Western Midstream Partners, LP (WES) is a leading midstream energy company that has established itself as a key player in the evolving landscape of the oil and gas industry. With a diversified asset portfolio and a focus on operational excellence, WES has navigated the challenges of the past few years to emerge as a resilient and forward-looking enterprise.
Company Background and Early Years
Western Midstream Partners, LP (WES) was formed in September 2012 as a Delaware master limited partnership. The company was created through a spinoff from Anadarko Petroleum Corporation, which contributed its midstream assets, including gathering, processing, and transportation systems, to WES as part of the spinoff transaction. In its early years, WES focused on integrating the acquired assets from Anadarko and building out its operational capabilities as a standalone midstream company. This included investments to expand and upgrade its natural gas, crude oil, and produced water infrastructure across its core operating regions in Texas, New Mexico, and the Rocky Mountains.
One of the key challenges WES faced in its initial years was navigating the transition from being an Anadarko subsidiary to an independent publicly traded partnership. This required WES to establish its own corporate functions, commercial strategies, and governance structures separate from its former parent company. WES also had to demonstrate to investors that it could operate effectively as a standalone enterprise. In 2019, WES's ownership structure underwent a significant change when Occidental Petroleum Corporation acquired Anadarko. As a result, Occidental became the ultimate parent company of WES through its ownership of the general partner. This change in ownership led to a rebranding of the partnership from Western Gas Equity Partners to Western Midstream Partners in early 2019. The partnership also took on the Western Midstream name and brand identity.
Throughout this period, WES remained focused on operational excellence, cost control, and strategically deploying capital to grow and enhance its midstream asset base. Despite the ownership transition, WES was able to maintain strong customer relationships and continue expanding its footprint in its core operating regions.
Financial Performance
WES's financial performance has been consistently strong, with the company reporting robust results in recent years. In 2024, the partnership recorded net income attributable to limited partners of $1.54 billion, a significant increase from the $1.02 billion reported in 2023. This impressive performance was driven by a 14% year-over-year increase in total revenues and other, which reached $3.61 billion in 2024. Additionally, WES generated $2.14 billion in operating cash flow and $1.32 billion in free cash flow, positioning the company to reward its unitholders through sustainable distributions.
The partnership's most recent quarter (Q4 2024) also demonstrated solid financial performance, with revenue of $928.5 million and net income of $333.6 million. WES reported strong year-over-year growth across all three product lines, with natural gas throughput increasing 14%, crude oil/NGLs throughput increasing 19%, and produced water throughput increasing 11% compared to the prior year.
Operational Strengths
The partnership's diversified asset base, which includes gathering systems, processing plants, pipelines, and produced water disposal facilities, has been a key factor in its success. WES operates in several prolific basins, including the Delaware, DJ, and Powder River Basins, which have historically seen strong producer activity and favorable economics. This geographic diversity has enabled the company to capitalize on growth opportunities across multiple regions, mitigating the impact of fluctuations in any single basin.
Furthermore, WES has demonstrated a commitment to operational excellence, which has contributed to its financial strength. The partnership has consistently focused on improving the reliability and performance of its systems, creating sustainable cost efficiencies, and enhancing its safety culture. These efforts have not only benefited WES's customers but have also positioned the company to weather market volatility and capitalize on new opportunities.
Strategic Initiatives and Growth Projects
One of the highlights of 2024 was the announcement of the Pathfinder Pipeline project, a strategic investment in the Delaware Basin's produced water infrastructure. This $400-450 million project, anchored by a long-term agreement with Occidental, will enable WES to transport and dispose of over 800,000 barrels per day of produced water, addressing a critical challenge faced by producers in the region. The Pathfinder Pipeline aligns with WES's focus on providing comprehensive midstream solutions and demonstrates the partnership's ability to adapt to the evolving needs of its customers.
In addition to its organic growth initiatives, WES has also been active in the mergers and acquisitions space. In 2023, the partnership successfully integrated the Meritage Midstream acquisition, which expanded its footprint in the Powder River Basin and strengthened its position as a leading midstream provider in the region. These strategic moves have allowed WES to diversify its revenue streams, enhance its operational capabilities, and position the company for long-term success.
Future Outlook and Guidance
Looking ahead, WES has provided guidance for 2025 that reflects its confidence in the company's trajectory. The partnership expects to generate Adjusted EBITDA between $2.35 billion and $2.55 billion, representing a 5% increase at the midpoint compared to 2024. Additionally, WES anticipates generating free cash flow between $1.275 billion and $1.475 billion, which includes the impact of the Pathfinder Pipeline project.
