Good day and welcome to the Western Gas Fourth Quarter and Full-Year 2018 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. At this time, I'd like to turn the conference over to Jack Spinks, Manager of Investor Relations. Please go ahead.

Thank you. I'm glad you could join us today for Western Gas' fourth quarter and full-year 2018 conference call. I'd like to remind you that today's presentation includes forward-looking statements and certain non-GAAP financial measures. The accompanying slide deck and last night's earning release contain important disclosures on forward-looking statements, as well as, the non-GAAP reconciliations. Please see WES and WGP 10-Ks and other public filings for a description of the factors that could cause actual results to differ materially from what we discuss today. Those materials are posted on the Western Gas website at www.westerngas.com. In addition, as mentioned on our simplification conference call, we plan to release additional volumetric disclosure with our first quarter 2019 results. That disclosure will include geographic volume data for each of our key basins, and we'll also separately breakout water volumes from our crude and NGL volumes, in our operating data. Finally, I'm pleased to inform you that the WES and WGP K-1s will be available online via our website beginning February 20 and March 1, respectively. Hard copies will be mailed out several days later. Now, I'd like to turn the call over to our CEO, Robin Fielder. Robin?

Thanks, Jack, and thanks, everyone for joining us today. Before we go any further, please allow me to formally introduce Jack Spinks, as our primary Investor Relations contact for Western Gas. Many of you have met Jack over the past several months since he moved into our IR Group. I have the highest confidence in him as he brings financial and commercial experience from within the Anadarko and Western Gas family, and has already demonstrated his ability to address investor questions and clearly communicate our story. I'd also like to pause a moment to thank Jon VandenBrand for his excellent work during the past several years. Jon has moved to an Investor Relations role with our sponsor Anadarko, where I know he will continue to excel. To begin, I would like to provide a brief update on our simplification transaction. WES will have a special meeting of its unitholders to vote on the merger on Wednesday, February 27, and we encourage all WES unitholders to cast their vote. Subject to unitholder approval, we expect the transactions to close shortly after the meeting. In addition, as you saw in last night's press release, I would like to announce that upon closing, the new combined partnership will be known as Western Midstream Partners LP and will trade under the ticker symbol WES, W. E. S. As we have mentioned in the past, these transactions will simplify our capital structure, lower our cost of capital and improve our ability to generate higher DCF per unit growth. The assets we are acquiring are highly complementary to our existing asset base and consist primarily of high growth oil systems in the Delaware and DJ Basins, as well as, produce water assets in the Delaware Basin. We continue to believe the pro forma portfolio will provide…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Spiro Dounis of Credit Suisse. Please go ahead.

Hey. Good afternoon, and Robin congrats to you and your team and all the new positions there.

Thank you.

Just maybe a two part question on some of those items impacting the fourth quarter results. I guess, first, with this all ring fenced in the fourth quarter, so did any sort of leak into 1Q? And then second, I guess, could you just provide a little more detail around the weather impacts? Was it just a typical freeze-offs we see or is it something else?

Sure. So on our 4Q results that you just heard and you saw in our press release, there was really a number of contributing factors that when you add them all up, impacted the quarter. In isolation, any of the events would not have been extremely significant. But we did have some unplanned weather and operational downtime that was within the field, including some power issues, and then everyone is aware of some of the downstream operational constraints we had. And as we were starting up our Mentone gathering plant – or our Mentone processing plant, we always have a little bit of startup process as you go through as typical and expected, but a lot of that was pretty short-lived. And as we're looking today, we've got Mentone up above – flowing up above nameplate capacity, and we're very excited about our 2019 as we've just reiterated our full-year guide.

Okay, great. And then second one on capital allocation. I guess, as CapEx winds down a bit after 2019, how should we think about deploying that excess capital? Just trying to get a sense of where the preference might lie and if buybacks to become are taking more prominent role there?

On capital allocation, we're always looking at projects that competed sort of a mid to high teens rate of return on an unlevered basis. And so we'll continue to look for that, and we've got plenty of running room as far as projects already slotted in our two key basins. Beyond that, we'll look at additional opportunities, we've obviously got an option outstanding out there that we will evaluate as well. And beyond that, as I pointed out, we've got our transactions expected to close here within the quarter. So there's a lot of additional growth in running room just on continuing to build out those facilities that we've set out to be very scalable. So we've got a lot of the backbone in place today, and the initial plants and sites and then we can expand and add trains as needed.

Yes, and I would say regarding the potential buybacks, we don't have any current plans for 2019, given the fact that post closing of the simplification transaction, our leverage is going to be higher than we would like it to be. And so our plan is to grow into that over the course of 2019, and then after that, we would consider buybacks to the extent that makes sense.

Great. Appreciate that color. That's it from me. Thanks, everyone.

Thanks Spiro.

