425: Western Midstream to Acquire Aris Water in $2B Deal

Western Midstream Partners announces a strategic acquisition of Aris Water Solutions for $2 billion, alongside record Q2 2025 financial results and a new natural gas processing train.

Summary

• Western Midstream Partners, LP (WES) will acquire Aris Water Solutions, Inc. (Aris) in an equity-and-cash transaction valued at approximately $1.5 billion, with a total enterprise value of approximately $2.0 billion before transaction costs.
• Aris shareholders will receive 0.625 WES common units per Aris share, with an option for $25.00 cash per share, subject to proration, with a maximum total cash consideration of $415 million.
• The transaction is expected to consist of approximately 72% equity (26.6 million common units) and 28% cash, with Aris shareholders owning approximately 7% of WES's outstanding common units post-closing.
• WES will retain Aris's existing $500 million senior notes.
• The acquisition targets approximately $40 million of estimated annualized cost synergies and is expected to be accretive to 2026 Free Cash Flow per unit.
• The Tax Receivable Agreement (TRA) with Aris was amended and terminated for a cash payment of $80 million, significantly less than the estimated $183.4 million Early Termination Payment that would have been triggered by the Change of Control.
• WES reported record second-quarter 2025 Adjusted EBITDA of $617.9 million.
• Net income attributable to limited partners for Q2 2025 was $333.8 million, or $0.87 per common unit (diluted).
• Cash flows provided by operating activities for Q2 2025 totaled $564.0 million, and Free Cash Flow was $388.4 million.
• WES announced a Q2 2025 distribution of $0.910 per unit, consistent with the prior quarter, totaling $3.64 per unit on an annualized basis.
• Capital expenditures for Q2 2025 were $170.5 million.
• WES retired $337 million of senior notes in June 2025 using cash on hand.
• WES sanctioned a new 300 MMcf/d cryogenic natural-gas processing train (North Loving Train II) in the Delaware Basin, with an expected in-service date in early Q2 2027.
• Delaware Basin natural-gas throughput reached a record 2.1 Bcf/d, crude-oil and NGLs throughput reached a record 269 MBbls/d, and produced-water throughput reached a record 1,242 MBbls/d for Q2 2025.

Sentiment

Score: 9

Explanation: The filing presents a highly positive outlook, driven by record financial performance, a strategically accretive acquisition with significant synergy potential, and prudent financial management including debt reduction and a favorable TRA termination. The expansion projects further solidify long-term growth prospects.

Positives

• Record second-quarter Adjusted EBITDA of $617.9 million, indicating strong operational performance.
• Sequential throughput growth across all products: 3% for natural gas, 6% for crude oil and NGLs, and 4% for produced water.
• Achieved record Delaware Basin throughputs for natural gas (2.1 Bcf/d), crude oil and NGLs (269 MBbls/d), and produced water (1,242 MBbls/d).
• Strategic acquisition of Aris Water Solutions is expected to be accretive to 2026 Free Cash Flow per unit.
• Targeting significant annualized cost synergies of approximately $40 million from the Aris acquisition.
• The acquisition creates a differentiated and fully integrated produced-water value chain, enhancing WES's competitive position.
• Expansion into Lea and Eddy Counties, New Mexico, unlocks new opportunities for natural gas, crude oil, NGLs gathering, and processing.
• Aris's McNeill Ranch acquisition provides significant long-term pore space and surface use opportunities, enhancing flow assurance.
• Diversifies WES's customer base with Aris's long-term contracts, acreage dedications, and minimum-volume commitments from investment-grade counterparties.
• The Tax Receivable Agreement (TRA) termination payment was reduced to $80 million from an estimated $183.4 million, saving $103.4 million.
• Sanctioning of North Loving Train II increases West Texas complex processing capacity to approximately 2.5 Bcf/d, supporting future growth.
• Maintains a strong, investment-grade balance sheet with pro forma net leverage expected to remain at approximately 3.0x.
• Retired $337 million of senior notes with cash on hand, demonstrating financial discipline.

Negatives

• No specific negative financial metrics or operational declines were highlighted in the filing; the overall tone is positive regarding performance and strategic moves.

