Western Midstream(US:WES)2021-08-10 20:54Financial 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]