Release Date: February 27, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Western Midstream Partners LP (WES, Financial) announced a large expansion of their produced water gathering and disposal infrastructure in the Delaware Basin, which is expected to support long-term upstream development.
- The company achieved double-digit and record throughput growth across all three product lines in 2024, demonstrating strong operational performance.
- WES reported a 13% increase in annual adjusted EBITDA and a 37% increase in free cash flow for 2024, indicating robust financial health.
- The company successfully integrated Meritage Midstream and completed several noncore asset sales, generating $795 million in total consideration.
- WES declared a record distribution payout in 2024, with a 52% increase to the base distribution, positioning it as having the highest distribution yield among midstream peers.
Negative Points
- The company anticipates a slight decrease in the first quarter per barrel adjusted gross margin for produced water assets due to new amendments with Oxy and cost of service rate redetermination.
- WES expects average year-over-year throughput in the DJ Basin to remain flat for natural gas and slightly down for crude oil and NGLs, indicating potential stagnation in this area.
- The decision to retire the enhanced distribution concept may limit flexibility in capital allocation and could be seen as a negative by some investors.
- The company faces challenges in managing the substantial growth of produced water volumes in the Delaware Basin, which requires innovative solutions.
- WES's capital expenditure guidance for 2025 indicates increased spending, which could impact free cash flow if not managed effectively.
Q & A Highlights
Q: Can you elaborate on the decision to target low to mid-single-digit distribution growth and the capital spending required to support this growth?
A: Kristen Shults, CFO, explained that the decision was based on extensive forecasting and planning. The target growth rate aligns with expected EBITDA growth and is deemed sustainable. The capital spending will focus on organic growth projects like the Pathfinder pipeline, with $400-$450 million allocated to it, and $200 million for the Powder River Basin in 2025.
Q: Regarding the Pathfinder pipeline, how does the initial contract with Oxy impact the pipeline's capacity and return on investment?
A: Jonathon VandenBrand, SVP Commercial, stated that the contract with Oxy helps achieve a midstream-centric rate of return. The pipeline is designed to accommodate future growth, allowing for increased returns as more volumes are added. The project is positioned to address the challenge of produced water management in the Delaware Basin.
Q: Are there ongoing discussions with other customers to fill the Pathfinder pipeline and improve returns?
A: Jonathon VandenBrand confirmed that discussions with other customers are ongoing. The pipeline is designed to facilitate these discussions, and efforts are being made to secure additional volumes during the development phase.
Q: Who are the main competitors in the Permian produced water market, and what is the long-term growth potential for this business?
A: Oscar Brown, CEO, highlighted that Western Midstream's solution is unique, focusing on long-term midstream contracts rather than short-term oilfield services. The company sees significant growth potential in the water business, aiming to provide sustainable solutions for the increasing water-to-oil ratio in the basin.
Q: What criteria does Western Midstream use to evaluate potential bolt-on acquisitions?
A: Oscar Brown stated that acquisitions should align with the company's core competencies and geographies, meet midstream return requirements, and offer synergy opportunities. The Meritage acquisition is cited as a successful example of this strategy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
