「我們」，「我們的」，「西部」，「合作伙伴」，或「Western midstream合作伙伴LP」一詞指的是Western midstream合作伙伴LP（之前稱爲Western Gas Equity Partners LP）及其子公司。本文件中使用以下縮寫詞和術語清單：
Defined Term
Definition
Anadarko
Anadarko Petroleum Corporation and its subsidiaries, excluding our general partner, which became a wholly owned subsidiary of Occidental upon closing of the Occidental Merger on August 8, 2019.
Barrel, Bbl, Bbls/d, MBbls/d
42 U.S. gallons measured at 60 degrees Fahrenheit, barrels per day, thousand barrels per day.
Board
The board of directors of WES’s general partner.
Chipeta
Chipeta Processing, LLC, in which we are the managing member of and own a 75% interest.
Condensate
A natural-gas liquid with a low vapor pressure compared to drip condensate, mainly composed of propane, butane, pentane, and heavier hydrocarbon fractions.
DBM water systems
Produced-water gathering and disposal systems in West Texas.
DJ Basin complex
The Platte Valley, Fort Lupton, Wattenberg, Lancaster, and Latham processing plants, and the Wattenberg gathering system.
EBITDA
Earnings before interest, taxes, depreciation, and amortization. For a definition of “Adjusted EBITDA,” see Reconciliation of Non-GAAP Financial Measures under Part I, Item 2 of this Form 10-Q.
Exchange Act
The Securities Exchange Act of 1934, as amended.
FRP
Front Range Pipeline LLC, in which we own a 33.33% interest.
GAAP
Generally accepted accounting principles in the United States.
General partner
Western Midstream Holdings, LLC, the general partner of the Partnership.
Imbalance
Imbalances result from (i) differences between gas and NGLs volumes nominated by customers and gas and NGLs volumes received from those customers and (ii) differences between gas and NGLs volumes received from customers and gas and NGLs volumes delivered to those customers.
Marcellus Interest
The 33.75% interest in the Larry’s Creek, Seely, and Warrensville gas-gathering systems and related facilities located in northern Pennsylvania that we sold in April 2024 (see Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).
Mcf, MMcf, MMcf/d
Thousand cubic feet, million cubic feet, million cubic feet per day.
Meritage
Meritage Midstream Services II, LLC, which was acquired by the Partnership on October 13, 2023.
Mi Vida
Mi Vida JV LLC, in which we own a 50% interest.
MLP
Master limited partnership.
MMBtu
Million British thermal units.
Mont Belvieu JV
Enterprise EF78 LLC, in which we owned a 25% interest that we sold in February 2024 (see Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).
Natural-gas liquid(s) or NGL(s)
The combination of ethane, propane, normal butane, isobutane, and natural gasolines that, when removed from natural gas, become liquid under various levels of pressure and temperature.
Occidental
Occidental Petroleum Corporation and, as the context requires, its subsidiaries, excluding our general partner.
Panola
Panola Pipeline Company, LLC, in which we owned a 15% interest that we sold in March 2024 (see Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).
Powder River Basin complex
The Hilight system and assets acquired from Meritage, which includes a gathering system, processing plants, and the Thunder Creek NGL pipeline (see Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).
Produced water
Byproduct associated with the production of crude oil and natural gas that often contains a number of dissolved solids and other materials found in oil and gas reservoirs.
Red Bluff Express Pipeline, LLC, in which we own a 30% interest.
Related parties
Occidental, the Partnership’s equity interests (see Note 7—Equity Investments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q), and the Partnership and WES Operating for transactions that eliminate upon consolidation.
4
Defined Term
Definition
Rendezvous
Rendezvous Gas Services, LLC, in which we own a 22% interest.
Residue
The natural gas remaining after the unprocessed natural-gas stream has been processed or treated.
Saddlehorn
Saddlehorn Pipeline Company, LLC, in which we owned a 20% interest that we sold in March 2024 (see Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).
SEC
U.S. Securities and Exchange Commission.
Services Agreement
That certain amended and restated Services, Secondment, and Employee Transfer Agreement, dated as of December 31, 2019, by and among Occidental, Anadarko, and WES Operating GP.
Skim oil
A crude-oil byproduct that is recovered during the produced-water gathering and disposal process.
Springfield system
The Springfield gas-gathering system and Springfield oil-gathering system.
TEG
Texas Express Gathering LLC, in which we own a 20% interest.
TEP
Texas Express Pipeline LLC, in which we own a 20% interest.
WES Operating
Western Midstream Operating, LP, formerly known as Western Gas Partners, LP, and its subsidiaries.
WES Operating GP
Western Midstream Operating GP, LLC, the general partner of WES Operating.
West Texas complex
The Delaware Basin Midstream complex and DBJV and Haley systems.
WGRAH
WGR Asset Holding Company LLC, a subsidiary of Occidental.
White Cliffs
White Cliffs Pipeline, LLC, in which we own a 10% interest.
Whitethorn LLC
Whitethorn Pipeline Company LLC, in which we owned a 20% interest that we sold in February 2024 (see Note 3—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q).
Whitethorn
A crude-oil and condensate pipeline, and related storage facilities, owned by Whitethorn LLC.
$1.25 billion Purchase Program
The $1.25 billion buyback program ending December 31, 2024. The common units may be purchased from time to time in the open market at prevailing market prices or in privately negotiated transactions.
(1)Total revenues and other includes related-party amounts of $545.2 million and $1.6 billion for the three and nine months ended September 30, 2024, respectively, and $463.6 million and $1.4 billion for the three and nine months ended September 30, 2023, respectively. See Note 6.
(2)See Note 8.
(3)Total operating expenses includes related-party amounts of $(12.1) million and $(37.7) million for the three and nine months ended September 30, 2024, respectively, and $(35.8) million and $(53.0) million for the three and nine months ended September 30, 2023, respectively, all primarily related to changes in imbalance positions. See Note 6.
(4)See Note 5.
See accompanying Notes to Consolidated Financial Statements.
(1)Other assets includes $3.9 million and $5.7 million of NGLs line-fill inventory as of September 30, 2024, and December 31, 2023, respectively. Other assets also includes $128.9 million and $96.3 million of materials and supplies inventory as of September 30, 2024, and December 31, 2023, respectively.
(2)Total assets includes related-party amounts of $972.9 million and $1.3 billion as of September 30, 2024, and December 31, 2023, respectively, which includes related-party Accounts receivable, net of $393.7 million and $358.1 million as of September 30, 2024, and December 31, 2023, respectively. See Note 6.
(3)Total liabilities includes related-party amounts of $534.5 million and $378.8 million as of September 30, 2024, and December 31, 2023, respectively. See Note 6.
See accompanying Notes to Consolidated Financial Statements.
(1)Total revenues and other includes related-party amounts of $545.2 million and $1.6 billion for the three and nine months ended September 30, 2024, respectively, and $463.6 million and $1.4 billion for the three and nine months ended September 30, 2023, respectively. See Note 6.
(2)See Note 8.
(3)Total operating expenses includes related-party amounts of $(11.2) million and $(34.7) million for the three and nine months ended September 30, 2024, respectively, and $(35.1) million and $(50.5) million for the three and nine months ended September 30, 2023, respectively, all primarily related to changes in imbalance positions. See Note 6.
See accompanying Notes to Consolidated Financial Statements.
(1)Other assets includes $3.9 million and $5.7 million of NGLs line-fill inventory as of September 30, 2024, and December 31, 2023, respectively. Other assets also includes $128.9 million and $96.3 million of materials and supplies inventory as of September 30, 2024, and December 31, 2023, respectively.
(2)Total assets includes related-party amounts of $972.5 million and $1.3 billion as of September 30, 2024, and December 31, 2023, respectively, which includes related-party Accounts receivable, net of $396.9 million and $358.1 million as of September 30, 2024, and December 31, 2023, respectively. See Note 6.
(3)Total liabilities includes related-party amounts of $534.2 million and $409.5 million as of September 30, 2024, and December 31, 2023, respectively. See Note 6.
See accompanying Notes to Consolidated Financial Statements.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
General. Western Midstream Partners, LP is a Delaware master limited partnership formed in September 2012. Western Midstream Operating, LP (together with its subsidiaries, “WES Operating”) is a Delaware limited partnership formed in 2007 to acquire, own, develop, and operate midstream assets. Western Midstream Partners, LP owns, directly and indirectly, a 98.0% limited partner interest in WES Operating, and directly owns all of the outstanding equity interests of Western Midstream Operating GP, LLC, which holds the entire non-economic general partner interest in WES Operating.
For purposes of these consolidated financial statements, the “Partnership” refers to Western Midstream Partners, LP in its individual capacity or to Western Midstream Partners, LP and its subsidiaries, including Western Midstream Operating GP, LLC and WES Operating, as the context requires. “WES Operating GP” refers to Western Midstream Operating GP, LLC, individually as the general partner of WES Operating. The Partnership’s general partner, Western Midstream Holdings, LLC (the “general partner”), is a wholly owned subsidiary of Occidental Petroleum Corporation. “Occidental” refers to Occidental Petroleum Corporation, as the context requires, and its subsidiaries, excluding the general partner. “Anadarko” refers to Anadarko Petroleum Corporation and its subsidiaries, excluding Western Midstream Holdings, LLC. Anadarko became a wholly owned subsidiary of Occidental as a result of Occidental’s acquisition by merger of Anadarko on August 8, 2019. “Related parties” refers to Occidental (see Note 6), the Partnership’s investments accounted for under the equity method of accounting (see Note 7), and the Partnership and WES Operating for transactions that eliminate upon consolidation (see Note 6).
The Partnership is engaged in the business of gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, natural-gas liquids (“NGLs”), and crude oil; and gathering and disposing of produced water. In its capacity as a natural-gas processor, the Partnership also buys and sells natural gas, NGLs, and condensate on behalf of itself and its customers under certain contracts. As of September 30, 2024, the Partnership’s assets and investments consisted of the following:
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Basis of presentation. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of the Partnership and entities in which it holds a controlling financial interest, including WES Operating, WES Operating GP, proportionately consolidated interests, and equity investments (see table below). All significant intercompany transactions have been eliminated.
The following table outlines the ownership interests and the accounting method of consolidation used in the consolidated financial statements for entities not wholly owned (see Note 7):
Percentage Interest
Full consolidation
Chipeta (1)
75.00
%
Proportionate consolidation (2)
Springfield system
50.10
%
Equity investments(3)
Mi Vida JV LLC (“Mi Vida”)
50.00
%
Front Range Pipeline LLC (“FRP”)
33.33
%
Red Bluff Express Pipeline, LLC (“Red Bluff Express”)
(1)The 25% third-party interest in Chipeta Processing LLC (“Chipeta”) is reflected within noncontrolling interests in the consolidated financial statements. See Noncontrolling interests below.
(2)The Partnership proportionately consolidates its associated share of the assets, liabilities, revenues, and expenses attributable to this asset.
(3)Investments in non-controlled entities over which the Partnership exercises significant influence are accounted for under the equity method of accounting. “Equity-investment throughput” refers to the Partnership’s share of average throughput for these investments.
Certain information and note disclosures commonly included in annual financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, the accompanying consolidated financial statements and notes should be read in conjunction with the Partnership’s 2023 Form 10-K, as filed with the SEC on February 21, 2024. Management believes that the disclosures made are adequate to make the information not misleading.
The consolidated financial results of WES Operating are included in the Partnership’s consolidated financial statements. Throughout these notes to consolidated financial statements, and to the extent material, any differences between the consolidated financial results of the Partnership and WES Operating are discussed separately. The Partnership’s consolidated financial statements differ from those of WES Operating primarily as a result of (i) the presentation of noncontrolling interest ownership (see Noncontrolling interests below), (ii) the elimination of WES Operating GP’s investment in WES Operating with WES Operating GP’s underlying capital account, (iii) the general and administrative expenses incurred by the Partnership, which are separate from, and in addition to, those incurred by WES Operating, (iv) the inclusion of the impact of Partnership equity balances and Partnership distributions, and (v) transactions between the Partnership and WES Operating that eliminate upon consolidation.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Presentation of the Partnership’s assets. The Partnership’s assets include assets owned and ownership interests accounted for by the Partnership under the equity method of accounting, through its 98.0% partnership interest in WES Operating, as of September 30, 2024 (see Note 7). The Partnership also owns and controls the entire non-economic general partner interest in WES Operating GP, and the Partnership’s general partner is owned by Occidental.
Use of estimates. In preparing financial statements in accordance with GAAP, management makes informed judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. Management evaluates its estimates and related assumptions regularly, using historical experience and other reasonable methods. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ from these estimates. Effects on the business, financial condition, and results of operations resulting from revisions to estimates are recognized when the facts that give rise to the revisions become known. The information included herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated financial statements.
Noncontrolling interests. The Partnership’s noncontrolling interests in the consolidated financial statements consist of (i) the 25% third-party interest in Chipeta and (ii) the 2.0% limited partner interest in WES Operating owned by an Occidental subsidiary. WES Operating’s noncontrolling interest in the consolidated financial statements consists of the 25% third-party interest in Chipeta. See Note 5.