Risks

• The expected timing and likelihood of completion of the transaction, including the timing, receipt, and terms and conditions of any required governmental and regulatory approvals.
• The ability to successfully integrate the businesses of WES and Aris.
• The occurrence of any event, change, or other circumstances that could give rise to the termination of the merger agreement.
• The possibility that stockholders of Aris may not approve the merger agreement.
• The risk that the parties may not be able to satisfy the conditions under the merger agreement in a timely manner or at all.
• Risks related to disruption of management time from ongoing business operations due to the transaction.
• The risk that any announcements relating to the transaction could have adverse effects on the market price of WES's common units or Aris's Class A common stock.
• The risk that the transaction and its announcement could have an adverse effect on the ability of WES and Aris to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers and on their operating results and businesses generally.
• The risk the pending transaction could distract management of both entities and they will incur substantial costs.
• The risk that problems may arise in successfully integrating the businesses of the companies, which may result in the combined company not operating as effectively and efficiently as expected.
• The risk that the combined company may be unable to achieve synergies or it may take longer than expected to achieve those synergies.

Future Outlook

Western Midstream Partners (WES) reaffirmed its 2025 financial guidance ranges for Adjusted EBITDA ($2.350 billion to $2.550 billion), total capital expenditures ($625 million to $775 million), and Free Cash Flow ($1.275 billion to $1.475 billion), noting that the impact of the Aris acquisition will be incorporated into its 2026 guidance projections, expected in late February 2026. The acquisition is anticipated to be accretive to 2026 Free Cash Flow per unit and targets $40 million in annualized cost synergies. WES also sanctioned the North Loving Train II, a 300 MMcf/d natural gas processing train, expected to be in service in early Q2 2027, further supporting long-term growth.

Management Comments

• Oscar Brown, President and CEO of WES: "WES had a successful second quarter as we generated the highest quarterly Adjusted EBITDA in our partnerships history, delivered increased throughput across all core operating basins and across all products, and executed on numerous significant growth initiatives."
• Oscar Brown: "Our strategic focus on productivity and efficiency has resulted in cost reductions and process improvements, which should help WES remain competitive and better execute on our near-term growth plans."
• Oscar Brown: "After evaluating multi-year throughput forecasts and conducting numerous discussions with our customers in West Texas, we are confident in sustained producer activity and remain committed to meeting our customers infrastructure needs."
• Oscar Brown: "This expansion further solidifies WES's position as one of the top natural-gas processors in the Delaware Basin and will better position us to continue supporting the development of our customers high-quality acreage positions in the basin."
• Oscar Brown: "This strategic transaction, which is expected to be accretive to 2026 Free Cash Flow per unit and targets approximately $40 million of annualized cost synergies, establishes a differentiated, produced-water system across West Texas and southern New Mexico that is supported by highly-economic, long-term dedications from investment-grade customers."
• Oscar Brown: "Additionally, we firmly believe this transaction will enhance our ability to compete for new business across our natural-gas, crude-oil, and produced-water businesses, adding meaningful scale, marking our entrance further into New Mexico, and making WES the largest three-stream midstream service provider in the Delaware Basin."
• Oscar Brown: "By prudently financing this transaction with a combination of equity and cash, we expect pro forma net leverage to remain at approximately 3.0x."
• Oscar Brown: "Our long-term contract portfolio, strong balance sheet, and investment-grade credit ratings all provide the financial flexibility needed to support our expansion plans over the coming years and generate value for our unitholders."
• Amanda Brock, President and CEO of Aris: "Today's transaction marks a significant milestone in Aris's journey, and we are excited to join forces with WES."
• Amanda Brock: "The combination of Aris and WES creates a premier midstream water-solutions provider of scale that is better positioned to deliver a variety of water services, provide critical flow assurance for natural-gas and crude-oil production activities, and generate strong returns for our shareholders through WES's leading distribution policy and attentive focus on executing accretive growth projects."

Industry Context

This announcement signifies a significant consolidation within the midstream energy sector, particularly in the Delaware Basin. The acquisition of Aris Water Solutions by Western Midstream Partners highlights a growing trend towards integrated service offerings, combining natural gas, crude oil, NGLs, and produced water management. The focus on water solutions, including recycling and beneficial reuse, reflects increasing environmental and sustainability considerations in the energy industry. The expansion into New Mexico and the emphasis on long-term contracts with investment-grade customers indicate a strategic move to secure stable, fee-based cash flows in a highly competitive and dynamic basin.

