Western Midstream Partners, LP Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Aris Acquisition: Announced agreement to acquire Aris Water Solutions, which will strengthen WES's position in Delaware Basin, expand service offerings, and provide produced water disposal capacity over 3.8 million barrels per day. The acquisition is accretive to 2026 free cash flow per unit.
• North Loving Natural Gas Processing Plant: Sanctioned a second train, increasing capacity to 550 million cubic feet per day, with total West Texas complex processing capacity to reach ~2.5 billion cubic feet per day by early 2027.
• Operational Efficiency: Implemented initiatives to optimize processes and improve resource allocation, resulting in permanent annual run rate cost savings of ~$50 million.
• Financial Performance: Second quarter net income attributable to limited partners $334 million, adjusted EBITDA $618 million. Cash flow from operating activities $564 million, free cash flow $388 million. Declared quarterly distribution of $0.91 per unit.

Segment Performance

• Natural gas: Second quarter natural gas throughput increased 3% sequentially. Per Mcf adjusted gross margin decreased $0.02 sequentially.
• Crude oil and NGLs: Throughput increased 6% sequentially. Per barrel adjusted gross margin decreased $0.15 compared to prior quarter.
• Produced water: Throughput increased 4% sequentially. Per barrel adjusted gross margin unchanged.
• Delaware Basin: Expected modest year-over-year increases in average throughput across all product lines, with third quarter volumes flat compared to second quarter.
• Other basins: DJ Basin expected flat year-over-year throughput; Powder River Basin anticipated modest year-over-year increases; Uinta Basin expected natural gas throughput growth in second half of year.

Guidance

• 2025 Financial Guidance: No changes considering estimated Aris acquisition close in fourth quarter.
• 2026 Capital Expenditures: Expect 2026 capital expenditures to be at least $1.1 billion, with majority of spending on Pathfinder and North Loving II projects.
• Throughput Forecast: Anticipate portfolio-wide average year-over-year throughput growth for natural gas and produced water in mid-single digits, and crude oil and NGLs in low single digits for 2026, excluding noncore asset sales.

Risks

• Regulatory Uncertainty: Aris acquisition subject to regulatory review, which could impact the expected fourth quarter close.
• Market Volatility: Fluctuations in NGL pricing, utility costs, and market conditions could affect adjusted gross margin and financial performance.
• Operational Disruptions: Temporary downtime at peers' assets in the Powder River Basin initially boosted throughput, but return to service could impact future volumes.

Question and Answer

Q: Funding for Aris A: Oscar Brown mentioned financing the deal leverage-neutral to preserve balance sheet and position for additional opportunities.

Q: Water Business Mix A: Oscar Brown stated water business is a midstream business, with mix likely around 15-20% EBITDA, happy with current range.

Q: New Mexico Operations A: Oscar Brown said Aris acquisition completes WES's system in Delaware Basin, comfortable with current inorganic growth, and sees regulatory environment in New Mexico as manageable.

Q: Synergies and Distribution Growth A: Oscar Brown mentioned $40 million in synergies from G&A, and distribution growth expected in mid-single digits, aligned with earnings growth.

Q: McNeill Ranch Opportunities A: Oscar Brown sees McNeill Ranch as a long-term upside with water disposal permits and surface use opportunities.

Q: Capital Program for Remainder of Year A: Kristen Shults noted spending less in Powder River Basin with projects shifting to 2026, and Delaware spending increasing with North Loving II.

Q: North Loving II Ramping A: Jon VandenBrand said North Loving II expected to have substantial volume day 1 due to strong underlying contracts.

Q: Organic vs Bolt-on Growth A: Oscar Brown said M&A must compete with organic growth, with Aris deal hitting all metrics, and New Mexico growth having both organic and potential bolt-on opportunities.

Q: Aris Business Areas A: Oscar Brown said Aris's industrial water and technology efforts are appealing, with potential for long-term benefits.