SCHEDULE: Western Midstream Redeems $610M Units, Secures New Midstream Deals

Western Midstream Partners, LP will redeem 15.3 million common units from Western Gas Resources, Inc. for $610 million in exchange for new, long-term midstream agreements, including minimum volume commitments and a fixed-fee structure.

Summary

• Western Midstream Partners, LP (WES) will redeem 15,307,402 common units from Western Gas Resources, Inc. (WGR) for an agreed value of $610.0 million.
• This redemption is in consideration for Delaware Basin Midstream LLC (DBM), a WES subsidiary, entering into new midstream agreements.
• The Third Amendment to the Gas Gathering Agreement (GGA Amendment) provides DBM with a minimum volume commitment from Anadarko E&P Onshore LLC (AE&P), reduces gathering fees, and establishes a fixed-fee rate structure.
• The Eleventh Amendment to the Gas Processing Contract (GPC Amendment) facilitates DBM entering a separate Gas Gathering, Processing and Treating Agreement directly with Permian Delaware Enterprises Holdings LLC (PDEH), a ConocoPhillips subsidiary.
• The transaction is expected to close on February 3, 2026.
• The parties intend for the unit transfer and surrender to be treated as a deemed distribution for U.S. federal income tax purposes.

Sentiment

Score: 8

Explanation: The transaction significantly de-risks WES's revenue profile through fixed-fee contracts and minimum volume commitments, while also expanding its customer base. The unit redemption is accretive to unitholders. The only minor negative is the reduced gathering fee, which is likely offset by the other benefits.

Positives

• WES's subsidiary, DBM, secures a minimum volume commitment from AE&P, enhancing revenue stability.
• Transition to a fixed-fee rate structure for gas gathering services provided by DBM to AE&P reduces exposure to commodity price volatility.
• DBM expands its customer base by entering into a new midstream agreement directly with Permian Delaware Enterprises Holdings LLC (PDEH), a ConocoPhillips subsidiary.
• The redemption of common units by WES reduces the outstanding unit count, potentially increasing earnings per unit for remaining unitholders.

Negatives

• The gathering fee charged by DBM to AE&P will be reduced, which could impact DBM's revenue per unit of volume from AE&P, though offset by volume commitments and fixed-fee structure.
• WGR (an OXY Party) is surrendering units without direct cash payment, effectively reducing its ownership stake in WES.

Risks

• Potential for governmental authorities to enjoin or prohibit the consummation of the transactions.
• Risk that the representations and warranties made by the parties are not true and correct in all material respects at closing.
• The enforceability of the agreement may be limited by applicable bankruptcy, insolvency, moratorium, or similar laws.

Future Outlook

The transaction establishes a more stable revenue stream for DBM through minimum volume commitments and a fixed-fee structure with AE&P, and expands DBM's customer base with a new agreement with PDEH. This suggests a positive outlook for DBM's operational stability and growth in the Delaware Basin.

Management Comments

• The Board of Directors of WGR and the sole member of AE&P determined that this Agreement and the transactions contemplated hereby are in the best interests of WGR and AE&P.
• The special committee of the Board of Directors of Western Midstream Holdings, LLC (the general partner of WES) determined that this Agreement and the transactions contemplated hereby are in the best interests of WES and DBM.

Industry Context

The shift to a fixed-fee rate structure and securing minimum volume commitments in midstream agreements reflects a broader industry trend towards de-risking revenue streams for pipeline and processing operators. This provides greater predictability in cash flows, which is attractive to investors in the volatile energy sector. Expanding relationships with major producers like ConocoPhillips (via PDEH) is crucial for long-term asset utilization and growth in key basins like the Delaware Basin.

Comparison to Industry Standards

• The move to a fixed-fee structure and minimum volume commitments aligns with best practices in the midstream sector, where companies like Enterprise Products Partners L.P. and Energy Transfer LP often utilize similar contractual arrangements to ensure stable cash flows and mitigate commodity price exposure.
• Securing a new agreement with Permian Delaware Enterprises Holdings LLC (a ConocoPhillips subsidiary) is comparable to other midstream operators expanding their dedicated acreage or customer base with large, creditworthy producers in prolific basins, such as Targa Resources Corp. or Kinder Morgan, Inc. in the Permian Basin.

Corporate Governance

Related Party Transactions

• The Unit Redemption Agreement is between WGR and AE&P (OXY Parties, indirectly owned by Occidental Petroleum) and WES and DBM (WES Parties).
• WGR is redeeming its common units in WES.
• AE&P is entering into amended midstream agreements with DBM, a subsidiary of WES.
• Occidental Petroleum Corporation indirectly owns 100% of WGR and AE&P, and beneficially owns a significant stake in WES, making this a related-party transaction.

Stakeholder Impact

• Shareholders (WES): The redemption of units is likely accretive to earnings per unit, and the new agreements provide more stable and predictable cash flows, which should be positive for WES unitholders.
• Shareholders (Occidental/WGR): WGR reduces its direct ownership in WES, but in exchange, its subsidiary AE&P secures more favorable midstream service terms (reduced fees, fixed-fee structure) from DBM.
• Customers (AE&P): Benefits from reduced gathering fees and a fixed-fee structure, providing cost certainty.
• Customers (PDEH/ConocoPhillips): DBM entering into a direct agreement with PDEH indicates a new, potentially significant, customer relationship for WES's midstream assets.
• Employees: No direct impact mentioned, but increased operational stability could indirectly benefit employees.

Next Steps

• WGR to transfer and surrender the Subject Units to WES for redemption at Closing.
• WES to redeem and cancel the Subject Units at Closing.
• Parties to file all tax returns and other reports consistent with the Intended Tax Treatment (deemed distribution).

Key Dates

Recommendation

The transaction significantly strengthens Western Midstream Partners' financial and operational profile. The redemption of 15.3 million units for $610 million, effectively reducing the unit count, is accretive to existing unitholders. More importantly, the new midstream agreements secure minimum volume commitments and transition to a fixed-fee structure with a key customer (AE&P), substantially de-risking WES's revenue streams and providing greater cash flow predictability. Furthermore, the expansion of services to Permian Delaware Enterprises Holdings LLC (a ConocoPhillips subsidiary) indicates new growth opportunities and diversification of its customer base in a critical basin. These strategic moves enhance long-term stability and growth prospects, making WES an attractive investment.

Keywords

Western Midstream Partners, WES, Unit Redemption, Midstream, Gas Gathering, Gas Processing, Delaware Basin, Minimum Volume Commitment, Fixed-Fee, Occidental Petroleum, Anadarko, ConocoPhillips, SEC Filing, Schedule 13D/A, Common Units, Energy Infrastructure