10-Q: Western Midstream Partners Reports Q3 2024 Results, Exceeds Expectations with Strong Throughput and Strategic Divestitures

Western Midstream Partners reported strong third-quarter 2024 results, driven by increased throughput and strategic asset sales, while also issuing new debt and managing its capital structure.

Summary

• Western Midstream Partners, LP (WES) reported its financial and operational results for the third quarter of 2024, showing a net income of $288.5 million.
• The company experienced a 1% increase in natural gas throughput compared to the previous quarter, reaching 5,016 MMcf/d.
• Crude oil and NGLs throughput saw a slight decrease of 2% to 506 MBbls/d compared to the previous quarter.
• Produced water throughput increased by 2% to 1,099 MBbls/d compared to the previous quarter.
• WES completed the sale of several equity investments and its Marcellus Interest systems, generating $794.8 million in proceeds and a net gain of $303.6 million.
• The company issued $800 million in senior notes due 2034 and repurchased $150 million of existing senior notes.
• The regular third-quarter distribution to unitholders remained unchanged at $0.875 per unit.
• Adjusted gross margin for natural gas assets averaged $1.29 per Mcf, while crude oil and NGLs assets averaged $2.88 per Bbl, and produced water assets averaged $0.96 per Bbl.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, strategic divestitures, and effective capital management. While there are some negative aspects, the overall tone is optimistic and indicates a well-managed company.

Positives

• The company successfully divested non-core assets, generating significant gains and strengthening its financial position.
• WES maintained a strong throughput in natural gas and produced water, indicating robust operational performance.
• The company's adjusted gross margin for crude oil and NGLs assets increased by 17% year-over-year.
• WES demonstrated effective capital management by issuing new debt and repurchasing existing debt.
• The company maintained its regular quarterly distribution to unitholders.

Negatives

• Crude oil and NGLs throughput decreased by 2% compared to the previous quarter.
• Natural gas sales decreased by $13.4 million for the quarter due to lower average prices and volumes sold.
• NGLs sales decreased by $17.0 million for the quarter due to decreased average prices and volumes sold.
• Equity income from related parties decreased by $3.5 million for the quarter.
• Net income decreased by $91.7 million compared to the previous quarter.

Risks

• The company is exposed to commodity price volatility, which can impact its revenues and customer activity.
• Inflationary pressures could increase operating costs and capital expenditures.
• Changes in interest rates could affect financing costs and the unit price.
• The company is dependent on Occidental for a significant portion of its revenues, creating counterparty risk.
• The company is currently discussing varying interpretations of certain contractual provisions with Occidental which could have a negative impact on the Partnerships 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. WES 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.
• Management continuously monitors our leverage position and other financial projections to manage the capital structure according to long-term objectives.

Industry Context

This announcement reflects the ongoing trends in the midstream energy sector, including the focus on operational efficiency, strategic asset management, and capital discipline. The company's performance is influenced by the activity of producers in its operating areas and the prevailing commodity prices, which are key factors for all midstream companies.

Comparison to Industry Standards

• WES's throughput volumes are comparable to other large-scale midstream operators in the Permian and Rocky Mountain regions, such as Enterprise Products Partners and Kinder Morgan.
• The company's adjusted EBITDA margins are within the range of its peers, indicating competitive profitability.
• The strategic divestitures and debt management activities are consistent with industry trends of optimizing asset portfolios and strengthening balance sheets.
• The distribution yield is competitive with other MLPs in the midstream space, such as MPLX and Energy Transfer.

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.
• General and administrative expense includes amounts accrued for or paid to Occidental for certain reimbursed expenses.
• 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 continued distribution payments and the company's strategic initiatives.
• Employees will be impacted by the company's focus on cost efficiencies and operational improvements.
• Customers will benefit from the company's focus on reliability and performance of its systems.
• Suppliers will be impacted by the company's capital spending programs and operational needs.
• Creditors will be impacted by the company's debt management activities and financial performance.

Next Steps

• The company will continue to monitor its leverage position and financial projections.
• The company will continue to evaluate the relevant price environments and adjust its capital spending plans.
• The company will continue to work proactively with its customers to provide high levels of reliability on its systems.

Key Dates

Keywords

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