First-Quarter 2022 Review May 11, 2022 Forward-Looking Statements and Ownership Structure 2 | --- | --- | --- | |------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------|---- ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to WESTERN MIDSTREAM PARTNERS, LP WESTERN MIDSTREAM OPERATING, LP (Exact name of registrant as specified in its charter) | | | State or other jurisdiction of ...

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q4 2021 totaled approximately $481 million, reflecting a 10% sequential decline primarily due to a one-time revenue adjustment in Q3 2021 and unfavorable revenue recognition adjustments in Q4 2021 [9][10] - Full year 2021 adjusted EBITDA was approximately $1.95 billion, exceeding the guidance range of $1.825 billion to $1.925 billion, driven by producer outperformance and stronger commodity prices [11] - Cash flow from operations for Q4 2021 was $662 million, resulting in $577 million of free cash flow, a significant increase compared to the prior quarter [10] Business Line Data and Key Metrics Changes - Volumes across all three products increased sequentially in Q4 2021, driven by outperformance in the Delaware Basin [8] - Natural gas throughput for full year 2021 averaged 4.148 billion cubic feet per day, a 3% decrease from 2020, primarily due to asset sales and production declines [34] - Crude oil and natural-gas liquids throughput for full year 2021 averaged 659 million barrels per day, representing a 6% decrease from 2020 [35] - Produced water throughput increased by 1% year-over-year, averaging 703 million barrels per day in 2021 [36] Market Data and Key Metrics Changes - The Delaware Basin is expected to comprise 50% of asset-level EBITDA for 2022, while the DJ Basin is anticipated to contribute approximately 30% [28] - The company expects year-end exit rate throughput for water, gas, and oil to grow by high-teens, low-single-digits, and remain relatively flat, respectively, compared to 2021 exit rates [49] Company Strategy and Development Direction - The company has refined its financial policy to include an annual enhanced distribution starting in 2023, contingent on achieving certain leverage thresholds [23][24] - The focus remains on reducing leverage, increasing distributions, and repurchasing units, with a target net leverage of 3.0 times by 2024 [20][58] - Capital expenditures for 2022 are set at a range of $375 million to $475 million, primarily to support increased activity levels in the Delaware Basin [32] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding strong commodity prices supporting producer activity levels into 2022, particularly in the Delaware Basin [28] - The company anticipates generating substantial free cash flow over the coming years, allowing for debt retirement and opportunistic unit buybacks [57] - Management highlighted the importance of maintaining a disciplined approach to capital spending while focusing on operational efficiencies [26] Other Important Information - The company completed a $250 million unit repurchase program, repurchasing 13.6 million units at an average price of $18.41 [15] - The company received an upgrade to BBB- from S&P, marking its first investment-grade rating since the pandemic-driven downgrades in 2020 [14] Q&A Session Summary Question: Insights on the new capital allocation framework - Management indicated that specific metrics for opportunistic buybacks are not disclosed, but the enhanced distribution program allows for returning capital to unitholders if no better opportunities are found [63][64] Question: Details on the significant increase in base distribution - The increase to a 53% base distribution was deemed sustainable, allowing for free cash flow after distributions to be directed towards debt reduction and buybacks [70][71] Question: Expectations for future distribution growth - Management does not expect to increase the base distribution further, with growth being tied to free cash flow generation [99] Question: Thoughts on M&A activity - Management remains open to M&A opportunities that are accretive to the company's profile, emphasizing a focus on enhancing overall operations [87][89]

Financial Performance - Western Midstream's Operating Cash Flow for FY 2021 was $1766.9 million[15] - Western Midstream's Free Cash Flow for FY 2021 was $1490.1 million[15] - Western Midstream's Free Cash Flow After Distributions for FY 2021 was $956.4 million[15] - Western Midstream's Net Income for FY 2021 was $896 million[15] - Western Midstream's Adjusted EBITDA for FY 2021 was $1947 million[15] Capital Allocation and Returns - Western Midstream retired $931 million in debt during FY 2021[17] - Western Midstream completed $250 million in unit repurchases since November 2020[17] - Western Midstream returned $1.2 billion in distributions to unitholders during 2020 and through December 31, 2021[23] - Western Midstream plans to pay $2.00 base distribution per unit annually[25] - Western Midstream expects to generate free cash flow between $1200 million and $1300 million in 2022[31] Operational Performance - Natural-Gas Throughput for FY 2021 was 4,148 MMcf/d[34] - Crude-Oil and NGLs Throughput for FY 2021 was 659 MBbls/d[34] - Produced-Water Throughput for FY 2021 was 703 MBbls/d[34]

PART I [Business and Properties](index=12&type=section&id=Items%201%20and%202.%20Business%20and%20Properties) WES is a midstream energy MLP providing gathering, processing, and transportation services, with a significant dependency on Occidental Petroleum Corporation - WES is a Delaware master limited partnership engaged in gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, NGLs, and crude oil; and gathering and disposing of produced water[59](index=59&type=chunk)[61](index=61&type=chunk) Asset and Investment Overview as of December 31, 2021 | Asset Type | Wholly Owned and Operated | Operated Interests | Non-Operated Interests | Equity Interests | | :--- | :--- | :--- | :--- | :--- | | Gathering systems | 17 | 2 | 3 | 1 | | Treating facilities | 37 | 3 | — | — | | Natural-gas processing plants/trains | 24 | 3 | — | 5 | | NGLs pipelines | 2 | — | — | 5 | | Natural-gas pipelines | 5 | — | — | 1 | | Crude-oil pipelines | 3 | 1 | — | 4 | - For the year ended December 31, 2021, **57%** of total revenues were attributable to production owned or controlled by Occidental. Occidental also held a **49.7%** interest in WES's outstanding common units as of year-end[79](index=79&type=chunk)[78](index=78&type=chunk) - The company's business strategy focuses on capitalizing on organic growth, controlling costs, optimizing cash return to stakeholders, and managing commodity-price exposure through fee-based contracts[72](index=72&type=chunk)[73](index=73&type=chunk) [Properties](index=21&type=section&id=Properties) WES's properties are concentrated in Texas/New Mexico and the Rocky Mountains, featuring complexes for gathering, processing, and water disposal, plus key transportation pipeline equity interests Gathering, Processing, Treating, and Disposal Assets Overview (Texas & New Mexico) | Location | Asset | Type | Plants | Capacity (MMcf/d) | Capacity (MBbls/d) | Pipeline Miles | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | West Texas / New Mexico | West Texas complex | Gathering, Processing, & Treating | 14 | 1,370 | 53 | 1,818 | | West Texas | DBM oil system | Gathering & Treating | 16 | — | 292 | 646 | | West Texas | DBM water systems | Gathering & Disposal | — | — | 1,300 | 804 | | South Texas | Springfield system | Gathering and Treating | 3 | — | 75 | 857 | Gathering, Processing, Treating, and Disposal Assets Overview (Rocky Mountains) | Location | Asset | Type | Plants | Capacity (MMcf/d) | Capacity (MBbls/d) | Pipeline Miles | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Colorado | DJ Basin complex | Gathering, Processing, & Treating | 16 | 1,730 | 54 | 2,526 | | Colorado | DJ Basin oil system | Gathering & Treating | 6 | — | 155 | 454 | | Utah | Chipeta | Processing | 3 | 790 | — | 2 | | Wyoming | Granger complex | Gathering & Processing | 4 | 520 | — | 788 | Key Transportation Assets | Asset | Type | Ownership Interest | Pipeline Miles | | :--- | :--- | :--- | :--- | | Saddlehorn | Oil | 20.00% | 604 | | FRP | NGLs | 33.33% | 447 | | TEP | NGLs | 20.00% | 594 | | Whitethorn LLC | Oil | 20.00% | 418 | | Cactus II | Oil | 15.00% | 454 | | Red Bluff Express | Gas | 30.00% | 123 | [Regulation and Environmental Matters](index=37&type=section&id=Regulation%20and%20Environmental%20Matters) WES operations are subject to extensive federal and state regulations, including pipeline safety, environmental compliance, and climate change rules, posing risks of increased costs and operational delays - Pipelines are regulated by the Pipeline and Hazardous Materials Safety Administration (PHMSA) under the NGPSA and HLPSA, which govern design, construction, operation, and integrity management[157](index=157&type=chunk) - Recent PHMSA rules, known as the "Mega Rule," have imposed stricter requirements, including material strength verification for older pipelines and expanded safety rules for gas gathering lines, potentially increasing costs[158](index=158&type=chunk) - The company faces significant environmental regulation under laws like the Clean Air Act and Clean Water Act. Key areas of focus include EPA efforts to reduce methane and GHG emissions from the oil and gas sector, which could require installation of new emission controls and increase compliance costs[175](index=175&type=chunk)[181](index=181&type=chunk) - State regulators in areas like Colorado, Oklahoma, and Texas are imposing additional requirements on produced-water disposal wells due to concerns about induced seismic activity, which could restrict operations[183](index=183&type=chunk) [Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) WES faces significant risks including high dependence on Occidental, commodity price volatility, regulatory changes, credit rating downgrades, and cybersecurity threats - WES is highly dependent on Occidental, which accounted for **57%** of total revenues in 2021. A material reduction in Occidental's production or a shift in its strategic focus away from WES's operating areas would significantly decrease revenues[199](index=199&type=chunk) - Sustained low commodity prices for natural gas, NGLs, or oil could reduce exploration and production activity, leading to lower throughput on WES systems and adversely affecting business results[209](index=209&type=chunk) - Regulatory changes, such as Colorado's Senate Bill 19-181, could increase costs and limit oil and gas operations, reducing demand for midstream services in the state[223](index=223&type=chunk) - The company's debt level may limit its ability to fund acquisitions and other business opportunities. WES Operating's credit ratings were downgraded below investment grade by Fitch, S&P, and Moody's in 2020, which increased financing costs[207](index=207&type=chunk)[228](index=228&type=chunk) - The business faces security threats, including increasingly sophisticated cyber-attacks that could disrupt critical systems, lead to unauthorized data release, and have a material adverse effect on operations[234](index=234&type=chunk)[235](index=235&type=chunk) [Legal Proceedings](index=63&type=section&id=Item%203.