owned these lands for many years without any
material challenge known to us relating to the title to the land
upon which the assets are located, and we believe that we have
satisfactory leasehold estates or fee ownership to such lands.
We have no knowledge of any challenge to the underlying fee
title of any material lease, easement, right-of-way, permit or
license held by us or to our title to any material lease,
easement, right-of-way, permit or lease, and we believe that we
have satisfactory title to all of our material leases,
easements, rights-of-way, permits and licenses.
109
Business
Some of the leases, easements, rights-of-way, permits and
licenses to be transferred to us at the close of this offering
require the consent of the grantor of such rights, which in
certain instances is a governmental entity. Our general partner
expects to obtain, prior to the closing of this offering,
sufficient third-party consents, permits and authorizations for
the transfer of the assets necessary to enable us to operate our
business in all material respects as described in this
prospectus. With respect to any material consents, permits or
authorizations that have not been obtained prior to the close of
this offering, the closing will not occur unless a reasonable
basis exists that permits our general partner to conclude that
such consents, permits or authorizations will be obtained within
a reasonable period following the closing, or the failure to
obtain such consents, permits or authorizations will have no
material adverse effect on the operation of our business.
Anadarko may initially continue to hold record title to portions
of certain assets until we make the appropriate filings in the
jurisdictions in which such assets are located and obtain any
consents and approvals that are not obtained prior to transfer.
Such consents and approvals would include those required by
federal and state agencies or political subdivisions. In some
cases, Anadarko may, where required consents or approvals have
not been obtained, temporarily hold record title to property as
nominee for our benefit and in other cases may, on the basis of
expense and difficulty associated with the conveyance of title,
cause its affiliates to retain title, as nominee for our
benefit, until a future date. We anticipate that there will be
no material change in the tax treatment of our common units
resulting from Anadarko holding the title to any part of such
assets subject to future conveyance or as our nominee.
EMPLOYEES
We do not have any employees. The officers of our general
partner will manage our operations and activities. As of
December 31, 2007, Anadarko employed approximately
117 people who will provide direct, full-time support to
our operations. All of the employees required to conduct and
support our operations will be employed by Anadarko and all of
our direct, full-time personnel are subject to a service and
secondment agreement between our general partner and Anadarko.
None of these employees are covered by collective bargaining
agreements, and Anadarko considers its employee relations to be
good.
LEGAL
PROCEEDINGS
We are not a party to any legal proceeding other than legal
proceedings arising in the ordinary course of our business. We
are a party to various administrative and regulatory proceedings
that have arisen in the ordinary course of our business. Please
read Regulation of operationsInterstate
transportation pipeline regulation and
Environmental matters.
110
Management
MANAGEMENT OF THE
PARTNERSHIP
Western Gas Holdings, LLC, our general partner, will manage our
operations and activities. Our general partner is not elected by
our unitholders and will not be subject to re-election in the
future. The directors of our general partner oversee our
operations. Unitholders will not be entitled to elect the
directors of our general partner or directly or indirectly
participate in our management or operations. However, our
general partner owes a fiduciary duty to our unitholders. There
are no existing arrangements pursuant to which a person has been
named as a member of the board of directors of our general
partner. Our general partner will be liable, as general partner,
for all of our debts (to the extent not paid from our assets),
except for indebtedness or other obligations that are made
specifically nonrecourse to it. Our general partner, therefore,
may cause us to incur indebtedness or other obligations that are
nonrecourse to it.
Our general partners board of directors has nine
directors, four of whom are independent as defined under
the independence standards established by the NYSE and the
Exchange Act. Our general partner has appointed
Messrs. Milton Carroll, Anthony R. Chase,
James R. Crane and David J. Tudor as our
independent directors. The NYSE does not require a listed
publicly traded partnership, such as ours, to have a majority of
independent directors on the board of directors of our general
partner or to establish a compensation committee or a nominating
committee.
Our general partners board of directors has established a
special committee to review specific matters that the board
believes may involve conflicts of interest (including certain
transactions with Anadarko). Messrs. Carroll, Chase, Crane
and Tudor are the initial members of the special committee. The
special committee will determine if the resolution of the
conflict of interest is fair and reasonable to us. The members
of the special committee may not be officers or employees of our
general partner or directors, officers, or employees of its
affiliates, including Anadarko, and must meet the independence
and experience standards established by the NYSE and the
Exchange Act to serve on an audit committee of a board of
directors, along with other requirements. Any matters approved
by the special committee will be conclusively deemed to be fair
and reasonable to us, approved by all of our partners and not a
breach by our general partner of any duties it may owe us or our
unitholders.
In addition, our general partners board of directors has
established an audit committee of three directors who meet the
independence and experience standards established by the NYSE
and the Exchange Act. Messrs. Chase, Crane and Tudor are
the initial members of the audit committee. The audit committee
will assist the board of directors in its oversight of the
integrity of our combined financial statements and our
compliance with legal and regulatory requirements and
partnership policies and controls. The audit committee will have
the sole authority to, among other things, (1) retain and
terminate our independent registered public accounting firm,
(2) approve all auditing services and related fees and the
terms thereof performed by our independent registered public
accounting firm, and (3) establish policies and procedures
for the pre-approval of all non-audit services and tax services
to be rendered by our independent registered public accounting
firm. The audit committee will also be responsible for
confirming the independence and objectivity of our independent
registered public accounting firm. Our independent registered
public accounting firm will be given unrestricted access to the
audit committee and our management, as necessary.
All of the executive officers of our general partner listed
below will manage and conduct our operations. The executive
officers of our general partner will allocate their time between
managing our business and affairs and the business and affairs
of Anadarko. The executive officers of our general partner may
face a conflict regarding the allocation of their time between
our business and the other business interests of Anadarko. We
expect that the officers of our general partner will initially
devote
111
Management
less than a majority of their time to our business, although we
expect the amount of time that they devote may increase or
decrease in future periods as our business develops. These
officers of our general partner and other Anadarko employees
will operate our business and provide us with general and
administrative services pursuant to the omnibus agreement and
the services and secondment agreement described in Certain
relationships and related party transactionsAgreements
governing the transactionsServices and secondment
agreement. We will reimburse Anadarko for allocated
expenses of operational personnel who perform services for our
benefit, and certain direct expenses.
Our general partner will not receive any management fee or other
compensation for its management of our partnership under the
omnibus agreement, the services and secondment agreement or
otherwise. Under the omnibus agreement, our reimbursement to
Anadarko for certain general and administrative expenses it
allocates to us will be capped at $6.0 million annually
through December 31, 2009, subject to adjustments to
reflect changes in the Consumer Price Index and, with the
concurrence of the special committee of our general
partners board of directors, to reflect expansions of our
operations through the acquisition or construction of new assets
or businesses. Thereafter, our general partner will determine
the general and administrative expenses to be reimbursed by us
in accordance with our partnership agreement. The cap contained
in the omnibus agreement does not apply to incremental general
and administrative expenses we expect to incur or be allocated
to us as a result of becoming a publicly traded partnership. We
currently expect those expenses to be approximately
$2.5 million per year. Please read Certain
relationships and related party transactionsAgreements
governing the transactionsOmnibus agreement.
DIRECTORS AND
EXECUTIVE OFFICERS
The following table shows information regarding the current
executive officers and directors of our general partner.
Directors are appointed for a term of one year.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position with
Western Gas Holdings, LLC
|
|
|
Robert G. Gwin
|
|
|
44
|
|
|
President, Chief Executive Officer and Director
|
Michael C. Pearl
|
|
|
36
|
|
|
Senior Vice President and Chief Financial Officer
|
Danny J. Rea
|
|
|
49
|
|
|
Senior Vice President, Chief Operating Officer and Director
|
Amanda M. McMillian
|
|
|
35
|
|
|
Vice President, General Counsel and Corporate Secretary
|
Jeremy M. Smith
|
|
|
35
|
|
|
Vice President and Treasurer
|
R.A. Walker
|
|
|
51
|
|
|
Chairman of the Board and Director
|
Milton Carroll
|
|
|
57
|
|
|
Director
|
Anthony R. Chase
|
|
|
53
|
|
|
Director
|
James R. Crane
|
|
|
54
|
|
|
Director
|
Karl F. Kurz
|
|
|
46
|
|
|
Director
|
Robert K. Reeves
|
|
|
50
|
|
|
Director
|
David J. Tudor
|
|
|
49
|
|
|
Director
|
Our directors hold office until their successors shall have been
duly elected and qualified or until the earlier of their death,
resignation, removal or disqualification. Officers serve at the
discretion of the board of directors. There are no family
relationships among any of our directors or executive officers.
Robert G. Gwin has served as President and Chief
Executive Officer and as a director of our general partner since
August 2007 and as Senior Vice President of Anadarko since March
2008. He previously served as Vice President, Finance and
Treasurer of Anadarko since January 2006. Prior to joining
Anadarko, he served as Chief Executive Officer of Community
Broadband Ventures, LP from November 2004 to January 2006. Prior
to this position, he was with Prosoft Learning Corporation,
serving as Chairman and Chief Executive Officer from November
2002 to November 2004 and Chief Financial Officer from 2000 to
November 2002. In April 2006, to facilitate its acquisition by
another company,
112
Management
Prosoft filed a prepackaged voluntary plan of reorganization.
Previously, Mr. Gwin spent 10 years at Prudential
Capital Group in merchant banking roles of increasing
responsibility, including serving as Managing Director with
responsibility for the firms energy investments worldwide.
Mr. Gwin holds a Bachelor of Science degree from the
University of Southern California and a Master of Business
Administration degree from the Fuqua School of Business at Duke
University, and he is a Chartered Financial Analyst.
Michael C. Pearl has served as Senior Vice President and
Chief Financial Officer of our general partner since August 2007
and as Director, Corporate Tax of Anadarko since August 2006.
Prior to this position, he served as corporate tax manager for
Anadarko from September 2004 to August 2006. Prior to joining
Anadarko, Mr. Pearl joined Ernst & Young LLP in
1995, where he held positions of increasing responsibility,
including senior manager, and advised multinational energy
companies on structured acquisitions, divestitures, and
financings, including advising on partnership taxation and
accounting matters. He holds a Bachelor of Business
Administration degree and a Master of Science degree in
Accounting from Texas A&M University and is a Certified
Public Accountant.
Danny J. Rea has served as Senior Vice President and
Chief Operating Officer and as a director of our general partner
since August 2007 and as Vice President, Midstream of Anadarko
since May 2007. Previously, Mr. Rea served as Manager,
Midstream Services from May 2004 to May 2007 and Manager, Gas
Field Services from August 2000 to May 2007. Mr. Rea joined
Anadarko as an engineer in 1981 and has held positions of
increasing responsibility over his 26 years with the
Company. He holds a Bachelor of Science degree in petroleum
engineering from Louisiana Tech University, and a Master of
Business Administration degree from the University of Houston.
He currently serves on the board of directors for the Wyoming
Pipeline Authority and is a member of the Gas Processors
Association and the Society of Petroleum Engineers.
Amanda M. McMillian has served as Vice President, General
Counsel and Corporate Secretary of our general partner since
January 2008 and as Senior Counsel of Anadarko since January
2008. She joined Anadarko as Counsel in December 2004. Prior to
joining Anadarko, she practiced corporate and securities law at
the law firm of Akin Gump Strauss Hauer & Feld LLP.
She holds a Bachelor of Arts degree from Southwestern University
and Master of Arts and Juris Doctor degrees from Duke University.
Jeremy M. Smith has served as Vice President and
Treasurer of our general partner since August 2007 and as
Assistant Treasurer, Corporate Finance of Anadarko since July
2006. Prior to joining Anadarko, he served as Assistant
Treasurer to Plains Exploration & Production Company
from June 2003 to June 2006 and as Assistant Treasurer of 3TEC
Energy Corporation from May 2000 until its sale to Plains
Exploration & Production Company in June 2003.
Mr. Smith holds a Bachelor of Arts degree in Economics from
Rice University, a Master of Science degree in Accounting from
Texas A&M University and a Master of Business
Administration degree from Rice University, and he is a
Chartered Financial Analyst.
R.A. Walker has served as non-executive Chairman of the
Board and as a director of our general partner since August 2007
and as Senior Vice President, Finance and Chief Financial
Officer of Anadarko since 2005. Prior to joining Anadarko, he
was a Managing Director for the Global Energy Group of UBS
Investment Bank from 2003 to 2005 and was President, Chief
Financial Officer and a director of 3TEC Energy Corporation from
2000 to 2003, until its sale to Plains Exploration. From 1987 to
2000, he worked for Prudential Financial in a variety of
merchant banking positions, including Senior Managing Director
and co-head of Prudential Capital at the time of his departure.
Mr. Walker has served on the boards of directors of
numerous publicly traded companies, including TEPPCO Partners,
L.P. (a NYSE-listed publicly traded partnership) where he served
as chairman of the audit committee. Mr. Walker holds
Bachelor of Science and Master of Business Administration
degrees from the University of Tulsa.
Milton Carroll has served as a director of our general
partner and as Chairman of the special committee of the board of
directors since April 2008. Mr. Carroll currently serves as
Chairman of Houston-based
113
Management
CenterPoint Energy, Inc., where he has been a director since
1992. Mr. Carroll is Chairman and founder of Instrument
Products, Inc., an oil-tool manufacturing company in Houston,
Texas. He also serves as Chairman of Health Care Services
Corporation (a Chicago-based company operating through its Blue
Cross and Blue Shield divisions in Illinois, Texas, Oklahoma and
New Mexico) and is a director of Halliburton Company.
Mr. Carroll holds a Bachelor of Science degree in
Industrial Technology from Texas Southern University.
Anthony R. Chase has served as a director of our general
partner and as a member of the special and audit committees of
the board of directors since April 2008. Since 1991,
Mr. Chase has been a Professor of Law at the University of
Houston. He most recently served as the Chairman and Chief
Executive Officer of ChaseCom, a global customer relationship
management and staffing services company until its sale in 2007
to AT&T. Mr. Chase currently serves on the board of
directors of Cornell Companies and as Vice Chairman of the
Federal Reserve Bank of Dallas. Mr. Chase holds a Bachelor
of Arts, Masters of Business Administration and Juris Doctor
degrees from Harvard University.
James R. Crane has served as a director of our general
partner and as a member of the special and audit committees of
the board of directors since April 2008. Mr. Crane is
currently Chairman and Chief Executive of Crane Capital Group
and most recently was Founder, Chairman and Chief Executive
Officer of EGL, Inc., a NASDAQ-listed global transportation,
supply chain management and information services company based
in Houston, TX, from 1984 until its sale in August 2007.
Mr. Crane holds a Bachelor of Science degree in Industrial
Safety from the University of Central Missouri.
Karl F. Kurz has served as a director of our general
partner since August 2007 and as Chief Operating Officer of
Anadarko since December 2006. Prior to joining Anadarko,
Mr. Kurz worked for Atlantic Richfield Corporation and
Vastar Resources, Inc. in various positions of increasing
responsibilities in the engineering, marketing, and midstream
areas. He began his employment at Anadarko in 2000, and has
served in positions of increasing responsibility since that
time, including Senior Vice President, Marketing &
General Manager U.S. Onshore, Vice President Marketing, and
Manager Energy Marketing. Mr. Kurz graduated magna cum
laude with a Bachelors of Science in Petroleum Engineering from
Texas A&M University. He currently serves on the Board of
the American Petroleum Institute and the Independent Petroleum
Association of America. He previously served on the board of the
Natural Gas Supply Association and is a registered engineer in
the state of Texas.
Robert K. Reeves has served as a director of our general
partner since August 2007 and as Senior Vice President, General
Counsel and Chief Administrative Officer of Anadarko since
February 2007. He previously served as Senior Vice President,
Corporate Affairs & Law and Chief Governance Officer
beginning in 2004. He has also served as a director of Key
Energy Services, Inc., a publicly traded oil field services
company, since October 2007. Prior to joining Anadarko, he
served as Executive Vice President, Administration and General
Counsel of North Sea New Ventures from 2003 to 2004 and as
Executive Vice President, General Counsel and Secretary of Ocean
Energy, Inc. and its predecessor companies from 1997 to 2003.
Mr. Reeves holds a Bachelor of Science degree in Business
Administration and a Juris Doctor degree from Louisiana State
University.
David J. Tudor has served as a director of our general
partner and as Chairman of the audit committee and a member of
the special committee of the board of directors since April
2008. Since 1999, Mr. Tudor has been the President and
Chief Executive Officer of ACES Power Marketing, an
Indianapolis-based commodity risk management company owned by 16
Generation and Transmission Cooperatives throughout the United
States. Prior to joining ACES Power Marketing, Mr. Tudor
was the Executive Vice President & Chief Operating
Officer of PG&E Energy Trading, where he managed commercial
operations in the United States and Canada. He also currently
serves as a director of Wabash Valley Power Associations
Board Risk Oversight Committee. Mr. Tudor holds a Bachelor
of Science degree in Accounting from David Lipscomb University.
114
Management
EXECUTIVE
COMPENSATION
We and our general partner were formed in August 2007 and we
expect to complete our initial public offering in 2008.
Accordingly, our general partner has not accrued any obligations
with respect to management incentive or retirement benefits for
our directors and officers for the fiscal year ended
December 31, 2007, or for any prior periods. Because the
executive officers of our general partner are employees of
Anadarko, compensation other than the long-term incentive plan
benefits described below will be determined and paid by
Anadarko. The officers of our general partner, as well as the
employees of Anadarko who provide services to us, may
participate in employee benefit plans and arrangements sponsored
by Anadarko, including plans that may be established in the
future. Our general partner has not entered into any employment
agreements with any of our officers. The board of directors of
our general partner has granted to the executive officers of our
general partner the following incentive unit awards under the
general partners equity incentive plan, which have an
aggregate initial value of $2.5 million: Mr. Gwin,
20,000 units; Mr. Pearl, 10,000 units;
Mr. Rea, 10,000 units; Ms. McMillian,
5,000 units; and Mr. Smith, 5,000 units. The
units will vest and become payable upon the occurrence of
certain events as described below. In connection with the
closing of this offering, the board of directors of our general
partner has granted awards to our outside directors pursuant to
the long-term incentive plan described below.
DIRECTOR
COMPENSATION
Officers or employees of Anadarko who also serve as directors of
our general partner will not receive additional compensation for
their service as a director of our general partner.
Non-employee
directors of Anadarko will receive compensation for their board
service and for attending meetings of the board of directors of
our general partner and committees of the board pursuant to the
director compensation plan approved by the board of directors in
April 2008. Such compensation will consist of an annual retainer
of $40,000 for each board member, an annual retainer of $2,000
for each member of each committee, a fee of $2,000 for each
board meeting attended and an additional fee of $2,000 for each
committee meeting attended. The chairman of the audit and
special committees will each receive an additional annual
retainer of $15,000. The
non-employee
directors will also receive an initial grant of phantom units
with a value of $125,000, with annual grants thereafter of
phantom units with a value of $70,000, all of which will vest
100% on the first anniversary of the date of grant (with vesting
to be accelerated upon a change of control of our general
partner or Anadarko). In addition, each non-employee director
will be reimbursed for out-of-pocket expenses in connection with
attending meetings of the board of directors or committees. Each
director will be fully indemnified by us, pursuant to individual
indemnification agreements and our partnership agreement, for
actions associated with being a director to the fullest extent
permitted under Delaware law.
COMPENSATION
DISCUSSION AND ANALYSIS
Overview
We do not directly employ any of the persons responsible for
managing our business, and we do not have a compensation
committee. Western Gas Holdings, LLC, our general partner, will
manage our operations and activities, and its board of directors
and officers will make decisions on our behalf.
Some of the officers of our general partner also serve as
officers of Anadarko. The compensation of Anadarkos
employees that perform services on our behalf (other than the
long-term incentive plan benefits described below), including
our executive officers, will be approved by Anadarkos
management. Awards under our long-term incentive plan will be
recommended by Anadarkos management and approved by the
board of directors of our general partner. Our reimbursement for
the compensation of executive officers is governed by, and
subject to the limitations contained in, the omnibus agreement
and will be based on Anadarkos methodology used for
allocating general and administrative expenses to us. Under the
omnibus agreement, our reimbursement of certain general and
115
Management
administrative expenses will be capped at $6.0 million
annually through December 31, 2009, subject to adjustment
to reflect changes in the Consumer Price Index and, with the
concurrence of the special committee of our general
partners board of directors, to reflect expansions of our
operations through the acquisition or construction of new assets
or businesses. Thereafter, our general partner will determine
the general and administrative expenses to be reimbursed by us
in accordance with our partnership agreement. The cap contained
in the omnibus agreement does not apply to incremental general
and administrative expenses we expect to incur or be allocated
to us as a result of becoming a publicly traded partnership. We
currently expect those expenses to be approximately
$2.5 million per year. Please read Certain
relationships and related party transactionsAgreements
governing the transactionsOmnibus agreement.
As previously discussed, our general partner has not accrued any
obligations with respect to management incentive or retirement
benefits for its directors and officers for the fiscal year
ended December 31, 2007, or for any prior periods.
Accordingly, we are not presenting any compensation for
historical periods. Following the consummation of this offering,
we expect that the most highly compensated executive officers of
our general partner for 2008 will be Robert G. Gwin (the
principal executive officer), Michael C. Pearl (the principal
financial officer and principal accounting officer), Danny J.
Rea (the principal operating officer), Amanda M. McMillian
and Jeremy M. Smith (collectively, the named
executive officers). We expect that the named executive
officers will have less than a majority of their total
compensation allocated to us as compensation expense in 2008.
Compensation paid or awarded by us in 2008 with respect to the
named executive officers will reflect only the portion of
compensation expense that is allocated to us pursuant to
Anadarkos allocation methodology and subject to the terms
of the omnibus agreement. Anadarko has the ultimate
decision-making authority with respect to the total compensation
of the named executive officers and, subject to the terms of the
omnibus agreement, the portion of such compensation that is
allocated to us pursuant to Anadarkos allocation
methodology. The following discussion relating to compensation
paid by Anadarko is based on information provided to us by
Anadarko and does not purport to be a complete discussion and
analysis of Anadarkos executive compensation philosophy
and practices. The elements of compensation discussed below, and
Anadarkos decisions with respect to the levels of such
compensation, will not be subject to approvals by the board of
directors of our general partner, including the audit or special
committee thereof. Awards under our long-term incentive plan to
our general partners independent, non-management directors
will be made by the board of directors of our general partner.
Anadarkos
executive compensation program design, principles and
process
Anadarkos executive compensation program is designed to
adhere to the following principles:
|
|
Ø |
a majority of total executive compensation must be in the form
of equity compensation tied to Anadarkos stock price
performance;
|
|
|
Ø |
Anadarkos executives should maintain significant levels of
equity ownership;
|
|
|
Ø |
total executive compensation must provide an appropriate mix of
both fixed and variable compensation to support a strong
pay-for-performance relationship;
|
|
|
Ø |
Anadarkos performance-based compensation programs must be
tied to performance measures that emphasize an increase in
stockholder value over time;
|
|
|
Ø |
a meaningful portion of compensation should be forfeitable upon
voluntary termination to encourage sustained executive retention;
|
|
|
Ø |
total compensation opportunity and awards should be reflective
of each executive officers role, experience level and
individual contribution to the organization; and
|
116
Management
|
|
Ø |
Anadarkos executives must also be motivated to contribute
as team members to Anadarkos overall success, as opposed
to merely achieving specific individual objectives.
|
Anadarko establishes target total compensation levels for each
executive officer, which are generally designed to place
Anadarkos executive compensation at or near the top
quartile as compared to an Anadarko industry peer group, if
Anadarko performance exceeds that of its peers and individual
performance targets are achieved. In addition, in setting total
compensation levels of each executive officer, Anadarko compares
target compensation levels among each of its executive officers
to ensure they are appropriate when considering each
executives role, experience level and contribution to the
organization. In the case of our executive officers, we would
expect Anadarko to take into account the additional duties, as
applicable, our executive officers will assume in connection
with their roles as officers of our general partner.
With respect to compensation objectives and decisions regarding
the named executive officers for 2008, we anticipate that
Anadarkos management will review market data for
determining relevant compensation levels and compensation
program elements. In addition, Anadarkos management may
review and, in certain cases, participate in, various relevant
compensation surveys and consult with compensation consultants
with respect to determining 2008 compensation for our named
executive officers. All compensation determinations are
discretionary and, as noted above, subject to Anadarkos
decision-making authority.
Elements of
compensation
The primary elements of Anadarkos compensation program are
a combination of annual cash and long-term equity-based
compensation. For 2008, the principal elements of compensation
for the named executive officers are expected to be the
following:
|
|
Ø |
annual cash incentives;
|
|
|
Ø |
equity-based compensation, which may include equity-based
compensation under Anadarkos 1999 Stock Incentive Plan,
the Western Gas Partners, LP 2008 Long-Term Incentive Plan and
the Western Gas Holdings, LLC Equity Incentive Plan; and
|
|
|
Ø |
Anadarkos other benefits, including welfare and retirement
benefits, perquisites, severance benefits and change of control
benefits, plus other benefits on the same basis as other
eligible Anadarko employees.
|
Base Salary. Anadarkos management is
expected to establish base salaries for our named executive
officers based on the historical salaries for services rendered
to Anadarko, competitive market data and responsibilities of our
named executive officers that may or may not be related to our
business. As discussed above, a portion of the base salaries of
our named executive officers will be allocated to us based on
Anadarkos methodology used for allocating general and
administrative expenses, subject to the limitations in the
omnibus agreement.
Annual Cash Incentives
(Bonuses). Anadarkos management may award
annual cash awards to our named executive officers in 2008 under
Anadarkos Annual Incentive Plan. Annual cash incentive
awards are used by Anadarko to motivate and reward executives
for the achievement of short-term Anadarko objectives and/or
individual performance goals. The plan puts a portion of an
executives compensation at risk by linking potential
annual compensation to Anadarkos achievement of specific
performance metrics during the year related to operational,
financial and safety measures internal to Anadarko. Executives
may receive up to 200% of their individual bonus target if
Anadarko significantly exceeds the specified performance metrics
and, conversely, no bonus is paid if Anadarko does not achieve a
minimum threshold level of performance. For certain of our
officers who are also officers of Anadarko, actual bonus awards
are determined by the compensation and benefits committee, or
compensation committee, of Anadarkos board of directors
according to Anadarkos and each named
117
Management
executive officers level of achievement against the
established performance metrics. The bonus targets are intended
to provide a designated level of compensation opportunity when
the executive officers achieve their specified performance
metrics as approved by Anadarkos compensation committee.
The portion of any annual cash awards allocable to us will be
based on Anadarkos methodology used for allocating general
and administrative expenses, subject to the limitations
established in the omnibus agreement. Anadarkos general
policy is to pay these awards during the first quarter of each
calendar year.
Long-Term Incentive Awards Under Anadarkos 1999 Stock
Incentive Plan. Anadarko periodically makes
equity-based awards under its 1999 Stock Incentive Plan (or any
successor plan) to align the interests of its executive officers
with those of Anadarko shareholders by emphasizing the long-term
growth in Anadarkos value. For 2007, the annual equity
awards consisted of a combination of (1) stock options,
(2) time-based restricted stock and restricted stock units,
and/or (3) performance unit awards. This award structure is
intended to provide a combination of equity-based vehicles that
is performance-based in absolute and relative terms, while also
encouraging retention. In addition, the use of performance unit
awards and restricted shares enables Anadarko to better manage
its stock dilution.
Our Long-Term Incentive Plan. Our general
partner has adopted a long-term incentive plan for the employees
and directors of our general partner and the employees of its
affiliates, including Anadarko, who perform services for us. The
long-term incentive plan provides for the grant of unit awards,
restricted units, phantom units, unit options, unit appreciation
rights, distribution equivalent rights and substitute awards.
For a more detailed description of this plan, please read
Long-term incentive plan. Any equity-based
awards to our executive officers and the directors of our
general partner are intended to align their long-term interests
with those of our unitholders.
Our General Partners Equity Incentive
Plan. Our general partner has adopted an equity
incentive plan for the executive officers of our general
partner. The incentive unit awards made under this plan are
designed to provide incentive compensation to encourage superior
performance. For a more detailed description of this plan,
please read, Western Gas Holdings, LLC Equity
Incentive Plan.
Other Benefits. In addition to the
compensation discussed above, Anadarko also provides other
benefits to certain of our executive officers who are also
executive officers of Anadarko, including:
|
|
Ø
|
retirement benefits to match competitive practices in
Anadarkos industry, including the Anadarko Employee
Savings Plan, Anadarkos Savings Restoration Plan, and the
Anadarko Retirement Plan and Retirement Restoration Plan;
|
|
Ø
|
severance benefits under the Anadarko Severance Plan or the
Anadarko Officer Severance Plan, as applicable;
|
|
Ø
|
certain change of control benefits under key employee change of
control contracts or key manager change of control contracts;
|
|
Ø
|
director and officer indemnification agreements;
|
|
Ø
|
a limited number of perquisites, including financial counseling,
tax preparation and estate planning, an executive physical
program, management disability insurance, and personal excess
liability insurance; and
|
|
Ø
|
medical, dental, vision, flexible spending accounts, life
insurance and disability coverage, which are also provided to
all other eligible
U.S.-based
Anadarko employees.
|
For a more detailed summary of Anadarkos executive
compensation program and the benefits provided thereunder,
please read Compensation Discussion and Analysis in
Anadarkos proxy statement for its annual meeting of
stockholders, which was filed with the SEC on March 31,
2008.
118
Management
Role of executive
officers in executive compensation
Anadarkos management determines the compensation (other
than the long-term incentive plan benefits described above)
payable to each of our named executive officers. The board of
directors of our general partner determines compensation for the
independent, non-management directors of our general
partners board of directors.
Compensation
mix
We believe that the mix of base salary, cash awards, awards
under Anadarkos stock incentive plan, our long-term
incentive plan and our general partners equity incentive
plan, and other compensation fit Anadarkos and our overall
compensation objectives. We believe this mix of compensation
provides competitive compensation opportunities to align and
drive employee performance in support of Anadarkos
business strategies, as well as our own, and to attract,
motivate and retain high quality talent with the skills and
competencies required by Anadarko and us.
LONG-TERM
INCENTIVE PLAN
General
Our general partner has adopted the Western Gas Partners, LP
2008 Long-Term Incentive Plan, which we refer to as the Plan,
for employees and directors of our general partner and its
affiliates, including Anadarko, who perform services for us. The
summary of the Plan contained herein does not purport to be
complete and is qualified in its entirety by reference to the
Plan. The Plan provides for the grant of unit awards, restricted
units, phantom units, unit options, unit appreciation rights,
distribution equivalent rights and substitute awards. Subject to
adjustment for certain events, an aggregate of
2,250,000 common units may be delivered pursuant to awards
under the Plan. Units that are cancelled, forfeited or are
withheld to satisfy our general partners tax withholding
obligations or payment of an awards exercise price are
available for delivery pursuant to other awards. The Plan will
be administered by our general partners board of
directors. The Plan has been designed to promote the interests
of the partnership and its unitholders by strengthening its
ability to attract, retain and motivate qualified individuals to
serve as directors and employees.
Unit
awards
Our general partners board of directors may grant unit
awards to eligible individuals under the Plan. A unit award is
an award of common units that are fully vested upon grant and
are not subject to forfeiture.
Restricted units
and phantom units
A restricted unit is a common unit that is subject to
forfeiture. Upon vesting, the forfeiture restrictions lapse and
the recipient holds a common unit that is not subject to
forfeiture. A phantom unit is a notional unit that entitles the
grantee to receive a common unit upon the vesting of the phantom
unit or, in the discretion of our general partners board
of directors, cash equal to the fair market value of a common
unit. Our general partners board of directors may make
grants of restricted and phantom units under the Plan that
contain such terms, consistent with the Plan, as the board may
determine are appropriate, including the period over which
restricted or phantom units will vest. The board may, in its
discretion, base vesting on the grantees completion of a
period of service or upon the achievement of specified financial
objectives or other criteria. In addition, the restricted and
phantom units will vest automatically upon a change of control
of our general partner (as defined in the Plan) or as otherwise
described in the award agreement. Our general partners
board of directors has approved phantom unit grants to each of
Messrs. Carroll, Chase, Crane and Tudor in connection with
their election to the board. The phantom units will be granted
upon the initial public offering of the Partnership and will
119
Management
have an aggregate value of $125,000. The actual number of units
awarded under this grant will be determined by dividing the
aggregate value by the initial public offering price. These
phantom units will vest on the first anniversary of the date of
grant and will have tandem distribution equivalent rights.
If a grantees employment or membership on the board of
directors terminates for any reason, the grantees
restricted and phantom units will be automatically forfeited
unless and to the extent that the award agreement or the board
provides otherwise.
Distributions made by us with respect to awards of restricted
units may, in the boards discretion, be subject to the
same vesting requirements as the restricted units. The board, in
its discretion, may also grant tandem distribution equivalent
rights with respect to phantom units.
We intend for the restricted and phantom units granted under the
Plan to serve as a means of incentive compensation for
performance and not primarily as an opportunity to participate
in the equity appreciation of the common units. Therefore,
participants will not pay any consideration for the common units
they receive with respect to these types of awards, and neither
we nor our general partner will receive remuneration for the
units delivered with respect to these awards.
Unit options and
unit appreciation rights
The Plan also permits the grant of options covering common units
and unit appreciation rights. Unit options represent the right
to purchase a number of common units at a specified exercise
price. Unit appreciation rights represent the right to receive
the appreciation in the value of a number of common units over a
specified exercise price, either in cash or in common units as
determined by the board. Unit options and unit appreciation
rights may be granted to such eligible individuals and with such
terms as the board may determine, consistent with the Plan;
however, a unit option or unit appreciation right must have an
exercise price greater than or equal to the fair market value of
a common unit on the date of grant.
Distribution
equivalent rights
Distribution equivalent rights are rights to receive all or a
portion of the distributions otherwise payable on units during a
specified time. Distribution equivalent rights may be granted
alone or in combination with another award.
Source of common
units; cost
Common units to be delivered with respect to awards may be
newly-issued units, common units acquired by our general partner
in the open market, common units already owned by our general
partner or us, common units acquired by our general partner
directly from us or any other person or any combination of the
foregoing. Our general partner will be entitled to reimbursement
by us for the cost incurred in acquiring such common units. With
respect to unit options, our general partner will be entitled to
reimbursement from us for the difference between the cost it
incurs in acquiring these common units and the proceeds it
receives from an optionee at the time of exercise. Thus, we will
bear the cost of the unit options. If we issue new common units
with respect to these awards, the total number of common units
outstanding will increase, and our general partner will remit
the proceeds it receives from a participant, if any, upon
exercise of an award to us. With respect to any awards settled
in cash, our general partner will be entitled to reimbursement
by us for the amount of the cash settlement.
Amendment or
termination of long-term incentive plan
Our general partners board of directors, in its
discretion, may terminate the Plan at any time with respect to
the common units for which a grant has not previously been made.
The Plan will
120
Management
automatically terminate on the earlier of the
10th anniversary of the date it was initially adopted by
our general partner or when common units are no longer available
for delivery pursuant to awards under the Plan. Our general
partners board of directors will also have the right to
alter or amend the Plan or any part of it from time to time or
to amend any outstanding award made under the Plan; provided,
however, that no change in any outstanding award may be made
that would materially impair the rights of the participant
without the consent of the affected participant, and/or result
in taxation to the participant under Section 409A of the
Code unless otherwise determined by the general partners
board of directors.
WESTERN GAS
HOLDINGS, LLC EQUITY INCENTIVE PLAN
General
Our general partner has adopted an Equity Incentive Plan, which
we refer to as the Incentive Plan, for the executive officers of
our general partner. The summary of the Incentive Plan and
related award grants contained herein does not purport to be
complete and is qualified in its entirety by reference to the
Incentive Plan and the form of award agreement which are filed
as exhibits to the registration statement of which this
prospectus forms a part. The Incentive Plan provides for the
grant of incentive units. Subject to adjustment for certain
events, an aggregate of 100,000 incentive units may be delivered
pursuant to awards under the Incentive Plan. Incentive units
that are forfeited, cancelled, or otherwise terminated or
expired without payment are available for grant pursuant to
other awards made under the Incentive Plan. The Incentive Plan
will be administered by our general partners board of
directors. The Plan has been designed to provide to key
executives of the general partner incentive compensation to
encourage superior performance of the partnership and the
general partner. The costs of these awards will be allocated
within and subject to the reimbursement provisions of the
omnibus agreement.
Incentive unit
awards
Our general partners board of directors may grant
incentive unit awards to eligible individuals under the
Incentive Plan. An incentive unit represents a notional unit
granted under the Incentive Plan which is equivalent in value to
a fractional membership interest in our general partner and,
upon vesting, entitles the participant to receive in the future
an amount of cash equivalent to such membership interest in our
general partner. Our general partners board of directors
has the authority to determine the executives to whom incentive
units may be granted, the number of incentive units to be
granted to each participant, the period over and the conditions,
if any, under which the incentive units may become vested or
forfeited, and such other terms and conditions as the board may
establish with respect to such awards.
The number of incentive units outstanding will be adjusted by
our general partners board of directors upon certain
changes in capitalization to prevent the valuation dilution or
enlargement of potential benefits intended to be provided with
respect to awards granted under the Incentive Plan; provided,
however, that no change in any outstanding award made as a
result of a change in capitalization may materially impair the
rights of the participant without the consent of the affected
participant.
Unless otherwise provided in the award agreement, termination of
a participants employment with Anadarko shall cause all of
such participants unvested awards under the Incentive Plan
to be forfeited upon termination. However, the general
partners board of directors may, in its discretion, waive
in whole or in part such forfeiture.
Vesting of
incentive unit awards
Our general partners board of directors has the authority
to determine the restrictions and vesting provisions for any
incentive unit awards. The initial awards under the Incentive
Plan provide for vesting and payout in the form of a lump-sum
cash payment (less any applicable withholding taxes) upon the
121
Management
occurrence of certain time-based vesting and other events,
including: (1) a change of control of the general partner
or Anadarko; (2) termination of employment with the general
partner and its affiliates (including Anadarko) due to
involuntary termination, death, or disability as defined in the
plan; (3) the closing of an initial public offering of the
general partner; (4) certain specified dates as determined
by our general partners board of directors and set forth
in an award agreement; or (5) such other time as our
general partners board of directors, in its sole
discretion, may determine. The incentive units may not be sold
or transferred except to the general partner, Anadarko or any of
their affiliates.
Distribution
equivalent rights
Incentive unit grants will also include an equal number of
distribution equivalent rights, which will entitle the holder to
receive with respect to each incentive unit awarded an amount in
cash or incentive units equal in value to the distributions made
by our general partner to its members during the period an award
is outstanding. These distribution equivalent rights will be
subject to the same vesting requirements as the incentive units
with which such distribution equivalent rights are associated.
Valuation of
incentive unit awards
Our general partners board of directors will from time to
time determine, in its sole discretion, the value of incentive
units using a discounted cash flow formula. The board may elect
to consult third parties to assist in such valuation. Factors
the board may use in reaching its determination may include,
without limitation, growth in the distribution per common unit
of the partnership, the illiquidity of the general partner, the
value of incentive distribution rights, the interest rate
environment, and general market conditions.
Amendment or
termination of Incentive Plan
Our general partners board of directors, in its
discretion, may amend or terminate the Incentive Plan at any
time with respect to the incentive units, including increasing
the number of incentive units available for awards under the
Incentive Plan, without the consent of the participants. The
board may also waive any conditions, rights or terms under any
award under this plan, provided that no change in any award
under the plan will materially reduce the benefit to a
participant in the plan without such participants consent.
The Incentive Plan will terminate on the date termination is
approved by our general partners board of directors or
when all incentive units available under the Incentive Plan have
been paid to participants.
122
Security ownership
of certain beneficial owners and management
The following table sets forth the beneficial ownership of our
units that, upon the consummation of this offering and the
related transactions and assuming that underwriters do not
exercise their option to purchase up to 2,812,500 additional
common units, will be owned by:
|
|
Ø
|
each person or group of persons known by us to be a beneficial
owner of 5% or more of the then outstanding units;
|
|
Ø
|
each member of and nominee to the board of directors of our
general partner;
|
|
Ø
|
each named executive officer of our general partner; and
|
|
Ø
|
all directors and officers of our general partner as a group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
Percentage of
|
|
|
|
|
Percentage of
|
|
|
|
subordinated
|
|
total common
|
|
|
|
|
common units
|
|
Subordinated
|
|
units
|
|
and
subordinated
|
|
|
Common units
|
|
to be
|
|
units to be
|
|
to be
|
|
units to be
|
Name and address
of
|
|
to be
|
|
beneficially
|
|
beneficially
|
|
beneficially
|
|
beneficially
|
beneficial
owner(1)
|
|
beneficially
owned(2)
|
|
owned
|
|
owned
|
|
owned
|
|
owned
|
|
|
Anadarko Petroleum
Corporation(3)
|
|
|
7,786,306
|
|
|
29.3%
|
|
|
26,536,306
|
|
|
100.0%
|
|
|
64.7%
|
WGR Holdings,
LLC(3)
|
|
|
7,786,306
|
|
|
29.3%
|
|
|
26,536,306
|
|
|
100.0%
|
|
|
64.7%
|
Robert G. Gwin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael C. Pearl
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Danny J. Rea
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amanda M. McMillian
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeremy M. Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R.A. Walker
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milton
Carroll(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony R.
Chase(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James R.
Crane(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karl F. Kurz
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert K. Reeves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David J.
Tudor(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group
(12 persons)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Less than 1% |
|
(1) |
|
Unless otherwise indicated, the
address for all beneficial owners in this table is 1201 Lake
Robbins Drive, The Woodlands, Texas 77380. |
|
(2) |
|
Does not include common units
that may be purchased in the directed unit program. Please see
UnderwritingDirected Unit Program. |
|
|
|
(3) |
|
Anadarko Petroleum Corporation
is the ultimate parent company of WGR Holdings, LLC and may,
therefore, be deemed to beneficially own the units held by WGR
Holdings, LLC. Following this offering, WGR Holdings, LLC will
own a 100% interest in our general partner and a 63.4% limited
partner interest in us. |
|
|
|
(4) |
|
Does not include approximately
7,000 phantom units that we will grant to each of
Messrs. Carroll, Chase, Crane and Tudor at the close of
this offering pursuant to the Western Gas Partners, LP 2008
Incentive Plan. These phantom units will vest 100% on the first
anniversary of the date of the grant. Each vested phantom unit
will entitle the holder to receive a common |
123
Security
ownership of certain beneficial owners and management
|
|
|
|
|
unit or, in the discretion of
our general partners board of directors, cash equal to the
fair market value of a common unit. Holders of phantom units are
entitled to distribution equivalents on a current basis. Holders
of phantom units have no voting rights until such time as the
phantom units become vested and common units are issued to such
holders. |
The following table set forth, as of or about March 31,
2008, the number of shares of common stock of Anadarko owned by
each of the executive officers and directors of our general
partner and all directors and executive officers of our general
partner as a group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Percentage of
|
|
|
Shares of
|
|
underlying
|
|
Total shares
of
|
|
total shares
of
|
|
|
common stock
|
|
options
|
|
common stock
|
|
common stock
|
Name and address
of
|
|
owned directly
|
|
exercisable
|
|
beneficially
|
|
beneficially
|
beneficial
owner(1)
|
|
or
indirectly(2)
|
|
within
60 days(2)
|
|
owned(2)
|
|
owned(2)
|
|
|
Robert G.
Gwin(3)(4)
|
|
|
22,549
|
|
|
33,534
|
|
|
56,083
|
|
|
*
|
Michael C.
Pearl(4)
|
|
|
10,378
|
|
|
959
|
|
|
11,337
|
|
|
*
|
Danny J.
Rea(3)(4)
|
|
|
10,460
|
|
|
19,251
|
|
|
29,711
|
|
|
*
|
Amanda M.
McMillian(4)
|
|
|
9,196
|
|
|
|
|
|
9,196
|
|
|
*
|
Jeremy M.
Smith(4)
|
|
|
13,660
|
|
|
|
|
|
13,660
|
|
|
*
|
R.A.
Walker(3)(4)
|
|
|
64,492
|
|
|
69,334
|
|
|
133,826
|
|
|
*
|
Milton Carroll
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony R. Chase
|
|
|
|
|
|
|
|
|
|
|
|
|
James R. Crane
|
|
|
|
|
|
|
|
|
|
|
|
|
Karl F.
Kurz(3)(4)
|
|
|
62,661
|
|
|
59,201
|
|
|
121,862
|
|
|
*
|
Robert K.
Reeves(3)(4)
|
|
|
41,923
|
|
|
221,968
|
|
|
263,891
|
|
|
*
|
David J. Tudor
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group
(12 persons)(3)(4)
|
|
|
235,319
|
|
|
404,247
|
|
|
639,566
|
|
|
*
|
|
|
|
* |
|
Less than 1% |
|
(1) |
|
Unless otherwise indicated, the
address for all beneficial owners in this table is 1201 Lake
Robbins Drive, The Woodlands, Texas 77380. |
|
|
|
(2) |
|
As of March 31, 2008, there
were 478,515,247 shares of Anadarko Petroleum Corporation
common stock issued and outstanding. |
|
|
|
(3) |
|
Does not include unvested
restricted stock units of Anadarko Petroleum Corporation held by
the following directors and executive officers in the amounts
indicated: Robert G. Gwin7,200; Danny J. Rea3,500;
R.A. Walker20,600; Karl F. Kurz21,500; Robert K.
Reeves16,800; for a total of 69,600 unvested restricted
stock units held by the directors and executive officers as a
group. Restricted stock units typically vest equally over three
years beginning on the first anniversary of the date of grant,
and upon vesting are payable in Anadarko common stock, subject
to applicable tax withholding. Holders of restricted stock units
receive dividend equivalents on the units, but do not have
voting rights. Generally, a holder will forfeit any unvested
restricted units if he or she terminates voluntarily or is
terminated for cause prior to the vesting date. Holders of
restricted stock units have the ability to defer such
awards. |
|
|
|
(4) |
|
Includes unvested shares of
restricted common stock of Anadarko Petroleum Corporation held
by the following directors and executive officers in the amounts
indicated: Robert G. Gwin12,433; Danny J.
Rea4,132; Michael C. Pearl9,915; Amanda M.
McMillian8,399; Jeremy M. Smith10,059; R.A.
Walker37,933; Karl F. Kurz35,666;
Robert K. Reeves10,799; for a total of 129,336
unvested shares of restricted common stock held by the directors
and executive officers as a group. Restricted stock awards
typically vest equally over three years beginning on the first
anniversary of the date of grant. Holders of restricted stock
receive dividends on the shares and also have voting rights.
Generally, a holder of restricted stock will forfeit any
unvested restricted shares if he or she terminates voluntarily
or is terminated for cause prior to the vesting date. |
124
Certain
relationships and related party transactions
After this offering, Anadarko will indirectly own 7,786,306
common units and 26,536,306 subordinated units, representing an
aggregate 63.4% limited partner interest in us. In addition, our
general partner will own 1,083,115 general partner units
representing a 2.0% general partner interest in us and all of
our incentive distribution rights.
DISTRIBUTIONS AND
PAYMENTS TO OUR GENERAL PARTNER AND ITS AFFILIATES
The following table summarizes the distributions and payments to
be made by us to our general partner and its affiliates in
connection with our formation, ongoing operation and any
liquidation of Western Gas Partners, LP, assuming that the
underwriters do not exercise their option to purchase additional
common units. These distributions and payments were determined
by and among affiliated entities and, consequently, are not the
result of arms-length negotiations.
Formation
stage
|
|
|
The consideration received by Anadarko and its subsidiaries for
the contribution of the assets and liabilities to us |
|
Ø 7,786,306
common units;
|
|
|
|
|
|
Ø 26,536,306
subordinated units;
|
|
|
|
|
|
Ø 1,083,115
general partner units, and
|
|
|
|
|
|
Ø our
incentive distribution rights.
|
Operational
stage
|
|
|
Distributions of available cash to our general partner and its
affiliates |
|
We will generally make cash distributions 98.0% to our
unitholders pro rata, including Anadarko as the indirect holder
of an aggregate 7,786,306 common units and 26,536,306
subordinated units, and 2.0% to our general partner, assuming it
makes any capital contributions necessary to maintain its 2.0%
interest in us. In addition, if distributions exceed the minimum
quarterly distribution and other higher target distribution
levels, our general partner will be entitled to increasing
percentages of the distributions, up to 50.0% of the
distributions above the highest target distribution level. |
|
|
|
|
|
Assuming we have sufficient available cash to pay the full
minimum quarterly distribution on all of our outstanding units
for four quarters, our general partner and its affiliates would
receive an annual distribution of approximately
$1.3 million on their general partner units and
$41.2 million on their common and subordinated units. |
|
|
|
Payments to our general partner and its affiliates |
|
Our general partner and its affiliates will be entitled to
reimbursement for all expenses incurred on our behalf, including
salaries and employee benefit costs for employees who provide
services to us, and all other necessary or |
125
Certain
relationships and related party transactions
|
|
|
|
|
appropriate expenses allocable to us or reasonably incurred by
our general partner and its affiliates in connection with
operating our business. The partnership agreement provides that
our general partner will determine in good faith the amount of
such expenses that are allocable to us. |
|
Withdrawal or removal of our general partner |
|
If our general partner withdraws or is removed, its general
partner interest and its incentive distribution rights will
either be sold to the new general partner for cash or converted
into common units, in each case for an amount equal to the fair
market value of those interests. Please read The
partnership agreementWithdrawal or removal of the general
partner. |
Liquidation
stage
|
|
|
Liquidation |
|
Upon our liquidation, our partners, including our general
partner, will be entitled to receive liquidating distributions
according to their respective capital account balances. |
AGREEMENTS
GOVERNING THE TRANSACTIONS
We and other parties have or will enter into the various
documents and agreements that will effect the offering
transactions, including the vesting of assets in, and the
assumption of liabilities by, us and our subsidiaries, and the
application of the proceeds of this offering. These agreements
will not be the result of arms-length negotiations, and as
such, they, or any of the transactions that they provide for,
may not be effected on terms at least as favorable to the
parties to these agreements as the parties could have been
obtained from unaffiliated third parties. All of the transaction
expenses incurred in connection with these transactions,
including the expenses associated with transferring assets into
our subsidiaries, will be paid from the proceeds of this
offering.
Omnibus
agreement
Upon the closing of this offering, we will enter into an omnibus
agreement with Anadarko and our general partner that will
address the following matters:
|
|
Ø |
Anadarkos obligation to indemnify us for certain
liabilities and our obligation to indemnify Anadarko for certain
liabilities;
|
|
|
Ø |
our obligation to reimburse Anadarko for all expenses incurred
or payments made on our behalf in conjunction with
Anadarkos provision of general and administrative services
to us, including salary and benefits of Anadarko personnel, our
public company expenses, general and administrative expenses and
salaries and benefits of our executive management who are
employees of Anadarko;
|
|
|
Ø |
our obligation to reimburse Anadarko for all insurance coverage
expenses it incurs or payments it makes with respect to our
assets; and
|
|
|
Ø |
our obligation to reimburse Anadarko for our allocable portion
of commitment fees (0.11% of our committed and available
borrowing capacity) that Anadarko incurs under its
$1.3 billion credit facility.
|
126
Certain
relationships and related party transactions
The table below reflects the categories of expenses for which we
are obligated to reimburse Anadarko pursuant to the omnibus
agreement, and, by category, sets forth an estimate of the
amount that we will pay to Anadarko for the twelve months ending
March 31, 2009.
|
|
|
|
|
|
Estimates for
the
|
|
|
twelve months
|
|
|
ending
|
|
|
March 31,
|
|
|
2009
|
|
|
|
(in
millions)
|
|
Reimbursement of general and administrative expenses
|
|
$
|
6.0
|
Reimbursement of public company expenses
|
|
$
|
2.5
|
Reimbursement of commitment fees
|
|
$
|
0.1
|
Our general partner and its affiliates will also receive
payments from us pursuant to the contractual arrangements
described below under the caption Contracts with
affiliates.
Any or all of the provisions of the omnibus agreement will be
terminable by Anadarko at its option if our general partner is
removed without cause and units held by our general partner and
its affiliates are not voted in favor of that removal. The
omnibus agreement will also generally terminate in the event of
a change of control of us or our general partner.
Services and
secondment agreement
Concurrently with the closing of this offering, Anadarko and our
general partner will enter into a services and secondment
agreement pursuant to which we anticipate that specified
employees of Anadarko will be seconded to our general partner to
provide operating, routine maintenance and other services with
respect to our business under the direction, supervision and
control of our general partner. Our general partner will
reimburse Anadarko pursuant to the omnibus agreement for the
services provided by the seconded employees pursuant to the
services and secondment agreement. The initial term of the
services and secondment agreement will be 10 years. The
term will extend for additional
12-month
periods unless either party provides 180 days written
notice otherwise prior to the expiration of the applicable
12-month
period. Either party may terminate the agreement at any time
upon 180 days written notice.
Tax sharing
agreement
Prior to the closing of this offering, we intend to enter into a
tax sharing agreement pursuant to which we will reimburse
Anadarko for our share of state and local income and other taxes
borne by Anadarko as a result of our results being included in a
combined or consolidated tax return filed by Anadarko with
respect to periods after the closing of this offering. Anadarko
may use its tax attributes to cause its combined or consolidated
group, of which we may be a member for this purpose, to owe no
tax. However, we would nevertheless reimburse Anadarko for the
tax we would have owed had the attributes not been available or
used for our benefit, even though Anadarko had no cash expense
for that period.
Administrative
services and reimbursement
Under the omnibus agreement, we will reimburse Anadarko for the
payment of certain operating expenses and for the provision of
various general and administrative services for our benefit with
respect to the assets contributed to us at the closing of this
offering. The omnibus agreement will further provide that we
will reimburse Anadarko for all expenses it incurs or payments
it makes with respect to our assets.
127
Certain
relationships and related party transactions
Pursuant to these arrangements, Anadarko will perform
centralized corporate functions for us, such as legal,
accounting, treasury, cash management, insurance administration
and claims processing, risk management, health, safety and
environmental, information technology, human resources, credit,
payroll, internal audit, tax, marketing and midstream. We will
reimburse Anadarko for all of the expenses it incurs or payments
it makes on our behalf, including salary and benefits of
Anadarko personnel, our public company expenses, our general and
administrative expenses and salaries and benefits of our
executive management who are also employees of Anadarko.
Under the omnibus agreement, our reimbursement to Anadarko for
certain general and administrative expenses it allocates to us
will be capped at $6.0 million annually through
December 31, 2009, subject to adjustment to reflect changes
in the Consumer Price Index and, with the concurrence of the
special committee of our general partners board of
directors, to reflect expansions of our operations through the
acquisition or construction of new assets or businesses.
Thereafter, our general partner will determine the general and
administrative expenses to be allocated to us in accordance with
our partnership agreement. The cap contained in the omnibus
agreement does not apply to incremental general and
administrative expenses that we expect to incur or to be
allocated to us as a result of becoming a publicly traded
partnership. We currently expect those expenses to be
approximately $2.5 million per year.
Indemnification
Under the omnibus agreement, Anadarko will indemnify us for a
period of three years after the closing of this offering
against certain potential environmental claims, losses and
expenses associated with the operation of our assets, which
occur before the closing date of this offering or relate to any
investigation, claim or proceeding under environmental laws
relating to such assets and pending as of the closing of this
offering. Anadarko will have no indemnification obligation with
respect to environmental claims made as a result of additions to
or modifications of environmental laws that are promulgated
after the closing date of this offering.
Additionally, Anadarko will indemnify us for losses attributable
to the following:
(1) our failure, as of the closing date of this
offering, to have valid easements, fee title or leasehold
interests in and to the lands on which our assets are located,
to the extent such failure renders us unable to use or operate
our assets in substantially the same manner in which they were
used and operated immediately prior to the closing of this
offering;
(2) our failure, as of the closing date of this
offering, to have any consent or governmental permit necessary
to allow (i) the transfer of assets from Anadarko to us at
the closing of this offering or (ii) us to use or operate
our assets in substantially the same manner in which they were
used and operated immediately prior to the closing of this
offering;
(3) all income tax liabilities
(i) attributable to the pre-closing operations of our
assets,
(ii) arising from or relating to the formation
transactions, or
(iii) arising under Treasury
Regulation Section 1.1502-6
and any similar provision from state, local or foreign
applicable law, by contract, as successor or transferee or
otherwise, provided that such income tax is attributable to
having been a member of any consolidated, combined or unitary
group prior to the closing of this offering;
(4) all liabilities, other than covered environmental
laws and other than liabilities incurred in the ordinary course
of business conducted in compliance with the applicable laws,
that arise prior to the closing date; and
(5) all liabilities attributable to any assets or
entities retained by Anadarko.
128
Certain
relationships and related party transactions
Anadarkos maximum liability for indemnification is
unlimited in amount. Anadarko will not have any obligation to
indemnify us, unless a claim for indemnification specifying in
reasonable detail the basis for such claim is furnished to us in
good faith (a) with respect to a claim under
clause (1) or (2) above, prior to the third
anniversary date of the closing of this offering or
(b) with respect to a claim under clause (3) or (5)
above, prior to the first day after expiration of the statute of
limitations period applicable to such claim. In no event shall
Anadarko be obligated to indemnify us for any losses or income
taxes to the extent we have made reservations for any such
losses or income taxes in our combined financial statements as
of December 31, 2007, or to the extent we recover any such
losses or income taxes under available insurance coverage or
from contractual rights against any third party.
Under the omnibus agreement, we have agreed to indemnify
Anadarko for all claims, losses and expenses attributable to the
post-closing operations of the gathering, compression, treating
and transportation assets contributed to us at the closing of
this offering, to the extent not that such losses are not
subject to Anadarkos indemnification obligations.
Note from
Anadarko
Upon completion of this offering, we will make a loan of
approximately $260.0 million to Anadarko. The note will be
a 30-year
note bearing interest at a fixed annual rate of 6.5%, payable
quarterly, with principal and all accrued and unpaid interest
due in full at maturity.
Our working
capital facility
Concurrently with the closing of this offering, we will enter
into a $30 million,
two-year,
revolving credit facility with Anadarko as the lender. The
facility will be available exclusively to fund our working
capital borrowings. Borrowings under the facility will bear
interest at the same rate as would apply to borrowings under the
Anadarko revolving credit facility. We will pay a commitment fee
of 0.11% annually to Anadarko on the unused portion of the
working capital facility.
We will be required to reduce all borrowings under our 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.
CONTRACTS WITH
AFFILIATES
Gas gathering
agreements
Our gathering agreements with Anadarko accounted for
approximately 94% of our gathering throughput for the year ended
December 31, 2007. Eighty-nine percent of this
throughput came from volumes of natural gas owned by Anadarko
and its partners and the remainder was comprised of volumes
purchased from third parties by Anadarko Energy Services
Company, Anadarkos wholly owned marketing affiliate.
Anadarko Petroleum Corporation. We have entered into new
gas gathering agreements with Anadarko Petroleum Corporation for
each of our gathering systems. These agreements provide us with
dedication of all of the natural gas owned or controlled by
Anadarko and produced from (i) wells that are currently
connected to our gathering systems, and (ii) additional
wells that are drilled within one mile of connected wells or our
gathering systems, as the systems currently exist and as they
are expanded to connect additional wells in the future. As a
result, this dedication will continue to expand as additional
wells are connected to our gathering systems. Each gas gathering
agreement is fee-based, and we provide gathering, compression,
treating, dehydration and well connections within the dedicated
area for the specified gathering fee per MMbtu or Mcf. The
gathering fee varies on each system and is subject to an
automatic annual escalator and may also be adjusted if Anadarko
requests improvements to the level of service we currently
provide under the agreement. Each of the gas gathering
agreements
129
Certain
relationships and related party transactions
has a
10-year
primary term. After the expiration of the primary term, either
party may annually request a re-determination of the gathering
fee. If a re-determination of the fee takes place, the same
methodology which was utilized to calculate the original
gathering fee will be utilized to calculate the new fee and the
new fee will take into account production forecasts, capital
expenditures and operating expenses. The agreements allow us to
retain and sell the condensate that is recovered from gas during
gathering. The gas gathering agreements are assignable by
Anadarko to an affiliate without our consent and Anadarko will
be permitted to sell the production which is dedicated to our
systems to an affiliate or third-party purchaser, provided that
the purchaser of the dedicated gas will be subject to the terms
and conditions of our agreements and Anadarko will remain liable
under the agreements in the event the purchaser defaults. The
fees we will charge Anadarko under our new gas gathering
agreements are higher than the fees reflected in our historical
financial results.
Anadarko Energy Services Company
(AESC). AESC is Anadarkos
marketing affiliate that purchases gas and is a shipper on our
gathering systems. Approximately 11% of the throughput we
gathered for the year ended December 31, 2007 was comprised
of third-party volumes purchased by AESC, and gathered under
gathering agreements we have in place with AESC. We provide our
services to AESC under fixed-fee arrangements whereby gathering
fees and contract terms are based on a variety of factors,
including gas quality and level of service provided. The term of
our agreements with AESC can vary from month-to-month to
20 years.
Transportation
agreements
Western Gas Resources, Inc. and MGTC, Inc., affiliates of
Anadarko, have contracted for 170,000 MMBtu/d of firm capacity
on our MIGC system in agreements ranging in term from just over
one year to 11 years. Anadarko has released 40,000 MMBtu/d of
firm capacity under one agreement to a third party, and this
released capacity will revert back to Anadarko in February 2009
for the duration of the term, which expires in 2018. For the
year ended December 31, 2007, our transportation agreements
with Anadarko accounted for approximately 72% of the throughput
on the MIGC system.
130
Conflicts of
interest and fiduciary duties
CONFLICTS OF
INTEREST
Conflicts of interest exist and may arise in the future as a
result of the relationships between our general partner and its
affiliates, including Anadarko, on the one hand, and our
partnership and our limited partners, on the other hand. The
directors and officers of our general partner have fiduciary
duties to manage our general partner in a manner beneficial to
its owners. At the same time, our general partner has a
fiduciary duty to manage our partnership in a manner beneficial
to us and our unitholders.
Whenever a conflict arises between our general partner or its
affiliates, on the one hand, and us and our limited partners, on
the other hand, our general partner will resolve that conflict.
Our partnership agreement contains provisions that modify and
limit our general partners fiduciary duties to our
unitholders. Our partnership agreement also restricts the
remedies available to our unitholders for actions taken by our
general partner that, without those limitations, might
constitute breaches of its fiduciary duty.
Our general partner will not be in breach of its obligations
under the partnership agreement or its fiduciary duties to us or
our unitholders if the resolution of the conflict is:
|
|
Ø
|
approved by the special committee of our general partner,
although our general partner is not obligated to seek such
approval;
|
|
Ø
|
approved by the vote of a majority of the outstanding common
units, excluding any common units owned by our general partner
or any of its affiliates;
|
|
Ø
|
on terms no less favorable to us than those generally being
provided to or available from unrelated third parties; or
|
|
Ø
|
fair and reasonable to us, taking into account the totality of
the relationships among the parties involved, including other
transactions that may be particularly favorable or advantageous
to us.
|
Our general partner may, but is not required to, seek the
approval of such resolution from the special committee of its
board of directors. In connection with a situation involving a
conflict of interest, any determination by our general partner
involving the resolution of the conflict of interest must be
made in good faith, provided that, if our general partner does
not seek approval from the special committee and its board of
directors determines that the resolution or course of action
taken with respect to the conflict of interest satisfies either
of the standards set forth in the third and fourth bullet points
above, then it will be presumed that, in making its decision,
the board of directors acted in good faith, and in any
proceeding brought by or on behalf of any limited partner or the
partnership, the person bringing or prosecuting such proceeding
will have the burden of overcoming such presumption. Unless the
resolution of a conflict is specifically provided for in our
partnership agreement, our general partner or the special
committee may consider any factors that it determines in good
faith to be appropriate when resolving a conflict. When our
partnership agreement provides that someone act in good faith,
it requires that person to reasonably believe he is acting in
the best interests of the partnership.
Conflicts of interest could arise in the situations described
below, among others.
131
Conflicts of
interest and fiduciary duties
Neither our
partnership agreement nor any other agreement requires Anadarko
to pursue a business strategy that favors us or utilizes our
assets or dictates what markets to pursue or grow.
Anadarkos directors have a fiduciary duty to make these
decisions in the best interests of the owners of Anadarko, which
may be contrary to our interests.
Because certain of the directors of our general partner are also
directors
and/or
officers of Anadarko, such directors have fiduciary duties to
Anadarko that may cause them to pursue business strategies that
disproportionately benefit Anadarko or which otherwise are not
in our best interests.
Anadarko is not
limited in its ability to compete with us, which could cause
conflicts of interest and limit our ability to acquire
additional assets or businesses which in turn could adversely
affect our results of operations and cash available for
distribution to our unitholders.
Neither our partnership agreement nor the omnibus agreement
between us and Anadarko will prohibit Anadarko from owning
assets or engaging in businesses that compete directly or
indirectly with us. In addition, Anadarko may acquire, construct
or dispose of additional midstream or other assets in the
future, without any obligation to offer us the opportunity to
purchase or construct any of those assets. Anadarko is a large,
established participant in the midstream energy business, and
has significantly greater resources and experience than we have,
which factors may make it more difficult for us to compete with
these entities with respect to commercial activities as well as
for acquisitions candidates. As a result, competition from these
entities could adversely impact our results of operations and
cash available for distribution.
Our general
partner and its affiliates are allowed to take into account the
interests of parties other than us in resolving conflicts of
interest.
Our partnership agreement contains provisions that reduce the
fiduciary standards to which our general partner would otherwise
be held by state fiduciary duty law. For example, our
partnership agreement permits our general partner to make a
number of decisions in its individual capacity, as opposed to in
its capacity as our general partner. This entitles our general
partner to consider only the interests and factors that it
desires, and it has no duty or obligation to give any
consideration to any interest of, or factors affecting, us, our
affiliates or our limited partners. Examples include our general
partners limited call right, its voting rights with
respect to the units it owns, its registration rights and its
determination whether or not to consent to any merger or
consolidation of the partnership.
The officers of
our general partner will also devote significant time to the
business of Anadarko and will be compensated by Anadarko
accordingly.
All of our executive management personnel will be employees of
Anadarko and will devote a portion of their time to our business
and affairs. We will also utilize a significant number of
employees of Anadarko to operate our business and provide us
with general and administrative services for which we will
reimburse Anadarko for allocated expenses of operational
personnel who perform services for our benefit and we will
reimburse Anadarko for allocated general and administrative
expenses. Our general partner and Anadarko will also conduct
businesses and activities of their own in which we will have no
economic interest. If these separate activities are
significantly greater than our activities, there could be
material competition for the time and effort of the officers and
employees who provide services to Anadarko.
132
Conflicts of
interest and fiduciary duties
Our partnership
agreement limits the liability of and reduces the fiduciary
duties owed by our general partner, and also restricts the
remedies available to our unitholders for actions that, without
the limitations, might constitute breaches of its fiduciary
duty.
In addition to the provisions described above, our partnership
agreement contains provisions that restrict the remedies
available to our unitholders for actions that might otherwise
constitute breaches of our general partners fiduciary
duty. For example, our partnership agreement:
|
|
Ø
|
provides that our general partner shall not have any liability
to us or our unitholders for decisions made in its capacity as a
general partner so long as such decisions are made in good
faith, meaning it believed that the decision was in the best
interest of our partnership;
|
|
Ø
|
provides generally that affiliated transactions and resolutions
of conflicts of interest not approved by the special committee
of the board of directors of our general partner and not
involving a vote of the common unitholders must either be
(1) on terms no less favorable to us than those generally
provided to or available from unrelated third parties or
(2) fair and reasonable to us, as determined by
our general partner in good faith, provided that, in determining
whether a transaction or resolution is fair and
reasonable, our general partner may consider the totality
of the relationships between the parties involved, including
other transactions that may be particularly advantageous or
beneficial to us; and
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provides that our general partner and its officers and directors
will not be liable for monetary damages to us, or our limited
partners or their assignees resulting from any act or omission
unless there has been a final and non-appealable judgment
entered by a court of competent jurisdiction determining that
our general partner or its officers or directors, as the case
may be, acted in bad faith or engaged in fraud or willful
misconduct.
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Except in limited
circumstances, our general partner has the power and authority
to conduct our business without unitholder approval.
Under our partnership agreement, our general partner has full
power and authority to do all things, other than those items
that require unitholder approval or with respect to which our
general partner has sought special committee approval, on such
terms as it determines to be necessary or appropriate to conduct
our business including, but not limited to, the following:
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the making of any expenditures, the lending or borrowing of
money, the assumption or guarantee of or other contracting for,
indebtedness and other liabilities, the issuance of evidences of
indebtedness, including indebtedness that is convertible into
our securities, and the incurring of any other obligations;
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the purchase, sale or other acquisition or disposition of our
securities, or the issuance of additional options, rights,
warrants and appreciation rights relating to our securities;
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the mortgage, pledge, encumbrance, hypothecation or exchange of
any or all of our assets;
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the negotiation, execution and performance of any contracts,
conveyances or other instruments;
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the distribution of our cash;
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the selection and dismissal of employees and agents, outside
attorneys, accountants, consultants and contractors and the
determination of their compensation and other terms of
employment or hiring;
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the maintenance of insurance for our benefit and the benefit of
our partners;
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the formation of, or acquisition of an interest in, the
contribution of property to, and the making of loans to, any
limited or general partnership, joint venture, corporation,
limited liability company or other entity;
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Conflicts of
interest and fiduciary duties
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the control of any matters affecting our rights and obligations,
including the bringing and defending of actions at law or in
equity, otherwise engaging in the conduct of litigation,
arbitration or mediation and the incurring of legal expense, the
settlement of claims and litigation;
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the indemnification of any person against liabilities and
contingencies to the extent permitted by law;
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the making of tax, regulatory and other filings, or the
rendering of periodic or other reports to governmental or other
agencies having jurisdiction over our business or assets; and
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the entering into of agreements with any of its affiliates to
render services to us or to itself in the discharge of its
duties as our general partner.
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Our partnership agreement provides that our general partner must
act in good faith when making decisions on our
behalf, and our partnership agreement further provides that in
order for a determination to be made in good faith,
our general partner must believe that the determination is in
our best interests. Please read The partnership
agreementVoting rights for information regarding
matters that require unitholder approval.
Our general
partner determines the amount and timing of asset purchases and
sales, capital expenditures, borrowings, issuance of additional
partnership securities and the creation, reduction or increase
of reserves, each of which can affect the amount of cash that is
distributed to our unitholders.
The amount of cash that is available for distribution to our
unitholders is affected by the decisions of our general partner
regarding such matters as:
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the amount and timing of asset purchases and sales;
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cash expenditures;
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borrowings;
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the issuance of additional units; and
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the creation, reduction or increase of reserves in any quarter.
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Our general partner determines the amount and timing of any
capital expenditures and whether a capital expenditure is
classified as a maintenance capital expenditure, which reduces
operating surplus, or an expansion capital expenditure, which
does not reduce operating surplus. This determination can affect
the amount of cash that is distributed to our unitholders and to
our general partner and the ability of the subordinated units to
convert to common units.
In addition, our general partner may use an amount, initially
equal to $31.8 million, which would not otherwise
constitute available cash from operating surplus, in order to
permit the payment of cash distributions on its units and
incentive distribution rights. All of these actions may affect
the amount of cash distributed to our unitholders and our
general partner and may facilitate the conversion of
subordinated units into common units. Please read
Provisions of our partnership agreement relating to cash
distributions.
In addition, borrowings by us and our affiliates do not
constitute a breach of any duty owned by our general partner to
our unitholders, including borrowings that have the purpose or
effect of:
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enabling our general partner or its affiliates to receive
distributions on any subordinated units held by them or the
incentive distribution rights; or
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hastening the expiration of the subordination period.
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For example, in the event we have not generated sufficient cash
from our operations to pay the minimum quarterly distribution on
our common and subordinated units, our partnership agreement
permits us to borrow funds, which would enable us to make this
distribution on all of our outstanding
134
Conflicts of
interest and fiduciary duties
units. Please read Provisions of our partnership agreement
related to cash distributionsSubordination period.
Our partnership agreement provides that we and our subsidiaries
may borrow funds from our general partner and its affiliates.
Our general partner and its affiliates may borrow funds from us,
or our operating company and its operating subsidiaries.
Our general
partner determines which of the costs it incurs on our behalf
are reimbursable by us.
We will reimburse our general partner and its affiliates for the
costs incurred in managing and operating us, including costs
incurred in rendering corporate staff and support services to
us. Our partnership agreement provides that our general partner
will determine in good faith the expenses that are allocable to
us.
Our partnership
agreement does not restrict our general partner from causing us
to pay it or its affiliates for any services rendered to us or
from entering into additional contractual arrangements with any
of these entities on our behalf.
Our partnership agreement allows our general partner to
determine, in good faith, any amounts to pay itself or its
affiliates for any services rendered to us. Our general partner
may also enter into additional contractual arrangements with any
of its affiliates on our behalf. Neither our partnership
agreement nor any of the other agreements, contracts or
arrangements between us, on the one hand, and our general
partner and its affiliates, on the other hand, that will be in
effect as of the closing of this offering, will be the result of
arms-length negotiations. Similarly, agreements, contracts
or arrangements between us and our general partner and its
affiliates that are entered into following the closing of this
offering will not be required to be negotiated on an
arms-length basis, although, in some circumstances, our
general partner may determine that the special committee of our
general partner may make a determination on our behalf with
respect to such arrangements.
Our general partner will determine, in good faith, the terms of
any such transactions entered into after the close of this
offering.
Our general partner and its affiliates will have no obligation
to permit us to use any of its or its affiliates
facilities or assets, except as may be provided in contracts
entered into specifically for such use. There is no obligation
of our general partner or its affiliates to enter into any
contracts of this kind.
Our general
partner intends to limit its liability regarding our
obligations.
Our general partner intends to limit its liability under
contractual arrangements so that counterparties to such
agreements have recourse only against our assets, and not
against our general partner or its assets. The partnership
agreement provides that any action taken by our general partner
to limit its liability is not a breach of our general
partners fiduciary duties, even if we could have obtained
more favorable terms without the limitation on liability.
Our general
partner may exercise its right to call and purchase all of the
common units not owned by it and its affiliates if they own more
than 80% of our common units.
Our general partner may exercise its right to call and purchase
common units, as provided in our partnership agreement, or may
assign this right to one of its affiliates or to us. Our general
partner is not bound by fiduciary duty restrictions in
determining whether to exercise this right. As a result, a
common unitholder may be required to sell his common units at an
undesirable time or price. Please read The partnership
agreementLimited call right.
135
Conflicts of
interest and fiduciary duties
Our general
partner controls the enforcement of its and its affiliates
obligations to us.
Any agreements between us, on the one hand, and our general
partner and its affiliates, on the other, will not grant to the
unitholders, separate and apart from us, the right to enforce
the obligations of our general partner and its affiliates in our
favor.
Our general
partner decides whether to retain separate counsel, accountants
or others to perform services for us.
The attorneys, independent accountants and others who have
performed services for us regarding this offering have been
retained by our general partner. Attorneys, independent
accountants and others who perform services for us are selected
by our general partner or the special committee and may perform
services for our general partner and its affiliates. We may
retain separate counsel for ourselves or the holders of common
units in the event of a conflict of interest between our general
partner and its affiliates, on the one hand, and us or the
holders of common units, on the other, depending on the nature
of the conflict. We do not intend to do so in most cases.
Our general
partner may elect to cause us to issue Class B units to it
in connection with a resetting of the target distribution levels
related to our general partners incentive distribution
rights without the approval of the special committee of the
board of directors of our general partner or our unitholders.
