Western Midstream(US:WES)2026-01-20 13:07Summary of Western Midstream Partners Fireside Chat Company Overview - Company: Western Midstream Partners (NYSE: WES) - Industry: Midstream Energy Sector, specifically focused on natural gas gathering and processing in the Delaware Basin Key Points Contract Amendments - Renegotiated Contracts: Western Midstream announced the renegotiation of natural gas gathering and processing contracts with Occidental Petroleum and a new agreement with ConocoPhillips [2][3] - Contract Structure Changes: Transition from a legacy cost-of-service structure to a simplified fixed-fee structure, enhancing competitiveness for acreage serviced by WESS [3] - Volumetric Protections: The amended contract with Occidental includes substantial minimum volume commitments, mitigating future throughput risk [3] Financial Implications - Common Units Transfer: Occidental will transfer approximately 15.3 million WESS common units, valued at about $610 million, which will decrease OXY's ownership in WESS from 42% to 40% [6] - Annual Distribution Savings: The transaction is expected to yield annual distribution savings of over $56 million starting in 2026 [6] - Adjusted EBITDA Impact: The total contract liability will increase to approximately $1.2 billion, with about $165 million recognized as revenue annually from 2026 to 2032 [7][8] Revenue Recognition - Contract Liability: The contract liability associated with the OXY agreement was $560 million as of December, with revenue recognition beginning in 2026 [10] - Operating Cash Flow: Starting in 2026, operating cash flows will reflect only the new fixed-fee rates, while revenues will include recognition of the contract liability [11] Cost Management - Cost Reduction Initiatives: WESS has implemented a cost reduction initiative, resulting in an 8% decrease in operations and maintenance costs in Q3 2025 compared to Q3 2024 [15] - Offsetting Cash Flow Reductions: Ongoing distribution savings and cost reductions are expected to fully offset the reduction in free cash flow due to the transition to a fixed fee structure [16] Risk Mitigation - Recontracting Risk: The new amendments with OXY significantly reduce the percentage of WESS revenue generated by cost-of-service rates, with only 9% of total revenue remaining subject to such rates post-amendment [17][18] - Long-term Contracts: Significant fixed fee contracts with OXY are effective through the mid to late 2030s, providing stability [18][19] Strategic Outlook - Future Growth: WESS is positioned to capitalize on future growth in the Delaware Basin, with a focus on improving cost structure and process efficiency while pursuing growth opportunities [20] Additional Insights - Market Positioning: The amendments and strategic initiatives are aimed at enhancing WESS's competitiveness in the midstream market, reflecting a proactive approach to evolving market conditions [20]