Group 1 - Western Midstream (NYSE: WES) has reached debt levels that management has guided to, indicating a shift to a slow growth mindset for the company [2] - The company, like many midstream firms, offers a generous distribution, which suggests potential for income generation despite the slow growth outlook [2] - The oil and gas industry is characterized as a boom-bust, cyclical sector, requiring patience and experience for successful investment [2] Group 2 - The analysis provided in the article focuses on identifying undervalued companies within the oil and gas sector, including a detailed examination of balance sheets, competitive positions, and development prospects [1] - The service offered includes exclusive analysis for members, which is not available on the free site, highlighting the depth of research conducted [1]

Group 1 - Western Midstream Partners, LP (WES) will release a post-earnings interview on its website providing insights into its Q4 2024 results and 2025 outlook [1] - WES is a master limited partnership focused on developing, acquiring, owning, and operating midstream assets across several states including Texas, New Mexico, Colorado, Utah, and Wyoming [2] - The company engages in various activities such as gathering, compressing, treating, processing, and transporting natural gas, as well as handling condensate, natural-gas liquids, and crude oil [2] Group 2 - A significant portion of WES's cash flows is secured through fee-based contracts, which protect the company from direct exposure to commodity price volatility [2] - WES plans to participate in several investor conferences in 2025, including Barclays IG Energy & Utilities Corporate Days on March 5, NYSE Virtual Energy & Utilities Day on March 20, and the 22nd Annual Energy Infrastructure CEO & Investor Conference from May 20 to 22 [3]

Financial Data and Key Metrics Changes - In Q4 2024, the company generated net income attributable to Limited Partners of $326 million and adjusted EBITDA of $591 million, with a sequential increase in adjusted gross margin by $41 million driven by increased throughput from the DJ and Delaware Basins [28][30] - For the full year 2024, net income attributable to limited partners was $1.54 billion, and adjusted EBITDA reached $2.34 billion, exceeding the midpoint of the 2024 adjusted EBITDA guidance range [31][34] - Free cash flow generation totaled $1.32 billion in 2024, exceeding the high end of the guidance range [33] Business Line Data and Key Metrics Changes - Q4 natural gas throughput increased by 4% sequentially, with record throughput in the Delaware Basin for eight consecutive quarters [16] - Crude oil and NGL throughput increased by 6% sequentially, while produced water throughput saw an 8% increase due to strong producer activity [16][20] - For the full year 2024, natural gas throughput averaged 5.1 billion cubic feet per day, a 16% year-over-year increase, while crude oil and NGL throughput averaged 530,000 barrels per day, a 12% year-over-year increase [19][20] Market Data and Key Metrics Changes - The Delaware Basin is expected to remain the main engine of throughput growth in 2025, with modest increases anticipated across all product lines due to strong producer activity [21] - In the DJ Basin, throughput is expected to remain flat for natural gas and slightly down for crude oil and NGLs based on current customer forecasts [22] - The Powder River Basin is projected to see slight increases in throughput for both natural gas and crude oil and NGLs due to increased activity levels [24] Company Strategy and Development Direction - The company announced a significant expansion of its produced water gathering and disposal infrastructure in the Delaware Basin, including the Pathfinder Pipeline, which will transport over 800,000 barrels of produced water per day [7][11] - The company aims to prioritize capital-efficient organic growth, targeting a long-term annual distribution growth rate of mid to low single digits, excluding potential increases from large organic growth projects or acquisitions [14][39] - The focus will be on productivity and efficiency improvements to enhance competitiveness and support sustainable distribution growth [15][39] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth in 2025, driven by strategic investments in organic growth projects and strong operational performance [49][52] - The company is well-positioned to capitalize on incremental organic and inorganic growth opportunities, with a focus on maintaining a strong investment-grade balance sheet [50][53] - Management highlighted the importance of strong relationships with customers, particularly Occidental Petroleum, to support long-term development plans [51][52] Other Important Information - The company plans to retire the enhanced distribution concept to simplify its capital allocation framework and focus on sustainable base distribution growth [39] - A new long-term produced water agreement with Occidental Petroleum was announced, supporting the company's growth strategy [8][10] Q&A Session Summary Question: Growth outlook and capital allocation framework - Management explained that the mid to low-single-digit distribution growth target was based on extensive forecasting and planning, aligning with expected EBITDA growth [58][60] Question: Pathfinder pipeline contract and returns - Management confirmed that the initial contract with Occidental Petroleum supports the pipeline's capacity and is expected to enhance returns over time [63][65] Question: Discussions with other customers for pipeline capacity - Management indicated ongoing discussions with other producers to fill the pipeline and improve returns [68][70] Question: Competitors in the Permian produced water market - Management emphasized the unique midstream solution offered by the company, differentiating it from shorter-term oilfield service solutions [71][73] Question: Long-term contracts with Occidental Petroleum - Management confirmed existing long-term contracts and ongoing efforts to extend agreements with all customers [77][81] Question: Capital expenditures for 2026 - Management indicated that capital expenditures for 2026 would be higher due to the inclusion of Pathfinder and ongoing growth in various basins [84][89] Question: Criteria for bolt-on acquisitions - Management outlined that acquisitions should complement existing operations, meet midstream return requirements, and generate synergies [94][95] Question: Free cash flow drivers - Management noted that free cash flow is influenced by throughput performance, cost savings, and capital expenditures [96][100] Question: Timing of buybacks - Management stated that while a buyback program was authorized, it is unlikely to be utilized in the near term due to ongoing growth projects [102][105]