Segments. The Partnership’s operations continue to be organized into a single operating segment, the assets of which gather, compress, treat, process, and transport natural gas; gather, stabilize, and transport condensate, NGLs, and crude oil; and gather and dispose of produced water in the United States.
In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The standard improves reportable segment disclosure requirements for public business entities primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit (referred to as the “significant expense principle”). The standard will become effective for the Partnership for the fiscal year 2024 annual financial statements and interim financial statements thereafter and will be applied retrospectively for all prior periods presented in the financial statements, with early adoption permitted. The Partnership plans to adopt the standard when it becomes effective beginning with the fiscal year 2024 annual financial statements. The Partnership is currently evaluating the impact this guidance will have on disclosures in the Notes to Consolidated Financial Statements. This standard will have no impact on the Partnership’s financial statements, but will result in additional disclosure.
Equity-based compensation. During the nine months ended September 30, 2024 and 2023, the Partnership issued 1,035,444 and 832,707 common units, respectively, under its long-term incentive plans. Compensation expense was $8.8 million and $28.6 million for the three and nine months ended September 30, 2024, respectively, and $7.2 million and $22.0 million for the three and nine months ended September 30, 2023, respectively.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
The following table summarizes revenue from contracts with customers:
Three Months Ended September 30,
Nine Months Ended September 30,
thousands
2024
2023
2024
2023
Revenue from customers
Service revenues – fee based
$
814,319
$
695,547
$
2,389,366
$
2,004,920
Service revenues – product based
49,115
48,446
177,321
142,212
Product sales
19,673
31,652
109,076
100,336
Total revenue from customers
883,107
775,645
2,675,763
2,247,468
Revenue from other than customers
Other
255
368
957
800
Total revenues and other
$
883,362
$
776,013
$
2,676,720
$
2,248,268
Contract balances. Receivables from customers, which are included in Accounts receivable, net on the consolidated balance sheets were $664.0 million and $661.6 million as of September 30, 2024, and December 31, 2023, respectively.
Contract assets primarily relate to (i) revenue accrued but not yet billed under cost-of-service contracts with fixed and variable fees and (ii) accrued deficiency fees the Partnership expects to charge customers once the related performance periods are completed. The following table summarizes activity related to contract assets from contracts with customers:
thousands
Contract assets balance at December 31, 2023
$
39,292
Amounts transferred to Accounts receivable, net that were included in the contract assets balance at the beginning of the period (1)
(5,683)
Additional estimated revenues recognized (2)
5,567
Contract assets balance at September 30, 2024
$
39,176
Contract assets at September 30, 2024
Other current assets
$
11,931
Other assets
27,245
Total contract assets from contracts with customers
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
Contract liabilities primarily relate to (i) fixed and variable fees under cost-of-service contracts that are received from customers for which revenue recognition is deferred, (ii) aid-in-construction payments received from customers that must be recognized over the expected period of customer benefit, and (iii) fees that are charged to customers for only a portion of the contract term and must be recognized as revenues over the expected period of customer benefit. The following table summarizes activity related to contract liabilities from contracts with customers:
thousands
Contract liabilities balance at December 31, 2023
$
445,499
Cash received or receivable, excluding revenues recognized during the period (1)
158,282
Revenues recognized that were included in the contract liability balance at the beginning of the period (2)
(22,388)
Contract liabilities balance at September 30, 2024
$
581,393
Contract liabilities at September 30, 2024
Accrued liabilities
$
10,076
Other liabilities
571,317
Total contract liabilities from contracts with customers
(1)Includes$34.7 millionfor the three months ended September 30, 2024.
(2)Includes $(6.5) million for the three months ended September 30, 2024.
Transaction price allocated to remaining performance obligations. Revenues expected to be recognized from certain performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2024, are presented in the table below. The Partnership applies the optional exemptions in Revenue from Contracts with Customers (Topic 606) and does not disclose consideration for remaining performance obligations with an original expected duration of one year or less or for variable consideration related to unsatisfied (or partially unsatisfied) performance obligations. Therefore, the following table represents only a portion of expected future revenues from existing contracts as most future revenues from customers are dependent on future variable customer volumes and, in some cases, variable commodity prices for those volumes.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. ACQUISITIONS AND DIVESTITURES
Marcellus Interest systems. During the second quarter of 2024, the Partnership closed on the sale of its 33.75% interest in the Marcellus Interest systems for proceeds of $206.2 million, resulting in a net gain on sale of $63.9 million that was recorded as Gain (loss) on divestiture and other, net in the consolidated statement of operations.
Mont Belvieu JV, Whitethorn LLC, Panola, and Saddlehorn. During the first quarter of 2024, the Partnership closed on the sale of the following equity investments to third parties: (i) the 25.00% interest in Enterprise EF78 LLC (the “Mont Belvieu JV”), (ii) the 20.00% interest in Whitethorn Pipeline Company LLC (“Whitethorn LLC”), (iii) the 15.00% interest in Panola Pipeline Company, LLC (“Panola”), and (iv) the 20.00% interest in Saddlehorn Pipeline Company, LLC (“Saddlehorn”). The combined proceeds received in the first quarter of 2024 of $588.6 million includes $5.9 million in pro-rata distributions through closing, resulting in a net gain on sale of $239.7 million that was recorded as Gain (loss) on divestiture and other, net in the consolidated statement of operations.
Meritage. On October 13, 2023, the Partnership closed on the acquisition of Meritage Midstream Services II, LLC (“Meritage”) for $885.0 million (subject to certain customary post-closing adjustments) funded with cash, including proceeds from the Partnership’s $600.0 million senior note issuance in September 2023 (see Note 10) and borrowings on the senior unsecured revolving credit facility (“RCF”). The cash purchase price, adjusted for working capital and certain customary post-closing adjustments and reduced by the $38.4 million of cash acquired (as presented in the table below), was $878.2 million.
The assets acquired, located in Converse, Campbell, and Johnson counties, Wyoming, include approximately 1,500 miles of high- and low-pressure natural-gas gathering pipelines, approximately 380 MMcf/d of natural-gas processing capacity, and the Thunder Creek NGL pipeline, which is a 120 mile, 38 MBbls/d FERC-regulated NGL pipeline that connects to the processing facility. The acquisition expands the Partnership’s existing Powder River Basin asset base, increasing total natural-gas processing capacity in that region to 440 MMcf/d.
The Meritage acquisition has been accounted for under the acquisition method of accounting. The assets acquired and liabilities assumed in the Meritage acquisition were recorded in the consolidated balance sheet at their estimated fair values as of the acquisition date. Results of operations attributable to the Meritage acquisition were included in the Partnership’s consolidated statements of operations beginning on the acquisition date in the fourth quarter of 2023.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. ACQUISITIONS AND DIVESTITURES
The following is the final acquisition-date fair value for the assets acquired and liabilities assumed in the Meritage acquisition on October 13, 2023.
thousands
Assets acquired:
Cash and cash equivalents
$
38,412
Accounts receivable, net
34,060
Other current assets
1,980
Property, plant, and equipment
926,347
Other assets
6,498
Total assets acquired
1,007,297
Liabilities assumed:
Accounts payable and accrued liabilities
34,733
Other current liabilities
5,451
Asset retirement obligation
22,156
Other liabilities
28,356
Total liabilities assumed
90,696
Net assets acquired
$
916,601
The acquisition-date fair values are based on an assessment of the fair value of the assets acquired and liabilities assumed in the Meritage acquisition using inputs that are not observable in the market and thus represent Level 3 inputs. The fair values of the processing plants, gathering system, and related facilities and equipment are based on market and cost approaches.
4. PARTNERSHIP DISTRIBUTIONS
Partnership distributions. Under its partnership agreement, the Partnership distributes all of its available cash to unitholders of record on the applicable record date within 55 days following each quarter’s end. The amount of available cash (beyond proper reserves as defined in the partnership agreement) generally is all cash on hand at the end of the quarter, plus, at the discretion of the general partner, working capital borrowings made subsequent to the end of such quarter, less the amount of cash reserves established by the general partner to provide for the proper conduct of the Partnership’s business, including (i) to fund future capital expenditures; (ii) to comply with applicable laws, debt instruments, or other agreements; or (iii) to provide funds for unitholder distributions for any one or more of the next four quarters. Working capital borrowings generally include borrowings made under a credit facility or similar financing arrangement and are intended to be repaid or refinanced within 12 months. In all cases, working capital borrowings are used solely for working capital purposes or to fund unitholder distributions.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. PARTNERSHIP DISTRIBUTIONS
The Board of Directors of the general partner (the “Board”) declared the following cash distributions to the Partnership’s unitholders for the periods presented:
(1)Includes the regular quarterly distribution of $0.500 per unit, or $196.8 million, as well as the Enhanced Distribution of $0.356 per unit discussed below.
To facilitate the distribution of available cash, during 2022 the Partnership adopted a financial policy that provided for an additional distribution (“Enhanced Distribution”) to be paid in conjunction with the regular first-quarter distribution of the following year (beginning in 2023), in a target amount equal to Free cash flow generated in the prior year after subtracting Free cash flow used for the prior year’s debt repayments, regular-quarter distributions, and unit repurchases. In April 2023, the Board approved an Enhanced Distribution of $0.356 per unit, or $140.1 million, related to the Partnership’s 2022 performance, which was paid in conjunction with the regular first-quarter 2023 distribution on May 15, 2023.
WES Operating partnership distributions. WES Operating makes quarterly cash distributions to the Partnership and WGR Asset Holding Company LLC (“WGRAH”), a subsidiary of Occidental, in proportion to their share of limited partner interests in WES Operating. See Note 5. WES Operating made and/or declared the following cash distributions to its limited partners for the periods presented:
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. EQUITY AND PARTNERS’ CAPITAL
Holdings of Partnership equity. The Partnership’s common units are listed on the New York Stock Exchange under the ticker symbol “WES.” As of September 30, 2024, Occidental held 165,681,578 common units, representing a 42.5% limited partner interest in the Partnership, and through its ownership of the general partner, Occidental indirectly held 9,060,641 general partner units, representing a 2.3% general partner interest in the Partnership. The public held 214,873,849 common units, representing a 55.2% limited partner interest in the Partnership.
In August 2024, affiliates of Occidental sold 19,500,000 of the Partnership’s common units it held through an underwritten offering. The Partnership did not receive any proceeds from the public offering.
Partnership equity repurchases.In 2022, the Board authorized the Partnership to buy back up to $1.25 billion of the Partnership’s common units through December 31, 2024 (the “$1.25 billion Purchase Program”). The common units may be purchased from time to time in the open market at prevailing market prices or in privately negotiated transactions. During the nine months ended September 30, 2024, there were no common units repurchased. During the nine months ended September 30, 2023, the Partnership repurchased 5,387,322 common units, which included 5,100,000 common units repurchased from Occidental, for an aggregate purchase price of $134.6 million. The units were canceled immediately upon receipt. As of September 30, 2024, the Partnership had an authorized amount of $627.8 million remaining under the program.
Holdings of WES Operating equity. As of September 30, 2024, (i) the Partnership, directly and indirectly through its ownership of WES Operating GP, owned a 98.0% limited partner interest and the entire non-economic general partner interest in WES Operating and (ii) Occidental, through its ownership of WGRAH, owned a 2.0% limited partner interest in WES Operating, which is reflected as a noncontrolling interest within the consolidated financial statements of the Partnership (see Note 1).
Partnership’s net income (loss) per common unit. The common and general partner unitholders’ allocation of net income (loss) attributable to the Partnership was equal to their cash distributions plus their respective allocations of undistributed earnings or losses in accordance with their weighted-average ownership percentage during each period using the two-class method.
The Partnership’s basic net income (loss) per common unit is calculated by dividing the limited partners’ interest in net income (loss) by the weighted-average number of common units outstanding during the period. Diluted net income (loss) per common unit includes the effect of outstanding units issued under the Partnership’s long-term incentive plans.
The following table provides a reconciliation between basic and diluted net income (loss) per common unit:
Three Months Ended September 30,
Nine Months Ended September 30,
thousands except per-unit amounts
2024
2023
2024
2023
Net income (loss)
Limited partners’ interest in net income (loss)
$
281,772
$
270,843
$
1,211,113
$
716,902
Weighted-average common units outstanding
Basic
380,513
383,561
380,343
384,211
Dilutive effect of non-vested phantom units
2,107
1,211
1,846
1,133
Diluted
382,620
384,772
382,189
385,344
Excluded due to anti-dilutive effect
—
143
2,054
123
Net income (loss) per common unit
Basic
$
0.74
$
0.71
$
3.18
$
1.87
Diluted
$
0.74
$
0.70
$
3.17
$
1.86
WES Operating’s net income (loss) per common unit. Net income (loss) per common unit for WES Operating is not calculated because it has no publicly traded units.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS
Summary of related-party transactions. The following tables summarize material related-party transactions included in the Partnership’s consolidated financial statements:
(1)Represents common and general partner unit distributions paid to Occidental pursuant to the partnership agreement of the Partnership. See Note 4 and Note 5.
