10-Q: Western Midstream Q3 2025: Strong Cash Flow, Aris Acquisition

Western Midstream Partners reports increased operating cash flow and Adjusted EBITDA for Q3 2025, driven by higher throughput and strategic acquisitions, despite a decrease in net income year-over-year.

Summary

• Net income attributable to Western Midstream Partners, LP was $339.6 million for the three months ended September 30, 2025, and $990.3 million for the nine months ended September 30, 2025.
• Total revenues and other increased to $952.5 million for Q3 2025 and $2,811.9 million for 9M 2025, compared to $883.4 million and $2,676.7 million for the respective prior-year periods.
• Adjusted EBITDA increased by 5% to $1,845.2 million for the nine months ended September 30, 2025, compared to $1,753.3 million for the same period in 2024.
• Free Cash Flow grew by 17% to $1,185.2 million for the nine months ended September 30, 2025, up from $1,014.9 million in 2024.
• Natural gas processing capacity at the West Texas complex increased by 250 MMcf/d to a total of 2,190 MMcf/d with the startup of the North Loving plant in late-February 2025.
• The acquisition of Aris Water Solutions, Inc. closed on October 15, 2025, in an equity-and-cash transaction valued at $1.5 billion, plus approximately $500 million of Aris's outstanding debt.
• The Partnership issued approximately 26.6 million common units and paid $415.0 million in cash, funded with borrowings under the commercial paper program, for the Aris acquisition.
• No common units were repurchased during the nine months ended September 30, 2025, under the $250.0 million buyback program authorized in February 2025.

Sentiment

Score: 6

Explanation: While operating cash flow, Adjusted EBITDA, and Free Cash Flow showed healthy growth, and strategic acquisitions like Aris expand the asset base, the substantial year-over-year decline in net income due to the absence of large divestiture gains from the prior year, coupled with decreasing crude-oil/NGLs throughput and ongoing commodity price/inflation risks, tempers overall sentiment. The debt repayments are positive for financial health.

Positives

• Net cash provided by operating activities increased to $1,664.98 million for the nine months ended September 30, 2025, from $1,582.41 million for the same period in 2024.
• Adjusted EBITDA increased by $91.9 million to $1,845.2 million for the nine months ended September 30, 2025, representing a 5% increase year-over-year.
• Free Cash Flow increased by $170.3 million to $1,185.2 million for the nine months ended September 30, 2025, marking a 17% increase year-over-year.
• Total revenues and other increased by $135.2 million to $2,811.9 million for the nine months ended September 30, 2025, a 5% increase year-over-year.
• The North Loving plant in the West Texas complex commenced operations in late-February 2025, adding 250 MMcf/d to gas processing capacity, bringing the total to 2,190 MMcf/d.
• Total natural gas throughput attributable to Western Midstream Partners increased by 5% for the nine months ended September 30, 2025, primarily due to higher volumes in the West Texas, DJ Basin, and Chipeta complexes.
• Total produced water throughput attributable to Western Midstream Partners increased by 9% for the nine months ended September 30, 2025, due to higher production.
• The maturity date of the $2.0 billion senior unsecured revolving credit facility (RCF) was extended from April 2029 to April 2030 for extending lenders.
• As of September 30, 2025, there were no outstanding borrowings under the RCF or the commercial paper program, maintaining $2.0 billion in effective borrowing capacity under the RCF.
• WES Operating retired $663.8 million of 3.100% Senior Notes due 2025 and $336.8 million of 3.950% Senior Notes due 2025 at par value during the first and second quarters of 2025, respectively.

Negatives

• Net income attributable to Western Midstream Partners, LP decreased by $249.6 million to $990.3 million for the nine months ended September 30, 2025, compared to $1,239.9 million for the same period in 2024.
• Gain (loss) on divestiture and other, net, decreased by $307.5 million for the nine months ended September 30, 2025, primarily due to significant asset sales in 2024 that were not replicated.
• Equity income, net – related parties, decreased by $19.8 million (24%) for the nine months ended September 30, 2025, compared to the same period in 2024.
• Total crude-oil and NGLs throughput attributable to Western Midstream Partners decreased by 3% for the nine months ended September 30, 2025, primarily due to asset divestitures in 2024 and lower volumes on certain pipelines.
• Cash and cash equivalents significantly decreased from $1,090.46 million at December 31, 2024, to $177.29 million at September 30, 2025.
• Total assets decreased from $13,144.78 million at December 31, 2024, to $12,125.35 million at September 30, 2025.
• Per-Mcf Adjusted Gross Margin for natural gas assets decreased by $0.05 for the three months ended September 30, 2025, primarily due to decreased product recoveries and average prices at the West Texas complex.
• Per-Bbl Adjusted Gross Margin for produced-water assets decreased by $0.02 for the nine months ended September 30, 2025, due to a change in contract terms effective January 1, 2025.

