• completed our first acquisition of midstream assets from Anadarko in December 2008 in a challenging market environment;

• completed several system expansions, including modifying horsepower on our Dew gathering system; expanding our Bethel treating facility; connecting new wells, including 26 wells on our Hugoton gathering system and 13 wells on our Haley gathering system, and completed train two of the Fort Union gathering system; and

• leveraged our fee-based structure and managed capital and operating costs to generate cash flows, funding distributions to unitholders.

The following tables present the impact to the consolidated statements of income attributable to the Powder River assets (in thousands):

                                               Partnership          Powder River
                                               Historical           Acquisition           Eliminations         Combined

                                                                     Year Ended December 31, 2008
Revenues                                      $     151,841        $      159,967        $         (160 )      $ 311,648
Operating expenses                                   93,986               148,105                  (160 )        241,931

Operating income                                     57,855                11,862                     -           69,717
Interest and other income (expense), net
- affiliates                                          7,817                 1,519                     -            9,336

Income before income taxes                           65,672                13,381                     -           79,053
Income tax expense                                    8,772                 5,005                     -           13,777

Net income                                    $      56,900        $        8,376                     -        $  65,276


                                                                     Year Ended December 31, 2007
Revenues                                      $     117,993        $      143,660        $         (160 )      $ 261,493
Operating expenses                                   72,748               124,887                  (160 )        197,475

Operating income                                     45,245                18,773                     -           64,018
Interest and other income (expense), net
- affiliates                                         (8,521 )                 701                     -           (7,820 )

Income before income taxes                           36,724                19,474                     -           56,198
Income tax expense                                   12,724                 6,816                     -           19,540

Net income                                    $      24,000        $       12,658                     -        $  36,658


                                                                     Year Ended December 31, 2006
Revenues                                      $      81,562        $       47,105        $          (57 )      $ 128,610
Operating expenses                                   58,379                42,660                   (57 )        100,982

Operating income                                     23,183                 4,445                     -           27,628
Interest and other income (expense), net
- affiliates                                         (9,657 )                  57                     -           (9,600 )

Income before income taxes                           13,526                 4,502                     -           18,028
Income tax expense                                    3,814                 1,513                     -            5,327

Net income                                    $       9,712        $        2,989                     -        $  12,701

The following discussion analyzes our financial condition and results of operations and should be read in conjunction with our historical consolidated financial statements, and the notes thereto, included in Item 8-Financial Statements and Supplementary Data and Item 1A-Risk Factors of this report on Form 10-K. For ease of reference, we refer to the historical financial results of AGC and PGT prior to our initial public offering, combined with the historical financial results of MIGC and the Powder River assets from August 23, 2006 thereafter, as being "our" historical financial results. Unless the context otherwise requires, references to "we," "us," "our," "the Partnership" or "Western Gas Partners" are intended to refer to the business and operations of Western Gas Partners, LP and its consolidated subsidiaries since May 14, 2008, the business and operations of AGC and PGT since their inception and the business and operations of MIGC and the Powder River assets since August 23, 2006. For purposes of the following discussion, "Anadarko" refers to Anadarko Petroleum Corporation and its consolidated subsidiaries, excluding the Partnership.

• 40% from gathering, processing, compression and transportation activities;

• 5% from condensate sales; and

• 5% from equity income from our interest in Fort Union, changes in our imbalance positions and other revenues.

For the year ended December 31, 2008, approximately 86% of our total revenues and 83% of our gathering, processing and transportation throughput volumes were attributable to transactions entered into with Anadarko.
In our gathering operations, we contract with producers and customers to gather natural gas from individual wells located near our gathering systems. We connect wells to gathering lines through which natural gas may be compressed and 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 satisfy required specifications for pipeline transportation.
Effective January 1, 2008, we received 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 wells connected to 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 646,000 MMBtu/d for the year ended December 31, 2008 and 734,000 MMBtu/d for the year ended December 31, 2007, based on throughput from the wells ultimately subject to the dedication. Based on operating income for the year ended December 31, 2008, approximately 74% of our services are provided pursuant to fee-based contracts under which we are paid a fixed fee based on the volume and thermal content of the natural gas we gather, compress, treat or transport. This type of contract provides us with a relatively stable revenue stream that is not subject to direct commodity-price risk, except to the extent that we retain and sell drip condensate that is recovered during the gathering of natural gas from the wellhead.
Based on operating income for the year ended December 31, 2008, approximately 22% of our services are provided pursuant to percent-of-proceeds contracts pursuant to which Anadarko is typically responsible for the marketing of the natural gas and NGLs and we are entitled to a specified percentage of the net proceeds from the sale of natural gas and NGLs. Revenue is recognized when the natural gas or NGLs are sold and the related product purchases are recorded as a percent of the product sale. We have entered into fixed-price swap agreements with Anadarko to manage the commodity price risk inherent in our percent-of-proceeds contracts. See Note 6-Transactions with Affiliates of the notes to the consolidated financial statements included in Item 8-Financial Statements and Supplementary Data in this Form 10-K.
We also have 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, processing and transporting by our systems. We also bear a limited degree of commodity price risk through our condensate recovery and sale operations and through settlement of natural gas imbalances. Please read Item 7A-Quantitative and Qualitative Disclosures about Market Risk below.
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.

