Executive Summary / Key Takeaways

• Western Midstream Partners is a leading midstream energy MLP strategically positioned in core US basins, focused on fee-based contracts and operational efficiency across natural gas, crude oil/NGLs, and produced water services.
• The partnership has successfully transformed into a standalone entity with a significantly strengthened balance sheet, achieving a net leverage ratio below 3x ahead of schedule, providing substantial financial flexibility.
• Recent performance highlights include record throughput in key basins, the successful commissioning of the North Loving gas processing plant, and securing significant new commercial agreements, including the anchor contract for the large-scale Pathfinder produced water pipeline.
• Management is guiding for continued throughput growth in 2025, particularly in the Delaware Basin and Uinta, supported by a capital expenditure program focused on high-return organic projects like Pathfinder, which targets mid-teens returns.
• With a strong balance sheet, a focus on capital-efficient growth, and a commitment to sustainable base distribution increases (targeting mid-to-low single digits annually), WES is positioned to generate leading unitholder returns despite potential market volatility and competitive pressures.

Setting the Scene: A Midstream Powerhouse Focused on Core Basins

Western Midstream Partners, LP is a master limited partnership operating critical energy infrastructure across some of the most prolific basins in the United States, including the Delaware Basin in Texas and New Mexico, the DJ Basin in Colorado, and the Powder River and Uinta Basins in Wyoming and Utah. The partnership's business spans the midstream value chain, encompassing the gathering, compression, treating, processing, and transportation of natural gas, as well as the gathering, stabilization, and transportation of crude oil and natural gas liquids (NGLs). A particularly crucial service in arid regions like the Permian is the gathering and disposal of produced water, a significant byproduct of hydrocarbon extraction.

WES's strategic evolution over the past few years has been marked by a deliberate transformation into a more independent and financially robust entity. Since becoming a standalone partnership around early 2020, the focus has been on building out internal capabilities, optimizing the asset portfolio, and aggressively reducing debt. This period saw strategic acquisitions, such as Meritage Midstream to bolster its Powder River Basin presence, alongside targeted divestitures of non-core assets to streamline operations and strengthen the balance sheet. This disciplined approach has culminated in a significantly improved financial position, setting the stage for the next phase of growth.

In the competitive midstream landscape, WES operates alongside major players like Williams Companies (WMB), Kinder Morgan (KMI), Enterprise Products Partners (EPD), and Oneok (OKE). While precise, directly comparable market share figures across all niche services are complex to ascertain, WES holds an estimated 5-10% aggregate share, with a growth trajectory that has recently lagged some larger, more diversified peers. WES differentiates itself through a concentrated presence in high-growth basins and a focus on operational efficiency within its core areas. Its fee-based contract structure provides a degree of insulation from commodity price volatility, a strength shared with some larger competitors like WMB and KMI, contributing to more stable cash flows.

WES leverages its regional asset network to offer operational advantages, such as potentially lower operating costs per unit in water disposal compared to some rivals due to specialized infrastructure and expertise. The partnership's strategic positioning in the Permian allows for potentially greater processing efficiency in crude oil gathering. However, WES's more limited scale compared to giants like EPD and KMI can result in higher customer acquisition costs and potentially slower innovation cycles in certain areas. Concentration in specific regions also presents a vulnerability to localized operational disruptions or regulatory changes, contrasting with the broader geographic diversification of companies like WMB.

A key differentiator for WES, particularly in the Permian, is its focus on managing produced water. The partnership is developing infrastructure designed to mitigate seismicity and subsurface pressure challenges associated with disposal. The recently sanctioned Pathfinder Pipeline is a prime example, a large-scale project specifically engineered to transport significant volumes of produced water away from high-intensity disposal areas to more strategic locations. This project, anchored by a long-term agreement with a major customer, represents a technological and operational response to a critical basin-specific challenge, enhancing flow assurance for producers and creating a platform for future growth and potential water recycling initiatives. While specific quantifiable benefits in terms of efficiency gains over competitors are not detailed, the strategic intent is to provide a more sustainable and reliable long-term water management solution.

Performance Reflecting Strategic Execution and Market Dynamics

WES's recent financial performance reflects the impact of its strategic initiatives, operational execution, and the prevailing market environment. For the first quarter of 2025, the partnership reported Net income attributable to limited partners of $309.0 million, a decrease compared to both the prior quarter and the same period last year. This sequential decrease was influenced by lower total revenues and other, reduced equity income, and higher operating expenses. The year-over-year decline was primarily driven by a significant decrease in gains from divestitures recorded in Q1 2024, alongside increased operating expenses, partially offset by higher revenues.

Adjusted Gross Margin, a key profitability metric, saw a slight sequential decrease to $860.8 million in Q1 2025, primarily due to lower throughput in some areas and the absence of favorable revenue adjustments recognized in the prior quarter. However, compared to Q1 2024, Adjusted Gross Margin increased by $15.7 million, driven by higher throughput in the West Texas and Powder River Basin complexes and improved fees at the DBM oil system. Per-unit margins showed mixed trends; the Per-Mcf Adjusted Gross Margin for natural gas increased sequentially and year-over-year, benefiting from improved product recoveries and higher prices in West Texas and the impact of asset sales. The Per-Bbl Adjusted Gross Margin for crude oil and NGLs also increased compared to both prior periods, influenced by equity investment distributions and the divestiture of lower-margin assets. Conversely, the Per-Bbl Adjusted Gross Margin for produced water saw a slight sequential and year-over-year decrease, primarily due to changes in contract terms effective in 2025.

