• Gathering and Processing - Gulf (Gulf). Our Gulf segment includes (1) our 60% ownership interest in Discovery 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
Our results for the third quarter of 2009 demonstrate significant continued improvement from difficult circumstances experienced during the last quarter of 2008 and the first half of 2009 when low NGL commodity prices and hurricane-related damages significantly decreased the profitability of our gathering and processing businesses. Net income for the third quarter of 2009 improved approximately 121% over the second quarter of 2009. As discussed further below, Williams, which owns our general-partner interest, continues to provide us with significant, additional support for 2009 which has assisted us in maintaining a higher level of cash retention and a stronger overall liquidity position. We maintained our third-quarter unitholder distribution at $0.635 per unit which equaled our first and second-quarter 2009 distribution. Recent Events
On June 3, 2009, a pipeline ruptured at our Ignacio gas processing plant. We expanded the scope of our investigation beyond the repair of the damaged pipes to ensure that other plant piping was appropriately inspected and repaired as necessary. During the outage, we re-routed approximately 250 MMcf/d of the plant's normal gas throughput capacity to other facilities in the San Juan Basin. The plant was returned to service on June 19. We estimate the incident reduced second-quarter 2009 cash flows by approximately $7.0 million as a result of reduced NGL equity sales volumes of 5 million to 6 million gallons, reduced gathering volumes of 3 to 4 trillion British thermal units (TBtus) and estimated repair costs (including capital expenditures).
In 2009, Williams waived the incentive distribution rights (IDRs) related to the 2009 distribution periods. These IDRs represent approximately $29.0 million, on an annual basis, at our current per-unit cash distribution level.
In 2009, our omnibus agreement with Williams was amended to increase the aggregate amount of the credit we can receive related to certain general and administrative expenses for 2009. Consequently, for 2009, Williams will provide up to an additional $10.0 million credit, in addition to the $0.8 million annual credit previously provided under the original omnibus agreement, to the extent that 2009 general and administrative expenses excluded from segment profit exceed $36.0 million. We will record total general and administrative expenses (including those expenses that are subject to the credit by Williams) as an expense, and we will record any credits as capital contributions from Williams. Accordingly, our net income will not reflect the benefit of the credit received from Williams. However, the costs subject to this credit will be allocated entirely to our general partner. As a result, the net income allocated to limited partners on a per-unit basis will reflect the benefit of this credit. For the nine months ended September 30, 2009, the total additional general and administrative credit received from Williams was $1.0 million. No additional general and administrative credit was received during the third quarter.

Results of Operations
Consolidated Overview
   The following table and discussion is a summary of our consolidated results
of operations for the three and nine months ended September 30, 2009, compared
to the three and nine months ended September 30, 2008. The results of operations
by segment are discussed in further detail following this consolidated overview
discussion.

                                  Three months ended                                       Nine months ended
                                    September 30,                % Change from               September 30,                % Change from
                                2009             2008               2008(1)              2009             2008               2008(1)
                                     (Thousands)                                              (Thousands)
Financial Results:
Revenues                      $ 125,153        $ 175,713                    -29 %      $ 336,948        $ 504,320                    -33 %
Costs and expenses:
Product cost and shrink
replacement                      30,003           57,749                    +48 %         70,703          175,856                    +60 %
Operating and
maintenance expense              37,584           50,477                    +26 %        119,871          144,093                    +17 %
Depreciation,
amortization and
accretion                        11,288           11,735                     +4 %         33,636           33,963                     +1 %
General and
administrative expense           12,197           11,284                     -8 %         37,199           35,222                     -6 %
Taxes other than income           2,586            2,314                    -12 %          7,347            6,986                     -5 %
Other income                     (5,019 )         (5,822 )                  -14 %         (3,358 )         (8,300 )                  -60 %

Total costs and expenses         88,639          127,737                    +31 %        265,398          387,820                    +32 %

