10-Q: Western Midstream Q2: Strong Throughput, Aris Acquisition

Western Midstream Partners reports increased Q2 throughput and announces a $1.5 billion acquisition of Aris Water Solutions, expanding its water infrastructure.

Summary

• Net income attributable to Western Midstream Partners, LP was $341.68 million for the second quarter of 2025, a decrease from $378.65 million in the second quarter of 2024.
• For the six months ended June 30, 2025, net income attributable to Western Midstream Partners, LP was $650.69 million, down from $951.48 million in the same period of 2024, primarily due to a decrease in non-recurring gains on divestitures.
• Total revenues and other increased to $942.32 million for the second quarter of 2025, up from $905.63 million in the prior year quarter, and reached $1.86 billion for the first half of 2025, compared to $1.79 billion in the first half of 2024.
• Adjusted EBITDA was $617.88 million for the second quarter of 2025, an increase from $593.57 million in the first quarter of 2025, and $1.21 billion for the first half of 2025, up from $1.19 billion in the first half of 2024.
• Free Cash Flow for the first half of 2025 increased to $787.79 million, compared to $649.78 million in the first half of 2024.
• Natural gas throughput increased by 4% to 5,362 MMcf/d for the first half of 2025 compared to the first half of 2024.
• Produced water throughput increased by 8% to 1,216 MBbls/d for the first half of 2025 compared to the first half of 2024.
• Crude oil and NGLs throughput decreased by 4% to 528 MBbls/d for the first half of 2025 compared to the first half of 2024, primarily due to prior divestitures.
• The company announced an agreement to acquire Aris Water Solutions Inc. in an equity-and-cash transaction valued at $1.5 billion, plus Aris's outstanding debt of $500 million, expected to close in the fourth quarter of 2025.
• Western Midstream Operating, LP retired $1.0 billion in Senior Notes due 2025 during the first and second quarters of 2025.
• The Board authorized a $250.0 million common unit buyback program through December 31, 2026.

Sentiment

Score: 7

Explanation: The company demonstrates strong operational performance with increased throughput in key segments, higher Adjusted EBITDA, and improved Free Cash Flow. Proactive debt management, including significant debt retirements and RCF extension, is positive. The strategic acquisition of Aris Water Solutions Inc. is a significant growth initiative that expands the company's asset base. However, the reported net income is lower due to the absence of large, non-recurring divestiture gains from the prior year, and the cash balance has significantly reduced due to debt repayments, which warrants monitoring.

Positives

• Natural gas throughput increased by 4% for the first half of 2025 compared to the first half of 2024, driven by higher volumes in the West Texas, DJ Basin, and Powder River Basin complexes.
• Produced water throughput increased by 8% for the first half of 2025 compared to the first half of 2024 due to higher production.
• Total revenues and other increased by $66.1 million for the six months ended June 30, 2025, compared to the same period in 2024.
• Adjusted EBITDA increased by $25.0 million for the six months ended June 30, 2025, compared to the same period in 2024, indicating strong operational performance.
• Free Cash Flow increased by $138.0 million for the six months ended June 30, 2025, compared to the same period in 2024, demonstrating improved capital discipline and cash generation.
• Successfully retired $1.0 billion in Senior Notes due 2025, improving the company's debt maturity profile and reducing short-term debt obligations.
• Extended the maturity date of the $2.0 billion revolving credit facility (RCF) from April 2029 to April 2030 for most lenders, maintaining significant borrowing capacity.
• Completed the start-up of the North Loving plant in late-February 2025, increasing gas processing capacity at the West Texas complex by 250 MMcf/d.
• The Board authorized a $250.0 million common unit buyback program through December 31, 2026, which could provide support for unit price.
• The announced acquisition of Aris Water Solutions Inc. is a strategic move to expand the company's water infrastructure assets and geographic footprint in key producing regions.

Negatives

• Net income attributable to Western Midstream Partners, LP decreased by $306.5 million for the six months ended June 30, 2025, compared to the same period in 2024, primarily due to a $304.5 million decrease in non-recurring gain on divestiture and other, net.
• Crude oil and NGLs throughput decreased by 4% for the six months ended June 30, 2025, compared to the same period in 2024, primarily due to divestitures of Whitethorn LLC and Saddlehorn in the first quarter of 2024.
• Equity income, net from related parties decreased by $12.7 million for the six months ended June 30, 2025, compared to the same period in 2024, partly due to the sale of several equity investments.
• Operation and maintenance expenses increased by $32.9 million for the six months ended June 30, 2025, compared to the same period in 2024, driven by higher utility, equipment, material, and labor costs.
• Interest expense increased by $7.4 million for the six months ended June 30, 2025, compared to the same period in 2024, primarily due to interest incurred on the 5.450% Senior Notes due 2034 issued in the third quarter of 2024.
• Cash and cash equivalents significantly decreased from $1.09 billion at December 31, 2024, to $129.73 million at June 30, 2025, largely due to debt repayments.

