Please read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and related notes included in Item 8 of this annual report.

Overview

We gather, transport, process and treat natural gas and fractionate and store NGLs. We manage our business and analyze our results of operations on a segment basis. Our operations are divided into three business segments:

• Gathering and Processing - West (West). Our West segment includes
(1) Williams Four Corners LLC (Four Corners) and (2) certain ownership interests in Wamsutter LLC (Wamsutter) consisting of (i) 100% of the Class A limited liability company membership interests and (ii) 65% of the Class C limited liability company membership interests in Wamsutter (together, the Wamsutter Ownership Interests). The Four Corners system gathers and processes or treats natural gas produced in the San Juan Basin and connects with the five pipeline systems that transport natural gas to end markets from the basin. The Wamsutter system gathers and processes natural gas produced in the Washakie Basin and connects with four pipeline systems that transport natural gas to end markets from the basin.

• Gathering and Processing - Gulf (Gulf). Our Gulf segment includes (1) our 60% ownership interest in Discovery Producer Services LLC (Discovery) and
(2) the Carbonate Trend gathering pipeline off the coast of Alabama. Discovery owns an integrated natural gas gathering and transportation pipeline system extending from offshore in the Gulf of Mexico to its natural gas processing facility and NGL fractionator in Louisiana. These systems gather, transport and process natural gas and fractionate NGLs to customers under a range of contractual arrangements. Although Discovery includes fractionation operations, which would normally fall within the NGL Services segment, it primarily gathers and processes, and is so managed.

• NGL Services. Our NGL Services segment includes three integrated NGL storage facilities and a 50% undivided interest in a fractionator near Conway, Kansas. These assets provide stand-alone NGL fractionation and storage services using various fee-based contractual arrangements.

Executive Summary

In the first three quarters of 2008, our segment profit improved considerably compared to 2007. However, these results were followed by a steep decline in the fourth quarter due to a rapid decline in NGL prices. As evidenced by recent events, NGL, crude oil and natural gas prices are highly volatile. NGL price changes have historically tracked with changes in the price of crude oil; however, ethane prices have recently disassociated from crude oil prices. As NGL prices, especially ethane, decline, we experience significantly lower per-unit NGL margins and periods when it is not economical to recover ethane. Additionally, as discussed below, Hurricanes Gustav and Ike severely disrupted Discovery's operations in September and limited its operations throughout the fourth quarter. Discovery's operations have been significantly restored, but will continue to be impacted while additional repairs are ongoing. We maintained our fourth-quarter unitholder distribution at $0.635 per unit, which was the same as the third-quarter 2008 distribution and 10% higher than the fourth-quarter 2007 distribution.

Recent Events

The global recession and resulting drop in demand and prices for NGLs has significantly reduced the profitability and cash flows of our gathering and processing businesses including Four Corners, our ownership interests in Wamsutter and Discovery. We expect low NGL margins during 2009, including periods when it is not economical to recover ethane. As a result, we expect cash flow from operations, including cash distributions to us from Wamsutter and Discovery, to be significantly lower in 2009 than 2008.

Given the current energy commodity price and NGL margin environment, together with our cash balance of approximately $66 million at February 16, we expect to maintain our current level of cash distributions throughout 2009. During 2006 through 2008, we retained a portion of our excess cash flow for future periods when NGL prices and margins might be substantially lower - as they are now. However, if energy commodity prices and NGL margins decline further for a prolonged period of time, and/or if other unexpected events adversely affect cash flows and/or our available cash balance, we may need to reduce distributions.

During September 2008, Discovery's offshore gathering system sustained hurricane damage and was unable to accept gas from producers while repairs were being made through the end of 2008. Inspections revealed that an 18-inch lateral was severed from its connection to the 30-inch mainline in 250 feet of water. The 30-inch mainline was repaired and returned to service in January 2009. The 30-inch mainline is now delivering 150 MMcf/d of production, which was its approximate volume prior to the hurricanes. Both the Larose processing plant and the Paradis fractionator are operational and processed gas from third-party sources during the fourth quarter of 2008.