%20Legal%20Proceedings) WES is involved in legal proceedings, including an EPA enforcement action, a revenue allocation dispute with Enterprise Products, and a recently settled bankruptcy-related dispute - A subsidiary, Kerr-McGee Gathering LLC, is facing an enforcement action from the EPA and the State of Colorado for alleged non-compliance with leak detection and repair requirements at its Fort Lupton facility[291](index=291&type=chunk) - A dispute with Sanchez Energy Corporation regarding the rejection of midstream agreements related to the Springfield system during its bankruptcy was resolved through a comprehensive settlement in **December 2021**[292](index=292&type=chunk) - The company has filed a lawsuit against Enterprise Products Operating seeking a declaratory judgment regarding proper revenue allocation for fractionation trains at the Mont Belvieu complex[293](index=293&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=64&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters,%20and%20Issuer%20Purchases%20of%20Equity%20Securities) WES common units trade on the NYSE; the company completed a **$250 million** unit repurchase program in 2021 and has equity compensation plans - The company's common units are listed on the New York Stock Exchange (NYSE) under the trading symbol "WES"[299](index=299&type=chunk) Issuer Purchases of Equity Securities (Q4 2021) | Period | Total number of units purchased | Average price paid per unit | Approximate dollar value of units that may yet be purchased under the plans or programs | | :--- | :--- | :--- | :--- | | October 1-31, 2021 | 143,033 | $20.99 | $110,098,000 | | November 1-30, 2021 | 417,493 | $20.70 | $101,456,000 | | December 1-31, 2021 | 5,060,924 | $20.05 | $— | | **Total** | **5,621,450** | **$20.12** | **$—** | - As of December 31, 2021, the entire **$250.0 million** authorized under the November 2020 Purchase Program had been fulfilled[302](index=302&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=66&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) WES saw decreased throughput in 2021, a **4%** gross margin decline, but focused on debt reduction and unit buybacks, with results impacted by Winter Storm Uri - Significant financial events in 2021 included redeeming **$431.1 million** of 5.375% Senior Notes, purchasing and retiring **$500.0 million** of other senior notes via tender offer, and repurchasing over **11.2 million** common units for a total of **$217.4 million**[312](index=312&type=chunk) Throughput by Asset Type (Year-over-Year) | Throughput Type | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Natural-gas assets (MMcf/d) | 4,303 | 4,433 | (3)% | | Crude-oil and NGLs assets (MBbls/d) | 672 | 712 | (6)% | | Produced-water assets (MBbls/d) | 717 | 712 | 1% | - Winter storm Uri in February 2021 and a blizzard in Colorado in March 2021 adversely affected volumes and increased operating expenses, with an estimated negative impact of approximately **$30 million** to net income and Adjusted EBITDA for the year[331](index=331&type=chunk) - The company recognized long-lived asset and other impairments of **$30.5 million** in 2021, a significant decrease from the **$203.9 million** in 2020. A goodwill impairment of **$441.0 million** was recognized in 2020[332](index=332&type=chunk) [Results of Operations](index=71&type=section&id=Results%20of%20Operations) WES reported **$916.3 million** net income in 2021, up from **$527.0 million** in 2020, driven by reduced impairment charges, despite slight decreases in natural gas and crude oil/NGLs throughput Consolidated Statements of Operations Summary (in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total revenues and other | $2,877,155 | $2,772,592 | $2,746,174 | | Total operating expenses | $1,745,573 | $2,129,063 | $1,750,943 | | Operating income (loss) | $1,336,271 | $878,913 | $1,231,343 | | Net income (loss) | $943,999 | $516,852 | $807,700 | | Net income (loss) attributable to WES, LP | $916,292 | $527,012 | $697,241 | - Natural gas processing throughput decreased by **71 MMcf/d** in 2021, mainly due to lower production at the West Texas complex and the idling of the Granger straddle plant, partially offset by higher volumes in the DJ Basin complex[346](index=346&type=chunk) - Service revenues - fee based decreased by **$121.5 million** in 2021, primarily due to a change in accounting for marketing contracts with AESC, decreased throughput at the DBM and DJ Basin oil systems, and the sale of the Bison facility[358](index=358&type=chunk) - Cost of product increased by **71%** to **$322.3 million** in 2021 from **$188.1 million** in 2020, driven by significantly higher residue and NGLs purchase prices[370](index=370&type=chunk) - General and administrative expenses rose **26%** to **$195.5 million** in 2021, primarily due to increased personnel costs and contract/consulting costs related to information technology services as WES transitions to a standalone entity[380](index=380&type=chunk)[381](index=381&type=chunk) [Key Performance Metrics](index=82&type=section&id=Key%20Performance%20Metrics) Adjusted EBITDA decreased **4%** to **$1.95 billion** in 2021, while Free Cash Flow rose **21%** to **$1.49 billion**, with mixed per-unit adjusted gross margins across asset types Key Performance Metrics (2021 vs. 2020) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Adjusted gross margin (thousands) | $2,667,516 | $2,718,205 | (2)% | | Per-Mcf Adjusted gross margin for natural-gas assets | $1.24 | $1.16 | 7% | | Per-Bbl Adjusted gross margin for crude-oil and NGLs assets | $2.28 | $2.54 | (10)% | | Per-Bbl Adjusted gross margin for produced-water assets | $0.93 | $0.98 | (5)% | | Adjusted EBITDA (thousands) | $1,946,690 | $2,030,366 | (4)% | | Free cash flow (thousands) | $1,490,128 | $1,226,588 | 21% | - Adjusted gross margin is a non-GAAP measure defined as total revenues and other (less certain reimbursements), less cost of product, plus distributions from equity investments, excluding noncontrolling interests' share[403](index=403&type=chunk) - Adjusted EBITDA is a non-GAAP measure defined as net income plus items like interest expense, taxes, D&A, impairments, and non-cash compensation, adjusted for equity investment income/distributions and noncontrolling interests[412](index=412&type=chunk) - Free cash flow is a non-GAAP measure defined as net cash from operating activities less total capital expenditures and contributions to equity investments, plus distributions from equity investments in excess of cumulative earnings[417](index=417&type=chunk) [Liquidity and Capital Resources](index=89&type=section&id=Liquidity%20and%20Capital%20Resources) WES maintained strong liquidity with **$2.0 billion** RCF availability, completed a **$250 million** unit buyback, and projected **$375-475 million** in 2022 capital expenditures, with **$6.9 billion** total debt - Primary sources of liquidity include cash from operations, available capacity under the **$2.0 billion** RCF, and potential debt or equity issuances. As of Dec 31, 2021, there was **$2.0 billion** available under the RCF[439](index=439&type=chunk)[462](index=462&type=chunk) - In February 2022, a new buyback program of up to **$1.0 billion** of common units through December 31, 2024 was announced[442](index=442&type=chunk) Capital Expenditures (Cash Basis, in thousands) | Year | Capital Expenditures | | :--- | :--- | | 2021 | $313,674 | | 2020 | $423,602 | | 2019 | $1,189,254 | - For 2022, total capital expenditures are estimated to be between **$375.0 million** and **$475.0 million** on an accrual basis[443](index=443&type=chunk) Historical Cash Flow Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Operating activities | $1,766,852 | $1,637,418 | $1,324,100 | | Investing activities | ($257,538) | ($448,254) | ($3,387,853) | | Financing activities | ($1,752,237) | ($844,204) | $2,071,573 | - As of December 31, 2021, the carrying value of outstanding debt was **$6.9 billion**. The company was in compliance with all debt covenants[457](index=457&type=chunk)[464](index=464&type=chunk) [Financial Statements](index=101&type=section&id=Item%208.%20Financial%20Statements) WES reported **$944.0 million** net income in 2021, driven by lower impairments, with total assets at **$11.27 billion** and strong **$1.77 billion** cash flow from operations Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total current assets | $684,764 | $943,064 | | Net property, plant, and equipment | $8,512,907 | $8,709,945 | | **Total assets** | **$11,273,079** | **$11,830,027** | | Total current liabilities | $1,140,197 | $960,935 | | Long-term debt | $6,400,616 | $7,415,832 | | **Total liabilities** | **$8,177,319** | **$8,934,815** | | **Total equity and partners' capital** | **$3,095,760** | **$2,895,212** | Consolidated Statements of Cash Flows Highlights (in thousands) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,766,852 | $1,637,418 | | Net cash used in investing activities | ($257,538) | ($448,254) | | Net cash provided by (used in) financing activities | ($1,752,237) | ($844,204) | [Controls and Procedures](index=157&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded WES's disclosure controls and procedures were effective as of December 31, 2021, with no material changes in internal control during Q4 2021 - Management concluded that WES's and WES Operating's disclosure controls and procedures were **effective** as of December 31, 2021[730](index=730&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls[732](index=732&type=chunk) PART III [Directors, Executive Officers, and Corporate Governance](index=158&type=section&id=Item%2010.%20Directors,%20Executive%20Officers,%20and%20Corporate%20Governance) WES is managed by its general partner's eight-member board, including independent directors, with key committees overseeing audit, special conflicts, ESG, and compensation matters - The general partner's Board has eight members, **three** of whom (Kenneth F. Owen, David J. Schulte, and Lisa A. Stewart) are independent under NYSE and Exchange Act standards[738](index=738&type=chunk) - The Board has **four** standing committees: Audit, Special, ESG, and Compensation. The Audit Committee is comprised of **three** independent directors and oversees financial statement integrity and compliance[762](index=762&type=chunk)[763](index=763&type=chunk) - The Special Committee, also comprised of **three** independent directors, reviews matters that may involve conflicts of interest, particularly with Occidental, to ensure they are fair and reasonable to the partnership[766](index=766&type=chunk) [Executive Compensation](index=165&type=section&id=Item%2011.