Risks

• Ability to pay distributions to unitholders and the amount of such distributions may be impacted by various factors.
• Actual results may vary materially from expectations if underlying assumptions about the energy market, future throughput, or competitive conditions prove incorrect.
• Fluctuating crude oil, natural gas, and NGLs prices can reduce customer activities and impact capital allocation, as well as directly affect the company's revenues from product sales.
• Commodity-price risks are inherent in percent-of-proceeds, percent-of-product, keep-whole, and fixed-recovery processing contracts.
• Operational challenges faced by customers, such as severe weather disruptions, oil and gas takeaway constraints, produced water recycling and disposal limitations, seismicity concerns, and new regulatory requirements, can significantly impact volumes serviced.
• High inflation has raised costs for steel products, automation components, power supply, labor, materials, fuel, and services, increasing operating costs and capital expenditures.
• Potential for additional import tariffs (e.g., on steel and aluminum) could substantially increase operating and capital costs.
• Future increases in interest rates would likely result in additional increases in financing costs, impacting the company's unit price and ability to issue equity.
• Changes in the financial or operational condition of Occidental, a significant related party and customer, could adversely affect the company.
• Creditworthiness of Occidental or other counterparties, including financial institutions, operating partners, and other parties, poses a risk of non-payment or non-performance.
• Discussions with Occidental regarding varying interpretations of certain contractual provisions for cost-of-service rates under an oil-gathering contract could result in an adverse resolution, leading to rate reductions and non-cash charges to earnings.
• Ability to access liquidity under the revolving credit facility (RCF) and commercial paper program, or to repay debt, could be constrained by market conditions or financial performance.
• The company is subject to various environmental-remediation obligations and other legal, tax, and regulatory proceedings that could have a material adverse effect if final dispositions are unfavorable.

Future Outlook

The business is expected to be affected by key trends and uncertainties including producer activity, commodity-price fluctuations, and operational challenges. Management intends to continue evaluating price environments and adjusting capital spending plans to reflect anticipated customer activity while maintaining liquidity and financial flexibility. High inflation has increased operating and capital costs, and potential import tariffs could further exacerbate this. Future increases in interest rates are likely to raise financing costs, potentially impacting the unit price and ability to issue equity. The acquisition of Aris Water Solutions Inc. is expected to close in the fourth quarter of 2025, expanding the company's water infrastructure and asset base.

Management Comments

• "We expect our business to be affected by the below-described key trends and uncertainties."
• "To address the risks posed by fluctuating commodity prices, we intend to continue evaluating the relevant price environments and adjust our capital spending plans to reflect our customers anticipated activity levels, while maintaining appropriate liquidity and financial flexibility."
• "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."
• "Management continuously monitors our leverage position and other financial projections to manage the capital structure according to long-term objectives."
• "We may, from time to time, seek to retire, rearrange, or amend some or all of our outstanding debt or financing agreements through cash purchases, exchanges, open-market repurchases, privately negotiated transactions, tender offers, or otherwise."

Industry Context

The midstream sector is heavily influenced by upstream producer activity, commodity prices (oil, natural gas, NGLs), and operational challenges such as takeaway constraints and regulatory changes. The acquisition of Aris Water Solutions Inc. signifies a strategic expansion into water infrastructure, a critical and growing segment within the energy industry, particularly in regions like the Permian Basin where produced water management is essential. This move aligns with a broader industry trend of midstream companies diversifying their service offerings beyond traditional hydrocarbon transportation. The company's high reliance on fee-based contracts (97% for natural gas, 100% for crude oil and produced water) is a common and effective strategy in the midstream sector to mitigate direct exposure to volatile commodity prices and ensure more stable cash flows. Industry-wide concerns such as inflation and interest rate volatility continue to impact operating costs, capital expenditures, and financing costs for all energy infrastructure companies.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results for direct benchmarking against industry standards.
• The company's high percentage of fee-based contracts (97% for natural gas, 100% for crude oil and produced water) is a strong indicator of a stable business model, which is generally preferred by investors in the midstream sector compared to companies with higher exposure to volatile commodity prices.
• The acquisition of Aris Water Solutions, with its approximately 790 miles of produced-water pipeline, 1,800 MBbls/d of produced-water handling capacity, and 1,400 MBbls/d of water recycling capacity in Lea and Eddy Counties, New Mexico, and West Texas, positions the company to capitalize on the growing demand for water management services in the Permian Basin, a key producing region. This is a strategic move consistent with industry trends towards integrated midstream solutions.