(2)Represents distributions paid to Occidental, through its ownership of WGRAH, pursuant to WES Operating’s partnership agreement. See Note 4 and Note 5.
(3)Represents common units repurchased from Occidental. See Note 5.
The following tables summarize material related-party transactions for WES Operating (which are included in the Partnership’s consolidated financial statements) to the extent the amounts differ materially from the Partnership’s consolidated financial statements:
(1)Represents distributions paid to the Partnership and Occidental, through its ownership of WGRAH, pursuant to WES Operating’s partnership agreement. See Note 4 and Note 5.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS
Related-party revenues. Related-party revenues include amounts earned by the Partnership from services provided to Occidental and from the sale of natural gas, condensate, and NGLs to Occidental.
Gathering and processing agreements. The Partnership has significant gathering, processing, and produced-water disposal arrangements with affiliates of Occidental on most of its systems. While Occidental is the contracting counterparty of the Partnership, these arrangements with Occidental include not just Occidental-produced volumes, but also, in some instances, the volumes of other working-interest owners of Occidental who rely on the Partnership’s facilities and infrastructure to bring their volumes to market. Natural-gas throughput (excluding equity-investment throughput) attributable to production owned or controlled by Occidental was 36% and 34% for the three and nine months ended September 30, 2024, respectively, and 34% for both the three and nine months ended September 30, 2023. Crude-oil and NGLs throughput (excluding equity-investment throughput) attributable to production owned or controlled by Occidental was 92% and 90% for the three and nine months ended September 30, 2024, respectively, and 87% for both the three and nine months ended September 30, 2023. Produced-water throughput attributable to production owned or controlled by Occidental was 78% and 77% for the three and nine months ended September 30, 2024, respectively, and 77% and 78% for the three and nine months ended September 30, 2023, respectively.
The Partnership is currently discussing varying interpretations of certain contractual provisions with Occidental regarding the calculation of the cost-of-service rates under an oil-gathering contract related to the Partnership’s DJ Basin oil-gathering system. If such discussions are resolved in a manner adverse to the Partnership, such resolution could have a negative impact on the Partnership’s financial condition and results of operations, including a reduction in rates and a non-cash charge to earnings.
Marketing Services. Prior to January 1, 2021, Occidental provided marketing-related services to certain of the Partnership’s subsidiaries. While the Partnership now markets and sells substantially all of its crude oil, residue gas, and NGLs directly to third parties, it does still have some marketing agreements with affiliates of Occidental, the activity for which is reflected in the related-party statements of operations above.
Related-party expenses. Operation and maintenance expense includes amounts accrued for or paid to related parties for field-related costs, shared field offices, and easements (see Related-party commercial agreement below) supporting the Partnership’s operations at certain assets. General and administrative expense includes amounts accrued for or paid to Occidental for certain reimbursed expenses pursuant to the provisions of the Partnership’s and WES Operating’s agreements with Occidental. Cost of product expense includes amounts related to certain continuing marketing arrangements with affiliates of Occidental, related-party imbalances, and transactions with affiliates accounted for under the equity method of accounting. See Marketing Services in the section above. Related-party expenses bear no direct relationship to related-party revenues, and third-party expenses bear no direct relationship to third-party revenues.
Services Agreement.Occidental performed certain centralized corporate functions for the Partnership and WES Operating pursuant to the agreement dated as of December 31, 2019, by and among Occidental, Anadarko, and WES Operating GP (“Services Agreement”). Most of the administrative and operational services previously provided by Occidental fully transitioned to the Partnership by December 31, 2021, with certain limited transition services remaining in place pursuant to the terms of the Services Agreement.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED-PARTY TRANSACTIONS
Construction reimbursement agreements and purchases and sales with related parties. From time to time, the Partnership enters into construction reimbursement agreements with Occidental providing that the Partnership will manage the construction of certain midstream infrastructure for Occidental in the Partnership’s areas of operation. Such arrangements generally provide for a reimbursement of costs incurred by the Partnership on a cost or cost-plus basis.
Additionally, from time to time, in support of the Partnership’s business, the Partnership purchases and sells equipment, inventory, and other miscellaneous assets from or to Occidental or its affiliates.
Related-party commercial agreement. During the first quarter of 2021, an affiliate of Occidental and certain wholly owned subsidiaries of the Partnership entered into a Commercial Understanding Agreement (“CUA”). Under the CUA, certain West Texas surface-use and salt-water disposal agreements were amended to reduce usage fees owed by the Partnership in exchange for the forgiveness of certain deficiency fees owed by Occidental and other unrelated contractual amendments. The present value of the reduced usage fees under the CUA was $30.0 million at the time the agreement was executed. Also, as a result of the amendments under the CUA, these agreements are classified as operating leases and a $30.0 million right-of-use (“ROU”) asset, included in Other assets on the consolidated balance sheets, was recognized during the first quarter of 2021. The ROU asset is being amortized to Operation and maintenance expense through 2038, the remaining term of the agreements.
Customer concentration. Occidental was the only customer from which revenues exceeded 10% of consolidated revenues for all periods presented in the consolidated statements of operations.
7. EQUITY INVESTMENTS
The following table presents the financial statement impact of the Partnership’s equity investments for the nine months ended September 30, 2024:
(1)Distributions in excess of cumulative earnings, classified as investing cash flows in the consolidated statements of cash flows, are calculated on an individual-investment basis.
(2)See Note 3.
During the first quarter of 2024, the Partnership closed on the sale of the following equity investments to third parties: (i) the 25.00% interest in Mont Belvieu JV, (ii) the 20.00% interest in Whitethorn LLC, (iii) the 15.00% interest in Panola, and (iv) the 20.00% interest in Saddlehorn. See Note 3.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. PROPERTY, PLANT, AND EQUIPMENT
A summary of the historical cost of property, plant, and equipment is as follows:
thousands
Estimated Useful Life
September 30, 2024
December 31, 2023
Land
N/A
$
12,550
$
12,504
Gathering systems – pipelines
30 years
5,833,706
5,890,607
Gathering systems – compressors
15 years
2,645,117
2,553,602
Processing complexes and treating facilities
25 years
4,048,496
3,745,332
Transportation pipeline and equipment
3 to 48 years
257,936
259,314
Produced-water disposal systems
20 years
1,179,217
1,098,616
Assets under construction
N/A
424,670
479,368
Other
3 to 40 years
940,501
906,088
Total property, plant, and equipment
15,342,193
14,945,431
Less accumulated depreciation
5,646,602
5,290,415
Net property, plant, and equipment
$
9,695,591
$
9,655,016
“Assets under construction” represents property that is not yet placed into productive service as of the respective balance sheet date and is excluded from capitalized costs being depreciated.
Long-lived asset impairments. During the nine months ended September 30, 2023, the Partnership recognized a long-lived asset impairment of $52.1 million for assets located in the Rockies due to a reduction in estimated future cash flows resulting from a contract termination notice received in the first quarter of 2023. This asset was impaired to its estimated fair value of $22.8 million. The fair value was measured using the income approach and Level-3 fair value inputs. The income approach was based on the Partnership’s projected future EBITDA and free cash flows, which requires significant assumptions including, among others, future throughput volumes based on current expectations of producer activity and operating costs.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. DEBT AND INTEREST EXPENSE
WES Operating is the borrower for all outstanding debt and is expected to be the borrower for all future debt issuances. The following table presents the outstanding debt:
(1)Net of borrowings and repayments related to commercial paper notes with original maturities of 90 days or less.
WES Operating Senior Notes. WES Operating issued the Fixed-Rate 3.100% Senior Notes due 2025, 4.050% Senior Notes due 2030, 5.250% Senior Notes due 2050, and the Floating-Rate Senior Notes due 2023 in January 2020. Including the effects of the issuance prices, underwriting discounts, and interest-rate adjustments, the effective interest rates of the Senior Notes due 2025, 2030, and 2050, were 3.290%, 4.169%, and 5.363%, respectively, at September 30, 2024 and 2023. The effective interest rate of these notes is subject to adjustment from time to time due to a change in credit rating.
During the third quarter of 2024, WES Operating completed the public offering of $800.0 million in aggregate principal amount of 5.450% Senior Notes due 2034. Interest is payable semi-annually on May 15th and November 15th of each year, with the initial interest payment being due on May 15, 2025. Net proceeds from the offering will be used to repay a portion of the maturing 3.100% Senior Notes due 2025 and 3.950% Senior Notes due 2025 and for general partnership purposes, including the funding of capital expenditures.
During the nine months ended September 30, 2024, WES Operating purchased and retired $150.0 million of certain of its senior notes via open-market repurchases with cash from operations (see Debt activity above) and a gain of $5.4 million was recognized for the early retirement of portions of these notes. As of September 30, 2024, the 3.100% Senior Notes due 2025 and 3.950% Senior Notes due 2025 were classified as short-term debt on the consolidated balance sheet.
During the third quarter of 2023, WES Operating completed the public offering of $600.0 million in aggregate principal amount of 6.350% Senior Notes due 2029. Net proceeds from the offering were used to fund a portion of the aggregate purchase price for the Meritage acquisition (see Note 3), to pay related costs and expenses, and for general partnership purposes. During the second quarter of 2023, WES Operating completed the public offering of $750.0 million in aggregate principal amount of 6.150% Senior Notes due 2033. Net proceeds from the offering were used to repay borrowings under the RCF and for general partnership purposes. In addition, during 2023, WES Operating purchased and retired $276.7 million of certain of its senior notes via open-market repurchases and redeemed the total principal amount outstanding on the Floating-Rate Senior Notes due 2023 at par value with cash on hand. For the three and nine months ended September 30, 2023, a gain of $8.6 million and $15.4 million, respectively, was recognized for the early retirement of portions of these notes.
As of September 30, 2024, WES Operating was in compliance with all covenants under the relevant governing indentures.
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. DEBT AND INTEREST EXPENSE
Revolving credit facility. In May 2024, WES Operating entered into an amendment to the RCF to exercise an option to extend the maturity date of the RCF from April 2028 to April 2029, for each extending lender. The non-extending lender’s commitments mature in April 2028 and represent $120.0 million out of $2.0 billion of total commitments from all lenders.
In April 2023, WES Operating (i) repaid all then-outstanding borrowings under its RCF with proceeds from the 6.150% Senior Notes due 2033 offering and (ii) entered into an amendment to its RCF to, among other things, extend the maturity date to April 2028 and provide for a maximum borrowing capacity up to $2.0 billion, expandable to a maximum of $2.5 billion, through the maturity date.
As of September 30, 2024, there were no outstanding borrowings and no outstanding letters of credit, resulting in $2.0 billion in effective borrowing capacity under the RCF. Any outstanding commercial paper borrowings (see below) reduce the effective borrowing capacity under the RCF as WES Operating maintains availability under the RCF as support for its commercial paper program. As of September 30, 2024 and 2023, the interest rate on any outstanding RCF borrowings was 6.15% and 6.62%, respectively. The facility-fee rate was 0.20% at September 30, 2024 and 2023. As of September 30, 2024, WES Operating was in compliance with all covenants under the RCF.
Commercial paper program. In November 2023, WES Operating entered into an unsecured commercial paper program under which it may issue (and have outstanding at any one time) an aggregate principal amount up to $2.0 billion. WES Operating intends to maintain a minimum aggregate available borrowing capacity under the RCF equal to the aggregate amount of outstanding commercial paper borrowings. The maturities of the notes may vary, but may not exceed 397 days. As of September 30, 2024, there were no outstanding borrowings under the commercial paper program.
Interest expense.The following table summarizes the amounts included in interest expense:
Three Months Ended September 30,
Nine Months Ended September 30,
thousands
2024
2023
2024
2023
Long-term and short-term debt
$
(93,555)
$
(83,177)
$
(278,361)
$
(249,416)
Finance lease liabilities
(632)
(223)
(1,964)
(616)
Commitment fees and amortization of debt-related costs
WESTERN MIDSTREAM PARTNERS, LP AND WESTERN MIDSTREAM OPERATING, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. COMMITMENTS AND CONTINGENCIES
Environmental obligations. The Partnership is subject to various environmental-remediation obligations arising from federal, state, and local regulations regarding air and water quality, hazardous and solid waste disposal, and other environmental matters. As of September 30, 2024 and December 31, 2023, the consolidated balance sheets included $2.3 million and $7.3 million, respectively, of liabilities for remediation and reclamation obligations. The current portion of these amounts is included in Accrued liabilities, and the long-term portion of these amounts is included in Other liabilities. The majority of payments related to these obligations are expected to be made over the next year. See Note 9.
Litigation and legal proceedings. From time to time, the Partnership is involved in legal, tax, regulatory, and other proceedings in various forums regarding performance, contracts, and other matters that arise in the ordinary course of business. Management is not aware of any such proceeding for which the final disposition could have a material adverse effect on the Partnership’s financial condition, results of operations, or cash flows.