This election may result in lower distributions to our common
unitholders in certain situations.
Our general partner has the right, at any time when there are no
subordinated units outstanding and it has received incentive
distributions at the highest level to which it is entitled (48%)
for each of the prior four consecutive fiscal quarters, to reset
the initial target distribution levels at higher levels based on
our cash distribution at the time of the exercise of the reset
election. Following a reset election by our general partner, the
minimum quarterly distribution will be reset to an amount equal
to the average cash distribution per common unit for the two
fiscal quarters immediately preceding the reset election (such
amount is referred to as the reset minimum quarterly
distribution), and the target distribution levels will be
reset to correspondingly higher levels based on percentage
increases above the reset minimum quarterly distribution.
We anticipate that our general partner would exercise this reset
right in order to facilitate acquisitions or internal growth
projects that would not be sufficiently accretive to cash
distributions per common unit without such conversion; however,
it is possible that our general partner could exercise this
reset election at a time when we are experiencing declines in
our aggregate cash distributions or at a time when our general
partner expects that we will experience declines in our
aggregate cash distributions in the foreseeable future. In such
situations, our general partner may be experiencing, or may
expect to experience, declines in the cash distributions it
receives related to its incentive distribution rights and may
therefore desire to be issued our Class B units, which are
entitled to specified priorities with respect to our
distributions and which therefore may be more advantageous for
the general partner to own in lieu of the right to receive
incentive distribution payments based on target distribution
levels that are less certain to be achieved in the then current
business environment. As a result, a reset election may cause
our common unitholders to experience dilution in the amount of
cash distributions that they would have otherwise received had
we not issued new Class B units to our general partner in
connection with resetting the target distribution levels related
to our general partners incentive distribution rights.
Please read Provisions of our partnership agreement
relating to cash distributionsGeneral partner interest and
incentive distribution rights.
136
Conflicts of
interest and fiduciary duties
FIDUCIARY
DUTIES
Our general partner is accountable to us and our unitholders as
a fiduciary. Fiduciary duties owed to unitholders by our general
partner are prescribed by law and the partnership agreement. The
Delaware Act provides that Delaware limited partnerships may, in
their partnership agreements, modify, restrict or expand the
fiduciary duties otherwise owed by a general partner to limited
partners and the partnership.
Our partnership agreement contains various provisions modifying
and restricting the fiduciary duties that might otherwise be
owed by our general partner. We have adopted these restrictions
to allow our general partner or its affiliates to engage in
transactions with us that would otherwise be prohibited by
state-law fiduciary duty standards and to take into account the
interests of other parties in addition to our interests when
resolving conflicts of interest. We believe this is appropriate
and necessary because our general partners board of
directors will have fiduciary duties to manage our general
partner in a manner that is beneficial to its owner, Anadarko,
as well as to you. Without these modifications, our general
partners ability to make decisions involving conflicts of
interest would be restricted. The modifications to the fiduciary
standards enable our general partner to take into consideration
all parties involved in the proposed action, so long as the
resolution is fair and reasonable to us. These modifications
also enable our general partner to attract and retain
experienced and capable directors. These modifications are
detrimental to our unitholders because they restrict the
remedies available to unitholders for actions that, without
those limitations, might constitute breaches of fiduciary duty,
as described below, and permit our general partner to take into
account the interests of third parties in addition to our
interests when resolving conflicts of interest. The following is
a summary of the material restrictions of the fiduciary duties
owed by our general partner to the limited partners:
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State-law fiduciary duty standards |
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Fiduciary duties are generally considered to include an
obligation to act in good faith and with due care and loyalty.
The duty of care, in the absence of a provision in a partnership
agreement providing otherwise, would generally require a general
partner to act for the partnership in the same manner as a
prudent person would act on his own behalf. The duty of loyalty,
in the absence of a provision in a partnership agreement
providing otherwise, would generally prohibit a general partner
of a Delaware limited partnership from taking any action or
engaging in any transaction where a conflict of interest is
present. |
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The Delaware Act generally provides that a limited partner may
institute legal action on behalf of the partnership to recover
damages from a third party where a general partner has refused
to institute the action or where an effort to cause a general
partner to do so is not likely to succeed. In addition, the
statutory or case law of some jurisdictions may permit a limited
partner to institute legal action on behalf of himself and all
other similarly situated limited partners to recover damages
from a general partner for violations of its fiduciary duties to
the limited partners. |
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Partnership agreement modified standards |
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Our partnership agreement contains provisions that waive or
consent to conduct by our general partner and its affiliates
that might otherwise raise issues about compliance with
fiduciary duties or applicable law. For example, our partnership
agreement provides that when our general partner is acting in |
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Conflicts of
interest and fiduciary duties
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its capacity as our general partner, as opposed to in its
individual capacity, it must act in good faith and
will not be subject to any other standard under applicable law.
In addition, when our general partner is acting in its
individual capacity, as opposed to in its capacity as our
general partner, it may act without any fiduciary obligation to
us or the unitholders whatsoever. These standards reduce the
obligations to which our general partner would otherwise be held. |
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In addition to the other more specific provisions limiting the
obligations of our general partner, our partnership agreement
further provides that our general partner and its officers and
directors will not be liable for monetary damages to us, our
limited partners or their assignees for errors of judgment or
for any acts or omissions unless there has been a final and
non-appealable judgment by a court of competent jurisdiction
determining that our general partner or its officers and
directors acted in bad faith or engaged in fraud or willful
misconduct. |
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Special provisions regarding affiliated transactions. Our
partnership agreement generally provides that affiliated
transactions and resolutions of conflicts of interest that are
not approved by a vote of common unitholders and that are not
approved by the special committee of the board of directors of
our general partner must be on terms no less favorable to us
than those generally being provided to, or available from,
unrelated third parties; or fair and reasonable to
us, taking into account the totality of the relationships
between the parties involved (including other transactions that
may be particularly favorable or advantageous to us). |
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If our general partner does not seek approval from the special
committee and the board of directors determines that the
resolution or course of action taken with respect to the
conflict of interest satisfies either of the standards set forth
in the bullet points above, then it will be presumed that, in
making its decision, the board of directors, which may include
board members affected by the conflict of interest, acted in
good faith. In any proceeding brought by or on behalf of any
limited partner or the partnership, the person bringing or
prosecuting such proceeding will have the burden of overcoming
such presumption. These standards reduce the obligations to
which our general partner would otherwise be held. |
By purchasing our common units, each common unitholder
automatically agrees to be bound by the provisions in the
partnership agreement, including the provisions discussed above.
This is in accordance with the policy of the Delaware Act
favoring the principle of freedom of contract and the
enforceability of partnership agreements. The failure of a
limited partner or assignee to sign a partnership agreement does
not render the partnership agreement unenforceable against that
person.
We must indemnify our general partner and its officers,
directors, managers and certain other specified persons, to the
fullest extent permitted by law, against liabilities, costs and
expenses incurred by our
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Conflicts of
interest and fiduciary duties
general partner or these other persons. We must provide this
indemnification unless there has been a final and non-appealable
judgment by a court of competent jurisdiction determining that
these persons acted in bad faith or engaged in fraud or willful
misconduct. We must also provide this indemnification for
criminal proceedings unless our general partner or these other
persons acted with knowledge that their conduct was unlawful.
Thus, our general partner could be indemnified for its negligent
acts if it meets the requirements set forth above. To the extent
these provisions purport to include indemnification for
liabilities arising under the Securities Act, in the opinion of
the SEC, such indemnification is contrary to public policy and,
therefore, unenforceable. Please read The partnership
agreementIndemnification.
139
Description of the
common units
THE
UNITS
The common units and the subordinated units are separate classes
of limited partner interests in us. The holders of units are
entitled to participate in partnership distributions and
exercise the rights or privileges available to limited partners
under our partnership agreement. For a description of the
relative rights and preferences of holders of common and
subordinated units in and to partnership distributions, please
read this section and Our cash distribution policy and
restrictions on distributions. For a description of the
rights and privileges of limited partners under our partnership
agreement, including voting rights, please read The
partnership agreement.
TRANSFER AGENT
AND REGISTRAR
Duties
Computershare Trust Company, N.A. will serve as the registrar
and transfer agent for the common units. We will pay all fees
charged by the transfer agent for transfers of common units
except the following that must be paid by unitholders:
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surety bond premiums to replace lost or stolen certificates,
taxes and other governmental charges;
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special charges for services requested by a common unitholder;
and
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other similar fees or charges.
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There will be no charge to unitholders for disbursements of our
cash distributions. We will indemnify the transfer agent, its
agents and each of their stockholders, directors, officers and
employees against all claims and losses that may arise out of
acts performed or omitted for its activities in that capacity,
except for any liability due to any gross negligence or
intentional misconduct of the indemnified person or entity.
Resignation or
removal
The transfer agent may resign, by notice to us, or be removed by
us. The resignation or removal of the transfer agent will become
effective upon our appointment of a successor transfer agent and
registrar and its acceptance of the appointment. If no successor
has been appointed and accepted the appointment within
30 days after notice of the resignation or removal, our
general partner may act as the transfer agent and registrar
until a successor is appointed.
TRANSFER OF
COMMON UNITS
By transfer of common units in accordance with our partnership
agreement, each transferee of common units shall be admitted as
a limited partner with respect to the common units transferred
when such transfer and admission are reflected in our books and
records. Each transferee:
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represents that the transferee has the capacity, power and
authority to become bound by our partnership agreement;
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automatically agrees to be bound by the terms and conditions of,
and is deemed to have executed, our partnership agreement; and
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is deemed to have given the consents and approvals contained in
our partnership agreement, such as the approval of all
transactions and agreements that we are entering into in
connection with our formation and this offering.
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140
Description of
the common units
A transferee will become a substituted limited partner of our
partnership for the transferred common units automatically upon
the recording of the transfer on our books and records. Our
general partner will cause any transfers to be recorded on our
books and records no less frequently than quarterly.
We may, at our discretion, treat the nominee holder of a common
unit as the absolute owner. In that case, the beneficial
holders rights are limited solely to those that it has
against the nominee holder as a result of any agreement between
the beneficial owner and the nominee holder.
Common units are securities that are transferable according to
the laws governing the transfer of securities. In addition to
other rights acquired upon transfer, the transferor gives the
transferee the right to become a substituted limited partner in
our partnership for the transferred common units.
Until a common unit has been transferred on our books, we and
the transfer agent may treat the record holder of the unit as
the absolute owner for all purposes, except as otherwise
required by law or stock exchange regulations.
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The partnership
agreement
The following is a summary of the material provisions of our
partnership agreement. The form of our partnership agreement is
included in this prospectus as Appendix A. We will provide
prospective investors with a copy of our partnership agreement
upon request at no charge.
We summarize the following provisions of our partnership
agreement elsewhere in this prospectus:
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with regard to distributions of available cash, please read
Provisions of our partnership agreement relating to cash
distributions;
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with regard to the fiduciary duties of our general partner,
please read Conflicts of interest and fiduciary
duties;
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with regard to the transfer of common units, please read
Description of the common unitsTransfer of common
units; and
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with regard to allocations of taxable income and taxable loss,
please read Material tax consequences.
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ORGANIZATION AND
DURATION
Our partnership was organized in August 2007 and will have a
perpetual existence.
PURPOSE
Our purpose, as set forth in our partnership agreement, is
limited to any business activity that is approved by our general
partner and that lawfully may be conducted by a limited
partnership organized under Delaware law; provided, that our
general partner shall not cause us to engage, directly or
indirectly, in any business activity that the general partner
determines would cause us to be treated as an association
taxable as a corporation or otherwise taxable as an entity for
federal income tax purposes.
Although our general partner has the ability to cause us and our
subsidiaries to engage in activities other than the business of
gathering, compressing, treating and transporting natural gas,
our general partner has no current plans to do so and may
decline to do so free of any fiduciary duty or obligation
whatsoever to us or the limited partners, including any duty to
act in good faith or in the best interests of us or the limited
partners. Our general partner is generally authorized to perform
all acts it determines to be necessary or appropriate to carry
out our purposes and to conduct our business.
POWER OF
ATTORNEY
Each limited partner, and each person who acquires a unit from a
unitholder, by accepting the common unit, automatically grants
to our general partner and, if appointed, a liquidator, a power
of attorney to, among other things, execute and file documents
required for our qualification, continuance or dissolution. The
power of attorney also grants our general partner the authority
to amend, and to make consents and waivers under, our
partnership agreement.
CASH
DISTRIBUTIONS
Our partnership agreement specifies the manner in which we will
make cash distributions to holders of our common units and other
partnership securities as well as to our general partner in
respect of its general partner interest and its incentive
distribution rights. For a description of these cash
distribution provisions, please read Provisions of our
partnership agreement relating to cash distributions.
142
The partnership
agreement
CAPITAL
CONTRIBUTIONS
Unitholders are not obligated to make additional capital
contributions, except as described below under
Limited liability.
If we issue additional units, our general partner has the right,
but not the obligation, to contribute a proportionate amount of
capital to us to maintain its 2.0% general partner interest. Our
general partners 2.0% interest, and the percentage of our
cash distributions to which it is entitled, will be
proportionately reduced if we issue additional units in the
future and our general partner does not contribute a
proportionate amount of capital to us to maintain its 2.0%
general partner interest. Our general partner will be entitled
to make a capital contribution in order to maintain its 2.0%
general partner interest in the form of the contribution to us
of common units based on the current market value of the
contributed common units.
VOTING
RIGHTS
The following is a summary of the unitholder vote required for
approval of the matters specified below. General partner units
are not deemed outstanding units for purposes of voting rights
and such units represent a non-voting general partner interest.
Matters that require the approval of a unit majority
require:
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during the subordination period, the approval of a majority of
the common units, excluding those common units held by our
general partner and its affiliates, and a majority of the
subordinated units, voting as separate classes; and
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after the subordination period, the approval of a majority of
the common units and Class B units, if any, voting as a single
class.
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In voting their common and subordinated units, our general
partner and its affiliates will have no fiduciary duty or
obligation whatsoever to us or the limited partners, including
any duty to act in good faith or in the best interests of us or
the limited partners.
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Issuance of additional units |
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No approval right. |
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Amendment of the partnership agreement |
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Certain amendments may be made by the general partner without
the approval of the unitholders. Other amendments generally
require the approval of a unit majority. Please read
Amendment of the partnership agreement. |
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Merger of our partnership or the sale of all or substantially
all of our assets |
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Unit majority in certain circumstances. Please read
Merger, consolidation, conversion, sale or other
disposition of assets. |
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Dissolution of our partnership |
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Unit majority. Please read Termination and
dissolution. |
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Continuation of our business upon dissolution |
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Unit majority. Please read Termination and
dissolution. |
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Withdrawal of the general partner |
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Under most circumstances, the approval of a majority of the
common units, excluding common units held by our general partner
and its affiliates, is required for the withdrawal of our
general partner prior to June 30, 2018 in a manner that
would cause a dissolution of our partnership. Please read
Withdrawal or removal of the general partner. |
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The partnership
agreement
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Removal of the general partner |
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Not less than
662/3%
of the outstanding units, voting as a single class, including
units held by our general partner and its affiliates. Please
read Withdrawal or removal of the general
partner. |
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Transfer of the general partner interest |
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Our general partner may transfer all, but not less than all, of
its general partner interest in us without a vote of our
unitholders to an affiliate or another person in connection with
its merger or consolidation with or into, or sale of all or
substantially all of its assets to, such person. The approval of
a majority of the common units, excluding common units held by
the general partner and its affiliates, is required in other
circumstances for a transfer of the general partner interest to
a third party prior to June 30, 2018. Please read
Transfer of general partner units. |
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Transfer of incentive distribution rights |
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Except for transfers to an affiliate or another person as part
of our general partners merger or consolidation, sale of
all or substantially all of its assets or the sale of all of the
ownership interests in such holder, the approval of a majority
of the common units, excluding common units held by the general
partner and its affiliates, is required in most circumstances
for a transfer of the incentive distribution rights to a third
party prior to June 30, 2018. Please read
Transfer of incentive distribution rights. |
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Transfer of ownership interests in our general partner |
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No approval required at any time. Please read
Transfer of ownership interests in the general
partner. |
LIMITED
LIABILITY
Assuming that a limited partner does not participate in the
control of our business within the meaning of the Delaware Act
and that he otherwise acts in conformity with the provisions of
the partnership agreement, his liability under the Delaware Act
will be limited, subject to possible exceptions, to the amount
of capital he is obligated to contribute to us for his common
units plus his share of any undistributed profits and assets.
However, if it were determined that the right, or exercise of
the right, by the limited partners as a group:
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to remove or replace the general partner;
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to approve some amendments to the partnership agreement; or
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to take other action under the partnership agreement;
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constituted participation in the control of our
business for the purposes of the Delaware Act, then the limited
partners could be held personally liable for our obligations
under the laws of Delaware, to the same extent as the general
partner. This liability would extend to persons who transact
business with us under the reasonable belief that the limited
partner is a general partner. Neither the partnership agreement
nor the Delaware Act specifically provides for legal recourse
against the general partner if a limited partner were to lose
limited liability through any fault of the general partner.
While this does
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not mean that a limited partner could not seek legal recourse,
we know of no precedent for this type of a claim in Delaware
case law.
Under the Delaware Act, a limited partnership may not make a
distribution to a partner if, after the distribution, all
liabilities of the limited partnership, other than liabilities
to partners on account of their partnership interests and
liabilities for which the recourse of creditors is limited to
specific property of the partnership, would exceed the fair
value of the assets of the limited partnership. For the purpose
of determining the fair value of the assets of a limited
partnership, the Delaware Act provides that the fair value of
property subject to liability for which recourse of creditors is
limited shall be included in the assets of the limited
partnership only to the extent that the fair value of that
property exceeds the nonrecourse liability. The Delaware Act
provides that a limited partner who receives a distribution and
knew at the time of the distribution that the distribution was
in violation of the Delaware Act shall be liable to the limited
partnership for the amount of the distribution for three years.
Under the Delaware Act, a substituted limited partner of a
limited partnership is liable for the obligations of his
assignor to make contributions to the partnership, except that
such person is not obligated for liabilities unknown to him at
the time he became a limited partner and that could not be
ascertained from the partnership agreement.
Our subsidiaries conduct business in five states and we may have
subsidiaries that conduct business in other states in the
future. Maintenance of our limited liability as a limited
partner of the operating partnership may require compliance with
legal requirements in the jurisdictions in which the operating
partnership conducts business, including qualifying our
subsidiaries to do business there.
Limitations on the liability of limited partners for the
obligations of a limited partnership have not been clearly
established in many jurisdictions. If, by virtue of our
partnership interest in our operating partnership or otherwise,
it were determined that we were conducting business in any state
without compliance with the applicable limited partnership or
limited liability company statute, or that the right or exercise
of the right by the limited partners as a group to remove or
replace the general partner, to approve some amendments to the
partnership agreement, or to take other action under the
partnership agreement constituted participation in the
control of our business for purposes of the statutes of
any relevant jurisdiction, then the limited partners could be
held personally liable for our obligations under the law of that
jurisdiction to the same extent as the general partner under the
circumstances. We will operate in a manner that the general
partner considers reasonable and necessary or appropriate to
preserve the limited liability of the limited partners.
ISSUANCE OF
ADDITIONAL SECURITIES
Our partnership agreement authorizes us to issue an unlimited
number of additional partnership securities for the
consideration and on the terms and conditions determined by our
general partner without the approval of the unitholders.
It is possible that we will fund acquisitions through the
issuance of additional common units, subordinated units or other
partnership securities. Holders of any additional common units
we issue will be entitled to share equally with the
then-existing holders of common units in our distributions of
available cash. In addition, the issuance of additional common
units or other partnership securities may dilute the value of
the interests of the then-existing holders of common units in
our net assets.
In accordance with Delaware law and the provisions of our
partnership agreement, we may also issue additional partnership
securities that, as determined by our general partner, may have
special voting rights to which the common units are not
entitled. In addition, our partnership agreement does not
prohibit our subsidiaries from issuing equity securities, which
may effectively rank senior to the common units.
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Upon issuance of additional partnership securities (other than
the issuance of partnership securities issued in connection with
a reset of the incentive distribution target levels relating to
our general partners incentive distribution rights or the
issuance of partnership securities upon conversion of
outstanding partnership securities), our general partner will be
entitled, but not required, to make additional capital
contributions to the extent necessary to maintain its 2.0%
general partner interest in us. Our general partners 2.0%
interest in us will be reduced if we issue additional units in
the future and our general partner does not contribute a
proportionate amount of capital to us to maintain its 2.0%
general partner interest. Moreover, our general partner will
have the right, which it may from time to time assign in whole
or in part to any of its affiliates, to purchase common units,
subordinated units or other partnership securities whenever, and
on the same terms that, we issue those securities to persons
other than our general partner and its affiliates, to the extent
necessary to maintain the percentage interest of the general
partner and its affiliates, including such interest represented
by common and subordinated units, that existed immediately prior
to each issuance. The holders of common units will not have
preemptive rights to acquire additional common units or other
partnership securities.
AMENDMENT OF THE
PARTNERSHIP AGREEMENT
General
Amendments to our partnership agreement may be proposed only by
or with the consent of our general partner. However, our general
partner will have no duty or obligation to propose any amendment
and may decline to do so free of any fiduciary duty or
obligation whatsoever to us or the limited partners, including
any duty to act in good faith or in the best interests of us or
the limited partners. In order to adopt a proposed amendment,
other than the amendments discussed below, our general partner
is required to seek written approval of the holders of the
number of units required to approve the amendment or to call a
meeting of the limited partners to consider and vote upon the
proposed amendment. Except as described below, an amendment must
be approved by a unit majority.
Prohibited
amendments
No amendment may be made that would:
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enlarge the obligations of any limited partner without its
consent, unless approved by at least a majority of the type or
class of limited partner interests so affected; or
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enlarge the obligations of, restrict in any way any action by or
rights of, or reduce in any way the amounts distributable,
reimbursable or otherwise payable by us to our general partner
or any of its affiliates without the consent of our general
partner, which consent may be given or withheld at its option.
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The provision of our partnership agreement preventing the
amendments having the effects described in the clauses above can
be amended upon the approval of the holders of at least 90% of
the outstanding units, voting as a single class (including units
owned by our general partner and its affiliates). Upon
completion of the offering, our general partner and its
affiliates will own approximately 64.7% of our outstanding
common and subordinated units.
No unitholder
approval
Our general partner may generally make amendments to our
partnership agreement without the approval of any limited
partner or assignee to reflect:
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a change in our name, the location of our principal place of
business, our registered agent or our registered office;
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the admission, substitution, withdrawal or removal of partners
in accordance with our partnership agreement;
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a change that our general partner determines to be necessary or
appropriate to qualify or continue our qualification as a
limited partnership or a partnership in which the limited
partners have limited liability under the laws of any state or
to ensure that neither we nor the operating partnership nor any
of its subsidiaries will be treated as an association taxable as
a corporation or otherwise taxed as an entity for federal income
tax purposes;
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an amendment that is necessary, in the opinion of our counsel,
to prevent us or our general partner or its directors, officers,
agents or trustees from in any manner being subjected to the
provisions of the Investment Company Act of 1940, the Investment
Advisors Act of 1940 or plan asset regulations
adopted under the Employee Retirement Income Security Act of
1974, or ERISA, whether or not substantially similar to plan
asset regulations currently applied or proposed;
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an amendment that our general partner determines to be necessary
or appropriate for the authorization of additional partnership
securities or the right to acquire partnership securities,
including any amendment that our general partner determines is
necessary or appropriate in connection with:
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the adjustments of the minimum quarterly distribution, first
target distribution, second target distribution and third target
distribution in connection with the reset of our general
partners incentive distribution rights as described under
Provisions of our partnership agreement relating to cash
distributionsGeneral partners right to reset
incentive distribution levels, or
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any modification of the incentive distribution rights made in
connection with the issuance of additional partnership
securities or rights to acquire partnership securities, provided
that, any such modifications and related issuance of partnership
securities have received approval by a majority of the members
of the special committee of our general partner;
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any amendment expressly permitted in our partnership agreement
to be made by our general partner acting alone;
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an amendment effected, necessitated or contemplated by a merger
agreement that has been approved under the terms of our
partnership agreement;
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any amendment that our general partner determines to be
necessary or appropriate for the formation by us of, or our
investment in, any corporation, partnership or other entity, as
otherwise permitted by our partnership agreement;
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a change in our fiscal year or taxable year and related changes;
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conversions into, mergers with or conveyances to another limited
liability entity that is newly formed and has no assets,
liabilities or operations at the time of the conversion, merger
or conveyance other than those it receives by way of the
conversion, merger or conveyance; or
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any other amendments substantially similar to any of the matters
described in the clauses above.
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In addition, our general partner may make amendments to our
partnership agreement, without the approval of any limited
partner, if our general partner determines that those amendments:
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do not adversely affect the limited partners (or any particular
class of limited partners) in any material respect;
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are necessary or appropriate to satisfy any requirements,
conditions or guidelines contained in any opinion, directive,
order, ruling or regulation of any federal or state agency or
judicial authority or contained in any federal or state statute;
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are necessary or appropriate to facilitate the trading of
limited partner interests or to comply with any rule,
regulation, guideline or requirement of any securities exchange
on which the limited partner interests are or will be listed for
trading;
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are necessary or appropriate for any action taken by our general
partner relating to splits or combinations of units under the
provisions of our partnership agreement; or
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are required to effect the intent expressed in this prospectus
or the intent of the provisions of our partnership agreement or
are otherwise contemplated by our partnership agreement.
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Opinion of
counsel and unitholder approval
Our general partner will not be required to obtain an opinion of
counsel that an amendment will neither result in a loss of
limited liability to the limited partners nor result in our
being treated as an entity for federal income tax purposes in
connection with any of the amendments. No other amendments to
our partnership agreement will become effective without the
approval of holders of at least 90% of the outstanding units,
voting as a single class, unless we first obtain an opinion of
counsel to the effect that the amendment will not affect the
limited liability under applicable law of any of our limited
partners.
In addition to the above restrictions, any amendment that would
have a material adverse effect on the rights or preferences of
any type or class of outstanding units in relation to other
classes of units will require the approval of at least a
majority of the type or class of units so affected. Any
amendment that reduces the voting percentage required to take
any action is required to be approved by the affirmative vote of
limited partners whose aggregate outstanding units constitute
not less than the voting requirement sought to be reduced.
MERGER,
CONSOLIDATION, CONVERSION, SALE OR OTHER DISPOSITION OF
ASSETS
A merger, consolidation or conversion of us requires the prior
consent of our general partner. However, our general partner
will have no duty or obligation to consent to any merger,
consolidation or conversion and may decline to do so free of any
fiduciary duty or obligation whatsoever to us or the limited
partners, including any duty to act in good faith or in the best
interest of us or the limited partners.
In addition, the partnership agreement generally prohibits our
general partner, without the prior approval of the holders of a
unit majority, from causing us to, among other things, sell,
exchange or otherwise dispose of all or substantially all of our
assets in a single transaction or a series of related
transactions, including by way of merger, consolidation or other
combination, or approving on our behalf the sale, exchange or
other disposition of all or substantially all of the assets of
our subsidiaries. Our general partner may, however, mortgage,
pledge, hypothecate or grant a security interest in all or
substantially all of our assets without such approval. Our
general partner may also sell all or substantially all of our
assets under a foreclosure or other realization upon those
encumbrances without such approval. Finally, our general partner
may consummate any merger without the prior approval of our
unitholders if we are the surviving entity in the transaction,
our general partner has received an opinion of counsel regarding
limited liability and tax matters, the transaction would not
result in a material amendment to the partnership agreement,
each of our units will be an identical unit of our partnership
following the transaction and the partnership securities to be
issued do not exceed 20% of our outstanding partnership
securities immediately prior to the transaction.
If the conditions specified in the partnership agreement are
satisfied, our general partner may convert us or any of our
subsidiaries into a new limited liability entity or merge us or
any of our subsidiaries into, or convey all of our assets to, a
newly formed entity, if the sole purpose of that conversion,
merger or
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The partnership
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conveyance is to effect a mere change in our legal form into
another limited liability entity, our general partner has
received an opinion of counsel regarding limited liability and
tax matters and the governing instruments of the new entity
provide the limited partners and our general partner with the
same rights and obligations as contained in the partnership
agreement. Our unitholders are not entitled to dissenters
rights of appraisal under the partnership agreement or
applicable Delaware law in the event of a conversion, merger or
consolidation, a sale of substantially all of our assets or any
other similar transaction or event.
TERMINATION AND
DISSOLUTION
We will continue as a limited partnership until terminated under
our partnership agreement. We will dissolve upon:
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the election of our general partner to dissolve us, if approved
by the holders of units representing a unit majority;
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there being no limited partners, unless we are continued without
dissolution in accordance with applicable Delaware law;
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the entry of a decree of judicial dissolution of our
partnership; or
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the withdrawal or removal of our general partner or any other
event that results in its ceasing to be our general partner
other than by reason of a transfer of its general partner
interest in accordance with our partnership agreement or its
withdrawal or removal following the approval and admission of a
successor.
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Upon a dissolution under the last clause above, the holders of a
unit majority may also elect, within specific time limitations,
to continue our business on the same terms and conditions
described in our partnership agreement by appointing as a
successor general partner an entity approved by the holders of
units representing a unit majority, subject to our receipt of an
opinion of counsel to the effect that:
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the action would not result in the loss of limited liability of
any limited partner; and
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neither our partnership, our operating partnership nor any of
our other subsidiaries would be treated as an association
taxable as a corporation or otherwise be taxable as an entity
for federal income tax purposes upon the exercise of that right
to continue.
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LIQUIDATION AND
DISTRIBUTION OF PROCEEDS
Upon our dissolution, unless we are continued as a new limited
partnership, the liquidator authorized to wind up our affairs
will, acting with all of the powers of our general partner that
are necessary or appropriate, liquidate our assets and apply the
proceeds of the liquidation as described in Provisions of
our partnership agreement relating to cash
distributionsDistributions of cash upon liquidation.
The liquidator may defer liquidation or distribution of our
assets for a reasonable period of time or distribute assets to
partners in kind if it determines that a sale would be
impractical or would cause undue loss to our partners.
WITHDRAWAL OR
REMOVAL OF THE GENERAL PARTNER
Except as described below, our general partner has agreed not to
withdraw voluntarily as our general partner prior to
June 30, 2018 without obtaining the approval of the holders
of at least a majority of the outstanding common units,
excluding common units held by the general partner and its
affiliates, and furnishing an opinion of counsel regarding
limited liability and tax matters. On or after June 30,
2018, our general partner may withdraw as general partner
without first obtaining approval of any unitholder by giving
90 days written notice, and that withdrawal will not
constitute a violation of our
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The partnership
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partnership agreement. Notwithstanding the information above,
our general partner may withdraw without unitholder approval
upon 90 days notice to the limited partners if at
least 50% of the outstanding common units are held or controlled
by one unitholder and its affiliates, other than the general
partner and its affiliates. In addition, the partnership
agreement permits our general partner, in some instances, to
sell or otherwise transfer all of its general partner interest
in us without the approval of the unitholders. Please read
Transfer of general partner units and
Transfer of incentive distribution rights.
Upon withdrawal of our general partner under any circumstances,
other than as a result of a transfer by our general partner of
all or a part of its general partner interest in us, the holders
of a unit majority, voting as separate classes, may select a
successor to that withdrawing general partner. If a successor is
not elected, or is elected but an opinion of counsel regarding
limited liability and tax matters cannot be obtained, we will be
dissolved, wound up and liquidated, unless within a specified
period after that withdrawal, the holders of a unit majority
agree in writing to continue our business and to appoint a
successor general partner. Please read Termination
and dissolution.
Our general partner may not be removed unless that removal is
approved by the vote of the holders of not less than
662/3%
of the outstanding units, voting together as a single class,
including units held by our general partner and its affiliates,
and we receive an opinion of counsel regarding limited liability
and tax matters. Any removal of our general partner is also
subject to the approval of a successor general partner by the
vote of the holders of a majority of the outstanding common
units, voting as a single class, and the outstanding
subordinated units, voting as a single class. The ownership of
more than
331/3%
of the outstanding units by our general partner and its
affiliates would give them the practical ability to prevent our
general partners removal. At the close of this offering,
our general partner and its affiliates will own 64.7% of our
outstanding common and subordinated units.
Our partnership agreement also provides that if our general
partner is removed as our general partner under circumstances
where cause does not exist and the units held by the general
partner and its affiliates are not voted in favor of that
removal:
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the subordination period will end, and all outstanding
subordinated units will immediately convert into common units on
a one-for-one basis;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
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our general partner will have the right to convert its general
partner interest and its incentive distribution rights into
common units or to receive cash in exchange for those interests
based on the fair market value of those interests at that time.
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In the event of the removal of a general partner under
circumstances where cause exists or withdrawal of a general
partner where that withdrawal violates our partnership
agreement, a successor general partner will have the option to
purchase the general partner interest and incentive distribution
rights of the departing general partner for a cash payment equal
to the fair market value of those interests. Under all other
circumstances where a general partner withdraws or is removed by
the limited partners, the departing general partner will have
the option to require the successor general partner to purchase
the general partner interest of the departing general partner
and its incentive distribution rights for fair market value. In
each case, this fair market value will be determined by
agreement between the departing general partner and the
successor general partner. If no agreement is reached, an
independent investment banking firm or other independent expert
selected by the departing general partner and the successor
general partner will determine the fair market value. Or, if the
departing general partner and the successor general partner
cannot agree upon an expert, then an expert chosen by agreement
of the experts selected by each of them will determine the fair
market value.
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The partnership
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If the option described above is not exercised by either the
departing general partner or the successor general partner, the
departing general partners general partner interest and
its incentive distribution rights will automatically convert
into common units equal to the fair market value of those
interests as determined by an investment banking firm or other
independent expert selected in the manner described in the
preceding paragraph.
In addition, we will be required to reimburse the departing
general partner for all amounts due to the departing general
partner, including, without limitation, all employee-related
liabilities, including severance liabilities incurred as a
result of the termination of any employees employed for our
benefit by the departing general partner or its affiliates.
TRANSFER OF
GENERAL PARTNER UNITS
Except for transfer by our general partner of all, but not less
than all, of its general partner units to:
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an affiliate of our general partner (other than an individual);
or
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another entity as part of the merger or consolidation of our
general partner with or into another entity or the transfer by
our general partner of all or substantially all of its assets to
another entity,
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our general partner may not transfer all or any of its general
partner units to another person prior to June 30, 2018
without the approval of the holders of at least a majority of
the outstanding common units, excluding common units held by our
general partner and its affiliates. As a condition of this
transfer, the transferee must assume, among other things, the
rights and duties of our general partner, agree to be bound by
the provisions of our partnership agreement and furnish an
opinion of counsel regarding limited liability and tax matters.
Our general partner and its affiliates may, at any time,
transfer units to one or more persons, without unitholder
approval, except that they may not transfer subordinated units
to us.
TRANSFER OF
OWNERSHIP INTERESTS IN THE GENERAL PARTNER
At any time, Anadarko and its affiliates may sell or transfer
all or part of its partnership interests in our general partner
to an affiliate or third party without the approval of our
unitholders.
TRANSFER OF
INCENTIVE DISTRIBUTION RIGHTS
Our general partner or its affiliates or a subsequent holder may
transfer its incentive distribution rights to an affiliate of
the holder (other than an individual) or another entity as part
of the merger or consolidation of such holder with or into
another entity, the sale of all of the ownership interest in the
holder or the sale of all or substantially all of the
holders assets to that entity without the prior approval
of the unitholders; provided that, in the case of the sale of
ownership interests in the holder, the initial holder of the
incentive distribution rights continues to remain the general
partner following such sale. Prior to June 30, 2018, other
transfers of incentive distribution rights will require the
affirmative vote of holders of a majority of the outstanding
common units, excluding common units held by our general partner
and its affiliates. On or after June 30, 2018, the
incentive distribution rights will be freely transferable.
CHANGE OF
MANAGEMENT PROVISIONS
Our partnership agreement contains specific provisions that are
intended to discourage a person or group from attempting to
remove Western Gas Holdings, LLC as our general partner or from
otherwise changing our management. If any person or group, other
than our general partner and its affiliates, acquires beneficial
ownership of 20% or more of any class of units, that person or
group loses voting
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rights on all of its units. This loss of voting rights does not
apply to any person or group that acquires the units directly
from our general partner or its affiliates or any transferee of
that person or group that is approved by our general partner or
to any person or group who acquires the units with the prior
approval of the board of directors of our general partner.
Our partnership agreement also provides that if our general
partner is removed as our general partner under circumstances
where cause does not exist and units held by our general partner
and its affiliates are not voted in favor of that removal:
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the subordination period will end and all outstanding
subordinated units will immediately convert into common units on
a one-for-one basis;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
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our general partner will have the right to convert its general
partner units and its incentive distribution rights into common
units or to receive cash in exchange for those interests based
on the fair market value of those interests at that time.
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LIMITED CALL
RIGHT
If at any time our general partner and its affiliates own more
than 80% of the then-issued and outstanding limited partner
interests of any class, our general partner will have the right,
which it may assign in whole or in part to any of its affiliates
or to us, to acquire all, but not less than all, of the limited
partner interests of the class held by unaffiliated persons as
of a record date to be selected by our general partner, on at
least 10, but not more than 60, days notice. The purchase price
in the event of this purchase is the greater of:
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the highest cash price paid by our general partner or any of its
affiliates for any limited partner interests of the class
purchased within the 90 days preceding the date on which
our general partner first mails notice of its election to
purchase those limited partner interests; and
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the current market price as of the date three days before the
date the notice is mailed.
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As a result of our general partners right to purchase
outstanding limited partner interests, a holder of limited
partner interests may have his limited partner interests
purchased at a price that may be lower than market prices at
various times prior to such purchase or lower than a unitholder
may anticipate the market price to be in the future. The tax
consequences to a unitholder of the exercise of this call right
are the same as a sale by that unitholder of his common units in
the market. Please read Material tax
consequencesDisposition of common units.
NON-U.S. AND
NON-TAXPAYING ASSIGNEES; REDEMPTION
Our general partner, acting on our behalf, may at any time
require any or all unitholders to certify:
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that the unitholder is a U.S. individual or an entity subject to
U.S. federal income taxation on the income generated by
us; or
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that, if the unitholder is a U.S. entity not subject to U.S.
federal income taxation on the income generated by us, as in the
case, for example, of a mutual fund taxed as a regulated
investment company or a partnership, all the entitys
owners are U.S. individuals or entities subject to United States
federal income taxation on the income generated by us.
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This certification can be changed in any manner our general
partner determines is necessary or appropriate to implement its
original purpose.
If a unitholder fails to furnish:
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the required certification within 30 days after
request; or
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provides a false certification; then
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The partnership
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we will have the right, which we may assign to any of our
affiliates, to acquire all but not less than all of the units
held by such unitholder. Further, our general partner may elect
not to make distributions or allocate income or loss to such
unitholder.
The purchase price in the event of such an acquisition for each
unit held by such unitholder will be the lesser of:
(1) the price paid by such unitholder for the relevant
unit; and
(2) the average of the daily closing prices of the units
for the prior 20 consecutive trading days.
The purchase price will be paid in cash or by delivery of a
promissory note, as determined by our general partner. Any such
promissory note will bear interest at the rate of 5% annually
and be payable in three equal annual installments of principal
and accrued interest, commencing one year after the redemption
date
MEETINGS;
VOTING
Except as described below regarding a person or group owning 20%
or more of any class of units then outstanding, record holders
of units on the record date will be entitled to notice of, and
to vote at, meetings of our limited partners and to act upon
matters for which approvals may be solicited.
Our general partner does not anticipate that any meeting of our
unitholders will be called in the foreseeable future. Any action
that is required or permitted to be taken by the unitholders may
be taken either at a meeting of the unitholders or without a
meeting, if consents in writing describing the action so taken
are signed by holders of the number of units necessary to
authorize or take that action at a meeting. Meetings of the
unitholders may be called by our general partner or by
unitholders owning at least 20% of the outstanding units of the
class for which a meeting is proposed. Unitholders may vote
either in person or by proxy at meetings. The holders of a
majority of the outstanding units of the class or classes for
which a meeting has been called, represented in person or by
proxy, will constitute a quorum, unless any action by the
unitholders requires approval by holders of a greater percentage
of the units, in which case the quorum will be the greater
percentage.
Each record holder of a unit has a vote according to his
percentage interest in us, although additional limited partner
interests having special voting rights could be issued. Please
read Issuance of additional securities.
However, if at any time any person or group, other than our
general partner and its affiliates, or a direct or subsequently
approved transferee of our general partner or its affiliates,
acquires, in the aggregate, beneficial ownership of 20% or more
of any class of units then outstanding, that person or group
will lose voting rights on all of its units and the units may
not be voted on any matter and will not be considered to be
outstanding when sending notices of a meeting of unitholders,
calculating required votes, determining the presence of a quorum
or for other similar purposes. Common units held in nominee or
street name account will be voted by the broker or other nominee
in accordance with the instruction of the beneficial owner
unless the arrangement between the beneficial owner and his
nominee provides otherwise. Except as our partnership agreement
otherwise provides, subordinated units will vote together with
common units, as a single class.
Any notice, demand, request, report or proxy material required
or permitted to be given or made to record holders of common
units under our partnership agreement will be delivered to the
record holder by us or by the transfer agent.
STATUS AS LIMITED
PARTNER
By transfer of common units in accordance with our partnership
agreement, each transferee of common units shall be admitted as
a limited partner with respect to the common units transferred
when such transfer and admission are reflected in our books and
records. Except as described under Limited
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The partnership
agreement
liability, the common units will be fully paid, and
unitholders will not be required to make additional
contributions.
NON-CITIZEN
ASSIGNEES; REDEMPTION
If we are or become subject to federal, state or local laws or
regulations that, in the reasonable determination of our general
partner, create a substantial risk of cancellation or forfeiture
of any property that we have an interest in because of the
nationality, citizenship or other related status of any limited
partner, we may redeem the units held by that limited partner at
their current market price. In order to avoid any cancellation
or forfeiture, our general partner may require each limited
partner to furnish information about his nationality,
citizenship or related status. If a limited partner fails to
furnish information about his nationality, citizenship or other
related status within 30 days of a request for the
information or our general partner determines after receipt of
the information that the limited partner is not an eligible
citizen, the limited partner may be treated as a non-citizen
assignee. A non-citizen assignee is entitled to an interest
equivalent to that of a limited partner for the right to share
in allocations and distributions from us, including liquidating
distributions. A non-citizen assignee does not have the right to
direct the voting of his units and may not receive distributions
in-kind upon our liquidation.
INDEMNIFICATION
Under our partnership agreement, in most circumstances, we will
indemnify the following persons, to the fullest extent permitted
by law, from and against all losses, claims, damages or similar
events:
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our general partner;
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any departing general partner;
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any person who is or was an affiliate of a general partner or
any departing general partner;
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any person who is or was a director, officer, member, partner,
fiduciary or trustee of any entity set forth in the preceding
three bullet points;
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any person who is or was serving as director, officer, member,
partner, fiduciary or trustee of another person at the request
of our general partner or any departing general partner; and
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any person designated by our general partner.
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Any indemnification under these provisions will only be out of
our assets. Unless our general partner otherwise agrees, it will
not be personally liable for, or have any obligation to
contribute or lend funds or assets to us to enable us to
effectuate, indemnification. We may purchase insurance against
liabilities asserted against and expenses incurred by persons
for our activities, regardless of whether we would have the
power to indemnify the person against liabilities under our
partnership agreement.
REIMBURSEMENT OF
EXPENSES
Our partnership agreement requires us to reimburse our general
partner for all direct and indirect expenses it incurs or
payments it makes on our behalf and all other expenses allocable
to us or otherwise incurred by our general partner in connection
with the operation of our business. These expenses include
salary, bonus, incentive compensation and other amounts paid to
persons who perform services for us or on our behalf and
expenses allocated to our general partner by its affiliates. Our
general partner is entitled to determine in good faith the
expenses that are allocable to us.
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The partnership
agreement
BOOKS AND
REPORTS
Our general partner is required to keep appropriate books of our
business at our principal offices. These books will be
maintained for both tax and financial reporting purposes on an
accrual basis. For tax and fiscal reporting purposes, our fiscal
year is the calendar year.
We will furnish or make available to record holders of our
common units, within 120 days after the close of each
fiscal year, an annual report containing audited combined
financial statements and a report on those combined financial
statements by our independent public accountants. Except for our
fourth quarter, we will also furnish or make available summary
financial information within 90 days after the close of
each quarter.
We will furnish each record holder with information reasonably
required for tax reporting purposes within 90 days after
the close of each calendar year. This information is expected to
be furnished in summary form so that some complex calculations
normally required of partners can be avoided. Our ability to
furnish this summary information to our unitholders will depend
on their cooperation in supplying us with specific information.
Every unitholder will receive information to assist him in
determining his federal and state tax liability and in filing
his federal and state income tax returns, regardless of whether
he supplies us with the necessary information.
RIGHT TO INSPECT
OUR BOOKS AND RECORDS
Our partnership agreement provides that a limited partner can,
for a purpose reasonably related to his interest as a limited
partner, upon reasonable written demand stating the purpose of
such demand and at his own expense, have furnished to him:
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a current list of the name and last known address of each
partner;
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a copy of our tax returns;
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information as to the amount of cash, and a description and
statement of the agreed value of any other property or services,
contributed or to be contributed by each partner and the date on
which each partner became a partner;
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copies of our partnership agreement, our certificate of limited
partnership and related amendments and powers of attorney under
which they have been executed;
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information regarding the status of our business and our
financial condition; and
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any other information regarding our affairs as is just and
reasonable.
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Our general partner may, and intends to, keep confidential from
the limited partners trade secrets or other information
the disclosure of which our general partner believes in good
faith is not in our best interests or that we are required by
law or by agreements with third parties to keep confidential.
REGISTRATION
RIGHTS
Under our partnership agreement, we have agreed to register for
resale under the Securities Act and applicable state securities
laws any common units, subordinated units or other partnership
securities proposed to be sold by our general partner or any of
its affiliates or their assignees if an exemption from the
registration requirements is not otherwise available. These
registration rights continue for two years following any
withdrawal or removal of Western Gas Holdings, LLC as our
general partner. We are obligated to pay all expenses incidental
to the registration, excluding underwriting discounts and fees.
Please read Units eligible for future sale.
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Units eligible for
future sale
After the sale of the common units offered hereby, Anadarko will
hold an aggregate of 7,786,306 common units, assuming that the
underwriters do not exercise their option to purchase up to
2,812,500 additional common units, and 26,536,306 subordinated
units. All of the subordinated units will convert into common
units at the end of the subordination period and some may
convert earlier. The sale of these units could have an adverse
impact on the price of the common units or on any trading market
that may develop.
The common units sold in the offering will generally be freely
transferable without restriction or further registration under
the Securities Act, except that any common units owned by an
affiliate of ours may not be resold publicly except
in compliance with the registration requirements of the
Securities Act or under an exemption under Rule 144 or
otherwise. Rule 144 permits securities acquired by an
affiliate of the issuer to be sold into the market in an amount
that does not exceed, during any three-month period, the greater
of:
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1% of the total number of the securities outstanding, or
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the average weekly reported trading volume of the common units
for the four calendar weeks prior to the sale.
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Sales under Rule 144 are also subject to specific manner of
sale provisions, holding period requirements, notice
requirements and the availability of current public information
about us. A person who is not deemed to have been an affiliate
of ours at any time during the three months preceding a sale,
and who has beneficially owned his common units for at least six
months (provided we are in compliance with the current public
information requirement) or one year (regardless of whether we
are in compliance with the current public information
requirement), would be entitled to sell common units under
Rule 144 without regard to the rules public
information requirements, volume limitations, manner of sale
provisions and notice requirements.
The partnership agreement does not restrict our ability to issue
any partnership securities. Any issuance of additional common
units or other equity securities would result in a corresponding
decrease in the proportionate ownership interest in us
represented by, and could adversely affect the cash
distributions to and market price of, our common units then
outstanding. Please read The partnership
agreementissuance of additional securities.
Under our partnership agreement, our general partner and its
affiliates have the right to cause us to register under the
Securities Act and state securities laws the offer and sale of
any common units, subordinated units or other partnership
securities that they hold. Subject to the terms and conditions
of our partnership agreement, these registration rights allow
our general partner and its affiliates or their assignees
holding any units or other partnership securities to require
registration of any of these units or other partnership
securities and to include them in a registration by us of other
units, including units offered by us or by any unitholder. Our
general partner will continue to have these registration rights
for two years following its withdrawal or removal as our general
partner. In connection with any registration of this kind, we
will indemnify each unitholder participating in the registration
and its officers, directors and controlling persons from and
against any liabilities under the Securities Act or any state
securities laws arising from the registration statement or the
prospectus. We will bear all costs and expenses incidental to
any registration, excluding any underwriting discounts and fees.
Except as described below, our general partner and its
affiliates may sell their units or other partnership interests
in private transactions at any time, subject to compliance with
applicable laws.
Anadarko, our partnership, our general partner and its
affiliates, including the executive officers and directors of
our general partner, and any participant in our directed unit
program who purchases over $100,000 worth of common units have
agreed not to sell any common units they beneficially own for a
period of 180 days from the date of this prospectus. For a
description of these
lock-up
provisions, please read Underwriting.
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Material tax
consequences
This section is a summary of the material tax considerations
that may be relevant to prospective unitholders who are
individual citizens or residents of the U.S. and, unless
otherwise noted in the following discussion, is the opinion of
Vinson & Elkins L.L.P., counsel to our general partner
and us, insofar as it relates to legal conclusions with respect
to matters of U.S. federal income tax law. This section is based
upon current provisions of the Internal Revenue Code, existing
and proposed regulations and current administrative rulings and
court decisions, all of which are subject to change. Later
changes in these authorities may cause the tax consequences to
vary substantially from the consequences described below. Unless
the context otherwise requires, references in this section to
us or we are references to Western Gas
Partners, LP and our operating company.
The following discussion does not comment on all federal income
tax matters affecting us or our unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or
residents of the U.S. and has only limited application to
corporations, estates, trusts, nonresident aliens or other
unitholders subject to specialized tax treatment, such as
tax-exempt institutions, foreign persons, individual retirement
accounts (IRAs), real estate investment trusts (REITs), employee
benefit plans or mutual funds. Accordingly, we encourage each
prospective unitholder to consult, and depend on, his own tax
advisor in analyzing the federal, state, local and foreign tax
consequences particular to him of the ownership or disposition
of common units.
All statements as to matters of law and legal conclusions, but
not as to factual matters, contained in this section, unless
otherwise noted, are the opinion of Vinson & Elkins
L.L.P. and are based on the accuracy of the representations made
by us.
No ruling has been or will be requested from the IRS regarding
any matter affecting us or prospective unitholders. Instead, we
will rely on opinions of Vinson & Elkins L.L.P. Unlike
a ruling, an opinion of counsel represents only that
counsels best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made herein
may not be sustained by a court if contested by the IRS. Any
contest of this sort with the IRS may materially and adversely
impact the market for the common units and the prices at which
the common units trade. In addition, the costs of any contest
with the IRS, principally legal, accounting and related fees,
will result in a reduction in cash available for distribution to
our unitholders and our general partner and thus will be borne
indirectly by our unitholders and our general partner.
Furthermore, the tax treatment of us, or of an investment in us,
may be significantly modified by future legislative or
administrative changes or court decisions. Any modifications may
or may not be retroactively applied.
For the reasons described below, Vinson & Elkins
L.L.P. has not rendered an opinion with respect to the following
specific federal income tax issues: (1) the treatment of a
unitholder whose common units are loaned to a short seller to
cover a short sale of common units (please read Tax
consequences of unit ownershipTreatment of short
sales); (2) whether our monthly convention for
allocating taxable income and losses is permitted by existing
Treasury Regulations (please read Disposition of
common unitsAllocations between transferors and
transferees); and (3) whether our method for
depreciating Section 743 adjustments is sustainable in
certain cases (please read Tax consequences of unit
ownershipSection 754 election and
Uniformity of units).
PARTNERSHIP
STATUS
A partnership is not a taxable entity and incurs no federal
income tax liability. Instead, each partner of a partnership is
required to take into account his share of items of income,
gain, loss and deduction of the partnership in computing his
federal income tax liability, regardless of whether cash
distributions are made to him by the partnership. Distributions
by a partnership to a partner are generally not
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Material tax
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taxable to the partner unless the amount of cash distributed is
in excess of the partners adjusted basis in his
partnership interest.
Section 7704 of the Internal Revenue Code provides that
publicly traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to as the
Qualifying Income Exception, exists with respect to
publicly traded partnerships of which 90% or more of the gross
income for every taxable year consists of qualifying
income. Qualifying income includes income and gains
derived from the transportation, storage, processing and
marketing of crude oil, natural gas and products thereof. Other
types of qualifying income include interest (other than from a
financial business), dividends, gains from the sale of real
property and gains from the sale or other disposition of capital
assets held for the production of income that otherwise
constitutes qualifying income. We estimate that less than 2% of
our current gross income is not qualifying income; however, this
estimate could change from time to time. Based upon and subject
to this estimate, the factual representations made by us and our
general partner and a review of the applicable legal
authorities, Vinson & Elkins L.L.P. is of the opinion
that at least 90% of our current gross income constitutes
qualifying income. The portion of our income that is qualifying
income can change from time to time.
A publicly traded partnership may not rely upon the Qualifying
Income Exception if it is registered under the Investment
Company Act of 1940, or the Investment Company Act. If we were
required to register under the Investment Company Act, we would
be taxed as a corporation even if we met the Qualifying Income
Exception. Vinson & Elkins L.L.P. is of the opinion
that we may rely on the Qualifying Income Exception.
No ruling has been or will be sought from the IRS and the IRS
has made no determination as to our status or the status of the
operating company for federal income tax purposes or whether our
operations generate qualifying income under
Section 7704 of the Internal Revenue Code. Instead, we will
rely on the opinion of Vinson & Elkins L.L.P. on such
matters. It is the opinion of Vinson & Elkins L.L.P.
that, based upon the Internal Revenue Code, Treasury
Regulations, published revenue rulings and court decisions and
the representations described below, we will be classified as a
partnership and our operating company will be disregarded as an
entity separate from us for federal income tax purposes.
In rendering its opinion, Vinson & Elkins L.L.P. has
relied on factual representations made by us and our general
partner. The representations made by us and our general partner
upon which Vinson & Elkins L.L.P. has relied are:
(a) Neither we nor the operating company has elected
or will elect to be treated as a corporation;
(b) For each taxable year, more than 90% of our gross
income has been and will be income that Vinson &
Elkins L.L.P. has opined or will opine is qualifying
income within the meaning of Section 7704(d) of the
Internal Revenue Code; and
(c) Each hedging transaction that we treat as
resulting in qualifying income has been and will be
appropriately identified as a hedging transaction pursuant to
applicable Treasury Regulations, and has been and will be
associated with oil, gas, or products thereof that are held or
to be held by us in activities that Vinson & Elkins
L.L.P. has opined or will opine result in qualifying income.
If we fail to meet the Qualifying Income Exception, other than a
failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery, in which case
the IRS may also require us to make adjustments with respect to
our unitholders or pay other amounts, we will be treated as if
we had transferred all of our assets, subject to liabilities, to
a newly formed corporation, on the first day of the year in
which we fail to meet the Qualifying Income Exception, in return
for stock
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Material tax
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in that corporation, and then distributed that stock to the
unitholders in liquidation of their interests in us. This deemed
contribution and liquidation should be tax-free to unitholders
and us so long as we, at that time, do not have liabilities in
excess of the tax basis of our assets. Thereafter, we would be
treated as a corporation for federal income tax purposes.
If we were treated as an association taxable as a corporation in
any taxable year, either as a result of a failure to meet the
Qualifying Income Exception or otherwise, our items of income,
gain, loss and deduction would be reflected only on our tax
return rather than being passed through to our unitholders, and
our net income would be taxed to us at corporate rates. In
addition, any distribution made to a unitholder would be treated
as either taxable dividend income, to the extent of our current
or accumulated earnings and profits, or, in the absence of
earnings and profits, a nontaxable return of capital, to the
extent of the unitholders tax basis in his common units,
or taxable capital gain, after the unitholders tax basis
in his common units is reduced to zero. Accordingly, taxation as
a corporation would result in a material reduction in a
unitholders cash flow and after-tax return and thus would
likely result in a substantial reduction of the value of the
units.
The discussion below is based on Vinson & Elkins
L.L.P.s opinion that we will be classified as a
partnership for federal income tax purposes.
LIMITED PARTNER
STATUS
Unitholders who have become limited partners of Western Gas
Partners, LP will be treated as partners of Western Gas
Partners, LP for federal income tax purposes. Also, unitholders
whose common units are held in street name or by a nominee and
who have the right to direct the nominee in the exercise of all
substantive rights attendant to the ownership of their common
units will be treated as partners of Western Gas Partners, LP
for federal income tax purposes.
A beneficial owner of common units whose units have been
transferred to a short seller to complete a short sale would
appear to lose his status as a partner with respect to those
units for federal income tax purposes. Please read
Tax consequences of unit ownershipTreatment of
short sales.
Income, gain, deductions or losses are not reportable by a
unitholder who is not a partner for federal income tax purposes,
and any cash distributions received by a unitholder who is not a
partner for federal income tax purposes would therefore appear
to be fully taxable as ordinary income. These holders are urged
to consult their own tax advisors with respect to their tax
consequences of holding common units in Western Gas Partners,
LP. References to unitholders in the discussion that
follows are to persons who are treated as partners in Western
Gas Partners, LP for federal income tax purposes.
TAX CONSEQUENCES
OF UNIT OWNERSHIP
Flow-through of
taxable income
We will not pay any federal income tax. Instead, each unitholder
will be required to report on his income tax return his share of
our income, gains, losses and deductions without regard to
whether we make cash distributions to him. Consequently, we may
allocate income to a unitholder even if he has not received a
cash distribution. Each unitholder will be required to include
in income his allocable share of our income, gains, losses and
deductions for our taxable year ending with or within his
taxable year. Our taxable year ends on December 31.
Treatment of
distributions
Distributions by us to a unitholder generally will not be
taxable to the unitholder for federal income tax purposes,
except to the extent the amount of any such cash distribution
exceeds his tax basis in his
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Material tax
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common units immediately before the distribution. Our cash
distributions in excess of a unitholders tax basis in his
common units generally will be considered to be gain from the
sale or exchange of the common units, taxable in accordance with
the rules described under Disposition of common
units below. Any reduction in a unitholders share of
our liabilities for which no partner, including the general
partner, bears the economic risk of loss, known as
nonrecourse liabilities, will be treated as a
distribution of cash to that unitholder. To the extent our
distributions cause a unitholders at-risk
amount to be less than zero at the end of any taxable year, the
unitholder must recapture any losses deducted in previous years.
Please read Tax consequences of unit
ownershipLimitations on deductibility of losses.
A decrease in a unitholders percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash, which may
constitute a non-pro rata distribution. A non-pro rata
distribution of money or property may result in ordinary income
to a unitholder, regardless of his tax basis in his common
units, if the distribution reduces the unitholders share
of our unrealized receivables, including
depreciation recapture,
and/or
substantially appreciated inventory items, both as
defined in Section 751 of the Internal Revenue Code, and
collectively, Section 751 Assets. To that
extent, he will be treated as having been distributed his
proportionate share of the Section 751 Assets and then
having exchanged those assets with us in return for the non-pro
rata portion of the actual distribution made to him. This latter
deemed exchange will generally result in the unitholders
realization of ordinary income, which will equal the excess of
(1) the non-pro rata portion of that distribution over
(2) the unitholders tax basis (generally zero) for
the share of Section 751 Assets deemed relinquished in the
exchange.
Ratio of taxable
income to distributions
We estimate that a purchaser of common units in this offering
who owns those common units from the date of closing of this
offering through the record date for distributions for the
period ending December 31, 2010 will be allocated, on a
cumulative basis, an amount of federal taxable income for that
period that will be 30% or less of the cash distributed to the
unitholder with respect to that period. A substantial portion of
our unitholders allocable share of our taxable income
during this period will be attributable to the interest income
from our loan to Anadarko, which is treated as portfolio
income. A unitholder subject to the passive loss
limitations will not be able to offset his share of this
portfolio income with his allocable share of our operating
deductions and loss. For a further discussion of the passive
loss limitations, please read Limitations on
deductibility of losses. Thereafter, we anticipate that
the ratio of allocable taxable income to cash distributions to
the unitholders will increase. These estimates are based upon
the assumption that gross income from operations will
approximate the amount required to pay the minimum quarterly
distribution on all units and other assumptions with respect to
capital expenditures, cash flow, net working capital and
anticipated cash distributions. These estimates and assumptions
are subject to, among other things, numerous business, economic,
regulatory, legislative, competitive and political uncertainties
beyond our control. Further, the estimates are based on current
tax law and tax reporting positions that we will adopt and with
which the IRS could disagree. Accordingly, we cannot assure you
that these estimates will prove to be correct. The actual
percentage of distributions that will constitute taxable income
could be higher or lower than expected, and any differences
could be material and could materially affect the value of the
common units. For example, the ratio of allocable taxable income
to cash distributions to a purchaser of common units in this
offering will be greater, and perhaps substantially greater,
than our estimate with respect to the period described above if:
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gross income from operations exceeds the amount required to pay
the minimum quarterly distributions on all units, yet we only
distribute the minimum quarterly distributions on all units; or
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we make a future offering of common units and use the proceeds
of the offering in a manner that does not produce substantial
additional deductions during the period described above, such as
to repay indebtedness outstanding at the time of this offering
or to acquire property that is not eligible for depreciation or
amortization for federal income tax purposes or that is
depreciable or amortizable at a rate significantly slower than
the rate applicable to our assets at the time of this offering.
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Basis
of common units
A unitholders initial tax basis for his common units will
be the amount he paid for the common units plus his share of our
nonrecourse liabilities. That basis will be increased by his
share of our income and by any increases in his share of our
nonrecourse liabilities. That basis generally will be decreased,
but not below zero, by distributions from us, by the
unitholders share of our losses, by any decreases in his
share of our nonrecourse liabilities and by his share of our
expenditures that are not deductible in computing taxable income
and are not required to be capitalized. A unitholder will have
no share of our debt that is recourse to our general partner,
but will have a share, generally based on his share of profits,
of our nonrecourse liabilities. Please read
Disposition of common unitsRecognition of gain
or loss.
Limitations on
deductibility of losses
The deduction by a unitholder of his share of our losses will be
limited to the tax basis in his units and, in the case of an
individual unitholder, estate, trust, or corporate unitholder
(if more than 50% of the value of the corporate
unitholders stock is owned directly or indirectly by or
for five or fewer individuals or some tax-exempt organizations),
to the amount for which the unitholder is considered to be
at risk with respect to our activities, if that is
less than his tax basis. A common unitholder subject to these
limitations must recapture losses deducted in previous years to
the extent that distributions cause his at-risk amount to be
less than zero at the end of any taxable year. Losses disallowed
to a unitholder or recaptured as a result of these limitations
will carry forward and will be allowable as a deduction in a
later year to the extent that his tax basis or at-risk amount,
whichever is the limiting factor, is subsequently increased.
Upon the taxable disposition of a unit, any gain recognized by a
unitholder can be offset by losses that were previously
suspended by the at-risk limitation but may not be offset by
losses suspended by the basis limitation. Any loss previously
suspended by the at-risk or basis limitations in excess of that
gain would no longer be utilizable.
In general, a unitholder will be at risk to the extent of the
tax basis of his units, excluding any portion of that basis
attributable to his share of our nonrecourse liabilities,
reduced by (i) any portion of that basis representing
amounts otherwise protected against loss because of a guarantee,
stop loss agreement or other similar arrangement and
(ii) any amount of money he borrows to acquire or hold his
units, if the lender of those borrowed funds owns an interest in
us, is related to the unitholder or can look only to the units
for repayment. A unitholders at-risk amount will increase
or decrease as the tax basis of the unitholders units
increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of
our nonrecourse liabilities.
In addition to the basis and at-risk limitations on the
deductibility of losses, the passive loss limitations generally
provide that individuals, estates, trusts and some closely-held
corporations and personal service corporations are permitted to
deduct losses from passive activities, which are generally trade
or business activities in which the taxpayer does not materially
participate, only to the extent of the taxpayers income
from those passive activities. Moreover, income from
portfolio income such as general investment income
from dividends and interest is specifically excluded from the
passive loss calculations, and the passive loss limitations are
applied separately with respect to each publicly traded
partnership. Consequently, any passive losses we generate will
only be available to offset our passive
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Material tax
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income generated in the future and will not be available to
offset (i) our portfolio income, such as interest income
with respect to our loan to Anadarko or other income we could
earn from additional investments, (ii) a unitholders
income from other passive activities or investments, including
investments in other publicly traded partnerships, or
(iii) a unitholders salary or active business income.
Passive losses that are not deductible because they exceed a
unitholders share of income we generate may be deducted in
full when the unitholder disposes of his entire investment in us
in a fully taxable transaction with an unrelated party. The
passive loss limitations are applied after other applicable
limitations on deductions, including the at-risk rules and the
basis limitation.
A unitholders share of our net income may be offset by any
of our suspended passive losses, but it may not be offset by any
other current or carryover losses from other passive activities,
including those attributable to other publicly traded
partnerships.
Limitations on
interest deductions
The deductibility of a non-corporate taxpayers
investment interest expense is generally limited to
the amount of that taxpayers net investment
income. Investment interest expense includes:
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interest on indebtedness properly allocable to property held for
investment;
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our interest expense attributed to portfolio income; and
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the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
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The computation of a unitholders investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a unit.
Net investment income includes gross income from property held
for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than
interest, directly connected with the production of investment
income, but generally does not include gains attributable to the
disposition of property held for investment. The IRS has
indicated that the net passive income earned by a publicly
traded partnership will be treated as investment income to its
unitholders. In addition, the unitholders share of our
portfolio income will be treated as investment income.
Entity-level collections
If we are required or elect under applicable law to pay any
federal, state, local or foreign income tax on behalf of any
unitholder or our general partner or any former unitholder, we
are authorized to pay those taxes from our funds. That payment,
if made, will be treated as a distribution of cash to the
unitholder on whose behalf the payment was made. If the payment
is made on behalf of a person whose identity cannot be
determined, we are authorized to treat the payment as a
distribution to all current unitholders. We are authorized to
amend our partnership agreement in the manner necessary to
maintain uniformity of intrinsic tax characteristics of units
and to adjust later distributions, so that after giving effect
to these distributions, the priority and characterization of
distributions otherwise applicable under our partnership
agreement is maintained as nearly as is practicable. Payments by
us as described above could give rise to an overpayment of tax
on behalf of an individual unitholder in which event the
unitholder would be required to file a claim in order to obtain
a credit or refund.
Allocation of
income, gain, loss and deduction
In general, if we have a net profit, our items of income, gain,
loss and deduction will be allocated among our general partner
and the unitholders in accordance with their percentage
interests in us. At any time that distributions are made to the
common units in excess of distributions to the subordinated
units, or incentive distributions are made to our general
partner, gross income will be allocated to the
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Material tax
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recipients to the extent of these distributions. If we have a
net loss for the entire year, that loss will be allocated first
to our general partner and the unitholders in accordance with
their percentage interests in us to the extent of their positive
capital accounts and, second, to our general partner.
Specified items of our income, gain, loss and deduction will be
allocated under Section 704(c) of the Internal Revenue Code
to account for the difference between the tax basis and fair
market value of property contributed to us by the general
partner and its affiliates, referred to in this discussion as
Contributed Property. The effect of these
allocations, referred to as Section 704(c) Allocations, to
a unitholder purchasing common units from us in this offering
will be essentially the same as if the tax basis of our assets
were equal to their fair market value at the time of this
offering. In the event we issue additional common units or
engage in certain other transactions in the future Reverse
Section 704(c) Allocations, similar to the
Section 704(c) Allocations described above, will be made to
all holders of partnership interests, including purchasers of
common units in this offering, to account for the difference, at
the time of the future transaction, between the book
basis for purposes of maintaining capital accounts and the fair
market value of all property held by us at the time of the
future transaction. In addition, items of recapture income will
be allocated to the extent possible to the unitholder who was
allocated the deduction giving rise to the treatment of that
gain as recapture income in order to minimize the recognition of
ordinary income by other unitholders. Finally, although we do
not expect that our operations will result in the creation of
negative capital accounts, if negative capital accounts
nevertheless result, items of our income and gain will be
allocated in an amount and manner to eliminate the negative
balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction,
other than an allocation required by Section 704(c) of the
Internal Revenue Code to eliminate the difference between a
partners book capital account, credited with
the fair market value of Contributed Property, and
tax capital account, credited with the tax basis of
Contributed Property, referred to in this discussion as the
Book-Tax Disparity, will generally be given effect
for federal income tax purposes in determining a partners
share of an item of income, gain, loss or deduction only if the
allocation has substantial economic effect.
In any other case, a partners share of an item will be
determined on the basis of his interest in us, which will be
determined by taking into account all the facts and
circumstances, including:
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his relative contributions to us;
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the interests of all the partners in profits and losses;
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the interest of all the partners in cash flow; and
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the rights of all the partners to distributions of capital upon
liquidation.
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Vinson & Elkins L.L.P. is of the opinion that, with
the exception of the issues described in Tax
consequences of unit ownershipSection 754
election, Uniformity of units and
Disposition of common unitsAllocations between
transferors and transferees, allocations under our
partnership agreement will be given effect for federal income
tax purposes in determining a partners share of an item of
income, gain, loss or deduction.
Treatment of
short sales
A unitholder whose units are loaned to a short
seller to cover a short sale of units may be considered as
having disposed of those units. If so, he would no longer be
treated for tax purposes as a partner with respect to those
units during the period of the loan and may recognize gain or
loss from the disposition. As a result, during this period:
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any of our income, gain, loss or deduction with respect to those
units would not be reportable by the unitholder;
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Material tax
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any cash distributions received by the unitholder as to those
units would be fully taxable; and
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all of these distributions would appear to be ordinary income.
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Vinson & Elkins L.L.P. has not rendered an opinion
regarding the treatment of a unitholder where common units are
loaned to a short seller to cover a short sale of common units;
therefore, unitholders desiring to assure their status as
partners and avoid the risk of gain recognition from a loan to a
short seller are urged to modify any applicable brokerage
account agreements to prohibit their brokers from loaning their
units. The IRS has announced that it is actively studying issues
relating to the tax treatment of short sales of partnership
interests. Please also read Disposition of common
unitsrecognition of gain or loss.
Alternative
minimum tax
Each unitholder will be required to take into account his
distributive share of any items of our income, gain, loss or
deduction for purposes of the alternative minimum tax. The
current minimum tax rate for noncorporate taxpayers is 26% on
the first $175,000 of alternative minimum taxable income in
excess of the exemption amount and 28% on any additional
alternative minimum taxable income. Prospective unitholders are
urged to consult with their tax advisors as to the impact of an
investment in units on their liability for the alternative
minimum tax.
Tax
rates
In general, the highest effective U.S. federal income tax rate
for individuals is currently 35%, and the maximum U.S. federal
income tax rate for net capital gains of an individual where the
asset disposed of was held for more than twelve months at the
time of disposition, is scheduled to remain at 15% for years
2008-2010
and then increase to 20% beginning January 1, 2011.
Section 754
election
We will make the election permitted by Section 754 of the
Internal Revenue Code. That election is irrevocable without the
consent of the IRS. The election will generally permit us to
adjust a common unit purchasers tax basis in our assets
(inside basis) under Section 743(b) of the
Internal Revenue Code to reflect his purchase price. This
election does not apply to a person who purchases common units
directly from us. The Section 743(b) adjustment belongs to
the purchaser and not to other unitholders. For purposes of this
discussion, a unitholders inside basis in our assets will
be considered to have two components: (1) his share of our
tax basis in our assets (common basis) and
(2) his Section 743(b) adjustment to that basis.
Where the remedial allocation method is adopted (which we will
generally adopt as to our properties), the Treasury Regulations
under Section 743 of the Internal Revenue Code require a
portion of the Section 743(b) adjustment that is
attributable to recovery property under Section 168 of the
Internal Revenue Code whose book basis is in excess of its tax
basis to be depreciated over the remaining cost recovery period
for the propertys unamortized Book-Tax Disparity. Under
Treasury
Regulation Section 1.167(c)-1(a)(6),
a Section 743(b) adjustment attributable to property
subject to depreciation under Section 167 of the Internal
Revenue Code, rather than cost recovery deductions under
Section 168, is generally required to be depreciated using
either the straight-line method or the 150% declining balance
method. Under our partnership agreement, our general partner is
authorized to take a position to preserve the uniformity of
units even if that position is not consistent with these and any
other Treasury Regulations. Please read Uniformity
of units.
Although Vinson & Elkins L.L.P. is unable to opine as
to the validity of this approach because there is no direct or
indirect controlling authority on this issue, we intend to
depreciate the portion of a
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Material tax
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Section 743(b) adjustment attributable to unrealized
appreciation in the value of Contributed Property, to the extent
of any unamortized Book-Tax Disparity, using a rate of
depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the
propertys unamortized Book-Tax Disparity, or treat that
portion as
non-amortizable
to the extent attributable to property which is not amortizable.
This method is consistent with the regulations under
Section 743 of the Internal Revenue Code but is arguably
inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets. To the extent this Section 743(b) adjustment is
attributable to appreciation in value in excess of the
unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken,
we may take a depreciation or amortization position under which
all purchasers acquiring units in the same month would receive
depreciation or amortization, whether attributable to common
basis or a Section 743(b) adjustment, based upon the same
applicable rate as if they had purchased a direct interest in
our assets. This kind of aggregate approach may result in lower
annual depreciation or amortization deductions than would
otherwise be allowable to some unitholders. Please read
Uniformity of units. A unitholders tax
basis for his common units is reduced by his share of our
deductions (whether or not such deductions were claimed on an
individuals income tax return) so that any position we
take that understates deductions will overstate the common
unitholders basis in his common units, which may cause the
unitholder to understate gain or overstate loss on any sale of
such units. Please read Disposition of common
unitsRecognition of gain or loss. The IRS may
challenge our position with respect to depreciating or
amortizing the Section 743(b) adjustment we take to
preserve the uniformity of the units. If such a challenge were
sustained, the gain from the sale of units might be increased
without the benefit of additional deductions.
A Section 754 election is advantageous if the
transferees tax basis in his units is higher than the
units share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of
the election, the transferee would have, among other items, a
greater amount of depreciation and depletion deductions and his
share of any gain or loss on a sale of our assets would be less.
Conversely, a Section 754 election is disadvantageous if
the transferees tax basis in his units is lower than those
units share of the aggregate tax basis of our assets
immediately prior to the transfer. Thus, the fair market value
of the units may be affected either favorably or unfavorably by
the election. A basis adjustment is required regardless of
whether a Section 754 election is made in the case of a
transfer of an interest in us if we have a substantial built-in
loss immediately after the transfer, or if we distribute
property and have a substantial basis reduction. Generally a
built-in loss or a basis reduction is substantial if it exceeds
$250,000.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue
Code. The IRS could seek to reallocate some or all of any
Section 743(b) adjustment allocated by us to our tangible
assets to goodwill instead. Goodwill, as an intangible asset, is
generally either nonamortizable or amortizable over a longer
period of time or under a less accelerated method than our
tangible assets. We cannot assure you that the determinations we
make will not be successfully challenged by the IRS and that the
deductions resulting from them will not be reduced or disallowed
altogether. Should the IRS require a different basis adjustment
to be made, and should, in our opinion, the expense of
compliance exceed the benefit of the election, we may seek
permission from the IRS to revoke our Section 754 election.