We concluded our negotiations with the Jicarilla Apache Nation (JAN) during February 2009 with the execution of a 20-year right-of-way agreement. Under the new agreement, the JAN granted rights-of-way for Four Corners' existing natural gas gathering system on JAN land as well as a significant geographical area for additional growth of the system. We paid an initial payment of $7.3 million upon execution of the agreement. Beginning in 2010, we will make annual payments of approximately $7.5 million and an additional annual payment which varies depending on the prior year's per-unit NGL margins and the volume of gas gathered by our gathering facilities subject to the agreement. Depending primarily on the per-unit NGL margins for any given year, the additional annual payments could approximate the fixed amount. Additionally, five years from the effective date of the agreement, the JAN will have the option to acquire up to a 50% joint venture interest for 20 years in certain of Four Corners' assets existing at the time the option is exercised. The joint venture option includes Four Corners' gathering assets subject to the agreement and portions of Four Corners' gathering and processing assets located in an area adjacent to the JAN lands. If the JAN selects the joint venture option, the value of the assets contributed by each party to the joint venture will be based upon a market value determined by a neutral third party at the time the joint venture is formed. This right-of-way agreement is subject to the consent of the United States Secretary of the Interior before it may become effective.

In January 2009, Wamsutter issued an additional 70.8 and 28.8 Class C units to us and Williams, respectively, related to funding of expansion capital expenditures placed in service during 2008. Therefore, we now own 65% and Williams owns 35% of Wamsutter's outstanding Class C units. As of December 31, 2008, Williams has contributed $28.8 million for an expansion capital project that is expected to be placed in service during 2010. Williams will receive Class C units related to these expenditures after the asset is placed in service; thus, our Class C ownership interest will decline at that time.

How We Evaluate Our Operations

Our management uses a variety of financial and operational measures to analyze our segment performance, including the performance of Wamsutter and Discovery. These measurements include:

• Four Corners' and Wamsutter's gathering and processing throughput volumes;

• Four Corners' and Wamsutter's NGL margins;

• Discovery's and Carbonate Trend's pipeline throughput volumes;

• Discovery's gross processing margins;

• Conway's fractionation volumes;

• Conway's storage revenues; and

• Operating and maintenance expenses.

Gathering, Processing and Throughput Volumes

Gathering, processing and throughput volumes on the following assets are important components of maximizing our profitability and the profitability of Wamsutter and Discovery:

• Our Four Corners gathering system and Ignacio, Kutz and Lybrook natural gas processing plants;

• Wamsutter's gathering system and Echo Springs natural gas processing plant;

• Discovery's gathering and transportation system, Larose gas processing plant and Paradis fractionator; and

• Our Carbonate Trend transportation pipeline.

We gather approximately 36% of the San Juan Basin's natural gas production on our Four Corners system at approximately 6,450 receipt points, and the Wamsutter pipeline system gathers approximately 69% of the natural gas produced in the Washakie Basin. Gathering and transportation services are provided primarily under fee-based contracts. Gathering and transportation throughput volumes from existing wells will naturally decline over time. In order to maintain or increase gathering volumes, we, Wamsutter and Discovery must continually obtain new supplies of natural gas. The ability to maintain existing supplies of natural gas and obtain new supplies are impacted by (1) the level of workovers or recompletions of existing connected wells and successful drilling activity in areas currently dedicated to our gathering pipelines and (2) the ability to compete for volumes from successful new wells in other areas. Offshore drilling activity, which supplies Discovery's gathering system, is generally subject to significantly higher costs and longer lead times than the onshore drilling, which supplies the Four Corners and Wamsutter gathering systems. We, Wamsutter and Discovery routinely monitor producer activity in the areas served by our assets and pursue opportunities to connect new wells to these pipelines.

Processing volumes are largely dependant on the volume of natural gas gathered or transported on these systems. Our Four Corners system processes natural gas under keep-whole, percent-of-liquids, fee-based and combination fee-based and keep-whole contracts. Wamsutter and Discovery process natural gas under keep-whole and fee-based contracts.