Other commitments. The Partnership has payment obligations, or commitments, that include, among other things, a revolving credit facility, other third-party long-term debt, obligations related to the Partnership’s capital spending programs, pipeline and offload commitments, and various operating and finance leases. The payment obligations related to the Partnership’s capital spending programs, the majority of which is expected to be paid in the next 12 months, primarily relate to expansion, construction, and asset-integrity projects at the West Texas complex, Powder River Basin complex, DBM water systems, DJ Basin complex, and DBM oil system.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion analyzes our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, wherein WES Operating is fully consolidated, and which are included under Part I, Item 1 of this quarterly report, and the historical consolidated financial statements, and the notes thereto, which are included under Part II, Item 8 of the 2023 Form 10-K as filed with the SEC on February 21, 2024.
The Partnership’s assets include assets owned and ownership interests accounted for by us under the equity method of accounting, through our 98.0% partnership interest in WES Operating, as of September 30, 2024 (see Note 7—Equity Investments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q). We also own and control the entire non-economic general partner interest in WES Operating GP, and our general partner is owned by Occidental.
We have made in this Form 10-Q, and may make in other public filings, press releases, and statements by management, forward-looking statements concerning our operations, economic performance, and financial condition. These forward-looking statements include statements preceded by, followed by, or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “target,” “goal,” “plans,” “objective,” “should,” or similar expressions or variations on such expressions. These statements discuss future expectations, contain projections of results of operations or financial condition, or include other “forward-looking” information.
Although we and our general partner believe that the expectations reflected in our forward-looking statements are reasonable, neither we nor our general partner can provide any assurance that such expectations will prove correct. These forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from expectations include, but are not limited to, the following:
•our ability to pay distributions to our unitholders and the amount of such distributions;
•our assumptions about the energy market;
•future throughput (including Occidental production) that is gathered or processed by, or transported through, our assets;
•our operating results;
•competitive conditions;
•technology;
•the availability of capital resources to fund acquisitions, capital expenditures, and other contractual obligations, and our ability to access financing through the debt or equity capital markets;
•the supply of, demand for, and price of oil, natural gas, NGLs, and related products or services;
•commodity-price risks inherent in percent-of-proceeds, percent-of-product, keep-whole, and fixed-recovery processing contracts;
•weather and natural disasters;
•inflation;
•the availability of goods and services;
•general economic conditions, internationally, domestically, or in the jurisdictions in which we are doing business;
•federal, state, and local laws and state-approved voter ballot initiatives, including those laws or ballot initiatives that limit producers’ hydraulic-fracturing activities or other oil and natural-gas development or operations;
•environmental liabilities;
•legislative or regulatory changes, including changes affecting our status as a partnership for federal income tax purposes;
•changes in the financial or operational condition of Occidental;
•the creditworthiness of Occidental or our other counterparties, including financial institutions, operating partners, and other parties;
•changes in Occidental’s capital program, corporate strategy, or other desired areas of focus;
•our commitments to capital projects;
•our ability to access liquidity under the RCF and commercial paper program;
•our ability to repay debt;
•the resolution of litigation or other disputes;
•conflicts of interest among us and our general partner and its related parties, including Occidental, with respect to, among other things, the allocation of capital and operational and administrative costs, and our future business opportunities;
•our ability to maintain and/or obtain rights to operate our assets on land owned by third parties;
•our ability to acquire assets on acceptable terms from third parties;
•non-payment or non-performance of significant customers, including under gathering, processing, transportation, and disposal agreements;
•the timing, amount, and terms of future issuances of equity and debt securities;
•the outcome of pending and future regulatory, legislative, or other proceedings or investigations, and continued or additional disruptions in operations that may occur as we and our customers comply with any regulatory orders or other state or local changes in laws or regulations;
•cyber-attacks or security breaches; and
•other factors discussed below, in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” included in the 2023 Form 10-K, in our quarterly reports on Form 10-Q, and in our other public filings and press releases.
Risk factors and other factors noted throughout or incorporated by reference in this Form 10-Q could cause actual results to differ materially from those contained in any forward-looking statement. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
We are a midstream energy company organized as a publicly traded partnership, engaged in the business of gathering, compressing, treating, processing, and transporting natural gas; gathering, stabilizing, and transporting condensate, NGLs, and crude oil; and gathering and disposing of produced water. In our capacity as a natural-gas processor, we also buy and sell natural gas, NGLs, and condensate on behalf of ourselves and our customers under certain contracts. To provide superior midstream service, we focus on ensuring the reliability and performance of our systems, creating sustainable cost efficiencies, enhancing our safety culture, and protecting the environment. We own or have investments in assets located in Texas, New Mexico, and the Rocky Mountains (Colorado, Utah, and Wyoming). As of September 30, 2024, our assets and investments consisted of the following:
Significant financial and operational events during the nine months ended September 30, 2024, included the following:
•We closed on the sale of (i) several equity investments to third parties for combined proceeds of $588.6 million, which included $5.9 million in pro-rata distributions through closing, and (ii) our 33.75% interest in the Marcellus Interest systems for proceeds of $206.2 million. See Acquisitions and Divestitures within this Item 2 for additional information.
•WES Operating completed the public offering of $800.0 million in aggregate principal amount of 5.450% Senior Notes due 2034. Net proceeds from the offering will be used to repay a portion of certain senior notes due in 2025 and for general partnership purposes, including the funding of capital expenditures. See Liquidity and Capital Resources within this Item 2 for additional information.
•WES Operating purchased and retired $150.0 million of certain of its senior notes via open-market repurchases.
•Our regular third-quarter 2024 per-unit distribution is unchanged from the second-quarter 2024 per-unit distribution of $0.875.
•Natural-gas throughput attributable to WES totaled 5,016 MMcf/d and 4,998 MMcf/d for the three and nine months ended September 30, 2024, respectively, representing a 1% increase and a 17% increasecompared to the three months ended June 30, 2024, and nine months ended September 30, 2023, respectively.
•Crude-oil and NGLs throughput attributable to WES totaled 506 MBbls/d and 529 MBbls/d for the three and nine months ended September 30, 2024, respectively, representing a 2% decrease and a 17% decreasecompared to the three months ended June 30, 2024, and nine months ended September 30, 2023, respectively.
•Produced-water throughput attributable to WES totaled 1,099 MBbls/d and 1,102 MBbls/d for the three and nine months ended September 30, 2024, respectively, representing a 2% increase and an 11% increase compared to the three months ended June 30, 2024, and nine months ended September 30, 2023, respectively.
•Gross margin was $684.5 million and $2.1 billion for the three and nine months ended September 30, 2024, respectively, representing a 1% decrease and a 22% increase compared to the three months ended June 30, 2024,
and nine months ended September 30, 2023, respectively. See Reconciliation of Non-GAAP Financial Measures within this Item 2.
•Adjusted gross margin for natural-gas assets (as defined under the caption Reconciliation of Non-GAAP Financial Measures within this Item 2) averaged $1.29 per Mcf and $1.31 per Mcf for the three and nine months ended September 30, 2024, respectively, representing a 3% decrease and a 3% increase compared to the three months ended June 30, 2024, and nine months ended September 30, 2023, respectively.
•Adjusted gross margin for crude-oil and NGLs assets (as defined under the caption Reconciliation of Non-GAAP Financial Measures within this Item 2) averaged $2.88 per Bbl and $2.92 per Bbl for the three and nine months ended September 30, 2024, respectively, representing a 3% decrease and a 17% increase compared to the three months ended June 30, 2024, and nine months ended September 30, 2023, respectively.
•Adjusted gross margin for produced-water assets (as defined under the caption Reconciliation of Non-GAAP Financial Measures within this Item 2) averaged $0.96 per Bbl for both the three and nine months ended September 30, 2024, representing a 1% decrease and a 16% increase compared to the three months ended June 30, 2024, and nine months ended September 30, 2023, respectively.
The following table provides additional information on throughput for the periods presented below:
Three Months Ended
Nine Months Ended
September 30, 2024
June 30, 2024
Inc/ (Dec)
September 30, 2024
September 30, 2023
Inc/ (Dec)
Throughput for natural-gas assets (MMcf/d)
Delaware Basin
1,889
1,858
2
%
1,836
1,612
14
%
DJ Basin
1,418
1,452
(2)
%
1,414
1,316
7
%
Powder River Basin
505
426
19
%
446
36
NM
Equity investments
503
508
(1)
%
507
458
11
%
Other
874
911
(4)
%
967
1,017
(5)
%
Total throughput for natural-gas assets
5,189
5,155
1
%
5,170
4,439
16
%
Throughput for crude-oil and NGLs assets (MBbls/d)
We expect our business to be affected by the below-described key trends and uncertainties. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove incorrect, our actual results may vary materially from expected results.
Impact of producer activity. Our business is primarily driven by the level of production of crude oil and natural gas by producers in our areas of operation. This activity, however, can be impacted negatively by, among other things, commodity-price fluctuations and operational challenges. Fluctuating crude-oil, natural-gas, and NGLs prices can reduce the level of our customers’ activities and change the allocation of capital within their own asset portfolios. Such fluctuations can also impact us directly to the extent we take ownership of and sell certain volumes at the tailgate of our plants for our own account. The New York Mercantile Exchange (“NYMEX”) West Texas Intermediate crude-oil daily settlement prices during 2023 ranged from a low of $66.74 per barrel in March 2023 to a high of $93.68 per barrel in September 2023, and prices during the nine months ended September 30, 2024, ranged from a low of $65.75 per barrel in September 2024 to a high of $86.91 per barrel in April 2024. The Waha Hub natural gas price during 2023 ranged from a low of ($3.8400) per MMBtu in January 2023 to a high of $3.2750 per MMBtu in January 2023, and prices during the nine months ended September 30, 2024, ranged from a low of ($6.2250) per MMBtu in August 2024 to a high of $8.2650 per MMBtu in January 2024. The extent and duration of commodity-price volatility, and the associated direct and indirect impact on our business, cannot be predicted. To address the risks posed by fluctuating commodity prices, we intend to continue evaluating the relevant price environments and adjust our capital spending plans to reflect our customers’ anticipated activity levels, while maintaining appropriate liquidity and financial flexibility.
Additionally, even when the commodity-price environments are favorable, our customers must manage numerous operational challenges, including severe weather disruptions, downstream and produced-water takeaway constraints, seismicity concerns, new regulatory requirements, and the ability to optimize the efficiency and results of large, complex drilling programs. Our producers’ ability to mitigate or manage such challenges can have a significant impact on the volumes available for us to service in the short term. For this reason, we strive to work proactively with our customers whenever possible to provide high levels of reliability on our systems and help them meet these operational challenges as they arise.
Impact of inflation and supply-chain disruptions. Although somewhat abated during 2024, the U.S. economy has recently experienced significant inflation relative to historical precedent. Inflation has raised our costs for steel products, automation components, power supply, labor, materials, fuel, and services, which has increased our operating costs and capital expenditures. Any increases in inflationary pressure could materially and negatively impact our financial results. To the extent permitted by regulations and escalation provisions in certain of our existing agreements, we have the ability to recover a portion of increased costs in the form of higher fees.
Impact of interest rates. Short- and long-term interest rates can be volatile, resulting in immediate changes to interest expense on RCF borrowings and commercial paper borrowings. Any future increases in interest rates likely will result in additional increases in financing costs. As with other yield-oriented securities, our unit price could be impacted by our implied distribution yield relative to market interest rates. Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our units, and a rising interest-rate environment could have an adverse impact on our unit price and our ability to issue additional equity, or increase the cost of issuing equity, to make acquisitions, to reduce debt, or for other purposes. However, we expect our cost of capital to remain competitive, as our peers face similar interest-rate dynamics.
Marcellus Interest systems. During the second quarter of 2024, we closed on the sale of our 33.75% interest in the Marcellus Interest systems for proceeds of $206.2 million, resulting in a net gain on sale of $63.9 million that was recorded as Gain (loss) on divestiture and other, net in the consolidated statement of operations.
Mont Belvieu JV, Whitethorn LLC, Panola, and Saddlehorn. During the first quarter of 2024, we closed on the sale of the following equity investments to third parties: (i) the 25.00% interest in Mont Belvieu JV, (ii) the 20.00% interest in Whitethorn LLC, (iii) the 15.00% interest in Panola, and (iv) the 20.00% interest in Saddlehorn. The combined proceeds received in the first quarter of 2024 of $588.6 million includes $5.9 million in pro-rata distributions through closing, resulting in a net gain on sale of $239.7 million that was recorded as Gain (loss) on divestiture and other, net in the consolidated statement of operations. The sale of the interests in Mont Belvieu JV and Whitethorn LLC also resolved outstanding legal proceedings associated with those assets.
Meritage. In October 2023, we closed on the acquisition of Meritage for $885.0 million (subject to certain customary post-closing adjustments) funded with cash, including proceeds from our $600.0 million senior note issuance in September 2023and borrowings on the RCF.
See Note 3—Acquisitions and Divestitures and Note 10—Debt and Interest Expense under Part I, Item 1 of this Form 10-Q.