Western Midstream Partners (WES) Q4 2024 Earnings Call February 27, 2025 02:00 PM ET Company Participants Daniel Jenkins - Director - IROscar Brown - President & CEODanny Holderman - SVP & COOKristen Shults - SVP & CFOJonathon VandenBrand - SVP - CommercialSpiro Dounis - DirectorKeith Stanley - DirectorNoah Katz - Equity Research AssociateManav Gupta - Executive Director Conference Call Participants Ned Baramov - Analyst Operator Okay. Good afternoon. My name is Joanna, and I will be your conference operato ...

Company Structure and Operations - Western Midstream Partners, LP owns a 98.0% limited partner interest in Western Midstream Operating, LP[27] - The company is engaged in gathering, compressing, treating, processing, and transporting natural gas, as well as gathering and disposing of produced water[29] - The company’s operations are organized into a single segment that engages in gathering, compressing, treating, processing, and transporting natural gas, crude oil, and produced water[37] - The company’s assets include both owned assets and ownership interests accounted for under the equity method[28] - The company’s operations include the sale of natural gas, NGLs, and condensate on behalf of itself and its customers[29] Financial Position and Credit Facilities - The company has a $2.0 billion senior unsecured revolving credit facility[24] - As of December 31, 2024, the company had approximately $2.0 billion in effective borrowing capacity under the revolving credit facility (RCF), providing liquidity for expansion and acquisition opportunities[47] - The company requires $341.0 million in available cash per quarter to maintain its announced distribution of $0.87500 per unit, totaling $1,364.0 million annually[163] - The company's cash flows, rather than profitability, primarily determine the cash available for distribution, which may fluctuate from quarter to quarter[162] - The company has a buyback program of $1.25 billion that ends on December 31, 2024[24] Acquisitions and Sales - The company sold its 15% interest in Cactus II Pipeline LLC in November 2022[24] - The company acquired Meritage Midstream Services II, LLC on October 13, 2023[24] - The acquisition of Meritage was completed in October 2023 for $885.0 million, funded by cash and proceeds from a $600.0 million senior note issuance[42] - The company closed the sale of its 33.75% interest in the Marcellus Interest systems for proceeds of $206.2 million, resulting in a net gain of $63.9 million recorded in the consolidated statement of operations[40] - In the first quarter of 2024, the company sold equity investments including a 25.00% interest in Mont Belvieu JV for combined proceeds of $588.6 million, resulting in a net gain of $239.7 million[41] Revenue Sources and Customer Dependence - For the year ended December 31, 2024, 60% of total revenues were attributable to production owned or controlled by Occidental, highlighting the company's reliance on this key partner[51] - Occidental accounts for over 50% of the company's revenues related to natural gas, crude oil, NGLs, and produced water, with 60% of total revenues and 91% of throughput for crude oil and NGLs attributable to Occidental's production[146] - A material reduction in Occidental's production could lead to a significant decline in the company's revenues and cash available for distribution[146] - The company reported that 95% of its wellhead natural-gas volume and 100% of its crude-oil and produced-water throughput were serviced under fee-based contracts, providing a stable revenue stream[47] Growth and Expansion Plans - The company plans to enhance growth through systematic acquisition activity while controlling operating, capital, and administrative costs to maintain sustainable distribution growth[45] - The Mentone Train III processing plant was completed, adding 300 MMcf/d of processing capacity to the West Texas complex[61] - The North Loving Plant is under construction with a capacity of 250 MMcf/d, expected to be completed in Q1 2025, bringing total processing capacity of the West Texas complex to 2,190 MMcf/d[63] - Three oil-treating facilities were brought online, adding 45 MBbls/d of treating capacity to the DBM oil system[64] - Several produced-water disposal wells were added, increasing disposal capacity by 210 MBbls/d[65] Regulatory and Compliance Risks - Proposed revisions to pipeline safety regulations by PHMSA could increase compliance costs and operational delays for the company[105] - The company is subject to civil penalties for violations of CFTC and FTC regulations, which can exceed $1.0 million per day per violation[112] - The company’s natural-gas gathering operations may face increased costs and capital expenditures due to potential changes in state or federal regulations[113] - The company is required to comply with ratable-take and common-purchaser statutes, which prohibit discrimination among natural gas producers[114] - FERC's anti-manipulation rules apply to non-jurisdictional entities in connection with gas sales, purchases, or transportation subject to FERC jurisdiction[116] Environmental and Climate Change Regulations - The company has incurred and will continue to incur significant operating and capital expenditures to comply with environmental regulations, which may materially affect its financial condition and results of operations[126] - The EPA's new regulations for ground-level ozone standards could require the installation of new emission controls, significantly increasing capital expenditures and operating costs[127] - Colorado's Senate Bill 24-229 mandates a 50% reduction in oil and gas NO emissions by 2030 relative to 2017 levels, potentially increasing compliance costs for the company[128] - The U.S. aims to reduce net GHG emissions by 50% - 52% below 2005 levels by 2030, which may impose additional costs and affect demand for oil and gas[128] - Increased regulation related to climate change and air emissions could raise operating costs and reduce demand for the company's services, impacting financial performance[187] Operational Risks and Challenges - The company faces various risks, including commodity-price risks and regulatory changes, which could materially affect its financial performance and ability to pay distributions[140] - The company is exposed to credit risk from third-party customers, and non-payment could reduce its ability to make distributions to unitholders[166] - Sustained low prices for natural gas, NGLs, or oil could adversely affect the company's business and cash distributions[155] - The company faces inflationary pressures on costs for labor, materials, and services, which could negatively impact profitability[161] - The company's limited geographic diversification means that adverse developments in key operational areas could disproportionately affect its financial results and cash distributions to unitholders[171] Governance and Partnership Structure - The general partner's liability is limited, which may affect the company's ability to manage obligations and could reduce cash available for distribution to unitholders[204] - The company may issue additional units without unitholder approval, potentially diluting existing ownership interests and affecting market prices[209] - Unitholders may be liable to repay distributions if they were wrongfully distributed, with a three-year liability period for those aware of the violation[211] - The general partner has limited liability for decisions made in good faith, protecting them from monetary damages unless proven otherwise[212] - The partnership's taxation as a flow-through entity is crucial; any change in status could significantly reduce cash available for distribution[215]