Four Corners and Wamsutter NGL Margins

We and Wamsutter use NGL margins as an important measure of our ability to maximize the profitability of the processing operations. NGL margins are derived by deducting the cost of shrink replacement gas from the revenue received from the sale of NGLs, net of transportation and fractionation charges. Shrink replacement gas refers to natural gas that is required to replace the Btu content lost when NGLs are extracted from the natural gas stream. Under certain agreement types, we and Wamsutter receive NGLs as compensation for processing services provided to customers. The NGL margin will either increase or decrease as a result of a corresponding change in the relative market prices of NGLs and natural gas and changes in the cost of transporting and fractionating the NGLs.

Discovery Gross Processing Margins

We view total gross processing margins as an important measure of Discovery's ability to maximize the profitability of its processing operations. Gross processing margins include revenue derived from:

• The rates stipulated under fee-based contracts multiplied by the actual volumes processed.

• Sales of NGL volumes received under certain processing contracts for Discovery's account and keep-whole contracts.

• Sales of natural gas volumes that are in excess of operational needs.

The associated costs, primarily shrink replacement gas and fuel gas, are deducted from these revenues to determine gross processing margin. Discovery's mix of processing contract types and its operation and contract optimization activities are determinants in processing revenues and gross margins.

Conway

Fractionation Volumes. We view the volumes that we fractionate at the Conway fractionator as an important measure of our ability to maximize the profitability of this facility. We provide fractionation services at Conway under fee-based contracts. Revenue from these contracts is derived by applying the rates stipulated to the volumes fractionated.

Storage Revenues. We calculate storage revenues by applying the average demand charge per barrel to the total volume of storage capacity under contract. Given the nature of our operations, our storage facilities have a relatively higher degree of fixed versus variable costs. Consequently, we view total storage revenues, rather than contracted capacity or average pricing per barrel, as the appropriate measure of our ability to maximize the profitability of our storage assets and contracts. Total storage revenues include the monthly recognition of fees received for the storage contract year and shorter-term storage transactions.

Operating and Maintenance Expenses

Operating and maintenance expenses are costs associated with the operations of a specific asset. Direct labor, compression and other contract services, right-of-way costs, fuel, utilities, materials and supplies, insurance and ad valorem taxes comprise the most significant portion of operating and maintenance expenses. We have experienced increased operating and maintenance expenses in recent years due to the growth of the oil and gas industry, which has increased competition for resources. Other than system gains and losses, rented compression services and fuel expense, these expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate depending on the activities performed during a specific period. For example, plant overhauls and turnarounds result in increased expenses in the periods during which they are performed. In the course of providing gathering, processing and treating services to our customers, we realize over and under deliveries of customers' products and over and under purchases of shrink replacement gas when our purchases vary from operational requirements. In addition, we realize gains and losses which we believe are related to inaccuracies inherent in the gas measurement process. These gains and losses are reflected in operating and maintenance expense as system gains and losses. These system gains and losses are an unpredictable component of our operating costs. Compression service costs are dependent upon the extent and amount of additional compression needed to meet the needs of our customers and the cost at which compression can be purchased, leased and operated. We include fuel cost in our operating and maintenance expense although it is generally recoverable from our customers in our NGL Services segment. As noted above, fuel costs are a component in assessing Discovery's gross processing margins.

Critical Accounting Policies and Estimates

Our financial statements reflect the selection and application of accounting policies that require management to make significant estimates and assumptions. The selection of these policies has been discussed with the audit committee of the board of directors of our general partner. We believe that the following are the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.

Impairment of Long-Lived Assets and Investments

We evaluate our long-lived assets and investments for impairment when we believe events or changes in circumstances indicate that we may not be able to recover the carrying value of certain long-lived assets or that the decline in value of an investment is other-than-temporary.

