Western Midstream Partners, LP - 2024 Q2 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2024, for Western Midstream Partners, LP (WES) and its consolidated subsidiary, Western Midstream Operating, LP. WES is a master limited partnership engaged in gathering, compressing, treating, processing, and transporting natural gas, NGLs, and crude oil, as well as produced water disposal. Operations are concentrated in Texas, New Mexico, and the Rocky Mountains. The filing is a combined report for both registrants.
Key Financial Metrics (Six Months Ended June 30, 2024)
- Revenue: Total revenues and other were $1.79 billion, a 22% increase year-over-year (YoY).
- Net Income: Net income attributable to WES was $951.5 million, compared to $456.6 million in the prior year period.
- Operating Cash Flow: Net cash provided by operating activities was $1.03 billion, up from $793.2 million YoY.
- Adjusted EBITDA: Reported at $1.19 billion, a 20% increase YoY.
- Free Cash Flow: Defined as operating cash flow less capital expenditures and equity contributions, totaled $649.8 million.
- Debt: Total debt carrying value was approximately $7.15 billion ($8.5 million short-term, $7.14 billion long-term).
- Liquidity: Cash and cash equivalents totaled $344.1 million. The company maintains a $2.0 billion revolving credit facility (RCF) with no outstanding borrowings as of period end.
- Distributions: Declared a quarterly distribution of $0.875 per unit for Q2 2024.
Material Changes vs. Prior Period
- Divestitures: Significant gains on divestitures drove net income. In Q2, WES sold its 33.75% interest in the Marcellus Interest systems for $206.2 million (gain of $63.9 million). In Q1, WES sold equity interests in Mont Belvieu JV, Whitethorn LLC, Panola, and Saddlehorn for combined proceeds of $588.6 million (gain of $239.7 million).
- Throughput: Natural gas throughput attributable to WES increased 19% YoY to 4,989 MMcf/d, driven by the Meritage acquisition and increased production in West Texas and DJ Basin. Crude oil and NGLs throughput decreased 13% YoY due to divestitures, partially offset by higher volumes in West Texas and DJ Basin.
- Expenses: Operating expenses increased primarily due to higher operation and maintenance costs ($60.6 million increase YoY) and depreciation ($33.3 million increase YoY) related to new assets from the Meritage acquisition and capital projects.
- Debt Reduction: WES Operating repurchased and retired $150.0 million of senior notes during the period, recognizing a $5.4 million gain on early extinguishment.
Outlook, Risks, and Management Commentary
- Outlook: Management expects business performance to be driven by producer activity, which is sensitive to commodity prices. They anticipate continued inflationary pressure on costs (steel, labor, materials) but maintain the ability to recover some costs through contractual escalation provisions.
- Capital Allocation: The company has a $1.25 billion unit repurchase program authorized through December 31, 2024. No units were repurchased in the first half of 2024; $627.8 million remains authorized.
- Risks: Key risks include commodity price volatility, credit risk associated with major counterparty Occidental Petroleum (which accounts for a significant portion of revenues), regulatory changes, and interest rate fluctuations affecting financing costs.
- Unusual Items: The significant gains on divestitures ($299 million net gain for the six months) are non-recurring items that materially impacted net income but are excluded from Adjusted EBITDA.
Investor Verification Checklist
- Verify the sustainability of the 19% increase in natural gas throughput given the divestiture of the Marcellus Interest systems.
- Confirm the impact of the Meritage acquisition on future depreciation and operating costs versus revenue generation.
- Monitor the $2.0 billion RCF utilization and commercial paper program for liquidity management.
- Assess the concentration risk related to Occidental Petroleum, which remains the primary customer and counterparty.
- Review the status of the $1.25 billion buyback program and potential future unit repurchases.