Western Midstream Partners, LP — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; unaudited. The combined filing covers Western Midstream Partners, LP (WES) and its consolidated subsidiary, Western Midstream Operating, LP (WES Operating). Unless noted, figures below are for WES and are in U.S. dollars.
Financial and operating performance
- Revenue: Q2 revenue and other was $876.4 million, up 21.9% from $719.1 million in Q2 2021. Six-month revenue was $1.635 billion, up 17.3% year over year. Growth reflected higher fee-based and product-based service revenue and product sales, including the impact of higher commodity prices and volumes.
- Profit: Q2 net income attributable to WES was $306.3 million ($0.74 per common unit), versus $231.3 million ($0.55 per unit) a year earlier. Six-month net income attributable to WES was $615.0 million, versus $417.1 million. Six-month operating income was $802.2 million, compared with $627.3 million.
- Margins and EBITDA: Q2 gross margin was $588.8 million; six-month gross margin was $1.140 billion. Non-GAAP adjusted gross margin was $755.7 million and $1.460 billion, respectively. Six-month adjusted EBITDA was $1.087 billion, up 16% from $934.2 million.
- Cash flow and investment: Six-month operating cash flow was $743.4 million, versus $713.7 million in 2021. Capital expenditures were $191.4 million, up from $139.9 million; free cash flow, a non-GAAP measure, was $572.4 million, down from $591.6 million. Cash declined to $97.4 million from $202.0 million at year-end 2021.
- Debt and liquidity: Debt carrying value was approximately $6.7 billion at June 30. Working capital was a surplus of $108.8 million. The $2.0 billion revolving credit facility had $255 million drawn and approximately $1.7 billion of available capacity. WES Operating reported covenant compliance.
- Distributions and repurchases: The Q2 distribution was $0.50 per unit, unchanged from Q1. WES repurchased $79.2 million of units in the first half under its $1.0 billion program. Through July 29, it had repurchased a further $346.1 million, including 10 million units from Occidental; $574.6 million remained authorized.
Material changes and management commentary
- Six-month natural-gas throughput attributable to WES was essentially flat year over year at 4,165 MMcf/d; crude-oil and NGL throughput rose 4% to 670 MBbls/d, and produced-water throughput rose 26% to 808 MBbls/d.
- Management attributed stronger margins to West Texas plant performance, product recoveries, contract mix, commodity prices, and higher throughput. Equity income from related-party investments declined 12% to $98.1 million for the first half.
- Interest expense fell 14% year over year to $166.2 million for the first half, reflecting debt redemptions and lower borrowing costs. S&P upgraded WES Operating’s long-term debt rating to BBB- in January; management said this reduced annualized borrowing costs by $7.9 million.
- In Q2, WES Operating redeemed $502.2 million principal amount of 4.000% notes due 2022. A June credit-facility amendment extended certain lender commitments to February 2026 and transitioned specified borrowing references from LIBOR to SOFR.
Outlook, risks, and contingencies
- The filing provides no numerical earnings or cash-flow guidance. Management expects operations to remain exposed to commodity-price volatility, customer activity and throughput, inflation, supply-chain and labor constraints, and rising interest rates. Higher operating and capital costs could pressure results; fee escalators may recover some costs.
- Occidental is WES’s only customer exceeding 10% of consolidated revenue and accounted for $885.5 million of first-half revenue. WES also depends on Occidental-related volumes and has significant related-party balances. Nonpayment, reduced production or capital spending, or other counterparty issues could affect cash flows and distributions.
- WES is in a dispute with Occidental over cost-of-service rates on a DJ Basin oil-gathering contract. An adverse resolution could reduce rates and produce a non-cash earnings charge.
- A Department of Justice/EPA and Colorado enforcement action alleges Clean Air Act leak-detection violations at a DJ Basin facility. Management expects a resolution may include injunctive relief and a civil penalty, but does not expect a material financial impact. A separate Mont Belvieu JV revenue-allocation lawsuit has an uncertain outcome.
- Environmental remediation and reclamation liabilities were $9.0 million. The filing also identifies commodity, customer-credit, operating-efficiency, regulatory, and capital-access risks. Management stated that a 10% commodity-price move would not materially affect results over the next 12 months, excluding imbalance effects.
Investor verification priorities
- Confirm the sustainability of margin and earnings gains as commodity prices, throughput, product recoveries, and contract mix change.
- Track Occidental concentration, receivable collections, related-party activity, and the DJ Basin rate dispute.
- Assess leverage, refinancing needs, floating-rate exposure, and remaining revolving-credit availability against capital spending, distributions, and unit repurchases.
- Monitor outcomes and potential costs of the environmental enforcement action and Mont Belvieu JV litigation.
- Review non-GAAP adjusted gross margin, adjusted EBITDA, and free cash flow reconciliations; these measures are not substitutes for GAAP results and may not be comparable across companies.