(1)Total revenues and other includes amounts earned from services provided to related parties and from the sale of natural gas, condensate, and NGLs to related parties. Total operating expenses includes amounts charged by related parties for services received. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(2)For reconciliations to comparable consolidated results of WES Operating, see Items Affecting the Comparability of Financial Results with WES Operating within this Item 2.
For purposes of the following discussion, any increases or decreases “for the three months ended September 30, 2024” refer to the comparison of the three months ended September 30, 2024, to the three months ended June 30, 2024; and any increases or decreases “for the nine months ended September 30, 2024” refer to the comparison of the nine months ended September 30, 2024, to the nine months ended September 30, 2023.
(1)Represents our share of average throughput for investments accounted for under the equity method of accounting.
(2)Includes (i) the 2.0% limited partner interest in WES Operating owned by an Occidental subsidiary and (ii) for natural-gas assets, the 25% third-party interest in Chipeta, which collectively represent WES’s noncontrolling interests.
Natural-gas assets
Total throughput attributable to WES for natural-gas assets increased by 28 MMcf/d for the three months ended September 30, 2024, primarily due to higher volumes at the Powder River Basin, West Texas, and Chipeta complexes due to increased production in the areas. These increases were offset partially by (i) lower volumes at the DJ Basin complex due to decreased production in the area and scheduled plant maintenance during the third quarter of 2024, (ii) lower volumes at the MIGC system due to certain temporary customer constraints, (iii) lower volumes at the Marcellus Interest systems due to the sale of the asset during the second quarter of 2024, and (iv) lower volumes at the Springfield gas-gathering system and Mi Vida plant.
Total throughput attributable to WES for natural-gas assets increased by 715 MMcf/d for the nine months ended September 30, 2024, primarily due to (i) higher volumes at the Powder River Basin complex due to the Meritage acquisition, (ii) higher volumes at the West Texas and DJ Basin complexes due to increased production in the areas, (iii) higher volumes at the Red Bluff Express pipeline due to the addition of a new receipt point into the pipeline, (iv) higher volumes at the Springfield gas-gathering system due to new third-party production, and (v) higher volumes at the Brasada plant. These increases were offset partially by (i) lower volumes at the Granger complex due to a contract expiration in the fourth quarter of 2023 and (ii) lower volumes at the Marcellus Interest systems due to the sale of the asset during the second quarter of 2024.
Total throughput attributable to WES for crude-oil and NGLs assets decreased by 9 MBbls/d for the three months ended September 30, 2024, primarily due to (i) lower volumes at the DJ Basin oil system due to production declines in the surrounding areas, (ii) the divestiture of Wamsutter in the third quarter of 2024, and (iii) decreased volumes on the White Cliffs pipeline. These decreases were offset partially by higher volumes at the DBM oil system due to increased production in the area.
Total throughput attributable to WES for crude-oil and NGLs assets decreased by 106 MBbls/d for the nine months ended September 30, 2024, primarily due to the divestiture of Whitethorn LLC, Mont Belvieu JV, and Saddlehorn in the first quarter of 2024. These decreases were offset partially by (i) higher volumes at the DBM and DJ Basin oil systems due to increased production in the area and (ii) higher volumes at the Thunder Creek NGL pipeline, which was acquired as part of the Meritage acquisition.
Produced-water assets
Total throughput attributable to WES for produced-water assets increased by 19 MBbls/d and 108 MBbls/d for the three and nine months ended September 30, 2024, respectively, due to higher production.
Service Revenues
Three Months Ended
Nine Months Ended
thousands except percentages
September 30, 2024
June 30, 2024
Inc/ (Dec)
September 30, 2024
September 30, 2023
Inc/ (Dec)
Service revenues – fee based
$
814,319
$
793,785
3
%
$
2,389,366
$
2,004,920
19
%
Service revenues – product based
49,115
61,466
(20)
%
177,321
142,212
25
%
Total service revenues
$
863,434
$
855,251
1
%
$
2,566,687
$
2,147,132
20
%
Service revenues – fee based
Service revenues – fee based increased by $20.5 million for the three months ended September 30, 2024, primarily due to (i) $8.4 million at the West Texas complex as a result of increased throughput, partially offset by decreased electricity-related rates billed to customers and deficiency fees, (ii) $5.8 million at the DJ Basin complex as a result of increased electricity-related rates billed to customers, (iii) $3.7 million and $2.3 million at the Powder River Basin complex and DBM oil system, respectively, primarily due to increased throughput, and (iv) $3.1 million at the Chipeta complex primarily due to new and amended contracts effective July 2024. These increases were offset partially by a decrease of $2.0 million at the Springfield system primarily due to decreased throughput.
Service revenues – fee based increased by $384.4 million for the nine months ended September 30, 2024, primarily due to increases of (i) $135.3 million at the West Texas complex, the majority of which is due to increased throughput, and also due to a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased deficiency fees on certain contracts with increasing throughput minimums, (ii) $132.9 million at the Powder River Basin complex attributable to the acquisition of Meritage, (iii) $64.7 million at the DJ Basin complex primarily due to increased throughput, (iv) $64.3 million and $25.2 million at the DBM water and DBM oil systems, respectively, as a result of increased throughput and a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and (v) $4.8 million at the Chipeta complex primarily due to new and amended contracts effective July 2024. These increases were offset partially by decreases of (i) $13.0 million at the Marcellus Interest systems due to the sale of the asset during the second quarter of 2024, (ii) $11.6 million at the Brasada complex due to a change in contract terms effective July 1, 2023, partially offset by increased throughput, (iii) $8.8 million at the Granger complex due to a contract expiration in the fourth quarter of 2023, and (iv) $6.0 million and $3.0 million at the Springfield and DJ Basin oil systems, respectively, primarily due to decreased revenues associated with demand volumes, partially offset by increased throughput and higher average fees resulting from cost-of-service rate redeterminations effective January 1, 2024.
Service revenues – product based decreased by $12.4 million for the three months ended September 30, 2024, primarily due to decreases of (i) $9.1 million at the West Texas complex due to decreased product recoveries and average prices and (ii) $1.5 million at the DJ Basin complex due to decreased volumes sold.
Service revenues – product based increased by $35.1 million for the nine months ended September 30, 2024, primarily due to increases of (i) $24.5 million and $5.2 million at the West Texas and DJ Basin complexes, respectively, due to increased volumes sold, (ii) $3.6 million at the Powder River Basin complex attributable to the acquisition of Meritage, and (iii) $3.1 million at the DBM water systems due to increased skim-oil volumes sold.
Product Sales
Three Months Ended
Nine Months Ended
thousands except percentages and per-unit amounts
September 30, 2024
June 30, 2024
Inc/ (Dec)
September 30, 2024
September 30, 2023
Inc/ (Dec)
Natural-gas sales
$
(4,502)
$
8,931
(150)
%
$
7,623
$
26,466
(71)
%
NGLs sales
24,175
41,180
(41)
%
101,453
73,870
37
%
Total Product sales
$
19,673
$
50,111
(61)
%
$
109,076
$
100,336
9
%
Per-unit gross average sales price:
Natural gas (per Mcf)
$
(0.63)
$
(0.26)
(142)
%
$
0.36
$
1.67
(78)
%
NGLs (per Bbl)
26.76
28.06
(5)
%
28.55
26.65
7
%
Natural-gas sales
Natural-gas sales decreased by $13.4 million for the three months ended September 30, 2024, primarily due to a decrease of $12.3 million at the West Texas complex as a result of decreased average prices and volumes sold.
Natural-gas sales decreased by $18.8 million for the nine months ended September 30, 2024, primarily due to a decrease of $25.3 million at the West Texas complex as a result of decreased average prices, partially offset by increased volumes sold. This decrease was offset partially by increases of (i) $5.2 million at the Powder River Basin complex attributable to the acquisition of Meritage and (ii) $4.4 million at the DJ Basin complex as a result of changes in contract mix during the second quarter of 2023.
NGLs sales
NGLs sales decreased by $17.0 million for the three months ended September 30, 2024, primarily due to decreases of (i) $7.6 million at the West Texas complex due to decreased average prices, (ii) $3.2 million at the Powder River Basin complex primarily due to decreased volumes sold and average prices, (iii) $1.8 million at the Chipeta complex due to a contract change effective during the third quarter of 2024, and (iv) $1.7 million at the DJ Basin complex due to lower volumes sold, partially offset by higher average prices.
NGLs sales increased by $27.6 million for the nine months ended September 30, 2024, primarily due to increases of (i) $18.8 million at the Powder River Basin complex attributable to the acquisition of Meritage, (ii) $9.2 million at the DJ Basin complex due to increased volumes sold, partially offset by decreased average prices, and (iii) $2.1 million at the DBM water systems due to increased skim-oil volumes sold. These increases were offset partially by a decrease of $2.5 million at the Chipeta complex due to a contract change effective during the third quarter of 2024.
Equity income, net – related parties decreased by $3.5 million for the three months ended September 30, 2024, primarily due to a decrease of $3.0 million at TEP.
Equity income, net – related parties decreased by $32.6 million for the nine months ended September 30, 2024, primarily due to decreases of (i) $27.2 million resulting from the sale of several equity investments to third parties in the first quarter of 2024 and (ii) $8.7 million at TEP. These decreases were offset partially by an increase of $3.1 million at Red Bluff. See Note 3—Acquisitions and Divestitures.
Cost of Product and Operation and Maintenance Expenses
Three Months Ended
Nine Months Ended
thousands except percentages
September 30, 2024
June 30, 2024
Inc/ (Dec)
September 30, 2024
September 30, 2023
Inc/ (Dec)
Residue purchases
$
(3,719)
$
85
NM
$
5,594
$
24,584
(77)
%
NGLs purchases
56,604
67,574
(16)
%
194,603
151,165
29
%
Other
(20,038)
(13,649)
(47)
%
(67,261)
(51,954)
(29)
%
Cost of product
32,847
54,010
(39)
%
132,936
123,795
7
%
Operation and maintenance
231,066
223,319
3
%
649,324
562,104
16
%
Total Cost of product and Operation and maintenance expenses
$
263,913
$
277,329
(5)
%
$
782,260
$
685,899
14
%
Residue purchases
Residue purchases decreased by $3.8 million for the three months ended September 30, 2024, primarily due to lower average prices at the West Texas complex.
Residue purchases decreased by $19.0 million for the nine months ended September 30, 2024, primarily due to decreases of (i) $13.2 million at the West Texas complex due to lower average prices and (ii) $5.3 million at the Granger complex attributable to decreased volumes purchased.
NGLs purchases
NGLs purchases decreased by $11.0 million for the three months ended September 30, 2024, primarily due to decreases of (i) $4.6 million at the DJ Basin complex attributable to decreased volumes purchased, (ii) $2.3 million and $1.5 million at the Chipeta and Powder River Basin complexes, respectively, due to contract changes effective in 2024, and (iii) $1.9 million at the West Texas complex due to decreased product recoveries.
NGLs purchases increased by $43.4 million for the nine months ended September 30, 2024, primarily due to increases of (i) $38.5 million at the West Texas complex primarily attributable to increased volumes purchased and (ii) $2.5 million at the DBM water systems due to increased skim-oil volumes. These increases were offset partially by a decrease of $2.7 million at the Chipeta complex due to a contract change effective during the third quarter of 2024.
Other items
Other items decreased by $6.4 million for the three months ended September 30, 2024, primarily due to changes in imbalance positions at the West Texas complex.
Other items decreased by $15.3 million for the nine months ended September 30, 2024, primarily due to decreases of $31.3 million and $2.2 million at the West Texas and Chipeta complexes, respectively, due to changes in imbalance positions. These decreases were offset partially by increases of (i) $11.4 million at the Powder River Basin complex attributable to the acquisition of Meritage and (ii) $10.7 million at the DJ Basin complex attributable to changes in imbalance positions.
Operation and maintenance expense increased by $7.7 million for the three months ended September 30, 2024, primarily due to increases of (i) $4.0 million in mechanical-integrity costs and (ii) $3.2 million in salaries and wages costs.
Operation and maintenance expense increased by $87.2 million for the nine months ended September 30, 2024, primarily due to increases of (i) $27.4 million in salaries and wages costs, (ii) $17.4 million in equipment, materials, maintenance, and repair costs, (iii) $14.3 million in chemical and treating services, (iv) $8.8 million in equipment rental costs, (v) $8.8 million in land-related costs, and (vi) $6.2 million in water-disposal costs.
Other Operating Expenses
Three Months Ended
Nine Months Ended
thousands except percentages
September 30, 2024
June 30, 2024
Inc/ (Dec)
September 30, 2024
September 30, 2023
Inc/ (Dec)
General and administrative
$
64,726
$
62,933
3
%
$
195,498
$
159,572
23
%
Property and other taxes
12,635
17,429
(28)
%
43,984
39,961
10
%
Depreciation and amortization
166,015
163,432
2
%
487,438
435,481
12
%
Long-lived asset and other impairments
4,651
1,530
NM
6,204
52,880
(88)
%
Total other operating expenses
$
248,027
$
245,324
1
%
$
733,124
$
687,894
7
%
General and administrative expenses
General and administrative expenses increased by $35.9 million for the nine months ended September 30, 2024, primarily due to increases of (i) $19.5 million in personnel costs, (ii) $9.5 million in information technology costs, and (iii) $6.4 million in other corporate-related expenses.