Financial Performance - Reported fourth-quarter 2024 net income attributable to limited partners of $325.9 million, generating fourth-quarter Adjusted EBITDA of $590.7 million[3] - Full-year 2024 net income attributable to limited partners totaled $1.537 billion, with full-year Adjusted EBITDA of $2.344 billion, exceeding the midpoint of the guidance range[3] - Total revenues for Q4 2024 reached $928.5 million, a 8.2% increase from $858.2 million in Q4 2023[18] - Net income attributable to Western Midstream Partners, LP for the year ended December 31, 2024, was $1.57 billion, up 54% from $1.02 billion in 2023[18] - Adjusted EBITDA for the year ended December 31, 2024, was not explicitly stated but is derived from net income and other adjustments, indicating strong operational performance[24] - Net income for Q4 2024 was $341.6 million, compared to $295.9 million in Q3 2024, and $1.6 billion for the year, up from $1.0 billion in 2023[29] - Adjusted EBITDA for Q4 2024 was $590.7 million, an increase from $566.9 million in Q3 2024, and $2.3 billion for the year, compared to $2.1 billion in 2023[29] Cash Flow and Liquidity - Fourth-quarter 2024 cash flows provided by operating activities were $554.4 million, resulting in fourth-quarter Free Cash Flow of $309.3 million[3] - Full-year 2024 cash flows provided by operating activities totaled $2.137 billion, generating Free Cash Flow of $1.324 billion, exceeding the high end of the guidance range[3] - The company reported a net cash increase of $817.7 million for the year, contrasting with a decrease of $13.9 million in 2023[21] - Cash flows from operating activities increased to $2.14 billion in 2024, compared to $1.66 billion in 2023, reflecting improved cash generation[21] - The company reported a net cash provided by operating activities of $554.4 million for Q4 2024, compared to $551.3 million in Q3 2024, and $2.1 billion for the year, up from $1.7 billion in 2023[30] Operational Performance - Achieved record annual natural-gas throughput of 5.1 Bcf/d, with a 16% year-over-year increase when adjusted for the sale of Marcellus assets[5] - Annual crude-oil and NGLs throughput averaged 530 MBbls/d, reflecting a 12% year-over-year increase when adjusted for divested assets[6] - Gathered record annual produced-water throughput of 1,124 MBbls/d, representing an 11% year-over-year increase[6] - Total throughput for natural-gas assets increased by 4% to 5,394 MMcf/d compared to the previous quarter[33] - Operated throughput for natural-gas assets in the Delaware Basin rose by 4% to 1,973 MMcf/d, while the DJ Basin saw a 6% increase to 1,502 MMcf/d[35] - Total throughput for crude-oil and NGLs assets increased by 5% to 544 MBbls/d, with operated throughput in the Delaware Basin up by 6% to 260 MBbls/d[35] - Total throughput for produced-water assets increased by 8% to 1,216 MBbls/d, reflecting strong operational performance[35] Capital Expenditures and Investments - Capital expenditures for Q4 2024 were $238.8 million, compared to $189.4 million in Q3 2024, and $833.9 million for the year, up from $735.1 million in 2023[30] - The company plans to continue focusing on capital expenditures and strategic investments to support future growth initiatives[21] Debt and Equity - Long-term debt decreased to $6.93 billion in 2024 from $7.28 billion in 2023, showing a reduction in leverage[20] - Weighted-average common units outstanding increased slightly to 380.6 million in 2024 from 379.5 million in 2023, indicating stable unit issuance[20] - The net income per common unit (diluted) for 2024 was $4.02, compared to $2.60 in 2023, reflecting improved profitability per unit[18] Distributions and Growth - Executed a 52% increase in the Base Distribution to $0.875 per unit, which is 41% higher than pre-pandemic levels[7] - Targeting a mid-to-low single-digit annual distribution growth rate supported by business growth and incremental Free Cash Flow generation[7]