%20Executive%20Compensation) WES executive compensation aligns with unitholder interests, with **87%** of CEO pay at-risk, and a **168%** payout for the 2021 cash bonus based on strong performance - A majority of NEO targeted annual direct compensation is at-risk: **87%** for the CEO and an average of **75%** for other NEOs[787](index=787&type=chunk) 2021 Annual Cash Incentive Performance Metrics & Weighting | Performance Metric | Relative Weighting | | :--- | :--- | | Controllable Cash Costs | 25% | | System Availability | 15% | | Discretionary Growth Capital Spend | 15% | | Leverage Ratio | 15% | | Free cash flow | 15% | | Safety & ESG | 15% | - After adjusting for certain unplanned items like winter storm Uri, the Board approved a payout of **168%** of target under the 2021 WES Cash Bonus Program in recognition of exceptional financial and operational performance[816](index=816&type=chunk) - In February 2021, the Board approved executive equity ownership guidelines requiring the CEO to hold **6x** base salary in equity and other senior VPs to hold **3-4x** base salary[830](index=830&type=chunk)[831](index=831&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=187&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Occidental Petroleum Corporation is the largest beneficial owner with **49.6%** of WES common units, while directors and executive officers collectively own less than **1%** - As of February 17, 2022, Occidental Petroleum Corporation beneficially owned **200,281,578** common units, representing a **49.6%** stake[883](index=883&type=chunk) - All directors and executive officers as a group beneficially owned **353,350** common units, which is **less than 1%** of the total outstanding[883](index=883&type=chunk) - ALPS Advisors, Inc. reported beneficial ownership of **24,330,966** common units, representing a **6.04%** stake as of December 31, 2021[887](index=887&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=189&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) WES has extensive related-party transactions with Occidental, generating **$1.63 billion** in 2021 revenues, with conflicts of interest managed by the Special Committee - As of February 17, 2022, Occidental held a **48.5%** limited partner interest and a **2.2%** general partner interest in WES[891](index=891&type=chunk) Summary of Transactions with Occidental (in thousands) | Transaction Type | 2021 | 2020 | | :--- | :--- | :--- | | Total revenues and other | $1,632,358 | $1,820,612 | | Total operating expenses | $86,223 | $182,712 | - The partnership agreement contains provisions to manage conflicts of interest with the general partner (Occidental). Resolutions can be deemed fair and reasonable if approved by the Special Committee, by a majority of unaffiliated unitholders, or if on terms no less favorable than those from unrelated third parties[918](index=918&type=chunk)[919](index=919&type=chunk) [Principal Accounting Fees and Services](index=195&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) KPMG LLP is the independent auditor, with 2021 audit fees of **$2.1 million** for WES Operating and **$0.4 million** for WES, all pre-approved by the Audit Committee Audit Fees (in thousands) | Entity | 2021 | 2020 | | :--- | :--- | :--- | | WES | $400 | $250 | | WES Operating | $2,100 | $2,240 | - The Audit Committee has a Pre-Approval Policy for all services performed by the independent auditor, KPMG LLP, and all 2021 services were **approved** under this policy[923](index=923&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=196&type=section&id=Item%2015.%20Exhibits,%20Financial%20Statement%20Schedules) This section lists all Form 10-K exhibits, including organizational documents, material contracts, and certifications, with financial statement schedules omitted as not applicable - Financial statements are included in Part II, Item 8. Financial statement schedules have been omitted as they are not required or applicable[927](index=927&type=chunk)[928](index=928&type=chunk) - The exhibit index lists key documents such as the Second Amended and Restated Agreement of Limited Partnership, various supplemental indentures for senior notes, the Amended and Restated Services Agreement with Occidental, and various executive compensation plans[929](index=929&type=chunk)[930](index=930&type=chunk)[931](index=931&type=chunk)

Third-Quarter 2021 Review November 10, 2021 Forward-Looking Statements and Ownership Structure 2 This presentation contains forward-looking statements. Western Midstream Partners, LP ("WES") believes that its expectations are based on reasonable assumptions. No assurance, however, can be given that such expectations will prove correct. A number of factors could cause actual results to differ materially from the projections, anticipated results, or other expectations expressed in this presentation. These fac ...

Western Midstream Partners LP (NYSE:WES) Q3 2021 Earnings Conference Call November 10, 2021 2:00 PM ET Company Participants Kristen Shults - Head, IR & SVP, Finance & Communications Michael Ure - President, CEO, Acting CFO & Director Craig Collins - SVP & COO Conference Call Participants Brian Reynolds - UBS Spiro Dounis - Crédit Suisse Derek Walker - Bank of America Merrill Lynch Operator Good day, and welcome to the Western Midstream Partners Third Quarter 2021 Earnings Conference Call. [Operator Instruct ...

PART I. FINANCIAL INFORMATION (UNAUDITED) This section presents unaudited consolidated financial statements and management's analysis for Western Midstream Partners, LP [Item 1. Financial Statements](index=7&type=section&id=Item%201%2E%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Western Midstream Partners, LP (WES) and Western Midstream Operating, LP (WES Operating) for the three and nine months ended September 30, 2021, and 2020, along with detailed notes explaining the business, accounting policies, and specific financial line items [Western Midstream Partners, LP (WES) Financials](index=7&type=section&id=Western%20Midstream%20Partners%2C%20LP) WES reported increased net income and EPS for both the three and nine months ended September 30, 2021, compared to the prior year. Total assets slightly decreased, while total equity and partners' capital increased. Operating cash flow saw a minor decrease, but investing activities showed a significantly reduced cash outflow **Consolidated Statements of Operations (WES):** | Metric | 3 Months Ended Sep 30, 2021 (thousands) | 3 Months Ended Sep 30, 2020 (thousands) | Change (%) | | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | :--------- | | Total revenues and other | $763,840 | $679,044 | 12.5% | | Net income (loss) attributable to WES | $255,725 | $246,611 | 3.7% | | Net income (loss) per common unit – basic | $0.61 | $0.55 | 10.9% | | Metric | 9 Months Ended Sep 30, 2021 (thousands) | 9 Months Ended Sep 30, 2020 (thousands) | Change (%) | | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | :--------- | | Total revenues and other | $2,157,945 | $2,125,112 | 1.5% | | Net income (loss) attributable to WES | $672,775 | $263,121 | 155.7% | | Net income (loss) per common unit – basic | $1.60 | $0.58 | 175.9% | **Consolidated Balance Sheets (WES):** | Metric | Sep 30, 2021 (thousands) | Dec 31, 2020 (thousands) | Change (%) | | :-------------------------- | :----------------------- | :----------------------- | :--------- | | Total assets | $11,419,378 | $11,830,027 | (3.5%) | | Total liabilities | $8,322,932 | $8,934,815 | (6.9%) | | Total equity and partners' capital | $3,096,446 | $2,895,212 | 6.9% | **Consolidated Statements of Cash Flows (WES) (9 Months Ended Sep 30):** | Metric | 2021 (thousands) | 2020 (thousands) | Change (%) | | :--------------------------------- | :--------------- | :--------------- | :--------- | | Net cash provided by operating activities | $1,104,994 | $1,131,893 | (2.4%) | | Net cash used in investing activities | $(187,287) | $(426,670) | (56.1%) | | Net cash provided by (used in) financing activities | $(1,262,767) | $(667,140) | 89.3% | | Net increase (decrease) in cash and cash equivalents | $(345,060) | $38,083 | NM | [Western Midstream Operating, LP (WES Operating) Financials](index=12&type=section&id=Western%20Midstream%20Operating%2C%20LP) WES Operating, a consolidated subsidiary of WES, also reported increased net income for the three and nine months ended September 30, 2021. Its balance sheet showed a slight decrease in total assets and liabilities, with an increase in total equity. Operating cash flow decreased slightly, while cash used in financing activities significantly increased **Consolidated Statements of Operations (WES Operating):** | Metric | 3 Months Ended Sep 30, 2021 (thousands) | 3 Months Ended Sep 30, 2020 (thousands) | Change (%) | | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | :--------- | | Total revenues and other | $763,840 | $679,044 | 12.5% | | Net income (loss) attributable to WES Operating | $260,658 | $251,740 | 3.5% | | Metric | 9 Months Ended Sep 30, 2021 (thousands) | 9 Months Ended Sep 30, 2020 (thousands) | Change (%) | | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | :--------- | | Total revenues and other | $2,157,945 | $2,125,112 | 1.5% | | Net income (loss) attributable to WES Operating | $688,754 | $271,224 | 153.9% | **Consolidated Balance Sheets (WES Operating):** | Metric | Sep 30, 2021 (thousands) | Dec 31, 2020 (thousands) | Change (%) | | :-------------------------- | :----------------------- | :----------------------- | :--------- | | Total assets | $11,410,090 | $11,756,293 | (2.9%) | | Total liabilities | $8,318,731 | $8,895,542 | (6.5%) | | Total equity and partners' capital | $3,091,359 | $2,860,751 | 8.1% | **Consolidated Statements of Cash Flows (WES Operating) (9 Months Ended Sep 30):** | Metric | 2021 (thousands) | 2020 (thousands) | Change (%) | | :--------------------------------- | :--------------- | :--------------- | :--------- | | Net cash provided by operating activities | $1,104,189 | $1,133,972 | (2.6%) | | Net cash used in investing activities | $(187,287) | $(426,670) | (56.1%) | | Net cash provided by (used in) financing activities | $(1,242,576) | $(668,822) | 85.8% | | Net increase (decrease) in cash and cash equivalents | $(325,674) | $38,480 | NM | [Notes to Consolidated Financial Statements](index=17&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of the company's business, accounting policies, and specific financial line items, including revenue recognition, acquisitions, partnership distributions, equity and partners' capital, related-party