Western Midstream Partners, LP — Q1 2022 Form 10-Q
Business context and period. Unaudited combined quarterly filing for Western Midstream Partners, LP (WES) and its consolidated operating subsidiary, Western Midstream Operating, LP, for the three months ended March 31, 2022. WES operates midstream gathering, processing, transportation, and produced-water assets. Comparisons below are year over year unless noted.
Key financial and operating metrics
| Metric | Q1 2022 | Comparison / context |
|---|---|---|
| Total revenue and other | $758.3 million | Up 12% from $675.0 million |
| Net income attributable to WES | $308.7 million | Up 66% from $185.8 million; diluted EPS was $0.75 versus $0.44 |
| Operating income | $404.8 million | Versus $292.3 million |
| Interest expense | $85.5 million | Down 13% from $98.5 million |
| Adjusted EBITDA | $539.1 million | Up 22% from $443.1 million; non-GAAP measure |
| Adjusted gross margin | $704.8 million | Up 15%; GAAP gross margin was $550.9 million |
| Operating cash flow | $276.5 million | Up from $261.6 million |
| Capital expenditures | $84.0 million | Cash basis; versus $61.8 million |
| Free cash flow | $200.3 million | Down 5% from $211.8 million; company-defined non-GAAP measure |
| Cash and debt at March 31 | $248.2 million cash; $6.9 billion debt | $718.2 million of debt was classified as short term |
Gross margin and adjusted measures are defined by the company and should not be treated as substitutes for GAAP results. WES reported a $430.8 million working-capital deficit, principally because debt due in 2022 and floating-rate notes due in 2023 were classified as short-term. Its $2.0 billion revolving credit facility had no borrowings and $2.0 billion of available capacity (after letters of credit).
Material changes and operating trends
- Fee-based service revenue rose 10% year over year, supported by higher throughput and fees in several systems. Product sales increased 21%, including higher NGL prices and volumes.
- Natural-gas throughput attributable to WES was broadly flat year over year at 4,058 MMcf/d. Crude-oil and NGL throughput increased 12% to 675 MBbls/d; produced-water throughput rose 26% to 751 MBbls/d.
- Adjusted gross margin increased across the crude-oil/NGL and produced-water businesses; natural-gas adjusted gross margin per Mcf rose 13% year over year. Management cited higher throughput in certain areas, contract mix, product recoveries, and prices.
- Interest expense declined, reflecting debt repayments and credit-rating-related rate changes. S&P upgraded WES Operating’s long-term debt to BBB- in January; the filing estimates annualized borrowing-cost savings of $7.9 million.
- There were no long-lived asset impairments in Q1 2022, compared with $14.9 million in Q1 2021, primarily related to canceled DJ Basin projects.
Capital, distributions, outlook, and risks
- Distribution and repurchases: WES declared a Q1 distribution of $0.50 per unit, up from $0.327 for Q4 2021, totaling $206.2 million and payable May 13, 2022. A new buyback authorization permits up to $1.0 billion of unit repurchases through December 31, 2024; Q1 repurchases were $5.1 million.
- Capital spending outlook: 2022 accrual-based capital expenditure guidance was $550–$600 million, a $150 million increase to the midpoint of prior guidance. The revised range includes a portion of Mentone Train III, a planned 300 MMcf/d processing plant sanctioned in May 2022, and additional Delaware Basin connections and expansion. This is capital-spending guidance, not earnings guidance.
- Liquidity and debt: Management stated that cash, operating cash flows, and available revolver capacity are expected to cover short- and long-term requirements. WES Operating redeemed its 4.000% notes due 2022 at par on April 1, 2022, after quarter-end. The company reported compliance with debt covenants at March 31.
- Customer and related-party exposure: Occidental was the only customer contributing more than 10% of consolidated revenue. Related-party revenue was $428.7 million. Occidental-related production accounted for 89% of crude-oil/NGL throughput and 84% of produced-water throughput, excluding equity-investment throughput.
- Notable dispute and proceedings: WES is in a dispute with Occidental over cost-of-service rates for a DJ Basin oil-gathering contract; an adverse resolution could reduce rates and cause a non-cash earnings charge. The filing also describes an EPA/Colorado enforcement action concerning alleged Clean Air Act violations at a DJ Basin facility and a Mont Belvieu JV revenue-allocation lawsuit; outcomes and financial effects are uncertain.
- Other risks: Management highlighted commodity-price and producer-activity volatility, inflation and supply-chain constraints, rising interest rates, counterparty credit risk, and dependence on Occidental. The filing says a 10% commodity-price change would not materially affect operating income, financial condition, or cash flows over the next 12 months, excluding imbalance effects.
Important facts for investors to verify
- Whether the $550–$600 million capital plan, including Mentone Train III and Delaware Basin projects, remains on schedule and within budget.
- How the Occidental DJ Basin rate dispute is resolved and whether it affects rates, earnings, or cash flows.
- Occidental’s financial condition, production plans, and continued performance under its contracts, given WES’s customer concentration.
- Debt maturities, floating-rate exposure, and available revolver capacity after the April 2022 note redemption.
- Whether operating cash generation supports the higher distribution and planned buybacks while funding capital spending and debt service.
- The eventual outcomes and potential costs of the environmental enforcement action and Mont Belvieu JV litigation.