As a result of our initial public offering and the Powder River acquisition, the results of operations, financial condition and cash flows vary significantly for 2008 as compared to periods ending prior to our initial public offering. Please see Items Affecting the Comparability of Our Financial Results, set forth below in this Item.
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) gross margin. Throughput volumes In order to maintain or increase throughput volumes on our gathering and processing systems, we must connect additional wells to our systems. Our success in maintaining or increasing throughput is impacted by successful drilling of new wells by producers which will be 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, processed or treated by our competitors. To maintain and increase throughput volumes on our MIGC system, we must continue to contract capacity to shippers, including producers and marketers, for transportation of their natural gas. Although firm capacity on the MIGC system is fully subscribed, we nevertheless monitor producer and marketing activities in the area served by our transportation system to maintain a full subscription of MIGC's firm capacity and to identify new opportunities. Operating expenses We analyze operating expenses to evaluate our performance. Operating expenses include all amounts accrued for or paid to affiliates or third parties for the operation of our systems, including product purchases, utilities, field labor, measurement and analysis and other disbursements. The primary components of our operating expenses that we evaluate include operation and maintenance expenses, cost of product expenses and general and administrative expenses. Certain of our operating expenses are paid to affiliates; however, affiliate expenses do not bear a direct relationship to affiliate revenues and third-party expenses do not bear a direct relationship to third-party revenues. Accordingly, our affiliate expenses are not those expenses necessary for generating our affiliate revenues and our third-party expenses are not those expenses necessary for generating our third-party revenues. 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. For periods commencing on and subsequent to May 14, 2008 with respect to our initial assets and for periods commencing on and subsequent to December 1, 2008 with respect to the Powder River assets, these expenses are incurred under and governed by our services and secondment agreement with Anadarko. Cost of product expenses include (i) costs associated with the purchase of natural gas and NGLs pursuant to our percent-of-proceeds processing contracts,
(ii) costs associated with the purchase of natural gas pursuant to the gas imbalance provisions contained in our contracts, (iii) costs associated with our obligations under certain contracts to redeliver a volume of natural gas to shippers which is thermally equivalent to condensate retained by us and sold to third parties and (iv) costs associated with 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, although our exposure to commodity price risk attributable to our percent-of-proceeds contracts is mitigated through our commodity price swap agreements with Anadarko. For the years ended December 31, 2008, 2007 and 2006, cost of product expenses comprised 56%, 57% and 41% of total operating expenses, respectively. General and administrative expenses for periods prior to May 14, 2008 with respect to our initial assets and for periods prior to December 1, 2008 with respect to the Powder River assets, include reimbursements attributable to costs incurred by Anadarko on our behalf and allocations of Anadarko's general and administrative costs by Anadarko to us. For these periods, Anadarko received compensation or reimbursement through a management services fee. Subsequent to May 14, 2008 with respect to our initial assets and subsequent to December 1, 2008 with respect to the Powder River assets, Anadarko is no longer compensated for corporate services through a management services fee. Instead, we reimburse Anadarko for general and administrative expenses it incurs on our behalf pursuant to the terms of our omnibus agreement with Anadarko. Amounts required to be reimbursed to Anadarko under the omnibus agreement include those 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;

• expenses associated with listing on the New York Stock Exchange; and

• independent auditor fees, legal fees, investor relations expenses, and registrar and transfer agent fees.

In addition to the above, we are required pursuant to the terms of the omnibus agreement with Anadarko, to reimburse Anadarko for allocable general and administrative expenses. The amount required to be reimbursed by us to Anadarko for allocated general and administrative expenses was originally capped at $6.0 million annually; however, this amount was increased to $6.65 million annually in connection with the Powder River acquisition. The annual expense cap stipulated in the omnibus agreement is effective 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 partner's board of directors, to reflect expansions of our operations through the acquisition or construction of new assets or businesses. After December 31, 2009, 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 incurred by or allocated to us as a result of being a separate publicly traded entity. We currently expect those expenses to be approximately $5.6 million per year, excluding equity-based compensation. Adjusted EBITDA
We define Adjusted EBITDA as net income (loss), plus distributions from equity investee, interest expense, income tax expense and depreciation, less income from equity investments, 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 company's 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 consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:
• 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;

• the ability of our assets to generate cash flow to make distributions; and

• the viability of acquisitions and capital expenditure projects and the returns on investment of various investment opportunities.

Adjusted EBITDA is not defined in GAAP. For a reconciliation of Adjusted EBITDA to its most directly comparable financial measures calculated and presented in accordance with GAAP, please see Non-GAAP Financial Measures in Item 6-Selected Financial and Operating Data of this Form 10-K. Gross margin
We define gross margin as gathering, processing and transportation revenues, plus natural gas, natural gas liquids and condensate sales, less cost of product. We consider gross margin to provide information useful in assessing our results of operations, our ability to internally fund capital expenditures and to service or incur additional debt.

