8-K: Western Midstream Reports Record First-Quarter Earnings Driven by Increased Throughput

Western Midstream Partners, LP announced record first-quarter 2024 results, including net income of $559.5 million and adjusted EBITDA of $608.4 million, driven by increased throughput across all operated assets.

Summary

• Western Midstream Partners, LP (WES) reported a record first quarter in 2024, with net income attributable to limited partners reaching $559.5 million, or $1.47 per common unit.
• The company's adjusted EBITDA for the quarter was a record $608.4 million.
• Cash flows from operating activities totaled $399.7 million, resulting in free cash flow of $225.0 million.
• WES announced a first-quarter base distribution of $0.875 per unit, which is a 52% increase over the prior quarter's distribution.
• The company completed the start-up of Mentone Train III, increasing natural gas processing capacity by 300 MMcf/d.
• WES repurchased $150 million of senior notes year-to-date at approximately 96% of par value.
• The company closed all five previously announced non-core asset sales for total proceeds of $794.8 million.
• WES's net leverage ratio is approximately 3.3 times and is expected to reduce to or below 3.0 times by year-end.

Sentiment

Score: 9

Explanation: The document is highly positive, highlighting record financial results, increased distributions, and successful project completions. The company's outlook is also optimistic, indicating strong future performance.

Positives

• The company achieved record net income and adjusted EBITDA in the first quarter.
• Increased throughput across all operated assets drove the strong results.
• The successful start-up of Mentone Train III adds significant processing capacity.
• The company is on track to reduce leverage to or below 3.0 times by year-end.
• The increased distribution demonstrates a commitment to returning capital to stakeholders.
• The company has a strong financial foundation and is well-positioned to survive through challenging commodity cycles.
• The company has increased its average year-over-year throughput growth expectations for 2024.

Negatives

• Total throughput for crude oil and NGLs assets decreased by 20% sequentially due to previously announced equity-investment asset sales.
• First-quarter 2024 Free cash flow after distributions totaled only $1.5 million.

Risks

• The company's ability to meet financial guidance or distribution expectations is subject to various factors.
• The supply, demand, and price of oil, natural gas, NGLs, and related products or services can impact results.
• Construction costs or capital expenditures exceeding estimated or budgeted costs could affect profitability.
• The company's ability to safely and efficiently operate its assets is crucial for continued success.

Future Outlook

The company expects to achieve the high-end of its previously announced 2024 Adjusted EBITDA and Free cash flow guidance ranges due to increased throughput expectations, predominately in the Delaware Basin. WES also expects to reduce leverage to, or below, its 3.0 times leverage threshold by year-end.

Management Comments

• The first quarter was very successful for WES as we generated the highest quarterly Net income and Adjusted EBITDA in our partnership's history.
• These records were primarily driven by increased throughput across all operated assets and across all products.
• We also set new gathering records for natural-gas and produced-water throughput in the Delaware Basin, and we continued to experience natural-gas and crude-oil and NGLs throughput growth in the DJ Basin.
• The addition of Mentone III will bring WES's operated natural-gas processing capacity in the Delaware Basin to approximately 1.9 Bcf/d.
• We remain committed to our strong capital-return framework, and we continue to have line of sight to returning incremental capital to stakeholders as the business performs and Free cash flow continues to grow.

Industry Context

This announcement reflects the ongoing strength in the midstream sector, particularly in the Delaware Basin, where WES is seeing significant throughput growth. The company's focus on operational efficiency and strategic asset sales aligns with industry trends of optimizing portfolios and reducing debt.

Comparison to Industry Standards

• WES's adjusted EBITDA of $608.4 million is strong compared to peers such as MPLX which reported $1.5 billion in adjusted EBITDA for Q1 2024, however MPLX is a much larger company.
• The 52% increase in distribution is a significant move, potentially making WES more attractive to income-focused investors compared to peers with lower distribution yields.
• The successful start-up of Mentone III is a positive development, as it increases processing capacity and positions WES to capitalize on growing production in the Delaware Basin, similar to other midstream companies expanding in the region.
• The deleveraging efforts are in line with industry trends, as many midstream companies are focused on strengthening their balance sheets, similar to Enterprise Products Partners which has a conservative leverage profile.

Stakeholder Impact

• Shareholders will benefit from the increased distribution and the company's strong financial performance.
• Employees will be impacted by the company's growth and operational success.
• Customers will benefit from the increased processing capacity and reliable midstream services.
• Creditors will be reassured by the company's deleveraging efforts and strong financial position.

Next Steps

• WES will host a conference call on May 9, 2024, to discuss the first-quarter 2024 results.
• The company will pay its first-quarter 2024 per-unit base distribution on May 15, 2024.
• WES expects to reduce leverage to, or below, its 3.0 times leverage threshold by year-end.

Key Dates

Keywords

Midstream, Natural Gas, Crude Oil, NGLs, Throughput, EBITDA, Free Cash Flow, Distribution, Asset Sales, Leverage, Delaware Basin, DJ Basin, Mentone III