8-K: Western Midstream Reports Strong Third-Quarter Results Driven by Record Throughput

Western Midstream Partners, LP announced solid third-quarter 2024 results, highlighted by record throughput in key basins and strong financial performance.

Summary

• Western Midstream Partners, LP reported a net income attributable to limited partners of $281.8 million for the third quarter of 2024.
• The company's Adjusted EBITDA for the quarter was $566.9 million.
• Cash flows from operating activities reached $551.3 million, resulting in a free cash flow of $365.1 million.
• A base distribution of $0.875 per unit, or $3.50 per unit on an annualized basis, was declared, consistent with the previous quarter.
• Record natural gas and crude oil throughput was achieved in the Delaware Basin, with 1.9 Bcf/d and 246 MBbls/d respectively, each representing a 2% sequential increase.
• The Powder River Basin also saw record throughput, with natural gas at 505 MMcf/d and crude oil at 26 MBbls/d, representing sequential increases of 19% and 4% respectively.
• Produced water throughput in the Delaware Basin increased to 1,121 MBbls/d, a 2% sequential increase.
• The company issued $800 million in senior notes due 2034 at 5.450%, using the proceeds to repay existing debt and for general purposes.
• System operability remained strong at above 98%, despite multiple plant turnarounds.
• A realignment of the Mi Vida joint venture will provide WES with 100 MMcf/d of dedicated natural gas processing capacity in the Delaware Basin starting mid-2025.
• Third-quarter capital expenditures totaled $198.1 million.
• Natural gas throughput averaged 5.0 Bcf/d, a 1% sequential increase, while crude oil and NGLs throughput averaged 506 MBbls/d, a 2% sequential decrease.
• Produced water throughput averaged 1,099 MBbls/d, a 2% sequential increase.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong operational performance and financial results, although there are some concerns about profitability and reduced throughput growth expectations. The company's strategic moves and financial health are encouraging.

Positives

• The company achieved record throughput in the Delaware Basin for natural gas and crude oil.
• The Powder River Basin showed significant throughput growth for both natural gas and crude oil.
• The company maintained strong operational performance with system operability above 98%.
• The issuance of $800 million in senior notes was at the best 10-year credit spread in WES's history.
• The trailing-twelve-month net leverage ratio reached the year-end 2024 threshold of 3.0 times.
• The company is positioned for future success due to its strong operating model, improved balance sheet, and transparent capital-return framework.

Negatives

• Profitability declined slightly quarter-over-quarter due to lower natural gas liquids recoveries and lower commodity prices in the Delaware Basin.
• Lower distributions from equity investments and higher operation and maintenance expenses also contributed to the decline in profitability.
• Crude oil and NGLs throughput decreased by 2% sequentially.
• The company reduced its average year-over-year crude oil and NGLs and produced water throughput growth expectations.

Risks

• The company's ability to meet financial guidance or distribution expectations is subject to various factors.
• The supply, demand, and price of oil, natural gas, NGLs, and related products or services can impact results.
• The company's ability to meet projected in-service dates for capital-growth projects is a risk.
• Construction costs or capital expenditures exceeding estimated or budgeted costs or expenditures could negatively impact the company.
• The company is exposed to commodity price volatility, although a substantial majority of cash flows are protected through fee-based contracts.

Future Outlook

The company estimates increased Adjusted EBITDA in the fourth quarter, driven by steady throughput growth and lower operation and maintenance expenses. While Adjusted EBITDA is expected to be towards the high end of the previously announced $2.2 billion to $2.4 billion guidance range for the year, the company is reducing its average year-over-year crude oil and NGLs and produced water throughput growth expectations.

Management Comments

• We achieved another quarter of record natural-gas and crude-oil and NGLs throughput in the Delaware Basin and experienced continued strong throughput growth in the Powder River Basin as the Meritage Midstream acquisition continues to exceed our expectations, said Oscar Brown, President and Chief Executive Officer.
• Looking to the fourth quarter, we estimate increased Adjusted EBITDA primarily driven by continued steady throughput growth from our core operating basins and lower operation and maintenance expense.
• Our strong operating model, improved balance sheet, and transparent capital-return framework, all provide WES with a solid foundation that is well positioned for future success, concluded Mr. Brown.

Industry Context

This announcement reflects the ongoing growth in the midstream sector, particularly in key basins like the Delaware and Powder River. The company's focus on operational efficiency and strategic acquisitions, such as Meritage Midstream, aligns with industry trends of consolidation and expansion in high-production areas.

Comparison to Industry Standards

• Western Midstream's throughput growth in the Delaware Basin is comparable to other midstream operators in the region, such as Energy Transfer and Kinder Morgan, who are also seeing increased volumes due to higher production activity.
• The company's focus on fee-based contracts is a common strategy among midstream companies to mitigate commodity price risk, similar to MPLX and Enterprise Products Partners.
• The issuance of senior notes at a favorable credit spread indicates strong market confidence in Western Midstream, which is a positive sign compared to some peers facing higher borrowing costs.
• The company's leverage ratio of 3.0 times is within the range of many midstream companies, indicating a healthy balance sheet.

Stakeholder Impact

• Shareholders will benefit from the consistent base distribution and potential for future growth.
• Employees are likely to be impacted by the company's operational performance and strategic initiatives.
• Customers will benefit from the company's continued flow assurance and system operability.
• Suppliers and creditors will be impacted by the company's financial health and capital allocation decisions.

Next Steps

• The company will host a conference call on November 7, 2024, to discuss the third-quarter results.
• The third-quarter per-unit base distribution will be paid on November 14, 2024.
• The company will continue to look for efficient ways to allocate capital, including organic growth, accretive M&A, and increasing the base distribution.
• The Mi Vida joint venture realignment is expected to provide additional natural gas processing capacity in mid-2025.

Key Dates

Keywords

Midstream, Natural Gas, Crude Oil, NGLs, Throughput, EBITDA, Free Cash Flow, Delaware Basin, Powder River Basin, Distribution