Western Midstream Partners, LP (WES) is a leading midstream energy company that has undergone a remarkable transformation over the past decade, cementing its position as a true powerhouse in the industry. With a diversified asset portfolio spanning Texas, New Mexico, and the Rocky Mountains, WES has consistently demonstrated its ability to deliver robust financial performance and shareholder value.
Business Overview and History Western Midstream Partners, LP was formed in September 2012 as a Delaware master limited partnership. The company acquired assets and operations from Anadarko Petroleum Corporation, including natural gas gathering, compression, treating, and processing systems, as well as crude oil, natural gas liquids (NGLs), and produced water gathering and disposal systems. Since its inception, WES has grown to become a premier provider of midstream services, including gathering, compression, treating, processing, and transporting natural gas, as well as gathering, stabilizing, and transporting condensate, NGLs, and crude oil. The Partnership also gathers and disposes of produced water.
In 2018, Western Midstream underwent a significant transformation when Anadarko Petroleum was acquired by Occidental Petroleum Corporation. This transaction led to Western Midstream standing up as an independent business, with Occidental becoming the owner of the general partner. Over the next several years, Western Midstream continued to grow its asset base, particularly in the Delaware Basin, through organic expansion projects and strategic acquisitions.
Throughout its history, Western Midstream has faced various operational and financial challenges. In 2020, the company was impacted by the COVID-19 pandemic and associated decline in energy demand, which led to a $625 million impairment charge. Western Midstream also navigated legal disputes related to certain equity investments, ultimately resolving those issues through divestitures in 2024. Despite these challenges, the partnership maintained its focus on providing reliable midstream services to its producer customers and optimizing its asset base.
A key milestone for Western Midstream was the transition of leadership in 2024, as long-time CEO Michael Ure stepped down and was succeeded by Oscar Brown, who had served on the board since 2019. This leadership change was described as a smooth and mutually agreed upon transition, allowing the partnership to continue executing on its strategic priorities. Under Brown's guidance, Western Midstream has remained committed to disciplined capital allocation, targeting high-return organic growth projects and evaluating accretive M&A opportunities.
Financial Performance and Liquidity Western Midstream Partners, LP has consistently demonstrated its financial strength and resilience. For the fiscal year 2023, WES reported revenue of $3.11 billion, net income of $1.02 billion, operating cash flow of $1.66 billion, and free cash flow of $926.25 million. As of the latest quarterly report for the third quarter of 2024, the Partnership reported revenue of $883.36 million, representing a 14% increase compared to the prior year quarter. Net income attributable to limited partners was $281.8 million, a 1% increase year-over-year. The Partnership's cash flows from operating activities totaled $551.3 million, resulting in Free Cash Flow of $365.1 million for the same period.
WES's balance sheet remains robust, with a net debt position of $7.59 billion as of the end of 2023. The Partnership's leverage ratio, measured by the ratio of total debt to trailing-twelve-month Adjusted EBITDA, stood at a comfortable 3.0x, well within its targeted range. The debt-to-equity ratio was 2.35 as of the latest quarter. This strong financial position allows WES to fund its organic growth initiatives and pursue strategic acquisitions while maintaining its investment-grade credit ratings.
In terms of liquidity, WES has $2 billion in effective borrowing capacity under its revolving credit facility, with no outstanding borrowings as of September 30, 2024. The company also has a commercial paper program with up to $2 billion in capacity. The current ratio and quick ratio both stand at 1.11 as of the latest quarter, indicating adequate liquidity to meet short-term obligations.
Operational Highlights and Guidance During the third quarter of 2024, WES continued to deliver strong operational performance across its product segments. In the Natural Gas Gathering, Processing, and Transportation segment, natural gas throughput volumes reached 5,170 MMcfd for the nine months ended September 30, 2024, up 16% compared to the prior year period. The Crude Oil and NGLs Gathering, Stabilization, and Transportation segment saw throughput volumes of 540 MBblsd for the same period, down 17% year-over-year. The Produced Water Gathering and Disposal segment reported throughput volumes of 1,120 MBblsd, up 11% compared to the prior year period.
For the full year 2024, WES expects its adjusted EBITDA and free cash flow to be towards the high end of its previously provided guidance ranges of $2.2 billion to $2.4 billion and $1.05 billion to $1.25 billion, respectively. The Partnership's capital expenditure guidance for 2024 remains unchanged at $700 million to $850 million. WES has already achieved its full-year 2024 base distribution guidance of at least $3.20 per unit.
Looking ahead to the fourth quarter of 2024, WES anticipates an increase in adjusted EBITDA due to higher throughput, primarily from the Delaware Basin, as well as lower operating and maintenance expenses. For 2025, WES expects its overall throughput growth rates to moderate compared to 2024, reflecting the impact of certain asset divestitures completed in the first half of 2024. Specifically, these divestitures will result in the loss of approximately 23,000 bpd of crude oil/NGLs and 38 MMcf/d of natural gas throughput. Additionally, WES expects a $20 million reduction in 2025 fee revenue associated with demand volume declines from certain assets. The Partnership continues to work closely with its producers to update forecasts and will provide more detailed 2025 guidance when it reports its fourth-quarter 2024 results in late February.
Key Financial Metrics and Recent Acquisitions Western Midstream's financial performance has been strong, with Adjusted Gross Margin reaching $2,510 million for the nine months ended September 30, 2024, up 17% year-over-year. Adjusted EBITDA was $1,750 million, also up 17% year-over-year. Free Cash Flow was $1,010 million, up 49% compared to the prior year period.
In October 2023, WES closed on the acquisition of Meritage Midstream for $885 million, which expanded the company's footprint in the Powder River Basin. During 2024, WES also divested several non-core equity investments for a combined $588.6 million, demonstrating the company's commitment to optimizing its asset portfolio.
The company has continued to focus on operational excellence, with over 98% operability during the third quarter. Management remains disciplined on capital allocation, prioritizing high-return organic growth projects and accretive M&A when available, while also evaluating opportunities to increase the base distribution over time.
Risks and Challenges While Western Midstream Partners, LP has demonstrated its resilience, the Partnership is not immune to the various risks and challenges faced by the midstream industry. These include, but are not limited to, commodity price volatility, producer activity levels, regulatory changes, and potential disruptions in the supply chain.
The Partnership's significant exposure to Occidental Petroleum Corporation, which accounted for a substantial portion of its revenues, also presents a concentration risk that the management team closely monitors and seeks to mitigate through diversification efforts.
Additionally, the Partnership's future growth and financial performance are heavily dependent on its ability to execute on organic expansion projects and identify and integrate strategic acquisitions that meet its strict return thresholds.
Conclusion Western Midstream Partners, LP has emerged as a true leader in the midstream energy sector, leveraging its diverse asset base, operational expertise, and strong financial position to drive consistent performance and shareholder value. As the Partnership navigates the evolving industry landscape, investors can take comfort in its proven track record, disciplined capital allocation, and unwavering commitment to delivering superior customer service and returns. With a solid foundation in place and a clear strategy for future growth, Western Midstream is well-positioned to continue its success in the years to come.