Our next question will come from Jeremy Tonet of JPMorgan. Please go ahead.

Good morning. Just want to follow-up on the three items that you've laid out in the press release there. Would you be able to kind of quantify in aggregate, how much those three impacted the quarter there? And just want to confirm that the constraints with your assets and the downstream constraints have been fully resolved at this point?

I'd say most of the delta from what our expectation were West Texas related and probably split up as far as throughput and margin-related, and it's sort of a combination of several of those factors. So it's – for instance, when you're talking about lower throughput that also impacts some of the margin, and where you're sending your volumes downstream. So that kind of overlap quite a bit.

And all these issues have been fully resolved at this point?

Yes. Well, as I said, we've got – I mean, weather comes and goes, it was pretty temporal and we've got the plant up performing excellent right now above nameplate capacity. And we're seeing – I guess better movement of products beyond the basin as we have residue and NGLs live in tailgate of our plants.

That's helpful. Thanks. And just wanted to turn to the DJ if you could, and it seems like there is a few options out there for NGL takeaway coming out of basin there. And in the past APC had used their equity volumes to get stakes in – and takeaway projects out of the basin. Is that something that you see as a possibility here? And then just also given the issues on the regulatory side or potential issues there as far as the recent [bold] initiatives. I was wondering, if you could update us there is how you think these issues would proceed going forward?

Okay. Let me start on NGL takeaway out of the – that was the DJ Basin, correct that you're asking?

Yes.

Well, as you know, we've already got an equity ownership on both Front Range and the Texas Express bringing the majority of our NGL barrels into the Mont Belvieu complex. Those already are announced and ongoing expansion on Front Range. So with that, we're very encouraged by that and there's also been an announcement out there as far as basin takeaway, the White Cliffs will take one of their crude lines out of service and put it in NGL service. So we feel like there's plenty of takeaway there and we will look at any opportunity where you've got especially Anadarko back volumes as a potential place for incremental equity options over time. So that's sort of a philosophy for us. Back to your other question on Colorado, we're obviously very encouraged on the voting results back in November, particularly that we saw a clear vote against the setback proposal in the local communities in which we have our footprint and operate. And I think, it's no secret what we've heard from both the media and coming directly from some of the key political figures in the State, just earlier this week, the speaker of the House, KC Becker was commenting that there is a bill in the works. And it was going to be focusing on a couple of key areas, really amping up at the regulatory's body focus on health and safety and fostering some expanded local control, both of these are sort of as expected and we think are great ways that we can balance continuing having a responsible oil and natural gas development with the State, and we'll continue to engage with these communities. We take a lot of pride in going out and visiting with them before we lave in a single inch of pipe or Anadarko goes out and drills a well. So that's an ongoing dialog and we're encouraged and cautiously optimistic that we'll get something in place this year.

That's helpful. Thanks. And just a last one if I could. With the simplification, it seems like to me closing in the near-term here, just wondering from where you sit now, if you see this transaction kind of changing the relationship between APC and WES in any way?

Good question. But now we've had this great kind of family relationship and that changes, I guess the one difference is now that's virtually all of Anadarko's assets are expected to be drop into the MLP. We won't have the need to fund any of those future drops, but they're also younger assets, particularly when you look at the crude and watering systems into West Texas. So there's a lot of incremental running room and growth. And as I mentioned earlier, they have been designed and constructed with scalability in mind. So we're very encouraged by that. As far as the greater relationship, it's kind of the backbone of what we're doing. You look at what the assets we're acquiring, it's where Anadarko is very active in these two key basins. So we're quite aligned and we're happy that we've got Ben Fink over at the helm of CFO at Anadarko.

That's all from me. Thanks for taking my question.

Our next question will come from Elvira Scotto of RBC Capital Markets. Please go ahead.

Hi, everyone. Just a couple of quick ones from me. Can you maybe just talk a little bit about that $27 million of non-cash revenue, that's included in adjusted EBITDA, adjusted EBITDA is a non-GAAP metric, why not just exclude that $27 million?

Good morning. And that's a great question. The SEC does not like you to exclude revenue line items or a portion of revenue line items and obviously not excluding the entire line item, when you do the reconciliation to non-GAAP figures. But that's exactly, why we highlighted it in our press release, the fact that it is – it's important to note that it is for this quarter it was non-cash. But we expect to receive that revenue over the life of the contract.

So I'm just curious then how this flows through kind of going forward? And aren't these contracts, aren't the rates kind of reset on an annual basis. I mean could that number change and this issue pop-up again?

Yes, absolutely. So before our typical cost of service contracts or rates will reset on an annual basis based on the new volume forecast, the operating capital cost to achieve a certain rate of return. And basically, that's obviously impossible to forecast on an accurate basis, just given the fact that we don't know what the new forecast are going to be. But as the rates increase, we'll basically receive more non-cash revenue in that period. But if rates were to decrease, we would receive more cash – we recognized more cash that is not recorded in revenue.

