Western Midstream Partners LP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Project Announcement: Announced the Pathfinder Pipeline in the Delaware Basin, a 30 inches long haul pipeline to transport over 800,000 barrels a day of produced water, anchored by a long-term agreement with Occidental Petroleum. Also executed amendments to legacy produced water agreements with Oxy.
• 2024 Achievements: Double-digit and record throughput growth across all three product lines, commencement of operations at Mentone Train III, successful integration of Meritage Midstream, completion of non-core asset sales for $795 million, numerous commercial agreements, annual adjusted EBITDA and free cash flow growth of 13% and 37% respectively, record distribution payout with a 52% increase to the base distribution, achieved year-end 2024 leverage threshold of approximately 3x.
• Regional Operations: In the Delaware Basin, expected modest increase in throughput for all product lines in 2025. In the DJ Basin, expected flat to slightly down throughput for crude oil and NGLs, flat for natural gas. In the Powder River Basin, expected slight increase in throughput for both natural gas and crude oil and NGLs, with natural gas benefiting from increased customer activity and crude oil and NGLs from increased activity and producers targeting higher liquids content reservoirs.

Segment Performance

• Natural Gas: In the fourth quarter, natural gas throughput increased 4% sequentially. For full-year 2024, average natural gas throughput was 5.1 billion cubic feet per day, a 16% year-over-year increase (excluding volumes from non-core asset sales). In 2025, expected portfolio-wide average year-over-year throughput growth for natural gas is mid-single digits.
• Crude Oil and NGLs: Fourth quarter crude oil and NGLs throughput increased 6% sequentially. Full-year 2024 average crude oil and NGLs throughput was 530,000 barrels per day, a 12% year-over-year increase (excluding volumes from non-core asset sales). In 2025, expected year-over-year throughput growth for crude oil and NGLs is low-single digits.
• Produced Water: Fourth quarter produced water throughput increased 8% sequentially. Full-year 2024 average produced water throughput was 1.1 million barrels per day, a 11% year-over-year increase. In 2025, expected portfolio-wide average year-over-year throughput growth for produced water is mid-single digits.

Guidance

• 2025 Adjusted EBITDA: Expected to range between $2.35 billion to $2.55 billion, midpoint $2.45 billion, ~5% year-over-year growth at midpoint.
• Capital Expenditures: Expected to range between $625 million and $775 million, midpoint $700 million, including ~$65 million for the Pathfinder pipeline and produced water system expansion.
• Free Cash Flow: Expected to range between $1.275 billion to $1.475 billion, midpoint $1.375 billion, ~4% year-over-year growth at midpoint.
• Distribution: Intends to recommend a base distribution increase of $0.035 per unit starting with the first quarter distribution, guiding to a full year distribution of at least $3.6 per unit, targeting mid to low-single-digit annual percentage distribution growth rate, and not paying an enhanced distribution in 2025.

Risks

• No specific detailed risks discussed in the transcript regarding operational failures or major risks, but generally, risks could include operational project execution delays, market fluctuations affecting throughput and pricing, and potential issues with contract compliance.

Question and Answer

Q: Afternoon, everybody. I want to start maybe with the growth outlook. You sort of changed your capital allocation framework a bit here and introduced this new target for distribution growth at low to mid-single digits. How did you come up with that amount, and why that's the right amount going forward? And as you think about the capital spending necessary to drive that growth, what kind of levels are you thinking about there?

A: So we obviously do quite a bit of forecasting and planning going out pretty far and looked at to your point, what we expected growth capital to be, what that would do to EBITDA and then what we felt was a sustainable base distribution growth level that we could continue to support into the future. From a growth CapEx perspective, we've historically said if you go back to our 2022 capital spend that we had in that year, that would be something that would keep us relatively flat to a little bit up from a growth perspective. I think what we're seeing right now from a pipeline perspective, both in the PRB with the introduction of Pathfinder, are quite a few organic growth projects that we've got. And so I'd expect for a little bit of time now, to have, you know, incremental capital that's spent to bring these projects to fruition. Capital specifically related to Pathfinder, we talked in the script about it being $400 million to $450 million spending $65 million this year. And so that there'll be quite a bit of organic growth capital for next year to get that pipeline constructed. And then PRB is around $200 million of our capital spend for 2025. Obviously, as we get into 2026, we'll have to take a look at how the basin continues to do from a growth perspective, but it's we're very optimistic about the future in the PRB as well.

Q: Hi, good afternoon. Wanted to follow-up on the last question and just check-in if you've already if you're already actively in discussions with other customers to help fill up the pipeline at this point to improve returns?

A: No, absolutely. I think the background we'd give you there is that this isn't a discussion that just happened overnight. We've been actively working something like this for a long time and then it takes a lot of time to really work not only with the producers, but also with the landowners and how you have to progress this also from a regulatory regime. So one thing we're really focused on is getting in front of all those discussions and I'd say absolutely the way we've the pipeline is designed in a way to have open discussions with a lot of other producer customers. And certainly, as we go over the next two years in terms of building and executing on that development of the infrastructure, we'll continue to have those and put it to a point where we can hopefully put some more volumes on the system.

Q: Good afternoon. My question here is you mentioned that you could be looking to grow through bolt-on deals. I'm trying to understand, can you give us some criteria which would make a deal a good bolt-on deal for you guys, rate of return, kind of investment, synergies, if you could just help us talk through those things?

A: Yes. Thanks for that. It's Oscar. It's very consistent the way we've always thought about acquisitions in the past. So of course, we're a little biased towards organic growth, which you're seeing some of the results of that here today. But on the inorganic side, obviously, it needs to fit with our competencies, be in our complementary to our existing geographies. From a returns perspective, obviously, needs to meet our typical midstream returns requirements. We'd like to be able to bring and add some value to any acquisition and generate a level of synergy there. So it's sort of pretty typical stuff and hopefully not too surprising and very much again the template that we like to point to is a Meritage deal where we check all those boxes pretty well. So nothing new, but that's the criteria.