Core Viewpoint - Western Midstream Partners, LP has announced the sanctioning of the Pathfinder pipeline, a significant investment aimed at enhancing produced-water transportation and disposal capabilities in the Delaware Basin, which is expected to support long-term growth and operational efficiency [1][2][3]. Infrastructure Development - The Pathfinder pipeline will be a 42-mile, 30-inch steel pipeline with the capacity to transport over 800 MBbls/d of produced water for disposal [5][6]. - The company plans to invest approximately $400 million to $450 million over the next 24 months to expand its produced-water gathering and disposal system [2][8]. - The new infrastructure is expected to be operational by January 1, 2027 [3]. Customer Agreements - A new long-term agreement with Occidental Petroleum includes minimum-volume commitments for gathering, transportation, and disposal, supporting the expansion of WES's services [2][5]. - The agreement provides up to 280 MBbls/d of firm gathering and transportation capacity and up to 220 MBbls/d of firm disposal capacity [5][6]. Financial Guidance - WES has provided 2025 Adjusted EBITDA guidance in the range of $2.350 billion to $2.550 billion, reflecting an approximate 5% increase at the mid-point compared to 2024 [5][11]. - Total capital expenditures for 2025 are projected to be between $625 million and $775 million, with Free Cash Flow estimated between $1.275 billion and $1.475 billion [5][11]. - The company plans to recommend a Base Distribution increase of $0.035 per unit to $0.910 per unit, representing a 4% increase over the previous quarter and a 13% increase year-over-year [5][8]. Strategic Focus - The company aims to prioritize organic growth projects and synergistic acquisitions to drive gradual distribution increases while maintaining a strong investment-grade balance sheet [9]. - Approximately 50% of the capital expenditures will be allocated to the Delaware Basin, focusing on expansion opportunities to accommodate future growth [8].