Property and other taxes
Property and other taxes decreased by $4.8 million for the three months ended September 30, 2024, primarily due to a lower ad valorem property tax accrual recorded during the third quarter of 2024 related to lower property tax values at the DJ Basin complex.
Property and other taxes increased by $4.0 million for the nine months ended September 30, 2024, primarily due to increases of (i) $2.2 million at the Powder River Basin complex due to the acquisition of Meritage and (ii) $1.3 million due to higher property tax values from expansion in West Texas.
Depreciation and amortization expense
Depreciation and amortization expense increased by $52.0 million for the nine months ended September 30, 2024, primarily due to increases of (i) $48.5 million at the Powder River Basin complex attributable to the acquisition of Meritage and (ii) $15.4 million and $5.5 million at the West Texas complex and DBM water systems, respectively, primarily related to capital projects being placed into service. These increases were offset partially by decreases of (i) $11.4 million at the DJ Basin complex primarily due to acceleration of depreciation expense during 2023 and updated salvage values and (ii) $4.5 million due to the sale of the Marcellus Interest systems in the second quarter of 2024.
Long-lived asset and other impairment expense
Long-lived asset and other impairment expense for the nine months ended September 30, 2024, was primarily due to a $4.2 million impairment of certain corporate office leases that are no longer being utilized.
Long-lived asset and other impairment expense for the nine months ended September 30, 2023, was primarily due to a $52.1 million impairment for assets located in the Rockies.
For further information on Long-lived asset and other impairment expense, see Note 8—Property, Plant, and Equipment in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Commitment fees and amortization of debt-related costs
(3,244)
(3,485)
(7)
%
(9,929)
(9,199)
8
%
Capitalized interest
3,282
2,468
33
%
11,077
8,625
28
%
Interest expense
$
(94,149)
$
(90,522)
4
%
$
(279,177)
$
(250,606)
11
%
Interest expense increased by $3.6 million for the three months ended September 30, 2024, primarily due to interest incurred on the 5.450% Senior Notes due 2034 that were issued during the third quarter of 2024.
Interest expense increased by $28.6 million for the nine months ended September 30, 2024, primarily due increases of (i) $29.3 million of interest incurred on the 6.350% Senior Notes due 2029 that were issued during the third quarter of 2023, (ii) $12.1 million of interest incurred on the 6.150% Senior Notes due 2033 that were issued during the second quarter of 2023, (iii) $5.7 million due to borrowings in 2024 on the commercial paper program that was established during the fourth quarter of 2023, and (iv) $5.0 million of interest incurred on the 5.450% Senior Notes due 2034 that were issued during the third quarter of 2024. These increases were offset partially by decreases of (i) $12.9 million due to credit-rating related interest-rate changes and lower outstanding balances on certain senior notes due to debt repurchases, (ii) $9.0 million due to no outstanding borrowings under the RCF during 2024, and (iii) $2.5 million due to higher capitalized interest. See Liquidity and Capital Resources—Debt and credit facilities within this Item 2.
Other Income (Expense), Net
Three Months Ended
Nine Months Ended
thousands except percentages
September 30, 2024
June 30, 2024
Inc/ (Dec)
September 30, 2024
September 30, 2023
Inc/ (Dec)
Other income (expense), net
$
9,565
$
4,213
127%
$
16,124
$
2,817
NM
Other income (expense), net increased by $5.4 million and $13.3 million for the three and nine months ended September 30, 2024, respectively, primarily due to interest income earned resulting from higher cash and cash equivalent balances throughout 2024.
Income Tax Expense (Benefit)
Three Months Ended
Nine Months Ended
thousands except percentages
September 30, 2024
June 30, 2024
Inc/ (Dec)
September 30, 2024
September 30, 2023
Inc/ (Dec)
Income (loss) before income taxes
$
311,282
$
388,319
(20)
%
$
1,287,339
$
755,235
70
%
Income tax expense (benefit)
15,390
755
NM
17,667
2,980
NM
Effective tax rate
5
%
—
%
1
%
—
%
We are not a taxable entity for U.S. federal income tax purposes; therefore, our federal statutory rate is zero percent. However, income apportionable to Texas is subject to Texas margin tax. For the three and nine months ended September 30, 2024, the variance from the federal statutory rate was primarily impacted by a state margin tax rate increase associated with no longer being included in Occidental’s affiliated group tax return beginning in September 2024 due to Occidental’s sale of 19.5 million WES common units in August 2024 and the resulting decrease in WES ownership, inclusive of its ownership in WES Operating.
Adjusted gross margin. We define Adjusted gross margin attributable to Western Midstream Partners, LP (“Adjusted gross margin”) as total revenues and other (less reimbursements for electricity-related expenses recorded as revenue), less cost of product, plus distributions from equity investments, and excluding the noncontrolling interest owners’ proportionate share of revenues and cost of product. We believe Adjusted gross margin is an important performance measure of our operations’ profitability and performance as compared to other companies in the midstream industry. Cost of product expenses include (i) costs associated with the purchase of natural gas and NGLs pursuant to our percent-of-proceeds, percent-of-product, and keep-whole contracts, (ii) costs associated with the valuation of gas and NGLs imbalances, (iii) costs associated with our obligations under certain contracts to redeliver a volume of natural gas to shippers, which is thermally equivalent to condensate retained by us and sold to third parties, and (iv) costs associated with our offload commitments with third parties providing firm-processing capacity. The electricity-related expenses included in our Adjusted gross margin definition relate to pass-through expenses that are recorded as Operation and maintenance expense with an offset recorded as revenue for the reimbursement by certain customers.
Adjusted EBITDA. We define Adjusted EBITDA attributable to Western Midstream Partners, LP (“Adjusted EBITDA”) as net income (loss), plus (i) distributions from equity investments, (ii) non-cash equity-based compensation expense, (iii) interest expense, (iv) income tax expense, (v) depreciation and amortization, (vi) impairments, and (vii) other expense (including lower of cost or market inventory adjustments recorded in cost of product), less (i) gain (loss) on divestiture and other, net, (ii) gain (loss) on early extinguishment of debt, (iii) income from equity investments, (iv) interest income, (v) income tax benefit, (vi) other income, and (vii) the noncontrolling interest owners’ proportionate share of revenues and expenses. We believe the presentation of Adjusted EBITDA provides information useful to investors in assessing our financial condition and results of operations and that Adjusted EBITDA is a widely accepted financial indicator of a company’s ability to incur and service debt, fund capital expenditures, and make distributions. Adjusted EBITDA is a supplemental financial measure that management and external users of our consolidated financial statements, such as industry analysts, investors, commercial banks, and rating agencies, use, among other measures, to assess the following:
•our operating performance as compared to other publicly traded partnerships in the midstream industry, without regard to financing methods, capital structure, or historical cost basis;
•the ability of our assets to generate cash flow to make distributions; and
•the viability of acquisitions and capital expenditures and the returns on investment of various investment opportunities.
Free cash flow.We define “Free cash flow” as net cash provided by operating activities less total capital expenditures and contributions to equity investments, plus distributions from equity investments in excess of cumulative earnings. Management considers Free cash flow an appropriate metric for assessing capital discipline, cost efficiency, and balance-sheet strength. Although Free cash flow is the metric used to assess our ability to make distributions to unitholders, this measure should not be viewed as indicative of the actual amount of cash that is available for distributions or planned for distributions for a given period. Instead, Free cash flow represents the amount of cash that is available in aggregate for distributions, debt repayments, and other general partnership purposes.
Adjusted gross margin, Adjusted EBITDA, and Free cash flow are not defined in GAAP. The GAAP measure that is most directly comparable to Adjusted gross margin is gross margin. Net income (loss) and net cash provided by operating activities are the GAAP measures that are most directly comparable to Adjusted EBITDA. The GAAP measure that is most directly comparable to Free cash flow is net cash provided by operating activities. Our non-GAAP financial measures of Adjusted gross margin, Adjusted EBITDA, and Free cash flow should not be considered as alternatives to the GAAP measures of gross margin, net income (loss), net cash provided by operating activities, or any other measure of financial performance presented in accordance with GAAP. Adjusted gross margin, Adjusted EBITDA, and Free cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect gross margin, net income (loss), and net cash provided by operating activities. Adjusted gross margin, Adjusted EBITDA, and Free cash flow should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Our definitions of Adjusted gross margin, Adjusted EBITDA, and Free cash flow may not be comparable to similarly titled measures of other companies in our industry, thereby diminishing their utility as comparative measures.
Management compensates for the limitations of Adjusted gross margin, Adjusted EBITDA, and Free cash flow as analytical tools by reviewing the comparable GAAP measures, understanding the differences between Adjusted gross margin, Adjusted EBITDA, and Free cash flow compared to (as applicable) gross margin, net income (loss), and net cash provided by operating activities, and incorporating this knowledge into its decision-making processes. We believe that investors benefit from having access to the same financial measures that our management considers in evaluating our operating results.
The following tables present (i) a reconciliation of the GAAP financial measure of gross margin to the non-GAAP financial measure of Adjusted gross margin, (ii) a reconciliation of the GAAP financial measures of net income (loss) and net cash provided by operating activities to the non-GAAP financial measure of Adjusted EBITDA, and (iii) a reconciliation of the GAAP financial measure of net cash provided by operating activities to the non-GAAP financial measure of Free cash flow:
Three Months Ended
Nine Months Ended
thousands
September 30, 2024
June 30, 2024
September 30, 2024
September 30, 2023
Reconciliation of Gross margin to Adjusted gross margin
Total revenues and other
$
883,362
$
905,629
$
2,676,720
$
2,248,268
Less:
Cost of product
32,847
54,010
132,936
123,795
Depreciation and amortization
166,015
163,432
487,438
435,481
Gross margin
684,500
688,187
2,056,346
1,688,992
Add:
Distributions from equity investments
29,344
32,970
110,651
147,612
Depreciation and amortization
166,015
163,432
487,438
435,481
Less:
Reimbursed electricity-related charges recorded as revenues
32,379
28,998
86,072
76,836
Adjusted gross margin attributable to noncontrolling interests (1)
(1)Includes (i) the 25% third-party interest in Chipeta and (ii) the 2.0% limited partner interest in WES Operating owned by an Occidental subsidiary, which collectively represent WES’s noncontrolling interests.
To facilitate investor and industry analysis, we also disclose per-Mcf Adjusted gross margin for natural-gas assets, per-Bbl Adjusted gross margin for crude-oil and NGLs assets, and per-Bbl Adjusted gross margin for produced-water assets.
Three Months Ended
Nine Months Ended
thousands except per-unit amounts
September 30, 2024
June 30, 2024
September 30, 2024
September 30, 2023
Gross margin
Gross margin for natural-gas assets (1)
$
511,244
$
516,253
$
1,539,081
$
1,253,437
Gross margin for crude-oil and NGLs assets (1)
97,263
96,786
287,627
265,216
Gross margin for produced-water assets (1)
83,178
82,346
250,565
189,032
Per-Mcf Gross margin for natural-gas assets (2)
1.07
1.10
1.09
1.03
Per-Bbl Gross margin for crude-oil and NGLs assets (2)
2.05
2.02
1.95
1.50
Per-Bbl Gross margin for produced-water assets (2)
0.81
0.82
0.81
0.68
Adjusted gross margin
Adjusted gross margin for natural-gas assets
$
596,459
$
601,443
$
1,795,065
$
1,488,250
Adjusted gross margin for crude-oil and NGLs assets
134,253
138,894
423,416
432,043
Adjusted gross margin for produced-water assets
96,782
95,513
289,915
224,173
Per-Mcf Adjusted gross margin for natural-gas assets (3)
1.29
1.33
1.31
1.27
Per-Bbl Adjusted gross margin for crude-oil and NGLs assets (3)
2.88
2.96
2.92
2.49
Per-Bbl Adjusted gross margin for produced-water assets (3)
(1)Excludes corporate-level depreciation and amortization.
(2)Average for period. Calculated as Gross margin for natural-gas assets, crude-oil and NGLs assets, or produced-water assets, divided by the respective total throughput (MMcf or MBbls) for natural-gas assets, crude-oil and NGLs assets, or produced-water assets.
(3)Average for period. Calculated as Adjusted gross margin for natural-gas assets, crude-oil and NGLs assets, or produced-water assets, divided by the respective total throughput (MMcf or MBbls) attributable to WES for natural-gas assets, crude-oil and NGLs assets, or produced-water assets.
(1)Includes (i) the 25% third-party interest in Chipeta and (ii) the 2.0% limited partner interest in WES Operating owned by an Occidental subsidiary, which collectively represent WES’s noncontrolling interests.
