WES

Acquisitions and Integration

• Closed the $1.6 billion Brazos Delaware II acquisition in mid-June 2026, funded equally by $800 million in cash and $800 million of Western Midstream common units. The deal expands gathering and processing footprint in the Delaware Basin, is accretive to per-unit metrics, protects the balance sheet and investment-grade credit ratings, and diversifies the customer base.
• Integration is off to a strong start; system connection to the legacy Western Midstream network is expected to be completed by the end of 2026, which will enable routing more volumes to underutilized Brazos processing capacity, reducing third-party offloading and increasing value for unitholders.
• $15 to $20 million in total cost synergies are expected to be captured over coming quarters, primarily from eliminated G&A costs and reduced operating expenses via supply chain efficiencies. Multiple customers have moved 2027 planned wells into H2 2026 on Brazos acreage, which is expected to drive higher throughput than initial underwriting assumptions.

Organic Operations and Basin Activity

• The JIP2 produced water treatment demonstration facility in Reeves County, Texas entered service in Q2 2026, producing ~1,000 barrels per day of reclaimed freshwater (10x the volume of the prior JIP1 facility). The project is designed to reduce operating costs, test reliability, and demonstrate commercial-scale beneficial reuse, and is a critical step toward sanctioning the firm's first commercial beneficial reuse facility.
• New long-term gathering and processing agreements were signed with two major active producers in the Powder River Basin, adding 270,000 dedicated acres with over 1,000 remaining drilling locations, backed by multi-year minimum volume commitments.
• Waha natural gas pricing volatility is expected to decrease in the remainder of 2026 following the return of long-haul pipelines from maintenance and entry into service of the GCX expansion and Hugh Brinson pipeline, with further stabilization expected when the Blackcomb pipeline comes online later this year.
• The Pathfinder produced water pipeline and North Loving II natural gas processing train are progressing on schedule, with expected in-service dates in Q1 2027 and Q2 2027, respectively.

Financial Performance

• Q2 2026 generated a record adjusted EBITDA of $737 million, up 8% sequentially and 19% year-over-year; net income attributable to limited partners was $395 million, distributable cash flow was $537 million, and operating cash flow totaled $535 million (up $65 million sequentially). Free cash flow generation was $264 million in the quarter.
• Ended Q2 with over $1.8 billion in total liquidity and a pro forma trailing 12-month net leverage ratio of 3.15x, maintaining investment-grade credit ratings. A $700 million 10-year senior note issuance in June had the tightest 10-year spread to U.S. Treasuries in the firm's history. Declared a Q2 2026 distribution of $0.93 per unit, unchanged from the prior quarter.

Strategic Positioning

• Produced water handling is the firm's fastest growing product line, with beneficial reuse expected to drive long-term growth as water-to-oil ratios continue to rise, outpacing throughput growth for natural gas, crude oil, and NGLs. The firm expects to deliver 4-5% long-term adjusted EBITDA growth, with a 12-14% expected total annual equity return underpinned by a 7-9% current cash yield.

• Full-year 2026 adjusted EBITDA guidance was raised to a range of $2.75 billion to $2.95 billion (midpoint $2.85 billion), representing a $250 million (10%) increase at the midpoint from original guidance. The revision reflects the Brazos acquisition, stronger-than-expected first half 2026 commodity prices, an upgraded second half commodity price forecast, and increased customer activity in the Delaware and Powder River basins.
• Full-year 2026 distributable cash flow (DCF) guidance was raised to a range of $2.05 billion to $2.25 billion (midpoint $2.15 billion), representing a $200 million (10%) increase at the midpoint from original guidance.
• Full-year 2026 free cash flow guidance was raised to a range of $1.1 billion to $1.3 billion (midpoint $1.2 billion), representing a $200 million (20%) increase at the midpoint from original guidance.
• The 2026 capital expenditure guidance range is maintained at $850 million to $1 billion, though the firm now expects to come in at the high end of the range due to incremental capital needs for expansion projects tied to the new Powder River Basin agreements that were not included in prior forecasts. Over half of the 2026 capital program is allocated to the Pathfinder pipeline and North Loving II processing train.
• Full-year 2026 operating and maintenance expense is expected to increase 20-25% year-over-year, driven by acquired assets and higher produced water throughput, but this reflects a meaningful net reduction on a combined company basis from synergy capture and cost reduction efforts.
• The 2026 annual distribution target of at least $3.70 per unit remains unchanged, with an annualized run rate of $3.72 per unit maintained.

