Western Midstream(WES) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net income attributable to limited partners of $334 million and adjusted EBITDA of $618 million for Q2 2025, with an increase in adjusted gross margin by $18 million compared to Q1 2025 [20][21] - The adjusted gross margin for natural gas decreased by $0.02 per Mcf, while the adjusted gross margin for crude oil and NGLs decreased by $0.15 per barrel, both in line with prior expectations [15][16] - Free cash flow for Q2 2025 was $388 million, with cash flow from operating activities totaling $564 million [21] Business Line Data and Key Metrics Changes - Natural gas throughput increased by 3%, crude oil and NGLs throughput increased by 6%, and produced water throughput increased by 4% sequentially, primarily driven by new wells in the Delaware Basin [13][14] - The company expects portfolio-wide average throughput growth of mid-single digits for natural gas and produced water, and low-single digits for crude oil and NGLs for the remainder of 2025 [17][24] Market Data and Key Metrics Changes - The Delaware Basin continues to be the primary growth engine, with expectations of modest year-over-year increases in throughput across all product lines [17][18] - The company anticipates meaningful natural gas throughput growth from other assets, particularly in the Uinta Basin, starting in the second half of the year [19] Company Strategy and Development Direction - The company announced the acquisition of Arris Water Solutions, which is expected to enhance its footprint in the Delaware Basin and expand service offerings [6][9] - The sanctioning of a second train at the North Loving natural gas processing plant will increase capacity to 550 million cubic feet per day, supporting anticipated growth in natural gas and produced water volumes [11][12] - The company aims to maintain a disciplined capital allocation framework while focusing on organic growth and potential M&A opportunities [76] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth outlook despite volatile market conditions, citing strong producer activity levels in the Delaware Basin [26][27] - The company remains committed to generating strong returns for unitholders and sustaining distribution growth, with a long-term distribution growth outlook in the mid-single digits [50][25] Other Important Information - The company has implemented initiatives to optimize operational processes, resulting in annual run rate cost savings of approximately $50 million [23] - The expected close date for the ARRIS acquisition is during Q4 2025, pending regulatory review and shareholder approval [22] Q&A Session Summary Question: Funding for ARRIS acquisition - Management explained the decision to finance the acquisition in a leverage-neutral manner to preserve balance sheet capacity and position for future growth opportunities [31][33] Question: Water business percentage of EBITDA - Management indicated that while water currently represents 16% of EBITDA, they are comfortable with a mix around 15-20% as the water business evolves into a clear midstream type of business [34] Question: Regulatory environment in New Mexico - Management expressed confidence in the regulatory environment in New Mexico and highlighted the benefits of moving water across state lines [38] Question: FID on North Loving II - Management noted that the decision to move forward with North Loving II was based on strong underlying contracts and expected volumes from producers [40][42] Question: Synergies from the ARRIS acquisition - Management stated that the $40 million in expected synergies are primarily related to G&A and typical public company consolidation synergies, with no revenue synergies counted yet [46][48] Question: Long-term plans for McNeil Ranch - Management views the McNeil Ranch as a long-term upside opportunity for pore space and surface use, with existing permits for water disposal already in place [56][58] Question: Capital allocation between organic growth and M&A - Management emphasized that organic growth opportunities are prioritized, but they remain open to M&A if it meets their strategic criteria [75][76]