10-Q: Western Midstream Partners, LP Reports Strong First Quarter 2024 Results Driven by Asset Sales and Increased Throughput

Western Midstream Partners, LP announced a strong first quarter of 2024, marked by significant gains from asset divestitures and increased throughput across its natural gas and produced water segments.

Summary

• Western Midstream Partners, LP reported a net income of $572.8 million for the first quarter of 2024, a significant increase from $203.6 million in the same period last year.
• The company's total revenues and other income reached $887.7 million, up from $733.9 million year-over-year.
• This growth was supported by a 22% increase in total throughput for natural gas assets and an 18% increase in produced water throughput compared to the first quarter of 2023.
• The company also realized a substantial gain of $239.7 million from the divestiture of several equity investments.
• Adjusted EBITDA for the quarter was $608.4 million, compared to $498.7 million in the first quarter of 2023.
• The company's first quarter 2024 per-unit distribution was $0.875, an increase from the fourth quarter 2023 per-unit distribution of $0.575.
• Western Midstream Operating, LP, a subsidiary, also reported a net income of $584.8 million for the quarter.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, strategic asset sales, and increased throughput. However, there are some concerns about decreased crude oil throughput and increased interest expenses, which temper the overall sentiment.

Positives

• The company experienced significant growth in net income and revenue compared to the same quarter last year.
• The divestiture of equity investments resulted in a substantial gain, positively impacting the bottom line.
• Increased throughput in natural gas and produced water segments indicates strong operational performance.
• Adjusted EBITDA showed a significant increase, reflecting improved profitability.
• The per-unit distribution increased, providing higher returns to unitholders.
• The company successfully repurchased some of its senior notes, reducing debt.

Negatives

• Crude oil and NGLs throughput decreased by 8% year-over-year, primarily due to divestitures.
• Interest expense increased by $12.8 million compared to the first quarter of 2023.
• Free cash flow decreased by 20% compared to the previous quarter.

Risks

• The company's business is subject to fluctuations in commodity prices, which can impact producer activity and revenue.
• Inflation and supply chain disruptions could increase operating costs and capital expenditures.
• Changes in interest rates could increase financing costs and impact the unit price.
• The company is exposed to credit risk through non-payment or non-performance by counterparties, including Occidental.
• The company is currently discussing varying interpretations of certain contractual provisions with Occidental which could have a negative impact on the company's financial condition and results of operations.

Future Outlook

The company expects its business to be affected by key trends and uncertainties, including producer activity, commodity prices, inflation, supply chain disruptions, and interest rates. The company intends to continue evaluating the relevant price environments and adjust its capital spending plans to reflect its customers anticipated activity levels, while maintaining appropriate liquidity and financial flexibility.

Management Comments

• To provide superior midstream service, we focus on ensuring the reliability and performance of our systems, creating sustainable cost efficiencies, enhancing our safety culture, and protecting the environment.
• We strive to work proactively with our customers whenever possible to provide high levels of reliability on our systems and help them meet these operational challenges as they arise.

Industry Context

The results reflect the ongoing trends in the midstream energy sector, including the importance of asset optimization, strategic divestitures, and the impact of commodity price volatility. The company's focus on fee-based contracts and operational efficiency aligns with industry best practices.

Comparison to Industry Standards

• The company's Adjusted EBITDA of $608.4 million is a strong result compared to other midstream companies, indicating efficient operations and profitability.
• The increase in natural gas throughput is in line with the industry trend of increased natural gas production.
• The company's strategic divestitures are similar to actions taken by other midstream companies to optimize their portfolios.
• The company's focus on fee-based contracts is a common strategy in the midstream sector to mitigate commodity price risk.
• The company's per-Mcf Adjusted gross margin for natural gas assets of $1.32 is competitive with industry benchmarks.

Related Party Transactions

• Related-party revenues include amounts earned by the Partnership from services provided to Occidental and from the sale of natural gas, condensate, and NGLs to Occidental.
• The Partnership has significant gathering, processing, and produced-water disposal arrangements with affiliates of Occidental on most of its systems.
• Operation and maintenance expense includes amounts accrued for or paid to related parties for field-related costs, shared field offices, and easements.
• A portion of general and administrative expense is paid by Occidental, which results in related-party transactions.
• Cost of product expense includes amounts related to certain continuing marketing arrangements with affiliates of Occidental, related-party imbalances, and transactions with affiliates accounted for under the equity method of accounting.

Stakeholder Impact

• Shareholders will benefit from the increased per-unit distribution and the potential for future growth.
• Employees may experience increased job security and potential for career advancement due to the company's positive performance.
• Customers will benefit from the company's focus on reliability and performance of its systems.
• Suppliers may see increased business opportunities due to the company's growth and capital expenditures.
• Creditors will have increased confidence in the company's ability to repay debt due to its strong financial performance.

Next Steps

• The company will continue to monitor its leverage position and other financial projections to manage the capital structure according to long-term objectives.
• The company may seek to retire, rearrange, or amend some or all of its outstanding debt or financing agreements through various transactions.
• The company will continue to evaluate counterparty credit risk and, in certain circumstances, exercise its contractual rights to request adequate assurance of performance.

Key Dates

Keywords

Midstream, Natural Gas, Crude Oil, NGLs, Produced Water, Throughput, EBITDA, Divestiture, Partnership, Distribution, Equity Investments, Debt Repurchase