If permission is granted, a subsequent purchaser of units may be
allocated more income than he would have been allocated had the
election not been revoked.
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TAX TREATMENT OF
OPERATIONS
Accounting method
and taxable year
We use the year ending December 31 as our taxable year and the
accrual method of accounting for federal income tax purposes.
Each unitholder will be required to include in income his share
of our income, gain, loss and deduction for our taxable year
ending within or with his taxable year. In addition, a
unitholder who has a taxable year ending on a date other than
December 31 and who disposes of all of his units following the
close of our taxable year but before the close of his taxable
year must include his share of our income, gain, loss and
deduction in income for his taxable year, with the result that
he will be required to include in income for his taxable year
his share of more than one year of our income, gain, loss and
deduction. Please read Disposition of common
unitsAllocations between transferors and transferees.
Initial tax
basis, depreciation and amortization
The tax basis of our assets will be used for purposes of
computing depreciation and cost recovery deductions and,
ultimately, gain or loss on the disposition of these assets. The
federal income tax burden associated with the difference between
the fair market value of our assets and their tax basis
immediately prior to this offering will be borne by our general
partner. Please read Tax consequences of unit
ownershipAllocation of income, gain, loss and
deduction.
To the extent allowable, we may elect to use the depreciation
and cost recovery methods that will result in the largest
deductions being taken in the early years after assets subject
to these allowances are placed in service. Please read
Uniformity of units. Property we subsequently
acquire or construct may be depreciated using accelerated
methods permitted by the Internal Revenue Code.
If we dispose of depreciable property by sale, foreclosure or
otherwise, all or a portion of any gain, determined by reference
to the amount of depreciation previously deducted and the nature
of the property, may be subject to the recapture rules and taxed
as ordinary income rather than capital gain. Similarly, a
unitholder who has taken cost recovery or depreciation
deductions with respect to property we own will likely be
required to recapture some or all of those deductions as
ordinary income upon a sale of his interest in us. Please read
Tax consequences of unit ownershipAllocation
of income, gain, loss and deduction and
Disposition of common unitsRecognition of gain
or loss.
The costs incurred in selling our units (called
syndication expenses) must be capitalized and cannot
be deducted currently, ratably or upon our termination. There
are uncertainties regarding the classification of costs as
organization expenses, which may be amortized by us, and as
syndication expenses, which may not be amortized by us. The
underwriting discounts we incur will be treated as syndication
expenses.
Valuation and tax
basis of our properties
The federal income tax consequences of the ownership and
disposition of units will depend in part on our estimates of the
relative fair market values, and the initial tax bases, of our
assets. Although we may from time to time consult with
professional appraisers regarding valuation matters, we will
make many of the relative fair market value estimates ourselves.
These estimates and determinations of basis are subject to
challenge and will not be binding on the IRS or the courts. If
the estimates of fair market value or basis are later found to
be incorrect, the character and amount of items of income, gain,
loss or deductions previously reported by unitholders might
change, and unitholders might be required to adjust their tax
liability for prior years and incur interest and penalties with
respect to those adjustments.
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DISPOSITION OF
COMMON UNITS
Recognition of
gain or loss
Gain or loss will be recognized on a sale of units equal to the
difference between the unitholders amount realized and the
unitholders tax basis for the units sold. A
unitholders amount realized will be measured by the sum of
the cash or the fair market value of other property received by
him plus his share of our nonrecourse liabilities attributable
to the common units sold. Because the amount realized includes a
unitholders share of our nonrecourse liabilities, the gain
recognized on the sale of units could result in a tax liability
in excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable
income for a common unit that decreased a unitholders tax
basis in that common unit will, in effect, become taxable income
if the common unit is sold at a price greater than the
unitholders tax basis in that common unit, even if the
price received is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder,
other than a dealer in units, on the sale or
exchange of a unit held for more than one year will generally be
taxable as capital gain or loss. Capital gain recognized by an
individual on the sale of units held more than twelve months
will generally be taxed at a maximum rate of 15%. However, a
portion of this gain or loss, which will likely be substantial,
will be separately computed and taxed as ordinary income or loss
under Section 751 of the Internal Revenue Code to the
extent attributable to assets giving rise to depreciation
recapture or other unrealized receivables or to
inventory items we own. The term unrealized
receivables includes potential recapture items, including
depreciation recapture. Ordinary income attributable to
unrealized receivables, inventory items and depreciation
recapture may exceed net taxable gain realized upon the sale of
a unit and may be recognized even if there is a net taxable loss
realized on the sale of a unit. Thus, a unitholder may recognize
both ordinary income and a capital loss upon a sale of units.
Net capital losses may offset capital gains and no more than
$3,000 of ordinary income, in the case of individuals, and may
only be used to offset capital gains in the case of corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those
interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated
to the interests sold using an equitable
apportionment method, which generally means that the tax
basis allocated to the interest sold equals an amount that bears
the same relation to the partners tax basis in his entire
interest in the partnership as the value of the interest sold
bears to the value of the partners entire interest in the
partnership. Treasury Regulations under Section 1223 of the
Internal Revenue Code allow a selling unitholder who can
identify common units transferred with an ascertainable holding
period to elect to use the actual holding period of the common
units transferred. Thus, according to the ruling, a common
unitholder will be unable to select high or low basis common
units to sell as would be the case with corporate stock, but,
according to the regulations, may designate specific common
units sold for purposes of determining the holding period of
units transferred. A unitholder electing to use the actual
holding period of common units transferred must consistently use
that identification method for all subsequent sales or exchanges
of common units. A unitholder considering the purchase of
additional units or a sale of common units purchased in separate
transactions is urged to consult his tax advisor as to the
possible consequences of this ruling and application of the
Treasury Regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some financial products and securities, including
partnership interests, by treating a taxpayer as having sold an
appreciated
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partnership interest, one in which gain would be recognized if
it were sold, assigned or terminated at its fair market value,
if the taxpayer or related persons enter(s) into:
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a short sale;
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an offsetting notional principal contract; or
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a futures or forward contract with respect to the partnership
interest or substantially identical property.
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Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract or a futures or
forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the
taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of
the Treasury is also authorized to issue regulations that treat
a taxpayer that enters into transactions or positions that have
substantially the same effect as the preceding transactions as
having constructively sold the financial position.
Allocations
between transferors and transferees
In general, our taxable income or loss will be determined
annually, will be prorated on a monthly basis and will be
subsequently apportioned among the unitholders in proportion to
the number of units owned by each of them as of the opening of
the applicable exchange on the first business day of the month,
which we refer to in this prospectus as the Allocation
Date. However, gain or loss realized on a sale or other
disposition of our assets other than in the ordinary course of
business will be allocated among the unitholders on the
Allocation Date in the month in which that gain or loss is
recognized. As a result, a unitholder transferring units may be
allocated income, gain, loss and deduction realized after the
date of transfer.
The use of this method may not be permitted under existing
Treasury Regulations. Accordingly, Vinson & Elkins
L.L.P. is unable to opine on the validity of this method of
allocating income and deductions between transferor and
transferee unitholders. We use this method because it is not
administratively feasible to make these allocations on a more
frequent basis. If this method is not allowed under the Treasury
Regulations, or only applies to transfers of less than all of
the unitholders interest, our taxable income or losses
might be reallocated among the unitholders. We are authorized to
revise our method of allocation between transferor and
transferee unitholders, as well as unitholders whose interests
vary during a taxable year, to conform to a method permitted
under future Treasury Regulations.
A unitholder who owns units at any time during a quarter and who
disposes of them prior to the record date set for a cash
distribution for that quarter will be allocated items of our
income, gain, loss and deductions attributable to that quarter
but will not be entitled to receive that cash distribution.
Notification
requirements
A unitholder who sells any of his units is generally required to
notify us in writing of that sale within 30 days after the
sale (or, if earlier, January 15 of the year following the
sale). A purchaser of units who purchases units from another
unitholder is also generally required to notify us in writing of
that purchase within 30 days after the purchase. Upon
receiving such notifications, we are required to notify the IRS
of any such transfer of units and to furnish specified
information to the transferor and transferee. Failure to notify
us of a transfer of units may, in some cases, lead to the
imposition of penalties. However, these reporting requirements
do not apply to a sale by an individual who is a citizen of the
U.S. and who effects the sale or exchange through a broker who
will satisfy such requirements.
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Constructive
termination
We will be considered to have been terminated for tax purposes
if there is a sale or exchange of 50.0% or more of the total
interests in our capital and profits or assets within a
twelve-month period. A constructive termination results in the
closing of our taxable year for all unitholders. In the case of
a unitholder reporting on a taxable year other than a taxable
year ending December 31, the closing of our taxable year
may result in more than twelve months of our taxable income or
loss being includable in his taxable income for the year of
termination. We would be required to make new tax elections
after a termination, including a new election under
Section 754 of the Internal Revenue Code, and a termination
would result in a deferral of our deductions for depreciation. A
termination could also result in penalties if we were unable to
determine that the termination had occurred. Moreover, a
termination might either accelerate the application of, or
subject us to, any tax legislation enacted before the
termination.
UNIFORMITY OF
UNITS
Because we cannot match transferors and transferees of units, we
must maintain uniformity of the economic and tax characteristics
of the units to a purchaser of these units. In the absence of
uniformity, we may be unable to completely comply with a number
of federal income tax requirements, both statutory and
regulatory. A lack of uniformity can result from a literal
application of Treasury
Regulation Section 1.167(c)-1(a)(6).
Any non-uniformity could have a negative impact on the value of
the units. Please read Tax consequences of unit
ownershipSection 754 election.
We intend to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value
of Contributed Property, to the extent of any unamortized
Book-Tax Disparity, using a rate of depreciation or amortization
derived from the depreciation or amortization method and useful
life applied to the propertys unamortized Book-Tax
Disparity, or treat that portion as nonamortizable, to the
extent attributable to property which is not amortizable,
consistent with the regulations under Section 743 of the
Internal Revenue Code, even though that position may be
inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets. Please read Tax consequences of unit
ownershipSection 754 election. To the extent
that the Section 743(b) adjustment is attributable to
appreciation in value in excess of the unamortized Book-Tax
Disparity, we will apply the rules described in the Treasury
Regulations and legislative history. If we determine that this
position cannot reasonably be taken, we may adopt a depreciation
and amortization position under which all purchasers acquiring
units in the same month would receive depreciation and
amortization deductions, whether attributable to a common basis
or Section 743(b) adjustment, based upon the same
applicable rate as if they had purchased a direct interest in
our property. If this position is adopted, it may result in
lower annual depreciation and amortization deductions than would
otherwise be allowable to some unitholders and risk the loss of
depreciation and amortization deductions not taken in the year
that these deductions are otherwise allowable. This position
will not be adopted if we determine that the loss of
depreciation and amortization deductions will have a material
adverse effect on the unitholders. If we choose not to utilize
this aggregate method, we may use any other reasonable
depreciation and amortization method to preserve the uniformity
of the intrinsic tax characteristics of any units that would not
have a material adverse effect on the unitholders. Our counsel,
Vinson & Elkins L.L.P., is unable to opine on the
validity of any of these positions. The IRS may challenge any
method of depreciating the Section 743(b) adjustment
described in this paragraph. If this challenge were sustained,
the uniformity of units might be affected, and the gain from the
sale of units might be increased without the benefit of
additional deductions. Please read Disposition of
common unitsRecognition of gain or loss.
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TAX-EXEMPT
ORGANIZATIONS AND OTHER INVESTORS
Pursuant to our Partnership Agreement, ownership of units by
employee benefit plans, other tax-exempt organizations,
non-resident aliens,
non-U.S. entities
and other
non-U.S. persons
is subject to material limitations. For example, neither
non-U.S. persons
nor
non-U.S. entities
qualify as Eligible Holders, and after a
determination by the general partner that a unitholder is not an
Eligible Holder, such unitholder will be subject to redemption
and may no longer receive distributions or allocations with
respect to its common units. For additional discussion of
Eligible Holders and the issues related thereto, please read
The partnership agreement
Non-U.S. and
non-taxpaying assignees; Redemption.
Moreover, ownership of units by employee benefit plans, other
tax-exempt organizations, non-resident aliens,
non-U.S. entities
and other
non-U.S. persons
raises issues unique to those investors and, as described below,
may have substantially adverse tax consequences to them.
Employee benefit plans and most other organizations exempt from
federal income tax, including individual retirement accounts and
other retirement plans, are subject to federal income tax on
unrelated business taxable income. Virtually all of our income
allocated to a unitholder that is a tax-exempt organization will
be unrelated business taxable income and will be taxable to them.
Non-resident aliens and foreign corporations, trusts or estates
that own units will be considered to be engaged in business in
the U.S. because of the ownership of units. As a consequence,
they will be required to file federal tax returns to report
their share of our income, gain, loss or deduction and pay
federal income tax at regular rates on their share of our net
income or gain. Moreover, under rules applicable to publicly
traded partnerships, we will withhold tax at the highest
applicable effective tax rate from cash distributions made
quarterly to
non-U.S.
unitholders. Each
non-U.S.
unitholder must obtain a taxpayer identification number from the
IRS and submit that number to our transfer agent on a
Form W-8BEN
or applicable substitute form in order to obtain credit for
these withholding taxes. A change in applicable law may require
us to change these procedures.
In addition, because a
non-U.S.
corporation that owns units will be treated as engaged in a U.S.
trade or business, that corporation may be subject to the U.S.
branch profits tax at a rate of 30%, in addition to regular
federal income tax, on its share of our income and gain, as
adjusted for changes in the
non-U.S.
corporations U.S. net equity, which is
effectively connected with the conduct of a U.S. trade or
business. That tax may be reduced or eliminated by an income tax
treaty between the U.S. and the country in which the
non-U.S.
corporate unitholder is a qualified resident. In
addition, this type of unitholder is subject to special
information reporting requirements under Section 6038C of
the Internal Revenue Code.
A non-U.S unitholder who sells or otherwise disposes of a unit
will be subject to U.S. federal income tax on gain realized
from the sale or disposition of that unit to the extent the gain
is effectively connected with a U.S. trade or business of
the
non-U.S. unitholder.
Under a ruling published by the IRS, interpreting the scope of
effectively connected income, a
non-U.S. unitholder
would be considered to be engaged in a trade or business in the
U.S. by virtue of the U.S. activities of the
partnership, and part or all of that unitholders gain
would be effectively connected with that unitholders
indirect U.S. trade or business. Moreover, under the
Foreign Investment in Real Property Tax Act, a
non-U.S. unitholder
of a publicly traded partnership would be subject to
U.S. federal income tax or withholding tax upon the sale or
disposition of a unit to the extent of the unitholders
share of the partnerships U.S. real property holdings
if he owns 5% or more of the units at any point during the
five-year period ending on the date of such disposition.
Therefore,
non-U.S. unitholders
may be subject to federal income tax on gain from the sale or
disposition of their units.
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Material tax
consequences
ADMINISTRATIVE
MATTERS
Information
returns and audit procedures
We intend to furnish to each unitholder, within 90 days
after the close of each taxable year, specific tax information,
including a
Schedule K-1,
which describes each unitholders share of our income,
gain, loss and deduction for our preceding taxable year. In
preparing this information, which will not be reviewed by
counsel, we will take various accounting and reporting
positions, some of which have been mentioned earlier, to
determine each unitholders share of income, gain, loss and
deduction. We cannot assure you that those positions will yield
a result that conforms to the requirements of the Internal
Revenue Code, Treasury Regulations or administrative
interpretations of the IRS. Neither we nor Vinson &
Elkins L.L.P. can assure prospective unitholders that the IRS
will not successfully contend in court that those positions are
impermissible. Any challenge by the IRS could negatively affect
the value of the units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each
unitholder to adjust a prior years tax liability, and
possibly may result in an audit of his return. Any audit of a
unitholders return could result in adjustments not related
to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for
purposes of federal tax audits, judicial review of
administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the Tax Matters Partner for these
purposes. Our partnership agreement names our general partner as
our Tax Matters Partner.
The Tax Matters Partner will make some elections on our behalf
and on behalf of unitholders. In addition, the Tax Matters
Partner can extend the statute of limitations for assessment of
tax deficiencies against unitholders for items in our returns.
The Tax Matters Partner may bind a unitholder with less than a
1% profits interest in us to a settlement with the IRS unless
that unitholder elects, by filing a statement with the IRS, not
to give that authority to the Tax Matters Partner. The Tax
Matters Partner may seek judicial review, by which all the
unitholders are bound, of a final partnership administrative
adjustment and, if the Tax Matters Partner fails to seek
judicial review, judicial review may be sought by any unitholder
having at least a 1% interest in profits or by any group of
unitholders having in the aggregate at least a 5% interest in
profits. However, only one action for judicial review will go
forward, and each unitholder with an interest in the outcome may
participate in that action.
A unitholder must file a statement with the IRS identifying the
treatment of any item on his federal income tax return that is
not consistent with the treatment of the item on our return.
Intentional or negligent disregard of this consistency
requirement may subject a unitholder to substantial penalties.
Nominee
reporting
Persons who hold an interest in us as a nominee for another
person are required to furnish to us:
(a) the name, address and taxpayer identification
number of the beneficial owner and the nominee;
(b) a statement regarding whether the beneficial
owner is:
(i) a person that is not a U.S. person;
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Material tax
consequences
(ii) a foreign government, an international
organization or any wholly owned agency or instrumentality of
either of the foregoing; or
(iii) a tax-exempt entity;
(c) the amount and description of units held,
acquired or transferred for the beneficial owner; and
(d) specific information including the dates of
acquisitions and transfers, means of acquisitions and transfers,
and acquisition cost for purchases, as well as the amount of net
proceeds from sales.
Brokers and financial institutions are required to furnish
additional information, including whether they are U.S. persons
and specific information on units they acquire, hold or transfer
for their own account. A penalty of $50 per failure, up to a
maximum of $100,000 per calendar year, is imposed by the
Internal Revenue Code for failure to report that information to
us. The nominee is required to supply the beneficial owner of
the units with the information furnished to us.
Accuracy-related
penalties
An additional tax equal to 20% of the amount of any portion of
an underpayment of tax that is attributable to one or more
specified causes, including negligence or disregard of rules or
regulations, substantial understatements of income tax and
substantial valuation misstatements, is imposed by the Internal
Revenue Code. No penalty will be imposed, however, for any
portion of an underpayment if it is shown that there was a
reasonable cause for that portion and that the taxpayer acted in
good faith regarding that portion.
For individuals, a substantial understatement of income tax in
any taxable year exists if the amount of the understatement
exceeds the greater of 10% of the tax required to be shown on
the return for the taxable year or $5,000. The amount of any
understatement subject to penalty generally is reduced if any
portion is attributable to a position adopted on the return:
(1) for which there is, or was, substantial
authority; or
(2) as to which there is a reasonable basis if the
pertinent facts of that position are adequately disclosed on the
return.
If any item of income, gain, loss or deduction included in the
distributive shares of unitholders might result in that kind of
an understatement of income for which no
substantial authority exists, we must disclose the
pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for
unitholders to make adequate disclosure on their returns and to
take other actions as may be appropriate to permit unitholders
to avoid liability for this penalty. More stringent rules apply
to tax shelters, which we do not believe includes us.
A substantial valuation misstatement exists if the value of any
property, or the adjusted basis of any property, claimed on a
tax return is 150% or more of the amount determined to be the
correct amount of the valuation or adjusted basis. For
individuals, no penalty is imposed unless the portion of the
underpayment attributable to a substantial valuation
misstatement exceeds $5,000 ($10,000 for most corporations). If
the valuation claimed on a return is 200% or more than the
correct valuation, the penalty imposed increases to 40%.
Reportable
transactions
If we were to engage in a reportable transaction, we
(and possibly you and others) would be required to make a
detailed disclosure of the transaction to the IRS. A transaction
may be a reportable transaction based upon any of several
factors, including the fact that it is a type of tax avoidance
transaction publicly identified by the IRS as a listed
transaction or a transaction of interest or
that it produces certain kinds of losses for partnerships,
individuals, S corporations and trusts in excess of
172
Material tax
consequences
$2 million in any single year, or $4 million in any
combination of six successive tax years. Our participation in a
reportable transaction could increase the likelihood that our
federal income tax information return (and possibly your tax
return) would be audited by the IRS. Please read
Administrative mattersInformation returns and
audit procedures.
Moreover, if we were to participate in a reportable transaction
with a significant purpose to avoid or evade tax, or in any
listed transaction, you may be subject to the following
provisions of the American Jobs Creation Act of 2004:
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accuracy-related penalties with a broader scope, significantly
narrower exceptions, and potentially greater amounts than
described above at Administrative
mattersAccuracy-related penalties;
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for those persons otherwise entitled to deduct interest on
federal tax deficiencies, nondeductibility of interest on any
resulting tax liability; and
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in the case of a listed transaction, an extended statute of
limitations.
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We do not expect to engage in any reportable
transactions.
STATE, LOCAL,
FOREIGN AND OTHER TAX CONSIDERATIONS
In addition to federal income taxes, you likely will be subject
to other taxes, such as state, local and foreign income taxes,
unincorporated business taxes, and estate, inheritance or
intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property or in
which you are a resident. Although an analysis of those various
taxes is not presented here, each prospective unitholder should
consider their potential impact on his investment in us. We will
initially own property or do business in the states of Kansas,
Oklahoma, Texas, Utah and Wyoming. Each of these states, other
than Texas and Wyoming, currently imposes a personal income tax,
and all of theses states also impose taxes on income of
corporations and other entities. We may also own property or do
business in other jurisdictions in the future. Although you may
not be required to file a return and pay taxes in some
jurisdictions if your income from that jurisdiction falls below
the filing and payment requirement, you will be required to file
income tax returns and to pay income taxes in many of these
jurisdictions in which we do business or own property and may be
subject to penalties for failure to comply with those
requirements. In some jurisdictions, tax losses may not produce
a tax benefit in the year incurred and may not be available to
offset income in subsequent taxable years. Some of the
jurisdictions may require us, or we may elect, to withhold a
percentage of income from amounts to be distributed to a
unitholder who is not a resident of the jurisdiction.
Withholding, the amount of which may be greater or less than a
particular unitholders income tax liability to the
jurisdiction, generally does not relieve a nonresident
unitholder from the obligation to file an income tax return.
Amounts withheld will be treated as if distributed to
unitholders for purposes of determining the amounts distributed
by us. Please read Tax consequences of unit
ownershipEntity-level collections. Based on
current law and our estimate of our future operations, our
general partner anticipates that any amounts required to be
withheld will not be material.
It is the responsibility of each unitholder to investigate
the legal and tax consequences, under the laws of pertinent
jurisdictions, of his investment in us. Accordingly, each
prospective unitholder is urged to consult, and depend upon, his
tax counsel or other advisor with regard to those matters.
Further, it is the responsibility of each unitholder to file all
state, local and foreign, as well as U.S. federal tax returns,
that may be required of him. Vinson & Elkins L.L.P.
has not rendered an opinion on the state, local or foreign tax
consequences of an investment in us.
173
Investment in
Western Gas Partners, LP by employee benefit plans
An investment in us by an employee benefit plan is subject to
additional considerations because the investments of these plans
are subject to the fiduciary responsibility and prohibited
transaction provisions of ERISA and the restrictions imposed by
Section 4975 of the Internal Revenue Code. For these
purposes the term employee benefit plan includes,
but is not limited to, qualified pension, profit-sharing and
stock bonus plans, Keogh plans, simplified employee pension
plans and tax deferred annuities or IRAs established or
maintained by an employer or employee organization. Among other
things, consideration should be given to:
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whether the investment is prudent under
Section 404(a)(1)(B) of ERISA;
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whether in making the investment, the plan will satisfy the
diversification requirements of Section 404(a)(1)(C) of
ERISA; and
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whether the investment will result in recognition of unrelated
business taxable income by the plan and, if so, the potential
after-tax investment return. Please read Material tax
consequencesTax-Exempt organizations and other
investors.
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The person with investment discretion with respect to the assets
of an employee benefit plan, often called a fiduciary, should
determine whether an investment in us is authorized by the
appropriate governing instrument and is a proper investment for
the plan.
Section 406 of ERISA and Section 4975 of the Internal
Revenue Code prohibit employee benefit plans, and IRAs that are
not considered part of an employee benefit plan, from engaging
in specified transactions involving plan assets with
parties that, with respect to the plan, are parties in
interest under ERISA or disqualified persons
under the Internal Revenue Code.
In addition to considering whether the purchase of common units
is a prohibited transaction, a fiduciary should consider whether
the plan will, by investing in us, be deemed to own an undivided
interest in our assets, with the result that our operations
would be subject to the regulatory restrictions of ERISA,
including its prohibited transaction rules, as well as the
prohibited transaction rules of the Internal Revenue Code.
The Department of Labor regulations provide guidance with
respect to whether, in certain circumstances, the assets of an
entity in which employee benefit plans acquire equity interests
would be deemed plan assets. Under these
regulations, an entitys assets would not be considered to
be plan assets if, among other things:
(a) the equity interests acquired by the employee
benefit plan are publicly offered securitiesi.e., the
equity interests are widely held by 100 or more investors
independent of the issuer and each other, are freely
transferable and are registered under some provision of the
federal securities laws;
(b) the entity is an operating
company,i.e., it is primarily engaged in the
production or sale of a product or service, other than the
investment of capital, either directly or through a
majority-owned subsidiary or subsidiaries; or
(c) there is no significant investment by benefit
plan investors, which is defined to mean that less than 25% of
the value of each class of equity interest is held by the
employee benefit plans referred to above, IRAs and other
employee benefit plans not subject to ERISA, including
governmental plans.
Our assets should not be considered plan assets
under these regulations because it is expected that the
investment will satisfy the requirements in (a) above.
In light of the serious penalties imposed on persons who engage
in prohibited transactions or other violations, plan fiduciaries
contemplating a purchase of common units should consult with
their own counsel regarding the consequences under ERISA and the
Internal Revenue Code.
174
Underwriting
We are offering our common units described in this prospectus
through the underwriters named below. UBS Securities LLC,
Citigroup Global Markets Inc., Credit Suisse Securities (USA)
LLC and Morgan Stanley & Co. Incorporated are the
representatives of the underwriters and the joint book-running
managers of this offering. Subject to the terms and conditions
of the underwriting agreement, dated as of the date of this
prospectus, which will be filed as an exhibit to the
registration statement, each of the underwriters has severally
agreed to purchase the number of common units listed next to its
name in the following table:
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Number of
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Underwriters
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common
units
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UBS Securities LLC
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Citigroup Global Markets Inc.
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Credit Suisse Securities (USA) LLC
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Morgan Stanley & Co. Incorporated
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Banc of America Securities LLC
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Goldman, Sachs & Co.
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J.P. Morgan Securities Inc.
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Lehman Brothers Inc.
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Wachovia Capital Markets, LLC
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Scotia Capital (USA) Inc.
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Bear, Stearns & Co. Inc.
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Friedman, Billings, Ramsey & Co., Inc.
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Stifel, Nicolaus & Company, Incorporated
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Total
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18,750,000
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The underwriting agreement provides that the underwriters must
buy all of the common units if they buy any of them. However,
the underwriters are not required to take or pay for the common
units covered by the underwriters option to purchase
additional common units described below.
Our common units and the common units to be sold upon the
exercise of the underwriters option to purchase additional
common units, if any, are offered subject to a number of
conditions, including:
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receipt and acceptance of our common units by the underwriters;
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the validity of the representations and warranties made to the
underwriters;
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the absence of any material change in the financial markets;
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our delivery of customary closing documents to the underwriters;
and
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the underwriters right to reject orders in whole or in
part.
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We have been advised by the representatives that the
underwriters intend to make a market in our common units, but
they are not obligated to do so and may discontinue making a
market at any time without notice.
OPTION TO
PURCHASE ADDITIONAL COMMON UNITS
We have granted the underwriters an option to purchase up to
2,812,500 additional common units. This option may be exercised
if the underwriters sell more than 18,750,000 common units in
connection with this offering. The underwriters have
30 days from the date of this prospectus to exercise this
option. If the underwriters exercise this option, they will each
purchase additional common units approximately in proportion to
the amounts specified in the table above. If and to the extent
the
175
Underwriting
underwriters exercise their option, the number of units
purchased by the underwriters pursuant to such exercise will be
issued to the public and the remainder, if any, will be issued
to Anadarko. The net proceeds from any exercise of the
underwriters option to purchase additional common units
will be used to reimburse Anadarko for capital expenditures it
incurred with respect to the assets contributed to us.
COMMISSIONS AND
DISCOUNTS
Common units sold by the underwriters to the public will
initially be offered at the initial offering price set forth on
the cover of this prospectus. Any common units sold by the
underwriters to securities dealers may be sold at a discount of
up to $ per common unit from the
initial public offering price. Any of these securities dealers
may resell any common units purchased from the underwriters to
other brokers or dealers at a discount of up to
$ per common unit from the initial
public offering price. If all the common units are not sold at
the initial public offering price, the representatives may
change the offering price and the other selling terms. Sales of
common units made outside of the U.S. may be made by affiliates
of the underwriters. Upon execution of the underwriting
agreement, the underwriters will be obligated to purchase the
common units at the prices and upon the terms stated therein,
and, as a result, will thereafter bear any risk associated with
changing the offering price to the public or other selling terms.
The following table shows the per unit and total underwriting
discounts we will pay to the underwriters, assuming both no
exercise and full exercise of the underwriters option to
purchase up to an additional 2,812,500 units.
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No
exercise
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Full
exercise
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Per Unit
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$
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$
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Total
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$
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$
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We estimate that the total expenses of this offering payable by
us, not including the underwriting discounts and the structuring
fee, will be approximately $5.0 million.
In addition, we will pay UBS Securities LLC a structuring fee
of % of the gross proceeds of this
offering and any exercise of the underwriters option to
purchase additional common units for their role in the
evaluation, analysis and structuring of our partnership.
NO SALES OF
SIMILAR SECURITIES
We, Anadarko and our general partner and its affiliates,
including the executive officers and directors of our general
partner, and any participant in our directed unit program who
purchases over $100,000 worth of common units will enter into
lock-up
agreements with the underwriters. Under these agreements, we and
each of these persons may not, without the prior written
approval of the representatives, offer, sell, contract to sell
or otherwise dispose of or hedge our common units or securities
convertible into or exchangeable for our common units, enter
into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the
common units, make any demand for or exercise any right or file
or cause to be filed a registration statement with respect to
the registration of any common units or securities convertible,
exercisable or exchangeable into common units or any of our
other securities or publicly disclose the intention to do any of
the foregoing. These restrictions will be in effect for a period
of 180 days after the date of this prospectus. The
lock-up
period will be extended under certain circumstances where either
(i) we release our earnings or announce material news or a
material event during the 15 calendar days plus three business
days preceding the termination of the
180-day
period or (ii) we pre-announce that we will release our
earnings during the 16 days following the termination of
the 180-day
period. In either case, the restrictions described above will
continue to apply until the expiration of the period that
extends
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Underwriting
15 calendar days plus three business days after the date of
the issuance of the earnings release or the announcement of the
material news or material event, as the case may be. At any time
and without public notice, the representatives may in their
discretion, release all or some of the securities from these
lock-up
agreements. The representatives have no present understanding or
intent to release any of the securities from these
lock-up
agreements.
INDEMNIFICATION
We and our general partner and certain of its affiliates, have
agreed to indemnify the underwriters and their controlling
persons against certain liabilities, including liabilities under
the Securities Act and liabilities incurred in connection with
the directed unit program referred to below. If we are unable to
provide this indemnification, we will contribute to payments the
underwriters and their controlling persons may be required to
make in respect of those liabilities.
NEW YORK STOCK
EXCHANGE
Our common units have been approved for listing on the New York
Stock Exchange, subject to notice of issuance, under the trading
symbol WES.
PRICE
STABILIZATION, SHORT POSITIONS
In connection with this offering, the underwriters may engage in
activities that stabilize, maintain or otherwise affect the
price of our common units including:
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stabilizing transactions;
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short sales;
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purchases to cover positions created by short sales;
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imposition of penalty bids; and
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syndicate covering transactions.
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Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market
price of our common units while this offering is in progress.
These transactions may also include making short sales of our
common units, which involves the sale by the underwriters of a
greater number of common units than they are required to
purchase in this offering, and purchasing common units on the
open market to cover positions created by short sales. Short
sales may be covered short sales, which are short
positions in an amount not greater than the underwriters
option to purchase additional common units referred to above, or
may be naked short sales, which are short positions
in excess of that amount.
The underwriters may close out any covered short position by
either exercising their option to purchase additional common
units, in whole or in part, or by purchasing common units in the
open market. In making this determination, the underwriters will
consider, among other things, the price of common units
available for purchase in the open market as compared to the
price at which they may purchase common units through their
option to purchase additional common units.
Naked short sales are in excess of the underwriters option
to purchase additional common units. The underwriters must close
out any naked short position by purchasing common units in the
open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward
pressure on the price of the common units in the open market
that could adversely affect investors who purchased in this
offering.
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased common units sold by or for the
account of that underwriter in stabilizing or short covering
transactions.
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Underwriting
As a result of these activities, the price of our common units
may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be
discontinued by the underwriters at any time. The underwriters
may carry out these transactions on the New York Stock Exchange,
in the over-the-counter market or otherwise.
DETERMINATION OF
OFFERING PRICE
Prior to this offering, there has been no public market for our
common units. The initial public offering price was determined
by negotiation by us and the representatives of the
underwriters. The principal factors considered in determining
the initial public offering price include:
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the information set forth in this prospectus and otherwise
available to the representatives;
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our history and prospects, and the history and prospects of the
industry in which we compete;
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our past and present financial performance and an assessment of
the directors and officers of our general partner;
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our prospects for future earnings and cash flow and the present
state of our development;
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the general condition of the securities markets at the time of
this offering;
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the recent market prices of, and demand for, publicly traded
common units of generally comparable master limited
partnerships; and
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other factors determined relevant by the underwriters and us.
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DIRECTED UNIT
PROGRAM
At our request, certain of the underwriters have reserved up to
2,812,500 of the common units being offered by this prospectus
for sale at the initial public offering price to the officers,
directors and employees of our general partner and its
affiliates, including Anadarko, and certain other persons
associated with us, as designated by us. The sales will be made
by UBS Financial Services, Inc., an affiliate of UBS Securities
LLC, through a directed unit program. We do not know if these
persons will choose to purchase all or any portion of these
reserved units, but any purchases they make will reduce the
number of units available to the general public. Any reserved
units not so purchased will be offered by the underwriters to
the general public on the same basis as the other units offered
by this prospectus. These persons must commit to purchase no
later than before the open of business on the day following the
date of this prospectus, but in any event these persons are not
obligated to purchase common units and may not commit to
purchase common units prior to the effectiveness of the
registration statement relating to this offering. Any directed
unit participant who purchases over $100,000 worth of reserved
units will be subject to the restrictions described in
No sale of similar securities above.
ELECTRONIC
DISTRIBUTION
A prospectus in electronic format may be made available on the
Internet sites or through other online services maintained by
one or more of the underwriters
and/or
selling group members participating in this offering, or by
their affiliates. In those cases, prospective investors may view
offering terms online and, depending upon the particular
underwriter or selling group member, prospective investors may
be allowed to place orders online. The underwriters may agree
with us to allocate a specific number of units for sale to
online brokerage account holders. Any such allocation for online
distributions will be made by the representatives on the same
basis as other allocations.
Other than the prospectus in electronic format, the information
on any underwriters or selling group members web
site and any information contained in any other web site
maintained by an underwriter or selling group member is not part
of the prospectus or the registration statement of which this
prospectus forms a part, has not been approved
and/or
endorsed by us or any underwriter or selling
178
Underwriting
group member in its capacity as underwriter or selling group
member and should not be relied upon by investors.
DISCRETIONARY
SALES
The underwriters have informed us that they do not intend to
confirm sales to discretionary accounts that exceed five percent
of the total number of units offered by them.
STAMP
TAXES
If you purchase common units offered in this prospectus, you may
be required to pay stamp taxes and other charges under the laws
and practices of the country of purchase, in addition to the
offering price listed on the cover page of this prospectus.
AFFILIATIONS
Certain of the underwriters and their affiliates have in the
past provided and may from time to time in the future provide
services to Anadarko and us for which they have received and, in
the future, will be entitled to receive, customary fees and
expenses. In particular:
|
|
Ø |
Affiliates of UBS Securities LLC, Citigroup Global Markets Inc.,
Credit Suisse Securities (USA) LLC, Banc of America Securities
LLC, Goldman, Sachs & Co., J.P. Morgan Securities
Inc., Wachovia Capital Markets, LLC, Morgan Stanley &
Co. Incorporated and Scotia Capital (USA) Inc. are lenders under
Anadarkos $1.3 billion credit facility, under which
we are a co-borrower. In addition, J.P. Morgan Securities
Inc. served, and one of its affiliates serves, as Sole Lead
Arranger and Administrative Agent, respectively, of this
facility, and an affiliate of Banc of America Securities LLC
served as Co-Syndication Agent of this facility;
|
|
|
Ø
|
UBS Securities LLC, Citigroup Global Markets Inc., Credit Suisse
Securities (USA) LLC, Lehman Brothers Inc. and Scotia Capital
(USA) Inc. each provided advisory services to Anadarko in
connection with the disposition of certain assets during 2007.
In addition, Citigroup Global Markets Inc. and Lehman Brothers
Inc. also served as structuring advisor to Anadarko in
connection with certain joint ventures during 2007. In December
2007, Citigroup Global Markets Inc. provided advisory services
to Anadarko in connection with the WGRAH financing;
|
|
Ø
|
In the ordinary course of its business, Anadarko engages in
numerous interest rate and commodity hedging transactions with a
variety of counterparties, including affiliates of UBS
Securities LLC, Citigroup Global Markets Inc., Credit Suisse
Securities (USA) LLC, Morgan Stanley & Co.
Incorporated, Banc of America Securities LLC, J.P. Morgan
Securities Inc. and Wachovia Capital Markets, LLC; and
|
|
Ø
|
In April 2007, UBS Securities LLC, Citigroup Global Markets Inc.
and Credit Suisse Securities (USA) LLC served as Co-Advisors and
Joint Lead Arrangers of Anadarkos
354-day
credit facility. UBS Securities LLC and Credit Suisse Securities
(USA) LLC also served as Joint Bookrunning Managers of this
facility. In addition, an affiliate of UBS Securities LLC serves
as Administrative Agent, and affiliates of Citigroup Global
Markets Inc. and Credit Suisse Securities (USA) LLC serve as
Co-Syndication Agents, of this facility. Affiliates of UBS
Securities LLC, Citigroup Global Markets Inc., Credit Suisse
Securities (USA) LLC, Morgan Stanley & Co.
Incorporated, Banc of America Securities LLC, Goldman,
Sachs & Co., Wachovia Capital Markets, LLC and Scotia
Capital (USA) Inc. are lenders under this facility.
|
On December 27, 2007, Anadarko completed a transaction with
Pecos Investors LLC, an entity created and capitalized by a
group of third-party investors. The transaction was designed to
begin the monetization of Anadarkos midstream assets. In
connection with the Pecos transaction, (i) Anadarko formed
WGRAH and transferred to WGRAH the direct ownership of or rights
to substantially all of
179
Underwriting
Anadarkos midstream assets; (ii) an Anadarko
affiliate and Pecos became members in Trinity Associates LLC, or
Trinity, and contributed $100 million and $2.2 billion
to Trinity, respectively; and (iii) Trinity loaned
$2.2 billion to WGRAH. Pecos contribution to Trinity
was funded with a $2.1 billion loan agreement entered into
by Pecos with certain third-party lenders and a
$100 million equity contribution to Pecos by certain
third-party investors. Affiliates of UBS Securities LLC,
Citigroup Global Markets Inc., Credit Suisse Securities (USA)
LLC, Morgan Stanley & Co. Incorporated, Banc of
America Securities LLC, Goldman, Sachs & Co.,
J.P. Morgan Securities Inc., Lehman Brothers Inc., Wachovia
Capital Markets, LLC and Scotia Capital (USA) Inc. are lenders
under the $2.1 billion loan agreement with Pecos. In
addition, an affiliate of Banc of America Securities LLC is an
equity investor in Pecos. Anadarko has informed us that the
$260.0 million of proceeds that we loan to it, and other
proceeds that it receives from the offering, will ultimately be
used to repay a portion of the amount outstanding under the
Pecos loan agreement and to make a distribution to the Pecos
equity investors, and the foregoing affiliates of the
underwriters will receive their proportionate shares of any such
repayment and distribution.
Because the Financial Industry Regulatory Authority, or the
FINRA (formerly known as the National Association of Securities
Dealers, Inc., or the NASD), views the common units offered
hereby as interests in a direct participation program, this
offering is being made in compliance with Rule 2810 of the
NASDs Conduct Rules (which are part of the FINRA rules).
Investor suitability with respect to the common units should be
judged similarly to the suitability with respect to other
securities that are listed for trading on a national securities
exchange.
Although more than 10% of the net offering proceeds, not
including underwriter compensation, will ultimately be paid to
affiliates of underwriters participating in this offering,
pursuant to Rule 2710(h)(3)(D) of the NASDs Conduct
Rules, a qualified independent underwriter (as
defined in the NASDs Conduct Rules) is not required
because the offering is subject to Rule 2810 of the
NASDs Conduct Rules, as noted above.
180
Validity of the
common units
The validity of the common units will be passed upon for us by
Vinson & Elkins L.L.P., Houston, Texas. Certain legal
matters in connection with the common units offered hereby will
be passed upon for the underwriters by Andrews Kurth LLP,
Houston, Texas.
Experts
The combined financial statements of Western Gas Partners
Predecessor as of December 31, 2007 and 2006 and for each
of the years in the three-year period ended December 31,
2007, have been included herein in reliance upon the report of
KPMG LLP, independent registered public accounting firm,
appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
The balance sheets of Western Gas Partners, LP as of
December 31, 2007 and August 21, 2007 and the balance
sheets of Western Gas Holdings, LLC as of December 31, 2007
and August 21, 2007, have been included herein in reliance
upon the reports of KPMG LLP, independent registered public
accounting firm, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The financial statements of MIGC as of December 31, 2005
and for the period from January 1 to August 23, 2006 and
for the year ended December 31, 2005, have been included
herein in reliance upon the report of KPMG LLP, independent
registered public accounting firm, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and
auditing.
Where you can find
more information
We have filed with the SEC a registration statement on
Form S-l
regarding the common units. This prospectus does not contain all
of the information found in the registration statement. For
further information regarding us and the common units offered by
this prospectus, you may desire to review the full registration
statement, including its exhibits and schedules, filed under the
Securities Act. The registration statement of which this
prospectus forms a part, including its exhibits and schedules,
may be inspected and copied at the public reference room
maintained by the SEC at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. Copies of the
materials may also be obtained from the SEC at prescribed rates
by writing to the public reference room maintained by the SEC at
100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You may obtain information on the
operation of the public reference room by calling the SEC at
1-800-SEC-0330.
The SEC maintains a web site on the Internet at
http://www.sec.gov.
Our registration statement, of which this prospectus constitutes
a part, can be downloaded from the SECs web site.
We intend to furnish our unitholders annual reports containing
our audited combined financial statements and to furnish or make
available to our unitholders quarterly reports containing our
unaudited interim financial information for the first three
fiscal quarters of each of our fiscal years.
181
Forward-looking
statements
Some of the information in this prospectus may contain
forward-looking statements. 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 of financial condition or state other
forward-looking information. These forward-looking
statements involve risks and uncertainties. When considering
these forward-looking statements, you should keep in mind the
risk factors and other cautionary statements in this prospectus.
The risk factors and other factors noted throughout this
prospectus could cause our actual results to differ materially
from those contained in any forward-looking statement.
182
Western Gas
Partners, LP
Index to financial
statements
|
|
|
|
|
WESTERN GAS PARTNERS, LP UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS:
|
|
|
|
|
Introduction
|
|
|
F-2
|
|
Unaudited pro forma combined statement of income
for the year ended December 31, 2007
|
|
|
F-4
|
|
Unaudited pro forma combined balance sheet as of
December 31, 2007
|
|
|
F-5
|
|
Notes to unaudited pro forma combined financial
statements
|
|
|
F-6
|
|
|
|
|
|
|
WESTERN GAS PARTNERS PREDECESSOR COMBINED FINANCIAL
STATEMENTS:
|
|
|
|
|
Report of independent registered public
accounting firm
|
|
|
F-8
|
|
Combined statements of income for the years ended
December 31, 2007, 2006 and 2005
|
|
|
F-9
|
|
Combined balance sheets as of December 31,
2007 and 2006
|
|
|
F-10
|
|
Combined statements of cash flows for the years
ended December 31, 2007, 2006 and 2005
|
|
|
F-11
|
|
Combined statements of parent net equity for the
years ended December 31, 2007, 2006 and 2005
|
|
|
F-12
|
|
Notes to combined financial statements
|
|
|
F-13
|
|
|
|
|
|
|
MIGC LLC FINANCIAL STATEMENTS:
|
|
|
|
|
Report of independent registered public
accounting firm
|
|
|
F-25
|
|
Statements of income for the period from
January 1, 2006 through August 23, 2006 and for the
year ended December 31, 2005
|
|
|
F-26
|
|
Balance sheet as of December 31, 2005
|
|
|
F-27
|
|
Statements of cash flows for the period from
January 1, 2006 through August 23, 2006 and for the
year ended December 31, 2005
|
|
|
F-28
|
|
Statements of parent net equity for the period
from January 1, 2006 through August 23, 2006 and for
the year ended December 31, 2005
|
|
|
F-29
|
|
Notes to financial statements
|
|
|
F-30
|
|
|
|
|
|
|
WESTERN GAS PARTNERS, LP FINANCIAL STATEMENTS:
|
|
|
|
|
Report of independent registered public
accounting firm
|
|
|
F-37
|
|
Balance sheets as of December 31, 2007 and
August 21, 2007
|
|
|
F-38
|
|
Note to the balance sheets
|
|
|
F-39
|
|
|
|
|
|
|
WESTERN GAS HOLDINGS, LLC FINANCIAL STATEMENTS:
|
|
|
|
|
Report of independent registered public
accounting firm
|
|
|
F-40
|
|
Balance sheet as of December 31, 2007 and
August 21, 2007
|
|
|
F-41
|
|
Note to the balance sheets
|
|
|
F-42
|
|
F-1
Western Gas
Partners, LP
Unaudited pro forma
combined financial statements
INTRODUCTION
The unaudited pro forma combined statement of income of Western
Gas Partners, LP (the Partnership) for the year
ended December 31, 2007 and the unaudited pro forma
combined balance sheet as of December 31, 2007 are based
upon the audited historical combined financial statements of
Western Gas Partners Predecessor (the Predecessor),
which is comprised of Anadarko Gathering Company LLC
(AGC) and Pinnacle Gas Treating LLC
(PGT), with MIGC LLC (MIGC) being
reported as an acquired business of the Predecessor in August
2006. The assets contributed to the Partnership include AGC, PGT
and MIGC (collectively the Contributed Assets). Each
of AGC, PGT, MIGC, and the Partnership is an indirect subsidiary
of Anadarko. For purposes of these financial statements,
Anadarko refers to Anadarko Petroleum Corporation
and its consolidated subsidiaries.
The contribution by Western Gas Holdings, LLC, (Holdings
GP) and WGR Holdings, LLC (Holdings LP), both
Anadarko affiliates, of the Contributed Assets to the
Partnership will be recorded at historical cost as these
contributions are considered reorganizations of entities under
common control.
The unaudited pro forma combined financial statements for the
year ended December 31, 2007 have been prepared as if the
transactions to be effected at the closing of this offering
occurred on December 31, 2007, in the case of the pro forma
combined balance sheet, and as of January 1, 2007, in the
case of the pro forma combined statement of income. The
unaudited pro forma combined financial statements have been
prepared based on the assumption that the Partnership will 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 combined
financial statements should be read in conjunction with the
notes accompanying such unaudited pro forma combined financial
statements and with the audited combined financial statements
and the notes thereto set forth elsewhere in this prospectus.
The unaudited pro forma combined balance sheet and the unaudited
pro forma combined statement of income were derived by adjusting
the audited historical combined financial statements of the
Predecessor. The adjustments are based upon currently available
information and certain assumptions and estimates; therefore,
the actual effects of these transactions will differ from the
pro forma adjustments. However, the Partnerships
management is of the opinion that the estimates applied and the
assumptions made provide a reasonable basis for the presentation
of the significant effects of contemplated transactions that are
expected to have a continuing impact on the Partnership. In
addition, the Partnerships management considers the pro
forma adjustments to be factually supportable and to
appropriately represent the expected impact of items that are
directly attributable to the formation of the Partnership and
the transfer of the Contributed Assets to the Partnership.
The unaudited pro forma combined financial statements reflect
the following significant assumptions and transactions:
|
|
Ø |
Holdings GP and Holdings LP will contribute the Contributed
Assets to the Partnership;
|
|
|
Ø |
The Partnership will issue to Holdings GP 1,083,115 general
partner units representing a 2.0% general partner interest in
the Partnership and 100% of the Partnership incentive
distribution rights, which will entitle Holdings GP to
increasing percentages of cash distributions. Please read
Our cash distribution policy and restrictions on
distributions, contained elsewhere in this prospectus;
|
F-2
Unaudited pro
forma combined financial statements
|
|
Ø |
The Partnership will issue 7,786,306 common units and 26,536,306
subordinated units, representing an aggregate 63.4% limited
partner interest in the Partnership, to Holdings LP, assuming
that the underwriters do not exercise their option to purchase
additional common units;
|
|
|
Ø |
The Partnership will issue 18,750,000 common units to the public
in connection with this offering, representing a 34.6% limited
partner interest;
|
|
|
Ø |
The Partnership will receive gross proceeds of
$337.50 million from the issuance and sale of the
18,750,000 common units at an assumed initial offering price of
$18.00 per unit;
|
|
|
Ø |
The Partnership will use proceeds from this offering to pay
underwriting discounts and a structuring fee totaling
$21.938 million and other offering expenses estimated to be
$5.0 million;
|
|
|
Ø |
The Partnership will use the remaining $310.562 million of
aggregate net proceeds of this offering to (i) make a loan
of $260.0 million to Anadarko in exchange for a 30-year
note bearing interest at a fixed annual rate of 6.50%,
(ii) reimburse Anadarko for $40.562 million of capital
expenditures it incurred with respect to assets contributed to
us and (iii) provide $10.0 million for general
partnership purposes;
|
|
|
Ø |
The Partnership is a co-borrower under Anadarkos
$1.3 billion credit facility and has up to
$100 million of long-term borrowing capacity available
to it;
|
|
|
Ø
|
The Partnership will enter into a $30 million working
capital facility with Anadarko as the lender;
|
|
Ø
|
The Partnership will enter into an omnibus agreement with
Anadarko and Holdings GP pursuant to which, among other things,
(i) the Partnership will reimburse Anadarko and Holdings GP
for certain expenses incurred on behalf of the Partnership,
including expenses for various general and administrative
services rendered by Anadarko and Holdings GP to the
Partnership, and (ii) the parties will agree to certain
indemnification obligations; and
|
|
Ø
|
Holdings GP will enter into a services and secondment agreement
with Anadarko, pursuant to which certain employees of Anadarko
will be under the control of and render services to or on behalf
of the Partnership.
|
The unaudited pro forma combined financial statements are not
necessarily indicative of the results that would have occurred
if the Partnership had assumed the operations of the Predecessor
on the dates indicated nor is it indicative of the future
operating results of the Partnership. The pro forma adjustments
do not include the effects of an exercise by the underwriters of
their option to purchase additional common units in the
Partnership. If and to the extent the underwriters exercise
their option to purchase up to 2,812,500 additional common units
within 30 days of this offering, the number of units
purchased by the underwriters pursuant to such exercise will be
issued to the public and the remainder, if any, will be issued
to Anadarko. The net proceeds from any exercise of the
underwriters option to purchase additional common units
will be used to reimburse Anadarko for capital expenditures it
incurred with respect to the assets contributed to the
Partnership.
F-3
Unaudited pro
forma combined financial statements
Western Gas
Partners, LP
Pro forma combined
statement of income
Year ended
December 31, 2007
unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
|
|
Western Gas
Partners
|
|
Offering
|
|
|
pro forma
|
|
|
|
Predecessor
|
|
adjustments
|
|
|
as
|
|
|
|
historical
|
|
(see note
2)
|
|
|
adjusted
|
|
|
|
|
|
(in thousands
except unit and per-unit data)
|
|
|
Revenues affiliates
|
|
|
|
|
|
|
|
|
|
|
|
Gathering and transportation of natural gas
|
|
$
|
92,612
|
|
$
|
--
|
|
|
$
|
92,612
|
|
Condensate
|
|
|
7,661
|
|
|
|
|
|
|
7,661
|
|
Natural gas and other
|
|
|
1,873
|
|
|
|
|
|
|
1,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues affiliates
|
|
|
102,146
|
|
|
|
|
|
|
102,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues third parties
|
|
|
|
|
|
|
|
|
|
|
|
Gathering and transportation of natural gas
|
|
|
10,205
|
|
|
|
|
|
|
10,205
|
|
Condensate, natural gas and other
|
|
|
3,771
|
|
|
|
|
|
|
3,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues third parties
|
|
|
13,976
|
|
|
|
|
|
|
13,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
116,122
|
|
|
|
|
|
|
116,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses affiliates
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product
|
|
|
4,864
|
|
|
|
|
|
|
4,864
|
|
General and administrative
|
|
|
4,562
|
|
|
|
|
|
|
4,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses affiliates
|
|
|
9,426
|
|
|
|
|
|
|
9,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses third parties
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product
|
|
|
111
|
|
|
|
|
|
|
111
|
|
Operation and maintenance
|
|
|
32,544
|
|
|
|
|
|
|
32,544
|
|
General and administrative
|
|
|
222
|
|
|
|
|
|
|
222
|
|
Property and other taxes
|
|
|
5,194
|
|
|
|
|
|
|
5,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses third parties
|
|
|
38,071
|
|
|
|
|
|
|
38,071
|
|
Depreciation
|
|
|
23,380
|
|
|
|
|
|
|
23,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
70,877
|
|
|
|
|
|
|
70,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
45,245
|
|
|
|
|
|
|
45,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income) affiliates
|
|
|
8,521
|
|
|
(8,521
|
)(a)
|
|
|
(16,757
|
)
|
|
|
|
|
|
|
(16,900
|
)(b)
|
|
|
|
|
|
|
|
|
|
|
143
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
36,724
|
|
|
25,278
|
|
|
|
62,002
|
|
Current income tax expense (benefit)
|
|
|
313
|
|
|
(124
|
)
|
|
|
189
|
|
Deferred income tax expense (benefit)
|
|
|
12,411
|
|
|
(13,121
|
)
|
|
|
(710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
12,724
|
|
|
(13,245
|
)(d)
|
|
|
(521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
24,000
|
|
$
|
38,523
|
|
|
$
|
62,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partners interest in net income
|
|
|
|
|
|
|
|
|
$
|
1,251
|
|
Common unitholders interest in net income
|
|
|
|
|
|
|
|
|
$
|
30,636
|
|
Subordinated unitholders interest in net income
|
|
|
|
|
|
|
|
|
$
|
30,636
|
|
Net income per limited partner unit
|
|
|
|
|
|
|
|
|
|
|
|
Common units (basic and diluted)
|
|
|
|
|
|
|
|
|
|
1.15
|
|
Subordinated units (basic and diluted)
|
|
|
|
|
|
|
|
|
|
1.15
|
|
Weighted average number of limited partner units
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Common units (basic and diluted)
|
|
|
|
|
|
|
|
|
|
26,536,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated units (basic and diluted)
|
|
|
|
|
|
|
|
|
|
26,536,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited pro forma combined
financial statements.
F-4
Unaudited pro
forma combined financial statements
Western Gas
Partners, LP
Pro forma combined
balance sheet
December 31,
2007
unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
|
|
Western Gas
Partners
|
|
|
Offering
|
|
|
pro forma
|
|
|
|
Predecessor
|
|
|
adjustments
|
|
|
as
|
|
|
|
historical
|
|
|
(see note
2)
|
|
|
adjusted
|
|
|
|
|
|
(in
thousands)
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
|
|
|
$
|
337,500
|
(e)
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
(26,938
|
)(f)
|
|
|
|
|
|
|
|
|
|
|
|
(260,000
|
)(g)
|
|
|
|
|
|
|
|
|
|
|
|
(40,562
|
)(h)
|
|
|
|
|
Accounts receivable
|
|
|
4,397
|
|
|
|
|
|
|
|
4,397
|
|
Natural gas imbalance receivables
|
|
|
899
|
|
|
|
|
|
|
|
899
|
|
Deferred tax asset
|
|
|
2,916
|
|
|
|
(2,288
|
)(d)
|
|
|
628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
8,212
|
|
|
|
7,712
|
|
|
|
15,924
|
|
Other assets
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
483,896
|
|
|
|
|
|
|
|
483,896
|
|
Less accumulated depreciation
|
|
|
(120,277
|
)
|
|
|
|
|
|
|
(120,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
363,619
|
|
|
|
|
|
|
|
363,619
|
|
Note Receivable Anadarko
|
|
|
|
|
|
|
260,000
|
(g)
|
|
|
260,000
|
|
Goodwill
|
|
|
4,783
|
|
|
|
|
|
|
|
4,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
376,641
|
|
|
$
|
267,712
|
|
|
$
|
644,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,357
|
|
|
|
|
|
|
$
|
3,357
|
|
Natural gas imbalance payables
|
|
|
2,104
|
|
|
|
|
|
|
|
2,104
|
|
Accrued ad valorem taxes
|
|
|
1,100
|
|
|
|
|
|
|
|
1,100
|
|
Income taxes payable
|
|
|
313
|
|
|
|
(124
|
)(d)
|
|
|
189
|
|
Accrued liabilities
|
|
|
4,843
|
|
|
|
|
|
|
|
4,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
11,717
|
|
|
|
(124
|
)
|
|
|
11,593
|
|
Long-term Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
76,423
|
|
|
|
(75,486
|
)(d)
|
|
|
937
|
|
Asset retirement obligations
|
|
|
7,185
|
|
|
|
|
|
|
|
7,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
83,608
|
|
|
|
(75,486
|
)
|
|
|
8,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
95,325
|
|
|
|
(75,610
|
)
|
|
|
19,715
|
|
Partners Capital/Parent Net Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent net investment
|
|
|
281,316
|
|
|
|
73,322
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
(314,076
|
)(i)
|
|
|
|
|
|
|
|
|
|
|
|
(40,562
|
)(h)
|
|
|
|
|
Common unitholders public
|
|
|
|
|
|
|
337,500
|
(e)
|
|
|
310,562
|
|
|
|
|
|
|
|
|
(26,938
|
)(f)
|
|
|
|
|
Common unitholders Anadarko
|
|
|
|
|
|
|
69,071
|
(i)
|
|
|
69,071
|
|
Subordinated unitholders Anadarko
|
|
|
|
|
|
|
235,397
|
(i)
|
|
|
235,397
|
|
General partner interest
|
|
|
|
|
|
|
9,608
|
(i)
|
|
|
9,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Partners Capital/Parent Net Equity
|
|
|
281,316
|
|
|
|
343,322
|
|
|
|
624,638
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Parent Net Equity
|
|
$
|
376,641
|
|
|
$
|
267,712
|
|
|
$
|
644,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited pro forma combined
financial statements.
F-5
Unaudited pro
forma combined financial statements
Western Gas
Partners, LP
Notes to
unaudited pro forma combined financial statements
1. BASIS
OF PRESENTATION, OTHER TRANSACTIONS AND THE OFFERING
The unaudited pro forma combined statement of income of the
Partnership for the year ended December 31, 2007 and the
unaudited pro forma combined balance sheet as of
December 31, 2007 are based upon the audited historical and
unaudited combined financial statements of the Predecessor,
which is comprised of AGC and PGT, with MIGC being reported as
an acquired business of the Predecessor. The assets contributed
to the Partnership include AGC, PGT and MIGC. Each of AGC, PGT,
MIGC and the Partnership is an indirect subsidiary of Anadarko.
Upon completion of this offering, the Partnership anticipates
incurring incremental general and administrative expense of
approximately $2.5 million per year as a result of being a
publicly traded partnership, including expenses associated with
annual and quarterly reporting; tax return and Schedule K-1
preparation and distribution expenses; Sarbanes-Oxley compliance
expenses; expenses associated with listing on the New York Stock
Exchange; independent auditor fees; legal fees; investor
relations expenses; and registrar and transfer agent fees. The
unaudited pro forma combined financial statements do not reflect
these additional public company costs.
In addition, while other general and administrative expenses
have not yet been determined, the Partnership intends to enter
into an omnibus agreement with Anadarko pursuant to which
reimbursement of general and administrative expenses by the
Partnership to Anadarko will be capped at $6.0 million
annually through December 31, 2009, subject to increases
based on increases in the Consumer Price Index and, with the
concurrence of the special committee of the board of directors
of the general partner of the Partnership, subject to further
increases arising in connection with expansions of the
Partnerships operations through the acquisition or
construction of new assets or businesses. The $6.0 million
cap does not apply to any reimbursement by the Partnership to
Anadarko for additional public company costs.
2. OFFERING
ADJUSTMENTS
The following offering adjustments for the Partnership have been
prepared as if the transactions to be effected at the closing of
this offering had taken place on December 31, 2007, in the
case of the pro forma balance sheet, and as of January 1,
2007, in the case of the pro forma statement of
income, respectively:
(a) Reflects the elimination of historical interest
expense resulting from the non-cash settlement of receivables
held by Anadarko prior to the offering.
(b) Reflects the inclusion of interest income on the
Partnerships $260.0 million
30-year note
receivable from Anadarko, which bears interest at a fixed annual
rate of 6.5%.
(c) Reflects the payment by the Partnership of a
commitment fee of 0.11% with respect to the Partnerships
$30.0 million working capital facility and the
reimbursement by us to Anadarko of our allocable portion of
commitment fees (0.11% of the Partnerships committed and
available borrowing
F-6
Notes to
unaudited pro forma combined financial statements of Western Gas
Partners, LP
capacity) that Anadarko incurs under its credit facility
pursuant to the Omnibus Agreement, for a total of $143,000 in
aggregate for the year ended December 31, 2007. Please read
Certain relationships and related party
transactions Agreements governing the
transactions Omnibus agreement.
(d) Reflects the elimination of historical current
and deferred income taxes as a result of operating as a
partnership for tax purposes. Texas margin taxes have not been
eliminated and will continue to be borne by the Partnership
subsequent to the closing of this offering.
(e) Reflects the assumed gross offering proceeds to
the Partnership of $337.5 million from the issuance and
sale of 18,750,000 common units at an assumed initial public
offering price of $18.00 per unit.
(f) Reflects the payment of underwriting discounts
and a structuring fee totaling $21.9 million and estimated
offering expenses of $5.0 million for a total of
$26.9 million, all of which will be allocated to the public
common units. The $5.0 million of estimated offering
expenses will be paid to Anadarko to reimburse it for offering
expenses that it incurred on our behalf.
(g) Reflects the loan of $260.0 million by the
Partnership to Anadarko in exchange for a
30-year note
bearing interest at a fixed annual rate of 6.5%.
(h) Reflects the payment to Anadarko of
$40.6 million for the reimbursement of capital expenditures.
(i) Reflects the conversion of adjusted parent net
investment of $314.0 million to common, subordinated and
general partner capital of the Partnership. The conversion is
allocated as follows:
|
|
Ø |
$69.0 million for 7,786,306 common units;
|
|
|
Ø |
$235.4 million for 26,536,306 subordinated units; and
|
|
|
Ø |
$9.6 million for 1,083,115 general partner units.
|
After the conversion, the equity amounts of the common and
subordinated units will be 49.0% and 49.0%, respectively, with
the general partner units representing the remaining 2.0%.
The adjustments described above assume no exercise of the
underwriters option to purchase additional common units.
If the underwriters exercise their option to purchase additional
common units in full, the Partnership will receive net proceeds
of approximately $47.3 million in exchange for 2,812,500
common units and will use the proceeds from the issuance of
these units to reimburse Anadarko for capital expenditures it
incurred in respect of the Contributed Assets.
3. PRO
FORMA NET INCOME PER UNIT
Pro forma net income per unit is determined by dividing the pro
forma net income that would have been allocated, in accordance
with the provisions of the limited partnership agreement, to the
common and subordinated unitholders by the number of common and
subordinated units expected to be outstanding at the closing of
the offering. For purposes of this calculation, we assumed that
(1) pro forma cash distributions were equal to pro forma
earnings and (2) 26,536,306 common units and 26,536,306
subordinated units were outstanding since the beginning of the
periods presented. Because the limited partnership agreement
requires the Partnership to distribute available cash rather
than the earnings reflected in the Partnerships income
statement, actual cash distributions declared and paid by the
Partnership may vary significantly from reported pro forma net
income per unit. Pursuant to the partnership agreement, to the
extent that the quarterly distributions exceed certain targets,
the general partner is entitled to receive certain incentive
distributions that will result in more net income being
proportionately allocated to the general partner than to the
holders of common and subordinated units. The pro forma net
income per unit would not have been sufficient to generate
incentive distribution payments to our general partner for the
twelve months ended December 31, 2007.
F-7
Western Gas
Partners Predecessor
Report of
Independent Registered Public Accounting Firm
The Board of Directors
Anadarko Petroleum Corporation:
We have audited the accompanying combined balance sheets of
Western Gas Partners Predecessor (the Predecessor)
as of December 31, 2007 and 2006, and the related combined
statements of income, parent net equity and cash flows for each
of the years in the three-year period ended December 31,
2007. These combined financial statements are the responsibility
of the Predecessors management. Our responsibility is to
express an opinion on these combined financial statements based
on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to
above present fairly, in all material respects, the financial
position of the Predecessor as of December 31, 2007 and
2006, and the results of their operations and their cash flows
for each of the years in the three-year period ended
December 31, 2007, in conformity with U.S. generally
accepted accounting principles.
/s/ KPMG LLP
Houston, Texas
April 3, 2008
F-8
Western Gas
Partners Predecessor
Combined statements
of income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Revenues affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering and transportation of natural gas
|
|
$
|
92,612
|
|
|
$
|
65,946
|
|
|
$
|
58,363
|
|
Condensate
|
|
|
7,661
|
|
|
|
7,440
|
|
|
|
7,006
|
|
Natural gas and other
|
|
|
1,873
|
|
|
|
1,327
|
|
|
|
789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues affiliates
|
|
|
102,146
|
|
|
|
74,713
|
|
|
|
66,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering and transportation of natural gas
|
|
|
10,205
|
|
|
|
5,022
|
|
|
|
2,420
|
|
Condensate, natural gas and other
|
|
|
3,771
|
|
|
|
1,417
|
|
|
|
3,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues third parties
|
|
|
13,976
|
|
|
|
6,439
|
|
|
|
5,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
116,122
|
|
|
|
81,152
|
|
|
|
71,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product
|
|
|
4,864
|
|
|
|
3,830
|
|
|
|
5,551
|
|
General and administrative
|
|
|
4,562
|
|
|
|
3,198
|
|
|
|
2,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses affiliates
|
|
|
9,426
|
|
|
|
7,028
|
|
|
|
8,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product
|
|
|
111
|
|
|
|
714
|
|
|
|
456
|
|
Operation and maintenance
|
|
|
32,544
|
|
|
|
27,585
|
|
|
|
23,044
|
|
General and administrative
|
|
|
222
|
|
|
|
|
|
|
|
9
|
|
Property and other taxes
|
|
|
5,194
|
|
|
|
4,633
|
|
|
|
3,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses third parties
|
|
|
38,071
|
|
|
|
32,932
|
|
|
|
27,340
|
|
Depreciation
|
|
|
23,380
|
|
|
|
18,009
|
|
|
|
15,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
70,877
|
|
|
|
57,969
|
|
|
|
51,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
45,245
|
|
|
|
23,183
|
|
|
|
20,483
|
|
Interest expense affiliates
|
|
|
8,521
|
|
|
|
9,631
|
|
|
|
8,650
|
|
Other (expense) income
|
|
|
|
|
|
|
(26
|
)
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
36,724
|
|
|
|
13,526
|
|
|
|
11,899
|
|
Income Tax Expense
|
|
|
12,724
|
|
|
|
3,814
|
|
|
|
4,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
24,000
|
|
|
$
|
9,712
|
|
|
$
|
7,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the combined financial statements.
F-9
Western Gas
Partners Predecessor
Combined balance
sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
(in
thousands)
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
|
|
|
$
|
458
|
|
Accounts receivable
|
|
|
4,397
|
|
|
|
817
|
|
Natural gas imbalance receivables
|
|
|
899
|
|
|
|
673
|
|
Deferred income taxes
|
|
|
2,916
|
|
|
|
14,569
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
8,212
|
|
|
|
16,517
|
|
Other assets
|
|
|
27
|
|
|
|
57
|
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
Cost
|
|
|
483,896
|
|
|
|
417,951
|
|
Less accumulated depreciation
|
|
|
(120,277
|
)
|
|
|
(107,080
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
363,619
|
|
|
|
310,871
|
|
Goodwill
|
|
|
4,783
|
|
|
|
4,783
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
376,641
|
|
|
$
|
332,228
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,357
|
|
|
$
|
4,581
|
|
Natural gas imbalance payables
|
|
|
2,104
|
|
|
|
2,365
|
|
Accrued ad valorem taxes
|
|
|
1,100
|
|
|
|
975
|
|
Income taxes payable
|
|
|
313
|
|
|
|
|
|
Accrued liabilities
|
|
|
4,843
|
|
|
|
3,297
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
11,717
|
|
|
|
11,218
|
|
Long-term Liabilities
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
76,423
|
|
|
|
75,665
|
|
Asset retirement obligations
|
|
|
7,185
|
|
|
|
6,814
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
83,608
|
|
|
|
82,479
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
95,325
|
|
|
|
93,697
|
|
Parent Net Equity
|
|
|
281,316
|
|
|
|
238,531
|
|
Commitments and Contingencies (see Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Parent Net Equity
|
|
$
|
376,641
|
|
|
$
|
332,228
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the combined financial statements.
F-10
Western Gas
Partners Predecessor
Combined statements
of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Cash Flow from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,000
|
|
|
$
|
9,712
|
|
|
$
|
7,110
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
23,380
|
|
|
|
18,009
|
|
|
|
15,447
|
|
Deferred income taxes
|
|
|
12,411
|
|
|
|
3,814
|
|
|
|
4,789
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)/decrease in accounts receivable
|
|
|
(3,579
|
)
|
|
|
374
|
|
|
|
(662
|
)
|
(Increase)/decrease in natural gas imbalance receivable
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
Increase/(decrease) in accounts payable and accrued expenses
|
|
|
(144
|
)
|
|
|
(4,556
|
)
|
|
|
3,373
|
|
(Increase)/decrease in other items, net
|
|
|
30
|
|
|
|
(30
|
)
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
55,872
|
|
|
|
27,323
|
|
|
|
30,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net
|
|
|
(52,664
|
)
|
|
|
(42,299
|
)
|
|
|
(20,841
|
)
|
Other investing activities
|
|
|
(510
|
)
|
|
|
(414
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(53,174
|
)
|
|
|
(42,713
|
)
|
|
|
(21,076
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment by (advance to) parent
|
|
|
(3,156
|
)
|
|
|
15,844
|
|
|
|
(9,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities
|
|
|
(3,156
|
)
|
|
|
15,844
|
|
|
|
(9,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash
|
|
|
(458
|
)
|
|
|
454
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at Beginning of Year
|
|
|
458
|
|
|
|
4
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at End of Year
|
|
$
|
|
|
|
$
|
458
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant non-cash investing and financing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment contributed by parent
|
|
$
|
21,941
|
|
|
$
|
|
|
|
$
|
|
|
Acquisition, net of cash received
|
|
$
|
|
|
|
$
|
52,390
|
|
|
$
|
|
|
See the accompanying notes to the combined financial statements.
F-11
Western Gas
Partners Predecessor
Combined statements
of parent net equity
|
|
|
|
|
|
|
Parent net
|
|
|
|
equity
|
|
|
|
|
|
(In
thousands)
|
|
|
Balance, January 1, 2005
|
|
$
|
162,542
|
|
Net income
|
|
|
7,110
|
|
Net advance to parent
|
|
|
(9,067
|
)
|
|
|
|
|
|
Balance, December 31, 2005
|
|
$
|
160,585
|
|
|
|
|
|
|
Net income
|
|
|
9,712
|
|
Net advance to parent
|
|
|
15,844
|
|
Investment by parent
|
|
|
52,390
|
|
Balance, December 31, 2006
|
|
$
|
238,531
|
|
|
|
|
|
|
Net income
|
|
|
24,000
|
|
Net advance from parent
|
|
|
(3,156
|
)
|
Investment by parent
|
|
|
21,941
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
281,316
|
|
|
|
|
|
|
See the accompanying notes to the combined financial statements.
F-12
Western Gas
Partners Predecessor
Notes to
combined financial statements
|
|
1.
|
DESCRIPTION OF
BUSINESS AND BASIS OF PRESENTATION
|
These financial statements of Western Gas Partners Predecessor
(the Predecessor) have been prepared in connection
with the proposed initial public offering (the
Offering) of limited partner units in Western Gas
Partners, LP (the Partnership), which was formed in
Delaware on August 21, 2007 and is expected to own the
operations and assets of the Predecessor upon closing. The
Predecessor is comprised of Anadarko Gathering Company, LLC
(AGC) and Pinnacle Gas Treating LLC
(PGT), with MIGC LLC (MIGC) being
reported as an acquired business of the Predecessor. PGT, AGC
and MIGC, collectively, constitute the assets to be contributed
to the Partnership (the Contributed Assets). Each
of AGC, PGT, MIGC and the Partnership is an indirect subsidiary
of Anadarko. For purposes of these financial statements,
Anadarko refers to Anadarko Petroleum Corporation
and its consolidated subsidiaries.
The Predecessors assets consist of six gathering systems,
five natural gas treating facilities and one interstate
pipeline. The Predecessors assets are located in East
Texas, the Rocky Mountains (Utah and Wyoming), the Mid-Continent
(Kansas and Oklahoma) and West Texas. As part of the initial
public offering of limited partner units of the Partnership,
Western Gas Holdings, LLC (Holdings GP) and WGR
Holdings, LLC, both Anadarko affiliates, will collectively
contribute the Contributed Assets to the Partnership. Holdings
GP will serve as the general partner of the Partnership and
together with Anadarko will provide services to the Partnership
pursuant to an omnibus agreement and a services and secondment
agreement between the parties.
On August 23, 2006, Anadarko acquired Western Gas
Resources, Inc. (Western), including Westerns
subsidiary, MIGC. Under the purchase method of accounting,
Anadarko allocated $52.4 million of the Western purchase
price to MIGC. These financial statements are prepared as if
MIGC was acquired by the Predecessor on August 23, 2006,
the date of Anadarkos acquisition of Western.
The combined financial statements of the Predecessor have been
prepared in accordance with accounting principles generally
accepted in the United States on the basis of Anadarkos
historical ownership of the Contributed Assets. These combined
financial statements have been prepared from the separate
records maintained by Anadarko and may not necessarily be
indicative of the actual results of operations that might have
occurred if the Predecessor had been operated separately during
the periods reported. Because a direct ownership relationship
did not exist among the businesses comprising the Predecessor,
the net investment in the Predecessor is shown as parent net
equity, in lieu of owners equity, in the combined
financial statements.
