• Gathering and Processing-Gulf. Our Gulf segment includes (1) our 60% ownership interest in Discovery, which owns a transportation, gathering and processing system extending from offshore in the Gulf of Mexico to a natural gas processing plant and a natural gas liquids fractionator in Louisiana and
(2) the Carbonate Trend gathering pipeline off the coast of Alabama. We account for our ownership interest in Discovery as an equity investment.

• NGL Services. Our NGL Services segment includes three integrated NGL storage facilities and a 50% undivided interest in a fractionator near Conway, Kansas.

Executive Summary
Through the third quarter of 2008, we continued to realize exceptionally strong per-unit commodity margins in our gathering and processing businesses, which led to significantly higher segment profit. We expect lower per-unit commodity margins in the fourth quarter of 2008 as NGL prices, especially ethane, decline along with the price of crude oil. During the third quarter, gathered and processed volumes for these businesses continued to recover following the impact of the first quarter's severe winter weather and downtime related to the November 2007 fire at the Ignacio plant. As discussed below, Hurricanes Gustav and Ike severely disrupted Discovery's operations in September and will limit its operations throughout the fourth quarter until significant repairs are completed. We continued our record of consecutive unitholder distribution increases since our initial public offering (IPO) with our third-quarter 2008 distribution of $0.635 per unit, which is 15% higher than the third-quarter 2007 distribution.
Recent Events
During September 2008, Discovery's offshore gathering system sustained hurricane damage and is currently not accepting gas from producers while repairs are being made. Inspections revealed that an 18-inch lateral was severed from its connection to the 30-inch mainline in 250 feet of water. Discovery expects the 30-inch mainline to be repaired and returned to service by early December. Due to ongoing damage assessments, the repair schedule for the 18-inch lateral has not yet been finalized. We estimate that hurricane-related damages and downtime reduced third-quarter 2008 equity earnings from Discovery by approximately $5.0 million. For fourth-quarter 2008, we expect Discovery's equity earnings to range from $0 to a loss of $10 million. These estimates consider Discovery's property insurance deductible, but do not reflect any potential future recoveries under our business interruption insurance policy. Both the Larose processing plant and the Paradis fractionator are fully operational and running at 40 percent capacity from onshore gas sources.
The recent instability in financial markets has created global concerns about the liquidity of financial institutions and is having overarching impacts on the economy as a whole. In this volatile economic environment, many financial markets, institutions and other businesses remain under considerable stress. In addition, oil and gas prices have recently experienced significant declines. These events are impacting our business. However, we note the following:

• We have no debt maturities until 2011.

• As of September 30, 2008, we have approximately $81.8 million of cash and cash equivalents and $220 million of available capacity under our credit facilities. (See further discussion in Management's Discussion and Analysis of Financial Condition - Available Liquidity.)

To the extent that a continued downturn in the economy as a whole drives sustained lower NGL prices, it will negatively impact our future results of operations and cash flow from operations and could result in a reduction in capital expenditures.
Results of Operations
Consolidated Overview
The following table and discussion summarizes our consolidated results of operations for the three and nine months ended September 30, 2008, compared to the three and nine months ended September 30, 2007. The results of operations by segment are discussed in further detail following this consolidated overview. This discussion and analysis of results of operations reflects the historical results of our investments in Discovery and Wamsutter throughout the periods presented as retrospectively adjusted for our acquisition of the additional 20% interest in Discovery and ownership interests in Wamsutter in June and December 2007, respectively.

                                  Three months ended                                       Nine months ended
                                    September 30,                % Change from               September 30,                % Change from
                                2008           2007 (1)            2007 (1)              2008             2007              2007 (1)
                                     (Thousands)                                              (Thousands)
Revenues                      $ 175,713        $ 149,576                    +17 %      $ 504,320        $ 422,660                    +19 %

Costs and expenses:
Product cost and shrink
replacement                      57,749           48,849                    -18 %        175,856          135,721                    -30 %
Operating and
maintenance expense              50,477           40,534                    -25 %        144,093          117,290                    -23 %
Depreciation,
amortization and
accretion                        11,735           10,345                    -13 %         33,963           34,757                     +2 %
General and
administrative expense           11,284           11,741                     +4 %         35,222           32,644                     -8 %
Taxes other than income           2,314            2,474                     +6 %          6,986            7,214                     +3 %
Other (income) expense -
net                              (5,822 )            134                     NM           (8,300 )            792                     NM