Western Midstream reports three core product segments in Q2 2026: 1) Natural Gas: Second quarter throughput increased 3% sequentially, with record throughput in the DJ Basin. Adjusted gross margin rose 3 cents per MCF quarter-over-quarter, driven by higher commodity prices on excess NGL volumes under fixed recovery contracts and the partial-quarter contribution from the Brazos acquisition. Full-year 2026 average adjusted gross margin is expected to hit ~$1.30 per MCF. Full-year 2026 average year-over-year throughput growth is guided to mid-single digits. 2) Crude Oil and NGLs: Throughput increased slightly sequentially. Adjusted gross margin rose 14 cents per barrel quarter-over-quarter. Full-year 2026 average adjusted gross margin is expected to range between $3.10 and $3.15 per barrel. Full-year 2026 average year-over-year throughput is expected to decline by low single digits. 3) Produced Water: Throughput increased ~5% sequentially. Adjusted gross margin rose 6 cents per barrel quarter-over-quarter, driven by higher throughput. Full-year 2026 average adjusted gross margin is expected to hit ~91 cents per barrel. Full-year 2026 average year-over-year throughput growth is guided to ~85%, up from the prior expectation of 80% growth (the fastest growing segment for the firm).

No new material standalone risks or operational failures were discussed during the call. Management referenced general risk factors disclosed in prior public filings (Form 10-K, Form 10-Q) that could cause actual results to differ from forward-looking statements. The only specific near-term uncertainty highlighted was recent moderation in commodity prices from mid-2026 highs, which is expected to lead to slightly lower third-quarter 2026 segment gross margins across all product lines compared to Q2 2026.

Q: With customers accelerating activity into H2 2026, how quickly will the spare capacity at Brazos' processing plants fill up, and what are the plans for future capacity expansion at North Loving? / A: System connection between Brazos and the legacy Western Midstream network will finish by the end of 2026, so significant utilization of spare capacity will not begin until that time. Customer activity on Brazos acreage is much stronger than initial underwriting expectations, so the plant is expected to fill quickly even before shifting existing offloaded volumes onto the facility. There is no more space available for expansion at the existing North Loving site, so any future new processing capacity will be built at a different location, and management is currently evaluating options based on updated volume outlooks.

Q: Can you update on the Pathfinder produced water project's contracting strategy, and how capacity utilization is progressing beyond the anchor Oxy contract? / A: Pathfinder is progressing ahead of plan, with total capital costs reduced from the original budget, pushing expected project returns up 500 basis points from the original high-single-digit to 10% target to ~15% currently. The anchor Oxy contract uses less than a third of the pipeline's capacity, and the commercial team has already secured incremental third-party volumes that are chipping away at excess capacity. Management expects returns to rise into the 20% range as the pipeline fills after entering service, and Pathfinder will act as a flexible header system integrated into the firm's overall Permian water network, supporting further expansion of gathering and disposal operations.

Q: What factors drove the 2026 guidance upgrade, and can we expect a linear step-up in earnings through the end of the year? / A: The $250 million midpoint increase to adjusted EBITDA breaks down to $100 million from the Brazos acquisition, ~$80 million from higher-than-expected commodity prices (a $20 per barrel change in WTI from original budget), and the remainder from higher throughput and improved plant performance. Opex will increase modestly in H2 because Q2 only included half a month of Brazos operating costs, and higher 2026 activity from pulled-forward wells. Expected declines in DJ Basin throughput will moderate H2 earnings, so the step-up will not be fully linear.

Q: What is Western Midstream's M&A strategy, and what is the opportunity set for future acquisitions? / A: The M&A strategy remains focused on programmatic, disciplined deals that meet core criteria: they must sustain or grow the distribution, protect the balance sheet and investment-grade credit ratings, and be accretive to per-unit metrics. The firm prefers organic growth where it can deploy capital at higher returns with lower execution risk, but will remain opportunistic. Management prefers bolt-on acquisitions that fit its existing footprint, rather than large transformational deals that would change the firm's overall strategy.