Operating income                 36,514           47,976                    -24 %         71,550          116,500                    -39 %
Equity earnings -
Wamsutter                        23,642           20,801                    +14 %         57,938           79,475                    -27 %
Discovery investment
income                           11,058            8,244                    +34 %         16,021           30,435                    -47 %
Interest expense                (15,281 )        (16,437 )                   +7 %        (45,597 )        (50,793 )                  +10 %
Interest income                      14              249                    -94 %             75              667                    -89 %

Net income                    $  55,947        $  60,833                     -8 %      $  99,987        $ 176,284                    -43 %

(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, 2009 vs. three months ended September 30, 2008 Revenues decreased $50.6 million, or 29%, due primarily to lower product sales in our West segment resulting from significantly lower average NGL sales prices and lower sales of NGLs on behalf of third-party producers, combined with lower revenues in our NGL Services segment.
Product cost and shrink replacement decreased $27.7 million, or 48%, due primarily to lower product cost and shrink replacement in our West segment related primarily to decreased purchases of NGLs from third-party producers and lower average natural gas prices.
Operating and maintenance expense decreased $12.9 million, or 26%, due primarily to lower system and imbalance losses in our West segment, combined with lower fractionation fuel cost and favorable system gains in our NGL Services segment.
Other income includes involuntary conversion gains of $5.0 million and $6.0 million in 2009 and 2008, respectively, related to the November 2007 Ignacio plant fire in our West segment.
Operating income decreased $11.5 million, or 24%, due primarily to substantially lower average per-unit NGL sales margins in our West segment, partially offset by decreases in operating and maintenance expense in the West and NGL Services segments.
Equity earnings from Wamsutter increased $2.8 million, or 14%, due to a higher allocation of Wamsutter's net income to us in 2009, which offset an $8.4 million decrease in Wamsutter's total net income. As described in Note 5 of our Notes to Consolidated Financial Statements, Wamsutter's net income is allocated based upon the allocation, distribution, and liquidation provisions of its limited liability company (LLC) agreement. For the third quarter of 2008, this allocation resulted in an $11.2 million allocation of Wamsutter's net income to the Class C interest not owned by us.

Discovery investment income increased $2.8 million, or 34%, due primarily to lower operating and maintenance expense and higher transportation and gathering revenue. Third quarter 2008 was negatively impacted by hurricane-related damages and downtime. These increases were partially offset by lower NGL sales margins resulting from sharply lower average per-unit margins on higher volumes, higher general and administrative expense and higher depreciation and accretion expense.
Interest expense decreased $1.2 million, or 7%, due primarily to the lower interest rate on our $250.0 million floating-rate term loan.
Nine months ended September 30, 2009 vs. nine months ended September 30, 2008 Revenues decreased $167.4 million, or 33%, due primarily to lower product sales in our West segment resulting from significantly lower average NGL sales prices and lower sales of NGLs on behalf of third-party producers.
Product cost and shrink replacement decreased $105.2 million, or 60%, due primarily to lower product cost and shrink replacement in our West segment related primarily to decreased purchases of NGLs from third-party producers and lower average natural gas prices.
Operating and maintenance expense decreased $24.2 million, or 17%, due primarily to lower system and imbalance losses in our West segment and lower fractionation fuel costs in our NGL Services segment.
Other income decreased $4.9 million, or 60%, due primarily to lower involuntary conversion gains related to the November 2007 Ignacio plant fire in our West segment.
Operating income decreased $44.9 million, or 39%, due primarily to substantially lower average per-unit NGL sales margins and unfavorable changes in other income in our West segment, partially offset by lower operating and maintenance expense in both our West and NGL Services segments.
Equity earnings from Wamsutter decreased $21.5 million, or 27%, due primarily to lower per-unit NGL sales margins, partially offset by a higher percentage allocation of Wamsutter's net income in 2009.
Discovery investment income decreased $14.4 million, or 47%, due primarily to lower NGL sales margins resulting from sharply lower average per-unit margins and lower volumes, combined with unfavorable other (income) expense, net and lower fractionation revenue. These decreases were partially offset by higher gathering and transportation revenue, lower operating and maintenance expense, lower depreciation and accretion expense and hurricane-related proceeds received in 2009 under our Discovery business interruption policy.
Interest expense decreased $5.2 million, or 10%, due primarily to the lower interest rate on our $250.0 million floating-rate term loan.