Reconciliation of Net cash provided by operating activities to Free cash flow
Net cash provided by operating activities
$
551,288
$
631,418
$
1,582,414
$
1,188,034
Less:
Capital expenditures
189,434
211,864
595,087
536,427
Contributions to equity investments – related parties
—
—
—
1,153
Add:
Distributions from equity investments in excess of cumulative earnings – related parties
3,257
5,270
27,560
31,715
Free cash flow
$
365,111
$
424,824
$
1,014,887
$
682,169
Cash flow information
Net cash provided by operating activities
$
551,288
$
631,418
$
1,582,414
$
1,188,034
Net cash provided by (used in) investing activities
(190,701)
(14,995)
191,153
(538,584)
Net cash provided by (used in) financing activities
420,031
(567,550)
(921,617)
(446,612)
Gross margin. Refer to Operating Results within this Item 2 for a discussion of the components of Gross margin as compared to the prior periods, including Service Revenues, Product Sales, Cost of Product (Residue purchases, NGLs purchases, and Other items), and Other Operating Expenses (Depreciation and amortization expense).
Gross margin decreased by $3.7 million for the three months ended September 30, 2024, primarily due to (i) a $22.3 million decrease in total revenues and other and (ii) a $2.6 million increase in depreciation and amortization. These amounts were offset partially by a $21.2 million decrease in cost of product.
Gross margin increased by $367.4 million for the nine months ended September 30, 2024, primarily due to a $428.5 million increase in total revenues and other. This increase was offset partially by (i) a $52.0 million increase in depreciation and amortization and (ii) a $9.1 million increase in cost of product.
Net income (loss). Refer to Operating Results within this Item 2 for a discussion of the primary components of Net income (loss) as compared to the prior periods.
Net income (loss) decreased by $91.7 million for the three months ended September 30, 2024, primarily due to (i) a $58.9 million decrease in gain (loss) on divestiture and other, net, (ii) a $22.3 million decrease in total revenues and other, and (iii) a $14.6 million increase in income tax expense. These amounts were offset partially by a $10.7 million decrease in total operating expenses.
Net income (loss) increased by $517.4 million for the nine months ended September 30, 2024, primarily due to (i) a $428.5 million increase in total revenues and other and (ii) a $303.1 million increase in gain (loss) on divestiture and other, net. These amounts were offset partially by (i) a $141.6 million increase in total operating expenses, (ii) a $32.6 million decrease in equity income, net – related parties, and (iii) a $28.6 million increase in interest expense.
Net cash provided by operating activities. Refer to Historical cash flow within this Item 2 for a discussion of the primary components of Net cash provided by operating activities as compared to the prior periods.
(1)Average for period. Calculated as Adjusted gross margin for natural-gas assets, crude-oil and NGLs assets, or produced-water assets, divided by the respective total throughput (MMcf or MBbls) attributable to WES for natural-gas assets, crude-oil and NGLs assets, or produced-water assets.
Adjusted gross margin. Adjusted gross margin decreased by $8.4 million for the three months ended September 30, 2024, primarily due to (i) lower average prices and decreased product recoveries, partially offset by increased throughput at the West Texas complex, and (ii) a decrease in distributions from FRP. These decreases were offset partially by increased throughput at the DBM oil system.
Adjusted gross margin increased by $363.9 million for the nine months ended September 30, 2024, primarily due to (i) increased throughput at the Powder River Basin complex attributable to the acquisition of Meritage, (ii) increased throughput and a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, at the West Texas complex, DBM water systems, and DBM oil system, and (iii) increased throughput at the DJ Basin complex. These increases were offset partially by (i) decreased distributions from TEP, (ii) the sale of our interests in the Mont Belvieu JV, Marcellus Interest systems, and Saddlehorn during 2024, and (iii) decreased processing fees at the Brasada complex resulting from a change in contract terms effective July 1, 2023, partially offset by increased throughput.
Per-Mcf Adjusted gross margin for natural-gas assets decreased by $0.04 for the three months ended September 30, 2024, primarily due to (i) decreased product recoveries and average prices, partially offset by increased throughput at the West Texas complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets, and (ii) increased throughput at the Powder River Basin complex, which has a lower-than-average per-Mcf margin as compared to our other natural-gas assets.
Per-Mcf Adjusted gross margin for natural-gas assets increased by $0.04 for the nine months ended September 30, 2024, primarily due to (i) increased throughput at the West Texas complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets, in addition to a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024, and increased deficiency fees on certain contracts with increasing throughput minimums, and (ii) increased throughput at the DJ Basin complex, which has a higher-than-average per-Mcf margin as compared to our other natural-gas assets.
Per-Bbl Adjusted gross margin for crude-oil and NGLs assets decreased by $0.08 for the three months ended September 30, 2024, primarily due to decreased distributions at FRP and TEP, partially offset by increased throughput at the DBM oil system, which has a higher-than-average per-Mcf margin as compared to our other crude-oil and NGLs assets.
Per-Bbl Adjusted gross margin for crude-oil and NGLs assets increased by $0.43 for the nine months ended September 30, 2024, primarily due to (i) the sale of our interests in the Mont Belvieu JV, Saddlehorn, and Whitethorn LLC in the first quarter of 2024, all of which had lower-than-average per-Bbl margins as compared to our other crude-oil and NGLs assets, and (ii) increased throughput at the DBM oil system, which has a higher-than-average per-Mcf margin as compared to our other crude-oil and NGLs assets, in addition to a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024. These increases were offset partially by (i) decreased distributions at TEP and (ii) decreased revenues associated with demand volumes at the DJ Basin oil system.
Per-Bbl Adjusted gross margin for produced-water assets increased by $0.13 for the nine months ended September 30, 2024, primarily due to higher throughput and a higher average fee resulting from a cost-of-service rate redetermination effective January 1, 2024.
Adjusted EBITDA. Adjusted EBITDA decreased by $11.2 million for the three months ended September 30, 2024, primarily due to (i) a $22.3 million decrease in total revenues and other, (ii) a $7.7 million increase in operation and maintenance expenses, (iii) a $3.6 million decrease in distributions from equity investments, and (iv) a $3.4 million increase in general and administrative expenses excluding non-cash equity-based compensation expense. These amounts were offset partially by (i) a $21.2 million decrease in cost of product (net of lower of cost or market inventory adjustments) and (ii) a $4.8 million decrease in property and other taxes.
Adjusted EBITDA increased by $255.4 million for the nine months ended September 30, 2024, primarily due to a $428.5 million increase in total revenues and other. This was offset partially by (i) an $87.2 million increase in operation and maintenance expenses, (ii) a $37.0 million decrease in distributions from equity investments, (iii) a $29.4 million increase in general and administrative expenses excluding non-cash equity-based compensation expense, (iv) a $9.3 million increase in cost of product (net of lower of cost or market inventory adjustments), and (v) a $4.0 million increase in property and other taxes.
Free cash flow.Free cash flow decreased by $59.7 million for the three months ended September 30, 2024, primarily due to (i) an $80.1 million decrease in net cash provided by operating activities and (ii) a $2.0 million decrease in distributions from equity investments in excess of cumulative earnings. These decreases were offset partially by a $22.4 million decrease in capital expenditures.
Free cash flow increased by $332.7 million for the nine months ended September 30, 2024, primarily due to a $394.4 million increase in net cash provided by operating activities, partially offset by (i) a $58.7 million increase in capital expenditures and (ii) a $4.2 million decrease in distributions from equity investments in excess of cumulative earnings.
See Capital Expenditures and Historical Cash Flow within this Item 2 for further information.
Our primary cash uses include equity and debt service, operating expenses, and capital expenditures. Our sources of liquidity, as of September 30, 2024, included cash and cash equivalents, cash flows generated from operations, effective borrowing capacity under the RCF, our commercial paper program, and potential issuances of additional equity or debt securities. We believe that cash flows generated from these sources will be sufficient to satisfy our short-term working-capital requirements and long-term capital-expenditure and debt-service requirements.
The amount of future distributions to unitholders will be determined by the Board on a quarterly basis. Under our partnership agreement, we distribute all of our available cash (beyond proper reserves as defined in our partnership agreement) within 55 days following each quarter’s end. Our cash flow and resulting ability to make cash distributions are dependent on our ability to generate cash flow from operations. Generally, our available cash is our cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves, and cash on hand resulting from working capital borrowings made after the end of the quarter. The general partner establishes cash reserves to provide for the proper conduct of our business, including (i) to fund future capital expenditures, (ii) to comply with applicable laws, debt instruments, or other agreements, or (iii) to provide funds for unitholder distributions for any one or more of the next four quarters. The Board declared a cash distribution to unitholders for the third quarter of 2024 of $0.875 per unit, or $340.9 million in the aggregate. The cash distribution is payable on November 14, 2024, to our unitholders of record at the close of business on November 1, 2024.
To facilitate the distribution of available cash, during 2022 we adopted a financial policy that provided for an additional distribution (“Enhanced Distribution”) to be paid in conjunction with the regular first-quarter distribution of the following year (beginning in 2023), in a target amount equal to Free cash flow generated in the prior year after subtracting Free cash flow used for the prior year’s debt repayments, regular-quarter distributions, and unit repurchases. This Enhanced Distribution is subject to Board discretion, the establishment of cash reserves for the proper conduct of our business, and is also contingent on the attainment of prior year-end net leverage thresholds (the ratio of our total principal debt outstanding less total cash on hand as of the end of such period, as compared to our trailing-twelve-months Adjusted EBITDA) after taking the Enhanced Distribution for such prior year into effect. Free cash flow and Adjusted EBITDA are defined under the caption Reconciliation of Non-GAAP Financial Measures within this Item 2.
In 2022, we announced a common-unit buyback program of up to $1.25 billion through December 31, 2024. The common units may be purchased from time to time in the open market at prevailing market prices or in privately negotiated transactions. The timing and amount of purchases under the program will be determined based on ongoing assessments of capital needs, our financial performance, the market price of our common units, and other factors, including organic growth and acquisition opportunities and general market conditions. The program does not obligate us to purchase any specific dollar amount or number of units and may be suspended or discontinued at any time. During the nine months ended September 30, 2024, there were no common units repurchased. As of September 30, 2024, we had an authorized amount of $627.8 million remaining under the program.
Management continuously monitors our leverage position and other financial projections to manage the capital structure according to long-term objectives. We may, from time to time, seek to retire, rearrange, or amend some or all of our outstanding debt or financing agreements through cash purchases, exchanges, open-market repurchases, privately negotiated transactions, tender offers, or otherwise. Such transactions, if any, will depend on prevailing market conditions, our liquidity position and requirements, contractual restrictions, and other factors, and the amounts involved may be material. Our ability to generate cash flows is subject to a number of factors, some of which are beyond our control. Read Risk Factors under Part II, Item 1A of this Form 10-Q.
Working capital. Working capital is an indication of liquidity and potential needs for short-term funding. Working capital requirements are driven by changes in accounts receivable and accounts payable and other factors such as credit extended to, and the timing of collections from, our customers, and the level and timing of our spending for acquisitions, maintenance, and other capital activities. As of September 30, 2024, we had a $186.5 million working capital surplus, which we define as the amount by which current assets exceed current liabilities. As of September 30, 2024, there was $2.0 billion in effective borrowing capacity under the RCF. Any outstanding commercial paper borrowings reduce the effective borrowing capacity under the RCF as WES Operating maintains availability under the RCF as support for its commercial paper program. See Note 9—Selected Components of Working Capital and Note 10—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Capital expenditures. Our business is capital intensive, requiring significant investment to maintain and improve existing facilities or to develop new midstream infrastructure. Capital expenditures include maintenance capital expenditures, which include those expenditures required to maintain existing operating capacity and service capability of our assets, and expansion capital expenditures, which include expenditures to construct new midstream infrastructure and expenditures incurred to reduce costs, increase revenues, or increase system throughput or capacity from current levels.
Capital expenditures in the consolidated statements of cash flows reflect capital expenditures on a cash basis, when payments are made. Capital incurred is presented on an accrual basis. Acquisitions and capital expenditures as presented in the consolidated statements of cash flows and capital incurred were as follows:
(1)For the nine months ended September 30, 2024 and 2023, included $11.1 million and $8.6 million, respectively, of capitalized interest.
Capital expenditures increased by $58.7 million for the nine months ended September 30, 2024, primarily due to increases of (i) $71.0 million at the West Texas complex, primarily attributable to engineering, equipment, and construction milestone payments for the North Loving Plant, (ii) $25.3 million at the Powder River Basin complex primarily attributable to the acquisition of Meritage, (iii) $8.9 million in corporate-level capital expenditures primarily related to information technology initiatives, (iv) $8.2 million at the DJ Basin complex due to the purchase of a field office in the first quarter of 2024 and an increase in well connection and pipeline projects, and (v) $7.5 million at the Chipeta complex primarily related to expansion projects. These increases were offset partially by decreases of (i) $41.8 million at the DBM oil system related to a decrease in pipeline, oil treating, and oil pumping projects and (ii) $18.5 million at the DBM water systems due to reduced construction of certain water-disposal wells, facilities, and well-connect projects.