So on a go forward basis, you'll just kind of make note of that like you did in this quarter?

Absolutely, to the extent, it has a material impact on our financial results. We will continue to highlight that obviously in our press releases as well as our quarterly filings.

That's okay.

And it is in terms of – this is the first time, you're seeing it is because this is a new accounting standard that went in effect beginning of last year. And as the new rates reset for 2019, it had an impact in what we reported during the fourth quarter.

Gotcha. And then just going back to be less than optimal recoveries that I think you said partially attributable to the startup of Mentone I. I mean is that just because of how it ramps? I mean do we expect that any time you bring a plant online, that you're going to have these less than optimal recoveries. But it's not that bigger a number, it's just you're calling it out this quarter because combined with everything else, it affected your results?

Hi, Elvira. Yes, I mean that's correct. You we anticipate some of that as you commission and bring on a brand new facility. There are some – also some downstream constraints as far as what we can fit – down the line. So that's why we said it was partially due to the startup. But yes, in isolation, it was somewhat smaller.

Gotcha. And then just the last one from me, you mentioned how post simplification you're going to provide more detail by geography. Have you have thought about maybe looking at how you report gathering and processing to show the actual volumes that you're gathering. And then for processing like you're inlet volumes, because I think now when you're processing, you're actually – you're including gathering, but you're not including that in your gathering number?

I think maybe what you're referring to is we've got two major complexes now, as you know, a few years ago, we combined all of the assets and created the DJ Basin complex. And then this year, now going forward, we've got the West Texas complex that – now that we've got an integrated gas gathering and processing system and we can have the – we have the flexibility to swing volumes, we're now reporting it altogether, is that sort of what you're asking?

Yes.

Yes. And I would say going forward, we would expect to report those on a combined basis, just so we don't end up double counting volumes, because in some cases, we gather and process the same molecule. And so we have to make a decision that we're including gathering or processing for the Anadarko volumes, we include that in our processing figures. And so I think going forward for gas, we'll just continue to show gathering process in one line items, so that we don't double count volumes.

Gotcha. Okay, thanks. That's all I had.

[Operator Instructions] Our next question will come from Dennis Coleman of Bank of America Merrill Lynch. Please go ahead.

Hi, good morning or I guess, good afternoon. Couple from me, please, I wonder, Robin, if you could – are there specifics about these downstream constraints that you can share, if the basin constraints obviously are well known, but was it something specific, was it – I mean, which third parties I guess, and is it potentially an opportunity for WES at some point?

We were tied on NGL takeaway out of the basin. I don't think that was figured during the quarter, and then also there is some tightness obviously in Mont Belvieu for fractionation as well.

Okay. I guess the other question, maybe just to follow-up on Jeremy's question about the relationship with Anadarko. One concern that comes up often is them potentially selling down shares, anything that you can comment there?

Well, one of the benefits of simplification is of course, enhanced trading liquidity, at least we hope as we quadruple that ability, once we combine into a single entity. Now Western Midstream Partners will be the new name of that entity going forward. So I've got a lot of confidence. We've got a familiar face and Ben Fink over a CFO of Anadarko. And frankly, I think we don't see some near-term liquidity needs knowing that we're about to have a cash settlement of $2 billion as part of the transaction when it closes, and going over to Anadarko. So again the relationship there has not changed. Anadarko continues, this will be a very large asset firm and the largest owner of the outstanding units, and we're excited about the – hopefully the enhanced trading dynamics we will have going forward.

Okay. That's it for me. Thanks.

Our next question will come from Sharon Lui of Wells Fargo. Please go ahead.

Hi, good afternoon. Just wondering if you can maybe comment on the status and timing of Mentone II and Latham II?

Sure. Mentone II is still on track for to come on and be commission and place in the service here later this first quarter. And Latham II, we've talked about, it will be kind of just in time as needed as we just put out and – the first Latham train will be middle of this year, Latham II will be later at end of this year.

Okay, great. And just trying to thinking about the ramp in EBITDA, is that a function of the assets that are going to be dropped down at the close? Are you guys still comfortable with the expected EBITDA $420 million?

It's a combination of the actual assets that were coming in, but also just the forecasting the growth, keeping in mind that the Delaware Basin is a younger development, and we've got a lot of – again the backbone in place, so it will be incremental volume growth and throughput as expected, and we just reiterated that within our 2019 guide and outlook.

Okay, great. Thank you.

Ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Robin Fielder for any closing remarks.

Great. Thank you, everyone. We really appreciate you joining us today and taking your time out of a Friday. And we look forward to a fantastic 2019. So everyone have a great weekend, and thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.