Adjusted EBITDA in Q1 2025 was $593.6 million, a modest sequential increase driven by lower operating expenses and higher equity distributions, offsetting the revenue decline. However, Adjusted EBITDA decreased year-over-year by $14.8 million, primarily due to higher operating and maintenance expenses and property taxes, and lower equity distributions, partially offset by increased revenues. Operation and maintenance expenses increased significantly year-over-year in Q1 2025, reflecting higher equipment, material, utility, labor, and maintenance costs.

Liquidity and capital resources remain a core strength. As of March 31, 2025, WES reported a working capital surplus of $179 million and had substantial effective borrowing capacity under its $2.0 billion revolving credit facility, which was recently extended to April 2030 for extending lenders. The partnership successfully retired $664 million of senior notes that matured in Q1 2025 and intends to repay the remaining $336.8 million of senior notes due within the next year using cash on hand. The trailing twelve-month net leverage ratio is comfortably below three times, providing significant financial flexibility.

Cash flow generation remains robust. Net cash provided by operating activities increased significantly in Q1 2025 compared to Q1 2024, primarily due to favorable changes in working capital. Free Cash Flow also saw a substantial year-over-year increase, benefiting from higher operating cash flow and lower capital expenditures. This strong cash generation supports the partnership's capital allocation priorities, including funding organic growth projects and returning capital to unitholders.

Outlook and Growth Trajectory

Management's outlook for 2025 signals continued growth, albeit at a more moderate pace compared to the double-digit increases seen in 2024, which benefited from the Meritage acquisition and strong organic ramp-up. The partnership is guiding for full-year 2025 Adjusted EBITDA in the range of $2.35 billion to $2.55 billion, implying approximately 5% growth at the midpoint compared to 2024. Free Cash Flow is expected to be between $1.275 billion and $1.475 billion, representing about 4% growth at the midpoint.

Throughput growth is expected to be driven by the Delaware Basin, which is forecast to see modest year-over-year increases across all three product lines and remain the primary engine of growth. The DJ Basin is expected to see flat natural gas volumes and flat to slightly down crude oil/NGLs throughput. The Powder River Basin is anticipated to experience slight increases in both natural gas and crude oil/NGLs volumes in 2025. Meaningful natural gas throughput growth from other assets, particularly in the Uinta Basin, is expected to commence in the second half of 2025, supported by new commercial agreements and tie-ins at the Chipeta plant.

Capital expenditures for 2025 are guided to be between $625 million and $775 million, with approximately half allocated to the Delaware Basin. This includes roughly $65 million for the Pathfinder pipeline project, which has a total estimated cost of $400 million to $450 million and is expected to be a significant capital focus in 2026. Pathfinder is designed to transport over 800 MBbl/d of produced water and is anchored by a long-term MVC contract with Occidental (OXY), targeting a mid-teens rate of return. Other investments include completing the North Loving gas plant (which became operational in Q1 2025, adding 250 MMcfd capacity in West Texas), and system expansions in the DJ and Powder River Basins to support new and extended customer agreements. Investments in the Powder River Basin are expected to drive mid-teens gas throughput growth in 2026.

The partnership is committed to returning capital to unitholders through its base distribution. The Q1 2025 distribution was increased to $0.91 per unit, and WES is targeting a long-term annual base distribution growth rate of mid-to-low single digits. The enhanced distribution concept has been retired to simplify the capital allocation framework, with potential for increases above the target rate tied to successful execution of larger growth projects or acquisitions.

Risks and Considerations

While WES is well-positioned, several risks could impact its performance and the investment thesis. Fluctuations in commodity prices, while partially mitigated by fee-based contracts, can still influence producer activity levels, potentially affecting throughput volumes and the pace of future growth. Operational challenges faced by producers, such as weather disruptions, takeaway constraints, or seismicity concerns related to water disposal, can also lead to near-term volume variability.

Inflationary pressures continue to pose a risk, potentially increasing operating and capital costs for steel, labor, and materials, which could compress margins if not fully offset by contractual escalators or cost containment efforts. Interest rate volatility could increase financing costs, although WES's strong balance sheet and lack of outstanding RCF or commercial paper borrowings as of Q1 2025 provide some protection.

Credit risk remains a factor, particularly given the concentration of revenue from Occidental. While WES monitors counterparty risk and has contractual protections, the inability of a major customer to perform could adversely impact cash flows. Regulatory changes, environmental obligations, and potential litigation also present ongoing risks inherent in the midstream sector.

Conclusion

Western Midstream Partners has successfully navigated a period of significant transformation, emerging as a financially strong and operationally efficient midstream MLP. Its strategic focus on core basins, underpinned by stable fee-based contracts and a commitment to capital discipline, provides a solid foundation. The partnership's ability to execute on key organic growth projects like the North Loving plant and the Pathfinder pipeline, coupled with its success in securing new commercial agreements, positions it for continued throughput and profitability growth.

With a robust balance sheet, a clear capital allocation strategy prioritizing high-return investments, and a commitment to sustainable base distribution growth, WES offers a compelling investment proposition. While exposed to industry-specific risks such as commodity price volatility and operational challenges, the partnership's contractual protections, operational expertise, and strategic investments in critical infrastructure, particularly in produced water management, enhance its competitive standing and resilience. Investors should monitor the execution of its growth projects, producer activity levels in its core basins, and the ongoing effectiveness of its cost management initiatives as key indicators of future performance and the realization of its long-term value potential.