transactions, equity investments, property, plant, and equipment, goodwill, working capital, debt, and commitments and contingencies [Note 1. Description of Business and Basis of Presentation](index=17&type=section&id=Note%201%2E%20Description%20of%20Business%20and%20Basis%20of%20Presentation) Western Midstream Partners, LP (WES) is a Delaware master limited partnership engaged in gathering, compressing, treating, processing, and transporting natural gas, NGLs, and crude oil, and disposing of produced water. WES owns a 98.0% limited partner interest in WES Operating, LP, and its general partner is a wholly owned subsidiary of Occidental Petroleum Corporation. The financial statements are prepared in accordance with GAAP, consolidating entities where WES holds a controlling interest - The Partnership's general partner, Western Midstream Holdings, LLC, is a wholly owned subsidiary of Occidental Petroleum Corporation. Occidental refers to Occidental Petroleum Corporation and its subsidiaries, excluding the general partner[60](index=60&type=chunk) - The Partnership is engaged in gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, NGLs, and crude oil; and gathering and disposing of produced water[61](index=61&type=chunk) **Partnership's Assets and Investments (as of Sep 30, 2021):** | Asset Type | Wholly Owned and Operated | Operated Interests | Non Operated Interests | Equity Interests | | :-------------------------------- | :------------------------ | :----------------- | :------------------- | :--------------- | | Gathering systems | 17 | 2 | 3 | 1 | | Treating facilities | 36 | 3 | — | — | | Natural-gas processing plants/trains | 24 | 3 | — | 5 | | NGLs pipelines | 2 | — | — | 5 | | Natural-gas pipelines | 5 | — | — | 1 | | Crude-oil pipelines | 3 | 1 | — | 4 | - The Partnership's noncontrolling interests consist of the 25% third-party interest in Chipeta and the 2.0% Occidental subsidiary-owned limited partner interest in WES Operating[69](index=69&type=chunk) [Note 2. Revenue from Contracts with Customers](index=20&type=section&id=Note%202%2E%20Revenue%20from%20Contracts%20with%20Customers) Revenue from contracts with customers includes fee-based services, product-based services, and product sales. A cumulative catch-up revenue adjustment of $18.9 million was recorded in Q3 2021 for fee-based service revenues due to updated estimates on cost-of-service agreements. The Partnership also discloses transaction prices allocated to remaining performance obligations, totaling $6.85 billion for future periods **Revenue from Contracts with Customers (thousands):** | Revenue Type | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Service revenues – fee based | $605,967 | $582,725 | $1,707,987 | $1,806,097 | | Service revenues – product based | $28,812 | $12,316 | $88,267 | $35,237 | | Product sales | $84,298 | $30,106 | $227,359 | $108,491 | | **Total revenue from customers** | **$719,077** | **$625,147** | **$2,023,613** | **$1,949,825** | - A cumulative catch-up revenue adjustment of **$18.9 million** was recorded to Service revenues – fee based during the three months ended September 30, 2021, due to no longer constraining revenue under certain cost-of-service agreements[74](index=74&type=chunk) **Transaction Price Allocated to Remaining Performance Obligations (thousands):** | Period | Amount | | :------------- | :--------- | | Remainder of 2021 | $211,353 | | 2022 | $1,057,409 | | 2023 | $1,002,351 | | 2024 | $973,300 | | 2025 | $890,903 | | Thereafter | $2,719,380 | | **Total** | **$6,854,696** | [Note 3. Acquisitions and Divestitures](index=22&type=section&id=Note%203%2E%20Acquisitions%20and%20Divestitures) In October 2020, the Partnership sold its 14.81% interest in Fort Union Gas Gathering, LLC, and in Q2 2021, sold the Bison treating facility, generating a combined net gain of $26.4 million - In October 2020, the Partnership sold its 14.81% interest in Fort Union Gas Gathering, LLC, for **$27.0 million**, resulting in a net gain of **$21.0 million**[81](index=81&type=chunk) - During the second quarter of 2021, the Bison treating facility was sold for total proceeds of **$8.0 million**, resulting in a net gain on sale of **$5.4 million**[82](index=82&type=chunk) [Note 4. Partnership Distributions](index=23&type=section&id=Note%204%2E%20Partnership%20Distributions) The Partnership declared a cash distribution of $0.32300 per unit for Q3 2021, totaling $134.9 million. WES Operating also made quarterly cash distributions to its limited partners, including a $91.8 million distribution in Q3 2021, which WES used for common unit repurchases **Partnership Distributions to Unitholders:** | Quarter Ended | Per-unit Distribution | | :------------ | :-------------------- | | Sep 30, 2020 | $0.31100 | | Dec 31, 2020 | $0.31100 | | Mar 31, 2021 | $0.31500 | | Jun 30, 2021 | $0.31900 | | Sep 30, 2021 | $0.32300 | - The Board of Directors declared a cash distribution to the Partnership's unitholders for the third quarter of 2021 of **$0.32300 per unit**, or **$134.9 million** in aggregate[84](index=84&type=chunk) - During the quarter ended September 30, 2021, WES Operating made a distribution of **$91.8 million** to the Partnership and WGRAH, with the Partnership using its portion to repurchase common units[86](index=86&type=chunk) [Note 5. Equity and Partners' Capital](index=24&type=section&id=Note%205%2E%20Equity%20and%20Partners%27%20Capital) As of September 30, 2021, Occidental held a 48.5% limited partner interest and a 2.2% general partner interest in WES, while the public held 49.3%. WES repurchased 5,586,419 common units for $104.4 million during the nine months ended September 30, 2021, under its $250.0 million buyback program, with $113.1 million remaining - As of September 30, 2021, Occidental held **48.5%** limited partner interest and **2.2%** general partner interest in the Partnership, while the public held **49.3%** limited partner interest[87](index=87&type=chunk) - During the nine months ended September 30, 2021, the Partnership repurchased **5,586,419 common units** for an aggregate purchase price of **$104.4 million** under its **$250.0 million** Purchase Program. As of September 30, 2021, **$113.1 million** remained authorized under the program[90](index=90&type=chunk) **Reconciliation of Basic and Diluted Net Income (Loss) Per Common Unit (WES):** | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Limited partners' interest in net income (loss) (thousands) | $250,198 | $241,479 | $658,291 | $257,659 | | Weighted-average common units outstanding – basic (thousands) | 411,909 | 438,857 | 412,690 | 442,255 | | Net income (loss) per common unit – basic | $0.61 | $0.55 | $1.60 | $0.58 | [Note 6. Related-Party Transactions](index=26&type=section&id=Note%206%2E%20Related-Party%20Transactions) Occidental is a significant related party, impacting WES's revenues, expenses, and balance sheet. Related-party revenues primarily stem from services and product sales to Occidental, while expenses include shared services and equity-based compensation. Throughput attributable to Occidental remains substantial across natural gas, crude oil/NGLs, and produced water. A dispute with Occidental regarding cost-of-service rates for the DJ Basin oil-gathering system is ongoing **Summary of Related-Party Transactions (WES Consolidated Statements of Operations, thousands):** | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues and other | $431,681 | $455,641 | $1,225,375 | $1,411,468 | | Equity income, net – related parties | $48,506 | $61,026 | $159,337 | $176,788 | | Total operating expenses | $22,689 | $10,393 | $91,505 | $161,469 | **Throughput Attributable to Occidental (excluding equity-investment throughput):** | Asset Type | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Natural-gas throughput | 38% | 41% | 36% | 42% | | Crude-oil and NGLs throughput | 88% | 87% | 89% | 88% | | Produced-water throughput | 89% | 87% | 87% | 88% | - The Partnership is involved in a dispute with Occidental regarding the calculation of cost-of-service rates under an oil-gathering contract related to the DJ Basin oil-gathering system, which could negatively impact financial results if resolved adversely[104](index=104&type=chunk) [Note 7. Equity Investments](index=31&type=section&id=Note%207%2E%20Equity%20Investments) The Partnership holds various equity investments, with a total balance of $1.18 billion as of September 30, 2021. During the nine months ended September 30, 2021, an $11.8 million other-than-temporary impairment loss was recognized for the investment in Ranch Westex due to reduced estimated future cash flows **Equity Investments Financial Impact (9 Months Ended Sep 30, 2021, thousands):** | Metric | Amount | | :--------------------------------- | :------- | | Balance at December 31, 2020 | $1,224,813 | | Other-than-temporary impairment expense | $(11,805) | | Equity income, net | $159,337 | | Contributions | $3,683 | | Distributions | $(164,772) | | Distributions in excess of cumulative earnings | $(30,075) | | Balance at September 30, 2021 | $1,181,181 | - An **$11.8 million** other-than-temporary impairment loss was recognized for the investment in Ranch Westex during the nine months ended September 30, 2021, due to a reduction in estimated future cash flows from lower forecasted producer throughput[121](index=121&type=chunk) [Note 8. Property, Plant, and Equipment](index=32&type=section&id=Note%208%2E%20Property%2C%20Plant%2C%20and%20Equipment) Net property, plant, and equipment decreased to $8.52 billion as of September 30, 2021. Impairments of $29.2 million were recognized during the nine months ended September 30, 2021, primarily due to project cancellations at the DJ Basin complex and the impairment of Ranch Westex investment. This is a significant reduction from $200.6 million in impairments in the prior year, which included large write-downs for Wyoming and Utah assets **Property, Plant, and Equipment (thousands):** | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Total property, plant, and equipment | $12,732,926 | $12,641,745 | | Less accumulated depreciation | $4,208,845 | $3,931,800 | | Net property, plant, and equipment | $8,524,081 | $8,709,945 | - During the nine months ended September 30, 2021, the Partnership recognized impairments of **$29.2 million**, primarily from **$14.1 million** at the DJ Basin complex due to project cancellations and an **$11.8 million** impairment of the Ranch Westex investment[124](index=124&type=chunk) - For the nine months ended September 30, 2020, impairments totaled **$200.6 million**, primarily due to **$150.2 million** for assets in Wyoming and Utah, and **$29.4 million** for the Ranch Westex investment[125](index=125&type=chunk) [Note 9. Goodwill](index=33&type=section&id=Note%209%2E%20Goodwill) Goodwill is allocated to gathering and