Core Insights - Western Midstream (WES) is expected to report quarterly earnings of $0.84 per share, reflecting a year-over-year increase of 13.5% [1] - Revenue projections stand at $906.72 million, which is a 5.7% increase from the same quarter last year [1] - The consensus EPS estimate has been adjusted upward by 0.9% over the past 30 days, indicating a positive reassessment by analysts [1][2] Earnings Estimates - Changes in earnings estimates are crucial for predicting investor reactions to stock performance [2] - Analysts emphasize the importance of understanding key metrics beyond consensus earnings and revenue estimates [3] Throughput Metrics - The consensus estimate for 'Throughput Attributable to Noncontrolling Interest for Natural Gas Assets per day' is 169.42 million cubic feet, compared to 172 million cubic feet reported in the same quarter last year [4] - Total throughput for natural-gas assets per day is projected to reach 5,064.38 million cubic feet, slightly up from 5,048 million cubic feet year-over-year [4] - Total throughput attributable to WES for natural-gas assets per day is estimated at 4,894.96 million cubic feet, an increase from 4,876 million cubic feet in the previous year [5] Specific Asset Throughput - 'Throughput for natural-gas assets per day - Equity Investment' is expected to be 512.04 million cubic feet, up from 489 million cubic feet last year [6] - 'Throughput for natural-gas assets per day - Delaware Basin' is projected at 1,970.88 million cubic feet, compared to 1,704 million cubic feet in the same quarter last year [6] - 'Throughput for natural-gas assets per day - DJ Basin' is anticipated to reach 1,428.82 million cubic feet, an increase from 1,341 million cubic feet reported last year [7] Produced Water and Crude Oil Throughput - 'Throughput for produced-water assets per day - Delaware Basin' is expected to be 1,203.98 million barrels of oil, up from 1,076 million barrels last year [7] - 'Throughput for crude-oil and NGLs assets per day - Delaware Basin' is projected at 256.34 million barrels of oil, compared to 225 million barrels in the same quarter last year [8] - 'Throughput for crude-oil and NGLs assets per day - DJ Basin' is expected to reach 89.57 million barrels of oil, up from 81 million barrels last year [9] Overall Market Performance - Shares of Western Midstream have decreased by 2.9% over the past month, contrasting with a -0.5% change in the Zacks S&P 500 composite [10] - WES holds a Zacks Rank 4 (Sell), indicating expectations of underperformance relative to the overall market in the near future [10]

Company Performance - Western Midstream (WES) closed at $41.36, down 0.62% from the previous trading session, underperforming the S&P 500's gain of 0.24% [1] - Over the past month, WES shares have decreased by 2.96%, which is better than the Oils-Energy sector's loss of 3.18% but lagging behind the S&P 500's gain of 2.37% [1] Upcoming Earnings Report - The company is set to release its earnings on February 26, 2025, with analysts expecting earnings of $0.84 per share, reflecting a year-over-year growth of 13.51% [2] - Revenue is projected to be $906.72 million, indicating a 5.65% increase compared to the same quarter of the previous year [2] Analyst Estimates - Recent changes to analyst estimates for Western Midstream suggest positive near-term business trends, which can be interpreted as a favorable sign for the company's outlook [3] - The Zacks Rank system indicates that estimate adjustments are correlated with stock price performance, providing actionable insights for investors [4] Zacks Rank and Valuation - Western Midstream currently holds a Zacks Rank of 4 (Sell), with the consensus EPS estimate moving 0.34% lower over the last 30 days [5] - The company is trading at a Forward P/E ratio of 12.01, which is a discount compared to the industry's average Forward P/E of 22.8 [6] PEG Ratio and Industry Context - WES has a PEG ratio of 1.4, compared to the industry average PEG ratio of 0.99, indicating a higher valuation relative to expected earnings growth [7] - The Oil and Gas - Refining and Marketing - Master Limited Partnerships industry, to which WES belongs, has a Zacks Industry Rank of 223, placing it in the bottom 12% of all industries [8]

Company Performance - Western Midstream (WES) ended the recent trading session at $40.57, showing a +0.47% change from the previous day's closing price, which lagged behind the S&P 500's daily gain of 0.67% [1] - The company's stock has increased by 1.71% over the past month, outperforming the Oils-Energy sector's decline of 0.76% but underperforming the S&P 500's gain of 2.07% [1] Upcoming Earnings - Western Midstream is set to disclose its earnings on February 26, 2025, with projected earnings of $0.84 per share, indicating a year-over-year growth of 13.51% [2] - The Zacks Consensus Estimate for revenue is $906.72 million, reflecting a 5.65% increase from the same period last year [2] Analyst Estimates - Recent changes to analyst estimates for Western Midstream are crucial as they reflect near-term business trends, with positive revisions indicating a favorable outlook on the company's health and profitability [3] - The Zacks Rank system, which incorporates these estimate changes, currently ranks Western Midstream at 4 (Sell), with a recent downward shift of 1.24% in the Consensus EPS estimate [5] Valuation Metrics - Western Midstream has a Forward P/E ratio of 11.65, which is a discount compared to the industry average Forward P/E of 23.92 [6] - The company has a PEG ratio of 1.36, while the average PEG ratio for the Oil and Gas - Refining and Marketing - Master Limited Partnerships industry is 0.98 [7] Industry Overview - The Oil and Gas - Refining and Marketing - Master Limited Partnerships industry is part of the Oils-Energy sector and currently holds a Zacks Industry Rank of 29, placing it in the top 12% of over 250 industries [8]