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 Wamsutter Ownership Interests.

                                                      Three months ended                Nine months ended
                                                        September 30,                     September 30,
                                                    2009             2008             2009             2008
                                                                          (Thousands)
Financial Results:
Revenues                                          $ 109,843        $ 155,217        $ 292,285        $ 446,113
Costs and expenses, including interest:
Product cost and shrink replacement                  28,059           53,902           65,574          162,492
Operating and maintenance expense                    32,189           42,129          101,166          119,699
Depreciation, amortization and accretion             10,375           10,811           30,997           31,246
General and administrative expense - direct           2,348            2,188            6,809            6,176
Taxes other than income                               2,375            2,119            6,714            6,400
Other income                                         (5,343 )         (5,822 )         (3,679 )         (8,299 )

Total costs and expenses, including interest         70,003          105,327          207,581          317,714

Segment operating income                             39,840           49,890           84,704          128,399
Equity earnings - Wamsutter                          23,642           20,801           57,938           79,475

Segment profit                                    $  63,482        $  70,691        $ 142,642        $ 207,874



Four Corners

                                                    Three months ended                  Nine months ended
                                                       September 30,                      September 30,
                                                   2009             2008              2009             2008
Operating Statistics:
Gathering volumes (billion British
thermal units per day (BBtu/d))                    1,377            1,406             1,351            1,377
Plant inlet natural gas volumes (BBtu/d)             653              681               620              636
NGL equity sales (million gallons)                    44               43               122              122
NGL margin ($/gallon)                           $   0.46          $  0.88          $   0.39          $  0.80
NGL production (million gallons)                     143              134               389              386

Three months ended September 30, 2009 vs. three months ended September 30, 2008 Four Corners' segment operating income decreased $10.1 million, or 20%, due primarily to $17.8 million lower NGL sales margins resulting primarily from a 48% decrease in average per-unit NGL margins and $1.3 million lower condensate and liquefied natural gas (LNG) margins, partially offset by $9.9 million lower operating and maintenance expense. A more detailed analysis of the components of the change in segment operating income is below.
Revenues decreased $45.4 million, or 29%, due primarily to lower product sales revenue due primarily to:
• $30.4 million related to a 52% decrease in average NGL sales prices realized on sales of NGLs which we received under keep-whole and percent-of-liquids processing contracts (NGL equity sales). This decrease resulted from general decreases in market prices for these commodities between the two periods;

• $12.4 million lower sales of NGLs 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 decrease was related to general decreases in market prices and slightly lower volumes purchased and is offset by lower associated product costs of $12.5 million discussed below; and

• $3.1 million lower condensate and LNG sales from decreased average per-unit prices.

Product cost and shrink replacement decreased $25.8 million, or 48%, due primarily to:
• $12.5 million decrease from third-party producers who have us purchase their NGLs, which was offset by the corresponding decrease in product sales discussed above;

• $11.0 million decrease from 58% lower average natural gas prices; and

• $1.8 million decrease in condensate and LNG related product cost.