processing and transportation reporting units. An interim goodwill impairment test in Q1 2020, triggered by COVID-19 and oil market disruption, resulted in a $441.0 million impairment for the gathering and processing unit, reducing its carrying value to zero. No further impairment has been indicated since - Goodwill is allocated to two reporting units: gathering and processing, and transportation[128](index=128&type=chunk) - A goodwill impairment of **$441.0 million** was recognized during the first quarter of 2020 for the gathering and processing reporting unit, reducing its carrying value to zero. This was triggered by significant unit-price declines due to COVID-19 and oil-market disruption[130](index=130&type=chunk) [Note 10. Selected Components of Working Capital](index=34&type=section&id=Note%2010%2E%20Selected%20Components%20of%20Working%20Capital) Accounts receivable, net, increased for both WES and WES Operating from December 31, 2020, to September 30, 2021. Other current assets also increased, driven by NGLs inventory and contract assets. Accrued liabilities decreased for both entities, primarily due to lower accrued interest expense **Accounts Receivable, Net (thousands):** | Entity | Sep 30, 2021 | Dec 31, 2020 | | :------------- | :----------- | :----------- | | The Partnership | $583,652 | $452,880 | | WES Operating | $583,652 | $407,549 | **Other Current Assets (thousands):** | Entity | Sep 30, 2021 | Dec 31, 2020 | | :------------- | :----------- | :----------- | | The Partnership | $73,196 | $45,262 | | WES Operating | $70,907 | $43,244 | *Key drivers for increase include NGLs inventory and contract assets* **Accrued Liabilities (thousands):** | Entity | Sep 30, 2021 | Dec 31, 2020 | | :------------- | :----------- | :----------- | | The Partnership | $190,628 | $269,947 | | WES Operating | $145,241 | $230,833 | *Primary decrease due to lower accrued interest expense* [Note 11. Debt and Interest Expense](index=35&type=section&id=Note%2011%2E%20Debt%20and%20Interest%20Expense) WES Operating's total outstanding debt was $7.1 billion as of September 30, 2021. The company purchased and retired $500.0 million of senior notes via a tender offer in Q3 2021, incurring $24.7 million in losses on early extinguishment. The 4.000% Senior Notes due 2022 were reclassified as short-term debt. The $2.0 billion RCF had $1.8 billion available capacity, with $220.0 million outstanding borrowings. Interest expense decreased QoQ but increased YoY for the nine-month period **Outstanding Debt (WES Operating, thousands):** | Debt Type | Sep 30, 2021 Carrying Value | Dec 31, 2020 Carrying Value | | :-------------------------- | :-------------------------- | :-------------------------- | | Short-term debt | $726,429 | $438,870 | | Long-term debt | $6,399,874 | $7,415,832 | | **Total Outstanding Debt** | **$7,126,303** | **$7,854,702** | - During Q3 2021, WES Operating purchased and retired **$500.0 million** of senior notes via a tender offer, resulting in losses of **$24.7 million** on early extinguishment[137](index=137&type=chunk) - As of September 30, 2021, the **$2.0 billion** RCF had **$220.0 million** outstanding borrowings and **$1.8 billion** of available borrowing capacity. The **4.000% Senior Notes due 2022** were classified as short-term debt[138](index=138&type=chunk)[140](index=140&type=chunk) **Interest Expense (thousands):** | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total interest expense | $(93,257) | $(95,571) | $(287,040) | $(278,811) | [Note 12. Commitments and Contingencies](index=37&type=section&id=Note%2012%2E%20Commitments%20and%20Contingencies) The Partnership has environmental remediation liabilities of $12.0 million as of September 30, 2021, with most payments expected within five years. No material adverse legal proceedings are anticipated, though the company is involved in various ordinary course legal matters and has payment obligations for debt, capital spending, and leases - Environmental remediation and reclamation obligations totaled **$12.0 million** as of September 30, 2021, with the majority of payments expected over the next five years[144](index=144&type=chunk) - Management is not aware of any legal proceedings for which the final disposition could have a material adverse effect on the Partnership's financial condition, results of operations, or cash flows[145](index=145&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational performance, highlighting key trends, significant events, and future outlook. It includes detailed analysis of operating results, key performance metrics, liquidity, capital resources, and factors affecting comparability with WES Operating [Cautionary Note Regarding Forward-Looking Statements](index=38&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) The report contains forward-looking statements that involve risks and uncertainties. Important factors that could cause actual results to differ materially include the ability to pay distributions, energy market assumptions, future throughput, operating results, competitive conditions, capital availability, commodity-price risks, weather, inflation, general economic conditions, regulatory changes, and the financial condition of Occidental - Forward-looking statements involve risks and uncertainties, including the ability to pay distributions, assumptions about the energy market, future throughput, operating results, competitive conditions, technology, capital resources, commodity-price risks, weather, inflation, general economic conditions, environmental liabilities, legislative or regulatory changes, changes in Occidental's financial or operational condition, and the impact of COVID-19[150](index=150&type=chunk)[152](index=152&type=chunk) [Executive Summary](index=40&type=section&id=Executive%20Summary) Western Midstream Partners, LP is a midstream energy company focused on reliability, cost efficiency, safety, and environmental protection. Key financial and operational highlights for the nine months ended September 30, 2021, include debt redemptions, unit repurchases, increased distributions, and mixed throughput trends across natural gas, crude oil/NGLs, and produced water assets. Weather events (Winter Storm Uri, Colorado blizzard) negatively impacted net income and Adjusted EBITDA by approximately $30 million - WES Operating redeemed **$500.0 million** of senior notes via a tender offer and repurchased **5,586,419 common units** for **$104.4 million** during the nine months ended September 30, 2021[155](index=155&type=chunk) - The third-quarter 2021 per-unit distribution increased to **$0.32300** from **$0.31900** in the second quarter[155](index=155&type=chunk) **Throughput Attributable to WES (MMcf/d or MBbls/d):** | Asset Type | 3 Months Ended Sep 30, 2021 | 3 Months Ended Jun 30, 2021 | QoQ Change (%) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Natural-gas throughput | 4,081 | 4,265 | (4%) | 4,132 | 4,377 | (6%) | | Crude-oil and NGLs throughput | 641 | 687 | (7%) | 645 | 723 | (11%) | | Produced-water throughput | 735 | 688 | 7% | 673 | 711 | (5%) | - Winter storm Uri and a Colorado blizzard in Q1 2021 reduced net income and Adjusted EBITDA by approximately **$30 million** due to lower volumes, commodity-price impacts, and higher operating expenses[157](index=157&type=chunk) [Outlook](index=43&type=section&id=Outlook) The business outlook is subject to crude-oil, natural-gas, and NGLs price fluctuations, which affect customer activity and capital allocation. While commodity prices have rebounded, potential impacts include increased credit risk for customers (including Occidental), restrictions on RCF access due to leverage covenants, and future long-lived asset impairments if prices decline again - Commodity-price fluctuations affect customer activity and capital allocation. Potential impacts include increased credit risk for customers, restricted access to the RCF due to leverage covenants, and future long-lived asset impairments[164](index=164&type=chunk)[168](index=168&type=chunk) [Acquisitions and Divestitures](index=43&type=section&id=Acquisitions%20and%20Divestitures) In October 2020, the Partnership sold its 14.81% interest in Fort Union. In Q2 2021, the Bison treating facility was sold for $8.0 million, resulting in a net gain of $5.4 million - The Partnership sold its **14.81%** interest in Fort Union in October 2020[167](index=167&type=chunk) - The Bison treating facility was sold in Q2 2021 for **$8.0 million**, generating a net gain of **$5.4 million**[168](index=168&type=chunk) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Operating results are discussed on a sequential-quarter basis (Q3 2021 vs. Q2 2021) and year-to-date basis (9M 2021 vs. 9M 2020). Total revenues and other increased sequentially and year-over-year. Operating income increased significantly both sequentially and year-over-year, driven by higher revenues and lower impairments. Net income attributable to WES also showed strong growth **Summary of Results of Operations (WES, thousands):** | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Jun 30, 2021 | QoQ Change (%) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | YoY Change (%) | | :--------------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Total revenues and other | $763,840 | $719,131 | 6.2% | $2,157,945 | $2,125,112 | 1.5% | | Operating income (loss) | $383,266 | $334,948 | 14.4% | $1,010,550 | $505,959 | 99.7% | | Net income (loss) attributable to WES | $255,725 | $231,259 | 10.6% | $672,775 | $263,121 | 155.7% | [Operating Results](index=44&type=section&id=Operating%20Results) Natural-gas throughput decreased sequentially and year-over-year, primarily due to decreased volumes at the Bison treating facility (sold in Q2 2021) and production declines in certain areas, partially offset by increased production in others. Crude-oil and NGLs throughput also decreased. Produced-water throughput increased sequentially but decreased year-over-year - Natural-gas gathering, treating, and transportation throughput decreased by **29% QoQ** and **13% YoY**, primarily due to the sale of the Bison treating facility and production declines in Marcellus Interest and Springfield systems[173](index=173&type=chunk)[174](index=174&type=chunk) - Natural-gas processing throughput decreased by **17 MMcf/d QoQ** due to DJ Basin declines, partially offset by West Texas increases. It decreased by **174 MMcf/d YoY** due to lower production at West Texas, the idle Granger straddle plant, and lower volumes at the Granger complex, partially offset by DJ Basin increases[175](index=175&type=chunk)[176](index=176&type=chunk) - Crude-oil and NGLs gathering, treating, and transportation throughput decreased by **3% QoQ** and **13% YoY**, mainly due to production declines in the DJ Basin and DBM oil systems[179](index=179&type=chunk)[180](index=180&type=chunk) - Produced-water