1414475--3/13/2009--Western_Gas_Partners

related topics

{debt, indebtedness, cash}

{tax, income, asset}

{gas, price, oil}

{stock, price, operating}

{investment, property, distribution}

{operation, natural, condition}

{regulation, change, law}

{condition, economic, financial}

{operation, international, foreign}

{acquisition, growth, future}

{competitive, industry, competition}

{cost, regulation, environmental}

{control, financial, internal}

{stock, price, share}

RISKS RELATED TO OUR BUSINESS We are dependent on Anadarko for a majority of the natural gas that we gather, treat and transport. A material reduction in Anadarko s production gathered or transported by our assets would result in a material decline in our revenues and cash available for distribution. 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, process, compress, treat and transport could adversely affect our business and operating results. 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. Declining general economic, business or industry conditions may have a material adverse effect on our results of operations, liquidity and financial condition. Lower natural gas and oil prices could adversely affect our business. We may not be able to obtain funding, obtain funding on acceptable terms or obtain funding under Anadarko s $1.3 billion credit facility because of the deterioration of the credit and capital markets. This may hinder or prevent us from meeting our future capital needs. Limitations on our access to capital may impair our ability to execute our growth strategy. 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; accordingly, we may be prevented from making distributions, even during periods in which we record net income. We typically do not obtain independent evaluations of natural gas reserves connected to our gathering, processing and transportation systems; therefore, in the future, volumes of natural gas on our systems could be less than we anticipate. Our industry is highly competitive, and increased competitive pressure could adversely affect our business and operating results. Our operating income could be affected by changes in commodity prices. Our strategies to reduce our exposure to changes in commodity prices may fail to protect us and could reduce our gross margin and cash flows. 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 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. 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. 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. We are subject to stringent environmental laws and regulations that may expose us to significant costs and liabilities. 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. 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. We have a partial ownership interest in Fort Union, which limits our ability to operate and control this entity. In addition, we may be unable to control the amount of operating cash flow we will receive from this entity and we may be required to contribute a significant amount of cash to fund our share of its operations, which could adversely affect our ability to make cash distributions to our unitholders. We do not own all of the land on which our pipelines and facilities are located, which could result in disruptions to our operations. 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. We are exposed to the credit risk of Anadarko and third-party customers, and any material non-payment or non-performance by these parties, including with respect to our gathering, processing and transportation agreements, our $260.0 million note receivable from Anadarko and our commodity price swap agreements with Anadarko, could reduce our ability to make distributions to our unitholders. Anadarko s 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 Anadarko s credit rating. Debt we owe or incur in the future may limit our flexibility to obtain financing and to pursue other business opportunities. 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. 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 with, and may favor Anadarko s interests to the detriment of our unitholders. 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. 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 our unitholders. The amount and timing of such reimbursements will be determined by our general partner. 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. Our general partner s liability regarding our obligations is limited. Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow and make acquisitions. Our partnership agreement limits our general partner s fiduciary duties to holders of our common and subordinated units. 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 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. Holders of our common units have limited voting rights and are not entitled to elect our general partner or its directors. Even if holders of our common units are dissatisfied, they cannot initially remove our general partner without its consent. Our partnership agreement restricts the voting rights of certain unitholders owning 20% or more of our common units. Our general partner interest or the control of our general partner may be transferred to a third party without unitholder consent. We may issue additional units without unitholder approval, which would dilute existing ownership interests. 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. Our general partner has a limited call right that may require existing unitholders to sell their units at an undesirable time or price. Unitholders liability may not be limited if a court finds that unitholder action constitutes control of our business. Unitholders may have liability to repay distributions that were wrongfully distributed to them. We incur increased costs as a result of being a publicly traded partnership. 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. TAX RISKS TO COMMON UNITHOLDERS 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 our unitholders could be substantially reduced. The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis. 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. 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 our unitholders. Our unitholders will be required to pay taxes on their share of our income even if they do not receive any cash distributions from us. Tax gain or loss on the disposition of our common units could be more or less than expected. 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. We 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. We adopted 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. 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.

Full 10-K form ▸

1414475--3/13/2009--Western_Gas_Partners_LP