ITEMS AFFECTING THE COMPARABILITY OF OUR FINANCIAL RESULTS Our historical results of operations for the periods presented may not be comparable to future or historic results of operations for the reasons described below:
• We anticipate incurring approximately $5.6 million of general and administrative expenses annually, excluding equity-based compensation expense, attributable to operating as a publicly traded entity, including expenses associated with annual and quarterly reporting; tax return and Schedule K-1 preparation and distribution expenses; expenses associated with listing on the New York Stock Exchange; independent auditor fees; legal fees; investor relations expenses; registrar and transfer agent fees; insurance premiums; and expenses associated with maintaining a limited accounting staff and facilities. General and administrative expenses such as these are reflected in our historical consolidated financial statements for periods including and subsequent to our initial public offering in May 2008.

• Additionally, we anticipate incurring up to $6.65 million in general and administrative expenses annually to be charged by Anadarko to us pursuant to the omnibus agreement, which became effective in connection with our initial public offering. This amount is expected to be greater than amounts allocated to us by Anadarko for the management services fee reflected in our historical consolidated financial statements for periods prior to May 14, 2008.

• Prior to May 14, 2008 with respect to our initial assets and prior to December 19, 2008 with respect to the Powder River assets, all affiliate transactions were net settled within our consolidated financial statements because these transactions related to Anadarko and were funded by Anadarko's working capital. Effective on May 14, 2008 with respect to our initial assets and December 19, 2008 with respect to the Powder River assets, all affiliate and third-party transactions are funded by our working capital. This impacts the comparability of our cash flow statements, working capital analysis and liquidity discussion.

• Prior to May 14, 2008 with respect to our initial assets and prior to December 19, 2008 with respect to the Powder River assets, we incurred interest expense or earned interest income on intercompany balances with Anadarko. These intercompany balances were extinguished through non-cash transactions in connection with the closing of our initial public offering and the Powder River acquisition; therefore, interest expense and interest income attributable to these balances is reflected in our historical consolidated financial statements for the periods ending prior to and including May 14, 2008 with respect to our initial assets and prior to and including December 19, 2008 with respect to the Powder River assets.

• In connection with the Powder River acquisition, we entered into a five-year, $175.0 million term loan agreement with Anadarko, under which we will pay interest at a fixed rate of 4.0% for the first two years and a floating rate of interest at three-month LIBOR plus 150 basis points for the final three years. For periods including and subsequent to the Powder River acquisition, interest expense on the $175.0 million note payable to Anadarko will be incurred so long as the loan agreement remains in place.

• Concurrent with the closing of our initial public offering, we loaned $260.0 million to Anadarko in exchange for a 30-year note bearing interest at a fixed annual rate of 6.50%. Interest income attributable to the note is reflected in our consolidated financial statements for the period beginning on May 14, 2008 and ending December 31, 2008 and will be included in future periods so long as the note remains outstanding.

• Pursuant to the omnibus agreement, as a co-borrower under Anadarko's credit facility, we are required to reimburse Anadarko for our allocable portion of commitment fees (0.11% of our committed and available borrowing capacity, including our outstanding balances) that Anadarko incurs under its credit facility, or up to $110,000 per year. See Note 6-Transactions with Affiliates in the notes to the consolidated financial statements included in Item 8-Financial Statements and Schedules of this Form 10-K. In addition, Anadarko entered into a working capital facility with us, under which we incur an annual commitment fee of 0.11% of the unused portion of our committed borrowing capacity of $30.0 million, or up to $33,000 per year. These commitment fees are included in interest income (expense), net in our consolidated financial statements for the period beginning on May 14, 2008 and ending December 31, 2008 and will be included in future periods so long as the credit facilities are in place.

• For periods ending prior to January 1, 2008, our consolidated financial statements reflect the gathering fees we historically charged Anadarko under our 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. Pursuant to the terms of the new agreements, our fees for gathering and treating services rendered to Anadarko increased. This increase was due, in part, to compensate us for additional operation and maintenance expense that we incur 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 for the periods ending prior to January 1, 2008. Because our new gas gathering agreements are designed to fully recover these incremental costs, our revenues increased by an amount approximately equal to the incremental operation and maintenance expense. Although this change in methodology for computing affiliate gathering rates does not impact our net cash flows or net income, this methodology change impacts the components thereof as compared to periods ending prior to January 1, 2008. If we applied the methodology employed under our new gas gathering agreements with Anadarko to the year ended December 31, 2007, we estimate our historic gathering revenues and operation and maintenance expense would have increased by $3.1 million and our cash flow from operations would have remained unchanged.
• The 10-year gas gathering agreements entered into with Anadarko included new fees for gathering and treating. The new fees are based on capital . . .