The Predecessors costs of doing business incurred by
Anadarko on behalf of the Predecessor have been reflected in the
accompanying financial statements. These costs include general
and administrative expenses charged as a management services fee
by Anadarko to the Predecessor in exchange for:
|
|
Ø
|
business services, such as payroll, accounts payable and
facilities management;
|
|
Ø
|
corporate services, such as finance and accounting, legal, human
resources, investor relations and public and regulatory policy;
|
|
Ø
|
executive compensation, but not including share-based
compensation; and
|
|
Ø
|
pension and other post-retirement benefit costs.
|
Transactions between the Predecessor and Anadarko have been
identified in the combined financial statements as transactions
between affiliates (see Note 4).
F-13
Notes to
combined financial statements of Western Gas Partners
Predecessor
|
|
2.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
|
Use of
estimates
To conform to generally accepted accounting principles in the
United States, management makes estimates and assumptions that
affect the amounts reported in the combined financial statements
and the notes thereto. These estimates are evaluated on an
ongoing basis, utilizing historical experience, consultation
with outside advisers and other methods considered reasonable in
the particular circumstances. Although these estimates are based
on managements best available knowledge at the time,
actual results could differ. Effects on the Predecessors
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. Changes in facts and
circumstances or discovery of new facts or circumstances may
result in revised estimates and actual results may differ from
these estimates.
Property, plant
and equipment
Property, plant and equipment are stated at the lower of
historical cost, less accumulated depreciation or fair value, if
impaired. The Predecessor capitalizes all construction-related
direct labor and material costs. The cost of renewals and
betterments that extend the useful life of property, plant and
equipment is also capitalized. The cost of repairs, replacements
and major maintenance projects, which do not extend the useful
life or increase the expected output of property, plant and
equipment, is expensed as it is incurred. Depreciation is
computed over the assets estimated useful life using the
straight-line method.
The Predecessor evaluates whether long-lived assets have been
impaired and determines if the carrying amount of its assets may
not be recoverable.
Impairment exists when the carrying amount of an asset exceeds
estimates of the undiscounted cash flows expected to result from
the use and eventual disposition of the asset. When alternative
courses of action to recover the carrying amount of a long-lived
asset are under consideration, estimates of future undiscounted
cash flows take into account possible outcomes and probabilities
of their occurrence. If the carrying amount of the long-lived
asset is not recoverable, based on the estimated future
undiscounted cash flows, the impairment loss is measured as the
excess of the assets carrying amount over its estimated
fair value, such that the assets carrying amount is
adjusted to its estimated fair value.
When warranted, management assesses the fair value of long-lived
assets using commonly accepted techniques and may use more than
one source in making such determinations. Sources used to
determine fair value include, but are not limited to, recent
third-party comparable sales, internally developed discounted
cash flow analysis and analysis from outside advisors.
Significant changes in market conditions resulting from events
such as changes in commodity prices or the condition of an asset
or a change in managements intent to utilize the asset
would generally require management to reassess the cash flows
related to the long-lived assets.
No long-lived asset impairment has been recognized in these
financial statements.
Goodwill
Goodwill represents the excess of the purchase price of an
entity over the estimated fair value of the identifiable assets
acquired and liabilities assumed.
For 2006, the Predecessor recognized goodwill of
$4.8 million in connection with the acquisition of MIGC.
None of the Predecessors goodwill is deductible for income
tax purposes.
F-14
Notes to
combined financial statements of Western Gas Partners
Predecessor
The Predecessor evaluates whether goodwill has been impaired.
Impairment testing is performed annually, unless facts and
circumstances make it necessary to test more frequently. The
Predecessor has determined that it has one operating segment and
two reporting units and, accordingly, goodwill is assessed for
impairment at the reporting level unit. Goodwill impairment
assessment is a two-step process. Step one focuses on
identifying a potential impairment by comparing the fair value
of the reporting unit with the carrying amount of the reporting
unit. If the fair value of the reporting unit exceeds its
carrying amount, no further action is required. However, if the
carrying amount of the reporting unit exceeds its fair value,
step two of the process is performed, and goodwill is written
down to the implied fair value of the goodwill through a charge
to expense.
No goodwill impairment has been recognized in these financial
statements.
Asset retirement
obligations
The Predecessor recognizes a liability based on estimated costs
of retiring tangible long-lived assets. The liability is
recognized at the fair value of the asset retirement obligation
when the obligation is incurred, which generally is when an
asset is acquired or constructed. The carrying amount of the
associated asset is increased commensurate with the liability
recognized. Subsequent to the initial recognition, the liability
is adjusted for any changes in the expected value of the
retirement obligation (with corresponding adjustments to
property, plant and equipment) and for accretion of the
liability due to the passage of time, until the obligation is
settled. If the fair value of the estimated asset retirement
obligation changes, an adjustment is recorded for both the asset
retirement obligation and the asset retirement cost.
Revenue
recognition
The Predecessor provides gathering and treating services
pursuant to fee-based contracts. Under these arrangements, the
Predecessor is paid a fixed fee based on the volume and thermal
content of the natural gas it gathers or treats and recognizes
gathering and treating revenue for its services at the time the
service is performed.
Under certain gathering agreements, the Predecessor retains and
sells condensate, which falls out of the natural gas stream
during the gathering process, and compensates shippers with a
thermally equivalent volume of natural gas. The Predecessor
recognizes revenue from condensate sales upon transfer of title.
The Predecessor earns transportation revenues through firm
contracts that obligate its customers to pay a monthly
reservation or demand charge regardless of the pipeline capacity
used by that customer. An additional commodity usage fee is
charged to the customer based on the actual volume of natural
gas transported. Revenues are also generated from interruptible
contracts pursuant to which a fee is charged to the customer
based on volumes transported through the pipeline. Revenues for
transportation of natural gas are recognized over the period of
firm transportation contracts or, in the case of usage fees and
interruptible contracts, when the volumes are received into the
pipeline. From time to time, certain revenues may be subject to
refund pending the outcome of rate matters before the Federal
Energy Regulatory Commission and reserves are established where
appropriate. During the periods presented herein, there were no
pending rate cases, and no related reserves have been
established.
Natural gas
imbalances
The combined balance sheets include natural gas imbalance
receivables or payables resulting from differences in gas
volumes received and gas volumes delivered to customers. Natural
gas volumes owed to or by the Predecessor that are subject to
tariffs are valued at market index prices, as of the balance
sheet dates, and are subject to cash settlement procedures.
Other natural gas volumes owed to or by the
F-15
Notes to
combined financial statements of Western Gas Partners
Predecessor
Predecessor are valued at the Predecessors weighted
average cost of natural gas as of the balance sheet dates and
are settled in-kind. Accounts receivable related to gas
imbalances were $899,000 and $673,000 as of December 31,
2007 and 2006, respectively.
Environmental
expenditures
The Predecessor expenses environmental expenditures related to
conditions caused by past operations that do not generate
current or future revenues. Environmental expenditures related
to operations that generate current or future revenues are
expensed or capitalized, as appropriate. Liabilities are
recorded when the necessity for environmental remediation
becomes probable and the costs can be reasonably estimated, or
when other potential environmental liabilities are probable and
may be reasonably estimated.
Cash
equivalents
The Predecessor considers all highly liquid investments with an
original maturity date of three months or less to be cash
equivalents. The Predecessor had cash or cash equivalents of
$458,000 as of December 31, 2006 and $0 as of
December 31, 2007.
Bad debt
reserve
The Predecessor transacts its business primarily with Anadarko,
for which no credit policy is maintained. The Predecessor
analyzes its exposure to bad debt on a customer-by-customer
basis for its third-party accounts receivable. For third-party
accounts receivable, the amount of bad debt reserve for the
years ended December 31, 2007 and 2006 was $41,146 and $0,
respectively.
Income
taxes
Anadarko files various United States federal and state income
tax returns. Deferred federal and state income taxes are
provided on temporary differences between the financial
statement carrying amounts of recognized assets and liabilities
and their respective tax bases as if the Predecessor filed tax
returns as a stand-alone entity.
New accounting
standards
The following new accounting standards were adopted by the
Predecessor during the year ended December 31, 2007:
Financial Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109
(FIN 48). In July 2006, the FASB issued FIN 48 and
it became effective January 1, 2007 for the Predecessor.
FIN 48 clarifies the accounting for uncertainty in income
taxes by prescribing the recognition threshold that a tax
position is required to meet before any part of the benefit of
that position may be recognized in the financial statements. It
also provides guidance on measurement of the income tax benefit
associated with uncertain tax positions, derecognition,
classification, interest and penalties, accounting in interim
periods and disclosure. Additionally, in May 2007, the FASB
published FASB Staff Position
No. FIN 48-1,
Definition of Settlement in FASB Interpretation
No. 48 (FSP
FIN 48-1).
FSP
FIN 48-1
is an amendment to FIN 48 and it clarifies how an
enterprise should determine whether a tax position is
effectively settled for the purpose of recognizing previously
unrecognized tax benefits. FSP
FIN 48-1
is effective upon the initial adoption of FIN 48, and
therefore is effective retroactively to January 1, 2007.
The adoption of FIN 48 and FSP FIN
48-1 did not
have an impact on the Predecessors combined results of
operations, cash flows or financial position.
F-16
Notes to
combined financial statements of Western Gas Partners
Predecessor
Recently issued
accounting standards not yet adopted
The following new accounting standards have been issued, but as
of December 31, 2007 had not yet been adopted by the
Predecessor:
SFAS No. 157 Fair Value Measurements
(SFAS 157). In September 2006, the FASB issued
SFAS 157, which defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair
value measurements. SFAS 157 does not require any new fair
value measurements. However, in some cases, the application of
SFAS 157 may change the Predecessors current practice
for measuring and disclosing fair values under other accounting
pronouncements that require or permit fair value measurements.
As originally issued, SFAS 157 is effective as of
January 1, 2008 and must be applied prospectively, except
in certain cases for the Predecessor. The FASB issued FASB Staff
Position (FSP)
FAS 157-2,
which delayed the effective date of SFAS 157 to
January 1, 2009 for nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at
least annually). The Predecessor does not expect that the
adoption of SFAS 157, as amended by FSP
FAS 157-2,
will impact its combined results of operations, cash flows or
financial position.
SFAS No. 141(R) Business Combinations
(SFAS 141R). In December 2007, the FASB issued
SFAS 141R which applies fair value measurement in
accounting for business combinations, expands financial
disclosures, defines an acquirer and modifies the accounting for
some items for business combinations. An acquirer will be
required to record 100% of assets and liabilities, including
goodwill, contingent assets and contingent liabilities, at their
fair value. This replaces the cost allocation process applied
under SFAS 141. In addition, contingent consideration must
also be recognized at fair value at the acquisition date.
Acquisition-related costs will be expensed rather than treated
as an addition to the asset being acquired and restructuring
costs are to be recognized separately from the business
combination. SFAS 141R is effective for the Predecessor on
January 1, 2009 and the statement shall be applied
prospectively. Presentation and disclosure requirements of
SFAS 141R will be applied effective January 1, 2009,
with respect to all periods presented. The Predecessor does not
expect the adoption of SFAS 141R to impact its historical
combined results of operations, cash flow or financial position.
Emerging Issues Task Force (EITF) Issue
No. 07-4
Application of the Two Class Method
under FASB Statement No. 128, Earnings per Share, to Master
Limited Partnerships (EITF 07-04). In March 2008, the
EITF issued
EITF 07-4
addressing the application of the two-class method under
SFAS 128 in determining income per unit for master limited
partnerships having multiple classes of securities, including
limited partnership units, general partnership units and when
applicable, incentive distribution rights (IDR) of the general
partner.
EITF 07-4
clarifies that the two-class method would apply. Further,
EITF 07-4 states
that undistributed earnings should be allocated to the general
partner, limited partners and IDR holders as if undistributed
earnings were available cash.
EITF 07-4
is effective for the Predecessor on January 1, 2009 and
will be applied with respect to all periods presented.
On August 23, 2006, Anadarko completed its acquisition of
Western. This transaction included MIGC, a subsidiary of
Western, which was allocated a fair value of $52.4 million
under the purchase method of accounting. MIGC will be
contributed to the Partnership upon the closing of this
offering, and the Predecessors combined financial
statements are prepared as if MIGC had been acquired by the
Predecessor on August 23, 2006, when Anadarko acquired
Western.
The acquisition of MIGC was accounted for under the purchase
method of accounting. Accordingly, the assets and liabilities of
MIGC are recorded at their estimated fair values by the
Predecessor as of the date of Anadarkos acquisition of
Western.
F-17
Notes to
combined financial statements of Western Gas Partners
Predecessor
The following table presents the allocation of the purchase
price to the assets acquired and liabilities assumed in the MIGC
acquisition, as of the acquisition date:
|
|
|
|
|
|
|
Allocation of
|
|
|
|
purchase price
|
|
|
|
|
|
(in
thousands)
|
|
|
Current assets
|
|
$
|
193
|
|
Other assets
|
|
|
27
|
|
Property, plant, and equipment
|
|
|
79,273
|
|
Goodwill
|
|
|
4,783
|
|
Current liabilities
|
|
|
(5,813
|
)
|
Deferred income taxes
|
|
|
(24,790
|
)
|
Asset retirement obligations
|
|
|
(1,283
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
52,390
|
|
|
|
|
|
|
The purchase price allocation was based on an assessment of the
fair value of the MIGC assets acquired and liabilities assumed.
Other assets and liabilities were recorded at their historical
book values, which the Predecessor believed to represent the
best estimate of fair value at the date of acquisition. The
liabilities assumed included certain amounts associated with
contingencies, such as asset retirement obligations, the fair
values of which were estimated by management.
The following table presents selected unaudited pro forma
results of operations data for the Predecessor as if the MIGC
acquisition occurred on January 1, 2006 and 2005:
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
|
2006
|
|
2005
|
|
|
|
(in
thousands)
|
|
Revenues
|
|
$
|
93,304
|
|
$
|
88,809
|
Operating income
|
|
$
|
29,963
|
|
$
|
27,759
|
Net income
|
|
$
|
14,249
|
|
$
|
11,632
|
The pro forma information set forth above is presented for
illustration purposes only, in accordance with the assumptions
set forth below, and is not necessarily indicative of the
operating results that would have occurred had the acquisition
been completed at the assumed date, nor is it necessarily
indicative of future operating results of the combined
enterprise. The pro forma adjustments include estimates and
assumptions based on currently available information. Management
believes that the estimates and assumptions are reasonable and
that the significant effects of the transaction are properly
reflected.
The pro forma information for 2006 and 2005 is a result of
combining the income statements of the Predecessor with the
pre-acquisition results from January 1, 2006 and 2005 of
MIGC, adjusted for (1) depreciation expense for MIGC
property, plant and equipment calculated by reference to the
adjusted basis of the properties acquired, and (2) the
related income tax effects of these adjustments based on the
applicable effective tax rates.
|
|
4.
|
TRANSACTIONS WITH
AFFILIATES
|
Affiliate
transactions
The Predecessor provides natural gas gathering, compression,
treating and transportation services to Anadarko resulting in
affiliate transactions. The Predecessors expenditures are
paid through Anadarko,
F-18
Notes to
combined financial statements of Western Gas Partners
Predecessor
which also results in affiliate transactions. Unlike
transactions with third parties that settle in cash, settlement
of these affiliate transactions occurs on a net basis through an
adjustment to parent net equity. Anadarko also charges the
Predecessor interest on the amounts settled through parent net
equity. Interest is computed based on an interest rate equal to
Anadarkos weighted average cost of capital.
Centralized cash
management
Anadarko operates a cash management system whereby excess cash
from most of its various subsidiaries, held in separate bank
accounts, is swept to a centralized account. Sales and purchases
related to third-party transactions are settled in cash but are
received or paid by Anadarko within the centralized cash
management system and are deemed to have occurred through an
adjustment to parent net equity.
Allocation of
costs
The employees supporting the Predecessors operations are
employees of Anadarko. The combined financial statements of the
Predecessor include costs allocated by Anadarko in the form of a
management services fee and relate to: (i) various business
services, including, but not limited to, payroll, accounts
payable and facilities management, (ii) various corporate
services, including, but not limited to, legal, accounting,
treasury, information technology and human resources and
(iii) compensation, benefit, and pension and
post-retirement costs. General, administrative and management
costs were allocated to the Predecessor based on its
proportionate share of Anadarkos assets and revenues.
Management believes these allocation methodologies are
reasonable.
The following table summarizes the affiliate transactions and
other payments made to or received from Anadarko which are
settled through an adjustment to parent net equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Revenues affiliates
|
|
$
|
(102,146
|
)
|
|
$
|
(74,713
|
)
|
|
$
|
(66,158
|
)
|
Operating expense affiliates
|
|
|
9,426
|
|
|
|
7,028
|
|
|
|
8,380
|
|
Interest expense affiliates
|
|
|
8,521
|
|
|
|
9,631
|
|
|
|
8,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate transactions
|
|
|
(84,199
|
)
|
|
|
(58,054
|
)
|
|
|
(49,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
53,174
|
|
|
|
42,713
|
|
|
|
21,076
|
|
Other third-party payments
|
|
|
27,869
|
|
|
|
31,185
|
|
|
|
18,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party transactions
|
|
|
81,043
|
|
|
|
73,898
|
|
|
|
40,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net advance from (to) parent
|
|
$
|
(3,156
|
)
|
|
$
|
15,844
|
|
|
$
|
(9,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
Notes to
combined financial statements of Western Gas Partners
Predecessor
Components of income tax expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Current income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income taxes
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
12,940
|
|
|
|
5,237
|
|
|
|
3,823
|
|
State
|
|
|
(529
|
)
|
|
|
(1,423
|
)
|
|
|
966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income taxes
|
|
|
12,411
|
|
|
|
3,814
|
|
|
|
4,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
12,724
|
|
|
$
|
3,814
|
|
|
$
|
4,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income taxes differed from the amounts computed by
applying the statutory income tax rate to Income before
income taxes. The sources of these differences are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Income before income taxes
|
|
$
|
36,724
|
|
|
$
|
13,526
|
|
|
$
|
11,899
|
|
Income tax expense, computed at the statutory rate of 35%
|
|
|
12,853
|
|
|
|
4,734
|
|
|
|
4,165
|
|
Adjustments resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income tax, net of federal income tax effect
|
|
|
268
|
|
|
|
179
|
|
|
|
628
|
|
Texas law change, net of federal income tax effect
|
|
|
(408
|
)
|
|
|
(1,104
|
)
|
|
|
|
|
Other items
|
|
|
11
|
|
|
|
5
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
12,724
|
|
|
$
|
3,814
|
|
|
$
|
4,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
34.65
|
%
|
|
|
28.20
|
%
|
|
|
40.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas House Bill 3, signed into law in May 2006, eliminates the
taxable capital and earned surplus components of the existing
franchise tax and replaces these components with a taxable
margin tax calculated on a combined group reporting basis. There
is no impact from the Texas law change on the Predecessors
2006 current state income taxes as the new tax is effective for
reports due on or after January 1, 2008 (based on business
activity during 2007). The Predecessor is required to record the
impact of the law change to its deferred state income taxes for
the period which includes the date of the laws enactment.
The adjustment, a reduction to the Predecessors deferred
state income taxes in the amount of approximately
$0.4 million and $1.1 million, net of the federal tax
benefit, is included in 2007 and 2006 tax expense, respectively.
F-20
Notes to
combined financial statements of Western Gas Partners
Predecessor
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and liabilities at
December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
|
Net operating loss and credit carryforwards
|
|
$
|
2,916
|
|
|
$
|
14,569
|
|
|
|
|
|
|
|
|
|
|
Net current deferred income tax assets
|
|
|
2,916
|
|
|
|
14,569
|
|
|
|
|
|
|
|
|
|
|
Depreciable properties
|
|
|
(76,423
|
)
|
|
|
(75,887
|
)
|
Net operating loss carryforward
|
|
|
|
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
Net long-term deferred income tax liabilities
|
|
|
(76,423
|
)
|
|
|
(75,655
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred income tax liabilities
|
|
$
|
(73,507
|
)
|
|
$
|
(61,096
|
)
|
|
|
|
|
|
|
|
|
|
Tax loss and credit carryforwards at December 31, 2007,
generated by the Predecessor, are as follows:
|
|
|
|
|
|
|
Net operating loss federal
|
|
$6,441 statutory expiration 2024
|
Net operating loss state
|
|
$9,742 statutory expiration 2013-2014
|
State credit
|
|
$628 statutory expiration 2027
|
Anadarko is in administrative appeals or under examination by
the Internal Revenue Service for its
2000-2006
tax returns.
|
|
6.
|
CONCENTRATION OF
CREDIT RISK
|
Anadarko was the only customer accounting for 10% or more of the
Predecessors combined revenues for the years ended
December 31, 2007, 2006 and 2005. The relative percentages
of revenues accounted for by Anadarko and the other customers
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
Customer
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Anadarko
|
|
|
88
|
%
|
|
|
92
|
%
|
|
|
92
|
%
|
Other
|
|
|
12
|
%
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
The Predecessors principal customer for all of its
activities is Anadarko and no credit policy is maintained with
respect to Anadarko. Except for Anadarko, no other customer
accounted for greater than 10% of revenue during the three years
ended December 31, 2007. Where exposed to third-party
credit risk, it is the policy of the Predecessor to
(1) analyze the counterparties financial condition
prior to entering into an agreement, (2) establish credit
limits and (3) monitor the appropriateness of those limits
on an ongoing basis.
F-21
Notes to
combined financial statements of Western Gas Partners
Predecessor
|
|
7.
|
PROPERTY, PLANT
AND EQUIPMENT
|
A summary of the historical cost of the Predecessors
property, plant and equipment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
December 31,
|
|
|
|
useful
life
|
|
2007
|
|
|
2006
|
|
|
|
|
|
(in thousands,
except for estimated useful life)
|
|
|
Land
|
|
n/a
|
|
$
|
175
|
|
|
$
|
229
|
|
Gathering systems
|
|
15 to 25 years
|
|
|
375,478
|
|
|
|
312,514
|
|
Pipeline, compressors and equipment
|
|
30 to 34.5 years
|
|
|
84,651
|
|
|
|
79,956
|
|
Compressor improvements
|
|
7 years
|
|
|
|
|
|
|
9,615
|
|
Assets under construction
|
|
n/a
|
|
|
22,738
|
|
|
|
12,613
|
|
Other
|
|
5 to 25 years
|
|
|
854
|
|
|
|
3,024
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment
|
|
|
|
|
483,896
|
|
|
|
417,951
|
|
Accumulated depreciation
|
|
|
|
|
(120,277
|
)
|
|
|
(107,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total net property, plant and equipment
|
|
|
|
$
|
363,619
|
|
|
$
|
310,871
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation is calculated using the straight-line method, based
on estimated useful lives and salvage values of assets.
Uncertainties that may impact these estimates include, among
others, changes in laws and regulations relating to restoration
and abandonment requirements, economic conditions and supply and
demand in the area. When assets are placed into service, the
Predecessor makes estimates with respect to useful lives and
salvage values that the Predecessor believes are reasonable.
However, subsequent events could cause a change in estimates,
thereby impacting future depreciation amounts. The cost of
property classified as Assets under construction is
excluded from capitalized costs being depreciated. This amount
represents property elements that are
work-in-progress
and not yet suitable to be placed into productive service as of
the balance sheet date.
|
|
8.
|
ASSET RETIREMENT
OBLIGATIONS
|
The following table provides a roll forward of asset retirement
obligations. Revisions in estimated liabilities during the
period relate primarily to revisions of estimated cost
escalation rates and current cost estimates, which may include,
among other things, changes in property lives and the expected
timing of settling asset retirement obligations.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
(in
thousands)
|
|
|
Carrying amount of asset retirement obligations at beginning of
year
|
|
$
|
6,814
|
|
|
$
|
923
|
|
Additions
|
|
|
102
|
|
|
|
55
|
|
Liabilities assumed with MIGC acquisition
|
|
|
|
|
|
|
1,283
|
|
Accretion expense
|
|
|
409
|
|
|
|
197
|
|
Revisions in estimated liabilities:
|
|
|
|
|
|
|
|
|
Increase in cost escalation assumption
|
|
|
|
|
|
|
2,331
|
|
Change in other estimates
|
|
|
(140
|
)
|
|
|
2,025
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of asset retirement obligations at end of year
|
|
$
|
7,185
|
|
|
$
|
6,814
|
|
|
|
|
|
|
|
|
|
|
The Predecessors operations are organized into a single
business segment, all of the assets of which consist of natural
gas gathering systems, treating facilities, a pipeline and
related plant and equipment.
F-22
Notes to
combined financial statements of Western Gas Partners
Predecessor
|
|
10.
|
COMMITMENTS AND
CONTINGENCIES
|
Environmental
The Predecessor 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 will have a material
adverse effect on the Predecessors results of operations,
cash flows or financial position.
Litigation and
legal proceedings
From time to time, the Predecessor 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 Predecessors results of operations,
cash flows or financial position.
Lease
commitments
The Predecessor, or Anadarko on behalf of the Predecessor,
entered into leases primarily for compression equipment. During
2007, Anadarko, on behalf of the Predecessor, restructured
certain lease commitments, resulting in a new lease and the
purchase of previously leased equipment. Compression equipment
purchased by Anadarko was contributed by Anadarko to the
Predecessor during 2007.
The new lease was entered into between Anadarko and a third
party during August 2007. The leased compression equipment is
used exclusively by the Predecessor and the underlying lease
agreement is deemed an operating lease. Upon closing the
Offering, Anadarko has the option to terminate this lease,
purchase and take title to the subject compression equipment,
and contribute the subject compression equipment to AGC.
Anadarko is under no legal obligation to restructure the new
lease nor is it obligated to purchase the subject compression
equipment from the lessor.
The compression equipment may be purchased by Anadarko at any
time. If upon the expiration date of the lease, August 20,
2012, Anadarko has not purchased the leased compression
equipment, it may be sold by the lessor to a third party. If
purchased by Anadarko, the purchase price would be approximately
$11.0 million. Alternatively, if the compression equipment
is sold by the lessor to a third party at lease expiration,
Anadarko is obligated to make a cash payment to the lessor equal
to the lesser of $8.0 million or the excess, if any, of
$11.0 million over the actual sales price of the
compression equipment realized by the lessor in connection with
a third-party sale.
The amounts in the table below represent existing contractual
lease obligations attributable to the new or restructured
compressor lease discussed above. If Anadarko does not purchase
the leased compression equipment in connection with the
Offering, the below amounts may be assigned or otherwise charged
to the Predecessor subsequent to the Offering, as will any
amounts due to the lessor in connection with the purchase option
at lease expiration.
F-23
Notes to
combined financial statements of Western Gas Partners
Predecessor
Rent expense under the compressor operating leases was
approximately $1.2 million, $3.0 million, and
$2.8 million for the years ended December 31, 2007,
2006 and 2005, respectively. Future minimum rent payments due
under the compressor lease are as follows:
|
|
|
|
|
|
Minimum
|
|
|
rental
|
|
|
payments
|
|
|
|
(in
thousands)
|
|
2008
|
|
$
|
1,568
|
2009
|
|
|
1,568
|
2010
|
|
|
1,568
|
2011
|
|
|
1,568
|
2012
|
|
|
1,045
|
|
|
|
|
Total
|
|
$
|
7,317
|
|
|
|
|
The Predecessor also utilizes facilities leased by Anadarko.
Accordingly, rent expense is charged by Anadarko to the
Predecessor; however, these amounts do not represent obligations
of the Predecessor and will not be assigned upon closing of the
Offering. Thus, these amounts were not included in the amounts
set forth in the table above.
|
|
11.
|
PENSION PLANS,
OTHER POSTRETIREMENT AND EMPLOYEE SAVINGS PLANS
|
The Predecessor does not sponsor any pension, postretirement or
employee savings plan. However, the Predecessor participates in
certain plans sponsored by Anadarko. The Predecessor
participates in Anadarkos non-contributory defined pension
plans, including both qualified and supplemental plans. Anadarko
also provides certain health care and life insurance benefits
for retired employees. Effective December 31, 2006,
Anadarko adopted SFAS 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans An Amendment of FASB Statements No. 87,
88, 106 and 132(R), which requires the recognition of
the overfunded or underfunded status of a defined postretirement
plan in its balance sheet, measured as the difference between
the fair value of plan assets and the benefit obligation and the
recognition of changes in the funded status of a plan during the
reporting period as a component of accumulated other
comprehensive income.
Anadarko also sponsors, and the Predecessor participates in, an
employee defined contribution savings plan that matches a
portion of each employees contributions.
Pension, postretirement and employee savings plan costs included
in the management services fee charged to the Predecessor by
Anadarko were approximately $255,000, $250,000, and $200,000 for
2007, 2006 and 2005, respectively.
In December 2007, Anadarko and an entity formed by a group of
unrelated investors formed Trinity Associates, LLC
(Trinity). Trinity extended a $2.2 billion loan
to WGR Asset Holding Company, LLC (WGR Asset
Holdings). The Predecessor entities are subsidiaries of
WGR Asset Holdings. On February 16, 2008, the Predecessor
entities, along with other WGR Asset Holdings subsidiaries,
became joint and several guarantors of the $2.2 billion
loan. The loan agreement specifies that the Predecessors
obligations for this guarantee will be released automatically,
immediately before the consummation of the Offering.
In March 2008, Anadarko entered into a new, five-year
$1.3 billion credit facility, which replaced its previously
existing $750 million facility, under which the Partnership
may borrow up to $100 million.
F-24
MIGC
LLC
Report of
Independent Registered Public Accounting Firm
The Board of Directors
Anadarko Petroleum Corporation:
We have audited the accompanying balance sheet of MIGC LLC (the
Company) as of December 31, 2005, and the
related statements of income, parent net equity, and cash flows
for the period from January 1, 2006 through August 23,
2006 and for the year ended December 31, 2005. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of the Company as of December 31, 2005, and its results of
operations and cash flows for the period from January 1,
2006 through August 23, 2006 and for the year ended
December 31, 2005, in conformity with U.S. generally
accepted accounting principles.
/s/ KPMG LLP
Denver, Colorado
October 11, 2007
F-25
MIGC
LLC
Statements of income
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
|
|
|
2006
|
|
|
For the
|
|
|
|
through
|
|
|
year ended
|
|
|
|
August 23,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Transportation of natural gas affiliates
|
|
$
|
7,583
|
|
|
$
|
11,887
|
|
Transportation of natural gas third parties
|
|
|
3,427
|
|
|
|
5,111
|
|
Sale of natural gas third parties
|
|
|
1,039
|
|
|
|
|
|
Other affiliates
|
|
|
103
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
12,152
|
|
|
|
17,159
|
|
|
|
|
|
|
|
|
|
|
Operating expenses third parties
|
|
|
|
|
|
|
|
|
Cost of product
|
|
|
|
|
|
|
703
|
|
Operation and maintenance
|
|
|
2,592
|
|
|
|
5,517
|
|
General and administrative
|
|
|
1,305
|
|
|
|
1,247
|
|
Depreciation
|
|
|
918
|
|
|
|
631
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,815
|
|
|
|
8,098
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
7,337
|
|
|
|
9,061
|
|
|
|
|
|
|
|
|
|
|
Interest (income) affiliates
|
|
|
(574
|
)
|
|
|
(526
|
)
|
Other expense
|
|
|
351
|
|
|
|
986
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
7,560
|
|
|
|
8,601
|
|
Income Tax Expense
|
|
|
2,647
|
|
|
|
3,011
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
4,913
|
|
|
$
|
5,590
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the financial statements.
F-26
MIGC
LLC
Balance sheet
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Current Assets
|
|
|
|
|
Cash
|
|
$
|
|
|
Accounts receivable
|
|
|
523
|
|
Accounts receivable affiliates
|
|
|
42,659
|
|
|
|
|
|
|
Total current assets
|
|
|
43,182
|
|
Other assets
|
|
|
81
|
|
Property, Plant and Equipment
|
|
|
|
|
Cost
|
|
|
46,121
|
|
Less accumulated depreciation
|
|
|
(17,389
|
)
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
28,732
|
|
|
|
|
|
|
Total Assets
|
|
$
|
71,995
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
Accounts payable
|
|
$
|
58
|
|
Natural gas imbalance payables
|
|
|
1,944
|
|
Natural gas imbalance payable affiliates
|
|
|
846
|
|
Accrued ad valorem taxes
|
|
|
318
|
|
Income taxes payable
|
|
|
3,118
|
|
Accrued expenses other
|
|
|
61
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,345
|
|
Long-term Liabilities
|
|
|
|
|
Deferred income taxes
|
|
|
3,643
|
|
Asset retirement obligations
|
|
|
1,233
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
4,876
|
|
|
|
|
|
|
Total Liabilities
|
|
|
11,221
|
|
Parent Net Equity
|
|
|
60,774
|
|
Commitments and Contingencies (see Note 8)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Parent Net Equity
|
|
$
|
71,995
|
|
|
|
|
|
|
See the accompanying notes to the financial statements.
F-27
MIGC
LLC
Statements of cash
flows
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
|
|
|
2006
|
|
|
For the year
|
|
|
|
through
|
|
|
ended
|
|
|
|
August 23,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Cash Flow from Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,913
|
|
|
$
|
5,590
|
|
Adjustments to reconcile net income to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
918
|
|
|
|
631
|
|
Deferred income taxes
|
|
|
(67
|
)
|
|
|
(107
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease in accounts receivable
|
|
|
329
|
|
|
|
354
|
|
Increase in accounts receivable affiliates
|
|
|
(6,206
|
)
|
|
|
(14,749
|
)
|
Increase in accounts payable and accrued expenses
|
|
|
252
|
|
|
|
1,824
|
|
Increase (decrease) in natural gas
imbalances affiliates
|
|
|
(784
|
)
|
|
|
846
|
|
Increase in other items, net
|
|
|
104
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(541
|
)
|
|
|
(5,594
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flow from Investing Activities
|
|
|
|
|
|
|
|
|
Retirements of property, plant and equipment, net
|
|
|
541
|
|
|
|
5,594
|
|
|
|
|
|
|
|
|
|
|
Cash provided by investing activities
|
|
|
541
|
|
|
|
5,594
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at Beginning of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at End of Period
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the financial statements.
F-28
MIGC
LLC
Statements of parent
net equity
|
|
|
|
|
|
Parent net
|
|
|
equity
|
|
|
|
(in
thousands)
|
|
Balance, January 1, 2005
|
|
$
|
55,184
|
|
|
|
|
Net income
|
|
|
5,590
|
|
|
|
|
Balance, December 31, 2005
|
|
|
60,774
|
|
|
|
|
Net income
|
|
|
4,913
|
|
|
|
|
Balance, August 23, 2006
|
|
$
|
65,687
|
|
|
|
|
See the accompanying notes to the financial statements.
F-29
MIGC
LLC
Notes to
financial statements
|
|
1.
|
DESCRIPTION OF
BUSINESS AND BASIS OF PRESENTATION
|
These financial statements of MIGC LLC (MIGC or the
Company) have been prepared in connection with the
proposed initial public offering of limited partner units of
Western Gas Partners, LP (the Partnership), which
was formed on August 21, 2007 and will own the operations
and assets of the Company upon the closing of this offering. On
August 23, 2006, Anadarko Petroleum Corporation acquired
Western Gas Resources, Inc. (Western). This
transaction included the assets of the Company. The Company was
a wholly owned subsidiary of Western for the periods presented
in these financial statements. For purposes of these financial
statements, Anadarko refers to Anadarko Petroleum
Corporation and its consolidated subsidiaries.
As part of the initial public offering of limited partnership
units of the Partnership, Western Gas Holdings, LLC
(Holdings GP) and WGR Holdings, LLC, both Anadarko
affiliates, will collectively contribute MIGC, along with
certain other assets, to the Partnership. Holdings GP will serve
as the general partner of the Partnership and together with
Anadarko will provide services to the Partnership pursuant to an
omnibus agreement and a services and secondment agreement
between the parties.
MIGC owns a
264-mile
natural gas interstate pipeline located in the Powder River
Basin of Wyoming. MIGC charges a Federal Energy Regulatory
Commission (FERC) approved tariff and earns revenues
through firm contracts that obligate its customers to pay a
monthly reservation or demand charge, which is a fixed charge
applied to firm contract capacity and owed by a customer
regardless of the pipeline capacity used by that customer. When
a customer uses the capacity it has reserved under these
contracts, MIGC is entitled to collect an additional commodity
usage charge based on the actual volume of natural gas
transported. These usage charges are typically a small
percentage of the total revenues received from firm capacity
contracts. Revenues are also generated from interruptible
contracts pursuant to which a fee is charged by MIGC to the
customer based upon volumes transported through the pipeline.
Western maintained a centralized treasury function wherein
individual cash accounts maintained by the Company were swept to
a Western corporate account, creating an intercompany receivable
between Western and the Company. Therefore, the Companys
balance sheet reflects no cash balance.
The Companys financial statements have been prepared in
accordance with United States generally accepted accounting
principles on the basis of the Companys ownership of the
assets that will be contributed to the Partnership. These
financial statements have been prepared from the separate
records maintained by the Company and may not necessarily be
indicative of the actual results of operations that would have
occurred if the Company had been separately operated during
those periods. Net investment in the Company is shown as parent
net equity, in lieu of owners equity in the combined
financial statements.
The Companys costs of doing business have been reflected
in the financial statements of the Company for the periods
presented. These costs, which include direct costs and
allocations, were calculated and then directly charged to the
Company for:
|
|
Ø
|
business services, such as payroll, accounts payable and
facilities management; and
|
|
Ø
|
corporate services, such as finance and accounting, legal, human
resources, investor relations, public and regulatory policy and
senior executives.
|
Transactions between the Company and Western or Westerns
affiliates are described in the financial statements as
transactions between affiliates (see Note 3). In the
opinion of management, the assumptions underlying the financial
statements are reasonable.
F-30
Notes to
financial statements of MIGC LLC
|
|
2.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
|
Use of
estimates
To conform to generally accepted accounting principles in the
United States, management makes estimates and assumptions that
affect the amounts reported in the financial statements and the
notes thereto. These estimates are evaluated on an ongoing
basis, utilizing historic experience, consultation with outside
advisers and other methods considered reasonable under certain
circumstances. Although these estimates are based on
managements best available knowledge at the time, actual
results could differ. Effects on the Companys business,
financial position or results of operations resulting from
revisions to estimates are recognized when the facts that give
rise to the revision become known.
Property, plant
and equipment
Property, plant and equipment are stated at the lower of
historical cost, less accumulated depreciation or fair value, if
impaired. The Company capitalizes all construction-related
direct labor and material costs. The cost of renewals and
betterments that extend the useful life of property, plant and
equipment is also capitalized. The cost of repairs, replacements
and major maintenance projects, which do not extend the useful
life or increase the expected output of property, plant and
equipment, is expensed as incurred. Depreciation is generally
computed over the assets estimated useful life using the
straight-line method.
Asset retirement
obligations
The Company recognizes a liability based on estimated costs of
retiring tangible long-lived assets. The liability is recognized
at the fair value of the asset retirement obligation when the
obligation is incurred, which generally is when the asset is
acquired or constructed. The carrying amount of the associated
asset is increased commensurate with the liability recognized.
Subsequent to the initial recognition, the liability is adjusted
for any changes in the expected value of the retirement
obligation (with corresponding adjustments to property, plant
and equipment) and for accretion of the liability due to the
passage of time, until the obligation is settled. If the fair
value of the estimated asset retirement obligation changes, an
adjustment is recorded for both the asset retirement obligation
and the asset retirement cost.
Long-lived asset
impairment
The Company evaluates whether long-lived assets have been
impaired when circumstances indicate the carrying amount of
those assets may not be recoverable. For such long-lived assets,
impairment exists when the carrying amount exceeds estimates of
the undiscounted cash flows expected to result from the use and
eventual disposition of the asset. When alternative courses of
action to recover the carrying amount of a long-lived asset are
under consideration, estimates of future undiscounted cash flows
take into account possible outcomes and probabilities of their
occurrence. If the carrying amount of the long-lived asset is
not recoverable, based on the estimated future undiscounted cash
flows, the impairment loss is measured as the excess of the
assets carrying amount over its fair value, such that the
assets carrying amount is adjusted to its estimated fair
value.
Management assesses the fair value of long-lived assets using
commonly accepted techniques, and may use more than one source
in making such a determination. Sources used to determine fair
value include, but are not limited to, recent third-party
comparable sales, internally developed discounted cash flow
analysis and analysis from outside advisors. Significant changes
in market conditions resulting from events such as changes in
commodity prices or the condition of an asset or a change in
managements intent to utilize the asset would generally
require management to re-assess the cash flows related to the
long-lived assets.
F-31
Notes to
financial statements of MIGC LLC
Natural gas
imbalances
The Companys balance sheet includes a natural gas
imbalance payable as a result of differences in gas volumes
received and delivered for customers. Natural gas volumes owed
to or by the Company are subject to FERC tariffs, valued at
market index prices as of the balance sheet date and subject to
cash settlement procedures.
Environmental
expenditures
The Company expenses environmental expenditures related to
conditions caused by past operations that do not generate
current or future revenues. Environmental expenditures related
to operations that generate current or future revenues are
expensed or capitalized, as appropriate. Liabilities are
recorded when the necessity for environmental remediation
becomes probable and the costs can be reasonably estimated, or
when other potential environmental liabilities are probable and
may be reasonably estimated.
Revenue
recognition
Revenues for the transportation of natural gas are recognized
when the service is provided. From time to time, certain
revenues may be subject to refund pending the outcome of rate
matters before FERC and reserves are established where
appropriate. During the periods presented herein, there were no
pending rate cases, and no related reserves have been
established.
Income
taxes
The Company files a United States federal tax return. Deferred
federal income taxes are provided on all temporary differences
between the financial statement carrying amounts of recognized
assets and liabilities and their respective tax bases.
New accounting
standards
The following new accounting standard was adopted by the Company
for the period from January 1, 2006 through August 23,
2006:
Financial Accounting Standards Board (FASB)
Interpretation No. 47 Accounting for Conditional
Asset Retirement Obligations. In March 2005, the FASB
issued FIN 47, which clarifies the accounting for
conditional asset retirement obligations as used in
SFAS 143, Accounting for Asset Retirement
Obligations. A conditional asset retirement obligation is
an unconditional legal obligation to perform an asset retirement
activity in which the timing
and/or
method of settlement are conditional on a future event that may
or may not be within the control of the entity. Therefore, an
entity is required to recognize a liability for the fair value
of a conditional asset retirement obligation under SFAS 143
if the fair value of the liability can be reasonably estimated.
The adoption of FIN 47 did not have an impact on the
Companys results of operations, cash flows or financial
position.
Recently issued
accounting standards not yet adopted
FASB Interpretation No. 48 Accounting for
Uncertainty in Income Taxesan Interpretation of FASB
Statement No. 109. FIN 48 was issued in 2006
and became effective January 1, 2007 for the Company.
FIN 48 defines the criteria an individual tax position must
meet for any part of the benefit of that position to be
recognized in the financial statements. FIN 48 also
provides guidance on the measurement of the income tax benefit
associated with uncertain tax positions, de-recognition,
classification, interest and penalties and financial statement
disclosures. The Company does not expect the adoption of
FIN 48 to have a material impact on its financial
statements.
F-32
Notes to
financial statements of MIGC LLC
|
|
3.
|
TRANSACTIONS WITH
AFFILIATES
|
The Company provides natural gas transportation services to
Western and its affiliates. The Companys costs of doing
business have been reflected in the financial statements of the
Company for the periods presented. These costs include, but are
not limited to, legal, accounting, treasury, information
technology and human resources. These costs were calculated
based on the cost of actual services provided and directly
charged to the Company. Management believes the allocations upon
which these charges are based to be reasonable; however, these
estimates and allocations may not represent the amounts that
would have been incurred had the Company operated as a separate
entity and contracted with third parties for these services.
It is the Companys policy that all transactions entered
into between the Company and its affiliates be carried out in
the ordinary course of business and on terms comparable to terms
that could reasonably be obtained from third parties.
Advances made by or to the Company are carried as
interest-bearing accounts receivable or accounts payable and are
classified as current assets and current liabilities,
respectively. Increases in advances to the Company generally
result from advances made by Western to the Company in
connection with funding for operations and capital expenditures.
Decreases in advances to the Company generally result from
crediting, against advances made by Western to the Company,
(1) amounts owed by Western to the Company for services
rendered, and (2) the amount of cash which is swept from
the Companys bank account to a Western corporate account,
in accordance with Westerns cash management policy.
Components of income tax expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
through
|
|
|
Year ended
|
|
|
|
August 23,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Current income taxes
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,714
|
|
|
$
|
3,118
|
|
|
|
|
|
|
|
|
|
|
Total current income taxes
|
|
|
2,714
|
|
|
|
3,118
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(67
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred income taxes
|
|
|
(67
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
2,647
|
|
|
$
|
3,011
|
|
|
|
|
|
|
|
|
|
|
F-33
Notes to
financial statements of MIGC LLC
Total income taxes differed from the amounts computed by
applying the statutory income tax rate to Income before
income taxes. The sources of these differences are as
follows:
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
through
|
|
|
Year ended
|
|
|
|
August 23,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Income before income taxes
|
|
$
|
7,560
|
|
|
$
|
8,601
|
|
Income tax expense, computed at the statutory rate of 35%
|
|
|
2,646
|
|
|
|
3,010
|
|
Adjustments resulting from:
|
|
|
|
|
|
|
|
|
Other items
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
2,647
|
|
|
$
|
3,011
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
35.01
|
%
|
|
|
35.01
|
%
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to the
deferred tax liability at December 31, 2005 is as follows:
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Depreciable properties
|
|
$
|
(3,643
|
)
|
|
|
|
|
|
Total deferred income tax liability
|
|
$
|
(3,643
|
)
|
|
|
|
|
|
|
|
5.
|
CONCENTRATION OF
CREDIT RISK
|
The customers that individually accounted for 10% or more of
revenues for the period from January 1, 2006 through
August 23, 2006 and year ended December 31, 2005, are
as follows:
|
|
|
|
|
|
|
|
|
Percent of
revenues
|
|
|
January 1,
|
|
|
|
|
2006
|
|
|
|
|
through
|
|
Year ended
|
|
|
August 23,
|
|
December 31,
|
Customer
|
|
2006
|
|
2005
|
|
|
Western
|
|
|
63%
|
|
|
70%
|
Williams Production RMT Company
|
|
|
27%
|
|
|
30%
|
Other
|
|
|
10%
|
|
|
%
|
|
|
|
|
|
|
|
Total
|
|
|
100%
|
|
|
100%
|
|
|
|
|
|
|
|
Total revenues were approximately $12.2 million and
$17.2 million for the period from January 1, 2006
through August 23, 2006 and for the year ended
December 31, 2005, respectively. Western, an affiliate of
the Company, and Williams Production RMT Co., a non-affiliate of
the Company, were the only customers that separately accounted
for greater than 10% of the Companys revenues for the
period from January 1, 2006 through August 23, 2006
and for the year ended December 31, 2005.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts
receivable. Where exposed to credit risk, the Company
(1) analyzes the
F-34
Notes to
financial statements of MIGC LLC
counterparties financial condition prior to entering into
an agreement, (2) establishes credit limits and
(3) monitors the appropriateness of those credit limits on
an ongoing basis. The Company maintains no credit policy with
respect to Western and its subsidiaries.
|
|
6.
|
PROPERTY, PLANT
AND EQUIPMENT
|
A summary of the historical cost of the Companys property,
plant and equipment is as follows:
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
useful life
|
|
December 31,
|
|
|
|
(years)
|
|
2005
|
|
|
|
|
|
(in thousands,
except for estimated useful life)
|
|
|
Pipeline and equipment
|
|
|
33 to 49
|
|
$
|
45,651
|
|
General plant and other
|
|
|
3 to 10
|
|
|
470
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment
|
|
|
|
|
|
46,121
|
|
Total accumulated depreciation
|
|
|
|
|
|
(17,389
|
)
|
|
|
|
|
|
|
|
|
Total net property, plant and equipment
|
|
|
|
|
$
|
28,732
|
|
|
|
|
|
|
|
|
|
The Company generally calculates depreciation using the
straight-line method, based on estimated useful lives and
salvage values of assets. Uncertainties that impact these
estimates include changes in laws and regulations relating to
restoration and abandonment requirements, economic conditions
and supply and demand in the area. When assets are placed into
service, the Company makes estimates with respect to estimated
useful lives and salvage values that it believes to be
reasonable. However, subsequent events may cause a change in
estimate, thereby impacting the future depreciation amounts.
|
|
7.
|
ASSET RETIREMENT
OBLIGATIONS
|
The following table provides a rollforward of the Companys
asset retirement obligations. Liabilities settled include, among
other things, asset retirement obligations that were assumed by
purchasers of divested properties.
|
|
|
|
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
|
|
(in
thousands)
|
|
|
Carrying amount of asset retirement obligations at beginning of
year
|
|
$
|
1,204
|
|
Liabilities transferred
|
|
|
(45
|
)
|
Accretion expense
|
|
|
74
|
|
|
|
|
|
|
Carrying amount of asset retirement obligations at end of year
|
|
$
|
1,233
|
|
|
|
|
|
|
|
|
8.
|
COMMITMENTS AND
CONTINGENCIES
|
Environmental
The Company is subject to federal, state and local regulations
governing air and water quality, hazardous and solid waste
disposal and other environmental matters. Management believes
there are no such matters that are expected to have a material
adverse effect on the Companys results of operations, cash
flows or financial position.
F-35
Notes to
financial statements of MIGC LLC
Litigation and
legal proceedings
From time to time, the Company 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 Companys results of operations, cash
flows or financial position.
Obligations and
commitments
The following is a summary of the Companys future payment
obligations as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations by
Period
|
|
|
|
|
2-3
|
|
4-5
|
|
Later
|
|
|
|
|
1 Year
|
|
Years
|
|
Years
|
|
Years
|
|
Total
|
|
|
|
(in
thousands)
|
|
Operating leases
|
|
$
|
170
|
|
$
|
120
|
|
$
|
|
|
$
|
|
|
$
|
290
|
Transportation agreements
|
|
|
5,678
|
|
|
3,782
|
|
|
|
|
|
|
|
|
9,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,848
|
|
$
|
3,902
|
|
$
|
|
|
$
|
|
|
$
|
9,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
The Company entered into various agreements to obtain access to
compressors. Rent expense related to compressor equipment leases
was $99,919 and $367,359 for the period from January 1,
2006 through August 23, 2006 and the year ended
December 31, 2005, respectively. There are no future
minimum lease obligations or payments beyond December 31,
2008.
Transportation
agreements
The Company entered into various transportation agreements with
interstate pipeline companies in order to access downstream
markets. Rent expense for leased capacity on third-party
pipelines was $26,226 and $36,000 for the period from
January 1, 2006 through August 23, 2006 and the year
ended December 31, 2005, respectively. The table above
includes future payments under these transportation commitments
of $9.46 million for all future years beyond 2005.
F-36
Western Gas
Partners, LP
Report of
Independent Registered Public Accounting Firm
The Board of Directors
Anadarko Petroleum Corporation:
We have audited the accompanying balance sheets of Western Gas
Partners, LP (the Partnership) as of
December 31, 2007 and August 21, 2007. These financial
statements are the responsibility of the Partnerships
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheets are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
balance sheets. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall balance sheet presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of the Partnership as of December 31, 2007 and
August 21, 2007 in conformity with U.S. generally
accepted accounting principles.
/s/ KPMG LLP
Houston, Texas
April 3, 2008
F-37
Western Gas
Partners, LP
Balance sheets
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
August 21, 2007
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Partners Equity
|
|
|
|
|
|
|
|
|
Limited partner equity
|
|
|
2,940
|
|
|
$
|
2,940
|
|
General partner equity
|
|
|
60
|
|
|
|
60
|
|
Less receivables from WGR Asset Holding Company, LLC and Western
Gas Holdings, LLC
|
|
|
(3,000
|
)
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
|
Total Partners Equity
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the balance sheets.
F-38
Western Gas
Partners, LP
Note to the
balance sheets
Western Gas Partners, LP (the Partnership) is a
Delaware limited partnership formed on August 21, 2007 to
acquire the assets owned by Anadarko Gathering Company LLC,
Pinnacle Gas Treating LLC and MIGC LLC.
Western Gas Holdings, LLC (Holdings GP), as general
partner, contributed $60 and WGR Asset Holding Company, LLC
(WGR Asset Holdings) contributed $2,940, all in the
form of receivables, to the Partnership on August 21, 2007.
The receivables from Holdings GP and WGR Asset Holdings have
been reflected as a reduction to Partners Equity on the
accompanying balance sheets.
On September 11, 2007, WGR Asset Holdings transferred 100%
of its interest in the Partnership to WGR Holdings, LLC
(Holdings LP). There have been no other transactions
involving the Partnership.
The Partnership will issue common and subordinated units, each
representing limited partner interests in the Partnership, to
Holdings LP and has issued a 2.0% general partner interest in
the Partnership to Holdings GP. The Partnership also
intends to issue and sell common units to the public in
connection with its initial public offering.
F-39
Western Gas
Holdings, LLC
Report of
Independent Registered Public Accounting Firm
The Board
of Directors
Anadarko Petroleum Corporation:
We have audited the accompanying balance sheets of Western Gas
Holdings, LLC (the Company) as of December 31,
2007 and August 21, 2007. These financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheets are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
balance sheet. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall balance sheet presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
presents fairly, in all material respects, the financial
position of the Company as of December 31, 2007 and
August 21, 2007, in conformity with U.S. generally
accepted accounting principles.
/s/ KPMG LLP
Houston, Texas
April 3, 2008
F-40
Western Gas
Holdings, LLC
Balance sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
2007
|
|
|
August 21,2007
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investment in Western Gas Partners, LP
|
|
$
|
60
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
60
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Members Equity
|
|
|
|
|
|
|
|
|
Payable to Western Gas Partners, LP
|
|
$
|
60
|
|
|
$
|
60
|
|
Members Equity
|
|
|
|
|
|
|
|
|
Members equity
|
|
|
1,000
|
|
|
|
1,000
|
|
Less receivable from WGR Asset Holding Company, LLC
|
|
|
(1,000
|
)
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
|
|
|
|
|
|
Total Liabilities and Members Equity
|
|
$
|
60
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the balance sheets.
F-41
Western Gas
Holdings, LLC
Note to the
balance sheets
Western Gas Holdings, LLC (the Company), is a
limited liability company formed on August 21, 2007 to
become the general partner of Western Gas Partners, LP (the
Partnership). The Company owns a 2.0% general
partner interest in the Partnership.
WGR Asset Holding Company, LLC (WGR Asset Holdings),
as sole member, contributed $1,000, in the form of a receivable,
to the Company on August 21, 2007 in exchange for a 100%
membership interest. On August 21, 2007, the Company
contributed $60, in the form of a receivable, to the Partnership
in exchange for a 2.0% general partner interest in the
Partnership.
The receivable from WGR Asset Holdings has been reflected as a
reduction of Member Equity on the accompanying balance sheets.
There have been no other transactions involving the Company.
F-42
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
|
|
ARTICLE I
|
|
|
|
|
|
|
|
|
DEFINITIONS
|
|
Section 1.1
|
|
|
Definitions
|
|
|
A- 5
|
|
|
Section 1.2
|
|
|
Construction
|
|
|
A-25
|
|
|
ARTICLE II
|
ORGANIZATION
|
|
Section 2.1
|
|
|
Formation
|
|
|
A-25
|
|
|
Section 2.2
|
|
|
Name
|
|
|
A-25
|
|
|
Section 2.3
|
|
|
Registered office; registered agent; Principal office; other
offices
|
|
|
A-25
|
|
|
Section 2.4
|
|
|
Purpose and business
|
|
|
A-26
|
|
|
Section 2.5
|
|
|
Powers
|
|
|
A-26
|
|
|
Section 2.6
|
|
|
Power of attorney
|
|
|
A-26
|
|
|
Section 2.7
|
|
|
Term
|
|
|
A-27
|
|
|
Section 2.8
|
|
|
Title to partnership assets
|
|
|
A-27
|
|
|
ARTICLE III
|
RIGHTS OF LIMITED
PARTNERS
|
|
Section 3.1
|
|
|
Limitation of liability
|
|
|
A-28
|
|
|
Section 3.2
|
|
|
management of business
|
|
|
A-28
|
|
|
Section 3.3
|
|
|
Outside activities of the limited partners
|
|
|
A-28
|
|
|
Section 3.4
|
|
|
Rights of limited partners
|
|
|
A-28
|
|
|
ARTICLE IV
|
CERTIFICATES;
RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
|
|
Section 4.1
|
|
|
Certificates
|
|
|
A-29
|
|
|
Section 4.2
|
|
|
Mutilated, destroyed, lost or stolen certificates
|
|
|
A-30
|
|
|
Section 4.3
|
|
|
Record holders
|
|
|
A-30
|
|
|
Section 4.4
|
|
|
Transfer generally
|
|
|
A-31
|
|
|
Section 4.5
|
|
|
Registration and transfer of limited partner interests
|
|
|
A-31
|
|
|
Section 4.6
|
|
|
Transfer of the general partners general partner interest
|
|
|
A-32
|
|
|
Section 4.7
|
|
|
Transfer of incentive distribution rights
|
|
|
A-32
|
|
|
Section 4.8
|
|
|
Restrictions on transfers
|
|
|
A-33
|
|
|
Section 4.9
|
|
|
Citizenship certificates; non-citizen assignees
|
|
|
A-34
|
|
|
Section 4.10
|
|
|
Redemption of partnership interests of non-citizen assignees
|
|
|
A-35
|
|
|
Section 4.11
|
|
|
Taxation certifications; ineligible assignees
|
|
|
A-35
|
|
|
Section 4.12
|
|
|
Redemption of partnership interests of ineligible assignees
|
|
|
A-36
|
|
|
ARTICLE V
|
CAPITAL
CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
|
|
Section 5.1
|
|
|
Organizational contributions
|
|
|
A-37
|
|
|
Section 5.2
|
|
|
Contributions by the
|
|
|
A-38
|
|
|
Section 5.3
|
|
|
Contributions by initial limited partners
|
|
|
A-38
|
|
|
Section 5.4
|
|
|
Interest and withdrawal
|
|
|
A-39
|
|
|
Section 5.5
|
|
|
Capital accounts
|
|
|
A-39
|
|
|
Section 5.6
|
|
|
Issuances of additional partnership securities
|
|
|
A-41
|
|
|
Section 5.7
|
|
|
Conversion of subordinated units
|
|
|
A-42
|
|
|
Section 5.8
|
|
|
Limited preemptive right
|
|
|
A-43
|
|
|
Section 5.9
|
|
|
Splits and combinations
|
|
|
A-43
|
|
|
Section 5.10
|
|
|
Fully paid and non-assessable nature of limited partner interests
|
|
|
A-44
|
|
|
Section 5.11
|
|
|
Issuance of class b units in connection with reset of
incentive distribution rights
|
|
|
A-44
|
|
|
ARTICLE VI
|
ALLOCATIONS AND
DISTRIBUTIONS
|
|
Section 6.1
|
|
|
Allocations for capital Account purposes
|
|
|
A-46
|
|
|
Section 6.2
|
|
|
Allocations for tax purposes
|
|
|
A-53
|
|
|
Section 6.3
|
|
|
Requirement and characterization of distributions; distributions
to record holders
|
|
|
A-54
|
|
|
Section 6.4
|
|
|
Distributions of available cash from operating surplus
|
|
|
A-55
|
|
|
Section 6.5
|
|
|
Distributions of available cash from capital surplus
|
|
|
A-57
|
|
|
Section 6.6
|
|
|
Adjustment of minimum quarterly distribution and target
distribution levels
|
|
|
A-57
|
|
A-2
|
|
|
|
|
|
|
|
|
|
Section 6.7
|
|
|
Special provisions relating to the holders of subordinated units
and class b units
|
|
|
A-57
|
|
|
Section 6.8
|
|
|
Special provisions relating to the holders of incentive
distribution rights
|
|
|
A-58
|
|
|
Section 6.9
|
|
|
Entity-Level taxation
|
|
|
A-59
|
|
|
ARTICLE VII
|
MANAGEMENT AND
OPERATION OF BUSINESS
|
|
Section 7.1
|
|
|
Management
|
|
|
A-59
|
|
|
Section 7.2
|
|
|
Certificate of limited partnership
|
|
|
A-61
|
|
|
Section 7.3
|
|
|
Restrictions on the General Partners Authority
|
|
|
A-61
|
|
|
Section 7.4
|
|
|
Reimbursement of the general partner
|
|
|
A-62
|
|
|
Section 7.5
|
|
|
Outside activities
|
|
|
A-62
|
|
|
Section 7.6
|
|
|
Loans from the general partner; loans or contributions from the
partnership or group members
|
|
|
A-63
|
|
|
Section 7.7
|
|
|
Indemnification
|
|
|
A-64
|
|
|
Section 7.8
|
|
|
Liability of indemnitees
|
|
|
A-65
|
|
|
Section 7.9
|
|
|
Resolution of conflicts of interest; standards of conduct and
modification of duties
|
|
|
A-66
|
|
|
Section 7.10
|
|
|
Other matters concerning the general partner
|
|
|
A-68
|
|
|
Section 7.11
|
|
|
Purchase or sale of partnership securities
|
|
|
A-68
|
|
|
Section 7.12
|
|
|
Registration rights of the general partner and its affiliates
|
|
|
A-68
|
|
|
Section 7.13
|
|
|
Reliance by third parties
|
|
|
A-71
|
|
|
ARTICLE VIII
|
BOOKS, RECORDS,
ACCOUNTING AND REPORTS
|
|
Section 8.1
|
|
|
Records and accounting
|
|
|
A-72
|
|
|
Section 8.2
|
|
|
Fiscal year
|
|
|
A-72
|
|
|
Section 8.3
|
|
|
Reports
|
|
|
A-72
|
|
|
ARTICLE IX
|
TAX
MATTERS
|
|
Section 9.1
|
|
|
Tax returns and information
|
|
|
A-72
|
|
|
Section 9.2
|
|
|
Tax elections
|
|
|
A-73
|
|
|
Section 9.3
|
|
|
Tax controversies
|
|
|
A-73
|
|
|
Section 9.4
|
|
|
Withholding
|
|
|
A-73
|
|
|
ARTICLE X
|
ADMISSION OF
PARTNERS
|
|
Section 10.1
|
|
|
Admission of limited partners
|
|
|
A-73
|
|
|
Section 10.2
|
|
|
Admission of successor general partner
|
|
|
A-74
|
|
|
Section 10.3
|
|
|
Amendment of agreement and certificate of limited partnership
|
|
|
A-74
|
|
|
ARTICLE XI
|
WITHDRAWAL OR
REMOVAL OF PARTNERS
|
|
Section 11.1
|
|
|
Withdrawal of the general partner
|
|
|
A-75
|
|
|
Section 11.2
|
|
|
Removal of the general partner
|
|
|
A-76
|
|
|
Section 11.3
|
|
|
Interest of departing general partner and successor general
partner
|
|
|
A-77
|
|
|
Section 11.4
|
|
|
Termination of subordination period, conversion of subordinated
units and extinguishment of cumulative common unit arrearages.
|
|
|
A-78
|
|
|
Section 11.5
|
|
|
Withdrawal of limited partners
|
|
|
A-78
|
|
|
ARTICLE XII
|
DISSOLUTION AND
LIQUIDATION
|
|
Section 12.1
|
|
|
Dissolution
|
|
|
A-78
|
|
|
Section 12.2
|
|
|
Continuation of the business of the partnership after dissolution
|
|
|
A-79
|
|
|
Section 12.3
|
|
|
Liquidator
|
|
|
A-79
|
|
|
Section 12.4
|
|
|
Liquidation
|
|
|
A-80
|
|
|
Section 12.5
|
|
|
Cancellation of certificate of limited partnership
|
|
|
A-81
|
|
|
Section 12.6
|
|
|
Return of contributions
|
|
|
A-81
|
|
|
Section 12.7
|
|
|
Waiver of partition
|
|
|
A-81
|
|
|
Section 12.8
|
|
|
Capital account restoration
|
|
|
A-81
|
|
A-3
|
|
|
|
|
|
|
|
|
ARTICLE XIII
|
AMENDMENT OF
PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
|
|
Section 13.1
|
|
|
Amendments to be adopted solely by the general partner
|
|
|
A-81
|
|
|
Section 13.2
|
|
|
Amendment procedures
|
|
|
A-82
|
|
|
Section 13.3
|
|
|
Amendment requirements
|
|
|
A-83
|
|
|
Section 13.4
|
|
|
Special meetings
|
|
|
A-83
|
|
|
Section 13.5
|
|
|
Notice of a meeting
|
|
|
A-84
|
|
|
Section 13.6
|
|
|
Record date
|
|
|
A-84
|
|
|
Section 13.7
|
|
|
adjournment
|
|
|
A-84
|
|
|
Section 13.8
|
|
|
Waiver of notice; approval of meeting; approval of minutes
|
|
|
A-84
|
|
|
Section 13.9
|
|
|
Quorum and voting
|
|
|
A-85
|
|
|
Section 13.10
|
|
|
Conduct of a meeting
|
|
|
A-85
|
|
|
Section 13.11
|
|
|
Action without a meeting
|
|
|
A-85
|
|
|
Section 13.12
|
|
|
Right to vote and related matters
|
|
|
A-86
|
|
|
ARTICLE XIV
|
MERGER,
CONSOLIDATION OR CONVERSION
|
|
Section 14.1
|
|
|
Authority
|
|
|
A-86
|
|
|
Section 14.2
|
|
|
Procedure for merger, consolidation or conversion
|
|
|
A-87
|
|
|
Section 14.3
|
|
|
Approval by limited partners
|
|
|
A-88
|
|
|
Section 14.4
|
|
|
Certificate of merger
|
|
|
A-89
|
|
|
Section 14.5
|
|
|
Effect of merger, consolidation or conversion
|
|
|
A-89
|
|
|
ARTICLE XV
|
RIGHT TO ACQUIRE
LIMITED PARTNER INTERESTS
|
|
Section 15.1
|
|
|
Right to acquire limited partner interests
|
|
|
A-90
|
|
|
ARTICLE XVI
|
GENERAL
PROVISIONS
|
|
Section 16.1
|
|
|
Addresses and notices; written communications
|
|
|
A-92
|
|
|
Section 16.2
|
|
|
Further action
|
|
|
A-92
|
|
|
Section 16.3
|
|
|
Binding effect
|
|
|
A-92
|
|
|
Section 16.4
|
|
|
Integration
|
|
|
A-93
|
|
|
Section 16.5
|
|
|
Creditors
|
|
|
A-93
|
|
|
Section 16.6
|
|
|
Waiver
|
|
|
A-93
|
|
|
Section 16.7
|
|
|
Third-Party beneficiaries
|
|
|
A-93
|
|
|
Section 16.8
|
|
|
Counterparts
|
|
|
A-93
|
|
|
Section 16.9
|
|
|
Applicable law
|
|
|
A-93
|
|
|
Section 16.10
|
|
|
Invalidity of provisions
|
|
|
A-93
|
|
|
Section 16.11
|
|
|
Consent of partners
|
|
|
A-93
|
|
|
Section 16.12
|
|
|
Facsimile signatures
|
|
|
A-94
|
|
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF WESTERN GAS PARTNERS, LP dated as of
[ l ],
2008, is entered into by and between Western Gas Holdings, LLC,
a Delaware limited liability company, as the General Partner,
and WGR Holdings, LLC, a Delaware limited liability company,
together with any other Persons who become Partners in the
Partnership or parties hereto as provided herein. In
consideration of the covenants, conditions and agreements
contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the
terms used in this Agreement.
Acquisition means any transaction in which
any Group Member acquires (through an asset acquisition, merger,
stock acquisition or other form of investment) control over all
or a portion of the assets, properties or business of another
Person for the purpose of increasing for a period exceeding the
short-term the operating capacity or operating income of the
Partnership Group from the operating capacity or operating
income of the Partnership Group existing immediately prior to
such transaction. For purposes of this definition, the
short-term generally refers to a period not exceeding
12 months.
Additional Book Basis means the portion of
any remaining Carrying Value of an Adjusted Property that is
attributable to positive adjustments made to such Carrying Value
as a result of
Book-Up
Events. For purposes of determining the extent that Carrying
Value constitutes Additional Book Basis:
(a) Any negative adjustment made to the Carrying
Value of an Adjusted Property as a result of either a Book-Down
Event or a
Book-Up
Event shall first be deemed to offset or decrease that portion
of the Carrying Value of such Adjusted Property that is
attributable to any prior positive adjustments made thereto
pursuant to a
Book-Up
Event or Book-Down Event.
(b) If Carrying Value that constitutes Additional
Book Basis is reduced as a result of a Book-Down Event and the
Carrying Value of other property is increased as a result of
such Book-Down Event, an allocable portion of any such increase
in Carrying Value shall be treated as Additional Book Basis;
provided, that the amount treated as Additional Book
Basis pursuant hereto as a result of such Book-Down Event shall
not exceed the amount by which the Aggregate Remaining Net
Positive Adjustments after such Book-Down Event exceeds the
remaining Additional Book Basis attributable to all of the
Partnerships Adjusted Property after such Book-Down Event
(determined without regard to the application of this
clause (b) to such Book-Down Event).
Additional Book Basis Derivative Items means
any Book Basis Derivative Items that are computed with reference
to Additional Book Basis. To the extent that the Additional Book
Basis attributable to all of the Partnerships Adjusted
Property as of the beginning of any taxable period exceeds the
Aggregate Remaining Net Positive Adjustments as of the beginning
of such period (the Excess Additional Book
Basis), the Additional Book Basis Derivative Items
for such period shall be reduced by the amount that bears the
same ratio to the amount of Additional Book Basis Derivative
Items determined without regard to this sentence as the Excess
Additional Book Basis bears to the Additional Book Basis as of
the beginning of such period.
A-5
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Adjusted Capital Account means the Capital
Account maintained for each Partner as of the end of each fiscal
year of the Partnership, (a) increased by any amounts that
such Partner is obligated to restore under the standards set by
Treasury
Regulation Section 1.704-1(b)(2)(ii)(c)
(or is deemed obligated to restore under Treasury
Regulation Sections 1.704-2(g)
and 1.704-2(i)(5)) and (b) decreased by (i) the amount
of all losses and deductions that, as of the end of such fiscal
year, are reasonably expected to be allocated to such Partner in
subsequent years under Sections 704(e)(2) and 706(d) of the
Code and Treasury
Regulation Section 1.751-1(b)(2)(ii),
and (ii) the amount of all distributions that, as of the
end of such fiscal year, are reasonably expected to be made to
such Partner in subsequent years in accordance with the terms of
this Agreement or otherwise to the extent they exceed offsetting
increases to such Partners Capital Account that are
reasonably expected to occur during (or prior to) the year in
which such distributions are reasonably expected to be made
(other than increases as a result of a minimum gain chargeback
pursuant to Section 6.1(d)(i) or 6.1(d)(ii)). The foregoing
definition of Adjusted Capital Account is intended to comply
with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith. The
Adjusted Capital Account of a Partner in respect of
a General Partner Unit, a Common Unit, a Subordinated Unit, a
Class B Unit or an Incentive Distribution Right or any
other Partnership Interest shall be the amount that such
Adjusted Capital Account would be if such General Partner Unit,
Common Unit, Subordinated Unit, Class B Unit, Incentive
Distribution Right or other Partnership Interest were the only
interest in the Partnership held by such Partner from and after
the date on which such General Partner Unit, Common Unit,
Subordinated Unit, Class B Unit, Incentive Distribution
Right or other Partnership Interest was first issued.
Adjusted Operating Surplus means, with
respect to any period, (a) Operating Surplus generated with
respect to such period; (b) less (i) any net increase
in Working Capital Borrowings with respect to that period; and
(ii) any net decrease in cash reserves for Operating
Expenditures with respect to such period not relating to an
Operating Expenditure made with respect to such period; and
(c) plus (i) any net decrease in Working Capital
Borrowings with respect to that period; and (ii) any net
increase in cash reserves for Operating Expenditures with
respect to such period required by any debt instrument for the
repayment of principal, interest or premium. Adjusted Operating
Surplus does not include that portion of Operating Surplus
included in clause (a)(i) of the definition of Operating Surplus.
Adjusted Property means any property the
Carrying Value of which has been adjusted pursuant to
Section 5.5(d)(i) or 5.5(d)(ii).
Affiliate means, with respect to any Person,
any other Person that directly or indirectly through one or more
intermediaries controls, is controlled by or is under common
control with, the Person in question. As used herein, the term
control means the possession, direct or indirect, of
the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
Aggregate Quantity of Class B Units is
defined in Section 5.11.
Aggregate Remaining Net Positive Adjustments
means, as of the end of any taxable period, the sum of the
Remaining Net Positive Adjustments of all the Partners.
Agreed Allocation means any allocation, other
than a Required Allocation, of an item of income, gain, loss or
deduction pursuant to the provisions of Section 6.1,
including a Curative Allocation (if appropriate to the context
in which the term Agreed Allocation is used).
Agreed Value of any Contributed Property
means the fair market value of such property or other
consideration at the time of contribution and in the case of an
Adjusted Property, the fair market value of such Adjusted
Property on the date of the revaluation event as described in
5.5(d)(1), in both cases as
A-6
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
determined by the General Partner. In making such determination,
the General Partner shall use such method as it determines to be
appropriate to allocate the aggregate Agreed Value of Adjusted
Properties or Contributed Properties contributed to the
Partnership in a single or integrated transaction among each
separate property on a basis proportional to the fair market
value of each such property.
Agreement means this First Amended and
Restated Agreement of Limited Partnership of Western Gas
Partners, LP, as it may be amended, supplemented or restated
from time to time.
Anadarko means Anadarko Petroleum
Corporation, a Delaware corporation.
Asset HoldCo means WGR Asset Holding Company
LLC, a Delaware limited liability company, and any successors
thereto.
Associate means, when used to indicate a
relationship with any Person, (a) any corporation or
organization of which such Person is a director, officer or
partner or is, directly or indirectly, the owner of 20% or more
of any class of voting stock or other voting interest;
(b) any trust or other estate in which such Person has at
least a 20% beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity; and
(c) any relative or spouse of such Person, or any relative
of such spouse, who has the same principal residence as such
Person.
Available Cash means, with respect to any
Quarter ending prior to the Liquidation Date:
(a) the sum of (i) all cash and cash equivalents
of the Partnership Group (or the Partnerships
proportionate share of cash and cash equivalents in the case of
Subsidiaries that are not wholly owned) on hand at the end of
such Quarter, and (ii) if the General Partner so
determines, all or any portion of any additional cash and cash
equivalents of the Partnership Group on hand on the date of
determination of Available Cash with respect to such Quarter
resulting from Working Capital Borrowings made subsequent to the
end of such Quarter, less
(b) the amount of any cash reserves established by
the General Partner (or the Partnerships proportionate
share of cash reserves in the case of Subsidiaries that are not
wholly owned) to (i) provide for the proper conduct of the
business of the Partnership Group (including reserves for future
capital expenditures and for anticipated future credit needs of
the Partnership Group) subsequent to such Quarter,
(ii) comply with applicable law or any loan agreement,
security agreement, mortgage, debt instrument or other agreement
or obligation to which any Group Member is a party or by which
it is bound or its assets are subject or (iii) provide
funds for distributions under Section 6.4 or 6.5 in respect
of any one or more of the next four Quarters;
provided, however, that the General Partner may
not establish cash reserves pursuant to clause (iii) above
if the effect of such reserves would be that the Partnership is
unable to distribute the Minimum Quarterly Distribution on all
Common Units, plus any Cumulative Common Unit Arrearage on all
Common Units, with respect to such Quarter; and, provided
further, that disbursements made by a Group Member or cash
reserves established, increased or reduced after the end of such
Quarter but on or before the date of determination of Available
Cash with respect to such Quarter shall be deemed to have been
made, established, increased or reduced, for purposes of
determining Available Cash, within such Quarter if the General
Partner so determines.
