8-K: Western Midstream Announces Strong 2023 Results and Increased 2024 Distributions

Western Midstream reported strong fourth-quarter and full-year 2023 results, exceeding expectations for Adjusted EBITDA and announcing a significant increase to its base distribution for 2024.

Summary

• Western Midstream Partners, LP announced its fourth-quarter and full-year 2023 financial results, with net income attributable to limited partners of $281.6 million for the quarter and $998.5 million for the full year.
• The company's full-year Adjusted EBITDA reached $2.069 billion, surpassing the revised guidance range of $1.950 billion to $2.050 billion.
• Full-year free cash flow was $964.2 million, within the guidance range of $900.0 million to $1.000 billion.
• The company achieved record annual natural gas throughput of 4.4 Bcf/d, a 5% year-over-year increase, and record crude oil and NGLs throughput of 652 MBbls/d, a 7% year-over-year increase.
• Produced water throughput also reached a record 1,009 MBbls/d, a 21% year-over-year increase.
• Western Midstream announced the sale of non-core assets for $790 million, at a multiple of 9.6 times 2023 Adjusted EBITDA.
• The company provided 2024 guidance with Adjusted EBITDA between $2.200 billion and $2.400 billion, capital expenditures between $700.0 million and $850.0 million, and free cash flow between $1.050 billion and $1.250 billion.
• A 52% increase to the base distribution was announced, bringing the annual rate to $3.50 per unit, or $0.875 per unit per quarter.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong financial results, record throughput, a significant increase in distributions, and strategic divestitures. The company's outlook for 2024 is also positive, with expected growth in Adjusted EBITDA and Free cash flow.

Positives

• The company exceeded its revised full-year 2023 Adjusted EBITDA guidance.
• Record throughput was achieved across all product categories.
• The company is divesting non-core assets at an attractive multiple.
• A significant increase in the base distribution was announced, demonstrating confidence in future cash flow.
• The company is focused on returning capital to unitholders through distributions and unit repurchases.
• The company has achieved full investment-grade ratings.
• The company is expanding its footprint in the Powder River Basin through the acquisition of Meritage Midstream Services II, LLC.

Negatives

• Full-year 2023 free cash flow after distributions was negative $14.2 million.
• The company's fourth-quarter 2023 produced water throughput decreased by 2% sequentially.
• The company's full-year 2023 free cash flow was within the guidance range, but not above it.

Risks

• The company's ability to meet financial guidance and distribution expectations is subject to various factors.
• The successful closing of the announced divestitures is not guaranteed.
• The company's performance is dependent on the supply, demand, and price of oil, natural gas, and NGLs.
• Construction costs for capital projects could exceed estimates.
• The company's ability to safely and efficiently operate its assets is crucial for its performance.

Future Outlook

Western Midstream expects continued throughput growth in 2024, driven by the Delaware Basin and the integration of the Meritage assets, leading to increased Adjusted EBITDA and Free cash flow. The company plans to continue returning capital to unitholders through base distributions and will evaluate the base distribution on a quarterly basis.

Management Comments

• Michael Ure, President and Chief Executive Officer, stated that 2023 was a successful, pivotal year for WES, highlighting throughput growth and diversification of the asset and customer base.
• Mr. Ure also noted the company's focus on divesting non-core assets and redeploying capital into its operated asset base.
• Kristen Shults, Senior Vice President and Chief Financial Officer, commented that the financial outlook for WES remains strong as the company transitions into 2024, driven by throughput growth.
• Ms. Shults also emphasized the company's commitment to returning more of WES's Free cash flow to investors over time.

Industry Context

This announcement reflects the ongoing trend in the midstream sector of focusing on core assets and returning capital to investors. The divestiture of non-core assets and the increase in base distributions are consistent with strategies employed by other midstream companies to enhance shareholder value and improve financial stability. The focus on the Delaware Basin also aligns with the industry's recognition of its importance as a key growth area.

Comparison to Industry Standards

• Western Midstream's Adjusted EBITDA growth of approximately 11% at the midpoint for 2024 is competitive with other midstream companies, such as Enterprise Products Partners (EPD) and Energy Transfer (ET), which are also focused on growth in key basins.
• The divestiture multiple of 9.6 times 2023 Adjusted EBITDA is within the range of recent midstream asset sales, indicating a fair valuation for the assets sold.
• The 52% increase in base distribution is a significant move, potentially placing WES among the leaders in distribution yield within the midstream sector, compared to peers like MPLX and Magellan Midstream Partners (MMP).
• The company's focus on the Delaware Basin is consistent with industry trends, as many midstream companies are prioritizing investments in this region due to its high production potential, similar to the strategies of companies like Targa Resources (TRGP) and Kinder Morgan (KMI).

Legal Proceedings

• The sale of the interests in Enterprise EF78 LLC and Whitethorn Pipeline Company LLC resolved the outstanding legal proceedings associated with those assets.

Stakeholder Impact

• Shareholders will benefit from the increased base distribution and potential for future distribution increases.
• Employees may benefit from the company's focus on operational efficiencies and growth.
• Customers will benefit from the company's expanded asset base and increased processing capacity.
• Creditors may view the company's strong financial performance and deleveraging efforts positively.

Next Steps

• The company will continue construction of the Mentone III and North Loving processing plants.
• The company will evaluate the base distribution on a quarterly basis.
• The company will focus on integrating the Meritage asset base and capturing operational synergies.
• The company will close the sale of the Marcellus Interest gathering system, Panola Pipeline Company LLC, and Saddlehorn Pipeline Company LLC in the first or second quarters of 2024.

Key Dates

Keywords

Midstream, Natural Gas, Crude Oil, NGLs, Produced Water, Adjusted EBITDA, Free Cash Flow, Distributions, Throughput, Divestiture, Capital Expenditures