Western Midstream Partners, LP — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. The combined filing covers Western Midstream Partners, LP (WES) and its consolidated operating subsidiary, Western Midstream Operating, LP (WES Operating). Unless noted, amounts below are for WES and in U.S. dollars.
Business context
WES operates midstream assets that gather, process, and transport natural gas, crude oil, and NGLs, and gather and dispose of produced water. Its operations span Texas, New Mexico, the Rocky Mountains, and north-central Pennsylvania. Occidental Petroleum owns the general partner and held 47.6% of WES’s common units at quarter-end.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenues and other | $887.7 million | $734.0 million | Up 21% |
| Operating income | $679.4 million | $290.2 million | Up 134% |
| Net income attributable to WES | $572.8 million | $203.6 million | Up 181% |
| Net income per common unit, diluted | $1.47 | $0.52 | Up |
| Adjusted EBITDA | $608.4 million | $498.7 million | Up 22% |
| Adjusted gross margin | $845.1 million | $695.2 million | Up 22% |
| Net cash from operating activities | $399.7 million | $302.4 million | Up |
| Free cash flow | $225.0 million | $141.6 million | Up 59% |
| Capital expenditures, cash basis | $193.8 million | $173.1 million | Up |
GAAP net income includes a $239.6 million gain on divestitures and other items, principally from first-quarter asset sales; the gain should not be treated as recurring operating earnings. Adjusted EBITDA and adjusted gross margin are non-GAAP measures. Gross margin was $683.7 million, compared with $537.9 million in Q1 2023.
Natural-gas throughput attributable to WES rose 21% year over year to 4,990 MMcf/d, supported in part by the Meritage acquisition and higher regional production. Crude-oil and NGL throughput fell 8% to 565 MBbls/d, primarily reflecting divestitures. Produced-water throughput increased 18% to 1,126 MBbls/d.
Liquidity, debt, and distributions
At March 31, 2024, WES reported cash of $295.2 million, current assets of $1.07 billion, current liabilities of $708.1 million, and a $358.2 million working-capital surplus. Carrying value of total debt was approximately $7.38 billion, including $108.4 million classified as short-term debt. WES Operating had $100 million of commercial paper outstanding and $1.9 billion of effective RCF borrowing capacity; it reported compliance with applicable debt covenants.
Cash increased by $22.5 million during the quarter. Investing cash flow was $396.8 million, including $582.7 million of asset-sale proceeds and $193.8 million of capital expenditures. Financing cash outflow was $774.1 million, including $510.4 million of net commercial-paper repayments and $223.4 million of distributions to WES unitholders. WES paid $130.9 million of interest, net of capitalized interest.
The Board declared a Q1 distribution of $0.875 per unit, or $340.9 million in aggregate, payable May 15, 2024. This was $0.300 per unit above the Q4 2023 distribution. No units were repurchased in Q1; $627.8 million remained authorized under the buyback program through December 31, 2024.
Material changes and unusual items
- WES sold interests in Mont Belvieu JV, Whitethorn, Panola, and Saddlehorn during Q1, receiving combined proceeds of $588.6 million, including distributions through closing, and recording a net gain of $239.7 million. The Mont Belvieu and Whitethorn sales also resolved related legal proceedings.
- In April 2024, WES completed the sale of its Marcellus systems interest for $206.2 million; it estimated a net gain of about $65 million for Q2.
- WES bought and retired $15.1 million of senior notes during Q1, recognizing a $0.5 million gain. After quarter-end, it repurchased and retired an additional $134.9 million of notes.
- Interest expense increased 16% year over year to $94.5 million, mainly reflecting the 2023 senior-note issuances and commercial-paper borrowings.
- Operation and maintenance expense rose 12% year over year to $194.9 million, while G&A increased 33% to $67.8 million. No material long-lived asset impairment was recorded in Q1 2024; Q1 2023 included a $52.1 million Rockies impairment.
Outlook, risks, and contingencies
The filing provides no specific numerical full-year earnings or throughput guidance. Management said it expects liquidity from operating cash flow, cash, and borrowing capacity to meet working-capital, capital-spending, and debt-service needs, while the Board determines distributions quarterly. Capital spending is directed principally to expansion, construction, and asset-integrity projects. Management notes that producer activity, commodity-price volatility, inflation, supply-chain constraints, and interest rates may affect results.
Occidental was the only customer representing more than 10% of consolidated revenue. WES also disclosed substantial Occidental-related throughput exposure, including 89% of crude-oil and NGL throughput and 77% of produced-water throughput attributable to Occidental-controlled production. A contractual dispute with Occidental over cost-of-service rates on the DJ Basin oil-gathering system could, if resolved adversely, reduce rates and result in a non-cash earnings charge. Management said it was not aware of ordinary-course litigation expected to materially adversely affect the Partnership. Environmental remediation and reclamation liabilities were $3.5 million at quarter-end.
Most important facts for investors to verify
- How much of the reported earnings increase reflects the non-recurring divestiture gain versus underlying operating performance.
- Whether operating cash flow and free cash flow can sustain the higher distribution alongside planned capital expenditures and debt service.
- Debt maturities and refinancing plans, including the 2025 notes, commercial-paper exposure, and post-quarter note repurchases.
- The outcome and potential financial effect of the DJ Basin cost-of-service rate discussions with Occidental.
- Ongoing dependence on Occidental and customer production, and how divestitures and the Meritage acquisition affect future throughput, margins, and cash generation.