Notwithstanding the foregoing, Available Cash
with respect to the Quarter in which the Liquidation Date occurs
and any subsequent Quarter shall equal zero.
Board of Directors means, with respect to the
Board of Directors of the General Partner, its board of
directors or managers, as applicable, if a corporation or
limited liability company, or if a limited partnership, the
board of directors or board of managers of the general partner
of the General Partner.
A-7
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Book Basis Derivative Items means any item of
income, deduction, gain or loss that is computed with reference
to the Carrying Value of an Adjusted Property (e.g.,
depreciation, depletion, or gain or loss with respect to an
Adjusted Property).
Book-Down Event means an event that triggers
a negative adjustment to the Capital Accounts of the Partners
pursuant to Section 5.5(d).
Book-Tax Disparity means with respect to any
item of Contributed Property or Adjusted Property, as of the
date of any determination, the difference between the Carrying
Value of such Contributed Property or Adjusted Property and the
adjusted basis thereof for federal income tax purposes as of
such date. A Partners share of the Partnerships
Book-Tax Disparities in all of its Contributed Property and
Adjusted Property will be reflected by the difference between
such Partners Capital Account balance as maintained
pursuant to Section 5.5 and the hypothetical balance of
such Partners Capital Account computed as if it had been
maintained strictly in accordance with federal income tax
accounting principles.
Book-Up
Event means an event that triggers a positive
adjustment to the Capital Accounts of the Partners pursuant to
Section 5.5(d).
Business Day means Monday through Friday of
each week, except that a legal holiday recognized as such by the
government of the United States of America or the State of Texas
shall not be regarded as a Business Day.
Capital Account means the capital account
maintained for a Partner pursuant to Section 5.5. The
Capital Account of a Partner in respect of a General
Partner Unit, a Common Unit, a Subordinated Unit, a Class B
Unit, an Incentive Distribution Right or any Partnership
Interest shall be the amount that such Capital Account would be
if such General Partner Unit, Common Unit, Subordinated Unit,
Class B Unit, Incentive Distribution Right or other
Partnership Interest were the only interest in the Partnership
held by such Partner from and after the date on which such
General Partner Unit, Common Unit, Subordinated Unit,
Class B Unit, Incentive Distribution Right or other
Partnership Interest was first issued.
Capital Contribution means any cash, cash
equivalents or the Net Agreed Value of Contributed Property that
a Partner contributes to the Partnership.
Capital Improvement means any
(a) addition or improvement to the capital assets owned by
any Group Member, (b) acquisition of existing, or the
construction of new or the improvement or replacement of
existing, capital assets (including, without limitation, crude
oil or natural gas gathering systems, natural gas treatment or
processing plants, natural gas liquids fractionation facilities,
storage facilities, pipeline systems or other midstream assets
or facilities) or (c) capital contributions by a Group
Member to a Person that is not a Subsidiary in which a Group
Member has an equity interest to fund such Group Members
pro rata share of the cost of the acquisition of existing, or
the construction of new or the improvement or replacement of
existing, capital assets (including, without limitation, crude
oil or natural gas gathering systems, natural gas treatment or
processing plants, natural gas liquids fractionation facilities,
storage facilities, pipeline systems or other midstream assets
or facilities) by such Person, in each case if such addition,
improvement, acquisition or construction is made to increase for
a period longer than the short-term the operating capacity or
operating income of the Partnership Group, in the case of
clauses (a) and (b), or such Person, in the case of clause
(c), from the operating capacity or operating income of the
Partnership Group or such Person, as the case may be, existing
immediately prior to such addition, improvement, replacement,
acquisition or construction; provided, however, that any such
addition, improvement, replacement, acquisition or construction
that is made solely for
A-8
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
investment purposes shall not constitute a Capital Improvement
under this Agreement. For purposes of this definition, the
short-term generally refers to a period not exceeding
12 months.
Capital Surplus is defined in
Section 6.3(a).
Carrying Value means (a) with respect to
a Contributed Property or Adjusted Property, the Agreed Value of
such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the
Partners Capital Accounts in respect of such Contributed
Property, and (b) with respect to any other Partnership
property, the adjusted basis of such property for federal income
tax purposes, all as of the time of determination; provided that
the Carrying Value of any property shall be adjusted from time
to time in accordance with Sections 5.5(d)(i) and
5.5(d)(ii) and to reflect changes, additions or other
adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by
the General Partner.
Cause means a court of competent jurisdiction
has entered a final, non-appealable judgment finding the General
Partner liable for actual fraud or willful misconduct in its
capacity as a general partner of the Partnership.
Certificate means (a) a certificate
(i) substantially in the form of Exhibit A to this
Agreement, (ii) issued in global form in accordance with
the rules and regulations of the Depositary or (iii) in
such other form as may be adopted by the General Partner, issued
by the Partnership evidencing ownership of one or more Common
Units or (b) a certificate, in such form as may be adopted
by the General Partner, issued by the Partnership evidencing
ownership of one or more other Partnership Securities.
Certificate of Limited Partnership means the
Certificate of Limited Partnership of the Partnership filed with
the Secretary of State of the State of Delaware as referenced in
Section 7.2, as such Certificate of Limited Partnership may
be amended, supplemented or restated from time to time.
Citizenship Certification means a properly
completed certificate in such form as may be specified by the
General Partner by which a Limited Partner certifies that he
(and if he is a nominee holding for the account of another
Person, that to the best of his knowledge such other Person) is
an Eligible Citizen.
claim (as used in Section 7.12(d)) is
defined in Section 7.12(d).
Class B Units means a Partnership
Security representing a fractional part of the Partnership
Interests of all Limited Partners, and having the rights and
obligations specified with respect to Class B Units in this
Agreement.
Closing Date means the first date on which
Common Units are sold by the Partnership to the Underwriters
pursuant to the provisions of the Underwriting Agreement.
Closing Price is defined in
Section 15.1(a).
Code means the Internal Revenue Code of 1986,
as amended and in effect from time to time. Any reference herein
to a specific section or sections of the Code shall be deemed to
include a reference to any corresponding provision of any
successor law.
Combined Interest is defined in
Section 11.3(a).
Commences Commercial Service shall mean the
date a Capital Improvement is first put into commercial service
following completion of construction and testing.
Commission means the United States Securities
and Exchange Commission.
Commodity Hedge Contract means any commodity
exchange, swap, forward, cap, floor, collar or other similar
agreement or arrangement that is entered into for the purpose of
hedging the Partnership
A-9
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Groups exposure to fluctuations in the price of
hydrocarbons in their operations and not for speculative
purposes.
Common Unit means a Partnership Security
representing a fractional part of the Partnership Interests of
all Limited Partners and Assignees, and having the rights and
obligations specified with respect to Common Units in this
Agreement. The term Common Unit does not include a
Subordinated Unit or Class B Unit prior to its conversion
into a Common Unit pursuant to the terms hereof.
Common Unit Arrearage means, with respect to
any Common Unit, whenever issued, as to any Quarter within the
Subordination Period, the excess, if any, of (a) the
Minimum Quarterly Distribution with respect to a Common Unit in
respect of such Quarter over (b) the sum of all Available
Cash distributed with respect to a Common Unit in respect of
such Quarter pursuant to Section 6.4(a)(i).
Contributed Property means each property or
other asset, in such form as may be permitted by the Delaware
Act, but excluding cash, contributed to the Partnership. Once
the Carrying Value of a Contributed Property is adjusted
pursuant to Section 5.5(d), such property shall no longer
constitute a Contributed Property, but shall be deemed an
Adjusted Property.
Contribution Agreement means that certain
Contribution, Conveyance and Assumption Agreement, dated as of
the Closing Date, among the General Partner, the Partnership,
Anadarko, Holdings, the Operating Partnership and certain other
parties, together with the additional conveyance documents and
instruments contemplated or referenced thereunder, as such may
be amended, supplemented or restated from time to time.
Converted Class B Units is defined in
Section 5.11(g).
Credit Agreement means that certain Revolving
Credit Agreement, dated as of March 4, 2008, by and among
Anadarko Petroleum Corporation, Western Gas Partners, LP,
JPMorgan Chase Bank, N.A., The Royal Bank of Scotland, PLC, BNP
Paribas, Bank of America, N.A., BMO Capital Markets Financing,
Inc., The Bank of Tokyo-Mitsubishi UFJ, LTD., and each of the
Lenders named therein.
Cumulative Common Unit Arrearage means, with
respect to any Common Unit, whenever issued, and as of the end
of any Quarter, the excess, if any, of (a) the sum
resulting from adding together the Common Unit Arrearage as to
an Initial Common Unit for each of the Quarters within the
Subordination Period ending on or before the last day of such
Quarter over (b) the sum of any distributions theretofore
made pursuant to Section 6.4(a)(ii) and the second sentence
of Section 6.5 with respect to an Initial Common Unit
(including any distributions to be made in respect of the last
of such Quarters).
Curative Allocation means any allocation of
an item of income, gain, deduction, loss or credit pursuant to
the provisions of Section 6.1(d)(xi).
Current Market Price is defined in
Section 15.1(a).
Deferred Issuance and Distribution means both
(a) the issuance by the Partnership of a number of
additional Common Units that is equal to the excess, if any, of
(x) 2,812,500 over (y) the aggregate number, if any,
of Common Units actually purchased by and issued to the
Underwriters pursuant to the Over-Allotment Option on the Option
Closing Date, and (b) a reimbursement of preformation
capital expenditures in an amount equal to the total amount of
cash, if any, contributed by the Underwriters to the Partnership
on the Option Closing Date with respect to Common Units issued
by the Partnership upon the exercise of the Over-Allotment
Option in accordance with Section 5.3(b).
A-10
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Delaware Act means the Delaware Revised
Uniform Limited Partnership Act, 6 Del C.
Section 17-101,
et seq., as amended, supplemented or restated from time to time,
and any successor to such statute.
Departing General Partner means a former
General Partner from and after the effective date of any
withdrawal or removal of such former General Partner pursuant to
Section 11.1 or Section 11.2.
Depositary means, with respect to any Units
issued in global form, The Depository Trust Company and its
successors and permitted assigns.
Disposed of Adjusted Property has the meaning
assigned to such term in Section 6.1(d)(xii)(B).
Economic Risk of Loss has the meaning set
forth in Treasury
Regulation Section 1.752-2(a).
Eligible Citizen means a Person qualified to
own interests in real property in jurisdictions in which any
Group Member does business or proposes to do business from time
to time, and whose status as a Limited Partner the General
Partner determines does not or would not subject such Group
Member to a significant risk of cancellation or forfeiture of
any of its properties or any interest therein.
Eligible Holder means any (a) individual
who is a U.S. citizen or U.S. resident alien,
(b) corporation (or other entity taxable as a corporation
for U.S. federal income tax purposes) that was created or
organized in or under the laws of the United States, any state
thereof or the District of Columbia, (c) estate whose
income is subject to U.S. federal income taxation regardless of
its source, (d) trust that (1) is subject to the primary
supervision of a court within the United States and that has one
or more U.S. persons with authority to control all substantial
decisions of the trust or (2) has a valid election in effect
under applicable Treasury Regulations to be treated as a U.S.
person, (e) any other entity that was created or organized
in or under the laws of the United States, any state thereof or
the District of Columbia but is not subject to U.S. federal
income taxation on the income generated from the Partnership,
provided all of its beneficial owners are otherwise qualified as
an Eligible Holder under alternative (a), (b), (c), or (d)
hereof.
Estimated Incremental Quarterly Tax Amount is
defined in Section 6.9.
Estimated Maintenance Capital Expenditures
means an estimate made in good faith by the Board of Directors
of the General Partner (with the concurrence of the Special
Committee) of the average quarterly Maintenance Capital
Expenditures that the Partnership will need to incur over the
long term to maintain the operating capacity or operating income
of the Partnership Group existing at the time the estimate is
made. The Board of Directors of the General Partner (with the
concurrence of the Special Committee) will be permitted to make
such estimate in any manner it determines reasonable. The
estimate will be made at least annually and whenever an event
occurs that is likely to result in a material adjustment to the
amount of future Estimated Maintenance Capital Expenditures. The
Partnership shall disclose to its Partners any change in the
amount of Estimated Maintenance Capital Expenditures in its
reports made in accordance with Section 8.3 to the extent
not previously disclosed. Any adjustments to Estimated
Maintenance Capital Expenditures shall be prospective only.
Event of Withdrawal is defined in
Section 11.1(a).
Expansion Capital Expenditures means cash
expenditures for Acquisitions or Capital Improvements, and shall
not include Maintenance Capital Expenditures or Investment
Capital Expenditures. Expansion Capital Expenditures shall
include interest (and related fees) on debt incurred and
distributions on equity issued, in each case, to finance the
construction of a Capital Improvement and paid during the period
beginning on the date that the Partnership enters into a binding
obligation to commence construction of a Capital Improvement and
ending on the earlier to occur of the date that such Capital
Improvement Commences Commercial Service and the date that such
Capital Improvement is
A-11
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
abandoned or disposed of. Debt incurred or equity issued to fund
such construction period interest payments or such construction
period distributions on equity paid during such period, shall
also be deemed to be debt incurred or equity issued, as the case
may be, to finance the construction of a Capital Improvement.
Where capital expenditures are made in part for Expansion
Capital Expenditures and in part for other purposes, the General
Partner, with the concurrence of the Special Committee, shall
determine the allocation between the amounts paid for each.
FERC means the Federal Energy Regulatory
Commission.
FERC Notice means the giving of notice by the
Partnership to the Limited Partners in the manner specified in
Section 16.1 that the Partnership is implementing
procedures pursuant to this Agreement to require a Limited
Partner or a transferee of a Limited Partner Interest to certify
that such Person is a Eligible Holder.
Final Subordinated Units is defined in
Section 6.1(d)(x).
First Liquidation Target Amount is defined in
Section 6.1(c)(i)(E).
First Target Distribution means $0.3450 per
Unit per Quarter (or, with respect to the period commencing on
the Closing Date and ending on June 30, 2008, it means the
product of $0.3450 multiplied by a fraction of which the
numerator is the number of days in such period, and of which the
denominator is 91), subject to adjustment in accordance with
Sections 5.11, 6.6 and 6.9.
Fully Diluted Basis means, when calculating
the number of Outstanding Units for any period, a basis that
includes, in addition to the Outstanding Units, all Partnership
Securities and options, rights, warrants and appreciation rights
relating to an equity interest in the Partnership (a) that
are convertible into or exercisable or exchangeable for Units
that are senior to or pari passu with the Subordinated Units,
(b) whose conversion, exercise or exchange price is less
than the Current Market Price on the date of such calculation,
(c) that may be converted into or exercised or exchanged
for such Units prior to or during the Quarter immediately
following the end of the period for which the calculation is
being made without the satisfaction of any contingency beyond
the control of the holder other than the payment of
consideration and the compliance with administrative mechanics
applicable to such conversion, exercise or exchange and
(d) that were not converted into or exercised or exchanged
for such Units during the period for which the calculation is
being made; provided, however, that for purposes of
determining the number of Outstanding Units on a Fully Diluted
Basis when calculating whether the Subordination Period has
ended or the Subordinated Units are entitled to convert into
Common Units pursuant to Section 5.7, such Partnership
Securities, options, rights, warrants and appreciation rights
shall be deemed to have been Outstanding Units only for the four
Quarters that comprise the last four Quarters of the measurement
period; provided, further, that if consideration will be
paid to any Group Member in connection with such conversion,
exercise or exchange, the number of Units to be included in such
calculation shall be that number equal to the difference between
(i) the number of Units issuable upon such conversion,
exercise or exchange and (ii) the number of Units that such
consideration would purchase at the Current Market Price.
General Partner means Western Gas Holdings,
LLC, a Delaware limited liability company, and its successors
and permitted assigns that are admitted to the Partnership as
general partner of the Partnership, in its capacity as general
partner of the Partnership (except as the context otherwise
requires).
General Partner Interest means the ownership
interest of the General Partner in the Partnership (in its
capacity as a general partner without reference to any Limited
Partner Interest held by it), which is evidenced by General
Partner Units, and includes any and all benefits to which the
General Partner is
A-12
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
entitled as provided in this Agreement, together with all
obligations of the General Partner to comply with the terms and
provisions of this Agreement.
General Partner Unit means a fractional part
of the General Partner Interest having the rights and
obligations specified with respect to the General Partner
Interest. A General Partner Unit is not a Unit.
GP Contribution Interest shall have the
meaning assigned to it in the Contribution Agreement.
Gross Liability Value means, with respect to
any Liability of the Partnership described in Treasury
Regulation Section 1.752-7(b)(3)(i),
the amount of cash that a willing assignor would pay to a
willing assignee to assume such Liability in an
arms-length transaction. The Gross Liability Value of each
Liability of the Partnership described in Treasury
Regulation Section 1.752-7(b)(3)(i)
shall be adjusted at such times as provided in this Agreement
for an adjustment to Carrying Values.
Group means a Person that with or through any
of its Affiliates or Associates has any contract, arrangement,
understanding or relationship for the purpose of acquiring,
holding, voting (except voting pursuant to a revocable proxy or
consent given to such Person in response to a proxy or consent
solicitation made to 10 or more Persons), exercising investment
power or disposing of any Partnership Interests with any other
Person that beneficially owns, or whose Affiliates or Associates
beneficially own, directly or indirectly, Partnership Interests.
Group Member means a member of the
Partnership Group.
Group Member Agreement means the partnership
agreement of any Group Member, other than the Partnership, that
is a limited or general partnership, the limited liability
company agreement of any Group Member that is a limited
liability company, the certificate of incorporation and bylaws
or similar organizational documents of any Group Member that is
a corporation, the joint venture agreement or similar governing
document of any Group Member that is a joint venture and the
governing or organizational or similar documents of any other
Group Member that is a Person other than a limited or general
partnership, limited liability company, corporation or joint
venture, as such may be amended, supplemented or restated from
time to time.
Holder as used in Section 7.12, is
defined in Section 7.12(a).
Holdings means WGR Holdings, LLC, a Delaware
limited liability company.
IDR Reset Election is defined in
Section 5.11(a).
Incentive Distribution Right means a
non-voting Limited Partner Interest issued to the General
Partner in connection with the transfer of the GP Contribution
Interest to the Partnership pursuant to the Contribution
Agreement, which Limited Partner Interest will confer upon the
holder thereof only the rights and obligations specifically
provided in this Agreement with respect to Incentive
Distribution Rights (and no other rights otherwise available to
or other obligations of a holder of a Partnership Interest).
Notwithstanding anything in this Agreement to the contrary, the
holder of an Incentive Distribution Right shall not be entitled
to vote such Incentive Distribution Right on any Partnership
matter except as may otherwise be required by law.
Incentive Distributions means any amount of
cash distributed to the holders of the Incentive Distribution
Rights pursuant to Sections 6.4(a)(v), (vi) and
(vii) and 6.4(b)(iii), (iv) and (v).
Incremental Income Taxes is defined in
Section 6.9.
Indemnified Persons is defined in
Section 7.12(d).
Indemnitee means (a) the General
Partner, (b) any Departing General Partner, (c) any
Person who is or was an Affiliate of the General Partner or any
Departing General Partner, (d) any Person who is or
A-13
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
was a member, manager, partner, director, officer, fiduciary or
trustee of any Group Member, the General Partner or any
Departing General Partner or any Affiliate of any Group Member,
the General Partner or any Departing General Partner,
(e) any Person who is or was serving at the request of the
General Partner or any Departing General Partner or any
Affiliate of the General Partner or any Departing General
Partner as an officer, director, member, manager, partner,
fiduciary or trustee of another Person; provided that a
Person shall not be an Indemnitee by reason of providing, on a
fee-for-services basis, trustee, fiduciary or custodial
services, and (f) any Person the General Partner designates
as an Indemnitee for purposes of this Agreement.
Ineligible Assignee means a Person whom the
General Partner has determined is not an Eligible Holder.
Initial Common Units means the Common Units
sold in the Initial Offering.
Initial Limited Partners means Holdings (with
respect to the Common Units, Subordinated Units and Incentive
Distribution Rights received by it pursuant to Section 5.2)
and the Underwriters, in each case upon being admitted to the
Partnership in accordance with Section 10.1 of this
Agreement.
Initial Loan means the loan made by the
Partnership with the net proceeds from the Initial Offering of
$260.0 million to Anadarko in exchange for a
30-year note
bearing interest at a fixed annual rate of 6.5%.
Initial Offering means the initial offering
and sale of Common Units to the public, as described in the
Registration Statement.
Initial Unit Price means (a) with
respect to the Common Units and the Subordinated Units, the
initial public offering price per Common Unit at which the
Underwriters offered the Common Units to the public for sale as
set forth on the cover page of the prospectus included as part
of the Registration Statement and first issued at or after the
time the Registration Statement first became effective or
(b) with respect to any other class or series of Units, the
price per Unit at which such class or series of Units is
initially sold by the Partnership, as determined by the General
Partner, in each case adjusted as the General Partner determines
to be appropriate to give effect to any distribution,
subdivision or combination of Units.
Interim Capital Transactions means the
following transactions if they occur prior to the Liquidation
Date: (a) borrowings, refinancings or refundings of
indebtedness (other than Working Capital Borrowings and other
than for items purchased on open account in the ordinary course
of business) by any Group Member and sales of debt securities of
any Group Member; (b) sales of equity interests of any
Group Member (including the Common Units sold to the
Underwriters pursuant to the exercise of the Over-Allotment
Option); (c) sales or other voluntary or involuntary
dispositions of any assets of any Group Member other than
(i) sales or other dispositions of inventory, accounts
receivable and other assets in the ordinary course of business,
and (ii) sales or other dispositions of assets as part of
normal retirements or replacements; (d) the termination of
Commodity Hedge Contracts and interest rate swap agreements
prior to their respective specified termination dates;
(e) capital contributions received; and (f) corporate
reorganizations or restructurings.
Investment Capital Expenditures means capital
expenditures other than Maintenance Capital Expenditures and
Expansion Capital Expenditures.
Issue Price means the price at which a Unit
is purchased from the Partnership, net of any sales commission
or underwriting discount charged to the Partnership.
Limited Partner means, unless the context
otherwise requires, Asset HoldCo prior to its contribution of
its Limited Partner Interest to Holdings, Holdings prior to its
withdrawal from the Partnership, each
A-14
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Initial Limited Partner, each additional Person that becomes a
Limited Partner pursuant to the terms of this Agreement and any
Departing General Partner upon the change of its status from
General Partner to Limited Partner pursuant to
Section 11.3, in each case, in such Persons capacity
as limited partner of the Partnership; provided, however, that
when the term Limited Partner is used herein in the
context of any vote or other approval, including
Articles XIII and XIV, such term shall not, solely for such
purpose, include any holder of an Incentive Distribution Right
(solely with respect to its Incentive Distribution Rights and
not with respect to any other Limited Partner Interest held by
such Person) except as may otherwise be required by law.
Limited Partner Interest means the ownership
interest of a Limited Partner in the Partnership, which may be
evidenced by Common Units, Class B Units, Subordinated
Units, Incentive Distribution Rights or other Partnership
Securities or a combination thereof or interest therein, and
includes any and all benefits to which such Limited Partner is
entitled as provided in this Agreement, together with all
obligations of such Limited Partner to comply with the terms and
provisions of this Agreement; provided, however, that
when the term Limited Partner Interest is used
herein in the context of any vote or other approval, including
Articles XIII and XIV, such term shall not, solely for such
purpose, include any Incentive Distribution Right except as may
otherwise be required by law.
Liquidation Date means (a) in the case
of an event giving rise to the dissolution of the Partnership of
the type described in clauses (a) and (b) of the first
sentence of Section 12.2, the date on which the applicable
time period during which the holders of Outstanding Units have
the right to elect to continue the business of the Partnership
has expired without such an election being made, and (b) in
the case of any other event giving rise to the dissolution of
the Partnership, the date on which such event occurs.
Liquidator means one or more Persons selected
by the General Partner to perform the functions described in
Section 12.4 as liquidating trustee of the Partnership
within the meaning of the Delaware Act.
Maintenance Capital Expenditures means cash
expenditures (including expenditures for the addition or
improvement to or replacement of the capital assets owned by any
Group Member or for the acquisition of existing, or the
construction or development of new, capital assets, including,
without limitation, gas gathering systems, natural gas treatment
or processing facilities, natural gas liquids fractionation
facilities, storage facilities, pipeline systems or other
midstream assets or facilities and other related or similar
midstream assets or other assets that are expected to generate
qualifying income as defined by Section 7704 of
the Code) if such expenditures are made to maintain, including
for a period longer than the short-term, the operating capacity
or operating income of the Partnership Group. Maintenance
Capital Expenditures shall not include (a) Expansion
Capital Expenditures or (b) Investment Capital
Expenditures. Maintenance Capital Expenditures shall include
interest (and related fees) on debt incurred and distributions
on equity issued, in each case, to finance the construction or
development of a replacement asset and paid during the period
beginning on the date that the Partnership enters into a binding
obligation to commence constructing or developing a replacement
asset and ending on the earlier to occur of the date that such
replacement asset Commences Commercial Service and the date that
such replacement asset is abandoned or disposed of. Debt
incurred to pay or equity issued to fund construction or
development period interest payments, or such construction or
development period distributions on equity, shall also be deemed
to be debt or equity, as the case may be, incurred to finance
the construction or development of a replacement asset. For
purposes of this definition, the short-term generally refers to
a period not exceeding 12 months.
Merger Agreement is defined in
Section 14.1.
Minimum Quarterly Distribution means $0.3000
per Unit per Quarter (or with respect to the period commencing
on the Closing Date and ending on June 30, 2008, it means
the product of $0.3000
A-15
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
multiplied by a fraction of which the numerator is the number of
days in such period and of which the denominator is 91), subject
to adjustment in accordance with Sections 5.11, 6.6 and 6.9.
National Securities Exchange means an
exchange registered with the Commission under Section 6(a)
of the Securities Exchange Act, and any successor to such
statute, or the Nasdaq Stock Market or any successor thereto.
Net Agreed Value means, (a) in the case
of any Contributed Property, the Agreed Value of such property
reduced by any Liabilities either assumed by the Partnership
upon such contribution or to which such property is subject when
contributed, (b) in the case of any property distributed to
a Partner by the Partnership, the Partnerships Carrying
Value of such property (as adjusted pursuant to
Section 5.5(d)(ii)) at the time such property is
distributed, reduced by any Liability either assumed by such
Partner upon such distribution or to which such property is
subject at the time of distribution, and (c) in the case of
a contribution of Common Units by the General Partner to the
Partnership as a Capital Contribution pursuant to
Section 5.2(b), an amount per Common Unit contributed equal
to the Current Market Price per Common Unit as of the date of
the contribution.
Net Income means, for any taxable year, the
excess, if any, of the Partnerships items of income and
gain (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnerships items of loss and
deduction (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for
such taxable year. The items included in the calculation of Net
Income shall be determined in accordance with
Section 5.5(b) and shall not include any items specially
allocated under Section 6.1(d); provided, that the
determination of the items that have been specially allocated
under Section 6.1(d) shall be made without regard to any
reversal of such items under Section 6.1(d)(xii).
Net Loss means, for any taxable year, the
excess, if any, of the Partnerships items of loss and
deduction (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnerships items of income
and gain (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for
such taxable year. The items included in the calculation of Net
Loss shall be determined in accordance with Section 5.5(b)
and shall not include any items specially allocated under
Section 6.1(d); provided, that the determination of
the items that have been specially allocated under
Section 6.1(d) shall be made without regard to any reversal
of such items under Section 6.1(d)(xii).
Net Positive Adjustments means, with respect
to any Partner, the excess, if any, of the total positive
adjustments over the total negative adjustments made to the
Capital Account of such Partner pursuant to
Book-Up
Events and Book-Down Events.
Net Termination Gain means, for any taxable
year, the sum, if positive, of all items of income, gain, loss
or deduction recognized by the Partnership (a) after the
Liquidation Date or (b) upon the sale, exchange or other
disposition of all or substantially all of the assets of the
Partnership Group, taken as a whole, in a single transaction or
a series of related transactions (excluding any disposition to a
member of the Partnership Group). The items included in the
determination of Net Termination Gain shall be determined in
accordance with Section 5.5(b) and shall not include any
items of income, gain or loss specially allocated under
Section 6.1(d).
Net Termination Loss means, for any taxable
year, the sum, if negative, of all items of income, gain, loss
or deduction recognized by the Partnership (a) after the
Liquidation Date or (b) upon the sale, exchange or other
disposition of all or substantially all of the assets of the
Partnership Group, taken as a whole, in a single transaction or
a series of related transactions (excluding any disposition to a
member of the Partnership Group).. The items included in the
determination of Net Termination Loss
A-16
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
shall be determined in accordance with Section 5.5(b) and
shall not include any items of income, gain or loss specially
allocated under Section 6.1(d).
Non-citizen Assignee means a Person whom the
General Partner has determined does not constitute an Eligible
Citizen and as to whose Partnership Interest the General Partner
has become the substituted limited partner, pursuant to
Section 4.9.
Nonrecourse Built-in Gain means with respect
to any Contributed Properties or Adjusted Properties that are
subject to a mortgage or pledge securing a Nonrecourse
Liability, the amount of any taxable gain that would be
allocated to the Partners pursuant to
Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and 6.2(b)(iii) if
such properties were disposed of in a taxable transaction in
full satisfaction of such liabilities and for no other
consideration.
Nonrecourse Deductions means any and all
items of loss, deduction or expenditure (including any
expenditure described in Section 705(a)(2)(B) of the Code)
that, in accordance with the principles of Treasury
Regulation Section 1.704-2(b),
are attributable to a Nonrecourse Liability.
Nonrecourse Liability has the meaning set
forth in Treasury
Regulation Section 1.752-2(b)(3).
Notice of Election to Purchase is defined in
Section 15.1(b).
OLP GP means Western Gas Operating, LLC, a
Delaware limited liability company and the general partner of
the Operating Partnership, and any successors thereto.
Omnibus Agreement means that certain Omnibus
Agreement, dated as of the Closing Date, among Anadarko, the
General Partner and the Partnership, as such may be amended,
supplemented or restated from time to time.
Operating Expenditures means all Partnership
Group cash expenditures (or the Partnerships proportionate
share of expenditures in the case of Subsidiaries that are not
wholly owned), including, but not limited to, taxes,
reimbursements of the General Partner in accordance with this
Agreement, the Omnibus Agreement or the Secondment Agreement,
payments made in the ordinary course of business under any
interest rate swap agreements or Commodity Hedge Contracts
(provided that payments made in connection with the termination
of any Commodity Hedge Contract prior to the expiration of its
stipulated settlement or termination date shall be excluded; and
provided further that with respect to amounts paid in
connection with the initial purchase of a Commodity Hedge
Contract, such amounts shall be amortized over the life of the
applicable Commodity Hedge Contract or expensed in full upon its
termination, if earlier), director and officer compensation,
repayment of Working Capital Borrowings, debt service payments,
Estimated Maintenance Capital Expenditures and non-Pro Rata
repurchases of Units (other than those made with the proceeds of
an Interim Capital Transaction), but subject to the following:
(a) repayments of Working Capital Borrowings deducted
from Operating Surplus pursuant to clause (b)(iii) of the
definition of Operating Surplus shall not constitute
Operating Expenditures when actually repaid;
(b) payments (including prepayments and prepayment
penalties) of principal of and premium on indebtedness other
than Working Capital Borrowings shall not constitute Operating
Expenditures; and
(c) Operating Expenditures shall not include
(i) Expansion Capital Expenditures, (ii) actual
Maintenance Capital Expenditures, (iii) Investment Capital
Expenditures, (iv) payment of transaction expenses
(including taxes and which, with respect to the termination of a
Commodity Hedge Contract prior to its stipulated settlement or
termination date, such transaction expenses shall constitute any
payments due from any Group Member upon such settlement or
termination) relating to Interim
A-17
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Capital Transactions, (v) distributions to Partners, or
(vi) non-Pro Rata repurchases of Units of any class made
with the proceeds of a substantially concurrent equity
issuance; and
(d) Where capital expenditures are made in part for
Maintenance Capital Expenditures and in part for other purposes,
the General Partner, with the concurrence of the Special
Committee, shall determine the allocation between the amounts
paid for each and, with respect to the part of such capital
expenditures consisting of Maintenance Capital Expenditures, the
period over which the capital expenditures made for such
purposes will be deducted as an Operating Expenditure in
calculating Operating Surplus.
Operating Partnership means WGR Operating,
LP, a Delaware limited partnership, and any successors thereto.
Operating Surplus means, with respect to any
period ending prior to the Liquidation Date, on a cumulative
basis and without duplication,
(a) the sum of (i) $31.8 million,
(ii) all cash receipts of the Partnership Group (or the
Partnerships proportionate share of cash receipts in the
case of Subsidiaries that are not wholly owned) for the period
beginning on the Closing Date and ending on the last day of such
period, but excluding cash receipts from Interim Capital
Transactions (except to the extent specified in
Section 6.5), (iii) all cash receipts of the
Partnership Group (or the Partnerships proportionate share
of cash receipts in the case of Subsidiaries that are not wholly
owned) after the end of such period but on or before the date of
determination of Operating Surplus with respect to such period
resulting from Working Capital Borrowings, (iv) the amount
by which expenses allocated to the Partnership Group in any
period in accordance with GAAP for general and administrative
services provided to us pursuant to the Omnibus Agreement exceed
the G&A Expense Limit (as such term is defined in the
Omnibus Agreement), (v) any Excess Bonus Expenses (as such
term is defined in the Services and Secondment Agreement) to the
extent such Excess Bonus Expenses are allocated to the
Partnership Group in accordance with GAAP for any period, and
(vi) cash distributions paid on equity issued to finance
all or a portion of the construction, acquisition or improvement
of a Capital Improvement or replacement of a capital asset (such
as equipment or facilities) during the period beginning on the
date that the Group Member enters into a binding obligation to
commence the construction, acquisition or improvement of a
Capital Improvement or replacement of a capital asset and ending
on the earlier to occur of the date the Capital Improvement or
capital asset Commences Commercial Service or the date that it
is abandoned or disposed of (equity issued to fund construction
period interest payments on debt incurred, or construction
period distributions on equity issued, to finance the
construction, acquisition or development of a Capital
Improvement or replacement of a capital asset shall also be
deemed to be equity issued to finance the construction,
acquisition or development of a Capital Improvement or
replacement of a capital asset for purposes of this clause
(vi)), less
(b) the sum of (i) Operating Expenditures for the
period beginning on the Closing Date and ending on the last day
of such period; (ii) the amount of cash reserves
established by the General Partner (or the Partnerships
proportionate share of cash reserves in the case of Subsidiaries
that are not wholly owned) to provide funds for future Operating
Expenditures; and (iii) all Working Capital Borrowings not
repaid within twelve months after having been incurred;
provided, however, that disbursements made (including
contributions to a Group Member or disbursements on behalf of a
Group Member) or cash reserves established, increased or reduced
after the end of such period but on or before the date of
determination of Available Cash with respect to such period
shall be deemed to have been made, established, increased or
reduced, for purposes of determining Operating Surplus, within
such period if the General Partner so determines.
Notwithstanding the foregoing, Operating
Surplus with respect to the Quarter in which the
Liquidation Date occurs and any subsequent Quarter shall equal
zero.
A-18
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Opinion of Counsel means a written opinion of
counsel (who may be regular counsel to the Partnership or the
General Partner or any of its Affiliates) acceptable to the
General Partner.
Option Closing Date means the date or dates
on which any Common Units are sold by the Partnership to the
Underwriters upon exercise of the Over-Allotment Option.
Outstanding means, with respect to
Partnership Securities, all Partnership Securities that are
issued by the Partnership and reflected as outstanding on the
Partnerships books and records as of the date of
determination; provided, however, that if at any time any
Person or Group (other than the General Partner or its
Affiliates) beneficially owns 20% or more of any Outstanding
Partnership Securities of any class then Outstanding, none of
the Partnership Securities owned by such Person or Group shall
be voted on any matter and shall not be considered to be
Outstanding when sending notices of a meeting of Limited
Partners to vote on any matter (unless otherwise required by
law), calculating required votes, determining the presence of a
quorum or for other similar purposes under this Agreement,
except that Common Units so owned shall be considered to be
Outstanding for purposes of Section 11.1(b)(iv) (such
Common Units shall not, however, be treated as a separate class
of Partnership Securities for purposes of this Agreement or the
Delaware Act); provided, further, that the foregoing
limitation shall not apply to (i) any Person or Group who
acquired 20% or more of the Outstanding Partnership Securities
of any class then Outstanding directly from the General Partner
or its Affiliates, (ii) any Person or Group who acquired
20% or more of the Outstanding Partnership Securities of any
class then Outstanding directly or indirectly from a Person or
Group described in clause (i) provided that the
General Partner shall have notified such Person or Group in
writing that such limitation shall not apply, or (iii) any
Person or Group who acquired 20% or more of any Partnership
Securities issued by the Partnership with the prior approval of
the Board of Directors of the General Partner.
Over-Allotment Option means the
over-allotment option granted to the Underwriters by the
Partnership pursuant to the Underwriting Agreement.
Partner Nonrecourse Debt has the meaning set
forth in Treasury
Regulation Section 1.704-2(b)(4).
Partner Nonrecourse Debt Minimum Gain has the
meaning set forth in Treasury
Regulation Section 1.704-2(i)(2).
Partner Nonrecourse Deductions means any and
all items of loss, deduction or expenditure (including any
expenditure described in Section 705(a)(2)(B) of the Code)
that, in accordance with the principles of Treasury
Regulation Section 1.704-2(i),
are attributable to a Partner Nonrecourse Debt.
Partners means the General Partner and the
Limited Partners.
Partnership means Western Gas Partners, LP, a
Delaware limited partnership.
Partnership Contribution Interests shall have
the meaning assigned to it in the Contribution Agreement.
Partnership Group means the Partnership and
its Subsidiaries treated as a single consolidated entity.
Partnership Interest means an interest in the
Partnership, which shall include the General Partner Interest
and Limited Partner Interests.
Partnership Minimum Gain means that amount
determined in accordance with the principles of Treasury
Regulation Sections 1.704-2(b)(2)
and 1.704-2(d).
Partnership Security means any class or
series of equity interest in the Partnership (but excluding any
options, rights, warrants and appreciation rights relating to an
equity interest in the Partnership), including Common Units,
Subordinated Units, Class B Units and Incentive
Distribution Rights.
A-19
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Per Unit Capital Amount means, as of any date
of determination, the Capital Account, stated on a per Unit
basis, underlying any class of Units held by a Person other than
the General Partner or any Affiliate of the General Partner who
holds Units.
Percentage Interest means as of any date of
determination (a) as to the General Partner with respect to
General Partner Units and as to any Unitholder with respect to
Units, the product obtained by multiplying (i) 100% less
the percentage applicable to clause (b) below by
(ii) the quotient obtained by dividing (A) the number
of General Partner Units held by the General Partner or the
number of Units held by such Unitholder, as the case may be, by
(B) the total number of Outstanding Units and General
Partner Units, and (b) as to the holders of other
Partnership Securities issued by the Partnership in accordance
with Section 5.6, the percentage established as a part of
such issuance. The Percentage Interest with respect to an
Incentive Distribution Right shall at all times be zero.
Person means an individual or a corporation,
firm, limited liability company, partnership, joint venture,
trust, unincorporated organization, association, government
agency or political subdivision thereof or other entity.
Pro Rata means (a) when used with
respect to Units or any class thereof, apportioned equally among
all designated Units in accordance with their relative
Percentage Interests, (b) when used with respect to
Partners or Record Holders, apportioned among all Partners or
Record Holders in accordance with their relative Percentage
Interests and (c) when used with respect to holders of
Incentive Distribution Rights, apportioned equally among all
holders of Incentive Distribution Rights in accordance with the
relative number or percentage of Incentive Distribution Rights
held by each such holder.
Purchase Date means the date determined by
the General Partner as the date for purchase of all Outstanding
Limited Partner Interests of a certain class (other than Limited
Partner Interests owned by the General Partner and its
Affiliates) pursuant to Article XV.
Quarter means, unless the context requires
otherwise, a fiscal quarter of the Partnership, or, with respect
to the first fiscal quarter of the Partnership that includes the
Closing Date, the portion of such fiscal quarter after the
Closing Date.
Recapture Income means any gain recognized by
the Partnership (computed without regard to any adjustment
required by Section 734 or Section 743 of the Code)
upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income
because it represents the recapture of deductions previously
taken with respect to such property or asset.
Record Date means the date established by the
General Partner or otherwise in accordance with this Agreement
for determining (a) the identity of the Record Holders
entitled to notice of, or to vote at, any meeting of Limited
Partners or entitled to vote by ballot or give approval of
Partnership action in writing without a meeting or entitled to
exercise rights in respect of any lawful action of Limited
Partners or (b) the identity of Record Holders entitled to
receive any report or distribution or to participate in any
offer.
Record Holder means the Person in whose name
a Common Unit is registered on the books of the Transfer Agent
as of the opening of business on a particular Business Day, or
with respect to other Partnership Interests, the Person in whose
name any such other Partnership Interest is registered on the
books that the General Partner has caused to be kept as of the
opening of business on such Business Day.
Redeemable Interests means any Partnership
Interests for which a redemption notice has been given, and has
not been withdrawn, pursuant to Section 4.10 and
Section 4.12.
A-20
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Registration Statement means the Registration
Statement on
Form S-1
(Registration
No. 333-146700)
as it has been or as it may be amended or supplemented from time
to time, filed by the Partnership with the Commission under the
Securities Act to register the offering and sale of the Common
Units in the Initial Offering.
Remaining Net Positive Adjustments means as
of the end of any taxable period, (i) with respect to the
Unitholders holding Common Units, Subordinated Units or
Class B Units, the excess of (a) the Net Positive
Adjustments of the Unitholders holding Common Units,
Subordinated Units or Class B Units as of the end of such
period over (b) the sum of those Partners Share of
Additional Book Basis Derivative Items for each prior taxable
period, (ii) with respect to the General Partner (as holder
of the General Partner Units), the excess of (a) the Net
Positive Adjustments of the General Partner as of the end of
such period over (b) the sum of the General Partners
Share of Additional Book Basis Derivative Items with respect to
the General Partner Units for each prior taxable period, and
(iii) with respect to the holders of Incentive Distribution
Rights, the excess of (a) the Net Positive Adjustments of
the holders of Incentive Distribution Rights as of the end of
such period over (b) the sum of the Share of Additional
Book Basis Derivative Items of the holders of the Incentive
Distribution Rights for each prior taxable period.
Required Allocations means (a) any
limitation imposed on any allocation of Net Losses or Net
Termination Losses under Section 6.1(b) or
Section 6.1(c)(ii) and (b) any allocation of an item
of income, gain, loss or deduction pursuant to
Section 6.1(d)(i), Section 6.1(d)(ii),
Section 6.1(d)(iv), Section 6.1(d)(v),
Section 6.1(d)(vi), Section 6.1(d)(vii) or
Section 6.1(d)(ix).
Reset MQD is defined in Section 5.11(e).
Reset Notice is defined in
Section 5.11(b).
Residual Gain or Residual
Loss means any item of gain or loss, as the case may
be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of
a Contributed Property or Adjusted Property, to the extent such
item of gain or loss is not allocated pursuant to
Section 6.2(b)(i)(A) or Section 6.2(b)(ii)(A),
respectively, to eliminate Book-Tax Disparities.
Retained Converted Subordinated Unit is
defined in Section 5.5(c)(ii).
Second Liquidation Target Amount is defined
in Section 6.1(c)(i)(F).
Second Target Distribution means $0.3750 per
Unit per Quarter (or, with respect to the period commencing on
the Closing Date and ending on June 30, 2008, it means the
product of $0.3750 multiplied by a fraction of which the
numerator is equal to the number of days in such period and of
which the denominator is 91), subject to adjustment in
accordance with Section 5.11, Section 6.6 and
Section 6.9.
Secondment Agreement means that certain
Services and Secondment Agreement, dated as of the Closing Date,
between Anadarko and the General Partner, as such may be
amended, supplemented and restated from time to time.
Securities Act means the Securities Act of
1933, as amended, supplemented or restated from time to time and
any successor to such statute.
Securities Exchange Act means the Securities
Exchange Act of 1934, as amended, supplemented or restated from
time to time and any successor to such statute.
Share of Additional Book Basis Derivative
Items means in connection with any allocation of
Additional Book Basis Derivative Items for any taxable period,
(i) with respect to the Unitholders
A-21
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
holding Common Units, Subordinated Units or Class B Units,
the amount that bears the same ratio to such Additional Book
Basis Derivative Items as the Unitholders Remaining Net
Positive Adjustments as of the end of such period bears to the
Aggregate Remaining Net Positive Adjustments as of that time,
(ii) with respect to the General Partner (as holder of the
General Partner Units), the amount that bears the same ratio to
such Additional Book Basis Derivative Items as the General
Partners Remaining Net Positive Adjustments as of the end
of such period bears to the Aggregate Remaining Net Positive
Adjustment as of that time, and (iii) with respect to the
Partners holding Incentive Distribution Rights, the amount that
bears the same ratio to such Additional Book Basis Derivative
Items as the Remaining Net Positive Adjustments of the Partners
holding the Incentive Distribution Rights as of the end of such
period bears to the Aggregate Remaining Net Positive Adjustments
as of that time.
Special Approval means approval by a majority
of the members of the Special Committee acting in good faith.
Special Committee means a committee of the
Board of Directors of the General Partner composed entirely of
two or more directors, each of whom (a) is not a security
holder, officer or employee of the General Partner, (b) is
not an officer, director or employee of any Affiliate of the
General Partner, (c) is not a holder of any ownership
interest in the Partnership Group other than Common Units and
(d) meets the independence standards required of directors
who serve on an audit committee of a board of directors
established by the Securities Exchange Act and the rules and
regulations of the Commission thereunder and by the National
Securities Exchange on which the Common Units are listed or
admitted to trading.
Subordinated Unit means a Partnership
Security representing a fractional part of the Partnership
Interests of all Limited Partners and Assignees and having the
rights and obligations specified with respect to Subordinated
Units in this Agreement. The term Subordinated Unit
does not include a Common Unit or a Class B Unit. A
Subordinated Unit that is convertible into a Common Unit shall
not constitute a Common Unit until such conversion occurs.
Subordination Period means the period
commencing on the Closing Date and ending on the first to occur
of the following dates:
(a) the first Business Day of any Quarter beginning
after June 30, 2011 in respect of which (i)
(A) distributions of Available Cash from Operating Surplus
on each of (I) the Outstanding Common Units, Subordinated
Units, any other Outstanding Units that are senior or equal in
right of distribution to the Subordinated Units, and
(II) the General Partner Units, with respect to each of the
three consecutive, non-overlapping four-Quarter periods
immediately preceding such date equaled or exceeded the sum of
the Minimum Quarterly Distribution on (I) all Outstanding
Common Units and Subordinated Units and any other Outstanding
Units that are senior or equal in right of distribution to the
Subordinated Units and (II) the General Partner Units,
during such periods and (B) the Adjusted Operating Surplus
for each of the three consecutive, non-overlapping four-Quarter
periods immediately preceding such date equaled or exceeded the
sum of the Minimum Quarterly Distribution on all of the
(I) Common Units, Subordinated Units and any other Units
that are senior or equal in right of distribution to the
Subordinated Units and (II) General Partner Units, that
were Outstanding during such periods on a Fully Diluted Basis,
and (ii) there are no Cumulative Common Unit Arrearages;
(b) the first Business Day of any Quarter ending on
or after June 30, 2008 in respect of which (i)
(A) distributions of Available Cash from Operating Surplus
in respect of (I) the Outstanding Common Units,
Subordinated Units, any other Outstanding Units that are senior
or equal in right of distribution to the Subordinated Units, and
(II) the General Partner Units, with respect to each of the
four consecutive, non-overlapping Quarters immediately preceding
such date equaled or exceeded 150% of the Minimum Quarterly
Distribution on (I) all Outstanding Common Units and
Subordinated Units and
A-22
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
any other Outstanding Units that are senior or equal in right of
distribution to the Subordinated Units and (II) the
Outstanding General Partner Units, during such periods, and
(B) the Adjusted Operating Surplus for each of the four
consecutive, non-overlapping Quarters immediately preceding such
date equaled or exceeded 150% of the sum of the Minimum
Quarterly Distribution on (I) the Common Units,
Subordinated Units, other Units that are senior or equal in
right of distribution to the Subordinated Units and
(II) the General Partner Units, that were Outstanding
during such periods on a Fully Diluted Basis and (ii) there
are no Cumulative Common Unit Arrearages;
(c) the first date on which there are no longer
outstanding any Subordinated Units due to the conversion of
Subordinated Units into Common Units pursuant to
Section 5.7 or otherwise; and
(d) the date on which the General Partner is removed
as general partner of the Partnership upon the requisite vote by
holders of Outstanding Units under circumstances where Cause
does not exist and Units held by the General Partner and its
Affiliates are not voted in favor of such removal.
Subsidiary means, with respect to any Person,
(a) a corporation of which more than 50% of the voting
power of shares entitled (without regard to the occurrence of
any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or
indirectly, at the date of determination, by such Person, by one
or more Subsidiaries of such Person or a combination thereof,
(b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership,
but only if more than 50% of the partnership interests of such
partnership (considering all of the partnership interests of the
partnership as a single class) is owned, directly or indirectly,
at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or
(c) any other Person (other than a corporation or a
partnership) in which such Person, one or more Subsidiaries of
such Person, or a combination thereof, directly or indirectly,
at the date of determination, has (i) at least a majority
ownership interest or (ii) the power to elect or direct the
election of a majority of the directors or other governing body
of such Person.
Surviving Business Entity is defined in
Section 14.2(b).
Taxation Certification means a properly
completed certificate in such form as may be specified by the
General Partner by which a Limited Partner certifies that he
(and if he is a nominee holding for the account of another
Person, that to the best of his knowledge such other Person) is
an Eligible Holder.
Tax Sharing Agreement means that certain Tax
Sharing Agreement, dated as of the Closing Date, between
Anadarko and the Partnership, as such may be amended,
supplemented and restated from time to time.
Target Distribution means, collectively, the
First Target Distribution, Second Target Distribution and Third
Target Distribution.
Third Target Distribution means $0.4500 per
Unit per Quarter (or, with respect to the period commencing on
the Closing Date and ending on June 30, 2008, it means the
product of $0.4500 multiplied by a fraction of which the
numerator is equal to the number of days in such period and of
which the denominator is 91), subject to adjustment in
accordance with Sections 5.11, 6.6 and 6.9.
Trading Day is defined in
Section 15.1(a).
transfer is defined in Section 4.4(a).
Transfer Agent means such bank, trust company
or other Person (including the General Partner or one of its
Affiliates) as shall be appointed from time to time by the
General Partner to act as registrar
A-23
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
and transfer agent for the Common Units; provided, that
if no Transfer Agent is specifically designated for any other
Partnership Securities, the General Partner shall act in such
capacity.
Underwriter means each Person named as an
underwriter in Schedule I to the Underwriting Agreement who
purchases Common Units pursuant thereto.
Underwriting Agreement means that certain
Underwriting Agreement, dated as of
[ l ],
2008, among the Underwriters, the Partnership, the General
Partner, Holdings and other parties thereto, providing for the
purchase of Common Units by the Underwriters.
Unit means a Partnership Security that is
designated as a Unit and shall include Common Units,
Subordinated Units and Class B Units but shall not include
(i) General Partner Units (or the General Partner Interest
represented thereby) or (ii) Incentive Distribution Rights.
Unit Majority means (i) during the
Subordination Period, at least a majority of the Outstanding
Common Units (excluding Common Units owned by the General
Partner and its Affiliates), voting as a class, and at least a
majority of the Outstanding Subordinated Units, voting as a
class, and (ii) after the end of the Subordination Period,
at least a majority of the Outstanding Common Units and
Class B Units, if any, voting as a single class.
Unitholders means the holders of Units.
Unpaid MQD is defined in
Section 6.1(c)(i)(B).
Unrealized Gain attributable to any item of
Partnership property means, as of any date of determination, the
excess, if any, of (a) the fair market value of such
property as of such date (as determined under
Section 5.5(d)) over (b) the Carrying Value of such
property as of such date (prior to any adjustment to be made
pursuant to Section 5.5(d) as of such date).
Unrealized Loss attributable to any item of
Partnership property means, as of any date of determination, the
excess, if any, of (a) the Carrying Value of such property
as of such date (prior to any adjustment to be made pursuant to
Section 5.5(d) as of such date) over (b) the fair
market value of such property as of such date (as determined
under Section 5.5(d)).
Unrecovered Initial Unit Price means at any
time, with respect to a Unit, the Initial Unit Price less the
sum of all distributions constituting Capital Surplus
theretofore made in respect of an Initial Common Unit and any
distributions of cash (or the Net Agreed Value of any
distributions in kind) in connection with the dissolution and
liquidation of the Partnership theretofore made in respect of an
Initial Common Unit, adjusted as the General Partner determines
to be appropriate to give effect to any distribution,
subdivision or combination of such Units.
U.S. GAAP means United States generally
accepted accounting principles consistently applied.
Withdrawal Opinion of Counsel is defined in
Section 11.1(b).
Working Capital Agreement means the Working
Capital Loan Agreement, dated as of
[ l ],
2008, among the Partnership and Anadarko.
Working Capital Borrowings means borrowings
used solely for working capital purposes or to pay distributions
to Partners made pursuant to a credit facility (including the
Credit Agreement or the Working Capital Agreement), commercial
paper facility or other similar financing arrangement, provided
that when it is incurred it is the intent of the borrower to
repay such borrowings within 12 months from other than
Working Capital Borrowings.
A-24
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Section 1.2 Construction.
Unless the context requires otherwise: (a) any pronoun used
in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns,
pronouns and verbs shall include the plural and vice versa;
(b) references to Articles and Sections refer to Articles
and Sections of this Agreement; (c) the terms
include, includes, including
or words of like import shall be deemed to be followed by the
words without limitation; and (d) the terms
hereof, herein or hereunder
refer to this Agreement as a whole and not to any particular
provision of this Agreement. The table of contents and headings
contained in this Agreement are for reference purposes only, and
shall not affect in any way the meaning or interpretation of
this Agreement.
ARTICLE II
ORGANIZATION
Section 2.1 Formation.
The General Partner and Asset HoldCo have previously formed the
Partnership as a limited partnership pursuant to the provisions
of the Delaware Act and Asset HoldCo subsequently contributed
its Limited Partner Interest to Holdings. The General Partner
and Holdings hereby amend and restate the original Agreement of
Limited Partnership of Western Gas Partners, LP in its entirety.
This amendment and restatement shall become effective on the
date of this Agreement. Except as expressly provided to the
contrary in this Agreement, the rights, duties (including
fiduciary duties), liabilities and obligations of the Partners
and the administration, dissolution and termination of the
Partnership shall be governed by the Delaware Act. All
Partnership Interests shall constitute personal property of the
owner thereof for all purposes.
Section 2.2 Name.
The name of the Partnership shall be Western Gas Partners,
LP. The Partnerships business may be conducted under
any other name or names as determined by the General Partner,
including the name of the General Partner. The words
Limited Partnership, LP,
Ltd. or similar words or letters shall be included
in the Partnerships name where necessary for the purpose
of complying with the laws of any jurisdiction that so requires.
The General Partner may change the name of the Partnership at
any time and from time to time and shall notify the Limited
Partners of such change in the next regular communication to the
Limited Partners.
Section 2.3 Registered
Office; Registered Agent; Principal Office; Other Offices.
Unless and until changed by the General Partner, the registered
office of the Partnership in the State of Delaware shall be
located at 1209 Orange Street, Wilmington, Delaware 19801, and
the registered agent for service of process on the Partnership
in the State of Delaware at such registered office shall be The
Corporation Trust Company. The principal office of the
Partnership shall be located at 1201 Lake Robbins Drive, The
Woodlands, Texas
77380-1046,
or such other place as the General Partner may from time to time
designate by notice to the Limited Partners. The Partnership may
maintain offices at such other place or places within or outside
the State of Delaware as the General Partner determines to be
necessary or appropriate. The address of the General Partner
shall be 1201 Lake Robbins Drive, The Woodlands, Texas
77380-1046,
or such other place as the General Partner may from time to time
designate by notice to the Limited Partners.
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Section 2.4 Purpose
and Business.
The purpose and nature of the business to be conducted by the
Partnership shall be to (a) engage directly in, or enter
into or form, hold and dispose of any corporation, partnership,
joint venture, limited liability company or other arrangement to
engage indirectly in, any business activity that is approved by
the General Partner and that lawfully may be conducted by a
limited partnership organized pursuant to the Delaware Act and,
in connection therewith, to exercise all of the rights and
powers conferred upon the Partnership pursuant to the agreements
relating to such business activity, and (b) do anything
necessary or appropriate to the foregoing, including the making
of capital contributions or loans to a Group Member;
provided, however, that the General Partner shall not
cause the Partnership to engage, directly or indirectly, in any
business activity that the General Partner determines would
cause the Partnership to be treated as an association taxable as
a corporation or otherwise taxable as an entity for federal
income tax purposes. To the fullest extent permitted by law, the
General Partner shall have no duty or obligation to propose or
approve, and may decline to propose or approve, the conduct by
the Partnership of any business free of any fiduciary duty or
obligation whatsoever to the Partnership or any Limited Partner
and, in declining to so propose or approve, shall not be
required to act in good faith or pursuant to any other standard
imposed by this Agreement, any Group Member Agreement, any other
agreement contemplated hereby or under the Delaware Act or any
other law, rule or regulation or at equity.
Section 2.5 Powers.
The Partnership shall be empowered to do any and all acts and
things necessary or appropriate for the furtherance and
accomplishment of the purposes and business described in
Section 2.4 and for the protection and benefit of the
Partnership.
Section 2.6 Power
of Attorney.
(a) Each Limited Partner hereby constitutes and
appoints the General Partner and, if a Liquidator shall have
been selected pursuant to Section 12.3, the Liquidator (and
any successor to the Liquidator by merger, transfer, assignment,
election or otherwise) and each of their authorized officers and
attorneys-in-fact, as the case may be, with full power of
substitution, as his true and lawful agent and attorney-in-fact,
with full power and authority in his name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (A) all
certificates, documents and other instruments (including this
Agreement and the Certificate of Limited Partnership and all
amendments or restatements hereof or thereof) that the General
Partner or the Liquidator determines to be necessary or
appropriate to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited
liability) in the State of Delaware and in all other
jurisdictions in which the Partnership may conduct business or
own property; (B) all certificates, documents and other
instruments that the General Partner or the Liquidator
determines to be necessary or appropriate to reflect, in
accordance with its terms, any amendment, change, modification
or restatement of this Agreement; (C) all certificates,
documents and other instruments (including conveyances and a
certificate of cancellation) that the General Partner or the
Liquidator determines to be necessary or appropriate to reflect
the dissolution and liquidation of the Partnership pursuant to
the terms of this Agreement; (D) all certificates,
documents and other instruments relating to the admission,
withdrawal, removal or substitution of any Partner pursuant to,
or other events described in, Article IV, Article X,
Article XI or Article XII; (E) all certificates,
documents and other instruments relating to the determination of
the rights, preferences and privileges of any class or series of
Partnership Securities issued pursuant to Section 5.6; and
(F) all certificates, documents and other instruments
(including agreements and a
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certificate of merger) relating to a merger, consolidation or
conversion of the Partnership pursuant to
Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file
and record all ballots, consents, approvals, waivers,
certificates, documents and other instruments that the General
Partner or the Liquidator determines to be necessary or
appropriate to (A) make, evidence, give, confirm or ratify
any vote, consent, approval, agreement or other action that is
made or given by the Partners hereunder or is consistent with
the terms of this Agreement or (B) effectuate the terms or
intent of this Agreement; provided, that when required by
Section 13.3 or any other provision of this Agreement that
establishes a percentage of the Limited Partners or of the
Limited Partners of any class or series required to take any
action, the General Partner and the Liquidator may exercise the
power of attorney made in this Section 2.6(a)(ii) only
after the necessary vote, consent or approval of the Limited
Partners or of the Limited Partners of such class or series, as
applicable.
Nothing contained in this Section 2.6(a) shall be construed
as authorizing the General Partner to amend this Agreement
except in accordance with Article XIII or as may be
otherwise expressly provided for in this Agreement.
(b) The foregoing power of attorney is hereby
declared to be irrevocable and a power coupled with an interest,
and it shall survive and, to the maximum extent permitted by
law, not be affected by the subsequent death, incompetency,
disability, incapacity, dissolution, bankruptcy or termination
of any Limited Partner and the transfer of all or any portion of
such Limited Partners Limited Partner Interest and shall
extend to such Limited Partners heirs, successors, assigns
and personal representatives. Each such Limited Partner hereby
agrees to be bound by any representation made by the General
Partner or the Liquidator acting in good faith pursuant to such
power of attorney; and each such Limited Partner, to the maximum
extent permitted by law, hereby waives any and all defenses that
may be available to contest, negate or disaffirm the action of
the General Partner or the Liquidator taken in good faith under
such power of attorney. Each Limited Partner shall execute and
deliver to the General Partner or the Liquidator, within
15 days after receipt of the request therefor, such further
designation, powers of attorney and other instruments as the
General Partner or the Liquidator may request in order to
effectuate this Agreement and the purposes of the Partnership.
Section 2.7 Term.
The term of the Partnership commenced upon the filing of the
Certificate of Limited Partnership in accordance with the
Delaware Act and shall continue in existence until the
dissolution of the Partnership in accordance with the provisions
of Article XII. The existence of the Partnership as a
separate legal entity shall continue until the cancellation of
the Certificate of Limited Partnership as provided in the
Delaware Act.
Section 2.8 Title
to Partnership Assets.
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by
the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such
Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the
Partnership, the General Partner, one or more of its Affiliates
or one or more nominees, as the General Partner may determine.
The General Partner hereby declares and warrants that any
Partnership assets for which record title is held in the name of
the General Partner or one or more of its Affiliates or one or
more nominees shall be held by the General Partner or such
Affiliate or nominee for the use and benefit of the Partnership
in accordance with the provisions of this Agreement;
provided, however, that the General Partner shall use
reasonable efforts to
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cause record title to such assets (other than those assets in
respect of which the General Partner determines that the expense
and difficulty of conveyancing makes transfer of record title to
the Partnership impracticable) to be vested in the Partnership
as soon as reasonably practicable; provided, further,
that, prior to the withdrawal or removal of the General Partner
or as soon thereafter as practicable, the General Partner shall
use reasonable efforts to effect the transfer of record title to
the Partnership and, prior to any such transfer, will provide
for the use of such assets in a manner satisfactory to the
General Partner. All Partnership assets shall be recorded as the
property of the Partnership in its books and records,
irrespective of the name in which record title to such
Partnership assets is held.
ARTICLE III
RIGHTS OF LIMITED
PARTNERS
Section 3.1 Limitation
of Liability.
The Limited Partners shall have no liability under this
Agreement except as expressly provided in this Agreement or the
Delaware Act.
Section 3.2 Management
of Business.
No Limited Partner, in its capacity as such, shall participate
in the operation, management or control (within the meaning of
the Delaware Act) of the Partnerships business, transact
any business in the Partnerships name or have the power to
sign documents for or otherwise bind the Partnership. Any action
taken by any Affiliate of the General Partner or any officer,
director, employee, manager, member, general partner, agent or
trustee of the General Partner or any of its Affiliates, or any
officer, director, employee, manager, member, general partner,
agent or trustee of a Group Member, in its capacity as such,
shall not be deemed to be participation in the control of the
business of the Partnership by a limited partner of the
Partnership (within the meaning of
Section 17-303(a)
of the Delaware Act) and shall not affect, impair or eliminate
the limitations on the liability of the Limited Partners under
this Agreement.
Section 3.3 Outside
Activities of the Limited Partners.
Subject to the provisions of Section 7.5, which shall
continue to be applicable to the Persons referred to therein,
regardless of whether such Persons shall also be Limited
Partners, any Limited Partner shall be entitled to and may have
business interests and engage in business activities in addition
to those relating to the Partnership, including business
interests and activities in direct competition with the
Partnership Group. Neither the Partnership nor any of the other
Partners shall have any rights by virtue of this Agreement in
any business ventures of any Limited Partner.
Section 3.4 Rights
of Limited Partners.
(a) In addition to other rights provided by this
Agreement or by applicable law, and except as limited by
Section 3.4(b), each Limited Partner shall have the right,
for a purpose reasonably related to such Limited Partners
interest as a Limited Partner in the Partnership, the
reasonableness of which having been determined in good faith by
the General Partner, upon reasonable written demand stating the
purpose of such demand, and at such Limited Partners own
expense:
(i) to obtain true and full information regarding the
status of the business and financial condition of the
Partnership;
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(ii) promptly after its becoming available, to obtain
a copy of the Partnerships federal, state and local income
tax returns for each year;
(iii) to obtain a current list of the name and last
known business, residence or mailing address of each Partner;
(iv) to obtain a copy of this Agreement and the
Certificate of Limited Partnership and all amendments thereto,
together with copies of the executed copies of all powers of
attorney pursuant to which this Agreement, the Certificate of
Limited Partnership and all amendments thereto have been
executed;
(v) to obtain true and full information regarding the
amount of cash and a description and statement of the Net Agreed
Value of any other Capital Contribution by each Partner and that
each Partner has agreed to contribute in the future, and the
date on which each became a Partner; and
(vi) to obtain such other information regarding the
affairs of the Partnership as is just and reasonable.
(b) The General Partner may keep confidential from
the Limited Partners, for such period of time as the General
Partner deems reasonable, (i) any information that the
General Partner reasonably believes to be in the nature of trade
secrets or (ii) other information the disclosure of which
the General Partner in good faith believes (A) is not in
the best interests of the Partnership Group, (B) could
damage the Partnership Group or its business or (C) that
any Group Member is required by law or by agreement with any
third party to keep confidential (other than agreements with
Affiliates of the Partnership the primary purpose of which is to
circumvent the obligations set forth in this Section 3.4).
ARTICLE IV
CERTIFICATES;
RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
Section 4.1 Certificates.
Upon the Partnerships issuance of Common Units,
Subordinated Units or Class B Units to any Person, the
Partnership shall issue, upon the request of such Person, one or
more Certificates in the name of such Person evidencing the
number of such Units being so issued. In addition, (a) upon
the General Partners request, the Partnership shall issue
to it one or more Certificates in the name of the General
Partner evidencing its General Partner Units and (b) upon
the request of any Person owning Incentive Distribution Rights
or any other Partnership Securities other than Common Units,
Subordinated Units or Class B Units, the Partnership shall
issue to such Person one or more certificates evidencing such
Incentive Distribution Rights or other Partnership Securities
other than Common Units, Subordinated Units or Class B
Units. Certificates shall be executed on behalf of the
Partnership by the Chairman of the Board, President or any
Executive Vice President, Senior Vice President or Vice
President and the Secretary or any Assistant Secretary of the
General Partner. No Common Unit Certificate shall be valid for
any purpose until it has been countersigned by the Transfer
Agent; provided, however, that the Units may be
certificated or uncertificated as provided in the Delaware Act;
and provided, further, that if the General Partner elects
to issue Common Units in global form, the Common Unit
Certificates shall be valid upon receipt of a certificate from
the Transfer Agent certifying that the Common Units have been
duly registered in accordance with the directions of the
Partnership. Subject to the requirements of Section 6.7(c),
the Partners holding Certificates evidencing Subordinated Units
may exchange such Certificates for Certificates evidencing
Common Units on or after the date on which such Subordinated
Units are converted into Common Units pursuant to the terms of
Section 5.7. Subject to the requirements of
Section 6.7(e), the Partners holding Certificates
evidencing Class B Units may exchange such Certificates for
Certificates evidencing Common Units on or after the period set
forth in Section 5.11(f) pursuant to the terms of
Section 5.11.
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Section 4.2 Mutilated,
Destroyed, Lost or Stolen Certificates.
(a) If any mutilated Certificate is surrendered to
the Transfer Agent (for Common Units) or the General Partner
(for Partnership Securities other than Common Units), the
appropriate officers of the General Partner on behalf of the
Partnership shall execute, and the Transfer Agent (for Common
Units) or the General Partner (for Partnership Securities other
than Common Units) shall countersign and deliver in exchange
therefor, a new Certificate, or shall deliver other evidence of
the issuance of uncertificated Units, evidencing the same number
and type of Partnership Securities as the Certificate so
surrendered.
(b) The appropriate officers of the General Partner
on behalf of the Partnership shall execute and deliver, and the
Transfer Agent (for Common Units) shall countersign, a new
Certificate in place of any Certificate previously issued if the
Record Holder of the Certificate:
(i) makes proof by affidavit, in form and substance
satisfactory to the General Partner, that a previously issued
Certificate has been lost, destroyed or stolen;
(ii) requests the issuance of a new Certificate, or
other evidence of the issuance of uncertificated Units, before
the General Partner has notice that the Certificate has been
acquired by a purchaser for value in good faith and without
notice of an adverse claim;
(iii) if requested by the General Partner, delivers
to the General Partner a bond, in form and substance
satisfactory to the General Partner, with surety or sureties and
with fixed or open penalty as the General Partner may direct to
indemnify the Partnership, the Partners, the General Partner and
the Transfer Agent against any claim that may be made on account
of the alleged loss, destruction or theft of the
Certificate; and
(iv) satisfies any other reasonable requirements
imposed by the General Partner.
If a Limited Partner fails to notify the General Partner within
a reasonable period of time after he has notice of the loss,
destruction or theft of a Certificate, and a transfer of the
Limited Partner Interests represented by the Certificate is
registered before the Partnership, the General Partner or the
Transfer Agent receives such notification, the Limited Partner
shall be precluded from making any claim against the
Partnership, the General Partner or the Transfer Agent for such
transfer or for a new Certificate or other evidence of the
issuance of uncertificated Units.
(c) As a condition to the issuance of any new
Certificate, or other evidence of the issuance of uncertificated
Units, under this Section 4.2, the General Partner may
require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses
of the Transfer Agent) reasonably connected therewith.
Section 4.3 Record
Holders.
The Partnership shall be entitled to recognize the Record Holder
as the Partner with respect to any Partnership Interest and,
accordingly, shall not be bound to recognize any equitable or
other claim to, or interest in, such Partnership Interest on the
part of any other Person, regardless of whether the Partnership
shall have actual or other notice thereof, except as otherwise
provided by law or any applicable rule, regulation, guideline or
requirement of any National Securities Exchange on which such
Partnership Interests are listed or admitted to trading. Without
limiting the foregoing, when a Person (such as a broker, dealer,
bank, trust company or clearing corporation or an agent of any
of the foregoing) is acting as nominee, agent or in some other
representative capacity for another Person in acquiring
and/or
holding Partnership Interests, as between the Partnership on the
one hand, and such
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other Persons on the other, such representative Person shall be
(a) the Record Holder of such Partnership Interest and
(b) bound by this Agreement and shall have the rights and
obligations of a Partner hereunder and as, and to the extent,
provided for herein.
Section 4.4 Transfer
Generally.
(a) The term transfer, when used
in this Agreement with respect to a Partnership Interest, shall
be deemed to refer to a transaction (i) by which the
General Partner assigns its General Partner Units to another
Person or by which a holder of Incentive Distribution Rights
assigns its Incentive Distribution Rights to another Person, and
includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, exchange or any other disposition by
law or otherwise or (ii) by which the holder of a Limited
Partner Interest (other than an Incentive Distribution Right)
assigns such Limited Partner Interest to another Person who is
or becomes a Limited Partner, and includes a sale, assignment,
gift, exchange or any other disposition by law or otherwise,
including any transfer upon foreclosure of any pledge,
encumbrance, hypothecation or mortgage.
(b) No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and
conditions set forth in this Article IV. Any transfer or
purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be, to the fullest
extent permitted by law, null and void.
(c) Nothing contained in this Agreement shall be
construed to prevent a disposition by any stockholder, member,
partner or other owner of the General Partner of any or all of
the shares of stock, membership or limited liability company
interests, partnership interests or other ownership interests in
the General Partner.
Section 4.5 Registration
and Transfer of Limited Partner Interests.
(a) The General Partner shall keep or cause to be
kept on behalf of the Partnership a register in which, subject
to such reasonable regulations as it may prescribe and subject
to the provisions of Section 4.5(b), the Partnership will
provide for the registration and transfer of Limited Partner
Interests. The Transfer Agent is hereby appointed registrar and
transfer agent for the purpose of registering Common Units and
transfers of such Common Units as herein provided. The
Partnership shall not recognize transfers of Certificates
evidencing Limited Partner Interests unless such transfers are
effected in the manner described in this Section 4.5. Upon
surrender of a Certificate for registration of transfer of any
Limited Partner Interests evidenced by a Certificate, and
subject to the provisions of Section 4.5(b), the
appropriate officers of the General Partner on behalf of the
Partnership shall execute and deliver, and in the case of Common
Units, the Transfer Agent shall countersign and deliver, in the
name of the holder or the designated transferee or transferees,
as required pursuant to the holders instructions, one or
more new Certificates, or shall deliver other evidence of the
issuance of uncertificated Units, evidencing the same aggregate
number and type of Limited Partner Interests as was evidenced by
the Certificate so surrendered.
(b) Except as otherwise provided in Section 4.9
and Section 4.11, (i) the General Partner shall not
recognize any transfer of Limited Partner Interests until the
Certificates evidencing such Limited Partner Interests, or other
evidence of the issuance of uncertificated Units, are
surrendered for registration of transfer and (ii) following
a FERC Notice, such Certificates are accompanied by a Taxation
Certification, properly completed and duly executed by the
transferee (or the transferees attorney-in-fact duly
authorized in writing). No charge shall be imposed by the
General Partner for such transfer; provided, that as a
condition to the issuance of any new Certificate, or other
evidence of the issuance of
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uncertificated Units, under this Section 4.5, the General
Partner may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed with
respect thereto.
(c) Subject to (i) the foregoing provisions of
this Section 4.5, (ii) Section 4.3,
(iii) Section 4.8, (iv) with respect to any class
or series of Limited Partner Interests, the provisions of any
statement of designations or an amendment to this Agreement
establishing such class or series, (v) any contractual
provisions binding on any Limited Partner and
(vi) provisions of applicable law including the Securities
Act, Limited Partner Interests (other than the Incentive
Distribution Rights) shall be freely transferable.
(d) The General Partner and its Affiliates shall have
the right at any time to transfer their Subordinated Units,
Class B Units and Common Units (whether issued upon
conversion of the Subordinated Units or otherwise) to one or
more Persons.
Section 4.6 Transfer
of the General Partners General Partner Interest.
(a) Subject to Section 4.6(c) below, prior to
June 30, 2018, the General Partner shall not transfer all
or any part of its General Partner Interest (represented by
General Partner Units) to a Person unless such transfer
(i) has been approved by the prior written consent or vote
of the holders of at least a majority of the Outstanding Common
Units (excluding Common Units held by the General Partner and
its Affiliates) or (ii) is of all, but not less than all,
of its General Partner Interest to (A) an Affiliate of the
General Partner (other than an individual) or (B) another
Person (other than an individual) in connection with the merger
or consolidation of the General Partner with or into such other
Person or the transfer by the General Partner of all or
substantially all of its assets to such other Person.
(b) Subject to Section 4.6(c) below, on or after
June 30, 2018, the General Partner may transfer all or any
of its General Partner Interest without Unitholder approval.