Historical cash flow. The following table and discussion present a summary of our net cash flows provided by (used in) operating, investing, and financing activities:
Nine Months Ended September 30,
thousands
2024
2023
Net cash provided by (used in):
Operating activities
$
1,582,414
$
1,188,034
Investing activities
191,153
(538,584)
Financing activities
(921,617)
(446,612)
Net increase (decrease) in cash and cash equivalents
$
851,950
$
202,838
Operating activities. Net cash provided by operating activities increased for the nine months ended September 30, 2024, primarily due to higher cash operating income, partially offset by lower distributions from equity investments and higher interest expense. Refer to Operating Results within this Item 2 for a discussion of our results of operations as compared to the prior periods.
Investing activities. Net cash provided by investing activities for the nine months ended September 30, 2024, primarily included the following:
•$582.7 million of proceeds related to the sale of several equity investments to third parties;
•$206.2 million of proceeds related to the sale of our 33.75% interest in the Marcellus Interest systems to a third party;
•$27.6 million of distributions received from equity investments in excess of cumulative earnings;
•$595.1 million of capital expenditures, primarily related to expansion, construction, and asset-integrity projects at the West Texas complex, DBM oil system, Powder River Basin complex, DBM water systems, DJ Basin complex, and Chipeta complex; and
•$33.1 million of increases to materials and supplies inventory.
Net cash used in investing activities for the nine months ended September 30, 2023, primarily included the following:
•$536.4 million of capital expenditures, primarily related to construction, expansion, and asset-integrity projects at the West Texas complex, DBM water systems, DBM oil system, and DJ Basin complex;
•$32.7 million of increases to materials and supplies inventory; and
•$31.7 million of distributions received from equity investments in excess of cumulative earnings.
Financing activities. Net cash used in financing activities for the nine months ended September 30, 2024, primarily included the following:
•$925.9 million of distributions paid to WES unitholders and noncontrolling interest owners;
•$610.3 million of net repayments under the commercial paper program;
•$143.9 million to purchase and retire portions of certain of WES Operating’s senior notes via open-market repurchases; and
•$790.4 million of net proceeds from the 5.450% Senior Notes due 2034 issued in August 2024, which will be used to repay a portion of the maturing 3.100% Senior Notes due 2025 and 3.950% Senior Notes due 2025 and for general partnership purposes, including the funding of capital expenditures.
Net cash used in financing activities for the nine months ended September 30, 2023, primarily included the following:
•$845.0 million of repayments of outstanding borrowings under the RCF;
•$778.3 million of distributions paid to WES unitholders and noncontrolling interest owners;
•$259.8 million to purchase and retire portions of certain of WES Operating’s senior notes via open-market repurchases;
•$213.1 million to redeem the total principal amount outstanding on the Floating-Rate Senior Notes due 2023 at par value;
•$134.6 million of unit repurchases;
•$740.6 million of net proceeds from the 6.150% Senior Notes due 2033 issued in April 2023, which were used to repay borrowings under the RCF and for general partnership purposes;
•$595.1 million of net proceeds from the 6.350% Senior Notes due 2029 issued in September 2023, which were used to fund a portion of the aggregate purchase price for the Meritage acquisition, to pay related costs and expenses, and for general partnership purposes; and
•$470.0 million of borrowings under the RCF, which were used for general partnership purposes.
Debt and credit facilities. As of September 30, 2024, the carrying value of outstanding debt was $7.9 billion, and we have $2.0 billion in effective borrowing capacity under WES Operating’s $2.0 billion RCF. Any outstanding commercial paper borrowings reduce the effective borrowing capacity under the RCF as WES Operating maintains availability under the RCF as support for its commercial paper program.
During the nine months ended September 30, 2024, WES Operating (i) completed the public offering of $800.0 million in aggregate principal amount of 5.450% Senior Notes due 2034, (ii) purchased and retired $150.0 million of certain of its senior notes via open-market repurchases with cash from operations, and (iii) entered into an amendment to the RCF to exercise an option to extend the maturity date of the RCF from April 2028 to April 2029, for each extending lender. As of September 30, 2024, the 3.100% Senior Notes due 2025 and 3.950% Senior Notes due 2025 were classified as short-term debt on the consolidated balance sheet.
For additional information on our senior notes, RCF, and commercial paper program, see Note 10—Debt and Interest Expense in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Credit risk. We bear credit risk through exposure to non-payment or non-performance by our counterparties, including Occidental, financial institutions, customers, and other parties. Generally, non-payment or non-performance results from a customer’s inability to satisfy payables to us for services rendered, minimum-volume-commitment deficiency payments owed, or volumes owed pursuant to gas- or NGLs-imbalance agreements. We examine and monitor the creditworthiness of customers and may establish credit limits for customers. We are subject to the risk of non-payment or late payment by producers for gathering, processing, transportation, and disposal fees. Additionally, we continue to evaluate counterparty credit risk and, in certain circumstances, are exercising our contractual rights to request adequate assurance of performance.
We expect our exposure to the concentrated risk of non-payment or non-performance to continue for as long as our commercial relationships with Occidental generate a significant portion of our revenues. While Occidental is our contracting counterparty, gathering and processing arrangements with affiliates of Occidental on most of our systems include not just Occidental-produced volumes, but also, in some instances, the volumes of other working-interest owners of Occidental who rely on our facilities and infrastructure to bring their volumes to market. See Note 6—Related-Party Transactions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Our ability to make cash distributions to our unitholders may be adversely impacted if Occidental becomes unable to perform under the terms of gathering, processing, transportation, and disposal agreements.
ITEMS AFFECTING THE COMPARABILITY OF FINANCIAL RESULTS WITH WES OPERATING
Our consolidated financial statements include the consolidated financial results of WES Operating. Our results of operations do not differ materially from the results of operations and cash flows of WES Operating, which are reconciled below.
Reconciliation of net income (loss). The differences between net income (loss) attributable to WES and WES Operating are reconciled as follows:
Three Months Ended
Nine Months Ended
thousands
September 30, 2024
June 30, 2024
September 30, 2024
September 30, 2023
Net income (loss) attributable to WES
$
288,480
$
378,648
$
1,239,958
$
733,862
Limited partner interest in WES Operating not held by WES (1)
(1)Represents the portion of net income (loss) allocated to the limited partner interest in WES Operating not held by WES. A subsidiary of Occidental held a 2.0% limited partner interest in WES Operating for all periods presented.
(2)Represents general and administrative expenses incurred by WES separate from, and in addition to, those incurred by WES Operating.
Reconciliation of net cash provided by (used in) operating and financing activities. The differences between net cash provided by (used in) operating and financing activities for WES and WES Operating are reconciled as follows:
Nine Months Ended September 30,
thousands
2024
2023
WES net cash provided by operating activities
$
1,582,414
$
1,188,034
General and administrative expenses (1)
2,001
1,927
Non-cash equity-based compensation expense
(435)
(434)
Changes in working capital
(26,530)
(15,223)
Other income (expense), net
(194)
(214)
WES Operating net cash provided by operating activities
$
1,557,256
$
1,174,090
WES net cash provided by (used in) financing activities
$
(921,617)
$
(446,612)
Distributions to WES unitholders (2)
905,155
754,998
Distributions to WES from WES Operating (3)
(906,294)
(894,510)
Increase (decrease) in outstanding checks
37
(3)
Unit repurchases
—
134,602
Other
23,974
14,371
WES Operating net cash provided by (used in) financing activities
(1)Represents general and administrative expenses incurred by WES separate from, and in addition to, those incurred by WES Operating.
(2)Represents distributions to WES common unitholders paid under WES’s partnership agreement. See Note 4—Partnership Distributions and Note 5—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
(3)Difference attributable to elimination in consolidation of WES Operating’s distributions on partnership interests owned by WES. See Note 4—Partnership Distributions and Note 5—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Noncontrolling interest. WES Operating’s noncontrolling interest consists of the 25% third-party interest in Chipeta. See Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
WES Operating distributions. WES Operating distributes all of its available cash on a quarterly basis to WES Operating unitholders in proportion to their share of limited partner interests in WES Operating. See Note 4—Partnership Distributions in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial statements in accordance with GAAP requires management to make informed judgments and estimates that affect the amounts of assets and liabilities as of the date of the financial statements and the amounts of revenues and expenses recognized during the periods reported. There have been no significant changes to our critical accounting estimates from those disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2023.
RECENT ACCOUNTING DEVELOPMENTS
See Note 1—Description of Business and Basis of Presentation in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Commodity-price risk. There have been no significant changes to our commodity-price risk discussion from the disclosure set forth under Part II, Item 7A in our Form 10-K for the year ended December 31, 2023, except as noted below and in Outlook under Part I, Item 2 of this Form 10-Q.
For the nine months ended September 30, 2024, 95% of our wellhead natural-gas volume (excluding equity investments) and 100% of our crude-oil and produced-water throughput (excluding equity investments) were serviced under fee-based contracts. A 10% increase or decrease in commodity prices would not have a material impact on our operating income (loss), financial condition, or cash flows for the next 12 months, excluding the effect of imbalances.
Interest-rate risk. The Federal Open Market Committee increased its target range four times for the federal funds rate in 2023 and decreased its target range once during the nine months ended September 30, 2024. Any future increases in the federal funds rate likely will result in an increase in financing costs. As of September 30, 2024, WES Operating had (i) no outstanding borrowings under the RCF that bear interest at a rate based on the Secured Overnight Financing Rate (“SOFR”) or an alternative base rate at WES Operating’s option and (ii) no outstanding commercial paper borrowings. While a 10% change in the applicable benchmark interest rate would not materially impact interest expense on our outstanding borrowings at September 30, 2024, it would impact the fair value of the senior notes.
Additional short-term or variable-rate debt may be issued in the future, either under the RCF or other financing sources, including commercial paper borrowings or debt issuances.
Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief Financial Officer of WES’s general partner and WES Operating GP (for purposes of this Item 4, “Management”) performed an evaluation of WES’s and WES Operating’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. WES’s and WES Operating’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed in the reports that are filed or submitted under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, Management concluded that WES’s and WES Operating’s disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control Over Financial Reporting. There were no changes in WES’s or WES Operating’s internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, WES’s or WES Operating’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any legal, regulatory, or administrative proceedings other than proceedings arising in the ordinary course of business. Management believes that there are no such proceedings for which a final disposition could have a material adverse effect on results of operations, cash flows, or financial condition, or for which disclosure is otherwise required by Item 103 of Regulation S-K.
Item 1A. Risk Factors
Security holders and potential investors in our securities should carefully consider the risk factors set forth under Part I, Item 1A in our Form 10-K for the year ended December 31, 2023, together with all of the other information included in this document, and in our other public filings, press releases, and public discussions with management.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth information with respect to repurchases made by WES of its common units in the open market or in privately negotiated transactions under the $1.25 billion Purchase Program during the third quarter of 2024:
Period
Total number of units purchased
Average price paid per unit
Total number of units purchased as part of publicly announced plans or programs (1)
Approximate dollar value of units that may yet be purchased under the plans or programs(1)
(1)In 2022, the Board authorized WES to buy back up to $1.25 billion of our common units through December 31, 2024. See Note 5—Equity and Partners’ Capital in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for additional details.
Rule 10b5-1 under the Exchange Act provides an affirmative defense that enables prearranged transactions in securities in a manner that avoids concerns about initiating transactions at a future date while possibly in possession of material nonpublic information. Our Insider Trading Policy permits our directors and executive officers to enter into trading plans designed to comply with Rule 10b5-1. During the three months ended September 30, 2024, none of our executive officers or directors adopted or terminated a Rule 10b5-1 trading arrangement (as defined in Item 408(a)(1)(i) of Regulation S-K) or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K).
Item 6. Exhibits
Exhibits designated by an asterisk (*) are filed herewith and those designated with asterisks (**) are furnished herewith; all exhibits not so designated are incorporated herein by reference to a prior filing as indicated.
XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
*
101.
SCH
Inline XBRL Schema Document
*
101.
CAL
Inline XBRL Calculation Linkbase Document
*
101.
DEF
Inline XBRL Definition Linkbase Document
*
101.
LAB
Inline XBRL Label Linkbase Document
*
101.
PRE
Inline XBRL Presentation Linkbase Document
*
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
Pursuant to Item 601(b)(2) of Regulation S-K, the registrant agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
WESTERN MIDSTREAM PARTNERS, LP
November 6, 2024
/s/ Oscar K. Brown
Oscar K. Brown
President and Chief Executive Officer
Western Midstream Holdings, LLC
(as general partner of Western Midstream Partners, LP)
November 6, 2024
/s/ Kristen S. Shults
Kristen S. Shults
Senior Vice President and Chief Financial Officer
Western Midstream Holdings, LLC
(as general partner of Western Midstream Partners, LP)
WESTERN MIDSTREAM OPERATING, LP
November 6, 2024
/s/ Oscar K. Brown
Oscar K. Brown
President and Chief Executive Officer
Western Midstream Operating GP, LLC
(as general partner of Western Midstream Operating, LP)
November 6, 2024
/s/ Kristen S. Shults
Kristen S. Shults
Senior Vice President and Chief Financial Officer
Western Midstream Operating GP, LLC
(as general partner of Western Midstream Operating, LP)