Operating and maintenance expense decreased $9.9 million, or 24%, due primarily to $7.4 million lower system and imbalance losses resulting primarily from lower volumetric losses and favorable natural gas price changes in system imbalances, combined with $2.4 million lower unreimbursed gathering fuel costs resulting primarily from lower natural gas prices.
Other income includes involuntary conversion gains of $5.0 million and $6.0 million in 2009 and 2008, respectively, related to the November 2007 Ignacio plant fire.
Nine months ended September 30, 2009 vs. nine months ended September 30, 2008 Four Corners' segment operating income decreased $43.7 million, or 34%, due primarily to $49.8 million lower NGL sales margins resulting primarily from a 51% decrease in average per-unit NGL margins, $6.7 million lower condensate and LNG sales margins and $5.2 million lower involuntary conversion gains related to the 2007 Ignacio plant fire. These decreases were partially offset by $18.5 million lower operating and maintenance expense. A more detailed analysis of the components of the change in segment operating income is below.
Revenues decreased $153.8 million, or 34%, due primarily to the following lower product sales:
• $88.6 million related to a 56% decrease in average NGL sales prices realized on sales of NGLs which we received under keep-whole and percent-of-liquids processing contracts (NGL equity sales). This decrease resulted from general decreases in market prices for these commodities between the two periods;

• $50.2 million lower sales of NGLs 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 decrease was related to general decreases in market prices and lower volumes and is offset by lower associated product costs of $50.1 million discussed below; and

• $14.5 million lower condensate and LNG sales resulting from decreased average per-unit prices and lower LNG volumes.

Product cost and shrink replacement decreased $96.9 million, or 60%, due primarily to:
• $50.1 million decrease from third-party producers who have us purchase their NGLs, which was offset by the corresponding decrease in product sales discussed above;

• $35.9 million decrease from 62% lower average natural gas prices; and

• $7.9 million decrease in condensate and LNG-related product cost.

Operating and maintenance expense decreased $18.5 million, or 15%, due primarily to $18.3 million lower system and imbalance volume losses and $7.4 million lower unreimbursed gathering fuel costs. Both imbalance losses and unreimbursed gathering fuel costs were favorably impacted by lower natural gas costs. While our system losses are generally an unpredictable component of our operating costs, they can be higher during periods of prolonged, severe winter weather, such as those we experienced during January and February of 2008. Additionally, operational inefficiencies caused by the fire at the Ignacio plant impacted our system losses in 2008. These decreases in expense were partially offset by higher right-of-way costs, increased labor costs and 2009 Ignacio pipeline rupture repair costs.
Other income decreased $4.6 million, or 56%, due primarily to $5.2 million lower involuntary conversion gains in 2009 related to the November 2007 Ignacio plant fire.
Outlook for the remainder of 2009
• NGL and natural gas commodity prices. NGL, crude and natural gas prices are highly volatile. NGL price changes have historically tracked with changes in the price of crude oil. We expect per-unit NGL margins in the fourth quarter of 2009

to approximate our third-quarter per-unit NGL margins. Please see the Commodity Derivatives table below for information about our current energy commodity derivative portfolio.

• Future demand for NGL products. Margins in our NGL business are highly dependent upon continued demand within the global economy. NGL products are currently the preferred feedstock for ethylene and propylene production, which are the building blocks of polyethylene or plastics. Although forecasted domestic and global demand for polyethylene has been impacted by the current weakness in the global economy, propylene and ethylene production processes have increasingly shifted from the more expensive crude-based feedstocks to NGL-based feedstocks. Bolstered by abundant long-term natural gas supplies, we expect to benefit from these dynamics in the broader global petrochemical markets.

• Gathering and plant inlet volumes. We expect that our fourth-quarter 2009 average gathering and plant inlet volumes will approximate the third-quarter 2009 levels.

• Assets on Jicarilla land. We concluded our negotiations with the Jicarilla Apache Nation (JAN) during February 2009 with the execution of a 20-year right-of-way agreement. We expect our total-year 2009 right-of-way expense to be approximately $9.2 million, which is significantly higher than the total-year 2008 cost of $3.5 million for our special business licenses with the JAN. Our year-to-date September 2009 Jicarilla right-of-way expense was $6.4 million.

Commodity Derivatives
   The following table presents our Four Corners energy commodity derivatives
including derivatives entered into as of September 30, 2009.