gathering and disposal throughput increased by **7% QoQ** due to higher production at DBM water systems, but decreased by **5% YoY** due to lower production and the impact of winter storm Uri[183](index=183&type=chunk) [Service Revenues](index=47&type=section&id=Service%20Revenues) Total service revenues increased by 5% sequentially but decreased by 4% year-over-year. Fee-based service revenues increased sequentially due to a $18.9 million cumulative catch-up adjustment and increased throughput at the West Texas complex. Year-over-year, fee-based revenues decreased due to changes in marketing contracts, decreased throughput across several systems, and lower lease revenue **Service Revenues (thousands):** | Revenue Type | 3 Months Ended Sep 30, 2021 | 3 Months Ended Jun 30, 2021 | QoQ Change (%) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Service revenues – fee based | $650,482 | $618,985 | 5% | $1,841,742 | $1,980,546 | (7%) | | Service revenues – product based | $28,812 | $27,803 | 4% | $88,267 | $35,237 | 150% | | **Total service revenues** | **$679,294** | **$646,788** | **5%** | **$1,930,009** | **$2,015,783** | **(4%)** | - Service revenues – fee based increased by **$31.5 million QoQ**, primarily due to a **$18.9 million** cumulative catch-up revenue adjustment and **$14.2 million** from increased throughput at the West Texas complex[186](index=186&type=chunk) - Service revenues – fee based decreased by **$138.8 million YoY**, mainly due to a **$45.9 million** change in accounting for marketing contracts with AESC, decreased throughput at DBM oil and water systems, DJ Basin, Bison treating facility, and West Texas complex[187](index=187&type=chunk) [Product Sales](index=48&type=section&id=Product%20Sales) Total product sales increased by 17% sequentially and 110% year-over-year. Natural-gas sales saw significant increases due to higher average prices and volumes, particularly at the West Texas complex. NGLs sales decreased sequentially due to contract mix changes but increased substantially year-over-year, driven by higher average prices at West Texas and Chipeta complexes **Product Sales (thousands):** | Product Type | 3 Months Ended Sep 30, 2021 | 3 Months Ended Jun 30, 2021 | QoQ Change (%) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Natural-gas sales | $32,151 | $14,195 | 126% | $67,765 | $23,934 | 183% | | NGLs sales | $52,147 | $58,061 | (10%) | $159,594 | $84,557 | 89% | | **Total Product sales** | **$84,298** | **$72,256** | **17%** | **$227,359** | **$108,491** | **110%** | **Per-Unit Gross Average Sales Price:** | Product Type | 3 Months Ended Sep 30, 2021 | 3 Months Ended Jun 30, 2021 | QoQ Change (%) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Natural gas (per Mcf) | $4.10 | $2.65 | 55% | $4.20 | $1.32 | NM | | NGLs (per Bbl) | $36.96 | $27.16 | 36% | $30.81 | $12.25 | 152% | [Equity Income, Net – Related Parties](index=48&type=section&id=Equity%20Income%2C%20Net%20%E2%80%93%20Related%20Parties) Equity income, net – related parties decreased by 17% sequentially and 10% year-over-year. The sequential decrease was mainly due to lower income from Cactus II and Mont Belvieu JV, impacted by electricity credits in Q2 2021. The year-over-year decrease was driven by lower volumes and commercial activities at Whitethorn LLC, Cactus II, and White Cliffs, partially offset by increases from Saddlehorn and Red Bluff Express **Equity Income, Net – Related Parties (thousands):** | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Jun 30, 2021 | QoQ Change (%) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Equity income, net – related parties | $48,506 | $58,666 | (17%) | $159,337 | $176,788 | (10%) | - The QoQ decrease of **$10.2 million** was primarily due to decreases of **$5.9 million** at Cactus II and **$4.1 million** at Mont Belvieu JV, related to electricity credits received in Q2 2021[196](index=196&type=chunk) - The YoY decrease of **$17.5 million** was primarily due to decreases of **$24.1 million** at Whitethorn LLC and **$4.8 million** at Cactus II, partially offset by increases at Saddlehorn and Red Bluff Express[197](index=197&type=chunk) [Cost of Product and Operation and Maintenance Expenses](index=49&type=section&id=Cost%20of%20Product%20and%20Operation%20and%20Maintenance%20Expenses) Total Cost of product and Operation and maintenance expenses decreased sequentially but increased year-over-year. Residue purchases and NGLs purchases both increased sequentially and year-over-year, driven by higher average prices. Operation and maintenance expense decreased sequentially due to reduced utilities and maintenance at West Texas and DJ Basin, and slightly decreased year-over-year due to reduced salaries and maintenance, partially offset by increased field-related expenses at DBM oil system **Cost of Product and Operation and Maintenance Expenses (thousands):** | Expense Type | 3 Months Ended Sep 30, 2021 | 3 Months Ended Jun 30, 2021 | QoQ Change (%) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Cost of product | $83,232 | $78,044 | 7% | $250,245 | $153,611 | 63% | | Operation and maintenance | $140,838 | $153,028 | (8%) | $434,198 | $436,670 | (1%) | | **Total** | **$224,070** | **$231,072** | **(3%)** | **$684,443** | **$590,281** | **16%** | - Residue purchases increased by **$9.1 million QoQ** and **$69.0 million YoY**, primarily due to increases in average prices and volumes purchased at the West Texas complex and MGR assets[199](index=199&type=chunk)[200](index=200&type=chunk) - Operation and maintenance expense decreased by **$12.2 million QoQ** due to reduced utilities and maintenance at West Texas and DJ Basin. It decreased by **$2.5 million YoY**, primarily due to reduced salaries and maintenance at West Texas and DJ Basin, offset by increased field-related expenses at the DBM oil system[205](index=205&type=chunk)[206](index=206&type=chunk) [Other Operating Expenses](index=50&type=section&id=Other%20Operating%20Expenses) Total other operating expenses decreased sequentially and significantly year-over-year. General and administrative expenses increased due to higher personnel and consulting costs. Property and other taxes decreased due to favorable tax payment differences. Depreciation and amortization increased year-over-year due to asset retirement obligation changes and capital projects. Long-lived asset and goodwill impairments were significantly lower year-over-year, with a $441.0 million goodwill impairment in Q1 2020 not recurring **Other Operating Expenses (thousands):** | Expense Type | 3 Months Ended Sep 30, 2021 | 3 Months Ended Jun 30, 2021 | QoQ Change (%) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | General and administrative | $50,409 | $44,448 | 13% | $139,973 | $118,466 | 18% | | Property and other taxes | $13,641 | $17,967 | (24%) | $45,992 | $57,263 | (20%) | | Depreciation and amortization | $139,002 | $137,849 | 1% | $407,404 | $384,688 | 6% | | Long-lived asset and other impairments | $1,594 | $12,738 | (87%) | $29,198 | $200,575 | (85%) | | Goodwill impairment | — | — | —% | — | $441,017 | (100%) | | **Total** | **$204,646** | **$213,002** | **(4%)** | **$622,567** | **$1,202,009** | **(48%)** | - General and administrative expenses increased by **$6.0 million QoQ** and **$21.5 million YoY**, primarily due to higher personnel costs (including bonus-related contributions and equity-based compensation) and increased contract and consulting costs[208](index=208&type=chunk)[209](index=209&type=chunk) - Depreciation and amortization expense increased by **$22.7 million YoY**, mainly due to changes in asset retirement obligations, capitalized IT implementation costs, and capital projects at the DJ Basin and West Texas complexes[212](index=212&type=chunk) - Goodwill impairment expense was **$0** for the nine months ended September 30, 2021, compared to **$441.0 million** in the prior year, which was recognized due to COVID-19 and oil-market disruption[216](index=216&type=chunk) [Interest Income – Anadarko Note Receivable and Interest Expense](index=52&type=section&id=Interest%20Income%20%E2%80%93%20Anadarko%20Note%20Receivable%20and%20Interest%20Expense) Interest income from the Anadarko note receivable was zero for the nine months ended September 30, 2021, due to its exchange in September 2020. Interest expense decreased sequentially due to lower outstanding debt balances but increased year-over-year, primarily due to higher effective interest rates from credit-rating downgrades and decreased capitalized interest, partially offset by lower outstanding debt balances - Interest income from the Anadarko note receivable decreased by **$11.7 million YoY**, as the note was exchanged in September 2020[220](index=220&type=chunk) - Interest expense decreased by **$2.0 million QoQ** due to lower outstanding debt balances from senior note repurchases[221](index=221&type=chunk) - Interest expense increased by **$8.2 million YoY**, primarily due to **$27.4 million** from higher effective interest rates on senior notes and a **$3.5 million** decrease in capitalized interest, partially offset by **$18.4 million** from lower outstanding debt balances[222](index=222&type=chunk) [Income Tax Expense (Benefit)](index=52&type=section&id=Income%20Tax%20Expense%20%28Benefit%29) Income tax expense increased sequentially and year-over-year, with an effective tax rate of 1% for both periods. As a publicly traded partnership, WES is not a taxable entity for U.S. federal income tax purposes, with its tax liability primarily driven by Texas margin tax **Income Tax Expense (Benefit) (thousands):** | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Jun 30, 2021 | QoQ Change (%) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Income tax expense (benefit) | $1,826 | $1,465 | 25% | $4,403 | $3,792 | 16% | | Effective tax rate | 1% | 1% | — | 1% | 2% | (50%) | - The Partnership is not a taxable entity for U.S. federal income tax purposes; its federal statutory rate is zero percent. Income apportionable to Texas is subject to Texas margin tax[223](index=223&type=chunk)[224](index=224&type=chunk) [Key Performance Metrics](index=53&type=section&id=Key%20Performance%20Metrics) Key performance metrics, including Adjusted gross margin, Adjusted EBITDA, and Free cash flow, are presented and reconciled to GAAP measures. Adjusted gross margin increased sequentially but decreased year-over-year. Adjusted EBITDA increased sequentially but decreased year-over-year. Free cash flow decreased sequentially but increased significantly year-over-year, reflecting improved capital discipline **Key Performance Metrics (thousands):** | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Jun 30, 2021 | QoQ Change (%) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Adjusted gross margin | $705,407 | $677,236 | 4% | $1,997,267 | $2,069,801 | (4%) | | Adjusted EBITDA | $531,580 | $491,126 | 8% | $1,465,816 | $1,546,386 | (5%) | | Free cash flow | $320,031 | $379,776 | (16%) | $913,629 | $762,364 | 20% | [Adjusted Gross Margin](index=53&type=section&id=Adjusted%20Gross%20Margin) Adjusted gross margin increased sequentially by $28.2 million, driven by increased throughput at West Texas and DBM water systems, and a previously constrained revenue adjustment. It decreased year-over-year by $72.5 million due to decreased throughput, lower lease revenue, and reduced distributions from equity investments. Per-Mcf natural-gas margin increased both sequentially and year-over-year, while per-Bbl crude-oil/NGLs margin increased sequentially but decreased year-over-year - Adjusted gross margin increased by **$28.2 million QoQ**, primarily due to increased throughput at the West Texas complex and DBM water systems, and a revenue adjustment of previously constrained revenue[229](index=229&type=chunk) - Adjusted gross margin decreased by **$72.5 million YoY**, primarily due to decreased throughput and lower lease revenue at the DBM oil system, decreased distributions from Whitethorn LLC, and decreased throughput at DBM water systems and the Bison treating facility[230](index=230&type=chunk) **Per-Unit Adjusted Gross Margin:** | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Jun 30, 2021 | QoQ Change (%) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | YoY Change (%) | | :--------------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Per-Mcf Adjusted gross margin for natural-gas assets | $1.31 | $1.21 | 8% | $1.24 | $1.15 | 8% | | Per-Bbl Adjusted gross margin for crude-oil and NGLs assets | $2.52 | $2.40 | 5% | $2.46 | $2.50 | (2%) | | Per-Bbl Adjusted gross margin for produced-water assets | $0.94 | $0.92 | 2% | $0.93 | $0.98 | (5%) | [Adjusted EBITDA](index=55&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA increased by $40.5 million sequentially, driven by higher total revenues and lower operating expenses. It decreased by $80.6 million year-over-year, primarily due to increased cost of product and general and administrative expenses, and decreased distributions from equity investments, partially offset by higher total revenues and lower property taxes - Adjusted EBITDA increased by **$40.5 million QoQ**, primarily due to a **$44.7 million** increase in total revenues and other, a **$12.2 million** decrease in operation and maintenance expenses, and a **$4.3 million** decrease in property taxes[238](index=238&type=chunk) - Adjusted EBITDA decreased by **$80.6 million YoY**, primarily due to a **$96.8 million** increase in cost of product, a **$17.2 million** increase in general and administrative expenses, and a **$14.7 million** decrease in distributions from equity investments[239](index=239&type=chunk) [Free Cash Flow](index=55&type=section&id=Free%20Cash%20Flow) Free cash flow decreased by $59.7 million sequentially due to lower net cash from operating activities. However, it increased significantly by $151.3 million year-over-year, driven by a substantial decrease in capital expenditures and contributions to equity investments, along with increased distributions from equity investments in excess of cumulative earnings - Free cash flow decreased by **$59.7 million QoQ**, primarily due to a **$60.8 million** decrease in net cash provided by operating activities[241](index=241&type=chunk) - Free cash flow increased by **$151.3 million YoY**, primarily due to a **$154.5 million** decrease in capital expenditures, a **$15.3 million** decrease in contributions to equity investments, and an **$8.3 million** increase in distributions from equity investments in excess of cumulative earnings[242](index=242&type=chunk) [Reconciliation of Non-GAAP Financial Measures](index=56&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section provides detailed reconciliations of non-GAAP financial measures (Adjusted gross margin, Adjusted EBITDA, and Free cash flow) to their most directly comparable GAAP measures (gross margin, net income (loss), and net cash provided by operating activities). Management uses these non-GAAP measures to assess operating performance, debt service ability, capital funding, and distribution capacity, while acknowledging their limitations - Adjusted gross margin, Adjusted EBITDA, and Free cash flow are non-GAAP measures used by management and external users to assess financial condition and results of operations, capital discipline, cost efficiency, and balance-sheet strength[226](index=226&type=chunk)[237](index=237&type=chunk)[240](index=240&type=chunk) - These non-GAAP measures should not be considered as alternatives to GAAP measures and have limitations as analytical tools, as they exclude certain items that affect GAAP financial performance[244](index=244&type=chunk) [Liquidity and Capital Resources](index=59&type=section&id=Liquidity%20and%20Capital%20Resources) The Partnership's primary cash uses include distributions, debt service, operating expenses, and capital expenditures, funded by cash, operations, RCF capacity, and potential equity/debt issuances. A working capital deficit of $550.6 million exists due to short-term debt classifications. Capital expenditures decreased significantly year-over-year, reflecting reduced spending on facility expansion and pipeline projects. Total outstanding debt was $7.1 billion, with $1.8 billion available under the RCF. Credit risk remains a concern due to reliance on Occidental - Primary cash uses include quarterly distributions, debt service, customary operating expenses, and capital expenditures. Sources of liquidity include cash, cash flows from operations, available borrowing capacity under the RCF, and potential issuances of additional equity or debt securities[251](index=251&type=chunk) - As of September 30, 2021, the Partnership had a **$550.6 million** working capital deficit, primarily due to the classification of **$502.1 million** of **4.000% Senior Notes due 2022** and **$220.0 million** of RCF borrowings as short-term debt[255](index=255&type=chunk) - Capital expenditures decreased by **$154.5 million** for the nine months ended September 30, 2021, primarily due to reduced spending on facility expansion and pipeline projects at the West Texas complex, DJ Basin complex, DBM oil system, and DBM water systems[257](index=257&type=chunk) - As of September 30, 2021, total outstanding debt was **$7.1 billion**, with **$1.8 billion** of available borrowing capacity under the **$2.0 billion** RCF[263](index=263&type=chunk)[269](index=269&type=chunk) - The Partnership bears credit risk from non-payment or non-performance by counterparties, including Occidental, its largest customer, which could adversely impact cash distributions[272](index=272&type=chunk)[274](index=274&type=chunk) [Working Capital](index=59&type=section&id=Working%20Capital) As of September 30, 2021, the Partnership had a $550.6 million working capital deficit, primarily due to the classification of $502.1 million of 4.000% Senior Notes due 2022 and $220.0 million of RCF outstanding borrowings as short-term debt. Despite this, $1.8 billion was available under the RCF - As of September 30, 2021, the Partnership had a **$550.6 million** working capital deficit, primarily due to the classification of **$502.1 million** of **4.000% Senior Notes due 2022** and **$220.0 million** of outstanding RCF borrowings as short-term debt[255](index=255&type=chunk) - As of September 30, 2021, **$1.8 billion** was available for borrowing under the RCF[255](index=255&type=chunk) [Capital Expenditures](index=60&type=section&id=Capital%20Expenditures) Capital expenditures decreased by $154.5 million for the nine months ended September 30, 2021, compared to the prior year. This reduction was primarily driven by decreases in facility expansion and pipeline projects across the West Texas complex, DJ Basin complex, DBM oil system, and DBM water systems **Capital Expenditures (thousands):** | Metric | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------- | :-------------------------- | :-------------------------- | | Capital expenditures | $217,757 | $372,262 | | Capital incurred | $251,315 | $224,080 | - Capital expenditures decreased by **$154.5 million YoY**, primarily due to reduced spending on facility expansion and pipeline projects at the West Texas complex (**$66.8 million** decrease), DJ Basin complex (**$41.0 million** decrease), DBM oil system (**$19.5 million** decrease), and DBM water systems (**$11.0 million** decrease)[257](index=257&type=chunk) [Historical Cash Flow](index=61&type=section&id=Historical%20Cash%20Flow) Net cash provided by operating activities decreased slightly year-over-year. Net cash used in investing activities significantly decreased, reflecting lower capital expenditures. Net cash used in financing activities substantially increased, driven by debt repayments and unit repurchases, resulting in a net decrease in cash and cash equivalents **Net Cash Flows (9 Months Ended Sep 30, thousands):** | Activity | 2021 | 2020 | | :--------------- | :---------- | :---------- | | Operating activities | $1,104,994 | $1,131,893 | | Investing activities | $(187,287) | $(426,670) | | Financing activities | $(1,262,767) | $(667,140) | | Net increase (decrease) in cash and cash equivalents | $(345,060) | $38,083 | - Net cash used in financing activities for 9M 2021 included **$521.9 million** for senior note repurchases, **$431.1 million** for **5.375% Senior Notes** redemption, **$398.9 million** for unitholder distributions, and **$104.4 million** for unit repurchases[260](index=260&type=chunk)[261](index=261&type=chunk) [Debt and Credit Facilities](index=63&type=section&id=Debt%20and%20Credit%20Facilities) As of September 30, 2021, WES Operating's outstanding debt was $7.1 billion. The company purchased and retired $500.0 million of senior notes in Q3 2021 and redeemed $431.1 million of 5.375% Senior Notes due 2021 in Q1 2021. The 4.000% Senior Notes due 2022 were reclassified as short-term debt. The RCF had $1.8 billion available capacity, and WES Operating was in compliance with all debt covenants - As of September 30, 2021, the carrying value of outstanding debt was **$7.1 billion**[263](index=263&type=chunk) - WES Operating purchased and retired **$500.0 million** of senior notes via a tender offer in Q3 2021, incurring **$24.7 million** in losses. It also redeemed **$431.1 million** of **5.375% Senior Notes due 2021** in Q1 2021[265](index=265&type=chunk) - The **4.000% Senior Notes due 2022** were classified as short-term debt. The RCF had **$220.0 million** outstanding borrowings and **$1.8 billion** available capacity, with WES Operating in compliance with all covenants[266](index=266&type=chunk)[269](index=269&type=chunk)[270](index=270&type=chunk) - An S&P upgrade from 'BB' to 