Total costs and expenses        127,737          114,077                    -12 %        387,820          328,418                    -18 %


Operating income                 47,976           35,499                    +35 %        116,500           94,242                    +24 %
Equity earnings -
Wamsutter                        20,801           18,472                    +13 %         79,475           50,358                    +58 %
Equity earnings -
Discovery                         8,244            7,902                     +4 %         30,435           15,708                    +94 %
Interest expense                (16,437 )        (14,284 )                  -15 %        (50,793 )        (43,084 )                  -18 %
Interest income                     249              312                    -20 %            667            2,556                    -74 %


Net income                    $  60,833        $  47,901                    +27 %      $ 176,284        $ 119,780                    +47 %

(1) + = Favorable Change; - = Unfavorable Change; NM = A percentage calculation is not meaningful due to change in signs, a zero-value denominator or a percentage change greater than 200.

Three months ended September 30, 2008 vs. three months ended September 30, 2007 Revenues increased $26.1 million, or 17%, due primarily to higher revenues in our Gathering and Processing - West segment and our NGL Services segment. These fluctuations are discussed in detail in the "- Results of Operations - Gathering and Processing - West" and "- Results of Operations - NGL Services" sections and are summarized below:

• Revenues in our Gathering and Processing - West segment increased due primarily to higher NGL sales resulting from higher average NGL sales prices, higher sales of NGLs on behalf of third-party producers and higher condensate and LNG sales. These increases were partially offset by lower NGL sales volumes.

• Revenues in our NGL services segment increased due primarily to higher fractionation revenue and higher storage revenues.

Product cost and shrink replacement increased $8.9 million, or 18%, due primarily to higher purchases of NGLs from third-party producers and higher average natural gas prices in our Gathering and Processing - West segment. These fluctuations are discussed in detail in the "- Results of Operations - Gathering and Processing - West."
Operating and maintenance expense increased $9.9 million, or 25%, due primarily to higher system imbalance costs, material and supplies cost and gathering fuel in our Gathering and Processing - West segment, combined with higher fractionation fuel costs in our NGL Services segment. These fluctuations are discussed in detail in the "- Results of Operations - Gathering and Processing - West" and "- Results of Operations - NGL Services" sections.
Depreciation, amortization and accretion increased $1.4 million, or 13%, due primarily to fluctuations in our Gathering and Processing - West segment which are discussed in detail in the "- Results of Operations - Gathering and Processing - West."
Other (income) expense - net improved $6.0 million due primarily to a $6.0 million third-quarter 2008 involuntary conversion gain related to the November 2007 Ignacio plant fire which is explained further in the "- Results of Operations - Gathering and Processing - West" section.
Operating income increased $12.5 million, or 35%, due primarily to higher per-unit NGL margins and an involuntary conversion gain resulting from the November 2007 Ignacio plant fire in our Gathering and Processing - West segment, combined with higher fractionation revenue in our NGL Services segment. Partially offsetting these favorable variances were higher operating and maintenance expenses and higher depreciation, amortization and accretion expense.
Equity earnings - Wamsutter increased $2.3 million, or 13%, due to a 76% increase in Wamsutter's net income. The net income variances are discussed in detail in the "- Results of Operations - Gathering and Processing - West" section, and Note 5 Equity Investments of our Notes to Consolidated Financial Statements discusses how Wamsutter allocates its net income between its member owners including us.
Equity earnings - Discovery increased $0.3 million, or 4%, due primarily to higher per-unit NGL sales margins, lower depreciation and accretion and lower general and administrative expenses, substantially offset by lower NGL sales volumes due to Hurricanes Ike and Gustav, lower transportation, gathering and fractionation revenues and higher operating and maintenance expenses. This increase is discussed in detail in the "- Results of Operations - Gathering and Processing - Gulf" section.
Interest expense increased $2.2 million, or 15%, due primarily to interest on our $250.0 million term loan issued in December 2007 to finance a portion of our acquisition of ownership interests in Wamsutter.
Nine months ended September 30, 2008 vs. nine months ended September 30, 2007 Revenues increased $81.7 million, or 19%, due primarily to higher revenues in our Gathering and Processing - West segment and our NGL Services segment. These fluctuations are discussed in detail in the "- Results of Operations - Gathering and Processing - West" and "- Results of Operations - NGL Services" sections and are summarized below:
• Revenues in our Gathering and Processing - West segment increased due primarily to higher product sales resulting from significantly higher average NGL sales prices, higher sales of NGLs on behalf of third-party producers and higher condensate sales revenues. These increases were partially offset by lower NGL sales volumes received under keep-whole and percent-of-liquids processing contracts and lower fee-based gathering revenues on lower volumes.