Risks

• Ability to pay distributions to unitholders and the amount of such distributions.
• Assumptions about the energy market, including future throughput (Occidental production) that is gathered or processed by, or transported through, assets.
• Competitive conditions and technology changes.
• Availability of capital resources to fund acquisitions, capital expenditures, and other contractual obligations, and ability to access financing through debt or equity capital markets.
• Supply of, demand for, and price of oil, natural gas, NGLs, and related products or services.
• Commodity-price risks inherent in percent-of-proceeds, percent-of-product, keep-whole, and fixed-recovery processing contracts.
• Weather and natural disasters.
• Inflation, which has raised costs for steel products, automation components, power supply, labor, materials, fuel, and services, potentially increasing operating and capital costs.
• Import tariffs (e.g., on steel and aluminum) could substantially increase operating and capital costs.
• General economic conditions, internationally, domestically, or in the jurisdictions of operation.
• Federal, state, and local laws and state-approved voter ballot initiatives, including those limiting hydraulic fracturing or other oil and natural gas development.
• Environmental liabilities.
• Legislative or regulatory changes, including those affecting partnership status for federal income tax purposes.
• Changes in the financial or operational condition of Occidental, or its capital program, corporate strategy, or other desired areas of focus.
• Creditworthiness of Occidental or other counterparties, including financial institutions and operating partners.
• Commitments to capital projects.
• Ability to access liquidity under the revolving credit facility (RCF) and commercial paper program.
• Ability to repay debt.
• Resolution of litigation or other disputes.
• Conflicts of interest among Western Midstream Partners, its general partner, and related parties, including Occidental, regarding capital allocation, operational and administrative costs, and future business opportunities.
• Ability to maintain and/or obtain rights to operate assets on land owned by third parties.
• Ability to acquire assets on acceptable terms from third parties.
• Non-payment or non-performance of significant customers, including under gathering, processing, transportation, and disposal agreements.
• Timing, amount, and terms of future issuances of equity and debt securities.
• Outcome of pending and future regulatory, legislative, or other proceedings or investigations, and continued or additional disruptions in operations due to compliance with regulatory orders or changes in laws.
• Cyber-attacks or security breaches.
• Failure to successfully combine the business with the assets and business of Aris, which could have an adverse impact on future results, including failure to realize expected profitability, growth, or accretion; environmental or regulatory compliance matters or liabilities; diversion of management's attention; and unanticipated liabilities and costs.
• Ongoing discussions with Occidental regarding interpretations of contractual provisions for 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.

Future Outlook

The business is expected to be affected by key trends and uncertainties including commodity-price fluctuations, operational challenges (such as severe weather, oil and gas takeaway constraints, produced water recycling and disposal limitations, seismicity concerns, and new regulatory requirements), inflation, and interest rates. Management intends to continuously evaluate price environments and adjust capital spending plans to reflect anticipated customer activity levels, while maintaining appropriate liquidity and financial flexibility. The company expects its cost of capital to remain competitive despite potential rising interest rates. Western Midstream Partners plans to adopt Accounting Standards Update 2024-03, Income StatementReporting Comprehensive IncomeExpense Disaggregation, beginning with its fiscal year 2027 annual financial statements.

Management Comments

• We are a midstream energy company organized as a publicly traded partnership, engaged in the business of gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, NGLs, and crude oil; and gathering, transporting, recycling, treating, and disposing of produced water.
• 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.
• 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.
• Management believes that there are no legal proceedings for which a final disposition could have a material adverse effect on results of operations, cash flows, or financial condition.

Industry Context

The midstream energy sector continues to be significantly influenced by producer activity levels, which are sensitive to commodity price fluctuations for crude oil, natural gas, and NGLs. Western Midstream's high percentage of fee-based contracts (98% for natural gas, 100% for crude oil and produced water) provides a degree of insulation from direct commodity price volatility, a common strategy among midstream operators to ensure stable cash flows. The company's expansion of produced water infrastructure through the Aris acquisition aligns with a broader industry trend of increasing focus on water management solutions, particularly in active basins like the Delaware Basin, where efficient water handling is crucial for sustained production. Macroeconomic factors such as inflation and rising interest rates are noted as ongoing challenges, impacting operating and capital costs across the industry and potentially influencing investor sentiment towards yield-oriented securities like MLPs.

Comparison to Industry Standards

• The filing states that Adjusted EBITDA is used to assess operating performance 'as compared to other publicly traded partnerships in the midstream industry,' but does not provide specific comparable companies, projects, or results to global benchmarks within the document.