'BB+' in August 2021 is expected to decrease annualized borrowing costs by **$7.9 million**[264](index=264&type=chunk) [Credit Risk](index=64&type=section&id=Credit%20Risk) The Partnership faces credit risk from non-payment or non-performance by counterparties, particularly Occidental, its largest customer. This risk is concentrated due to significant revenue derived from Occidental and its affiliates. An ongoing dispute with Occidental over cost-of-service rates in the DJ Basin oil system highlights this risk, as an adverse resolution could negatively impact financial results - The Partnership bears credit risk from non-payment or non-performance by counterparties, including Occidental, its largest customer[272](index=272&type=chunk)[296](index=296&type=chunk) - A dispute with Occidental regarding the calculation of cost-of-service rates under a gathering contract for the DJ Basin oil system could negatively impact financial condition and results of operations if resolved adversely[297](index=297&type=chunk) - The ability to make cash distributions may be adversely impacted if Occidental is unable to perform under its various agreements with the Partnership[274](index=274&type=chunk) [Items Affecting the Comparability of Financial Results with WES Operating](index=64&type=section&id=Items%20Affecting%20the%20Comparability%20of%20Financial%20Results%20with%20WES%20Operating) The financial results of WES and WES Operating are largely comparable, with primary differences stemming from noncontrolling interest ownership, general and administrative expenses incurred separately by WES, and intercompany transactions that eliminate upon consolidation. Reconciliations are provided for net income and net cash flows **Reconciliation of Net Income (Loss) (thousands):** | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Jun 30, 2021 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) attributable to WES | $255,725 | $231,259 | $672,775 | $263,121 | | Limited partner interests in WES Operating not held by WES | $5,214 | $4,754 | $13,779 | $5,426 | | General and administrative expenses | $(280) | $1,600 | $2,206 | $2,683 | | Net income (loss) attributable to WES Operating | $260,658 | $237,611 | $688,754 | $271,224 | **Reconciliation of Net Cash Provided by (Used in) Operating and Financing Activities (9 Months Ended Sep 30, thousands):** | Metric | 2021 | 2020 | | :--------------------------------- | :---------- | :---------- | | WES net cash provided by operating activities | $1,104,994 | $1,131,893 | | WES Operating net cash provided by operating activities | $1,104,189 | $1,133,972 | | WES net cash provided by (used in) financing activities | $(1,262,767) | $(667,140) | | WES Operating net cash provided by (used in) financing activities | $(1,242,576) | $(668,822) | [Critical Accounting Estimates](index=65&type=section&id=Critical%20Accounting%20Estimates) There have been no significant changes to the critical accounting estimates from those disclosed in the annual report on Form 10-K for the fiscal year ended December 31, 2020. These estimates involve informed judgments and assumptions that affect reported financial amounts - No significant changes to critical accounting estimates from those disclosed in the 2020 Form 10-K[280](index=280&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=66&type=section&id=Item%203%2E%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Partnership faces commodity-price risk, particularly from percent-of-proceeds and keep-whole agreements, though 92% of natural-gas volume and 100% of crude-oil/produced-water throughput are fee-based. A 10% change in commodity prices is not expected to materially impact operating income, financial condition, or cash flows, excluding imbalances. Interest-rate risk exists due to variable-rate debt, but a 10% change in benchmark rates is not expected to materially impact interest expense on outstanding borrowings - For the nine months ended September 30, 2021, **92%** of wellhead natural-gas volume and **100%** of crude-oil and produced-water throughput were serviced under fee-based contracts[283](index=283&type=chunk) - A **10%** increase or decrease in commodity prices would not have a material impact on operating income (loss), financial condition, or cash flows for the next twelve months, excluding the effect of imbalances[283](index=283&type=chunk) - The Partnership has interest-rate risk from **$220.0 million** of RCF borrowings and Floating-Rate Senior Notes, which bear interest at rates based on LIBOR. A **10%** change in the applicable benchmark interest rate would not materially impact interest expense on outstanding borrowings[285](index=285&type=chunk)

Financial Data and Key Metrics Changes - The company reported a net income of $226 million and adjusted EBITDA of $491 million for Q2 2021, marking an 11% increase in adjusted EBITDA compared to the previous quarter [7] - Free cash flow for the second quarter was $380 million, with $247 million remaining after distributions [8] - The quarterly distribution was increased to $0.319 per unit, reflecting a 1.3% increase over the previous quarter, aligning with the commitment to a 5% annualized distribution growth [8] Business Line Data and Key Metrics Changes - In the Delaware Basin, throughput for gas, oil, and water increased by approximately 10%, 14%, and 16% respectively from the prior quarter [21] - In the DJ Basin, gas and oil throughput increased by about 5% and 20% respectively from the prior quarter, with record gas throughput of 1.43 billion cubic feet per day in May [22] - Water throughput increased by about 93,000 barrels per day, representing a 16% sequential quarter increase [24] Market Data and Key Metrics Changes - The company expects private producers to account for approximately 58% of non-affiliate gas throughput in 2022, up from 50% in 2021 [26] - The overall activity levels in the Permian and Delaware Basins remain high, with expectations for continued capital allocation from both private and public producers [27] Company Strategy and Development Direction - The company is focused on maintaining a leverage target at or below 4.0x by the end of 2021 and below 3.5x by year-end 2022 [14] - The recent Crestone deal is expected to enhance throughput and offset declines in the DJ Basin starting in 2022 [19][70] - The company plans to opportunistically utilize its $250 million unit repurchase program, with approximately $200 million remaining [16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding increased producer activity and throughput levels for 2022, driven by the recent uptick in commodity prices [27][45] - The company anticipates that O&M expenses will normalize in the third quarter following one-time charges related to Winter Storm Uri [10] - Management highlighted the importance of maintaining a disciplined approach to capital spending while enhancing operational efficiencies [12] Other Important Information - The company has successfully retired $431 million in senior notes due in 2021 and has repurchased 31.34 million units, representing over 7% of outstanding units [15] - The company is preparing to issue its second ESG report ahead of the third quarter call, showcasing progress made as a stand-alone entity [30] Q&A Session Summary Question: Details on the Crestone dedication and volume contributions - Management indicated that the volumes from the Crestone deal are expected to start impacting cash flow in 2022, with minimal capital expenditures in 2021 [36] Question: Capital allocation philosophy regarding distribution growth, deleveraging, and unit repurchases - The primary focus is to maintain leverage targets while considering opportunistic buybacks and distribution increases based on free cash flow and debt reduction [40][42] Question: Expectations for producer activity in 2022 with rising commodity prices - Management noted that exiting 2021, the company expects high growth across the portfolio, with increased capital directed towards connecting volumes and production-oriented capital [45] Question: Contribution from private producers compared to public producers - The mix of non-affiliate volume is increasing among private producers, with ongoing discussions with public producers to gauge their 2022 budgets [50] Question: Margin expectations going forward - Management indicated limited variability in margins quarter-on-quarter, with expectations for stability in gross margins despite fluctuations in contributions from equity investments [54][56] Question: Discussions with rating agencies regarding debt reduction - Management maintains constant dialogue with credit agencies, which have responded positively to debt reduction efforts, although ratings may still be influenced by the company's largest customer [72] Question: M&A opportunities in the midstream space - The company is open to exploring M&A opportunities that would enhance operational and financial footprints, contingent on achieving optimal leverage levels [78]

Financial Performance - Western Midstream Partners (WES) reported an operating cash flow of $452.1 million [16] and free cash flow of $379.8 million [16] for the second quarter of 2021 [15] - Cash distributions paid in the second quarter of 2021 amounted to $133 million [16], while cash distributions declared were approximately $134.7 million [17] - Net income for the second quarter was $226 million [18], and Adjusted EBITDA reached $491 million [18] - The company's 2021 Adjusted EBITDA guidance is set between $1825 million and $1925 million [21], with total capital expenditures projected between $275 million and $375 million [21] - WES targets a leverage ratio of ≤ 40x by year-end 2021 [21], and anticipates a per-unit cash distribution of ≥ $124 for the full year [21] Operational Performance - Natural-gas throughput for the second quarter of 2021 was 4265 MMcf/d [27], with an adjusted gross margin of $121 per Mcf [27] - Crude-oil and NGLs throughput reached 687 MBbls/d [27], yielding an adjusted gross margin of $240 per Bbl [27] - Produced-water throughput was 688 MBbls/d [27], with an adjusted gross margin of $092 per Bbl [27] - WES anticipates high-single-digit growth in gas throughput, mid-single-digit growth in oil throughput, and high-teens growth in water throughput for 2021 [29, 30] Asset Portfolio and Strategy - The Delaware Basin contributes 41% of asset EBITDA, with gas, oil, and water accounting for 64%, 17%, and 19% respectively [36] - The company's revenue is primarily generated from the Delaware Basin (46%) and the DJ Basin (38%) [47], with total capital allocated 68% to the Delaware Basin and 10% to the DJ Basin [47] - WES's asset portfolio includes 23 gathering systems, 71 processing & treating facilities, 6 natural-gas pipelines, and 15 crude-oil/NGLs pipelines, totaling approximately 17000 pipeline miles [46]