Legal Proceedings

• The company is not a party to any legal, regulatory, or administrative proceedings other than those arising in the ordinary course of business, and management believes no such proceedings would have a material adverse effect.
• The company is currently discussing varying interpretations of certain contractual provisions with Occidental regarding the calculation of cost-of-service rates under an oil-gathering contract related to the DJ Basin oil-gathering system. An adverse resolution could negatively impact financial condition and results of operations, including a reduction in rates and a non-cash charge to earnings.

Related Party Transactions

• Occidental was the only customer from which revenues exceeded 10% of consolidated revenues for all periods presented.
• Natural-gas throughput attributable to production owned or controlled by Occidental was 36% for both the three and six months ended June 30, 2025.
• Crude-oil and NGLs throughput attributable to production owned or controlled by Occidental was 92% for both the three and six months ended June 30, 2025.
• Produced-water throughput attributable to production owned or controlled by Occidental was 79% for the three months ended June 30, 2025, and 80% for the six months ended June 30, 2025.
• Related-party revenues totaled $576.2 million for the three months ended June 30, 2025, and $1.13 billion for the six months ended June 30, 2025.
• Related-party operating expenses resulted in a net benefit of $(7.3) million for the three months ended June 30, 2025, and $(19.4) million for the six months ended June 30, 2025.
• Related-party accounts receivable, net, amounted to $412.5 million as of June 30, 2025.
• Related-party accounts and imbalance payables amounted to $37.0 million as of June 30, 2025.
• The Partnership has significant gathering, treating, processing, stabilization, and produced-water disposal arrangements with affiliates of Occidental.
• Occidental held a 42.4% limited partner interest and a 2.3% general partner interest in the Partnership as of June 30, 2025.
• A subsidiary of Occidental owns a 2.0% limited partner interest in WES Operating.
• The company engages in construction reimbursement agreements and purchases/sales of equipment, inventory, and other assets with Occidental or its affiliates.
• Certain surface-use and salt-water disposal agreements with an affiliate of Occidental are classified as operating leases.

Stakeholder Impact

• Shareholders/Unitholders: Potential for increased distributions due to strong Free Cash Flow and Adjusted EBITDA, and potential unit price support from the buyback program. The Aris acquisition could lead to long-term growth but involves equity issuance and potential debt, which may cause short-term dilution or leverage concerns.
• Employees: Operational growth and the acquisition of Aris Water Solutions Inc. generally imply stability and potential for growth in employment opportunities.
• Customers: Increased gas processing capacity from the North Loving plant and expanded water infrastructure through the Aris acquisition could offer enhanced and diversified services. Discussions with Occidental on contract terms could impact their costs.
• Creditors: Significant debt repayments improve the company's financial health and debt maturity profile. The extension of the revolving credit facility maturity provides continued liquidity.
• Suppliers: Increased capital expenditures in certain areas, such as the Powder River Basin complex and DBM oil system, could benefit suppliers of equipment and services.

Next Steps

• Close the acquisition of Aris Water Solutions Inc. in the fourth quarter of 2025, subject to customary closing conditions, regulatory approvals, and Aris shareholder approval.
• Continue evaluating relevant price environments and adjusting capital spending plans to reflect anticipated customer activity levels.
• Potentially purchase common units under the $250.0 million buyback program through December 31, 2026.
• Assess the impact of Accounting Standards Update 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation, with adoption planned for fiscal year 2027 annual financial statements.
• Continue discussions with Occidental regarding interpretations of certain contractual provisions for cost-of-service rates under an oil-gathering contract.

Key Dates

Recommendation

While the company demonstrates strong operational performance with increased throughput, Adjusted EBITDA, and Free Cash Flow, the significant decline in reported net income is primarily due to the absence of large, non-recurring divestiture gains from the prior year. The strategic acquisition of Aris Water Solutions is a positive long-term move, expanding the company's water infrastructure footprint and diversifying its asset base. However, the immediate impact of the acquisition, including potential equity dilution and funding through debt, needs to be carefully monitored. The substantial reduction in cash on hand due to debt repayments also highlights a shift in liquidity. Given the mixed financial signals and the integration risks associated with a large acquisition, a 'Hold' recommendation is appropriate, advising investors to monitor the execution of the Aris acquisition and the company's ability to maintain operational momentum and manage its capital structure effectively.

Keywords

Midstream, Natural Gas, NGLs, Crude Oil, Produced Water, Pipeline, Processing, Gathering, Energy Infrastructure, Permian Basin, Delaware Basin, DJ Basin, Powder River Basin, Aris Water Solutions, Acquisition, SEC 10-Q, Quarterly Report, WES, Western Midstream