Western Midstream Partners, LP — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; this is an annual filing, not a standalone fourth-quarter report. WES is a publicly traded midstream partnership providing natural-gas, crude-oil, NGL, and produced-water gathering, processing, transportation, and disposal services. The filing also presents separate statements for consolidated subsidiary Western Midstream Operating, LP (WES Operating), which issues the debt.
Financial and operating performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenues and other | $3.106 billion | $3.252 billion | Down 4% |
| Operating income | $1.380 billion | $1.588 billion | Down 13% |
| Net income attributable to WES | $1.022 billion | $1.217 billion | Down 16% |
| Net income per common unit, diluted | $2.60 | $3.00 | Down 13% |
| Gross margin | $2.341 billion | $2.248 billion | Up 4% |
| Adjusted gross margin (non-GAAP) | $2.964 billion | $2.925 billion | Up 1% |
| Adjusted EBITDA (non-GAAP) | $2.069 billion | $2.128 billion | Down 3% |
| Cash provided by operating activities | $1.661 billion | $1.701 billion | Down $40 million |
| Free cash flow (non-GAAP) | $964 million | $1.268 billion | Down 24% |
Fee-based service revenue increased 6% to $2.769 billion, while product-based service revenue fell 23% and product sales fell 64%, reflecting lower commodity prices, volumes, and contract mix. Cost of product declined substantially, supporting higher gross margin; however, operating and maintenance expense rose 16% to $763 million and G&A rose 20% to $233 million. FY2023 results also included $52.9 million of impairment expense, primarily a $52.1 million impairment of Rockies assets after a contract termination notice. FY2022 included a $103.7 million net gain on divestiture, principally related to the Cactus II sale, making year-over-year operating income and net income comparisons less favorable.
Throughput attributable to WES rose 5% for natural gas to 4,432 MMcf/d and 21% for produced water to 1,009 MBbls/d; crude-oil and NGL throughput declined 4% to 652 MBbls/d. Capital expenditures were $735 million, compared with $487 million in 2022. The filing does not provide a separate fourth-quarter income statement summary in the supplied text.
Debt, liquidity, and capital returns
At year-end, WES reported $7.901 billion of debt carrying value and $273 million of cash. Current liabilities exceeded current assets by $312 million, primarily because commercial paper was classified as short-term debt. WES Operating had $613.9 million of commercial paper outstanding; the $2.0 billion revolving credit facility had no direct borrowings and $1.4 billion of effective borrowing capacity after reserving support for the commercial paper program. The facility matures in April 2028. The filing states there are no senior-note maturities due within the next year and estimates $346 million of 2024 interest and revolving-credit-facility fees.
WES Operating issued $750 million of 6.150% notes due 2033 and $600 million of 6.350% notes due 2029 during 2023, repaid its 2023 floating-rate notes, and repurchased and retired $276.7 million principal amount of other notes. Fitch upgraded its debt to investment grade in May 2023; the filing reports investment-grade ratings from S&P, Moody’s, and Fitch. WES paid $978 million in distributions and repurchased 5.4 million common units for $134.6 million. The fourth-quarter distribution was $0.575 per unit, or $2.30 annualized; it was paid in February 2024.
Outlook, material developments, and risks
- 2024 capital spending: Guidance is $700 million to $850 million, including spending on Mentone Train III, the North Loving plant, and other expansion. Mentone Train III (300 MMcf/d) was expected to enter service at the end of Q1 2024; the 250 MMcf/d North Loving plant was expected in Q1 2025. Additional Chipeta compression, expected to add up to 100 MMcf/d, was anticipated in July 2024.
- Meritage acquisition: Closed October 13, 2023, for $885 million, expanding the Powder River Basin footprint. Acquired assets contributed $41.4 million of revenue and $24.6 million of operating expenses in 2023 after closing. Integration, realization of expected returns, and acquired-asset fair values remain relevant follow-up items.
- Planned divestitures: In February 2024, WES announced agreements to sell interests in Marcellus, Panola, Mont Belvieu JV, Whitethorn, and Saddlehorn for combined proceeds of approximately $790 million and an estimated aggregate gain of approximately $300 million. Mont Belvieu JV and Whitethorn sales closed February 16, 2024; the remaining transactions were expected to close in Q1 or Q2 2024, subject to customary conditions.
- Customer and related-party concentration: Occidental accounted for 59% of FY2023 total revenue and 48.8% of WES common units at year-end. Occidental-related production represented 34% of natural-gas, 86% of crude-oil and NGL, and 78% of produced-water throughput. Changes in Occidental’s activity, finances, or strategy could materially affect WES.
- Contract issue: WES and Occidental were discussing differing interpretations of cost-of-service calculations under a DJ Basin oil-gathering contract. An adverse resolution could reduce rates and cause a non-cash charge to earnings.
- Other risks: Management highlights producer activity and commodity-price effects on volumes, inflation and interest rates, competition, environmental and methane regulation, pipeline safety requirements, produced-water disposal and seismicity constraints, cyber threats, and access to capital. Most natural-gas, crude-oil, and produced-water throughput is fee-based, which limits direct commodity-price exposure, but does not remove volume and customer risks.
- Legal and control matters: Mont Belvieu JV and Whitethorn disputes were settled in connection with their February 2024 sales. KPMG issued unqualified audit opinions; management and the auditor found WES’s internal control over financial reporting effective. Meritage, representing $1.01 billion of assets and $41.4 million of revenue included in the statements, was excluded from the 2023 internal-control assessment.
Most important facts for investors to verify
- Whether the announced divestitures close on schedule and deliver the stated proceeds and estimated gain.
- Whether Meritage integration, projected contribution, and acquisition-related assumptions support expected returns.
- Resolution and financial impact of the DJ Basin cost-of-service disagreement with Occidental.
- Occidental’s production plans and credit condition, given its revenue and throughput concentration.
- 2024 capital spending, project completion dates, leverage, commercial-paper levels, and the sustainability of the $0.575 quarterly distribution.
- Whether reported free cash flow and Adjusted EBITDA trends improve; both are non-GAAP measures and should be considered alongside GAAP cash flow and earnings.