In analyses conducted during 2007 and 2008, we determined that the carrying value of our Carbonate Trend pipeline may not be recoverable because of forecasted declining cash flows. As a result, we recognized impairment charges of $10.4 million and $6.2 million in 2007 and 2008, respectively, to reduce the carrying value to management's estimate of fair value at the end of each of those years. As of December 31, 2008, the carrying value of this asset has been written down to zero. (See Note 7, Other (Income) Expense, in our Notes

to Consolidated Financial Statements.) Our most recent analysis utilized judgments and assumptions in the following areas:

• expected future drilling in the area,

• estimated future volumes from currently producing wells and new discoveries,

• estimated future gathering rates, and

• estimated operating and maintenance cost increases.

Accounting for Asset Retirement Obligations

We record asset retirement obligations for legal and contractual obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset in the period in which it is incurred if a reasonable estimate of fair value can be made. At December 31, 2008, we have accrued asset retirement obligations of $13.2 million including estimated retirement costs associated with the abandonment of Four Corners' gas processing and compression facilities located on leased land, Four Corners' wellhead connections on federal land, Conway's underground storage caverns and brine ponds in accordance with Kansas Department of Health and Environment (KDHE) regulations and the Carbonate Trend pipeline. Our estimate utilizes judgments and assumptions regarding the extent of our obligations, the costs to abandon and the timing of abandonment. In 2008, we revised our estimated asset retirement obligations by $3.6 million. Our recorded asset retirement obligation is based on the assumption that the abandonment of our Four Corners and Conway assets generally occurs in approximately 50 years. If this assumption had been changed to 30 years in 2008, and the expected retirement date for the Carbonate Trend pipeline had been significantly shortened, the recorded asset retirement obligation would have increased by an additional $12.0 million to $14.0 million. (See Note 8, Property, Plant and Equipment, in our Notes to Consolidated Financial Statements.)

Environmental Remediation Liabilities

We record liabilities for estimated environmental remediation obligations when we assess that a loss is probable and the amount of the loss can be reasonably estimated. At December 31, 2008, we have an accrual for estimated environmental remediation obligations of $4.8 million. This remediation accrual is revised, and our associated income is affected, during periods in which new or different facts or information become known or circumstances change that affect the previous assumptions with respect to the likelihood or amount of loss. We base liabilities for environmental remediation upon our assumptions and estimates regarding what remediation work and post-remediation monitoring will be required and the costs of those efforts, which we develop from information obtained from outside consultants and from discussions with the applicable governmental authorities. As new developments occur or more information becomes available, it is possible that our assumptions and estimates in these matters will change. Changes in our assumptions and estimates or outcomes different from our current assumptions and estimates could materially affect future results of operations for any particular quarter or annual period. (Please read "- Environmental" and Note 14, Commitments and Contingencies, in our Notes to Consolidated Financial Statements.)

Results of Operations

Consolidated Overview

The following table and discussion summarizes our consolidated results of operations for the three years ended December 31, 2008. The results of operations by segment are discussed in further detail following this

consolidated overview discussion and relate to the segment tables in Note 15, Segment Disclosures, in our Notes to Consolidated Financial Statements.

                                                          % Change                       % Change
                                                            from                           from
                                             2008          2007(1)          2007          2006(1)          2006
                                                                   (Dollars in thousands)

Revenues                                   $ 637,060            +11 %     $ 572,817             +2 %     $ 563,410
Costs and expenses:
Product cost and shrink replacement          206,078            (13 )%      181,698             (4 )%      175,508
Operating and maintenance expense            185,901            (15 )%      162,343             (5 )%      155,214
Depreciation, amortization and accretion      45,029             +3 %        46,492             (6 )%       43,692
General and administrative expense            47,059             (3 )%       45,628            (16 )%       39,440
Taxes other than income                        9,508             +1 %         9,624             (7 )%        8,961
Other (income) expense - net                  (3,523 )           NM          12,095             NM          (2,473 )

Total costs and expenses                     490,052             (7 )%      457,880             (9 )%      420,342

Operating income                             147,008            +28 %       114,937            (20 )%      143,068
Equity earnings - Wamsutter                   88,538            +16 %        76,212            +24 %        61,690
Discovery investment income                   22,357            (22 )%       28,842            +60 %        18,050
Interest expense                             (67,220 )          (15 )%      (58,348 )           NM          (9,833 )
Interest income                                  706            (76 )%        2,988            +87 %         1,600

Net income                                 $ 191,389            +16 %     $ 164,631            (23 )%    $ 214,575

(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.

