Western Midstream(US:WES)2023-11-02 20:58Financial Data and Key Metrics Changes - The company generated net income attributable to limited partners of $271 million and adjusted EBITDA of $511 million, reflecting a quarter-over-quarter increase of 5% [24][27] - Adjusted gross margin increased by $35 million compared to the previous quarter, primarily due to increased throughput across all products in the Delaware Basin and increased natural gas throughput in the DJ Basin [24][25] - Cash flow from operations totaled $395 million, generating free cash flow of $200 million [27] Business Line Data and Key Metrics Changes - Natural gas throughput increased by 5% sequentially, driven by new production in the Delaware Basin and increased activity in South Texas [19] - Crude oil and NGLs throughput rose by 7% sequentially, marking the first increase in the DJ Basin since Q4 2021 [20] - Produced water throughput increased by 14% sequentially due to heightened completion activity in the Delaware Basin [20] Market Data and Key Metrics Changes - The Delaware Basin is expected to remain the main driver of throughput growth, with year-over-year natural gas throughput growth anticipated in the mid-single digits for 2023 [30][31] - The DJ Basin is expected to see a gradual increase in volumes, although year-over-year throughput is still projected to decrease for both natural gas and crude oil relative to 2022 [31][37] Company Strategy and Development Direction - The company executed a significant acquisition of Meritage Midstream, enhancing its asset base in the Powder River Basin and increasing processing capacity to approximately 440 million cubic feet per day [12][14] - The acquisition is expected to provide customer diversification and contribute to earnings and free cash flow over the coming years [13][14] - The company remains committed to a balanced capital allocation strategy, focusing on debt reduction, unit buybacks, and increasing base distributions over time [29][35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to grow adjusted EBITDA and free cash flow, with expectations of returning to pre-Meritage leverage levels by year-end 2024 [15][35] - The company anticipates continued growth in throughput and adjusted EBITDA in 2024, supported by capital-efficient organic projects [40][41] - Management highlighted the importance of customer service and operational efficiency in driving growth and maintaining competitive positioning [80][81] Other Important Information - The company increased its base distribution by $1.25 per unit, reflecting a commitment to returning capital to stakeholders [14][29] - The Meritage acquisition was funded through cash and a recent issuance of $600 million in senior notes, with a trailing net leverage ratio expected to increase in the near term [15][27] Q&A Session Summary Question: Is the Meritage acquisition a shift in strategy? - Management clarified that it is not a shift in strategy but an opportunistic acquisition to enhance existing operations [46][47] Question: What are the capital allocation priorities post-Meritage? - Management emphasized a sustainable base distribution level and the importance of evaluating capital allocation on a quarterly basis [66][69] Question: How does the company view its competitive position in the DJ Basin? - Management does not foresee significant impacts from competitors and views the competitive dynamics positively [63] Question: What are the expected benefits from the Meritage acquisition? - Management expects the acquisition to be accretive on a per MCF basis and anticipates margin benefits as volumes are integrated [64][84]