Western Midstream Partners, LP — Q1 2023 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2023, compared primarily with Q1 2022. Western Midstream gathers, processes, and transports natural gas, crude oil, and NGLs, and gathers and disposes of produced water. The filing is a combined report for the Partnership and its consolidated operating subsidiary, Western Midstream Operating, LP (WES Operating).
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenues and other | $734.0 million | $758.3 million | Down 3% |
| Equity income from related parties | $39.0 million | $49.6 million | Down 21% |
| Operating income | $290.2 million | $404.8 million | Down 28% |
| Net income attributable to WES | $203.6 million | $308.7 million | Down 34% |
| Basic and diluted net income per unit | $0.52 | $0.75 | Down $0.23 |
| Adjusted EBITDA (non-GAAP) | $498.7 million | $539.1 million | Down 7% |
| Free cash flow (non-GAAP) | $141.6 million | $200.3 million | Down 29% |
| Operating cash flow | $302.4 million | $276.5 million | Up 9% |
Gross margin was $537.9 million, down 2% year over year; adjusted gross margin was $695.2 million, down 1%. Per-unit adjusted gross margin was $1.30/Mcf for natural gas (down 3% year over year), $2.65/Bbl for crude oil and NGLs (up 9%), and $0.81/Bbl for produced water (down 19%). These adjusted measures are non-GAAP and are not substitutes for GAAP results.
Cash, debt, and capital: Cash was $112.6 million at quarter-end, versus $286.7 million at December 31, 2022. Current assets exceeded current liabilities by $154.0 million. Debt carrying value was approximately $6.7 billion; WES Operating had $495 million drawn on its revolving credit facility (RCF), with approximately $1.5 billion of capacity available at quarter-end. It repaid the RCF borrowings in April using proceeds from a $750 million 6.150% senior-note offering due 2033; the RCF maturity was extended to April 2028. Q1 capital expenditures were $173.1 million, versus $84.0 million a year earlier. Cash declined by $174.0 million during the quarter.
Material changes and operating drivers
- Fee-based service revenue increased 3% year over year, while product sales fell 54%, reflecting lower commodity prices and volumes, among other factors.
- Operation and maintenance expense rose $45.3 million year over year to $174.2 million, with increases in maintenance, regulatory and environmental costs, utilities, and labor. The increase contributed to lower earnings and EBITDA.
- Q1 included a $52.1 million impairment on Rockies assets after receipt of a contract termination notice. The assets were written down to an estimated fair value of $22.8 million using Level 3 assumptions.
- Natural-gas throughput attributable to WES rose 1% year over year to 4,107 MMcf/d; crude-oil and NGL throughput fell 9% to 611 MBbl/d; produced-water throughput rose 27% to 957 MBbl/d.
- Capital spending increased primarily for West Texas expansion, including Mentone Train III, and additional produced-water disposal wells, facilities, and pipelines.
Outlook, distributions, and risks
The filing does not provide a clear numerical full-year earnings or throughput forecast. Management expects operating results to be affected by producer activity and commodity-price volatility, inflation and supply-chain pressures, and higher interest rates. Management stated that available cash, operating cash flow, and borrowing capacity were expected to cover short- and long-term requirements; distributions remain subject to Board discretion, reserves, and available cash.
The Board declared a Q1 distribution of $0.500 per unit, unchanged from the prior quarter, plus an April-approved $0.356 enhanced distribution tied to 2022 performance. The combined $0.856 per unit, approximately $337.0 million, was payable May 15, 2023. WES repurchased 285,688 units for $7.1 million in Q1; $755.3 million remained authorized under the $1.25 billion buyback program at March 31.
- Occidental was the only customer accounting for more than 10% of consolidated revenue. It accounted for 35% of natural-gas throughput, 88% of crude-oil and NGL throughput, and 80% of produced-water throughput attributable to Occidental-owned or controlled production.
- WES and Occidental were discussing interpretations of DJ Basin oil-gathering cost-of-service rates; an adverse resolution could reduce rates and cause a non-cash earnings charge.
- A proposed consent decree in a Colorado Clean Air Act matter was filed in April 2023 and remained subject to a comment period. Management expected injunctive relief and a civil penalty but did not expect a material financial impact.
- Other disclosed litigation includes disputes concerning Mont Belvieu revenue allocation and Whitethorn trading profits; outcomes and impacts were uncertain.
- Management cited risks including Occidental and other counterparty creditworthiness, commodity prices and throughput, inflation, interest rates, capital availability, environmental obligations, and regulatory changes. It reported compliance with debt covenants and effective disclosure controls.
Important facts for investors to verify
- Whether the Rockies contract termination and impairment lead to further volume, revenue, or asset-value effects.
- Developments in the DJ Basin rate discussions and the Mont Belvieu and Whitethorn legal disputes.
- Post-quarter financing terms, including use of the $750 million note proceeds, the RCF amendment, and resulting interest costs.
- Whether operating cash flow and capital spending support distributions, debt reduction, and the buyback program as throughput and costs evolve.
- Occidental’s ongoing contribution to revenue and throughput, and any changes in its activity or ability to meet contractual obligations.