(c) Notwithstanding anything herein to the contrary,
no transfer by the General Partner of all or any part of its
General Partner Interest to another Person shall be permitted
unless (i) the transferee agrees to assume the rights and
duties of the General Partner under this Agreement and to be
bound by the provisions of this Agreement, (ii) the
Partnership receives an Opinion of Counsel that such transfer
would not result in the loss of limited liability of any Limited
Partner under the Delaware Act or cause the Partnership to be
treated as an association taxable as a corporation or otherwise
to be taxed as an entity for federal income tax purposes (to the
extent not already so treated or taxed) and (iii) such
transferee also agrees to purchase all (or the appropriate
portion thereof, if applicable) of the partnership or membership
or limited liability company interest of the General Partner as
the general partner or managing member, if any, of each other
Group Member. In the case of a transfer pursuant to and in
compliance with this Section 4.6, the transferee or
successor (as the case may be) shall, subject to compliance with
the terms of Section 10.2, be admitted to the Partnership
as the General Partner effective immediately prior to the
transfer of the General Partner Interest, and the business of
the Partnership shall continue without dissolution.
Section 4.7 Transfer
of Incentive Distribution Rights.
Prior to June 30, 2018, a holder of Incentive Distribution
Rights may transfer any or all of the Incentive Distribution
Rights held by such holder without any consent of the
Unitholders to (a) an Affiliate of such holder (other than
an individual) or (b) another Person (other than an
individual) in connection with (i) the merger or
consolidation of such holder of Incentive Distribution Rights
with or into such other Person, (ii) the transfer by such
holder of all or substantially all of its assets to such other
Person or (iii) the sale of all the ownership interests in
such holder. Any other transfer of the Incentive Distribution
Rights prior to June 30, 2018 shall require the prior
approval of holders of at least a majority of the Outstanding
Common Units (excluding Common Units held by the General Partner
and
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its Affiliates). On or after June 30, 2018, the General
Partner or any other holder of Incentive Distribution Rights may
transfer any or all of its Incentive Distribution Rights without
Unitholder approval. Notwithstanding anything herein to the
contrary, (i) the transfer of Class B Units issued
pursuant to Section 5.11, or the transfer of Common Units
issued upon conversion of the Class B Units, shall not be
treated as a transfer of all or any part of the Incentive
Distribution Rights and (ii) no transfer of Incentive
Distribution Rights to another Person shall be permitted unless
the transferee agrees to be bound by the provisions of this
Agreement.
Section 4.8 Restrictions
on Transfers.
(a) Notwithstanding the other provisions of this
Article IV, no transfer of any Partnership Interests shall
be made if such transfer would (i) violate the then
applicable federal or state securities laws or rules and
regulations of the Commission, any state securities commission
or any other governmental authority with jurisdiction over such
transfer, (ii) terminate the existence or qualification of the
Partnership under the laws of the jurisdiction of its formation,
or (iii) cause the Partnership to be treated as an
association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes (to the extent not
already so treated or taxed).
(b) The General Partner may impose restrictions on
the transfer of Partnership Interests if it receives an Opinion
of Counsel that such restrictions are necessary to avoid a
significant risk of the Partnership becoming taxable as a
corporation or otherwise becoming taxable as an entity for
federal income tax purposes. The General Partner may impose such
restrictions by amending this Agreement; provided,
however, that any amendment that would result in the
delisting or suspension of trading of any class of Limited
Partner Interests on the principal National Securities Exchange
on which such class of Limited Partner Interests is then listed
or admitted to trading must be approved, prior to such amendment
being effected, by the holders of at least a majority of the
Outstanding Limited Partner Interests of such class.
(c) The transfer of a Subordinated Unit that has
converted into a Common Unit shall be subject to the
restrictions imposed by Section 6.7(c).
(d) The transfer of a Class B Unit that has
converted into a Common Unit shall be subject to the
restrictions imposed by Section 6.7(e).
(e) Nothing contained in this Article IV, or
elsewhere in this Agreement, shall preclude the settlement of
any transactions involving Partnership Interests entered into
through the facilities of any National Securities Exchange on
which such Partnership Interests are listed or admitted to
trading.
(f) Each certificate evidencing Partnership Interests
shall bear a conspicuous legend in substantially the following
form:
THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF
WESTERN GAS PARTNERS, LP THAT THIS SECURITY MAY NOT BE SOLD,
OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IF SUCH
TRANSFER WOULD (A) VIOLATE THE THEN APPLICABLE FEDERAL OR
STATE SECURITIES LAWS OR RULES AND REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR ANY OTHER GOVERNMENTAL AUTHORITY WITH JURISDICTION
OVER SUCH TRANSFER, (B) TERMINATE THE EXISTENCE OR
QUALIFICATION OF WESTERN GAS PARTNERS, LP UNDER THE LAWS OF THE
STATE OF DELAWARE, OR (C) CAUSE WESTERN GAS PARTNERS, LP TO
BE TREATED AS AN ASSOCIATION TAXABLE AS A CORPORATION OR
OTHERWISE TO BE TAXED AS AN ENTITY FOR FEDERAL INCOME TAX
PURPOSES (TO THE EXTENT NOT ALREADY SO TREATED OR TAXED).
WESTERN GAS HOLDINGS, LLC, THE GENERAL PARTNER OF WESTERN GAS
PARTNERS, LP, MAY IMPOSE ADDITIONAL RESTRICTIONS ON
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First amended and
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Partners, LP
THE TRANSFER OF THIS SECURITY IF IT RECEIVES AN OPINION OF
COUNSEL THAT SUCH RESTRICTIONS ARE NECESSARY TO AVOID A
SIGNIFICANT RISK OF WESTERN GAS PARTNERS, LP BECOMING TAXABLE AS
A CORPORATION OR OTHERWISE BECOMING TAXABLE AS AN ENTITY FOR
FEDERAL INCOME TAX PURPOSES. THE RESTRICTIONS SET FORTH ABOVE
SHALL NOT PRECLUDE THE SETTLEMENT OF ANY TRANSACTIONS INVOLVING
THIS SECURITY ENTERED INTO THROUGH THE FACILITIES OF ANY
NATIONAL SECURITIES EXCHANGE ON WHICH THIS SECURITY IS LISTED OR
ADMITTED TO TRADING.
Section 4.9 Citizenship
Certificates; Non-citizen Assignees.
(a) If any Group Member is or becomes subject to any
federal, state or local law or regulation that the General
Partner determines would create a substantial risk of
cancellation or forfeiture of any property in which the Group
Member has an interest based on the nationality, citizenship or
other related status of a Limited Partner, the General Partner
may request any Limited Partner to furnish to the General
Partner, within 30 days after receipt of such request, an
executed Citizenship Certification or such other information
concerning his nationality, citizenship or other related status
(or, if the Limited Partner is a nominee holding for the account
of another Person, the nationality, citizenship or other related
status of such Person) as the General Partner may request. If a
Limited Partner fails to furnish to the General Partner within
the aforementioned
30-day
period such Citizenship Certification or other requested
information or if upon receipt of such Citizenship Certification
or other requested information the General Partner determines
that a Limited Partner is not an Eligible Citizen, the Limited
Partner Interests owned by such Limited Partner shall be subject
to redemption in accordance with the provisions of
Section 4.10. In addition, the General Partner may require
that the status of any such Limited Partner be changed to that
of a Non-citizen Assignee and, thereupon, the General Partner
shall be substituted for such Non-citizen Assignee as the
Limited Partner in respect of the Non-citizen Assignees
Limited Partner Interests.
(b) The General Partner shall, in exercising voting
rights in respect of Limited Partner Interests held by it on
behalf of Non-citizen Assignees, distribute the votes in the
same ratios as the votes of Partners (including the General
Partner) in respect of Limited Partner Interests other than
those of Non-citizen Assignees are cast, either for, against or
abstaining as to the matter.
(c) Upon dissolution of the Partnership, a
Non-citizen Assignee shall have no right to receive a
distribution in kind pursuant to Section 12.4 but shall be
entitled to the cash equivalent thereof, and the Partnership
shall provide cash in exchange for an assignment of the
Non-citizen Assignees share of any distribution in kind.
Such payment and assignment shall be treated for Partnership
purposes as a purchase by the Partnership from the Non-citizen
Assignee of his Limited Partner Interest (representing his right
to receive his share of such distribution in kind).
(d) At any time after he can and does certify that he
has become an Eligible Citizen, a Non-citizen Assignee may, upon
application to the General Partner, request that with respect to
any Limited Partner Interests of such Non-citizen Assignee not
redeemed pursuant to Section 4.10, such Non-citizen
Assignee be admitted as a Limited Partner, and upon approval of
the General Partner, such Non-citizen Assignee shall be admitted
as a Limited Partner and shall no longer constitute a
Non-citizen Assignee and the General Partner shall cease to be
deemed to be the Limited Partner in respect of the Non-citizen
Assignees Limited Partner Interests.
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Section 4.10 Redemption
of Partnership Interests of Non-citizen Assignees.
(a) If at any time a Limited Partner fails to furnish
a Citizenship Certification or other information requested
within the
30-day
period specified in Section 4.9(a), or if upon receipt of
such Citizenship Certification or other information the General
Partner determines, with the advice of counsel, that a Limited
Partner is not an Eligible Citizen, the Partnership may, unless
the Limited Partner establishes to the satisfaction of the
General Partner that such Limited Partner is an Eligible Citizen
or has transferred his Partnership Interests to a Person who is
an Eligible Citizen and who furnishes a Citizenship
Certification to the General Partner prior to the date fixed for
redemption as provided below, redeem the Limited Partner
Interest of such Limited Partner as follows:
(i) The General Partner shall, not later than the
30th day before the date fixed for redemption, give notice
of redemption to the Limited Partner, at his last address
designated on the records of the Partnership or the Transfer
Agent, by registered or certified mail, postage prepaid. The
notice shall be deemed to have been given when so mailed. The
notice shall specify the Redeemable Interests, the date fixed
for redemption, the place of payment, that payment of the
redemption price will be made upon surrender of the Certificate
evidencing the Redeemable Interests, or other evidence of the
issuance of uncertificated Units, and that on and after the date
fixed for redemption no further allocations or distributions to
which the Limited Partner would otherwise be entitled in respect
of the Redeemable Interests will accrue or be made.
(ii) The aggregate redemption price for Redeemable
Interests shall be an amount equal to the Current Market Price
(the date of determination of which shall be the date fixed for
redemption) of Limited Partner Interests of the class to be so
redeemed multiplied by the number of Limited Partner Interests
of each such class included among the Redeemable Interests. The
redemption price shall be paid, as determined by the General
Partner, in cash or by delivery of a promissory note of the
Partnership in the principal amount of the redemption price,
bearing interest at the rate of 5% annually and payable in three
equal annual installments of principal together with accrued
interest, commencing one year after the redemption date.
(iii) Upon surrender by or on behalf of the Limited
Partner, at the place specified in the notice of redemption, of
the Certificate evidencing the Redeemable Interests, duly
endorsed in blank or accompanied by an assignment duly executed
in blank, or other evidence of the issuance of uncertificated
Units, the Limited Partner or his duly authorized representative
shall be entitled to receive the payment therefor.
(iv) After the redemption date, Redeemable Interests
shall no longer constitute issued and Outstanding Limited
Partner Interests.
(b) The provisions of this Section 4.10 shall
also be applicable to Limited Partner Interests held by a
Limited Partner as nominee of a Person determined to be other
than an Eligible Citizen.
(c) Nothing in this Section 4.10 shall prevent
the recipient of a notice of redemption from transferring his
Limited Partner Interest before the redemption date if such
transfer is otherwise permitted under this Agreement. Upon
receipt of notice of such a transfer, the General Partner shall
withdraw the notice of redemption, provided the
transferee of such Limited Partner Interest certifies to the
satisfaction of the General Partner that he is an Eligible
Citizen. If the transferee fails to make such certification,
such redemption shall be effected from the transferee on the
original redemption date.
Section 4.11 Taxation
Certifications; Ineligible Assignees.
(a) Following a FERC Notice, if a transferee of a
Limited Partner Interest fails to furnish a properly completed
Taxation Certification in the manner specified in
Section 4.5(b) or if, upon receipt of such
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Taxation Certification or otherwise, the General Partner
determines that such transferee is not an Eligible Holder, the
Limited Partner Interests owned by such transferee shall be
subject to redemption in accordance with the provisions of
Section 4.12.
(b) The General Partner may request any Limited
Partner to furnish to the General Partner, within 30 days
after receipt of such request, an executed Taxation
Certification or such other information concerning his federal
income tax status with respect to the income and loss generated
by the Partnership (or, if the Limited Partner is a nominee
holding for the account of another Person, the federal income
tax status of such Person) as the General Partner may reasonably
request. If a Limited Partner or Assignee fails to furnish to
the General Partner within the aforementioned
30-day
period such Taxation Certification or other requested
information or if upon receipt of such Taxation Certification or
other requested information the General Partner determines that
a Limited Partner is an Ineligible Assignee, the Limited Partner
Interests owned by such Limited Partner shall be subject to
redemption in accordance with the provisions of
Section 4.12. The General Partner shall be substituted for
such Ineligible Assignee as the Limited Partner in respect of
the Ineligible Assignees Limited Partner Interests. Upon
determination by the General Partner that such person is an
Ineligible Assignee, the General Partner may elect to not make
distributions or allocations of income or loss to such
Ineligible Assignee relating to such Ineligible Assignees
Limited Partner Interests.
(c) Following a FERC Notice or any other
determination of an Ineligible Assignee, the General Partner
shall, in exercising voting rights in respect of Limited Partner
Interests held by it on behalf of Ineligible Assignees,
distribute the votes in the same ratios as the votes of Partners
(including without limitation the General Partner) in respect of
Limited Partner Interests other than those of Ineligible
Assignees are cast, either for, against or abstaining as to the
matter.
(d) Upon dissolution of the Partnership, an
Ineligible Assignee shall have no right to receive a
distribution in kind pursuant to Section 12.4 but shall be
entitled to the cash equivalent thereof, and the Partnership
shall provide cash in exchange for an assignment of the
Ineligible Assignees share of any distribution in kind.
Such payment and assignment shall be treated for Partnership
purposes as a purchase by the Partnership from the Ineligible
Assignee of his Limited Partner Interest (representing his right
to receive his share of such distribution in kind).
(e) At any time after an Ineligible Assignee can and
does certify that it has become an Eligible Holder, such
Ineligible Assignee may, upon application to the General
Partner, request that with respect to any Limited Partner
Interests of such Ineligible Assignee not redeemed pursuant to
Section 4.12, such Ineligible Assignee be admitted as a
Limited Partner, and upon approval of the General Partner, such
Ineligible Assignee shall be admitted as a Limited Partner and
shall no longer constitute a Ineligible Assignee and the General
Partner shall cease to be deemed to be the Limited Partner in
respect of such Ineligible Assignees Limited Partner
Interests.
Section 4.12 Redemption
of Partnership Interests of Ineligible Assignees.
(a) If at any time following a FERC Notice or a
request pursuant to Section 4.11(b), a transferee of a
Limited Partner Interest fails to furnish the General Partner a
Taxation Certification in the manner specified in
Section 4.5(b) or any Limited Partner fails to furnish the
General Partner a Taxation Certification or other information
requested within the
30-day
period specified in Section 4.11(b), or if upon receipt of
such Taxation Certification or other information the General
Partner determines that a Limited Partner or transferee is not
an Eligible Holder, the Partnership may redeem the Limited
Partner Interest of such Limited Partner or transferee as
follows:
(i) The General Partner shall, not later than the
30th day before the date fixed for redemption, give notice
of redemption to the Limited Partner or transferee, at his last
address designated on the records
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
of the Partnership or the Transfer Agent, by registered or
certified mail, postage prepaid. The notice shall be deemed to
have been given when so mailed. The notice shall specify the
Redeemable Interests, the date fixed for redemption, the place
of payment, that payment of the redemption price will be made
upon surrender of the Certificate evidencing the Redeemable
Interests or, if uncertificated, upon receipt of evidence
satisfactory to the General Partner of the ownership of the
Redeemable Interests, and that on and after the date fixed for
redemption no further allocations or distributions to which the
Limited Partner would otherwise be entitled in respect of the
Redeemable Interests will accrue or be made.
(ii) The aggregate redemption price for Redeemable
Interests shall be an amount equal to the lesser of (A) the
Current Market Price (the date of determination of which shall
be the date fixed for redemption) of Limited Partner Interests
of the class to be so redeemed multiplied by the number of
Limited Partner Interests of each such class included among the
Redeemable Interests and (B) the price paid for such
Limited Partner Interests by the Limited Partner or transferee.
The redemption price shall be paid as determined by the General
Partner, in cash or by delivery of a promissory note of the
Partnership in the principal amount of the redemption price,
bearing interest at the rate of 5% annually and payable in three
equal annual installments of principal together with accrued
interest, commencing one year after the redemption date.
(iii) Upon surrender by or on behalf of the Limited
Partner, at the place specified in the notice of redemption, of
(x) if certificated, the Certificate evidencing the
Redeemable Interests, duly endorsed in blank or accompanied by
an assignment duly executed in blank, or (y) if
uncertificated, upon receipt of evidence satisfactory to the
General Partner of the ownership of the Redeemable Interests,
the Limited Partner or transferee or his duly authorized
representative shall be entitled to receive the payment therefor.
(iv) After the redemption date, Redeemable Interests
shall no longer constitute issued and Outstanding Limited
Partner Interests.
(b) The provisions of this Section 4.12 shall
also be applicable to Limited Partner Interests held by a
Limited Partner as nominee of a Person determined to be other
than an Eligible Holder.
(c) Nothing in this Section 4.12 shall prevent
the recipient of a notice of redemption from transferring his
Limited Partner Interest before the redemption date if such
transfer is otherwise permitted under this Agreement. Upon
receipt of notice of such a transfer, the General Partner shall
withdraw the notice of redemption, provided the transferee of
such Limited Partner Interest certifies to the satisfaction of
the General Partner in a Taxation Certification that he is an
Eligible Holder. If the transferee fails to make such
certification, such redemption shall be effected from the
transferee on the original redemption date.
ARTICLE V
CAPITAL
CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
Section 5.1 Organizational
Contributions.
In connection with the formation of the Partnership under the
Delaware Act, the General Partner made an initial Capital
Contribution to the Partnership in the amount of $60.00, for a
General Partner Interest equal to a 2% Percentage Interest and
has been admitted as the General Partner of the Partnership, and
Asset HoldCo made an initial Capital Contribution to the
Partnership in the amount of $2,940.00 for a Limited Partner
Interest equal to a 98% Percentage Interest and has been
admitted as a Limited Partner of the Partnership. Subsequent to
the formation of the Partnership, Asset HoldCo contributed its
Limited Partner Interest to Holdings. As of the Closing Date and
effective with the admission of another Limited Partner to the
Partnership, the interest of Holdings shall be redeemed as
provided in the Contribution Agreement; and the initial Capital
Contribution of Asset HoldCo shall thereupon be refunded to
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Holdings. Ninety-eight percent of any interest or other profit
that may have resulted from the investment or other use of such
initial Capital Contributions shall be allocated and distributed
to Holdings, and the balance thereof shall be allocated and
distributed to the General Partner.
Section 5.2 Contributions
by the General Partner and its Affiliates.
(a) On the Closing Date and pursuant to the
Contribution Agreement: (i) the General Partner shall
contribute to the Partnership, as a Capital Contribution, the GP
Contribution Interest, in exchange for (A)
1,083,115 General Partner Units representing a continuation
of its General Partner Interest equal to a 2% Percentage
Interest, subject to all of the rights, privileges and duties of
the General Partner under this Agreement, and (B) the
Incentive Distribution Rights; and (ii) Holdings shall
contribute to the Partnership, as a Capital Contribution, the
Partnership Contribution Interests in exchange for
7,786,306 Common Units, 26,536,306 Subordinated Units
and the right to receive the Deferred Issuance and Distribution
upon the earlier to occur of (x) the expiration of the
Over-Allotment Option or (y) the Option Closing Date.
(b) Upon the issuance of any additional Limited
Partner Interests by the Partnership (other than the Common
Units issued in the Initial Offering, the Common Units and
Subordinated Units issued pursuant to Section 5.2(a), any
Class B Units issued pursuant to Section 5.11 and any
Common Units issued upon conversion of Class B Units), the
General Partner may, in exchange for a proportionate number of
General Partner Units, make additional Capital Contributions in
an amount equal to the product obtained by multiplying
(i) the quotient determined by dividing (A) the
General Partners Percentage Interest by (B) 100 less
the General Partners Percentage Interest times
(ii) the amount contributed to the Partnership by the
Limited Partners in exchange for such additional Limited Partner
Interests. Except as set forth in Article XII, the General
Partner shall not be obligated to make any additional Capital
Contributions to the Partnership.
(c) To the extent (i) expenses allocated to the
Partnership Group in any period in accordance with GAAP for
general and administrative services provided pursuant to the
Omnibus Agreement exceed the G&A Expense Limit (as such
term is defined in the Omnibus Agreement) or (ii) any
Excess Bonus Expenses (as such term is defined in the Services
and Secondment Agreement) are allocated to the Partnership Group
in accordance with GAAP for any period, the excess noted in
clause (i) or Excess Bonus Expenses, if any, shall be
treated as a Capital Contribution by Anadarko to the
Partnership, and any such Capital Contributions shall be deemed
to be Operating Surplus for all purposes.
Section 5.3 Contributions
by Initial Limited Partners.
(a) On the Closing Date and pursuant to the
Underwriting Agreement, each Underwriter shall contribute to the
Partnership cash in an amount equal to the Issue Price per
Initial Common Unit, multiplied by the number of Common Units
specified in the Underwriting Agreement to be purchased by such
Underwriter at the Closing Date. In exchange for such Capital
Contributions by the Underwriters, the Partnership shall issue
Common Units to each Underwriter on whose behalf such Capital
Contribution is made in an amount equal to the quotient obtained
by dividing (i) the cash contribution to the Partnership by
or on behalf of such Underwriter by (ii) the Issue Price
per Initial Common Unit.
(b) Upon the exercise of the Over-Allotment Option,
each Underwriter shall contribute to the Partnership cash in an
amount equal to the Issue Price per Initial Common Unit,
multiplied by the number of Common Units to be purchased by such
Underwriter at the Option Closing Date. In exchange for such
Capital Contributions by the Underwriters, the Partnership shall
issue Common Units to each Underwriter on whose behalf such
Capital Contribution is made in an amount equal to the quotient
obtained by dividing (i) the cash contributions to the
Partnership by or on behalf of such Underwriter by (ii) the
Issue Price per Initial Common Unit.
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
(c) No Limited Partner Interests will be issued or
issuable as of or at the Closing Date other than (i) the
Common Units issuable pursuant to subparagraph (a) hereof
in aggregate number equal to 18,750,000;
(ii) 2,812,500 Common Units, all or a portion of which
are issuable upon the exercise of the Over-Allotment Option
pursuant to subparagraph (b) hereof, and the balance of
which will be issued as Deferred Issuance and Distribution upon
the earlier to occur of the (x) the expiration of the
Over-Allotment Option or (y) the Option Closing Date;
(iii) the 26,536,306 Subordinated Units issuable to
pursuant to Section 5.2 hereof; (iv) the
7,786,306 Common Units issuable pursuant to
Section 5.2 hereof; and (v) the Incentive Distribution
Rights.
Section 5.4 Interest
and Withdrawal.
No interest shall be paid by the Partnership on Capital
Contributions. No Partner shall be entitled to the withdrawal or
return of its Capital Contribution, except to the extent, if
any, that distributions made pursuant to this Agreement or upon
liquidation of the Partnership may be considered as such by law
and then only to the extent provided for in this Agreement.
Except to the extent expressly provided in this Agreement, no
Partner shall have priority over any other Partner either as to
the return of Capital Contributions or as to profits, losses or
distributions. Any such return shall be a compromise to which
all Partners agree within the meaning of
Section 17-502(b)
of the Delaware Act.
Section 5.5 Capital
Accounts.
(a) The Partnership shall maintain for each Partner
(or a beneficial owner of Partnership Interests held by a
nominee in any case in which the nominee has furnished the
identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable
to the General Partner) owning a Partnership Interest a separate
Capital Account with respect to such Partnership Interest in
accordance with the rules of Treasury
Regulation Section 1.704-1(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount
of all Capital Contributions made to the Partnership with
respect to such Partnership Interest and (ii) all items of
Partnership income and gain (including income and gain exempt
from tax) computed in accordance with Section 5.5(b) and
allocated with respect to such Partnership Interest pursuant to
Section 6.1, and decreased by (x) the amount of cash
or Net Agreed Value of all actual and deemed distributions of
cash or property made with respect to such Partnership Interest
and (y) all items of Partnership deduction and loss
computed in accordance with Section 5.5(b) and allocated
with respect to such Partnership Interest pursuant to
Section 6.1.
(b) For purposes of computing the amount of any item
of income, gain, loss or deduction which is to be allocated
pursuant to Article VI and is to be reflected in the
Partners Capital Accounts, the determination, recognition
and classification of any such item shall be the same as its
determination, recognition and classification for federal income
tax purposes (including any method of depreciation, cost
recovery or amortization used for that purpose),
provided, that:
(i) Solely for purposes of this Section 5.5, the
Partnership shall be treated as owning directly its
proportionate share (as determined by the General Partner based
upon the provisions of the applicable Group Member Agreement or
governing, organizational or similar documents) of all property
owned by (x) any other Group Member that is classified as a
partnership for federal income tax purposes and (y) any
other partnership, limited liability company, unincorporated
business or other entity classified as a partnership for federal
income tax purposes of which a Group Member is, directly or
indirectly, a partner.
(ii) All fees and other expenses incurred by the
Partnership to promote the sale of (or to sell) a Partnership
Interest that can neither be deducted nor amortized under
Section 709 of the Code, if any,
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
shall, for purposes of Capital Account maintenance, be treated
as an item of deduction at the time such fees and other expenses
are incurred and shall be allocated among the Partners pursuant
to Section 6.1.
(iii) Except as otherwise provided in Treasury
Regulation Section 1.704-1(b)(2)(iv)(m), the computation of
all items of income, gain, loss and deduction shall be made
without regard to any election under Section 754 of the Code
which may be made by the Partnership and, as to those items
described in Section 705(a)(1)(B) or 705(a)(2)(B) of the
Code, without regard to the fact that such items are not
includable in gross income or are neither currently deductible
nor capitalized for federal income tax purposes. To the extent
an adjustment to the adjusted tax basis of any Partnership asset
pursuant to Section 734(b) or 743(b) of the Code is
required, pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining
Capital Accounts, the amount of such adjustment in the Capital
Accounts shall be treated as an item of gain or loss.
(iv) Any income, gain or loss attributable to the
taxable disposition of any Partnership property shall be
determined as if the adjusted basis of such property as of such
date of disposition were equal in amount to the
Partnerships Carrying Value with respect to such property
as of such date.
(v) In accordance with the requirements of
Section 704(b) of the Code, any deductions for
depreciation, cost recovery or amortization attributable to any
Contributed Property shall be determined as if the adjusted
basis of such property on the date it was acquired by the
Partnership were equal to the Agreed Value of such property.
Upon an adjustment pursuant to Section 5.5(d) to the Carrying
Value of any Partnership property subject to depreciation, cost
recovery or amortization, any further deductions for such
depreciation, cost recovery or amortization attributable to such
property shall be determined under the rules prescribed by
Treasury
Regulation Section 1.704-3(d)(2)
as if the adjusted basis of such property were equal to the
Carrying Value of such property immediately following such
adjustment.
(vi) In the event the Gross Liability Value of any
Liability of the Partnership described in Treasury
Regulation Section 1.752-7(b)(3)(i) is adjusted as required
by this Agreement, the amount of such adjustment shall be
treated as an item of loss (if the adjustment increases the
Carrying Value of such Liability of the Partnership) or an item
of gain (if the adjustment decreases the Carrying Value of such
Liability of the Partnership) and shall be taken into account
for purposes of computing Net Income or Net Loss.
(c) (i) A transferee of a Partnership
Interest shall succeed to a pro rata portion of the Capital
Account of the transferor relating to the Partnership Interest
so transferred.
(ii) Subject to Section 6.7(c), immediately
prior to the transfer of a Subordinated Unit or of a
Subordinated Unit that has converted into a Common Unit pursuant
to Section 5.7 by a holder thereof (other than a transfer
to an Affiliate unless the General Partner elects to have this
subparagraph 5.5(c)(ii) apply), the Capital Account maintained
for such Person with respect to its Subordinated Units or
converted Subordinated Units will (A) first, be allocated
to the Subordinated Units or converted Subordinated Units to be
transferred in an amount equal to the product of (x) the
number of such Subordinated Units or converted Subordinated
Units to be transferred and (y) the Per Unit Capital Amount
for a Common Unit, and (B) second, any remaining balance in
such Capital Account will be retained by the transferor,
regardless of whether it has retained any Subordinated Units or
converted Subordinated Units (Retained Converted
Subordinated Units). Following any such
allocation, the transferors Capital Account, if any,
maintained with respect to the retained Subordinated Units or
Retained Converted Subordinated Units, if any, will have a
balance equal to the amount allocated under clause (B)
hereinabove, and the transferees Capital Account
established with respect to the transferred Subordinated Units
or converted Subordinated Units will have a balance equal to the
amount allocated under clause (A) hereinabove.
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
(d) (i) In accordance with Treasury
Regulation Section 1.704-1(b)(2)(iv)(f),
on an issuance of additional Partnership Interests for cash or
Contributed Property, the issuance of Partnership Interests as
consideration for the provision of services or the conversion of
the General Partners Combined Interest to Common Units
pursuant to Section 11.3(b), the Capital Account of all
Partners and the Carrying Value of each Partnership property
immediately prior to such issuance shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as if such Unrealized
Gain or Unrealized Loss had been recognized on an actual sale of
each such property for an amount equal to its fair market value
immediately prior to such issuance and had been allocated to the
Partners at such time pursuant to Section 6.1(c) in the
same manner as any item of gain or loss actually recognized
following an event giving rise to the liquidation of the
Partnership would have been allocated. In determining such
Unrealized Gain or Unrealized Loss, the aggregate cash amount
and fair market value of all Partnership assets (including cash
or cash equivalents) immediately prior to the issuance of
additional Partnership Interests shall be determined by the
General Partner using such method of valuation as it may adopt;
provided, however, that the General Partner, in arriving
at such valuation, must take fully into account the fair market
value of the Partnership Interests of all Partners at such time.
The General Partner shall allocate such aggregate value among
the assets of the Partnership (in such manner as it determines)
to arrive at a fair market value for individual properties.
(ii) In accordance with Treasury
Regulation Section 1.704-1(b)(2)(iv)(f), immediately prior
to any actual or deemed distribution to a Partner of any
Partnership property (other than a distribution of cash that is
not in redemption or retirement of a Partnership Interest), the
Capital Accounts of all Partners and the Carrying Value of all
Partnership property shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to
such Partnership property, as if such Unrealized Gain or
Unrealized Loss had been recognized on an actual sale of each
such property immediately prior to such distribution for an
amount equal to its fair market value, and had been allocated to
the Partners, at such time, pursuant to Section 6.1(c) in
the same manner as any item of gain or loss actually recognized
following an event giving rise to the liquidation of the
Partnership would have been allocated. In determining such
Unrealized Gain or Unrealized Loss the aggregate cash amount and
fair market value of all Partnership assets (including cash or
cash equivalents) immediately prior to a distribution shall
(A) in the case of an actual distribution that is not made
pursuant to Section 12.4 or in the case of a deemed
distribution, be determined and allocated in the same manner as
that provided in Section 5.5(d)(i) or (B) in the case
of a liquidating distribution pursuant to Section 12.4, be
determined and allocated by the Liquidator using such method of
valuation as it may adopt.
Section 5.6 Issuances
of Additional Partnership Securities.
(a) The Partnership may issue additional Partnership
Securities and options, rights, warrants and appreciation rights
relating to the Partnership Securities (including pursuant to
Section 7.4(c)) for any Partnership purpose at any time and
from time to time to such Persons for such consideration and on
such terms and conditions as the General Partner shall
determine, all without the approval of any Limited Partners.
(b) Each additional Partnership Security authorized
to be issued by the Partnership pursuant to Section 5.6(a)
or security authorized to be issued pursuant to
Section 7.4(c) may be issued in one or more classes, or one
or more series of any such classes, with such designations,
preferences, rights, powers and duties (which may be senior to
existing classes and series of Partnership Securities), as shall
be fixed by the General Partner, including (i) the right to
share in Partnership profits and losses or items thereof;
(ii) the right to share in Partnership distributions;
(iii) the rights upon dissolution and liquidation of the
Partnership; (iv) whether, and the terms and conditions
upon which, the Partnership may redeem the Partnership Security
or other security; (v) whether such Partnership Security or
other
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
security is issued with the privilege of conversion or exchange
and, if so, the terms and conditions of such conversion or
exchange; (vi) the terms and conditions upon which each
Partnership Security or other security will be issued, evidenced
by certificates and assigned or transferred; (vii) the
method for determining the Percentage Interest as to such
Partnership Security; and (viii) the right, if any, of each
such Partnership Security to vote on Partnership matters,
including matters relating to the relative rights, preferences
and privileges of such Partnership Security.
(c) The General Partner shall take all actions that
it determines to be necessary or appropriate in connection with
(i) each issuance of Partnership Securities and options,
rights, warrants and appreciation rights relating to Partnership
Securities pursuant to this Section 5.6, or
Section 7.4(c), (ii) the conversion of the General
Partner Interest (represented by General Partner Units) or any
Incentive Distribution Rights into Units pursuant to the terms
of this Agreement, (iii) the issuance of Class B Units
pursuant to Section 5.11 and the conversion of Class B
Units into Common Units pursuant to the terms of this Agreement,
(iv) reflecting admission of such additional Limited
Partners in the books and records of the Partnership as the
Record Holder of such Limited Partner Interest and (v) all
additional issuances of Partnership Securities. The General
Partner shall determine the relative rights, powers and duties
of the holders of the Units or other Partnership Securities
being so issued. The General Partner shall do all things
necessary to comply with the Delaware Act and is authorized and
directed to do all things that it determines to be necessary or
appropriate in connection with any future issuance of
Partnership Securities or in connection with the conversion of
the General Partner Interest or any Incentive Distribution
Rights into Units pursuant to the terms of this Agreement,
including compliance with any statute, rule, regulation or
guideline of any federal, state or other governmental agency or
any National Securities Exchange on which the Units or other
Partnership Securities are listed or admitted to trading.
(d) No fractional Units shall be issued by the
Partnership.
Section 5.7 Conversion
of Subordinated Units.
(a) Notwithstanding Section 5.7(c) below, the
Subordination Period shall terminate and all of the Outstanding
Subordinated Units will convert into Common Units on a
one-for-one basis on the first Business Day following the
distribution of Available Cash to Partners pursuant to
Section 6.3(a) in respect of any Quarter ending on or after
June 30, 2011, in respect of which:
(i) distributions of Available Cash from Operating
Surplus under Section 6.4(a) on each of the Outstanding
Common Units and Subordinated Units and any other Outstanding
Units that are senior or equal in right of distribution to the
Subordinated Units and the General Partner Units with respect to
each of the three consecutive, non-overlapping four-Quarter
periods immediately preceding such date equaled or exceeded the
sum of the Minimum Quarterly Distribution on all of the
Outstanding Common Units and Subordinated Units and any other
Outstanding Units that are senior or equal in right of
distribution to the Subordinated Units and the General Partner
Units during such periods;
(ii) the Adjusted Operating Surplus for each of the
three consecutive, non-overlapping four-Quarter periods
immediately preceding such date equaled or exceeded the sum of
the Minimum Quarterly Distribution on all of the Common Units,
Subordinated Units and any other Units that are senior or equal
in right of distribution to the Subordinated Units and the
General Partner Units that were Outstanding during such periods
on a Fully Diluted Basis; and
(iii) there are no Cumulative Common Unit Arrearages.
(b) Notwithstanding Section 5.7(a) above or
Section 5.7(c) below, the Subordination Period shall
terminate and all the Outstanding Subordinated Units will
convert into Common Units on a one-for-one
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basis on the first Business Day following the distribution of
Available Cash to Partners pursuant to Section 6.3(a) in
respect of any Quarter ending on or after June 30, 2008, in
respect of which:
(i) distributions of Available Cash from Operating
Surplus under Section 6.4(a) in respect of all Outstanding
Common Units, Subordinated Units, any other Outstanding Units
that are senior or equal in right of distribution to the
Subordinated Units and the General Partner Units with respect to
each of the four consecutive, non-overlapping Quarters
immediately preceding such date equaled or exceeded 150% of the
sum of the Minimum Quarterly Distribution on all of the
Outstanding Common Units, Subordinated Units, any other
Outstanding Units that are senior or equal in right of
distribution to the Subordinated Units and the General Partner
Units during such period;
(ii) the Adjusted Operating Surplus for each of the
four consecutive, non-overlapping Quarters immediately preceding
such date equaled or exceeded 150% of the sum of the Minimum
Quarterly Distribution on all of the Common Units, Subordinated
Units and any other Units that are senior or equal in right of
distribution to the Subordinated Units and the General Partner
Units that were Outstanding during such periods on a Fully
Diluted Basis; and
(iii) there are no Cumulative Common Unit Arrearages.
(c) Any Subordinated Units that are not converted
into Common Units pursuant to Section 5.7(a) or
(b) shall convert into Common Units on a one-for-one basis
on the second Business Day following the distribution of
Available Cash to Partners pursuant to Section 6.3(a) in
respect of the final Quarter of the Subordination Period.
(d) Notwithstanding any other provision of this
Agreement, all the then Outstanding Subordinated Units will
automatically convert into Common Units on a one-for-one basis
as set forth in, and pursuant to the terms of, Section 11.4.
(e) A Subordinated Unit that has converted into a
Common Unit shall be subject to the provisions of
Section 6.7(b) and Section 6.7(c).
Section 5.8 Limited
Preemptive Right.
Except as provided in this Section 5.8 and in
Section 5.2, no Person shall have any preemptive,
preferential or other similar right with respect to the issuance
of any Partnership Security, whether unissued, held in the
treasury or hereafter created. The General Partner shall have
the right, which it may from time to time assign in whole or in
part to any of its Affiliates, to purchase Partnership
Securities from the Partnership whenever, and on the same terms
that, the Partnership issues Partnership Securities to Persons
other than the General Partner and its Affiliates, to the extent
necessary to maintain the Percentage Interests of the General
Partner and its Affiliates equal to that which existed
immediately prior to the issuance of such Partnership Securities.
Section 5.9 Splits
and Combinations.
(a) Subject to Section 5.9(d), Section 6.6
and Section 6.9 (dealing with adjustments of distribution
levels), the Partnership may make a Pro Rata distribution of
Partnership Securities to all Record Holders or may effect a
subdivision or combination of Partnership Securities so long as,
after any such event, each Partner shall have the same
Percentage Interest in the Partnership as before such event, and
any amounts calculated on a per Unit basis (including any Common
Unit Arrearage or Cumulative Common Unit Arrearage) or stated as
a number of Units (including the number of Subordinated Units
that may convert prior to the end of the Subordination Period)
are proportionately adjusted.
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(b) Whenever such a distribution, subdivision or
combination of Partnership Securities is declared, the General
Partner shall select a Record Date as of which the distribution,
subdivision or combination shall be effective and shall send
notice thereof at least 20 days prior to such Record Date
to each Record Holder as of a date not less than 10 days
prior to the date of such notice. The General Partner also may
cause a firm of independent public accountants selected by it to
calculate the number of Partnership Securities to be held by
each Record Holder after giving effect to such distribution,
subdivision or combination. The General Partner shall be
entitled to rely on any certificate provided by such firm as
conclusive evidence of the accuracy of such calculation.
(c) Promptly following any such distribution,
subdivision or combination, the Partnership may issue
Certificates, or other evidence of the issuance of
uncertificated Units, to the Record Holders of Partnership
Securities as of the applicable Record Date representing the new
number of Partnership Securities held by such Record Holders, or
the General Partner may adopt such other procedures that it
determines to be necessary or appropriate to reflect such
changes. If any such combination results in a smaller total
number of Partnership Securities Outstanding, the Partnership
shall require, as a condition to the delivery to a Record Holder
of such new Certificate, or other evidence of the issuance of
uncertificated Units, the surrender of any Certificate, or other
evidence of the issuance of uncertificated Units, held by such
Record Holder immediately prior to such Record Date.
(d) The Partnership shall not issue fractional Units
upon any distribution, subdivision or combination of Units. If a
distribution, subdivision or combination of Units would result
in the issuance of fractional Units but for the provisions of
this Section 5.9(d), each fractional Unit shall be rounded
to the nearest whole Unit (and a 0.5 Unit shall be rounded to
the next higher Unit).
Section 5.10 Fully
Paid and Non-Assessable Nature of Limited Partner Interests.
All Limited Partner Interests issued pursuant to, and in
accordance with the requirements of, this Article V shall
be fully paid and non-assessable Limited Partner Interests in
the Partnership, except as such non-assessability may be
affected by
Section 17-607
of the Delaware Act.
Section 5.11 Issuance
of Class B Units in Connection with Reset of Incentive
Distribution Rights.
(a) Subject to the provisions of this
Section 5.11, the holder of the Incentive Distribution
Rights (or, if there is more than one holder of the Incentive
Distribution Rights, the holders of a majority in interest of
the Incentive Distribution Rights) shall have the right, at any
time when there are no Subordinated Units outstanding and the
Partnership has made a distribution pursuant to
Section 6.4(b)(v) for each of the four most recently
completed Quarters and the amount of each such distribution did
not exceed Adjusted Operating Surplus for such Quarter, to make
an election (the IDR Reset Election)
to cause the Minimum Quarterly Distribution and the Target
Distributions to be reset in accordance with the provisions of
Section 5.11(e) and, in connection therewith, the holder or
holders of the Incentive Distribution Rights will become
entitled to receive their respective proportionate share of a
number of Class B Units derived by dividing (i) the
average amount of cash distributions made by the Partnership for
the two full Quarters immediately preceding the giving of the
Reset Notice (as defined in Section 5.11(b)) in respect of
the Incentive Distribution Rights by (ii) the average of
the cash distributions made by the Partnership in respect of
each Common Unit for the two full Quarters immediately preceding
the giving of the Reset Notice (the number of Class B Units
determined by such quotient is referred to herein as the
Aggregate Quantity of Class B
Units). Upon the issuance of such Class B
Units, the Partnership will issue to the General Partner that
number of additional General Partner Units equal to the product
of (x) the quotient obtained by dividing (A) the
Percentage Interest of the General Partner immediately prior to
such issuance by (B) a percentage equal to 100% less such
Percentage Interest by (y) the number of such Class B
Units, and the General Partner shall not be
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
obligated to make any additional Capital Contribution to the
Partnership in exchange for such issuance. The making of the IDR
Reset Election in the manner specified in Section 5.11(b)
shall cause the Minimum Quarterly Distribution and the Target
Distributions to be reset in accordance with the provisions of
Section 5.11(e) and, in connection therewith, the holder or
holders of the Incentive Distribution Rights will become
entitled to receive Class B Units and General Partner Units
on the basis specified above, without any further approval
required by the General Partner or the Unitholders, at the time
specified in Section 5.11(c) unless the IDR Reset Election
is rescinded pursuant to Section 5.11(d).
(b) To exercise the right specified in
Section 5.11(a), the holder of the Incentive Distribution
Rights (or, if there is more than one holder of the Incentive
Distribution Rights, the holders of a majority in interest of
the Incentive Distribution Rights) shall deliver a written
notice (the Reset Notice) to the
Partnership. Within 10 Business Days after the receipt by the
Partnership of such Reset Notice, as the case may be, the
Partnership shall deliver a written notice to the holder or
holders of the Incentive Distribution Rights of the
Partnerships determination of the aggregate number of
Class B Units which each holder of Incentive Distribution
Rights will be entitled to receive.
(c) The holder or holders of the Incentive
Distribution Rights will be entitled to receive the Aggregate
Quantity of Class B Units and related additional General
Partner Units on the fifteenth Business Day after receipt by the
Partnership of the Reset Notice, and the Partnership shall issue
Certificates for the Class B Units to the holder or holders
of the Incentive Distribution Rights; provided, however,
that the issuance of Class B Units to the holder or holders
of the Incentive Distribution Rights shall not occur prior to
the approval of the listing or admission for trading of the
Common Units into which the Class B Units are convertible
pursuant to Section 5.11(f) by the principal National
Securities Exchange upon which the Common Units are then listed
or admitted for trading if any such approval is required
pursuant to the rules and regulations of such National
Securities Exchange.
(d) If the principal National Securities Exchange
upon which the Common Units are then traded has not approved the
listing or admission for trading of the Common Units into which
the Class B Units are convertible pursuant to
Section 5.11(f) on or before the 30th calendar day
following the Partnerships receipt of the Reset Notice and
such approval is required by the rules and regulations of such
National Securities Exchange, then the holder of the Incentive
Distribution Rights (or, if there is more than one holder of the
Incentive Distribution Rights, the holders of a majority in
interest of the Incentive Distribution Rights) shall have the
right to either rescind the IDR Reset Election or elect to
receive other Partnership Securities having such terms as the
General Partner may approve, with the approval of the Special
Committee, that will provide (i) the same economic value,
in the aggregate, as the Aggregate Quantity of Class B
Units would have had at the time of the Partnerships
receipt of the Reset Notice, as determined by the General
Partner, and (ii) for the subsequent conversion of such
Partnership Securities into Common Units within not more than
12 months following the Partnerships receipt of the
Reset Notice upon the satisfaction of one or more conditions
that are reasonably acceptable to the holder of the Incentive
Distribution Rights (or, if there is more than one holder of the
Incentive Distribution Rights, the holders of a majority in
interest of the Incentive Distribution Rights).
(e) The Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target
Distribution shall be adjusted at the time of the issuance of
Common Units or other Partnership Securities pursuant to this
Section 5.11 such that (i) the Minimum Quarterly
Distribution shall be reset to equal to the average cash
distribution amount per Common Unit for the two Quarters
immediately prior to the Partnerships receipt of the Reset
Notice (the Reset MQD), (ii) the
First Target Distribution shall be reset to equal 115% of the
Reset MQD, (iii) the Second Target Distribution shall be
reset to equal to 125% of the Reset MQD and (iv) the Third
Target Distribution shall be reset to equal 150% of the Reset
MQD.
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First amended and
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Partners, LP
(f) Any holder of Class B Units shall have the
right to elect, by giving written notice to the General Partner,
to convert all or a portion of the Class B Units held by
such holder, at any time following the first anniversary of the
issuance of such Class B Units, into Common Units on a
one-for-one basis, such conversion to be effective on the second
Business Day following the General Partners receipt of
such written notice.
(g) A Class B Unit that has, pursuant to
Section 5.11(f), converted into a Common Unit (a
Converted Class B Unit) shall be
subject to the provisions of Section 6.7(d) and
Section 6.7(e).
ARTICLE VI
ALLOCATIONS AND
DISTRIBUTIONS
Section 6.1 Allocations
for Capital Account Purposes.
For purposes of maintaining the Capital Accounts and in
determining the rights of the Partners among themselves, the
Partnerships items of income, gain, loss and deduction
(computed in accordance with Section 5.5(b)) shall be
allocated among the Partners in each taxable year (or portion
thereof) as provided herein below.
(a) Net Income. After giving effect
to the special allocations set forth in Section 6.1(d), Net
Income for each taxable year and all items of income, gain, loss
and deduction taken into account in computing Net Income for
such taxable year shall be allocated as follows:
(i) First, 100% to the General Partner until the
aggregate Net Income allocated to the General Partner pursuant
to this Section 6.1(a)(i) for the current taxable year and all
previous taxable years is equal to the aggregate Net Losses
allocated to the General Partner pursuant to
Section 6.1(b)(iii) for all previous taxable years;
(ii) Second, 100% to the General Partner and the
Unitholders, in accordance with their respective Percentage
Interests, until the aggregate Net Income allocated to such
Partners pursuant to this Section 6.1(a)(ii) for the current
taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to such Partners pursuant to
Section 6.1(b)(ii) for all previous taxable years; and
(iii) Third, the balance, if any, 100% to the General
Partner and the Unitholders, in accordance with their respective
Percentage Interests;
(b) Net Losses. After giving effect
to the special allocations set forth in Section 6.1(d), Net
Losses for each taxable period and all items of income, gain,
loss and deduction taken into account in computing Net Losses
for such taxable period shall be allocated as follows:
(i) First, 100% to the General Partner and the
Unitholders, in accordance with their respective Percentage
Interests, until the aggregate Net Losses allocated pursuant to
this Section 6.1(b)(i) for the current taxable year and all
previous taxable years is equal to the aggregate Net Income
allocated to such Partners pursuant to Section 6.1(a)(iii) for
all previous taxable years, provided that the Net Losses
shall not be allocated pursuant to this Section 6.1(b)(i)
to the extent that such allocation would cause any Unitholder to
have a deficit balance in its Adjusted Capital Account at the
end of such taxable year (or increase any existing deficit
balance in its Adjusted Capital Account);
(ii) Second, 100% to the General Partner and the
Unitholders, in accordance with their respective Percentage
Interests; provided, that Net Losses shall not be allocated
pursuant to this Section 6.1(b)(ii) to the extent that such
allocation would cause any Unitholder to have a deficit balance
in its Adjusted Capital Account at the end of such taxable year
(or increase any existing deficit balance in its Adjusted
Capital Account); and
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First amended and
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Partners, LP
(iii) Third, the balance, if any, 100% to the General
Partner;
(c) Net Termination Gains and
Losses. After giving effect to the special
allocations set forth in Section 6.1(d), all items of
income, gain, loss and deduction taken into account in computing
Net Termination Gain or Net Termination Loss for such taxable
period shall be allocated in the same manner as such Net
Termination Gain or Net Termination Loss is allocated hereunder.
All allocations under this Section 6.1(c) shall be made
after Capital Account balances have been adjusted by all other
allocations provided under this Section 6.1 and after all
distributions of Available Cash provided under Section 6.4
and Section 6.5 have been made; provided, however,
that solely for purposes of this Section 6.1(c), Capital
Accounts shall not be adjusted for distributions made pursuant
to Section 12.4.
(i) If a Net Termination Gain is recognized (or
deemed recognized pursuant to Section 5.5(d)), such Net
Termination Gain shall be allocated among the Partners in the
following manner (and the Capital Accounts of the Partners shall
be increased by the amount so allocated in each of the following
subclauses, in the order listed, before an allocation is made
pursuant to the next succeeding subclause):
(A) First, to each Partner having a deficit balance
in its Capital Account, in the proportion that such deficit
balance bears to the total deficit balances in the Capital
Accounts of all Partners, until each such Partner has been
allocated Net Termination Gain equal to any such deficit balance
in its Capital Account;
(B) Second, (x) to the General Partner in
accordance with its Percentage Interest and (y) to all
Unitholders holding Common Units, Pro Rata, a percentage equal
to 100% less the percentage applicable to subclause (x) of
this clause (B), until the Capital Account in respect of each
Common Unit then Outstanding is equal to the sum of (1) its
Unrecovered Initial Unit Price, (2) the Minimum Quarterly
Distribution for the Quarter during which the Liquidation Date
occurs, reduced by any distribution pursuant to Section
6.4(a)(i) or Section 6.4(b)(i) with respect to such Common
Unit for such Quarter (the amount determined pursuant to this
clause (2) is hereinafter defined as the Unpaid
MQD) and (3) any then existing Cumulative
Common Unit Arrearage;
(C) Third, if the Adjusted Capital Account of a
Common Unit or comparable fraction thereof and a Class B
Unit (or Converted Class B Unit) or comparable fraction thereof
are not identical, (x) to all Unitholders holding the class
of Units with the lower Adjusted Capital Account, Pro Rata, a
percentage equal to 100% less the percentage applicable to
subclause (y) of this clause (C), and (y) to the
General Partner in accordance with its Percentage Interest,
until the Adjusted Capital Account of each Common Unit or
comparable fraction thereof and each Class B Unit (or
Converted Class B Unit) or comparable fraction thereof are
equal;
(D) Fourth, if such Net Termination Gain is
recognized (or is deemed to be recognized) prior to the
conversion of the last Outstanding Subordinated Unit,
(x) to the General Partner in accordance with its
Percentage Interest and (y) to all Unitholders holding
Subordinated Units, Pro Rata, a percentage equal to 100% less
the percentage applicable to subclause (x) of this clause
(D), until the Capital Account in respect of each Subordinated
Unit then Outstanding equals the sum of (1) its Unrecovered
Initial Unit Price, determined for the taxable year (or portion
thereof) to which this allocation of gain relates, and
(2) the Minimum Quarterly Distribution for the Quarter
during which the Liquidation Date occurs, reduced by any
distribution pursuant to Section 6.4(a)(iii) with respect
to such Subordinated Unit for such Quarter;
(E) Fifth, 100% to the General Partner and all
Unitholders in accordance with their respective Percentage
Interests, until the Capital Account in respect of each Common
Unit then Outstanding is equal to the sum of (1) its
Unrecovered Initial Unit Price, (2) the Unpaid MQD,
(3) any then existing Cumulative Common Unit Arrearage, and
(4) the excess of (aa) the First Target Distribution less
the
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First amended and
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Partners, LP
Minimum Quarterly Distribution for each Quarter of the
Partnerships existence over (bb) the cumulative per Unit
amount of any distributions of Available Cash that is deemed to
be Operating Surplus made pursuant to Section 6.4(a)(iv)
and Section 6.4(b)(ii) (the sum of (1), (2), (3) and
(4) is hereinafter defined as the First
Liquidation Target Amount);
(F) Sixth, (x) to the General Partner in
accordance with its Percentage Interest, (y) 13% to the
holders of the Incentive Distribution Rights, Pro Rata, and
(z) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (x) and (y) of this clause (F), until the
Capital Account in respect of each Common Unit then Outstanding
is equal to the sum of (1) the First Liquidation Target
Amount, and (2) the excess of (aa) the Second Target
Distribution less the First Target Distribution for each Quarter
of the Partnerships existence over (bb) the cumulative per
Unit amount of any distributions of Available Cash that is
deemed to be Operating Surplus made pursuant to
Section 6.4(a)(v) and Section 6.4(b)(iii) (the sum of
(1) and (2) is hereinafter defined as the
Second Liquidation Target Amount);
(G) Seventh, (x) to the General Partner in
accordance with its Percentage Interest, (y) 23% to the
holders of the Incentive Distribution Rights, Pro Rata, and
(z) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (x) and (y) of this clause (G), until the
Capital Account in respect of each Common Unit then Outstanding
is equal to the sum of (1) the Second Liquidation Target
Amount, and (2) the excess of (aa) the Third Target
Distribution less the Second Target Distribution for each
Quarter of the Partnerships existence over (bb) the
cumulative per Unit amount of any distributions of Available
Cash that is deemed to be Operating Surplus made pursuant to
Section 6.4(a)(vi) and Section 6.4(b)(iv); and
(H) Finally, (x) to the General Partner in
accordance with its Percentage Interest, (y) 48% to the
holders of the Incentive Distribution Rights, Pro Rata, and
(z) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (x) and (y) of this clause (H).
(ii) If a Net Termination Loss is recognized (or
deemed recognized pursuant to Section 5.5(d)), such Net
Termination Loss shall be allocated among the Partners in the
following manner:
(A) First, if such Net Termination Loss is recognized (or
is deemed to be recognized) prior to the conversion of the last
Outstanding Subordinated Unit, (x) to the General Partner
in accordance with its Percentage Interest and (y) to all
Unitholders holding Subordinated Units, Pro Rata, a percentage
equal to 100% less the percentage applicable to
subclause (x) of this clause (A), until the Capital Account
in respect of each Subordinated Unit then Outstanding has been
reduced to zero;
(B) Second, if the Adjusted Capital Account of a
Common Unit or comparable fraction there of and a Class B
Unit (or Converted Class B Unit) or comparable fraction
thereof are not identical, to (i) the Unitholders holding
the class of Units with the higher Adjusted Capital Account and
(ii) the General Partner, in accordance with their
Percentage Interests, until the Adjusted Capital Account of each
Common Unit or comparable fraction thereof and each Class B
Unit (or Converted Class B Unit) or comparable fraction
thereof are equal;
(C) Third, (x) to the General Partner in
accordance with its Percentage Interest and (y) to all
Unitholders, Pro Rata, a percentage equal to 100% less the
percentage applicable to subclause (x) of this
clause (C) until the Capital Account in respect of each
Unit then Outstanding has been reduced to zero; and
(D) Fourth, the balance, if any, 100% to the General
Partner.
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(d) Special
Allocations. Notwithstanding any other provision
of this Section 6.1, the following special allocations
shall be made for such taxable period:
(i) Partnership Minimum Gain
Chargeback. Notwithstanding any other provision
of this Section 6.1, if there is a net decrease in
Partnership Minimum Gain during any Partnership taxable period,
each Partner shall be allocated items of Partnership income and
gain for such period (and, if necessary, subsequent periods) in
the manner and amounts provided in Treasury
Regulation Sections 1.704-2(f)(6),
1.704-2(g)(2)
and
1.704-2(j)(2)(i),
or any successor provision. For purposes of this
Section 6.1(d), each Partners Adjusted Capital
Account balance shall be determined, and the allocation of
income or gain required hereunder shall be effected, prior to
the application of any other allocations pursuant to this
Section 6.1(d) with respect to such taxable period (other
than an allocation pursuant to Section 6.1(d)(vi) and
Section 6.1(d)(vii)). This Section 6.1(d)(i) is
intended to comply with the Partnership Minimum Gain chargeback
requirement in Treasury Regulation
Section 1.704-2(f)
and shall be interpreted consistently therewith.
(ii) Chargeback of Partner Nonrecourse Debt
Minimum Gain. Notwithstanding the other
provisions of this Section 6.1 (other than
Section 6.1(d)(i)), except as provided in Treasury
Regulation
Section 1.704-2(i)(4),
if there is a net decrease in Partner Nonrecourse Debt Minimum
Gain during any Partnership taxable period, any Partner with a
share of Partner Nonrecourse Debt Minimum Gain at the beginning
of such taxable period shall be allocated items of Partnership
income and gain for such period (and, if necessary, subsequent
periods) in the manner and amounts provided in Treasury
Regulation
Sections 1.704-2(i)(4)
and
1.704-2(j)(2)(ii),
or any successor provisions. For purposes of this
Section 6.1(d), each Partners Adjusted Capital
Account balance shall be determined, and the allocation of
income or gain required hereunder shall be effected, prior to
the application of any other allocations pursuant to this
Section 6.1(d), other than Section 6.1(d)(i) and other
than an allocation pursuant to Section 6.1(d)(vi) and
Section 6.1(d)(vii), with respect to such taxable period.
This Section 6.1(d)(ii) is intended to comply with the
chargeback of items of income and gain requirement in Treasury
Regulation
Section 1.704-2(i)(4)
and shall be interpreted consistently therewith.
(iii) Priority Allocations.
(A) If the amount of cash or the Net Agreed Value of
any property distributed (except cash or property distributed
pursuant to Section 12.4) to any Unitholder with respect to
its Units for a taxable year is greater (on a per Unit basis)
than the amount of cash or the Net Agreed Value of property
distributed to the other Unitholders with respect to their Units
(on a per Unit basis), then (1) there shall be allocated
gross income and gain to each Unitholder receiving such greater
cash or property distribution until the aggregate amount of such
items allocated pursuant to this Section 6.1(d)(iii)(A) for
the current taxable year and all previous taxable years is equal
to the product of (aa) the amount by which the distribution
(on a per Unit basis) to such Unitholder exceeds the
distribution (on a per Unit basis) to the Unitholders receiving
the smallest distribution and (bb) the number of Units
owned by the Unitholder receiving the greater distribution; and
(2) the General Partner shall be allocated gross income and
gain in an aggregate amount equal to the product obtained by
multiplying (aa) the quotient determined by dividing
(x) the General Partners Percentage Interest at the
time in which the greater cash or property distribution occurs
by (y) the sum of 100 less the General Partners
Percentage Interest at the time in which the greater cash or
property distribution occurs times (bb) the sum of the
amounts allocated in clause (1) above.
(B) After the application of
Section 6.1(d)(iii)(A), all or any portion of the remaining
items of Partnership gross income or gain for the taxable
period, if any, shall be allocated (1) to the holders of
Incentive Distribution Rights, Pro Rata, until the aggregate
amount of such items allocated to the holders of Incentive
Distribution Rights pursuant to this Section 6.1(d)(iii)(B)
for the current taxable
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First amended and
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Partners, LP
year and all previous taxable years is equal to the cumulative
amount of all Incentive Distributions made to the holders of
Incentive Distribution Rights from the Closing Date to a date
45 days after the end of the current taxable year; and
(2) to the General Partner an amount equal to the product
of (aa) an amount equal to the quotient determined by
dividing (x) the General Partners Percentage Interest
by (y) the sum of 100 less the General Partners
Percentage Interest times (bb) the sum of the amounts
allocated in clause (1) above.
(iv) Qualified Income Offset. In
the event any Partner unexpectedly receives any adjustments,
allocations or distributions described in Treasury Regulation
Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5),
or
1.704-1(b)(2)(ii)(d)(6),
items of Partnership gross income and gain shall be specially
allocated to such Partner in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations
promulgated under Section 704(b) of the Code, the deficit
balance, if any, in its Adjusted Capital Account created by such
adjustments, allocations or distributions as quickly as possible
unless such deficit balance is otherwise eliminated pursuant to
Section 6.1(d)(i) or Section 6.1(d)(ii).
(v) Gross Income Allocations. In
the event any Partner has a deficit balance in its Capital
Account at the end of any Partnership taxable period in excess
of the sum of (A) the amount such Partner is required to
restore pursuant to the provisions of this Agreement and
(B) the amount such Partner is deemed obligated to restore
pursuant to Treasury Regulation
Sections 1.704-2(g)
and
1.704-2(i)(5),
such Partner shall be specially allocated items of Partnership
gross income and gain in the amount of such excess as quickly as
possible; provided, that an allocation pursuant to this
Section 6.1(d)(v) shall be made only if and to the extent
that such Partner would have a deficit balance in its Capital
Account as adjusted after all other allocations provided
for in this Section 6.1 have been tentatively made as if
this Section 6.1(d)(v) were not in this Agreement.
(vi) Nonrecourse
Deductions. Nonrecourse Deductions for any
taxable period shall be allocated to the Partners in accordance
with their respective Percentage Interests. If the General
Partner determines that the Partnerships Nonrecourse
Deductions should be allocated in a different ratio to satisfy
the safe harbor requirements of the Treasury Regulations
promulgated under Section 704(b) of the Code, the General
Partner is authorized, upon notice to the other Partners, to
revise the prescribed ratio to the numerically closest ratio
that does satisfy such requirements.
(vii) Partner Nonrecourse
Deductions. Partner Nonrecourse Deductions for
any taxable period shall be allocated 100% to the Partner that
bears the Economic Risk of Loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions
are attributable in accordance with Treasury Regulation
Section 1.704-2(i).
If more than one Partner bears the Economic Risk of Loss with
respect to a Partner Nonrecourse Debt, such Partner Nonrecourse
Deductions attributable thereto shall be allocated between or
among such Partners in accordance with the ratios in which they
share such Economic Risk of Loss.
(viii) Nonrecourse Liabilities. For
purposes of Treasury Regulation
Section 1.752-3(a)(3),
the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (A) the amount of
Partnership Minimum Gain and (B) the total amount of
Nonrecourse Built-in Gain shall be allocated among the Partners
in accordance with their respective Percentage Interests.
(ix) Code Section 754
Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section
734(b) or 743(b) of the Code is required, pursuant to Treasury
Regulation
Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the
amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such
basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner
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First amended and
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Partners, LP
in which their Capital Accounts are required to be adjusted
pursuant to such Section of the Treasury Regulations.
(x) Economic Uniformity.
(A) At the election of the General Partner with
respect to any taxable period ending upon, or after, the earlier
to occur of (1) the first
Book-Up
Event or Book-Down Event following the issuance of Class B
Units pursuant to Section 5.11 or (2) the termination
of the Subordination Period, all or a portion of the remaining
items of Partnership gross income or gain for such taxable
period, after taking into account allocations pursuant to
Section 6.1(d)(iii), shall be allocated 100% to each
Partner holding Subordinated Units that are Outstanding as of
the termination of the Subordination Period (Final
Subordinated Units) in the proportion of the
number of Final Subordinated Units held by such Partner to the
total number of Final Subordinated Units then Outstanding, until
each such Partner has been allocated an amount of gross income
or gain that increases the Capital Account maintained with
respect to such Final Subordinated Units to an amount equal to
the product of (A) the number of Final Subordinated Units
held by such Partner and (B) the Per Unit Capital Amount
for a Common Unit. The purpose of this allocation is to
establish uniformity between the Capital Accounts underlying
Final Subordinated Units and the Capital Accounts underlying
Common Units held by Persons other than the General Partner and
its Affiliates immediately prior to the conversion of such Final
Subordinated Units into Common Units. This allocation method for
establishing such economic uniformity will be available to the
General Partner only if the method for allocating the Capital
Account maintained with respect to the Subordinated Units
between the transferred and retained Subordinated Units pursuant
to Section 5.5(c)(ii) does not otherwise provide such
economic uniformity to the Final Subordinated Units.
(B) At the election of the General Partner with
respect to any taxable period ending upon, or after, the
conversion of the Class B Units pursuant to
Section 5.11(f), all or a portion of the remaining items of
Partnership gross income or gain for such taxable period, after
taking into account allocations pursuant to
Section 6.1(d)(iii) and Section 6.1(d)(x)(A), shall be
allocated 100% to the holder or holders of the Converted
Class B Units resulting from the conversion pursuant to
Section 5.11(f) in the proportion of the number of the
Converted Class B Units held by such holder or holders to
the total number of Converted Class B Units then
Outstanding, until each such holder has been allocated an amount
of gross income or gain that increases the Capital Account
maintained with respect to such Converted Class B Units to
an amount equal to the product of (A) the number of
Converted Class B Units held by such holder and (B) the Per
Unit Capital Amount for a Common Unit. The purpose of this
allocation is to establish uniformity between the Capital
Accounts underlying Converted Class B Units and the Capital
Accounts underlying Common Units held by Persons other than the
General Partner and its Affiliates immediately prior to the
receipt of Common Units pursuant to Section 5.11(f).
(xi) Curative Allocation.
(A) Notwithstanding any other provision of this
Section 6.1, other than the Required Allocations, the
Required Allocations shall be taken into account in making the
Agreed Allocations so that, to the extent possible, the net
amount of items of gross income, gain, loss and deduction
allocated to each Partner pursuant to the Required Allocations
and the Agreed Allocations, together, shall be equal to the net
amount of such items that would have been allocated to each such
Partner under the Agreed Allocations had the Required
Allocations and the related Curative Allocation not otherwise
been provided in this Section 6.1. Notwithstanding the
preceding sentence, Required Allocations relating to
(1) Nonrecourse Deductions shall not be taken into account
except to the extent that there has been a decrease in
Partnership Minimum Gain and (2) Partner Nonrecourse
Deductions shall not be taken into account except to the extent
that there has been a decrease in Partner Nonrecourse Debt
Minimum Gain. Allocations pursuant to this
Section 6.1(d)(xi)(A) shall only be made with respect to
Required
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Allocations to the extent the General Partner determines that
such allocations will otherwise be inconsistent with the
economic agreement among the Partners. Further, allocations
pursuant to this Section 6.1(d)(xi)(A) shall be deferred
with respect to allocations pursuant to clauses (1) and
(2) hereof to the extent the General Partner determines
that such allocations are likely to be offset by subsequent
Required Allocations.
(B) The General Partner shall, with respect to each
taxable period, (1) apply the provisions of
Section 6.1(d)(xi)(A) in whatever order is most likely to
minimize the economic distortions that might otherwise result
from the Required Allocations, and (2) divide all
allocations pursuant to Section 6.1(d)(xi)(A) among the
Partners in a manner that is likely to minimize such economic
distortions.
(xii) Corrective and Other
Allocations. In the event of any allocation of
Additional Book Basis Derivative Items or any Book-Down Event or
any recognition of a Net Termination Loss, the following rules
shall apply:
(A) Except as provided in
Section 6.1(d)(xii)(B), in the case of any allocation of
Additional Book Basis Derivative Items (other than an allocation
of Unrealized Gain or Unrealized Loss under Section 5.5(d)
hereof) with respect to any Partnership property, the General
Partner shall allocate such Additional Book Basis Derivative
Items (1) to (aa) the holders of Incentive Distribution
Rights and (bb) the General Partner in the same manner that the
Unrealized Gain or Unrealized Loss attributable to such property
is allocated pursuant to Section 5.5(d)(i) or
Section 5.5(d)(ii) and (2) to all Unitholders, Pro
Rata, to the extent that the Unrealized Gain or Unrealized Loss
attributable to such property is allocated to any Unitholders
pursuant to Section 5.5(d)(i) or Section 5.2(ii).
(B) In the case of any allocation of Additional Book
Basis Derivative Items (other than an allocation of Unrealized
Gain or Unrealized Loss under Section 5.5(d) hereof or an
allocation of Net Termination Gain or Net Termination Loss
pursuant to Section 6.1(c) hereof) as a result of a sale or
other taxable disposition of any Partnership asset that is an
Adjusted Property (Disposed of Adjusted
Property), the General Partner shall allocate
(1) additional items of gross income and gain (aa) away
from the holders of Incentive Distribution Rights and the
General Partner and (bb) to the Unitholders, or
(2) additional items of deduction and loss (aa) away from
the Unitholders and (bb) to the holders of Incentive
Distribution Rights and the General Partner, to the extent that
the Additional Book Basis Derivative Items allocated to the
Unitholders exceed their Share of Additional Book Basis
Derivative Items with respect to such Disposed of Adjusted
Property. For this purpose, the Unitholders shall be treated as
being allocated Additional Book Basis Derivative Items to the
extent that such Additional Book Basis Derivative Items have
reduced the amount of income that would otherwise have been
allocated to the Unitholders under the Partnership Agreement
(e.g., Additional Book Basis Derivative Items taken into account
in computing cost of goods sold would reduce the amount of book
income otherwise available for allocation among the Partners).
Any allocation made pursuant to this Section 6.1(d)(xii)(B)
shall be made after all of the other Agreed Allocations have
been made as if this Section 6.1(d)(xii) were not in this
Agreement and, to the extent necessary, shall require the
reallocation of items that have been allocated pursuant to such
other Agreed Allocations.
(C) In the case of any negative adjustments to the
Capital Accounts of the Partners resulting from a Book-Down
Event or from the recognition of a Net Termination Loss, such
negative adjustment (1) shall first be allocated, to the
extent of the Aggregate Remaining Net Positive Adjustments, in
such a manner, as determined by the General Partner, that to the
extent possible the aggregate Capital Accounts of the Partners
will equal the amount that would have been the Capital Account
balance of the Partners if no prior
Book-Up
Events had occurred, and (2) any negative adjustment in
excess of the Aggregate Remaining Net Positive Adjustments shall
be allocated pursuant to Section 6.1(c) hereof.
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
(D) In making the allocations required under this
Section 6.1(d)(xii), the General Partner may apply whatever
conventions or other methodology it determines will satisfy the
purpose of this Section 6.1(d)(xii).
Section 6.2 Allocations
for Tax Purposes.
(a) Except as otherwise provided herein, for federal
income tax purposes, each item of income, gain, loss and
deduction shall be allocated among the Partners in the same
manner as its correlative item of book income, gain,
loss or deduction is allocated pursuant to Section 6.1.
(b) In an attempt to eliminate Book-Tax Disparities
attributable to a Contributed Property or Adjusted Property,
items of income, gain, loss, depreciation, amortization and cost
recovery deductions shall be allocated for federal income tax
purposes among the Partners as follows:
(i) (A) In the case of a Contributed Property,
such items attributable thereto shall be allocated among the
Partners in the manner provided under Section 704(c) of the
Code that takes into account the variation between the Agreed
Value of such property and its adjusted basis at the time of
contribution; and (B) any item of Residual Gain or Residual
Loss attributable to a Contributed Property shall be allocated
among the Partners in the same manner as its correlative item of
book gain or loss is allocated pursuant to
Section 6.1.
(ii) (A) In the case of an Adjusted Property,
such items shall (1) first, be allocated among the Partners
in a manner consistent with the principles of
Section 704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to such property
and the allocations thereof pursuant to Section 5.5(d)(i)
or Section 5.5(d)(ii), and (2) second, in the event
such property was originally a Contributed Property, be
allocated among the Partners in a manner consistent with
Section 6.2(b)(i)(A); and (B) any item of Residual
Gain or Residual Loss attributable to an Adjusted Property shall
be allocated among the Partners in the same manner as its
correlative item of book gain or loss is allocated
pursuant to Section 6.1.
(iii) The General Partner shall apply the principles
of Treasury Regulation
Section 1.704-3(d)
to eliminate Book-Tax Disparities.
(c) For the proper administration of the Partnership
and for the preservation of uniformity of the Limited Partner
Interests (or any class or classes thereof), the General Partner
shall (i) adopt such conventions as it deems appropriate in
determining the amount of depreciation, amortization and cost
recovery deductions; (ii) make special allocations for
federal income tax purposes of income (including gross income)
or deductions; and (iii) amend the provisions of this
Agreement as appropriate (x) to reflect the proposal or
promulgation of Treasury Regulations under Section 704(b)
or Section 704(c) of the Code or (y) otherwise to
preserve or achieve uniformity of the Limited Partner Interests
(or any class or classes thereof). The General Partner may adopt
such conventions, make such allocations and make such amendments
to this Agreement as provided in this Section 6.2(c) only
if such conventions, allocations or amendments would not have a
material adverse effect on the Partners, the holders of any
class or classes of Limited Partner Interests issued and
Outstanding or the Partnership, and if such allocations are
consistent with the principles of Section 704 of the Code.
(d) The General Partner may determine to depreciate
or amortize the portion of an adjustment under
Section 743(b) of the Code attributable to unrealized
appreciation in any Adjusted Property (to the extent of the
unamortized Book-Tax Disparity) using a predetermined rate
derived from the depreciation or amortization method and useful
life applied to the unamortized Book-Tax Disparity of such
property, despite any inconsistency of such approach with
Treasury Regulation
Section 1.167(c)-l(a)(6)
or any successor regulations thereto. If the General Partner
determines that such reporting position cannot
A-53
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
reasonably be taken, the General Partner may adopt depreciation
and amortization conventions under which all purchasers
acquiring Limited Partner Interests in the same month would
receive depreciation and amortization deductions, based upon the
same applicable rate as if they had purchased a direct interest
in the Partnerships property. If the General Partner
chooses not to utilize such aggregate method, the General
Partner may use any other depreciation and amortization
conventions to preserve the uniformity of the intrinsic tax
characteristics of any Limited Partner Interests, so long as
such conventions would not have a material adverse effect on the
Limited Partners or the Record Holders of any class or classes
of Limited Partner Interests.
(e) In accordance with Treasury Regulation
Sections 1.1245-1(e)
and
1.1250-1(f),
any gain allocated to the Partners upon the sale or other
taxable disposition of any Partnership asset shall, to the
extent possible, after taking into account other required
allocations of gain pursuant to this Section 6.2, be
characterized as Recapture Income in the same proportions and to
the same extent as such Partners (or their predecessors in
interest) have been allocated any deductions directly or
indirectly giving rise to the treatment of such gains as
Recapture Income.
(f) All items of income, gain, loss, deduction and
credit recognized by the Partnership for federal income tax
purposes and allocated to the Partners in accordance with the
provisions hereof shall be determined without regard to any
election under Section 754 of the Code that may be made by
the Partnership; provided, however, that such
allocations, once made, shall be adjusted (in the manner
determined by the General Partner) to take into account those
adjustments permitted or required by Sections 734 and 743
of the Code.