Corporate Governance

Legal Proceedings

• Solaris Water Midstream, LLC and certain affiliates are named defendants in Cause No. 23-05-1085, Stateline Operating, LLC and Stateline Royalties, LP vs. Devon Energy Corporation, Stateline Water, LLC, Devon Energy Production Company, LP, Solaris Water Midstream, LLC, Solaris Midstream DB-TX LLC, and Aris Water Solutions, Inc., filed on May 4, 2023, in the 143rd District Court, Loving County, Texas.
• Plaintiffs allege negligence, waste, trespass, and nuisance based on allegations that defendants' operations have harmed plaintiffs' oil and gas lease through the injection of disposed saltwater.
• Defendants dispute plaintiffs' claims of liability and damages in this matter.
• Trial is currently scheduled for June 1, 2026.

Related Party Transactions

• Occidental is a significant related party, owning the Partnership's general partner and a 2.0% limited partner interest in WES Operating.
• Related-party revenues totaled $1,720.6 million for the nine months ended September 30, 2025, compared to $1,579.1 million for the same period in 2024.
• Related-party operating expenses were $(16.2) million for the nine months ended September 30, 2025, compared to $(37.7) million for the same period in 2024.
• 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 35% for both the three and nine months ended September 30, 2025.
• Crude-oil and NGLs throughput attributable to production owned or controlled by Occidental was 90% for the three months and 91% for the nine months ended September 30, 2025.
• Produced-water throughput attributable to production owned or controlled by Occidental was 79% for both the three and nine months ended September 30, 2025.
• The Partnership 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.
• The Partnership has marketing agreements and operating leases for field offices with Occidental affiliates.
• Occidental performed certain centralized corporate functions for the Partnership and WES Operating, with most administrative and operational services transitioned by December 31, 2021.
• Construction reimbursement agreements and purchases/sales of equipment, inventory, and other miscellaneous assets occur between the Partnership and Occidental or its affiliates.
• West Texas surface-use and salt-water disposal agreements were amended in the first quarter of 2021, reducing usage fees owed by the Partnership in exchange for the forgiveness of certain deficiency fees owed by Occidental.

Stakeholder Impact

• Shareholders/Unitholders: The declared cash distribution of $0.910 per unit for Q3 2025 provides consistent returns. The $250.0 million unit buyback program indicates potential for future capital return, though no units were repurchased in the current period. Strong Free Cash Flow and Adjusted EBITDA are positive, but the year-over-year decline in net income due to non-recurring gains from 2024 may warrant scrutiny.
• Customers: Increased throughput in key basins suggests continued demand for services. The ongoing contractual dispute with Occidental regarding cost-of-service rates could impact a major customer relationship.
• Creditors: Debt repayments of Senior Notes due 2025 and maintaining substantial borrowing capacity under the RCF are positive for creditworthiness. The Aris acquisition adds approximately $500 million in debt, which will be monitored.
• Employees: The company emphasizes enhancing its safety culture and creating sustainable cost efficiencies, which can indirectly impact employees through operational focus.

Next Steps

• Complete initial purchase price accounting for the Aris acquisition.
• Continue evaluating relevant price environments and adjust capital spending plans to reflect anticipated customer activity levels.
• Proactively work with customers to provide high levels of reliability on systems and help them meet operational challenges.
• Monitor leverage position and other financial projections to manage the capital structure according to long-term objectives.
• Potentially seek to retire, rearrange, or amend some or all outstanding debt or financing agreements.
• Assess the impact of Accounting Standards Update 2024-03 on disclosures, with planned adoption for fiscal year 2027 annual financial statements.
• Participate in the trial for the Solaris Water Midstream, LLC legal proceeding scheduled for June 1, 2026.

Key Dates

Recommendation

The company demonstrates strong operational performance with increased throughput in key natural gas and produced water assets, leading to robust Adjusted EBITDA and Free Cash Flow growth. The strategic acquisition of Aris Water Solutions expands its footprint in a critical area. However, the significant year-over-year decline in reported net income, primarily due to the absence of large divestiture gains from the prior year, and the ongoing contractual dispute with a major related party (Occidental) introduce uncertainty. While debt management is prudent, the overall picture suggests a period of integration and navigating specific challenges, warranting a 'Hold' position for investors to observe the successful integration of Aris and the resolution of the Occidental contract dispute.

Keywords

Midstream, Natural Gas, NGLs, Crude Oil, Produced Water, Gathering, Processing, Transportation, Delaware Basin, DJ Basin, Powder River Basin, SEC Filing, 10-Q, Financial Results, Q3 2025, Western Midstream, WES, Aris Acquisition, Capital Expenditures, Debt Repayment, Operating Income, Adjusted EBITDA, Free Cash Flow, Commodity Prices, Inflation, Risk Factors