10-Q: Western Midstream Partners Reports Strong Second Quarter Results Driven by Increased Throughput and Strategic Divestitures

Western Midstream Partners, LP announced its second quarter 2024 results, highlighting increased throughput, strategic asset sales, and a consistent distribution to unitholders.

Summary

• Western Midstream Partners, LP reported a net income of $378.6 million for the second quarter of 2024.
• The company's total revenue reached $905.6 million for the quarter.
• Natural gas throughput averaged 4,988 MMcf/d for the quarter, while crude oil and NGLs throughput averaged 515 MBbls/d.
• The company completed the sale of its Marcellus Interest systems for $206.2 million, resulting in a net gain of $63.9 million.
• Western Midstream also sold several equity investments for combined proceeds of $588.6 million, generating a net gain of $239.7 million.
• The company's second quarter distribution to unitholders remained consistent with the first quarter at $0.875 per unit.
• Adjusted EBITDA was $578.1 million for the quarter.
• Free cash flow was $424.8 million for the quarter.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong financial results and strategic moves, but also acknowledges risks and challenges. The sentiment is positive due to the increased revenue, net income, and free cash flow, as well as the strategic divestitures. However, the decrease in throughput for crude oil and NGLs, and the increase in operating expenses, temper the overall sentiment.

Positives

• The company achieved a significant gain from strategic divestitures, enhancing its financial position.
• The consistent distribution to unitholders demonstrates the company's commitment to returning value to investors.
• Increased throughput in natural gas assets indicates strong operational performance.
• The company's adjusted gross margin per unit for natural gas, crude oil, and produced water assets showed positive growth.
• The company's free cash flow increased significantly compared to the previous quarter.

Negatives

• Crude oil and NGLs throughput decreased by 9% compared to the previous quarter.
• Produced water throughput decreased by 4% compared to the previous quarter.
• Equity income from related parties decreased by 16% compared to the previous quarter.
• Operation and maintenance expenses increased by 15% compared to the previous quarter.

Risks

• The company's business is subject to fluctuations in commodity prices, which can impact customer activity and revenue.
• Inflation and supply chain disruptions could increase operating costs and capital expenditures.
• Changes in interest rates could impact financing costs and the company's unit price.
• The company is exposed to credit risk through its 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 strategic asset management, operational efficiency, and adapting to fluctuating commodity prices. The company's focus on fee-based contracts and strategic divestitures aligns with industry best practices for managing risk and enhancing profitability.

Comparison to Industry Standards

• Western Midstream's focus on fee-based contracts is a common strategy among midstream companies to mitigate commodity price risk, similar to companies like Enterprise Products Partners and MPLX.
• The company's strategic divestitures, such as the sale of the Marcellus Interest, are comparable to other midstream companies that are optimizing their asset portfolios to focus on core operations.
• The reported Adjusted EBITDA and Free Cash Flow are key metrics used by investors to evaluate the financial health of midstream companies, and Western Midstream's results are in line with industry benchmarks.
• The company's distribution yield is a key factor for investors in the MLP space, and its consistent distribution is comparable to other established MLPs.

Management Changes

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 pursuant to the reimbursement provisions of the Partnerships and WES Operatings agreements with Occidental.
• 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 consistent distribution and strategic divestitures.
• Employees may be impacted by changes in personnel and operational adjustments.
• Customers will continue to receive midstream services, with potential adjustments based on contract terms and market conditions.
• Suppliers may see changes in demand based on the company's capital spending plans.
• Creditors will be impacted by the company's debt management and financial performance.

Next Steps

• The company will continue to monitor its leverage position and financial projections to manage its capital structure.
• The company will continue to evaluate the relevant price environments and adjust its capital spending plans.
• 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, Throughput, Divestiture, EBITDA, Free Cash Flow, Distribution, Partnership