• Revenues in our NGL Services segment increased due primarily to higher fractionation, product sales and storage revenues.

Product cost and shrink replacement increased $40.1 million, or 30%, due primarily to increases in our Gathering and Processing - West segment and our NGL Services segment. These fluctuations are discussed in detail in the "- Results of Operations - Gathering and Processing - West" and "- Results of Operations - NGL Services" sections and are summarized below:
• Product cost and shrink replacement increased in our Gathering and Processing - West segment due primarily to higher cost of purchases from third-party producers who elected to have us sell their NGLs, higher average natural gas prices for shrink replacement and higher condensate product cost.

• Product cost increased in our NGL Services segment due primarily to higher product sales volumes and prices.

Operating and maintenance expense increased $26.8 million, or 23%, due primarily to higher system losses and increased gathering fuel expense in our Gathering and Processing - West segment, combined with higher fractionation fuel cost in our NGL Services segment. These fluctuations are discussed in detail in the "- Results of Operations - Gathering and Processing - West" and "- Results of Operations - NGL Services" sections.
General and administrative expense increased $2.6 million, or 8%, due primarily to higher expenses for technical support services and other charges allocated by Williams to us for various administrative support functions.
Other (income) expense - net improved $9.1 million due primarily to a $9.3 million 2008 involuntary conversion gain related to the November 2007 Ignacio plant fire which is explained further in the "- Results of Operations - Gathering and Processing - West" section.
Operating income increased $22.3 million, or 24%, due primarily to sharply higher per-unit NGL margins on lower sales volumes, a $9.3 million 2008 involuntary conversion gain and higher condensate sales margins in our Gathering and Processing - West segment, combined with higher fractionation and storage revenues in our NGL Services segment. Partially offsetting these favorable variances were higher operating and maintenance expenses in our Gathering and Processing - West segment and our NGL Services segment, lower fee-based gathering revenues in our Gathering and Processing - West segment and higher general and administrative expenses.
Equity earnings - Wamsutter increased $29.1 million, or 58%, due primarily to an 80% increase in Wamsutter's net income from sharply higher per-unit margins on higher NGL sales volumes. These variances are discussed in detail in the "- Results of Operations - Gathering and Processing - West" section, and Note 5 Equity Investments of our Notes to Consolidated Financial Statements discusses how Wamsutter allocates its net income between its member owners including us.
Equity earnings - Discovery increased $14.7 million, or 94%, due primarily to higher per-unit NGL margins, partially offset by lower plant inlet volumes that were reduced by Hurricanes Ike and Gustav. This increase is discussed in detail in the "- Results of Operations - Gathering and Processing - Gulf" section.
Interest expense increased $7.7 million, or 18%, due primarily to interest on our $250.0 million term loan issued in December 2007 to finance a portion of our acquisition of ownership interests in Wamsutter.
Interest income decreased $1.9 million, or 74%, due primarily to lower average cash balances and lower daily interest rates on cash balances.

Results of operations - Gathering and Processing - West The Gathering and Processing - West segment includes our Four Corners natural gas gathering, processing and treating assets and our ownership interests in Wamsutter. Wamsutter operates a natural gas gathering and processing system in Wyoming.