                                                                      Volumes               Average
                                            Period                     Hedged              Price/Unit
Designated as hedging
instruments:
NGL sales - ethane (million
gallons)                           October - December, 2009             11.3             $0.513/gallon
NGL sales - normal butane
(million gallons)                  October - December, 2009              1.6             $1.175 gallon
NGL sales - isobutane
(million gallons)                  October - December, 2009              1.0             $1.190/gallon
NGL sales - natural gasoline
(million gallons)                  October - December, 2009              1.0             $1.404/gallon
Natural gas purchases
(million British thermal
units per day (MMBtu/d))           October - December, 2009            7,000              $3.677/MMBtu
Natural gas purchases
(million British thermal
units per day (MMBtu/d))           November - December, 2009           5,000              $4.655/MMBtu

The combined impact of these energy commodity derivatives will provide a margin of $0.1867/gallon on 11.3 million gallons of hedged ethane sales and $0.7155/gallon on 3.6 million gallons of hedged non-ethane sales as listed above.
Wamsutter
Wamsutter is accounted for using the equity method of accounting. As such, our interest in Wamsutter's net operating results is reflected as equity earnings in our Consolidated Statements of Income. The following discussion addresses in greater detail the results of operations for 100% of Wamsutter. Please read Note 5 Equity Investments of our Notes to Consolidated Financial Statements for a discussion of how Wamsutter allocates its net income between its member owners, including us.

                                                  Three months ended                Nine months ended
                                                    September 30,                     September 30,
                                                 2009             2008            2009             2008
                                                                      (Thousands)
Financial Results:
Revenues                                      $   52,352        $ 57,820        $ 140,760        $ 195,667
Costs and expenses, including interest:
Product cost and shrink replacement               15,655          15,536           37,993           67,992
Operating and maintenance expense                  3,096           1,357           15,459           10,408
Depreciation and accretion                         5,684           5,295           16,687           15,736
General and administrative expense                 3,848           3,198           11,246           10,037
Taxes other than income                              505             501            1,524            1,404
Other income                                         (78 )           (74 )            (87 )           (591 )

Total costs and expenses                          28,710          25,813           82,822          104,986

Net income                                    $   23,642        $ 32,007        $  57,938        $  90,681

Williams Partners' interest - equity
earnings per our Consolidated Statements
of Income                                     $   23,642        $ 20,801        $  57,938        $  79,475




                                               Three months ended         Nine months ended
                                                 September 30,              September 30,
                                                2009          2008         2009         2008
 Operating Statistics:
 Gathering volumes (BBtu/d)                       543          506           541         487
 Plant inlet natural gas volumes (BBtu/d)         412          393           423         408
 NGL equity sales (million gallons)                37           30           108         107
 NGL margin ($/gallon)                       $   0.43       $ 0.77      $   0.36      $ 0.65
 NGL production (million gallons)                 114           97           328         317

Three months ended September 30, 2009 vs. three months ended September 30, 2008 Wamsutter's net income decreased $8.4 million, or 26%, due primarily to $12.8 million from lower per-unit NGL sales margins and $1.7 million higher operating and maintenance expense, partially offset by $5.7 million from higher NGL sales volumes.
Revenues decreased $5.5 million, or 9%, due primarily to $7.1 million lower product sales, partially offset by $2.6 million higher fee-based gathering and processing revenue.
Product sales revenues decreased $7.1 million, or 18%, due primarily to $23.2 million related to a 49% decrease in average NGL sales prices realized on sales of NGLs which Wamsutter received under keep-whole processing contracts, partially offset by $9.4 million related to an increase in NGL volumes and $6.8 million higher sales of NGLs on behalf of third-party producers. Under these arrangements, Wamsutter purchases NGLs from the third-party producer and sells them to an affiliate. This increase is offset by higher associated product costs of $6.8 million discussed below.
Gathering and processing fee-based revenues increased $2.6 million, or 15%, . . .