(g) Each item of Partnership income, gain, loss and
deduction, for federal income tax purposes, shall be determined
on an annual basis and prorated on a monthly basis and shall be
allocated to the Partners as of the opening of the National
Securities Exchange on which the Partnership Interests are
listed or admitted to trading on the first Business Day of each
month; provided, however, such items for the period
beginning on the Closing Date and ending on the last day of the
month in which the Option Closing Date or the expiration of the
Over-Allotment Option occurs shall be allocated to the Partners
as of the opening of the National Securities Exchange on which
the Partnership Interests are listed or admitted to trading on
the first Business Day of the next succeeding month; and
provided, further, that gain or loss on a sale or other
disposition of any assets of the Partnership or any other
extraordinary item of income or loss realized and recognized
other than in the ordinary course of business, as determined by
the General Partner, shall be allocated to the Partners as of
the opening of the National Securities Exchange on which the
Partnership Interests are listed or admitted to trading on the
first Business Day of the month in which such gain or loss is
recognized for federal income tax purposes. The General Partner
may revise, alter or otherwise modify such methods of allocation
to the extent permitted or required by Section 706 of the
Code and the regulations or rulings promulgated thereunder.
(h) Allocations that would otherwise be made to a
Limited Partner under the provisions of this Article VI
shall instead be made to the beneficial owner of Limited Partner
Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Partnership in
accordance with Section 6031(c) of the Code or any other
method determined by the General Partner.
Section 6.3 Requirement
and Characterization of Distributions; Distributions to Record
Holders.
(a) Within 45 days following the end of each
Quarter commencing with the Quarter ending on June 30,
2008, an amount equal to 100% of Available Cash with respect to
such Quarter shall, subject to
Section 17-607
of the Delaware Act, be distributed in accordance with this
Article VI by the Partnership to the Partners as of the
Record Date selected by the General Partner. All amounts of
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Available Cash distributed by the Partnership on any date from
any source shall be deemed to be Operating Surplus until the sum
of all amounts of Available Cash theretofore distributed by the
Partnership to the Partners pursuant to Section 6.4 equals
the Operating Surplus from the Closing Date through the close of
the immediately preceding Quarter. Any remaining amounts of
Available Cash distributed by the Partnership on such date
shall, except as otherwise provided in Section 6.5, be
deemed to be Capital Surplus. All
distributions required to be made under this Agreement shall be
made subject to
Section 17-607
of the Delaware Act.
(b) Notwithstanding Section 6.3(a), in the event
of the dissolution and liquidation of the Partnership, all
receipts received during or after the Quarter in which the
Liquidation Date occurs shall be applied and distributed solely
in accordance with, and subject to the terms and conditions of,
Section 12.4.
(c) The General Partner may treat taxes paid by the
Partnership on behalf of, or amounts withheld with respect to,
all or less than all of the Partners, as a distribution of
Available Cash to such Partners.
(d) Each distribution in respect of a Partnership
Interest shall be paid by the Partnership, directly or through
the Transfer Agent or through any other Person or agent, only to
the Record Holder of such Partnership Interest as of the Record
Date set for such distribution. Such payment shall constitute
full payment and satisfaction of the Partnerships
liability in respect of such payment, regardless of any claim of
any Person who may have an interest in such payment by reason of
an assignment or otherwise.
Section 6.4 Distributions
of Available Cash from Operating Surplus.
(a) During Subordination
Period. Available Cash with respect to any
Quarter within the Subordination Period that is deemed to be
Operating Surplus pursuant to the provisions of Section 6.3
or 6.5 shall, subject to
Section 17-607
of the Delaware Act, be distributed as follows, except as
otherwise contemplated by Section 5.6 in respect of other
Partnership Securities issued pursuant thereto:
(i) First, (x) to the General Partner in
accordance with its Percentage Interest and (y) to the
Unitholders holding Common Units, Pro Rata, a percentage equal
to 100% less the General Partners Percentage Interest,
until there has been distributed in respect of each Common Unit
then Outstanding an amount equal to the Minimum Quarterly
Distribution for such Quarter;
(ii) Second, (x) to the General Partner in
accordance with its Percentage Interest and (y) to the
Unitholders holding Common Units, Pro Rata, a percentage equal
to 100% less the General Partners Percentage Interest,
until there has been distributed in respect of each Common Unit
then Outstanding an amount equal to the Cumulative Common Unit
Arrearage existing with respect to such Quarter;
(iii) Third, (x) to the General Partner in
accordance with its Percentage Interest and (y) to the
Unitholders holding Subordinated Units, Pro Rata, a percentage
equal to 100% less the General Partners Percentage
Interest, until there has been distributed in respect of each
Subordinated Unit then Outstanding an amount equal to the
Minimum Quarterly Distribution for such Quarter;
(iv) Fourth, to the General Partner and all
Unitholders, in accordance with their respective Percentage
Interests, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the excess of the First
Target Distribution over the Minimum Quarterly Distribution for
such Quarter;
(v) Fifth, (A) to the General Partner in
accordance with its Percentage Interest; (B) 13% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (A) and (B) of this clause (v) until
there has been distributed in respect of each Unit then
Outstanding an amount equal to the excess of the Second Target
Distribution over the First Target Distribution for such Quarter;
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
(vi) Sixth, (A) to the General Partner in
accordance with its Percentage Interest, (B) 23% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (A) and (B) of this clause (vi), until
there has been distributed in respect of each Unit then
Outstanding an amount equal to the excess of the Third Target
Distribution over the Second Target Distribution for such
Quarter; and
(vii) Thereafter, (A) to the General Partner in
accordance with its Percentage Interest; (B) 48% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (A) and (B) of this clause (vii);
provided, however, if the Minimum Quarterly Distribution,
the First Target Distribution, the Second Target Distribution
and the Third Target Distribution have been reduced to zero
pursuant to the second sentence of Section 6.6(a), the
distribution of Available Cash that is deemed to be Operating
Surplus with respect to any Quarter will be made solely in
accordance with Section 6.4(a)(vii).
(b) After Subordination
Period. Available Cash with respect to any
Quarter after the Subordination Period that is deemed to be
Operating Surplus pursuant to the provisions of Section 6.3
or Section 6.5, subject to
Section 17-607
of the Delaware Act, shall be distributed as follows, except as
otherwise required by Section 5.6(b) in respect of
additional Partnership Securities issued pursuant thereto:
(i) First, 100% to the General Partner and the
Unitholders in accordance with their respective Percentage
Interests, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the Minimum Quarterly
Distribution for such Quarter;
(ii) Second, 100% to the General Partner and the
Unitholders in accordance with their respective Percentage
Interests, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the excess of the First
Target Distribution over the Minimum Quarterly Distribution for
such Quarter;
(iii) Third, (A) to the General Partner in
accordance with its Percentage Interest; (B) 13% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (A) and (B) of this clause (iii), until
there has been distributed in respect of each Unit then
Outstanding an amount equal to the excess of the Second Target
Distribution over the First Target Distribution for such Quarter;
(iv) Fourth, (A) to the General Partner in
accordance with its Percentage Interest; (B) 23% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclause (A) and (B) of this clause (iv), until there
has been distributed in respect of each Unit then Outstanding an
amount equal to the excess of the Third Target Distribution over
the Second Target Distribution for such Quarter; and
(v) Thereafter, (A) to the General Partner in
accordance with its Percentage Interest; (B) 48% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (A) and (B) of this clause (v);
provided, however, if the Minimum Quarterly Distribution,
the First Target Distribution, the Second Target Distribution
and the Third Target Distribution have been reduced to zero
pursuant to the second sentence of Section 6.6(a), the
distribution of Available Cash that is deemed to be Operating
Surplus with respect to any Quarter will be made solely in
accordance with Section 6.4(b)(v).
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Section 6.5 Distributions
of Available Cash from Capital Surplus.
Available Cash that is deemed to be Capital Surplus pursuant to
the provisions of Section 6.3(a) shall, subject to
Section 17-607
of the Delaware Act, be distributed, unless the provisions of
Section 6.3 require otherwise, 100% to the General Partner
and the Unitholders in accordance with their respective
Percentage Interests, until a hypothetical holder of a Common
Unit acquired on the Closing Date has received with respect to
such Common Unit, during the period since the Closing Date
through such date, distributions of Available Cash that are
deemed to be Capital Surplus in an aggregate amount equal to the
Initial Unit Price. Available Cash that is deemed to be Capital
Surplus shall then be distributed (A) to the General
Partner in accordance with its Percentage Interest and
(B) to all Unitholders holding Common Units, Pro Rata, a
percentage equal to 100% less the General Partners
Percentage Interest, until there has been distributed in respect
of each Common Unit then Outstanding an amount equal to the
Cumulative Common Unit Arrearage. Thereafter, all Available Cash
shall be distributed as if it were Operating Surplus and shall
be distributed in accordance with Section 6.4.
Section 6.6 Adjustment
of Minimum Quarterly Distribution and Target Distribution
Levels.
(a) The Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution, Third Target
Distribution, Common Unit Arrearages and Cumulative Common Unit
Arrearages shall be proportionately adjusted in the event of any
distribution, combination or subdivision (whether effected by a
distribution payable in Units or otherwise) of Units or other
Partnership Securities in accordance with Section 5.9. In
the event of a distribution of Available Cash that is deemed to
be from Capital Surplus, the then applicable Minimum Quarterly
Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution, shall be adjusted
proportionately downward to equal the product obtained by
multiplying the otherwise applicable Minimum Quarterly
Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution, as the case may be,
by a fraction of which the numerator is the Unrecovered Initial
Unit Price of the Common Units immediately after giving effect
to such distribution and of which the denominator is the
Unrecovered Initial Unit Price of the Common Units immediately
prior to giving effect to such distribution.
(b) The Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target
Distribution, shall also be subject to adjustment pursuant to
Section 5.11 and Section 6.9.
Section 6.7 Special
Provisions Relating to the Holders of Subordinated Units and
Class B Units.
(a) Except with respect to the right to vote on or
approve matters requiring the vote or approval of a percentage
of the holders of Outstanding Common Units and the right to
participate in allocations of income, gain, loss and deduction
and distributions made with respect to Common Units, the holder
of a Subordinated Unit shall have all of the rights and
obligations of a Unitholder holding Common Units hereunder;
provided, however, that immediately upon the conversion
of Subordinated Units into Common Units pursuant to
Section 5.7, the Unitholder holding a Subordinated Unit
shall possess all of the rights and obligations of a Unitholder
holding Common Units hereunder, including the right to vote as a
Common Unitholder and the right to participate in allocations of
income, gain, loss and deduction and distributions made with
respect to Common Units; provided, however, that such
converted Subordinated Units shall remain subject to the
provisions of Sections 5.5(c)(ii), 6.1(d)(x)(A), 6.7(b) and
6.7(c).
(b) A Unitholder shall not be permitted to transfer a
Subordinated Unit or a Subordinated Unit that has converted into
a Common Unit pursuant to Section 5.7 (other than a
transfer to an Affiliate) if the remaining balance in the
transferring Unitholders Capital Account with respect to
the retained
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Subordinated Units or Retained Converted Subordinated Units
would be negative after giving effect to the allocation under
Section 5.5(c)(ii)(B).
(c) The Unitholder holding a Common Unit that has
resulted from the conversion of a Subordinated Unit pursuant to
Section 5.7 shall not be issued a Common Unit Certificate,
or other evidence of the issuance of uncertificated Units,
pursuant to Section 4.1, and shall not be permitted to
transfer such Common Unit to a Person that is not an Affiliate
of the holder until such time as the General Partner determines,
based on advice of counsel, that each such Common Unit should
have, as a substantive matter, like intrinsic economic and
federal income tax characteristics, in all material respects, to
the intrinsic economic and federal income tax characteristics of
an Initial Common Unit. In connection with the condition imposed
by this Section 6.7(c), the General Partner may take
whatever steps are required to provide economic uniformity to
such Common Units in preparation for a transfer of such Common
Units, including the application of Sections 5.5(c)(ii),
6.1(d)(x) and 6.7(b); provided, however, that no such
steps may be taken that would have a material adverse effect on
the Unitholders holding Common Units represented by Common Unit
Certificates, or other evidence of the issuance of
uncertificated Units.
(d) Except with respect to the right to vote on or
approve matters requiring the vote or approval of a percentage
of the holders of Outstanding Common Units and the right to
participate in allocations of income, gain, loss and deduction
and distributions made with respect to Common Units, the holders
of Class B Units shall have all the rights and obligations
of a Unitholder holding Common Units; provided, however,
that immediately upon the conversion of Class B Units into
Common Units pursuant to Section 5.11, the Unitholders
holding a Converted Class B Unit shall possess all the
rights and obligations of a Unitholder holding Common Units
hereunder, including the right to vote as a Common Unitholder
and the right to participate in allocations of income, gain,
loss and deduction and distributions made with respect to Common
Units; provided, however, that such Converted
Class B Units shall remain subject to the provisions of
Sections 6.1(a), 6.1(b), 6.1(d)(iii), 6.1(d)(x)(B) and
6.7(e).
(e) The holder or holders of Converted Class B
Units resulting from the conversion pursuant to
Section 5.11(f) of any Class B Units pursuant to
Section 5.11 shall not be issued a Common Unit Certificate
pursuant to Section 4.1, and shall not be permitted to
transfer such Common Units until such time as the General
Partner determines, based on advice of counsel, that each such
Common Unit should have, as a substantive matter, like intrinsic
economic and federal income tax characteristics, in all material
respects, to the intrinsic economic and federal income tax
characteristics of an Initial Common Unit. In connection with
the condition imposed by this Section 6.7(e), the General
Partner may take whatever steps are required to provide economic
uniformity to such Common Units, including the application of
Section 6.1(d)(x)(B); provided, however, that no
such steps may be taken that would have a material adverse
effect on the Unitholders holding Common Units represented by
Common Unit Certificates (for this purpose the allocations of
items of income, gain, loss or deduction with respect to
Class B Units or with respect to Common Units will be
deemed not to have a material adverse effect on the Common
Units).
Section 6.8 Special
Provisions Relating to the Holders of Incentive Distribution
Rights.
Notwithstanding anything to the contrary set forth in this
Agreement, the holders of the Incentive Distribution Rights
(a) shall (i) possess the rights and obligations
provided in this Agreement with respect to a Limited Partner
pursuant to Article III and Article VII and
(ii) have a Capital Account as a Partner pursuant to
Section 5.5 and all other provisions related thereto and
(b) shall not (i) be entitled to vote on any matters
requiring the approval or vote of the holders of Outstanding
Units, except as provided by law, (ii) be entitled to any
distributions other than as provided in Sections 6.4(a)(v),
(vi) and
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(vii), Section 6.4(b)(iii), (iv) and (v), and
Section 12.4 or (iii) be allocated items of income,
gain, loss or deduction other than as specified in this
Article VI.
Section 6.9 Entity-Level Taxation.
If legislation is enacted or the interpretation of existing
language is modified by a governmental taxing authority so that
a Group Member is treated as an association taxable as a
corporation or is otherwise subject to an entity-level tax for
federal, state or local income tax purposes, then the General
Partner may reduce the Minimum Quarterly Distribution, the First
Target Distribution, the Second Target Distribution and the
Third Target Distribution to take into account the amount of
income taxes that are payable by reason of any such new
legislation or interpretation (the Incremental
Income Taxes), or any portion thereof selected by
the General Partner, in the manner provided in this
Section 6.9. If the General Partner elects to reduce the
Minimum Quarterly Distribution, the First Target Distribution,
the Second Target Distribution and the Third Target Distribution
for any Quarter with respect to all or a portion of any
Incremental Income Taxes, the General Partner shall estimate for
such Quarter the Partnership Groups aggregate liability
(the Estimated Incremental Quarterly Tax
Amount) for all such income taxes that are payable
by reason of any such new legislation or interpretation;
provided that any difference between such estimate and the
actual tax liability for such Quarter that is owed by reason of
any such new legislation or interpretation shall be taken into
account in determining the Estimated Incremental Quarterly Tax
Amount with respect to each Quarter in which any such difference
can be determined. For each such Quarter, the Minimum Quarterly
Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution, shall be the product
obtained by multiplying (a) the amounts therefor that are
set out herein prior to the application of this Section 6.9
times (b) the quotient obtained by dividing
(i) Available Cash with respect to such Quarter by
(ii) the sum of Available Cash with respect to such Quarter
and the Estimated Incremental Quarterly Tax Amount for such
Quarter, as determined by the General Partner. For purposes of
the foregoing, Available Cash with respect to a Quarter will be
deemed reduced by the Estimated Incremental Quarterly Tax Amount
for that Quarter.
ARTICLE VII
MANAGEMENT AND
OPERATION OF BUSINESS
Section 7.1 Management.
(a) The General Partner shall conduct, direct and
manage all activities of the Partnership. Except as otherwise
expressly provided in this Agreement, all management powers over
the business and affairs of the Partnership shall be exclusively
vested in the General Partner, and no Limited Partner shall have
any management power over the business and affairs of the
Partnership. In addition to the powers now or hereafter granted
a general partner of a limited partnership under applicable law
or that are granted to the General Partner under any other
provision of this Agreement, the General Partner, subject to
Section 7.3, shall have full power and authority to do all
things and on such terms as it determines to be necessary or
appropriate to conduct the business of the Partnership, to
exercise all powers set forth in Section 2.5 and to
effectuate the purposes set forth in Section 2.4, including
the following:
(i) the making of any expenditures, the lending or
borrowing of money, the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities, the
issuance of evidences of indebtedness, including indebtedness
that is convertible into Partnership Securities, and the
incurring of any other obligations;
(ii) the making of tax, regulatory and other filings,
or rendering of periodic or other reports to governmental or
other agencies having jurisdiction over the business or assets
of the Partnership;
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(iii) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any or all of the
assets of the Partnership or the merger or other combination of
the Partnership with or into another Person (the matters
described in this clause (iii) being subject, however, to
any prior approval that may be required by Section 7.3 and
Article XIV);
(iv) the use of the assets of the Partnership
(including cash on hand) for any purpose consistent with the
terms of this Agreement, including the financing of the conduct
of the operations of the Partnership Group; subject to
Section 7.6(a), the lending of funds to other Persons
(including other Group Members); the repayment or guarantee of
obligations of any Group Member; and the making of capital
contributions to any Group Member;
(v) the negotiation, execution and performance of any
contracts, conveyances or other instruments (including
instruments that limit the liability of the Partnership under
contractual arrangements to all or particular assets of the
Partnership, with the other party to the contract to have no
recourse against the General Partner or its assets other than
its interest in the Partnership, even if same results in the
terms of the transaction being less favorable to the Partnership
than would otherwise be the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees
(including employees having titles such as
president, vice president,
secretary and treasurer) and agents,
outside attorneys, accountants, consultants and contractors and
the determination of their compensation and other terms of
employment or hiring;
(viii) the maintenance of insurance for the benefit
of the Partnership Group, the Partners and Indemnitees;
(ix) the formation of, or acquisition of an interest
in, and the contribution of property and the making of loans to,
any further limited or general partnerships, joint ventures,
corporations, limited liability companies or other Persons
(including the acquisition of interests in, and the
contributions of property to, any Group Member from time to
time) subject to the restrictions set forth in Section 2.4;
(x) the control of any matters affecting the rights
and obligations of the Partnership, including the bringing and
defending of actions at law or in equity and otherwise engaging
in the conduct of litigation, arbitration or mediation and the
incurring of legal expense and the settlement of claims and
litigation;
(xi) the indemnification of any Person against
liabilities and contingencies to the extent permitted by law;
(xii) the entering into of listing agreements with
any National Securities Exchange and the delisting of some or
all of the Limited Partner Interests from, or requesting that
trading be suspended on, any such exchange (subject to any prior
approval that may be required under Section 4.8);
(xiii) the purchase, sale or other acquisition or
disposition of Partnership Securities, or the issuance of
options, rights, warrants and appreciation rights relating to
Partnership Securities;
(xiv) the undertaking of any action in connection
with the Partnerships participation in any Group
Member; and
(xv) the entering into of agreements with any of its
Affiliates to render services to a Group Member or to itself in
the discharge of its duties as General Partner of the
Partnership.
(b) Notwithstanding any other provision of this
Agreement, any Group Member Agreement, the Delaware Act or any
applicable law, rule or regulation, each of the Partners and the
Assignees and each other Person who may acquire an interest in
Partnership Securities hereby (i) approves, ratifies and
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
confirms the execution, delivery and performance by the parties
thereto of this Agreement and the Group Member Agreement of each
other Group Member, the Underwriting Agreement, the Omnibus
Agreement, the Secondment Agreement, the Contribution Agreement,
the Tax Sharing Agreement, the Credit Agreement, the Working
Capital Agreement, any Commodity Hedge Contract, any Group
Member Agreement and the other agreements described in or filed
as exhibits to the Registration Statement that are related to
the transactions contemplated by the Registration Statement;
(ii) agrees that the General Partner (on its own or through
any officer of the Partnership) is authorized to execute,
deliver and perform the agreements referred to in
clause (i) of this sentence and the other agreements, acts,
transactions and matters described in or contemplated by the
Registration Statement on behalf of the Partnership without any
further act, approval or vote of the Partners or the Assignees
or the other Persons who may acquire an interest in Partnership
Securities; and (iii) agrees that the execution, delivery
or performance by the General Partner, any Group Member or any
Affiliate of any of them of this Agreement or any agreement
authorized or permitted under this Agreement (including the
exercise by the General Partner or any Affiliate of the General
Partner of the rights accorded pursuant to
Article XV) shall not constitute a breach by the
General Partner of any duty that the General Partner may owe the
Partnership or the Limited Partners or any other Persons under
this Agreement (or any other agreements) or of any duty
otherwise existing at law, in equity or otherwise.
Section 7.2 Certificate
of Limited Partnership.
The General Partner has caused the Certificate of Limited
Partnership to be filed with the Secretary of State of the State
of Delaware as required by the Delaware Act. The General Partner
shall use all reasonable efforts to cause to be filed such other
certificates or documents that the General Partner determines to
be necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited
liability) in the State of Delaware or any other state in which
the Partnership may elect to do business or own property. To the
extent the General Partner determines such action to be
necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate of Limited
Partnership and do all things to maintain the Partnership as a
limited partnership (or a partnership or other entity in which
the limited partners have limited liability) under the laws of
the State of Delaware or of any other state in which the
Partnership may elect to do business or own property. Subject to
the terms of Section 3.4(a), the General Partner shall not
be required, before or after filing, to deliver or mail a copy
of the Certificate of Limited Partnership, any qualification
document or any amendment thereto to any Limited Partner.
Section 7.3 Restrictions
on the General Partners Authority.
Except as provided in Article XII and Article XIV, the
General Partner may not sell, exchange or otherwise dispose of
all or substantially all of the assets of the Partnership Group,
taken as a whole, in a single transaction or a series of related
transactions (including by way of merger, consolidation, other
combination or sale of ownership interests of the
Partnerships Subsidiaries) without the approval of holders
of a Unit Majority; provided, however, that this
provision shall not preclude or limit the General Partners
ability to mortgage, pledge, hypothecate or grant a security
interest in all or substantially all of the assets of the
Partnership Group and shall not apply to any forced sale of any
or all of the assets of the Partnership Group pursuant to the
foreclosure of, or other realization upon, any such encumbrance.
Without the approval of holders of a Unit Majority, the General
Partner shall not, on behalf of the Partnership, except as
permitted under Section 4.6, Section 11.1,
Section 11.2 or Section 12.1(a), elect or cause the
Partnership to elect a successor general partner of the
Partnership.
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Partners, LP
Section 7.4 Reimbursement
of the General Partner.
(a) Except as provided in this Section 7.4 and
elsewhere in this Agreement, the General Partner shall not be
compensated for its services as a general partner or managing
member of any Group Member.
(b) The General Partner shall be reimbursed on a
monthly basis, or such other basis as the General Partner may
determine, for (i) all direct and indirect expenses it
incurs or payments it makes on behalf of the Partnership Group
(including salary, bonus, incentive compensation and other
amounts paid to any Person, including Affiliates of the General
Partner to perform services for the Partnership Group or for the
General Partner in the discharge of its duties to the
Partnership Group), and (ii) all other expenses allocable
to the Partnership Group or otherwise incurred by the General
Partner in connection with operating the Partnership
Groups business (including expenses allocated to the
General Partner by its Affiliates). The General Partner shall
determine the expenses that are allocable to the Partnership
Group. Reimbursements pursuant to this Section 7.4 shall be
in addition to any reimbursement to the General Partner as a
result of indemnification pursuant to Section 7.7.
(c) The General Partner, without the approval of the
Limited Partners (who shall have no right to vote in respect
thereof), may propose and adopt on behalf of the Partnership
employee benefit plans, employee programs and employee practices
(including plans, programs and practices involving the issuance
of Partnership Securities or options to purchase or rights,
warrants or appreciation rights or phantom or tracking interests
relating to Partnership Securities), or cause the Partnership to
issue Partnership Securities in connection with, or pursuant to,
any employee benefit plan, employee program or employee practice
maintained or sponsored by the General Partner, Group Member or
any Affiliates in each case for the benefit of employees and
directors of the General Partner or any of its Affiliates, in
respect of services performed, directly or indirectly, for the
benefit of the Partnership Group. The Partnership agrees to
issue and sell to the General Partner or any of its Affiliates
any Partnership Securities that the General Partner or such
Affiliates are obligated to provide to any employees and
directors pursuant to any such employee benefit plans, employee
programs or employee practices. Expenses incurred by the General
Partner in connection with any such plans, programs and
practices (including the net cost to the General Partner or such
Affiliates of Partnership Securities purchased by the General
Partner or such Affiliates from the Partnership to fulfill
options or awards under such plans, programs and practices)
shall be reimbursed in accordance with Section 7.4(b). Any
and all obligations of the General Partner under any employee
benefit plans, employee programs or employee practices adopted
by the General Partner as permitted by this Section 7.4(c)
shall constitute obligations of the General Partner hereunder
and shall be assumed by any successor General Partner approved
pursuant to Section 11.1 or Section 11.2 or the
transferee of or successor to all of the General Partners
General Partner Interest (represented by General Partner Units)
pursuant to Section 4.6.
Section 7.5 Outside
Activities.
(a) After the Closing Date, the General Partner, for
so long as it is the General Partner of the Partnership
(i) agrees that its sole business will be to act as a
general partner or managing member, as the case may be, of the
Partnership and any other partnership or limited liability
company of which the Partnership is, directly or indirectly, a
partner or member and to undertake activities that are ancillary
or related thereto (including being a limited partner in the
Partnership) and (ii) shall not engage in any business or
activity or incur any debts or liabilities except in connection
with or incidental to (A) its performance as general
partner or managing member, if any, of one or more Group Members
or as described in or contemplated by the Registration
Statement, (B) the acquiring, owning or disposing of debt
or equity securities in any Group Member, or (C) the
guarantee of, and mortgage, pledge, or encumbrance of any or all
of its assets in connection with, any indebtedness of Anadarko,
any of its successors or permitted assigns or any other
Affiliate of the General Partner.
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(b) Except as set forth in the Omnibus Agreement,
each Indemnitee (other than the General Partner) shall have the
right to engage in businesses of every type and description and
other activities for profit and to engage in and possess an
interest in other business ventures of any and every type or
description, whether in businesses engaged in or anticipated to
be engaged in by any Group Member, independently or with others,
including business interests and activities in direct
competition with the business and activities of any Group
Member, and none of the same shall constitute a breach of this
Agreement or any duty otherwise existing at law, in equity or
otherwise, to any Group Member or any Partner. None of any Group
Member, any Limited Partner or any other Person shall have any
rights by virtue of this Agreement, any Group Member Agreement,
or the partnership relationship established hereby in any
business ventures of any Indemnitee.
(c) Notwithstanding anything to the contrary in this
Agreement, (i) the engaging in competitive activities by
any Indemnitees (other than the General Partner) in accordance
with the provisions of this Section 7.5 is hereby approved
by the Partnership and all Partners, (ii) it shall be
deemed not to be a breach of any fiduciary duty or any other
obligation of any type whatsoever of any Indemnitee for the
Indemnitees (other than the General Partner) to engage in such
business interests and activities in preference to or to the
exclusion of the Partnership and (iii) the Indemnitees
shall have no obligation hereunder or as a result of any duty
otherwise existing at law, in equity or otherwise, to present
business opportunities to the Partnership. Notwithstanding
anything to the contrary in this Agreement, the doctrine of
corporate opportunity, or any analogous doctrine, shall not
apply to any Indemnitee (including the General Partner). No
Indemnitee (including the General Partner) who acquires
knowledge of a potential transaction, agreement, arrangement or
other matter that may be an opportunity for the Partnership,
shall have any duty to communicate or offer such opportunity to
the Partnership, and such Indemnitee (including the General
Partner) shall not be liable to the Partnership, to any Limited
Partner or any other Person for breach of any fiduciary or other
duty by reason of the fact that such Indemnitee (including the
General Partner) pursues or acquires for itself, directs such
opportunity to another Person or does not communicate such
opportunity or information to the Partnership; provided such
Indemnitee does not engage in such business or activity as a
result of or using confidential or proprietary information
provided by or on behalf of the Partnership to such Indemnitee.
(d) The General Partner and each of its Affiliates
may acquire Units or other Partnership Securities in addition to
those acquired on the Closing Date and, except as otherwise
provided in this Agreement, shall be entitled to exercise, at
their option, all rights relating to all Units or other
Partnership Securities acquired by them. The term
Affiliates when used in this Section 7.5(d)
with respect to the General Partner shall not include any Group
Member.
(e) Notwithstanding anything to the contrary in this
Agreement, to the extent that any provision of this Agreement
purports or is interpreted to have the effect of restricting the
fiduciary duties that might otherwise, as a result of Delaware
or other applicable law, be owed by the General Partner to the
Partnership and its Limited Partners, or to constitute a waiver
or consent by the Limited Partners to any such restriction, such
provisions shall be deemed to have been approved by the Partners.
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Section 7.6
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Loans
from the General Partner; Loans or Contributions from the
Partnership or Group Members.
|
(a) The General Partner or any of its Affiliates may
lend to any Group Member, and any Group Member may borrow from
the General Partner or any of its Affiliates, funds needed or
desired by the Group Member for such periods of time and in such
amounts as the General Partner may determine; provided,
however, that in any such case the lending party may not
charge the borrowing party interest at a rate greater than the
rate that would be charged the borrowing party or impose terms
less favorable to the borrowing party than would be charged or
imposed on the borrowing party by unrelated lenders
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
on comparable loans made on an arms-length basis (without
reference to the lending partys financial abilities or
guarantees), all as determined by the General Partner. The
borrowing party shall reimburse the lending party for any costs
(other than any additional interest costs) incurred by the
lending party in connection with the borrowing of such funds.
For purposes of this Section 7.6(a) and
Section 7.6(b), the term Group Member shall
include any Affiliate of a Group Member that is controlled by
the Group Member.
(b) The Partnership may lend or contribute to any
Group Member, and any Group Member may borrow from the
Partnership, funds on terms and conditions determined by the
General Partner. Except for the Initial Loan, no Group Member
may lend funds to the General Partner or any of its Affiliates
(other than another Group Member).
(c) No borrowing by any Group Member or the approval
thereof by the General Partner shall be deemed to constitute a
breach of any duty hereunder or otherwise existing at law, in
equity or otherwise, of the General Partner or its Affiliates to
the Partnership or the Limited Partners by reason of the fact
that the purpose or effect of such borrowing is directly or
indirectly to (i) enable distributions to the General
Partner or its Affiliates (including in their capacities as
Limited Partners) to exceed the General Partners
Percentage Interest of the total amount distributed to all
Partners or (ii) hasten the expiration of the Subordination
Period or the conversion of any Subordinated Units into Common
Units.
Section 7.7 Indemnification.
(a) To the fullest extent permitted by law but
subject to the limitations expressly provided in this Agreement,
all Indemnitees shall be indemnified and held harmless by the
Partnership from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including
legal fees and expenses), judgments, fines, penalties, interest,
settlements or other amounts arising from any and all claims,
demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any Indemnitee may be
involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as an Indemnitee;
provided, that the Indemnitee shall not be indemnified
and held harmless if there has been a final and non-appealable
judgment entered by a court of competent jurisdiction
determining that, in respect of the matter for which the
Indemnitee is seeking indemnification pursuant to this
Section 7.7, the Indemnitee acted in bad faith or engaged
in fraud, willful misconduct or, in the case of a criminal
matter, acted with knowledge that the Indemnitees conduct
was unlawful; provided, further, no indemnification
pursuant to this Section 7.7 shall be available to the
General Partner or its Affiliates (other than a Group Member)
with respect to its or their obligations incurred pursuant to
the Underwriting Agreement, the Omnibus Agreement, the
Secondment Agreement, the Contribution Agreement, the Tax
Sharing Agreement or the Working Capital Agreement (other than
obligations incurred by the General Partner on behalf of the
Partnership). Any indemnification pursuant to this
Section 7.7 shall be made only out of the assets of the
Partnership, it being agreed that the General Partner shall not
be personally liable for such indemnification and shall have no
obligation to contribute or loan any monies or property to the
Partnership to enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses
(including legal fees and expenses) incurred by an Indemnitee
who is indemnified pursuant to Section 7.7(a) in defending
any claim, demand, action, suit or proceeding shall, from time
to time, be advanced by the Partnership prior to a final and
non-appealable judgment entered by a court of competent
jurisdiction determining that, in respect of the matter for
which the Indemnitee is seeking indemnification pursuant to this
Section 7.7, the Indemnitee is not entitled to be
indemnified.
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First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
(c) The indemnification provided by this
Section 7.7 shall be in addition to any other rights to
which an Indemnitee may be entitled under any agreement,
pursuant to any vote of the holders of Outstanding Limited
Partner Interests, as a matter of law or otherwise, both as to
actions in the Indemnitees capacity as an Indemnitee and
as to actions in any other capacity (including any capacity
under the Underwriting Agreement), and shall continue as to an
Indemnitee who has ceased to serve in such capacity and shall
inure to the benefit of the heirs, successors, assigns and
administrators of the Indemnitee.
(d) The Partnership may purchase and maintain (or
reimburse the General Partner or its Affiliates for the cost of)
insurance, on behalf of the General Partner, its Affiliates and
such other Persons as the General Partner shall determine,
against any liability that may be asserted against, or expense
that may be incurred by, such Person in connection with the
Partnerships activities or such Persons activities
on behalf of the Partnership, regardless of whether the
Partnership would have the power to indemnify such Person
against such liability under the provisions of this Agreement.
(e) For purposes of this Section 7.7, the
Partnership shall be deemed to have requested an Indemnitee to
serve as fiduciary of an employee benefit plan whenever the
performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed
on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall constitute fines
within the meaning of Section 7.7(a); and action taken or
omitted by it with respect to any employee benefit plan in the
performance of its duties for a purpose reasonably believed by
it to be in the best interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose
that is in the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited
Partners to personal liability by reason of the indemnification
provisions set forth in this Agreement.
(g) An Indemnitee shall not be denied indemnification
in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to
which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for
the benefit of the Indemnitees, their heirs, successors, assigns
and administrators and shall not be deemed to create any rights
for the benefit of any other Persons.
(i) No amendment, modification or repeal of this
Section 7.7 or any provision hereof shall in any manner
terminate, reduce or impair the right of any past, present or
future Indemnitee to be indemnified by the Partnership, nor the
obligations of the Partnership to indemnify any such Indemnitee
under and in accordance with the provisions of this
Section 7.7 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.
Section 7.8 Liability
of Indemnitees.
(a) Notwithstanding anything to the contrary set
forth in this Agreement, no Indemnitee shall be liable for
monetary damages to the Partnership, the Limited Partners, or
any other Persons who have acquired interests in the Partnership
Securities, for losses sustained or liabilities incurred as a
result of any act or omission of an Indemnitee unless there has
been a final and non-appealable judgment entered by a court of
competent jurisdiction determining that, in respect of the
matter in question, the Indemnitee acted in bad faith or engaged
in fraud, willful misconduct or, in the case of a criminal
matter, acted with knowledge that the Indemnitees conduct
was criminal.
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(b) Subject to its obligations and duties as General
Partner set forth in Section 7.1(a), the General Partner
may exercise any of the powers granted to it by this Agreement
and perform any of the duties imposed upon it hereunder either
directly or by or through its agents, and the General Partner
shall not be responsible for any misconduct or negligence on the
part of any such agent appointed by the General Partner in good
faith.
(c) To the extent that, at law or in equity, an
Indemnitee has duties (including fiduciary duties) and
liabilities relating thereto to the Partnership or to the
Partners, the General Partner and any other Indemnitee acting in
connection with the Partnerships business or affairs shall
not be liable to the Partnership or to any Partner for its good
faith reliance on the provisions of this Agreement.
(d) Any amendment, modification or repeal of this
Section 7.8 or any provision hereof shall be prospective
only and shall not in any way affect the limitations on the
liability of the Indemnitees under this Section 7.8 as in
effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to
matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise
or be asserted.
Section 7.9 Resolution
of Conflicts of Interest; Standards of Conduct and Modification
of Duties.
(a) Unless otherwise expressly provided in this
Agreement or any Group Member Agreement, whenever a potential
conflict of interest exists or arises between the General
Partner or any of its Affiliates, on the one hand, and the
Partnership, any Group Member or any Partner, on the other, any
resolution or course of action by the General Partner or its
Affiliates in respect of such conflict of interest shall be
permitted and deemed approved by all Partners, and shall not
constitute a breach of this Agreement, of any Group Member
Agreement, of any agreement contemplated herein or therein, or
of any duty stated or implied by law or equity, if the
resolution or course of action in respect of such conflict of
interest is (i) approved by Special Approval,
(ii) approved by the vote of a majority of the Common Units
(excluding Common Units owned by the General Partner and its
Affiliates), (iii) on terms no less favorable to the
Partnership than those generally being provided to or available
from unrelated third parties or (iv) fair and reasonable to
the Partnership, taking into account the totality of the
relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous
to the Partnership). The General Partner shall be authorized but
not required in connection with its resolution of such conflict
of interest to seek Special Approval of such resolution, and the
General Partner may also adopt a resolution or course of action
that has not received Special Approval. If Special Approval is
sought, then it shall be presumed that, in making its decision,
the Special Committee acted in good faith, and if Special
Approval is not sought and the Board of Directors determines
that the resolution or course of action taken with respect to a
conflict of interest satisfies either of the standards set forth
in clauses (iii) or (iv) above, then it shall be
presumed that, in making its decision, the Board of Directors
acted in good faith, and in any proceeding brought by any
Limited Partner or by or on behalf of such Limited Partner or
any other Limited Partner or the Partnership challenging such
approval, the Person bringing or prosecuting such proceeding
shall have the burden of overcoming such presumption.
Notwithstanding anything to the contrary in this Agreement or
any duty otherwise existing at law or equity, the existence of
the conflicts of interest described in the Registration
Statement are hereby approved by all Partners and shall not
constitute a breach of this Agreement or any duty otherwise
existing at law, in equity or otherwise.
(b) Whenever the General Partner makes a
determination or takes or declines to take any other action, or
any of its Affiliates causes it to do so, in its capacity as the
general partner of the Partnership as opposed to in its
individual capacity, whether under this Agreement, any Group
Member Agreement or any other agreement contemplated hereby or
otherwise, then, unless another express standard is provided for
in this Agreement, the General Partner, or such Affiliates
causing it to do so, shall make
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such determination or take or decline to take such other action
in good faith and shall not be subject to any other or different
standards (including fiduciary standards) imposed by this
Agreement, any Group Member Agreement, any other agreement
contemplated hereby or under the Delaware Act or any other law,
rule or regulation or at equity. In order for a determination or
other action to be in good faith for purposes of
this Agreement, the Person or Persons making such determination
or taking or declining to take such other action must reasonably
believe that the determination or other action is in the best
interests of the Partnership.
(c) Whenever the General Partner makes a
determination or takes or declines to take any other action, or
any of its Affiliates causes it to do so, in its individual
capacity as opposed to in its capacity as the general partner of
the Partnership, whether under this Agreement, any Group Member
Agreement or any other agreement contemplated hereby or
otherwise, then the General Partner, or such Affiliates causing
it to do so, are entitled, to the fullest extent permitted by
law, to make such determination or to take or decline to take
such other action free of any duty (including any fiduciary
duty) or obligation whatsoever to the Partnership, any Limited
Partner, and any other Person bound by this Agreement, and the
General Partner, or such Affiliates causing it to do so, shall
not, to the fullest extent permitted by law, be required to act
in good faith or pursuant to any other standard imposed by this
Agreement, any Group Member Agreement, any other agreement
contemplated hereby or under the Delaware Act or any other law,
rule or regulation or at equity. By way of illustration and not
of limitation, whenever the phrase, at the option of the
General Partner, or some variation of that phrase, is used
in this Agreement, it indicates that the General Partner is
acting in its individual capacity. For the avoidance of doubt,
whenever the General Partner votes or transfers its Partnership
Interests, or refrains from voting or transferring its
Partnership Interests, it shall be acting in its individual
capacity. The General Partners organizational documents
may provide that determinations to take or decline to take any
action in its individual, rather than representative, capacity
may or shall be determined by its members, if the General
Partner is a limited liability company, stockholders, if the
General Partner is a corporation, or the members or stockholders
of the General Partners general partner, if the General
Partner is a partnership.
(d) Notwithstanding anything to the contrary in this
Agreement, the General Partner and its Affiliates shall have no
duty or obligation, express or implied, to (i) sell or
otherwise dispose of any asset of the Partnership Group other
than in the ordinary course of business or (ii) permit any
Group Member to use any facilities or assets of the General
Partner and its Affiliates, except as may be provided in
contracts entered into from time to time specifically dealing
with such use. Any determination by the General Partner or any
of its Affiliates to enter into such contracts shall be at its
option.
(e) Except as expressly set forth in this Agreement,
neither the General Partner nor any other Indemnitee shall have
any duties or liabilities, including fiduciary duties, to the
Partnership or any Limited Partner and the provisions of this
Agreement, to the extent that they restrict, eliminate or
otherwise modify the duties and liabilities, including fiduciary
duties, of the General Partner or any other Indemnitee otherwise
existing at law or in equity, are agreed by the Partners to
replace such other duties and liabilities of the General Partner
or such other Indemnitee.
(f) The Unitholders hereby authorize the General
Partner, on behalf of the Partnership as a partner or member of
a Group Member, to approve of actions by the general partner or
managing member of such Group Member similar to those actions
permitted to be taken by the General Partner pursuant to this
Section 7.9.
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Section 7.10 Other
Matters Concerning the General Partner.
(a) The General Partner may rely upon, and shall be
protected in acting or refraining from acting upon, any
resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, debenture or other paper
or document believed by it to be genuine and to have been signed
or presented by the proper party or parties.
(b) The General Partner may consult with legal
counsel, accountants, appraisers, management consultants,
investment bankers and other consultants and advisers selected
by it, and any act taken or omitted to be taken in reliance upon
the opinion (including an Opinion of Counsel) of such Persons as
to matters that the General Partner reasonably believes to be
within such Persons professional or expert competence
shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in
respect of any of its powers or obligations hereunder, to act
through any of its duly authorized officers, a duly appointed
attorney or attorneys-in-fact or the duly authorized officers of
the Partnership or any Group Member.
Section 7.11 Purchase
or Sale of Partnership Securities.
The General Partner may cause the Partnership to purchase or
otherwise acquire Partnership Securities; provided that,
except as permitted pursuant to Section 4.10 or
Section 4.12, the General Partner may not cause any Group
Member to purchase Subordinated Units during the Subordination
Period. Such Partnership Securities shall be held by the
Partnership as treasury securities unless they are expressly
cancelled by action of an appropriate officer of the General
Partner. As long as Partnership Securities are held by any Group
Member, such Partnership Securities shall not be considered
Outstanding for any purpose, except as otherwise provided
herein. The General Partner or any Affiliate of the General
Partner may also purchase or otherwise acquire and sell or
otherwise dispose of Partnership Securities for its own account,
subject to the provisions of Articles IV and X.
Section 7.12 Registration
Rights of the General Partner and its Affiliates.
(a) If (i) the General Partner or any Affiliate
of the General Partner (including for purposes of this
Section 7.12, any Person that is an Affiliate of the
General Partner at the date hereof notwithstanding that it may
later cease to be an Affiliate of the General Partner) holds
Partnership Securities that it desires to sell and
(ii) Rule 144 of the Securities Act (or any successor
rule or regulation to Rule 144) or another exemption
from registration is not available to enable such holder of
Partnership Securities (the Holder) to
dispose of the number of Partnership Securities it desires to
sell at the time it desires to do so without registration under
the Securities Act, then at the option and upon the request of
the Holder, the Partnership shall file with the Commission as
promptly as practicable after receiving such request, and use
all commercially reasonable efforts to cause to become effective
and remain effective for a period of not less than six months
following its effective date or such shorter period as shall
terminate when all Partnership Securities covered by such
registration statement have been sold, a registration statement
under the Securities Act registering the offering and sale of
the number of Partnership Securities specified by the Holder;
provided, however, that the Partnership shall not be
required to effect more than three registrations pursuant to
this Section 7.12(a) and Section 7.12(b); and
provided further, however, that if the Special Committee
determines in good faith that the requested registration would
be materially detrimental to the Partnership and its Partners
because such registration would (x) materially interfere
with a significant acquisition, reorganization or other similar
transaction involving the Partnership, (y) require
premature disclosure of material information that the
Partnership has a bona fide business purpose for preserving as
confidential or (z) render the Partnership unable to comply
with
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requirements under applicable securities laws, then the
Partnership shall have the right to postpone such requested
registration for a period of not more than six months after
receipt of the Holders request, such right pursuant to
this Section 7.12(a) or Section 7.12(b) not to be
utilized more than once in any twelve-month period. In
connection with any registration pursuant to the first sentence
of this Section 7.12(a), the Partnership shall
(i) promptly prepare and file (A) such documents as
may be necessary to register or qualify the securities subject
to such registration under the securities laws of such states as
the Holder shall reasonably request; provided, however, that no
such qualification shall be required in any jurisdiction where,
as a result thereof, the Partnership would become subject to
general service of process or to taxation or qualification to do
business as a foreign corporation or partnership doing business
in such jurisdiction solely as a result of such registration,
and (B) such documents as may be necessary to apply for
listing or to list the Partnership Securities subject to such
registration on such National Securities Exchange as the Holder
shall reasonably request, and (ii) do any and all other
acts and things that may be necessary or appropriate to enable
the Holder to consummate a public sale of such Partnership
Securities in such states. Except as set forth in
Section 7.12(d), all costs and expenses of any such
registration and offering (other than the underwriting discounts
and commissions) shall be paid by the Partnership, without
reimbursement by the Holder.
(b) If any Holder holds Partnership Securities that
it desires to sell and Rule 144 of the Securities Act (or
any successor rule or regulation to Rule 144) or
another exemption from registration is not available to enable
such Holder to dispose of the number of Partnership Securities
it desires to sell at the time it desires to do so without
registration under the Securities Act, then at the option and
upon the request of the Holder, the Partnership shall file with
the Commission as promptly as practicable after receiving such
request, and use its commercially reasonable efforts to cause to
become effective and remain effective for a period of not less
than six months following its effective date or such shorter
period as shall terminate when all Partnership Securities
covered by such shelf registration statement have been sold, a
shelf registration statement covering the
Partnership Securities specified by the Holder on an appropriate
form under Rule 415 under the Securities Act, or any
similar rule that may be adopted by the Commission; provided,
however, that the Partnership shall not be required to
effect more than three registrations pursuant to
Section 7.12(a) and this Section 7.12(b); and
provided further, however, that if the Special Committee
determines in good faith that any offering under, or the use of
any prospectus forming a part of, the shelf registration
statement would be materially detrimental to the Partnership and
its Partners because such offering or use would
(x) materially interfere with a significant acquisition,
reorganization or other similar transaction involving the
Partnership, (y) require premature disclosure of material
information that the Partnership has a bona fide business
purpose for preserving as confidential or (z) render the
Partnership unable to comply with requirements under applicable
securities laws, then the Partnership shall have the right to
suspend such offering or use for a period of not more than six
months after receipt of the Holders request, such right
pursuant to Section 7.12(a) or this Section 7.12(b)
not to be utilized more than once in any twelve-month period. In
connection with any shelf registration pursuant to this
Section 7.12(b), the Partnership shall (i) promptly
prepare and file (A) such documents as may be necessary to
register or qualify the securities subject to such shelf
registration under the securities laws of such states as the
Holder shall reasonably request; provided, however, that
no such qualification shall be required in any jurisdiction
where, as a result thereof, the Partnership would become subject
to general service of process or to taxation or qualification to
do business as a foreign corporation or partnership doing
business in such jurisdiction solely as a result of such shelf
registration, and (B) such documents as may be necessary to
apply for listing or to list the Partnership Securities subject
to such shelf registration on such National Securities Exchange
as the Holder shall reasonably request, and (ii) do any and
all other acts and things that may be necessary or appropriate
to enable the Holder to consummate a public sale of such
Partnership Securities in such states. Except as set forth in
Section 7.12(d), all costs and expenses of any such shelf
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registration and offering (other than the underwriting discounts
and commissions) shall be paid by the Partnership, without
reimbursement by the Holder.
(c) If the Partnership shall at any time propose to
file a registration statement under the Securities Act for an
offering of equity securities of the Partnership for cash (other
than an offering relating solely to an employee benefit plan),
the Partnership shall notify all Holders of such proposals and
use its commercially reasonable efforts to include such number
or amount of securities held by the Holder in such registration
statement as the Holder shall request; provided, that the
Partnership is not required to make any effort or take any
action to so include the securities of the Holder once the
registration statement is declared effective by the Commission
or otherwise becomes effective, including any registration
statement providing for the offering from time to time of
securities pursuant to Rule 415 of the Securities Act. If
the proposed offering pursuant to this Section 7.12(c)
shall be an underwritten offering, then, in the event that the
managing underwriter or managing underwriters of such offering
advise the Partnership and the Holder in writing that in their
opinion the inclusion of all or some of the Holders
Partnership Securities would adversely and materially affect the
success of the offering, the Partnership shall include in such
offering only that number or amount, if any, of securities held
by the Holder that, in the opinion of the managing underwriter
or managing underwriters, will not so adversely and materially
affect the offering. Except as set forth in
Section 7.12(d), all costs and expenses of any such
registration and offering (other than the underwriting discounts
and commissions) shall be paid by the Partnership, without
reimbursement by the Holder.
(d) If underwriters are engaged in connection with
any registration referred to in this Section 7.12, the
Partnership shall provide indemnification, representations,
covenants, opinions and other assurance to the underwriters in
form and substance reasonably satisfactory to such underwriters.
Further, in addition to and not in limitation of the
Partnerships obligation under Section 7.7, the
Partnership shall, to the fullest extent permitted by law,
indemnify and hold harmless the Holder, its officers, directors
and each Person who controls the Holder (within the meaning of
the Securities Act) and any agent thereof (collectively,
Indemnified Persons) from and against
any and all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees and expenses),
judgments, fines, penalties, interest, settlements or other
amounts arising from any and all claims, demands, actions, suits
or proceedings, whether civil, criminal, administrative or
investigative, in which any Indemnified Person may be involved,
or is threatened to be involved, as a party or otherwise, under
the Securities Act or otherwise (hereinafter referred to in this
Section 7.12(d) as a claim and in the plural as
claims) based upon, arising out of or resulting from
any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which any
Partnership Securities were registered under the Securities Act
or any state securities or Blue Sky laws, in any preliminary
prospectus (if used prior to the effective date of such
registration statement), or in any summary or final prospectus
or free writing prospectus or in any amendment or supplement
thereto (if used during the period the Partnership is required
to keep the registration statement current), or arising out of,
based upon or resulting from the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements made therein not misleading;
provided, however, that the Partnership shall not be
liable to any Indemnified Person to the extent that any such
claim arises out of, is based upon or results from an untrue
statement or alleged untrue statement or omission or alleged
omission made in such registration statement, such preliminary,
summary or final prospectus or free writing prospectus or such
amendment or supplement, in reliance upon and in conformity with
written information furnished to the Partnership by or on behalf
of such Indemnified Person specifically for use in the
preparation thereof.
(e) The provisions of Section 7.12(a),
Section 7.12(b) and Section 7.12(c) shall continue to
be applicable with respect to the General Partner (and any of
the General Partners Affiliates) after it ceases
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to be a general partner of the Partnership, during a period of
two years subsequent to the effective date of such cessation and
for so long thereafter as is required for the Holder to sell all
of the Partnership Securities with respect to which it has
requested during such two-year period inclusion in a
registration statement otherwise filed or that a registration
statement be filed; provided, however, that the
Partnership shall not be required to file successive
registration statements covering the same Partnership Securities
for which registration was demanded during such two-year period.
The provisions of Section 7.12(d) shall continue in effect
thereafter.
(f) The rights to cause the Partnership to register
Partnership Securities pursuant to this Section 7.12 may be
assigned (but only with all related obligations) by a Holder to
a transferee or assignee of such Partnership Securities,
provided (i) the Partnership is, within a reasonable time
after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the Partnership
Securities with respect to which such registration rights are
being assigned; and (ii) such transferee or assignee agrees
in writing to be bound by and subject to the terms set forth in
this Section 7.12.
(g) Any request to register Partnership Securities
pursuant to this Section 7.12 shall (i) specify the
Partnership Securities intended to be offered and sold by the
Person making the request, (ii) express such Persons
present intent to offer such Partnership Securities for
distribution, (iii) describe the nature or method of the
proposed offer and sale of Partnership Securities, and
(iv) contain the undertaking of such Person to provide all
such information and materials and take all action as may be
required in order to permit the Partnership to comply with all
applicable requirements in connection with the registration of
such Partnership Securities.
Section 7.13 Reliance
by Third Parties.
Notwithstanding anything to the contrary in this Agreement, any
Person dealing with the Partnership shall be entitled to assume
that the General Partner and any officer of the General Partner
authorized by the General Partner to act on behalf of and in the
name of the Partnership has full power and authority to
encumber, sell or otherwise use in any manner any and all assets
of the Partnership and to enter into any authorized contracts on
behalf of the Partnership, and such Person shall be entitled to
deal with the General Partner or any such officer as if it were
the Partnerships sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives, to the fullest
extent permitted by law, any and all defenses or other remedies
that may be available against such Person to contest, negate or
disaffirm any action of the General Partner or any such officer
in connection with any such dealing. In no event shall any
Person dealing with the General Partner or any such officer or
its representatives be obligated to ascertain that the terms of
this Agreement have been complied with or to inquire into the
necessity or expedience of any act or action of the General
Partner or any such officer or its representatives. Each and
every certificate, document or other instrument executed on
behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and
every Person relying thereon or claiming thereunder that
(a) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full
force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly authorized and
empowered to do so for and on behalf of the Partnership and
(c) such certificate, document or instrument was duly
executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
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ARTICLE VIII
BOOKS, RECORDS,
ACCOUNTING AND REPORTS
Section 8.1 Records
and Accounting.
The General Partner shall keep or cause to be kept at the
principal office of the Partnership appropriate books and
records with respect to the Partnerships business,
including all books and records necessary to provide to the
Limited Partners any information required to be provided
pursuant to Section 3.4(a). Any books and records
maintained by or on behalf of the Partnership in the regular
course of its business, including the record of the Record
Holders of Units or other Partnership Securities, books of
account and records of Partnership proceedings, may be kept on,
or be in the form of, computer disks, hard drives, punch cards,
magnetic tape, photographs, micrographics or any other
information storage device; provided, that the books and records
so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership
shall be maintained, for financial reporting purposes, on an
accrual basis in accordance with U.S. GAAP.
Section 8.2 Fiscal
Year.
The fiscal year of the Partnership shall be a fiscal year ending
December 31.
Section 8.3 Reports.
(a) As soon as practicable, but in no event later
than 120 days after the close of each fiscal year of the
Partnership, the General Partner shall cause to be mailed or
made available, by any reasonable means (including posting on or
accessible through the Partnerships or the SECs
website) to each Record Holder of a Unit as of a date selected
by the General Partner, an annual report containing financial
statements of the Partnership for such fiscal year of the
Partnership, presented in accordance with U.S. GAAP,
including a balance sheet and statements of operations,
Partnership equity and cash flows, such statements to be audited
by a firm of independent public accountants selected by the
General Partner.
(b) As soon as practicable, but in no event later
than 90 days after the close of each Quarter except the
last Quarter of each fiscal year, the General Partner shall
cause to be mailed or made available, by any reasonable means
(including posting on or accessible through the
Partnerships or the SECs website) to each Record
Holder of a Unit, as of a date selected by the General Partner,
a report containing unaudited financial statements of the
Partnership and such other information as may be required by
applicable law, regulation or rule of any National Securities
Exchange on which the Units are listed or admitted to trading,
or as the General Partner determines to be necessary or
appropriate.
ARTICLE IX
TAX
MATTERS
Section 9.1 Tax
Returns and Information.
The Partnership shall timely file all returns of the Partnership
that are required for federal, state and local income tax
purposes on the basis of the accrual method and the taxable year
or years that it is required by law to adopt, from time to time,
as determined by the General Partner. In the event the
Partnership is required to use a taxable year other than a year
ending on December 31, the General Partner shall use
reasonable efforts to change the taxable year of the Partnership
to a year ending on December 31. The tax information
reasonably required by Record Holders for federal and state
income tax reporting purposes with respect to a taxable year
shall be furnished to them within 90 days of the
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close of the calendar year in which the Partnerships
taxable year ends. The classification, realization and
recognition of income, gain, losses and deductions and other
items shall be on the accrual method of accounting for federal
income tax purposes.
Section 9.2 Tax
Elections.
(a) The Partnership shall make the election under
Section 754 of the Code in accordance with applicable
regulations thereunder, subject to the reservation of the right
to seek to revoke any such election upon the General
Partners determination that such revocation is in the best
interests of the Limited Partners. Notwithstanding any other
provision herein contained, for the purposes of computing the
adjustments under Section 743(b) of the Code, the General
Partner shall be authorized (but not required) to adopt a
convention whereby the price paid by a transferee of a Limited
Partner Interest will be deemed to be the lowest quoted closing
price of the Limited Partner Interests on any National
Securities Exchange on which such Limited Partner Interests are
listed or admitted to trading during the calendar month in which
such transfer is deemed to occur pursuant to Section 6.2(g)
without regard to the actual price paid by such transferee.
(b) Except as otherwise provided herein, the General
Partner shall determine whether the Partnership should make any
other elections permitted by the Code.
Section 9.3 Tax
Controversies.
Subject to the provisions hereof, the General Partner is
designated as the Tax Matters Partner (as defined in the Code)
and is authorized and required to represent the Partnership (at
the Partnerships expense) in connection with all
examinations of the Partnerships affairs by tax
authorities, including resulting administrative and judicial
proceedings, and to expend Partnership funds for professional
services and costs associated therewith. Each Partner agrees to
cooperate with the General Partner and to do or refrain from
doing any or all things reasonably required by the General
Partner to conduct such proceedings.
Section 9.4 Withholding.
Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any action that may be
required to cause the Partnership and other Group Members to
comply with any withholding requirements established under the
Code or any other federal, state or local law including pursuant
to Sections 1441, 1442, 1445 and 1446 of the Code. To the
extent that the Partnership is required or elects to withhold
and pay over to any taxing authority any amount resulting from
the allocation or distribution of income to any Partner or
Assignee (including by reason of Section 1446 of the Code),
the General Partner may treat the amount withheld as a
distribution of cash pursuant to Section 6.3(c) in the
amount of such withholding from such Partner.
ARTICLE X
ADMISSION OF
PARTNERS
Section 10.1 Admission
of Limited Partners.
(a) Upon the issuance by the Partnership of Common
Units, Subordinated Units and Incentive Distribution Rights to
the General Partner, Holdings and the Underwriters as described
in Article V in connection with the Initial Offering, such
parties shall automatically be admitted to the Partnership as
Initial Limited Partners in respect of the Common Units,
Subordinated Units or Incentive Distribution Rights issued to
them.
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(b) By acceptance of the transfer of any Limited
Partner Interests in accordance with Article IV or the
acceptance of any Limited Partner Interests issued pursuant to
Article V or pursuant to a merger or consolidation pursuant
to Article XIV, and except as provided in Section 4.9
or Section 4.11, each transferee of, or other such Person
acquiring, a Limited Partner Interest (including any nominee
holder or an agent or representative acquiring such Limited
Partner Interests for the account of another Person)
(i) shall be admitted to the Partnership as a Limited
Partner with respect to the Limited Partner Interests so
transferred or issued to such Person when any such transfer,
issuance or admission is reflected in the books and records of
the Partnership and such Limited Partner becomes the Record
Holder of the Limited Partner Interests so transferred,
(ii) shall become bound by the terms of this Agreement,
(iii) represents that the transferee has the capacity,
power and authority to enter into this Agreement,
(iv) grants the powers of attorney set forth in this
Agreement and (v) makes the consents and waivers contained
in this Agreement, all with or without execution of this
Agreement by such Person. The transfer of any Limited Partner
Interests and the admission of any new Limited Partner shall not
constitute an amendment to this Agreement. A Person may become a
Limited Partner or Record Holder of a Limited Partner Interest
without the consent or approval of any of the Partners. A Person
may not become a Limited Partner without acquiring a Limited
Partner Interest and until such Person is reflected in the books
and records of the Partnership as the Record Holder of such
Limited Partner Interest. The rights and obligations of a Person
who is a Non-citizen Assignee shall be determined in accordance
with Section 4.9, and the rights and obligations of a
Person who is an Ineligible Assignee shall be determined in
accordance with Section 4.11.
(c) The name and mailing address of each Limited
Partner shall be listed on the books and records of the
Partnership maintained for such purpose by the Partnership or
the Transfer Agent. The General Partner shall update the books
and records of the Partnership from time to time as necessary to
reflect accurately the information therein (or shall cause the
Transfer Agent to do so, as applicable). A Limited Partner
Interest may be represented by a Certificate, as provided in
Section 4.1 hereof.
(d) Any transfer of a Limited Partner Interest shall
not entitle the transferee to share in the profits and losses,
to receive distributions, to receive allocations of income,
gain, loss, deduction or credit or any similar item or to any
other rights to which the transferor was entitled until the
transferee becomes a Limited Partner pursuant to
Section 10.1(b).
Section 10.2 Admission
of Successor General Partner.
A successor General Partner approved pursuant to
Section 11.1 or Section 11.2 or the transferee of or
successor to all of the General Partner Interest (represented by
General Partner Units) pursuant to Section 4.6 who is
proposed to be admitted as a successor General Partner shall be
admitted to the Partnership as the General Partner, effective
immediately prior to the withdrawal or removal of the
predecessor or transferring General Partner, pursuant to
Section 11.1 or 11.2 or the transfer of the General Partner
Interest (represented by General Partner Units) pursuant to
Section 4.6, provided, however, that no such
successor shall be admitted to the Partnership until compliance
with the terms of Section 4.6 has occurred and such
successor has executed and delivered such other documents or
instruments as may be required to effect such admission. Any
such successor shall, subject to the terms hereof, carry on the
business of the members of the Partnership Group without
dissolution.
Section 10.3 Amendment
of Agreement and Certificate of Limited Partnership.
To effect the admission to the Partnership of any Partner, the
General Partner shall take all steps necessary or appropriate
under the Delaware Act to amend the records of the Partnership
to reflect such admission and, if necessary, to prepare as soon
as practicable an amendment to this Agreement and, if required
by law, the General Partner shall prepare and file an amendment
to the Certificate of Limited
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Partnership, and the General Partner may for this purpose, among
others, exercise the power of attorney granted pursuant to
Section 2.6.
ARTICLE XI
WITHDRAWAL OR
REMOVAL OF PARTNERS
Section 11.1 Withdrawal
of the General Partner.
(a) The General Partner shall be deemed to have
withdrawn from the Partnership upon the occurrence of any one of
the following events (each such event herein referred to as an
Event of Withdrawal);
(i) The General Partner voluntarily withdraws from
the Partnership by giving written notice to the other Partners;
(ii) The General Partner transfers all of its General
Partner Interest pursuant to Section 4.6;
(iii) The General Partner is removed pursuant to
Section 11.2;
(iv) The General Partner (A) makes a general
assignment for the benefit of creditors; (B) files a
voluntary bankruptcy petition for relief under Chapter 7 of
the United States Bankruptcy Code; (C) files a petition or
answer seeking for itself a liquidation, dissolution or similar
relief (but not a reorganization) under any law; (D) files
an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against the General
Partner in a proceeding of the type described in clauses (A)-(C)
of this Section 11.1(a)(iv); or (E) seeks, consents to or
acquiesces in the appointment of a trustee (but not a
debtor-in-possession),
receiver or liquidator of the General Partner or of all or any
substantial part of its properties;
(v) A final and non-appealable order of relief under
Chapter 7 of the United States Bankruptcy Code is entered
by a court with appropriate jurisdiction pursuant to a voluntary
or involuntary petition by or against the General
Partner; or
(vi) (A) in the event the General Partner is a
corporation, a certificate of dissolution or its equivalent is
filed for the General Partner, or 90 days expire after the
date of notice to the General Partner of revocation of its
charter without a reinstatement of its charter, under the laws
of its state of incorporation; (B) in the event the General
Partner is a partnership or a limited liability company, the
dissolution and commencement of winding up of the General
Partner; (C) in the event the General Partner is acting in
such capacity by virtue of being a trustee of a trust, the
termination of the trust; (D) in the event the General
Partner is a natural person, his death or adjudication of
incompetency; and (E) otherwise in the event of the
termination of the General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv),
(v) or (vi)(A), (B), (C) or (E) occurs, the
withdrawing General Partner shall give notice to the Limited
Partners within 30 days after such occurrence. The Partners
hereby agree that only the Events of Withdrawal described in
this Section 11.1 shall result in the withdrawal of the
General Partner from the Partnership.
(b) Withdrawal of the General Partner from the
Partnership upon the occurrence of an Event of Withdrawal shall
not constitute a breach of this Agreement under the following
circumstances: (i) at any time during the period beginning
on the Closing Date and ending at 12:00 midnight, Central
Standard Time, on June 30, 2018, the General Partner
voluntarily withdraws by giving at least 90 days
advance notice of its intention to withdraw to the Limited
Partners; provided, that prior to the effective date of
such withdrawal, the withdrawal is approved by Unitholders
holding at least a majority of the Outstanding Common Units
(excluding Common Units held by the General Partner and its
Affiliates) and the General Partner delivers to the Partnership
an Opinion of Counsel (Withdrawal Opinion of
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Counsel) that such withdrawal (following the
selection of the successor General Partner) would not result in
the loss of the limited liability of any Limited Partner or any
Group Member or cause any Group Member to be treated as an
association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes (to the extent not
already so treated or taxed); (ii) at any time after 12:00
midnight, Central Standard Time, on June 30, 2018, the
General Partner voluntarily withdraws by giving at least
90 days advance notice to the Unitholders, such
withdrawal to take effect on the date specified in such notice;
(iii) at any time that the General Partner ceases to be the
General Partner pursuant to Section 11.1(a)(ii) or is
removed pursuant to Section 11.2; or
(iv) notwithstanding clause (i) of this sentence, at
any time that the General Partner voluntarily withdraws by
giving at least 90 days advance notice of its
intention to withdraw to the Limited Partners, such withdrawal
to take effect on the date specified in the notice, if at the
time such notice is given one Person and its Affiliates (other
than the General Partner and its Affiliates) own beneficially or
of record or control at least 50% of the Outstanding Units. The
withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall also constitute the
withdrawal of the General Partner as general partner or managing
member, if any, to the extent applicable, of the other Group
Members. If the General Partner gives a notice of withdrawal
pursuant to Section 11.1(a)(i), the holders of a Unit
Majority, may, prior to the effective date of such withdrawal,
elect a successor General Partner. The Person so elected as
successor General Partner shall automatically become the
successor general partner or managing member, to the extent
applicable, of the other Group Members of which the General
Partner is a general partner or a managing member, and is hereby
authorized to, and shall, continue the business of the
Partnership, and, to the extent applicable, the other Group
Members, without dissolution. If, prior to the effective date of
the General Partners withdrawal pursuant to
Section 11.1(a)(i), a successor is not selected by the
Unitholders as provided herein or the Partnership does not
receive a Withdrawal Opinion of Counsel, the Partnership shall
be dissolved in accordance with and subject to
Section 12.1. Any successor General Partner elected in
accordance with the terms of this Section 11.1 shall be
subject to the provisions of Section 10.2.
Section 11.2 Removal
of the General Partner.
The General Partner may be removed if such removal is approved
by the Unitholders holding at least
662/3%
of the Outstanding Units (including Units held by the General
Partner and its Affiliates) voting as a single class. Any such
action by such holders for removal of the General Partner must
also provide for the election of a successor General Partner by
the Unitholders holding a majority of the outstanding Common
Units and Class B Units, if any, voting as a single class
and a majority of the outstanding Subordinated Units (if any
Subordinated Units are then Outstanding) voting as a class
(including, in each case, Units held by the General Partner and
its Affiliates). Such removal shall be effective immediately
following the admission of a successor General Partner pursuant
to Section 10.2. The removal of the General Partner shall
also automatically constitute the removal of the General Partner
as general partner or managing member, to the extent applicable,
of the other Group Members of which the General Partner is a
general partner or a managing member. If a Person is elected as
a successor General Partner in accordance with the terms of this
Section 11.2, such Person shall, upon admission pursuant to
Section 10.2, automatically become a successor general
partner or managing member, to the extent applicable, of the
other Group Members of which the General Partner is a general
partner or a managing member, and is hereby authorized to, and
shall, continue the business of the Partnership, and, to the
extent applicable, the other Group Members, without dissolution.
The right of the holders of Outstanding Units to remove the
General Partner shall not exist or be exercised unless the
Partnership has received an opinion opining as to the matters
covered by a Withdrawal Opinion of Counsel. Any successor
General Partner elected in accordance with the terms of this
Section 11.2 shall be subject to the provisions of
Section 10.2.
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Section 11.3 Interest
of Departing General Partner and Successor General Partner.
(a) In the event of (i) withdrawal of the
General Partner under circumstances where such withdrawal does
not violate this Agreement or (ii) removal of the General
Partner by the holders of Outstanding Units under circumstances
where Cause does not exist, if the successor General Partner is
elected in accordance with the terms of Section 11.1 or
Section 11.2, the Departing General Partner shall have the
option, exercisable prior to the effective date of the
withdrawal or removal of such Departing General Partner, to
require its successor to purchase its General Partner Interest
(represented by General Partner Units) and its general partner
interest (or equivalent interest), if any, in the other Group
Members and all of its Incentive Distribution Rights
(collectively, the Combined Interest)
in exchange for an amount in cash equal to the fair market value
of such Combined Interest, such amount to be determined and
payable as of the effective date of its withdrawal or removal.
If the General Partner is removed by the Unitholders under
circumstances where Cause exists or if the General Partner
withdraws under circumstances where such withdrawal violates
this Agreement, and if a successor General Partner is elected in
accordance with the terms of Section 11.1 or
Section 11.2 (or if the business of the Partnership is
continued pursuant to Section 12.2 and the successor
General Partner is not the former General Partner), such
successor shall have the option, exercisable prior to the
effective date of the withdrawal or removal of such Departing
General Partner (or, in the event the business of the
Partnership is continued, prior to the date the business of the
Partnership is continued), to purchase the Combined Interest for
such fair market value of such Combined Interest of the
Departing General Partner. In either event, the Departing
General Partner shall be entitled to receive all reimbursements
due such Departing General Partner pursuant to Section 7.4,
including any employee-related liabilities (including severance
liabilities), incurred in connection with the termination of any
employees employed by the Departing General Partner or its
Affiliates (other than any Group Member) for the benefit of the
Partnership or the other Group Members.
For purposes of this Section 11.3(a), the fair market value
of the Departing General Partners Combined Interest shall
be determined by agreement between the Departing General Partner
and its successor or, failing agreement within 30 days
after the effective date of such Departing General
Partners withdrawal or removal, by an independent
investment banking firm or other independent expert selected by
the Departing General Partner and its successor, which, in turn,
may rely on other experts, and the determination of which shall
be conclusive as to such matter. If such parties cannot agree
upon one independent investment banking firm or other
independent expert within 45 days after the effective date
of such departure, then the Departing General Partner shall
designate an independent investment banking firm or other
independent expert, the Departing General Partners
successor shall designate an independent investment banking firm
or other independent expert, and such firms or experts shall
mutually select a third independent investment banking firm or
independent expert, which third independent investment banking
firm or other independent expert shall determine the fair market
value of the Combined Interest of the Departing General Partner.
In making its determination, such third independent investment
banking firm or other independent expert may consider the then
current trading price of Units on any National Securities
Exchange on which Units are then listed or admitted to trading,
the value of the Partnerships assets, the rights and
obligations of the Departing General Partner and other factors
it may deem relevant.
(b) If the Combined Interest is not purchased in the
manner set forth in Section 11.3(a), the Departing General
Partner (or its transferee) shall become a Limited Partner and
its Combined Interest shall be converted into Common Units
pursuant to a valuation made by an investment banking firm or
other independent expert selected pursuant to
Section 11.3(a), without reduction in such Partnership
Interest (but subject to proportionate dilution by reason of the
admission of its successor). Any successor General Partner shall
indemnify the Departing General Partner (or its transferee) as
to all debts and
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liabilities of the Partnership arising on or after the date on
which the Departing General Partner (or its transferee) becomes
a Limited Partner. For purposes of this Agreement, conversion of
the Combined Interest of the Departing General Partner to Common
Units will be characterized as if the Departing General Partner
(or its transferee) contributed its Combined Interest to the
Partnership in exchange for the newly issued Common Units.
(c) If a successor General Partner is elected in
accordance with the terms of Section 11.1 or
Section 11.2 (or if the business of the Partnership is
continued pursuant to Section 12.2 and the successor
General Partner is not the former General Partner) and the
option described in Section 11.3(a) is not exercised by the
party entitled to do so, the successor General Partner shall, at
the effective date of its admission to the Partnership,
contribute to the Partnership cash in the amount equal to the
product of (x) the quotient obtained by dividing
(A) the Percentage Interest of the General Partner Interest
of the Departing General Partner by (B) a percentage equal
to 100% less the Percentage Interest of the General Partner
Interest of the Departing General Partner and (y) the Net
Agreed Value of the Partnerships assets on such date. In
such event, such successor General Partner shall, subject to the
following sentence, be entitled to its Percentage Interest of
all Partnership allocations and distributions to which the
Departing General Partner was entitled. In addition, the
successor General Partner shall cause this Agreement to be
amended to reflect that, from and after the date of such
successor General Partners admission, the successor
General Partners interest in all Partnership distributions
and allocations shall be its Percentage Interest.
Section 11.4 Termination
of Subordination Period, Conversion of Subordinated Units and
Extinguishment of Cumulative Common Unit Arrearages.
Notwithstanding any provision of this Agreement, if the General
Partner is removed as general partner of the Partnership under
circumstances where Cause does not exist and Units held by the
General Partner and its Affiliates are not voted in favor of
such removal, (i) the Subordination Period will end and all
Outstanding Subordinated Units will immediately and
automatically convert into Common Units on a one-for-one basis
(provided, however, that such converted Subordinated Units shall
remain subject to the provisions of Section 5.5(c)(ii),
6.1(d)(x) and 6.7(c)), (ii) all Cumulative Common Unit
Arrearages on the Common Units will be extinguished and
(iii) the General Partner will have the right to convert
its General Partner Interest (represented by General Partner
Units) and its Incentive Distribution Rights into Common Units
or to receive cash in exchange therefor in accordance with
Section 11.3.
Section 11.5 Withdrawal
of Limited Partners.