2008 vs. 2007

Revenues increased $64.2 million, or 11%, due primarily to higher product sales in our West segment and higher fractionation, product sales and storage revenues in our NGL Services segment.

Product cost and shrink replacement increased $24.4 million, or 13%, due primarily to higher cost of product sales in both our West and NGL Services segments and higher average natural gas prices for shrink replacement in our West segment.

Operating and maintenance expense increased $23.6 million, or 15%, due primarily to higher repairs and maintenance, materials and supplies and system losses in our West segment.

Other (income) expense - net in 2008 reflects an $11.6 million involuntary conversion gain related to the November 2007 Ignacio plant fire. Other (income) expense- net for 2008 and 2007 includes a $6.2 million and $10.4 million impairment, respectively, of our Carbonate Trend pipeline in our Gulf segment.

Operating income increased $32.1 million, or 28%, due primarily to higher per-unit NGL margins on slightly lower sales volumes, an $11.6 million involuntary conversion gain in 2008, higher other fee revenue and higher condensate sales margins in our West segment, combined with higher fractionation and storage revenues in our NGL Services segment and a $4.2 million lower impairment loss on the Carbonate Trend pipeline in our Gulf segment. Partially offsetting these favorable variances were lower fee-based gathering revenues and higher operating and maintenance expenses in our West segment.

Equity earnings - Wamsutter increased $12.3 million, or 16%, due primarily to higher average per-unit NGL margins on increased NGL sales volumes.

Discovery investment income decreased $6.5 million, or 22%, due primarily to lower equity earnings caused by Hurricanes Ike and Gustav, partially offset by hurricane-related receipts under our Discovery-related business interruption policy.

Interest expense increased $8.9 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.

Interest income decreased $2.3 million, or 76%, due primarily to significantly lower daily interest rates on higher fourth-quarter 2008 cash balances compared to fourth quarter 2007.

2007 vs. 2006

Revenues increased $9.4 million, or 2%, due primarily to higher product sales, partially offset by lower fee-based gathering and processing in our West segment, slightly offset by lower revenues in our NGL Services segment.

Product cost and shrink replacement increased $6.2 million, or 4%, due primarily to increased NGL purchases from producers in our West segment, partially offset by lower shrink requirements from the fire at Ignacio and decreased product sales volumes in our NGL Services segment.

Operating and maintenance expense increased $7.1 million, or 5%, due primarily to higher expense in our West segment from increased fuel, rent and leased compression expense, partially offset by lower expense in our NGL Services segment from lower fuel and power costs on lower fractionator throughput.

General and administrative expense increased $6.2 million, or 16%, due primarily to higher Williams' technical support services and other charges allocated by Williams to us for various administrative support functions.

Other (income) expense - net changed from $2.5 million income in 2006 to $12.1 million expense in 2007 due primarily to the 2007 impairment of the Carbonate Trend pipeline and a $3.6 million gain in 2006 on the sale of the La Maquina carbon dioxide treating facility in the West segment.

Operating income declined $28.1 million, or 20%, due primarily to the impact of the 2007 Ignacio plant fire in our West segment, the 2007 impairment of the Carbonate trend pipeline and higher general and administrative expense. These unfavorable variances were slightly offset by higher revenues and lower operating and maintenance expenses in our NGL Services segment.

Equity earnings - Wamsutter increased $14.5 million, or 24%, due primarily to higher NGL margins and fee-based gathering and processing revenues, partially offset by higher general and administrative expenses.

Discovery investment income increased $10.8 million, or 60%, due primarily to higher gross processing margins that more than offset lower fee-based revenues and higher operating and maintenance expense.

Interest expense increased $48.5 million due primarily to interest on our $750.0 million senior unsecured notes. We issued $150.0 million in June 2006 and $600.0 million in December 2006 to finance our acquisition of Four Corners.

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 interest in Wamsutter.

                                                           2008           2007           2006
                                                                     (In thousands)
. . .