                                                      Three months ended                Nine months ended
                                                        September 30,                     September 30,
                                                    2008             2007             2008             2007
                                                                          (Thousands)
Revenues                                          $ 155,217        $ 134,035        $ 446,113        $ 379,510

Costs and expenses, including interest:
Product cost and shrink replacement                  53,902           45,791          162,492          127,779
Operating and maintenance expense                    42,129           34,267          119,699           96,851
Depreciation, amortization and accretion             10,811            8,564           31,246           30,942
General and administrative expense - direct           2,188            1,839            6,176            5,457
Taxes other than income                               2,119            2,278            6,400            6,628
Other (income) expense - net                         (5,822 )            136           (8,299 )            794


Total costs and expenses, including interest        105,327           92,875          317,714          268,451


Segment operating income                             49,890           41,160          128,399          111,059
Equity earnings - Wamsutter                          20,801           18,472           79,475           50,358


Segment profit                                    $  70,691        $  59,632        $ 207,874        $ 161,417

Four Corners
Three months ended September 30, 2008 vs. three months ended September 30, 2007 Revenues increased $21.2 million, or 16%, due primarily to $18.2 million higher product sales and $3.7 million improved other fee revenue, slightly offset by $0.7 million lower gathering and processing revenue. The significant components of the revenue fluctuations are addressed more fully below.
Product sales revenues increased due primarily to:
• $15.2 million from 36% higher average per-unit NGL sales prices realized under keep-whole and percent-of-liquids processing contracts. The higher per-unit NGL sales prices are caused by general increases in market prices for these commodities between the two periods;

• $4.5 million higher sales prices on lower NGL volumes sold on behalf of third-party producers. Under these arrangements, we purchase the NGLs from the third-party producers and sell them to an affiliate. This increase is offset by higher associated product costs of $4.6 million discussed below; and

• $2.0 million higher condensate and LNG sales resulting from higher per-unit sales prices for both condensate and LNG and higher condensate sales volumes.

• These product sales increases were partially offset by a decrease of $3.4 million related to 8% lower NGL sales volumes resulting from lower processed volumes.

Other fee revenue improved $3.7 million due primarily to the absence of a $3.5 million third-quarter 2007 out-of-period revenue recognition correction for electronic flow measurement fees.
Product cost and shrink replacement increased $8.1 million, or 18%, due primarily to:
• $4.6 million higher NGLs purchased from third-party producers, which was offset by the corresponding increased product sales discussed above; and

• $4.6 million increase from 31% higher average natural gas prices.

These product cost and shrink replacement increases were partially offset by a decrease of $1.5 million from 9% lower shrink replacement volumes associated with the lower NGL sales volumes received under Four Corners' keep-whole processing contracts discussed above.
Operating and maintenance expense increased $7.9 million, or 23%, due primarily to:
• $3.4 million higher expense related to unfavorable price changes on system imbalances;

• $2.5 million higher materials and supplies expense; and

• $1.5 million higher gathering fuel expense caused primarily by higher natural gas prices.

Depreciation, amortization and accretion increased $2.2 million, or 26% due primarily to the absence of a $1.4 million third-quarter 2007 correction.
Other (income) expense - net improved $6.0 million due primarily to a $6.0 million third-quarter 2008 involuntary conversion gain related to the November 2007 Ignacio plant fire.
Segment operating income increased $8.7 million, or 21%, due primarily to:
• $10.8 million from 40% higher per-unit NGL margins;

• $6.0 million third-quarter 2008 involuntary conversion gain;

• the absence of a $2.0 million third-quarter 2007 net out-of-period correction; and

• $1.6 million higher net condensate and LNG margins.

These increases were partially offset by $7.9 million higher operating and maintenance expense and $2.2 million lower NGL margin from 8% lower NGL sales volumes.
Nine months ended September 30, 2008 vs. nine months ended September 30, 2007 Revenues increased $66.6 million, or 18%, due primarily to $69.8 million higher product sales revenues and $4.0 million improved other fee revenue, partially offset by $6.9 million lower gathering revenues. The significant components of the revenue fluctuations are addressed more fully below.
Product sales revenues increased $69.8 million due primarily to:
• $49.3 million from 45% higher average per-unit NGL sales prices which we received under keep-whole and percent-of-liquids processing contracts. This increase resulted from general increases in market prices for these commodities between the two periods;

• $21.6 million higher sales of NGLs on behalf of third-party producers. Under these arrangements, we purchase NGLs from the third-party producers and sell them to an affiliate. This increase is offset by higher associated product costs of $21.7 million discussed below; and

• $6.2 million higher condensate sales resulting primarily from higher prices.

