Western Midstream(US:WES)2022-02-24 22:17Financial 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]