No Limited Partner shall have any right to withdraw from the
Partnership; provided, however, that when a transferee of
a Limited Partners Limited Partner Interest becomes a
Record Holder of the Limited Partner Interest so transferred,
such transferring Limited Partner shall cease to be a Limited
Partner with respect to the Limited Partner Interest so
transferred.
ARTICLE XII
DISSOLUTION AND
LIQUIDATION
Section 12.1 Dissolution.
The Partnership shall not be dissolved by the admission of
additional Limited Partners or by the admission of a successor
General Partner in accordance with the terms of this Agreement.
Upon the removal or withdrawal of the General Partner, if a
successor General Partner is elected pursuant to
Section 10.2, 11.1, 11.2 or 12.2, the Partnership shall not
be dissolved and such successor General
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Partner is hereby authorized to, and shall, continue the
business of the Partnership. Subject to Section 12.2, the
Partnership shall dissolve, and its affairs shall be wound up,
upon:
(a) an Event of Withdrawal of the General Partner as
provided in Section 11.1(a) (other than
Section 11.1(a)(ii)), unless a successor is elected and
such successor is admitted to the Partnership pursuant to this
Agreement;
(b) an election to dissolve the Partnership by the
General Partner that is approved by the holders of a Unit
Majority;
(c) the entry of a decree of judicial dissolution of
the Partnership pursuant to the provisions of the Delaware
Act; or
(d) at any time there are no Limited Partners, unless
the Partnership is continued without dissolution in accordance
with the Delaware Act.
Section 12.2 Continuation
of the Business of the Partnership After Dissolution.
Upon an Event of Withdrawal caused by (a) the withdrawal or
removal of the General Partner as provided in
Section 11.1(a)(i) or (iii) and the failure of the
Partners to select a successor to such Departing General Partner
pursuant to Section 11.1 or Section 11.2, then within
90 days thereafter, or (b) an event constituting an
Event of Withdrawal as defined in Section 11.1(a)(iv),
(v) or (vi), then, to the maximum extent permitted by law,
within 180 days thereafter, the holders of a Unit Majority
may elect to continue the business of the Partnership on the
same terms and conditions set forth in this Agreement by
appointing as a successor General Partner a Person approved by
the holders of a Unit Majority. Unless such an election is made
within the applicable time period as set forth above, the
Partnership shall conduct only activities necessary to wind up
its affairs. If such an election is so made, then:
(i) the Partnership shall continue without
dissolution unless earlier dissolved in accordance with this
Article XII;
(ii) if the successor General Partner is not the
former General Partner, then the interest of the former General
Partner shall be treated in the manner provided in
Section 11.3; and
(iii) the successor General Partner shall be admitted
to the Partnership as General Partner, effective as of the Event
of Withdrawal, by agreeing in writing to be bound by this
Agreement;
(iv) provided, that the right of the holders
of a Unit Majority to approve a successor General Partner and to
continue the business of the Partnership shall not exist and may
not be exercised unless the Partnership has received an Opinion
of Counsel that (x) the exercise of the right would not
result in the loss of limited liability of any Limited Partner
and (y) neither the Partnership nor any Group Member would
be treated as an association taxable as a corporation or
otherwise be taxable as an entity for federal income tax
purposes upon the exercise of such right to continue (to the
extent not already so treated or taxed).
Section 12.3 Liquidator.
Upon dissolution of the Partnership, unless the business of the
Partnership is continued pursuant to Section 12.2, the
General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner)
shall be entitled to receive such compensation for its services
as may be approved by holders of at least a majority of the
Outstanding Common Units, Subordinated Units and Class B
Units, if any, voting as a single class. The Liquidator (if
other than the General Partner) shall agree not to resign at any
time without 15 days prior notice and may be removed
at any time,
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with or without cause, by notice of removal approved by holders
of at least a majority of the Outstanding Common Units,
Subordinated Units and Class B Units, if any, voting as a
single class. Upon dissolution, removal or resignation of the
Liquidator, a successor and substitute Liquidator (who shall
have and succeed to all rights, powers and duties of the
original Liquidator) shall within 30 days thereafter be
approved by holders of at least a majority of the Outstanding
Common Units, Subordinated Units and Class B Units, if any,
voting as a single class. The right to approve a successor or
substitute Liquidator in the manner provided herein shall be
deemed to refer also to any such successor or substitute
Liquidator approved in the manner herein provided. Except as
expressly provided in this Article XII, the Liquidator
approved in the manner provided herein shall have and may
exercise, without further authorization or consent of any of the
parties hereto, all of the powers conferred upon the General
Partner under the terms of this Agreement (but subject to all of
the applicable limitations, contractual and otherwise, upon the
exercise of such powers, other than the limitation on sale set
forth in Section 7.3) necessary or appropriate to carry out
the duties and functions of the Liquidator hereunder for and
during the period of time required to complete the winding up
and liquidation of the Partnership as provided for herein.
Section 12.4 Liquidation.
The Liquidator shall proceed to dispose of the assets of the
Partnership, discharge its liabilities, and otherwise wind up
its affairs in such manner and over such period as determined by
the Liquidator, subject to
Section 17-804
of the Delaware Act and the following:
(a) The assets may be disposed of by public or
private sale or by distribution in kind to one or more Partners
on such terms as the Liquidator and such Partner or Partners may
agree. If any property is distributed in kind, the Partner
receiving the property shall be deemed for purposes of
Section 12.4(c) to have received cash equal to its fair
market value; and contemporaneously therewith, appropriate cash
distributions must be made to the other Partners. The Liquidator
may defer liquidation or distribution of the Partnerships
assets for a reasonable time if it determines that an immediate
sale or distribution of all or some of the Partnerships
assets would be impractical or would cause undue loss to the
Partners. The Liquidator may distribute the Partnerships
assets, in whole or in part, in kind if it determines that a
sale would be impractical or would cause undue loss to the
Partners.
(b) Liabilities of the Partnership include amounts
owed to the Liquidator as compensation for serving in such
capacity (subject to the terms of Section 12.3) and amounts
to Partners otherwise than in respect of their distribution
rights under Article VI. With respect to any liability that
is contingent, conditional or unmatured or is otherwise not yet
due and payable, the Liquidator shall either settle such claim
for such amount as it thinks appropriate or establish a reserve
of cash or other assets to provide for its payment. When paid,
any unused portion of the reserve shall be distributed as
additional liquidation proceeds.
(c) All property and all cash in excess of that
required to discharge liabilities as provided in
Section 12.4(b) shall be distributed to the Partners in
accordance with, and to the extent of, the positive balances in
their respective Capital Accounts, as determined after taking
into account all Capital Account adjustments (other than those
made by reason of distributions pursuant to this
Section 12.4(c)) for the taxable year of the Partnership
during which the liquidation of the Partnership occurs (with
such date of occurrence being determined pursuant to Treasury
Regulation Section 1.704-1(b)(2)(ii)(g)),
and such distribution shall be made by the end of such taxable
year (or, if later, within 90 days after said date of such
occurrence).
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Section 12.5 Cancellation
of Certificate of Limited Partnership.
Upon the completion of the distribution of Partnership cash and
property as provided in Section 12.4 in connection with the
liquidation of the Partnership, the Certificate of Limited
Partnership and all qualifications of the Partnership as a
foreign limited partnership in jurisdictions other than the
State of Delaware shall be canceled and such other actions as
may be necessary to terminate the Partnership shall be taken.
Section 12.6 Return
of Contributions.
The General Partner shall not be personally liable for, and
shall have no obligation to contribute or loan any monies or
property to the Partnership to enable it to effectuate, the
return of the Capital Contributions of the Limited Partners or
Unitholders, or any portion thereof, it being expressly
understood that any such return shall be made solely from
Partnership assets.
Section 12.7 Waiver
of Partition.
To the maximum extent permitted by law, each Partner hereby
waives any right to partition of the Partnership property.
Section 12.8 Capital
Account Restoration.
No Limited Partner shall have any obligation to restore any
negative balance in its Capital Account upon liquidation of the
Partnership. The General Partner shall be obligated to restore
any negative balance in its Capital Account upon liquidation of
its interest in the Partnership by the end of the taxable year
of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.
ARTICLE XIII
AMENDMENT OF
PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
Section 13.1 Amendments
to be Adopted Solely by the General Partner.
Each Partner agrees that the General Partner, without the
approval of any Partner, may amend any provision of this
Agreement and execute, swear to, acknowledge, deliver, file and
record whatever documents may be required in connection
therewith, to reflect:
(a) a change in the name of the Partnership, the
location of the principal place of business of the Partnership,
the registered agent of the Partnership or the registered office
of the Partnership;
(b) admission, substitution, withdrawal or removal of
Partners in accordance with this Agreement;
(c) a change that the General Partner determines to
be necessary or appropriate to qualify or continue the
qualification of the Partnership as a limited partnership or a
partnership in which the Limited Partners have limited liability
under the laws of any state or to ensure that the Group Members
will not be treated as associations taxable as corporations or
otherwise taxed as entities for federal income tax purposes;
(d) a change that the General Partner determines
(i) does not adversely affect the Limited Partners
(including any particular class of Partnership Interests as
compared to other classes of Partnership Interests) in any
material respect, (ii) to be necessary or appropriate to
(A) satisfy any requirements, conditions or guidelines
contained in any opinion, directive, order, ruling or regulation
of any federal or state agency or judicial authority or
contained in any federal or state statute (including the
Delaware
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Act) or (B) facilitate the trading of the Units (including
the division of any class or classes of Outstanding Units into
different classes to facilitate uniformity of tax consequences
within such classes of Units) or comply with any rule,
regulation, guideline or requirement of any National Securities
Exchange on which the Units are or will be listed or admitted to
trading, (iii) to be necessary or appropriate in connection
with action taken by the General Partner pursuant to
Section 5.9 or (iv) is required to effect the intent
expressed in the Registration Statement or the intent of the
provisions of this Agreement or is otherwise contemplated by
this Agreement;
(e) a change in the fiscal year or taxable year of
the Partnership and any other changes that the General Partner
determines to be necessary or appropriate as a result of a
change in the fiscal year or taxable year of the Partnership
including, if the General Partner shall so determine, a change
in the definition of Quarter and the dates on which
distributions are to be made by the Partnership;
(f) an amendment that is necessary, in the Opinion of
Counsel, to prevent the Partnership, or the General Partner or
its directors, officers, trustees or agents from in any manner
being subjected to the provisions of the Investment Company Act
of 1940, as amended, the Investment Advisers Act of 1940, as
amended, or plan asset regulations adopted under the
Employee Retirement Income Security Act of 1974, as amended,
regardless of whether such are substantially similar to plan
asset regulations currently applied or proposed by the United
States Department of Labor;
(g) an amendment that the General Partner determines
to be necessary or appropriate in connection with the
authorization of issuance of any class or series of Partnership
Securities pursuant to Section 5.6, including any amendment
that the General Partner determines is necessary or appropriate
in connection with (i) the adjustments of the Minimum
Quarterly Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution pursuant to the
provisions of Section 5.11, (ii) the implementation of
the provisions of Section 5.11 or (iii) any
modifications to the Incentive Distribution Rights made in
connection with the issuance of Partnership Securities pursuant
to Section 5.6, provided that, with respect to this
clause (iii), the modifications to the Incentive Distribution
Rights and the related issuance of Partnership Securities have
received Special Approval;
(h) any amendment expressly permitted in this
Agreement to be made by the General Partner acting alone;
(i) an amendment effected, necessitated or
contemplated by a Merger Agreement approved in accordance with
Section 14.3;
(j) an amendment that the General Partner determines
to be necessary or appropriate to reflect and account for the
formation by the Partnership of, or investment by the
Partnership in, any corporation, partnership, joint venture,
limited liability company or other entity, in connection with
the conduct by the Partnership of activities permitted by the
terms of Sections 2.4 or 7.1(a);
(k) a merger, conveyance or conversion pursuant to
Section 14.3(d); or
(l) any other amendments substantially similar to the
foregoing.
Section 13.2 Amendment
Procedures.
Except as provided in Section 13.1 and Section 13.3,
all amendments to this Agreement shall be made in accordance
with the requirements contained in this Section 13.2.
Amendments to this Agreement may be proposed only by the General
Partner; provided, however, that to the fullest extent
permitted by law, the General Partner shall have no duty or
obligation to propose any amendment to this Agreement and may
decline to do so free of any duty (including any fiduciary duty)
or obligation whatsoever to the Partnership, any Limited Partner
or any other Person bound by this Agreement, and, in declining
to
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propose an amendment, to the fullest extent permitted by law
shall not be required to act in good faith or pursuant to any
other standard imposed by this Agreement, any Group Member
Agreement, any other agreement contemplated hereby or under the
Delaware Act or any other law, rule or regulation or at equity.
A proposed amendment shall be effective upon its approval by the
General Partner and the holders of a Unit Majority, unless a
greater or different percentage is required under this Agreement
or by Delaware law. Each proposed amendment that requires the
approval of the holders of a specified percentage of Outstanding
Units shall be set forth in a writing that contains the text of
the proposed amendment. If such an amendment is proposed, the
General Partner shall seek the written approval of the requisite
percentage of Outstanding Units or call a meeting of the
Unitholders to consider and vote on such proposed amendment, in
each case in accordance with the other provisions of this
Article XIII. The General Partner shall notify all Record
Holders upon final adoption of any such proposed amendments.
Section 13.3 Amendment
Requirements.
(a) Notwithstanding the provisions of
Section 13.1 and Section 13.2, no provision of this
Agreement that establishes a percentage of Outstanding Units
(including Units deemed owned by the General Partner) required
to take any action shall be amended, altered, changed, repealed
or rescinded in any respect that would have the effect of
reducing such voting percentage unless such amendment is
approved by the written consent or the affirmative vote of
holders of Outstanding Units whose aggregate Outstanding Units
constitute not less than the voting requirement sought to be
reduced.
(b) Notwithstanding the provisions of
Section 13.1 and Section 13.2, no amendment to this
Agreement may (i) enlarge the obligations of any Limited
Partner without its consent, unless such shall be deemed to have
occurred as a result of an amendment approved pursuant to
Section 13.3(c), or (ii) enlarge the obligations of,
restrict in any way any action by or rights of, or reduce in any
way the amounts distributable, reimbursable or otherwise payable
to, the General Partner or any of its Affiliates without its
consent, which consent may be given or withheld at its option.
(c) Except as provided in Section 14.3, and
without limitation of the General Partners authority to
adopt amendments to this Agreement without the approval of any
Partners or Assignees as contemplated in Section 13.1, any
amendment that would have a material adverse effect on the
rights or preferences of any class of Partnership Interests in
relation to other classes of Partnership Interests must be
approved by the holders of not less than a majority of the
Outstanding Partnership Interests of the class affected.
(d) Notwithstanding any other provision of this
Agreement, except for amendments pursuant to Section 13.1
and except as otherwise provided by Section 14.3(b), no
amendments shall become effective without the approval of the
holders of at least 90% of the Outstanding Units voting as a
single class unless the Partnership obtains an Opinion of
Counsel to the effect that such amendment will not affect the
limited liability of any Limited Partner under applicable
partnership law of the state under whose laws the Partnership is
organized.
(e) Except as provided in Section 13.1, this
Section 13.3 shall only be amended with the approval of the
holders of at least 90% of the Outstanding Units.
Section 13.4 Special
Meetings.
All acts of Limited Partners to be taken pursuant to this
Agreement shall be taken in the manner provided in this
Article XIII. Special meetings of the Limited Partners may
be called by the General Partner or by Limited Partners owning
20% or more of the Outstanding Units of the class or classes for
which a meeting is proposed. Limited Partners shall call a
special meeting by delivering to the General
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Partner one or more requests in writing stating that the signing
Limited Partners wish to call a special meeting and indicating
the general or specific purposes for which the special meeting
is to be called. Within 60 days after receipt of such a
call from Limited Partners or within such greater time as may be
reasonably necessary for the Partnership to comply with any
statutes, rules, regulations, listing agreements or similar
requirements governing the holding of a meeting or the
solicitation of proxies for use at such a meeting, the General
Partner shall send a notice of the meeting to the Limited
Partners either directly or indirectly through the Transfer
Agent. A meeting shall be held at a time and place determined by
the General Partner on a date not less than 10 days nor
more than 60 days after the time notice of the meeting is
given as provided in Section 16.1. Limited Partners shall
not vote on matters that would cause the Limited Partners to be
deemed to be taking part in the management and control of the
business and affairs of the Partnership so as to jeopardize the
Limited Partners limited liability under the Delaware Act
or the law of any other state in which the Partnership is
qualified to do business.
Section 13.5 Notice
of a Meeting.
Notice of a meeting called pursuant to Section 13.4 shall
be given to the Record Holders of the class or classes of Units
for which a meeting is proposed in writing by mail or other
means of written communication in accordance with
Section 16.1. The notice shall be deemed to have been given
at the time when deposited in the mail or sent by other means of
written communication.
Section 13.6 Record
Date.
For purposes of determining the Limited Partners entitled to
notice of or to vote at a meeting of the Limited Partners or to
give approvals without a meeting as provided in
Section 13.11 the General Partner may set a Record Date,
which shall not be less than 10 nor more than 60 days
before (a) the date of the meeting (unless such requirement
conflicts with any rule, regulation, guideline or requirement of
any National Securities Exchange on which the Units are listed
or admitted to trading, in which case the rule, regulation,
guideline or requirement of such National Securities Exchange
shall govern) or (b) in the event that approvals are sought
without a meeting, the date by which Limited Partners are
requested in writing by the General Partner to give such
approvals. If the General Partner does not set a Record Date,
then (a) the Record Date for determining the Limited
Partners entitled to notice of or to vote at a meeting of the
Limited Partners shall be the close of business on the day next
preceding the day on which notice is given, and (b) the
Record Date for determining the Limited Partners entitled to
give approvals without a meeting shall be the date the first
written approval is deposited with the Partnership in care of
the General Partner in accordance with Section 13.11.
Section 13.7 Adjournment.
When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting and a new Record Date
need not be fixed, if the time and place thereof are announced
at the meeting at which the adjournment is taken, unless such
adjournment shall be for more than 45 days. At the
adjourned meeting, the Partnership may transact any business
which might have been transacted at the original meeting. If the
adjournment is for more than 45 days or if a new Record
Date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given in accordance with this
Article XIII.
Section 13.8 Waiver
of Notice; Approval of Meeting; Approval of Minutes.
The transactions of any meeting of Limited Partners, however
called and noticed, and whenever held, shall be as valid as if
it had occurred at a meeting duly held after regular call and
notice, if a quorum is
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present either in person or by proxy. Attendance of a Limited
Partner at a meeting shall constitute a waiver of notice of the
meeting, except when the Limited Partner attends the meeting for
the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting
is not lawfully called or convened; and except that attendance
at a meeting is not a waiver of any right to disapprove the
consideration of matters required to be included in the notice
of the meeting, but not so included, if the disapproval is
expressly made at the meeting.
Section 13.9 Quorum
and Voting.
The holders of a majority of the Outstanding Units of the class
or classes for which a meeting has been called (including
Outstanding Units deemed owned by the General Partner)
represented in person or by proxy shall constitute a quorum at a
meeting of Limited Partners of such class or classes unless any
such action by the Limited Partners requires approval by holders
of a greater percentage of such Units, in which case the quorum
shall be such greater percentage. At any meeting of the Limited
Partners duly called and held in accordance with this Agreement
at which a quorum is present, the act of Limited Partners
holding Outstanding Units that in the aggregate represent a
majority of the Outstanding Units entitled to vote and be
present in person or by proxy at such meeting shall be deemed to
constitute the act of all Limited Partners, unless a greater or
different percentage is required with respect to such action
under the provisions of this Agreement, in which case the act of
the Limited Partners holding Outstanding Units that in the
aggregate represent at least such greater or different
percentage shall be required. The Limited Partners present at a
duly called or held meeting at which a quorum is present may
continue to transact business until adjournment, notwithstanding
the withdrawal of enough Limited Partners to leave less than a
quorum, if any action taken (other than adjournment) is approved
by the required percentage of Outstanding Units specified in
this Agreement (including Outstanding Units deemed owned by the
General Partner). In the absence of a quorum any meeting of
Limited Partners may be adjourned from time to time by the
affirmative vote of holders of at least a majority of the
Outstanding Units entitled to vote at such meeting (including
Outstanding Units deemed owned by the General Partner)
represented either in person or by proxy, but no other business
may be transacted, except as provided in Section 13.7.
Section 13.10 Conduct
of a Meeting.
The General Partner shall have full power and authority
concerning the manner of conducting any meeting of the Limited
Partners or solicitation of approvals in writing, including the
determination of Persons entitled to vote, the existence of a
quorum, the satisfaction of the requirements of
Section 13.4, the conduct of voting, the validity and
effect of any proxies and the determination of any
controversies, votes or challenges arising in connection with or
during the meeting or voting. The General Partner shall
designate a Person to serve as chairman of any meeting and shall
further designate a Person to take the minutes of any meeting.
All minutes shall be kept with the records of the Partnership
maintained by the General Partner. The General Partner may make
such other regulations consistent with applicable law and this
Agreement as it may deem advisable concerning the conduct of any
meeting of the Limited Partners or solicitation of approvals in
writing, including regulations in regard to the appointment of
proxies, the appointment and duties of inspectors of votes and
approvals, the submission and examination of proxies and other
evidence of the right to vote, and the revocation of approvals
in writing.
Section 13.11 Action
Without a Meeting.
If authorized by the General Partner, any action that may be
taken at a meeting of the Limited Partners may be taken without
a meeting, without a vote and without prior notice, if an
approval in writing
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setting forth the action so taken is signed by Limited Partners
owning not less than the minimum percentage of the Outstanding
Units (including Units deemed owned by the General Partner) that
would be necessary to authorize or take such action at a meeting
at which all the Limited Partners were present and voted (unless
such provision conflicts with any rule, regulation, guideline or
requirement of any National Securities Exchange on which the
Units are listed or admitted to trading, in which case the rule,
regulation, guideline or requirement of such National Securities
Exchange shall govern). Prompt notice of the taking of action
without a meeting shall be given to the Limited Partners who
have not approved in writing. The General Partner may specify
that any written ballot, if any, submitted to Limited Partners
for the purpose of taking any action without a meeting shall be
returned to the Partnership within the time period, which shall
be not less than 20 days, specified by the General Partner.
If a ballot returned to the Partnership does not vote all of the
Units held by the Limited Partners, the Partnership shall be
deemed to have failed to receive a ballot for the Units that
were not voted. If approval of the taking of any action by the
Limited Partners is solicited by any Person other than by or on
behalf of the General Partner, the written approvals shall have
no force and effect unless and until (a) they are deposited
with the Partnership in care of the General Partner,
(b) approvals sufficient to take the action proposed are
dated as of a date not more than 90 days prior to the date
sufficient approvals are deposited with the Partnership and
(c) an Opinion of Counsel is delivered to the General
Partner to the effect that the exercise of such right and the
action proposed to be taken with respect to any particular
matter (i) will not cause the Limited Partners to be deemed
to be taking part in the management and control of the business
and affairs of the Partnership so as to jeopardize the Limited
Partners limited liability, and (ii) is otherwise
permissible under the state statutes then governing the rights,
duties and liabilities of the Partnership and the Partners.
Nothing contained in this Section 13.11 shall be deemed to
require the General Partner to solicit all Limited Partners in
connection with a matter approved by the holders of the
percentage of Units acting by written consent without a meeting.
Section 13.12 Right
to Vote and Related Matters.
(a) Only those Record Holders of the Outstanding
Units on the Record Date set pursuant to Section 13.6 (and
also subject to the limitations contained in the definition of
Outstanding) shall be entitled to
notice of, and to vote at, a meeting of Limited Partners or to
act with respect to matters as to which the holders of the
Outstanding Units have the right to vote or to act. All
references in this Agreement to votes of, or other acts that may
be taken by, the Outstanding Units shall be deemed to be
references to the votes or acts of the Record Holders of such
Outstanding Units.
(b) With respect to Units that are held for a
Persons account by another Person (such as a broker,
dealer, bank, trust company or clearing corporation, or an agent
of any of the foregoing), in whose name such Units are
registered, such other Person shall, in exercising the voting
rights in respect of such Units on any matter, and unless the
arrangement between such Persons provides otherwise, vote such
Units in favor of, and at the direction of, the Person who is
the beneficial owner, and the Partnership shall be entitled to
assume it is so acting without further inquiry. The provisions
of this Section 13.12(b) (as well as all other provisions
of this Agreement) are subject to the provisions of
Section 4.3.
ARTICLE XIV
MERGER,
CONSOLIDATION OR CONVERSION
Section 14.1 Authority.
The Partnership may merge or consolidate with or into one or
more corporations, limited liability companies, statutory trusts
or associations, real estate investment trusts, common law
trusts or
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unincorporated businesses, including a partnership (whether
general or limited (including a limited liability partnership))
or convert into any such entity, whether such entity is formed
under the laws of the State of Delaware or any other state of
the United States of America, pursuant to a written plan of
merger or consolidation (Merger
Agreement) or a written plan of conversion
(Plan of Conversion), as the case may
be, in accordance with this Article XIV.
Section 14.2 Procedure
for Merger, Consolidation or Conversion.
(a) Merger, consolidation or conversion of the
Partnership pursuant to this Article XIV requires the prior
consent of the General Partner, provided, however, that,
to the fullest extent permitted by law, the General Partner
shall have no duty or obligation to consent to any merger,
consolidation or conversion of the Partnership and may decline
to do so free of any fiduciary duty or obligation whatsoever to
the Partnership, any Limited Partner and, in declining to
consent to a merger, consolidation or conversion, shall not be
required to act pursuant to any other standard imposed by this
Agreement, any other agreement contemplated hereby or under the
Delaware Act or any other law, rule or regulation or at equity.
(b) If the General Partner shall determine to consent
to the merger or consolidation, the General Partner shall
approve the Merger Agreement, which shall set forth:
(i) name and jurisdiction of formation or
organization of each of the business entities proposing to merge
or consolidate;
(ii) the name and jurisdiction of formation or
organization of the business entity that is to survive the
proposed merger or consolidation (the Surviving
Business Entity);
(iii) the terms and conditions of the proposed merger
or consolidation;
(iv) the manner and basis of exchanging or converting
the equity securities of each constituent business entity for,
or into, cash, property or interests, rights, securities or
obligations of the Surviving Business Entity; and (i) if
any general or limited partner interests, securities or rights
of any constituent business entity are not to be exchanged or
converted solely for, or into, cash, property or general or
limited partner interests, rights, securities or obligations of
the Surviving Business Entity, the cash, property or interests,
rights, securities or obligations of any general or limited
partnership, corporation, trust, limited liability company,
unincorporated business or other entity (other than the
Surviving Business Entity) which the holders of such general or
limited partner interests, securities or rights are to receive
in exchange for, or upon conversion of their interests,
securities or rights, and (ii) in the case of securities
represented by certificates, upon the surrender of such
certificates, which cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving
Business Entity or any general or limited partnership,
corporation, trust, limited liability company, unincorporated
business or other entity (other than the Surviving Business
Entity), or evidences thereof, are to be delivered;
(v) a statement of any changes in the constituent
documents or the adoption of new constituent documents (the
articles or certificate of incorporation, articles of trust,
declaration of trust, certificate or agreement of limited
partnership, operating agreement or other similar charter or
governing document) of the Surviving Business Entity to be
effected by such merger or consolidation;
(vi) the effective time of the merger, which may be
the date of the filing of the certificate of merger pursuant to
Section 14.4 or a later date specified in or determinable
in accordance with the Merger Agreement (provided, that
if the effective time of the merger is to be later than the date
of the filing of such certificate of merger, the effective time
shall be fixed at a date or time certain at or prior to the time
of the filing of such certificate of merger and stated
therein); and
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(vii) such other provisions with respect to the
proposed merger or consolidation that the General Partner
determines to be necessary or appropriate.
(c) If the General Partner shall determine to consent
to the conversion, the General Partner shall approve the Plan of
Conversion, which shall set forth:
(i) the name of the converting entity and the
converted entity;
(ii) a statement that the Partnership is continuing
its existence in the organizational form of the converted entity;
(iii) a statement as to the type of entity that the
converted entity is to be and the state or country under the
laws of which the converted entity is to be incorporated, formed
or organized;
(iv) the manner and basis of exchanging or converting
the equity securities of each constituent business entity for,
or into, cash, property or interests, rights, securities or
obligations of the converted entity or another entity, or for
the cancellation of such equity securities;
(v) in an attachment or exhibit, the certificate of
limited partnership of the Partnership; and
(vi) in an attachment or exhibit, the certificate of
limited partnership, articles of incorporation, or other
organizational documents of the converted entity;
(vii) the effective time of the conversion, which may
be the date of the filing of the articles of conversion or a
later date specified in or determinable in accordance with the
Plan of Conversion (provided, that if the effective time
of the conversion is to be later than the date of the filing of
such articles of conversion, the effective time shall be fixed
at a date or time certain at or prior to the time of the filing
of such articles of conversion and stated therein); and
(viii) such other provisions with respect to the
proposed conversion that the General Partner determines to be
necessary or appropriate.
Section 14.3 Approval
by Limited Partners.
(a) Except as provided in Section 14.3(d), the
General Partner, upon its approval of the Merger Agreement or
the Plan of Conversion, as the case may be, shall direct that
the Merger Agreement or the Plan of Conversion and the merger,
consolidation or conversion contemplated thereby, as applicable,
be submitted to a vote of Limited Partners, whether at a special
meeting or by written consent, in either case in accordance with
the requirements of Article XIII. A copy or a summary of
the Merger Agreement or the Plan of Conversion, as the case may
be, shall be included in or enclosed with the notice of a
special meeting or the written consent.
(b) Except as provided in Section 14.3(d), the
Merger Agreement or Plan of Conversion, as the case may be,
shall be approved upon receiving the affirmative vote or consent
of the holders of a Unit Majority.
(c) Except as provided in Section 14.3(d), after
such approval by vote or consent of the Limited Partners, and at
any time prior to the filing of the certificate of merger or
certificate of conversion pursuant to Section 14.4, the
merger, consolidation or conversion may be abandoned pursuant to
provisions therefor, if any, set forth in the Merger Agreement
or Plan of Conversion, as the case may be.
(d) Notwithstanding anything else contained in this
Article XIV or in this Agreement, the General Partner is
permitted, without Limited Partner approval, to convert the
Partnership or any Group Member into a new limited liability
entity, to merge the Partnership or any Group Member into, or
convey all of the Partnerships assets to, another limited
liability entity that shall be newly formed and
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shall have no assets, liabilities or operations at the time of
such conversion, merger or conveyance other than those it
receives from the Partnership or other Group Member if
(i) the General Partner has received an Opinion of Counsel
that the conversion, merger or conveyance, as the case may be,
would not result in the loss of the limited liability of any
Limited Partner or cause the Partnership to be treated as an
association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes (to the extent not
previously treated as such), (ii) the sole purpose of such
conversion, merger, or conveyance is to effect a mere change in
the legal form of the Partnership into another limited liability
entity and (iii) the governing instruments of the new
entity provide the Limited Partners and the General Partner with
the same rights and obligations as are herein contained.
(e) Additionally, notwithstanding anything else
contained in this Article XIV or in this Agreement, the
General Partner is permitted, without Limited Partner approval,
to merge or consolidate the Partnership with or into another
entity if (A) the General Partner has received an Opinion
of Counsel that the merger or consolidation, as the case may be,
would not result in the loss of the limited liability of any
Limited Partner or cause the Partnership to be treated as an
association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes (to the extent not
previously treated as such), (B) the merger or
consolidation would not result in an amendment to this
Agreement, other than any amendments that could be adopted
pursuant to Section 13.1, (C) the Partnership is the
Surviving Business Entity in such merger or consolidation,
(D) each Unit outstanding immediately prior to the
effective date of the merger or consolidation is to be an
identical Unit of the Partnership after the effective date of
the merger or consolidation, and (E) the number of
Partnership Securities to be issued by the Partnership in such
merger or consolidation does not exceed 20% of the Partnership
Securities Outstanding immediately prior to the effective date
of such merger or consolidation.
(f) Pursuant to
Section 17-211(g)
of the Delaware Act, an agreement of merger or consolidation
approved in accordance with this Article XIV may
(a) effect any amendment to this Agreement or
(b) effect the adoption of a new partnership agreement for
the Partnership if it is the Surviving Business Entity. Any such
amendment or adoption made pursuant to this Section 14.3
shall be effective at the effective time or date of the merger
or consolidation.
Section 14.4 Certificate
of Merger.
Upon the required approval by the General Partner and the
Unitholders of a Merger Agreement or the Plan of Conversion, as
the case may be, a certificate of merger or certificate of
conversion, as applicable, shall be executed and filed with the
Secretary of State of the State of Delaware in conformity with
the requirements of the Delaware Act.
Section 14.5
Effect of Merger, Consolidation or Conversion.
(a) At the effective time of the certificate of
merger:
(i) all of the rights, privileges and powers of each
of the business entities that has merged or consolidated, and
all property, real, personal and mixed, and all debts due to any
of those business entities and all other things and causes of
action belonging to each of those business entities, shall be
vested in the Surviving Business Entity and after the merger or
consolidation shall be the property of the Surviving Business
Entity to the extent they were of each constituent business
entity;
(ii) the title to any real property vested by deed or
otherwise in any of those constituent business entities shall
not revert and is not in any way impaired because of the merger
or consolidation;
(iii) all rights of creditors and all liens on or
security interests in property of any of those constituent
business entities shall be preserved unimpaired; and
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(iv) all debts, liabilities and duties of those
constituent business entities shall attach to the Surviving
Business Entity and may be enforced against it to the same
extent as if the debts, liabilities and duties had been incurred
or contracted by it.
(b) At the effective time of the certificate of
conversion, for all purposes of the laws of the State of
Delaware:
(i) the Partnership shall continue to exist, without
interruption, but in the organizational form of the converted
entity rather than in its prior organizational form;
(ii) all rights, title, and interests to all real
estate and other property owned by the Partnership shall remain
vested in the converted entity in its new organizational form
without reversion or impairment, without further act or deed,
and without any transfer or assignment having occurred, but
subject to any existing liens or other encumbrances thereon;
(iii) all liabilities and obligations of the
Partnership shall continue to be liabilities and obligations of
the converted entity in its new organizational form without
impairment or diminution by reason of the conversion;
(iv) all rights of creditors or other parties with
respect to or against the prior interest holders or other owners
of the Partnership in their capacities as such in existence as
of the effective time of the conversion will continue in
existence as to those liabilities and obligations and are
enforceable against the converted entity by such creditors and
obligees to the same extent as if the liabilities and
obligations had originally been incurred or contracted by the
converted entity;
(v) the Partnership Interests that are to be
converted into partnership interests, shares, evidences of
ownership, or other rights or securities in the converted entity
or cash as provided in the plan of conversion shall be so
converted, and Partners shall be entitled only to the rights
provided in the Plan of Conversion.
ARTICLE XV
RIGHT TO ACQUIRE
LIMITED PARTNER INTERESTS
Section 15.1 Right
to Acquire Limited Partner Interests.
(a) Notwithstanding any other provision of this
Agreement, if at any time the General Partner and its Affiliates
hold more than 80% of the total Limited Partner Interests of any
class then Outstanding, the General Partner shall then have the
right, which right it may assign and transfer in whole or in
part to the Partnership or any Affiliate of the General Partner,
exercisable at its option, to purchase all, but not less than
all, of such Limited Partner Interests of such class then
Outstanding held by Persons other than the General Partner and
its Affiliates, at the greater of (x) the Current Market
Price as of the date three days prior to the date that the
notice described in Section 15.1(b) is mailed and
(y) the highest price paid by the General Partner or any of
its Affiliates for any such Limited Partner Interest of such
class purchased during the
90-day
period preceding the date that the notice described in
Section 15.1(b) is mailed. As used in this Agreement,
(i) Current Market Price as of
any date of any class of Limited Partner Interests means the
average of the daily Closing Prices (as hereinafter defined) per
Limited Partner Interest of such class for the 20 consecutive
Trading Days (as hereinafter defined) immediately prior to such
date; (ii) Closing Price for any
day means the last sale price on such day, regular way, or in
case no such sale takes place on such day, the average of the
closing bid and asked prices on such day, regular way, as
reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal
National Securities Exchange (other than the Nasdaq Stock
Market) on which such Limited Partner Interests are listed or
admitted to trading or, if such Limited Partner
A-90
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Interests of such class are not listed or admitted to trading on
any National Securities Exchange (other than the Nasdaq Stock
Market), the last quoted price on such day or, if not so quoted,
the average of the high bid and low asked prices on such day in
the over-the-counter market, as reported by the Nasdaq Stock
Market or such other system then in use, or, if on any such day
such Limited Partner Interests of such class are not quoted by
any such organization, the average of the closing bid and asked
prices on such day as furnished by a professional market maker
making a market in such Limited Partner Interests of such class
selected by the General Partner, or if on any such day no market
maker is making a market in such Limited Partner Interests of
such class, the fair value of such Limited Partner Interests on
such day as determined by the General Partner; and
(iii) Trading Day means a day on
which the principal National Securities Exchange on which such
Limited Partner Interests of any class are listed or admitted
for trading is open for the transaction of business or, if
Limited Partner Interests of a class are not listed or admitted
for trading on any National Securities Exchange, a day on which
banking institutions in New York City generally are open.
(b) If the General Partner, any Affiliate of the
General Partner or the Partnership elects to exercise the right
to purchase Limited Partner Interests granted pursuant to
Section 15.1(a), the General Partner shall deliver to the
Transfer Agent notice of such election to purchase (the
Notice of Election to Purchase) and
shall cause the Transfer Agent to mail a copy of such Notice of
Election to Purchase to the Record Holders of Limited Partner
Interests of such class (as of a Record Date selected by the
General Partner) at least 10, but not more than 60, days prior
to the Purchase Date. Such Notice of Election to Purchase shall
also be published for a period of at least three consecutive
days in at least two daily newspapers of general circulation
printed in the English language and published in the Borough of
Manhattan, New York. The Notice of Election to Purchase shall
specify the Purchase Date and the price (determined in
accordance with Section 15.1(a)) at which Limited Partner
Interests will be purchased and state that the General Partner,
its Affiliate or the Partnership, as the case may be, elects to
purchase such Limited Partner Interests, upon surrender of
Certificates representing such Limited Partner Interests, or
other evidence of the issuance of uncertificated Units, in
exchange for payment, at such office or offices of the Transfer
Agent as the Transfer Agent may specify, or as may be required
by any National Securities Exchange on which such Limited
Partner Interests are listed. Any such Notice of Election to
Purchase mailed to a Record Holder of Limited Partner Interests
at his address as reflected in the records of the Transfer Agent
shall be conclusively presumed to have been given regardless of
whether the owner receives such notice. On or prior to the
Purchase Date, the General Partner, its Affiliate or the
Partnership, as the case may be, shall deposit with the Transfer
Agent cash in an amount sufficient to pay the aggregate purchase
price of all of such Limited Partner Interests to be purchased
in accordance with this Section 15.1. If the Notice of
Election to Purchase shall have been duly given as aforesaid at
least 10 days prior to the Purchase Date, and if on or
prior to the Purchase Date the deposit described in the
preceding sentence has been made for the benefit of the holders
of Limited Partner Interests subject to purchase as provided
herein, then from and after the Purchase Date, notwithstanding
that any Certificate, or other evidence of the issuance of
uncertificated Units, shall not have been surrendered for
purchase, all rights of the holders of such Limited Partner
Interests (including any rights pursuant to Article III,
Article IV, Article V, Article VI, and
Article XII) shall thereupon cease, except the right
to receive the purchase price (determined in accordance with
Section 15.1(a)) for Limited Partner Interests therefor,
without interest, upon surrender to the Transfer Agent of the
Certificates representing such Limited Partner Interests, or
other evidence of the issuance of uncertificated Units, and such
Limited Partner Interests shall thereupon be deemed to be
transferred to the General Partner, its Affiliate or the
Partnership, as the case may be, on the record books of the
Transfer Agent and the Partnership, and the General Partner or
any Affiliate of the General Partner, or the Partnership, as the
case may be, shall be deemed to be the owner of all such Limited
Partner Interests from and after the Purchase Date and shall
have all rights as the owner of such Limited
A-91
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Partner Interests (including all rights as owner of such Limited
Partner Interests pursuant to Article III, Article IV,
Article V, Article VI and Article XII).
(c) At any time from and after the Purchase Date, a
holder of an Outstanding Limited Partner Interest subject to
purchase as provided in this Section 15.1 may surrender his
Certificate evidencing such Limited Partner Interest, or other
evidence of the issuance of uncertificated Units, to the
Transfer Agent in exchange for payment of the amount described
in Section 15.1(a), therefor, without interest thereon.
ARTICLE XVI
GENERAL
PROVISIONS
Section 16.1 Addresses
and Notices; Written Communications.
(a) Any notice, demand, request, report or proxy
materials required or permitted to be given or made to a Partner
under this Agreement shall be in writing and shall be deemed
given or made when delivered in person or when sent by first
class United States mail or by other means of written
communication to the Partner at the address described below. Any
notice, payment or report to be given or made to a Partner
hereunder shall be deemed conclusively to have been given or
made, and the obligation to give such notice or report or to
make such payment shall be deemed conclusively to have been
fully satisfied, upon sending of such notice, payment or report
to the Record Holder of such Partnership Securities at his
address as shown on the records of the Transfer Agent or as
otherwise shown on the records of the Partnership, regardless of
any claim of any Person who may have an interest in such
Partnership Securities by reason of any assignment or otherwise.
An affidavit or certificate of making of any notice, payment or
report in accordance with the provisions of this
Section 16.1 executed by the General Partner, the Transfer
Agent or the mailing organization shall be prima facie evidence
of the giving or making of such notice, payment or report. If
any notice, payment or report addressed to a Record Holder at
the address of such Record Holder appearing on the books and
records of the Transfer Agent or the Partnership is returned by
the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver it, such
notice, payment or report and any subsequent notices, payments
and reports shall be deemed to have been duly given or made
without further mailing (until such time as such Record Holder
or another Person notifies the Transfer Agent or the Partnership
of a change in his address) if they are available for the
Partner at the principal office of the Partnership for a period
of one year from the date of the giving or making of such
notice, payment or report to the other Partners. Any notice to
the Partnership shall be deemed given if received by the General
Partner at the principal office of the Partnership designated
pursuant to Section 2.3. The General Partner may rely and
shall be protected in relying on any notice or other document
from a Partner or other Person if believed by it to be genuine.
(b) The terms in writing, written
communications, written notice and words of
similar import shall be deemed satisfied under this Agreement by
use of
e-mail and
other forms of electronic communication.
Section 16.2 Further
Action.
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this
Agreement.
Section 16.3 Binding
Effect.
This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
A-92
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Section 16.4 Integration.
This Agreement constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining
thereto.
Section 16.5 Creditors.
None of the provisions of this Agreement shall be for the
benefit of, or shall be enforceable by, any creditor of the
Partnership.
Section 16.6 Waiver.
No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof
shall constitute waiver of any such breach of any other
covenant, duty, agreement or condition.
Section 16.7 Third-Party
Beneficiaries.
Each Partner agrees that any Indemnitee shall be entitled to
assert rights and remedies hereunder as a third-party
beneficiary hereto with respect to those provisions of this
Agreement affording a right, benefit or privilege to such
Indemnitee.
Section 16.8 Counterparts.
This Agreement may be executed in counterparts, all of which
together shall constitute an agreement binding on all the
parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart. Each party
shall become bound by this Agreement immediately upon affixing
its signature hereto or, in the case of a Person acquiring a
Limited Partner Interest, pursuant to Section 10.1(a)
without execution hereto.
Section 16.9 Applicable
Law.
This Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware.
Section 16.10 Invalidity
of Provisions.
If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein
shall not be affected thereby.
Section 16.11 Consent
of Partners.
Each Partner hereby expressly consents and agrees that, whenever
in this Agreement it is specified that an action may be taken
upon the affirmative vote or consent of less than all of the
Partners, such action may be so taken upon the concurrence of
less than all of the Partners and each Partner shall be bound by
the results of such action.
A-93
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
Section 16.12 Facsimile
Signatures.
The use of facsimile signatures affixed in the name and on
behalf of the transfer agent and registrar of the Partnership on
certificates representing Common Units is expressly permitted by
this Agreement.
[REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK.]
A-94
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
GENERAL PARTNER:
WESTERN GAS HOLDINGS, LLC
Name:
AMENDING LIMITED PARTNER:
WGR HOLDINGS, LLC
Name:
LIMITED PARTNERS:
All Limited Partners now and hereafter admitted as Limited
Partners of the Partnership, pursuant to powers of attorney now
and hereafter executed in favor of, and granted and delivered to
the General Partner or without execution hereof pursuant to
Section 10.1(a) hereof.
WGR HOLDINGS, LLC
Name:
A-95
First amended and
restated agreement of Limited Partnership of Western Gas
Partners, LP
EXHIBIT A to
the first amended and restated agreement of Limited Partnership
of Western Gas Partners, LP
CERTIFICATE
EVIDENCING COMMON UNITS REPRESENTING LIMITED PARTNER INTERESTS
IN WESTERN GAS PARTNERS, LP
In accordance with Section 4.1 of the First Amended and
Restated Agreement of Limited Partnership of Western Gas
Partners, LP, as amended, supplemented or restated from time to
time (the Partnership Agreement),
Western Gas Partners, LP, a Delaware limited partnership (the
Partnership), hereby certifies
that
(the Holder) is the registered owner
of Common
Units representing limited partner interests in the Partnership
(the Common Units) transferable on the
books of the Partnership, in person or by duly authorized
attorney, upon surrender of this Certificate properly endorsed.
The rights, preferences and limitations of the Common Units are
set forth in, and this Certificate and the Common Units
represented hereby are issued and shall in all respects be
subject to the terms and provisions of, the Partnership
Agreement. Copies of the Partnership Agreement are on file at,
and will be furnished without charge on delivery of written
request to the Partnership at, the principal office of the
Partnership located at 1201 Lake Robbins Drive, The Woodlands,
Texas
77380-1046.
Capitalized terms used herein but not defined shall have the
meanings given them in the Partnership Agreement.
THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF
WESTERN GAS PARTNERS, LP THAT THIS SECURITY MAY NOT BE SOLD,
OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IF SUCH
TRANSFER WOULD (A) VIOLATE THE THEN APPLICABLE FEDERAL OR
STATE SECURITIES LAWS OR RULES AND REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR ANY OTHER GOVERNMENTAL AUTHORITY WITH JURISDICTION
OVER SUCH TRANSFER, (B) TERMINATE THE EXISTENCE OR
QUALIFICATION OF WESTERN GAS PARTNERS, LP UNDER THE LAWS OF THE
STATE OF DELAWARE, OR (C) CAUSE WESTERN GAS PARTNERS, LP TO
BE TREATED AS AN ASSOCIATION TAXABLE AS A CORPORATION OR
OTHERWISE TO BE TAXED AS AN ENTITY FOR FEDERAL INCOME TAX
PURPOSES (TO THE EXTENT NOT ALREADY SO TREATED OR TAXED).
WESTERN GAS HOLDINGS, LLC, THE GENERAL PARTNER OF WESTERN GAS
PARTNERS, LP, MAY IMPOSE ADDITIONAL RESTRICTIONS ON THE TRANSFER
OF THIS SECURITY IF IT RECEIVES AN OPINION OF COUNSEL THAT SUCH
RESTRICTIONS ARE NECESSARY TO AVOID A SIGNIFICANT RISK OF
WESTERN GAS PARTNERS, LP BECOMING TAXABLE AS A CORPORATION OR
OTHERWISE BECOMING TAXABLE AS AN ENTITY FOR FEDERAL INCOME TAX
PURPOSES. THE RESTRICTIONS SET FORTH ABOVE SHALL NOT PRECLUDE
THE SETTLEMENT OF ANY TRANSACTIONS INVOLVING THIS SECURITY
ENTERED INTO THROUGH THE FACILITIES OF ANY NATIONAL SECURITIES
EXCHANGE ON WHICH THIS SECURITY IS LISTED OR ADMITTED TO TRADING.
The Holder, by accepting this Certificate, is deemed to have
(i) requested admission as, and agreed to become, a Limited
Partner and to have agreed to comply with and be bound by and to
have executed the Partnership Agreement, (ii) represented
and warranted that the Holder has all right, power and authority
and, if an individual, the capacity necessary to enter into the
Partnership Agreement, (iii) granted the powers of attorney
provided for in the Partnership Agreement and (iv) made the
waivers and given the consents and approvals contained in the
Partnership Agreement.
A-96
Certificate
evidencing common units representing limited partner interests
in
Western Gas Partners, LP
This Certificate shall not be valid for any purpose unless it
has been countersigned and registered by the Transfer Agent and
Registrar. This Certificate shall be governed by and construed
in accordance with the laws of the State of Delaware.
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Dated:
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Western Gas Partners, LP
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Countersigned and Registered by:
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By: Western Gas Holdings, LLC
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Mellon Investor Services LLC,
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By:
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As Transfer Agent and Registrar
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Name:
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By:
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Secretary
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[Reverse of
Certificate]
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of this Certificate, shall be construed as follows
according to applicable laws or regulations:
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TEN COMas tenants in common
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UNIF GIFT/TRANSFERS MIN ACT
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TEN ENTas tenants by the entireties
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Custodian
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(Cust) (Minor)
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JT TENas joint tenants with right of survivorship and not
as tenants in common
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Under Uniform Gifts/Transfers to CD Minors Act (State)
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Additional abbreviations, though not in the above list, may also
be used.
A-97
Certificate
evidencing common units representing limited partner interests
in
Western Gas Partners, LP
ASSIGNMENT OF
COMMON UNITS OF WESTERN GAS PARTNERS, LP
FOR VALUE
RECEIVED,
hereby assigns, conveys, sells and transfers unto
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(Please print or typewrite name and address of assignee)
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(Please insert Social Security or other identifying number of
assignee)
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Common
Units representing limited partner interests evidenced by this
Certificate,
subject to the Partnership Agreement, and does hereby
irrevocably constitute and
appoint as
its attorney-in-fact with full power of substitution to transfer
the same on the books of Western Gas Partners, LP.
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Date:
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NOTE: The signature to any endorsement hereon must correspond
with the name as written upon the face of this Certificate in
every particular. without alteration, enlargement or change.
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THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C.
RULE 17d-15
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No transfer of the Common Units evidenced hereby will be
registered on the books of the Partnership, unless the
Certificate evidencing the Common Units to be transferred is
surrendered for registration or transfer.
A-98
Certificate
evidencing common units representing limited partner interests
in
Western Gas Partners, LP
Appendix B
Glossary of terms
adjusted operating surplus: For any
period, operating surplus generated during that period is
adjusted to:
(a) increase operating surplus by any net decreases
made in subsequent periods in cash reserves for operating
expenditures initially established with respect to such period;
(b) decrease operating surplus by any net reduction
in cash reserves for operating expenditures during that period
not relating to an operating expenditure made during that
period; and
(c) increase operating surplus by any net increase in
cash reserves for operating expenditures during that period
required by any debt instrument for the repayment of principal,
interest or premium.
Adjusted operating surplus does not include the portion of
operating surplus described in subpart (a)(2) of the definition
of operating surplus in this Appendix B.
available cash: For any quarter ending
prior to liquidation:
(a) the sum of:
(1) all cash and cash equivalents of Western Gas
Partners, LP and its subsidiaries on hand at the end of that
quarter; and
(2) if our general partner so determines all or a
portion of any additional cash or cash equivalents of Western
Gas Partners, LP and its subsidiaries on hand on the date of
determination of available cash for that quarter;
(b) less the amount of cash reserves established by
our general partner to:
(1) provide for the proper conduct of the business of
Western Gas Partners, LP and its subsidiaries (including
reserves for future capital expenditures and for future credit
needs of Western Gas Partners, LP and its subsidiaries) after
that quarter;
(2) comply with applicable law or any debt instrument
or other agreement or obligation to which Western Gas Partners,
LP or any of its subsidiaries is a party or its assets are
subject; and
(3) provide funds for minimum quarterly distributions
and cumulative common unit arrearages for any one or more of the
next four quarters;
provided, however, that our general partner may not
establish cash reserves pursuant to clause (b)(3) immediately
above unless our general partner has determined that the
establishment of reserves will not prevent us from distributing
the minimum quarterly distribution on all common units and any
cumulative common unit arrearages thereon for that quarter; and
provided, further, that disbursements made by us or any
of our subsidiaries or cash reserves established, increased or
reduced after the end of that quarter but on or before the date
of determination of available cash for that quarter shall be
deemed to have been made, established, increased or reduced, for
purposes of determining available cash, within that quarter if
our general partner so determines.
backhaul: Refers to pipeline
transportation service in which the nominated gas flow from
receipt point to delivery point is in the opposite direction as
the pipelines physical gas flow.
Bbls: Barrels.
Bcf/d: One billion cubic feet per day.
B-1
Glossary of
terms
capital account: The capital account
maintained for a partner under the partnership agreement. The
capital account of a partner for a common unit, a subordinated
unit, an incentive distribution right or any other partnership
interest will be the amount which that capital account would be
if that common unit, subordinated unit, incentive distribution
right or other partnership interest were the only interest in
Western Gas Partners, LP held by a partner.
capital surplus: All available cash
distributed by us on any date from any source will be treated as
distributed from operating surplus until the sum of all
available cash distributed since the closing of the initial
public offering equals the operating surplus from the closing of
the initial public offering through the end of the quarter
immediately preceding that distribution. Any excess available
cash distributed by us on that date will be deemed to be capital
surplus.
closing price: The last sale price on a
day, regular way, or in case no sale takes place on that day,
the average of the closing bid and asked prices on that day,
regular way, in either case, as reported in the principal
consolidated transaction reporting system for securities listed
or admitted to trading on the principal national securities
exchange on which the units of that class are listed or admitted
to trading. If the units of that class are not listed or
admitted to trading on any national securities exchange, the
last quoted price on that day. If no quoted price exists, the
average of the high bid and low asked prices on that day in the
over-the-counter market, as reported by the New York Stock
Exchange or any other system then in use. If on any day the
units of that class are not quoted by any organization of that
type, the average of the closing bid and asked prices on that
day as furnished by a professional market maker making a market
in the units of the class selected by the our board of
directors. If on that day no market maker is making a market in
the units of that class, the fair value of the units on that day
as determined reasonably and in good faith by our board of
directors.
condensate: A natural gas liquid with a
low vapor pressure, mainly composed of propane, butane, pentane
and heavier hydrocarbon fractions.
cumulative common unit arrearage: The
amount by which the minimum quarterly distribution for a quarter
during the subordination period exceeds the distribution of
available cash from operating surplus actually made for that
quarter on a common unit, cumulative for that quarter and all
prior quarters during the subordination period.
current market price: For any class of
units listed or admitted to trading on any national securities
exchange as of any date, the average of the daily closing prices
for the 20 consecutive trading days immediately prior to that
date.
drilling location inventory: The
estimated number of potential drilling locations within a given
exploration area.
dry gas: A gas primarily composed of
methane and ethane where heavy hydrocarbons and water either do
not exist or have been removed through processing.
end-use markets: The ultimate
users/consumers of transported energy products.
forward-haul: Refers to pipeline
transportation service in which the nominated gas flow from
receipt point to delivery point is in the same direction as the
pipelines physical gas flow.
interim capital transactions: The
following transactions if they occur prior to liquidation:
(a) borrowings, refinancings or refundings of
indebtedness and sales of debt securities (other than for items
purchased on open account in the ordinary course of business) by
Western Gas Partners, LP or any of its subsidiaries;
(b) sales of equity interests by Western Gas
Partners, LP or any of its subsidiaries;
(c) sales or other voluntary or involuntary
dispositions of any assets of Western Gas Partners, LP or any of
its subsidiaries (other than sales or other dispositions of
inventory, accounts receivable
B-2
Glossary of
terms
and other assets in the ordinary course of business, and sales
or other dispositions of assets as a part of normal retirements
or replacements);
(d) the termination of interest rate swap agreements;
(e) capital contributions; and
(f) corporate reorganizations or restructurings.
long ton: A British unit of weight
equivalent to 2,240 pounds.
LTD: One long ton per day.
MMBtu: One million British Thermal
Units.
MMBtu/d: One million British Thermal
Units per day.
MMcf: One million cubic feet of natural
gas.
MMcf/d: One
million cubic feet per day.
NGLs: Natural gas liquids. The
combination of ethane, propane, butane and natural gasolines
that when removed from natural gas become liquid under various
levels of higher pressure and lower temperature.
operating expenditures: All of our cash
expenditures, including, but not limited to, taxes,
reimbursement of expenses to our general partner, reimbursement
of expenses to Anadarko for services pursuant to the omnibus
agreement or personnel provided to us under the services and
secondment agreement, payments made in the ordinary course of
business under interest rate swap agreements or commodity hedge
contracts, manager and officer compensation, repayment of
working capital borrowings, debt service payments and estimated
maintenance capital expenditures, provided that operating
expenditures will not include:
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repayment of working capital borrowings deducted from operating
surplus pursuant to the last bullet point of the definition of
operating surplus below when such repayment actually occurs;
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payments (including prepayments and prepayment penalties) of
principal of and premium on indebtedness, other than working
capital borrowings;
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expansion capital expenditures;
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actual maintenance capital expenditures;
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investment capital expenditures;
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payment of transaction expenses relating to interim capital
transactions;
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distributions to our partners (including distributions in
respect of Class B units and our incentive distribution
rights); or
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non-pro rata purchases of units of any class made with the
proceeds of a substantially concurrent equity issuance.
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operating surplus: Operating surplus consists of:
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$31.8 million (as described below); plus
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all of our cash receipts after the closing of this offering,
excluding cash from the following:
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borrowings that are not working capital borrowings and sales of
debt securities,
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sales of equity securities,
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sales or other dispositions of assets outside the ordinary
course of business,
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the termination of interest rate swap agreements or commodity
hedge contracts prior to the termination date specified herein,
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B-3
Glossary of
terms
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capital contributions received, and
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corporate reorganizations or restructurings; plus
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working capital borrowings made after the end of a quarter but
before the date of determination of operating surplus for the
quarter; plus
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the amount by which expenses allocated to us in any period in
accordance with GAAP for general and administrative services
provided to us pursuant to the Omnibus Agreement exceed the
G&A Expense Limit (as such term is defined in the Omnibus
Agreement); plus
|
|
|
|
|
|
any Excess Bonus Expenses (as such term is defined in the
Services and Secondment Agreement) to the extent such Excess
Bonus Expenses are allocated to us in accordance with GAAP for
any period; plus
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|
|
|
|
|
cash distributions paid on equity issued to finance all or a
portion of the construction, acquisition, improvement or
replacement of a capital improvement or capital asset (such as
equipment or facilities) during the period beginning on the date
that we enter into a binding obligation to commence the
construction, acquisition or improvement of a capital
improvement or replacement of a capital asset and ending on the
earlier to occur of the date the capital improvement or capital
asset commences commercial service or the date that it is
abandoned or disposed of; less
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|
|
|
|
|
our operating expenditures (as defined above) after the closing
of this offering; less
|
|
|
|
the amount of cash reserves established by our general partner
to provide funds for future operating expenditures; less
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|
|
|
all working capital borrowings not repaid within twelve months
after having been incurred.
|
play: A proven geological formation
that contains commercial amounts of petroleum and/or natural gas.
psia: Pounds per square inch, absolute.
receipt point: The point where
production is received by or into a gathering system or
transportation pipeline.
residue gas: The natural gas remaining
after being processed or treated.
sour gas: Gas containing more than four
parts per million of hydrogen sulfide.
tailgate: Refers to the point at which
processed natural gas and/or natural gas liquids leave a
processing facility for end-use markets.
Tcf: One trillion cubic feet of natural
gas.
wellhead: The equipment at the surface
of a well used to control the wells pressure; the point at
which the hydrocarbons and water exit the ground.
B-4
Through and
including ,
2008 (the
25th
day after the date of this prospectus), federal securities law
may require all dealers that effect transactions in these
securities, whether or not participating in this offering, to
deliver a prospectus, This requirement is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
Information required
in the registration statement
|
|
ITEM 13.
|
OTHER EXPENSES OF
ISSUANCE AND DISTRIBUTION.
|
Set forth below are the expenses (other than underwriting
discounts) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby.
With the exception of the Securities and Exchange Commission
registration fee, the FINRA filing fee and the amounts set forth
below are estimates.
|
|
|
|
|
SEC registration fee
|
|
$
|
13,920
|
|
FINRA filing fee
|
|
|
45,781
|
|
Printing and engraving expenses
|
|
|
750,000
|
|
Accounting fees and expenses
|
|
|
1,500,000
|
|
Fees and expenses of legal counsel
|
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2,000,000
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|
Transfer agent and registrar fees
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|
5,000
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New York Stock Exchange listing fee
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|
250,000
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|
Miscellaneous
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|
|
435,299
|
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Total
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|
$
|
5,000,000
|
|
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|
|
ITEM 14.
|
INDEMNIFICATION
OF OFFICERS AND MEMBERS OF OUR BOARD OF DIRECTORS.
|
Subject to any terms, conditions or restrictions set forth in
the partnership agreement,
Section 17-108
of the Delaware Revised Uniform Limited Partnership Act empowers
a Delaware limited partnership to indemnify and hold harmless
any partner or other persons from and against all claims and
demands whatsoever. The section of the prospectus entitled
The partnership agreementIndemnification
discloses that we will generally indemnify officers, directors
and affiliates of the general partner to the fullest extent
permitted by the law against all losses, claims, damages or
similar events and is incorporated herein by this reference.
Our general partner will purchase insurance covering its
officers and directors against liabilities asserted and expenses
incurred in connection with their activities as officers and
directors of the general partner or any of its direct or
indirect subsidiaries.
Our general partner will enter into indemnification agreements
(each, an Indemnification Agreement) with each of
its officers and directors (each, an Indemnitee).
Each Indemnification Agreement provides that our general partner
will indemnify and hold harmless each Indemnitee against all
expense, liability and loss (including attorneys fees,
judgments, fines or penalties and amounts to be paid in
settlement) actually and reasonably incurred or suffered by the
Indemnitee in connection with serving in their capacity as
officers and directors of our general partner (or of any
subsidiary of our general partner) or in any capacity at the
request of our general partner or its board of directors to the
fullest extent permitted by applicable law, including
Section 18-108
of the Delaware Limited Liability Company Act in effect on the
date of the agreement or as such laws may be amended to provide
more advantageous rights to the Indemnitee. The Indemnification
Agreement also provides that the general partner must advance
payment of certain expenses to the Indemnitee, including fees of
counsel, in advance of final disposition of any proceeding
subject to receipt of an undertaking from the Indemnitee to
return such advance if it is ultimately determined that the
Indemnitee is not entitled to indemnification.
Under the omnibus agreement, we have agreed to indemnify
Anadarko for all claims, losses and expenses attributable to the
post-closing operations of the gathering, compression, treating
and transportation assets contributed to us at the closing of
this offering, to the extent that such losses are not subject to
Anadarkos indemnification obligations. Please read
Certain relationships and related
II-1
Part II
party transactionsAgreements governing the
transactionsOmnibus agreementIndemnification
for a discussion of Anadarkos indemnification obligations.
Anadarkos bylaws provide that it must indemnify to the
fullest extent permitted by applicable law any person made, or
threatened to be made, a party in any action, suit or proceeding
(whether civil, criminal, administrative, arbitrative or
investigative), by reason of the fact that he or she is or was
one of its directors or officers or by reason of the fact that
such director or officer, at Anadarkos request, is or was
serving as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity. Anadarko is not required to
indemnify anyone in connection with any proceeding initiated by
such person unless it was authorized by our board of directors
or is brought to enforce the right to indemnification.
Anadarko has also entered into individual indemnification
agreements with each of its directors and certain executive
officers, including Messrs. Walker, Kurz and Reeves. These
agreements indemnify these individuals to the fullest extent
permitted by law against inordinate risks of claims and actions
against them arising out of their service to and activities on
behalf of Anadarko.
The underwriting agreement to be entered into in connection with
the sale of the securities offered pursuant to this registration
statement, the form of which has been filed as an exhibit to
this registration statement, provides for indemnification of
Anadarko and our general partner, their officers and directors,
and any person who controls Anadarko and our general partner,
including indemnification for liabilities under the Securities
Act.
|
|
ITEM 15.
|
RECENT SALES OF
UNREGISTERED SECURITIES.
|
On August 21, 2007, in connection with the formation of
Western Gas Partners, LP (the Partnership), the
Partnership issued to (i) its general partner the 2.0%
general partner interest in the Partnership for $60 and
(ii) WGR Asset Holding Company LLC the 98.0% limited
partner interest in the Partnership for $2,940. The 98.0%
limited partner in trust was subsequently contributed to WGR
Holdings, LLC on September 11, 2007. The issuance and
contribution were exempt from registration under
Section 4(2) of the Securities Act. There have been no
other sales of unregistered securities within the past three
years.
II-2
Part II
The following documents are filed as exhibits to this
registration statement:
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|
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|
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|
|
Exhibit
|
|
|
|
|
number
|
|
|
|
Description
|
|
|
|
1
|
.1*
|
|
|
|
|
|
Form of Underwriting Agreement
|
|
3
|
.1*
|
|
|
|
|
|
Certificate of Limited Partnership of Western Gas Partners, LP
|
|
3
|
.2
|
|
|
|
|
|
First Amended and Restated Agreement of Limited Partnership of
Western Gas Partners, LP (included as Appendix A in the
prospectus included in this Registration Statement)
|
|
3
|
.3*
|
|
|
|
|
|
Certificate of Formation of Western Gas Holdings, LLC
|
|
3
|
.4*
|
|
|
|
|
|
Amended and Restated Limited Liability Company Agreement of
Western Gas Holdings, LLC
|
|
5
|
.1*
|
|
|
|
|
|
Opinion of Vinson & Elkins L.L.P. as to the legality
of the securities being registered
|
|
8
|
.1*
|
|
|
|
|
|
Opinion of Vinson & Elkins L.L.P. relating to tax
matters
|
|
10
|
.1*
|
|
|
|
|
|
Form of Anadarko Petroleum Corporation Fixed Rate Note
due 2038
|
|
10
|
.2*
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|
Form of Omnibus Agreement
|
|
10
|
.3
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|
Form of Services and Secondment Agreement
|
|
10
|
.4
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|
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|
Dew Gas Gathering Agreement between Anadarko Gathering Company
LLC and Anadarko Petroleum Corporation
|
|
10
|
.5
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|
|
|
|
|
Haley Gas Gathering Agreement between Anadarko Gathering Company
LLC and Anadarko Petroleum Corporation
|
|
10
|
.6
|
|
|
|
|
|
Hugoton Gas Gathering Agreement between Anadarko Gathering
Company LLC and Anadarko Petroleum Corporation
|
|
10
|
.7
|
|
|
|
|
|
Pinnacle Gas Gathering Agreement between Pinnacle Gas Treating
LLC and Anadarko Petroleum Corporation
|
|
10
|
.8*
|
|
|
|
|
|
Form of Working Capital Facility
|
|
10
|
.9*
|
|
|
|
|
|
Form of Contribution, Conveyance and Assumption Agreement
|
|
10
|
.10*
|
|
|
|
|
|
Form of Indemnification Agreement by and between Western Gas
Holdings, LLC, its Officers and Directors
|
|
10
|
.11*
|
|
|
|
|
|
Form of Western Gas Partners, LP 2008 Long-Term Incentive
Plan
|
|
10
|
.12*
|
|
|
|
|
|
Form of Tax Sharing Agreement
|
|
10
|
.13*
|
|
|
|
|
|
Form of Western Gas Holdings, LLC Equity Incentive Plan
|
|
10
|
.14
|
|
|
|
|
|
Revolving Credit Agreement, dated as of March 4, 2008, by
and among Anadarko Petroleum Corporation, Western Gas Partners,
LP, JPMorgan Chase Bank, N.A., The Royal Bank of Scotland, PLC,
BNP Paribas, Bank of America, N.A., BMO Capital Markets
Financing, Inc., The Bank of Tokyo-Mitsubishi UFJ, LTD., and
each of the Lenders named therein.
|
|
10
|
.15
|
|
|
|
|
|
Western Gas Holdings, LLC Equity Incentive Plan Form
of Award Agreement
|
|
21
|
.1*
|
|
|
|
|
|
List of Subsidiaries of Western Gas Partners, LP
|
|
23
|
.1
|
|
|
|
|
|
Consent of KPMG LLP
|
|
23
|
.2
|
|
|
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|
Consent of KPMG LLP
|
|
23
|
.3
|
|
|
|
|
|
Consent of KPMG LLP
|
|
23
|
.4*
|
|
|
|
|
|
Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 5.1)
|
|
23
|
.5*
|
|
|
|
|
|
Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 8.1)
|
|
24
|
.1*
|
|
|
|
|
|
Powers of Attorney
|
|
|
|
* |
|
Previously filed. |
|
|
|
Portions of this exhibit, which was previously filed with the
Securities and Exchange Commission, were omitted pursuant to a
request for confidential treatment. The omitted portions were
filed separately with the Securities and Exchange Commission. |
II-3
Part II
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under
the Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability
under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
The undersigned registrant undertakes to send to each common
unitholder, at least on an annual basis, a detailed statement of
any transactions with Anadarko or its subsidiaries, and of fees,
commissions, compensation and other benefits paid, or accrued to
Anadarko or its subsidiaries for the fiscal year completed,
showing the amount paid or accrued to each recipient and the
services performed.
The registrant undertakes to provide to the common unitholders
the financial statements required by
Form 10-K
for the first full fiscal year of operations of the company.
II-4
Signatures
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on April 15, 2008.
WESTERN GAS PARTNERS, LP
|
|
|
|
By:
|
Western Gas Holdings, LLC,
its general partner
|
Name: Robert G. Gwin
|
|
|
|
Title:
|
President, Chief Executive Officer and Director
|
Each person whose signature appears below appoints Robert G.
Gwin and Michael C. Pearl, and each of them, any of whom may act
without the joinder of the other, as his true and lawful
attorneys-in-fact and agents, with full power of substitution
and re-substitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement and any Registration Statement (including any
amendment thereto) for this offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities
Act of 1933, as amended, and to file the same, with all exhibits
thereto, and all other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or
would do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them of their or his
substitute and substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by
the following persons in the capacities and the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
/s/ Robert
G. Gwin
Robert
G. Gwin
|
|
President, Chief Executive Officer and Director
|
|
April 15, 2008
|
|
|
|
|
|
/s/ Michael
C. Pearl
Michael
C. Pearl
|
|
Senior Vice President, Chief Financial Officer and Principal
Accounting Officer
|
|
April 15, 2008
|
|
|
|
|
|
*
Danny
J. Rea
|
|
Senior Vice President, Chief Operating Officer and Director
|
|
April 15, 2008
|
|
|
|
|
|
*
R.
A. Walker
|
|
Chairman of the Board and Director
|
|
April 15, 2008
|
|
|
|
|
|
/s/ Milton
Carroll
Milton
Carroll
|
|
Director
|
|
April 15, 2008
|
II-5
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
/s/ Anthony
R. Chase
Anthony
R. Chase
|
|
Director
|
|
April 15, 2008
|
|
|
|
|
|
/s/ James
R. Crane
James
R. Crane
|
|
Director
|
|
April 15, 2008
|
|
|
|
|
|
*
Karl
F. Kurz
|
|
Director
|
|
April 15, 2008
|
|
|
|
|
|
*
Robert
K. Reeves
|
|
Director
|
|
April 15, 2008
|
|
|
|
|
|
/s/ David
J. Tudor
David
J. Tudor
|
|
Director
|
|
April 15, 2008
|
|
|
|
|
|
|
|
*By:
|
|
/s/ Robert
G. Gwin
Robert
G. Gwin
Attorney-in-fact
|
|
|
|
|
II-6
Exhibit index
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
number
|
|
|
|
Description
|
|
|
|
1
|
.1*
|
|
|
|
Form of Underwriting Agreement
|
|
3
|
.1*
|
|
|
|
Certificate of Limited Partnership of Western Gas Partners, LP
|
|
3
|
.2
|
|
|
|
First Amended and Restated Agreement of Limited Partnership of
Western Gas Partners, LP (included as Appendix A in the
prospectus included in this Registration Statement)
|
|
3
|
.3*
|
|
|
|
Certificate of Formation of Western Gas Holdings, LLC
|
|
3
|
.4*
|
|
|
|
Amended and Restated Limited Liability Company Agreement of
Western Gas Holdings, LLC
|
|
5
|
.1*
|
|
|
|
Opinion of Vinson & Elkins L.L.P. as to the legality
of the securities being registered
|
|
8
|
.1*
|
|
|
|
Opinion of Vinson & Elkins L.L.P. relating to tax
matters
|
|
10
|
.1*
|
|
|
|
Form of Anadarko Petroleum Corporation Fixed Rate Note due 2038
|
|
10
|
.2*
|
|
|
|
Form of Omnibus Agreement
|
|
10
|
.3
|
|
|
|
Form of Services and Secondment Agreement
|
|
10
|
.4
|
|
|
|
Dew Gas Gathering Agreement between Anadarko Gathering Company
LLC and Anadarko Petroleum Corporation
|
|
10
|
.5
|
|
|
|
Haley Gas Gathering Agreement between Anadarko Gathering Company
LLC and Anadarko Petroleum Corporation
|
|
10
|
.6
|
|
|
|
Hugoton Gas Gathering Agreement between Anadarko Gathering
Company LLC and Anadarko Petroleum Corporation
|
|
10
|
.7
|
|
|
|
Pinnacle Gas Gathering Agreement between Pinnacle Gas Treating
LLC and Anadarko Petroleum Corporation
|
|
10
|
.8*
|
|
|
|
Form of Working Capital Facility
|
|
10
|
.9*
|
|
|
|
Form of Contribution, Conveyance and Assumption Agreement
|
|
10
|
.10*
|
|
|
|
Form of Indemnification Agreement by and between Western Gas
Holdings, LLC, its Officers and Directors
|
|
10
|
.11*
|
|
|
|
Form of Western Gas Partners, LP 2008 Long-Term Incentive Plan
|
|
10
|
.12*
|
|
|
|
Form of Tax Sharing Agreement
|
|
10
|
.13*
|
|
|
|
Form of Western Gas Holdings, LLC Equity Incentive Plan
|
|
10
|
.14
|
|
|
|
Revolving Credit Agreement, dated as of March 4, 2008, by
and among Anadarko Petroleum Corporation, Western Gas Partners,
LP, JPMorgan Chase Bank, N.A., The Royal Bank of Scotland, PLC,
BNP Paribas, Bank of America, N.A., BMO Capital Markets
Financing, Inc., The Bank of Tokyo-Mitsubishi UFJ, LTD., and
each of the Lenders named therein.
|
|
10
|
.15
|
|
|
|
Western Gas Holdings, LLC Equity Incentive Plan Form
of Award Agreement
|
|
21
|
.1*
|
|
|
|
List of Subsidiaries of Western Gas Partners, LP
|
|
23
|
.1
|
|
|
|
Consent of KPMG LLP
|
|
23
|
.2
|
|
|
|
Consent of KPMG LLP
|
|
23
|
.3
|
|
|
|
Consent of KPMG LLP
|
|
23
|
.4*
|
|
|
|
Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 5.1)
|
|
23
|
.5*
|
|
|
|
Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 8.1)
|
|
24
|
.1*
|
|
|
|
Powers of Attorney
|
|
|
|
* |
|
Previously filed. |
|
|
|
Portions of this exhibit, which was previously filed with the
Securities and Exchange Commission, were omitted pursuant to a
request for confidential treatment. The omitted portions were
filed separately with the Securities and Exchange Commission. |
II-7