These increases were partially offset by $8.1 million related to 7% lower NGL sales volumes that Four Corners received under keep-whole and percent-of-liquids processing contracts. The decrease in NGL volumes was due primarily to:

• lower processing volumes caused by prolonged, severe weather during early 2008; and

• lower processing volumes resulting from the impact of the November 2007 fire at the Ignacio gas processing plant which was shut down until January 18, 2008.

Other fee revenue improved $4.0 million due primarily to the absence of a $3.5 million third-quarter 2007 charge for out-of-period revenue recognition correction for electronic flow measurement fees.
Fee-based gathering revenues decreased $6.9 million, or 5%, due primarily to a $7.7 million decline in revenue from 5% lower gathered volumes. This resulted from the prolonged, severe weather during early 2008 which inhibited both our and our customers' abilities to access facilities, connect new wells and maintain production, combined with the impact of the fire at the Ignacio gas processing plant in November 2007.
Product cost and shrink replacement increased $34.7 million, or 27%, due primarily to:
• $21.7 million higher NGL purchases from third-party producers who elected to have us purchase their NGLs, which was offset by the corresponding increase in product sales discussed above;

• $13.9 million from 29% higher average natural gas prices for shrink replacement; and

• $1.3 million increase in condensate cost of sales.

These increases were partially offset by a decrease of $2.1 million from 4% lower shrink replacement volumes on lower NGL sales volumes.
Operating and maintenance expense increased $22.8 million, or 24%, due primarily to:
• $8.5 million higher system losses. During 2008 our volumetric loss, as a percentage of total volume received, was significantly higher than in 2007. While our system losses are generally an unpredictable component of our operating costs, they can be higher during periods of prolonged, severe weather, such as those we experienced during early 2008. Additionally, operating inefficiencies caused by the fire at Ignacio plant unfavorably impacted our system losses;

• $4.2 million higher gathering fuel expense related to lower fuel reimbursements from customers as a result of lower volumes, and higher natural gas prices;

• $4.1 million higher expense related to revaluation of product imbalances; and

• $3.7 million higher materials and supplies expense.

Other (income) expense - net improved $9.1 million due primarily to a $9.3 million 2008 involuntary conversion gain related to the November 2007 Ignacio plant fire.
Segment operating income increased $17.3 million, or 16%, due primarily to:
• $34.1 million higher NGL margins resulting from 54% higher per-unit NGL margins;

• $9.3 million of 2008 involuntary conversion gains;

• $4.9 million higher condensate sales margins; and

• the absence of a $2.0 million third-quarter 2007 net out-of-period correction.

Partially offsetting these increases were $22.8 million higher operating and maintenance expenses, $6.9 million lower fee-based gathering revenues and $4.7 million decreased NGL sales margin resulting from 7% lower NGL sales volumes.

Outlook
NGL margins. We expect lower per-unit commodity margins in the fourth quarter of 2008 as NGL prices, especially ethane, decline along with the price of crude oil. However, we still expect total-year 2008 per-unit margins to exceed levels realized in 2007 because of the NGL margins we have experienced through September 30, combined with our hedging program described below. The prices of NGLs and natural gas can quickly fluctuate in response to a variety of factors that are outside of our control and, in particular, NGL pricing is typically impacted negatively by recessionary economic conditions. The fluctuations and impacts due to economic conditions could change the realized margins currently expected for the remainder of 2008.
NGL hedges. We have entered into contracts on a portion of our fourth-quarter 2008 NGL sales to realize a per-unit margin that exceeds the average margin realized on keep-whole NGL sales for 2007. We currently have financial swap contracts to hedge 5.4 million gallons of our monthly forecasted NGL sales and fixed-price natural gas purchase contracts to hedge the price of our natural gas shrink replacement associated with these NGL sales for October through . . .