Comparison to Industry Standards

• WES's acquisition of Aris positions it as the "largest three-stream midstream service provider in the Delaware Basin," indicating a leading market position compared to other regional competitors.
• Aris's assets, with approximately 790 miles of produced-water pipeline, 1,800 MBbls/d of produced-water handling capacity, and 1,400 MBbls/d of water recycling capacity, combined with WES's existing 830 miles of pipeline and 2,035 MBbls/d disposal capacity, create a significantly larger and more integrated water infrastructure compared to many standalone water service providers.
• Aris's contracts with "investment-grade counterparties" and an average contract tenor of approximately ten years for produced water and eight years for water solutions, along with minimum-volume commitments, suggest a higher quality and more stable revenue profile compared to companies reliant on spot market volumes or less creditworthy customers.
• The acquisition multiple of approximately 7.5x on consensus 2026 EBITDA (inclusive of synergies) provides a benchmark for valuation in the midstream water services space, suggesting a reasonable valuation for a strategic, accretive transaction.
• The sanctioning of North Loving Train II, increasing West Texas processing capacity to approximately 2.5 Bcf/d, reinforces WES's position among the top natural gas processors in the Delaware Basin, comparable to other major midstream players expanding infrastructure to meet producer demand.

Related Party Transactions

• The Tax Receivable Agreement (TRA) Amendment was entered into with certain TRA Holders (Majority TRA Holders), including COG Operating LLC, Yorktown Energy Partners XI, L.P., Solaris Energy Capital, LLC, William A. Zartler, and Amanda Brock, to terminate the TRA for an $80 million cash payment.

Stakeholder Impact

• **Shareholders (WES Unitholders):** Expected to benefit from accretive Free Cash Flow per unit, increased scale, diversified customer base, and potential for enhanced distributions due to strong financial performance and synergies.
• **Shareholders (Aris Shareholders):** Will receive a premium for their shares (10% to 30-day VWAP, 23% to prior day closing price) and will become WES unitholders, participating in the combined entity's future growth and distributions.
• **Employees (Continuing Employees):** Will receive comparable compensation and benefits, with service recognition and immediate vesting of unvested Assumed RSU Awards upon involuntary termination without cause within 12 months post-closing.
• **Employees (Non-Continuing Employees):** Company RSUs and PSUs will be cancelled and converted into cash payments based on Cash Election Consideration and performance, plus accrued dividend equivalents.
• **Customers:** The combined entity offers a more integrated and expanded midstream water services platform, enhancing flow assurance and providing a "one-stop shop" for natural gas, crude oil, NGLs, and produced water services, particularly in the Delaware Basin.
• **Creditors:** WES's commitment to maintaining an investment-grade balance sheet and pro forma net leverage of approximately 3.0x, along with leaving Aris's senior notes outstanding, suggests stability for creditors.

Next Steps

• Aris Water Solutions, Inc. shareholders to vote on the merger agreement.
• Obtain necessary regulatory approvals for the merger.
• Complete the merger, expected in the fourth quarter of 2025.
• WES to announce 2026 guidance projections in late February 2026, incorporating the impact of the Aris acquisition.
• North Loving Train II natural-gas processing train expected to be in-service early in the second quarter of 2027.

Key Dates

Recommendation

The filing indicates a strong financial position for Western Midstream Partners, marked by record Q2 Adjusted EBITDA and robust cash flow generation. The strategic acquisition of Aris Water Solutions is highly accretive to Free Cash Flow per unit, targets substantial cost synergies, and significantly expands WES's footprint and service offerings in the high-growth Delaware Basin. The favorable termination of the Tax Receivable Agreement further enhances financial flexibility. These factors, combined with a reaffirmed positive outlook and commitment to unitholder returns, suggest a compelling investment opportunity with strong growth potential and improved competitive positioning.

Keywords

Midstream, Energy Infrastructure, Water Solutions, Produced Water, Natural Gas Processing, Crude Oil Gathering, NGLs, Delaware Basin, Permian Basin, Merger, Acquisition, SEC Filing, Financial Results, EBITDA, Free Cash Flow, Synergies, Investment Grade, Pipelines, Disposal Wells, Water Recycling, North Loving Train II, Pathfinder Pipeline