For 2025, WES expects capital expenditures to range between $625 million and $775 million, with a midpoint of $700 million. This includes approximately $65 million for the Pathfinder pipeline and produced water system expansion project. The partnership is targeting a mid to low-single-digit annual percentage distribution growth rate going forward.
It's worth noting that WES exceeded its 2024 guidance, recording $2.34 billion in adjusted EBITDA, which was above the midpoint of its $2.2 billion to $2.4 billion guidance range. Free cash flow generation in 2024 totaled $1.32 billion, exceeding the high end of its guidance range of $1.05 billion to $1.25 billion. Capital expenditures of $790 million were within the guidance range of $700 million to $850 million.
Capital Allocation and Shareholder Returns
The company's capital allocation strategy has also evolved, with a focus on sustainable base distribution growth. WES plans to recommend a base distribution increase of $0.035 per unit starting with the first quarter of 2025, bringing the full-year distribution to at least $3.60 per unit. This represents a 13% increase compared to the prior year and reflects the partnership's commitment to returning capital to its unitholders in a prudent and disciplined manner, while also investing in organic growth projects and strategic acquisitions that will drive long-term value creation.
Business Overview and Asset Portfolio
WES 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. The company operates in Texas, New Mexico, Colorado, Utah, and Wyoming, with a substantial portion of its business concentrated in West Texas and the Rocky Mountains.
The partnership's core operations are organized into a single segment: Gathering, Processing, Treating, and Disposal. This segment encompasses the majority of WES's assets and activities. Key assets within this segment include:
1. The West Texas complex, which includes the Delaware Basin Midstream complex, DBJV and Haley systems, and the Ranch Westex processing plant. This is WES's largest asset, with a total processing capacity of 1.94 billion cubic feet per day (Bcfd).
2. The DJ Basin complex in Colorado, which includes multiple processing plants and gathering systems, with a total processing capacity of 1.75 Bcfd.
3. The Powder River Basin complex in northeast Wyoming, expanded through the 2023 Meritage acquisition, with a total processing capacity of 620 MMcfd.
4. The South Texas Brasada complex and Springfield system, serving the Eagle Ford Shale.
5. The Chipeta complex in Utah, in which WES owns a 75% interest, with a processing capacity of 790 MMcfd.
In 2024, WES's assets processed an average of 5.23 Bcfd of natural gas, 541 MBbls/d of crude oil and NGLs, and 1.15 MMBbls/d of produced water. Approximately 95% of the natural gas throughput and 100% of the crude oil, NGLs, and produced water throughput were serviced under fee-based contracts, providing WES with relatively stable revenue streams.
In addition to its gathering and processing assets, WES operates a Transportation segment, which includes several regulated natural gas and NGL pipelines. These transportation assets provide takeaway capacity from WES's gathering and processing assets as well as access to key market hubs and fractionation facilities. Total throughput on these transportation assets averaged 2.83 Bcfd in 2024.
Industry Trends and Competitive Positioning
The midstream sector has seen steady growth in recent years, driven by increasing oil and gas production, particularly in the Permian Basin where WES has a significant presence. Industry analysts estimate the CAGR for midstream assets and services to be in the mid-to-high single digits over the next 5 years. WES's diversified asset base across multiple prolific basins, along with its transportation infrastructure, has allowed the partnership to capitalize on production growth and maintain a competitive edge in the industry.
Liquidity and Financial Health
WES maintains a strong financial position, with a debt-to-equity ratio of 2.05x and $1.09 billion in cash on hand as of December 31, 2024. The partnership's WES Operating subsidiary has a $2 billion revolving credit facility, which was entirely undrawn at the end of 2024 and matures in April 2029. WES's current ratio and quick ratio both stand at 1.09x, indicating solid short-term liquidity.
Human Capital Resources
As of December 31, 2024, WES employed 1,510 people, all of whom reside in the United States. The partnership does not have any employees covered by collective bargaining agreements, which provides flexibility in its workforce management.
Conclusion
Despite the challenges faced by the energy industry in recent years, WES has demonstrated its resilience and ability to adapt to changing market conditions. The partnership's diversified asset base, operational excellence, and strategic investments have positioned it as a trusted partner for producers and a reliable investment option for unitholders. With a strong financial position, clear growth strategy, and commitment to shareholder returns, WES is well-positioned to continue delivering value in the evolving energy landscape.